On November 13, 2002, Team Energy filed with the Bureau of Internal Revenue

(BIR) "an Application for Effective Zero-Rate of its supply of electricity to the NPC,
which was subsequently approved."6

For the year 2003, Team Energy filed its Original and Amended Quarterly VAT
Returns on the following dates and with the following details:
THIRD DIVISION

Original Amended
G.R. No. 197663, March 14, 2018 Quarter Zero-rated Sales Input VAT
Return Return
TEAM ENERGY CORPORATION (FORMERLY: MIRANT PAGBILAO CORPORATION April 25, July 25,
AND SOUTHERN ENERGY QUEZON, INC.), Petitioner, v. COMMISSIONER OF 1st P3,170,914,604.24 P15,085,320.31
2003 2003
INTERNAL REVENUE, Respondent.
July 25, October 27,
G.R. No. 197770, March 14, 2018 2nd 3,034,739,252.93 15,898,643.56
2003 2003

REPUBLIC OF THE PHILIPPINES REP. BY THE BUREAU OF INTERNAL October

REVENUE, Petitioner, v.TEAM ENERGY CORPORATION, Respondent. 3rd - 2,983,478,607.66 21,151,308.57
27, 2003

DECISION January 24, July 26,

LEONEN, J.:
For a judicial claim for Value Added Tax (VAT) refund to prosper, the claim must not
only be filed within the mandatory 120+30-day periods. The taxpayer must also
prove the factual basis of its claim and comply with the 1997 National Internal
Revenue Code (NIRC) invoicing requirements and other appropriate revenue
regulations. Input VAT payments on local purchases of goods or services must be
substantiated with VAT invoices or official receipts, respectively.
The Petitions for Review in G.R. Nos. 197663 and 197770 seek to reverse and set
aside the April 8, 2011 Decision1 and July 7, 2011 Resolution2 of the Court of Tax
Appeals En Banc in CTA EB No. 603. The assailed Decision affirmed with
modification the October 5, 2009 Decision 3 and February 23, 2010 Resolution4 of
the Court of Tax Appeals in Division, granting Team Energy Corporation (Team
Energy) a tax refund/credit in the reduced amount of P11,161,392.67, representing
unutilized input VAT attributable to zero-rated sales for the taxable year 2003. The
assailed Resolution denied the respective motions for reconsideration filed by Team
Energy and the Commissioner of Internal Revenue (Commissioner).
Team Energy is a VAT-registered entity with Certificate of Registration No. 96-600-
002498. It is engaged in power generation and electricity sale to National Power
Corporation (NPC) under a Build, Operate, and Transfer scheme. 5
4th 3,019,672,908.84 31,330,081.06
2004 20047
Total P12,208,805,373.678 P83,465,353.509
On December 17, 2004, Team Energy filed with the Revenue District Office No. 60 in
Lucena City a claim for refund of unutilized input VAT in the amount of
P83,465,353.50, for the first to fourth quarters of taxable year 2003. 10
On April 22, 2005, Team Energy appealed before the Court of Tax Appeals its 2003
first quarter VAT claim of PI 5,085,320.31. The appeal was docketed as CTA Case No.
7229.11
Opposing the appeal, the Commissioner averred that the amount claimed by Team
Energy was not properly documented and that NPC's exemption from taxes did not
extend to its electricity supplier such as Team Energy.12
On July 22, 2005, Team Energy appealed its VAT refund claims for the second to
fourth quarters of 2003 in the amount of P68,380,033.19, docketed as CTA Case No.
7298.13
As special and affirmative defenses, the Commissioner alleged that it was
imperative upon Team Energy to prove its compliance with the registration
requirements of a VAT taxpayer; the invoicing and accounting requirements for
VAT-registered persons; and the checklist of requirements for a VAT refund under
Revenue Memorandum Order No. 53-98. Furthermore, the Commissioner
contended that Team Energy must prove that the claims were filed within the
prescriptive periods and that the input taxes being claimed had not been applied
against any output tax liability or were not carried over in the succeeding
quarters.14
On October 12, 2005, the two (2) cases were consolidated. 15
The Court of Tax Appeals First Division partially granted Team Energy's petition. 16 It
held that NPC's exemption from direct and indirect taxes had long been resolved by
this Court.17 Consequently, NPC's electricity purchases from independent power
producers, such as Team Energy, were subject to 0% VAT pursuant to Section
108(B)(3) of the 1997 NIRC.18
The Court of Tax Appeals First Division further ruled that P20,986,302.67 out of the
reported zero-rated sales of P12,208,805,373.67 must be excluded for Team
Energy's failure to submit the corresponding official receipts, leaving a balance of
P12,187,819,071.00 as substantiated zero-rated sales.19Consequently, only
99.83%20 of the validly supported input VAT payments being claimed could be
considered.
The Court of Tax Appeals First Division likewise disallowed P12,642,304.32 of Team
Energy's claimed input VAT for its failure to meet the substantiation requirements
under Sections 110(A) and 113(A) of the 1997 NIRC and Sections 4.104-1, 4.104-5,
and 4.108-1 of Revenue Regulations No. 7-95 or the Consolidated Value Added Tax
Regulations.21 Team Energy's reported output VAT liability of P776.36 in its
Quarterly VAT Return for the third quarter of 2003 was further deducted from the
substantiated input VAT.22 The Court of Tax Appeals used the following
computation in determining Team Energy's total allowable input VAT:
Substantiated Input VAT P70,823,049.18
Less: Output VAT 776.36
Excess: Input VAT 70,822,272.82
Multiply by rate of substantiated zero-rated sales 99.83%
Excess input VAT attributable to substantiated zero-rated P70,700,533.0123
sales
Finally, on the issue of prescription, the Court of Tax Appeals First Division held that
"[t]he reckoning of the two-year prescriptive period for the filing of a claim for input
VAT refund starts from the date of filing of the corresponding quarterly VAT
return."24 It explained that this Court's ruling in Commissioner of Internal Revenue v.
Mirant Pagbilao Corporation,25 to the effect that "the two-year prescriptive period
for the filing of a claim for input VAT refund starts from the close of the taxable
quarter when the relevant sales were made,"26 must be applied to cases filed after
the promulgation of Mirant. Accordingly, Team Energy's administrative claim filed
on December 17, 2004, and judicial claims filed on April 22, 2005 and July 22, 2005
were well within the two (2)-year prescriptive period.27
The dispositive portion of the October 5, 2009 Decision provided:
WHEREFORE, in view of the foregoing, the instant Petition for Review is
hereby PARTIALLY GRANTED. [The Commissioner of Internal Revenue] is
hereby ORDERED to REFUND or ISSUE a tax credit certificate to [Team Energy] in
the amount of P70,700,533.01.
SO ORDERED.28 (Emphasis in the original)
Upon the denial of her Motion for Reconsideration, the Commissioner filed on
March 31, 2010 a Petition for Review with the Court of Tax Appeals En Banc.29 She
argued that the Court of Tax Appeals First Division erred in allowing the tax
refund/credit as Team Energy's administrative and judicial claims for the first and
second quarters were filed beyond the two (2)-year period prescribed in Section
112(A) of the 1997 NIRC.30 Additionally, she averred that Team Energy's judicial
claims for the second, third, and fourth quarters of 2003 were filed beyond the 30-
day period to appeal under Section 112 of the 1997 NIRC.31 Team Energy filed its
Comment/Opposition to the Petition.32
On April 8, 2011, the Court of Tax Appeals En Banc promulgated its Decision,
partially granting Team Energy's petition. It held that Team Energy's judicial claim
for refund for the second, third, and fourth quarters of 2003 was filed only on July
22, 2005 or beyond the 30-day period prescribed under Section 112(D)33 of the
1997 NIRC. Consequently, the claim for these quarters must be denied for lack of
jurisdiction. Furthermore, the Court of Tax Appeals En Banc found Team Energy
entitled to a refund in the reduced amount of P11,161,392.67, representing
unutilized input VAT attributable to its zero-rated sales for the first quarter of 2003.
The dispositive portion of the Court of Tax Appeals En Banc April 8, 2011 Decision
read:
WHEREFORE, on the basis of the foregoing considerations, the Petition for Review
... is PARTIALLY GRANTED. The assailed Decision and Resolution of the First Division
dated October 5, 2009 and February 23, 2010, respectively, are hereby MODIFIED.
Accordingly, [the Commissioner] is ORDERED to refund in favor of [Team Energy]
the reduced amount of Eleven Million One Hundred Sixty[-]One Thousand Three
Hundred Ninety[-]Two [Pesos] and Sixty[-]Seven Centavos (P11,161,392.67)
representing unutilized input value-added tax (VAT) paid on its domestic purchases
of goods and services and importation of goods attributable to its zero-rated sales
for the first quarter of taxable year 2003.
SO ORDERED.34 (Emphasis in the original)
The separate partial motions for reconsideration of Team Energy and the
Commissioner were denied in the Court of Tax Appeals En Banc July 7, 2011
Resolution.35
Team Energy and the Commissioner filed their separate Petitions for Review before
this Court, docketed as G.R. Nos. 19766336 and 197770,37 respectively.
After the parties have filed their respective comments to the petitions and replies
to these comments, this Court directed them to submit their respective memoranda
in its July 1, 2013 Resolution.38
Team Energy filed its Consolidated Memorandum39 while the Commissioner filed a
Manifestation,40stating that she was adopting her Comment dated February 21,
201241 as her Memorandum.
The issues for this Court's resolution are as follows:
First, whether or not the Court of Tax Appeals erred in disallowing Team Energy
Corporation's claim for tax refund of its unutilized input VAT for the second to
fourth quarters of 2003 on the ground of lack of jurisdiction;
Second, whether or not the Court of Tax Appeals erred in failing to recognize the
interchangeability of VAT invoices and VAT official receipts to comply with the
substantiation requirements for refunds of excess or unutilized input tax under
Sections 110 and 113 of the 1997 National Internal Revenue Code, resulting in the
disallowance of P258,874.55; and
Finally, whether or not Team Energy Corporation's failure to submit the Registration
and Certificate of Compliance issued by the Energy Regulatory Commission (ERC)
disqualifies it from claiming a tax refund/credit.
I
The prescriptive periods regarding judicial claims for refunds or tax credits of input
VAT are explicitly set forth in Section 112(D)42 of the 1997 NIRC:
Section 112. Refunds or Tax Credits of Input Tax. —
….
(D) Period within which Refund or Tax Credit, of Input Taxes shall be Made. — In
proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days from the
date of submission of complete documents in support of the application filed in
accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure
on the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer affected may, within thirty (30) days from the
receipt of the decision denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the unacted claim with the
Court of Tax Appeals. (Emphasis supplied)
The text of the law is clear that resort to an appeal with the Court of Tax Appeals
should be made within 30 days either from receipt of the decision denying the claim
or the expiration of the 120-day period given to the Commissioner to decide the
claim.
It was in Commissioner of Internal Revenue v. Aichi Forging Company of Asia,
Inc.43 where this Court first pronounced that observance of the 120+30-day periods
in Section 112(D)44 is crucial in filing an appeal with the Court of Tax Appeals. This
was further emphasized in Commissioner of Internal Revenue v. San Roque Power
Corporation45 where this Court categorically held that compliance with the 120+30-
day periods under Section 112 of the 1997 NIRC is mandatory and jurisdictional.
Exempted from this are VAT refund cases that are prematurely filed before the
Court of Tax Appeals or before the lapse of the 120-day period between December
10, 2003, when the BIR issued Ruling No. DA-489-03, and October 6, 2010, when
this Court promulgated Aichi.46
Section 112(D)47 is consistent with Section 11 of Republic Act No. 1125, as amended
by Section 9 of Republic Act No. 9282 (2004), which provides a 30-day period of
appeal either from receipt of the adverse decision of the Commissioner or from the
lapse of the period fixed by law for action:
Section 11. Who May Appeal; Mode of Appeal; Effect of Appeal. -Any party
adversely affected by a decision, ruling or inaction of the Commissioner of Internal
Revenue, . . . may file an appeal with the CTA within thirty (30) days after the
receipt of such decision or ruling or after the expiration of the period fixed by law
for action as referred to in Section 7(a)(2)48 herein.
Appeal shall be made by filing a petition for review under a procedure analogous to
that provided for under Rule 42 of the 1997 Rules of Civil Procedure with the
CTA within thirty (30) days from the receipt of the decision or ruling or in the case
of inaction as herein provided, from the expiration of the period fixed by law to
act thereon. (Emphasis supplied)
In this case, Team Energy's judicial claim was filed beyond the 30-day period
required in Section 112(D). The administrative claim for refund was filed on
December 17, 2004.49 Thus, BIR had 120 days to act on the claim, or until April 16,
2005. Team Energy, in turn, had until May 16, 2005 to file a petition with the Court
of Tax Appeals but filed its appeal only on July 22, 2005, or 67 days late. Thus, the
Court of Tax Appeals En Banc correctly denied its claim for refund due to
prescription.
Team Energy argues, however, that the application of the Aichi doctrine to its claim
would violate the rule on non-retroactivity of judicial decisions.50 Team Energy adds
that when it filed its claims for refund with the BIR and the Court of Tax Appeals,
both the administrative and judicial claims for refund must be filed within the two
(2)-year prescriptive period.51 Moreover, Revenue Regulations No. 7-95 did not
require a specific number of days after the 60-day, now 120-day, period given to
the Commissioner to decide on the claim within which to appeal to the Court of Tax
Appeals.52 Team Energy contends that to deny its claim of P70,700,533.01 duly
proven before the Court of Tax Appeals First Division "would result to unjust
enrichment on the part of the government." 53
This Court is not persuaded.
When Team Energy filed its refund claim in 2004, the 1997 NIRC was already in
effect, which clearly provided for: (a) 120 days for the Commissioner to act on a
taxpayer's claim; and (b) 30 days for the taxpayer to appeal either from the
Commissioner's decision or from the expiration of the 120-day period, in case of the
Commissioner's inaction.
"Rules and regulations [including Revenue Regulations No. 7-95] or parts [of them]
which are contrary to or inconsistent with [the NIRC] are . . . amended or modified
accordingly."54
This Court, in construing the law, merely declares what a particular provision has
always meant. It does not create new legal obligations. This Court does not have the
power to legislate. Interpretations of law made by courts necessarily always have a
"retroactive" effect.55
In Aichi, where the issue on prematurity of a judicial claim was first raised and
passed upon, this Court applied outright its interpretation of the 1997 NIRC's
language on the mandatory character of the 120+30-day periods. Consequently, it
ordered the dismissal of Aichi's appeal due to premature filing of its claim for
refund/credit of input VAT. The administrative and judicial claims in Aichi were filed
on September 30, 2004, even prior to the filing of Team Energy's claims.
San Roque dealt with judicial claims which were either prematurely filed or had
already prescribed. That case, specifically in G.R. No. 197156, Philex Mining
Corporation v. Commissioner of Internal Revenue, involved the filing of a judicial
claim beyond the 30-day period to appeal as in this case. Then and there, this Court
rejected Philex Mining Corporation's (Philex) judicial claim because of late filing:
Unlike San Roque and Taganito, Philex's case is not one of premature filing but of
late filing. Philex did not file any petition with the CTA within the 120-day period.
Philex did not also file any petition with the CTA within 30 days after the expiration
of the 120-day period. Philex filed its judicial claim long after the expiration of the
120-day period, in fact 426 days after the lapse of the 120-day period. In any event,
whether governed by jurisprudence before, during, or after the Atlas case,
Philex's judicial claim will have to be rejected because of late filing. Whether the
two-year prescriptive period is counted from the date of payment of the output
VAT following the Atlas doctrine, or from the close of the taxable quarter when the
sales attributable to the input VAT were made following
the Mirant and Aichi doctrines, Philex's judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The
inaction of the Commissioner on Philex's claim during the 120-day period is, by
express provision of law, "deemed a denial" of Philex's claim. Philex had 30 days
from the expiration of the 120-day period to file its judicial claim with the CTA.
Philex's failure to do so rendered the "deemed a denial" decision of the
Commissioner final and inappealable. The right to appeal to the CTA from a
decision or "deemed a denial" decision of the Commissioner is merely a statutory
privilege, not a constitutional right. The exercise of such statutory privilege requires
strict compliance with the conditions attached by the statute for its exercise. Philex
failed to comply with the statutory conditions and must thus bear the
consequences.56 (Emphasis supplied, citation omitted)
Philex filed its judicial claim on October 17, 2007, before Aichi was promulgated.
The proper application of the mandatory and jurisdictional nature of the 120+30-
day periods, whether prospective or retroactive, was, in fact, at the heart of this
Court en banc's debates in San Roque.
Some justices were of the view that the mandatory and jurisdictional nature of the
120+30-day periods must be applied prospectively, or at the earliest upon the
effectivity of Revenue Regulations No. 16-2005,57 or upon the finality of Aichi.58 Still
others59 argued for retroactive application to all undecided VAT refund cases
regardless of the period when the claim for refund was made.
The majority held that the 120+30-day mandatory periods were already in the 1997
NIRC when the taxpayers filed their judicial claims. The law is clear, plain, and
unequivocal and must be applied exactly as worded. However, the majority
considered as an exception, for equitable reasons, BIR Ruling No. DA-489-03, which
expressly stated that taxpayers need not wait for the lapse of the 120-day period
before seeking judicial relief. Thus, judicial claims filed from December 10, 2003,
when BIR Ruling No. DA-489-03 was issued, to October 6, 2010, when
the Aichi doctrine was adopted, were excepted from the strict application of the
120+30-day mandatory and jurisdictional periods.
San Roque Power Corporation (San Roque) filed a motion for reconsideration and
supplemental motion for reconsideration in G.R. No. 187485, arguing for the
prospective application of the 120+30-day mandatory and jurisdictional periods.
This Court denied San Roque with finality on October 8, 2013.60
In Commissioner of Internal Revenue v. Mindanao II Geothermal
Partnership,61 Mindanao II Geothermal Partnership (Mindanao II) filed its
administrative and judicial claims on October 6, 2005 and July 21, 2006,
respectively, prior to the promulgation of Aichi and San Roque. While its
administrative claim was found to have been timely filed, this Court nevertheless
denied its refund claim because the judicial claim was filed late or only 138 days
after the lapse of the 120+30-day periods. This Court held that the 30-day period to
appeal was mandatory and jurisdictional, applying the ruling in San Roque. It further
emphasized that late filing was absolutely prohibited.
Since then, the 120+30-day periods have been applied to pending cases,62 resulting
in denial of taxpayers' claims due to late filing. This Court finds no reason to except
this case.
Further, the Commissioner's inaction on Team Energy's claim during the 120-day
period is "deemed a denial," pursuant to Section 7(a)(2) 63 of Republic Act No. 1125,
as amended by Section 7 of Republic Act No. 9282. Team Energy had 30 days from
the expiration of the 120-day period to file its judicial claim with the Court of Tax
Appeals. Its failure to do so rendered the Commissioner's "deemed a denial"
decision as final and inappealable.
Team Energy's contention that denial of its duly proven refund claim would
constitute unjust enrichment on the part of the government is misplaced.
"Excess input tax is not an excessively, erroneously, or illegally collected tax." 64 A
claim for refund of this tax is in the nature of a tax exemption, which is based on
Sections 110(B) and 112(A) of 1997 NIRC, allowing VAT-registered persons to
recover the excess input taxes they have paid in relation to their zero-rated sales.
"The term 'excess' input VAT simply means that the input VAT available as [refund]
credit exceeds the output VAT, not that the input VAT is excessively collected
because it is more than what is legally due."65 Accordingly, claims for tax
refund/credit of excess input tax are governed not by Section 229 but only by
Section 112 of the NIRC.
A claim for input VAT refund or credit is construed strictly against the
taxpayer.66 Accordingly, there must be strict compliance with the prescriptive
periods and substantive requirements set by law before a claim for tax refund or
credit may prosper.67 The mere fact that Team Energy has proved its excess input
VAT does not entitle it as a matter of right to a tax refund or credit. The 120+30-day
periods in Section 112 is not a mere procedural technicality that can be set aside if
the claim is otherwise meritorious. It is a mandatory and jurisdictional condition
imposed by law. Team Energy's failure to comply with the prescriptive periods is,
thus, fatal to its claim.
II
On the disallowance of some of its input VAT claims, Team Energy submits that "at
the time when the unutilized input VAT [was] incurred in 2003, the applicable NIRC
provisions did not create a distinction between an official receipt and an invoice in
substantiating a claim for refund."68 Section 113 of the 1997 NIRC, prior to its
amendment by Republic Act No. 9337 in 2005, provides:
Section 113. Invoicing and Accounting Requirements for VAT-Registered Persons. —
(A) Invoicing Requirements. - A VAT-registered person shall, for every sale,
issue an invoice or receipt. In addition to the information required under
Section 237, the following information shall be indicated in the invoice or
receipt:

(1) A statement that the seller is a VAT-registered person, followed by
his taxpayer's identification number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to
the seller with the indication that such amount includes the value-
added tax.
Team Energy posits that Section 113, prior to its amendment by Republic Act No.
9337, must be applied to its input VAT incurred in 2003, and that the disallowed
amount of P258,874.55 supported by VAT invoice or official receipts should be
allowed.
Team Energy's contention is untenable.
Claimants of tax refunds have the burden to prove their entitlement to the claim
under substantive law and the factual basis of their claim. 69 Moreover, in claims for
VAT refund/credit, applicants must satisfy the substantiation and invoicing
requirements under the NIRC and other implementing rules and regulations.70
Under Section 110(A)(1) of the 1997 NIRC, creditable input tax must be evidenced
by a VAT invoice or official receipt, which must in turn reflect the information
required in Sections 113 and 237 of the Code, viz:
Section 113. Invoicing and Accounting Requirements for VAT-Registered Persons. —
(A) Invoicing Requirements. — A VAT-registered person shall, for every sale, issue an
invoice or receipt. In addition to the information required under Section 237, the
following information shall be indicated in the invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's
identification number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller
with the indication that such amount includes the value- added tax.
....
Section 237. Issuance of Receipts or Sales or Commercial Invoices. — All persons
subject to an internal revenue tax shall, for each sale or transfer of merchandise or
for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly
registered receipts or sales or commercial invoices, prepared at least in
duplicate, showing the date of transaction, quantity, unit cost and description of
merchandise or nature of service: Provided, however, That in the case of sales,
receipts or transfers in the amount of One hundred pesos (P100.00) or more, or
regardless of amount, where the sale or transfer is made by a person liable to
value-added tax to another person also liable to value-added tax; or where the
receipt is issued to cover payment made as rentals, commissions, compensations or
fees, receipts or invoices shall be issued which shall show the name, business
style, if any, and address of the purchaser, customer or client: Provided, further,
That where the purchaser is a VAT-registered person, in addition to the
information herein required, the invoice or receipt shall further show the
Taxpayer Identification Number (TIN) of the purchaser. (Emphasis supplied)
Section 4.108-1 of Revenue Regulations No. 7-95 summarizes the information that
must be contained in a VAT invoice and a VAT official receipt:
Section 4.108-1. Invoicing Requirements — All VAT-registered persons shall, for
every sale or lease of goods or properties or services, issue duly registered
receipts or sales or commercial invoices which must show:
1. the name, TIN and address of seller;
2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of service;
4. the name, TIN, business style, if any, and address of the VAT- registered
purchaser, customer or client;
5. the word "zero rated" imprinted on the invoice covering zero- rated sales;
and
6. the invoice value or consideration.
In the case of sale of real property subject to VAT and where the zonal or market
value is higher than the actual consideration, the VAT shall be separately indicated
in the invoice or receipt.
Only VAT-registered persons are required to print their TIN followed by the word
"VAT" in their invoice or receipts and this shall be considered as a "VAT
Invoice".All purchases covered by invoices other than "VAT Invoice" shall not give
rise to any input tax.
If the taxable person is also engaged in exempt operations, he should issue separate
invoices or receipts for the taxable and exempt operations. A "VAT Invoice" shall be
issued only for sales of goods, properties or services subject to VAT imposed in
Sections 100 and 102 [now Sections 106 and 108] of the Code.
The invoice or receipt shall be prepared at least in duplicate, the original to be given
to the buyer and the duplicate to be retained by the seller as part of his accounting
records. (Emphasis supplied)
In this case, the Court of Tax Appeals disallowed Team Energy's input VAT of
P258,874.55, which consisted of:
1. Input taxes of P78,134.65 claimed on local purchase of goods supported by
documents other than VAT invoices;71 and
2. Input taxes of P180,739.90 claimed on local purchase of services supported
by documents other than VAT official receipts.72
Team Energy submits that the disallowances "essentially result from the non-
recognition [by] the [Court of Tax Appeals] En Banc of the interchangeability of VAT
invoices and VAT [official receipts] in a claim for refund of excess or unutilized input
tax."73
In AT&T Communications Services Philippines, Inc. v. Commissioner of Internal
Revenue,74 this Court was confronted with the same issue on the substantiation of
the taxpayer-applicant's zero-rated sales of services. In that case, AT&T
Communications Services Philippines, Inc. (AT&T) applied for tax refund and/or tax
credit of its excess/unutilized input VAT from zero-rated sales of services for
calendar year 2002. The Court of Tax Appeals First Division, as affirmed by the En
Banc, denied AT&T's claim "for lack of substantiation" on the ground that:
[Considering that the subject revenues pertain to gross receipts from services
rendered by petitioner, valid VAT official receipts and not mere sales
invoices should have been submitted in support thereof. Without proper VAT
official receipts, the foreign currency payments received by petitioner from services
rendered for the four (4) quarters of taxable year 2002 in the sum of
US$1,102,315.48 with the peso equivalent of P56,898,744.05 cannot qualify for
zero-rating for VAT purposes.75 (Emphasis in the original)
Reversing the Court of Tax Appeals, this Court held that since Section 113 did not
distinguish between a sales invoice and an official receipt, the sales invoices
presented by AT&T would suffice provided that the requirements under Sections
113 and 237 of the Tax Code were met. It further explained:
Sales invoices are recognized commercial documents to facilitate trade or credit
transactions. They are proofs that a business transaction has been concluded,
hence, should not be considered bereft of probative value. Only the preponderance
of evidence threshold as applied in ordinary civil cases is needed to substantiate a
claim for tax refund proper.76 (Citations omitted)
However, in a subsequent claim for tax refund or credit of input VAT filed by AT&T
for the calendar year 2003, the same issue on the interchangeability of invoice and
official receipt was raised. This time in AT&T Communications Services Phils., Inc. v.
Commissioner of Internal Revenue,77 this Court held that there was a clear
delineation between official receipts and invoices and that these two (2) documents
could not be used interchangeably. According to this Court, Section 113 on invoicing
requirements must be read in conjunction with Sections 106 and 108, which
specifically delineates sales invoices for sales of goods and official receipts for sales
of services.
Although it appears under [Section 113 of the 1997 NIRC] that there is no clear
distinction on the evidentiary value of an invoice or official receipt, it is worthy to
note that the said provision is a general provision which covers all sales of a VAT[-
]registered person, whether sale of goods or services. It does not necessarily follow
that the legislature intended to use the same interchangeably. The Court therefore
cannot conclude that the general provision of Section 113 of the NIRC of 1997, as
amended, intended that the invoice and official receipt can be used for either sale
of goods or services, because there are specific provisions of the Tax Code which
clearly delineates the difference between the two transactions.
In this instance, Section 108 of the NIRC of 1997, as amended, provides:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —
....
(C) Determination of the Tax — The tax shall be computed by multiplying the total
amount indicated in the official receipt by one-eleventh (1/11).
Comparatively, Section 106 of the same Code covers sale of goods, thus:
SEC. 106. Value-added Tax on Sale of Goods or Properties. —
....
(D) Determination of the Tax. — The tax shall be computed by multiplying the total
amount indicated in the invoice by one-eleventh (1/11).
Apparently, the construction of the statute shows that the legislature intended to
distinguish the use of an invoice from an official receipt. It is more logical therefore
to conclude that subsections of a statute under the same heading should be
construed as having relevance to its heading. The legislature separately categorized
VAT on sale of goods from VAT on sale of services, not only by its treatment with
regard to tax but also with respect to substantiation requirements. Having been
grouped under Section 108, its subparagraphs, (A) to (C), and Section 106, its
subparagraphs (A) to (D), have significant relations with each other.
Legislative intent must be ascertained from a consideration of the statute as a
whole and not of an isolated part or a particular provision alone. This is a cardinal
rule in statutory construction. For taken in the abstract, a word or phrase might
easily convey a meaning quite different from the one actually intended and evident
when the word or phrase is considered with those with which it is associated. Thus,
an apparently general provision may have a limited application if viewed together
with the other provisions.78 (Emphasis supplied, citation omitted)
This Court reiterates that to claim a refund of unutilized or excess input VAT,
purchase of goods or properties must be supported by VAT invoices, while purchase
of services must be supported by VAT official receipts.
For context, VAT is a tax imposed on each sale of goods or services in the course of
trade or business, or importation of goods "as they pass along the production and
distribution chain."79 It is an indirect tax, which "may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties or services."80 The output
tax81 due from VAT-registered sellers becomes the input tax82 paid by VAT-
registered purchasers on local purchase of goods or services, which the latter in
turn may credit against their output tax liabilities. On the other hand, for a non-VAT
purchaser, the VAT shifted forms part of the cost of goods, properties, and services
purchased, which may be deductible as an expense for income tax purposes.83
Panasonic Communications Imaging Corp. v. Commissioner of Internal
Revenue84 explained the concept of VAT and its collection through the tax credit
method:
The VAT is a tax on consumption, an indirect tax that the provider of goods or
services may pass on to his customers. Under the VAT method of taxation, which is
invoice-based, an entity can subtract from the VAT charged on its sales or outputs
the VAT it paid on its purchases, inputs and imports. For example, when a seller
charges VAT on its sale, it issues an invoice to the buyer, indicating the amount of
VAT he charged. For his part, if the buyer is also a seller subjected to the payment of
VAT on his sales, he can use the invoice issued to him by his supplier to get a
reduction of his own VAT liability. The difference in tax shown on invoices passed
and invoices received is the tax paid to the government. In case the tax on invoices
received exceeds that on invoices passed, a tax refund may be claimed.
Under the 1997 NIRC, if at the end of a taxable quarter the seller charges output
taxes equal to the input taxes that his suppliers passed on to him, no payment is
required of him. It is when his output taxes exceed his input taxes that he has to pay
the excess to the BIR. If the input taxes exceed the output taxes, however, the
excess payment shall be earned over to the succeeding quarter or quarters. Should
the input taxes result from zero-rated or effectively zero-rated transactions or from
the acquisition of capital goods, any excess over the output taxes shall instead be
refunded to the taxpayer.85 (Citations omitted)
Our VAT system is invoice-based, i.e. taxation relies on sales invoices or official
receipts. A VAT-registered entity is liable to VAT, or the output tax at the rate of 0%
or 10% (now 12%) on the gross selling price86of goods or gross receipts87 realized
from the sale of services. Sections 106(D) and 108(C) of the Tax Code expressly
provide that VAT is computed at 1/11 of the total amount indicated in
the invoice for sale of goods or official receipt for sale of services.88 This tax shall
also be recognized as input tax credit to the purchaser of the goods or services.
Under Section 11089 of the 1997 NIRC, the input tax on purchase of goods or
properties, or services is creditable:
(a) To the purchaser upon consummation of sale and on importation of goods or
properties;
(b) To the importer upon payment of the VAT prior to the release of the goods from
the custody of the Bureau of Customs; and
[(c)] [T]o the purchaser [of services], lessee [of property] or licensee upon payment
of the compensation, rental, royalty or fee.
A VAT-registered person may opt, however, to apply for tax refund or credit
certificate of VAT paid corresponding to the zero-rated sales of goods, properties,
or services to the extent that this input tax has not been applied against the output
tax.
Strict compliance with substantiation and invoicing requirements is necessary
considering VAT's nature and VAT system's tax credit method, where tax payments
are based on output and input taxes and where the seller's output tax becomes the
buyer's input tax that is available as tax credit or refund in the same transaction. It
ensures the proper collection of taxes at all stages of distribution, facilitates
computation of tax credits, and provides accurate audit trail or evidence for BIR
monitoring purposes.
The Court of Tax Appeals further pointed out that the noninterchangeability
between VAT official receipts and VAT invoices avoids having the government
refund a tax that was not even paid.
It should be noted that the seller will only become liable to pay the output VAT
upon receipt of payment from the purchaser. If we are to use sales invoice in the
sale of services, an absurd situation will arise when the purchaser of the service can
claim tax credit representing input VAT even before there is payment of the output
VAT by the seller on the sale pertaining to the same transaction. As a matter of
fact[,] if the seller is not paid on the transaction, the seller of service would legally
not have to pay output tax while the purchaser may legally claim input tax credit
thereon. The government ends up refunding a tax which has not been paid at all.
Hence, to avoid this, VAT official receipt for the sale of services is an absolute
requirement.90
In conjunction with this rule, Revenue Memorandum Circular No. 42-0391 expressly
provides that an "invoice is the supporting document for the claim of input tax on
purchase of goods whereas official receipt is the supporting document for the claim
of input tax on purchase of services." It further states that a taxpayer's failure to
comply with the invoicing requirements will result to the disallowance of the claim
for input tax. Pertinent portions of this circular provide:
A-13: Failure by the supplier to comply with the invoicing requirements on the
documents supporting the sale of goods and services will result to the disallowance
of the claim for input tax by the purchaser-claimant.
If the claim for refund/[tax credit certificate] is based on the existence of zero-rated
sales by the taxpayer but it fails to comply with the invoicing requirements in the
issuance of sales invoices (e.g. failure to indicate the TIN), its claim for tax
credit/refund of VAT on its purchases shall be denied considering that the invoice it
is issuing to its customers does not depict its being a VAT-registered taxpayer whose
sales are classified as zero-rated sales. Nonetheless, this treatment is without
prejudice to the right of the taxpayer to charge the input taxes to the appropriate
expense account or asset account subject to depreciation, whichever is applicable.
Moreover, the case shall be referred by the processing office to the concerned BIR
office for verification of other tax liabilities of the taxpayer.
Pursuant to Sections 106(D) and 108(C) in relation to Section 110 of the 1997 NIRC,
the output or input tax on the sale or purchase of goods is determined by the total
amount indicated in the VAT invoice, while the output or input tax on the sale or
purchase of services is determined by the total amount indicated in the VAT official
receipt.
Thus, the Court of Tax Appeals properly disallowed the input VAT of P258,874.55 for
Team Energy's failure to comply with the invoicing requirements.
III
The Commissioner submits that the Court of Tax Appeals En Banc erred in granting
Team Energy a tax refund/credit of P11,161,392.67, representing unutilized input
VAT attributable to zero-rated sales of electricity to NPC.92 She maintains that Team
Energy is not entitled to any tax refund or credit because it cannot qualify for VAT
zero-rating under Republic Act No. 913693 or the Electrical Power Industry Reform
Act (EPIRA) Law for failure to submit its ERC Registration and Certificate of
Compliance.94 She avers that to operate a generation facility, Team Energy must
have a duly issued ERC Certificate of Compliance, without which an entity cannot be
considered a power generation company and its sales of generated power will not
qualify for VAT zero-rating.95
The Court of Tax Appeals rejected this argument on the ground that the issue was
raised for the first time in a motion for partial reconsideration, viz:
[The Commissioner] raised the issue of [Team Energy's] failure to submit the
Registration and Certificate of Compliance (COC) issued by ERC for the first time in
the instant Motion for Partial Reconsideration. The said issue was neither raised in
the Court a quo nor in the Petition for Review with the Court En Banc. The rule is
well settled that no question will be considered by the appellate court which has
not been raised in the court below. When a party deliberately adopts a certain
theory, and the case is tried and decided upon the theory in the court below, he will
not be permitted to change his theory on appeal, because to permit him to do so
would be unfair to the adverse party. Thus, a judgment that goes beyond the issues
and purports to adjudicate something on which the court did not hear the parties, is
not only irregular but also extrajudicial and invalid. In the case of Rizal Commercial
Banking Corporation vs. Commissioner of Internal Revenue,96 the Supreme Court
said:
The rule is well-settled that points of law, theories, issues and arguments not
adequately brought to the attention of the lower court need not be considered by
the reviewing court as they cannot be raised for the first time on appeal, much
more in a motion for reconsideration as in this case, because this would be
offensive to the basic rules of fair play, justice and due process. This last ditch effort
to shift to a new theory and raise a new matter in the hope of a favorable result is a
pernicious practice that has consistently been rejected.
Also, both parties stipulated and recognized in the Joint Stipulation of Facts and
Issues that [Team Energy] is principally engaged in the business of power
generation. Moreover, [the Commissioner] acknowledged [Team Energy's] sale of
electricity to the NPC as zero-rated evidence[d] by the approved Application for VAT
zero-rating.97
The Commissioner now asserts that her counsel's mistake in belatedly raising the
issue should not prejudice the State, as it is not bound by the errors of its officers or
agents.98 She adds that despite the Stipulation of Facts, the Court of Tax Appeals
should have determined Team Energy's compliance with Republic Act No. 9136 or
the EPIRA Law because the burden lies on the taxpayer to prove its entitlement to a
refund.99
The Commissioner's argument is misplaced.
Team Energy's claim for unutilized or excess input VAT was anchored not on the
EPIRA Law but on Section 108(B)(3)100 of the 1997 NIRC, in relation to Section 13 of
Republic Act No. 6395101 or the NPC's charter,102 before its repeal by Republic Act
No. 9337. One of the issues presented before the Court of Tax Appeals First Division
was "[w]hether or not the power generation services rendered by [Team Energy] to
NPC are subject to zero percent (0%) VAT pursuant to Section
108(B)(3)."103Otherwise stated, the Court of Tax Appeals First Division was
confronted with the legal issue of whether NPC's tax exemption privilege includes
the indirect tax of VAT to entitle Team Energy to 0% VAT rate. The Court of Tax
Appeals aptly resolved the issue in the affirmative, consistent with this Court's
pronouncements104 that NPC is exempt from all taxes, both direct and indirect, and
services rendered by any VAT-registered person or entity to NPC are effectively
subject to 0% rate.
Indeed, the requirements of the EPIRA law would apply to claims for refund filed
under the EPIRA. In such case, the taxpayer must prove that it has been duly
authorized by the ERC to operate a generation facility and that it derives its sales
from power generation. This was the thrust of this Court's ruling in Commissioner of
Internal Revenue v. Toledo Power Company (TPC).105
In Toledo, the Court of Tax Appeals granted Toledo Power Company's (TPC) claim
for refund of unutilized input VAT attributable to sales of electricity to NPC, but
denied refund of input VAT related to sales of electricity to other entities 106 for
failure of TPC to prove that it was a generation company under the EPIRA. This
Court held that TPC's failure to submit its ERC Certificate of Compliance renders its
sales of generated power not qualified for VAT zero-rating. This Court, in affirming
the Court of Tax Appeals, held:
Section 6 of the EPIRA provides that the sale of generated power by generation
companies shall be zero-rated. Section 4 (x) of the same law states that a
generation company "refers to any person or entity authorized by the ERC to
operate facilities used in the generation of electricity." Corollarily, to be entitled to
a refund or credit of unutilized input VAT attributable to the sale of electricity
under the EPIRA, a taxpayer must establish: (1) that it is a generation company,
and (2) that it derived sales from power generation.
....
In this case, when the EPIRA took effect in 2001, TPC was an existing generation
facility. And at the time the sales of electricity to CEBECO, ACMDC, and AFC were
made in 2002, TPC was not yet a generation company under EPIRA. Although it filed
an application for a COC on June 20, 2002, it did not automatically become a
generation company. It was only on June 23, 2005, when the ERC issued a COC in
favor of TPC, that it became a generation company under EPIRA. Consequently,
TPC's sales of electricity to CEBECO, ACMDC, and AFC cannot qualify for VAT zero-
rating under the EPIRA.107 (Emphasis supplied)
Here, considering that Team Energy's refund claim is premised on Section 108(B)(3)
of the 1997 NIRC, in relation to NPC's charter, the requirements under the EPIRA
are inapplicable. To qualify its electricity sale to NPC as zero-rated, Team Energy
needs only to show that it is a VAT-registered entity and that it has complied with
the invoicing requirements under Section 108(B)(3) of the 1997 NIRC, in conjunction
with Section 4.108-1 of Revenue Regulations No. 7-95.108
Finally, the Commissioner is bound by her admission in the Joint Stipulation of Facts
and Issues,109concerning the prior approval of Team Energy's 2002 Application for
Effective Zero-Rate of its supply of electricity to the NPC.110 Thus, she is estopped
from asserting that Team Energy's transactions cannot be effectively considered
zero-rated.
In sum, the Court of Tax Appeals En Banc found proper the refund of
P11,161,392.67, representing unutilized input VAT attributable to Team Energy's
zero-rated sales for the first quarter of 2003.111 This Court accords the highest
respect to the factual findings of the Court of Tax Appeals112 considering its
developed expertise on the subject, unless there is showing of abuse in the exercise
of its authority.113This Court finds no reason to overturn the factual findings of the
Court of Tax Appeals on the amounts allowed for refund.
WHEREFORE, the Petitions are DENIED. The April 8, 2011 Decision and July 7, 2011
Resolution of the Court of Tax Appeals En Banc in CTA EB No. 603 are AFFIRMED.
SO ORDERED.
SECOND DIVISION
G.R. No. 203160, January 24, 2018
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. COVANTA ENERGY
PHILIPPINE HOLDINGS, INC., Respondent.
DECISION
REYES, JR., J.:
This is a petition for review on certiorari1 under Rule 45 of the Rules of Court,
seeking to reverse and set aside the Decision2 dated March 30, 2012 and
Resolution3 dated August 16, 2012 of the Court of Tax Appeals (CTA) en banc in CTA
EB Case No. 713.
The CTA en banc denied the appeal of the Commissioner of Internal Revenue (CIR)
and affirmed the cancellation and withdrawal of the deficiency tax assessments on
respondent Covanta Energy Philippine Holdings, Inc. (CEPHI). The CIR avers,
however, that CEPHI failed to comply with the requirements of the tax amnesty law,
or Republic Act (R.A.) No. 9480.4
Factual Antecedents
On December 6, 2004, the CIR issued Formal Letters of Demand and Assessment
Notices against CEPHI for deficiency value-added tax (VAT) and expanded
withholding tax (EWT). The deficiency assessments were respectively in the
amounts of P465,593.21 and P288,903.78, or an aggregate amount of P754,496.99,
representing CEPHI's VAT and EWT liabilities for the taxable year 2001.5
CEPHI protested the assessments by filing two (2) separate Letters of Protest on
January 19, 2005. However, the CIR issued another Formal Letter of Demand and
Assessment Notice dated January 11, 2005, assessing CEPHI for deficiency minimum
corporate income tax (MCIT) in the amount of P467,801.99, likewise for the taxable
year 2001. This assessment lead to CEPHI filing a Letter of Protest on the MCIT
assessment on February 16, 2015.6
The protests remained unacted upon. Thus, CEPHI filed separate petitions before
the CTA, seeking the cancellation and withdrawal of the deficiency assessments.
The petitions were filed on October 10, 2005, for the deficiency VAT and EWT,
which was docketed as CTA Case No. 7338; and on November 9, 2005, for the
deficiency MCIT, which was docketed as CTA Case No. 7365.7
On December 6, 2005, the CIR filed an Answer for CTA Case No. 7338, while the
Answer for CTA Case No. 7365 was filed on January 10, 2006. The cases were
eventually consolidated upon the CIR's motion.8
After the parties' respective submission of their fonnal offer of evidence, CEPHI filed
a Supplemental Petition on October 7, 2008, informing the CTA that it availed of the
tax amnesty under R.A. No. 9480. CEPHI afterwards submitted a Supplemental
Formal Offer of Evidence, together with the documents relevant to its tax amnesty. 9
The CTA then required the parties to submit their respective memoranda within 30
days. The case was submitted for decision upon the parties' compliance.10
Ruling of the CTA Second Division
In a Decision dated July 27, 2010, the CTA Second Division partially granted the
petitions of CEPHI with respect to the deficiency VAT and MCIT assessments for
2001. Since tax amnesty does not extend to withholding agents with respect to
their withholding tax liabilities,11 the CTA Second Division ruled, after computation,
that CEPHI is liable to pay the amount of P131,791.02 for the deficiency EWT
assessment, plus additional deficiency and delinquency interest. The dispositive
portion of this decision states:12
WHEREFORE, the instant Petitions for Review are hereby PARTIALLY GRANTED.
Accordingly, the deficiency [VAT] and deficiency [MCIT] assessments for taxable
year 2001 issued against petitioner are CANCELLED and WITHDRAWN.
However, petitioner is ORDERED TO PAY respondent the amount of ONE HUNDRED
THIRTY-ONE THOUSAND SEVEN HUNDRED NINETY-ONE PESOS AND 02/100
(P131,791.02), representing deficiency [EWT], including the twenty-five percent
(25%) surcharge imposed thereon.
Likewise, petitioner is ORDERED TO PAY:
(a) deficiency interest at the rate of twenty percent (20%) per annum on the basic
deficiency EWT of P29,415.00 computed from November 16, 2005 until full
payment thereof pursuant to Section 249(B) of the NIRC of 1997; and
(b) delinquency interest at the rate of 20% per annum of P131,791.02 which is the
total amount still due and on the 20% deficiency interest which have accrued as
afore-stated in paragraph (a) computed from January 10, 2005 until full payment
thereof, pursuant to Section 249(C) of the NIRC of 1997.
SO ORDERED.13
The CIR moved for the reconsideration of this decision, which the CTA Second
Division denied in its Resolution14 dated December 13, 2010:
WHEREFORE, premises considered, respondent's "Motion for Reconsideration" is
hereby DENIED for lack of merit.
SO ORDERED.15
Unsatisfied with the ruling of the CTA Second Division, the CIR elevated the matter
to the CTA en bancthrough a Petition for Review dated January 4, 2011, pursuant to
R.A. No. 1125,16 as amended by R.A. No. 928217 and R.A. No. 9503.18 The sole issue
raised in the CIR's appeal was whether the CTA Second Division erred in upholding
the validity of the tax amnesty availed by CEPHI. The CIR was of the position that
CEPHI is not entitled to the immunities and privileges under R.A. No. 9480 because
its documentary submissions failed to comply with the requirements under the tax
amnesty law.19
Ruling of the CTA En Banc
Finding the CIR's petition for review unmeritorious, the CTA en banc denied the
appeal in the assailed Decision20 dated March 30, 2012:
WHEREFORE, the Petition for Review filed by [CIR] is hereby DENIED for lack of
merit. The Decision dated July 27, 2010 and Resolution dated December 13, 2010
are hereby AFFIRMED. Deficiency [VAT] and Deficiency [MCIT] in taxable year 2001
remain CANCELLED and WITHDRAWN. Respondent, however, is ORDERED TO PAY
the amount of ONE HUNDRED THIRTY-ONE THOUSAND SEVEN HUNDRED NINETY-
ONE PESOS AND 02/100 (P131,791.02), representing deficiency [EWT], including the
twenty-five (25%) surcharge imposed thereon. Likewise, respondent is ORDERED TO
PAY:
(a) deficiency interest at the rate of twenty percent (20%) per annum on the
basic deficiency EWT of P29,415.00 computed from November 16, 2005
until full payment thereof pursuant to Section 249(B) of the NIRC of 1997;
and
(b) delinquency interest at the rate of 20% per annum of P131,791.02 which is
the total amount still due and on the 20% deficiency interest which have
accrued as afore-stated in paragraph (a) computed from January 10, 2005
until full payment thereof, pursuant to Section 249(c) of the NIRC of 1997.
SO ORDERED.21
The CTA en banc upheld the ruling that, without any evidence that CEPHI's net
worth was underdeclared by at least 30%, there is a presumption of compliance
with the requirements of the tax amnesty law. For this reason, CEPHI may
immediately enjoy the privileges of the tax amnesty program.22 The CIR disagreed
with this decision, and on April 23, 2012, it moved for the reconsideration of the
CTA en banc's decision.
The CIR's motion for reconsideration was denied in the assailed CTA en
banc Resolution23 dated August 16, 2012:
WHEREFORE, premises considered, the Motion for Reconsideration is hereby
DENIED for lack of merit.
SO ORDERED.24
Prompted by the denial of their petition for review and motion for reconsideration,
the CIR elevated the matter to this Court, by again assailing the validity of CEPHI's
tax amnesty. The CIR reiterated its argument that CEPHI's failure to provide
complete information in its Statement of Assets, Liabilities and Net worth (SALN),
particularly the columns requiring the Reference and Basis of Valuation, is sufficient
basis to disqualify CEPHI from the tax amnesty program. 25 The CIR also alleged that
there is no period of limitation in challenging CEPHI's compliance with the
requirements of the tax amnesty program.26
Ruling of this Court
 The Court dismisses the petition.
CEPHI is entitled to the immunities
and privileges of the tax amnesty
program upon full compliance with
the requirements of R.A. No. 9480.
R.A. No. 9480 governs the tax amnesty program for national internal revenue taxes
for the taxable year 2005 and prior years.27 Subject to certain exceptions,28 a
taxpayer may avail of this program by complying with the documentary submissions
to the Bureau of Internal Revenue (BIR) and thereafter, paying the applicable
amnesty tax.29
The implementing rules and regulations of R.A. No. 9480, as embodied in
Department of Finance (DOF) Department Order No. 29-07,30 laid down the
procedure for availing of the tax amnesty:
SEC. 6. Method of Availment of Tax Amnesty. –
1. Forms/Documents to be filed. – To avail of the general tax amnesty, concerned
taxpayers shall file the following documents/requirements:
a. Notice of Availment in such forms as may be prescribed by the BIR.
b. [SALN] as of December 31, 2005 in such forms, as may be prescribed by the BIR.
c. Tax Amnesty Return in such form as may be prescribed by the BIR.
2. Place of Filing of Amnesty Tax Return. – The Tax Amnesty Return, together with
the other documents stated in Sec. 6 (1) hereof, shall be filed as follows:
a. Residents shall file with the Revenue District Officer (RDO)/Large Taxpayer
District Office of the BIR which has jurisdiction over the legal residence or
principal place of business of the taxpayer, as the case may be.
b. Non-residents shall file with the office of the Commissioner of the BIR, or with
the RDO.
c. At the option of the taxpayer, the RDO may assist the taxpayer in accomplishing
the forms and computing the taxable base and the amnesty tax payable, but
may not look into, question or examine the veracity of the entries contained in
the Tax Amnesty Return, [SALN], or such other documents submitted by the
taxpayer.
3. Payment of Amnesty Tax and Full Compliance. – Upon filing of the Tax Amnesty
Return in accordance with Sec. 6 (2) hereof, the taxpayer shall pay the amnesty
tax to the authorized agent bank or in the absence thereof, the Collection
Agents or duly authorized Treasurer of the city or municipality in which such
person has his legal residence or principal place of business.
The RDO shall issue sufficient Acceptance of Payment Forms, as may be
prescribed by the BIR for the use of-or to be accomplished by – the bank, the
collection agent or the Treasurer, showing the acceptance by the amnesty tax
payment. In case of the authorized agent bank, the branch manager or the
assistant branch manager shall sign the acceptance of payment form.
The Acceptance of Payment Form, the Notice of Availment, the SALN, and the
Tax Amnesty Return shall be submitted to the RDO, which shall be received only
after complete payment. The completion of these requirements shall be
deemed full compliance with the provisions of RA 9480.
4. Time for Filing and Payment of Amnesty Tax. – The filing of the Tax Amnesty
Return, together with the SALN, and the payment of the amnesty tax shall be
made within six (6) months from the effectivity of these Rules. 31 (Emphasis
and underscoring Ours)
Upon the taxpayer's full compliance with these requirements, the taxpayer is
immediately entitled to the enjoyment of the immunities and privileges of the tax
amnesty program.32 But when: (a) the taxpayer fails to file a SALN and the Tax
Amnesty Return; or (b) the net worth of the taxpayer in the SALN as of December
31, 2005 is proven to be understated to the extent of 30% or more, the taxpayer
shall cease to enjoy these immunities and privileges. 33
The underdeclaration of a taxpayer's net worth, as referred in the second instance
above, is proven through: (a) proceedings initiated by parties other than the BIR or
its agents, within one (1) year from the filing of the SALN and the Tax Amnesty
Return; or (b) findings or admissions in congressional hearings or proceedings in
administrative agencies, and in courts. Otherwise, the taxpayer's SALN is presumed
true and correct.34 The tax amnesty law thus places the burden of overturning this
presumption to the parties who claim that there was an underdeclaration of the
taxpayer's net worth.
In this case, it is undisputed that CEPHI submitted all the documentary
requirements for the tax amnesty program.35 The CIR argued, however, that CEPHI
cannot enjoy the privileges attendant to the tax amnesty program because its SALN
failed to comply with the requirements of R.A. No. 9480. The CIR specifically points
to CEPHI's supposed omission of the information relating to the Reference and Basis
for Valuation columns in CEPHI's original and amended SALNs.36
The required information that should be reflected in the taxpayer's SALN is
enumerated in Section 3 of R.A. No. 9480.37 The essential contents of the SALN are
also itemized under the implementing rules and regulations as follows:
SEC. 8. Contents of the SALN. – The SALN shall contain a true and complete
declaration of assets, liabilities and networth of the taxpayer as of December 31,
2005, as follows:
1. Assets within or without the Philippines, whether real or personal, tangible
or intangible, whether or not used in trade or business:
a. Real properties shall be accompanied by a description of their classification,
exact location, and valued at acquisition cost, if acquired by purchase or the
zonal valuation or fair market value, whichever is higher, if acquired through
inheritance or donation;
b. Personal properties other than money, shall be accompanied by a specific
description of the kind and number of assets (i.e. automobiles, shares of
stock, etc.) or other investments, indicating the acquisition cost less
depreciation or amortization, in proper cases, if acquired by purchase, or the
fair market price or value at the time of receipt, if acquired through
inheritance or donations;
c. Assets denominated in foreign currency shall be converted into the
corresponding Philippine currency equivalent, at the rate of exchange
prevailing as of December 31, 2005; and
d. Cash on hand and in bank in peso as of December 31, 2005, as well as Cash
on Hand and in Bank in foreign currency, converted to peso as of December
31, 2005.
2. All existing liabilities which are legitimate and enforceable, secured and
unsecured, whether or not incurred in trade or business, disclosing or
indicating clearly the name and address of the creditor and the amount of
the corresponding liability.
3. The total networth of the taxpayer, which shall be difference between the
total assets and total liabilities.
It is evident from CEPHI's original and amended SALN that the information
statutorily mandated in R.A. No. 9480 were all reflected in its submission to the BIR.
While the columns for Reference and Basis for Valuation were indeed left
blank, CEPHI attached schedules to its SALN (Schedules 1 to 7), both original and
amended, which provide the required information under R.A. No. 9480 and its
implementing rules and regulations.38 A review of the SALN form likewise reveals
that the information required in the Reference and Basis for Valuation columns are
actually the specific description of the taxpayer's declared assets. As such, these
were deemed filled when CEPHI referred to the attached schedules in its SALN. On
this basis, the CIR cannot disregard or simply set aside the SALN submitted by
CEPHI.
More importantly, CEPHI's SALN is presumed true and correct, pursuant to Section
4 of R.A. No. 9480.39This presumption may be overturned if the CIR is able to
establish that CEPHI understated its net worth by the required threshold of at least
30%.
However, aside from the bare allegations of the CIR, there is no evidence on record
to prove that the amount of CEPHI's net worth was understated. Parties other than
the BIR or its agents did not initiate proceedings within one year from the filing of
the SALN or Tax Amnesty Return, in order to challenge the net worth of CEPHI.
Neither was the CIR able to establish that there were findings or admissions in a
congressional, administrative, or court proceeding that CEPHI indeed understated
its net worth by 30%.
As the Court previously held in CS Garment, Inc. v. CIR,40 taxpayers are eligible to
the immunities of the tax amnesty program as soon as they fulfill the suspensive
conditions imposed under R.A. No. 9480:
A careful scrutiny of the 2007 Tax Amnesty Law would tell us that the law contains
two types of conditions one suspensive, the other resolutory. Borrowing from the
concepts under our Civil Code, a condition may be classified as suspensive when the
fulfillment of the condition results in the acquisition of rights. On the other hand, a
condition may be considered resolutory when the fulfillment of the condition
results in the extinguishment of rights. In the context of tax amnesty, the rights
referred to are those arising out of the privileges and immunities granted under the
applicable tax amnesty law.
xxxx
This clarification, however, does not mean that the amnesty taxpayers would go
scot-free in case they substantially understate the amounts of their net worth in
their SALN. The 2007 Tax Amnesty Law imposes a resolutory condition insofar as
the enjoyment of immunities and privileges under the law is concerned. Pursuant to
Section 4 of the law, third parties may initiate proceedings contesting the declared
amount of net worth of the amnesty taxpayer within one year following the date of
the filing of the tax amnesty return and the SALN. Section 6 then states that "All
these immunities and privileges shall not apply x x x where the amount of networth
as of December 31, 2005 is proven to be understated to the extent of thirty percent
(30%) or more, in accordance with the provisions of Section 3 hereof." Accordingly,
Section 10 provides that amnesty taxpayers who willfully understate their net worth
shall be (a) liable for perjury under the Revised Penal Code; and (b) subject to SECOND DIVISION
immediate tax fraud investigation in order to collect all taxes due and to criminally
prosecute those found to have willfully evaded lawful taxes due.41 (Emphasis Ours) July 12, 2017

G.R. No. 183408

Considering that CEPHI completed the requirements and paid the corresponding
amnesty tax, it is considered to have totally complied with the tax amnesty COMMISSIONER OF INTERNAL REVENUE, Petitioner
program. As a matter of course, CEPHI is entitled to the immediate enjoyment of vs.
the immunities and privileges of the tax amnesty program. 42Nonetheless, the Court LANCASTER PHILIPPINES, INC., Respondent
emphasizes that the immunities and privileges granted to taxpayers under R.A. No.
9480 is not absolute. It is subject to a resolutory condition insofar as the DECISION
taxpayers' enjoyment of the immunities and privileges of the law is
concerned. These immunities cease upon proof that they underdeclared their net MARTIRES, J.:
worth by 30%.
This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court
Unfortunately for the CIR, however, there is no such proof in CEPHI's case. The seeking to reverse and set aside the 30 April 2008 Decision 2 and 24 June 2008
Court, thus, finds it necessary to deny the present petition. While tax amnesty is in Resolution3 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 352.
the nature of a tax exemption, which is strictly construed against the taxpayer, 43 the
Court cannot disregard the plain text of R.A. No. 9480. The assailed decision and resolution affirmed the 12 September 2007 Decision 4 and
12 December 2007 Resolution5of the CTA First Division (CTA Division) in CTA Case
WHEREFORE, premises considered, the petition is DENIED for lack of merit. The No. 6753.
Decision dated March 30, 2012 and Resolution dated August 16, 2012 of the CTA en
banc in CTA EB Case No. 713 are AFFIRMED.
THE FACTS
SO ORDERED.
The facts6 are undisputed.

Petitioner Commissioner of Internal Revenue (CIR) is authorized by law, among

others, to investigate or examine and, if necessary, issue assessments for deficiency
taxes.

On the other hand, respondent Lancaster Philippines, Inc. (Lancaster) is a domestic

corporation established in 1963 and is engaged in the production, processing, and
marketing of tobacco.
In 1999, the Bureau of Internal Revenue (BIR) issued Letter of Authority (LOA) No.
00012289 authorizing its revenue officers to examine Lancaster's books of accounts
and other accounting records for all internal revenue taxes due from taxable year
1998 to an unspecified date. The LOA reads:
SEPT. 30 1999
LETTER OF AUTHORITY
LANCASTER PHILS. INC.
11th Flr. Metro Bank Plaza
Makati City
SIRJMADAM/GENTLEMEN:
The bearer(s) hereof RO’s Irene Goze & Rosario Padilla to be Supervise by GH
Catalina_Leny Barrion of the Special Team created pursuant to RSO 770-99 is/are
authorized to examine your books of accounts and other accounting records for a11
internal revenue taxes for the period from example year, 1998 to ______, 19___.
He is/[t]hey are provided with the necessary identification card(s) which shall be
presented to you upon request.
It is requested that all facilities be extended to the Revenue Officer(s) in order to
expedite the examination.
You will be duly informed of the results of the examination upon approval of the
report submitted by the aforementioned Revenue Officer(s). 7
After the conduct of an examination pursuant to the LOA, the BIR issued
a Preliminary Assessment Notice (PAN)8which cited Lancaster for:
1) overstatement of its purchases for the fiscal year April 1998 to March1999; and
2) noncompliance with the generally accepted accountingprinciple of proper
matching of cost and revenue.9 More concretely, the BIR disallowed the purchases
of tobacco from farmers covered by Purchase Invoice Vouchers (PIVs) for the
months of February and March 1998 as deductions against income for the fiscal
year April 1998 to March 1999. The computation of Lancaster's tax deficiency, with
the details of discrepancies, is reproduced below:
INCOME TAX:
Taxable Income per ITR -0-
Add: Adjustments-Disallowed purchases 11,496,770.18
Adjusted Taxable Income per Investigation ₱11,496,770.18
INCOME TAX DUE-Basic
April 1 - December 31, 1998
(9/12x ₱l1,496,770.18 x 34%) ₱2,913,676.4
January 1 - March 31, 1999
(3/12x ₱l1,496,770.18 x 33%) 948,483.54
Income tax still due per investigation ₱3,880,159.94
Interest (6/15/99 to 10115/02) .66 2,560,905.56
Compromise Penalty 25,000
TOTAL DEFlCIENCY INCOME TAX ₱6,466,065.50
DETAILS OF DISCREPANCIES
Assessment No. LTAID II-98-00007
A. INCOME TAX (₱3,880,159.94) - Taxpayer's fiscal year covers April 1998 to March
1999. Verification of the books of accounts and pertinent documents disclosed that
there was an overstatement of purchases for the year. Purchase Invoice Vouchers
(PIVs) for February and March 1998 purchases amounting to ₱ll,496,770.18 were
included as part of purchases for taxable year 1998 in violation of Section 45 of the
National Internal Revenue Code in relation to Section 43 of the same and Revenue
Regulations No. 2 which states that the Crop-Basis method of reporting income may
be used by a farmer engaged in producing crops which take more than one (1) year
from the time of planting to the time of gathering and disposing of crop, in such a
case, the entire cost of producing the crop must be taken as deduction in the year
in which the gross income from the crop is realized and that the taxable income
should be computed upon the basis of the taxpayer's annual accounting period,
(fiscal or calendar year, as the case may be) in accordance with the method of
accounting regularly employed in keeping with the books of the taxpayer.
Furthermore, it did not comply with the generally accepted principle of proper
matching of cost and revenue.10
Lancaster replied11 to the PAN contending, among other things, that for the past
decades, it has used an entire 'tobacco-cropping season' to determine its total
purchases covering a one-year period from 1 October up to 30 September of the
followingyear (as against its fiscal year which is from 1 April up to 31 March of the
followingyear);that it has been adopting the 6~month timing difference to conform
to the matching concept (of cost and revenue); and that this has long been installed
as part of the company's system and consistently applied in its accounting books. 12
Invoking the same provisions of the law cited in the assessment, i.e., Sections
4313 and 4514 of the National Internal Revenue Code (NJRC), in conjunction with
Section 4515 of Revenue Regulation No. 2, as amended, Lancaster argued that the
February and March 1998 purchases should not have been disallowed. It
maintained that the situation of farmers engaged in producing tobacco, like
Lancaster, is unique in that the costs, i.e., purchases, are taken as of a different
period and posted in the year in which the gross income from the crop is realized.
Lancaster concluded that it correctly posted the subject purchases in the fiscal year
ending March 1999 as it was only in this year that the gross income from the crop
was realized.
Subsequently on 6 November 2002, Lancaster received from the BIR a final
assessment notice (FAN),16 captioned Formal Letter of Demand andAudit
Result/Assessment .Notice LTAID II IT-98-00007, dated 11 October2002, which
assessed Lancaster's deficiency income tax amounting to Pl l,496,770.18, as a
consequence of the disallowance of purchases claimed for the taxable year
ending199931. March 1999.
IN VIEW OF THE FOREGOING, the subject Petition for Review is hereby GRANTED.
Accordingly, respondent is ORDERED to CANCEL and WITHDRAW the deficiency
income tax assessment issued against petitioner under Formal l;etter of Demand
and Audit Result/Assessment Notice No. L TAID II IT-98-00007 dated October 11,
2002, in the amount of ₱6,466,065.50, covering the fiscal year from April l, 1998 to
March 31, 1999.20
The CIR move21 but failed to obtain reconsideration of the CTA Division ruling. 22
Aggrieved, the CIR sought recourse23 from the CTA En Banc to seek a reversal of the
decision and the resolution of the CTA Division.
However, the CTA En Banc found no reversible error in the CTA Division's ruling,
thus, it affirmed the cancellation of the assessment against Lancaster. The
dispositive portion of the decision of the CTA En Banc states:
WHEREFORE, premises considered, the present Petition for Review is hereby
DENIED DUE COURSE, and, accordingly DISMISSED for lack of merit. 24
The CTA En Banc likewise denied25 the motion for reconsideration from its Decision.

Lancaster duly protested17 the FAN. There being no action taken by the
Hence, this petition.
Commissioner on its protest, Lancaster filed on 21 August 2003 a petition for
review18 before the CTA Division.
The CIR assigns the following errors as committed by the CTA En Banc:
The Proceedings before the CTA
I.
THE COURT OF TAX APPEALS EN BANC ERRED IN HOLDING THAT PETITIONER'S
In its petition before the CTA Division, Lancaster essentially reiterated its arguments
REVENUE OFFICERS EXCEEDED THEIR AUTHORITY TO INVESTIGATE THE PERJOD NOT
in the protest against the assessment, maintaining that the tobacco purchases in
COVERED BY THEIR LETTER OF AUTHORITY.
February and March 1998 are deductible in its fiscal year ending 31 March 1999.
II.
THE COURT OF TAX APPEALS EN BANC ERRED IN ORDERING PETITIONER TO CANCEL
The issues19 raised by the parties for the resolution of the CTA Division were: AND WITHDRAW THE DEFICIENCY ASSESSMENT ISSUED AGAINST RESPONDENT.26

I THE COURT'S RULING

WHETHER OR NOT PETITIONER COMPLIED WITH THE GENERALLY ACCEPTED
ACCOUNTING PRINCIPLE OF PROPER MATCHING OF COST AND REVENUE;
We deny the petition.
II
WHETHER OR NOT THE DEFICIENCY TAX ASSESSMENT AGAINST PETITIONER FOR
The CTA En Banc did not err when it ruled
THE TAXABLE YEAR 1998 IN THE AGGREGATE AMOUNT OF ₱6,466,065.50 SHOULD
that the BIR revenue officers had
BE CANCEILED AND WITHDRAWN BY RESPONDENT.
exceeded their authority.
After trial, the CTA Division granted the petition of Lancaster, disposing as follows;
To support its first assignment of error, the CIR argues that the revenue officers did
not exceed their authority when, upon examination (of the Lancaster's books of
accounts and other accounting records), they verified that Lancaster made
purchases for February and March of 1998, which purchases were not declared in
the latter's fiscal year from 1 April 1997 to 31 March 1998. Additionally, the CIR
posits that Lancaster did not raise the issue on the scope of authority of the
revenue examiners at any stage of the proceedings before the CTA and,
consequently, the CTA had no jurisdiction to rule on said issue.
On both counts, the CIR is mistaken.
A. The Jurisdiction of the CTA
Preliminarily, we shall take up the CTA's jurisdiction to rule on the issue of the scope
of authority of the revenue officers to conduct the examination of Lancaster's books
of accounts and accounting records.
The law vesting unto the CTA its jurisdiction is Section 7 of Republic Act No.
1125 (R.A. No. 1125),27 which in part provides:
Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided:
(1) Decisions of the Collector of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under the National Internal
Revenue Code or other law or part of law administered by the Bureau of Internal
Revenue; x x x. (emphasis supplied)
Under the aforecited provision, the jurisdiction of the CTA is not limited only to
cases which involve decisions or inactions of the CIR on matters relating to
assessments or :refunds but also includes other cases arising from the NIRC o:r
related laws administered by the BIR. 28 Thus, for instance, we had once held that
the question of whether or not to impose a deficiency tax assessment comes within
the purview of the words "othermatters arising under the National Internal Revenue
Code."[[29]
The jurisdiction of the CTA on such other matters arising under theNIRC was
retained under the amendments introduced by R.A No. 9282. 30Under R.A. No. 9282,
Section 7 now reads:
Sec. 7. Jurisdiction. - The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other mattersarising under the National Internal Revenue or
other laws administered by the Bureau of Internal Revenue;
2. Inaction by the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue Code
or other laws administered by the Bureau of Internal Revenue, where the National
Internal Revenue Code provides a specific period of action. in which case the
inaction shall be deemed a denial; x x x." (emphasis supplied)
Is the question on the authority of revenue officers to examine the books and
records of any person cognizable by the CTA?
It must be stressed that the assessment of inten1al revenue taxes is one of the
duties of the BIR. Section 2 of the NIRC states:
Sec. 2. Powers and Duties oftheBureau of Internal Revenue. - The Bureau of Internal
Revenue shall be under the supervision and control of the Department of Fin[:l.11ce
and its powers: and duties shall comprehend the assessment and collection of all
national internal revenue taxes, fees, andcharges, and the enforcement of all
forfeitures, penalties, and fines connected therewith, including the execution of
judgments in all cases decided in its favor by the Court of Tax Appeals and the
ordinary courts.
The Bureau shall give effect to and administer the supervisory and police powers
conferred to it by this Code or other laws. (emphasis supplied)
In connection therewith, the CIR may authorize the examination of any taxpayer
and correspondingly make an assessment whenever necessary. 31 Thus, to give more
teeth to such power of the CIR, to make an assessment, the NIRC authorizes the CIR
to examine any book, paper, record, or data of any person. 32 The powers granted by
law to the CIR are intended, among other things, to determine the liability of any
person for any national internal revenue tax.
It is pursuant to such pertinent provisions of the NIRC conferring the powers to the
CIR that the petitioner (CIR) had, in this case, authorized its revenue officers to
conduct an examination of the books of account and accounting records of
Lancaster, and eventually issue a deficiency assessment against it.
From the foregoing, it is clear that the issue on whether the revenue officers who
had conducted the examination on Lancaster exceeded their authority pursuant to
LOA No. 00012289 may be considered as covered by the terms "other matters"
under Section 7 of R.A. No. 1125 or its amendment, R.A. No. 9282. The authority to
make an examination or assessment, being a matter provided for by the NIRC, is
well within the exclusive and appellate jurisdiction of the CTA.
On whether the CTA can resolve an issue which was not raised by the parties, we
rule in the affirmative.
Under Section 1, Rule 14 of A.M. No. 05-11-07-CTA, or the Revised Rules of the
Court of Tax Appeals,33 the CT A is not bound by the issues specifically raised by the
parties but may also rule upon related issues necessary to achieve an orderly
disposition of the case. The text of the provision reads:
SECTION 1. Rendition of judgment. - x xx
In deciding the case, the Court may not limit itself to the issues stipulated by the
parties but may also rule upon related issues necessary to achieve an orderly
disposition of the case.
The above section is clearly worded. On the basis thereof, the CTA Division was,
therefore, well within its authority to consider in its decision the question on the
scope of authority of the revenue officers who were named in the LOA even though
the parties had not raised the same in their pleadings or memoranda. The CTA En
Banc was likewise correct in sustaining the CTA Division's view concerning such
matter.
B. The Scope of the Authority
of the Examining Officers
In the assailed decision of the CTA Division, the trial court observed that LOA No.
00012289 authorized the BIR officers to examine the books of account of Lancaster
for the taxable year 1998 only or, since Lancaster adopted a fiscal year (FY), for the
period 1April1997 to 31March1998. However, the deficiency income tax
assessment which the BIR eventually issued against Lancaster was based on the
disallowance of expenses reported in FY 1999, or for the period 1 April
1998 to 31March1999. The CTA concluded that the revenue examiners had
exceeded their authority when they issued the assessment against Lancaster and,
consequently, declared such assessment to be without force and effect.
We agree.
The audit process normally commences with the issuance by the CIR of a Letter of
Authority. The LOA gives notice to the taxpayer that it is under investigation for
possible deficiency tax assessment; at the same time it authorizes or empowers a
designated revenue officer to examine, verify, and scrutinize a taxpayer's books and
records, in relation to internal revenue tax liabilities for a particular period.34
In this case, a perusal of LOA No. 00012289 indeed shows that the period of
examination is the taxable year 1998. For better clarity, the pertinent portion of the
LOA is again reproduced, thus:
The bearer(s) hereof x x x is/are authorized to examine your books of accounts and
other accounting records for all internal revenue taxes for the period from taxable
year, 1998 to __, 19_. x x x." (emphasis supplied)
Even though the date after the words "taxable year 1998 to" is unstated, it is not at
all difficult to discern that the period of examination is the whole taxable year 1998.
This means that the examination of Lancaster must cover the FY period from
1April1997 to 31March1998. It could not have contemplated a longer period. The
examination for the full taxable year 1998 only is consistent with the guideline in
Revenue Memorandum Order (RMO) No. 43-90, dated 20 September 1990, that the
LOA shall cover a taxable period not exceeding one taxable year.35 In other words,
absent any other valid cause, the LOA issued in this case is valid in all respects.
Nonetheless, a valid LOA does not necessarily clothe validity to an assessment
issued on it, as when the revenue officers designated in the LOA act in excess or
outside of the authority granted them under said LOA. Recently in CIR v. De La Salle
University, Inc.36 we accorded validity to the LOA authorizing the examination of
DLSU for "Fiscal Year Ending 2003and Unverified Prior Years" and correspondingly
held the assessment fortaxable year 2003 as valid because this taxable period is
specified in the LOA. However, we declared void the assessments for taxable
years 2001 and 2002 for having been unspecified on separate LOAs as required
under RMO No. 43-90.
Likewise, in the earlier case of CIR v. Sony, Phils., Inc.,37 we affirmed the cancellation
of a deficiency VAT assessment because, while the LOA covered "the period
1997and unverified prior years, " the said deficiency was arrived at based on the
records of a later year, from January to March 1998, or using the fiscal year which
ended on 31March1998. We explainedthat the CIR knew which period should be
covered by the investigation and that if the CIR wanted or intended the
investigation to include the year 1998, it would have done so by including it in the
LOA or by issuing another LOA.38
The present case is no different from Sony in that the subject LOA specified that the The CTA En Banc correctly sustained the
examination should be for the taxable year 1998 only but the subsequent order cancelling and withdrawing
assessment issued against Lancaster involved disallowed expenses covering the the deficiency tax assessment.
next fiscal year, or the period ending 31 March 1999. This much is clear from the
notice of assessment, the relevant portion of which we again restate as follows: To recall, the assessment against Lancaster for deficiency income tax stemmed from
the disallowance of its February and March 1998 purchases which Lancaster posted
1âwphi1 in its fiscal year ending on 31 March 1999 (FY 1999) instead of the fiscal year ending
on 31March1998 (FY 1998).
INCOME TAX:

Taxable Income per ITR
Add: Adjustments-Disallowed purchases
Adjusted Taxable Income per Investigation ₱l 1,496,770.18
INCOME TAX DUE-Basic
April 1 -December 31, 1998
(9/12xPl1,496,770.18 x 34%)
January 1-March 31, 1999
(3/12xPl1,496,770.18 x 33%)
Income tax still due per investigation
Interest (6/15/99 to 10/15/02) .66
Compromise Penalty
-0- On the one hand, the BIR insists that the purchases in question should have been
reported in FY 1998 in order to conform to the generally accepted accounting
11,496, 770.18 principle of proper matching of cost and revenue. Thus, when
Lancaster reported the said purchases in FY 1999, this resulted in overstatement of
expenses warranting their disallowance and, by consequence, resulting in the
deficiency in the payment of its income tax for FY 1999.
₱2,913,676.4 Upon the other hand, Lancaster justifies the inclusion of the February and March
1998 purchases in its FY 1999 considering that they coincided with its crop year
covering the period of October 1997 to September 1998. Consistent with Revenue
948,483.54
Audit Memorandum (RAM) No. 2-95,39 Lancaster argues that its purchases in
₱3,880,159.94 February and March 1998 were properly posted in FY 1999, or the year in which its
gross income from the crop was realized. Lancaster concludes that by doing so, it
2,560,905.56 had complied with the matching concept that was also relied upon by the BIR in its
assessment.
25,000

TOTAL DEFICIENCY INCOME TAX ₱6,466,065.50
(emphasis supplied)
The taxable year covered by the assessment being outside of the period specified in
the LOA in this case, the assessment issued against Lancaster is, therefore, void.
This point alone would have sufficed to invalidate the subject deficiency income tax
assessment, thus, obviating any further necessity to resolve the issue on whether
Lancaster erroneously claimed the February and March 1998 expenses as
deductions against income for FY 1999.
But, as the CTA did, we shall discuss the issue on the disallowance for the proper
guidance not only of the parties, but the bench and the bar as well.
II.
The issue essentially boils down to the proper timing when Lancaster should
recognize its purchases in computing its taxable income. Such issue directly
correlates to the fact that Lancaster's 'crop year ' does not exactly coincide with its
fiscal year for tax purposes.
Noticeably, the records of this case are rife with terms and concepts in accounting.
As a science, accounting 40pervades many aspects of financial planning, forecasting,
and decision making in business. Its reach, however, has also permeated tax
practice.
To put it into perspective, although the foundations of accounting were built
principally to analyze finances and assist businesses, many of its principles have
since been adopted for purposes of taxation.41 In our jurisdiction, the concepts in
business accounting, including certain generally accepted accounting principles
(GAAP), embedded in the NIRC comprise the rules on tax accounting.
To be clear, the principles under financial or business accounting, in theory and
application, are not necessarily interchangeable with those in tax accounting. Thus,
although closely related, tax and business accounting had invariably produced
concepts that at some point diverge in understanding or usage. For instance, two of
such important concepts are taxable income and business income (or accounting
income). Much of the difference can be attributed to the distinct purposes or
objectives that the concepts of tax and business accounting are aimed at. Chief
Justice Querube Makalintal made an apt observation on the nature of such
difference. In Consolidated Mines, Inc. v. CTA,42he noted:
While taxable income is based on the method of accounting used by the taxpayer, it
will almost always differ from accounting income. This is so because of a
fundamental difference in the ends the two concepts serve. Accounting attempts
to match cost against revenue. Tax law is aimed at collecting revenue. It is quick to
treat an item as income, slow to recognize deductions or losses. Thus, the tax law
will not recognize deductions for contingent future losses except in very limited
situations. Good accounting, on the other hand, requires their recognition. Once
this fundamental difference in approach is accepted, income tax accounting
methods can be understood more easily.43 (emphasis supplied)
While there may be differences between tax and accounting,44 it cannot be said
that the two mutually exclude each other. As already made clear, tax laws
borrowed concepts that had origins from accounting. In truth, tax cannot do away
with accounting. It relies upon approved accounting methods and practices to
effectively carry out its objective of collecting the proper amount of taxes from the
taxpayers. Thus, an important mechanism established in many tax systems is the
requirement for taxpayers to make a return of their true income. 45 Maintaining
accounting books and records, among other important considerations, would in
turn assist the taxpayers in complying with their obligation to file their income tax
returns. At the same time, such books and records provide vital information and
possible bases for the government, after appropriate audit, to make an assessment
for deficiency tax whenever so warranted under the circumstances.
The NIRC, just like the tax laws in other jurisdictions, recognizes the important
facility provided by generally accepted accounting principles and methods to the
primary aim of tax laws to collect the correct amount of taxes. The NIRC even
devoted a whole chapter on accounting periods and methods of accounting, some
relevant provisions of which we cite here for more emphasis:
CHAPTER VIII
ACCOUNTING PERIODS AND METHODS OF ACCOUNTING
Sec. 43. General Rule. - The taxable income shall be computed upon the basis of the
taxpayer's annual accounting period (fiscal year or calendar year, as the case may
be) in accordance with the method of accounting regularly employed in keeping the
books of such taxpayer; but if no such method of accounting has been so employed,
or if the method employed does not clearly reflect the income, the computation
shall be made in accordance with such method as in the opinion of the
Commissioner clearly reflects the income.
If the taxpayer's annual accounting period is other than a fiscal year, as defined in
Section 22(Q), or if the taxpayer has no annual accounting period, or does not keep
books, or if the taxpayer is an individual, the taxable income shall be computed on
the basis of the calendar year.
Sec. 44. Period in which Items of Gross Income Included. - The amount of all items
of gross income shall be included in the gross income for the taxable year in which
received by the taxpayer, unless, under methods of accounting permitted under
Section 43, any such amounts are to be properly accounted for as of a different
period.
In the case of the death of a taxpayer, there shall be included in computing taxable
income for the taxable period in which falls the date of his death, amounts accrued
up to the date of his death if not otherwise properly includible in respect of such
period or a prior period.
Sec. 45. Period/or which Deductions and Credits Taken. - The deductions provided
for in this Title shall be taken for the taxable year in which 'paid or accrued' or 'paid
or incurred,' dependent upon the method of accounting upon the basis of which the
net income is computed, unless in order to clearly reflect the income, the
deductions should be taken as of a different period. In the case of the death of a
taxpayer, there shall be allowed as deductions for the taxable period in which falls
the date of his death, amounts accrued up to the date of his death if not otherwise
properly allowable in respect of such period or a prior period.
Sec. 46. Change of Accounting Period. - If a taxpayer, other than an individual,
changes his accounting period from fiscal year to calendar year, from calendar year
to fiscal year, or from one fiscal year to another, the net income shall, with the
approval of the Commissioner, be computed on the basis of such new accounting
period, subject to the provisions of Section 47.
xxxx
Sec. 48. Accounting for Long-term Contracts. - Income from long-term contracts
shall be repo1ied for tax purposes in the manner as provided in this Section.
As used herein, the term 'long-term contracts' means building, installation or
construction contracts covering a period in excess of one (1) year.
Persons whose gross income is derived in whole or in part from such contracts shall
report such income upon the basis of percentage of completion.1âwphi1
The return should be accompanied by a return certificate of architects or engineers
showing the percentage of completion during the taxable year of the entire work
performed under contract.
There should be deducted from such gross income all expenditures made during the
taxable year on account of the contract, account being taken of the material and
supplies on hand at the beginning and end of the taxable period for use in
connection with the work under the contract but not yet so applied.
If upon completion of a contract, it is found that the taxable net income arising
thereunder has not been clearly reflected for any year or years, the Commissioner
may permit or require an amended return.
Sec. 49. Installment Basis. -
(A) Sales of Dealers in Personal Property. - Under rules and regulations prescribed
by the Secretary of Finance, upon recommendation of the Commissioner, a person
who regularly sells or otherwise disposes of personal property on the installment
plan may return as income therefrom in any taxable year that proportion of the
installment payments actually received in that year, which the gross profit realized
or to be realized when payment is completed, bears to the total contract price.
(B) Sales of Realty and Casual Sales of Personality. - In the case (1) of a casual sale
or other casual disposition of personal property (other than property of a kind
which would properly be included in the inventory of the taxpayer if on hand at the
close of the taxable year), for a price exceeding One thousand pesos (₱1,000), or (2)
of a sale or other disposition of real prope1iy, if in either case the initial payments
do not exceed twenty-five percent (25%) of the selling price, the income may, under
the rules and regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, be returned on the basis and in the manner
above prescribed in this Section.
As used in this Section, the term 'initial payments' means the payments received in
cash or property other than evidences of indebtedness of the purchaser during the
taxable period in which the sale or other disposition is made.
(C) Sales of Real Property Considered as Capital Asset by Individuals. - An individual
who sells or disposes of real property, considered as capital asset, and is otherwise
qualified to report the gain therefrom under Subsection (B) may pay the capital
gains tax in installments under rules and regulations to be promulgated by the
Secretary of Finance, upon recommendation of the Commissioner.
(D) Change from Accrual to Installment Basis. - If a taxpayer entitled to the benefits
of Subsection (A) elects for any taxable year to report his taxable income on the
installment basis, then in computing his income for the year of change or any
subsequent year, amounts actually received during any such year on account of
sales or other dispositions of property made in any prior year shall not be
excluded." (emphasis in the original)
We now proceed to the matter respecting the accounting method employed by
Lancaster.
An accounting method is a "set of rules for determining when and how to report
income and deductions."46 The provisions under Chapter VIII, Title II of the NIRC
cited above enumerate the methods of accounting that the law expressly
recognizes, to wit:
(1) Cash basis method;47
(2) Accrual method;48
(3) Installment method;49
(4) Percentage of completion method;50 and
(5) Other accounting methods.
Any of the foregoing methods may be employed by any taxpayer so long as it
reflects its income properly and such method is used regularly. The peculiarities of
the business or occupation engaged in by a taxpayer would largely determine how it
would report incomes and expenses in its accounting books or records. The NIRC
does not prescribe a uniform, or even specific, method of accounting.
Too, other methods approved by the CIR, even when not expressly mentioned in
the NIRC, may be adopted if such method would enable the taxpayer to properly
reflect its income. Section 43 of the NIRC authorizes the CIR to allow the use of a
method of accounting that in its opinion would clearly reflect the income of the
taxpayer. An example of such method not expressly mentioned in the NIRC, but
duly approved by the CIR, is the 'crop method of accounting' authorized under RAM
No. 2-95. The pertinent provision reads:
II. Accounting Methods
xxxx
F. Crop Year Basis is a method applicable only to farmers engaged in the production
of crops which take more than a year from the time of planting to the process of
gathering and disposal. Expenses paid or incurred are deductible in the year the
gross income from the sale of the crops are realized.
The crop method recognizes that the harvesting and selling of crops do not fall
within the same year that they are planted or grown. This method is especially
relevant to farmers, or those engaged in the business of producing crops who,
pursuant to RAM No. 2-95, would then be able to compute their taxable income on
the basis of their crop year. On when to recognize expenses as deductions against
income, the governing rule is found in the second sentence of Subsection F cited
above. The rule enjoins the recognition of the expense (or the deduction of the
cost) of crop production in the year that the crops are sold (when income is
realized).
In the present case, we find it wholly justifiable for Lancaster, as a business engaged
in the production and marketing of tobacco, to adopt the crop method of
accounting. A taxpayer is authorized to employ what it finds suitable for its purpose
so long as it consistently does so, and in this case, Lancaster does appear to have
utilized the method regularly for many decades already. Considering that the crop
year of Lancaster starts from October up to September of the following year, it
follows that all of its expenses in the crop production made within the crop year
starting from October 1997 to September 1998, including the February and March
1998 purchases covered by purchase invoice vouchers, are rightfully deductible for
income tax purposes in the year when the gross income from the crops are realized.
Pertinently, nothing from the pleadings or memoranda of the parties, or even from
their testimonies before the CT A, would support a finding that the gross income
from the crops (to which the subject expenses refer) was actually realized by the
end of March 1998, or the closing of Lancaster's fiscal year for 1998. Instead, the
records show that the February and March 1998 purchases were recorded by
Lancaster as advances and later taken up as purchases by the close of the crop year
in September 1998, or as stated very clearly above, within the fiscal year 1999.51On
this point, we quote with approval the ruling of the CT A En Banc, thus:
Considering that [Lancaster] is engaged in the production oftobacco, it applied the
crop year basis in determining its total purchases for each fiscal year. Thus,
[Lancaster's] total cost for the production of its crops, which includes its purchases,
must be taken as a deduction in the year in which the gross income is realized.
Thus, We agree with the following ratiocination of the First Division:
Evident from the foregoing, the crop year basis is one unusual method of
accounting wherein the entire cost of producing the crops (including purchases)
must be taken as a deduction in the year in which the gross income from the crop is
realized. Since the petitioner's crop year starts in October and ends in September of
the following year, the same does not coincide with petitioner's fiscal year which
starts in April and ends in March of the following year. However, the law and
regulations consider this peculiar situation and allow the costs to be taken up at the
time the gross income from the crop is realized, as in the instant case.
[Lancaster's] fiscal period is from April 1, 1998 to March 31, 1999. On the other
hand, its crop year is from October 1, 1997 to September 1, 1998. Accordingly, in
applying the crop year method, all the purchases made by the respondent for
October 1, 1997 to September 1, 1998 should be deducted from the fiscal year
ending March 31, 1999, since it is the time when the gross income from the crops is
realized.52
The matching principle
Both petitioner CIR and respondent Lancaster, it must be noted, rely upon the
concept of matching cost against revenue to buttress their respective theories. Also,
both parties cite RAM 2-95 in referencing the crop method of accounting.
We are tasked to determine which view is legally sound.
In essence, the matching concept, which is one of the generally accepted
accounting principles, directs that the expenses are to be reported in the same
period that related revenues are earned. It attempts to match revenue with
expenses that helped earn it.
The CIR posits that Lancaster should not have recognized in FY 1999 the purchases
for February and March 1998.53 Apparent from the reasoning of the CIR is that such
expenses ought to have been deducted in FY 1998, when they were supposed to be
paid or incurred by Lancaster. In other words, the CIR is of the view that the subject
purchases match with revenues in 1998, not in 1999
A reading of RAM No. 2-95, however, clearly evinces that it conforms with the
concept that the expenses paid or incurred be deducted in the year in which gross
income from the sale of the crops is realized. Put in another way, the expenses are
matched with the related incomes which are eventually earned. Nothing from the
provision is it strictly required that for the expense to be deductible, the income to
which such expense is related to be realized in the same year that it
is paid or incurred. As noted by the CTA,54 the crop method is an unusual method of
accounting, unlike other recognized accounting methods that, by mandate of Sec.
45 of the NIRC, strictly require expenses be taken in the same taxable year when SO ORDERED.
the income is 'paid or incurred, ' or 'paid or accrued, ' depending upon the method
of accounting employed by the taxpayer.

Even if we were to accept the notion that applying the 1998 purchases as
deductions in the fiscal year 1998 conforms with the generally accepted principle of
matching cost against revenue, the same would still not lend any comfort to the
CIR. Revenue Memorandum Circular (RMC) No. 22-04, entitled "Supplement to
Revenue Memorandum Circular No. 44-2002 on Accounting Methods to be Used by SECOND DIVISION
Taxpayers for Internal Revenue Tax Purposes" 55dated 12 April 2004, commands that
where there is conflict between the provisions of the Tax Code (NIRC), including its G.R. No. 205652, September 06, 2017
implementing rules and regulations, on accounting methods and the generally
accepted accounting principles, the former shall prevail. The relevant portion of
PROCTER & GAMBLE ASIA PTE LTD., Petitioner, v. COMMISSIONER OF INTERNAL
RMC 22-04 reads:
REVENUE, Respondent.

II. Provisions of the Tax Code Shall Prevail.

DECISION

All returns required to be filed by the Tax Code shall be prepared always in
conformity with the provisions of the Tax Code, and the rules and regulations
implementing said Tax Code. Taxability of income and deductibility of expenses
shall be determined strictly in accordance with the provisions of the Tax Code and
the rules and regulations issued implementing said Tax Code. In case of difference
between the provisions of the Tax Code and the rules and regulations implementing
the Tax Code, on one hand, and the general(v accepted accounting principles (GAAP)
and the generally accepted accounting standards (GAAS), on the other hand, the
provisions of the Tax Code and the rules and regulations issued implementing said
Tax Code shall prevail. (italics supplied)
RAM No. 2-95 is clear-cut on the rule on when to recognize deductions for
taxpayers using the crop method of accounting. The rule prevails over any GAAP,
including the matching concept as applied in financial or business accounting.
CAGUIOA, J.:
Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of
Court filed by petitioner Procter & Gamble Asia Pte Ltd. (P&G) against the
Commissioner of Internal Revenue (CIR) seeking the reversal of the Decision 2 dated
September 21, 2012 and Resolution3 dated January 30, 2013 of the Court of Tax
Appeals (CTA) En Banc in C.T.A. EB Case No. 742. The CTA En Banc affirmed the CTA
Special Second Division's dismissal of P&G's claim for refund of unutilized input
value-added tax (VAT) attributable to its zero-rated sales covering the first and
second quarters of calendar year 2005, for being prematurely filed.
Facts

In sum, and considering the foregoing premises, we find no cogent reason to
overturn the assailed decision and resolution of the CT A. As the CTA decreed,
Assessment Notice LTAID II IT-98-00007, dated 11 October 2002, in the amount of
₱6,466,065.50 for deficiency income tax should be cancelled and set aside. The
assessment is void for being issued without valid authority. Furthermore, there is no
legal justification for the disallowance of Lancaster's expenses for the purchase of
tobacco in February and March 1998.
P&G is a foreign corporation duly organized and existing under the laws of
Singapore and is maintaining a Regional Operating Headquarter in the
Philippines.4 It provides management, marketing, technical and financial advisory,
and other qualified services to related companies as specified by its Certificate of
Registration and License issued by the Securities and Exchange Commission. 5 It is a
VAT-registered taxpayer and is covered by Bureau of Internal Revenue (BIR)
Certificate of Registration No. 9RC0000071787.6

P&G filed its Monthly VAT Declarations and Quarterly VAT Returns on the following
WHEREFORE, the petition is DENIED. The assailed 30 April 2008 Decision and 24
dates:
June 2008 Resolution of the Court of Tax Appeals En Banc are AFFIRMED. No cost

VAT
RETURN/DECLARATION
January (Monthly)
February (Monthly)
Ending March (Quarterly)
Revenue v. Aichi Forging Company of Asia, Inc.14 (Aichi). In that case, the Court held
DATE FILED DATE FILED that compliance with the 120-day period granted to the CIR, within which to act on
(ORIGINAL) (AMENDED) an administrative claim for refund or credit of unutilized input VAT, as provided
under Section 112(C) of the National Internal Revenue Code of 1997 (NIRC), as
February 21, 2005
amended, is mandatory and jurisdictional in filing an appeal with the CTA.
March 18, 2005
In a Decision15 dated November 17, 2010, the CTA Division dismissed P&G's judicial
April 25, 2005 March 19, 2007 claim, for having been prematurely filed.16

April (Monthly) May 20, 2005 Citing Aichi, the CTA Division held that the CIR is granted by law a period of 120 days
to act on the administrative claim for refund.17 Upon denial of the claim, or after
May (Monthly) June 21, 2005 the expiration of the 120-day period without action by the CIR, only then may the
taxpayer-claimant seek judicial recourse to appeal the CIR's action or inaction on a
Ending June (Quarterly) July 26, 20057 March 20, 20078 refund/tax credit claim, within a period of 30 days.18 According to the CTA Division,
P&G failed to observe the 120-day period granted to the CIR.19 Its judicial claims
were prematurely filed with the CTA on March 28, 2007 (CTA Case No. 7581) and
On March 22, 2007 and May 2, 2007, P&G filed applications and letters addressed June 8, 2007 (CTA Case No. 7639), or only six (6) days and thirty-seven (37) days,
to the BIR Revenue District Office (RDO) No. 49, requesting the refund or issuance respectively, from the filing of the applications at the administrative level.20 Thus,
of tax credit certificates (TCCs) of its input VAT attributable to its zero-rated sales the CTA Division ruled that inasmuch as P&G's petitions were prematurely filed, it
covering the taxable periods of January 2005 to March 2005, and April 2005 to June did not acquire jurisdiction over the same.21
2005.9
P&G moved for reconsideration but this was denied by the CTA Division in its
On March 28, 2007, P&G filed a petition for review with the CTA seeking the refund Resolution22 dated March 9, 2011.
or issuance of TCC in the amount of P23,090,729.17 representing input VAT paid on
goods or services attributable to its zero-rated sales for the first quarter of taxable Aggrieved, P&G elevated the matter to the CTA En Banc insisting, among others,
year 2005. The case was docketed as CTA Case No. 7581.10 that the Court's ruling in Aichi should not be given a retroactive effect.23

On June 8, 2007, P&G filed with the CTA another judicial claim for refund or On September 21, 2012, the CTA En Banc rendered the assailed Decision
issuance of TCC in the amount of P19,006,753.58 representing its unutilized input affirming in toto the CTA Division's Decision and Resolution. It agreed with the CTA
VAT paid on goods and services attributable to its zero-rated sales for the second Division in applying the ruling in Aichi which warranted the dismissal of P&G's
quarter of taxable year 2005. The case was docketed as CTA Case No. 7639.11 judicial claim for refund on the ground of prematurity.

On July 30, 2007, the CTA Division granted P&G's Motion to Consolidate CTA Case
No. 7581 with 7639, inasmuch as the two cases involve the same parties and
common questions of law and/or facts.12
Proceedings ensued before the CTA Division. P&G presented testimonial and
voluminous documentary evidence to prove its entitlement to the amount claimed
for VAT refund. The CIR, on the other hand, submitted the case for decision based
on the pleadings, as the claim for refund was still pending before the BIR RDO No.
40.13
P&G moved for reconsideration,24 but the same was denied by the Court En
Banc for lack of merit.25
In the meantime, on February 12, 2013, this Court decided the consolidated cases
of Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito
Mining Corporation v. Commissioner of Internal Revenue, and Philex Mining
Corporation v. Commissioner of Internal Revenue 26(San Roque), where the Court
recognized BIR Ruling No. DA-489-03 as an exception to the mandatory and
jurisdictional nature of the 120-day waiting period.

Meanwhile, on October 6, 2010, while P&G's claim for refund or tax credit was On March 27, 2013, P&G filed the present petition.27
pending before the CTA Division, this Court promulgated Commissioner of Internal
Issue
Culled from the submissions of the parties, the singular issue for this Court's
resolution is whether the CTA En Banc erred in dismissing P&G's judicial claims for
refund on the ground of prematurity.
P&G avers that its judicial claims for tax refund/credit was filed with the CTA
Division on March 28, 2007 and June 8, 2007, after the issuance of BIR Ruling
No.DA-489-03 on December 10, 2003, but before the adoption of the Aichi doctrine
on October 6, 2010. Accordingly, pursuant to the Court's ruling in San Roque, its
judicial claims with the CTA was deemed timely filed.28 .
P&G further contends that the CTA En Banc gravely erred in applying
the Aichi doctrine retroactively. According to P&G, the retroactive application
of Aichi amounts to a denial of its constitutional right to due process and unjust
enrichment of the CIR.29
Lastly, P&G claims that assuming, without conceding, that its judicial claims were
prematurely filed, its failure to observe the 120-day period was not jurisdictional
but violates only the rule on exhaustion of administrative remedies, which was
deemed waived when the CIR did not file a motion to dismiss and opted to actively
participate at the trial.30
The CIR, on the other hand, insists that the plain language of Section 112(C) of the
NIRC, as amended, demands mandatory compliance with the 120+30-day rule; and
P&G cannot claim reliance in good faith with BIR Ruling No. DA-489-03 to shield the
filing of its judicial claims from the vice of prematurity.31
The Court's Ruling
The Court finds the petition meritorious.
Exception to the mandatory and jurisdictional 120+30-day periods under Section
112(C) of the NIRC
Section 112 of the NIRC, as amended, provides for the rules on claiming refunds or
tax credits of unutilized input VAT, the pertinent portions of which read as follows:
SEC. 112. Refunds or Tax Credits of Input Tax. —
(A) Zero-rated or Effectively Zero-rated Sales. — Any VAT-registered person, whose
sales are zero-rated or effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made, apply for the issuance of a
tax credit certificate or refund of creditable input tax due or paid attributable to
such sales, except transitional input tax, to the extent that such input tax has not
been applied against output tax: x x x
xxxx
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In
proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days from the
date of submission of complete documents in support of the application filed in
accordance with Subsection (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure
on the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer affected may, within thirty (30) days from the
receipt of the decision denying the claim or after the expiration of the one hundred
twenty-day period, appeal the decision or the unacted claim with the Court of Tax
Appeals. (Emphasis supplied)
Based on the plain language of the foregoing provision, the CIR is given 120 days
within which to grant or deny a claim for refund. Upon receipt of CIR's decision or
ruling denying the said claim, or upon the expiration of the 120-day period without
action from the CIR, the taxpayer has 30 days within which to file a petition for
review with the CTA.
In Aichi, the Court ruled that compliance with the 120+30-day periods is mandatory
and jurisdictional and is fatal to the filing of a judicial claim with the CTA.
Subsequently, however, in San Roque, while the Court reiterated the mandatory
and jurisdictional nature of the 120+30-day periods, it recognized as an exception
BIR Ruling No. DA-489-03, issued prior to the promulgation of Aichi, where the BIR
expressly allowed the filing of judicial claims with the CTA even before the lapse of
the 120-day period. The Court held that BIR Ruling No. DA-489-03 furnishes a valid
basis to hold the CIR in estoppel because the CIR had misled taxpayers into filing
judicial claims with the CTA even before the lapse of the 120-day period:
There is no dispute that the 120-day period is mandatory and jurisdictional, and
that the CTA does not acquire jurisdiction over a judicial claim that is filed before
the expiration of the 120-day period. There are, however, two exceptions to this
rule. The first exception is if the Commissioner, through a specific ruling, misleads a
particular taxpayer to prematurely file a judicial claim with the CTA. Such specific
ruling is applicable only to such particular taxpayer. The second exception is where
the Commissioner, through a general interpretative rule issued under Section 4 of
the Tax Code, misleads all taxpayers into filing prematurely judicial claims with the
CTA. In these cases, the Commissioner cannot be allowed to later on question the
CTA's assumption of jurisdiction over such claim since equitable estoppel has set in
as expressly authorized under Section 246 of the Tax Code.
xxxx
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response
to a query made, not by a particular taxpayer, but by a government agency tasked
with processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax
Credit and Drawback Center of the Department of Finance. This government agency
is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus,
while this government agency mentions in its query to the Commissioner the
administrative claim of Lazi Bay Resources Development, Inc., the agency was in
fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay
Resources Development, Inc., where the taxpayer did not wait for the lapse of the
120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers
can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December
2003 up to its reversal by this Court in Aichi on 6 October 2010, where this Court
held that the 120+30 day periods are mandatory and jurisdictional. 32 (Emphasis
supplied)
In Visayas Geothermal Power Company v. Commissioner of Internal Revenue,33 the
Court came up with an outline summarizing the pronouncements in San Roque, to
wit:
For clarity and guidance, the Court deems it proper to outline the rules laid down
in San Roque with regard to claims for refund or tax credit of unutilized creditable
input VAT. They are as follows:
1. When to file an administrative claim with the CIR:
a. General rule - Section 112(A) and Mirant,
Within 2 years from the close of the taxable quarter when the
sales were made. .
b. Exception - Atlas
Within 2 years from the date of payment of the output VAT, if the
administrative claim was filed from June 8, 2007 (promulgation
of Atlas) to September 12, 2008 (promulgation of Mirant).
2. When to file a judicial claim with the CTA:
a. General rule - Section 112(D); not Section 229
i. Within 30 days from the full or partial denial of the
administrative claim by the CIR; or
ii. Within 30 days from the expiration of the 120-day period
provided to the CIR to decide on the claim. This is
mandatory and jurisdictional beginning January 1, 1998
(effectivity of 1997 NIRC).
b. Exception - BIR Ruling No. DA-489-03
The judicial claim need not await the expiration of the 120-day period, if such was
filed from December 10, 2003 (issuance of BIR Ruling No. DA-489-03) to October 6,
2010 (promulgation oi Aichi).34 (Emphasis and underscoring supplied)
In this case, records show that P&G filed its judicial claims for refund on March 28,
2007 and June 8, 2007, respectively, or after the issuance of BIR Ruling No. DA-489-
03, but before the date when Aichiwas promulgated. Thus, even though P&G filed
its judicial claim without waiting for the expiration of the 120-day mandatory
period, the CTA may still take cognizance of the case because the claim was filed
within the excepted period stated in San Roque. In other words, P&G's judicial
claims were deemed timely filed and should not have been dismissed by the CTA.
Application and validity of BIR Ruling No. DA-489-03
The CIR, however, argues that BIR Ruling No. DA-489-03 was already repealed and
superseded on November 1, 2005 by Revenue Regulation No. 16-2005 (RR 16-
2005), which echoed the mandatory and jurisdictional nature of the 120-day period
under Section 112(C) of the NIRC. Thus, P&G cannot rely, in good faith, on BIR
Ruling No. DA-489-03 because its judicial claims were filed in March and June 2007
or after RR 16-2005 took effect.35 In other words, it is the CIR's position that
reliance on BIR Ruling No. DA-489-03 should only be permissible from the date of its
issuance, on December 10, 2003, until October 31, 2005, or prior to the effectivity
of RR 16-2005.
The Court disagrees.

This issue was also raised by the CIR in Commissioner of Internal Revenue v.
Deutsche Knowledge Services, Pte. Ltd.,36 where the Court reiterated
that all taxpayers may rely upon BIR Ruling No. DA-489-03, as a general
interpretative rule, from the time of its issuance on December 10, 2003 until its
effective reversal by the Court in Aichi.37 The Court further held that while RR 16-
2005 may have re-established the necessity of the 120-day period, taxpayers cannot
be faulted for still relying on BIR Ruling No. DA-489-03 even after the issuance of RR
16-2005 because the issue on the mandatory compliance of the 120-day period was
only brought before the Court and resolved with finality in Aichi.38
Accordingly, in consonance with the doctrine laid down in San Roque, the Court
finds that P&G's judicial claims were timely filed and should be given due course
and consideration by the CTA.
WHEREFORE, premises considered, the instant petition for review is
hereby GRANTED. The Decision dated September 21, 2012 and the Resolution
dated January 30, 2013 of the CTA En Banc in C.T.A. EB Case No. 742 are
hereby REVERSED AND SET ASIDE. Accordingly, CTA Case Nos. 7581 and 7639
are REINSTATED and REMANDED to the CTA Special Second Division for the proper
determination of the refundable amount due to petitioner Procter & Gamble Asia
Pte Ltd., if any.
SO ORDERED.
SECOND DIVISION
August 9, 2017
G.R. No. 216161
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
PHILIPPINE-ALUMINUM WHEELS, INC.,, Respondent
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review on certiorari1 assailing the 19 May 2014
Decision2 and the 5 January 2015 Resolution3 of the Court of Tax Appeals (CTA) En
Banc in CTAEB No. 994.
The CTA En Banc affirmed the Decision of the CTA First Division ordering the
cancellation and withdrawal of the deficiency tax assessments issued by the
Commissioner of Internal Revenue (CIR) against Philippine Aluminum Wheels, Inc.
(respondent).
The Facts
Respondent is a corporation organized and existing under Philippine laws which
engages in the manufacture, production, sale, and distribution of automotive parts
and accessories. On 16 December 2003, the Bureau of Internal Revenue (BIR) issued
a Preliminary Assessment Notice (PAN) against respondent covering deficiency
taxes for the taxable year 2001.4 On 28 March 2004, the BIR issued a Final
Assessment Notice (FAN) against respondent in the amount of ₱32,100,613.42. 5 On
23 June 2004, respondent requested for reconsideration of the FAN issued by the
BIR. On 8 November 2006, the BIR issued a Final Decision on Disputed Assessment
(FDDA) and demanded full payment of the deficiency tax assessment from
respondent.6 On 12 April 2007, the FDDA was served through registered mail.
On 19 July 2007, respondent filed with the BIR an application for the abatement of
its tax liabilities under Revenue Regulations No. 13-2001 for the taxable year
2001.7 In a letter dated 12 September 2007,8 the BIR denied respondent's
application for tax abatement on the ground that the FDDA was already issued by
the BIR and that the FDDA had become final and executory due to the failure of the
respondent to appeal the FDDA with the CTA. The BIR contended that the FDDA had
been sent through registered mail on 12 April 2007 and that the FDDA had become
final, executory, and demandable because of the failure of the respondent to
appeal the FDDA with the CTA within thirty (30) days from receipt of the FDDA.
In a letter dated 19 September 2007,9 respondent informed the BIR that it already
paid its tax deficiency on withholding tax amounting to ₱736,726.89 through the
Electronic Filing and Payment System of the BIR and that if was also in the process
of availing of the Tax Amnesty Program under Republic Act No. 9480 (RA 9480) as
implemented by Revenue Memorandum Circular No. 55-2007 to settle its deficiency
tax assessment for the taxable year 2001. On 21 September 2007, respondent
complied with the requirements of RA 9480 which include: the filing of a Notice of
Availment, Tax Amnesty Return and Payment Form, and remitting the tax payment.
In a letter dated 29 January 2008, the BIR denied respondent's request and ordered
respondent to pay the deficiency tax assessment amounting to ₱29, 108, 767 .63 . 10
In a second letter dated 16 July 2008, the BIR reiterated that the FDDA had become
final and executory for the failure of the respondent to appeal the FDDA with the
CTA within the prescribed period of thirty (30) days. The BIR demanded the full
payment of the tax assessment and contended that the respondent's availment of
the tax amnesty under RA 9480 had no effect on the assessment due to the finality
of the FDDA prior to respondent's tax amnesty availment. On 1 August 2008,
respondent filed a Petition for Review with the CTA assailing the letter of the BIR
dated 16 July 2008.
The Decision of the CTA First Division
On 12 November 2012, the CTA granted respondent's Petition for Review and set
aside the assessment in view of respondent's availment of a tax amnesty under RA
9480. The CTA First Division held that RA 9480 covers all national internal revenue
taxes for the taxable year 2005 and prior years, with or without assessments duly
issued, that have remained unpaid as of 31 December 2005.11 The CTA First Division
ruled that respondent complied with all the requirements of RA 9480 including the
payment of the amnesty tax and submission of all relevant documents. Having
complied with all the requirements of RA 9480, respondent is fully entitled to the
immunities and privileges granted under RA 9480.12
The dispositive portion of the Decision states:
WHEREFORE, premises considered, the instant Petition for Review is GRANTED. The
subject assessment in the present case against petitioner is hereby SET ASIDE solely
in view of petitioner's availment of the Tax Amnesty Program under R.A. No. 9480;
and accordingly, petitioner is hereby DECLARED ENTITLED to the immunities and
privileges provided by the Tax Amnesty Law being a qualified tax amnesty applicant
and for having complied with all the documentary requirements set by law.
SO ORDERED.13
The CIR filed a Motion for Reconsideration14 on 3 December 2012 which the CTA
First Division denied on 1 March 2013.15
The Decision of the CTA En Banc
On 19 May 2014, the CTA En Banc held that a qualified tax amnesty applicant who
has completed the requirements of RA 9480 shall be deemed to have fully complied
with the Tax Amnesty Program. Upon compliance with the requirements of the law,
the taxpayer shall, as mandated by law, be immune from the payment of taxes as
well as appurtenant civil, criminal, or administrative penalties under the National
Internal Revenue Code. The CTA En Bancruled that the finality of a tax assessment
did not disqualify respondent from availing of a tax amnesty under RA 9480.
The dispositive portion of the Decision states:
WHEREFORE, premises considered, the Petition for Review filed by the
Commissioner of Internal Revenue is DENIED, for lack of merit. The Decision of the
First Division of this Court promulgated on November 12, 2012 in CTA Case No.
781[7], captioned Philippine Aluminum Wheels, Inc. v. Commissioner of Internal
Revenue, and the Resolution of the said Division dated March 1, 2013, are
AFFIRMED in toto.
SO ORDERED.16
The CIR filed a Motion for Reconsideration on 11 June 2014 which was denied on 5
January 2015.17
The Issue
Whether respondent is entitled to the benefits of the Tax Amnesty Program under
RA 9480.
The Decision of this Court
This Court denies the petition in view of the respondent's availment of the Tax
Amnesty Program under RA 9480.
A tax amnesty is a general pardon or intentional overlooking by the State of its
authority to impose penalties on persons otherwise guilty of evasion or violation of
a revenue or tax law. It partakes of an absolute forgiveness or waiver by the
government of its right to collect what is due it and to give tax evaders who wish to
relent a chance to start with a clean slate. A tax amnesty, much like a tax
exemption, is never favored nor presumed in law. The grant of a tax amnesty,
similar to a tax exemption, must be construed strictly against the taxpayer and
liberally in favor of the taxing authority.18
On 24 May 2007, RA 9480, or "An Act Enhancing Revenue Administration and
Collection by Granting an. Amnesty on All Unpaid Internal Revenue Taxes Imposed
by the National Government for Taxable Year 2005 and Prior Years," became law.
The pertinent provisions of RA 9480 are:
Section 1. Coverage. There is hereby authorized and granted a tax amnesty which
shall cover all national internal revenue taxes for the taxable year 2005 and prior
years, with or without assessments duly issued therefor, that have remained unpaid
as of December 31, 2005: Provided, however, that the amnesty hereby authorized
and granted shall not cover persons or cases enumerated under Section 8 hereof.
xxxx
Section 6. Immunities and Privileges. Those who availed themselves of the tax
amnesty under Section 5 hereof, and have fully complied with all its conditions shall
be entitled to the following immunities and privileges:
(a) The taxpayer shall be immune from the· payment of taxes, as well as additions
thereto, and the appurtenant civil, criminal or administrative penalties under the
National Internal Revenue Code of 1997, as amended, arising from the failure to pay
any and all internal revenue taxes for taxable year 2005 and prior years.
x x x x (Emphasis supplied)
The Department of Finance issued DOF Department Order No. 29-07 (DO 29-
07).19 Section 6 of DO 29-07 provides for the method for availing a tax amnesty
under RA 9480, to wit:
Section 6. Method of Availment of Tax Amnesty.
1. Forms/Documents to be filed. To avail of the general tax amnesty, concerned
taxpayers shall file the following documents/requirements:
a. Notice of Availment in such forms as may be prescribed by the BIR;
b. Statement of Assets, Liabilities and Networth (SALN) as of December 31, 2005 in
such forms, as may be prescribed by the BIR;
c. Tax Amnesty Return in such forms as may be prescribed by the BIR.
2. xxx.
3. xxx.
The Acceptance of Payment Form, the Notice of Availment, the SALN, and the Tax
Amnesty Return shall be submitted to the RDO, which shall be received only after
complete payment. The completion of these requirements shall be deemed full
compliance with the provisions of RA 9480.
x x x x (Emphasis supplied)
In Philippine Banking Corporation v. Commissioner of Internal Revenue, 20 this Court
held that the taxpayer's completion of the requirements under RA 9480, as
implemented by DO 29-07, will extinguish the taxpayer's tax liability, additions and
all appurtenant civil, criminal, or administrative penalties under the National
Internal Revenue Code, to wit:
Considering that the completion of these requirements shall be deemed full
compliance with the tax amnesty program, the law mandates that the taxpayer
shall thereafter be immune from the payment of taxes, and additions thereto, as
well as the appurtenant civil, criminal or administrative penalties under the NIRC of
1997, as amended, arising from the failure to pay any and all internal revenue taxes
for taxable year 2005 and prior years.21
Similarly, in Metropolitan Bank and Trust Company (Metrobank) v. Commissioner of
Internal Revenue,22 this Court sustained the validity of Metrobank's tax amnesty
upon full compliance with the requirements of RA 9480. This Court ruled:
"Therefore, by virtue of the availment by Metrobank of the Tax Amnesty Program
under Republic Act No. 9480, it is already immune from the payment of taxes,
including DST on the UNISA for 1999, as well as the addition thereto."23
On 19 September 2007, respondent availed of the Tax Amnesty Program under RA
9480, as implemented by DO 29-07.1âwphi1 Respondent submitted its Notice of
Availment, Tax Amnesty Return, Statement of Assets, Liabilities and Net Worth, and
comparative financial statements for 2005 and 2006. Respondent paid the amnesty
tax to the Development Bank of the Philippines, evidenced by its Tax Payment
Deposit Slip dated 21 September 2007. Respondent's completion of the
requirements of the Tax Amnesty Program under RA 9480 is sufficient to extinguish
its tax liability under the FDDA of the BIR.
In Asia International Auctioneers, Inc. v. Commissioner of Internal Revenue, 24 this
Court ruled that the tax liability of Asia International Auctioneers, Inc. was fully
settled when it was able to avail of the Tax Amnesty Program under RA 9480 in
February 2008 while its Petition for Review was pending before this Court. This
Court declared the pending case involving the tax liability of Asia International
Auctioneers, Inc. moot since the company's compliance with the Tax Amnesty
Program under RA 9480 extinguished the company's outstanding deficiency taxes.
The CIR contends that respondent is disqualified to avail of the tax amnesty under
RA 9480. The CIR asserts that the finality of its assessment, particularly its FDDA is
equivalent to a final and executory judgment by the courts, falling within the
exceptions to the Tax Amnesty Program under Section 8 of RA 9480, which states:
Section 8. Exceptions. The tax amnesty provided in Section 5 hereof shall not extend
to the following persons or cases existing as of the effectivity of this Act:
(a) Withholding agents with respect to their withholding tax liabilities;
(b) Those with pending cases falling under the jurisdiction of the Presidential
Commission on Good Government;
(c) Those with pending cases involving unexplained or unlawfully acquired wealth or
under the Anti-Graft and Corrupt Practices Act;
(d) Those with pending cases filed in court involving violation of the Anti-Money
Laundering Law;
(e) Those with pending criminal cases for tax evasion and other criminal offenses
under Chapter II of Title X of the National Internal Revenue Code of 1997, as
amended, and the felonies of frauds, illegal exactions and transactions, and
malversation of public funds and property under Chapters III and IV of Title VII of
the Revised Penal Code; and
(f) Tax cases subject of final and executory judgment by the courts. (Emphasis
supplied)
The CIR is wrong. Section 8(f) is clear: only persons with "tax cases subject of final
and executory judgment by the courts" are disqualified to avail of the Tax Amnesty
Program under RA 9480. There must be a judgment promulgated by a court and the
judgment must have become final and executory. Obviously, there is none in this
case. The FDDA issued by the BIR is not a tax, case "subject to a final and executory
judgment by the courts" as contemplated by Section 8(f) of RA 9480. The
determination of the tax liability of respondent has not reached finality and is still
not subject to an executory judgment by the courts as it is the issue pending before
this Court. In fact, in Metrobank, this Court held that the FDDA issued by the BIR
was not a final and executory judgment and did not prevent Metrobank from
availing of the immunities and privileges granted under RA 9480, to wit:
x x x. As argued by Metrobank, the very fact that the instant case is still subject of
the present proceedings is proof enough that it has not reached a final and
executory stage as to be barred from the tax amnesty under Republic Act No. 9480.
The assertion of the CIR that deficiency DST is not covered by the Tax Amnesty
Program under Republic Act No. 9480 is downright specious.25
The CIR alleges that respondent is disqualified to avail of the Tax Amnesty Program
under Revenue Memorandum Circular No. 19-2008 (RMC No. 19-2008) dated 22
February 2008 issued by the BIR which includes "delinquent accounts or accounts
receivable considered as assets by the BIR or the Government, including self-
assessed tax" as disqualifications to avail of the Tax Amnesty Program under RA
9480. The exception of delinquent accounts or accounts receivable by the BIR under
RMC No. 19- 2008 cannot amend RA 9480. As a rule, executive issuances including
implementing rules and regulations cannot amend a statute passed by Congress.
In National Tobacco Administration v. Commission on Audit, 26 this Court held that
in case there is a discrepancy between the law and a regulation issued to
implement the law, the law prevails because the rule or regulation cannot go
beyond the terms and provisions of the law, to wit: "[t]he Circular cannot extend
the law or expand its coverage as the power to amend or repeal a statute is vested
with the legislature." To give effect to the exception under RMC No. 19-2008 of
delinquent accounts or accounts receivable by the BIR, as interpreted by the BIR,
would unlawfully create a new exception for availing of the Tax Amnesty Program
under RA 9480.
WHEREFORE, we DENY the petition. We AFFIRM the 19 May 2014 Decision and the
5 January 2015 Resolution of the Court of Tax Appeals En Banc in CTA EB No. 994.
SO ORDERED.

FIRST DIVISION
G.R. No. 185115, February 18, 2015
NORTHERN MINDANAO POWER CORPORATION, Petitioner, v. COMMISSIONER OF
INTERNAL REVENUE, Respondents.
DECISION
SERENO, C.J.:
This is a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Civil
Procedure filed by Northern Mindanao Power Corporation (petitioner). The Petition
assails the Decision2 dated 18 July 2008 and Resolution3 dated 27 October 2008
issued by the Court of Tax Appeals En Banc (CTA En Banc) in C.T.A. EB No. 312.
The Facts
Petitioner is engaged in the production sale of electricity as an independent power
producer and sells electricity to National Power Corporation (NPC). It allegedly
incurred input value-added tax (VAT) on its domestic purchases of goods and
services that were used in its production and sale of electricity to NPC. For the
3rd and the 4th quarters of taxable year 1999, petitioner’s input VAT totaled to
P2,490,960.29, while that incurred for all the quarters of taxable year 2000
amounted to
P3,920,932.55.4chanroblesvirtuallawlibrary
rd
Petitioner filed an administrative claim for a refund on 20 June 2000 for the 3 and
the 4th quarters of taxable year 1999, and on 25 July 2001 for taxable year 2000 in
the sum of P6,411,892.84.5chanroblesvirtuallawlibrary
Thereafter, alleging inaction of respondent on these administrative claims,
petitioner filed a Petition6 with the CTA on 28 September 2001.
The CTA First Division denied the Petition and the subsequent Motion for
Reconsideration for lack of merit. The Court in Division found that the term “zero-
rated” was not imprinted on the receipts or invoices presented by petitioner in
violation of Section 4.108-1 of Revenue Regulations No. 7-95. Petitioner failed to
substantiate its claim for a refund and to strictly comply with the invoicing
requirements of the law and tax regulations.7 In his Concurring and Dissenting
Opinion, however, then Presiding Justice Ernesto D. Acosta opined that the Tax
Code does not require that the word “zero-rated” be imprinted on the face of the
receipt or invoice. He further pointed out that the absence of that term did not
affect the admissibility and competence of the receipt or invoice as evidence to
support the claim for a refund.8chanroblesvirtuallawlibrary
On appeal to the CTA En Banc, the Petition was likewise denied. The court ruled
that for every sale of services, VAT shall be computed on the basis of gross receipts
indicated on the official receipt. Official receipts are proofs of sale of services and
cannot be interchanged with sales invoices as the latter are used for the sale of
goods. Further, the requirement of issuing duly registered VAT official receipts with
the term “zero-rated” imprinted is mandatory under the law and cannot be
substituted, especially for input VAT refund purposes. Then Presiding Justice Acosta
maintained his dissent.
Hence, this appeal before us.
Issues
Petitioner’s appeal is anchored on the following
grounds:chanRoblesvirtualLawlibrary
Section 4.108-1 of Revenue Regulations (RR) No. 7-95 which expanded the statutory
requirements for the issuance of official receipts and invoices found in Section 113
of the 1997 Tax Code by providing for the additional requirement of the imprinting
of the terms “zero-rated” is unconstitutional.
Company invoices are sufficient to establish the actual amount of sale of electric
power services to the National Power Corporation and therefore sufficient to
substantiate Petitioner’s claim for refund.9
The Court’s Ruling
To start with, this Court finds it appropriate to first determine the timeliness of
petitioner’s judicial claim in order to determine whether the tax court properly
acquired jurisdiction, although the matter was never raised as an issue by the
parties. Well-settled is the rule that the issue of jurisdiction over the subject matter
may, at any time, be raised by the parties or considered by the Court motu
proprio.10 Therefore, the jurisdiction of the CTA over petitioner’s appeal may still be
considered and determined by this Court.
Section 112 of the National Internal Revenue Code (NIRC) of 1997 laid down the
manner in which the refund or credit of input tax may be made. For a VAT-
registered person whose sales are zero-rated or effectively zero-rated, Section
112(A) specifically provides for a two-year prescriptive period after the close of the
taxable quarter when the sales were made within which such taxpayer may apply
for the issuance of a tax credit certificate or refund of creditable input tax. In the
consolidated tax cases Commissioner of Internal Revenue v. San Roque Power
Corporation, Taganito Mining Corporation v. Commissioner of Internal Revenue, and
Philex Mining Corporation v. Commissioner of Internal Revenue11(hereby collectively
referred to as San Roque), the Court clarified that the two-year period refers to the
filing of an administrative claim with the BIR.
In this case, petitioner had until 30 September 2001 and 31 December 2001 for the
claims covering the 3rd and the 4th quarters of taxable year 1999; and 31 March, 30
June, 30 September and 31 December in 2002 for the claims covering all four
quarters of taxable year 2000 - or the close of the taxable quarter when the zero-
rated sales were made - within which to file its administrative claim for a refund. On
this note, we find that petitioner had sufficiently complied with the two-year
prescriptive period when it filed its administrative claim for a refund on 20 June
2000 covering the 3rd and the 4th quarters of taxable year 1999 and on 25 July 2001
covering all the quarters of taxable year 2000.
Pursuant to Section 112(D) of the NIRC of 1997, respondent had one hundred
twenty (120) days from the date of submission of complete documents in support
of the application within which to decide on the administrative claim. The burden of
proving entitlement to a tax refund is on the taxpayer. Absent any evidence to the
contrary, it is presumed that in order to discharge its burden, petitioner attached to
its applications complete supporting documents necessary to prove its entitlement
to a refund.12 Thus, the 120-day period for the CIR to act on the administrative
claim commenced on 20 June 2000 and 25 July 2001.
As laid down in San Roque, judicial claims filed from 1 January 1998 until the
present should strictly adhere to the 120+30-day period referred to in Section 112
of the NIRC of 1997. The only exception is the period 10 December 2003 until 6
October 2010. Within this period, BIR Ruling No. DA-489-03 is recognized as an
equitable estoppel, during which judicial claims may be filed even before the
expiration of the 120-day period granted to the CIR to decide on a claim for a
refund.
For the claims covering the 3rd and the 4th quarters of taxable year 1999 and all the
quarters of taxable year 2000, petitioner filed a Petition with the CTA on 28
September 2001.
Both judicial claims must be disallowed.
a) Claim for a refund of input VAT covering the 3rd and the 4th quarters of taxable
year 1999
Counting 120 days from 20 June 2000, the CIR had until 18 October 2000 within
which to decide on the claim of petitioner for an input VAT refund attributable to its
zero-rated sales for the period covering the 3rd and the 4th quarters of taxable year
1999. If after the expiration of that period respondent still failed to act on the
administrative claim, petitioner could elevate the matter to the court within 30 days
or until 17 November 2000.
Petitioner belatedly filed its judicial claim with the CTA on 28 September 2001. Just
like in Philex, this was a case of late filing. The Court explained
thus:chanRoblesvirtualLawlibrary
Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of
late filing. Philex did not file any petition with the CTA within the 120-day period.
Philex did not also file any petition with the CTA within 30 days after the expiration
of the 120-day period. Philex filed its judicial claim long after the expiration of the
120-day period, in fact 426 days after the lapse of the 120-day period. In any event,
whether governed by jurisprudence before, during, or after the Atlas case,
Philex’s judicial claim will have to be rejected because of late filing. Whether the
two-year prescriptive period is counted from the date of payment of the output
VAT following the Atlas doctrine, or from the close of the taxable quarter when the
sales attributable to the input VAT were made following
the Mirant and Aichi doctrines, Philex’s judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim.
The inactionof the Commissioner on Philex’s claim during the 120-day period is, by
express provision of law, “deemed a denial” of Philex’s claim. Philex had 30 days
from the expiration of the 120-day period to file its judicial claim with the CTA.
Philex’s failure to do so rendered the “deemed a denial” decision of the
Commissioner final and inappealable. The right to appeal to the CTA from a decision
or “deemed a denial” decision of the Commissioner is merely a statutory privilege,
not a constitutional right. The exercise of such statutory privilege requires strict
compliance with the conditions attached by the statute for its exercise. Philex failed
to comply with the statutory conditions and must thus bear the consequences.
xxxx
Philex’s situation is not a case of premature filing of its judicial claim but of late
filing, indeed very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a
judicial claim, which means non-exhaustion of the 120-day period for the
Commissioner to act on an administrative claim. Philex cannot claim the benefit of
BIR Ruling No. DA-489-03 because Philex did not file its judicial claim prematurely
but filed it long after the lapse of the 30-day period following the expiration of the
120-day period. In fact, Philex filed its judicial claim 426 days after the lapse of the
30-day period.13 (Emphasis in the original)
Petitioner’s claim for the 3rd and the 4th quarters of taxable year 1999 was filed 319
days after the expiration of the 30-day period. To reiterate, the right to appeal is a
mere statutory privilege that requires strict compliance with the conditions
attached by the statute for its exercise. Like Philex, petitioner failed to comply with
the statutory conditions and must therefore bear the consequences. It already lost
its right to claim a refund or credit of its alleged excess input VAT attributable to
zero-rated or effectively zero-rated sales for the 3rd and the 4th quarters of taxable
year 1999 by virtue of its own failure to observe the prescriptive periods.
b) Claim for the refund of input VAT covering all quarters of taxable year 2000
For the year 2000, petitioner timely filed its administrative claim on 25 July
2001within the two-year period from the close of the taxable quarter when the
zero-rated sales were made. Pursuant to Section 112(D) of the NIRC of 1997,
respondent had 120 days or until 22 November 2001 within which to act on
petitioner’s claim. It is only when respondent failed to act on the claim after the
expiration of that period that petitioner could elevate the matter to the tax court.
Records show, however, that petitioner filed its Petition with the CTA on 28
September 2001 without waiting for the expiration of the 120-day period. Barely 64
days had lapsed when the judicial claim was filed with the CTA. The Court in San
Roque has already settled that failure of the petitioner to observe the mandatory
120-day period is fatal to its judicial claim and renders the CTA devoid of jurisdiction
over that claim. On 28 September 2001 – the date on which petitioner filed its
judicial claim for the period covering taxable year 2000 - the 120+30 day mandatory
period was already in the law and BIR Ruling No. DA-489-03 had not yet been
issued. Considering this fact, petitioner did not have an excuse for not observing the
120+30 day period. Again, as enunciated in San Roque, it is only the period between
10 December 2003 and 6 October 2010 that the 120-day period may not be
observed. While the ponente had disagreed with the majority ruling in San Roque,
the latter is now the judicial doctrine that will govern like cases.
The judicial claim was thus prematurely filed for failure of petitioner to observe the
120-day waiting period. The CTA therefore did not acquire jurisdiction over the
claim for a refund of input VAT for all the quarters of taxable year 2000.
In addition, the issue of the requirement of imprinting the word “zero-rated” has
already been settled by this Court in a number of cases. In Western Mindanao
Power Corporation v. CIR,14 we ruled:chanRoblesvirtualLawlibrary
RR 7-95, which took effect on 1 January 1996, proceeds from the rule-making
authority granted to the Secretary of Finance by the NIRC for the efficient
enforcement of the same Tax Code and its amendments. In Panasonic
Communications Imaging Corporation of the Philippines v. Commissioner of Internal
Revenue, we ruled that this provision is “reasonable and is in accord with the
efficient collection of VAT from the covered sales of goods and services.” Moreover,
we have held in Kepco Philippines Corporation v. Commissioner of Internal
Revenue that the subsequent incorporation of Section 4.108-1 of RR 7-95 in Section
113 (B) (2) (c) of R.A. 9337 actually confirmed the validity of the imprinting
requirement on VAT invoices or official receipts – a case falling under the principle
of legislative approval of administrative interpretation by reenactment.
In fact, this Court has consistently held as fatal the failure to print the word “zero-
rated” on the VAT invoices or official receipts in claims for a refund or credit of
input VAT on zero-rated sales, even if the claims were made prior to the effectivity
of R.A. 9337. Clearly then, the present Petition must be denied.cralawred
Finally, as regards the sufficiency of a company invoice to prove the sales of services
to NPC, we find this claim is without sufficient legal basis. Section 113 of the NIRC of
1997 provides that a VAT invoice is necessary for every sale, barter or exchange of
goods or properties, while a VAT official receipt properly pertains to every lease of
goods or properties; as well as to every sale, barter or exchange of services.
The Court has in fact distinguished an invoice from a receipt in Commissioner of
Internal Revenue v. Manila Mining Corporation:15
A “sales or commercial invoice” is a written account of goods sold or services
rendered indicating the prices charged therefor or a list by whatever name it is
known which is used in the ordinary course of business evidencing sale and transfer
or agreement to sell or transfer goods and services.
A “receipt” on the other hand is a written acknowledgment of the fact of payment
in money or other settlement between seller and buyer of goods, debtor or
creditor, or person rendering services and client or customer.cralawred
A VAT invoice is the seller’s best proof of the sale of goods or services to the buyer,
while a VAT receipt is the buyer’s best evidence of the payment of goods or services
received from the seller. A VAT invoice and a VAT receipt should not be confused
and made to refer to one and the same thing. Certainly, neither does the law intend
the two to be used alternatively.16chanroblesvirtuallawlibrary
WHEREFORE, premises considered, the instant Petition is DENIED.
SO ORDERED.

FIRST DIVISION
G.R. No. 172509, February 04, 2015
CHINA BANKING CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE, Respondent.
DECISION
SERENO, C.J.:
This Rule 45 Petition1 requires this Court to address the question of prescription of
the government’s right to collect taxes. Petitioner China Banking Corporation (CBC)
assails the Decision2 and Resolution3 of the Court of Tax Appeals (CTA) En Banc in
CTA En Banc Case No. 109. The CTA En Banc affirmed the Decision4 in CTA Case No.
6379 of the CTA Second Division, which had also affirmed the validity of Assessment
No. FAS-5-82/85-89-000586 and FAS-5-86-89-00587. The Assessment required
petitioner CBC to pay the amount of P11,383,165.50, plus increments accruing
thereto, as deficiency documentary stamp tax (DST) for the taxable years 1982 to
1986.cralawred
FACTS
Petitioner CBC is a universal bank duly organized and existing under the laws of the
Philippines. For the taxable years 1982 to 1986, CBC was engaged in transactions
involving sales of foreign exchange to the Central Bank of the Philippines
(now Bangko Sentral ng Pilipinas), commonly known as SWAP
transactions.5 Petitioner did not file tax returns or pay tax on the SWAP transactions
for those taxable years.
On 19 April 1989, petitioner CBC received an assessment from the Bureau of
Internal Revenue (BIR) finding CBC liable for deficiency DST on the sales of foreign
bills of exchange to the Central Bank. The deficiency DST was computed as
follows:chanroblesvirtuallawlibrary
Deficiency Documentary Stamp Tax
Amount
For the years 1982 to 1985 P 8,280,696.00
For calendar year 1986 P 2,481 ,975.60
Add : Surcharge P 620,493.90 P 3,102.469.50
P11 ,383,165.506
On 8 May 1989, petitioner CBC, through its vice-president, sent a letter of protest to
the BIR. CBC raised the following defenses: (1) double taxation, as the bank had
previously paid the DST on all its transactions involving sales of foreign bills of
exchange to the Central Bank; (2) absence of liability, as the liability for the DST in a
sale of foreign exchange through telegraphic transfers to the Central Bank falls on
the buyer ? in this case, the Central Bank; (3) due process violation, as the bank’s
records were never formally examined by the BIR examiners; (4) validity of the
assessment, as it did not include the factual basis therefore; (5) exemption, as
neither the tax-exempt entity nor the other party was liable for the payment of DST
before the effectivity of Presidential Decree Nos. (PD) 1177 and 1931 for the years
1982 to 1986.7 In the protest, the taxpayer requested a reinvestigation so as to
substantiate its assertions.8chanRoblesvirtualLawlibrary
On 6 December 2001, more than 12 years after the filing of the protest, the
Commissioner of Internal Revenue (CIR) rendered a decision reiterating the
deficiency DST assessment and ordered the payment thereof plus increments
within 30 days from receipt of the Decision.9chanRoblesvirtualLawlibrary
On 18 January 2002, CBC filed a Petition for Review with the CTA. On 11 March
2002, the CIR filed an Answer with a demand for CBC to pay the assessed
DST.10chanRoblesvirtualLawlibrary
On 23 February 2005, and after trial on the merits, the CTA Second Division denied
the Petition of CBC. The CTA ruled that a SWAP arrangement should be treated as a
telegraphic transfer subject to documentary stamp
tax.11chanRoblesvirtualLawlibrary
On 30 March 2005, petitioner CBC filed a Motion for Reconsideration, but it was
denied in a Resolution dated 14 July 2005.
On 5 August 2005, petitioner appealed to the CTA En Banc. The appellate tax court,
however, dismissed the Petition for Review in a Decision dated 1 December 2005.
CBC filed a Motion for Reconsideration on 21 December 2005, but it was denied in a
20 March 2006 Resolution.
The taxpayer now comes to this Court with a Rule 45 Petition, reiterating the
arguments it raised at the CTA level and invoking for the first time the argument of
prescription. Petitioner CBC states that the government has three years from 19
April 1989, the date the former received the assessment of the CIR, to collect the
tax. Within that time frame, however, neither a warrant of distraint or levy was
issued, nor a collection case filed in court.

On 17 October 2006, respondent CIR submitted its Comment in compliance with
the Court’s Resolution dated 26 June 2006.12 The Comment did not have any
discussion on the question of prescription.
On 21 February 2007, the Court issued a Resolution directing the parties to file their
respective Memoranda. Petitioner CBC filed its Memorandum13 on 26 April 2007.
The CIR, on the other hand, filed on 17 April 2007 a Manifestation stating that it was
adopting the allegations and authorities in its Comment in lieu of the required
Memorandum.14chanRoblesvirtualLawlibrary
ISSUE
Given the facts and the arguments raised in this case, the resolution of this case
hinges on this issue: whether the right of the BIR to collect the assessed DST from
CBC is barred by prescription.15chanRoblesvirtualLawlibrary
RULING OF THE COURT
We grant the Petition on the ground that the right of the BIR to collect the assessed
DST is barred by the statute of limitations.
Prescription Has Set In.
To recall, the Bureau of Internal Revenue (BIR) issued the assessment for deficiency
DST on 19 April 1989, when the applicable rule was Section 319(c) of the National
Internal Revenue Code of 1977, as amended. 16 In that provision, the time limit for
the government to collect the assessed tax is set at three years, to be reckoned
from the date when the BIR mails/releases/sends the assessment notice to the
taxpayer. Further, Section 319(c) states that the assessed tax must be collected by
distraint or levy and/or court proceeding within the three-year period.
With these rules in mind, we shall now determine whether the claim of the BIR is
barred by time.
In this case, the records do not show when the assessment notice was mailed,
released or sent to CBC. Nevertheless, the latest possible date that the BIR could
have released, mailed or sent the assessment notice was on the same date that CBC
received it, 19 April 1989. Assuming therefore that 19 April 1989 is the reckoning
date, the BIR had three years to collect the assessed DST. However, the records of
this case show that there was neither a warrant of distraint or levy served on CBC's
properties nor a collection case filed in court by the BIR within the three-year
period.
The attempt of the BIR to collect the tax through its Answer with a demand for CBC
to pay the assessed DST in the CTA on 11 March 2002 did not comply with Section
319(c) of the 1977 Tax Code, as amended. The demand was made almost thirteen
years from the date from which the prescriptive period is to be reckoned. Thus, the
attempt to collect the tax was made way beyond the three-year prescriptive period.
The BIR’s Answer in the case filed before the CTA could not, by any means, have
qualified as a collection case as required by law. Under the rule prevailing at the
time the BIR filed its Answer, the regular courts, and not the CTA, had jurisdiction
over judicial actions for collection of internal revenue taxes. It was only on 23 April
2004, when Republic Act Number 9282 took effect,17 that the jurisdiction of the CTA
was expanded to include, among others, original jurisdiction over collection cases in
which the principal amount involved is one million pesos or more.
Consequently, the claim of the CIR for deficiency DST from petitioner is forever lost,
as it is now barred by time. This Court has no other option but to dismiss the
present case.
The running of the statute of
limitations was not suspended
by the request for reinvestigation.
The fact that the taxpayer in this case may have requested a reinvestigation did not
toll the running of the three-year prescriptive period. Section 320 of the 1977 Tax
Code states:chanroblesvirtuallawlibrary
Sec. 320. Suspension of running of statute.—The running of the statute of
limitations provided in Sections 318 or 319 on the making of assessment and the
beginning of distraint or levy or a proceeding in court for collection, in respect of
any deficiency, shall be suspended for the period during which the Commissioner is
prohibited from making the assessment or beginning distraint or levy or a
proceeding in court and for sixty days thereafter; when the taxpayer requests for a
re-investigation which is granted by the Commissioner; when the taxpayer cannot
be located in the address given by him in the return filed upon which a tax is being
assessed or collected: Provided, That if the taxpayer informs the Commissioner of
any change in address, the running of the statute of limitations will not be
suspended; when the warrant of distraint and levy is duly served upon the taxpayer,
his authorized representative, or a member of his household with sufficient
discretion, and no property could be located; and when the taxpayer is out of the
Philippines. (Emphasis supplied)
The provision is clear. A request for reinvestigation alone will not suspend the
statute of limitations. Two things must concur: there must be a request for
reinvestigation and the CIR must have granted it. BPI v. Commissioner of Internal
Revenue18 emphasized this rule by stating:chanroblesvirtuallawlibrary
In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested
for a thorough reinvestigation of the assessment against him and placed at the
disposal of the Collector of Internal Revenue all the [evidence] he had for such
purpose; yet, the Collector ignored the request, and the records and documents
were not at all examined. Considering the given facts, this Court pronounced that—
x x x. The act of requesting a reinvestigation alone does not suspend the period.
The request should first be granted, in order to effect suspension. (Collector v.
Suyoc Consolidated, supra; also Republic v. Ablaza, supra). Moreover, the Collector
gave appellee until April 1, 1949, within which to submit his evidence, which the
latter did one day before. There were no impediments on the part of the Collector
to file the collection case from April 1, 1949 x x x.
In Republic of the Philippines v. Acebedo, this Court similarly found that —
. . . [T]he defendant, after receiving the assessment notice of September 24, 1949,
asked for a reinvestigation thereof on October 11, 1949 (Exh. “A”). There is no
evidence that this request was considered or acted upon. In fact, on October 23,
1950 the then Collector of Internal Revenue issued a warrant of distraint and levy for
the full amount of the assessment (Exh. “D”), but there was follow-up of this
warrant. Consequently, the request for reinvestigation did not suspend the running
of the period for filing an action for collection. (Emphasis in the original)
The Court went on to declare that the burden of proof that the request for
reinvestigation had been actually granted shall be on the CIR. Such grant may be
expressed in its communications with the taxpayer or implied from the action of the
CIR or his authorized representative in response to the request for reinvestigation.
There is nothing in the records of this case which indicates, expressly or impliedly,
that the CIR had granted the request for reinvestigation filed by BPI. What is
reflected in the records is the piercing silence and inaction of the CIR on the request
for reinvestigation, as he considered BPI's letters of protest to be.
In the present case, there is no showing from the records that the CIR ever granted
the request for reinvestigation filed by CBC. That being the case, it cannot be said
that the running of the three-year prescriptive period was effectively suspended.
Failure to raise prescription at the
administrative level/lower court as a
defense is of no moment.
When the pleadings or the evidence on record
show that the claim is barred by prescription,
the court must dismiss the claim even if prescription
is not raised as a defense.
We note that petitioner has raised the issue of prescription for the first time only
before this Court. While we are mindful of the established rule of remedial law that
the defense of prescription must be raised at the trial court that has also been
applied for tax cases.19 Thus, as a rule, the failure to raise the defense of
prescription at the administrative level prevents the taxpayer from raising it at the
appeal stage.
This rule, however, is not absolute.
The facts of the present case are substantially identical to those in the 2014
case, Bank of the Philippine Islands (BPI) v. Commissioner of Internal Revenue.20 In
that case, petitioner received an assessment notice from the BIR for deficiency DST
based on petitioner’s SWAP transactions for the year 1985 on 16 June 1989. On 23
June 1989, BPI, through its counsel, filed a protest requesting the reinvestigation
and/or reconsideration of the assessment for lack of legal or factual bases. Almost
ten years later, the CIR, in a letter dated 4 August 1998, denied the protest. On 4
January 1999, BPI filed a Petition for Review with the CTA. On 23 February 1999, the
CIR filed an Answer with a demand for BPI to pay the assessed DST. It was only
when the case ultimately reached this Court that the issue of prescription was
brought up. Nevertheless, the Court ruled that the CIR could no longer collect the
assessed tax due to prescription. Basing its ruling on Section 1, Rule 9 of the Rules
of Court and on jurisprudence, the Court held as follows:chanroblesvirtuallawlibrary
In a Resolution dated 5 August 2013, the Court, through the Third Division, found
that the assailed tax assessment may be invalidated because the statute of
limitations on the collection of the alleged deficiency DST had already expired,
conformably with Section 1, Rule 9 of the Rules of Court and the Bank of the
Philippine Islands v. Commissioner of Internal Revenue decision. However, to afford
due process, the Court required both BPI and CIR to submit their respective
comments on the issue of prescription.
Only the CIR filed his comment on 9 December 2013. In his Comment, the CIR
argues that the issue of prescription cannot be raised for the first time on appeal.
The CIR further alleges that even assuming that the issue of prescription can be
raised, the protest letter interrupted the prescriptive period to collect the assessed
DST, unlike in the Bank of the Philippine Islands case.
xxxx
We deny the right of the BIR to collect the assessed DST on the ground of
prescription.
Section 1, Rule 9 of the Rules of Court expressly provides
that:ChanRoblesVirtualawlibrary
Section 1. Defenses and objections not pleaded. - Defenses and objections not
pleaded either in a motion to dismiss or in the answer are deemed
waived. However, when it appears from the pleadings or the evidence on
record that the court has no jurisdiction over the subject matter, that there is
another action pending between the same parties for the same cause, or that the
action is barred by prior judgment or by the statute of limitations, the court shall
dismiss the claim.
If the pleadings or the evidence on record show that the claim is barred by
prescription, the court is mandated to dismiss the claim even if prescription is not
raised as a defense. In Heirs of Valientes v. Ramas, we ruled that the CA may motu
proprio dismiss the case on the ground of prescription despite failure to raise this
ground on appeal. The court is imbued with sufficient discretion to review matters,
not otherwise assigned as errors on appeal, if it finds that their consideration is
necessary in arriving at a complete and just resolution of the case. More so, when
the provisions on prescription were enacted to benefit and protect taxpayers from
investigation after a reasonable period of time.
Thus, we proceed to determine whether the period to collect the assessed DST for
the year 1985 has prescribed.
To determine prescription, what is essential only is that the facts demonstrating the
lapse of the prescriptive period were sufficiently and satisfactorily apparent on the
record either in the allegations of the plaintiff’s complaint, or otherwise established
by the evidence. Under the then applicable Section 319(c) [now, 222(c)] of the
National Internal Revenue Code (NIRC) of 1977, as amended, any internal revenue
tax which has been assessed within the period of limitation may be collected by
distraint or levy, and/or court proceeding within three years following the
assessment of the tax. The assessment of the tax is deemed made and the three-
year period for collection of the assessed tax begins to run on the date the
assessment notice had been released, mailed or sent by the BIR to the taxpayer.
In the present case, although there was no allegation as to when the assessment
notice had been released, mailed or sent to BPI, still, the latest date that the BIR
could have released, mailed or sent the assessment notice was on the date BPI
received the same on 16 June 1989. Counting the three-year prescriptive period
from 16 June 1989, the BIR had until 15 June 1992 to collect the assessed DST. But
despite the lapse of 15 June 1992, the evidence established that there was no
warrant of distraint or levy served on BPI’s properties, or any judicial proceedings
initiated by the BIR.
The earliest attempt of the BIR to collect the tax was when it filed its answer in the
CTA on 23 February 1999, which was several years beyond the three-year
prescriptive period. However, the BIR’s answer in the CTA was not the collection
case contemplated by the law. Before 2004 or the year Republic Act No. 9282 took
effect, the judicial action to collect internal revenue taxes fell under the jurisdiction
of the regular trial courts, and not the CTA. Evidently, prescription has set in to bar
the collection of the assessed DST. (Emphasis supplied)
BPI thus provides an exception to the rule against raising the defense of
prescription for the first time on appeal: the exception arises when the pleadings or
the evidence on record show that the claim is barred by prescription.
In this case, the fact that the claim of the government is time-barred is a matter of
record. As can be seen from the previous discussion on the determination of the
prescription of the right of the government to claim deficiency DST, the conclusion
that prescription has set in was arrived at using the evidence on record. The date of
receipt of the assessment notice was not disputed, and the date of the attempt to
collect was determined by merely checking the records as to when the Answer of
the CIR containing the demand to pay the tax was filed.
Estoppel or waiver prevents the government
from invoking the rule against raising the
issue of prescription for the first time on appeal.
In this case, petitioner may have raised the question of prescription only on appeal
to this Court. The BIR could have crushed the defense by the mere invocation of the
rule against setting up the defense of prescription only at the appeal stage. The
government, however, failed to do so.
On the contrary, the BIR was silent despite having the opportunity to invoke the bar
against the issue of prescription. It is worthy of note that the Court ordered the BIR
to file a Comment. The government, however, did not offer any argument in its
Comment about the issue of prescription, even if petitioner raised it in the latter’s
Petition. It merely fell silent on the issue. It was given another opportunity to meet
the challenge when this Court ordered both parties to file their respective
memoranda. The CIR, however, merely filed a Manifestation that it would no longer
be filing a Memorandum and, in lieu thereof, it would be merely adopting the
arguments raised in its Comment. Its silence spoke loudly of its intent to waive its
right to object to the argument of prescription.
We are mindful of the rule in taxation that estoppel does not prevent the
government from collecting taxes; it is not bound by the mistake or negligence of its
agents. The rule is based on the political law concept “the king can do no
wrong,”21 which likens a state to a king: it does not commit mistakes, and it does
not sleep on its rights. The analogy fosters inequality between the taxpayer and the
government, with the balance tilting in favor of the latter. This concept finds
justification in the theory and reality that government is necessary, and it must
therefore collect taxes if it is to survive. Thus, the mistake or negligence of
government officials should not bind the state, lest it bring harm to the government
and ultimately the people, in whom sovereignty
resides.22chanRoblesvirtualLawlibrary
Republic v. Ker & Co. Ltd.23 involved a collection case for a final and executory
assessment. The taxpayer nevertheless raised the prescription of the right to assess
the tax as a defense before the Court of First Instance. The Republic, instead of
objecting to the invocation of prescription as a defense by the taxpayer, litigated on
the issue and thereafter submitted it for resolution. The Supreme Court ruled for
the taxpayer, treating the actuations of the government as a waiver of the right to
invoke the defense of prescription. Ker effectively applied to the government the
rule of estoppel. Indeed, the no-estoppel rule is not absolute.
The same ingredients in Ker - procedural matter and injustice - obtain in this case.
The procedural matter consists in the failure to raise the issue of prescription at the
trial court/administrative level, and injustice in the fact that the BIR has unduly
delayed the assessment and collection of the DST in this case. The fact is that it
took more than 12 years for it to take steps to collect the assessed tax. The BIR
definitely caused untold prejudice to petitioner, keeping the latter in the dark for so
long, as to whether it is liable for DST and, if so, for how much.cralawred
CONCLUSION
Inasmuch as the government’s claim for deficiency DST is barred by prescription, it
is no longer necessary to dwell on the validity of the assessment.chanrobleslaw
WHEREFORE, the Petition is GRANTED. The Court of Tax Appeals En Banc Decision
dated 1 December 2005 and its Resolution dated 20 March 2006 in CTA EB Case No.
109 are hereby REVERSED and SET ASIDE. A new ruling is entered DENYING
respondent’s claim for deficiency DST in the amount of P11,383,165.50.
SO ORDERED.cralawlawlibrary
THIRD DIVISION
G.R. No. 197525, June 04, 2014
VISAYAS GEOTHERMAL POWER COMPANY, Petitioner, v. COMMISSIONER OF
INTERNAL REVENUE, Respondent.
DECISION
MENDOZA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of
Court assailing the February 7, 2011 Decision1 and the June 27, 2011 Resolution2 of
the Court of Tax Appeals En Banc (CTA En Banc), in CTA EB Case Nos. 561 and 562,
which reversed and set aside the April 17, 2009 Decision of the CTA Second Division
in CTA Case No. 7559.
The Facts:
Petitioner Visayas Geothermal Power Company (VGPC) is a special limited
partnership duly organized and existing under Philippine Laws with its principal
office at Milagro, Ormoc City, Province of Leyte. It is principally engaged in the
business of power generation through geothermal energy and the sale of generated
power to the Philippine National Oil Company (PNOC), pursuant to the Energy
Conversion Agreement.
VGPC filed with the Bureau of Internal Revenue (BIR) its Original Quarterly VAT
Returns for the first to fourth quarters of taxable year 2005 on April 25, 2005, July
25, 2005, October 25, 2006, and January 20, 2006, respectively.
On December 6, 2006, it filed an administrative claim for refund for the amount of
P14,160,807.95 with the BIR District Office No. 89 of Ormoc City on the ground that
it was entitled to recover excess and unutilized input VAT payments for the four
quarters of taxable year 2005, pursuant to Republic Act (R.A.) No. 9136, 3 which
treated sales of generated power subject to VAT to a zero percent (0%) rate starting
June 26, 2001.
Nearly one month later, on January 3, 2007, while its administrative claim was
pending, VGPC filed its judicial claim via a petition for review with the CTA praying
for a refund or the issuance of a tax credit certificate in the amount of
P14,160,807.95, covering the four quarters of taxable year 2005.
In its April 17, 2009 Decision, the CTA Second Division partially granted the petition
as follows:ChanRoblesVirtualawlibrary
WHEREFORE, in view of the foregoing considerations, the Petition for Review is claim within the two-year prescriptive period, its judicial claim filed with the CTA
hereby PARTIALLY GRANTED. Accordingly, respondent is ORDERED TO REFUND or, Second Division was prematurely filed under Section 112(D) of the National Internal
in the alternative, TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner the Revenue Code (NIRC). Citing the case of CIR v. Aichi Forging Company of Asia, Inc.
reduced amount of SEVEN MILLION SIX HUNDRED NINENTY NINE THOUSAND THREE (Aichi),9 the CTA En Banc held that the judicial claim filed 28 days after the
HUNDRED SIXTY SIX PESOS AND 37/100 (P7,699,366.37) representing unutilized petitioner filed its administrative claim, without waiting for the expiration of the
input VAT paid on domestic purchases of non-capital goods and services, services 120-day period, was premature and, thus, the CTA acquired no jurisdiction over the
rendered by non-residents, and importations of non-capital goods for the first to case.
fourth quarters of taxable year 2005.
The VGPC filed a motion for reconsideration, but the CTA En Banc denied it in the
SO ORDERED.4 assailed June 27, 2011 Resolution for lack of merit. It stated that the case of Atlas
Consolidated Mining v. CIR (Atlas)10 relied upon by the petitioner had long been
abandoned.
The CTA Second Division found that only the amount of P7,699,366.37 was duly
substantiated by the required evidence. As to the timeliness of the filing of the
Hence, this petition.
judicial claim, the Court ruled that following the case of Commissioner of Internal
Revenue (CIR) v. Mirant Pagbilao Corporation (Mirant),5 both the administrative and
ASSIGNMENT OF ERRORS
judicial claims were filed within the two-year prescriptive period provided in Section
112(A) of the National Internal Revenue Code of 1997 (NIRC), the reckoning point of
the period being the close of the taxable quarter when the sales were made.
I
6
In its October 29, 2009 Resolution, the CTA Second Division denied the separate
The CTA En Banc erred in finding that the 120-day and 30-day periods prescribed
motions for partial reconsideration filed by VGPC and the CIR. Thus, both VGPC and
under Section 112(D) of the 1997 Tax Code are jurisdictional and mandatory in the
the CIR appealed to the CTA En Banc.
filing of the judicial claim for refund. The CTA-Division should take cognizance of the
judicial appeal as long as it is filed with the two-year prescriptive period under
In the assailed February 7, 2011 Decision,7 the CTA En Banc reversed and set
Section 229 of the 1997 Tax Code.
aside the decision and resolution of the CTA Second Division, and dismissed the
original petition for review for having been filed prematurely, to
II
wit:ChanRoblesVirtualawlibrary
The CTA En Banc erred in finding that Aichi prevails over and/or overturned the
WHEREFORE, premises considered:
doctrine in Atlas, which upheld the primacy of the two-year period under Section
229 of the Tax Code. The law and jurisprudence have long established the doctrine
i. As regards CTA EB Case No. 562, the Petition for Review is hereby that the taxpayer is duty-bound to observe the two-year period under Section 229
DISMISSED; and
of the Tax Code when filing its claim for refund of excess and unutilized VAT.
ii. As regards CTA EB Case No. 561, the Petition for Review is hereby GRANTED.
III

Accordingly, the Decision, dated April 17, 2009, and the Resolution, dated October
29, 2009, of the CTA Former Second Division are hereby REVERSED and SET ASIDE,
and another one is hereby entered DISMISSING the Petition for Review filed in CTA
Case No. 7559 for having been filed prematurely.
SO ORDERED.8
The CTA En Banc explained that although VGPC seasonably filed its administrative
The CTA En Banc erred in finding that Respondent CIR is not estopped from
questioning the jurisdiction of the CTA. Respondent CIR, by her actions and
pronouncements, should have been precluded from questioning the jurisdiction of
the CTA-Division.
IV

The CTA En Banc erred in applying Aichi to Petitioner VGPC’s claim for refund. The
novel interpretation of the law in Aichi should not be made to apply to the present
case for being contrary to existing jurisprudence at the time Petitioner VGPC filed
its administrative and judicial claims for refund.11
Petitioner VGPC argues that (1) the law and jurisprudence have long established the
rule regarding compliance with the two-year prescriptive period under Section
112(D) in relation to Section 229 of the 1997 Tax Code; (2) Aichi did not overturn
the doctrine in Atlas, which upheld the primacy of the two-year period under
Section 229; (3) respondent CIR is estopped from questioning the jurisdiction of the
CTA and Aichi cannot be indiscriminately applied to all VAT refund cases; (4)
applying Aichi invariably to all VAT refund cases would effectively grant respondent
CIR unbridled discretion to deprive a taxpayer of the right to effectively seek judicial
recourse, which clearly violates the standards of fairness and equity; and (5) the
novel interpretation of the law in Aichi should not be made to apply to the present
case for being contrary to exisiting jurisprudence at the time VGPC filed its
administrative and judicial claims for refund. Aichi should be applied prospectively.
Ruling of the Court
Judicial claim not premature
The assignment of errors is rooted in the core issue of whether the petitioner’s
judicial claim for refund was prematurely filed.
Two sections of the NIRC are pertinent to the issue at hand, namely Section 112 (A)
and (D) and Section 229, to wit:ChanRoblesVirtualawlibrary
SEC. 112. Refunds or Tax Credits of Input Tax. –
(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose
sales are zero-rated or effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made, apply for the issuance of a
tax credit certificate or refund of creditable input tax due or paid attributable to
such sales, except transitional input tax, to the extent that such input tax has not
been applied against output tax: Provided, however, That in the case of zero-rated
sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the
acceptable foreign currency exchange proceeds thereof had been duly accounted
for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP): Provided, further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods of properties
or services, and the amount of creditable input tax due or paid cannot be directly
and entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.
xxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In
proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days from
the date of submission of complete documents in support of the application filed
in accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the
failure on the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer affected may, within thirty (30) days from the
receipt of the decision denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the unacted claim with the
Court of Tax Appeals.
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or
proceeding shall be maintained in any court for the recovery of any national
internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected without
authority, of any sum alleged to have been excessively or in any manner wrongfully
collected without authority, or of any sum alleged to have been excessively or in
any manner wrongfully collected, until a claim for refund or credit has been duly
filed with the Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2)
years from the date of payment of the tax or penalty regardless of any
supervening cause that may arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor, refund or credit any tax,
where on the face of the return upon which payment was made, such payment
appears clearly to have been erroneously paid.
[Emphases supplied]
It has been definitively settled in the recent En Banc case of CIR v. San Roque Power
Corporation (San Roque),12 that it is Section 112 of the NIRC which applies to claims
for tax credit certificates and tax refunds arising from sales of VAT-registered
persons that are zero-rated or effectively zero-rated, which are, simply put, claims
for unutilized creditable input VAT.
Thus, under Section 112(A), the taxpayer may, within 2 years after the close of the
taxable quarter when the sales were made, via an administrative claim with the CIR,
apply for the issuance of a tax credit certificate or refund of creditable input tax due
or paid attributable to such sales. Under Section 112(D), the CIR must then act on
the claim within 120 days from the submission of the taxpayer’s complete
documents. In case of (a) a full or partial denial by the CIR of the claim, or (b) the
CIR’s failure to act on the claim within 120 days, the taxpayer may file a judicial
claim via an appeal with the CTA of the CIR decision or unacted claim, within 30
days (a) from receipt of the decision; or (b) after the expiration of the 120-day
period.
The 2-year period under Section 229 does not apply to appeals before the CTA in
relation to claims for a refund or tax credit for unutilized creditable input VAT.
Section 229 pertains to the recovery of taxes erroneously, illegally, or excessively
collected.13San Roque stressed that “input VAT is not ‘excessively’ collected as
understood under Section 229 because, at the time the input VAT is collected, the
amount paid is correct and proper.”14 It is, therefore, Section 112 which applies
specifically with regard to claiming a refund or tax credit for unutilized creditable
input VAT.15cralawred
Upholding the ruling in Aichi,16San Roque held that the 120+30 day period
prescribed under Section 112(D) mandatory and jurisdictional. 17 The jurisdiction of
the CTA over decisions or inaction of the CIR is only appellate in nature and, thus,
necessarily requires the prior filing of an administrative case before the CIR under
Section 112.18 The CTA can only acquire jurisdiction over a case after the CIR has
rendered its decision, or after the lapse of the period for the CIR to act, in which
case such inaction is considered a denial.19 A petition filed prior to the lapse of the
120-day period prescribed under said Section would be premature for violating the
doctrine on the exhaustion of administrative remedies. 20cralawred
There is, however, an exception to the mandatory and jurisdictional nature of the
120+30 day period. The Court in San Roque noted that BIR Ruling No. DA-489-03,
dated December 10, 2003, expressly stated that the “taxpayer-claimant need not
wait for the lapse of the 120-day period before it could seek judicial relief with the
CTA by way of Petition for Review.”21 This BIR Ruling was recognized as a general
interpretative rule issued by the CIR under Section 4 22 of the NIRC and, thus,
applicable to all taxpayers. Since the CIR has exclusive and original jurisdiction to
interpret tax laws, it was held that taxpayers acting in good faith should not be
made to suffer for adhering to such interpretations. Section 246 23 of the Tax Code,
in consonance with equitable estoppel, expressly provides that a reversal of a BIR
regulation or ruling cannot adversely prejudice a taxpayer who in good faith relied
on the BIR regulation or ruling prior to its reversal. Hence, taxpayers can rely on BIR
Ruling No. DA-489-03 from the time of its issuance on December 10, 2003 up to its
reversal by this Court in Aichi on October 6, 2010, where it was held that the
120+30 day period was mandatory and jurisdictional.
Accordingly, the general rule is that the 120+30 day period is mandatory and
jurisdictional from the effectivity of the 1997 NIRC on January 1, 1998, up to the
present. As an exception, judicial claims filed from December 10, 2003 to October
6, 201024need not wait for the exhaustion of the 120-day period.
A review of the facts of the present case reveals that petitioner VGPC timely filed its
administrative claim with the CIR on December 6, 2006, and later, its judicial claim
with the CTA on January 3, 2007. The judicial claim was clearly filed within the
period of exception and was, therefore, not premature and should not have been
dismissed by the CTA En Banc.
In the present petition, VGPC prays that the Court grant its claim for refund or the
issuance of a tax credit certificate for its unutilized input VAT in the amount of
P14,160,807.95. The CTA Second Division, however, only awarded the amount of
P7,699,366.37. The petitioner has failed to present any argument to support its
entitlement to the former amount.
In any case, the Court would have been precluded from considering the same as
such would require a review of the evidence, which would constitute a question of
fact outside the Court’s purview under Rule 45 of the Rules of Court. The Court,
thus, finds that the petitioner is entitled to the refund awarded to it by the CTA
Second Division in the amount of P7,699,366.37.
Atlas doctrine has no relevance
to the 120+30 day period for
filing judicial claim
Although the core issue of prematurity of filing has already been resolved, the Court
deems it proper to discuss the petitioner’s argument that the doctrine
in Atlas, which allegedly upheld the primacy of the 2-year prescriptive period under
Section 229, should prevail over the ruling in Aichi regarding the mandatory and
jurisdictional nature of the 120+30 day period in Section 112.
In this regard, it was thoroughly explained in San Roque that the Atlas doctrine only
pertains to the reckoning point of the 2-year prescriptive period from the date of
payment of the output VAT under Section 229, and has no relevance to the 120+30
day period under Section 112, to wit:ChanRoblesVirtualawlibrary
The Atlas doctrine, which held that claims for refund or credit of input VAT must
comply with the two-year prescriptive period under Section 229, should
be effective only from its promulgation on 8 June 2007 until its abandonment on
12 September 2008 in Mirant. The Atlas doctrine was limited to the reckoning of
the two-year prescriptive period from the date of payment of the output VAT. Prior
to the Atlas doctrine, the two-year prescriptive period for claiming refund or credit
of input VAT should be governed by Section 112(A) following the verba legis rule.
The Mirant ruling, which abandoned the Atlas doctrine, adopted the verba
legis rule, thus applying Section 112(A) in computing the two-year prescriptive
period in claiming refund or credit of input VAT.
The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C)
because the application of the 120+30 day periods was not in issue in Atlas. The
application of the 120+30 day periods was first raised in Aichi, which adopted
the verba legis rule in holding that the 120+30 day periods are mandatory and
jurisdictional. The language of Section 112(C) is plain, clear, and unambiguous.
When Section 112(C) states that “the Commissioner shall grant a refund or issue the
tax credit within one hundred twenty (120) days from the date of submission of
complete documents,” the law clearly gives the Commissioner 120 days within
which to decide the taxpayer’s claim. Resort to the courts prior to the expiration of
the 120-day period is a patent violation of the doctrine of exhaustion of
administrative remedies, a ground for dismissing the judicial suit due to
prematurity. Philippine jurisprudence is awash with cases affirming and reiterating
the doctrine of exhaustion of administrative remedies. Such doctrine is basic and
elementary.25cralawred
[Underscoring supplied]
Thus, Atlas is only relevant in determining when to file an administrative claim with
the CIR for refund or credit of unutilized creditable input VAT, and not for
determining when to file a judicial claim with the CTA. From June 8, 2007 to
September 12, 2008, the 2-year prescriptive period to file administrative claims
should be counted from the date of payment of the output VAT tax. Before and
after said period, the 2-year prescriptive period is counted from the close of the
taxable quarter when the sales were made, in accordance with Section 112(A). In
either case, the mandatory and jurisdictional 120+30 day period must be complied
with for the filing of the judicial claim with the CTA, except for the period provided
under BIR Ruling No. DA-489-03, as previously discussed.
The Court further noted that Atlas was decided in relation to the 1977 Tax Code
which had not yet provided for the 30-day period for the taxpayer to appeal to the
CTA from the decision or inaction of the CIR over claims for unutilized input VAT.
Clearly then, the Atlas doctrine cannot be invoked to disregard compliance with the
120+30 day mandatory and jurisdictional period.26 In San Roque, it was
written:ChanRoblesVirtualawlibrary
The old rule that the taxpayer may file the judicial claim, without waiting for the
Commissioner’s decision if the two-year prescriptive period is about to expire,
cannot apply because that rule was adopted before the enactment of the 30-day
period. The 30-day period was adopted precisely to do away with the old rule, so
that under the VAT System the taxpayer will always have 30 days to file the
judicial claim even if the Commissioner acts only on the 120th day, or does not act
at all during the 120-day period. With the 30-day period always available to the
taxpayer, the taxpayer can no longer file a judicial claim for refund or credit of input
VAT without waiting for the Commissioner to decide until the expiration of the 120-
day period.27
At any rate, even assuming that the Atlas doctrine was relevant to the present case,
it could not be applied since it was held to be effective only from its promulgation
on June 8, 2007 until its abandonment on September 12, 2008 when Mirant was
promulgated. The petitioner in this case filed both its administrative and judicial
claims outside the said period of effectivity.
Aichi not applied prospectively
Petitioner VGPC also argues that Aichi should be applied prospectively and,
therefore, should not be applied to the present case. This position cannot be given
consideration.
Article 8 of the Civil Code provides that judicial decisions applying or interpreting
the law shall form part of the legal system of the Philippines and shall have the
force of law. The interpretation placed upon a law by a competent court establishes
the contemporaneous legislative intent of the law. Thus, such interpretation
constitutes a part of the law as of the date the statute is enacted. It is only when a
prior ruling of the Court is overruled, and a different view adopted, that the new
doctrine may have to be applied prospectively in favor of parties who have relied on
the old doctrine and have acted in good faith.28cralawred
Considering that the nature of the 120+30 day period was first settled in Aichi, the
interpretation by the Court of its being mandatory and jurisdictional in nature
retroacts to the date the NIRC was enacted. It cannot be applied prospectively as no
old doctrine was overturned.
The petitioner cannot rely either on the alleged jurisprudence prevailing at the time
it filed its judicial claim. The Court notes that the jurisprudence relied upon by the
petitioner consists of CTA cases. It is elementary that CTA decisions do not
constitute precedent and do not bind this Court or the public. Only decisions of this
Court constitute binding precedents, forming part of the Philippine legal
system.29cralawred
As regards the cases30 which were later decided allegedly in contravention
of Aichi, it is of note that all of them were decided by Divisions of this Court, and not 2. When to file a judicial claim with the CTA:
by the Court En Banc. Any doctrine or principle of law laid down by the Court, either
rendered En Banc or in Division, may be overturned or reversed only by the Court a. General rule – Section 112(D); not Section 229
sitting En Banc.31 Thus, the cases cited by the petitioner could not have overturned
the doctrine laid down in Aichi. i. Within 30 days from the full or partial denial of the administrative claim by the
CIR; or
CIR not estopped
ii. Within 30 days from the expiration of the 120-day period provided to the CIR
The petitioner’s argument that the CIR should have been estopped from to decide on the claim. This is mandatory and jurisdictional beginning January
questioning the jurisdiction of the CTA after actively participating in the proceedings 1, 1998 (effectivity of 1997 NIRC).
before the CTA Second Division deserves scant consideration.

It is a well-settled rule that the government cannot be estopped by the mistakes,

errors or omissions of its agents.32 It has been specifically held that estoppel does b. Exception – BIR Ruling No. DA-489-03
not apply to the government, especially on matters of taxation. Taxes are the
nation’s lifeblood through which government agencies continue to operate and The judicial claim need not await the expiration of the 120-day period, if such
with which the State discharges its functions for the welfare of its was filed from December 10, 2003 (issuance of BIR Ruling No. DA-489-03) to
constituents.33 Thus, the government cannot be estopped from collecting taxes by October 6, 2010 (promulgation of Aichi).
the mistake, negligence, or omission of its agents. Upon taxation depends the
ability of the government to serve the people for whose benefit taxes are collected.
To safeguard such interest, neglect or omission of government officials entrusted
WHEREFORE, the petition is PARTIALLY GRANTED. The February 7, 2011 Decision
with the collection of taxes should not be allowed to bring harm or detriment to the
and the June 27, 2011 Resolution of the Court of Tax Appeals En Banc, in CTA EB
people.34cralawred
Case Nos. 561 and 562 are REVERSEDand SET ASIDE. The April 17, 2009 Decision
and the October 29, 2009 Resolution of the CTA Former Second Division in CTA Case
Rules on claims for refund or tax credit of unutilized input VAT
No. 7559 are REINSTATED.
For clarity and guidance, the Court deems it proper to outline the rules laid down
Public respondent is hereby ORDERED TO REFUND or, in the alternative, TO ISSUE
in San Roque with regard to claims for refund or tax credit of unutilized creditable
A TAX CREDIT CERTIFICATE, in favor of the petitioner the amount of SEVEN
input VAT. They are as follows:ChanRoblesVirtualawlibrary
MILLION SIX HUNDRED NINETY NINE THOUSAND THREE HUNDRED SIXTY SIX PESOS
AND 37/100 (P7,699,366.37) representing unutilized input VAT paid on domestic
1. When to file an administrative claim with the CIR: purchases of non-capital goods and services, services rendered by non-residents,
and importations of non-capital goods for the first to fourth quarters of taxable year
a. General rule – Section 112(A) and Mirant 2005.
Within 2 years from the close of the taxable quarter when the sales were
SO ORDERED.
made.

b. Exception – Atlas

Within 2 years from the date of payment of the output VAT, if the
administrative claim was filed from June 8, 2007 (promulgation of Atlas) to
September 12, 2008 (promulgation of Mirant).

SECOND DIVISION
G.R. No. 195320, April 23, 2018
BUREAU OF INTERNAL REVENUE, REPRESENTED BY THE COMMISSIONER OF
INTERNAL REVENUE, Petitioner, v. HON. ERNESTO D. ACOSTA, ET AL. OF THE
SPECIAL FIRST DIVISION OF THE COURT OF TAX APPEALS AND CHEVRON
PHILIPPINES, INC. (FORMERLY CALTEX PHILIPPINES, INC.), Respondents.
DECISION
REYES, JR., J.:
Before this Court is a Petition for Certiorari1 under Rule 65 of the Rules of Court
assailing the Resolutions dated September 24, 2010 2 and December 3,
20103 promulgated by the Court of Tax Appeals-Special First Division (CTA-Special
First Division), which considered the motion for reconsideration filed by the Bureau
of Internal Revenue (BIR) as a mere scrap of paper and deemed the CTA-Special
First Division's Decision4 dated July 12, 2010 as final and executory.
The Antecedent Facts
On October 7, 2004, Chevron Philippines, Inc. (Chevron) filed an administrative
claim for refund or credit with the BIR under Claim No. 2004-XP-11/03. The claim in
the aggregate amount of P131,175,480.18 represented alleged overpayment of
excise taxes on imported finished unleaded premium gasoline and diesel fuel
withdrawn from its refinery in San Pascual, Batangas for the month of November
2003.5
The BIR, however, did not act on Chevron's claim. Thus, on the basis of Section 7 of
Republic Act (R.A.) No. 1125, as amended by R.A. No. 9282, 6 Chevron elevated the
case to the CTA-Special First Division on October 28, 2005 via a petition for review.7
On July 12, 2010, the CTA-Special First Division rendered its Decision8 partly
granting the petition. The dispositive portion of the decision reads:
WHEREFORE, the Petition tor Review is hereby PARTIALLY GRANTED. Accordingly,
respondent is hereby ORDERED to refund to petitioner the reduced amount of ONE
HUNDRED EIGHT MILLION FIVE HUNDRED EIGHTY-FIVE THOUSAND ONE HUNDRED)
SIXTY-TWO PESOS and 95/100 (P108,585,162.95).
SO ORDERED.9
The BIR moved for the reconsideration of this Decision on August 3, 2010. 10
On August 17, 2010, Chevron filed its Comment/Opposition11 to the Motion for
Reconsideration. Chevron asserted that the BIR's motion for reconsideration was
a pro forma motion because the BIR failed to set the motion for hearing pursuant to
Sections 3 and 6 of Rule 15 of the Revised Rules of the CTA.12Chevron further
maintained that non-compliance with the notice of hearing requirement was a fatal
defect that rendered its motion a mere scrap of paper. As such, it is not entitled to
judicial cognizance and the filing of such defective motion did not toll the
reglementary period to appeal.
The CTA-Special First Division, in the assailed Resolution13 dated September 24,
2010, agreed with Chevron and denied the BIR's motion for reconsideration:
WHEREFORE, in view of the foregoing, respondent's Motion for Reconsideration,
filed on August 3, 2010, is considered a mere scrap of paper. Accordingly, the said
Motion is pro forma. Thus, the same will not merit the attention of this Court and
will not toll the running of the period to appeal.
SO ORDERED.14
Unperturbed, the BIR once again moved for a reconsideration of the resolution,
which the CTA-Special First Division denied with finality in its Resolution15 dated
December 3, 2010, viz.:
WHEREFORE, the instant Motion for Reconsideration is denied for lack of merit. The
failure of respondent to file a correct motion for reconsideration did not toll the
rwu1ing of the reglementary period to appeal under the rules. The Decision
promulgated on June 12, 2010 is hereby declared final and executory.
SO ORDERED.16
On December 8, 2010, the BIR received its copy of the Resolution dated December
3, 2010. The CTA-Special First Division, after having confirmed that the BIR did not
elevate the issue before the CTA En Banc within the 15-day reglementary period to
appeal, issued an Entry of Judgment.17 On January 10, 2011, the BIR received a copy
of the Entry of Judgment,18 the pertinent portion of which reads:
This is to certify that on July 12, 2010, a decision rendered in this case was filed in
this Office, the dispositive part of which reads as follows:
WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly,
respondent is hereby ORDERED to refund to petitioner the reduced amount of ONE
HUNDRED EIGHT MILLION FIVE HUNDRED EIGHTY-FIVE THOUSAND ONE HUNDRED
SIXTY-TWO PESOS and 95/100 (P108,585,162.95).

SO ORDERED.
And that the same has, on December 23, 2010, become final and executory and is
hereby recorded in the Book of Entries of Judgment, x x x. 19
On January 11, 2011, Chevron moved for the issuance of a Writ of Execution 20 of
the CTA-Special First Division's Decision dated July 12, 2010.
In response, the BIR filed a Motion to Lift Entry of Judgment before the CTA-Special
First Division on the ground that it intended to exhaust the remedy of filing a
Petition for Certiorari before the Supreme Court under Rule 65 of the Revised Rules
of Court.21
Hence, this petition for certiorari22 filed by the BIR on February 7, 2011. The BIR
alleged that the CTA-Special First Division committed grave abuse of discretion in
rendering its Resolutions dated September 24, 201023 and December 3, 2010.24 It
argues that the CTA-Special First Division in accordance with jurisprudence should
disregard technicalities and allowed the motion despite the lack of notice of hearing
in order to resolve the case meritoriously.25
Issues
Thus, the instant petition calls this Court to resolve two (2) issues:
1. Whether a Special Civil Action for Certiorari under Rule 65 of the Rules of
Court is available as a remedy to the BIR; and
2. Whether the CTA-Special First Division gravely abused its discretion in
declaring the motion for reconsideration filed by the BIR on October 14,
2010 to be a pro forma motion, and in rendering the Decision promulgated
on July 12, 2010 final and executory.26
Ruling of the Court
The petition is dismissed.
Time and again, this Court emphasized that the special civil action for certiorari is a
limited form of review and a remedy of last recourse. 27 Section 1, Rule 65 of the
Rules of Court provides that the special civil action of certiorari may only be invoked
when there is no appeal, nor any plain, speedy and adequate remedy in the course
of law.
A writ of certiorari is not a substitute for a lost appeal.28 When an appeal is
available, certiorari will not prosper especially if the appeal was lost because of
one's own negligence or error in the choice of remedy, even if the ground is grave
abuse of discretion.29
Under the Rules of Court, the remedy against a final judgment or order is an appeal.
In Pahila-Garrido v. Tortogo, et al.,30 the Court has held that a final judgment
disposes of the subject matter in its entirety or terminates a particular proceeding
or action. A final judgment or order leaves nothing more to be done except to
enforce by execution what the court has determined.31
For cases before the CTA, a decision rendered by a division of the CTA is appealable
to the CTA En Bancas provided by Section 18 of R.A. No. 1125, as amended by R.A.
No. 9282. It reads as follows:
SEC. 18. Appeal to the Court of Tax Appeals En Banc. - No civil proceeding involving
matter arising under the National Internal Revenue Code, the Tariff and Customs
Code or the Local Government Code shall be maintained, except as herein provided,
until and unless an appeal has been previously filed with the CTA and disposed of in
accordance with the provisions of this Act
A party adversely affected by a resolution of a Division of the CTA on a motion for
reconsideration or new trial, may file a petition for review with the CTA En Banc.
Section 2 of Rule 4 of the Revised Rules of the CTA also states that the CTA En
Banc has exclusive appellate jurisdiction relative to the review of the court divisions'
decisions or resolutions on motion for reconsideration or new trial, in cases arising
from administrative agencies such as the BIR.
SEC. 2. Cases within the jurisdiction of the Court En Banc. - The Court En Banc shall
exercise exclusive appellate jurisdiction to review by appeal the following:
(a) Decisions or resolutions on motions for reconsideration or new trial of the Court
in Divisions in the exercise of its exclusive appellate jurisdiction over:
(1) Cases arising from administrative agencies - Bureau of Internal Revenue, Bureau
of Customs, x x x.
It must be stressed that the Resolution dated December 3, 2010 of the CTA-Special
First Division which declared its Decision dated July 12, 2010 final and executory is a
final judgment. It disposed of the case on the merits.
The main issue resolved by the CTA-Special First Division in the Decision dated July
12, 2010 was Chevron's entitlement to refimd or credit because of its overpayment
of excise taxes on imported finished unleaded premium gasoline and diesel fuel. In
its decision, the CTA-Special First Division found sufficient basis for Chevron's claim
and partially granted the petition. The BIR was ordered to refund One Hundred
Eight Million Five Hundred Eighty-Five Thousand One Hundred Sixty-Two and
Ninety-Five Centavos (P108,585,162.95), representing the excess excise tax paid tor
November 2003.

After the BIR's Motion for Reconsideration on the Decision dated July 12, 2010 was
denied in the Resolution dated September 24, 2010 of the CTA-Special First
Division, the BIR again filed a motion for the reconsideration of this resolution.
Significantly, in its Resolution dated December 3, 2010, the CTA-Special First
Division ruled on the merits of the motion and denied the BIR's argument as to the
liberal application of the rules.
Clearly, the CTA-Special First Division disposed of the case in its entirety and no
other issues were left to further rule upon. Therefore, the appropriate remedy to
challenge the Resolution dated December 3, 2010 is an ordinary appeal, not a
petition for certiorari.
BIR had every opportunity to elevate the matter to the CTA En Banc but chose not
to avail itself of this remedy. Even on this ground alone, the Court may already
dismiss the present petition.
simply applied the applicable rules which the BIR concededly failed to observe.
Accordingly, CTA-Special First Division's dismissal of the motion for reconsideration
was discretion duly exercised, not misused or abused.
On the basis of the foregoing, the Court finds no grave abuse of discretion on the
part of the CTA-Special First Division in issuing the assailed resolutions. Neither can
the BIR, having chosen not to avail itself of the remedy of appeal, now
substitute certiorari for an appeal as both remedies are mutually exclusive, and not
alternative or successive.38
WHEREFORE, premises considered, the petition for certiorari is
hereby DISMISSED. The Resolutions dated September 24, 2010 and December 3,
2010 of the Court of Tax Appeals-Special First Division in CTA Case No. 7358
are AFFIRMED in toto.
SO ORDERED.

Anent the second issue, the Court finds that the CTA-Special First Division did not
gravely abuse its discretion.

A petition for certiorari under Rule 65 of the Rules of Court covers errors of
jurisdiction or grave abuse of discretion amounting to excess or lack of jurisdiction.
Errors of jurisdiction refer to acts done by the court without or in excess of its
jurisdiction, and which error is correctible only by the extraordinary writ
of certiorari.32 The abuse of discretion must be so patent and gross as to amount to
an evasion of a positive duty or to a virtual refusal to perform a duty enjoined by
law or to act at all in contemplation of law, as where the power is exercised in an SECOND DIVISION
arbitrary and despotic manner by reason of passion or hostility. 33 The petitioner, or
the BIR in this case, bears the burden to prove not merely reversible error, but G.R. No. 118176 April 12, 2000
grave abuse of discretion on the part of the public respondent, 34 absent which in
the exercise of judicial power a petition for certiorari cannot prosper. PROTECTOR'S SERVICES, INC., petitioner,
vs.
In this case, the BIR was unable to show that the resolutions of the CTA-Special First COURT OF APPEALS AND COMMISSIONER OF INTERNAL REVENUE, respondents.
Division were patent and gross to warrant striking them down through a petition
for certiorari. No argument was advanced to establish that the CTA-Special First QUISUMBING, J.:
Division exercised its judgment capriciously, whimsically, arbitrarily, or despotically
by reason of passion and hostility.
Assailed in this petition for review is the Decision1 of the Court of Appeals dated
November 28, 1994, in CA-G.R. SP No.31825. It affirmed the judgment of the Court
It is not disputed that the BIR's Motion for Reconsideration dated August 3, 2010
of Tax Appeals which had dismissed the petition for review of assessments made by
failed to comply with the provisions provided for by the Revised Rules of the CTA.
the Commissioner of Internal Revenue imposing deficiency percentage taxes on
Specifically, the motion filed by the BIR did not include a notice for hearing and
petitioner for the years 1983, 1984 and 1985. The dispositive portion of the CTA's
necessarily, the BIR likewise failed to set the motion for hearing. In denying the
decision states:
motion, the CTA-Special First Division cited Sections 335 and 636 of the Revised Rules
of the CTA37 as its basis. It is clear therefore that the CTA-Special First Division
 WHEREFORE, in all the foregoing, this case is hereby DISMISSED for lack of
jurisdiction — the subject assessments having become final and
unappealable.2
The facts are as follows:
Petitioner Protector's Services, Inc. (PSI) is a contractor engaged in recruiting
security guards for clients. After an audit investigation conducted by the Bureau of
Internal Revenue (BIR), petitioner was assessed for deficiency percentage taxes
including surcharges, penalties and interests thereon, as follows:
YEAR AMOUNT DEMAND LETTER NO.
1983 P503,564.59 18-452-83B-87-B2
1984 831,464.30 18-451-84B-87-B2
1985 1,514,047.86 18-450-85B-87-B2
On December 7, 1987, respondent Commissioner sent by registered mail, demand
letters for payment of the aforesaid assessments. However, petitioner alleged that
on December 10, 1987, it only received Demand Letter Nos. 18-452-83B-87-B2 and
18-451-84B-87-B2 for the years 1983 and 1984, respectively. It denied receiving any
notice of deficiency percentage tax for the year 1985.
Petitioner sent a protest letter dated January 02, 1988, to the BIR regarding the
1983 and 1984 assessments. The petitioner claimed that its gross receipts subject to
percentage taxes should exclude the salaries of the security guards as well as the
corresponding employer's share of Social Security System (SSS), State Insurance
Fund (SIF) and Medicare contributions.1âwphi1.nêt
Without formally acting on the petitioner's protest, the BIR sent a follow-up letter
dated July 12, 1988, ordering the settlement of taxes based on its computation.
Additional documentary stamp taxes of two thousand twenty-five (P2,025.00) pesos
on petitioner's capitalization for 1983 and 1984, and seven hundred three pesos
and forty-one centavos (P703.41) as deficiency expanded withholding tax were
included in the amount demanded. The total unsettled tax amounted to two
million, eight hundred fifty-one thousand, eight hundred five pesos and sixteen
centavos (P2,851,805.16).
On July 21, 1988, petitioner paid the P2,025.00 documentary stamp tax and the
P703.41 deficiency expanded withholding tax. On the following day, July 22, 1988,
petitioner filed its second protest on the 1983 and 1984 percentage taxes, and
included, for the first time, its protest against the 1985 assessment.
On November 9, 1990, BIR Deputy Commissioner Eufracio Santos sent a letter to
the petitioner which denied with finality the latter's protests against the subject
assessments, stating thus:
. . . [T]hat the salaries paid to the security guards form part of your taxable gross
receipts in the determination of the 3% and 4% contractor's tax imposed under
Section 191 of the Tax Code prior to its amendment by the provision of
Executive Order No. 273.
Considering that the security guards are actually your employees and not that of
your clients, the salaries corresponding to the services rendered by your
employees form part of your taxable receipts. This contention finds support in
the case of Avecilla Building Corporation versus Commissioner, et al., G.R. L-
42395, 17 January 1985 and Resty Arbon Singh versus Commissioner, CTA Case
No. 1901, 5 December 1970.3
On December 5, 1990, petitioner filed a petition for review before the CTA
contending that:
1) Assessments for documentary stamp tax and expanded withholding tax are
without basis since they were paid on July 22, 1988.
2) The period for collection of the 1985 percentage tax had prescribed, because
PSI denied having received any assessment letter for the same year.
3) Percentage taxes for the three quarters of 1984 were filed as follows: 1st Qtr.
— April 23, 1984; 2nd Qtr. — July 20, 1984, and; 3rd Qtr. — October 19, 1984. The
three-year prescriptive period to collect percentage taxes for the 1st, 2nd and 3rd
quarters had prescribed because the BIR sent an assessment letter only on
December 10, 1987.
4) The base amount for computing percentage tax was erroneous because the BIR
included in the taxable amount, the salaries of the security guards and the
employer's corresponding remittances to SSS, SIF, and Medicare, which amounts
were earmarked for other persons, and should not form part of PSI's receipts.
The CTA dismissed the petition on the following grounds: (1) The three-year period
of limitation for assessment of taxes in 1984 commenced from the date of filing the
final return on January 20, 1985, hence assessment made on December 10, 1987,
was within said period. (2) Petitioner could not deny receipt of the 1985 assessment
on the same date, December 10, 1987, for as supported by testimony of the BIR
personnel, all the assessment letters for the years 1983, 1984, and 1985 were
included in one envelope and mailed together. (3) Petitioner's protest letter dated
January 2, 1988, was filed on January 12, 1988, or thirty-three days from December
10, 1987, hence, the request for reinvestigation was filed out of time.
Petitioner appealed to the Court of Appeals, which affirmed the decision of the CTA.
Hence, the present petition, wherein petitioner raises the following issues:
I. WHETHER THE COURT OF TAX APPEALS HAS JURISDICTION TO ACT ON THE
PETITION FOR REVIEW FILED BEFORE IT.
II. WHETHER THE ASSESSMENTS AGAINST THE PETITIONER FOR DEFICIENCY
PERCENTAGE TAX FOR TAXABLE YEARS 1983 AND 1984 WERE MADE AFTER THE
LAPSE OF THE PRESCRIPTIVE PERIOD.
III. WHETHER THE PERIOD FOR THE COLLECTION OF TAXES FOR TAXABLE YEARS
1983, 1984, AND 1985 HAS ALREADY PRESCRIBED.
IV. WHETHER THE ASSESSMENTS ARE CORRECT.4
As to the first issue, petitioner maintains that the assessments only became final on
November 9, 1990, when the CIR denied the request for reconsideration.
Consequently, the CTA had jurisdiction over the appeal filed by the petitioner on
December 5, 1990. Furthermore, the CTA resolved that the assessments became
final after thirty days from receipt of demand letters by the petitioner, without the
latter interposing a reconsideration.
The pertinent provision of the National Internal Revenue Code of 1977 (NIRC 1977),
concerning the period within which to file a protest before the CIR, reads:
Sec. 270. Protesting of assessment. — When the Commissioner of Internal
Revenue or his duly authorized representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his findings. Within a period to be
prescribed by implementing regulations, the taxpayer shall be required to respond
to said notice. If the taxpayer fails to respond, the Commissioner shall issue an
assessment based on his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation in such form and manner as may be prescribed
by the implementing regulations within thirty (30) days from receipt of the
assessment; otherwise, the assessment shall become final, and unappealable.
If the protest is denied in whole or in part, the individual, association or
corporation adversely affected by the decision on the protest may appeal to the
Court of Tax Appeals within thirty (30) days from receipt of the said decision;
otherwise, the decision shall become final, executory and demandable.
We note that indeed on December 10, 1987, petitioner received the BIR's
assessment notices. On January 12, 1988, petitioner protested the 1983 and 1984
assessments and requested for a reinvestigation. From December 10, 1987 to
January 12, 1988, thirty-three days had lapsed. Thereafter petitioner may no longer
dispute the correctness of the assessments. Hence, in our view, the CTA correctly
dismissed the appeal for lack of jurisdiction.
On the second issue, petitioner argues that the government's right to assess and
collect the 1983, 1984 and 1985 taxes had already prescribed. Relying on Batas
Pambansa (BP) Blg. 700, which reduced the period of limitation for assessment and
collection of internal revenue taxes from five to three years, petitioner asserts that
the government was barred from reviewing the 1983 tax starting December 10,
1987, the expiry date of the three-year limit. Petitioner insists that the reckoning
period of prescription should start from the date when the quarterly percentage
taxes were paid and not when the Final Annual Percentage Tax Return for the year
was filed. Moreover, he denies having received the 1985 tax assessment.
Petitioner's contentions lack merit. Sections one and three of BP 700, "An Act
Amending Sections 318 and 319 of the National Internal Revenue Code, which
reduced the period of limitation for assessment and collection of internal revenue
taxes from five to three years," provides:
Sec. 1. Section 318 of the National Internal Revenue Code, as amended, is hereby
amended to read as follows:
Sec. 318. Period of limitation upon assessment and collection. — Except as
provided in the succeeding sections, internal revenue taxes shall be assessed
within three years after the last day prescribed by law for the filing of the return,
and no proceeding in court without assessment for the collection of such taxes
shall be begun after the expiration of such period: Provided, That in a case
where a return is filed beyond the period prescribed by law, the three-year
period shall be counted from the day the return was filed. For the purposes of
this section, a return filed before the last day prescribed by law for the filing
thereof shall be considered as filed on such last day.
xxx xxx xxx
Sec. 3. The period of limitation herein prescribed shall apply to assessments of
internal revenue taxes beginning taxable year 1984.
B.P. 700 was approved on April 5, 1984. The three-year prescriptive period for
assessment and collection of revenue taxes applied to taxes paid beginning 1984.
Clearly, the tax assessment made on December 10, 1987, for the year 1983 was still
covered by the five-year statutory prescriptive period. This rule was emphasized in
Revenue Memorandum Circular (RMC) No. 33-84, published on November 12, 1984,
which defined the salient features of the application of BP 700, to wit:
B. Effectivity of Prescriptive Periods of Assessment and Collection
1 Assessment made on or after April 5, 1984 (date, of approval of BP 700) will
still be governed by the original five-year period if the taxes assessed thereby
cover taxable years prior to January 1, 1984. (emphasis supplied)
Corollarily, assessments made before April 5, 1984 shall still be governed by the
original five-year period.
However, assessments made on or April 5, 1984 covering taxable years
beginning January 1, 1984 shall be under the new three-year period.
Should the three-year limitation be reckoned at the time of the quarterly payment
of contractor's tax or at the due date of the final annual tax?
Sec. 2 of Revenue Regulation No. 6-81, states:
Sec. 2. Percentage tax. — In general, unless otherwise specifically provided in
the Tax Code, every person conducting business on which a percentage tax is
imposed under Chapter II Title V of the Tax Code must render quarterly
declaration on cumulative basis of the amount of his sales, receipts or earnings
or gross value of output actually removed from the factory or near warehouse,
compute and pay the tax due thereon.
(a) Quarterly Percentage Return. —
For each of the first three quarters of the taxable year, the tax so computed
shall be decreased by the amount of tax previously paid and by the sum of the
tax credits allowed under this Title for the preceding current quarters. The tax
due shall be paid not later than twenty (20) days following the close of each of
the first three quarters of the taxable year.
(b) Final Annual Percentage Tax Return —
On or before the twentieth day of the second month following the close of
the taxable year, a final percentage tax return shall be filed under BIR Form
No. __ covering the entire taxable year. If the sum of the total quarterly
percentage tax payments made for the first three quarters and total tax
credit allowable for the taxable year are not equal to the total tax due on
the entire gross sales, receipts or earnings or gross value of the output for
that taxable year, the taxpayer shall either:
(1) Pay the tax still due; or
(2) Credit to the extent allowable under this Title, the amount of excess tax
credits shown in the final adjustment return against the quarterly
percentage tax liabilities for the succeeding taxable quarters.
Only recently in G.R. No. 115712, Commission of Internal Revenue vs. Court of
Appeals, February 25, 1999, we held, that the three-year prescriptive period of tax
assessment of contractor's tax should be computed at the time of the filing of the
"final annual percentage tax return,"5 when it can be finally ascertained if the
taxpayer still has an unpaid tax, and not from the tentative quarterly payments.
Turning now to petitioner's denial that he received the 1985 assessment, we agree
with the factual findings of the CTA that the assessment letter may be presumed to
have been received by petitioner. The CTA found as follows:
The 1985 assessment which petitioner denied as having been received was
negated when the respondent introduced documentary evidence showing
that it was mailed by registered mail. It was further buttressed by the
testimony of witness Mr. Arnold C. Larroza, Chief Administrative Branch
Mailing Section, Rev. Region No. 4B-1, Quezon City that the 1983, 1984 and
1985 assessments were placed in one envelope when it was mailed by
registered mail. Presumably, it was received in the regular course of the
mail. . . . The facts to be proved to raise this presumption are (a) that the
letter was properly addressed with postage prepaid; and (b) that it was
mailed. Once these facts are proved, the presumption is that the letter was
received by the addressee as soon as it could have been transmitted to him
in the ordinary course of the mails. Such being the case, this Court cannot
be made to believe that the 1985 assessment which incidentally has a
substantially greater amount involved, was not received by the petitioner.
Hence, the same assessment is also considered final and unappealable for
failure of the petitioner to protest the same within the reglementary
period provided by law.6
In reviewing administrative decisions, the reviewing court cannot re-examine the
factual basis and sufficiency of the evidence. 7 The findings of fact must be
respected, so long as they are supported by substantial evidence.8
As a subsidiary defense, petitioner interposes the third issue claiming that since the
CIR failed, until now, to commence the collection of the 1983, 1984, and 1985
deficiency tax, the right to collect had, likewise, prescribed. Petitioner urges us to
consider that for the government's failure to institute collection remedies either by
judicial action or by distraint and levy, the right to collect the same has prescribed
pursuant to Section 219 of the NIRC. Note, however, that Section 271 of the 1986
Tax Code provides for the suspension of running of the statute of limitation of tax
collection, as follows:
Sec. 271. Suspension of running of statute. — The running of the statute of
limitations provided in Sections 268 and 269 on the making of assessment
and the beginning of distraint or levy or a proceeding in court for
collection, in respect of any deficiency, shall be suspended for the period
during which the Commissioner is prohibited from making the assessment
or beginning distraint or levy or a proceeding in court and for sixty days
thereafter; when the taxpayer request for a reinvestigation which is
granted by the Commissioner; when the taxpayer cannot be located in the
address given by him in the return filed upon which a tax is being assessed
or collected: Provided, That, if the taxpayer informs the Commissioner of
any change in address, the running of the statute of limitation will not be
suspended; when the warrant of distraint and levy is duly served upon the
taxpayer, his authorized representative, or a member of his household
with sufficient discretion, and no property could be located; and when the
taxpayer is out of the Philippines. (Emphasis supplied.)
In the instant case, PSI filed a petition before the CTA to prevent the collection of
the assessed deficiency tax. When the CTA dismissed the case, petitioner elevated
the case before us, hoping for a review in its favor. The actions taken by the
petitioner before the CTA and now before us, suspended the running of the statute
of limitation. In the old case of Republic of the Philippines vs. Ker and
Company, Ltd., 9 we held:
Under Section 333 (renumbered to 271 during the instant case) of the Tax
Code the running of the prescriptive period to collect deficiency taxes shall
be suspended for the period during which the Commissioner of Internal
Revenue is prohibited from beginning a distraint and levy or instituting a
proceeding in court, and for sixty days thereafter. In the case at bar, the
pendency of the taxpayer's appeal in the Court of Tax Appeals and in the
Supreme Court had the effect of temporarily staying the hands of the said
Commissioner. If the taxpayer's stand that the pendency of the appeal did
not stop the running of the period because the Court of Tax Appeals did
not have jurisdiction over the case of taxes is upheld, taxpayers would be
encouraged to delay the payment of taxes in the hope of ultimately
avoiding the same. Under the circumstances, the running of the
prescriptive period was suspended. 10
Finally, petitioner contends that the assessments made by the respondent CIR were
erroneous because they included in the gross receipts subject to the contractor's
tax the salaries of the security guards and the employer's share in the SSS, SIF and
Medicare. Petitioner claims that it did not benefit from those amounts earmarked
for other persons or institutions, hence, they must not be taxable.
Contractor's tax on gross receipts imposed on business agents including private
detective watchman agencies, 11was a tax on the sale of services or labor, imposed
on the exercise of a privilege. 12 The term "gross receipts" means all amounts
received by the prime or principal contractor as the total price, undiminished by the
amount paid to the subcontractor under a subcontract arrangement. 13 Hence, gross
receipts could not be diminished by employer's SSS, SIF and Medicare
contributions. 14 Furthermore, it has been consistently ruled by the BIR that the
salaries paid to security guards should form part of the gross receipts, subject to
tax, to wit:
. . . This Office has consistently ruled that salaries of security guards form
part of the taxable gross receipts of a security agency for purposes of the
4% [formerly 3%] contractors tax under Section 205 of the Tax Code, as
amended. The reason is that the salaries of the security guards are actually
the liability of the agency and that the guards are considered their
employees; hence, for percentage tax purposes, the salaries of the security
guards are includible in its gross receipts. (BIR Ruling No.271-81 citing BIR
Ruling No. 69-002). 15
These rulings were made by the CIR in the exercise of his power to "make
judgments or opinions in connection with the implementation of the provisions of
the internal revenue code." The opinions and rulings of officials of the government
called upon to execute or implement administrative laws, command respect and
weight. 16 We see no compelling reason in this case to rule otherwise.
WHEREFORE, the assailed decision of the Court of Appeals, in CA- G.R. SP 31825, is
AFFIRMED. Costs against petitioner.
SO ORDERED.
 application of UPSI-MI for tax refund or issuance of Tax Credit Certificate (TCC) of its
excess unutilized creditable income tax for the taxable year 2006.

The Antecedents

As narrated by the CTA, the facts are uncomplicated, viz:

UPSI-MI is a corporation incorporated and existing under and by virtue of laws of

the Republic of the Philippines, with business address at 1122 General Luna Street,
Paco. Manila. Respondent on the other hand, is the duly appointed Commissioner
THIRD DIVISION
of Internal Revenue, with power, among others, 10 act upon claims for refund or
tax credit of overpaid internal revenue taxes, with office address at the Fifth Floor,
March 7, 2018
BIR National Office Building, BIR Road, Diliman , Quezon City.

G.R. No. 205955

On April 16, 2007. petitioner filed its Annual Income Tax Return (ITR) for the year
ended December 31, 2006 with the Revenue District No. 34 of the Revenue Region
UNIVERSITY PHYSICIANS SERVICES INC. - MANAGEMENT, INC., Petitioner No. 6 of the Bureau of Internal Revenue (BIR), reflecting an income tax
vs. overpayment of 5,159,341.00. computed as follows:4
COMMISSIONER OF INTERNAL REVENUE, Respondent

DECISION Sales/Revenues/Receipts/Fees ₱ 28,808,960.00

Less: Cost of Sales/Services 23,834,605.00

MARTIRES, J.:
Gross Income from Operation ₱ 4,974,355.00
When a corporation overpays its income tax liability as adjusted at the close of the
taxable year, it has two options: (1) to be refunded or issued a tax credit certificate, Add: Non-Operating & Other Income 5,375.00
or (2) to carry over such overpayment to the succeeding taxable quarters to be Total Gross Income ₱ 4,979,730.00
applied as tax credit against income tax due.1 Once the carry-over option is taken, it
becomes irrevocable such that the taxpayer cannot later on change its mind in Less: Deductions ₱ 4,979,730.00
order to claim a cash refund or the issuance of a tax credit certificate of the very
same amount of overpayment or excess m. come tax credit.2 Taxable Income -

Does the irrevocability rule apply exclusively to the carry-over option? Such is the
novel issue presented in this case. Tax Rate (except MCIT Rate) 35%

THE FACTS Income Tax -

Minimum Corporate Income Tax (MCIT) ₱ 99,595.00

Before the Court is a petition for review under Rule 45 of the Rules of Court filed by
petitioner University Physicians Services Inc.-Management, Inc. (UPSI-MI) which
seeks the reversal and setting aside of the 8 February 2013 Decision 3 of the Court of
Tax Appeals (CTA) En Banc in CTA-EB Case No. 828. ·Said decision of the CTA En
Banc affirmed the 5 July 2011 Decision and 8 September 2011 Resolution of the CTA
Aggregate Income Tax Due ₱ 99,595.00
Second Division (CTA Division) in CTA Case No. 7908. The CTA Division denied the
Less: Tax Credits/Payments Less: Tax Credits/Payments

Prior Year's Excess Credits ₱ 2,331,102.00 Prior Year's Excess Credits 5,159,341

Creditable Tax Withheld for the First Creditable Tax Withheld for the First
1,107,228
Three Quarters Three Quarters

Creditable Tax Withheld for the Fourth Creditable Tax Withheld for the Fourth

Three Quarters 2,972,834.00 Quarter 6,266,569

Total Tax Credits/Payments ₱ 5,258,936.00) Total Tax Credits/Payments 6,266,569

Tax Payable/(Overpayment) ₱ (5,159,341.00) Tax Payable/(Overpayment) (6,246,007)

Subsequently, on November 14, 2007, petitioner filed an Annual ITR for the short On the same date, petitioner filed an amended Annual ITR for the short period fiscal
period fiscal year ended March 31, '.W07, reflecting the income tax overpayment of year ended March 31, 2007, reflecting the removal of the amount of the instant
5. 159.341 from the previous period as "Prior Year’s Excess Credit", as follows:5 claim in the ''Prior Year's Excess Credit".Thus, the amount thereof was changed
from ₱5, 159,341 to ₱2,231,507.
Sales/Revenues/Receipts/Fees 7,489,259
On October 10, 2008, petitioner filed with the respondent's office, a claim for
Less: Cost of Sales/Services 6,461,650 refund and/or issuance of a Tax Credit Certificate (TCC) in the amount of
₱2,927.834.00, representing the alleged excess and unutilized creditable
Gross Income from Operation 1,027,609 withholding taxes for 2006.

Add: Non-Operating & Other Income 479

In view of the fact that respondent has not acted upon the foregoing claim for
Total Gross Income 1,028,088 refund/tax credit, petitioner filed with a Petition for Review on April l4, 2009 before
the Court in Division.
Less: Deductions 1,206,543
The Ruling of the CTA Division
Taxable Income (178,455)
After trial, the CT A Division denied the petition for review for lack of merit. It
reasoned that UPSI-MI effectively exercised the carry-over option under Section 76
Tax Rate (except MCIT Rate) 35% of the National Internal Revenue Code (NIRC) of 1997. On motion for
reconsideration, UPSI-MI argued that the irrevocability rule under Section 76 of the
Income Tax - NIRC is not applicable for the reason that it did not carry over to the succeeding
Minimum Corporate Income Tax (MCIT) 20,562 taxable period the 2006 excess income tax credit. UPSI-MI added that the subject
excess tax credits were inadvertently included in its original 2007 ITR, and such
mistake was rectified in the amended 2007 ITR. Thus, UPSI-MI insisted that what
should control is its election of the option "To be issued a Tax Credit Certificate" in
Aggregate Income Tax Due 20,562 its 2006 ITR.
The CTA Division ruled that UPSI-MI's alleged inadvertent inclusion of the 2006
excess tax credit in the 2007 original ITR belies its own allegation that it did not
carry over the said amount to the succeeding taxable period. The amendment of
the 2007 ITR cannot undo UPSI-MI's actual exercise of the carry-over option in the
original 2007 ITR, for to do so would be against the irrevocability rule. The
dispositive portion of the CTA Division's decision reads:
WHEREFORE, the instant Petition for Review is hereby DENIED for lack of merit.6
Aggrieved, UPSI-MI appealed before the CTA En Banc.
The Ruling of the CTA En Banc
The CTA En Banc ruled that UPSI-MI is barred by Section 76 of the NIRC from
claiming a refund of its excess tax credits for the taxable year 2006. The barring
effect applies after UPSI-MI carried over its excess tax credits to the succeeding
quarters of 2007, even if such carry-over was allegedly done inadvertently. The
court emphasized that the prevailing law and jurisprudence admit of no exception
or qualification to the irrevocability rule. Thus, the CTA En Banc affirmed the
assailed decision and resolution of the CTA Division, disposing as follows:
WHEREFORE, all the foregoing considered, the instant Petition for Review is hereby
DENIED. The assailed Decision dated July 5. 2011and Resolution dated September 8,
2011 both rendered by the Court in Division in CTA Case No. 7908 are
hereby AFFIRMED.
SO ORDERED.7
Notably, the said decision was met by a dissent from Justice Esperanza R. Pabon-
Victorino. Invoking Phi/am Asset Management, Inc. v. Commissioner
(Philam), 8 Justice Pabon-Victorino took the view that the irrevocability rule applies
as much to the option of refund or tax credit certificate. She wrote:
A contextual appreciation of the ruling [Philam] would tell us that any of the two
alternatives once chosen is irrevocable - be it for refund or carry over. The
controlling factor for the operation of the irrevocability rule is that the taxpayer
chose an option; and once it had already done so, it could no longer make another
one.
Unsatisfied with the decision of the CTA En Banc, UPSI-MI appealed before this
Court.
The Present Petition for Review
UPSI-MI interposed the following reasons for its petition:
THE HONORABLE COURT OF TAX APPEALS (En Banc) SERIOUSLY ERRED AND
DECIDED IN A MANNER NOT IN ACCORDANCE WITH THE LAW, PREVAILING
JURISPRUDENCE, AND FACTUAL MILIEU SURROUNDING THE CASE, WHEN IT
ADOPTED THE DECISION OF THE COURT OF TAX APPEALS IN DIVISION AND RULED
THAT:
a. Petitioner is not entitled to the refund or issuance of a Tax Credit Certificate in
the amount of ₱2,927,834.00 representing its 2006 excess tax credits because of
the application of the "irrevocability rule" under Section 76 of the NIRC of 1997.
b. The amendment of the original ITR for fiscal year ended 31 March 2007 does not
take back, cancel or rescind the original option to refund through tax credit
certificate based on the argument that the Petitioner allegedly made an option to
carry-over the excess credits.
THE HONORABLE COURT OF TAX APPEALS (En Banc) SERIOUSLY ERRED WHEN IT
IGNORED THAT ON JOINT STIPULATIONS, THE RESPONDENT ADMITTED THE FACT
THAT PETITIONER INDICATED IN THE CORRESPONDING BOX ITS
INTENTION TO BE ISSUED A TAX CREDIT CERTIFICATE REPRESENTING ITS
UNUTILIZED CREDITABLE WITHHOLDING TAX WITHHELD FOR THE TAXABLE YEAR
2006 BY MARKING THE APPROPRIATE BOX.
THE HONORABLE COURT OF TAX APPEALS (En Banc) SERIOUSLY ERRED WHEN IT
DECIDED ON THE ISSUE OF WHETHER OR NOT PEITIONER CARRIED OVER ITS 2006
EXCESS TAX CREDITS TO THE SUCCEEDING SHORT TAXABLE PERIOD OF 2007
WHEN THE SAME WAS NEVER RAISED IN THE JOINT STIPULATION OF FACTS.
UPSI-MI faults the CTA En Banc for banking too much on the irrevocability of the
option to carry over. It contends that even the option to be refunded through the
issuance of a TCC is likewise irrevocable. Taking cue from the dissent of Justice
Pabon-Victorino, UPSI-MI cites Philam in restating this Court's pronouncement that
"the options of a corporate taxpayer, whose total quarterly income tax payments
exceed its tax liability, are alternative in nature and the choice of one precludes the
other." It also cites Commissioner v. PL Management International Philippines, Inc.
(PL Management)9 that reiterated the rule that the choice of one precludes the
other. Thus, when it indicated in its 2006 Annual ITR the option "To be issued a Tax
Credit Certificate," such choice precluded the other option to carry over.10
 In other words, UPSI-MI proposes that the options of refund on one hand and carry-
over on the other hand are both irrevocable by nature. Relying again on the dissent
of Justice Pabon-Victorino, UPSI-MI also points to BIR Form 1702 (Annual Income
Tax Return) itself which expressly states under line 31 thereof:
"If overpayment, mark one box only:
(once the choice is made, the same is irrevocable)"
creditable withholding tax of ₱2,927,834.00. UPSI-MI amended the return by
excluding the sum of ₱2,927,834.00 under the line "Prior Year's Excess Credits"
which amount is the subject of the refund claim.
In sum, the question to be resolved is whether UPSI-MI may still be entitled to the
refund of its 2006 excess tax credits in the amount of ₱2,927,834.00 when it
thereafter filed its income tax return (for the short period ending 31 March 2007)
indicating the option of carry-over.

Resume of relevant facts OUR RULING

To recapitulate, UPSI-MI had, as of 31 December 2005, an outstanding amount of We affirm the CTA.
₱2,331, 102.00 in excess and unutilized creditable withholding taxes.
We cannot subscribe to the suggestion that the irrevocability rule enshrined in
For the subsequent taxable year ending 31 December 2006, the total sum of Section 76 of the National Internal Revenue Code (NIRC) applies to either of the
creditable taxes withheld on the management fees of UPSI-MI was ₱2,927,834.00. options of refund or carry-over. Our reading of the law assumes the interpretation
Per its 2006 Annual Income Tax Return (ITR), UPSI-MI's income tax due amounted that the irrevocability is limited only to the option of carry-over such that a taxpayer
to ₱99,105.00. UPSI-MI applied its "Prior Year's Excess Credits" of ₱2,331, 102.00 as is still free to change its choice after electing a refund of its excess tax credit. But
tax credit against such 2006 Income Tax due, leaving a balance of ₱2,231,507.00 of once it opts to carry over such excess creditable tax, after electing refund or
still unutilized excess creditable tax. Meanwhile, the creditable taxes withheld for issuance of tax credit certificate, the carry-over option becomes irrevocable.
the year 2006 (₱2,927,834.00) remained intact and unutilized. In said 2006 Annual Accordingly, the previous choice of a claim for refund, even if subsequently
ITR, UPSI-MI chose the option "To be issued a tax credit certificate" with respect to pursued, may no longer be granted.
the amount ₱2,927,834.00, representing unutilized excess creditable taxes for the
taxable year ending 31 December 2006. The figures are summarized in the table The aforementioned Section 76 of the NIRC provides:
below:
SECTION 76. Final Adjustment Return. - Every corporation liable to tax under
Section 27 shall file a final adjustment return covering the total taxable income for
Excess Creditable Income Tax Due Less Tax Balance of Excess
the preceding calendar or fiscal year. If the sum of the quarterly tax payments made
Withholding Tax Tax Credit Payable CWT
during the said taxable year is not equal to the total tax due on the entire taxable
(CWT)
income of that year, the corporation shall either:
P 2,331, 102.00 --- --- --- P 2,231,507.00
(A) Pay the balance of tax still due; or
P 2,927,834.00 P 99, 105.00 P 99,105.00 (A portion P 0.00 P 2,927,834.00
(MCIT) of the excess credit of (B) Carry over the excess credit; or
Php2,33l,102.00 in
2015)
(C) Be credited or refunded with the excess amount paid, as the
case may be.
In the following year, UPSI-MI changed its taxable period from calendar year to
fiscal year ending on the last day of March. Thus, it filed on 14 November 2007 an In case the corporation is entitled to a tax credit or refund of the excess estimated
Annual ITR covering the short period from January 1 to March 31 of 2007. In the quarterly income taxes paid, the excess amount shown on its final adjustment
original 2007 Annual ITR, UPSI-MI opted to carry over as "Prior Year's Excess return may be carried over and credited against the estimated quarterly income tax
Credits" the total amount of ₱5,159,341.00 which included the 2006 unutilized liabilities for the taxable quarters of the succeeding taxable years. Once the option
to carry-over and apply the excess quarterly income tax against income tax due for
the taxable quarters of the succeeding taxable years has been made, such option
shall be considered irrevocable for that taxable period and no application for cash
refund or issuance of a tax credit certificate shall be allowed therefor. (emphasis
supplied)
Under the cited law, there are two options available to the corporation whenever it
overpays its income tax for the taxable year: (1) to carry over and apply the
overpayment as tax credit against the estimated quarterly income tax liabilities of
the succeeding taxable years (also known as automatic tax credit) until fully utilized
(meaning, there is no prescriptive period); and (2) to apply for a cash refund or
issuance of a tax credit certificate within the prescribed period.11 Such
overpayment of income tax is usually occasioned by the over-withholding of taxes
on the income payments to the corporate taxpayer.
The irrevocability rule is provided in the last sentence of Section 76. A perfunctory
reading of the law unmistakably discloses that the irrevocable option referred to is
the carry-over option only. There appears nothing therein from which to infer that
the other choice, i.e., cash refund or tax credit certificate, is also irrevocable. If the
intention of the lawmakers was to make such option of cash refund or tax credit
certificate also irrevocable, then they would have clearly provided so.
In other words, the law does not prevent a taxpayer who originally opted for a
refund or tax credit certificate from shifting to the carry-over of the excess
creditable taxes to the taxable quarters of the succeeding taxable years. However,
in case the taxpayer decides to shift its option to carryover, it may no longer revert
to its original choice due to the irrevocability rule. As Section 76 unequivocally
provides, once the option to carry over has been made, it shall be irrevocable.
Furthermore, the provision seems to suggest that there are no qualifications or
conditions attached to the rule on irrevocability.
Law and jurisprudence unequivocally support the view that only the option of carry-
over is irrevocable.
Aside from the uncompromising last sentence of Section 76, Section 228 of the
NIRC recognizes such freedom of a taxpayer to change its option from refund to
carry-over. This law affords the government a remedy in case a taxpayer, who had
previously claimed a refund or tax credit certificate (TCC) of excess creditable
withholding tax, subsequently applies such amount as automatic tax credit. The
pertinent text of Section 228 reads:
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly
authorized representative finds that proper taxes should be assessed, he shall first
notify the taxpayer of his findings: Provided, however, That a pre-assessment notice
shall not be required in the following cases:
(a) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as appearing on
the face of the return; or
(b) When a discrepancy has been determined between the tax
withheld and the amount actually remitted by the withholding
agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of
excess creditable withholding tax for a taxable period was
determined to have carried over and automatically applied the
same amount claimed against the estimated tax liabilities for the
taxable quarter or quarters of the succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not been
paid; or
(e) When the article locally purchased or imported by an exempt
person, such as, but not limited to, vehicles, capital equipment,
machineries and spare parts, has been sold, traded or transferred
to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void. x x x (emphasis
supplied)
The provision contemplates three scenarios:
(1) Deficiency in the payment or remittance of tax to the government
(paragraphs [a], [b] and [d]);
(2) Overclaim of refund or tax credit (paragraph [ c ]); and
(3) Unwarranted claim of tax exemption (paragraph [e]).
In each case, the government is deprived of the rightful amount of tax due it. The
law assures recovery of the amount through the issuance of an assessment against
the erring taxpayer. However, the usual two-stage process in making an assessment
is not strictly followed. Accordingly, the government may immediately proceed to
the issuance of a final assessment notice (FAN), thus dispensing with the
preliminary assessment (PAN), for the reason that the discrepancy or deficiency is
so glaring or reasonably within the taxpayer's knowledge such that a preliminary
notice to the taxpayer, through the issuance of a PAN, would be a superfluity.
Pertinently, paragraph (c) contemplates a double recovery by the taxpayer of an
overpaid income tax that arose from an over-withholding of creditable taxes. The
refundable amount is the excess and unutilized creditable withholding tax.
This paragraph envisages that the taxpayer had previously asked
for and successfully recovered from the BIR its excess creditable withholding tax
through refund or tax credit certificate; it could not be viewed any other way. If the
government had already granted the refund, but the taxpayer is determined to
have automatically applied the excess creditable withholding tax against its
estimated quarterly tax liabilities in the succeeding taxable year(s), the taxpayer
would undeservedly recover twice the same amount of excess creditable
withholding tax. There appears, therefore, no other viable remedial recourse on the
part of the government except to assess the taxpayer for the double recovery. In
this instance, and in accordance with the above rule, the government can right
away issue a FAN.
If, on the other hand, an administrative claim for refund or issuance of TCC is
still pending but the taxpayer had in the meantime automatically carried over the
excess creditable tax, it would appear not only wholly unjustified but also
tantamount to adopting an unsound policy if the government should resort to the
remedy of assessment.
First, on the premise that the carry-over is to be sustained, there should be no more
reason for the government to make an assessment for the sum (equivalent to the
excess creditable withholding tax) that has been justifiably returned already to the
taxpayer (through automatic tax credit) and for which the government has no right
to retain in the first place. In this instance, all that the government needs to do is to
deny the refund claim.
Second, on the premise that the carry-over is to be disallowed due to the pending
application for refund, it would be more complicated and circuitous if the
government were to grant first the refund claim and then later assess the taxpayer
for the claim of automatic tax credit that was previously disallowed. Such procedure
is highly inefficient and expensive on the part of the government due to the costs
entailed by an assessment. It unduly hampers, instead of eases, tax administration
and unnecessarily exhausts the government's time and resources. It defeats, rather
than promotes, administrative feasibility.12 Such could not have been intended by
our lawmakers. Congress is deemed to have enacted a valid, sensible, and just
law.13
Thus, in order to place a sensible meaning to paragraph (c) of Section 228, it should
be interpreted as contemplating only that situation when an application for refund
or tax credit certificate had already been previously granted. Issuing an assessment
against the taxpayer who benefited twice because of the application of automatic
tax credit is a wholly acceptable remedy for the government.
Going back to the case wherein the application for refund or tax credit is still
pending before the BIR, but the taxpayer had in the meantime automatically carried
over its excess creditable tax in the taxable quarters of the succeeding taxable
year(s), the only judicious course of action that the BIR may take is to deny the
pending claim for refund. To insist on giving due course to the refund claim only
because it was the first option taken, and consequently disallowing the automatic
tax credit, is to encourage inefficiency or to suppress administrative feasibility, as
previously explained. Otherwise put, imbuing upon the choice of refund or tax
credit certificate the character of irrevocability would bring about an irrational
situation that Congress did not intend to remedy by means of an assessment
through the issuance of a FAN without a prior PAN, as provided in paragraph (c) of
Section 228. It should be remembered that Congress' declared national policy in
passing the NIRC of 1997 is to rationalize the internal revenue tax system of the
Philippines, including tax administration.14
The foregoing simply shows that the lawmakers never intended to make the choice
of refund or tax credit certificate irrevocable. Sections 76 and 228, paragraph (c),
unmistakably evince such intention.
Philam and PL Management cases
did not categorically declare the
option of refund or TCC irrevocable.
The petitioner hinges its claim of irrevocability of the option of refund on the
statement of this Court in Philam and PL Management that "the options xxx are
alternative and the choice of one precludes the other." This also appears as the
basis of Justice Fabon-Victorino’s stance in her dissent to the majority opinion in the
assailed decision.
We do not agree.
The cases cited in the petition did not make an express declaration that the option
of cash refund or TCC, once made, is irrevocable. Neither should this be inferred
from the statement of the Court that the options are alternative and that the choice
of one precludes the other. Such statement must be understood in the light of the
factual milieu obtaining in the cases.
Philam involved two cases wherein the taxpayer failed to signify its option in the
Final Adjustment Return (FAR).
In the first case (G.R. No. 156637), the Court ruled that such failure did not mean
the outright barring of the request for a refund should one still choose this option
later on. Thy taxpayer did in fact file on 11 September 1998 an administrative claim
for refund of its 1997 excess creditable taxes. We sustained the refund claim in1
this case.
It was different in the second case (G.R. No. 162004) because the taxpayer filled out
the portion "Prior Year's Excess Credits" in its subsequent FAR. The court considered
the taxpayer to have constructively chosen the carry-over option. It was in this
context that the court determined the taxpayer to be bound by its initial choice (of
automatic tax credit), so that it is precluded from asking for a refund of the excess
CWT. It must be so because the carry-over option is irrevocable, and it cannot be
allowed to recover twice for its overpayment of tax.
Unlike the second case, there was no flip-flopping of choices in the first one. The
taxpayer did not indicate in its 1997 FAR the choice of carryover. Neither did it
apply automatic tax credit in subsequent income tax returns so as to be considered
as having constructively chosen the carry-over option. When it later on asked for a
refund of its 1997 excess CWT, the taxpayer was expressing its option for the first
time. It must be emphasized that the Court sustained the application for refund but
without expressly declaring that such choice was irrevocable.
In either case, it is clear that the taxpayer cannot avail of both refund and automatic
tax credit at the same time. Thus, as Philam declared: "One cannot get a tax refund
and a tax credit at the same time for the same excess income taxes paid." This is the
import of the Court's pronouncement that the options under Section 76 are
alternative in nature.
In declaring that "the choice of one (option) precludes the other," the Court
in Philam cited Philippine Bank of Communications v. Commissioner of Internal
Revenue (PBCom), 15 a case decided under the aegis of the old NIRC of 1977 under
which the irrevocability rule had not yet been established. It was in PBCom that the
Court stated for the first time that "the choice of one precludes the
other."16 However, a closer perusal of PBCom reveals that the taxpayer had opted
for an automatic tax credit. Thus, it was precluded from availing of the other
remedy of refund; otherwise, it would recover twice the same excess creditable tax.
Again, nowhere is it even suggested that the choice of refund is irrevocable. For one
thing, it was not the choice taken by the taxpayer. For another, the irrevocability
rule had not yet been provided.
As in PBCom, the Court also said in PL Management that the choice of one (option)
precludes the other.1âwphi1 Similarly, the taxpayer in PL Management initially
signified in the FAR its choice of automatic tax credit. But unlike in PBCom, PL
Management was decided under the NIRC of 1997 when the irrevocability rule was
already applicable. Thus, although PL Management was unable to actually apply its
excess creditable tax in the next succeeding taxable quarters due to lack of income
tax liability, its subsequent application for TCC was rightfully denied by the Court.
The reason is the irrevocability of its choice of carry-over.
In other words, previous incarnations of the words "the options are alternative...
the choice of one precludes the other" did not lay down a doctrinal rule that the
option of refund or tax credit certificate is irrevocable.
Again, we need not belabor the point that insisting upon the irrevocability of the
option for refund, even though the taxpayer subsequently changed its mind by
resorting to automatic tax credit, is not only contrary to the apparent intention of
the lawmakers but is also clearly violative of the principle of administrative
feasibility.
Prior to the NIRC of 1997, the alternative options of refund and carryover of excess
creditable tax had already been firmly established. However, the irrevocability rule
was not yet in place.17 As we explained in PL Management,Congress added the last
sentence of Section 76 in order to lay down the irrevocability rule. More recently,
in Republic v. Team (Phils.) Energy Corp., 18 we said that the rationale of the rule is
to avoid confusion and complication that could be brought about by the flip-
flopping on the options, viz:
The evident intent of the legislature, in adding the last sentence to Section 76 of the
NIRC of 1997, is to keep the taxpayer from flip-flopping on its options, and avoid
confusion and complication as regards said taxpayer's excess tax credit.19
The current rule specifically addresses the problematic situation when a taxpayer,
after claiming cash refund or applying for the issuance of tax credit, and during the
pendency of such claim or application, automatically carries over the same excess
creditable tax and applies it against the estimated quarterly income tax liabilities of
the succeeding year. Thus, the rule not only eases tax administration but also
obviates double recovery of the excess creditable tax.
Further, nothing in the contents of BIR 1702 expressly declares that the option of
refund or TCC is irrevocable. Even on the assumption that the irrevocability also
applies to the option of refund, such would be an interpretation of the BIR that, as Republic of the Philippines
already demonstrated in the foregoing discussion, is contrary to the intent of the SUPREME COURT
law. It must be stressed that such erroneous interpretation is not binding on the Manila
court. Philippine Bank of Communications v. CIR20is apropos:
FIRST DIVISION
It is widely accepted that the interpretation placed upon a statute by the executive
officers, whose duty is to enforce it, is entitled to great respect by the courts. G.R. No. 190680 September 13, 2012
Nevertheless, such interpretation is not conclusive and will be ignored if judicially
found to be erroneous. Thus, courts will not countenance administrative issuances COMMISSIONER OF INTERNAL REVENUE, Petitioner,
that override, instead of remaining consistent and in harmony with, the law they vs.
seek to apply and implement.21 COURT OF TAX APPEALS and AYALA LAND, INC., Respondents.

Applying the foregoing precepts to the given case, UPSI-MI is barred from RESOLUTION
recovering its excess creditable tax through refund or TCC. It is undisputed that
despite its initial option to refund its 2006 excess creditable tax, UPSI-MI
REYES, J.:
subsequently indicated in its 2007 short-period FAR that it carried over the 2006
excess creditable tax and applied the same against its 2007 income tax due. The
Subject of this petition for certiorari under Rule 65 of the Rules of Court is the
CTA was correct in considering UPSI-MI to have constructively chosen the option of
Resolution1 dated October 30, 2009 of the Court of Tax Appeals (CTA) en bane in
carry-over, for which reason, the irrevocability rule forbade it to revert to its initial
CTA EB No. 402, which dismissed herein petitioner Commissioner of Internal
choice. It does not matter that UPSI-Ml had not actually benefited from the carry-
Revenue's (CIR) petition for relief from judgment under Rule 38 of the Rules of
over on the ground that it did not have a tax due in its 2007 short period. Neither
Court.
may it insist that the insertion of the carry-over in the 2007 FAR was by mere
mistake or inadvertence. As we previously laid down, the irrevocability rule admits
of no qualifications or conditions. The factual antecedents that led to the filing of this petition are as follows: In 2005,
private respondent Ayala Land, Inc. (ALI) filed with the CTA a petition for review 2 to
question the CIR’s assessment against it for deficiency value-added tax (VAT) for the
In sum, the petitioner is clearly mistaken in its view that the irrevocability rule also
calendar year 2003. Before the tax court, the CIR and ALI filed their Joint Stipulation
applies to the option of refund or tax credit certificate. In view of the court's finding
of Facts and Issues, which was cited in the present petition to read in part:
that it constructively chose the option of can-y-over, it is already barred from
recovering its 2006 excess creditable tax through refund or TCC even if it was its
initial choice. Petitioner (herein private respondent) is primarily engaged in the sale and/or lease
of real properties and, among others, likewise owns and operates theatres or
cinemas.
However, the petitioner remains entitled to the benefit of carry-over and thus may
apply the 2006 overpaid income tax as tax credit in succeeding taxable years until
fully exhausted. This is because, unlike the remedy of refund or tax credit Petitioner received respondent’s (herein petitioner) Final Assessment Notice
certificate, the option of carry-over under Section 76 is not subject to any (hereinafter referred to as the 2003 FAN) dated 29 October 2004 whereby
prescriptive period. respondent was assessing petitioner alleged deficiency 10% value added tax (VAT)
on its alleged income from cinema operations for the taxable year 2003 in the
aggregate amount of One Hundred Three Million Three Hundred Forty-Six
WHEREFORE, the petition is DENIED for lack of merit. The 8 February 2013 Decision
Thousand Six Hundred Ninety-One and 40/100 Pesos (₱ 103,346,691.40) inclusive of
of the Court of Tax Appeals in CTA-EB Case No. 828 is hereby AFFIRMED.
20% interest.
SO ORDERED.
On 10 December 2004, petitioner filed its protest with the office of respondent
contesting the factual and legal bases of the VAT assessment.
On 28 April 2005, petitioner received respondent’s 25 April 2005 Decision denying
petitioner’s protest, with a notation that the same constitutes respondent’s Final
Decision on the matter.
Petitioner received on 23 November 2004, respondent’s 19 November 2004 Letter
of Authority No. 0002949 for the examination of ALL INTERNAL REVENUE TAXES of
petitioner from 1 January 2003 to 31 December 2003.
In order to protect its right, petitioner filed the Petition for Review pursuant to
Section 228 of the Tax Code.3
Proceedings ensued. On April 11, 2008, the CTA Second Division rendered its
Decision granting ALI’s petition for review. The assessment against ALI for
deficiency VAT in the amount of ₱ 103,346,691.40 for the calendar year 2003 was
ordered cancelled and set aside. The CIR’s motion for reconsideration was denied,
prompting him to file an appeal to the CTA en banc.
On February 12, 2009, the CTA en banc rendered its Decision affirming the decision
of the CTA Second Division. Feeling aggrieved, the CIR filed a motion for
reconsideration, but this was denied by the CTA en banc in its Resolution dated
March 25, 2009.
The CIR claims that neither he nor his statutory counsel, the Office of the Solicitor
General (OSG), received a copy of the CTA en banc’s resolution denying his motion
for reconsideration. It then came as a surprise to him when he received on June 17,
2009 a copy of the CTA en banc’s Resolution dated June 10, 2009 which provided
that the CTA Decision dated February 12, 2009 had become final and executory. The
CIR then filed on July 2, 2009 a Manifestation with the Motion to Reconsider
Resolution Ordering Entry of Judgment,4 questioning the CTA’s entry of judgment
and seeking the following reliefs: (1) for the CTA to withdraw its resolution ordering
the issuance of entry of judgment; (2) for the CTA to resolve the CIR’s motion for
reconsideration filed on March 4, 2009; and (3) should there be an existing
resolution of the motion for reconsideration, for the CTA to serve a copy thereof
upon the CIR and his counsel. The petitioner explained in his manifestation:
On 17 June 2009, he received Resolution dated 10 June 2009 holding that in the
absence of an appeal, the Honorable Court’s Decision dated 12 February 2009 has
become final and executory.
Thus, the Honorable Court ordered the issuance of an Entry of Judgment in this
case.
Respondent respectfully manifests that on 4 March 2009, he filed a Motion for
Reconsideration of the Honorable Court’s Decision dated 12 February 2009, the
same decision which the Honorable Court has now deemed to be final and
executory.
Further, a check with his records reveals that there is no Resolution which has been
issued by the Honorable Court denying his Motion for Reconsideration. To double
check, on three (3) occasions he has inquired from his counsel the Office of the
Solicitor General, particularly State Solicitor Bernardo C. Villar, on whether he has
received any Resolution on the Motion for Reconsideration. Respondent was
informed that there was none.
Finally, he checked with the Honorable Court and was informed that there is a
Resolution dated 25 March 2009. In short, while petitioner and his counsel were of
the mind that the Motion for Reconsideration still had to be resolved, it appears
that it already was.
However, it is respectfully manifested that petitioner and his counsel have not
received the said Resolution and thus, such failure has prevented petitioner from
filing the necessary Petition for Review before the Honorable Supreme Court. Such
petition would have barred the Decision dated 12 February 2009 from attaining
finality and eventual entry in the Book of Judgements.5 (Emphasis ours)
On July 29, 2009, the CTA en banc issued its Resolution denying the motion. It
reasoned that per its records, the CIR and OSG had received on March 27, 2009 and
March 30, 2009, respectively, a copy of the resolution denying the motion for
reconsideration.6 The CIR received its copy of said Resolution dated July 29, 2009 on
August 3, 2009.
The CIR then filed on October 2, 2009 with the CTA en banc a petition for
relief7 asking that the entry of judgment in the case be recalled, and for the CIR and
OSG to be served with copies of the Resolution dated March 25, 2009. To show the
timeliness of the petition for relief, the CIR claimed that he knew of the Resolution
dated March 25, 2009 only on August 3, 2009, when he received a copy of the
Resolution dated July 29, 2009. He then claimed that the sixty (60)-day period for
the filing of the petition for relief should be reckoned from August 3, 2009, giving
him until October 2, 2009 to file it. Further, CIR’s counsel Atty. Felix Paul R. Velasco
III (Atty. Velasco) tried to explain the CIR’s and OSG’s alleged failure to receive the
CTA’s Resolution dated March 25, 2009, notwithstanding the CTA’s records showing
the contrary, by alleging in his Affidavit of Merit8 attached to the petition for relief
that:
14. I noted that, as stated by the Honorable CTA in its 29 July 2009 Resolution, there
were rubber stamps of both petitioner and the OSG signifying receipt of the
resolution. But given the fact that both petitioner and the OSG did not have copies
of this Resolution, the only logical explanation is that the front notice page was
indeed correct and stamped by both offices but the received enclosed order of the
Honorable Court probably contained a different one. This error has happened to
petitioner in other cases but these were subsequently and timely noticed and no
detrimental effects occurred.9
On October 30, 2009, the CTA en banc dismissed the petition for relief for having
been filed out time, via the assailed resolution which reads in part:
The Supreme Court has ruled that "a party filing a petition for relief from judgment
must strictly comply with two reglementary periods; first, the petition must be filed
within sixty (60) days from knowledge of the judgment, order or other proceeding
to be set aside; and second, within a fixed period of six (6) months from entry of
such judgment, order or other proceeding. Strict compliance with these periods is
required because a petition for relief from judgment is a final act of liberality on the
part of the State, which remedy cannot be allowed to erode any further the
fundamental principle that a judgment, order or proceeding must, at some definite
time, attain finality in order to put at last an end to litigation."
xxxx
In this case, petitioner seeks relief from judgment of the Court En Banc’s Resolution
dated March 25, 2009. Records show that petitioner learned of the Resolution
dated March 25, 2009 when he received on June 17, 2009, the Resolution of the
Court En Banc dated June 10, 2009 ordering the Entry of Judgment. This was in fact
stated in petitioner’s "Manifestation with Motion to Reconsider Resolution
Ordering Entry of Judgment" which petitioner filed on July 2, 2009. Hence, the 60
days should be counted from June 17, 2009 and the 60th day fell on August 16,
2009 which was a Sunday. Hence, the last day for the filing of the petition for relief
was on August 17, 2009. Even if the 60-day period is counted from petitioner’s
receipt of the Entry of Judgment on July 1, 2009, with the 60th day falling on August
30, 2009, the petition for relief filed on October 2, 2009 will still be filed beyond the
60-day period.10(Emphasis ours)
Without filing a motion for reconsideration with the CTA en banc, the CIR filed the
present petition for certiorari. The CIR argues that his 60-day period under Rule 38
should have been counted from August 3, 2009, when he received a copy of the
Resolution dated July 29, 2009 and claimed to have first learned about the
Resolution dated March 25, 2009 denying his motion for reconsideration. 11
The issue then for this Court’s resolution is: Whether or not the CTA committed
grave abuse of discretion amounting to lack or excess of jurisdiction in ruling that
the petition for relief of the CIR was filed beyond the 60-day reglementary period
under Rule 38.
At the outset, this Court holds that a dismissal of the petition is warranted in view
of the petitioner’s failure to file before the CTA en banc a motion for
reconsideration of the assailed resolution. The settled rule is that a motion for
reconsideration is a condition sine qua non for the filing of a petition for certiorari.
Its purpose is to grant an opportunity for the court to correct any actual or
perceived error attributed to it by the re-examination of the legal and factual
circumstances of the case. The rationale of the rule rests upon the presumption
that the court or administrative body which issued the assailed order or resolution
may amend the same, if given the chance to correct its mistake or error. The "plain
speedy, and adequate remedy" referred to in Section 1, Rule 65 of the Rules of
Court is a motion for reconsideration of the questioned order or resolution. 12 While
the rule is not absolute and admits of settled exceptions, none of the exceptions
attend the present petition.
Even if we set aside this procedural infirmity, the petition is dismissible. In resolving
the substantive issue, it is crucial to determine the date when the petitioner learned
of the CTA en banc’s Resolution dated March 25, 2009, as Section 3, Rule 38 of the
Rules of Court provides:
Sec. 3. Time for filing petition; contents and verification. – A petition provided for in
either of the preceding sections of this Rule must be verified, filed within sixty (60)
days after the petitioner learns of the judgment, final order, or other proceeding to
be set aside, and not more than six (6) months after such judgment or final order
was entered, or such proceeding was taken; and must be accompanied with
affidavits showing the fraud, accident, mistake, or excusable negligence relied upon,
and the facts constituting the petitioner’s good and substantial cause of action or
defense, as the case may be. (Emphasis ours)
By the CIR’s own evidence and admissions, particularly in the narration of facts in
the petition for relief, the OSG’s letter and the affidavit of merit attached thereto, it
is evident that both the CIR and the OSG had known of the CTA’s Resolution dated
March 25, 2009 long before August 3,
2009. Granting that we give credence to the CIR’s argument that he could not have
known of the Resolution dated March 25, 2009 by his receipt on June 17, 2009 of
the Resolution dated June 10, 2009, the CIR’s petition for relief was still filed out of
time.
The CIR’s claim that it was only on August 3, 2009 that he learned of the CTA’s
denial of his motion for reconsideration is belied by records showing that as of June
22, 2009, he already knew of such fact. The information was relayed by the CTA to
the CIR, when the latter inquired from the court about the status of the case and
the court’s action on his motion for reconsideration. It was precisely because of
such knowledge that he filed on July 2, 2009 the manifestation and motion
pertaining to the CTA’s order of entry of judgment. Pertinent portions of his petition
for relief read:
On 17 June 2009, he received a Resolution of the Honorable Court dated 10 June
2009 ordering the issuance of the Entry of Judgment in the present case, x x x:
xxxx
Petitioner’s handling counsel was surprised that the above emphasized decision
dated 12 February 2009 had become final considering that he had filed a timely
Motion for Reconsideration on 4 March 2009.
Investigating further, he called the Honorable Court and was informed that his
Motion for Reconsideration filed by registered mail on 4 March 2009 was received
by the Honorable Court on 11 March 2009. He was also informed that the last
document on file there was a Resolution dated 25 March 2009. He then searched
his records and found no such Resolution. Petitioner then tried to confirm the same
from petitioner’s official counsel, the Office of the Solicitor General (OSG) through
the assigned Solicitor, Atty. Bernardo C. Villar. He was then informed that, same as
handling counsel, the latter was also waiting for the resolution of the Motion for
Reconsideration filed on 4 March 2009 and likewise, did not receive any copy of any
resolution for that matter. The OSG then formalized this information through a
letter dated 24 June 2009. x x x.13 (Emphasis ours)
In the letter14 dated June 24, 2009 attached to the petition for relief as Annex "A",
State Solicitor Bernardo C. Villar mentioned that on June 22, 2009, he and Atty.
Velasco had discussed the CTA’s prior issuance of a resolution denying their motion
for reconsideration, thus:
This pertains to the CTA Notice of Resolution dated June 10, 2009 (directing entry of
judgment), a copy of which was received by the OSG on June 17, 2009, and further
to our telephone discussion on Monday, June 22, 2009.
As we have discussed, the OSG has not previously received any resolution on the
motion for reconsideration which you filed with the CTA. However, you pointed out
that CTA records tend to show that there had been such a resolution and that BIR
was already notified of the same sometime in March 2009. 15 (Emphasis ours)
The CIR then can no longer validly dispute that he had known of the CTA’s
Resolution dated March 25, 2009 on June 22, 2009. Even as we reckon the 60-day
period under Section 3, Rule 38 from said date, the petitioner only had until August
21, 2009 within which to file a petition for relief. Since August 21, 2009, a Friday,
was a non-working holiday, the petitioner should have filed the petition at the
latest on August 24, 2009. The CIR’s filing with the CTA of the petition for relief on
October 2, 2009 then did not conform to the 60-day requirement.
Significantly, the OSG also opined, and had so advised the CIR, that the petition for
relief was indeed filed out of time. Attached to the petitioner’s Compliance16 with
this Court’s Resolution17 dated May 30, 2011 is the OSG’s letter18 dated September
22, 2009, addressed to the BIR and which reads:
We regret to inform you that we cannot be of help to you in filing a petition for
relief since you are the ones on record representing the BIR before the Court of Tax
Appeals. As you well know, our participation in these matters are limited to filing an
appeal with the Supreme Court in due time. This is precisely what we meant in our
previous letters as the kind of assistance that we can provide you.
Furthermore, as far as we are concerned, there is doubt in the propriety of filing a
petition for relief at this time. Please note that from your receipt on June 17, 2009
of the entry of judgment, you filed a "Manifestation and Motion to Reconsider
Resolution Ordering Entry of Judgment" dated July 1, 2009 instead of a petition for
relief. In the meantime, the 60 days period (from actual knowledge) under Section
3, Rule 38 within which to file the edition for relief continued to run and has expired
already.19 (Emphasis ours)
Given the foregoing, this Court finds no cogent reason to grant petitioner's plea for
the issuance of a writ of certiorari. An act of a court or tribunal may only be
considered as committed in grave abuse of discretion when the same is performed
in a capricious or whimsical exercise of judgment, which is equivalent to lack of
jurisdiction. The abuse of discretion must be so patent and gross as to amount to an
evasion of positive duty or to a vi1iual refusal to perform a duty enjoined by law or
to act at all in contemplation of law, as where the power is exercised in an arbitrary
and despotic manner by reason of passion or personal hostility. 20 There was no such
grave abuse of discretion in this case because the CIR's petition for relief was
indeed filed out of time.
WHEREFORE, premises considered, the petition is DISMISSED.
SO ORDERED.
 Republic of the Philippines Add: 25% surcharge 23,430,843.10
SUPREME COURT
Manila 15,000.00
Compromise penalty

FIRST DIVISION TOTAL AMOUNT DUE AND COLLECTIBLE ₱117,169,215.50.5

G.R. No. 134062 April 17, 2007

Both notices of assessment contained the following note:
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs. Please be informed that your [percentage and documentary stamp taxes have]
BANK OF THE PHILIPPINE ISLANDS, Respondent. been assessed as shown above. Said assessment has been based on return – (filed
by you) – (as verified) – (made by this Office) – (pending investigation) – (after
investigation). You are requested to pay the above amount to this Office or to our
DECISION
Collection Agent in the Office of the City or Deputy Provincial Treasurer of xxx 6
CORONA, J.:
In a letter dated December 10, 1988, BPI, through counsel, replied as follows:
This is a petition for review on certiorari1 of a decision2 of the Court of Appeals (CA)
1. Your "deficiency assessments" are no assessments at all. The taxpayer is
dated May 29, 1998 in CA-G.R. SP No. 41025 which reversed and set aside the
not informed, even in the vaguest terms, why it is being assessed a
decision3 and resolution4 of the Court of Tax Appeals (CTA) dated November 16,
deficiency. The very purpose of a deficiency assessment is to inform
1995 and May 27, 1996, respectively, in CTA Case No. 4715.
taxpayer why he has incurred a deficiency so that he can make an
intelligent decision on whether to pay or to protest the assessment. This is
In two notices dated October 28, 1988, petitioner Commissioner of Internal all the more so when the assessment involves astronomical amounts, as in
Revenue (CIR) assessed respondent Bank of the Philippine Islands’ (BPI’s) deficiency this case.
percentage and documentary stamp taxes for the year 1986 in the total amount of
₱129,488,656.63:
We therefore request that the examiner concerned be required to state,
even in the briefest form, why he believes the taxpayer has a deficiency
1986 – Deficiency Percentage Tax documentary and percentage taxes, and as to the percentage tax, it is
important that the taxpayer be informed also as to what particular
Deficiency percentage tax ₱ 7, 270,892.88 percentage tax the assessment refers to.

Add: 25% surcharge 1,817,723.22

2. As to the alleged deficiency documentary stamp tax, you are aware of
20% interest from 1-21-87 to 10-28-88 3,215,825.03 the compromise forged between your office and the Bankers Association
of the Philippines [BAP] on this issue and of BPI’s submission of its
15,000.00 computations under this compromise. There is therefore no basis
Compromise penalty
whatsoever for this assessment, assuming it is on the subject of the BAP
TOTAL AMOUNT DUE AND COLLECTIBLE ₱12,319,441.13 compromise. On the other hand, if it relates to documentary stamp tax on
some other issue, we should like to be informed about what those issues
are.
1986 – Deficiency Documentary Stamp Tax
3. As to the alleged deficiency percentage tax, we are completely at a loss
Deficiency percentage tax ₱93,723,372.40 on how such assessment may be protested since your letter does not even
tell the taxpayer what particular percentage tax is involved and how your
 examiner arrived at the deficiency. As soon as this is explained and clarified
in a proper letter of assessment, we shall inform you of the taxpayer’s
decision on whether to pay or protest the assessment.7
On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating that:
… although in all respects, your letter failed to qualify as a protest under Revenue
Regulations No. 12-85 and therefore not deserving of any rejoinder by this office as
no valid issue was raised against the validity of our assessment… still we obliged to
explain the basis of the assessments.
xxx xxx xxx
… this constitutes the final decision of this office on the matter. 8
On July 6, 1991, BPI requested a reconsideration of the assessments stated in the
CIR’s May 8, 1991 letter.9 This was denied in a letter dated December 12, 1991,
received by BPI on January 21, 1992.10
On February 18, 1992, BPI filed a petition for review in the CTA. 11 In a decision
dated November 16, 1995, the CTA dismissed the case for lack of jurisdiction since
the subject assessments had become final and unappealable. The CTA ruled that BPI
failed to protest on time under Section 270 of the National Internal Revenue Code
(NIRC) of 1986 and Section 7 in relation to Section 11 of RA 1125. 12 It denied
reconsideration in a resolution dated May 27, 1996.13
On appeal, the CA reversed the tax court’s decision and resolution and remanded
the case to the CTA14 for a decision on the merits.15 It ruled that the October 28,
1988 notices were not valid assessments because they did not inform the taxpayer
of the legal and factual bases therefor. It declared that the proper assessments
were those contained in the May 8, 1991 letter which provided the reasons for the
claimed deficiencies.16 Thus, it held that BPI filed the petition for review in the CTA
on time.17 The CIR elevated the case to this Court.
This petition raises the following issues:
1) whether or not the assessments issued to BPI for deficiency percentage
and documentary stamp taxes for 1986 had already become final and
unappealable and
2) whether or not BPI was liable for the said taxes.
The former Section 27018 (now renumbered as Section 228) of the NIRC stated:
Sec. 270. Protesting of assessment. — When the [CIR] or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the
taxpayer of his findings. Within a period to be prescribed by implementing
regulations, the taxpayer shall be required to respond to said notice. If the taxpayer
fails to respond, the [CIR] shall issue an assessment based on his findings.
xxx xxx xxx (emphasis supplied)
Were the October 28, 1988 Notices Valid Assessments?
The first issue for our resolution is whether or not the October 28, 1988
notices19 were valid assessments. If they were not, as held by the CA, then the
correct assessments were in the May 8, 1991 letter, received by BPI on June 27,
1991. BPI, in its July 6, 1991 letter, seasonably asked for a reconsideration of the
findings which the CIR denied in his December 12, 1991 letter, received by BPI on
January 21, 1992. Consequently, the petition for review filed by BPI in the CTA on
February 18, 1992 would be well within the 30-day period provided by law.20
The CIR argues that the CA erred in holding that the October 28, 1988 notices were
invalid assessments. He asserts that he used BIR Form No. 17.08 (as revised in
November 1964) which was designed for the precise purpose of notifying taxpayers
of the assessed amounts due and demanding payment thereof. 21 He contends that
there was no law or jurisprudence then that required notices to state the reasons
for assessing deficiency tax liabilities.22
BPI counters that due process demanded that the facts, data and law upon which
the assessments were based be provided to the taxpayer. It insists that the NIRC, as
worded now (referring to Section 228), specifically provides that:
"[t]he taxpayer shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void."
According to BPI, this is declaratory of what sound tax procedure is and a
confirmation of what due process requires even under the former Section 270.
BPI’s contention has no merit. The present Section 228 of the NIRC provides:
Sec. 228. Protesting of Assessment. — When the [CIR] or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the
taxpayer of his findings: Provided, however, That a preassessment notice shall not
be required in the following cases:
xxx xxx xxx
The taxpayer shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void.
xxx xxx xxx (emphasis supplied)
Admittedly, the CIR did not inform BPI in writing of the law and facts on which the
assessments of the deficiency taxes were made. He merely notified BPI of his
findings, consisting only of the computation of the tax liabilities and a demand for
payment thereof within 30 days after receipt.
In merely notifying BPI of his findings, the CIR relied on the provisions of the former
Section 270 prior to its amendment by RA 8424 (also known as the Tax Reform Act
of 1997).23 In CIR v. Reyes,24 we held that:
In the present case, Reyes was not informed in writing of the law and the facts on
which the assessment of estate taxes had been made. She was merely notified of
the findings by the CIR, who had simply relied upon the provisions of former Section
229 prior to its amendment by [RA] 8424, otherwise known as the Tax Reform Act
of 1997.
First, RA 8424 has already amended the provision of Section 229 on protesting an
assessment. The old requirement of merely notifying the taxpayer of the CIR's
findings was changed in 1998 to informing the taxpayer of not only the law, but
also of the facts on which an assessment would be made; otherwise, the
assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was issued
against the estate. On April 22, 1998, the final estate tax assessment notice, as well
as demand letter, was also issued. During those dates, RA 8424 was already in
effect. The notice required under the old law was no longer sufficient under the
new law.25(emphasis supplied; italics in the original)
Accordingly, when the assessments were made pursuant to the former Section 270,
the only requirement was for the CIR to "notify" or inform the taxpayer of his
"findings." Nothing in the old law required a written statement to the taxpayer of
the law and facts on which the assessments were based. The Court cannot read into
the law what obviously was not intended by Congress. That would be judicial
legislation, nothing less.
Jurisprudence, on the other hand, simply required that the assessments contain a
computation of tax liabilities, the amount the taxpayer was to pay and a demand
for payment within a prescribed period.26 Everything considered, there was no
doubt the October 28, 1988 notices sufficiently met the requirements of a valid
assessment under the old law and jurisprudence.
The sentence
[t]he taxpayers shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void
was not in the old Section 270 but was only later on inserted in the renumbered
Section 228 in 1997. Evidently, the legislature saw the need to modify the former
Section 270 by inserting the aforequoted sentence. 27 The fact that the amendment
was necessary showed that, prior to the introduction of the amendment, the
statute had an entirely different meaning.28
Contrary to the submission of BPI, the inserted sentence in the renumbered Section
228 was not an affirmation of what the law required under the former Section 270.
The amendment introduced by RA 8424 was an innovation and could not be
reasonably inferred from the old law.29 Clearly, the legislature intended to insert a
new provision regarding the form and substance of assessments issued by the CIR.30
In ruling that the October 28, 1988 notices were not valid assessments, the CA
explained:
xxx. Elementary concerns of due process of law should have prompted the [CIR] to
inform [BPI] of the legal and factual basis of the former’s decision to charge the
latter for deficiency documentary stamp and gross receipts taxes.31
In other words, the CA’s theory was that BPI was deprived of due process when the
CIR failed to inform it in writing of the factual and legal bases of the assessments —
even if these were not called for under the old law.
We disagree.
Indeed, the underlying reason for the law was the basic constitutional requirement
that "no person shall be deprived of his property without due process of law." 32 We
note, however, what the CTA had to say:
 xxx xxx xxx
From the foregoing testimony, it can be safely adduced that not only was [BPI]
given the opportunity to discuss with the [CIR] when the latter issued the former a
Pre-Assessment Notice (which [BPI] ignored) but that the examiners themselves
went to [BPI] and "we talk to them and we try to [thresh] out the issues, present
evidences as to what they need." Now, how can [BPI] and/or its counsel honestly
tell this Court that they did not know anything about the assessments?
Not only that. To further buttress the fact that [BPI] indeed knew beforehand the
assessments[,] contrary to the allegations of its counsel[,] was the testimony of Mr.
Jerry Lazaro, Assistant Manager of the Accounting Department of [BPI]. He testified
to the fact that he prepared worksheets which contain his analysis regarding the
findings of the [CIR’s] examiner, Mr. San Pedro and that the same worksheets were
presented to Mr. Carlos Tan, Comptroller of [BPI].
xxx xxx xxx
From all the foregoing discussions, We can now conclude that [BPI] was indeed
aware of the nature and basis of the assessments, and was given all the opportunity
to contest the same but ignored it despite the notice conspicuously written on the
assessments which states that "this ASSESSMENT becomes final and unappealable if
not protested within 30 days after receipt." Counsel resorted to dilatory tactics and
dangerously played with time. Unfortunately, such strategy proved fatal to the
cause of his client.33
The CA never disputed these findings of fact by the CTA:
[T]his Court recognizes that the [CTA], which by the very nature of its function is
dedicated exclusively to the consideration of tax problems, has necessarily
developed an expertise on the subject, and its conclusions will not be overturned
unless there has been an abuse or improvident exercise of authority. Such findings
can only be disturbed on appeal if they are not supported by substantial evidence
or there is a showing of gross error or abuse on the part of the [CTA]. 34
Under the former Section 270, there were two instances when an assessment
became final and unappealable: (1) when it was not protested within 30 days from
receipt and (2) when the adverse decision on the protest was not appealed to the
CTA within 30 days from receipt of the final decision: 35
Sec. 270. Protesting of assessment.1a\^/phi1.net
xxx xxx xxx
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation in such form and manner as may be prescribed
by the implementing regulations within thirty (30) days from receipt of the
assessment; otherwise, the assessment shall become final and unappealable.
If the protest is denied in whole or in part, the individual, association or corporation
adversely affected by the decision on the protest may appeal to the [CTA] within
thirty (30) days from receipt of the said decision; otherwise, the decision shall
become final, executory and demandable.
Implications Of A Valid Assessment
Considering that the October 28, 1988 notices were valid assessments, BPI should
have protested the same within 30 days from receipt thereof. The December 10,
1988 reply it sent to the CIR did not qualify as a protest since the letter itself stated
that "[a]s soon as this is explained and clarified in a proper letter of assessment, we
shall inform you of the taxpayer’s decision on whether to pay or protest the
assessment."36 Hence, by its own declaration, BPI did not regard this letter as a
protest against the assessments. As a matter of fact, BPI never deemed this a
protest since it did not even consider the October 28, 1988 notices as valid or
proper assessments.
The inevitable conclusion is that BPI’s failure to protest the assessments within the
30-day period provided in the former Section 270 meant that they became final and
unappealable. Thus, the CTA correctly dismissed BPI’s appeal for lack of jurisdiction.
BPI was, from then on, barred from disputing the correctness of the assessments or
invoking any defense that would reopen the question of its liability on the
merits.37 Not only that. There arose a presumption of correctness when BPI failed to
protest the assessments:
Tax assessments by tax examiners are presumed correct and made in good faith.
The taxpayer has the duty to prove otherwise. In the absence of proof of any
irregularities in the performance of duties, an assessment duly made by a Bureau of
Internal Revenue examiner and approved by his superior officers will not be
disturbed. All presumptions are in favor of the correctness of tax assessments. 38
Even if we considered the December 10, 1988 letter as a protest, BPI must
nevertheless be deemed to have failed to appeal the CIR’s final decision regarding
the disputed assessments within the 30-day period provided by law. The CIR, in his
May 8, 1991 response, stated that it was his "final decision … on the matter." BPI
therefore had 30 days from the time it received the decision on June 27, 1991 to
appeal but it did not. Instead it filed a request for reconsideration and lodged its
appeal in the CTA only on February 18, 1992, way beyond the reglementary period.
BPI must now suffer the repercussions of its omission. We have already declared
that:
… the [CIR] should always indicate to the taxpayer in clear and unequivocal
language whenever his action on an assessment questioned by a taxpayer
constitutes his final determination on the disputed assessment, as contemplated by
Sections 7 and 11 of [RA 1125], as amended. On the basis of his statement
indubitably showing that the Commissioner's communicated action is his final
decision on the contested assessment, the aggrieved taxpayer would then be able
to take recourse to the tax court at the opportune time. Without needless
difficulty, the taxpayer would be able to determine when his right to appeal to the
tax court accrues.
The rule of conduct would also obviate all desire and opportunity on the part of
the taxpayer to continually delay the finality of the assessment — and,
consequently, the collection of the amount demanded as taxes — by repeated
requests for recomputation and reconsideration. On the part of the [CIR], this
would encourage his office to conduct a careful and thorough study of every
questioned assessment and render a correct and definite decision thereon in the
first instance. This would also deter the [CIR] from unfairly making the taxpayer
grope in the dark and speculate as to which action constitutes the decision
appealable to the tax court. Of greater import, this rule of conduct would meet a
pressing need for fair play, regularity, and orderliness in administrative
action.39(emphasis supplied)
Either way (whether or not a protest was made), we cannot absolve BPI of its
liability under the subject tax assessments.
We realize that these assessments (which have been pending for almost 20 years)
involve a considerable amount of money. Be that as it may, we cannot legally
presume the existence of something which was never there. The state will be
deprived of the taxes validly due it and the public will suffer if taxpayers will not be
held liable for the proper taxes assessed against them:
Taxes are the lifeblood of the government, for without taxes, the government can
neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing
power derives its source from the very existence of the state whose social contract
with its citizens obliges it to promote public interest and common good. The theory
behind the exercise of the power to tax emanates from necessity; without taxes,
government cannot fulfill its mandate of promoting the general welfare and well-
being of the people.40
WHEREFORE, the petition is hereby GRANTED. The May 29, 1998 decision of the
Court of Appeals in CA-G.R. SP No. 41025 is REVERSED and SET ASIDE.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 185371 December 8, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
METRO STAR SUPERAMA, INC., Respondent.
DECISION
MENDOZA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court filed by the
petitioner Commissioner of Internal Revenue (CIR) seeks to reverse and set aside
the 1] September 16, 2008 Decision1 of the Court of Tax Appeals En Banc (CTA-En
Banc), in C.T.A. EB No. 306 and 2] its November 18, 2008 Resolution 2 denying
petitioner’s motion for reconsideration.
The CTA-En Banc affirmed in toto the decision of its Second Division (CTA-Second
Division) in CTA Case No. 7169 reversing the February 8, 2005 Decision of the CIR
which assessed respondent Metro Star Superama, Inc. (Metro Star) of deficiency
value-added tax and withholding tax for the taxable year 1999.
Based on a Joint Stipulation of Facts and Issues3 of the parties, the CTA Second
Division summarized the factual and procedural antecedents of the case, the
pertinent portions of which read:
Petitioner is a domestic corporation duly organized and existing by virtue of the
laws of the Republic of the Philippines, x x x.
On January 26, 2001, the Regional Director of Revenue Region No. 10, Legazpi City,
issued Letter of Authority No. 00006561 for Revenue Officer Daisy G. Justiniana to
examine petitioner’s books of accounts and other accounting records for income
tax and other internal revenue taxes for the taxable year 1999. Said Letter of TOTAL ₱ 291,069.09
Authority was revalidated on August 10, 2001 by Regional Director Leonardo
Sacamos. WITHHOLDING TAX

For petitioner’s failure to comply with several requests for the presentation of Compensation 2,772.91
records and Subpoena Duces Tecum, [the] OIC of BIR Legal Division issued an
Expanded 110,103.92
Indorsement dated September 26, 2001 informing Revenue District Officer of
Revenue Region No. 67, Legazpi City to proceed with the investigation based on the Total Tax Due ₱ 112,876.83
best evidence obtainable preparatory to the issuance of assessment notice.
Less: Tax Withheld 111,848.27
On November 8, 2001, Revenue District Officer Socorro O. Ramos-Lafuente issued a
Deficiency Withholding Tax ₱ 1,028.56
Preliminary 15-day Letter, which petitioner received on November 9, 2001. The said
letter stated that a post audit review was held and it was ascertained that there was Add: 20% Interest p.a. 576.51
deficiency value-added and withholding taxes due from petitioner in the amount of
₱ 292,874.16. Compromise Penalty 200.00

TOTAL ₱ 1,805.07
On April 11, 2002, petitioner received a Formal Letter of Demand dated April 3,
2002 from Revenue District No. 67, Legazpi City, assessing petitioner the amount of *Expanded Withholding
Two Hundred Ninety Two Thousand Eight Hundred Seventy Four Pesos and Sixteen ₱1,949,334.25 x 5% 97,466.71
Tax
Centavos (₱292,874.16.) for deficiency value-added and withholding taxes for the
taxable year 1999, computed as follows: Film Rental 10,000.25 x 10% 1,000.00

ASSESSMENT NOTICE NO. 067-99-003-579-072 Audit Fee 193,261.20 x 5% 9,663.00

Rental Expense 41,272.73 x 1% 412.73

VALUE ADDED TAX
Security Service 156,142.01 x 1% 1,561.42
Gross Sales ₱1,697,718.90
Service Contractor ₱ 110,103.92
Output Tax ₱ 154,338.08
Total
Less: Input Tax _____________
SUMMARIES OF DEFICIENCIES
VAT Payable ₱ 154,338.08
VALUE ADDED TAX ₱ 291,069.09
₱
Add: 25% Surcharge WITHHOLDING TAX 1,805.07
38,584.54
TOTAL ₱ 292,874.16
20% Interest 79,746.49

Compromise Penalty
Late Payment
Failure to File VAT
returns
Subsequently, Revenue District Office No. 67 sent a copy of the Final Notice of
₱16,000.00 Seizure dated May 12, 2003, which petitioner received on May 15, 2003, giving the
latter last opportunity to settle its deficiency tax liabilities within ten (10) [days]
from receipt thereof, otherwise respondent BIR shall be constrained to serve and
2,400.00 18,400.00 136,731.01
execute the Warrants of Distraint and/or Levy and Garnishment to enforce
collection.
On February 6, 2004, petitioner received from Revenue District Office No. 67 a
Warrant of Distraint and/or Levy No. 67-0029-23 dated May 12, 2003 demanding
payment of deficiency value-added tax and withholding tax payment in the amount
of ₱292,874.16.
On July 30, 2004, petitioner filed with the Office of respondent Commissioner a
Motion for Reconsideration pursuant to Section 3.1.5 of Revenue Regulations No.
12-99.
On February 8, 2005, respondent Commissioner, through its authorized
representative, Revenue Regional Director of Revenue Region 10, Legaspi City,
issued a Decision denying petitioner’s Motion for Reconsideration. Petitioner,
through counsel received said Decision on February 18, 2005.
x x x.
Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it
was not accorded due process, Metro Star filed a petition for review4 with the CTA.
The parties then stipulated on the following issues to be decided by the tax court:
1. Whether the respondent complied with the due process requirement as
provided under the National Internal Revenue Code and Revenue
Regulations No. 12-99 with regard to the issuance of a deficiency tax
assessment;
1.1 Whether petitioner is liable for the respective amounts of
₱291,069.09 and ₱1,805.07 as deficiency VAT and withholding tax
for the year 1999;
1.2. Whether the assessment has become final and executory and
demandable for failure of petitioner to protest the same within 30
days from its receipt thereof on April 11, 2002, pursuant to
Section 228 of the National Internal Revenue Code;
2. Whether the deficiency assessments issued by the respondent are void
for failure to state the law and/or facts upon which they are based.
2.2 Whether petitioner was informed of the law and facts on
which the assessment is made in compliance with Section 228 of
the National Internal Revenue Code;
3. Whether or not petitioner, as owner/operator of a movie/cinema house,
is subject to VAT on sales of services under Section 108(A) of the National
Internal Revenue Code;
4. Whether or not the assessment is based on the best evidence obtainable
pursuant to Section 6(b) of the National Internal Revenue Code.
The CTA-Second Division found merit in the petition of Metro Star and, on March
21, 2007, rendered a decision, the decretal portion of which reads:
WHEREFORE, premises considered, the Petition for Review is hereby GRANTED.
Accordingly, the assailed Decision dated February 8, 2005 is hereby REVERSED and
SET ASIDE and respondent is ORDERED TO DESIST from collecting the subject taxes
against petitioner.
The CTA-Second Division opined that "[w]hile there [is] a disputable presumption
that a mailed letter [is] deemed received by the addressee in the ordinary course of
mail, a direct denial of the receipt of mail shifts the burden upon the party favored
by the presumption to prove that the mailed letter was indeed received by the
addressee."5 It also found that there was no clear showing that Metro Star actually
received the alleged PAN, dated January 16, 2002. It, accordingly, ruled that the
Formal Letter of Demand dated April 3, 2002, as well as the Warrant of Distraint
and/or Levy dated May 12, 2003 were void, as Metro Star was denied due process.6
The CIR sought reconsideration7 of the decision of the CTA-Second Division, but the
motion was denied in the latter’s July 24, 2007 Resolution.8
Aggrieved, the CIR filed a petition for review9 with the CTA-En Banc, but the petition
was dismissed after a determination that no new matters were raised. The CTA-En
Banc disposed:
WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and
DISMISSED for lack of merit. Accordingly, the March 21, 2007 Decision and July 27,
2007 Resolution of the CTA Second Division in CTA Case No. 7169 entitled, "Metro
Star Superama, Inc., petitioner vs. Commissioner of Internal Revenue, respondent"
are hereby AFFIRMED in toto.
SO ORDERED.
The motion for reconsideration10 filed by the CIR was likewise denied by the CTA-En
Banc in its November 18, 2008 Resolution.11
The CIR, insisting that Metro Star received the PAN, dated January 16, 2002, and
that due process was served nonetheless because the latter received the Final
Assessment Notice (FAN), comes now before this Court with the sole issue of
whether or not Metro Star was denied due process.
The general rule is that the Court will not lightly set aside the conclusions reached
by the CTA which, by the very nature of its functions, has accordingly developed an
exclusive expertise on the resolution unless there has been an abuse or improvident
exercise of authority.12 In Barcelon, Roxas Securities, Inc. (now known as UBP
Securities, Inc.) v. Commissioner of Internal Revenue, 13 the Court wrote:
Jurisprudence has consistently shown that this Court accords the findings of fact by
the CTA with the highest respect. In Sea-Land Service Inc. v. Court of Appeals [G.R.
No. 122605, 30 April 2001, 357 SCRA 441, 445-446], this Court recognizes that the
Court of Tax Appeals, which by the very nature of its function is dedicated
exclusively to the consideration of tax problems, has necessarily developed an
expertise on the subject, and its conclusions will not be overturned unless there has
been an abuse or improvident exercise of authority. Such findings can only be
disturbed on appeal if they are not supported by substantial evidence or there is a
showing of gross error or abuse on the part of the Tax Court. In the absence of any
clear and convincing proof to the contrary, this Court must presume that the CTA
rendered a decision which is valid in every respect.
On the matter of service of a tax assessment, a further perusal of our ruling in
Barcelon is instructive, viz:
Jurisprudence is replete with cases holding that if the taxpayer denies ever having
received an assessment from the BIR, it is incumbent upon the latter to prove by
competent evidence that such notice was indeed received by the addressee. The
onus probandi was shifted to respondent to prove by contrary evidence that the
Petitioner received the assessment in the due course of mail. The Supreme Court
has consistently held that while a mailed letter is deemed received by the
addressee in the course of mail, this is merely a disputable presumption subject to
controversion and a direct denial thereof shifts the burden to the party favored by
the presumption to prove that the mailed letter was indeed received by the
addressee (Republic vs. Court of Appeals, 149 SCRA 351). Thus as held by the
Supreme Court in Gonzalo P. Nava vs. Commissioner of Internal Revenue, 13 SCRA
104, January 30, 1965:
"The facts to be proved to raise this presumption are (a) that the letter was
properly addressed with postage prepaid, and (b) that it was mailed. Once these
facts are proved, the presumption is that the letter was received by the addressee
as soon as it could have been transmitted to him in the ordinary course of the mail.
But if one of the said facts fails to appear, the presumption does not lie. (VI, Moran,
Comments on the Rules of Court, 1963 ed, 56-57 citing Enriquez vs. Sunlife
Assurance of Canada, 41 Phil 269)."
x x x. What is essential to prove the fact of mailing is the registry receipt issued by
the Bureau of Posts or the Registry return card which would have been signed by
the Petitioner or its authorized representative. And if said documents cannot be
located, Respondent at the very least, should have submitted to the Court a
certification issued by the Bureau of Posts and any other pertinent document which
is executed with the intervention of the Bureau of Posts. This Court does not put
much credence to the self serving documentations made by the BIR personnel
especially if they are unsupported by substantial evidence establishing the fact of
mailing. Thus:
"While we have held that an assessment is made when sent within the prescribed
period, even if received by the taxpayer after its expiration (Coll. of Int. Rev. vs.
Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it the more
imperative that the release, mailing or sending of the notice be clearly and
satisfactorily proved. Mere notations made without the taxpayer’s intervention,
notice or control, without adequate supporting evidence cannot suffice; otherwise,
the taxpayer would be at the mercy of the revenue offices, without adequate
protection or defense." (Nava vs. CIR, 13 SCRA 104, January 30, 1965).
x x x.
The failure of the respondent to prove receipt of the assessment by the Petitioner
leads to the conclusion that no assessment was issued. Consequently, the
government’s right to issue an assessment for the said period has already
prescribed. (Industrial Textile Manufacturing Co. of the Phils., Inc. vs. CIR CTA Case
4885, August 22, 1996). (Emphases supplied.)
The Court agrees with the CTA that the CIR failed to discharge its duty and present
any evidence to show that Metro Star indeed received the PAN dated January 16,
2002. It could have simply presented the registry receipt or the certification from
the postmaster that it mailed the PAN, but failed. Neither did it offer any
explanation on why it failed to comply with the requirement of service of the PAN.
It merely accepted the letter of Metro Star’s chairman dated April 29, 2002, that
stated that he had received the FAN dated April 3, 2002, but not the PAN; that he
was willing to pay the tax as computed by the CIR; and that he just wanted to clarify
some matters with the hope of lessening its tax liability.
This now leads to the question: Is the failure to strictly comply with notice
requirements prescribed under Section 228 of the National Internal Revenue Code
of 1997 and Revenue Regulations (R.R.) No. 12-99 tantamount to a denial of due
process? Specifically, are the requirements of due process satisfied if only the FAN
stating the computation of tax liabilities and a demand to pay within the prescribed
period was sent to the taxpayer?
The answer to these questions require an examination of Section 228 of the Tax
Code which reads:
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly
authorized representative finds that proper taxes should be assessed, he shall first
notify the taxpayer of his findings: provided, however, that a preassessment notice
shall not be required in the following cases:
(a) When the finding for any deficiency tax is the result of mathematical
error in the computation of the tax as appearing on the face of the return;
or
(b) When a discrepancy has been determined between the tax withheld
and the amount actually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess
creditable withholding tax for a taxable period was determined to have
carried over and automatically applied the same amount claimed against
the estimated tax liabilities for the taxable quarter or quarters of the
succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person,
such as, but not limited to, vehicles, capital equipment, machineries and
spare parts, has been sold, traded or transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the
taxpayer shall be required to respond to said notice. If the taxpayer fails to respond,
the Commissioner or his duly authorized representative shall issue an assessment
based on his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment in such form and manner as may be prescribed by implementing rules
and regulations. Within sixty (60) days from filing of the protest, all relevant
supporting documents shall have been submitted; otherwise, the assessment shall
become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred
eighty (180) days from submission of documents, the taxpayer adversely affected
by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30)
days from receipt of the said decision, or from the lapse of one hundred eighty
(180)-day period; otherwise, the decision shall become final, executory and
demandable. (Emphasis supplied).
Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first be
informed that he is liable for deficiency taxes through the sending of a PAN. He
must be informed of the facts and the law upon which the assessment is made. The
law imposes a substantive, not merely a formal, requirement. To proceed
heedlessly with tax collection without first establishing a valid assessment is
evidently violative of the cardinal principle in administrative investigations - that
taxpayers should be able to present their case and adduce supporting evidence. 14
This is confirmed under the provisions R.R. No. 12-99 of the BIR which pertinently
provide:
SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax
Assessment. —
3.1 Mode of procedures in the issuance of a deficiency tax assessment:
3.1.1 Notice for informal conference. — The Revenue Officer who audited
the taxpayer's records shall, among others, state in his report whether or
not the taxpayer agrees with his findings that the taxpayer is liable for
deficiency tax or taxes. If the taxpayer is not amenable, based on the said
Officer's submitted report of investigation, the taxpayer shall be informed,
in writing, by the Revenue District Office or by the Special Investigation
Division, as the case may be (in the case Revenue Regional Offices) or by
the Chief of Division concerned (in the case of the BIR National Office) of
the discrepancy or discrepancies in the taxpayer's payment of his internal
revenue taxes, for the purpose of "Informal Conference," in order to afford
the taxpayer with an opportunity to present his side of the case. If the
taxpayer fails to respond within fifteen (15) days from date of receipt of
the notice for informal conference, he shall be considered in default, in
which case, the Revenue District Officer or the Chief of the Special
Investigation Division of the Revenue Regional Office, or the Chief of
Division in the National Office, as the case may be, shall endorse the case
with the least possible delay to the Assessment Division of the Revenue
Regional Office or to the Commissioner or his duly authorized
representative, as the case may be, for appropriate review and issuance of
a deficiency tax assessment, if warranted.
3.1.2 Preliminary Assessment Notice (PAN). — If after review and
evaluation by the Assessment Division or by the Commissioner or his duly
authorized representative, as the case may be, it is determined that there
exists sufficient basis to assess the taxpayer for any deficiency tax or taxes,
the said Office shall issue to the taxpayer, at least by registered mail, a
Preliminary Assessment Notice (PAN) for the proposed assessment,
showing in detail, the facts and the law, rules and regulations, or
jurisprudence on which the proposed assessment is based (see illustration
in ANNEX A hereof). If the taxpayer fails to respond within fifteen (15) days
from date of receipt of the PAN, he shall be considered in default, in which
case, a formal letter of demand and assessment notice shall be caused to
be issued by the said Office, calling for payment of the taxpayer's
deficiency tax liability, inclusive of the applicable penalties.
3.1.3 Exceptions to Prior Notice of the Assessment. — The notice for
informal conference and the preliminary assessment notice shall not be
required in any of the following cases, in which case, issuance of the formal
assessment notice for the payment of the taxpayer's deficiency tax liability
shall be sufficient:
(i) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax appearing on
the face of the tax return filed by the taxpayer; or
(ii) When a discrepancy has been determined between the tax
withheld and the amount actually remitted by the withholding
agent; or
(iii) When a taxpayer who opted to claim a refund or tax credit of
excess creditable withholding tax for a taxable period was
determined to have carried over and automatically applied the
same amount claimed against the estimated tax liabilities for the
taxable quarter or quarters of the succeeding taxable year; or
(iv) When the excise tax due on excisable articles has not been
paid; or
(v) When an article locally purchased or imported by an exempt
person, such as, but not limited to, vehicles, capital equipment,
machineries and spare parts, has been sold, traded or transferred
to non-exempt persons.
3.1.4 Formal Letter of Demand and Assessment Notice. — The formal
letter of demand and assessment notice shall be issued by the
Commissioner or his duly authorized representative. The letter of demand
calling for payment of the taxpayer's deficiency tax or taxes shall state the
facts, the law, rules and regulations, or jurisprudence on which the
assessment is based, otherwise, the formal letter of demand and
assessment notice shall be void (see illustration in ANNEX B hereof).
The same shall be sent to the taxpayer only by registered mail or by personal
delivery.
If sent by personal delivery, the taxpayer or his duly authorized representative shall
acknowledge receipt thereof in the duplicate copy of the letter of demand, showing
the following: (a) His name; (b) signature; (c) designation and authority to act for
and in behalf of the taxpayer, if acknowledged received by a person other than the
taxpayer himself; and (d) date of receipt thereof.
x x x.
From the provision quoted above, it is clear that the sending of a PAN to taxpayer to
inform him of the assessment made is but part of the "due process requirement in
the issuance of a deficiency tax assessment," the absence of which renders
nugatory any assessment made by the tax authorities. The use of the word "shall" in
subsection 3.1.2 describes the mandatory nature of the service of a PAN. The
persuasiveness of the right to due process reaches both substantial and procedural
rights and the failure of the CIR to strictly comply with the requirements laid down
by law and its own rules is a denial of Metro Star’s right to due process.15 Thus, for
its failure to send the PAN stating the facts and the law on which the assessment
was made as required by Section 228 of R.A. No. 8424, the assessment made by the
CIR is void.
The case of CIR v. Menguito16 cited by the CIR in support of its argument that only
the non-service of the FAN is fatal to the validity of an assessment, cannot apply to
this case because the issue therein was the non-compliance with the provisions of
R. R. No. 12-85 which sought to interpret Section 229 of the old tax law. RA No.
8424 has already amended the provision of Section 229 on protesting an
assessment. The old requirement of merely notifyingthe taxpayer of the CIR’s
findings was changed in 1998 to informing the taxpayer of not only the law, but also
of the facts on which an assessment would be made. Otherwise, the assessment
itself would be invalid.17 The regulation then, on the other hand, simply provided
that a notice be sent to the respondent in the form prescribed, and that no
consequence would ensue for failure to comply with that form.1avvphi1
The Court need not belabor to discuss the matter of Metro Star’s failure to file its
protest, for it is well-settled that a void assessment bears no fruit.18
It is an elementary rule enshrined in the 1987 Constitution that no person shall be
deprived of property without due process of law.19 In balancing the scales between
the power of the State to tax and its inherent right to prosecute perceived
transgressors of the law on one side, and the constitutional rights of a citizen to due
process of law and the equal protection of the laws on the other, the scales must
tilt in favor of the individual, for a citizen’s right is amply protected by the Bill of
Rights under the Constitution. Thus, while "taxes are the lifeblood of the
government," the power to tax has its limits, in spite of all its plenitude. Hence in
Commissioner of Internal Revenue v. Algue, Inc.,20 it was said –
Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance. On the other hand, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real purpose of taxation,
which is the promotion of the common good, may be achieved.
xxx xxx xxx
It is said that taxes are what we pay for civilized society. Without taxes, the
government would be paralyzed for the lack of the motive power to activate and
operate it. Hence, despite the natural reluctance to surrender part of one’s hard-
earned income to taxing authorities, every person who is able to must contribute
his share in the running of the government. The government for its part is expected
to respond in the form of tangible and intangible benefits intended to improve the
lives of the people and enhance their moral and material values. This symbiotic
relationship is the rationale of taxation and should dispel the erroneous notion that
it is an arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a
requirement in all democratic regimes that it be exercised reasonably and in
accordance with the prescribed procedure. If it is not, then the taxpayer has a right
to complain and the courts will then come to his succor. For all the awesome power
of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate x x x that the law has not been observed. 21 (Emphasis supplied).
WHEREFORE, the petition is DENIED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 169225 November 17, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
HAMBRECHT & QUIST PHILIPPINES, INC., Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
seeking to set aside the Decision1dated August 12, 2005 of the Court of Tax Appeals
(CTA) En Banc in C.T.A. E.B. No. 73 (C.T.A. Case No. 6362), entitled "Commissioner of
Internal Revenue vs. Hambrecht & Quist Philippines, Inc.," which affirmed the
Decision2dated September 24, 2004 of the CTA Original Division in C.T.A. Case No.
6362 canceling the assessment issued against respondent for deficiency income and
expanded withholding tax for the year 1989 for failure of petitioner Commissioner
of Internal Revenue (CIR) to enforce collection within the period allowed by law.
The CTA summarized the pertinent facts of this case, as follows:
In a letter dated February 15, 1993, respondent informed the Bureau of Internal
Revenue (BIR), through its West-Makati District Office of its change of business
address from the 2nd Floor Corinthian Plaza, Paseo de Roxas, Makati City to the
22nd Floor PCIB Tower II, Makati Avenue corner H.V. De la Costa Streets, Makati
City. Said letter was duly received by the BIR-West Makati on February 18, 1993.
On November 4, 1993, respondent received a tracer letter or follow-up letter dated
October 11, 1993 issued by the Accounts Receivable/Billing Division of the BIR’s
National Office and signed by then Assistant Chief Mr. Manuel B. Mina, demanding
for payment of alleged deficiency income and expanded withholding taxes for the
taxable year 1989 amounting to ₱2,936,560.87.
On December 3, 1993, respondent, through its external auditors, filed with the
same Accounts Receivable/Billing Division of the BIR’s National Office, its protest
letter against the alleged deficiency tax assessments for 1989 as indicated in the
said tracer letter dated October 11, 1993.
assessment had become final and unappealable for failure of respondent to file a
protest within the 30-day period provided by law. However, the CTA (a) held that
the CIR failed to collect the assessed taxes within the prescriptive period; and (b)
directed the cancellation and withdrawal of Assessment Notice No. 001543-89-
5668. Petitioner’s Motion for Reconsideration and Supplemental Motion for
Reconsideration of said Decision filed on October 14, 2004 and November 22, 2004,
respectively, were denied for lack of merit.
Undaunted, the CIR filed a Petition for Review with the CTA En Banc but this was
denied in a Decision dated August 12, 2005, the dispositive portion reads:
WHEREFORE, the Petition for Review is DENIED DUE COURSE and the case is
accordingly DISMISSED for lack of merit.4

The alleged deficiency income tax assessment apparently resulted from an Hence, the instant Petition wherein the following issues are raised:
adjustment made to respondent’s taxable income for the year 1989, on account of
the disallowance of certain items of expense, namely, professional fees paid, I
donations, repairs and maintenance, salaries and wages, and management fees.
The latter item of expense, the management fees, made up the bulk of the WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION TO
disallowance, the examiner alleging, among others, that petitioner failed to RULE THAT THE GOVERNMENT’S RIGHT TO COLLECT THE TAX HAS
withhold the appropriate tax thereon. This is also the same basis for the imposition PRESCRIBED.
of the deficiency withholding tax assessment on the management fees. Revenue
Regulations No. 6-85 (EWT Regulations) does not impose or prescribe EWT on
II
management fees paid to a non-resident.
WHETHER OR NOT THE PERIOD TO COLLECT THE ASSESSMENT HAS
On November 7, 2001, nearly eight (8) years later, respondent’s external auditors
PRESCRIBED.5
received a letter from herein petitioner Commissioner of Internal Revenue dated
October 27, 2001. The letter advised the respondent that petitioner had rendered a
The petition is without merit.
final decision denying its protest on the ground that the protest against the
disputed tax assessment was allegedly filed beyond the 30-day reglementary period
prescribed in then Section 229 of the National Internal Revenue Code. Anent the first issue, petitioner argues that the CTA had no jurisdiction over the
case since the CTA itself had ruled that the assessment had become final and
unappealable. Citing Protector’s Services, Inc. v. Court of Appeals,6 the CIR argued
On December 6, 2001, respondent filed a Petition for Review docketed as CTA Case
that, after the lapse of the 30-day period to protest, respondent may no longer
No. 6362 before the then Court of Tax Appeals, pursuant to Section 7 of Republic
dispute the correctness of the assessment and its appeal to the CTA should be
Act No. 1125, otherwise known as an ‘Act Creating the Court of Tax Appeals’ and
dismissed. The CIR took issue with the CTA’s pronouncement that it had jurisdiction
Section 228 of the NIRC, to appeal the final decision of the Commissioner of Internal
to decide "other matters" related to the tax assessment such as the issue on the
Revenue denying its protest against the deficiency income and withholding tax
right to collect the same since the CIR maintains that when the law says that the
assessments issued for taxable year 1989.3
CTA has jurisdiction over "other matters," it presupposes that the tax assessment
has not become final and unappealable.
In a Decision dated September 24, 2004, the CTA Original Division held that the
subject assessment notice sent by registered mail on January 8, 1993 to
We cannot countenance the CIR’s assertion with regard to this point. The
respondent’s former place of business was valid and binding since respondent only
jurisdiction of the CTA is governed by Section 7 of Republic Act No. 1125, as
gave formal notice of its change of address on February 18, 1993. Thus, the
amended, and the term "other matters" referred to by the CIR in its argument can
be found in number (1) of the aforementioned provision, to wit:
Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided –
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under the National Internal
Revenue Code or other law as part of law administered by the Bureau of Internal
Revenue. (Emphasis supplied.)
Plainly, the assailed CTA En Banc Decision was correct in declaring that there was
nothing in the foregoing provision upon which petitioner’s theory with regard to the
parameters of the term "other matters" can be supported or even deduced. What is
rather clearly apparent, however, is that the term "other matters" is limited only by
the qualifying phrase that follows it.
Thus, on the strength of such observation, we have previously ruled that the
appellate jurisdiction of the CTA is not limited to cases which involve decisions of
the CIR on matters relating to assessments or refunds. The second part of the
provision covers other cases that arise out of the National Internal Revenue Code
(NIRC) or related laws administered by the Bureau of Internal Revenue (BIR). 7
In the case at bar, the issue at hand is whether or not the BIR’s right to collect taxes
had already prescribed and that is a subject matter falling under Section 223(c) of
the 1986 NIRC, the law applicable at the time the disputed assessment was made.
To quote Section 223(c):
Any internal revenue tax which has been assessed within the period of limitation
above-prescribed may be collected by distraint or levy or by a proceeding in
court within three years following the assessment of the tax.(Emphases supplied.)
In connection therewith, Section 3 of the 1986 NIRC states that the collection of
taxes is one of the duties of the BIR, to wit:
Sec. 3. Powers and duties of Bureau. - The powers and duties of the Bureau of
Internal Revenue shall comprehend the assessment and collection of all national
internal revenue taxes, fees, and charges and the enforcement of all forfeitures,
penalties, and fines connected therewith including the execution of judgments in all
cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said
Bureau shall also give effect to and administer the supervisory and police power
conferred to it by this Code or other laws. (Emphasis supplied.)
Thus, from the foregoing, the issue of prescription of the BIR’s right to collect taxes
may be considered as covered by the term "other matters" over which the CTA has
appellate jurisdiction.
Furthermore, the phraseology of Section 7, number (1), denotes an intent to view
the CTA’s jurisdiction over disputed assessments and over "other matters" arising
under the NIRC or other laws administered by the BIR as separate and independent
of each other. This runs counter to petitioner’s theory that the latter is qualified by
the status of the former, i.e., an "other matter" must not be a final and
unappealable tax assessment or, alternatively, must be a disputed assessment.
Likewise, the first paragraph of Section 11 of Republic Act No. 1125,
as amended by Republic Act No. 9282,8 belies petitioner’s assertion as the provision
is explicit that, for as long as a party is adversely affected by any decision, ruling or
inaction of petitioner, said party may file an appeal with the CTA within 30 days
from receipt of such decision or ruling. The wording of the provision does not take
into account the CIR’s restrictive interpretation as it clearly provides that the mere
existence of an adverse decision, ruling or inaction along with the timely filing of an
appeal operates to validate the exercise of jurisdiction by the CTA.
To be sure, the fact that an assessment has become final for failure of the taxpayer
to file a protest within the time allowed only means that the validity or correctness
of the assessment may no longer be questioned on appeal. However, the validity of
the assessment itself is a separate and distinct issue from the issue of whether the
right of the CIR to collect the validly assessed tax has prescribed. This issue of
prescription, being a matter provided for by the NIRC, is well within the jurisdiction
of the CTA to decide.
With respect to the second issue, the CIR insists that its right to collect the tax
deficiency it assessed on respondent is not barred by prescription since the
prescriptive period thereof was allegedly suspended by respondent’s request for
reinvestigation.
Based on the facts of this case, we find that the CIR’s contention is without
basis.1avvphi1 The pertinent provision of the 1986 NIRC is Section 224, to wit:
Section 224. Suspension of running of statute. – The running of the statute of
limitations provided in Sections 203 and 223 on the making of assessment and the
beginning of distraint or levy or a proceeding in court for collection, in respect of
any deficiency, shall be suspended for the period during which the Commissioner is
prohibited from making the assessment or beginning distraint or levy or a
proceeding in court and for sixty days thereafter; when the taxpayer requests for a
re-investigation which is granted by the Commissioner; when the taxpayer cannot
be located in the address given by him in the return filed upon which a tax is being
assessed or collected: Provided, That, if the taxpayer informs the Commissioner of
any change in address, the statute will not be suspended; when the warrant of
distraint and levy is duly served upon the taxpayer, his authorized representative, or
a member of his household with sufficient discretion, and no property could be
located; and when the taxpayer is out of the Philippines. (Emphasis supplied.)
The plain and unambiguous wording of the said provision dictates that two
requisites must concur before the period to enforce collection may be suspended:
(a) that the taxpayer requests for reinvestigation, and (b) that petitioner grants such
request.
Indeed, it is contradictory for the CIR to argue that respondent’s December 3, 1993
protest which contained a request for reinvestigation was filed beyond the
reglementary period but still claim that the same request for reinvestigation was
implicitly granted by virtue of its October 27, 2001 letter. We find no cogent reason
to reverse the CTA when it ruled that the prescriptive period for the CIR’s right to
collect was not suspended under the circumstances of this case.
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Tax
Appeals (CTA) En Banc dated August 12, 2005 is AFFIRMED. No costs.
SO ORDERED.

On this point, we have previously held that:

The above section is plainly worded. In order to suspend the running of the
prescriptive periods for assessment and collection, the request for reinvestigation
must be granted by the CIR.9 (Emphasis supplied.)
FIRST DIVISION
Consequently, the mere filing of a protest letter which is not granted does not
operate to suspend the running of the period to collect taxes. In the case at bar, the G.R. No. 222837, July 23, 2018
records show that respondent filed a request for reinvestigation on December 3,
1993, however, there is no indication that petitioner acted upon respondent’s MACARIO LIM GAW, JR., Petitioner, v. COMMISSIONER OF INTERNAL
protest. As the CTA Original Division in C.T.A. Case No. 6362 succinctly pointed out REVENUE, Respondent.
in its Decision, to wit:
DECISION
It is evident that the respondent did not conduct a reinvestigation, the protest
having been dismissed on the ground that the assessment has become final and
TIJAM, J.:
executory. There is nothing in the record that would show what action was taken in
connection with the protest of the petitioner. In fact, petitioner did not hear
anything from the respondent nor received any communication from the Before Us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court
respondent relative to its protest, not until eight years later when the final decision filed by Macario Lim Gaw, Jr. (petitioner) assailing the Decision2 dated December
of the Commissioner was issued (TSN, March 7, 2002, p. 24). In other words, the 22, 2014 and Resolution3 dated February 2, 2016 of the Court of Tax Appeals
request for reinvestigation was not granted. x x x.10 (Emphasis supplied.) (CTA) En Banc in CTA EB Criminal Case No. 026.

Antecedent Facts
Since the CIR failed to disprove the aforementioned findings of fact of the CTA
which are borne by substantial evidence on record, this Court is constrained to
uphold them as binding and true. This is in consonance with our oft-cited ruling that
Sometime in November 2007, petitioner acquired six (6) parcels of land. To finance
instructs this Court to not lightly set aside the conclusions reached by the CTA,
its acquisition, petitioner applied for, and was granted a Short Term Loan (STL)
which, by the very nature of its functions, is dedicated exclusively to the resolution
Facility from Banco De Oro (BDO) in the amount of P2,021,154,060.00.4
of tax problems and has accordingly developed an expertise on the subject unless
there has been an abuse or improvident exercise of authority. 11
From April to June 2008, petitioner acquired four (4) more parcels of land. Again,
petitioner applied for and was granted an STL Facility from BDO in the amount of
P2,732,666,785.5
Petitioner entered into an Agreement to Sell6 with Azure Corporation for the sale
and transfer of real properties to a joint venture company, which at the time was
still to be formed and incorporated. Then on July 11, 2008, petitioner conveyed the
10 parcels of land to Eagle I Landholdings, Inc. (Eagle I), the joint venture company
referred to in the Agreement to Sell.7
In compliance with Revenue Memorandum Order No. 15-2003,8 petitioner
requested the Bureau of Internal Revenue (BIR)-Revenue District Office (RDO) No.
52 for the respective computations of the tax liabilities due on the sale of the 10
parcels of land to Eagle I.9
In accordance with the One Time Transactions (ONETT) Computation sheets,
petitioner paid Capital Gains Tax amounting to P505,177,213.8110 and Documentary
Stamp Tax amounting to P330,390.00.11
On July 23, 2008, the BIR-RDO No. 52 issued the corresponding Certificates
Authorizing Registration and Tax Clearance Certificates. 12
Two years later, Commissioner of Internal Revenue (respondent) opined that
petitioner was not liable for the 6% capital gains tax but for the 32% regular income
tax and 12% value added tax, on the theory that the properties petitioner sold were
ordinary assets and not capital assets. Further, respondent found petitioner to have
misdeclared his income, misclassified the properties and used multiple tax
identification numbers to avoid being assessed the correct amount of taxes. 13
Thus, on August 25, 2010, respondent issued a Letter of Authority 14 to commence
investigation on petitioner's tax account.
The next day, respondent filed before the Department of Justice (DOJ) a Joint
Complaint Affidavit15 for tax evasion against petitioner for violation of Sections
25416 and 25517 of the National Internal Revenue Code (NIRC).
The DOJ then filed two criminal informations for tax evasion against petitioner
docketed as CTA Criminal Case Nos. O-206 and O-207.18 At the time the
Informations were filed, the respondent has not issued a final decision on the
deficiency assessment against petitioner. Halfway through the trial, the respondent
issued a Final Decision on Disputed Assessment (FDDA)19 against petitioner,
assessing him of deficiency income tax and VAT covering taxable years 2007 and
2008.
With respect to the deficiency assessment against petitioner for the year 2007,
petitioner filed a petition for review with the CTA, docketed as CTA Case No. 8502.
The clerk of court of the CTA assessed petitioner for filing fees which the latter
promptly paid.20
However, with respect to the deficiency assessment against petitioner for the year
2008, the same involves the same tax liabilities being recovered in the pending
criminal cases. Thus, petitioner was confused as to whether he has to separately file
an appeal with the CTA and pay the corresponding filing fees considering that the
civil action for recovery of the civil liability for taxes and penalties was deemed
instituted in the criminal case.21
Thus, petitioner filed before the CTA a motion to clarify as to whether petitioner has
to file a separate petition to question the deficiency assessment for the year 2008.22
On June 6, 2012, the CTA issued a Resolution23 granting petitioner's motion and
held that the recovery of the civil liabilities for the taxable year 2008 was deemed
instituted with the consolidated criminal cases, thus:
WHEREFORE, in light of the foregoing considerations, the prosecution's Motion for
Leave of Court to Amend Information and Admit Attached Amended Information
filed on May 16, 2012 is GRANTED. Accordingly, the Amended Information for CTA
Crim. No. O-206 attached thereto is hereby ADMITTED. Re-arraignment of
[petitioner] in said case is set on June 13, 2012 at 9:00 a.m.
As regards, [petitioner's] Urgent Motion (With Leave of Court for Confirmation that
the Civil Action for Recovery of Civil Liability for Taxes and Penalties is Deemed
Instituted in the Consolidated Criminal Cases) filed on May 30, 2012, the same is
hereby GRANTED.The civil action for recovery of the civil liabilities of [petitioner]
for taxable year 2008 stated in the [FDDA] dated May 18, 2012 is DEEMED
INSTITUTED with the instant consolidated criminal cases, without prejudice to the
right of the [petitioner] to avail of whatever additional legal remedy he may have,
to prevent the said FDDA from becoming final and executory for taxable year 2008.
Additionally, [petitioner] is not precluded from instituting a Petition for Review to
assail the assessments for taxable year 2007, as reflected in the said FDDA dated
May 18, 2012.
SO ORDERED.24
However, as a caution, petitioner still filed a Petition for Review Ad Cautelam (with
Motion for Consolidation with CTA Criminal Case Nos. O-206 and O-207).25 Upon
filing of the said petition, the clerk of court of the CTA assessed petitioner with
"zero filing fees."26

Meanwhile, the CTA later acquitted petitioner in Criminal Case Nos. O-206 and O-
207 and directed the litigation of the civil aspect in CTA Case No. 8503 in its
Resolution27 dated January 3, 2013, to wit:
WHEREFORE, all the foregoing considered, the [petitioner's] "DEMURRER TO
EVIDENCE" is hereby GRANTED and CTA Crim. Case Nos. O-206 and O-207 are
hereby DISMISSED. Accordingly, [petitioner] is hereby ACQUITTED on reasonable
doubt in said criminal cases.
As regards CTA Case No. 8503, an Answer having been filed in this case on August
17, 2012, let this case be set for Pre-Trial on January 23, 2013 at 9:00 a.m.
SO ORDERED.28
Petitioner raises the following arguments:
IN RESOLVING CTA EB CRIM. CASE NO. 026, THE CTA EN BANC HAS NOT ONLY
DECIDED QUESTIONS OF SUBSTANCE IN A WAY NOT IN ACCORD WITH LAW OR
WITH THE APPLICABLE DECISIONS OF THIS HONORABLE COURT, BUT HAS ALSO
DEPRIVED PETITIONER OF HIS RIGHT TO DUE PROCESS AS TO CALL FOR AN EXERCISE
OF SUPERVISION, CONSIDERING THAT:
I
THE CTA EN BANC COMMITTED SERIOUS REVERSIBLE ERROR AND EFFECTIVELY
DENIED PETITIONER DUE PROCESS BY DISMISSING THE PETITION FOR REVIEW AD
CAUTELAM SUPPOSEDLY FOR LACK OF JURISDICTION DUE TO PETITIONER'S FAILURE
TO PAY DOCKET AND OTHER LEGAL FEES.

A
Thereafter, respondent filed a Motion to Dismiss29 the Petition for Review Ad
Cautelam on the ground that the CTA First Division lacks jurisdiction to resolve the
BASED ON APPLICABLE LAWS AND JURISPRUDENCE, AS AFFIRMED BY THE CTA IN
case due to petitioner's non-payment of the filing fees.
ITS PAST PRONOUNCEMENTS IN THE CONSOLIDATED CASES, IT HAD ALREADY
ACQUIRED JURISDICTION OVER CTA CASE NO. 8503, AND THEREFORE COULD NOT
On March 1, 2013, the CTA First Division issued a Resolution 30 granting the Motion
BE DIVESTED OF SUCH JURISDICTION UNTIL FINAL JUDGMENT.
to Dismiss. His motion for reconsideration being denied, petitioner elevated the
case to the CTA En Banc. The latter however affirmed the dismissal of the case in its
B
Decision31 dated December 22, 2014, thus:
THE ZERO-FILING-FEE ASSESSMENT IN CTA CASE NO. 8503 ISSUED BY THE CLERK OF
WHEREFORE, premises considered, the instant Petition for Review is DENIED for
COURT OF THE CTA WAS CONSISTENT WITH APPLICABLE LAWS AND
lack of merit. The Resolutions of the First Division of this Court promulgated on 01
JURISPRUDENCE, AS AFFIRMED BY THE CTA IN ITS PAST PRONOUNCEMENTS IN THE
March 2013 and 24 June 2013 are hereby AFFIRMED.
CONSOLIDATED CASES.
Costs against the petitioner.
C
SO ORDERED.32
PETITIONER WAS DEPRIVED OF DUE PROCESS WHEN HIS PETITION WAS DISMISSED
WITHOUT FIRST BEING AFFORDED A FAIR OPPORTUNITY TO PAY PROPERLY
ASSESSED FILING FEES.
Petitioner's motion for reconsideration was likewise denied by the CTA En Banc in
its Resolution33 dated February 2, 2016.
II
Hence, this petition.
THE CTA EN BANC COMMITTED SERIOUS REVERSIBLE ERROR IN DEPRIVING
PETITIONER OF HIS RIGHT TO ASSAIL THE DEFICIENCY ASSESSMENTS AGAINST HIM
Issues
FOR TAXABLE YEAR 2008 AND SANCTIONING RESPONDENT'S DENIAL OF
PETITIONER'S RIGHT TO DUE PROCESS DESPITE THE FOLLOWING FACTUAL that the CTA erred in dismissing the case, whether this Court can rule on the merits
CIRCUMSTANCES WHICH RENDER THE ASSESSMENTS NULL AND VOID: of the case; and 3) whether the petitioner is liable for the assessed tax deficiencies.

A Arguments of the Petitioner

THE LETTER OF AUTHORITY NO. 2009-00044669 WHICH COVERS THE AUDIT OF

"UNVERIFIED PRIOR YEARS" IS INVALID, BEING IN DIRECT CONTRAVENTION OF Petitioner claims that since the FDDA covering the year 2008 was also the subject of
SECTION C OF REVENUE MEMORANDUM ORDER NO. 43-90. the tax evasion cases, the civil action for the recovery of civil liability for taxes and
penalties was deemed instituted in the consolidated criminal cases as a matter of
B law. Thus, if the civil liability for recovery of taxes and penalties is deemed
instituted in the criminal case, it is the State, not the taxpayer that files the
THE FORMAL LETTER OF DEMAND DATED 08 APRIL 2011 AND FINAL DECISION ON Information and pays the filing fee. Petitioner claims that there is no law or rule
DISPUTED ASSESSMENT NO. 2012-0001 DATED 18 MAY 2012 WERE IMPROPERLY that requires petitioner to pay filing fees in order for the CTA to rule on the civil
SERVED ON PETITIONER. aspect of the consolidated criminal cases filed against him.35

C Petitioner likewise asserts that when they filed the Petition for Review Ad
Cautelam the clerk of court made a "zero filing fee" assessment. It is therefore a
RESPONDENT DISREGARDED PETITIONER'S PROTEST LETTER DATED 07 JUNE 2011 clear evidence that the civil action for recovery of taxes was deemed instituted in
AND ADDITIONAL SUBMISSIONS IN SUPPORT OF HIS PROTEST. the criminal actions. Thus, the CTA has long acquired jurisdiction over the civil
aspect of the consolidated criminal cases.36 Therefore, the CTA erred in dismissing
D the case for nonpayment of docket fees.

THE DEFICIENCY TAX ASSESSMENTS AGAINST PETITIONER FOR TAXABLE YEAR 2008
HAVE NO FACTUAL AND LEGAL BASES.
E this Court can exercise its prerogative to rule on the civil aspect of the CTA Criminal
IT HAS BEEN A CASE OF PERSECUTION RATHER THAN PROSECUTION ON THE PART
OF THE RESPONDENT AGAINST PETITIONER, WARRANTING NOT ONLY AN
ACQUITTAL BUT ALSO THE DISMISSAL OF THE CIVIL ASPECT OF CTA CRIMINAL CASE
NOS. O-206 AND O-207.
III
IN THE INTEREST OF THE EXPEDITIOUS ADMINISTRATION OF JUSTICE, THIS
HONORABLE COURT MAY ALREADY RESOLVE THE CIVIL ASPECT OF CTA CRIMINAL
CASE NOS. O-206 AND O-207 ON THE MERITS.34
Ultimately, the issues for Our resolution are: 1) whether the CTA erred in dismissing
CTA Case No. 8503 for failure of the petitioner to pay docket fees; 2) in the event
Petitioner further argues that in order not to prolong the resolution of the issues
and considering that the records transmitted to this Court are sufficient to
determine and resolve whether petitioner is indeed liable for deficiency income tax,
Case Nos. O-206 and O-207.37
Arguments of the Respondent
Respondent, through the Office of the Solicitor General (OSG) argues that the tax
evasion cases filed against petitioner were instituted based on Sections 254 and 255
of the NIRC, that in all criminal cases instituted before the CTA, the civil aspect of
said cases, which constitutes the recovery by the government of the taxes and
penalties relative to the criminal action shall not be subject to reservation for a
separate civil action.38 On the other hand, the civil remedy to contest the
correctness or validity of disputed tax assessment is covered by Section 9 39 of
Republic Act (R.A.) No. 9282.40 The difference between the criminal case for tax
evasion filed by the government for the imposition of criminal liability on the
taxpayer and the Petition for Review filed by the petitioner for the purpose of
questioning the FDDA is glaringly apparent. The mere appearance of the word "civil
action" does not give rise to the conclusion that all "civil" remedies pertain to the
same reliefs. The petitioner cannot simultaneously allege that the petition for
review is the civil action that is deemed instituted with the criminal action and at
the same time avail of the separate taxpayer's remedy to contest the FDDA through
a petition for review.41
Respondent further argues that in ruling upon the merits of the Petition for
Review Ad Cautelam would prompt this Court to become a trier of facts, which is
improper, especially in a Petition for Review under Rule 45 of the Rules of Court.
Additionally, assuming that the CTA En Banc erred in affirming the dismissal ordered
by the CTA First Division due to non-payment of docket fees, the correct remedy is
to remand the case and order the CTA to compute the required docket fees and
reinstate the case upon payment of the same.42
Ruling of the Court
The petition is partly granted.
The civil action filed by the
petitioner to question the FDDA is
not deemed instituted with the
criminal case for tax evasion
Rule 9, Section 11 of A.M. No. 05-11-07-CTA,43 otherwise known as the Revised
Rules of the Court of Tax Appeals (RRCTA), states that:
SEC. 11. Inclusion of civil action in criminal action. – In cases within the jurisdiction
of the Court, the criminal action and the corresponding civil action for the recovery
of civil liability for taxes and penalties shall be deemed jointly instituted in the same
proceeding. The filing of the criminal action shall necessarily carry with it the filing
of the civil action. No right to reserve the filing of such civil action separately from
the criminal action shall be allowed or recognized.
Petitioner claimed that by virtue of the above provision, the civil aspect of the
criminal case, which is the Petition for Review Ad Cautelam, is deemed instituted
upon the filing of the criminal action. Thus, the CTA had long acquired jurisdiction
over the civil aspect of the consolidated criminal cases. Therefore, the CTA erred in
dismissing the case.
We do not agree.
Rule 111, Section 1(a)44 of the Rules of Court provides that what is deemed
instituted with the criminal action is only the action to recover civil liability arising
from the crime.45 Civil liability arising from a different source of obligation, such as
when the obligation is created by law, such civil liability is not deemed instituted
with the criminal action.
It is well-settled that the taxpayer's obligation to pay the tax is an obligation that is
created by law and does not arise from the offense of tax evasion, as such, the
same is not deemed instituted in the criminal case. 46
In the case of Republic of the Philippines v. Patanao,47 We held that:
Civil liability to pay taxes arises from the fact, for instance, that one has engaged
himself in business, and not because of any criminal act committed by him. The
criminal liability arises upon failure of the debtor to satisfy his civil obligation. The
incongruity of the factual premises and foundation principles of the two cases is
one of the reasons for not imposing civil indemnity on the criminal infractor of the
income tax law. x x x Considering that the Government cannot seek satisfaction of
the taxpayer's civil liability in a criminal proceeding under the tax law or, otherwise
stated, since the said civil liability is not deemed included in the criminal action,
acquittal of the taxpayer in the criminal proceeding does not necessarily entail
exoneration from his liability to pay the taxes. It is error to hold, as the lower court
has held that the judgment in the criminal cases Nos. 2089 and 2090 bars the action
in the present case. The acquittal in the said criminal cases cannot operate to
discharge defendant appellee from the duty of paying the taxes which the law
requires to be paid, since that duty is imposed by statute prior to and
independently of any attempts by the taxpayer to evade payment. Said obligation
is not a consequence of the felonious acts charged in the criminal proceeding nor
is it a mere civil liability arising from crime that could be wiped out by the judicial
declaration of non existence of the criminal acts charged. x x x.48(Citations omitted
and emphasis ours)
Further, in a more recent case of Proton Pilipinas Corp. v. Republic of the
Phils.,49 We ruled that:
While it is true that according to the aforesaid Section 4, of Republic Act No. 8249,
the institution of the criminal action automatically carries with it the institution of
the civil action for the recovery of civil liability, however, in the case at bar, the civil
case for the collection of unpaid customs duties and taxes cannot be
simultaneously instituted and determined in the same proceedings as the criminal
cases before the Sandiganbayan, as it cannot be made the civil aspect of the
criminal cases filed before it. It should be borne in mind that the tax and the
obligation to pay the same are all created by statute; so are its collection and
payment governed by statute. The payment of taxes is a duty which the law
requires to be paid. Said obligation is not a consequence of the felonious acts
charged in the criminal proceeding nor is it a mere civil liability arising from crime
that could be wiped out by the judicial declaration of non-existence of the
criminal acts charged. Hence, the payment and collection of customs duties and
taxes in itself creates civil liability on the part of the taxpayer. Such civil liability to
pay taxes arises from the fact, for instance, that one has engaged himself in
business, and not because of any criminal act committed by him.50 (Citations
omitted and emphasis ours)
The civil action for the recovery of
civil liability for taxes and penalties
that is deemed instituted with the
criminal action is not the Petition
for Review Ad Cautelam filed by
petitioner
Under Sections 254 and 255 of the NIRC, the government can file a criminal case for
tax evasion against any taxpayer who willfully attempts in any manner to evade or
defeat any tax imposed in the tax code or the payment thereof. The crime of tax
evasion is committed by the mere fact that the taxpayer knowingly and willfully
filed a fraudulent return with intent to evade and defeat a part or all of the tax. It is
therefore not required that a tax deficiency assessment must first be issued for a
criminal prosecution for tax evasion to prosper.51
While the tax evasion case is pending, the BIR is not precluded from issuing a final
decision on a disputed assessment, such as what happened in this case. In order to
prevent the assessment from becoming final, executory and demandable, Section 9
of R.A. No. 9282 allows the taxpayer to file with the CTA, a Petition for Review
within 30 days from receipt of the decision or the inaction of the respondent.
The tax evasion case filed by the government against the erring taxpayer has, for its
purpose, the imposition of criminal liability on the latter. While the Petition for
Review filed by the petitioner was aimed to question the FDDA and to prevent it
from becoming final. The stark difference between them is glaringly apparent. As
such, the Petition for Review Ad Cautelam is not deemed instituted with the
criminal case for tax evasion.
In fact, in the Resolution52 dated June 6, 2012, the CTA recognized the separate and
distinct character of the Petition for Review from the criminal case, to wit:
As regards, [petitioner's] Urgent Motion (With Leave of Court for Confirmation that
the Civil Action for Recovery of Civil Liability for Taxes and Penalties is Deemed
Instituted in the Consolidated Criminal Cases) filed on May 30, 2012, the same is
hereby GRANTED.The civil action for recovery of the civil liabilities of [petitioner]
for taxable year 2008 stated in the [FDDA] dated May 18, 2012 is DEEMED
INSTITUTED with the instant consolidated criminal cases, without prejudice to the
right of the [petitioner] to avail of whatever additional legal remedy he may have,
to prevent the said FDDA from becoming final and executory for taxable year
2008.53 (Emphasis ours)
In the said resolution, what is deemed instituted with the criminal action is only the
government's recovery of the taxes and penalties relative to the criminal case. The
remedy of the taxpayer to appeal the disputed assessment is not deemed instituted
with the criminal case. To rule otherwise would be to render nugatory the
procedure in assailing the tax deficiency assessment.
The CTA En Banc erred in
affirming the dismissal of the case
for nonpayment of docket fees
While it is true that the Petition for Review Ad Cautelam is not deemed instituted
with the criminal case, We hold that the CTA En Banc still erred in affirming the
dismissal of the case.
Rule 6, Section 3 of the RRCTA provides that:
SEC. 3. Payment of docket fees. – The Clerk of Court shall not receive a petition for
review for filing unless the petitioner submits proof of payment of the docket fees.
Upon receipt of the petition or the complaint, it will be docketed and assigned a
number, which shall be placed by the parties on all papers thereafter filed in the
proceeding. The Clerk of Court will then issue the necessary summons to the
respondent or defendant.
Basic is the rule that the payment of docket and other legal fees is both mandatory
and jurisdictional. The court acquires jurisdiction over the case only upon the
payment of the prescribed fees.54
However, the mere failure to pay the docket fees at the time of the filing of the
complaint, or in this case the Petition for Review Ad Cautelam, does not necessarily
cause the dismissal of the case. As this Court held in Camaso v. TSM Shipping
(Phils.), Inc.,55 while the court acquires jurisdiction over any case only upon the
payment of the prescribed docket fees, its nonpayment at the time of filing of the
initiatory pleading does not automatically cause its dismissal so long as the docket
fees are paid within a reasonable period; and that the party had no intention to
defraud the government.56
In this case, records reveal that petitioner has no intention to defraud the
government in not paying the docket fees. In fact, when he appealed the FDDA
insofar as the taxable year 2007 was concerned, he promptly paid the docket fees
when he filed his Petition for Review.
Confusion resulted when the FDDA also covered tax deficiencies pertaining to
taxable year 2008 which was also the subject of the consolidated criminal cases for
tax evasion. To guide the petitioner, he sought the advise of the CTA First Division
on whether he was still required to pay the docket fees. The CTA First Division
issued its Resolution57 dated June 6, 2012 ruling that the civil action for recovery of
the civil liabilities of petitioner for taxable year 2008 stated in the FDDA was
deemed instituted with the consolidated criminal cases. Pursuant to said CTA
Resolution, the Clerk of Court issued a computed "zero filing fees" 58 when
petitioner filed his Petition for Review Ad Cautelam.
Petitioner merely relied on good faith on the pronouncements of the CTA First
Division that he is no longer required to pay the docket fees. As such, the CTA
cannot just simply dismiss the case on the ground of nonpayment of docket fees.
The CTA should have instead directed the clerk of court to assess the correct docket
fees and ordered the petitioner to pay the same within a reasonable period. It
should be borne in mind that technical rules of procedure must sometimes give
way, in order to resolve the case on the merits and prevent a miscarriage of justice.
This Court will not however rule on
the merits of the CTA Case No.
8503
Rule 4, Section 3(a), paragraph 1 of the RRCTA provides that the CTA First Division
has exclusive appellate jurisdiction over decisions of the Commissioner of Internal
Revenue on disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto, or other matters arising under the NIRC or
other laws administered by the BIR, to wit:
SEC. 3. Cases within the jurisdiction of the Court in Divisions. – The Court in Divisions
shall exercise:
(a) Exclusive original or appellate jurisdiction to review by appeal the following:
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue
Code or other laws administered by the Bureau of Internal Revenue;
The above provision means that the CTA exercises exclusive appellate jurisdiction to
resolve decisions of the commissioner of internal revenue. There is no other court
that can exercise such jurisdiction. "[I]t should be noted that the CTA has developed
an expertise on the subject of taxation because it is a specialized court dedicated
exclusively to the study and resolution of tax problems." 59 Thus, this Court has no
jurisdiction to review tax cases at the first instance without first letting the CTA to
study and resolve the same.
Under Rule 16, Section 160 of the RRCTA, this Court's review of the decision of the
CTA En Banc is limited in determining whether there is grave abuse of discretion on
the part of the CTA in resolving the case. Basic is the rule that delving into factual
issues in a petition for review on certiorari is not a proper recourse, since a Rule 45
petition is only limited to resolutions on questions of law. 61
Here, petitioner insists that the 10 parcels of idle land he sold on July 11, 2008 in a
single transaction to Eagle I are capital assets. Thus, the said parcels of land are
properly subject to capital gains tax and documentary stamp tax and not to the
regular income tax and value-added tax. The CIR, on the other hand argues that the
10 parcels of land sold by petitioner are ordinary assets, hence should be subject to
income tax and value-added tax. The CIR reasoned that the sole purpose of
petitioner in acquiring the said lots was for the latter to make a profit. Further, the
buying and selling of the said lots all occurred within the period of eight months and
it involved sale transactions with a ready buyer.62
Section 39(A)(1) of the National Internal Revenue Code (NIRC) provides that:
(1) Capital Assets. - the term 'capital assets' means property held by the taxpayer
(whether or not connected with his trade or business), but does not include stock in
trade of the taxpayer or other property of a kind which would properly be included
in the inventory of the taxpayer if on hand at the close of the taxable year, or
property held by the taxpayer primarily for sale to customers in the ordinary course
of his trade or business, or property used in the trade or business, of a character
which is subject to the allowance for depreciation provided in Subsection (F) of
Section 34; or real property used in trade or business of the taxpayer.
The distinction between capital asset and ordinary asset was further defined in
Section 2(a) and (b) Revenue Regulations No. 7-2003,63 thus:
a. Capital assets shall refer to all real properties held by a taxpayer, whether or not
connected with his trade or business, and which are not included among the real
properties considered as ordinary assets under Sec. 39(A)(1) of the Code.
b. Ordinary assets shall refer to all real properties specifically excluded from the
definition of capital assets under Sec. 39(A)(1) of the Code, namely:
1. Stock in trade of a taxpayer or other real property of a kind which would properly
be included in the inventory of the taxpayer if on hand at the close of the taxable
year; or
2. Real property held by the taxpayer primarily for sale to customers in the ordinary
course of his trade or business; or
3. Real property used in trade or business (i.e., buildings and/or improvements) of a
character which is subject to the allowance for depreciation provided for under Sec.
34(F) of the Code; or
4. Real property used in trade or business of the taxpayer.
The statutory definition of capital assets is negative in nature. Thus, if the property
or asset is not among the exceptions, it is a capital asset; conversely, assets falling
within the exceptions are ordinary assets. 64
To determine as to whether the transaction between petitioner and Eagle I is an
isolated transaction or whether the 10 parcels of land sold by petitioner is classified
as capital assets or ordinary assets should properly be resolved by the CTA. Thus, it
would be more prudent for Us to remand the case to CTA for the latter to conduct a
full-blown trial where both parties are given the chance to present evidence of their
claim. Well-settled is the rule that this Court is not a trier of facts.
Considering Our foregoing disquisitions, the proper remedy is to remand the case to
the CTA First Division and to order the Clerk of Court to assess the correct docket
fees for the Petition for Review Ad Cautelam and for petitioner to pay the same
within ten (10) days from receipt of the correct assessment of the clerk of court.
WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The Decision dated
December 22, 2014 and Resolution dated February 2, 2016 of the Court of Tax
Appeals En Banc in CTA EB Criminal Case No. 026 are REVERSED and SET ASIDE. The
case is REMANDED to the Court of Tax Appeals First Division to conduct futher
proceedings in CTA Case No. 8503 and to ORDER the Clerk of Court to assess the
correct docket fees. Petitioner Mariano Lim Gaw, Jr., is likewise ORDERED to pay
the correct docket fees within ten (10) days from the receipt of the correct
assessment of the Clerk of Court.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 169899 February 06, 2013
PHILACOR CREDIT CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
BRION, J.:
Before us is a petition for review on certiorari1under Rule 45 of the Rules of Court
seeking the reversal of the decision2 dated September 23, 2005 of the Court of Tax
Appeals (CTA) en bane in C.T.A, E.B. No. 19 (C.T.A. Case No. 5674). In the assailed
decision, the CTA en banc affirmed the CTA Division’s resolution3 of April 6, 2004.
Both courts held that petitioner Philacor Credit Corporation (Philacor), as an
assignee of promissory notes, is liable for deficiency documentary stamp
tax (DST) on (1) the issuance of promissory notes; and (2) the assignment of
promissory notes for the fiscal year ended 1993.
The facts are not disputed.
Philacor is a domestic corporation organized under Philippine laws and is engaged
in the business of retail financing. Through retail financing, a prospective buyer of a
home appliance – with neither cash nor any credit card – may purchase appliances
on installment basis from an appliance dealer. After Philacor conducts a credit
investigation and approves the buyer’s application, the buyer executes a unilateral
promissory note in favor of the appliance dealer. The same promissory note is
subsequently assigned by the appliance dealer to Philacor.4
Pursuant to Letter of Authority No. 17107 dated July 6, 1974, Revenue Officer
Celestino Mejia examined Philacor’s books of accounts and other accounting
records for the fiscal year August 1, 1992 to July 31, 1993. Philacor received
tentative computations of deficiency taxes for this year. Philacor’s Finance
Manager, Leticia Pangan, contested the tentative computations of deficiency taxes
(totaling P20,037,013.83) through a letter dated April 17, 1995.5
On May 16, 1995, Mr. Mejia sent a letter to Philacor revising the preliminary
assessments as follows:
required by law to affix the documentary stamps on all promissory notes purchased
until the enactment of Republic Act No. 7660, otherwise known as An Act
Rationalizing Further the Structure and Administration of the Documentary Stamp
Tax,9 which took effect on January 15, 1994. In addition, Philacor filed, on the
following day, a supplemental protest, arguing that the assessments were void for
failure to state the law and the facts on which they were based.10

Deficiency Income Tax P 9,832,098.22

On September 30, 1998, Philacor filed a petition for review before the CTA Division,
Deficiency Percentage Tax 866,287.60 docketed as C.T.A. Case No. 5674. 11

Deficiency Documentary Stamp Tax 3,368,169. 45 The CTA Division rendered its decision on August 14, 2003.12 After examining the
documents submitted by the parties, it concluded that Philacor failed to declare
============== part of its income, making it liable for deficiency income tax and percentage tax.
Total P14,066,555.276 However, it also found that the Commissioner of Internal Revenue (CIR) erred in his
============== analysis of the entries in Philacor’s books thereby considerably reducing Philacor’s
liability to a deficiency income tax of P1,757,262.47 and a deficiency percentage tax
Philacor then received Pre-Assessment Notices (PANs), all dated July 18, 1996, of P613,987.86. The CTA also ruled that Philacor is liable for the DST on the issuance
covering the alleged deficiency income, percentage and DSTs, including of the promissory notes and their subsequent transfer or assignment. Noting that
increments.7 Philacor failed to prove that the DST on its promissory notes had been paid for
these two transactions, the CTA held Philacor liable for deficiency DST of
On February 3, 1998, Philacor received demand letters and the corresponding P673,633.88, which is computed as follows:
assessment notices, all dated January 28, 1998. The assessments, inclusive of
increments, cover the following: Total Notes purchased during the taxable year P 269,453,556.94

Divided by rate under Section 180 200.00

Deficiency Income Tax P12, 888,085.09

Deficiency Percentage Tax 1,185,977.07 Basis of DST P 1,347,267.78

Deficiency DST Tax 3,368,196. 45 Multiply by DST rate (Section 180, 1993Tax Code .20
==============
Total P17,442,231.618 DST on notes purchased P 269,453.55
==============
Add: Total DST on Notes assigned (Section 180) 269,453.55
On March 4, 1998, Philacor protested the PANs, with a request for reconsideration
and reinvestigation. It alleged that the assessed deficiency income tax was P 538,907.10
erroneously computed when it failed to take into account the reversing entries of
the revenue accounts and income adjustments, such as repossessions, write-offs Deficiency Documentary Stamp Tax
and legal accounts. Similarly, the Bureau of Internal Revenue (BIR) failed to take Add: 25% surcharge 134,726.78
into account the reversing entries of repossessions, legal accounts, and write-offs
when it computed the percentage tax; thus, the total income reported, that the BIR
arrived at, was not equal to the actual receipts of payment from the customers. As Total Deficiency Documentary Stamp Tax P 673,633.8813
for the deficiency DST, Philacor claims that the accredited appliance dealers were ===============
All sums for deficiency taxes included surcharge and interest.
Both parties filed their motions for reconsideration. The CIR’s motion was denied
for having been filed out of time.14On the other hand, the CTA partially granted
Philacor’s motion in the resolution of April 6, 2004, 15 wherein it cancelled the
assessment for deficiency income tax and deficiency percentage tax. These
assessments were withdrawn because the CTA found that Philacor had correctly
declared its income; the discrepancy of P2,180,564.00 had been properly accounted
for as proper adjustments to Philacor’s net revenues. Nevertheless, the CTA
Division sustained the assessment for deficiency DST in the amount of
P673,633.88.
Philacor filed a petition for review before the CTA en banc.16
In its decision17 dated September 23, 2005, the CTA en banc affirmed the
resolution of April 6, 2004 of the CTA Division. It reiterated that Philacor is liable
for the DST due on two transactions – the issuance of promissory notes and their
subsequent assignment in favor of Philacor. With respect to the issuance of the
promissory notes, Philacor is liable as the transferee which "accepted" the
promissory notes from the appliance dealer in accordance with Section 180 of
Presidential Decree No. 1158, as amended (1986 Tax Code). 18 Further citing Section
4219 of Regulations No. 26,20 the CTA en banc held that a person "using" a
promissory note is one of the persons who can be held liable to pay the DST. Since
the subject promissory notes do not bear documentary stamps, Philacor can be held
liable for DST. As for the assignment of the promissory notes, the CTA en banc held
that each and every transaction involving promissory notes is subject to the DST
under Section 173 of the 1986 Tax Code; Philacor is liable as the transferee and
assignee of the promissory notes.
On November 18, 2005, Philacor filed the present petition, raising the following
assignment of errors:
I
"USING" IN REGULATIONS NO. 26 DOES NOT APPEAR IN SECTIONS [SIC] 173 NOR
180 OF THE TAX CODE; AND, THEREFORE WENT BEYOND THE LAW [SIC]
II
"ACCEPTING" IN SECTION 173 OF THE TAX CODE DOES NOT APPLY TO PROMISSORY
NOTES
III
THE CTA EN BANC DECISION EXTENDED THE WORDS "ASSIGNMENT" AND
"TRANSFERRING" IN SECTION 173 TO THE PROMISSORY NOTES; SUCH THAT, THE
"ASSIGNMENT" OR "TRANSFERRING" OF PROMISSORY NOTES IS SUBJECT TO DST.
HOWEVER SECTIONS 176, 178, AND 198 OF TITLE VII OF THE TAX CODE EXPRESSLY
IMPOSES [SIC] DST ON THE TRANSFER/ASSIGNMENT OF CERTAIN DOCUMENTS
WHICH REVEALS THE LEGISLATIVE INTENT THAT ONLY THE ASSIGNMENT/TRANSFER
OF CERTAIN DOCUMENTS IN SECTIONS 176, 178, AND 198 ARE SUBJECT TO DST
IV
BIR RULING 139-97 RULED THAT THE ASSIGNMENT OF A LOAN, WHICH IN SECTION
180 IS TREATED IN THE SAME BREATH AS A PROMISSORY NOTE, IS NOT SUBJECT TO
DST21
We find the petition meritorious.
Philacor is not liable for the DST on the issuance of the promissory notes.
Neither party questions that the issuances of promissory notes are transactions
which are taxable under the DST. The 1986 Tax Code clearly states that:
Section 180. Stamp tax on promissory notes, bills of exchange, drafts, certificates
of deposit, debt instruments used for deposit substitutes and others not payable
on sight or demand.—On all bills of exchange (between points within the
Philippines), drafts, or certificates of deposits, debt instruments used for deposit
substitutes or orders for the payment of any sum of money otherwise than at sight
or on demand, on all promissory notes, whether negotiable or non-negotiable
except bank notes issued for circulation, and on each renewal of any such note,
there shall be collected a documentary stamp tax of twenty centavos on each two
hundred pesos, or fractional part thereof, of the face value of any such bill of
exchange, draft certificate of deposit, debt instrument, or note. [emphasis supplied;
underscores ours]
Under the undisputed facts and the above law, the issue that emerges is: who is
liable for the tax?
Section 173 of the 1997 National Internal Revenue Code (1997 NIRC) names those
who are primarily liable for the DST and those who would be secondarily liable:
Section 173. Stamp taxes upon documents, instruments, and papers. – Upon
documents, instruments, and papers, and upon acceptances, assignments, sales,
and transfers of the obligation, right, or property incident thereto, there shall be
levied, collected and paid for, and in respect of the transaction so had or
accomplished, the corresponding documentary stamp taxes prescribed in the
following sections of this Title, by the person making, signing, issuing, accepting, or
transferring the same, and at the same time such act is done or transaction
had: Provided, that wherever one party to the taxable document enjoys exemption
from the tax herein imposed, the other party thereto who is not exempt shall be
the one directly liable for the tax. [emphases supplied; underscores ours]
The persons primarily liable for the payment of the DST are the person (1) making;
(2) signing; (3) issuing; (4) accepting; or (5) transferring the taxable documents,
instruments or papers. Should these parties be exempted from paying tax, the
other party who is not exempt would then be liable.
Philacor did not make, sign, issue, accept or transfer the promissory notes. The acts
of making, signing, issuing and transferring are unambiguous. The buyers of the
appliances made, signed and issued the documents subject to tax, while the
appliance dealer transferred these documents to Philacor which likewise
indisputably received or "accepted" them. "Acceptance," however, is an act that is
not even applicable to promissory notes, but only to bills of exchange.22 Under
Section 13223 of the Negotiable Instruments Law (which provides for how
acceptance should be made), the act of acceptance refers solely to bills of
exchange. Its object is to bind the drawee of a bill and make him an actual and
bound party to the instrument.24 Further, in a ruling adopted by the BIR as early as
1955, acceptance has already been given a narrow definition with respect to
incoming foreign bills of exchange, not the common usage of the word "accepting"
as in receiving:
The word "accepting" appearing in Section 210 of the National Internal Revenue
Code has reference to incoming foreign bills of exchange which are accepted in the
Philippines by the drawees thereof. Accordingly, the documentary stamp tax on
freight receipts is due at the time the receipts are issued and from the
transportation company issuing the same. The fact that the transportation
contractor issuing the freight receipts shifts the burden of the tax to the shipper
does not make the latter primarily liable to the payment of the tax. 25 (underscore
ours)
This ruling, to our mind, further clarifies that a party to a taxable transaction who
"accepts" any documents or instruments in the plain and ordinary meaning of the
act (such as the shipper in the cited case) does not become primarily liable for the
tax. In the same way, Philacor cannot be made primarily liable for the DST on the
issuance of the subject promissory notes, just because it had "accepted" the
promissory notes in the plain and ordinary meaning. In this regard, Section 173 of
the 1997 NIRC assumes materiality as it determines liability should the parties who
are primarily liable turn out to be exempted from paying tax; the other party to the
transaction then becomes liable.
Revenue Regulations No. 9-200026 interprets the law more widely so that all parties
to a transaction are primarily liable for the DST, and not only the person making,
signing, issuing, accepting or transferring the same becomes liable as the law
provides. It provides:
SEC. 2. Nature of the Documentary Stamp Tax and Persons Liable for the Tax. –
(a) In General. - The documentary stamp taxes under Title VII of the Code is
a tax on certain transactions. It is imposed against "the person making,
signing, issuing, accepting, or transferring" the document or facility
evidencing the aforesaid transactions. Thus, in general, it may be imposed
on the transaction itself or upon the document underlying such act. Any of
the parties thereto shall be liable for the full amount of the tax due:
Provided, however, that as between themselves, the said parties may
agree on who shall be liable or how they may share on the cost of the tax.
(b) Exception. - Whenever one of the parties to the taxable transaction is
exempt from the tax imposed under Title VII of the Code, the other party
thereto who is not exempt shall be the one directly liable for the tax.
[emphasis ours]
But even under these terms, the liability of Philacor is not a foregone conclusion as
from the face of the promissory note itself, Philacor is not a party to the issuance of
the promissory notes, but merely to their assignment. On the face of the
documents, the parties to the issuance of the promissory notes would be the buyer
of the appliance, as the maker, and the appliance dealer, as the payee.
We are aware that while Philacor denies being a party to the issuance of the
promissory notes,27 the appliance buyer is made to sign a promissory note only
after Philacor has approved its credit application. Moreover, the note Philacor
marked as Annex "J" of its petition for review28 is the standard pro
forma promissory note that Philacor uses in all similar transactions;29 the same
document contains the issuance of the notes in favor of the appliance dealer and
their assignments to Philacor. The promissory notes are also transferred to Philacor
by the appliance dealer on the same date that the appliance buyer issues the
promissory note in favor of the appliance buyer. Thus, it would seem that Philacor is
the person who ultimately benefits from the issuance of the notes, if not the
intended payee of these notes.
These observations, however, pertain to facts and implications that are found
outside the terms of the documents under discussion and are contradictory to their
outright terms. To consider these externalities would go against the doctrine that
the liability for the DST and the amount due are determined from the document
itself – examined through its form and face – and cannot be affected by proof of
facts outside it.30
Nor can the CIR justify his position that Philacor is liable for the tax by citing Section
42 of Regulations No. 26, which was issued by the Department of Finance on March
26, 1924:
Section 42. Responsibility for payment of tax on promissory notes. - The person who
signs or issues a promissory note and any person transferring or using a promissory
note can be held responsible for the payment of the documentary stamp tax.
[emphasis ours; italics supplied]
The rule uses the word "can" which is permissive, rather than the word "shall,"
which would make the liability of the persons named definite and unconditional. In
this sense, a person using a promissory note can be made liable for the DST if he or
she is: (1) among those persons enumerated under the law - i.e., the person who
makes, issues, signs, accepts or transfers the document or instrument; or (2) if
these persons are exempt, a non-exempt party to the transaction. Such
interpretation would avoid any conflict between Section 173 of the 1997 NIRC and
Section 42 of Regulations No. 26 and would make it unnecessary for us to strike
down the latter as having gone beyond the law it seeks to interpret.
However, we cannot interpret Section 42 of Regulations No. 26 to mean that
anyone who "uses" the document, regardless of whether such person is a party to
the transaction, should be liable, as this reading would go beyond Section 173 of
the 1986 Tax Code – the law that the rule seeks to implement. Implementing rules
and regulations cannot amend a law for they are intended to carry out, not
supplant or modify, the law.31 To allow Regulations No. 26 to extend the liability for
DST to persons who are not even mentioned in the relevant provisions of any of our
Tax Codes, particularly the 1986 Tax Code (the relevant law at the time of the
subject transactions) would be a clear breach of the rule that a statute must always
be superior to its implementing regulations.
This expansive interpretation of Regulations No. 26 becomes even more untenable
when we look at the difference between the way our law has been phrased and the
way the Internal Revenue Law of the United States (US) identified the persons liable
for its stamp tax. We also note that despite the subsequent amendments to our DST
provisions, our Congress never saw it fit to phrase our laws using the US
phraseologies.
In Section 110 of our Internal Revenue Code of 1904, the persons liable for the
stamp tax are the "persons who shall make, sign or issue the same[.]" Although our
1904 Tax Code was patterned after the then existing US Internal Revenue Code, also
known as the Act of Congress of July 13, 1866, 32 the US provisions on the stamp tax
provide for a wider set of taxpayers: Section 158 thereof places the burden on
"persons who shall make, sign or issue, or who shall cause to be made, signed or
issued any instrument, document, or paper of any kind or description whatsoever,
or shall accept, negotiate or pay or cause to be accepted, negotiated and paid, any
bill of exchange, draft, or order, or promissory note for the payment of money." It
goes on further by extending the liability not only to the parties mentioned but also
to "any party having an interest therein." Another US law, the War Revenue Act of
June 13, 1898, provides in Section 6 thereof a more succinct phrase whose coverage
is just as extensive: "any persons or party who shall make, sign or issue the same, or
for whose use or benefit the same shall be made, signed or issued." These provisions
have been adopted by various states such as Florida, South Carolina, New Jersey
and Pennsylvania.33
Under US laws, liability for the DST is placed on any person who has an interest in
the transaction or document and whoever may benefit from it. A person who would
use it or benefit from it, including parties who are not named in the instrument,
would be liable for the tax. In comparison, our legislators chose to limit the DST
liability only to "persons who shall make, sign or issue [the document or
instrument]."
Notably, our revenue laws regarding persons liable for the DST have been
repeatedly amended. In subsequent amendments, the coverage of the liability for
DST included persons who "accept" and "transfer" the instrument, document or
paper of the taxable transaction. Thereafter, we included the proviso that should
any of the parties be exempt, the other party to the transaction would become
liable. However, none of these amendments had ever extended the liability to
persons who have any interest in or who would benefit from the document or
instrument subject to tax. Thus, we cannot allow Regulations No. 26 to be
interpreted in such a way as to extend the DST liability to persons who are not the
parties named in the taxable document or instrument and are merely using or
benefiting from it, against the clear intention of our legislature.
In our view, it makes more sense to include persons who benefit from or have an
interest in the taxable document, instrument or transaction. There appears no
reason for distinguishing between the persons who make, sign, issue, transfer or
accept these documents and the persons who have an interest in these and/or have
caused them to be made, signed or issued. This also limits the opportunities for
avoiding tax. Moreover, there are cases when making all relevant parties taxable
could help our administrative officers collect tax more efficiently. In this case, the
BIR could simply collect from the financing companies, rather than go after each
and every appliance buyer or appliance seller. However, these are matters that are
within the prerogatives of Congress so that any interference from the Court, no
matter how well-meaning, would constitute judicial legislation. At best, we can
only air our views in the hope that Congress would take notice.
Philacor is not liable for the DST on the assignment of promissory notes.
Philacor, as an assignee or transferee of the promissory notes, is not liable for the
assignment or transfer of promissory notes as this transaction is not taxed under
the law.
The CIR argues that the DST is levied on the exercise of privileges through the
execution of specific instruments, or the privilege to enter into a transaction.
Therefore, the DST should be imposed on every exercise of the privilege to enter
into a transaction.34 There is nothing in Section 180 of the 1986 Tax Code that
supports this argument; the argument is even contradicted by the way the
provisions on DST were drafted.1âwphi1
As Philacor correctly points out, there are provisions in the 1997 NIRC that
specifically impose the DST on the transfer and/or assignment of documents
evidencing particular transactions. Section 176 imposes a DST on the transfer of
due bills, certificates of obligation, or shares or certificates of stock in a corporation,
apart from Section 175 which imposes the DST on the issuance of shares of stock in
a corporation. Section 178 imposes the DST on certificates of profits, or any
certificate or memorandum showing interest in a property or accumulations of any
corporation, and on all transfers of such certificate or memoranda. Section
198 imposes the DST on the assignment or transfer of any mortgage, lease or policy
of insurance, apart from Sections 183, 184, 185, 194 and 195 which impose it on
the issuances of mortgages, leases and policies of insurance. Indeed, the law has set
a pattern of expressly providing for the imposition of DST on the transfer and/or
assignment of documents evidencing certain transactions. Thus, we can safely
conclude that where the law did not specify that such transfer and/or assignment is
to be taxed, there would be no basis to recognize an imposition.
A good illustrative example is Section 198 of the 1986 Tax Code which provides
that:
Section 198. Stamp tax on assignments and renewals of certain instruments. – Upon
each and every assignment or transfer of any mortgage, lease or policy of
insurance, or the renewal or continuance of any agreement, contract, charter, or
any evidence of obligation or indebtedness by altering or otherwise, there shall be
levied, collected and paid a documentary stamp tax, at the same rate as that
imposed on the original instrument.
If we look closely at this provision, we would find that an assignment or transfer
becomes taxable only in connection with mortgages, leases and policies of
insurance. The list does not include the assignment or transfer of evidences of
indebtedness; rather, it is the renewal of these that is taxable. The present case
does not involve a renewal, but a mere transfer or assignment of the evidences of
indebtedness or promissory notes. A renewal would involve an increase in the
amount of indebtedness or an extension of a period, and not the mere change in
person of the payee.35
In BIR Ruling No. 139-97 issued on December 29, 1997, then CIR Liwayway Vinzons-
Chato pronounced that the assignment of a loan that is not for a renewal or a
continuance does not result in a liability for DST. Revenue Regulations No. 13-2004,
issued on December 23, 2004, states that "[t]he DST on all debt instruments shall be
imposed only on every original issue and the tax shall be based on the issue price
thereof. Hence, the sale of a debt instrument in the secondary market will not be
subject to the DST." Included in the enumeration of debt instruments is a
promissory note.
The BIR Ruling and Revenue Regulation cited are still applicable to this case, even if
they were issued after the transactions in question had already taken place. They
apply because they are issuances interpreting the same rule imposing a DST on
promissory notes. At the time BIR Ruling No. 139-97 was issued, the law in effect
was the 1986 Tax Code; the 1997 NIRC took effect only on January 1, 1998.
Moreover, the BIR Ruling referred to a transaction entered into in 1992, when the
1986 Tax Code had been in effect. On the other hand, the BIR issued Revenue
Regulations No. 13-2004 when Section 180 of the 1986 Tax Code had already been
amended. Nevertheless, the rule would still apply to this case because the pertinent
part of Section 180 – the part dealing with promissory notes – remained the same;
it imposed the DST on the promissory notes’ issuances and renewals, but not on
their assignment or transfer:
Section 180 of the 1986 Tax Code, as
amended
Section 180. Stamp tax on promissory notes, bills of
exchange, drafts, certificates of deposit, debt
instruments used for deposit substitutes and others
not payable on sight or demand on all promissory
notes, whether negotiable or nonnegotiable except
bank notes issued for circulation, and on each
renewal of any such note, there shall be collected a
documentary stamp tax of twenty centavos on each
two hundred pesos, or fractional part thereof, of
the face value of any such bill of exchange, draft
certificate of deposit, debt instrument, or note.
– On all bills of exchange (between points within the
Philippines), drafts, or certificates of deposits, debt
instruments used for deposit substitutes or orders
for the payment of any sum of money otherwise
than at sight or on demand,
Section 180 of the 1997 NIRC, as
amended by Republic Act No. 9243
Section 180. Stamp Tax on All Bonds, Loan
Agreements, Promissory Notes, Bills of Exchange,
Drafts, Instruments and Securities Issued by the
Government or Any of its Instrumentalities, Deposit
Substitute Debt Instruments, Certificates of
Deposits Bearing Interest and Others Not Payable
on Sight or Demand. - On all bonds, loan
agreements, including those signed abroad, wherein
the object of the contract is located or used in the
Philippines, bills of exchange (between points
within the Philippines), drafts, instruments and
securities issued by the Government or any of its
instrumentalities, deposit substitute debt
instruments, certificates of deposits drawing
interest, orders for the payment of any sum of
money otherwise than at sight or on demand, on all
promissory notes, whether negotiable or non-
negotiable, except bank notes issued for circulation,
and on each renewal of any such note, there shall
be collected a documentary stamp tax of Thirty
centavos (P0.30) on each Two hundred pesos
(P200), or fractional part thereof, of the face value
of any such agreement, bill of exchange, draft,
certificate of deposit, or note: Provided, That only
one documentary stamp tax shall be imposed on
either loan agreement, or promissory notes issued
to secure such loan, whichever will yield a higher
tax. Provided, however, That loan agreements or
promissory notes the aggregate of which does not
exceed Two hundred fifty thousand pesos
(P250,000) executed by individual for his purchase
on installment for his personal use or that of his
family and not for business resale, barter or hire of
a house, lot, motor vehicle, appliance or furniture
shall be exempt from the payment of the
documentary stamp tax provided under this
Section.
The settled rule is that in case of doubt, tax laws must be construed strictly against
the State and liberally in favor of the taxpayer. The reason for this ruling is not hard
to grasp taxes, as burdens which must be endured by the taxpayer, should not be
presumed to go beyond what the law expressly and clearly declares. That such strict
construction is necessary in this case is evidenced by the change in the subject
provision as presently worded, which now expressly levies the tax on shares of
stock as against the previlege of issuing certificates of stock as formerly provided. 36
WHEREFORE, premises considered, we GRANT the petition. The September 23,
2005 Decision of the Court of Tax Appeals en banc in C.T.A. E.B. No. 19 (C.T.A. Case
No. 5674), ordering Philacor Credit Corporation to pay a deficiency documentary
stamp tax in connection with the issuances and transfers or assignments of
promissory notes for the fiscal year ended July 31, 1993, is SET ASIDE. No costs.
SO ORDERED.
THIRD DIVISION
[G.R. No. 165617, February 25 : 2011]
SUPREME TRANSLINER, INC., MOISES C. ALVAREZ AND PAULITA S. ALVAREZ,
PETITIONERS, VS. BPI FAMILY SAVINGS BANK, INC., RESPONDENT.
[G.R. No. 165837]
BPI FAMILY SAVINGS BANK, INC., PETITIONER, VS. SUPREME TRANSLINER, INC.,
MOISES C. ALVAREZ AND PAULITA S. ALVAREZ, RESPONDENTS.
DECISION
VILLARAMA, JR., J.:
This case involves the question of the correct redemption price payable to a
mortgagee bank as purchaser of the property in a foreclosure sale.
On April 24, 1995, Supreme Transliner, Inc. represented by its Managing Director,
Moises C. Alvarez, and Paulita S. Alvarez, obtained a loan in the amount of
P9,853,000.00 from BPI Family Savings Bank with a 714-square meter lot covered by
Transfer Certificate of Title No. T-79193 in the name of Moises C. Alvarez and
Paulita S. Alvarez, as collateral.[1]
For non-payment of the loan, the mortgage was extrajudicially foreclosed and the
property was sold to the bank as the highest bidder in the public auction conducted
by the Office of the Provincial Sheriff of Lucena City. On August 7, 1996, a
Certificate of Sale[2] was issued in favor of the bank and the same was registered on The mortgagors requested for the elimination of liquidated damages and reduction
October 1, 1996. of attorney's fees and interest (1% per month) but the bank refused. On May 21,
1997, the mortgagors redeemed the property by paying the sum of
Before the expiration of the one-year redemption period, the mortgagors notified P15,704,249.12. A Certificate of Redemption[4] was issued by the bank on May 27,
the bank of their intention to redeem the property. Accordingly, the following 1997.
Statement of Account[3] was prepared by the bank indicating the total amount due
under the mortgage loan agreement: On June 11, 1997, the mortgagors filed a complaint against the bank to recover the
allegedly unlawful and excessive charges totaling P5,331,237.77, with prayer for
xxxx damages and attorney's fees, docketed as Civil Case No. 97-72 of the Regional Trial
Balance of Principal P 9,551,827.64 Court of Lucena City, Branch 57.
Add: Interest Due 1,417,761.24
Late Payment Charges 155,546.25 In its Answer with Special and Affirmative Defenses and Counterclaim, the bank
MRI 0.00 asserted that the redemption price reflecting the stipulated interest, charges and/or
Fire Insurance 0.00 expenses, is valid, legal and in accordance with documents duly signed by the
Foreclosure Expenses 155,817.23 mortgagors. The bank further contended that the claims are deemed waived and
Sub-total P 11,280,952.36 the mortgagors are already estopped from questioning the terms and conditions of
Less: Unapplied Payment 908,241.01 their contract.
Total Amount Due As of 08/07/96 (Auction Date) 10,372,711.35
On September 30, 1997, the bank filed a motion to set the case for hearing on the
Add: Attorney's Fees (15%) 1,555,906.70 special and affirmative defenses by way of motion to dismiss. The trial court
Liquidated Damages (15%) 1,555,906.70 denied the motion on January 8, 1998 and also denied the bank's motion for
Interest on P 10,372,711.35 from 08/07/96 to 04/07/97 (243 1,207,772.58 reconsideration. The bank elevated the matter to the Court of Appeals (CA-G.R. SP
days) at 17.25% p.a. No. 47588) which dismissed the petition for certiorari on February 26, 1999.

xxxx
Asset Acquired Expenses:
Documentary Stamps
Capital Gains Tax
Foreclosure Fee
Registration and Filing Fee
Add'l. Registration & Filing Fee
Interest on P 906,142.79 from
days) at 17.25% p.a.
Cancellation Fee
On February 14, 2002, the trial court rendered its decision[5] dismissing the
complaint and the bank's counterclaims. The trial court held that plaintiffs-
mortgagors are bound by the terms of the mortgage loan documents which clearly
provided for the payment of the following interest, charges and expenses: 18% p.a.
on the loan, 3% post-default penalty, 15% liquidated damages, 15% attorney's fees
and collection and legal costs. Plaintiffs-mortgagors' claim that they paid the
redemption price demanded by the defendant bank under extreme pressure was
155,595.00 rejected by the trial court since there was active negotiation for the final
518,635.57 redemption price between the bank's representatives and plaintiffs-mortgagors
207,534.23 who at the time had legal advice from their counsel, together with Orient
23,718.00 Development Banking Corporation which committed to finance the redemption.
660.00
906,142.79 According to the trial court, plaintiffs-mortgagors are estopped from questioning
08/07/96 to 04/07/97 (243 105,509.00 the correctness of the redemption price as they had freely and voluntarily signed
the letter-agreement prepared by the defendant bank, and along with Orient Bank
300.00 expressed their conformity to the terms and conditions therein, thus:

Total Amount Due As of 04/07/97 (Subject to Audit) P 15,704,249.12 May 14, 1997
xxxx
ORIENT DEVELOPMENT BANKING CORPORATION If you find the foregoing conditions acceptable, please indicate your conformity on
7th Floor Ever Gotesco Corporate Center the space provided below and return to us the duplicate copy.
C.M. Recto Avenue corner Matapang Street
Manila Very truly yours,

Attention: MS. AIDA C. DELA ROSA BPI FAMILY BANK

Senior Vice-President BY:

Gentlemen: (SGD.) LOLITA C. CARRIDO

Manager
This refers to your undertaking to settle the account of SUPREME TRANS LINER, INC.
and spouses MOISES C. ALVAREZ and PAULITA S. ALVAREZ, covering the real estate CONFORME:
property located in the Poblacion, City of Lucena under TCT No. T-79193 which was
foreclosed by BPI FAMILY SAVINGS BANK, INC. ORIENT DEVELOPMENT BANKING CORPORATION

With regard to the proposed refinancing of the account, we interpose no objection (SGD.) AIDA C. DELA ROSA
to the annotation of your mortgage lien thereon subject to the following conditions: Senior Vice President

1. That all expenses for the registration of the annotation of mortgage and other
incidental registration and cancellation expenses shall be borne by the
borrower.
2. That you will recognize our mortgage liens as first and superior until the loan
with us is fully paid.
3. That you will annotate your mortgage lien and pay us the full amount to close
the loan within five (5) working days from the receipt of the titles. If within
this period, you have not registered the same and paid us in full, you will
immediately and unconditionally return the titles to us without need of
demand, free from liens/encumbrances other than our lien.
4. That in case of loss of titles, you will undertake and shoulder the cost of re-
issuance of a new owner's titles.
5. That we will issue the Certificate of Redemption after full payment of
P15,704,249.12. representing the outstanding balance of the loan as of
May 15, 1997 including interest and other charges thereof within a period
of five (5) working days after clearance of the check payment.
6. That we will release the title and the Certificate of Redemption and other
pertinent papers only to your authorized representative with complete
authorization and identification.
7. That all expenses related to the cancellation of your annotated mortgage lien
should the Bank be not fully paid on the period above indicated shall be
charged to you.
CONFORME:
SUPREME TRANS LINER, INC.
(SGD.) MOISES C. ALVAREZ/PAULITA S. ALVAREZ
Mortgagors[6]
(Underscoring in the original; emphasis supplied.)
As to plaintiffs-mortgagors' contention that the amounts representing attorney's
fees and liquidated damages were already included in the P10,372,711.35 bid price,
the trial court said this was belied by their own evidence, the Statement of Account
showing the breakdown of the redemption price as computed by the defendant
bank.
The mortgagors appealed to the CA (CA-G.R. CV No. 74761) which, by
Decision[7] dated April 6, 2004 reversed the trial court and decreed as follows:
WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and
SET ASIDE. A new one is hereby entered as follows:
1. Plaintiffs-appellants' complaint for damages against defendant-appellee is
hereby REINSTATED;
2. Defendant-appellee is hereby ORDERED to return to plaintiffs-appellees (sic) the
invalidly collected amount of P3,111,813.40 plus six (6) percent legal interest
from May 21, 1997 until fully returned;
3. Defendant-appellee is hereby ORDERED to pay plaintiffs-appellees (sic) the
amount of P100,000.00 as moral damages, P100,000.00 as exemplary damages
and P100,000.00 as attorney's fees;
4. Costs against defendant-appellee.
SO ORDERED.[8]
The CA ruled that attorney's fees and liquidated damages were already included in
the bid price of P10,372,711.35 as per the recitals in the Certificate of Sale that said
amount was paid to the foreclosing mortgagee to satisfy not only the principal loan
but also "interest and penalty charges, cost of publication and expenses of the
foreclosure proceedings." These "penalty charges" consist of 15% attorney's fees
and 15% liquidated damages which the bank imposes as penalty in cases of
violation of the terms of the mortgage deed. The total redemption price thus should
only be P12,592,435.72 and the bank should return the amount of P3,111,813.40
representing attorney's fees and liquidated damages. The appellate court further
stated that the mortgagors cannot be deemed estopped to question the propriety
of the charges because from the very start they had repeatedly questioned the
imposition of attorney's fees and liquidated damages and were merely constrained
to pay the demanded redemption price for fear that the redemption period will
expire without them redeeming their property.[9]
By Resolution[10] dated October 12, 2004, the CA denied the parties' respective
motions for reconsideration.
Hence, these petitions separately filed by the mortgagors and the bank.
In G.R. No. 165617, the petitioners-mortgagors raise the single issue of whether the
foreclosing mortgagee should pay capital gains tax upon execution of the certificate
of sale, and if paid by the mortgagee, whether the same should be shouldered by
the redemptioner. They specifically prayed for the return of all asset-acquired
expenses consisting of documentary stamps tax, capital gains tax, foreclosure fee,
registration and filing fee, and additional registration and filing fee totaling
P906,142.79, with 6% interest thereon from May 21, 1997.[11]
On the other hand, the petitioner bank in G.R. No. 165837 assails the CA in holding
that -
1. ... the Certificate of Sale, the bid price of P10,372,711.35 includes penalty charges
and as such for purposes of computing the redemption price petitioner can no
longer impose upon the private respondents the penalty charges in the form of 15%
attorney's fees and the 15% liquidated damages in the aggregate amount of
P3,111,813.40, although the evidence presented by the parties show otherwise.
2. ... private respondents cannot be considered to be under estoppel to question
the propriety of the aforestated penalty charges despite the fact that, as found by
the Honorable Trial Court, "there was very active negotiation between the parties in
the computation of the redemption price" culminating into the signing freely and
voluntarily by the petitioner, the private respondents and Orient Bank, which
financed the redemption of the foreclosed property, of Exhibit "3", wherein they
mutually agreed that the redemption price is in the sum of P15,704,249.12.
3. ... petitioner [to] pay private respondents damages in the aggregate amount of
P300,000.00 on the ground that the former acted in bad faith in the imposition
upon them of the aforestated penalty charges, when in truth it is entitled thereto as
the law and the contract expressly provide and that private respondents agreed to
pay the same.[12]
On the correct computation of the redemption price, Section 78 of Republic Act No.
337, otherwise known as the General Banking Act, governs in cases where the
mortgagee is a bank.[13] Said provision reads:
SEC. 78. x x x In the event of foreclosure, whether judicially or extrajudicially, of any
mortgage on real estate which is security for any loan granted before the passage of
this Act or under the provisions of this Act, the mortgagor or debtor whose real
property has been sold at public auction, judicially or extrajudicially, for the full or
partial payment of an obligation to any bank, banking or credit institution, within
the purview of this Act shall have the right, within one year after the sale of the real
estate as a result of the foreclosure of the respective mortgage, to redeem the
property by paying the amount fixed by the court in the order of execution, or the
amount due under the mortgage deed, as the case may be, with interest thereon
at the rate specified in the mortgage, and all the costs, and judicial and other
expenses incurred by the bank or institution concerned by reason of the execution
and sale and as a result of the custody of said property less the income received
from the property. x x x x (Emphasis supplied.)
Under the Mortgage Loan Agreement,[14] petitioners-mortgagors undertook to pay
the attorney's fees and the costs of registration and foreclosure. The following
contract terms would show that the said items are separate and distinct from the
bid price which represents only the outstanding loan balance with stipulated
interest thereon.
23. Application of Proceeds of Foreclosure Sale. The proceeds of sale of the
mortgaged property/ies shall be applied as follows:
a) To the payment of the expenses and cost of foreclosure and sale, including the
attorney's fees as herein provided;
b) To the satisfaction of all interest and charges accruing upon the obligations
herein and hereby secured.
c) To the satisfaction of the principal amount of the obligations herein and hereby
secured.
d) To the satisfaction of all other obligations then owed by the Borrower/Mortgagor
to the Bank or any of its subsidiaries/affiliates such as, but not limited to BPI Credit
Corporation; or to Bank of the Philippine Islands or any of its subsidiaries/affiliates
such as, but not limited to BPI Leasing Corporation, BPI Express Card Corporation,
BPI Securities Corporation and BPI Agricultural Development Bank; and
e) The balance, if any, to be due to the Borrower/Mortgagor.
xxxx
31. Attorney's Fees: In case the Bank should engage the services of counsel to
enforce its rights under this Agreement, the Borrower/Mortgagor shall pay an
amount equivalent to fifteen (15%) percent of the total amount claimed by the
Bank, which in no case shall be less than P2,000.00, Philippine currency, plus costs,
collection expenses and disbursements allowed by law, all of which shall be secured
by this mortgage.[15]
Additionally, the Disclosure Statement on Loan/Credit Transaction [16] also duly
signed by the petitioners-mortgagors provides:
10. ADDITIONAL CHARGES IN CASE CERTAIN STIPULATIONS ARE NOT MET BY THE
BORROWER
a. Post Default Penalty 3.00% per month
b. Attorney's Services 15% of sum due but not less than P2,000.00
c. Liquidated Damages 15% of sum due but not less than P10,000.00
d. Collection & Legal Cost As provided by the Rules of Court
e. Others (Specify)
As correctly found by the trial court, that attorney's fees and liquidated damages
were not yet included in the bid price of P10,372,711.35 is clearly shown by the
Statement of Account as of April 4, 1997 prepared by the petitioner bank and given
to petitioners-mortgagors. On the other hand, par. 23 of the Mortgage Loan
Agreement indicated that asset acquired expenses were to be added to the
redemption price as part of "costs and other expenses incurred" by the mortgagee
bank in connection with the foreclosure sale.
Coming now to the issue of capital gains tax, we find merit in petitioners-
mortgagors' argument that there is no legal basis for the inclusion of this charge in
the redemption price. Under Revenue Regulations (RR) No. 13-85 (December 12,
1985), every sale or exchange or other disposition of real property classified as
capital asset under Section 34(a)[17] of the Tax Code shall be subject to the final
capital gains tax. The term sale includes pacto de retro and other forms of
conditional sale. Section 2.2 of Revenue Memorandum Order (RMO) No. 29-86 (as
amended by RMO No. 16-88 and as further amended by RMO Nos. 27-89 and 6-92)
states that these conditional sales "necessarily include mortgage foreclosure sales
(judicial and extrajudicial foreclosure sales)." Further, for real property foreclosed
by a bank on or after September 3, 1986, the capital gains tax and documentary
stamp tax must be paid before title to the property can be consolidated in favor of
the bank.[18]
Under Section 63 of Presidential Decree No. 1529 otherwise known as the Property
Registration Decree, if no right of redemption exists, the certificate of title of the
mortgagor shall be cancelled, and a new certificate issued in the name of the
purchaser. But where the right of redemption exists, the certificate of title of the
mortgagor shall not be cancelled, but the certificate of sale and the order
confirming the sale shall be registered by brief memorandum thereof made by the
Register of Deeds upon the certificate of title. In the event the property is
redeemed, the certificate or deed of redemption shall be filed with the Register of
Deeds, and a brief memorandum thereof shall be made by the Register of Deeds on
the certificate of title.
It is therefore clear that in foreclosure sale, there is no actual transfer of the
mortgaged real property until after the expiration of the one-year redemption
period as provided in Act No. 3135 and title thereto is consolidated in the name of
the mortgagee in case of non-redemption. In the interim, the mortgagor is given
the option whether or not to redeem the real property. The issuance of the
Certificate of Sale does not by itself transfer ownership.[19]
RR No. 4-99 issued on March 16, 1999, further amends RMO No. 6-92 relative to the
payment of Capital Gains Tax and Documentary Stamp Tax on extrajudicial
foreclosure sale of capital assets initiated by banks, finance and insurance
companies.
SEC. 3. CAPITAL GAINS TAX. -
(1) In case the mortgagor exercises his right of redemption within one year from
the issuance of the certificate of sale, no capital gains tax shall be imposedbecause
no capital gains has been derived by the mortgagor and no sale or transfer of real
property was realized. x x x
(2) In case of non-redemption, the capital gains [tax] on the foreclosure sale
imposed under Secs. 24(D)(1) and 27(D)(5) of the Tax Code of 1997 shall become
due based on the bid price of the highest bidder but only upon the expiration of the
one-year period of redemption provided for under Sec. 6 of Act No. 3135, as
amended by Act No. 4118, and shall be paid within thirty (30) days from the
expiration of the said one-year redemption period.
SEC. 4. DOCUMENTARY STAMP TAX. -
(1) In case the mortgagor exercises his right of redemption, the transaction shall
only be subject to the P15.00 documentary stamp tax imposed under Sec. 188 of
the Tax Code of 1997 because no land or realty was sold or transferred for a
consideration.
(2) In case of non-redemption, the corresponding documentary stamp tax shall be
levied, collected and paid by the person making, signing, issuing, accepting, or
transferring the real property wherever the document is made, signed, issued,
accepted or transferred where the property is situated in the Philippines. x x
x (Emphasis supplied.)
Although the subject foreclosure sale and redemption took place before the
effectivity of RR No. 4-99, its provisions may be given retroactive effect in this case.
Section 246 of the NIRC of 1997 states:
SEC. 246. Non-Retroactivity of Rulings. - Any revocation, modification, or reversal
of any of the rules and regulations promulgated in accordance with the preceding
Sections or any of the rulings or circulars promulgated by the Commissioner shall
not be given retroactive application if the revocation, modification, or reversal will
be prejudicial to the taxpayers, except in the following cases:
(a) where the taxpayer deliberately misstates or omits material facts from his
return or in any document required of him by the Bureau of Internal Revenue;
(b) where the facts subsequently gathered by the Bureau of Internal Revenue are
materially different from the facts on which the ruling is based; or
(c) where the taxpayer acted in bad faith.
In this case, the retroactive application of RR No. 4-99 is more consistent with the
policy of aiding the exercise of the right of redemption. As the Court of Tax
Appeals concluded in one case, RR No. 4-99 "has curbed the inequity of imposing a
capital gains tax even before the expiration of the redemption period [since] there
is yet no transfer of title and no profit or gain is realized by the mortgagor at the
time of foreclosure sale but only upon expiration of the redemption period." [20] In
his commentaries, De Leon expressed the view that while revenue regulations as a
general rule have no retroactive effect, if the revocation is due to the fact that the
regulation is erroneous or contrary to law, such revocation shall have retroactive
operation as to affect past transactions, because a wrong construction of the law
cannot give rise to a vested right that can be invoked by a taxpayer.[21]
Considering that herein petitioners-mortgagors exercised their right of redemption
before the expiration of the statutory one-year period, petitioner bank is not liable
to pay the capital gains tax due on the extrajudicial foreclosure sale. There was no
actual transfer of title from the owners-mortgagors to the foreclosing bank. Hence,
the inclusion of the said charge in the total redemption price was unwarranted and
the corresponding amount paid by the petitioners-mortgagors should be returned
to them.
WHEREFORE, premises considered, both petitions are PARTLY GRANTED.
In G.R. No. 165617, BPI Family Savings Bank, Inc. is hereby ordered to RETURN the
amounts representing capital gains and documentary stamp taxes as reflected in
the Statement of Account To Redeem as of April 7, 1997, to petitioners Supreme
Transliner, Inc., Moises C. Alvarez and Paulita Alvarez, and to retain only the sum
provided in RR No. 4-99 as documentary stamps tax due on the foreclosure sale.
In G.R. No. 165837, petitioner BPI Family Savings Bank, Inc. is hereby declared
entitled to the attorney's fees and liquidated damages included in the total
redemption price paid by Supreme Transliner, Inc., Moises C. Alvarez and Paulita
Alvarez. The sums awarded as moral and exemplary damages, attorney's fees and
costs in favor of Supreme Transliner, Inc., Moises C. Alvarez and Paulita Alvarez
are DELETED.
The Decision dated April 6, 2004 of the Court of Appeals in CA-G.R. CV No. 74761 is
accordingly MODIFIED.
SO ORDERED.
 Republic of the Philippines Due to Calapatia's failure to pay his obligation, petitioner, on 12 April 1985, filed a
SUPREME COURT petition for extrajudicial foreclosure before Notary Public Antonio T. de Vera of
Manila Manila, requesting the latter to conduct a public auction sale of the pledged stock. 5

FIRST DIVISION On 14 May 1985, petitioner informed VGCCI of the above-mentioned foreclosure
proceedings and requested that the pledged stock be transferred to its
(petitioner's) name and the same be recorded in the corporate books. However, on
15 July 1985, VGCCI wrote petitioner expressing its inability to accede to
G.R. No. 117604 March 26, 1997 petitioner's request in view of Calapatia's unsettled accounts with the club. 6

CHINA BANKING CORPORATION, petitioner, Despite the foregoing, Notary Public de Vera held a public auction on 17 September
vs. 1985 and petitioner emerged as the highest bidder at P20,000.00 for the pledged
COURT OF APPEALS, and VALLEY GOLF and COUNTRY CLUB, INC., respondents. stock. Consequently, petitioner was issued the corresponding certificate of sale. 7

On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment of his
overdue account in the amount of P18,783.24. 8 Said notice was followed by a
demand letter dated 12 December 1985 for the same amount9 and another notice
KAPUNAN, J.:
dated 22 November 1986 for P23,483.24. 10
Through a petition for review on certiorari under Rule 45 of the Revised Rules of
On 4 December 1986, VGCCI caused to be published in the newspaper Daily Express
Court, petitioner China Banking Corporation seeks the reversal of the decision of
a notice of auction sale of a number of its stock certificates, to be held on 10
the Court of Appeals dated 15 August 1994 nullifying the Securities and Exchange
December 1986 at 10:00 a.m. Included therein was Calapatia's own share of stock
Commission's order and resolution dated 4 June 1993 and 7 December 1993,
(Stock Certificate No. 1219).
respectively, for lack of jurisdiction. Similarly impugned is the Court of Appeals'
resolution dated 4 September 1994 which denied petitioner's motion for
reconsideration. Through a letter dated 15 December 1986, VGCCI informed Calapatia of the
termination of his membership due to the sale of his share of stock in the 10
December 1986 auction. 11
The case unfolds thus:

On 5 May 1989, petitioner advised VGCCI that it is the new owner of Calapatia's
On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a stockholder of
Stock Certificate No. 1219 by virtue of being the highest bidder in the 17 September
private respondent Valley Golf & Country Club, Inc. (VGCCI, for brevity), pledged his
1985 auction and requested that a new certificate of stock be issued in its name. 12
Stock Certificate No. 1219 to petitioner China Banking Corporation (CBC, for
brevity).1
On 2 March 1990, VGCCI replied that "for reason of delinquency" Calapatia's stock
was sold at the public auction held on 10 December 1986 for P25,000.00. 13
On 16 September 1974, petitioner wrote VGCCI requesting that the aforementioned
pledge agreement be recorded in its books.2
On 9 March 1990, petitioner protested the sale by VGCCI of the subject share of
stock and thereafter filed a case with the Regional Trial Court of Makati for the
In a letter dated 27 September 1974, VGCCI replied that the deed of pledge
nullification of the 10 December 1986 auction and for the issuance of a new stock
executed by Calapatia in petitioner's favor was duly noted in its corporate books. 3
certificate in its name. 14
On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner,
On 18 June 1990, the Regional Trial Court of Makati dismissed the complaint for
payment of which was secured by the aforestated pledge agreement still existing
lack of jurisdiction over the subject matter on the theory that it involves an intra-
between Calapatia and petitioner.4
corporate dispute and on 27 August 1990 denied petitioner's motion for
reconsideration.
On 20 September 1990, petitioner filed a complaint with the Securities and
Exchange Commission (SEC) for the nullification of the sale of Calapatia's stock by
VGCCI; the cancellation of any new stock certificate issued pursuant thereto; for the
issuance of a new certificate in petitioner's name; and for damages, attorney's fees
and costs of litigation.
On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in
favor of VGCCI, stating in the main that "(c)onsidering that the said share is
delinquent, (VGCCI) had valid reason not to transfer the share in the name of the
petitioner in the books of (VGCCI) until liquidation of
delinquency." 15 Consequently, the case was dismissed. 16
On 14 April 1992, Hearing Officer Perea denied petitioner's motion for
reconsideration. 17
Petitioner appealed to the SEC en banc and on 4 June 1993, the Commission issued
an order reversing the decision of its hearing officer. It declared thus:
The Commission en banc believes that appellant-petitioner has a prior right over
the pledged share and because of pledgor's failure to pay the principal debt upon
maturity, appellant-petitioner can proceed with the foreclosure of the pledged
share.
WHEREFORE, premises considered, the Orders of January 3, 1992 and April 14,
1992 are hereby SET ASIDE. The auction sale conducted by appellee-respondent
Club on December 10, 1986 is declared NULL and VOID. Finally, appellee-
respondent Club is ordered to issue another membership certificate in the name
of appellant-petitioner bank.
SO ORDERED. 18
VGCCI sought reconsideration of the abovecited order. However, the SEC denied
the same in its resolution dated 7 December 1993. 19
The sudden turn of events sent VGCCI to seek redress from the Court of Appeals.
On 15 August 1994, the Court of Appeals rendered its decision nullifying and setting
aside the orders of the SEC and its hearing officer on ground of lack of jurisdiction
over the subject matter and, consequently, dismissed petitioner's original
complaint. The Court of Appeals declared that the controversy between CBC and
VGCCI is not intra-corporate. It ruled as follows:
In order that the respondent Commission can take cognizance of a case, the
controversy must pertain to any of the following relationships: (a) between the
corporation, partnership or association and the public; (b) between the
corporation, partnership or association and its stockholders, partners, members,
or officers; (c) between the corporation, partnership or association and the state
in so far as its franchise, permit or license to operate is concerned, and (d)
among the stockholders, partners or associates themselves (Union Glass and
Container Corporation vs. SEC, November 28, 1983, 126 SCRA 31). The
establishment of any of the relationship mentioned will not necessarily always
confer jurisdiction over the dispute on the Securities and Exchange Commission
to the exclusion of the regular courts. The statement made in Philex Mining
Corp. vs. Reyes, 118 SCRA 602, that the rule admits of no exceptions or
distinctions is not that absolute. The better policy in determining which body
has jurisdiction over a case would be to consider not only the status or
relationship of the parties but also the nature of the question that is the subject
of their controversy (Viray vs. Court of Appeals, November 9, 1990, 191 SCRA
308, 322-323).
Indeed, the controversy between petitioner and respondent bank which
involves ownership of the stock that used to belong to Calapatia, Jr. is not within
the competence of respondent Commission to decide. It is not any of those
mentioned in the aforecited case.
WHEREFORE, the decision dated June 4, 1993, and order dated December 7, 1993
of respondent Securities and Exchange Commission (Annexes Y and BB, petition)
and of its hearing officer dated January 3, 1992 and April 14, 1992 (Annexes S and
W, petition) are all nullified and set aside for lack of jurisdiction over the subject
matter of the case. Accordingly, the complaint of respondent China Banking
Corporation (Annex Q, petition) is DISMISSED. No pronouncement as to costs in
this instance.
SO ORDERED. 20
Petitioner moved for reconsideration but the same was denied by the Court of
Appeals in its resolution dated 5 October 1994. 21
Hence, this petition wherein the following issues were raised:
II
 ISSUES
WHETHER OR NOT RESPONDENT COURT OF APPEALS (Former Eighth Division)
GRAVELY ERRED WHEN:
1. IT NULLIFIED AND SET ASIDE THE DECISION DATED JUNE 04, 1993 AND ORDER
DATED DECEMBER 07, 1993 OF THE SECURITIES AND EXCHANGE COMMISSION EN
BANC, AND WHEN IT DISMISSED THE COMPLAINT OF PETITIONER AGAINST
RESPONDENT VALLEY GOLF ALL FOR LACK OF JURISDICTION OVER THE SUBJECT
MATTER OF THE CASE;
2. IT FAILED TO AFFIRM THE DECISION OF THE SECURITIES AND EXCHANGE
COMMISSION EN BANC DATED JUNE 04, 1993 DESPITE PREPONDERANT EVIDENCE
SHOWING THAT PETITIONER IS THE LAWFUL OWNER OF MEMBERSHIP CERTIFICATE
NO. 1219 FOR ONE SHARE OF RESPONDENT VALLEY GOLF.
The petition is granted.
The basic issue we must first hurdle is which body has jurisdiction over the
controversy, the regular courts or the SEC.
P. D. No. 902-A conferred upon the SEC the following pertinent powers:
Sec. 3. The Commission shall have absolute jurisdiction, supervision and control
over all corporations, partnerships or associations, who are the grantees of
primary franchises and/or a license or permit issued by the government to
operate in the Philippines, and in the exercise of its authority, it shall have the
power to enlist the aid and support of and to deputize any and all enforcement
agencies of the government, civil or military as well as any private institution,
corporation, firm, association or person.
xxx xxx xxx
Sec. 5. In addition to the regulatory and adjudicative functions of the Securities
and Exchange Commission over corporations, partnerships and other forms of
associations registered with it as expressly granted under existing laws and
decrees, it shall have original and exclusive jurisdiction to hear and decide cases
involving:
a) Devices or schemes employed by or any acts of the board of directors,
business associates, its officers or partners, amounting to fraud and
misrepresentation which may be detrimental to the interest of the public
and/or of the stockholders, partners, members of associations or
organizations registered with the Commission.
b) Controversies arising out of intra-corporate or partnership relations,
between and among stockholders, members, or associates; between any or all
of them and the corporation, partnership or association of which they are
stockholders, members or associates, respectively; and between such
corporation, partnership or association and the State insofar as it concerns
their individual franchise or right to exist as such entity;
c) Controversies in the election or appointment of directors, trustees, officers,
or managers of such corporations, partnerships or associations.
d) Petitions of corporations, partnerships or associations to be declared in the
state of suspension of payments in cases where the corporation, partnership
or association possesses property to cover all of its debts but foresees the
impossibility of meeting them when they respectively fall due or in cases
where the corporation, partnership or association has no sufficient assets to
cover its liabilities, but is under the Management Committee created pursuant
to this Decree.
The aforecited law was expounded upon in Viray v. CA 22 and in the recent cases
of Mainland Construction Co., Inc. v. Movilla 23 and Bernardo v. CA, 24 thus:
. . . .The better policy in determining which body has jurisdiction over a case
would be to consider not only the status or relationship of the parties but also
the nature of the question that is the subject of their controversy.
Applying the foregoing principles in the case at bar, to ascertain which tribunal has
jurisdiction we have to determine therefore whether or not petitioner is a
stockholder of VGCCI and whether or not the nature of the controversy between
petitioner and private respondent corporation is intra-corporate.
As to the first query, there is no question that the purchase of the subject share or
membership certificate at public auction by petitioner (and the issuance to it of the
corresponding Certificate of Sale) transferred ownership of the same to the latter
and thus entitled petitioner to have the said share registered in its name as a
member of VGCCI. It is readily observed that VGCCI did not assail the transfer
directly and has in fact, in its letter of 27 September 1974, expressly recognized the
pledge agreement executed by the original owner, Calapatia, in favor of petitioner
and has even noted said agreement in its corporate books. 25 In addition, Calapatia,
the original owner of the subject share, has not contested the said transfer.
By virtue of the afore-mentioned sale, petitioner became a bona fide stockholder of
VGCCI and, therefore, the conflict that arose between petitioner and VGCCI aptly
exemplies an intra-corporate controversy between a corporation and its
stockholder under Sec. 5(b) of P.D. 902-A.
An important consideration, moreover, is the nature of the controversy between
petitioner and private respondent corporation. VGCCI claims a prior right over the
subject share anchored mainly on Sec. 3, Art VIII of its by-laws which provides that
"after a member shall have been posted as delinquent, the Board may order
his/her/its share sold to satisfy the claims of the Club. . ." 26 It is pursuant to this
provision that VGCCI also sold the subject share at public auction, of which it was
the highest bidder. VGCCI caps its argument by asserting that its corporate by-laws
should prevail. The bone of contention, thus, is the proper interpretation and
application of VGCCI's aforequoted by-laws, a subject which irrefutably calls for the
special competence of the SEC.
We reiterate herein the sound policy enunciated by the Court in Abejo v. De la
Cruz 27:
6. In the fifties, the Court taking cognizance of the move to vest jurisdiction in
administrative commissions and boards the power to resolve specialized
disputes in the field of labor (as in corporations, public transportation and public
utilities) ruled that Congress in requiring the Industrial Court's intervention in
the resolution of labor-management controversies likely to cause strikes or
lockouts meant such jurisdiction to be exclusive, although it did not so expressly
state in the law. The Court held that under the "sense-making and expeditious
doctrine of primary jurisdiction . . . the courts cannot or will not determine a
controversy involving a question which is within the jurisdiction of an
administrative tribunal, where the question demands the exercise of sound
administrative discretion requiring the special knowledge, experience, and
services of the administrative tribunal to determine technical and intricate
matters of fact, and a uniformity of ruling is essential to comply with the
purposes of the regulatory statute administered.
In this era of clogged court dockets, the need for specialized administrative
boards or commissions with the special knowledge, experience and
capability to hear and determine promptly disputes on technical matters or
essentially factual matters, subject to judicial review in case of grave abuse
of discretion, has become well nigh indispensable. Thus, in 1984, the Court
noted that "between the power lodged in an administrative body and a
court, the unmistakable trend has been to refer it to the former.
'Increasingly, this Court has been committed to the view that unless the law
speaks clearly and unequivocably, the choice should fall on [an
administrative agency.]'" The Court in the earlier case of Ebon v. De Guzman,
noted that the lawmaking authority, in restoring to the labor arbiters and the
NLRC their jurisdiction to award all kinds of damages in labor cases, as
against the previous P.D. amendment splitting their jurisdiction with the
regular courts, "evidently, . . . had second thoughts about depriving the
Labor Arbiters and the NLRC of the jurisdiction to award damages in labor
cases because that setup would mean duplicity of suits, splitting the cause of
action and possible conflicting findings and conclusions by two tribunals on
one and the same claim."
In this case, the need for the SEC's technical expertise cannot be over-emphasized
involving as it does the meticulous analysis and correct interpretation of a
corporation's by-laws as well as the applicable provisions of the Corporation Code in
order to determine the validity of VGCCI's claims. The SEC, therefore, took proper
cognizance of the instant case.
VGCCI further contends that petitioner is estopped from denying its earlier position,
in the first complaint it filed with the RTC of Makati (Civil Case No. 90-1112) that
there is no intra-corporate relations between itself and VGCCI.
VGCCI's contention lacks merit.
In Zamora v. Court of Appeals, 28 this Court, through Mr. Justice Isagani A. Cruz,
declared that:
It follows that as a rule the filing of a complaint with one court
which has no jurisdiction over it does not prevent the plaintiff
from filing the same complaint later with the competent court.
The plaintiff is not estopped from doing so simply because it made
a mistake before in the choice of the proper forum. . . .
We remind VGCCI that in the same proceedings before the RTC of Makati, it
categorically stated (in its motion to dismiss) that the case between itself and
petitioner is intra-corporate and insisted that it is the SEC and not the regular courts
which has jurisdiction. This is precisely the reason why the said court dismissed
petitioner's complaint and led to petitioner's recourse to the SEC.
Having resolved the issue on jurisdiction, instead of remanding the whole case to
the Court of Appeals, this Court likewise deems it procedurally sound to proceed
and rule on its merits in the same proceedings.
It must be underscored that petitioner did not confine the instant petition for
review on certiorari on the issue of jurisdiction. In its assignment of errors,
petitioner specifically raised questions on the merits of the case. In turn, in its
responsive pleadings, private respondent duly answered and countered all the
issues raised by petitioner.
Applicable to this case is the principle succinctly enunciated in the case of Heirs of
Crisanta Y. Gabriel-Almoradie v. Court of Appeals, 29 citing Escudero
v. Dulay 30 and The Roman Catholic Archbishop of Manila v. Court of Appeals. 31
In the interest of the public and for the expeditious administration of justice the
issue on infringement shall be resolved by the court considering that this case
has dragged on for years and has gone from one forum to another.
It is a rule of procedure for the Supreme Court to strive to settle the entire
controversy in a single proceeding leaving no root or branch to bear the seeds of
future litigation. No useful purpose will be served if a case or the determination
of an issue in a case is remanded to the trial court only to have its decision
raised again to the Court of Appeals and from there to the Supreme Court.
We have laid down the rule that the remand of the case or of an issue to the
lower court for further reception of evidence is not necessary where the Court is
in position to resolve the dispute based on the records before it and particularly
where the ends of justice would not be subserved by the remand thereof.
Moreover, the Supreme Court is clothed with ample authority to review
matters, even those not raised on appeal if it finds that their consideration is
necessary in arriving at a just disposition of the case.
In the recent case of China Banking Corp., et al. v. Court of Appeals, et al., 32 this
Court, through Mr. Justice Ricardo J. Francisco, ruled in this wise:
At the outset, the Court's attention is drawn to the fact that since the filing of
this suit before the trial court, none of the substantial issues have been
resolved. To avoid and gloss over the issues raised by the parties, as what the
trial court and respondent Court of Appeals did, would unduly prolong this
litigation involving a rather simple case of foreclosure of mortgage.
Undoubtedly, this will run counter to the avowed purpose of the rules, i.e., to
assist the parties in obtaining just, speedy and inexpensive determination of
every action or proceeding. The Court, therefore, feels that the central issues of
the case, albeit unresolved by the courts below, should now be settled specially
as they involved pure questions of law. Furthermore, the pleadings of the
respective parties on file have amply ventilated their various positions and
arguments on the matter necessitating prompt adjudication.
In the case at bar, since we already have the records of the case (from the
proceedings before the SEC) sufficient to enable us to render a sound judgment and
since only questions of law were raised (the proper jurisdiction for Supreme Court
review), we can, therefore, unerringly take cognizance of and rule on the merits of
the case.
The procedural niceties settled, we proceed to the merits.
VGCCI assails the validity of the pledge agreement executed by Calapatia in
petitioner's favor. It contends that the same was null and void for lack of
consideration because the pledge agreement was entered into on 21 August
1974 33 but the loan or promissory note which it secured was obtained by Calapatia
much later or only on 3 August 1983. 34
VGCCI's contention is unmeritorious.
A careful perusal of the pledge agreement will readily reveal that the contracting
parties explicitly stipulated therein that the said pledge will also stand as security
for any future advancements (or renewals thereof) that Calapatia (the pledgor) may
procure from petitioner:
xxx xxx xxx
This pledge is given as security for the prompt payment when due of all loans,
overdrafts, promissory notes, drafts, bills or exchange, discounts, and all other
obligations of every kind which have heretofore been contracted, or which may
hereafter be contracted, by the PLEDGOR(S) and/or DEBTOR(S) or any one of
them, in favor of the PLEDGEE, including discounts of Chinese drafts, bills of
exchange, promissory notes, etc., without any further endorsement by the
PLEDGOR(S) and/or Debtor(s) up to the sum of TWENTY THOUSAND
(P20,000.00) PESOS, together with the accrued interest thereon, as hereinafter
provided, plus the costs, losses, damages and expenses (including attorney's
fees) which PLEDGEE may incur in connection with the collection
thereof. 35 (Emphasis ours.)
The validity of the pledge agreement between petitioner and Calapatia cannot thus
be held suspect by VGCCI. As candidly explained by petitioner, the promissory note
of 3 August 1983 in the amount of P20,000.00 was but a renewal of the first
promissory note covered by the same pledge agreement.
VGCCI likewise insists that due to Calapatia's failure to settle his delinquent
accounts, it had the right to sell the share in question in accordance with the
express provision found in its by-laws.
Private respondent's insistence comes to naught. It is significant to note that VGCCI
began sending notices of delinquency to Calapatia after it was informed by
petitioner (through its letter dated 14 May 1985) of the foreclosure proceedings
initiated against Calapatia's pledged share, although Calapatia has been delinquent
in paying his monthly dues to the club since 1975. Stranger still, petitioner, whom
VGCCI had officially recognized as the pledgee of Calapatia's share, was neither
informed nor furnished copies of these letters of overdue accounts until VGCCI
itself sold the pledged share at another public auction. By doing so, VGCCI
completely disregarded petitioner's rights as pledgee. It even failed to give
petitioner notice of said auction sale. Such actuations of VGCCI thus belie its claim
of good faith.
In defending its actions, VGCCI likewise maintains that petitioner is bound by its by-
laws. It argues in this wise:
The general rule really is that third persons are not bound by the by-laws of a
corporation since they are not privy thereto (Fleischer v. Botica Nolasco, 47 Phil.
584). The exception to this is when third persons have actual or constructive
knowledge of the same. In the case at bar, petitioner had actual knowledge of
the by-laws of private respondent when petitioner foreclosed the pledge made
by Calapatia and when petitioner purchased the share foreclosed on September
17, 1985. This is proven by the fact that prior thereto, i.e., on May 14, 1985
petitioner even quoted a portion of private respondent's by-laws which is
material to the issue herein in a letter it wrote to private respondent. Because of
this actual knowledge of such by-laws then the same bound the petitioner as of
the time when petitioner purchased the share. Since the by-laws was already
binding upon petitioner when the latter purchased the share of Calapatia on
September 17, 1985 then the petitioner purchased the said share subject to the
right of the private respondent to sell the said share for reasons of delinquency
and the right of private respondent to have a first lien on said shares as these
rights are provided for in the by-laws very very clearly. 36
VGCCI misunderstood the import of our ruling in Fleischer v. Botica Nolasco Co.: 37
And moreover, the by-law now in question cannot have any effect on the
appellee. He had no knowledge of such by-law when the shares were assigned to
him. He obtained them in good faith and for a valuable consideration. He was
not a privy to the contract created by said by-law between the shareholder
Manuel Gonzales and the Botica Nolasco, Inc. Said by-law cannot operate to
defeat his rights as a purchaser.
An unauthorized by-law forbidding a shareholder to sell his shares without first
offering them to the corporation for a period of thirty days is not binding upon
an assignee of the stock as a personal contract, although his assignor knew of
the by-law and took part in its adoption. (10 Cyc., 579; Ireland vs. Globe Milling
Co., 21 R.I., 9.)
When no restriction is placed by public law on the transfer of corporate stock, a
purchaser is not affected by any contractual restriction of which he had no
notice. (Brinkerhoff-Farris Trust & Savings Co. vs. Home Lumber Co., 118 Mo.,
447.)
The assignment of shares of stock in a corporation by one who has assented to
an unauthorized by-law has only the effect of a contract by, and enforceable
against, the assignor; the assignee is not bound by such by-law by virtue of the
assignment alone. (Ireland vs. Globe Milling Co., 21 R.I., 9.)
A by-law of a corporation which provides that transfers of stock shall not be
valid unless approved by the board of directors, while it may be enforced as a
reasonable regulation for the protection of the corporation against worthless
stockholders, cannot be made available to defeat the rights of third persons.
(Farmers' and Merchants' Bank of Lineville vs. Wasson, 48 Iowa, 336.) (Emphasis
ours.)
In order to be bound, the third party must have acquired knowledge of the
pertinent by-laws at the time the transaction or agreement between said third
party and the shareholder was entered into, in this case, at the time the pledge
agreement was executed. VGCCI could have easily informed petitioner of its by-laws
when it sent notice formally recognizing petitioner as pledgee of one of its shares
registered in Calapatia's name. Petitioner's belated notice of said by-laws at the
time of foreclosure will not suffice. The ruling of the SEC en banc is particularly
instructive:
By-laws signifies the rules and regulations or private laws enacted by the
corporation to regulate, govern and control its own actions, affairs and
concerns and its stockholders or members and directors and officers with
relation thereto and among themselves in their relation to it. In other words,
by-laws are the relatively permanent and continuing rules of action adopted
by the corporation for its own government and that of the individuals
composing it and having the direction, management and control of its affairs,
in whole or in part, in the management and control of its affairs and
activities. (9 Fletcher 4166, 1982 Ed.)
The purpose of a by-law is to regulate the conduct and define the duties of
the members towards the corporation and among themselves. They are self-
 imposed and, although adopted pursuant to statutory authority, have no
status as public law. (Ibid.)
Therefore, it is the generally accepted rule that third persons are not bound
by by-laws, except when they have knowledge of the provisions either
actually or constructively. In the case of Fleisher v. Botica Nolasco, 47 Phil.
584, the Supreme Court held that the by-law restricting the transfer of
shares cannot have any effect on the transferee of the shares in question as
he "had no knowledge of such by-law when the shares were assigned to him.
He obtained them in good faith and for a valuable consideration. He was not
a privy to the contract created by the by-law between the shareholder . . .and
the Botica Nolasco, Inc. Said by-law cannot operate to defeat his right as a
purchaser. (Emphasis supplied.)
By analogy of the above-cited case, the Commission en banc is of the opinion
that said case is applicable to the present controversy. Appellant-petitioner
bank as a third party can not be bound by appellee-respondent's by-laws. It
must be recalled that when appellee-respondent communicated to
appellant-petitioner bank that the pledge agreement was duly noted in the
club's books there was no mention of the shareholder-pledgor's unpaid
accounts. The transcript of stenographic notes of the June 25, 1991 Hearing
reveals that the pledgor became delinquent only in 1975. Thus, appellant-
petitioner was in good faith when the pledge agreement was contracted.
The Commission en banc also believes that for the exception to the general
accepted rule that third persons are not bound by by-laws to be applicable and
binding upon the pledgee, knowledge of the provisions of the VGCI By-laws must be
acquired at the time the pledge agreement was contracted. Knowledge of said
provisions, either actual or constructive, at the time of foreclosure will not affect
pledgee's right over the pledged share. Art. 2087 of the Civil Code provides that it is
also of the essence of these contracts that when the principal obligation becomes
due, the things in which the pledge or mortgage consists maybe alienated for the
payment to the creditor.
In a letter dated March 10, 1976 addressed to Valley Golf Club, Inc., the
Commission issued an opinion to the effect that:
According to the weight of authority, the pledgee's right is entitled to full
protection without surrender of the certificate, their cancellation, and the
issuance to him of new ones, and when done, the pledgee will be fully protected
against a subsequent purchaser who would be charged with constructive notice
that the certificate is covered by the pledge. (12-A Fletcher 502)
The pledgee is entitled to retain possession of the stock until the pledgor pays or
tenders to him the amount due on the debt secured. In other words, the
pledgee has the right to resort to its collateral for the payment of the debts.
(Ibid, 502)
To cancel the pledged certificate outright and the issuance of new certificate to
a third person who purchased the same certificate covered by the pledge, will
certainly defeat the right of the pledgee to resort to its collateral for the
payment of the debt. The pledgor or his representative or registered
stockholders has no right to require a return of the pledged stock until the debt
for which it was given as security is paid and satisfied, regardless of the length of
time which have elapsed since debt was created. (12-A Fletcher 409)
A bona fide pledgee takes free from any latent or secret equities or liens in
favor either of the corporation or of third persons, if he has no notice thereof,
but not otherwise. He also takes it free of liens or claims that may
subsequently arise in favor of the corporation if it has notice of the pledge,
although no demand for a transfer of the stock to the pledgee on the
corporate books has been made. (12-A Fletcher 5634, 1982 ed., citing Snyder
v. Eagle Fruit Co., 75 F2d739) 38
Similarly, VGCCI's contention that petitioner is duty-bound to know its by-laws
because of Art. 2099 of the Civil Code which stipulates that the creditor must take
care of the thing pledged with the diligence of a good father of a family, fails to
convince. The case of Cruz & Serrano v. Chua A. H. Lee, 39 is clearly not applicable:
In applying this provision to the situation before us it must be borne in mind
that the ordinary pawn ticket is a document by virtue of which the property in
the thing pledged passes from hand to hand by mere delivery of the ticket; and
the contract of the pledge is, therefore, absolvable to bearer. It results that one
who takes a pawn ticket in pledge acquires domination over the pledge; and it is
the holder who must renew the pledge, if it is to be kept alive.
It is quite obvious from the aforequoted case that a membership share is
quite different in character from a pawn ticket and to reiterate, petitioner
was never informed of Calapatia's unpaid accounts and the restrictive
provisions in VGCCI's by-laws.
Finally, Sec. 63 of the Corporation Code which provides that "no shares of stock
against which the corporation holds any unpaid claim shall be transferable in the
books of the corporation" cannot be utilized by VGCCI. The term "unpaid claim"
refers to "any unpaid claim arising from unpaid subscription, and not to any
indebtedness which a subscriber or stockholder may owe the corporation arising
from any other transaction." 40 In the case at bar, the subscription for the share in This is a Petition for Review under Rule 45 seeking the reversal of the 15
question has been fully paid as evidenced by the issuance of Membership
Certificate No. 1219. 41 What Calapatia owed the corporation were merely the November 2007 Decision and 9 January 2008 Resolution of the Court of Tax Appeals
monthly dues. Hence, the aforequoted provision does not apply. (CTA) En Banc in C.T.A. EB No. 272,[1] which upheld the Court of Tax Appeals Second
Divisions denial of the Petition for refund of unutilized input Value Added Tax (VAT)
WHEREFORE, premises considered, the assailed decision of the Court of Appeals is
REVERSED and the order of the SEC en banc dated 4 June 1993 is hereby AFFIRMED. on the ground that the Official Receipts of petitioner Western Mindanao Power
Corporation (WMPC) did not contain the phrase zero-rated, as required under
SO ORDERED. Revenue Regulations No. 7-95 (RR 7-95).
Petitioner WMPC is a domestic corporation engaged in the production and
Republic of the Philippines
Supreme Court sale of electricity. It is registered with the Bureau of Internal Revenue (BIR) as a VAT
Manila taxpayer. Petitioner alleges that it sells electricity solely to the National Power
Corporation (NPC), which is in turn exempt from the payment of all forms of taxes,
SECOND DIVISION duties, fees and imposts, pursuant to Section 13[2] of Republic Act (R.A.) No. 6395 (An
Act Revising the Charter of the National Power Corporation). In view thereof and
WESTERN MINDANAO POWER CORPORATION, G. R. No. 181136
pursuant to Section 108(B) (3) of the National Internal Revenue Code
Petitioner,
Present: (NIRC),[3] petitioners power generation services to NPC is zero-rated.
Under Section 112(A) of the NIRC,[4] a VAT-registered taxpayer may, within
CARPIO, J., Chairperson,
two years after the close of the taxable quarter, apply for the issuance of a tax credit
- versus - BRION,
PEREZ, or refund of creditable input tax due or paid and attributable to zero-rated or
SERENO, and effectively zero-rated sales. Hence, on 20 June 2000 and 13 June 2001, WMPC filed
REYES, JJ.
COMMISSIONER OF INTERNAL REVENUE, with the Commissioner of Internal Revenue (CIR) applications for a tax credit
Respondent. Promulgated: certificate of its input VAT covering the taxable
3rd and 4th quarters of 1999 (amounting to ₱3,675,026.67)[5] and all the taxable
June 13, 2012
quarters of 2000 (amounting to ₱5,649,256.81).[6]
Noting that the CIR was not acting on its application, and fearing that its
claim would soon be barred by prescription, WMPC on 28 September 2001 filed with
the Court of Tax Appeals (CTA) in Division a Petition for Review docketed as C.T.A.
Case No. 6335, seeking refund/tax credit certificates for the total amount of
x--------------------------------------------------x
₱9,324,283.30.
DECISION The CIR filed its Comment on the CTA Petition, arguing that WMPC was not
entitled to the latters claim for a tax refund in view of its failure to comply with the
SERENO, J.:
invoicing requirements under Section 113 of the NIRC in relation to Section 4.108-1
of RR 7-95, which provides:
SECTION 4.108-1. Invoicing Requirements All VAT-registered persons shall, for every
sale or lease of goods or properties or services, issue duly registered receipts or
sales or commercial invoices which must show:
1. the name, TIN and address of seller;
2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of service;
4. the name, TIN, business style, if any, and address of the VAT-registered
purchaser, customer or client;
5. the word zero rated imprinted on the invoice covering zero-rated sales; and
6. the invoice value or consideration.
In the case of sale of real property subject to VAT and where the zonal or market
value is higher than the actual consideration, the VAT shall be separately indicated
in the invoice or receipt.
Only VAT-registered persons are required to print their TIN
followed by the word VAT in their invoice or receipts and this shall be
considered as a VAT Invoice. All purchases covered by invoices other than
VAT Invoice" shall not give rise to any input tax.
If the taxable person is also engaged in exempt operations, he
should issue separate invoices or receipts for the taxable and exempt
operations. A VAT Invoice shall be issued only for sales of goods, properties
or services subject to VAT imposed in Sections 100 and 102 of the Code.
The invoice or receipt shall be prepared at least in duplicate, the
original to be given to the buyer and the duplicate to be retained by the
seller as part of his accounting records. (Underscoring supplied.)
WMPC countered that the invoicing and accounting requirements laid
down in RR 7-95 were merely compliance requirements, which were not
indispensable to establish the claim for refund of excess and unutilized input VAT.
Also, Section 113 of the NIRC prevailing at the time the sales transactions were
made did not expressly state that failure to comply with all the invoicing
requirements would result in the disallowance of a tax credit refund. [7] The express
requirement that the term zero-rated sale shall be written or printed prominently
on the VAT invoice or official receipt for sales subject to zero percent (0%) VAT
appeared in Section 113 of the NIRC only after it was amended by Section 11 of R.A.
9337.[8] This amendment cannot be applied retroactively, considering that it took
effect only on 1 July 2005, or long after petitioner filed its claim for a tax refund,
and considering further that the RR 7-95 is punitive in nature. Further, since there
was no statutory requirement for imprinting the phrase zero-rated on official
receipts prior to 1 July 2005, the RR 7-95 constituted undue expansion of the scope
of the legislation it sought to implement.
CTA Second Division Decision
On 1 September 2006, the CTA Second Division dismissed[9] the Petition. It held that
while petitioner submitted in evidence its Quarterly VAT Returns for the periods
applied for, the same do not reflect any zero-rated or effectively zero-rated sales
allegedly incurred during said periods. The spaces provided for such amounts were
left blank, which only shows that there existed no zero-rated or effectively zero-
rated sales for the 3rd and 4th quarters of 1999 and the four quarters of
2000.[10] Moreover, it found that petitioners VAT Invoices and Official Receipts did
not contain on their face the phrase zero-rated, contrary to Section 4.108-1 of RR 7-
95.
Petitioner moved for reconsideration, but the motion was denied by the CTA in
Division in its Resolution dated 30 January 2007.[11]
CTA En Banc Decision
On 13 March 2007, WMPC appealed to the CTA En Banc, which on 15
November 2007 issued a Decision dismissing the appeal and affirming the CTA
ruling. The CTA En Banc held that the receipts and evidence presented by petitioner
failed to fully substantiate the existence of the latters effectively zero-rated sales to
NPC for the 3rd and 4thquarters of taxable year 1999 and the four quarters of taxable
year 2000. The CTA En Banc quoted the CTA Second Division finding that the
Quarterly VAT Returns that petitioner adduced in evidence did not reflect any zero-
rated or effectively zero-rated sales allegedly incurred during the said period, to wit:
Petitioner submitted in evidence its Quarterly Value Added Tax Returns for
the 3rd and 4th quarters of 1999 and the four quarters of 2000 to prove that it had
duly reported the input taxes paid on its domestic purchases of goods and services
(Exhibits E to J). However, a closer examination of the returns clearly shows that the
same do not reflect any zero-rated or effectively zero-rated sales allegedly incurred
during the said periods. The spaces provided for such amounts were left blank,
which only shows that there existed no zero-rated or effectively zero-rated sales for
the 3rd and 4th quarters of 1999 and the four quarters of 2000.
In addition, the CTA En Banc noted that petitioners Official Receipts and
VAT Invoices did not have the word zero-rated imprinted/stamped thereon,
contrary to the clear mandate of Section 4.108-1 of RR 7-95.
CTA Presiding Justice Ernesto Acosta filed a Concurring and Dissenting Opinion.
Justice Acosta disagreed with the majoritys view regarding the supposed mandatory
requirement of imprinting the term zero-rated on official receipts or invoices. He
opined that Section 113 in relation to Section 237[12] of the NIRC does not require
the imprinting of the phrase zero-rated on an invoice or official receipt for the
document to be considered valid for the purpose of claiming a refund or an
issuance of a tax credit certificate. Hence, the absence of the term zero-rated in an
invoice or official receipt does not affect its admissibility or competency as evidence
in support of a refund claim. Also, assuming that stamping the term zero-rated on
an invoice or official receipt is a requirement of the current NIRC, the denial of a
refund claim is not the imposable penalty for failure to comply with that
requirement.
Nevertheless, Justice Acosta agreed with the decision to deny the claim
due to petitioners failure to prove the input taxes it paid on its domestic purchases
of goods and services during the period involved.
WMPC filed a Motion for Reconsideration, which was denied by the CTA En
Banc in a Resolution dated 9 January 2008.[13]
Hence, the present Petition.
Issue
Whether the CTA En Banc seriously erred in dismissing the claim of
petitioner for a refund or tax credit on input tax on the ground that the latters
Official Receipts do not contain the phrase zero-rated
Our Ruling
We deny the Petition.
Being a derogation of the sovereign authority, a statute granting tax
exemption is strictly construed against the person or entity claiming the
exemption. When based on such statute, a claim for tax refund partakes of the
nature of an exemption. Hence, the same rule of strict interpretation against the
taxpayer-claimant applies to the claim.[14]
In the present case, petitioners claim for a refund or tax credit of input VAT
is anchored on Section 112(A) of the NIRC, viz:
Section 112. Refunds or Tax Credits of Input Tax. -
(A) Zero-rated or Effectively Zero-rated Sales. - any VAT-registered person, whose
sales are zero-rated or effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made, apply for the issuance of a
tax credit certificate or refund of creditable input tax due or paid attributable to
such sales, except transitional input tax, to the extent that such input tax has not
been applied against output tax: Provided, however, That in the case of zero-rated
sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the
acceptable foreign currency exchange proceeds thereof had been duly accounted
for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated
or effectively zero-rated sale and also in taxable or exempt sale of goods of
properties or services, and the amount of creditable input tax due or paid cannot be
directly and entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.
Thus, a taxpayer engaged in zero-rated or effectively zero-rated sale may
apply for the issuance of a tax credit certificate, or refund of creditable input tax
due or paid, attributable to the sale.
In a claim for tax refund or tax credit, the applicant must prove not only
entitlement to the grant of the claim under substantive law. It must also show
satisfaction of all the documentary and evidentiary requirements for an
administrative claim for a refund or tax credit.[15] Hence, the mere fact that
petitioners application for zero-rating has been approved by the CIR does not, by
itself, justify the grant of a refund or tax credit. The taxpayer claiming the refund
must further comply with the invoicing and accounting requirements mandated by
the NIRC, as well as by revenue regulations implementing them. [16]
Under the NIRC, a creditable input tax should be evidenced by a VAT
invoice or official receipt,[17] which may only be considered as such when it complies
with the requirements of RR 7-95, particularly Section 4.108-1. This section
requires, among others, that (i)f the sale is subject to zero percent (0%) value-added
tax, the term zero-rated sale shall be written or printed prominently on the invoice
or receipt.
We are not persuaded by petitioners argument that RR 7-95 constitutes
undue expansion of the scope of the legislation it seeks to implement on the ground
that the statutory requirement for imprinting the phrase zero-rated on VAT official
receipts appears only in Republic Act No. 9337. This law took effect on 1 July 2005,
or long after petitioner had filed its claim for a refund.
RR 7-95, which took effect on 1 January 1996, proceeds from the rule-
making authority granted to the Secretary of Finance by the NIRC for the efficient
enforcement of the same Tax Code and its amendments.
In Panasonic Communications Imaging Corporation of the Philippines v.
Commissioner of Internal Revenue,[18] we ruled that this provision is reasonable and
is in accord with the efficient collection of VAT from the covered sales of goods and
services. Moreover, we have held in Kepco Philippines Corporation v. Commissioner
of Internal Revenue[19] that the subsequent incorporation of Section 4.108-1 of RR 7-
95 in Section 113 (B) (2) (c) of R.A. 9337 actually confirmed the validity of the
imprinting requirement on VAT invoices or official receipts a case falling under the
principle of legislative approval of administrative interpretation by reenactment.
In fact, this Court has consistently held as fatal the failure to print the word
zero-rated on the VAT invoices or official receipts in claims for a refund or credit of
input VAT on zero-rated sales, even if the claims were made prior to the effectivity
of R.A. 9337.[20] Clearly then, the present Petition must be denied.
In addition, it is notable that the CTA Second Division and the CTA En Banc,
including Presiding Justice Acosta in his Concurring and Dissenting Opinion, both
found that petitioner failed to sufficiently substantiate the existence of its
effectively zero-rated sales to NPC for the 3rd and 4th quarters of taxable year 1999,
as well as all four quarters of taxable year 2000. It must also be noted that the CTA
is a highly specialized court dedicated exclusively to the study and consideration of
revenue-related problems, in which it has necessarily developed an
expertise.[21] Hence, its factual findings, when supported by substantial evidence,
will not be disturbed on appeal.[22] We find no sufficient reason to exempt the
present case from this general rule.
WHEREFORE, premises considered, we DENY the Petition and AFFIRM the
Decision dated 15 November 2007 and Resolution dated 9 January 2008 of the
Court of Tax Appeals En Banc in CTA EB No. 272.
SO ORDERED.
 Less: Deductions 481,266,883.00
Net Income Subject to Tax 499,194,964.00
DEL CASTILLO, J.: X Tax Rate 10%

The doctrine of stare decisis dictates that "absent any powerful countervailing Tax Due 49,919,496.40
considerations, like cases ought to be decided alike."[1] Less: Tax Credits -
Deficiency Income Tax 49,919,496.40
This Petition for Review on Certiorari[2] under Rule 45 of the Rules of Court assails Add: Increments
the May 9, 2012 Decision[3] and the September 17, 2012 Resolution[4] of the Court
of Tax Appeals (CTA) in CTA EB Case No. 716. 25% Surcharge 12,479,874.10

Factual Antecedents 20% Interest Per Annum (4/15/06-4/15/08) 19,995,151.71

Compromise Penalty for Late Payment 25,000.00
On December 14, 2007, respondent St. Luke's Medical Center, Inc. (SLIVIC) received
from the Large Taxpayers Service-Documents Processing and Quality Assurance Total increments 32,500,025.81
Division of the Bureau of Internal Revenue (BIR) Audit Results/Assessment Notice
Nos. QA-07-000096[5] and QA-07-000097,[6] assessing respondent SLMC deficiency Total Amount Due P82,419,522.21
income tax under Section 27(B)[7] of the 1997 National Internal Revenue Code For Taxable Year 2006:
(NIRC), as amended, for taxable year 2005 in the amount of P78,617,434.54 and for
taxable year 2006 in the amount of P57,119,867.33.
ASSESSMENT NO. QA-07-000097
On January 14, 2008, SLMC filed with petitioner Commissioner of Internal Revenue PARTICULARS [AMOUNT]
(CIR) an administrative protest[8] assailing the assessments. SLMC claimed that as a Sales/Revenues/Receipts/Fees P3,815,922,240.00
non-stock, non-profit charitable and social welfare organization under Section 30(E) Less: Cost of Sales/Service 2,760,518,437.00
and (G)[9] of the 1997 NIRC, as amended, it is exempt from paying income tax.
Gross Income From Operation 1,055,403,803.00
On April 25, 2008, SLMC received petitioner CIR's Final Decision on the Disputed Add: Non-Operating & Other Income -
Assessment[10] dated April 9, 2008 increasing the deficiency income for the taxable
Total Gross Income 1,055,403,803.00
year 2005 tax to P82,419,522.21 and for the taxable year 2006 to P60,259,885.94,
Less: Deductions 640,147,719.00
computed as follows:
Net Income Subject to Tax 415,256,084.00
For Taxable Year 2005: X Tax Rate 10%
Tax Due 41,525,608.40
ASSESSMENT NO. QA-07-000096 Less: Tax Credits -
PARTICULARS AMOUNT Deficiency Income Tax 41,525,608.40
Sales/Revenues/Receipts/Fees P3,623,511,616.00 Add: Increments -
Less: Cost of Sales/Services 2,643,049,769.00 25% Surcharge 10,381,402.10
Gross Income From Operation 980,461,847.00
20% Interest Per Annum (4/15/07-4/15/08) 8,327,875.44
Add: Non-Operating & Other Income -
Compromise Penalty for Late Payment 25,000.00
Total Gross Income 980,461,847.00
Total increments 18,734,277.54
Total Amount Due P60,259,885.94[11]
Aggrieved, SLMC elevated the matter to the CTA via a Petition for
Review,[12] docketed as CTA Case No. 7789.
Ruling of the Court of Tax Appeals Division
On August 26, 2010, the CTA Division rendered a Decision [13] finding SLMC not liable
for deficiency income tax under Section 27(B) of the 1997 NIRC, as amended, since
it is exempt from paying income tax under Section 30(E) and (G) of the same Code.
Thus:
WHEREFORE, premises considered, the Petition for Review is hereby GRANTED.
Accordingly, Audit Results/Assessment Notice Nos. QA-07-000096 and QA-07-
000097, assessing petitioner for alleged deficiency income taxes for the taxable
years 2005 and 2006, respectively, are hereby CANCELLED and SET ASIDE.
SO ORDERED.[14]
CIR moved for reconsideration but the CTA Division denied the same in its
December 28, 2010 Resolution.[15]
This prompted CIR to file a Petition for Review[16] before the CTA En Banc.
Ruling of the Court of Tax Appeals En Banc
On May 9, 2012, the CTA En Banc affirmed the cancellation and setting aside of the
Audit Results/Assessment Notices issued against SLMC. It sustained the findings of
the CTA Division that SLMC complies with all the requisites under Section 30(E) and
(G) of the 1997 NIRC and thus, entitled to the tax exemption provided therein.[17]
On September 17, 2012, the CTA En Banc denied CIR's Motion for Reconsideration.
Issue
Hence, CIR filed the instant Petition under Rule 45 of the Rules of Court contending
that the CTA erred in exempting SLMC from the payment of income tax.
Meanwhile, on September 26, 2012, the Court rendered a Decision in G.R. Nos.
195909 and 195960, entitled Commissioner of Internal Revenue v. St. Luke's Medical
Center, Inc.,[18] finding SLMC not entitled to the tax exemption under Section 30(E)
and (G) of the NIRC of 1997 as it does not operate exclusively for charitable or social
welfare purposes insofar as its revenues from paying patients are concerned. Thus,
the Court disposed of the case in this manner:
WHEREFORE, the petition of the Commissioner of Internal Revenue in G.R. No.
195909 is PARTLY GRANTED. The Decision of the Court of Tax Appeals En
Banc dated 19 November 2010 and its Resolution dated 1 March 2011 in CTA Case
No. 6746 are MODIFIED. St Luke's Medical Center, Inc. is ORDERED TO PAY the
deficiency income tax in 1998 based on the 10% preferential income tax rate under
Section 27(B) of the National h1ternal Revenue Code. However, it is not liable for
surcharges and interest on such deficiency income tax under Sections 248 and 249
of the National Internal Revenue Code. All other parts of the Decision and
Resolution of the Court of Tax Appeals are AFFIRMED.
The petition of St. Luke's Medical Center, Inc. in G.R. No. 195960 is DENIED for
violating Section I, Rule 45 of the Rules of Court.
SO ORDERED.[19]
Considering the foregoing, SLMC then filed a Manifestation and
Motion[20] informing the Court that on April 30, 2013, it paid the BIR the amount of
basic taxes due for taxable years 1998, 2000-2002, and 2004-2007, as evidenced by
the payment confirmation[21] from the BIR, and that it did not pay any surcharge,
interest, and compromise penalty in accordance with the above-mentioned
Decision of the Court. In view of the payment it made, SLMC moved for the
dismissal of the instant case on the ground of mootness.
CIR opposed the motion claiming that the payment confirmation submitted by
SLMC is not a competent proof of payment as it is a mere photocopy and does not
even indicate the quarter/s and/or year/s said payment covers.[22]
In reply,[23] SLMC submitted a copy of the Certification[24] issued by the Large
Taxpayers Service of the BIR dated May 27, 2013, certifying that, "[a]s far as the
basic deficiency income tax for taxable years 2000, 2001, 2002, 2004, 2005, 2006,
2007 are concerned, this Office considers the cases closed due to the payment
made on April 30, 2013." SLMC likewise submitted a letter[25] from the BIR dated
November 26, 2013 with attached Certification of Payment [26] and application for
abatement,[27] which it earlier submitted to the Court in a related case, G.R. No.
200688, entitled Commissioner of Internal Revenue v. St. Luke's Medical Center,
Inc.[28]
Thereafter, the parties submitted their respective memorandum.
CIR's Arguments

CIR argues that under the doctrine of stare decisis SLMC is subject to 10% income
tax under Section 27(B) of the 1997 NIRC.[29] It likewise asserts that SLMC is liable to
pay compromise penalty pursuant to Section 248(A)[30] of the 1997 NIRC for failing
to file its quarterly income tax returns.[31]
As to the alleged payment of the basic tax, CIR contends that this does not render
the instant case moot as the payment confirmation submitted by SLMC is not a
competent proof of payment of its tax liabilities.[32]
SLMC's Arguments
SLMC, on the other hand, begs the indulgence of the Court to revisit its ruling in
G.R. Nos. 195909 and 195960 (Commissioner of Internal Revenue v. St. Luke's
Medical Center, Inc.)[33] positing that earning a profit by a charitable, benevolent
hospital or educational institution does not result in the withdrawal of its tax
exempt privilege.[34] SLMC further claims that the income it derives from operating
a hospital is not income from "activities conducted for profit."[35] Also, it maintains
that in accordance with the ruling of the Court in G.R. Nos. 195909 and 195960
(Commissioner of Internal Revenue v. St. Luke's Medical Center, Inc.),[36] it is not
liable for compromise penalties.[37]
In any case, SLMC insists that the instant case should be dismissed in view of its
payment of the basic taxes due for taxable years 1998, 2000-2002, and 2004-2007
to the BIR on April 30, 2013.[38]
Our Ruling
SLMC is liable for income tax under Section 27(B) of the 1997 NIRC insofar as its
revenues from paying patients are concerned.
The issue of whether SLMC is liable for income tax under Section 27(B) of the 1997
NIRC insofar as its revenues from paying patients are concerned has been settled in
G.R. Nos. 195909 and 195960 (Commissioner of Internal Revenue v. St. Luke's
Medical Center, Inc.),[39]where the Court ruled that:
xxx We hold that Section 27(B) of the NIRC does not remove the income tax
exemption of proprietary non-profit hospitals under Section 30(E) and (G). Section
27(B) on one hand, and Section 30(E) and (G) on the other hand, can be construed
together without the removal of such tax exemption. The effect of the introduction
of Section 27(B) is to subject the taxable income of two specific institutions, namely,
proprietary non-profit educational institutions and proprietary non-profit hospitals,
among the institutions covered by Section 30, to the 10% preferential rate under
Section 27(B) instead of the ordinary 30% corporate rate under the last paragraph
of Section 30 in relation to Section 27(A)(1).
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1)
proprietary non-profit educational institutions and (2) proprietary non-profit
hospitals. The only qualifications for hospitals are that they must be proprietary and
non-profit. 'Proprietary' means private, following the definition of a 'proprietary
educational institution' as 'any private school maintained and administered by
private individuals or groups' with a government permit. 'Non-profit' means no net
income or asset accrues to or benefits any member or specific person, with all the
net income or asset devoted to the institution's purposes and all its activities
conducted not for profit.
'Non-profit' does not necessarily mean 'charitable.' In Collector of Internal Revenue
v. Club Filipino, Inc. de Cebu, this Court considered as non-profit a sports club
organized for recreation and entertainment of its stockholders and members. The
club was primarily funded by membership fees and dues. If it had profits, they were
used for overhead expenses and improving its golf course. The club was non-profit
because of its purpose and there was no evidence that it was engaged in a profit-
making enterprise.
The sports club in Club Filipino, Inc. de Cebu may be non-profit, but it was not
charitable. The Court defined 'charity' in Lung Center of the Philippines v. Quezon
City as 'a gift, to be applied consistently with existing laws, for the benefit of an
indefinite number of persons, either by bringing their minds and hearts under the
influence of education or religion, by assisting them to establish themselves in life
or [by] otherwise lessening the burden of government.' A non-profit club for the
benefit of its members fails this test. An organization may be considered as non-
profit if it does not distribute any part of its income to stockholders or members.
However, despite its being a tax exempt institution, any income such institution
earns from activities conducted for profit is taxable, ad expressly provided in the
last paragraph of Section 30.
To be a charitable institution, however, an organization must meet the substantive
test of charity in Lung Center. The issue in Lung Center concerns exemption from
real property tax and not income tax. However, it provides for the test of charity in
our jurisdiction. Charity is essentially a gift to an indefinite number of persons which
lessens the burden of government. In other words, charitable institutions provide
for free goods and services to the public which would otherwise fall on the
shoulders of government. Thus, as a matter of efficiency, the government forgoes
taxes which should have been spent to address public needs, because certain
private entities already assume a part of the burden. This is the rationale for the tax
exemption of charitable institutions. The loss of taxes by the government is
compensated by its relief from doing public works which would have been funded
by appropriations from the Treasury.
Charitable institutions, however, are not ipso facto entitled to a tax exemption. The
requirements for a tax exemption are specified by the law granting it. The power of
Congress to tax implies the power to exempt from tax. Congress can create tax
exemptions, subject to the constitutional provision that '[n]o law granting any tax
exemption shall be passed without the concurrence of a majority of all the
Members of Congress.' The requirements for a tax exemption are strictly construed
against tl1e taxpayer because an exemption restricts the collection of taxes
necessary for the existence of the government.
The Court in Lung Center declared that the Lung Center of the Philippines is a
charitable institution for the purpose of exemption from real property taxes. This
ruling uses the same premise as Hospital de San Juan and Jesus Sacred Heart
College which says that receiving income from paying patients does not destroy the
charitable nature of a hospital.
As a general principle, a charitable institution does not lose its character as such
and its exemption from taxes simply because it derives income from paying
patients, whether outpatient, or confined in the hospital, or receives subsidies from
the government, so long as the money received is devoted or used altogether to the
charitable object which it is intended to achieve; and no money inures to the
private benefit of the persons managing or operating the institution.
For real property taxes, the incidental generation of income is permissible because
the test of exemption is the use of the property. The Constitution provides that
'[c]haritable institutions, churches and personages or convents appurtenant
thereto, mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly, and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation.' The test of exemption is not
strictly a requirement on the intrinsic nature or character of the institution. The test
requires that the institution use property in a certain way, i.e., for a charitable
purpose. Thus, the Court held that the Lung Center of the Philippines did not lose its
charitable character when it used a portion of its lot for commercial purposes. The
effect of failing to meet the use requirement is simply to remove from the tax
exemption that portion of the property not devoted to charity.
The Constitution exempts charitable institutions only from real property taxes. In
the NIRC, Congress decided to extend the exemption to income taxes. However, the
way Congress crafted Section 30(E) of the NIRC is materially different from Section
28(3), Article VI of the Constitution. Section 30(E) of the NIRC defines the
corporation or association that is exempt from income tax. On the other hand,
Section 28(3), Article VI of the Constitution does not define a charitable institution,
but requires that the institution 'actually, directly and exclusively' use the property
for a charitable purpose.
Section 30(E) of the NIRC provides that a charitable institution must be:
(1) A non-stock corporation or association;
(2) Organized exclusively for charitable purposes;
(3) Operated exclusively for charitable purposes; and
(4) No part of its net income or asset shall belong to or inure to the benefit of any
member, organizer, officer or any specific person.
Thus, both the organization and operations of the charitable institution must be
devoted 'exclusively' for charitable purposes. The organization of the institution
refers to its corporate form, as shown by its articles of incorporation, by-laws and
other constitutive documents. Section 30(E) of the NIRC specifically requires that
the corporation or association be non-stock, which is defined by the Corporation
Code as 'one where no part of its income is distributable as dividends to its
members, trustees, or officers' and that any profit 'obtain[ed] as an incident to its
operations shall, whenever necessary or proper, be used tor the furtherance of the
purpose or purposes for which the corporation was organized.' However,
under Lung Center, any profit by a charitable institution must not only be plowed
back 'whenever necessary or proper,' but must be 'devoted or used altogether to
the charitable object which it is intended to achieve.'
The operations of the charitable institution generally refer to its regular activities.
Section 30(E) of the NIRC requires that these operations be exclusive to charity.
There is also a specific requirement that 'no part of [the] net income or asset shall
belong to or inure to the benefit of any member, organizer, officer or any specific
person.' The use of lands, buildings and improvements of the institution is but a
part of its operations.
There is no dispute that St. Luke's is organized as a non-stock and non profit
charitable institution. However, this does not automatically exempt St Luke's from
paying taxes. This only refers to the organization of St. Luke's. Even if St. Luke's
meets the test of charity, a charitable institution is not ipso facto tax exempt To be
exempt from real property taxes, Section 28(3), Article VI of the Constitution
requires that a charitable institution use the property 'actually, directly and
exclusively' for charitable purposes. To be exempt from income taxes, Section 30(E)
of the NIRC requires that a charitable institution must be 'organized and operated
exclusively' for charitable purposes. Likewise, to be exempt from income taxes,
Section 30(G) of the NIRC requires that the institution be 'operated exclusively' for
social welfare.

However, the last paragraph of Section 30 of the NIRC qualifies the words
'organized and operated exclusively' by providing that:
Notwithstanding the provisions in the preceding paragraphs, the income of
whatever kind and character of the foregoing organizations from any of their
properties, real or personal, or from any of their activities conducted for profit
regardless of the disposition made of such income, shall be subject to tax imposed
under this Code.
In short, the last paragraph of Section 30 provides that if a tax exempt charitable
institution conducts 'any' activity for profit, such activity is not tax exempt even as
its not-for-profit activities remain tax exempt. This paragraph qualifies the
requirements in Section 30(E) that the [n]on-stock corporation or association [must
be] organized and operated exclusively for . . . charitable . . . purposes . . . It likewise
qualifies the requirement in Section 30(G) that the civic organization must be
'operated exclusively' for the promotion of social welfare.
Thus, even if the charitable institution must be 'organized and operated exclusively'
for charitable purposes, it is nevertheless allowed to engage in 'activities conducted
for profit' without losing its tax exempt status for its not for profit activities. The
only consequence is that the 'income of whatever kind and character' of a
charitable institution 'from any of its activities conducted for profit, regardless of
the disposition made of such income, shall be subject to tax.' Prior to the
introduction of Section 27(B), the tax rate on such income from for profit activities
was the ordinary corporate rate under Section 27(A). With the introduction of
Section 27(B), the tax rate is now 10%.
In 1998, St. Luke's had total revenues of P1,730,367,965 from services to paying
patients. It cannot be disputed that a hospital which receives approximately P1.73
billion from paying patients is not an institution 'operated exclusively' for charitable
purposes. Clearly, revenues from paying patients are income received from
'activities conducted for profit.' Indeed, St. Luke's admits that it derived profits from
its paying patients. St. Luke's declared P1,730,367,965 as 'Revenues from Services
to Patients' in contrast to its 'Free Services' expenditure of P218,187,498. In its
Comment in G.R. No. 195909, St. Luke's showed the following 'calculation' to
support its claim that 65.20% of its 'income after expenses was allocated to free or
charitable services' in 1998.
xxxx
In Lung Center, this Court declared:
'[e]xclusive' is defined as possessed and enjoyed to the exclusion of others;
debarred from participation or enjoyment; and 'exclusively' is defined, 'in a manner
to exclude; as enjoying a privilege exclusively.' ... The words 'dominant use' or
'principal use' cannot be substituted for the words 'used exclusively' without doing
violence to the Constitution and the law. Solely is synonymous with exclusively.
The Court cannot expand the meaning of the words 'operated exclusively' without
violating the NIRC. Services to paying patients are activities conducted for profit.
They cannot be considered any other way. There is a 'purpose to make profit over
and above the cost' of services. The P1.73 billion total revenues :from paying
patients is not even incidental to St. Luke's charity expenditure of P218,187,498 for
non-paying patients.
St Luke's claims that its charity expenditure of P218,187,498 is 65.20% of its
operating income in 1998. However, if a part of the remaining 34.80% of the
operating income is reinvested in property, equipment or facilities used for services
to paying and non-paying patients, then it cannot be said that the income is
'devoted or used altogether to the charitable object which it is intended to achieve.'
The income is plowed back to the corporation not entirely for charitable purposes,
but for profit as well. In any case, the last paragraph of Section 30 of the NIRC
expressly qualifies that income from activities for profit is taxable 'regardless of the
disposition made of such income.'
Jesus Sacred Heart College declared that there is no official legislative record
explaining the phrase 'any activity conducted for profit.' However, it quoted a
deposition of Senator Mariano Jesus Cuenco, who was a member of the Committee
of Conference for the Senate, which introduced the phrase 'or from any activity
conducted for profit.'
P. Cuando ha hablado de la Universidad de Santo Tomas que tiene un hospital, no
cree Vd. que es una actividad esencial dicho hospital para el funcionamiento del
colegio de medicina de medicina de dicha universidad?
xxx xxx xxx
R. Si el hospital se limita a recibir enformos pobres, mi contestacion seria
afirmativa; pero considerando que el hospital tiene cuartos de pago, y a los mismos
generalmente van enformos de buena posicion social economica, lo que se paga
por estos enformos debe estar sujeto a 'income tax', y es una de las razones que
hemos tenido para insertar las palabras o frase 'or from any activity conducted for
profit.'
The question was whether having a hospital is essential to an educational
institution like the College of Medicine of the University of Santo Tomas. Senator
Cuenco answered that if the hospital has paid rooms generally occupied by people
of good economic standing, then it should be subject to income tax. He said that
this was one of the reasons Congress inserted the phrase 'or any activity conducted
for profit.'
The question in Jesus Sacred Heart College involves an educational institution.
However, it is applicable to charitable institutions because Senator Cuenco's
response shows an intent to focus on the activities of charitable institutions.
Activities for profit should not escape the reach of taxation. Being a non-stock and
non-profit corporation does not, by this reason alone, completely exempt an
institution from tax. An institution cannot use its corporate form to prevent its
profitable activities from being taxed.
The Court finds that St. Luke's is a corporation that is not 'operated exclusively' for
charitable or social welfare purposes insofar as its revenues from paying patients
are C.Qncemed. This ruling is bacred not only on a strict interpretation of a
provision granting tax exemption, but also on the clear and plain text of Section
30(E) and (G). Section 30(E) and (G) of the NIRC requires that an institution be
'operated exclusively' for charitable or social welfare purposes to be completely
exempt from income tax. An institution tmder Section 30(E) or (G) does not lose its
tax exemption if it earns income from its for-profit activities. Such income from for-
profit activities, tmder the last paragraph of Section 30, is merely subject to income
tax, previously at the ordinary corporate rate but now at the preferential tO% rate
pursuant to Section 27(B).
A tax exemption is effectively a social subsidy granted by the State because an
exempt institution is spared from sharing in the expenses of government and yet
benefits from them. Tax exemptions for charitable institutions should therefore be
limited to institutions beneficial to the public and those which improve social
welfare. A profit-making entity should not be allowed to exploit this subsidy to the
detriment of the government and other taxpayers.
St. Luke's fails to meet the requirements tmder Section 30(E) and (G) of the NlRC to
be completely tax exempt from all its income. However, it remains a proprietary
non-profit hospital tmder Section 27(B) of the NIRC as long as it does not distribute
any of its profits to its members and such profits are reinvested pursuant to its
corporate purposes. St. Luke's, as a proprietary non-profit hospital, is entitled to the
preferential tax rate of 10% on its net income from its for-profit activities.
St. Luke's is therefore liable for deficiency income tax in 1998 tmder Section 27(B)
of the NIRC. However, St. Luke's has good reasons to rely on the letter dated 6 June
1990 by the BIR, which opined that St. Luke's is 'a corporation for purely charitable
and social welfare purposes' and thus exempt from income tax. In Michael J.
Lhuillier, Inc. v. Commissioner of Internal Revenue, the Court said that 'good faith
and honest belief that one is not subject to tax on the basis of previous
interpretation of government agencies tasked to implement the tax law, are
sufficient justification to delete the imposition of surcharges and interest.'[40]
A careful review of the pleadings reveals that there is no countervailing
consideration for the Court to revisit its aforequoted ruling in G.R. Nos. 195909 and
195960 (Commissioner of Internal Revenue v. St. Luke's Medical Center, Inc.). Thus,
under the doctrine of stare decisis, which states that "[o]nce a case has been
decided in one way, any other case involving exactly the same point at issue xxx
should be decided in the same manner,"[41] the Court finds that SLMC is subject to
10% income tax insofar as its revenues from paying patients are concerned.
To be clear, for an institution to be completely exempt from income tax, Section
30(E) and (G) of the 1997 NIRC requires said institution to operate exclusively for
charitable or social welfare purpose. But in case an exempt institution under
Section 30(E) or (G) of the said Code earns income from its for-profit activities, it
will not lose its tax exemption. However, its income from for profit activities will be
subject to income tax at the preferential 10% rate pursuant to Section 27(B)
thereof.
SLMC is not liable for Compromise Penalty.
As to whether SLMC is liable for compromise penalty under Section 248(A) of the
1997 NIRC for its alleged failure to file its quarterly income tax returns, this has also
been resolved in G.R. Nos. 195909 and 195960 (Commissioner of Internal Revenue
v. St. Luke's Medical Center, Inc.),[42] where the imposition of surcharges and
interest under Sections 248[43] and 249[44] of the 1997 NIRC were deleted on the
basis of good faith and honest belief on the part SLMC that it is not subject to tax.
Thus, following the ruling of the Court in the said case, SLMC is not liable to pay
compromise penalty under Section 248(A) of the 1997 NIRC.
The Petition is rendered moot by the payment made by SLMC on April 30, 2013.
However, in view of the payment of the basic taxes made by SLMC on April 30,
2013, the instant Petition has become moot.
While the Court agrees with the CIR that the payment confirmation from the BIR
presented by SLMC is not a competent proof of payment as it does not indicate the
specific taxable period the said payment covers, the Court fmds that the
Certification issued by the Large Taxpayers Service of the BIR dated May 27, 2013,
and the letter from the BIR dated November 26, 2013 with attached Certification of
Payment and application for abatement are sufficient to prove payment especially
since CIR never questioned the authenticity of these documents. In fact, in a related
case, G.R. No. 200688, entitled Commissioner of Internal Revenue v. St. Luke's
Medical Center, Inc.,[45]the Court dismissed the petition based on a letter issued by
CIR confirming SLMC's payment of taxes, which is the same letter submitted by
SLMC in the instant case.
In fine, the Court resolves to dismiss the instant Petition as the same has been
rendered moot by the payment made by SLMC of the basic taxes for the taxable
years 2005 and 2006, in the amounts of P49,919,496.40 and P41,525,608.40,
respectively.[46]
WHEREFORE, the Petition is hereby DISMISSED.
SO ORDERED.
EN BANC
G.R. No. 207112, December 08, 2015
PILIPINAS TOTAL GAS, INC., Petitioner, v. COMMISSIONER OF
INTERNAL REVENUE, Respondent.
DECISION
MENDOZA, J.:
Before the Court is a petition for review on certiorari1 under Rule 45 of the
Rules of Court assailing the October 11, 2012 Decision2 and the May 8, 2013
Resolution3 of the Court of Tax Appeals (CTA) En Banc, in CTA EB Case No.
776, which affirmed the January 13, 2011 Decision4 of the CTA Third Division
(CTA Division) in CTA Case No. 7863.
The Facts
Petitioner Pilipinas Total Gas, Inc. (Total Gas) is engaged in the business of
selling, transporting and distributing industrial gas. It is also engaged in the
sale of gas equipment and other related businesses. For this purpose, Total
Gas registered itself with the Bureau of Internal Revenue (BIR) as a Value
Added Tax (VAT) taxpayer.
On April 20, 2007 and July 20, 2007, Total Gas filed its Original Quarterly VAT
Returns for the First and Second quarters of 2007, respectively with the BIR.
On May 20, 2008, it filed its Amended Quarterly VAT Returns for the first two
quarters of 2007 reflecting its sales subject to VAT, zero-rated sales, and
domestic purchases of non-capital goods and services.
For the First and Second quarters of 2007, Total Gas claimed it incurred
unutilized input VAT credits from its domestic purchases of noncapital goods
and services in the total amount of P8,124,400.35. Of this total accumulated
input VAT, Total Gas claimed that it had P7,898,433.98 excess unutilized input
VAT.
On May 15, 2008, Total Gas filed an administrative claim for refund of
unutilized input VAT for the first two quarters of taxable year 2007, inclusive of
supporting documents.
On August 28, 2008, Total Gas submitted additional supporting documents to
the BIR.
On January 23, 2009, Total Gas elevated the matter to the CTA in view of the
inaction of the Commissioner of Internal Revenue (CIR).
During the hearing, Total Gas presented, as witnesses, Rosalia T. Yu and
Richard Go, who identified documentary evidence marked as Exhibits "A" to
"ZZ-1," all of which were admitted. Respondent CIR, on the other hand, did not
adduce any evidence and had the case submitted for decision.
Ruling of the CTA Division
In its January 13, 2011 Decision,5 the CTA Division dismissed the petition for
being prematurely filed. It explained that Total Gas failed to complete the
necessary documents to substantiate a claim for refund of unutilized input VAT
on purchases of goods and services enumerated under Revenue Memorandum
Order (RMO) No. 53-98. Of note were the lack of Summary List of Local
Purchases and the certifications from the Office of the Board of Investment
(BOD), the Bureau of Customs (BOC), and the Philippine Economic Zone
Authority (PEZA) that the taxpayer had not filed any similar claim for refund
covering the same period.6
Believing that Total Gas failed to complete the necessary documents to
substantiate its claim for refund, the CTA Division was of the view that the
120-day period allowed to the CIR to decide its claim under Section 112 (C) of
the National Internal Revenue Code of 1997 (NIRC), had not even started to
run. With this, the CTA Division opined that the petition for review was
prematurely filed because Total Gas failed to exhauist the appropriate
administrative remedies. The CTA Division stressed that tax refunds partake of
the nature of an exemption, putting into operation the rule of strict
interpretation, with the taxpayer being charged with the burden of proving that
he had satisfied all the statutory and administrative requirements.7
Total Gas sought for reconsideration8 from the CTA Division, but its motion was
denied for lack of merit in a Resolution, dated April 19, 2011.9 In the same
resolution, it reiterated that "that the complete supporting documents should
be submitted to the BIR before the 120-day period for the Commissioner to
decide the claim for refund shall commence to run. It is only upon the lapse of
the 120-day period that the taxpayer can appeal the inaction [to the CTA.]"10 It
noted that RMO No. 53-98, which provides a checklist of documents for the BIR
to consider in granting claims for refund, also serves as a guideline for the
courts to determine if the taxpayer had submitted complete supporting
documents.11 It also stated that Total Gas could not invoke Revenue
Memorandum Circular (RMC) No. 29-09 because it was issued after the
administrative claim was filed and could not be applied retroactively.12 Thus,
the CTA Division disposed:
WHEREFORE, premises considered, the present Petition for Review is hereby
DENIED DUE COURSE, and, accordingly DISMISSED for having been
prematurely filed.
SO ORDERED.13
ChanRoblesVi rtua lawlib rary
Ruling of the CTA En Banc
In its assailed decision, the CTA En Banc likewise denied the petition for review
of Total Gas for lack of merit. It condensed its arguments into two core issues,
to wit: (1) whether Total Gas seasonably filed its judicial claim for refund; and
(2) whether it was unable to substantiate its administrative claim for refund by
failing to submit the required documents that would allow respondent to act on
it.14
As to the first issue, the CTA En Banc ruled that the CTA Division had no
jurisdiction over the case because Total Gas failed to seasonably file its
petition. Counting from the date it filed its administrative claim on May 15,
2008, the CTA En Banc explained that the CIR had 120 days to act on the claim
(until September 12, 2008), and Total Gas had 30 days from then, or until
October 12, 2008, to question the inaction before the CTA. Considering that
Total Gas only filed its petition on January 23, 2009, the CTA En
Banc concluded that the petition for review was belatedly filed. For the tax
court, the 120-day period could not commence on the day Total Gas filed its
last supporting document on August 28, 2008, because to allow such would
give the taxpayer unlimited discretion to indefinitely extend the 120-day period
by simply filing the required documents piecemeal.15
As to the second issue, the CTA En Banc affirmed the CTA Division that Total
Gas failed to submit the complete supporting documents to warrant the grant
of its application for refund. Quoting the pertinent portion of the decision of its
division, the CTA En Banc likewise concurred in its finding that the judicial
claim of Total Gas was prematurely filed because the 120-day period for the
CIR to decide the claim had yet to commence to run due to the lack of
essential documents.16
Total Gas filed a motion for reconsideration,17 but it was denied in the assailed
resolution of the CTA En Banc.18
Hence, the present petition.
ISSUES
(a) whether the judicial claim for refund was belatedly filed on 23
January 2009, or way beyond the 30-day period to appeal as provided
in Section 112(c) of the Tax Code, as amended; and
(b) whether the submission of incomplete documents at the
adminstrative level (BIR) renders the judicial claim premature and
dismissible for lack of jurisdiction.19 ChanRoblesVi rtua lawlib rary
In its petition, Total Gas argues that its judicial claim was filed within the
prescriptive period for claiming excess unutilized input VAT refund as provided
under Section 112 of the NIRC and expounded in the Court's ruling in CIR v.
Aichi Forging Company of Asia20 (Aichi) and in compliance with Section 112 of
the NIRC. In addition to citing Section 112 (C) of the Tax Code, Total Gas
points out that in one of its previous claims for refund of excess unutilized
input VAT, the CTA En Banc in CTA En Banc Case No. 674,21 faulted the BIR in
not considering that the reckoning period for the 120-period should be counted
from the date of submission of complete documents.22 It then adds that the
previous ruling of the CTA En Banc was in accordance with law because Section
112 (C) of the Tax Code is clear in providing that the 120-day period should be
counted from the date of its submission of the complete documents or from
August 28, 2008 and not from the date it filed its administrative claim on May
15, 2008.23 Total Gas argues that, since its claim was filed within the period of
exception provided in CIR v. San Roque Power Corporation24 (San Roque), it
did not have to strictly comply with 120+30 day period before it could seek
judicial relief.25
cra lawred
Moreover, Total Gas questions the logic of the CTA En Banc which stated that
the petition was filed both belatedly and prematurely. Total Gas points out that
on the one hand, the CTA En Banc ruled that it filed the judicial claim belatedly
as it was way beyond the 120+30 day period. Yet, it also affirmed the findings
of its division that its petition for review was prematurely filed since the 120-
day period did not even commence to run for lack of complete supporting
documents.26
For Total Gas, the CTA En Banc violated the doctrine of stare decisis because
the tax tribunal had, on numerous occassions, held that the submission of
incomplete supporting documents should not make the judicial appeal
premature and dismissible for lack of jurisdiction. In these decisions, the
CTA En Banc had previously held that non-compliance with RMO No. 53-98
should not be fatal since the requirements listed therein refer to requirements
for refund or tax credit in the administrative level for purposes of establishing
the authenticity of a taxpayer's claim; and that in the judicial level, it is the
Rules of Court that govern and, thus, whether or not the evidence submitted
by the party to the court is sufficient lies within the sound discretion of the
court. Total Gas emphasizes that RMO No. 53-98 does not state that non-
submission of supporting documents will nullify the judicial claim. It posits that
once a judicial claim is filed, what should be examined are the evidence
formally offered in the judicial proceedings.27
Even assuming that the supporting documents submitted to the BIR were
incomplete, Total Gas argues that there was no legal basis to hold that the CIR
could not decide or act on the claim for refund without the complete supporting
documents. It argues that under RMC No. 29-09, the BIR is tasked with the
duty to notify the taxpayer of the incompleteness of its supporting documents
and, if the taxpayer fails to complete the supporting supporting documents
despite such notice, the same shall be denied. The same regulation provides
that for purposes of computing the 120-day period, it should be considered
tolled when the taxpayer is notified. Total Gas, however, insists that it was
never notified and, therefore, was justified in seeking judicial relief.28
Although Total Gas admits that RMC No. 29-09 was not yet issued at the time
it filed its administrative claim, the BIR still erred for not notifying them of their
lack of supporting documents. According to Total Gas, the power to notify a
taxpayer of lacking documents and to deny its claim if the latter would not
comply is inherent in the CIR's power to decide refund cases pursuant to
Section 4 of the NIRC. It adds "[s]ound policy also dictates that it should be
the taxpayer who should determine whether he has already submitted all
documents pertinent to his claim. To rule otherwise would result into a never-
ending conflict/issue as to the completeness of documents which, in turn,
would delay the taxpayer's claim, and would put to naught the protection
afforded by Section 112 (C) of the Tax Code."29
In her Comment,30 the CIR echoed the ruling of the CTA En Banc, that Total
Gas filed its petition out of time. She countered that the 120-day period could
not be counted from the time Total Gas submitted its additional documents on
August 28, 2008 because such an interpretation of Section 112(D) would
indefinitely extend the prescriptive period as provided in favor of the taxpayer.
In its Reply,31 Total Gas insisted that Section 112(C) stated that the 120-day
period should be reckoned from the date of submission of complete documents,
and not from the date of the filing of the administrative claim.
Ruling of the Court
The petition has merit.
Judicial claim timely filed
Section 112 (C) of the NIRC provides:
c hanRoble svirtual Lawlib ra ry
SEC. 112. Refunds or Tax Credits of Input Tax. -
xxxx
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In
proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of complete documents in support of
the application filed in accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the
failure on the part of the Commissioner to act on the application within the
period prescribed above, the taxpayer affected may, within thirty (30)
days from the receipt of the decision denying the claim or after the expiration
of the one hundred twenty day-period, appeal the decision or the unacted
claim with the Court of Tax Appeals.
xxxx
[Emphasis and Underscoring Supplied]
From the above, it is apparent that the CIR has 120 days from the date of
submission of complete documents to decide a claim for tax credit or
refund of creditable input taxes. The taxpayer may, within 30 days from receipt
of the denial of the claim or after the expiration of the 120-day period, which is
considered a "denial due to inaction," appeal the decision or unacted claim to
the CTA.
To be clear, Section 112(C) categorically provides that the 120-day period is
counted "from the date of submission of complete documents in support
of the application." Contrary to this mandate, the CTA En Banc counted the
running of the period from the date the application for refund was filed or May
15, 2008, and, thus, ruled that the judicial claim was belatedly filed.
This should be corrected.
Indeed, the 120-day period granted to the CIR to decide the administrative
claim under the Section 112 is primarily intended to benefit the taxpayer, to
ensure that his claim is decided judiciously and expeditiously. After all, the
sooner the taxpayer successfully processes his refund, the sooner can such
resources be further reinvested to the business translating to greater
efficiencies and productivities that would ultimately uplift the general welfare.
To allow the CIR to determine the completeness of the documents submitted
and, thus, dictate the running of the 120-day period, would undermine these
objectives, as it would provide the CIR the unbridled power to indefinitely delay
the administrative claim, which would ultimately prevent the filing of a judicial
claim with the CTA.
A hypothetical situation illustrates the hazards of granting the CIR the authority
to decide when complete documents have been submitted - A taxpayer files its
administrative claim for VAT refund/credit with supporting documents. After
121 days, the CIR informs the taxpayer that it must submit additional
documents. Considering that the CIR had determined that complete documents
have not yet been submitted, the 120-day period to decide the administrative
claim has not yet begun to run. In the meantime, more than 120 days have
already passed since the application with the supporting documents was filed
to the detriment of the taxpayer, who has no opportunity to file a judicial claim
until the lapse of the 120+30 day period in Section 112(C). With no limitation
to the period for the CIR to determine when complete documents have been
submitted, the taxpayer may be left in a limbo and at the mercy of the CIR,
with no adequate remedy available to hasten the processing of its
administrative claim.
Thus, the question must be asked: In an administrative claim for tax credit or
refund of creditable input VAT, from what point does the law allow the CIR to
determine when it should decide an application for refund? Or stated
differently: Under present law, when should the submission of documents be
deemed "completed" for purposes of determining the running of the 120-day
period?
Ideally, upon filing his administrative claim, a taxpayer should complete the
necessary documents to support his claim for tax credit or refund or for excess
utilized VAT. After all, should the taxpayer decide to submit additional
documents and effectively extend the 120-period, it grants the CIR more time
to decide the claim. Moreover, it would be prejudicial to the interest of a
taxpayer to prolong the period of processing of his application before he may
reap the benefits of his claim. Therefore, ideally, the CIR has a period of 120
days from the date an administrative claim is filed within which to decide if a
claim for tax credit or refund of excess unutilized VAT has merit.
Thus, when the VAT was first introduced through Executive Order No.
273,32 the pertinent rule was that:
(e) Period within which refund of input taxes may be made by the
Commissioner. The Commissioner shall refund input taxes within 60 days from
the date the application for refund was filed with him or his duly
authorized representative. No refund or input taxes shall be allowed unless the
VAT-registered person files an application for refund within the period
prescribed in paragraphs (a), (b) and (c), as the case maybe.
[Emphasis supplied]
Here, the CIR was not only given 60 days within which to decide an
administrative claim for refund of input taxes, but the beginning of the period
was reckoned "from the date the application for refund was filed."
When Republic Act (R.A.) No. 771633 was, however, enacted on May 5, 1994,
the law was amended to read:
(d) Period within which refund or tax credit of input taxes shall be made. - In
proper cases, The Commissioner shall grant a refund or issue the tax credit for
creditable input taxes within sixty (60) days from the date of submission of
complete documents in support of the application filed in accordance with
sub-paragraphs (a) and (b) hereof. In case of full or partial denial of the claim
for tax refund or tax credit, or the failure on the part of the Commissioner to
act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim
or after the expiration of the sixty-day period, appeal the decision or the
unacted claim with the Court of Tax Appeals.
[Emphasis supplied]
Again, while the CIR was given only 60 days within which to act upon an
administrative claim for refund or tax credit, the period came to be reckoned
"from the date of submission of complete documents in support of the
application." With this amendment, the date when a taxpayer made its
submission of complete documents became relevant. In order to ensure that
such date was at least determinable, RMO No. 4-94 provides:
REVENUE MEMORANDUM ORDER NO. 40-94
SUBJECT : Prescribing the Modified Procedures on the Processing of Claims for
Value-Added Tax Credit/Refund
III. Procedures
REGIONAL OFFICE
A. Revenue District Office
In General: chanRoblesvi rtua lLaw lib rary
1. Ascertain the completeness of the supporting documents prior to the receipt
of the application for VAT credit/refund from the taxpayer.
2. Receive application for VAT Credit/Refund (BIR Form No. 2552) in three (3)
copies in the following manner:
a. stamp the word "RECEIVED" on the appropriate space provided in all copies
of application;
b. indicate the claim number;
c. indicate the date of receipt; and
d. initial by receiving officer.
The application shall be received only if the required attachments prescribed in
RAMO 1-91 have been fully complied with x x x.
Then, when the NIRC34 was enacted on January 1, 1998, the rule was once
more amended to read:
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In
proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days
from the date of submission of compete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the
failure on the part of the Commissioner to act on the application within the
period prescribed above, the taxpayer affected may, within thirty (30) days
from the receipt of the decision denying the claim or after the expiration of the
one hundred twenty day-period, appeal the decision or the unacted claim with
the Court of Tax Appeals.
[Emphasis supplied]
This time, the period granted to the CIR to act upon an admmistrative claim for
refund was extended to 120 days. The reckoning point however, remained
"from the date of submission of complete documents."
Aware that not all taxpayers were able to file the complete documents to allow
the CIR to properly evaluate an administrative claim for tax credit or refund of
creditable input taxes, the CIR issued RMC No. 49-2003, which provided:
Q-18: For pending claims with incomplete documents, what is the period within
which to submit the supporting documents required by the
investigating/processing office? When should the investigating/processing
office officially receive claims for tax credit/refund and what is the period
required to process such claims?
A-18: For pending claims which have not been acted upon by the
investigating/processing office due to incomplete documentation, the
taxpayer-claimants are given thirty (30) days within which to submit
the documentary requirements unless given further extension by the
head of the processing unit, but such extension should not exceed
thirty (30) days.
For claims to be filed by claimants with the respective investigating/processing
office of the administrative agency, the same shall be officially received only
upon submission of complete documents.
For current and future claims for tax credit/refund, the same shall be processed
within one hundred twenty (120) days from receipt of the complete
documents. If, in the course of the investigation and processing of the claim,
additional documents are required for the proper determination of the
legitimate amount of claim, the taxpayer-claimants shall submit such
documents within thirty (30) days from request of the
investigating/processing office, which shall be construed as within the
one hundred twenty (120) day period.
[Emphases Supplied]
Consequently, upon filing of his application for tax credit or refund for excess
creditable input taxes, the taxpayer-claimant is given thirty (30) days within
which to complete the required documents, unless given further extension by
the head of the processing unit. If, in the course of the investigation and
processing of the claim, additional documents are required for the proper
determination of the legitimate amount of claim, the taxpayer-claimants shall
submit such documents within thirty (30) days from request of the
investigating/processing office. Notice, by way of a request from the tax
collection authority to produce the complete documents in these cases, became
essential. It is only upon the submission of these documents that the 120-day
period would begin to run.
Then, when R.A. No. 933735 was passed on July 1, 2005, the same provision
under the NIRC was retained. With the amendment to Section 112, particularly
the deletion of what was once Section 112(B) of the NIRC, Section 112 (D) was
amended and renamed 112(C). Thus:
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In
proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of complete documents in support of
the application filed in accordance with Subsection (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the
failure on the part of the Commissioner to act on the application within the
period prescribed above, the taxpayer affected may, within thirty (30) days
from the receipt of the decision denying the claim or after the expiration of the
one hundred twenty day-period, appeal the decision or the unacted claim with
the Court of Tax Appeals.
With the amendments only with respect to its place under Section 112, the
Court finds that RMC No. 49-2003 should still be observed. Thus, taking the
foregoing changes to the law altogether, it becomes apparent that, for
purposes of determining when the supporting documents have been
completed — it is the taxpayer who ultimately determines when complete
documents have been submitted for the purpose of commencing and
continuing the running of the 120-day period. After all, he may have already
completed the necessary documents the moment he filed his administrative
claim, in which case, the 120-day period is reckoned from the date of filing.
The taxpayer may have also filed the complete documents on the 30th day from
filing of his application, pursuant to RMC No. 49-2003. He may very well have
filed his supporting documents on the first day he was notified by the BIR of
the lack of the necessary documents. In such cases, the 120-day period is
computed from the date the taxpayer is able to submit the complete
documents in support of his application.
Then, except in those instances where the BIR would require additional
documents in order to fully appreciate a claim for tax credit or refund, in
terms what additional document must be presented in support of a claim for
tax credit or refund - it is the taxpayer who has that right and the burden of
providing any and all documents that would support his claim for tax credit or
refund. After all, in a claim for tax credit or refund, it is the taxpayer who has
the burden to prove his cause of action. As such, he enjoys relative freedom to
submit such evidence to prove his claim.
The foregoing conclusion is but a logical consequence of the due process
guarantee under the Constitution. Corollary to the guarantee that one be
afforded the opportunity to be heard, it goes without saying that the applicant
should be allowed reasonable freedom as to when and how to present his claim
within the allowable period.
Thereafter, whether these documents are actually complete as
required by law - is for the CIR and the courts to determine. Besides, as
between a taxpayer-applicant, who seeks the refund of his creditable input tax
and the CIR, it cannot be denied that the former has greater interest in
ensuring that the complete set of documentary evidence is provided for proper
evaluation of the State.
Lest it be misunderstood, the benefit given to the taxpayer to determine when
it should complete its submission of documents is not unbridled. Under RMC
No. 49-2003, if in the course of the investigation and processing of the claim,
additional documents are required for the proper determination of the
legitimacy of the claim, the taxpayer-claimants shall submit such documents
within thirty (30) days from request of the investigating/processing
office. Again, notice, by way of a request from the tax collection
authority to produce the complete documents in these cases, is
essential.
Moreover, under Section 112(A) of the NIRC,36 as amended by RA 9337, a
taxpayer has two (2) years, after the close of the taxable quarter when the
sales were made, to apply for the issuance of a tax credit certificate or refund
of creditable input tax due or paid attributable to such sales. Thus, before the
adminstrative claim is barred by prescription, the taxpayer must be able to
submit his complete documents in support of the application filed. This is
because, it is upon the complete submission of his documents in support of his
application that it can be said that the application was, "officially received" as
provided under RMC No. 49-2003.
To summarize, for the just disposition of the subject controversy, the rule is
that from the date an administrative claim for excess unutilized VAT is filed, a
taxpayer has thirty (30) days within which to submit the documentary
requirements sufficient to support his claim, unless given further extension by
the CIR. Then, upon filing by the taxpayer of his complete documents to
support his application, or expiration of the period given, the CIR has 120 days
within which to decide the claim for tax credit or refund. Should the taxpayer,
on the date of his filing, manifest that he no longer wishes to submit any other
addition documents to complete his administrative claim, the 120 day period
allowed to the CIR begins to run from the date of filing.
In all cases, whatever documents a taxpayer intends to file to support his claim
must be completed within the two-year period under Section 112(A) of the
NIRC. The 30-day period from denial of the claim or from the expiration of the
120-day period within which to appeal the denial or inaction of the CIR to the
CTA must also be respected.
It bears mentioning at this point that the foregoing summation of the
rules should only be made applicable to those claims for tax credit or refund
filed prior to June 11, 2014, such as the claim at bench. As it now stands, RMC
54-2014 dated June 11, 2014 mandates that:
The application for VAT refund/tax credit must be accompanied by
complete supporting documents as enumerated in Annex "A" hereof. In
addition, the taxpayer shall attach a statement under oath attesting to the
completeness of the submitted documents (Annex B). The affidavit shall further
state that the said documents are the only documents which the taxpayer will
present to support the claim. If the taxpayer is a juridical person, there should
be a sworn statement that the officer signing the affidavit (i.e., at the very
least, the Chief Financial Officer) has been authorized by the Board of Directors
of the company.
Upon submission of the administrative claim and its supporting documents, the
claim shall be processed and no other documents shall be accepted/required
from the taxpayer in the course of its evaluation. A decision shall be rendered
by the Commissioner based only on the documents submitted by the taxpayer.
The application for tax refund/tax credit shall be denied where the
taxpayer/claimant failed to submit the complete supporting documents. For
this purpose, the concerned processing/investigating office shall prepare and
issue the corresponding Denial Letter to the taxpayer/claimant.
Thus, under the current rule, the reckoning of the 120-day period has been
withdrawn from the taxpayer by RMC 54-2014, since it requires him at the
time he files his claim to complete his supporting documents and attest that he
will no longer submit any other document to prove his claim. Further, the
taxpayer is barred from submitting additional documents after he has filed his
administrative claim.
On this score, the Court finds that the foregoing issuance cannot be applied
rectroactively to the case at bar since it imposes new obligations upon
taxpayers in order to perfect their administrative claim, that is, [1] compliance
with the mandate to submit the "supporting documents" enumerated under
RMC 54-2014 under its "Annex A"; and [2] the filing of "a statement under
oath attesting to the completeness of the submitted documents," referred to in
RMC 54-2014 as "Annex B." This should not prejudice taxpayers who have
every right to pursue their claims in the manner provided by existing
regulations at the time it was filed.
As provided under Section 246 of the Tax Code:
SEC. 246. Non-Retroactivity of Rulings. - Any revocation, modification or
reversal of any of the rules and regulations promulgated in accordance with the
preceding Sections or any of the rulings or circulars promulgated by the
Commissioner shall not be given retroactive application if the
revocation, modification or reversal will be prejudicial to the
taxpayers, except in the following cases: chanRob lesvi rtua lLawl ibra ry
(a) Where the taxpayer deliberately misstates or omits material facts from his
return or any document required of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue
are materially different from the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.
[Emphasis and Italics Supplied]
Applying the foregoing precepts to the case at bench, it is observed that the
CIR made no effort to question the inadequacy of the documents submitted by
Total Gas. It neither gave notice to Total Gas that its documents were
inadequate, nor ruled to deny its claim for failure to adequately substantiate its
claim. Thus, for purposes of counting the 120-day period, it should be
reckoned from August 28, 2008, the date when Total Gas made its "submission
of complete documents to support its application" for refund of excess
unutilized input VAT. Consequently, counting from this later date, the BIR had
120 days to decide the claim or until December 26, 2008. With absolutely no
action or notice on the part of the BIR for 120 days, Total Gas had 30 days or
until January 25, 2009 to file its judicial claim.
Total Gas, thus, timely filed its judicial claim on January 23, 2009.
Anent RMO No. 53-98, the CTA Division found that the said order provided a
checklist of documents for the BIR to consider in granting claims for refund,
and served as a guide for the courts in determining whether the taxpayer had
submitted complete supporting documents.
This should also be corrected.
To quote RMO No. 53-98:
REVENUE MEMORANDUM ORDER NO. 53-98
SUBJECT: Checklist of Documents to be Submitted by a Taxpayer upon Audit of
his Tax Liabilities as well as of the Mandatory Reporting Requirements to be
Prepared by a Revenue Officer, all of which Comprise a Complete Tax Docket.
TO: All Internal Revenue Officers, Employees and Others Concerned
I. BACKGROUND
It has been observed that for the same kind of tax audit case, Revenue Officers
differ in their request for requirements from taxpayers as well as in the
attachments to the dockets resulting to tremendous complaints from taxpayers
and confusion among tax auditors and reviewers.
For equity and uniformity, this Bureau comes up with a prescribed list of
requirements from taxpayers, per kind of tax, as well as of the internally
prepared reporting requirements, all of which comprise a complete tax docket.
II. OBJECTIVE
This order is issued to:
c hanRoble svirtual Lawlib ra ry
a. Identify the documents to be required from a taxpayer during audit,
according to particular kind of tax; and
b. Identify the different audit reporting requirements to be prepared, submitted
and attached to a tax audit docket.
III. LIST OF REQUIREMENTS PER TAX TYPE
Income Tax/ Withholding Tax
- Annex A (3 pages)
Value Added Tax
- Annex B (2 pages)
- Annex B-1 (5 pages)
xxxx
As can be gleaned from the above, RMO No. 53-98 is addressed to internal
revenue officers and employees, for purposes of equity and uniformity, to
guide them as to what documents they may require taxpayers to present upon
audit of their tax liabilities. Nothing stated in the issuance would show that
it was intended to be a benchmark in determining whether the documents
submitted by a taxpayer are actually complete to support a claim for tax credit
or refund of excess unutilized excess VAT. As expounded in Commissioner of
Internal Revenue v. Team Sual Corporation (formerely Mir ant Sual
Corporation):37
The CIR's reliance on RMO 53-98 is misplaced. There is nothing in Section 112
of the NIRC. RR 3-88 or RMO K3-Q8 itself that requires submission of the
complete documents enumerated in RMO 53-98 for a grant of a refund or
credit of input VAT. The subject of RMO 53-98 states that it is a "Checklist of
Documents to be Submitted by a Taxpayer upon Audit of his Tax Liabilities x x
x." In this case, TSC was applying for a grant of refund or credit of its input
tax. There was no allegation of an audit being conducted by the CIR. Even
assuming that RMO 53-98 applies, it specifically states that some documents
are required to be submitted by the taxpayer "if applicable."
Moreover, if TSC indeed failed to submit the complete documents in support of
its application, the CIR could have informed TSC of its failure, consistent with
Revenue Memorandum Circular No. (RMC) 42-03. However, the CIR did not
inform TSC of the document it failed to submit, even up to the present petition.
The CIR likewise raised the issue of TSC's alleged failure to submit the
complete documents only in its motion for reconsideration of the CTA Special
First Division's 4 March 2010 Decision. Accordingly, we affirm the CTA EB's
finding that TSC filed its administrative claim on 21 December 2005, and
submitted the complete documents in support of its application for refund or
credit of its input tax at the same time.
[Emphasis included. Underlining Ours.]
As explained earlier and underlined in Team Sual above, taxpayers cannot
simply be faulted for failing to submit the complete documents enumerated in
RMO No. 53-98, absent notice from a revenue officer or employee that other
documents are required. Granting that the BIR found that the documents
submitted by Total Gas were inadequate, it should have notified the latter of
the inadequacy by sending it a request to produce the necessary documents in
order to make a just and expeditious resolution of the claim.
Indeed, a taxpayer's failure with the requirements listed under RMO No. 53-98
is not fatal to its claim for tax credit or refund of excess unutilized excess VAT.
This holds especially true when the application for tax credit or refund of
excess unutilized excess VAT has arrived at the judicial level. After all, in the
judicial level or when the case is elevated to the Court, the Rules of Court
governs. Simply put, the question of whether the evidence submitted by a
party is sufficient to warrant the granting of its prayer lies within the sound
discretion and judgment of the Court.
At this point, it is worth emphasizing that the reckoning of the 120-day period
from August 28, 2008 cannot be doubted. First, a review of the records of the
case undubitably show that Total Gas filed its supporting documents on August
28, 2008, together with a transmittal letter bearing the same date. These
documents were then stamped and signed as received by the appropriate
officer of the BIR. Second, contrary to RMO No. 40-94, which mandates
officials of the BIR to indicate the date of receipt of documents received by
their office in every claim for refund or credit of VAT, the receiving officer failed
to indicate the precise date and time when he received these documents.
Clearly, the error is attributable to the BIR officials and should not prejudice
Total Gas.
Third, it is observed that whether before the CTA or this Court, the BIR had
never questioned the date it received the supporting documents filed by Total
Gas, or the propriety of the filing thereof. In contrast to the contiuous efforts of
Total Gas to complete the necessary documents needed to support its
application, all that was insisted by the CIR was that the reckoning period
should be counted from the date Total Gas filed its application for refund of
excess unutilized input VAT. There being no question as to whether these
documents were actually received on August 28, 2008, this Court shall not, by
way of conjecture, cast doubt on the truthfullness on such submission. Finally,
in consonance with the presumption that a person acts in accordance with the
ordinary course of business, it is presumed that such documents were received
on the date stated therein.
Verily, should there be any doubt on whether Total Gas filed its supporting
documents on August 28, 2008, it is incumbent upon the CIR to allege and
prove such assertion. As the saying goes, contra preferentum.
If only to settle any doubt, this Court is by no means setting a precedent by
leaving it to the mercy of the taxpayer to determine when the 120- day
reckoning period should begin to run by providing absolute discretion as to
when he must comply with the mandate submitting complete documents in
support of his claim. In addition to the limitations thoroughly discussed above,
the peculiar circumstance applicable herein, as to relieve Total Gas from the
application of the rule, is the obvious failure of the BIR to comply with
the specific directive, under RMO 40-94, to stamp the date it received
the supporting documents which Total Gas had submitted to the BIR for its
consideration in the processing of its claim. The utter failure of the tax
administrative agency to comply with this simple mandate to stamp the date it
receive the documents submitted by Total Gas - should not in any manner
prejudice the taxpayer by casting doubt as to when it was able to submit its
complete documents for purposes of determing the 120-day period.
While it is still true a taxpayer must prove not only his entitlement to a refund
but also his compliance with the procedural due process38 - it also true that
when the law or rule mandates that a party or authority must comply with a
specific obligation to perform an act for the benefit of another, the non-
compliance therof by the former should not operate to prejudice the latter, lest
it render the nugatory the objective of the rule. Such is the situation in case at
bar.
Judicial claim not prematurely filed
The CTA En Banc curiously ruled in the assailed decision that the judicial claim
of Total Gas was not only belatedly filed, but prematurely filed as well, for
failure of Total Gas to prove that it had submitted the complete supporting
documents to warrant the grant of the tax refund and to reckon the
commencement of the 120-day period. It asserted that Total Gas had failed to
submit all the required documents to the CIR and, thus, the 120-day period for
the CIR to decide the claim had not yet begun to run, resulting in the
premature filing of the judicial claim. It wrote that the taxpayer must first
submit the complete supporting documents before the 120-day period could
commence, and that the CIR could not decide the claim for refund without the
complete supporting documents.
The Court disagrees.
The alleged failure of Total Gas to submit the complete documents at the
administrative level did not render its petition for review with the CTA
dismissible for lack of jurisdiction. First, the 120-day period had commenced to
run and the 120+30 day period was, in fact, complied with. As already
discussed, it is the taxpayer who determines when complete documents have
been submitted for the purpose of the running of the 120-day period. It must
again be pointed out that this in no way precludes the CIR from requiring
additional documents necessary to decide the claim, or even denying the claim
if the taxpayer fails to submit the additional documents requested.
Second, the CIR sent no written notice informing Total Gas that the documents
were incomplete or required it to submit additional documents. As stated
above, such notice by way of a written request is required by the CIR to be
sent to Total Gas. Neither was there any decision made denying the
administrative claim of Total Gas on the ground that it had failed to submit all
the required documents. It was precisely the inaction of the BIR which
prompted Total Gas to file the judicial claim. Thus, by failing to inform Total
Gas of the need to submit any additional document, the BIR cannot now argue
that the judicial claim should be dismissed because it failed to submit complete
documents.
Finally, it should be mentioned that the appeal made by Total Gas to the CTA
cannot be said to be premature on the ground that it did not observe the
otherwise mandatory and juridictional 120+30 day period. When Total Gas filed
its appeal with the CTA on January 23, 2009, it simply relied on BIR Ruling No.
DA-489-03, which, at that time, was not yet struck down by the Court's
ruling in Aichi. As explained in San Roque, this Court recognized a period in
time wherein the 120-day period need not be strictly observed. Thus:
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is
construed strictly against the taxpayer. One of the conditions for a judicial
claim of refund or credit under the VAT System is compliance with the 120+30
day mandatory and jurisdictional periods. Thus, strict compliance with the
120+30 day periods is necessary for such a claim to prosper, whether before,
during, or after the effectivity of the Atlas doctrine, except for the period
from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003
to 6 October 2010 when the Aichi doctrine was adopted, which again
reinstated the 120+30 day periods as mandatory and jurisdictional.
xxxx
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all
taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its
issuance on 10 December 2003 up to its reversal by this Court in Aichi
on 6 October 2010, where this Court held that the 120+30 day periods
are mandatory and jurisdictional.
At this stage, a review of the nature of a judicial claim before the CTA is in
order. In Atlas Consolidated Mining and Development Corporation v. CIR, it
was ruled -
x x x First, a judicial claim for refund or tax credit in the CTA is by no means an
original action but rather an appeal by way of petition for review of a previous,
unsuccessful administrative claim. Therefore, as in every appeal or petition for
review, a petitioner has to convince the appellate court that the quasi-judicial
agency a quo did not have any reason to deny its claims. In this case, it was
necessary for petitioner to show the CTA not only that it was entitled under
substantive law to the grant of its claims but also that it satisfied all the
documentary and evidentiary requirements for an administrative claim for
refund or tax credit. Second, cases filed in the CTA are litigated de novo. Thus,
CTA Division on the ground of premature and/or belated filing, no ruling on the
issue of Total Gas entitlement to the refund was made. The Court is not a trier
of facts, especially when such facts have not been ruled upon by the lower
courts. The case shall, thus, be remanded to the CTA Division for trial de novo.
WHEREFORE, the petition is PARTIALLY GRANTED. The October 11, 2012
Decision and the May 8, 2013 Resolution of the Court of Tax Appeals En Banc,
in CTA EB No. 776 are REVERSED and SET ASIDE.
The case is REMANDED to the CTA Third Division for trial de novo.
SO ORDERED. chanroblesvi rtua llawli bra ry

a petitioner should prove every minute aspect of its case by presenting,

formally offering and submitting its evidence to the CTA. Since it is crucial for a
petitioner in a judicial claim for refund or tax credit to show that its
administrative claim should have been granted in the first place, part of the
evidence to be submitted to the CTA must necessarily include whatever is
required for the successful prosecution of an administrative claim.39

[Underscoring Supplied]
A distinction must, thus, be made between administrative cases appealed due
to inaction and those dismissed at the administrative level due to the failure of
the taxpayer to submit supporting documents. If an administrative claim was
dismissed by the CIR due to the taxpayer's failure to submit complete
documents despite notice/request, then the judicial claim before the CTA would
be dismissible, not for lack of jurisdiction, but for the taxpayer's failure to
substantiate the claim at the administrative level. When a judicial claim for
refund or tax credit in the CTA is an appeal of an unsuccessful administrative
claim, the taxpayer has to convince the CTA that the CIR had no reason to
deny its claim. It, thus, becomes imperative for the taxpayer to show the CTA
that not only is he entitled under substantive law to his claim for refund or tax
credit, but also that he satisfied all the documentary and evidentiary
requirements for an administrative claim. It is, thus, crucial for a taxpayer in a
judicial claim for refund or tax credit to show that its administrative claim
should have been granted in the first place. Consequently, a taxpayer cannot
cure its failure to submit a document requested by the BIR at the
administrative level by filing the said document before the CTA.
In the present case, however, Total Gas filed its judicial claim due to the
inaction of the BIR. Considering that the administrative claim was never acted
upon; there was no decision for the CTA to review on appeal per se.
Consequently, the CTA may give credence to all evidence presented by Total
Gas, including those that may not have been submitted to the CIR as the case
is being essentially decided in the first instance. The Total Gas must prove
every minute aspect of its case by presenting and formally offering its evidence
to the CTA, which must necessarily include whatever is required for the
successful prosecution of an administrative claim.40
The Court cannot, however, make a ruling on the issue of whether Total Gas is
entitled to a refund or tax credit certificate in the amount of P7,898,433.98.
Considering that the judicial claim was denied due course and dismissed by the
THIRD DIVISION
G.R. No. 191495, July 23, 2018
NIPPON EXPRESS (PHILIPPINES)
CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE, Respondent.
DECISION
MARTIRES, J.:
In a claim for refund under Section 112 of the National Internal Revenue
Code (NIRC), the claimant must show that: (1) it is engaged in zero-rated
sales of goods or services; and (2) it paid input VAT that are attributable to
such zero-rated sales. Otherwise stated, the claimant must prove that it made
a purchaseof taxable goods or services for which it paid VAT (input), and later
on engaged in the sale of goods or services subject to VAT (output) but at zero
rate. There is a refundable sum when the amount of input (VAT (attributable to
zero-rated sale) is higher than the claimant's output VAT during one taxable
period (quarter).
The issue in the present petition concerns the proof that the claimant,
petitioner Nippon Express (Philippines) Corporation (Nippon Express), is
engaged in zero-rated sales of services (not goods or properties).
THE FACTS
Petitioner Nippon Express repaired to the Court via its petition for review on
certiorari under Rule 45 of the Rules of Court to assail the 15 December 2009
Decision of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 492. The
CTA En Banc affirmed the ruling of the CTA Second Division in CTA Case No.
7429 denying the refund claim of Nippon Express.
The present controversy stemmed from an application for the issuance of a tax
credit certificate (TCC) of Nippon Express' excess or unutilized input tax
attributable to its zero-rated sales for all four taxable quarters in 2004
pursuant to Section 112 of the National Internal Revenue Code (NIRC).
The Antecedents
Nippon Express is a domestic corporation registered with the Large Taxpayer
District Office (LTDO) of the Bureau of Internal Revenue (BIR), Revenue Region
No. 8–Makati, as a Value Added Tax (VAT) taxpayer.1
On 30 March 2005, Nippon Express filed with the LTDO, Revenue Region No.
8, an application for tax credit of its excess/unused input taxes attributable to
zero-rated sales for the taxable year 2004 in the total amount of
P27,828,748.95.
By reason of the inaction by the BIR, Nippon Express filed a Petition for Review
before the CTA on 31 March 2006.2 In its Answer, respondent Commissioner
of Internal Revenue (CIR) interposed the defense, among others, that Nippon
Express' excess input VAT paid for its domestic purchases of goods and
services attributable to zero-rated sales for the four quarters of taxable year
2004 was not fully substantiated by proper documents.3
The Ruling of the CTA Division
After trial, the CTA Division (the court) found that Nippon Express' evidentiary
proof of its zero-rated sale of services to PEZA-registered entities consisted of
documents other than official receipts. Invoking Section 113 of the NIRC, as
amended by Section 11 of Republic Act (R.A.) No. 9337, the court held the
view that the law provided for invoicing requirements of VAT-registered
persons to issue a VAT invoice for every sale, barter or exchange of goods or
properties, and a VAT official receipt for every lease of goods or properties, and
for every sale, barter or exchange of services. Noting that Nippon Express is
engaged in the business of providing services, the court denied the latter's
claim for failure to submit the required VAT official receipts as proof of zero-
rated sales. The dispositive portion of the CTA Division's Decision, dated 5
December 2008, reads:
WHEREFORE, premises considered, the instant Petition for Review is
hereby DENIED DUE COURSE, and accordingly, DISMISSED for lack of
merit.
SO ORDERED.4
Aggrieved, Nippon Express moved for reconsideration or new trial but was
rebuffed by the CTA Division in its Resolution5 of 5 May 2009. Hence, Nippon
Express filed on 10 June 2009 a petition for review with the CTA En Banc.
The Petition for Review before
the CTA En Banc
In its appeal before the CTA En Banc, Nippon Express alleged that it had fully
complied with the invoicing requirements when it submitted sales invoices to
support its claim of zero-rated sales. Nippon argued that there is nothing in the
tax laws and regulations that requires the sale of goods or properties to be
supported only by sales invoices, or the sale of services by official receipts
only. Thus, as Nippon Express put it, the CTA Division erred in holding that the
sales invoices and their supporting documents are insufficient to prove Nippon
Express' zero-rated sales.
The Ruling of the CTA En Banc
As stated at the outset, the CTA En Banc affirmed the decision of the CTA
Division. The CTA En Banc disposed as follows:
"WHEREFORE, the Petition for Review is DISMISSED. Accordingly, the
impugned Decision of the Court in Division dated December 5, 2008 and its
Resolution promulgated on May 5, 2009 in CTA Case No. 7429 are AFFIRMED.
SO ORDERED."6
Worth mentioning is the lone dissent registered by Presiding
Justice (PJ) Ernesto D. Acosta who opined that an official receipt is not the only
acceptable evidence to prove zero-rated sales of services. He ratiocinated:
Sections 113 and 237 of the 1997 National Internal Revenue Code
(NIRC) x x x made use of the disjunctive term "or" which connotes that either
act qualifies as two different evidences of input VAT. x x x It is indicative of the
intention of the lawmakers to use the same interchangeably in the sale of
goods or services.
This is bolstered by the fact that Section 113 of the 1997 NIRC has been
amended by Section 11 of Republic Act (RA) No. 9337, wherein the
amendatory provisions of the law categorically required that VAT invoice shall
be issued for sale of goods while VAT official receipt for the sale of services,
which is absent in the amended law. Since this amendment took effect on July
1, 2005, the same cannot be applied in the instant case which involves a claim
tor refund for taxable year 2004. RA 9337 cannot apply retroactively to the
prejudice of petitioner given the well-entrenched principle that statutes,
including administrative rules and regulations operate prospectively only,
unless the legislative intent to the contrary is manifest by express terms or by
necessary implication.

Equally relevant are Section 110 of the 1997 NIRC and Section 4.106-5 of
Revenue Regulations No. 7-95. x x x A reading of both provisions would
show the intention to accept other evidence to substantiate claims for VAT
refund, particularly the use of either a VAT invoice or official receipt.7
Nippon Express opted to forego the filing of a motion for reconsideration;
hence, the direct appeal before the Court.
The Present Petition for Review
In its petition, Nippon Express reiterated its stance that nowhere is it expressly
stated in the laws or implementing regulations that only official receipts can
support the sale of services, or that only sales invoices can support the sale
of goods or properties. Nippon Express also adopted at length the dissenting
opinion of PJ Acosta, viz the use of the disjunctive term "or" in Section 237 of
the NIRC connoting the interchangeable nature of either VAT invoice or official
receipt as evidence of sale of goods or services; the lack of any statutory basis
for the exclusivity of official receipts as proof of sale of service; and the non-
retroactivity of R.A. No. 9337, enacted in 2005, to the petitioner's case.
In addition, Nippon Express posed the query on whether it may still be allowed
to submit official receipts, in addition to those already produced during trial, in
order to prove the existence of its zero-rated sales.
By way of Comment,8 the CIR impugns the petition as it essentially seeks the
re-evaluation of the evidence presented during trial which cannot be done in a
petition for review under Rule 45. Likewise, the CIR argues that the evidence of
the sale of service, as the CTA held, is none other than an official receipt. In
contrast, the sales invoice is the evidence of a sale of goods. Since the
petitioner's transactions involve sales of services, they should have been
properly supported by official receipts and not merely by sales invoices.
THE COURT'S RULING
We deny the petition.
I.
The judicial claim of Nippon
Express was belatedly filed.
The thirty (30)-day period of
appeal is mandatory and
jurisdictional, hence, the
CTA did not acquire
jurisdiction over Nippon
Express' judicial claim.
First, we observe that much of the CTA's discussion in the assailed decision
dwelt on the substantiation of the petitioner's claim for refund of unutilized
creditable input VAT. It did not touch on the subject of the court's jurisdiction
over the petition for review filed before it by Nippon Express. Neither did the
CIR bring the matter to the attention of the court a quo.
Nonetheless, even if not raised in the present petition, the Court is not
prevented from considering the issue on the court's jurisdiction consistent with
the well-settled principle that when a case is on appeal, the Court has the
authority to review matters not specifically raised or assigned as error if their
consideration is necessary in reaching a just conclusion of the case.9 The
matter of jurisdiction cannot be waived because it is conferred by law and is
not dependent on the consent or objection or the acts or omissions of the
parties or any one of them.10 Besides, courts have the power to motu
proprio dismiss an action over which it has no jurisdiction pursuant to Section
1, Rule 9 of the Revised Rules of Court.11
Concerning the claim for refund of excess or unutilized creditable input VAT
attributable to zero-rated sales, the pertinent law is Section 112 of the
NIRC12 which reads:
SEC. 112. Refunds or Tax Credits of Input Tax. –
(A) Zero-rated or Effectively Zero-rated Sales.- Any VAT-registered person,
whose sales are zero-rated or effectively zero-rated may, within two (2)
years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of creditable
input tax due or paid attributable to such sales, except transitional input tax, to
the extent that such input tax has not been applied against output tax:
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In
proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days
from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (8) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or
the failure on the part of the Commissioner to act on the application
within the period prescribed above, the taxpayer affected may, within
thirty (30) days from the receipt of the decision denying the claim or
after the expiration of the one hundred twenty-day period, appeal the
decision or the unacted claim with the Court of Tax Appeals. (emphases
supplied)
Under the aforequoted provision, a VAT-registered taxpayer who has excess
and unutilized creditable input VAT attributable to zero-rated sales may file an
application for cash refund or issuance of TCC (administrative claim) before the
CIR who has primary jurisdiction to decide such application.13 The period within
which to file the administrative claim is two (2) years reckoned from the close
of the taxable quarter when the pertinent zero-rated sales were made.
From the submission of complete documents to support the administrative
claim, the CIR is given a 120-day period to decide. In case of whole or partial
denial of or inaction on the administrative claim, the taxpayer may bring his
judicial claim, through a petition for review, before the CTA who has exclusive
and appellate jurisdiction.14 The period to appeal is thirty (30) days counted
from the receipt of the decision or inaction by the CIR.
The 30-day period is further emphasized in Section 11 of R.A. No. 1125, as
amended by R.A. No. 9282, or the CTA charter, which reads:
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party
adversely affected by a decision, ruling or inaction of the Commissioner of
Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the
Secretary of Trade and Industry or the Secretary of Agriculture or the Central
Board of Assessment Appeals or the Regional Trial Courts may file an appeal
with the CTA within thirty (30) days after the receipt of such decision or
ruling or after the expiration of the period fixed by law for action as
referred to in Section 7(a)(2) herein. (emphases supplied)
In the seminal cases of Commissioner of Internal Revenue (Commissioner) v.
Aichi Forging Company of Asia, Inc.15 and Commissioner v. San Roque Power
Corporation/Taganito Mining Corporation v. Commissioner/Phi/ex Mining
Corporation v. Commissioner (San Roque),[16 the Court interpreted the 30-day
period of appeal as mandatory and jurisdictional. Thus, noncompliance with
the mandatory 30-day period renders the petition before the CTA void. The
ruling in said cases as to the mandatory and jurisdictional character of the 30-
day period of appeal was reiterated in a litany of cases thereafter.
Pertinently, the CTA law expressly provides that when the CIR fails to take
action on the administrative claim, the "inaction shall be deemed a denial" of
the application for tax refund or credit. The taxpayer-claimant must strictly
comply with the mandatory period by filing an appeal with the CTA within thirty
days from such inaction, otherwise, the court cannot validly acquire jurisdiction
over it.
In this case, Nippon Express timely filed its administrative claim on 30 March
2005, or within the two-year prescriptive period. Counted from such date of
submission of the claim with supporting documents, the CIR had 120 days, or
until 28 July 2005, the last day of the 120-day period, to decide the claim. As
the records reveal, the CIR did not act on the application of Nippon Express.
Thus, in accordance with law and the cited jurisprudence, the claimant, Nippon
Express, had thirty days from such inaction "deemed a denial," or until 27
August 2005, the last day of the 30-day period, within which to appeal to the
CTA.
However, Nippon Express filed its petition for review with the CTA only on 31
March 2006, or two hundred forty-six (246) days from the inaction by the
CIR. In other words, the petition of Nippon Express was belatedly filed with the
CTA and, following the doctrine above, the court ought to have dismissed it for
lack of jurisdiction.
The present case is similar to the case of Philex Mining Corporation (Philex) in
the consolidated cases of San Roque. In that case, Philex: (1) filed on 21
October 2005 its original VAT return for the third quarter of taxable year 2005;
(2) filed on 20 March 2006 its administrative claim for refund or credit; (3)
filed on 17 October 2007, its petition for review with the CTA.17 As in this case,
the CIR did not act on Philex's claim.
The Court considered Philex to have timely filed its administrative claim on 20
March 2006, or within the two-year period; but, its petition for review with the
CTA on 17 October 2007, was late by 426 days. Thus, the Court ruled that the
CTA Division did not acquire jurisdiction.
Due to the lack of jurisdiction of the CTA over the Nippon Express petition
before it, all the proceedings held in that court must be void. The rule is that
where there is want of jurisdiction over a subject matter, the judgment is
rendered null and void.18 It follows that the decision and the resolution of the
CTA Division, as well as the decision rendered by the CTA En Banc on appeal,
should be vacated or set aside.
As noted previously, Nippon Express asked leave from this Court to allow it to
submit in evidence the official receipts of its zero-rated sales in addition to the
sales invoices and other documents already presented before the CTA.
Considering our finding as to the CTA's lack of jurisdiction, it is thus futile to
even consider or allow such official receipts of Nippon Express.
II.
In view of the lack of jurisdiction of the CTA, we shall clarify and resolve, if
only for academic purposes, the focal issue presented in this petition, i.e.,
whether the sales invoices and documents other than official receipts are
proper in substantiating zero-rated sales of services in connection with a claim
for refund under Section 112 of the NIRC.
Substantiation requirements
to be entitled to refund or tax
credit under Sec. 112, NIRC
As stated in our introduction, the burden of a claimant who seeks a refund of
his excess or unutilized creditable input VAT pursuant to Section 112 of the
NIRC is two-fold: (1) prove payment of input VAT to suppliers; and (2) prove
zero-rated sales to purchasers. Additionally, the taxpayer claimant has to show
that the VAT payment made, called input VAT, is attributable to his zero-rated
sales.
Be it noted that under the law on VAT, as contained in Title IV of the NIRC,
there are three known taxable transactions, namely: (i) sale of goods or
properties (Section 106); (ii) importation (Section 107); and (iii) sale of
services and lease of properties (Section 108). Both sale transactions in
Section 106 and 108 are qualified by the phrase 'in the course of trade or
business,' whereas importation in Section 107 is not.
At this juncture, it is imperative to point out that the law had set apart the sale
of goods or properties, as contained in Section 106, from the sale of services in
Section 108.
In establishing the fact that taxable transactions like sale of goods or
properties or sale of services were made, the law provided for invoicing and
accounting requirements, to wit:
Section 113. Invoicing and Accounting Requirement for VAT-Registered
Persons. –
(A) Invoicing Requirements. – A VAT-registered person shall, for every sale,
issue an invoice or receipt. In addition to the information required under
Section 237, the following information shall be indicated in
the invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his
taxpayer's identification number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the
seller with the indication that such amount includes the value-added tax.
(B) Accounting Requirements. – Notwithstanding the provisions of Section 233,
all persons subject to the value-added tax under Sections 106 and 108 shall, in
addition to the regular accounting records required, maintain a subsidiary sales
journal and subsidiary purchase journal on which the daily sales and purchases
are recorded. The subsidiary journals shall contain such information as may be
required by the Secretary of Finance.
xxxx
Section 237. Issuance of Receipts or Sale or Commercial Invoices. – All
persons subject to an internal revenue tax shall, for each sale or transfer of
merchandise or for services rendered valued at Twenty-five pesos (P25.00) or
more, issue duly registered receipts or sales or
commercial invoices, prepared at least in duplicate, showing the date of
transaction, quantity, unit cost and description of merchandise or nature of
service: Provided, however, That in the case of sales, receipts or transfers in
the amount of One hundred pesos (P100.00) or more, or regardless of the
amount, where the sale or transfer is made by a person liable to value-added
tax to another person also liable to value-added tax; or where the receipt is
issued to cover payment made as rentals, commissions, compensations or
fees, receipts or invoices shall be issued which shall show the name,
business style, if any, and address of the purchaser, customer or client:
Provided, further, That where the purchaser is a VAT-registered person, in
addition to the information herein required, the invoice or receipt shall
further show the Taxpayer Identification Number (TIN) of the purchaser.
The original of each receipt or invoice shall be issued to the purchaser,
customer or client at the time the transaction is effected, who, if engaged in
business or in the exercise of profession, shall keep and preserve the same in
his place of business for a period of three (3) years from the close of the
taxable year in which such invoice or receipt was issued, while the duplicate
shall be kept and preserved by the issuer, also in his place of business, for a
like period. (emphases supplied)
The CTA En Banc held the view that while Sections 113 and 237 used the
disjunctive term "or," it must not be interpreted as giving a taxpayer an
unconfined choice to select between issuing an invoice or an official
receipt.19 To the court a quo, sales invoices must support sales of goods or
properties while official receipts must support sales of services.20
We agree.
Actually, the issue is no longer novel.
In AT&T Communications Services Philippines, Inc. v.
Commissioner (AT&T),21 we interpreted Sections 106 and 108 in conjunction
with Sections 113 and 237 of the NIRC relative to the significance of the
difference between a sales invoice and an official receipt as evidence for zero-
rated transactions. For better appreciation, we simply quote the pertinent
discussion, viz:
Although it appears under [Section 113] that there is no clear distinction on
the evidentiary value of an invoice or official receipt, it is worthy to note that
the said provision is a general provision which covers all sales of a VAT
registered person, whether sale of goods or services. It does not necessarily
follow that the legislature intended to use the same interchangeably. The Court
therefore cannot conclude that the general provision of Section 113 of the
NIRC of 1997, as amended, intended that the invoice and official receipt can be
used for either sale of goods or services, because there are specific provisions
of the Tax Code which clearly delineates the difference between the two
transactions.
In this instance, Section 108 of the NIRC of 1997, as amended, provides:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of
Properties.-
xxxx
(C) Determination of the Tax -The tax shall be computed by multiplying the
total amount indicated in the official receipt by one-eleventh
(1/11)(emphases supplied)
Comparatively, Section 106 of the same Code covers sale of goods, thus:
SEC. 106. Value-added Tax on Sale of Goods or Properties,-
xxxx
(D) Determination of the Tax. The tax shall be computed by multiplying the
total amount indicated in the invoice by one-eleventh (1/11). (emphases
supplied)
Apparently, the construction of the statute shows that the legislature intended
to distinguish the use of an invoice from an official receipt. It is more logical
therefore to conclude that subsections of a statute under the same heading
should be construed as having relevance to its beading. The legislature
separately categorized VAT on sale of goods from VAT on sale of services, not
only by its treatment with regard to tax but also with respect to substantiation
requirements. Having been grouped under Section 108, its subparagraphs, (A)
to (C), and Section 106, its subparagraphs (A) to (D), have significant relations
with each other.
xxxx
Settled is the rule that every part of the statute must be considered with the
other parts. Accordingly, the whole of Section 108 should be read in
conjunction with Sections 113 and 237 so as to give life to all the provisions
intended for the sale of services. There is no contlict between the provisions of
the law that cover sale of services that are subject to zero rated sales; thus, it
should be read altogether to reveal the true legislative intent.22
Contrary to the petitioner's position, invoices and official receipts are not used
interchangeably for purposes of substantiating input
VAT;[23 cites Commissioner v. Manila Mining Corporation (Manila Mining)24 as
its authority in arguing that the law made no distinction between an invoice
and an official receipt. We have read said case and therein found just quite the
opposite. The Manila Mining case in fact recognized a difference between the
two, to wit:
A "sales or commercial invoice" is a written account of goods sold or services
rendered indicating the prices charged therefor or a list by whatever name it is
known which is used in the ordinary course of business evidencing sale and
transfer or agreement to sell or transfer goods and services.
A "receipt" on the other hand is a written acknowledgment of the fact of
payment in money or other settlement between seller and buyer of goods,
debtor or creditor, or person rendering services and client or customer. 25
At this point, it is worth mentioning that the VAT law at issue in Manila
Mining was Presidential Decree No. 1158 (National Internal Revenue Code of
1977). That a distinction between an invoice and receipt was recognized even
as against the NIRC of 1977 as the legal backdrop is authority enough to dispel
any notion harbored by the petitioner that a distinction between the two, with
the legal effects that follow, arose only after the enactment of R.A. No. 9337.
For emphasis, even prior to the enactment of R.A. No. 9337, which clearly
delineates the invoice and official receipt, our Tax Code has already made the
distinction.26
The Manila Mining case proceeded to state –
These sales invoices or receipts issued by the supplier are necessary to
substantiate the actual amount or quantity of goods sold and their selling price,
and taken collectively are the best means to prove the input VAT payments.27
While the words "invoice" and "receipt" in said decision are seemingly used
without distinction, it cannot be rightfully interpreted as allowing either
document as substantiation for any kind of taxable sale, whether of
goods/properties or of services. A closer reading of Manila Mining indeed shows
that the question on whether an invoice is the proper documentary proof of a
sale of goods or properties to the exclusion of an official receipt, and vice
versa, official receipt as the proof of sale of services to the exclusion of an
invoice, was not the pivotal issue.
It was in Kepco Philippines Corporation v. Commissioner (Kepco)28 that the
Court was directly confronted with the adequacy of a sales invoice as proof of
the purchase of services and official receipt as evidence of the purchase of
goods. The Court initially cited the distinction between an invoice and an official
receipt as expressed in the Manila Mining case. We then declared for the first
time that a VAT invoice is necessary for every sale, barter or exchange of
goods or properties while a VAT official receipt properly pertains to every lease
of goods or properties, and for every sale, barter or exchange of services.
Thus, we held that a VAT invoice and a VAT receipt should not be confused as
referring to one and the same thing; the law did not intend the two to be used
alternatively. We stated:
[T]he VAT invoice is the seller's best proof of the sale of the goods or services
to the buyer while the VAT receipt is the buyer's best evidence of the payment
of goods or services received from the seller. Even though VAT invoices and
receipts are normally issued by the supplier/seller alone, the said invoices and
receipts, taken collectively, are necessary to substantiate the actual amount or
quantity of goods sold and their selling price (proof of transaction), and the
best means to prove the input VAT payments (proof of payment).Hence, VAT
invoice and VAT receipt should not be confused as referring to one and the
same thing. Certainly, neither does the law intend the two to be used
alternatively. 29

In Kepco, the taxpayer tried to substantiate its input VAT on purchases of
goods with official receipts and on purchases of services with invoices. The
claim was appropriately denied for not complying with the required standard of
substantiation. The Court reasoned that the invoicing and substantiation
requirements should be followed because it is the only way to determine the
veracity of the taxpayer's claims. Unmistakably, the indispensability of an
official receipt to substantiate a sale of service had already been illustrated
jurisprudentially as early as Kepco.
The doctrinal teaching in Kepco was further reiterated and applied in
subsequent cases.
Thus, in Luzon Hydro Corp. v. Commissioner,30 the claim for refund/tax credit
was denied because the proof for the zero-rated sale consisted of secondary
evidence like financial statements.
Subsequently, in AT&T,31 the Court rejected the petitioner's assertion that
there is no distinction in the evidentiary value of the supporting documents;
hence, invoices or receipts may be used interchangeably to substantiate VAT.
Apparently, the taxpayer-claimant presented a number of bank credit advice in
lieu of valid VAT official receipts to demonstrate its zero-rated sales of services.
The CTA denied the claim; we sustained the denial.
Then, in Takenaka Corporation-Philippine Branch v. Commissioner,32 the proofs
for zero-rated sales of services were sales invoices. The claim was likewise
denied.
Most recently, in Team Energy Corporation v. Commissioner of Internal
Revenue/Republic of the Philippines v. Team Energy Corporation,33 we
sustained the CTA En Banc's disallowance of the petitioner's claim for input
taxes after finding that the claimed input taxes on local purchase of goodswere
supported by documents other than VAT invoices; and, similarly, on local
purchase of services, by documents other than VAT official receipts.
Irrefutably, when a VAT-taxpayer claims to have zero-rated sales of services, it
must substantiate the same through valid VAT official receipts, not any other
document, not even a sales invoice which properly pertains to a sale of goods
or properties.
In this case, the documentary proofs presented by Nippon Express to
substantiate its zero-rated sales of services consisted of sales invoices and
other secondary evidence like transfer slips, credit memos, cargo manifests,
and credit notes.34 It is very clear that these are inadequate to support the
petitioner's sales of services. Consequently, the CTA, albeit without jurisdiction,
correctly ruled that Nippon Express is not entitled to its claim.
In sum, the CTA did not acquire jurisdiction over Nippon Express' judicial claim
considering that its petition was filed beyond the mandatory 30-day period of
appeal. Logically, there is no reason to allow the petitioner to submit further
evidence by way of official receipts to substantiate its zero-rated sales of
services. Likewise, there is no need to pass upon the issue on whether sales
invoices or documents other than official receipts can support a sale of service
considering the CTA's lack of jurisdiction. Even so, we find that VAT official
receipts are indispensable to prove sales of services by a VAT-registered
taxpayer. Consequently, the petitioner is not entitled to the claimed refund or
TCC.
WHEREFORE, for lack of jurisdiction, the 5 December 2008 Decision and 5
May 2009 Resolution of the Court of Tax Appeals Second Division in CTA Case
No. 7429, and the 15 December 2009 Decision of the Court of Tax Appeals En
Banc in CTA-EB Case No. 492, are hereby VACATED and SET ASIDE.
SO ORDERED.
SECOND DIVISION
G.R. No. 174157 : October 20, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. McGEORGE FOOD
INDUSTRIES, INC.,Respondent. cralaw
DECISION
CARPIO, J.:
The Case
For review1 are the rulings2 of the Court of Appeals affirming a tax refund
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despite an earlier decision of the corporate taxpayer to apply its overpayment
to future tax liability.
The Facts
On 15 April 1998, more than three months after Republic Act No. 8424 or the
Tax Reform Act of 1997 (1997 NIRC) took effect on 1 January 1998,
respondent McGeorge Food Industries, Inc. (respondent) filed with the Bureau
of Internal Revenue (BIR) its final adjustment income tax return for the
calendar year ending 31 December 1997. The return indicated a tax liability
of P5,393,988 against a total payment of P10,130,176 for the first three
quarters,3 resulting in a net overpayment of P4,736,188. Exercising its option
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to either seek a refund of this amount or carry it over to the succeeding year
as tax credit, respondent chose the latter, indicating in its 1997 final return
that it wished the amount "to be applied as credit to next year."4 chanroblesv irt uallawl ibrary
On 15 April 1999, respondent filed its final adjustment return for the calendar
year ending 31 December 1998, indicating a tax liability of P5,799,056. Instead
of applying to this amount its unused tax credit carried over from 1997
(P4,736,188), as it was supposed to do, respondent merely deducted from its
tax liability the taxes withheld at source for 1998 (P217,179) and paid the
balance of P5,581,877.
On 14 April 2000, respondent simultaneously filed with the BIR and the Court
of Tax Appeals (CTA) a claim for refund of its overpayment in 1997
of P4,736,188. Petitioner Commissioner of Internal Revenue (petitioner)
opposed the suit at the CTA, alleging that the action preempted his own
resolution of respondents parallel claim for refund, and, at any rate,
respondent has to prove its entitlement to refund.
The Ruling of the Court of Tax Appeals
The CTA5 ruled for respondent and ordered petitioner to refund the reduced
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amount of P4,598,716.98 to account for two tax payments allegedly withheld
at source which respondent failed to substantiate. The CTA held that refund
was proper because respondent complied with the requirements of timely filing
of the claim and its substantiation.
Petitioner sought reconsideration, contending that respondent is precluded
from seeking a refund for its overpayment in 1997 after respondent opted to
carry-over and apply it to its future tax liability, following Section 76 of the
1997 NIRC which provides that "[o]nce the option to carry-over and apply the
excess quarterly income tax against income tax due for the taxable quarters of
the succeeding taxable years has been made, such option shall be considered
irrevocable for that taxable period and no application for cash refund or
issuance of a tax credit certificate shall be allowed therefor." Petitioner claimed
that Section 76 applies to respondent because by the time respondent filed its
final adjustment return for 1997 on 15 April 1998, the 1997 NIRC was already
in force, having taken effect on 1 January 1998.
The CTA denied reconsideration,6 holding that the 1997 NIRC only covers
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transactions done after 1 January 1998. As the transactions subject of
respondents claim for refund took place before this cut-off date, respondent is
covered by Section 697 of the former tax code, Presidential Decree No. 1158
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(National Internal Revenue Code of 1977 [1977 NIRC]) which, unlike Section
76 of the 1997 NIRC, does not carry an "irrevocability of option" clause.
Instead, Section 69 of the 1977 NIRC merely provides that "[i]n case the
corporation is entitled to a refund of the excess estimated quarterly income
taxes paid, the refundable amount shown on its final adjustment return may be
credited against the estimated quarterly income tax liabilities for the taxable
quarters of the succeeding taxable year."
Petitioner appealed to the Court of Appeals.
The Ruling of the Court of Appeals
The Court of Appeals affirmed the CTA. Upholding the applicability of Section
69 of the 1977 NIRC, the appellate court reasoned: cha nrob lesvi rtua lawlib rary
[T]he subject claim for refund pertains to the unutilized creditable withheld
taxes for the year 1997 and the transactions which gave rise to the claim for
refund occurred in taxable year 1997. Such being the case, the right to claim
for refund or tax credit of these taxes must be governed by the law in effect at
the time the excess credits were earned. Thus, the pertinent law applicable to
the case at bar is Section 69 of the old Tax Code x x x. Hence, respondent
corporation aside from opting to carry-over the excess tax to the next
succeeding quarter, may likewise avail of the remedy of refund, because the
old Tax Code does not preclude the exercise of one to the exclusion of the
other.8chan roblesv irt uallawl ibra ry
The Court of Appeals likewise sustained the CTAs finding on the timeliness and
substantiation of respondents refund claim.
Petitioner sought but was denied reconsideration.9
chan roble svirtuallaw lib rary
Hence, this petition. Petitioner reiterates his submission that the 1997 NIRC
controls this case, precluding respondent from seeking a refund after it had
opted to carry-over and apply its creditable overpayment in 1997 to its 1998
tax liability. On the other hand, respondent invokes the rulings of the CTA and
Court of Appeals applying in its favor Section 69 of the 1977 NIRC which does
not provide for the irrevocability of a taxpayers preference to seek refund or
off-set its credit to future liability.
The Issue
The question is whether respondent is entitled to a tax refund for overpayment
in 1997 after it opted, but failed, to credit such to its tax liability in 1998.
The Ruling of the Court
We hold that respondent is not entitled to a refund under Section 76 of the
1997 NIRC, the law in effect at the time respondent made known to the BIR its
preference to carry over and apply its overpayment in 1997 to its tax liability in
1998. In lieu of refund, respondents overpayment should be applied to its tax
liability for the taxable years following 1998 until it is fully credited.
Section 76 of the 1997 NIRC Controls
Section 76 of the 1997 NIRC which provides:
c hanro blesvi rt ualawlib ra ry
Final Adjustment Return. - Every corporation liable to tax under Section 27
shall file a final adjustment return covering the total taxable income for the
preceding calendar or fiscal year. If the sum of the quarterly tax payments
made during the said taxable year is not equal to the total tax due on the
entire taxable income of that year, the corporation shall either: c hanro blesvi rt ualawlib ra ry
(A) Pay the balance of tax still due; or
(B) Carry-over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case may be.
In case the corporation is entitled to a tax credit or refund of the excess
estimated quarterly income taxes paid, the excess amount shown on its final
adjustment return may be carried over and credited against the estimated
quarterly income tax liabilities for the taxable quarters of the succeeding
taxable years. Once the option to carry-over and apply the excess quarterly
income tax against income tax due for the taxable quarters of the succeeding
taxable years has been made, such option shall be considered irrevocable for
that taxable period and no application for cash refund or issuance of a tax
credit certificate shall be allowed therefor. (Emphasis supplied)
is, like its predecessor Section 69 of the 1977 NIRC, a tax administration
measure crafted to ease tax collection.10 By requiring corporate taxpayers to
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indicate in their final adjustment return whether, in case of overpayment, they
wish to have the excess amount refunded or carried-over and applied to their
future tax liability, the provision aims to properly manage claims for refund or
tax credit.11 Administratively speaking, Section 76 serves the same purpose as
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its companion provisions in Title II, Chapter XII of the 1997 NIRC, namely,
Section 74 on the declaration of income tax by individuals, Section 75 on the
declaration of quarterly corporate income tax, and Section 77 on the place and
time of filing and payment of quarterly corporate income tax they are all tools
designed to promote rational and efficient functioning of the tax system. These
provisions should be distinguished from the provisions in Title II, Chapter IV
(Tax on Corporations) and Chapter VII (Allowable Deductions), among others,
relating to the question on the intrinsic taxability of corporate transactions.
Thus treated, Section 76 and its companion provisions in Title II, Chapter XII
should be applied following the general rule on the prospective application of
laws12 such that they operate to govern the conduct of corporate taxpayers
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the moment the 1997 NIRC took effect on 1 January 1998. There is no quarrel
that at the time respondent filed its final adjustment return for 1997 on 15
April 1998, the deadline under Section 77 (B) of the 1997 NIRC (formerly
Section 70(b) of the 1977 NIRC), the 1997 NIRC was already in force, having
gone into effect a few months earlier on 1 January 1998. Accordingly, Section
76 is controlling.
The lower courts grounded their contrary conclusion on the fact that
respondents overpayment in 1997 was based on transactions occurring before
1 January 1998. This analysis suffers from the twin defects of missing the gist
of the present controversy and misconceiving the nature and purpose of
Section 76. None of respondents corporate transactions in 1997 is disputed
here. Nor can it be argued that Section 76 determines the taxability of
corporate transactions. To sustain the rulings below is to subscribe to the
untenable proposition that, had Congress in the 1997 NIRC moved the deadline
for the filing of final adjustment returns from 15 April to 15 March of each year,
taxpayers filing returns after 15 March 1998 can excuse their tardiness by
invoking the 1977 NIRC because the transactions subject of the returns took
place before 1 January 1998. A keener appreciation of the nature and purpose
of the varied provisions of the 1997 NIRC cautions against sanctioning this
reasoning.
Under Section 76, the Exercise of an Option
is Irrevocable and a Decision to Carry-over and Apply Tax
Overpayment Continues Until the Overpayment
has been Fully Applied to Tax Liabilities
Section 76 of the 1997 NIRC wrought two changes to its predecessor, Section
69 of the 1977 NIRC: first, it mandates that the taxpayers exercise of its
option to either seek refund or crediting is irrevocable; and second, the
taxpayers decision to carry-over and apply its current overpayment to future
tax liability continues until the overpayment has been fully applied, no matter
how many tax cycles it takes. We explained in Asiaworld Properties Philippine
Corporation v. Commissioner of Internal Revenue:13 chan rob lesvi rtual lawlib rary
[S]ection 76 of the NIRC of 1997 clearly states: "Once the option to carry-over
and apply the excess quarterly income tax against income tax due for the
taxable quarters of the succeeding taxable years has been made, such option
shall be considered irrevocable for that taxable period and no application for
cash refund or issuance of a tax credit certificate shall be allowed therefore."
Section 76 expressly states that "the option shall be considered irrevocable for
that taxable period" referring to the period comprising the "succeeding taxable
years." Section 76 further states that "no application for cash refund or
issuance of a tax credit certificate shall be allowed therefore" referring to "that
taxable period" comprising the "succeeding taxable years."
Section 76 of the NIRC of 1997 is different from the old provision, Section 69
of the 1977 NIRC, which reads: chan roble svirtualawl ibra ry
SEC. 69. Final Adjustment Return. Every corporation liable to tax under Section
24 shall file a final adjustment return covering the total net income for the
preceding calendar or fiscal year. If the sum of the quarterly tax payments
made during the said taxable year is not equal to the total tax due on the
entire taxable net income of that year the corporation shall either:
c han roblesv irt ualawli bra ry
(a) Pay the excess tax still due; or
(b) Be refunded the excess amount paid, as the case may be.
In case the corporation is entitled to a refund of the excess estimated quarterly
income taxes paid, the refundable amount shown on its final adjustment return
may be credited against the estimated quarterly income tax liabilities for the
taxable quarters of the succeeding taxable year.
Under this old provision, the option to carry-over the excess or overpaid
income tax for a given taxable year is limited to the immediately succeeding
taxable year only. In contrast, under Section 76 of the NIRC of 1997, the
application of the option to carry-over the excess creditable tax is not limited SO ORDERED.
only to the immediately following taxable year but extends to the next
succeeding taxable years. The clear intent in the amendment under Section 76
Republic of the Philippines
is to make the option, once exercised, irrevocable for the "succeeding taxable
years." SUPREME COURT
Manila
Thus, once the taxpayer opts to carry-over the excess income tax against the
taxes due for the succeeding taxable years, such option is irrevocable for the FIRST DIVISION
whole amount of the excess income tax, thus, prohibiting the taxpayer from
applying for a refund for that same excess income tax in the next succeeding
G.R. No. 187589 December 3, 2014
taxable years. The unutilized excess tax credits will remain in the taxpayers
account and will be carried over and applied against the taxpayers income tax
liabilities in the succeeding taxable years until fully utilized.14 (Boldfacing in
cra 1aw COMMISSIONER OF INTERNAL REVENUE, Petitioner,
the original; italicization supplied) vs.
THE STANLEY WORKS SALES (PHILS.),
As respondent opted to carry-over and credit its overpayment in 1997 to its tax INCORPORATED, Respondent.
liability in 1998, Section 76 makes respondents exercise of such option
irrevocable, barring it from later switching options to "[apply] for cash refund."
Instead, respondents overpayment in 1997 will be carried over to the DECISION
succeeding taxable years until it has been fully applied to respondents tax
liabilities. SERENO, CJ:

We are not unaware of our ruling in another case allowing refund for excess This is a Petition for Review on Certiorari1 filed by the Commissioner of
tax payment in 1997 despite the taxpayers selection of the carry-over and
credit option, following Section 69 of the 1977 NIRC.15 However, the issue of
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Internal Revenue (petitioner) under Rule 45 of the 1997 Rules of Civil
the applicability of the 1997 NIRC was never raised in that case. In the present Procedure assailing the Court of Tax Appeals En Banc (CTA En Banc)
case, the applicability of Section 76 of the 1997 NIRC over Section 69 of the Decision2 dated 27 February 2009 and Resolution3 dated 24 April 2009 in
1977 NIRC was squarely raised as the core issue. In two other cases where the C.T.A. EB No. 406.
applicability of Section 76 of the 1997 NIRC was also squarely raised, the Court
applied the irrevocability of the option clause under Section 76 to deny, as
here, claims for refund without prejudice to the application of the
THE FACTS
overpayments to the taxpayers liability in the succeeding tax cycles.16 We held
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in the leading case of Philam Asset Management, Inc. v. Commissioner of The pertinent findings of fact of the CTA En Banc are as follows:
Internal Revenue:17 chan rob lesvi rtua llawlib ra ry

Petitioner is the duly appointed officer of the Bureau of Internal Revenue

[S]ection 76 remains clear and unequivocal. Once the carry-over option is
taken, actually or constructively, it becomes irrevocable. Petitioner has chosen
that option for its 1998 creditable withholding taxes. Thus, it is no longer
entitled to a tax refund of P459,756.07, which corresponds to its 1998 excess
tax credit. Nonetheless, the amount will not be forfeited in the governments
favor, because it may be claimed by petitioner as tax credits in the succeeding
taxable years. (Emphasis supplied)
Accordingly, we hold that under Section 76 of the 1997 NIRC, respondents
claim for refund is unavailing. However, respondent is entitled to apply its
unused creditable overpayment in 1997 to its tax liability arising after 1998
until such has been fully applied.
WHEREFORE, we GRANT the petition. We REVERSE the Decision dated 31
January 2006 and the Resolution dated 21 July 2006 of the Court of Appeals.
(BIR) mandated to exercise the powers and perform the duties of his
office including, among others, the power to decide disputed
assessments, refunds of internal revenue taxes, fees and other charges,
penalties imposed in relation thereto, or other matters arising under the
National Internal Revenue Code. Respondent, on the other hand, is a
domestic corporation duly organized and existing under Philippine laws
and duly registered with the Securities and Exchange Commission. Its
office address is at the 5th Floor, Pan Pacific Hotel, Adriatico Street
corner Gen. Malvar Street, Manila.
Respondent is authorized "to engage in the business of designing,
manufacturing, fabricating, or otherwise producing, and the purchase,
sale at whole sale, importation, export, distribution, marketing or
otherwise dealing with, construction and hardware materials, tools,
fixtures and equipment."
On January 1, 1979, respondent and Stanley Works Agencies (Pte.)
Limited, Singapore (Stanley-Singapore) entered into a Representation
Agreement. Under such agreement, Stanley-Singapore appointed
respondent as its sole agent for the selling of its products within the
Philippines on an indent basis.
On April 16, 1990, respondent filed with the BIR its Annual Income Tax
Return for taxable year 1989.
On March 19, 1993, pursuant to Letter of Authority dated July 3, 1992,
the BIR issued against respondent a Pre-Assessment Notice (PAN) No.
002523 for 1989 deficiency income tax.
On March 29, 1993, respondent received its copy of the PAN.
On April 12, 1993, petitioner, through OTC Domingo C. Paz of Revenue
Region No. 4B-2 of Makati, issued to respondent Assessment Notice No.
002523-89-6014 for deficiency income tax for taxable year 1989. The
Notice was sent on April 15, 1993 and respondent received it on April 21,
1993.
On May 19, 1993, respondent, through its external auditors Punongbayan
& Araullo, filed a protest letter and requested reconsideration and
cancellation of the assessment.
On November 16, 1993, a certain Mr. John Ang, on behalf of respondent,
executed a "Waiver of the Defense of Prescription Under the Statute of
Limitations of the National Internal Revenue Code" (Waiver). Under the
terms of the Waiver, respondent waived its right to raise the defense of
prescription under Section 223 of the NIRC of 1977 insofar as the
assessment and collection of any deficiency taxes for the year ended
December 31, 1989, but not after June 30, 1994. The Waiver was not
signed by petitioner or any of his authorized representatives and did not
state the date of acceptance as prescribed under Revenue Memorandum
Order No. 20-90. Respondent did not execute any other Waiver or similar
document before or after the expiration of the November 16, 1993 Waiver
on June 30, 1994.
On January 6, 1994, respondent, through its external auditors
Punongbayan & Araullo, wrote a letter to the Chief of the BIR Appellate
Division and requested the latter to take cognizance of respondent's
protest/request for reconsideration, asserting that the dispute involved
pure questions of law. On February 22, 1994, respondent sent a similar
letter to the Revenue District Officer (RDO) of BIR Revenue Region No.
4B-2 and asked for the transmittal of the entire docket of the subject tax
assessment to the BIR Appellate Division.
On September 30, 1994, respondent, through its external auditors
Punongbayan & Araullo, submitted a Supplemental Memorandum on its
protest to the BIR Revenue Region No. 4B-2.
On September 20, 1995, respondent, through its external auditors
Punongbayan & Araullo, filed a Supplemental Memorandum with the BIR
Appellate Division.
On November 29, 2001, the Chief of the BIR Appellate Division sent a
letter to respondent requiring it to submit duly authenticated financial
statements for the worldwide operations of Stanley Works and a sworn
declaration from the home office on the allocated share of respondent as
a "branch office."
On December 11, 2001, respondent, through its counsel, the Quisumbing
Torres Law Offices, wrote the BIR Appellate Division and asked for an
extension of period within which to comply with the request for
submission of documents. On January 15, 2002, respondent sent a
request for an extension of period to submit a Supplemental
Memorandum.
On March 4, 2002, respondent, through its counsel, the Quisumbing
Torres Law Offices, submitted a Supplemental Memorandum alleging,
inter alia, that petitioner's right to collect the alleged deficiency income tax
has prescribed.
On March 22, 2004, petitioner rendered a Decision denying respondent’s
request for reconsideration and ordering respondent to pay the deficiency
income tax plus interest that may have accrued. The dispositive portion
reads:
IN VIEW WHEREOF, this Office resolves, as it hereby resolves, to DENY
the request for reconsideration of STANLEY WORK SALES (Philippines),
INC. dated May 19, 1993 of Assessment No. 002523-89-6014 dated April
12, 1993 issued by this Bureau demanding payment of the total amount
of Php41,284,968.34 as deficiency income tax for taxable year 1989.
Consequently, Stanley Works Sales (Philippines), Inc. is hereby ordered
to pay the above-stated amount plus interest that may have accrued
thereon to the Collection Service, within thirty (30) days from receipt
hereof, otherwise, collection will be effected through the summary
remedies provided by law.
This constitutes the final decision of this Office on the matter.
On March 30, 2004, respondent received its copy of the assailed
Decision. Hence, on April 28, 2004, respondent filed before the Court in
Division a Petition for Review docketed as C.T.A. Case No. 6971 entitled
"The Stanley Works Sales (Philippines), Inc., petitioner, vs.
Commissioner of Internal Revenue, respondent. x x x
THE CTA FIRST DIVISION RULING4
After trial on the merits, the CTA First Division found that although the
assessment was made within the prescribed period, the period within
which petitioner may collect deficiency income taxes had already lapsed.
Accordingly, the court cancelled Assessment Notice No. 002523-89-6014
dated 12 April 1993.
The CTA Division ruled that the request for reconsideration did not
suspend the running of the prescriptive period to collect deficiency
income tax. There was no valid waiver of the statute of limitations, as the
following infirmities were found: (1) there was no conformity, either by
respondent or his duly authorized representative; (2) there was no date of
acceptance to show that both parties had agreed on the Waiver before
the expiration of the prescriptive period; and (3) there was no proof that
respondent was furnished a copy of the Waiver. Applying jurisprudence
and relevant BIR rulings, the waiver was considered defective; thus, the
period for collection of deficiency income tax had already prescribed.
THE CTA EN BANC RULING5
The CTA En Banc affirmed the CTA First Division Decision dated 6 May
2008 and Resolution dated 14 July 2008. The Waiver executed by
respondent on 16 November 1993 could not be used by petitioner as a
basis for extending the period of assessment and collection, as there was
no evidence that the latter had acted upon the waiver. Hence, the
unilateral act of respondent in executing said document did not produce
any effect on the prescriptive period for the assessment and collection of
its deficiency tax. As to the issue of estoppel, the court ruled that this
measure could not be used against respondent, as it was petitioner who
had failed to act within the prescribed period on the protest asking for a
reconsideration of the assessment. ISSUES
In the present recourse, petitioner raises the following issues:
Whether or not petitioner’s right to collect the deficiency income tax of
respondent for taxable year 1989 has prescribed.
Whether or not respondent’s repeated requests and positive acts
constitute "estoppel" from setting up the defense of prescription under the
NIRC.6
THE COURT’S RULING
We deny the Petition.
Petitioner mainly argues that in view of respondent’s execution of the
Waiver of the statute of limitations, the period to collect the assessed
deficiency income taxes has not yet prescribed.
The resolution of the main issue requires a factual determination of the
proper execution of the Waiver. The CTA Division has already made a
factual finding on the infirmities of the Waiver executed by respondent on
16 November 1993. The Court found that the following requisites were
absent:
(1) Conformity of either petitioner or a duly authorized
representative;
(2) Date of acceptance showing that both parties had agreed on
the Waiver before the expiration of the prescriptive period; and
(3) Proof that respondent was furnished a copy of the Waiver.7
These findings are undisputed by petitioner. In fact, it cites BPI v. CIR8 to
support its contention that the approval of the CIR need not be express,
but may be implied from the acts of the BIR officials in response to the
request for reinvestigation. Accordingly, petitioner argues that the actual
approval of the Waiver is apparent from the proceedings that were
additionally conducted indetermining the propriety of the subject
assessment.9
We do not agree.
The statute of limitations on the right to assess and collect a tax means
that once the period established by law for the assessment and collection
of taxes has lapsed, the government’s corresponding right to enforce that
action is barred by provision of law.
The period to assess and collect deficiency taxes may be extended only
upon a written agreement between the CIR and the taxpayer prior to the
expiration of the three-year prescribed period in accordance with Section
222 (b) of the NIRC. In relation to the implementation of this provision,
the CIR issued Revenue Memorandum Order (RMO) No. 20-9010 on 4
April 1990 to provide guidelines on the proper execution of the Waiver of
the Statute of Limitations. In the execution of this waiver, the following
procedures should be followed:
1. The waiver must be in the form identified hereof. This form may
be reproduced by the Office concerned but there should be no
deviation from such form. The phrase "but not after __________
19___" should be filled up x x x
2. x x x x
Soon after the waiver is signed by the taxpayer, the
Commissioner of Internal Revenue or the revenue official
authorized by him, as hereinafter provided, shall sign the waiver
indicating that the Bureau has accepted and agreed to the waiver.
The date of such acceptance by the Bureau should be indicated.
x x x.
3. The following revenue officials are authorized to sign the
waiver.
A. In the National Office
xxxx
3. Commissioner For tax cases involving more than 1M
B. In the Regional Offices
1. The Revenue District Officer with respect to tax cases still
pending investigation and the period toassess is about to
prescribe regardless of amount.
xxxx
5. The foregoing procedures shall be strictly followed. Any
revenue official found not to have complied with this Order
resulting in prescription of the right to assess/collect shall be
administratively dealt with.
Furthermore, jurisprudence is replete with requisites of a valid waiver:
1. The waiver must be in the proper form prescribed by RMO 20-
90. The phrase "but not after ______ 19 ___", which indicates the
expiry date of the period agreed upon to assess/collect the tax
after the regular three-year period of prescription, should be filled
up.
2. The waiver must be signed by the taxpayer himself or his duly
authorized representative. In the case of a corporation, the waiver
must be signed by any of its responsible officials. In case the
authority is delegated by the taxpayer toa representative, such
delegation should be in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the
waiver indicating that the BIR has accepted and agreed to the
waiver. The date of such acceptance by the BIR should be
indicated. However, before signing the waiver, the CIR or the
revenue official authorized by him must make sure that the waiver
is in the prescribed form, duly notarized, and executed by the
taxpayer or his duly authorized representative.
5. Both the date of execution by the taxpayer and date of
acceptance by the Bureau should be before the expiration of the
period of prescription or before the lapse of the period agreed
upon in case a subsequent agreement is executed.
6. The waiver must be executed in three copies, the original copy
to be attached to the docket of the case, the second copy for the
taxpayer and the third copy for the Office accepting the waiver.
 The fact of receipt by the taxpayer of his/her file copy must be
indicated in the original copy to show that the taxpayer was
notified of the acceptance of the BIR and the perfection of the
agreement.11
In Philippine Journalist, Inc. v. Commissioner of Internal Revenue,12 the
Court categorically stated that a Waiver must strictly conform to RMO No.
20-90. The mandatory nature of the requirements set forth in RMO No.
20-90, as ruled upon by this Court, was recognized by the BIR itself in the
latter’s subsequent issuances, namely, Revenue Memorandum Circular
(RMC) Nos. 6-200513 and 29-2012.14 Thus, the BIR cannot claim the
benefits of extending the period to collect the deficiency tax as a
consequence of the Waiver when, in truth it was the BIR’s inaction which
is the proximate cause of the defects of the Waiver. The BIR has the
burden of ensuring compliance with the requirements of RMO No. 20-90,
as they have the burden of securing the right of the government to
assess and collect tax deficiencies. This right would prescribe absent any
showing of a valid extension of the period set by the law.
To emphasize, the Waiver was not a unilateral act of the taxpayer; hence,
the BIR must act on it, either by conforming to or by disagreeing with the
extension. A waiver of the statute of limitations, whether on assessment
or collection, should not be construed asa waiver of the right to invoke the
defense of prescription but, rather, an agreement between the taxpayer
and the BIR to extend the period to a date certain, within which the latter
could still assess or collect taxes due. The waiver does not imply that the
taxpayer relinquishes the right to invoke prescription unequivocally.15
Although we recognize that the power of taxation is deemed inherent in
order to support the government, tax provisions are not all about raising
revenue. Our legislature has provided safeguards and remedies
beneficial to both the taxpayer, to protect against abuse; and the
government, to promptly act for the availability and recovery ofrevenues.
A statute of limitations on the assessment and collection of internal
revenue taxes was adopted to serve a purpose that would benefit both
the taxpayer and the government.
This Court has expounded on the significance of adopting a statute of
limitation on tax assessment and collection in this case:
The provision of law on prescription was adopted in our statute books
upon recommendation of the tax commissioner of the Philippines which
declares:
Under the former law, the right of the Government to collect the tax does
not prescribe. However, in fairness to the taxpayer, the Government
should be estopped from collecting the tax where it failed to make the
necessary investigation and assessment within 5 years after the filing of
the return and where it failed to collect the tax within 5 years from the
date of assessment thereof. Just as the government is interested in the
stability of its collection, so alsoare the taxpayers entitled to an assurance
that they will not be subjected to further investigation for tax purposes
after the expiration of a reasonable period of time. (Vol. II, Report of the
Tax Commission of the Philippines, pp. 321-322)
The law prescribing a limitation of actions for the collection of the income
tax is beneficial both to the Government and to its citizens; to the
Government because tax officers would be obliged to act promptly in the
making of assessment, and to citizens because after the lapse of the
period of prescription citizens would havea feeling of security against
unscrupulous tax agents who will always find an excuse to inspect the
books of taxpayers, not to determine the latter's real liability, but to take
advantage of every opportunity to molest peaceful, law-abiding citizens.
Without such legal defense taxpayers would furthermore be under
obligation to always keep their books and keep them open for inspection
subject to harassment by unscrupulous tax agents. The law on
prescription being a remedial measure should be interpreted in a way
conducive to bringing about the beneficient purpose of affording
protection to the taxpayer within the contemplation of the Commission
which recommends the approval of the law.16
Anent the second issue, we do not agree with petitioner that respondent
is now barred from setting up the defense of prescription by arguing that
the repeated requests and positive acts of the latter constituted
estoppels, as these were attempts to persuade the CIR to delay the
collection of respondent’s deficiency income tax.
True, respondent filed a Protest and asked for a reconsideration and
cancellation of the assessment on 19 May 1993; however, it is
uncontested that petitioner failed to act on that Protest until 29 November
2001, when the latter required the submission of other supporting
documents. In fact, the Protest was denied only on 22 March 2004.
Petitioner’s reliance on CIR v. Suyoc17 (Suyoc) is likewise misplaced. In
Suyoc, the BIR was induced to extend the collection of tax through
repeated requests for extension to pay and for reinvestigation, which
were all denied by the Collector. Contrarily, herein respondent filed only
one Protest over the assessment, and petitioner denied it 10 years after.
The subsequent letters of respondent cannot be construed as
inducements to extend the period of limitation, since the letters were
intended to urge petitioner to act on the Protest, and not to persuade the
latter to delay the actual collection.
Petitioner cannot take refuge in BPI18 either, considering that respondent
and BPI are similarly situated. Similar to BP I, this is a simple case in
1a\^/phi 1
which the BIR Commissioner and other BIR officials failed to act promptly
in resolving and denying the request for reconsideration filed by the
taxpayer and in enforcing the collection on the assessment. Both in BP I
and in this case, the BIR presented no reason or explanation as to why it
took many years to address the Protest of the taxpayer. The statute of
limitations imposed by the Tax Code precisely intends to protect the
taxpayer from prolonged and unreasonable assessment and investigation
by the BIR.19
Even assuming arguendo that the Waiver executed by respondent on 16
November 1993 is valid, the right of petitioner to collect the deficiency
income tax for the year 1989 would have already prescribed by 2001
when the latter first acted upon the protest, more so in 2004 when it
finally denied the reconsideration. Records show that the Waiver extends
only for the period ending 30 June 1994, and that there were no further
extensions or waivers executed by respondent. Again, a waiver is not a
unilateral act of the taxpayer or the BIR, but is a bilateral agreement
between two parties to extend the period to a date certain.20
Since the Waiver in this case is defective and therefore invalid, it
produces no effect; thus, the prescriptive period for collecting deficiency
income tax for taxable year 1989 was never suspended or tolled.
Consequently, the right to enforce collection based on Assessment
Notice No. 002523-89-6014 has already prescribed.
WHEREFORE, premises considered, the Petition is DENIED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 188497 February 19, 2014
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
PILIPINAS SHELL PETROLEUM CORPORATION, Respondent.
SEPARATE OPINION
BERSAMIN, J.:
In essence, the Resolution written for the Court by my esteemed
colleague, Justice Martin S. Villarama, Jr., maintains that the exemption
from payment of the excise tax under Section 135(a) of the National
Internal Revenue Code (NIRC) is conferred on the international carriers;
and that, accordingly, and in fulfillment of international agreement and
practice to exempt aviation fuel from the excise tax and other impositions,
Section 135(a) of the NIRC prohibits the passing of the excise tax to
international carriers purchasing petroleum products from local
manufacturers/sellers. Hence, he finds merit in the Motion for
Reconsideration filed by Pilipinas Shell Petroleum Corporation (Pilipinas
Shell), and rules that Pilipinas Shell, as the statutory taxpayer directly
liable to pay the excise tax on its petroleum products, is entitled to the
refund or credit of the excise taxes it paid on the petroleum products sold
to international carriers, the latter having been granted exemption from
the payment of such taxes under Section 135(a) of the NIRC.
I CONCUR in the result.
I write this separate opinion only to explain that I hold a different view on
the proper interpretation of the excise tax exemption under Section
135(a) of the NIRC. I hold that the excise tax exemption under Section
135(a) of the NIRC is conferred on the petroleum products on which the
excise tax is levied in the first place in view of its nature as a tax on
property, the liability for the payment of which is statutorily imposed on
the domestic petroleum manufacturer.
I submit the following disquisition in support of this separate opinion.
The issue raised here was whether the manufacturer was entitled to
claim the refund of the excise taxes paid on the petroleum products sold
to international carriers exempt under Section 135(a) of the NIRC.
We ruled in the negative, and held that the exemption from the excise tax
under Section 135(a) of the NIRC was conferred on the international
carriers to whom the petroleum products were sold. In the decision
promulgated onn April 25, 2012,1 the Court granted the petition for review
on certiorari filed by the Commissioner of Internal Revenue (CIR), and
disposed thusly:
WHEREFORE, the petition for review on certiorari is GRANTED. The
Decision dated March 25, 2009 and Resolution dated June 24, 2009 of
the Court of Tax Appeals En Banc in CTA EB No. 415 are hereby
REVERSED and SET ASIDE. The claims for tax refund or credit filed by
respondent Pilipinas Shell Petroleum Corporation are DENIED for lack of
basis.
No pronouncement as to costs.
SO ORDERED.2
We thereby agreed with the position of the Solicitor General that Section
135(a) of the NIRC must be construed only as a prohibition for the
manufacturer-seller of the petroleum products from shifting the tax
burden to the international carriers by incorporating the previously-paid
excise tax in the selling price. As a consequence, the manufacturer-seller
could not invoke the exemption from the excise tax granted to
international carriers. Concluding, we said: –
Respondent’s locally manufactured petroleum products are clearly
subject to excise tax under Sec. 148. Hence, its claim for tax refund may
not be predicated on Sec. 229 of the NIRC allowing a refund of erroneous
or excess payment of tax. Respondent’s claim is premised on what it
determined as a tax exemption "attaching to the goods themselves,"
which must be based on a statute granting tax exemption, or "the result of
legislative grace." Such a claim is to be construed strictissimi juris against
the taxpayer, meaning that the claim cannot be made to rest on vague
inference. Where the rule of strict interpretation against the taxpayer is
applicable as the claim for refund partakes of the nature of an exemption,
the claimant must show that he clearly falls under the exempting statute.
The exemption from excise tax payment on petroleum products under
Sec. 135 (a) is conferred on international carriers who purchased the
same for their use or consumption outside the Philippines. The only
condition set by law is for these petroleum products to be stored in a
bonded storage tank and may be disposed of only in accordance with the
rules and regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner.3
xxxx
Because an excise tax is a tax on the manufacturer and not on the
purchaser, and there being no express grant under the NIRC of
exemption from payment of excise tax to local manufacturers of
petroleum products sold to international carriers, and absent any
provision in the Code authorizing the refund or crediting of such excise
taxes paid, the Court holds that Sec. 135 (a) should be construed as
prohibiting the shifting of the burden of the excise tax to the international
carriers who buys petroleum products from the local manufacturers. Said
provision thus merely allows the international carriers to purchase
petroleum products without the excise tax component as an added cost in
the price fixed by the manufacturers or distributors/sellers. Consequently,
the oil companies which sold such petroleum products to international
carriers are not entitled to a refund of excise taxes previously paid on the
goods.4
In its Motion for Reconsideration filed on May 23, 2012, Pilipinas Shell
principally contends that the Court has erred in its interpretation of
Section 135(a) of the 1997 NIRC; that Section 135(a) of the NIRC
categorically exempts from the excise tax the petroleum products sold to
international carriers of Philippine or foreign registry for their use or
consumption outside the Philippines;5 that no excise tax should be
imposed on the petroleum products, whether in the hands of the qualified
international carriers or in the hands of the manufacturer-seller;6 that
although it is the manufacturer, producer or importer who is generally
liable for the excise tax when the goods or articles are subject to the
excise tax, no tax should accordingly be collected from the manufacturer,
producer or importer in instances when the goods or articles themselves
are not subject to the excise tax;7 and that as a consequence any excise
tax paid in advance on products that are exempt under the law should be
considered erroneously paid and subject of refund.8
Pilipinas Shell further contends that the Court’s decision, which effectively
prohibits petroleum manufacturers from passing on the burden of the
excise tax, defeats the rationale behind the grant of the exemption;9 and
that without the benefit of a refund or the ability to pass on the burden of
the excise tax to the international carriers, the excise tax will constitute an
additional production cost that ultimately increases the selling price of the
petroleum products.10
The CIR counters that the decision has clearly set forth that the excise
tax exemption under Section 135(a) of the NIRC does not attach to the
products; that Pilipinas Shell’s reliance on the Silkair rulings is misplaced
considering that the Court made no pronouncement therein that the
manufacturers selling petroleum products to international carriers were
exempt from paying the taxes; that the rulings that are more appropriate
are those in Philippine Acetylene Co., Inc. v. Commissioner of Internal
Revenue11 and Maceda v. Macaraig, Jr.,12 whereby the Court confirmed
the obvious intent of Section 135 of the NIRC to grant the excise tax
exemption to the international carriers or agencies as the buyers of
petroleum products; and that this intention is further supported by the
requirement that the petroleum manufacturer must pay the excise tax in
advance without regard to whether or not the petroleum purchaser is
qualified for exemption under Section 135 of the NIRC.
In its Supplemental Motion for Reconsideration, Pilipinas Shell reiterates
that what is being exempted under Section 135 of the NIRC is the
petroleum product that is sold to international carriers; that the exemption
is not given to the producer or the buyer but to the product itself
considering that the excise taxes, according to the NIRC, are taxes
applicable to certain specific goods or articles for domestic sale or
consumption or for any other disposition, whether manufactured in or
imported into the Philippines; that the excise tax that is passed on to the
buyer is no longer in the nature of a tax but of an added cost to the
purchase price of the product sold; that what is contemplated under
Section 135 of the NIRC is an exemption from the excise tax, not an
exemption from the burden to shoulder the tax; and that inasmuch as the
exemption can refer only to the imposition of the tax on the statutory
seller, like Pilipinas Shell, a contrary interpretation renders Section 135 of
the NIRC nugatory because the NIRC does not impose the excise tax on
subsequent holders of the product like the international carriers.
As I earlier said, I agree to GRANT Pilipinas Shell’s motions for
reconsideration.
Excise tax is essentially a tax
on goods, products or articles
Taxes are classified, according to subject matter or object, into three
groups, to wit: (1) personal, capitation or poll taxes; (2) property taxes;
and (3) excise or license taxes. Personal, capitation or poll taxes are
fixed amounts imposed upon residents or persons of a certain class
without regard to their property or business, an example of which is the
basic community tax.13 Property taxes are assessed on property or things
of a certain class, whether real or personal, in proportion to their value or
other reasonable method of apportionment, such as the real estate
tax.14 Excise or license taxes are imposed upon the performance of an
act, the enjoyment of a privilege, or the engaging in an occupation,
profession or business.15 Income tax, value-added tax, estate and donor’s
tax fall under the third group.
Excise tax, as a classification of tax according to object, must not be
confused with the excise tax under Title VI of the NIRC. The term "excise
tax" under Title VI of the 1997 NIRC derives its definition from the 1986
NIRC,16 and relates to taxes applied to goods manufactured or produced
in the Philippines for domestic sale or consumption or for any other
disposition and to things imported.17 In contrast, an excise tax that is
imposed directly on certain specified goods – goods manufactured or
produced in the Philippines, or things imported – is undoubtedly a tax on
property.18
The payment of excise taxes is the direct
liability of the manufacturer or producer
The production, manufacture or importation of the goods belonging to any
of the categories enumerated in Title VI of the NIRC (i.e., alcohol
products, tobacco products, petroleum products, automobiles and non-
essential goods, mineral products) are not the sole determinants for the
proper levy of the excise tax. It is further required that the goods be
manufactured, produced or imported for domestic sale, consumption or
any other disposition.19 The accrual of the tax liability is, therefore,
contingent on the production, manufacture or importation of the taxable
goods and the intention of the manufacturer, producer or importer to have
the goods locally sold or consumed or disposed in any other manner.
This is the reason why the accrual and liability for the payment of the
excise tax are imposed directly on the manufacturer or producer of the
taxable goods,20 and arise before the removal of the goods from the place
of their production.21
The manufacturer’s or producer’s direct liability to pay the excise taxes
similarly operates although the goods produced or manufactured within
the country are intended for export and are "actually exported without
returning to the Philippines, whether so exported in their original state or
as ingredients or parts of any manufactured goods or products." This is
implied from the grant of a tax credit or refund to the manufacturer or
producer by Section 130(4)(D) of the NIRC, thereby presupposing that
the excise tax corresponding to the goods exported were previously paid.
Section 130(4)(D) reads:
xxxx
(D) Credit for Excise Tax on Goods Actually Exported. - When goods
locally produced or manufactured are removed and actually exported
without returning to the Philippines, whether so exported in their original
state or as ingredients or parts of any manufactured goods or products,
any excise tax paid thereon shall be credited or refunded upon
submission of the proof of actual exportation and upon receipt of the
corresponding foreign exchange payment: Provided, That the excise tax
on mineral products, except coal and coke, imposed under Section 151
shall not be creditable or refundable even if the mineral products are
actually exported. (Emphasis supplied.)
Simply stated, the accrual and payment of the excise tax under Title VI of
the NIRC materially rest on the fact of actual production, manufacture or
importation of the taxable goods in the Philippines and on their presumed
or intended domestic sale, consumption or disposition. Considering that
the excise tax attaches to the goods upon the accrual of the
manufacturer’s direct liability for its payment, the subsequent sale,
consumption or other disposition of the goods becomes relevant only to
determine whether any exemption or tax relief may be granted thereafter.
The actual sale, consumption or disposition
of the taxable goods confirms the proper tax
treatment of goods previously subjected
to the excise tax
Conformably with the foregoing discussion, the accrual and payment of
the excise tax on the goods enumerated under Title VI of the NIRC prior
to their removal from the place of production are absolute and admit of no
exception. As earlier mentioned, even locally manufactured goods
intended for export cannot escape the imposition and payment of the
excise tax, subject to a future claim for tax credit or refund once proof of
actual exportation has been submitted to the Commissioner of Internal
Revenue (CIR).22 Verily, it is the actual sale, consumption or disposition of
the taxable goods that confirms the proper tax treatment of goods
previously subjected to the excise tax. If any of the goods enumerated
under Title VI of the NIRC are manufactured or produced in the
Philippines and eventually sold, consumed, or disposed of in any other
manner domestically, therefore, there can be no claim for any tax relief
inasmuch as the excise tax was properly levied and collected from the
manufacturer-seller.
Here, the point of interest is the proper tax treatment of the petroleum
products sold by Pilipinas Shell to various international carriers. An
international carrier is engaged in international transportation or contract
of carriage between places in different territorial jurisdictions.23
Pertinent is Section 135(a) of the NIRC, which provides:
SEC. 135. Petroleum Products Sold to International Carriers and Exempt
Entities or Agencies. - Petroleum products sold to the following are
exempt from excise tax:
(a) International carriers of Philippine or foreign registry on their use or
consumption outside the Philippines: Provided, That the petroleum
products sold to these international carriers shall be stored in a bonded
storage tank and may be disposed of only in accordance with the rules
and regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner; x x x
xxxx
As the taxpayer statutorily and directly liable for the accrual and payment
of the excise tax on the petroleum products it manufactured and it
intended for future domestic sale or consumption, Pilipinas Shell paid the
corresponding excise taxes prior to the removal of the goods from the
place of production. However, upon the sale of the petroleum products to
the international carriers, the goods became exempt from the excise tax
by the express provision of Section 135(a) of the NIRC. In the latter
instance, the fact of sale to the international carriers of the petroleum
products previously subjected to the excise tax confirms the proper tax
treatment of the goods as exempt from the excise tax.
It is worthy to note that Section 135(a) of the NIRC is a product of the
1944 Convention of International Civil Aviation, otherwise known as the
Chicago Convention, of which the Philippines is a Member State. Article
24(a) of the Chicago Convention provides –
Article 24
Customs duty
(a) Aircraft on a flight to, from, or across the territory of another
contracting State shall be admitted temporarily free of duty, subject to the
customs regulations of the State. Fuel, lubricating oils, spare parts,
regular equipment and aircraft stores on board an aircraft of a contracting
State, on arrival in the territory of another contracting State and retained
on board on leaving the territory of that State shall be exempt from
customs duty, inspection fees or similar national or local duties and
charges. This exemption shall not apply to any quantities or articles
unloaded, except in accordance with the customs regulations of the
State, which may require that they shall be kept under customs
supervision. x x x (Bold emphasis supplied.)
This provision was extended by the ICAO Council in its 1999 Resolution,
which stated that "fuel … taken on board for consumption" by an aircraft
from a contracting state in the territory of another contracting State
departing for the territory of any other State must be exempt from all
customs or other duties. The Resolution broadly interpreted the scope of
the Article 24 prohibition to include "import, export, excise, sales,
consumption and internal duties and taxes of all kinds levied upon . . .
fuel."24
Given the nature of the excise tax on petroleum products as a tax on
property, the tax exemption espoused by Article 24(a) of the Chicago
Convention, as now embodied in Section 135(a) of the NIRC, is clearly
conferred on the aviation fuel or petroleum product on-board international
carriers. Consequently, the manufacturer’s or producer’s sale of the
petroleum products to international carriers for their use or consumption
outside the Philippines operates to bring the tax exemption of the
petroleum products into full force and effect.
Pilipinas Shell, the statutory taxpayer, is
the proper party to claim the refund of
the excise taxes paid on petroleum
products sold to international carriers
The excise taxes are of the nature of indirect taxes, the liability for the
payment of which may fall on a person other than whoever actually bears
the burden of the tax.25
In Commissioner of Internal Revenue v. Philippine Long Distance
Telephone Company,26 the Court has discussed the nature of indirect
taxes in the following manner:
[I]ndirect taxes are those that are demanded, in the first instance, from, or
are paid by, one person in the expectation and intention that he can shift
the burden to someone else. Stated elsewise, indirect taxes are taxes
wherein the liability for the payment of the tax falls on one person but the
burden thereof can be shifted or passed on to another person, such as
when the tax is imposed upon goods before reaching the consumer who
ultimately pays for it. When the seller passes on the tax to his buyer, he,
in effect, shifts the tax burden, not the liability to pay it, to the purchaser,
as part of the price of goods sold or services rendered.27
In another ruling, the Court has observed:
Accordingly, the party liable for the tax can shift the burden to another, as
part of the purchase price of the goods or services. Although the
manufacturer/seller is the one who is statutorily liable for the tax, it is the
buyer who actually shoulders or bears the burden of the tax, albeit not in
the nature of a tax, but part of the purchase price or the cost of the goods
or services sold.28
Accordingly, the option of shifting the burden to pay the excise tax rests
on the statutory taxpayer, which is the manufacturer or producer in the
case of the excise taxes imposed on the petroleum products. Regardless
of who shoulders the burden of tax payment, however, the Court has
ruled as early as in the 1960s that the proper party to question or to seek
a refund of an indirect tax is the statutory taxpayer, the person on whom
the tax is imposed by law and who paid the same, even if he shifts the
burden thereof to another.29 The Court has explained:
In Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue,
the Court held that the sales tax is imposed on the manufacturer or
producer and not on the purchaser, "except probably in a very remote
and inconsequential sense." Discussing the "passing on" of the sales tax
to the purchaser, the Court therein cited Justice Oliver Wendell Holmes’
opinion in Lash’s Products v. United States wherein he said:
"The phrase ‘passed the tax on’ is inaccurate, as obviously the tax is laid
and remains on the manufacturer and on him alone. The purchaser does
not really pay the tax. He pays or may pay
the seller more for the goods because of the seller’s obligation, but that is
all. x x x The price is the sum total paid for the goods. The amount added
because of the tax is paid to get the goods and for nothing else.
Therefore it is part of the price x x x."
Proceeding from this discussion, the Court went on to state:
It may indeed be that the economic burden of the tax finally falls on the
purchaser; when it does the tax becomes a part of the price which the
purchaser must pay. It does not matter that an additional amount is billed
as tax to the purchaser. x x x The effect is still the same, namely, that the
purchaser does not pay the tax. He pays or may pay the seller more for
the goods because of the seller’s obligation, but that is all and the amount
added because of the tax is paid to get the goods and for nothing else.
But the tax burden may not even be shifted to the purchaser at all. A
decision to absorb the burden of the tax is largely a matter of economics.
Then it can no longer be contended that a sales tax is a tax on the
purchaser.30
The Silkair rulings involving the excise taxes on the petroleum products
sold to international carriers firmly hold that the proper party to claim the
refund of excise taxes paid is the manufacturer-seller.
In the February 2008 Silkair ruling,31 the Court declared:
The proper party to question, or seek a refund of, an indirect tax is the
statutory taxpayer, the person on whom the tax is imposed by law and
who paid the same even if he shifts the burden thereof to another.
Section 130 (A) (2) of the NIRC provides that "[u]nless otherwise
specifically allowed, the return shall be filed and the excise tax paid by
the manufacturer or producer before removal of domestic products from
place of production." Thus, Petron Corporation, not Silkair, is the statutory
taxpayer which is entitled to claim a refund based on Section 135 of the
NIRC of 1997 and Article 4(2) of the Air Transport Agreement between
RP and Singapore.
Even if Petron Corporation passed on to Silkair the burden of the tax, the
additional amount billed to Silkair for jet fuel is not a tax but part of the
price which Silkair had to pay as a purchaser
In the November 2008 Silkair ruling,32 the Court reiterated:
Section 129 of the NIRC provides that excise taxes refer to taxes
imposed on specified goods manufactured or produced in the Philippines
for domestic sale or consumption or for any other disposition and to
things imported. The excise taxes are collected from manufacturers or
producers before removal of the domestic products from the place of
production. Although excise taxes can be considered as taxes on
production, they are really taxes on property as they are imposed on
certain specified goods.
Section 148(g) of the NIRC provides that there shall be collected on
aviation jet fuel an excise tax of ₱3.67 per liter of volume capacity. Since
the tax imposed is based on volume capacity, the tax is referred to as
"specific tax." However, excise tax, whether classified as specific or ad
valorem tax, is basically an indirect tax imposed on the consumption of a
specified list of goods or products. The tax is directly levied on the
manufacturer upon removal of the taxable goods from the place of
production but in reality, the tax is passed on to the end consumer as part
of the selling price of the goods sold
xxxx
When Petron removes its petroleum products from its refinery in Limay,
Bataan, it pays the excise tax due on the petroleum products thus
removed. Petron, as manufacturer or producer, is the person liable for the
payment of the excise tax as shown in the Excise Tax Returns filed with
the BIR. Stated otherwise, Petron is the taxpayer that is primarily, directly
and legally liable for the payment of the excise taxes. However, since an
excise tax is an indirect tax, Petron can transfer to its customers the
amount of the excise tax paid by treating it as part of the cost of the
goods and tacking it on to the selling price.
As correctly observed by the CTA, this Court held in Philippine Acetylene
Co., Inc. v. Commissioner of Internal Revenue:
It may indeed be that the economic burden of the tax finally falls on the
purchaser; when it does the tax becomes part of the price which the
purchaser must pay.
Even if the consumers or purchasers ultimately pay for the tax, they are
not considered the taxpayers. The fact that Petron, on whom the excise
tax is imposed, can shift the tax burden to its purchasers does not make
the latter the taxpayers and the former the withholding agent.
Petitioner, as the purchaser and end-consumer, ultimately bears the tax
burden, but this does not transform petitioner's status into a statutory
taxpayer.
In the refund of indirect taxes, the statutory taxpayer is the proper party
who can claim the refund.
Section 204(c) of the NIRC provides:
Sec. 204. Authority of the Commissioner to Compromise, Abate, and
Refund or Credit Taxes. The Commissioner may –
xxxx
(b) Credit or refund taxes erroneously or illegally received or penalties
imposed without authority, refund the value of internal revenue stamps
when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered
unfit for use and refund their value upon proof of destruction. No credit or
refund of taxes or penalties shall be allowed unless the taxpayer files in
writing with the Commissioner a claim for credit or refund within two (2)
years after the payment of the tax or penalty: Provided, however, That a
return filed showing an overpayment shall be considered as a written
claim for credit or refund. (Emphasis and underscoring supplied)
The person entitled to claim a tax refund is the statutory taxpayer.
Section 22(N) of the NIRC defines a taxpayer as "any person subject to
tax." In Commissioner of Internal Revenue v. Procter and Gamble Phil.
Mfg. Corp., the Court ruled that:
A "person liable for tax" has been held to be a "person subject to tax" and
properly considered a "taxpayer." The terms "liable for tax" and "subject
to tax" both connote a legal obligation or duty to pay a tax.
The excise tax is due from the manufacturers of the petroleum products
and is paid upon removal of the products from their refineries. Even
before the aviation jet fuel is purchased from Petron, the excise tax is
already paid by Petron. Petron, being the manufacturer, is the "person
subject to tax." In this case, Petron, which paid the excise tax upon
removal of the products from its Bataan refinery, is the "person liable for
tax." Petitioner is neither a "person liable for tax" nor "a person subject to
tax." There is also no legal duty on the part of petitioner to pay the excise
tax; hence, petitioner cannot be considered the taxpayer.
Even if the tax is shifted by Petron to its customers and even if the tax is
billed as a separate item in the aviation delivery receipts and invoices
issued to its customers, Petron remains the taxpayer because the excise
tax is imposed directly on Petron as the manufacturer. Hence, Petron, as
the statutory taxpayer, is the proper party that can claim the refund of the
excise taxes paid to the BIR.33
It is noteworthy that the foregoing pronouncements were applied in two
more Silkair cases34 involving the same parties and the same cause of
action but pertaining to different periods of taxation.
The shifting of the tax burden by manufacturers-sellers is a business
prerogative resulting from the collective impact of market forces. Such
forces include government impositions like the excise tax. Hence, the
additional amount billed to the purchaser as part of the price the
purchaser pays for the goods acquired cannot be solely attributed to the
effect of the tax liability imposed on the manufacture-seller. It is
erroneous to construe Section 135(a) only as a prohibition against the
shifting by the manufacturers-sellers of petroleum products of the tax
burden to international carriers, for such construction will deprive the
manufacturers-sellers of their business prerogative to determine the
prices at which they can sell their products.
Section 135(a) of the NIRC cannot be further construed as granting the
excise tax exemption to the international carrier to whom the petroleum
products are sold considering that the international carrier has not been
subjected to excise tax at the outset. To reiterate, the excise tax is levied
on the petroleum products because it is a tax on property. Levy is the act
of imposition by the Legislature such as by its enactment of a law.35 The
law enacted here is the NIRC whereby the excise tax is imposed on the
petroleum products, the liability for the payment of which is further
statutorily imposed on the domestic petroleum manufacturer. Accordingly,
the exemption must be allowed to the petroleum products because it is
on them that the tax is imposed. The tax status of an international carrier
to whom the petroleum products are sold is not based on exemption;
rather, it is based on the absence of a law imposing the excise tax on it.
This further supports the position that the burden passed on by the
domestic petroleum manufacturer is not anymore in the nature of a tax –
although resulting from the previously-paid excise tax – but as an
additional cost component in the selling price. Consequently, the
purchaser of the petroleum products to whom the burden of the excise
tax has been shifted, not being the statutory taxpayer, cannot claim a
refund of the excise tax paid by the manufacturer or producer.
Applying the foregoing, the Court concludes that: (1) the exemption under
Section 135(a) of the NIRC is conferred on the petroleum products on
which the excise tax was levied in the first place; (2) Pilipinas Shell, being
the manufacturer or producer of petroleum products, was the statutory
taxpayer of the excise tax imposed on the petroleum products; (3) as the
statutory taxpayer, Pilipinas Shell’s liability to pay the excise tax accrued
as soon as the petroleum products came into existence, and Pilipinas
Shell accordingly paid its excise tax liability prior to its sale or disposition
of the taxable goods to third parties, a fact not disputed by the CIR; and
(3) Pilipinas Shell’s sale of the petroleum products to international
carriers for their use or consumption outside the Philippines confirmed
the proper tax treatment of the subject goods as exempt from the excise
tax.1âw phi1
Under the circumstances, therefore, Pilipinas Shell erroneously paid the
excise taxes on its petroleum products sold to international carriers, and
was entitled to claim the refund of the excise taxes paid in accordance
with prevailing jurisprudence and Section 204(C) of the NIRC, viz:
Section 204. Authority of the Commissioner to Compromise, Abate and
Refund or Credit Taxes. – The Commissioner may – x x x
xxxx
(C) Credit or refund taxes erroneously or illegally received or penalties
imposed without authority, refund the value of internal revenue stamps
when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered
unfit for use and refund their value upon proof of destruction. No credit or
refund of taxes or penalties shall be allowed unless the taxpayer files in
writing with the Commissioner a claim for credit or refund within two (2)
years after payment of the tax or penalty: Provided, however, That a
return filed showing an overpayment shall be considered as a written
claim for credit or refund.
IN VIEW OF THE FOREGOING, I VOTE TO GRANT the Motion for
Reconsideration and Supplemental Motion for Reconsideration of
Pilipinas Shell Petroleum Corporation and, accordingly:
(a) TO AFFIRM the decision dated March 25, 2009 and resolution
dated June 24, 2009 of the Court of Tax Appeals En Banc in CTA
EB No. 415; and
(b) TO DIRECT petitioner Commissioner of Internal Revenue to
refund or to issue a tax credit certificate to Pilipinas Shell
Petroleum Corporation in the amount of ₱95,014,283.00
representing the excise taxes it paid on the petroleum products
sold to international carriers in the period from October 2001 to
June 2002.
SECOND DIVISION
G.R. Nos. 201225-26 (From CTA-EB Nos. 649 & 651), April 18, 2018
TEAM SUAL CORPORATION (FORMERLY MIRANT SUAL
CORPORATION), Petitioner, v.COMMISSIONER OF INTERNAL
REVENUE, Respondent.
G.R. No. 201132 (From CTA-EB No. 651), April 18, 2018
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. TEAM SUAL
CORPORATION (FORMERLY MIRANT SUAL CORPORATION), Respondent.
G.R. No. 201133 (From CTA-EB No. 649), April 18, 2018
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. TEAM SUAL
CORPORATION (FORMERLY MIRANT SUAL CORPORATION), Respondent.
DECISION
REYES, JR., J.:
Nature of the Petitions
Challenged before the Court via Petitions for Review on Certiorari1 under Rule
45 of the Rules of Court is the Consolidated Decision2 of the Court of Tax
Appeals (CTA) En Banc dated September 15, 2011 and its subsequent
Resolution3 dated March 21,2012 in CTA-EB Nos. 649 and 651. The assailed
Decision and Resolution modified the Amended Decision4 of the CTA Special
First Division dated June 7, 2010 and partially granted Team Sual Corporation's
(TSC) claim for refund in the amount of P123,110,001.68 representing
unutilized input Value Added Tax (VAT) for the second, third, and fourth
quarters of taxable year 2001.
The Antecedent Facts
TSC is a domestic corporation duly organized and existing under and by virtue
of the laws of the Philippines with principal office at Barangay Pangascasan,
Sual, Pangasinan. It is principally engaged in the business of power generation
and subsequent sale thereof to the National Power Corporation (NPC) under
a Build, Operate, and Transfer scheme. TSC was originally registered with the
Securities and Exchange Commission under the name "Pangasinan Electric
Corporation." On August 17, 1999, it changed its name to "Southern Energy
Pangasinan, Inc.," which was then changed to "Mirant Sual Corporation" on
June 28, 2001, and finally to "Team Sual" on July 23, 2007.5
As a seller of services, TSC is registered with the Bureau of Internal Revenue
(BIR) as a VAT taxpayer with Certificate of Registration bearing RDO Control
No. 05-0181 and Taxpayer's Identification No. 003-841-103.6
On December 6, 2000, TSC filed with the BIR Revenue District Office No. 5-
Alaminos, Pangasinan an application for zero-rating arising from its sale of
power generation services to NPC for the taxable year 2001. The same was
subsequently approved. As a result, TSC filed its VAT returns covering the four
quarters of taxable year 2001.7
For the first, second, third, and fourth quarters of 2001, TSC reported excess
input VAT amounting to P37,985,009.25, P29,298,556.12, P32,869,835.40,
and P66,566,967.02, respectively. The total excess input VAT claimed by TSC
for the taxable year amounted to P166,720,367.79.8
On March 20, 2003, TSC filed with the BIR an administrative claim for refund in
the aggregate amount of P166,720,367.79 for its unutilized input VAT for
taxable year 2001.9
On March 31, 2003, without waiting for the resolution of its administrative
claim for refund or tax credit, TSC filed with the CTA Division a petition for
review docketed as CTA Case No. 6630. It prayed for the refund or issuance of
a tax credit certificate for its alleged unutilized input VAT for the first quarter of
taxable year 2001 in the amount of P37,985,009.25.10
On July 23, 2003, TSC filed another petition for review docketed as CTA Case
No. 6733, seeking the refund or issuance of a tax credit certificate for its
alleged unutilized input VAT for the second, third, and fourth quarters of
taxable year 2001 in the amount of P128,735,358.54. Both cases were
consolidated on August 7, 2003.11
Trial of the case ensued.
In its Decision dated June 9, 2006, the CTA Division partially granted TSC's
claim. It allowed the refund of unutilized input VAT for the first, third, and
fourth quarters of taxable year 2001, but disallowed the refund for the second
quarter. The CTA Division ruled that the claim for the second quarter did not
fall within the two-year prescriptive period. The dispositive portion of the CTA
Division's decision reads:
WHEREFORE, the instant Petition for Review is hereby PARTIALLY
GRANTED. ACCORDINGLY, respondent Commissioner of Internal Revenue is
hereby ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE in
the amount of ONE HUNDRED SEVENTEEN MILLION THREE HUNDRED
THIRTY THOUSAND FIVE HUNDRED FIFTY PESOS AND 62/100
(P117,330,550.62) to petitioner Mirant Sual Corporation, representing
unutilized input VAT from its domestic purchases of goods and services and
importation of goods attributable to its effectively zero-rated sales to the
National Power Corporation for the first, third, and fourth quarters of taxable
year 2001.12
The Commissioner of Internal Revenue (CIR) filed a Motion for Partial
Reconsideration on July 3, 2009, praying that the entire claim for refund be
denied. The CIR argued that TSC has not sufficiently proven its entitlement to
refund and that the CTA had no jurisdiction to act on the judicial claim for
refund because the same was prematurely filed.13
Likewise, in its Motion for Partial Reconsideration dated July 7, 2009 and
Supplemental Motion for Partial Reconsideration dated July 31, 2009, TSC
prayed that the CTA, in addition to the amount already granted, refund the
amounts of: (1) P29,298,556.12 representing input VAT for the second quarter
of taxable year 2001, and (2) P12,761,224.50 for input VAT on local purchases
of goods and services for the same year.14
On June 7, 2010, the CTA Division promulgated an Amended Decision which
partially granted TSC's additional claim for refund. In said decision, the CTA
denied the claim for input VAT on local purchases of goods and services, but
allowed the refund for input VAT for the second quarter of taxable year 2001.
However, the grant was reduced from P29,298,556.12 to P27,233,561.57 for
failure to substantiate the difference.15 The dispositive portion of the amended
decision states:
WHEREFORE, respondent's Motion for Partial Reconsideration filed on July 3,
2009 and petitioner's Supplemental Motion for Partial Reconsideration filed on
July 31, 2009 are hereby DENIED for lack of merit. Petitioner's Motion for
Partial Reconsideration filed on July 7, 2009 is hereby PARTIALLY
GRANTED and this Court's Decision dated June 9, 2009 denying petitioner's
claim for refund of unutilized input VAT for the second quarter of 2001 is
hereby MODIFIED. Accordingly, respondent Commissioner of Internal
Revenue is hereby ORDERED to REFUND or to ISSUE A TAX CREDIT
CERTIFICATE in the amount of ONE HUNDRED FORTY FOUR MILLION
FIVE HUNDRED SIXTY FOUR THOUSAND ONE HUNDRED TWELVE PESOS
AND 19/100 (P144,564,112.19) to petitioner Team Sual Corporation
(formerly: Mirant Sual Corporation), representing unutilized input VAT from its
domestic purchases of goods and services and importation of goods
attributable to its effectively zerorated sales to the National Power Corporation
for the first, second, third, and fourth quarters of taxable year 2001.
SO ORDERED.16
Dissatisfied, TSC filed a Petition for Review docketed as CTA EB No. 649 before
the CTA En Banc. It posits that the CTA Division erred in disallowing the
amount of P12,761,224.50 for input VAT on local purchases of goods and
services on the mere fact that the pertinent supporting documents were issued
under TSC's former name. TSC argues that a corporation's change of name
does not affect its identity or rights. Thus, it should still be entitled to claim the
said input VAT.17
The CIR also filed a petition for review praying that the Decision dated June 9,
2009 and the Amended Decision dated June 7, 2010 be reversed and set aside
and another one be rendered denying the entire claim for refund. The CIR
reiterated the arguments she raised in her Motion for Partial Reconsideration.
The case was docketed as CTA EB No. 651.18
On September 15, 2010, the CTA En Banc resolved19 to consolidate CTA EB No.
649 with CTA EB No. 651.
On September 15, 2011, the CTA En Banc rendered a Consolidated
Decision20 granting petitioner's claim for refund of input VAT for the second,
third, and fourth quarters of taxable year 2001 amounting to P123,110,001.68.
Insofar as the refund of the input VAT for the first quarter of taxable year 2001
is concerned, the CTA En Banc ruled that the CTA did not acquire jurisdiction
over it as it had been filed prematurely. The dispositive portion of said decision
reads as follows:
WHEREFORE, all the foregoing considered, the Commissioner's Petition for
Review in CTA EB No. 651 is hereby DENIED.
On the other hand, Team Sual's Petition for Review in CTA EB No. 649 is
hereby PARTIALLY GRANTED, but only insofar as the consideration of the
portion of the refund claim disallowed by the court a quo upon the reason that
the supporting documents were in Team Sual's former names.
The Decision promulgated on June 9, 2009 and Amended Decision dated June
7, 2010 by the Court in Division, are therefore MODIFIED. Accordingly, the
Commissioner is hereby ORDERED to REFUND to Team Sual the amount of,
or to ISSUE A TAX CREDIT CERTIFICATE in its favor amounting to, ONE
HUNDRED TWENTY THREE MILLION ONE HUNDRED TEN THOUSAND
ONE PESOS and SIXTY EIGHT CENTAVOS (P123,110,001.68),
representing Team Sual's unutilized input VAT attributable to its effectively
zero-rated sales to NPC for the second, third and fourth quarters of taxable
year 2001.
SO ORDERED. 21
TSC filed a Motion for Partial Reconsideration of the CTA En Banc's decision. It
insists that the judicial claim for refund over the first quarter of 2001 was not
prematurely filed and that the CTA Division did in fact have jurisdiction to act
on it. Similarly, the CIR filed a motion for reconsideration, praying that TSC's
claim be denied altogether.22
In its Resolution dated March 21, 2012, the CT A En Banc denied the motions
of both TSC and the CIR, affirming its September 15, 2011 Decision as follows:
WHEREFORE, premises considered, the Motion for Reconsideration of the
Commissioner and the Motion for Partial Reconsideration of Team Sual are
hereby DENIED for lack of merit.
SO ORDERED.23
Aggrieved, the CIR and TSC filed their respective Petitions for Review
on Certiorari under Rule 45 before the Court. TSC's petition was docketed as
G.R. No. 201225-26,24 while the CIR's petitions were docketed as G.R. Nos.
20113225 and 201133.26
In the Resolutions dated June 25, 201227 and July 18, 2012,28 the Court
resolved to consolidate G.R. Nos. 201132, 201133, and 201225-26.
The Issues
On one hand, the CIR argues the following for the total disallowance of TSC's
claim:
I. The Honorable Court of Tax Appeals En Banc erred, when it affirmed,
with modification, the former First Division's decision promulgated on
June 9, 2009 and Amended Decision dated June 7, 2012, granting
respondent's claim for refund in the amount of P123,110,001.68
allegedly representing unutilized input VAT attributable to its
effectively zero-rated sales to the National Power Corporation for the
second, third, and fourth quarters of taxable year 2001, because the
Honorable Court of Tax Appeals had no jurisdiction to act on
respondent's petitions for review; and
II. Assuming that the former First Division had jurisdiction, petitioner
avers that its denial by inaction was proper and that respondent has
not sufficiently proven its entitlement to a refund.29
On the other hand, TSC raises the following grounds for the allowance of its
judicial claim for refund covering the first quarter of taxable year 2001:
I. The CTA acquired jurisdiction over the case filed with and tried by the
First Division of the CTA due to the failure of respondent CIR to invoke
the rule of non-exhaustion of administrative remedies; and
II. The CTA En Banc's application of the doctrine laid down in the case
of Commissioner Of Internal Revenue vs. Aichi Forging Company of
Asia30 to petitioner's claim for refund is erroneous as:
A.) It will violate established rules on non-retroactivity of judicial decisions;
B.) It will cause injustice to petitioner who relied in good faith on the existing
jurisprudence at the time of the filing of the claim for refund; and
C.) It will unjustly enrich the government at the expense of the petitioner.31
In sum, the rise or fall of the instant petitions rest upon whether the CTA has
jurisdiction to act on TSC's two judicial claims for refund.
The Court's Ruling
The petitions are bereft of merit.
In order for the CTA to acquire jurisdiction over a judicial claim for refund or
tax credit arising from unutilized input VAT, the said claim must first comply
with the mandatory 120+30-day waiting period. Any judicial claim for refund or
tax credit filed in contravention of said period is rendered premature, depriving
the CTA of jurisdiction to act on it.32
Pursuant to Section 112, Subsections (A) and (C) of the National Internal
Revenue Code (NIRC) of 1997,33 the procedure to be followed in claiming a
refund or tax credit of unutilized input VAT are as follows:
Sec. 112. Refunds or Tax Credits of Input Tax.—
(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person,
whose sales are zero-rated or effectively zero-rated may, within two (2)
years after the close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund of creditable
input tax due or paid attributable to such sales, except transitional input
tax, to the extent that such input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated sales under Section
106(A)(2)(a)(1), (2) and (b) and Section 108 (B)(1) and (2), the acceptable
foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP): Provided, further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods of
properties or services, and the amount of creditable input tax due or paid
cannot be directly and entirely attributed to any one of the transactions, it shall
be allocated proportionately on the basis of the volume of sales. Provided,
finally, that for a person making sales that are zero-rated under Section 108(B)
(6), the input taxes shall be allocated ratably between his zero-rated and non-
zero-rated sales.
xxxx
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In
proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or
the failure on the part of the Commissioner to act on the
application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying
the claim or after the expiration of the one hundred twenty day-period,
appeal the decision or the unacted claim with the Court of Tax Appeals.
(Emphasis supplied)
It is clear from the above-quoted provisions that any taxpayer seeking a refund
or tax credit arising from unutilized input VAT from zero-rated or effectively
zero-rated sales should first file an initial administrative claim with the BIR.
This claim for refund or tax credit must be filed within two years after the close
of the taxable quarter when the sales were made.
The CIR is then given a period of 120-days from the submission of complete
documents in support of the application to either grant or deny the claim. If the
claim is denied by the CIR or the latter has not acted on it within the 120-day
period, the taxpayer-claimant is then given a period of 30 days to file a judicial
claim via petition for review with the CTA.
As such, the law provides for two scenarios before a judicial claim for refund
may be filed with the CTA: (1) the full or partial denial of the claim within the
120-day period, or (2) the lapse of the 120-day period without the CIR having
acted on the claim. It is only from the happening of either one may a taxpayer-
claimant file its judicial claim for refund or tax credit for unutilized input VAT.
Consequently, failure to observe the said period renders the judicial claim
premature, divesting the CTA of jurisdiction to act on it.
This mandatory and jurisdictional nature of the 120-day waiting period has
been reiterated time and again by the Court.34 In the case of Commissioner of
Internal Revenue vs. San Roque Power Corporation,35 the Court En
Banc categorically stated:
Failure to comply with the 120-day waiting period violates a mandatory
provision of law. It violates the doctrine of exhaustion of administrative
remedies and renders the petition premature and thus without a cause of
action, with the effect that the CTA does not acquire jurisdiction over the
taxpayer's petition. Philippine jurisprudence is replete with cases upholding and
reiterating these doctrinal principles.36
Likewise, in Harte-Hanks Philippines, Inc. vs. Commissioner of Internal
Revenue,37 the Court illustrated the fatal effect of non-observance of the 120-
day period. In said case, the Court dismissed the judicial claim for refund
because it was filed a mere seven days after taxpayer-claimant HHPI filed its
administrative claim, without waiting for it to be first reso1ved. The Court
explained that the CTA must wait for the Commissioner's decision on the
administrative claim or the lapse of the 120-day waiting period otherwise there
would be nothing to review. It is the denial or inaction "deemed a denial" which
the taxpayer-claimant takes to the CTA for review. Without any 'decision,' the
CTA as a court of special jurisdiction acquires no jurisdiction over a taxpayer-
claimant's judicial claim for refund.38
In the instant case, TSC filed its administrative claim for refund for taxable
year 2001 on March 20, 2003, well within the two-year period provided for by
law. TSC then filed two separate judicial claims for refund: one on March 31,
2003 for the first quarter of 2001, and the other on July 23, 2003 for the
second, third, and fourth quarters of the same year.39
Given the fact that TSC's administrative claim was filed on March 20, 2003, the
CIR had 120 days or until July 18, 2003 to act on it. Thus, the first judicial
claim was premature because TSC filed it a mere 11 days after filing its
administrative claim.
On the other hand, the second judicial claim filed by TSC was filed on time
because it was filed on July 23, 2003 or five days after the lapse of the 120-
day period.40 Accordingly, it is clear that the second judicial claim complied
with the mandatory waiting period of 120 days and was filed within the
prescriptive period of 30 days from the CIR's action or inaction. Therefore, the
CTA division only acquired jurisdiction over TSC's second judicial claim for
refund covering its second, third, and fourth quarters of taxable year 2001.
TSC submits that at the time of the filing of its claims for refund, prevailing
jurisprudence espoused that the 120-day waiting period was merely permissive
instead of mandatory.41 Otherwise stated, TSC argues that as long as a
taxpayer-claimant filed both its administrative and judicial claim within the two
year prescriptive period under Section 112(A) of the NIRC then there would be
no need to comply with the 120-day waiting period. This assertion has no
basis.
In support of its position, TSC cites42 the cases of Intel Technology Philippines,
Inc. vs. Commissioner of Internal Revenue,43San Roque Power Corporation vs.
Commissioner of Internal Revenue,44AT&T Communications Services
Philippines, Inc. vs. Commissioner of Internal Revenue,45 and Southern
Philippines Power Corporation vs. Commissioner of Internal Revenue.46 TSC
insists that in said cases, because the Court allowed the filing of the judicial
claim even before the CIR could act on the administrative claim, then the Court
implicitly ruled that the 120-day period is not mandatory. However, a more
thorough study of the cases reveals that they are inapplicable to this
controversy as they involve different issues.
In Intel Technology Philippines,47 the Court resolved the issue of whether
entities engaged in business are required to indicate in their receipts or
invoices the authority from the BIR to print the same. Nowhere in the case did
the Court rule that the 120-day period may be dispensed with as long as the
administrative and judicial claims are filed within the two-year prescriptive
period.
In San Roque Power Corporation,48 the main issue revolved around the
coverage of the terms, "zero-rated or effectively zero-rated sales." The Court
discussed that the NIRC does not limit the definition of "sale" to commercial
transactions in the normal course of business, but extends the term to
transactions which are also "deemed" sale under Section 106(B) of the NIRC.
Again, nowhere in said case was the 120-day period even remotely mentioned
or ruled upon.
Finally, in AT&T Communications Services Philippines, Inc.49 and Southern
Philippines Power Corporation,50 the issues resolved by the Court dealt with the
substantiation requirements in relation to a claim for tax refund or credit
Likewise, the Court never even touched upon the nature of the 120-day waiting
period in said case.
Given the foregoing, it is apparent that none of these cases constitute binding
precedent as to the nature of the 120-day period. As such, TSC cannot now
claim that at the time they filed their judicial claims, they relied in good faith
on the then-prevailing interpretation as to the nature of the 120-day period.
Nevertheless, TSC insists that assuming arguendo that the 120-day period was
indeed mandatory and jurisdictional, the issue of its non-compliance with said
period, as a ground to deny its claim, was already waived since the CIR did not
raise it in the proceedings before the CTA Division. It claims that non-
compliance with the 120-day period prior to the filing of a judicial claim with
the CTA merely results in a lack of cause of action, a ground which may be
waived for failure to timely invoke the same.51
However, it is apparent from the records that the issue of TSC's non-
compliance with the 120-day waiting period has been raised by the CIR
throughout the pendency of the entire case. In fact, the records reveal that the
CIR raised it at the earliest possible opportunity, when it filed its motion for
partial reconsideration with the CTA Division dated July 3, 2009.52
In any case, even if the CIR failed to raise the issue of TSC's non-compliance
with the 120-day waiting period at the first instance, such failure would not
operate to vest the CTA with jurisdiction over TSC's judicial claims for refund.
The Court has already settled that a judicial claim for refund which does not
comply with the 120-day mandatory waiting period renders the same void.53 As
such, no right can be claimed or acquired from it, notwithstanding the failure of
a party to raise it as a ground for dismissal. In San Roque,54 the Court
expounded on such point, to wit:
San Roque's failure to comply with the 120-day mandatory period renders its
petition for review with the CTA void. Article 5 of the Civil Code provides, "Acts
executed against provisions of mandatory or prohibitory laws shall be void,
except when the law itself authorizes their validity.'' San Roque's void petition
for review cannot be legitimized by the CTA or this Court because Article 5 of
the Civil Code states that such void petition cannot be legitimized "except when
the law itself authorizes [its] validity." There is no law authorizing the petition's
validity.
It is hornbook doctrine that a person committing a void act contrary to a
mandatory provision of law cannot claim or acquire any right from his
void act. A right cannot spring in favor of a person from his own void or illegal
act. This doctrine is repeated in Article 2254 of the Civil Code, which states,
"No vested or acquired right can arise from acts or omissions which are against
the law or which infringe upon the rights of others." For violating a mandatory
provision of law in filing its petition with the CTA, San Roque cannot claim any
right arising from such void petition. Thus, San Roque's petition with the CTA is
a mere scrap of paper.55 (Emphasis supplied)
Being a mere scrap of paper, TSC's judicial claim for refund filed on March 31,
2003 covering the first quarter of taxable year 2001 cannot be the source of
any rights.
Thus, considering the foregoing, the Court agrees with the ruling of the CTA En
Banc which held that between the March 31 and the July 23 petitions for review
filed by TSC, the CTA Division only acquired jurisdiction over the latter.
Seeing as the CTA validly acquired jurisdiction over the July 23 petition for
review covering the second, third, and fourth quarters of taxable year 2001,
we give full accord to its factual findings with respect to the amount of duly
substantiated excess input VAT for said periods.
The CTA En Banc, based on their appreciation of the evidence presented to
them, unequivocally ruled that TSC has sufficiently proven its entitlement to
the refund or the issuance of a tax credit certificate in its favor for unutilized
input VAT in the amount of P123,110,001.68.56
It is well settled that factual findings of the CTA when supported by substantial
evidence, will not be disturbed on appeal. Due to the nature of its functions,
the tax court dedicates itself to the study and consideration of tax problems
and necessarily develops expertise thereon. Unless there has been an abuse of
discretion on its part, the Court accords the highest respect to the factual
findings of the CTA.57
It must be emphasized that generally, it is not the province of an appeal by
petition for review on certiorari to determine factual matters. Although there
are exceptions58 to this general rule, none of these exist in the instant case.
With that being said, the issue of whether a claimant has actually presented
the necessary documents that would prove its entitlement to a tax refund or
tax credit, is indubitably a question of fact.59
As a final note, tax refunds or tax credits, just like tax exemptions, are strictly
construed against the taxpayer-claimant. A claim for tax refund is a statutory
privilege and the mere existence of unutilized input VAT does not entitle the
taxpayer, as a matter of right, to it. As such, the rules and procedure in
claiming a tax refund should be faithfully complied with. Non-compliance with
the pertinent laws should render any judicial claim fatally defective.60
WHEREFORE, premises considered, the instant petitions are DENIED. The
Consolidated Decision dated September 15, 2011 and the Resolution dated
March 21, 2012 of the Court of Tax Appeals En Banc in CTA EB No. 649 and
CTA EB No. 651 are hereby AFFIRMED in toto.
SO ORDERED.
FIRST DIVISION
G.R. Nos. 198729-30, January 15, 2014
CBK POWER COMPANY LIMITED, Petitioner, v. COMMISSIONER OF
INTERNAL REVENUE,Respondent.
DECISION
SERENO, C.J.:
This is a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of
Civil Procedure filed by CBK Power Company Limited (petitioner). The Petition
assails the Decision2 dated 27 June 2011 and Resolution3dated 16 September
2011 of the Court of Tax Appeals En Banc (CTA En Banc in C.T.A. EB Nos. 658
and 659. The assailed Decision and Resolution reversed and set aside the
Decision4 dated 3 March 2010 and Resolution5 dated 6 July 2010 rendered by
the CTA Special Second Division in C.T.A. Case No. 7621, which partly granted
the claim of petitioner for the issuance of a tax credit certificate representing
the latter's alleged unutilized input taxes on local purchases of goods and
services attributable to effectively zero-rated sales to National Power
Corporation (NPC) for the second and third quarters of 2005.
The Facts
Petitioner is engaged, among others, in the operation, maintenance, and
management of the Kalayaan II pumped-storage hydroelectric power plant, the
new Caliraya Spillway, Caliraya, Botocan; and the Kalayaan I hydroelectric
power plants and their related facilities located in the Province of Laguna.6
On 29 December 2004, petitioner filed an Application for VAT Zero-Rate with
the Bureau of Internal Revenue (BIR) in accordance with Section 108(B)(3) of
the National Internal Revenue Code (NIRC) of 1997, as amended. The
application was duly approved by the BIR. Thus, petitioner ’s sale of electr icity
to the NPC from 1 January 2005 to 31 October 2005 was declared to be tax credit certificate in favor of petitioner in the reduced amount
entitled to the benefit of effectively zero-rated value added tax (VAT).7 of P27,170,123.36.

Petitioner filed its administrative claims for the issuance of tax credit
certificates for its alleged unutilized input taxes on its purchase of capital goods
and alleged unutilized input taxes on its local purchases and/or importation of
goods and services, other than capital goods, pursuant to Sections 112(A) and
(B) of the NIRC of 1997, as amended, with BIR Revenue District Office (RDO)
No. 55 of Laguna, as follows:8
Period Covered Date Of Filing
The parties filed their respective Motions for Partial Reconsideration, which
were both denied by the CTA Division.
THE CTA EN BANC RULING
On appeal, relying on Commissioner of Internal Revenue v. Aichi Forging
Company of Asia, Inc. (Aichi),10the CTA En Banc ruled that petitioner’s judicial
claim for the first, second, and third quarters of 2005 were belatedly filed.

1st quarter of 2005 30-Jun-05 The CTA Special Second Division Decision and Resolution were reversed and
set aside, and the Petition for Review filed in CTA Case No. 7621 was
2nd quarter of 2005 15-Sep-05
dismissed. Petitioner’s Motion for Reconsideration was likewise denied for lack
of merit.
3rd quarter of 2005 28-Oct-05

Hence, this Petition.ISSUE

Alleging inaction of the Commissioner of Internal Revenue (CIR), petitioner
filed a Petition for Review with the CTA on 18 April 2007.
THE CTA SPECIAL SECOND DIVISION RULING
Petitioner’s assigned errors boil down to the principal issue of the applicable
prescriptive period on its claim for refund of unutilized input VAT for the first to
third quarters of 2005.11

After trial on the merits, the CTA Special Second Division rendered a Decision THE COURT’S RULING
on 3 March 2010. Applying Commissioner of Internal Revenue v. Mirant
Pagbilao Corporation (Mirant),9 the court
The pertinent provision of the NIRC at the time when petitioner filed its claim
for refund provides:
a quo ruled that petitioner had until the following dates within which to file
both administrative and judicial claims:
SEC. 112. Refunds or Tax Credits of Input Tax.–

Taxable Quarter Last Day to (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person,
File Claim for whose sales are zero-rated or effectively zero-rated may, within two (2) years
2005 Close of the quarter Refund after the close of the taxable quarter when the sales were made, apply for the
issuance of a tax credit certificate or refund of creditable input tax due or paid
1st quarter 31-Mar-05 31-Mar-07 attributable to such sales, except transitional input tax, to the extent that such
input tax has not been applied against output tax: Provided, however, That in
2nd quarter 30-Jun-05 30-Jun-07 the case of zero-rated sales under Section 106(A)(2)(a)(1),(2) and (B) and
Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds
3rd quarter 30-Sep-05 30-Sep-07 thereof had been duly accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That
where the taxpayer is engaged in zero-rated or effectively zero-rated sale and
Accordingly, petitioner timely filed its administrative claims for the three
also in taxable or exempt sale of goods or properties or services, and the
quarters of 2005. However, considering that the judicial claim was filed on 18
amount of creditable input tax due or paid cannot be directly and entirely
April 2007, the CTA Division denied the claim for the first quarter of 2005 for
attributed to any one of the transactions, it shall be allocated proportionately
having been filed out of time.
on the basis of the volume of sales.

After an evaluation of petitioner’s claim for the second and third quarters of
xxx
2005, the court a quo partly granted the claim and ordered the issuance of a
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In
proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days
from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the
failure on the part of the Commissioner to act on the application within the
period prescribed above, the taxpayer affected may, within thirty (30) days
from the receipt of the decision denying the claim or after the expiration of the
one hundred twenty day-period, appeal the decision or the unacted claim with
the Court of Tax Appeals.
Petitioner’s sales to NPC are effectively zero-rated
As aptly ruled by the CTA Special Second Division, petitioner’s sales to NPC are
effectively subject to zero percent (0%) VAT. The NPC is an entity with a
special charter, which categorically exempts it from the payment of any tax,
whether direct or indirect, including VAT. Thus, services rendered to NPC by a
VAT-registered entity are effectively zero-rated. In fact, the BIR itself approved
the application for zero-rating on 29 December 2004, filed by petitioner for its
sales to NPC covering January to October 2005.12 As a consequence, petitioner
claims for the refund of the alleged excess input tax attributable to its
effectively zero-rated sales to NPC.
In Panasonic Communications Imaging Corporation of the Philippines v.
Commissioner of Internal Revenue,13 this Court ruled:
Under the 1997 NIRC, if at the end of a taxable quarter the seller charges
output taxes equal to the input taxes that his suppliers passed on to him, no
payment is required of him. It is when his output taxes exceed his input taxes
that he has to pay the excess to the BIR. If the input taxes exceed the output
taxes, however, the excess payment shall be carried over to the succeeding
quarter or quarters. Should the input taxes result from zero-rated or effectively
zero-rated transactions or from the acquisition of capital goods, any excess
over the output taxes shall instead be refunded to the taxpayer.
The crux of the controversy arose from the proper application of the
prescriptive periods set forth in Section 112 of the NIRC of 1997, as amended,
and the interpretation of the applicable jurisprudence.
Period Covered
Although the ponente in this case expressed a different view on the mandatory
application of the 120+30 day period as prescribed in Section 112, with the
finality of the Court’s pronouncement on the consolidated tax cases
Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito 1st quarter 2005
Mining Corporation v. Commissioner of Internal Revenue, and Philex Mining
Corporation v. Commissioner of Internal Revenue14(hereby collectively referred 2nd quarter 2005
as San Roque), we are constrained to apply the dispositions therein to the facts
herein which are similar. 3rd quarter 2005
Administrative Claim
Section 112(A) provides that after the close of the taxable quarter when the
sales were made, there is a two-year prescriptive period within which a VAT-
registered person whose sales are zero-rated or effectively zero-rated may
apply for the issuance of a tax credit certificate or refund of creditable input
tax.
Our VAT Law provides for a mechanism that would allow VAT-registered
persons to recover the excess input taxes over the output taxes they had paid
in relation to their sales. For the refund or credit of excess or unutilized input
tax, Section 112 is the governing law. Given the distinctive nature of creditable
input tax, the law under Section 112 (A) provides for a different reckoning
point for the two-year prescriptive period, specifically for the refund or credit of
that tax only.
We agree with petitioner that Mirant was not yet in existence when their
administrative claim was filed in 2005; thus, it should not retroactively be
applied to the instant case.
However, the fact remains that Section 112 is the controlling provision for the
refund or credit of input tax during the time that petitioner filed its claim with
which they ought to comply. It must be emphasized that the Court merely
clarified in Mirant that Sections 204 and 229, which prescribed a different
starting point for the two-year prescriptive limit for filing a claim for a refund or
credit of excess input tax, were not applicable. Input tax is neither an
erroneously paid nor an illegally collected internal revenue tax.15
Section 112(A) is clear that for VAT-registered persons whose sales are zero-
rated or effectively zero-rated, a claim for the refund or credit of creditable
input tax that is due or paid, and that is attributable to zero-rated or effectively
zero-rated sales, must be filed within two years after the close of the taxable
quarter when such sales were made. The reckoning frame would always be the
end of the quarter when the pertinent sale or transactions were made,
regardless of when the input VAT was paid.16
Pursuant to Section 112(A), petitioner’s administrative claims were filed well
within the two-year period from the close of the taxable quarter when the
effectively zero-rated sales were made, to wit:
Close of the Last day to File Administrative Date of Filing
Taxable Claim
Quarter
31-Mar-05 31-Mar-07 30-Jun-05
30-Jun-05 30-Jun-07 15-Sep-05
30-Sep-05 30-Sep-07 28-Oct-05
 Judicial Claim
Section 112(D) further provides that the CIR has to decide on an
administrative claim within one hundred twenty (120) days from the date of
submission of complete documents in support thereof.
Bearing in mind that the burden to prove entitlement to a tax refund is on the
taxpayer, it is presumed that in order to discharge its burden, petitioner had
attached complete supporting documents necessary to prove its entitlement to
a refund in its application, absent any evidence to the contrary.
Thereafter, the taxpayer affected by the CIR’s decision or inaction may appeal
to the CTA within 30 days from the receipt of the decision or from the
expiration of the 120-day period within which the claim has not been acted
upon.
Considering further that the 30-day period to appeal to the CTA is dependent
on the 120-day period, compliance with both periods is jurisdictional. The
period of 120 days is a prerequisite for the commencement of the 30-day
period to appeal to the CTA.
Prescinding from San Roque in the consolidated case Mindanao II Geothermal Period Covered
Partnership v. Commissioner of Internal Revenue and Mindanao I Geothermal
Partnership v. Commissioner of Internal Revenue,17 this Court has ruled thus:
1st quarter 2005
Notwithstanding a strict construction of any claim for tax exemption or refund, 2nd quarter 2005
the Court in San Roque recognized that BIR Ruling No. DA-489-03 constitutes
equitable estoppel in favor of taxpayers. BIR Ruling No. DA-489-03 expressly3rd quarter 2005
states that the "taxpayer-claimant need not wait for the lapse of the 120-day
period before it could seek judicial relief with the CTA by way of Petition for
Review." This Court discussed BIR Ruling No. DA-489-03 and its effect on
taxpayers, thus:
Taxpayers should not be prejudiced by an erroneous interpretation by the
Commissioner, particularly on a difficult question of law. The abandonment of
the Atlas doctrine by Mirant and Aichi is proof that the reckoning of the
prescriptive periods for input VAT tax refund or credit is a difficult question of
law. The abandonment of the Atlas doctrine did not result in Atlas, or other
taxpayers similarly situated, being made to return the tax refund or credit they
received or could have received under Atlas prior to its abandonment. This
Court is applying Mirant and Aichi prospectively. Absent fraud, bad faith or
misrepresentation, the reversal by this Court of a general interpretative rule
issued by the Commissioner, like the reversal of a specific BIR ruling under
Section 246, should also apply prospectively. x x x.
xxx
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general
interpretative rule applicable to all taxpayers or a specific ruling applicable only
to a particular taxpayer. BIR Ruling No. DA-489-03 is a general interpretative
rule because it was a response to a query made, not by a particular taxpayer,
but by a government agency asked with processing tax refunds and credits,
that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of
the Department of Finance. This government agency is also the addressee, or
the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this
government agency mentions in its query to the Commissioner the
administrative claim of Lazi Bay Resources Development, Inc., the agency was
in fact asking the Commissioner what to do in cases like the tax claim of Lazi
Bay Resources Development, Inc., where the taxpayer did not wait for the
lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all
taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its issuance
on 10 December 2003 up to its reversal by this Court in Aichi on 6 October
2010, where this Court held that the 120+30 day periods are mandatory and
jurisdictional. (Emphasis supplied)
In applying the foregoing to the instant case, we consider the following
pertinent dates:
Administrative Expiration of 120- Last day to file Judicial Claim Fi
Claim Filed days Judicial Claim
30-Jun-05 28-Oct-05 27-Nov-05 18-Apr-07
15-Sep-05 13-Jan-06 13-Feb-06
28-Oct-05 26-Feb-06 28-Mar-06
It must be emphasized that this is not a case of premature filing of a judicial
claim. Although petitioner did not file its judicial claim with the CTA prior to the
expiration of the 120-day waiting period, it failed to observe the 30-day
prescriptive period to appeal to the CTA counted from the lapse of the 120-day
period.
Petitioner is similarly situated as Philex in the same case, San Roque,18 in
which this Court ruled:
Unlike San Roque and Taganito, Philex’s case is not one of premature filing but
of late filing. Philex did not file any petition with the CTA within the 120-day
period. Philex did not also file any petition with the CTA within 30 days after
the expiration of the 120-day period. Philex filed its judicial claim long after the
expiration of the 120-day period, in fact 426 days after the lapse of the 120-
day period. In any event, whether governed by jurisprudence before, during,
or after the Atlas case, Philex’s judicial claim will have to be rejected because
of late filing. Whether the two-year prescriptive period is counted from the date
of payment of the output VAT following the Atlas doctrine, or from the close of
the taxable quarter when the sales attributable to the input VAT were made
following the Mirant and Aichi doctrines, Philex’s judicial claim was indisputably (1) Payment is made when there exists no binding relation between the payor,
filed late. who has no duty to pay, and the person who received the payment; and

The Atlas doctrine cannot save Philex from the late filing of its judicial claim.
The inaction of the Commissioner on Philex’s claim during the 120-day period
is, by express provision of law, "deemed a denial" of Philex’s claim. Philex had
30 days from the expiration of the 120-day period to file its judicial claim with
the CTA. Philex’s failure to do so rendered the "deemed a denial" decision of
the Commissioner final and inappealable. The right to appeal to the CTA from a
decision or "deemed a denial" decision of the Commissioner is merely a
statutory privilege, not a constitutional right. The exercise of such statutory
privilege requires strict compliance with the conditions attached by the statute
for its exercise. Philex failed to comply with the statutory conditions and must
thus bear the consequences. (Emphases in the original)
Likewise, while petitioner filed its administrative and judicial claims during the
period of applicability of BIR Ruling No. DA-489-03, it cannot claim the benefit
of the exception period as it did not file its judicial claim prematurely, but did
so long after the lapse of the 30-day period following the expiration of the 120-
day period. Again, BIR Ruling No. DA-489-03 allowed premature filing of a
judicial claim, which means non-exhaustion of the 120-day period for the
Commissioner to act on an administrative claim,19 but not its late filing.
As this Court enunciated in San Roque , petitioner cannot rely on Atlas either,
since the latter case was promulgated only on 8 June 2007. Moreover, the
doctrine in Atlas which reckons the two-year period from the date of filing of
the return and payment of the tax, does not interpret ? expressly or impliedly ?
the 120+30 day periods.20 Simply stated, Atlas referred only to the reckoning
of the prescriptive period for filing an administrative claim.
For failure of petitioner to comply with the 120+30 day mandatory and
jurisdictional period, petitioner lost its right to claim a refund or credit of its
alleged excess input VAT.
(2) Payment is made through mistake, and not through liberality or some other
cause.23
Though the principle of solutio indebiti may be applicable to some instances of
claims for a refund, the elements thereof are wanting in this case.
First, there exists a binding relation between petitioner and the CIR, the former
being a taxpayer obligated to pay VAT.
Second, the payment of input tax was not made through mistake, since
petitioner was legally obligated to pay for that liability. The entitlement to a
refund or credit of excess input tax is solely based on the distinctive nature of
the VAT system. At the time of payment of the input VAT, the amount paid was
correct and proper.24
Finally, equity, which has been aptly described as "a justice outside legality," is
applied only in the absence of, and never against, statutory law or judicial rules
of procedure.25 Section 112 is a positive rule that should preempt and prevail
over all abstract arguments based only on equity. Well-settled is the rule that
tax refunds or credits, just like tax exemptions, are strictly construed against
the taxpayer.26 The burden is on the taxpayer to show strict compliance with
the conditions for the grant of the tax refund or credit.27
WHEREFORE, premises considered, the instant Petition is DENIED.
SO ORDERED.
THIRD DIVISION

COMMISSIONER OF INTERNAL G.R. No. 177279

With regard to petitioner’s argument that Aichi should not be applied
retroactively, we reiterate that even without that ruling, the law is explicit on REVENUE,
the mandatory and jurisdictional nature of the 120+30 day period. Petitioner, Present:

Also devoid of merit is the applicability of the principle of solutio indebiti to the CARPIO MORALES, J.,
present case. According to this principle, if something is received when there is Chairperson,
no right to demand it, and it was unduly delivered through mistake, the - versus - BRION,
obligation to return it arises. In that situation, a creditor-debtor relationship is
BERSAMIN,
created under a quasi-contract, whereby the payor becomes the creditor who
then has the right to demand the return of payment made by mistake, and the VILLARAMA, JR., and
person who has no right to receive the payment becomes obligated to return SERENO, JJ.
it.21 The quasi-contract of solutio indebiti is based on the ancient principle that
no one shall enrich oneself unjustly at the expense of another.22 HON. RAUL M. GONZALEZ, Secretary of
Justice, L. M. CAMUS ENGINEERING Promulgated:
There is solutio indebiti when:
 CORPORATION (represented by LUIS M. October 13, 2010 thus assessed the company of total deficiency taxes amounting to P430,958,005.90
CAMUS and LINO D. MENDOZA),
(income tax - P318,606,380.19 and value-added tax [VAT] - P112,351,625.71)
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x covering the said period. The Preliminary Assessment Notice (PAN) was received by
LMCEC on February 22, 2001.[7]
DECISION

VILLARAMA, JR., J.: LMCECs alleged underdeclared income was summarized by petitioner as
follows:

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Year Income Income Undeclared Percentage of
Procedure, as amended, assailing the Decision dated October 31, 2006 and [1] Per ITR Per Investigation Income Underdeclaration
Resolution[2]dated March 6, 2007 of the Court of Appeals (CA) in CA-G.R. SP No. 93387 1997 96,638,540.00 283,412,140.84 186,733,600.84 193.30%
[3] 1998 86,793,913.00 236,863,236.81 150,069,323.81 172.90%
which affirmed the Resolution dated December 13, 2005 of respondent Secretary of
1999 88,287,792.00 251,507,903.13 163,220,111.13 184.90%[8]
Justice in I.S. No. 2003-774 for violation of Sections 254 and 255 of the National Internal
Revenue Code of 1997 (NIRC).
In view of the above findings, assessment notices together with a formal
letter of demand dated August 7, 2002 were sent to LMCEC through personal service
The facts as culled from the records: on October 1, 2002.[9] Since the company and its representatives refused to receive
the said notices and demand letter, the revenue officers resorted to constructive
Pursuant to Letter of Authority (LA) No. 00009361 dated August 25, 2000 service[10] in accordance with Section 3, Revenue Regulations (RR) No. 12-99[11].
issued by then Commissioner of Internal Revenue (petitioner) Dakila B. Fonacier,
Revenue Officers Remedios C. Advincula, Jr., Simplicio V. Cabantac, Jr., Ricardo L. On May 21, 2003, petitioner, through then Commissioner Guillermo L.
Suba, Jr. and Aurelio Agustin T. Zamora supervised by Section Chief Sixto C. Dy, Jr. of Parayno, Jr., referred to the Secretary of Justice for preliminary investigation its
the Tax Fraud Division (TFD), National Office, conducted a fraud investigation for all complaint against LMCEC, Luis M. Camus and Lino D. Mendoza, the latter two were
internal revenue taxes to ascertain/determine the tax liabilities of respondent L. M. sued in their capacities as President and Comptroller, respectively. The case was
Camus Engineering Corporation (LMCEC) for the taxable years 1997, 1998 and docketed as I.S. No. 2003-774. In the Joint Affidavit executed by the revenue officers
[4]
1999. The audit and investigation against LMCEC was precipitated by the who conducted the tax fraud investigation, it was alleged that despite the receipt of
information provided by an informer that LMCEC had substantial underdeclared the final assessment notice and formal demand letter on October 1, 2002, LMCEC
income for the said period. For failure to comply with the subpoena duces tecum issued failed and refused to pay the deficiency tax assessment in the total amount
in connection with the tax fraud investigation, a criminal complaint was instituted by of P630,164,631.61, inclusive of increments, which had become final and executory
the Bureau of Internal Revenue (BIR) against LMCEC on January 19, 2001 for violation as a result of the said taxpayers failure to file a protest thereon within the thirty (30)-
of Section 266 of the NIRC (I.S. No. 00-956 of the Office of the City Prosecutor of Quezon day reglementary period.[12]
[5]
City).

Camus and Mendoza filed a Joint Counter-Affidavit contending that LMCEC

Based on data obtained from an informer and various clients of LMCEC, [6] it cannot be held liable whatsoever for the alleged tax deficiency which had become
was discovered that LMCEC filed fraudulent tax returns with substantial due and demandable. Considering that the complaint and its annexes all showed that
underdeclarations of taxable income for the years 1997, 1998 and 1999. Petitioner the suit is a simple civil action for collection and not a tax evasion case, the
Department of Justice (DOJ) is not the proper forum for BIRs complaint. They also not able to open the books of the company for the second time, after the routine
assail as invalid the assessment notices which bear no serial numbers and should be examination, issuance of termination letter and the availment of ERAP and
shown to have been validly served by an Affidavit of Constructive Service executed VAP. LMCEC thus maintained that unless there is a prior determination of fraud
and sworn to by the revenue officers who served the same. As stated in LMCECs supported by documents not yet incorporated in the docket of the case, petitioner
letter-protest dated December 12, 2002addressed to Revenue District Officer (RDO) cannot just issue LAs without first terminating those previously issued. It emphasized
Clavelina S. Nacar of RD No. 40, Cubao, Quezon City, the company had already the fact that the BIR officers who filed and signed the Affidavit-Complaint in this case
undergone a series of routine examinations for the years 1997, 1998 and 1999; under were the same ones who appeared as complainants in an earlier case filed against
the NIRC, only one examination of the books of accounts is allowed per taxable Camus for his alleged failure to obey summons in violation of Section 5 punishable
[13]
year. under Section 266 of the NIRC of 1997 (I.S. No. 00-956 of the Office of the City
Prosecutor of Quezon City). After preliminary investigation, said case was dismissed
LMCEC further averred that it had availed of the Bureaus Tax Amnesty for lack of probable cause in a Resolution issued by the Investigating Prosecutor
Programs (Economic Recovery Assistance Payment [ERAP] Program and the on May 2, 2001.[17]
Voluntary Assessment Program [VAP]) for 1998 and 1999; for 1997, its tax liability
was terminated and closed under Letter of Termination[14] dated June 1, 1999 issued LMCEC further asserted that it filed on April 20, 2001 a protest on the PAN
[15]
by petitioner and signed by the Chief of the Assessment Division. LMCEC claimed issued by petitioner for having no basis in fact and law. However, until now the said
it made payments of income tax, VAT and expanded withholding tax (EWT), as protest remains unresolved. As to the alleged informant who purportedly supplied
follows: the confidential information, LMCEC believes that such person is fictitious and his
true identity and personality could not be produced. Hence, this case is another form
TAXABLE AMOUNT OF TAXES of harassment against the company as what had been found by the Office of the City
YEAR PAID
Prosecutor of Quezon City in I.S. No. 00-956. Said case and the present case both
1997 Termination Letter Under EWT - P 6,000.00 have something to do with the audit/examination of LMCEC for taxable years 1997,
Letter of Authority No. VAT - 540,605.02 1998 and 1999 pursuant to LA No. 00009361.[18]
174600 Dated November IT - 3,000.00
4, 1998
1998 ERAP Program pursuant WC - 38,404.55 In the Joint Reply-Affidavit executed by the Bureaus revenue officers,
to RR #2-99 VAT - 61,635.40 petitioner disagreed with the contention of LMCEC that the complaint filed is not
1999 VAP Program pursuant IT - 878,495.28 criminal in nature, pointing out that LMCEC and its officers Camus and Mendoza were
to RR #8-2001 VAT - 1,324,317.00[16] being charged for the criminal offenses defined and penalized under Sections 254
(Attempt to Evade or Defeat Tax) and 255 (Willful Failure to Pay Tax) of the NIRC. This
finds support in Section 205 of the same Code which provides for administrative
LMCEC argued that petitioner is now estopped from further taking any
(distraint, levy, fine, forfeiture, lien, etc.) and judicial (criminal or civil action)
action against it and its corporate officers concerning the taxable years 1997 to
remedies in order to enforce collection of taxes. Both remedies may be pursued
1999. With the grant of immunity from audit from the companys availment of ERAP
either independently or simultaneously.In this case, the BIR decided to
and VAP, which have a feature of a tax amnesty, the element of fraud is negated the
simultaneously pursue both remedies and thus aside from this criminal action, the
moment the Bureau accepts the offer of compromise or payment of taxes by the
Bureau also initiated administrative proceedings against LMCEC.[19]
taxpayer. The act of the revenue officers in finding justification under Section 6(B) of
the NIRC (Best Evidence Obtainable) is misplaced and unavailing because they were
 On the lack of control number in the assessment notice, petitioner explained
that such is a mere office requirement in the Assessment Service for the purpose of
internal control and monitoring; hence, the unnumbered assessment notices should
not be interpreted as irregular or anomalous. Petitioner stressed that LMCEC already
lost its right to file a protest letter after the lapse of the thirty (30)-day reglementary
period. LMCECs protest-letter dated December 12, 2002 to RDO Clavelina S. Nacar,
RD No. 40, Cubao, Quezon City was actually filed only on December 16, 2002, which
was disregarded by the petitioner for being filed out of time. Even assuming for the
sake of argument that the assessment notices were invalid, petitioner contended
that such could not affect the present criminal action, [20] citing the ruling in the
landmark case of Ungab v. Cusi, Jr.[21]
As to the Letter of Termination signed by Ruth Vivian G. Gandia of the
Assessment Division, Revenue Region No. 7, Quezon City, petitioner pointed out that
LMCEC failed to mention that the undated Certification issued by RDO Pablo C.
Cabreros, Jr. of RD No. 40, Cubao, Quezon City stated that the report of the 1997
Internal Revenue taxes of LMCEC had already been submitted for review and
approval of higher authorities. LMCEC also cannot claim as excuse from the
reopening of its books of accounts the previous investigations and
examinations. Under Section 235 (a), an exception was provided in the rule on once
a year audit examination in case of fraud, irregularity or mistakes, as determined by
the Commissioner. Petitioner explained that the distinction between a Regular Audit
Examination and Tax Fraud Audit Examination lies in the fact that the former is
conducted by the district offices of the Bureaus Regional Offices, the authority
emanating from the Regional Director, while the latter is conducted by the TFD of the
National Office only when instances of fraud had been determined by the
petitioner.[22]
Petitioner further asserted that LMCECs claim that it was granted immunity
from audit when it availed of the VAP and ERAP programs is misleading. LMCEC failed
to state that its availment of ERAP under RR No. 2-99 is not a grant of absolute
immunity from audit and investigation, aside from the fact that said program was
only for income tax and did not cover VAT and withholding tax for the taxable year
1998. As for LMCECS availment of VAP in 1999 under RR No. 8-2001 dated August 1,
2001 as amended by RR No. 10-2001 dated September 3, 2001, the company failed
to state that it covers only income tax and VAT, and did not include withholding
tax. However, LMCEC is not actually entitled to the benefits of VAP under Section 1
(1.1 and 1.2) of RR No. 10-2001. As to the principle of estoppel invoked by LMCEC,
estoppel clearly does not lie against the BIR as this involved the exercise of an
inherent power by the government to collect taxes.[23]
Petitioner also pointed out that LMCECs assertion correlating this case with
I.S. No. 00-956 is misleading because said case involves another violation and offense
(Sections 5 and 266 of the NIRC). Said case was filed by petitioner due to the failure
of LMCEC to submit or present its books of accounts and other accounting records
for examination despite the issuance of subpoena duces tecum against Camus in his
capacity as President of LMCEC. While indeed a Resolution was issued by Asst. City
Prosecutor Titus C. Borlas on May 2, 2001 dismissing the complaint, the same is still
on appeal and pending resolution by the DOJ. The determination of probable cause
in said case is confined to the issue of whether there was already a violation of the
NIRC by Camus in not complying with the subpoena duces tecum issued by the BIR.[24]
Petitioner contended that precisely the reason for the issuance to the TFD of
LA No. 00009361 by the Commissioner is because the latter agreed with the findings of
the investigating revenue officers that fraud exists in this case. In the conduct of their
investigation, the revenue officers observed the proper procedure under Revenue
Memorandum Order (RMO) No. 49-2000 wherein it is required that before the issuance
of a Letter of Authority against a particular taxpayer, a preliminary investigation should
first be conducted to determine if a prima facie case for tax fraud exists. As to the
allegedly unresolved protest filed on April 20, 2001 by LMCEC over the PAN, this has
been disregarded by the Bureau for being pro forma and having been filed beyond the
15-day reglementary period. A subsequent letter dated April 20, 2001 was filed with
the TFD and signed by a certain Juan Ventigan. However, this was disregarded and
considered a mere scrap of paper since the said signatory had not shown any prior
authorization to represent LMCEC. Even assuming said protest letter was validly filed
on behalf of the company, the issuance of a Formal Demand Letter and Assessment
Notice through constructive service on October 1, 2002 is deemed an implied denial of
the said protest. Lastly, the details regarding the informer being confidential, such
information is entitled to some degree of protection, including the identity of the
informant against LMCEC.[25]
 In their Joint Rejoinder-Affidavit,[26] Camus and Mendoza reiterated their Petitioner filed a motion for reconsideration which was denied by the Chief
argument that the identity of the alleged informant is crucial to determine if he/she State Prosecutor.[28]
is qualified under Section 282 of the NIRC. Moreover, there was no assessment that
has already become final, the validity of its issuance and service has been put in issue Petitioner appealed to respondent Secretary of Justice but the latter denied
being anomalous, irregular and oppressive. It is contended that for criminal its petition for review under Resolution dated December 13, 2005.[29]
prosecution to proceed before assessment, there must be a prima facie showing of a
willful attempt to evade taxes. As to LMCECs availment of the VAP and ERAP
The Secretary of Justice found that petitioners claim that there is yet no
programs, the certificate of immunity from audit issued to it by the BIR is plain and
finality as to LMCECs payment of its 1997 taxes since the audit report was still
simple, but petitioner is now saying it has the right to renege with impunity from its
pending review by higher authorities, is unsubstantiated and misplaced. It was noted
undertaking. Though petitioner deems LMCEC not qualified to avail of the benefits of
that the Termination Letter issued by the Commissioner on June 1, 1999 is explicit
VAP, it must be noted that if it is true that at the time the petitioner filed I.S. No. 00-
that the matter is considered closed. As for taxable year 1998, respondent Secretary
956 sometime in January 2001 it had already in its custody that Confidential
stated that the record shows that LMCEC paid VAT and withholding tax in the amount
Information No. 29-2000 dated July 7, 2000, these revenue officers could have rightly
of P61,635.40 and P38,404.55, respectively. This eventually gave rise to the issuance
filed the instant case and would not resort to filing said criminal complaint for refusal
of a certificate of immunity from audit for 1998 by the Office of the Commissioner of
to comply with a subpoena duces tecum.
Internal Revenue. For taxable year 1999, respondent Secretary found that pursuant
to earlier LA No. 38633 dated July 4, 2000, LMCECs 1999 tax liabilities were still
On September 22, 2003, the Chief State Prosecutor issued a pending investigation for which reason LMCEC assailed the subsequent issuance of
Resolution[27] finding no sufficient evidence to establish probable cause against LA No. 00009361 dated August 25, 2000 calling for a similar investigation of its alleged
respondents LMCEC, Camus and Mendoza. It was held that since the payments were 1999 tax deficiencies when no final determination has yet been arrived on the earlier
made by LMCEC under ERAP and VAP pursuant to the provisions of RR Nos. 2-99 and LA No. 38633.[30]
8-2001 which were offered to taxpayers by the BIR itself, the latter is now in estoppel
to insist on the criminal prosecution of the respondent taxpayer. The voluntary
On the allegation of fraud, respondent Secretary ruled that petitioner failed
payments made thereunder are in the nature of a tax amnesty. The unnumbered
to establish the existence of the following circumstances indicating fraud in the
assessment notices were found highly irregular and thus their validity is suspect; if
settlement of LMCECs tax liabilities: (1) there must be intentional and substantial
the amounts indicated therein were collected, it is uncertain how these will be
understatement of tax liability by the taxpayer; (2) there must be intentional and
accounted for and if it would go to the coffers of the government or elsewhere. On
substantial overstatement of deductions or exemptions; and (3) recurrence of the
the required prior determination of fraud, the Chief State Prosecutor declared that
foregoing circumstances. First, petitioner miserably failed to explain why the
the Office of the City Prosecutor in I.S. No. 00-956 has already squarely ruled that (1)
assessment notices were unnumbered; second,the claim that the tax fraud
there was no prior determination of fraud, (2) there was indiscriminate issuance of
investigation was precipitated by an alleged informant has not been corroborated
LAs, and (3) the complaint was more of harassment. In view of such findings, any
nor was it clearly established, hence there is no other conclusion but that the Bureau
ensuing LA is thus defective and allowing the collection on the assailed assessment
engaged in a fishing expedition; and furthermore, petitioners course of action is
notices would already be in the context of a fishing expedition or witch-
contrary to Section 235 of the NIRC allowing only once in a given taxable year such
hunting. Consequently, there is nothing to speak of regarding the finality of
examination and inspection of the taxpayers books of accounts and other accounting
assessment notices in the aggregate amount of P630,164,631.61.
records. There was no convincing proof presented by petitioner to show that the case
of LMCEC falls under the exceptions provided in Section 235. Respondent Secretary
duly considered the issuance of Certificate of Immunity from Audit and Letter of
Termination dated June 1, 1999 issued to LMCEC. [31]
Anent the earlier case filed against the same taxpayer (I.S. No. 00-956), the
Secretary of Justice found petitioner to have engaged in forum shopping in view of
the fact that while there is still pending an appeal from the Resolution of the City
Prosecutor of Quezon City in said case, petitioner hurriedly filed the instant case,
which not only involved the same parties but also similar substantial issues (the joint
complaint-affidavit also alleged the issuance of LA No. 00009361 dated August 25,
2000). Clearly, the evidence of litis pendentia is present. Finally, respondent
Secretary noted that if indeed LMCEC committed fraud in the settlement of its tax
liabilities, then at the outset, it should have been discovered by the agents of
petitioner, and consequently petitioner should not have issued the Letter of
Termination and the Certificate of Immunity From Audit. Petitioner thus should have
been more circumspect in the issuance of said documents.[32]
Its motion for reconsideration having been denied, petitioner challenged the
ruling of respondent Secretary via a certiorari petition in the CA.
On October 31, 2006, the CA rendered the assailed decision [33] denying the
petition and concurred with the findings and conclusions of respondent
Secretary. Petitioners motion for reconsideration was likewise denied by the
appellate court.[34] It appears that entry of judgment was issued by the CA stating
that its October 31, 2006 Decision attained finality on March 25, 2007.[35] However,
the said entry of judgment was set aside upon manifestation by the petitioner that it
has filed a petition for review before this Court subsequent to its receipt of the
Resolution dated March 6, 2007 denying petitioners motion for reconsideration
on March 20, 2007.[36]
The petition is anchored on the following grounds:
I.
The Honorable Court of Appeals erroneously sustained the findings of the
Secretary of Justice who gravely abused his discretion by dismissing the
complaint based on grounds which are not even elements of the offenses
charged.
II.
The Honorable Court of Appeals erroneously sustained the findings of the
Secretary of Justice who gravely abused his discretion by dismissing
petitioners evidence, contrary to law.
III.
The Honorable Court of Appeals erroneously sustained the findings of the
Secretary of Justice who gravely abused his discretion by inquiring into the
validity of a Final Assessment Notice which has become final, executory and
demandable pursuant to Section 228 of the Tax Code of 1997 for failure of
private respondent to file a protest against the same.[37]
The core issue to be resolved is whether LMCEC and its corporate officers
may be prosecuted for violation of Sections 254 (Attempt to Evade or Defeat Tax) and
255 (Willful Failure to Supply Correct and Accurate Information and Pay Tax).
Petitioner filed the criminal complaint against the private respondents for
violation of the following provisions of the NIRC, as amended:
SEC. 254. Attempt to Evade or Defeat Tax. Any person who willfully
attempts in any manner to evade or defeat any tax imposed under this
Code or the payment thereof shall, in addition to other penalties provided
by law, upon conviction thereof, be punished by a fine of not less than Thirty
thousand pesos (P30,000) but not more than One hundred thousand pesos
(P100,000) and suffer imprisonment of not less than two (2) years but not
more than four (4) years: Provided, That the conviction or acquittal obtained
under this Section shall not be a bar to the filing of a civil suit for the
collection of taxes.
SEC. 255. Failure to File Return, Supply Correct and Accurate
Information, Pay Tax, Withhold and Remit Tax and Refund Excess Taxes
Withheld on Compensation. Any person required under this Code or by rules
and regulations promulgated thereunder to pay any tax, make a return,
keep any record, or supply any correct and accurate information, who
willfully fails to pay such tax, make such return, keep such record, or supply
such correct and accurate information, or withhold or remit taxes withheld,
or refund excess taxes withheld on compensations at the time or times
required by law or rules and regulations shall, in addition to other penalties
provided by law, upon conviction thereof, be punished by a fine of not less
than Ten thousand pesos (P10,000) and suffer imprisonment of not less than
one (1) year but not more than ten (10) years.

x x x x (Emphasis supplied.)
Respondent Secretary concurred with the Chief State Prosecutors
conclusion that there is insufficient evidence to establish probable cause to charge
private respondents under the above provisions, based on the following findings: (1)
the tax deficiencies of LMCEC for taxable years 1997, 1998 and 1999 have all been
settled or terminated, as in fact LMCEC was issued a Certificate of Immunity and
Letter of Termination, and availed of the ERAP and VAP programs; (2) there was no
prior determination of the existence of fraud; (3) the assessment notices are
unnumbered, hence irregular and suspect; (4) the books of accounts and other
accounting records may be subject to audit examination only once in a given taxable
year and there is no proof that the case falls under the exceptions provided in Section
235 of the NIRC; and (5) petitioner committed forum shopping when it filed the
instant case even as the earlier criminal complaint (I.S. No. 00-956) dismissed by the
City Prosecutor of Quezon City was still pending appeal.
Petitioner argues that with the finality of the assessment due to failure of
the private respondents to challenge the same in accordance with Section 228 of the
NIRC, respondent Secretary has no jurisdiction and authority to inquire into its
validity. Respondent taxpayer is thereby allowed to do indirectly what it cannot do
directly to raise a collateral attack on the assessment when even a direct challenge
of the same is legally barred. The rationale for dismissing the complaint on the
ground of lack of control number in the assessment notice likewise betrays a lack of
awareness of tax laws and jurisprudence, such circumstance not being an element of
the offense. Worse, the final, conclusive and undisputable evidence detailing a crime
under our taxation laws is swept under the rug so easily on mere conspiracy theories
imputed on persons who are not even the subject of the complaint.
We grant the petition.
There is no dispute that prior to the filing of the complaint with the DOJ, the
report on the tax fraud investigation conducted on LMCEC disclosed that it made
substantial underdeclarations in its income tax returns for 1997, 1998 and
1999. Pursuant to RR No. 12-99,[38] a PAN was sent to and received by LMCEC on
February 22, 2001 wherein it was notified of the proposed assessment of deficiency
taxes amounting to P430,958,005.90 (income tax - P318,606,380.19 and VAT
- P112,351,625.71) covering taxable years 1997, 1998 and 1999.[39] In response to
said PAN, LMCEC sent a letter-protest to the TFD, which denied the same on April 12,
2001 for lack of legal and factual basis and also for having been filed beyond the 15-
day reglementary period.[40]
As mentioned in the PAN, the revenue officers were not given the
opportunity to examine LMCECs books of accounts and other accounting records
because its officers failed to comply with the subpoena duces tecum earlier issued,
to verify its alleged underdeclarations of income reported by the Bureaus informant
under Section 282 of the NIRC. Hence, a criminal complaint was filed by the Bureau
against private respondents for violation of Section 266 which provides:
SEC. 266. Failure to Obey Summons. Any person who, being
duly summoned to appear to testify, or to appear and produce
books of accounts, records, memoranda, or other papers, or to
furnish information as required under the pertinent provisions of
this Code, neglects to appear or to produce such books of accounts,
records, memoranda, or other papers, or to furnish such
information, shall, upon conviction, be punished by a fine of not
less than Five thousand pesos (P5,000) but not more than Ten
thousand pesos (P10,000) and suffer imprisonment of not less than
one (1) year but not more than two (2) years.
It is clear that I.S. No. 00-956 involves a separate offense and hence litis pendentia is
not present considering that the outcome of I.S. No. 00-956 is not determinative of
the issue as to whether probable cause exists to charge the private respondents with
the crimes of attempt to evade or defeat tax and willful failure to supply correct and
accurate information and pay tax defined and penalized under Sections 254 and 255,
respectively. For the crime of tax evasion in particular, compliance by the taxpayer
with such subpoena, if any had been issued, is irrelevant. As we held in Ungab v. Cusi,
Jr.,[41] [t]he crime is complete when the [taxpayer] has x x x knowingly and willfully
filed [a] fraudulent [return] with intent to evade and defeat x x x the tax. Thus,
respondent Secretary erred in holding that petitioner committed forum shopping
when it filed the present criminal complaint during the pendency of its appeal from
the City Prosecutors dismissal of I.S. No. 00-956 involving the act of disobedience to
the summons in the course of the preliminary investigation on LMCECs correct tax
liabilities for taxable years 1997, 1998 and 1999.
In the Details of Discrepancies attached as Annex B of the PAN, [42] private
respondents were already notified that inasmuch as the revenue officers were not
given the opportunity to examine LMCECs books of accounts, accounting records and
other documents, said revenue officers gathered information from third parties. Such
procedure is authorized under Section 5 of the NIRC, which provides:
SEC. 5. Power of the Commissioner to Obtain Information, and to
Summon, Examine, and Take Testimony of Persons. In ascertaining the
correctness of any return, or in making a return when none has been made,
or in determining the liability of any person for any internal revenue tax, or
in collecting any such liability, or in evaluating tax compliance, the
Commissioner is authorized:
(A) To examine any book, paper, record or other data which may be
relevant or material to such inquiry;
(B) To obtain on a regular basis from any person other than the
person whose internal revenue tax liability is subject to audit or
investigation, or from any office or officer of the national and local
governments, government agencies and instrumentalities, including
the Bangko Sentral ng Pilipinas and government-owned or -controlled
corporations, any information such as, but not limited to, costs and volume
of production, receipts or sales and gross incomes of taxpayers, and the
names, addresses, and financial statements of corporations, mutual fund
companies, insurance companies, regional operating headquarters of
multinational companies, joint accounts, associations, joint ventures or
consortia and registered partnerships, and their members;
(C) To summon the person liable for tax or required to file a return,
or any officer or employee of such person, or any person having possession,
custody, or care of the books of accounts and other accounting records
containing entries relating to the business of the person liable for tax, or any
other person, to appear before the Commissioner or his duly authorized
representative at a time and place specified in the summons and to produce
such books, papers, records, or other data, and to give testimony;
(D) To take such testimony of the person concerned, under oath, as
may be relevant or material to such inquiry; x x x
x x x x (Emphasis supplied.)
Private respondents assertions regarding the qualifications of the informer
of the Bureau deserve scant consideration. We have held that the lack of consent of
the taxpayer under investigation does not imply that the BIR obtained the
information from third parties illegally or that the information received is false or
malicious. Nor does the lack of consent preclude the BIR from assessing deficiency
taxes on the taxpayer based on the documents.[43] In the same vein, herein private
respondents cannot be allowed to escape criminal prosecution under Sections 254
and 255 of the NIRC by mere imputation of a fictitious or disqualified informant under
Section 282 simply because other than disclosure of the official registry number of
the third party informer, the Bureau insisted on maintaining the confidentiality of the
identity and personal circumstances of said informer.
Subsequently, petitioner sent to LMCEC by constructive service allowed under
Section 3 of RR No. 12-99, assessment notice and formal demand informing the said
taxpayer of the law and the facts on which the assessment is made, as required by
Section 228 of the NIRC. Respondent Secretary, however, fully concurred with private
respondents contention that the assessment notices were invalid for being
unnumbered and the tax liabilities therein stated have already been settled and/or
terminated.
We do not agree.
A notice of assessment is:
[A] declaration of deficiency taxes issued to a [t]axpayer who fails to
respond to a Pre-Assessment Notice (PAN) within the prescribed period of
time, or whose reply to the PAN was found to be without merit. The Notice
of Assessment shall inform the [t]axpayer of this fact, and that the report
of investigation submitted by the Revenue Officer conducting the audit
shall be given due course.
The formal letter of demand calling for payment of the taxpayers
deficiency tax or taxes shall state the fact, the law, rules and regulations
or jurisprudence on which the assessment is based, otherwise the formal
letter of demand and the notice of assessment shall be void.[44]
As it is, the formality of a control number in the assessment notice is not a
requirement for its validity but rather the contents thereof which should inform the
taxpayer of the declaration of deficiency tax against said taxpayer. Both the formal
letter of demand and the notice of assessment shall be void if the former failed to
state the fact, the law, rules and regulations or jurisprudence on which the
assessment is based, which is a mandatory requirement under Section 228 of the
NIRC.
Section 228 of the NIRC provides that the taxpayer shall be informed in
writing of the law and the facts on which the assessment is made. Otherwise, the
assessment is void. To implement the provisions of Section 228 of the NIRC, RR No.
12-99 was enacted. Section 3.1.4 of the revenue regulation reads:
3.1.4. Formal Letter of Demand and Assessment
Notice. The formal letter of demand and assessment notice shall be
issued by the Commissioner or his duly authorized
representative. The letter of demand calling for payment of the
taxpayers deficiency tax or taxes shall state the facts, the law,
rules and regulations, or jurisprudence on which the assessment
is based, otherwise, the formal letter of demand and assessment
notice shall be void. The same shall be sent to the taxpayer only by
registered mail or by personal delivery. x x x.[45](Emphasis
supplied.)
The Formal Letter of Demand dated August 7, 2002 contains not only a
detailed computation of LMCECs tax deficiencies but also details of the specified
discrepancies, explaining the legal and factual bases of the assessment. It also
reiterated that in the absence of accounting records and other documents necessary
for the proper determination of the companys internal revenue tax liabilities, the
investigating revenue officers resorted to the Best Evidence Obtainable as provided
in Section 6(B) of the NIRC (third party information) and in accordance with the
procedure laid down in RMC No. 23-2000 dated November 27, 2000. Annex A of the
Formal Letter of Demand thus stated:
Thus, to verify the validity of the information previously
provided by the informant, the assigned revenue officers resorted
to third party information. Pursuant to Section 5(B) of the NIRC of
1997, access letters requesting for information and the submission
of certain documents (i.e., Certificate of Income Tax Withheld at
Source and/or Alphabetical List showing the income payments
made to L.M. Camus Engineering Corporation for the taxable years
1997 to 1999) were sent to the various clients of the subject
corporation, including but not limited to the following:
1. Ayala Land Inc.
2. Filinvest Alabang Inc.
3. D.M. Consunji, Inc.
4. SM Prime Holdings, Inc.
5. Alabang Commercial Corporation
6. Philam Properties Corporation
7. SM Investments, Inc.
8. Shoemart, Inc.
9. Philippine Securities Corporation
10. Makati Development Corporation
From the documents gathered and the data obtained
therein, the substantial underdeclaration as defined under
Section 248(B) of the NIRC of 1997 by your corporation of its
income had been confirmed. x x x x[46] (Emphasis supplied.)
In the same letter, Assistant Commissioner Percival T. Salazar informed
private respondents that the estimated tax liabilities arising from LMCECs
underdeclaration amounted to P186,773,600.84 in 1997, P150,069,323.81 in 1998
and P163,220,111.13 in 1999. These figures confirmed that the non-declaration by
LMCEC for the taxable years 1997, 1998 and 1999 of an amount exceeding 30%
income[47] declared in its return is considered a substantial underdeclaration of
income, which constituted prima facieevidence of false or fraudulent return under
Section 248(B)[48] of the NIRC, as amended.[49]
On the alleged settlement of the assessed tax deficiencies by private respondents,
respondent Secretary found the latters claim as meritorious on the basis of the
Certificate of Immunity From Audit issued on December 6, 1999 pursuant to RR No.
2-99 and Letter of Termination dated June 1, 1999 issued by Revenue Region No. 7
Chief of Assessment Division Ruth Vivian G. Gandia. Petitioner, however, clarified
that the certificate of immunity from audit covered only income tax for the year 1997
and does not include VAT and withholding taxes, while the Letter of Termination
involved tax liabilities for taxable year 1997 (EWT, VAT and income taxes) but which
was submitted for review of higher authorities as per the Certification of RD No. 40
District Officer Pablo C. Cabreros, Jr.[50] For 1999, private respondents supposedly
availed of the VAP pursuant to RR No. 8-2001.
RR No. 2-99 issued on February 7, 1999 explained in its Policy Statement that
considering the scarcity of financial and human resources as well as the time
constraints within which the Bureau has to clean the Bureaus backlog of unaudited
tax returns in order to keep updated and be focused with the most current accounts
in preparation for the full implementation of a computerized tax administration, the
said revenue regulation was issued providing for last priority in audit and
investigation of tax returns to accomplish the said objective without, however,
compromising the revenue collection that would have been generated from audit
and enforcement activities. The program named as Economic Recovery Assistance
Payment (ERAP) Program granted immunity from audit and investigation of income
tax, VAT and percentage tax returns for 1998. It expressly excluded withholding tax
returns (whether for income, VAT, or percentage tax purposes). Since such immunity
from audit and investigation does not preclude the collection of revenues generated
from audit and enforcement activities, it follows that the Bureau is likewise not
barred from collecting any tax deficiency discovered as a result of tax fraud
investigations. Respondent Secretarys opinion that RR No. 2-99 contains the feature
of a tax amnesty is thus misplaced.
Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It
also gives the government a chance to collect uncollected tax from tax evaders
without having to go through the tedious process of a tax case. [51] Even
assuming arguendo that the issuance of RR No. 2-99 is in the nature of tax amnesty,
it bears noting that a tax amnesty, much like a tax exemption, is never favored nor
presumed in law and if granted by statute, the terms of the amnesty like that of a tax
exemption must be construed strictly against the taxpayer and liberally in favor of
the taxing authority.[52]
For the same reason, the availment by LMCEC of VAP under RR No. 8-2001 as
amended by RR No. 10-2001, through payment supposedly made in October 29, 2001
before the said program ended on October 31, 2001, did not amount to settlement
of its assessed tax deficiencies for the period 1997 to 1999, nor immunity from
prosecution for filing fraudulent return and attempt to evade or defeat tax. As
correctly asserted by petitioner, from the express terms of the aforesaid revenue
regulations, LMCEC is not qualified to avail of the VAP granting taxpayers the privilege
of last priority in the audit and investigation of all internal revenue taxes for the
taxable year 2000 and all prior years under certain conditions, considering
that first, it was issued a PAN on February 19, 2001, and second, it was the subject of
investigation as a result of verified information filed by a Tax Informer under Section
282 of the NIRC duly recorded in the BIR Official Registry as Confidential Information
(CI) No. 29-2000[53] even prior to the issuance of the PAN.
Section 1 of RR No. 8-2001 provides:
SECTION 1. COVERAGE. x x x
Any person, natural or juridical, including estates and trusts, liable
to pay any of the above-cited internal revenue taxes for the above specified
period/s who, due to inadvertence or otherwise, erroneously paid his
internal revenue tax liabilities or failed to file tax return/pay taxes may avail
of the Voluntary Assessment Program (VAP), except those falling under any
of the following instances:
1.1 Those covered by a Preliminary Assessment Notice
(PAN), Final Assessment Notice (FAN), or Collection Letter issued on or
before July 31, 2001; or
1.2 Persons under investigation as a result of verified information
filed by a Tax Informer under Section 282 of the Tax Code of 1997, duly
processed and recorded in the BIR Official Registry Book on or before July
31, 2001;
1.3 Tax fraud cases already filed and pending in courts for
adjudication; and
x x x x (Emphasis supplied.)
Moreover, private respondents cannot invoke LMCECs availment of VAP to
foreclose any subsequent audit of its account books and other accounting records in
view of the strong finding of underdeclaration in LMCECs payment of correct income
tax liability by more than 30% as supported by the written report of the TFD detailing
the facts and the law on which such finding is based, pursuant to the tax fraud
investigation authorized by petitioner under LA No. 00009361. This conclusion finds
support in Section 2 of RR No. 8-2001 as amended by RR No. 10-2001 provides:
SEC. 2. TAXPAYERS BENEFIT FROM AVAILMENT OF THE VAP. A
taxpayer who has availed of the VAP shall not be audited except upon
authorization and approval of the Commissioner of Internal Revenue when
there is strong evidence or finding of understatement in the payment of
taxpayers correct tax liability by more than thirty percent (30%) as
supported by a written report of the appropriate office detailing the facts
and the law on which such finding is based: Provided, however, that any VAP
payment should be allowed as tax credit against the deficiency tax due, if
any, in case the concerned taxpayer has been subjected to tax audit.
xxxx
Given the explicit conditions for the grant of immunity from audit under RR
No. 2-99, RR No. 8-2001 and RR No. 10-2001, we hold that respondent Secretary
gravely erred in declaring that petitioner is now estopped from assessing any tax
deficiency against LMCEC after issuance of the aforementioned documents of
immunity from audit/investigation and settlement of tax liabilities. It is axiomatic that
the State can never be in estoppel, and this is particularly true in matters involving
taxation. The errors of certain administrative officers should never be allowed to
jeopardize the governments financial position.[54]
Respondent Secretarys other ground for assailing the course of action taken
by petitioner in proceeding with the audit and investigation of LMCEC -- the alleged
violation of the general rule in Section 235 of the NIRC allowing the examination and
inspection of taxpayers books of accounts and other accounting records only once in
a taxable year -- is likewise untenable. As correctly pointed out by petitioner, the
discovery of substantial underdeclarations of income by LMCEC for taxable years
1997, 1998 and 1999 upon verified information provided by an informer under
Section 282 of the NIRC, as well as the necessity of obtaining information from third
parties to ascertain the correctness of the return filed or evaluation of tax compliance
in collecting taxes (as a result of the disobedience to the summons issued by the
Bureau against the private respondents), are circumstances warranting exception
from the general rule in Section 235. [55]
As already stated, the substantial underdeclared income in the returns filed
by LMCEC for 1997, 1998 and 1999 in amounts equivalent to more than 30% (the
computation in the final assessment notice showed underdeclarations of almost
200%) constitutes prima facie evidence of fraudulent return under Section 248(B) of
the NIRC. Prior to the issuance of the preliminary and final notices of assessment, the
revenue officers conducted a preliminary investigation on the information and
documents showing substantial understatement of LMCECs tax liabilities which were
provided by the Informer, following the procedure under RMO No. 15-95.[56] Based
on the prima facie finding of the existence of fraud, petitioner issued LA No.
00009361 for the TFD to conduct a formal fraud investigation of
[57]
LMCEC. Consequently, respondent Secretarys ruling that the filing of criminal
complaint for violation of Sections 254 and 255 of the NIRC cannot prosper because
of lack of prior determination of the existence of fraud, is bereft of factual basis and
contradicted by the evidence on record.
Tax assessments by tax examiners are presumed correct and made in good
faith, and all presumptions are in favor of the correctness of a tax assessment unless
proven otherwise.[58] We have held that a taxpayers failure to file a petition for
review with the Court of Tax Appeals within the statutory period rendered the
disputed assessment final, executory and demandable, thereby precluding it from
interposing the defenses of legality or validity of the assessment and prescription of
the Governments right to assess.[59]Indeed, any objection against the assessment
should have been pursued following the avenue paved in Section 229 (now Section
228) of the NIRC on protests on assessments of internal revenue taxes.[60]
Records bear out that the assessment notice and Formal Letter of Demand
dated August 7, 2002 were duly served on LMCEC on October 1, 2002. Private
respondents did not file a motion for reconsideration of the said assessment notice
and formal demand; neither did they appeal to the Court of Tax Appeals. Section 228
of the NIRC[61] provides the remedy to dispute a tax assessment within a certain period
of time. It states that an assessment may be protested by filing a request for
reconsideration or reinvestigation within 30 days from receipt of the assessment by the
taxpayer. No such administrative protest was filed by private respondents seeking
reconsideration of the August 7, 2002 assessment notice and formal letter of demand.
Private respondents cannot belatedly assail the said assessment, which they allowed to
lapse into finality, by raising issues as to its validity and correctness during the
preliminary investigation after the BIR has referred the matter for prosecution under
Sections 254 and 255 of the NIRC.
own powers of review with respect to the DOJs findings, such as in the
exceptional case in which grave abuse of discretion is committed, as when a
clear sufficiency or insufficiency of evidence to support a finding of probable
cause is ignored.[64]

As we held in Marcos II v. Court of Appeals[62]: WHEREFORE, the petition is GRANTED. The Decision dated October 31, 2006 and
It is not the Department of Justice which is the government agency Resolution dated March 6, 2007 of the Court of Appeals in CA-G.R. SP No. 93387 are
tasked to determine the amount of taxes due upon the subject estate, but hereby REVERSED and SET ASIDE. The Secretary of Justice is hereby DIRECTED to
the Bureau of Internal Revenue, whose determinations and assessments are order the Chief State Prosecutor to file before the Regional Trial Court of Quezon City,
presumed correct and made in good faith. The taxpayer has the duty of National Capital Judicial Region, the corresponding Information against L. M. Camus
proving otherwise. In the absence of proof of any irregularities in the
performance of official duties, an assessment will not be disturbed. Even Engineering Corporation, represented by its President Luis M. Camus and
an assessment based on estimates is prima facie valid and lawful where it Comptroller Lino D. Mendoza, for Violation of Sections 254 and 255 of the National
does not appear to have been arrived at arbitrarily or capriciously. The Internal Revenue Code of 1997.
burden of proof is upon the complaining party to show clearly that the
assessment is erroneous. Failure to present proof of error in the assessment
No costs.
will justify the judicial affirmance of said assessment. x x x.
Moreover, these objections to the assessments should have been
SO ORDERED.
raised, considering the ample remedies afforded the taxpayer by the Tax
Code, with the Bureau of Internal Revenue and the Court of Tax
Appeals, as described earlier, and cannot be raised now via Petition Republic of the Philippines
for Certiorari, under the pretext of grave abuse of discretion. The course of Supreme Court
action taken by the petitioner reflects his disregard or even repugnance of Baguio City
the established institutions for governance in the scheme of a well-ordered THIRD DIVISION
society. The subject tax assessments having become final, executory and
enforceable, the same can no longer be contested by means of a disguised COMMISSIONER OF INTERNAL G.R. No. 160949
protest. In the main, Certiorari may not be used as a substitute for a lost REVENUE,
appeal or remedy. This judicial policy becomes more pronounced in view of Petitioner, Present:
the absence of sufficient attack against the actuations of
government. (Emphasis supplied.) CARPIO MORALES, Chairperson,
The determination of probable cause is part of the discretion granted BRION,
to the investigating prosecutor and ultimately, the Secretary of - versus - BERSAMIN,
Justice. However, this Court and the CA possess the power to review findings VILLARAMA, JR., and
of prosecutors in preliminary investigations. Although policy considerations SERENO, JJ.
call for the widest latitude of deference to the prosecutors findings, courts
should never shirk from exercising their power, when the circumstances PL MANAGEMENT INTERNATIONAL Promulgated:
warrant, to determine whether the prosecutors findings are supported by PHILIPPINES, INC.,
the facts, or by the law. In so doing, courts do not act as prosecutors but as Respondent. April 4, 2011
organs of the judiciary, exercising their mandate under the Constitution, x-----------------------------------------------------------------------------------------x
relevant statutes, and remedial rules to settle cases and
controversies.[63] Clearly, the power of the Secretary of Justice to review DECISION
does not preclude this Court and the CA from intervening and exercising our

BERSAMIN, J.:
How may the respondent taxpayer still recover its unutilized
creditable withholding tax for taxable year 1997 after its written claim for
refund was not acted upon by the petitioner, whose inaction was upheld by
the Court of Tax Appeals (CTA) on the ground of the claim for tax refund
being already barred by prescription?
Nature of the Case
The inaction of petitioner Commissioner of Internal Revenue
(Commissioner) on the respondents written claim for tax refund or tax
credit impelled the latter to commence judicial action for that purpose in
the CTA. However, the CTA denied the claim on December 10, 2001 for
being brought beyond two years from the accrual of the claim.
On appeal, the Court of Appeals (CA) reversed the CTAs denial
through the decision promulgated in C.A.-G.R. Sp. No. 68461 on November
28, 2002, and directed the petitioner to refund the unutilized creditable
withholding tax to the respondent.[1]
Hence, the petitioner appeals.
Antecedents
In 1997, the respondent, a Philippine corporation, earned an income
of P24,000,000.00 from its professional services rendered to UEM-MARA
Philippines Corporation (UMPC), from which income UMPC
withheld P1,200,000.00 as the respondents withholding agent.[2]
In its 1997 income tax return (ITR) filed on April 13, 1998, the
respondent reported a net loss of P983,037.00, but expressly signified that it
had a creditable withholding tax of P1,200,000.00 for taxable year 1997 to
be claimed as tax credit in taxable year 1998.[3]
On April 13, 1999, the respondent submitted its ITR for taxable year
1998, in which it declared a net loss of P2,772,043.00. Due to its net-loss
position, the respondent was unable to claim the P1,200,000.00 as tax
credit.
On April 12, 2000, the respondent filed with the petitioner a written claim
for the refund of the P1,200,000.00 unutilized creditable withholding tax for
taxable year 1997.[4] However, the petitioner did not act on the claim.
Ruling of the CTA
Decision partly ANNULLED. Respondent Commissioner of Internal Revenue is
Due to the petitioners inaction, the respondent filed a petition for
review in the CTA (CTA Case No. 6107) on April 14, 2000, thereby
commencing its judicial action.
On December 10, 2001, the CTA denied the respondents claim on
the ground of prescription,[5] to wit:
Records reveal that Petitioner filed its Annual Income Tax Return for
taxable year 1997 on April 13, 1998 (Exhibit A) and its claim for refund with
the BIR on April 12, 2000 (Exhibit D and No. 2 of the Statement of Admitted
Facts and Issues). Several days thereafter, or on April 14, 2000, Petitioner
filed an appeal with this Court.
The aforementioned facts clearly show that the judicial claim for
refund via this Petition for Review was already filed beyond the two-
year prescriptive period mandated by Sections 204 (C) and 229 of
the Tax Code xxx
As earlier mentioned, Petitioner filed its Annual ITR on April 13,
1998 and filed its judicial claim for refund only on April 14, 2000 which is
beyond the two-year period earlier discussed. The aforequoted Sections 204
(C) and 229 of the Tax Code mandates that both the administrative and
judicial claims for refund must be filed within the two-year period,
otherwise the taxpayer's cause of action shall be barred by
prescription. Unfortunately, this lapse on the part of Petitioner proved fatal
to its claim.
xxx
WHEREFORE, in view of the foregoing the Petition for Review is
hereby DENIED due to prescription.
Ruling of the CA
Aggrieved, the respondent appealed to the CA, assailing the
correctness of the CTAs denial of its judicial claim for refund on the ground
of bar by prescription.
As earlier mentioned, the CA promulgated its decision on November
28, 2002, holding that the two-year prescriptive period, which was not
jurisdictional (citing Oral and Dental College v. Court of Tax
Appeal[6]and Commissioner of Internal Revenue v. Philippine American Life
Insurance Company[7]), might be suspended for reasons of equity.[8]The CA
thus disposed as follows:
WHEREFORE, the petition is partly GRANTED and the assailed CTA
hereby ordered to refund to petitioner PL Management International Phils.,
Inc., the amount of P1,200,000.00 representing its unutilized creditable
withholding tax in taxable year 1997.[9]
The CA rejected the petitioners motion for reconsideration. [10]
Issues
In this appeal, the petitioner insists that:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT THE TWO-YEAR
PRESCRIPTIVE PERIOD UNDER SECTION 229 OF THE TAX CODE IS NOT
JURISDICTIONAL, THUS THE CLAIM FOR REFUND OF RESPONDENT IS
SUSPENDED FOR REASONS OF EQUITY.
II. THE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENTS
JUDICIAL RIGHT TO CLAIM FOR REFUND BROUGHT BEFORE THE COURT OF
APPEALS ON APRIL 14, 2000 WAS ONE DAY LATE ONLY.[11]
The petitioner argues that the decision of the CA suspending the running of the two-
year period set by Section 229 of the National Internal Revenue Code of 1997 (NIRC
of 1997) on ground of equity was erroneous and had no legal basis; that equity could
not supplant or replace a clear mandate of a law that was still in force and effect; that
a claim for a tax refund or tax credit, being in the nature of a tax exemption to be
treated as in derogation of sovereign authority, must be construed in strictissimi
juris against the taxpayer; that the respondents two-year prescriptive period under
Section 229 of the NIRC of 1997 commenced to run on April 13, 1998, the date it filed
its ITR for taxable year 1997; that by reckoning the period from April 13, 1998, the
respondent had only until April 12, 2000 within which to commence its judicial action
for refund with the CTA, the year 2000 being a leap year; that its filing of the judicial
action on April 14, 2000 was already tardy; and that the factual findings of the CTA,
being supported by substantial evidence, should be accorded the highest respect.
In its comment, the respondent counters that it filed its judicial action for refund
within the statutory two-year period because the correct reckoning started from
April 15, 1998, the last day for the filing of the ITR for taxable year 1997; that the two-
year prescriptive period was also not jurisdictional and might be relaxed on equitable
reasons; and that a disallowance of its claim for refund would result in the unjust
enrichment of the Government at its expense.
Ruling of the Court
We reverse and set aside the decision of the CA to the extent that it orders
the petitioner to refund to the respondent the P1,200,000.00 representing the
unutilized creditable withholding tax in taxable year 1997, but permit the respondent
to apply that amount as tax credit in succeeding taxable years until fully exhausted.
Section 76 of the NIRC of 1997 provides:
Section 76. Final Adjustment Return. - Every corporation liable to tax
under Section 27 shall file a final adjustment return covering the total
taxable income for the preceding calendar or fiscal year. If the sum of the
quarterly tax payments made during the said taxable year is not equal to
the total tax due on the entire taxable income of that year the corporation
shall either:
(A) Pay the balance of tax still due; or
(B) Carry over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as
the case may be.
In case the corporation is entitled to a refund of the excess
estimated quarterly income taxes paid, the refundable amount shown on
its final adjustment return may be credited against the estimated quarterly
income tax liabilities for the taxable quarters of the succeeding taxable
years. Once the option to carry-over and apply the excess quarterly
income tax against income tax due for the taxable quarters of the
succeeding taxable years has been made, such option shall be considered
 irrevocable for that taxable period and no application for tax refund or
issuance of a tax credit certificate shall be allowed therefor.
The predecessor provision of Section 76 of the NIRC of 1997 is Section 79 of the NIRC
of 1985, which provides:
Section 79. Final Adjustment Return. Every corporation liable to tax
under Section 24 shall file a final adjustment return covering the total net
income for the preceding calendar or fiscal year. If the sum of the quarterly
tax payments made during the said taxable year is not equal to the total
tax due on the entire taxable net income of that year the corporation shall
either:
(a) Pay the excess tax still due; or
(b) Be refunded the excess amount paid, as the case may be.
In case the corporation is entitled to a refund of the excess
estimated quarterly income taxes-paid, the refundable amount shown on
its final adjustment return may be credited against the estimated quarterly
income tax liabilities for the taxable quarters of the succeeding taxable
year.
As can be seen, Congress added a sentence to Section 76 of the NIRC of 1997
in order to lay down the irrevocability rule, to wit:
xxx Once the option to carry-over and apply the excess quarterly
income tax against income tax due for the taxable quarters of the
succeeding taxable years has been made, such option shall be considered
irrevocable for that taxable period and no application for tax refund or
issuance of a tax credit certificate shall be allowed therefor.
In Philam Asset Management, Inc. v. Commissioner of Internal Revenue, [12] the Court
expounds on the two alternative options of a corporate taxpayer whose total
quarterly income tax payments exceed its tax liability, and on how the choice of one
option precludes the other, viz:
The first option is relatively simple. Any tax on income that is paid
in excess of the amount due the government may be refunded, provided
that a taxpayer properly applies for the refund.
The second option works by applying the refundable amount, as
shown on the FAR of a given taxable year, against the estimated quarterly
income tax liabilities of the succeeding taxable year.
These two options under Section 76 are alternative in nature. The
choice of one precludes the other. Indeed, in Philippine Bank of
Communications v. Commissioner of Internal Revenue, the Court ruled
that a corporation must signify its intention whether to request a tax
refund or claim a tax credit by marking the corresponding option box
provided in the FAR. While a taxpayer is required to mark its choice in
the form provided by the BIR, this requirement is only for the purpose of
facilitating tax collection.
One cannot get a tax refund and a tax credit at the same time for
the same excess income taxes paid. xxx
In Commissioner of Internal Revenue v. Bank of the Philippine Islands,[13] the
Court, citing the aforequoted pronouncement in Philam Asset Management,
Inc., points out that Section 76 of the NIRC of 1997 is clear and unequivocal
in providing that the carry-over option, once actually or constructively
chosen by a corporate taxpayer, becomes irrevocable. The Court explains:
Hence, the controlling factor for the operation of the irrevocability
rule is that the taxpayer chose an option; and once it had already done so,
it could no longer make another one. Consequently, after the taxpayer
opts to carry-over its excess tax credit to the following taxable period, the
question of whether or not it actually gets to apply said tax credit is
irrelevant. Section 76 of the NIRC of 1997 is explicit in stating that once the
option to carry over has been made, no application for tax refund or
issuance of a tax credit certificate shall be allowed therefor.
The last sentence of Section 76 of the NIRC of 1997 reads: Once the
option to carry-over and apply the excess quarterly income tax against
income tax due for the taxable quarters of the succeeding taxable years
has been made, such option shall be considered irrevocable for that
taxable period and no application for tax refund or issuance of a tax credit
certificate shall be allowed therefor. The phrase for that taxable period
merely identifies the excess income tax, subject of the option, by referring
to the taxable period when it was acquired by the taxpayer. In the present
case, the excess income tax credit, which BPI opted to carry over, was
acquired by the said bank during the taxable year 1998. The option of BPI
 to carry over its 1998 excess income tax credit is irrevocable; it cannot later
on opt to apply for a refund of the very same 1998 excess income tax
credit.
The Court of Appeals mistakenly understood the phrase for that taxable
period as a prescriptive period for the irrevocability rule. This would mean
that since the tax credit in this case was acquired in 1998, and BPI opted
to carry it over to 1999, then the irrevocability of the option to carry over
expired by the end of 1999, leaving BPI free to again take another option
as regards its 1998 excess income tax credit. This construal effectively
renders nugatory the irrevocability rule. The evident intent of the
legislature, in adding the last sentence to Section 76 of the NIRC of 1997,
is to keep the taxpayer from flip-flopping on its options, and avoid
confusion and complication as regards said taxpayer's excess tax credit.
The interpretation of the Court of Appeals only delays the flip-flopping to
the end of each succeeding taxable period.
The Court similarly disagrees in the declaration of the Court of
Appeals that to deny the claim for refund of BPI, because of the
irrevocability rule, would be tantamount to unjust enrichment on the part
of the government. The Court addressed the very same argument
in Philam, where it elucidated that there would be no unjust enrichment
in the event of denial of the claim for refund under such circumstances,
because there would be no forfeiture of any amount in favor of the
government. The amount being claimed as a refund would remain in the
account of the taxpayer until utilized in succeeding taxable years, as
provided in Section 76 of the NIRC of 1997. It is worthy to note that unlike
the option for refund of excess income tax, which prescribes after two
years from the filing of the FAR, there is no prescriptive period for the
carrying over of the same. Therefore, the excess income tax credit of BPI,
which it acquired in 1998 and opted to carry over, may be repeatedly
carried over to succeeding taxable years, i.e., to 1999, 2000, 2001, and so
on and so forth, until actually applied or credited to a tax liability of BPI.
Inasmuch as the respondent already opted to carry over its unutilized
creditable withholding tax of P1,200,000.00 to taxable year 1998, the carry-over
could no longer be converted into a claim for tax refund because of the irrevocability
rule provided in Section 76 of the NIRC of 1997. Thereby, the respondent became
barred from claiming the refund.
However, in view of it irrevocable choice, the respondent remained entitled
to utilize that amount of P1,200,000.00 as tax credit in succeeding taxable years until
fully exhausted. In this regard, prescription did not bar it from applying the amount
as tax credit considering that there was no prescriptive period for the carrying over
of the amount as tax credit in subsequent taxable years.[14]
The foregoing result has rendered unnecessary any discussion of the
assigned errors committed by the CA.
WHEREFORE, we reverse and set aside the decision dated November 28,
2002 promulgated in C.A.-G.R. Sp. No. 68461 by the Court of Appeals, and declare
that PL Management International Phils., Inc. is not entitled to the refund of the
unutilized creditable withholding tax of P1,200,000.00 on account of the
irrevocability rule provided in Section 76 of the National Internal Revenue Code of
1997.
We rule that PL Management International Phils., Inc. may still use the
creditable withholding tax of P1,200,000.00 as tax credit in succeeding taxable years
until fully exhausted.
No pronouncement on costs of suit.
SO ORDERED.
BRION, J.:
Before us is a petition for review on certiorari[1] under Rule 45 of the Rules of Court
seeking the reversal of the decision[2] dated June 18, 2012, and the
resolution[3] dated November 8, 2012 of the Court of Tax Appeals (CTA) en banc in
CTA EB Case No. 740 (CTA Case No. 7683). In the assailed decision and resolution,
the CTA en banc affirmed the decision[4] dated November 9, 2010 and
resolution[5] dated March 7, 2011, of the CTA Second Division (CTA Division). The
latter dismissed the petition of Procter & Gamble Asia Pte. Ltd. (PGAPL) for
premature filing.
The Facts
Petitioner PGAPL is a foreign corporation duly organized and existing under the laws
of Singapore, with a Regional Operating Headquarters (ROHQ) in the Philippines.
The ROHQ provides management, marketing, technical and financial advisory, and
other qualified services to its related parties. PGAPL is registered as a Value Added
Tax (VAT) taxpayer with the Bureau of Internal Revenue (BIR). On the other hand,
respondent is the duly appointed Commissioner of Internal Revenue (CIR),
empowered to perform the duties of said office including, among others, the duty
to act upon and approve claims for refunds or tax credits as provided by law.
On October 24, 2005, and January 26, 2006, PGAPL filed with the BIR its Original
Quarterly VAT returns for the Third and Fourth quarters of 2005, respectively.
On April 4, 2007, PGAPL amended its Quarterly VAT returns for the last two
quarters of 2005, reporting both sales subject to 10% VAT and zero-rated sales. For
the last two quarters of 2005, PGAPL claimed it incurred unutilized input VAT
amounting to P53,624,427.14.
On August 21, 2007, PGAPL filed an administrative claim for tax refund with the BIR
for input VAT attributable to its zero-rated sales covering the period July 2005 to
September 2005 and October 2005 to December 2005.
Claiming that the CIR has not acted on its application, PGAPL elevated the case to
the CTA by filing a petition for review[6] before the CTA division on September 27,
2007.
The CTA Division dismissed PGAPL's petition.[7] It ruled that the filing of the judicial
claim for tax refund or credit before the CTA is premature, because the petitioner
proceeded with its appeal even before the expiration of the 120-day period given to
the CIR to decide on its claim for tax refund or credit of excess input VAT. Section
112 of the National Internal Revenue Code of 1997 (NIRC) provides that in case of
denial of his claim for tax credit or refund or failure of the CIR to act on the
application within 120 days, the taxpayer may, within 30 days from the receipt of
the notice of denial or after the expiration of the 120-day period, appeal the
decision or unacted claim with the CTA. The CTA Division emphasized that, as
enunciated in Commissioner of Internal Revenue v. Aichi Forging Company of Asia,
Inc.,[8]compliance with the aforesaid 120- and 30-day periods is crucial in filing an
appeal before the CTA (Aichi Doctrine).
PGAPL moved for reconsideration, but the CTA denied its motion in a resolution
dated March 7, 2011.[9] The CTA Division struck down PGAPL's argument that
respondent is already estopped from raising the issue of jurisdiction considering
that it already actively participated in all stages of the proceedings and that the CTA
has proceeded to try the case without bringing into petitioner's attention that it has
no jurisdiction to do so. It ruled that parties are not barred from assailing the
jurisdiction of the court, even when the case has already been tried and decided
upon. Jurisdiction must exist as a matter of law and may not be conferred by the
consent of the parties or by estoppel.[10]
Thereafter, petitioner filed a petition for review[11] before the CTA en banc.
In its decision[12] dated June 18, 2012, the CTA en banc affirmed the decision and
resolution of the CTA Division. It found that PGAPL's administrative claim for excess
input VAT credit or refund was timely filed with the BIR on August 21, 2007.
However, its judicial claim before the CTA was filed on September 27, 2007, or only
37 days after it had filed its administrative claim.
Based on these timelines, the CTA en banc held that PGAPL's petition was
prematurely filed. Thus, the CTA had no jurisdiction to hear and decide its appeal.
The CTA en banc reiterated that, based on Aichi, the premature filing of a taxpayer's
claim for tax credit or refund on input VAT before the CTA warrants dismissal as the
CTA did not acquire jurisdiction over the claim.
The CTA en banc further held that, contrary to petitioner's claim, the Aichi Doctrine
was not effectively abandoned by the Supreme Court in its rulings in Hitachi Global
Storage Technologies Corp v. Commissioner of Internal Revenue, [13] Silicon
Philippines, Inc. v. Commissioner of Internal Revenue,[14] and Kepco Philippines
Corporation v. Commissioner of Internal Revenue.[15] It observed that in PGAPL's
cited cases, the issue of compliance with the 120- and 30-day periods under Section
112 of the NIRC was never squarely raised. Thus, Aichi remains the prevailing
doctrine on the compliance with the 120- and 30-day periods.
The CTA en banc further ruled that Hitachi, Silicon, and Kepco could not have
overturned Aichi. Such reversal would run counter to the constitutional mandate
that no doctrine or principle of law laid down by the court in a decision rendered en
banc or in division may be modified or reversed except by the Supreme Court
sitting en banc.[16]
The CTA en banc also denied petitioner's motion for reconsideration.[17] Hence, on
December 28, 2010, PGAPL filed the present petition.
PGAPL insists that this Court had abandoned the Aichi Doctrine not only in Hitachi,
Silicon, and Kepco, but also in Microsoft Philippines, Inc. vs. Commissioner of
Internal Revenue,[18] Southern Philippines Power Corporation v. Commissioner of
Internal Revenue,[19] and Western Mindanao Power Corporation v. Commissioner of
Internal Revenue.[20]
PGAPL also posits that the premature filing of its judicial claim is not fatal to its case.
It is not jurisdictional, but merely a failure to exhaust administrative remedies,
which, when analyzed more closely, only amounts to a lack of cause of action. Thus,
its petition before the CTA might have been infirm, but the CIR should be deemed
to have waived this infirmity when it did not file a motion to dismiss and opted to
participate at the trial.
PGAPL further argues that its constitutional rights to due process and equal
protection of laws were violated when their judicial claim for tax credit or refund
was dismissed due to noncompliance with the Aichi Doctrine. It noted that the
claims filed by the taxpayers in Intel,[21] San
Roque,[22] Panasonic,[23] AT&T,[24] Hitachi, Silicon, Kepco, Microsoft, Southern
Philippines Power, and Western Mindanao Power were given due course despite the
similar failure to observe the 120- and 30-day periods.
Finally, petitioner claims that even assuming that the Aichi Doctrine has not been
overturned, it does not apply to its case, because the facts in Aichi are not identical
with those in the present case. Further, the respondent should be considered
estopped from questioning the jurisdiction of the CTA, considering that it has
participated in all stages of the case.
On February 6, 2013,[25] we required the CIR to comment on the petition.
In the meantime, on February 12, 2013, we decided the consolidated cases
of Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito
Mining Corporation v. Commissioner of Internal Revenue, and Philex Mining
Corporation v. Commissioner of Internal Revenue. [26] In San Roque-Taganito, we
recognized the effectivity of BIR Ruling No. DA-489-03, which expressly stated that
the "taxpayer-claimant need not wait for the lapse of the 120-day period before it
could seek judicial relief with the CTA by way of Petition for Review." We said:
There is no dispute that the 120-day period is mandatory and jurisdictional, and
that the CTA does not acquire jurisdiction over a judicial claim that is filed before
the expiration of the 120-day period. There are, however, two exceptions to this
rule. The first exception is if the Commissioner, through a specific ruling, misleads a
particular taxpayer to prematurely file a judicial claim with the CTA. The second
exception is where the Commissioner, through a general interpretative rule issued
under Section 4 of the Tax Code, misleads all taxpayers into filing prematurely
judicial claims with the CTA. In these cases, the Commissioner cannot be allowed to
later on question the CTA's assumption of jurisdiction over such claim since
equitable estoppel has set in as expressly authorized under Section 246 of the Tax
Code (emphasis ours).
In finding that the said BIR ruling is a general interpretative rule, which is an
exception to the doctrine laid down in Aichi, this court held that taxpayers acting in
good faith should not be made to suffer for adhering to general interpretative rules
of the CIR interpreting tax laws, should such interpretation later turn out to be
erroneous and be reversed by the CIR or this court. Thus, We clarified that strict
compliance with the 120- and 30-day periods is necessary for a judicial claim of
tax credit or refund to prosper, exceptfor the period from December 10, 2003, the
issuance of BIR DA-489-03, to October 6, 2010, when this court adopted
the Aichi Doctrine. Hence, a judicial claim for tax credit or refund filed within the
period mentioned above will be deemed to have been filed on time.
On May 6, 2013, even before the CIR could comment, PGAPL filed a
manifestation[27] invoking in its favor this court's ruling San Roque-Taganito.
Petitioner claims that since its judicial claim was filed before the CTA on September
27, 2007, when BIR Ruling No. DA-489-03 was in effect, its judicial claim should be
deemed as having been timely filed.
In her comment[28] dated June 11, 2013, the CIR argues that her office has the
exclusive and original jurisdiction to interpret tax laws, subject to the review of the
Secretary of Finance, as provided in Section 4 of the NIRC. Hence, BIR Ruling No.
DA-489-03 was issued ultra vires, having been issued by BIR Deputy Commissioner
Jose Mario C. Bunag, not by the CIR. The CIR further claims that even if we assume
that the said ruling is valid, it still does not apply to the case of PGAPL, because it
did not prove that it acted in good faith. According to respondent, if PGAPL truly
relied on the BIR ruling in good faith, it should have raised the rule set forth in the
said BIR ruling as early as the time the present case was pending before the CTA.
The Court's Ruling
We find the petition meritorious.
BIR Ruling No. DA-489-03 is an
exception to the Aichi Doctrine
Under Section 112 of the NIRC,[29] if the administrative claim for tax credit or refund
of input taxes is not acted upon by the CIR within 120 days from the date of
submission of complete documents in support of the application, the taxpayer
affected may appeal the unacted claim with the CTA within 30 days from the
expiration of the 120-day period.
In Aichi, this Court ruled that observance of the 120- and 30-day periods is crucial in
the filing of an appeal before the CTA. By "crucial," this Court meant that its
observance is jurisdictional and mandatory, not merely permissive.
Contrary to the PGAPL's claim, this court has not abandoned the Aichi doctrine,
more specifically in Intel, San Roque (2009), Panasonic, AT&T, Hitachi, Silicon,
Kepco, Microsoft, Southern Philippines Power Corporation, and Western Mindanao
Power Corporation.
While all such cases dealt with claims for tax credit or refund of excess input tax,
the rulings of this Court were on the issue of compliance with applicable
requirements supporting the taxpayer's claim. The issue of whether compliance
with the 120- and 30-day periods under Section 112 of the NIRC is mandatory and
jurisdictional was never squarely raised in any of the petitioner's cited cases.
The basic rule is that past decisions of this Court be followed in the adjudication of
cases. However, for a ruling of this Court to come within this rule (known as stare
decisis), the Court must categorically rule on an issue expressly raised by the
parties; it must be a ruling on an issue directly raised.[30] When the court resolves an
issue merely sub silentio, stare decisis does not apply on the issue touched upon.
In fact, the same argument was struck down by this court in San Roque-Taganito.
There, we held that, "[a]ny issue, whether raised or not by the parties, but not
passed upon by the court, does not have any value as a precedent."[32] (emphasis
in the original)
From this perspective, the Aichi Doctrine could not have been overturned by
subsequent cases before this Court that were decided based on another issue and
the application of a different doctrine or rule of law. In the same vein, the cases
cited by PGAPL are irrelevant to the present case, because they did not rule on the
jurisdictional and mandatory nature of the 120- and 30-day periods.
Indeed, Aichi is the prevailing doctrine on the matter of mandatory compliance with
the 120- and 30-day periods in the filing of judicial claims of tax credit or refund
before the CTA. However, in the manner of most rules, the Aichi Doctrine is also
subject to exceptions.
In accordance with the equitable estoppel principle under Section 246 of the
NIRC,[33] we ruled in San Roque-Taganito that there are exceptions to the strict rule
that compliance with the Aichi Doctrine is mandatory and jurisdictional, one of
which is BIR Ruling No. DA-489-03. If the CIR issues a ruling, either a specific one
applicable to a particular taxpayer or a general interpretative rule applicable to all
taxpayers, and, as a result, misleads the taxpayers affected by the rule, into filing
prematurely judicial claims with the CTA, the CIR cannot be allowed to later on
question the CTA's assumption of jurisdiction over such claim. [34]
Since then, this Court has consistently adopted the ruling in San Roque-Taganito in
holding that BIR Ruling No. DA-489-03 is an exception to the Aichi Doctrine.[35] We
see no reason to disturb what is now a settled ruling.
Therefore, as a general interpretative rule, all taxpayers may rely on BIR Ruling No.
DA-489-03 from the time of its issuance on December 10, 2003, until its effective
reversal by the Aichi Doctrine adopted on October 6, 2010. Thus, judicial claims for
tax credit or refund instituted before the CTA should be given due course, despite
their failure to comply with the 120- and 30-day periods.
BIR Ruling No. DA-489-03 is valid
even if issued by the Deputy
Commissioner.
The respondent now impugns the validity of BIR Ruling No. DA-489-03. The CIR
argues that the BIR ruling was issued only by the Deputy Commissioner and not by
the CIR, who, under Section 4 of the NIRC,[36] has original and exclusive jurisdiction
in interpreting provisions of the NIRC.
We are not persuaded by the CIR's contention.
This issue has been settled in the Court en banc's resolution dated October 8, 2013
in the consolidated cases of San Roque-Taganito[37]where we upheld the validity of
the BIR ruling, because the power to interpret rules and regulations is not exclusive
and may be delegated by the CIR[38] to the Deputy Commissioner.
PGAPL is presumed to have relied
on BIR Ruling No. DA-489-03 in
good faith.
Finally, the CIR questions PGAPL's good faith in relying on BIR Ruling No. DA-489-03.
To the CIR, if PGAPL truly relied on the BIR ruling in good faith, it should have cited
the ruling as basis as early as the proceedings before the CTA. The CIR claims that
since PGAPL failed to establish that it acted in good faith, it cannot raise the
exception set forth in BIR Ruling No. DA-489-03.
We disagree with the CIR's reasoning.
First, good faith is always presumed and this presumption can only be overcome by
clear and convincing evidence.[39] Good faith, or its absence, is a question of fact
that is better determined by the lower courts. This Court cannot, without sufficient
reason, throw out a presumption that arises as a matter of law and is well-
entrenched in our legal system.[40]
The mere allegation that the petitioner failed to raise BIR Ruling No. DA-489-03
before the CTA is insufficient to negate this presumption.
Second, even if petitioner did not raise the BIR ruling before the CTA, we can take
cognizance of an official act emanating from the BIR, an executive department of
the government.[41] Judicial notice of BIR Ruling No. DA-489-03 is all the more
mandatory especially when it has been applied consistently by this Court in its past
rulings.[42]
Based on the foregoing, we rule that the judicial claim that PGAPL filed with the CTA
on September 27, 2007 (during the effectivity of BIR Ruling No. DA-489-03) was
timely filed.
Petitioner Rizal Commercial Banking Corporation (RCBC) is a corporation engaged in
general banking operations. It seasonably filed its Corporation Annual Income Tax
Returns for Foreign Currency Deposit Unit for the calendar years 1994 and 1995. 3
On August 15, 1996, RCBC received Letter of Authority No. 133959 issued by then
Commissioner of Internal Revenue (CIR) Liwayway Vinzons-Chato, authorizing a
special audit team to examine the books of accounts and other accounting records
for all internal revenue taxes from January 1, 1994 to December 31, 1995.4

WHEREFORE, premises considered, we GRANT the petition. The decision dated
June 18, 2012, and the resolution dated November 8, 2012 of the CTA en banc in
CTA EB Case No. 740 are hereby REVERSED and SET ASIDE. Accordingly,
we REMAND the case to the CTA Second Division for the proper determination of
the creditable or refundable amount due to the petitioner, if any.
SO ORDERED.
On January 23, 1997, RCBC executed two Waivers of the Defense of Prescription
Under the Statute of Limitations of the National Internal Revenue Code covering the
internal revenue taxes due for the years 1994 and 1995, effectively extending the
period of the Bureau of Internal Revenue (BIR) to assess up to December 31, 2000. 5
Subsequently, on January 27, 2000, RCBC received a Formal Letter of Demand
together with Assessment Notices from the BIR for the following deficiency tax
assessments:6

Republic of the Philippines

Compromise
SUPREME COURT
Particulars Basic Tax Interest Penalties Total
Manila
Deficiency Income Tax
THIRD DIVISION
₱
1995 (ST-INC- ₱ ₱ 443,672,573.
G.R. No. 170257 September 7, 2011 95-0199-2000) 252,150,988.01 191,496,585.96 ₱ 25,000.00 97
1994 (ST-INC- 424,322,659.
RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, 94-0200-2000) 216,478,397.90 207,819,261.99 25,000.00 89
vs.
Deficiency Gross Receipts Tax
COMMISSIONER OF INTERNAL REVENUE, Respondent.
1995 (ST-GRT- 28,945,525.4
95-0201-2000) 13,697,083.68 12,428,696.21 2,819,745.52 1
DECISION
1994 (ST-GRT-
94-0202-2000) 2,488,462.38 2,755,716.42 25,000.00 5,269,178.80
MENDOZA, J.:
Deficiency Final Withholding Tax
1995 (ST-EWT- 123,148,477.
This is a petition for review on certiorari under Rule 45 seeking to set aside the July
95-0203-2000) 64,365,610.12 58,757,866.78 25,000.00 15
27, 2005 Decision1 and October 26, 2005 Resolution2 of the Court of Tax Appeals En
Banc (CTA-En Banc) in C.T.A. E.B. No. 83 entitled "Rizal Commercial Banking 1994 (ST-EWT- 112,130,171.
Corporation v. Commissioner of Internal Revenue." 94-0204-2000) 53,058,075.25 59,047,096.34 25,000.00 59
Deficiency Final Tax on FCDU Onshore Income
THE FACTS 1995 (ST-OT-95- 143,435,681.
0205-2000) 81,508,718.20 61,901,963,.52 25,000.00 72
1994 (ST-OT-94- 67,506,826.0
0206-2000) 34,429,503.10 33,052,322.98 25,000.00 8
 Deficiency Expanded Withholding Tax 1994 (GRT- 138,368.61 161,872.32 300,240.93
1995 (ST-EWT- 94-000003)
95-0207-2000) 5,051,415.22 4,583,640.33 113,000.00 9,748,055.55 Deficiency Final Withholding Tax
1994 (ST-EWT- 1995 (FT-95- 362,203.47 351,287.75 713,491.22
94-0208-2000) 4,482,740.35 4,067,626.31 78,200.00 8,628,566.66 000005)
Deficiency Documentary Stamp Tax 1994 (FT-94- 188,746.43 220,807.47 409,553.90
1995 (ST-DST1- 667,955,485. 000004)
95-0209-2000) 351,900,539.39 315,804,946.26 250,000.00 65 Deficiency Final Tax on FCDU Onshore Income
1995 (ST-DST2- 699,042,949. 1995 (OT-95- 81,508,718.20 79,052,291.08 160,561,009.28
95-0210-2000) 367,207,105.29 331,535,844.68 300,000.00 97 000006)
1994 (ST-DST3- 972,864,100. 1994 (OT-94- 34,429,503.10 40,277,802.26 74,707,305.36
94-0211-2000) 460,370,640.05 512,193,460.02 300,000.00 07 000005)
1994 (ST-DST4- 463,388,381. Deficiency Expanded Withholding Tax
94-0212-2000) 223,037,675.89 240,050,706.09 300,000.00 98 1995 (EWT- 520,869.72 505,171.80 25,000.00 1,051,041.03
95-000004)
₱2,130,226,954 ₱2,035,495,733. ₱4,335,945.5 ₱4,170,058,6 1994 (EWT- 297,949.95 348,560.63 25,000.00 671,510.58
TOTALS
.83 89 2 34.49 94-000003)
Deficiency Documentary Stamp Tax
1995 (DST- 599,890.72 149,972.68 749,863.40
Disagreeing with the said deficiency tax assessment, RCBC filed a protest on 95-000006)
February 24, 2000 and later submitted the relevant documentary evidence to 1995 (DST2- 24,953,842.46 6,238,460.62 31,192,303.08
support it. Much later on November 20, 2000, it filed a petition for review before 95-000002)
the CTA, pursuant to Section 228 of the 1997 Tax Code.7 1994 (DST- 905,064.74 226,266.18 1,131,330.92
94-000005)
On December 6, 2000, RCBC received another Formal Letter of Demand with 1994 (DST2- 17,040,104.84 4,260,026.21 21,300,131.05
Assessment Notices dated October 20, 2000, following the reinvestigation it 94-000001)
requested, which drastically reduced the original amount of deficiency taxes to the
following:8 TOTALS ₱ 164,712,903.44 ₱ ₱ ₱ 303,160,496.55
126,155,645.38 12,291,947.73
Compromise
Particulars Basic Tax Interest Penalties Total
On the same day, RCBC paid the following deficiency taxes as assessed by the BIR:9
Deficiency Income Tax
1995 (INC- ₱ 374,348.45 ₱ 346,656.92 ₱ 721,005.37
95-000003) Particulars 1994 1995 Total
1994 (INC- 1,392,366.28 1,568,605.52 2,960,971.80
Deficiency Income ₱ ₱ ₱
94-000002)
Tax 2,965,549.44 722,236.11 3,687,785.55
Deficiency Gross Receipts Tax
1995 (GRT- 2,000,926.96 3,322,589.63 ₱ 1,367,222.04 6,690,738.63 Deficiency Gross 300,695.84 6,701,893.17 7,002,589.01
95-000004) Receipts
Tax
 Deficiency Final 410,174.44 714,682.02 1,124,856.46 regards the deficiency FCDU onshore tax, RCBC contended that because the
Withholding Tax onshore tax was collected in the form of a final withholding tax, it was the
borrower, constituted by law as the withholding agent, that was primarily liable for
Deficiency Expanded 672,490.14 1,052,753.48 1,725,243.62 the remittance of the said tax.12
Withholding Tax
On December 15, 2004, the First Division of the Court of Tax Appeals (CTA-First
Deficiency 1,131,330.92 749,863.40 1,881,194.32 Division) promulgated its Decision13which partially granted the petition for review.
Documentary Stamp It considered as closed and terminated the assessments for deficiency income tax,
Tax deficiency gross receipts tax, deficiency final withholding tax, deficiency expanded
withholding tax, and deficiency documentary stamp tax (not an industry issue) for
TOTALS ₱ ₱ ₱
1994 and 1995.14 It, however, upheld the assessment for deficiency final tax on
5,480,240.78 9,941,428.18 15,421,668.96
FCDU onshore income and deficiency documentary stamp tax for 1994 and 1995
and ordered RCBC to pay the following amounts plus 20% delinquency tax:15
RCBC, however, refused to pay the following assessments for deficiency onshore tax
and documentary stamp tax which remained to be the subjects of its petition for
Particulars 1994 1995 Total
review:10
Deficiency Final Tax on FCDU Onshore Income
Particulars 1994 1995 Total
Basic ₱ 22,356,324.43 ₱ 16,067,952.86 ₱ 115,938,
Deficiency Final Tax on FCDU Onshore Income 221.30

₱ ₱ Interest 26,153,837.08 15,583,713.19 119,330,093.34

Basic ₱ 34,429,503.10
81,508,718.20 115,938,221.30
Sub Total 48,510,161.51 31,651,666.05 119,330,093.34
Interest 40,277,802.26 79,052,291.08 119,330,093.34
Deficiency Documentary Stamp Tax (Industry Issue)
Sub Total ₱ 74,707,305.36 ₱ ₱
Basic ₱ 17,040,104.84 ₱ 24,953,842.46 ₱
160,561,009.28 235,268,314.64
41,993,947.30
Deficiency Documentary Stamp Tax
Surcharge 4,260,026.21 6,238,460.62 10,498,486.83
Basic ₱ 17,040,104.84 ₱ ₱
Sub Total 21,300,131.05 31,192,303.08 52,492,434.13
24,953,842.46 41,993,947.30
TOTALS ₱ 69,810,292.56 ₱ 62,843,969.13 ₱
Surcharge 4,260,026.21 6,238,460.62 10,498,486.83
171,822,527.47
Sub Total ₱ 21,300,131.05 ₱ ₱
31,192,303.08 52,492,434.13 Unsatisfied, RCBC filed its Motion for Reconsideration on January 21, 2005, arguing
that: (1) the CTA erred in its addition of the total amount of deficiency taxes and the
TOTALS ₱ 96,007,436.41 ₱ ₱
correct amount should only be ₱ 132,654,261.69 and not ₱ 171,822,527.47; (2) the
191,753,312.36 287,760,748.77
CTA erred in holding that RCBC was estopped from questioning the validity of the
waivers; (3) it was the payor-borrower as withholding tax agent, and not RCBC, who
RCBC argued that the waivers of the Statute of Limitations which it executed on was liable to pay the final tax on FCDU, and (4) RCBC’s special savings account was
January 23, 1997 were not valid because the same were not signed or conformed to not subject to documentary stamp tax.16
by the respondent CIR as required under Section 222(b) of the Tax Code. 11 As
In its Resolution17 dated April 11, 2005, the CTA-First Division substantially upheld
its earlier ruling, except for its inadvertence in the addition of the total amount of
deficiency taxes. As such, it modified its earlier decision and ordered RCBC to pay
the amount of ₱ 132,654,261.69 plus 20% delinquency tax.18
RCBC elevated the case to the CTA-En Banc where it raised the following issues:
I.
Whether or not the right of the respondent to assess deficiency onshore tax
and documentary stamp tax for taxable year 1994 and 1995 had already
prescribed when it issued the formal letter of demand and assessment
notices for the said taxable years.
II.
Whether or not petitioner is liable for deficiency onshore tax for taxable
year 1994 and 1995.
III.
Whether or not petitioner’s special savings account is subject to
documentary stamp tax under then Section 180 of the 1993 Tax Code.19
The CTA-En Banc, in its assailed Decision, denied the petition for lack of merit. It
ruled that by receiving, accepting and paying portions of the reduced assessment,
RCBC bound itself to the new assessment, implying that it recognized the validity of
the waivers.20 RCBC could not assail the validity of the waivers after it had received
and accepted certain benefits as a result of the execution of the said waivers. 21 As
to the deficiency onshore tax, it held that because the payor-borrower was merely
designated by law to withhold and remit the said tax, it would then follow that the
tax should be imposed on RCBC as the payee-bank.22 Finally, in relation to the
assessment of the deficiency documentary stamp tax on petitioner’s special savings
account, it held that petitioner’s special savings account was a certificate of deposit
and, as such, was subject to documentary stamp tax.23
Hence, this petition.
While awaiting the decision of this Court, RCBC filed its Manifestation dated July 22,
2009, informing the Court that this petition, relative to the DST deficiency
assessment, had been rendered moot and academic by its payment of the tax
deficiencies on Documentary Stamp Tax (DST) on Special Savings Account (SSA) for
taxable years 1994 and 1995 after the BIR approved its applications for tax
abatement.24
In its November 17, 2009 Comment to the Manifestation, the CIR pointed out that
the only remaining issues raised in the present petition were those pertaining to
RCBC’s deficiency tax on FCDU Onshore Income for taxable years 1994 and 1995 in
the aggregate amount of ₱ 80,161,827.56 plus 20% delinquency interest per
annum. The CIR prayed that RCBC be considered to have withdrawn its appeal with
respect to the CTA-En Banc ruling on its DST on SSA deficiency for taxable years
1994 and 1995 and that the questioned CTA decision regarding RCBC’s deficiency
tax on FCDU Onshore Income for the same period be affirmed.25
THE ISSUES
Thus, only the following issues remain to be resolved by this Court:
Whether petitioner, by paying the other tax assessment covered by the waivers of
the statute of limitations, is rendered estopped from questioning the validity of
the said waivers with respect to the assessment of deficiency onshore tax. 26
and
Whether petitioner, as payee-bank, can be held liable for deficiency onshore tax,
which is mandated by law to be collected at source in the form of a final
withholding tax.27
THE COURT’S RULING
Petitioner is estopped from
questioning the validity of the waivers
RCBC assails the validity of the waivers of the statute of limitations on the ground
that the said waivers were merely attested to by Sixto Esquivias, then Coordinator
for the CIR, and that he failed to indicate acceptance or agreement of the CIR, as
required under Section 223 (b) of the 1977 Tax Code. 28 RCBC further argues that the
principle of estoppel cannot be applied against it because its payment of the other
tax assessments does not signify a clear intention on its part to give up its right to
question the validity of the waivers.29
The Court disagrees.
Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on the
rule that "an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying
thereon." A party is precluded from denying his own acts, admissions or
representations to the prejudice of the other party in order to prevent fraud and
falsehood.30
Estoppel is clearly applicable to the case at bench. RCBC, through its partial
payment of the revised assessments issued within the extended period as provided
for in the questioned waivers, impliedly admitted the validity of those waivers. Had
petitioner truly believed that the waivers were invalid and that the assessments
were issued beyond the prescriptive period, then it should not have paid the
reduced amount of taxes in the revised assessment. RCBC’s subsequent
actioneffectively belies its insistence that the waivers are invalid. The records show
that on December 6, 2000, upon receipt of the revised assessment, RCBC
immediately made payment on the uncontested taxes. Thus, RCBC is estopped from
questioning the validity of the waivers. To hold otherwise and allow a party to
gainsay its own act or deny rights which it had previously recognized would run
counter to the principle of equity which this institution holds dear. 31
Liability for Deficiency
Onshore Withholding Tax
RCBC is convinced that it is the payor-borrower, as withholding agent, who is
directly liable for the payment of onshore tax, citing Section 2.57(A) of Revenue
Regulations No. 2-98 which states:
(A) Final Withholding Tax. — Under the final withholding tax system the amount of
income tax withheld by the withholding agent is constituted as a full and final
payment of the income tax due from the payee on the said income. The liability for
payment of the tax rests primarily on the payor as a withholding agent. Thus, in
case of his failure to withhold the tax or in case of under withholding, the
deficiency tax shall be collected from the payor/withholding agent. The payee is
not required to file an income tax return for the particular income. (Emphasis
supplied)
The petitioner is mistaken.
Before any further discussion, it should be pointed out that RCBC erred in citing the
abovementioned Revenue Regulations No. 2-98 because the same governs
collection at source on income paid only on or after January 1, 1998. The deficiency
withholding tax subject of this petition was supposed to have been withheld on
income paid during the taxable years of 1994 and 1995. Hence, Revenue
Regulations No. 2-98 obviously does not apply in this case.
In Chamber of Real Estate and Builders’ Associations, Inc. v. The Executive
Secretary,32 the Court has explained that the purpose of the withholding tax system
is three-fold: (1) to provide the taxpayer with a convenient way of paying his tax
liability; (2) to ensure the collection of tax, and (3) to improve the government’s
cashflow. Under the withholding tax system, the payor is the taxpayer upon whom
the tax is imposed, while the withholding agent simply acts as an agent or a
collector of the government to ensure the collection of taxes. 33 1avvphi1
It is, therefore, indisputable that the withholding agent is merely a tax collector and
not a taxpayer, as elucidated by this Court in the case of Commissioner of Internal
Revenue v. Court of Appeals,34 to wit:
In the operation of the withholding tax system, the withholding agent is the payor, a
separate entity acting no more than an agent of the government for the collection
of the tax in order to ensure its payments; the payer is the taxpayer – he is the
person subject to tax imposed by law; and the payee is the taxing authority. In other
words, the withholding agent is merely a tax collector, not a taxpayer. Under the
withholding system, however, the agent-payor becomes a payee by fiction of
law. His (agent) liability is direct and independent from the taxpayer, because the
income tax is still imposed on and due from the latter. The agent is not liable for
the tax as no wealth flowed into him – he earned no income. The Tax Code only
makes the agent personally liable for the tax arising from the breach of its legal duty
to withhold as distinguished from its duty to pay tax since:
"the government’s cause of action against the withholding agent is not for the
collection of income tax, but for the enforcement of the withholding provision of
Section 53 of the Tax Code, compliance with which is imposed on the withholding
agent and not upon the taxpayer."35 (Emphases supplied)
Based on the foregoing, the liability of the withholding agent is independent from
that of the taxpayer.1âwphi1 The former cannot be made liable for the tax due
because it is the latter who earned the income subject to withholding tax. The
withholding agent is liable only insofar as he failed to perform his duty to withhold
the tax and remit the same to the government. The liability for the tax, however,
remains with the taxpayer because the gain was realized and received by him.
While the payor-borrower can be held accountable for its negligence in performing
its duty to withhold the amount of tax due on the transaction, RCBC, as the
taxpayer and the one which earned income on the transaction, remains liable for
the payment of tax as the taxpayer shares the responsibility of making certain that
the tax is properly withheld by the withholding agent, so as to avoid any penalty
that may arise from the non-payment of the withholding tax due.
RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame on the
payor-borrower as the withholding agent. As such, it is liable for payment of
deficiency onshore tax on interest income derived from foreign currency loans,
pursuant to Section 24(e)(3) of the National Internal Revenue Code of 1993:
Sec. 24. Rates of tax on domestic corporations. COMMISSIONER OF INTERNAL G. R. No. 163653
REVENUE,
xxxx Petitioner,

(e) Tax on certain incomes derived by domestic corporations

xxxx
-versus-
(3) Tax on income derived under the Expanded Foreign Currency Deposit System. –
Income derived by a depository bank under the expanded foreign currency deposit
system from foreign currency transactions with nonresidents, offshore banking
units in the Philippines, local commercial banks including branches of foreign banks
FILINVEST DEVELOPMENT
that may be authorized by the Central Bank to transact business with foreign
CORPORATION,
currency depository system units and other depository banks under the expanded
Respondent.
foreign currency deposit system shall be exempt from all taxes, except taxable
income from such transactions as may be specified by the Secretary of Finance,
upon recommendation of the Monetary Board to be subject to the usual income tax
x-------------------------------------x G. R. No. 167689
payable by banks: Provided, That interest income from foreign currency loans
granted by such depository banks under said expanded system to residents (other
COMMISSIONER OF INTERNAL Present:
than offshore banking units in the Philippines or other depository banks under the
REVENUE,
expanded system) shall be subject to a 10% tax. (Emphasis supplied)
Petitioner, CORONA, C.J.,
CARPIO,
As a final note, this Court has consistently held that findings and conclusions of the VELASCO, JR.,
CTA shall be accorded the highest respect and shall be presumed valid, in the LEONARDO-DE CASTRO,
absence of any clear and convincing proof to the contrary. 36 The CTA, as a BRION,
specialized court dedicated exclusively to the study and resolution of tax problems, -versus- PERALTA,
has developed an expertise on the subject of taxation.37 As such, its decisions shall BERSAMIN,
not be lightly set aside on appeal, unless this Court finds that the questioned DEL CASTILLO,
decision is not supported by substantial evidence or there is a showing of abuse or ABAD,
improvident exercise of authority on the part of the Tax Court.38 FILINVEST DEVELOPMENT VILLARAMA, JR.,
CORPORATION, PEREZ,
WHEREFORE, the petition is DENIED. Respondent. MENDOZA, and
SERENO,* JJ.
SO ORDERED.

EN BANC

Promulgated:

July 19, 2011

x----------------------------------------------------------------------------------------------- x
 DECISION
PEREZ, J.:
Assailed in these twin petitions for review on certiorari filed pursuant to
Rule 45 of the 1997 Rules of Civil Procedure are the decisions rendered by
the Court of Appeals (CA) in the following cases: (a) Decision dated 16
December 2003 of the then Special Fifth Division in CA-G.R. SP No.
72992;[1] and, (b) Decision dated 26 January 2005 of the then Fourteenth
Division in CA-G.R. SP No. 74510.[2]
The Facts
On 13 January 1997, FLI requested a ruling from the Bureau of Internal
Revenue (BIR) to the effect that no gain or loss should be recognized in the
aforesaid transfer of real properties. Acting on the request, the BIR issued
Ruling No. S-34-046-97 dated 3 February 1997, finding that the exchange is
among those contemplated under Section 34 (c) (2) of the old National
Internal Revenue Code (NIRC)[4] which provides that (n)o gain or loss shall be
recognized if property is transferred to a corporation by a person in
exchange for a stock in such corporation of which as a result of such
exchange said person, alone or together with others, not exceeding four (4)
persons, gains control of said corporation."[5] With the BIRs reiteration of
the foregoing ruling upon the 10 February 1997 request for clarification filed
by FLI,[6] the latter, together with FDC and FAI, complied with all the
requirements imposed in the ruling.[7]

The owner of 80% of the outstanding shares of respondent Filinvest On various dates during the years 1996 and 1997, in the meantime, FDC also
Alabang, Inc. (FAI), respondent Filinvest Development Corporation (FDC) is a extended advances in favor of its affiliates, namely, FAI, FLI, Davao Sugar
holding company which also owned 67.42% of the outstanding shares of Central Corporation (DSCC) and Filinvest Capital, Inc. (FCI).[8] Duly evidenced
Filinvest Land, Inc. (FLI). On 29 November 1996, FDC and FAI entered into a by instructional letters as well as cash and journal vouchers, said cash
Deed of Exchange with FLI whereby the former both transferred in favor of advances amounted to P2,557,213,942.60 in 1996[9] and P3,360,889,677.48
the latter parcels of land appraised at P4,306,777,000.00. In exchange for in 1997.[10] On 15 November 1996, FDC also entered into a Shareholders
said parcels which were intended to facilitate development of medium-rise Agreement with Reco Herrera PTE Ltd. (RHPL) for the formation of a
residential and commercial buildings, 463,094,301 shares of stock of FLI Singapore-based joint venture company called Filinvest Asia Corporation
were issued to FDC and FAI.[3] As a result of the exchange, FLIs ownership (FAC), tasked to develop and manage FDCs 50% ownership of its PBCom
structure was changed to the extent reflected in the following Office Tower Project (the Project). With their equity participation in FAC
tabular prcis, viz.: respectively pegged at 60% and 40% in the Shareholders Agreement, FDC
subscribed to P500.7 million worth of shares in said joint venture company
Number and Percentage Number of Number and Percentage to RHPLs subscription worth P433.8 million. Having paid its subscription by
Stockholder executing a Deed of Assignment transferring to FAC a portion of its rights
of Shares Held Prior to Additional of Shares Held After the
the Exchange Shares Exchange and interest in the Project worth P500.7 million, FDC eventually reported a
Issued net loss of P190,695,061.00 in its Annual Income Tax Return for the taxable
FDC 2,537,358,000 67.42% 42,217,000 2,579,575,000 61.03% year 1996.[11]

FAI 00 420,877,000 420,877,000 9.96%

OTHERS 1,226,177,000 32.58%
----------------- -----------
3,763,535,000 100%
On 3 January 2000, FDC received from the BIR a Formal Notice of Demand
0 1,226,177,000 29.01% to pay deficiency income and documentary stamp taxes, plus interests and
compromise penalties,[12] covered by the following Assessment Notices, viz.:
-------------- --------------- (a) Assessment Notice No. SP-INC-96-00018-2000 for deficiency income
taxes in the sum of P150,074,066.27 for 1996; (b) Assessment Notice No.
463,094,301 4,226,629,000 (100%) SP-DST-96-00020-2000 for deficiency documentary stamp taxes in the sum
of P10,425,487.06 for 1996; (c) Assessment Notice No. SP-INC-97-00019-
2000 for deficiency income taxes in the sum of P5,716,927.03 for 1997; and
(d) Assessment Notice No. SP-DST-97-00021-2000 for deficiency
documentary stamp taxes in the sum of P5,796,699.40 for 1997.[13] The
foregoing deficiency taxes were assessed on the taxable gain supposedly
realized by FDC from the Deed of Exchange it executed with FAI and FLI, on
the dilution resulting from the Shareholders Agreement FDC executed with
RHPL as well as the arms-length interest rate and documentary stamp taxes
imposable on the advances FDC extended to its affiliates.[14]
On 3 January 2000, FAI similarly received from the BIR a Formal Letter of
Demand for deficiency income taxes in the sum of P1,477,494,638.23 for
the year 1997.[15] Covered by Assessment Notice No. SP-INC-97-0027-
2000,[16] said deficiency tax was also assessed on the taxable gain
purportedly realized by FAI from the Deed of Exchange it executed with FDC
and FLI.[17] On 26 January 2000 or within the reglementary period of thirty
(30) days from notice of the assessment, both FDC and FAI filed their
respective requests for reconsideration/protest, on the ground that the
deficiency income and documentary stamp taxes assessed by the BIR were
bereft of factual and legal basis.[18]Having submitted the relevant supporting
documents pursuant to the 31 January 2000 directive from the BIR
Appellate Division, FDC and FAI filed on 11 September 2000 a letter
requesting an early resolution of their request for reconsideration/protest
on the ground that the 180 days prescribed for the resolution thereof under
Section 228 of the NIRC was going to expire on 20 September 2000.[19]
In view of the failure of petitioner Commissioner of Internal Revenue (CIR)
to resolve their request for reconsideration/protest within the aforesaid
period, FDC and FAI filed on 17 October 2000 a petition for review with the
Court of Tax Appeals (CTA) pursuant to Section 228 of the 1997
NIRC. Docketed before said court as CTA Case No. 6182, the petition alleged,
among other matters, that as previously opined in BIR Ruling No. S-34-046-
97, no taxable gain should have been assessed from the subject Deed of
Exchange since FDC and FAI collectively gained further control of FLI as a
consequence of the exchange; that correlative to the CIR's lack of authority
to impute theoretical interests on the cash advances FDC extended in favor
of its affiliates, the rule is settled that interests cannot be demanded in the
absence of a stipulation to the effect; that not being promissory notes or
certificates of obligations, the instructional letters as well as the cash and
journal vouchers evidencing said cash advances were not subject to
documentary stamp taxes; and, that no income tax may be imposed on the
prospective gain from the supposed appreciation of FDC's shareholdings in
FAC. As a consequence, FDC and FAC both prayed that the subject
assessments for deficiency income and documentary stamp taxes for the
years 1996 and 1997 be cancelled and annulled.[20]
On 4 December 2000, the CIR filed its answer, claiming that the transfer of
property in question should not be considered tax free since, with the
resultant diminution of its shares in FLI, FDC did not gain further control of
said corporation. Likewise calling attention to the fact that the cash
advances FDC extended to its affiliates were interest free despite the
interest bearing loans it obtained from banking institutions, the CIR invoked
Section 43 of the old NIRC which, as implemented by Revenue Regulations
No. 2, Section 179 (b) and (c), gave him "the power to allocate, distribute or
apportion income or deductions between or among such organizations,
trades or business in order to prevent evasion of taxes." The CIR justified the
imposition of documentary stamp taxes on the instructional letters as well
as cash and journal vouchers for said cash advances on the strength of
Section 180 of the NIRC and Revenue Regulations No. 9-94 which provide
that loan transactions are subject to said tax irrespective of whether or not
they are evidenced by a formal agreement or by mere office memo. The CIR
also argued that FDC realized taxable gain arising from the dilution of its
shares in FAC as a result of its Shareholders' Agreement with RHPL.[21]
At the pre-trial conference, the parties filed a Stipulation of Facts,
Documents and Issues[22] which was admitted in the 16 February 2001
resolution issued by the CTA. With the further admission of the Formal Offer
of Documentary Evidence subsequently filed by FDC and FAI[23] and the
conclusion of the testimony of Susana Macabelda anent the cash advances
FDC extended in favor of its affiliates,[24] the CTA went on to render the
Decision dated 10 September 2002 which, with the exception of the
deficiency income tax on the interest income FDC supposedly realized from
the advances it extended in favor of its affiliates, cancelled the rest of
deficiency income and documentary stamp taxes assessed against FDC and
FAI for the years 1996 and 1997,[25] thus:
WHEREFORE, in view of all the foregoing, the court finds the instant
petition partly meritorious. Accordingly, Assessment Notice No. SP-INC-
96-00018-2000 imposing deficiency income tax on FDC for taxable year
1996, Assessment Notice No. SP-DST-96-00020-2000 and SP-DST-97-
 00021-2000 imposing deficiency documentary stamp tax on FDC for
taxable years 1996 and 1997, respectively and Assessment Notice No. SP-
INC-97-0027-2000 imposing deficiency income tax on FAI for the taxable
year 1997 are hereby CANCELLED and SET ASIDE.However, [FDC] is
hereby ORDERED to PAY the amount of P5,691,972.03 as deficiency
income tax for taxable year 1997. In addition, petitioner is also ORDERED
to PAY 20% delinquency interest computed from February 16, 2000 until
full payment thereof pursuant to Section 249 (c) (3) of the Tax Code. [26]
Finding that the collective increase of the equity participation of FDC
and FAI in FLI rendered the gain derived from the exchange tax-free, the
CTA also ruled that the increase in the value of FDC's shares in FAC did not
result in economic advantage in the absence of actual sale or conversion
thereof. While likewise finding that the documents evidencing the cash
advances FDC extended to its affiliates cannot be considered as loan
agreements that are subject to documentary stamp tax, the CTA
enunciated, however, that the CIR was justified in assessing undeclared
interests on the same cash advances pursuant to his authority under Section
43 of the NIRC in order to forestall tax evasion. For persuasive effect, the
CTA referred to the equivalent provision in the Internal Revenue Code of
the United States (IRC-US), i.e., Sec. 482, as implemented by Section 1.482-2
of 1965-1969 Regulations of the Law of Federal Income Taxation.[27]
Dissatisfied with the foregoing decision, FDC filed on 5 November
2002 the petition for review docketed before the CA as CA-G.R. No. 72992,
pursuant to Rule 43 of the 1997 Rules of Civil Procedure. Calling attention to
the fact that the cash advances it extended to its affiliates were interest-free
in the absence of the express stipulation on interest required under Article
1956 of the Civil Code, FDC questioned the imposition of an arm's-length
interest rate thereon on the ground, among others, that the CIR's authority
under Section 43 of the NIRC: (a) does not include the power to impute
imaginary interest on said transactions; (b) is directed only against
controlled taxpayers and not against mother or holding corporations; and,
(c) can only be invoked in cases of understatement of taxable net income or
evident tax evasion.[28] Upholding FDC's position, the CA's then Special Fifth
Division rendered the herein assailed decision dated 16 December
2003,[29] the decretal portion of which states:
WHEREFORE, premises considered, the instant petition is hereby GRANTED. The
assailed Decision dated September 10, 2002 rendered by the Court of Tax Appeals
in CTA Case No. 6182 directing petitioner Filinvest Development Corporation to pay
the amount of P5,691,972.03 representing deficiency income tax on allegedly
undeclared interest income for the taxable year 1997, plus 20% delinquency
interest computed from February 16, 2000 until full payment thereof is REVERSED
and SET ASIDE and, a new one entered annulling Assessment Notice No. SP-INC-
97-00019-2000 imposing deficiency income tax on petitioner for taxable year
1997. No pronouncement as to costs.[30]
With the denial of its partial motion for reconsideration of the same
11 December 2002 resolution issued by the CTA,[31] the CIR also filed the
petition for review docketed before the CA as CA-G.R. No. 74510. In
essence, the CIR argued that the CTA reversibly erred in cancelling the
assessment notices: (a) for deficiency income taxes on the exchange of
property between FDC, FAI and FLI; (b) for deficiency documentary stamp
taxes on the documents evidencing FDC's cash advances to its affiliates; and
(c) for deficiency income tax on the gain FDC purportedly realized from the
increase of the value of its shareholdings in FAC.[32] The foregoing petition
was, however, denied due course and dismissed for lack of merit in the
herein assailed decision dated 26 January 2005[33] rendered by the CA's then
Fourteenth Division, upon the following findings and conclusions, to wit:
1. As affirmed in the 3 February 1997 BIR Ruling No. S-34-046-97, the 29
November 1996 Deed of Exchange resulted in the combined
control by FDC and FAI of more than 51% of the outstanding
shares of FLI, hence, no taxable gain can be recognized from the
transaction under Section 34 (c) (2) of the old NIRC;
2. The instructional letters as well as the cash and journal vouchers
evidencing the advances FDC extended to its affiliates are not
subject to documentary stamp taxes pursuant to BIR Ruling No.
116-98, dated 30 July 1998, since they do not partake the nature
of loan agreements;
3. Although BIR Ruling No. 116-98 had been subsequently modified by BIR
Ruling No. 108-99, dated 15 July 1999, to the effect that
documentary stamp taxes are imposable on inter-office memos
evidencing cash advances similar to those extended by FDC, said
latter ruling cannot be given retroactive application if to do so
would be prejudicial to the taxpayer;
4. FDC's alleged gain from the increase of its shareholdings in FAC as a
consequence of the Shareholders' Agreement it executed with
 RHPL cannot be considered taxable income since, until actually
converted thru sale or disposition of said shares, they merely
represent unrealized increase in capital.[34]
Respectively docketed before this Court as G.R. Nos. 163653 and 167689,
the CIR's petitions for review on certiorari assailing the 16 December 2003 decision
in CA-G.R. No. 72992 and the 26 January 2005 decision in CA-G.R. SP No. 74510 were
consolidated pursuant to the 1 March 2006 resolution issued by this Courts Third
Division.
The Issues
In G.R. No. 163653, the CIR urges the grant of its petition on the following ground:
THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE COURT
OF TAX APPEALS AND IN HOLDING THAT THE ADVANCES EXTENDED BY
RESPONDENT TO ITS AFFILIATES ARE NOT SUBJECT TO INCOME TAX.[35]
In G.R. No. 167689, on the other hand, petitioner proffers the following issues for
resolution:
I or deductions between or among controlled organizations, trades or
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE
OF DISCRETION IN HOLDING THAT THE EXCHANGE OF SHARES OF
STOCK FOR PROPERTY AMONG FILINVEST DEVELOPMENT
CORPORATION (FDC), FILINVEST ALABANG, INCORPORATED (FAI)
AND FILINVEST LAND INCORPORATED (FLI) MET ALL THE
REQUIREMENTS FOR THE NON-RECOGNITION OF TAXABLE GAIN
UNDER SECTION 34 (c) (2) OF THE OLD NATIONAL INTERNAL
REVENUE CODE (NIRC) (NOW SECTION 40 (C) (2) (c) OF THE NIRC.
II
THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR IN HOLDING THAT THE LETTERS OF INSTRUCTION OR CASH
VOUCHERS EXTENDED BY FDC TO ITS AFFILIATES ARE NOT
DEEMED LOAN AGREEMENTS SUBJECT TO DOCUMENTARY
STAMP TAXES UNDER SECTION 180 OF THE NIRC.
III
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
HOLDING THAT GAIN ON DILUTION AS A RESULT OF THE INCREASE
IN THE VALUE OF FDCS SHAREHOLDINGS IN FAC IS NOT
TAXABLE.[36]
The Courts Ruling
While the petition in G.R. No. 163653 is bereft of merit, we find the CIRs
petition in G.R. No. 167689 impressed with partial merit.
In G.R. No. 163653, the CIR argues that the CA erred in reversing the CTAs
finding that theoretical interests can be imputed on the advances FDC
extended to its affiliates in 1996 and 1997 considering that, for said
purpose, FDC resorted to interest-bearing fund borrowings from commercial
banks. Since considerable interest expenses were deducted by FDC when
said funds were borrowed, the CIR theorizes that interest income should
likewise be declared when the same funds were sourced for the advances
FDC extended to its affiliates. Invoking Section 43 of the 1993 NIRC in
relation to Section 179(b) of Revenue Regulation No. 2, the CIR maintains
that it is vested with the power to allocate, distribute or apportion income
businesses even in the absence of fraud, since said power is intended to
prevent evasion of taxes or clearly to reflect the income of any such
organizations, trades or businesses. In addition, the CIR asseverates that the
CA should have accorded weight and respect to the findings of the CTA
which, as the specialized court dedicated to the study and consideration of
tax matters, can take judicial notice of US income tax laws and
regulations.[37]
Admittedly, Section 43 of the 1993 NIRC[38] provides that, (i)n any case of
two or more organizations, trades or businesses (whether or not
incorporated and whether or not organized in the Philippines) owned or
controlled directly or indirectly by the same interests, the Commissioner of
Internal Revenue is authorized to distribute, apportion or allocate gross
income or deductions between or among such organization, trade or
business, if he determines that such distribution, apportionment or
allocation is necessary in order to prevent evasion of taxes or clearly to
reflect the income of any such organization, trade or business. In
amplification of the equivalent provision[39] under Commonwealth Act No.
466,[40] Sec. 179(b) of Revenue Regulation No. 2 states as follows:
Determination of the taxable net income of controlled
taxpayer. (A) DEFINITIONS. When used in this section
(1) The term organization includes any kind, whether it be
a sole proprietorship, a partnership, a trust, an estate, or a corporation or
association, irrespective of the place where organized, where operated, or
where its trade or business is conducted, and regardless of whether
domestic or foreign, whether exempt or taxable, or whether affiliated or
not.
(2) The terms trade or business include any trade or
business activity of any kind, regardless of whether or where organized,
whether owned individually or otherwise, and regardless of the place where
carried on.
(3) The term controlled includes any kind of control, direct
or indirect, whether legally enforceable, and however exercisable or
exercised. It is the reality of the control which is decisive, not its form or
mode of exercise. A presumption of control arises if income or deductions
have been arbitrarily shifted.
(4) The term controlled taxpayer means any one of two or
more organizations, trades, or businesses owned or controlled directly or
indirectly by the same interests.
(5) The term group and group of controlled taxpayers
means the organizations, trades or businesses owned or controlled by the
same interests.
(6) The term true net income means, in the case of a
controlled taxpayer, the net income (or as the case may be, any item or
element affecting net income) which would have resulted to the controlled
taxpayer, had it in the conduct of its affairs (or, as the case may be, any item
or element affecting net income) which would have resulted to the
controlled taxpayer, had it in the conduct of its affairs (or, as the case may
be, in the particular contract, transaction, arrangement or other act) dealt
with the other members or members of the group at arms length.It does not
mean the income, the deductions, or the item or element of either, resulting
to the controlled taxpayer by reason of the particular contract, transaction,
or arrangement, the controlled taxpayer, or the interest controlling it, chose
to make (even though such contract, transaction, or arrangement be legally
binding upon the parties thereto).
(B) SCOPE AND PURPOSE. - The purpose of Section 44 of the Tax
Code is to place a controlled taxpayer on a tax parity with an uncontrolled
taxpayer, by determining, according to the standard of an uncontrolled
taxpayer, the true net income from the property and business of a
controlled taxpayer. The interests controlling a group of controlled taxpayer
are assumed to have complete power to cause each controlled taxpayer so
to conduct its affairs that its transactions and accounting records truly
reflect the net income from the property and business of each of the
controlled taxpayers. If, however, this has not been done and the taxable
net income are thereby understated, the statute contemplates that the
Commissioner of Internal Revenue shall intervene, and, by making such
distributions, apportionments, or allocations as he may deem necessary of
gross income or deductions, or of any item or element affecting net income,
between or among the controlled taxpayers constituting the group, shall
determine the true net income of each controlled taxpayer. The standard to
be applied in every case is that of an uncontrolled taxpayer. Section 44
grants no right to a controlled taxpayer to apply its provisions at will, nor
does it grant any right to compel the Commissioner of Internal Revenue to
apply its provisions.
(C) APPLICATION Transactions between controlled taxpayer and
another will be subjected to special scrutiny to ascertain whether the
common control is being used to reduce, avoid or escape taxes. In
determining the true net income of a controlled taxpayer, the Commissioner
of Internal Revenue is not restricted to the case of improper accounting, to
the case of a fraudulent, colorable, or sham transaction, or to the case of a
device designed to reduce or avoid tax by shifting or distorting income or
deductions. The authority to determine true net income extends to any case
in which either by inadvertence or design the taxable net income in whole
or in part, of a controlled taxpayer, is other than it would have been had the
taxpayer in the conduct of his affairs been an uncontrolled taxpayer dealing
at arms length with another uncontrolled taxpayer.[41]
As may be gleaned from the definitions of the terms controlled and
"controlled taxpayer" under paragraphs (a) (3) and (4) of the foregoing
provision, it would appear that FDC and its affiliates come within the
purview of Section 43 of the 1993 NIRC. Aside from owning significant
portions of the shares of stock of FLI, FAI, DSCC and FCI, the fact that FDC
extended substantial sums of money as cash advances to its said affiliates
for the purpose of providing them financial assistance for their operational
and capital expenditures seemingly indicate that the situation sought to be
addressed by the subject provision exists. From the tenor of paragraph (c) of
Section 179 of Revenue Regulation No. 2, it may also be seen that the CIR's
power to distribute, apportion or allocate gross income or deductions
between or among controlled taxpayers may be likewise exercised whether
or not fraud inheres in the transaction/s under scrutiny. For as long as the
controlled taxpayer's taxable income is not reflective of that which it would
have realized had it been dealing at arm's length with an uncontrolled
taxpayer, the CIR can make the necessary rectifications in order to prevent
evasion of taxes.
Despite the broad parameters provided, however, we find that the CIR's
powers of distribution, apportionment or allocation of gross income and
deductions under Section 43 of the 1993 NIRC and Section 179 of Revenue
Regulation No. 2 does not include the power to impute "theoretical
interests" to the controlled taxpayer's transactions. Pursuant to Section 28
of the 1993 NIRC,[42] after all, the term gross income is understood to mean
all income from whatever source derived, including, but not limited to the
following items: compensation for services, including fees, commissions,
and similar items; gross income derived from business; gains derived from
dealings in property; interest; rents; royalties; dividends; annuities; prizes
and winnings; pensions; and partners distributive share of the gross income
of general professional partnership.[43] While it has been held that the
phrase "from whatever source derived" indicates a legislative policy to
include all income not expressly exempted within the class of taxable
income under our laws, the term "income" has been variously interpreted
to mean "cash received or its equivalent", "the amount of money coming to
a person within a specific time" or "something distinct from principal or
capital."[44] Otherwise stated, there must be proof of the actual or, at the
very least, probable receipt or realization by the controlled taxpayer of the
item of gross income sought to be distributed, apportioned or allocated by
the CIR.
Our circumspect perusal of the record yielded no evidence of actual or
possible showing that the advances FDC extended to its affiliates had
resulted to the interests subsequently assessed by the CIR. For all its harping
upon the supposed fact that FDC had resorted to borrowings from
commercial banks, the CIR had adduced no concrete proof that said funds
were, indeed, the source of the advances the former provided its
affiliates. While admitting that FDC obtained interest-bearing loans from
commercial banks,[45] Susan Macabelda - FDC's Funds Management
Department Manager who was the sole witness presented before the CTA -
clarified that the subject advances were sourced from the corporation's
rights offering in 1995 as well as the sale of its investment
in Bonifacio Land in 1997.[46] More significantly, said witness testified that
said advances: (a) were extended to give FLI, FAI, DSCC and FCI financial
assistance for their operational and capital expenditures; and, (b) were all
temporarily in nature since they were repaid within the duration of one
week to three months and were evidenced by mere journal entries, cash
vouchers and instructional letters.[47]
Even if we were, therefore, to accord precipitate credulity to the CIR's bare
assertion that FDC had deducted substantial interest expense from its gross
income, there would still be no factual basis for the imputation of
theoretical interests on the subject advances and assess deficiency income
taxes thereon. More so, when it is borne in mind that, pursuant to Article
1956 of the Civil Code of the Philippines, no interest shall be due unless it
has been expressly stipulated in writing. Considering that taxes, being
burdens, are not to be presumed beyond what the applicable statute
expressly and clearly declares,[48] the rule is likewise settled that tax statutes
must be construed strictly against the government and liberally in favor of
the taxpayer.[49] Accordingly, the general rule of requiring adherence to the
letter in construing statutes applies with peculiar strictness to tax laws and
the provisions of a taxing act are not to be extended by implication.[50] While
it is true that taxes are the lifeblood of the government, it has been held
that their assessment and collection should be in accordance with law as
any arbitrariness will negate the very reason for government itself.[51]
In G.R. No. 167689, we also find a dearth of merit in the CIR's insistence on
the imposition of deficiency income taxes on the transfer FDC and FAI
effected in exchange for the shares of stock of FLI. With respect to the Deed
of Exchange executed between FDC, FAI and FLI, Section 34 (c) (2) of the
1993 NIRC pertinently provides as follows:
Sec. 34. Determination of amount of and recognition of
gain or loss.-
xxxx
(c) Exception x x x x
No gain or loss shall also be recognized if property is transferred to a
corporation by a person in exchange for shares of stock in such corporation
of which as a result of such exchange said person, alone or together with
others, not exceeding four persons, gains control of said
corporation; Provided, That stocks issued for services shall not be
considered as issued in return of property.
As even admitted in the 14 February 2001 Stipulation of Facts submitted by
the parties,[52] the requisites for the non-recognition of gain or loss under
the foregoing provision are as follows: (a) the transferee is a corporation; (b)
the transferee exchanges its shares of stock for property/ies of the
transferor; (c) the transfer is made by a person, acting alone or together
with others, not exceeding four persons; and, (d) as a result of the exchange
the transferor, alone or together with others, not exceeding four, gains
control of the transferee.[53] Acting on the 13 January 1997 request filed by
FLI, the BIR had, in fact, acknowledged the concurrence of the foregoing
requisites in the Deed of Exchange the former executed with FDC and FAI by
issuing BIR Ruling No. S-34-046-97.[54] With the BIR's reiteration of said
ruling upon the request for clarification filed by FLI,[55] there is also no
dispute that said transferee and transferors subsequently complied with the
requirements provided for the non-recognition of gain or loss from the
exchange of property for tax, as provided under Section 34 (c) (2) of the
1993 NIRC.[56]
Then as now, the CIR argues that taxable gain should be recognized for the
exchange considering that FDC's controlling interest in FLI was actually
decreased as a result thereof.For said purpose, the CIR calls attention to the
fact that, prior to the exchange, FDC owned 2,537,358,000 or 67.42% of
FLI's 3,763,535,000 outstanding capital stock. Upon the issuance of
443,094,000 additional FLI shares as a consequence of the exchange and
with only 42,217,000 thereof accruing in favor of FDC for a total of
2,579,575,000 shares, said corporations controlling interest was supposedly
reduced to 61%.03 when reckoned from the transferee's aggregate
4,226,629,000 outstanding shares. Without owning a share from FLI's initial
3,763,535,000 outstanding shares, on the other hand, FAI's acquisition of
420,877,000 FLI shares as a result of the exchange purportedly resulted in
its control of only 9.96% of said transferee corporation's 4,226,629,000
outstanding shares. On the principle that the transaction did not qualify as a
tax-free exchange under Section 34 (c) (2) of the 1993 NIRC, the CIR
asseverates that taxable gain in the sum of P263,386,921.00 should be
recognized on the part of FDC and in the sum of P3,088,711,367.00 on the
part of FAI.[57]
The paucity of merit in the CIR's position is, however, evident from the
categorical language of Section 34 (c) (2) of the 1993 NIRC which provides
that gain or loss will not be recognized in case the exchange of property for
stocks results in the control of the transferee by the transferor, alone or
with other transferors not exceeding four persons. Rather than isolating the
same as proposed by the CIR, FDC's 2,579,575,000 shares or 61.03% control
of FLI's 4,226,629,000 outstanding shares should, therefore, be appreciated
in combination with the 420,877,000 new shares issued to FAI which
represents 9.96% control of said transferee corporation. Together FDC's
2,579,575,000 shares (61.03%) and FAI's 420,877,000 shares (9.96%) clearly
add up to 3,000,452,000 shares or 70.99% of FLI's 4,226,629,000
shares. Since the term "control" is clearly defined as "ownership of stocks in
a corporation possessing at least fifty-one percent of the total voting power
of classes of stocks entitled to one vote" under Section 34 (c) (6) [c] of the
1993 NIRC, the exchange of property for stocks between FDC FAI and FLI
clearly qualify as a tax-free transaction under paragraph 34 (c) (2) of the
same provision.
Against the clear tenor of Section 34(c) (2) of the 1993 NIRC, the CIR cites
then Supreme Court Justice Jose Vitug and CTA Justice Ernesto D. Acosta
who, in their book Tax Law and Jurisprudence, opined that said provision
could be inapplicable if control is already vested in the exchangor prior to
exchange.[58] Aside from the fact that that the 10 September 2002 Decision
in CTA Case No. 6182 upholding the tax-exempt status of the exchange
between FDC, FAI and FLI was penned by no less than Justice Acosta
himself,[59] FDC and FAI significantly point out that said authors have
acknowledged that the position taken by the BIR is to the effect that "the
law would apply even when the exchangor already has control of the
corporation at the time of the exchange."[60] This was confirmed when,
apprised in FLI's request for clarification about the change of percentage of
ownership of its outstanding capital stock, the BIR opined as follows:
Please be informed that regardless of the foregoing, the
transferors, Filinvest Development Corp. and Filinvest Alabang, Inc. still
gained control of Filinvest Land, Inc. The term 'control' shall mean
ownership of stocks in a corporation by possessing at least 51% of the total
voting power of all classes of stocks entitled to vote. Control is determined
by the amount of stocks received, i.e., total subscribed, whether for
property or for services by the transferor or transferors. In determining the
51% stock ownership, only those persons who transferred property for
stocks in the same transaction may be counted up to the maximum of five
(BIR Ruling No. 547-93 dated December 29, 1993.[61]
At any rate, it also appears that the supposed reduction of FDC's shares in
FLI posited by the CIR is more apparent than real. As the uncontested owner
of 80% of the outstanding shares of FAI, it cannot be gainsaid that FDC
ideally controls the same percentage of the 420,877,000 shares issued to its
said co-transferor which, by itself, represents 7.968% of the outstanding
shares of FLI. Considered alongside FDC's 61.03% control of FLI as a
consequence of the 29 November 1996 Deed of Transfer, said 7.968% add
up to an aggregate of 68.998% of said transferee corporation's outstanding
shares of stock which is evidently still greater than the 67.42% FDC initially
held prior to the exchange. This much was admitted by the parties in the 14
February 2001 Stipulation of Facts, Documents and Issues they submitted to
the CTA.[62] Inasmuch as the combined ownership of FDC and FAI of FLI's
outstanding capital stock adds up to a total of 70.99%, it stands to reason
that neither of said transferors can be held liable for deficiency income
taxes the CIR assessed on the supposed gain which resulted from the
subject transfer.
On the other hand, insofar as documentary stamp taxes on loan agreements
and promissory notes are concerned, Section 180 of the NIRC provides
follows:
Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange,
drafts, instruments and securities issued by the government or any of its
instrumentalities, certificates of deposit bearing interest and others not payable
on sight or demand. On all loan agreements signed abroad wherein the object of
the contract is located or used in the Philippines; bill of exchange (between points
within the Philippines), drafts, instruments and securities issued by the Government
or any of its instrumentalities or certificates of deposits drawing interest, or orders
for the payment of any sum of money otherwise than at sight or on demand, or on
all promissory notes, whether negotiable or non-negotiable, except bank notes
issued for circulation, and on each renewal of any such note, there shall be collected
a documentary stamp tax of Thirty centavos (P0.30) on each two hundred pesos, or
fractional part thereof, of the face value of any such agreement, bill of exchange,
draft, certificate of deposit or note: Provided, That only one documentary stamp
tax shall be imposed on either loan agreement, or promissory notes issued to secure
such loan, whichever will yield a higher tax: Provided however, That loan
agreements or promissory notes the aggregate of which does not exceed Two
hundred fifty thousand pesos (P250,000.00) executed by an individual for his
purchase on installment for his personal use or that of his family and not for
business, resale, barter or hire of a house, lot, motor vehicle, appliance or furniture
shall be exempt from the payment of documentary stamp tax provided under this
Section.
When read in conjunction with Section 173 of the 1993 NIRC,[63] the
foregoing provision concededly applies to "(a)ll loan agreements, whether
made or signed in the Philippines, or abroad when the obligation or right
arises from Philippine sources or the property or object of the contract is
located or used in the Philippines." Correlatively, Section 3 (b) and Section 6
of Revenue Regulations No. 9-94 provide as follows:
Section 3. Definition of Terms. For purposes of these Regulations, the following
term shall mean:
(b) 'Loan agreement' refers to a contract in writing where one of the parties
delivers to another money or other consumable thing, upon the condition that
the same amount of the same kind and quality shall be paid. The term shall
include credit facilities, which may be evidenced by credit memo, advice or
drawings.
The terms 'Loan Agreement" under Section 180 and "Mortgage' under Section
195, both of the Tax Code, as amended, generally refer to distinct and separate
instruments. A loan agreement shall be taxed under Section 180, while a deed of
mortgage shall be taxed under Section 195."
"Section 6. Stamp on all Loan Agreements. All loan agreements whether made or
signed in the Philippines, or abroad when the obligation or right arises from
Philippine sources or the property or object of the contract is located in the
Philippines shall be subject to the documentary stamp tax of thirty centavos
(P0.30) on each two hundred pesos, or fractional part thereof, of the face value
of any such agreements, pursuant to Section 180 in relation to Section 173 of the
Tax Code.
In cases where no formal agreements or promissory notes have been
executed to cover credit facilities, the documentary stamp tax shall be based on
the amount of drawings or availment of the facilities, which may be evidenced by
credit/debit memo, advice or drawings by any form of check or withdrawal slip,
under Section 180 of the Tax Code.

Applying the aforesaid provisions to the case at bench, we find that the
instructional letters as well as the journal and cash vouchers evidencing the
advances FDC extended to its affiliates in 1996 and 1997 qualified as loan
agreements upon which documentary stamp taxes may be imposed. In
keeping with the caveat attendant to every BIR Ruling to the effect that it is
valid only if the facts claimed by the taxpayer are correct, we find that the
CA reversibly erred in utilizing BIR Ruling No. 116-98, dated 30 July 1998
which, strictly speaking, could be invoked only by ASB Development
Corporation, the taxpayer who sought the same. In said ruling, the CIR
opined that documents like those evidencing the advances FDC extended to
its affiliates are not subject to documentary stamp tax, to wit:
On the matter of whether or not the inter-office memo covering the advances
granted by an affiliate company is subject to documentary stamp tax, it is
informed that nothing in Regulations No. 26 (Documentary Stamp Tax
Regulations) and Revenue Regulations No. 9-94 states that the same is subject to
documentary stamp tax. Such being the case, said inter-office memo evidencing
the lendings or borrowings which is neither a form of promissory note nor a
certificate of indebtedness issued by the corporation-affiliate or a certificate of
obligation, which are, more or less, categorized as 'securities', is not subject to
documentary stamp tax imposed under Section 180, 174 and 175 of the Tax Code
of 1997, respectively. Rather, the inter-office memo is being prepared for
accounting purposes only in order to avoid the co-mingling of funds of the
corporate affiliates.
In its appeal before the CA, the CIR argued that the foregoing ruling was
later modified in BIR Ruling No. 108-99 dated 15 July 1999, which opined
that inter-office memos evidencing lendings or borrowings extended by a
corporation to its affiliates are akin to promissory notes, hence, subject to
documentary stamp taxes.[64] In brushing aside the foregoing argument,
however, the CA applied Section 246 of the 1993 NIRC[65] from which
proceeds the settled principle that rulings, circulars, rules and regulations
promulgated by the BIR have no retroactive application if to so apply them
would be prejudicial to the taxpayers.[66] Admittedly, this rule does not
apply: (a) where the taxpayer deliberately misstates or omits material facts
from his return or in any document required of him by the Bureau of
Internal Revenue; (b) where the facts subsequently gathered by the Bureau
of Internal Revenue are materially different from the facts on which the
ruling is based; or (c) where the taxpayer acted in bad faith.[67] Not being the
taxpayer who, in the first instance, sought a ruling from the CIR, however,
FDC cannot invoke the foregoing principle on non-retroactivity of BIR
rulings.
Viewed in the light of the foregoing considerations, we find that both the
CTA and the CA erred in invalidating the assessments issued by the CIR for
the deficiency documentary stamp taxes due on the instructional letters as
well as the journal and cash vouchers evidencing the advances FDC
extended to its affiliates in 1996 and 1997. In Assessment Notice No. SP-
DST-96-00020-2000, the CIR correctly assessed the sum of P6,400,693.62 for
documentary stamp tax, P3,999,793.44 in interests and P25,000.00 as
compromise penalty, for a total of P10,425,487.06. Alongside the sum
of P4,050,599.62 for documentary stamp tax, the CIR similarly
assessed P1,721,099.78 in interests and P25,000.00 as compromise
penalty in Assessment Notice No. SP-DST-97-00021-2000 or a total
of P5,796,699.40. The imposition of deficiency interest is justified under Sec.
249 (a) and (b) of the NIRC which authorizes the assessment of the same at
the rate of twenty percent (20%), or such higher rate as may be prescribed
by regulations, from the date prescribed for the payment of the unpaid
amount of tax until full payment.[68] The imposition of the compromise
penalty is, in turn, warranted under Sec. 250[69] of the NIRC which prescribes
the imposition thereof in case of each failure to file an information or
return, statement or list, or keep any record or supply any information
required on the date prescribed therefor.
To our mind, no reversible error can, finally, be imputed against both the
CTA and the CA for invalidating the Assessment Notice issued by the CIR for
the deficiency income taxes FDC is supposed to have incurred as a
consequence of the dilution of its shares in FAC. Anent FDCs Shareholders
Agreement with RHPL, the record shows that the parties were in agreement
about the following factual antecedents narrated in the 14 February 2001
Stipulation of Facts, Documents and Issues they submitted before the
CTA,[70] viz.:
1.11. On November 15, 1996, FDC entered into a Shareholders Agreement
(SA) with Reco Herrera Pte. Ltd. (RHPL) for the formation of a joint venture
company named Filinvest Asia Corporation (FAC) which is based
in Singapore (pars. 1.01 and 6.11, Petition, pars. 1 and 7, Answer).
 1.12. FAC, the joint venture company formed by FDC and RHPL, is tasked to
develop and manage the 50% ownership interest of FDC in its PBCom Office
Tower Project (Project) with the Philippine Bank of Communications (par.
6.12, Petition; par. 7, Answer).
1.13. Pursuant to the SA between FDC and RHPL, the equity participation of
FDC and RHPL in FAC was 60% and 40% respectively.
1.14. In accordance with the terms of the SA, FDC subscribed to P500.7 million
worth of shares of stock representing a 60% equity participation in FAC. In
turn, RHPL subscribed to P433.8 million worth of shares of stock of FAC
representing a 40% equity participation in FAC.
1.15. In payment of its subscription in FAC, FDC executed a Deed of
Assignment transferring to FAC a portion of FDCs right and interests in the
Project to the extent of P500.7 million.
1.16. FDC reported a net loss of P190,695,061.00 in its Annual
Income Tax Return for the taxable year 1996.[71]
Alongside the principle that tax revenues are not intended to be liberally
construed,[72] the rule is settled that the findings and conclusions of the CTA
are accorded great respect and are generally upheld by this Court, unless
there is a clear showing of a reversible error or an improvident exercise of
authority.[73] Absent showing of such error here, we find no strong and
cogent reasons to depart from said rule with respect to the CTA's finding
that no deficiency income tax can be assessed on the gain on the supposed
dilution and/or increase in the value of FDC's shareholdings in FAC which
the CIR, at any rate, failed to establish. Bearing in mind the meaning of
"gross income" as above discussed, it cannot be gainsaid, even then, that a
mere increase or appreciation in the value of said shares cannot be
considered income for taxation purposes. Since a mere advance in the value
of the property of a person or corporation in no sense constitute the income
specified in the revenue law, it has been held in the early case of Fisher vs.
Trinidad,[74] that it constitutes and can be treated merely as an increase of
capital. Hence, the CIR has no factual and legal basis in assessing income tax
on the increase in the value of FDC's shareholdings in FAC until the same is
actually sold at a profit.
WHEREFORE, premises considered, the CIR's petition for review
on certiorari in G.R. No. 163653 is DENIED for lack of merit and the CAs 16
December 2003 Decision in G.R. No. 72992 is AFFIRMED in toto. The CIRs
petition in G.R. No. 167689 is PARTIALLY GRANTED and the CAs 26 January
2005 Decision in CA-G.R. SP No. 74510 is MODIFIED.
Accordingly, Assessment Notices Nos. SP-DST-96-00020-2000 and SP-DST-
97-00021-2000 issued for deficiency documentary stamp taxes due on the
instructional letters as well as journal and cash vouchers evidencing the
advances FDC extended to its affiliates are declared valid.
The cancellation of Assessment Notices Nos. SP-INC-96-00018-2000, SP-INC-
97-00019-2000 and SP-INC-97-0027-2000 issued for deficiency income
assessed on (a) the arms-length interest from said advances; (b) the gain
from FDCs Deed of Exchange with FAI and FLI; and (c) income from the
dilution resulting from FDCs Shareholders Agreement with RHPL is,
however, upheld.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No.184360 & 184361 February 19, 2014
SILICON PHILIPPINES, INC., (formerly Intel Philippines Manufacturing,
Inc.), Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
x-----------------------x
G.R. No. 184384
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
SILICON PHILIPPINES, INC.,(formerly Intel Philippines Manufacturing,
Inc.), Respondent.
DECISION
VILLARAMA, JR., J.:
Before us are three consolidated petitions for review on certiorari under Rule 45 of
the 1997 Rules of Civil Procedure, as amended, assailing (1) the Decision1 dated
February 18, 2008 of the Court of Tax Appeals (CTA) En Banc in CTA E.B. No. 219; (2)
the Decision2 dated February 20, 2008 of the CTA En Banc in CTA E.B. Case No. 209;
and (3) the two Resolutions3 both dated September 2, 2008 of the CTA En Banc
denying the motions for reconsideration from the aforementioned assailed
decisions.
The facts as summarized by the CTA in Division and adopted by the CTA En Banc are
as follows:
Silicon Philippines, Inc. (formerly Intel Philippines Manufacturing, Inc.) is a
corporation duly organized and existing under the laws of the Republic of the
Philippines. It is primarily engaged in the business of designing, developing,
manufacturing and exporting advance and large-scale integrated circuit
components.4 It is registered with the Bureau of Internal Revenue (BIR) as a Value-
Added Tax (VAT) taxpayer with Certificate of Registration bearing RDO Control No.
94-048-02621.5 It is likewise registered with the Board of Investments (BOI) as a
preferred pioneer enterprise.6
On the other hand, the Commissioner of Internal Revenue (CIR) is the government
official vested with the power and authority to refund any internal revenue tax
erroneously or illegally assessed or collected under the National Internal Revenue
Code of 1997, as amended7 (hereafter NIRC or Tax Code).
For the 1st quarter of 1999, Silicon seasonably filed its Quarterly VAT Return on
April 22, 1999 reflecting, among others, output VAT in the amount of ₱145,316.96;
input VAT on domestic purchases in the amount of ₱20,041,888.41; input VAT on
importation of goods in the amount of ₱44,560,949.00; and zero-rated export sales
in the sum of ₱929,186,493.91.8
On August 6, 1999, Silicon filed with the CIR, through its One-Stop-Shop Inter-
Agency Tax Credit and Duty Drawback Center of the Department of Finance (DOF), a
claim for tax credit or refund of ₱64,457,520.45 representing VAT input taxes on its
domestic purchases of goods and services and importation of goods and capital
equipment which are attributable to zero-rated sales for the period January 1, 1999
to March 31, 1999.
Due to the inaction of the CIR, Silicon filed a Petition for Review 9 with the CTA on
March 30, 2001, to toll the running of the two-year prescriptive period. The petition
was docketed as CTA Case No. 6263.
The CIR filed its Answer10 dated June 1, 2001 raising, among others, the following
special and affirmative defenses: (1) that Silicon failed to show compliance with the
substantiation requirements under the provisions of Section 16(c)(3)11 of Revenue
Regulations No. 5-87, as amended by Revenue Regulations No. 3-88; and (2) that
Silicon has not shown proof that the alleged domestic purchases of goods and
services and importation of goods/capital equipment on which the VAT input taxes
were paid are attributable to its export sales or have not yet been applied to the
output tax for the period covered in its claim or any succeeding period and that the
alleged total foreign exchange proceeds have been accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas.
During the pendency of the case, Silicon manifested that it was granted by the DOF
a tax credit certificate equivalent to 50% of its total claimed input VAT on local
purchases of ₱19,896,571.45 or for the amount of ₱9,948,285.73. Hence, the CTA
Division limited its review on the amounts of ₱9,896,571.45 12 and ₱44,560,949.00.13
Meanwhile, on August 10, 2000, Silicon filed a second claim for tax credit or refund
in the amount of ₱20,411,419.07 for the period April 1, 2000 to June 30, 2000.
To toll the running of the two-year prescriptive period, Silicon filed on June 28, 2002
with the CTA a Petition for Review,14 which was docketed as CTA Case No. 6493.
The CIR filed an Answer15 asserting, among others, that Silicon’s claim for
refund/tax credit in the amount of ₱20,411,419.07 was not duly substantiated and
that said claim for refund is not subject to zero-percent (0%) rate of VAT under
Sections 106(A)(2)(a)(1)16 and 108(B)(1)17 of the NIRC. Further, the claim for refund
has already prescribed pursuant to Section 112(A) and (B) 18 of the NIRC.
CTA Case Nos. 6263 (Second Division) and 6493 (First Division)
On March 6, 2006, the CTA Second Division rendered a Decision 19 in CTA Case No.
6263 denying Silicon’s claim for refund or issuance of tax credit certificate for the
first quarter of 1999 in the amount of ₱9,896,571.45 representing the input VAT on
its alleged domestic purchases of goods and services because it failed to
substantiate its claimed zero-rated export sales. The CTA Second Division held that
the export sales invoices have no probative value in establishing its zero-rated sales
for VAT purposes as the same were not duly registered with the BIR and the
required information, particularly the BIR authority to print, was likewise not
indicated therein in violation of the provisions of Sections 113,20 23721 and 23822 of
the NIRC. The other evidence presented by Silicon, i.e., the certification of inward
remittance, export declarations, and airway bills were likewise found to be
insufficient to prove actual exportation of goods.
With respect to the claim of ₱44,560,949.00 representing Silicon’s input VAT paid
on imported goods, the same was not granted by the CTA Second Division since
Silicon did not present duly machine-validated Import Entry and Revenue
Declarations or Bureau of Customs official receipts or any other document proving
actual payment of VAT on the imported goods as required under Section 4.104-
523 of Revenue Regulations No. 7-95. Neither did Silicon submit any evidence to
prove that the subject imported capital equipment qualify as capital goods pursuant
to Section 4.106-1(b)24 of Revenue Regulations No. 7-95.
Silicon filed a motion for reconsideration from the aforementioned decision but the
motion was denied in a Resolution25 dated June 22, 2006.
Likewise, in a Decision26 dated June 14, 2006 in CTA Case No. 6493, the CTA First
Division denied Silicon’s claim for refund or tax credit of ₱20,411,419.07 for the
second quarter of 2000 on the ground that its reported export sales did not qualify
for zero-rating under Section 106(A)(2)(a)(1) of the NIRC since the sales invoices
were not duly registered VAT sales invoices containing the required information,
particularly the BIR authority to print, Silicon’s TIN-VAT number and the imprinted
word "zero-rated."
On October 5, 2006, Silicon’s motion for reconsideration was denied by the CTA
First Division.27
Silicon appealed the two decisions of the CTA in Division to the CTA En Banc as CTA
E.B. No. 209 and CTA E.B. No. 219.
Decision of the CTA En Banc (CTA E.B. Nos. 209 & 219)
On February 18, 2008, the CTA En Banc rendered the herein first assailed Decision
in CTA E.B. No. 219 partially granting the petition for review and ordering the CIR to
refund or issue a tax credit certificate in favor of Silicon Philippines in the reduced
amount of ₱2,139,431.00 representing its unutilized input VAT attributable to its
zero-rated sales for the period April 1, 2000 to June 30, 2000. After reviewing the
records, the CTA En Banc stated that the amount of ₱13,916,752.43 may be a valid
claim for tax credit or refund which is composed of input VAT on local purchases of
₱11,777,321.43 and input VAT on importations of ₱2,139,431.00. However,
because Silicon is a BOI-registered entity with 100% exports and sales of properties
or services made by VAT-registered suppliers to Silicon are automatically zero-
rated, there is no VAT that has to be passed on to Silicon. Consequently, Silicon
would not gain input taxes on its purchases of goods, properties or services. Thus,
the CTA En Banc ruled that in the absence of any clear and convincing proof that
Silicon’s local suppliers passed on or shifted the VAT on such domestic purchases to
Silicon, Silicon cannot claim the amount of ₱11,777,321.43 as input tax credits on its
domestic purchases for the period April 1, 2000 to June 30, 2000.
On February 20, 2008, the CTA En Banc also rendered the second assailed Decision
in CTA E.B. No. 209 denying the petition for review for lack of merit. After it
reviewed and examined the invoices and other documentary evidence of Silicon for
the first quarter of 1999, the CTA En Banc found that Silicon’s valid input VAT for
refund was only ₱9,531,635.69. But since the DOF had already granted Silicon a tax
credit certificate on January 24, 2002 in the amount of ₱9,948,285.73, the CTA En
Banc held that Silicon is no longer entitled to refund or issuance of a tax credit
certificate for its input tax for the first quarter of 1999.
The Consolidated Petitions before this Court
In G.R. No. 184360, petitioner Silicon assails the Decision dated February 20, 2008
and the Resolution dated September 2, 2008 of the CTA En Banc in CTA E.B. Case
No. 209.
In its Memorandum, Silicon discussed two important issues. One, whether the CTA
En Banc erred in denying its claim for refund of input VAT derived from domestic
purchases of goods and services attributable to its zero-rated sales on the ground of
failure to imprint the words "TIN-VAT" and "ZERO-RATED" on its export sales
invoices. And two, whether the CTA En Banc erred in denying Silicon’s claim for
refund on the ground that Silicon failed to prove its input VAT derived from its
importation of capital goods and equipment and in not considering the
recommendation and findings of the Court-commissioned Independent Certified
Public Accountant that Silicon has substantially supported its export sales,
importation of capital goods/equipment and its input VAT on local purchases.
In G.R. Nos. 184384 & 184361, Silicon and the CIR assail the Decision dated
February 18, 2008 and the Resolution dated September 2, 2008 of the CTA En Banc
in CTA E.B. No. 219 which ordered the CIR to refund, or issue a tax credit certificate
to Silicon for the amount of ₱2,139,431.00 (from the original claim of
₱20,411,419.07) representing its unutilized excess input VAT on domestic purchases
of goods and services and importation of goods/capital equipment attributable to
its zero-rated sales for the period April 1, 2000 to June 30, 2000.
The issues raised in the three petitions boil down to (1) whether the CTA En Banc
correctly denied Silicon’s claim for refund or issuance of a tax credit certificate for
its input VAT for its domestic purchases of goods and services and importation of
goods/capital equipment attributable to zero-rated sales for the period January 1,
1999 to March 31, 1999; and (2) whether the CTA En Banc correctly ordered the CIR
to refund or issue a tax credit certificate in favor of Silicon for the reduced amount
of ₱2,139,431.00 representing Silicon’s unutilized input VAT attributable to its zero-
rated sales for the period April 1, 2000 to June 30, 2000.
Notwithstanding the above issues, we emphasize that when a case is on appeal, this
Court has the authority to review matters not specifically raised or assigned as error
if their consideration is necessary in reaching a just conclusion of the case. 28
In the present case, while the parties never raised as an issue the timeliness of
Silicon’s judicial claims, we deem it proper to look into whether the petitions for
review filed by Silicon before the CTA were filed within the prescribed period
provided under the Tax Code in order to determine whether the CTA validly
acquired jurisdiction over the petitions filed by Silicon.
The pertinent provision, Section 112(C) (formerly subparagraph D) 29 of the NIRC
reads:
SEC. 112. Refunds or Tax Credits of Input Tax. –
xxxx
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In
proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days from the
date of submission of complete documents in support of the application filed in
accordance with Subsection (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure
on the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer affected may, within (30) days from the receipt of
the decision denying the claim or after the expiration of the one hundred twenty
day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.
(Emphasis supplied.)
The above-mentioned provision expressly grants the CIR 120 days within which to
decide the taxpayer’s claim for refund or tax credit. In addition, the taxpayer is
granted a 30-day period to appeal to the CTA the decision or inaction of the CIR
after the 120-day period.
Meanwhile, the charter of the CTA, Republic Act (R.A.) No. 1125, as amended,
provides:
Section 7. Jurisdiction. – The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue or other laws administered by the Bureau of
Internal Revenue;
2. Inaction by the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau
of Internal Revenue, where the National Internal Revenue Code provides a
specific period of action, in which case the inaction shall be deemed a
denial;
x x x x (Emphasis supplied.)
The CTA has exclusive appellate jurisdiction to review on appeal decisions of the CIR
in cases involving refunds of internal revenue taxes. Moreover, if the CIR fails to
decide within the 120-day period provided by law, such inaction shall be deemed a
denial of the application for tax refund which the taxpayer can elevate to the CTA
through a petition for review. In the recently decided consolidated cases of
Commissioner of Internal Revenue v. San Roque Power Corporation, 30 (San Roque
for brevity) this Court stressed the mandatory and jurisdictional nature of the
120+30 day period provided under Section 112(C) of the NIRC. Therein, we ruled
that
x x x The application of the 120+30 day periods was first raised in Aichi, which
adopted the verba legis rule in holding that the 120+30 day periods are mandatory
and jurisdictional. The language of Section 112(C) is plain, clear, and unambiguous.
When Section 112(C) states that "the Commissioner shall grant a refund or issue the
tax credit within one hundred twenty (120) days from the date of submission of
complete documents," the law clearly gives the Commissioner 120 days within
which to decide the taxpayer’s claim. Resort to the courts prior to the expiration of
the 120-day period is a patent violation of the doctrine of exhaustion of
administrative remedies, a ground for dismissing the judicial suit due to
prematurity. Philippine jurisprudence is awash with cases affirming and reiterating
 the doctrine of exhaustion of administrative remedies. Such doctrine is basic and
elementary.
When Section 112(C) states that "the taxpayer affected may, within thirty (30) days
from receipt of the decision denying the claim or after the expiration of the one
hundred twenty-day period, appeal the decision or the unacted claim with the
Court of Tax Appeals," the law does not make the 120+30 day periods optional just
because the law uses the word "may." The word "may" simply means that the
taxpayer may or may not appeal the decision of the Commissioner within 30 days
from receipt of the decision, or within 30 days from the expiration of the 120-day
period. Certainly, by no stretch of the imagination can the word "may" be construed
as making the 120+30 day periods optional, allowing the taxpayer to file a judicial
claim one day after filing the administrative claim with the Commissioner.
The old rule that the taxpayer may file the judicial claim, without waiting for the
Commissioner’s decision if the two-year prescriptive period is about to expire,
cannot apply because that rule was adopted before the enactment of the 30-day
period. The 30-day period was adopted precisely to do away with the old rule, so
that under the VAT System the taxpayer will always have 30 days to file the judicial
claim even if the Commissioner acts only on the 120th day, or does not act at all
during the 120-day period. With the 30-day period always available to the taxpayer,
the taxpayer can no longer file a judicial claim for refund or credit of input VAT
without waiting for the Commissioner to decide until the expiration of the 120-day
period.
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is
construed strictly against the taxpayer. One of the conditions for a judicial claim of
refund or credit under the VAT System is compliance with the 120+30 day
mandatory and jurisdictional periods. Thus, strict compliance with the 120+30 day
periods is necessary for such a claim to prosper, whether before, during, or after
the effectivity of the Atlas doctrine, except for the period from the issuance of BIR
Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when the Aichi
doctrine was adopted, which again reinstated the 120+30 day periods as mandatory
and jurisdictional.31
In the case of Philex Mining Corporation v. Commissioner of Internal Revenue,
which was consolidated with the case of San Roque, this Court denied Philex’s claim
for refund since its petition for review was filed with the CTA beyond the 120+30
day period. The Court explained:
Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of
late filing.1âwphi1 Philex did not file any petition with the CTA within the 120-day
period. Philex did not also file any petition with the CTA within 30 days after the
expiration of the 120-day period. Philex filed its judicial claim long after the
expiration of the 120-day period, in fact 426 days after the lapse of the 120-day
period. In any event, whether governed by jurisprudence before, during, or after
the Atlas case, Philex’s judicial claim will have to be rejected because of late filing.
Whether the two-year prescriptive period is counted from the date of payment of
the output VAT following the Atlas doctrine, or from the close of the taxable
quarter when the sales attributable to the input VAT were made following the
Mirant and Aichi doctrines, Philex’s judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The
inaction of the Commissioner on Philex’s claim during the 120-day period is, by
express provision of law, "deemed a denial" of Philex’s claim. Philex had 30 days
from the expiration of the 120-day period to file its judicial claim with the CTA.
Philex’s failure to do so rendered the "deemed a denial" decision of the
Commissioner final and inappealable. The right to appeal to the CTA from a decision
or "deemed a denial" decision of the Commissioner is merely a statutory privilege,
not a constitutional right. The exercise of such statutory privilege requires strict
compliance with the conditions attached by the statute for its exercise. Philex failed
to comply with the statutory conditions and must thus bear the consequences. 32
Also, in the recent case of Commissioner of Internal Revenue v. Dash Engineering
Philippines, Inc.,33 this Court likewise denied the claim for tax refund for having
been filed late or after the expiration of the 30-day period from the denial by the
CIR or failure of the CIR to make a decision within 120 days from the submission of
the documents in support of its administrative claim. We held:
Petitioner is entirely correct in its assertion that compliance with the periods
provided for in the abovequoted provision is indeed mandatory and jurisdictional,
as affirmed in this Court’s ruling in San Roque, where the Court En Banc settled the
controversy surrounding the application of the 120+30-day period provided for in
Section 112 of the NIRC and reiterated the Aichi doctrine that the 120+30-day
period is mandatory and jurisdictional. Nonetheless, the Court took into account
the issuance by the Bureau of Internal Revenue (BIR) of BIR Ruling No. DA-489-03
which misled taxpayers by explicitly stating that taxpayers may file a petition for
review with the CTA even before the expiration of the 120-day period given to the
CIR to decide the administrative claim for refund. Even though observance of the
periods in Section 112 is compulsory and failure to do so will deprive the CTA of
jurisdiction to hear the case, such a strict application will be made from the
effectivity of the Tax Reform Act of 1997 on January 1, 1998 until the present,
except for the period from December 10, 2003 (the issuance of the erroneous BIR
ruling) to October 6, 2010 (the promulgation of Aichi), during which taxpayers need
not wait for the lapse of the 120+30-day period before filing their judicial claim for
refund.34
After a careful perusal of the records in the instant case, we find that Silicon’s
judicial claims were filed late and way beyond the prescriptive period. Silicon’s
claims do not fall under the exception mentioned above. Silicon filed its Quarterly
VAT Return for the 1st quarter of 1999 on April 22, 1999 and subsequently filed on
August 6, 1999 a claim for tax credit or refund of its input VAT taxes for the same
period. From August 6, 1999, the CIR had until December 4, 1999, the last day of
the 120-day period, to decide Silicon’s claim for tax refund. But since the CIR did not
act on Silicon’s claim on or before the said date, Silicon had until January 3, 2000,
the last day of the 30-day period to file its judicial claim. However, Silicon failed to
file an appeal within 30 days from the lapse of the 120-day period, and it only filed
its petition for review with the CTA on March 30, 2001 which was 451 days late.
Thus, in consonance with our ruling in Philex in the San Roque ponencia, Silicon’s
judicial claim for tax credit or refund should have been dismissed for having been
filed late. The CTA did not acquire jurisdiction over the petition for review filed by
Silicon.
Similarly, Silicon’s claim for tax refund for the second quarter of 2000 should have
been dismissed for having been filed out of time. Records show that Silicon filed its
claim for tax credit or refund on August 10, 2000. The CIR then had 120 days or until
December 8, 2000 to grant or deny the claim. With the inaction of the CIR to decide
on the claim which was deemed a denial of the claim for tax credit or refund, Silicon
had until January 7, 2001 or 30 days from December 8, 2000 to file its petition for
review with the CTA. However, Silicon again failed to comply with the 120+30 day
period provided under Section 112(C) since it filed its judicial claim only on June 28,
2002 or 536 days late. Thus, the petition for review, which was belatedly filed,
should have been dismissed by the CTA which acquired no jurisdiction to act on the
petition.
Courts are bound by prior decisions. Thus, once a case has been decided one way,
courts have no choice but to resolve subsequent cases involving the same issue in
the same manner.35
As this Court has repeatedly emphasized, a tax credit or refund, like tax exemption,
is strictly construed against the taxpayer.36 The taxpayer claiming the tax credit or
refund has the burden of proving that he is entitled to the refund by showing that
he has strictly complied with the conditions for the grant of the tax refund or credit.
Strict compliance with the mandatory and jurisdictional conditions prescribed by
law to claim such tax refund or credit is essential and necessary for such claim to
prosper.37 Noncompliance with the mandatory periods, nonobservance of the
prescriptive periods, and nonadherence to exhaustion of administrative remedies
bar a taxpayer’s claim for tax refund or credit, whether or not the CIR questions the
numerical correctness of the claim of the taxpayer.38 For failure of Silicon comply
with the provisions of Section 112(C) of the NIRC, its judicial claims for tax refund or
credit should have been dismissed by the CT A for lack of jurisdiction.
Considering the foregoing disquisition, we deem it unnecessary to rule upon the
other issues raised by the parties in the three consolidated petitions.
WHEREFORE, the assailed February 18, 2008 Decision and September 2, 2008
Resolution of the Court of Tax Appeals En Banc in CTA E.B. No. 219 and the assailed
February 20, 2008 Decision and September 2, 2008 Resolution of the Court of Tax
Appeals En Banc in CTA E.B. No. 209 are REVERSED and SET ASIDE. Silicon's judicial
claims for refund for the 1st quarter of 1999 and the 2nd quarter of 2000 through
its petitions for review docketed as CT A Case Nos. 6263 and 6493 filed with the
Court of Tax Appeals are hereby DISMISSED for having been filed out of time.
No pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 183880 January 20, 2014
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
TOLEDO POWER, INC., Respondent.
DECISION
PERALTA, J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of
Court seeking the reversal of the Court of Tax Appeals (CTA) En Banc
Decision1 dated May 7, 2008, and Resolution2 dated July 18, 2008.
The pertinent facts, as narrated by the CT A First Division, are as follows:
Petitioner (herein respondent Toledo Power, Inc.) is a general partnership duly
organized and existing under Philippine laws, with principal office at Sangi, Toledo
City, Cebu. It is principally engaged in the business of power generation and Output Tax 34,422.89
subsequent sale thereof to the National Power Corporation (NPC), Cebu Electric
Cooperative III (CEBECO), Atlas Consolidated Mining and Development Corporation, Less: Input Tax
Atlas Fertilizer Corporation and Cebu Industrial Park Development, Inc., and is
registered with the Bureau of Internal Revenue (BIR) as a Value On Domestic Purchases 4,718,099.85

On Importation of Goods 1,225,912.00

Added Tax taxpayer in accordance with Section 236 of the National Internal
Revenue Code (NIRC) with Tax Identification No. 003-883-626-VAT and BIR
Certificate of Registration bearing RDO Control No. 94-083-000300.
On June 20, 2002, petitioner filed an application with the Energy Regulatory
Commission (ERC) for the issuance of a Certificate of Compliance pursuant to the
Implementing Rules and Regulations of R.A. 9136, otherwise known as the "Electric
Power Industry Reform Act of 2007" (EPIRA).
On October 25, 2001, petitioner filed with the BIR Revenue District Office (RDO) No.
83 at Toledo City, Province of Cebu, its Quarterly VAT Return for the third quarter of
2001, declaring among others, the following:
Zero-rated Sales/Receipts P 143,000,032.37
Total Available Input Tax 5,944,011.85
Excess Input Tax & Overpayment P 5,909,588.96
Thus, for the third quarter of 2001, petitioner allegedly has unutilized input VAT in
the total amount of ₱5,909,588.96 on its domestic purchase of taxable goods and
services and importation of goods, which purchases and importations are all
attributable to its zero-rated sale of power generation services to NPC, CEBECO,
Atlas Consolidated Mining and Development Corporation, Atlas Fertilizer
Corporation and Cebu Industrial Park Development, Inc. Said input VAT of
₱5,909,588.96 paid by petitioner on its domestic purchase of goods and services for
the third quarter of 2001 allegedly remained unutilized against output VAT liability
in said period or even in subsequent matters.

Taxable Sales-Sale of Scrap/Others 378,651.74 On January 25, 2002, petitioner filed with the BIR RDO No. 83 at Toledo City,
Province of Cebu, its Quarterly VAT Return for the fourth quarter of 2001 declaring,
Output Tax 34,422.89 among others, the following:
Less: Input Tax
Zero-rated Sales/Receipts P 127,259,720.44
On Domestic Purchases 4,765,458.58
Taxable Sales-Sale of Scrap/Others 309,697.50
On Importation of Goods 1,242,792.00
Output Tax 28,154.33
Total Available Input Tax 6,008,250.58
Less: Input Tax
Excess Input Tax & Overpayment P 5,973,827.69
On Domestic Purchases 1,374,608.64
However, an amended Quarterly VAT Return for the same quarter of 2001was filed On Importation of Goods 1,873,327.00
on November 22, 2001. The amended return shows unutilized input VAT credits of
₱5,909,588.96 arising from petitioner’s taxable purchases for the third quarter of Total Available Input Tax 3,247,935.64
2001 and the following other information:
Excess Input Tax & Overpayment P 3,219,781.31

Zero-rated Sales/Receipts P 143,000,032.37

Thus, petitioner allegedly had an excess input VAT credits of ₱3,219,781.31 for the
Taxable Sales-Sale of Scrap/Others 378,651.74 fourth quarter of 2001 which remained unutilized against output VAT liability in said
period or even in the subsequent quarters.
For the third and fourth quarters of 2001, petitioner incurred and accumulated
input VAT from its domestic purchase of goods and services, which are all
attributable to its zero-rated sales of power generation services to NPC, CEBECO,
Atlas Consolidated Mining and Development
Corporation, Atlas Fertilizer Corporation and Cebu Industrial Park Development Inc.,
in the total amount of ₱9,129,370.27. Said excess and unutilized input VAT was
allegedly not utilized against any output VAT liability in the subsequent quarters nor
carried over to the succeeding taxable quarters.
On September 30, 2003, pursuant to the procedure prescribed in Revenue
Regulations No. 7-95, as amended, petitioner filed with the BIR RDO No. 83, an
administrative claim for refund or unutilized input VAT for the third and fourth
quarter of 2001 in the amounts of ₱5,909,588.96 and ₱3,219,781.31, respectively,
or the aggregate amount of ₱9,129,370.27.
In a Resolution dated July 6, 2006, this consolidated case was ordered submitted for
decision with only petitioner’s Memorandum, as respondent failed to file one
within the period given by the Court.3
Acting on the petition, the CTA First Division issued a Decision dated May 17, 2007
partially granting Toledo Power, Inc.’s (TPI) refund claim or issuance of tax credit
certificate. Pertinent portions of the Decision read:
In sum, petitioner was able to show its entitlement to the refund or issuance of tax
credit certificate in the amount of ₱8,553,050.44 computed as follows:
Total Available Input VAT P 9,191,947.49
Less: Disallowed Input VAT
(₱20,696.34+₱52,363.64+₱277,207.50) 350,267.48

Respondent (herein petitioner Commissioner of Internal Revenue) has not ruled Substantiated available input VAT P 8,841,680.01
upon petitioner’s administrative claim and in order to preserve its right to file a
judicial claim for the refund or issuance of a tax credit certificate of its unutilized Less: Output VAT 62,577.22
input VAT, petitioner filed a Petition for Substantiated Unutilized Input VAT P 8,779,102.79

Review to suspend the running of the two-year prescriptive period under Section
112(D) of the 1997 NIRC and Section 4.106-2(c) of Revenue Regulations No. 7-95, as
amended. On October 24, 2003, petitioner filed a Petition for Review for the refund Multiply by the ratio of substantiated
or issuance of a tax credit certificate in the amount of ₱5,909,588.96 for the third zero-rated sales to the total zero-rated
quarter of 2001, docketed as CTA Case No. 6805 and, on January 22, 2004, filed sales
another Petition for Review for the refund or issuance of tax credit certificate in the
Substantiated zero-rated sales 263,300,858.02
amount of ₱3,219,781.31 for the fourth quarter of 2001, docketed as CTA Case No.
6851, both for its unutilized input VAT paid by petitioner on its domestic purchases Total zero-rated sales 270,259,752.81
of goods and services and importation of goods attributable to zero-rated sales.
Refundable Input VAT P 8,553,050.44
On January 30, 2004, petitioner filed a Motion for Consolidation CTA Case Nos. 6805
and 6851, since these cases involve the same parties, same facts and issues. The IN VIEW OF THE FOREGOING, the Petition for Review is PARTIALLY GRANTED.
said Motion was granted in open court on February 27, 2004 and confirmed in a Respondent is hereby ORDERED to refund or to issue a tax credit certificate in favor
Resolution dated March 8, 2004. of petitioner in the reduced amount of ₱8,553,050.44 representing the
substantiated unutilized input VAT for the third and fourth quarters of 2001.
xxxx
SO ORDERED.4
After presenting its testimonial and documentary evidence, petitioner formally
offered its evidence on February 16, 2006. On March 24, 2006, this Court The Commissioner of Internal Revenue (CIR), thereafter, filed a Motion for
promulgated a Resolution admitting all the exhibits offered by petitioner. Reconsideration against said Decision. However, the same was denied in a
Respondent, on the other hand, failed to adduce any evidence. Resolution dated October 15, 2007.
On appeal to the CTA En Banc, the CIR argued that TPI failed to comply with the
invoicing requirements to prove entitlement to the refund or issuance of tax credit
certificate. In addition, he challenged the jurisdiction of the CTA First Division to
entertain respondent’s petition for review for failure on its part to comply with the
provisions of Section 112 (C) of the Tax Code.
In a Resolution dated July 18, 2008, the CTA En Banc denied the CIR’s motion for
reconsideration.
Undaunted by the adverse ruling of the CTA, the CIR now seeks recourse to this
Court on the following ground:

In a Decision dated May 7, 2008, the CTA En Banc affirmed with modification the THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE GOVERNMENT
First Division’s assailed decision. It held – IS LIABLE TO REFUND PETITIONER FOR ALLEGED OVERPAYMENT OF VAT.6

x x x after re-examination of the records of this case, out of the alleged Zero-rated In essence, two issues must be addressed to determine whether TPI is indeed
sales amounting to ₱270,259,752.81, only the amount of ₱248,989,191.87 is fully entitled to its claim for refund or issuance of tax credit certificate: (1) whether TPI
substantiated. Therefore, respondent is entitled to the refund or issuance of tax complied with the 120+30 day rule under Section 112 (C) of the Tax Code, and (2)
credit certificate in the amount of ₱8,088,151.07 computed as follows: whether TPI sufficiently complied with the invoicing requirements under the Tax
Code.
Total Available Input VAT P 9,191,947.49
Let us discuss the issues in seriatim.
Less: Disallowed Input VAT
(₱20,696.34+₱52,363.64+₱277,207.50) 350,267.48 First, it must be emphasized that to validly claim a refund or tax credit of input tax,
compliance with the 120+30 day rule under Section 112 of the Tax Code is
Substantiated available input VAT P 8,841,680.01 mandatory.
Less: Output VAT 62,577.22
Pertinent portions of Section 112 of the Tax Code, as amended by Republic Act No.
Substantiated Unutilized Input VAT P 8,779,102.79 9337,7 state:

Multiply by the ratio of substantiated

SEC. 112. Refunds or Tax Credits of Input Tax. –
zero-rated sales to the total zero-rated
sales
(A) Zero-rated or Effectively Zero-Rated Sales. – Any VAT-registered person, whose
Substantiated zero-rated sales 248,989,191.87 sales are zero-rated or effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made, apply for the issuance of a
Total zero-rated sales 270,259,752.81 tax credit certificate or refund of creditable input tax due or paid attributable to
such sales, except transitional input tax, to the extent that such input tax has not
Refundable Input VAT P 8,088,151.07 been applied against output tax: Provided, however, That in the case of zero-rated
sales under Section 106(A)(2)(a)(1), (2) and (b) and Section 108(B)(1) and (2), the
WHEREFORE, premises considered, the Petition for Review En Banc is DENIED for acceptable foreign currency exchange proceeds thereof had been duly accounted
lack of merit. Accordingly, the Decision dated May 17, 2007 and Resolution dated for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
October 15, 2007 are AFFIRMED with MODIFICATION. Petitioner is hereby ORDERED (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or
TO REFUND to respondent the sum of EIGHT MILLION EIGHTY-EIGHT THOUSAND effectively zero-rated sale and also in taxable or exempt sale of goods of properties
ONE HUNDRED FIFTY-ONE PESOS AND SEVEN CENTAVOS (₱8,088,151.07) only for or services, and the amount of creditable input tax due or paid cannot be directly
the third and fourth quarters of taxable year 2001. and entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales: Provided, finally, That for a
SO ORDERED.5 person making sales that are zero-rated under Section 108(B)(6), the input taxes
shall be allocated ratably between his zero-rated and non-zero-rated sales.
 xxxx
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In
proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days from the
date of submission of complete documents in support of the application filed in
accordance with Subsection (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure
on the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration of the one hundred twenty day-
period, appeal the decision or the unacted claim with the Court of Tax Appeals.
Section 112 decrees that a VAT-registered person, whose sales are zero-rated or
effectively zero-rated, may apply for the issuance of a tax credit or refund creditable
input tax due or paid attributable to such sales within two years after the close of
the taxable quarter when the sales were made. From the date of submission of
complete documents in support of its application, the CIR has 120 days to decide
whether or not to grant the claim for refund or issuance of tax credit certificate. In
case of full or partial denial of the claim for tax refund or tax credit, or the failure on
the part of the CIR to act on the application within the given period, the taxpayer
may, within 30 days from receipt of the decision denying the claim or after the
expiration of the 120-day period, appeal with the CTA the decision or inaction of the
CIR.
Recently, in the consolidated cases of Commissioner of Internal Revenue v. San
Roque Power Corporation,8 (San Roque), the Court confirmed the mandatory and
jurisdictional nature of the 120+30 day rule. It ratiocinated as follows:
At the time San Roque filed its petition for review with the CTA, the 120+30 day
mandatory periods were already in the law. Section 112 (C) expressly grants the
Commissioner 120 days within which to decide the taxpayer’s claim. The law is
clear, plain and unequivocal: "x x x the Commissioner shall grant a refund or issue
the tax credit certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of complete documents." Following the verba
legis doctrine, this law must be applied exactly as worded since it is clear, plain and
unequivocal. The taxpayer cannot simply file a petition with the CTA without
waiting for the Commissioner’s decision within the 120-day mandatory and
jurisdictional period. The CTA will have no jurisdiction because there will be no
"decision" or "deemed a denial" decision of the Commissioner for the CTA to
review. In San Roque’s case, it filed its petition with the CTA a mere 13 days after it
filed its administrative claim with the Commissioner. Indisputably, San Roque
knowingly violated the mandatory 120-day period, and it cannot blame anyone but
itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the
CTA the decision or inaction of the Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration of the one-hundred twenty day-
period, appeal the decision or the unacted claim with the Court of Tax Appeals.
(Emphasis supplied.)
This law is clear, plain, and unequivocal.1avvphi1 Following the well-settled verba
legis doctrine, this law should be applied exactly as worded since it is clear, plain
and unequivocal. As this law states, the taxpayer may, if he wishes, appeal the
decision of the Commissioner to the CTA within 30 days from receipt of the
Commissioner’s decision, or if the Commissioner does not act on the taxpayer’s
claim within the 120-day period, the taxpayer may appeal to the CTA within 30 days
from the expiration of the 120-day period.
xxxx
When Section 112 (C) states that "the taxpayer affected may, within thirty (30) days
from receipt of the decision denying the claim or after the expiration of the one
hundred twenty-day period, appeal the decision or the unacted claim with the
Court of Tax Appeals," the law does not make the 120+30 day periods optional just
because the law uses the word "may." The word "may" simply means that the
taxpayer may or may not appeal the decision of the Commissioner within 30 days
from receipt of the decision, or within 30 days from the expiration of the 120-day
period. Certainly by no stretch of the imagination can the word "may" be construed
as making the 120+30 day periods optional, allowing the taxpayer to file a judicial
claim one day after filing the administrative claim with the Commissioner.
The old rule that the taxpayer may file the judicial claim, without waiting for the
Commissioner’s decision if the two-year prescriptive period is about to expire,
cannot apply because that rule was adopted before the enactment of the 30-day
period. The 30-day period was adopted precisely to do away with the old rule, so
that under the VAT System the taxpayer will always have 30 days to file the judicial
claim even if the Commissioner acts only on the 120th day, or does not act at all
during the 120-day period. With the 30-day period always available to the taxpayer,
the taxpayer can no longer file a judicial claim for refund or credit of input VAT
without waiting for the Commissioner to decide until the expiration of the 120-day
period.
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is
construed strictly against the taxpayer. One of the conditions for a judicial claim of
refund or credit under the VAT System is compliance with the 120+30 day
mandatory and jurisdictional periods. Thus, strict compliance with the 120+30 day
periods is necessary for such a claim to prosper, whether before, during, or after
the effectivity of the Atlas doctrine, except for the period from the issuance of BIR
Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when the Aichi
doctrine was adopted, which again reinstated the 120+30 day periods as mandatory
and jurisdictional.9
In a nutshell, the rules on the determination of the prescriptive period for filing a
tax refund or credit of unutilized input VAT, as provided in Section 112 of the Tax
Code, are as follows:
(1) An administrative claim must be filed with the CIR within two years
after the close of the taxable quarter when the zero-rated or effectively
zero-rated sales were made.
(2) The CIR has 120 days from the date of submission of complete
documents in support of the administrative claim within which to decide
whether to grant a refund or issue a tax credit certificate. The 120-day
period may extend beyond the two-year period from the filing of the
administrative claim if the claim is filed in the later part of the two-year
period. If the 120-day period expires without any decision from the CIR,
then the administrative claim may be considered to be denied by inaction.
(3) A judicial claim must be filed with the CTA within 30 days from the
receipt of the CIR’s decision denying the administrative claim or from the
expiration of the 120-day period without any action from the CIR.
(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the
time of its issuance on 10 December 2003 up to its reversal by this Court in
Aichi on 6 October 2010, as an exception to the mandatory and
jurisdictional 120+30 day periods.10
Here, TPI filed its third and fourth quarterly VAT returns for 2001 on October 25,
2001 and January 25, 2002, respectively. It then filed an administrative claim for
refund of its unutilized input VAT for the third and fourth quarters of 2001 on
September 30, 2003. Thus, the CIR had 120 days or until January 28, 2004, after the
submission of TPI’s administrative claim and complete documents in support of its
application, within which to decide on its claim. Then, it is only after the expiration
of the 120-day period, if there is inaction on the part of the CIR, where TPI may
elevate its claim with the CTA within 30 days.
In the present case, however, it appears that TPI’s judicial claims for refund of its
unutilized input VAT covering the third and fourth quarters of 2001 were
prematurely filed on October 24, 2003 and January 22, 2004, respectively.
However, although TPI’s judicial claim for the fourth quarter of 2001 has been filed
prematurely, the most recent pronouncements of the Court provide for a window
wherein the same may be entertained.
As held in the San Roque ponencia, strict compliance with the 120+30 day
mandatory and jurisdictional periods is not necessary when the judicial claims are
filed between December 10, 2003 (issuance of BIR Ruling No. DA-489-03 which
states that the taxpayer need not wait for the 120-day period to expire before it
could seek judicial relief) to October 6, 2010 (promulgation of the Aichi doctrine).
Clearly, therefore, TPI’s refund claim of unutilized input VAT for the third quarter of
2001 was denied for being prematurely filed with the CTA, while its refund claim of
unutilized input VAT for the fourth quarter of 2001 may be entertained since it falls
within the exception provided in the Court’s most recent rulings.
With that settled, we now resolve the issue of whether TPI sufficiently complied
with the invoicing requirements under the Tax Code with respect to the fourth
quarter of 2001.
Section 113 (A), in relation to Section 237 of the Tax Code, provides:
SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. –
(A) Invoicing Requirements. – A VAT-registered person shall, for every sale, issue an
invoice or receipt.1âwphi1 In addition to the information shall be indicated in the
invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his
taxpayer’s identification number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the
seller with the indication that such amount includes value-added tax.
xxxx
SEC. 237. – Issuance of Receipts or Sales of Commercial Invoices. – All persons
subject to an internal revenue tax shall, for each sale or transfer of merchandise or
for services rendered valued at Twenty-five pesos (₱25.00) or more, issue duly
registered receipts or sales or commercial invoices, prepared at least in duplicate,
showing the date of transaction, quantity, unit cost and description of merchandise
or nature of service: Provided, however, That in the case of sales, receipts or
transfers in the amount of One hundred pesos (₱100.00) or more, or regardless of
the amount, where the sale or transfer is made by a person liable to value-added
tax to another person also liable to value-added tax; or where the receipt is issued
to cover payment made as rentals, commissions, compensations or fees, receipts or
invoices shall be issued which shall show the name, business style, if any, and
address of the purchaser, customer or client: Provided, further, That where the
purchaser is a VAT-registered person, in addition to the information herein
required, the invoice or receipts shall further show the Taxpayer Identification
Number (TIN) of the purchaser.
Section 4.108-1 of Revenue Regulations No. 7-95 states:
Section 4.108-1. Invoicing Requirements – All VAT-registered persons shall, for
every sale or lease of goods or properties or services, issue duly registered receipts
or sales or commercial invoices which must show:
1. the name, TIN and address of seller;
2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of service;
4. the name, TIN, business style, if any, and address of the VAT-registered
purchaser, customer or client;
5. the word "zero-rated" imprinted on the invoice covering zero-rated
sales; and
6. the invoice value or consideration.11
In the present case, we agree with the CTA’s findings that the words "zero-rated"
appeared on the VAT invoices/official receipts presented by the TPI in support of its
refund claim. Although the same was merely stamped and not pre-printed, the
same is sufficient compliance with the law, since the imprinting of the word "zero-
rated" was required merely to distinguish sales subject to 10% VAT, those that are
subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal
Revenue to properly implement and enforce the other VAT provisions of the Tax
Code.
Moreover, it is doctrinal that the Court will not lightly set aside the conclusions
reached by the CTA which, by the very nature of its function of being dedicated
exclusively to the resolution of tax problems, has accordingly developed an
expertise on the subject, unless there has been an abuse or improvident exercise of
authority.12
In Barcelon, Roxas Securities, Inc. v. Commissioner of Internal Revenue, 13 the Court
held that it accords the findings of fact by the CTA with the highest respect. It ruled
that factual findings made by the CTA can only be disturbed on appeal if they are
supported by substantial evidence or there is a showing of gross error or abuse on
the part of the Tax Court. In the absence of any clear and convincing proof to the
contrary, this Court must presume that the CTA rendered a decision which is valid in
every respect.14
WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. The
Commissioner of Internal Revenue is hereby ORDERED to refund or issue tax credit
certificate in favor of Toledo Power, Inc. only for the fourth quarter of 2001. This
case is hereby REMANDED to the Court of Tax Appeals for the proper computation
of the refundable amount representing unutilized input VAT for the fourth quarter
of 2001.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 172129
MPC, formerly Southern Energy Quezon, Inc., and also formerly known as
Petitioner,
Present: Hopewell (Phil.) Corporation, is a domestic firm engaged in the generation of power
- versus -
which it sells to the National Power Corporation (NPC). For the construction of the
QUISUMBING, J., Chairperson,
CARPIO MORALES, electrical and mechanical equipment portion of its Pagbilao, Quezon plant, which
MIRANT PAGBILAO CORPORATION (Formerly TINGA, appears to have been undertaken from 1993 to 1996, MPC secured the services of
SOUTHERN ENERGY QUEZON, INC.), VELASCO, JR., and
Respondent. BRION, JJ. Mitsubishi Corporation (Mitsubishi) of Japan.

Promulgated:
Under Section 13[4] of Republic Act No. (RA) 6395, the NPCs revised charter,
September 12, 2008 NPC is exempt from all taxes. In Maceda v. Macaraig,[5] the Court construed the
exemption as covering both direct and indirect taxes.

In the light of the NPCs tax exempt status, MPC, on the belief that its sale of
x-----------------------------------------------------------------------------------------x power generation services to NPC is, pursuant to Sec. 108(B)(3) of the Tax

DECISION
VELASCO, JR., J.:
Before us is a Petition for Review on Certiorari under Rule 45 assailing and
seeking to set aside the Decision[1] dated December 22, 2005 of the Court of Appeals
(CA) in CA-G.R. SP No. 78280 which modified the March 18, 2003 Decision[2] of the
Court of Tax Appeals (CTA) in CTA Case No. 6133 entitled Mirant Pagbilao
Corporation (Formerly Southern Energy Quezon, Inc.) v. Commissioner of Internal
Revenue and ordered the Bureau of Internal Revenue (BIR) to refund or issue a tax
credit certificate (TCC) in favor of respondent Mirant Pagbilao Corporation (MPC) in
the amount representing its unutilized input value added tax (VAT) for the second
[3]
quarter of 1998. Also assailed is the CAs Resolution of March 31, 2006 denying
petitioners motion for reconsideration.
The Facts
Code,[6] zero-rated for VAT purposes, filed on December 1, 1997 with Revenue
District Office (RDO) No. 60 in Lucena City an Application for Effective Zero Rating.
The application covered the construction and operation of its Pagbilao power station
under a Build, Operate, and Transfer scheme.
Not getting any response from the BIR district office, MPC refiled its
application in the form of a request for ruling with the VAT Review Committee at the
BIR national office on January 28, 1999. On May 13, 1999, the Commissioner of
Internal Revenue issued VAT Ruling No. 052-99, stating that the supply of electricity
by Hopewell Phil. to the NPC, shall be subject to the zero percent (0%) VAT, pursuant
to Section 108 (B) (3) of the National Internal Revenue Code of 1997.
It must be noted at this juncture that consistent with its belief to be zero-
rated, MPC opted not to pay the VAT component of the progress billings from
Mitsubishi for the period covering April 1993 to September 1996for the E & M
Equipment Erection Portion of MPCs contract with Mitsubishi. This prompted
Mitsubishi to advance the VAT component as this serves as its output VAT which is
 3. Whether the unutilized creditable input VAT for said quarter, if any, was
essential for the determination of its VAT payment. Apparently, it was only on April
applied against any of the VAT output tax of MPC in the subsequent quarter.
14, 1998 that MPC paid Mitsubishi the VAT component for the progress billings from
April 1993 to September 1996, and for which Mitsubishi issued Official Receipt (OR)
To provide support to the CTA in verifying and analyzing documents and
No. 0189 in the aggregate amount of PhP 135,993,570.
figures and entries contained therein, the Sycip Gorres & Velayo (SGV), an
independent auditing firm, was commissioned.
On August 25, 1998, MPC, while awaiting approval of its application
aforestated, filed its quarterly VAT return for the second quarter of 1998 where it
The Ruling of the CTA
reflected an input VAT of PhP 148,003,047.62, which included PhP 135,993,570
supported by OR No. 0189. Pursuant to the procedure prescribed in Revenue
On the basis of its affirmative resolution of the first issue, the CTA, by its
Regulations No. 7-95, MPC filed on December 20, 1999 an administrative claim for
Decision dated March 18, 2003, granted MPCs claim for input VAT refund or credit,
refund of unutilized input VAT in the amount of PhP 148,003,047.62.
but only for the amount of PhP 10,766,939.48. The fallo of the CTAs decision reads:

Since the BIR Commissioner failed to act on its claim for refund and
obviously to forestall the running of the two-year prescriptive period under Sec. 229
of the National Internal Revenue Code (NIRC), MPC went to the CTA via a petition for
review, docketed as CTA Case No. 6133.
In view of all the foregoing, the instant petition is PARTIALLY
GRANTED. Accordingly, respondent is hereby ORDERED to REFUND or in the
alternative, ISSUE A TAX CREDIT CERTIFICATE in favor of the petitioner its
unutilized input VAT payments directly attributable to its effectively zero-rated
sales for the second quarter of 1998 in the reduced amount of P10,766,939.48,
computed as follows:

Claimed Input VAT P148,003,047.62

Answering the petition, the BIR Commissioner, citing Kumagai-Gumi Co. Ltd.
v. CIR,[7] asserted that MPCs claim for refund cannot be granted for this main reason: Less: Disallowances
MPCs sale of electricity to NPC is not zero-rated for its failure to secure an approved
a.) As summarized by SGV & Co. in its initial report (Exh. P)
application for zero-rating. I. Input Taxes on Purchases of Services:
1. Supported by documents
other than VAT Ors P 10,629.46
Before the CTA, among the issues stipulated by the parties for resolution 2. Supported by photocopied VAT OR 879.09
were, in gist, the following: II. Input Taxes on Purchases of Goods:
1. Supported by documents other than
1. Whether or not [MPC] has unapplied or unutilized creditable input VAT VAT invoices 165,795.70
for the 2nd quarter of 1998 attributable to zero-rated sales to NPC which are proper 2. Supported by Invoices with TIN only 1,781.82
subject for refund pursuant to relevant provisions of the NIRC; 3. Supported by photocopied VAT
2. Whether the creditable input VAT of MPC for said period, if any, is invoices 3,153.62
substantiated by documents; and III. Input Taxes on Importation of Goods:
1. Supported by photocopied documents
[IEDs and/or Bureau of Customs
(BOC) Ors] 716,250.00
 2. Supported by brokers computations 91,601.00 990,090.69
b.) Input taxes without supporting documents as
summarized in Annex A of SGV & Co.s
supplementary report (CTA records, page 134) 252,447.45
c.) Claimed input taxes on purchases of services from
Mitsubishi Corp. for being substantiated by dubious OR 135,996,570.00[8]
Refundable Input P10,766,939.48
SO ORDERED.[9]
Explaining the disallowance of over PhP 137 million claimed input VAT, the
CTA stated that most of MPCs purchases upon which it anchored its claims for refund
or tax credit have not been amply substantiated by pertinent documents, such as but
not limited to VAT ORs, invoices, and other supporting documents. Wrote the CTA:
We agree with the above SGV findings that out of the remaining taxes
of P136,246,017.45, the amount of P252,477.45 was not supported by any
document and should therefore be outrightly disallowed.
As to the claimed input tax of P135,993,570.00 (P136,246,017.45 less
P252,477.45 ) on purchases of services from Mitsubishi Corporation, Japan, the
same is found to be of doubtful veracity. While it is true that said amount is
substantiated by a VAT official receipt with Serial No. 0189 dated April 14, 1998
x x x, it must be observed, however, that said VAT allegedly paid pertains to the
services which were rendered for the period 1993 to 1996. x x x
The Ruling of the CA
Aggrieved, MPC appealed the CTAs Decision to the CA via a petition for
review under Rule 43, docketed as CA-G.R. SP No. 78280. On December 22, 2005, the
CA rendered its assailed decision modifying that of the CTA decision by granting most
of MPCs claims for tax refund or credit. And in a Resolution of March 31, 2006, the
CA denied the BIR Commissioners motion for reconsideration. The decretal portion
of the CA decision reads:
WHEREFORE, premises considered, the instant petition is
GRANTED. The assailed Decision of the Court of Tax Appeals dated March 18,
2003 is hereby MODIFIED. Accordingly, respondent Commissioner of Internal
Revenue is ordered to refund or issue a tax credit certificate in favor of petitioner
Mirant Pagbilao Corporation its unutilized input VAT payments directly
attributable to its effectively zero-rated sales for the second quarter of 1998 in
the total amount of P146,760,509.48.
SO ORDERED.[10]
The CA agreed with the CTA on MPCs entitlement to (1) a zero-rating for VAT
purposes for its sales and services to tax-exempt NPC; and (2) a refund or tax credit
for its unutilized input VAT for the second quarter of 1998. Their disagreement,
however, centered on the issue of proper documentation, particularly the
evidentiary value of OR No. 0189.
The CA upheld the disallowance of PhP 1,242,538.14 representing zero-
rated input VAT claims supported only by photocopies of VAT OR/Invoice, documents
other than VAT Invoice/OR, and mere brokers computations. But the CA allowed
MPCs refund claim of PhP 135,993,570 representing input VAT payments for
purchases of goods and/or services from Mitsubishi supported by OR No. 0189. The
appellate court ratiocinated that the CTA erred in disallowing said claim since the OR
from Mitsubishi was the best evidence for the payment of input VAT by MPC to
Mitsubishi as required under Sec. 110(A)(1)(b) of the NIRC. The CA ruled that the legal
requirement of a VAT Invoice/OR to substantiate creditable input VAT was complied
with through OR No. 0189 which must be viewed as conclusive proof of the payment
of input VAT. To the CA, OR No. 0189 represented an undisputable acknowledgment
and receipt by Mitsubishi of the input VAT payment of MPC.
The CA brushed aside the CTAs ruling and disquisition casting doubt on the
veracity and genuineness of the Mitsubishi-issued OR No. 0189. It reasoned that the
issuance date of the said receipt, April 14, 1998, must be taken conclusively to
represent the input VAT payments made by MPC to Mitsubishi as MPC had no real
control on the issuance of the OR. The CA held that the use of a different exchange
rate reflected in the OR is of no consequence as what the OR undeniably attests and
acknowledges was Mitsubishis receipt of MPCs input VAT payment.
The Issue
Hence, the instant petition on the sole issue of whether or not respondent
[MPC] is entitled to the refund of its input VAT payments made from 1993 to 1996
amounting to [PhP] 146,760,509.48.[11]
to be construed strictissimi jurisagainst the taxpayer,[13] meaning that the claim
cannot be made to rest on vague inference. Where the rule of strict interpretation
against the taxpayer is applicable as the claim for refund partakes of the nature of an
exemption, the claimant must show that he clearly falls under the exempting
statute. On the other hand, a tax refund may be, as usually it is, predicated on tax
refund provisions allowing a refund of erroneous or excess payment of tax. The
return of what was erroneously paid is founded on the principle of solutio indebiti, a
basic postulate that no one should unjustly enrich himself at the expense of another.
The caveat against unjust enrichment covers the government. [14] And as decisional
law teaches, a claim for tax refund proper, as here, necessitates only the
preponderance-of-evidence threshold like in any ordinary civil case.[15]

The Courts Ruling

We apply the foregoing elementary principles in our evaluation on whether
OR 0189, in the backdrop of the factual antecedents surrounding its issuance,
As a preliminary matter, it should be stressed that the BIR Commissioner,
sufficiently proves the alleged unutilized input VAT claimed by MPC.
while making reference to the figure PhP 146,760,509.48, joins the CA and the CTA
on their disposition on the propriety of the refund of or the issuance of a TCC for the The Court can review issues of fact where there are
divergent findings by the trial and appellate courts
amount of PhP 10,766,939.48. In fine, the BIR Commissioner trains his sight and
focuses his arguments on the core issue of whether or not MPC is entitled to a refund
As a matter of sound practice, the Court refrains from reviewing the factual
for PhP 135,993,570 (PhP 146,760,509.48 - PhP 10,766,939.48 = PhP 135,993,570) it
determinations of the CA or reevaluate the evidence upon which its decision is
allegedly paid as creditable input VAT for services and goods purchased
founded. One exception to this rule is when the CA and the trial court diametrically
from Mitsubishi during the 1993 to 1996 stretch.
differ in their findings,[16] as here. In such a case, it is incumbent upon the Court to
review and determine if the CA might have overlooked, misunderstood, or
misinterpreted certain facts or circumstances of weight, which, if properly
The divergent factual findings and rulings of the CTA and CA impel us to
considered, would justify a different conclusion.[17]In the instant case, the CTA, unlike
evaluate the evidence adduced below, particularly the April 14, 1998 OR 0189 in the
the CA, doubted the veracity of OR No. 0189 and did not appreciate the same to
amount of PhP 135,996,570 [for US$ 5,190,000 at US$1: PhP 26.203 rate of
support MPCs claim for tax refund or credit.
exchange]. Verily, a claim for tax refund may be based on a statute granting tax
exemption, or, as Commissioner of Internal Revenue v. Fortune Tobacco
Corporation[12] would have it, the result of legislative grace. In such case, the claim is
 Petitioner BIR Commissioner, echoing the CTAs stand, argues against the
sufficiency of OR No. 0189 to prove unutilized input VAT payment by MPC. He states
in this regard that the BIR can require additional evidence to prove and ascertain
payment of creditable input VAT, or that the claim for refund or tax credit was filed
within the prescriptive period, or had not previously been refunded to the taxpayer.
To bolster his position on the dubious character of OR No. 0189, or its
insufficiency to prove input VAT payment by MPC, petitioner proffers the following
arguments:
(1) The input tax covered by OR No. 0189 pertains to purchases by MPC from
Mitsubishi covering the period from 1993 to 1996; however, MPCs claim for tax
refund or credit was filed on December 20, 1999, clearly way beyond the two-year
prescriptive period set in Sec. 112 of the NIRC;
(2) MPC failed to explain why OR No. 0189 was issued by Mitsubishi (Manila)
when the invoices which the VAT were originally billed came from the Mitsubishis
head office in Japan;
(3) The exchange rate used in OR No. 0189 was pegged at PhP 26.203: USD
1 or the exchange rate prevailing in 1993 to 1996, when, on April 14, 1998, the date
OR No. 0189 was issued, the exchange rate was already PhP 38.01 to a US dollar;
(4) OR No. 0189 does not show or include payment of accrued interest which
Mitsubishi was charging and demanded from MPC for having advanced a
considerable amount of VAT. The demand, per records, is embodied in the May 12,
1995 letter of Mitsubishi to MPC;
(5) MPC failed to present to the CTA its VAT returns for the second and third
quarters of 1995, when the bulk of the VAT payment covered by OR No.
0189specifically PhP 109,329,135.17 of the total amount of PhP 135,993,570was
billed by Mitsubishi, when such return is necessary to ascertain that the total amount
covered by the receipt or a large portion thereof was not previously refunded or
credited; and
(6) No other documents proving said input VAT payment were presented
except OR No. 0189 which, considering the fact that OR No. 0188 was likewise issued
by Mitsubishi and presented before the CTA but admittedly for payments made by
MPC on progress billings covering service purchases from 1993 to 1996, does not
clearly show if such input VAT payment was also paid for the period 1993 to 1996 and
would be beyond the two-year prescriptive period.
The petition is partly meritorious.
Belated payment by MPC of its obligation for creditable input VAT
As no less found by the CTA, citing the SGVs report, the payments covered
by OR No. 0189 were for goods and service purchases made by MPC through the
progress billings from Mitsubishi for the period covering April 1993 to September
1996for the E & M Equipment Erection Portion of MPCs contract with Mitsubishi.[18] It
is likewise undisputed that said payments did not include payments for the creditable
input VAT of MPC. This fact is shown by the May 12, 1995 letter[19] from Mitsubishi
where, as earlier indicated, it apprised MPC of the advances Mitsubishi made for the
VAT payments, i.e., MPCs creditable input VAT, and for which it was holding MPC
accountable for interest therefor.
In net effect, MPC did not, for the VATable MPC-Mitsubishi 1993 to 1996
transactions adverted to, immediately pay the corresponding input VAT. OR No. 0189
issued on April 14, 1998 clearly reflects the belated payment of input VAT
corresponding to the payment of the progress billings from Mitsubishi for the period
covering April 7, 1993 to September 6, 1996. SGV found that OR No. 0189 in the
amount of PhP 135,993,570 (USD 5,190,000) was duly supported by bank statement
evidencing payment to Mitsubishi (Japan).[20] Undoubtedly, OR No. 0189 proves
payment by MPC of its creditable input VAT relative to its purchases from Mitsubishi.
OR No. 0189 by itself sufficiently proves payment of VAT
The CA, citing Sec. 110(A)(1)(B) of the NIRC, held that OR No. 0189
constituted sufficient proof of payment of creditable input VAT for the progress
billings from Mitsubishi for the period covering April 7, 1993 to September 6,
1996. Sec. 110(A)(1)(B) of the NIRC pertinently provides:
Section 110. Tax Credits.
A. Creditable Input Tax.
(1) Any input tax evidenced by a VAT invoice or official
receipt issued in accordance with Section 113 hereof on the
following transactions shall be creditable against the output tax:
(a) Purchase or importation of goods:
xxxx
(b) Purchase of services on which a value-added tax has been
actually paid. (Emphasis ours.)
Without necessarily saying that the BIR is precluded from requiring
additional evidence to prove that input tax had indeed paid or, in fine, that the
taxpayer is indeed entitled to a tax refund or credit for input VAT, we agree with the
CAs above disposition. As the Court distinctly notes, the law considers a duly-
executed VAT invoice or OR referred to in the above provision as sufficient evidence
to support a claim for input tax credit. And any doubt as to what OR No. 0189 was for
or tended to prove should reasonably be put to rest by the SGV report on which the
CTA notably placed much reliance. The SGV report stated that [OR] No. 0189 dated
April 14, 1998 is for the payment of the VAT on the progress billings from Mitsubishi
Japan for the period April 7, 1993 to September 6, 1996 for the E & M Equipment
Erection Portion of the Companys contract with Mitsubishi Corporation (Japan). [21]
VAT presumably paid on April 14, 1998
While available records do not clearly indicate when MPC actually paid the
creditable input VAT amounting to PhP 135,993,570 (USD 5,190,000) for the
aforesaid 1993 to 1996 service purchases, the presumption is that payment was
made on the date appearing on OR No. 0189, i.e., April 14, 1998. In fact, said
creditable input VAT was reflected in MPCs VAT return for the second quarter of
1998.
The aforementioned May 12, 1995 letter from Mitsubishi to MPC provides
collaborating proof of the belated payment of the creditable input VAT angle. To
reiterate, Mitsubishi, via said letter, apprised MPC of the VAT component of the
service purchases MPC made and reminded MPC that Mitsubishi had advanced VAT
payments to which Mitsubishi was entitled and from which it was demanding interest
payment. Given the scenario depicted in said letter, it is understandable why
Mitsubishi, in its effort to recover the amount it advanced, used the PhP 26.203: USD
1 exchange formula in OR No. 0189 for USD 5,190,000.
No showing of interest payment not fatal to claim for refund
Contrary to petitioners posture, the matter of nonpayment by MPC of the
interests demanded by Mitsubishi is not an argument against the fact of payment by
MPC of its creditable input VAT or of the authenticity or genuineness of OR No. 0189;
for at the end of the day, the matter of interest payment was between Mitsubishi
and MPC and may very well be covered by another receipt. But the more important
consideration is the fact that MPC, as confirmed by the SGV, paid its obligation to
Mitsubishi, and the latter issued to MPC OR No. 0189, for the VAT component of its
1993 to 1996 service purchases.
The next question is, whether or not MPC is entitled to a refund or a TCC for
the alleged unutilized input VAT of PhP 135,993,570 covered by OR No. 0189 which
sufficiently proves payment of the input VAT.
We answer the query in the negative.
Claim for refund or tax credit filed out of time
The claim for refund or tax credit for the creditable input VAT payment made
by MPC embodied in OR No. 0189 was filed beyond the period provided by law for
such claim. Sec. 112(A) of the NIRC pertinently reads:
(A) Zero-rated or Effectively Zero-rated Sales. Any VAT-registered
person, whose sales are zero-rated or effectively zero-rated may, within two
(2) years after the close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund of creditable input
tax due or paid attributable to such sales, except transitional input tax, to the
extent that such input tax has not been applied against output tax: x x
x. (Emphasis ours.)
The above proviso clearly provides in no uncertain terms that unutilized input VAT
payments not otherwise used for any internal revenue tax due the taxpayer must be
claimed within two years reckoned from the close of the taxable quarter when the
relevant sales were made pertaining to the input VAT regardless of whether said
tax was paid or not. As the CA aptly puts it, albeit it erroneously applied the
aforequoted Sec. 112(A), [P]rescriptive period commences from the close of the
taxable quarter when the sales were made and not from the time the input VAT was
paid nor from the time the official receipt was issued.[22] Thus, when a zero-rated VAT
taxpayer pays its input VAT a year after the pertinent transaction, said taxpayer only
has a year to file a claim for refund or tax credit of the unutilized creditable input
VAT. The reckoning frame would always be the end of the quarter when the pertinent
sales or transaction was made, regardless when the input VAT was paid. Be that as it
may, and given that the last creditable input VAT due for the period covering the
progress billing of September 6, 1996 is the third quarter of 1996 ending on
September 30, 1996, any claim for unutilized creditable input VAT refund or tax credit
for said quarter prescribed two years after September 30, 1996 or, to be precise, on
September 30, 1998. Consequently, MPCs claim for refund or tax credit filed
on December 10, 1999 had already prescribed.
Reckoning for prescriptive period under
Secs. 204(C) and 229 of the NIRC inapplicable
To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or
229 of the NIRC which, for the purpose of refund, prescribes a different starting point
for the two-year prescriptive limit for the filing of a claim therefor. Secs. 204(C) and
229 respectively provide:
Sec. 204. Authority of the Commissioner to Compromise,
Abate and Refund or Credit Taxes. The Commissioner may
xxxx
(c) Credit or refund taxes erroneously or illegally received or penalties
imposed without authority, refund the value of internal revenue stamps when
they are returned in good condition by the purchaser, and, in his discretion,
redeem or change unused stamps that have been rendered unfit for use and
refund their value upon proof of destruction. No credit or refund of taxes or
penalties shall be allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2) years after the
payment of the tax or penalty:Provided, however, That a return filed showing
an overpayment shall be considered as a written claim for credit or refund.
xxxx
Sec. 229. Recovery of Tax Erroneously or Illegally Collected. No
suit or proceeding shall be maintained in any court for the recovery of
any national internal revenue tax hereafter alleged to have been
 erroneously or illegally assessed or collected, or of any penalty claimed
to have been collected without authority, of any sum alleged to have
been excessively or in any manner wrongfully collected without
authority, or of any sum alleged to have been excessively or in any
manner wrongfully collected, until a claim for refund or credit has been
duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid
under protest or duress.
In any case, no such suit or proceeding shall be filed after
the expiration of two (2) years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without
a written claim therefor, refund or credit any tax, where on the face of
the return upon which payment was made, such payment appears
clearly to have been erroneously paid. (Emphasis ours.)
Notably, the above provisions also set a two-year prescriptive period,
reckoned from date of payment of the tax or penalty, for the filing of a claim of refund
or tax credit. Notably too, both provisions apply only to instances of erroneous
payment or illegal collection of internal revenue taxes.
MPCs creditable input VAT not erroneously paid
For perspective, under Sec. 105 of the NIRC, creditable input VAT is an
indirect tax which can be shifted or passed on to the buyer, transferee, or lessee of
the goods, properties, or services of the taxpayer. The fact that the subsequent sale
or transaction involves a wholly-tax exempt client, resulting in a zero-rated or
effectively zero-rated transaction, does not, standing alone, deprive the taxpayer of
its right to a refund for any unutilized creditable input VAT, albeit the erroneous,
illegal, or wrongful payment angle does not enter the equation.
In Commissioner of Internal Revenue v. Seagate Technology
(Philippines), the Court explained the nature of the VAT and the entitlement to tax
refund or credit of a zero-rated taxpayer:
Viewed broadly, the VAT is a uniform tax x x x levied on every
importation of goods, whether or not in the course of trade or business, or
imposed on each sale, barter, exchange or lease of goods or properties or on each
rendition of services in the course of trade or business as they pass along the
production and distribution chain, the tax being limited only to the value added
to such goods, properties or services by the seller, transferor or lessor. It is an
indirect tax that may be shifted or passed on to the buyer, transferee or lessee
of the goods, properties or services. As such, it should be understood not in the
context of the person or entity that is primarily, directly and legally liable for its
payment, but in terms of its nature as a tax on consumption. In either case,
though, the same conclusion is arrived at.
The law that originally imposed the VAT in the country, as well as the
subsequent amendments of that law, has been drawn from the tax credit
method. Such method adopted the mechanics and self-enforcement features of
the VAT as first implemented and practiced in Europe x x x. Under the present
method that relies on invoices, an entity can credit against or subtract from the
VAT charged on its sales or outputs the VAT paid on its purchases, inputs and
imports.
If at the end of a taxable quarter the output taxes charged by a seller are
equal to the input taxes passed on by the suppliers, no payment is required. It is
when the output taxes exceed the input taxes that the excess has to be paid. If,
however, the input taxes exceed the output taxes, the excess shall be carried over
to the succeeding quarter or quarters. Should the input taxes result from zero-
rated or effectively zero-rated transactions or from the acquisition of capital
goods, any excess over the output taxes shall instead be refunded to the taxpayer
or credited against other internal revenue taxes.
xxxx
Zero-rated transactions generally refer to the export sale of goods and
supply of services. The tax rate is set at zero. When applied to the tax base,
such rate obviously results in no tax chargeable against the purchaser. The
seller of such transactions charges no output tax, but can claim a refund of or
a tax credit certificate for the VAT previously charged by
suppliers.[23] (Emphasis added.)
Considering the foregoing discussion, it is clear that Sec. 112(A) of the NIRC,
providing a two-year prescriptive period reckoned from the close of the taxable
quarter when the relevant sales or transactions were made pertaining to the

creditable input VAT, applies to the instant case, and not to the other actions which
refer to erroneous payment of taxes.
As a final consideration, the Court wishes to remind the BIR and other tax
agencies of their duty to treat claims for refunds and tax credits with proper attention
and urgency. Had RDO No. 60 and, later, the BIR proper acted, instead of sitting, on
MPCs underlying application for effective zero rating, the matter of addressing MPCs
right, or lack of it, to tax credit or refund could have plausibly been addressed at their
level and perchance freed the taxpayer and the government from the rigors of a
tedious litigation.
The all too familiar complaint is that the government acts with dispatch
when it comes to tax collection, but pays little, if any, attention to tax claims for
refund or exemption. It is high time our tax collectors prove the cynics wrong.
WHEREFORE, the petition is PARTLY GRANTED. The Decision dated
December 22, 2005 and the Resolution dated March 31, 2006 of the CA in CA-G.R. SP
No. 78280 are AFFIRMED with the MODIFICATION that the claim of respondent MPC
for tax refund or credit to the extent of PhP 135,993,570, representing its input VAT
payments for service purchases from Mitsubishi Corporation of Japan for the
construction of a portion of its Pagbilao, Quezon power station, is DENIED on the
ground that the claim had prescribed. Accordingly, petitioner Commissioner of
Internal Revenue is ordered to refund or, in the alternative, issue a tax credit
certificate in favor of MPC, its unutilized input VAT payments directly attributable to
its effectively zero-rated sales for the second quarter in the total amount of PhP
10,766,939.48.
No pronouncement as to costs.
SO ORDERED.
FIRST DIVISION
G.R. No. 184823 : October 6, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. AICHI FORGING COMPANY
OF ASIA, INC., Respondent.cralaw
DECISION
DEL CASTILLO, J.:
A taxpayer is entitled to a refund either by authority of a statute expressly granting
such right, privilege, or incentive in his favor, or under the principle of solutio
indebiti requiring the return of taxes erroneously or illegally collected. In both cases,
a taxpayer must prove not only his entitlement to a refund but also his compliance
with the procedural due process as non-observance of the prescriptive periods
within which to file the administrative and the judicial claims would result in the
denial of his claim.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to
set aside the July 30, 2008 Decision1cra1aw and the October 6, 2008
Resolution2cra1aw of the Court of Tax Appeals (CTA) En Banc.
Factual Antecedents
Respondent Aichi Forging Company of Asia, Inc., a corporation duly organized and
existing under the laws of the Republic of the Philippines, is engaged in the
manufacturing, producing, and processing of steel and its by-products.3cra1aw It is
registered with the Bureau of Internal Revenue (BIR) as a Value-Added Tax (VAT)
entity4cra1aw and its products, "close impression die steel forgings" and "tool and
dies," are registered with the Board of Investments (BOI) as a pioneer
status.5chanroblesvirtuallawlibrary
On September 30, 2004, respondent filed a claim for refund/credit of input VAT for
the period July 1, 2002 to September 30, 2002 in the total amount of P3,891,123.82
with the petitioner Commissioner of Internal Revenue (CIR), through the
Department of Finance (DOF) One-Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center.6chanroblesvirtuallawlibrary
Proceedings before the Second Division of the CTA
On even date, respondent filed a Petition for Review7cra1aw with the CTA for the
refund/credit of the same input VAT. The case was docketed as CTA Case No. 7065
and was raffled to the Second Division of the CTA.
In the Petition for Review, respondent alleged that for the period July 1, 2002 to
September 30, 2002, it generated and recorded zero-rated sales in the amount
of P131,791,399.00,8cra1aw which was paid pursuant to Section 106(A) (2) (a) (1),
(2) and (3) of the National Internal Revenue Code of 1997 (NIRC); 9cra1aw that for
the said period, it incurred and paid input VAT amounting to P3,912,088.14 from
purchases and importation attributable to its zero-rated sales;10cra1aw and that in
its application for refund/credit filed with the DOF One-Stop Shop Inter-Agency Tax
Credit and Duty Drawback Center, it only claimed the amount
of P3,891,123.82.11chanroblesvirtuallawlibrary
In response, petitioner filed his Answer 12cra1aw raising the following special and
affirmative defenses, to wit:chanroblesvirtualawlibrary
4. Petitioners alleged claim for refund is subject to administrative investigation by
the Bureau;
5. Petitioner must prove that it paid VAT input taxes for the period in question;
6. Petitioner must prove that its sales are export sales contemplated under Sections
106(A) (2) (a), and 108(B) (1) of the Tax Code of 1997;
7. Petitioner must prove that the claim was filed within the two (2) year period
prescribed in Section 229 of the Tax Code;
8. In an action for refund, the burden of proof is on the taxpayer to establish its
right to refund, and failure to sustain the burden is fatal to the claim for refund; and
9. Claims for refund are construed strictly against the claimant for the same partake
of the nature of exemption from taxation.13chanroblesvirtuallawlibrary
Trial ensued, after which, on January 4, 2008, the Second Division of the CTA
rendered a Decision partially granting respondents claim for refund/credit.
Pertinent portions of the Decision read:chanroblesvirtualawlibrary
For a VAT registered entity whose sales are zero-rated, to validly claim a refund,
Section 112 (A) of the NIRC of 1997, as amended,
provides:chanroblesvirtualawlibrary
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales. Any VAT-registered person, whose
sales are zero-rated or effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made, apply for the issuance of a
tax credit certificate or refund of creditable input tax due or paid attributable to
such sales, except transitional input tax, to the extent that such input tax has not
been applied against output tax: x x x
Pursuant to the above provision, petitioner must comply with the following
requisites: (1) the taxpayer is engaged in sales which are zero-rated or effectively
zero-rated; (2) the taxpayer is VAT-registered; (3) the claim must be filed within two
years after the close of the taxable quarter when such sales were made; and (4) the
creditable input tax due or paid must be attributable to such sales, except the
transitional input tax, to the extent that such input tax has not been applied against
the output tax.
The Court finds that the first three requirements have been complied [with] by
petitioner.
With regard to the first requisite, the evidence presented by petitioner, such as the
Sales Invoices (Exhibits "II" to "II-262," "JJ" to "JJ-431," "KK" to "KK-394" and "LL")
shows that it is engaged in sales which are zero-rated.
The second requisite has likewise been complied with. The Certificate of
Registration with OCN 1RC0000148499 (Exhibit "C") with the BIR proves that
petitioner is a registered VAT taxpayer.
In compliance with the third requisite, petitioner filed its administrative claim for
refund on September 30, 2004 (Exhibit "N") and the present Petition for Review on
September 30, 2004, both within the two (2) year prescriptive period from the close
of the taxable quarter when the sales were made, which is from September 30,
2002.
As regards, the fourth requirement, the Court finds that there are some documents
and claims of petitioner that are baseless and have not been satisfactorily
substantiated.
xxxx
In sum, petitioner has sufficiently proved that it is entitled to a refund or issuance of
a tax credit certificate representing unutilized excess input VAT payments for the
period July 1, 2002 to September 30, 2002, which are attributable to its zero-rated
sales for the same period, but in the reduced amount of P3,239,119.25, computed
as follows:chanroblesvirtualawlibrary
Amount of Claimed Input VAT P 3,891,123.82
Less:
Exceptions as found by the ICPA 41,020.37
Net Creditable Input VAT P 3,850,103.45
Less:
Output VAT Due 610,984.20
Excess Creditable Input VAT P 3,239,119.25
WHEREFORE, premises considered, the present Petition for Review is PARTIALLY
GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND OR ISSUE A TAX
CREDIT CERTIFICATE in favor of petitioner [in] the reduced amount of THREE
MILLION TWO HUNDRED THIRTY NINE THOUSAND ONE HUNDRED NINETEEN AND
25/100 PESOS (P3,239,119.25), representing the unutilized input VAT incurred for
the months of July to September 2002.
SO ORDERED.14chanroblesvirtuallawlibrary
Dissatisfied with the above-quoted Decision, petitioner filed a Motion for Partial
Reconsideration,15cra1awinsisting that the administrative and the judicial claims
were filed beyond the two-year period to claim a tax refund/credit provided for
under Sections 112(A) and 229 of the NIRC. He reasoned that since the year 2004
was a leap year, the filing of the claim for tax refund/credit on September 30, 2004
was beyond the two-year period, which expired on September 29,
2004.16cra1aw He cited as basis Article 13 of the Civil Code,17cra1aw which provides
that when the law speaks of a year, it is equivalent to 365 days. In addition,
petitioner argued that the simultaneous filing of the administrative and the judicial
claims contravenes Sections 112 and 229 of the NIRC.18cra1aw According to the
petitioner, a prior filing of an administrative claim is a "condition
precedent"19cra1aw before a judicial claim can be filed. He explained that the
rationale of such requirement rests not only on the doctrine of exhaustion of
administrative remedies but also on the fact that the CTA is an appellate body
which exercises the power of judicial review over administrative actions of the
BIR. 20chanroblesvirtuallawlibrary
The Second Division of the CTA, however, denied petitioners Motion for Partial
Reconsideration for lack of merit. Petitioner thus elevated the matter to the CTA En
Banc via a Petition for Review.21chanroblesvirtuallawlibrary
Ruling of the CTA En Banc
On July 30, 2008, the CTA En Banc affirmed the Second Divisions Decision allowing
the partial tax refund/credit in favor of respondent. However, as to the reckoning
point for counting the two-year period, the CTA En Banc
ruled:chanroblesvirtualawlibrary
Petitioner argues that the administrative and judicial claims were filed beyond the
period allowed by law and hence, the honorable Court has no jurisdiction over the
same. In addition, petitioner further contends that respondent's filing of the
administrative and judicial [claims] effectively eliminates the authority of the
honorable Court to exercise jurisdiction over the judicial claim.
We are not persuaded.
Section 114 of the 1997 NIRC, and We quote, to wit:chanroblesvirtualawlibrary
SEC. 114. Return and Payment of Value-added Tax.
(A) In General. Every person liable to pay the value-added tax imposed under this
Title shall file a quarterly return of the amount of his gross sales or receipts within
twenty-five (25) days following the close of each taxable quarter prescribed for
each taxpayer: Provided, however, That VAT-registered persons shall pay the value-
added tax on a monthly basis.
[x x x x ]
Based on the above-stated provision, a taxpayer has twenty five (25) days from the
close of each taxable quarter within which to file a quarterly return of the amount
of his gross sales or receipts. In the case at bar, the taxable quarter involved was for
the period of July 1, 2002 to September 30, 2002. Applying Section 114 of the 1997
NIRC, respondent has until October 25, 2002 within which to file its quarterly return
for its gross sales or receipts [with] which it complied when it filed its VAT Quarterly
Return on October 20, 2002.
In relation to this, the reckoning of the two-year period provided under Section 229
of the 1997 NIRC should start from the payment of tax subject claim for refund. As
stated above, respondent filed its VAT Return for the taxable third quarter of 2002
on October 20, 2002. Thus, respondent's administrative and judicial claims for
refund filed on September 30, 2004 were filed on time because AICHI has until
October 20, 2004 within which to file its claim for refund.
In addition, We do not agree with the petitioner's contention that the 1997 NIRC
requires the previous filing of an administrative claim for refund prior to the judicial
claim. This should not be the case as the law does not prohibit the simultaneous
filing of the administrative and judicial claims for refund. What is controlling is that
both claims for refund must be filed within the two-year prescriptive period.
In sum, the Court En Banc finds no cogent justification to disturb the findings and
conclusion spelled out in the assailed January 4, 2008 Decision and March 13, 2008
Resolution of the CTA Second Division. What the instant petition seeks is for the
Court En Banc to view and appreciate the evidence in their own perspective of
things, which unfortunately had already been considered and passed upon.
WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and
DISMISSED for lack of merit. Accordingly, the January 4, 2008 Decision and March
13, 2008 Resolution of the CTA Second Division in CTA Case No. 7065 entitled,
"AICHI Forging Company of Asia, Inc. petitioner vs. Commissioner of Internal
Revenue, respondent" are hereby AFFIRMED in toto.
SO ORDERED.22chanroblesvirtuallawlibrary
Petitioner sought reconsideration but the CTA En Banc denied23cra1aw his Motion
for Reconsideration.
Issue
Hence, the present recourse where petitioner interposes the issue of whether
respondents judicial and administrative claims for tax refund/credit were filed
within the two-year prescriptive period provided in Sections 112(A) and 229 of
the NIRC.24chanroblesvirtuallawlibrary
Petitioners Arguments
Petitioner maintains that respondents administrative and judicial claims for tax
refund/credit were filed in violation of Sections 112(A) and 229 of the
NIRC.25cra1aw He posits that pursuant to Article 13 of the Civil Code, 26cra1aw since
the year 2004 was a leap year, the filing of the claim for tax refund/credit on
September 30, 2004 was beyond the two-year period, which expired on September
29, 2004.27chanroblesvirtuallawlibrary
Petitioner further argues that the CTA En Banc erred in applying Section 114(A) of
the NIRC in determining the start of the two-year period as the said provision
pertains to the compliance requirements in the payment of VAT. 28cra1aw He asserts
that it is Section 112, paragraph (A), of the same Code that should apply because it
specifically provides for the period within which a claim for tax refund/ credit
should be made.29chanroblesvirtuallawlibrary
Petitioner likewise puts in issue the fact that the administrative claim with the BIR
and the judicial claim with the CTA were filed on the same day.30cra1aw He opines
that the simultaneous filing of the administrative and the judicial claims
contravenes Section 229 of the NIRC, which requires the prior filing of an
administrative claim.31cra1aw He insists that such procedural requirement is based
on the doctrine of exhaustion of administrative remedies and the fact that the CTA
is an appellate body exercising judicial review over administrative actions of the
CIR.32chanroblesvirtuallawlibrary
Respondents Arguments
For its part, respondent claims that it is entitled to a refund/credit of its unutilized
input VAT for the period July 1, 2002 to September 30, 2002 as a matter of right
because it has substantially complied with all the requirements provided by
law.33cra1aw Respondent likewise defends the CTA En Banc in applying Section
114(A) of the NIRC in computing the prescriptive period for the claim for tax
refund/credit. Respondent believes that Section 112(A) of the NIRC must be read
together with Section 114(A) of the same Code. 34chanroblesvirtuallawlibrary
As to the alleged simultaneous filing of its administrative and judicial claims,
respondent contends that it first filed an administrative claim with the One-Stop
Shop Inter-Agency Tax Credit and Duty Drawback Center of the DOF before it filed a
judicial claim with the CTA.35cra1aw To prove this, respondent points out that its
Claimant Information Sheet No. 4970236cra1aw and BIR Form No. 1914 for the third
quarter of 2002,37cra1awwhich were filed with the DOF, were attached as Annexes
"M" and "N," respectively, to the Petition for Review filed with the
CTA.38cra1aw Respondent further contends that the non-observance of the 120-day
period given to the CIR to act on the claim for tax refund/credit in Section 112(D) is
not fatal because what is important is that both claims are filed within the two-year
prescriptive period.39cra1aw In support thereof, respondent cites Commissioner of
Internal Revenue v. Victorias Milling Co., Inc.40cra1aw where it was ruled that "[i]f,
however, the [CIR] takes time in deciding the claim, and the period of two years is
about to end, the suit or proceeding must be started in the [CTA] before the end of
the two-year period without awaiting the decision of the [CIR]."41cra1aw Lastly,
respondent argues that even if the period had already lapsed, it may be suspended
for reasons of equity considering that it is not a jurisdictional
requirement.42chanroblesvirtuallawlibrary
Our Ruling
The petition has merit.
Unutilized input VAT must be claimed within two years after the close of the taxable
quarter when the sales were made
In computing the two-year prescriptive period for claiming a refund/credit of
unutilized input VAT, the Second Division of the CTA applied Section 112(A) of the
NIRC, which states:chanroblesvirtualawlibrary
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales Any VAT-registered person, whose
sales are zero-rated or effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made, apply for the issuance of a
tax credit certificate or refund of creditable input tax due or paid attributable to
such sales, except transitional input tax, to the extent that such input tax has not
been applied against output tax: Provided, however, That in the case of zero-rated
sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the
acceptable foreign currency exchange proceeds thereof had been duly accounted
for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP): Provided, further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods or properties
or services, and the amount of creditable input tax due or paid cannot be directly
and entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales. (Emphasis supplied.)
The CTA En Banc, on the other hand, took into consideration Sections 114 and 229
of the NIRC, which read:chanroblesvirtualawlibrary
SEC. 114. Return and Payment of Value-Added Tax.
(A) In General. Every person liable to pay the value-added tax imposed under this
Title shall file a quarterly return of the amount of his gross sales or receipts within
twenty-five (25) days following the close of each taxable quarter prescribed for
each taxpayer: Provided, however, That VAT-registered persons shall pay the value-
added tax on a monthly basis.
Any person, whose registration has been cancelled in accordance with Section 236,
shall file a return and pay the tax due thereon within twenty-five (25) days from the
date of cancellation of registration: Provided, That only one consolidated return
shall be filed by the taxpayer for his principal place of business or head office and all
branches.
xxx
SEC. 229. Recovery of tax erroneously or illegally collected.
No suit or proceeding shall be maintained in any court for the recovery of any
national internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected without
authority, or of any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such
tax, penalty or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2)
years from the date of payment of the tax or penalty regardless of any supervening
cause that may arise after payment: Provided, however, That the Commissioner
may, even without written claim therefor, refund or credit any tax, where on the
face of the return upon which payment was made, such payment appears clearly to
have been erroneously paid. (Emphasis supplied.)
Hence, the CTA En Banc ruled that the reckoning of the two-year period for filing a
claim for refund/credit of unutilized input VAT should start from the date of
payment of tax and not from the close of the taxable quarter when the sales were
made.43chanroblesvirtuallawlibrary
The pivotal question of when to reckon the running of the two-year prescriptive
period, however, has already been resolved in Commissioner of Internal Revenue v.
Mirant Pagbilao Corporation,44cra1aw where we ruled that Section 112(A) of the
NIRC is the applicable provision in determining the start of the two-year period for
claiming a refund/credit of unutilized input VAT, and that Sections 204(C) and 229
of the NIRC are inapplicable as "both provisions apply only to instances of
erroneous payment or illegal collection of internal revenue taxes." 45cra1aw We
explained that:chanroblesvirtualawlibrary
The above proviso [Section 112 (A) of the NIRC] clearly provides in no uncertain
terms that unutilized input VAT payments not otherwise used for any internal
revenue tax due the taxpayer must be claimed within two years reckoned from
the close of the taxable quarter when the relevant sales were made pertaining to
the input VAT regardless of whether said tax was paid or not. As the CA aptly puts
it, albeit it erroneously applied the aforequoted Sec. 112 (A), "[P]rescriptive period
commences from the close of the taxable quarter when the sales were made and
not from the time the input VAT was paid nor from the time the official receipt was
issued." Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the
pertinent transaction, said taxpayer only has a year to file a claim for refund or tax
credit of the unutilized creditable input VAT. The reckoning frame would always be
the end of the quarter when the pertinent sales or transaction was made,
regardless when the input VAT was paid. Be that as it may, and given that the last
creditable input VAT due for the period covering the progress billing of September
6, 1996 is the third quarter of 1996 ending on September 30, 1996, any claim for
unutilized creditable input VAT refund or tax credit for said quarter prescribed two
years after September 30, 1996 or, to be precise, on September 30, 1998.
Consequently, MPCs claim for refund or tax credit filed on December 10, 1999 had
already prescribed.
Reckoning for prescriptive period under
Secs. 204(C) and 229 of the NIRC inapplicable
To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of
the NIRC which, for the purpose of refund, prescribes a different starting point for
the two-year prescriptive limit for the filing of a claim therefor. Secs. 204(C) and 229
respectively provide:chanroblesvirtualawlibrary
Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or
Credit Taxes. The Commissioner may
xxxx
(c) Credit or refund taxes erroneously or illegally received or penalties imposed
without authority, refund the value of internal revenue stamps when they are
returned in good condition by the purchaser, and, in his discretion, redeem or
change unused stamps that have been rendered unfit for use and refund their value
upon proof of destruction. No credit or refund of taxes or penalties shall be allowed
unless the taxpayer files in writing with the Commissioner a claim for credit or
refund within two (2) years after the payment of the tax or penalty: Provided,
however, That a return filed showing an overpayment shall be considered as a
written claim for credit or refund.
xxxx
Sec. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding
shall be maintained in any court for the recovery of any national internal revenue
tax hereafter alleged to have been erroneously or illegally assessed or collected, or
of any penalty claimed to have been collected without authority, of any sum alleged
to have been excessively or in any manner wrongfully collected without authority,
or of any sum alleged to have been excessively or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such
tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2)
years from the date of payment of the tax or penalty regardless of any supervening
cause that may arise after payment: Provided, however, That the Commissioner
may, even without a written claim therefor, refund or credit any tax, where on the
face of the return upon which payment was made, such payment appears clearly to
have been erroneously paid.
Notably, the above provisions also set a two-year prescriptive period, reckoned
from date of payment of the tax or penalty, for the filing of a claim of refund or tax
credit. Notably too, both provisions apply only to instances of erroneous payment
or illegal collection of internal revenue taxes.
MPCs creditable input VAT not erroneously paid
For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax
which can be shifted or passed on to the buyer, transferee, or lessee of the goods,
properties, or services of the taxpayer. The fact that the subsequent sale or
transaction involves a wholly-tax exempt client, resulting in a zero-rated or
effectively zero-rated transaction, does not, standing alone, deprive the taxpayer of
its right to a refund for any unutilized creditable input VAT, albeit the erroneous,
illegal, or wrongful payment angle does not enter the equation.
xxxx
Considering the foregoing discussion, it is clear that Sec. 112 (A) of the NIRC,
providing a two-year prescriptive period reckoned from the close of the taxable
quarter when the relevant sales or transactions were made pertaining to the
creditable input VAT, applies to the instant case, and not to the other actions
which refer to erroneous payment of taxes.46cra1aw (Emphasis supplied.)
In view of the foregoing, we find that the CTA En Banc erroneously applied Sections
114(A) and 229 of the NIRC in computing the two-year prescriptive period for
claiming refund/credit of unutilized input VAT. To be clear, Section 112 of the NIRC
is the pertinent provision for the refund/credit of input VAT. Thus, the two-year
period should be reckoned from the close of the taxable quarter when the sales
were made.
Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this
case, the two-year prescriptive period (reckoned from the time respondent filed its
final adjusted return on April 14, 1998) consisted of 24 calendar months, computed
as follows:chanroblesvirtualawlibrary
Year 1 1st calendar month April 15, 1998 to May 14, 1998

The administrative claim was timely filed 2nd calendar month May 15, 1998 to June 14, 1998
3rd calendar month June 15, 1998 to July 14, 1998
Bearing this in mind, we shall now proceed to determine whether the
administrative claim was timely filed. 4th calendar month July 15, 1998 to August 14, 1998
5th calendar month August 15, 1998 to September 14, 1998
Relying on Article 13 of the Civil Code,47cra1aw which provides that a year is
equivalent to 365 days, and taking into account the fact that the year 2004 was a 6th calendar month September 15, 1998 to October 14, 1998
leap year, petitioner submits that the two-year period to file a claim for tax refund/
credit for the period July 1, 2002 to September 30, 2002 expired on September 29, 7th calendar month October 15, 1998 to November 14, 1998
2004.48chanroblesvirtuallawlibrary 8th calendar month November 15, 1998 to December 14, 1998

We do not agree. 9th calendar month December 15, 1998 to January 14, 1999
10th calendar month January 15, 1999 to February 14, 1999
In Commissioner of Internal Revenue v. Primetown Property Group,
Inc.,49cra1aw we said that as between the Civil Code, which provides that a year is 11th calendar month February 15, 1999 to March 14, 1999
equivalent to 365 days, and the Administrative Code of 1987, which states that a
12th calendar month March 15, 1999 to April 14, 1999
year is composed of 12 calendar months, it is the latter that must prevail following
the legal maxim, Lex posteriori derogat Year 2 13th calendar month April 15, 1999 to May 14, 1999
priori.50cra1aw Thus:chanroblesvirtualawlibrary
14th calendar month May 15, 1999 to June 14, 1999
Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the 15th calendar month June 15, 1999 to July 14, 1999
Administrative Code of 1987 deal with the same subject matter the computation of
legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a 16th calendar month July 15, 1999 to August 14, 1999
regular year or a leap year. Under the Administrative Code of 1987, however, a year 17th calendar month August 15, 1999 to September 14, 1999
is composed of 12 calendar months. Needless to state, under the Administrative
Code of 1987, the number of days is irrelevant. 18th calendar month September 15, 1999 to October 14, 1999
19th calendar month October 15, 1999 to November 14, 1999
There obviously exists a manifest incompatibility in the manner of
20th calendar month November 15, 1999 to December 14, 1999
computing legal periods under the Civil Code and the Administrative Code of 1987.
21st calendar month December 15, 1999 to January 14, 2000
For this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative
Code of 1987, being the more recent law, governs the computation of legal periods. 22nd calendar month January 15, 2000 to February 14, 2000
Lex posteriori derogat priori.
23rd calendar month February 15, 2000 to March 14, 2000
24th calendar month March 15, 2000 to April 14, 2000
We therefore hold that respondent's petition (filed on April 14, 2000) was filed on
the last day of the 24th calendar month from the day respondent filed its final
adjusted return. Hence, it was filed within the reglementary
period.51chanroblesvirtuallawlibrary
Applying this to the present case, the two-year period to file a claim for tax
refund/credit for the period July 1, 2002 to September 30, 2002 expired on
September 30, 2004. Hence, respondents administrative claim was timely filed.
The filing of the judicial claim was premature
However, notwithstanding the timely filing of the administrative claim, we
are constrained to deny respondents claim for tax refund/credit for having been
filed in violation of Section 112(D) of the NIRC, which provides
that:chanroblesvirtualawlibrary
SEC. 112. Refunds or Tax Credits of Input Tax.
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120) days from the date of
submission of complete documents in support of the application filed in accordance
with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure
on the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer affected may, within thirty (30) days from the
receipt of the decision denying the claim or after the expiration of the one hundred
twenty day-period, appeal the decision or the unacted claim with the Court of Tax
Appeals. (Emphasis supplied.)
Section 112(D) of the NIRC clearly provides that the CIR has "120 days, from the
date of the submission of the complete documents in support of the application [for
tax refund/credit]," within which to grant or deny the claim. In case of full or partial
denial by the CIR, the taxpayers recourse is to file an appeal before the CTA within
30 days from receipt of the decision of the CIR. However, if after the 120-day period
the CIR fails to act on the application for tax refund/credit, the remedy of the
taxpayer is to appeal the inaction of the CIR to CTA within 30 days.
In this case, the administrative and the judicial claims were simultaneously filed on
September 30, 2004. Obviously, respondent did not wait for the decision of the CIR
or the lapse of the 120-day period. For this reason, we find the filing of the judicial
claim with the CTA premature.
Respondents assertion that the non-observance of the 120-day period is not fatal to
the filing of a judicial claim as long as both the administrative and the judicial claims
are filed within the two-year prescriptive period52cra1aw has no legal basis.
There is nothing in Section 112 of the NIRC to support respondents view. Subsection
(A) of the said provision states that "any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two years after the close of the
taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales."
The phrase "within two (2) years x x x apply for the issuance of a tax credit
certificate or refund" refers to applications for refund/credit filed with the CIR and
not to appeals made to the CTA. This is apparent in the first paragraph of subsection
(D) of the same provision, which states that the CIR has "120 days from the
submission of complete documents in support of the application filed in accordance
with Subsections (A) and (B)" within which to decide on the claim.
In fact, applying the two-year period to judicial claims would render nugatory
Section 112(D) of the NIRC, which already provides for a specific period within
which a taxpayer should appeal the decision or inaction of the CIR. The second
paragraph of Section 112(D) of the NIRC envisions two scenarios: (1) when a
decision is issued by the CIR before the lapse of the 120-day period; and (2) when
no decision is made after the 120-day period. In both instances, the taxpayer has 30
days within which to file an appeal with the CTA. As we see it then, the 120-day
period is crucial in filing an appeal with the CTA.
With regard to Commissioner of Internal Revenue v. Victorias Milling, Co.,
Inc.53cra1aw relied upon by respondent, we find the same inapplicable as the tax
provision involved in that case is Section 306, now Section 229 of the NIRC. And as
already discussed, Section 229 does not apply to refunds/credits of input VAT, such
as the instant case.
In fine, the premature filing of respondents claim for refund/credit of input VAT
before the CTA warrants a dismissal inasmuch as no jurisdiction was acquired by the
CTA.
WHEREFORE, the Petition is hereby GRANTED. The assailed July 30, 2008 Decision
and the October 6, 2008 Resolution of the Court of Tax Appeals are
hereby REVERSED and SET ASIDE. The Court of Tax Appeals Second Division is
DIRECTED to dismiss CTA Case No. 7065 for having been prematurely filed.
SO ORDERED.
THIRD DIVISION
G.R. No. 193625, August 30, 2017
AICHI FORGING COMPANY OF ASIA, INC., Petitioner, v. COURT OF TAX APPEALS -
EN BANC AND COMMISSIONER OF INTERNAL REVENUE, Respondents.
DECISION
MARTIRES, J.:
The Commissioner of Internal Revenue (CIR) is given 120 days to decide an 1
administrative claim for refund/credit of unutilized or unapplied input Value Added
Tax (VAT) attributable to zero-rated sales. In case of a decision rendered or inaction
after the 120-day period, the taxpayer may institute a judicial claim by filing an
appeal before the Court of Tax Appeals (CTA) within 30 days from the decision or
inaction.2 Both 120- and 30-day periods are mandatory and jurisdictional.3 An
appeal taken prior to the expiration of the 120-day period without a decision or
action of the Commissioner is premature and, thus, without a cause of action.
Accordingly, the appeal must be dismissed for lack of jurisdiction.
The Case
Before the Court is a special civil action for certiorari under Rule 65 of the Rules of
Court filed by petitioner Aichi Forging Company of Asia, Inc. (AICHI) seeking the
reversal and setting aside of the 18 February 2010 Decision 4 and 20 July 2010
Resolution5 of the CTA En Banc in CTA-EB Case No. 519, which affirmed the 20
March 2009 Decision and 29 July 2009 Resolution of the CTA Second Division (CTA
Division) in CTA Case No. 6540 that partially granted the claim of AICHI for tax
refund/credit of unutilized or unapplied input VAT attributable to zero-rated sales.
The Antecedents
AICHI is a domestic corporation duly organized and existing under the laws of the
Philippines, and is principally engaged in the manufacture, production, and
processing of all kinds of steel and steel byproducts, such as closed impression die
steel forgings and all automotive steel parts. It is duly registered with the Bureau of
Internal Revenue (BIR) as a VAT taxpayer and with the Board of Investments (BOI)
as an expanding producer of closed impression die steel forgings.
On 26 September 2002, AICHI filed with the BIR District Office in San Pedro, Laguna,
a written claim for refund and/or tax credit of its unutilized input VAT credits for the
third and fourth quarters of 2000 and the four taxable quarters of 2001. AICHI
sought the tax refund/credit of input VAT for the said taxable quarters in the total
sum of P18,030,547.776 representing VAT payments on importation of capital goods
and domestic purchases of goods and services.7
As respondent CIR failed to act on the refund claim, and in order to toll the running
of the prescriptive period provided under Sections 229 and 112 (D) of the National
Internal Revenue Code (Tax Code), AICHI filed, on 30 September 2002, a Petition for
Review before the CTA Division.8
The Issues
The issue for resolution before the court was whether AICHI was entitled to a
refund or issuance of a tax credit certificate of unutilized input VAT attributable to
zero-rated sales and unutilized input tax on importation of capital goods for the
period 1 July 2000 to 31 December 2001 (or six consecutive taxable quarters).
Corollary thereto was the issue on whether the administrative claim (refund claim
with the BIR) and judicial claim (Petition for Review with the CTA) were filed within
the statutory periods for filing the claims.
The Proceedings before the CTA Division
After finding that both the administrative and judicial claims were filed within the
statutory two-year prescriptive period,9 the CTA Division partially granted the
refund claim of AICHI.
The CTA Division denied AICID's refund claim with respect to its purchase of capital
goods for the period 1 July 2000 to 31 December 2001 because of the latter's failure
to show that the goods purchased formed part of its Property, Plant and Equipment
Account and that they were subjected to depreciation allowance. As to the claim for
refund of input VAT attributable to zero-rated sales, the CTA only partially granted
the claim due to lack of evidence to substantiate the zero-rating of AICID's sales. In
particular, the CTA denied VAT zero-rating on the sales to BOI-registered
enterprises on account of non-submission of the required BOI Certification.10 The
dispositive portion of the decision11 partially granting the refund claim reads as
follows:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the Petition for Review is hereby PARTIALLY
GRANTED. Accordingly, Respondent Commissioner of Internal Revenue is
hereby ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE in favor of
petitioner the reduced amount of SIX MILLION NINE HUNDRED NINETY ONE
THOUSAND THREE HUNDRED TWENTY and 40/100 PESOS
(P6,991,320.40),representing unutilized input VAT attributable to zero-rated sales
for the period covering July 1, 2000 to December 31, 2001.12
13
Only the CIR moved for reconsideration of the said decision. The CTA Division
denied the motion,14hence, the appeal by the CIR to the CTA En Banc.
The Proceedings before the CTA En Banc
The CIR questioned the partial grant of the refund claim in favor of AICHI. It claimed
that the court did not acquire jurisdiction over the refund claim in view of AICHI's
failure to observe the 30-day period to claim refund/tax credit as specified in Sec.
112 of the Tax Code, i.e., appeal to the CTA may be filed within 30 days from receipt
of the decision denying the claim or after expiration of 120 days (denial by inaction).
With the filing of the administrative claim on 26 September 2002, the CIR had until
20 January 2003 to act on the matter; and if it failed to do so, AICHI had the right to
elevate the case before the CTA within 30 days from 20 January 2003, or on or
before 20 February 2003. However, AICHI filed its Petition for Review on 30
September 2002, or before the 30-day period of appeal had commenced. According
to the CIR, this period is jurisdictional, thus, AICHI's failure to observe it resulted in
the CTA not acquiring jurisdiction over its appeal. 15
The CTA En Banc was not persuaded. The court ruled that the law does not prohibit
the simultaneous filing of the administrative and judicial claims for refund. 16 It
further declared that what is controlling is that both claims for refund are filed
within the two-year prescriptive period.17 In sum, the CTA En Banc affirmed the
assailed decision and resolution of the CTA Division, disposing as
follows:chanRoblesvirtualLawlibrary
WHEREFORE, the instant Petition for Review is hereby DISMISSED for lack of merit.
Accordingly, the March 20, 2009 Decision and July 29, 2009 Resolution of the CTA
Former Second Division in CTA Case No. 6540 entitled, "Aichi Forging Company of
Asia, Inc. vs. Commissioner of Internal Revenue" are hereby AFFIRMED in toto.18
This time, both the CIR and AICHI separately filed motions for reconsideration of the
CTA En Banc decision. In the assailed resolution of the CTA En Banc, the court
ruled:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, there having no new matters or issues
advanced by the petitioner-CIR in its Motion which may compel this Court to
reverse, modify or amend the March 20, 2009 Decision of the CTA En Banc,
petitioner's "Motion for Reconsideration" is hereby DENIED for lack of merit. On the
other hand, respondent-AICHI's (sic) Motion for Reconsideration is
hereby DENIED for being filed out of time.19
On 24 September 2010, or sixty days from receipt of the said resolution, AICHI,
through a new counsel, filed the instant petition alleging grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the CTA En Banc when it
issued the assailed decision and resolution.
The Present Petition for Certiorari
To support its petition, AICHI raised the following
grounds:chanRoblesvirtualLawlibrary
A. PETITIONER'S MOTION FOR RECONSIDERATION (of the Decision promulgated
on 18 February 2010) WAS FILED ON TIME;
B. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE SAID MOTION WAS FILED
OUT OF TIME, IN THE INTEREST OF SUBSTANTIAL JUSTICE, AND DUE TO GROSS
NEGLIGENCE OF PETITIONER'S FORMER COUNSEL, THE HONORABLE COURT OF
TAX APPEALS EN BANC SHOULD HAVE CONSIDERED PETITIONER'S MOTION FOR
RECONSIDERATION;
C. PETITIONER IS ENTITLED TO THE CLAIMED REFUND AS EVIDENCED BY THE
CERTIFICATION ISSUED BY THE BOARD OF INVESTMENTS.20
Citing Section 1, Rule 15 of A.M. No. 05-11-07-CTA or the Revised Rules of the Court
of Tax Appeals (Revised CTA Rules),21 AICHI claims that it has fifteen (15) days from
receipt of the questioned decision of the CTA En Banc within which to file a motion
for reconsideration. Considering that it received the 18 February 2010 Decision of
the CTA En Banc on 25 February 2010, and that it filed the Motion for
Reconsideration on 12 March 2010, AICHI asserts that the filing of the said motion
was made within the prescriptive period provided in the law.22
AICHI also ascribes gross negligence on the part of its former counsel when it
repeatedly failed to avail of the remedies under the law after obtaining unfavorable
decisions and/or resolutions of the CTA, to wit: (1) failure to file a motion for
reconsideration or new trial from the decision of the CTA Division partially denying
AICHI's claim for refund; and (2) failure to appeal to the Supreme Court after
receiving the resolution of the CTA En Banc denying AICHI's motion for
reconsideration of the decision of the CTA En Banc. Such gross negligence of the
former counsel, AICHI claims, does not bind the latter and, thus, its motion for
reconsideration of the decision of the CTA En Banc ought to have been considered
by the latter.23
Finally, AICHI argues that it is entitled to the refund of unutilized input VAT because
its sales to Asian Transmission Corporation and Honda Philippines are qualified for testimonies of its witness. The CIR, thus, submits that the noncompliance with the
zero-rating, the latter being a HOI-registered enterprise, as evidenced by a BOI terms and conditions further warrants the denial of AICHI's claim for refund. 32
Certification issued by the BOI. Said certification was attached by AICHI in its motion
for reconsideration from the CTA En Banc decision.24 The Issues

Without giving it due course, we required the respondents to submit their comment Based on the opposing contentions of the parties, the issues for resolution are the
to the said petition.25 following: (1) whether AICHI availed of the correct remedy; (2) whether AICHI can
still question the CTA Division ruling; and (3) whether AICHI sufficiently proved its
The Arguments of the CIR entitlement to the refund or tax credit.

In its Comment,26 the CIR anchored its opposition to the petition on the following The Court's Ruling
arguments:chanRoblesvirtualLawlibrary
I. PETITIONER FAILED TO AVAIL OF THE PROPER REMEDY. We deny the petition.

II. THE CTA EN BANC DID NOT ERR WHEN IT DENIED PETITIONER'S MOTION FOR I.
RECONSIDERATION.
The CTA had no jurisdiction over the judicial claim.
III. PETITIONER IS NOT ENTITLED TO ITS CLAIM FOR REFUND.27 AICHI's judicial claim was filed prematurely and, thus, without cause of action.
The CIR maintains that under Republic Act No. 9282 (R.A. No. 9282) 28 and the
First, we invoke the age-old rule that when a case is on appeal, the Court has the
Revised CTA Rules,29 an aggrieved party may appeal a decision or ruling of the CTA
authority to review matters not specifically raised or assigned as error if their
En Banc by filing a verified petition for review under Rule 45 of the Rules of Court.
consideration is necessary in reaching a just conclusion of the case.33 Guided by this
Conformably thereto, the petitioner should have filed a petition for review on
principle, we shall discuss the timeliness of AICHI's judicial claim, although not
certiorari under Rule 45 instead of a special civil action for certiorari under Rule 65.
raised by the parties in the present petition, in order to determine whether the CTA
Being procedurally flawed, the instant petition must be dismissed outright. 30
validly acquired jurisdiction over it. The matter of jurisdiction cannot be waived
because it is conferred by law and is not dependent on the consent or objection or
As to the timeliness of the motion for reconsideration, the CIR contends that the
the acts or omissions of the parties or any one of them. 34 In addition, courts have
petitioner had mistakenly reckoned the counting of the 15-day period to file the
the power to motu proprio dismiss an action over which it has no jurisdiction. The
motion for reconsideration from the receipt of the decision of the CTA En Banc. The
grounds for motu proprio dismissal by the court are provided in Rule 9, Section 1 of
CIR maintains that the reckoning point should be the petitioner's receipt of the
the Revised Rules of Court, to wit:chanRoblesvirtualLawlibrary
decision of the CTA Division. Considering that no such motion for reconsideration
SECTION 1. Defenses and objections not pleaded - Defenses and objections not
within the 15-day period was filed by the petitioner before the CTA Division, the CIR
pleaded either in a motion to dismiss or in the answer are deemed waived.
concludes that the petitioner's right to question the decision of the CTA Division
However, when it appears from the pleadings or the evidence on record that the
had already lapsed and, accordingly, the petitioner may no longer move for a
court has no jurisdiction over the subject matter, that there is another action
reconsideration of a decision which it never questioned. 31
pending between the same parties for the same cause, or that the action is barred
by a prior judgment or by statute of limitations, the court shall dismiss the claim.
Anent petitioner AICHI's entitlement to the claim for refund, the CIR contends that
(emphasis supplied)
the BOI Certification, which was attached to the petitioner's Motion for
Reconsideration, dated 12 March 2010, should not be considered at all as it was On the judicial claim for refund or tax credit of AICHI, the CTA did not validly acquire
presented only during appeal (before the CTA En Banc). In any event, the jurisdiction over such judicial claim because the appeal before the court was made
certification does not prove AICHI's claim for refund. In said certification, it is prematurely. When the CTA acts without jurisdiction, its decision is void.
required by the terms and conditions that AICHI must comply with the production Consequently, the answer to the second issue, i.e., whether AICHI can still question
schedule of 3,900 metric tons or the peso equivalent of P257,400,000.00. However, the CTA ruling, becomes irrelevant.
this data is not verifiable from the petitioner's Quarterly VAT Returns or from the
The present case stemmed from a claim for refund or tax credit of alleged unutilized SEC. 112. Refunds or Tax Credits of Input Tax. -
input VAT attributable to zero-rated sales and unutilized input VAT on the purchase
of capital goods for the third and fourth quarters of 2000 and the four taxable (A) Zero-rated or Effectively Zero-rated Sales.- Any VAT-registered person, whose
quarters of 2001. The refund or tax credit of input taxes corresponding to the six sales are zero-rated or effectively zero-rated may, within two (2) years after the
taxable quarters were combined into one administrative claim filed before the BIR close of the taxable quarter when the sales were made, apply for the issuance of a
on 26 September 2002. On the other hand, the judicial claim was filed before the tax credit certificate or refund of creditable input tax due or paid attributable to
CTA, through a petition for review, on 30 September 2002, or a mere four such sales, except transitional input tax, to the extent that such input tax has not
days after the administrative claim was filed. It is not disputed that the been applied against output tax: x x x
administrative claim was not acted upon by the BIR.
(B) Capital Goods. A VAT-registered person may apply for the issuance of a tax
Convinced that the judicial claim of AICHI was properly made, the CTA Division took credit certificate or refund of input taxes paid on capital goods imported or locally
cognizance of the case and proceeded with trial on the merits. Among the issues purchased, to the extent that such input taxes have not been applied against output
presented by the parties was the timeliness of both the administrative and judicial taxes.
claims of AICHI. In its decision, the CTA Division categorically found that both the
dates of filing the administrative claim and judicial claim were within the two-year The application may be made only within two (2) years after the close of the
prescriptive period reckoned from the close of each of the taxable quarters from taxable quarter when the importation or purchase was made.
the third quarter of 2000 up to the last quarter of 2001, to
wit:chanRoblesvirtualLawlibrary xxxx
Reckoning (D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In
Expiry date Date of
point of Date of filing of proper cases, the Commissioner shall grant a refund or issue the tax credit
of filing of
Year Quarter counting administrative certificate for creditable input taxes within one hundred twenty (120) days from
prescriptive judicial
the 2-year claim the date of submission of complete documents in support of the application filed in
period claim
period accordance with Subsections (A) and (B) hereof.
September September September 26, September
2000 3rd In case of full or partial denial of the claim for tax refund or tax credit, or the failure
30, 2000 30, 2002 2002 30, 2002
on the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer affected may, within thirty (30) days from the
December December September 26, September
4th receipt of the decision denying the claim or after the expiration of the one
31, 2000 31, 2002 2002 30, 2002
hundred twenty-day period, appeal the decision or the unacted claim with the
March 31, March 31, September 26, September Court of Tax Appeals. (emphasis supplied)
2001 1st
2001 2003 2002 30, 2002 The law contemplates two kinds of refundable amounts: (1) unutilized input tax
paid on capital goods purchased, and (2) unutilized input tax attributable to zero-
June 30, June 30, September 26, September rated sales. The claim for tax refund or credit is initially filed before the CIR who is
2nd
2001 2003 2002 30, 2002 vested with the power and primary with jurisdiction to decide on refunds of taxes,
fees or other charges, and penalties imposed in relation thereto.36 In every case, the
September September September 26, September filing of the administrative claim should be done within two years. However, the
3rd
30, 2001 30, 2003 2002 30, 2002 reckoning point of counting such two-year period varies according to the kind of
input tax subject matter of the claim. For the input tax paid on capital goods, the
December December September 26, September counting of the two-year period starts from the close of the taxable quarter when
4th
31, 2001 31, 2003 2002 30, 2002 the purchase was made; whereas, for input tax attributable to zero-rated sale, from
The relevant provisions of the 1997 Tax Code35 at the time AICHI filed its claim for the close of the taxable quarter when such zero-rated sale was made (not when the
refund or credit of unutilized input tax reads:chanRoblesvirtualLawlibrary purchase was made).

From the submission of the complete documents to support the claim, the CIR has a
period of one hundred twenty (120) days to decide on the claim. If the CIR decides
within the 120-day period, the taxpayer may initiate a judicial claim by filing within
30 days an appeal before the CTA. If there is no decision within the 120-day period,
the CIR's inaction shall be deemed a denial of the application.37 In the latter case,
the taxpayer may institute the judicial claim, also by an appeal, within 30 days
before the CTA.
Generally, the 120-day waiting period is both mandatory and jurisdictional.
In a long line of cases,38 the Court had interpreted the 120-day period as both
mandatory and jurisdictional such that the taxpayer is forced to await the
expiration of the period before initiating an appeal before the CTA. This must be so
because prior to the expiration of the period, the CIR still has the statutory
authority to render a decision. If there is no decision and the period has not yet
expired, there is no reason to complain of in the meantime. Otherwise stated, there
is no cause of action yet as would justify a resort to the court.
A premature invocation of the court's jurisdiction is fatally defective and is
susceptible to dismissal for want of jurisdiction. Such is the very essence of the
doctrine of exhaustion of administrative remedies under which the court cannot
take cognizance of a case unless all available remedies in the administrative level
are first utilized. Whenever granted by law a specific period of time to act, an
administrative officer must be given the full benefit of such period. Administrative
remedies are exhausted upon the full expiration of the period without any action.
The first test case regarding the mandatory and jurisdictional nature of the 120+30-
day waiting periods39 provided in Section 112 (D)40 of the 1997 Tax Code is CIR v.
Aichi Forging Company of Asia, Inc. (Aichi), G.R. No. 184823, 6 October 2010.41 In
that landmark case, the Court rejected as without legal basis the assertion of the
respondent taxpayer that the non observance of the 120-day period is not fatal to
the filing of a judicial claim as long as both the administrative and the judicial claims
are filed within the two-year prescriptive period. The Court explained that Section
112 (D) contemplated two scenarios: (1) a decision is made before the expiration of
the 120-day period; and (2) no decision aftersuch 120-day period. In either instance,
the appeal with the CTA can only be made within 30 days afterthe decision or
inaction. Emphatically, Aichi announced that the 120-day period is crucial in filing an
appeal with the CTA.
The exception: Judicial claims filed from 10 December 2003 up to 6 October 2010
Nonetheless, in the subsequent landmark decision of CIR v. San Roque Power
Corporation, Taganito Mining Corporation v. CIR, and Philex Mining Corporation v.
CIR (San Roque),42 the Court recognized an instance when a prematurely filed
appeal may be validly taken cognizance of by the CTA. San Roquerelaxed the strict
compliance with the 120-day mandatory and jurisdictional period, specifically for
Taganito Mining Corporation, in view of BIR Ruling No. DA-489-03, dated 10
December 2003, which expressly declared that the "taxpayer-claimant need not
wait for the lapse of the 120-day period before it could seek judicial relief with the
CTA by way of petition for review." Pertinently, the prematurely filed appeal of San
Roque Power Corporation before the CTA was dismissed because it came before the
issuance of BIR Ruling No. DA-489-03. On the other hand, Taganito Mining
Corporation's appeal was allowed because it was taken after the issuance of said
BIR Ruling.43
Subsequently, in Taganito Mining Corporation v. CIR,44 the Court reconciled the
doctrines in San Roqueand the 2010 Aichi case by enunciating that during the
window period from 10 December 2003 (issuance of BIR Ruling No. DA-489-03) to 6
October 2010 (date of promulgation of Aichi), taxpayer-claimants need not observe
the stringent 120-day period. We said -
Reconciling the pronouncements in the Aichi and San Roque cases, the rule must
therefore be that during the period December 10, 2003 (when BIR Ruling No. DA-
489-03 was issued) to October 6, 2010 (when the Aichi case was promulgated),
taxpayers-claimants need not observe the 120-day period before it could file a
judicial claim for refund of excess input VAT before the CTA. Before and after the
aforementioned period (i.e., December 10, 2003 to October 6, 2010), the
observance of the 120- day period is mandatory and jurisdictional to the filing of
such claim. (emphasis supplied)
Here, it is not disputed that AICHI had timely filed its administrative claim for refund
or tax credit before the BIR. The records show that the claim for refund/tax credit of
input taxes covering the six separate taxable periods from the 3rd Quarter of 2000
up to the 4th Quarter of 2001 was made on 26 September 2002. Both the CTA
Division and CTA En Banc correctly ruled that it fell within the two-year statute of
limitations. However, its judicial claim was filed a mere four days later on 30
September 2002, or beforethe window period when the taxpayers need not
observe the 120-day mandatory and jurisdictional period. Consequently, the
general rule applies.
AICHI is similarly situated as San Roque Power Corporation in San Roque - both filed
their appeals to the CTA without waiting for the 120-day period to lapse and before
the aforesaid window period. As in San Roque, AICHI failed to comply with the
mandatory 120-day waiting period, thus, the CTA ought to have dismissed the
appeal for lack of jurisdiction.
The judicial claim need not fall within the 2-year period.
Both the CTA Division and CTA En Banc were convinced that a simultaneous filing of
the administrative and judicial claims is permissible so long as the two claims fall
within the two-year prescriptive period.
We do not agree.
Aichi already settled the matter concerning the proper interpretation of the phrase
"within two (2) years x x x apply for the issuance of a tax credit certificate or refund"
found in Section 112 (D) of the 1997 Tax Code. Aichi clarified that the phrase refers
to applications for refund/credit filed with the CIR and not to appeals made to the
CTA. All that is required under the law is that the appeal to the CTA is brought
within 30 days from either decision or inaction.
Under the foregoing interpretation, there may be two possible scenarios when an
appeal to the CTA is considered fatally defective even when initiated within the
two-year prescriptive period: first, when there is no decision and the appeal is
taken prior to the lapse of the 120-day mandatory period,45except only the appeal
within the window period from 10 December 2003 to 6 October 2010;46 second, the
appeal is taken beyond 30 days from either decision or inaction "deemed a
denial."47 In contrast, an appeal outside the 2-year period is not legally infirm for as
long as it is taken within 30 days from the decision or inaction on the administrative
claim that must have been initiated within the 2-year prescriptive period. In other
words, the appeal to the CTA is always initiated within 30 days from decision or
inaction regardless whether the date of its filing is within or outside the 2-year
period of limitation.
To repeat, except only to the extent allowed by the window period, there is no legal
basis for the insistence that the simultaneous filing of both administrative and
judicial claims (pursuant to Section 112 of the Tax Code) is pennissible for as long as
both fall within the 2-year prescriptive period.
Existing jurisprudence involving petitioner Aichi
There are two other cases involving AICHI wherein we resolved the same issue on
the timeliness of the judicial claims before the CTA - the first is the landmark case
of Aichi (hereinafter 2010 Aichi); and the second is Commissioner v. Aichi Forging
Company of Asia, Inc. (2014 Aichi),48 promulgated in 2014.
Worth mentioning is the predominantly striking similarities between the two cases:
(1) both involved applications for refund/tax credit of unutilized input VAT under
Section 112 of the Tax Code; (2) the administrative claims were timely filed before
the CIR; (3) the judicial claims before the CTA were premature;49 and (4) the judicial
claims were filed after 10 December 2003, or the date of the issuance ofBIR Ruling
No. DA-489-03.50 Yet, the Court arrived at divergent conclusions on the application
of the 120-day period - in 2010 Aichi, the Court applied the strict compliance with
the mandatory 120-day waiting period; whereas, in 2014 Aichi, the premature filing
was allowed following the exception laid down in San Roque (2013). Thus, the Court
denied the judicial claim in 2010 Aichi due to the CTA's lack of jurisdiction over it,
but sustained such jurisdiction in 2014 Aichi.
We clarify.
In 2010 Aichi, the Court passed upon the timeliness of the judicial claim with the
CTA without considering BIR Ruling No. DA-489-03. The reason is simple: none of
the parties, especially Aichi, had raised the matter on the effect of the said BIR
Ruling. It is reasonable to think that Aichi saw no need to present the issue since the
CTA already gave due course to its petition and the Commissioner questioned, on
motion for reconsideration, the simultaneous filing of both the administrative and
judicial claims only after the CTA First Division partially ruled in favor of Aichi. The
CTA First Division denied the motion holding that the law does not prohibit the
simultaneous filing of the administrative and judicial claims for refund. The CTA En
Banc subsequently sustained the CTA First Division, although we dismissed such
reasoning in view of the clear wordings of Section 112.
It was only in the 2013 case of San Roque that BIR Ruling No. DA-489-03 was raised
for the first time and, thus, the Court was presented a clear opportunity to discuss
its legal effect. The doctrine on the exception to the strict application of the 120-
day period laid down in San Roque became the controlling law that was followed in
numerous subsequent cases, one of which is 2014 Aichi. Thus, even though the
appeal with the CTA in 2010 Aichi fell within the window period, the exception
could not be applied as this was first recognized only in 2013 when San Roque was
promulgated. On the other hand, it is different in 2014 Aichi as it must yield to San
Roque.
The present case, just like 2014 Aichi, is very much similar to 2010 Aichi, with the
only notable distinction being the date of filing of the appeal with the CTA. As
stated previously, the appeal in this case came before the window period. However,
such distinction is not significant as our conclusions here and in 2010 Aichi are the
same, that is, the CTA did not acquire jurisdiction in view of the mandatory and
jurisdictional nature of the 120-day waiting period.
Considering our holding that the CTA did not acquire jurisdiction over the appeal of
AICHI, the decision partially granting the refund claim must therefore be set aside
as a void judgment.
The rule is that where there is want of jurisdiction over a subject matter, the
judgment is rendered null and void.51 A void judgment is in legal effect no
judgment, by which no rights are divested, from which no right can be obtained,
which neither binds nor bars anyone, and under which all acts performed and all
claims flowing out are void.52 We quote our pronouncement in Canero v. University
of the Philippines:53
A void judgment is not entitled to the respect accorded to a valid judgment, but
may be entirely disregarded or declared inoperative by any tribunal in which effect
is sought to be given to it. It has no legal or binding effect or efficacy for any
purpose or at any place. It cannot affect, impair or create rights. It is not entitled to
enforcement and is, ordinarily, no protection to those who seek to enforce. In other
words, a void judgment is regarded as a nullity, and the situation is the same as it
would be if there was no judgment.
Since the judgment of the CTA Division is void, it becomes futile for any of the
parties to question it. It, therefore, does not matter whether AICHI had timely filed
a motion for reconsideration to question either the decision of the CTA En Banc or
the CTA Division.
II.
The petitioner adopted the wrong remedy in assailing the decision of the CTA En
Banc.
We agree with the CIR that the filing of the present Petition for Certiorari under
Rule 65 of the 1997 Rules of Court is procedurally flawed. What the petitioner
should have done to question the decision of the CTA En Banc was to file before this
Court a petition for review under Rule 45 of the same Rules of Court. This is in
conformity with Section 11 of R.A. No. 9282, the pertinent text reproduced
here:chanRoblesvirtualLawlibrary
SECTION 11. Section 18 of the same Act is hereby amended as follows:
SEC. 18. Appeal to the Court ofTax Appeals En Banc. - No civil proceeding involving
matter arising under the National Internal Revenue Code, the Tariff and Customs
Code or the Local Government Code shall be maintained, except as herein provided,
until and unless an appeal has been previously filed with the CTA and disposed of in
accordance with the provisions of this Act.
A party adversely affected by a resolution of a Division of the CTA on a motion for
reconsideration or new trial, may file a petition for review with the CTA en banc.
SEC. 19. Review by Certiorari. - A party adversely affected by a decision or ruling of
the CTA en banc may file with the Supreme Court a verified petition for review on
certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure.
Likewise, Section 1, Rule 16 the Revised CTA Rules
provides:chanRoblesvirtualLawlibrary
RULE16
APPEAL
SECTION 1. Appeal to Supreme Court by petition for review on certiorari.- A party
adversely affected by a decision or ruling of the Court en banc may appeal
therefrom by filing with the Supreme Court a verified petition for review on
certiorari within fifteen days from receipt of a copy of the decision or resolution, as
provided in Rule 45 of the Rules of Court. If such party has filed a motion for
reconsideration or for new trial, the period herein fixed shall run from the party's
receipt of a copy of the resolution denying tl1e motion for reconsideration or for
new trial.
A petition for certiorari under Rule 65 of the Rules of Court is a special civil action
that may be resorted to only in the absence of appeal or any plain, speedy and
adequate remedy in the ordinary course of law. 54
In this case, there is a plain, speedy and adequate remedy that is available appeal
by certiorari under Rule 45. Appeal is available because the 20 July 2010 Resolution
of the CTA En Banc was a final disposition as it denied AICHI's full claim for refund or
tax credit of creditable input taxes. The proper remedy to obtain a reversal of
judgment on the merits, final order or resolution is appeal. AICHI's resort to
certiorari proceedings under Rule 65 is, therefore, erroneous and it deserves
nothing less than an outright dismissal.
In several cases, the Court had allowed the liberal application of the Rules of Court.
Thus, we treated as appeal by certiorari under Rule 45 what otherwise was
denominated or styled as a petition for certiorari under Rule 65, provided the
petition must have been filed within the reglementary period of 15 days from
receipt of the assailed decision or resolution. Outside of this circumstance, there
should be a strong and justifiable reason for a departure from the established rule
of procedure. As the Court had held, it is only for the most persuasive of reasons
can such rules be relaxed to relieve a litigant of an injustice not commensurate with
the degree of his thoughtlessness in not complying with the procedure prescribed. 55
Here, the petition was filed on the 60th day following the receipt of the assailed
resolution of the CTA En Banc, or outside of the 15-day period of appeal by
certiorari under Rule 45 but within the 60-day period for filing a petition for
certiorari under Rule 65. Unfortunately, petitioner AICHI had not demonstrated any
justifiable reason for us to relax the rules and disregard the procedural infirmity of
its adopted remedy. What the petitioner merely did was invoke substantial justice
by ascribing gross negligence on the part of its previous counsel. It cites its previous
counsel's failure to file a motion for reconsideration of the CTA Division's ruling
partially denying its claim for refund, and to promptly file an appeal before this
Court from the denial of its motion for reconsideration assailing the decision of the jurisprudence speak loud and clear. Our solemn duty is to obey it.
CTA En Banc.
All told, the CTA has no jurisdiction over AICHI's judicial claim considering that its
We are not persuaded. Petition for Review was filed prematurely, or without cause of action for failure to
exhaust the administrative remedies provided under Section 112 (D) of the Tax
The well-settled rule is that negligence and mistakes of counsel bind the client. The Code, as amended. In addition, AICHI availed of the wrong remedy. Likewise, we
exception is when the negligence of counsel is so gross as to constitute a violation find no need to pass upon the issue on whether petitioner AICHI had substantiated
of the due process rights of the client56 Even so, it must be convincingly shown that its claim for refund or tax credit. Indisputably, we must deny AICHI's claim for
the client was so maliciously deprived of information that he or she could not have refund.
acted to protect his or her interests.57 In Bejarasco, Jr. v. People,58 this court
reiterated:chanRoblesvirtualLawlibrary WHEREFORE, for lack of jurisdiction, the 20 March 2009 Decision and 29 July 2009
For the exception to apply . . . the gross negligence should not be accompanied by Resolution of the Court of Tax Appeals Second Division in CTA Case No. 6540, and
the client's own negligence or malice, considering that the client has the duty to be the 18 February 2010 Decision and 20 July 2010 Resolution of the Court of Tax
vigilant in respect of his interests by keeping himself up-to-date on the status of the Appeals En Banc in CTA-EB Case No. 519 are hereby VACATEDand SET ASIDE.
case. Failing in this duty, the client should suffer whatever adverse judgment is
rendered against him. Consequently, the petition before this Court is DENIED. No costs.
If indeed the petitioner was earnest in recovering the full amount of its refund
SO ORDERED.
claim, it could have avoided the negative consequences of the failure to move for
dismissal from the CTA Division's partial denial of its claim by simply making a
follow-up from its lawyer regarding the status of its case. Worse, it committed the
same mistake again by staying passive even after denial of its motion for
reconsideration from the decision of the CTA En Banc. Party-litigants share in the
responsibility of prosecuting their complaints with assiduousness and should not be
expected to simply sit back, relax, and await a favorable outcome. 59 Absent any
other compelling reasons, we cannot apply the exception to the rule that the
negligence of counsel binds the client so as to excuse the wrongful resort to a
petition for certiorari instead of an appeal. Besides, AICHI's citation of the THIRD DIVISION
negligence of counsel was meant for the CTA to grant its motion for
reconsideration, not for this Court to give due course to the present petition. Thus, G.R. No. 193625, August 30, 2017
there is no cogent justification for granting to the petitioner the preferential
treatment of a liberal application of the rules. AICHI FORGING COMPANY OF ASIA, INC., Petitioner, v. COURT OF TAX APPEALS -
EN BANC AND COMMISSIONER OF INTERNAL REVENUE, Respondents.
It must be emphasized, however, that the outright dismissal of the petition for
being the wrong remedy does not mean that the CTA decision and resolution stand.
DECISION
As discussed, the decision of the CTA Division is null and void; therefore, no right
can be obtained from it or that all claims flowing out of it is void.
MARTIRES, J.:
Epilogue
The Commissioner of Internal Revenue (CIR) is given 120 days to decide1 an
Petitioner AICHI came to this court expecting a reversal of the partial denial of its administrative claim for refund/credit of unutilized or unapplied input Value Added
claim for refund/credit so that it could recover more in addition to what it had been Tax (VAT) attributable to zero-rated sales. In case of a decision rendered or inaction
allowed by the CTA. Regrettably, AICHI comes out empty-handed in our judgment. after the 120-day period, the taxpayer may institute a judicial claim by filing an
We could not rule on the jurisdiction of the CTA any other way. The law and appeal before the Court of Tax Appeals (CTA) within 30 days from the decision or
inaction.2 Both 120- and 30-day periods are mandatory and jurisdictional.3 An
appeal taken prior to the expiration of the 120-day period without a decision or
action of the Commissioner is premature and, thus, without a cause of action.
Accordingly, the appeal must be dismissed for lack of jurisdiction.
The Case
Before the Court is a special civil action for certiorari under Rule 65 of the Rules of
Court filed by petitioner Aichi Forging Company of Asia, Inc. (AICHI) seeking the
reversal and setting aside of the 18 February 2010 Decision 4 and 20 July 2010
Resolution5 of the CTA En Banc in CTA-EB Case No. 519, which affirmed the 20
March 2009 Decision and 29 July 2009 Resolution of the CTA Second Division (CTA
Division) in CTA Case No. 6540 that partially granted the claim of AICHI for tax
refund/credit of unutilized or unapplied input VAT attributable to zero-rated sales.
The Antecedents
AICHI is a domestic corporation duly organized and existing under the laws of the
Philippines, and is principally engaged in the manufacture, production, and
processing of all kinds of steel and steel byproducts, such as closed impression die
steel forgings and all automotive steel parts. It is duly registered with the Bureau of
Internal Revenue (BIR) as a VAT taxpayer and with the Board of Investments (BOI)
as an expanding producer of closed impression die steel forgings.
On 26 September 2002, AICHI filed with the BIR District Office in San Pedro, Laguna,
a written claim for refund and/or tax credit of its unutilized input VAT credits for the
third and fourth quarters of 2000 and the four taxable quarters of 2001. AICHI
sought the tax refund/credit of input VAT for the said taxable quarters in the total
sum of P18,030,547.776 representing VAT payments on importation of capital goods
and domestic purchases of goods and services.7
As respondent CIR failed to act on the refund claim, and in order to toll the running
of the prescriptive period provided under Sections 229 and 112 (D) of the National
Internal Revenue Code (Tax Code), AICHI filed, on 30 September 2002, a Petition for
Review before the CTA Division.8
The Issues
The issue for resolution before the court was whether AICHI was entitled to a
refund or issuance of a tax credit certificate of unutilized input VAT attributable to
zero-rated sales and unutilized input tax on importation of capital goods for the
period 1 July 2000 to 31 December 2001 (or six consecutive taxable quarters).
Corollary thereto was the issue on whether the administrative claim (refund claim
with the BIR) and judicial claim (Petition for Review with the CTA) were filed within
the statutory periods for filing the claims.
The Proceedings before the CTA Division
After finding that both the administrative and judicial claims were filed within the
statutory two-year prescriptive period,9 the CTA Division partially granted the
refund claim of AICHI.
The CTA Division denied AICID's refund claim with respect to its purchase of capital
goods for the period 1 July 2000 to 31 December 2001 because of the latter's failure
to show that the goods purchased formed part of its Property, Plant and Equipment
Account and that they were subjected to depreciation allowance. As to the claim for
refund of input VAT attributable to zero-rated sales, the CTA only partially granted
the claim due to lack of evidence to substantiate the zero-rating of AICID's sales. In
particular, the CTA denied VAT zero-rating on the sales to BOI-registered
enterprises on account of non-submission of the required BOI Certification.10 The
dispositive portion of the decision11 partially granting the refund claim reads as
follows:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the Petition for Review is hereby PARTIALLY
GRANTED. Accordingly, Respondent Commissioner of Internal Revenue is
hereby ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE in favor of
petitioner the reduced amount of SIX MILLION NINE HUNDRED NINETY ONE
THOUSAND THREE HUNDRED TWENTY and 40/100 PESOS
(P6,991,320.40),representing unutilized input VAT attributable to zero-rated sales
for the period covering July 1, 2000 to December 31, 2001.12
Only the CIR moved for reconsideration13 of the said decision. The CTA Division
denied the motion,14hence, the appeal by the CIR to the CTA En Banc.
The Proceedings before the CTA En Banc
The CIR questioned the partial grant of the refund claim in favor of AICHI. It claimed
that the court did not acquire jurisdiction over the refund claim in view of AICHI's
failure to observe the 30-day period to claim refund/tax credit as specified in Sec.
112 of the Tax Code, i.e., appeal to the CTA may be filed within 30 days from receipt
of the decision denying the claim or after expiration of 120 days (denial by inaction).
With the filing of the administrative claim on 26 September 2002, the CIR had until
20 January 2003 to act on the matter; and if it failed to do so, AICHI had the right to
elevate the case before the CTA within 30 days from 20 January 2003, or on or
before 20 February 2003. However, AICHI filed its Petition for Review on 30
September 2002, or before the 30-day period of appeal had commenced. According
to the CIR, this period is jurisdictional, thus, AICHI's failure to observe it resulted in
the CTA not acquiring jurisdiction over its appeal. 15
The CTA En Banc was not persuaded. The court ruled that the law does not prohibit
the simultaneous filing of the administrative and judicial claims for refund.16 It
further declared that what is controlling is that both claims for refund are filed
within the two-year prescriptive period.17 In sum, the CTA En Banc affirmed the
assailed decision and resolution of the CTA Division, disposing as
follows:chanRoblesvirtualLawlibrary
WHEREFORE, the instant Petition for Review is hereby DISMISSED for lack of merit.
Accordingly, the March 20, 2009 Decision and July 29, 2009 Resolution of the CTA
Former Second Division in CTA Case No. 6540 entitled, "Aichi Forging Company of
Asia, Inc. vs. Commissioner of Internal Revenue" are hereby AFFIRMED in toto.18
This time, both the CIR and AICHI separately filed motions for reconsideration of the
CTA En Banc decision. In the assailed resolution of the CTA En Banc, the court
ruled:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, there having no new matters or issues
advanced by the petitioner-CIR in its Motion which may compel this Court to
reverse, modify or amend the March 20, 2009 Decision of the CTA En Banc,
petitioner's "Motion for Reconsideration" is hereby DENIED for lack of merit. On the
other hand, respondent-AICHI's (sic) Motion for Reconsideration is
hereby DENIED for being filed out of time.19
On 24 September 2010, or sixty days from receipt of the said resolution, AICHI,
through a new counsel, filed the instant petition alleging grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the CTA En Banc when it
issued the assailed decision and resolution.
The Present Petition for Certiorari
To support its petition, AICHI raised the following
grounds:chanRoblesvirtualLawlibrary
A. PETITIONER'S MOTION FOR RECONSIDERATION (of the Decision promulgated
on 18 February 2010) WAS FILED ON TIME;
B. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE SAID MOTION WAS FILED
OUT OF TIME, IN THE INTEREST OF SUBSTANTIAL JUSTICE, AND DUE TO GROSS
NEGLIGENCE OF PETITIONER'S FORMER COUNSEL, THE HONORABLE COURT OF
TAX APPEALS EN BANC SHOULD HAVE CONSIDERED PETITIONER'S MOTION FOR
RECONSIDERATION;
C. PETITIONER IS ENTITLED TO THE CLAIMED REFUND AS EVIDENCED BY THE
CERTIFICATION ISSUED BY THE BOARD OF INVESTMENTS.20
Citing Section 1, Rule 15 of A.M. No. 05-11-07-CTA or the Revised Rules of the Court
of Tax Appeals (Revised CTA Rules),21 AICHI claims that it has fifteen (15) days from
receipt of the questioned decision of the CTA En Banc within which to file a motion
for reconsideration. Considering that it received the 18 February 2010 Decision of
the CTA En Banc on 25 February 2010, and that it filed the Motion for
Reconsideration on 12 March 2010, AICHI asserts that the filing of the said motion
was made within the prescriptive period provided in the law.22
AICHI also ascribes gross negligence on the part of its former counsel when it
repeatedly failed to avail of the remedies under the law after obtaining unfavorable
decisions and/or resolutions of the CTA, to wit: (1) failure to file a motion for
reconsideration or new trial from the decision of the CTA Division partially denying
AICHI's claim for refund; and (2) failure to appeal to the Supreme Court after
receiving the resolution of the CTA En Banc denying AICHI's motion for
reconsideration of the decision of the CTA En Banc. Such gross negligence of the
former counsel, AICHI claims, does not bind the latter and, thus, its motion for
reconsideration of the decision of the CTA En Banc ought to have been considered
by the latter.23
Finally, AICHI argues that it is entitled to the refund of unutilized input VAT because
its sales to Asian Transmission Corporation and Honda Philippines are qualified for
zero-rating, the latter being a HOI-registered enterprise, as evidenced by a
Certification issued by the BOI. Said certification was attached by AICHI in its motion
for reconsideration from the CTA En Banc decision.24
Without giving it due course, we required the respondents to submit their comment
to the said petition.25
The Arguments of the CIR
In its Comment,26 the CIR anchored its opposition to the petition on the following
arguments:chanRoblesvirtualLawlibrary
I. PETITIONER FAILED TO AVAIL OF THE PROPER REMEDY.
II. THE CTA EN BANC DID NOT ERR WHEN IT DENIED PETITIONER'S MOTION FOR
RECONSIDERATION.
III. PETITIONER IS NOT ENTITLED TO ITS CLAIM FOR REFUND.27
The CIR maintains that under Republic Act No. 9282 (R.A. No. 9282) 28 and the
Revised CTA Rules,29 an aggrieved party may appeal a decision or ruling of the CTA
En Banc by filing a verified petition for review under Rule 45 of the Rules of Court.
Conformably thereto, the petitioner should have filed a petition for review on
certiorari under Rule 45 instead of a special civil action for certiorari under Rule 65.
Being procedurally flawed, the instant petition must be dismissed outright. 30
As to the timeliness of the motion for reconsideration, the CIR contends that the
petitioner had mistakenly reckoned the counting of the 15-day period to file the
motion for reconsideration from the receipt of the decision of the CTA En Banc. The
CIR maintains that the reckoning point should be the petitioner's receipt of the
decision of the CTA Division. Considering that no such motion for reconsideration SECTION 1. Defenses and objections not pleaded - Defenses and objections not
within the 15-day period was filed by the petitioner before the CTA Division, the CIR pleaded either in a motion to dismiss or in the answer are deemed waived.
concludes that the petitioner's right to question the decision of the CTA Division However, when it appears from the pleadings or the evidence on record that the
had already lapsed and, accordingly, the petitioner may no longer move for a court has no jurisdiction over the subject matter, that there is another action
reconsideration of a decision which it never questioned. 31 pending between the same parties for the same cause, or that the action is barred
by a prior judgment or by statute of limitations, the court shall dismiss the claim.
Anent petitioner AICHI's entitlement to the claim for refund, the CIR contends that (emphasis supplied)
the BOI Certification, which was attached to the petitioner's Motion for
On the judicial claim for refund or tax credit of AICHI, the CTA did not validly acquire
Reconsideration, dated 12 March 2010, should not be considered at all as it was jurisdiction over such judicial claim because the appeal before the court was made
presented only during appeal (before the CTA En Banc). In any event, the prematurely. When the CTA acts without jurisdiction, its decision is void.
certification does not prove AICHI's claim for refund. In said certification, it is
Consequently, the answer to the second issue, i.e., whether AICHI can still question
required by the terms and conditions that AICHI must comply with the production
the CTA ruling, becomes irrelevant.
schedule of 3,900 metric tons or the peso equivalent of P257,400,000.00. However,
this data is not verifiable from the petitioner's Quarterly VAT Returns or from the
The present case stemmed from a claim for refund or tax credit of alleged unutilized
testimonies of its witness. The CIR, thus, submits that the noncompliance with the
input VAT attributable to zero-rated sales and unutilized input VAT on the purchase
BOI terms and conditions further warrants the denial of AICHI's claim for refund. 32
of capital goods for the third and fourth quarters of 2000 and the four taxable
quarters of 2001. The refund or tax credit of input taxes corresponding to the six
The Issues
taxable quarters were combined into one administrative claim filed before the BIR
on 26 September 2002. On the other hand, the judicial claim was filed before the
Based on the opposing contentions of the parties, the issues for resolution are the
CTA, through a petition for review, on 30 September 2002, or a mere four
following: (1) whether AICHI availed of the correct remedy; (2) whether AICHI can
days after the administrative claim was filed. It is not disputed that the
still question the CTA Division ruling; and (3) whether AICHI sufficiently proved its
administrative claim was not acted upon by the BIR.
entitlement to the refund or tax credit.
Convinced that the judicial claim of AICHI was properly made, the CTA Division took
The Court's Ruling
cognizance of the case and proceeded with trial on the merits. Among the issues
presented by the parties was the timeliness of both the administrative and judicial
We deny the petition.
claims of AICHI. In its decision, the CTA Division categorically found that both the
dates of filing the administrative claim and judicial claim were within the two-year
I.
prescriptive period reckoned from the close of each of the taxable quarters from
the third quarter of 2000 up to the last quarter of 2001, to
The CTA had no jurisdiction over the judicial claim.
wit:chanRoblesvirtualLawlibrary
AICHI's judicial claim was filed prematurely and, thus, without cause of action.
Reckoning
Expiry date Date of
First, we invoke the age-old rule that when a case is on appeal, the Court has the point of Date of filing of
of filing of
authority to review matters not specifically raised or assigned as error if their Year Quarter counting administrative
prescriptive judicial
consideration is necessary in reaching a just conclusion of the case. 33 Guided by this the 2-year claim
period claim
principle, we shall discuss the timeliness of AICHI's judicial claim, although not period
raised by the parties in the present petition, in order to determine whether the CTA
validly acquired jurisdiction over it. The matter of jurisdiction cannot be waived September September September 26, September
2000 3rd
because it is conferred by law and is not dependent on the consent or objection or 30, 2000 30, 2002 2002 30, 2002
the acts or omissions of the parties or any one of them. 34 In addition, courts have
the power to motu proprio dismiss an action over which it has no jurisdiction. The December December September 26, September
4th
grounds for motu proprio dismissal by the court are provided in Rule 9, Section 1 of 31, 2000 31, 2002 2002 30, 2002
the Revised Rules of Court, to wit:chanRoblesvirtualLawlibrary
 hundred twenty-day period, appeal the decision or the unacted claim with the
March 31, March 31, September 26, September
2001 1st Court of Tax Appeals. (emphasis supplied)
2001 2003 2002 30, 2002
The law contemplates two kinds of refundable amounts: (1) unutilized input tax
June 30, June 30, September 26, September paid on capital goods purchased, and (2) unutilized input tax attributable to zero-
2nd
2001 2003 2002 30, 2002 rated sales. The claim for tax refund or credit is initially filed before the CIR who is
vested with the power and primary with jurisdiction to decide on refunds of taxes,
September September September 26, September fees or other charges, and penalties imposed in relation thereto.36 In every case, the
3rd
30, 2001 30, 2003 2002 30, 2002 filing of the administrative claim should be done within two years. However, the
reckoning point of counting such two-year period varies according to the kind of
December December September 26, September input tax subject matter of the claim. For the input tax paid on capital goods, the
4th
31, 2001 31, 2003 2002 30, 2002 counting of the two-year period starts from the close of the taxable quarter when
the purchase was made; whereas, for input tax attributable to zero-rated sale, from
The relevant provisions of the 1997 Tax Code35 at the time AICHI filed its claim for
the close of the taxable quarter when such zero-rated sale was made (not when the
refund or credit of unutilized input tax reads:chanRoblesvirtualLawlibrary
purchase was made).
SEC. 112. Refunds or Tax Credits of Input Tax. -

(A) Zero-rated or Effectively Zero-rated Sales.- Any VAT-registered person, whose From the submission of the complete documents to support the claim, the CIR has a
period of one hundred twenty (120) days to decide on the claim. If the CIR decides
sales are zero-rated or effectively zero-rated may, within two (2) years after the
within the 120-day period, the taxpayer may initiate a judicial claim by filing within
close of the taxable quarter when the sales were made, apply for the issuance of a
30 days an appeal before the CTA. If there is no decision within the 120-day period,
tax credit certificate or refund of creditable input tax due or paid attributable to
the CIR's inaction shall be deemed a denial of the application.37 In the latter case,
such sales, except transitional input tax, to the extent that such input tax has not
the taxpayer may institute the judicial claim, also by an appeal, within 30 days
been applied against output tax: x x x
before the CTA.
(B) Capital Goods. A VAT-registered person may apply for the issuance of a tax
Generally, the 120-day waiting period is both mandatory and jurisdictional.
credit certificate or refund of input taxes paid on capital goods imported or locally
purchased, to the extent that such input taxes have not been applied against output
In a long line of cases,38 the Court had interpreted the 120-day period as both
taxes.
mandatory and jurisdictional such that the taxpayer is forced to await the
expiration of the period before initiating an appeal before the CTA. This must be so
The application may be made only within two (2) years after the close of the
because prior to the expiration of the period, the CIR still has the statutory
taxable quarter when the importation or purchase was made.
authority to render a decision. If there is no decision and the period has not yet
expired, there is no reason to complain of in the meantime. Otherwise stated, there
xxxx
is no cause of action yet as would justify a resort to the court.
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In
A premature invocation of the court's jurisdiction is fatally defective and is
proper cases, the Commissioner shall grant a refund or issue the tax credit
susceptible to dismissal for want of jurisdiction. Such is the very essence of the
certificate for creditable input taxes within one hundred twenty (120) days from
doctrine of exhaustion of administrative remedies under which the court cannot
the date of submission of complete documents in support of the application filed in
take cognizance of a case unless all available remedies in the administrative level
accordance with Subsections (A) and (B) hereof.
are first utilized. Whenever granted by law a specific period of time to act, an
administrative officer must be given the full benefit of such period. Administrative
In case of full or partial denial of the claim for tax refund or tax credit, or the failure
remedies are exhausted upon the full expiration of the period without any action.
on the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer affected may, within thirty (30) days from the
The first test case regarding the mandatory and jurisdictional nature of the 120+30-
receipt of the decision denying the claim or after the expiration of the one
day waiting periods39 provided in Section 112 (D)40 of the 1997 Tax Code is CIR v.
Aichi Forging Company of Asia, Inc. (Aichi), G.R. No. 184823, 6 October 2010.41 In
that landmark case, the Court rejected as without legal basis the assertion of the
respondent taxpayer that the non observance of the 120-day period is not fatal to
the filing of a judicial claim as long as both the administrative and the judicial claims
are filed within the two-year prescriptive period. The Court explained that Section
112 (D) contemplated two scenarios: (1) a decision is made before the expiration of
the 120-day period; and (2) no decision aftersuch 120-day period. In either instance,
the appeal with the CTA can only be made within 30 days afterthe decision or
inaction. Emphatically, Aichi announced that the 120-day period is crucial in filing an
appeal with the CTA.
The exception: Judicial claims filed from 10 December 2003 up to 6 October 2010
Nonetheless, in the subsequent landmark decision of CIR v. San Roque Power
Corporation, Taganito Mining Corporation v. CIR, and Philex Mining Corporation v.
CIR (San Roque),42 the Court recognized an instance when a prematurely filed
appeal may be validly taken cognizance of by the CTA. San Roquerelaxed the strict
compliance with the 120-day mandatory and jurisdictional period, specifically for
Taganito Mining Corporation, in view of BIR Ruling No. DA-489-03, dated 10
December 2003, which expressly declared that the "taxpayer-claimant need not
wait for the lapse of the 120-day period before it could seek judicial relief with the
CTA by way of petition for review." Pertinently, the prematurely filed appeal of San
Roque Power Corporation before the CTA was dismissed because it came before the
issuance of BIR Ruling No. DA-489-03. On the other hand, Taganito Mining
Corporation's appeal was allowed because it was taken after the issuance of said
BIR Ruling.43
Subsequently, in Taganito Mining Corporation v. CIR,44 the Court reconciled the
doctrines in San Roqueand the 2010 Aichi case by enunciating that during the
window period from 10 December 2003 (issuance of BIR Ruling No. DA-489-03) to 6
October 2010 (date of promulgation of Aichi), taxpayer-claimants need not observe
the stringent 120-day period. We said -
Reconciling the pronouncements in the Aichi and San Roque cases, the rule must
therefore be that during the period December 10, 2003 (when BIR Ruling No. DA-
489-03 was issued) to October 6, 2010 (when the Aichi case was promulgated),
taxpayers-claimants need not observe the 120-day period before it could file a
judicial claim for refund of excess input VAT before the CTA. Before and after the
aforementioned period (i.e., December 10, 2003 to October 6, 2010), the
observance of the 120- day period is mandatory and jurisdictional to the filing of
such claim. (emphasis supplied)
Here, it is not disputed that AICHI had timely filed its administrative claim for refund
or tax credit before the BIR. The records show that the claim for refund/tax credit of
input taxes covering the six separate taxable periods from the 3rd Quarter of 2000
up to the 4th Quarter of 2001 was made on 26 September 2002. Both the CTA
Division and CTA En Banc correctly ruled that it fell within the two-year statute of
limitations. However, its judicial claim was filed a mere four days later on 30
September 2002, or beforethe window period when the taxpayers need not
observe the 120-day mandatory and jurisdictional period. Consequently, the
general rule applies.
AICHI is similarly situated as San Roque Power Corporation in San Roque - both filed
their appeals to the CTA without waiting for the 120-day period to lapse and before
the aforesaid window period. As in San Roque, AICHI failed to comply with the
mandatory 120-day waiting period, thus, the CTA ought to have dismissed the
appeal for lack of jurisdiction.
The judicial claim need not fall within the 2-year period.
Both the CTA Division and CTA En Banc were convinced that a simultaneous filing of
the administrative and judicial claims is permissible so long as the two claims fall
within the two-year prescriptive period.
We do not agree.
Aichi already settled the matter concerning the proper interpretation of the phrase
"within two (2) years x x x apply for the issuance of a tax credit certificate or refund"
found in Section 112 (D) of the 1997 Tax Code. Aichi clarified that the phrase refers
to applications for refund/credit filed with the CIR and not to appeals made to the
CTA. All that is required under the law is that the appeal to the CTA is brought
within 30 days from either decision or inaction.
Under the foregoing interpretation, there may be two possible scenarios when an
appeal to the CTA is considered fatally defective even when initiated within the
two-year prescriptive period: first, when there is no decision and the appeal is
taken prior to the lapse of the 120-day mandatory period,45except only the appeal
within the window period from 10 December 2003 to 6 October 2010;46 second, the
appeal is taken beyond 30 days from either decision or inaction "deemed a
denial."47 In contrast, an appeal outside the 2-year period is not legally infirm for as
long as it is taken within 30 days from the decision or inaction on the administrative
claim that must have been initiated within the 2-year prescriptive period. In other
words, the appeal to the CTA is always initiated within 30 days from decision or
inaction regardless whether the date of its filing is within or outside the 2-year
period of limitation.
To repeat, except only to the extent allowed by the window period, there is no legal
basis for the insistence that the simultaneous filing of both administrative and
judicial claims (pursuant to Section 112 of the Tax Code) is pennissible for as long as
both fall within the 2-year prescriptive period.
Existing jurisprudence involving petitioner Aichi
There are two other cases involving AICHI wherein we resolved the same issue on
the timeliness of the judicial claims before the CTA - the first is the landmark case
of Aichi (hereinafter 2010 Aichi); and the second is Commissioner v. Aichi Forging
Company of Asia, Inc. (2014 Aichi),48 promulgated in 2014.
Worth mentioning is the predominantly striking similarities between the two cases:
(1) both involved applications for refund/tax credit of unutilized input VAT under
Section 112 of the Tax Code; (2) the administrative claims were timely filed before
the CIR; (3) the judicial claims before the CTA were premature;49 and (4) the judicial
claims were filed after 10 December 2003, or the date of the issuance ofBIR Ruling
No. DA-489-03.50 Yet, the Court arrived at divergent conclusions on the application
of the 120-day period - in 2010 Aichi, the Court applied the strict compliance with
the mandatory 120-day waiting period; whereas, in 2014 Aichi, the premature filing
was allowed following the exception laid down in San Roque (2013). Thus, the Court
denied the judicial claim in 2010 Aichi due to the CTA's lack of jurisdiction over it,
but sustained such jurisdiction in 2014 Aichi.
We clarify.
In 2010 Aichi, the Court passed upon the timeliness of the judicial claim with the
CTA without considering BIR Ruling No. DA-489-03. The reason is simple: none of
the parties, especially Aichi, had raised the matter on the effect of the said BIR
Ruling. It is reasonable to think that Aichi saw no need to present the issue since the
CTA already gave due course to its petition and the Commissioner questioned, on
motion for reconsideration, the simultaneous filing of both the administrative and
judicial claims only after the CTA First Division partially ruled in favor of Aichi. The
CTA First Division denied the motion holding that the law does not prohibit the
simultaneous filing of the administrative and judicial claims for refund. The CTA En
Banc subsequently sustained the CTA First Division, although we dismissed such
reasoning in view of the clear wordings of Section 112.
It was only in the 2013 case of San Roque that BIR Ruling No. DA-489-03 was raised
for the first time and, thus, the Court was presented a clear opportunity to discuss
its legal effect. The doctrine on the exception to the strict application of the 120-
day period laid down in San Roque became the controlling law that was followed in
numerous subsequent cases, one of which is 2014 Aichi. Thus, even though the
appeal with the CTA in 2010 Aichi fell within the window period, the exception
could not be applied as this was first recognized only in 2013 when San Roque was
promulgated. On the other hand, it is different in 2014 Aichi as it must yield to San
Roque.
The present case, just like 2014 Aichi, is very much similar to 2010 Aichi, with the
only notable distinction being the date of filing of the appeal with the CTA. As
stated previously, the appeal in this case came before the window period. However,
such distinction is not significant as our conclusions here and in 2010 Aichi are the
same, that is, the CTA did not acquire jurisdiction in view of the mandatory and
jurisdictional nature of the 120-day waiting period.
Considering our holding that the CTA did not acquire jurisdiction over the appeal of
AICHI, the decision partially granting the refund claim must therefore be set aside
as a void judgment.
The rule is that where there is want of jurisdiction over a subject matter, the
judgment is rendered null and void.51 A void judgment is in legal effect no
judgment, by which no rights are divested, from which no right can be obtained,
which neither binds nor bars anyone, and under which all acts performed and all
claims flowing out are void.52 We quote our pronouncement in Canero v. University
of the Philippines:53
A void judgment is not entitled to the respect accorded to a valid judgment, but
may be entirely disregarded or declared inoperative by any tribunal in which effect
is sought to be given to it. It has no legal or binding effect or efficacy for any
purpose or at any place. It cannot affect, impair or create rights. It is not entitled to
enforcement and is, ordinarily, no protection to those who seek to enforce. In other
words, a void judgment is regarded as a nullity, and the situation is the same as it
would be if there was no judgment.
Since the judgment of the CTA Division is void, it becomes futile for any of the
parties to question it. It, therefore, does not matter whether AICHI had timely filed
a motion for reconsideration to question either the decision of the CTA En Banc or
the CTA Division.
II.
The petitioner adopted the wrong remedy in assailing the decision of the CTA En
Banc.
We agree with the CIR that the filing of the present Petition for Certiorari under
Rule 65 of the 1997 Rules of Court is procedurally flawed. What the petitioner
should have done to question the decision of the CTA En Banc was to file before this
Court a petition for review under Rule 45 of the same Rules of Court. This is in
conformity with Section 11 of R.A. No. 9282, the pertinent text reproduced
here:chanRoblesvirtualLawlibrary
SECTION 11. Section 18 of the same Act is hereby amended as follows:
SEC. 18. Appeal to the Court ofTax Appeals En Banc. - No civil proceeding involving
matter arising under the National Internal Revenue Code, the Tariff and Customs
Code or the Local Government Code shall be maintained, except as herein provided,
until and unless an appeal has been previously filed with the CTA and disposed of in
accordance with the provisions of this Act.
A party adversely affected by a resolution of a Division of the CTA on a motion for
reconsideration or new trial, may file a petition for review with the CTA en banc.
SEC. 19. Review by Certiorari. - A party adversely affected by a decision or ruling of
the CTA en banc may file with the Supreme Court a verified petition for review on
certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure.
Likewise, Section 1, Rule 16 the Revised CTA Rules
provides:chanRoblesvirtualLawlibrary
RULE16
APPEAL
SECTION 1. Appeal to Supreme Court by petition for review on certiorari.- A party
adversely affected by a decision or ruling of the Court en banc may appeal
therefrom by filing with the Supreme Court a verified petition for review on
certiorari within fifteen days from receipt of a copy of the decision or resolution, as
provided in Rule 45 of the Rules of Court. If such party has filed a motion for
reconsideration or for new trial, the period herein fixed shall run from the party's
receipt of a copy of the resolution denying tl1e motion for reconsideration or for
new trial.
A petition for certiorari under Rule 65 of the Rules of Court is a special civil action
that may be resorted to only in the absence of appeal or any plain, speedy and
adequate remedy in the ordinary course of law. 54
In this case, there is a plain, speedy and adequate remedy that is available appeal
by certiorari under Rule 45. Appeal is available because the 20 July 2010 Resolution
of the CTA En Banc was a final disposition as it denied AICHI's full claim for refund or
tax credit of creditable input taxes. The proper remedy to obtain a reversal of
judgment on the merits, final order or resolution is appeal. AICHI's resort to
certiorari proceedings under Rule 65 is, therefore, erroneous and it deserves
nothing less than an outright dismissal.
In several cases, the Court had allowed the liberal application of the Rules of Court.
Thus, we treated as appeal by certiorari under Rule 45 what otherwise was
denominated or styled as a petition for certiorari under Rule 65, provided the
petition must have been filed within the reglementary period of 15 days from
receipt of the assailed decision or resolution. Outside of this circumstance, there
should be a strong and justifiable reason for a departure from the established rule
of procedure. As the Court had held, it is only for the most persuasive of reasons
can such rules be relaxed to relieve a litigant of an injustice not commensurate with
the degree of his thoughtlessness in not complying with the procedure prescribed. 55
Here, the petition was filed on the 60th day following the receipt of the assailed
resolution of the CTA En Banc, or outside of the 15-day period of appeal by
certiorari under Rule 45 but within the 60-day period for filing a petition for
certiorari under Rule 65. Unfortunately, petitioner AICHI had not demonstrated any
justifiable reason for us to relax the rules and disregard the procedural infirmity of
its adopted remedy. What the petitioner merely did was invoke substantial justice
by ascribing gross negligence on the part of its previous counsel. It cites its previous
counsel's failure to file a motion for reconsideration of the CTA Division's ruling
partially denying its claim for refund, and to promptly file an appeal before this
Court from the denial of its motion for reconsideration assailing the decision of the
CTA En Banc.
We are not persuaded.
The well-settled rule is that negligence and mistakes of counsel bind the client. The
exception is when the negligence of counsel is so gross as to constitute a violation
of the due process rights of the client56 Even so, it must be convincingly shown that
the client was so maliciously deprived of information that he or she could not have
acted to protect his or her interests.57 In Bejarasco, Jr. v. People,58 this court
reiterated:chanRoblesvirtualLawlibrary
For the exception to apply . . . the gross negligence should not be accompanied by
the client's own negligence or malice, considering that the client has the duty to be
vigilant in respect of his interests by keeping himself up-to-date on the status of the
case. Failing in this duty, the client should suffer whatever adverse judgment is
rendered against him.
If indeed the petitioner was earnest in recovering the full amount of its refund
claim, it could have avoided the negative consequences of the failure to move for
dismissal from the CTA Division's partial denial of its claim by simply making a
follow-up from its lawyer regarding the status of its case. Worse, it committed the
same mistake again by staying passive even after denial of its motion for
reconsideration from the decision of the CTA En Banc. Party-litigants share in the
responsibility of prosecuting their complaints with assiduousness and should not be
expected to simply sit back, relax, and await a favorable outcome. 59 Absent any
other compelling reasons, we cannot apply the exception to the rule that the
negligence of counsel binds the client so as to excuse the wrongful resort to a
petition for certiorari instead of an appeal. Besides, AICHI's citation of the
negligence of counsel was meant for the CTA to grant its motion for
reconsideration, not for this Court to give due course to the present petition. Thus,
there is no cogent justification for granting to the petitioner the preferential TAGANITO MINING CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL
treatment of a liberal application of the rules. REVENUE, Respondent.

It must be emphasized, however, that the outright dismissal of the petition for DECISION
being the wrong remedy does not mean that the CTA decision and resolution stand.
As discussed, the decision of the CTA Division is null and void; therefore, no right MENDOZA, J.:
can be obtained from it or that all claims flowing out of it is void.
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of
Epilogue
Court assailing the October 19, 2011 Decision1 and the March 22, 2012
Resolution2 of the Court of Tax Appeals (CTA) En Banc, in CTA EB Case No. 656,
Petitioner AICHI came to this court expecting a reversal of the partial denial of its
which affirmed as to result only, the April 8, 2010 Decision 3 and the June 3, 2010
claim for refund/credit so that it could recover more in addition to what it had been
Resolution4 of the CTA Second Division (CTA Division) denying the petitioner’s claim
allowed by the CTA. Regrettably, AICHI comes out empty-handed in our judgment.
for refund.
We could not rule on the jurisdiction of the CTA any other way. The law and
jurisprudence speak loud and clear. Our solemn duty is to obey it.
The Facts
All told, the CTA has no jurisdiction over AICHI's judicial claim considering that its
Petitioner Taganito Mining Corporation (Taganito), a value-added tax (VAT) and
Petition for Review was filed prematurely, or without cause of action for failure to
Board of Investments (BOI) registered corporation primarily engaged in the business
exhaust the administrative remedies provided under Section 112 (D) of the Tax
of exploring, extracting, mining, selling, and exporting precious metals and all kinds
Code, as amended. In addition, AICHI availed of the wrong remedy. Likewise, we
of ores, metals, and their by-products, filed through the Bureau of Internal
find no need to pass upon the issue on whether petitioner AICHI had substantiated
Revenue’s (BIR) computerized filing system, its Original Quarterly VAT Returns for
its claim for refund or tax credit. Indisputably, we must deny AICHI's claim for
the first to fourth quarters of taxable year 2006 on the following
refund.
dates:chanroblesvirtuallawlibrary
WHEREFORE, for lack of jurisdiction, the 20 March 2009 Decision and 29 July 2009
Taxable Quarter Date of Filing
Resolution of the Court of Tax Appeals Second Division in CTA Case No. 6540, and
the 18 February 2010 Decision and 20 July 2010 Resolution of the Court of Tax First April 24, 2006
Appeals En Banc in CTA-EB Case No. 519 are hereby VACATEDand SET ASIDE. Second July 19, 2006
Third October 18, 2006
Consequently, the petition before this Court is DENIED. No costs. Fourth January 25, 2007

SO ORDERED. Subsequently, Taganito filed its Amended Quarterly VAT Returns on October 18,
2006 for the first and second quarters of 2006, and on March 25, 2008 for the
fourth quarter of 2006.

On March 26, 2008, Taganito filed with respondent Commissioner of Internal

Revenue (CIR), through the Excise Taxpayers’ Assistance Division under the Large
Taxpayers Division (LTAID-II), a claim for credit/refund of input VAT paid on its
domestic purchases of taxable goods and services and importation of goods
SECOND DIVISION amounting to P22,421,260.26, for the period covering January 1, 2006 to December
31, 2006.
G.R. No. 201195, November 26, 2014
On April 17, 2008, as respondent CIR had not yet issued a final decision on the
administrative claim, Taganito filed a judicial claim before the CTA Division with the
intention of tolling the running of the two-year period to judicially claim a tax
credit/refund under Section 229 of the National Internal Revenue Code of
1997 (NIRC).
On March 17, 2009, Taganito filed a motion for partial withdrawal of petition, to the
extent of P17,810,137.26, in view of the approval by the BIR of its application for
tax credit/refund in the amount of P15,725,188.58 and the allowance of the
previously disallowed amount of P2,084,648.68.
On May 26, 2009, in accordance with the order of the CTA, Taganito filed a
supplemental petition for review limiting the issue of the case to the remaining
amount of P4,611,123.00, representing alleged excess input VAT paid on the
importation of capital goods from January 1, 2006 to December 31, 2006. The
following official receipts (OR) were submitted in support of its
claim:chanroblesvirtuallawlibrary
Month OR No. Net Amount Input
January 0028847 P11,314,310.00 P1,131,431.00
February 014371 28,997,433.33 3,479,692.00
Total P4,611,123.00
On April 8, 2010, the CTA Division denied Taganito’s petition for review and its
supplemental petiton for review for lack of merit.5 It held that the official receipts
did not prove Taganito’s actual payment of the claimed input VAT. Specifically, no
year was indicated in OR No. 0028847. It further held that the claim should be
denied for failure to meet the substantiation requirements under Section 4.110-
8(a)(1) of Revenue Regulation (R.R.) No. 16-05, providing that input taxes for the
importation of goods must be substantiated by the import entry or other equivalent
document showing actual payment of VAT on the imported goods.
It also ruled that Taganito failed to prove that the importations pertaining to the
input VAT claim were in the nature of capital goods or properties, and
assuming arguendo that they were capital goods, the input VAT was not amortized
over the estimated useful life of the said goods, all in accordance with Sections
4.110-3 and 4.113-3 of R.R. No. 16-05, as amended by R.R. No. 4-2007.
The CTA Division later denied Taganito’s motion for reconsideration.Taganito, thus,
appealed to the CTA En Banc.
In the assailed Decision, dated October 19, 2011, the CTA En Banc disposed , as
follows:chanRoblesvirtualLawlibrary
WHEREFORE, in light of the foregoing considerations, the Petition for Review is
hereby DENIED for lack of merit. The instant Petition for Review filed thereto
is DISMISSED for lack of jurisdiction.
The Decision dated April 8, 2010 and the Resolution dated June 3, 2010 of the Court
in Division in CTA Case No. 7769 are hereby AFFIRMED as to result only.
SO ORDERED.6
In light of the ruling in CIR v. Aichi Forging Company of Asia, Inc.7 (Aichi), the CTA En
Banc held that in accordance with Section 112(C) of the NIRC, it was incumbent
upon the taxpayer to give the CIR a period of 120 days to either partially or fully
deny the claim; and it was only upon the denial of the claim or after the expiration
of the 120-day period without action, that the taxayer could seek judicial recourse.
Considering that Taganito filed its judicial claim before the expiration of the 120-day
period, the CTA En Banc ruled that the judicial claim was prematurely filed and,
consequently, it had no jurisdiction to entertain the case.
Nonetheless, in the exercise of its judicial prerogative to resolve the merits of the
case, the CTA En Banc held that it agreed with the ruling of the CTA Division that
Taganito failed to prove that it complied with the substantiation requirements,
considering that the burden of proof rested upon the taxpayer to establish by
sufficient and competent evidence its entitlement to the refund.
In the assailed Resolution, dated March 22, 2012, the CTA En Banc denied
Taganito’s motion for reconsideration.8chanrobleslaw
Hence, the present petition where Taganito raises the
following:chanroblesvirtuallawlibrary
Grounds for the Petition
I. The Court of Tax Appeals En Banc committed serious error and acted with
grave abuse of discretion tantamount to lack or excess of jurisdiction in
erroneously applying the Aichi doctrine to the instant case for the
following reasons:
A. The Aichi ruling is issued in violation of Art. VIII, Sec. 4(3)9 of the 1987
Constitution;
B. The Aichi doctrine is an erroneous application of the law; and
 C. Even if the Aichi doctrine is good law, its application to the instant case
will be in violation of petitioner’s right to due process and the principles
of stare decisis and lex prospicit, non respicit
II. The Court of Tax Appeals En Banc committed serious error and acted with
grave abuse of discretion tantamount to lack or excess of
jurisdiction:chanRoblesvirtualLawlibrary
A. By failing to consider that the findings of fact of the CTA Division are not in
accordance with the evidence on record and with existing laws and
jurisprudence
B. By failing to state in the Questioned Decision, the factual and legal bases for
its agreement to the CTA Division’s finding that Petitioner failed to prove
compliance with substantiation requirements
C. By not granting the amount of petitioner’s excess VAT input taxes being
claimed for refund which are clearly supported by evidence on record.10
Taganito basically argues that prior to Aichi, it was a well-settled doctrine that a
taxpayer need not wait for the decision of the CIR on its administrative claim for
refund before filing its judicial claim, in accordance with the period provided in
Section 229 of the NIRC stating that no suit for the recovery of erroneously or
illegally collected tax shall be filed after the expiration of two years from the date of
payment of the tax.
The petitioner also insists that the official receipts issued by the authorized agent
banks acting as collection agents of the respondent, constituted more than
sufficient proof of payment of the VAT. It further points to the report of the
independent certified public accountant (CPA), showing that the purchases and
input VAT paid/incurred were properly recorded in the books of accounts. It adds
that the balance sheet in its 2006 audited financial statements should be
considered as it contained a note providing the details of its subsidiary ledger
recording the purchase of capital goods. Taganito explains that it is not difficult to
understand that a dump truck is capital equipment in a mining operation, as
contained in the import entry internal revenue declaration (IEIRD) and testified to
by its Vice-President for Finance. Lastly, the petitioner argues that because the CTA
found that the purchases were not capital goods, the rule on the amortization of
input tax cannot, thus, be applied to it.
In the Comment11 to the petition, the CIR counters that Aichi is a sound decision
and that pursuant thereto, the petitioner’s judicial claim for refund was
prematurely filed. The CIR further argues that Taganito failed to comply with the
necessary substantiation requirements to prove actual payment of the claimed
input VAT.
In its Reply,12 Taganito concedes that the issue on the prescriptive periods for filing
of tax credit/refund of unutilized input tax has been finally put to rest in the Court’s
En Banc decision in the consolidated cases of Commission of Internal Revenue vs.
San Roque Power Corporation (G.R. No. 187485), Taganito Mining Corporation vs.
Commissioner of Internal Revenue (G.R. No. 196113), and Philex Mining Corporation
vs. Commissioner of Internal Revenue (G.R. No. 197156).13chanrobleslaw
Taganito, in accordance with the said decision, now argues that since it filed its
judicial claim after the issuance of BIR Ruling No. DA-489-03, but before the
adoption of the Aichi doctrine, it can invoke the said BIR ruling which provided that
the “taxpayer-claimant need not wait for the lapse of the 120-day period before it
could seek judicial relief with the CTA by way of Petition for Review.” Taganito avers
that its petition for review was, therefore, not prematurely filed before the CTA.
As to the issue of substantiation, the petitioner points out that respondent CIR
directed that the amount of P4,611,123.00 be indorsed to the Bureau of Customs,
which it insists is further proof that it actually paid the input taxes
claimed.chanrobleslaw
Ruling of the Court
Judicial claim timely filed
The Court agrees with petitioner that the prevailing doctrine pertinent to the issue
at hand is CIR v. San Roque Power Corporation (San Roque).14 It was conclusively
settled therein that it is Section 112 of the NIRC which is applicable specifically to
claims for tax credit certificates and tax refunds for unutilized creditable input VAT,
and not Section 229. The recent case of Visayas Geothermal Power Company vs.
Commissioner of Internal Revenue encapsulates the relevant ruling in San
Roque:chanRoblesvirtualLawlibrary
Two sections of the NIRC are pertinent to the issue at hand, namely Section 112 (A)
and (D) and Section 229, to wit:
SEC. 112. Refunds or Tax Credits of Input Tax. –
(A) Zero-rated or Effectively Zero-rated Sales.- Any VAT-registered person, whose
sales are zero-rated or effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made, apply for the issuance of a
tax credit certificate or refund of creditable input tax due or paid attributable to
such sales, except transitional input tax, to the extent that such input tax has not (Emphases supplied)
been applied against output tax: Provided, however, That in the case of zero-rated
sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the
It has been definitively settled in the recent En Banc case of CIR v. San Roque Power
acceptable foreign currency exchange proceeds thereof had been duly accounted
Corporation (San Roque), that it is Section 112 of the NIRC which applies to claims
for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas for tax credit certificates and tax refunds arising from sales of VAT-registered
(BSP): Provided, further, That where the taxpayer is engaged in zero-rated or
persons that are zero-rated or effectively zero-rated, which are, simply put, claims
effectively zero-rated sale and also in taxable or exempt sale of goods of properties
for unutilized creditable input VAT.
or services, and the amount of creditable input tax due or paid cannot be directly
and entirely attributed to any one of the transactions, it shall be allocated Thus, under Section 112(A), the taxpayer may, within 2 years after the close of the
proportionately on the basis of the volume of sales.
taxable quarter when the sales were made, via an administrative claim with the CIR,
apply for the issuance of a tax credit certificate or refund of creditable input tax due
xxx
or paid attributable to such sales. Under Section 112(D), the CIR must then act on
the claim within 120 days from the submission of the taxpayer’s complete
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made.- In
documents. In case of (a) a full or partial denial by the CIR of the claim, or (b) the
proper cases, the Commissioner shall grant a refund or issue the tax credit
CIR’s failure to act on the claim within 120 days, the taxpayer may file a judicial
certificate for creditable input taxes within one hundred twenty (120) days from
claim via an appeal with the CTA of the CIR decision or unacted claim, within 30
the date of submission of complete documents in support of the application filed
days (a) from receipt of the decision; or (b) after the expiration of the 120-day
in accordance with Subsections (A) and (B) hereof.
period.
In case of full or partial denial of the claim for tax refund or tax credit, or the
The 2-year period under Section 229 does not apply to appeals before the CTA in
failure on the part of the Commissioner to act on the application within the period
relation to claims for a refund or tax credit for unutilized creditable input
prescribed above, the taxpayer affected may, within thirty (30) days from the
VAT.Section 229 pertains to the recovery of taxes erroneously, illegally, or
receipt of the decision denying the claim or after the expiration of the one
excessively collected. San Roque stressed that "input VAT is not ‘excessively’
hundred twenty day period, appeal the decision or the unacted claim with the
collected as understood under Section 229 because, at the time the input VAT is
Court of Tax Appeals.
collected, the amount paid is correct and proper." It is, therefore, Section 112 which
applies specifically with regard to claiming a refund or tax credit for unutilized
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or
creditable input VAT.
proceeding shall be maintained in any court for the recovery of any national
internal revenue tax hereafter alleged to have been erroneously or illegally
Upholding the ruling in Aichi, San Roque held that the 120+30 day period prescribed
assessed or collected, or of any penalty claimed to have been collected without
under Section 112(D) mandatory and jurisdictional. The jurisdiction of the CTA over
authority, of any sum alleged to have been excessively or in any manner wrongfully
decisions or inaction of the CIR is only appellate in nature and, thus, necessarily
collected without authority, or of any sum alleged to have been excessively or in
requires the prior filing of an administrative case before the CIR under Section 112.
any manner wrongfully collected, until a claim for refund or credit has been duly
The CTA can only acquire jurisdiction over a case after the CIR has rendered its
filed with the Commissioner; but such suit or proceeding may be maintained,
decision, or after the lapse of the period for the CIR to act, in which case such
whether or not such tax, penalty, or sum has been paid under protest or duress.
inaction is considered a denial. A petition filed prior to the lapse of the 120-day
period prescribed under said Section would be premature for violating the doctrine
In any case, no such suit or proceeding shall be filed after the expiration of two (2)
on the exhaustion of administrative remedies.
years from the date of payment of the tax or penalty regardless of any
supervening cause that may arise after payment: Provided, however, That the
There is, however, an exception to the mandatory and jurisdictional nature of the
Commissioner may, even without a written claim therefor, refund or credit any tax,
120+30 day period. The Court in San Roque noted that BIR Ruling No. DA-489-03,
where on the face of the return upon which payment was made, such payment
dated December 10, 2003, expressly stated that the "taxpayer-claimant need not
appears clearly to have been erroneously paid.
wait for the lapse of the 120-day period before it could seek judicial relief with the
CTA by way of Petition for Review." This BIR Ruling was recognized as a general
interpretative rule issued by the CIR under Section 4 of the NIRC and, thus,
applicable to all taxpayers. Since the CIR has exclusive and original jurisdiction to
interpret tax laws, it was held that taxpayers acting in good faith should not be
made to suffer for adhering to such interpretations. Section 246 of the Tax Code, in
consonance with equitable estoppel, expressly provides that a reversal of a BIR
regulation or ruling cannot adversely prejudice a taxpayer who in good faith relied
on the BIR regulation or ruling prior to its reversal. Hence, taxpayers can rely on BIR
Ruling No. DA-489-03 from the time of its issuance on December 10, 2003 up to its
reversal by this Court in Aichi on October 6, 2010, where it was held that the
120+30 day period was mandatory and jurisdictional.
Accordingly, the general rule is that the 120+30 day period is mandatory and
jurisdictional from the effectivity of the 1997 NIRC on January 1, 1998, up to the
present. As an exception, judicial claims filed from December 10, 2003 to October
6, 2010 need not wait for the exhaustion of the 120-day period.15chanrobleslaw
(Emphases supplied)
From the foregoing, it is clear that the two-year period under Section 229 does not
apply to appeals before the CTA with respect to claims for a refund or tax credit for
unutilized creditable input VAT since input VAT is not considered “excessively”
collected. Instead, it was settled that it is Section 112 which applies, thereby making
the 120+30 day period prescribed therein mandatory and jurisdictional in nature.
As an exception to the mandatory and jurisdictional nature of the 120+30 day
period, judicial claims filed from the issuance of BIR Ruling No. DA-489-03 on
December 10, 2003 up to its reversal in Aichi on October 6, 2010, need not wait for
the lapse of the 120+30 day period, in consonance with the principle of equitable
estoppel.
In the present case, Taganito filed its judicial claim with the CTA on April 17, 2008,
clearly within the period of exception of December 10, 2003 to October 6, 2010. Its
judicial claim was, therefore, not prematurely filed.
Failure to comply with substantiation requirements
It is apparent from the petitioner’s assertions that it calls on the Court to review the
evidence it submitted before the CTA in order to determine whether the input taxes
being claimed were paid and duly substantiated. This clearly constitutes a question
of fact that is beyond the Court’s ambit of review under Rule 45 of the Rules of
Court, especially considering that the findings of fact of the CTA Division were
affirmed by the CTA En Banc.
In any case, the Court finds no reason to deviate from the factual findings of the
CTA. The Court agrees with the finding of the CTA Division that petitioner failed to
duly substantiate its claim.
Taganito insists that the official receipts issued by the bank authorized to collect
import duties and taxes are the best evidence to prove its payment of the input tax
being claimed. Two official receipts were presented in support of its claim, namely,
OR No. 0028847 and OR No. 014371. As noted by the CTA, there was no year
indicated in OR No. 0028847, in support of the claim of P1,131,431.00. It is plain
that this claim cannot be deemed to have been properly substantiated.
Even assuming that the proper year was indicated, these official receipts would still
not comply with the substantiation requirements provided by law. Indeed, under
Sections 110(A) and 113(A) of the NIRC, any input tax that is subject of a claim for
refund must be evidenced by a VAT invoice or official receipt. With regard to the
importation of goods or properties, however, Section 4.110-8 of R.R. No. 16-05, as
amended, further requires that an import entry or other equivalent document
showing actual payment of VAT on the imported goods must also be submitted, to
wit:chanRoblesvirtualLawlibrary
SECTION 4.110-8. Substantiation of Input Tax Credits. –
(a) Input taxes for the importation of goods or the domestic purchase of goods,
properties or services made in the course of trade or business, whether such input
taxes shall be credited against zero-rated sale, non-zero-rated sales, or subjected to
the 5% Final Withholding VAT, must be substantiated and supported by the
following documents and must be reported in the information returns required to
be submitted to the Bureau:chanroblesvirtuallawlibrary
(1) For the importation of goods – import entry or other equivalent document
showing actual payment of VAT on the imported goods.
(Emphasis supplied)
In relation to this requirement, Customs Administrative Order No. 2-95
provides:chanRoblesvirtualLawlibrary
2.3 The Bureau of Customs Official Receipt (BCOR) will no longer be issued by the
AABs (Authorized Agent Banks) for the duties and taxes collected. In lieu thereof,
the amount of duty and tax collected including other required information must be
machine validated directly on the following import documents and signed by the
duly authorized bank official:chanRoblesvirtualLawlibrary
2.3.1 Import Entry and Internal Revenue Declaration (IEIRD) for final payment of
duties and taxes.
xxx
From the foregoing, it is apparent that an IEIRD is required to properly substantiate
the payment of the duties and taxes on imported goods. Considering that the
petitioner failed to submit the import entries relevant to its claim, the CTA did not
err in ruling that the petitioner’s claim was not sufficiently proven.
Assuming arguendo that Taganito had submitted the valid import entries, its claim
would still fail. Its claim of refund of input VAT relates to its importation of dump
trucks, allegedly a purchase of capital goods. In this regard, Sections 4.110-3 and
4.113-3 of R.R. No. 16-05, as amended by R.R. No. 4-2007,
provide:chanRoblesvirtualLawlibrary
SECTION 4.110-3. Claim for Input Tax on Depreciable Goods. – Where a VAT-
registered person purchases or imports capital goods, which are depreciable assets
for income tax purposes, the aggregate acquisition cost of which (exclusive of VAT)
in a calendar month exceeds one million pesos (P1,000,000.00), regardless of the
acquisition cost of each capital good, shall be claimed as credit against output tax in
the following manner:chanroblesvirtuallawlibrary
(a) If the estimated useful life of a capital good is five (5) years or more – The input
tax shall be spread evenly over a period of sixty (60) months and the claim for input
tax credit will commence in the calendar month when the capital good is acquired.
The total input taxes on purchases or importations of this type of capital goods shall
be divided by 60 and the quotient will be the amount to be claimed monthly.
(b) If the estimated useful life of a capital good is less than five (5) years – The input
tax shall be spread evenly on a monthly basis by dividing the input tax by the actual
number of months comprising the estimated useful life of a capital good. The claim
for input tax credit shall commence in the month that the capital goods were
acquired.
Where the aggregate acquisition cost (exclusive of VAT) of the existing or finished
depreciable capital goods purchased or imported during any calendar month does
not exceed one million pesos (P1,000,000.00), the total input taxes will be allowable
as credit against output tax in the month of acquisition.
Capital goods or properties refers to goods or properties with estimated useful life
greater than 1 year and which are treated as depreciable assets under Sec. 34(F)
of the tax Code, used directly or indirectly in the production or sale of taxable
goods or services.
The aggregate acquisition cost of depreciable assets in any calendar month refers to
the total price, excluding VAT, agreed upon for one or more assets acquired and not
on the payments actually made during the calendar month. Thus, an asset acquired
on installment for an acquisition cost of more than P1,000,000.00, excluding the
VAT, will be subject to the amortization of input tax despite the fact that the
monthly payments/installments may not exceed P1,000,000.00.
SECTION 4.113-3. Accounting Requirements. – Notwithstanding the provisions of
Sec. 233, all persons subject to VAT under Sec. 106 and 108 of the Tax Code shall, in
addition to the regular accounting records required, maintain a subsidiary sales
journal and subsidiary purchase journal on which every sale or purchase on any
given day is recorded. The subsidiary journal shall contain such information as may
be required by the Commissioner of Internal Revenue.
A subsidiary record in ledger form shall be maintained for the acquisition,
purchase or importation of depreciable assets or capital goods which shall
contain, among others, information on the total input tax thereon as well as the
monthly input tax claimed in VAT declaration or return.
(Emphases supplied)
Taganito argues that the report of the independent CPA shows that purchases and
input VAT paid/incurred were properly recorded in its books of accounts. In
addition, it avers that the Balance Sheet in its 2006 Audited Financial Statements
showing an account item for property and equipment under its non-current assets
indicates that details are found on Note 7 on page 19 of the Notes to Financial
Statements, which provide the complete details of its subsidiary ledger. It also
alleges that the pertinent IERIDs were reviewed by the independent CPA and they
clearly state that the items imported were dump trucks, and that its Vice-President
for Finance testified what consists of its purchases of capital goods.
These arguments cannot be given credence.
First, Taganito failed to prove that the importations pertaining to the input VAT are
in the nature of capital goods and properties as defined in the abovequoted section.
It points to the report of the independent CPA which allegedly reviewed the IERIDs
and subsidiary ledger containing the description of the dump trucks. Nonetheless,
the petitioner failed to present the actual IERIDs and subsidiary ledger, which would
constitute the best evidence rather than a report merely citing them. It did not give
any reason either to explain its failure to present these documents. The testimony
of its Vice-President for Finance would be insufficient to prove the nature of the
importation without these supporting documents.
Second, even assuming that the importations were duly proven to be capital goods,
Taganito’s claim still would not prosper because it failed to present evidence to
show that it properly amortized the related input VAT over the estimated useful life
of the capital goods in its subsidiary ledger, as required by the abovequoted
sections. This is made apparent by the fact that Taganito’s claim for refund is for the
full amount of the input VAT on the importation, rather than for an amortized
amount, and by its failure to present its subsidiary ledger.
In sum, the CTA indeed erred in dismissing the case for having been prematurely
filed. The petitioner, nonetheless, failed to properly substantiate its claim for refund
of the input VAT on its importations.
WHEREFORE, the petition is DENIED. The October 19, 2011 Decision of the Court of
Tax Appeals En Banc, and its March 22, 2012 Resolution, in CTA EB Case No. 656,
are SET ASIDE. The April 8, 2010 Decision and June 3, 2010 Resolution of the CTA
Former Second Division in CTA Case No. 7769 are REINSTATED.
SO ORDERED.cralawlawlibrary
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 78133 October 18, 1988
MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.
De la Cuesta, De las Alas and Callanta Law Offices for petitioners.
The Solicitor General for respondents
GANCAYCO, J.:
The distinction between co-ownership and an unregistered partnership or joint
venture for income tax purposes is the issue in this petition.
On June 22, 1965, petitioners bought two (2) parcels of land from Santiago
Bernardino, et al. and on May 28, 1966, they bought another three (3) parcels of
land from Juan Roque. The first two parcels of land were sold by petitioners in 1968
toMarenir Development Corporation, while the three parcels of land were sold by
petitioners to Erlinda Reyes and Maria Samson on March 19,1970. Petitioners
realized a net profit in the sale made in 1968 in the amount of P165,224.70, while
they realized a net profit of P60,000.00 in the sale made in 1970. The corresponding
capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the tax
amnesties granted in the said years.
However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I.
Plana, petitioners were assessed and required to pay a total amount of P107,101.70
as alleged deficiency corporate income taxes for the years 1968 and 1970.
Petitioners protested the said assessment in a letter of June 26, 1979 asserting that
they had availed of tax amnesties way back in 1974.
In a reply of August 22, 1979, respondent Commissioner informed petitioners that
in the years 1968 and 1970, petitioners as co-owners in the real estate transactions
formed an unregistered partnership or joint venture taxable as a corporation under
Section 20(b) and its income was subject to the taxes prescribed under Section 24,
both of the National Internal Revenue Code 1 that the unregistered partnership was
subject to corporate income tax as distinguished from profits derived from the
partnership by them which is subject to individual income tax; and that the
availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved
petitioners of their individual income tax liabilities but did not relieve them from
the tax liability of the unregistered partnership. Hence, the petitioners were
required to pay the deficiency income tax assessed.
Petitioners filed a petition for review with the respondent Court of Tax Appeals
docketed as CTA Case No. 3045. In due course, the respondent court by a majority
decision of March 30, 1987, 2 affirmed the decision and action taken by respondent
commissioner with costs against petitioners.
It ruled that on the basis of the principle enunciated in Evangelista 3 an unregistered
partnership was in fact formed by petitioners which like a corporation was subject
to corporate income tax distinct from that imposed on the partners.
In a separate dissenting opinion, Associate Judge Constante Roaquin stated that
considering the circumstances of this case, although there might in fact be a co-
ownership between the petitioners, there was no adequate basis for the conclusion
that they thereby formed an unregistered partnership which made "hem liable for
corporate income tax under the Tax Code.
Hence, this petition wherein petitioners invoke as basis thereof the following
alleged errors of the respondent court:
A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE
RESPONDENT COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED AN
UNREGISTERED PARTNERSHIP SUBJECT TO CORPORATE INCOME TAX, AND THAT
THE BURDEN OF OFFERING EVIDENCE IN OPPOSITION THERETO RESTS UPON THE
PETITIONERS.
B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE
TRANSACTIONS, THAT AN UNREGISTERED PARTNERSHIP EXISTED THUS IGNORING
THE REQUIREMENTS LAID DOWN BY LAW THAT WOULD WARRANT THE
PRESUMPTION/CONCLUSION THAT A PARTNERSHIP EXISTS.
C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE
AND THEREFORE SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA CASE.
D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS FROM
PAYMENT OF OTHER TAXES FOR THE PERIOD COVERED BY SUCH AMNESTY. (pp.
12-13, Rollo.)
The petition is meritorious.
The basis of the subject decision of the respondent court is the ruling of this Court
in Evangelista. 4
In the said case, petitioners borrowed a sum of money from their father which
together with their own personal funds they used in buying several real properties.
They appointed their brother to manage their properties with full power to lease,
collect, rent, issue receipts, etc. They had the real properties rented or leased to
various tenants for several years and they gained net profits from the rental
income. Thus, the Collector of Internal Revenue demanded the payment of income
tax on a corporation, among others, from them.
In resolving the issue, this Court held as follows:
The issue in this case is whether petitioners are subject to the tax on
corporations provided for in section 24 of Commonwealth Act No. 466,
otherwise known as the National Internal Revenue Code, as well as to the
residence tax for corporations and the real estate dealers' fixed tax. With
respect to the tax on corporations, the issue hinges on the meaning of the terms
corporation and partnership as used in sections 24 and 84 of said Code, the
pertinent parts of which read:
Sec. 24. Rate of the tax on corporations.—There shall be levied, assessed,
collected, and paid annually upon the total net income received in the preceding
taxable year from all sources by every corporation organized in, or existing
under the laws of the Philippines, no matter how created or organized but not
including duly registered general co-partnerships (companies collectives), a tax
upon such income equal to the sum of the following: ...
Sec. 84(b). The term "corporation" includes partnerships, no matter how
created or organized, joint-stock companies, joint accounts (cuentas en
participation), associations or insurance companies, but does not include duly
registered general co-partnerships (companies colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention
of dividing the profits among themselves.
Pursuant to this article, the essential elements of a partnership are two, namely:
(a) an agreement to contribute money, property or industry to a common fund;
and (b) intent to divide the profits among the contracting parties. The first
element is undoubtedly present in the case at bar, for, admittedly, petitioners
have agreed to, and did, contribute money and property to a common
fund. Hence, the issue narrows down to their intent in acting as they did. Upon
consideration of all the facts and circumstances surrounding the case, we are
fully satisfied that their purpose was to engage in real estate transactions for
monetary gain and then divide the same among themselves, because:
1. Said common fund was not something they found already in existence. It was
not a property inherited by them pro indiviso. They created it purposely. What is
more they jointly borrowed a substantial portion thereof in order to establish
said common fund.
2. They invested the same, not merely in one transaction, but in a series of
transactions. On February 2, 1943, they bought a lot for P100,000.00. On April 3,
1944, they purchased 21 lots for P18,000.00. This was soon followed, on April
23, 1944, by the acquisition of another real estate for P108,825.00. Five (5) days
 later (April 28, 1944), they got a fourth lot for P237,234.14. The number of lots
(24) acquired and transcations undertaken, as well as the brief interregnum
between each, particularly the last three purchases, is strongly indicative of a
pattern or common design that was not limited to the conservation and
preservation of the aforementioned common fund or even of the property
acquired by petitioners in February, 1943. In other words, one cannot but
perceive a character of habituality peculiar to business transactions engaged in
for purposes of gain.
3. The aforesaid lots were not devoted to residential purposes or to other
personal uses, of petitioners herein. The properties were leased separately to
several persons, who, from 1945 to 1948 inclusive, paid the total sum of
P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for
petitioners do not even suggest that there has been any change in the utilization
thereof.
4. Since August, 1945, the properties have been under the management of one
person, namely, Simeon Evangelists, with full power to lease, to collect rents, to
issue receipts, to bring suits, to sign letters and contracts, and to indorse and
deposit notes and checks. Thus, the affairs relative to said properties have been
handled as if the same belonged to a corporation or business enterprise
operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be
exact, over fifteen (15) years, since the first property was acquired, and over
twelve (12) years, since Simeon Evangelists became the manager.
6. Petitioners have not testified or introduced any evidence, either on their
purpose in creating the set up already adverted to, or on the causes for its
continued existence. They did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary
to constitute a partnership, the collective effect of these circumstances is such as
to leave no room for doubt on the existence of said intent in petitioners herein.
Only one or two of the aforementioned circumstances were present in the cases
cited by petitioners herein, and, hence, those cases are not in point. 5
In the present case, there is no evidence that petitioners entered into an agreement
to contribute money, property or industry to a common fund, and that they
intended to divide the profits among themselves. Respondent commissioner and/
or his representative just assumed these conditions to be present on the basis of
the fact that petitioners purchased certain parcels of land and became co-owners
thereof.
In Evangelists, there was a series of transactions where petitioners purchased
twenty-four (24) lots showing that the purpose was not limited to the conservation
or preservation of the common fund or even the properties acquired by them. The
character of habituality peculiar to business transactions engaged in for the purpose
of gain was present.
In the instant case, petitioners bought two (2) parcels of land in 1965. They did not
sell the same nor make any improvements thereon. In 1966, they bought another
three (3) parcels of land from one seller. It was only 1968 when they sold the two
(2) parcels of land after which they did not make any additional or new purchase.
The remaining three (3) parcels were sold by them in 1970. The transactions were
isolated. The character of habituality peculiar to business transactions for the
purpose of gain was not present.
In Evangelista, the properties were leased out to tenants for several years. The
business was under the management of one of the partners. Such condition existed
for over fifteen (15) years. None of the circumstances are present in the case at bar.
The co-ownership started only in 1965 and ended in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:
I wish however to make the following observation Article 1769 of the new Civil
Code lays down the rule for determining when a transaction should be deemed
a partnership or a co-ownership. Said article paragraphs 2 and 3, provides;
(2) Co-ownership or co-possession does not itself establish a partnership,
whether such co-owners or co-possessors do or do not share any profits made
by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or
interest in any property from which the returns are derived;
From the above it appears that the fact that those who agree to form a co-
ownership share or do not share any profits made by the use of the property held
in common does not convert their venture into a partnership. Or the sharing of
the gross returns does not of itself establish a partnership whether or not the
persons sharing therein have a joint or common right or interest in the property.
This only means that, aside from the circumstance of profit, the presence of
other elements constituting partnership is necessary, such as the clear intent to
form a partnership, the existence of a juridical personality different from that of
the individual partners, and the freedom to transfer or assign any interest in the
 property by one with the consent of the others (Padilla, Civil Code of the
Philippines Annotated, Vol. I, 1953 ed., pp. 635-636)
It is evident that an isolated transaction whereby two or more persons
contribute funds to buy certain real estate for profit in the absence of other
circumstances showing a contrary intention cannot be considered a partnership.
Persons who contribute property or funds for a common enterprise and agree to
share the gross returns of that enterprise in proportion to their contribution, but
who severally retain the title to their respective contribution, are not thereby
rendered partners. They have no common stock or capital, and no community of
interest as principal proprietors in the business itself which the proceeds
derived. (Elements of the Law of Partnership by Flord D. Mechem 2nd Ed.,
section 83, p. 74.)
A joint purchase of land, by two, does not constitute a co-partnership in respect
thereto; nor does an agreement to share the profits and losses on the sale of
land create a partnership; the parties are only tenants in common. (Clark vs.
Sideway, 142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners of a single
tract of realty, holding as tenants in common, and to divide the profits of
disposing of it, the brother and the other not being entitled to share in plaintiffs
commission, no partnership existed as between the three parties, whatever
their relation may have been as to third parties. (Magee vs. Magee 123 N.E. 673,
233 Mass. 341.)
In order to constitute a partnership inter sese there must be: (a) An intent to
form the same; (b) generally participating in both profits and losses; (c) and such
a community of interest, as far as third persons are concerned as enables each
party to make contract, manage the business, and dispose of the whole
property.-Municipal Paving Co. vs. Herring 150 P. 1067, 50 III 470.)
The common ownership of property does not itself create a partnership
between the owners, though they may use it for the purpose of making gains;
and they may, without becoming partners, agree among themselves as to the
management, and use of such property and the application of the proceeds
therefrom. (Spurlock vs. Wilson, 142 S.W. 363,160 No. App. 14.) 6
The sharing of returns does not in itself establish a partnership whether or not the
persons sharing therein have a joint or common right or interest in the property.
There must be a clear intent to form a partnership, the existence of a juridical
personality different from the individual partners, and the freedom of each party to
transfer or assign the whole property.
In the present case, there is clear evidence of co-ownership between the
petitioners. There is no adequate basis to support the proposition that they thereby
formed an unregistered partnership. The two isolated transactions whereby they
purchased properties and sold the same a few years thereafter did not thereby
make them partners. They shared in the gross profits as co- owners and paid their
capital gains taxes on their net profits and availed of the tax amnesty thereby.
Under the circumstances, they cannot be considered to have formed an
unregistered partnership which is thereby liable for corporate income tax, as the
respondent commissioner proposes.
And even assuming for the sake of argument that such unregistered partnership
appears to have been formed, since there is no such existing unregistered
partnership with a distinct personality nor with assets that can be held liable for
said deficiency corporate income tax, then petitioners can be held individually liable
as partners for this unpaid obligation of the partnership p. 7 However, as petitioners
have availed of the benefits of tax amnesty as individual taxpayers in these
transactions, they are thereby relieved of any further tax liability arising therefrom.
WHEREFROM, the petition is hereby GRANTED and the decision of the respondent
Court of Tax Appeals of March 30, 1987 is hereby REVERSED and SET ASIDE and
another decision is hereby rendered relieving petitioners of the corporate income
tax liability in this case, without pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-68118 October 29, 1985
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P.
OBILLOS, brothers and sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.
Demosthenes B. Gadioma for petitioners.
AQUINO, J.:
This case is about the income tax liability of four brothers and sisters who sold two
parcels of land which they had acquired from their father.
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two
lots with areas of 1,124 and 963 square meters located at Greenhills, San Juan,
Rizal. The next day he transferred his rights to his four children, the petitioners, to
enable them to build their residences. The company sold the two lots to petitioners
for P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo). Presumably, the Torrens
titles issued to them would show that they were co-owners of the two lots.
In 1974, or after having held the two lots for more than a year, the petitioners
resold them to the Walled City Securities Corporation and Olga Cruz Canda for the
total sum of P313,050 (Exh. C and D). They derived from the sale a total profit of
P134,341.88 or P33,584 for each of them. They treated the profit as a capital gain
and paid an income tax on one-half thereof or of P16,792.
In April, 1980, or one day before the expiration of the five-year prescriptive period,
the Commissioner of Internal Revenue required the four petitioners to
pay corporate income tax on the total profit of P134,336 in addition to individual
income tax on their shares thereof He assessed P37,018 as corporate income tax,
P18,509 as 50% fraud surcharge and P15,547.56 as 42% accumulated interest, or a
total of P71,074.56.
Not only that. He considered the share of the profits of each petitioner in the sum
of P33,584 as a " taxable in full (not a mere capital gain of which ½ is taxable) and
required them to pay deficiency income taxes aggregating P56,707.20 including the
50% fraud surcharge and the accumulated interest.
Thus, the petitioners are being held liable for deficiency income taxes and penalties
totalling P127,781.76 on their profit of P134,336, in addition to the tax on capital
gains already paid by them.
The Commissioner acted on the theory that the four petitioners had formed an
unregistered partnership or joint venture within the meaning of sections 24(a) and
84(b) of the Tax Code (Collector of Internal Revenue vs. Batangas Trans. Co., 102
Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax Court sustained
the same. Judge Roaquin dissented. Hence, the instant appeal.
We hold that it is error to consider the petitioners as having formed a partnership
under article 1767 of the Civil Code simply because they allegedly contributed
P178,708.12 to buy the two lots, resold the same and divided the profit among
themselves.
To regard the petitioners as having formed a taxable unregistered partnership
would result in oppressive taxation and confirm the dictum that the power to tax
involves the power to destroy. That eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were co-owners
pure and simple. To consider them as partners would obliterate the distinction
between a co-ownership and a partnership. The petitioners were not engaged in
any joint venture by reason of that isolated transaction.
Their original purpose was to divide the lots for residential purposes. If later on they
found it not feasible to build their residences on the lots because of the high cost of
construction, then they had no choice but to resell the same to dissolve the co-
ownership. The division of the profit was merely incidental to the dissolution of the
co-ownership which was in the nature of things a temporary state. It had to be
terminated sooner or later. Castan Tobeñas says:
Como establecer el deslinde entre la comunidad ordinaria o copropiedad y la
sociedad?
El criterio diferencial-segun la doctrina mas generalizada-esta: por razon del
origen, en que la sociedad presupone necesariamente la convencion, mentras que
la comunidad puede existir y existe ordinariamente sin ela; y por razon del fin
objecto, en que el objeto de la sociedad es obtener lucro, mientras que el de la
indivision es solo mantener en su integridad la cosa comun y favorecer su
conservacion.
Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en la que se dice
que si en nuestro Derecho positive se ofrecen a veces dificultades al tratar de fijar
la linea divisoria entre comunidad de bienes y contrato de sociedad, la moderna
orientacion de la doctrina cientifica señala como nota fundamental de
diferenciacion aparte del origen de fuente de que surgen, no siempre uniforme, la
finalidad perseguida por los interesados: lucro comun partible en la sociedad,
y mera conservacion y aprovechamiento en la comunidad. (Derecho Civil Espanol,
Vol. 2, Part 1, 10 Ed., 1971, 328- 329).
Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA
of itself establish a partnership, whether or not the persons sharing them have a 198, where father and son purchased a lot and building, entrusted the
joint or common right or interest in any property from which the returns are administration of the building to an administrator and divided equally the net
derived". There must be an unmistakable intention to form a partnership or joint income, and from Evangelista vs. Collector of Internal Revenue, 102 Phil. 140,
venture.* where the three Evangelista sisters bought four pieces of real property which they
leased to various tenants and derived rentals therefrom. Clearly, the petitioners in
Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67 Phil. 666, these two cases had formed an unregistered partnership.
where 15 persons contributed small amounts to purchase a two-peso sweepstakes
ticket with the agreement that they would divide the prize The ticket won the third In the instant case, what the Commissioner should have investigated was whether
prize of P50,000. The 15 persons were held liable for income tax as an unregistered the father donated the two lots to the petitioners and whether he paid the donor's
partnership. tax (See Art. 1448, Civil Code). We are not prejudging this matter. It might have
already prescribed.
The instant case is distinguishable from the cases where the parties engaged in joint
ventures for profit. Thus, in Oña vs. WHEREFORE, the judgment of the Tax Court is reversed and set aside. The
assessments are cancelled. No costs.
** This view is supported by the following rulings of respondent Commissioner:
SO ORDERED
Co-owership distinguished from partnership.—We find that the case at bar is
fundamentally similar to the De Leon case. Thus, like the De Leon heirs, the Longa
heirs inherited the 'hacienda' in question pro-indiviso from their deceased
parents; they did not contribute or invest additional ' capital to increase or expand
the inherited properties; they merely continued dedicating the property to the
use to which it had been put by their forebears; they individually reported in their
tax returns their corresponding shares in the income and expenses of the
'hacienda', and they continued for many years the status of co-ownership in
order, as conceded by respondent, 'to preserve its (the 'hacienda') value and to
continue the existing contractual relations with the Central Azucarera de Bais for
milling purposes. Longa vs. Aranas, CTA Case No. 653, July 31, 1963). THIRD DIVISION

All co-ownerships are not deemed unregistered pratnership.—Co-Ownership who
own properties which produce income should not automatically be considered
partners of an unregistered partnership, or a corporation, within the purview of
the income tax law. To hold otherwise, would be to subject the income of all
co-ownerships of inherited properties to the tax on corporations, inasmuch as if a
property does not produce an income at all, it is not subject to any kind of income
tax, whether the income tax on individuals or the income tax on corporation. (De
Leon vs. CI R, CTA Case No. 738, September 11, 1961, cited in Arañas, 1977 Tax
Code Annotated, Vol. 1, 1979 Ed., pp. 77-78).
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after
an extrajudicial settlement the co-heirs used the inheritance or the incomes derived
therefrom as a common fund to produce profits for themselves, it was held that
they were taxable as an unregistered partnership.
G.R. No. 146984 July 28, 2006
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
MAGSAYSAY LINES, INC., BALIWAG NAVIGATION, INC., FIM LIMITED OF THE
MARDEN GROUP (HK) and NATIONAL DEVELOPMENT COMPANY, respondents.
DECISION
TINGA, J.:
The issue in this present petition is whether the sale by the National Development
Company (NDC) of five (5) of its vessels to the private respondents is subject to
value-added tax (VAT) under the National Internal Revenue Code of 1986 (Tax
Code) then prevailing at the time of the sale. The Court of Tax Appeals (CTA) and
the Court of Appeals commonly ruled that the sale is not subject to VAT. We affirm,
though on a more unequivocal rationale than that utilized by the rulings under
review. The fact that the sale was not in the course of the trade or business of NDC
is sufficient in itself to declare the sale as outside the coverage of VAT.
The facts are culled primarily from the ruling of the CTA.
Pursuant to a government program of privatization, NDC decided to sell to private
enterprise all of its shares in its wholly-owned subsidiary the National Marine
Corporation (NMC). The NDC decided to sell in one lot its NMC shares and five (5) of
its ships, which are 3,700 DWT Tween-Decker, "Kloeckner" type vessels.1 The
vessels were constructed for the NDC between 1981 and 1984, then initially leased
to Luzon Stevedoring Company, also its wholly-owned subsidiary. Subsequently, the
vessels were transferred and leased, on a bareboat basis, to the NMC. 2
The NMC shares and the vessels were offered for public bidding. Among the
stipulated terms and conditions for the public auction was that the winning bidder
was to pay "a value added tax of 10% on the value of the vessels."3 On 3 June 1988,
private respondent Magsaysay Lines, Inc. (Magsaysay Lines) offered to buy the
shares and the vessels for P168,000,000.00. The bid was made by Magsaysay Lines,
purportedly for a new company still to be formed composed of itself, Baliwag
Navigation, Inc., and FIM Limited of the Marden Group based in Hongkong
(collectively, private respondents).4 The bid was approved by the Committee on
Privatization, and a Notice of Award dated 1 July 1988 was issued to Magsaysay
Lines.
On 28 September 1988, the implementing Contract of Sale was executed between
NDC, on one hand, and Magsaysay Lines, Baliwag Navigation, and FIM Limited, on
the other. Paragraph 11.02 of the contract stipulated that "[v]alue-added tax, if any,
shall be for the account of the PURCHASER."5 Per arrangement, an irrevocable
confirmed Letter of Credit previously filed as bidders bond was accepted by NDC as
security for the payment of VAT, if any. By this time, a formal request for a ruling on
whether or not the sale of the vessels was subject to VAT had already been filed
with the Bureau of Internal Revenue (BIR) by the law firm of Sycip Salazar
Hernandez & Gatmaitan, presumably in behalf of private respondents. Thus, the
parties agreed that should no favorable ruling be received from the BIR, NDC was
authorized to draw on the Letter of Credit upon written demand the amount
needed for the payment of the VAT on the stipulated due date, 20 December 1988. 6
In January of 1989, private respondents through counsel received VAT Ruling No.
568-88 dated 14 December 1988 from the BIR, holding that the sale of the vessels
was subject to the 10% VAT. The ruling cited the fact that NDC was a VAT-registered
enterprise, and thus its "transactions incident to its normal VAT registered activity
of leasing out personal property including sale of its own assets that are movable,
tangible objects which are appropriable or transferable are subject to the 10%
[VAT]."7
Private respondents moved for the reconsideration of VAT Ruling No. 568-88, as
well as VAT Ruling No. 395-88 (dated 18 August 1988), which made a similar ruling
on the sale of the same vessels in response to an inquiry from the Chairman of the
Senate Blue Ribbon Committee. Their motion was denied when the BIR issued VAT
Ruling Nos. 007-89 dated 24 February 1989, reiterating the earlier VAT rulings. At
this point, NDC drew on the Letter of Credit to pay for the VAT, and the amount
of P15,120,000.00 in taxes was paid on 16 March 1989.
On 10 April 1989, private respondents filed an Appeal and Petition for Refund with
the CTA, followed by a Supplemental Petition for Review on 14 July 1989. They
prayed for the reversal of VAT Rulings No. 395-88, 568-88 and 007-89, as well as the
refund of the VAT payment made amounting to P15,120,000.00.8 The
Commissioner of Internal Revenue (CIR) opposed the petition, first arguing that
private respondents were not the real parties in interest as they were not the
transferors or sellers as contemplated in Sections 99 and 100 of the then Tax Code.
The CIR also squarely defended the VAT rulings holding the sale of the vessels liable
for VAT, especially citing Section 3 of Revenue Regulation No. 5-87 (R.R. No. 5-87),
which provided that "[VAT] is imposed on any sale or transactions ‘deemed sale’ of
taxable goods (including capital goods, irrespective of the date of acquisition)." The
CIR argued that the sale of the vessels were among those transactions "deemed
sale," as enumerated in Section 4 of R.R. No. 5-87. It seems that the CIR particularly
emphasized Section 4(E)(i) of the Regulation, which classified "change of ownership
of business" as a circumstance that gave rise to a transaction "deemed sale."
In a Decision dated 27 April 1992, the CTA rejected the CIR’s arguments and granted
the petition.9 The CTA ruled that the sale of a vessel was an "isolated transaction,"
not done in the ordinary course of NDC’s business, and was thus not subject to VAT,
which under Section 99 of the Tax Code, was applied only to sales in the course of
trade or business. The CTA further held that the sale of the vessels could not be
"deemed sale," and thus subject to VAT, as the transaction did not fall under the
enumeration of transactions deemed sale as listed either in Section 100(b) of the
Tax Code, or Section 4 of R.R. No. 5-87. Finally, the CTA ruled that any case of doubt
should be resolved in favor of private respondents since Section 99 of the Tax Code
which implemented VAT is not an exemption provision, but a classification provision
which warranted the resolution of doubts in favor of the taxpayer.
The CIR appealed the CTA Decision to the Court of Appeals, 10 which on 11 March
1997, rendered a Decision reversing the CTA. 11 While the appellate court agreed
that the sale was an isolated transaction, not made in the course of NDC’s regular
trade or business, it nonetheless found that the transaction fell within the
classification of those "deemed sale" under R.R. No. 5-87, since the sale of the
vessels together with the NMC shares brought about a change of ownership in
NMC. The Court of Appeals also applied the principle governing tax exemptions that
such should be strictly construed against the taxpayer, and liberally in favor of the
government.12
However, the Court of Appeals reversed itself upon reconsidering the case, through
a Resolution dated 5 February 2001.13 This time, the appellate court ruled that the
"change of ownership of business" as contemplated in R.R. No. 5-87 must be a
consequence of the "retirement from or cessation of business" by the owner of the
goods, as provided for in Section 100 of the Tax Code. The Court of Appeals also
agreed with the CTA that the classification of transactions "deemed sale" was a
classification statute, and not an exemption statute, thus warranting the resolution
of any doubt in favor of the taxpayer.14
To the mind of the Court, the arguments raised in the present petition have already
been adequately discussed and refuted in the rulings assailed before us. Evidently,
the petition should be denied. Yet the Court finds that Section 99 of the Tax Code is
sufficient reason for upholding the refund of VAT payments, and the subsequent
disquisitions by the lower courts on the applicability of Section 100 of the Tax Code
and Section 4 of R.R. No. 5-87 are ultimately irrelevant.
A brief reiteration of the basic principles governing VAT is in order. VAT is ultimately
a tax on consumption, even though it is assessed on many levels of transactions on
the basis of a fixed percentage.15 It is the end user of consumer goods or services
which ultimately shoulders the tax, as the liability therefrom is passed on to the end
users by the providers of these goods or services16 who in turn may credit their own
VAT liability (or input VAT) from the VAT payments they receive from the final
consumer (or output VAT).17 The final purchase by the end consumer represents the
final link in a production chain that itself involves several transactions and several
acts of consumption. The VAT system assures fiscal adequacy through the collection
of taxes on every level of consumption,18 yet assuages the manufacturers or
providers of goods and services by enabling them to pass on their respective VAT
liabilities to the next link of the chain until finally the end consumer shoulders the
entire tax liability.
Yet VAT is not a singular-minded tax on every transactional level. Its assessment
bears direct relevance to the taxpayer’s role or link in the production chain. Hence,
as affirmed by Section 99 of the Tax Code and its subsequent incarnations, 19 the tax
is levied only on the sale, barter or exchange of goods or services by persons who
engage in such activities, in the course of trade or business. These transactions
outside the course of trade or business may invariably contribute to the production
chain, but they do so only as a matter of accident or incident. As the sales of goods
or services do not occur within the course of trade or business, the providers of
such goods or services would hardly, if at all, have the opportunity to appropriately
credit any VAT liability as against their own accumulated VAT collections since the
accumulation of output VAT arises in the first place only through the ordinary
course of trade or business.
That the sale of the vessels was not in the ordinary course of trade or business of
NDC was appreciated by both the CTA and the Court of Appeals, the latter doing so
even in its first decision which it eventually reconsidered.20 We cite with approval
the CTA’s explanation on this point:
In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September 30, 1955
(97 Phil. 992), the term "carrying on business" does not mean the performance of
a single disconnected act, but means conducting, prosecuting and continuing
business by performing progressively all the acts normally incident thereof; while
"doing business" conveys the idea of business being done, not from time to time,
but all the time. [J. Aranas, UPDATED NATIONAL INTERNAL REVENUE CODE (WITH
ANNOTATIONS), p. 608-9 (1988)]. "Course of business" is what is usually done in
the management of trade or business. [Idmi v. Weeks & Russel, 99 So. 761, 764,
135 Miss. 65, cited in Words & Phrases, Vol. 10, (1984)].
What is clear therefore, based on the aforecited jurisprudence, is that "course of
business" or "doing business" connotes regularity of activity. In the instant case,
the sale was an isolated transaction. The sale which was involuntary and made
pursuant to the declared policy of Government for privatization could no longer
be repeated or carried on with regularity. It should be emphasized that the
normal VAT-registered activity of NDC is leasing personal property.21
This finding is confirmed by the Revised Charter 22 of the NDC which bears no
indication that the NDC was created for the primary purpose of selling real
property.23
The conclusion that the sale was not in the course of trade or business, which the
CIR does not dispute before this Court,24 should have definitively settled the matter.
Any sale, barter or exchange of goods or services not in the course of trade or
business is not subject to VAT.
Section 100 of the Tax Code, which is implemented by Section 4(E)(i) of R.R. No. 5-
87 now relied upon by the CIR, is captioned "Value-added tax on sale of goods," and
it expressly states that "[t]here shall be levied, assessed and collected on every sale,
barter or exchange of goods, a value added tax x x x." Section 100 should be read in
light of Section 99, which lays down the general rule on which persons are liable for SO ORDERED.
VAT in the first place and on what transaction if at all. It may even be noted that
Section 99 is the very first provision in Title IV of the Tax Code, the Title that covers
VAT in the law. Before any portion of Section 100, or the rest of the law for that
matter, may be applied in order to subject a transaction to VAT, it must first be
satisfied that the taxpayer and transaction involved is liable for VAT in the first place
under Section 99.

It would have been a different matter if Section 100 purported to define the phrase
"in the course of trade or business" as expressed in Section 99. If that were so,
reference to Section 100 would have been necessary as a means of ascertaining
whether the sale of the vessels was "in the course of trade or business," and thus
subject to
VAT. But that is not the case. What Section 100 and Section 4(E)(i) of R.R. No. 5-87
elaborate on is not the meaning of "in the course of trade or business," but instead
the identification of the transactions which may be deemed as sale. It would
become necessary to ascertain whether under those two provisions the transaction
may be deemed a sale, only if it is settled that the transaction occurred in the
course of trade or business in the first place. If the transaction transpired outside
the course of trade or business, it would be irrelevant for the purpose of
determining VAT liability whether the transaction may be deemed sale, since it
anyway is not subject to VAT.
Accordingly, the Court rules that given the undisputed finding that the transaction
in question was not made in the course of trade or business of the seller, NDC that
is, the sale is not subject to VAT pursuant to Section 99 of the Tax Code, no matter
how the said sale may hew to those transactions deemed sale as defined under
Section 100.
In any event, even if Section 100 or Section 4 of R.R. No. 5-87 were to find
application in this case, the Court finds the discussions offered on this point by the
CTA and the Court of Appeals (in its subsequent Resolution) essentially correct.
Section 4 (E)(i) of R.R. No. 5-87 does classify as among the transactions deemed sale
those involving "change of ownership of business." However, Section 4(E) of R.R.
No. 5-87, reflecting Section 100 of the Tax Code, clarifies that such "change of
ownership" is only an attending circumstance to "retirement from or cessation of
business[, ] with respect to all goods on hand [as] of the date of such retirement or
cessation."25 Indeed, Section 4(E) of R.R. No. 5-87 expressly characterizes the
"change of ownership of business" as only a "circumstance" that attends those
transactions "deemed sale," which are otherwise stated in the same section. 26
WHEREFORE, the petition is DENIED. No costs.
SECOND DIVISION
G.R. No. 193301 : March 11, 2013
MINDANAO II GEOTHERMAL PARTNERSHIP, Petitioner, v. COMMISSIONER OF
INTERNAL REVENUE, Respondents.
G.R. No. 194637
MINDANAO I GEOTHERMAL PARTNERSHIP, Petitioner, v. COMMISSIONER OF
INTERNAL REVENUE,Respondent.
DECISION
CARPIO, J.:
G.R. No. 193301 is a petition for review1 assailing the Decision2 promulgated on 10
March 2010 as well as the Resolution3 promulgated on 28 July 2010 by the Court of
Tax Appeals En Banc (CTA En Banc) in CTA EB No. 513. The CTA En Banc affirmed the
22 September 2008 Decision4 as well as the 26 June 2009 Amended Decision5 of the
First Division of the Court of Tax Appeals (CTA First Division) in CTA Case Nos. 7227,
7287, and 7317. The CTA First Division denied Mindanao II Geothermal Partnerships
(Mindanao II) claims for refund or tax credit for the first and second quarters of
taxable year 2003 for being filed out of time (CTA Case Nos. 7227 and 7287). The
CTA First Division, however, ordered the
Commissioner of Internal Revenue (CIR) to refund or credit to Mindanao II
unutilized input value-added tax (VAT) for the third and fourth quarters of taxable
year 2003 (CTA Case No. 7317).
G.R. No. 194637 is a petition for review6 assailing the Decision7 promulgated on 31
May 2010 as well as the Amended Decision 8 promulgated on 24 November 2010 by
the CTA En Banc in CTA EB Nos. 476 and 483. In its Amended Decision, the CTA En
Banc reversed its 31 May 2010 Decision and granted the CIRs petition for review in
CTA Case No. 476. The CTA En Banc denied Mindanao I Geothermal Partnerships
(Mindanao I) claims for refund or tax credit for the first (CTA Case No. 7228), second
(CTA Case No. 7286), third, and fourth quarters (CTA Case No. 7318) of 2003.
Both Mindanao I and II are partnerships registered with the Securities and Exchange
Commission, value added taxpayers registered with the Bureau of Internal Revenue
(BIR), and Block Power Production Facilities accredited by the Department of
Energy. Republic Act No. 9136, or the Electric Power Industry Reform Act of 2000
(EPIRA), effectively amended Republic Act No. 8424, or the Tax Reform Act of 1997
(1997 Tax Code),9 when it decreed that sales of power by generation companies
shall be subjected to a zero rate of VAT.10 Pursuant to EPIRA, Mindanao I and II filed
with the CIR claims for refund or tax credit of accumulated unutilized and/or excess
input taxes due to VAT zero-rated sales in 2003. Mindanao I and II filed their claims
in 2005.
G.R. No. 193301
Mindanao II v. CIR
The Facts
NPC for and in behalf of PNOC-EDC is its only revenue-generating activity which is in
the ambit of VAT zero-rated sales under the EPIRA Law, x x x.
xxx
Hence, the amendment of the NIRC of 1997 modified the VAT rate applicable to
sales of generated power by generation companies from ten (10%) percent to zero
(0%) percent.
In the course of its operation, Mindanao II makes domestic purchases of goods and
services and accumulates therefrom creditable input taxes. Pursuant to the
provisions of the National Internal Revenue Code (NIRC), Mindanao II alleges that it
can use its accumulated input tax credits to offset its output tax liability.
Considering, however that its only revenue-generating activity is VAT zero-rated
under RA No. 9136, Mindanao IIs input tax credits remain unutilized.
Thus, on the belief that its sales qualify for VAT zero-rating, Mindanao II adopted
the VAT zero-rating of the EPIRA in computing for its VAT payable when it filed its
Quarterly VAT Returns on the following dates:cralawlibrary

G.R. No. 193301 covers three CTA First Division cases, CTA Case Nos. 7227, 7287,
CTA Period Covered Date of Filing
and 7317, which were consolidated as CTA EB No. 513. CTA Case Nos. 7227, 7287,
Case No. (2003)
and 7317 claim a tax refund or credit of Mindanao IIs alleged excess or unutilized
input taxes due to VAT zero-rated sales. In CTA Case No. 7227, Mindanao II claims a Original Amended Return
tax refund or credit of P3,160,984.69 for the first quarter of 2003. In CTA Case No. Return
7287, Mindanao II claims a tax refund or credit of P1,562,085.33 for the second
quarter of 2003. In CTA Case No. 7317, Mindanao II claims a tax refund or credit 7227 1st Quarter April 23, 2003 July 3, 2002 (sic),
of P3,521,129.50 for the third and fourth quarters of 2003. April 1, 2004 &
October 22, 2004
The CTA First Divisions narration of the pertinent facts is as follows:cralawlibrary
7287 2nd Quarter July 22, 2003 April 1, 2004
xxx

On March 11, 1997, [Mindanao II] allegedly entered into a Built (sic)-Operate- 7317 3rd Quarter Oct. 27, 2003 April 1, 2004
Transfer (BOT) contract with the Philippine National Oil Corporation Energy
Development Company (PNOC-EDC) for finance, engineering, supply, installation, 7317 4th Quarter Jan. 26, 2004 April 1, 2204
testing, commissioning, operation, and maintenance of a 48.25 megawatt
geothermal power plant, provided that PNOC-EDC shall supply and deliver steam to
Mindanao II at no cost. In turn, Mindanao II shall convert the steam into electric Considering that it has accumulated unutilized creditable input taxes from its only
capacity and energy for PNOC-EDC and shall deliver the same to the National Power income-generating activity, Mindanao II filed an application for refund and/or
Corporation (NPC) for and in behalf of PNOC-EDC. Mindanao II alleges that its sale issuance of tax credit certificate with the BIRs Revenue District Office at Kidapawan
of generated power and delivery of electric capacity and energy of Mindanao II to City on April 13, 2005 for the four quarters of 2003.
To date (September 22, 2008), the application for refund by Mindanao II remains CTA Period Original Amended Administrative Judicial Claim
unacted upon by the CIR. Hence, these three petitions filed on April 22, 2005 Case No. Covered Return Return Return
covering the 1st quarter of 2003; July 7, 2005 for the 2nd quarter of 2003; and
(2003)
September 9, 2005 for the 3rd and 4th quarters of 2003. At the instance of
Mindanao II, these petitions were consolidated on March 15, 2006 as they involve
the same parties and the same subject matter. The only difference lies with the 7227 1st Quarter 23 April 2003 1 April 2004 13 April 2005 22 April 2005
taxable periods involved in each petition.11?r?l1
7287 2nd Quarter 22 July 2003 1 April 2004 13 April 2005 7 July 2005
The Court of Tax Appeals Ruling: Division
7317 3rd Quarter 25 Oct. 2003 1 April 2004 13 April 2005 9 Sept. 2005
In its 22 September 2008 Decision,12 the CTA First Division found that Mindanao II
satisfied the twin requirements for VAT zero rating under EPIRA: (1) it is a
7317 4th Quarter 26 Jan. 2004 1 April 2004 13 April 2005 9 Sept.
generation company, and (2) it derived sales from power generation. The CTA First
Division also stated that Mindanao II complied with five requirements to be entitled 200515
to a refund:cralawlibrary

1. There must be zero-rated or effectively zero-rated sales;
2. That input taxes were incurred or paid;
3. That such input VAT payments are directly attributable to zero-rated sales or
effectively zero-rated sales;
4. That the input VAT payments were not applied against any output VAT liability;
and
5. That the claim for refund was filed within the two-year prescriptive
period.13?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
With respect to the fifth requirement, the CTA First Division tabulated the dates of
filing of Mindanao IIs return as well as its administrative and judicial claims, and
concluded that Mindanao IIs administrative and judicial claims were timely filed in
compliance with this Courts ruling in Atlas Consolidated Mining and Development
Corporation v. Commissioner of Internal Revenue (Atlas). 14 The CTA First Division
declared that the two-year prescriptive period for filing a VAT refund claim should
not be counted from the close of the quarter but from the date of the filing of the
VAT return. As ruled in Atlas, VAT liability or entitlement to a refund can only be
determined upon the filing of the quarterly VAT return.
Thus, counting from 23 April 2003, 22 July 2003, 25 October 2003, and 26 January
2004, when Mindanao II filed its VAT returns, its administrative claim filed on 13
April 2005 and judicial claims filed on 22 April 2005, 7 July 2005, and 9 September
2005 were timely filed in accordance with Atlas.
The CTA First Division found that Mindanao II is entitled to a refund in the modified
amount of P7,703,957.79, after disallowing P522,059.91 from input VAT16 and
deducting P18,181.82 from Mindanao IIs sale of a fully depreciated P200,000.00
Nissan Patrol. The input taxes amounting to P522,059.91 were disallowed for failure
to meet invoicing requirements, while the input VAT on the sale of the Nissan Patrol
was reduced by P18,181.82 because the output VAT for the sale was not included in
the VAT declarations.
The dispositive portion of the CTA First Divisions 22 September 2008 Decision
reads:cralawlibrary
WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly,
the CIR is hereby ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE in the
modified amount of SEVEN MILLION SEVEN HUNDRED THREE THOUSAND NINE
HUNDRED FIFTY SEVEN AND 79/100 PESOS (P7,703,957.79) representing its
unutilized input VAT for the four (4) quarters of the taxable year 2003.
SO ORDERED.17?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ

Date Filing Mindanao II filed a motion for partial reconsideration.18 It stated that the sale of the
fully depreciated Nissan Patrol is a one-time transaction and is not incidental to its
VAT zero-rated operations. Moreover, the disallowed input taxes substantially
complied with the requirements for refund or tax credit.
The CIR also filed a motion for partial reconsideration. It argued that the judicial
claims for the first and second quarters of 2003 were filed beyond the period
allowed by law, as stated in Section 112(A) of the 1997 Tax Code. The CIR further
stated that Section 229 is a general provision, and governs cases not covered by
Section 112(A). The CIR countered the CTA First Divisions 22 September 2008
decision by citing this Courts ruling in Commisioner of Internal Revenue v. Mirant
Pagbilao Corporation (Mirant),19which stated that unutilized input VAT payments
must be claimed within two years reckoned from the close of the taxable quarter
when the relevant sales were made regardless of whether said tax was paid.
The CTA First Division denied Mindanao IIs motion for partial reconsideration, found
the CIRs motion for partial reconsideration partly meritorious, and rendered an
Amended Decision20 on 26 June 2009. The CTA First Division stated that the claim
for refund or credit with the BIR and the subsequent appeal to the CTA must be
filed within the two-year period prescribed under Section 229. The two-year
prescriptive period in Section 229 was denominated as a mandatory statute of
limitations. Therefore, Mindanao IIs claims for refund for the first and second
quarters of 2003 had already prescribed.
The CTA First Division found that the records of Mindanao IIs case are bereft of
evidence that the sale of the Nissan Patrol is not incidental to Mindanao IIs VAT
zero-rated operations. Moreover, Mindanao IIs submitted documents failed to
substantiate the requisites for the refund or credit claims.
The CTA First Division modified its 22 September 2008 Decision to read as
follows:cralawlibrary
WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly,
the CIR is hereby ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE to
Mindanao II Geothermal Partnership in the modified amount of TWO MILLION NINE
HUNDRED EIGHTY THOUSAND EIGHT HUNDRED EIGHTY SEVEN AND 77/100 PESOS
(P2,980,887.77) representing its unutilized input VAT for the third and fourth
quarters of the taxable year 2003.
SO ORDERED.21?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
Mindanao II filed a Petition for Review,22 docketed as CTA EB No. 513, before the
CTA En Banc.
The Court of Tax Appeals Ruling: En Banc
On 10 March 2010, the CTA En Banc rendered its Decision23 in CTA EB No. 513 and
denied Mindanao IIs petition. The CTA En Banc ruled that (1) Section 112(A) clearly
provides that the reckoning of the two-year prescriptive period for filing the
application for refund or credit of input VAT attributable to zero-rated sales or
effectively zero-rated sales shall be counted from the close of the taxable quarter
when the sales were made; (2) the Atlas and Mirant cases applied different tax
codes: Atlas applied the 1977 Tax Code while Mirant applied the 1997 Tax Code; (3)
the sale of the fully-depreciated Nissan Patrol is incidental to Mindanao IIs VAT
zero-rated transactions pursuant to Section 105; (4) Mindanao II failed to comply
with the substantiation requirements provided under Section 113(A) in relation to
Section 237 of the 1997 Tax Code as implemented by Section 4.104-1, 4.104-5, and
4.108-1 of Revenue Regulation No. 7-95; and (5) the doctrine of strictissimi juris on
tax exemptions cannot be relaxed in the present case.
The dispositive portion of the CTA En Bancs 10 March 2010 Decision
reads:cralawlibrary
WHEREFORE, on the basis of the foregoing considerations, the Petition for Review
en banc is DISMISSED for lack of merit. Accordingly, the Decision dated September
22, 2008 and the Amended Decision dated June 26, 2009 issued by the First Division
are AFFIRMED.
SO ORDERED.24?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
The CTA En Banc issued a Resolution25 on 28 July 2010 denying for lack of merit
Mindanao IIs Motion for Reconsideration.26 The CTA En Banc highlighted the
following bases of their previous ruling:cralawlibrary
1. The Supreme Court has long decided that the claim for refund of unutilized input
VAT must be filed within two (2) years after the close of the taxable quarter when
such sales were made.
2. The Supreme Court is the ultimate arbiter whose decisions all other courts should
take bearings.
3. The words of the law are clear, plain, and free from ambiguity; hence, it must be
given its literal meaning and applied without any
interpretation.27?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
G.R. No. 194637
Mindanao I v. CIR
 The Facts
G.R. No. 194637 covers two cases consolidated by the CTA EB: CTA EB Case Nos.
476 and 483. Both CTA EB cases consolidate three cases from the CTA Second
Division: CTA Case Nos. 7228, 7286, and 7318. CTA Case Nos. 7228, 7286, and 7318
claim a tax refund or credit of Mindanao Is accumulated unutilized and/or excess
input taxes due to VAT zero-rated sales. In CTA Case No. 7228, Mindanao I claims a
tax refund or credit of P3,893,566.14 for the first quarter of 2003. In CTA Case No.
7286, Mindanao I claims a tax refund or credit of P2,351,000.83 for the second
quarter of 2003. In CTA Case No. 7318, Mindanao I claims a tax refund or credit
of P7,940,727.83 for the third and fourth quarters of 2003.
Mindanao I is similarly situated as Mindanao II. The CTA Second Divisions narration
of the pertinent facts is as follows:cralawlibrary
xxx
In December 1994, Mindanao I entered into a contract of Build-Operate-Transfer
(BOT) with the Philippine National Oil Corporation Energy Development Corporation
(PNOC-EDC) for the finance, design, construction, testing, commissioning,
operation, maintenance and repair of a 47-megawatt geothermal power plant.
Under the said BOT contract, PNOC-EDC shall supply and deliver steam to Mindanao
I at no cost. In turn, Mindanao I will convert the steam into electric capacity and
energy for PNOC-EDC and shall subsequently supply and deliver the same to the
National Power Corporation (NPC), for and in behalf of PNOC-EDC.
Mindanao Is 47-megawatt geothermal power plant project has been accredited by
the Department of Energy (DOE) as a Private Sector Generation Facility, pursuant to
the provision of Executive Order No. 215, wherein Certificate of Accreditation No.
95-037 was issued.
On June 26, 2001, Republic Act (R.A.) No. 9136 took effect, and the relevant
provisions of the National Internal Revenue Code (NIRC) of 1997 were deemed
modified. R.A. No. 9136, also known as the "Electric Power Industry Reform Act of
2001 (EPIRA), was enacted by Congress to ordain reforms in the electric power
industry, highlighting, among others, the importance of ensuring the reliability,
security and affordability of the supply of electric power to end users. Under the
provisions of this Republic Act and its implementing rules and regulations, the
delivery and supply of electric energy by generation companies became VAT zero-
rated, which previously were subject to ten percent (10%) VAT.?r?l??
xxx
The amendment of the NIRC of 1997 modified the VAT rate applicable to sales of
generated power by generation companies from ten (10%) percent to zero percent
(0%). Thus, Mindanao I adopted the VAT zero-rating of the EPIRA in computing for
its VAT payable when it filed its VAT Returns, on the belief that its sales qualify for
VAT zero-rating.
Mindanao I reported its unutilized or excess creditable input taxes in its Quarterly
VAT Returns for the first, second, third, and fourth quarters of taxable year 2003,
which were subsequently amended and filed with the BIR.
On April 4, 2005, Mindanao I filed with the BIR separate administrative claims for
the issuance of tax credit certificate on its alleged unutilized or excess input taxes
for taxable year 2003, in the accumulated amount of P14,185, 294.80.
Alleging inaction on the part of CIR, Mindanao I elevated its claims before this Court
on April 22, 2005, July 7, 2005, and September 9, 2005 docketed as CTA Case Nos.
7228, 7286, and 7318, respectively. However, on October 10, 2005, Mindanao I
received a copy of the letter dated September 30, 2003 (sic) of the BIR denying its
application for tax credit/refund.28?r?l1
The Court of Tax Appeals Ruling: Division
On 24 October 2008, the CTA Second Division rendered its Decision 29 in CTA Case
Nos. 7228, 7286, and 7318. The CTA Second Division found that (1) pursuant to
Section 112(A), Mindanao I can only claim 90.27% of the amount of substantiated
excess input VAT because a portion was not reported in its quarterly VAT returns;
(2) out of the P14,185,294.80 excess input VAT applied for refund,
only P11,657,447.14 can be considered substantiated excess input VAT due to
disallowances by the Independent Certified Public Accountant, adjustment on the
disallowances per the CTA Second Divisions further verification, and additional
disallowances per the CTA Second Divisions further verification;
(3) Mindanao Is accumulated excess input VAT for the second quarter of 2003 that
was carried over to the third quarter of 2003 is net of the claimed input VAT for the
first quarter of 2003, and the same procedure was done for the second, third, and
fourth quarters of 2003; and (4) Mindanao Is administrative claims were filed within
the two-year prescriptive period reckoned from the respective dates of filing of the
quarterly VAT returns.
The dispositive portion of the CTA Second Divisions 24 October 2008 Decision
reads:cralawlibrary
WHEREFORE, premises considered, the consolidated Petitions for Review are
hereby PARTIALLY GRANTED. Accordingly, the CIR is hereby ORDERED TO ISSUE A
TAX CREDIT CERTIFICATE in favor of Mindanao I in the reduced amount of TEN
MILLION FIVE HUNDRED TWENTY THREE THOUSAND ONE HUNDRED SEVENTY
SEVEN PESOS AND 53/100 (P10,523,177.53) representing Mindanao Is unutilized
input VAT for the four quarters of the taxable year 2003.
SO ORDERED.30?r?l1
Mindanao I filed a motion for partial reconsideration with motion for
Clarification31 on 11 November 2008. It claimed that the CTA Second Division should
not have allocated proportionately Mindanao Is unutilized creditable input taxes for
the taxable year 2003, because the proportionate allocation of the amount of
creditable taxes in Section 112(A) applies only when the creditable input taxes due
cannot be directly and entirely attributed to any of the zero-rated or effectively
zero-rated sales. Mindanao I claims that its unreported collection is directly
attributable to its VAT zero-rated sales. The CTA Second Division denied Mindanao
Is motion and maintained the proportionate allocation because there was a portion
of the gross receipts that was undeclared in Mindanao Is gross receipts.
The CIR also filed a motion for partial reconsideration32 on 11 November 2008. It
claimed that Mindanao I failed to exhaust administrative remedies before it filed its
petition for review. The CTA Second Division denied the CIRs motion, and cited
Atlas33 as the basis for ruling that it is more practical and reasonable to count the
two-year prescriptive period for filing a claim for refund or credit of input VAT on
zero-rated sales from the date of filing of the return and payment of the tax due.
The dispositive portion of the CTA Second Divisions 10 March 2009 Resolution
reads:cralawlibrary
WHEREFORE, premises considered, the CIRs Motion for Partial Reconsideration and
Mindanao Is Motion for Partial Reconsideration with Motion for Clarification are
hereby DENIED for lack of merit.
SO ORDERED.34?r?l1
The Ruling of the Court of Tax Appeals: En Banc
On 31 May 2010, the CTA En Banc rendered its Decision35 in CTA EB Case Nos. 476
and 483 and denied the petitions filed by the CIR and Mindanao I. The CTA En Banc
found no new matters which have not yet been considered and passed upon by the
CTA Second Division in its assailed decision and resolution.
The dispositive portion of the CTA En Bancs 31 May 2010 Decision
reads:cralawlibrary
WHEREFORE, premises considered, the Petitions for Review are hereby DISMISSED
for lack of merit. Accordingly, the October 24, 2008 Decision and March 10, 2009
Resolution of the CTA Former Second Division in CTA Case Nos. 7228, 7286, and
7318, entitled "Mindanao I Geothermal Partnership v. Commissioner of Internal
Revenue" are hereby AFFIRMED in toto.
SO ORDERED.36?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
Both the CIR and Mindanao I filed Motions for Reconsideration of the CTA En Bancs
31 May 2010 Decision. In an Amended Decision promulgated on 24 November
2010, the CTA En Banc agreed with the CIRs claim that Section 229 of the NIRC of
1997 is inapplicable in light of this Courts ruling in Mirant. The CTA En Banc also
ruled that the procedure prescribed under Section 112(D) now 112(C) 37 of the 1997
Tax Code should be followed first before the CTA En Banc can act on Mindanao Is
claim. The CTA En Banc reconsidered its 31 May 2010 Decision in light of this Courts
ruling in Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.
(Aichi).38?r?l1
The pertinent portions of the CTA En Bancs 24 November 2010 Amended Decision
read:cralawlibrary
C.T.A. Case No. 7228:cralawlibrary
(1) For calendar year 2003, Mindanao I filed with the BIR its Quarterly VAT Returns
for the First Quarter of 2003. Pursuant to Section 112(A) of the NIRC of 1997, as
amended, Mindanao I has two years from March 31, 2003 or until March 31, 2005
within which to file its administrative claim for refund;
(2) On April 4, 2005, Mindanao I applied for an administrative claim for refund of
unutilized input VAT for the first quarter of taxable year 2003 with the BIR, which is
beyond the two-year prescriptive period mentioned above.
C.T.A. Case No. 7286:cralawlibrary
(1) For calendar year 2003, Mindanao I filed with the BIR its Quarterly VAT Returns
for the second quarter of 2003. Pursuant to
Section 112(A) of the NIRC of 1997, as amended, Mindanao I has two years from (4) Within thirty (30) days from the lapse of the 120-day period or from August 3,
June 30, 2003, within which to file its administrative claim for refund for the second 2005 until September 1, 2005 Mindanao I should have elevated its claim for refund
quarter of 2003, or until June 30, 2005; to the CTA;

(2) On April 4, 2005, Mindanao I applied an administrative claim for refund of (5) However, Mindanao I filed its Petition for Review with the CTA in Division only
unutilized input VAT for the second quarter of taxable year 2003 with the BIR, which on September 9, 2005, which is 8 days beyond the 30-day period to appeal to the
is within the two-year prescriptive period, provided under Section 112 (A) of the CTA.
NIRC of 1997, as amended;
Evidently, the Petition for Review was filed way beyond the 30-day prescribed
(3) The CIR has 120 days from April 4, 2005 (presumably the date Mindanao I period. Thus, the Petition for Review should have been dismissed for being filed
submitted the supporting documents together with the application for refund) or late.
until August 2, 2005, to decide the administrative claim for refund;
In recapitulation:cralawlibrary
(4) Within 30 days from the lapse of the 120-day period or from August 3, 2005 to
September 1, 2005, Mindanao I should have elevated its claim for refund to the CTA (1) C.T.A. Case No. 7228
in Division;
Claim for the first quarter of 2003 had already prescribed for having been filed
(5) However, on July 7, 2005, Mindanao I filed its Petition for Review with this beyond the two-year prescriptive period;
Court, docketed as CTA Case No. 7286, even before the 120-day period for the CIR
to decide the claim for refund had lapsed on August 2, 2005. The Petition for (2) C.T.A. Case No. 7286
Review was, therefore, prematurely filed and there was failure to exhaust
administrative remedies;
Claim for the second quarter of 2003 should be dismissed for Mindanao Is failure to
comply with a condition precedent when it failed to exhaust administrative
xxx remedies by filing its Petition for Review even before the lapse of the 120-day
period for the CIR to decide the administrative claim;
C.T.A. Case No. 7318:cralawlibrary
(3) C.T.A. Case No. 7318
(1) For calendar year 2003, Mindanao I filed with the BIR its Quarterly VAT Returns
for the third and fourth quarters of 2003. Pursuant to Section 112(A) of the NIRC of Petition for Review was filed beyond the 30-day prescribed period to appeal to the
1997, as amended, Mindanao I therefore, has two years from September 30, 2003 CTA.
and December 31, 2003, or until September 30, 2005 and December 31, 2005,
respectively, within which to file its administrative claim for the third and fourth
xxx
quarters of 2003;
IN VIEW OF THE FOREGOING, the Commissioner of Internal Revenues Motion for
(2) On April 4, 2005, Mindanao I applied an administrative claim for refund of
Reconsideration is hereby GRANTED; Mindanao Is Motion for Partial
unutilized input VAT for the third and fourth quarters of taxable year 2003 with the
Reconsideration is hereby DENIED for lack of merit.
BIR, which is well within the two-year prescriptive period, provided under Section
112(A) of the NIRC of 1997, as amended;
The May 31, 2010 Decision of this Court En Banc is hereby REVERSED.
(3) From April 4, 2005, which is also presumably the date Mindanao I submitted
supporting documents, together with the aforesaid application for refund, the CIR Accordingly, the Petition for Review of the Commissioner of Internal Revenue in
CTA EB No. 476 is hereby GRANTED and the entire claim of Mindanao I Geothermal
has 120 days or until August 2, 2005, to decide the claim;
Partnership for the first, second, third and fourth quarters of 2003 is hereby
DENIED.
SO ORDERED.39?r?l1
The Issues
G.R. No. 193301
Mindanao II v. CIR
Mindanao II raised the following grounds in its Petition for Review:cralawlibrary
I. The Honorable Court of Tax Appeals erred in holding that the claim of Mindanao II
for the 1st and 2nd quarters of year 2003 has already prescribed pursuant to the
Mirant case.
A. The Atlas case and Mirant case have conflicting interpretations of the law as to
the reckoning date of the two year prescriptive period for filing claims for VAT
refund.
B. The Atlas case was not and cannot be superseded by the Mirant case in light of
Section 4(3), Article VIII of the 1987 Constitution.
C. The ruling of the Mirant case, which uses the close of the taxable quarter when
the sales were made as the reckoning date in counting the two-year prescriptive
period cannot be applied retroactively in the case of Mindanao
II. ???ñr?bl?š ??r†??l l?? l?br?rÿ
II. The Honorable Court of Tax Appeals erred in interpreting Section 105 of the 1997
Tax Code, as amended in that the sale of the fully depreciated Nissan Patrol is a
one-time transaction and is not incidental to the VAT zero-rated operation of
Mindanao II.
III. The Honorable Court of Tax Appeals erred in denying the amount disallowed by
the Independent Certified Public Accountant as Mindanao II substantially complied
with the requisites of the 1997 Tax Code, as amended, for refund/tax credit.
A. The amount of P2,090.16 was brought about by the timing difference in the
recording of the foreign currency deposit transaction.
B. The amount of P2,752.00 arose from the out-of-pocket expenses reimbursed to
SGV & Company which is substantially suppoerted [sic] by an official receipt.
C. The amount of P487,355.93 was unapplied and/or was not included in Mindanao
IIs claim for refund or tax credit for the year 2004 subject matter of CTA Case No.
7507. ???ñr?bl?š ??r†??l l?? l?br?rÿ
IV. The doctrine of strictissimi juris on tax exemptions should be relaxed in the
present case.40?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
G.R. No. 194637
Mindanao I v. CIR
Mindanao I raised the following grounds in its Petition for Review:cralawlibrary
I. The administrative claim and judicial claim in CTA Case No. 7228 were timely filed
pursuant to the case of Atlas Consolidated Mining and Development Corporation v.
Commissioner of Internal Revenue, which was then the controlling ruling at the
time of filing.
A. The recent ruling in the Commissioner of Internal Revenue v. Mirant Pagbilao
Corporation, which uses the end of the taxable quarter when the sales were made
as the reckoning date in counting the two-year prescriptive period, cannot be
applied retroactively in the case of Mindanao I.
B. The Atlas case promulgated by the Third Division of this Honorable Court on June
8, 2007 was not and cannot be superseded by the Mirant Pagbilao case
promulgated by the Second Division of this Honorable Court on September 12, 2008
in light of the explicit provision of Section 4(3), Article VIII of the 1987
Constitution. ???ñr?bl?š ??r†??l l?? l?br?rÿ
II. Likewise, the recent ruling of this Honorable Court in Commissioner of Internal
Revenue v. Aichi Forging Company of Asia, Inc., cannot be applied retroactively to
Mindanao I in the present case.41?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
In a Resolution dated 14 December 2011,42 this Court resolved to consolidate G.R.
Nos. 193301 and 194637 to avoid conflicting rulings in related cases.
The Courts Ruling
Determination of Prescriptive Period
G.R. Nos. 193301 and 194637 both raise the question of the determination of the
prescriptive period, or the interpretation of Section 112 of the 1997 Tax Code, in
light of our rulings in Atlas and Mirant.
Mindanao IIs unutilized input VAT tax credit for the first and second quarters of x x x x 43 (Underscoring supplied) ???ñr?bl?š ??r†??l l?? l?br?rÿ
2003, in the amounts of P3,160,984.69 and P1,562,085.33, respectively, are covered
by G.R. No. 193301, while Mindanao Is unutilized input VAT tax credit for the first, The relevant dates for G.R. No. 193301 (Mindanao II) are:cralawlibrary
second, third, and fourth quarters of 2003, in the amounts
of P3,893,566.14, P2,351,000.83, and P7,940,727.83, respectively, are covered by
G.R. No. 194637. CTA Period Close Last day Actual date Last day Actual
Cas covered by of for filing of for Date
Section 112 of the 1997 Tax Code e VAT Sales in quart applicatio filing filing case of filing
No. 2003 and er n application with case
The pertinent sections of the 1997 Tax Code, the law applicable at the time of amount when of tax for CTA45 with CTA
Mindanao IIs and Mindanao Is administrative and judicial claims, sales refund/ta tax refund/ (judicial
provide:cralawlibrary were x credit with claim)
made credit the
SEC. 112. Refunds or Tax Credits of Input Tax. -(A) Zero-rated or Effectively Zero- certificat CIR
rated Sales. - Any VAT-registered person, whose sales are zero-rated or effectively e (administrati
zero-rated may, within two (2) years after the close of the taxable quarter when the with the ve
sales were made, apply for the issuance of a tax credit certificate or refund of CIR claim)44
creditable input tax due or paid attributable to such sales, except transitional input
tax, to the extent that such input tax has not been applied against output tax: 722 1st Quarter, 31 31 March 13 April 2005 12 22 April
Provided, however, That in the case of zero-rated sales under Section
7 P3,160,984. March 2005 Septemb 2005
106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign
69 2003 er
currency exchange proceeds thereof had been duly accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, 2005
further, That where the taxpayer is engaged in zero-rated or effectively zero-rated
sale and also in taxable or exempt sale of goods or properties or services, and the 728 2nd Quarter, 30 30 June 13 April 2005 12 7 July
amount of creditable input tax due or paid cannot be directly and entirely 7 P1,562,085. June 2005 Septemb 2005
attributed to any one of the transactions, it shall be allocated proportionately on 33 2003 er
the basis of the volume of sales.?r?l?? 2005

xxx 731 3rd and 4th 30 30 13 April 2005 12 9

7 Quarters, Septe Septemb Septemb Septemb
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In
P3,521,129. mber er er er
proper cases, the Commissioner shall grant a refund or issue the tax credit
50 2003 2005 2005 2005
certificate for creditable input taxes within one hundred twenty (120) days from the
date of submission of complete documents in support of the application filed in
accordance with Subsections (A) and (B) hereof. 31 2 January
Dece 2006
In case of full or partial denial of the claim for tax refund or tax credit, or the failure mber (31
on the part of the Commissioner to act on the application within the period 2003 Decembe
prescribed above, the taxpayer affected may, within thirty (30) days from the r
receipt of the decision denying the claim or after the expiration of the one hundred 2005
twenty day-period, appeal the decision or the unacted claim with the Court of Tax being
Appeals.
 a When Mindanao II and Mindanao I filed their respective administrative and judicial
Saturday) claims in 2005, neither Atlas nor Mirant has been promulgated. Atlas was
promulgated on 8 June 2007, while Mirant was promulgated on 12 September
2008. It is therefore misleading to state that Atlas was the controlling doctrine at
the time of filing of the claims. The 1997 Tax Code, which took effect on 1 January
The relevant dates for G.R. No. 194637 (Minadanao I) are:cralawlibrary
1998, was the applicable law at the time of filing of the claims in issue. As this Court
explained in the recent consolidated cases of Commissioner of Internal Revenue v.
CTA Period Close of Last day Actual date of Last day Actual Date San Roque Power Corporation, Taganito Mining Corporation v. Commissioner of
Case covered quarter for filing filing for of filing case Internal Revenue, and Philex Mining Corporation v. Commissioner of Internal
No. by when sales application application for filing with CTA Revenue (San Roque):48?r?l1
VAT were of tax tax refund/ case (judicial
Sales in made refund/tax credit with the with claim) Clearly, San Roque failed to comply with the 120-day waiting period, the time
2003 credit CIR CTA47 expressly given by law to the Commissioner to decide whether to grant or deny San
and certificate (administrative Roques application for tax refund or credit. It is indisputable that compliance with
the 120-day waiting period is mandatory and jurisdictional. The waiting period,
amount with the claim)46
originally fixed at 60 days only, was part of the provisions of the first VAT law,
CIR
Executive Order No. 273, which took effect on 1 January 1988. The waiting period
was extended to 120 days effective 1 January 1998 under RA 8424 or the Tax
7227 1st 31 March 31 March 4 April 2005 1 22 April 2005 Reform Act of 1997. Thus, the waiting period has been in our statute books for
Quarter, 2003 2005 Septem more than fifteen (15) years before San Roque filed its judicial claim.
P3,893, ber
566.14 2005 Failure to comply with the 120-day waiting period violates a mandatory provision of
law. It violates the doctrine of exhaustion of administrative remedies and renders
7287 2nd 30 June 30 June 4 April 2005 1 7 July 2005 the petition premature and thus without a cause of action, with the effect that the
Quarter, 2003 2005 Septem CTA does not acquire jurisdiction over the taxpayers petition. Philippine
jurisprudence is replete with cases upholding and reiterating these doctrinal
P2,351, ber
principles.
000.83 2005
The charter of the CTA expressly provides that its jurisdiction is to review on appeal
7317 3rd 30 30 4 April 2005 1 9 September "decisions of the Commissioner of Internal Revenue in cases involving x x x refunds
and 4th September September Septem 2005 of internal revenue taxes." When a taxpayer prematurely files a judicial claim for tax
Quarter 2003 2005 ber refund or credit with the CTA without waiting for the decision of the Commissioner,
s, 2005 there is no "decision" of the Commissioner to review and thus the CTA as a court of
P7,940, 31 2 January special jurisdiction has no jurisdiction over the appeal. The charter of the CTA also
727.83 December 2006 expressly provides that if the Commissioner fails to decide within "a specific period"
required by law, such "inaction shall be deemed a denial" of the application for tax
2003 (31
refund or credit. It is the Commissioners decision, or inaction "deemed a denial,"
December
that the taxpayer can take to the CTA for review. Without a decision or an "inaction
2005 being
x x x deemed a denial" of the Commissioner, the CTA has no jurisdiction over a
a Saturday) petition for review.

San Roques failure to comply with the 120-day mandatory period renders its
petition for review with the CTA void. Article 5 of the Civil Code provides, "Acts
executed against provisions of mandatory or prohibitory laws shall be void, except
when the law itself authorizes their validity." San Roques void petition for review
cannot be legitimized by the CTA or this Court because Article 5 of the Civil Code
states that such void petition cannot be legitimized "except when the law itself
authorizes its validity." There is no law authorizing the petitions validity.
It is hornbook doctrine that a person committing a void act contrary to a mandatory
provision of law cannot claim or acquire any right from his void act. A right cannot
spring in favor of a person from his own void or illegal act. This doctrine is repeated
in Article 2254 of the Civil Code, which states, "No vested or acquired right can arise
from acts or omissions which are against the law or which infringe upon the rights
of others." For violating a mandatory provision of law in filing its petition with the
CTA, San Roque cannot claim any right arising from such void petition. Thus, San
Roques petition with the CTA is a mere scrap of paper.
This Court cannot brush aside the grave issue of the mandatory and jurisdictional
nature of the 120-day period just because the Commissioner merely asserts that the
case was prematurely filed with the CTA and does not question the entitlement of
San Roque to the refund. The mere fact that a taxpayer has undisputed excess input
VAT, or that the tax was admittedly illegally, erroneously or excessively collected
from him, does not entitle him as a matter of right to a tax refund or credit. Strict
compliance with the mandatory and jurisdictional conditions prescribed by law to
claim such tax refund or credit is essential and necessary for such claim to prosper.
Well-settled is the rule that tax refunds or credits, just like tax exemptions, are
strictly construed against the taxpayer.
The burden is on the taxpayer to show that he has strictly complied with the
conditions for the grant of the tax refund or credit.
This Court cannot disregard mandatory and jurisdictional conditions mandated by
law simply because the Commissioner chose not to contest the numerical
correctness of the claim for tax refund or credit of the taxpayer. Non-compliance
with mandatory periods, non-observance of prescriptive periods, and non-
adherence to exhaustion of administrative remedies bar a taxpayers claim for tax
refund or credit, whether or not the Commissioner questions the numerical
correctness of the claim of the taxpayer. This Court should not establish the
precedent that non-compliance with mandatory and jurisdictional conditions can be
excused if the claim is otherwise meritorious, particularly in claims for tax refunds
or credit. Such precedent will render meaningless compliance with mandatory and
jurisdictional requirements, for then every tax refund case will have to be decided
on the numerical correctness of the amounts claimed, regardless of non-compliance
with mandatory and jurisdictional conditions.
San Roque cannot also claim being misled, misguided or confused by the Atlas
doctrine because San Roque filed its petition for review with the CTA more than
four years before Atlas was promulgated. The Atlas doctrine did not exist at the
time San Roque failed to comply with the 120-day period. Thus, San Roque cannot
invoke the Atlas doctrine as an excuse for its failure to wait for the 120-day period
to lapse. In any event, the Atlas doctrine merely stated that the two-year
prescriptive period should be counted from the date of payment of the output VAT,
not from the close of the taxable quarter when the sales involving the input VAT
were made. The Atlas doctrine does not interpret, expressly or impliedly, the
120+30 day periods.49 (Emphases in the original; citations omitted)
Prescriptive Period for
the Filing of Administrative Claims
In determining whether the administrative claims of Mindanao I and Mindanao II
for 2003 have prescribed, we see no need to rely on either Atlas or Mirant. Section
112(A) of the 1997 Tax Code is clear: "Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the
taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales x x
x."???ñr?bl?š ??r†??l l?? l?br?rÿ
We rule on Mindanao I and IIs administrative claims for the first, second, third, and
fourth quarters of 2003 as follows:cralawlibrary
(1) The last day for filing an application for tax refund or credit with the CIR for the
first quarter of 2003 was on 31 March 2005. Mindanao II filed its administrative
claim before the CIR on 13 April 2005, while Mindanao I filed its administrative
claim before the CIR on 4 April 2005. Both claims have prescribed, pursuant to
Section 112(A) of the 1997 Tax Code.
(2) The last day for filing an application for tax refund or credit with the CIR for the
second quarter of 2003 was on 30 June 2005. Mindanao II filed its administrative
claim before the CIR on 13 April 2005, while Mindanao I filed its administrative
claim before the CIR on 4 April 2005. Both claims were filed on time, pursuant to
Section 112(A) of the 1997 Tax Code.
(3) The last day for filing an application for tax refund or credit with the CIR for the
third quarter of 2003 was on 30 September 2005. Mindanao II filed its
administrative claim before the CIR on 13 April 2005, while Mindanao I filed its
administrative claim before the CIR on 4 April 2005. Both claims were filed on time,
pursuant to Section 112(A) of the 1997 Tax Code.
(4) The last day for filing an application for tax refund or credit with the CIR for the
fourth quarter of 2003 was on 2 January 2006. Mindanao II filed its administrative
claim before the CIR on 13 April 2005, while Mindanao I filed its administrative
claim before the CIR on 4 April 2005. Both claims were filed on time, pursuant to
Section 112(A) of the 1997 Tax Code. ???ñr?bl?š ??r†??l l?? l?br?rÿ
Prescriptive Period for
the Filing of Judicial Claims
In determining whether the claims for the second, third and fourth quarters of 2003
have been properly appealed, we still see no need to refer to either Atlas or Mirant,
or even to Section 229 of the 1997 Tax Code. The second paragraph of Section
112(C) of the 1997 Tax Code is clear: "In case of full or partial denial of the claim for
tax refund or tax credit, or the failure on the part of the Commissioner to act on the
application within the period prescribed above, the taxpayer affected may, within
thirty (30) days from the receipt of the decision denying the claim or after the
expiration of the one hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals."???ñr?bl?š ??r†??l l?? l?br?rÿ
The mandatory and jurisdictional nature of the 120+30 day periods was explained in
San Roque:cralawlibrary
At the time San Roque filed its petition for review with the CTA, the 120+30 day
mandatory periods were already in the law. Section 112(C) expressly grants the
Commissioner 120 days within which to decide the taxpayers claim. The law is clear,
plain, and unequivocal: "x x x the Commissioner shall grant a refund or issue the tax
credit certificate for creditable input taxes within one hundred twenty (120) days
from the date of submission of complete documents." Following the verba legis
doctrine, this law must be applied exactly as worded since it is clear, plain, and
unequivocal. The taxpayer cannot simply file a petition with the CTA without
waiting for the Commissioners decision within the 120-day mandatory and
jurisdictional period. The CTA will have no jurisdiction because there will be no
"decision" or "deemed a denial" decision of the Commissioner for the CTA to
review. In San Roques case, it filed its petition with the CTA a mere 13 days after it
filed its administrative claim with the Commissioner. Indisputably, San Roque
knowingly violated the mandatory 120-day period, and it cannot blame anyone but
itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the
CTA the decision or inaction of the Commissioner, thus:cralawlibrary
x x x the taxpayer affected may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration of the one hundred twenty day-
period, appeal the decision or the unacted claim with the Court of Tax Appeals.
(Emphasis supplied)
This law is clear, plain, and unequivocal. Following the well-settled verba legis
doctrine, this law should be applied exactly as worded since it is clear, plain, and
unequivocal. As this law states, the taxpayer may, if he wishes, appeal the decision
of the Commissioner to the CTA within 30 days from receipt of the Commissioners
decision, or if the Commissioner does not act on the taxpayers claim within the 120-
day period, the taxpayer may appeal to the CTA within 30 days from the expiration
of the 120-day period.
xxx
There are three compelling reasons why the 30-day period need not necessarily fall
within the two-year prescriptive period, as long as the administrative claim is filed
within the two-year prescriptive period.
First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer
"may, within two (2) years after the close of the taxable quarter when the sales
were made, apply for the issuance of a tax credit certificate or refund of the
creditable input tax due or paid to such sales." In short, the law states that the
taxpayer may apply with the Commissioner for a refund or credit "within two (2)
years," which means at anytime within two years. Thus, the application for refund
or credit may be filed by the taxpayer with the Commissioner on the last day of the
two-year prescriptive period and it will still strictly comply with the law. The two-
year prescriptive period is a grace period in favor of the taxpayer and he can avail of
the full period before his right to apply for a tax refund or credit is barred by
prescription.
Second, Section 112(C) provides that the Commissioner shall decide the application
for refund or credit "within one hundred twenty (120) days from the date of
submission of complete documents in support of the application filed in accordance
with Subsection (A)." The reference in Section 112(C) of the submission of
documents "in support of the application filed in accordance with Subsection A"
means that the application in Section 112(A) is the administrative claim that the
Commissioner must decide within the 120-day period. In short, the two-year
prescriptive period in Section 112(A) refers to the period within which the taxpayer
can file an administrative claim for tax refund or credit. Stated otherwise, the two-
year prescriptive period does not refer to the filing of the judicial claim with the CTA
but to the filing of the administrative claim with the Commissioner. As held in Aichi,
the "phrase within two years x x x apply for the issuance of a tax credit or refund
refers to applications for refund/credit with the CIR and not to appeals made to the
CTA."???ñr?bl?š ??r†??l l?? l?br?rÿ
Third, if the 30-day period, or any part of it, is required to fall within the two-year
prescriptive period (equivalent to 730 days), then the taxpayer must file his
administrative claim for refund or credit within the first 610 days of the two-year
prescriptive period. Otherwise, the filing of the administrative claim beyond the first
610 days will result in the appeal to the CTA being filed beyond the two-year
prescriptive period. Thus, if the taxpayer files his administrative claim on the 611th
day, the Commissioner, with his 120-day period, will have until the 731st day to
decide the claim. If the Commissioner decides only on the 731st day, or does not
decide at all, the taxpayer can no longer file his judicial claim with the CTA because
the two-year prescriptive period (equivalent to 730 days) has lapsed. The 30-day
period granted by law to the taxpayer to file an appeal before the CTA becomes
utterly useless, even if the taxpayer complied with the law by filing his
administrative claim within the two-year prescriptive period.
The theory that the 30-day period must fall within the two-year prescriptive period
adds a condition that is not found in the law. It results in truncating 120 days from
the 730 days that the law grants the taxpayer for filing his administrative claim with
the Commissioner. This Court cannot interpret a law to defeat, wholly or even
partly, a remedy that the law expressly grants in clear, plain, and unequivocal
language.
Section 112(A) and (C) must be interpreted according to its clear, plain, and
unequivocal language. The taxpayer can file his administrative claim for refund or
credit at anytime within the two-year prescriptive period. If he files his claim on the
last day of the two-year prescriptive period, his claim is still filed on time. The
Commissioner will have 120 days from such filing to decide the claim. If the
Commissioner decides the claim on the 120th day, or does not decide it on that day,
the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only
the plain meaning but also the only logical interpretation of Section 112(A) and
(C).50 (Emphases in the original; citations omitted)
In San Roque, this Court ruled that "all taxpayers can rely on BIR Ruling No. DA-489-
03 from the time of its issuance on 10 December 2003 up to its reversal in Aichi on
6 October 2010, where this Court held that the 120+30 day periods are mandatory
and jurisdictional."51 We shall discuss later the effect of San Roques recognition of
BIR Ruling No. DA-489-03 on claims filed between 10 December 2003 and 6 October
2010. Mindanao I and II filed their claims within this period.
We rule on Mindanao I and IIs judicial claims for the second, third, and fourth
quarters of 2003 as follows:cralawlibrary
G.R. No. 193301
Mindanao II v. CIR
Mindanao II filed its administrative claims for the second, third, and fourth quarters
of 2003 on 13 April 2005. Counting 120 days after filing of the administrative claim
with the CIR (11 August 2005) and 30 days after the CIRs denial by inaction, the last
day for filing a judicial claim with the CTA for the second, third, and fourth quarters
of 2003 was on 12 September 2005. However, the judicial claim cannot be filed
earlier than 11 August 2005, which is the expiration of the 120-day period for the
Commissioner to act on the claim.
(1) Mindanao II filed its judicial claim for the second quarter of 2003 before the CTA
on 7 July 2005, before the expiration of the 120-day period. Pursuant to Section
112(C) of the 1997 Tax Code, Mindanao IIs judicial claim for the second quarter of
2003 was prematurely filed.
However, pursuant to San Roques recognition of the effect of BIR Ruling No. DA-
489-03, we rule that Mindanao IIs judicial claim for the second quarter of 2003
qualifies under the exception to the strict application of the 120+30 day periods.
(2) Mindanao II filed its judicial claim for the third quarter of 2003 before the CTA
on 9 September 2005. Mindanao IIs judicial claim for the third quarter of 2003 was
thus filed on time, pursuant to Section 112(C) of the 1997 Tax Code.
(3) Mindanao II filed its judicial claim for the fourth quarter of 2003 before the CTA
on 9 September 2005. Mindanao IIs judicial claim for the fourth quarter of 2003 was
thus filed on time, pursuant to Section 112(C) of the 1997 Tax
Code. ???ñr?bl?š ??r†??l l?? l?br?rÿ
G.R. No. 194637
Mindanao I v. CIR
Mindanao I filed its administrative claims for the second, third, and fourth quarters
of 2003 on 4 April 2005. Counting 120 days after filing of the administrative claim
with the CIR (2 August 2005) and 30 days after the CIRs denial by inaction, 52 the last
day for filing a judicial claim with the CTA for the second, third, and fourth quarters
of 2003 was on 1 September 2005. However, the judicial claim cannot be filed
earlier than 2 August 2005, which is the expiration of the 120-day period for the
Commissioner to act on the claim.
(1) Mindanao I filed its judicial claim for the second quarter of 2003 before the CTA
on 7 July 2005, before the expiration of the 120-day period. Pursuant to Section
112(C) of the 1997 Tax Code, Mindanao Is judicial claim for the second quarter of
2003 was prematurely filed. However, pursuant to San Roques recognition of the
effect of BIR Ruling No. DA-489-03, we rule that Mindanao Is judicial claim for the
second quarter of 2003 qualifies under the exception to the strict application of the
120+30 day periods.
(2) Mindanao I filed its judicial claim for the third quarter of 2003 before the CTA on
9 September 2005. Mindanao Is judicial claim for the third quarter of 2003 was thus
filed after the prescriptive period, pursuant to Section 112(C) of the 1997 Tax Code.
(3) Mindanao I filed its judicial claim for the fourth quarter of 2003 before the CTA
on 9 September 2005. Mindanao Is judicial claim for the fourth quarter of 2003 was
thus filed after the prescriptive period, pursuant to Section 112(C) of the 1997 Tax
Code. ???ñr?bl?š ??r†??l l?? l?br?rÿ
San Roque: Recognition of BIR Ruling No. DA-489-03
In the consolidated cases of San Roque, the Court En Banc53 examined and ruled on
the different claims for tax refund or credit of three different companies. In San
Roque, we reiterated that "following the verba legis doctrine, Section 112(C) must
be applied exactly as worded since it is clear, plain, and unequivocal. The taxpayer
cannot simply file a petition with the CTA without waiting for the Commissioners
decision within the 120-day mandatory and jurisdictional period. The CTA will have
no jurisdiction because there will be no decision or deemed a denial decision of the
Commissioner for the CTA to review."???ñr?bl?š ??r†??l l?? l?br?rÿ
Notwithstanding a strict construction of any claim for tax exemption or refund, the
Court in San Roque recognized that BIR Ruling No. DA-489-03 constitutes equitable
estoppel54 in favor of taxpayers. BIR Ruling No. DA-489-03 expressly states that the
"taxpayer-claimant need not wait for the lapse of the 120-day period before it could
seek judicial relief with the CTA by way of Petition for Review." This Court discussed
BIR Ruling No. DA-489-03 and its effect on taxpayers, thus:cralawlibrary
Taxpayers should not be prejudiced by an erroneous interpretation by the
Commissioner, particularly on a difficult question of law. The abandonment of the
Atlas doctrine by Mirant and Aichi is proof that the reckoning of the prescriptive
periods for input VAT tax refund or credit is a difficult question of law. The
abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers
similarly situated, being made to return the tax refund or credit they received or
could have received under Atlas prior to its abandonment. This Court is applying
Mirant and Aichi prospectively. Absent fraud, bad faith or misrepresentation, the
reversal by this Court of a general interpretative rule issued by the Commissioner,
like the reversal of a specific BIR ruling under Section 246, should also apply
prospectively. x x x.
xxx
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative
rule applicable to all taxpayers or a specific ruling applicable only to a particular
taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response
to a query made, not by a particular taxpayer, but by a government agency tasked
with processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax
Credit and Drawback Center of the Department of Finance. This government agency
is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus,
while this government agency mentions in its query to the Commissioner the
administrative claim of Lazi Bay Resources Development, Inc., the agency was in
fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay
Resources Development, Inc., where the taxpayer did not wait for the lapse of the
120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers
can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December
2003 up to its reversal by this Court in Aichi on 6 October 2010, where this Court
held that the 120+30 day periods are mandatory and jurisdictional.
xxx
Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after
the issuance of BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can
claim that in filing its judicial claim prematurely without waiting for the 120-day
period to expire, it was misled by BIR Ruling No. DA-489-03. Thus, Taganito can
claim the benefit of BIR Ruling No. DA-489-03, which shields the filing of its judicial
claim from the vice of prematurity. (Emphasis in the original)
Summary of Administrative and Judicial Claims
G.R. No. 193301
Mindanao II v. CIR
Administrative Judicial Claim Action on Claim
Claim
1st Filed late -- Deny, pursuant to
Quarter, Section 112(A) of the
2003 1997 Tax Code
 2nd Filed on time Prematurely Grant, pursuant to We summarize the rules on the determination of the prescriptive period for filing a
Quarter, filed BIR Ruling No. DA-489-03 tax refund or credit of unutilized input VAT as provided in Section 112 of the 1997
Tax Code, as follows:cralawlibrary
2003

(1) An administrative claim must be filed with the CIR within two years after the
3rd Filed on time Filed on time Grant, pursuant to close of the taxable quarter when the zero-rated or effectively zero-rated sales
Quarter, Section 112(C) of the were made.
2003 1997 Tax Code
(2) The CIR has 120 days from the date of submission of complete documents in
4th Filed on time Filed on time Grant, pursuant to support of the administrative claim within which to decide whether to grant a
Quarter, Section 112(C) of the refund or issue a tax credit certificate. The 120-day period may extend beyond the
2003 1997 Tax Code two-year period from the filing of the administrative claim if the claim is filed in the
later part of the two-year period. If the 120-day period expires without any decision
from the CIR, then the administrative claim may be considered to be denied by
G.R. No. 194637 inaction.
Mindanao I v. CIR
(3) A judicial claim must be filed with the CTA within 30 days from the receipt of the
CIRs decision denying the administrative claim or from the expiration of the 120-day
Administrative Judicial Claim Action on Claim period without any action from the CIR.
Claim
(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its
1st Filed late -- Deny, pursuant to issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October
Quarter, Section 112(A) of the 2010, as an exception to the mandatory and jurisdictional 120+30 day
2003 1997 Tax Code periods. ???ñr?bl?š ??r†??l l?? l?br?rÿ

2nd Filed on time Prematurely Grant, pursuant to "Incidental" Transaction

Quarter, filed BIR Ruling No. DA-489-03
2003 Mindanao II asserts that the sale of a fully depreciated Nissan Patrol is not an
incidental transaction in the course of its business; hence, it is an isolated
transaction that should not have been subject to 10% VAT.
3rd Filed on time Filed late Grant, pursuant to
Quarter, Section 112(C) of the Section 105 of the 1997 Tax Code does not support Mindanao IIs
2003 1997 Tax Code position:cralawlibrary

4th Filed on time Filed late Grant, pursuant to SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells
Quarter, Section 112(C) of the barters, exchanges, leases goods or properties, renders services, and any person
2003 1997 Tax Code who imports goods shall be subject to the value-added tax (VAT) imposed in
Sections 106 to 108 of this Code.

Summary of Rules on Prescriptive Periods Involving VAT The value-added tax is an indirect tax and the amount of tax may be shifted or
passed on to the buyer, transferee or lessee of the goods, properties or services.
This rule shall likewise apply to existing contracts of sale or lease of goods,
properties or services at the time of the effectivity of Republic Act No. 7716.
The phrase "in the course of trade or business" means the regular conduct or
pursuit of a commercial or an economic activity, including transactions incidental
thereto, by any person regardless of whether or not the person engaged therein is a
nonstock, nonprofit private organization (irrespective of the disposition of its net
income and whether or not it sells exclusively to members or their guests), or
government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this
Code rendered in the Philippines by nonresident foreign persons shall be
considered as being rendered in the course of trade or business. (Emphasis
supplied)
Mindanao II relies on Commissioner of Internal Revenue v. Magsaysay Lines, Inc.
(Magsaysay)55 and Imperial v. Collector of Internal Revenue (Imperial)56 to justify its
position. Magsaysay, decided under the NIRC of 1986, involved the sale of vessels of
the National Development Company (NDC) to Magsaysay Lines, Inc. We ruled that
the sale of vessels was not in the course of NDCs trade or business as it was
involuntary and made pursuant to the Governments policy for privatization.
Magsaysay, in quoting from the CTAs decision, imputed upon Imperial the definition
of "carrying on business." Imperial, however, is an unreported case that merely
stated that "to engage is to embark in a business or to employ oneself
therein."57?r?l1
Mindanao IIs sale of the Nissan Patrol is said to be an isolated transaction. However,
it does not follow that an isolated transaction cannot be an incidental transaction
for purposes of VAT liability. Indeed, a reading of Section 105 of the 1997 Tax Code
would show that a transaction "in the course of trade or business" includes
"transactions incidental thereto."???ñr?bl?š ??r†??l l?? l?br?rÿ
Mindanao IIs business is to convert the steam supplied to it by PNOC-EDC into
electricity and to deliver the electricity to NPC. In the course of its business,
Mindanao II bought and eventually sold a Nissan Patrol. Prior to the sale, the Nissan
Patrol was part of Mindanao IIs property, plant, and equipment. Therefore, the sale
of the Nissan Patrol is an incidental transaction made in the course of Mindanao IIs
business which should be liable for VAT.
Substantiation Requirements
Mindanao II claims that the CTAs disallowance of a total amount of P492,198.09 is
improper as it has substantially complied with the substantiation requirements of
Section 113(A)58 in relation to Section 23759of the 1997 Tax Code, as implemented
by Section 4.104-1, 4.104-5 and 4.108-1 of Revenue Regulation No. 7-95.60?r?l1
We are constrained to state that Mindanao IIs compliance with the substantiation
requirements is a finding of fact. The CTA En Banc evaluated the records of the case
and found that the transactions in question are purchases for services and that
Mindanao II failed to comply with the substantiation requirements. We affirm the
CTA En Bancs finding of fact, which in turn affirmed the finding of the CTA First
Division. We see no reason to overturn their findings.
WHEREFORE, we PARTIALLY GRANT the petitions. The Decision of the Court of Tax
Appeals En Bane in CT A EB No. 513 promulgated on 10 March 2010, as well as the
Resolution promulgated on 28 July 2010, and the Decision of the Court of Tax
Appeals En Bane in CTA EB Nos. 476 and 483 promulgated on 31 May 2010, as well
as the Amended Decision promulgated on 24 November 2010, are AFFIRMED with
MODIFICATION.
For G.R. No. 193301, the claim of Mindanao II Geothermal Partnership for the first
quarter of 2003 is DENIED while its claims for the second, third, and fourth quarters
of 2003 are GRANTED. For G.R. No. 19463 7, the claims of Mindanao I Geothermal
Partnership for the first, third, and fourth quarters of 2003 are DENIED while its
claim for the second quarter of 2003 is GRANTED.
SO ORDERED.
SECOND DIVISION
December 10, 2014
G.R. No. 208293
PHILIPPINE NATIONAL BANK, Petitioner
vs.
CARMELITA S. SANTOS, REYME L. SANTOS, ANGEL L. SANTOS, NONENG S.
DIANCO, ET AL., Respondent
x-----------------------x
G.R. No. 208295
LINA B. AGUILAR, Petitioner
vs.
CARMELITA S. SANTOS, REYME L. SANTOS, ANGEL L. SANTOS, BUENVENIDO L.
SANTOS, ET AL.,Respondents.
DECISION
LEONEN, J.:
The standard of diligence required of banks is higher than the degree of diligence of
a good father of a family. Respondents are children of Angel C. Santos who died on
March 21, 1991.1
Sometime in May 1996, respondents discovered that their father maintained a
premium savings account with Philippine National Bank (PNB), Sta. Elena-Marikina
City Branch.2 As of July 14, 1996, the deposit amounted to 1,759,082.63.3 Later,
respondents would discover that their father also had a time deposit of
1,000,000.00 with PNB.4
Respondents went to PNB to withdraw their father’s deposit.5
Lina B. Aguilar, the Branch Manager of PNB-Sta. Elena-Marikina City Branch,
required them to submit the following: "(1) original or certified true copy of the
Death Certificate of Angel C. Santos; (2) certificate of payment of, or exemption
from, estate tax issued by the Bureau of Internal Revenue (BIR); (3) Deed of
Extrajudicial Settlement; (4) Publisher’s Affidavit of publication of the Deed of
Extrajudicial Settlement; and (5) Surety bond effective for two (2) years and in an
amount equal to the balance of the deposit to be withdrawn." 6
By April 26, 1998, respondents had already obtained the necessary
documents.7 They tried to withdraw the deposit.8 However, Aguilar informed them
that the deposit had already "been released to a certain Bernardito Manimbo
(Manimbo) on April 1, 1997."9 An amount of 1,882,002.05 was released upon
presentation of: (a) an affidavit of selfadjudication purportedly executed by one of
the respondents, Reyme L. Santos; (b) a certificate of time deposit dated December
14, 1989 amounting to 1,000,000.00; and (c) the death certificate of Angel C.
Santos, among others.10 A special power of attorney was purportedly executed by
Reyme L. Santos in favor of Manimbo and a certain Angel P. Santos for purposes of
withdrawing and receiving the proceeds of the certificate of time deposit. 11
On May 20, 1998, respondents filed before the Regional Trial Court of Marikina City
a complaint for sum of money and damages against PNB, Lina B. Aguilar, and a John
Doe.12 Respondents questioned the release of the deposit amount to Manimbo who
had no authority from them to withdraw their father’s deposit and who failed to
present to PNB all the requirements for such withdrawal.13 Respondents prayed
that they be paid: (a) the premium deposit amount; (b) the certificate of time
deposit amount; and (c) moral and exemplary damages, attorney’s fees, and costs
of suit.14
PNB and Aguilar denied that Angel C. Santos had two separate accounts (premium
deposit account and time deposit account) with PNB.15 They alleged that Angel C.
Santos’ deposit account was originally a time deposit account that was
subsequently converted into a premium savings account.16 They also alleged that
Aguilar did not know about Angel C. Santos’ death in 1991 because she only
assumed office in 1996.17 Manimbo was able to submit an affidavit of self-
adjudication and the required surety bond.18 He also submitted a certificate of
payment of estate tax dated March 31, 1997. 19 All documents he submitted
appeared to be regular.20
PNB and Aguilar filed a third-party complaint against Manimbo, Angel P. Santos, and
Capital Insurance and Surety Co., Inc.21
Angel P. Santos denied having anything to do with the special power of attorney
and affidavit of self-adjudication presented by Manimbo.22 He also alleged that
Manimbo presented the certificate of time deposit without his knowledge and
consent.23
Capital Insurance and Surety Co., Inc. alleged that its undertaking was to pay claims
only when persons who were unduly deprived of their lawful participation in the
estate filed an action in court for their claims. 24 It did not undertake to pay claims
resulting from PNB’s negligence.25
In the decision26 dated February 22, 2011, the trial court held that PNB and Aguilar
were jointly and severally liable to pay respondents the amount of 1,882,002.05
with an interest rate of 6% starting May 20, 1998.27 PNB and Aguilar were also
declared jointly and severally liable for moral and exemplary damages, attorney’s
fees, and costs of suit.28Manimbo, Angel P. Santos, and Capital Insurance and Surety
Co., Inc. were held jointly and severally liable to pay PNB 1,877,438.83 pursuant to
the heir’s bond and 50,000.00 as attorney’s fees and the costs of suit. 29 The
dispositive portion of the trial court’s decision reads:
WHEREFORE, foregoing premises considered, judgment is hereby rendered as
follows:
1. ordering the defendants PNB and LINA B. AGUILAR jointly and severally liable to
pay the plaintiffs the amount of P1,882,002.05, representing the face value of PNB
Manager’s Check No. AF-974686B as balance of the total deposits of decedent
Angel C. Santos at the time of its issue, with interest thereon at the rate of 6%
starting on May 20, 1998, the date when the complaint was filed, until fully paid;
2. ordering both defendants jointly and severally liable to pay plaintiffs the amount
of Php 100,000.00 as moral damages, another Php100,000.00 as exemplary
damages and Php 50,000.00 as attorney’s fees and the costs of suit;
On the Third party complaint:
3. Ordering the third party defendants Bernardito P. Manimbo, Angel P. Santos and
Capital Insurance & Surety Co., Inc., jointly and severally liable to pay third party
plaintiff PNB, the amount of Php 1,877,438.83 pursuant to the Heir’s Bond and the
amount of Php 50,000.00 as attorney’s fees and the costs of suit.
SO ORDERED.30
The trial court found that Angel C. Santos had only one account with PNB. 31 The
account was originally a time deposit, which was converted into a premium savings
account when it was not renewed on maturity.32 The trial court took judicial notice
that in 1989, automatic rollover of time deposit was not yet prevailing. 33
On the liability of PNB and Aguilar, the trial court held that they were both negligent
in releasing the deposit to Manimbo.34 The trial court noted PNB’s failure to notify
the depositor about the maturity of the time deposit and the conversion of the time
deposit into a premium savings account.35 The trial court also noted PNB’s failure to
cancel the certificate of time deposit despite conversion. 36 PNB and Aguilar also
failed to require the production of birth certificates to prove claimants’ relationship
to the depositor.37 Further, they relied on the affidavit of self-adjudication when
several persons claiming to be heirs had already approached them previously.38
Aguilar filed a motion for reconsideration39 of the February 22, 2011 Regional Trial
Court decision. This was denied in the June 21, 2011 Regional Trial Court order. 40
PNB and Aguilar appealed before the Court of Appeals.41
Aguilar contended that she was not negligent and should not have been made
jointly and severally liable with PNB.42 She merely implemented PNB’s Legal
Department’s directive to release the deposit to Manimbo. 43
PNB argued that it was not negligent.44 The release of the deposit to Manimbo was
pursuant to an existing policy.45Moreover, the documents submitted by Manimbo
were more substantial than those submitted by respondents.46Respondents could
have avoided the incident "had they accomplished the required documents
immediately."47
In the decision48 promulgated on July 25, 2013, the Court of Appeals sustained the
trial court’s finding that there was only one account.49 Angel C. Santos could not
have possibly opened the premium savings account in 1994 since he already died in
1991.50 The Court of Appeals also held that PNB and Aguilar were negligent in
handling the deposit.51 The deposit amount was released to Manimbo who did not
present all the requirements, particularly the Bureau of Internal Revenue (BIR)
certification that estate taxes had already been paid.52 They should also not have
honored the
affidavit of self-adjudication.53
The Court of Appeals ruled that Aguilar could not escape liability by pointing her
finger at PNB’s Legal Department.54As the Bank Manager, she should have given the
Legal Department all the necessary information that must be known in order to
protect both the depositors’ and the bank’s interests.55
The Court of Appeals removed the award of exemplary damages, upon finding that
there was no malice or bad faith.56
The Court of Appeals considered the deposit as an ordinary loan by the bank from
Angel C. Santos or his heirs.57Therefore, the deposit was a forbearance which
should earn an interest of 12% per annum.58 The dispositive portion of the Court of
Appeals’ decision reads:
WHEREFORE, premises considered, the assailed decision of the court a quo dated
February 22, 2011 is AFFIRMED with the MODIFICATIONS in that the rate of
interest shall be twelve percent (12%) per annum computed from the filing of the
case until fully satisfied. The interest due shall further earn an interest of 12% per
annum to be computed from the date of the filing of the complaint until fully paid.
Meanwhile, the award of exemplary damages is DELETED.
SO ORDERED.59
PNB and Aguilar filed their separate petitions for review of the Court of Appeals’
July 25, 2013 decision.60
We resolve the following issues:
I. Whether Philippine National Bank was negligent in releasing the deposit to
Bernardito Manimbo;
II. Whether Lina B. Aguilar is jointly and severally liable with Philippine National
Bank for the release of the deposit to Bernardito Manimbo; and
III. Whether respondents were properly awarded damages.
Petitioner Aguilar argued that the Court of Appeals had already found no malice or
bad faith on her part.61 Moreover, as a mere officer of the bank, she cannot be
made personally liable for acts that she was authorized to do.62 These acts were
mere directives to her by her superiors.63 Hence, she should not be held solidarily
liable with PNB.64
Petitioner PNB argued that it was the presumptuousness and cavalier attitude of
respondents that gave rise to the controversy and not its judgment
call.65 Respondents were lacking in sufficient documentation.66 Petitioner PNB also
argued that respondents failed to show any justification for the award of moral
damages.67 No bad faith can be attributed to Aguilar.68
In their separate comments to the petitions, respondents argued that the trial court
and the Court of Appeals did not err in finding that petitioners PNB and Aguilar
were negligent in handling their father’s deposit.69 The acceptance of invalid and
incomplete documents to support the deposit’s release to Manimbo was a violation
of the bank’s fiduciary duty to its clients.70 These acts constituted gross negligence
on the part of petitioners PNB and Aguilar.71
However, according to respondents, the Court of Appeals erred in deleting the
award for exemplary damages because the acts in violation of the bank’s fiduciary
were done in bad faith.72
We rule for the respondents.
The trial court and the Court of Appeals correctly found that petitioners PNB and
Aguilar were negligent in handling the deposit of Angel C. Santos.
The contractual relationship between banks and their depositors is governed by the
Civil Code provisions on simple loan.73 Once a person makes a deposit of his or her
money to the bank, he or she is considered to have lent the bank that money. 74 The
bank becomes his or her debtor, and he or she becomes the creditor of the bank,
which is obligated to pay him or her on demand.75
The default standard of diligence in the performance of obligations is "diligence of a
good father of a family." Thus, the Civil Code provides:
ART. 1163. Every person obliged to give something is also obliged to take care of it
with the proper diligence of a good father of a family, unless the law or the
stipulation of the parties requires another standard of care.
....
ART. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. When negligence shows
bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required.
(Emphasis supplied)
"Diligence of a good father of a family" is the standard of diligence expected of,
among others,
usufructuaries,76 passengers of common
carriers,77 agents,78 depositaries,79 pledgees,80 officious managers,81 and persons
deemed by law as responsible for the acts of others.82 "The diligence of a good
father of a family requires only that diligence which an ordinary prudent man would
exercise with regard to his own property.83
Other industries, because of their nature, are bound by law to observe higher
standards of diligence. Common carriers, for example, must observe "extraordinary
diligence in the vigilance over the goods and for the safety of [their]
passengers"84 because it is considered a business affected with public interest.
"Extraordinary diligence" with respect to passenger safety is further qualified as
"carry[ing] the passengers safely as far as human care and foresight can provide,
using the utmost diligence of very cautious persons, with a due regard for all the
circumstances."85
Similar to common carriers, banking is a business that is impressed with public
interest. It affects economies and plays a significant role in businesses and
commerce.86 The public reposes its faith and confidence upon banks, such that
"even the humble wage-earner has not hesitated to entrust his life’s savings to the
bank of his choice, knowing that they will be safe in its custody and will even earn
some interest for him."87 This is why we have recognized the fiduciary nature of the
banks’ functions, and attached a special standard of diligence for the exercise of
their functions.
In Simex International (Manila), Inc. v. Court of Appeals,88 this court described the
nature of banks’ functions and the attitude expected of banks in handling their
depositors’ accounts, thus:
In every case, the depositor expects the bank to treat his account with the utmost
fidelity, whether such account consists only of a few hundred pesos or of millions. . .
. PNB and Aguilar pass judgment on a letter from respondents’ lawyer stating that
The point is that as a business affected with public interest and because of the
nature of its functions, the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of their
relationship.89 (Emphasis supplied)
The fiduciary nature of banking is affirmed in Republic Act No. 8791 or The General
Banking Law, thus:
SEC. 2. Declaration of Policy.—The State recognizes the vital role of banks in
providing an environment conducive to the sustained development of the national
economy and the fiduciary nature of banking that requires high standards of
integrity and performance. In furtherance thereof, the State shall promote and
maintain a stable and efficient banking and financial system that is globally
competitive, dynamic and responsive to the demands of a developing economy.
(Emphasis supplied)
In The Consolidated Bank and Trust Corporation v. Court of Appeals, 90 this court
explained the meaning of fiduciary relationship and the standard of diligence
assumed by banks:
This fiduciary relationship means that the bank’s obligation to observe "high
standards of integrity and performance" is deemed written into every deposit
agreement between a bank and its depositor. The fiduciary nature of banking
requires banks to assume a degree of diligence higher than that of a good father of
a family. Article 1172 of the Civil Code states that the degree of diligence required
of an obligor is that prescribed by law or contract, and absent such stipulation then
the diligence of a good father of a family.91 (Emphasis supplied, citation omitted)
Petitioners PNB and Aguilar’s treatment of Angel C. Santos’ account is inconsistent
with the high standard of diligence required of banks. They accepted Manimbo’s
representations despite knowledge of the existence of circumstances that should
have raised doubts on such representations. As a result, Angel C. Santos’ deposit
was given to a person stranger to him.
Petitioner PNB pointed out that since petitioner Aguilar assumed office as PNB-Sta.
Elena-Marikina City Branch Manager only five (5) years from Angel C. Santos’ death,
she was not in the position to know that respondents were the heirs of Angel C.
Santos.92 She could not have accepted the unsigned and unnotarized extrajudicial
settlement deed that respondents had first showed her. 93 She was not competent
to make a conclusion whether that deed was genuine. 94 Neither could petitioners
respondents were the nine heirs of Angel C. Santos. 95 Petitioners PNB and Aguilar’s
negligence is not based on their failure to accept respondents’ documents as
evidence of their right to claim Angel C. Santos’ deposit. Rather, it is based on their
failure to exercise the diligence required of banks when they accepted the
fraudulent representations of Manimbo. Petitioners PNB and Aguilar disregarded
their own requirements for the release of the deposit to persons claiming to be
heirs of a deceased depositor. When respondents asked for the release of Angel C.
Santos’ deposit, they were required to present the following: "(1) original or
certified true copy of the Death Certificate of Angel C. Santos; (2) certificate of
payment of, or exemption from, estate tax issued by the Bureau of Internal
Revenue (BIR); (3) Deed of Extrajudicial Settlement; (4) Publisher’s Affidavit of
publication of the Deed of Extrajudicial Settlement; and (5) Surety bond effective
for two (2) years and in an amount equal to the balance of the deposit to be
withdrawn."96
Petitioners PNB and Aguilar, however, accepted Manimbo’s representations, and
they released Angel C. Santos’ deposit based on only the following documents:
1. Death certificate of Angel C. Santos;
2. Birth certificate of Reyme L. Santos;
3. Affidavit of self-adjudication of Reyme L. Santos;
4. Affidavit of publication;
5. Special power of attorney that Reyme L. Santos executed in favor of
Bernardito Manimbo and Angel P. Santos;
6. Personal items of Angel C. Santos, such as photocopies or originals of
passport, residence certificate for year 1990, SSS I.D., etc.;
7. Surety good for two (2) years; and
8. Certificate of Time Deposit No. 341306.97
Based on these enumerations, petitioners PNB and Aguilar either have no fixed
standards for the release of their deceased clients’ deposits or they have standards
that they disregard for convenience, favor, or upon exercise of discretion. Both are
inconsistent with the required diligence of banks. These threaten the safety of the
depositors’ accounts as they provide avenues for fraudulent practices by third
persons or by bank officers themselves.
In this case, petitioners PNB and Aguilar released Angel C. Santos’ deposit to
Manimbo without having been presented the BIR-issued certificate of payment of,
or exception from, estate tax. This is a legal requirement before the deposit of a
decedent is released. Presidential Decree No. 1158,98 the tax code applicable when
Angel C. Santos died in 1991, provides:
SEC. 118. Payment of tax antecedent to the transfer of shares, bonds, or rights. —
There shall not be transferred to any new owner in the books of any corporation,
sociedad anonima, partnership, business, or industry organized or established in the
Philippines, any shares, obligations, bonds or rights by way of gift inter vivos or
mortis causa, legacy, or inheritance unless a certification from the Commissioner
that the taxes fixed in this Title and due thereon have been paid is shown.
If a bank has knowledge of the death of a person who maintained a bank deposit
account alone, or jointly with another, it shall not allow any withdrawal from the
said deposit account, unless the Commissioner has certified that the taxes imposed
thereon by this Title have been paid; Provided, however, That the administrator of
the estate or any one of the heirs of the decedent may upon authorization by the
Commissioner of Internal Revenue, withdraw an amount not exceeding 10,000
without the said certification. For this purpose, all withdrawal slips shall contain a
statement to the effect that all of the joint depositors are still living at the time of
withdrawal by any one of the joint depositors and such statement shall be under
oath by the said depositors.99 (Emphasis supplied)
This provision was reproduced in Section 97 of the 1997 National Internal Revenue
Code, thus:
SEC. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. -
There shall not be transferred to any new owner in the books of any corporation,
sociedad anonima, partnership, business, or industry organized or established in the
Philippines any share, obligation, bond or right by way of gift inter vivos or mortis
causa, legacy or inheritance, unless a certification from the Commissioner that the
taxes fixed in this Title and due thereon have been paid is shown.
If a bank has knowledge of the death of a person, who maintained a bank deposit
account alone, or jointly with another, it shall not allow any withdrawal from the
said deposit account, unless the Commissioner has certified that the taxes imposed
thereon by this Title have been paid: Provided, however, That the administrator of
the estate or any one (1) of the heirs of the decedent may, upon authorization by
the Commissioner, withdraw an amount not exceeding Twenty thousand pesos
(20,000) without the said certification. For this purpose, all withdrawal slips shall
contain a statement to the effect that all of the joint depositors are still living at the
time of withdrawal by any one of the joint depositors and such statement shall be
under oath by the said depositors. (Emphasis supplied)
Taxes are created primarily to generate revenues for the maintenance of the
government. However, this particular tax may also serve as guard against the
release of deposits to persons who have no sufficient and valid claim over the
deposits. Based on the assumption that only those with sufficient and valid claim to
the deposit will pay the taxes for it, requiring the certificate from the BIR increases
the chance that the deposit will be released only to them.
In their compulsory counterclaim,100 petitioners PNB and Aguilar claimed that
Manimbo presented a certificate of payment of estate tax.101 During trial, however,
it turned out that this certificate was instead an authority to accept payment, which
is not the certificate required for the release of bank deposits.102 It appears that
Manimbo was not even required to submit the BIR certificate.103 He, thus, failed to
present such certificate. Petitioners PNB and Aguilar provided no satisfactory
explanation why Angel C. Santos’ deposit was released without it.
Petitioners PNB and Aguilar’s negligence is also clear when they accepted as bases
for the release of the deposit to Manimbo: (a) a mere photocopy of Angel C. Santos’
death certificate;104 (b) the falsified affidavit of self-adjudication and special power
of attorney purportedly executed by Reyme L. Santos; 105 and (c) the certificate of
time deposit.106
Petitioner Aguilar was aware that there were other claimants to Angel C. Santos’
deposit. Respondents had already communicated with petitioner Aguilar regarding
Angel C. Santos’ account before Manimbo appeared. Petitioner Aguilar even gave
respondents the updated passbook of Angel C. Santos’ account.107 Yet, petitioners
PNB and Aguilar did not think twice before they released the deposit to Manimbo.
They did not doubt why no original death certificate could be submitted. They did
not doubt why Reyme L. Santos would execute an affidavit of self-adjudication
when he, together with others, had previously asked for the release of Angel C.
Santos’ deposit. They also relied on the certificate of time deposit and on
Manimbo’s representation that the passbook was lost when the passbook had just
been previously presented to Aguilar for updating.108
During the trial, petitioner PNB’s counsel only reasoned that the photocopy of the
death certificate was also submitted with other documents, which led him to no
other conclusion than that Angel C. Santos was already dead. 109 On petitioners PNB
and Aguilar’s reliance special power of attorney allegedly executed by Reyme L.
Santos, Aguilar admitted that she did not contact Reyme L. Santos for verification.
Her reason was that Reyme L. Santos was their client. Therefore, they had no
obligation to do so.110
Given the circumstances, "diligence of a good father of a family" would have
required petitioners PNB and Aguilar to verify. A prudent man would have inquired
why Reyme L. Santos would issue an affidavit of selfadjudication when others had
also claimed to be heirs of Angel C. Santos. Contrary to petitioner Aguilar’s
reasoning, the fact that Reyme L. Santos was not petitioner PNB’s client should have
moved her to take measures to ensure the veracity of Manimbo’s documents and
representations. This is because she had no previous knowledge of Reyme L. Santos
his representatives, and his signature.
Petitioner PNB is a bank from which a degree of diligence higher than that of a good
father of a family is expected. Petitioner PNB and its manager, petitioner Aguilar,
failed to meet even the standard of diligence of a good father of a family. Their
actions and inactions constitute gross negligence. It is for this reason that we
sustain the trial court’s and the Court of Appeals’ rulings that petitioners PNB and
Aguilar are solidarily liable with each other.111
For the same reason, we sustain the award for moral damages. Petitioners PNB and
Aguilar’s gross negligence deprived Angel C. Santos’ heirs what is rightfully theirs.
Respondents also testified that they experienced anger and embarrassment when
petitioners PNB and Aguilar refused to release Angel C. Santos’ deposit. 112 "The
bank’s negligence was the result of lack of due care and caution required of
managers and employees of a firm engaged in so sensitive and demanding business
as banking."113
Exemplary damages should also be awarded. "The law allows the grant of
exemplary damages by way of example for the public good. The public relies on the
banks’ sworn profession of diligence and meticulousness in giving irreproachable
service. The level of meticulousness must be maintained at all times by the banking
sector."114
Since exemplary damages are awarded and since respondents were compelled to
litigate to protect their interests,115 the award of attorney’s fees is also proper.
The Court of Appeals' award of interest should be modified to 12% from demand on
April 26, 1998 until June 30, 2013, and 6% from July I, 2013 until fully paid. In Nacar
v. Gallery Frames:116
Thus, from the foregoing, in the absence of an express stipulation as to the rate of
interest that would govern the parties, the rate of legal interest for loans or
forbearance of any money. . . s.hall no longer be twelve percent (12%) per annum ...
but will now be six percent (6%) per annum effective July 1, 2013. It should be
noted, nonetheless, that. .. the twelve percent (12%) per annum legal interest shall
apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent
(6%) per annum shall be the prevailing rate of interest when applicable.
....
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 6% per annum to be computed from default, i.e., from
judicial or extrajudicial demand ...
....
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annumfrom such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.117
WHEREFORE, the Court of Appeals' decision dated July 25, 2013 is AFFIRMED with
the MODIFICATIONS in that petitioners Philippine National Bank and Lina B. Aguilar
are ordered solidarily liable to pay respondents Pl 00,000.00 as exemplary damages.
Further, the interest rate for the amount of Pl,882,002.05, representing the face
value of PNB Manager's Check No. AF-974686B is modified to 12% from April 26,
1998 until June 30, 2013, and 6% from July 1, 2013 until satisfaction. All monetary
awards shall then earn interest at the rate of 6% per annum from finality of the
decision until full satisfaction.
SO ORDERED.

FIRST DIVISION
G.R. No. 209651, November 26, 2014
MARCELO INVESTMENT AND MANAGEMENT CORPORATION, AND THE HEIRS OF
EDWARD T. MARCELO, NAMELY, KATHERINE J. MARCELO, ANNA MELINDA J.
MARCELO REVILLA, AND JOHN STEVEN J. MARCELO, Petitioners, v. JOSE T.
MARCELO, JR., Respondent.
DECISION
PEREZ, J.:
The vesting of succession rights on the heirs upon the death of the decedent gives
occasion for the baring of sibling disaccords right at the onset of the estate
proceedings which is the determination of the administrator of the decedent’s
estate. In such instances, the liquidation, partition and distribution of the
decedent’s estate is prolonged and the issue of administration becomes, contrary to
its very objective, itself the hindrance to the ultimate goal of settlement of the
decedent’s estate. We catch a glimpse of that in this case.
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the 24 May 2013 Decision of the Court of Appeals in CA-G.R. CV No.
952191 which affirmed the Order2 of the Regional Trial Court (RTC), Branch 76,
Quezon City appointing respondent Jose T. Marcelo, Jr. (Jose, Jr.) as the new regular
administrator of the intestate estate of decedent Jose T. Marcelo, Sr.
The facts herein occurred in two stages: (1) the first litigation between two of Jose
Marcelo, Sr.’s (Jose, Sr.) compulsory heirs, his sons, Edward, (ascendant of herein
petitioners, heirs of Edward T. Marcelo, Katherine J. Marcelo, Anna Melinda J.
Marcelo Revilla, and John Steven J. Marcelo) and respondent Jose, Jr., for the
appointment of regular administrator of Jose, Sr.’s estate; and (2) after Edward was
appointed regular administrator of Jose, Sr.’s estate and Edward’s death in 2009,
respondent Jose, Jr.’s revival of his pursuit to administer his father’s, Jose, Sr.’s,
estate.
These details of these stages follow:chanroblesvirtuallawlibrary
On 24 August 1987, decedent Jose, Sr. died intestate. He was survived by his four
compulsory heirs: (1) Edward, (2) George, (3) Helen and (4) respondent Jose, Jr.
Initially, petitioner Marcelo Investment and Management Corporation (MIMCO)
filed a Petition for the issuance of Letters of Administration of the estate of Jose, Sr.
before the RTC, Branch 76, Quezon City docketed as S.P. Proc. No. Q-88-1448. At
first, Helen, along with her brother, Jose, Jr. separately opposed MIMCO’s petition;
the two prayed for their respective appointment as administrator. Edward opposed
Helen’s and Jose, Jr.’s respective petitions for issuance of Letters of Administration
in their favor and Edward himself prayed for his appointment as regular
administrator. Ultimately, MIMCO, George and Edward banded together: (1)
opposed Helen’s and Jose, Jr.’s petitions, and (2) prayed for Edward’s appointment
as regular administrator of Jose, Sr.’s estate.
On 21 September 1989, pending issuance of letters of administration, the RTC
appointed Helen and Jose, Jr. as special administrators.
In an Order dated 13 December 1991, the RTC appointed Edward as regular
administrator of Jose, Sr.’s estate:
WHEREFORE, PREMISES CONSIDERED, this Court resolves as it hereby resolves to
appoint Edward T. Marcelo as the Regular Administrator of the estate of the late
Jose P. Marcelo, Sr. upon the posting of a bond amounting to THREE HUNDRED
THOUSAND PESOS (P300,000.00). The aforementioned appointment shall take
effect upon his oath as such and conditioned by a bond of P300,000.00 which shall
insure the fidelity of the said regular administrator in the performance of his duties
and obligations as such.3
Taking issue with the RTC’s Order and questioning Edward’s appointment, Jose, Jr.
filed successive oppugnant motions: (1) motion for reconsideration of the 13
December 1991 Order; and (2) omnibus motion alleging the RTC Acting Presiding
Judge Efren N. Ambrosio’s (Judge Ambrocio) unusual interest and undue haste in
issuing letters of administration in favor of Edward.
In an Order dated 12 March 1992, the RTC, through Judge Ambrosio, denied Jose,
Jr.’s motion for reconsideration:
WHEREFORE, prescinding from the foregoing, and fortified by the balm of clear
judicial conscience, the herein motion is hereby denied. The letters of
administration under date of March 4, 1992 issued in favor of Edward T. Marcelo is
maintained with full force and effect. The letters testamentary issued in favor of
Special Administrator, Jose T. Marcelo, Jr. under date of October 2, 1989 as well as
the bond posted by him are hereby ordered cancelled. Likewise, the Special
Administrator, Jose T. Marcelo, Jr. is hereby ordered to forthwith deliver to the
regular administrator the goods, chattels, money and estate of the deceased in his
hands.4
In the same vein of denial, the RTC ruled on the Omnibus Motion, thus:
After a re-examination of the evidence adduced by the parties and a consideration
of the arguments raised in the aforecited pleadings, this court arrived at a
conclusion that no substantial error was committed by then Acting Presiding Judge
Edren N. Ambrosio which would warrant a reversal of the questioned orders,
namely, the order dated December 13, 1991 and March 12, 1992. 5
Adamant on his competence to better administer his father’s estate, Jose, Jr.
appealed Edward’s appointment as regular administrator to the Court of Appeals in
CA-G.R. CV No. 43674. However, the appellate court affirmed in toto6 the Orders
dated 1 October 1993, 13 December 1991 and 12 March 1992 of the intestate
court.
The question of who between Edward and Jose, Jr. should administer their father’s
estate reached us in G.R. No. 123883 (Jose Marcelo, Jr. v. Court of Appeals and
Edward Marcelo): we did not find reversible error in the appellate court’s decision
in CA-G.R. CV No. 43674. We disposed of the case via a Minute Resolution dated 22
May 1996,7 ultimately affirming the RTC’s and the appellate court’s separate rulings
of Edward’s competence and better suited ability to act as regular administrator of
Jose, Sr.’s estate.
Thereafter, Jose, Jr. persistently opposed Edward’s actions as administrator and his
inventory of Jose, Sr.’s estate. He filed anew serial motions which culminated in the
following 23 June 2000 Order of the RTC:
After a careful study of the arguments raised by the parties in support of their
respective claims, the Court finds that the motion filed by oppositor [Jose, Jr.] is
not well-taken.
of a true and complete accounting of the subject corporations reckoned from the
death of [Jose, Sr.] up to the present, the [c]ourt likewise sees no need therefor as
said corporations are not parties to the case and have separate and distinct
personalities from the stockholders.
With respect to the project of partition, it appears that regular administrator had
already furnished oppositor [Jose, Jr.] with a copy thereof. Considering however
oppositor [Jose, Jr.’s] oral motion for regular administrator to identify the heirs of
the decedent and to secure their conformity to the project of partition, oppositor
[Jose, Jr.] is given ten (10) days from receipt of the project of partition bearing the
conformity of the heirs within to (sic) to comment thereon. Thereafter, the parties
are directed to submit their project of partition for approval and consideration of
the [c]ourt.8 (Emphasis supplied)
On 15 January 2001, Edward filed a Manifestation and Motion stating that:
1. Oppositor [Jose, Jr.] now conforms to, and has accordingly signed, the attached
“Liquidation of the Inventory of the Estate of Jose P. Marcelo, Sr. as of July 26,
2000” x x x.
2. Regular Administrator [Edward] respectfully prays that the Liquidation, duly
signed by all four (4) compulsory heirs, be approved as the project of partition of
the Estate of Jose P. Marcelo Sr.9
and moved for the approval of the Liquidation of the Inventory of the Estate of Jose,
Sr. as the project of partition of the Estate of Jose, Sr.
The project of partition reads:
LIQUIDATION OF THE INVENTORY OF THE ESTATE OF JOSE P. MARCELO, SR.
AS OF JULY 26, 2000

Anent the submission of complete list of stockholders of all the Marcelo group of I. Settlement of the claims against the estate (SCH IV)
companies together with the number and current par value of their respective
shareholding, suffice it to say that as correctly pointed out by regular administrator Payables
[Edward], the shares of stock of the decedent will be equally distributed to the heirs
that there is no necessity therefor. 1. Marcelo Chemical & Pigment Corp. P 1,556,002.06
2. Maria Cristina Fertilizer Corp. 797,487.00
Considering oppositor’s insistence on the submission by regular administrator of a 3. Marcelo Rubber & Latex Products, Inc. 542,932.74
true and updated list as well as current market values of all real estate and personal
4. Marcelo Investment & Mgnt. Corp. 532,066.35
properties of the decedent, the [c]ourt hereby directs herein oppositor [Jose, Jr.] to
inform the regular administrator of such data to aid the regular administrator in the 5. Marcelo Steel Corporation 1,108,252.19
preparation of a complete and accurate inventory of the real and personal 6. H. Marcelo & Co., Inc. 2,356,684.99
properties comprising the estate of Jose, Sr. TOTAL P 6,893,425.33

As regards oppositor [Jose, Jr.’s] prayer for the submission by regular administrator Considering that the Estate as of June 3, 1999 has no sufficient cash to pay-off the
above claims of P6,893,425.33, I can work out an offsetting arrangement since the
Estate has also receivables from these companies as shown It is recommended that the net from MRLP of P4,341,147.26 be deducted to the
below:chanroblesvirtuallawlibrary above claims as shown below:chanroblesvirtuallawlibrary

SCH. III-A SCH. III-B Net Receivables from MRLP P4,341,147.26

Shares of Stock Receivables Total Net Claim 3,486,124.40
1. MCPC P337,018.00 P 0.00 P 337,018.00 Net Receivables from MRLP P 855,022.86
2. MCFC 300,000.00 0.00 300,000.00
3. MRLP 1,288,580.00 3,595,500.00 4,884,080.00 II. After the claims are settled based on the above recommendation, the Estate will
4. MIMCO 0.00 0.00 0.00 have the following assets for distribution to the four (4) of
5. MSC 11,370.00 532,419.04 543,789.04 us:chanroblesvirtuallawlibrary
6. H. Marcelo 881,040.00 802,521.15 1,683,561.15
1. PCIB (to be updated) 3,099.81 3,099.81
TOTAL P2,818,008.00 P 4,930,440.19 P7,748,448.19
2. Shares of Stocks No. Of Shares Amount
If the above receivables and equity with total value of P7,748,448.19 will be offset a. MTRC 12,874 P1,287,400.00
against the claims of P6,893,425.33 the net will show the b. MRLP 85,502 855,022.86
following:chanroblesvirtuallawlibrary c. Farmer Fertilizer Corp. 5,000 5,000.00
d. Republic Broadcasting System 18,054 18,054.00
SCH. III-A & B SCH. IV e. Seafront Resources 6,000,000 60,000.00
Equity & Net Claims f. Industrial Finance 137 1,370.00
Companies Claims
Receivables (Receivables) g. Astro Mineral 500,000 5,000.00
1. MCPC P 337,018.00 P1,556,002.06 P1,218,984.06 h. Sta. Mesa Market 42,105 42,105.00
2. MCFC 300,000.00 797,487.00 497,487.00 i. Atlas Consolidated Mining 122 2,562.00
3. MRLP 4,884,080.00 542,932.74 (4,341,147.26) j. Phil. Long Distance Telephone 180 130,050.00
4. MIMCO 532,066.35 532,066.35 k. Jinico (Jabpract Minind) 2,500,000 25,000.00
5. MSC 543,789.04 1,108,252.19 564,463.15 l. Baguio Country Club 1 12,500.00
6. H. MARCELO & 4. Receivables – Marcelo
1,683,561.15 2,356,684.99 673,123.84 212,729.17
CO., Inc. Fiberglass
TOTAL P7,748,448.19 P6,893,425.33 P (855,022.86)
* Based at Par Value
Based on the offsetting except for MRLP, which the Estate has net receivables of
P4,341,147.26 there will be net claims or payables of P3,486,124.40 as Above assets will be distributed equally by the four (4) of us depending if these will
follows:chanroblesvirtuallawlibrary be sold or not. It is very important to note that equal distribution will be based on
actual selling price minus taxes and other deduction if any, on the above inventories
1. MCPC P1,218,984.06 of estate properties.
2. MCFC 497,487.00
3. MIMCO 532,066.35 Sgd.
EDWARD T. MARCELO
4. MSC 564,463.15
Regular Administrator
5. H. Marcelo & Co. 673,123.84
TOTAL P3,486,124.40 Conforme:chanroblesvirtuallawlibrary

Sgd.
_________________
GEORGE T. MARCELO
Sgd.
____________________
JOSE T. MARCELO, JR.
Sgd.
________________
HELEN T. MARCELO10
On 16 February 2001, the RTC issued an Order approving the partition of Jose, Sr.’s
estate as proposed by Edward:
Regular administrator [Edward] manifests that oppositor Jose T. Marcelo, Jr. had
already expressed his conformity to the Liquidation of the Inventory of the Estate of
Jose P. Marcelo, Sr., as of July 26, 2000, as evidenced by his signature therein. He
therefore prays that the said document which bears the conformity of all four (4)
compulsory heirs of Jose P. Marcelo, Sr. be approved as the project of partition of
the estate of Jose P. Marcelo, Sr.
Finding said liquidation of the Inventory of the Estate of Jose P. Marcelo, Sr. to bear
the conformity of all the heirs of the decedent and considering further that the
period for filing of money claims against the subject estate had already lapsed, the
Court resolves to approve said liquidation of Inventory as the project of partition of
the estate of Jose P. Marcelo, Sr.
Nonetheless, let the distribution of the estate of Jose P. Marcelo, Sr. among his
compulsory heirs in accordance with the approved Liquidation of the Inventory of
the Estate of Jose P. Marcelo, Sr. be deferred until herein regular administrator
Edward T. Marcelo has submitted to the Court proof of payment of estate taxes of
the subject estate.11
On 14 September 2001, the RTC archived the intestate proceedings, S.P. Proc. No.
Q-88-1448, pending Edward’s submission of proof of payment of estate taxes as
directed in the 16 February 2001 Order.12chanrobleslaw
On 3 July 2009, Edward died,13 ushering in the antecedents to the present
controversy.
Wasting no time, Jose, Jr. moved to revive the intestate proceedings involving his
father’s estate, S.P. Proc. No. Q-88-1448, and moved for his appointment as new
regular administrator thereof.
Petitioners MIMCO and heirs of Edward, joined by George, opposed Jose, Jr.’s
motion and nominated Atty. Henry Reyes as regular administrator in Edward’s
stead.
On 6 January 2010, the RTC issued the assailed Order, now appointing Jose, Jr. as
regular administrator of Jose, Sr.’s estate:
Contrary to the assertion of petitioners, there is no showing that the [c]ourt has
previously declared oppositor-movant [Jose, Jr.] unfit to be appointed as an
administrator.
The estate is left with no one who will administer the estate, i.e., to liquidate the
estate and distribute the residue among the heirs. As well-settled, to liquidate
means to determine the assets of the estate and to pay all debts and expenses.
Records clearly show that the estate taxes due to the government have not been
paid. It is, in fact, held that approval of the project of partition does not necessarily
terminate administration x x x. There is a necessity to appoint a new regular
administrator. Equally noteworthy is that the judicially approved inventory was
prepared way back on August 30, 2000. It is but imperative that the same be
updated.
In the sound judgment of the [c]ourt, oppositor-movant [Jose, Jr.], a legitimate child
of the decedent, appears to occupy higher interest than Atty. Henry A. Reyes in
administering the subject estate.
WHEREFORE, premises considered, oppositor Jose T. Marcelo, Jr. is appointed as
the new regular administrator of the estate of Jose T. Marcelo, Sr.
Before he enters upon the execution of his trust, and letters of administration issue,
he shall give a bond in the amount of P200,000.00, conditioned as
follows:chanroblesvirtuallawlibrary
a. To make and return to the [c]ourt, within three (3) months, an updated inventory
of all goods, chattels, rights, credits, and estate of the deceased which shall come to
his possession or knowledge or to the possession of any other person for him;
b. To administer according to the Rules of Court rules, all goods, chattels, rights,
credits, and estate which shall at any time come to his possession or to the
possession of any other person for him, and from the proceeds to pay and discharge
all debts, legacies, and charges on the same, or such dividends thereon as shall be
decreed by the court, not to mention the taxes due to the government;
c. To render a true and just account of his administration to the [c]ourt within one
(1) year; and at any other time when required by the Court; and

d. To perform all orders of the [c]ourt.14
Petitioners filed an Omnibus Motion for Reconsideration of the 6 January 2010
Order and now moved for the appointment instead of George as administrator of
Jose, Sr.’s estate. After Comment on the Omnibus Motion, the RTC issued another
Order dated 23 March 2010, denying the Omnibus Motion and affirming the
appointment of Jose, Jr. as new regular administrator.
Petitioners appealed the RTC’s twin Orders dated 6 January 2010 and 23 March
2010 before the appellate court. This time around, the Court of Appeals affirmed
Jose, Jr.’s appointment as new regular administrator. Ruling that the selection of
administrator lies in the sound discretion of the trial court, the Court of Appeals
held that:chanroblesvirtuallawlibrary
1. The prior Order dated 13 December 1991 of the RTC appointing Edward as
regular administrator instead of Jose, Jr., which appointment was affirmed by this
Court in G.R. No. 123883, did not make a finding on Jose, Jr.’s fitness and
suitableness to serve as regular administrator; and
2. On the whole, Jose, Jr. is competent and “not wanting in understanding and
integrity,” to act as regular administrator of Jose, Sr.’s estate.
Hence, this appeal by certiorari ascribing grave error in the Court of Appeals’
Decision, to wit:
A.
THERE WAS NO NEED TO APPOINT AN ADMINISTRATOR FOR THE ESTATE OF JOSE P.
MARCELO, SR. AS THERE WAS THEN NO PENDING INCIDENTS IN THE ESTATE
PROCEEDINGS TO WARRANT THE APPOINTMENT OF AN ADMINISTRATOR.
B.
THE COURT OF APPEALS ERRED IN APPOINTING JOSE, JR. AS THE ADMINISTRATOR
OF JOSE, SR.’S ESTATE CONSIDERING THAT JOSE, JR. WAS FOUND, BY A FINAL,
IMMUTABLE, AND UNALTERABLE JUDGMENT, TO BE UNFIT TO ACT AS SUCH. THUS,
THE COURT OF APPEALS WAS CLEARLY MISTAKEN WHEN IT DISREGARDED THE
EARLIER PRONOUNCEMENT ON THE UNFITNESS OF JOSE, JR. TO ACT AS AN
ADMINISTRATOR AS IT GOES AGAINST THE PRINCIPLE OF CONCLUSIVENESS OF
JUDGMENT.
C.
THE COURT OF APPEALS VIOLATED THE PETITIONERS’ RIGHT TO DUE PROCESS,
WHEN IT AFFIRMED THE RTC ORDERS, WITHOUT EVEN BOTHERING TO EXPLAIN
WHY JOSE, JR. AND NOT GEORGE, SHOULD BE APPOINTED AS ADMINISTRATOR OF
JOSE, SR.’S ESTATE.15
The appeal is impressed with merit. While we agree with the lower courts that the
appointment of a regular administrator is still necessary, we disagree with the
appointment of Jose, Jr. as new regular administrator of Jose, Sr.’s estate.
We first dispose of the issue of whether the appointment of a regular administrator
is still necessary at this liquidation, partition and distribution stage of the intestate
proceedings involving Jose, Sr.’s estate.
Petitioners contend that the appointment of a regular administrator is unnecessary
where there remains no pending matter in the settlement of Jose, Sr.’s estate
requiring attention and administration. Specifically, petitioners point out that there
is no existing or unliquidated debt against the estate of Jose, Sr, the settlement
thereof being already at the liquidation, partition and distribution stage. Further on
that, the liquidation and proposed partition had long been approved by the probate
court.
We are not convinced. The settlement of Jose, Sr.’s estate is not yet through and
complete albeit it is at the liquidation, partition and distribution stage.
Rule 90 of the Rules of Court provides for the Distribution and Partition of the
Estate. The rule provides in pertinent part:
SECTION 1. When order for distribution of residue made. – x x x
No distribution shall be allowed until payment of the obligations above mentioned
has been made or provided for, unless the distributees, or any of them, give a bond,
in a sum to be fixed by the court, conditioned for the payment of said obligations
within such time as the court directs.cralawred
xxxx
SEC. 3. By whom expenses of partition paid. – If at the time of the distribution the
executor or administrator has retained sufficient effects in his hands which may
lawfully be applied for the expenses of partition of the properties distributed, such
expenses of partition may be paid by such executor or administrator when it
appears equitable to the court and not inconsistent with the intention of the
testator; otherwise, they shall be paid by the parties in proportion to their
respective shares or interest in the premises, and the apportionment shall be
settled and allowed by the court, and, if any person interested in the partition does
not pay his proportion or share, the court may issue an execution in the name of
the executor or administrator against the party not paying for the sum assessed.
In this case, we observe that the Liquidation of the Inventory of the Estate,
approved by the RTC in its Order dated 16 February 2001, is not yet in effect and
complete. We further note that there has been no manifestation forthcoming from
any of the heirs, or the parties in this case, regarding the completion of the
proposed liquidation and partition of the estate. In fact, as all parties are definitely
aware, the RTC archived the intestate proceedings pending the payment of estate
taxes.
For clarity, we refer to the Liquidation of the Inventory of the Estate, which was
divided into two (2) parts: (1) Settlement of the Claims against the Estate, and (2)
After Settlement of the Claims, distribution of the remaining assets of the estate to
the four (4) compulsory heirs. The same document listed payables and receivables
of the estate dependent on a number of factors and
contingencies:chanroblesvirtuallawlibrary
1. Payables to various companies where the Marcelo family had equity amounting
to P6,893,425.33;
Considering that the Estate as of June 3, 1999 has no sufficient cash to pay-off the
above claims of P6,893,425.33, [Edward] can work out an offsetting arrangement
since the Estate has also receivables or equity from these companies as shown
below:16chanrobleslaw
xxxx
2. Receivables from the same companies amounting to P7,748,448.19;
If the above receivables and equity with total value of P7,748,448.19 will be offset
against the claims of P6,893,425.33 the net will show the following: 17chanrobleslaw
xxxx
3. An offsetting of the payables and receivables to be arranged by the then regular
administrator, Edward; and
4. Offsetting of the receivables from Marcelo Rubber & Latex Products, Inc.
amounting to P4,341,147.26 against the net claims against the estate amounting to
P3,486,124.40 resulting in net receivables of the estate in the amount of
P855,022.86.
There has been no showing from either of the parties that the receivables of, and
claims against, Jose, Sr.’s estate has been actually liquidated, much less, if an
offsetting occurred with the companies listed in the inventory on one hand, and
Jose, Sr.’s estate, on the other. Although the Marcelo family, in particular the
compulsory heirs of Jose, Sr., hold equity in the corporations mentioned in the
inventory, considering that the corporations are family owned by the Marcelos’,
these corporations are different juridical persons with separate and distinct
personalities from the Marcelo patriarch, the decedent, Jose, Sr. 18chanrobleslaw
More importantly, the liquidation scheme appears yet to be effected, the actual
partition of the estate, where each heir separately holds his share in the estate as
that which already belongs to him, remains intangible and the ultimate distribution
to the heirs still held in abeyance pending payment of estate taxes. 19chanrobleslaw
Significantly, even the Liquidation of the Inventory of Jose, Sr.’s estate states that
the valuation amount of the shares of stock as listed therein is based on par value,
which may have varied given the passage of time. The same document delivers a
very important notation that the equal distribution of the listed assets of the estate
will depend on the actual selling price of these assets less taxes and other
deductions:
Above assets will be distributed equally by the four (4) [compulsory heirs]
depending if these will be sold or not. It is very important to note that equal
distribution will be based on actual selling price minus taxes and other deduction if
any, on the above inventories of estate properties. 20
To date, more than a decade has passed since the intestate proceedings were
archived, thus, affecting the value of the estate’s assets.
From all of the foregoing, it is apparent that the intestate proceedings involving
Jose, Sr.’s estate still requires a regular administrator to finally settle the estate and
distribute remaining assets to the heirs of the decedent.
We now come to the issue of whether Jose, Jr. may be appointed as regular
administrator despite the previous Order of the RTC on 13 December 1991,
affirmed by the appellate court and this Court in G.R. No. 123883, that as between
Jose, Jr. and Edward, the latter was better suited to act as regular administrator of
their father’s estate. Stated differently, whether Jose, Jr.’s previous non-
appointment as regular administrator of Jose, Sr.’s estate bars his present
appointment as such even in lieu of Edward who is now dead.
A close scrutiny of the records reveals that in all of Jose, Jr.’s pleadings opposing
Edward’s appointment as regular administrator, he simultaneously prayed for his
appointment as regular administrator of their father’s estate. In short, he proffered
his competence and qualification to be appointed as regular administrator as a legal
issue for resolution of the courts. Essentially, Jose, Jr. was weighed and found
wanting by the RTC, the appellate court, and this Court.
In its 13 December 1991 Order, the RTC categorically ruled on who between Edward
and Jose, Jr. was fit to administer the estate of Jose, Sr., framing the issue in this
wise:
The [c]ourt’s choice as to who among the [compulsory heirs] will be appointed
regular administrator of the estate of Jose, Sr. is now limited to Edward and Jose, Jr.
in view of the withdrawal of Helen T. Marcelo.
It is this [c]ourt’s observation that the continuous internal wranglings between the
heirs would achieve nothing. In the meantime, the estate of the late Jose, Marcelo,
Sr. is dragged further into the quagmire of dissipation and loss. It would not be
amiss to state that the animosity among the interested [petitioners therein],
Edward and Jose, Jr. have considerably increased since the filing of their respective
petitions, but the [c]ourt on the basis of their qualifications will have to decide
whom to appoint as regular administrator. Willingness to act and/or serve as
regular administrator is no longer in issue here as both applicants are undoubtedly
willing to serve as such. However, after subjecting the evidence, both testimonial
and documentary to careful judicial study, this [c]ourt now resolves as it hereby
resolves to appoint Edward T. Marcelo as regular administrator of the estate of the
late Jose, Sr.
As aptly cited by petitioner, Edward T. Marcelo, there can be no adverse conclusion
that may be inferred from the withdrawal of a petition or nomination. While it may
be true that initially the petition for the issuance of letters testamentary was filed
by Marcelo Investment and Management Corporation (MIMCO for brevity) and by
Danilo O. Ibay as nominee of Edward and George Marcelo, the same did not
constitute a waiver on the part of Edward T. Marcelo. This can be gleaned from the
withdrawal of the nomination of Danilo O. Ibay and the subsequent filing of Edward
T. Marcelo of his petition for the appointment as legal administrator on September
14, 1989. Further, nowhere in the provisions of the Revised Rules of Court is such a
nomination of a party other than a compulsory heir prohibited.
The documents presented by Jose, Jr. purporting to show that the deceased had
other assets other than those enumerated in the original petition filed by MIMCO
and which should have been included in the estate cannot be accorded any weight
or credence by this [c]ourt, as the individual who supposedly prepared the
document was never identified and the sources of information not disclosed. Upon
the other hand, the petition filed by MIMCO was based on the Financial Statements
prepared by an independent auditor, A. F. Pablo and Associates. On the basis of the
information provided by MIMCO in the original petition, this [c]ourt can determine
the probable value and nature of the estate of the deceased Jose P. Marcelo, Sr.
There is no argument that both Edward and Jose, Jr. are willing to serve as regular
administrator but undoubtedly, Edward appears to be more responsible and
competent that his younger brother, Jose, Jr. This is bolstered by the fact that the
family corporations and his own personal corporation are presently of sound
financial condition. This success, the [c]ourt believes can be attributed to the
management skills and the sound management policies Edward has adopted
throughout the years. Likewise, it can be deduced that among the four (4) children
of Jose, Sr., it was Edward whom he trusted the most. The deceased valued the
opinion of Edward on decisions that had to be made and he would have Edward
around in his meetings to discuss matter relating to the corporations which he
managed. Further, as can be gleaned from the evidence presented by Jose, Jr., it
was Edward Marcelo who was appointed as trustee to vote the deceased’s share in
a Marcelo Corporation, Polaris Marketing Corporation. It was also Edward who was
made co-signatory when the deceased deposited money in the bank to be given to
the children of Jose, Jr. It is thus quite evident that Edward was really the most
trusted child of the deceased.
Upon the other hand, this court looks with deep concern the manner by which Jose,
Jr. treats the corporate properties of the Marcelo Group of Companies. Evidence
shows that sometime October 21, 1998, Jose, Jr. took evidencing liabilities of the
deceased and other pertinent records and up to the present has not returned them.
Jose, Jr. cannot justify the taking of the records/or borrowing of the same by
asserting that he is now keeping them in his capacity as Special Administrator as he
was appointed Special Administrator only on September 21, 1989 whereas the
records were “borrowed” as early as October 21, 1988. Be that as it may, what
belies Jose, Jr.’s assertion is the fact that the records of the corporation which were
allegedly “borrowed/taken” do not form part of the estate of Jose, Sr. but to the
corporation from where they were taken.
Likewise, it should be noted that the appointment of Jose, Jr. as one of the Special
Administrators does not necessarily make him more qualified to be appointed as
regular administrator. The records of the case will bear out, that the appointment
of a Special Administrator was premised on the need to have someone, oversee,
manage and preserve the estate of Jose, Sr., as there was the danger of the estate
being dissipated. Moreover, the [c]ourt never touched on the issue of the
qualifications of the applicants, as there was in fact, no evidence presented on the
matter, other than the bare allegations of the applicants that they were all qualified
to act as such.21 (Citations omitted)
Notably, the decision of the trial court appointing Edward as the Administrator of
the Estate of Jose, Sr., which decision had the imprimatur of a final resolution by
this Court, was not merely a comparison of the qualifications of Edward and Jose,
Jr., but a finding of the competence of Edward compared to the unfitness of Jose, Jr.
As against this Order of the RTC, its subsequent opposite Order dated 6 January
2010 appointing Jose, Jr. as new regular administrator only had two (2) sentences to
essentially reverse the previous findings.
Contrary to the assertion of petitioners, there is no showing that the [c]ourt has
previously declared [Jose, Jr.] unfit to be appointed as an administrator.cralawred
xxxx
Considering the two (2) sets of conflicting rulings of the RTC and the Court of
In the sound judgment of the [c]ourt, [Jose, Jr.], a legitimate child of the decedent, Appeals in the two stages of this litigation, we put into proper perspective the 13
appears to occupy a higher interest than Atty. Henry A. Reyes in administering the December 1991 Order of the RTC appointing Edward over Jose, Jr. as regular
subject estate.22 administrator of their father’s estate, which Order was upheld by us in G.R. No.
The first sentence contained in the Order of 6 January 2010 is disproven by the 123883.
definite finding of “deep concern” in the original Order. The second sentence does
Section 1, Rule 78 of the Rules of Court provides for the general disqualification of
not amount to a finding of a qualification superior to that of the rest of the children
of Jose, Sr. those who wish to serve as administrator:
SECTION 1. Who are incompetent to serve as executors or administrators.— No
person is competent to serve as executor or administrator
In affirming the issuance of letters of administration to Jose, Jr., the appellate court
who:chanroblesvirtuallawlibrary
dwelt largely on the considerable latitude allowed a probate court in the
determination of a person’s suitability for the office of judicial administrator. The
(a) Is a minor;
Court of Appeals only briefly delved into Jose, Jr.’s numerous attempts to be
(b) Is not a resident of the Philippines; and
appointed regular administrator of Jose, Sr.’s estate which were all denied
Is in the opinion of the court unfit to execute the duties of the trust by reason
previously by the same probate court:
(c) of drunkenness, improvidence, or want of understanding or integrity, or by
The RTC Order dated 13 December 1991, as affirmed by this [c]ourt in Decision
reason of conviction of an offense involving moral turpitude.
dated 30 March 1995, and by the Supreme Court in the Resolution dated 22 May
Section 6 of the same rule, on the other hand, lists an order of preference in
1996, did not declare [respondent] Jose, Jr. unfit to serve as administrator. What
instances when there is a contest of who should be appointed administrator:
was ruled upon by the RTC, and affirmed by this [c]ourt, and by the Supreme Court,
SEC. 6. When and to whom letters of administration granted.— If no executor is
was the appointment of Edward as the administrator of Jose, Sr.’s estate, and the
named in the will, or the executor or executors are incompetent, refuse the trust, or
denial of [respondent] Jose, Jr.’s opposition to Edward’s appointment. Nowhere
fail to give bond, or a person dies intestate, administration shall be
was there any categorical ruling, or a definite finding, that [respondent] Jose, Jr.
granted:chanroblesvirtuallawlibrary
was, unfit to execute the duties of the trust by reason of drunkenness,
improvidence, or want of understanding or integrity, or by reason of conviction of
(a) To the surviving spouse, or next of kin, or both, in the discretion of the court, or
an offense involving moral turpitude. Thus, there is no merit in [petitioners’]
to such person as such surviving spouse, or next of kin, requests to have appointed,
contention that the finding on the unfitness of [respondent] Jose, Jr. became
if competent and willing to serve;
binding, and precluded the RTC from appointing [respondent] Jose, Jr., as the new
regular administrator of Jose, Sr.’s estate.
(b) If such surviving spouse, or next of kin, or the person selected by them, be
incompetent or unwilling, or if the surviving spouse, or next of kin, neglects for
Jurisprudence has long held that the selection of an administrator lies in the sound
thirty (30) days after the death of the person to apply for the administration or to
discretion of the trial court. The determination of a person’s suitability for the office
request that administration be granted to some other person, it may be granted to
of judicial administrator rests, to a great extent, in the sound judgment of the court
one or more of the principal creditors, if competent and willing to serve;
exercising the power of appointment and said judgment is not to be interfered with
on appeal unless the said court is clearly in error.
(c) If there is no such creditor competent and willing to serve, it may be granted to
such other person as the court may select.
The RTC did not err in appointing Jose, Jr. as the new administrator, even though his
previous prayer for appointment was denied. Notably, by virtue of Edward’s death, Because Edward and Jose, Jr. are both compulsory heirs of Jose, Sr., they were, at
the office of the regular administrator of Jose, Sr.’s estate was vacated, and it was the time the issue of administration first cropped, equally preferred to administer
within the jurisdiction of the RTC, as probate court, to appoint a new Jose, Sr.’s estate. Necessarily, the courts also delved into the question of their
administrator.23 suitableness and fitness to serve as administrator, preferring one over the other,
framing it as Edward being more fit and suited to be administrator:
Evidently, the Court of Appeals like the RTC in its second order, closed its eyes on
the facts detailed by the RTC in the first order.
 1. Edward has kept the Marcelo family corporations and his own in
good financial condition;
2. The trust reposed by the decedent on Edward who voted on Jose,
Sr.’s behalf in a Marcelo corporation; and
3. Edward being made a co-signatory for money deposited for Jose,
Jr.’s own children.
Plainly, the RTC in its Order dated 13 December 1991, found Edward competent to
serve as regular administrator, more competent than Jose, Jr., preferred despite
equal status in the Order of Preference, manifesting none of the disqualifications
set by law. Still and all, the same Order likewise judged Jose, Jr.’s suitableness and
fitness, or lack thereof, for the office of administrator, albeit in comparison with
Edward and not with the rest of Jose, Sr.’s children. Jose, Jr. was not what Edward
was. The fact however, that Edward was made co-signatory for money deposited
for Jose, Jr.’s own children is a telling commentary against Jose, Jr.’s competence, if
not integrity.
Then too, the RTC in the original order made a specific finding, “[viewing it] with
deep concern,” Jose, Jr.’s handling of the records of the Marcelo Group of
Companies. It euphemistically called taking of the records evidencing liabilities of
the decedent as “borrowed/taken.” However, the RTC noted that such cannot be
justified as the records and other pertinent documents taken “do not form part of
the estate of Jose P. Marcelo, Sr. but to the corporation from where they were
taken.”ChanRoblesVirtualawlibrary
Contrary to the recent rulings of the RTC and the Court of Appeals appointing Jose,
Jr. as administrator, there is a previous and categorical ruling on Jose, Jr.’s fitness to
serve as such:
It is Jose T. Marcelo’s position that he is more competent, qualified and suitable for
the position of regular administrator. This, above all else is the main thrust of this
second motion for reconsideration. However, the court in the exercise of its sound
discretion after a consideration of the evidence adduced by both parties, ruled
otherwise and instead appointed Edward T. Marcelo as regular
administrator.cralawred
x x x True, Jose T. Marcelo, Jr. was initially appointed as Special Administrator of the
estate of their deceased father but the same was without the benefit of a hearing
on the qualifications of the parties concerned. x x x This did not however confer on
Jose Marcelo, Jr. as Special Administrator a better right to the office of regular
administrator. x x x.cralawred
xxxx
The third assigned error raised by [Jose, Jr.] “that both trial judges erred in not
appointing Special Administrator Jose T. Marcelo, Jr. as Regular Administrator
considering his tested probity and competence as special administrator, his good
name and integrity in accordance with the evidence,” is devoid of merit, as already
discussed earlier.
The findings of the lower court in this regard deserve full consideration x x x. 24
Undoubtedly, there has been a declaration that Jose, Jr. is unfit and unsuitable to
administer his father’s estate.
To obviate further delay in the settlement of Jose, Sr.’s estate, we emphasize that
such is already at the liquidation and distribution stage which project of partition
had long been conformed to by the parties.
We note that this case has been unnecessarily prolonged and resulted in added
litigation by the non-payment of estate taxes which is the ultimate responsibility of
the heirs having inchoate right in the estate, should there be assets remaining, to be
partitioned and distributed. The inheritance tax is an obligation of the estate,
indirectly the heirs:
SECTION 1. When order for distribution of residue made. – When the debts, xxx, and
inheritance tax, if any, chargeable to the estate in accordance with law, have been
paid, xxx.
No distribution shall be allowed until payment of the obligations above mentioned
has been made or provided for, unless the distributees, or any of them, give a bond,
in a sum to be fixed by the court, conditioned for the payment of said obligations
within such time as the court directs.25
Given the factual considerations that led to the prior findings on the unfitness of
Jose, Jr. to act as regular administrator; the Affidavit of Helen 26 preferring George as
administrator; and the conformity on record of the rest of Jose, Sr.’s heirs to
George’s administration as reflected in petitioners’ Appellants’ Briefbefore the
Court of Appeals:
More importantly, consistent with Section 6, Rule 78 of the Rules of Court, not only
is George the eldest son of Jose, Sr. and, therefore, his most immediate kin, he has,
moreover, been chosen by the rest of the heirs of Jose, Sr. to perform the functions
of an administrator. In this regard, in addition to George and the heirs of Edward,
Helen executed an Affidavit to manifest her opposition to Jose, Jr. and to support
the appointment of George and herself as joint administrators, a copy of which was
given to the [Court of Appeals.]27
we thus issue Letters of Administration to George to facilitate and close the
settlement of Jose, Sr.’s estate.28chanrobleslaw
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-
G.R. CV No. 95219 and the Order dated 6 January 2010 of the Regional Trial Court,
Branch 76, Quezon City in S.P. Proc. No. Q-88-1448 are REVERSED and SET ASIDE. respondent Commissioner of the Bureau of Internal Revenue (BIR) of the special
Letters of Administration shall issue to George T. Marcelo upon payment of a bond proceedings for the Estate.
to be set by the Regional Trial Court, Branch 76, Quezon City. The Regional Trial
Court, Branch 76, Quezon City is likewise directed to complete the settlement of the Petitioner alleged that several requests for extension of the period to file the
decedent’s, Jose T. Marcelo, Sr.’s, estate with dispatch starting from an Order required estate tax return were granted by the BIR since the assets of the estate, as
setting a deadline for the parties to pay the estate taxes and to inform this Court well as the claims against it, had yet to be collated, determined and identified. Thus,
when such has been paid. in a letter8 dated March 14, 1990, Justice Dizon authorized Atty. Jesus M. Gonzales
(Atty. Gonzales) to sign and file on behalf of the Estate the required estate tax
SO ORDERED.cralawlawlibrary return and to represent the same in securing a Certificate of Tax Clearance.
Eventually, on April 17, 1990, Atty. Gonzales wrote a letter 9 addressed to the BIR
Regional Director for San Pablo City and filed the estate tax return 10 with the same
Republic of the Philippines BIR Regional Office, showing therein a NIL estate tax liability, computed as follows:
SUPREME COURT
Manila COMPUTATION OF TAX
Conjugal Real Property (Sch. 1) P10,855,020.00
THIRD DIVISION
Conjugal Personal Property (Sch.2) 3,460,591.34
G.R. No. 140944 April 30, 2008 Taxable Transfer (Sch. 3)

RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial Administrator of the Gross Conjugal Estate 14,315,611.34
Estate of the deceased JOSE P. FERNANDEZ, petitioner, Less: Deductions (Sch. 4) 187,822,576.06
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL Net Conjugal Estate NIL
REVENUE, respondents. Less: Share of Surviving Spouse NIL.
Net Share in Conjugal Estate NIL
DECISION
xxx
NACHURA, J.:
Net Taxable Estate NIL.
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Estate Tax Due NIL.11
Civil Procedure seeking the reversal of the Court of Appeals (CA) Decision 2 dated
April 30, 1999 which affirmed the Decision3 of the Court of Tax Appeals (CTA) dated On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G. Umali
June 17, 1997.4 issued Certification Nos. 2052[12]and 2053[13] stating that the taxes due on the
transfer of real and personal properties[14] of Jose had been fully paid and said
The Facts properties may be transferred to his heirs. Sometime in August 1990, Justice Dizon
passed away. Thus, on October 22, 1990, the probate court appointed petitioner as
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the the administrator of the Estate.15
probate of his will5 was filed with Branch 51 of the Regional Trial Court (RTC) of
Manila (probate court).[6] The probate court then appointed retired Supreme Court Petitioner requested the probate court's authority to sell several properties forming
Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon part of the Estate, for the purpose of paying its creditors, namely: Equitable Banking
(petitioner) as Special and Assistant Special Administrator, respectively, of the Corporation (P19,756,428.31), Banque de L'Indochine et. de Suez (US$4,828,905.90
Estate of Jose (Estate). In a letter7dated October 13, 1988, Justice Dizon informed as of January 31, 1988), Manila Banking Corporation (P84,199,160.46 as of February
28, 1989) and State Investment House, Inc. (P6,280,006.21). Petitioner manifested Nature of Document (sic) Exhibits
that Manila Bank, a major creditor of the Estate was not included, as it did not file a
claim with the probate court since it had security over several real estate properties 1. Letter dated October 13, 1988 from Arsenio P. Dizon "A"
forming part of the Estate.16
addressed to the Commissioner of Internal Revenue
informing the latter of the special proceedings for the
However, on November 26, 1991, the Assistant Commissioner for Collection of the
settlement of the estate (p. 126, BIR records);
BIR, Themistocles Montalban, issued Estate Tax Assessment Notice No. FAS-E-87-
91-003269,17 demanding the payment of P66,973,985.40 as deficiency estate tax, 2. Petition for the probate of the will and issuance of letter "B" & "B-
itemized as follows: of administration filed with the Regional Trial Court 1"
(RTC) of Manila, docketed as Sp. Proc. No. 87-42980 (pp.
Deficiency Estate Tax- 1987 107-108, BIR records);
Estate tax P31,868,414.48 3. Pleading entitled "Compliance" filed with the probate "C"
25% surcharge- late filing 7,967,103.62 Court submitting the final inventory of all the properties
of the deceased (p. 106, BIR records);
late payment 7,967,103.62
4. Attachment to Exh. "C" which is the detailed and "C-1" to
Interest 19,121,048.68 complete listing of the properties of the deceased (pp. "C-17"
89-105, BIR rec.);
Compromise-non filing 25,000.00 5. Claims against the estate filed by Equitable Banking "D" to "D-
Corp. with the probate Court in the amount 24"
non payment 25,000.00
of P19,756,428.31 as of March 31, 1988, together with
the Annexes to the claim (pp. 64-88, BIR records);
no notice of death 15.00
6. Claim filed by Banque de L' Indochine et de Suez with "E" to "E-
no CPA Certificate 300.00 the probate Court in the amount of US $4,828,905.90 as 3"
of January 31, 1988 (pp. 262-265, BIR records);
Total amount due & collectible P66,973,985.4018 7. Claim of the Manila Banking Corporation (MBC) which as "F" to "F-
of November 7, 1987 amounts to P65,158,023.54, but 3"
In his letter19 dated December 12, 1991, Atty. Gonzales moved for the recomputed as of February 28, 1989 at a total amount
reconsideration of the said estate tax assessment. However, in her letter 20 dated
of P84,199,160.46; together with the demand letter
April 12, 1994, the BIR Commissioner denied the request and reiterated that the
from MBC's lawyer (pp. 194-197, BIR records);
estate is liable for the payment of P66,973,985.40 as deficiency estate tax. On May
3, 1994, petitioner received the letter of denial. On June 2, 1994, petitioner filed a 8. Demand letter of Manila Banking Corporation prepared "G" & "G-
petition for review21 before respondent CTA. Trial on the merits ensued. by Asedillo, Ramos and Associates Law Offices addressed 1"
to Fernandez Hermanos, Inc., represented by Jose P.
As found by the CTA, the respective parties presented the following pieces of Fernandez, as mortgagors, in the total amount
evidence, to wit: of P240,479,693.17 as of February 28, 1989 (pp. 186-
187, BIR records);
In the hearings conducted, petitioner did not present testimonial evidence
but merely documentary evidence consisting of the following: 9. Claim of State Investment House, Inc. filed with the RTC, "H" to "H-
Branch VII of Manila, docketed as Civil Case No. 86- 16"
38599 entitled "State Investment House, Inc., Plaintiff,
 versus Maritime Company Overseas, Inc. and/or Jose P. Alberto S. Enriquez and Raymund S. Gallardo; Reviewed by
Fernandez, Defendants," (pp. 200-215, BIR records); Maximino V. Tagle
10. Letter dated March 14, 1990 of Arsenio P. Dizon "I" 4. Signature of Alberto S. Enriquez appearing at the lower portion -do-
addressed to Atty. Jesus M. Gonzales, (p. 184, BIR on p. 2 of Exh. "2";
records); 5. Signature of Ma. Anabella A. Abuloc appearing at the lower -do-
portion on p. 2 of Exh. "2";
11. Letter dated April 17, 1990 from J.M. Gonzales "J"
addressed to the Regional Director of BIR in San Pablo 6. Signature of Raymund S. Gallardo appearing at the Lower -do-
City (p. 183, BIR records); portion on p. 2 of Exh. "2";
7. Signature of Maximino V. Tagle also appearing on p. 2 of Exh. -do-
12. Estate Tax Return filed by the estate of the late Jose P. "K" to "K-
"2";
Fernandez through its authorized representative, Atty. 5"
Jesus M. Gonzales, for Arsenio P. Dizon, with 8. Summary of revenue Enforcement Officers Audit Report, dated p. 139
July 19, 1991;
attachments (pp. 177-182, BIR records);
9. Signature of Alberto Enriquez at the lower portion of Exh. "3"; -do-
13. Certified true copy of the Letter of Administration issued "L"
by RTC Manila, Branch 51, in Sp. Proc. No. 87-42980 10. Signature of Ma. Anabella A. Abuloc at the lower portion of Exh. -do-
appointing Atty. Rafael S. Dizon as Judicial Administrator "3";
of the estate of Jose P. Fernandez; (p. 102, CTA records) 11. Signature of Raymond S. Gallardo at the lower portion of Exh. -do-
and "3";
14. Certification of Payment of estate taxes Nos. 2052 and "M" to 12. Signature of Maximino V. Tagle at the lower portion of Exh. "3"; -do-
2053, both dated April 27, 1990, issued by the Office of "M-5" 13. Demand letter (FAS-E-87-91-00), signed by the Asst. p. 169
the Regional Director, Revenue Region No. 4-C, San Commissioner for Collection for the Commissioner of Internal
Pablo City, with attachments (pp. 103-104, CTA Revenue, demanding payment of the amount
records.). of P66,973,985.40; and
14. Assessment Notice FAS-E-87-91-00 pp. 169-
Respondent's [BIR] counsel presented on June 26, 1995 one witness in 17022
the person of Alberto Enriquez, who was one of the revenue examiners
who conducted the investigation on the estate tax case of the late Jose P. The CTA's Ruling
Fernandez. In the course of the direct examination of the witness, he
identified the following: On June 17, 1997, the CTA denied the said petition for review. Citing this Court's
ruling in Vda. de Oñate v. Court of Appeals,23 the CTA opined that the
Documents/Signatures BIR aforementioned pieces of evidence introduced by the BIR were admissible in
Record evidence. The CTA ratiocinated:
1. Estate Tax Return prepared by the BIR; p. 138
Although the above-mentioned documents were not formally offered as evidence
2. Signatures of Ma. Anabella Abuloc and Alberto Enriquez, Jr. -do- for respondent, considering that respondent has been declared to have waived the
appearing at the lower Portion of Exh. "1"; presentation thereof during the hearing on March 20, 1996, still they could be
3. Memorandum for the Commissioner, dated July 19, 1991, pp. 143- considered as evidence for respondent since they were properly identified during
prepared by revenue examiners, Ma. Anabella A. Abuloc, 144 the presentation of respondent's witness, whose testimony was duly recorded as
part of the records of this case. Besides, the documents marked as respondent's
exhibits formed part of the BIR records of the case.24
Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it Fernandez are hereby ordered to pay to respondent the amount
came up with its own computation of the deficiency estate tax, to wit: of P37,419,493.71 plus 20% interest from the due date of its payment until
full payment thereof as estate tax liability of the estate of Jose P.
Conjugal Real Property P 5,062,016.00 Fernandez who died on November 7, 1987.

Conjugal Personal Prop. 33,021,999.93

SO ORDERED.26
Gross Conjugal Estate 38,084,015.93
Less: Deductions 26,250,000.00 Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for review. 27
Net Conjugal Estate P 11,834,015.93
The CA's Ruling
Less: Share of Surviving Spouse 5,917,007.96
Net Share in Conjugal Estate P 5,917,007.96 On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's
Add: Capital/Paraphernal findings, the CA ruled that the petitioner's act of filing an estate tax return with the
BIR and the issuance of BIR Certification Nos. 2052 and 2053 did not deprive the BIR
Commissioner of her authority to re-examine or re-assess the said return filed on
Properties – P44,652,813.66
behalf of the Estate.28
Less: Capital/Paraphernal Deductions 44,652,813.66
On May 31, 1999, petitioner filed a Motion for Reconsideration 29 which the CA
denied in its Resolution30 dated November 3, 1999.
Net Taxable Estate P 50,569,821.62
============
Hence, the instant Petition raising the following issues:

1. Whether or not the admission of evidence which were not formally

Estate Tax Due P 29,935,342.97 offered by the respondent BIR by the Court of Tax Appeals which was
subsequently upheld by the Court of Appeals is contrary to the Rules of
Add: 25% Surcharge for Late Filing 7,483,835.74 Court and rulings of this Honorable Court;
Add: Penalties for-No notice of death 15.00
No CPA certificate 300.00 2. Whether or not the Court of Tax Appeals and the Court of Appeals erred
in recognizing/considering the estate tax return prepared and filed by
respondent BIR knowing that the probate court appointed administrator of
Total deficiency estate tax P 37,419,493.71
the estate of Jose P. Fernandez had previously filed one as in fact, BIR
============
Certification Clearance Nos. 2052 and 2053 had been issued in the estate's
favor;
exclusive of 20% interest from due date of its payment until full payment
thereof 3. Whether or not the Court of Tax Appeals and the Court of Appeals erred
in disallowing the valid and enforceable claims of creditors against the
[Sec. 283 (b), Tax Code of 1987].25 estate, as lawful deductions despite clear and convincing evidence thereof;
and
Thus, the CTA disposed of the case in this wise:
4. Whether or not the Court of Tax Appeals and the Court of Appeals erred
WHEREFORE, viewed from all the foregoing, the Court finds the petition in validating erroneous double imputation of values on the very same
unmeritorious and denies the same. Petitioner and/or the heirs of Jose P.
 estate properties in the estate tax return it prepared and filed which
effectively bloated the estate's assets.31
The petitioner claims that in as much as the valid claims of creditors against the
Estate are in excess of the gross estate, no estate tax was due; that the lack of a
formal offer of evidence is fatal to BIR's cause; that the doctrine laid down in Vda.
de Oñate has already been abandoned in a long line of cases in which the Court held
that evidence not formally offered is without any weight or value; that Section 34 of
Rule 132 of the Rules on Evidence requiring a formal offer of evidence is mandatory
in character; that, while BIR's witness Alberto Enriquez (Alberto) in his testimony
before the CTA identified the pieces of evidence aforementioned such that the
same were marked, BIR's failure to formally offer said pieces of evidence and
depriving petitioner the opportunity to cross-examine Alberto, render the same
inadmissible in evidence; that assuming arguendo that the ruling in Vda. de Oñate is
still applicable, BIR failed to comply with the doctrine's requisites because the
documents herein remained simply part of the BIR records and were not duly
incorporated in the court records; that the BIR failed to consider that although the
actual payments made to the Estate creditors were lower than their respective
claims, such were compromise agreements reached long after the Estate's liability
had been settled by the filing of its estate tax return and the issuance of BIR
Certification Nos. 2052 and 2053; and that the reckoning date of the claims against
the Estate and the settlement of the estate tax due should be at the time the estate
tax return was filed by the judicial administrator and the issuance of said BIR
Certifications and not at the time the aforementioned Compromise Agreements
were entered into with the Estate's creditors. 32
On the other hand, respondent counters that the documents, being part of the
records of the case and duly identified in a duly recorded testimony are considered
evidence even if the same were not formally offered; that the filing of the estate tax
return by the Estate and the issuance of BIR Certification Nos. 2052 and 2053 did
not deprive the BIR of its authority to examine the return and assess the estate tax;
and that the factual findings of the CTA as affirmed by the CA may no longer be
reviewed by this Court via a petition for review.33
The Issues
There are two ultimate issues which require resolution in this case:
First. Whether or not the CTA and the CA gravely erred in allowing the admission of
the pieces of evidence which were not formally offered by the BIR; and
Second. Whether or not the CA erred in affirming the CTA in the latter's
determination of the deficiency estate tax imposed against the Estate.
The Court’s Ruling
The Petition is impressed with merit.
Under Section 8 of RA 1125, the CTA is categorically described as a court of record.
As cases filed before it are litigated de novo, party-litigants shall prove every minute
aspect of their cases. Indubitably, no evidentiary value can be given the pieces of
evidence submitted by the BIR, as the rules on documentary evidence require that
these documents must be formally offered before the CTA. 34 Pertinent is Section 34,
Rule 132 of the Revised Rules on Evidence which reads:
SEC. 34. Offer of evidence. — The court shall consider no evidence which
has not been formally offered. The purpose for which the evidence is
offered must be specified.
The CTA and the CA rely solely on the case of Vda. de Oñate, which reiterated this
Court's previous rulings in People v. Napat-a35 and People v. Mate36 on the
admission and consideration of exhibits which were not formally offered during the
trial. Although in a long line of cases many of which were decided after Vda. de
Oñate, we held that courts cannot consider evidence which has not been formally
offered,37 nevertheless, petitioner cannot validly assume that the doctrine laid
down in Vda. de Oñate has already been abandoned. Recently, in Ramos v.
Dizon,38this Court, applying the said doctrine, ruled that the trial court judge therein
committed no error when he admitted and considered the respondents' exhibits in
the resolution of the case, notwithstanding the fact that the same were not
formally offered. Likewise, in Far East Bank & Trust Company v. Commissioner of
Internal Revenue,39 the Court made reference to said doctrine in resolving the issues
therein. Indubitably, the doctrine laid down in Vda. De Oñate still subsists in this
jurisdiction. In Vda. de Oñate, we held that:
From the foregoing provision, it is clear that for evidence to be considered, the
same must be formally offered. Corollarily, the mere fact that a particular
document is identified and marked as an exhibit does not mean that it has already
been offered as part of the evidence of a party. In Interpacific Transit, Inc. v.
Aviles [186 SCRA 385], we had the occasion to make a distinction between
identification of documentary evidence and its formal offer as an exhibit. We said
that the first is done in the course of the trial and is accompanied by the marking
of the evidence as an exhibit while the second is done only when the party rests
its case and not before. A party, therefore, may opt to formally offer his evidence
if he believes that it will advance his cause or not to do so at all. In the event he
chooses to do the latter, the trial court is not authorized by the Rules to consider
the same.
 However, in People v. Napat-a [179 SCRA 403] citing People v. Mate [103 SCRA
484], we relaxed the foregoing rule and allowed evidence not formally offered
to be admitted and considered by the trial court provided the following
requirements are present, viz.: first, the same must have been duly identified by
testimony duly recorded and, second, the same must have been incorporated in
the records of the case.40
From the foregoing declaration, however, it is clear that Vda. de Oñate is merely an
exception to the general rule. Being an exception, it may be applied only when
there is strict compliance with the requisites mentioned therein; otherwise, the
general rule in Section 34 of Rule 132 of the Rules of Court should prevail.
In this case, we find that these requirements have not been satisfied. The assailed
pieces of evidence were presented and marked during the trial particularly when
Alberto took the witness stand. Alberto identified these pieces of evidence in his
direct testimony.41 He was also subjected to cross-examination and re-cross
examination by petitioner.42 But Alberto’s account and the exchanges between
Alberto and petitioner did not sufficiently describe the contents of the said pieces
of evidence presented by the BIR. In fact, petitioner sought that the lead examiner,
one Ma. Anabella A. Abuloc, be summoned to testify, inasmuch as Alberto was
incompetent to answer questions relative to the working papers.43 The lead
examiner never testified. Moreover, while Alberto's testimony identifying the BIR's
evidence was duly recorded, the BIR documents themselves were not incorporated
in the records of the case.
A common fact threads through Vda. de Oñate and Ramos that does not exist at all
in the instant case. In the aforementioned cases, the exhibits were marked at the
pre-trial proceedings to warrant the pronouncement that the same were duly
incorporated in the records of the case. Thus, we held in Ramos:
In this case, we find and so rule that these requirements have been satisfied. The
exhibits in question were presented and marked during the pre-trial of the case
thus, they have been incorporated into the records. Further, Elpidio himself
explained the contents of these exhibits when he was interrogated by
respondents' counsel...
xxxx
But what further defeats petitioner's cause on this issue is that respondents'
exhibits were marked and admitted during the pre-trial stage as shown by the
Pre-Trial Order quoted earlier.44
While the CTA is not governed strictly by technical rules of evidence,45 as rules of
procedure are not ends in themselves and are primarily intended as tools in the
administration of justice, the presentation of the BIR's evidence is not a mere
procedural technicality which may be disregarded considering that it is the only
means by which the CTA may ascertain and verify the truth of BIR's claims against
the Estate.46 The BIR's failure to formally offer these pieces of evidence, despite
CTA's directives, is fatal to its cause.47 Such failure is aggravated by the fact that not
even a single reason was advanced by the BIR to justify such fatal omission. This, we
take against the BIR.
Per the records of this case, the BIR was directed to present its evidence 48 in the
hearing of February 21, 1996, but BIR's counsel failed to appear.49 The CTA denied
petitioner's motion to consider BIR's presentation of evidence as waived, with a
warning to BIR that such presentation would be considered waived if BIR's evidence
would not be presented at the next hearing. Again, in the hearing of March 20,
1996, BIR's counsel failed to appear.50 Thus, in its Resolution51 dated March 21,
1996, the CTA considered the BIR to have waived presentation of its evidence. In
the same Resolution, the parties were directed to file their respective
memorandum. Petitioner complied but BIR failed to do so.52 In all of these
proceedings, BIR was duly notified. Hence, in this case, we are constrained to apply
our ruling in Heirs of Pedro Pasag v. Parocha:53
A formal offer is necessary because judges are mandated to rest their findings of
facts and their judgment only and strictly upon the evidence offered by the
parties at the trial. Its function is to enable the trial judge to know the purpose or
purposes for which the proponent is presenting the evidence. On the other hand,
this allows opposing parties to examine the evidence and object to its
admissibility. Moreover, it facilitates review as the appellate court will not be
required to review documents not previously scrutinized by the trial court.
Strict adherence to the said rule is not a trivial matter. The Court in Constantino
v. Court of Appeals ruled that the formal offer of one's evidence is deemed
waived after failing to submit it within a considerable period of time. It
explained that the court cannot admit an offer of evidence made after a lapse
of three (3) months because to do so would "condone an inexcusable laxity if
not non-compliance with a court order which, in effect, would encourage
needless delays and derail the speedy administration of justice."
Applying the aforementioned principle in this case, we find that the trial court
had reasonable ground to consider that petitioners had waived their right to
make a formal offer of documentary or object evidence. Despite several
extensions of time to make their formal offer, petitioners failed to comply with
their commitment and allowed almost five months to lapse before finally
 submitting it. Petitioners' failure to comply with the rule on admissibility of
evidence is anathema to the efficient, effective, and expeditious dispensation
of justice.
Having disposed of the foregoing procedural issue, we proceed to discuss the merits
of the case.
Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the highest
respect and will not be disturbed on appeal unless it is shown that the lower courts
committed gross error in the appreciation of facts. 54 In this case, however, we find
the decision of the CA affirming that of the CTA tainted with palpable error.
It is admitted that the claims of the Estate's aforementioned creditors have been
condoned. As a mode of extinguishing an obligation,55 condonation or remission of
debt56 is defined as:
an act of liberality, by virtue of which, without receiving any equivalent, the
creditor renounces the enforcement of the obligation, which is extinguished in
its entirety or in that part or aspect of the same to which the remission refers. It
is an essential characteristic of remission that it be gratuitous, that there is no
equivalent received for the benefit given; once such equivalent exists, the
nature of the act changes. It may become dation in payment when the creditor
receives a thing different from that stipulated; or novation, when the object or
principal conditions of the obligation should be changed; or compromise, when
the matter renounced is in litigation or dispute and in exchange of some
concession which the creditor receives.57
Verily, the second issue in this case involves the construction of Section 79 58 of the
National Internal Revenue Code59 (Tax Code) which provides for the allowable
deductions from the gross estate of the decedent. The specific question is whether
the actual claims of the aforementioned creditors may be fully allowed as
deductions from the gross estate of Jose despite the fact that the said claims were
reduced or condoned through compromise agreements entered into by the Estate
with its creditors.
"Claims against the estate," as allowable deductions from the gross estate under
Section 79 of the Tax Code, are basically a reproduction of the deductions allowed
under Section 89 (a) (1) (C) and (E) of Commonwealth Act No. 466 (CA 466),
otherwise known as the National Internal Revenue Code of 1939, and which was
the first codification of Philippine tax laws. Philippine tax laws were, in turn, based
on the federal tax laws of the United States. Thus, pursuant to established rules of
statutory construction, the decisions of American courts construing the federal tax
code are entitled to great weight in the interpretation of our own tax laws. 60
It is noteworthy that even in the United States, there is some dispute as to whether
the deductible amount for a claim against the estate is fixed as of the decedent's
death which is the general rule, or the same should be adjusted to reflect post-
death developments, such as where a settlement between the parties results in the
reduction of the amount actually paid.61 On one hand, the U.S. court ruled that the
appropriate deduction is the "value" that the claim had at the date of the
decedent's death.62 Also, as held in Propstra v. U.S., 63 where a lien claimed against
the estate was certain and enforceable on the date of the decedent's death, the
fact that the claimant subsequently settled for lesser amount did not preclude the
estate from deducting the entire amount of the claim for estate tax purposes. These
pronouncements essentially confirm the general principle that post-death
developments are not material in determining the amount of the deduction.
On the other hand, the Internal Revenue Service (Service) opines that post-death
settlement should be taken into consideration and the claim should be allowed as a
deduction only to the extent of the amount actually paid. 64Recognizing the dispute,
the Service released Proposed Regulations in 2007 mandating that the deduction
would be limited to the actual amount paid.65
In announcing its agreement with Propstra,66 the U.S. 5th Circuit Court of Appeals
held:
We are persuaded that the Ninth Circuit's decision...in Propstra correctly
apply the Ithaca Trust date-of-death valuation principle to enforceable
claims against the estate. As we interpret Ithaca Trust, when the Supreme
Court announced the date-of-death valuation principle, it was making a
judgment about the nature of the federal estate tax specifically, that it is a
tax imposed on the act of transferring property by will or intestacy and,
because the act on which the tax is levied occurs at a discrete time, i.e., the
instance of death, the net value of the property transferred should be
ascertained, as nearly as possible, as of that time. This analysis supports
broad application of the date-of-death valuation rule.67
We express our agreement with the date-of-death valuation rule, made pursuant to
the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United States.68 First.
There is no law, nor do we discern any legislative intent in our tax laws, which
disregards the date-of-death valuation principle and particularly provides that post-
death developments must be considered in determining the net value of the estate.
It bears emphasis that tax burdens are not to be imposed, nor presumed to be
imposed, beyond what the statute expressly and clearly imports, tax statutes being
construed strictissimi juris against the government.69 Any doubt on whether a
person, article or activity is taxable is generally resolved against taxation. 70 Second.
Such construction finds relevance and consistency in our Rules on Special
Proceedings wherein the term "claims" required to be presented against a
decedent's estate is generally construed to mean debts or demands of a pecuniary
nature which could have been enforced against the deceased in his lifetime, or
liability contracted by the deceased before his death.71 Therefore, the claims
existing at the time of death are significant to, and should be made the basis of, the
determination of allowable deductions.
WHEREFORE, the instant Petition is GRANTED. Accordingly, the assailed Decision
dated April 30, 1999 and the Resolution dated November 3, 1999 of the Court of
Appeals in CA-G.R. S.P. No. 46947 are REVERSED and SET ASIDE. The Bureau of
Internal Revenue's deficiency estate tax assessment against the Estate of Jose P.
Fernandez is hereby NULLIFIED. No costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 210987 November 24, 2014
THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY, Petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, Respondents.
DECISION
VELASCO, JR., J.:
Nature of the Case
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court assailing and seeking the reversal of the Resolutions of the Court of Appeals
(CA) in CA-G.R. SP No. 127984, dated May 23, 20131 and January 21, 2014, which
dismissed outright the petitioner's appeal from the Secretary of Finance's review of
BIR Ruling No. 015-122 for lack of jurisdiction.
The Facts
Petitioner The Philippine American Life and General Insurance Company (Philamlife)
used to own 498,590 Class A shares in Philam Care Health Systems, Inc.
(PhilamCare), representing 49.89% of the latter's outstanding capital stock. In 2009,
petitioner, in a bid to divest itself of its interests in the health maintenance
organization industry, offered to sell its shareholdings in PhilamCare through
competitive bidding. Thus, on September 24, 2009, petitioner's Class A shares were
sold for USD 2,190,000, or PhP 104,259,330 based on the prevailing exchange rate
at the time of the sale, to STI Investments, Inc., who emerged as the highest
bidder.3
After the sale was completed and the necessary documentary stamp and capital
gains taxes were paid, Philamlife filed an application for a certificate authorizing
registration/tax clearance with the Bureau of Internal Revenue (BIR) Large
Taxpayers Service Division to facilitate the transfer of the shares. Months later,
petitioner was informed that it needed to secure a BIR ruling in connection with its
application due to potential donor’s tax liability. In compliance, petitioner, on
January 4, 2012, requested a ruling4 to confirm that the sale was not subject to
donor’s tax, pointing out, in its request, the following: that the transaction cannot
attract donor’s tax liability since there was no donative intent and,ergo, no taxable
donation, citing BIR Ruling [DA-(DT-065) 715-09] dated November 27, 2009;5 that
the shares were sold at their actual fair market value and at arm’s length; that as
long as the transaction conducted is at arm’s length––such that a bona fide business
arrangement of the dealings is done inthe ordinary course of business––a sale for
less than an adequate consideration is not subject to donor’s tax; and that donor’s
tax does not apply to saleof shares sold in an open bidding process.
On January 4, 2012, however, respondent Commissioner on Internal Revenue
(Commissioner) denied Philamlife’s request through BIR Ruling No. 015-12. As
determined by the Commissioner, the selling price of the shares thus sold was
lower than their book value based on the financial statements of PhilamCare as of
the end of 2008.6 As such, the Commisioner held, donor’s tax became imposable on
the price difference pursuant to Sec. 100 of the National Internal Revenue Code
(NIRC), viz:
SEC. 100. Transfer for Less Than Adequate and full Consideration.- Where property,
other than real property referred to in Section 24(D), is transferred for less than an
adequate and full consideration in money or money’s worth, then the amount by
which the fair market value of the property exceeded the value of the consideration
shall, for the purpose of the tax imposed by this Chapter, be deemed a gift, and
shall be included in computing the amount of gifts made during the calendar year.
The afore-quoted provision, the Commissioner added, is implemented by Revenue
Regulation 6-2008 (RR 6-2008), which provides:
SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK NOT TRADED THROUGH
A LOCAL STOCK EXCHANGE PURSUANT TO SECS. 24(C), 25(A)(3), 25(B), 27(D)(2),
28(A)(7)(c), 28(B)(5)(c) OF THE TAX CODE, AS AMENDED. —
xxxx
(c) Determination of Amount and Recognition of Gain or Loss –
(c.1) In the case of cash sale, the selling price shall be the consideration per deed of
sale.
xxxx
(c.1.4) In case the fair market value of the shares of stock sold, bartered, or
exchanged is greater than the amount of money and/or fair market value of the
property received, the excess of the fair market value of the shares of stock sold,
bartered or exchanged overthe amount of money and the fair market value of the
property, if any, received as consideration shall be deemed a gift subject to the
donor’stax under Section 100 of the Tax Code, as amended.
xxxx
(c.2) Definition of ‘fair market value’of Shares of Stock. – For purposes of this
Section, ‘fair market value’ of the share of stock sold shall be:
xxxx
(c.2.2) In the case of shares of stock not listed and traded in the local stock
exchanges, the book value of the shares of stock as shown in the financial
statements duly certified by an independent certified public accountant nearest to
the date of sale shall be the fair market value.
In view of the foregoing, the Commissioner ruled that the difference between the
book value and the selling price in the sales transaction is taxable donation subject
to a 30% donor’s tax under Section 99(B) of the NIRC.7Respondent Commissioner
likewise held that BIR Ruling [DA-(DT-065) 715-09], on which petitioner anchored its
claim, has already been revoked by Revenue Memorandum Circular (RMC) No. 25-
2011.8
Aggrieved, petitioner requested respondent Secretary of Finance (Secretary) to
review BIR Ruling No. 015-12, but to no avail. For on November 26, 2012,
respondent Secretary affirmed the Commissioner’s assailed ruling in its entirety. 9
Ruling of the Court of Appeals
Not contented with the adverse results, petitioner elevated the case to the CA via a
petition for review under Rule 43, assigning the following errors:10
A.
The Honorable Secretary of Finance gravely erred in not finding that the
application of Section 7(c.2.2) of RR 06-08 in the Assailed Ruling and RMC
25-11 is void insofar as it altersthe meaning and scope of Section 100 of the
Tax Code.
B.
The Honorable Secretary of Finance gravely erred in finding that Section 100
of the Tax Code is applicable tothe sale of the Sale of Shares.
1.
The Sale of Shares were sold at their fair market value and for fair and full
consideration in money or money’s worth.
2.
The sale of the Sale Shares is a bona fide business transaction without any
donative intent and is therefore beyond the ambit of Section 100 of the Tax
Code.
3.
It is superfluous for the BIR to require an express provision for the
exemption of the sale of the Sale Shares from donor’s tax since Section 100
of the Tax Code does not explicitly subject the transaction to donor’s tax.
C.
The Honorable Secretary of Finance gravely erred in failing to find that in
the absence of any of the grounds mentioned in Section 246 of the Tax
Code, rules and regulations, rulings or circulars – such as RMC 25-11 –
cannot be given retroactive application to the prejudice of Philamlife.
On May 23, 2013, the CA issued the assailed Resolution dismissing the CA Petition,
thusly:
WHEREFORE, the Petition for Review dated January 9, 2013 is DISMISSED for lack of
jurisdiction.
SO ORDERED.
In disposing of the CA petition, the appellate court ratiocinated that it is the Court
of Tax Appeals (CTA), pursuant to Sec. 7(a)(1) of Republic Act No. 1125 (RA
1125),11 as amended, which has jurisdiction over the issues raised. The outright
dismissal, so the CA held, is predicated on the postulate that BIR Ruling No. 015-12
was issued in the exercise of the Commissioner’s power to interpret the NIRC and
other tax laws. Consequently, requesting for its review can be categorized as "other
matters arising under the NIRC or other laws administered by the BIR," which is
under the jurisdiction of the CTA, not the CA.
Philamlife eventually sought reconsideration but the CA, in its equally assailed
January 21, 2014 Resolution, maintained its earlier position. Hence, the instant
recourse.
Issues
Stripped to the essentials, the petition raises the following issues in both procedure
and substance:
1. Whether or not the CA erred in dismissing the CA Petition for lack of
jurisdiction; and
2. Whether or not the price difference in petitioner’s adverted sale of shares in
PhilamCare attracts donor’s tax.
Procedural Arguments
a. Petitioner’s contentions
Insisting on the propriety of the interposed CA petition, Philamlife, while conceding
that respondent Commissioner issued BIR Ruling No. 015-12 in accordance with her
authority to interpret tax laws, argued nonetheless that such ruling is subject to
review by the Secretary of Finance under Sec. 4 of the NIRC, to wit:
SECTION 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax
Cases. – The power to interpret the provisions of this Code and other tax laws shall
be under the exclusive and original jurisdiction of the Commissioner, subject to
review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees
or other charges, penalties imposed in relation thereto, or other matters arising
under this Code orother laws or portions thereof administered by the Bureau of
Internal Revenue is vested in the Commissioner, subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals. Petitioner postulates that there is a need to
differentiate the rulings promulgated by the respondent Commissioner relating to
those rendered under the first paragraph of Sec. 4 of the NIRC, which are
appealable to the Secretary of Finance, from those rendered under the second
paragraph of Sec. 4 of the NIRC, which are subject to review on appeal with the
CTA.
This distinction, petitioner argues, is readily made apparent by Department Order
No. 7-02,12 as circularized by RMC No. 40-A-02.
Philamlife further averred that Sec.7 of RA 1125, as amended, does not find
application in the case at bar since it only governs appeals from the Commissioner’s
rulings under the second paragraph and does not encompass rulings from the
Secretary of Finance in the exercise of his power of review under the first, as what
was elevated to the CA. It added that under RA 1125, as amended, the only
decisions of the Secretary appealable to the CTA are those rendered in customs
cases elevated to him automatically under Section 2315 of the Tariff and Customs
Code.13
There is, thus, a gap in the law when the NIRC, as couched, and RA 1125, as
amended, failed to supply where the rulings of the Secretary in its exercise of its
power of review under Sec. 4 of the NIRC are appealable to. This gap, petitioner
submits, was remedied by British American Tobacco v. Camacho14 wherein the
Court ruled that where what is assailed is the validity or constitutionality of a law, or
a rule or regulation issued by the administrative agency, the regular courts have
jurisdiction to pass upon the same.
In sum, appeals questioning the decisions of the Secretary of Finance in the exercise
of its power of review under Sec. 4 of the NIRC are not within the CTA’s limited
special jurisdiction and, according to petitioner, are appealable to the CA via a Rule
43 petition for review.
b. Respondents’ contentions
Before the CA, respondents countered petitioner’s procedural arguments by
claiming that even assuming arguendo that the CTA does not have jurisdiction over
the case, Philamlife, nevertheless,committed a fatal error when it failed to appeal
the Secretary of Finance’s ruling to the Office of the President (OP). As made
apparent by the rules, the Department of Finance is not among the agencies and
quasi-judicial bodies enumerated under Sec. 1, Rule 43 of the Rules of Court whose
decisions and rulings are appealable through a petition for review. 15 This is in stark
contrast to the OP’s specific mention under the same provision, so respondents
pointed out.
To further reinforce their argument, respondents cite the President’s power of
review emanating from his power of control as enshrined under Sec. 17 of Article
VII of the Constitution, which reads:
Section 17.The President shall have control of all the executive departments,
bureaus, and offices. He shall ensure that the laws be faithfully executed.
The nature and extent of the President’s constitutionally granted power of control
have beendefined in a plethora of cases, most recently in Elma v. Jacobi, 16 wherein
it was held that:
x x x This power of control, which even Congress cannot limit, let alone withdraw,
means the power of the Chief Executive to review, alter, modify, nullify, or set aside
what a subordinate, e.g., members of the Cabinet and heads of line agencies, had
done in the performance of their duties and to substitute the judgment of the
former for that of the latter.
In their Comment on the instant petition, however, respondents asseverate that the
CA did not err in its holding respecting the CTA’s jurisdiction over the controversy.
The Court’s Ruling
The petition is unmeritorious.
Reviews by the Secretary of Finance pursuant to Sec. 4 of the NIRC are appealable
to the CTA
To recapitulate, three different, if not conflicting, positions as indicated below have
been advanced by the parties and by the CA as the proper remedy open for
assailing respondents’ rulings:
1. Petitioners: The ruling of the Commissioner is subject to review by the
Secretary under Sec. 4 of the NIRC, and that of the Secretary to the CA via Rule 43;
2. Respondents: The ruling of the Commissioner is subject to review by the
Secretary under Sec. 4 of the NIRC, and that of the Secretary to the Office of the
President before appealing to the CA via a Rule 43 petition; and
3. CA: The ruling of the Commissioner is subject to review by the CTA.
We now resolve.
Preliminarily, it bears stressing that there is no dispute that what is involved herein
is the respondent Commissioner’s exercise of power under the first paragraph of
Sec. 4 of the NIRC––the power to interpret tax laws. This, in fact, was recognized by
the appellate court itself, but erroneously held that her action in the exercise of
such power is appealable directly to the CTA. As correctly pointed out by petitioner,
Sec. 4 of the NIRC readily provides that the Commissioner’s power to interpret the
provisions of this Code and other tax laws is subject to review by the Secretary of
Finance. The issue that now arises is this––where does one seek immediate
recourse from the adverse ruling of the Secretary of Finance in its exercise of its
power of review under Sec. 4?
Admittedly, there is no provision in law that expressly provides where exactly the
ruling of the Secretary of Finance under the adverted NIRC provision is appealable
to. However, We find that Sec. 7(a)(1) of RA 1125, as amended, addresses the
seeming gap in the law asit vests the CTA, albeit impliedly, with jurisdiction over the
CA petition as "other matters" arising under the NIRC or other laws administered by
the BIR. As stated:
Sec. 7. Jurisdiction.- The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue or
other laws administered by the Bureau of Internal Revenue. (emphasis supplied)
Even though the provision suggests that it only covers rulings of the Commissioner,
We hold that it is, nonetheless, sufficient enough to include appeals from the
Secretary’s review under Sec. 4 of the NIRC.
It is axiomatic that laws should be given a reasonable interpretation which does not
defeat the very purpose for which they were passed. 17 Courts should not follow the
letter of a statute when to do so would depart from the true intent of the
legislature or would otherwise yield conclusions inconsistent with the purpose of
the act.18 This Court has, in many cases involving the construction of statutes,
cautioned against narrowly interpreting a statute as to defeat the purpose of the
legislator, and rejected the literal interpretation of statutes if todo so would lead to
unjust or absurd results.19
Indeed, to leave undetermined the mode of appeal from the Secretary of Finance
would be an injustice to taxpayers prejudiced by his adverse rulings. To remedy this
situation, Weimply from the purpose of RA 1125 and its amendatory laws that the
CTA is the proper forum with which to institute the appeal. This is not, and should
not, in any way, be taken as a derogation of the power of the Office of President but
merely as recognition that matters calling for technical knowledge should be
handled by the agency or quasi-judicial body with specialization over the
controversy. As the specialized quasi-judicial agency mandated to adjudicate tax,
customs, and assessment cases, there can be no other court of appellate
jurisdiction that can decide the issues raised inthe CA petition, which involves the
tax treatment of the shares of stocks sold. Petitioner, though, nextinvites attention
to the ruling in Ursal v. Court of Tax Appeals20 to argue against granting the CTA
jurisdiction by implication, viz:
Republic Act No. 1125 creating the Court of Tax Appeals did not grant it blanket
authority to decide any and all tax disputes. Defining such special court’s
jurisdiction, the Act necessarily limited its authority to those matters enumerated
therein. Inline with this idea we recently approved said court’s order rejecting an
appeal to it by Lopez & Sons from the decision of the Collector ofCustoms, because
in our opinion its jurisdiction extended only to a review of the decisions of the
Commissioner of Customs, as provided bythe statute — and not to decisions of the
Collector of Customs. (Lopez & Sons vs. The Court of Tax Appeals, 100 Phil., 850, 53
Off. Gaz., [10] 3065).
xxxx
x x x Republic Act No. 1125 is a complete law by itself and expressly enumerates the
matters which the Court of Tax Appeals may consider; such enumeration excludes
all others by implication. Expressio unius est exclusio alterius.
Petitioner’s contention is untenable. Lest the ruling in Ursalbe taken out of context,
but worse as a precedent, it must be noted that the primary reason for the
dismissal of the said case was that the petitioner therein lacked the personality to
file the suit with the CTA because he was not adversely affected by a decision or
ruling of the Collector of Internal Revenue, as was required under Sec. 11 of RA
1125.21 As held:
We share the view that the assessor had no personality to resort to the Court of Tax
Appeals. The rulings of the Board of Assessment Appeals did not "adversely affect"
him. At most it was the City of Cebu that had been adversely affected in the sense
that it could not thereafter collect higher realty taxes from the abovementioned
property owners. His opinion, it is true had been overruled; but the overruling
inflicted no material damage upon him or his office. And the Court of Tax Appeals
was not created to decide mere conflicts of opinion between administrative officers
or agencies. Imagine an income tax examiner resorting to the Court of Tax Appeals
whenever the Collector of Internal Revenue modifies, or lower his assessment on
the return of a tax payer!22
The appellate power of the CTA includes certiorari
Petitioner is quick to point out, however, that the grounds raised in its CA petition
included the nullity of Section 7(c.2.2) of RR 06-08 and RMC 25-11. In an attempt to
divest the CTA jurisdiction over the controversy, petitioner then cites British
American Tobacco, wherein this Court has expounded on the limited jurisdiction of
the CTA in the following wise:
While the above statute confers on the CTA jurisdiction to resolve tax disputes in
general, this does not include cases where the constitutionality of a law or rule is
challenged. Where what is assailed is the validity or constitutionality of a law, or a
rule or regulation issued by the administrative agency in the performance of its
quasi legislative function, the regular courts have jurisdiction to pass upon the
same. The determination of whether a specific rule or set of rules issued by an
administrative agency contravenes the law or the constitution is within the
jurisdiction of the regular courts. Indeed, the Constitution vests the power of
judicial review or the power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction, ordinance, or regulation inthe
courts, including the regional trial courts. This is within the scope of judicial power,
which includes the authority of the courts to determine inan appropriate action the
validity of the acts of the political departments. Judicial power includes the duty of
the courts of justice to settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of
any branch or instrumentality of the Government.23
Vis-a-vis British American Tobacco, it bears to stress what appears to be a
contrasting ruling in Asia International Auctioneers, Inc. v. Parayno, Jr., to wit:
Similarly, in CIR v. Leal, pursuant to Section 116 of Presidential Decree No. 1158
(The National Internal Revenue Code, as amended) which states that "[d]ealers in
securities shall pay a tax equivalent to six (6%) per centum of their gross income.
Lending investors shall pay a tax equivalent to five (5%) per cent, of their gross
income," the CIR issued Revenue Memorandum Order (RMO) No. 15-91 imposing
5% lending investor’s tax on pawnshops based on their gross income and requiring
all investigating units of the BIR to investigate and assess the lending investor’s tax
due from them. The issuance of RMO No. 15-91 was an offshoot of the CIR’s finding
that the pawnshop business is akin to that of "lending investors" as defined in
Section 157(u) of the Tax Code. Subsequently, the CIR issued RMC No. 43-91
subjecting pawn tickets to documentary stamp tax. Respondent therein, Josefina
Leal, owner and operator of Josefina’s Pawnshop, asked for a reconsideration of American Tobacco vs. Camacho, the Supreme Court has ruled that the
both RMO No. 15-91 and RMC No. 43-91, but the same was denied by petitioner determination of whether a specific rule or set of rules issued by an administrative
CIR. Leal then filed a petition for prohibition with the RTC of San Mateo, Rizal, agency contravenes the law or the constitution is within the jurisdiction of the
seeking to prohibit petitioner CIR from implementing the revenue orders. The CIR, regular courts, not the CTA.
through the OSG, filed a motion to dismiss on the ground of lack of jurisdiction. The
RTC denied the motion. Petitioner filed a petition for certiorari and prohibition with xxxx
the CA which dismissed the petition "for lack of basis." In reversing the CA,
dissolving the Writ of Preliminary Injunction issued by the trial court and ordering Petitioner essentially questions the CIR’s ruling that Petitioner’s sale of shares is a
the dismissal of the case before the trial court, the Supreme Court held that "[t]he taxable donation under Sec. 100 of the NIRC. The validity of Sec. 100 of the NIRC,
questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of Sec. 7 (C.2.2) and RMC 25-11 is merely questioned incidentally since it was used by
the Commissioner implementing the Tax Code on the taxability of pawnshops." the CIR as bases for its unfavourable opinion. Clearly, the Petition involves an issue
They were issued pursuant to the CIR’s power under Section 245 of the Tax Code on the taxability of the transaction rather than a direct attack on the
"to make rulings or opinions in connection with the implementation of the constitutionality of Sec. 100, Sec.7 (c.2.2.) of RR 06-08 and RMC 25-11. Thus, the
provisions of internal revenue laws, including ruling on the classification of articles instant Petition properly pertains to the CTA under Sec. 7 of RA 9282.
of sales and similar purposes."The Court held that under R.A. No. 1125 (An Act
Creating the Court of Tax Appeals), as amended, such rulings of the CIR are
As a result of the seemingly conflicting pronouncements, petitioner submits that
appealable to the CTA.
taxpayers are now at a quandary on what mode of appeal should be taken, to which
court or agency it should be filed, and which case law should be followed.
In the case at bar, the assailed revenue regulations and revenue memorandum
circulars are actually rulings or opinions of the CIR on the tax treatment of motor
Petitioner’s above submission is specious.
vehicles sold at public auction within the SSEZ to implement Section 12 of R.A. No.
7227 which provides that "exportation or removal of goods from the territory of the
In the recent case of City of Manila v. Grecia-Cuerdo,25 the Court en banc has ruled
[SSEZ] to the other parts of the Philippine territory shall be subject to customs
that the CTA now has the power of certiorari in cases within its appellate
duties and taxes under the Customs and Tariff Codeand other relevant tax laws of
jurisdiction. To elucidate:
the Philippines." They were issued pursuant to the power of the CIR under Section 4
of the National Internal Revenue Code x x x.24 (emphasis added)
The prevailing doctrine is that the authority to issue writs of certiorari involves the
The respective teachings in British American Tobacco and Asia International exercise of original jurisdiction which must be expressly conferred by the
Constitution or by law and cannot be implied from the mere existence of appellate
Auctioneers, at first blush, appear to bear no conflict––that when the validity or
jurisdiction. Thus, x x x this Court has ruled against the jurisdiction of courts or
constitutionality of an administrative rule or regulation is assailed, the regular
tribunals over petitions for certiorari on the ground that there is no law which
courts have jurisdiction; and if what is assailed are rulings or opinions of the
expressly gives these tribunals such power. Itmust be observed, however, that x x x
Commissioner on tax treatments, jurisdiction over the controversy is lodged with
these rulings pertain not to regular courts but to tribunals exercising quasijudicial
the CTA. The problem with the above postulates, however, is that they failed to
powers. With respect tothe Sandiganbayan, Republic Act No. 8249 now provides
take into consideration one crucial point––a taxpayer can raise both issues
that the special criminal court has exclusive original jurisdiction over petitions for
simultaneously.
the issuance of the writs of mandamus, prohibition, certiorari, habeas corpus,
injunctions, and other ancillary writs and processes in aid of its appellate
Petitioner avers that there is now a trend wherein both the CTA and the CA disclaim
jurisdiction.
jurisdiction over tax cases: on the one hand, mere prayer for the declaration of a tax
measure’s unconstitutionality or invalidity before the CTA can result in a petition’s
In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power
outright dismissal, and on the other hand, the CA will likewise dismiss the same
to the Supreme Court, in the exercise of its original jurisdiction, to issue writs of
petition should it find that the primary issue is not the tax measure’s validity but the
certiorari, prohibition and mandamus. With respect to the Court of Appeals, Section
assessment or taxability of the transaction or subject involved. To illustrate this
9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the appellate court, also in the
point, petitioner cites the assailed Resolution, thusly: Admittedly, in British
exercise of its original jurisdiction, the power to issue, among others, a writ of
certiorari, whether or not in aid of its appellate jurisdiction. As to Regional Trial
Courts, the power to issue a writ of certiorari, in the exercise of their original
jurisdiction, is provided under Section 21 of BP 129.
The foregoing notwithstanding, while there is no express grant of such power, with
respect to the CTA, Section 1, Article VIII of the 1987 Constitution provides,
nonetheless, that judicial power shall be vested in one Supreme Court and in such
lower courts as may be established by law and that judicial power includes the duty
of the courts of justice to settle actual controversies involving rights which are
legally demandable and enforceable, and to determine whether or not there has
been a grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of any branch or instrumentality of the Government.
On the strength of the above constitutional provisions, it can be fairly interpreted
that the power of the CTA includes that of determining whether or not there has
been grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the RTC in issuing an interlocutory order in cases falling within the exclusive
appellate jurisdiction of the tax court. It, thus, follows that the CTA, by
constitutional mandate, is vested with jurisdiction to issue writs of certiorari in
these cases.
Indeed, in order for any appellate court to effectively exercise its appellate
jurisdiction, it must have the authority to issue, among others, a writ of certiorari. In
transferring exclusive jurisdiction over appealed tax cases to the CTA, it can
reasonably be assumed that the law intended to transfer also such power as is
deemed necessary, if not indispensable, in aid of such appellate jurisdiction. There
is no perceivable reason why the transfer should only be considered as partial, not
total. (emphasis added)
Evidently, City of Manilacan be considered as a departure from Ursal in that in spite
of there being no express grant in law, the CTA is deemed granted with powers of
certiorari by implication. Moreover, City of Manila diametrically opposes British
American Tobacco to the effect that it is now within the power of the CTA, through
its power of certiorari, to rule on the validity of a particular administrative ruleor
regulation so long as it is within its appellate jurisdiction. Hence, it can now rule not
only on the propriety of an assessment or tax treatment of a certain transaction,
but also on the validity of the revenue regulation or revenue memorandum circular
on which the said assessment is based.
Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA
petition not only contested the applicability of Sec. 100 of the NIRC over the sales
transaction but likewise questioned the validity of Sec. 7 (c.2.2) of RR 06-08 and
RMC 25-11 does not divest the CTA of its jurisdiction over the controversy, contrary
to petitioner's arguments.
The price difference is subject to donor's tax
Petitioner's substantive arguments are unavailing. The absence of donative intent, if
that be the case, does not exempt the sales of stock transaction from donor's tax
since Sec. 100 of the NIRC categorically states that the amount by which the fair
market value of the property exceeded the value of the consideration shall be
deemed a gift.1âwphi1 Thus, even if there is no actual donation, the difference in
price is considered a donation by fiction of law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely
sets the parameters for determining the "fair market value" of a sale of stocks. Such
issuance was made pursuant to the Commissioner's power to interpret tax laws and
to promulgate rules and regulations for their implementation.
Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued after the
sale, was being applied retroactively in contravention to Sec. 246 of the
NIRC.26 Instead, it merely called for the strict application of Sec. 100, which was
already in force the moment the NIRC was enacted.
WHEREFORE, the petition is hereby DISMISSED. The Resolutions of the Court of
Appeals in CA-G.R. SP No. 127984 dated May 23, 2013 and January 21, 2014 are
hereby AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 197590 November 24, 2014
BUREAU OF INTERNAL REVENUE, as represented by the COMMISSIONER OF
INTERNAL REVENUE,Petitioner,
vs.
COURT OF APPEALS, SPOUSES ANTONIO VILLAN MANLY, and RUBY ONG
MANLY, Respondents.
 DECISION 1998 [P]133,532.36 [P] [P] [P]55,834.0 [P] 269,613.46
191,915.10 325,447.46 0<
DEL CASTILLO, J.:
1999 142,550.50 260,961.78 403,512.28 79,254.00 324,258.28
There is grave abuse of discretion when the determination of probable cause is
exercised in an arbitrary or despotic manner, due to passion or personal hostility, so
patent and gross as to amount to an evasion of a positive duty or a virtual refusal to 2000 141,450.00 213,740.67 355,190.67 64,757.21 290,433.46
perform a duty enjoined by law.1 This Petition for Certiorari2 under Rule 65 of the
Rules of Court assails the Decision3 dated October 28, 2010 and the 2001 151,500.00 233,396.62 384,896.62 73,669.00 311,227.62
Resolution4 dated May 10, 2011 of the Court of Appeals (CA) in CA-G.R. SP No.
112479.
2002 148,500.00 186,106.62 334,606.62 58,581.00 276,025.62

Factual Antecedents
2003 148,100.00 152,817.53 300.917.93 48,729.00 252,188.93
Respondent Antonio Villan Manly (Antonio) is a stockholder and the Executive Vice-
President of Standard Realty Corporation, a family-owned corporation.5 He is also
engaged in rental business.6 His spouse, respondent Ruby Ong Manly, is a
housewife.7 ₱1,238,938.3 ₱2,104,571. ₱380,824.2
[Total] ₱865,633.26 ₱1,723,747.3712
2 58 1
On April 27, 2005, petitioner Bureau of Internal Revenue (BIR) issued Letter of
Authority No. 2001 000123878authorizing its revenue officers to investigate
respondent spouses’ internal revenue tax liabilities for taxable year 2003 and prior
years.
and that despite his modestincome for the said years, respondent spouses were
able to purchase in cash the following properties:
On June 6, 2005, petitioner issued a letter9 to respondent spouses requiring them to
submit documentary evidence to substantiate the source of their cash purchase of a
1) a luxurious vacation house in Tagaytay City valuedat ₱17,511,010.0013 in the
256-square meter log cabin in Tagaytay City worth ₱17,511,010.00. Respondent
year 2000, evidenced by a Deed of Absolute Sale14 dated October 24, 2000;
spouses, however, failedto comply with the letter. 10

2) a Toyota RAV4 for ₱1,350,000.00 in the year 2001, evidenced by a Sales

On June 23, 2005, the revenue officers executed a Joint Affidavit11 alleging that
Invoice15 dated June 28, 2001; and
respondent Antonio’s reported or declared annual income for the taxable years
1998-2003 are as follows:
3) a Toyota Prado for ₱2,000,000.00 in 2003, evidenced by a Deed of
Sale16 dated July 9, 2003.17
Net Profit
Rental Since respondent spouses failed to showthe source of their cash purchases, the
Business revenue officers concluded that respondent Antonio’s Income Tax Returns (ITRs) for
Taxable Total
(1169-73 G. Tax taxable years 2000, 2001,and 2003 were underdeclared.18 And since the under
Compensation sources CASH
Masangkay Due/paid declaration exceeded 30% of the reported or declared income, it was considered a
Income of Funds
St., prima facie evidence of fraud with intent to evade the payment of proper taxes due
Tondo, to the government.19 The revenue officers, thus, recommended the filing of criminal
Manila cases against respondent spouses for failing to supply correct and accurate
information intheir ITRs for the years 2000, 2001, and 2003, punishable under
Sections 25420 and 25521 in relation to Section 248(B)22 of Republic Act No. 8424 or
the "Tax Reform Act of 1997," hereinafter referred to as the National Internal
Revenue Code (NIRC).23
Respondent spouses, in their Joint Counter-Affidavit,24 denied the accusations
hurled against them and alleged that they used their accumulated savings from
their earnings for the past24 years in purchasing the properties.25 They also
contended that the criminal complaint should be dismissed because petitioner
failed to issue a deficiency assessment against them. 26
In response, the revenue officers executed a Joint Reply-Affidavit.27 Respondent
spouses, in turn, executed a Joint Rejoinder-Affidavit.28
Ruling of the State Prosecutor
On August 31, 2006, State ProsecutorMa. Cristina A. Montera-Barot issued a
Resolution29 in I.S. No. 2005-573 recommending the filing of criminal
charges30 against respondent spouses, to wit:
WHEREFORE, premises considered, it is respectfully recommended that
[respondent] spouses ANTONIO VILLAN MANLY and RUBY ONG MANLY be charged
[with] the following:
(1) Three (3) counts of Violation of Section 254 – Attempt to Evade or Defeat Tax
of the NIRC for taxable years 2000, 2001, and 2003;
(2) Three (3) counts for Violation of Section 255 of the NIRC – Failure to Supply
Correct and Accurate Information for taxable years 2000, 2001 and 2003;
(3) Three counts of Violation ofSection 255 of the NIRC – Failure to Pay, as a
consequence of [respondent spouses’] failure to supply correct and accurate
information on their tax returns for taxable years 2000, 2001, and 2003.31
32
Respondent spouses moved for reconsideration but the State Prosecutor denied
the same in a Resolution33 dated November 29, 2007.
Ruling of the Secretary of Justice
On appeal to the Secretary of Justice via a Petition for Review,34 Acting Justice
Secretary Agnes VST Devanadera (Devanadera) reversed the Resolution of the State
Prosecutor. She found no willfulfailure to pay or attempt to evade or defeat the tax
on the part of respondent spouses as petitioner allegedly failed to specify the
amount of tax due and the likely source of income from which the same was
based.35 She also pointed out petitioner’s failure to issue a deficiency tax
assessment against respondentspouses which is a prerequisite to the filing of a
criminal case for tax evasion.36 The dispositive portion of the Resolution37 dated July
27, 2009 reads:
WHEREFORE, the assailed Resolution is hereby REVERSED and SET ASIDE. The Chief
State Prosecutor ishereby directed to withdraw the Information filed against
[respondent spouses] Antonio Villan Manly and Ruby Ong Manly, if one has been
filed, and report the action taken thereon within ten (10) days from receipt hereto.
SO ORDERED.38
Petitioner sought reconsideration39 but Acting Justice Secretary Devanadera denied
the same in a Resolution40dated November 5, 2009.
Ruling of the Court of Appeals
Unfazed, petitioner filed a Petition for Certiorari 41 with the CA imputing grave abuse
of discretion on the part of Acting Justice Secretary Devanadera in finding no
probable cause to indict respondent spouses for willfulattempt to evade or defeat
tax and willful failure to supply correct and accurate information for taxable years
2000, 2001 and 2003.
On October 28, 2010, the CA rendered the assailed Decision 42 dismissing the
Petition for Certiorari. Although it disagreed that anassessment is a condition sine
qua nonin filing a criminal case for tax evasion, the CA, nevertheless, ruled that
there was no probable cause to charge respondent spouses as petitioner allegedly
failed to state their exact tax liability and to show sufficient proof of their likely
source of income.43 The CA further said that before one could be prosecuted for tax
evasion,the fact that a tax is due must first be proved.44 Thus:
IN LIGHT OF ALL THE FOREGOING, the instant petition is hereby DENIED, and the
assailed Resolution of the Secretary of Justice dated July 27, 2009 dismissing I.S. No.
2005-573 against private respondents, AFFIRMED. However, the dismissal of the
instant case is without prejudice to the refiling by the BIR of a complaint sufficient
in form and substance before the appropriate tribunal.
SO ORDERED.45
The CA likewise denied petitioner’s Motion for Reconsideration 46 in its
Resolution47 dated May 10, 2011.
 Issues
Hence, petitioner filed the instant Petition contending that the CA committed grave
abuse of discretion amounting to lackor excess of jurisdiction in holding that:
I. A CATEGORICAL FINDING OF THE EXACT AMOUNT OF TAX DUE FROM THE
PRIVATE RESPONDENT SHOULD BE SPECIFICALLY ALLEGED [AND THAT] SINCE THE
BIR FAILED TO MAKE SUCH FINDINGS THEYCONSEQUENTLYFAILED TO BUILD A
CASE FOR TAX EVASION AGAINST [RESPONDENT SPOUSES] DESPITE THE WELL
ESTABLISHED DOCTRINE THAT IN TAX EVASION CASES, A PRECISE COMPUTATION
OF THE [TAX] DUE IS NOT NECESSARY.
II. THE BIR FAILED TO SHOW SUFFICIENT PROOF OF A LIKELY SOURCE OF
[RESPONDENT SPOUSES’] INCOME DESPITE THE FACT THAT THE BIR WAS
SUFFICIENTLY ABLE TO SHOW PROOF OF SUCH INCOME.48
Petitioner’s Arguments
Petitioner imputes grave abuse of discretion on the part of the CA in affirming the
dismissal of the criminal cases against respondent spouses. Petitioner contends that
in filing a criminal case for tax evasion, a prior computation or assessment of tax is
not required because the crime is complete when the violator knowingly and
willfully filed a fraudulent return with intentto evade a part or all of the tax. 49 In this
case, an analysis of respondent spouses’ income and expenditure shows that their
cash expenditure is grossly disproportionate to their reported or declared income,
leading petitioner to believe that they under declared their income. 50 In computing
the unreported or undeclared income, which was likely sourced from respondent
Antonio’s rental business,51 petitioner used the expenditure method of
reconstructing income, a method used to determine a taxpayer’s income tax
liability when his records are inadequate or inaccurate.52 And since respondent
spouses failed to explain the alleged unreported or undeclared income, petitioner
asserts that criminal charges for tax evasion should be filed against them.
Respondent spouses’ Arguments
Respondent spouses, on the other hand, argue that the instant Petition should be
dismissed as petitioner availed of the wrong remedy in filing a Petition for Certiorari
under Rule 65 of the Rules of Court.53 And even if the Petition is given due course,
the same should still be dismissed because no grave abuse of discretion can be
attributed to the CA.54 They maintain that petitioner miserably failed to prove that a
tax is actually due.55 Neither was it able to show the source of the alleged
unreported or undeclared income as required by Revenue Memorandum Order No.
15-95, Guidelines and Investigative Procedures in the Development of Tax Fraud
Cases for Internal Revenue Officers.56 As to the method used by petitioner, they
claim that it completely ignored their lifetime savings because it was limited to the
years 1998-2003.57
Our Ruling
The Petition is meritorious.
Before discussing the merits of thiscase, we shall first discuss the procedural matter
raised by respondent spouses that petitioner availed of the wrong remedy in filing a
Petition for Certiorari under Rule 65 of the Rules of Court, instead of a Petition for
Review on Certiorari under Rule 45.
Indeed, the remedy of a party aggrieved by a decision, final order, or resolution of
the CA is to file a Petition for Review on Certiorari under Rule 45 of the Rules of
Court, which is a continuation of the appellate process over the original case. 58 And
as a rule, if the remedy of an appeal is available, an action for certiorari under Rule
65 of the Rules of Court, which is anoriginal or independent action based on grave
abuse of discretion amounting to lack or excess of jurisdiction, will not
prosper59 because it is not a substitute for a lost appeal.60
There are, however, exceptions to this rule, to wit: 1) when public welfare and the
advancement of public policy dictate; 2) when the broader interest of justice so
requires; 3) when the writs issued are null and void; 4) when the questioned order
amounts to an oppressive exercise of judicial authority; 5) when, for persuasive
reasons, the rules may be relaxed to relieve a litigant of an injustice not
commensurate with his failure to comply with the prescribed procedure; 6) when
the judgment or order is attended by grave abuse of discretion; or 7) in other
meritorious cases.61
In this case, after considering the arguments raised by the parties, we find that
there is reason to give due course to the instant Petition for Certiorari as petitioner
was able to convincingly show that the CA committed grave abuse of discretion
when it affirmed the dismissal of the criminal charges against respondent spouses
despite the fact that there isprobable cause toindict them.
Although the Court has consistently adopted the policy of non-interference in the
conduct and determination of probable cause,62 which is exclusively within the
competence of the Executive Department, through the Secretary of
Justice,63 judicial intrusion, in the form of judicial review, is allowed when there is
proof that the Executive Department gravely abused its discretion in making its
determination and in arriving atthe conclusion it reached.64
Grave abuse of discretion is defined as a capricious and whimsical exercise of
judgment tantamount to lack or excess of jurisdiction, a blatant abuse of authority
so grave and so severe as to deprive the court of its very power to dispense justice,
or an exercise of powerin an arbitrary and despotic manner, due to passion,
prejudice or personal hostility, sopatent and gross as to amount to an evasion or to
a unilateral refusal to perform the duty enjoined or to act in contemplation of the
law.65 Such is the situation in this case.
Having resolved the foregoing procedural matter, we shall now proceed to
determine the main issue in this case.
In the case of income, for it to be taxable, there must be a gain realized or received
by the taxpayer, which is not excluded by law or treaty from taxation.71 The
government is allowed to resort to all evidence or resources available to determine
a taxpayer’s income and to use methods to reconstruct his income.72 A method
commonly used by the government isthe expenditure method, which is a method of
reconstructing a taxpayer’s income by deducting the aggregate yearly expenditures
from the declared yearly income.73 The theory of this method is that when the
amount of the money that a taxpayer spends during a given year exceeds his
reported or declared income and the source of such money is unexplained, it may
be inferred that such expenditures represent unreported or undeclared income. 74

Sections 254 and 255 of the NIRC pertinently provide: In the case at bar, petitioner used this method to determine respondent spouses’
tax liability.1âwphi1 Petitioner deducted respondent spouses’ major cash
SEC. 254. Attempt to Evade or Defeat Tax. – Any person who willfully attempts in acquisitions from their available funds. Thus:
any manner to evade or defeat any tax imposed under this Code or the payment
thereof shall, in addition to other penalties provided by law, upon conviction
thereof, be punished by a fine of not less than Thirty thousand pesos (₱30,000.00)
but not more than One hundred thousand pesos (₱100,000.00) and suffer Cash Loans Withdra Funds Major Unexplain
imprisonment of not less than two (2) years but not more than four (4) years: (busines wal available Acquisitio ed
Provided, That the conviction or acquittal obtained under this Section shall not be a s) of Capital ns Sources of
bar to the filing of a civil suit for the collection of taxes. Funds

SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax,
199 P 900,000 130,638. 1,300,252.
Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. – Any
person required under this Code or by rules and regulations promulgated 8 269,613. .00 98 44
thereunder to pay any tax, make a return, keep any record, or supply correct and 46
accurate information, who willfully fails to pay such tax, make such return, keep
such record, or supply such correct and accurate information, or withhold or remit 199 324,258. (400,00 39,281.8 1,263,792.
taxes withheld, or refund excess taxes withheld on compensation at the time or 9 28 0.00) 7 59
times required by law or rules and regulations shall, in addition to other penalties
provided by law, upon conviction thereof, be punished by a fine of not less than Ten
thousand pesos (₱10,000.00) and suffer imprisonment of not less than one (1) year 200 290,433. - 102,024. 1,656,251. 17,511,01 (15,854,75
but not more than ten (10) years. 0 46 97 02 0.00 8.98)

In Ungab v. Judge Cusi, Jr.,66 we ruled that tax evasion is deemed complete when 200 311,227. - 406,309. 717,537.3 1,350,000 (632,462.6
the violator has knowingly and willfully filed a fraudulent return with intent to 1 62 70 2 .00 8)
evade and defeat a part or all of the tax.67 Corollarily, an assessment of the tax
deficiency is notrequired in a criminal prosecution for tax evasion. 68 However, in
Commissioner of Internal Revenue v. Court of Appeals,69 we clarified that although 200 276,025. (100,00 184,092. 360,117.6
a deficiency assessment is not necessary, the fact that a tax is due must first be 2 62 0.00) 03 5
proved before one can be prosecuted for tax evasion.70
200 252,188. - 245,167. 857,474.5 2,000,000 (1,142,525
3 93 97 5 .00 .45)
[P]
Total Tax Due inclusive of [P]11,565,0 [P]217,91 76
655,369.0
[Tot ₱1,723,7 20,861,01 (17,629,74 7 Increments 24.79 6.02
1
5
al:] 47.37 0.00 7.11)

2000 2001 2003

Unexplained funds – under [P]15,854,7 [P]632,46 [P] Particulars 2000 2001 2003
declaration 58.98 2.68 1,142,525.
45
Unexplained [P]15,854,758.98 [P]632,462.68 [P]1,142,525.45
Funds
Taxable income [P]15,854,7 [P]632,46 [P] [Underdeclaration]
58.98 2.68 1,142,525.
45 Sources of Funds [P]1,656,251.02 [P]717,537.32 [P]817,474.55
as per Financial
Income Tax due thereon: Statements as
attached to the
First Php500,000.00 125,000.00 125,000. 125,000.0 Income Tax Return
00 0
Percentage of 957.27% 88.14% 133.24%77
underdeclaration
In excess of Php500,000.00 4,913,522.8 42,388.0 205,608.1
7 6 4

And since the underdeclaration is more than 30%of respondent spouses’ reported
Total income tax due (net tax 4,973,765.6 93,719.0 281,879.1 or declared income, which under Section 248(B) of the NIRC constitutes as prima
paid) 6 6 4 facie evidence of false or fraudulent return, petitioner recommended the filing of
criminal cases against respondent spouses under Sections 254 and 255, in relation
to Section 248(B) of the NIRC.

The CA, however, found no probable cause to indict respondent spouses for tax
Add: 50% Surcharge 2,486,882.8 46,859.5 165,304.0 evasion. It agreed with Acting Justice Secretary Devanadera that petitioner failed to
3 3 7 make "a categorical finding of the exact amount of tax due from [respondent
spouses]" and "to show sufficient proof of a likely source of [respondent spouses’]
20% Interest (up to 5/31/2005) 4,104,376.2 77,337.4 272,751.7 income that enabled them to purchase the real and personal properties adverted to
- 825 9 3 2 x x x."78 We find otherwise.

The amount of tax due from respondent spouses was specifically alleged in the
Complaint-Affidavit.79 The computation, as wellas the method used in determining
the tax liability, was also clearly explained. The revenue officers likewise showed
that the under declaration exceeded 30% of the reported or declared income.
The revenue officers alsoidentified the likely source of the unreported or
undeclared income intheir Reply-Affidavit. The pertinent portion reads:
7. x x x x
[Respondent spouses] are into rental business and the net profit for six (6) years
before tax summed only to ₱1,238,938.32 (an average of more or less
Php200,000.00 annually). We asked respondent [Antonio] if we can proceed to his
rented property to [appraise] the earning capacity of the building [for] lease/ rent,
but he declined our proposition. Due to such refusal made by the respondent,
[petitioner], thru its examiners,took pictures of the subject property and came up
with the findings that indeed the unexplained funds sought to have been used in
acquiring the valuable property in Tagaytay x x x came from the underdeclaration of
rental income.80
Apparently, the revenue officers considered respondent Antonio’s rental business
to be the likely source of their unreported or undeclared income due to his
unjustified refusal to allow the revenue officers to inspect the building.
Respondent spouses’ defense that they had sufficient savings to purchase the
properties remains self-serving at thispoint since they have not yet presented any
evidence to support this. And since there is no evidence yet to suggest that the
money they used to buy the properties was from an existing fund, it is safe to
assume that that money is income or a flowof wealth other than a mere return on
capital. It is a basic concept in taxation that income denotes a flow of wealth during
a definite period of time, while capital is a fund or property existing at one distinct
point in time.81
Moreover, by just looking at the tables presented by petitioner, there is a manifest
showing that respondent spouses had under declared their income. The huge
disparity between respondent Antonio’s reported or declared annual income for
the past several years and respondent spouses’ cash acquisitions for the years 2000,
2001, and 2003 cannot be ignored. Infact, it makes uswonder how they were able
to purchase the properties in cash given respondent Antonio’s meager income.
In view of the foregoing,we are convinced that there is probable cause to indict
respondent spouses for tax evasion aspetitioner was able to show that a tax is due
from them. Probable cause, for purposes of filing a criminal information, is defined
as such facts that are sufficient to engender a well-founded belief that a crime has
been committed, that the accusedis probably guilty thereof, and that he should be
held for trial.82 It bears stressing that the determination of probable cause does not
require actual or absolute certainty, nor clear and convincing evidence of guilt; it
only requires reasonable belief or probability that more likely than not a crime has
been committed by the accused.83
In completely disregarding the evidence presented and in affirming the ruling of the
Acting Justice Secretary Devanadera that no probable cause exists, we find that the
CA committed grave abuse of discretion amounting to lack or excess of jurisdiction.
As we have said, ifthere is grave abuse of discretion, the court may step in and
proceed to make its own independent determination of probable cause as judicial
review is allowed to ensure that the Executive Department acts within the
permissible bounds of its authority or does not gravely abuse the same. 84
We must make it clear, however, that we are only here to determine probable
cause.1âwphi1 As to whether respondent spouses are guilty of tax evasion is an
issue that must be resolved during the trial of the criminal case, where the quantum
of proof required is proof beyond reasonable doubt.
Before we close, we must stress that our ruling in this case should not be
interpreted as an unbridled license for our tax officials to engage in fishing
expeditions and witch-hunting. They should not abuse their investigative powers,
instead they should exercise the same within the bounds of the law. They must
properly observe the guidelines in making assessments and investigative
procedures to ensure that the constitutional rights of the taxpayers are well
protected as we cannot allow the floodgates to be opened for frivolous and
malicious tax suits.
WHEREFORE, the Petition is hereby GRANTED. The Decision dated October 28, 2010
and the Resolution dated May 10, 2011 of the Court of Appeals in CA-G.R. SP No.
112479 are hereby REVERSED and SET ASIDE. The Resolutions dated August 31,
2006 and November 29, 2007 of State Prosecutor Ma. Cristina A. Montera-Barot in
LS. No. 2005-573 finding probable cause to indict respondent spouses Antonio
Villan Manly and Ruby Ong Manly for Violation of Sections 254 and 255 of the
National Internal Revenue Code are hereby REINSTATED.
SO ORDERED.
 SECOND DIVISION
G.R. No. 206526, January 28, 2015
WINEBRENNER & IÑIGO INSURANCE BROKERS, INC., Petitioner, v. COMMISSIONER
OF INTERNAL REVENUE, Respondents.
DECISION
MENDOZA, J.:
In this petition for review under Rule 45 of the Rules of Court and Rule 16 of the
Revised Rules of the Court of Tax Appeals, Winebrenner & Iñigo Insurance Brokers,
Inc. (petitioner) seeks the review of the March 22, 2013 Decision1 of the Court of
Tax Appeals En Banc (CTA-En Banc). In the said decision, the CTA-En Banc affirmed
the denial of petitioner’s judicial claim for refund or issuance of tax credit certificate
for excess and unutilized creditable withholding tax (CWT) for the 1st to 4th quarter
of calendar year (CY) 2003 amounting to P4,073,954.00. In denying the refund, the
CTA-En Banc held that petitioner failed to prove that the excess CWT for CY 2003
was not carried over to the succeeding quarters of the subject taxable year. Under
the 1997 National Internal Revenue Code (NIRC), a taxpayer must not have
exercised the option to carry over the excess CWT for a particular taxable year in
order to qualify for refund.
The Factual Antecedents
On April 15, 2004, petitioner filed its Annual Income Tax Return for CY 2003.
About two years thereafter or on April 7, 2006, petitioner applied for the
administrative tax credit/refund claiming entitlement to the refund of its excess or
unutilized CWT for CY 2003, by filing BIR Form No. 1914 with the Revenue District
Office No. 50 of the Bureau of Internal Revenue (BIR).
There being no action taken on the said claim, a petition for review was filed by
petitioner before the CTA on April 11, 2006. The case was docketed as CTA Case No.
7440 and was raffled to the Special First Division (CTA Division).
On April 13, 2010, CTA Division partially granted petitioner’s claim for refund of
excess and unutilized CWT for CY 2003 in the reduced amount of P2,737,903.34 in
its April 13, 2010 Decision2(original decision). The dispositive portion of the decision
reads:chanRoblesvirtualLawlibrary
In view of the foregoing, the Petition for Review is hereby PARTIALLY
GRANTED. Accordingly, respondent is hereby ORDERED to REFUND or ISSUE A TAX
CREDIT CERTIFICATE in favor of the petitioner in the reduced amount of
P2,737,903.34 representing its excess/unutilized creditable withholding taxes for
the year 2003.
SO ORDERED.3
Petitioner filed a Motion for Partial Reconsideration with Leave to Submit
Supplemental Evidence. It prayed that an amended decision be issued granting the
entirety of its claim for refund, or in the alternative, that it be allowed to submit
and offer relevant documents as supplemental evidence.
Respondent Commissioner of Internal Revenue (CIR) also moved for
reconsideration, praying for the denial of the entire amount of refund because
petitioner failed to present the quarterly Income Tax Returns (ITRs) for CY 2004. To
the CIR, the presentation of the 2004 quarterly ITRs was indispensable in proving
petitioner’s entitlement to the claimed amount because it would prove that no
carry-over of unutilized and excess CWT for the four (4) quarters of CY 2003 to the
succeeding four (4) quarters of CY 2004 was made. In the absence of said ITRs, no
refund could be granted. In the CIR’s view, this was in accordance with the
irrevocability rule under Section 76 of the NIRC which
reads:chanRoblesvirtualLawlibrary
SEC. 76. Final Adjustment Return. – Every corporation liable to tax under Section 27
shall file an adjustment return covering the total taxable income for the preceding
calendar or fiscal year. If the sum of the quarterly tax payments made during the
said taxable year is not equal to the total tax due on the entire taxable income of
that year, the corporation shall either:chanRoblesvirtualLawlibrary
(A) Pay the balance of tax still due; or
(B) Carry-over the excess credits; or
(C) Be credited or refunded with the excess amount paid, as the case may
be.cralawred
In case the corporation is entitled to a tax credit or refund of the excess estimated
quarterly income taxes paid, the excess amount shown on its final adjustment
return may be carried over and credited against the estimated quarterly income tax
liabilities for the taxable quarters of the succeeding taxable years. Once the option
to carry-over and apply the excess quarterly income tax against income tax due for
the taxable quarters of the succeeding taxable years has been made, such option
shall be considered irrevocable for that taxable period and no application for cash
refund or issuance of a tax credit certificate shall be allowed therefor.
On July 27, 2011, the CTA-Division reversed itself. In an Amended Decision,4 it
denied the entire claim of petitioner. It reasoned out that petitioner should have
presented as evidence its first, second and third quarterly ITRs for the year 2004 to
prove that the unutilized CWT being claimed had not been carried over to the
succeeding quarters. Thus:chanRoblesvirtualLawlibrary
WHEREFORE, in view of the foregoing, petitioner’s Motion for Partial
Reconsideration is hereby DENIED while respondent’s Motion for Reconsideration is
hereby GRANTED. Accordingly, the Decision dated April 13, 2010 granting
petitioner’s claim in the reduced amount of P2,737,903.34 is hereby REVERSED
AND SET ASIDE. Consequently, the instant Petition for Review is
hereby DENIED due to insufficiency of evidence.
SO ORDERED.5
Aggrieved, petitioner elevated the case to the CTA En Banc praying for the reversal
of the Amended Decision of the CTA Division.
In its March 22, 2013 Decision,6 the CTA-En Banc affirmed the Amended Decision of
the CTA-Division. It stated that before a cash refund or an issuance of tax credit
certificate for unutilized excess tax credits could be granted, it was essential for
petitioner to establish and prove, by presenting the quarterly ITRs of the succeeding
years, that the excess CWT was not carried over to the succeeding taxable quarters
considering that the option to carry over in the succeeding taxable quarters could
not be modified in the final adjustment returns (FAR). Because petitioner did not
present the first, second and third quarterly ITRs for CY 2004, despite having
offered and submitted the Annual ITR/FAR for the same year, the CTA-En Banc
stated that the petitioner failed to discharge its burden, hence, no refund could be
granted. In justifying its conclusions, the CTA-En Banc cited its own case
of Millennium Business Services, Inc. v. Commissioner of Internal Revenue
(Millennium)7 wherein it held as follows:chanRoblesvirtualLawlibrary
Since the burden of proof is upon the claimant to show that the amount claimed
was not utilized or carried over to the succeeding taxable quarters, the presentation
of the succeeding quarterly income tax return and final adjustment return is
indispensable to prove that it did not carry over or utilized the claimed excess
creditable withholding taxes. Absent thereof, there will be no basis for a taxpayer’s
claim for refund since there will be no evidence that the taxpayer did not carry over
or utilize the claimed excess creditable withholding taxes to the succeeding taxable
quarters.
Significantly, a taxpayer may amend its quarterly income tax return or annual
income tax return or Final Adjustment Return, which in any case may modify the
previous intention to carry-over, apply as tax credit certificate or refund, as the case
may be. But the option to carry over in the succeeding taxable quarters under the
irrevocability rule cannot be modified in its final adjustment return.
The presentation of the final adjustment return does not shift the burden of proof
that the excess creditable withholding tax was not utilized or carried over to the
first three (3) taxable quarters. It remains with the taxpayer claimant. It goes
without saying that final adjustment returns of the preceding and the succeeding
taxable years are not sufficient to prove that the amount claimed was utilized or
carried over to the first three (3) taxable quarters.
The importance of the presentation of the succeeding quarterly income tax return
and the annual income tax return of the subsequent taxable year need not be
overly emphasized. All corporations subject to income tax, are required to file
quarterly income tax returns, on a cumulative basis for the preceding quarters,
upon which payment of their income tax has been made. In addition to the
quarterly income tax returns, corporations are required to file a final or adjustment
return on or before the fifteenth day of April. The quarterly income tax return, like
the final adjustment return, is the most reliable firsthand evidence of corporate acts
pertaining to income taxes, as it includes the itemization and summary of additions
to and deductions from the income tax due. These entries are not without rhyme or
reason. They are required, because they facilitate the tax administration process,
and guide this Court to the veracity of a petitioner’s claim for refund without which
petitioner could not prove with certainty that the claimed amount was not utilized
or carried over to the succeeding quarters or the option to carry over and apply the
excess was effectively chosen despite the intent to claim a refund.
In the same vein, if the government wants to disprove that the excess creditable
withholding tax was not utilized or carried over to the succeeding taxable quarters,
the presentation of the succeeding quarterly income tax return and the annual
income tax return of the subsequent taxable year indicating utilization or carrying
over are [sic] indispensible. However, the claimant must first establish its claim for
refund, such that it did not utilize or carry over or that it opted to utilize and carry
over to the 1st, 2nd, 3rd quarters and final adjustment return of the succeeding
taxable year.
Concomitantly, the presentation of the quarterly income tax return and the annual
income tax return to prove the fact that excess creditable withholding tax was not
utilized or carried over or opted to be utilized and carried over to the 1st, 2nd, 3rd
quarters and final adjustment return of the succeeding taxable quarter is not only
for convenience to facilitate the tax administration process but it is part of the
requisites to establish the claim for refund. Section 76 of the NIRC of 1997 provides
that if the taxpayer claimant carries over and applies the excess quarterly income
tax against the income tax due for the taxable quarters of the succeeding taxable
years, the same is irrevocable and no application for cash refund or issuance of a tax quarterly ITRs were not presented, the CIR submits that the petitioner failed to
credit certificate shall be allowed.8 prove its right to a tax refund.

Issue
Hence, this petition.
The sole issue here is whether the submission and presentation of the quarterly
Noteworthy is the fact that the CTA-En Banc ruling was met with two dissents from
ITRs of the succeeding quarters of a taxable year is indispensable in a claim for
Associate Justices Juanito C. Castañeda (Justice Castañeda) and Esperanza R. Fabon-
refund.
Victorino (Justice Fabon-Victorino).
The Court’s Ruling
In his Dissenting Opinion9 which was concurred in by Justice Fabon-Victorino,
Justice Castañeda expressed the view that the CTA-En Banc should have reinstated
The Court recognizes, as it always has, that the burden of proof to establish
the CTA-Division’s original decision because in the cases of Philam Asset
entitlement to refund is on the claimant taxpayer.16 Being in the nature of a claim
Management Inc. v. Commissioner of Internal Revenue (Philam);10State Land
for exemption,17 refund is construed in strictissimi juris against the entity claiming
Investment Corporation v. Commissioner of Internal Revenue (State
the refund and in favor of the taxing power.18 This is the reason why a claimant
Land);11Commissioner of Internal Revenue v. PERF Realty Corporation (PERF
must positively show compliance with the statutory requirements provided for
Realty);12 and Commissioner of Internal Revenue v. Mirant (Philippines) Operations,
under the NIRC in order to successfully pursue one’s claim. As implemented by the
Corporation (Mirant),13 this Court already ruled that requiring the ITR or the FAR for
applicable rules and regulations and as interpreted in a vast array of decisions, a
the succeeding year in a claim for refund had no basis in law and jurisprudence.
taxpayer who seeks a refund of excess and unutilized CWT
According to him, the submission of the FAR of the succeeding taxable year was not
must:chanRoblesvirtualLawlibrary
required under the law to prove the claimant’s entitlement to excess or unutilized
CWT, and by following logic, the submission of quarterly income tax returns for the
1) File the claim with the CIR within the two year period from the date of payment
subsequent taxable period was likewise unnecessary. He found no justifiable reason
of the tax;chanrobleslaw
not to follow the existing rulings of this Court.
2) Show on the return that the income received was declared as part of the gross
Petitioner’s reasoning in this petition echoes the dissenting opinion of Justice
income; and
Castaneda. It further submits that despite the non-presentation of the quarterly
ITRs, it has sufficiently shown that the excess CWT for CY 2003 was not carried over
3) Establish the fact of withholding by a copy of a statement duly issued by the
or applied to its income tax liabilities for CY 2004, as shown in the Annual ITR for
payor to the payee showing the amount paid and the amount of tax withheld.19
2004 it submitted. Thus, petitioner insists that its refund should have been granted.
Petitioner further avers, in its Reply,14 that even if Millennium Business case was
applicable, such must be given prospective effect considering that this case was The original decision of the CTA-Division made plain that the petitioner complied
litigated on the basis of the doctrines laid down in Philam, State Land and PERF with the above requisites in so far as the reduced amount of P2,737,903.34 was
Realty cases wherein the submission of quarterly ITRs in a case for tax refund was concerned. In the amended decision, however, it was pointed out that because
held by this Court as not mandatory. petitioner failed to present the quarterly ITRs of the subsequent year, there was an
impossibility of determining compliance with the irrevocability rule under Section
In its Comment,15 the CIR counters that even if the taxpayer signifies the option for 76 of the NIRC as in those documents could be found evidence of whether the
either tax refund or carry-over as tax credit, this does not ipso facto confer the right excess CWT was applied to its income tax liabilities in the quarters of 2004. The
to avail of the option immediately. There is a need, according to the CIR, for an irrevocability rule under Section 76 of the NIRC means that once an option, either
investigation to ascertain the correctness of the corporate returns and the amount for refund or issuance of tax credit certificate or carry-over of CWT has been
sought to be credited; and part of which is to look into the quarterly returns so that exercised, the same can no longer be modified for the succeeding taxable
it may be determined whether or not excess and unutilized CWT was carried over years.20 For said reason, the CTA-En Banc affirmed the conclusion in the amended
into the succeeding quarters of the next taxable year. Because the pertinent decision that because of the said impossibility, the claim for refund was not
substantiated.

The CIR agrees with the disposition of the CTA-En Banc, stressing that the petitioner
failed to carry out the burden of showing that no carry-over was made when it did
not present the quarterly ITRs for CY 2004.
Petitioner disagrees, as the dissents did, that the non-submission of quarterly ITRs is
fatal to its claim.
Hence, the issue on the indispensability of quarterly ITRs of the succeeding taxable
year in a claim for refund.
The Court finds for the petitioner.
There is no question that those who claim must not only prove its entitlement to
the excess credits, but likewise must prove that no carry-over has been made in
cases where refund is sought.
In this case, the fact of having carried over petitioner’s 2003 excess credits to
succeeding taxable year is in issue. According to the CTA-En Banc and the CIR, the
only evidence that can sufficiently show that carrying over has been made is to
present the quarterly ITRs. Some members of this Court adhere to the same view.
The Court however cannot.
Proving that no carry-over has been made does not absolutely require the
presentation of the quarterly ITRs.
In Philam, the petitioner therein sought for recognition of its right to the claimed
refund of unutilized CWT. The CIR opposed the claim, on the grounds similar to the
case at hand, that no proof was provided showing the non-carry over of excess CWT
to the subsequent quarters of the subject year. In a categorical manner, the Court
ruled that the presentation of the quarterly ITRs was not necessary. Therein, it was
written:chanRoblesvirtualLawlibrary
Requiring that the ITR or the FAR of the succeeding year be presented to the BIR in
requesting a tax refund has no basis in law and jurisprudence.
First, Section 76 of the Tax Code does not mandate it. The law merely requires the
filing of the FAR for the preceding – not the succeeding – taxable year. Indeed, any
refundable amount indicated in the FAR of the preceding taxable year may be
credited against the estimated income tax liabilities for the taxable quarters of the
succeeding taxable year. However, nowhere is there even a tinge of a hint in any
provisions of the [NIRC] that the FAR of the taxable year following the period to
which the tax credits are originally being applied should also be presented to the
BIR.
Second, Section 5 of RR 12-94, amending Section 10(a) of RR 6-85, merely provides
that claims for refund of income taxes deducted and withheld from income
payments shall be given due course only (1) when it is shown on the ITR that the
income payment received is being declared part of the taxpayer’s gross income; and
(2) when the fact of withholding is established by a copy of the withholding tax
statement, duly issued by the payor to the payee, showing the amount paid and the
income tax withheld from that amount.
It has been submitted that Philam cannot be cited as a precedent to hold that the
presentation of the quarterly income tax return is not indispensable as it appears
that the quarterly returns for the succeeding year were presented when the
petitioner therein filed an administrative claim for the refund of its excess taxes
withheld in 1997.
It appears however that there is misunderstanding in the ruling of the Court
in Philam. That factual distinction does not negate the proposition that subsequent
quarterly ITRs are not indispensable. The logic in not requiring quarterly ITRs of the
succeeding taxable years to be presented remains true to this day. What Section 76
requires, just like in all civil cases, is to prove the prima facie entitlement to a claim,
including the fact of not having carried over the excess credits to the subsequent
quarters or taxable year. It does not say that to prove such a fact, succeeding
quarterly ITRs are absolutely needed.
This simply underscores the rule that any document, other than quarterly ITRs may
be used to establish that indeed the non-carry over clause has been complied with,
provided that such is competent, relevant and part of the records. The Court is thus
not prepared to make a pronouncement as to the indispensability of the quarterly
ITRs in a claim for refund for no court can limit a party to the means of proving a
fact for as long as they are consistent with the rules of evidence and fair play. The
means of ascertainment of a fact is best left to the party that alleges the same. The
Court’s power is limited only to the appreciation of that means pursuant to the
prevailing rules of evidence. To stress, what the NIRC merely requires is to
sufficiently prove the existence of the non-carry over of excess CWT in a claim for
refund.
The implementing rules similarly support this conclusion, particularly Section 2.58.3
of Revenue Regulation No. 2-98 thereof. There, it provides as
follows:chanRoblesvirtualLawlibrary
SECTION 2.58.3. Claim for Tax Credit or Refund.
(A) The amount of creditable tax withheld shall be allowed as a tax credit against
the income tax liability of the payee in the quarter of the taxable year in which
income was earned or received.
(B) Claims for tax credit or refund of any creditable income tax which was deducted
and withheld on income payments shall be given due course only when it is shown
that the income payment has been declared as part of the gross income and the
fact of withholding is established by a copy of the withholding tax statement duly
issued by the payer to the payee showing the amount paid and the amount of tax
withheld therefrom.
xxx xxx xxx
Evident from the above is the absence of any categorical pronouncement of
requiring the presentation of the succeeding quarterly ITRs in order to prove the
fact of non-carrying over. To say the least, the Court rules that as to the means of
proving it, It has no power to unduly restrict it.
In this case, it confounds the Court why the CTA did not recognize and discuss in
detail the sufficiency of the annual ITR for 2004,21 which was submitted by the
petitioner. The CTA in fact said:chanRoblesvirtualLawlibrary
In the present case, while petitioner did offer its Annual ITR/Final Adjustment
Return for taxable year 2004, it appears that petitioner miserably failed to submit
and offer as part of its evidence the first, second, and third Quarterly ITRs for the
year 2004. Consequently, petitioner was not able to prove that it did not exercise its
option to carry-over its excess CWT.22
Petitioner claims that the requirement of proof showing the non-carry over has
been established in said document.
Indeed, an annual ITR contains the total taxable income earned for the four (4)
quarters of a taxable year, as well as deductions and tax credits previously reported
or carried over in the quarterly income tax returns for the subject period. A quick
look at the Annual ITR reveals this fact:chanRoblesvirtualLawlibrary
Aggregate Income Tax Due
Less Tax Credits/Payments
Prior Year’s excess Credits – Taxes withheld
Tax Payment (s) for the Previous Quarter (s) of the same taxable year other than
MCIT
xxx xxx xxx
Creditable Tax Withheld for the Previous Quarter (s)
Creditable Tax Withheld Per BIR Form No. 2307 for this Quarter
xxx xxx xxx23
It goes without saying that the annual ITR (including any other proof that may be
sufficient to the Court) can sufficiently reveal whether carry over has been made in
subsequent quarters even if the petitioner has chosen the option of tax credit or
refund in the immediately 2003 annual ITR.
Section 76 of the NIRC requires a corporation to file a Final Adjustment Return (or
Annual ITR) covering the total taxable income for the preceding calendar or fiscal
year. The total taxable income contains the combined income for the four quarters
of the taxable year, as well as the deductions and excess tax credits carried over in
the quarterly income tax returns for the same period.
If the excess tax credits of the preceding year were deducted, whether in whole or
in part, from the estimated income tax liabilities of any of the taxable quarters of
the succeeding taxable year, the total amount of the tax credits deducted for the
entire taxable year should appear in the Annual ITR under the item “Prior Year’s
Excess Credits.” Otherwise, or if the tax credits were carried over to the succeeding
quarters and the corporation did not report it in the annual ITR, there would be a
discrepancy in the amounts of combined income and tax credits carried over for all
quarters and the corporation would end up shouldering a bigger tax payable. It
must be remembered that taxes computed in the quarterly returns are mere
estimates. It is the annual ITR which shows the aggregate amounts of income,
deductions, and credits for all quarters of the taxable year. It is the final adjustment
return which shows whether a corporation incurred a loss or gained a profit during
the taxable quarter.24 Thus, the presentation of the annual ITR would suffice in
proving that prior year’s excess credits were not utilized for the taxable year in
order to make a final determination of the total tax due.
In this case, petitioner reported an overpayment in the amount of P7,194,213.00 in
its annual ITR for the year ended December 2003:chanRoblesvirtualLawlibrary
Annual ITR 2003
Income Tax Due 1,259,259.00
Less: Prior Year’s Excess Credits (2002 Annual ITR) (4,379,518.00)
Creditable Tax Withheld for the 4th Quarter (4,073,954.00)
Tax Payable / (Overpayment) (7,194,213.00)
For the overpayment, petitioner chose the option “To be issued a Tax Credit
Certificate.” In its Annual ITR for the year ended December 2004, petitioner did not
report the Creditable Tax Withheld for the 4th quarter of 2003 in the amount of
P4,073,954.00 as prior year’s excess credits. As shown in the 2004
ITR:chanRoblesvirtualLawlibrary
Annual ITR 2004
Income Tax Due 1,321,409.00
Less: Prior Year’s Excess Credits - and equity in the end will prevail.
Creditable Tax Withheld for the 4th Quarter (3,689,419.00)
Tax Payable / (Overpayment) (2,368,010.00)
Verily, the absence of any amount written in the Prior Year excess Credit – Tax
Withheld portion of petitioner’s 2004 annual ITR clearly shows that no prior excess
credits were carried over in the first four quarters of 2004. And since petitioner was
able to sufficiently prove that excess tax credits in 2003 were not carried over to
taxable year 2004 by leaving the item “Prior Year’s Excess Credits” as blank in its
2004 annual ITR, then petitioner is entitled to a refund. Unfortunately, the CTA, in
denying entirely the claim, merely relied on the absence of the quarterly ITRs
despite being able to verify the truthfulness of the declaration that no carry over
was indeed effected by simply looking at the 2004 annual ITR.
At this point, worth mentioning is the fact that subsequent cases affirm the
proposition as correctly pointed out by petitioner. State Land,
PERF and Mirant reiterated the rule that the presentation of the quarterly ITRs of
the subsequent year is not mandatory on the part of the claimant to prove its
claims.
There are some who challenges the applicability of PERF in the case at bar. It is said
that PERF is not in point because the Annual ITR for the succeeding year had
actually been attached to PERF’s motion for reconsideration with the CTA and had
formed part of the records of the case.
Clearly, if the Annual ITR has been recognized by this Court in PERF, why then would
the submitted 2004 Annual ITR in this case be insufficient despite the absence of
the quarterly ITRs? Why then would this Court require more than what is enough
and deny a claim even if the minimum burden has been overcome? At best, the
existence of quarterly ITRs would have the effect of strengthening a proven fact.
And as such, may only be considered corroborative evidence, obviously not
indispensable in character. PERF simply affirms that quarterly ITRs are not
indispensable, provided that there is sufficient proof that carrying over excess CWT
was not effected.
Stateland and Mirant are equally challenged. In all these cases however, the factual
distinctions only serve to bolster the proposition that succeeding quarterly ITRs are
not indispensable. Implicit from all these cases is the Court’s recognition that
proving carry-over is an evidentiary matter and that the submission of quarterly
ITRs is but a means to prove the fact of one’s entitlement to a refund and not a
condition sine qua non for the success of refund. True, it would have been better,
easier and more efficient for the CTA and the CIR to have as basis the quarterly ITRs,
but it is not the only way considering further that in this case, the Annual ITR for
2004 is sufficient. Courts are here to painstakingly weigh evidence so that justice
It must be emphasized that once the requirements laid down by the NIRC have
been met, a claimant should be considered successful in discharging its burden of
proving its right to refund. Thereafter, the burden of going forward with the
evidence, as distinct from the general burden of proof, shifts to the opposing
party,25 that is, the CIR. It is then the turn of the CIR to disprove the claim by
presenting contrary evidence which could include the pertinent ITRs easily
obtainable from its own files.
All along, the CIR espouses the view that it must be given ample opportunity to
investigate the veracity of the claims. Thus, the Court asks: In the process of
investigation at the administrative level to determine the right of the petitioner to
the claimed amount, did the CIR, with all its resources even attempt to verify the
quarterly ITRs it had in its files? Certainly, it did not as the application was met by
the inaction of the CIR. And if desirous in its effort to clearly verify petitioner’s
claim, it should have had the time, resources and the liberty to do so. Yet, nothing
was produced during trial to destroy the prima facie right of the petitioner by
counterchecking the claims with the quarterly ITRs the CIR has on its file. To the
Court, it seems that the CIR languished on its duties to ascertain the veracity of the
claims and just hoped that the burden would fall on the petitioner’s head once the
issue reaches the courts.
This mindset ignores the rule that the CIR has the equally important responsibility
of contradicting petitioner’s claim by presenting proof readily on hand once the
burden of evidence shifts to its side. Claims for refund are civil in nature and as
such, petitioner, as claimant, though having a heavy burden of showing entitlement,
need only prove preponderance of evidence in order to recover excess credit in cold
cash. To review, “[P]reponderance of evidence is [defined as] the weight, credit,
and value of the aggregate evidence on either side and is usually considered to be
synonymous with the term ‘greater weight of the evidence’ or ‘greater weight of
the credible evidence.’ It is evidence which is more convincing to the court as
worthy of belief than that which is offered in opposition
thereto.26chanroblesvirtuallawlibrary
The CIR must then be reminded that in Philam, the CIR’s “failure to present [the
quarterly ITRs and AFR] to support its contention against the grant of a tax refund
to [a claimant] is certainly fatal.” PERF reinforces this with a sweeping statement
holding that the verification process is not incumbent on PERF[or any claimant for
that matter]; [but] is the duty of the CIR to verify whether xxx excess income taxes
[have been carried over].
And should there be a possibility that a claimant may have violated the
irrevocability rule and thereafter claim twice from its credits, no one is to be
blamed but the CIR for not discharging its burden of evidence to destroy a
claimant’s right to a refund. At any rate, a claimant who defrauds the government
cannot escape liability be it criminal or civil in nature.
Verily, with the petitioner having complied with the requirements for refund, and
without the CIR showing contrary evidence other than its bare assertion of the
absence of the quarterly ITRs, copies of which are easily verifiable by its very own
records, the burden of proof of establishing the propriety of the claim for refund
has been sufficiently discharged. Hence, the grant of refund is proper.
The Court does not, and cannot, however, grant the entire claimed amount as it
finds no error in the original decision of the CTA Division granting refund to the
reduced amount of P2,737,903.34. This finding of fact is given respect, if not finality,
as the CTA,27 which by the very nature of its functions of dedicating itself exclusively
to the consideration of the tax problems has necessarily developed an expertise on
the subject.28 It being the case, the Court partly grants this petition to the extent of
reinstating the April 23, 2010 original decision of the CTA Division.
The Court reminds the CIR that substantial justice, equity and fair play take
precedence over technicalities and legalisms. The government must keep in mind
that it has no right to keep the money not belonging to it, thereby enriching itself at
the expense of the law-abiding citizen29 or entities who have complied with the
requirements of the law in order to forward the claim for refund. Under the
principle of solution indebiti provided in Article 2154 of the Civil Code, the CIR must
return anything it has received.30chanroblesvirtuallawlibrary
Finally, even assuming that the Court reverses itself and pronounces the
indispensability of presenting the quarterly ITRs to prove entitlement to the claimed
refund, petitioner should not be prejudiced for relying on Philam. The CTA En
Banc merely based its pronouncement on a case that does not enjoy the benefit
of stare decis et non quieta movere which means "to adhere to precedents, and not
to unsettle things which are established."31 As between a CTA En Banc Decision
(Millennium) and this Court’s Decision (Philam), it is elementary that the latter
should prevail.
WHEREFORE, the Court partly grants the petition. The March 22, 2013 Decision of
the Court of Tax Appeals En Banc is REVERSED. The April 13, 2010 Decision of the
Court of Tax Appeals Special First Division is REINSTATED. Respondent
Commissioner of Internal Revenue is ordered to REFUND to petitioner the amount
of P2,737,903.34 as excess creditable withholding tax paid for taxable year 2003.
SO ORDERED.
FIRST DIVISION
G.R. No. 209830, June 17, 2015
MITSUBISHI MOTORS PHILIPPINES CORPORATION, Petitioner, v. BUREAU OF
CUSTOMS, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Resolutions dated June 7,
20132 and November 4, 20133 of the Court of Appeals (CA) in CA-G.R. CV No. 99594,
which referred the records of the instant case to the Court of Tax Appeals (CTA) for
proper disposition of the appeal taken by respondent Bureau of Customs
(respondent).
The Facts
The instant case arose from a collection suit 4 for unpaid taxes and customs duties in
the aggregate amount of P46,844,385.00 filed by respondent against petitioner
Mitsubishi Motors Philippines Corporation (petitioner) before the Regional Trial
Court of Manila, Branch 17 (RTC), docketed as Civil Case No. 02-103763 (collection
case).
Respondent alleged that from 1997 to 1998, petitioner was able to secure tax credit
certificates (TCCs) from various transportation companies; after which, it made
several importations and utilized said TCCs for the payment of various customs
duties and taxes in the aggregate amount of P46,844,385.00.5Believing the
authenticity of the TCCs, respondent allowed petitioner to use the same for the
settlement of such customs duties and taxes. However, a post-audit investigation
of the Department of Finance revealed that the TCCs were fraudulently secured
with the use of fake commercial and bank documents, and thus, respondent
deemed that petitioner never settled its taxes and customs duties pertaining to the
aforesaid importations.6 Thereafter, respondent demanded that petitioner pay its
unsettled tax and customs duties, but to no avail. Hence, it was constrained to file
the instant complaint.7chanrobleslaw
8
In its defense, petitioner maintained, inter alia, that it acquired the TCCs from their
original holders in good faith and that they were authentic, and thus, their
remittance to respondent should be considered as proper settlement of the taxes
and customs duties it incurred in connection with the aforementioned
importations.9chanrobleslaw
Initially, the RTC dismissed10 the collection case due to the continuous absences of
respondent’s counsel during trial.11 On appeal to the CA,12 and eventually the
Court,13 the said case was reinstated and trial on the merits continued before the
RTC.14chanrobleslaw
After respondent’s presentation of evidence, petitioner filed a Demurrer to
Plaintiff’s Evidence15 on February 10, 2012, essentially contending that respondent
failed to prove by clear and convincing evidence that the TCCs were fraudulently
procured,16 and thus, prayed for the dismissal of the complaint.17 In turn,
respondent filed an Opposition18 dated March 7, 2012 refuting petitioner’s
contentions.
The RTC Ruling
In an Order19 dated April 10, 2012, the RTC granted petitioner’s Demurrer to
Plaintiff’s Evidence, and accordingly, dismissed respondent’s collection case on the
ground of insufficiency of evidence.20 It found that respondent had not shown any
proof or substantial evidence of fraud or conspiracy on the part of petitioner in the
procurement of the TCCs.21 In this connection, the RTC opined that fraud is never
presumed and must be established by clear and convincing evidence, which
petitioner failed to do, thus, necessitating the dismissal of the
complaint.22chanrobleslaw
23
Respondent moved for reconsideration, which was, however, denied in an
Order24 dated August 3, 2012. Dissatisfied, it appealed25 to the CA.
The CA Ruling
In a Resolution26 dated June 7, 2013, the CA referred the records of the collection
case to the CTA for proper disposition of the appeal taken by respondent. While the
CA admitted that it had no jurisdiction to take cognizance of respondent’s appeal,
as jurisdiction is properly lodged with the CTA, it nevertheless opted to relax
procedural rules in not dismissing the appeal outright.27 Instead, the CA deemed it
appropriate to simply refer the matter to the CTA, considering that the government
stands to lose the amount of P46,844,385.00 in taxes and customs duties which can
then be used for various public works and projects.28chanrobleslaw
Aggrieved, petitioner filed a motion for reconsideration29 on June 23, 2013, arguing
that since the CA does not have jurisdiction over respondent’s appeal, it cannot
perform any action on it except to order its dismissal. 30 The said motion was,
however, denied in a Resolution31 dated November 4, 2013, hence, this petition.
The Issue Before the Court
The core issue for the Court’s resolution is whether or not the CA correctly referred
the records of the collection case to the CTA for proper disposition of the appeal
taken by respondent.
The Court’s Ruling
The petition is meritorious.
Jurisdiction is defined as the power and authority of a court to hear, try, and decide
a case.32 In order for the court or an adjudicative body to have authority to dispose
of the case on the merits, it must acquire, among others, jurisdiction over the
subject matter.33 It is axiomatic that jurisdiction over the subject matter is the
power to hear and determine the general class to which the proceedings in
question belong; it is conferred by law and not by the consent or acquiescence of
any or all of the parties or by erroneous belief of the court that it exists. 34 Thus,
when a court has no jurisdiction over the subject matter, the only power it has is to
dismiss the action.35chanrobleslaw
Guided by the foregoing considerations and as will be explained hereunder, the
Court finds that the CA erred in referring the records of the collection case to the
CTA for proper disposition of the appeal taken by respondent.
Section 7 of Republic Act No. (RA) 1125,36 as amended by RA
9282,37 reads:chanRoblesvirtualLawlibrary
Sec. 7. Jurisdiction. – The CTA shall exercise:ChanRoblesVirtualawlibrary
xxxx
c. Jurisdiction over tax collection cases as herein
provided:ChanRoblesVirtualawlibrary
 the law and rationalize the pursuit of justice. 42 (Emphasis and underscoring
xxxx supplied)
2. Exclusive appellate jurisdiction in tax collection cases:ChanRoblesVirtualawlibrary
Finally, in view of respondent’s availment of a wrong mode of appeal via notice of
appeal stating that it was elevating the case to the CA – instead of appealing by way
a. Over appeals from the judgments, resolutions or orders of the Regional Trial
of a petition for review to the CTA within thirty (30) days from receipt of a copy of
Courts in tax collection cases originally decided by them in their respective the RTC’s August 3, 2012 Order, as required by Section 11 of RA 1125, as amended
territorial jurisdiction.chanroblesvirtuallawlibrary
by Section 9 of RA 928243 – the Court is constrained to deem the RTC’s dismissal of
xxxx respondent’s collection case against petitioner final and executory. It is settled that
the perfection of an appeal in the manner and within the period set by law is not
Similarly, Section 3, Rule 4 of the Revised Rules of the Court of Tax Appeals, as
only mandatory, but jurisdictional as well, and that failure to perfect an appeal
amended,38 states:chanRoblesvirtualLawlibrary
within the period fixed by law renders the judgment appealed from final and
Sec. 3. Cases within the jurisdiction of the Court in Divisions. – The Court in Divisions
shall exercise:ChanRoblesVirtualawlibrary executory.44 The Court’s pronouncement in Team Pacific Corporation v. Daza45 is
instructive on this matter, to wit:46cralawred
Although appeal is an essential part of our judicial process, it has been held, time
xxxx
and again, that the right thereto is not a natural right or a part of due process but is
c. Exclusive jurisdiction over tax collections cases, to merely a statutory privilege. Thus, the perfection of an appeal in the manner and
within the period prescribed by law is not only mandatory but also jurisdictional and
wit:ChanRoblesVirtualawlibrary
failure of a party to conform to the rules regarding appeal will render the judgment
xxxx final and executory. Once a decision attains finality, it becomes the law of the case
irrespective of whether the decision is erroneous or not and no court — not even
2. Appellate jurisdiction over appeals from the judgments, resolutions or orders of
the Supreme Court — has the power to revise, review, change or alter the same.
the Regional Trial Courts in tax collection cases originally decided by them within
The basic rule of finality of judgment is grounded on the fundamental principle of
their respective territorial jurisdiction.chanroblesvirtuallawlibrary
public policy and sound practice that, at the risk of occasional error, the judgment
Verily, the foregoing provisions explicitly provide that the CTA has exclusive of courts and the award of quasi-judicial agencies must become final at some
appellate jurisdictionover tax collection cases originally decided by the RTC. definite date fixed by law.chanroblesvirtuallawlibrary
WHEREFORE, the petition is GRANTED. Accordingly, the Resolutions dated June 7,
In the instant case, the CA has no jurisdiction over respondent’s appeal; hence, it
2013 and November 4, 2013 of the Court of Appeals (CA) in CA-G.R. CV No. 99594
cannot perform any action on the same except to order its dismissal pursuant to
are hereby REVERSED and SET ASIDE. Accordingly, a new one is
Section 2, Rule 5039 of the Rules of Court. Therefore, the act of the CA in referring
respondent’s wrongful appeal before it to the CTA under the guise of furthering the entered DISMISSING the appeal of respondent Bureau of Customs to the Court of
Appeals.
interests of substantial justice is blatantly erroneous, and thus, stands to be
corrected. In Anderson v. Ho,40 the Court held that the invocation of substantial
justice is not a magic wand that would readily dispel the application of procedural SO ORDERED.cralawlawlibrary
rules,41viz.:chanRoblesvirtualLawlibrary
x x x procedural rules are designed to facilitate the adjudication of cases. Courts and
litigants alike are enjoined to abide strictly by the rules. While in certain instances,
we allow a relaxation in the application of the rules, we never intend to forge a
weapon for erring litigants to violate the rules with impunity. The liberal
interpretation and application of rules apply only in proper cases of demonstrable
merit and under justifiable causes and circumstances. While it is true that
litigation is not a game of technicalities, it is equally true that every case must be
prosecuted in accordance with the prescribed procedure to ensure an orderly and FIRST DIVISION
speedy administration of justice. Party litigants and their counsels are well advised
to abide by rather than flaunt, procedural rules for these rules illumine the path of
 G.R. No. 207843, July 15, 2015
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. COURT OF TAX APPEALS
(SECOND DIVISION) AND PETRON CORPORATION,*Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for certiorari1 are the Resolutions dated February 13,
20132 and May 8, 20133 of the Court of Tax Appeals, Second Division (CTA) in CTA
Case No. 8544 reversing and setting aside the earlier dismissal of the petition for
review filed by private respondent Petron Corporation (Petron) in the said case on
the bases of prematurity and lack of jurisdiction.
The Facts
Petron, which is engaged in the manufacture and marketing of petroleum products,
imports alkylate as a raw material or blending component for the manufacture of
ethanol-blended motor gasoline.4 For the period January 2009 to August 2011, as
well as for the month of April 2012, Petron transacted an aggregate of 22 separate
importations for which petitioner the Commissioner of Internal Revenue (CIR)
issued Authorities to Release Imported Goods (ATRIGs), categorically stating that
Petron's importation of alkylate is exempt from the payment of the excise tax
because it was not among those articles enumerated as subject to excise tax under
Title VI of Republic Act No. (RA) 8424,5 as amended, or the 1997 National Internal
Revenue Code (NIRC). With respect, however, to Petron's alkylate importations
covering the period September 2011 to June 2012 (excluding April 2012), the CIR
inserted, without prior notice, a reservation for all ATRlGs issued,6 stating
that:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
This is without prejudice to the collection of the corresponding excise taxes,
penalties and interest depending on the final resolution of the Office of the
Commissioner on the issue of whether this item is subject to the excise taxes under
the National Internal Revenue Code of 1997, as amended. 7
In June 2012, Petron imported 12,802,660 liters of alkylate and paid value-added
tax (VAT) in the total amount of P41,657,533.00 as evidenced by Import Entry and
Internal Revenue Declaration (IEIRD) No. SN 122406532. Based on the Final
Computation, said importation was subjected by the Collector of Customs of Port
Limay, Bataan, upon instructions of the Commissioner of Customs (COC), to excise
taxes of P4.35 per liter, or in the aggregate amount of P55,691,571.00, and
consequently, to an additional VAT of 12% on the imposed excise tax in the amount
of P6,682,989.00.8 The imposition of the excise tax was supposedly premised on
Customs Memorandum Circular (CMC) No. 164-2012 dated July 18, 2012,
implementing the Letter dated June 29, 2012 issued by the CIR, which states
that:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
[A]lkylate which is a product of distillation similar to that of naphta, is subject to
excise tax under Section 1 48(e) of the National Internal Revenue Code (NIRC) of
1997.9
In view of the CIR's assessment, Petron filed before the CTA a petition for
review,10 docketed as CTA Case No. 8544, raising the issue of whether its
importation of alkylate as a blending component is subject to excise tax as
contemplated under Section 148 (e) of the NIRC.
On October 5, 2012, the CIR filed a motion to dismiss on the grounds of lack of
jurisdiction and prematurity.11redarclaw
Initially, in a Resolution12 dated November 15, 2012, the CTA granted the CIR's
motion and dismissed the case. However, on Petron's motion for
reconsideration,13 it reversed its earlier disposition in a Resolution14 dated February
13, 2013, and eventually denied the CIR's motion for reconsideration15therefrom in
a Resolution16 dated May 8, 2013. In effect, the CTA gave due course to Petron's
petition, finding that: (a) the controversy was not essentially for the determination
of the constitutionality, legality or validity of a law, rule or regulation but a question
on the propriety or soundness of the CIR's interpretation of Section 148 (e) of the
NIRC which falls within the exclusive jurisdiction of the CTA under Section 4 thereof,
particularly under the phrase "other matters arising under [the NIRC]";17 and (b)
there are attending circumstances that exempt the case from the rule on non-
exhaustion of administrative remedies, such as the great irreparable damage that
may be suffered by Petron from the CIR's final assessment of excise tax on its
importation.18redarclaw
Aggrieved, the CIR sought immediate recourse to the Court, through the instant
petition, alleging that the CTA committed grave abuse of discretion when it
assumed authority to take cognizance of the case despite its lack of jurisdiction to
do so.19redarclaw
The Issue Before the Court
The core issue to be resolved is whether or not the CTA properly assumed
jurisdiction over the petition assailing the imposition of excise tax on Petron's
importation of alkylate based on Section 148 (e) of the NIRC.
The Court's Ruling

The petition is meritorious.
The CIR asserts that the interpretation of the subject tax provision, i.e., Section 148
(e) of the NIRC, embodied in CMC No. 164-2012, is an exercise of her quasi-
legislative function which is reviewable by the Secretary of Finance, whose decision,
in turn, is appealable to the Office of the President and, ultimately, to the regular
courts, and that only her quasi judicial functions or the authority to decide disputed
assessments, refunds, penalties and the like are subject to the exclusive appellate
jurisdiction of the CTA.20 She likewise contends that the petition suffers from
prematurity due to Petron's failure to exhaust all available remedies within the
administrative level in accordance with the Tariff and Customs Code
(TCC).21redarclaw
The CIR's position is well-grounded.
Section 4 of the NIRC confers upon the CIR both: (a) the power to interpret tax laws
in the exercise of her quasi-legislative function; and (b) the power to decide tax
cases in the exercise of her quasi-judicial function. It also delineates the
jurisdictional authority to review the validity of the CIR's exercise of the said
powers, thus:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. -
The power to interpret the provisions of this Code and other tax laws shall be under
the exclusive and original jurisdiction of the Commissioner, subject to review by the
Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees
or other charges, penalties imposed in relation thereto, or other matters arising
under this Code or other laws or portions thereof administered by the Bureau of
Internal Revenue is vested in the Commissioner, subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals. (Emphases and underscoring supplied)
The CTA is a court of special jurisdiction, with power to review by appeal decisions
involving tax disputes rendered by either the CIR or the COC. Conversely, it has no
jurisdiction to determine the validity of a ruling issued by the CIR or the COC in the
exercise of their quasi-legislative powers to interpret tax laws. These observations
may be deduced from a reading of Section 7 of RA 1125,22 as amended by RA
9282,23 entitled "An Act Creating the Court of Tax Appeals," enumerating the cases
over which the CTA may exercise its jurisdiction:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
Sec. 7. Jurisdiction. - The CTA shall exercise:LawlibraryofCRAlaw
a. Exclusive appellate jurisdiction to review by appeal, as herein
provided:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue or
other laws administered by the Bureau of Internal Revenue;
2. Inaction by the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, tees or other charges, penalties in
relations thereto, or other matters arising under the National Internal Revenue
Code or other laws administered by the Bureau of Internal Revenue, where the
National Internal Revenue Code provides a specific period of action, in which case
the inaction shall be deemed a denial;
3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases
originally decided or resolved by them in the exercise of their original or appellate
jurisdiction;
4. Decisions of the Commissioner of Customs in cases involving liability for customs
duties, fees or other money charges, seizure, detention or release of property
affected, fines, forfeitures or other penalties in relation thereto, or other matters
arising under the Customs Law or other laws administered by the Bureau of
Customs;
5. Decisions of the Central Board of Assessment Appeals in the exercise of its
appellate jurisdiction over cases involving the assessment and taxation of real
property originally decided by the provincial or city board of assessment appeals;
6. Decisions of the Secretary of Finance on customs cases elevated to him
automatically for review from decisions of the Commissioner of Customs which are
adverse to the Government under Section 2315 of the Tariff and Customs Code;
7. Decisions ofthe Secretary ofTrade and Industry, in the case of nonagricultural
product, commodity or article, and the Secretary of Agriculture in the case of
agricultural product, commodity or article, involving dumping and countervailing
duties under Section 301 and 302, respectively, of the Tariff and Customs Code, and
safeguard measures under Republic Act No. 8800, where either party may appeal
the decision to impose or not to impose said duties.
b. Jurisdiction over cases involving criminal offenses as herein
provided:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
1. Exclusive original jurisdiction over all criminal offenses arising from violations of
the National Internal Revenue Code or Tariff and Customs Code and other laws
administered by the Bureau of Internal Revenue or the Bureau of Customs:
Provided, however, That offenses or felonies mentioned in this paragraph where
the principal amount of taxes and fees, exclusive of charges and penalties, claimed
is less than One million pesos (P1,000,000.00) or where there is no specified
amount claimed shall be tried by the regular Courts and the jurisdiction of the CTA
shall be appellate. Any provision of law or the Rules of Court to the contrary
notwithstanding, the criminal action and the corresponding civil action for the
recovery of civil liability for taxes and penalties shall at all times be simultaneously
instituted with, and jointly determined in the same proceeding by the CTA, the filing
of the criminal action being deemed to necessarily carry with it the filing of the civil
action, and no right to reserve the filling of such civil action separately from the
criminal action will be recognized.
2. Exclusive appellate jurisdiction in criminal offenses:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
a. Over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax cases originally decided by them, in their respective territorial
jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the Regional
Trial Courts in the exercise of their appellate jurisdiction over tax cases originally
decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit Trial Courts in their respective jurisdiction.
c. Jurisdiction over tax collection cases as herein provided:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
1. Exclusive original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties: Provided, however, That
collection cases where the principal amount of taxes and fees, exclusive of charges
and penalties, claimed is less than One million pesos (P1,000,000.00) shall be tried
by the proper Municipal Trial Court, Metropolitan Trial Court and Regional Trial
Court.
2. Exclusive appellate jurisdiction in tax collection cases:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
a. Over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax collection cases originally decided by them, in their respective
territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the Regional
Trial Courts in the exercise of their appellate jurisdiction over tax collection cases
originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts, in their respective jurisdiction. (Emphasis supplied)
In this case, Petron's tax liability was premised on the COC's issuance of CMC No.
164-2012, which gave effect to the CIR's June 29, 2012 Letter interpreting Section
148 (e) of the NIRC as to include alkylate among the articles subject to customs
duties, hence, Petron's petition before the CTA ultimately challenging the legality
and constitutionality of the CIR's aforesaid interpretation of a tax provision. In line
with the foregoing discussion, however, the CIR correctly argues that the CTA had
no jurisdiction to take cognizance of the petition as its resolution would necessarily
involve a declaration of the validity or constitutionality of the CIR's interpretation of
Section 148 (e) of the NIRC, which is subject to the exclusive review by the Secretary
of Finance and ultimately by the regular courts. In British American Tobacco v.
Camacho,24 the Court ruled that the CTA's jurisdiction to resolve tax disputes
excludes the power to rule on the constitutionality or validity of a law, rule or
regulation, to wit:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
While the above statute confers on the CTA jurisdiction to resolve tax disputes in
general, this does not include cases where the constitutionality of a law or rule is
challenged. Where what is assailed is the validity or constitutionality of a law, or a
rule or regulation issued by the administrative agency in the performance of its
quasi legislative function, the regular courts have jurisdiction to pass upon the
same. x x x.25
In asserting its jurisdiction over the present case, the CTA explained that Petron's
petition filed before it "simply puts in question" the propriety or soundness of the
CIR's interpretation and application of Section 148 (e) of the NIRC (as embodied in
CMC No. 164-2012) "in relation to" the imposition of excise tax on Petron's
importation of alkylate; thus, the CTA posits that the case should be regarded as
"other matters arising under [the NIRC]" under the second paragraph of Section 4 of
the NIRC, therefore falling within the CTA's jurisdiction: 26
ChanRoblesVirtualawlibrary
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases.
The power to interpret the provisions of this Code and other tax laws shall be under
the exclusive and original jurisdiction of the Commissioner, subject to review by the
Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees
or other charges, penalties imposed in relation thereto, or other matters arising
under this Code or other laws or portions thereof administered by the Bureau of
Internal Revenue is vested in the commissioner, subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals. (Emphases and underscoring supplied)
The Court disagrees.
As the CIR aptly pointed out, the phrase "other matters arising under this Code," as
stated in the second paragraph of Section 4 of the NIRC, should be understood as
pertaining to those matters directly related to the preceding phrase "disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto" and must therefore not be taken in isolation to invoke
the jurisdiction of the CTA.27 In other words, the subject phrase should be used only
in reference to cases that are, to begin with, subject to the exclusive appellate
jurisdiction of the CTA, i.e., those controversies over which the CIR had exercised
her quasi-judicial functions or her power to decide disputed assessments, refunds
or internal revenue taxes, fees or other charges, penalties imposed in relation
thereto, not to those that involved the CIR's exercise of quasi-legislative powers.
In Enrile v. Court of Appeals,28 the Court, applying the statutory construction
principle of ejusdem generis,29 explained the import of using the general clause
"other matters arising under the Customs Law or other law or part of law
administered by the Bureau of Customs" in the enumeration of cases subject to the
exclusive appellate jurisdiction of the CTA, saying that:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
[T]he 'other matters' that may come under the general clause should be of the
same nature as those that have preceded them applying the rule of construction
known as ejusdem generis.30 (Emphasis and underscoring supplied)
Hence, as the CIR's interpretation of a tax provision involves an exercise of her
quasi-legislative functions, the proper recourse against the subject tax ruling
expressed in CMC No. 164-2012 is a review by the Secretary of Finance and
ultimately the regular courts. In Commissioner of Customs v. Hypermix Feeds
Corporation,31 the Court has held that:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
The determination of whether a specific rule or set of rules issued by an
administrative agency contravenes the law or the constitution is within the
jurisdiction of the regular courts. Indeed, the Constitution vests the power of
judicial review or the power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction, ordinance, or regulation in the
courts, including the regional trial courts. This is within the scope of judicial power,
which includes the authority of the courts to determine in an appropriate action the
validity of the acts of the political departments. x x x.32
Besides, Petron prematurely invoked the jurisdiction of the CTA. Under Section 7 of
RA 1125, as amended by RA 9282, what is appealable to the CTA is the decision of
the COC over a customs collector's adverse ruling on a taxpayer's
protest:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
SEC. 7. Jurisdiction. - The CTA shall exercise:LawlibraryofCRAlaw
a. Exclusive appellate jurisdiction to review by appeal, as herein
provided:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue or
other laws administered by the Bureau of Internal Revenue;
xxxx
4. Decisions of the Commissioner of Customs in cases involving liability for customs
duties, fees or other money charges, seizure, detention or release of property
affected, fines, forfeitures or other penalties in relation thereto, or other matters
arising under the Customs Law or other laws administered by the Bureau of
Customs;
xxxx
Section 11 of the same law is no less categorical in stating that what may be the
subject of an appeal to the CTA is a decision, ruling or inaction of the CIR or the
COC, among others:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely
affected by a decision, ruling or inaction of the Commissioner of Internal Revenue,
the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and
Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals
or the Regional Trial Courts may file an appeal with the CTA within thirty (30) days
after the receipt of such decision or ruling or after the expiration of the period fixed
by law for action as referred to in Section 7(a)(2) herein.
xxxx
In this case, there was even no tax assessment to speak of. While customs collector
Federico Bulanhagui himself admitted during the CTA's November 8, 2012 hearing
that the computation he had written at the back page of the IEIRD served as the
final assessment imposing excise tax on Petron's importation of alkylate, 33 the Court
concurs with the CIR's stance that the subject IEIRD was not yet the customs
collector's final assessment that could be the proper subject of review. And even if
it were, the same should have been brought first for review before the COC and not
directly to the CTA. It should be stressed that the CTA has no jurisdiction to review
by appeal, decisions of the customs collector.34 The TCC prescribes that a party
adversely affected by a ruling or decision of the customs collector may protest such
ruling or decision upon payment of the amount due35 and, if aggrieved by the action
of the customs collector on the matter under protest, may have the same reviewed
by the COC.36 It is only after the coc shall have made an adverse ruling on the
matter may the aggrieved party file an appeal to the CTA.37redarclaw
Notably, Petron admitted to not having filed a protest of the assessment before the
customs collector and elevating a possible adverse ruling therein to the COC,
reasoning that such a procedure would be costly and impractical, and would
unjustly delay the resolution of the issues which, being purely legal in nature
anyway, were also beyond the authority of the customs collector to resolve with
finality.38 This admission is at once decisive of the issue of the CTA's jurisdiction over
the petition. There being no protest ruling by the customs collector that was
appealed to the COC, the filing of the petition before the CTA was premature as
there was nothing yet to review.39redarclaw
Verily, the fact that there is no decision by the COC to appeal from highlights
Petron's failure to exhaust administrative remedies prescribed by law. Before a
party is allowed to seek the intervention of the courts, it is a pre-condition that he
avail of all administrative processes afforded him, such that if a remedy within the
administrative machinery can be resorted to by giving the administrative officer
every opportunity to decide on a matter that comes within his jurisdiction, then
such remedy must be exhausted first before the court's power of judicial review can
be sought, otherwise, the premature resort to the court is fatal to one's cause of
action.40 While there are exceptions to the principle of exhaustion of administrative
remedies, it has not been sufficiently shown that the present case falls under any of
the exceptions.
WHEREFORE, the petition is GRANTED. The Resolutions dated February 13, 2013
and May 8, 2013 of the Court of Tax Appeals (CTA), Second Division in CTA Case No.
8544 are hereby REVERSED and SET ASIDE. The petition for review filed by private
respondent Petron Corporation before the CTA is DISMISSED for lack of jurisdiction
and prematurity.
SO ORDERED.cralawlawlibrary
EN BANC
G.R. No. 175723, February 04, 2014
THE CITY OF MANILA, REPRESENTED BY MAYOR JOSE L. ATIENZA, JR., AND MS.
LIBERTY M. TOLEDO, IN HER CAPACITY AS THE CITY TREASURER OF
MANILA, Petitioners, v. HON. CARIDAD H. GRECIA–CUERDO, IN HER CAPACITY AS
PRESIDING JUDGE OF THE REGIONAL TRIAL COURT, BRANCH 112, PASAY CITY; SM
MART, INC.; SM PRIME HOLDINGS, INC.; STAR APPLIANCES CENTER; SUPERVALUE,
INC.; ACE HARDWARE PHILIPPINES, INC.; WATSON PERSONAL CARE STORES,
PHILS., INC.; JOLLIMART PHILS., CORP.; SURPLUS MARKETING CORPORATION AND
SIGNATURE LINES, Respondents.
DECISION
PERALTA, J.:
Before the Court is a special civil action for certiorari under Rule 65 of the Rules of
Court seeking to reverse and set aside the Resolutions 1 dated April 6, 2006 and
November 29, 2006 of the Court of Appeals (CA) in CA–G.R. SP No. 87948.
The antecedents of the case, as summarized by the CA, are as
follows:chanRoblesvirtualLawlibrary
The record shows that petitioner City of Manila, through its treasurer, petitioner
Liberty Toledo, assessed taxes for the taxable period from January to December
2002 against private respondents SM Mart, Inc., SM Prime Holdings, Inc., Star
Appliances Center, Supervalue, Inc., Ace Hardware Philippines, Inc., Watsons
Personal Care Stores Phils., Inc., Jollimart Philippines Corp., Surplus Marketing Corp.
and Signature Lines. In addition to the taxes purportedly due from private
respondents pursuant to Section 14, 15, 16, 17 of the Revised Revenue Code of
Manila (RRCM), said assessment covered the local business taxes petitioners were
authorized to collect under Section 21 of the same Code. Because payment of the
taxes assessed was a precondition for the issuance of their business permits, private
respondents were constrained to pay the P 19,316,458.77 assessment under
protest.
On January 24, 2004, private respondents filed [with the Regional Trial Court of
Pasay City] the complaint denominated as one for “Refund or Recovery of Illegally
and/or Erroneously–Collected Local Business Tax, Prohibition with Prayer to Issue
TRO and Writ of Preliminary Injunction” which was docketed as Civil Case No. 04–
0019–CFM before public respondent’s sala [at Branch 112]. In the amended
complaint they filed on February 16, 2004, private respondents alleged that, in
relation to Section 21 thereof, Sections 14, 15, 16, 17, 18, 19 and 20 of
the RRCM were violative of the limitations and guidelines under Section 143 (h) of
Republic Act. No. 7160 [Local Government Code] on double taxation. They further
averred that petitioner city’s Ordinance No. 8011 which amended pertinent
portions of the RRCM had already been declared to be illegal and unconstitutional
by the Department of Justice.2ChanRoblesVirtualawlibrary
In its Order3 dated July 9, 2004, the RTC granted private respondents’ application
for a writ of preliminary injunction.
 Without first resolving the above issues, this Court finds that the instant petition
Petitioners filed a Motion for Reconsideration4 but the RTC denied it in its should be denied for being moot and academic.
Order5 dated October 15, 2004.
U pon perusal of the original records of the instant case, this Court discovered that
Petitioners then filed a special civil action for certiorari with the CA assailing the July a Decision9 in the main case had already been rendered by the RTC on August 13,
9, 2004 and October 15, 2004 Orders of the RTC.6 2007, the dispositive portion of which reads as follows:chanRoblesvirtualLawlibrary
WHEREFORE, in view of the foregoing, this Court hereby renders JUDGMENT in
In its Resolution promulgated on April 6, 2006, the CA dismissed petitioners’ favor of the plaintiff and against the defendant to grant a tax refund or credit for
petition for certiorariholding that it has no jurisdiction over the said petition. The CA taxes paid pursuant to Section 21 of the Revenue Code of the City of Manila as
ruled that since appellate jurisdiction over private respondents’ complaint for tax amended for the year 2002 in the following amounts:chanRoblesvirtualLawlibrary
refund, which was filed with the RTC, is vested in the Court of Tax Appeals (CTA),
P
pursuant to its expanded jurisdiction under Republic Act No. 9282 (RA 9282), it To plaintiff SM Mart, Inc. –
11,462,525.02
follows that a petition for certiorari seeking nullification of an interlocutory order To plaintiff SM Prime Holdings,
issued in the said case should, likewise, be filed with the CTA. – 3,118,104.63
Inc.
To plaintiff Star Appliances
Petitioners filed a Motion for Reconsideration,7 but the CA denied it in its – 2,152,316.54
Center
Resolution dated November 29, 2006. To plaintiff Supervalue, Inc. – 1,362,750.34
To plaintiff Ace Hardware Phils.,
Hence, the present petition raising the following issues:chanRoblesvirtualLawlibrary – 419,689.04
Inc.
I– Whether or not the Honorable Court of Appeals gravely erred in dismissing the To plaintiff Watsons Personal
case for lack of jurisdiction. – 231,453.62
Care Health Stores Phils., Inc.
To plaintiff Jollimart Phils., Corp. – 140,908.54
II– Whether or not the Honorable Regional Trial Court gravely abuse[d] its
To plaintiff Surplus Marketing
discretion amounting to lack or excess of jurisdiction in enjoining by issuing a Writ – 220,204.70
Corp.
of Injunction the petitioners[,] their agents and/or authorized representatives
To plaintiff Signature Mktg.
from implementing Section 21 of the Revised Revenue Code of Manila, as – 94,906.34
Corp.
amended, against private respondents.
P
III– Whether or not the Honorable Regional Trial Court gravely abuse[d] its TOTAL:
19,316,458.77
discretion amounting to lack or excess of jurisdiction in issuing the Writ of
Defendants are further enjoined from collecting taxes under Section 21, Revenue
Injunction despite failure of private respondents to make a written claim for tax Code of Manila from herein plaintiff.
credit or refund with the City Treasurer of Manila.
SO ORDERED.10ChanRoblesVirtualawlibrary
IV– Whether or not the Honorable Regional Trial Court gravely abuse[d] its
discretion amounting to lack or excess of jurisdiction considering that under The parties did not inform the Court but based on the records, the above Decision
Section 21 of the Manila Revenue Code, as amended, they are mere collecting had already become final and executory per the Certificate of Finality 11 issued by
agents of the City Government. the same trial court on October 20, 2008. In fact, a Writ of Execution12 was issued
by the RTC on November 25, 2009.
V– Whether or not the Honorable Regional Trial Court gravely abuse[d] its
discretion amounting to lack or excess of jurisdiction in issuing the Writ of In view of the foregoing, it clearly appears that the issues raised in the present
Injunction because petitioner City of Manila and its constituents would result to petition, which merely involve the incident on the preliminary injunction issued by
greater damage and prejudice thereof. (sic)8ChanRoblesVirtualawlibrary the RTC, have already become moot and academic considering that the trial court,
in its decision on the merits in the main case, has already ruled in favor of
respondents and that the same decision is now final and executory. Well
entrenched is the rule that where the issues have become moot and academic,
there is no justiciable controversy, thereby rendering the resolution of the same of
no practical use or value.13
In any case , the Court finds it necessary to resolve the issue on jurisdiction raised
by petitioners owing to its significance and for future guidance of both bench and
bar. It is a settled principle that courts will decide a question otherwise moot and
academic if it is capable of repetition, yet evading review.14
However, before proceeding, to resolve the question on jurisdiction, the Court
deems it proper to likewise address a procedural error which petitioners
committed.
Petitioners availed of the wrong remedy when they filed the instant special civil
action for certiorari under Rule 65 of the Rules of Court in assailing the Resolutions
of the CA which dismissed their petition filed with the said court and their motion
for reconsideration of such dismissal. There is no dispute that the assailed
Resolutions of the CA are in the nature of a final order as they disposed of the
petition completely. It is settled that in cases where an assailed judgment or order
is considered final, the remedy of the aggrieved party is appeal. Hence, in the
instant case, petitioner should have filed a petition for review on certiorari under
Rule 45, which is a continuation of the appellate process over the original case. 15
Petitioners should be reminded of the equally–settled rule that a special civil action
for certiorari under Rule 65 is an original or independent action based on grave
abuse of discretion amounting to lack or excess of jurisdiction and it will lie only if
there is no appeal or any other plain, speedy, and adequate remedy in the ordinary
course of law.16 As such, it cannot be a substitute for a lost appeal.17
Nonetheless, in accordance with the liberal spirit pervading the Rules of Court and
in the interest of substantial justice, this Court has, before, treated a petition
for certiorari as a petition for review on certiorari, particularly (1) if the petition
for certiorari was filed within the reglementary period within which to file a petition
for review on certiorari; (2) when errors of judgment are averred; and (3) when
there is sufficient reason to justify the relaxation of the rules. 18 Considering that the
present petition was filed within the 15–day reglementary period for filing a
petition for review on certiorari under Rule 45, that an error of judgment is averred,
and because of the significance of the issue on jurisdiction, the Court deems it
proper and justified to relax the rules and, thus, treat the instant petition
for certiorari as a petition for review on certiorari.
Having disposed of the procedural aspect, we now turn to the central issue in this
case. The basic question posed before this Court is whether or not the CTA has
jurisdiction over a special civil action for certiorari assailing an interlocutory order
issued by the RTC in a local tax case.
This Court rules in the affirmative.
On June 16, 1954, Congress enacted Republic Act No. 1125 (RA 1125) creating the
CTA and giving to the said court jurisdiction over the
following:chanRoblesvirtualLawlibrary
(1) Decisions of the Collector of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under the National Internal
Revenue Code or other law or part of law administered by the Bureau of Internal
Revenue;
(2) Decisions of the Commissioner of Customs in cases involving liability for customs
duties, fees or other money charges; seizure, detention or release of property
affected fines, forfeitures or other penalties imposed in relation thereto; or other
matters arising under the Customs Law or other law or part of law administered by
the Bureau of Customs; and
(3) Decisions of provincial or City Boards of Assessment Appeals in cases involving
the assessment and taxation of real property or other matters arising under the
Assessment Law, including rules and regulations relative thereto.
On March 30, 2004, the Legislature passed into law Republic Act No. 9282 (RA 9282)
amending RA 1125 by expanding the jurisdiction of the CTA, enlarging its
membership and elevating its rank to the level of a collegiate court with special
jurisdiction. Pertinent portions of the amendatory act provides
thus:chanRoblesvirtualLawlibrary
Sec. 7. Jurisdiction. – The CTA shall exercise:chanRoblesvirtualLawlibrary
a. Exclusive appellate jurisdiction to review by appeal, as herein
provided:chanRoblesvirtualLawlibrary
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue or
other laws administered by the Bureau of Internal Revenue;
2. Inaction by the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relations thereto, or other matters arising under the National Internal Revenue
Code or other laws administered by the Bureau of Internal Revenue, where the
National Internal Revenue Code provides a specific period of action, in which case
the inaction shall be deemed a denial;
3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases
originally decided or resolved by them in the exercise of their original or appellate
jurisdiction;
4. Decisions of the Commissioner of Customs in cases involving liability for customs
duties, fees or other money charges, seizure, detention or release of property
affected, fines, forfeitures or other penalties in relation thereto, or other matters
arising under the Customs Law or other laws administered by the Bureau of
Customs;
5. Decisions of the Central Board of Assessment Appeals in the exercise of its
appellate jurisdiction over cases involving the assessment and taxation of real
property originally decided by the provincial or city board of assessment appeals;
6. Decisions of the Secretary of Finance on customs cases elevated to him
automatically for review from decisions of the Commissioner of Customs which are
adverse to the Government under Section 2315 of the Tariff and Customs Code;
7. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural
product, commodity or article, and the Secretary of Agriculture in the case of
agricultural product, commodity or article, involving dumping and countervailing
duties under Section 301 and 302, respectively, of the Tariff and Customs Code, and
safeguard measures under Republic Act No. 8800, where either party may appeal
the decision to impose or not to impose said duties.
b. Jurisdiction over cases involving criminal offenses as herein
provided:chanRoblesvirtualLawlibrary
1. Exclusive original jurisdiction over all criminal offenses arising from violations of
the National Internal Revenue Code or Tariff and Customs Code and other laws
administered by the Bureau of Internal Revenue or the Bureau of Customs:
Provided, however, That offenses or felonies mentioned in this paragraph where
the principal amount of taxes and fees, exclusive of charges and penalties, claimed
is less than One million pesos ( P 1,000,000.00) or where there is no specified
amount claimed shall be tried by the regular Courts and the jurisdiction of the CTA
shall be appellate. Any provision of law or the Rules of Court to the contrary
notwithstanding, the criminal action and the corresponding civil action for the
recovery of civil liability for taxes and penalties shall at all times be simultaneously
instituted with, and jointly determined in the same proceeding by the CTA, the filing
of the criminal action being deemed to necessarily carry with it the filing of the civil
action, and no right to reserve the filing of such civil action separately from the
criminal action will be recognized.
2. Exclusive appellate jurisdiction in criminal offenses:
a. Over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax cases originally decided by them, in their respected territorial
jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the Regional
Trial Courts in the exercise of their appellate jurisdiction over tax cases originally
decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit Trial Courts in their respective jurisdiction.
c. Jurisdiction over tax collection cases as herein provided:
1. Exclusive original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties: Provides, however, that
collection cases where the principal amount of taxes and fees, exclusive of charges
and penalties, claimed is less than One million pesos ( P 1,000,000.00) shall be tried
by the proper Municipal Trial Court, Metropolitan Trial Court and Regional Trial
Court.
2. Exclusive appellate jurisdiction in tax collection cases:chanRoblesvirtualLawlibrary
a. Over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax collection cases originally decided by them, in their respective
territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the Regional
Trial Courts in the Exercise of their appellate jurisdiction over tax collection cases
originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts, in their respective
jurisdiction.19ChanRoblesVirtualawlibrary
A perusal of the above provisions would show that, while it is clearly stated that the
CTA has exclusive appellate jurisdiction over decisions, orders or resolutions of the
RTCs in local tax cases originally decided or resolved by them in the exercise of their
original or appellate jurisdiction,there is no categorical statement under RA 1125 as
well as the amendatory RA 9282, which provides that the CTA has jurisdiction over
petitions for certiorari assailing interlocutory orders issued by the RTC in local tax
cases filed before it.
The prevailing doctrine is that the authority to issue writs of certiorari involves the
exercise of original jurisdiction which must be expressly conferred by the
Constitution or by law and cannot be implied from the mere
existence of appellate jurisdiction.20 Thus, in the cases of Pimentel v.
COMELEC,21Garcia v. De Jesus,22Veloria v. COMELEC,23Department of Agrarian
Reform Adjudication Board v. Lubrica,24 and Garcia v. Sandiganbayan,25 this Court
has ruled against the jurisdiction of courts or tribunals over petitions
for certiorari on the ground that there is no law which expressly gives these
tribunals such power.26 It must be observed, however, that with the exception
of Garcia v. Sandiganbayan,27 these rulings pertain not to regular courts but to
tribunals exercising quasi–judicial powers. With respect to the Sandiganbayan,
Republic Act No. 824928 now provides that the special criminal court has exclusive
original jurisdiction over petitions for the issuance of the writs of mandamus,
prohibition, certiorari,habeas corpus, injunctions, and other ancillary writs and
processes in aid of its appellate jurisdiction.
In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power
to the Supreme Court, in the exercise of its original jurisdiction, to issue writs
of certiorari, prohibition and mandamus. With respect to the Court of Appeals,
Section 9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the appellate court, also in
the exercise of its original jurisdiction, the power to issue, among others, a writ
of certiorari,whether or not in aid of its appellate jurisdiction. As to Regional Trial
Courts, the power to issue a writ of certiorari, in the exercise of their original
jurisdiction, is provided under Section 21 of BP 129.
The foregoing notwithstanding, while there is no express grant of such power, with
respect to the CTA, Section 1, Article VIII of the 1987 Constitution provides,
nonetheless, that judicial power shall be vested in one Supreme Court and in such
lower courts as may be established by law and that judicial power includes the duty
of the courts of justice to settle actual controversies involving rights which are
legally demandable and enforceable, and to determine whether or not there has
been a grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of any branch or instrumentality of the Government.
On the strength of the above constitutional provisions, it can be fairly interpreted
that the power of the CTA includes that of determining whether or not there has
been grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the RTC in issuing an interlocutory order in cases falling within the exclusive
appellate jurisdiction of the tax court. It, thus, follows that the CTA, by
constitutional mandate, is vested with jurisdiction to issue writs of certiorari in
these cases.
Indeed, in order for any appellate court to effectively exercise its appellate
jurisdiction, it must have the authority to issue, among others, a writ of certiorari. In
transferring exclusive jurisdiction over appealed tax cases to the CTA, it can
reasonably be assumed that the law intended to transfer also such power as is
deemed necessary, if not indispensable, in aid of such appellate jurisdiction. There
is no perceivable reason why the transfer should only be considered as partial, not
total.
Consistent with the above pronouncement, this Court has held as early as the case
of J.M. Tuason & Co., Inc. v. Jaramillo, et al.29 that “if a case may be appealed to a
particular court or judicial tribunal or body, then said court or judicial tribunal or
body has jurisdiction to issue the extraordinary writ of certiorari, in aid of its
appellate jurisdiction.”30 This principle was affirmed in De Jesus v. Court of
Appeals,31 where the Court stated that “a court may issue a writ of certiorari in aid
of its appellate jurisdiction if said court has jurisdiction to review, by appeal or writ
of error, the final orders or decisions of the lower court.” 32The rulings in J.M.
Tuason and De Jesus were reiterated in the more recent cases of Galang, Jr. v.
Geronimo33 and Bulilis v. Nuez.34
Furthermore, Section 6, Rule 135 of the present Rules of Court provides that when
by law, jurisdiction is conferred on a court or judicial officer, all auxiliary writs,
processes and other means necessary to carry it into effect may be employed by
such court or officer.
If this Court were to sustain petitioners’ contention that jurisdiction over
their certiorari petition lies with the CA, this Court would be confirming the exercise
by two judicial bodies, the CA and the CTA, of jurisdiction over basically the same
subject matter – precisely the split–jurisdiction situation which is anathema to the
orderly administration of justice.35 The Court cannot accept that such was the
legislative motive, especially considering that the law expressly confers on the CTA,
the tribunal with the specialized competence over tax and tariff matters, the role of
judicial review over local tax cases without mention of any other court that may
exercise such power. Thus, the Court agrees with the ruling of the CA that since
appellate jurisdiction over private respondents’ complaint for tax refund is vested in
the CTA, it follows that a petition for certiorari seeking nullification of an
interlocutory order issued in the said case should, likewise, be filed with the same
court. To rule otherwise would lead to an absurd situation where one court decides
an appeal in the main case while another court rules on an incident in the very
same case.
Stated differently, it would be somewhat incongruent with the pronounced judicial
abhorrence to split jurisdiction to conclude that the intention of the law is to divide
the authority over a local tax case filed with the RTC by giving to the CA or this
Court jurisdiction to issue a writ of certiorari against interlocutory orders of the RTC
but giving to the CTA the jurisdiction over the appeal from the decision of the trial
court in the same case. It is more in consonance with logic and legal soundness to
conclude that the grant of appellate jurisdiction to the CTA over tax cases filed in
and decided by the RTC carries with it the power to issue a writ of certiorari when
necessary in aid of such appellate jurisdiction. The supervisory power or jurisdiction
of the CTA to issue a writ of certiorari in aid of its appellate jurisdiction should co–
exist with, and be a complement to, its appellate jurisdiction to review, by appeal,
the final orders and decisions of the RTC, in order to have complete supervision
over the acts of the latter.36

A grant of appellate jurisdiction implies that there is included in it the power
necessary to exercise it effectively, to make all orders that will preserve the subject
of the action, and to give effect to the final determination of the appeal. It carries
with it the power to protect that jurisdiction and to make the decisions of the court
thereunder effective. The court, in aid of its appellate jurisdiction, has authority to
control all auxiliary and incidental matters necessary to the efficient and proper
exercise of that jurisdiction. For this purpose, it may, when necessary, prohibit or
restrain the performance of any act which might interfere with the proper exercise
of its rightful jurisdiction in cases pending before it.37
Lastly, it would not be amiss to point out that a court which is endowed with a
particular jurisdiction should have powers which are necessary to enable it to act
effectively within such jurisdiction. These should be regarded as powers which are
inherent in its jurisdiction and the court must possess them in order to enforce its
rules of practice and to suppress any abuses of its process and to defeat any
attempted thwarting of such process.
In this regard, Section 1 of RA 9282 states that the CTA shall be of the same level as
the CA and shall possess all the inherent powers of a court of justice.
Indeed, courts possess certain inherent powers which may be said to be implied
from a general grant of jurisdiction, in addition to those expressly conferred on
them. These inherent powers are such powers as are necessary for the ordinary and
efficient exercise of jurisdiction; or are essential to the existence, dignity and
functions of the courts, as well as to the due administration of justice; or are
directly appropriate, convenient and suitable to the execution of their granted
powers; and include the power to maintain the court’s jurisdiction and render it
effective in behalf of the litigants.38
Thus, this Court has held that “while a court may be expressly granted the
incidental powers necessary to effectuate its jurisdiction, a grant of jurisdiction, in
the absence of prohibitive legislation, implies the necessary and usual incidental
powers essential to effectuate it, and, subject to existing laws and constitutional
provisions, every regularly constituted court has power to do all things that are
reasonably necessary for the administration of justice within the scope of its
jurisdiction and for the enforcement of its judgments and mandates.”39 Hence,
demands, matters or questions ancillary or incidental to, or growing out of, the
main action, and coming within the above principles, may be taken cognizance of by
the court and determined, since such jurisdiction is in aid of its authority over the
principal matter, even though the court may thus be called on to consider and
decide matters which, as original causes of action, would not be within its
cognizance.40
Based on the foregoing disquisitions, it can be reasonably concluded that the
authority of the CTA to take cognizance of petitions for certiorari questioning
interlocutory orders issued by the RTC in a local tax case is included in the powers
granted by the Constitution as well as inherent in the exercise of its appellate
jurisdiction.
Finally, it would bear to point out that this Court is not abandoning the rule that,
insofar as quasi–judicial tribunals are concerned, the authority to issue writs
of certiorari must still be expressly conferred by the Constitution or by law and
cannot be implied from the mere existence of their appellate jurisdiction. This
doctrine remains as it applies only to quasi–judicial bodies.
WHEREFORE, the petition is DENIED.ChanRoblesVirtualawlibrary
SO ORDERED.
THIRD DIVISION
G.R. No. 230084, August 20, 2018
PHILIPPINE AMUSEMENT AND GAMING CORPORATION
(PAGCOR), Petitioner, v. COURT OF APPEALS AND ANGELINE V. PAEZ, Respondents.
RESOLUTION
GESMUNDO, J.:
This is a petition for certiorari under Rule 65 of the 1997 Rules of Court (ROC)
assailing the April 27, 20161 and January 3, 20172 Resolutions of the Court of
Appeals (CA) in CA-G.R. SP No. 126110, which deemed abandoned the petition for
review brought by the Philippine Amusement and Gaming Corporation (PAGCOR)
under Rule 43 of the ROC. The said petition for review sought to reverse and set
aside the January 24, 2012 Resolution3 of the Civil Service Commission (CSC), which
nullified the dismissal of Angeline V. Paez (respondent) and reinstated her into
service.
 The Antecedents
Respondent was an employee of PAGCOR with a position of Dealer stationed at
Casino Filipino-Waterfront Hotel, Lahug, Cebu City. In a random drug testing
conducted by PAGCOR to all its employees, respondent allegedly tested positive for
methamphetamine. Thus, in its March 30, 2006 Letter,4 respondent was informed
that she was dismissed from the service for gross misconduct and violation of
company rules and regulations. Respondent moved for reconsideration which
PAGCOR denied in its May 11, 2006 letter.
On May 19, 2006, respondent appealed her dismissal with the CSC. The CSC, in its
March 24, 2008 resolution, dismissed the appeal and affirmed her dismissal. When
respondent moved for reconsideration of this resolution, the CSC, in its January 24,
2012 resolution, reversed itself and reinstated respondent into service.
The CSC exonerated respondent from the administrative charges on account of
PAGCOR's failure to comply with the requirements of Section 38 of Republic Act
(R.A.) No. 9165 or the Comprehensive Dangerous Drugs Act of 2002. It found that
respondent was not notified of the positive screening result, which should have
given her a window of opportunity to impugn the result through a confirmatory
testing. It held that notice of the screening test is part of her substantive rights and
the absence thereof is tantamount to denial of the due process granted to her by
law. Thus, it exonerated her of the administrative charges.
PAGCOR filed a motion for reconsideration but it was denied by the CSC in its July
17, 2012 resolution.5
Thus, on August 17, 2012, PAGCOR filed a petition for review before the CA under
Rule 43 of the ROC.
In a Resolution,6 dated June 13, 2014, the CA required PAGCOR, within ten (10) days
from notice, to (1) submit proof that copies of the petition, together with its
annexes, had been duly received by respondent or her counsel; and (2) manifest the
current correct and complete address of respondent and of her counsel. This is
because copies of all resolutions of the CA furnished to counsel for respondent, the
Yap Gonzales & Associates Law Firm, were returned unserved with uniform postal
notation on the envelopes "RTS-MOVED (out)."
The CA Ruling
In a Resolution,7 dated November 28, 2014, the CA dismissed the petition.
It noted that PAGCOR failed to comply with its June 13, 2014 resolution as of
November 17, 2014. It further noted that the copy of its June 13, 2014 resolution to
respondent's counsel was again returned unserved with the same postal notation of
"Moved."
It held that due to PAGCOR's failure to provide the exact addresses of respondent
and her counsel, it failed to acquire jurisdiction over respondent as provided for
under Section 4, Rule 46 of the ROC. Thus, it dismissed the petition for failure to
acquire jurisdiction over respondent.
PAGCOR moved for reconsideration of this resolution. Meanwhile, respondent filed
a Manifestation,8dated May 13, 2015, and Motion cum Manifestation,9 dated
August 5, 2015, insisting that she be provided copies of the petition and the CA's
November 28, 2014 resolution. She also alleged that PAGCOR had prior knowledge
of her counsel's change of address and requested that all subsequent court
processes be sent to her counsel's new address.
In a Resolution,10 dated October 22, 2015, the CA reinstated the petition in view of
respondent's voluntary submission to its jurisdiction. It ordered PAGCOR to furnish
respondent a copy of the petition for review, complete with annexes, within five (5)
days from notice and to submit proof of compliance therewith.
In a resolution, dated April 27, 2016, the CA deemed the petition abandoned and
dismissed the same. It noted that, as of March 3, 2016, PAGCOR had yet to comply
with its October 22, 2015 resolution. Accordingly, it dismissed the petition.
PAGCOR moved for reconsideration of this resolution, which the CA denied in its
January 3, 2017 resolution.
Hence, this petition, anchored on the ground that the CA committed grave abuse of
discretion amounting to lack or excess of jurisdiction when it rendered the April 27,
2016 and January 3, 2017 resolutions.
PAGCOR argues that its failure to comply with the CA's October 22, 2015 resolution
was unintentional. It was merely due to the heavy workload of its former counsel,
as well as the effect of the recurring water intrusion/leakage in its offices due to
bursting of the PAGCOR FCU Chilled Water. This outpour of water soaked and
damaged the computers, case files, confidential documents and other materials
belonging to the lawyers.
Further, PAGCOR argues that the gross negligence of its former handling lawyer
should not bind it as it would be tantamount to a deprivation of its right to due
process and to be rightfully heard on the merits of the case.
In her Comment/Opposition,11 dated July 22, 2017, respondent alleges that
PAGCOR failed to demonstrate a highly meritorious ground for the relaxation of the
rules of procedure in its favor. Thus, the CA rightfully dismissed the action.
In its Reply,12 dated March 14, 2018, PAGCOR insists that its former counsel's
negligence was so gross that it should not be bound thereby. Otherwise, it would
amount to a deprivation of due process.
ISSUE
WHETHER THE CA COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT
DISMISSED THE PETITION FOR REVIEW OF PAGCOR.
The Court's Ruling
The petition is devoid of merit.
PAGCOR comes before this Court seeking exemption from the general rule that a
client is bound by the acts, even mistakes, of his counsel in the realm of procedural
technique.13 However, PAGCOR's disregard for technical procedure is made
manifest by the fact that the instant petition is a substitute for a lost appeal.
Further, the CA did not commit any grave abuse of discretion when it dismissed the
petition for review before it.
The instant petition is a substitute for a lost appeal.
The right to appeal is neither a natural right nor a part of due process. It is merely a
statutory privilege and may be exercised only in the manner and in accordance with
the provisions of law. Thus, one who seeks to avail of the right to appeal must
comply with the requirements of the ROC. Failure to do so often leads to the loss of
the right to appeal.14
Under Section 1, Rule 45 of the ROC, the proper remedy to question the CA’s
judgment, final order or resolution, as in the present case, is an appeal by certiorari.
The petition must be filed within fifteen (15) days from notice of the judgment, final
order or resolution appealed from; or of the denial of petitioner's motion for
reconsideration filed in due time after notice of the judgment.15
PAGCOR received the January 3, 2017 resolution of the CA denying its motion for
reconsideration on January 11, 2017. Hence, PAGCOR had fifteen (15) days, or until
January 26, 2017, to file its appeal. It let this period lapse and, instead, filed herein
petition for certiorari on March 13, 2017. Evidently, the present petition is a
substitute for the lost remedy of appeal.
Time and again, the Court has ruled that a special civil action for certiorari under
Rule 65 is an independent action based on the specific grounds therein provided
and proper only if there is no appeal or any plain, speedy and adequate remedy in
the ordinary course of law. It is an extraordinary process for the correction of errors
of jurisdiction and cannot be availed of as a substitute for the lost remedy of an
ordinary appeal.16 Mere invocation of "grave abuse of discretion amounting to lack
or excess of jurisdiction" will not permit the substitution of a lost remedy of appeal
with a special civil action for certiorari.
Since PAGCOR filed the instant special civil action for certiorari instead of the lost
remedy of appeal by certiorari, the petition should be dismissed.
The negligence of PAGCOR's counsel binds it. None of the recognized exceptions
obtains in this case.
The petition necessarily fails even if the Court were to consider it as a petition
for certiorari. The CA did not commit any grave abuse of discretion amounting to
lack or excess of jurisdiction when it dismissed the petition for review of PAGCOR
on the ground that it abandoned the same.
It is settled that the negligence of counsel binds the client. This is based on the rule
that any act performed by a counsel within the scope of his general or implied
authority is regarded as an act of his client. Consequently, the mistake or negligence
of counsel may result in the rendition of an unfavorable judgment against the client.
We have, however, carved out exceptions to this rule; as where the reckless or
gross negligence of counsel deprives the client of due process of law; or where the
application of the rule will result in outright deprivation of the client's liberty or
property; or where the interests of justice so requires and relief ought to be
accorded to the client who suffered by reason of the lawyer's gross or palpable
mistake or negligence. In order to apply the exceptions rather than the rule, the
circumstances obtaining in each case must be looked into.17
In the case at bar, PAGCOR argues that the negligence of its former counsel was so
gross that it effectively deprived it of due process.
Gross negligence has been defined as the want or absence of or failure to exercise
slight care or diligence, or the entire absence of care. It examines a thoughtless
disregard of consequences without exerting any effort to avoid them.18 Mere WHEREFORE, the petition is DISMISSED. The April 27, 2016 and January 3, 2017
allegation of gross negligence does not suffice. 19 The fact of gross negligence must Resolutions of the Court of Appeals in CA-G.R. SP No. 126110 are AFFIRMED.
be proven and supported by evidence.
SO ORDERED.
The Court finds in the instant case that PAGCOR failed to prove that the negligence
of its former counsel was so gross that it effectively deprived it of due process.

PAGCOR argues in its petition that its failure to comply with the CA's October 22,
2015 resolution was unintentional. It contends that its failure was merely due to the
heavy workload of its former counsel and an effect of the recurring water
intrusion/leakage in its offices. The Court fails to see how these excuses could
amount to gross negligence on the part of its former counsel. In fact, they THIRD DIVISION
themselves characterized it as a mere, unintentional lapse. This is simple
negligence. There is simply no gross negligence to speak of in the instant case. G.R. No. 210736, September 05, 2018

Further, PAGCOR was not deprived of due process. On the contrary, it was given
every opportunity to be heard, which is the very essence of due process. The merits
of its case were heard by the CSC. It appealed the decision of the CSC to the CA. The
CA initially dismissed the case for failure to acquire jurisdiction over respondent due
to PAGCOR's failure to comply with its orders regarding service of a copy of the
petition to respondent and/or her counsel. When the CA reinstated the case in view
of respondent's voluntary submission to its jurisdiction, PAGCOR squandered the
second chance given to it by failing to comply with the CA's directive to furnish
respondent with a copy of the petition. This is despite respondent volunteering the
current address of her counsel through the manifestations she filed. To add salt to
injury, PAGCOR let the period to appeal the January 3, 2017 resolution of the CA
before this Court lapse. Instead, it filed the present petition for certiorari as a
substitute for its lost appeal.
The acts of its former counsel did not deprive PAGCOR of due process. PAGCOR was
given every opportunity to be heard but it failed to take advantage of the said
opportunities. Hence, the general rule that the negligence of the counsel binds the
client applies herein.
On a last note, PAGCOR's cavalier attitude towards court processes and procedure
is plain to see. Its conduct before the CA and before this Court underscores this. The
Court reminds PAGCOR, as we have consistently reminded countless other litigants,
that the invocation of substantial justice is not a magic potion that will
automatically compel this Court to set aside technical rules. This principle is
especially true when a litigant, as in the present case, shows a predilection for
utterly disregarding the ROC, as well as court directives. 20
HERARC CORPORATION, REALTY Petitioner, v. THE PROVINCIAL TREASURER OF
BATANGAS, THE PROVINCIAL ASSESSOR OF BATANGAS, THE MUNICIPAL
ASSESSOR AND MUNICIPAL TREASURER OF CALATAGAN, BATANGAS, DR. RAFAEL
A. MANALO, GRACE OLIVA, AND FREIDA RIVERA YAP, Respondent.
DECISION
PERALTA, J.:
This petition for review on certiorari under Rule 45 of the Rules of
Court (Rules) seeks to reverse and set aside the November 18, 2013 Decision1 and
January 7, 2014 Resolution2 of the Regional Trial Court (RTC), Branch 8, Pallocan
West, Batangas City in Civil Case No. 9428, which held that petitioner Herarc Realty
Corporation is liable to pay the deficiency real property tax for the years 2007,
2008, and January to August 12, 2009.
Stripped of non-essentials, the facts of the present controversy are simple and
undisputed.
Upon acquisition via execution sale in August 2004, thirteen ( 13) parcels of land
located in Sta. Ana, Calatagan, Batangas are registered since 2006 in the name of
petitioner Herarc Realty Corporation under Transfer Certificate of Title (TCT) Nos. T-
105907 to T-105919 (subject property). From March 2, 2006 up to August 12, 2009,
the Subject Property had been in actual possession of private respondents Dr.
Rafael A. Manalo, Grace Oliva, and Freida Rivera Yap in their capacity as assignees in
an involuntary insolvency proceeding against the Spouses Rosario and Saturnino
Baladjay pending before the Muntinlupa City RTC Br. 204.3 It was only on August
13, 2009 that petitioner was able to take full possession and control of the subject
property by virtue of the July 31, 2009 Order of the Makati City RTC Br. 56 granting
the issuance of a writ of execution, which, in tum, was based on the final and
executory Decision of the Court of Appeals in CA G.R. SP Nos. 93818 and 93823.4
In a letter dated October 9, 2012, public respondent Provincial Treasurer of
Batangas sent to petitioner a Statement of Real Property Tax (RPT) Liabilities to
collect the amount of P8,093,256.89, which included the unpaid RPT on the subject
property for 2007, 2008, and January to August 2009 (covered period).5The demand
was reiterated in letters dated October 23, 2012 and November 21, 2012.6
The assessment was paid under protest on November 20, 2012. 7 Less than a month
after, petitioner filed a petition for prohibition and mandamus8 against
respondents, praying the trial court to:
1. [declare], as null and void, the assessments for unpaid real property
taxes made against Petitioner Herarc over the Subject Property for
the years 2007, 2008 until 12 August 2009;
2. [declare], the questioned assessments to be chargeable against Dr.
Rafael Manalo, et al., they being in possession of the Subject
Property [during] the [Covered] Period;
3. [require] Public Respondents to issue the corresponding tax
clearances in favor of Petitioner Herarc for the Subject Property
over the period beginning 2007 up to 2012; and
4. [require] Public Respondents to refund Petitioner Herarc of
whatever amount it has paid under protest that is in excess of the
real property taxes legally chargeable against Petitioner Herarc .9
For petitioner, the RPT assessment is illegal and erroneous, because the subject
property was not in its possession during the covered period. Citing Testate Estate
of Concordia T. Lim v. City of Manila10 andGovernment Service Insurance System v.
City Treasurer and City Assessor of the City of Manila, 11 which ruled that unpaid tax
is chargeable against the taxable person who had actual or beneficial use and
possession of it regardless of whether or not he is the owner, it contended that
private respondents should be the one charged therefor as they had its actual or
beneficial use and possession at the time.
On November 18, 2013, the RTC denied the petition. In ruling that petitioner is
liable to pay the RPT for the covered period, it held:
While it may be true that[,] as stated by the Honorable Supreme Court[,] the unpaid
tax attaches to the property and is chargeable against the taxable person who had
actual or beneficial use and possession of it regardless of whether or not he is the
owner, it does not follow that the position of the Provincial Treasurer does not
[hold] true. The doctrine laid down by the Honorable Supreme Court as mentioned
by the [herein] Petitioner to substantiate one's position has been predicated on the
theory that the registered owner is a tax exempt entity.
In this case under consideration[,] the registered owner is a juridical person subject
to tax. Logic dictates that the pronouncement made by the Supreme Court in the
two case[s] quoted by Herarc Realty Corporation is not applicable in this case under
consideration.
An entity not exempt from payment of taxes must be responsible for the payment
of the deficiency taxes under the theory that unpaid taxes attach to the land. This
may be the reason why the doctrine of beneficial user of the property owned by tax
exempt entity must be answerable for the payment of real property taxes on the
real estate property owned by tax exempt entity.
It may be appropriate to state that this rule of law has been modified in the case of
City of Pasig versus Republic of the Philippines, G.R. No. 185023, August 24, 2011[.]
The Highest Magistrate of the Land made a pronouncement - In sum, only those
portions of the properties leased to taxable entities are subject to real estate tax for
the period of such leases. Pasig City must, therefore, issue to respondent new real
property tax assessments covering the portions of the properties leased to taxable
entities. If the Republic of the Philippines fails to pay the real property tax on the
portions of the properties leased to taxable entities, then such portions may be sold
at public auction to satisfy the tax delinquency.
An [in-depth] examination of the doctrine of the Premier Magistrate of the
Philippines in the case of Pasig versus Republic of the Philippines cited above, the
owner of the real estate property must be the one who would be responsible for
the payment of real property tax if the
beneficial user failed to pay the required real property tax. It goes without saying
that the Petition filed by Herarc Realty Corporation has to be denied. 12
When its motion for reconsideration was denied on January 7, 2014, petitioner
directly filed before Us a Rule 45 petition.
We deny.
Petitioner's direct recourse to the RTC is warranted since the issue of the legality or
validity of the assessment is a question of law. 13 However, as a taxpayer not
satisfied with the RTC decision, it should have filed a petition for review before the
Court of Tax Appeals (CTA).14 The decision, ruling or resolution of the CTA, sitting as
Division, may further be reviewed by the CTA En Banc. 15 It is only after this
procedure has been exhausted that the case may be elevated to this Court.

16
Under Section 7 (a) (3) of Republic Act (R.A.) No. 9282, the appellate jurisdiction of
the C TA over decisions, orders, or resolutions of the RTC becomes operative when
the latter has ruled on a local tax case, i.e., one which is in the nature of a tax case
or which primarily involves a tax issue.17 Local tax cases include those involving RPT,
which is governed by Book II, Title II of R.A No. 7160, or Local Government Code
(LGC) of 1991.18 Among the possible issues are the legality or validity of the RPT
assessment; protests of assessments; disputed assessments, surcharges, or
penalties; legality or validity of a tax ordinance; claims for tax refund/credit; claims
for tax exemption; actions to collect the tax due; and even prescription of
assessments.19
Evidently, petitioner erred in its appeal. If the taxpayer fails to appeal in due course,
the right of the local government to collect the taxes due with respect to the
property becomes absolute upon the expiration of the period to appeal.20 The
assessment becomes final, executory and demandable, precluding the taxpayer
from assailing the legality/validity (or reasonableness/correctness) of the
assessment.21
Time and again, the Court stresses that perfection of an appeal in the manner and
within the period permitted by law is mandatory and jurisdictional such that failure
to do so renders the judgment of the court final and executory. 22 The right to
appeal is a statutory right, not a natural nor a constitutional right. The party who
intends to appeal must comply with the procedures and rules governing appeals;
otherwise, the right of appeal may be lost or squandered. 23
Even if this case is resolved on its substantive merit, the disposition remains the
same. As the RTC correctly opined, in real estate taxation, the unpaid tax attaches
to the property.24 The personal liability for the tax delinquency is generally on
whoever is the owner of the real property at the time the tax accrues. 25 This is a
necessary consequence that proceeds from the fact of ownership.26 Nonetheless,
where the tax liability is imposed on the beneficial use of the real property, such as
those owned but leased to private persons or entities by the government, or when
the assessment is made on the basis of the actual use thereof, the personal liability
is on any person who has such beneficial or actual use at the time of the accrual of
the tax.27 Beneficial use means that the person or entity has the use and
possession of the property.28 Actual use refers to the purpose for which the
property is principally or predominantly utilized by the person in possession
thereof.29
As a general rule, real properties are subject to the RPT since the LGC has
withdrawn exemptions from real property taxes of all persons, whether natural or
juridical.30 Entities may be exempt from payment of the RPT if their charters, which
were enacted or reenacted after the effectivity of the LGC, exempt them payment
of the RPT.31 Likewise, exceptions to the rule are provided in Section 133(o) 32 of the
LGC, which states that local government units have no power to levy taxes of any
kind on the national government, its agencies and instrumentalities and local
government units. Particularly on the RPT, Section 23433 enumerates the persons
and real property exempt therefrom. The tax exemption of real property owned by
the Republic, its political subdivisions, agencies or instrumentalities carries,
however, ceases if the beneficial use of the real property has been granted, for a
consideration or otherwise, to a taxable person. In such case, the corresponding
liability for the payment of the RPT devolves on the taxable beneficial user. 34 As
applied in subsequent cases,35 it is in this context that our ruling in Testate Estate of
Concordia T. Lim36 should be understood. Moreover, in said case, the taxpayer that
was being assessed with the unpaid RPT was neither the registered owner nor the
possessor of the subject property when the tax became due and demandable. In
contrast, petitioner herein, an entity that is not tax exempt under the law, is the
registered owner of the real property. Therefore, it is personally liable for the RPT
at the time it accrued.
WHEREFORE, premises considered, the petition for review on certiorari under Rule
45 of the Rules of Court, which seeks to reverse and set aside the November 18,
2013 Decision and January 7, 2014 Resolution of the Regional Trial Court, Branch 8,
Pallocan West, Batangas City, is DENIED.
SO ORDERED.
THIRD DIVISION
G.R. No. 185622, October 17, 2018
INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., Petitioner, v. THE CITY OF
MANILA; LIBERTY M. TOLEDO, IN HER CAPACITY AS TREASURER OF MANILA;
GABRIEL ESPINO, IN HIS CAPACITY AS RESIDENT AUDITOR OF MANILA; AND THE
CITY COUNCIL OF MANILA, Respondents.
DECISION
LEONEN, J.:
If a party can prove that the resort to an administrative remedy would be an idle
ceremony such that it will be absurd and unjust for it to continue seeking relief that
evidently will not be granted to it, then the doctrine of exhaustion of administrative
remedies will not apply.
This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court,
assailing the September 5, 2008 Decision2 and December 12, 2008 Resolution3 of
the Court of Tax Appeals En Banc in C.T.A. EB No. 277. The Court of Tax Appeals En
Banc dismissed the Petition for Review4 filed by International Container Terminal
Services, Inc. (International Container), and affirmed the May 17, 2006
Decision5 and February 22, 2007 Resolution6 of the Court of Tax Appeals Second
Division.
The Court of Tax Appeals Second Division found that the City of Manila committed
direct double taxation when it imposed a local business tax under Section 21 (A) of
Manila Ordinance No. 7794, as amended by Section 1(G) of Ordinance No. 7807, in
addition to the business tax already imposed under Section 18 of Manila Ordinance
No. 7794, as amended.7 It ordered a partial refund of P6,224,250.00, representing
the erroneously paid business taxes for the third quarter of taxable year 1999.
However, it did not order the City of Manila to refund the business taxes paid by
International Container subsequent to the first three (3) quarters of 1999. 8
International Container, a corporation with its principal place of business in Manila,
renewed its business license for 1999. It was assessed for two (2) business taxes:
one for which it was already paying, and another for which it was newly assessed. It
was already paying a local annual business tax for contractors equivalent to 75% of
1% of its gross receipts for the preceding calendar year pursuant to Section 18 of
Manila Ordinance No. 7794. The newly assessed business tax was computed at 50%
of 1% of its gross receipts for the previous calendar year, pursuant to Section 21 (A)
of Manila Ordinance No. 7794, as amended by Section 1(G) of Manila Ordinance No.
7807. It paid the additional assessment, but filed a protest letter 9 dated July 15,
1999 before the City Treasurer of Manila.10
When the City Treasurer failed to decide International Container's protest within 60
days from the protest, International Container filed before the Regional Trial Court
of Manila its Petition for Certiorari and Prohibition with Prayer for the Issuance of a
Temporary Restraining Order against the City Treasurer and Resident Auditor of
Manila.11 The City Treasurer and the Resident Auditor of Manila moved for the
dismissal12 of the Petition for Certiorari and Prohibition on the ground that
International Container had no cause of action, since it had failed to comply with
the requirements of Section 187 of Republic Act No. 7160, otherwise known as the
Local Government Code of 1991.13
The Regional Trial Court granted the City Treasurer and the Resident Auditor's
motion and dismissed International Container's Petition for Certiorari and
Prohibition.14 International Container appealed the dismissal to the Court of
Appeals, which set aside the Regional Trial Court's dismissal and ordered the case
remanded to the Regional Trial Court for further proceedings.15
While the Petition for Certiorari and Prohibition was pending, the City of Manila
continued to impose the business tax under Section 21 (A), in addition to the
business tax under Section 18, on International Container so that it would be issued
business permits. On June 17, 2003, International Container sent a
letter16 addressed to the City Treasurer of Manila, reiterating its protest to the
business tax under Section 21 (A) and requesting for a refund of its payments in the
amount of P27,800,674.36 "in accordance with Section 196 of the Local
Government Code,"17 which states:
Section 196. Claim for Refund of Tax Credit. — No case or proceeding shall be
maintained in any court for the recovery of any tax, fee, or charge erroneously or
illegally collected until a written claim for refund or credit has been filed with the
local treasurer. No case or proceeding shall be entertained in any court after the
expiration of two (2) years from the date of the payment of such tax, fee, or charge,
or from the date the taxpayer is entitled to a refund or credit.
On July 11, 2003, International Container filed an Amended and Supplemental
Petition,18 alleging, among others, that since the payment of both business taxes
was a pre-condition to the renewal of International Container's business permit, it
was compelled to pay, and had been paying under protest. It amended its prayer to
include not only the refund of business taxes paid for the first three (3) quarters of
1999, but also the taxes continuously paid afterwards.19 The Regional Trial Court
admitted its Amended and Supplemental Petition. 20
In its February 28, 2005 Decision,21 the Regional Trial Court dismissed the Amended
and Supplemental Petition, again finding that International Container failed to
comply with the requirements of Section 195 of the Local Government Code. It
found that when the City Treasurer failed to act on International Container's protest
and continued to collect the business tax under Section 21 (A), it could be
determined that the protest was denied. Under Section 195 of the Local
Government Code, International Container had 60 days to appeal the denial to a
competent court. However, instead of appealing the denial, it resorted to a Petition
for Certiorari and Prohibition, which was not a remedy prescribed under Section
195 of the Local Government Code. By failing to avail of the proper remedy, the
assessments made against it became conclusive and unappealable.22
International Container filed a Petition for Review23 against the City of Manila, its
City Treasurer, its Resident Auditor, and its City Council (the City of Manila and its
Officials) before the Court of Tax Appeals, docketed as C.T.A. AC No. 11. It prayed
that the Court of Tax Appeals set aside the Regional Trial Court February 28, 2005
Decision, and order the City of Manila and its Officials to refund the business taxes
assessed, demanded, and collected under Section 21 (A) in the amount of
P39,268,772.41. This amount corresponded to the periods from 1999 to the first
quarter of 2004 plus any and all subsequent payments until the case would have
been finally decided. Finally, it prayed that the Court of Tax Appeals order the City
of Manila and its Officials to desist from imposing and collecting the business tax
under Section 21 (A), and to pay attorney's fees.24
On August 18, 2005, International Container sent another letter 25 addressed to the
City Treasurer of Manila, reiterating its protest against the business tax under
Section 21 (A), and claiming a refund for the third quarter of 2003 up to the second
quarter of 2005.
The Court of Tax Appeals Second Division issued its May 17, 2006 Decision 26 setting
aside the Regional Trial Court February 28, 2005 Decision and partially granting
International Container's prayer for a refund. It found that imposing the business
tax under Section 21 (A) in addition to the contractors' tax under Section 18
constituted direct double taxation.27 It ordered the City of Manila and its Officials to
refund the amount of P6,224,250.00, representing the additional taxes paid for the
first three (3) quarters of 1999. The claims corresponding to the subsequent periods
were denied, since the Court of Tax Appeals Second Division found that
International Container failed to substantiate its claims and to comply with Section
195 of the Local Government Code. It found that International Container failed to
submit to the court its protest dated June 17, 2003, and thus, the court could not
verify the total amount of taxes paid and the taxing period covered in this protest.28
International Container moved to partially reconsider29 the May 17, 2006 Decision,
praying, among others, that the Court of Tax Appeals Second Division elevate the
records of the case so that it may verify the June 17, 2003 protest. It further argued
that Section 196 of the Local Government Code should be applied to its claim, and
not Section 195. The City of Manila and its Officials filed their own Motion for
Reconsideration.30 The Court of Tax Appeals Second Division directed the elevation
of the records.31
International Container sent a letter32 dated January 10, 2007 addressed to the City
Treasurer of Manila, reiterating its protest, this time, covering the period from the
third quarter of 2005 to the fourth quarter of 2006.
On February 22, 2007, the Court of Tax Appeals Second Division denied the parties'
respective Motions for Reconsideration.33 It found that International Container
raised the applicability of Section 196 of the Local Government Code for the first
time on appeal. Further, it held that International Container's failure to file a
written protest for each assessment in the mayor's permit after the first three (3)
quarters of 1999 rendered these assessments final and executory.
International Container filed a Petition for Review with Prayer for Temporary
Restraining Order and/or Preliminary Injunction before the Court of Tax Appeals En
Banc.34 It argued that the Court of Tax Appeals Second Division should have applied
Section 196 of the Local Government Code for the payments that it had made
subsequent to the third quarter of 1999, pointing out that it had prayed for a refund
as early as the proceedings in the Regional Trial Court.35 Moreover, Sections 195
and 196 pertain to separate and independent remedies; to resort to Section 195 as
a condition precedent to availing of the remedy under Section 196 was illogical. 36
On June 22, 2007, International Container filed an Urgent Motion to Suspend
Collection,37 claiming that the City of Manila and its Officials still collected the
business tax under Section 21 (A) despite the Court of Tax Appeals Second Division
May 17, 2006 Decision. The Urgent Motion was granted by the Court of Tax Appeals
En Banc to preserve the status quo and upon the filing by International Container of
a surety bond.38
On September 5, 2008, the Court of Tax Appeals En Banc issued its
Decision,39 dismissing the Petition for Review for lack of merit. Contrary to the claim
of International Container, the Court of Tax Appeals En Banc found that
International Container's causes of action in the Regional Trial Court and Court of
Tax Appeals Second Division were different from each other. In. the Regional Trial
Court, International Container's action was for the annulment of the assessment
and collection of additional local business tax. In its Amended and Supplemental
Petition, International Container discussed the propriety of the imposition of the
business tax under Section 21 (A) to support the annulment of the
assessment.40According to the Court of Tax Appeals En Banc, this meant that
International Container chose to protest the assessment pursuant to Section 195 of
the Local Government Code, and not to request for a refund as provided by Section
196.41 Notably, International Container prayed for, and was granted, the
opportunity to amend its Petition for Certiorari and Prohibition, but still failed to
include an argument in support of its alleged claim under Section 196 of the Local
Government Code.
The Court of Tax Appeals En Banc further found that Sections 195 and 196 of the
Local Government Code are two (2) separate and distinct remedies granted to
taxpayers, with different requirements and conditions. International Container
cannot merely claim that by complying with the reglementary period of protesting
an assessment under Section 195, it had already complied with the two (2)-year
period stated in Section 196. The Court of Tax Appeals found that since
International Container paid the taxes under the assessment, its claim for refund
assumed that the assessment was wrong. The claim for refund should be
understood as a logical and necessary consequence of the allegedly improper
assessment such that if the assessment were cancelled, the taxes paid under it
should be refunded. This should not be understood as the claim for refund under
Section 196 of the Local Government Code.42
Moreover, even if the applicability of Section 195 did not preclude the availability of
Section 196 as a remedy, International Container only made its protest to the City
Treasurer's assessment without expressly stating that it intended to claim a refund
under Section 196 for taxes paid after the first three (3) quarters of 1999. As
pointed out by the Court of Tax Appeals Second Division, its attempt to invoke
Section 196 on appeal was due to its failure to recover under Section 195, not
having made timely written protests of the assessments made against it.43
Having found that only Section 195 applied, the Court of Tax Appeals En Banc found
that it was no longer necessary to determine whether International Container
complied with the requirements of Section 196 for the periods after the first three
(3) quarters of 1999. It reiterated the Court of Tax Appeals Second Division's ruling
that International Container should have filed a written protest within 60 days from
receipt of each and every assessment made by the City of Manila and its Officials, as
embodied in the Mayor's Permit, regardless of its belief that the written protest
would have been futile. Writing "paid under protest" on the face of municipal
license receipts upon payment of the taxes is not the administrative protests
contemplated by law.44
Court of Tax Appeals Associate Justice Caesar A. Casanova (Associate Justice
Casanova) wrote a Concurring and Dissenting Opinion.45 He noted that the notice of
assessment in Section 195 of the Local Government Code was the same as a notice
of assessment under Section 228 of the 1997 National Internal Revenue Code. He
opined that no notice for deficiency taxes subsequent to the third quarter of 1999
up to the present was ever issued by the City of Manila and its Officials; thus,
Section 195 of the Local Government Code did not apply.46
Moreover, according to Associate Justice Casanova, International Container partially
complied with the requirements of Section 196 of the Local Government Code, from
the third quarter of 2001 up to the fourth quarter of 2006. Following its July 15,
1999 protest for the first three (3) quarters of 1999, it filed claims for refund before
the City Treasurer on June 17, 2003, August 19, 2005, and January 11, 2007. The
payments from October 19, 1999 to April 19, 2001, in the total amount of
P15,539,727.90, could no longer be refunded as the period to claim the refund had
prescribed since its earliest claim was on June 17, 2003. Similarly, the claim for
refund for the first and second quarters of 2007 could not be allowed since it did
not file a claim with the City Treasurer. Associate Justice Casanova voted to partially
grant the petition and to order the City of Manila and its Officials to refund
P44,134,449.68 in its favor.47
On December 12, 2008, the Court of Tax Appeals En Banc denied International
Container's Motion for Reconsideration48 for lack of merit.49 In its Resolution, it
addressed the City of Manila and its Officials' claim in their Comment to the Motion
for Reconsideration50 that the Court of Tax Appeals had no jurisdiction over
International Container's claim for refund from the fourth quarter of 1999 onwards
due to non-payment of docket fees before the Regional Trial Court.51 It noted that
in Sun Insurance Office, Ltd. v. Asuncion,52 the error of non-payment or insufficiency
of docket fees may be rectified by the payment by the filing party of the correct
amount within a reasonable time but in no case beyond the applicable prescriptive
or reglementary period. However, it held that Sun Insurance was inapplicable to this
case, as there was no showing that International Container had paid the additional
docket fees. The applicable ruling should be Manchester Development Corp. v. Court
of Appeals ,53 which held that the non-payment or insufficiency of docket fees
would result in the court not acquiring jurisdiction over the case, rendering void the
ruling of the Regional Trial Court on the additional claims of International
Container.54
On December 24, 2008, International Container filed a Motion for Extension of Time
to file Petition for Review55 with this Court, praying for an additional 30 days, or
until February 2, 2009 within which to file its Petition for Review. This Court granted
the Motion for Extension in its January 14, 2009 Resolution.
On February 2, 2009, International Container filed its Petition for Review on
Certiorari under Rule 45 of the Rules of Court, assailing the September 5, 2008
Decision and December 12, 2008 Resolution of the Court of Tax Appeals En Banc. 56
In its Petition for Review, International Container claims that it is entitled to a
refund of P6,224,250.000 plus P57,865,901.68 in payments of taxes under Section
21 (A) of Manila Ordinance No. 7764, as amended by Section 1(G) of Manila
Ordinance No. 7807.57
First, it argues that it raised the issue of the refund at the earliest possible instance
at the administrative level, and later, before the Regional Trial Court, and not only
on appeal. It points out that in its July 15, 1999 Letter to the City of Manila and its
Officials, it requested that if the questioned assessment had already been paid,
then the amount paid should be refunded. For the amounts paid for the fourth
quarter of 1999 up to the second quarter of 2003, it demanded a refund and
expressly cited Section 196 of the Local Government Code in its June 17, 2003
Letter. The City Treasurer, in its September 1, 2005 Letter, even acknowledged that
International Container had made a claim for refund or tax credit.58
Petitioner included prayers for refund of the taxes paid under protest both in its
original Petition for Certiorari and Prohibition, and in its Amended and
Supplemental Petition before the Regional Trial Court.59
Second, petitioner argues that when it filed its Petition before the Regional Trial
Court, it availed of two (2) remedies: a protest under Section 195 of the Local
Government Code for the assessments made by the City of Manila and its Officials
for the first three (3) quarters of 1999, and a refund under Section 196 of the Local
Government Code for its subsequent payments.60
The P6,224,250.00 ordered refunded by the Court of Tax Appeals Second Division
represented the taxes that petitioner paid under the assessment issued not only for
the taxes for the third quarter of 1999, but also back taxes for the first and second
quarters of 1999. Since the assessment was issued on July 5, 1999, after the taxes
for these quarters were already due, then the assessment was for deficiency tax
assessments. According to petitioner, this was within the scope of Section 195 of
the Local Government Code, which it claims covers only deficiency tax
assessments.61
As for the additional business taxes paid by petitioner, these were not deficiency
taxes, but taxes due for the current taxable periods. Since these taxes were
required for the issuance of its business permit, it was forced to pay the
assessments under protest. This was the situation contemplated by Section 196 of
the Local Government Code, which involves the recovery of any tax, fee, or charge
erroneously or illegally collected.62
Petitioner argues that it complied with the requirements of Section 196, namely,
that it filed the requisite written claims for refund, and the judicial claim was filed
within two (2) years from payment or from the date of entitlement to the refund or
credit.63
For the amounts paid after the third quarter of 1999 up to the second quarter of
2003, petitioner filed a claim for refund before the City Treasurer in its June 17,
2003 Letter. Then, it filed its Amended and Supplemental Petition before the
Regional Trial Court, among the prayers of which was the recovery of all payments
made under Section 21 (A) of Manila Ordinance No. 7794 subsequent to the first
three (3) quarters of 1999. It also filed claims for refund for the third quarter of
2003 up to the second quarter of 2005 on August 19, 2005, and from the third
quarter of 2005 up to the fourth quarter of 2006 on January 11, 2007.64
Petitioner claims that there was no longer a need to make separate written claims
for the taxes paid but not covered by these claims for refund. Citing Central
Azucarera Don Pedro v. Central Bank,65 it points out that this Court has previously
dispensed with the filing of the subsequent claims because it would have been an
exercise in futility since the claims were based on common grounds that the taxing
authority had already rejected. Moreover, as petitioner's basis for its claims for
refund is a pure question of law, there is no need for it to exhaust its administrative
remedies.66
As for the prescriptive period, petitioner avers that it became entitled to a refund or
credit only on July 2, 2007, when the dismissal of its appeal of the May 17, 2006
Decision and February 22, 2007 Resolution of the Court of Tax Appeals Second
Division became final and executory. It points out that these judgments declared
that Section 21 (A) of Manila Ordinance No. 7764 was illegal double taxation. Thus,
it had until July 2, 2009 to file its judicial claim for refund for its payments. While it
agrees with some portions of Justice Casanova's Concurring and Dissenting Opinion
in the Court of Tax Appeals En Banc September 5, 2008 Decision, it argues that all of
its payments were covered by its claims for refund since the two (2)-year period for
a judicial refund ended on July 2, 2009 and the administrative claim may be
dispensed with.67
Third, petitioner asserts that the joinder of its protest to the deficiency tax
assessment and the refund of its tax payments are in accordance with the Rules of
Court. Since both are premised on the same cause of action, namely, the illegal
collection of business taxes under Section 21 (A) of Manila Ordinance No. 7794, to
file separate cases would be to split this cause of action and would produce a
multiplicity of suits.68
Finally, petitioner claims that when it filed its Amended and Supplemental Petition,
it was not ordered by the Regional Trial Court to pay additional docket and filing
fees. Citing Lu v. Lu Ym,69 it argues that cases should not be automatically dismissed
when there is no showing of bad faith on the part of the filing party when
insufficient docket fees were paid. In any event, it undertakes to pay any additional
docket fees that may be found due by this Court.70
On February 18, 2009,71 this Court ordered respondents to comment on the Petition
for Review, with which they complied on April 16, 2009. 72
In their Comment, respondents argue that the Regional Trial Court did not acquire
jurisdiction over this case because petitioner failed to pay the docket fees for the
additional claims within the reglementary period. They claim that petitioner
purposefully avoided paying these docket fees. 73
On August 26, 2009, petitioner filed its Reply to the Comment, 74 in compliance with
this Court's July 1, 2009 Resolution.75
In its Reply, petitioner reiterates its argument that the insufficiency of the docket
fees paid for the Amended and Supplemental Petition does not warrant its
dismissal. Citing United Overseas Bank (formerly Westmont Bank) v. Ros,76 it argues
that a case should not be dismissed simply because a party failed to file the docket
fees, if no bad faith is shown.77 It claims that it did not act with malice or
deliberately intend to evade payment of docket fees.78 Moreover, it points out that
respondents raised the issue of insufficient docket fees for the first time in its
October 25, 2008 Comment before the Court of Tax Appeals En Banc. Respondents
should be deemed estopped from questioning the jurisdiction of the Regional Trial
Court and of the Court of Tax Appeals.79
On December 9, 2009, the parties were ordered to submit their respective
memoranda.80 Petitioner filed its Memorandum on April 5, 2010,81 while
respondents filed their Memorandum on June 10, 2010.82
In their Memorandum, respondents argue that petitioner invoked Section 195 of
the Local Government Code when it filed its original action, and only belatedly
introduced its cause of action under Section 196 before the Court of Tax Appeals.
Moreover, even if it may validly invoke Section 196, it failed to comply with the
requirement of filing a written claim prior to the institution of its action with the
Regional Trial Court since it already filed the case for refund even before it paid the
taxes owed to respondents beginning the fourth quarter of 1999. Finally, it claims
that not only is there non¬payment of docket fees, petitioner is already barred from
paying the deficiency docket fees, since the period within which to pay is only
within the applicable prescriptive or reglementary period, which has already
lapsed.83
The issues for this Court's resolution are:
First, whether or not the Regional Trial Court has jurisdiction over petitioner
International Container Terminal Services, Inc.'s claims for refund from the fourth
quarter of 1999 onwards, despite its non-payment of additional docket fees to the
Regional Trial Court;
Second, whether or not Section 195 or Section 196 of the Local Government Code
govern petitioner International Container Terminal Services, Inc.'s claims for refund
from the fourth quarter of 1999 onwards; and
Finally, whether or not petitioner International Container Terminal Services, Inc.
complied with the requirements that would entitle it to the refund it claims.
I
It is an established rule that the payment of the prescribed docket fees is essential
for a court to acquire jurisdiction over a case.84 Nonetheless, in Sun Insurance
Office,85 this Court laid down the principles concerning the payment of docket fees
for initiatory pleadings:
Nevertheless, petitioners contend that the docket fee that was paid is still
insufficient considering the total amount of the claim. This is a matter which the
clerk of court of the lower court and/or his duly authorized docket clerk or clerk in-
charge should determine and, thereafter, i[f] any amount is found due, he must
require the private respondent to pay the same.
Thus, the Court rules as follows:
1. It is not simply the filing of the complaint or appropriate initiatory pleading, but
the payment of the prescribed docket fee, that vests a trial court with jurisdiction
over the subject matter or nature of the action. Where the filing of the initiatory
pleading is not accompanied by payment of the docket fee, the court may allow
payment of the fee within a reasonable time but in no case beyond the applicable
prescriptive or reglementary period.
2. The same rule applies to permissive counterclaims, third-party claims and similar
pleadings, which shall not be considered filed until and unless the filing fee
prescribed therefor is paid. The court may also allow payment of said fee within a
reasonable time but also in no case beyond its applicable prescriptive or
reglementary period.
3. Where the trial court acquires jurisdiction over a claim by the filing of the
appropriate pleading and payment of the prescribed filing fee but, subsequently,
the judgment awards a claim not specified in the pleading, or if specified the same
has been left for determination by the court, the additional filing fee therefor shall
constitute a lien on the judgment. It shall be the responsibility of the Clerk of Court
or his duly authorized deputy to enforce said lien and assess and collect the
additional fee.86
Should the docket fees paid be found insufficient considering the value of the claim,
the filing party shall be required to pay the deficiency, but jurisdiction is not
automatically lost. The clerk of court involved, or his or her duly authorized deputy,
is responsible for making the deficiency assessment.87
If a party pays the correct amount of docket fees for its original initiatory pleading,
but later amends the pleading and increases the amount prayed for, the failure to
pay the corresponding docket fees for the increased amount should not be deemed
to have curtailed the court's jurisdiction. In PNOC Shipping and Transport Corp. v.
Court of Appeals:88
With respect to petitioner's contention that the lower court did not acquire
jurisdiction over the amended complaint increasing the amount of damages claimed
to P600,000.00, we agree with the Court of Appeals that the lower court acquired
jurisdiction over the case when private respondent paid the docket fee
corresponding to its claim in its original complaint. Its failure to pay the docket fee
corresponding to its increased claim for damages under the amended complaint
should not be considered as having curtailed the lower court's jurisdiction. Pursuant
to the ruling in Sun Insurance Office, Ltd. (SIOL) v. Asuncion, the unpaid docket fee
should be considered as a lien on the judgment even though private respondent
specified the amount of P600,000.00 as its claim for damages in its amended
complaint.89 (Citation omitted)
When it is not shown that the party deliberately intended to defraud the court of
the full payment of docket fees, the principles enumerated in Sun Insurance should
apply. In United Overseas Bank:90
This Court is not inclined to adopt the petitioner's piecemeal construction of our
rulings in Manchester and Sun Insurance. Its attempt to strip the said landmark
cases of one or two lines and use them to bolster its arguments and clothe its
position with jurisprudential blessing must be struck down by this Court.
All told, the rule is clear and simple. In case where the party does not deliberately
intend to defraud the court in payment of docket fees, and manifests its willingness
to abide by the rules by paying additional docket fees when required by the court,
the liberal doctrine enunciated in Sun Insurance and not the strict regulations set
in Manchester will apply.91
Here, contrary to the findings of the Court of Tax Appeals En Banc, the
circumstances dictate the application of Sun Insurance.
First, it is undisputed that petitioner paid the correct amount of docket fees when it
filed its original Petition for Certiorari and Prohibition before the Regional Trial
Court. It was when it filed its Amended and Supplemental Petition, where it prayed
for refund of all the tax payments it had made and would make after the first three
(3) quarters of 1999,92 that the issue of deficient payment of docket fees arose.
As pointed out by petitioner, in its July 18, 2003 Order admitting the Amended and
Supplemental Petition, the Regional Trial Court did not order petitioner to pay any
additional docket fees corresponding to its amended prayer:
The Court admits the Amended and Supplemental Petition. The respondents are
ordered to file their responsive pleading to said Amended Petition. In view of this
development, respondents are given a new period of ten (10) days from receipt of
this Order, to submit said responsive pleading.
SO ORDERED.93
Notably, as argued by petitioner, the amount it claims under its amended prayer for
refund in the Amended and Supplemental Petition cannot be determined with
absolute certainty, as it continued to pay the taxes due to respondents during the
course of the proceedings.94
Second, it is clear that respondents never assailed petitioner's insufficient payment
of docket fees before the Regional Trial Court and the Court of Tax Appeals Second
Division. They only raised this issue in their October 25, 2008 Comment to
petitioner's Motion for Reconsideration95 of the September 5, 2008 Decision of the
Court of Tax Appeals En Banc. Respondents have not denied this.
If a party fails to seasonably raise the other party's failure to pay sufficient docket
fees, then estoppel will set in. In Lu v. Lu Ym, Sr:96
Assuming arguendo that the docket fees were insufficiently paid, the doctrine of
estoppel already applies.
The assailed August 4, 2009 Resolution cited Vargas v. Caminas on the non-
applicability of the Tijam doctrine where the issue of jurisdiction was, in fact, raised
before the trial court rendered its decision. Thus the Resolution explained:
Next, the Lu Ym father and sons filed a motion for the lifting of the receivership
order, which the trial court had issued in the interim. David, et al., brought the
matter up to the CA even before the trial court could resolve the motion.
Thereafter, David, at al., filed their Motion to Admit Complaint to Conform to the
Interim Rules Governing Intra-Corporate Controversies. It was at this point that the
Lu Ym father and sons raised the question of the amount of filing fees paid. They
also raised this point again in the CA when they appealed the trial court's decision in
the case below.
We find that, in the circumstances, the Lu Ym father and sons are not estopped
from challenging the jurisdiction of the trial court. They raised the insufficiency of
the docket fees before the trial court rendered judgment and continuously
maintained their position even on appeal to the CA. Although the manner of
challenge was erroneous—they should have addressed this issue directly to the trial
court instead of the OCA—they should not be deemed to have waived their right to
assail the jurisdiction of the trial court.
Lu Ym father and sons did not raise the issue before the trial court. The narration of
facts in the Court's original decision shows that Lu Ym father and sons merely
inquired from the Clerk of Court on the amount of paid docket fees on January 23,
2004. They thereafter still "speculated] on the fortune of litigation. " Thirty-seven
days later or on March 1, 2004 the trial court rendered its decision adverse to them.
Meanwhile, Lu Ym father and sons attempted to verify the matter of docket fees
from the Office of the Court Administrator (OCA). In their Application for the
issuance [of] a writ of preliminary injunction filed with the Court of Appeals, they still
failed to question the amount of docket fees paid by David Lu, el al. It was only in
their Motion for Reconsideration of the denial by the appellate court of their
application for injunctive writ that they raised such issue.
Lu Ym father and sons' further inquiry from the OCA cannot redeem them. A mere
inquiry from an improper office at that, could not, by any stretch, be considered as
an act of having raised the jurisdictional question prior to the rendition of the trial
court's decision. In one case, it was held:
Here it is beyond dispute that respondents paid the full amount of docket fees as
assessed by the Clerk of Court of the Regional Trial Court of Malolos, Bulacan,
Branch 17, where they filed the complaint. If petitioners believed that the
assessment was incorrect, they should have questioned it before the trial court.
Instead, petitioners belatedly question the alleged underpayment of docket fees
through this petition, attempting to support their position with the opinion and
certification of the Clerk of Court of another judicial region. Needless to state, such
certification has no bearing on the instant case.
The inequity resulting from the abrogation of the whole proceedings at this late
stage when the decision subsequently rendered was adverse to the father and sons
is precisely the evil being avoided by the equitable principle of
estoppel.97 (Emphasis supplied, citations omitted)
In this case, respondents failed to explain why they belatedly raised the issue of
insufficient payment of docket fees before the Court of Tax Appeals En Banc in
2008, even though the issue arose as early as 2003, when petitioner filed its
Amended and Supplemental Petition. As such, they are now estopped from
assailing the jurisdiction of the Regional Trial Court due to petitioner's insufficient
payment of docket fees.
Finally, there is no showing that petitioner intended to deliberately defraud the
court when it did not pay the correct docket fees for its Amended and
Supplemental Petition. Respondents have not provided any proof to substantiate
their allegation that petitioner purposely avoided the payment of the docket fees
for its additional claims. On the contrary, petitioner has been consistent in its
assertion that it will undertake to pay any additional docket fees that may be found
due by this Court. Further, it is well settled that any additional docket fees shall
constitute a lien on the judgment that may be awarded.98
II
Sections 195 and 196 of the Local Government Code govern the remedies of a
taxpayer for taxes collected by local government units, except for real property
taxes:
Section 195. Protest of Assessment. — When the local treasurer or his duly
authorized representative finds that correct taxes, fees, or charges have not been
paid, he shall issue a notice of assessment stating the nature of the tax, fee, or
charge, the amount of deficiency, the surcharges, interests and penalties. Within
sixty (60) days from the receipt of the notice of assessment, the taxpayer may file a
written protest with the local treasurer contesting the assessment; otherwise, the
assessment shall become final and executory. The local treasurer shall decide the
protest within sixty (60) days from the time of its filing. If the local treasurer finds
the protest to be wholly or partly meritorious, he shall issue a notice cancelling
wholly or partially the assessment. However, if the local treasurer finds the
assessment to be wholly or partly correct, he shall deny the protest wholly or partly
with notice to the taxpayer. The taxpayer shall have thirty (30) days from the
receipt of the denial of the protest or from the lapse of the sixty (60)-day period
prescribed herein within which to appeal with the court of competent jurisdiction
otherwise the assessment becomes conclusive and unappealable.
Section 196. Claim for Refund of Tax Credit. — No case or proceeding shall be
maintained in any court for the recovery of any tax, fee, or charge erroneously or
illegally collected until a written claim for refund or credit has been filed with the
local treasurer. No case or proceeding shall be entertained in any court after the
expiration of two (2) years from the date of the payment of such tax, fee, or charge,
or from the date the taxpayer is entitled to a refund or credit.
In City of Manila v. Cosmos Bottling Corp.,99 this Court distinguished between these
two (2) remedies:
The first provides the procedure for contesting an assessment issued by the local
treasurer; whereas, the second provides the procedure for the recovery of an
erroneously paid or illegally collected tax, fee or charge. Both Sections 195 and 196
mention an administrative remedy that the taxpayer should first exhaust before
bringing the appropriate action in court. In Section 195, it is the written protest with
the local treasurer that constitutes the administrative remedy; while in Section 196,
it is the written claim for refund or credit with the same office. As to form, the law
does not particularly provide any for a protest or refund claim to be considered
valid. It suffices that the written protest or refund is addressed to the local
treasurer expressing in substance its desired relief. The title or denomination used
in describing the letter would not ordinarily put control over the content of the
letter.
Obviously, the application of Section 195 is triggered by an assessment made by the
local treasurer or his duly authorized representative for nonpayment of the correct
taxes, fees or charges. Should the taxpayer find the assessment to be erroneous or
excessive, he may contest it by filing a written protest before the local treasurer
within the reglementary period of sixty (60) days from receipt of the notice;
otherwise, the assessment shall become conclusive. The local treasurer has sixty
(60) days to decide said protest. In case of denial of the protest or inaction by the
local treasurer, the taxpayer may appeal with the court of competent jurisdiction;
otherwise, the assessment becomes conclusive and unappealable.
On the other hand, Section 196 may be invoked by a taxpayer who claims to have
erroneously paid a tax, fee or charge, or that such tax, fee or charge had been
illegally collected from him. The provision requires the taxpayer to first file a written
claim for refund before bringing a suit in court which must be initiated within two
years from the date of payment. By necessary implication, the administrative
remedy of claim for refund with the local treasurer must be initiated also within
such two-year prescriptive period but before the judicial action.
Unlike Section 195, however, Section 196 does not expressly provide a specific
period within which the local treasurer must decide the written claim for refund or
credit. It is, therefore, possible for a taxpayer to submit an administrative claim for
refund very early in the two-year period and initiate the judicial claim already near
the end of such two-year period due to an extended inaction by the local treasurer.
In this instance, the taxpayer cannot be required to await the decision of the local
treasurer any longer, otherwise, his judicial action shall be barred by prescription.
Additionally, Section 196 does not expressly mention an assessment made by the
local treasurer. This simply means that its applicability does not depend upon the
existence of an assessment notice. By consequence, a taxpayer may proceed to the
remedy of refund of taxes even without a prior protest against an assessment that
was not issued in the first place. This is not to say that an application for refund can
never be precipitated by a previously issued assessment, for it is entirely possible
that the taxpayer, who had received a notice of assessment, paid the assessed tax,
fee or charge believing it to be erroneous or illegal. Thus, under such
circumstance, the taxpayer may subsequently direct his claim pursuant to Section
196 of the LGC.100 (Emphasis in the original, citation omitted)
If the taxpayer receives an assessment and does not pay the tax, its remedy is
strictly confined to Section 195 of the Local Government Code.101 Thus, it must file a
written protest with the local treasurer within 60 days from the receipt of the
assessment. If the protest is denied, or if the local treasurer fails to act on it, then
the taxpayer must appeal the assessment before a court of competent jurisdiction
within 30 days from receipt of the denial, or the lapse of the 60-day period within
which the local treasurer must act on the protest.102 In this case, as no tax was paid,
there is no claim for refund in the appeal.103
If the taxpayer opts to pay the assessed tax, fee, or charge, it must still file the
written protest within the 60-day period, and then bring the case to court within 30
days from either the decision or inaction of the local treasurer. In its court action,
the taxpayer may, at the same time, question the validity and correctness of the
assessment and seek a refund of the taxes it paid.104 "Once the assessment is set
aside by the court, it follows as a matter of course that all taxes paid under the
erroneous or invalid assessment are refunded to the taxpayer." 105
On the other hand, if no assessment notice is issued by the local treasurer, and the
taxpayer claims that it erroneously paid a tax, fee, or charge, or that the tax, fee, or
charge has been illegally collected from him, then Section 196 applies. 106
Here, there is no dispute on the refund of P6,224,250.00, representing the
additional taxes paid for the first three (3) quarters of 1999, as ordered by the Court
of Tax Appeals Second Division in its May 17, 2006 Decision on to petitioner's
entitlement to a refund of the taxes paid subsequent to the third quarter of 1999,
which was denied by the Court of Tax Appeals Second Division on the ground that
petitioner failed to comply with the requirements of Section 195.
When petitioner raised the applicability of Section 196 to the claim for refund of
these subsequent payments, the Court of Tax Appeals Second Division, as affirmed
by the Court of Tax Appeals En Banc, held that Section 196 cannot apply as
petitioner previously anchored its claims under Section 195. As ruled by the Court
of Tax Appeals En Banc:
Unmistakably, Section 195 and Section 196 of the LGC are two separate and diverse
remedies granted to taxpayers, calling for different requirements and conditions for
their application. Considering so, petitioner should have been clear on the basis of
its action. It cannot be allowed to resort to an all-encompassing remedy so that in
case it is disqualified under once, it can immediately shift to the other.
When petitioner appealed to the Second Division, the following issues were raised:
1. Whether or not the Petition of petitioner were prematurely filed, or, whether
or not the said petition is the "appeal" contemplated in Section 195 of the
Local Government Code.
2. Whether or not petitioner is taxable under Section 21 (A) of Manila Ordinance
No. 7794, as amended by Manila Ordinance No. 7807, given the fact that it is
already taxed as a contractor under Section 18 of the same ordinance.
Again, a cursory reading of the above as well as the arguments, discussions and
theories in the Petition for Review and Memorandum filed before the Second
Division shows that petitioner's argument/theory on the applicability of Section 196
to its claim after the first three quarters of 1999 was not ascertainable. In contrast,
the petition is enclosed with supporting arguments on petitioner's protest to the
imposition of the additional local business tax. There was no mention or discussion
of Section 196.
From the RTC until the filing of a petition before the Second Division, emphasis had
been given on petitioner's arguments questioning the assessment.107 (Emphasis in
the original)
The nature of an action is determined by the allegations in the complaint and the
character of the relief sought.108 Here, petitioner seeks a refund of taxes that
respondents had collected. Following City of Manila,109 refund is available under
both Sections 195 and 196 of the Local Government Code: for Section 196, because
it is the express remedy sought, and for Section 195, as a consequence of the
declaration that the assessment was erroneous or invalid. Whether the remedy
availed of was under Section 195 or Section 196 is not determined by the taxpayer
paying the tax and then claiming a refund.
What determines the appropriate remedy is the local government's basis for the
collection of the tax. It is explicitly stated in Section 195 that it is a remedy against a
notice of assessment issued by the local treasurer, upon a finding that the correct
taxes, fees, or charges have not been paid. The notice of assessment must state
"the nature of the tax, fee, or charge, the amount of deficiency, the surcharges,
interests and penalties."110 In Yamane v. BA Lepanto Condominium Corp.:111
Ostensibly, the notice of assessment, which stands as the first instance the taxpayer
is officially made aware of the pending tax liability, should be sufficiently
informative to apprise the taxpayer the legal basis of the tax. Section 195 of the
Local Government Code does not go as far as to expressly require that the notice of
assessment specifically cite the provision of the ordinance involved but it does
require that it state the nature of the tax, fee or charge, the amount of deficiency,
surcharges, interests and penalties. In this case, the notice of assessment sent to
the Corporation did state that the assessment was for business taxes, as well as the
amount of the assessment. There may have been prima facie compliance with the
requirement under Section 195. However in this case, the Revenue Code provides
multiple provisions on business taxes, and at varying rates. Hence, we could
appreciate the Corporation's confusion, as expressed in its protest, as to the exact
legal basis for the tax. Reference to the local tax ordinance is vital, for the power of
local government units to impose local taxes is exercised through the appropriate
ordinance enacted by the sanggunian, and not by the Local Government Code
alone. What determines tax liability is the tax ordinance, the Local Government
Code being the enabling law for the local legislative body.112 (Citations omitted)
No such precondition is necessary for a claim for refund pursuant to Section 196.113
Here, no notice of assessment for deficiency taxes was issued by respondent City
Treasurer to petitioner for the taxes collected after the first three (3) quarters of
1999. As observed by Court of Tax Appeals Justice Casanova in his Concurring and
Dissenting Opinion to the September 5, 2008 Decision:
In order to apply Section 195 of the LGC, there is a need for the issuance of a notice
of assessment stating the nature of the tax, fee or charge, the amount of deficiency,
the surcharges, interests and penalties. It is only upon receipt of this notice of
assessment that a taxpayer is required to file a protest within sixty (60) days from
receipt thereof.
Given the nature of a notice of assessment, it is my opinion that no notice
pertaining to deficiency taxes for the periods subsequent to the 3rd Quarter of 1999
up to the present were ever issued or sent by respondents to ICTSI.
In ICTSI's case, as correctly found by the Second Division, viz:
"Records disclose in the instant case that petitioner filed a protest pursuant to
Section 195 of the LGC only with respect to the assessment of the amount of
P6,224,250.00, which covers the [first three quarters] of 1999. Petitioner protested
the said assessment on July 15, 1999 and paid the same amount under protest. This
is not controverted by the respondents."
Hence, Section 195 of the LGC cannot apply to the period subsequent to the
3rd Quarter of 1999 because ICTSI did not receive any notice of assessment
thereafter that states the nature of the tax[,] amount of deficiency[,] and
charges.114
The "assessments" from the fourth quarter of 1999 onwards were Municipal
License Receipts; Mayor's Permit, Business Taxes, Fees & Charges Receipts; and
Official Receipts issued by the Office of the City Treasurer for local business taxes,
which must be paid as prerequisites for the renewal of petitioner's business permit
in respondent City of Manila.115 While these receipts state the amount and nature
of the tax assessed, they do not contain any amount of deficiency, surcharges,
interests, and penalties due from petitioner. They cannot be considered the "notice
of assessment" required under Section 195 of the Local Government Code.
When petitioner paid these taxes and filed written claims for refund before
respondent City Treasurer, the subsequent denial of these claims should have
prompted resort to the remedy laid down in Section 196, specifically the filing of a
judicial case for the recovery of the allegedly erroneous or illegally collected tax
within the two (2)-year period.
Petitioner appealed the denial of the protest against respondent City Treasurer's
assessment and the action against the denial of its claims for refund. For both
issues, petitioner's arguments are based on the common theory that the additional
tax under Section 21 (A) of Manila Ordinance No. 7794, as amended by Section 1(G)
of Manila Ordinance No. 7807, is illegal double taxation. Hence, their joinder in one
(1) suit was legally appropriate and avoided a multiplicity of suits.116
III
A tax refund or credit is in the nature of a tax exemption, 117 construed strictissimi
juris against the taxpayer and liberally in favor of the taxing authority. 118 Claimants
of a tax refund must prove the factual basis of their claims with sufficient
evidence.119
To be entitled to a refund under Section 196 of the Local Government Code, the
taxpayer must comply with the following procedural requirements: first, file a
written claim for refund or credit with the local treasurer; and second, file a judicial
case for refund within two (2) years from the payment of the tax, fee, or charge, or
from the date when the taxpayer is entitled to a refund or credit. 120
As to the first requirement, the records show that the following written claims for
refund were made by petitioner:
In its June 17, 2003 Letter to the City Treasurer, it claimed a refund of
P27,800,674.36 for taxes paid from the fourth quarter of 1999 up to the second
quarter of 2003.121
In its August 18, 2005 Letter to the City Treasurer, it claimed a refund of
P14,190,092.90 for taxes paid for the third quarter of 2003 up to the second quarter
of 2005.122
In her September 1, 2005 Response123 to the August 18, 2005 Letter, City Treasurer
Liberty M. Toledo denied the claim, stating in part:
With respect to the alleged final and executory decision of the Regional Trial Court,
Branch 21, Manila in Civil Case No. 00-97081, please be informed that as of this
writing, there is no decision yet rendered by the Supreme [Court] on the appeal
made by the City. Hence, the decision has not attained finality.
In view thereof and considering that the issue on whether or not Golden Arches is
liable under Section 21 or not and that the same constitute double taxation is sub-
judice due to the case filed in court by your company, this Office, cannot, much to
our regret, act favorably on your claim for refund or credit of the tax collected as
mentioned above. Rest assured that upon receipt of any decision from the Supreme
Court declaring Section 21 illegal and unconstitutional, this Office shall act
accordingly.124
Thereafter, petitioner sent its January 10, 2007 Letter to the City Treasurer claiming
a refund of taxes paid for the third quarter of 2005 until the fourth quarter of 2006,
pursuant to the Court of Tax Appeals Second Division May 17, 2006 Decision. 125
As for the taxes paid thereafter and were not covered by these letters, petitioner
readily admits that it did not make separate written claims for refund, citing that
"there was no further necessity"126 to make these claims. It argues that to file
further claims before respondent City Treasurer would have been "another exercise
in futility"127 as it would have merely raised the same grounds that it already raised
in its June 17, 2003 Letter:
In the present controversy, it can be gleaned from the foregoing discussion that to
file a written claim before the Respondent City Treasurer would have been another
exercise in futility because the grounds for claiming a refund for the subsequent
years would have been the very same grounds cited by petitioner in support of its
17 June 2003 letter that was not acted upon by Respondent City Treasurer. Thus, it
would have been reasonable to expect that any subsequent written claim would
have likewise been denied or would similarly not be acted upon. This is bolstered by
the fact that during the pendency of the instant case, from its initial stages before
the Regional Trial Court up to the present, Respondents have continued and
unceasingly assessed and collected the questioned local business tax. . . . 128
The doctrine of exhaustion of administrative remedies requires recourse to the
pertinent administrative agency before resorting to court action. 129 This is under the
theory that the administrative agency, by reason of its particular expertise, is in a
better position to resolve particular issues:
One of the reasons for the doctrine of exhaustion is the separation of powers,
which enjoins upon the Judiciary a becoming policy of non-interference with
matters coming primarily (albeit not exclusively) within the competence of the
other departments. The theory is that the administrative authorities are in a better
position to resolve questions addressed to their particular expertise and that errors
committed by subordinates in their resolution may be rectified by their superiors if
given a chance to do so. A no less important consideration is that administrative
decisions are usually questioned in the special civil actions of certiorari, prohibition
and mandamus, which are allowed only when there is no other plain, speedy and
adequate remedy available to the petitioner. It may be added that strict
enforcement of the rule could also relieve the courts of a considerable number of
avoidable cases which otherwise would burden their heavily loaded
dockets.130(Citation omitted)
When there is an adequate remedy available with the administrative remedy, then
courts will decline to interfere when the party refuses, or fails, to avail of it. 131
Nonetheless, the failure to exhaust administrative remedies is not always fatal to a
party's cause. This Court has admitted of several exceptions to the doctrine:
As correctly suggested by the respondent court, however, there are a number of
instances when the doctrine may be dispensed with and judicial action validly
resorted to immediately. Among these exceptional cases are: 1) when the question
raised is purely legal; 2) when the administrative body is in estoppel; 3) when the
act complained of is patently illegal; 4) when there is urgent need for judicial
intervention; 5) when the claim involved is small; 6) when irreparable damage will
be suffered; 7) when there is [no] other plain, speedy and adequate remedy; 8)
when strong public interest is involved; 9) when the subject of the controversy is
private land; and 10) in quo warranto proceedings.132(Citations omitted)
If the party can prove that the resort to the administrative remedy would be an idle
ceremony such that it will be absurd and unjust for it to continue seeking relief that
evidently will not be granted to it, then the doctrine would not apply. In Central
Azucarera:133
On the failure of the appellee to exhaust administrative remedies to secure the
refund of the special excise tax on the second importation sought to be recovered,
we are of the same opinion as the trial court that it would have been an idle
ceremony to make a demand on the administrative officer and after denial thereof
to appeal to the Monetary Board of the Central Bank after the refund of the first
excise tax had been denied.134
As correctly pointed out by petitioner, the filing of written claims with respondent
City Treasurer for every collection of tax under Section 21 (A) of Manila Ordinance
No. 7764, as amended by Section 1(G) of Ordinance No. 7807, would have yielded
the same result every time. This is bolstered by respondent City Treasurer's
September 1, 2005 Letter, in which it stated that it could not act favorably on
petitioner's claim for refund until there would have been a final judicial
determination of the invalidity of Section 21 (A).
Further, the issue at the core of petitioner's claims for refund, the validity of Section
21 (A) of Manila Ordinance No. 7794, as amended by Section 1(G) of Manila
Ordinance No. 7807, is a question of law.135When the issue raised by the taxpayer is
purely legal and there is no question concerning the reasonableness of the amount
assessed, then there is no need to exhaust administrative remedies. 136
Thus, petitioner's failure to file written claims of refund for all of the taxes under
Section 21 (A) with respondent City Treasurer is warranted under the
circumstances.
Similarly, petitioner complied with the second requirement under Section 196 of
the Local Government Code that it must file its judicial action for refund within two
(2) years from the date of payment, or the date that the taxpayer is entitled to the
refund or credit. Among the reliefs it sought in its Amended and Supplemental
Petition before the Regional Trial Court is the refund of any and all subsequent
payments of taxes under Section 21 (A) from the time of the filing of its Petition
until the finality of the case:
WHEREFORE, premises considered, it is respectfully prayed –
....

c) after trial, a decision be rendered ordering the respondents to refund
the local business taxes assessed, demanded and collected by them and
paid under protest by petitioner, in the amount of P6,224,250.00,
corresponding to the first three (3) quarters of 1999 plus any and all
subsequent payments of taxes under Section 21 (A) of Manila
Ordinance No. 7794, as amended, made by petitioner from the time of
the filing of this Petition until this case is finally decided, together with
legal interest thereon, as well as the attorney's fees and costs of suit. 137
As acknowledged by respondent City Treasurer in her September 1, 2005 Letter,
petitioner's entitlement to the refund would only arise upon a judicial declaration of
the invalidity of Section 21 (A) of Manila Ordinance No. 7794, as amended by
Section 1(G) of Manila Ordinance No. 7807. This only took place when the Court of
Tax Appeals En Banc dismissed respondents' Petition for Review of the May 17,
2006 Decision of the Court of Tax Appeals Second Division, rendering the judgment
on the invalidity of Section 21 (A) final and executory on July 2, 2007.138 Therefore,
the judicial action for petitioner's claim for refund had not yet expired as of the
filing of the Amended and Supplemental Petition.
WHEREFORE, the Petition for Review on Certiorari is GRANTED. The September 5,
2008 Decision and December 12, 2008 Resolution of the Court of Tax Appeals En
Banc in C.T.A. EB No. 277 are hereby REVERSED and SET ASIDE. The Court of Tax
Appeals En Banc is DIRECTED to proceed with the resolution on the merits of C.T.A.
EB No. 277 with due and deliberate dispatch.
SO ORDERED.
THIRD DIVISION
G.R. No. 196681, June 27, 2018
CITY OF MANILA AND OFFICE OF THE CITY TREASURER OF
MANILA, Petitioners, v. COSMOS BOTTLING CORPORATION, Respondent.
DECISION
MARTIRES, J.:
The filing of a motion for reconsideration or new trial to question the decision of a
division of the Court of Tax Appeals (CTA) is mandatory. An appeal brought directly
to the CTA En Banc is dismissible for lack of jurisdiction.
In local taxation, an assessment for deficiency taxes made by the local government
unit may be protested before the local treasurer without necessity of payment
under protest. But if payment is made simultaneous with or following a protest
against an assessment, the taxpayer may subsequently maintain an action in court,
whether as an appeal from assessment or a claim for refund, so long as it is initiated
within thirty (30) days from either decision or inaction of the local treasurer on the
protest.
THE CASE
This is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the 16 February 20111 and 20 April 20112 Resolutions of the CTA En Banc.
The 16 February 2011 Resolution dismissed the petition for review of the
petitioners for failure to file a motion for reconsideration or new trial before the
CTA Third Division (CTA Division); while the 20 April 2011 Resolution denied the
motion for reconsideration of the first assailed resolution. The CTA Division's 9
November 2010 Decision3 ruled in favor of respondent Cosmos Bottling Corporation
(Cosmos) by partially granting its appeal from the decision of the Regional Trial
Court, Branch 49, Manila (RTC), in Civil Case No. 01-116881 entitled Cosmos Bottling
Corporation v. City of Manila and Liberty Toledo (City Treasurer of Manila).
THE FACTS
Antecedents
The CTA Division, narrates the antecedents as follows:
For the first quarter of 2007, the City of Manila assessed [Cosmos] local business
taxes and regulatory fees in the total amount of P1,226,781.05, as contained in the
Statement of Account dated January 15, 2007. [Cosmos] protested the assessment
through a letter dated January 18, 2007, arguing that Tax Ordinance Nos. 7988 and
8011, amending the Revenue Code of Manila (RCM), have been declared null and
void. [Cosmos] also argued that the collection of local business tax under Section 21
of the RCM in addition to Section 14 of the same code constitutes double taxation.
[Cosmos] also tendered payment of only P131,994.23 which they posit is the
correct computation of their local business tax for the first quarter of 2007. This
payment was refused by the City Treasurer. [Cosmos] also received a letter from
the City Treasurer denying their protest, stating as follows:
In view thereof, this Office, much to our regret, has to deny your protest and that
any action taken thereon will be sub-judice. Rest assured, however, that once we
receive a final ruling on the matter, we will act in accordance therewith. [Cosmos]
was thus constrained to pay the assessment of P1,226,78,1.05 as evidenced by
Official Receipt No. BAJ-005340 dated February 13, 2007. On March 1, 2007,
[Cosmos] filed a claim for refund of P1,094,786.82 with the Office of the City
Treasurer raising the same grounds as discussed in their protest.
On March 8, 2007, [Cosmos] filed its complaint with the RTC of Manila praying for
the refund or issuance of a tax credit certificate in the amount of P1,094,786.82.
The RTC in its decision ruled in favor of [Cosmos] but denied the claim for refund.
The dispositive portion of the assailed Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered enjoining the
respondent Treasurer of the City of Manila to refrain henceforth from imposing tax
under Section 21 of the Revenue Code of Manila if it had already imposed tax on
.manufacturers under Section 14 of the same Code. As to the prayer in the petition
for refund, the same is denied.
[Cosmos'] motion for partial reconsideration was also denied, hence, [the] Petition
for Review [before the CTA].4
The petition for review was raffled to the CTA Division and docketed as CTA A.C. No.
60.
The Ruling of the CTA Division
The CTA Division essentially ruled that the collection by the City Treasurer of Manila
of local business tax under both Section 21 and Section 14 of the Revenue Code of
Manila constituted double taxation.5 It also ruled that the City Treasurer cannot
validly assess local business tax based on the increased rates under Tax Ordinance
Nos. 7988 and 8011 after the same have been declared null and void. 6 Finally, the
court held that Cosmos Bottling Corporation's (Cosmos) local business tax liability
for the calendar year 2007 shall be computed based on the gross sales or receipts
for the year 2006.7
The dispositive portion of the decision of the CTA Division reads:
WHEREFORE, finding merit in the instant Petition for Review, the same is hereby
granted. The assailed Decision dated April 14, 2009 of the Regional Trial Court of
Manila, Branch 49 in Civil Case No. 07-116881 is hereby PARTIALLY REVERSED.
Accordingly, respondent is ENJOINED from imposing the business tax under Section
21 of the Revenue Code of Manila if it had already imposed tax on manufacturers
under Section 14 of the same Code. Respondent, furthermore, is ORDERED to
REFUND or to issue a TAX CREDIT CERTIFICATE to petitioner the amount of
P1,094,786.82, representing excess business taxes collected for the first quarter of
year 2007.8
Instead of filing a motion for reconsideration or new trial, the petitioners directly
filed with the CTA En Banc a petition for review9 praying that the decision of the
CTA Division be reversed or set aside.
The Ruling of the CTA En Banc
In its Resolution of 16 February 2011, the CTA En Banc ruled that the direct resort to
it without a prior motion for reconsideration or new trial before the CTA Division
violated Section 18 of Republic Act (R.A.) No. 1125,10 as amended by R.A. No. 9282
and R.A. No. 9503, and Section 1, Rule 8 of the Revised Rules of the CTA (CTA
Rules).11
The petitioners sought reconsideration, but their motion was denied by the CTA En
Banc. Hence, the appeal before this Court.
The Present Petition for Review
The petitioners assigned the following errors allegedly committed by the CTA En
Banc:
1. The Honorable CTA En Banc erred in not reconsidering its Order dismissing the
case on procedural grounds.
2. The 3rd Division of the CTA committed reversible error when it ruled in favor
of respondent Cosmos despite its failure to appeal the assessment within 30
days from receipt of the denial by the City Treasurer.
3. The 3rd Division of the CTA committed grave error when it failed to consider
that the assessment subject of this case has already become final and
executory and no longer appealable.
4. The 3rd Division of the CTA gravely erred in granting Cosmos' claim despite
erroneously filing the instant case under the provision of Section 196 of the
LGC.12
On the first ground, the petitioners essentially invoke excusable mistake on the part
of their handling lawyer in asking the Court to resolve the case on the merits. They
argue that the Court had on many occasions set aside the rules of procedure in
order to afford substantial justice.
On the second, third, and fourth grounds, the petitioners claim that Cosmos'
remedy was one of protest against assessment as demonstrated by its letter dated
18 January 2007. Being so, Cosmos' adopted remedy should be governed by Section
195 of the Local Government Code (LGC). Pursuant to such provision, Cosmos had
only thirty (30) days from receipt of denial of the protest within which to file an
appeal before a court of competent jurisdiction. However, Cosmos failed to comply
with the period of appeal, conveniently shifting its theory from tax protest to tax
refund under Section 196 of the LGC when it later on filed a "claim for refund/tax
credit of illegally/erroneously paid taxes" on 1 March 2007. The petitioners, thus,
argue that Cosmos had already lost its right to appeal and is already precluded from
questioning the denial of its protest.
In its comment,13 Cosmos counters that the rules should not be lightly disregarded
by harping on substantial justice and the policy of liberal construction. It also insists
that it is not Section 195 of the LGC that is applicable to it but Section 196 of the
same code.
ISSUES
Whether the CTA En Banc correctly dismissed the petition for review before it for
failure of the petitioners to file a motion for reconsideration or new trial with the
CTA Division.
Whether a taxpayer who had initially protested and paid the assessment may shift
its remedy to one of refund.
OUR RULING
We rule for Cosmos.
I.
The filing of a motion for reconsideration or new trial before the CTA Division
is an indispensable requirement for filing an appeal before the CTA En Banc.
The CTA En Banc was correct in interpreting Section 18 of R.A. No. 1125, as
amended by R.A. 9282 and R.A. No. 9503, which states –
Section 18. Appeal to the Court of Tax Appeals En Banc. – No civil proceeding
involving matter arising under the National Internal Revenue Code, the Tariff and
Customs Code or the Local Government Code shall be maintained, except as herein
provided, until and unless an appeal has been previously filed with the CTA and
disposed of this Act.
A party adversely affected by a resolution of a Division of the CTA on motion for
reconsideration or new trial, may file a petition for review with the CTA en banc.
(underlining supplied)
as requiring a prior motion for reconsideration or new trial before the same division
of the CTA that rendered the assailed decision before filing a petition for review
with the CTA En Banc. Failure to file such motion for reconsideration or new trial is
cause for dismissal of the appeal before the CTA En Banc.
Corollarily, Section 1, Rule 8 of the CTA Rules provides:
Section 1. Review of cases in the Court en banc. — In cases falling under the
exclusive appellate jurisdiction of the Court en banc, the petition for review of a
decision or resolution of the Court in Division must be preceded by the filing of a
timely motion for reconsideration or new trial with the Division. (emphasis
supplied)
Clear it is from the cited rule that the filing of a motion for reconsideration or new
trial is mandatory – not merely directory – as indicated by the word "must."
Thus, in Asiatrust Development Bank, Inc. v. Commissioner of Internal Revenue
(Asiatrust),14 we declared that a timely motion for reconsideration or new trial must
first be filed with the CTA Division that issued the assailed decision or resolution in
order for the CTA En Banc to take cognizance of an appeal via a petition for review.
Failure to do so is a ground for the dismissal of the appeal as the word "must"
indicates that the filing of a prior motion is mandatory, and not merely
directory.15 In Commissioner of Customs v. Marina Sales, Inc. (Marina Sales),16 which
was cited in Asiatrust, we held:
The rules are clear. Before the CTA En Banc could take cognizance of the petition for
review concerning a case falling under its exclusive appellate jurisdiction, the
litigant must sufficiently show that it sought prior reconsideration or moved for a
new trial with the concerned CTA division. Procedural rules are not to be trifled with
or be excused simply because their noncompliance may have resulted in prejudicing
a party's substantive rights. Rules are meant to be followed. They may be relaxed
only for very exigent and persuasive reasons to relieve a litigant of an injustice not
commensurate to his careless non-observance of the prescribed rules. 17 (citations
omitted)
The rules are to be relaxed only in the interest of justice and to benefit the
deserving.18
We cannot lend to the petitioners the benefit of liberal application of the rules.. As
in Marina Sales, the rules may be relaxed when to do so would afford a litigant
substantial justice. After a cursory examination of the records of the case, we find
that the petitioners, as determined by the CTA Division, erroneously assessed and
collected from Cosmos local business taxes for the first quarter of 2007; thus, a
refund is warranted.
The ruling of the CTA Division is anchored on the following findings:
(1) the assessment against Cosmos was based on Ordinance Nos. 7988 and
8011 (Revenue Code of Manila);
(2) the assessment against Cosmos included taxes imposed under Section 21,
in addition to Section 14, of the Revenue Code of Manila; and
(3) the local taxes collected from Cosmos for the first quarter of 2007 was
based on its gross receipts in 2005.
We cannot help but sustain the ruling of the CTA Division that the City of Manila
cannot validly assess local business taxes under Ordinance Nos. 7988 and 8011
because they are void and of no legal effect; the collection of local business taxes
under Section 21 in addition to Section 14 of the Revenue Code of Manila
constitutes double taxation; and the 2007 local business tax assessed against
Cosmos should be computed based on the latter's gross receipts in 2006.
1. Ordinance Nos. 7988 and 8011 have been declared null and void, hence,
invalid bases for the imposition of business taxes.
At .the time the CTA Division rendered the assailed decision, the cases of Coca-Cola
Bottlers Philippines, Inc. v. City of Manila (2006),19 The City of Manila v. Coca-Cola
Bottlers, Inc. (2009)20 and City of Manila v. Coca-Cola Bottlers, Inc. (2010)21 had
already settled the matter concerning the validity of Ordinance Nos. 7988 and 8011.
The said cases clarified that Ordinance Nos. 7988 and 8011, which amended
Ordinance No. 7794, were null and void for failure to comply with the required
publication for three (3) consecutive days and thus cannot be the basis for the
collection of business taxes.
It is not disputed that Cosmos was assessed with the tax on manufacturers under
Section 14 and the tax on other businesses under Section 21 of Ordinance No. 7988,
as amended by Ordinance No. 8011. Consistent with the settled jurisprudence
above, the taxes assessed in this case, insofar as they are based on such void
ordinances, must perforce be nullified. Thus, what remains enforceable is the old
Ordinance No. 7794. Accordingly, the business tax assessable against Cosmos
should be based on the rates provided by this Ordinance.
2. The collection of taxes under both Sections 14 and 21 of the Revenue Code
of Manila constitutes double taxation.
While the City of Manila could impose against Cosmos a manufacturer's tax under
Section 14 of Ordinance No. 7794, or the Revenue Code of Manila, it cannot at the
same time impose the tax under Section 21 of the same code; otherwise, an
obnoxious double taxation would set in. The petitioners erroneously argue that
double taxation is wanting for the reason that the tax imposed under Section 21 is
imposed on a different object and of a different nature as that in Section 14. The
argument is not novel. In The City of Manila v. Coca-Cola Bottlers, Inc. (2009),22 the
Court explained –
[T]here is indeed double taxation if respondent is subjected to the taxes under both
Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1)
on the same subject matter — the privilege of doing business in the City of Manila;
(2) for the same purpose — to make persons conducting business within the City of
Manila contribute to city revenues; '(3) by the same taxing authority — petitioner Section 143. Tax on Business. – The municipality may impose taxes on the following
City of Manila; (4) within the same taxing jurisdiction — within the territorial businesses:
jurisdiction of the City of Manila; (5) for the same taxing periods per calendar year;
and (6) of the same kind or character — a local business tax imposed on gross sales
or receipts of the business. (a) On manufacturers, assemblers, repackers, processors, brewers, distillers,
rectifiers, and compounders x x x in accordance with the following
The distinction petitioners attempt to make between the taxes under Sections 14 schedule: With gross sales or receipts for the preceding calendar year in
and 21 of Tax Ordinance No. 7794 is specious. The Court revisits Section 143 of the the amount of:
LGC, the very source of the power of municipalities and cities to impose a local
business tax, and to which any local business tax imposed by petitioner City of x x x x (emphasis supplied)
Manila must conform. It is apparent from a perusal thereof that when a
municipality or city has already imposed a business tax on manufacturers, etc. of
Consistent with the above provision, an assessment for business tax under Section
liquors, distilled spirits, wines, and any other article of commerce, pursuant to
14 of Ordinance No. 7794 for the taxable year 2007 should be computed based on
Section 143(a) of the LGC, said municipality or city may no longer subject the same
the taxpayer's gross sales or receipts of the preceding calendar year 2006. In this
manufacturers, etc. to a business tax under Section 143(h) of the same Code.
case, however, the petitioners based the computation of manufacturer's tax on
Section 143(h) may be imposed only on businesses that are subject to excise tax,
Cosmos' gross sales for the calendar year 2005. The CTA Division was therefore
VAT, or percentage tax under the NIRC, and that are "not otherwise specified in
correct in adjusting the computation of the business tax on the basis of Cosmos'
preceding paragraphs." In the same way, businesses such as respondent's, already
gross sales in 2006 which amount, incidentally, was lower than Cosmos' gross sales
subject to a local business tax under Section 14 of Tax Ordinance No. 7794 [which
in 2005. The business tax paid corresponding to the difference is consequently
is based on Section 143(a) of the LGC], can no longer be made liable for local
refundable to Cosmos.
business tax under Section 21 of the same Tax Ordinance [which is based on
Section 143(h) of the LGC].23 (emphases supplied)
II.
In reality, Cosmos, being a manufacturer of beverages, 24 is similarly situated with
Coca-Cola Bottlers, Inc. in the cited cases, with the difference only in the taxable A taxpayer who had protested and paid an assessment may later on institute
periods of assessment. Thus, given that Cosmos is already paying taxes under an action for refund.
Section 14 (just like Coca-Cola), it is not totally misplaced to consider the additional
imposition of a tax under Section 21 as constituting double taxation, therefore
excessive, warranting its refund to Cosmos as the CTA Division has correctly The petitioners submit that the assessment against Cosmos became final and
ordered. executory when the latter effectively abandoned its protest and instead sued in
court for the refund of the assessed taxes and charges.
Computation of Business Tax Under Section 14
We cannot agree mainly for two reasons.
We consider next the proper basis for the computation of the business tax under
Section 14 that is imposable against Cosmos. First, even a cursory glance at the complaint filed by Cosmos would readily reveal
that the action is not just for the refund of its paid taxes but also one assailing the
assessment in question. Cosmos captioned its petition before the RTC as "For: The
3. The computation of local business tax is based on gross sales or receipts of Revision of Statement of Account (Preliminary Assessment) and For Refund or Credit
the preceding calendar year. of Local Business Tax Erroneously/Illegally Collected."25 The allegations in said
complaint26 likewise confirm that Cosmos did not agree with the assessment
prepared by Liberty M. Toledo (Toledo) who was the City Treasurer of the City of
It is undisputed that Section 14 of the Revenue Code of Manila is derived from
Manila at the time. In asking the court to refund the assessed taxes it had paid,
Section 143(a) of the LGC which provides:
Cosmos essentially alleged that the basis of the payment, which is the assessment
issued by Toledo, is erroneous or illegal.
It is, thus, totally misplaced to consider Cosmos as having abandoned its protest
against the assessment. By seasonably instituting the petition before the RTC, the
assessment had not attained finality.
Second, a taxpayer who had protested and paid an assessment is not precluded
from later on instituting an action for refund or credit.
The taxpayers' remedies of protesting an assessment and refund of taxes are stated
in Sections 195 and 196 of the LGC, to wit:
Section 195. Protest of Assessment. – When the local treasurer or his duly
authorized representative finds that correct taxes, fees, or charges have not been
paid, he shall issue a notice of assessment stating the nature of the tax, fee, or
charge, the amount of deficiency, the surcharges, interests and penalties. Within
sixty (60) days from the receipt of the notice of assessment, the taxpayer may file a
written protest with the local treasurer contesting the assessment; otherwise, the
assessment shall become final and executory. The local treasurer shall decide the
protest within sixty (60) days from the time of its filing. If the local treasurer finds
the protest to be wholly or partly meritorious, he shall issue a notice cancelling
wholly or partially the assessment. However, if the local treasurer finds the
assessment to be wholly or partly correct, he shall deny the protest wholly or partly
with notice to the taxpayer. The taxpayer shall have thirty (30) days from the
receipt of the denial of the protest or from the lapse of the sixty (60)-day period
prescribed herein within which to appeal with the court of competent jurisdiction
otherwise the assessment becomes conclusive and unappealable.
Section 196. Claim for Refund of Tax Credit. – No case or proceeding shall be
maintained in any court for the recovery of any tax, fee, or charge erroneously or
illegally collected until a written claim for refund or credit has been filed with the
local treasurer. No case or proceeding shall be entertained in any court after the
expiration of two (2) years from the date of the payment of such tax, fee, or charge,
or from the date the taxpayer is entitled to a refund or credit.
The first provides the procedure for contesting an assessment issued by the local
treasurer; whereas, the second provides the procedure for the recovery of an
erroneously paid or illegally collected tax, fee or charge. Both Sections 195 and 196
mention an administrative remedy that the taxpayer should first exhaust before
bringing the appropriate action in court. In Section 195, it is the written protest with
the local treasurer that constitutes the administrative remedy; while in Section 196,
it is the written claim for refund or credit with the same office. As to form, the law
does not particularly provide any for a protest or refund claim to be considered
valid. It suffices that the written protest or refund is addressed to the local
treasurer expressing in substance its desired relief. The title or denomination used
in describing the letter would not ordinarily put control over the content of the
letter.
Obviously, the application of Section 195 is triggered by an assessment made by the
local treasurer or his duly authorized representative for nonpayment of the correct
taxes, fees or charges. Should the taxpayer find the assessment to be erroneous or
excessive, he may contest it by filing a written protest before the local treasurer
within the reglementary period of sixty (60) days from receipt of the notice;
otherwise, the assessment shall become conclusive. The local treasurer has sixty
(60) days to decide said protest. In case of denial of the protest or inaction by the
local treasurer, the taxpayer may appeal27 with the court of competent jurisdiction;
otherwise, the assessment becomes conclusive and unappealable.
On the other hand, Section 196 may be invoked by a taxpayer who claims to have
erroneously paid a tax, fee or charge, or that such tax, fee or charge had been
illegally collected from him. The provision requires the taxpayer to first file a written
claim for refund before bringing a suit in court which must be initiated within two
years from the date of payment. By necessary implication, the administrative
remedy of claim for refund with the local treasurer must be initiated also within
such two-year prescriptive period but before the judicial action.
Unlike Section 195, however, Section 196 does not expressly provide a specific
period within which the local treasurer must decide the written claim for refund or
credit. It is, therefore, possible for a taxpayer to submit an administrative claim for
refund very early in the two-year period and initiate the judicial claim already near
the end of such two-year period due to an extended inaction by the local treasurer.
In this instance, the taxpayer cannot be required to await the decision of the local
treasurer any longer, otherwise, his judicial action shall be barred by prescription.
Additionally, Section 196 does not expressly mention an assessment made by the
local treasurer. This simply means that its applicability does not depend upon the
existence of an assessment notice. By consequence, a taxpayer may proceed to the
remedy of refund of taxes even without a prior protest against an assessment that
was not issued in the first place. This is not to say that an application for refund can
never be precipitated by a previously issued assessment, for it is entirely possible
that the taxpayer, who had received a notice of assessment, paid the assessed tax,
fee or charge believing it to be erroneous or illegal. Thus, under such
circumstance, the taxpayer may subsequently direct his claim pursuant to Section
196 of the LGC.
Clearly, when a taxpayer is assessed a deficiency local tax, fee or charge, he may
protest it under Section 195 even without making payment of such assessed tax, fee
or charge. This is because the law on local government taxation, save in the case of
real property tax,28 does not expressly require "payment under protest" as a
procedure prior to instituting the appropriate proceeding in court. This implies that
the success of a judicial action questioning the validity or correctness of the
assessment is not necessarily hinged on the previous payment of the tax under
protest.
Needless to say, there is nothing to prevent the taxpayer from paying the tax under
protest or simultaneous to a protest. There are compelling reasons why a taxpayer
would prefer to pay while maintaining a protest against the assessment For
instance, a taxpayer who is engaged in business would be hard-pressed to secure a
business permit unless he pays an assessment for business tax and/or regulatory
fees. Also, a taxpayer may pay the assessment in order to avoid further penalties, or
save his properties from levy and distraint proceedings.
The foregoing clearly shows that a taxpayer facing an assessment may protest it and
alternatively: (1) appeal the assessment in court, or (2) pay the tax and thereafter
seek a refund.29 Such procedure may find jurisprudential mooring in San Juan v.
Castro30 wherein the Court described for the first and only time the alternative
remedies for a taxpayer protesting an assessment – either appeal the assessment
before the court of competent jurisdiction, or pay the tax and then seek a
refund.31 The Court, however, did not elucidate on the relation of the second
mentioned alternative option, i.e., pay the tax and then seek a refund, to the
remedy stated in Section 196.
As this has a direct bearing on the arguments raised in the petition, we thus clarify.
Where an assessment is to be protested or disputed, the taxpayer may proceed (a)
without payment, or (b) with payment32 of the assessed tax, fee or charge. Whether
there is payment of the assessed tax or not, it is clear that the protest in writing
must be made within sixty (60) days from receipt of the notice of assessment;
otherwise, the assessment shall become final and conclusive. Additionally, the
subsequent court action must be initiated within thirty (30) days from denial or
inaction by the local treasurer; otherwise, the assessment becomes conclusive and
unappealable.
(a) Where no payment is made, the taxpayer's procedural remedy is governed
strictly by Section 195. That is, in case of whole or partial denial of the protest, or
inaction by the local treasurer, the taxpayer's only recourse is to appeal the
assessment with the court of competent jurisdiction. The appeal before the court
does not seek a refund but only questions the validity or correctness of the
assessment.
(b) Where payment was made, the taxpayer may thereafter maintain an action in
court questioning the validity and correctness of the assessment (Section 195, LGC)
and at the same time seeking a refund of the taxes. In truth, it would be illogical for
the taxpayer to only seek a reversal of the assessment without praying for the
refund of taxes. Once the assessment is set aside by the court, it follows as a matter
of course that all taxes paid under the erroneous or invalid assessment are
refunded to the taxpayer.
The same implication should ensue even if the taxpayer were to style his suit in
court as an action for refund or recovery of erroneously paid or illegally collected
tax as pursued under Section 196 of the LGC. In such a suit for refund, the taxpayer
cannot successfully prosecute his theory of erroneous payment or illegal collection
of taxes without necessarily assailing the validity or correctness of the
assessment he had administratively protested.
It must be understood, however, that in such latter case, the suit for refund is
conditioned on the prior filing of a written claim for refund or credit with the local
treasurer. In this instance, what may be considered as the administrative claim for
refund is the letter-protest submitted to the treasurer. Where the taxpayer had
paid the assessment, it can be expected that in the same letter-protest, he would
also pray that the taxes paid should be refunded to him. 33 As previously mentioned,
there is really no particular form or style necessary for the protest of an assessment
or claim of refund of taxes. What is material is the substance of the letter submitted
to the local treasurer.
Equally important is the institution of the judicial action for refund within thirty
(30) days from the denial of or inaction on the letter-protest or claim, not any time
later, even if within two (2) years from the date of payment (as expressly stated in
Section 196). Notice that the filing of such judicial claim for refund after questioning
the assessment is within the two-year prescriptive period specified in Section 196.
Note too that the filing date of such judicial action necessarily falls on the beginning
portion of the two-year period from the date of payment. Even though the suit is
seemingly grounded on Section 196,the taxpayer could not avail of the full extent
of the two-year period within which to initiate the action in court.
The reason is obvious. This is because an assessment was made, and if not appealed
in court within thirty (30) days from decision or inaction on the protest, it becomes
conclusive and unappealable. Even if the action in court is one of claim for refund,
the taxpayer cannot escape assailing the assessment, invalidity or incorrectness, the
very foundation of his theory that the taxes were paid erroneously or otherwise
collected from him illegally. Perforce, the subsequent judicial action, after the local
treasurer's decision or inaction, must be initiated within thirty (30) days later. It
cannot be anytime thereafter because the lapse of 30 days from decision or
inaction results in the assessment becoming conclusive and unappealable. In short,
the scenario wherein the administrative claim for refund falls on the early stage of
the two-year period but the judicial claim on the last day or late stage of such two-
year period does not apply in this specific instance where an assessment is issued.
To stress, where an assessment is issued, the taxpayer cannot choose to pay the
assessment and thereafter seek a refund at any time within the full period of two
years from the date of payment as Section 196 may suggest. If refund is pursued,
the taxpayer must administratively question the validity or correctness of the
assessment in the 'letter-claim for refund' within 60 days from receipt of the notice
of assessment, and thereafter bring suit in court within 30 days from either decision
or inaction by the local treasurer.
To reiterate, Cosmos, after it had protested and paid the assessed tax, is permitted
by law to seek a refund having fully satisfied the twin conditions for prosecuting an
action for refund before the court.
Consequently, the CTA did not commit a reversible error when it allowed the refund
in favor of Cosmos.
WHEREFORE, the petition is DENIED for lack of merit. The 16 February 2011 and 20
April 2011 Resolutions of the Court of Tax Appeals En Banc in C.T.A. E.B. No. 702 are
hereby AFFIRMED.
The 9 November 2010 Decision of the Court of Tax Appeals Third Division in C.T.A.
AC No. 60 is likewise AFFIRMED.
SO ORDERED.

Simply put, there are two conditions that must be satisfied in order to successfully
prosecute an action for refund in case the taxpayer had received an
assessment. One, pay the tax and administratively assail within 60 days the
assessment before the local treasurer, whether in a letter-protest or in a claim for
refund. Two, bring an action in court within thirty (30) days from decision or
inaction by the local treasurer, whether such action 1s denominated as an appeal
from assessment and/or claim for refund of erroneously or illegally collected tax.
FIRST DIVISION
In this case, after Cosmos received the assessment of Toledo on 15 January 2007, it
forthwith protested such assessment through a letter dated 18 January G.R. No. 212735, December 05, 2018
2007.34 Constrained to pay the assessed taxes and charges, Cosmos subsequently
wrote the Office of the City Treasurer another letter asking for the refund and COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. NEGROS CONSOLIDATED
reiterating the grounds raised in the previous submitted protest letter.35 In the FARMERS MULTI-PURPOSE COOPERATIVE, Respondent.
meantime, Cosmos received on 6 February 2007 the letter of Toledo denying its
protest.36 Thus, on 8 March 2007, or exactly thirty (30) days from its receipt of the DECISION
denial, Cosmos brought the action before the RTC of Manila.
TIJAM, J.:
Under the circumstances, it is evident that Cosmos was fully justified in asking for
the refund of the assailed taxes after protesting the same before the local treasurer. Assailed in this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court
Consistent with the discussion in the premises, Cosmos may resort to, as it actually are the Decision2dated March 5, 2014 and the Resolution3 dated May 27, 2014 of
did, the alternative procedure of seeking a refund after timely the Court of Tax Appeals (CTA) En Bancin CTA EB Case No. 992, declaring
protesting and paying the assessment. Considering that Cosmos initiated the respondent Negros Consolidated Farmers Multi-Purpose Cooperative (COFA) as
judicial claim for refund within 30 days from receipt of the denial of its protest, it exempt from the Value-added tax (VAT) and hence, entitled to refund of the VAT it
stands to reason that the assessment which was validly protested had not yet paid in advance.
attained finality.
The Antecedents
COFA is a multi-purpose agricultural cooperative organized under Republic Act (RA)
No. 6938.4
As its usual course, COFA's farmer-members deliver the sugarcane produce to be
milled and processed in COFA's name with the sugar mill/refinery.5 Before the
refined sugar is released by the sugar mill, however, an Authorization Allowing the
Release of Refined Sugar (AARRS) from the Bureau of Internal Revenue (BIR) is
required from COFA. For several instances, upon COFA's application, the BIR issued
the AARRS without requiring COFA to pay advance VAT pursuant to COFA's tax
exemption under Section 616of RA 6938 and Section 109(r) (now under Section
109[L])7 of RA No. 84248, as amended by RA No. 9337.9 As such, COFA was issued
Certificates of Tax Exemption dated May 24, 1999 and April 23, 2003 by the BIR. 10
However, beginning February 3, 2009, the BIR, through the Regional Director of
Region 12-Bacolod City, required as a condition for the issuance of the AARRS the
payment of "advance VAT" on the premise that COFA, as an agricultural
cooperative, does not fall under the term "producer." According to the BIR, a
"producer" is one who tills the land it owns or leases, or who incurs cost for
agricultural production of the sugarcane to be refined by the sugar refinery. 11
As bases for the required payment of advance VAT, the Regional Director pointed to
Sections 3 and 4 of Revenue Regulations (RR) No. 13-2008,12 which, in part,
respectively provide:
Sec. 3. Requirement to pay in Advance VAT Sale of Refined Sugar. - In general, the
advance VAT on the sale of refined sugar provided for under Sec. 8 hereof, shall be
paid in advance by the owner/seller before the refined sugar is withdrawn from any
sugar refinery/mill. x x x
xxxx
Sec. 4. Exemption from the Payment of the Advance VAT. - x x x
xxxx
A cooperative is said to be the producer of the sugar if it is the tiller of the land it
owns, or leases, incurs cost of agricultural production of the sugar and produces the
sugar cane to be refined.
xxxx
COFA was thus, constrained to pay advance VAT under protest13 and to seek the
legal opinion of the BIR Legal Division, as to whether COFA is considered the
producer of the sugar product of its members.
In a Ruling dated January 11, 2008, the BIR 14 stated that the sales of sugar produce
by COFA to its members and non-members are exempt from VAT pursuant to
Section 109(L) of RA 9337, as implemented by Revenue Regulations (RR) No; 4-
2007. The Ruling, in part, provides:
Thus, COFA and its members['] respective roles in the operation of the Cooperative
cannot be treated as separate and distinct from each other. Notwithstanding that
COFA is not the owner of the land and the actual tiller of the land, it is considered as
the actual producer of the members' sugarcane production because it primarily
provided the various production inputs (fertilizers), capital, technology transfer and
farm management. In short, COFA has direct participation in the sugarcane
production of its farmers-member.15
Thus, pursuant to Section 22916 of RA. 8424, as amended, COFA lodged with
petitioner Commissioner of Internal Revenue (CIR) an administrative claim for
refund in the amount of P11,172,570.00 for the advance VAT it paid on the 109,535
LKG bags of refined sugar computed at P102.00 VAT per bag for the period covering
February 3, 2009 to July 22, 2009. Because of the CIR's inaction, COFA filed a
petition for review17 before the CTA Division pursuant to Rule 8, Section 3(a)18 of
the Revised Rules of the CTA, but this time seeking the refund of the amount of
P7,290,960.00 representing 71,480 LKG bags of refined sugar at P102.00 VAT per
bag for the period covering May 12, 2009 to July 22, 2009.19
In its Answer, the CIR raised as sole point COFA's alleged failure to comply with the
requisites for recovery of tax erroneously or illegally collected as spelled under
Section 229 of RA 8424, specifically, the lack of a prior claim for refund or credit
with the CIR.20
Trial on the merits thereafter ensued where only COFA presented evidence through
its Tax Consultant, Jose V. Ramos. The CIR, on the other hand, waived the
presentation of evidence. However, in its Memorandum, 21 the CIR additionally
argued that COFA is not entitled to refund as it failed to present certain
documents22 required under Sections 3 and 4 of RR No. 13-2008.23
On December 12, 2012, the CTA Division rendered its Decision24 finding COFA to be
exempt from VAT and thus, ordered the refund of the advance VAT it erroneously
paid. The CIR Division reasoned that COFA's Certificates of Tax Exemption dated
May 24, 1999 and April 23, 2003 and the BIR Ruling dated January 11, 2008, which
had not been revoked or nullified, affirmed COFA's status as a tax-exempt
agricultural cooperative. It further held that based on said
uncontroverted25 evidence, COFA is "considered as the actual producer of the
members' sugarcane production because it primarily provided the various
production inputs (fertilizers), capital, technology transfer and farm
management."26 The CIR Division likewise held that COFA substantiated its claim for
refund in the amount of P7,290,960.00 representing advance VAT on the 71,480 brief and stipulation of facts, it was established that COFA is an agricultural
LKG bags of refined sugar from May 12, 2009 to July 22, 2009, by submitting in cooperative. According to the CTA En Banc, COFA, at the time of the subject
evidence the Summary of VAT Payments Under Protest with the related BIR transactions, was a cooperative in good standing as indicated in the Certification of
Certificates of Advance Payment ofVAT and Revenue Official Receipts. 27 Good Standing issued and renewed by the CDA on May 19, 2010.

In disposal, the CIR Division pronounced: As such, the CTA En Banc held that pursuant to Section 109(L) of RA 8424, as
WHEREFORE, the instant Petition for Review is hereby GRANTED. Accordingly, [CIR] amended, transactions such as sales by agricultural cooperatives duly registered
is hereby ORDERED TO REFUND in favor of [COFA] the amount of SEVEN MILLION with the CDA to their members, as well as sales of their produce, whether in its
TWO HUNDRED NINETY THOUSAND NINE HUNDRED SIXTY PESOS (P7,290,960.00), original state or processed fom1, to nonmembers, are exempt from VAT. Citing
representing erroneously paid advance VAT for the period covering May 12, 2009 to Article 61 of RA 6938, as amended by RA 9520, the CTA En Banc held that
July 22, 2009. cooperatives were exempt from VAT for sales or transactions with members. As
well, the CTA En Banc held that COFA was exempt from VAT for transactions with
SO ORDERED.28 non-members, provided that the goods subject of the transaction were produced
by the members of the cooperative; that the processed goods were sold in the
The CIR's motion for reconsideration met similar denial in the CTA Division's
name and for the account of the cooperative; and, that at least 25% of the net
Resolution29 dated March 5, 2013, thus prompting a petition for review before the
income of the cooperatives was returned to the members in the form of interest
CTA En Banc.
and/or patronage refunds.
The CIR maintained its argument that COFA failed to present evidence to prove that
The CIR's motion for reconsideration was denied by the CTA En Banc in its
the refined sugar withdrawn from the sugar mills were actually produced by COFA
through its registered members as required under RA 8424, as amended. The CIR Resolution dated May 27, 2014, thus, giving rise to the present petition.
argues that COFA's failure to present the quedan of the raw sugar issued by sugar
The Issue
mills in COFA's name is fatal to its claim for refund as it cannot be determined
whether its registered members are the actual producers of the refined sugar
The issue to be resolved is whether or not COFA, at the time of the subject
before it was transferred in COFA's name and before COFA sells it to its members
transactions, i.e., from May 12, 2009 to July 22, 2009, is VAT-exempt and therefore
and non-members.30
entitled to a tax refund for the advance VAT it paid.
Further, the CIR pointed to COFA's failure to present documentary evidence to
The Ruling of the Court
prove that it is indeed the principal provider of the various production inputs
(fertilizers), capital, technology transfers and farm management, as well as
We deny the petition.
documentary evidence to show that COFA has sales transactions with its members
and non-members. The CIR reiterated its argument that COFA failed to present the
COFA is a VAT-exempt agricultural cooperative. Exemption from the payment of
documents required for the administrative and judicial claim for refund in
VAT on sales made by the agricultural cooperatives to members or to non-members
accordance with RR No. 13-2008.
necessarily includes exemption from the payment of "advance VAT" upon the
withdrawal of the refined sugar from the sugar mill.
COFA countered that the instant case involves advance VAT assessed on its
withdrawal of sugar from the refinery/mill, and not on its sale of sugar to members
VAT is a tax on transactions, imposed at every stage of the distribution process on
or non-members. Thus, COFA argued that the payment in advance of VAT for the
the sale, barter, exchange of goods or property, and on the performance of
withdrawal of sugar from the refinery/mill was without basis.
services, even in the absence of profit attributable thereto, so much so that even a
non-stock, non-profit organization or government entity, is liable to pay VAT on the
In its presently assailed Decision, the CTA En Banc affirmed COFA's status as an
sale of goods or services.31 Section 105 of RA 8424, as amended, provides:
agricultural cooperative entitled to VAT exemption. By evidence consisting of
Section 105. Persons Liable. - Any person who, in the course of trade or business,
COFA's Certificate of Registration dated October 19, 2009 and Certificate of Good
sells, barters, exchanges, leases goods or properties, renders services, and any
Standing dated May 19, 2010, as well as the CIR's admission in its Answer, pre-trial
person who imports goods shall be subject to the value-added tax (VAT) imposed in
Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or
passed on to the buyer, transferee or lessee of the goods, properties or services.
This rule shall likewise apply to existing contracts of sale or lease of goods,
properties or services at the time of the effectivity of Republic Act No. 7716.
The phrase "in the course of trade or business" means the regular conduct or
pursuit of a commercial or an economic activity. including transactions incidental
thereto, by any person regardless of whether or not the person engaged therein is a
non-stock, non-profit private organization (irrespective of the disposition of its net
income and whether or not it sells exclusively to members or their guests), or
government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this
Code rendered in the Philippines by nonresident foreign persons shall be
considered as being course of trade or business.
There are, however, certain transactions exempt from VAT32 such as the sale of
agricultural products in their original state, including those which underwent simple
processes of preparation or preservation for the market, such as raw cane sugar.
Thus, Section 7 of RA 9337 amending Section 109 of RA 8424 provides:
Section 7. Section 109 of the same Code, as amended, is hereby further amended to
read as follows:
"Section 109. Exempt Transactions. - (1) Subject to the provisions of Subsection (2)
hereof, the following transactions shall be exempt from the value-added tax:
"A) Sale or importation of agricultural and marine food products in their original
state, livestock and poultry of a kind generally used as, or yielding or producing
foods for human consumption; and breeding stock and genetic materials therefor.
"Products classified under this paragraph shall be considered in their original state
even if they have undergone the simple processes of preparation or preservation
for the market, such as freezing, drying, salting, broiling, roasting, smoking or
stripping. Polished and/or husked rice, corn grits, raw cane sugar and molasses,
ordinary salt, and copra shall be considered in their original state; (Emphasis ours)
x x x x"
While the sale of raw sugar, by express provision of law, is exempt from VAT, the
sale of refined sugar, on the other hand, is not so exempted as refined sugar already
underwent several refining processes and as such, is no longer considered to be in
its original state. However, if the sale of the sugar, whether raw or refined, was
made by an agricultural cooperative to its members or non-members, such
transaction is still VAT-exempt. Section 7 of RA 9337 amending Section 109 (L) of RA
8424, the law applicable at the time material to the claimed tax refund, further
reads:
Section 7. Section 109 of the same Code, as amended, is hereby further amended to
read as follows:
"SEC. 109. Exempt Transactions. - (1) Subject to the provisions of Subsection (2)
hereof, the following transactions shall be exempt from the value-added tax:
xxxx
"(L) Sales by agricultural cooperatives duly registered with the Cooperative
Development Authority to their members as well as sale of their produce,
whether in its original state or processed form, to non-members; their importation
of direct farm inputs, machineries and equipment, including spare parts thereof, to
be used directly and exclusively in the production and/or processing of their
produce;" (Emphasis ours)
Relatedly, Article 61 of RA 6938, as amended by RA 9520, provides:
ART. 61. Tax and Other Exemptions. Cooperatives transacting business with both
members and non-members shall not be subjected to tax on their transaction with
members. In relation to this, the transactions of members with the cooperative
shall not be subject to any taxes and fees, including but not limited to final taxes on
members' deposits and documentary tax. Notwithstanding the provisions of any
law or regulation to the contrary, such cooperatives dealing with nonmembers shall
enjoy the following tax exemptions:
(1) Cooperatives with accumulated reserves and undivided net savings of not more
than Ten million pesos (P10,000,000.00) shall be exempt from all national, city,
provincial, municipal or barangay taxes of whatever name and nature. Such
cooperatives shall be exempt from customs duties, advance sales or compensating
taxes on their importation of machineries, equipment and spare parts used by them
and which are not available locally as certified by the Department of Trade and
Industry (DTI). All tax free importations shall not be sold nor the beneficial
ownership thereof be transferred to any person until after five (5) years, otherwise,
the cooperative and the transferee or assignee shall be solidarily liable to pay twice
the amount of the imposed tax and/or duties.
(2) Cooperatives with accumulated reserves and divided net savings of more than
Ten million pesos (P10,000,000.00) shall fee (sic) the following taxes at the full-rate:
(a) Income Tax - x x x;
(b) Value-Added Tax - On transactions with nonmembers: Provided, however,
That cooperatives duly registered with the Authority; are exempt from the
payment of value-added tax; subject to Section 109, subsections L, M and N of
Republic Act No. 9337, the National Internal Revenue Code, as amended:
Provided, That the exempt transaction under Section 109 (L) shall include sales
made by cooperatives duly registered with the Authority organized and operated
by its member to undertake the production and processing of raw materials or of
goods produced by its members into finished or process products for sale by the
cooperative to its members and non-members: Provided, further, That any
processed product or its derivative arising from the raw materials produced by its
members, sold in then (sic) name and for the account of the cooperative: Provided,
finally, That at least twenty-five per centum (25%) of the net income of the
cooperatives is returned to the members in the form of interest and/or patronage
refunds;
xxxx
Thus, by express provisions of the law under Section 109 (L) of RA 8424, as
amended by RA 9337, and Article 61 of RA 6938 as amended by RA 9520, the sale
itself by agricultural cooperatives duly registered with the CDA to their members as
well as the sale of their produce, whether in its original state or processed form, to
non-members are exempt from VAT.
In the interim, or on September 19, 2008, the BIR issued RR No. 13-2008
consolidating the regulations on the advance payment of VAT or "advance VAT" on
the sale of refined sugar.33 Generally, the advance VAT on the sale of the refined
sugar is required to be paid in advance by the owner/seller before the refined sugar
is withdrawn from the sugar refinery/mill. The "sugar owners" refer to those
persons having legal title over the refined sugar and may include, among others, the
cooperatives.34
By way of exception, withdrawal of refined sugar is exempted from advance VAT
upon the concurrence of certain conditions which ultimately relate to a two-
pronged criteria: first, the character of the cooperative seeking the exemption;
and second, the kind of customers to whom the sale is made.
As to the character of the cooperative, Section 4 of RR No. 13-2008 in part,
provides:
Sec. 4. Exemption from the Payment of the Advance VAT. - Notwithstanding the
provisions of the foregoing Section, the following withdrawals shall be exempt from
the payment of the advance VAT:
(a) Withdrawal of Refined Sugar by Duly Accredited and Registered Agricultural
Producer Cooperative of Good Standing. - In the event the refined sugar is owned
and withdrawn from the Sugar Refinery/Mill by an agricultural cooperative of good
standing duly accredited and registered with the Cooperative Development
Authority (CDA), which cooperative is the agricultural producer of the sugar cane
that was refined into refined sugar, the withdrawal is not subject to the payment of
advance VAT. x x x
Thus, for an agricultural cooperative to be exempted from the payment of advance
VAT on refined sugar, it must be (a) a cooperative in good standing duly accredited
and registered with the CDA; and (b) the producer of the sugar. Section 4 of RR No.
13-2008 defines when a cooperative is considered in good standing and when it is
said to be the producer of the sugar in this manner:
A cooperative shall be considered in good standing if it is a holder of a "Certificate
of Good Standing" issued by the CDA. x x x
A cooperative is said to be the producer of the sugar if it is the tiller of the land it
owns, or leases, incurs cost of agricultural production of the sugar and produces the
sugar cane to be refined.
As to the kind of customers to whom the sale is made, Section 4 of RR No. 13-2008
differentiates the treatment between the sale of a refined sugar to members and
non-members as follows:
Sale of sugar in its original form is always exempt from VAT regardless of who the
seller is pursuant to Sec. 109 (A) of the Tax Code. On the other hand, sale of sugar,
in its processed form, by a cooperative is exempt from VAT if the sale is made to
members of the cooperative. Whereas, if the sale of sugar in its processed form is
made by the cooperative to non-members, said sale is exempt from VAT only if the
cooperative is an agricultural producer of the sugar cane that has been converted
into refined sugar as herein defined and discussed.
Nevertheless, RR No. 13-2008 makes it clear that the withdrawal of refined sugar by
the agricultural cooperative for sale to its members is not subject to advance VAT,
while sale to non-members of refined sugar is not subject to advance VAT only if the
cooperative is the agricultural producer of the sugar cane. Thus, it appears that the
requirement as to the character of the cooperative being the producer of the sugar
is relevant only when the sale of the refined sugar is likewise made to non-
members.
The foregoing requisites for the application of the VAT-exemption for sales by
agricultural cooperatives to apply were likewise identified by the Court
in Commissioner of Internal Revenue v. United Cadiz Sugar Farmers Association
Multi-Purpose Cooperative,35 thus:
First, the seller must be an agricultural cooperative duly registered with the CDA. An
agricultural cooperative is "duly registered" when it has been issued a certificate of
registration by the CDA. This certificate is conclusive evidence of its registration.
Second, the cooperative must sell either:
1) exclusively to its members; or
2) to both members and non-members, its produce, whether in its original state or
processed form.

The second requisite differentiates cooperatives according to its customers. If the
cooperative transacts only with members, all its sales are VAT-exempt, regardless of
what it sells. On the other hand, if it transacts with both members and non-
members, the product sold must be the cooperative's own produce in order to be
VAT-exempt. x x x36
Having laid down the requisites when an agricultural cooperative is considered
exempt from the payment of advance VAT for the withdrawal of the refined sugar
from the sugar refinery/mill, the next task is to measure whether, indeed, COFA
met the foregoing requirements.
We find no reason to disturb the CTA En Banc's finding that COFA is a cooperative in
good standing as indicated in the Certification of Good Standing previously issued
and subsequently renewed by the CDA. It was likewise established that COFA was
duly accredited and registered with the CDA as evidenced by the issuance of the
CDA Certificate of Registration. There is no showing that the CIR disputed the
authenticity of said documents or that said certifications had previously been
revoked. Consequently, such must be regarded as conclusive proof of COFA's good
standing and due registration with the CDA.37
Similarly, COFA is considered the producer of the sugar as found by the CTA Division
and affirmed by the CTA En Banc. That COFA is regarded as the producer of the
sugar is affirmed no other than the BIR itself when it issued its Ruling38 on the
matter, the pertinent portions of which are herein quoted:
xxxx
As a multi-purpose cooperative, COFA is an agricultural co-producer of the
sugarcane produced by all its cooperative members. Being a juridical person, it is
legally impossible for the cooperative to do the actual tillage of the land but the
cooperative and all its members altogether carry out the sugar farming activities
during the agricultural crop year. The cooperative members have consistently
provided the sugar farms/plantations and the tillage while COFA, in its capacity as
co-producer, has provided the following services to its members as its co-producers
x x x.
xxxx
Moreover, being the exclusive marketing arm of the harvested sugarcane from the
various farms of its members, the cooperative does not: engage in the purchase of
sugarcane produced by non-members. As such, the sugarcane produced by the
cooperative members will be harvested, hauled, delivered and milled to the
sugarmill in the name of COFA. The sugarmill issues the quedan of the raw sugar in
the name of COFA pursuant to the membership agreement that the cooperative will
be solely and exclusively tasked to market the sugar, molasses and other derivative
products. Thereafter, COFA turns over to its members the net proceeds of the sale
of the sugarcane produce. When COFA further decides to process the produced raw
sugar of its members into refined sugar, the sugarmill issues refined sugar quedan
in the name of COFA.
xxxx
The farmer-members of COFA joined together to form the COFA with the objective
of producing and selling of sugar as its products. The members thereof made their
respective equitable contributions required to achieve their objectives.
Consequently, the proceeds of the sale thereof are intended to be shared among
them in accordance with cooperative principles.
x x x x39
The above BIR ruling operates as an equitable estoppel precluding the CIR from
unilaterally revoking its pronouncement and thereby depriving the cooperative of
the tax exemption provided by law.40
Having established that COFA is a cooperative in good standing and duly registered
with the CDA and)s the-producer of the sugar, its sale then of refined sugar whether
sold to members or non-members, following the express provisions of Section
109(L) of RA 8424, as amended, is exempt from VAT. As a logical and necessary
consequence then of its established VAT exemption, COFA is likewise exempted
from the payment of advance VAT required under RR No. 13-2008.
The CIR, however, breeds confusion when it argues that the VAT exemption given to
cooperatives under the laws pertain only to the sale of the sugar but not to the
withdrawal of the sugar from the refinery. The CIR is grossly mistaken. To recall,
VAT is a transaction tax - it is imposed on sales, barters, exchanges of goods or
property, and on the performance of services. The withdrawal from the sugar
refinery by the cooperative is not the incident which gives rise to the imposition of
VAT, but the subsequent sale of the sugar. If at all, the withdrawal of the refined
sugar gives rise to the obligation to pay the VAT on the would-be sale. In other
words, the advance VAT which is imposed upon the withdrawal of the refined sugar
is the very same VAT which would be imposed on the sale of refined sugar following
its withdrawal from the refinery, hence, the term "advance." It is therefore
erroneous to treat the withdrawal of the refined sugar as a tax incident different
from or in addition to the sale itself.
Finally, as regards the CIR's contention that COFA failed to submit complete
documentary requirements fatal to its claim for tax refund, suffice it to say, that
COFA was a previous recipient and holder of certificates of tax exemption issued by
the BIR, and following the Court's pronouncement in United Cadiz Sugar Farmers
Association Multi-Purpose Cooperative, the issuance of the certificate of tax
exemption presupposes that the cooperative submitted to the BIR the complete
documentary requirements. In the same manner, COFA's entitlement to tax
exemption cannot be made dependent upon the submission of the monthly VAT
declarations and quarterly VAT returns, as the CIR suggests. Here, it was established
that COFA satisfied the requirements under Section 109(L) of RA 8424, as amended,
to enjoy the exemption from VAT on its sale of refined sugar; its exemption from
the payment of advance VAT for the withdrawal it made from May 12, 2009 to July
22, 2009 follows, as a matter of course.

WHEREFORE, the petition is DENIED. The Decision dated March 5, 2014 and the
Resolution dated May 27, 2014 of the Court of Tax Appeals En Banc in CTA EB Case
No. 992, declaring respondent Negros Consolidated Farmers Multi-Purpose
Cooperative exempt from Value-added tax (VAT) and hence, entitled to refund of
the VAT it paid in advance in the amount of SEVEN MILLION TWO HUNDRED NINETY
THOUSAND NINE HUNDRED SIXTY PESOS (P7,290,960.00) for the withdrawal of the
refined sugar it made from May 12, 2009 to July 22, 2009 are AFFIRMED.

SO ORDERED.