ABAKADA vs.

Executive Secretary
G.R. No. 168056 September 1, 2005

FACTS
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed
a petition for prohibition on May 27, 2005 questioning the constitutionality of Sections 4, 5 and 6
of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal
Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5
imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of
services and use or lease of properties. These questioned provisions contain a uniform proviso
authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT
rate to 12%, effective January 1, 2006, after any of the following conditions have been satisfied.
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of
its exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987
Philippine Constitution. G.R. No. 168207
Petitioners contend that the increase in the VAT rate to 12% contingent on any of the two
conditions being satisfied violates the due process clause embodied in Article III, Section 1 of
the Constitution, as it imposes an unfair and additional tax burden on the people, in that: (1) the
12% increase is ambiguous because it does not state if the rate would be returned to the original
10% if the conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as the
people are unsure of the applicable VAT rate from year to year; and (3) the increase in the VAT
rate, which is supposed to be an incentive to the President to raise the VAT collection to at least
2 4/5 of the GDP of the previous year, should only be based on fiscal adequacy.
G.R. No. 168461
Petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell
Dealers, Inc., et al., assailing the following provisions of R.A. No. 9337: 1) Section 8, amending
Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable goods shall be
amortized over a 60-month period, if the acquisition, excluding the VAT components, exceeds
One Million Pesos (₱1,000,000.00); 2) Section 8, amending Section 110 (B) of the NIRC,
imposing a 70% limit on the amount of input tax to be credited against the output tax; and 3)
Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its
political subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final
withholding tax on gross payments of goods and services, which are subject to 10% VAT under
Sections 106 (sale of goods and properties) and 108 (sale of services and use or lease of
properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary,
oppressive, excessive, and confiscatory.
G.R. No. 168730
Petition for certiorari and prohibition on July 20, 2005, alleging unconstitutionality of the
law on the ground that the limitation on the creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they collect, thus violating the principle that tax
collection and revenue should be solely allocated for public purposes and expenditures.
Petitioner Garcia further claims that allowing these establishments to pass on the tax to the
consumers is inequitable, in violation of Article VI, Section 28(1) of the Constitution.
RESPONDENTS’ COMMENT
OSG filed a Comment in behalf of respondents. Preliminarily, respondents contend that
R.A. No. 9337 enjoys the presumption of constitutionality and petitioners failed to cast doubt on
its validity.
• With regard to the issue of undue delegation of legislative power to the President, respondents
contend that the law is complete and leaves no discretion to the President but to increase the rate
to 12% once any of the two conditions provided therein arise.
• Respondents also refute petitioners’ argument that the increase to 12%, as wellas the 70%
limitation on the creditable input tax, the 60-month amortization on the purchase or importation
of capital goods exceeding ₱1,000,000.00, and the 5% final withholding tax by government
agencies, is arbitrary, oppressive, and confiscatory, and that it violates the constitutional
principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the government’s fiscal reform
agenda. A reform in the value-added system of taxation is the core revenue measure that will tilt
the balance towards a sustainable macroeconomic environment necessary for economic growth.
SUBSTANTIVE ISSUES
A. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary
Additional Tax Burden
Petitioners Pimentel, et al. argue that
- the 12% increase in the VAT rate imposes an unfair and additional tax burden on the people.
- the 12% increase, dependent on any of the 2 conditions set forth in the contested provisions, is
ambiguous because it does not state if the VAT rate would be returned to the original 10% if the
rates are no longer satisfied.
- such rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate from
year to year.
SC: Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two
conditions set forth therein are satisfied, the President shall increase the VAT rate to 12%. The
provisions of the law are clear. It does not provide for a return to the 10% rate nor does it
empower the President to so revert if, after the rate is increased to 12%, the VAT collection goes
below the 24/5 of the GDP of the previous year or that the national government deficit as a
percentage of GDP of the previous year does not exceed 1½%. Thus, in the absence of any
provision providing for a return to the 10% rate, which in this case the Court finds none,
petitioners’ argument is, at best, purely speculative. There is no basis for petitioners’ fear of a
fluctuating VAT rate because the law itself does not provide that the rate should go back to 10%
if the conditions provided in Sections 4, 5 and 6 are no longer present. The rule is that where the
provision of the law is clear and unambiguous, so that there is no occasion for the court's seeking
the legislative intent, the law must be taken as it is, devoid of judicial addition or subtraction.
PETITIONERS also contend that the increase in the VAT rate, which was allegedly an incentive
to the President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year,
should be based on fiscal adequacy.
SC: Petitioners obviously overlooked that increase in VAT collection is not the only condition.
There is another condition, i.e., the national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 ½%).
Respondents explained the philosophy behind these alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If
VAT/GDP is less than 2.8%, it means that government has weak or no capability of
implementing the VAT or that VAT is not effective in the function of the tax collection.
Therefore, there is no value to increase it to 12% because such action will also be ineffectual.
2. Nat’l Gov’t Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal
condition of government has reached a relatively sound position or is towards the direction of a
balanced budget position. Therefore, there is no need to increase the VAT rate since the fiscal
house is in a relatively healthy position. Otherwise stated, if the ratio is more than 1.5%, there is
indeed a need to increase the VAT rate.
That the first condition amounts to an incentive to the President to increase the VAT collection
does not render it unconstitutional so long as there is a public purpose for which the law was
passed, which in this case, is mainly to raise revenue. In fact, fiscal adequacy dictated the need
for a raise in revenue. It simply means that sources of revenues must be adequate to meet
government expenditures and their variations. The dire need for revenue cannot be ignored. Our
country is in a quagmire of financial woe.
B. Due Process and Equal Protection Clauses
PETITIONERS argue that Section 8 of R.A. No. 9337, amending Sections 110 (A)(2), 110 (B),
and Section 12 of R.A. No. 9337, amending Section 114 (C) of the NIRC are arbitrary,
oppressive, excessive and confiscatory. Their argument is premised on the constitutional right
against deprivation of life, liberty of property without due process of law, as embodied in Article
III, Section 1 of the Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of equal
protection of the law.
SC: The doctrine is that where the due process and equal protection clauses are invoked,
considering that they are not fixed rules but rather broad standards, there is a need for proof of
such persuasive character as would lead to such a conclusion. Absent such a showing, the
presumption of validity must prevail.
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the
amount of input tax that may be credited against the output tax. It states, in part: "[P]rovided, that
the input tax inclusive of the input VAT carried over from the previous quarter that may be
credited in every quarter shall not exceed seventy percent (70%) of the output VAT: …"
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax due
from or paid by a VAT-registered person on the importation of goods or local purchase of good
and services, including lease or use of property, in the course of trade or business, from a
VATregistered person, and Output Tax is the value-added tax due on the sale or lease of taxable
goods or properties or services by any person registered or required to register under the law.
Petitioners claim that the contested sections impose limitations on the amount of input tax that
may be claimed. In effect, a portion of the input tax that has already been paid cannot now be
credited against the output tax.
More importantly, the excess input tax, if any, is retained in a business’s books of accounts and
remains creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B),
which provides that "if the input tax exceeds the output tax, the excess shall be carried over to
the succeeding quarter or quarters."
In addition, Section 112(B) allows a VAT-registered person to apply for the issuance of a tax
credit certificate or refund for any unused input taxes, to the extent that such input taxes have not
been applied against the output taxes. Such unused input tax may be used in payment of his other
internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as
petitioners exaggeratedly contend. Their analysis of the effect of the 70% limitation is
incomplete and one-sided. It ends at the net effect that there will be unapplied/unutilized inputs
VAT for a given quarter. It does not proceed further to the fact that such unapplied/unutilized
input tax may be credited in the subsequent periods as allowed by the carry-over provision of
Section 110(B) or that it may later on be refunded through a tax credit certificate under Section
112(B).
PETITIONER Garcia failed to comprehend the operation of the 70% limitation on the input tax.
According to petitioner, the limitation on the creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they collect, which violates the principle that tax
collection and revenue should be for public purposes and expenditures
SC: As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller,
when he buys goods. Output tax meanwhile is the tax due to the person when he sells goods. In
computing the VAT payable, three possible scenarios may arise:
1. if at the end of a taxable quarter the output taxes charged by the seller are equal to the input
taxes that he paid and passed on by the suppliers, then no payment is required;
2. when the output taxes exceed the input taxes, the person shall be liable for the excess, which
has to be paid to the Bureau of Internal Revenue (BIR); and
3. if 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, any excess over the output taxes shall instead be refunded to the taxpayer or
credited against other internal revenue taxes, at the taxpayer’s option. Section 8 of R.A. No. 9337
however, imposed a 70% limitation on the input tax. Thus, a person can credit his input tax only
up to the extent of 70% of the output tax. In layman’s term, the value-added taxes that a
person/taxpayer paid and passed on to him by a seller can only be credited up to 70% of the
value-added taxes that is due to him on a taxable transaction. There is no retention of any tax
collection because the person/taxpayer has already previously paid the input tax to a seller, and
the seller will subsequently remit such input tax to the BIR. The party directly liable for the
payment of the tax is the seller. What only needs to be done is for the person/taxpayer to apply or
credit these input taxes, as evidenced by receipts, against his output taxes.
PETITIONERS argue that the input tax partakes the nature of a property that may not be
confiscated, appropriated, or limited without due process of law.
SC: The input tax is not a property or a property right within the constitutional purview of the
due process clause. A VAT-registered person’s entitlement to the creditable input tax is a mere
statutory privilege.
The distinction between statutory privileges and vested rights must be borne in mind for persons
have no vested rights in statutory privileges. The state may change or take away rights, which
were created by the law of the state, although it may not take away property, which was vested
by virtue of such rights.
Under the previous system of single-stage taxation, taxes paid at every level of distribution are
not recoverable from the taxes payable, although it becomes part of the cost, which is deductible
from the gross revenue. When Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax
on all sales, it was then that the crediting of the input tax paid on purchase or importation of
goods and services by VAT-registered persons against the output tax was introduced.73 This was
adopted by the Expanded VAT Law
(R.A. No. 7716),74 and The Tax Reform Act of 1997 (R.A. No. 8424). The right to credit input
tax as against the output tax is clearly a privilege created by law, a privilege that also the law can
remove, or in this case, limit.
PETITIONERS also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of
R.A. No. 9337, amending Section 110(A) of the NIRC.
SC: The foregoing section imposes a 60-month period within which to amortize the creditable
input tax on purchase or importation of capital goods with acquisition cost of ₱1 Million pesos,
exclusive of the VAT component. Such spread out only poses a delay in the crediting of the input
tax. Petitioners’ argument is without basis because the taxpayer is not permanently deprived of
his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in
this case amounts to a 4-year interest-free loan to the government. In the same breath, Congress
also justified its move by saying that the provision was designed to raise annual revenue of 22.6
billion. The legislature also dispelled the fear that the provision will fend off foreign
investments, saying that foreign investors have other tax incentives provided by law, and citing
the case of China, where despite a 17.5% noncreditable VAT, foreign investments were not
deterred.78 Again, for whatever is the purpose of the 60-month amortization, this involves
executive economic policy and legislative wisdom in which the Court cannot intervene.
With regard to the 5% creditable withholding tax imposed on payments made by the government
for taxable transactions.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more
simplified VAT withholding system. The government in this case is constituted as a withholding
agent with respect to their payments for goods and services.
Under the present Section 114(C), different rates, except for the 10% on lease or property rights
payment to nonresidents, were deleted, and a uniform rate of 5% is applied.
The Court observes, however, that the law the used the word final. In tax usage, final, as opposed
to creditable, means full. Thus, it is provided in Section 114(C): "final value-added tax at the rate
of five percent (5%)."
As applied to value-added tax, this means that taxable transactions with the government are
subject to a 5% rate, which constitutes as full payment of the tax payable on the transaction. This
represents the net VAT payable of the seller. The other 5% effectively accounts for the standard
input VAT (deemed input VAT), in lieu of the actual input VAT directly or attributable to the
taxable transaction.79
The Court need not explore the rationale behind the provision. It is clear that Congress intended
to treat differently taxable transactions with the government. This is supported by the fact that
under the old provision, the 5% tax withheld by the government remains creditable against the
tax liability of the seller or contractor.
As amended, the use of the word final and the deletion of the word creditable exhibits
Congress’s intention to treat transactions with the government differently. Since it has not been
shown that the class subject to the 5% final withholding tax has been unreasonably narrowed,
there is no reason to invalidate the provision. Petitioners, as petroleum dealers, are not the only
ones subjected to the 5% final withholding tax. It applies to Moreover, the actual input tax is not
totally lost or uncreditable, as petitioners believe. Revenue Regulations No. 14-2005 or the
Consolidated
Value-Added Tax Regulations 2005 issued by the BIR, provides that should the actual input tax
exceed 5% of gross payments, the excess may form part of the cost. Equally, should the actual
input tax be less than 5%, the difference is treated as income.81
PETITIONERS also argue that by imposing a limitation on the creditable input tax, the
government gets to tax a profit or value-added even if there is no profit of value-added.
SC: Petitioners’ stance is purely hypothetical, argumentative, and again,one-sided. The Court
will not engage in a legal joust where premises are what ifs, arguments, theoretical and facts,
uncertain. The power of the State to make reasonable and natural classifications for the purposes
of taxation has long been established. Whether it relates to the subject of taxation, the kind of
property, the rates to be levied, or the amounts to be raised, the methods of assessment, valuation
and collection, the State’s power is entitled to presumption of validity. As a rule, the judiciary
will not interfere with such power absent a clear showing of unreasonableness, discrimination, or
arbitrariness.84
The equal protection clause does not require the universal application of the laws on all persons
or things without distinction. This might in fact sometimes result in unequal protection. What the
clause requires is equality among equals as determined according to a valid classification. By
classification is meant the grouping of persons or things similar to each other in certain
particulars and different from all others in these same particulars.
DOCTRINE: it is not the law but the revenue bill which is required by the Constitution to
“originate exclusively” in the House of Representatives.

TITLE: TOLENTINO VS SEC. OF FINANCE (GR NO. 115455)

FACTS:
There are several motions for reconsideration of court decision dismissing petitioner for
declaration of unconstitutionality of RA7716 otherwise known as the Expanded Value-Added
Tax Law. 10 motions were filed by several petitioners.
Petitioners claimed that RA7716 did not originate exclusively in the House of Representatives as
required by Art. 6 Sec. 24 of the constitution. Although they admit that H. No. 11197 was filed
in the House of Representatives where it passed three readings and that afterward it was sent to
the Senate where after first reading it was referred to the Senate Ways and Means Committee,
they complain that the Senate did not pass it on second and third readings. Instead what the
Senate did was to pass its own version (S. No. 1630) which it approved on May 24, 1994.
Petitioner Tolentino adds that what the Senate committee should have done was to amend H. No.
11197 by striking out the text of the bill and substituting it with the text of S. No. 1630. That
way, it is said, "the bill remains a House bill and the Senate version just becomes the text (only
the text) of the House bill."

ISSUE: Whether or not RA 7716 violates the constitution

Held:

No. The argument that RA 7716 did not originate exclusively in the House of Representatives as
required by Art. VI, Sec. 24 of the Constitution will not bear analysis. To begin with, it is not the
law but the revenue bill which is required by the Constitution to originate exclusively in the
House of Representatives. To insist that a revenue statute and not only the bill which initiated the
legislative process culminating in the enactment of the law must substantially be the same as the
House bill would be to deny the Senate’s power not only to concur with amendments but also to
propose amendments. Indeed, what the Constitution simply means is that the initiative for filing
revenue, tariff or tax bills, bills authorizing an increase of the public debt, private bills and bills
of local application must come from the House of Representatives on the theory that, elected as
they are from the districts, the members of the House can be expected to be more sensitive to the
local needs and problems. Nor does the Constitution prohibit the filing in the Senate of a
substitute bill in anticipation of its receipt of the bill from the House, so long as action by the
Senate as a body is withheld pending receipt of the House bill.

The next argument of the petitioners was that S. No. 1630 did not pass 3 readings on separate
days as required by the Constitution because the second and third readings were done on the
same day. But this was because the President had certified S. No. 1630 as urgent. The
presidential certification dispensed with the requirement not only of printing but also that of
reading the bill on separate days. That upon the certification of a bill by the President the
requirement of 3 readings on separate days and of printing and distribution can be dispensed with
is supported by the weight of legislative practice.
3.) CIR v. MAGSAYSAY LINES
July 28, 2006
Tinga, J.

SUMMARY: National Development Company is engaged in the business leasing of ships.

Pursuant to a government program of privatization, the NDC decided to sell in one lot its NMC
shares and 5 of its ships to Magsaysay Lines, all for P168M. BIR assessed VAT on such sale
because the seller NDC is a VAT-registered person. The argument against BIR is that the sale
was not made in the ordinary course of business because NDC which is engaged in the
business of leasing ships was only compelled to sell its ships because of the privatization
policy of the Government. The SC ruled that the sale is not subject to VAT because it was not
made in the ordinary course of business. According to the SC, the sale was an isolated
transaction. The sale was involuntary and made pursuant to the declared policy of Government
for privatization could no longer be repeated or carried on with regularity. The normal VAT-
registered activity of NDC is leasing personal property. Hence, the sale was not in the course
of trade or business.

DOCTRINE: "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. "Course of business" is what is usually
done in the management of trade or business. "Course of business" or "doing business"
connotes regularity of activity. Any sale, barter or exchange of goods or services not in the
course of trade or business is not subject to VAT.

FACTS:
Pursuant to a government program of privatization, the NDC decided to sell in one lot its NMC
shares and 5 of its ships, which are 3,700 DWT Tween-Decker, "Kloeckner" type vessels. 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. 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 "VAT of 10% on the value of the vessels."

Magsaysay Lines, Inc. offered to buy the shares and the vessels for P168M. The bid was
madepurportedly for a new company still to be formed composed of itself. Notice of Award
dated was issued to Magsaysay Lines who in turn was assessed of VAT

BIR RULING
The sale of the vessels was subject to the 10% VAT. 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].

CTA RULING
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 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.
Any case of doubt should be resolved in favor of Magsaysay Lines
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.

ISSUE: Whether the sale by the NDC of 5 of its vessels to Magsaysay Lines is subject to VAT

HELD: NAWPS, the transaction is not subject to VAT

VAT is ultimately a tax on consumption, even though it is assessed on many levels of

transactions on the basis of a fixed percentage. It is the end user of consumer goods or services
which ultimately shoulders the tax, as the liability there from is passed on to the end users by the
providers of these goods or services 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). 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, 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, 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.

In Imperial v. CIR, 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. "Course of business" is what is
usually done in the management of trade or business.

"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. The normal VAT-registered activity of NDC is leasing
personal property.

Moreover, the Revised Charter of the NDC bears no indication that the NDC was created for the
primary purpose of selling real property. Hence, the sale was not in the course of trade or
business. Any sale, barter or exchange of goods or services not in the course of trade or business
is not subject to VAT.
Given that the transaction was not made in the course of trade or business of the seller, NDC, 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.

DISPOSITIVE: Transaction is not subject to VAT

4.)CONTEX VS CIR

FACTS

Petitioner is a domestic corporation engaged in the business of manufacturing hospital textiles

and garments and other hospital supplies for export. Petitioner’s place of business is at the Subic
Bay Freeport Zone (SBFZ). It is duly registered with the Subic Bay Metropolitan Authority
(SBMA) as a Subic Bay Freeport Enterprise, pursuant to the provisions of Republic Act No.
7227.4 As an SBMA-registered firm, petitioner is exempt from all local and national internal
revenue taxes except for the preferential tax provided for in Section 12 (c)5 of Rep. Act No.
7227. Petitioner also registered with the Bureau of Internal Revenue (BIR) as a non-VAT
taxpayer under Certificate of Registration RDO Control No. 95-180-000133.
From January 1, 1997 to December 31, 1998, petitioner purchased various supplies and materials
necessary in the conduct of its manufacturing business. The suppliers of these goods shifted unto
petitioner the 10% VAT on the purchased items, which led the petitioner to pay input taxes in the
amounts of P539,411.88 and P504,057.49 for 1997 and 1998, respectively.6
Acting on the belief that it was exempt from all national and local taxes, including VAT,
pursuant to Rep. Act No. 7227, petitioner filed two applications for tax refund or tax credit of the
VAT it paid. Mr. Edilberto Carlos, revenue district officer of BIR RDO No. 19, denied the first
application letter, dated December 29, 1998.

Unfazed by the denial, petitioner on May 4, 1999, filed another application for tax refund/credit,
this time directly with Atty. Alberto Pagabao, the regional director of BIR Revenue Region No.
4. The second letter sought a refund or issuance of a tax credit certificate in the amount of
P1,108,307.72, representing erroneously paid input VAT for the period January 1, 1997 to
November 30, 1998.

When no response was forthcoming from the BIR Regional Director, petitioner then elevated the
matter to the Court of Tax Appeals. Petitioner stressed that Section 112(A)7 if read in relation to
Section 106(A)(2)(a)8 of the National Internal Revenue Code, as amended and Section 12(b)9 and
(c) of Rep. Act No. 7227 would show that it was not liable in any way for any value-added tax.
In opposing the claim for tax refund or tax credit, the BIR asked the CTA to apply the rule that
claims for refund are strictly construed against the taxpayer. Since petitioner failed to establish
both its right to a tax refund or tax credit and its compliance with the rules on tax refund as
provided for in Sections 20410 and 22911 of the Tax Code, its claim should be denied, according
to the BIR.

RULING OF CTA
In granting a partial refund, the CTA ruled that petitioner misread Sections 106(A)(2)(a) and
112(A) of the Tax Code. The tax court stressed that these provisions apply only to those entities
registered as VAT taxpayers whose sales are zero-rated. Petitioner does not fall under this
category, since it is a non-VAT taxpayer as evidenced by the Certificate of Registration RDO
Control No. 95-180-000133 issued by RDO Rosemarie Ragasa of BIR RDO No. 18 of the Subic
Bay Freeport Zone and thus it is exempt from VAT, pursuant to Rep. Act No. 7227, said the
CTA.
Nonetheless, the CTA held that the petitioner is exempt from the imposition of input VAT on its
purchases of supplies and materials. It pointed out that under Section 12(c) of Rep. Act No. 7227
and the Implementing Rules and Regulations of the Bases Conversion and Development Act of
1992, all that petitioner is required to pay as a SBFZ-registered enterprise is a 5% preferential
tax.
Respondent CIR then filed a petition for review of the CTA decision by the Court of Appeals.
Respondent maintained that the exemption of Contex Corp. under Rep. Act No. 7227 was
limited only to direct taxes and not to indirect taxes such as the input component of the VAT.
The Commissioner pointed out that from its very nature, the value-added tax is a burden passed
on by a VAT registered person to the end users; hence, the direct liability for the tax lies with the
suppliers and not Contex.

RULING OF CA
In reversing the CTA, the Court of Appeals held that the exemption from duties and taxes on the
importation of raw materials, capital, and equipment of SBFZ-registered enterprises under Rep.
Act No. 7227 and its implementing rules covers only "the VAT imposable under Section 107 of
the [Tax Code], which is a direct liability of the importer, and in no way includes the value-
added tax of the seller-exporter the burden of which was passed on to the importer as an
additional costs of the goods."14 This was because the exemption granted by Rep. Act No. 7227
relates to the act of importation and Section 10715 of the Tax Code specifically imposes the VAT
on importations
The appellate court applied the principle that tax exemptions are strictly construed against the
taxpayer. The Court of Appeals pointed out that under the implementing rules of Rep. Act No.
7227, the exemption of SBFZ-registered enterprises from internal revenue taxes is qualified as
pertaining only to those for which they may be directly liable.
It then stated that apparently, the legislative intent behind Rep. Act No. 7227 was to grant
exemptions only to direct taxes, which SBFZ-registered enterprise may be liable for and only in
connection with their importation of raw materials, capital, and equipment as well as the sale of
their goods and services.

ISSUE
Whether the CA is correct that the VAT exemption embodied in Rep. Act No. 7227 does not
apply to petitioner as a purchaser

RULING
The CA is correct. the petitioner’s claim to VAT exemption in the instant case for its purchases
of supplies and raw materials is founded mainly on Section 12 (b) and (c) of Rep. Act No. 7227,
which basically exempts them from all national and local internal revenue taxes, including VAT
and Section 4 (A)(a) of BIR Revenue Regulations No. 1-95.24
On this point, petitioner rightly claims that it is indeed VAT-Exempt and this fact is not
controverted by the respondent. In fact, petitioner is registered as a NON-VAT taxpayer per
Certificate of Registration25 issued by the BIR. As such, it is exempt from VAT on all its sales
and importations of goods and services.
Petitioner’s claim, however, for exemption from VAT for its purchases of supplies and raw
materials is incongruous with its claim that it is VAT-Exempt, for only VAT-Registered entities
can claim Input VAT Credit/Refund.
The point of contention here is whether or not the petitioner may claim a refund on the Input
VAT erroneously passed on to it by its suppliers.
While it is true that the petitioner should not have been liable for the VAT inadvertently passed
on to it by its supplier since such is a zero-rated sale on the part of the supplier, the petitioner is
not the proper party to claim such VAT refund.
Since the transaction is deemed a zero-rated sale, petitioner’s supplier may claim an Input VAT
credit with no corresponding Output VAT liability. Congruently, no Output VAT may be passed
on to the petitioner.
CIR vs SEAGATE

FACTS: Respondent is a resident foreign corporation duly registered with the Securities and
Exchange Commission to do business in the Philippines and is registered with the Philippine
Export Zone Authority (PEZA). The respondent is Value Added Tax-registered entity and filed
for the VAT returns. An administrative claim for refund of VAT input taxes in the amount of
P28,369,226.38 with supporting documents (inclusive of the P12,267,981.04 VAT input taxes
subject of this Petition for Review), was filed on 4 October 1999, but no final action has been
received by the respondent from the petitioner on the claim for VAT refund. CIR asserts that by
virtue of the PEZA registration alone of respondent, the latter is not subject to the VAT.
Consequently, the capital goods and services respondent has purchased are not considered used
in the VAT business, and no VAT refund or credit is due.

ISSUE: Whether or not Seagate, a VAT-Registered PEZA Enterprise is entitled to tax refund or
credit.

HELD: Yes, Seagate is entitled to refund or credit. As a PEZA-registered enterprise within a

special economic zone, respondent is entitled to the fiscal incentives and benefit provided for in
either PD 66 or EO 226. It shall, moreover, enjoy all privileges, benefits, advantages or
exemptions under both Republic Act Nos. (RA) 7227 and 7844.

Respondent, which as an entity is exempt, is different from its transactions which are not exempt.
The end result, however, is that it is not subject to the VAT. The non-taxability of transactions
that are otherwise taxable is merely a necessary incident to the tax exemption conferred by law
upon it as an entity, not upon the transactions themselves.

The petitioner’s assertion that the capital goods and services respondent has purchased are not
considered used in the VAT business, and thus no VAT refund or credit is due is non sequitur.
On this matter, the SC held that by the VAT’s very nature as a tax on consumption, the capital
goods and services respondent has purchased are subject to the VAT, although at zero rate.

Seagate has complied with all the requisites for VAT refund or credit. First, respondent is a
VAT-registered entity. Second, the input taxes paid on the capital goods of respondent are duly
supported by VAT invoices and have not been offset against any output taxes.

To summarize, special laws expressly grant preferential tax treatment to business establishments
registered and operating within an ecozone, which by law is considered as a separate customs
territory. As such, respondent is exempt from all internal revenue taxes, including the VAT, and
regulations pertaining thereto. Its sales transactions intended for export may not be exempt, but
like its purchase transactions, they are zero-rated. No prior application for the effective zero
rating of its transactions is necessary. Being VAT-registered and having satisfactorily complied
with all the requisites for claiming a tax refund of or credit for the input VAT paid on capital
goods purchased, respondent is entitled to such VAT refund or credit.

Having determined that respondent’s purchase transactions are subject to a zero VAT rate, the
SC has determined that tax refund or credit is in order.
THE COMMISIONER OF INTERNAL REVENUE VS. ACESITE PHILIPPINES
HOTEL CORPORATION
G.R. No. 147295 February 16, 2007

FACTS:
 Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leases
6,768.53 square meters of the hotel’s premises to the PAGCOR for casino operations. It
also caters food and beverages to PAGCOR’s casino patrons through the hotel’s
restaurant outlets.
 Acesite incurred VAT amounting to P30,152,892.02 from its rental income and sale of
food and beverages to PAGCOR for the period January 1996 to April 1997.
 Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount
assessed to PAGCOR but the latter refused to pay the taxes on account of its tax exempt
status.
 Acesite paid the VAT to the CIR as it feared the legal consequences of non-payment of
the tax.
 However, Acesite belatedly arrived at the conclusion that its transaction with PAGCOR
was subject to zero rate as it was rendered to a tax-exempt entity.
 Acesite filed an administrative claim for refund.

ISSUES:
1. WON PAGCOR’s tax exemption privilege includes the indirect tax of VAT
2. WON the zero percent (0%) VAT rate legally applies to Acesite

HELD:
1. YES. PAGCOR’s tax exemption includes exemption from indirect tax. Section 13 of
P.D. 1869, the charter creating PAGCOR, provides that: “No tax of any kind or form,
income or otherwise, as well as fees, charges or levies of whatever nature, whether
National or Local, shall be assessed and collected under this Franchise from the
Corporation; nor shall any form of tax or charge attach in any way to the earnings of the
Corporation.” Also, “exemptions herein granted for earnings derived from the operations
conducted under the franchise specifically from the payment of any tax, income or
otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and
extend to corporation(s), association(s), agency(ies), or individual(s) with whom the
Corporation or operator has any contractual relationship in connection with the
operations of the casino(s) authorized to be conducted under this Franchise.”

Said provision clearly gives PAGCOR a blanket exemption from taxes with no
distinction as to whether the taxes are direct or indirect. Although the law does not
specifically mention PAGCOR’s exemption from indirect taxes, PAGCOR is
undoubtedly exempt from such taxes because the law exempts from taxes persons or
entities contracting with PAGCOR in casino operations. By extending the exemption to
entities or individuals dealing with PAGCOR, the legislature clearly granted exemption
also from indirect taxes. The indirect tax of VAT, as in the instant case, can be shifted or
passed to the buyer, transferee, or lessee of the goods, properties, or services subject to
VAT. Thus, by extending the tax exemption to entities or individuals dealing with
PAGCOR in casino operations, it is exempting PAGCOR from being liable to indirect
taxes.
2. YES. VAT exemption extends to Acesite. It is not liable for the payment of it as it is
exempt in this particular transaction by operation of law to pay the indirect tax. Such
exemption falls within Section 108 [b] [3] of R.A. 8424, which provides that: “Services
rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such
services to zero (0%) rate.”

3. The manner of charging VAT does not make PAGCOR liable to said tax. It is true that
VAT can either be incorporated in the value of the goods, properties, or services sold or
leased, in which case it is computed as 1/11 of such value, or charged as an additional
10% to the value. Verily, the seller or lessor has the option to follow either way in
charging its clients and customer. In the instant case, Acesite followed the latter method,
that is, charging an additional 10% of the gross sales and rentals. Be that as it may, the
use of either method, and in particular, the first method, does not denigrate the fact that
PAGCOR is exempt from an indirect tax, like VAT.
FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF
INTERNAL REVENUE

DOCTRINE: Transitional Input Tax Credit

FACTS: Petitioner was a real estate developer that bought from the national government a
parcel of land that used to be the Fort Bonifacio military reservation. At the time of the said sale
there was as yet no VAT imposed so Petitioner did not pay any VAT on its purchase.
Subsequently, Petitioner sold two parcels of land to Metro Pacific Corp. In reporting the said sale
for VAT purposes (because the VAT had already been imposed in the interim), Petitioner
claimed transitional input VAT corresponding to its inventory of land. The BIR disallowed the
claim of presumptive input VAT and thereby assessed Petitioner for deficiency VAT.

ISSUE: Is Petitioner entitled to claim the transitional input VAT on its sale of real properties
given its nature as a real estate dealer and if so (i) is the transitional input VAT applied only to
the improvements on the real property or is it applied on the value of the entire real property and
(ii) should there have been a previous tax payment for the transitional input VAT to be
creditable.

HELD: YES. Petitioner is entitled to claim transitional input VAT based on the value of not
only the improvements but on the value of the entire real property and regardless of whether
there was in fact actual payment on the purchase of the real property or not.
The amendments to the VAT law do not show any intention to make those in the real estate
business subject to a different treatment from those engaged in the sale of other goods or
properties or in any other commercial trade or business. On the scope of the basis for
determining the available transitional input VAT, the CIR has no power to limit the meaning and
coverage of the term "goods" in Section 105 of the Tax Code without statutory authority or basis.
The transitional input tax credit operates to benefit newly VAT-registered persons, whether or
not they previously paid taxes in the acquisition of their beginning inventory of goods, materials
and supplies.
G.R. No. 190506. June 13, 2016.*
CORAL BAY NICKEL CORPORATION, petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE, respondent.
FACTS: The petitioner, a domestic corporation engaged in the manufacture of nickel and/or
cobalt mixed sulphide, is a VAT entity registered with the Bureau of Internal Revenue (BIR). It
is also registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Export
Enterprise at the Rio Tuba Export Processing Zone under PEZA Certificate of Registration
the petitioner filed its Amended VAT Return declaring unutilized input tax from its domestic
purchases of capital goods, other than capital goods and services, for its third and fourth quarters
of 2002 totalling P50,124,086.75. it filed with Revenue District Office No. 36 in Palawan its
Application for Tax Credits/Refund (BIR Form 1914) together with supporting documents.
Due to the alleged inaction of the respondent, the petitioner elevated its claim to the CTA. the
CTA in Division promulgated its decision denying the petitioner’s claim for refund on the
ground that the petitioner was not entitled to the refund of alleged unutilized input VAT
following Section 106(A)(2)(a)(5) of the National Internal Revenue Code (NIRC) of 1997, as
amended, in relation to Article 77(2) of the Omnibus Investment Code and conformably with the
Cross Border Doctrine.
After the CTA in Division denied its Motion for Reconsideration , the petitioner elevated the
matter to the CTA En Banc which also denied the petition through the assailed decision. Hence
this petition whereby the petitioner contends that Toshiba is not applicable inasmuch as the
unutilized input VAT subject of its claim was incurred from May 1, 2002 to December 31, 2002
as a VAT-registered taxpayer, not as a PEZA-registered enterprise; that during the period subject
of its claim, it was not yet registered with PEZA because it was only on December 27, 2002 that
its Certificate of Registration was issued;12 that until then, it could not have refused the payment
of VAT on its purchases because it could not present any valid proof of zero-rating to its VAT-
registered suppliers and that it complied with all the procedural and substantive requirements
under the law and regulations for its entitlement to the refund.
ISSUE: Was the petitioner, an entity located within an ECOZONE, entitled to the refund
of its unutilized input taxes incurred before it became a PEZA-registered entity
HELD: The appeal is bereft of merit.
The petitioner’s insistence, that Toshiba is not applicable because Toshiba Information
Equipment (Phils.), Inc., the taxpayer involved thereat, was a PEZA-registered entity during the
time subject of the claim for tax refund or credit, is unwarranted. The most significant difference
between Toshiba and this case is that Revenue Memorandum Circular No. 74-9916 was not yet
in effect at the time Toshiba Information Equipment (Phils.) Inc. brought its claim for refund.
Regardless of the distinction, however, Toshiba actually discussed the VAT implication of
PEZA-registered enterprises and ECOZONE-located enterprises in its entirety, which renders
Toshiba applicable to the petitioner’s case. Prior to the effectivity of RMC 74-99, the old VAT
rule for PEZA-registered enterprises was based on their choice of fiscal incentives, namely: (1) if
the PEZA-registered enterprise chose the 5% preferential tax on its gross income in lieu of all
taxes, as provided by Republic Act No. 7916, as amended, then it was VATexempt; and (2) if the
PEZA-registered enterprise availed itself of the income tax holiday under Executive Order No.
226, as amended, it was subject to VAT at 10%17 (now, 12%). Based on this old rule, Toshiba
allowed the claim for refund or credit on the part of Toshiba Information Equipment (Phils.), Inc.
This is not true with the petitioner. With the issuance of RMC 7499, the distinction under the old
rule was disregarded and the new circular took into consideration the two important principles of
the Philippine VAT system: the Cross Border Doctrine and the Destination Principle. Thus,
Toshiba opined:
The rule that any sale by a VAT-registered supplier from the Customs Territory to a PEZA-
registered enterprise shall be considered an export sale and subject to zero percent (0%) VAT
was clearly established only on 15 October 1999, upon the issuance of RMC No. 74-99. Prior to
the said date, however, whether or not a PEZA-registered enterprise was VAT-exempt depended
on the type of fiscal incentives availed of by the said enterprise. This old rule on VAT-exemption
or liability of PEZA-registered enterprises, followed by the BIR, also recognized and affirmed by
the CTA, the Court of Appeals, and even this Court, cannot be lightly disregarded considering
the great number of PEZA-registered enterprises According to the old rule, Section 23 of Rep.
Act No. 7916, as amended, gives the PEZA-registered enterprise the option to choose between
two sets of fiscal incentives: (a) The five percent (5%) preferential tax rate on its gross income
under Rep. Act No. 7916, as amended; and (b) the income tax holiday provided under Executive
Order No. 226, otherwise known as the Omnibus Investment Code of 1987, as amended. x x x x
This old rule clearly did not take into consideration the Cross Border Doctrine essential to the
VAT system or the fiction of the ECOZONE as a foreign territory. It relied totally on the choice
of fiscal incentives of the PEZAregistered enterprise. Again, for emphasis, the old VAT rule for
PEZA-registered enterprises was based on their choice of fiscal incentives: (1) If the PEZA-
registered enterprise chose the five percent (5%) preferential tax on its gross income, in lieu of
all taxes, as provided by Rep. Act No. 7916, as amended, then it would be VAT-exempt; (2) If
the PEZAregistered enterprise availed of the income tax holiday under Exec. Order No. 226, as
amended, it shall be subject to VAT at ten percent (10%). Such distinction was abolished by
RMC No. 74-99, which categorically declared that all sales of goods, properties, and services
made by a VAT-registered supplier from the Customs Territory to an ECOZONE enterprise shall
be subject to VAT, at zero percent (0%) rate, regardless of the tatter’s type or class of PEZA
registration; and, thus, affirming the nature of a PEZA-registered or an ECOZONE enterprise as
a VAT-exempt entity
Section 8 of Republic Act No. 7916 mandates that PEZA shall manage and operate the
ECOZONE as a separate customs territory. The provision thereby establishes the fiction that an
ECOZONE is a foreign territory separate and distinct from the customs territory. Accordingly,
the sales made by suppliers from a customs territory to a purchaser located within an ECOZONE
will be considered as exportations. Following the Philippine VAT system’s adherence to the
Cross Border Doctrine and Destination Principle, the VAT implications are that “no VAT shall
be imposed to form part of the cost of goods destined for consumption outside of the territorial
border of the taxing authority.
We should also take into consideration the nature of VAT as an indirect tax. Although the seller
is statutorily liable for the payment of VAT, the amount of the tax is allowed to be shifted or
passed on to the buyer. However, reporting and remittance of the VAT paid to the BIR remained
to be the seller/supplier’s obligation. Hence, the proper party to seek the tax refund or credit
should be the suppliers, not the petitioner. In view of the foregoing considerations, the
Court must uphold the rejection of the appeal of the petitioner. This Court has repeatedly
pointed out that a claim for tax refund or credit is similar to a tax exemption and should be
strictly construed against the taxpayer. The burden of proof to show that he is ultimately
entitled to the grant of such tax refund or credit rests on the taxpayer. Sadly, the petitioner
has not discharged its burden.
ACCENTURE, INC. v. COMMISSIONER OF INTERNAL REVENUE

FACTS:
Accenture, Inc. is a corporation engaged in the business of providing management consulting,
business strategies development, and selling and/or licensing of software. It is duly registered
with the BIR as a Value Added Tax taxpayer or enterprise in accordance with Sec. 236 of the
NIRC.

Accenture filed its Monthly VAT Return, Quarterly VAT Return, and Amended Quarterly VAT
Return. Notwithstanding its application of the input VAT credits earned from its zero-rated
transactions against its output VAT liabilities, it still had excess or unutilized input VAT credits.
These VAT credits are in the amounts of P9,355,809.80 for the 1st period and P27,682,459.38
for the 2nd period, or a total of P37,038,269.18.
Only P35,178,844.21 pertained to the allocated input VAT on Accenture’s "domestic purchases
of taxable goods which cannot be directly attributed to its zero-rated sale of services." This
allocated input VAT was broken down to P8,811,301.66 for the 1st period and P26,367,542.55
for the 2nd period.
The excess input VAT was not applied to any output VAT that Accenture was liable for. Instead,
it was carried forward to petitioner’s 2nd Quarterly VAT Return for 2003.
Accenture filed an administrative claim to the Department of Finance for the refund or the
issuance of a Tax Credit Certificate. The DOF failed to act on said claim.
Accenture filed a petition to the Court of Tax Appeals for the issuance of a TCC in its favor
amounting to P35,178,844.21.
The petition was denied for failure to prove that petitoner’s sale of services to the alleged foreign
clients qualifies for zero percent VAT.

ISSUE:
Is Accenture entitled to a refund or the issuance of a TCC?

HELD:
No. Accenture is neither entitled to a refund nor the issuance of a TCC. The evidence presented
by Accenture may have established that its clients are foreign. This fact does not automatically
mean, however, that these clients were doing business outside the Philippines. After all, the Tax
Code itself has provisions for a foreign corporation engaged in business within the Philippines
and vice versa. Consequently, to come within the purview of Section 108(B)(2), it is not enough
that the recipient of the service be proven to be a foreign corporation; rather, it must be
specifically proven to be a nonresident foreign corporation. A taxpayer claiming a tax credit or
refund has the burden of proof to establish the factual basis of that claim. Tax refunds, like tax
exemptions, are construed strictly against the taxpayer.

Accenture failed to discharge this burden. It alleged and presented evidence to prove only that its
clients were foreign entities. However, as found by both the CTA Division and the CTA En
Banc, no evidence was presented by Accenture to prove the fact that the foreign clients to whom
petitioner rendered its services were clients doing business outside the Philippines. As ruled by
the CTA En Banc, the Official Receipts, Intercompany Payment Requests, Billing Statements,
Memo Invoices-Receivable, Memo Invoices-Payable, and Bank Statements presented by
Accenture merely substantiated the existence of sales, receipt of foreign currency payments, and
inward remittance of the proceeds of such sales duly accounted for in accordance with BSP rules,
all of these were devoid of any evidence that the clients were doing business outside of the
Philippines.
CIR vs Burmeister

GR no. 153205, 22 January 2007

FACTS:

Burmeister is a domestic corporation duly organized and existing under the laws of the
Philippines. A foreign consortium composed of Burmeister as coordination manager, Mitsui
Engineering, and Mitsui and Co. entered into a contract with NAPOCOR for the operation and
maintenance of NAPOCOR’s two power barges.

NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies. The
Consortium pays Burmeister in foreign currency inwardly remitted to the Philippines through the
banking system.

Burmeister sought a ruling from the BIR, declaring therein that if Burmeister chose to register as
a VAT person and the consideration for its services is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko Sentral, the aforesaid
services shall be subject to VAT at zero-rate. Burmeister chose to register as a VAT taxpayer.

Burmeister then seasonably filed its quarterly Value-Added Tax Returns. On December 1997,
Burmeister availed of the Voluntary Assessment Program, in conformity with the aforesaid
Revenue Regulations, Burmeister subjected its sales of services to the Consortium to the 10%
VAT. Burmeister then filed a claim for the issuance of a tax credit certificate, the respondent
believed that it erroneously paid the output VAT due to its availment of Voluntary Assessment
Program.

The CTA and CA ruled in favor of Burmeister declaring that under VAT ruling no. 040-98,
respondent’s services should be destined for consumption abroad to enjoy zero-rating.

ISSUE:

Is Burmeister entitled to the refund because of erroneously paid output VAT?

RULING:

The Tax Code not only requires that the services be other than “processing, manufacturing or
repacking of goods” and that payment for such services be in acceptable foreign currency
accounted for in accordance with BSP rules. Another essential condition for qualification to
zero-rating under Section 102(b)(2) is that the recipient of such services is doing business outside
the Philippines. While this requirement is not expressly stated in the second paragraph of Section
102(b), this is clearly provided in the first paragraph of Section 102(b) where the listed services
must be “for other persons doing business outside the Philippines.” The phrase “for other persons
doing business outside the Philippines” not only refers to the services enumerated in the first
paragraph of Section 102(b), but also pertains to the general term “services” appearing in the
second paragraph of Section 102(b). In short, services other than processing, manufacturing, or
repacking of goods must likewise be performed for persons doing business outside the
Philippines.
The Court recognizes the rule that the VAT whereas imports are taxed). However, as the Court
stated in American Express, there is an exception to this rule. This exception refers to the 0%
VAT on services enumerated in Section 102 and performed in the Philippines. For services
covered by Section 102(b)(1) and (2), the recipient of the services must be a person doing
business outside the Philippines. Thus, to be exempt from the destination principle under Section
102(b)(1) and (2), the services must be (a) performed in the Philippines; (b) for a person doing
business outside the Philippines; and (c) paid in acceptable foreign currency accounted for in
accordance with BSP rules.
DOCTRINE:
- It is clear from the foregoing that a taxpayer must be informed in writing of the legal and
factual bases of the tax assessment made against him. The use of the word “shall” in
these legal provisions indicates the mandatory nature of the requirements laid down
therein.
- The law requires that the legal and factual bases of the assessment be stated in the formal
letter of demand and assessment notice

TITLE: CIR vs. Enron Subic Power Corporation (GR 166387, January 19, 2009)

FACTS:
- Enron, A domestic corporation registered in subic bay, filed its annual income tax return
for 1996 on Aril 12, 1997. It indicated a net loss pf Php 7,684,948.
- The BIR sent a preliminary five-day letter to inform Enron of a proposed assessment over
an alleged Php 2,880,817.25 deficiency income tax.
- Eron disputed the deficiency assessment.
- On may 26, 1999, Enron received a formal assessment notice requiring it to pay the
deficiency tax but Enron protested.
- Due to the non-resolution of the protest within the 180 day period, it was brought to the
CTA for review and argued that the assessment disregard Section 228 of the Tax Code by
not providing the legal and factual basis of the assessment.
- CTA favored enron, CA affirmed

ISSUE: WON the CIR informed Enron of the factual and legal basis for the deficiency
assessment?

RULING:
WHEREFORE, the petition is hereby DENIED. The November 24, 2004 decision of the Court
of Appeals is AFFIRMED.

- The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the
preliminary five-day letter, were not valid substitutes for the mandatory notice in writing
of the legal and factual bases of the assessment. These steps were mere perfunctory
discharges of the CIRs duties in correctly assessing a taxpayer.
- The requirement for issuing a preliminary or final notice, as the case may be, informing a
taxpayer of the existence of a deficiency tax assessment is markedly different from the
requirement of what such notice must contain. Just because the CIR issued an advice, a
preliminary letter during the pre-assessment stage and a final notice, in the order required
by law, does not necessarily mean that Enron was informed of the law and facts on which
the deficiency tax assessment was made.
- The law requires that the legal and factual bases of the assessment be stated in the formal
letter of demand and assessment notice. Thus, such cannot be presumed. Otherwise, the
express provisions of Article 228 of the NIRC and RR No. 12-99 would be rendered
nugatory. The alleged factual bases in the advice, preliminary letter and audit working
papers did not suffice. There was no going around the mandate of the law that the legal
and factual bases of the assessment be stated in writing in the formal letter of demand
accompanying the assessment notice.
- In view of the absence of a fair opportunity for Enron to be informed of the legal and
factual bases of the assessment against it, the assessment in question was void
CIR vs Salvage towage

Facts: Petitioner found respondent United Salvage and Towage (Phils.), Inc. (USTP) liable to
pay, among others, deficiency expanded withholding tax (EWT) for taxable year 1994. A mere
perusal of the FAN for the deficiency EWT for taxable year 1994 will show that other than a
tabulation of the alleged deficiency taxes due, no further detail regarding the assessment was
provided by petitioner. Only the resulting interest, surcharge and penalty were anchored with
legal basis.

ISSUE(S): Whether or not the EWT assessments issued against the respondent for taxable year
1994 were valid.

HELD: NO. The law requires that the legal and factual bases of the assessment be stated in the
formal letter of demand and assessment notice. Such cannot be presumed. The alleged “factual
bases” in the advice, preliminary letter and “audit working papers” did not suffice. There was no
going around the mandate of the law that the legal and factual bases of the assessment be stated
in writing in the formal letter of demand accompanying the assessment notice.
Samar Elective Cooperative vs. Commissioner of Internal Revenue
G.R. No. 193100 , December 10, 2014

Doctrine:

 In the case of a false or fraudulent return with intent to evade tax or of failure to file
a return, the tax may be assessed, or a proceeding in court for the collection of such
tax may be filed without assessment, at any time within ten (10) years after the
discovery of the falsity, fraud or omission. Provided, that in a fraud assessment which
has become final and executory, the fact of fraud shall be judicially taken cognizance of
in the civil or criminal action for the collection thereof.

 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.

Facts:

 Samar-I Electric Cooperative, Inc filed and income tax returns for 1998 and 1999.
Petitioner filed its 1997, 1998, and 1999 Annual lnformation Return of Income Tax
Withheld on Compensation, Expanded and Final Withholding Taxes on February 17,
1998, February 1, 1999, and February 4, 2000, in that order.

 In November 13, 2000 respondent issued a duly signed letter of Authority covering the
examination of petitioner’s books of accounts and other accounting records for income
and withholding taxes for the period of 1997 to 1999. The LOA was received on
November 14, 2000. Petitioner cooperated in the audit and investigation by the BIR by
submitting the required documents on December 5, 2000.

 On October 19, 2001, respondent sent a Notice of Informal Conference which was
received by petitioner in November 2001; indicating the allegedly income and
withholding tax liabilities of petitioner for 1997 to 1999. In response, the petitioner sent a
letter dated November 26, 2001 to respondent maintaining its indifference to the BIR’s
finding and requesting details of the assessment.

 On December 13, 2001, petitioner executed a Waiver of the Defense of Prescription

under the Statute of Limitations good until March 29, 2002.

 On February 27, 2002, a letter was sent by petitioner to respondent requesting a

detailed computation of the alleged 1997, 1998 and 1999 deficiency withholding tax
on compensation.

 On February 28, 2002, respondent issued a Preliminary Assessment Notice (PAN).

The PAN was received by petitioner on April 9, 2002, which was protested on April 18,
2002. Respondent's Reply dated May 27, 2002, contained the explanation of the legal
basis of the issuance of the questioned tax assessments.
  However, on July 8, 2002, respondent dismissed petitioner's protest and
recommended the issuance of a Final Assessment Notice.

 Consequently, on September 15, 2002, petitioner received a demand letter and

assessments notices (Final Assessment Notices) for the alleged 1997, 1998, and 1999
deficiency withholding tax in the amount of [P]3,760,225.69, as well as deficiency
income tax covering the years 1998 to 1999 in the amount of [P]440,545.71, or in the
aggregate amount of [P]4,200,771.40.

 Petitioner filed its protest and Supplemental Protest to the Final Assessment Notices
on October 14, 2002 and November 4, 2002, respectively. But on the Final Decision on
Disputed Assessment issued on April 10, 2003, petitioner was still held liable for the
alleged tax liabilities

 On May 29, 2003, petitioner filed a Petition for Review with the CTA. It was partially
granted by the CTA on May 27, 2008.

 Both parties sought for reconsideration of the said decision but in January 19, 2009, the
CTA denied the CIR’s motion and partially granted SAMELCO-I’s motion.

 CIR contends that SAMELCO-I is liable to pay MCIT and that it is also liable to pay the
total deficiencies for Taxable Years of 1997 to 1999. SAMELCO-I then contends that
the 1997 and 1998 assessments of withholding tax on compensation have already
prescribed because the waiver validly executed was good only until March 29, 2002
and that the CIR cannot validly assess within the 10 year prescriptive period
because the notice of informal conference, PAN, formal letter of demand and
assessment notice did not mention that it was due to alleged false withholding tax
returns filed by petitioner to justify the application of the 10 year prescriptive
period.

 The CTA ruled that SAMELCO-I is exempt from MCIT and that the due process was
observed in the issuance of the assessments on deficiency and that the 1997 and 1998
assessments have not prescribed.

Hence the petition.

Issues:

 Was there a fraudulent return?

 Whether or not the assessment period already prescribed.
 Did the BIR observed due process in assessing for the tax deficiency of SAMELCO-I?

Held:

 Yes, there was a fraudulent return. It was the petitioner’s substantial under declaration of
withholding taxes in the amount of P 2,690,850.91 which constituted the “falsity” in the
subject returns giving the respondent the benefit of the period under Section 222 of the
 NIRC of 1997 to assess the correct amount of tax at any time within the 10 years after the
discovery of falsity, fraud or omission.

A careful examination of the evidence on record yields to no other conclusion but that
petitioner failed to withhold taxes from its employees' 13th month pay and other benefits
in excess of thirty thousand pesos (P30,000.00) amounting to P2,690,850.91 for the
taxable years 1997 to 1999 — resulting to its filing of the subject false returns. Petitioner
failed to refute this finding, both in fact and in law, before the courts a quo.

 No, it has not prescribed, under Sec. 222 of the NIRC of 1997.

In the case of a false or fraudulent return with intent to evade tax or of failure to file a
return, the tax may be assessed, or a proceeding in court for the collection of such tax
may be filed without assessment, at any time within ten (10) years after the discovery of
the falsity, fraud or omission : Provided, that in a fraud assessment which has become
final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.

 Yes, there was due process.

Both Section 228 of the NIRC of 1997 and Section 3.1.4 of RR No. 12-99 clearly require
the written details on the nature, factual and legal bases of the subject deficiency
tax assessments.

SEC. 228. Protesting of Assessment. 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.

Revenue Regulations (RR) No. 12-99 which states that 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.

In this case, we agree with the respondent that petitioner was sufficiently apprised of the
nature, factual and legal bases, as well as how the deficiency taxes being assessed against
it were computed. Records reveal that on October 19, 2001, prior to the conduct of an
informal conference, petitioner was already informed of the results and findings of the
investigations made by the respondent, and was duly furnished with a copy of the
summary of the report submitted by Revenue Officer Elisa G. Ponferrada-Rapatan of the
Special Investigation Division. Said summary report contained an explanation of
Findings of Investigation stating the legal and factual bases for the deficiency assessment.
In a letter dated February 27, 2002 petitioner requested for copies of working papers
indicating how the deficiency withholding taxes were computed.

On April 9, 2002, petitioner received the PAN dated February 28, 2002 which contained
the computations of its deficiency income and withholding taxes. Attached to the PAN
was the detailed explanation of the particular provision of law and revenue regulation
violated.

Although the FAN and demand letter issued to petitioner were not accompanied by a
written explanation of the legal and factual bases of the deficiency taxes assessed against
the petitioner, the records showed that respondent in its letter dated April 10, 2003
responded to petitioner's October 14, 2002 letter-protest, explaining at length the
factual and legal bases of the deficiency tax assessments and denying the protest.

Considering the foregoing exchange of correspondence and documents between the

parties, we find that the requirement of Section 228 was substantially complied with.
Respondent had fully informed petitioner in writing of the factual and legal bases of
the deficiency taxes assessment, which enabled the latter to file an "effective" protest,
much unlike the taxpayer's situation in Enron. Petitioner's right to due process was thus
not violated.
PILMICO-MAURI FOODS CORPORATION vs CIR
G.R. No. 175651, September 14, 2016
Doctrine(s):
 When a taxpayer claims a deduction, he must point to some specific provision of the
statute in which that deduction is authorized and must be able to prove that he is entitled
to the deduction which the law allows.
 Statutory test of deductibility where it is axiomatic that to be deductible as a business
expense, three conditions are imposed, namely: (1) the expense must be ordinary and
necessary; (2) it must be paid or incurred within the taxable year, and (3) it must be paid
or incurred in carrying on a trade or business.
Facts:
[PMFC] is a corporation, organized and existing under the laws of the Philippines. The
books of accounts of [PMFC] pertaining to 1996 were examined by the [CIR] thru Revenue
Officer Eugenio D. Maestrado of Revenue District No. 81 (Cebu City North District) for
deficiency income, value-added [tax] (VAT) and withholding tax liabilities.
The foregoing Assessment Notices were all received by [PMFC] on December 1, 1998.
On December 29, 1998, [PMFC] filed a protest letter against the aforementioned deficiency tax
assessments through the Regional Director, Revenue Region No. 13, Cebu City.
In a final decision of the [CIR] on the disputed assessments dated July 3, 2000, the
deficiency tax liabilities of [PMFC] were reduced from P9,761,750.02 to P3,020,259.30.
PMFC filed its Petition for Review on August 9, 2000.After trial on the merits, the [CTA]
in Division rendered the assailed Decision affirming the assessments but in the reduced amount
of P2,804,920.36 (inclusive of surcharge and deficiency interest) representing [PMFC's] Income,
VAT and Withholding Tax deficiencies for the taxable year 1996 plus 20% delinquency interest
per annum until fully paid.
From the total purchases of P5,893,694.64 which have been disallowed, it seems that a
portion thereof amounting to P1,280,268.19 has no supporting sales invoices because of
[PMFC's] failure to present said invoices. The sales invoices contain alterations particularly in
the name of the purchaser giving rise to serious doubts regarding their authenticity and if they
were really issued to [PMFC]. Besides, in order to support its claim, [PMFC] should have
presented the following vital documents, namely, 1) Written Offsetting Agreement; 2) proof of
payment by [PMFC] to Pilmico Foods Corporation; and 3) Financial Statements for the year
1996 of Pilmico Foods Corporation to establish the fact that Pilmico Foods Corporation did not
deduct the amount of raw materials being claimed by [PMFC].Considering that the official
receipts and sales invoices presented by [PMFC] failed to comply with the requirements of
Section 238 of the NIRC of 1977, the disallowance by the [CIR] of the claimed deduction for
raw materials is proper.
[PMFC] filed a Motion for Partial Consideration on January 21, 2005 but [PMFC's]
Motion for Reconsideration was denied in a Resolution dated May 19, 2005 for lack of merit.
Unperturbed, PMFC then filed a petition for review before the CTA en banc. CTA en banc
denied the motion for reconsideration.
Issue:
Whether The nature of evidence required to prove an ordinary expense like raw materials is
governed by Section 29 of the 1977 National Internal Revenue Code (NIRC) and not by Section
238 as found by the CTA.

Ruling:
 It is undisputed that among the evidence adduced by PMFC on it behalf are the official
receipts of alleged purchases of raw materials. Thus, the CTA cannot be faulted for
making references to the same, and for applying Section 238 of the 1977 NIRC in
rendering its judgment. Required or not, the official receipts were submitted by PMFC as
evidence. Inevitably, the said receipts were subjected to scrutiny, and the CTA
exhaustively explained why it had found them wanting.
 Not only must the taxpayer meet the business test, he must substantially prove by
evidence or records the deductions claimed under the law, otherwise, the same will be
disallowed. The mere allegation of the taxpayer that an item of expense is ordinary and
necessary does not justify its deduction.
 It is, thus, clear that Section 29 of the 1977 NIRC does not exempt the taxpayer from
substantiating claims for deductions. While official receipts are not the only pieces of
evidence which can prove deductible expenses, if presented, they shall be subjected to
examination. PMFC submitted official receipts as among its evidence, and the CTA
doubted their veracity. PMFC was, however, unable to persuasively explain and prove
through other documents the discrepancies in the said receipts. Consequently, the CTA
disallowed the deductions claimed, and in its ruling, invoked Section 238 of the 1977
NIRC considering that official receipts are matters provided for in the said section.
 Further, revenue laws are not intended to be liberally construed. Taxes are the lifeblood
of the government and in Holmes' memorable metaphor, the price we pay for civilization;
hence, laws relative thereto must be faithfully and strictly implemented.35 While the
1977 NIRC required substantiation requirements for claimed deductions to be allowed,
PMFC insists on leniency, which is not warranted under the circumstances.
DOCTRINE: Tax Assessment

TITLE: CIR v Pascor Realty and Development Corporation

FACTS:
By virtue of Letter Authority, BIR Commissioner Ong authorized Revenue officers Que,
Estorco, and Savellano to examine the books of accounts and other accounting records of PRDC
(Pascor Realty and Development Corporation). The examination resulted in a recommendation
for issuance of an assessment.

On March 23, 1995, PRDC received a subpoena from the DOJ in connection with the criminal
complaint filed by the (BIR) against them.

On May 17, 1995, the CIR denied in a letter the urgent request for
reconsideration/reinvestigation of the PRDC on the ground that no formal assessment has as yet
been issued by the Commissioner.
PRDC also elevated the Decision of the CIR to the CTA on a petition for review.

On September 6, 1995, the CIR filed a Motion to Dismiss the petition on the ground that the
CTA has no jurisdiction over the subject matter of the petition, as there was no formal
assessment issued against the petitioners.

In a resolution dated January 25, 1996, the CTA denied the said motion to dismiss and ordered
the CIR to file an answer within 30 days from receipt of said resolution

On January 31, 1996, the CIR received the resolution but did not file an answer nor move to
reconsider the resolution.

On June 7, 1996, the CIR instead filed a petition alleging that:

 Respondent CTA acted with grave abuse of discretion and without jurisdiction in
considering the affidavit/report of the revenue officer and the indorsement of said report
to the DOJ as assessment which may be appealed to the CTA
 Respondent CTA acted with grave abuse of discretion in considering the denial by CIR of
PRDC’s Motion for Reconsideration as a final decision which may be appealed to the
CTA

The CTA denied the motion to dismiss and stated that:

 the criminal complaint for tax evasion is the assessment issued
 the criminal case for tax evasion is already an assessment – therefore, the Joint Affidavit
of Revenue Examiners contains the details of the assessment like the kind and amount of
tax due, and the period covered.
 As far as this Court is concerned, the amount and kind of tax due, and the period covered,
are sufficient details needed for an 'assessment'.
 Based on the meaning of Assessment on the following:
o Assessment is laying a tax. Johnson City v. Clinchfield R. Co
o The word assessment when used in connection with taxation, may have more than
one meaning. The ultimate purpose of an assessment to such a connection is to
ascertain the amount that each taxpayer is to pay. More commonly, the word
 'assessment' means the official valuation of a taxpayer's property for purpose of
taxation. State vs. New York

Based on this meaning, it can be gleaned that an assessment simply states how
much tax is due from a taxpayer. Thus, based on these definitions, the details of
the tax as given in the Joint Affidavit of respondent's examiners, which was
attached to the tax evasion complaint, more than suffice to qualify as an
assessment. Therefore, this assessment having been disputed by petitioners, and
there being a denial of their letter disputing such assessment, this Court
unquestionably acquired jurisdiction over the instant petition for review.

The CA sustained the CTA and dismissed the petition.

ISSUE:
1.) Whether the revenue officers' Affidavit-Report, which was attached to the criminal
Complaint filed with the DOJ, constituted an assessment that could be questioned before
the CTA?
2.) WON an assessment is necessary before filing a criminal complaint

RULING:
1.) No, it does not constitute an assessment.

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a
specific definition or form of an assessment. However, the NIRC defines the specific functions
and effects of an assessment.

An assessment must be sent to and received by a taxpayer, and must demand payment of the
taxes described therein within a specific period. Thus, the NIRC imposes a 25 percent penalty, in
addition to the tax due, in case the taxpayer fails to pay the deficiency tax within the time
prescribed for its payment in the notice of assessment. Likewise, an interest of 20 percent per
annum, or such higher rate as may be prescribed by rules and regulations, is to be collected from
the date prescribed for its payment until the full payment.

It should also be stressed that the said document is a notice duly sent to the taxpayer. Indeed, an
assessment is deemed made only when the collector of internal revenue releases, mails or sends
such notice to the taxpayer.

Hence, the purpose of the Joint Affidavit was merely to support and substantiate the Criminal
Complaint for tax evasion. Clearly, it was not meant to be a notice of the tax due and a demand
to the private respondents for payment thereof. What private respondents received was a notice
from the DOJ that a criminal case for tax evasion had been filed against them, not a notice that
the Bureau of Internal Revenue had made an assessment.

2.) No, an assessment is not necessary in filing a criminal complaint.

Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is
submitted or in cases of failure to 􏰀le a return such as this case, proceedings in court may be
commenced without an assessment.
G.R. No. 120935 May 21, 2009

LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE LOS REYES,

in their capacities as President, Treasurer and Secretary of Adamson Management
Corporation, Petitioners,
vs.
COURT OF APPEALS and LIWAYWAY VINZONS-CHATO, in her capacity as
Commissioner of the Bureau of Internal Revenue, Respondents.

Facts:
On June 20, 1990, Lucas Adamson and Adamson Management Corporation (AMC) sold
131,897 common shares of stock in Adamson and Adamson, Inc. (AAI) to APAC Holding
Limited (APAC) valued at P7,789,995.00. On June 22, 1990, P159,363.21 was paid as capital
gains tax for the transaction. On October 12, 1990, AMC sold to APAC another 229,870
common shares of stock in AAI for P17,718,360.00. AMC paid the capital gains tax of
P352,242.96. On October 15, 1993, the CIR issued a Notice of Taxpayer to AMC, Lucas G.
Adamson, Therese June D. Adamson and Sara S. de los Reyes, informing them of deficiencies
on their payment of capital gains tax and Value Added Tax (VAT). The notice contained a
schedule for preliminary conference. Petitioners file a Petition for Review with the CTA, but the
CIR moved to dismiss on the ground that it was premature, as she had not yet issued a formal
assessment. CTA denied the Motion and considered the criminal complaint filed by the CIR as
an implied formal assessment.

Issue:
1. Whether or not the CIR issued an assessment
2. Whether or not a criminal prosecution for tax evasion be preceded by a deficiency tax
assessment

Ruling:
1. NO - The recommendation letter of the Commissioner cannot be considered a formal
assessment. Even a cursory perusal of the said letter would reveal three key points: (1) It
was not addressed to the taxpayers; (2) there was no demand made on the taxpayers to
pay the tax liability, nor a period for payment set therein; (3) the letter was never mailed
or sent to the taxpayers by the Commissioner. In fine, the said recommendation letter
served merely as the prima facie basis for filing criminal information.
2. YES - When fraudulent tax returns are involved as in the cases at bar, a proceeding in
court after the collection of such tax may be begun without assessment. Here, the private
respondents had already filed the capital gains tax return and the VAT returns, and paid
the taxes they have declared due therefrom. Upon investigation of the examiners of the
BIR, there was a preliminary finding of gross discrepancy in the computation of the
capital gains taxes due from the sale of two lots of AAI shares, first to APAC and then to
APAC Philippines, Limited. The examiners also found that the VAT had not been paid
for VAT-liable sale of services for the third and fourth quarters of 1990. Arguably, the
gross disparity in the taxes due and the amounts actually declared by the private
respondents constitutes badges of fraud.

ESTATE OF JULINA VS. CIR

Facts:

During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs were managed
by the Philippine Trust Company (Philtrust). 2 days after her death Philtrust filed her Income
Tax without stating the decedent died. Philtrust also filed a verified petition for appointment as
Special Administrator which was denied. The court a quo appointed one of the heirs as Special
Administrator. BIR assessed the estate and found a deficiency in income tax the BIR sent on
November 18, 1982 by registered mail a demand letter and Assessment Notice addressed to the
decedent c/o Philippine Trust Company. On June 18, 1984 issued warrants of distraint and levy
to enforce collection. Heir filed an opposition on May 16, 1985 stating that there was no proper
service of Assessment

Issue:

Whether or not the service of deficiency tax assessment through the Philippine Trust Company
was a valid.

Held:

No. The relationship between the decedent and Philtrust was one of agency, which is a personal
relationship between agent and principal. The mere fact that Philtrust continued to act as her
agent could not be revived such relationship.

In CIR vs. Pascor Realty assessment must in consonance with due process requires that it must
be served on and received by the taxpayer. In this case it was served to Philtrust a disinterested
party. In Republic vs. DE le Rama notice must be sent to the administrator of the estate. There
was therefore no assessment served on the Estate as to the alleged underpayment of tax.
DOCTRINE:

For the purpose of safeguarding taxpayers from any unreasonable examination,

investigation or assessment, our tax law provides a statute of limitations in the collection of
taxes. Thus, the law on prescription, being a remedial law, should be liberally construed in order
to afford such protection. As a corollary, the exceptions to the law on prescription should
perforce be strictly construed.

TITLE: COMMISSIONER OF INTERNAL REVENUE vs. B.F. GOODRICH PHILS.,

INC.

FACTS:

BF Goodrich Phils., Inc. (now Sime Darby International Tire Co., Inc.), an American-
owned and controlled corporation, purchased certain parcels of land in Tumajubong, Basilan in
order to comply with the Central Bank requirement of developing a rubber plantation. It, then,
sold the property to Siltown Realty Philippines, Inc. for ₱500,000.00 on January 21, 1974 based
on the opinion of the Justice Secretary that the expiration of the Parity Amendment would result
to the lost of ownership rights of Americans over public agricultural lands. The land sold was
leased back to BF Goodrich for a period of 25 years, extendible for another 25 years at the
latter’s option.

As per Letter of Authority No. 10115, the BIR examined the books and accounts of BF
Goodrich for the taxable year 1974. BF Goodrich was assessed in April 23, 1975 and paid for a
deficiency income tax of ₱6,005.35. Also, as per Letters of Authority Nos. 074420-RR and
074421-RR, as well as Memorandum Authority Reference No. 749157, Siltown was examined
and was issued an assessment dated October 10, 1980 for a deficiency donor’s tax of
₱1,020,850.00, in relation to the sales of BF Goodrich’s Basilan property, the consideration of
which was deemed insufficient. The difference between the fair market value and the actual
purchase price was deemed to be a taxable donation.

In a letter dated November 24, 1980, BF Goodrich contested the assessment. However,
on April 9, 1981, it received another assessment dated March 16, 1981 increasing the amount
demanded to ₱1,092,949.00. BF Goodrich appealed the correctness and legality of the last two
assessments to the CTA, which modified the assessment to amount to ₱1,311,179.01 plus 10%
surcharge and 20% annual interest from March 16, 1981 until fully paid. The case was then
elevated to the Court of Appeals, which reversed the CTA decision. Hence, this Petition for
Review under Rule 45 of the Rules of Court.

ISSUE:

Whether or not the BIR’s right to assess herein deficiency donor’s tax had already
prescribed at the time of the assessment.

Whether or not the deficiency donor’s tax assessment for 1974 was valid and in
accordance with law.
RULING:

The Petition for Review was denied, and the assailed Decision of the Court of Appeals
was affirmed.
 Factual findings of the CTA are generally not disturbed on appeal when supported by
substantial evidence and in the absence of gross error or grave abuse of discretion. However, the
CTA’s application of the law to the facts of this controversy is an altogether different matter, for
it involves a legal question.

Sec. 331 of the NIRC provides for the five-year prescriptive period in the assessment of
taxes. Applying this provision, the October 16, 1980 and the March 16, 1981 assessments were
clearly issued beyond this five-year statute of limitations. Further, Sec. 15 of the NIRC, which
was considered in the CTA’s ruling, provides only for the allowance of basing the assessment on
the best evidence obtainable in case of falsity, incompleteness and error. This provision does not
provide for an exception to the statute of limitations on the issuance of an assessment.
Furthermore, Sec. 332 of the NIRC provides for the exceptions to the prescriptive period, such as
the submission of a false or fraudulent return with intent to evade a tax, or the failure to file a
return. However, the sale of the property for a price lesser that its declared fair market value does
not, on its own, constitute a false return which contains wrong information due to mistake,
carelessness or ignorance.

It is possible that real property may be sold for less than adequate consideration for a
bona fide business purpose. In this case, BF Goodrich was compelled to sell the property even at
a price less than its market value in order to minimize its losses because it would have lost all
ownership rights over it upon the expiration of the Parity Amendment. Further, it being able to
lease the property for 25 years, renewable for another 25 years can be regarded as another
consideration on the price. Thus, the sale of the subject property for a price below the declared
fair market value does not, by itself, justify a finding of a false return, especially when BF
Goodrich had, in fact, declared the sale in its 1974 income tax return submitted to the BIR, for
which the latter could have issued the questioned assessments within the five-year prescriptive
period.

Since the BIR failed to either demonstrate that BF Goodrich had filed a fraudulent return
with the intent to evade tax or that the latter had failed to file a return at all, the period for
assessments has obviously prescribed. Such instances of negligence or oversight on the part of
the BIR cannot prejudice taxpayers, considering that the prescriptive period was precisely
intended to give them peace of mind.

Therefore, the deficiency donor’s tax assessment for 1974 was not valid for having been
issued outside the five-year prescriptive period.
#21 CIR v Philippine Daily Inquirer, Inc.; G.R. No. 213943; 22 Mar 2017

PDI received a letter dated 30 June 2006 from the BIR where the BIR alleged that there was an
under-declaration of domestic purchases from its suppliers amounting to P317,705,610.52. The
BIR invited PDI to reconcile the deficiencies.
PDI submitted reconciliation reports, attached to its letters dated 22 August 2006 and 19
December 2006, to BIR. On 21 March 2007, PDI executed a Waiver of the Statute of Limitation
(First Waiver) consenting to the assessment and/or collection of taxes for the year 2004 which
may be found due after the investigation, at any time before or after the lapse of the period of
limitations fixed by Sections 203 and 222 of the National Internal Revenue Code (NIRC) but not
later than 30 June 2007.
The first waiver was executed on 21 March 2007 and received on 23 March 2007. The second
was executed on 05 June 2007 and accepted on 08 June 2007. The third was executed on 12
December 2007 and accepted on 20 December 2007.
The first and second waivers were executed in three copies, but the office accepting were not
provided with their respective third copies, as these were still attached to the docket of the case.
The third waiver was not executed in three copies.
In a Preliminary Assessment Notice (PAN) dated 15 October 2007 issued by the BIR-LTAID,
PDI was assessed for alleged deficiency income tax and VAT for taxable year 2004.

ISSUE: 1.WON the three-year prescriptive period was extended?

2.WON the tax declarations of PDI are fraudulent?

HELD: NO NO
1. The failure to provide the office accepting the waiver with the third copy violates RMO 20-90
and RDAO 05-01. Therefore, the first waiver was not properly executed and thus could not have
extended the three-year prescriptive period to assess and collect taxes for the year 2004. To make
matters worse, the CIR committed the same error in the execution of the second waver. The third
waiver still failed to extend the prescriptive period because it was not executed in three copies.
The defects in the waivers resulted to the non-extension of the period to assess or collect taxes,
and made the assessments issued by the BIR beyond the three-year prescriptive period void.
Since the three Waivers in this case are defective, they do not produce any effect and did not
suspend the three-year prescriptive period under Section 203 of the NIRC. As such, we sustain
the cancellation of the Formal Letter of Demand dated 11 March 2008 and Assessment for
taxable year 2004 issued by the BIR against PDI.
2 NO, The CTA First Division then ruled that in this case, PDI introduced proof that the
determination made by the CIR on the supposed overdeclared input tax of ₱l,601,652.43 is not
correct.
Such contention was made by CIR so that “Section 222. Exceptions as to Period of Limitation of
Assessment and Collection of Taxes.” Can be applied.
In the case of a false or fraudulent return with intent to evade tax or failure to file a
return, the tax may be assessed, or a proceeding in court for the collection of such tax
may be filed without assessment, at any time within ten (10) years after the discovery of
the falsity, fraud or omission; Provided, That in a fraud assessment which has become
final and executor[y], [t]he fact of fraud shall be judicially taken cognizance of in the
civil and criminal action for the collection thereof.'
The CTA First Division ruled that the CIR failed to disprove the findings submitted by the
Independent Certified Public Accountant (ICPA) that supported PDI's assertions.
WHEREFORE, we DENY the petition.
DOCTRINE: Doctrine of estoppel may apply against petitioner in questioning the validity of
the Waivers of the Defense of Prescription upon payment of the revised assessments of tax due.

TITLE: Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue GR No

170257

FACTS:
On Aug 15, 1996, RCBC received a letter of authority issues by the CIR Chato, authorizing a
special audit team to examine the books of account and other accounting records of RCBC from
Jan 1, 1994 to Dec 31, 1995. On Jan 1997, RCBC executed two Waivers of the Defense of
Prescription under the Statute of Limitations covering the internal revenue taxes due for the years
1994 and 1995. It was provided under Section 203 of the Tax Code that the period of limitation
upon assessment and collection is three (3) years except as provided in Section 222.
On January 2007, RCBC received a Formal Letter of Demand together with Assessment Notices
for the total deficiency tax of P4,170,058,634.49. RCBC disagreed with it and thus filed a protest
of Feb 2004. On December 2006, after the reinvestigation, the amount was reduced to
P303,160,496.55, which RCBC immediately paid.
Further assessments for the deficiency onshore tax and documentary stamp tax remained unpaid
as RCBC refused to do so as RCBC argued that the waivers of the Statute of Limitations in Jan
1997 were not valid as those were not signed or conformed to by the CIR as required under
Section 222 (b) of the Tax Code.
Consequently, RCBC filed its Motion for Reconsideration.

ISSUE: WON the waivers of the defense of prescription were valid thus period of limitation of
assessment and collection has prescribed.

HELD: YES, the waivers were valid and the period of limitation of assessment and collection
has not prescribed.
RCBC assails the validity of the waivers on the ground that those were merely attested to by
Esquivas, 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. It further argued that the
doctrine 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.
The Court disagrees. Under Art 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 disapproved 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.
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 action
effectively 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.
Ungab vs Cusi
Facts :
In 1974, BIR Examiner Ben Garcia examined the income tax returns filed by the herein
petitioner, Quirico P. Ungab, for the calendar year ending December 31, 1973. In the course of
his examination, he discovered that the petitioner failed to report his income derived from sales
of banana saplings.
As a result, the BIR District Revenue Officer at Davao City sent a "Notice of Taxpayer" to the
petitioner informing him that there is due from him (petitioner) the amount of P104,980.81,
representing income, business tax and forest charges for the year 1973 and inviting petitioner to
an informal conference where the petitioner, duly assisted by counsel, may present his objections
to the findings of the BIR Examiner. Upon receipt of the notice, the petitioner wrote the BIR
District Revenue Officer protesting the assessment, claiming that he was only a dealer or agent
on commission basis in the banana sapling business and that his income, as reported in his
income tax returns for the said year, was accurately stated.
BIR Examiner Ben Garcia, however, was fully convinced that the petitioner had filed a
fraudulent income tax return so that he submitted a "Fraud Referral Report," to the Tax Fraud
Unit of the Bureau of Internal Revenue. After examining the records of the case, the Special
Investigation Division of the Bureau of Internal Revenue found sufficient proof that the herein
petitioner is guilty of tax evasion for the taxable year 1973 and recommended his prosecution.
Ungab then filed a motion to quash the information on the ground that his pending protest with
the CIR has not yet been acted upon hence the assessment is not yet final and executory and
therefore the trial court has no jurisdiction yet over the criminal cases.

Issue :
Whether or not the contention of the criminal prosecution is premature since the CIR has not yet
resolved the protest against the tax assessment tenable?

Ruling :
No. The contention is without merit. What is involved here is not the collection of taxes where
the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax
Appeals, but a criminal prosecution for violations of the National Internal Revenue Code which
is within the cognizance of courts of first instance. While there can be no civil action to enforce
collection before the assessment procedures provided in the Code have been followed, there is no
requirement for the precise computation and assessment of the tax before there can be a criminal
prosecution under the Code.
An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to
defeat and evade the income tax. A crime is complete when the violator has knowingly and
willfully filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the
crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate
return, and the government's failure to discover the error and promptly to assess has no
connections with the commission of the crime.
DOCTRINE: A petition before the CTA may only be made after a whole or partial denial of the
protest by the CIR or the CIR’s authorized representative.

G.R. No. 208731

PHILIPPINE AMUSEMENT AND GAMING CORPORATION, Petitioner,
vs.
BUREAU OF INTERNAL REVENUE, COMMISSIONER OF INTERNAL REVENUE,
and REGIONAL DIRECTOR, REVENUE REGION No. 6, Respondents.
FACTS:
[PAGCOR] provides a car plan program to its qualified officers under which sixty percent (60%)
of the car plan availment is shouldered by PAGCOR and the remaining forty percent (40%) for
the account of the officer, payable in five (5) years.
On October 10, 2007, [PAGCOR] received a Post Reporting Notice dated September 28, 2007
from BIR Regional Director Alfredo Misajon [RD Misajon] of Revenue Region 6, Revenue
District No. 33, for an informal conference to discuss the result of its investigation on
[PAGCOR's] internal revenue taxes in 2004. The Post Reporting Notice shows that [PAGCOR]
has deficiencies on Value Added Tax (VAT), Withholding Tax on VAT (WTV), Expanded
Withholding Tax (EWT), and Fringe Benefits Tax (FBI).
Subsequently, the BIR abandoned the claim for deficiency assessments on VAT, WTV and EWT
in the Letter to [PAGCOR] dated November 23, 2007 in view of the principles laid down in
Commissioner of Internal Revenue vs. Acesite Hotel Corporation [G.R. No. 147295] exempting
[PAGCOR] and its contractors from VAT. However, the assessment on deficiency FBT subsists
and remains due to date.
On January 17, 2008, [PAGCOR] received a Final Assessment Notice [FAN] dated January 14,
2008, with demand for payment of deficiency FBT for taxable year 2004 in the amount of
P48,589,507.65.
On January 24, 2008, [PAGCOR] filed a protest to the FAN addressed to [RD Misajon] of
Revenue Region No. 6 of the BIR.
On August 14, 2008, [PAGCOR] elevated its protest to respondent CIR in a Letter dated August
13, 2008, there being no action taken thereon as of that date.
In a Letter dated September 23, 2008 received on September 25, 2008, [PAGCOR] was informed
that the Legal Division of Revenue Region No. 6 sustained Revenue Officer Ma. Elena Llantada
on the imposition of FBT against it based on the provisions of Revenue Regulations (RR) No. 3-
98 and that its protest was forwarded to the Assessment Division for further action.
On November 19, 2008, [PAGCOR] received a letter from the OIC-Regional Director, Revenue
Region No. 6 (Manila), stating that its letter protest was referred to Revenue District Office No.
33 for appropriate action.
On March 11, 2009, [PAGCOR] filed the instant Petition for Review alleging respondents'
inaction in its protest on the disputed deficiency FBT.
The CTA 1st Division's Ruling
The CTA 1st Division ruled that RD Misajon's issuance of the FAN was a valid delegation of
authority, and PAGCOR's administrative protest was validly and seasonably filed on 24 January
2008. The petition for review filed with the CTA 1st Division, however, was filed out of time.
In accordance with Section 228 of the Tax Code, respondent CIR or her duly authorized
representative had 180 days or until July 22, 2008 to act on the protest. After the expiration of
the 180-day period without action on the protest, as in the instant case, the taxpayer, specifically
[PAGCOR], had 30 days or until August 21, 2008 to assail the non-determination of its protest.
And as provided in Section 228 of the NIRC, the failure of [PAGCOR] to appeal from an
assessment on time rendered the same final, executory and demandable. Consequently,
[PAGCOR] is already precluded from disputing the correctness of the assessment. The failure to
comply with the 30-day statutory period would bar the appeal and deprive the Court of Tax
Appeals of its jurisdiction to entertain and determine the correctness of the assessment.
Since the car plan provided by [PAGCOR] partakes of the nature of a personal expense
attributable to its employees, it shall be treated as taxable fringe benefit of its employees,
whether or not the same is duly receipted in the name of the employer. Therefore, [PAGCOR's]
obligation as an agent of the government to withhold and remit the final tax on the fringe benefit
received by its employees is personal and direct. The government's cause of action against
[PAGCOR] is not for the collection of income tax, for which [PAGCOR] is exempted, but for
the enforcement of the withholding provision of the 1997 NIRC, compliance of which is
imposed on [PAGCOR] as, the withholding agent, and not upon its employees. Consequently,
[PAGCOR's] non-compliance with said obligation to withhold makes it personally liable for the
tax arising from the breach of its legal duty.
PAGCOR filed a motion for reconsideration, dated 26 July 2011.
In the meantime, the CIR sent PAGCOR a letter dated 18 July 2011. The letter stated that
PAGCOR should be subjected to the issuance of a Warrant of Distraint and/or Levy and a
Warrant of Garnishment because of its failure to pay its outstanding delinquent account in the
amount of P46,589,507.65, which included surcharge and interest. Settlement of the tax liability
is necessary to obviate the issuance of a Warrant of Distraint and/or Levy and a Warrant of
Garnishment.
Subsequently, PAGCOR filed a reply dated 28 September 2011 to ask that an order be issued
directing respondents to hold in abeyance the execution of the Warrant of Distraint and/or Levy
and the Warrant of Garnishment, as well as to suspend the collection of tax insofar as the 2004
assessment is concerned. PAGCOR also asked for exemption from filing a bond or depositing
the amount claimed by respondents.
PAGCOR filed a petition for review with urgent motion to suspend tax collection with the CTA
En Banc on 23 November 2011.
The CTA En Banc's Ruling
The CTA En Banc dismissed PAGCOR's petition for review and affirmed the CTA 1st
Division's Decision and Resolution. PAGCOR filed its Motion for Reconsideration on 22 March
2013. The CTA En Banc denied PAGCOR's motion in a Resolution dated 23 July 2013.
PAGCOR filed the present petition for review on 14 October 2013.
ISSUE: Whether or not the CTA En Banc gravely erred in affirming the CTA 1st Division's
Decision dismissing the Petition for Review for having been filed out of time.
RULING: The petition has no merit. The CTA En Banc and 1st Division were correct in
dismissing PAGCOR's petition. However, the dismissal should be on the ground of premature,
rather than late, filing.
The relevant portions of Section 228 of the NIRC of 1997 provide:
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: x x x.
xxxx
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.
Section 3.1.5 of Revenue Regulations No. 12-99, implementing Section 228 above, provides:
3.1.5. Disputed Assessment. - The taxpayer or his duly authorized representative may protest
administratively against the aforesaid formal letter of demand and assessment notice within thirty
(30) days from date of receipt thereof.xx x.
xxxx
If the taxpayer fails to file a valid protest against the formal letter of demand and assessment
notice within thirty (30) days from date of receipt thereof, the assessment shall become final,
executory and demandable.
In general, if the protest is denied, in whole or in part, by the Commissioner or his duly
authorized representative, the taxpayer may appeal to the Court of Tax Appeals within thirty (30)
days from date of receipt of the said decision, otherwise, the assessment shall become final
executory and demandable: Provided, however, that if the taxpayer elevates his protest to the
Commissioner within thirty (30) days from date of receipt of the final decision of the
Commissioner's duly authorized representative, the latter's decision shall not be considered final,
executory and demandable, in which case, the protest shall be decided by the Commissioner.
If the Commissioner or his duly authorized representative fails to act on the taxpayer's protest
within one hundred eighty (180) days from date of submission, by the taxpayer, of the required
documents in support of his protest, the taxpayer may appeal to the Court of Tax Appeals within
thirty (30) days from the lapse of the said 180-day period, otherwise the assessment shall become
final, executory and demandable.
Following the verba legis doctrine, the law must be applied exactly as worded since it is clear,
plain, and unequivocal. A textual reading of Section 3.1.5 gives a protesting taxpayer like
PAGCOR only three options:
1. If the protest is wholly or partially denied by the CIR or his authorized representative,
then the taxpayer may appeal to the CTA within 30 days from receipt of the whole or
partial denial of the protest.
 2. If the protest is wholly or partially denied by the CIR's authorized representative, then
the taxpayer may appeal to the CIR within 30 days from receipt of the whole or partial
denial of the protest.
3. If the CIR or his authorized representative failed to act upon the protest within 180
days from submission of the required supporting documents, then the taxpayer may
appeal to the CTA within 30 days from the lapse of the 180-day period.
To further clarify the three options: A whole or partial denial by the CIR's authorized
representative may be appealed to the CIR or the CTA. A whole or partial denial by the CIR may
be appealed to the CTA. The CIR or the CIR's authorized representative's failure to act may be
appealed to the CTA. There is no mention of an appeal to the CIR from the failure to act by the
CIR's authorized representative.
PAGCOR did not wait for the RD or the CIR's decision on its protest. PAGCOR made separate
and successive filings before the RD and the CIR before it filed its petition with the CTA. We
shall illustrate below how PAGCOR failed to follow the clear directive of Section 228 and
Section 3.1.5.
PAGCOR's protest to the RD on 24 January 2008 was filed within the 30-day period prescribed
in Section 228 and Section 3.1.5. The RD did not release any decision on PAGCOR's protest;
thus, PAGCOR was unable to make use of the first option as described above to justify an appeal
to the CTA. The effect of the lack of decision from the RD is the same, whether we consider
PAGCOR's April 2008 submission of documents or not.
Under the third option described above, even if we grant leeway to PAGCOR and consider its
unspecified April 2008 submission, PAGCOR still should have waited for the RD's decision
until 27 October 2008, or 180 days from 30 April 2008. PAGCOR then had 30 days from 27
October 2008, or until 26 November 2008, to file its petition before the CTA. PAGCOR,
however, did not make use of the third option. PAGCOR did not file a petition before the CTA
on or before 26 November 2008.
Under the second option, PAGCOR ought to have waited for the RD's whole or partial denial of
its protest before it filed an appeal before the CIR. PAGCOR rendered the second option moot
when it formulated its own rule and chose to ignore the clear text of Section 3.1.5. PAGCOR
"elevated an appeal" to the CIR on 13 August 2008 without any decision from the RD, then filed
a petition before the CTA on 11 March 2009. A textual reading of Section 228 and Section 3 .1.5
will readily show that neither Section 228 nor Section 3 .1.5 provides for the remedy of an
appeal to the CIR in case of the RD's failure to act. The third option states that the remedy for
failure to act by the CIR or his authorized representative is to file an appeal to the CTA within 30
days after the lapse of 180 days from the submission of the required supporting documents.
PAGCOR clearly failed to do this.
When PAGCOR filed its petition before the CTA, it is clear that PAGCOR failed to make use of
any of the three options described above. A petition before the CTA may only be made after a
whole or partial denial of the protest by the CIR or the CIR's authorized representative.
When PAGCOR filed its petition before the CTA on 11 March 2009, there was still no denial of
PAGCOR's protest by either the RD or the CIR. Therefore, under the first option, PAGCOR's
petition before the CTA had no cause of action because it was prematurely filed. The CIR made
an unequivocal denial of PAGCOR's protest only on 18 July 2011, when the CIR sought to
collect from PAGCOR the amount of P46,589,507.65. The CIR's denial further puts PAGCOR in
a bind, because it can no longer amend its petition before the CTA.
It thus follows that a complaint whose cause of action has not yet accrued cannot be cured or
remedied by an amended or supplemental pleading alleging the existence or accrual of a cause of
action while the case is pending. Such an action is prematurely brought and is, therefore, a
groundless suit, which should be dismissed by the court upon proper motion seasonably filed by
the defendant. The underlying reason for this rule is that a person should not be summoned
before the public tribunals to answer for complaints which are premature.
PAGCOR has clearly failed to comply with the requisites in disputing an assessment as provided
by Section 228 and Section 3.1.5. Indeed, PAGCOR's lapses in procedure have made the BIR's
assessment final, executory and demandable, thus obviating the need to further discuss the issue
of the propriety of imposition of fringe benefits tax.
The Decision promulgated on 18 February 2013 and the Resolution promulgated on 23 July 2013
by the Court of Tax Appeals - En Banc in CTA EB No. 844 are AFFIRMED with the
MODIFICATION that the denial of Philippine Amusement and Gaming Corporation's petition
is due to lack of jurisdiction because of premature filing. REMAND the case to the Court of Tax
Appeals for the determination of the final amount to be paid by PAGCOR after the imposition of
surcharge and delinquency interest.
 BIR vs. CA, Sps. Antonio Villan Manly and Ruby Ong Manly
[G.R. No. 197950, November 24, 2014]

FACTS:
Antonio Manly is stockholder and EVP of Standard Realty corp, a family owned corporation
while at the same time engaged in rental business. His wife, herein co accused is a housewife.

On April 27, 2005, the BIR issued LOA No. 2001 00012387 authorizing its revenue officers to
investigate respondent spouses for internal revenue tax liabilities for the year 2003 and prior
years.

On June 6, 2005, BIR issued a letter to respondents requiring them to submit documentary
eveidence.

The Spouses failed to comply, thus on June 23, 2005, the revenue officers executed a joint
affidavit purporting to the declared annual income of the spouses for the years 1998-2003. In the
said affidavit, it was alleged that despite the modest income declared, the spouses were able to
acquire valuable properties such as the log house in Tagaytay City, a Toyota Rav 4 and a Toyota
Prado.

The revenue officers recommended the filing of criminal cases against the respondents, for
failing to supply the correct and accurate information in their ITRs for the years 2000, 2001 and
2003, punishable under Sec. 254 and 255, in relation to Sec. 248 (B) of R.A. 8424 (Tax Reform
Act of 1997).

The State Prosecutor recommended for the filing of criminal charges against respondents: 3
counts of violation of Sec. 254 (attempt to evade or defeat tax), 3 counts of violation of Sec. 255
(failure to supply correct and accurate information), and 3 counts of violation of Sec. 255 (failure
to pay).

On July 27, 2009, Justice Secretary Agnes Devanadera reversed the resolution of the State
Prosecutor. She found no willful failure to pay or attempt to evade or defeat the tax on the part of
the respondent spouses. She also pointed to the BIR’s failure to issue a deficiency tax assessment
against respondents is a prerequisite to the filing of criminal case for tax evasion.

BIR filed a petition for certiorari before the CA, however, the petition was dismissed.

ISSUE(S):
WON the issuance of a deficiency tax assessment is a prerequisite to the filing of criminal case
for tax evasion?

HELD:
Petition of BIR granted.

RATIO:

Tax evasion is deemed complete when the violator has knowingly and willfully filed fraudulent
return with intent to evade and defeat a part or all of the tax. An assessment of the tax deficiency
is not required in a criminal prosecution for tax evasion. However, the fact that a tax is due must
be proved before one can be prosecuted for tax evasion.
Since the underdeclaration of the income is more than 30% (133.24%), it constitutes prima facie
evidence of false or fraudulent return.

The amount of tax due was specifically alleged in the complaint.

Tax evasion is deemed complete when the violator has knowingly and willfully filed fraudulent
return with intent to evade and defeat a part or all of the tax.
MEDICARD PHILIPPINES, INC., petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, respondent

DOCTRINE TITLE: Unless authorized by the Commissioner of Internal Revenue (CIR)

himself or by his duly authorized representative, through a Letter of Authority (LOA), an
examination of the taxpayer cannot ordinarily be undertaken.

FACTS: MEDICARD is a Health Maintenance Organization (HMO) that provides prepaid

health and medical insurance coverage to its clients. MEDICARD filed its First, Second, and
Third Quarterly VAT Returns through Electronic Filing and Payment System (EFPS) on April
20, 2006, July 25, 2006 and October 20, 2006, respectively, and its Fourth Quarterly VAT
Return on January 25, 2007.8 Upon finding some discrepancies between MEDICARD’s Income
Tax Returns (ITRs) and VAT Returns, the CIR informed MEDICARD and issued a Letter
Notice. The CIR also issued a Preliminary Assessment Notice (PAN) against MEDICARD for
deficiency VAT. On January 4, 2008, MEDICARD received CIR’s FAN dated December 10,
2007 for alleged deficiency VAT for taxable year 2006 in the total amount of
P196,614,476.69,10 inclusive of penalties.

ISSUE: WHETHER THE ABSENCE OF THE LOA IS FATAL?

RULING: YES. The absence of an LOA violated MEDICARD’s right to due process.
An LOA is the authority given to the appropriate revenue officer assigned to perform assessment
functions. It empowers or enables said revenue officer to examine the books of account and other
accounting records of a taxpayer for the purpose of collecting the correct amount of tax.25 An
LOA is premised on the fact that the examination of a taxpayer who has already filed his tax
returns is a power that statutorily belongs only to the CIR himself or his duly authorized
representatives. Section 6 of the NIRC clearly provides as follows: SEC. 6. Power of the
Commissioner to Make Assessments and Prescribe Additional Requirements for Tax
Administration and Enforcement.— (A) Examination of Return and Determination of Tax
Due.—After a return has been filed as required under the provisions of this Code, the
Commissioner or his duly authorized representative may authorize the examination of any
taxpayer and the assessment of the correct amount of tax: Provided, however, That failure to file
a return shall not prevent the Commissioner from authorizing the examination of any taxpayer.
Based on the aforequoted provision, it is clear that unless authorized by the CIR himself or by his
duly authorized representative, through an LOA, an examination of the taxpayer cannot
ordinarily be undertaken.
In this case, there is no dispute that no LOA was issued prior to the issuance of a PAN and FAN
against MEDICARD. Therefore no LOA was also served on MEDICARD. The LN that was
issued earlier was also not converted into an LOA contrary to the above quoted provision.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE STANLEY WORKS SALES

(PHILS.), INCORPORATED, respondent. Commissioner of Internal Revenue vs. The Stanley
Works Sales (Phils.), Incorporated, 743 SCRA 642, G.R. No. 187589 December 3, 2014

DOCTRINE: Taxation; Assessment; Statute of Limitations; The period to assess and collect deficiency
taxes may be extended only upon a written agreement between the Commissioner of Internal Revenue
(CIR) and the taxpayer prior to the expiration of the three (3)-year prescribed period in accordance with
Section 222(b) of the National Internal Revenue Code (NIRC).—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. 20-90 on 4 April 1990 to provide guidelines on the proper
execution of the Waiver of the Statute of Limitations.

Same; Same; Same; A waiver of the statute of limitations, whether on assessment or collection, should
not be construed as a waiver of the right to invoke the defense of prescription but, rather, an agreement
between the taxpayer and the Bureau of Internal Revenue (BIR) to extend the period to a date certain,
within which the latter could still assess or collect taxes due.—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 as a 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.

Same; Same; Same; The statute of limitations imposed by the Tax Code precisely intends to protect the
taxpayer from prolonged and unreasonable assessment and investigation by the Bureau of Internal
Revenue (BIR).—Petitioner’s reliance on CIR v. Suyoc, 104 Phil. 819 (1958), (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 BPI v. CIR, 473 SCRA 205 (2005), either,
considering that respondent and BPI are similarly situated. Similar to BPI, this is a simple case in 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 BPI
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.

FACTS:

Stanley Works Sales-PH (respondent) is a domestic corporation duly organized and

existingunder PH laws and duly registered with the SEC. It is authorized to engage in the
business ofdealing with constructions and hardware materials, tools, fixtures and equipment. 16
April 1990: Stanley-PH filed with the BIR its Annual Income Tax Return for taxable year 1989.

In March 1993, Stanley-PH was issued an assessment notice for deficiency income tax for the
taxable year 1989 by the CIR. Stanley-PH filed protest letter and requested
reconsideration and cancellation of the assessment. A certain Mr. Ang, on behalf of Stanley-
PH, executed a “Waiver of the Defense of Prescription under the Statute of Limitation of the
NIRC.”

In 2004, the CIR rendered a Decision denying respondent’s request for reconsideration
and ordering respondent to pay the deficiency income tax plus interest that may have
accrued.
 SC held there was no proper execution of waiver, thus, the period for collection of deficiency
taxes had already prescribed. The SC found the following defects of the waiver: (1) conformity
of either CIR or aduly authorized representative; (2) Date of acceptance showing that both
parties had agreed on the Waiver before the expiration of the prescriptive period; and (3) roof
that Stanley-PH was furnished a copy of the Waiver.

ISSUE:

Whether or not respondent’s repeated requests and positive acts constitute “estoppel” from
setting up the defense of prescription under the NIRC.

HELD:

The Court does 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. Suyoc (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 Incorporated 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 BPI either, considering that respondent and BPI are similarly
situated. Similar to BPI, this is a simple case in 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 BPI 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.

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.

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.
G.R. No. L-12798 May 30, 1960

Visayan Cebu Terminal vs CIR

The Visayan Cebu Terminal Co. Inc., is a corporation organized for the purpose of handling
arrastre operations in the port of Cebu. It was awarded the contract for the said arrastre
operations by the Bureau of Customs, pursuant to Act No. 3002, as amended.

On March 1, 1952, appellant filed its income tax return for 1951 reporting a gross income of
P420,633.40 and claimed deductions amounting to P379,036.95, leaving a net income of
P41,596.45 on which it paid income tax in the sum of P8,319.29.

The sum of P379,036.95 claimed as deductions consisted of various items including salaries,
representation and miscellaneous expenses. However, the said expenses were disallowed by the
Collector of Internal Revenue, thus giving rise to a deficiency assessment.
Upon reconsideration, the Collector modified the deficiency income tax assessment by allowing
the deduction from appellant's gross income of the salary and miscellaneous expenses.

The Visayan Cebu Terminal Co. Inc., maintains that said court had acted arbitrarily in
considering the representation expenses in 1950, not those incurred in 1949 and 1952, in fixing
the amount deductible in 1951

ISSUE: Whether or not the decision of CTA ordering Visayan Cebu Terminal to pay the
Collector of Internal Revenue is proper

HELD:

The Court of Tax Appeals, in the instant case, had been patently fair and reasonable, if not
liberal, in allowing appellant to deduct a certain amount as representation expenses on the basis
of its gross income, net income and representation expenses during the prior years, although
there was absolutely no concrete evidence of the sums actually spent for purposes of
representation. The explanation to the effect that the supporting papers of some of the
expenses had been destroyed when the house of appellant's treasurer was burned, it not
satisfactory, for appellant's records were supposed to be kept in its offices, not in the
residence of one of its officers.

It appears: (a) that part of the alleged representation expenses had never had any supporting
paper; (b) that the vouchers and chits covering other representation expenses had been allegedly
destroyed; (c) that there is no documentary evidence on record of any of the representation
expenses in question; (d) that no testimonial evidence has been introduced on any specific item
of said alleged expenses; (e) that there is no more than oral proof to the effect that payments had
been made to appellant's officers for representation expenses allegedly made by the latter and
about the general nature of such alleged expenses; (f) that the gross income in 1950 exceeded the
gross income in 1951 and 1952, and (g) that the representation expenses in 1948 amounted to
P500 only. Under these circumstances, the lower court was fully justified in concluding that the
representation expenses in 1951 should be slightly less than those incurred in 1950.