G.R. No.

125355 March 30, 2000 On February 10, 1992, COMASERCO filed with the BIR, a
letter-protest objecting to the latter's finding of
COMMISSIONER OF INTERNAL REVENUE, petitioner, deficiency VAT. On August 20, 1992, the Commissioner
vs. of Internal Revenue sent a collection letter to
COURT OF APPEALS and COMMONWEALTH COMASERCO demanding payment of the deficiency
MANAGEMENT AND SERVICES CORPORATION, VAT.
respondents.

PARDO, J.: On September 29, 1992, COMASERCO filed with the

Court of Tax Appeals4 a petition for review contesting
What is before the Court is a petition for review on the Commissioner's assessment. COMASERCO asserted
certiorari of the decision of the Court of Appeals,1 that the services it rendered to Philamlife and its
reversing that of the Court of Tax Appeals,2 which affiliates, relating to collections, consultative and other
affirmed with modification the decision of the technical assistance, including functioning as an internal
Commissioner of Internal Revenue ruling that auditor, were on a "no-profit, reimbursement-of-cost-
Commonwealth Management and Services Corporation, only" basis. It averred that it was not engaged in the
is liable for value added tax for services to clients during business of providing services to Philamlife and its
taxable year 1988. affiliates. COMASERCO was established to ensure
operational orderliness and administrative efficiency of
Commonwealth Management and Services Corporation Philamlife and its affiliates, and not in the sale of
(COMASERCO, for brevity), is a corporation duly services. COMASERCO stressed that it was not profit-
organized and existing under the laws of the Philippines. motivated, thus not engaged in business. In fact, it did
It is an affiliate of Philippine American Life Insurance Co. not generate profit but suffered a net loss in taxable
(Philamlife), organized by the letter to perform year 1988. COMASERCO averred that since it was not
collection, consultative and other technical services, engaged in business, it was not liable to pay VAT.
including functioning as an internal auditor, of
Philamlife and its other affiliates.1âwphi1.nêt On June 22, 1995, the Court of Tax Appeals rendered
decision in favor of the Commissioner of Internal
On January 24, 1992, the Bureau of Internal Revenue Revenue, the dispositive portion of which reads:
(BIR) issued an assessment to private respondent
COMASERCO for deficiency value-added tax (VAT) WHEREFORE, the decision of the Commissioner of
amounting to P351,851.01, for taxable year 1988, Internal Revenue assessing petitioner deficiency value-
computed as follows added tax for the taxable year 1988 is AFFIRMED with
slight modifications. Accordingly, petitioner is ordered
Taxable sale/receipt P1,679,155.00 to pay respondent Commissioner of Internal Revenue
the amount of P335,831.01 inclusive of the 25%
============
surcharge and interest plus 20% interest from January
10% tax due thereon 167,915.50 24, 1992 until fully paid pursuant to Section 248 and
249 of the Tax Code.
25% surcharge 41,978.88
The compromise penalty of P16,000.00 imposed by the
20% interest per annum125,936.63 respondent in her assessment letter shall not be
included in the payment as there was no compromise
Compromise penalty for late payment 16,000.00 agreement entered into between petitioner and
respondent with respect to the value-added tax
TOTAL AMOUNT DUE AND COLLECTIBLE
deficiency.5
P351,831.01
On July 26, 1995, respondent filed with the Court of
============ 3 Appeals, a petition for review of the decision of the
Court of Appeals.
COMASERCO's annual corporate income tax return
ending December 31, 1988 indicated a net loss in its After due proceedings, on May 13, 1996, the Court of
operations in the amount of P6,077.00. Appeals rendered decision reversing that of the Court of
Tax Appeals, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is goods shall be subject to the value-added tax
hereby rendered REVERSING and SETTING ASIDE the (VAT) imposed in Sections 100 to 102 of this
questioned Decision promulgated on 22 June 1995. The Code. 9
assessment for deficiency value-added tax for the
taxable year 1988 inclusive of surcharge, interest and COMASERCO contends that the term "in the course of
penalty charges are ordered CANCELLED for lack of legal trade or business" requires that the "business" is carried
and factual basis. 6 on with a view to profit or livelihood. It avers that the
activities of the entity must be profit-oriented.
The Court of Appeals anchored its decision on the COMASERCO submits that it is not motivated by profit,
ratiocination in another tax case involving the same as defined by its primary purpose in the articles of
parties,7 where it was held that COMASERCO was not incorporation, stating that it is operating "only on
liable to pay fixed and contractor's tax for services reimbursement-of-cost basis, without any profit."
rendered to Philamlife and its affiliates. The Court of Private respondent argues that profit motive is material
Appeals, in that case, reasoned that COMASERCO was in ascertaining who to tax for purposes of determining
not engaged in business of providing services to liability for VAT.
Philamlife and its affiliates. In the same manner, the
Court of Appeals held that COMASERCO was not liable We disagree.
to pay VAT for it was not engaged in the business of
On May 28, 1994, Congress enacted Republic Act No.
selling services.
7716, the Expanded VAT Law (EVAT), amending among
On July 16, 1996, the Commissioner of Internal Revenue other sections, Section 99 of the Tax Code. On January
filed with this Court a petition for review on certiorari 1, 1998, Republic Act 8424, the National Internal
assailing the decision of the Court of Appeals. Revenue Code of 1997, took effect. The amended law
provides that:
On August 7, 1996, we required respondent
COMASERCO to file comment on the petition, and on Sec. 105. Persons Liable. — Any person who, in
September 26, 1996, COMASERCO complied with the the course of trade or business, sells, barters,
resolution.8 exchanges, leases goods or properties, renders
services, and any person who imports goods shall
be subject to the value-added tax (VAT) imposed
in Sections 106 and 108 of this Code.
We give due course to the petition.
The value-added tax is an indirect tax and the amount
At issue in this case is whether COMASERCO was of tax may be shifted or passed on to the buyer,
engaged in the sale of services, and thus liable to pay transferee or lessee of the goods, properties or services.
VAT thereon. This rule shall likewise apply to existing sale or lease of
goods, properties or services at the time of the
Petitioner avers that to "engage in business" and to
effectivity of Republic Act No. 7716.
"engage in the sale of services" are two different things.
Petitioner maintains that the services rendered by The phrase "in the course of trade or business" means
COMASERCO to Philamlife and its affiliates, for a fee or the regular conduct or pursuit of a commercial or an
consideration, are subject to VAT. VAT is a tax on the economic activity, including transactions incidental
value added by the performance of the service. It is thereto, by any person regardless of whether or not the
immaterial whether profit is derived from rendering the person engaged therein is a nonstock, nonprofit
service. organization (irrespective of the disposition of its net
income and whether or not it sells exclusively to
We agree with the Commissioner.
members of their guests), or government entity.
Sec. 99 of the National Internal Revenue Code of
The rule of regularity, to the contrary notwithstanding,
1986, as amended by Executive Order (E. O.) No.
services as defined in this Code rendered in the
273 in 1988, provides that:
Philippines by nonresident foreign persons shall be
Sec. 99. Persons liable. — Any person who, in the considered as being rendered in the course of trade or
course of trade or business, sells, barters or business.
exchanges goods, renders services, or engages in
similar transactions and any person who, imports
Contrary to COMASERCO's contention the above At any rate, it is a rule that because taxes are the
provision clarifies that even a non-stock, non-profit, lifeblood of the nation, statutes that allow exemptions
organization or government entity, is liable to pay VAT are construed strictly against the grantee and liberally in
on the sale of goods or services. VAT is a tax on favor of the government. Otherwise stated, any
transactions, imposed at every stage of the distribution exemption from the payment of a tax must be clearly
process on the sale, barter, exchange of goods or stated in the language of the law; it cannot be merely
property, and on the performance of services, even in implied therefrom. 13 In the case of VAT, Section 109,
the absence of profit attributable thereto. The term "in Republic Act 8424 clearly enumerates the transactions
the course of trade or business" requires the regular exempted from VAT. The services rendered by
conduct or pursuit of a commercial or an economic COMASERCO do not fall within the exemptions.
activity regardless of whether or not the entity is profit-
oriented. Both the Commissioner of Internal Revenue and the
Court of Tax Appeals correctly ruled that the services
The definition of the term "in the course of trade or rendered by COMASERCO to Philamlife and its affiliates
business" present law applies to all transactions even to are subject to VAT. As pointed out by the
those made prior to its enactment. Executive Order No. Commissioner, the performance of all kinds of services
273 stated that any person who, in the course of trade for others for a fee, remuneration or consideration is
or business, sells, barters or exchanges goods and considered as sale of services subject to VAT. As the
services, was already liable to pay VAT. The present law government agency charged with the enforcement of
merely stresses that even a nonstock, nonprofit the law, the opinion of the Commissioner of Internal
organization or government entity is liable to pay VAT Revenue, in the absence of any showing that it is plainly
for the sale of goods and services. wrong, is entitled to great weight. 14 Also, it has been
the long standing policy and practice of this Court to
Sec. 108 of the National Internal Revenue Code of 1997 respect the conclusions of quasi-judicial agencies, such
10 defines the phrase "sale of services" as the as the Court of Tax Appeals which, by the nature of its
"performance of all kinds of services for others for a fee, functions, is dedicated exclusively to the study and
remuneration or consideration." It includes "the supply consideration of tax cases and has necessarily
of technical advice, assistance or services rendered in developed an expertise on the subject, unless there has
connection with technical management or been an abuse or improvident exercise of its authority.
administration of any scientific, industrial or commercial 15
undertaking or project." 11
There is no merit to respondent's contention that the
On February 5, 1998, the Commissioner of Internal Court of Appeals' decision in CA-G.R. No. 34042,
Revenue issued BIR Ruling No. 010-98 12 emphasizing declaring the COMASERCO as not engaged in business
that a domestic corporation that provided technical, and not liable for the payment of fixed and percentage
research, management and technical assistance to its taxes, binds petitioner. The issue in CA-G.R. No. 34042 is
affiliated companies and received payments on a different from the present case, which involves
reimbursement-of-cost basis, without any intention of COMASERCO's liability for VAT. As heretofore stated,
realizing profit, was subject to VAT on services every person who sells, barters, or exchanges goods and
rendered. In fact, even if such corporation was services, in the course of trade or business, as defined
organized without any intention realizing profit, any by law, is subject to VAT.
income or profit generated by the entity in the conduct
of its activities was subject to income tax. WHEREFORE, the Court GRANTS the petition and
REVERSES the decision of the Court of Appeals in CA-
Hence, it is immaterial whether the primary purpose of G.R. SP No. 37930. The Court hereby REINSTATES the
a corporation indicates that it receives payments for decision of the Court of Tax Appeals in C. T. A. Case No.
services rendered to its affiliates on a reimbursement- 4853.
on-cost basis only, without realizing profit, for purposes
of determining liability for VAT on services rendered. As No costs.
long as the entity provides service for a fee,
remuneration or consideration, then the service
rendered is subject to VAT.1awp++i1
 Sony Philippines, Inc. (Sony). The CTA-First Division
decision cancelled the deficiency assessment issued by
petitioner Commissioner of Internal Revenue (CIR)
against Sony for Value Added Tax (VAT) but upheld the
deficiency assessment for expanded withholding tax
(EWT) in the amount of ₱1,035,879.70 and the penalties
for late remittance of internal revenue taxes in the
amount of ₱1,269, 593.90.3

THE FACTS:

On November 24, 1998, the CIR issued Letter of

Authority No. 000019734 (LOA 19734) authorizing
certain revenue officers to examine Sony’s books of
accounts and other accounting records regarding
revenue taxes for "the period 1997 and unverified prior
years." On December 6, 1999, a preliminary assessment
for 1997 deficiency taxes and penalties was issued by
the CIR which Sony protested. Thereafter, acting on the
protest, the CIR issued final assessment notices, the
formal letter of demand and the details of
discrepancies.4 Said details of the deficiency taxes and
penalties for late remittance of internal revenue taxes
are as follows:

DEFICIENCY VALUE -ADDED TAX (VAT)

(Assessment No. ST-VAT-97-0124-2000)

Basic Tax Due P 7,958,700.00

Add: Penalties
Interest up to 3-31-2000 P 3,157,314.41

Compromise 25,000.00
3,182,314.41
Deficiency VAT Due P
11,141,014.41
G.R. No. 178697 November 17, 2010
DEFICIENCY EXPANDED WITHHOLDING TAX (EWT)
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs. (Assessment No. ST-EWT-97-0125-2000)
SONY PHILIPPINES, INC., Respondent.
Basic Tax Due P 1,416,976.90
DECISION Add: Penalties
Interest up to 3-31-2000 P 550,485.82
MENDOZA, J.:
Compromise 25,000.00
This petition for review on certiorari seeks to set aside 575,485.82
the May 17, 2007 Decision and the July 5, 2007 Deficiency EWT Due P
Resolution of the Court of Tax Appeals – En Banc1 (CTA- 1,992,462.72
EB), in C.T.A. EB No. 90, affirming the October 26, 2004
Decision of the CTA-First Division2 which, in turn, DEFICIENCY OF VAT ON ROYALTY PAYMENTS
partially granted the petition for review of respondent
(Assessment No. ST-LR1-97-0126-2000) credit. As regards the EWT, the CTA-First Division
maintained the deficiency EWT assessment on Sony’s
Basic Tax Due P motor vehicles and on professional fees paid to general
Add: Penalties professional partnerships. It also assessed the amounts
Surcharge P 359,177.80 paid to sales agents as commissions with five percent
Interest up to 3-31-2000 87,580.34 (5%) EWT pursuant to Section 1(g) of Revenue
Regulations No. 6-85. The CTA-First Division, however,
Compromise 16,000.00 disallowed the EWT assessment on rental expense since
462,758.14 it found that the total rental deposit of ₱10,523,821.99
Penalties Due P 462,758.14 was incurred from January to March 1998 which was
again beyond the coverage of LOA 19734. Except for the
LATE REMITTANCE OF FINAL WITHHOLDING TAX compromise penalties, the CTA-First Division also
upheld the penalties for the late payment of VAT on
(Assessment No. ST-LR2-97-0127-2000) royalties, for late remittance of final withholding tax on
royalty as of December 1997 and for the late remittance
Basic Tax Due P of EWT by some of Sony’s branches.8 In sum, the CTA-
Add: Penalties First Division partly granted Sony’s petition by cancelling
Surcharge P 1,729,690.71 the deficiency VAT assessment but upheld a modified
Interest up to 3-31-2000 508,783.07 deficiency EWT assessment as well as the penalties.
Thus, the dispositive portion reads:
Compromise 50,000.00
2,288,473.78 WHEREFORE, the petition for review is hereby
Penalties Due P 2,288,473.78 PARTIALLY GRANTED. Respondent is ORDERED to
CANCEL and WITHDRAW the deficiency assessment for
LATE REMITTANCE OF INCOME PAYMENTS value-added tax for 1997 for lack of merit. However, the
deficiency assessments for expanded withholding tax
(Assessment No. ST-LR3-97-0128-2000) and penalties for late remittance of internal revenue
taxes are UPHELD.
Basic Tax Due P
Add: Penalties Accordingly, petitioner is DIRECTED to PAY the
25 % Surcharge P 8,865.34 respondent the deficiency expanded withholding tax in
Interest up to 3-31-2000 58.29 the amount of ₱1,035,879.70 and the following
Compromise 2,000.00 penalties for late remittance of internal revenue taxes in
10,923.60 the sum of ₱1,269,593.90:
Penalties Due P 10,923.60
1. VAT on Royalty P 429,242.07
2. Withholding Tax on Royalty 831,428.20
GRAND TOTAL P 15,895,632.655 3. EWT of Petitioner's Branches 8,923.63
Total P 1,269,593.90
Sony sought re-evaluation of the aforementioned Plus 20% delinquency interest from January 17, 2000
assessment by filing a protest on February 2, 2000. Sony until fully paid pursuant to Section 249(C)(3) of the 1997
submitted relevant documents in support of its protest Tax Code.
on the 16th of that same month.6
SO ORDERED.9
On October 24, 2000, within 30 days after the lapse of
180 days from submission of the said supporting The CIR sought a reconsideration of the above decision
documents to the CIR, Sony filed a petition for review and submitted the following grounds in support thereof:
before the CTA.7
A. The Honorable Court committed reversible error in
After trial, the CTA-First Division disallowed the holding that petitioner is not liable for the deficiency
deficiency VAT assessment because the subsidized VAT in the amount of ₱11,141,014.41;
advertising expense paid by Sony which was duly
covered by a VAT invoice resulted in an input VAT
B. The Honorable court committed reversible error in II. AS TO RESPONDENT’S DEFICIENCY
holding that the commission expense in the amount of EXPANDED WITHHOLDING TAX IN THE
P2,894,797.00 should be subjected to 5% withholding AMOUNT OF PHP1,992,462.72:
tax instead of the 10% tax rate;
A. THE CTA EN BANC ERRED IN RULING
C. The Honorable Court committed a reversible error in THAT THE COMMISSION EXPENSE IN THE
holding that the withholding tax assessment with AMOUNT OF PHP2,894,797.00 SHOULD BE
respect to the 5% withholding tax on rental deposit in SUBJECTED TO A WITHHOLDING TAX OF 5%
the amount of ₱10,523,821.99 should be cancelled; and INSTEAD OF THE 10% TAX RATE.

D. The Honorable Court committed reversible error in B. THE CTA EN BANC ERRED IN RULING
holding that the remittance of final withholding tax on THAT THE ASSESSMENT WITH RESPECT TO
royalties covering the period January to March 1998 THE 5% WITHHOLDING TAX ON RENTAL
was filed on time.10 DEPOSIT IN THE AMOUNT OF
PHP10,523,821.99 IS NOT PROPER.
On April 28, 2005, the CTA-First Division denied the
motion for reconsideration.1avvphi1 Unfazed, the CIR III. THE CTA EN BANC ERRED IN RULING THAT
filed a petition for review with the CTA-EB raising THE FINAL WITHHOLDING TAX ON
identical issues: ROYALTIES COVERING THE PERIOD
JANUARY TO MARCH 1998 WAS FILED ON
1. Whether or not respondent (Sony) is liable for the TIME.12
deficiency VAT in the amount of P11,141,014.41;
Upon filing of Sony’s comment, the Court ordered the
2. Whether or not the commission expense in the CIR to file its reply thereto. The CIR subsequently filed a
amount of ₱2,894,797.00 should be subjected to 10% manifestation informing the Court that it would no
withholding tax instead of the 5% tax rate; longer file a reply. Thus, on December 3, 2008, the
Court resolved to give due course to the petition and to
3. Whether or not the withholding assessment with decide the case on the basis of the pleadings filed.13
respect to the 5% withholding tax on rental deposit in
the amount of ₱10,523,821.99 is proper; and The Court finds no merit in the petition.

4. Whether or not the remittance of final withholding The CIR insists that LOA 19734, although it states "the
tax on royalties covering the period January to March period 1997 and unverified prior years," should be
1998 was filed outside of time.11 understood to mean the fiscal year ending in March 31,
1998.14 The Court cannot agree.
Finding no cogent reason to reverse the decision of the
CTA-First Division, the CTA-EB dismissed CIR’s petition Based on Section 13 of the Tax Code, a Letter of
on May 17, 2007. CIR’s motion for reconsideration was Authority or LOA is the authority given to the
denied by the CTA-EB on July 5, 2007. appropriate revenue officer assigned to perform
assessment functions. It empowers or enables said
The CIR is now before this Court via this petition for revenue officer to examine the books of account and
review relying on the very same grounds it raised before other accounting records of a taxpayer for the purpose
the CTA-First Division and the CTA-EB. The said grounds of collecting the correct amount of tax.15 The very
are reproduced below: provision of the Tax Code that the CIR relies on is
unequivocal with regard to its power to grant authority
GROUNDS FOR THE ALLOWANCE OF THE PETITION to examine and assess a taxpayer.

I. THE CTA EN BANC ERRED IN RULING THAT SEC. 6. Power of the Commissioner to Make
RESPONDENT IS NOT LIABLE FOR Assessments and Prescribe Additional Requirements for
DEFICIENCY VAT IN THE AMOUNT OF Tax Administration and Enforcement. –
PHP11,141,014.41.
(A)Examination of Returns and Determination of tax
Due. – After a return has been filed as required under
the provisions of this Code, the Commissioner or his tax credit. At most, the CIR continues, the said
duly authorized representative may authorize the advertising expense should be for the account of SIS,
examination of any taxpayer and the assessment of the and not Sony.17
correct amount of tax: Provided, however, That failure
to file a return shall not prevent the Commissioner from The Court is not persuaded. As aptly found by the CTA-
authorizing the examination of any taxpayer. x x x First Division and later affirmed by the CTA-EB, Sony’s
[Emphases supplied] deficiency VAT assessment stemmed from the CIR’s
disallowance of the input VAT credits that should have
Clearly, there must be a grant of authority before any been realized from the advertising expense of the
revenue officer can conduct an examination or latter.18 It is evident under Section 11019 of the 1997
assessment. Equally important is that the revenue Tax Code that an advertising expense duly covered by a
officer so authorized must not go beyond the authority VAT invoice is a legitimate business expense. This is
given. In the absence of such an authority, the confirmed by no less than CIR’s own witness, Revenue
assessment or examination is a nullity. Officer Antonio Aluquin.20 There is also no denying that
Sony incurred advertising expense. Aluquin testified
As earlier stated, LOA 19734 covered "the period 1997 that advertising companies issued invoices in the name
and unverified prior years." For said reason, the CIR of Sony and the latter paid for the same.21 Indubitably,
acting through its revenue officers went beyond the Sony incurred and paid for advertising expense/
scope of their authority because the deficiency VAT services. Where the money came from is another
assessment they arrived at was based on records from matter all together but will definitely not change said
January to March 1998 or using the fiscal year which fact.
ended in March 31, 1998. As pointed out by the CTA-
First Division in its April 28, 2005 Resolution, the CIR The CIR further argues that Sony itself admitted that the
knew which period should be covered by the reimbursement from SIS was income and, thus, taxable.
investigation. Thus, if CIR wanted or intended the In support of this, the CIR cited a portion of Sony’s
investigation to include the year 1998, it should have protest filed before it:
done so by including it in the LOA or issuing another
LOA. The fact that due to adverse economic conditions, Sony-
Singapore has granted to our client a subsidy equivalent
Upon review, the CTA-EB even added that the coverage to the latter’s advertising expenses will not affect the
of LOA 19734, particularly the phrase "and unverified validity of the input taxes from such expenses. Thus, at
prior years," violated Section C of Revenue the most, this is an additional income of our client
Memorandum Order No. 43-90 dated September 20, subject to income tax. We submit further that our client
1990, the pertinent portion of which reads: is not subject to VAT on the subsidy income as this was
not derived from the sale of goods or services.22
3. A Letter of Authority should cover a taxable period
not exceeding one taxable year. The practice of issuing Insofar as the above-mentioned subsidy may be
L/As covering audit of "unverified prior years is hereby considered as income and, therefore, subject to income
prohibited. If the audit of a taxpayer shall include more tax, the Court agrees. However, the Court does not
than one taxable period, the other periods or years shall agree that the same subsidy should be subject to the
be specifically indicated in the L/A.16 [Emphasis 10% VAT. To begin with, the said subsidy termed by the
supplied] CIR as reimbursement was not even exclusively
earmarked for Sony’s advertising expense for it was but
On this point alone, the deficiency VAT assessment an assistance or aid in view of Sony’s dire or adverse
should have been disallowed. Be that as it may, the economic conditions, and was only "equivalent to the
CIR’s argument, that Sony’s advertising expense could latter’s (Sony’s) advertising expenses."
not be considered as an input VAT credit because the
same was eventually reimbursed by Sony International Section 106 of the Tax Code explains when VAT may be
Singapore (SIS), is also erroneous. imposed or exacted. Thus:

The CIR contends that since Sony’s advertising expense SEC. 106. Value-added Tax on Sale of Goods or
was reimbursed by SIS, the former never incurred any Properties. –
advertising expense. As a result, Sony is not entitled to a
(A) Rate and Base of Tax. – There shall be levied,
assessed and collected on every sale, barter or In denying the very same argument of the CIR in its
exchange of goods or properties, value-added tax motion for reconsideration, the CTA-First Division, held:
equivalent to ten percent (10%) of the gross selling
price or gross value in money of the goods or properties x x x, commission expense is indeed subject to 10%
sold, bartered or exchanged, such tax to be paid by the withholding tax but payments made to broker is subject
seller or transferor. to 5% withholding tax pursuant to Section 1(g) of
Revenue Regulations No. 6-85. While the commission
Thus, there must be a sale, barter or exchange of goods expense in the schedule of Selling, General and
or properties before any VAT may be levied. Certainly, Administrative expenses submitted by petitioner (SPI) to
there was no such sale, barter or exchange in the the BIR is captioned as "commission/dealer salesman
subsidy given by SIS to Sony. It was but a dole out by SIS incentive" the same does not justify the automatic
and not in payment for goods or properties sold, imposition of flat 10% rate. As itemized by petitioner,
bartered or exchanged by Sony. such expense is composed of "Commission Expense" in
the amount of P10,200.00 and ‘Broker Dealer’ of
In the case of CIR v. Court of Appeals (CA),23 the Court P2,894,797.00.26
had the occasion to rule that services rendered for a fee
even on reimbursement-on-cost basis only and without The Court agrees with the CTA-EB when it affirmed the
realizing profit are also subject to VAT. The case, CTA-First Division decision. Indeed, the applicable rule is
however, is not applicable to the present case. In that Revenue Regulations No. 6-85, as amended by Revenue
case, COMASERCO rendered service to its affiliates and, Regulations No. 12-94, which was the applicable rule
in turn, the affiliates paid the former reimbursement- during the subject period of examination and
on-cost which means that it was paid the cost or assessment as specified in the LOA. Revenue
expense that it incurred although without profit. This is Regulations No. 2-98, cited by the CIR, was only
not true in the present case. Sony did not render any adopted in April 1998 and, therefore, cannot be applied
service to SIS at all. The services rendered by the in the present case. Besides, the withholding tax on
advertising companies, paid for by Sony using SIS dole- brokers and agents was only increased to 10% much
out, were for Sony and not SIS. SIS just gave assistance later or by the end of July 2001 under Revenue
to Sony in the amount equivalent to the latter’s Regulations No. 6-2001.27 Until then, the rate was only
advertising expense but never received any goods, 5%.
properties or service from Sony.
The Court also affirms the findings of both the CTA-First
Regarding the deficiency EWT assessment, more Division and the CTA-EB on the deficiency EWT
particularly Sony’s commission expense, the CIR insists assessment on the rental deposit. According to their
that said deficiency EWT assessment is subject to the findings, Sony incurred the subject rental deposit in the
ten percent (10%) rate instead of the five percent (5%) amount of ₱10,523,821.99 only from January to March
citing Revenue Regulation No. 2-98 dated April 17, 1998. As stated earlier, in the absence of the
1998.24 The said revenue regulation provides that the appropriate LOA specifying the coverage, the CIR’s
10% rate is applied when the recipient of the deficiency EWT assessment from January to March
commission income is a natural person. According to 1998, is not valid and must be disallowed.
the CIR, Sony’s schedule of Selling, General and
Administrative expenses shows the commission Finally, the Court now proceeds to the third ground
expense as "commission/dealer salesman incentive," relied upon by the CIR.
emphasizing the word salesman.
The CIR initially assessed Sony to be liable for penalties
On the other hand, the application of the five percent for belated remittance of its FWT on royalties (i) as of
(5%) rate by the CTA-First Division is based on Section December 1997; and (ii) for the period from January to
1(g) of Revenue Regulations No. 6-85 which provides: March 1998. Again, the Court agrees with the CTA-First
Division when it upheld the CIR with respect to the
(g) Amounts paid to certain Brokers and Agents. – On royalties for December 1997 but cancelled that from
gross payments to customs, insurance, real estate and January to March 1998.
commercial brokers and agents of professional
entertainers – five per centum (5%).25
The CIR insists that under Section 328 of Revenue In view of the foregoing, the Court finds no reason to
Regulations No. 5-82 and Sections 2.57.4 and 2.58(A)(2) disturb the findings of the CTA-EB.
(a)29 of Revenue Regulations No. 2-98, Sony should also
be made liable for the FWT on royalties from January to WHEREFORE, the petition is DENIED.
March of 1998. At the same time, it downplays the
relevance of the Manufacturing License Agreement SO ORDERED.
(MLA) between Sony and Sony-Japan, particularly in the
payment of royalties.

The above revenue regulations provide the manner of

withholding remittance as well as the payment of final
tax on royalty. Based on the same, Sony is required to
deduct and withhold final taxes on royalty payments
when the royalty is paid or is payable. After which, the
corresponding return and remittance must be made
within 10 days after the end of each month. The
question now is when does the royalty become
payable?

Under Article X(5) of the MLA between Sony and Sony-

Japan, the following terms of royalty payments were
agreed upon:

(5)Within two (2) months following each semi-annual

period ending June 30 and December 31, the LICENSEE
shall furnish to the LICENSOR a statement, certified by
an officer of the LICENSEE, showing quantities of the
MODELS sold, leased or otherwise disposed of by the
LICENSEE during such respective semi-annual period
and amount of royalty due pursuant this ARTICLE X
therefore, and the LICENSEE shall pay the royalty
hereunder to the LICENSOR concurrently with the
furnishing of the above statement.30

Withal, Sony was to pay Sony-Japan royalty within two

(2) months after every semi-annual period which ends G.R. No. 193007 July 19, 2011
in June 30 and December 31. However, the CTA-First
Division found that there was accrual of royalty by the RENATO V. DIAZ and AURORA MA. F. TIMBOL,
end of December 1997 as well as by the end of June Petitioners,
1998. Given this, the FWTs should have been paid or vs.
remitted by Sony to the CIR on January 10, 1998 and THE SECRETARY OF FINANCE and THE COMMISSIONER
July 10, 1998. Thus, it was correct for the CTA-First OF INTERNAL REVENUE, Respondents.
Division and the CTA-EB in ruling that the FWT for the
royalty from January to March 1998 was seasonably DECISION
filed. Although the royalty from January to March 1998
was well within the semi-annual period ending June 30, ABAD, J.:
which meant that the royalty may be payable until
August 1998 pursuant to the MLA, the FWT for said May toll fees collected by tollway operators be
royalty had to be paid on or before July 10, 1998 or 10 subjected to value- added tax?
days from its accrual at the end of June 1998. Thus,
when Sony remitted the same on July 8, 1998, it was not The Facts and the Case
yet late.
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol Court should seek the meaning and intent of the law
(petitioners) filed this petition for declaratory relief1 from the words used in the statute; and that the
assailing the validity of the impending imposition of imposition of VAT on tollway operations has been the
value-added tax (VAT) by the Bureau of Internal subject as early as 2003 of several BIR rulings and
Revenue (BIR) on the collections of tollway operators. circulars.5

Petitioners claim that, since the VAT would result in The government also argues that petitioners have no
increased toll fees, they have an interest as regular right to invoke the non-impairment of contracts clause
users of tollways in stopping the BIR action. since they clearly have no personal interest in existing
Additionally, Diaz claims that he sponsored the approval toll operating agreements (TOAs) between the
of Republic Act 7716 (the 1994 Expanded VAT Law or government and tollway operators. At any rate, the
EVAT Law) and Republic Act 8424 (the 1997 National non-impairment clause cannot limit the State’s
Internal Revenue Code or the NIRC) at the House of sovereign taxing power which is generally read into
Representatives. Timbol, on the other hand, claims that contracts.
she served as Assistant Secretary of the Department of
Trade and Industry and consultant of the Toll Regulatory Finally, the government contends that the non-inclusion
Board (TRB) in the past administration. of VAT in the parametric formula for computing toll
rates cannot exempt tollway operators from VAT. In any
Petitioners allege that the BIR attempted during the event, it cannot be claimed that the rights of tollway
administration of President Gloria Macapagal-Arroyo to operators to a reasonable rate of return will be
impose VAT on toll fees. The imposition was deferred, impaired by the VAT since this is imposed on top of the
however, in view of the consistent opposition of Diaz toll rate. Further, the imposition of VAT on toll fees
and other sectors to such move. But, upon President would have very minimal effect on motorists using the
Benigno C. Aquino III’s assumption of office in 2010, the tollways.
BIR revived the idea and would impose the challenged
tax on toll fees beginning August 16, 2010 unless In their reply6 to the government’s comment,
judicially enjoined. petitioners point out that tollway operators cannot be
regarded as franchise grantees under the NIRC since
Petitioners hold the view that Congress did not, when it they do not hold legislative franchises. Further, the BIR
enacted the NIRC, intend to include toll fees within the intends to collect the VAT by rounding off the toll rate
meaning of "sale of services" that are subject to VAT; and putting any excess collection in an escrow account.
that a toll fee is a "user’s tax," not a sale of services; But this would be illegal since only the Congress can
that to impose VAT on toll fees would amount to a tax modify VAT rates and authorize its disbursement.
on public service; and that, since VAT was never Finally, BIR Revenue Memorandum Circular 63-2010
factored into the formula for computing toll fees, its (BIR RMC 63-2010), which directs toll companies to
imposition would violate the non-impairment clause of record an accumulated input VAT of zero balance in
the constitution. their books as of August 16, 2010, contravenes Section
111 of the NIRC which grants entities that first become
On August 13, 2010 the Court issued a temporary liable to VAT a transitional input tax credit of 2% on
restraining order (TRO), enjoining the implementation beginning inventory. For this reason, the VAT on toll
of the VAT. The Court required the government, fees cannot be implemented.
represented by respondents Cesar V. Purisima,
Secretary of the Department of Finance, and Kim S. The Issues Presented
Jacinto-Henares, Commissioner of Internal Revenue, to
comment on the petition within 10 days from notice.2 The case presents two procedural issues:
Later, the Court issued another resolution treating the
petition as one for prohibition.3 1. Whether or not the Court may treat the petition for
declaratory relief as one for prohibition; and
On August 23, 2010 the Office of the Solicitor General
filed the government’s comment.4 The government 2. Whether or not petitioners Diaz and Timbol have
avers that the NIRC imposes VAT on all kinds of services legal standing to file the action.
of franchise grantees, including tollway operations,
except where the law provides otherwise; that the The case also presents two substantive issues:
 more mischief both to the tax-paying public and the
1. Whether or not the government is unlawfully government. A belated declaration of nullity of the BIR
expanding VAT coverage by including tollway operators action would make any attempt to refund to the
and tollway operations in the terms "franchise motorists what they paid an administrative nightmare
grantees" and "sale of services" under Section 108 of with no solution. Consequently, it is not only the right,
the Code; and but the duty of the Court to take cognizance of and
resolve the issues that the petition raises.
2. Whether or not the imposition of VAT on tollway
operators a) amounts to a tax on tax and not a tax on Although the petition does not strictly comply with the
services; b) will impair the tollway operators’ right to a requirements of Rule 65, the Court has ample power to
reasonable return of investment under their TOAs; and waive such technical requirements when the legal
c) is not administratively feasible and cannot be questions to be resolved are of great importance to the
implemented. public. The same may be said of the requirement of
locus standi which is a mere procedural requisite.10
The Court’s Rulings
B. On the Substantive Issues:
A. On the Procedural Issues:
One. The relevant law in this case is Section 108 of the
On August 24, 2010 the Court issued a resolution, NIRC, as amended. VAT is levied, assessed, and
treating the petition as one for prohibition rather than collected, according to Section 108, on the gross
one for declaratory relief, the characterization that receipts derived from the sale or exchange of services
petitioners Diaz and Timbol gave their action. The as well as from the use or lease of properties. The third
government has sought reconsideration of the Court’s paragraph of Section 108 defines "sale or exchange of
resolution,7 however, arguing that petitioners’ services" as follows:
allegations clearly made out a case for declaratory
relief, an action over which the Court has no original The phrase ‘sale or exchange of services’ means the
jurisdiction. The government adds, moreover, that the performance of all kinds of services in the Philippines
petition does not meet the requirements of Rule 65 for for others for a fee, remuneration or consideration,
actions for prohibition since the BIR did not exercise including those performed or rendered by construction
judicial, quasi-judicial, or ministerial functions when it and service contractors; stock, real estate, commercial,
sought to impose VAT on toll fees. Besides, petitioners customs and immigration brokers; lessors of property,
Diaz and Timbol has a plain, speedy, and adequate whether personal or real; warehousing services; lessors
remedy in the ordinary course of law against the BIR or distributors of cinematographic films; persons
action in the form of an appeal to the Secretary of engaged in milling, processing, manufacturing or
Finance. repacking goods for others; proprietors, operators or
keepers of hotels, motels, resthouses, pension houses,
But there are precedents for treating a petition for inns, resorts; proprietors or operators of restaurants,
declaratory relief as one for prohibition if the case has refreshment parlors, cafes and other eating places,
far-reaching implications and raises questions that need including clubs and caterers; dealers in securities;
to be resolved for the public good.8 The Court has also lending investors; transportation contractors on their
held that a petition for prohibition is a proper remedy transport of goods or cargoes, including persons who
to prohibit or nullify acts of executive officials that transport goods or cargoes for hire and other domestic
amount to usurpation of legislative authority.9 common carriers by land relative to their transport of
goods or cargoes; common carriers by air and sea
Here, the imposition of VAT on toll fees has far-reaching relative to their transport of passengers, goods or
implications. Its imposition would impact, not only on cargoes from one place in the Philippines to another
the more than half a million motorists who use the place in the Philippines; sales of electricity by
tollways everyday, but more so on the government’s generation companies, transmission, and distribution
effort to raise revenue for funding various projects and companies; services of franchise grantees of electric
for reducing budgetary deficits. utilities, telephone and telegraph, radio and television
broadcasting and all other franchise grantees except
To dismiss the petition and resolve the issues later, after those under Section 119 of this Code and non-life
the challenged VAT has been imposed, could cause insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding
companies; and similar services regardless of whether 5. Lending investors (for use of money);
or not the performance thereof calls for the exercise or
use of the physical or mental faculties. (Underscoring 6. Transportation contractors on their transport of
supplied) goods or cargoes, including persons who transport
goods or cargoes for hire and other domestic common
It is plain from the above that the law imposes VAT on carriers by land relative to their transport of goods or
"all kinds of services" rendered in the Philippines for a cargoes; and
fee, including those specified in the list. The
enumeration of affected services is not exclusive.11 By 7. Common carriers by air and sea relative to their
qualifying "services" with the words "all kinds," transport of passengers, goods or cargoes from one
Congress has given the term "services" an all- place in the Philippines to another place in the
encompassing meaning. The listing of specific services Philippines.
are intended to illustrate how pervasive and broad is
the VAT’s reach rather than establish concrete limits to It does not help petitioners’ cause that Section 108
its application. Thus, every activity that can be imagined subjects to VAT "all kinds of services" rendered for a fee
as a form of "service" rendered for a fee should be "regardless of whether or not the performance thereof
deemed included unless some provision of law calls for the exercise or use of the physical or mental
especially excludes it. faculties." This means that "services" to be subject to
VAT need not fall under the traditional concept of
Now, do tollway operators render services for a fee? services, the personal or professional kinds that require
Presidential Decree (P.D.) 1112 or the Toll Operation the use of human knowledge and skills.
Decree establishes the legal basis for the services that
tollway operators render. Essentially, tollway operators And not only do tollway operators come under the
construct, maintain, and operate expressways, also broad term "all kinds of services," they also come under
called tollways, at the operators’ expense. Tollways the specific class described in Section 108 as "all other
serve as alternatives to regular public highways that franchise grantees" who are subject to VAT, "except
meander through populated areas and branch out to those under Section 119 of this Code."
local roads. Traffic in the regular public highways is for
this reason slow-moving. In consideration for Tollway operators are franchise grantees and they do
constructing tollways at their expense, the operators not belong to exceptions (the low-income radio and/or
are allowed to collect government-approved fees from television broadcasting companies with gross annual
motorists using the tollways until such operators could incomes of less than ₱10 million and gas and water
fully recover their expenses and earn reasonable utilities) that Section 11913 spares from the payment of
returns from their investments. VAT. The word "franchise" broadly covers government
grants of a special right to do an act or series of acts of
When a tollway operator takes a toll fee from a public concern.14
motorist, the fee is in effect for the latter’s use of the
tollway facilities over which the operator enjoys private Petitioners of course contend that tollway operators
proprietary rights12 that its contract and the law cannot be considered "franchise grantees" under
recognize. In this sense, the tollway operator is no Section 108 since they do not hold legislative franchises.
different from the following service providers under But nothing in Section 108 indicates that the "franchise
Section 108 who allow others to use their properties or grantees" it speaks of are those who hold legislative
facilities for a fee: franchises. Petitioners give no reason, and the Court
cannot surmise any, for making a distinction between
1. Lessors of property, whether personal or real; franchises granted by Congress and franchises granted
by some other government agency. The latter, properly
2. Warehousing service operators; constituted, may grant franchises. Indeed, franchises
conferred or granted by local authorities, as agents of
3. Lessors or distributors of cinematographic films; the state, constitute as much a legislative franchise as
though the grant had been made by Congress itself.15
4. Proprietors, operators or keepers of hotels, motels, The term "franchise" has been broadly construed as
resthouses, pension houses, inns, resorts; referring, not only to authorizations that Congress
directly issues in the form of a special law, but also to following discussion in Manila International Airport
those granted by administrative agencies to which the Authority (MIAA) v. Court of Appeals:22
power to grant franchises has been delegated by
Congress.16 No one can dispute that properties of public dominion
mentioned in Article 420 of the Civil Code, like "roads,
Tollway operators are, owing to the nature and object canals, rivers, torrents, ports and bridges constructed by
of their business, "franchise grantees." The the State," are owned by the State. The term "ports"
construction, operation, and maintenance of toll includes seaports and airports. The MIAA Airport Lands
facilities on public improvements are activities of public and Buildings constitute a "port" constructed by the
consequence that necessarily require a special grant of State. Under Article 420 of the Civil Code, the MIAA
authority from the state. Indeed, Congress granted Airport Lands and Buildings are properties of public
special franchise for the operation of tollways to the dominion and thus owned by the State or the Republic
Philippine National Construction Company, the former of the Philippines.
tollway concessionaire for the North and South Luzon
Expressways. Apart from Congress, tollway franchises x x x The operation by the government of a tollway does
may also be granted by the TRB, pursuant to the not change the character of the road as one for public
exercise of its delegated powers under P.D. 1112.17 The use. Someone must pay for the maintenance of the
franchise in this case is evidenced by a "Toll Operation road, either the public indirectly through the taxes they
Certificate."18 pay the government, or only those among the public
who actually use the road through the toll fees they pay
Petitioners contend that the public nature of the upon using the road. The tollway system is even a more
services rendered by tollway operators excludes such efficient and equitable manner of taxing the public for
services from the term "sale of services" under Section the maintenance of public roads.
108 of the Code. But, again, nothing in Section 108
supports this contention. The reverse is true. In The charging of fees to the public does not determine
specifically including by way of example electric utilities, the character of the property whether it is for public
telephone, telegraph, and broadcasting companies in its dominion or not. Article 420 of the Civil Code defines
list of VAT-covered businesses, Section 108 opens other property of public dominion as "one intended for public
companies rendering public service for a fee to the use." Even if the government collects toll fees, the road
imposition of VAT. Businesses of a public nature such as is still "intended for public use" if anyone can use the
public utilities and the collection of tolls or charges for road under the same terms and conditions as the rest of
its use or service is a franchise.19 the public. The charging of fees, the limitation on the
kind of vehicles that can use the road, the speed
Nor can petitioners cite as binding on the Court restrictions and other conditions for the use of the road
statements made by certain lawmakers in the course of do not affect the public character of the road.
congressional deliberations of the would-be law. As the
Court said in South African Airways v. Commissioner of The terminal fees MIAA charges to passengers, as well
Internal Revenue,20 "statements made by individual as the landing fees MIAA charges to airlines, constitute
members of Congress in the consideration of a bill do the bulk of the income that maintains the operations of
not necessarily reflect the sense of that body and are, MIAA. The collection of such fees does not change the
consequently, not controlling in the interpretation of character of MIAA as an airport for public use. Such fees
law." The congressional will is ultimately determined by are often termed user’s tax. This means taxing those
the language of the law that the lawmakers voted on. among the public who actually use a public facility
Consequently, the meaning and intention of the law instead of taxing all the public including those who
must first be sought "in the words of the statute itself, never use the particular public facility. A user’s tax is
read and considered in their natural, ordinary, more equitable – a principle of taxation mandated in
commonly accepted and most obvious significations, the 1987 Constitution."23 (Underscoring supplied)
according to good and approved usage and without
resorting to forced or subtle construction." Petitioners assume that what the Court said above,
equating terminal fees to a "user’s tax" must also
Two. Petitioners argue that a toll fee is a "user’s tax" pertain to tollway fees. But the main issue in the MIAA
and to impose VAT on toll fees is tantamount to taxing a case was whether or not Parañaque City could sell
tax.21 Actually, petitioners base this argument on the airport lands and buildings under MIAA administration
at public auction to satisfy unpaid real estate taxes. Parenthetically, VAT on tollway operations cannot be
Since local governments have no power to tax the deemed a tax on tax due to the nature of VAT as an
national government, the Court held that the City could indirect tax. In indirect taxation, a distinction is made
not proceed with the auction sale. MIAA forms part of between the liability for the tax and burden of the tax.
the national government although not integrated in the The seller who is liable for the VAT may shift or pass on
department framework."24 Thus, its airport lands and the amount of VAT it paid on goods, properties or
buildings are properties of public dominion beyond the services to the buyer. In such a case, what is transferred
commerce of man under Article 420(1)25 of the Civil is not the seller’s liability but merely the burden of the
Code and could not be sold at public auction. VAT.29

As can be seen, the discussion in the MIAA case on toll Thus, the seller remains directly and legally liable for
roads and toll fees was made, not to establish a rule payment of the VAT, but the buyer bears its burden
that tollway fees are user’s tax, but to make the point since the amount of VAT paid by the former is added to
that airport lands and buildings are properties of public the selling price. Once shifted, the VAT ceases to be a
dominion and that the collection of terminal fees for tax30 and simply becomes part of the cost that the
their use does not make them private properties. buyer must pay in order to purchase the good, property
Tollway fees are not taxes. Indeed, they are not or service.
assessed and collected by the BIR and do not go to the
general coffers of the government. Consequently, VAT on tollway operations is not really a
tax on the tollway user, but on the tollway operator.
It would of course be another matter if Congress enacts Under Section 105 of the Code, 31 VAT is imposed on
a law imposing a user’s tax, collectible from motorists, any person who, in the course of trade or business, sells
for the construction and maintenance of certain or renders services for a fee. In other words, the seller
roadways. The tax in such a case goes directly to the of services, who in this case is the tollway operator, is
government for the replenishment of resources it the person liable for VAT. The latter merely shifts the
spends for the roadways. This is not the case here. burden of VAT to the tollway user as part of the toll
What the government seeks to tax here are fees fees.
collected from tollways that are constructed,
maintained, and operated by private tollway operators For this reason, VAT on tollway operations cannot be a
at their own expense under the build, operate, and tax on tax even if toll fees were deemed as a "user’s
transfer scheme that the government has adopted for tax." VAT is assessed against the tollway operator’s
expressways.26 Except for a fraction given to the gross receipts and not necessarily on the toll fees.
government, the toll fees essentially end up as earnings Although the tollway operator may shift the VAT burden
of the tollway operators. to the tollway user, it will not make the latter directly
liable for the VAT. The shifted VAT burden simply
In sum, fees paid by the public to tollway operators for becomes part of the toll fees that one has to pay in
use of the tollways, are not taxes in any sense. A tax is order to use the tollways.32
imposed under the taxing power of the government
principally for the purpose of raising revenues to fund Three. Petitioner Timbol has no personality to invoke
public expenditures.27 Toll fees, on the other hand, are the non-impairment of contract clause on behalf of
collected by private tollway operators as private investors in the tollway projects. She will neither
reimbursement for the costs and expenses incurred in be prejudiced by nor be affected by the alleged
the construction, maintenance and operation of the diminution in return of investments that may result
tollways, as well as to assure them a reasonable margin from the VAT imposition. She has no interest at all in
of income. Although toll fees are charged for the use of the profits to be earned under the TOAs. The interest in
public facilities, therefore, they are not government and right to recover investments solely belongs to the
exactions that can be properly treated as a tax. Taxes private tollway investors.
may be imposed only by the government under its
sovereign authority, toll fees may be demanded by Besides, her allegation that the private investors’ rate of
either the government or private individuals or entities, recovery will be adversely affected by imposing VAT on
as an attribute of ownership.28 tollway operations is purely speculative. Equally
presumptuous is her assertion that a stipulation in the
TOAs known as the Material Adverse Grantor Action will
be activated if VAT is thus imposed. The Court cannot The issuance allegedly violates Section 111(A)36 of the
rule on matters that are manifestly conjectural. Neither Code which grants first time VAT payers a transitional
can it prohibit the State from exercising its sovereign input VAT of 2% on beginning inventory.
taxing power based on uncertain, prophetic grounds.
In this connection, the BIR explained that BIR RMC 63-
Four. Finally, petitioners assert that the substantiation 2010 is actually the product of negotiations with tollway
requirements for claiming input VAT make the VAT on operators who have been assessed VAT as early as
tollway operations impractical and incapable of 2005, but failed to charge VAT-inclusive toll fees which
implementation. They cite the fact that, in order to by now can no longer be collected. The tollway
claim input VAT, the name, address and tax operators agreed to waive the 2% transitional input
identification number of the tollway user must be VAT, in exchange for cancellation of their past due VAT
indicated in the VAT receipt or invoice. The manner by liabilities. Notably, the right to claim the 2% transitional
which the BIR intends to implement the VAT – by input VAT belongs to the tollway operators who have
rounding off the toll rate and putting any excess not questioned the circular’s validity. They are thus the
collection in an escrow account – is also illegal, while ones who have a right to challenge the circular in a
the alternative of giving "change" to thousands of direct and proper action brought for the purpose.
motorists in order to meet the exact toll rate would be a
logistical nightmare. Thus, according to them, the VAT Conclusion
on tollway operations is not administratively feasible.33
In fine, the Commissioner of Internal Revenue did not
Administrative feasibility is one of the canons of a sound usurp legislative prerogative or expand the VAT law’s
tax system. It simply means that the tax system should coverage when she sought to impose VAT on tollway
be capable of being effectively administered and operations. Section 108(A) of the Code clearly states
enforced with the least inconvenience to the taxpayer. that services of all other franchise grantees are subject
Non-observance of the canon, however, will not render to VAT, except as may be provided under Section 119 of
a tax imposition invalid "except to the extent that the Code. Tollway operators are not among the
specific constitutional or statutory limitations are franchise grantees subject to franchise tax under the
impaired."34 Thus, even if the imposition of VAT on latter provision. Neither are their services among the
tollway operations may seem burdensome to VAT-exempt transactions under Section 109 of the
implement, it is not necessarily invalid unless some Code.
aspect of it is shown to violate any law or the
Constitution. If the legislative intent was to exempt tollway
operations from VAT, as petitioners so strongly allege,
Here, it remains to be seen how the taxing authority will then it would have been well for the law to clearly say
actually implement the VAT on tollway operations. Any so. Tax exemptions must be justified by clear statutory
declaration by the Court that the manner of its grant and based on language in the law too plain to be
implementation is illegal or unconstitutional would be mistaken.37 But as the law is written, no such
premature. Although the transcript of the August 12, exemption obtains for tollway operators. The Court is
2010 Senate hearing provides some clue as to how the thus duty-bound to simply apply the law as it is
BIR intends to go about it,35 the facts pertaining to the found.1avvphi1
matter are not sufficiently established for the Court to
pass judgment on. Besides, any concern about how the Lastly, the grant of tax exemption is a matter of
VAT on tollway operations will be enforced must first be legislative policy that is within the exclusive prerogative
addressed to the BIR on whom the task of implementing of Congress. The Court’s role is to merely uphold this
tax laws primarily and exclusively rests. The Court legislative policy, as reflected first and foremost in the
cannot preempt the BIR’s discretion on the matter, language of the tax statute. Thus, any unwarranted
absent any clear violation of law or the Constitution. burden that may be perceived to result from enforcing
such policy must be properly referred to Congress. The
For the same reason, the Court cannot prematurely Court has no discretion on the matter but simply applies
declare as illegal, BIR RMC 63-2010 which directs toll the law.
companies to record an accumulated input VAT of zero
balance in their books as of August 16, 2010, the date The VAT on franchise grantees has been in the statute
when the VAT imposition was supposed to take effect. books since 1994 when R.A. 7716 or the Expanded
Value-Added Tax law was passed. It is only now, This is a petition to review on certiorari the decision of
however, that the executive has earnestly pursued the the Court of Tax Appeals which ruled that the money
VAT imposition against tollway operators. The executive entrusted to private respondent Tours Specialists, Inc.,
exercises exclusive discretion in matters pertaining to earmarked and paid for hotel room charges of tourists,
the implementation and execution of tax laws. travelers and/or foreign travel agencies does not form
Consequently, the executive is more properly suited to part of its gross receipts subject to the 3% independent
deal with the immediate and practical consequences of contractor's tax under the National Internal Revenue
the VAT imposition. Code of 1977.

WHEREFORE, the Court DENIES respondents Secretary We adopt the findings of facts of the Court of Tax
of Finance and Commissioner of Internal Revenue’s Appeals as follows:
motion for reconsideration of its August 24, 2010
resolution, DISMISSES the petitioners Renato V. Diaz For the years 1974 to 1976, petitioner (Tours Specialists,
and Aurora Ma. F. Timbol’s petition for lack of merit, Inc.) had derived income from its activities as a travel
and SETS ASIDE the Court’s temporary restraining order agency by servicing the needs of foreign tourists and
dated August 13, 2010. travelers and Filipino "Balikbayans" during their stay in
this country. Some of the services extended to the
SO ORDERED. tourists consist of booking said tourists and travelers in
local hotels for their lodging and board needs;
transporting these foreign tourists from the airport to
their respective hotels, and from the latter to the
airport upon their departure from the Philippines,
transporting them from their hotels to various
embarkation points for local tours, visits and excursions;
securing permits for them to visit places of interest; and
arranging their cultural entertainment, shopping and
recreational activities.

In order to ably supply these services to the foreign

tourists, petitioner and its correspondent counterpart
tourist agencies abroad have agreed to offer a package
fee for the tourists. Although the fee to be paid by said
tourists is quoted by the petitioner, the payments of the
hotel room accommodations, food and other personal
expenses of said tourists, as a rule, are paid directly
either by tourists themselves, or by their foreign travel
agencies to the local hotels (pp. 77, t.s.n., February 2,
1981; Exhs. O & O-1, p. 29, CTA rec.; pp. 2425, t.s.n.,
ibid) and restaurants or shops, as the case may be.

It is also the case that some tour agencies abroad

G.R. No. L-66416 March 21, 1990 request the local tour agencies, such as the petitioner in
the case, that the hotel room charges, in some specific
COMMISSIONER OF INTERNAL REVENUE, petitioner, cases, be paid through them. (Exh. Q, Q-1, p. 29 CTA
vs. rec., p. 25, T.s.n., ibid, pp. 5-6, 17-18, t.s.n., Aug. 20,
TOURS SPECIALISTS, INC., and THE COURT OF TAX 1981.; See also Exh. "U", pp. 22-23, t.s.n., Oct. 9, 1981,
APPEALS, respondents. pp. 3-4, 11., t.s.n., Aug. 10, 1982). By this arrangement,
the foreign tour agency entrusts to the petitioner Tours
Gadioma Law Offices for private respondent. Specialists, Inc., the fund for hotel room
accommodation, which in turn is paid by petitioner tour
agency to the local hotel when billed. The procedure
GUTIERREZ, JR., J.: observed is that the billing hotel sends the bill to the
petitioner. The local hotel identifies the individual
tourist, or the particular groups of tourists by code P 67,845.53
name or group designation and also the duration of
their stay for purposes of payment. Upon receipt of the 14% interest computed by quarters
bill, the petitioner then pays the local hotel with the
funds entrusted to it by the foreign tour correspondent up to 12-28-79 28,910.97 P 96,756.50
agency.
————— —————
Despite this arrangement, respondent Commissioner of
Internal Revenue assessed petitioner for deficiency 3% Total amount due P 122,946.93
contractor's tax as independent contractor by including =========
the entrusted hotel room charges in its gross receipts
from services for the years 1974 to 1976. Consequently, In addition to the deficiency contractor's tax of
on December 6, 1979, petitioner received from P122,946.93, petitioner was assessed to pay a
respondent the 3% deficiency independent contractor's compromise penalty of P500.00.
tax assessment in the amount of P122,946.93 for the
years 1974 to 1976, inclusive, computed as follows: Subsequently on December 11, 1979, petitioner
formally protested the assessment made by respondent
1974 deficiency percentage tax on the ground that the money received and entrusted
to it by the tourists, earmarked to pay hotel room
per investigation P 3,995.63 charges, were not considered and have never been
considered by it as part of its taxable gross receipts for
15% surcharge for late payment 998.91 purposes of computing and paying its constractor's tax.

————— During one of the hearings in this case, a witness,

Serafina Sazon, Certified Public Accountant and in
P 4,994.54 charge of the Accounting Department of petitioner, had
testified, her credibility not having been destroyed on
14% interest computed by quarters cross examination, categorically stated that the
amounts entrusted to it by the foreign tourist agencies
up to 12-28-79 3,953.18 P 8,847.72 intended for payment of hotel room charges, were paid
entirely to the hotel concerned, without any portion
1975 deficiency percentage tax thereof being diverted to its own funds. (t.s.n., Feb. 2,
1981, pp. 7, 25; t.s.n., Aug. 20, 1981, pp. 5-9, 17-18).
per investigation P 8,427.39 The testimony of Serafina Sazon was corroborated by
Gerardo Isada, General Manager of petitioner, declaring
25% surcharge for late payment 2,106.85 to the effect that payments of hotel accommodation are
made through petitioner without any increase in the
————— room charged (t.s.n., Oct. 9, 1981, pp. 21-25) and that
the reason why tourists pay their room charge, or
P 10,534.24 through their foreign tourists agencies, is the fact that
the room charge is exempt from hotel room tax under
14% interest computed by quarters P.D. 31. (t.s.n., Ibid., pp. 25-29.) Witness Isada stated,
on cross-examination, that if their payment is made,
up to 12-28-79 6,808.47 P 17,342.71 thru petitioner's tour agency, the hotel cost or charges
"is only an act of accomodation on our (its) part" or that
1976 deficiency percentage the "agent abroad instead of sending several telexes
and saving on bank charges they take the option to send
per investigation P 54,276.42 money to us to be held in trust to be endorsed to the
hotel." (pp. 3-4, t.s.n. Aug. 10, 1982.)
25% surcharge for late payment 13,569.11
Nevertheless, on June 2, 1980, respondent, without
————— deciding the petitioner's written protest, caused the
issuance of a warrant of distraint and levy. (p. 51, BIR
Rec.) And later, respondent had petitioner's bank As quoted earlier, the Court of Tax Appeals sufficiently
deposits garnished. (pp. 49-50, BIR Rec.) explained the services of a local travel agency, like the
herein private respondent, rendered to foreign
Taking this action of respondent as the adverse and final customers. The respondent differentiated between the
decision on the disputed assessment, petitioner package fee — offered by both the local travel agency
appealed to this Court. (Rollo, pp. 40-45) and its correspondent counterpart tourist agencies
abroad and the requests made by some tour agencies
The petitioner raises the lone issue in this petition as abroad to local tour agencies wherein the hotel room
follows: charges in some specific cases, would be paid to the
local hotels through them. In the latter case, the
WHETHER AMOUNTS RECEIVED BY A LOCAL TOURIST correspondent court found as a fact ". . . that the
AND TRAVEL AGENCY INCLUDED IN A PACKAGE FEE foreign tour agency entrusts to the petitioner Tours
FROM TOURISTS OR FOREIGN TOUR AGENCIES, Specialists, Inc. the fund for hotel room
INTENDED OR EARMARKED FOR HOTEL accommodation, which in turn is paid by petitioner tour
ACCOMMODATIONS FORM PART OF GROSS RECEIPTS agency to the local hotel when billed." (Rollo, p. 42) The
SUBJECT TO 3% CONTRACTOR'S TAX. (Rollo, p. 23) following procedure is followed: The billing hotel sends
the bill to the respondent; the local hotel then identifies
The petitioner premises the issue raised on the the individual tourist, or the particular group of tourist
following assumptions: by code name or group designation plus the duration of
their stay for purposes of payment; upon receipt of the
Firstly, the ruling overlooks the fact that the amounts bill the private respondent pays the local hotel with the
received, intended for hotel room accommodations, funds entrusted to it by the foreign tour correspondent
were received as part of the package fee and, therefore, agency.
form part of "gross receipts" as defined by law.
Moreover, evidence presented by the private
Secondly, there is no showing and is not established by respondent shows that the amounts entrusted to it by
the evidence. that the amounts received and the foreign tourist agencies to pay the room charges of
"earmarked" are actually what had been paid out as foreign tourists in local hotels were not diverted to its
hotel room charges. The mere possibility that the funds; this arrangement was only an act of
amounts actually paid could be less than the amounts accommodation on the part of the private respondent.
received is sufficient to destroy the validity of the ruling. This evidence was not refuted.
(Rollo, pp. 26-27)
In essence, the petitioner's assertion that the hotel
In effect, the petitioner's lone issue is based on alleged room charges entrusted to the private respondent were
error in the findings of facts of the respondent court. part of the package fee paid by foreign tourists to the
respondent is not correct. The evidence is clear to the
The well-settled doctrine is that the findings of facts of effect that the amounts entrusted to the private
the Court of Tax Appeals are binding on this Court and respondent were exclusively for payment of hotel room
absent strong reasons for this Court to delve into facts, charges of foreign tourists entrusted to it by foreign
only questions of law are open for determination. travel agencies.
(Nilsen v. Commissioner of Customs, 89 SCRA 43 [1979];
Balbas v. Domingo, 21 SCRA 444 [1967]; Raymundo v. As regards the petitioner's second assumption, the
De Joya, 101 SCRA 495 [1980]). In the recent case of Sy respondent court stated:
Po v. Court of Appeals, (164 SCRA 524 [1988]), we ruled
that the factual findings of the Court of Tax Appeals are . . . [C]ontrary to the contention of respondent, the
binding upon this court and can only be disturbed on records show, firstly, in the Examiners' Worksheet (Exh.
appeal if not supported by substantial evidence. T, p. 22, BIR Rec.), that from July to December 1976
alone, the following sums made up the hotel room
In the instant case, we find no reason to disregard and accommodations:
deviate from the findings of facts of the Court of Tax
Appeals. July 1976 P 102,702.97

Aug. 1976 121,167.19

 According to the petitioner, this interpretation is in
Sept. 1976 53,209.61 consonance with B.I.R. Ruling No. 68-027, dated 23
October, 1968 (implementing Section 191 of the Tax
————— Code) which states that the 3% contractor's tax
prescribed by Section 191 of the Tax Code is imposed of
P 282,079.77 the gross receipts of the contractor, "no deduction
whatever being allowed by said law." The petitioner
========= contends that the only exception to this rule is when
there is a law or regulation which would exempt such
Oct. 1976 P 71,134.80 gross receipts from being subjected to the 3%
contractor's tax citing the case of Commissioner of
Nov. 1976 409,019.17 Internal Revenue v. Manila Jockey Club, Inc. (108 Phil.
821 [1960]). Thus, the petitioner argues that since there
Dec. 1976 142,761.55 is no law or regulation that money entrusted,
earmarked and paid for hotel room charges should not
————— form part of the gross receipts, then the said hotel room
charges are included in the private respondent's gross
622,915.51 receipts for purposes of the 3% contractor's tax.

————— In the case of Commissioner of Internal Revenue v.

Manila Jockey Club, Inc. (supra), the Commissioner
Grand Total P 904,995.29 appealed two decisions of the Court of Tax Appeals
disapproving his levy of amusement taxes upon the
========= Manila Jockey Club, a duly constituted corporation
authorized to hold horse races in Manila. The facts of
It is not true therefore, as stated by respondent, that the case show that the monies sought to be taxed never
there is no evidence proving the amounts earmarked really belonged to the club. The decision shows that
for hotel room charges. Since the BIR examiners could during the period November 1946 to 1950, the Manila
not have manufactured the above figures representing Jockey Club paid amusement tax on its commission but
"advances for hotel room accommodations," these without including the 5-1/2% which pursuant to
payments must have certainly been taken from the Executive Order 320 and Republic Act 309 went to the
records of petitioner, such as the invoices, hotel bills, Board of Races, the owner of horses and jockeys.
official receipts and other pertinent documents. (Rollo, Section 260 of the Internal Revenue Code provides that
pp. 48-49) the amusement tax was payable by the operator on its
"gross receipts". The Manila Jockey Club, however, did
The factual findings of the respondent court are not consider as part of its "gross receipts" subject to
supported by substantial evidence, hence binding upon amusement tax the amounts which it had to deliver to
this Court. the Board on Races, the horse owners and the jockeys.
This view was fully sustained by three opinions of the
With these clarifications, the issue to be threshed out is Secretary of Justice, to wit:
as stated by the respondent court, to wit:
There is no question that the Manila Jockey, Inc., owns
. . . [W]hether or not the hotel room charges held in only 7-1/2% of the total bets registered by the Totalizer.
trust for foreign tourists and travelers and/or This portion represents its share or commission in the
correspondent foreign travel agencies and paid to local total amount of money it handles and goes to the funds
host hotels form part of the taxable gross receipts for thereof as its own property which it may legally
purposes of the 3% contractor's tax. (Rollo, p. 45) disburse for its own purposes. The 5% does not belong
to the club. It is merely held in trust for distribution as
The petitioner opines that the gross receipts which are prizes to the owners of winning horses. It is destined for
subject to the 3% contractor's tax pursuant to Section no other object than the payment of prizes and the club
191 (Section 205 of the National Internal Revenue Code cannot otherwise appropriate this portion without
of 1977) of the Tax Code include the entire gross incurring liability to the owners of winning horses. It
receipts of a taxpayer undiminished by any amount. cannot be considered as an item of expense because
the sum used for the payment of prizes is not taken 104 Phil. 469; 55 Off. Gaz. [51] 10539; Sy Chuico v. Coll.,
from the funds of the club but from a certain portion of 107 Phil., 428; 59 Off. Gaz., [6] 896).
the total bets especially earmarked for that purpose.
In the second case, the facts of the case are:
In view of all the foregoing, I am of the opinion that in
the submission of the returns for the amusement tax of The Manila Jockey Club holds once a year a so called
10% (now it is 20% of the "gross receipts", provided for "special Novato race", wherein only "novato" horses,
in Section 260 of the National Internal Revenue Code), (i.e. horses which are running for the first time in an
the 5% of the total bets that is set aside for prizes to official [of the club] race), may take part. Owners of
owners of winning horses should not be included by the these horses must pay to the Club an inscription fee of
Manila Jockey Club, Inc. P1.00, and a declaration fee of P1.00 per horse. In
addition, each of them must contribute to a common
The Collector of the Internal Revenue, however had a fund (P10.00 per horse). The Club contributes an equal
different opinion on the matter and demanded payment amount P10.00 per horse) to such common fund, the
of amusement taxes. The Court of Tax Appeals reversed total amount of which is added to the 5% participation
the Collector. of horse owners already described herein-above in the
first case.
We affirmed the decision of the Court of Tax Appeals
and stated: Since the institution of this yearly special novato race in
1950, the Manila Jockey Club never paid amusement tax
The Secretary's opinion was correct. The Government on the moneys thus contributed by horse owners
could not have meant to tax as gross receipt of the (P10.00 each) because it entertained the belief that in
Manila Jockey Club the 1/2% which it directs same Club accordance with the three opinions of the Secretary of
to turn over to the Board on Races. The latter being a Justice herein-above described, such contributions
Government institution, there would be double never formed part of its gross receipts. On the
taxation, which should be avoided unless the statute inscription fee of the P1.00 per horse, it paid the tax. It
admits of no other interpretation. In the same manner, did not on the declaration fee of P1.00 because it was
the Government could not have intended to consider as imposed by the Municipal Ordinance of Manila and was
gross receipt the portion of the funds which it directed turned over to the City officers.
the Club to give, or knew the Club would give, to
winning horses and jockeys — admittedly 5%. It is true The Collector of Internal Revenue required the Manila
that the law says that out of the total wager funds 12- Jockey Club to pay amusement tax on such contributed
1/2% shall be set aside as the "commission" of the race fund P10.00 per horse in the special novato race,
track owner, but the law itself takes official notice, and holding they were part of its gross receipts. The Manila
actually approves or directs payment of the portion that Jockey Club protested and resorted to the Court of Tax
goes to owners of horses as prizes and bonuses of Appeals, where it obtained favorable judgment on the
jockeys, which portion is admittedly 5% out of that 12- same grounds sustained by said Court in connection
1/2% commission. As it did not at that time with the 5% of the total wager funds in the herein-
contemplate the application of "gross receipts" revenue mentioned first case; they were not receipts of the Club.
principle, the law in making a distribution of the total
wager funds, took no trouble of separating one item We resolved the issue in the following manner:
from the other; and for convenience, grouped three
items under one common denomination. We think the reasons for upholding the Tax Court's
decision in the first case apply to this one. The ten-peso
Needless to say, gross receipts of the proprietor of the contribution never belonged to the Club. It was held by
amusement place should not include any money which it as a trust fund. And then, after all, when it received
although delivered to the amusement place has been the ten-peso contribution, it at the same time
especially earmarked by law or regulation for some contributed ten pesos out of its own pocket, and
person other than the proprietor. (The situation thus thereafter distributed both amounts as prizes to horse
differs from one in which the owner of the amusement owners. It would seem unreasonable to regard the ten-
place, by a private contract, with its employees or peso contribution of the horse owners as taxable
partners, agrees to reserve for them a portion of the receipt of the Club, since the latter, at the same
proceeds of the establishment. (See Wong & Lee v. Coll.
moment it received the contribution necessarily lost ten We agree with the Court of Tax Appeals in rejecting this
pesos too. contention of the petitioner. Said the respondent court:

As demonstrated in the above-mentioned case, gross "In context, direct taxes are those that are demanded
receipts subject to tax under the Tax Code do not from the very person who, it is intended or desired,
include monies or receipts entrusted to the taxpayer should pay them; while indirect taxes are those that are
which do not belong to them and do not redound to the demanded in the first instance from one person in the
taxpayer's benefit; and it is not necessary that there expectation and intention that he can shift the burden
must be a law or regulation which would exempt such to someone else. (Pollock v. Farmers, L & T Co., 1957 US
monies and receipts within the meaning of gross 429, 15 S. Ct. 673, 39 Law. ed. 759). The contractor's tax
receipts under the Tax Code. is of course payable by the contractor but in the last
analysis it is the owner of the building that shoulders
Parenthetically, the room charges entrusted by the the burden of the tax because the same is shifted by the
foreign travel agencies to the private respondent do not contractor to the owner as a matter of self-
form part of its gross receipts within the definition of preservation. Thus, it is an indirect tax. And it is an
the Tax Code. The said receipts never belonged to the indirect tax on the WHO because, although it is payable
private respondent. The private respondent never by the petitioner, the latter can shift its burden on the
benefited from their payment to the local hotels. As WHO. In the last analysis it is the WHO that will pay the
stated earlier, this arrangement was only to tax indirectly through the contractor and it certainly
accommodate the foreign travel agencies. cannot be said that 'this tax has no bearing upon the
World Health Organization.'"
Another objection raised by the petitioner is to the
respondent court's application of Presidential Decree 31 Petitioner claims that under the authority of the
which exempts foreign tourists from payment of hotel Philippine Acetylene Company versus Commissioner of
room tax. Section 1 thereof provides: Internal Revenue, et al., (127 Phil. 461) the 3%
contractor's tax falls directly on Gotamco and cannot be
Sec. 1. — Foreign tourists and travelers shall be exempt shifted to the WHO. The Court of Tax Appeals, however,
from payment of any and all hotel room tax for the held that the said case is not controlling in this case,
entire period of their stay in the country. since the Host Agreement specifically exempts the WHO
from "indirect taxes." We agree. The Philippine
The petitioner now alleges that P.D. 31 has no relevance Acetylene case involved a tax on sales of goods which
to the case. He contends that the tax under Section 191 under the law had to be paid by the manufacturer or
of the Tax Code is in the nature of an excise tax; that it producer; the fact that the manufacturer or producer
is a tax on the exercise of the privilege to engage in might have added the amount of the tax to the price of
business as a contractor and that it is imposed on, and the goods did not make the sales tax "a tax on the
collectible from the person exercising the privilege. He purchaser." The Court held that the sales tax must be
sums his arguments by stating that "while the burden paid by the manufacturer or producer even if the sale is
may be shifted to the person for whom the services are made to tax-exempt entities like the National Power
rendered by the contractor, the latter is not relieved Corporation, an agency of the Philippine Government,
from payment of the tax." (Rollo, p. 28) and to the Voice of America, an agency of the United
States Government.
The same arguments were submitted by the
Commissioner of Internal Revenue in the case of The Host Agreement, in specifically exempting the WHO
Commissioner of Internal Revenue v. John Gotamco & from "indirect taxes," contemplates taxes which,
Son., Inc. (148 SCRA 36 [1987]), to justify his imposition although not imposed upon or paid by the Organization
of the 3% contractor's tax under Section 191 of the directly, form part of the price paid or to be paid by it.
National Internal Revenue Code on the gross receipts
John Gotamco & Sons, Inc., realized from the Accordingly, the significance of P.D. 31 is clearly
construction of the World Health Organization (WHO) established in determining whether or not hotel room
office building in Manila. We rejected the petitioner's charges of foreign tourists in local hotels are subject to
arguments and ruled: the 3% contractor's tax. As the respondent court aptly
stated:
. . . If the hotel room charges entrusted to petitioner will
be subjected to 3% contractor's tax as what respondent ERNESTO M. MACEDA, petitioner,
would want to do in this case, that would in effect do vs.
indirectly what P.D. 31 would not like hotel room HON. CATALINO MACARAIG, JR., in his capacity as
charges of foreign tourists to be subjected to hotel Executive Secretary, Office of the President; HON.
room tax. Although, respondent may claim that the 3% VICENTE R. JAYME, in his capacity as Secretary of the
contractor's tax is imposed upon a different incidence Department of Finance; HON. SALVADOR MISON, in his
i.e. the gross receipts of petitioner tourist agency which capacity as Commissioner, Bureau of Customs; HON.
he asserts includes the hotel room charges entrusted to JOSE U. ONG, in his capacity as Commissioner of
it, the effect would be to impose a tax, and though Internal Revenue; NATIONAL POWER CORPORATION;
different, it nonetheless imposes a tax actually on room the FISCAL INCENTIVES REVIEW BOARD; Caltex (Phils.)
charges. One way or the other, it would not have the Inc.; Pilipinas Shell Petroleum Corporation; Philippine
effect of promoting tourism in the Philippines as that National Oil Corporation; and Petrophil Corporation,
would increase the costs or expenses by the addition of respondents.
a hotel room tax in the overall expenses of said tourists.
(Rollo, pp. 51-52) Villamor & Villamor Law Offices for petitioner.
Angara, Abello, Concepcion, Regala & Cruz for Pilipinas
WHEREFORE, the instant petition is DENIED. The Shell Petroleum Corporation.
decision of the Court of Tax Appeals is AFFIRMED. No Siguion Reyna, Montecillo & Ongsiako for Caltex (Phils.),
pronouncement as to costs. Inc.

SO ORDERED.
GANCAYCO, J.:

This petition seeks to nullify certain decisions, orders,

rulings, and resolutions of respondents Executive
Secretary, Secretary of Finance, Commissioner of
Internal Revenue, Commissioner of Customs and the
Fiscal Incentives Review Board FIRB for exempting the
National Power Corporation (NPC) from indirect tax and
duties.

The relevant facts are not in dispute.

On November 3, 1986, Commonwealth Act No. 120

created the NPC as a public corporation to undertake
the development of hydraulic power and the production
of power from other sources.1

On June 4, 1949, Republic Act No. 358 granted NPC tax

and duty exemption privileges under—

Sec. 2. To facilitate payment of its indebtedness, the

National Power Corporation shall be exempt from all
taxes, duties, fees, imposts, charges and restrictions of
the Republic of the Philippines, its provinces, cities and
municipalities.

On September 10, 1971, Republic Act No. 6395 revised

the charter of the NPC wherein Congress declared as a
national policy the total electrification of the Philippines
through the development of power from all sources to
G.R. No. 88291 May 31, 1991 meet the needs of industrial development and rural
electrification which should be pursued coordinately Macaraig, Jr., confirmed and approved FIRB Resolution
and supported by all instrumentalities and agencies of No. 17-87.
the government, including its financial institutions.2 The
corporate existence of NPC was extended to carry out As alleged in the petition, the following are the
this policy, specifically to undertake the development of background facts:
hydro electric generation of power and the production
of electricity from nuclear, geothermal and other The following are the facts relevant to NPC's questioned
sources, as well as the transmission of electric power on claim for refunds of taxes and duties originally paid by
a nationwide basis.3 Being a non-profit corporation, respondents Caltex, Petrophil and Shell for specific and
Section 13 of the law provided in detail the exemption ad valorem taxes to the BIR; and for Customs duties and
of the NPC from all taxes, duties, fees, imposts and ad valorem taxes paid by PNOC, Shell and Caltex to the
other charges by the government and its Bureau of Customs on its crude oil importation.
instrumentalities.
Many of the factual statements are reproduced from
On January 22, 1974, Presidential Decree No. 380 the Senate Committee on Accountability of Public
amended section 13, paragraphs (a) and (d) of Republic Officers and Investigations (Blue Ribbon) Report No. 474
Act No. 6395 by specifying, among others, the dated January 12, 1989 and approved by the Senate on
exemption of NPC from such taxes, duties, fees, imposts April 21, 1989 (copy attached hereto as Annex "A") and
and other charges imposed "directly or indirectly," on are identified in quotation marks:
all petroleum products used by NPC in its operation.
Presidential Decree No. 938 dated May 27, 1976 further 1. Since May 27, 1976 when P.D. No. 938 was issued
amended the aforesaid provision by integrating the tax until June 11, 1984 when P.D. No. 1931 was
exemption in general terms under one paragraph. promulgated abolishing the tax exemptions of all
government-owned or-controlled corporations, the oil
On June 11, 1984, Presidential Decree No. 1931 firms never paid excise or specific and ad valorem taxes
withdrew all tax exemption privileges granted in favor for petroleum products sold and delivered to the NPC.
of government-owned or controlled corporations This non-payment of taxes therefore spanned a period
including their subsidiaries.4 However, said law of eight (8) years. (par. 23, p. 7, Annex "A")
empowered the President and/or the then Minister of
Finance, upon recommendation of the FIRB to restore, During this period, the Bureau of Internal Revenue was
partially or totally, the exemption withdrawn, or not collecting specific taxes on the purchases of NPC of
otherwise revise the scope and coverage of any petroleum products from the oil companies on the
applicable tax and duty. erroneous belief that the National Power Corporation
(NPC) was exempt from indirect taxes as reflected in the
Pursuant to said law, on February 7, 1985, the FIRB letter of Deputy Commissioner of Internal Revenue
issued Resolution No. 10-85 restoring the tax and duty (DCIR) Romulo Villa to the NPC dated October 29, 1980
exemption privileges of NPC from June 11, 1984 to June granting blanket authority to the NPC to purchase
30, 1985. On January 7, 1986, the FIRB issued resolution petroleum products from the oil companies without
No. 1-86 indefinitely restoring the NPC tax and duty payment of specific tax (copy of this letter is attached
exemption privileges effective July 1, 1985. hereto as petitioner's Annex "B").

However, effective March 10, 1987, Executive Order No. 2. The oil companies started to pay specific and ad
93 once again withdrew all tax and duty incentives valorem taxes on their sales of oil products to NPC only
granted to government and private entities which had after the promulgation of P.D. No. 1931 on June 11,
been restored under Presidential Decree Nos. 1931 and 1984, withdrawing all exemptions granted in favor of
1955 but it gave the authority to FIRB to restore, revise government-owned or-controlled corporations and
the scope and prescribe the date of effectivity of such empowering the FIRB to recommend to the President or
tax and/or duty exemptions. to the Minister of Finance the restoration of the
exemptions which were withdrawn. "Specifically, Caltex
On June 24, 1987 the FIRB issued Resolution No. 17-87 paid the total amount of P58,020,110.79 in specific and
restoring NPC's tax and duty exemption privileges ad valorem taxes for deliveries of petroleum products
effective March 10, 1987. On October 5, 1987, the to NPC covering the period from October 31, 1984 to
President, through respondent Executive Secretary April 27, 1985." (par. 23, p. 7, Annex "A")
 8. In a letter to the President of NPC (Annex "F"), dated
3. Caltex billings to NPC until June 10, 1984 always June 26, 1985, Minister Cesar Virata confirmed the
included customs duty without the tax portion. ruling of May 8, 1985 of Acting BIR Commissioner Ruben
Beginning June 11, 1984, when P.D. 1931 was Ancheta, (par. 41, p. 12, Annex "A")
promulgated abolishing NPC's tax exemptions, Caltex's
billings to NPC always included both duties and taxes. 9. On October 22, 1985, however, under BIR Ruling No.
(Caturla, tsn, Oct. 10, 1988, pp. 1-5) (par. 24, p, 7, Annex 186-85, addressed to Hanil Development Co., Ltd., a
"A") Korean contractor of NPC for its infrastructure projects,
certified true copy of which is attached hereto as
4. For the sales of petroleum products delivered to NPC petitioner's Annex "E", BIR Acting Commissioner Ruben
during the period from October, 1984 to April, 1985, Ancheta ruled:
NPC was billed a total of P522,016,77.34 (sic) including
both duties and taxes, the specific tax component being In Reply please be informed that after a re-study of
valued at P58,020,110.79. (par. 25, p. 8, Annex "A"). Section 13, R.A. 6395, as amended by P.D. 938, this
Office is of the opinion, and so holds, that the scope of
5. Fiscal Incentives Review Board (FIRB) Resolution 10- the tax exemption privilege enjoyed by NPC under said
85, dated February 7, 1985, certified true copy of which section covers only taxes for which it is directly liable
is hereto attached as Annex "C", restored the tax and not on taxes which are only shifted to it. (Phil.
exemption privileges of NPC effective retroactively to Acetylene vs. C.I.R. et al., G.R. L-19707, Aug. 17, 1967)
June 11, 1984 up to June 30, 1985. The first paragraph Since contractor's tax is directly payable by the
of said resolution reads as follows: contractor, not by NPC, your request for exemption,
based on the stipulation in the aforesaid contract that
1. Effective June 11, 1984, the tax and duty exemption NPC shall assume payment of your contractor's tax
privileges enjoyed by the National Power Corporation liability, cannot be granted for lack of legal basis."
under C.A. No. 120, as amended, are restored up to (Annex "H") (emphasis added)
June 30, 1985.
Said BIR ruling clearly states that NPC's exemption
Because of this restoration (Annex "G") the NPC applied privileges covers (sic) only taxes for which it is directly
on September 11, 1985 with the BIR for a "refund of liable and does not cover taxes which are only shifted to
Specific Taxes paid on petroleum products . . . in the it or for indirect taxes. The BIR, through Ancheta,
total amount of P58,020,110.79. (par. 26, pp. 8-9, Annex reversed its previous position of May 8, 1985 adopted
"A") by Ancheta himself favoring NPC's indirect tax
exemption privilege.
6. In a letter to the president of the NPC dated May 8,
1985 (copy attached as petitioner's Annex "D"), Acting 10. Furthermore, "in a BIR Ruling, unnumbered, "dated
BIR Commissioner Ruben Ancheta declared: June 30, 1986, "addressed to Caltex (Annex "F"), the BIR
Commissioner declared that PAL's tax exemption is
FIRB Resolution No. 10-85 serves as sufficient basis to limited to taxes for which PAL is directly liable, and that
allow NPC to purchase petroleum products from the oil the payment of specific and ad valorem taxes on
companies free of specific and ad valorem taxes, during petroleum products is a direct liability of the
the period in question. manufacturer or producer thereof". (par. 51, p. 15,
Annex "A")
The "period in question" is June 1 1, 1 984 to June 30, 1
985. 11. On January 7, 1986, FIRB Resolution No. 1-86 was
issued restoring NPC's tax exemptions retroactively
7. On June 6, 1985—The president of the NPC, Mr. from July 1, 1985 to a indefinite period, certified true
Gabriel Itchon, wrote Mr. Cesar Virata, Chairman of the copy of which is hereto attached as petitioner's Annex
FIRB (Annex "E"), requesting "the FIRB to resolve "H".
conflicting rulings on the tax exemption privileges of the
National Power Corporation (NPC)." These rulings 12. NPC's total refund claim was P468.58 million but
involve FIRB Resolutions No. 1-84 and 10-85. (par. 40, p. only a portion thereof i.e. the P58,020,110.79
12, Annex "A") (corresponding to Caltex) was approved and released by
way of a Tax Credit Memo (Annex "Q") dated July 7,
1986, certified true copy of which [is) attached hereto Exceptions, Expanding the Powers of the Fiscal
as petitioner's Annex "F," which was assigned by NPC to Incentives Review Board and Other Purposes."
Caltex. BIR Commissioner Tan approved the Deed of
Assignment on July 30, 1987, certified true copy of 17. On June 24, 1987, the FIRB issued Resolution No. 17-
which is hereto attached as petitioner's Annex "G"). 87, which restored NPC's tax exemption privilege and
(pars. 26, 52, 53, pp. 9 and 15, Annex "A") included in the exemption "those pertaining to its
domestic purchases of petroleum and petroleum
The Deed of Assignment stipulated among others that products, and the restorations were made to retroact
NPC is assigning the tax credit to Caltex in partial effective March 10, 1987, a certified true copy of which
settlement of its outstanding obligations to the latter is hereto attached and made a part hereof as Annex "K".
while Caltex, in turn, would apply the assigned tax credit
against its specific tax payments for two (2) months. 18. On August 6, 1987, the Hon. Sedfrey A. Ordoñez,
(per memorandum dated July 28, 1986 of DCIR Villa, Secretary of Justice, issued Opinion No. 77, series of
copy attached as petitioner Annex "G") 1987, opining that "the power conferred upon Fiscal
Incentives Review Board by Section 2a (b), (c) and (d) of
13. As a result of the favorable action taken by the BIR Executive order No. 93 constitute undue delegation of
in the refund of the P58.0 million tax credit assigned to legislative power and, therefore, [are] unconstitutional,"
Caltex, the NPC reiterated its request for the release of a copy of which is hereto attached and made a part
the balance of its pending refunds of taxes paid by hereof as Petitioner's Annex "L."
respondents Petrophil, Shell and Caltex covering the
period from June 11, 1984 to early part of 1986 19. On October 5, 1987, respondent Executive Secretary
amounting to P410.58 million. (The claim of the first Macaraig, Jr. in a Memorandum to the Chairman of the
two (2) oil companies covers the period from June 11, FIRB a certified true copy of which is hereto attached
1984 to early part of 1986; while that of Caltex starts and made a part hereof as petitioner's Annex "M,"
from July 1, 1985 to early 1986). This request was confirmed and approved FIRB Res. No. 17-87 dated June
denied on August 18, 1986, under BIR Ruling 152-86 24, 1987, allegedly pursuant to Sections 1 (f) and 2 (e) of
(certified true copy of which is attached hereto as Executive Order No. 93.
petitioner's Annex "I"). The BIR ruled that NPC's tax free
privilege to buy petroleum products covered only the 20. Secretary Vicente Jayme in a reply dated May 20,
period from June 11, 1984 up to June 30, 1985. It 1988 to Secretary Catalino Macaraig, who by letter
further declared that, despite FIRB No. 1-86, NPC had dated May 2, 1988 asked him to rule "on whether or
already lost its tax and duty exemptions because it only not, as the law now stands, the National Power
enjoys special privilege for taxes for which it is directly Corporation is still exempt from taxes, duties . . . on its
liable. This ruling, in effect, denied the P410 Million tax local purchases of . . . petroleum products . . ." declared
refund application of NPC (par. 28, p. 9, Annex "A") that "NPC under the provisions of its Revised Charter
retains its exemption from duties and taxes imposed on
14. NPC filed a motion for reconsideration on the petroleum products purchased locally and used for
September 18, 1986. Until now the BIR has not resolved the generation of electricity," a certified true copy of
the motion. (Benigna, II 3, Oct. 17, 1988, p. 2; which is attached hereto as petitioner's Annex "N." (par.
Memorandum for the Complainant, Oct. 26, 1988, p. 30, pp. 9-10, Annex "A")
15)." (par. 29, p. 9, Annex "A")
21. Respondent Executive Secretary came up likewise
15. On December 22, 1986, in a 2nd Indorsement to the with a confirmatory letter dated June 1 5, 1988 but
Hon. Fulgencio S. Factoran, Jr., BIR Commissioner Tan, without the usual official form of "By the Authority of
Jr. (certified true copy of which is hereto attached and the President," a certified true copy of which is hereto
made a part hereof as petitioner's Annex "J"), reversed attached and made a part hereof as Petitioner's Annex
his previous position and states this time that all "O".
deliveries of petroleum products to NPC are tax exempt,
regardless of the period of delivery. 22. The actions of respondents Finance Secretary and
the Executive Secretary are based on the RESOLUTION
16. On December 17, 1986, President Corazon C. Aquino No. 17-87 of FIRB restoring the tax and duty exemption
enacted Executive Order No. 93, entitled "Withdrawing of the respondent NPC pertaining to its domestic
All Tax and Duty Incentives, Subject to Certain
purchases of petroleum products (petitioner's Annex K of which the herein petitioner was the sponsor, a much
supra). bigger figure was actually refunded to NPC representing
duties and ad valorem taxes paid to the Bureau of
23. Subsequently, the newspapers particularly, the Daily Customs by the oil companies on the importation of
Globe, in its issue of July 11, 1988 reported that the crude oil from 1979 to 1985.
Office of the President and the Department of Finance
had ordered the BIR to refund the tax payments of the 26. Meantime, petitioner, as member of the Philippine
NPC amounting to Pl.58 Billion which includes the P410 Senate introduced P.S. Res. No. 227, entitled:
Million Tax refund already rejected by BIR
Commissioner Tan, Jr., in his BIR Ruling No. 152-86. And Resolution Directing the Senate Blue Ribbon
in a letter dated July 28, 1988 of Undersecretary Committee, In Aid of Legislation, To conduct a Formal
Marcelo B. Fernando to BIR Commissioner Tan, Jr. the and Extensive Inquiry into the Reported Massive Tax
Pl.58 Billion tax refund was ordered released to NPC Manipulations and Evasions by Oil Companies,
(par. 31, p. 1 0, Annex "A") particularly Caltex (Phils.) Inc., Pilipinas Shell and
Petrophil, Which Were Made Possible By Their Availing
24. On August 8, 1988, petitioner "wrote both of the Non-Existing Exemption of National Power
Undersecretary Fernando and Commissioner Tan Corporation (NPC) from Indirect Taxes, Resulting
requesting them to hold in abeyance the release of the Recently in Their Obtaining A Tax Refund Totalling P1.55
Pl.58 billion and await the outcome of the investigation Billion From the Department of Finance, Their Refusal to
in regard to Senate Resolution No. 227," copies Pay Since 1976 Customs Duties Amounting to Billions of
attached as Petitioner's Annexes "P" and "P-1 " (par. 32, Pesos on Imported Crude Oil Purportedly for the Use of
p. 10, Annex "A"). the National Power Corporation, the Non-Payment of
Surtax on Windfall Profits from Increases in the Price of
Reacting to this letter of the petitioner, Undersecretary Oil Products in August 1987 amounting Maybe to as
Fernando wrote Commissioner Tan of the BIR dated Much as Pl.2 Billion Surtax Paid by Them in 1984 and
August, 1988 requesting him to hold in abeyance the For Other Purposes.
release of the tax refunds to NPC until after the
termination of the Blue Ribbon investigation. 27. Acting on the above Resolution, the Blue Ribbon
Committee of the Senate did conduct a lengthy formal
25. In the Bureau of Customs, oil companies import inquiry on the matter, calling all parties interested to
crude oil and before removal thereof from customs the witness stand including representatives from the
custody, the corresponding customs duties and ad different oil companies, and in due time submitted its
valorem taxes are paid. Bunker fuel oil is one of the Committee Report No. 474 . . . — The Blue Ribbon
petroleum products processed from the crude oil; and Committee recommended the following courses of
same is sold to NPC. After the sale, NPC applies for tax action.
credit covering the duties and ad valorem exemption
under its Charter. Such applications are processed by 1. Cancel its approval of the tax refund of
the Bureau of Customs and the corresponding tax credit P58,020,110.70 to the National Power Corporation
certificates are issued in favor of NPC which, in turn (NPC) and its approval of Tax Credit memo covering said
assigns it to the oil firm that imported the crude oil. amount (Annex "P" hereto), dated July 7, 1986, and
These certificates are eventually used by the assignee- cancel its approval of the Deed of Assignment (Annex
oil firms in payment of their other duty and tax liabilities "Q" hereto) by NPC to Caltex, dated July 28, 1986, and
with the Bureau of Customs. (par. 70, p. 19, Annex "A") collect from Caltex its tax liabilities which were
erroneously treated as paid or settled with the use of
A lesser amount totalling P740 million, covering the the tax credit certificate that NPC assigned to said firm.:
period from 1985 to the present, is being sought by
respondent NPC for refund from the Bureau of Customs 1.1. NPC did not have any indirect tax exemption since
for duties paid by the oil companies on the importation May 27, 1976 when PD 938 was issued. Therefore, the
of crude oil from which the processed products sold grant of a tax refund to NPC in the amount of P58
locally by them to NPC was derived. However, based on million was illegal, and therefore, null and void. Such
figures submitted to the Blue Ribbon Committee of the refund was a nullity right from the beginning. Hence, it
Philippine Senate which conducted an investigation on never transferred any right in favor of NPC.
this matter as mandated by Senate Resolution No. 227
2. Stop the processing and/or release of Pl.58 billion tax
refund to NPC and/or oil companies on the same C. Order of the Executive Secretary dated June 15, 1988
ground that the NPC, since May 27, 1976 up to June 17, (petitioner's Annex "O");
1987 was never granted any indirect tax exemption. So,
the P1.58 billion represent taxes legally and properly D. Order of the Executive Secretary dated March 30,
paid by the oil firms. l989 (petitioner's Annex "Q"); and

3. Start collection actions of specific or excise and ad E. Ruling of the Finance Secretary dated May 20, 1988
valorem taxes due on petroleum products sold to NPC (petitioner's Annex "N").
from May 27, 1976 (promulgation of PD 938) to June 17,
1987 (issuance of EO 195). 2. Said temporary restraining order should also include
respondent Commissioners of Customs Mison and
B. For the Bureau of Customs (BOC) to do the following: Internal Revenue Ong restraining them from processing
and releasing any pending claim or application by
1. Start recovery actions on the illegal duty refunds or respondent NPC for tax and duty refunds.
duty credit certificates for purchases of petroleum
products by NPC and allegedly granted under the NPC 3. Thereafter, and during the pendency of this petition,
charter covering the years 1978-1988 . . . to issue a writ or preliminary injunction against above-
named respondents and all persons acting for and in
28. On March 30, 1989, acting on the request of their behalf.
respondent Finance Secretary for clearance to direct the
Bureau of Internal Revenue and of Customs to proceed 4. A decision be rendered in favor of the petitioner and
with the processing of claims for tax credits/refunds of against the respondents:
the NPC, respondent Executive Secretary rendered his
ruling, the dispositive portion of which reads: A. Declaring that respondent NPC did not enjoy indirect
tax exemption privilege since May 27, 1976 up to the
IN VIEW OF THE FOREGOING, the clearance is hereby present;
GRANTED and, accordingly, unless restrained by proper
authorities, that department and/or its line-tax bureaus B. Nullifying the setting aside the following:
may now proceed with the processing of the claims of
the National Power Corporation for duty and tax free 1. FIRB Resolution No. 17-87 dated June 24, 1987
exemption and/or tax credits/ refunds, if there be any, (petitioner's Annex "K");
in accordance with the ruling of that Department dated
May 20,1988, as confirmed by this Office on June 15, 2. Memorandum-Order of the Office of the President
1988 . . .5 dated October 5, 1987 (petitioner's Annex "M");

Hence, this petition for certiorari, prohibition and 3. Order of the Executive Secretary dated June 15, 1988
mandamus with prayer for a writ of preliminary (petitioner's Annex "O");
injunction and/or restraining order, praying among
others that: 4. Order of the Executive Secretary dated March 30,
1989 (petitioner's Annex "Q");
1. Upon filing of this petition, a temporary restraining
order forthwith be issued against respondent FIRB 5. Ruling of the Finance Secretary dated May 20, 1988
Executive Secretary Macaraig, and Secretary of Finance (petitioner's Annex "N"
Jayme restraining them and other persons acting for,
under, and in their behalf from enforcing their 6. Tax Credit memo dated July 7, 1986 issued to
resolution, orders and ruling, to wit: respondent NPC representing tax refund for
P58,020,110.79 (petitioner's Annex "F");
A. FIRB Resolution No. 17-87 dated June 24, 1987
(petitioner's Annex "K"); 7. Deed of Assignment of said tax credit memo to
respondent Caltex dated July 30, 1987 (petitioner's
B. Memorandum-Order of the Office of the President Annex "G");
dated October 5, 1987 (petitioner's Annex "M");
8. Application of the assigned tax credit of Caltex in
payment of its tax liabilities with the Bureau of Internal Corollary issues—
Revenue and
1. Whether or not FIRB Resolution No. 10-85 dated
9. Illegal duty and tax refunds issued by the Bureau of February 7, 1985 which restored NPC's tax exemption
Customs to respondent NPC by way of tax credit privilege effective June 11, 1984 to June 30, 1985 and
certificates from 1979 up to the present. FIRB Resolution No. 1-86 dated January 7, 1986
restoring NPC's tax exemption privilege effective July 1,
C. Declaring as illegal and null and void the pending 1985 included the restoration of indirect tax exemption
claims for tax and duty refunds by respondent NPC with to NPC and
the Bureau of Customs and the Bureau of Internal
Revenue; 2. Whether or not FIRB could validly and legally issue
Resolution No. 17-87 dated June 24, 1987 which
D. Prohibiting respondents Commissioner of Customs restored NPC's tax exemption privilege effective March
and Commissioner of Internal Revenue from enforcing 10, 1987; and if said Resolution was validly issued, the
the abovequestioned resolution, orders and ruling of nature and extent of the tax exemption privilege
respondents Executive Secretary, Secretary of Finance, restored to NPC.7
and FIRB by processing and releasing respondent NPC's
tax and duty refunds; In a resolution dated June 6, 1989, the Court, without
giving due course to the petition, required respondents
E. Ordering the respondent Commissioner of Customs to comment thereon, within ten (10) days from notice.
to deny as being null and void the pending claims for The respondents having submitted their comment, on
refund of respondent NPC with the Bureau of Customs October 10, 1989 the Court required petitioner to file a
covering the period from 1985 to the present; to cancel consolidated reply to the same. After said reply was
and invalidate the illegal payment made by respondents filed by petitioner on November 15, 1989 the Court
Caltex, Shell and PNOC by using the tax credit gave due course to the petition, considering the
certificates assigned to them by NPC and to recover comments of respondents as their answer to the
from respondents Caltex, Shell and PNOC all the petition, and requiring the parties to file simultaneously
amounts appearing in said tax credit certificates which their respective memoranda within twenty (20) days
were used to settle their duty and tax liabilities with the from notice. The parties having submitted their
Bureau of Customs. respective memoranda, the petition was deemed
submitted for resolution.
F. Ordering respondent Commissioner of Internal
Revenue to deny as being null and void the pending First the preliminary issues.
claims for refund of respondent NPC with the Bureau of
Internal Revenue covering the period from June 11, Public respondents allege that petitioner does not have
1984 to June 17, 1987. the standing to challenge the questioned orders and
resolution.
PETITIONER prays for such other relief and remedy as
may be just and equitable in the premises.6 In the petition it is alleged that petitioner is "instituting
this suit in his capacity as a taxpayer and a duly-elected
The issues raised in the petition are the following: Senator of the Philippines." Public respondent argues
that petitioner must show he has sustained direct injury
To determine whether respondent NPC is legally as a result of the action and that it is not sufficient for
entitled to the questioned tax and duty refunds, this him to have a mere general interest common to all
Honorable Court must resolve the following issues: members of the public.8

Main issue— The Court however agrees with the petitioner that as a
taxpayer he may file the instant petition following the
Whether or not the respondent NPC has ceased to ruling in Lozada when it involves illegal expenditure of
enjoy indirect tax and duty exemption with the public money. The petition questions the legality of the
enactment of P.D. No. 938 on May 27, 1976 which tax refund to NPC by way of tax credit certificates and
amended P.D. No. 380, issued on January 11, 1974. the use of said assigned tax credits by respondent oil
companies to pay for their tax and duty liabilities to the valorem taxes they pay to the Bureau of Internal
BIR and Bureau of Customs. Revenue after converting the crude oil into petroleum
products.
Assuming petitioner has the personality to file the
petition, public respondents also allege that the proper On the other hand, "indirect taxes are taxes primarily
remedy for petitioner is an appeal to the Court of Tax paid by persons who can shift the burden upon
Appeals under Section 7 of R.A. No. 125 instead of this someone else ."13 For example, the excise and ad
petition. However Section 11 of said law provides— valorem taxes that oil companies pay to the Bureau of
Internal Revenue upon removal of petroleum products
Sec. 11. Who may appeal; effect of appeal—Any person, from its refinery can be shifted to its buyer, like the
association or corporation adversely affected by a NPC, by adding them to the "cash" and/or "selling
decision or ruling of the Commissioner of Internal price."
Revenue, the Collector of Customs (Commissioner of
Customs) or any provincial or City Board of Assessment The main thrust of the petition is that under the latest
Appeals may file an appeal in the Court of Tax Appeals amendment to the NPC charter by Presidential Decree
within thirty days after receipt of such decision or No. 938, the exemption of NPC from indirect taxation
ruling. was revoked and repealed. While petitioner concedes
that NPC enjoyed broad exemption privileges from both
From the foregoing, it is only the taxpayer adversely direct and indirect taxes on the petroleum products it
affected by a decision or ruling of the Commissioner of used, under Section 13 of Republic Act No, 6395 and
Internal Revenue, the Commissioner of Customs or any more so under Presidential Decree No. 380, however,
provincial or city Board of Assessment Appeal who may by the deletion of the phrases "directly or indirectly"
appeal to the Court of Tax Appeals. Petitioner does not and "on all petroleum products used by the Corporation
fall under this category. in the generation, transmission, utilization and sale of
electric power" he contends that the exemption from
Public respondents also contend that mandamus does indirect taxes was withdrawn by P.D. No. 938.
not lie to compel the Commissioner of Internal Revenue
to impose a tax assessment not found by him to be Petitioner further states that the exemption of NPC
proper. It would be tantamount to a usurpation of provided in Section 13 of Presidential Decree No. 938
executive functions.9 regarding the payments of "all forms of taxes, etc."
cannot be interpreted to include indirect tax exemption.
Even in Meralco, this Court recognizes the situation He cites Philippine Aceytelene Co. Inc. vs. Commissioner
when mandamus can control the discretion of the of Internal Revenue.14 Petitioner emphasizes the
Commissioners of Internal Revenue and Customs when principle in taxation that the exception contained in the
the exercise of discretion is tainted with arbitrariness tax statutes must be strictly construed against the one
and grave abuse as to go beyond statutory authority.10 claiming the exemption, and that the rule that a tax
statute granting exemption must be strictly construed
Public respondents then assert that a writ of prohibition against the one claiming the exemption is similar to the
is not proper as its function is to prevent an unlawful rule that a statute granting taxing power is to be
exercise of jurisdiction11 or to prevent the oppressive construed strictly, with doubts resolved against its
exercise of legal authority.12 Precisely, petitioner existence.15 Petitioner cites rulings of the BIR that the
questions the lawfulness of the acts of public phrase exemption from "all taxes, etc." from "all forms
respondents in this case. of taxes" and "in lieu of all taxes" covers only taxes for
which the taxpayer is directly liable.16
Now to the main issue.
On the corollary issues. First, FIRB Resolution Nos. 10-85
It may be useful to make a distinction, for the purpose and 10-86 issued under Presidential Decree No. 1931,
of this disposition, between a direct tax and an indirect the relevant provision of which are to wit:
tax. A direct tax is a tax for which a taxpayer is directly
liable on the transaction or business it engages in. P.D. No. 1931 provides as follows:
Examples are the custom duties and ad valorem taxes
paid by the oil companies to the Bureau of Customs for Sec. 1. The provisions of special or general law to the
their importation of crude oil, and the specific and ad contrary notwithstanding, all exemptions from the
payment of duties, taxes . . . heretofore granted in favor
of government-owned or controlled corporations are b. Interest income derived by said grantee from bank
hereby withdrawn. (Emphasis supplied.) deposits and yield or any other monetary benefits from
deposit substitutes, trust funds and other similar
Sec. 2. The President of the Philippines and/or the arrangements.
Minister of Finance, upon the recommendation of the
Fiscal Incentives Review Board . . . is hereby empowered 2. The NPC as a government corporation is exempt from
to restore, partially or totally, the exemptions the real property tax on land and improvements owned
withdrawn by Section 1 above . . . (Emphasis supplied.) by it provided that the beneficial use of the property is
not transferred to another pursuant to the provisions of
The relevant provisions of FIRB resolution Nos. 10-85 Sec. 10(a) of the Real Property Tax Code, as
and 1-86 are the following: amended.18

Resolution. No. 10-85 Petitioner does not question the validity and
enforceability of FIRB Resolution Nos. 10-85 and 1-86.
BE IT RESOLVED AS IT IS HEREBY RESOLVED, That: Indeed, they were issued in compliance with the
requirement of Section 2, P.D. No. 1931, whereby the
1. Effective June 11, 1984, the tax and duty exemption FIRB should make the recommendation subject to the
privileges enjoyed by the National Power Corporation approval of "the President of the Philippines and/or the
under C.A. No. 120 as amended are restored up to June Minister of Finance." While said Resolutions do not
30, 1985. appear to have been approved by the President, they
were nevertheless approved by the Minister of Finance
2. Provided, That to restoration does not apply to the who is also duly authorized to approve the same. In fact
following: it was the Minister of Finance who signed and
promulgated said resolutions.19
a. importations of fuel oil (crude equivalent) and coal as
per FIRB Resolution No. 1-84; The observation of Mr. Justice Sarmiento in the
dissenting opinion that FIRB Resolution Nos. 10-85 and
b. commercially-funded importations; and 1-86 which were promulgated by then Acting Minister
of Finance Alfredo de Roda, Jr. and Minister of Finance
c. interest income derived from any investment source. Cesar E.A Virata, as Chairman of FIRB respectively,
should be separately approved by said Minister of
3. Provided further, That in case of importations funded Finance as required by P.D. 1931 is, a superfluity. An
by international financing agreements, the NPC is examination of the said resolutions which are
hereby required to furnish the FIRB on a periodic basis reproduced in full in the dissenting opinion show that
the particulars of items received or to be received the said officials signed said resolutions in the dual
through such arrangements, for purposes of tax and capacity of Chairman of FIRB and Minister of Finance.
duty exemptions privileges.17
Mr. Justice Sarmiento also makes reference to the case
Resolution No. 1-86 National Power Corporation vs. Province of Albay,20
wherein the Court observed that under P.D. No. 776 the
BE IT RESOLVED AS IT IS HEREBY RESOLVED: That: power of the FIRB was only recommendatory and
requires the approval of the President to be valid. Thus,
1. Effective July 1, 1985, the tax and duty exemption in said case the Court held that FIRB Resolutions Nos.
privileges enjoyed by the National Power Corporation 10-85 and 1-86 not having been approved by the
(NPC) under Commonwealth Act No. 120, as amended, President were not valid and effective while the validity
are restored: Provided, That importations of fuel oil of FIRB 17-87 was upheld as it was duly approved by the
(crude oil equivalent), and coal of the herein grantee Office of the President on October 5, 1987.
shall be subject to the basic and additional import
duties; Provided, further, that the following shall remain However, under Section 2 of P.D. No. 1931 of June 11,
fully taxable: 1984, hereinabove reproduced, which amended P.D.
No. 776, it is clearly provided for that such FIRB
a. Commercially-funded importations; and resolution, may be approved by the "President of the
Philippines and/or the Minister of Finance." To repeat, granted in the NPC charter as amended by Presidential
as FIRB Resolutions Nos. 10-85 and 1-86 were duly Decree No. 938.
approved by the Minister of Finance, hence they are
valid and effective. To this extent, this decision modifies The petition is devoid of merit.
or supersedes the Court's earlier decision in Albay
afore-referred to. The NPC is a non-profit public corporation created for
the general good and welfare23 wholly owned by the
Petitioner, however, argues that under both FIRB government of the Republic of the Philippines.24 From
resolutions, only the tax and duty exemption privileges the very beginning of its corporate existence, the NPC
enjoyed by the NPC under its charter, C.A. No. 120, as enjoyed preferential tax treatment25 to enable the
amended, are restored, that is, only its direct tax Corporation to pay the indebtedness and obligation and
exemption privilege; and that it cannot be interpreted in furtherance and effective implementation of the
to cover indirect taxes under the principle that tax policy enunciated in Section one of "Republic Act No.
exemptions are construed stricissimi juris against the 6395"26 which provides:
taxpayer and liberally in favor of the taxing authority.
Sec. 1. Declaration of Policy—Congress hereby declares
Petitioner argues that the release by the BIR of the that (1) the comprehensive development, utilization
P58.0 million refund to respondent NPC by way of a tax and conservation of Philippine water resources for all
credit certificate21 which was assigned to respondent beneficial uses, including power generation, and (2) the
Caltex through a deed of assignment approved by the total electrification of the Philippines through the
BIR22 is patently illegal. He also contends that the development of power from all sources to meet the
pending claim of respondent NPC in the amount of need of rural electrification are primary objectives of
P410.58 million with respondent BIR for the sale and the nation which shall be pursued coordinately and
delivery to it of bunker fuel by respondents Petrophil, supported by all instrumentalities and agencies of the
Shell and Caltex from July 1, 1985 up to 1986, being government including its financial institutions.
illegal, should not be released.
From the changes made in the NPC charter, the
Now to the second corollary issue involving the validity intention to strengthen its preferential tax treatment is
of FIRB Resolution No. 17-87 issued on June 24, 1987. It obvious.
was issued under authority of Executive Order No. 93
dated December 17, 1986 which grants to the FIRB Under Republic Act No. 358, its exemption is provided
among others, the power to recommend the restoration as follows:
of the tax and duty exemptions/incentives withdrawn
thereunder. Sec. 2. To facilitate payment of its indebtedness, the
National Power Corporation shall be exempt from all
Petitioner stresses that on August 6, 1987 the Secretary taxes, duties, fees, imposts, charges, and restrictions of
of Justice rendered Opinion No. 77 to the effect that the the Republic of the Philippines, its provinces, cities and
powers conferred upon the FIRB by Section 2(a), (b), municipalities."
and (c) and (4) of Executive Order No. 93 "constitute
undue delegation of legislative power and is, therefore, Under Republic Act No. 6395:
unconstitutional." Petitioner observes that the FIRB did
not merely recommend but categorically restored the Sec. 13. Non-profit Character of the Corporation;
tax and duty exemption of the NPC so that the Exemption from all Taxes, Duties, Fees, Imposts and
memorandum of the respondent Executive Secretary other Charges by Government and Governmental
dated October 5, 1987 approving the same is a Instrumentalities.— The Corporation shall be non-profit
surplusage. and shall devote all its returns from its capital
investment, as well as excess revenues from its
Further assuming that FIRB Resolution No. 17-87 to operation, for expansion. To enable the Corporation to
have been legally issued, following the doctrine in pay its indebtedness and obligations and in furtherance
Philippine Aceytelene, petitioner avers that the and effective implementation of the policy enunciated
restoration cannot cover indirect taxes and it cannot in Section one of this Act, the Corporation is hereby
create new indirect tax exemption not otherwise declared exempt:
(a) From the payment of all taxes, duties, fees, imposts, foreign goods required for its operation and projects;
charges, costs and service fees in any court or and
administrative proceedings in which it may be a party,
restrictions and duties to the Republic of the (d) From all taxes, duties, fees, imposts, and all other
Philippines, its provinces, cities, municipalities and other charges imposed directly or indirectly by the Republic of
government agencies and instrumentalities; the Philippines, its provinces, cities, municipalities and
other government agencies and instrumentalities, on all
(b) From all income taxes, franchise taxes and realty petroleum produced used by the Corporation in the
taxes to be paid to the National Government, its generation, transmission, utilization, and sale of electric
provinces, cities, municipalities and other government power. (Emphasis supplied.)
agencies and instrumentalities;
Under Presidential Decree No. 938:
(c) From all import duties, compensating taxes and
advanced sales tax, and wharfage fees on import of Sec. 13. Non-profit Character of the Corporation:
foreign goods required for its operations and projects; Exemption from All Taxes, Duties, Fees, Imposts and
and Other Charges by the Government and Government
Instrumentalities.—The Corporation shall be non-profit
(d) From all taxes, duties, fees, imposts, and all other and shall devote all its returns from its capital
charges imposed by the Republic of the Philippines, its investment as well as excess revenues from its
provinces, cities, municipalities and other government operation, for expansion. To enable the Corporation to
agencies and instrumentalities, on all petroleum pay the indebtedness and obligations and in
products used by the Corporation in the generation, furtherance and effective implementation of the policy
transmission, utilization, and sale of electric power. enunciated in Section One of this Act, the Corporation,
(Emphasis supplied.) including its subsidiaries hereby declared exempt from
the payment of all forms of taxes, duties, fees, imposts
Under Presidential Decree No. 380: as well as costs and service fees including filing fees,
appeal bonds, supersedeas bonds, in any court or
Sec. 13. Non-profit Character of the Corporation: administrative proceedings. (Emphasis supplied.)
Exemption from all Taxes, Duties, Fees, Imposts and
other Charges by the Government and Government It is noted that in the earlier law, R.A. No. 358 the
Instrumentalities.— The Corporation shall be non-profit exemption was worded in general terms, as to cover "all
and shall devote all its returns from its capital taxes, duties, fees, imposts, charges, etc. . . ." However,
investment as well as excess revenues from its the amendment under Republic Act No. 6395
operation, for expansion. To enable the Corporation to enumerated the details covered by the exemption.
pay its indebtedness and obligations and in furtherance Subsequently, P.D. No. 380, made even more specific
and effective implementation of the policy enunciated the details of the exemption of NPC to cover, among
in Section one of this Act, the Corporation, including its others, both direct and indirect taxes on all petroleum
subsidiaries, is hereby declared, exempt: products used in its operation. Presidential Decree No.
938 amended the tax exemption by simplifying the
(a) From the payment of all taxes, duties, fees, imposts, same law in general terms. It succinctly exempts NPC
charges, costs and services fees in any court or from "all forms of taxes, duties, fees, imposts, as well as
administrative proceedings in which it may be a party, costs and service fees including filing fees, appeal
restrictions and duties to the Republic of the bonds, supersedeas bonds, in any court or
Philippines, its provinces, cities, municipalities and other administrative proceedings."
government agencies and instrumentalities;
The use of the phrase "all forms" of taxes demonstrate
(b) From all income taxes, franchise taxes and realty the intention of the law to give NPC all the tax
taxes to be paid to the National Government, its exemptions it has been enjoying before. The rationale
provinces, cities, municipalities and other governmental for this exemption is that being non-profit the NPC
agencies and instrumentalities; "shall devote all its returns from its capital investment
as well as excess revenues from its operation, for
(c) From all import duties, compensating taxes and expansion. To enable the Corporation to pay the
advanced sales tax, and wharfage fees on import of indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in and P.D. No. 380, is deemed repealed by P.D. No. 938
Section one of this Act, . . ."27 when the reference to it was deleted is not well-taken.

The preamble of P.D. No. 938 states— Repeal by implication is not favored unless it is manifest
that the legislature so intended. As laws are presumed
WHEREAS, in the application of the tax exemption to be passed with deliberation and with knowledge of
provision of the Revised Charter, the non-profit all existing ones on the subject, it is logical to conclude
character of the NPC has not been fully utilized because that in passing a statute it is not intended to interfere
of restrictive interpretations of the taxing agencies of with or abrogate a former law relating to the same
the government on said provisions. . . . (Emphasis subject matter, unless the repugnancy between the two
supplied.) is not only irreconcilable but also clear and convincing
as a result of the language used, or unless the latter Act
It is evident from the foregoing that the lawmaker did fully embraces the subject matter of the earlier.31 The
not intend that the said provisions of P.D. No. 938 shall first effort of a court must always be to reconcile or
be construed strictly against NPC. On the contrary, the adjust the provisions of one statute with those of
law mandates that it should be interpreted liberally so another so as to give sensible effect to both
as to enhance the tax exempt status of NPC. provisions.32

Hence, petitioner cannot invoke the rule on strictissimi The legislative intent must be ascertained from a
juris with respect to the interpretation of statutes consideration of the statute as a whole, and not of an
granting tax exemptions to NPC. isolated part or a particular provision alone.33 When
construing a statute, the reason for its enactment
Moreover, it is a recognized principle that the rule on should be kept in mind and the statute should be
strict interpretation does not apply in the case of construed with reference to its intended scope and
exemptions in favor of a government political purpose34 and the evil sought to be remedied.35
subdivision or instrumentality.28
The NPC is a government instrumentality with the
The basis for applying the rule of strict construction to enormous task of undertaking development of
statutory provisions granting tax exemptions or hydroelectric generation of power and production of
deductions, even more obvious than with reference to electricity from other sources, as well as the
the affirmative or levying provisions of tax statutes, is to transmission of electric power on a nationwide basis, to
minimize differential treatment and foster impartiality, improve the quality of life of the people pursuant to the
fairness, and equality of treatment among tax payers. State policy embodied in Section E, Article II of the 1987
Constitution.
The reason for the rule does not apply in the case of
exemptions running to the benefit of the government It is evident from the provision of P.D. No. 938 that its
itself or its agencies. In such case the practical effect of purpose is to maintain the tax exemption of NPC from
an exemption is merely to reduce the amount of money all forms of taxes including indirect taxes as provided for
that has to be handled by government in the course of under R.A. No. 6895 and P.D. No. 380 if it is to attain its
its operations. For these reasons, provisions granting goals.
exemptions to government agencies may be construed
liberally, in favor of non tax liability of such agencies.29 Further, the construction of P.D. No. 938 by the Office
charged with its implementation should be given
In the case of property owned by the state or a city or controlling weight.36
other public corporations, the express exemption
should not be construed with the same degree of Since the May 8, 1985 ruling of Commissioner Ancheta,
strictness that applies to exemptions contrary to the to the letter of the Secretary of Finance of June 26, 1985
policy of the state, since as to such property "exemption confirming said ruling, the letters of the BIR of August
is the rule and taxation the exception."30 18, 1986, and December 22, 1986, the letter of the
Secretary of Finance of February 19, 1987, the
The contention of petitioner that the exemption of NPC Memorandum of the Executive Secretary of October 9,
from indirect taxes under Section 13 of R.A. No. 6395 1987, by authority of the President, confirming and
approving FIRB Resolution No. 17-87, the letter of the
Secretary of Finance of May 20, 1988 to the Executive
Secretary rendering his opinion as requested by the This distinction was made clear by Chief Justice Castro
latter, and the latter's reply of June 15, 1988, it was in the Philippine Acetylene case, when he analyzed the
uniformly held that the grant of tax exemption to NPC nature of the percentage (sales) tax to determine
under C.A. No. 120, as amended, included exemption whether it is a tax on the producer or on the purchaser
from payment of all taxes relative to NPC's petroleum of the commodity. Under out Tax Code, the sales tax
purchases including indirect taxes.37 Thus, then falls upon the manufacturer or producer. The phrase
Secretary of Finance Vicente Jayme in his letter of May "pass on" the tax was criticized as being inaccurate.
20, 1988 to the Executive Secretary Macaraig aptly Justice Castro says that the tax remains on the
stated the justification for this tax exemption of NPC — manufacturer alone. The purchaser does not pay the
tax; he pays an amount added to the price because of
The issue turns on the effect to the exemption of NPC the tax. Therefore, the tax is not "passed on" and does
from taxes of the deletion of the phrase 'taxes imposed not for that reason become an "indirect tax" on the
indirectly on oil products and its exemption from 'all purchaser. It is eminently possible that the law maker in
forms of taxes.' It is suggested that the change in enacting P.D. 938 in 1976 may have used lessons from
language evidenced an intention to exempt NPC only the analysis of Chief Justice Castro in 1967 Philippine
from taxes directly imposed on or payable by it; since Acetylene case.
taxes on fuel-oil purchased by it; since taxes on fuel-oil
purchased by NPC locally are levied on and paid by its When P.D. 938 which exempted NPC from "all forms of
oil suppliers, NPC thereby lost its exemption from those taxes" was issued in May 1976, the so-called oil crunch
taxes. The principal authority relied on is the 1967 case had already drastically pushed up crude oil Prices from
of Philippine Acetylene Co., Inc. vs. Commissioner of about $1.00 per bbl in 1971 to about $10 and a peak (as
Internal Revenue, 20 SCRA 1056. it turned out) of about $34 per bbl in 1981. In 1974-78,
NPC was operating the Meralco thermal plants under a
First of all, tracing the changes made through the years lease agreement. The power generated by the leased
in the Revised Charter, the strengthening of NPC's plants was sold to Meralco for distribution to its
preferential tax treatment was clearly the intention. To customers. This lease and sale arrangement was
the extent that the explanatory "whereas clauses" may entered into for the benefit of the consuming public, by
disclose the intent of the law-maker, the changes reducing the burden on the swiftly rising world crude oil
effected by P.D. 938 can only be read as being prices. This objective was achieved by the use of NPC's
expansive rather than restrictive, including its version of "tax umbrella under its Revised Charter—the exemption
Section 13. from specific taxes on locally purchased fuel oil. In this
context, I can not interpret P.D. 938 to have withdrawn
Our Tax Code does not recognize that there are taxes the exemption from tax on fuel oil to which NPC was
directly imposed and those imposed indirectly. The already entitled and which exemption Government in
textbook distinction between a direct and an indirect fact was utilizing to soften the burden of high crude
tax may be based on the possibility of shifting the prices.
incidence of the tax. A direct tax is one which is
demanded from the very person intended to be the There is one other consideration which I consider
payor, although it may ultimately be shifted to another. pivotal. The taxes paid by oil companies on oil products
An example of a direct tax is the personal income tax. sold to NPC, whether paid to them by NPC or no never
On the other hand, indirect taxes are those which are entered into the rates charged by NPC to its customers
demanded from one person in the expectation and not even during those periods of uncertainty
intention that he shall indemnify himself at the expense engendered by the issuance of P.D. 1931 and E. 0. 93 on
of another. An example of this type of tax is the sales NP/Cs tax status. No tax component on the fuel have
tax levied on sales of a commodity. been charged or recovered by NPC through its rates.

The distinction between a direct tax and one indirectly There is an import duty on the crude oil imported by the
imposed (or an indirect tax) is really of no moment. local refineries. After the refining process, specific and
What is more relevant is that when an "indirect tax" is ad valorem taxes are levied on the finished products
paid by those upon whom the tax ultimately falls, it is including fuel oil or residue upon their withdrawal from
paid not as a tax but as an additional part of the cost or the refinery. These taxes are paid by the oil companies
of the market price of the commodity. as the manufacturer thereof.
 conventional economic use was for burning in electric
In selling the fuel oil to NPC, the oil companies include or steam generating plants. Had there been no use
in their billings the duty and tax component. NPC pays locally for the residue, the oil refineries would have
the oil companies' invoices including the duty become largely unviable.
component but net of the tax component. NPC then
applies for drawback of customs duties paid and for a Again, in this circumstances, I cannot accept that P.D.
credit in amount equivalent to the tax paid (by the oil 938 would have in effect forced NPC to by-pass the local
companies) on the products purchased. The tax credit is oil refineries and import its fossil fuel requirements
assigned to the oil companies—as payment, in effect, of directly in order to avail itself of its exemption from
the tax component shown in the sales invoices. (NOTE: "direct taxes." The oil refineries had to keep operating
These procedures varied over time—There were both for economic development and national security
instances when NPC paid the tax component that was reasons. In fact, the restoration by the FIRB of NPC's
shifted to it and then applied for tax credit. There were exemption after P.D. 1931 and E.O. 93 expressly
also side issues raised because of P.D. 1931 and E.O. 93 excluded direct fuel oil importations, so as not to
which withdrew all exemptions of government prejudice the continued operations of the local oil
corporations. In these latter instances, the resolutions refineries.
of the Fiscal Incentives Review Board (FIRB) come into
play. These incidents will not be touched upon for To answer your query therefore, it is the opinion of this
purposes of this discussion). Department that NPC under the provisions of its
Revised Charter retains its exemption from duties and
NPC rates of electricity are structured such that changes taxes imposed on the petroleum products purchased
in its cost of fuel are automatically (without need of locally and used for the generation of electricity.
fresh approvals) reflected in the subsequent months
billing rates. The Department in issuing this ruling does so pursuant
to its power and function to supervise and control the
This Fuel Cost Adjustment clause protects NPC's rate of collection of government revenues by the application
return. If NPC should ever accept liability to the tax and and implementation of revenue laws. It is prepared to
duty component on the oil products, such amount will take the measures supplemental to this ruling necessary
go into its fuel cost and be passed on to its customers to carry the same into full effect.
through corresponding increases in rates. Since 1974,
when NPC operated the oil-fired generating stations As presented rather extensively above, the NPC electric
leased from Meralco (which plants it bought in 1979), power rates did not carry the taxes and duties paid on
until the present time, no tax on fuel oil ever went into the fuel oil it used. The point is that while these levies
NPC's electric rates. were in fact paid to the government, no part thereof
was recovered from the sale of electricity produced. As
That the exemption of NPC from the tax on fuel was not a consequence, as of our most recent information,
withdrawn by P.D. 938 is impressed upon me by yet some P1.55 B in claims represent amounts for which the
another circumstance. It is conceded that NPC at the oil suppliers and NPC are "out-of-pocket. There would
very least, is exempt from taxes to which it is directly have to be specific order to the Bureaus concerned for
liable. NPC therefore could very well have imported its the resumption of the processing of these claims."38
fuel oil or crude residue for burning at its thermal
plants. There would have been no question in such a In the latter of June 15, 1988 of then Executive
case as to its exemption from all duties and taxes, even Secretary Macaraig to the then Secretary of Finance, the
under the strictest interpretation that can be put said opinion ruling of the latter was confirmed and its
forward. However, at the time P.D. 938 was issued in implementation was directed.39
1976, there were already operating in the Philippines
three oil refineries. The establishment of these The Court finds and so holds that the foregoing reasons
refineries in the Philippines involved heavy investments, adduced in the aforestated letter of the Secretary of
were economically desirable and enabled the country to Finance as confirmed by the then Executive Secretary
import crude oil and process / refine the same into the are well-taken. When the NPC was exempted from all
various petroleum products at a savings to the industry forms of taxes, duties, fees, imposts and other charges,
and the public. The refining process produced as its under P.D. No. 938, it means exactly what it says, i.e., all
largest output, in volume, fuel oil or residue, whose forms of taxes including those that were imposed
directly or indirectly on petroleum products used in its Section 13, under R.A. No. 6395, P.D. No, 380 and P.D.
operation. No. 838 appear to have been brought about by the
earlier inconsistent rulings of the tax agencies due to
Reference is made in the dissenting opinion to contrary the doctrine in Philippine Acetylene, so as to leave no
rulings of the BIR that the exemption of the NPC doubt as to the exemption of the NPC from indirect
extends only to taxes for which it is directly liable and taxes on petroleum products it uses in its operation.
not to taxes merely shifted to it. However, these rulings Effectively, said amendments superseded if not
are predicated on Philippine Acytelene. abrogated the ruling in Philippine Acetylene that the tax
exemption of NPC should be limited to direct taxes only.
The doctrine in Philippine Acytelene decided in 1967 by
this Court cannot apply to the present case. It involved In the light of the foregoing discussion the first corollary
the sales tax of products the plaintiff sold to NPC from issue must consequently be resolved in the affirmative,
June 2, 1953 to June 30,1958 when NPC was enjoying that is, FIRB Resolution No. 10-85 dated February 7,
tax exemption from all taxes under Commonwealth Act 1985 and FIRB Resolution No. 1-86 dated January 7,
No. 120, as amended by Republic Act No. 358 issued on 1986 which restored NPC's tax exemption privileges
June 4, 1949 hereinabove reproduced. included the restoration of the indirect tax exemption of
the NPC on petroleum products it used.
In said case, this Court held, that the sales tax is due
from the manufacturer and not the buyer, so plaintiff On the second corollary issue as to the validity of FIRB
cannot claim exemptions simply because the NPC, the resolution No. 17-87 dated June 24, 1987 which
buyer, was exempt. restored NPC's tax exemption privilege effective March
10, 1987, the Court finds that the same is valid and
However, on September 10, 1971, Republic Act No. effective.
6395 was passed as the revised charter of NPC whereby
Section 13 thereof was amended by emphasizing its It provides as follows:
non-profit character and expanding the extent of its tax
exemption. BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the
tax and duty exemption privileges of the National Power
As petitioner concedes, Section 13(d) aforestated of this Corporation, including those pertaining to its domestic
amendment under Republic Act No. 6345 spells out purchases of petroleum and petroleum products,
clearly the exemption of the NPC from indirect taxes. granted under the terms and conditions of
And as hereinabove stated, in P.D. No. 380, the Commonwealth Act No. 120 (Creating the National
exemption of NPC from indirect taxes was emphasized Power Corporation, defining its powers, objectives and
when it was specified to include those imposed "directly functions, and for other purposes), as amended, are
and indirectly." restored effective March 10, 1987, subject to the
following conditions:
Thereafter, under P.D. No. 938 the tax exemption of
NPC was integrated under Section 13 defining the same 1. The restoration of the tax and duty exemption
in general terms to cover "all forms of taxes, duties, privileges does not apply to the following:
fees, imposts, etc." which, as hereinabove discussed,
logically includes exemption from indirect taxes on 1.1. Importation of fuel oil (crude equivalent) and coal;
petroleum products used in its operation.
1.2. Commercially-funded importations (i.e.,
This is the status of the tax exemptions the NPC was importations which include but are not limited to those
enjoying when P.D. No. 1931 was passed, on the financed by the NPC's own internal funds, domestic
authority of which FIRB Resolution Nos. 10-85 and 1-86 borrowings from any source whatsoever, borrowing
were issued, and when Executive Order No. 93 was from foreign-based private financial institutions, etc.);
promulgated, by which FIRB Resolution 17-87 was and
issued.
1.3. Interest income derived from any source.
Thus, the ruling in Philippine Acetylene cannot apply to
this case due to the different environmental 2. The NPC shall submit to the FIRB a report of its
circumstances. As a matter of fact, the amendments of expansion program, including details of disposition of
relieved tax and duty payments for such expansion on a) restore tax and/or duty exemptions withdrawn
an annual basis or as often as the FIRB may require it to hereunder in whole or in part;
do so. This report shall be in addition to the usual FIRB
reporting requirements on incentive availment.40 b) revise the scope and coverage of tax and/of duty
exemption that may be restored.
Executive Order No. 93 provides as follows—
c) impose conditions for the restoration of tax and/or
Sec. 1. The provisions of any general or special law to duty exemption;
the contrary notwithstanding, all tax and duty
incentives granted " to government and private entities d) prescribe the date or period of effectivity of the
are hereby withdrawn, except: restoration of tax and/or duty exemption;

a) those covered by the non-impairment clause of the e) formulate and submit to the President for approval, a
Constitution; complete system for the grant of subsidies to deserving
beneficiaries, in lieu of or in combination with the
b) those conferred by effective international restoration of tax and duty exemptions or preferential
agreements to which the Government of the Republic treatment in taxation, indicating the source of funding
of the Philippines is a signatory; therefor, eligible beneficiaries and the terms and
conditions for the grant thereof taking into
c) those enjoyed-by enterprises registered with: consideration the international commitments of the
Philippines and the necessary precautions such that the
(i) the Board of Investments pursuant to Presidential grant of subsidies does not become the basis for
Decree No. 1789, as amended; countervailing action.

(ii) the Export Processing Zone Authority, pursuant to Sec. 3. In the discharge of its authority hereunder, the
Presidential Decree No. 66, as amended; Fiscal Incentives Review Board shall take into account
any or all of the following considerations:
(iii) the Philippine Veterans Investment Development
Corporation Industrial Authority pursuant to a) the effect on relative price levels;
Presidential Decree No. 538, as amended;
b) relative contribution of the beneficiary to the
d) those enjoyed by the copper mining industry revenue generation effort;
pursuant to the provisions of Letter of Instruction No.
1416; c) nature of the activity the beneficiary is engaged;

e) those conferred under the four basic codes namely: d) in general, the greater national interest to be served.

(i) the Tariff and Customs Code, as amended; True it is that the then Secretary of Justice in Opinion
No. 77 dated August 6, 1977 was of the view that the
(ii) the National Internal Revenue Code, as amended; powers conferred upon the FIRB by Sections 2(a), (b),
(c), and (d) of Executive Order No. 93 constitute undue
(iii) the Local Tax Code, as amended; delegation of legislative power and is therefore
unconstitutional. However, he was overruled by the
(iv) the Real Property Tax Code, as amended; respondent Executive Secretary in a letter to the
Secretary of Finance dated March 30, 1989. The
f) those approved by the President upon the Executive Secretary, by authority of the President, has
recommendation of the Fiscal Incentives Review Board. the power to modify, alter or reverse the construction
of a statute given by a department secretary.41
Sec. 2. The Fiscal Incentives Review Board created under
Presidential Decree No. 776, as amended, is hereby A reading of Section 3 of said law shows that it set the
authorized to: policy to be the greater national interest. The standards
of the delegated power are also clearly provided for.
The required "standard" need not be expressed. In Edu One thing however, is apparent in the development of
vs. Ericta42 and in De la Llana vs. Alba43 this Court held: the principle of separation of powers and that is that
"The standard may be either express or implied. If the the maxim of delegatus non potest delegare or delegati
former, the non-delegated objection is easily met. The potestas non potest delegare, adopted this practice
standard though does not have to be spelled out (Delegibus et Consuetudiniis Anglia edited by G.E.
specifically. It could be implied from the policy and Woodline, Yale University Press, 1922, Vol. 2, p. 167)
purpose of the act considered as a whole." but which is also recognized in principle in the Roman
Law d. 17.18.3) has been made to adapt itself to the
In People vs. Rosenthal44 the broad standard of "public complexities of modern government, giving rise to the
interest" was deemed sufficient. In Calalang vs. adoption, within certain limits, of the principle of
Williams,45, it was "public welfare" and in Cervantes vs. subordinate legislation, not only in the United States
Auditor General,46 it was the purpose of promotion of and England but in practically all modern governments.
"simplicity, economy and efficiency." And, implied from (People vs. Rosenthal and Osmeña, 68 Phil. 318, 1939).
the purpose of the law as a whole, "national security" Accordingly, with the growing complexities of modern
was considered sufficient standard47 and so was life, the multiplication of the subjects of governmental
"protection of fish fry or fish eggs.48 regulation, and the increased difficulty of administering
the laws, there is a constantly growing tendency toward
The observation of petitioner that the approval of the the delegation of greater power by the legislative, and
President was not even required in said Executive Order toward the approval of the practice by the Courts.
of the tax exemption privilege approved by the FIRB (Emphasis supplied.)
unlike in previous similar issuances, is not well-taken.
On the contrary, under Section l(f) of Executive Order The legislative authority could not or is not expected to
No. 93, aforestated, such tax and duty exemptions state all the detailed situations wherein the tax
extended by the FIRB must be approved by the exemption privileges of persons or entities would be
President. In this case, FIRB Resolution No. 17-87 was restored. The task may be assigned to an administrative
approved by the respondent Executive Secretary, by body like the FIRB.
authority of the President, on October 15, 1987.49
Moreover, all presumptions are indulged in favor of the
Mr. Justice Isagani A. Cruz commenting on the constitutionality and validity of the statute. Such
delegation of legislative power stated — presumption can be overturned if its invalidity is proved
beyond reasonable doubt. Otherwise, a liberal
The latest in our jurisprudence indicates that delegation interpretation in favor of constitutionality of legislation
of legislative power has become the rule and its non- should be adopted.52
delegation the exception. The reason is the increasing
complexity of modern life and many technical fields of E.O. No. 93 is complete in itself and constitutes a valid
governmental functions as in matters pertaining to tax delegation of legislative power to the FIRB And as above
exemptions. This is coupled by the growing inability of discussed, the tax exemption privilege that was restored
the legislature to cope directly with the many problems to NPC by FIRB Resolution No. 17-87 of June 1987
demanding its attention. The growth of society has includes exemption from indirect taxes and duties on
ramified its activities and created peculiar and petroleum products used in its operation.
sophisticated problems that the legislature cannot be
expected reasonably to comprehend. Specialization Indeed, the validity of Executive Order No. 93 as well as
even in legislation has become necessary. To many of of FIRB Resolution No. 17-87 has been upheld in
the problems attendant upon present day undertakings, Albay.53
the legislature may not have the competence, let alone
the interest and the time, to provide the required direct In the dissenting opinion of Mr. Justice Cruz, it is stated
and efficacious, not to say specific solutions.50 that P.D. Nos. 1931 and 1955 issued by President
Marcos in 1984 are invalid as they were presumably
Thus, in the case of Tablarin vs. Gutierrez,51 this Court promulgated under the infamous Amendment No. 6
enunciated the rationale in favor of delegation of and that as they cover tax exemption, under Section
legislative functions— 17(4), Article VIII of the 1973 Constitution, the same
cannot be passed "without the concurrence of the
majority of all the members of the Batasan Pambansa."
And, even conceding that the reservation of legislative
power in the President was valid, it is opined that it was The Court realizes the magnitude of the consequences
not validly exercised as there is no showing that such of this decision. To reiterate, in Albay this Court ruled
presidential encroachment was justified under the that the NPC is liable for real estate taxes as of June 11,
conditions then existing. Consequently, it is concluded 1984 (the date of promulgation of P.D. No. 1931) when
that Executive Order No. 93, which was intended to NPC had ceased to enjoy tax exemption privileges since
implement said decrees, is also illegal. The authority of FIRB Resolution Nos. 1085 and 1-86 were not validly
the President to sub-delegate to the FIRB powers issued. The real estate tax liability of NPC from June 11,
delegated to him is also questioned. 1984 to December 1, 1990 is estimated to amount to
P7.49 billion plus another P4.76 billion in fuel import
In Albay,54 as above stated, this Court upheld the duties the firm had earlier paid to the government
validity of P.D. Nos. 776 and 1931. The latter decree which the NPC now proposed to pass on to the
withdrew tax exemptions of government-owned or consumers by another 33-centavo increase per kilowatt
controlled corporations including their subsidiaries but hour in power rates on top of the 17-centavo increase
authorized the FIRB to restore the same. Nevertheless, per kilowatt hour that took effect just over a week
in Albay, as above-discussed, this Court ruled that the ago.,56 Hence, another case has been filed in this Court
tax exemptions under FIRB Resolution Nos. 10-85 and 1- to stop this proposed increase without a hearing.
86 cannot be enforced as said resolutions were only
recommendatory and were not duly approved by the As above-discussed, at the time FIRB Resolutions Nos.
President of the Philippines as required by P.D. No. 10-85 and 1-86 were issued, P.D. No. 776 dated August
776.55 The Court also sustained in Albay the validity of 24, 1975 was already amended by P.D. No. 1931 ,57
Executive Order No. 93, and of the tax exemptions wherein it is provided that such FIRB resolutions may be
restored under FIRB Resolution No. 17-87 which was approved not only by the President of the Philippines
issued pursuant thereto, as it was duly approved by the but also by the Minister of Finance. Such resolutions
President as required by said executive order. were promulgated by the Minister of Finance in his own
right and also in his capacity as FIRB Chairman. Thus, a
Moreover, under Section 3, Article XVIII of the separate approval thereof by the Minister of Finance or
Transitory Provisions of the 1987 Constitution, it is by the President is unnecessary.
provided that:
As earlier stated a reexamination of the ruling in Albay
All existing laws, decrees, executive orders, on this aspect is therefore called for and consequently,
proclamation, letters of instructions, and other Albay must be considered superseded to this extent by
executive issuances not inconsistent with this this decision. This is because P.D. No. 938 which is the
constitution shall remain operative until amended, latest amendment to the NPC charter granting the NPC
repealed or revoked. exemption from all forms of taxes certainly covers real
estate taxes which are direct taxes.
Thus, P.D. Nos. 776 and 1931 are valid and operative
unless it is shown that they are inconsistent with the This tax exemption is intended not only to insure that
Constitution.1âwphi1 the NPC shall continue to generate electricity for the
country but more importantly, to assure cheaper rates
Even assuming arguendo that P.D. Nos. 776, 1931 and to be paid by the consumers.
Executive Order No. 93 are not valid and are
unconstitutional, the result would be the same, as then The allegation that this is in effect allowing tax evasion
the latest applicable law would be P.D. No. 938 which by oil companies is not quite correct.1a\^/phi1 There
amended the NPC charter by granting exemption to are various arrangements in the payment of crude oil
NPC from all forms of taxes. As above discussed, this purchased by NPC from oil companies. Generally, the
exemption of NPC covers direct and indirect taxes on custom duties paid by the oil companies are added to
petroleum products used in its operation. This is as it the selling price paid by NPC. As to the specific and ad
should be, if We are to hold as invalid and inoperative valorem taxes, they are added a part of the seller's
the withdrawal of such tax exemptions under P.D. No. price, but NPC pays the price net of tax, on condition
1931 as well as under Executive Order No. 93 and the that NPC would seek a tax refund to the oil companies.
delegation of the power to restore these exemptions to No tax component on fuel had been charged or
the FIRB. recovered by NPC from the consumers through its
power rates.58 Thus, this is not a case of tax evasion of SO ORDERED.
the oil companies but of tax relief for the NPC. The
billions of pesos involved in these exemptions will
certainly inure to the ultimate good and benefit of the G.R. No. 153866 February 11, 2005
consumers who are thereby spared the additional
burden of increased power rates to cover these taxes COMMISSIONER OF INTERNAL REVENUE, petitioner,
paid or to be paid by the NPC if it is held liable for the vs.
same. SEAGATE TECHNOLOGY (PHILIPPINES), respondent.

The fear of the serious implication of this decision in DECISION

that NPC's suppliers, importers and contractors may
claim the same privilege should be dispelled by the fact PANGANIBAN, J.:
that (a) this decision particularly treats of only the
exemption of the NPC from all taxes, duties, fees, Business companies registered in and operating from
imposts and all other charges imposed by the the Special Economic Zone in Naga, Cebu -- like herein
government on the petroleum products it used or uses respondent -- are entities exempt from all internal
for its operation; and (b) Section 13(d) of R.A. No. 6395 revenue taxes and the implementing rules relevant
and Section 13(d) of P.D. No. 380, both specifically thereto, including the value-added taxes or VAT.
exempt the NPC from all taxes, duties, fees, imposts and Although export sales are not deemed exempt
all other charges imposed by the government on all transactions, they are nonetheless zero-rated. Hence, in
petroleum products used in its operation only, which is the present case, the distinction between exempt
the very exemption which this Court deems to be entities and exempt transactions has little significance,
carried over by the passage of P.D. No. 938. As a matter because the net result is that the taxpayer is not liable
of fact in Section 13(d) of P.D. No. 380 it is specified that for the VAT. Respondent, a VAT-registered enterprise,
the aforesaid exemption from taxes, etc. covers those has complied with all requisites for claiming a tax refund
"directly or indirectly" imposed by the "Republic of the of or credit for the input VAT it paid on capital goods it
Philippines, its provincies, cities, municipalities and purchased. Thus, the Court of Tax Appeals and the
other government agencies and instrumentalities" on Court of Appeals did not err in ruling that it is entitled to
said petroleum products. The exemption therefore from such refund or credit.
direct and indirect tax on petroleum products used by
NPC cannot benefit the suppliers, importers and The Case
contractors of NPC of other products or services.
Before us is a Petition for Review1 under Rule 45 of the
The Court realizes the laudable objective of petitioner Rules of Court, seeking to set aside the May 27, 2002
to improve the revenue of the government. The amount Decision2 of the Court of Appeals (CA) in CA-GR SP No.
of revenue received or expected to be received by this 66093. The decretal portion of the Decision reads as
tax exemption is, however, not going to any of the oil follows:
companies. There would be no loss to the government.
The said amount shall accrue to the benefit of the NPC, "WHEREFORE, foregoing premises considered, the
a government corporation, so as to enable it to sustain petition for review is DENIED for lack of merit."3
its tremendous task of providing electricity for the
country and at the least cost to the consumers. Denying The Facts
this tax exemption would mean hampering if not
paralyzing the operations of the NPC. The resulting The CA quoted the facts narrated by the Court of Tax
increased revenue in the government will also mean Appeals (CTA), as follows:
increased power rates to be shouldered by the
consumers if the NPC is to survive and continue to "As jointly stipulated by the parties, the pertinent facts x
provide our power requirements.59 The greater interest x x involved in this case are as follows:
of the people must be paramount.
1. [Respondent] is a resident foreign corporation duly
WHEREFORE, the petition is DISMISSED for lack of merit. registered with the Securities and Exchange Commission
No pronouncement as to costs. to do business in the Philippines, with principal office
address at the new Cebu Township One, Special 3. In Citibank, N.A. vs. Court of Appeals, 280 SCRA 459
Economic Zone, Barangay Cantao-an, Naga, Cebu; (1997), the Supreme Court ruled that:

2. [Petitioner] is sued in his official capacity, having been "A claimant has the burden of proof to establish the
duly appointed and empowered to perform the duties factual basis of his or her claim for tax credit/refund."
of his office, including, among others, the duty to act
and approve claims for refund or tax credit; 4. Claims for tax refund/tax credit are construed in
‘strictissimi juris’ against the taxpayer. This is due to the
3. [Respondent] is registered with the Philippine Export fact that claims for refund/credit [partake of] the nature
Zone Authority (PEZA) and has been issued PEZA of an exemption from tax. Thus, it is incumbent upon
Certificate No. 97-044 pursuant to Presidential Decree the [respondent] to prove that it is indeed entitled to
No. 66, as amended, to engage in the manufacture of the refund/credit sought. Failure on the part of the
recording components primarily used in computers for [respondent] to prove the same is fatal to its claim for
export. Such registration was made on 6 June 1997; tax credit. He who claims exemption must be able to
justify his claim by the clearest grant of organic or
4. [Respondent] is VAT [(Value Added Tax)]-registered statutory law. An exemption from the common burden
entity as evidenced by VAT Registration Certification No. cannot be permitted to exist upon vague implications;
97-083-000600-V issued on 2 April 1997;
5. Granting, without admitting, that [respondent] is a
5. VAT returns for the period 1 April 1998 to 30 June Philippine Economic Zone Authority (PEZA) registered
1999 have been filed by [respondent]; Ecozone Enterprise, then its business is not subject to
VAT pursuant to Section 24 of Republic Act No. ([RA])
6. An administrative claim for refund of VAT input taxes 7916 in relation to Section 103 of the Tax Code, as
in the amount of P28,369,226.38 with supporting amended. As [respondent’s] business is not subject to
documents (inclusive of the P12,267,981.04 VAT input VAT, the capital goods and services it alleged to have
taxes subject of this Petition for Review), was filed on 4 purchased are considered not used in VAT taxable
October 1999 with Revenue District Office No. 83, business. As such, [respondent] is not entitled to refund
Talisay Cebu; of input taxes on such capital goods pursuant to Section
4.106.1 of Revenue Regulations No. ([RR])7-95, and of
7. No final action has been received by [respondent] input taxes on services pursuant to Section 4.103 of said
from [petitioner] on [respondent’s] claim for VAT regulations.
refund.
6. [Respondent] must show compliance with the
"The administrative claim for refund by the provisions of Section 204 (C) and 229 of the 1997 Tax
[respondent] on October 4, 1999 was not acted upon by Code on filing of a written claim for refund within two
the [petitioner] prompting the [respondent] to elevate (2) years from the date of payment of tax.’
the case to [the CTA] on July 21, 2000 by way of Petition
for Review in order to toll the running of the two-year "On July 19, 2001, the Tax Court rendered a decision
prescriptive period. granting the claim for refund."4

"For his part, [petitioner] x x x raised the following Ruling of the Court of Appeals
Special and Affirmative Defenses, to wit:
The CA affirmed the Decision of the CTA granting the
1. [Respondent’s] alleged claim for tax refund/credit is claim for refund or issuance of a tax credit certificate
subject to administrative routinary (TCC) in favor of respondent in the reduced amount of
investigation/examination by [petitioner’s] Bureau; P12,122,922.66. This sum represented the unutilized
but substantiated input VAT paid on capital goods
2. Since ‘taxes are presumed to have been collected in purchased for the period covering April 1, 1998 to June
accordance with laws and regulations,’ the [respondent] 30, 1999.
has the burden of proof that the taxes sought to be
refunded were erroneously or illegally collected x x x; The appellate court reasoned that respondent had
availed itself only of the fiscal incentives under
Executive Order No. (EO) 226 (otherwise known as the
Omnibus Investment Code of 1987), not of those under materials, supplies, articles, equipment, machineries,
both Presidential Decree No. (PD) 66, as amended, and spare parts and wares, except those prohibited by law,
Section 24 of RA 7916. Respondent was, therefore, brought into the zone to be stored, broken up,
considered exempt only from the payment of income repacked, assembled, installed, sorted, cleaned, graded
tax when it opted for the income tax holiday in lieu of or otherwise processed, manipulated, manufactured,
the 5 percent preferential tax on gross income earned. mixed or used directly or indirectly in such activities.13
As a VAT-registered entity, though, it was still subject to Even so, respondent would enjoy a net-operating loss
the payment of other national internal revenue taxes, carry over; accelerated depreciation; foreign exchange
like the VAT. and financial assistance; and exemption from export
taxes, local taxes and licenses.14
Moreover, the CA held that neither Section 109 of the
Tax Code nor Sections 4.106-1 and 4.103-1 of RR 7-95 Comparatively, the same exemption from internal
were applicable. Having paid the input VAT on the revenue laws and regulations applies if EO 22615 is
capital goods it purchased, respondent correctly filed chosen. Under this law, respondent shall further be
the administrative and judicial claims for its refund entitled to an income tax holiday; additional deduction
within the two-year prescriptive period. Such payments for labor expense; simplification of customs procedure;
were -- to the extent of the refundable value -- duly unrestricted use of consigned equipment; access to a
supported by VAT invoices or official receipts, and were bonded manufacturing warehouse system; privileges for
not yet offset against any output VAT liability. foreign nationals employed; tax credits on domestic
capital equipment, as well as for taxes and duties on
Hence this Petition.5 raw materials; and exemption from contractors’ taxes,
wharfage dues, taxes and duties on imported capital
Sole Issue equipment and spare parts, export taxes, duties,
imposts and fees,16 local taxes and licenses, and real
Petitioner submits this sole issue for our consideration: property taxes.17

"Whether or not respondent is entitled to the refund or A privilege available to respondent under the provision
issuance of Tax Credit Certificate in the amount of in RA 7227 on tax and duty-free importation of raw
P12,122,922.66 representing alleged unutilized input materials, capital and equipment18 -- is, ipso facto, also
VAT paid on capital goods purchased for the period accorded to the zone19 under RA 7916. Furthermore,
April 1, 1998 to June 30, 1999."6 the latter law -- notwithstanding other existing laws,
rules and regulations to the contrary -- extends20 to
The Court’s Ruling that zone the provision stating that no local or national
taxes shall be imposed therein.21 No exchange control
The Petition is unmeritorious. policy shall be applied; and free markets for foreign
exchange, gold, securities and future shall be allowed
Sole Issue: and maintained.22 Banking and finance shall also be
liberalized under minimum Bangko Sentral regulation
Entitlement of a VAT-Registered PEZA Enterprise to a with the establishment of foreign currency depository
Refund of or Credit for Input VAT units of local commercial banks and offshore banking
units of foreign banks.23
No doubt, as a PEZA-registered enterprise within a
special economic zone,7 respondent is entitled to the In the same vein, respondent benefits under RA 7844
fiscal incentives and benefits8 provided for in either PD from negotiable tax credits24 for locally-produced
669 or EO 226.10 It shall, moreover, enjoy all privileges, materials used as inputs. Aside from the other
benefits, advantages or exemptions under both incentives possibly already granted to it by the Board of
Republic Act Nos. (RA) 722711 and 7844.12 Investments, it also enjoys preferential credit
facilities25 and exemption from PD 1853.26
Preferential Tax Treatment Under Special Laws
From the above-cited laws, it is immediately clear that
If it avails itself of PD 66, notwithstanding the provisions petitioner enjoys preferential tax treatment.27 It is not
of other laws to the contrary, respondent shall not be subject to internal revenue laws and regulations and is
subject to internal revenue laws and regulations for raw even entitled to tax credits. The VAT on capital goods is
an internal revenue tax from which petitioner as an Although both are taxable and similar in effect, zero-
entity is exempt. Although the transactions involving rated transactions differ from effectively zero-rated
such tax are not exempt, petitioner as a VAT-registered transactions as to their source.
person,28 however, is entitled to their credits.
Zero-rated transactions generally refer to the export
Nature of the VAT and the Tax Credit Method sale of goods and supply of services.47 The tax rate is
set at zero.48 When applied to the tax base, such rate
Viewed broadly, the VAT is a uniform tax ranging, at obviously results in no tax chargeable against the
present, from 0 percent to 10 percent levied on every purchaser. The seller of such transactions charges no
importation of goods, whether or not in the course of output tax,49 but can claim a refund of or a tax credit
trade or business, or imposed on each sale, barter, certificate for the VAT previously charged by suppliers.
exchange or lease of goods or properties or on each
rendition of services in the course of trade or Effectively zero-rated transactions, however, refer to
business29 as they pass along the production and the sale of goods50 or supply of services51 to persons
distribution chain, the tax being limited only to the or entities whose exemption under special laws or
value added30 to such goods, properties or services by international agreements to which the Philippines is a
the seller, transferor or lessor.31 It is an indirect tax signatory effectively subjects such transactions to a zero
that may be shifted or passed on to the buyer, rate.52 Again, as applied to the tax base, such rate does
transferee or lessee of the goods, properties or not yield any tax chargeable against the purchaser. The
services.32 As such, it should be understood not in the seller who charges zero output tax on such transactions
context of the person or entity that is primarily, directly can also claim a refund of or a tax credit certificate for
and legally liable for its payment, but in terms of its the VAT previously charged by suppliers.
nature as a tax on consumption.33 In either case,
though, the same conclusion is arrived at. Zero Rating and Exemption

The law34 that originally imposed the VAT in the In terms of the VAT computation, zero rating and
country, as well as the subsequent amendments of that exemption are the same, but the extent of relief that
law, has been drawn from the tax credit method.35 results from either one of them is not.
Such method adopted the mechanics and self-
enforcement features of the VAT as first implemented Applying the destination principle53 to the exportation
and practiced in Europe and subsequently adopted in of goods, automatic zero rating54 is primarily intended
New Zealand and Canada.36 Under the present method to be enjoyed by the seller who is directly and legally
that relies on invoices, an entity can credit against or liable for the VAT, making such seller internationally
subtract from the VAT charged on its sales or outputs competitive by allowing the refund or credit of input
the VAT paid on its purchases, inputs and imports.37 taxes that are attributable to export sales.55 Effective
zero rating, on the contrary, is intended to benefit the
If at the end of a taxable quarter the output taxes38 purchaser who, not being directly and legally liable for
charged by a seller39 are equal to the input taxes40 the payment of the VAT, will ultimately bear the burden
passed on by the suppliers, no payment is required. It is of the tax shifted by the suppliers.
when the output taxes exceed the input taxes that the
excess has to be paid.41 If, however, the input taxes In both instances of zero rating, there is total relief for
exceed the output taxes, the excess shall be carried the purchaser from the burden of the tax.56 But in an
over to the succeeding quarter or quarters.42 Should exemption there is only partial relief,57 because the
the input taxes result from zero-rated or effectively purchaser is not allowed any tax refund of or credit for
zero-rated transactions or from the acquisition of input taxes paid.58
capital goods,43 any excess over the output taxes shall
instead be refunded44 to the taxpayer or credited45 Exempt Transaction >and Exempt Party
against other internal revenue taxes.46
The object of exemption from the VAT may either be
Zero-Rated and Effectively Zero-Rated Transactions the transaction itself or any of the parties to the
transaction.59
An exempt transaction, on the one hand, involves goods exempt from the indirect burden of the VAT, in which
or services which, by their nature, are specifically listed case it shall also be zero-rated.
in and expressly exempted from the VAT under the Tax
Code, without regard to the tax status -- VAT-exempt or Since the purchases of respondent are not exempt from
not -- of the party to the transaction.60 Indeed, such the VAT, the rate to be applied is zero. Its exemption
transaction is not subject to the VAT, but the seller is under both PD 66 and RA 7916 effectively subjects such
not allowed any tax refund of or credit for any input transactions to a zero rate,68 because the ecozone
taxes paid. within which it is registered is managed and operated
by the PEZA as a separate customs territory.69 This
An exempt party, on the other hand, is a person or means that in such zone is created the legal fiction of
entity granted VAT exemption under the Tax Code, a foreign territory.70 Under the cross-border principle71
special law or an international agreement to which the of the VAT system being enforced by the Bureau of
Philippines is a signatory, and by virtue of which its Internal Revenue (BIR),72 no VAT shall be imposed to
taxable transactions become exempt from the VAT.61 form part of the cost of goods destined for consumption
Such party is also not subject to the VAT, but may be outside of the territorial border of the taxing authority.
allowed a tax refund of or credit for input taxes paid, If exports of goods and services from the Philippines to
depending on its registration as a VAT or non-VAT a foreign country are free of the VAT,73 then the same
taxpayer. rule holds for such exports from the national territory --
except specifically declared areas -- to an ecozone.
As mentioned earlier, the VAT is a tax on consumption,
the amount of which may be shifted or passed on by the Sales made by a VAT-registered person in the customs
seller to the purchaser of the goods, properties or territory to a PEZA-registered entity are considered
services.62 While the liability is imposed on one person, exports to a foreign country; conversely, sales by a
the burden may be passed on to another. Therefore, if a PEZA-registered entity to a VAT-registered person in the
special law merely exempts a party as a seller from its customs territory are deemed imports from a foreign
direct liability for payment of the VAT, but does not country.74 An ecozone -- indubitably a geographical
relieve the same party as a purchaser from its indirect territory of the Philippines -- is, however, regarded in
burden of the VAT shifted to it by its VAT-registered law as foreign soil.75 This legal fiction is necessary to
suppliers, the purchase transaction is not exempt. give meaningful effect to the policies of the special law
Applying this principle to the case at bar, the purchase creating the zone.76 If respondent is located in an
transactions entered into by respondent are not VAT- export processing zone77 within that ecozone, sales to
exempt. the export processing zone, even without being actually
exported, shall in fact be viewed as constructively
Special laws may certainly exempt transactions from the exported under EO 226.78 Considered as export
VAT.63 However, the Tax Code provides that those sales,79 such purchase transactions by respondent
falling under PD 66 are not. PD 66 is the precursor of RA would indeed be subject to a zero rate.80
7916 -- the special law under which respondent was
registered. The purchase transactions it entered into Tax Exemptions Broad and Express
are, therefore, not VAT-exempt. These are subject to
the VAT; respondent is required to register. Applying the special laws we have earlier discussed,
respondent as an entity is exempt from internal
Its sales transactions, however, will either be zero-rated revenue laws and regulations.
or taxed at the standard rate of 10 percent,64
depending again on the application of the destination This exemption covers both direct and indirect taxes,
principle.65 stemming from the very nature of the VAT as a tax on
consumption, for which the direct liability is imposed on
If respondent enters into such sales transactions with a one person but the indirect burden is passed on to
purchaser -- usually in a foreign country -- for use or another. Respondent, as an exempt entity, can neither
consumption outside the Philippines, these shall be be directly charged for the VAT on its sales nor
subject to 0 percent.66 If entered into with a purchaser indirectly made to bear, as added cost to such sales, the
for use or consumption in the Philippines, then these equivalent VAT on its purchases. Ubi lex non distinguit,
shall be subject to 10 percent,67 unless the purchaser is nec nos distinguere debemus. Where the law does not
distinguish, we ought not to distinguish.
 one. These rules also apply to all enterprises registered
Moreover, the exemption is both express and pervasive with the EPZA prior to the effectivity of such rules.89
for the following reasons:
Fifth, export processing zone enterprises registered90
First, RA 7916 states that "no taxes, local and national, with the Board of Investments (BOI) under EO 226
shall be imposed on business establishments operating patently enjoy exemption from national internal
within the ecozone."81 Since this law does not exclude revenue taxes on imported capital equipment
the VAT from the prohibition, it is deemed included. reasonably needed and exclusively used for the
Exceptio firmat regulam in casibus non exceptis. An manufacture of their products;91 on required supplies
exception confirms the rule in cases not excepted; that and spare part for consigned equipment;92 and on
is, a thing not being excepted must be regarded as foreign and domestic merchandise, raw materials,
coming within the purview of the general rule. equipment and the like -- except those prohibited by
law -- brought into the zone for manufacturing.93 In
Moreover, even though the VAT is not imposed on the addition, they are given credits for the value of the
entity but on the transaction, it may still be passed on national internal revenue taxes imposed on domestic
and, therefore, indirectly imposed on the same entity -- capital equipment also reasonably needed and
a patent circumvention of the law. That no VAT shall be exclusively used for the manufacture of their
imposed directly upon business establishments products,94 as well as for the value of such taxes
operating within the ecozone under RA 7916 also imposed on domestic raw materials and supplies that
means that no VAT may be passed on and imposed are used in the manufacture of their export products
indirectly. Quando aliquid prohibetur ex directo and that form part thereof.95
prohibetur et per obliquum. When anything is
prohibited directly, it is also prohibited indirectly. Sixth, the exemption from local and national taxes
granted under RA 722796 are ipso facto accorded to
ecozones.97 In case of doubt, conflicts with respect to
Second, when RA 8748 was enacted to amend RA 7916, such tax exemption privilege shall be resolved in favor
the same prohibition applied, except for real property of the ecozone.98
taxes that presently are imposed on land owned by
developers.82 This similar and repeated prohibition is And seventh, the tax credits under RA 7844 -- given for
an unambiguous ratification of the law’s intent in not imported raw materials primarily used in the production
imposing local or national taxes on business enterprises of export goods,99 and for locally produced raw
within the ecozone. materials, capital equipment and spare parts used by
exporters of non-traditional products100 -- shall also be
Third, foreign and domestic merchandise, raw continuously enjoyed by similar exporters within the
materials, equipment and the like "shall not be subject ecozone.101 Indeed, the latter exporters are likewise
to x x x internal revenue laws and regulations" under PD entitled to such tax exemptions and credits.
6683 -- the original charter of PEZA (then EPZA) that
was later amended by RA 7916.84 No provisions in the Tax Refund as Tax Exemption
latter law modify such exemption.
To be sure, statutes that grant tax exemptions are
Although this exemption puts the government at an construed strictissimi juris102 against the taxpayer103
initial disadvantage, the reduced tax collection and liberally in favor of the taxing authority.104
ultimately redounds to the benefit of the national
economy by enticing more business investments and Tax refunds are in the nature of such exemptions.105
creating more employment opportunities.85 Accordingly, the claimants of those refunds bear the
burden of proving the factual basis of their claims;106
Fourth, even the rules implementing the PEZA law and of showing, by words too plain to be mistaken, that
clearly reiterate that merchandise -- except those the legislature intended to exempt them.107 In the
prohibited by law -- "shall not be subject to x x x internal present case, all the cited legal provisions are teeming
revenue laws and regulations x x x"86 if brought to the with life with respect to the grant of tax exemptions too
ecozone’s restricted area87 for manufacturing by vivid to pass unnoticed. In addition, respondent easily
registered export enterprises,88 of which respondent is meets the challenge.
Respondent, which as an entity is exempt, is different efficient and simple to administer shall be devised and
from its transactions which are not exempt. The end extended to significant projects "to compensate for
result, however, is that it is not subject to the VAT. The market imperfections, to reward performance
non-taxability of transactions that are otherwise taxable contributing to economic development,"115 and "to
is merely a necessary incident to the tax exemption stimulate the establishment and assist initial operations
conferred by law upon it as an entity, not upon the of the enterprise."116
transactions themselves.108 Nonetheless, its exemption
as an entity and the non-exemption of its transactions Wisely accorded to ecozones created under RA 7916117
lead to the same result for the following considerations: was the government’s policy -- spelled out earlier in RA
7227 -- of converting into alternative productive
First, the contemporaneous construction of our tax laws uses118 the former military reservations and their
by BIR authorities who are called upon to execute or extensions,119 as well as of providing them
administer such laws109 will have to be adopted. Their incentives120 to enhance the benefits that would be
prior tax issuances have held inconsistent positions derived from them121 in promoting economic and
brought about by their probable failure to comprehend social development.122
and fully appreciate the nature of the VAT as a tax on
consumption and the application of the destination Finally, under RA 7844, the State declares the need "to
principle.110 Revenue Memorandum Circular No. evolve export development into a national effort"123 in
(RMC) 74-99, however, now clearly and correctly order to win international markets. By providing many
provides that any VAT-registered supplier’s sale of export and tax incentives,124 the State is able to drive
goods, property or services from the customs territory home the point that exporting is indeed "the key to
to any registered enterprise operating in the ecozone -- national survival and the means through which the
regardless of the class or type of the latter’s PEZA economic goals of increased employment and enhanced
registration -- is legally entitled to a zero rate.111 incomes can most expeditiously be achieved."125

Second, the policies of the law should prevail. Ratio legis The Tax Code itself seeks to "promote sustainable
est anima. The reason for the law is its very soul. economic growth x x x; x x x increase economic activity;
and x x x create a robust environment for business to
In PD 66, the urgent creation of the EPZA which enable firms to compete better in the regional as well as
preceded the PEZA, as well as the establishment of the global market."126 After all, international
export processing zones, seeks "to encourage and competitiveness requires economic and tax incentives
promote foreign commerce as a means of x x x to lower the cost of goods produced for export. State
strengthening our export trade and foreign exchange actions that affect global competition need to be
position, of hastening industrialization, of reducing specific and selective in the pricing of particular goods
domestic unemployment, and of accelerating the or services.127
development of the country."112
All these statutory policies are congruent to the
RA 7916, as amended by RA 8748, declared that by constitutional mandates of providing incentives to
creating the PEZA and integrating the special economic needed investments,128 as well as of promoting the
zones, "the government shall actively encourage, preferential use of domestic materials and locally
promote, induce and accelerate a sound and balanced produced goods and adopting measures to help make
industrial, economic and social development of the these competitive.129 Tax credits for domestic inputs
country x x x through the establishment, among others, strengthen backward linkages. Rightly so, "the rule of
of special economic zones x x x that shall effectively law and the existence of credible and efficient public
attract legitimate and productive foreign institutions are essential prerequisites for sustainable
investments."113 economic development."130

Under EO 226, the "State shall encourage x x x foreign VAT Registration, Not Application for Effective Zero
investments in industry x x x which shall x x x meet the Rating, Indispensable to VAT Refund
tests of international competitiveness[,] accelerate
development of less developed regions of the country[,] Registration is an indispensable requirement under our
and result in increased volume and value of exports for VAT law.131 Petitioner alleges that respondent did
the economy."114 Fiscal incentives that are cost- register for VAT purposes with the appropriate Revenue
District Office. However, it is now too late in the day for rated transaction does not and cannot become exempt
petitioner to challenge the VAT-registered status of simply because an application therefor was not made
respondent, given the latter’s prior representation or, if made, was denied. To allow the additional
before the lower courts and the mode of appeal taken requirement is to give unfettered discretion to those
by petitioner before this Court. officials or agents who, without fluid consideration, are
bent on denying a valid application. Moreover, the State
The PEZA law, which carried over the provisions of the can never be estopped by the omissions, mistakes or
EPZA law, is clear in exempting from internal revenue errors of its officials or agents.144
laws and regulations the equipment -- including capital
goods -- that registered enterprises will use, directly or Second, grantia argumenti that such an application is
indirectly, in manufacturing.132 EO 226 even reiterates required by law, there is still the presumption of
this privilege among the incentives it gives to such regularity in the performance of official duty.145
enterprises.133 Petitioner merely asserts that by virtue Respondent’s registration carries with it the
of the PEZA registration alone of respondent, the latter presumption that, in the absence of contradictory
is not subject to the VAT. Consequently, the capital evidence, an application for effective zero rating was
goods and services respondent has purchased are not also filed and approval thereof given. Besides, it is also
considered used in the VAT business, and no VAT refund presumed that the law has been obeyed146 by both the
or credit is due.134 This is a non sequitur. By the VAT’s administrative officials and the applicant.
very nature as a tax on consumption, the capital goods
and services respondent has purchased are subject to Third, even though such an application was not made,
the VAT, although at zero rate. Registration does not all the special laws we have tackled exempt respondent
determine taxability under the VAT law. not only from internal revenue laws but also from the
regulations issued pursuant thereto. Leniency in the
Moreover, the facts have already been determined by implementation of the VAT in ecozones is an
the lower courts. Having failed to present evidence to imperative, precisely to spur economic growth in the
support its contentions against the income tax holiday country and attain global competitiveness as envisioned
privilege of respondent,135 petitioner is deemed to in those laws.
have conceded. It is a cardinal rule that "issues and
arguments not adequately and seriously brought below A VAT-registered status, as well as compliance with the
cannot be raised for the first time on appeal."136 This is invoicing requirements,147 is sufficient for the effective
a "matter of procedure"137 and a "question of zero rating of the transactions of a taxpayer. The nature
fairness."138 Failure to assert "within a reasonable time of its business and transactions can easily be perused
warrants a presumption that the party entitled to assert from, as already clearly indicated in, its VAT registration
it either has abandoned or declined to assert it."139 papers and photocopied documents attached thereto.
Hence, its transactions cannot be exempted by its mere
The BIR regulations additionally requiring an approved failure to apply for their effective zero rating.
prior application for effective zero rating140 cannot Otherwise, their VAT exemption would be determined,
prevail over the clear VAT nature of respondent’s not by their nature, but by the taxpayer’s negligence -- a
transactions. The scope of such regulations is not result not at all contemplated. Administrative
"within the statutory authority x x x granted by the convenience cannot thwart legislative mandate.
legislature.141
Tax Refund or Credit in Order
First, a mere administrative issuance, like a BIR
regulation, cannot amend the law; the former cannot Having determined that respondent’s purchase
purport to do any more than interpret the latter.142 transactions are subject to a zero VAT rate, the tax
The courts will not countenance one that overrides the refund or credit is in order.
statute it seeks to apply and implement.143
As correctly held by both the CA and the Tax Court,
Other than the general registration of a taxpayer the respondent had chosen the fiscal incentives in EO 226
VAT status of which is aptly determined, no provision over those in RA 7916 and PD 66. It opted for the
under our VAT law requires an additional application to income tax holiday regime instead of the 5 percent
be made for such taxpayer’s transactions to be preferential tax regime.
considered effectively zero-rated. An effectively zero-
The latter scheme is not a perfunctory aftermath of a Section 12, paragraph 2 (c) of RA 7227, extended to the
simple registration under the PEZA law,148 for EO ecozones by RA 7916.
226149 also has provisions to contend with. These two
regimes are in fact incompatible and cannot be availed There was a very clear intent on the part of our
of simultaneously by the same entity. While EO 226 legislators, not only to exempt investors in ecozones
merely exempts it from income taxes, the PEZA law from national and local taxes, but also to grant them tax
exempts it from all taxes. credits. This fact was revealed by the sponsorship
speeches in Congress during the second reading of
Therefore, respondent can be considered exempt, not House Bill No. 14295, which later became RA 7916, as
from the VAT, but only from the payment of income tax shown below:
for a certain number of years, depending on its
registration as a pioneer or a non-pioneer enterprise. "MR. RECTO. x x x Some of the incentives that this bill
Besides, the remittance of the aforesaid 5 percent of provides are exemption from national and local taxes; x
gross income earned in lieu of local and national taxes x x tax credit for locally-sourced inputs x x x."
imposable upon business establishments within the
ecozone cannot outrightly determine a VAT exemption. xxxxxxxxx
Being subject to VAT, payments erroneously collected
thereon may then be refunded or credited. "MR. DEL MAR. x x x To advance its cause in
encouraging investments and creating an environment
Even if it is argued that respondent is subject to the 5 conducive for investors, the bill offers incentives such as
percent preferential tax regime in RA 7916, Section 24 the exemption from local and national taxes, x x x tax
thereof does not preclude the VAT. One can, therefore, credits for locally sourced inputs x x x."153
counterargue that such provision merely exempts
respondent from taxes imposed on business. To repeat, And third, no question as to either the filing of such
the VAT is a tax imposed on consumption, not on claims within the prescriptive period or the validity of
business. Although respondent as an entity is exempt, the VAT returns has been raised. Even if such a question
the transactions it enters into are not necessarily so. were raised, the tax exemption under all the special
The VAT payments made in excess of the zero rate that laws cited above is broad enough to cover even the
is imposable may certainly be refunded or credited. enforcement of internal revenue laws, including
prescription.154
Compliance with All Requisites for VAT Refund or Credit
Summary
As further enunciated by the Tax Court, respondent
complied with all the requisites for claiming a VAT To summarize, special laws expressly grant preferential
refund or credit.150 tax treatment to business establishments registered and
operating within an ecozone, which by law is considered
First, respondent is a VAT-registered entity. This fact as a separate customs territory. As such, respondent is
alone distinguishes the present case from Contex, in exempt from all internal revenue taxes, including the
which this Court held that the petitioner therein was VAT, and regulations pertaining thereto. It has opted for
registered as a non-VAT taxpayer.151 Hence, for being the income tax holiday regime, instead of the 5 percent
merely VAT-exempt, the petitioner in that case cannot preferential tax regime. As a matter of law and
claim any VAT refund or credit. procedure, its registration status entitling it to such tax
holiday can no longer be questioned. Its sales
Second, the input taxes paid on the capital goods of transactions intended for export may not be exempt,
respondent are duly supported by VAT invoices and but like its purchase transactions, they are zero-rated.
have not been offset against any output taxes. Although No prior application for the effective zero rating of its
enterprises registered with the BOI after December 31, transactions is necessary. Being VAT-registered and
1994 would no longer enjoy the tax credit incentives on having satisfactorily complied with all the requisites for
domestic capital equipment -- as provided for under claiming a tax refund of or credit for the input VAT paid
Article 39(d), Title III, Book I of EO 226152 -- starting on capital goods purchased, respondent is entitled to
January 1, 1996, respondent would still have the same such VAT refund or credit.
benefit under a general and express exemption
contained in both Article 77(1), Book VI of EO 226; and
WHEREFORE, the Petition is DENIED and the Decision "[Respondent] is a Philippine branch of American
AFFIRMED. No pronouncement as to costs. Express International, Inc., a corporation duly organized
and existing under and by virtue of the laws of the State
SO ORDERED. of Delaware, U.S.A., with office in the Philippines at the
Ground Floor, ACE Building, corner Rada and de la Rosa
Sandoval-Gutierrez, Corona, Carpio-Morales and Garcia, Streets, Legaspi Village, Makati City. It is a servicing unit
JJ., concur. of American Express International, Inc. - Hongkong
Branch (Amex-HK) and is engaged primarily to facilitate
the collections of Amex-HK receivables from card
members situated in the Philippines and payment to
THIRD DIVISION service establishments in the Philippines.

[G.R. NO. 152609 : June 29, 2005] "Amex Philippines registered itself with the Bureau of
Internal Revenue (BIR), Revenue District Office No. 47
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. (East Makati) as a value-added tax (VAT) taxpayer
AMERICAN EXPRESS INTERNATIONAL, INC. (PHILIPPINE effective March 1988 and was issued VAT Registration
BRANCH), Respondent. Certificate No. 088445 bearing VAT Registration No.
32A-3-004868. For the period January 1, 1997 to
DECISION December 31, 1997, [respondent] filed with the BIR its
quarterly VAT returns as follows:
PANGANIBAN, J.:
Exhibit Period Covered Date Filed
As a general rule, the value-added tax (VAT) system D 1997 1st Qtr. April 18, 1997
uses the destination principle. However, our VAT law F 2nd Qtr. July 21, 1997
itself provides for a clear exception, under which the G 3rd Qtr.October 2, 1997
supply of service shall be zero-rated when the following H 4th Qtr.January 20, 1998
requirements are met: (1) the service is performed in "On March 23, 1999, however, [respondent] amended
the Philippines; (2) the service falls under any of the the aforesaid returns and declared the following:
categories provided in Section 102(b) of the Tax Code;
and (3) it is paid for in acceptable foreign currency that Exh 1997 Taxable Sales Output
is accounted for in accordance with the regulations of VAT Zero-rated
the Bangko Sentral ng Pilipinas. Since respondent's Sales Domestic
services meet these requirements, they are zero-rated. Purchases Input
Petitioner's Revenue Regulations that alter or revoke VAT
the above requirements are ultra vires and invalid. I 1st qtr P59,597.20 P5,959.72 P17,513,801.11
P6,778,182.30 P677,818.23
The Case J 2nd qtr 67,517.20 6,751.72
17,937,361.51 9,333,242.90 933,324.29
Before us is a Petition for Review1 under Rule 45 of the K 3rd qtr 51,936.60 5,193.66
Rules of Court, assailing the February 28, 2002 19,627,245.36 8,438,357.00 843,835.70
Decision2 of the Court of Appeals (CA) in CA-GR SP No. L 4th qtr 67,994.30 6,799.43
62727. The assailed Decision disposed as follows: 25,231,225.22 13,080,822.10 1,308,082.21
Total
"WHEREFORE, premises considered, the petition is P247,045.30
hereby DISMISSED for lack of merit. The assailed P24,704.53
decision of the Court of Tax Appeals (CTA) is AFFIRMED P80,309,633.20
in toto."3 P37,630,604.30
P3,763,060.43
The Facts "On April 13, 1999, [respondent] filed with the BIR a
letter-request for the refund of its 1997 excess input
Quoting the CTA, the CA narrated the undisputed facts taxes in the amount of P3,751,067.04, which amount
as follows: was arrived at after deducting from its total input VAT
paid of P3,763,060.43 its applied output VAT liabilities
only for the third and fourth quarters of 1997 services performed in the Philippines by VAT-registered
amounting to P5,193.66 and P6,799.43, respectively. persons shall be subject to 0%:
[Respondent] cites as basis therefor, Section 110 (B) of
the 1997 Tax Code, to state: (1) x x x

'Section 110. Tax Credits. - (2) Services other than those mentioned in the
preceding subparagraph, the consideration is paid for in
xxx acceptable foreign currency which is remitted inwardly
to the Philippines and accounted for in accordance with
'(B) Excess Output or Input Tax. - If at the end of any the rules and regulations of the BSP. x x x.'
taxable quarter the output tax exceeds the input tax,
the excess shall be paid by the VAT-registered person. If In addition, [respondent] relied on VAT Ruling No. 080-
the input tax exceeds the output tax, the excess shall be 89, dated April 3, 1989, the pertinent portion of which
carried over to the succeeding quarter or quarters. Any reads as follows:
input tax attributable to the purchase of capital goods
or to zero-rated sales by a VAT-registered person may at 'In Reply, please be informed that, as a VAT registered
his option be refunded or credited against other entity whose service is paid for in acceptable foreign
internal revenue taxes, subject to the provisions of currency which is remitted inwardly to the Philippines
Section 112.' and accounted for in accordance with the rules and
regulations of the Central [B]ank of the Philippines, your
"There being no immediate action on the part of the service income is automatically zero rated effective
[petitioner], [respondent's] petition was filed on April January 1, 1998. [Section 102(a)(2) of the Tax Code as
15, 1999. amended].4 For this, there is no need to file an
application for zero-rate.'
"In support of its Petition for Review, the following
arguments were raised by [respondent]: B. Input taxes on domestic purchases of taxable goods
and services related to zero-rated revenues are
A. Export sales by a VAT-registered person, the available as tax refund in accordance with Section 106
consideration for which is paid for in acceptable foreign (now Section 112) of the [Tax Code] and Section 8(a) of
currency inwardly remitted to the Philippines and [Revenue] Regulations [(RR)] No. 5-87, to state:
accounted for in accordance with existing regulations of
the Bangko Sentral ng Pilipinas, are subject to [VAT] at 'Section 106. Refunds or tax credits of input tax. -
zero percent (0%). According to [respondent], being a
VAT-registered entity, it is subject to the VAT imposed (A) Zero-rated or effectively Zero-rated Sales. - Any VAT-
under Title IV of the Tax Code, to wit: registered person, except those covered by paragraph
(a) above, whose sales are zero-rated or are effectively
'Section 102.(sic) Value-added tax on sale of services. - zero-rated, may, within two (2) years after the close of
(a) Rate and base of tax. - There shall be levied, the taxable quarter when such sales were made, apply
assessed and collected, a value-added tax equivalent to for the issuance of tax credit certificate or refund of the
10% percent of gross receipts derived by any person input taxes due or attributable to such sales, to the
engaged in the sale of services. The phrase "sale of extent that such input tax has not been applied against
services" means the performance of all kinds of services output tax. x x x. [Section 106(a) of the Tax Code]'5
for others for a fee, remuneration or consideration,
including those performed or rendered by construction 'Section 8. Zero-rating. - (a) In general. - A zero-rated
and service contractors: stock, real estate, commercial, sale is a taxable transaction for value-added tax
customs and immigration brokers; lessors of personal purposes. A sale by a VAT-registered person of goods
property; lessors or distributors of cinematographic and/or services taxed at zero rate shall not result in any
films; persons engaged in milling, processing, output tax. The input tax on his purchases of goods or
manufacturing or repacking goods for others; and services related to such zero-rated sale shall be
similar services regardless of whether o[r] not the available as tax credit or refundable in accordance with
performance thereof calls for the exercise or use of the Section 16 of these Regulations. x x x. '[Section 8(a),
physical or mental faculties:Provided That the following [RR] 5-87]. '6
"[Petitioner], in his Answer filed on May 6, 1999, not such tax, penalty or sum has been paid under
claimed by way of Special and Affirmative Defenses protest or duress.
that:
In any case, no such suit or proceeding shall be begun
7. The claim for refund is subject to investigation by the (sic) after the expiration of two (2) years from the date
Bureau of Internal Revenue; of payment of the tax or penalty regardless of any
supervening cause that may arise after payment:
8. Taxes paid and collected are presumed to have been Provided, however, That the Commissioner may, even
made in accordance with laws and regulations, hence, without written claim therefor, refund or credit any tax,
not refundable. Claims for tax refund are construed where on the face of the return upon which payment
strictly against the claimant as they partake of the was made, such payment appears clearly to have been
nature of tax exemption from tax and it is incumbent erroneously paid.'
upon the [respondent] to prove that it is entitled
thereto under the law and he who claims exemption "From the foregoing, the [CTA], through the Presiding
must be able to justify his claim by the clearest grant of Judge Ernesto D. Acosta rendered a decision7 in favor of
organic or statu[t]e law. An exemption from the the herein respondent holding that its services are
common burden [cannot] be permitted to exist upon subject to zero-rate pursuant to Section 108(b) of the
vague implications; Tax Reform Act of 1997 and Section 4.102-2 (b)(2) of
Revenue Regulations 5-96, the decretal portion of which
9. Moreover, [respondent] must prove that it has reads as follows:
complied with the governing rules with reference to tax
recovery or refund, which are found in Sections 204(c) 'WHEREFORE, in view of all the foregoing, this Court
and 229 of the Tax Code, as amended, which are quoted finds the [petition] meritorious and in accordance with
as follows: law. Accordingly, [petitioner] is hereby ORDERED to
REFUND to [respondent] the amount of P3,352,406.59
'Section 204. Authority of the Commissioner to representing the latter's excess input VAT paid for the
Compromise, Abate and Refund or Credit Taxes. - The year 1997. '"8
Commissioner may - x x x.
Ruling of the Court of Appeals
(C) Credit or refund taxes erroneously or illegally
received or penalties imposed without authority, refund In affirming the CTA, the CA held that respondent's
the value of internal revenue stamps when they are services fell under the first type enumerated in Section
returned in good condition by the purchaser, and, in his 4.102-2(b)(2) of RR 7-95, as amended by RR 5-96. More
discretion, redeem or change unused stamps that have particularly, its "services were not of the same class or
been rendered unfit for use and refund their value upon of the same nature as project studies, information, or
proof of destruction. No credit or refund of taxes or engineering and architectural designs" for non-resident
penalties shall be allowed unless the taxpayer files in foreign clients; rather, they were "services other than
writing with the Commissioner a claim for credit or the processing, manufacturing or repacking of goods for
refund within two (2) years after payment of the tax or persons doing business outside the Philippines." The
penalty: Provided, however, That a return filed with an consideration in both types of service, however, was
overpayment shall be considered a written claim for paid for in acceptable foreign currency and accounted
credit or refund.' for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas.
'Section 229. Recovery of tax erroneously or illegally
collected. - No suit or proceeding shall be maintained in Furthermore, the CA reasoned that reliance on VAT
any court for the recovery of any national internal Ruling No. 040-98 was unwarranted. By requiring that
revenue tax hereafter alleged to have been erroneously respondent's services be consumed abroad in order to
or illegally assessed or collected, or of any penalty be zero-rated, petitioner went beyond the sphere of
claimed to have been collected without authority, or of interpretation and into that of legislation. Even granting
any sum alleged to have been excessively or in any that it is valid, the ruling cannot be given retroactive
manner wrongfully collected, until a claim for refund or effect, for it will be harsh and oppressive to respondent,
credit has been duly filed with the Commissioner; but which has already relied upon VAT Ruling No. 080-89 for
such suit or proceeding may be maintained, whether or zero rating.
Hence, this Petition.9 '(6) The supply of technical advice, assistance or services
rendered in connection with technical management or
The Issue administration of any x x x commercial undertaking,
venture, project or scheme;
Petitioner raises this sole issue for our consideration:
xxx
"Whether or not the Court of Appeals committed
reversible error in holding that respondent is entitled to "The term 'gross receipts' means the total amount of
the refund of the amount of P3,352,406.59 allegedly money or its equivalent representing the contract price,
representing excess input VAT for the year 1997."10 compensation, service fee, rental or royalty, including
the amount charged for materials supplied with the
The Court's Ruling services and deposits and advanced payments actually
or constructively received during the taxable quarter for
The Petition is unmeritorious. the services performed or to be performed for another
person, excluding value-added tax.
Sole Issue:
"(b) Transactions subject to zero percent (0%) rate. - -
Entitlement to Tax Refund The following services performed in the Philippines by
VAT-registered persons shall be subject to zero percent
Section 102 of the Tax Code11 provides: (0%) rate[:]

"Sec. 102. Value-added tax on sale of services and use '(1) Processing, manufacturing or repacking goods for
or lease of properties. - - (a) Rate and base of tax. - - other persons doing business outside the Philippines
There shall be levied, assessed and collected, a value- which goods are subsequently exported, where the
added tax equivalent to ten percent (10%) of gross services are paid for in acceptable foreign currency and
receipts derived from the sale or exchange of services x accounted for in accordance with the rules and
x x. regulations of the Bangko Sentral ng Pilipinas (BSP);

"The phrase 'sale or exchange of services' means the '(2) Services other than those mentioned in the
performance of all kinds of services in the Philippines preceding subparagraph, the consideration for which is
for others for a fee, remuneration or consideration, paid for in acceptable foreign currency and accounted
including those performed or rendered by x x x persons for in accordance with the rules and regulations of the
engaged in milling, processing, manufacturing or [BSP];' "
repacking goods for others; x x x services of banks, non-
bank financial intermediaries and finance companies; x xxx
x x and similar services regardless of whether or not the
performance thereof calls for the exercise or use of the Zero Rating of "Other" Services
physical or mental faculties. The phrase 'sale or
exchange of services' shall likewise include: The law is very clear. Under the last paragraph quoted
above, services performed by VAT-registered persons in
xxx the Philippines (other than the processing,
manufacturing or repacking of goods for persons doing
'(3) The supply of x x x commercial knowledge or business outside the Philippines), when paid in
information; acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP,
'(4) The supply of any assistance that is ancillary and are zero-rated.
subsidiary to and is furnished as a means of enabling
the application or enjoyment of x x x any such Respondent is a VAT-registered person that facilitates
knowledge or information as is mentioned in the collection and payment of receivables belonging to
subparagraph (3); its non-resident foreign client, for which it gets paid in
acceptable foreign currency inwardly remitted and
xxx accounted for in conformity with BSP rules and
regulations. Certainly, the service it renders in the accounts the credit card drafts23 that arise from the
Philippines is not in the same category as "processing, credit sales. Instead, they merely record their
manufacturing or repacking of goods" and should, receivables from the credit card company and
therefore, be zero-rated. In reply to a query of periodically send the drafts evidencing those receivables
respondent, the BIR opined in VAT Ruling No. 080-89 to the latter.
that the income respondent earned from its parent
company's regional operating centers (ROCs) was The credit card company, in turn, sends checks as
automatically zero-rated effective January 1, 1988.12 payment to these business establishments, but it does
not redeem the drafts at full price. The agreement
Service has been defined as "the art of doing something between them usually provides for discounts to be
useful for a person or company for a fee"13 or "useful taken by the company upon its redemption of the
labor or work rendered or to be rendered by one person drafts.24 At the end of each month, it then bills its
to another."14 For facilitating in the Philippines the credit card holders for their respective drafts redeemed
collection and payment of receivables belonging to its during the previous month. If the holders fail to pay the
Hong Kong-based foreign client, and getting paid for it amounts owed, the company sustains the loss.25
in duly accounted acceptable foreign currency,
respondent renders service falling under the category of In the present case, respondent's role in the consumer
zero rating. Pursuant to the Tax Code, a VAT of zero credit26 process described above primarily consists of
percent should, therefore, be levied upon the supply of gathering the bills and credit card drafts of different
that service.15 service establishments located in the Philippines and
forwarding them to the ROCs outside the country.
The Credit Card System and Its Components Servicing the bill is not the same as billing. For the
former type of service alone, respondent already gets
For sure, the ancillary business of facilitating the said paid.
collection is different from the main business of issuing
credit cards.16 Under the credit card system, the credit The parent company - - to which the ROCs and
card company extends credit accommodations to its respondent belong - - takes charge not only of
card holders for the purchase of goods and services redeeming the drafts from the ROCs and sending the
from its member establishments, to be reimbursed by checks to the service establishments, but also of billing
them later on upon proper billing. Given the the credit card holders for their respective drafts that it
complexities of present-day business transactions, the has redeemed. While it usually imposes finance
components of this system can certainly function as charges27 upon the holders, none may be exacted by
separate billable services. respondent upon either the ROCs or the card holders.

Under RA 8484,17 the credit card that is issued by Branch and Home Office
banks18 in general, or by non-banks in particular, refers
to "any card x x x or other credit device existing for the By designation alone, respondent and the ROCs are
purpose of obtaining x x x goods x x x or services x x x on operated as branches. This means that each of them is a
credit;"19 and is being used "usually on a revolving unit, "an offshoot, lateral extension, or division"28
basis."20 This means that the consumer-credit located at some distance from the home office29 of the
arrangement that exists between the issuer and the parent company; carrying separate inventories;
holder of the credit card enables the latter to procure incurring their own expenses; and generating their
goods or services "on a continuing basis as long as the respective incomes. Each may conduct sales operations
outstanding balance does not exceed a specified in any locality as an extension of the principal office.30
limit."21 The card holder is, therefore, given "the power
to obtain present control of goods or service on a The extent of accounting activity at any of these
promise to pay for them in the future."22 branches depends upon company policy,31 but the
financial reports of the entire business enterprise - - the
Business establishments may extend credit sales credit card company to which they all belong - - must
through the use of the credit card facilities of a non- always show its financial position, results of operation,
bank credit card company to avoid the risk of and changes in its financial position as a single unit.32
uncollectible accounts from their customers. Under this Reciprocal accounts are reconciled or eliminated,
system, the establishments do not deposit in their bank because they lose all significance when the branches
and home office are viewed as a single entity.33 In like receivables belonging to a foreign company that is a
manner, intra-company profits or losses must be offset clearly separate and distinct entity.
against each other for accounting purposes.
Second, such service is commercial in nature; carried on
Contrary to petitioner's assertion,34 respondent can sell over a sustained period of time; on a significant scale;
its services to another branch of the same parent with a reasonable degree of frequency; and not at
company.35 In fact, the business concept of a transfer random, fortuitous or attenuated.
price allows goods and services to be sold between and
among intra-company units at cost or above cost.36 A Third, for this service, respondent definitely receives
branch may be operated as a revenue center, cost consideration in foreign currency that is accounted for
center, profit center or investment center, depending in conformity with law.
upon the policies and accounting system of its parent
company.37 Furthermore, the latter may choose not to Finally, respondent is not an entity exempt under any of
make any sale itself, but merely to function as a control our laws or international agreements.
center, where most or all of its expenses are allocated
to any of its branches.38 Services Subject to Zero VAT

Gratia argumenti that the sending of drafts and bills by As a general rule, the VAT system uses the destination
service establishments to respondent is equivalent to principle as a basis for the jurisdictional reach of the
the act of sending them directly to its parent company tax.51 Goods and services are taxed only in the country
abroad, and that the parent company's subsequent where they are consumed. Thus, exports are zero-rated,
redemption of these drafts and billings of credit card while imports are taxed.
holders is also attributable to respondent, then with
greater reason should the service rendered by Confusion in zero rating arises because petitioner
respondent be zero-rated under our VAT system. The equates the performance of a particular type of service
service partakes of the nature of export sales as applied with the consumption of its output abroad. In the
to goods,39 especially when rendered in the Philippines present case, the facilitation of the collection of
by a VAT-registered person40 that gets paid in receivables is different from the utilization or
acceptable foreign currency accounted for in consumption of the outcome of such service. While the
accordance with BSP rules and regulations. facilitation is done in the Philippines, the consumption is
not. Respondent renders assistance to its foreign clients
VAT Requirements for the Supply of Service - - the ROCs outside the country - - by receiving the bills
of service establishments located here in the country
The VAT is a tax on consumption41 "expressed as a and forwarding them to the ROCs abroad. The
percentage of the value added to goods or services"42 consumption contemplated by law, contrary to
purchased by the producer or taxpayer.43 As an indirect petitioner's administrative interpretation,52 does not
tax44 on services,45 its main object is the transaction46 imply that the service be done abroad in order to be
itself or, more concretely, the performance of all kinds zero-rated.
of services47 conducted in the course of trade or
business in the Philippines.48 These services must be Consumption is "the use of a thing in a way that thereby
regularly conducted in this country; undertaken in exhausts it."53 Applied to services, the term means the
"pursuit of a commercial or an economic activity;"49 for performance or "successful completion of a contractual
a valuable consideration; and not exempt under the Tax duty, usually resulting in the performer's release from
Code, other special laws, or any international any past or future liability x x x."54 The services
agreement.50 rendered by respondent are performed or successfully
completed upon its sending to its foreign client the
Without doubt, the transactions respondent entered drafts and bills it has gathered from service
into with its Hong Kong-based client meet all these establishments here. Its services, having been
requirements. performed in the Philippines, are therefore also
consumed in the Philippines.
First, respondent regularly renders in the Philippines the
service of facilitating the collection and payment of Unlike goods, services cannot be physically used in or
bound for a specific place when their destination is
determined. Instead, there can only be a service. The activity that creates the income must not
"predetermined end of a course"55 when determining be confused with the main business in the course of
the service "location or position x x x for legal which that income is realized.59
purposes."56 Respondent's facilitation service has no
physical existence, yet takes place upon rendition, and Tax Situs of a Zero-Rated Service
therefore upon consumption, in the Philippines. Under
the destination principle, as petitioner asserts, such The law neither makes a qualification nor adds a
service is subject to VAT at the rate of 10 percent. condition in determining the tax situs of a zero-rated
service. Under this criterion, the place where the service
Respondent's Services Exempt from the Destination is rendered determines the jurisdiction60 to impose the
Principle VAT.61 Performed in the Philippines, such service is
necessarily subject to its jurisdiction,62 for the State
However, the law clearly provides for an exception to necessarily has to have "a substantial connection"63 to
the destination principle; that is, for a zero percent VAT it, in order to enforce a zero rate.64 The place of
rate for services that are performed in the Philippines, payment is immaterial;65 much less is the place where
"paid for in acceptable foreign currency and accounted the output of the service will be further or ultimately
for in accordance with the rules and regulations of the used.
[BSP]."57 Thus, for the supply of service to be zero-
rated as an exception, the law merely requires that first, Statutory Construction or Interpretation Unnecessary
the service be performed in the Philippines; second, the
service fall under any of the categories in Section 102(b) As mentioned at the outset, Section 102(b)(2) of the Tax
of the Tax Code; and, third, it be paid in acceptable Code is very clear. Therefore, no statutory construction
foreign currency accounted for in accordance with BSP or interpretation is needed. Neither can conditions or
rules and regulations. limitations be introduced where none is provided for.
Rewriting the law is a forbidden ground that only
Indeed, these three requirements for exemption from Congress may tread upon.
the destination principle are met by respondent. Its
facilitation service is performed in the Philippines. It The Court may not construe a statute that is free from
falls under the second category found in Section 102(b) doubt.66 "[W]here the law speaks in clear and
of the Tax Code, because it is a service other than categorical language, there is no room for
"processing, manufacturing or repacking of goods" as interpretation. There is only room for application."67
mentioned in the provision. Undisputed is the fact that The Court has no choice but to "see to it that its
such service meets the statutory condition that it be mandate is obeyed."68
paid in acceptable foreign currency duly accounted for
in accordance with BSP rules. Thus, it should be zero- No Qualifications Under RR 5-87
rated.
In implementing the VAT provisions of the Tax Code, RR
Performance of Service v. Product Arising from 5-87 provides for the zero rating of services other than
Performance the processing, manufacturing or repacking of goods - -
in general and without qualifications - - when paid for
Again, contrary to petitioner's stand, for the cost of by the person to whom such services are rendered in
respondent's service to be zero-rated, it need not be acceptable foreign currency inwardly remitted and duly
tacked in as part of the cost of goods exported.58 The accounted for in accordance with the BSP (then Central
law neither imposes such requirement nor associates Bank) regulations. Section 8 of RR 5-87 states:
services with exported goods. It simply states that the
services performed by VAT-registered persons in the "SECTION 8. Zero-rating. - - (a) In general. - - A zero-
Philippines - - services other than the processing, rated sale is a taxable transaction for value-added tax
manufacturing or repacking of goods for persons doing purposes. A sale by a VAT-registered person of goods
business outside this country - - if paid in acceptable and/or services taxed at zero rate shall not result in any
foreign currency and accounted for in accordance with output tax. The input tax on his purchases of goods or
the rules and regulations of the BSP, are zero-rated. The services related to such zero-rated sale shall be
service rendered by respondent is clearly different from available as tax credit or refundable in accordance with
the product that arises from the rendition of such Section 16 of these Regulations.
 "(b) Transaction subject to zero-rate. - - The following
xxx services performed in the Philippines by VAT-registered
persons shall be subject to 0%:
" (c) Zero-rated sales of services. - - The following
services rendered by VAT-registered persons are zero- '(1) Processing, manufacturing or repacking goods for
rated: other persons doing business outside the Philippines
which goods are subsequently exported, where the
'(1) Services in connection with the processing, services are paid for in acceptable foreign currency and
manufacturing or repacking of goods for persons doing accounted for in accordance with the rules and
business outside the Philippines, where such goods are regulations of the BSP;
actually shipped out of the Philippines to said persons
or their assignees and the services are paid for in '(2) Services other than those mentioned in the
acceptable foreign currency inwardly remitted and duly preceding subparagraph, e.g. those rendered by hotels
accounted for under the regulations of the Central Bank and other service establishments, the consideration for
of the Philippines. which is paid for in acceptable foreign currency and
accounted for in accordance with the rules and
xxx regulations of the BSP;' "

'(3) Services performed in the Philippines other than xxx

those mentioned in subparagraph (1) above which are
paid for by the person or entity to whom the service is Meaning of "as well as" in RR 5-96
rendered in acceptable foreign currency inwardly
remitted and duly accounted for in accordance with Section 4.102-2(b)(2) of RR 7-95 was subsequently
Central Bank regulations. Where the contract involves amended by RR 5-96 to read as follows:
payment in both foreign and local currency, only the
service corresponding to that paid in foreign currency "Section 4.102-2(b)(2) - - 'Services other than
shall enjoy zero-rating. The portion paid for in local processing, manufacturing or repacking for other
currency shall be subject to VAT at the rate of 10%. '" persons doing business outside the Philippines for
goods which are subsequently exported, as well as
RR 7-95 Broad Enough services by a resident to a non-resident foreign client
such as project studies, information services,
RR 7-95, otherwise known as the "Consolidated VAT engineering and architectural designs and other similar
Regulations,"69 reiterates the above-quoted provision services, the consideration for which is paid for in
and further presents as examples only the services acceptable foreign currency and accounted for in
performed in the Philippines by VAT-registered hotels accordance with the rules and regulations of the BSP. '"
and other service establishments. Again, the condition
remains that these services must be paid in acceptable Aside from the already scopious coverage of services in
foreign currency inwardly remitted and accounted for in Section 4.102-2(b)(2) of RR 7-95, the amendment
accordance with the rules and regulations of the BSP. introduced by RR 5-96 further enumerates specific
The term "other service establishments" is obviously services entitled to zero rating. Although superfluous,
broad enough to cover respondent's facilitation service. these sample services are meant to be merely
Section 4.102-2 of RR 7-95 provides thus: illustrative. In this provision, the use of the term "as well
as" is not restrictive. As a prepositional phrase with an
"SECTION 4.102-2. Zero-Rating. - - (a) In general. - - A adverbial relation to some other word, it simply means
zero-rated sale by a VAT registered person, which is a "in addition to, besides, also or too."70
taxable transaction for VAT purposes, shall not result in
any output tax. However, the input tax on his purchases Neither the law nor any of the implementing revenue
of goods, properties or services related to such zero- regulations aforequoted categorically defines or limits
rated sale shall be available as tax credit or refund in the services that may be sold or exchanged for a fee,
accordance with these regulations. remuneration or consideration. Rather, both merely
enumerate the items of service that fall under the term
"sale or exchange of services."71
Ejusdem Generis courts,"79 this interpretation is not conclusive and will
Inapplicable have to be "ignored if judicially found to be
erroneous"80 and "clearly absurd x x x or improper."81
The canon of statutory construction known as ejusdem An administrative issuance that overrides the law it
generis or "of the same kind or specie" does not apply merely seeks to interpret, instead of remaining
to Section 4.102-2(b)(2) of RR 7-95 as amended by RR 5- consistent and in harmony with it, will not be
96. countenanced by this Court.82

First, although the regulatory provision contains an In the present case, respondent has relied upon VAT
enumeration of particular or specific words, followed by Ruling No. 080-89, which clearly recognizes its zero
the general phrase "and other similar services," such rating. Changing this status will certainly deprive
words do not constitute a readily discernible class and respondent of a refund of the substantial amount of
are patently not of the same kind.72 Project studies excess input taxes to which it is entitled.
involve investments or marketing; information services
focus on data technology; engineering and architectural Again, assuming arguendo that VAT Ruling No. 040-98
designs require creativity. Aside from calling for the revoked VAT Ruling No. 080-89, such revocation could
exercise or use of mental faculties or perhaps producing not be given retroactive effect if the application of the
written technical outputs, no common denominator to latter ruling would only be prejudicial to respondent.83
the exclusion of all others characterizes these three Section 246 of the Tax Code categorically declares that
services. Nothing sets them apart from other and similar "[a]ny revocation x x x of x x x any of the rulings x x x
general services that may involve advertising, promulgated by the Commissioner shall not be given
computers, consultancy, health care, management, retroactive application if the revocation x x x will be
messengerial work - - to name only a few. prejudicial to the taxpayers."84

Second, there is the regulatory intent to give the It is also basic in law that "no x x x rule x x x shall be
general phrase "and other similar services" a broader given retrospective effect85 unless explicitly stated."86
meaning.73 Clearly, the preceding phrase "as well as" is No indication of such retroactive application to
not meant to limit the effect of "and other similar respondent does the Court find in VAT Ruling No. 040-
services." 98. Neither do the exceptions enumerated in Section
24687 of the Tax Code apply.
Third, and most important, the statutory provision upon
which this regulation is based is by itself not restrictive. Though vested with the power to interpret the
The scope of the word "services" in Section 102(b)(2) of provisions of the Tax Code88 and not bound by
the Tax Code is broad; it is not susceptible of narrow predecessors' acts or rulings, the BIR commissioner may
interpretation.74 ςηαñrοblεš νιr†υαl lαω render a different construction to a statute89 only if the
lιbrαrÿ new interpretation is in congruence with the law.
Otherwise, no amount of interpretation can ever
VAT Ruling Nos. 040-98 and 080-89 revoke, repeal or modify what the law says.

VAT Ruling No. 040-98 relied upon by petitioner is a less "Consumed Abroad" Not Required by Legislature
general interpretation at the administrative level,75
rendered by the BIR commissioner upon request of a Interpellations on the subject in the halls of the Senate
taxpayer to clarify certain provisions of the VAT law. As also reveal a clear intent on the part of the legislators
correctly held by the CA, when this ruling states that the not to impose the condition of being "consumed
service must be "destined for consumption outside of abroad" in order for services performed in the
the Philippines"76 in order to qualify for zero rating, it Philippines by a VAT-registered person to be zero-rated.
contravenes both the law and the regulations issued We quote the relevant portions of the proceedings:
pursuant to it.77 This portion of VAT Ruling No. 040-98
is clearly ultra vires and invalid.78 "Senator Maceda: Going back to Section 102 just for the
moment. Will the Gentleman kindly explain to me - I am
Although "[i]t is widely accepted that the interpretation referring to the lower part of the first paragraph with
placed upon a statute by the executive officers, whose the 'Provided'. Section 102. Provided that the following
duty is to enforce it, is entitled to great respect by the services performed in the Philippines by VAT registered
persons shall be subject to zero percent. 'There are subparagraph, the consideration of which is paid for in
three here. What is the difference between the three acceptable foreign currency''
here which is subject to zero percent and Section 103
which is exempt transactions, to being with? "One example I could immediately think of - - I do not
cralawlibrary know why this comes to my mind tonight - - is for
tourism or escort services. For example, the services of
"Senator Herrera: Mr. President, in the case of the tour operator or tour escort - - just a good name for
processing and manufacturing or repacking goods for all kinds of activities - - is made here at the Midtown
persons doing business outside the Philippines which Ramada Hotel or at the Philippine Plaza, but the
are subsequently exported, and where the services are payment is made from outside and remitted into the
paid for in acceptable foreign currencies inwardly country.
remitted, this is considered as subject to 0%. But if
these conditions are not complied with, they are subject "Senator Herrera: What is important here is that these
to the VAT. services are paid in acceptable foreign currency
remitted inwardly to the Philippines.
"In the case of No. 2, again, as the Gentleman pointed
out, these three are zero-rated and the other one that "Senator Maceda: Yes, Mr. President. Like those
he indicated are exempted from the very beginning. Japanese tours which include $50 for the services of a
These three enumerations under Section 102 are zero- woman or a tourist guide, it is zero-rated when it is
rated provided that these conditions indicated in these remitted here.
three paragraphs are also complied with. If they are not
complied with, then they are not entitled to the zero "Senator Herrera: I guess it can be interpreted that way,
ratings. Just like in the export of minerals, if these are although this tourist guide should also be considered as
not exported, then they cannot qualify under this among the professionals. If they earn more than
provision of zero rating. P200,000, they should be covered.

"Senator Maceda: Mr. President, just one small item so xxx

we can leave this. Under the proviso, it is required that
the following services be performed in the Philippines. Senator Maceda: So, the services by Filipino citizens
outside the Philippines are subject to VAT, and I am
"Under No. 2, services other than those mentioned talking of all services. Do big contractual engineers in
above includes, let us say, manufacturing computers Saudi Arabia pay VAT?cralawlibrary
and computer chips or repacking goods for persons
doing business outside the Philippines. Meaning to say, "Senator Herrera: This provision applies to a VAT-
we ship the goods to them in Chicago or Washington registered person. When he performs services in the
and they send the payment inwardly to the Philippines Philippines, that is zero-rated.
in foreign currency, and that is, of course, zero-
rated.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ "Senator Maceda: That is right."90

"Now, when we say 'services other than those Legislative Approval By Reenactment
mentioned in the preceding subsection[,'] may I have
some examples of these?cralawlibrary Finally, upon the enactment of RA 8424, which
substantially carries over the particular provisions on
"Senator Herrera: Which portion is the Gentleman zero rating of services under Section 102(b) of the Tax
referring to?cralawlibrary Code, the principle of legislative approval of
administrative interpretation by reenactment clearly
"Senator Maceda: I am referring to the second obtains. This principle means that "the reenactment of
paragraph, in the same Section 102. The first paragraph a statute substantially unchanged is persuasive
is when one manufactures or packages something here indication of the adoption by Congress of a prior
and he sends it abroad and they pay him, that is executive construction."91
covered. That is clear to me. The second paragraph says
'Services other than those mentioned in the preceding The legislature is presumed to have reenacted the law
with full knowledge of the contents of the revenue
regulations then in force regarding the VAT, and to have Assistant Solicitor General Inocencio Rosal and
approved or confirmed them because they would carry Solicitor Martiniano P. Vivo for appellee.
out the legislative purpose. The particular provisions of
the regulations we have mentioned earlier are, TUASON, J.:
therefore, re-enforced. "When a statute is susceptible
of the meaning placed upon it by a ruling of the This was an action to recover a tax paid protest in the
government agency charged with its enforcement and amount of P22,593.62. Decision was against plaintiff.
the [l]egislature thereafter [reenacts] the provisions
[without] substantial change, such action is to some The parties submitted an agreed statement of facts,
extent confirmatory that the ruling carries out the from which it appears that in February and March,
legislative purpose."92 1946, the plaintiff, Suara Import and Export Co. Inc.,
bought from the Foreign Liquidation Commission, a
In sum, having resolved that transactions of respondent United States Government agency, jeeps, weapons
are zero-rated, the Court upholds the former's carriers and trucks, all of which, at the time of the
entitlement to the refund as determined by the purchase, were located in different United States Army
appellate court. Moreover, there is no conflict between depots in the Philippines, and that immediately or soon
the decisions of the CTA and CA. This Court respects the after, plaintiff took delivery of those goods and later
findings and conclusions of a specialized court like the sold them or turned them over to third persons in the
CTA "which, by the nature of its functions, is dedicated Philippines.
exclusively to the study and consideration of tax cases
and has necessarily developed an expertise on the Holding that plaintiff was an importer, the Collector of
subject."93 Internal Revenue levied on the aforesaid motor vehicles
the percentage tax prescribed in sections 185 and 186
Furthermore, under a zero-rating scheme, the sale or of Commonwealth Act No. 466, which tax amounted to
exchange of a particular service is completely freed the figure above stated.
from the VAT, because the seller is entitled to recover,
by way of a refund or as an input tax credit, the tax that Plaintiff-appellant formulates two questions; first,
is included in the cost of purchases attributable to the whether it was an importer and, second, whether the
sale or exchange.94 "[T]he tax paid or withheld is not sales it made to third persons were original sales within
deducted from the tax base."95 Having been applied for the meaning of sections 185 and 186 of Commonwealth
within the reglementary period,96 respondent's refund Act No. 466, otherwise known as the National Internal
is in order. Revenue Law. Decision on the first question will dispose
of the second, for, if the plaintiff was an importer, its
WHEREFORE, the Petition is hereby DENIED, and the sales were original sales and taxable under the sections
assailed Decision AFFIRMED. No pronouncement as to above mentioned.
costs.
An analogous question involving analogous goods
SO ORDERED. bought from the same agency and disposed of in the
same manner, was raised and decided July 17, 1950, in
Sandoval-Gutierrez, Corona, Carpio-Morales, and G.R. No. L-2825, entitled Go Cheng Tee vs. Bibiano L.
Garcia, JJ., concur Meer, etc. (47 Off. Gaz., Supp. to No. 12, p. 269)*. In
that case, this Court said among other things:

Como ya hemos dicho, el ejercito americano no estaba

G.R. No. L-2927 February 26, 1951 obligado a pagar ningun impuesto sobre tales efectos,
porque no habian sido traidos aqui para fines de
SAURA IMPORT AND EXPORT CO., INC., plaintiff- comercio sino como objetos de abastecimiento militar.
appellant, …..
vs.
BIBIANO L. MEER, as Collector of Internal Revenue, To this we may add that the United States enjoyed in
defendant-appelle. the Philippines a privilege akin to extra territoriality.

Marcelino N. Sayo and Ramon E. Saura of appellant.

The Tydings-McDuffie Act of 1934, as amended, the two countries and by reason of war — which was, at
provided section 10 for the retention of American naval least technically, still in progress — the United States
reservations and fueling stations in the Philippines after Government on that date enjoyed jurisdictional rights
independence. And the Filipino people in 1934, in over certain areas of the Philippine territory and over
approving the Tydings-McDuffie Act, expressed their military goods brought here and intended for the
willingness that American defense establishments be United States Army. While on army bases of
located on Philippine soil after independence. installations within Philippines those goods were, in
contemplation of law, on foreign soil. The result was
In 1943, the Commonwealth Government-in-Exile held a that when plaintiff, after acquiring title to such goods,
series of conversations with officials of the United brought them outside of those bases or depots, there
States Government regarding the liberation of the was importation in the ordinary sense, let alone in the
Philippines, the possible advancement of the date of sense envisaged in section 1248 of the Revised
independence following liberation, and the military Administrative Code.
relations between the Philippine Republic and the
United States after independence. Our Government at At time of the purchase in question, the United States
that time expressed its conformity with the expansion Army in the Philippines was a belligerent occupant, at
of the scope of military cooperation between the two least of army bases, army depots, and army installations
countries after independence to provide for the it was using for the prosecution of the existing war. By
establishment and maintenance here of bases of the section 280 of the Rules of Land Warfare, belligerent
Army, Navy and the Air Force. That arrangement was occupation (in this case by the United States Army)
incorporated and implemented by a Joint Resolution of ceased only when "the occupant evacuated the district
the United States Congress approved by the President or was driven out by the enemy, or by levee en massee,
of the United States on June 29, 1944. In that and the legitimate government actually resumed its
resolution, it was resolved by the Senate and House of funtions." Having possible pertinence to this topic is the
Representatives of the United States of America that following passage from Tan Tuan et al. vs. Lucena Food
after negotiation with the president of the Control Board, etc., (84 Phil., 687; 47 Off. Gaz., 1739):
Commonwealth of the Philippines or the President of
the Philippine Republic, "the President of the United The fact that this was not foreign territory did not
States is hereby authorized, by such means as he finds deprive the United States Army of the status of
appropriate, to withhold or to acquire and to retain belligerent occupant. Military government may be
such bases, necessary appurtenances to such bases, and established not only in foreign territory occupied or
the rights incident thereto in addition to any provided invaded in time of war, but also domestic territory in a
for by the Act of March 24, 1934 (Philippine state of rebellion or civil war. (Chase, C. J., in Ex parte
Independence Act), as he may deem necessary for the Milligan, 4 Wall., 2, 141; 18 L. ed., 281.) This right to
mutual protection of the Philippine Islands and the establish government is not at all dependent upon the
United States." right of conquest, but is treated as an incident to the
mere right of belligerent occupation. A nation can not
The Philippine Congress by joint resolution and by conquer its own territory, but it may subdue and occupy
unanimous vote on July 28,1945, adhered to the policy such portions of it as are made the theater of an
and program set forth in the Joint Resolution of the insurrection against its authority (Hefferman vs. Porter,
United States Congress. (See the Message of President 96 Am. Dec., 459), or, for that matter, of foreign
Roxas to the Senate of the Philippines dated March 17, invasion. Also, the occupied territory may belong to a
1947, urging the approval of the Agreement between state allied to the occupant, and which willingly
the Republic of the Philippines and the United States of confides its domain to the protection of it. (3 Hyde
America concerning military bases, 43 Off. Gaz., No. 3, International Law [1945], 1876, 1877.)
pp. 954-964.)
The appealed decision is affirmed with costs against the
While the above-mentioned resolutions of the United appellant.
States Congress and the Philippine Congress referred to
treaties to be made after Philippine independence,
there was in March, 1946, an existing order of affairs
not disimilar to that which was to be the subject of
future negotiations. By political relationship between
 Denmark and Japan, while the Peso-denominated
component is deposited in a separate and special
G.R. No. 153205 January 22, 2007 designated bank account in the Philippines. On the
other hand, the Consortium pays [respondent] in
COMMISSIONER OF INTERNAL REVENUE, Petitioner, foreign currency inwardly remitted to the Philippines
vs. through the banking system.
BURMEISTER AND WAIN SCANDINAVIAN
CONTRACTOR MINDANAO, INC., Respondent. In order to ascertain the tax implications of the above
transactions, [respondent] sought a ruling from the BIR
DECISION which responded with BIR Ruling No. 023-95 dated
February 14, 1995, declaring therein that if
CARPIO, J.: [respondent] chooses to register as a VAT person and
the consideration for its services is paid for in
The Case acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko
This petition for review1 seeks to set aside the 16 April Sentral ng Pilipinas, the aforesaid services shall be
2002 Decision2 of the Court of Appeals in CA-G.R. SP subject to VAT at zero-rate.
No. 66341 affirming the 8 August 2001 Decision3 of the
Court of Tax Appeals (CTA). The CTA ordered the [Respondent] chose to register as a VAT taxpayer. On
Commissioner of Internal Revenue (petitioner) to issue May 26, 1995, the Certificate of Registration bearing
a tax credit certificate for P6,994,659.67 in favor of RDO Control No. 95-113-007556 was issued in favor of
Burmeister and Wain Scandinavian Contractor [respondent] by the Revenue District Office No. 113 of
Mindanao, Inc. (respondent). Davao City.

The Antecedents For the year 1996, [respondent] seasonably filed its
quarterly Value-Added Tax Returns reflecting, among
The CTA summarized the facts, which the Court of others, a total zero-rated sales of P147,317,189.62 with
Appeals adopted, as follows: VAT input taxes of P3,361,174.14, detailed as follows:

[Respondent] is a domestic corporation duly organized Qtr. Exh. Date Filed Zero-Rated Sales
and existing under and by virtue of the laws of the VAT Input Tax
Philippines with principal address located at Daruma 1st E 04-18-96 P 33,019,651.07
Building, Jose P. Laurel Avenue, Lanang, Davao City. P608,953.48
2nd F 07-16-96 37,108,863.33
It is represented that a foreign consortium composed of 756,802.66
Burmeister and Wain Scandinavian Contractor A/S 3rd G 10-14-96 34,196,372.35
(BWSC-Denmark), Mitsui Engineering and Shipbuilding, 930,279.14
Ltd., and Mitsui and Co., Ltd. entered into a contract 4th H 01-20-97 42,992,302.87
with the National Power Corporation (NAPOCOR) for 1,065,138.86
the operation and maintenance of [NAPOCOR’s] two Totals
power barges. The Consortium appointed BWSC- P147,317,189.62
Denmark as its coordination manager. P3,361,174.14
On December 29, 1997, [respondent] availed of the
BWSC-Denmark established [respondent] which Voluntary Assessment Program (VAP) of the BIR. It
subcontracted the actual operation and maintenance of allegedly misinterpreted Revenue Regulations No. 5-96
NAPOCOR’s two power barges as well as the dated February 20, 1996 to be applicable to its case.
performance of other duties and acts which necessarily Revenue Regulations No. 5-96 provides in part thus:
have to be done in the Philippines.
SECTIONS 4.102-2(b)(2) and 4.103-1(B)(c) of Revenue
NAPOCOR paid capacity and energy fees to the Regulations No. 7-95 are hereby amended to read as
Consortium in a mixture of currencies (Mark, Yen, and follows:
Peso). The freely convertible non-Peso component is
deposited directly to the Consortium’s bank accounts in
Section 4.102-2(b)(2) – "Services other than processing, On 27 December 1999, respondent filed a petition for
manufacturing or repacking for other persons doing review with the CTA in order to toll the running of the
business outside the Philippines for goods which are two-year prescriptive period under the Tax Code.
subsequently exported, as well as services by a resident
to a non-resident foreign client such as project studies, The Ruling of the Court of Tax Appeals
information services, engineering and architectural
designs and other similar services, the consideration for In its 8 August 2001 Decision, the CTA ordered
which is paid for in acceptable foreign currency and petitioner to issue a tax credit certificate for
accounted for in accordance with the rules and P6,994,659.67 in favor of respondent. The CTA’s ruling
regulations of the BSP." stated:

x x x x x x x x x x. [Respondent’s] sale of services to the Consortium [was]

paid for in acceptable foreign currency inwardly
In [conformity] with the aforecited Revenue remitted to the Philippines and accounted for in
Regulations, [respondent] subjected its sale of services accordance with the rules and regulations of Bangko
to the Consortium to the 10% VAT in the total amount Sentral ng Pilipinas. These were established by various
of P103,558,338.11 representing April to December BPI Credit Memos showing remittances in Danish Kroner
1996 sales since said Revenue Regulations No. 5-96 (DKK) and US dollars (US$) as payments for the specific
became effective only on April 1996. The sum of invoices billed by [respondent] to the consortium. These
P43,893,951.07, representing January to March 1996 remittances were further certified by the Branch
sales was subjected to zero rate. Consequently, Manager x x x of BPI-Davao Lanang Branch to represent
[respondent] filed its 1996 amended VAT return payments for sub-contract fees that came from Den
consolidating therein the VAT output and input taxes for Danske Aktieselskab Bank-Denmark for the account of
the four calendar quarters of 1996. It paid the amount [respondent]. Clearly, [respondent’s] sale of services to
of P6,994,659.67 through BIR’s collecting agent, the Consortium is subject to VAT at 0% pursuant to
PCIBank, as its output tax liability for the year 1996, Section 108(B)(2) of the Tax Code.
computed as follows:
xxxx
Amount subject to 10% VAT P103,558,338.11
The zero-rating of [respondent’s] sale of services to the
Multiply by 10% Consortium was even confirmed by the [petitioner] in
BIR Ruling No. 023-95 dated February 15, 1995, and
VAT Output Tax P 10,355,833.81 later by VAT Ruling No. 003-99 dated January 7,1999, x
x x.
Less: 1996 Input VAT P 3,361,174.14
Since it is apparent that the payments for the services
VAT Output Tax Payable P 6,994,659.67 rendered by [respondent] were indeed subject to VAT
at zero percent, it follows that it mistakenly availed of
On January 7,1999, [respondent] was able to secure the Voluntary Assessment Program by paying output tax
VAT Ruling No. 003-99 from the VAT Review Committee for its sale of services. x x x
which reconfirmed BIR Ruling No. 023-95 "insofar as it
held that the services being rendered by BWSCMI is x x x Considering the principle of solutio indebiti which
subject to VAT at zero percent (0%)." requires the return of what has been delivered by
mistake, the [petitioner] is obligated to issue the tax
On the strength of the aforementioned rulings, credit certificate prayed for by [respondent]. x x x5
[respondent] on April 22,1999, filed a claim for the
issuance of a tax credit certificate with Revenue District Petitioner filed a petition for review with the Court of
No. 113 of the BIR. [Respondent] believed that it Appeals, which dismissed the petition for lack of merit
erroneously paid the output VAT for 1996 due to its and affirmed the CTA decision.6
availment of the Voluntary Assessment Program (VAP)
of the BIR.4 Hence, this petition.

The Court of Appeals’ Ruling

 The Court of Appeals explained that under Section
In affirming the CTA, the Court of Appeals rejected 108(b)(2) of the Tax Code,12 for services which were
petitioner’s view that since respondent’s services are performed in the Philippines to enjoy zero-rating, these
not destined for consumption abroad, they are not of must comply only with two requisites, to wit: (1)
the same nature as project studies, information payment in acceptable foreign currency and (2)
services, engineering and architectural designs, and accounted for in accordance with the rules of the BSP.
other similar services mentioned in Section 4.102-2(b) Section 108(b)(2) of the Tax Code does not provide that
(2) of Revenue Regulations No. 5-967 as subject to 0% services must be "destined for consumption abroad" in
VAT. Thus, according to petitioner, respondent’s order to be VAT zero-rated.13
services cannot legally qualify for 0% VAT but are
subject to the regular 10% VAT.8 The Court of Appeals disagreed with petitioner’s
argument that our VAT law generally follows the
The Court of Appeals found untenable petitioner’s destination principle (i.e., exports exempt, imports
contention that under VAT Ruling No. 040-98, taxable).14 The Court of Appeals stated that "if indeed
respondent’s services should be destined for the ‘destination principle’ underlies and is the basis of
consumption abroad to enjoy zero-rating. Contrary to the VAT laws, then petitioner’s proper remedy would be
petitioner’s interpretation, there are two kinds of to recommend an amendment of Section 108(b)(2) to
transactions or services subject to zero percent VAT Congress. Without such amendment, however,
under VAT Ruling No. 040-98. These are (a) services petitioner should apply the terms of the basic law.
other than repacking goods for other persons doing Petitioner could not resort to administrative legislation,
business outside the Philippines which goods are as what [he] had done in this case."15
subsequently exported; and (b) services by a resident to
a non-resident foreign client, such as project studies, The Issue
information services, engineering and architectural
designs and other similar services, the consideration for The lone issue for resolution is whether respondent is
which is paid for in acceptable foreign currency and entitled to the refund of P6,994,659.67 as erroneously
accounted for in accordance with the rules and paid output VAT for the year 1996.16
regulations of the Bangko Sentral ng Pilipinas (BSP).9
The Ruling of the Court
The Court of Appeals stated that "only the first
classification is required by the provision to be We deny the petition.
consumed abroad in order to be taxed at zero rate. In x
x x the absence of such express or implied stipulation in At the outset, the Court declares that the denial of the
the statute, the second classification need not be instant petition is not on the ground that respondent’s
consumed abroad."10 services are subject to 0% VAT. Rather, it is based on
the non-retroactivity of the prejudicial revocation of BIR
The Court of Appeals further held that assuming Ruling No. 023-9517 and VAT Ruling No. 003-99,18
petitioner’s interpretation of Section 4.102-2(b)(2) of which held that respondent’s services are subject to 0%
Revenue Regulations No. 5-96 is correct, such VAT and which respondent invoked in applying for
administrative provision is void being an amendment to refund of the output VAT.
the Tax Code. Petitioner went beyond merely providing
the implementing details by adding another Section 102(b) of the Tax Code,19 the applicable
requirement to zero-rating. "This is indicated by the provision in 1996 when respondent rendered the
additional phrase ‘as well as services by a resident to a services and paid the VAT in question, enumerates
non-resident foreign client, such as project studies, which services are zero-rated, thus:
information services and engineering and architectural
designs and other similar services.’ In effect, this phrase (b) Transactions subject to zero-rate. ― The following
adds not just one but two requisites: (a) services must services performed in the Philippines by VAT-registered
be rendered by a resident to a non-resident; and (b) persons shall be subject to 0%:
these must be in the nature of project studies,
information services, etc."11 (1) Processing, manufacturing or repacking goods for
other persons doing business outside the Philippines
which goods are subsequently exported, where the
services are paid for in acceptable foreign currency and expressly stated in the second paragraph of Section
accounted for in accordance with the rules and 102(b), this is clearly provided in the first paragraph of
regulations of the Bangko Sentral ng Pilipinas (BSP); Section 102(b) where the listed services must be "for
other persons doing business outside the Philippines."
(2) Services other than those mentioned in the The phrase "for other persons doing business outside
preceding sub-paragraph, the consideration for which is the Philippines" not only refers to the services
paid for in acceptable foreign currency and accounted enumerated in the first paragraph of Section 102(b), but
for in accordance with the rules and regulations of the also pertains to the general term "services" appearing in
Bangko Sentral ng Pilipinas (BSP); the second paragraph of Section 102(b). In short,
services other than processing, manufacturing, or
(3) Services rendered to persons or entities whose repacking of goods must likewise be performed for
exemption under special laws or international persons doing business outside the Philippines.
agreements to which the Philippines is a signatory
effectively subjects the supply of such services to zero This can only be the logical interpretation of Section
rate; 102(b)(2). If the provider and recipient of the "other
services" are both doing business in the Philippines, the
(4) Services rendered to vessels engaged exclusively in payment of foreign currency is irrelevant. Otherwise,
international shipping; and those subject to the regular VAT under Section 102(a)
can avoid paying the VAT by simply stipulating payment
(5) Services performed by subcontractors and/or in foreign currency inwardly remitted by the recipient of
contractors in processing, converting, or manufacturing services. To interpret Section 102(b)(2) to apply to a
goods for an enterprise whose export sales exceed payer-recipient of services doing business in the
seventy percent (70%) of total annual production. Philippines is to make the payment of the regular VAT
(Emphasis supplied) under Section 102(a) dependent on the generosity of
the taxpayer. The provider of services can choose to pay
In insisting that its services should be zero-rated, the regular VAT or avoid it by stipulating payment in
respondent claims that it complied with the foreign currency inwardly remitted by the payer-
requirements of the Tax Code for zero rating under the recipient. Such interpretation removes Section 102(a) as
second paragraph of Section 102(b). Respondent asserts a tax measure in the Tax Code, an interpretation this
that (1) the payment of its service fees was in Court cannot sanction. A tax is a mandatory exaction,
acceptable foreign currency, (2) there was inward not a voluntary contribution.
remittance of the foreign currency into the Philippines,
and (3) accounting of such remittance was in When Section 102(b)(2) stipulates payment in
accordance with BSP rules. Moreover, respondent "acceptable foreign currency" under BSP rules, the law
contends that its services which "constitute the actual clearly envisions the payer-recipient of services to be
operation and management of two (2) power barges in doing business outside the Philippines. Only those not
Mindanao" are not "even remotely similar to project doing business in the Philippines can be required under
studies, information services and engineering and BSP rules20 to pay in acceptable foreign currency for
architectural designs under Section 4.102-2(b)(2) of their purchase of goods or services from the Philippines.
Revenue Regulations No. 5-96." As such, respondent’s In a domestic transaction, where the provider and
services need not be "destined to be consumed abroad recipient of services are both doing business in the
in order to be VAT zero-rated." Philippines, the BSP cannot require any party to make
payment in foreign currency.
Respondent is mistaken.
Services covered by Section 102(b) (1) and (2) are in the
The Tax Code not only requires that the services be nature of export sales since the payer-recipient of
other than "processing, manufacturing or repacking of services is doing business outside the Philippines. Under
goods" and that payment for such services be in BSP rules,21 the proceeds of export sales must be
acceptable foreign currency accounted for in reported to the Bangko Sentral ng Pilipinas. Thus, there
accordance with BSP rules. Another essential condition is reason to require the provider of services under
for qualification to zero-rating under Section 102(b)(2) is Section 102(b) (1) and (2) to account for the foreign
that the recipient of such services is doing business currency proceeds to the BSP. The same rationale does
outside the Philippines. While this requirement is not not apply if the provider and recipient of the services
are both doing business in the Philippines since their ("Power Barges") acquired by NAPOCOR for a 15-year
transaction is not in the nature of an export sale even if term.23 (Emphasis supplied)
payment is denominated in foreign currency.
Considering this length of time, the Consortium’s
Further, when the provider and recipient of services are operation and maintenance of NAPOCOR’s power
both doing business in the Philippines, their transaction barges cannot be classified as a single or isolated
falls squarely under Section 102(a) governing domestic transaction. The Consortium does not fall under Section
sale or exchange of services. Indeed, this is a purely 102(b)(2) which requires that the recipient of the
local sale or exchange of services subject to the regular services must be a person doing business outside the
VAT, unless of course the transaction falls under the Philippines. Therefore, respondent’s services to the
other provisions of Section 102(b). Consortium, not being supplied to a person doing
business outside the Philippines, cannot legally qualify
Thus, when Section 102(b)(2) speaks of "[s]ervices other for 0% VAT.
than those mentioned in the preceding subparagraph,"
the legislative intent is that only the services are Respondent, as subcontractor of the Consortium,
different between subparagraphs 1 and 2. The operates and maintains NAPOCOR’s power barges in the
requirements for zero-rating, including the essential Philippines. NAPOCOR pays the Consortium, through its
condition that the recipient of services is doing business non-resident partners, partly in foreign currency
outside the Philippines, remain the same under both outwardly remitted. In turn, the Consortium pays
subparagraphs. respondent also in foreign currency inwardly remitted
and accounted for in accordance with BSP rules. This
Significantly, the amended Section 108(b)22 [previously payment scheme does not entitle respondent to 0%
Section 102(b)] of the present Tax Code clarifies this VAT. As the Court held in Commissioner of Internal
legislative intent. Expressly included among the Revenue v. American Express International, Inc.
transactions subject to 0% VAT are "[s]ervices other (Philippine Branch),24 the place of payment is
than those mentioned in the [first] paragraph [of immaterial, much less is the place where the output of
Section 108(b)] rendered to a person engaged in the service is ultimately used. An essential condition for
business conducted outside the Philippines or to a entitlement to 0% VAT under Section 102(b)(1) and (2)
nonresident person not engaged in business who is is that the recipient of the services is a person doing
outside the Philippines when the services are business outside the Philippines. In this case, the
performed, the consideration for which is paid for in recipient of the services is the Consortium, which is
acceptable foreign currency and accounted for in doing business not outside, but within the Philippines
accordance with the rules and regulations of the BSP." because it has a 15-year contract to operate and
maintain NAPOCOR’s two 100-megawatt power barges
In this case, the payer-recipient of respondent’s services in Mindanao.
is the Consortium which is a joint-venture doing
business in the Philippines. While the Consortium’s The Court recognizes the rule that the VAT system
principal members are non-resident foreign generally follows the "destination principle" (exports
corporations, the Consortium itself is doing business in are zero-rated whereas imports are taxed). However, as
the Philippines. This is shown clearly in BIR Ruling No. the Court stated in American Express, there is an
023-95 which states that the contract between the exception to this rule.25 This exception refers to the 0%
Consortium and NAPOCOR is for a 15-year term, thus: VAT on services enumerated in Section 102 and
performed in the Philippines. For services covered by
This refers to your letter dated January 14, 1994 Section 102(b)(1) and (2), the recipient of the services
requesting for a clarification of the tax implications of a must be a person doing business outside the
contract between a consortium composed of Philippines. Thus, to be exempt from the destination
Burmeister & Wain Scandinavian Contractor A/S principle under Section 102(b)(1) and (2), the services
("BWSC"), Mitsui Engineering & Shipbuilding, Ltd. must be (a) performed in the Philippines; (b) for a
(MES), and Mitsui & Co., Ltd. ("MITSUI"), all referred to person doing business outside the Philippines; and (c)
hereinafter as the "Consortium", and the National paid in acceptable foreign currency accounted for in
Power Corporation ("NAPOCOR") for the operation and accordance with BSP rules.
maintenance of two 100-Megawatt power barges
Respondent’s reliance on the ruling in American SO ORDERED.
Express26 is misplaced. That case involved a recipient of
services, specifically American Express International,
Inc. (Hongkong Branch), doing business outside the G.R. No. 193301 March 11, 2013
Philippines. There, the Court stated:
MINDANAO II GEOTHERMAL PARTNERSHIP, Petitioner,
Respondent [American Express International, Inc. vs.
(Philippine Branch)] is a VAT-registered person that COMMISSIONER OF INTERNAL REVENUE, Respondent.
facilitates the collection and payment of receivables
belonging to its non-resident foreign client [American G.R. No. 194637
Express International, Inc. (Hongkong Branch)], for
which it gets paid in acceptable foreign currency MINDANAO I GEOTHERMAL PARTNERSHIP, Petitioner,
inwardly remitted and accounted for in accordance with vs.
BSP rules and regulations. x x x x27 (Emphasis supplied) COMMISSIONER OF INTERNAL REVENUE, Respondent.

In contrast, this case involves a recipient of services – DECISION

the Consortium – which is doing business in the
Philippines. Hence, American Express’ services were CARPIO, J.:
subject to 0% VAT, while respondent’s services should
be subject to 10% VAT. G.R. No. 193301 is a petition for review1 assailing the
Decision2 promulgated on 10 March 2010 as well as the
Nevertheless, in seeking a refund of its excess output Resolution3 promulgated on 28 July 2010 by the Court
tax, respondent relied on VAT Ruling No. 003-99,28 of Tax Appeals En Banc (CTA En Banc) in CTA EB No. 513.
which reconfirmed BIR Ruling No. 023-9529 "insofar as The CTA En Banc affirmed the 22 September 2008
it held that the services being rendered by BWSCMI is Decision4 as well as the 26 June 2009 Amended
subject to VAT at zero percent (0%)." Respondent’s Decision5 of the First Division of the Court of Tax
reliance on these BIR rulings binds petitioner. Appeals (CTA First Division) in CTA Case Nos. 7227,
7287, and 7317. The CTA First Division denied Mindanao
Petitioner’s filing of his Answer before the CTA II Geothermal Partnership’s (Mindanao II) claims for
challenging respondent’s claim for refund effectively refund or tax credit for the first and second quarters of
serves as a revocation of VAT Ruling No. 003-99 and BIR taxable year 2003 for being filed out of time (CTA Case
Ruling No. 023-95. However, such revocation cannot be Nos. 7227 and 7287). The CTA First Division, however,
given retroactive effect since it will prejudice ordered the
respondent. Changing respondent’s status will deprive
respondent of a refund of a substantial amount Commissioner of Internal Revenue (CIR) to refund or
representing excess output tax.30 Section 246 of the credit to Mindanao II unutilized input value-added tax
Tax Code provides that any revocation of a ruling by the (VAT) for the third and fourth quarters of taxable year
Commissioner of Internal Revenue shall not be given 2003 (CTA Case No. 7317).
retroactive application if the revocation will prejudice
the taxpayer. Further, there is no showing of the G.R. No. 194637 is a petition for review6 assailing the
existence of any of the exceptions enumerated in Decision7 promulgated on 31 May 2010 as well as the
Section 246 of the Tax Code for the retroactive Amended Decision8 promulgated on 24 November 2010
application of such revocation. by the CTA En Banc in CTA EB Nos. 476 and 483. In its
Amended Decision, the CTA En Banc reversed its 31 May
However, upon the filing of petitioner’s Answer dated 2 2010 Decision and granted the CIR’s petition for review
March 2000 before the CTA contesting respondent’s in CTA Case No. 476. The CTA En Banc denied Mindanao
claim for refund, respondent’s services shall be subject I Geothermal Partnership’s (Mindanao I) claims for
to the regular 10% VAT.31 Such filing is deemed a refund or tax credit for the first (CTA Case No. 7228),
revocation of VAT Ruling No. 003-99 and BIR Ruling No. second (CTA Case No. 7286), third, and fourth quarters
023-95. (CTA Case No. 7318) of 2003.

WHEREFORE, the Court DENIES the petition. Both Mindanao I and II are partnerships registered with
the Securities and Exchange Commission, value added
taxpayers registered with the Bureau of Internal revenue-generating activity which is in the ambit of VAT
Revenue (BIR), and Block Power Production Facilities zero-rated sales under the EPIRA Law, x x x.
accredited by the Department of Energy. Republic Act
No. 9136, or the Electric Power Industry Reform Act of Hence, the amendment of the NIRC of 1997 modified
2000 (EPIRA), effectively amended Republic Act No. the VAT rate applicable to sales of generated power by
8424, or the Tax Reform Act of 1997 (1997 Tax Code),9 generation companies from ten (10%) percent to zero
when it decreed that sales of power by generation (0%) percent.
companies shall be subjected to a zero rate of VAT.10
Pursuant to EPIRA, Mindanao I and II filed with the CIR In the course of its operation, Mindanao II makes
claims for refund or tax credit of accumulated unutilized domestic purchases of goods and services and
and/or excess input taxes due to VAT zero-rated sales in accumulates therefrom creditable input taxes. Pursuant
2003. Mindanao I and II filed their claims in 2005. to the provisions of the National Internal Revenue Code
(NIRC), Mindanao II alleges that it can use its
G.R. No. 193301 accumulated input tax credits to offset its output tax
Mindanao II v. CIR liability. Considering, however that its only revenue-
generating activity is VAT zero-rated under RA No. 9136,
Mindanao II’s input tax credits remain unutilized.

The Facts Thus, on the belief that its sales qualify for VAT zero-
rating, Mindanao II adopted the VAT zero-rating of the
G.R. No. 193301 covers three CTA First Division cases, EPIRA in computing for its VAT payable when it filed its
CTA Case Nos. 7227, 7287, and 7317, which were Quarterly VAT Returns on the following dates:
consolidated as CTA EB No. 513. CTA Case Nos. 7227, CTA Case No. Period Covered Date of Filing
7287, and 7317 claim a tax refund or credit of Mindanao (2003)
II’s alleged excess or unutilized input taxes due to VAT Original Return Amended Return
zero-rated sales. In CTA Case No. 7227, Mindanao II 1st Quarter April 23, 2003 July 3, 2002
claims a tax refund or credit of ₱3,160,984.69 for the April 1, 2004
first quarter of 2003. In CTA Case No. 7287, Mindanao II October 22, 2004
claims a tax refund or credit of ₱1,562,085.33 for the
second quarter of 2003. In CTA Case No. 7317, 2nd Quarter July 22, 2003 April 1, 2004
Mindanao II claims a tax refund or credit of
3rd Quarter Oct. 27, 2003 April 1, 2004
₱3,521,129.50 for the third and fourth quarters of 2003.
4th Quarter Jan. 26, 2004 April 1, 2204
The CTA First Division’s narration of the pertinent facts
is as follows:
Considering that it has accumulated unutilized
xxxx creditable input taxes from its only income-generating
activity, Mindanao II filed an application for refund
On March 11, 1997, [Mindanao II] allegedly entered into and/or issuance of tax credit certificate with the BIR’s
a Built (sic)-Operate-Transfer (BOT) contract with the Revenue District Office at Kidapawan City on April 13,
Philippine National Oil Corporation – Energy 2005 for the four quarters of 2003.
Development Company (PNOC-EDC) for finance,
engineering, supply, installation, testing, To date (September 22, 2008), the application for
commissioning, operation, and maintenance of a 48.25 refund by Mindanao II remains unacted upon by the
megawatt geothermal power plant, provided that CIR. Hence, these three petitions filed on April 22, 2005
PNOC-EDC shall supply and deliver steam to Mindanao II covering the 1st quarter of 2003; July 7, 2005 for the
at no cost. In turn, Mindanao II shall convert the steam 2nd quarter of 2003; and September 9, 2005 for the 3rd
into electric capacity and energy for PNOC-EDC and and 4th quarters of 2003. At the instance of Mindanao
shall deliver the same to the National Power II, these petitions were consolidated on March 15, 2006
Corporation (NPC) for and in behalf of PNOC-EDC. as they involve the same parties and the same subject
Mindanao II alleges that its sale of generated power and matter. The only difference lies with the taxable periods
delivery of electric capacity and energy of Mindanao II involved in each petition.11
to NPC for and in behalf of PNOC-EDC is its only
 The Court of Tax Appeals’ Ruling: Division 200

In its 22 September 2008 Decision,12 the CTA First

Thus, counting from 23 April 2003, 22 July 2003, 25
Division found that Mindanao II satisfied the twin
October 2003, and 26 January 2004, when Mindanao II
requirements for VAT zero rating under EPIRA: (1) it is a
filed its VAT returns, its administrative claim filed on 13
generation company, and (2) it derived sales from
April 2005 and judicial claims filed on 22 April 2005, 7
power generation. The CTA First Division also stated
July 2005, and 9 September 2005 were timely filed in
that Mindanao II complied with five requirements to be
accordance with Atlas.
entitled to a refund:
The CTA First Division found that Mindanao II is entitled
1. There must be zero-rated or effectively zero-rated
to a refund in the modified amount of ₱7,703,957.79,
sales;
after disallowing ₱522,059.91 from input VAT16 and
deducting ₱18,181.82 from Mindanao II’s sale of a fully
2. That input taxes were incurred or paid;
depreciated ₱200,000.00 Nissan Patrol. The input taxes
amounting to ₱522,059.91 were disallowed for failure
3. That such input VAT payments are directly
to meet invoicing requirements, while the input VAT on
attributable to zero-rated sales or effectively zero-rated
the sale of the Nissan Patrol was reduced by ₱18,181.82
sales;
because the output VAT for the sale was not included in
the VAT declarations.
4. That the input VAT payments were not applied
against any output VAT liability; and
The dispositive portion of the CTA First Division’s 22
September 2008 Decision reads:
5. That the claim for refund was filed within the two-
year prescriptive period.13
WHEREFORE, the Petition for Review is hereby
PARTIALLY GRANTED. Accordingly, the CIR is hereby
With respect to the fifth requirement, the CTA First
ORDERED to REFUND or to ISSUE A TAX CREDIT
Division tabulated the dates of filing of Mindanao II’s
CERTIFICATE in the modified amount of SEVEN MILLION
return as well as its administrative and judicial claims,
SEVEN HUNDRED THREE THOUSAND NINE HUNDRED
and concluded that Mindanao II’s administrative and
FIFTY SEVEN AND 79/100 PESOS (₱7,703,957.79)
judicial claims were timely filed in compliance with this
representing its unutilized input VAT for the four (4)
Court’s ruling in Atlas Consolidated Mining and
quarters of the taxable year 2003.
Development Corporation v. Commissioner of Internal
Revenue (Atlas).14 The CTA First Division declared that
SO ORDERED.17
the two-year prescriptive period for filing a VAT refund
claim should not be counted from the close of the
Mindanao II filed a motion for partial reconsideration.18
quarter but from the date of the filing of the VAT
It stated that the sale of the fully depreciated Nissan
return. As ruled in Atlas, VAT liability or entitlement to a
Patrol is a one-time transaction and is not incidental to
refund can only be determined upon the filing of the
its VAT zero-rated operations. Moreover, the disallowed
quarterly VAT return.
input taxes substantially complied with the
requirements for refund or tax credit.
Period Date Filing
o. Covered The CIR also filed a motion for partial reconsideration. It
Original Amended Administrative
(2003) argued that the judicial claims for the first and second
Return Return Return
quarters of 2003 were filed beyond the period allowed
1st Quarter 23 April 2003 1 April 2004 13 April 2005 by law, as stated in Section 112(A) of the 1997 Tax
Code. The CIR further stated that Section 229 is a
2nd Quarter 22 July 2003 1 April 2004 13 April 2005 general provision, and governs cases not covered by
Section 112(A). The CIR countered the CTA First
Division’s 22 September 2008 decision by citing this
3rd Quarter 25 Oct. 2003 1 April 2004 13 April 2005 Court’s ruling in Commisioner of Internal Revenue v.
Mirant Pagbilao Corporation (Mirant),19 which stated
that unutilized input VAT payments must be claimed
4th Quarter 26 Jan. 2004 1 April 2004 13 April 2005
within two years reckoned from the close of the taxable codes: Atlas applied the 1977 Tax Code while Mirant
quarter when the relevant sales were made regardless applied the 1997 Tax Code; (3) the sale of the fully-
of whether said tax was paid. depreciated Nissan Patrol is incidental to Mindanao II’s
VAT zero-rated transactions pursuant to Section 105; (4)
The CTA First Division denied Mindanao II’s motion for Mindanao II failed to comply with the substantiation
partial reconsideration, found the CIR’s motion for requirements provided under Section 113(A) in relation
partial reconsideration partly meritorious, and rendered to Section 237 of the 1997 Tax Code as implemented by
an Amended Decision20 on 26 June 2009. The CTA First Section 4.104-1, 4.104-5, and 4.108-1 of Revenue
Division stated that the claim for refund or credit with Regulation No. 7-95; and (5) the doctrine of strictissimi
the BIR and the subsequent appeal to the CTA must be juris on tax exemptions cannot be relaxed in the present
filed within the two-year period prescribed under case.
Section 229. The two-year prescriptive period in Section
229 was denominated as a mandatory statute of The dispositive portion of the CTA En Banc’s 10 March
limitations. Therefore, Mindanao II’s claims for refund 2010 Decision reads:
for the first and second quarters of 2003 had already
prescribed. WHEREFORE, on the basis of the foregoing
considerations, the Petition for Review en banc is
The CTA First Division found that the records of DISMISSED for lack of merit. Accordingly, the Decision
Mindanao II’s case are bereft of evidence that the sale dated September 22, 2008 and the Amended Decision
of the Nissan Patrol is not incidental to Mindanao II’s dated June 26, 2009 issued by the First Division are
VAT zero-rated operations. Moreover, Mindanao II’s AFFIRMED.
submitted documents failed to substantiate the
requisites for the refund or credit claims. SO ORDERED.24

The CTA First Division modified its 22 September 2008 The CTA En Banc issued a Resolution25 on 28 July 2010
Decision to read as follows: denying for lack of merit Mindanao II’s Motion for
Reconsideration.26 The CTA En Banc highlighted the
WHEREFORE, the Petition for Review is hereby following bases of their previous ruling:
PARTIALLY GRANTED. Accordingly, the CIR is hereby
ORDERED to REFUND or to ISSUE A TAX CREDIT 1. The Supreme Court has long decided that the claim
CERTIFICATE to Mindanao II Geothermal Partnership in for refund of unutilized input VAT must be filed within
the modified amount of TWO MILLION NINE HUNDRED two (2) years after the close of the taxable quarter
EIGHTY THOUSAND EIGHT HUNDRED EIGHTY SEVEN when such sales were made.
AND 77/100 PESOS (₱2,980,887.77) representing its
unutilized input VAT for the third and fourth quarters of 2. The Supreme Court is the ultimate arbiter whose
the taxable year 2003. decisions all other courts should take bearings.

SO ORDERED.21 3. The words of the law are clear, plain, and free from
ambiguity; hence, it must be given its literal meaning
Mindanao II filed a Petition for Review,22 docketed as and applied without any interpretation.27
CTA EB No. 513, before the CTA En Banc.
G.R. No. 194637
The Court of Tax Appeals’ Ruling: En Banc Mindanao I v. CIR

On 10 March 2010, the CTA En Banc rendered its The Facts

Decision23 in CTA EB No. 513 and denied Mindanao II’s
petition. The CTA En Banc ruled that (1) Section 112(A) G.R. No. 194637 covers two cases consolidated by the
clearly provides that the reckoning of the two-year CTA EB: CTA EB Case Nos. 476 and 483. Both CTA EB
prescriptive period for filing the application for refund cases consolidate three cases from the CTA Second
or credit of input VAT attributable to zero-rated sales or Division: CTA Case Nos. 7228, 7286, and 7318. CTA Case
effectively zero-rated sales shall be counted from the Nos. 7228, 7286, and 7318 claim a tax refund or credit
close of the taxable quarter when the sales were made; of Mindanao I’s accumulated unutilized and/or excess
(2) the Atlas and Mirant cases applied different tax input taxes due to VAT zero-rated sales. In CTA Case No.
7228, Mindanao I claims a tax refund or credit of The amendment of the NIRC of 1997 modified the VAT
₱3,893,566.14 for the first quarter of 2003. In CTA Case rate applicable to sales of generated power by
No. 7286, Mindanao I claims a tax refund or credit of generation companies from ten (10%) percent to zero
₱2,351,000.83 for the second quarter of 2003. In CTA percent (0%). Thus, Mindanao I adopted the VAT zero-
Case No. 7318, Mindanao I claims a tax refund or credit rating of the EPIRA in computing for its VAT payable
of ₱7,940,727.83 for the third and fourth quarters of when it filed its VAT Returns, on the belief that its sales
2003. qualify for VAT zero-rating.

Mindanao I is similarly situated as Mindanao II. The CTA Mindanao I reported its unutilized or excess creditable
Second Division’s narration of the pertinent facts is as input taxes in its Quarterly VAT Returns for the first,
follows: second, third, and fourth quarters of taxable year 2003,
which were subsequently amended and filed with the
xxxx BIR.

In December 1994, Mindanao I entered into a contract On April 4, 2005, Mindanao I filed with the BIR separate
of Build-Operate-Transfer (BOT) with the Philippine administrative claims for the issuance of tax credit
National Oil Corporation – Energy Development certificate on its alleged unutilized or excess input taxes
Corporation (PNOC-EDC) for the finance, design, for taxable year 2003, in the accumulated amount of
construction, testing, commissioning, operation, ₱14,185, 294.80.
maintenance and repair of a 47-megawatt geothermal
power plant. Under the said BOT contract, PNOC-EDC Alleging inaction on the part of CIR, Mindanao I
shall supply and deliver steam to Mindanao I at no cost. elevated its claims before this Court on April 22, 2005,
In turn, Mindanao I will convert the steam into electric July 7, 2005, and September 9, 2005 docketed as CTA
capacity and energy for PNOC-EDC and shall Case Nos. 7228, 7286, and 7318, respectively. However,
subsequently supply and deliver the same to the on October 10, 2005, Mindanao I received a copy of the
National Power Corporation (NPC), for and in behalf of letter dated September 30, 2003 (sic) of the BIR denying
PNOC-EDC. its application for tax credit/refund.28

Mindanao I’s 47-megawatt geothermal power plant The Court of Tax Appeals’ Ruling: Division
project has been accredited by the Department of
Energy (DOE) as a Private Sector Generation Facility, On 24 October 2008, the CTA Second Division rendered
pursuant to the provision of Executive Order No. 215, its Decision29 in CTA Case Nos. 7228, 7286, and 7318.
wherein Certificate of Accreditation No. 95-037 was The CTA Second Division found that (1) pursuant to
issued. Section 112(A), Mindanao I can only claim 90.27% of the
amount of substantiated excess input VAT because a
On June 26, 2001, Republic Act (R.A.) No. 9136 took portion was not reported in its quarterly VAT returns;
effect, and the relevant provisions of the National (2) out of the ₱14,185,294.80 excess input VAT applied
Internal Revenue Code (NIRC) of 1997 were deemed for refund, only ₱11,657,447.14 can be considered
modified. R.A. No. 9136, also known as the "Electric substantiated excess input VAT due to disallowances by
Power Industry Reform Act of 2001 (EPIRA), was the Independent Certified Public Accountant,
enacted by Congress to ordain reforms in the electric adjustment on the disallowances per the CTA Second
power industry, highlighting, among others, the Division’s further verification, and additional
importance of ensuring the reliability, security and disallowances per the CTA Second Division’s further
affordability of the supply of electric power to end verification;
users. Under the provisions of this Republic Act and its
implementing rules and regulations, the delivery and (3) Mindanao I’s accumulated excess input VAT for the
supply of electric energy by generation companies second quarter of 2003 that was carried over to the
became VAT zero-rated, which previously were subject third quarter of 2003 is net of the claimed input VAT for
to ten percent (10%) VAT. the first quarter of 2003, and the same procedure was
done for the second, third, and fourth quarters of 2003;
xxxx and (4) Mindanao I’s administrative claims were filed
within the two-year prescriptive period reckoned from
the respective dates of filing of the quarterly VAT
returns. The Ruling of the Court of Tax Appeals: En Banc

The dispositive portion of the CTA Second Division’s 24 On 31 May 2010, the CTA En Banc rendered its
October 2008 Decision reads: Decision35 in CTA EB Case Nos. 476 and 483 and denied
the petitions filed by the CIR and Mindanao I. The CTA
WHEREFORE, premises considered, the consolidated En Banc found no new matters which have not yet been
Petitions for Review are hereby PARTIALLY GRANTED. considered and passed upon by the CTA Second Division
Accordingly, the CIR is hereby ORDERED TO ISSUE A TAX in its assailed decision and resolution.
CREDIT CERTIFICATE in favor of Mindanao I in the
reduced amount of TEN MILLION FIVE HUNDRED The dispositive portion of the CTA En Banc’s 31 May
TWENTY THREE THOUSAND ONE HUNDRED SEVENTY 2010 Decision reads:
SEVEN PESOS AND 53/100 (₱10,523,177.53)
representing Mindanao I’s unutilized input VAT for the WHEREFORE, premises considered, the Petitions for
four quarters of the taxable year 2003. Review are hereby DISMISSED for lack of merit.
Accordingly, the October 24, 2008 Decision and March
SO ORDERED.30 10, 2009 Resolution of the CTA Former Second Division
in CTA Case Nos. 7228, 7286, and 7318, entitled
Mindanao I filed a motion for partial reconsideration "Mindanao I Geothermal Partnership vs. Commissioner
with motion for Clarification31 on 11 November 2008. It of Internal Revenue" are hereby AFFIRMED in toto.
claimed that the CTA Second Division should not have
allocated proportionately Mindanao I’s unutilized SO ORDERED.36
creditable input taxes for the taxable year 2003,
because the proportionate allocation of the amount of Both the CIR and Mindanao I filed Motions for
creditable taxes in Section 112(A) applies only when the Reconsideration of the CTA En Banc’s 31 May 2010
creditable input taxes due cannot be directly and Decision. In an Amended Decision promulgated on 24
entirely attributed to any of the zero-rated or effectively November 2010, the CTA En Banc agreed with the CIR’s
zero-rated sales. Mindanao I claims that its unreported claim that Section 229 of the NIRC of 1997 is
collection is directly attributable to its VAT zero-rated inapplicable in light of this Court’s ruling in Mirant. The
sales. The CTA Second Division denied Mindanao I’s CTA En Banc also ruled that the procedure prescribed
motion and maintained the proportionate allocation under Section 112(D) now 112(C)37 of the 1997 Tax
because there was a portion of the gross receipts that Code should be followed first before the CTA En Banc
was undeclared in Mindanao I’s gross receipts. can act on Mindanao I’s claim. The CTA En Banc
reconsidered its 31 May 2010 Decision in light of this
The CIR also filed a motion for partial reconsideration32 Court’s ruling in Commissioner of Internal Revenue v.
on 11 November 2008. It claimed that Mindanao I failed Aichi Forging Company of Asia, Inc. (Aichi).38
to exhaust administrative remedies before it filed its
petition for review. The CTA Second Division denied the The pertinent portions of the CTA En Banc’s 24
CIR’s motion, and cited Atlas33 as the basis for ruling November 2010 Amended Decision read:
that it is more practical and reasonable to count the
two-year prescriptive period for filing a claim for refund C.T.A. Case No. 7228:
or credit of input VAT on zero-rated sales from the date
of filing of the return and payment of the tax due. (1) For calendar year 2003, Mindanao I filed with the
BIR its Quarterly VAT Returns for the First Quarter of
The dispositive portion of the CTA Second Division’s 10 2003. Pursuant to Section 112(A) of the NIRC of 1997, as
March 2009 Resolution reads: amended, Mindanao I has two years from March 31,
2003 or until March 31, 2005 within which to file its
WHEREFORE, premises considered, the CIR’s Motion for administrative claim for refund;
Partial Reconsideration and Mindanao I’s Motion for
Partial Reconsideration with Motion for Clarification are (2) On April 4, 2005, Mindanao I applied for an
hereby DENIED for lack of merit. administrative claim for refund of unutilized input VAT
for the first quarter of taxable year 2003 with the BIR,
SO ORDERED.34
which is beyond the two-year prescriptive period (2) On April 4, 2005, Mindanao I applied an
mentioned above. administrative claim for refund of unutilized input VAT
for the third and fourth quarters of taxable year 2003
C.T.A. Case No. 7286: with the BIR, which is well within the two-year
prescriptive period, provided under Section 112(A) of
(1) For calendar year 2003, Mindanao I filed with the the NIRC of 1997, as amended;
BIR its Quarterly VAT Returns for the second quarter of
2003. Pursuant to (3) From April 4, 2005, which is also presumably the
date Mindanao I submitted supporting documents,
Section 112(A) of the NIRC of 1997, as amended, together with the aforesaid application for refund, the
Mindanao I has two years from June 30, 2003, within CIR has 120 days or until August 2, 2005, to decide the
which to file its administrative claim for refund for the claim;
second quarter of 2003, or until June 30, 2005;
(4) Within thirty (30) days from the lapse of the 120-day
(2) On April 4, 2005, Mindanao I applied an period or from August 3, 2005 until September 1, 2005
administrative claim for refund of unutilized input VAT Mindanao I should have elevated its claim for refund to
for the second quarter of taxable year 2003 with the the CTA;
BIR, which is within the two-year prescriptive period,
provided under Section 112 (A) of the NIRC of 1997, as (5) However, Mindanao I filed its Petition for Review
amended; with the CTA in Division only on September 9, 2005,
which is 8 days beyond the 30-day period to appeal to
(3) The CIR has 120 days from April 4, 2005 (presumably the CTA.
the date Mindanao I submitted the supporting
documents together with the application for refund) or Evidently, the Petition for Review was filed way beyond
until August 2, 2005, to decide the administrative claim the 30-day prescribed period. Thus, the Petition for
for refund; Review should have been dismissed for being filed late.

(4) Within 30 days from the lapse of the 120-day period In recapitulation:
or from August 3, 2005 to September 1, 2005,
Mindanao I should have elevated its claim for refund to (1) C.T.A. Case No. 7228
the CTA in Division;
Claim for the first quarter of 2003 had already
(5) However, on July 7, 2005, Mindanao I filed its prescribed for having been filed beyond the two-year
Petition for Review with this Court, docketed as CTA prescriptive period;
Case No. 7286, even before the 120-day period for the
CIR to decide the claim for refund had lapsed on August (2) C.T.A. Case No. 7286
2, 2005. The Petition for Review was, therefore,
prematurely filed and there was failure to exhaust Claim for the second quarter of 2003 should be
administrative remedies; dismissed for Mindanao I’s failure to comply with a
condition precedent when it failed to exhaust
xxxx administrative remedies by filing its Petition for Review
even before the lapse of the 120-day period for the CIR
C.T.A. Case No. 7318: to decide the administrative claim;

(1) For calendar year 2003, Mindanao I filed with the (3) C.T.A. Case No. 7318
BIR its Quarterly VAT Returns for the third and fourth
quarters of 2003. Pursuant to Section 112(A) of the Petition for Review was filed beyond the 30-day
NIRC of 1997, as amended, Mindanao I therefore, has prescribed period to appeal to the CTA.
two years from September 30, 2003 and December 31,
2003, or until September 30, 2005 and December 31, xxxx
2005, respectively, within which to file its administrative
claim for the third and fourth quarters of 2003; IN VIEW OF THE FOREGOING, the Commissioner of
Internal Revenue’s Motion for Reconsideration is
hereby GRANTED; Mindanao I’s Motion for Partial A. The amount of ₱2,090.16 was brought about by the
Reconsideration is hereby DENIED for lack of merit. timing difference in the recording of the foreign
currency deposit transaction.
The May 31, 2010 Decision of this Court En Banc is
hereby REVERSED. B. The amount of ₱2,752.00 arose from the out-of-
pocket expenses reimbursed to SGV & Company which
Accordingly, the Petition for Review of the is substantially suppoerted [sic] by an official receipt.
Commissioner of Internal Revenue in CTA EB No. 476 is
hereby GRANTED and the entire claim of Mindanao I C. The amount of ₱487,355.93 was unapplied and/or
Geothermal Partnership for the first, second, third and was not included in Mindanao II’s claim for refund or
fourth quarters of 2003 is hereby DENIED. tax credit for the year 2004 subject matter of CTA Case
No. 7507.
SO ORDERED.39
IV. The doctrine of strictissimi juris on tax exemptions
The Issues should be relaxed in the present case.40

G.R. No. 193301 G.R. No. 194637

Mindanao II v. CIR Mindanao I v. CIR
Mindanao II raised the following grounds in its Petition
for Review: Mindanao I raised the following grounds in its Petition
for Review:
I. The Honorable Court of Tax Appeals erred in holding
that the claim of Mindanao II for the 1st and 2nd I. The administrative claim and judicial claim in CTA Case
quarters of year 2003 has already prescribed pursuant No. 7228 were timely filed pursuant to the case of Atlas
to the Mirant case. Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue, which was then the
A. The Atlas case and Mirant case have conflicting controlling ruling at the time of filing.
interpretations of the law as to the reckoning date of
the two year prescriptive period for filing claims for VAT A. The recent ruling in the Commissioner of Internal
refund. Revenue vs. Mirant Pagbilao Corporation, which uses
the end of the taxable quarter when the sales were
B. The Atlas case was not and cannot be superseded by made as the reckoning date in counting the two-year
the Mirant case in light of Section 4(3), Article VIII of the prescriptive period, cannot be applied retroactively in
1987 Constitution. the case of Mindanao I.

C. The ruling of the Mirant case, which uses the close of B. The Atlas case promulgated by the Third Division of
the taxable quarter when the sales were made as the this Honorable Court on June 8, 2007 was not and
reckoning date in counting the two-year prescriptive cannot be superseded by the Mirant Pagbilao case
period cannot be applied retroactively in the case of promulgated by the Second Division of this Honorable
Mindanao II. Court on September 12, 2008 in light of the explicit
provision of Section 4(3), Article VIII of the 1987
II. The Honorable Court of Tax Appeals erred in Constitution.
interpreting Section 105 of the 1997 Tax Code, as
amended in that the sale of the fully depreciated Nissan II. Likewise, the recent ruling of this Honorable Court in
Patrol is a one-time transaction and is not incidental to Commissioner of Internal Revenue vs. Aichi Forging
the VAT zero-rated operation of Mindanao II. Company of Asia, Inc., cannot be applied retroactively
to Mindanao I in the present case.41
III. The Honorable Court of Tax Appeals erred in denying
the amount disallowed by the Independent Certified In a Resolution dated 14 December 2011,42 this Court
Public Accountant as Mindanao II substantially complied resolved to consolidate G.R. Nos. 193301 and 194637 to
with the requisites of the 1997 Tax Code, as amended, avoid conflicting rulings in related cases.
for refund/tax credit.
The Court’s Ruling
 complete documents in support of the application filed
Determination of Prescriptive Period in accordance with Subsections (A) and (B) hereof.

G.R. Nos. 193301 and 194637 both raise the question of In case of full or partial denial of the claim for tax refund
the determination of the prescriptive period, or the or tax credit, or the failure on the part of the
interpretation of Section 112 of the 1997 Tax Code, in Commissioner to act on the application within the
light of our rulings in Atlas and Mirant. period prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of the decision
Mindanao II’s unutilized input VAT tax credit for the first denying the claim or after the expiration of the one
and second quarters of 2003, in the amounts of hundred twenty day-period, appeal the decision or the
₱3,160,984.69 and ₱1,562,085.33, respectively, are unacted claim with the Court of Tax Appeals.
covered by G.R. No. 193301, while Mindanao I’s
unutilized input VAT tax credit for the first, second, When Mindanao II and Mindanao I filed their respective
third, and fourth quarters of 2003, in the amounts of administrative and judicial claims in 2005, neither Atlas
₱3,893,566.14, ₱2,351,000.83, and ₱7,940,727.83, nor Mirant has been promulgated. Atlas was
respectively, are covered by G.R. No. 194637. promulgated on 8 June 2007, while Mirant was
promulgated on 12 September 2008. It is therefore
Section 112 of the 1997 Tax Code misleading to state that Atlas was the controlling
doctrine at the time of filing of the claims. The 1997 Tax
The pertinent sections of the 1997 Tax Code, the law Code, which took effect on 1 January 1998, was the
applicable at the time of Mindanao II’s and Mindanao I’s applicable law at the time of filing of the claims in issue.
administrative and judicial claims, provide: As this Court explained in the recent consolidated cases
of Commissioner of Internal Revenue v. San Roque
SEC. 112. Refunds or Tax Credits of Input Tax. -(A) Zero- Power Corporation, Taganito Mining Corporation v.
rated or Effectively Zero-rated Sales. - Any VAT- Commissioner of Internal Revenue, and Philex Mining
registered person, whose sales are zero-rated or Corporation v. Commissioner of Internal Revenue (San
effectively zero-rated may, within two (2) years after Roque):48
the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or Clearly, San Roque failed to comply with the 120-day
refund of creditable input tax due or paid attributable to waiting period, the time expressly given by law to the
such sales, except transitional input tax, to the extent Commissioner to decide whether to grant or deny San
that such input tax has not been applied against output Roque’s application for tax refund or credit. It is
tax: Provided, however, That in the case of zero-rated indisputable that compliance with the 120-day waiting
sales under Section 106(A)(2)(a)(1), (2) and (B) and period is mandatory and jurisdictional. The waiting
Section 108 (B)(1) and (2), the acceptable foreign period, originally fixed at 60 days only, was part of the
currency exchange proceeds thereof had been duly provisions of the first VAT law, Executive Order No. 273,
accounted for in accordance with the rules and which took effect on 1 January 1988. The waiting period
regulations of the Bangko Sentral ng Pilipinas (BSP): was extended to 120 days effective 1 January 1998
Provided, further, That where the taxpayer is engaged under RA 8424 or the Tax Reform Act of 1997. Thus, the
in zero-rated or effectively zero-rated sale and also in waiting period has been in our statute books for more
taxable or exempt sale of goods or properties or than fifteen (15) years before San Roque filed its judicial
services, and the amount of creditable input tax due or claim.
paid cannot be directly and entirely attributed to any
one of the transactions, it shall be allocated Failure to comply with the 120-day waiting period
proportionately on the basis of the volume of sales. violates a mandatory provision of law. It violates the
doctrine of exhaustion of administrative remedies and
xxxx renders the petition premature and thus without a
cause of action, with the effect that the CTA does not
(D) Period within which Refund or Tax Credit of Input acquire jurisdiction over the taxpayer’s petition.
Taxes shall be Made. - In proper cases, the Philippine jurisprudence is replete with cases upholding
Commissioner shall grant a refund or issue the tax credit and reiterating these doctrinal principles.
certificate for creditable input taxes within one hundred
twenty (120) days from the date of submission of
The charter of the CTA expressly provides that its or credit. Strict compliance with the mandatory and
jurisdiction is to review on appeal "decisions of the jurisdictional conditions prescribed by law to claim such
Commissioner of Internal Revenue in cases involving x x tax refund or credit is essential and necessary for such
x refunds of internal revenue taxes." When a taxpayer claim to prosper. Well-settled is the rule that tax
prematurely files a judicial claim for tax refund or credit refunds or credits, just like tax exemptions, are strictly
with the CTA without waiting for the decision of the construed against the taxpayer.
Commissioner, there is no "decision" of the
Commissioner to review and thus the CTA as a court of The burden is on the taxpayer to show that he has
special jurisdiction has no jurisdiction over the appeal. strictly complied with the conditions for the grant of the
The charter of the CTA also expressly provides that if tax refund or credit.
the Commissioner fails to decide within "a specific
period" required by law, such "inaction shall be deemed This Court cannot disregard mandatory and
a denial" of the application for tax refund or credit. It is jurisdictional conditions mandated by law simply
the Commissioner’s decision, or inaction "deemed a because the Commissioner chose not to contest the
denial," that the taxpayer can take to the CTA for numerical correctness of the claim for tax refund or
review. Without a decision or an "inaction x x x deemed credit of the taxpayer. Non-compliance with mandatory
a denial" of the Commissioner, the CTA has no periods, non-observance of prescriptive periods, and
jurisdiction over a petition for review. non-adherence to exhaustion of administrative
remedies bar a taxpayer’s claim for tax refund or credit,
San Roque’s failure to comply with the 120-day whether or not the Commissioner questions the
mandatory period renders its petition for review with numerical correctness of the claim of the taxpayer. This
the CTA void. Article 5 of the Civil Code provides, "Acts Court should not establish the precedent that non-
executed against provisions of mandatory or prohibitory compliance with mandatory and jurisdictional
laws shall be void, except when the law itself authorizes conditions can be excused if the claim is otherwise
their validity." San Roque’s void petition for review meritorious, particularly in claims for tax refunds or
cannot be legitimized by the CTA or this Court because credit. Such precedent will render meaningless
Article 5 of the Civil Code states that such void petition compliance with mandatory and jurisdictional
cannot be legitimized "except when the law itself requirements, for then every tax refund case will have
authorizes its validity." There is no law authorizing the to be decided on the numerical correctness of the
petition’s validity. amounts claimed, regardless of non-compliance with
mandatory and jurisdictional conditions.
It is hornbook doctrine that a person committing a void
act contrary to a mandatory provision of law cannot San Roque cannot also claim being misled, misguided or
claim or acquire any right from his void act. A right confused by the Atlas doctrine because San Roque filed
cannot spring in favor of a person from his own void or its petition for review with the CTA more than four
illegal act. This doctrine is repeated in Article 2254 of years before Atlas was promulgated. The Atlas doctrine
the Civil Code, which states, "No vested or acquired did not exist at the time San Roque failed to comply
right can arise from acts or omissions which are against with the 120-day period. Thus, San Roque cannot invoke
the law or which infringe upon the rights of others." For the Atlas doctrine as an excuse for its failure to wait for
violating a mandatory provision of law in filing its the 120-day period to lapse. In any event, the Atlas
petition with the CTA, San Roque cannot claim any right doctrine merely stated that the two-year prescriptive
arising from such void petition. Thus, San Roque’s period should be counted from the date of payment of
petition with the CTA is a mere scrap of paper. the output VAT, not from the close of the taxable
quarter when the sales involving the input VAT were
This Court cannot brush aside the grave issue of the made. The Atlas doctrine does not interpret, expressly
mandatory and jurisdictional nature of the 120-day or impliedly, the 120+30 day periods.49 (Emphases in
period just because the Commissioner merely asserts the original; citations omitted)
that the case was prematurely filed with the CTA and
does not question the entitlement of San Roque to the Prescriptive Period for
refund. The mere fact that a taxpayer has undisputed the Filing of Administrative Claims
excess input VAT, or that the tax was admittedly
illegally, erroneously or excessively collected from him, In determining whether the administrative claims of
does not entitle him as a matter of right to a tax refund Mindanao I and Mindanao II for 2003 have prescribed,
we see no need to rely on either Atlas or Mirant. Code is clear: "In case of full or partial denial of the
Section 112(A) of the 1997 Tax Code is clear: "Any VAT- claim for tax refund or tax credit, or the failure on the
registered person, whose sales are zero-rated or part of the Commissioner to act on the application
effectively zero-rated may, within two (2) years after within the period prescribed above, the taxpayer
the close of the taxable quarter when the sales were affected may, within thirty (30) days from the receipt of
made, apply for the issuance of a tax credit certificate or the decision denying the claim or after the expiration of
refund of creditable input tax due or paid attributable to the one hundred twenty day-period, appeal the decision
such sales x x x." or the unacted claim with the Court of Tax Appeals."

We rule on Mindanao I and II’s administrative claims for The mandatory and jurisdictional nature of the 120+30
the first, second, third, and fourth quarters of 2003 as day periods was explained in San Roque:
follows:
At the time San Roque filed its petition for review with
(1) The last day for filing an application for tax refund or the CTA, the 120+30 day mandatory periods were
credit with the CIR for the first quarter of 2003 was on already in the law. Section 112(C) expressly grants the
31 March 2005. Mindanao II filed its administrative Commissioner 120 days within which to decide the
claim before the CIR on 13 April 2005, while Mindanao I taxpayer’s claim. The law is clear, plain, and
filed its administrative claim before the CIR on 4 April unequivocal: "x x x the Commissioner shall grant a
2005. Both claims have prescribed, pursuant to Section refund or issue the tax credit certificate for creditable
112(A) of the 1997 Tax Code. input taxes within one hundred twenty (120) days from
the date of submission of complete documents."
(2) The last day for filing an application for tax refund or Following the verba legis doctrine, this law must be
credit with the CIR for the second quarter of 2003 was applied exactly as worded since it is clear, plain, and
on 30 June 2005. Mindanao II filed its administrative unequivocal. The taxpayer cannot simply file a petition
claim before the CIR on 13 April 2005, while Mindanao I with the CTA without waiting for the Commissioner’s
filed its administrative claim before the CIR on 4 April decision within the 120-day mandatory and
2005. Both claims were filed on time, pursuant to jurisdictional period. The CTA will have no jurisdiction
Section 112(A) of the 1997 Tax Code. because there will be no "decision" or "deemed a
denial" decision of the Commissioner for the CTA to
(3) The last day for filing an application for tax refund or review. In San Roque’s case, it filed its petition with the
credit with the CIR for the third quarter of 2003 was on CTA a mere 13 days after it filed its administrative claim
30 September 2005. Mindanao II filed its administrative with the Commissioner. Indisputably, San Roque
claim before the CIR on 13 April 2005, while Mindanao I knowingly violated the mandatory 120-day period, and
filed its administrative claim before the CIR on 4 April it cannot blame anyone but itself.
2005. Both claims were filed on time, pursuant to
Section 112(A) of the 1997 Tax Code. Section 112(C) also expressly grants the taxpayer a 30-
day period to appeal to the CTA the decision or inaction
(4) The last day for filing an application for tax refund or of the Commissioner, thus:
credit with the CIR for the fourth quarter of 2003 was
on 2 January 2006. Mindanao II filed its administrative x x x the taxpayer affected may, within thirty (30) days
claim before the CIR on 13 April 2005, while Mindanao I from the receipt of the decision denying the claim or
filed its administrative claim before the CIR on 4 April after the expiration of the one hundred twenty day-
2005. Both claims were filed on time, pursuant to period, appeal the decision or the unacted claim with
Section 112(A) of the 1997 Tax Code. the Court of Tax Appeals. (Emphasis supplied)

Prescriptive Period for This law is clear, plain, and unequivocal. Following the
the Filing of Judicial Claims well-settled verba legis doctrine, this law should be
applied exactly as worded since it is clear, plain, and
In determining whether the claims for the second, third unequivocal. As this law states, the taxpayer may, if he
and fourth quarters of 2003 have been properly wishes, appeal the decision of the Commissioner to the
appealed, we still see no need to refer to either Atlas or CTA within 30 days from receipt of the Commissioner’s
Mirant, or even to Section 229 of the 1997 Tax Code. decision, or if the Commissioner does not act on the
The second paragraph of Section 112(C) of the 1997 Tax taxpayer’s claim within the 120-day period, the
taxpayer may appeal to the CTA within 30 days from the Otherwise, the filing of the administrative claim beyond
expiration of the 120-day period. the first 610 days will result in the appeal to the CTA
being filed beyond the two-year prescriptive period.
xxxx Thus, if the taxpayer files his administrative claim on the
611th day, the Commissioner, with his 120-day period,
There are three compelling reasons why the 30-day will have until the 731st day to decide the claim. If the
period need not necessarily fall within the two-year Commissioner decides only on the 731st day, or does
prescriptive period, as long as the administrative claim not decide at all, the taxpayer can no longer file his
is filed within the two-year prescriptive period. judicial claim with the CTA because the two-year
prescriptive period (equivalent to 730 days) has lapsed.
First, Section 112(A) clearly, plainly, and unequivocally The 30-day period granted by law to the taxpayer to file
provides that the taxpayer "may, within two (2) years an appeal before the CTA becomes utterly useless, even
after the close of the taxable quarter when the sales if the taxpayer complied with the law by filing his
were made, apply for the issuance of a tax credit administrative claim within the two-year prescriptive
certificate or refund of the creditable input tax due or period.
paid to such sales." In short, the law states that the
taxpayer may apply with the Commissioner for a refund The theory that the 30-day period must fall within the
or credit "within two (2) years," which means at two-year prescriptive period adds a condition that is not
anytime within two years. Thus, the application for found in the law. It results in truncating 120 days from
refund or credit may be filed by the taxpayer with the the 730 days that the law grants the taxpayer for filing
Commissioner on the last day of the two-year his administrative claim with the Commissioner. This
prescriptive period and it will still strictly comply with Court cannot interpret a law to defeat, wholly or even
the law. The two-year prescriptive period is a grace partly, a remedy that the law expressly grants in clear,
period in favor of the taxpayer and he can avail of the plain, and unequivocal language.
full period before his right to apply for a tax refund or
credit is barred by prescription. Section 112(A) and (C) must be interpreted according to
its clear, plain, and unequivocal language. The taxpayer
Second, Section 112(C) provides that the Commissioner can file his administrative claim for refund or credit at
shall decide the application for refund or credit "within anytime within the two-year prescriptive period. If he
one hundred twenty (120) days from the date of files his claim on the last day of the two-year
submission of complete documents in support of the prescriptive
application filed in accordance with Subsection (A)." The
reference in Section 112(C) of the submission of period, his claim is still filed on time. The Commissioner
documents "in support of the application filed in will have 120 days from such filing to decide the claim. If
accordance with Subsection A" means that the the Commissioner decides the claim on the 120th day,
application in Section 112(A) is the administrative claim or does not decide it on that day, the taxpayer still has
that the Commissioner must decide within the 120-day 30 days to file his judicial claim with the CTA. This is not
period. In short, the two-year prescriptive period in only the plain meaning but also the only logical
Section 112(A) refers to the period within which the interpretation of Section 112(A) and (C).50 (Emphases in
taxpayer can file an administrative claim for tax refund the original; citations omitted)
or credit. Stated otherwise, the two-year prescriptive
period does not refer to the filing of the judicial claim In San Roque, this Court ruled that "all taxpayers can
with the CTA but to the filing of the administrative claim rely on BIR Ruling No. DA-489-03 from the time of its
with the Commissioner. As held in Aichi, the "phrase issuance on 10 December 2003 up to its reversal in Aichi
‘within two years x x x apply for the issuance of a tax on 6 October 2010, where this Court held that the
credit or refund’ refers to applications for refund/credit 120+30 day periods are mandatory and
with the CIR and not to appeals made to the CTA." jurisdictional."51 We shall discuss later the effect of San
Roque’s recognition of BIR Ruling No. DA-489-03 on
Third, if the 30-day period, or any part of it, is required claims filed between 10 December 2003 and 6 October
to fall within the two-year prescriptive period 2010. Mindanao I and II filed their claims within this
(equivalent to 730 days), then the taxpayer must file his period.
administrative claim for refund or credit within the first
610 days of the two-year prescriptive period.
We rule on Mindanao I and II’s judicial claims for the than 2 August 2005, which is the expiration of the 120-
second, third, and fourth quarters of 2003 as follows: day period for the Commissioner to act on the claim.

G.R. No. 193301 (1) Mindanao I filed its judicial claim for the second
Mindanao II v. CIR quarter of 2003 before the CTA on 7 July 2005, before
the expiration of the 120-day period. Pursuant to
Mindanao II filed its administrative claims for the Section 112(C) of the 1997 Tax Code, Mindanao I’s
second, third, and fourth quarters of 2003 on 13 April judicial claim for the second quarter of 2003 was
2005. Counting 120 days after filing of the prematurely filed. However, pursuant to San Roque’s
administrative claim with the CIR (11 August 2005) and recognition of the effect of BIR Ruling No. DA-489-03,
30 days after the CIR’s denial by inaction, the last day we rule that Mindanao I’s judicial claim for the second
for filing a judicial claim with the CTA for the second, quarter of 2003 qualifies under the exception to the
third, and fourth quarters of 2003 was on 12 September strict application of the 120+30 day periods.
2005. However, the judicial claim cannot be filed earlier
than 11 August 2005, which is the expiration of the 120- (2) Mindanao I filed its judicial claim for the third
day period for the Commissioner to act on the claim. quarter of 2003 before the CTA on 9 September 2005.
Mindanao I’s judicial claim for the third quarter of 2003
(1) Mindanao II filed its judicial claim for the second was thus filed after the prescriptive period, pursuant to
quarter of 2003 before the CTA on 7 July 2005, before Section 112(C) of the 1997 Tax Code.
the expiration of the 120-day period. Pursuant to
Section 112(C) of the 1997 Tax Code, Mindanao II’s (3) Mindanao I filed its judicial claim for the fourth
judicial claim for the second quarter of 2003 was quarter of 2003 before the CTA on 9 September 2005.
prematurely filed. Mindanao I’s judicial claim for the fourth quarter of
2003 was thus filed after the prescriptive period,
However, pursuant to San Roque’s recognition of the pursuant to Section 112(C) of the 1997 Tax Code.
effect of BIR Ruling No. DA-489-03, we rule that
Mindanao II’s judicial claim for the second quarter of San Roque: Recognition of BIR Ruling No. DA-489-03
2003 qualifies under the exception to the strict
application of the 120+30 day periods. In the consolidated cases of San Roque, the Court En
Banc53 examined and ruled on the different claims for
(2) Mindanao II filed its judicial claim for the third tax refund or credit of three different companies. In San
quarter of 2003 before the CTA on 9 September 2005. Roque, we reiterated that "following the verba legis
Mindanao II’s judicial claim for the third quarter of 2003 doctrine, Section 112(C) must be applied exactly as
was thus filed on time, pursuant to Section 112(C) of the worded since it is clear, plain, and unequivocal. The
1997 Tax Code. taxpayer cannot simply file a petition with the CTA
without waiting for the Commissioner’s decision within
(3) Mindanao II filed its judicial claim for the fourth the 120-day mandatory and jurisdictional period. The
quarter of 2003 before the CTA on 9 September 2005. CTA will have no jurisdiction because there will be no
Mindanao II’s judicial claim for the fourth quarter of ‘decision’ or ‘deemed a denial decision’ of the
2003 was thus filed on time, pursuant to Section 112(C) Commissioner for the CTA to review."
of the 1997 Tax Code.
Notwithstanding a strict construction of any claim for
G.R. No. 194637 tax exemption or refund, the Court in San Roque
Mindanao I v. CIR recognized that BIR Ruling No. DA-489-03 constitutes
equitable estoppel54 in favor of taxpayers. BIR Ruling
Mindanao I filed its administrative claims for the No. DA-489-03 expressly states that the "taxpayer-
second, third, and fourth quarters of 2003 on 4 April claimant need not wait for the lapse of the 120-day
2005. Counting 120 days after filing of the period before it could seek judicial relief with the CTA
administrative claim with the CIR (2 August 2005) and by way of Petition for Review." This Court discussed BIR
30 days after the CIR’s denial by inaction,52 the last day Ruling No. DA-489-03 and its effect on taxpayers, thus:
for filing a judicial claim with the CTA for the second,
third, and fourth quarters of 2003 was on 1 September Taxpayers should not be prejudiced by an erroneous
2005. However, the judicial claim cannot be filed earlier interpretation by the Commissioner, particularly on a
difficult question of law. The abandonment of the Atlas claim the benefit of BIR Ruling No. DA-489-03, which
doctrine by Mirant and Aichi is proof that the reckoning shields the filing of its judicial claim from the vice of
of the prescriptive periods for input VAT tax refund or prematurity. (Emphasis in the original)
credit is a difficult question of law. The abandonment of
the Atlas doctrine did not result in Atlas, or other Summary of Rules on Prescriptive Periods Involving VAT
taxpayers similarly situated, being made to return the
tax refund or credit they received or could have We summarize the rules on the determination of the
received under Atlas prior to its abandonment. This prescriptive period for filing a tax refund or credit of
Court is applying Mirant and Aichi prospectively. Absent unutilized input VAT as provided in Section 112 of the
fraud, bad faith or misrepresentation, the reversal by 1997 Tax Code, as follows:
this Court of a general interpretative rule issued by the
Commissioner, like the reversal of a specific BIR ruling (1) An administrative claim must be filed with the CIR
under Section 246, should also apply prospectively. x x within two years after the close of the taxable quarter
x. when the zero-rated or effectively zero-rated sales were
made.
xxxx
(2) The CIR has 120 days from the date of submission of
Thus, the only issue is whether BIR Ruling No. DA-489- complete documents in support of the administrative
03 is a general interpretative rule applicable to all claim within which to decide whether to grant a refund
taxpayers or a specific ruling applicable only to a or issue a tax credit certificate. The 120-day period may
particular taxpayer. extend beyond the two-year period from the filing of
the administrative claim if the claim is filed in the later
BIR Ruling No. DA-489-03 is a general interpretative rule part of the two-year period. If the 120-day period
because it was a response to a query made, not by a expires without any decision from the CIR, then the
particular taxpayer, but by a government agency tasked administrative claim may be considered to be denied by
with processing tax refunds and credits, that is, the One inaction.
Stop Shop Inter-Agency Tax Credit and Drawback Center
of the Department of Finance. This government agency (3) A judicial claim must be filed with the CTA within 30
is also the addressee, or the entity responded to, in BIR days from the receipt of the CIR’s decision denying the
Ruling No. DA-489-03. Thus, while this government administrative claim or from the expiration of the 120-
agency mentions in its query to the Commissioner the day period without any action from the CIR.
administrative claim of Lazi Bay Resources
Development, Inc., the agency was in fact asking the (4) All taxpayers, however, can rely on BIR Ruling No.
Commissioner what to do in cases like the tax claim of DA-489-03 from the time of its issuance on 10
Lazi Bay Resources Development, Inc., where the December 2003 up to its reversal by this Court in Aichi
taxpayer did not wait for the lapse of the 120-day on 6 October 2010, as an exception to the mandatory
period. and jurisdictional 120+30 day periods.

Clearly, BIR Ruling No. DA-489-03 is a general "Incidental" Transaction

interpretative rule. Thus, all taxpayers can rely on BIR
Ruling No. DA-489-03 from the time of its issuance on Mindanao II asserts that the sale of a fully depreciated
10 December 2003 up to its reversal by this Court in Nissan Patrol is not an incidental transaction in the
Aichi on 6 October 2010, where this Court held that the course of its business; hence, it is an isolated
120+30 day periods are mandatory and jurisdictional. transaction that should not have been subject to 10%
VAT.
xxxx
Section 105 of the 1997 Tax Code does not support
Taganito, however, filed its judicial claim with the CTA Mindanao II’s position:
on 14 February 2007, after the issuance of BIR Ruling
No. DA-489-03 on 10 December 2003. Truly, Taganito SEC. 105. Persons Liable. - Any person who, in the
can claim that in filing its judicial claim prematurely course of trade or business, sells barters, exchanges,
without waiting for the 120-day period to expire, it was leases goods or properties, renders services, and any
misled by BIR Ruling No. DA-489-03. Thus, Taganito can person who imports goods shall be subject to the value-
added tax (VAT) imposed in Sections 106 to 108 of this Prior to the sale, the Nissan Patrol was part of
Code. Mindanao II’s property, plant, and equipment.
Therefore, the sale of the Nissan Patrol is an incidental
The value-added tax is an indirect tax and the amount transaction made in the course of Mindanao II’s
of tax may be shifted or passed on to the buyer, business which should be liable for VAT.
transferee or lessee of the goods, properties or services.
This rule shall likewise apply to existing contracts of sale Substantiation Requirements
or lease of goods, properties or services at the time of
the effectivity of Republic Act No. 7716. Mindanao II claims that the CTA’s disallowance of a
total amount of ₱492,198.09 is improper as it has
The phrase "in the course of trade or business" means substantially complied with the substantiation
the regular conduct or pursuit of a commercial or an requirements of Section 113(A)58 in relation to Section
economic activity, including transactions incidental 23759 of the 1997 Tax Code, as implemented by Section
thereto, by any person regardless of whether or not the 4.104-1, 4.104-5 and 4.108-1 of Revenue Regulation No.
person engaged therein is a nonstock, nonprofit private 7-95.60
organization (irrespective of the disposition of its net
income and whether or not it sells exclusively to We are constrained to state that Mindanao II’s
members or their guests), or government entity. compliance with the substantiation requirements is a
finding of fact. The CTA En Banc evaluated the records
The rule of regularity, to the contrary notwithstanding, of the case and found that the transactions in question
services as defined in this Code rendered in the are purchases for services and that Mindanao II failed to
Philippines by nonresident foreign persons shall be comply with the substantiation requirements. We affirm
considered as being rendered in the course of trade or the CTA En Banc’s finding of fact, which in turn affirmed
business. (Emphasis supplied) the finding of the CTA First Division. We see no reason
to overturn their findings.
Mindanao II relies on Commissioner of Internal Revenue
v. Magsaysay Lines, Inc. (Magsaysay)55 and Imperial v. WHEREFORE, we PARTIALLY GRANT the petitions. The
Collector of Internal Revenue (Imperial)56 to justify its Decision of the Court of Tax Appeals En Bane in CT A EB
position. Magsaysay, decided under the NIRC of 1986, No. 513 promulgated on 10 March 2010, as well as the
involved the sale of vessels of the National Resolution promulgated on 28 July 2010, and the
Development Company (NDC) to Magsaysay Lines, Inc. Decision of the Court of Tax Appeals En Bane in CTA EB
We ruled that the sale of vessels was not in the course Nos. 476 and 483 promulgated on 31 May 2010, as well
of NDC’s trade or business as it was involuntary and as the Amended Decision promulgated on 24 November
made pursuant to the Government’s policy for 2010, are AFFIRMED with MODIFICATION.
privatization. Magsaysay, in quoting from the CTA’s
decision, imputed upon Imperial the definition of For G.R. No. 193301, the claim of Mindanao II
"carrying on business." Imperial, however, is an Geothermal Partnership for the first quarter of 2003 is
unreported case that merely stated that "‘to engage’ is DENIED while its claims for the second, third, and fourth
to embark in a business or to employ oneself quarters of 2003 are GRANTED. For G.R. No. 19463 7,
therein."57 the claims of Mindanao I Geothermal Partnership for
the first, third, and fourth quarters of 2003 are DENIED
Mindanao II’s sale of the Nissan Patrol is said to be an while its claim for the second quarter of 2003 is
isolated transaction.1âwphi1 However, it does not GRANTED.
follow that an isolated transaction cannot be an
incidental transaction for purposes of VAT liability. SO ORDERED.
Indeed, a reading of Section 105 of the 1997 Tax Code
would show that a transaction "in the course of trade or G.R. No. 111184 August 12, 1996
business" includes "transactions incidental thereto."
MAGSAYSAY LINES, INC., BALIWAG NAVIGATION, INC.,
Mindanao II’s business is to convert the steam supplied FIM LIMITED OF THE MARDEN GROUP (HK), and
to it by PNOC-EDC into electricity and to deliver the NATIONAL DEVELOPMENT COMPANY, petitioners,
electricity to NPC. In the course of its business, vs.
Mindanao II bought and eventually sold a Nissan Patrol.
HON. COURT OF APPEALS, and THE COMMISSIONER OF The Antecedent Facts
INTERNAL REVENUE, respondents.
Petitioners filed on April 10, 1989 an "Appeal and
Petition for Refund" before the Court of Tax Appeals
(CTA) , followed by a "Supplemental Petition for
PANGANIBAN, J.:p Review" on July 14, 1989, praying for the reversal of
VAT Ruling Nos. 395-88, 568-88 and 007-89 and the
Did the respondent Court act correctly when it set aside refund of P15,120,000.00, representing "erroneously
its own Resolution dismissing a petition for review on paid" 10% value-added tax on the sale through public
certiorari which, according to the petitioners, had been bidding of five (5) vessels by the NDC to the group of
filed "out of time" by the respondent Commissioner of investors composed of Magsaysay Lines, Inc., Baliwag
Internal Revenue? Should the technical rules on Navigation and FIM Limited. The case was docketed as
reglementary periods for appeal be applied stringently CTA No. 4354 and captioned "Magsaysay Lines, Inc., et
as to deprive the Government of appeal from an al. vs. Commissioner of Internal Revenue."
adverse ruling on its cause of action involving a
substantial tax refund?. On April 27, 1992, the CTA rendered a decision ordering
respondent Commissioner "to refund in favor of
These questions are addressed by the Court in resolving petitioners Magsaysay Lines, Inc., Baliwag Navigation,
the instant petition for certiorari and prohibition under Inc., and FIM Limited of the Marden Group (HK) for and
Rule 65, seeking to annul the following Resolutions in behalf of the National Development Corporation the
issued by the respondent Court of Appeals,1 in CA-G.R. VAT paid amounting to P15,120,000.00 under
SP No. 29994 entitled "Commissioner of Internal Confirmation of Receipt No. B 16374703 dated March
Revenue vs. Magsaysay Lines, Inc., et al.", to wit: 16, 1989."

1) Resolution2 dated February 3, 1993 which ruled that: Respondent Commissioner's motion for reconsideration
was denied by the CTA in a resolution dated December
As prayed for, petitioner is hereby granted an extension 9, 1992, copy of which was received by respondent
of thirty (30) days from January 7, 1993 or until Commissioner on January 6, 1993.
February 6, 1993 within which to file the petition for
review on certiorari in the above entitled case with a Immediately upon receipt of said resolution,
WARNING that no further extension shall be respondent Commissioner, through the Office of the
entertained. Solicitor General (OSG), filed on the same day, January
6, 1993, a motion before respondent appellate court
2) Resolution3 dated July 27, 1993 which reads as praying for an "extension of thirty (30) days from
follows: January 7, 1993 or until February 6, 1993 within which
to file the petition for review on certiorari."4
Before Us is a motion for reconsideration filed by
counsel for the petitioner (respondent Commissioner However, on February 5, 1993, the Office of the Solicitor
herein) from Our resolution dated May 3, 1993 General filed on behalf of respondent Commissioner a
dismissing the petition for review for failure to file the second motion requesting another "extension of thirty
petition within the extension granted. (30) days from February 6, 1993 or until March 8, 1993,
within which to file a petition for review." As shown by
After a careful study of the grounds relied upon by the the stamped proof of receipt on the face of the motion,
petitioner in support of the motion vis-a-vis the it was received by the respondent appellate court on
opposition, We find cogent reason to grant the same, February 5, 1993.5
hence, Our resolution dated May 3, 1993 is hereby
LIFTED and SET ASIDE in the interest of substantial Only after it had filed the second motion did the OSG
justice. receive, on February 11, 1993, the first assailed
resolution issued by respondent appellate court, dated
Accordingly, private respondents are hereby directed to February 3, 1993, which granted respondent
file its (sic) comment on the petition for review within commissioner's first motion for extension "with a
ten (10) days from notice hereof. warning that no further extensions shall be
entertained."
 The Court's Ruling
Thus, in its Manifestation and Motion dated February
16, 1993, respondent Commissioner thru the OSG The thrust of the instant petition is that, since the mere
prayed that the second motion for extension dated filing by respondent Commissioner of the first motion
February 5, 1993 be granted in view of the following for extension of time, and the pendency thereof, did not
considerations: suspend the tolling of the reglementary period to
appeal; and since that period elapsed on January 7,
Considering that said resolution was received by the 1993 without any such appeal having been filed, and
OSG after the requested period of the first motion for without respondent Commissioner's first motion for
extension had lapsed, the OSG is now left with no extension having been granted by the appellate Court
recourse but to seek the kind indulgence of this prior to the expiration of said reglementary period,
Honorable Court to grant petitioner's second motion for therefore the decision of the Court of Tax Appeals dated
extension. April 27, 1992, had become "final, conclusive and
unappealable", and thus, the appellate court "had been
On March 8, 1993, or within the period prayed for by divested of all authority and jurisdiction to take
respondent Commissioner in its second motion for cognizance of the case or to act on the appeal".8
extension, the petition for review (dated March 5, 1993)
was filed through registered mail. Petitioners' position is devoid of merit, and must
perforce fail. As pointed out by the Solicitor General,
In its Resolution6 of May 3, 1993, respondent appellate the petition for review pending before the respondent
court dismissed the petition for review on the ground Court had been filed in accordance with this Court's
that — Circular No. 1-91, dated February 27, 1991, which
prescribed the "Rules Governing Appeals to the Court of
Considering Our resolution dated February 3, 1993 Appeals from a Final Order or Decision of the Court of
WARNING petitioner that no further extension shall be Tax Appeals and Quasi-Judicial Agencies." Paragraph 4
entertained, the motion for extension of time dated of said Circular provides:
February 5, 1993 is hereby DENIED, hence, the petition
for review filed on March 8, 1993 is hereby DENIED 4. PERIOD OF APPEAL. — The appeal shall be taken
ADMISSION. within fifteen (15) days from notice of the ruling, award,
order, decision, or judgment or from the date of its last
ACCORDINGLY, the instant petition for review is hereby publication, if publication is required by law for its
DISMISSED pursuant to Section 1 (f), Rule 50 of the effectivity. One (1) motion for reconsideration of said
Revised Rules of Court. ruling, award, order, decision, or judgment may be
allowed. If the motion is denied, the movant may
However, respondent Commissioner's motion for appeal during the remaining period for appeal reckoned
reconsideration of the above ruling was granted by the from notice of the resolution of denial. (emphasis
appellate court in its Resolution dated July 27, 1993 — supplied)
the second of the herein assailed Resolutions — which
set aside the said dismissal and directed the private Pursuant to the aforequoted Circular, where an
respondents (petitioners herein) to comment on the aggrieved party files a motion for reconsideration from
reinstated petition. an adverse decision of the CTA, he has only the balance
of the reglementary period within which to appeal,
The Issue reckoned from receipt of notice of the resolution
denying his motion for reconsideration. There was no
Hence, petitioners filed the instant petition alleging this violation of said rule in the instant case. Here, the
reversible error:7 respondent Commissioner received on January 6, 1993
the CTA resolution denying reconsideration, and had
The questioned resolutions of the Respondent Court of only one (1) day left within which to perfect his appeal.
Appeals . . . are erroneous as a matter of law, having On the very day he received said resolution, he filed the
been rendered without jurisdiction and contrary to the (first) motion for extension for thirty days.
applicable rules and doctrines firmly established . . . in a
long line of decisions. While Circular No. 1-91 is silent as to whether a motion
far extension of time to file a petition for review with
the Court of Appeals may be permitted, nevertheless, petition for review may be granted by the Court of
this Court in Liboro vs. Court of Appeals9 (promulgated Appeals, save in exceptionally meritorious cases.
on January 29, 1993, or at about the very time the
present controversy was taking shape in the respondent The motion for extension of time must be filed and the
Court) already ruled that such motion is allowed and corresponding docket fee paid within the reglementary
should be granted. period of appeal.

Previously, we had held in Lacsamana vs. Second Special xxx xxx xxx
Cases Division of the Intermediate Appellate Court10
(which was promulgated in 1986, prior to the issuance (Emphasis in the original text.)
of Circular No. 1-91) that:
Thus, in Liboro, citing Lacsamana, we said that:
The Court rules, for the guidance of Bench and Bar, that
a motion for extension of time to file a petition for From these rules [i.e., the rules on appeals set forth in
review under Section 22 of The Judiciary Reorganization Lacsamana], it is clear that the prohibition against
Act (Batas Pambansa Blg. 129) and Section 22(b) of the granting an extension of time applies only in a case
Interim Rules, may properly be filed with and granted where ordinary appeal is perfected by a mere notice of
by the Intermediate Appellate Court (now renamed appeal. The reason is that only the filing of the notice of
Court of Appeals). appeal is required to perfect an appeal and nothing
more. However, it is different in a petition for review
xxx xxx xxx where the pleading is required to be verified. A petition
for review, unlike an ordinary appeal, requires careful
3) APPEALS BY PETITION FOR REVIEW TO THE COURT OF preparation and operose research in order to put up a
APPEALS. persuasive and formidable position. In other words, the
drafting of a petition for review entails more time and
The final judgment or order of a regional trial court in effort than merely filing a notice of appeal. Hence, in
an appeal from the final judgment or order of a Lacsamana, a motion for extension of time was granted
metropolitan trial court, municipal trial court and to enable a party to file a petition for review from a final
municipal circuit trial court, may be appealed to the decision of the Regional Trial Court to the Court of
Court of Appeals through a petition for review in Appeals in accordance with Sec. 22 of B.P. 129 and par.
accordance with Section 22 of BP No. 129 and Section 22 (b) of the Interim Rules.
22(b) of the Interim Rules, or to this Court through a
petition for review on certiorari in accordance with Rule Since Circular No. 1-91 now provides that an appeal
45 of the Rules of Court and Section 25 of the Interim from the Court of Tax Appeals or other quasi-judicial
Rules. The reason for extending the period for the filing agencies to the Court of Appeals is by a petition for
of a record on appeal is also applicable to the filing of a review, and no longer by mere notice of appeal, . . . a
petition for review with the Court of Appeals. The corresponding motion for extension of time to file a
period for filing a petition for review is fifteen days. If a petition for review should likewise be granted. There is
motion for reconsideration is filed with and denied by a indeed no reason why a motion for extension of time to
regional trial court, the movant has only (the) remaining file a petition for review pursuant to Circular No. 1-91
period within which to file a petition for review. Hence, may not be filed, if a motion for extension of time to file
it may be necessary to file a motion with the Court of a petition for review pursuant to Sec. 22 of B.P. 129, and
Appeals for extension of time to file such petition for par. 22(b) of the Interim Rules, may be granted.
review. (Emphasis are part of original text.)
But the extension nonetheless should be limited only to
xxx xxx xxx fifteen (15) days, save in exceptionally meritorious cases
where the Court of Appeals may grant a longer period,
6) PERIOD OF EXTENSION OF TIME TO FILE PETITION as similarly provided in Lacsamana. Generally, then, a
FOR REVIEW. non-extendible period of fifteen (15) days may be
granted unless there are compelling reasons which may
Beginning one month after the promulgation of this warrant the allowance of a longer period. Thus, ubi
Decision, an extension of only fifteen days for filing a eadem ratio, ibi eadem lepis dispositio. (emphasis ours)
Parenthetically, we should mention that this Court's vacuum or in isolated abstraction, but in light of
Administrative Circular No. 1-95 (also known as surrounding circumstances and attendant facts in order
"Revised Cir cular No. 1-91") and titled "Rules Governing to afford justice to all. In this instance, we have no
Appeals to the Court of Appeals from Judgments or doubt that substantial justice would be better served by
Final Orders of the Court of Tax Appeals and Quasi- allowing the appeal.15 Moreover, dismissal of an appeal
Judicial Agencies", 11 which took effect on February 15, on purely technical grounds is frowned upon, since the
1995, has a similar provision on motions for extension policy of our courts is to encourage hearings of appeals
to file petitions for review. on their merits.16

In brief, then, we deem the resort to the filing of the In this case, aside from the aforementioned
first motion for extension dated January 6, 1993 as considerations, we are not unmindful of the immediate
proper, and consider the said motion as having been loss of revenue in the sum of P15,120,00.00 plus
validly and timely filed, pursuant to the then prevailing interest of at least P734,534.89 (per the computations
rules of procedure. The first motion (for 30 days or up of respondent Commissioner) which the Government
to February 6, 1993) having been granted on February would surely suffer if the dismissal of the subject
3, 1993, or well within the period of extension asked petition for review by the respondent Court were to be
for, it is unarguable that such grant was no less valid upheld on technicality. And because taxes constitute
and effective. Therefore, petitioner had until February the lifeblood of the government, through which its
6, 1993 to file the subject petition for review. agencies continue to operate and with which the State
effects its functions for the welfare of its
With respect to respondent Commissioner's second constituents,17 tax exemptions (and, we might add,
motion for extension filed on February 5, 1993, the OSG refunds in the nature of exemptions) must be strictly
reasoned that, aside from the fact that the grant of the construed against the taxpayer and liberally in favor of
first extension was received only after the lapse of the the state.18 Hence, technical rules barring a full hearing
period of extension asked for, the OSG had experienced on the merits should be relaxed, again in the interest of
delays in finishing and submitting the petition caused by justice to all.
"the prolonged daily brownouts which disrupt(ed) office
work." We take cognizance of the fact that the We therefore hold that it would be ill-advised to allow
intermittent power failures occurring almost daily (and petitioners to prevail on mere technicality and compel a
often, several times a day, with durations ranging from refund of the non-insubstantial amount of P15 million
a few minutes to several hours) throughout 1993 took a without affording the government reasonable
heavy toll on productivity and efficiency at all levels and opportunity to contest the assailed CTA ruling. In any
in all sectors of our society. We therefore hold that event, the subject petition for review had actually been
considering the difficult working conditions associated filed on March 8, 1993, the last day of the period prayed
with the serious energy situation prevailing in our for in the second motion for extension, so there is no
country at that time, substantial work delays were further delay to speak of. And we cannot conceive of
inevitable. Hence, the second motion for extension was any additional undue prejudice which may befall the
justified, and the grant thereof would have been proper petitioners in the event the appeal is heard on the
under the circumstances. merits, for if their cause is valid and truly meritorious,
petitioners will prevail in the end anyway.
This is not to say that technical and procedural rules for
appeal, including reglementary periods therefor, need As for the period of extension granted, although the
not be observed at all or may be disregarded at will, rules provide for fifteen days, we reiterate that, in
since appeal may be availed of only in the manner meritorious cases the Court of Appeals may grant a
provided for by law.12 While generally speaking, a longer period.19 In a few highly exceptional instances,
review on appeal is not a matter of right but of sound this Court has allowed the relaxing of the rules on the
judicial discretion, and may granted only when there are application of the reglementary period of appeal,20
special and important reasons therefor, 13 still, it must particularly in the case of Republic vs. Court of
be remembered that appeal is an essential part of our Appeals,21 where this Court allowed the perfection of
judicial system, and thus, courts should proceed with an appeal by the Republic despite the delay of six days
caution so as not to deprive a party of the right to to prevent a gross miscarriage of justice, inasmuch as
appeal, particularly if the appeal is meritorious.14 Laws the Republic stood to lose hundreds of hectares of land
and rules should be interpreted and applied not in a
already titled in its name and devoted for educational
purposes. Before the effectivity of E.O. No. 273, or on December
10, 1987, respondent wrote the Commissioner of
WHEREFORE, in view of the foregoing, the instant Internal Revenue (CIR), petitioner, inquiring whether
Petition is hereby DISMISSED, no grave abuse of the services it provides to the participants in its health
discretion having been committed by respondent Court, care program are exempt from the payment of the VAT.
and the assailed Resolutions are AFFIRMED in toto. No
costs. On June 8, 1988, petitioner CIR, through the VAT Review
Committee of the Bureau of Internal Revenue (BIR),
SO ORDERED. issued VAT Ruling No. 231-88 stating that respondent,
as a provider of medical services, is exempt from the
VAT coverage. This Ruling was subsequently confirmed
by Regional Director Osmundo G. Umali of Revenue
Region No. 8 in a letter dated April 22, 1994.
G.R. No. 168129 April 24, 2007
Meanwhile, on January 1, 1996, Republic Act (R.A.) No.
COMMISSIONER OF INTERNAL REVENUE, Petitioner, 7716 (Expanded VAT or E-VAT Law) took effect,
vs. amending further the National Internal Revenue Code
PHILIPPINE HEALTH CARE PROVIDERS, INC., of 1977. Then on January 1, 1998, R.A. No. 8424
Respondent. (National Internal Revenue Code of 1997) became
effective. This new Tax Code substantially adopted and
DECISION reproduced the provisions of E.O. No. 273 on VAT and
R.A. No. 7716 on E-VAT.
SANDOVAL-GUTIERREZ, J.:
In the interim, on October 1, 1999, the BIR sent
For our resolution is the instant Petition for Review on respondent a Preliminary Assessment Notice for
Certiorari under Rule 45 of the 1997 Rules of Civil deficiency in its payment of the VAT and documentary
Procedure, as amended, seeking to reverse the stamp taxes (DST) for taxable years 1996 and 1997.
Decision1 dated February 18, 2005 and Resolution
dated May 9, 2005 of the Court of Appeals (Fifteenth On October 20, 1999, respondent filed a protest with
Division) in CA-G.R. SP No. 76449. the BIR.

The factual antecedents of this case, as culled from the On January 27, 2000, petitioner CIR sent respondent a
records, are: letter demanding payment of "deficiency VAT" in the
amount of ₱100,505,030.26 and DST in the amount of
The Philippine Health Care Providers, Inc., herein ₱124,196,610.92, or a total of ₱224,702,641.18 for
respondent, is a corporation organized and existing taxable years 1996 and 1997. Attached to the demand
under the laws of the Republic of the Philippines. letter were four (4) assessment notices.
Pursuant to its Articles of Incorporation,2 its primary
purpose is "To establish, maintain, conduct and operate On February 23, 2000, respondent filed another protest
a prepaid group practice health care delivery system or questioning the assessment notices.
a health maintenance organization to take care of the
sick and disabled persons enrolled in the health care Petitioner CIR did not take any action on respondent's
plan and to provide for the administrative, legal, and protests. Hence, on September 21, 2000, respondent
financial responsibilities of the filed with the Court of Tax Appeals (CTA) a petition for
organization."1^vvphi1.net review, docketed as CTA Case No. 6166.

On July 25, 1987, President Corazon C. Aquino issued On April 5, 2002, the CTA rendered its Decision, the
Executive Order (E.O.) No. 273, amending the National dispositive portion of which reads:
Internal Revenue Code of 1977 (Presidential Decree No.
1158) by imposing Value-Added Tax (VAT) on the sale of WHEREFORE, in view of the foregoing, the instant
goods and services. This E.O. took effect on January 1, Petition for Review is PARTIALLY GRANTED. Petitioner is
1988. hereby ORDERED TO PAY the deficiency VAT amounting
to ₱22,054,831.75 inclusive of 25% surcharge plus 20% Clearly, undue prejudice will be caused to petitioner if
interest from January 20, 1997 until fully paid for the the revocation of VAT Ruling No. 231-88 will be
1996 VAT deficiency and ₱31,094,163.87 inclusive of retroactively applied to its case. VAT Ruling No. 231-88
25% surcharge plus 20% interest from January 20, 1998 issued by no less than the respondent itself has
until paid for the 1997 VAT deficiency.1awphi1.nét confirmed petitioner's entitlement to VAT exemption
Accordingly, VAT Ruling No. 231-88 is declared void and under Section 103 of the Tax Code. In saying so,
without force and effect. The 1996 and 1997 deficiency respondent has actually broadened the scope of
DST assessment against petitioner is hereby CANCELLED "medical services" to include the case of the petitioner.
AND SET ASIDE. Respondent is ORDERED to DESIST from This VAT ruling was even confirmed subsequently by
collecting the said DST deficiency tax. Regional Director Ormundo G. Umali in his letter dated
April 22, 1994 (Exhibit M). Exhibit P, which served as
SO ORDERED. basis for the issuance of the said VAT ruling in favor of
the petitioner sufficiently described the business of
Respondent filed a motion for partial reconsideration of petitioner and there is no way BIR could be misled by
the above judgment concerning its liability to pay the the said representation as to the real nature of
deficiency VAT. petitioner's business. Such being the case, this court is
convinced that petitioner's reliance on the said ruling is
In its Resolution3 dated March 23, 2003, the CTA premised on good faith. The facts of the case do not
granted respondent's motion, thus: show that petitioner deliberately committed mistakes
or omitted material facts when it obtained the said
WHEREFORE, in view of the foregoing, the instant ruling from the Bureau of Internal Revenue. Thus, in the
Motion for Partial Reconsideration is GRANTED. absence of such proof, this court upholds the
Accordingly, the VAT assessment issued by herein application of Section 246 of the Tax Code.
respondent against petitioner for the taxable years Consequently, the pronouncement made by the BIR in
1996 and 1997 is hereby WITHDRAWN and SET ASIDE. VAT Ruling No. 231-88 as to the VAT exemption of
petitioner should be upheld.
SO ORDERED.
Petitioner seasonably filed with the Court of Appeals a
The CTA held: petition for review, docketed as CA-G.R. SP No. 76449.

Moreover, this court adheres to its conclusion that In its Decision dated February 18, 2005, the Court of
petitioner is a service contractor subject to VAT since it Appeals affirmed the CTA Resolution.
does not actually render medical service but merely acts
as a conduit between the members and petitioner's Petitioner CIR filed a motion for reconsideration, but it
accredited and recognized hospitals and clinics. was denied by the appellate court in its Resolution4
dated May 9, 2005.
However, after a careful review of the facts of the case
as well as the Law and jurisprudence applicable, this Hence, the instant petition for review on certiorari
court resolves to grant petitioner's "Motion for Partial raising these two issues: (1) whether respondent's
Reconsideration." We are in accord with the view of services are subject to VAT; and (2) whether VAT Ruling
petitioner that it is entitled to the benefit of non- No. 231-88 exempting respondent from payment of VAT
retroactivity of rulings guaranteed under Section 246 of has retroactive application.
the Tax Code, in the absence of showing of bad faith on
its part. Section 246 of the Tax Code provides: On the first issue, respondent is contesting petitioner's
assessment of its VAT liabilities for taxable years 1996
Sec. 246. Non-Retroactivity of Rulings. - Any revocation, and 1997.
modification or reversal of any of the rules and
regulations promulgated in accordance with the Section 1025 of the National Internal Revenue Code of
preceding Sections or any of the rulings or circulars 1977, as amended by E.O. No. 273 (VAT Law) and R.A.
promulgated by the Commissioner shall not be given No. 7716 (E-VAT Law), provides:
retroactive application if the revocation, modification or
reversal will be prejudicial to the taxpayers, x x x. SEC. 102. Value-added tax on sale of services and use or
lease of properties. - (a) Rate and base of tax. - There
shall be levied, assessed and collected, a value-added services from Health Care, an individual must enroll in
tax equivalent to 10% of gross receipts derived from the Health Care's health care program and pay an annual
sale or exchange of services, including the use or lease fee. Enrollment in Health Care's health care program is
of properties. on a year-to-year basis and enrollees are issued
identification cards.
The phrase "sale or exchange of service" means the
performance of all kinds of services in the Philippines From the foregoing, the CTA made the following
for a fee, remuneration or consideration, including conclusions:
those performed or rendered by construction and
service contractors x x x. a) Respondent "is not actually rendering medical service
but merely acting as a conduit between the members
Section 1036 of the same Code specifies the exempt and their accredited and recognized hospitals and
transactions from the provision of Section 102, thus: clinics."

SEC. 103. Exempt Transactions. - The following shall be b) It merely "provides and arranges for the provision of
exempt from the value-added tax: pre-need health care services to its members for a fixed
prepaid fee for a specified period of time."
xxx
c) It then "contracts the services of physicians, medical
(l) Medical, dental, hospital and veterinary services and dental practitioners, clinics and hospitals to
except those rendered by professionals perform such services to its enrolled members;" and

xxx d) Respondent "also enters into contract with clinics,

hospitals, medical professionals and then negotiates
The import of the above provision is plain. It requires no with them regarding payment schemes, financing and
interpretation. It contemplates the exemption from VAT other procedures in the delivery of health services."
of taxpayers engaged in the performance of medical,
dental, hospital, and veterinary services. In We note that these factual findings of the CTA were
Commissioner of International Revenue v. Seagate neither modified nor reversed by the Court of Appeals.
Technology (Philippines),7 we defined an exempt It is a doctrine that findings of fact of the CTA, a special
transaction as one involving goods or services which, by court exercising particular expertise on the subject of
their nature, are specifically listed in and expressly tax, are generally regarded as final, binding, and
exempted from the VAT, under the Tax Code, without conclusive upon this Court, more so where these do not
regard to the tax status of the party in the transaction. conflict with the findings of the Court of Appeals.9
In Commissioner of Internal Revenue v. Toshiba Perforce, as respondent does not actually provide
Information Equipment (Phils.) Inc.,8 we reiterated this medical and/or hospital services, as provided under
definition. Section 103 on exempt transactions, but merely
arranges for the same, its services are not VAT-exempt.
In its letter to the BIR requesting confirmation of its
VAT-exempt status, respondent described its services as Relative to the second issue, Section 246 of the 1997
follows: Tax Code, as amended, provides that rulings, circulars,
rules and regulations promulgated by the Commissioner
Under the prepaid group practice health care delivery of Internal Revenue have no retroactive application if to
system adopted by Health Care, individuals enrolled in apply them would prejudice the taxpayer. The
Health Care's health care program are entitled to exceptions to this rule are: (1) where the taxpayer
preventive, diagnostic, and corrective medical services deliberately misstates or omits material facts from his
to be dispensed by Health Care's duly licensed return or in any document required of him by the
physicians, specialists, and other professional technical Bureau of Internal Revenue; (2) where the facts
staff participating in said group practice health care subsequently gathered by the Bureau of Internal
delivery system established and operated by Health Revenue are materially different from the facts on
Care. Such medical services will be dispensed in a which the ruling is based, or (3) where the taxpayer
hospital or clinic owned, operated, or accredited by acted in bad faith.
Health Care. To be entitled to receive such medical
We must now determine whether VAT Ruling No. 231- maintenance organization" was yet unknown or had no
88 exempting respondent from paying its VAT liabilities significance for taxation purposes. Respondent,
has retroactive application. therefore, believed in good faith that it was VAT exempt
for the taxable years 1996 and 1997 on the basis of VAT
In its Resolution dated March 23, 2003, the CTA found Ruling No. 231-88.
that there is no showing that respondent "deliberately
committed mistakes or omitted material facts" when it In ABS-CBN Broadcasting Corp. v. Court of Tax
obtained VAT Ruling No. 231-88 from the BIR. The CTA Appeals,11 this Court held that under Section 246 of the
held that respondent's letter which served as the basis 1997 Tax Code, the Commissioner of Internal Revenue is
for the VAT ruling "sufficiently described" its business precluded from adopting a position contrary to one
and "there is no way the BIR could be misled by the said previously taken where injustice would result to the
representation as to the real nature" of said business. taxpayer. Hence, where an assessment for deficiency
withholding income taxes was made, three years after a
In sustaining the CTA, the Court of Appeals found that new BIR Circular reversed a previous one upon which
"the failure of respondent to refer to itself as a health the taxpayer had relied upon, such an assessment was
maintenance organization is not an indication of bad prejudicial to the taxpayer. To rule otherwise, opined
faith or a deliberate attempt to make false the Court, would be contrary to the tenets of good faith,
representations." As "the term health maintenance equity, and fair play.
organization did not as yet have any particular
significance for tax purposes," respondent's failure "to This Court has consistently reaffirmed its ruling in ABS-
include a term that has yet to acquire its present CBN Broadcasting Corp. in the later cases of
definition and significance cannot be equated with bad Commissioner of Internal Revenue v. Borroughs, Ltd.,12
faith." Commissioner of Internal Revenue v. Mega Gen. Mdsg.
Corp.13 Commissioner of Internal Revenue v.
We agree with both the Tax Court and the Court of Telefunken Semiconductor (Phils.) Inc.,14 and
Appeals that respondent acted in good faith. In Civil Commissioner of Internal Revenue v. Court of
Service Commission v. Maala,10 we described good Appeals.15 The rule is that the BIR rulings have no
faith as "that state of mind denoting honesty of retroactive effect where a grossly unfair deal would
intention and freedom from knowledge of result to the prejudice of the taxpayer, as in this case.
circumstances which ought to put the holder upon
inquiry; an honest intention to abstain from taking any More recently, in Commissioner of Internal Revenue v.
unconscientious advantage of another, even through Benguet Corporation,16 wherein the taxpayer was
technicalities of law, together with absence of all entitled to tax refunds or credits based on the BIR's own
information, notice, or benefit or belief of facts which issuances but later was suddenly saddled with
render transaction unconscientious." deficiency taxes due to its subsequent ruling changing
the category of the taxpayer's transactions for the
According to the Court of Appeals, respondent's failure purpose of paying its VAT, this Court ruled that applying
to describe itself as a "health maintenance such ruling retroactively would be prejudicial to the
organization," which is subject to VAT, is not taxpayer.
tantamount to bad faith. We note that the term "health
maintenance organization" was first recorded in the WHEREFORE, we DENY the petition and AFFIRM the
Philippine statute books only upon the passage of "The assailed Decision and Resolution of the Court of Appeals
National Health Insurance Act of 1995" (Republic Act in CA-G.R. SP No. 76449. No costs.
No. 7875). Section 4 (o) (3) thereof defines a health
maintenance organization as "an entity that provides, SO ORDERED.
offers, or arranges for coverage of designated health
services needed by plan members for a fixed prepaid
premium." Under this law, a health maintenance G.R. No. 172394 : October 13, 2010
organization is one of the classes of a "health care
provider." H. TAMBUNTING PAWNSHOP, INC., Petitioner,
v. COMMISSIONER OF INTERNAL REVENUE,
It is thus apparent that when VAT Ruling No. 231-88 was Respondent.cralaw
issued in respondent's favor, the term "health
DECISION payment deposit slip (BIR Form No. 0605) and the
corresponding schedule evidencing its payment of
BERSAMIN, J.: P828,809.67 for the years from 2000 to 2002 pursuant
to a settlement agreement with BIR allowing
The issue herein is whether the petitioner, a pawnshop Tambunting to pay 25% of its VAT
operator, was liable for VAT and the compromise due.5chanroblesvirtuallawlibrary
penalty for taxable year 2000.
On July 14, 2005, however, the CTA Second Division
On August 29, 2003, petitioner H. Tambunting denied Tambuntings motion for partial reconsideration
Pawnshop, Inc. (Tambunting), a domestic corporation in a resolution dated July 14,
duly licensed to engage in the pawnshop business, 2005.6chanroblesvirtuallawlibrary
received an assessment notice dated August 27, 2003
from the Bureau of Internal Revenue (BIR), demanding On August 22, 2005, Tambunting appealed by petition
the payment of deficiency Value-Added Tax (VAT) and for review to the CTA en
compromise penalty for taxable year 2000 in the banc.7chanroblesvirtuallawlibrary
amounts of P5,212,404.52 and P25,000, respectively.
On March 21, 2006, the CTA en banc rendered its
On September 15, 2003, Tambunting, disclaiming its assailed decision,8cra1aw disposing
liability, protested the assessment with the respondent thus:chanroblesvirtualawlibrary
Commissioner of Internal Revenue (CIR), arguing that a
pawnshop business was not subject to VAT and the WHEREFORE, the Court en banc finds no reversible
compromise penalty.1chanroblesvirtuallawlibrary error to warrant the reversal of the assailed Decision
promulgated on April 11, 2005 and the Resolution dated
Due to the inaction of the CIR on the protest, July 14, 2005, respectively.
Tambunting filed on April 2, 2004 its petition for review
with the Court of Tax Appeals (CTA) pursuant to Section Accordingly, the instant Petition for Review is hereby
228 of Republic Act No. 8424 (National Internal Revenue DENIED and the assailed Decision and Resolution are
Code or Tax Reform Act of AFFIRMED in toto.
1997).2chanroblesvirtuallawlibrary
SO ORDERED.
In a decision dated April 11, 2005,3cra1aw the CTA
Second Division denied the petition for review, to The CTA en banc denied Tambuntings motion for
wit:chanroblesvirtualawlibrary reconsideration on April 18,
2006.9chanroblesvirtuallawlibrary
WHEREFORE, premises considered, the instant Petition
for Review is hereby PARTIALLY GRANTED. Accordingly, Hence, Tambunting has appealed, insisting
petitioner is hereby ORDERED to pay respondent that:chanroblesvirtualawlibrary
Commissioner of Internal Revenue the deficiency VAT
for taxable year 2000 in the amount of PhP THE CTA EN BANCS DECISION OF 21 MARCH 2006 AND
5,212,404.52, plus 25% surcharge and 20% delinquency RESOLUTION DATED 18 APRIL 2006 ARE NOT IN
interest per annum from September 29, 2003 until fully ACCORDANCE WITH LAW AND SETTLED
paid, pursuant to Section 248 and 249 of the NIRC of JURISPRUDENCE ON THE MATTER.
1997, as amended.
Tambuntings main argument is that pawnshops are not
The amount of PhP25,000 imposed by way of within the concept of "all services" and "similar
compromise penalty is hereby DELETED. services" as provided in Section 108 (A) of the National
Internal Revenue Code.10cra1aw Tambunting also
SO ORDERED. argues that the enumeration under Section 108(A) of
the National Internal Revenue Code of services subject
On April 29, 2005, Tambunting filed a motion for partial to VAT is exclusive.
reconsideration.4cra1aw Later on, on May 26, 2005,
Tambunting submitted a written manifestation, The petition has merit.
attaching a copy of Bureau of Internal Revenue (BIR) tax
It is now settled that for purposes of determining their
tax liability, pawnshops are treated as non-bank xxx
financial intermediaries.11chanroblesvirtuallawlibrary
(b) Services rendered by banks, nonbank financial
The VAT on non-bank financial intermediaries was first intermediaries, finance companies and other financial
levied under R.A. No. 7716 (Expanded Value-Added Tax intermediaries not performing quasi-banking functions;
Law), where Sections 3 and 17 thereof xxx
provide:chanroblesvirtualawlibrary
Later, R.A. No. 8424 (National Internal Revenue Code or
Section 3. Section 102 of the National Internal Revenue, Tax Reform Act of 1997) again moved the effectivity of
as amended is hereby further amended to read as the imposition of the VAT to December 31, 1999, to
follows:chanroblesvirtualawlibrary wit:chanroblesvirtualawlibrary

Section 102. Value-added tax on sale of services and use Section 5. Transitory Provisions- Deferment of the
or lease of properties.- There shall be levied, assessed Effectivity of the Imposition of VAT on Certain Services.-
and collected, a value-added tax equivalent to 10% of The effectivity of the imposition of the value-added tax
gross receipts derived from the sale or exchange of on services as prescribed in Section 17(a) and (b) of
services, including the use or lease of properties. Republic Act No. 7716, as amended by Republic Act No.
8241, is hereby further deferred until December 31,
The phrase sale or exchange of services means the 1999, unless Congress deems otherwise: Provided, That
performance of all kinds of services in the Philippines the said services shall continue to pay the applicable tax
for others for a fee, remuneration or consideration x x x prescribed under the present provisions of the National
Internal Revenue Code, as amended.
x x x services of banks, non-bank financial
intermediaries and finance companies; x x x Still later, R.A. No. 8761 retarded the effectivity of the
VAT on non-bank financial intermediaries to January 1,
Section 17. Effectivity of the Imposition of VAT on 2001, thus:chanroblesvirtualawlibrary
Certain Goods, Properties and Services.- The value-
added tax shall be levied assessed and collected on the Section 1. Section 5 of Republic Act No. 8424 is hereby
following transactions, two (2) years after the effectivity amended to read as follows:chanroblesvirtualawlibrary
of this Act:chanroblesvirtualawlibrary
Section 5. Transitory Provisions- Effectivity of the
xxx Imposition of VAT on Certain Services.- The imposition
of the value-added tax on the following services shall
(b) Services rendered by banks, nonbank financial take effect on January 1,
intermediaries, finance companies and other financial 2001:chanroblesvirtualawlibrary
companies and other financial intermediaries not
performing quasi-banking functions; x x x xxx

However, Section 11 of R.A. No. 8241 amended Section (b) Services rendered by banks, non-bank financial
17 of R.A. No. 7716 to move the effectivity of the VAT intermediaries, finance companies, and other financial
on non-bank financial intermediaries to January 1, 1998, intermediaries not performing quasi-banking functions;
viz:chanroblesvirtualawlibrary xxx

Section 11. Section 17 of Republic Act No. 7716 is Lastly, R.A. No. 9010 revised the effectivity of the VAT
hereby amended to read as on non-bank financial intermediaries by making it start
follows:chanroblesvirtualawlibrary on January 1, 2003:chanroblesvirtualawlibrary

Section 17. Effectivity of the Imposition of VAT on Section 1. Section 5 of Republic Act No. 8424 as
Certain Goods, Properties and Services.- The value- amended by Republic Act No. 8761 is hereby further
added tax shall be levied assessed and collected on the amended to read as follows:chanroblesvirtualawlibrary
following transactions starting January 1,
1998:chanroblesvirtualawlibrary
Section 5. Transitory Provisions- Effectivity of the settlement agreement corresponding to taxable year
Imposition of VAT on Certain Services.- The imposition 2000 only.
of the value-added tax on the following services shall
take effect on January 1, WHEREFORE, we grant the petition for review on
2003:chanroblesvirtualawlibrary certiorari, and reverse and set aside the decision dated
March 21, 2006 and the resolution dated April 18, 2006
xxx of the Court of Tax Appeals en banc. We declare that
the petitioner was not liable for the Value-Added Tax in
(b) Services rendered by banks, non-bank financial taxable year 2000; and order the Commissioner of
intermediaries, finance companies, and other financial Internal Revenue to refund to H. Tambunting
intermediaries not performing quasi-banking functions; Pawnshop, Inc. any amount paid pursuant to the
xxx settlement agreement corresponding to taxable year
2000 only.
Accordingly, the consecutive deferments of the
effectivity date of the application of VAT on non-bank No pronouncement on cost of suit.
financial intermediaries like pawnshops resulted in their SO ORDERED.
non-liability for VAT during the affected taxable years.
Specifically, in First Planters Pawnshop, supra, the Court
ruled on the VAT liability of pawnshops for taxable years G.R. No. 195909 September 26, 2012
from 1996 to 2002, holding:chanroblesvirtualawlibrary
COMMISSIONER OF INTERNAL REVENUE, PETITIONER,
xxx Since petitioner is a non-bank financial vs.
intermediary, it is subject to 10% VAT for the tax years ST. LUKE'S MEDICAL CENTER, INC., RESPONDENT.
1996 to 2002; however, with the levy, assessment and
collection of VAT from non-bank financial G.R. No. 195960
intermediaries being specifically deferred by law, then
petitioner is not liable for VAT during these tax years. ST. LUKE'S MEDICAL CENTER, INC., PETITIONER,
But with the full implementation of the VAT system on vs.
non-bank financial intermediaries starting January 1, COMMISSIONER OF INTERNAL REVENUE,
2003, petitioner is liable for 10% VAT for said tax year. RESPONDENT.
And beginning 2004 up to the present, by virtue of R.A.
No. 9238, Petitioner is no longer liable for VAT but it is DECISION
subject to percentage tax on gross receipts from 0% to
5%, as the case may be. CARPIO, J.:

The aforequoted pronouncement in First Planters The Case

Pawnshop has been reiterated in Tambunting
Pawnshop, Inc. v. Commissioner of Internal These are consolidated 1 petitions for review on
Revenue12cra1aw and in TFS, Incorporated v. certiorari under Rule 45 of the Rules of Court assailing
Commissioner of Internal Revenue,13cra1aw thereby the Decision of 19 November 2010 of the Court of Tax
affirming the non-liability for VAT of pawnshops in Appeals (CTA) En Banc and its Resolution 2 of 1 March
taxable years 1996-2002 by virtue of the deferment of 2011 in CTA Case No. 6746. This Court resolves this case
its imposition. Consequently, the VAT deficiency on a pure question of law, which involves the
assessment and the surcharge served on Tambunting by interpretation of Section 27(B) vis-à-vis Section 30(E)
the BIR lacked legal basis and must be canceled. and (G) of the National Internal Revenue Code of the
Philippines (NIRC), on the income tax treatment of
As earlier mentioned, however, Tambunting paid to the proprietary non-profit hospitals.
BIR 25% of its VAT liability for the years 2000 to 2002
pursuant to a settlement agreement. The tax liability in The Facts
question herein includes taxable year 2000 only. To
align with the result herein, therefore, Tambunting is St. Luke's Medical Center, Inc. (St. Luke's) is a hospital
entitled to a refund of any amount paid pursuant to the organized as a non-stock and non-profit corporation.
Under its articles of incorporation, among its corporate x." 5 It is a specific provision which prevails over the
purposes are: general exemption on income tax granted under Section
30(E) and (G) for non-stock, non-profit charitable
(a) To establish, equip, operate and maintain a non- institutions and civic organizations promoting social
stock, non-profit Christian, benevolent, charitable and welfare. 6
scientific hospital which shall give curative,
rehabilitative and spiritual care to the sick, diseased and The BIR claimed that St. Luke's was actually operating
disabled persons; provided that purely medical and for profit in 1998 because only 13% of its revenues
surgical services shall be performed by duly licensed came from charitable purposes. Moreover, the
physicians and surgeons who may be freely and hospital's board of trustees, officers and employees
individually contracted by patients; directly benefit from its profits and assets. St. Luke's had
total revenues of ₱1,730,367,965 or approximately
(b) To provide a career of health science education and ₱1.73 billion from patient services in 1998. 7
provide medical services to the community through
organized clinics in such specialties as the facilities and St. Luke's contended that the BIR should not consider its
resources of the corporation make possible; total revenues, because its free services to patients was
₱218,187,498 or 65.20% of its 1998 operating income
(c) To carry on educational activities related to the (i.e., total revenues less operating expenses) of
maintenance and promotion of health as well as provide ₱334,642,615. 8 St. Luke's also claimed that its income
facilities for scientific and medical researches which, in does not inure to the benefit of any individual.
the opinion of the Board of Trustees, may be justified by
the facilities, personnel, funds, or other requirements St. Luke's maintained that it is a non-stock and non-
that are available; profit institution for charitable and social welfare
purposes under Section 30(E) and (G) of the NIRC. It
(d) To cooperate with organized medical societies, argued that the making of profit per se does not destroy
agencies of both government and private sector; its income tax exemption.
establish rules and regulations consistent with the
highest professional ethics; The petition of the BIR before this Court in G.R. No.
195909 reiterates its arguments before the CTA that
xxxx3 Section 27(B) applies to St. Luke's. The petition raises
the sole issue of whether the enactment of Section
On 16 December 2002, the Bureau of Internal Revenue 27(B) takes proprietary non-profit hospitals out of the
(BIR) assessed St. Luke's deficiency taxes amounting to income tax exemption under Section 30 of the NIRC and
₱76,063,116.06 for 1998, comprised of deficiency instead, imposes a preferential rate of 10% on their
income tax, value-added tax, withholding tax on taxable income. The BIR prays that St. Luke's be ordered
compensation and expanded withholding tax. The BIR to pay ₱57,659,981.19 as deficiency income and
reduced the amount to ₱63,935,351.57 during trial in expanded withholding tax for 1998 with surcharges and
the First Division of the CTA. 4 interest for late payment.

On 14 January 2003, St. Luke's filed an administrative The petition of St. Luke's in G.R. No. 195960 raises
protest with the BIR against the deficiency tax factual matters on the treatment and withholding of a
assessments. The BIR did not act on the protest within part of its income, 9 as well as the payment of
the 180-day period under Section 228 of the NIRC. Thus, surcharge and delinquency interest. There is no ground
St. Luke's appealed to the CTA. for this Court to undertake such a factual review. Under
the Constitution 10 and the Rules of Court, 11 this
The BIR argued before the CTA that Section 27(B) of the Court's review power is generally limited to "cases in
NIRC, which imposes a 10% preferential tax rate on the which only an error or question of law is involved." 12
income of proprietary non-profit hospitals, should be This Court cannot depart from this limitation if a party
applicable to St. Luke's. According to the BIR, Section fails to invoke a recognized exception.
27(B), introduced in 1997, "is a new provision intended
to amend the exemption on non-profit hospitals that The Ruling of the Court of Tax Appeals
were previously categorized as non-stock, non-profit
corporations under Section 26 of the 1997 Tax Code x x
The CTA En Banc Decision on 19 November 2010 manner are devoted to the charitable purposes of the
affirmed in toto the CTA First Division Decision dated 23 institution x x x." 19 The generation of income from
February 2009 which held: paying patients does not per se destroy the charitable
nature of St. Luke's.
WHEREFORE, the Amended Petition for Review [by St.
Luke's] is hereby PARTIALLY GRANTED. Accordingly, the Hospital de San Juan cited Jesus Sacred Heart College v.
1998 deficiency VAT assessment issued by respondent Collector of Internal Revenue, 20 which ruled that the
against petitioner in the amount of ₱110,000.00 is old NIRC (Commonwealth Act No. 466, as amended) 21
hereby CANCELLED and WITHDRAWN. However, "positively exempts from taxation those corporations or
petitioner is hereby ORDERED to PAY deficiency income associations which, otherwise, would be subject
tax and deficiency expanded withholding tax for the thereto, because of the existence of x x x net income."
taxable year 1998 in the respective amounts of 22 The NIRC of 1997 substantially reproduces the
₱5,496,963.54 and ₱778,406.84 or in the sum of provision on charitable institutions of the old NIRC.
₱6,275,370.38, x x x. Thus, in rejecting the argument that tax exemption is
lost whenever there is net income, the Court in Jesus
xxxx Sacred Heart College declared: "[E]very responsible
organization must be run to at least insure its existence,
In addition, petitioner is hereby ORDERED to PAY by operating within the limits of its own resources,
twenty percent (20%) delinquency interest on the total especially its regular income. In other words, it should
amount of ₱6,275,370.38 counted from October 15, always strive, whenever possible, to have a surplus." 23
2003 until full payment thereof, pursuant to Section
249(C)(3) of the NIRC of 1997. The CTA held that Section 27(B) of the present NIRC
does not apply to St. Luke's. 24 The CTA explained that
SO ORDERED. 13 to apply the 10% preferential rate, Section 27(B)
requires a hospital to be "non-profit." On the other
The deficiency income tax of ₱5,496,963.54, ordered by hand, Congress specifically used the word "non-stock"
the CTA En Banc to be paid, arose from the failure of St. to qualify a charitable "corporation or association" in
Luke's to prove that part of its income in 1998 (declared Section 30(E) of the NIRC. According to the CTA, this is
as "Other Income-Net") 14 came from charitable unique in the present tax code, indicating an intent to
activities. The CTA cancelled the remainder of the exempt this type of charitable organization from income
₱63,113,952.79 deficiency assessed by the BIR based on tax. Section 27(B) does not require that the hospital be
the 10% tax rate under Section 27(B) of the NIRC, which "non-stock." The CTA stated, "it is clear that non-stock,
the CTA En Banc held was not applicable to St. Luke's. non-profit hospitals operated exclusively for charitable
15 purpose are exempt from income tax on income
received by them as such, applying the provision of
The CTA ruled that St. Luke's is a non-stock and non- Section 30(E) of the NIRC of 1997, as amended." 25
profit charitable institution covered by Section 30(E)
and (G) of the NIRC. This ruling would exempt all The Issue
income derived by St. Luke's from services to its
patients, whether paying or non-paying. The CTA The sole issue is whether St. Luke's is liable for
reiterated its earlier decision in St. Luke's Medical deficiency income tax in 1998 under Section 27(B) of the
Center, Inc. v. Commissioner of Internal Revenue, 16 NIRC, which imposes a preferential tax rate of 10% on
which examined the primary purposes of St. Luke's the income of proprietary non-profit hospitals.
under its articles of incorporation and various
documents 17 identifying St. Luke's as a charitable The Ruling of the Court
institution.
St. Luke's Petition in G.R. No. 195960
The CTA adopted the test in Hospital de San Juan de
Dios, Inc. v. Pasay City, 18 which states that "a As a preliminary matter, this Court denies the petition
charitable institution does not lose its charitable of St. Luke's in G.R. No. 195960 because the petition
character and its consequent exemption from taxation raises factual issues. Under Section 1, Rule 45 of the
merely because recipients of its benefits who are able Rules of Court, "[t]he petition shall raise only questions
to pay are required to do so, where funds derived in this of law which must be distinctly set forth." St. Luke's
cites Martinez v. Court of Appeals 26 which permits are non-profit shall pay a tax of ten percent (10%) on
factual review "when the Court of Appeals [in this case, their taxable income except those covered by
the CTA] manifestly overlooked certain relevant facts Subsection (D) hereof: Provided, That if the gross
not disputed by the parties and which, if properly income from unrelated trade, business or other activity
considered, would justify a different conclusion." 27 exceeds fifty percent (50%) of the total gross income
derived by such educational institutions or hospitals
This Court does not see how the CTA overlooked from all sources, the tax prescribed in Subsection (A)
relevant facts. St. Luke's itself stated that the CTA hereof shall be imposed on the entire taxable income.
"disregarded the testimony of [its] witness, Romeo B. For purposes of this Subsection, the term 'unrelated
Mary, being allegedly self-serving, to show the nature of trade, business or other activity' means any trade,
the 'Other Income-Net' x x x." 28 This is not a case of business or other activity, the conduct of which is not
overlooking or failing to consider relevant evidence. The substantially related to the exercise or performance by
CTA obviously considered the evidence and concluded such educational institution or hospital of its primary
that it is self-serving. The CTA declared that it has "gone purpose or function. A 'proprietary educational
through the records of this case and found no other institution' is any private school maintained and
evidence aside from the self-serving affidavit executed administered by private individuals or groups with an
by [the] witnesses [of St. Luke's] x x x." 29 issued permit to operate from the Department of
Education, Culture and Sports (DECS), or the
The deficiency tax on "Other Income-Net" stands. Thus, Commission on Higher Education (CHED), or the
St. Luke's is liable to pay the 25% surcharge under Technical Education and Skills Development Authority
Section 248(A)(3) of the NIRC. There is "[f]ailure to pay (TESDA), as the case may be, in accordance with existing
the deficiency tax within the time prescribed for its laws and regulations. (Emphasis supplied)
payment in the notice of assessment[.]" 30 St. Luke's is
also liable to pay 20% delinquency interest under St. Luke's claims tax exemption under Section 30(E) and
Section 249(C)(3) of the NIRC. 31 As explained by the (G) of the NIRC. It contends that it is a charitable
CTA En Banc, the amount of ₱6,275,370.38 in the institution and an organization promoting social
dispositive portion of the CTA First Division Decision welfare. The arguments of St. Luke's focus on the
includes only deficiency interest under Section 249(A) wording of Section 30(E) exempting from income tax
and (B) of the NIRC and not delinquency interest. 32 non-stock, non-profit charitable institutions. 34 St.
Luke's asserts that the legislative intent of introducing
The Main Issue Section 27(B) was only to remove the exemption for
"proprietary non-profit" hospitals. 35 The relevant
The issue raised by the BIR is a purely legal one. It provisions of Section 30 state:
involves the effect of the introduction of Section 27(B)
in the NIRC of 1997 vis-à-vis Section 30(E) and (G) on SEC. 30. Exemptions from Tax on Corporations. - The
the income tax exemption of charitable and social following organizations shall not be taxed under this
welfare institutions. The 10% income tax rate under Title in respect to income received by them as such:
Section 27(B) specifically pertains to proprietary
educational institutions and proprietary non-profit xxxx
hospitals. The BIR argues that Congress intended to
remove the exemption that non-profit hospitals (E) Nonstock corporation or association organized and
previously enjoyed under Section 27(E) of the NIRC of operated exclusively for religious, charitable, scientific,
1977, which is now substantially reproduced in Section athletic, or cultural purposes, or for the rehabilitation of
30(E) of the NIRC of 1997. 33 Section 27(B) of the veterans, no part of its net income or asset shall belong
present NIRC provides: to or inure to the benefit of any member, organizer,
officer or any specific person;
SEC. 27. Rates of Income Tax on Domestic Corporations.
- xxxx

xxxx (G) Civic league or organization not organized for profit

but operated exclusively for the promotion of social
(B) Proprietary Educational Institutions and Hospitals. - welfare;
Proprietary educational institutions and hospitals which
xxxx "charity" in Lung Center of the Philippines v. Quezon
City 40 as "a gift, to be applied consistently with existing
Notwithstanding the provisions in the preceding laws, for the benefit of an indefinite number of persons,
paragraphs, the income of whatever kind and character either by bringing their minds and hearts under the
of the foregoing organizations from any of their influence of education or religion, by assisting them to
properties, real or personal, or from any of their establish themselves in life or [by] otherwise lessening
activities conducted for profit regardless of the the burden of government." 41 A non-profit club for the
disposition made of such income, shall be subject to tax benefit of its members fails this test. An organization
imposed under this Code. (Emphasis supplied) may be considered as non-profit if it does not distribute
any part of its income to stockholders or members.
The Court partly grants the petition of the BIR but on a However, despite its being a tax exempt institution, any
different ground. We hold that Section 27(B) of the income such institution earns from activities conducted
NIRC does not remove the income tax exemption of for profit is taxable, as expressly provided in the last
proprietary non-profit hospitals under Section 30(E) and paragraph of Section 30.
(G). Section 27(B) on one hand, and Section 30(E) and
(G) on the other hand, can be construed together To be a charitable institution, however, an organization
without the removal of such tax exemption. The effect must meet the substantive test of charity in Lung
of the introduction of Section 27(B) is to subject the Center. The issue in Lung Center concerns exemption
taxable income of two specific institutions, namely, from real property tax and not income tax. However, it
proprietary non-profit educational institutions 36 and provides for the test of charity in our jurisdiction.
proprietary non-profit hospitals, among the institutions Charity is essentially a gift to an indefinite number of
covered by Section 30, to the 10% preferential rate persons which lessens the burden of government. In
under Section 27(B) instead of the ordinary 30% other words, charitable institutions provide for free
corporate rate under the last paragraph of Section 30 in goods and services to the public which would otherwise
relation to Section 27(A)(1). fall on the shoulders of government. Thus, as a matter
of efficiency, the government forgoes taxes which
Section 27(B) of the NIRC imposes a 10% preferential should have been spent to address public needs,
tax rate on the income of (1) proprietary non-profit because certain private entities already assume a part
educational institutions and (2) proprietary non-profit of the burden. This is the rationale for the tax
hospitals. The only qualifications for hospitals are that exemption of charitable institutions. The loss of taxes by
they must be proprietary and non-profit. "Proprietary" the government is compensated by its relief from doing
means private, following the definition of a "proprietary public works which would have been funded by
educational institution" as "any private school appropriations from the Treasury. 42
maintained and administered by private individuals or
groups" with a government permit. "Non-profit" means Charitable institutions, however, are not ipso facto
no net income or asset accrues to or benefits any entitled to a tax exemption. The requirements for a tax
member or specific person, with all the net income or exemption are specified by the law granting it. The
asset devoted to the institution's purposes and all its power of Congress to tax implies the power to exempt
activities conducted not for profit. from tax. Congress can create tax exemptions, subject
to the constitutional provision that "[n]o law granting
"Non-profit" does not necessarily mean "charitable." In any tax exemption shall be passed without the
Collector of Internal Revenue v. Club Filipino Inc. de concurrence of a majority of all the Members of
Cebu, 37 this Court considered as non-profit a sports Congress." 43 The requirements for a tax exemption are
club organized for recreation and entertainment of its strictly construed against the taxpayer 44 because an
stockholders and members. The club was primarily exemption restricts the collection of taxes necessary for
funded by membership fees and dues. If it had profits, the existence of the government.
they were used for overhead expenses and improving
its golf course. 38 The club was non-profit because of its The Court in Lung Center declared that the Lung Center
purpose and there was no evidence that it was engaged of the Philippines is a charitable institution for the
in a profit-making enterprise. 39 purpose of exemption from real property taxes. This
ruling uses the same premise as Hospital de San Juan 45
The sports club in Club Filipino Inc. de Cebu may be and Jesus Sacred Heart College 46 which says that
non-profit, but it was not charitable. The Court defined
receiving income from paying patients does not destroy (4) No part of its net income or asset shall belong to or
the charitable nature of a hospital. inure to the benefit of any member, organizer, officer or
any specific person.
As a general principle, a charitable institution does not
lose its character as such and its exemption from taxes Thus, both the organization and operations of the
simply because it derives income from paying patients, charitable institution must be devoted "exclusively" for
whether out-patient, or confined in the hospital, or charitable purposes. The organization of the institution
receives subsidies from the government, so long as the refers to its corporate form, as shown by its articles of
money received is devoted or used altogether to the incorporation, by-laws and other constitutive
charitable object which it is intended to achieve; and no documents. Section 30(E) of the NIRC specifically
money inures to the private benefit of the persons requires that the corporation or association be non-
managing or operating the institution. 47 stock, which is defined by the Corporation Code as "one
where no part of its income is distributable as dividends
For real property taxes, the incidental generation of to its members, trustees, or officers" 49 and that any
income is permissible because the test of exemption is profit "obtain[ed] as an incident to its operations shall,
the use of the property. The Constitution provides that whenever necessary or proper, be used for the
"[c]haritable institutions, churches and personages or furtherance of the purpose or purposes for which the
convents appurtenant thereto, mosques, non-profit corporation was organized." 50 However, under Lung
cemeteries, and all lands, buildings, and improvements, Center, any profit by a charitable institution must not
actually, directly, and exclusively used for religious, only be plowed back "whenever necessary or proper,"
charitable, or educational purposes shall be exempt but must be "devoted or used altogether to the
from taxation." 48 The test of exemption is not strictly a charitable object which it is intended to achieve." 51
requirement on the intrinsic nature or character of the
institution. The test requires that the institution use the The operations of the charitable institution generally
property in a certain way, i.e. for a charitable purpose. refer to its regular activities. Section 30(E) of the NIRC
Thus, the Court held that the Lung Center of the requires that these operations be exclusive to charity.
Philippines did not lose its charitable character when it There is also a specific requirement that "no part of
used a portion of its lot for commercial purposes. The [the] net income or asset shall belong to or inure to the
effect of failing to meet the use requirement is simply to benefit of any member, organizer, officer or any specific
remove from the tax exemption that portion of the person." The use of lands, buildings and improvements
property not devoted to charity. of the institution is but a part of its operations.

The Constitution exempts charitable institutions only There is no dispute that St. Luke's is organized as a non-
from real property taxes. In the NIRC, Congress decided stock and non-profit charitable institution. However,
to extend the exemption to income taxes. However, the this does not automatically exempt St. Luke's from
way Congress crafted Section 30(E) of the NIRC is paying taxes. This only refers to the organization of St.
materially different from Section 28(3), Article VI of the Luke's. Even if St. Luke's meets the test of charity, a
Constitution. Section 30(E) of the NIRC defines the charitable institution is not ipso facto tax exempt. To be
corporation or association that is exempt from income exempt from real property taxes, Section 28(3), Article
tax. On the other hand, Section 28(3), Article VI of the VI of the Constitution requires that a charitable
Constitution does not define a charitable institution, but institution use the property "actually, directly and
requires that the institution "actually, directly and exclusively" for charitable purposes. To be exempt from
exclusively" use the property for a charitable purpose. income taxes, Section 30(E) of the NIRC requires that a
charitable institution must be "organized and operated
Section 30(E) of the NIRC provides that a charitable exclusively" for charitable purposes. Likewise, to be
institution must be: exempt from income taxes, Section 30(G) of the NIRC
requires that the institution be "operated exclusively"
(1) A non-stock corporation or association; for social welfare.

(2) Organized exclusively for charitable purposes; However, the last paragraph of Section 30 of the NIRC
qualifies the words "organized and operated
(3) Operated exclusively for charitable purposes; and exclusively" by providing that:
Notwithstanding the provisions in the preceding OPERATING EXPENSES
paragraphs, the income of whatever kind and character
of the foregoing organizations from any of their Professional care of ₱1,016,608,394.00
properties, real or personal, or from any of their patients
activities conducted for profit regardless of the
disposition made of such income, shall be subject to tax Administrative 287,319,334.00
imposed under this Code. (Emphasis supplied)
Household and Property 91,797,622.00
In short, the last paragraph of Section 30 provides that if ₱1,395,725,350.00
a tax exempt charitable institution conducts "any"
activity for profit, such activity is not tax exempt even as INCOME FROM ₱334,642,615.00 100%
its not-for-profit activities remain tax exempt. This OPERATIONS
paragraph qualifies the requirements in Section 30(E)
Free Services -218,187,498.00 -
that the "[n]on-stock corporation or association [must
65.20%
be] organized and operated exclusively for x x x
charitable x x x purposes x x x." It likewise qualifies the INCOME FROM ₱116,455,117.00 34.80%
requirement in Section 30(G) that the civic organization OPERATIONS, Net of FREE
must be "operated exclusively" for the promotion of SERVICES
social welfare.
OTHER INCOME 17,482,304.00
Thus, even if the charitable institution must be
EXCESS OF REVENUES ₱133,937,421.00
"organized and operated exclusively" for charitable
OVER EXPENSES
purposes, it is nevertheless allowed to engage in
"activities conducted for profit" without losing its tax
exempt status for its not-for-profit activities. The only In Lung Center, this Court declared:
consequence is that the "income of whatever kind and
character" of a charitable institution "from any of its "[e]xclusive" is defined as possessed and enjoyed to the
activities conducted for profit, regardless of the exclusion of others; debarred from participation or
disposition made of such income, shall be subject to enjoyment; and "exclusively" is defined, "in a manner to
tax." Prior to the introduction of Section 27(B), the tax exclude; as enjoying a privilege exclusively." x x x The
rate on such income from for-profit activities was the words "dominant use" or "principal use" cannot be
ordinary corporate rate under Section 27(A). With the substituted for the words "used exclusively" without
introduction of Section 27(B), the tax rate is now 10%. doing violence to the Constitution and the law. Solely is
synonymous with exclusively. 54
In 1998, St. Luke's had total revenues of ₱1,730,367,965
from services to paying patients. It cannot be disputed The Court cannot expand the meaning of the words
that a hospital which receives approximately ₱1.73 "operated exclusively" without violating the NIRC.
billion from paying patients is not an institution Services to paying patients are activities conducted for
"operated exclusively" for charitable purposes. Clearly, profit. They cannot be considered any other way. There
revenues from paying patients are income received is a "purpose to make profit over and above the cost" of
from "activities conducted for profit." 52 Indeed, St. services. 55 The ₱1.73 billion total revenues from
Luke's admits that it derived profits from its paying paying patients is not even incidental to St. Luke's
patients. St. Luke's declared ₱1,730,367,965 as charity expenditure of ₱218,187,498 for non-paying
"Revenues from Services to Patients" in contrast to its patients.
"Free Services" expenditure of ₱218,187,498. In its
Comment in G.R. No. 195909, St. Luke's showed the St. Luke's claims that its charity expenditure of
following "calculation" to support its claim that 65.20% ₱218,187,498 is 65.20% of its operating income in 1998.
of its "income after expenses was allocated to free or However, if a part of the remaining 34.80% of the
charitable services" in 1998. 53 operating income is reinvested in property, equipment
or facilities used for services to paying and non-paying
patients, then it cannot be said that the income is
REVENUES FROM ₱1,730,367,965.00
"devoted or used altogether to the charitable object
SERVICES TO PATIENTS
which it is intended to achieve." 56 The income is
plowed back to the corporation not entirely for patients are concerned. This ruling is based not only on
charitable purposes, but for profit as well. In any case, a strict interpretation of a provision granting tax
the last paragraph of Section 30 of the NIRC expressly exemption, but also on the clear and plain text of
qualifies that income from activities for profit is taxable Section 30(E) and (G). Section 30(E) and (G) of the NIRC
"regardless of the disposition made of such income." requires that an institution be "operated exclusively" for
charitable or social welfare purposes to be completely
Jesus Sacred Heart College declared that there is no exempt from income tax. An institution under Section
official legislative record explaining the phrase "any 30(E) or (G) does not lose its tax exemption if it earns
activity conducted for profit." However, it quoted a income from its for-profit activities. Such income from
deposition of Senator Mariano Jesus Cuenco, who was a for-profit activities, under the last paragraph of Section
member of the Committee of Conference for the 30, is merely subject to income tax, previously at the
Senate, which introduced the phrase "or from any ordinary corporate rate but now at the preferential 10%
activity conducted for profit." rate pursuant to Section 27(B).

P. Cuando ha hablado de la Universidad de Santo Tomás A tax exemption is effectively a social subsidy granted
que tiene un hospital, no cree Vd. que es una actividad by the State because an exempt institution is spared
esencial dicho hospital para el funcionamiento del from sharing in the expenses of government and yet
colegio de medicina de dicha universidad? benefits from them. Tax exemptions for charitable
institutions should therefore be limited to institutions
xxxx beneficial to the public and those which improve social
welfare. A profit-making entity should not be allowed to
R. Si el hospital se limita a recibir enformos pobres, mi exploit this subsidy to the detriment of the government
contestación seria afirmativa; pero considerando que el and other taxpayers.1âwphi1
hospital tiene cuartos de pago, y a los mismos
generalmente van enfermos de buena posición social St. Luke's fails to meet the requirements under Section
económica, lo que se paga por estos enfermos debe 30(E) and (G) of the NIRC to be completely tax exempt
estar sujeto a 'income tax', y es una de las razones que from all its income. However, it remains a proprietary
hemos tenido para insertar las palabras o frase 'or from non-profit hospital under Section 27(B) of the NIRC as
any activity conducted for profit.' 57 long as it does not distribute any of its profits to its
members and such profits are reinvested pursuant to its
The question was whether having a hospital is essential corporate purposes. St. Luke's, as a proprietary non-
to an educational institution like the College of profit hospital, is entitled to the preferential tax rate of
Medicine of the University of Santo Tomas. Senator 10% on its net income from its for-profit activities.
Cuenco answered that if the hospital has paid rooms
generally occupied by people of good economic St. Luke's is therefore liable for deficiency income tax in
standing, then it should be subject to income tax. He 1998 under Section 27(B) of the NIRC. However, St.
said that this was one of the reasons Congress inserted Luke's has good reasons to rely on the letter dated 6
the phrase "or any activity conducted for profit." June 1990 by the BIR, which opined that St. Luke's is "a
corporation for purely charitable and social welfare
The question in Jesus Sacred Heart College involves an purposes"59 and thus exempt from income tax. 60 In
educational institution. 58 However, it is applicable to Michael J. Lhuillier, Inc. v. Commissioner of Internal
charitable institutions because Senator Cuenco's Revenue, 61 the Court said that "good faith and honest
response shows an intent to focus on the activities of belief that one is not subject to tax on the basis of
charitable institutions. Activities for profit should not previous interpretation of government agencies tasked
escape the reach of taxation. Being a non-stock and to implement the tax law, are sufficient justification to
non-profit corporation does not, by this reason alone, delete the imposition of surcharges and interest." 62
completely exempt an institution from tax. An
institution cannot use its corporate form to prevent its WHEREFORE, the petition of the Commissioner of
profitable activities from being taxed. Internal Revenue in G.R. No. 195909 is PARTLY
GRANTED. The Decision of the Court of Tax Appeals En
The Court finds that St. Luke's is a corporation that is Banc dated 19 November 2010 and its Resolution dated
not "operated exclusively" for charitable or social 1 March 2011 in CTA Case No. 6746 are MODIFIED. St.
welfare purposes insofar as its revenues from paying Luke's Medical Center, Inc. is ORDERED TO PAY the
deficiency income tax in 1998 based on the 10% Offsetting. The rest are sold to various enterprises doing
preferential income tax rate under Section 27(B) of the business in the MEPZ. Inasmuch as both sales are
National Internal Revenue Code. However, it is not considered export sales subject to Value-Added Tax
liable for surcharges and interest on such deficiency (VAT) at 0% rate under Section 106(A)(2)(a)6 of the
income tax under Sections 248 and 249 of the National National Internal Revenue Code, as amended,
Internal Revenue Code. All other parts of the Decision respondent filed its quarterly VAT returns from April 1,
and Resolution of the Court of Tax Appeals are 1996 to December 31, 1997 showing a total input VAT
AFFIRMED. of P4,462,412.63.

The petition of St. Luke's Medical Center, Inc. in G.R. No. On March 30, 1998, respondent filed with the Tax and
195960 is DENIED for violating Section 1, Rule 45 of the Revenue Group of the One-Stop Inter-Agency Tax Credit
Rules of Court. and Duty Drawback Center of the Department of
Finance, an application for tax credit/refund of VAT paid
SO ORDERED. for the period April 1, 1996 to December 31, 1997
amounting to P4,439,827.21 representing excess VAT
input payments.
[G.R. NO. 149073 : February 16, 2005]
Respondent, however, did not bother to wait for the
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. Resolution of its claim by the CIR. Instead, on June 26,
CEBU TOYO CORPORATION, Respondent. 1998, it filed a Petition for Review with the CTA to toll
the running of the two-year prescriptive period
DECISION pursuant to Section 2307 of the Tax Code.

QUISUMBING, J.: Before the CTA, the respondent posits that as a VAT-
registered exporter of goods, it is subject to VAT at the
In its Decision1 dated July 6, 2001, the Court of Appeals, rate of 0% on its export sales that do not result in any
in CA-G.R. SP No. 60304, affirmed the Resolutions dated output tax. Hence, the unutilized VAT input taxes on its
May 31, 20002 and August 2, 2000,3 of the Court of Tax purchases of goods and services related to such zero-
Appeals (CTA) ordering the Commissioner of Internal rated activities are available as tax credits or refunds.
Revenue (CIR) to allow a partial refund or, alternatively,
to issue a tax credit certificate in favor of Cebu Toyo The petitioner's position is that respondent was not
Corporation in the sum of P2,158,714.46, representing entitled to a refund or tax credit since: (1) it failed to
the unutilized input value-added tax (VAT) payments. show that the tax was erroneously or illegally collected;
(2) the taxes paid and collected are presumed to have
The facts, as culled from the records, are as follows: been made in accordance with law; and (3) claims for
refund are strictly construed against the claimant as
Respondent Cebu Toyo Corporation is a domestic these partake of the nature of tax exemption.
corporation engaged in the manufacture of lenses and
various optical components used in television sets, Initially, the CTA denied the petition for insufficiency of
cameras, compact discs and other similar devices. Its evidence.8 The tax court sustained respondent's
principal office is located at the Mactan Export argument that it was a VAT-registered entity. It also
Processing Zone (MEPZ) in Lapu-Lapu City, Cebu. It is a found that the petition was timely, as it was filed within
subsidiary of Toyo Lens Corporation, a non-resident the prescription period. The CTA also ruled that the
corporation organized under the laws of Japan. respondent's sales to Toyo Lens Corporation and to
Respondent is a zone export enterprise registered with certain establishments in the Mactan Export Processing
the Philippine Economic Zone Authority (PEZA), Zone were export sales subject to VAT at 0% rate. It
pursuant to the provisions of Presidential Decree No. found that the input VAT covered by respondent's claim
66.4 It is also registered with the Bureau of Internal was not applied against any output VAT. However, the
Revenue (BIR) as a VAT taxpayer.5 tax court decreed that the petition should nonetheless
be denied because of the respondent's failure to
As an export enterprise, respondent sells 80% of its present documentary evidence to show that there were
products to its mother corporation, the Japan-based foreign currency exchange proceeds from its export
Toyo Lens Corporation, pursuant to an Agreement of sales. The CTA also observed that respondent failed to
submit the approval by Bangko Sentral ng Pilipinas (BSP) offset against respondent's related accounts receivable
of its Agreement of Offsetting with Toyo Lens and accounts payable as shown by the Agreement for
Corporation and the certification of constructive inward Offsetting dated August 30, 1997. Resort to the
remittance. respondent's Accounts Receivable and Accounts
Payable subsidiary ledgers corroborated the amount.
Undaunted, respondent filed on February 21, 2000, a The tax court also found that out of the total export
Motion for Reconsideration arguing that: (1) proof of its sales for the period April 1, 1996 to December 31, 1997
inward remittance was not required by law; (2) BSP and amounting to Y700,654,606.15, respondent's sales to
BIR regulations do not require BSP approval on its MEPZ enterprises amounted only to Y136,473,908.05 of
Agreement of Offsetting nor do they require said total. Thus, allocating the input taxes supported by
certification on the amount constructively remitted; (3) receipts to the export sales, the CTA determined that
it was not legally required to prove foreign currency the refund/credit amounted to only P2,158,714.46,11
payments on the remaining sales to MEPZ enterprises; computed as follows:
and (4) it had complied with the substantiation
requirements under Section 106(A)(2)(a) of the Tax
Code. Hence, it was entitled to a refund of unutilized On June 21, 2000, petitioner Commissioner filed a
VAT input tax. Motion for Reconsideration arguing that respondent
was not entitled to a refund because as a PEZA-
On May 31, 2000, the tax court partly granted the registered enterprise, it was not subject to VAT
motion for reconsideration in a Resolution, to wit: pursuant to Section 2413 of Republic Act No. 7916,14 as
amended by Rep. Act No. 8748.15 Thus, since
WHEREFORE, finding the motion of petitioner to be respondent was not subject to VAT, the Commissioner
meritorious, the same is hereby partially granted. contended that the capital goods it purchased must be
Accordingly, the Court hereby MODIFIES its decision in deemed not used in VAT taxable business and therefore
the above-entitled case, the dispositive portion of which it was not entitled to refund of input taxes on such
shall now read as follows: capital goods pursuant to Section 4.106-1 of Revenue
Regulations No. 7-95.16
WHEREFORE, finding the Petition for Review partially
meritorious, respondent is hereby ORDERED to REFUND Petitioner filed a Motion for Reconsideration on June
or, in the alternative, to ISSUE a TAX CREDIT 21, 2000 based on the following theories: (1) that
CERTIFICATE in favor of Petitioner in the amount of respondent being registered with the PEZA as an
P2,158,714.46 representing unutilized input tax ecozone enterprise is not subject to VAT pursuant to
payments. Sec. 24 of Rep. Act No. 7916; and (2) since respondent's
business is not subject to VAT, the capital goods it
SO ORDERED.9 purchased are considered not used in a VAT taxable
business and therefore is not entitled to a refund of
In granting partial reconsideration, the tax court found input taxes.17
that there was no need for BSP approval of the
Agreement of Offsetting since the same may be The respondent opposed the Commissioner's Motion
categorized as an inter-company open account offset for Reconsideration and prayed that the CTA resolution
arrangement. Hence, the respondent need not present be modified so as to grant it the entire amount of tax
proof of foreign currency exchange proceeds from its refund or credit it was seeking.
sales to MEPZ enterprises pursuant to Section 106(A)(2)
(a)10 of the Tax Code. However, the CTA stressed that On August 2, 2000, the Court of Tax Appeals denied the
respondent must still prove that there was an actual petitioner's motion for reconsideration. It held that the
offsetting of accounts to prove that constructive foreign grounds relied upon were only raised for the first time
currency exchange proceeds were inwardly remitted as and that Section 24 of Rep. Act No. 7916 was not
required under Section 106(A)(2)(a). applicable since respondent has availed of the income
tax holiday incentive under Executive Order No. 226 or
The CTA found that only the amount of Y274,043,858.00 the Omnibus Investment Code of 1987 pursuant to
covering respondent's sales to Toyo Lens Corporation Section 2318 of Rep. Act No. 7916. The tax court
and purchases from said mother company for the pointed out that E.O. No. 226 granted PEZA-registered
period August 7, 1996 to August 26, 1997 were actually enterprises an exemption from payment of income
taxes for 4 or 6 years depending on whether the PURSUANT TO SECTION 4.103-1 OF REVENUE
registration was as a pioneer or as a non-pioneer REGULATIONS NO. 7-95.20
enterprise, but subject to other national taxes including
VAT. In our view, the main issue for our resolution is whether
the Court of Appeals erred in affirming the Court of Tax
The petitioner then filed a Petition for Review with the Appeals resolution granting a refund in the amount of
Court of Appeals (CA), docketed as CA-G.R. SP No. P2,158,714.46 representing unutilized input VAT on
60304, praying for the reversal of the CTA Resolutions goods and services for the period April 1, 1996 to
dated May 31, 2000 and August 2, 2000, and reiterating December 31, 1997.
its claim that respondent is not entitled to a refund of
input taxes since it is VAT-exempt. Both the Commissioner of Internal Revenue and the
Office of the Solicitor General argue that respondent
On July 6, 2001, the appellate court decided CA-G.R. SP Cebu Toyo Corporation, as a PEZA-registered enterprise,
No. 60304 in respondent's favor, thus: is exempt from national and local taxes, including VAT,
under Section 24 of Rep. Act No. 7916 and Section
WHEREFORE, finding no merit in the petition, this Court 10921 of the NIRC. Thus, they contend that respondent
DISMISSES it and AFFIRMS the Resolutions dated May Cebu Toyo Corporation is not entitled to any refund or
31, 2000 and August 2, 2000 . . . of the Court of Tax credit on input taxes it previously paid as provided
Appeals. under Section 4.103-122 of Revenue Regulations No. 7-
95, notwithstanding its registration as a VAT taxpayer.
SO ORDERED.19 For petitioner claims that said registration was
erroneous and did not confer upon the respondent any
The Court of Appeals found no reason to set aside the right to claim recognition of the input tax credit.
conclusions of the Court of Tax Appeals. The appellate
court held as untenable herein petitioner's argument The respondent counters that it availed of the income
that respondent is not entitled to a refund because it is tax holiday under E.O. No. 226 for four years from
VAT-exempt since the evidence showed that it is a VAT- August 7, 1995 making it exempt from income tax but
registered enterprise subject to VAT at the rate of 0%. It not from other taxes such as VAT. Hence, according to
agreed with the ruling of the tax court that respondent respondent, its export sales are not exempt from VAT,
had two options under Section 23 of Rep. Act No. 7916, contrary to petitioner's claim, but its export sales is
namely: (1) to avail of an income tax holiday under E.O. subject to 0% VAT. Moreover, it argues that it was able
No. 226 and be subject to VAT at the rate of 0%; or (2) to establish through a report certified by an
to avail of the 5% preferential tax under P.D. No. 66 and independent Certified Public Accountant that the input
enjoy VAT exemption. Since respondent availed of the taxes it incurred from April 1, 1996 to December 31,
incentives under E.O. No. 226, then the 0% VAT rate 1997 were directly attributable to its export sales. Since
would be applicable to it and any unutilized input VAT it did not have any output tax against which said input
should be refunded to respondent upon proper taxes may be offset, it had the option to file a claim for
application with and substantiation by the refund/tax credit of its unutilized input taxes.
BIR.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Considering the submission of the parties and the
Hence, the instant Petition for Review now before us, evidence on record, we find the petition bereft of merit.
with herein petitioner alleging that:
Petitioner's contention that respondent is not entitled
I. RESPONDENT BEING REGISTERED WITH THE to refund for being exempt from VAT is untenable. This
PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA) AS AN argument turns a blind eye to the fiscal incentives
ECOZONE EXPORT ENTERPRISE, ITS BUSINESS IS NOT granted to PEZA-registered enterprises under Section 23
SUBJECT TO VAT PURSUANT TO SECTION 24 OF of Rep. Act No. 7916. Note that under said statute, the
REPUBLIC ACT NO. 7916 IN RELATION TO SECTION 103 respondent had two options with respect to its tax
OF THE TAX CODE, AS AMENDED BY RA NO. 7716. burden. It could avail of an income tax holiday pursuant
to provisions of E.O. No. 226, thus exempt it from
II. SINCE RESPONDENT'S BUSINESS IS NOT SUBJECT TO income taxes for a number of years but not from other
VAT, IT IS NOT ENTITLED TO REFUND OF INPUT TAXES internal revenue taxes such as VAT; or it could avail of
the tax exemptions on all taxes, including VAT under
P.D. No. 66 and pay only the preferential tax rate of 5% and the exemption are computationally the same, they
under Rep. Act No. 7916. Both the Court of Appeals and actually differ in several aspects, to wit:
the Court of Tax Appeals found that respondent availed
of the income tax holiday for four (4) years starting from (a) A zero-rated sale is a taxable transaction but does
August 7, 1995, as clearly reflected in its 1996 and 1997 not result in an output tax while an exempted
Annual Corporate Income Tax Returns, where transaction is not subject to the output tax;
respondent specified that it was availing of the tax relief
under E.O. No. 226. Hence, respondent is not exempt (b) The input VAT on the purchases of a VAT-registered
from VAT and it correctly registered itself as a VAT person with zero-rated sales may be allowed as tax
taxpayer. In fine, it is engaged in taxable rather than credits or refunded while the seller in an exempt
exempt transactions. transaction is not entitled to any input tax on his
purchases despite the issuance of a VAT invoice or
Taxable transactions are those transactions which are receipt.
subject to value-added tax either at the rate of ten
percent (10%) or zero percent (0%). In taxable (c) Persons engaged in transactions which are zero-
transactions, the seller shall be entitled to tax credit for rated, being subject to VAT, are required to register
the value-added tax paid on purchases and leases of while registration is optional for VAT-exempt persons.
goods, properties or services.23
In this case, it is undisputed that respondent is engaged
An exemption means that the sale of goods, properties in the export business and is registered as a VAT
or services and the use or lease of properties is not taxpayer per Certificate of Registration of the BIR.27
subject to VAT (output tax) and the seller is not allowed Further, the records show that the respondent is
any tax credit on VAT (input tax) previously paid. The subject to VAT as it availed of the income tax holiday
person making the exempt sale of goods, properties or under E.O. No. 226. Perforce, respondent is subject to
services shall not bill any output tax to his customers VAT at 0% rate and is entitled to a refund or credit of
because the said transaction is not subject to VAT. Thus, the unutilized input taxes, which the Court of Tax
a VAT-registered purchaser of goods, properties or Appeals computed at P2,158,714.46, but which we find
services that are VAT-exempt, is not entitled to any after recomputation'should be P2,158,714.52.
input tax on such purchases despite the issuance of a
VAT invoice or receipt.24 The Supreme Court will not set aside lightly the
conclusions reached by the Court of Tax Appeals which,
Now, having determined that respondent is engaged in by the very nature of its functions, is dedicated
taxable transactions subject to VAT, let us then proceed exclusively to the resolution of tax problems and has
to determine whether it is subject to 10% or zero (0%) accordingly developed an expertise on the subject,
rate of VAT. To begin with, it must be recalled that unless there has been an abuse or improvident exercise
generally, sale of goods and supply of services of authority.28 In this case, we find no cogent reason to
performed in the Philippines are taxable at the rate of deviate from this well-entrenched principle. Thus, we
10%. However, export sales, or sales outside the are persuaded that indeed the Court of Appeals
Philippines, shall be subject to value-added tax at 0% if committed no reversible error in affirming the assailed
made by a VAT-registered person.25 Under the value- ruling of the Court of Tax Appeals.
added tax system, a zero-rated sale by a VAT-registered
person, which is a taxable transaction for VAT purposes, WHEREFORE, the petition is DENIED for lack of
shall not result in any output tax. However, the input merit.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
tax on his purchase of goods, properties or services
related to such zero-rated sale shall be available as tax The assailed Decision dated July 6, 2001 of the Court of
credit or refund.26 ςηαñrοblεš νιr†υαl lαω lιbrαrÿ Appeals, in CA-G.R. SP No. 60304 is AFFIRMED with very
slight modification. Petitioner is hereby ORDERED to
In principle, the purpose of applying a zero percent (0%) REFUND or, in the alternative, to ISSUE a TAX CREDIT
rate on a taxable transaction is to exempt the CERTIFICATE in favor of respondent in the amount of
transaction completely from VAT previously collected P2,158,714.52 representing unutilized input tax
on inputs. It is thus the only true way to ensure that payments. No pronouncement as to costs.
goods are provided free of VAT. While the zero rating
SO ORDERED.
 Total Sales ₱335,640,544.74
G.R. No. 190102 July 11, 2012

Accenture filed its Monthly VAT Return for the month of

ACCENTURE, INC., Petitioner, September 2002 on 24 October 2002; and that for
vs. October 2002, on 12 November 2002. These returns
COMMISSIONER OF INTERNAL REVENUE, Respondent. were amended on 9 January 2003. Accenture’s
Quarterly VAT Return for the first quarter of 2003,
DECISION which included the period 1 September 2002 to 30
November 2002 (2nd period), was filed on 17 December
SERENO, J.: 2002; and the Amended Quarterly VAT Return, on 18
June 2004. The latter contains the following
This is a Petition filed under Rule 45 of the 1997 Rules of information:6
Civil Procedure, praying for the reversal of the Decision
of the Court of Tax Appeals En Banc (CTA En Banc )
dated 22 September 2009 and its subsequent
Resolution dated 23 October 2009.1 Purchases Amount Input VAT
Accenture, Inc. (Accenture) is a corporation engaged in Domestic
the business of providing management consulting, Purchases- Capital ₱80,765,294.10 ₱8,076,529.41
business strategies development, and selling and/or Goods
licensing of software.2 It is duly registered with the
Bureau of Internal Revenue (BIR) as a Value Added Tax Domestic
(VAT) taxpayer or enterprise in accordance with Section Purchases- Goods
₱132,820,541.70 ₱13,282,054.17
236 of the National Internal Revenue Code (Tax Code).3 other than capital
Goods
On 9 August 2002, Accenture filed its Monthly VAT
Domestic
Return for the period 1 July 2002 to 31 August 2002 (1st
Purchases- ₱63,238,758.00 ₱6,323,875.80
period). Its Quarterly VAT Return for the fourth quarter
Services
of 2002, which covers the 1st period, was filed on 17
September 2002; and an Amended Quarterly VAT Total Input Tax ₱27,682,459.38
Return, on 21 June 2004.4 The following are reflected in
Accenture’s VAT Return for the fourth quarter of 2002:5 Zero-rated Sales ₱545,686,639.18

Total Sales ₱ ₱572,880,982.68

Purchases Amount Input VAT

The monthly and quarterly VAT returns of Accenture
Domestic show that, notwithstanding its application of the input
Purchases- Capital ₱12,312,722.00 ₱1,231,272.20 VAT credits earned from its zero-rated transactions
Goods against its output VAT liabilities, it still had excess or
unutilized input VAT credits. These VAT credits are in
Domestic the amounts of P9,355,809.80 for the 1st period and
Purchases- Goods P27,682,459.38 for the 2nd period, or a total of
₱64,789,507.90 ₱6,478,950.79
other than capital P37,038,269.18.7
Goods
Out of the P37,038,269.18, only P35,178,844.21
Domestic
₱16,455,868.10 ₱1,645,586.81 pertained to the allocated input VAT on Accenture’s
Purchases- Services
"domestic purchases of taxable goods which cannot be
Total Input Tax ₱9,355,809.80 directly attributed to its zero-rated sale of services."8
This allocated input VAT was broken down to
Zero-rated Sales ₱316,113,513.34 P8,811,301.66 for the 1st period and P26,367,542.55 for
the 2nd period.9
 its service was doing business in the Philippines; it was
The excess input VAT was not applied to any output VAT not an issue of failure of the applicant to present
that Accenture was liable for in the same quarter when evidence to prove the fact that the recipient of its
the amount was earned—or to any of the succeeding services was a foreign corporation doing business
quarters. Instead, it was carried forward to petitioner’s outside the Philippines.20
2nd Quarterly VAT Return for 2003.10
2. Burmeister emphasized that, to qualify for zero-
Thus, on 1 July 2004, Accenture filed with the rating, the recipient of the services should be doing
Department of Finance (DoF) an administrative claim for business outside the Philippines, and Accenture had
the refund or the issuance of a Tax Credit Certificate successfully established that.21
(TCC). The DoF did not act on the claim of Accenture.
Hence, on 31 August 2004, the latter filed a Petition for 3. Having been promulgated on 22 January 2007 or after
Review with the First Division of the Court of Tax Accenture filed its Petition with the Division, Burmeister
Appeals (Division), praying for the issuance of a TCC in cannot be made to apply to this case.22
its favor in the amount of P35,178,844.21.
Accenture also cited Commissioner of Internal Revenue
The Commissioner of Internal Revenue (CIR), in its v. American Express (Amex)23 in support of its position.
Answer,11 argued thus: The MR was denied by the Division in its 12 March 2009
Resolution.24
1. The sale by Accenture of goods and services to its
clients are not zero-rated transactions. Accenture appealed to the CTA En Banc. There it argued
that prior to the amendment introduced by Republic
2. Claims for refund are construed strictly against the Act No. (R.A.) 9337, 25 there was no requirement that
claimant, and Accenture has failed to prove that it is the services must be rendered to a person engaged in
entitled to a refund, because its claim has not been fully business conducted outside the Philippines to qualify
substantiated or documented. for zero-rating. The CTA En Banc agreed that because
the case pertained to the third and the fourth quarters
In a 13 November 2008 Decision,12 the Division denied of taxable year 2002, the applicable law was the 1997
the Petition of Accenture for failing to prove that the Tax Code, and not R.A. 9337.26 Still, it ruled that even
latter’s sale of services to the alleged foreign clients though the provision used in Burmeister was Section
qualified for zero percent VAT.13 102(b)(2) of the earlier 1977 Tax Code, the
pronouncement therein requiring recipients of services
In resolving the sole issue of whether or not Accenture to be engaged in business outside the Philippines to
was entitled to a refund or an issuance of a TCC in the qualify for zero-rating was applicable to the case at bar,
amount of P35,178,844.21,14 the Division ruled that because Section 108(B)(2) of the 1997 Tax Code was a
Accenture had failed to present evidence to prove that mere reenactment of Section 102(b)(2) of the 1977 Tax
the foreign clients to which the former rendered Code.
services did business outside the Philippines.15 Ruling
that Accenture’s services would qualify for zero-rating The CTA En Banc concluded that Accenture failed to
under the 1997 National Internal Revenue Code of the discharge the burden of proving the latter’s allegation
Philippines (Tax Code) only if the recipient of the that its clients were foreign-based.27
services was doing business outside of the
Philippines,16 the Division cited Commissioner of Resolute, Accenture filed a Petition for Review with the
Internal Revenue v. Burmeister and Wain Scandinavian CTA En Banc, but the latter affirmed the Division’s
Contractor Mindanao, Inc. (Burmeister)17 as basis. Decision and Resolution.28 A subsequent MR was also
denied in a Resolution dated 23 October 2009.
Accenture appealed the Division’s Decision through a
Motion for Reconsideration (MR).18 In its MR, it argued Hence, the present Petition for Review29 under Rule 45.
that the reliance of the Division on Burmeister was
misplaced19 for the following reasons: In a Joint Stipulation of Facts and Issues, the parties and
the Division have agreed to submit the following issues
1. The issue involved in Burmeister was the entitlement for resolution:
of the applicant to a refund, given that the recipient of
1. Whether or not Petitioner’s sales of goods and (A) Zero-Rated or Effectively Zero-Rated Sales. - Any
services are zero-rated for VAT purposes under Section VAT-registered person, whose sales are zero-rated or
108(B)(2)(3) of the 1997 Tax Code. effectively zero-rated may, within two (2) years after
the close of the taxable quarter when the sales were
2. Whether or not petitioner’s claim for refund/tax made, apply for the issuance of a tax credit certificate or
credit in the amount of P35,178,884.21 represents refund of creditable input tax due or paid attributable to
unutilized input VAT paid on its domestic purchases of such sales, except transitional input tax, to the extent
goods and services for the period commencing from 1 that such input tax has not been applied against output
July 2002 until 30 November 2002. tax: Provided, however, That in the case of zero-rated
sales under Section 106(A)(2)(a)(1), (2) and (B) and
3. Whether or not Petitioner has carried over to the Section 108 (B)(1) and (2), the acceptable foreign
succeeding taxable quarter(s) or year(s) the alleged currency exchange proceeds thereof had been duly
unutilized input VAT paid on its domestic purchases of accounted for in accordance with the rules and
goods and services for the period commencing from 1 regulations of the Bangko Sentral ng Pilipinas (BSP):
July 2002 until 30 November 2002, and applied the Provided, further, That where the taxpayer is engaged
same fully to its output VAT liability for the said period. in zero-rated or effectively zero-rated sale and also in
taxable or exempt sale of goods of properties or
4. Whether or not Petitioner is entitled to the refund of services, and the amount of creditable input tax due or
the amount of P35,178,884.21, representing the paid cannot be directly and entirely attributed to any
unutilized input VAT on domestic purchases of goods one of the transactions, it shall be allocated
and services for the period commencing from 1 July proportionately on the basis of the volume of sales.
2002 until 30 November 2002, from its sales of services Section 108(B) referred to in the foregoing provision
to various foreign clients. was first seen when Presidential Decree No. (P.D.)
199431 amended Title IV of P.D. 1158,32 which is also
5. Whether or not Petitioner’s claim for refund/tax known as the National Internal Revenue Code of 1977.
credit in the amount of P35,178,884.21, as alleged Several Decisions have referred to this as the 1986 Tax
unutilized input VAT on domestic purchases of goods Code, even though it merely amended Title IV of the
and services for the period covering 1 July 2002 until 30 1977 Tax Code.
November 2002 are duly substantiated by proper
documents.30 Two years thereafter, or on 1 January 1988, Executive
Order No. (E.O.) 27333 further amended provisions of
For consideration in the present Petition are the Title IV. E.O. 273 by transferring the old Title IV
following issues: provisions to Title VI and filling in the former title with
new provisions that imposed a VAT.
1. Should the recipient of the services be "doing
business outside the Philippines" for the transaction to The VAT system introduced in E.O. 273 was restructured
be zero-rated under Section 108(B)(2) of the 1997 Tax through Republic Act No. (R.A.) 7716.34 This law, which
Code? was approved on 5 May 1994, widened the tax base.
Section 3 thereof reads:
2. Has Accenture successfully proven that its clients are
entities doing business outside the Philippines? SECTION 3. Section 102 of the National Internal
Revenue Code, as amended, is hereby further amended
Recipient of services must be doing business outside the to read as follows:
Philippines for the transactions to qualify as zero-rated.
"SEC. 102. Value-added tax on sale of services and use
Accenture anchors its refund claim on Section 112(A) of or lease of properties. x x x
the 1997 Tax Code, which allows the refund of
unutilized input VAT earned from zero-rated or xxx xxx xxx
effectively zero-rated sales. The provision reads:
"(b) Transactions subject to zero-rate. — The following
SEC. 112. Refunds or Tax Credits of Input Tax. - services performed in the Philippines by VAT-registered
persons shall be subject to 0%:
"(1) Processing, manufacturing or repacking goods for (B) Transactions Subject to Zero Percent (0%) Rate. - The
other persons doing business outside the Philippines following services performed in the Philippines by VAT-
which goods are subsequently exported, where the registered persons shall be subject to zero percent (0%)
services are paid for in acceptable foreign currency and rate:
accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP). (1) Processing, manufacturing or repacking goods for
other persons doing business outside the Philippines
"(2) Services other than those mentioned in the which goods are subsequently exported, where the
preceding sub-paragraph, the consideration for which is services are paid for in acceptable foreign currency and
paid for in acceptable foreign currency and accounted accounted for in accordance with the rules and
for in accordance with the rules and regulations of the regulations of the Bangko Sentral ng Pilipinas (BSP);
Bangko Sentral ng Pilipinas (BSP)."
"(2) Services other than those mentioned in the
Essentially, Section 102(b) of the 1977 Tax Code—as preceding paragraph rendered to a person engaged in
amended by P.D. 1994, E.O. 273, and R.A. 7716— business conducted outside the Philippines or to a
provides that if the consideration for the services nonresident person not engaged in business who is
provided by a VAT-registered person is in a foreign outside the Philippines when the services are
currency, then this transaction shall be subjected to performed, the consideration for which is paid for in
zero percent rate. acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko
The 1997 Tax Code reproduced Section 102(b) of the Sentral ng Pilipinas (BSP); x x x." (Emphasis supplied)
1977 Tax Code in its Section 108(B), to wit:
The meat of Accenture’s argument is that nowhere does
(B) Transactions Subject to Zero Percent (0%) Rate. - The Section 108(B) of the 1997 Tax Code state that services,
following services performed in the Philippines by VAT- to be zero-rated, should be rendered to clients doing
registered persons shall be subject to zero percent (0%) business outside the Philippines, the requirement
rate. introduced by R.A. 9337.35 Required by Section 108(B),
prior to the amendment, is that the consideration for
(1) Processing, manufacturing or repacking goods for the services rendered be in foreign currency and in
other persons doing business outside the Philippines accordance with the rules of the Bangko Sentral ng
which goods are subsequently exported, where the Pilipinas (BSP). Since Accenture has complied with all
services are paid for in acceptable foreign currency and the conditions imposed in Section 108(B), it is entitled
accounted for in accordance with the rules and to the refund prayed for.
regulations of the Bangko Sentral ng Pilipinas (BSP);
In support of its claim, Accenture cites Amex, in which
(2) Services other than those mentioned in the this Court supposedly ruled that Section 108(B) reveals
preceding paragraph, the consideration for which is a clear intent on the part of the legislators not to
paid for in acceptable foreign currency and accounted impose the condition of being "consumed abroad" in
for in accordance with the rules and regulations of the order for the services performed in the Philippines to be
Bangko Sentral ng Pilipinas (BSP); x x x. zero-rated.36

On 1 November 2005, Section 6 of R.A. 9337, which The Division ruled that this Court, in Amex and
amended the foregoing provision, became effective. It Burmeister, did not declare that the requirement—that
reads: the client must be doing business outside the
Philippines—can be disregarded, because this
SEC. 6. Section 108 of the same Code, as amended, is requirement is expressly provided in Article 108(2) of
hereby further amended to read as follows: the Tax Code.37

"SEC. 108. Value-added Tax on Sale of Services and Use Accenture questions the Division’s application to this
or Lease of case of the pronouncements made in Burmeister.
According to petitioner, the provision applied to the
Properties. - present case was Section 102(b) of the 1977 Tax Code,
and not Section 108(B) of the 1997 Tax Code, which was
the law effective when the subject transactions were Supreme Court, whose interpretation of the law is part
entered into and a refund was applied for. of that law as of the date of its enactment.41

In refuting Accenture’s theory, the CTA En Banc ruled We rule that the recipient of the service must be doing
that since Section 108(B) of the 1997 Tax Code was a business outside the Philippines for the transaction to
mere reproduction of Section 102(b) of the 1977 Tax qualify for zero-rating under Section 108(B) of the Tax
Code, this Court’s interpretation of the latter may be Code.
used in interpreting the former, viz:
This Court upholds the position of the CTA en banc that,
In the Burmeister case, the Supreme Court harmonized because Section 108(B) of the 1997 Tax Code is a
both Sections 102(b)(1) and 102(b)(2) of the 1977 Tax verbatim copy of Section 102(b) of the 1977 Tax Code,
Code, as amended, pertaining to zero-rated any interpretation of the latter holds true for the
transactions. A parallel approach should be accorded to former.
the renumbered provisions of Sections 108(B)(2) and
108(B)(1) of the 1997 NIRC. This means that Section Moreover, even though Accenture’s Petition was filed
108(B)(2) must be read in conjunction with Section before Burmeister was promulgated, the
108(B)(1). Section 108(B)(2) requires as follows: a) pronouncements made in that case may be applied to
services other than processing, manufacturing or the present one without violating the rule against
repacking rendered by VAT registered persons in the retroactive application. When this Court decides a case,
Philippines; and b) the transaction paid for in acceptable it does not pass a new law, but merely interprets a
foreign currency duly accounted for in accordance with preexisting one.42 When this Court interpreted Section
BSP rules and regulations. The same provision made 102(b) of the 1977 Tax Code in Burmeister, this
reference to Section 108(B)(1) further imposing the interpretation became part of the law from the moment
requisite c) that the recipient of services must be it became effective. It is elementary that the
performing business outside of Philippines. Otherwise, interpretation of a law by this Court constitutes part of
if both the provider and recipient of service are doing that law from the date it was originally passed, since
business in the Philippines, the sale transaction is this Court's construction merely establishes the
subject to regular VAT as explained in the Burmeister contemporaneous legislative intent that the interpreted
case x x x. law carried into effect.43

xxx xxx xxx Accenture questions the CTA’s application of

Burmeister, because the provision interpreted therein
Clearly, the Supreme Court’s pronouncements in the was Section 102(b) of the 1977 Tax Code. In support of
Burmeister case requiring that the recipient of the its position that Section 108 of the 1997 Tax Code does
services must be doing business outside the Philippines not require that the services be rendered to an entity
as mandated by law govern the instant case.38 doing business outside the Philippines, Accenture
invokes this Court’s pronouncements in Amex.
Assuming that the foregoing is true, Accenture still However, a reading of that case will readily reveal that
argues that the tax appeals courts cannot be allowed to the provision applied was Section 102(b) of the 1977
apply to Burmeister this Court’s interpretation of Tax Code, and not Section 108 of the 1997 Tax Code. As
Section 102(b) of the 1977 Tax Code, because the previously mentioned, an interpretation of Section
Petition of Accenture had already been filed before the 102(b) of the 1977 Tax Code is an interpretation of
case was even promulgated on 22 January 2007,39 to Section 108 of the 1997 Tax Code, the latter being a
wit: mere reproduction of the former.

x x x. While the Burmeister case forms part of the legal This Court further finds that Accenture’s reliance on
system and assumes the same authority as the statute Amex is misplaced.
itself, however, the same cannot be applied
retroactively against the Petitioner because to do so will We ruled in Amex that Section 102 of the 1977 Tax
be prejudicial to the latter.40 Code does not require that the services be consumed
abroad to be zero-rated. However, nowhere in that case
The CTA en banc is of the opinion that Accenture cannot did this Court discuss the necessary qualification of the
invoke the non-retroactivity of the rulings of the recipient of the service, as this matter was never put in
question. In fact, the recipient of the service in Amex is x x x. As the Court held in Commissioner of Internal
a nonresident foreign client. Revenue v. American Express International, Inc.
(Philippine Branch), the place of payment is immaterial,
The aforementioned case explains how the credit card much less is the place where the output of the service is
system works. The issuance of a credit card allows the ultimately used. An essential condition for entitlement
holder thereof to obtain, on credit, goods and services to 0% VAT under Section 102 (b) (1) and (2) is that the
from certain establishments. As proof that this credit is recipient of the services is a person doing business
extended by the establishment, a credit card draft is outside the Philippines. In this case, the recipient of the
issued. Thereafter, the company issuing the credit card services is the Consortium, which is doing business not
will pay for the purchases of the credit card holders by outside, but within the Philippines because it has a 15-
redeeming the drafts. The obligation to collect from the year contract to operate and maintain NAPOCOR’s two
card holders and to bear the loss—in case they do not 100-megawatt power barges in Mindanao. (Emphasis in
pay—rests on the issuer of the credit card. the original)45

The service provided by respondent in Amex consisted In Amex we ruled that the place of performance and/or
of gathering the bills and credit card drafts from consumption of the service is immaterial. In Burmeister,
establishments located in the Philippines and the Court found that, although the place of the
forwarding them to its parent company's regional consumption of the service does not affect the
operating centers outside the country. It facilitated in entitlement of a transaction to zero-rating, the place
the Philippines the collection and payment of where the recipient conducts its business does.
receivables belonging to its Hong Kong-based foreign
client. Amex does not conflict with Burmeister. In fact, to fully
understand how Section 102(b)(2) of the 1977 Tax Code
The Court explained how the services rendered in Amex —and consequently Section 108(B)(2) of the 1997 Tax
were considered to have been performed and Code—was intended to operate, the two
consumed in the Philippines, to wit: aforementioned cases should be taken together. The
zero-rating of the services performed by respondent in
Consumption is "the use of a thing in a way that thereby Amex was affirmed by the Court, because although the
exhausts it." Applied to services, the term means the services rendered were both performed and consumed
performance or "successful completion of a contractual in the Philippines, the recipient of the service was still
duty, usually resulting in the performer’s release from an entity doing business outside the Philippines as
any past or future liability x x x." The services rendered required in Burmeister.
by respondent are performed or successfully completed
upon its sending to its foreign client the drafts and bills That the recipient of the service should be doing
it has gathered from service establishments here. Its business outside the Philippines to qualify for zero-
services, having been performed in the Philippines, are rating is the only logical interpretation of Section 102(b)
therefore also consumed in the Philippines.44 (2) of the 1977 Tax Code, as we explained in Burmeister:

The effect of the place of consumption on the zero- This can only be the logical interpretation of Section 102
rating of the transaction was not the issue in (b) (2). If the provider and recipient of the "other
Burmeister.1âwphi1 Instead, this Court addressed the services" are both doing business in the Philippines, the
squarely raised issue of whether the recipient of payment of foreign currency is irrelevant. Otherwise,
services should be doing business outside the those subject to the regular VAT under Section 102 (a)
Philippines for the transaction to qualify for zero-rating. can avoid paying the VAT by simply stipulating payment
We ruled that it should. Thus, another essential in foreign currency inwardly remitted by the recipient of
condition for qualification for zero-rating under Section services. To interpret Section 102 (b) (2) to apply to a
102(b)(2) of the 1977 Tax Code is that the recipient of payer-recipient of services doing business in the
the business be doing that business outside the Philippines is to make the payment of the regular VAT
Philippines. In clarifying that there is no conflict under Section 102 (a) dependent on the generosity of
between this pronouncement and that laid down in the taxpayer. The provider of services can choose to pay
Amex, we ruled thus: the regular VAT or avoid it by stipulating payment in
foreign currency inwardly remitted by the payer-
recipient. Such interpretation removes Section 102 (a)
as a tax measure in the Tax Code, an interpretation this currency for their purchase of goods and services from
Court cannot sanction. A tax is a mandatory exaction, the Philippines. Thus, in a domestic transaction, where
not a voluntary contribution. the provider and recipient of services are both doing
business in the Philippines, the BSP cannot require any
xxx xxx xxx party to make payment in foreign currency.48

Further, when the provider and recipient of services are Accenture claims that these documentary pieces of
both doing business in the Philippines, their transaction evidence are supported by the Report of Emmanuel
falls squarely under Section 102 (a) governing domestic Mendoza, the Court-commissioned Independent
sale or exchange of services. Indeed, this is a purely Certified Public Accountant. He ascertained that
local sale or exchange of services subject to the regular Accenture’s gross billings pertaining to zero-rated sales
VAT, unless of course the transaction falls under the were all supported by zero-rated Official Receipts and
other provisions of Section 102 (b). Billing Statements. These documents show that these
zero-rated sales were paid in foreign exchange currency
Thus, when Section 102 (b) (2) speaks of "services other and duly accounted for in the rules and regulations of
than those mentioned in the preceding subparagraph," the BSP.49
the legislative intent is that only the services are
different between subparagraphs 1 and 2. The In the CTA’s opinion, however, the documents
requirements for zero-rating, including the essential presented by Accenture merely substantiate the
condition that the recipient of services is doing business existence of the sales, receipt of foreign currency
outside the Philippines, remain the same under both payments, and inward remittance of the proceeds of
subparagraphs. (Emphasis in the original)46 these sales duly accounted for in accordance with BSP
rules. Petitioner presented no evidence whatsoever that
Lastly, it is worth mentioning that prior to the these clients were doing business outside the
promulgation of Burmeister, Congress had already Philippines.50
clarified the intent behind Sections 102(b)(2) of the
1977 Tax Code and 108(B)(2) of the 1997 Tax Code Accenture insists, however, that it was able to establish
amending the earlier provision. R.A. 9337 added the that it had rendered services to foreign corporations
following phrase: "rendered to a person engaged in doing business outside the Philippines, unlike in
business conducted outside the Philippines or to a Burmeister, which allegedly involved a foreign
nonresident person not engaged in business who is corporation doing business in the Philippines.51
outside the Philippines when the services are
performed." We deny Accenture’s Petition for a tax refund.

Accenture has failed to establish that the recipients of The evidence presented by Accenture may have
its services do business outside the Philippines. established that its clients are foreign.1âwphi1 This fact
does not automatically mean, however, that these
Accenture argues that based on the documentary clients were doing business outside the Philippines.
evidence it presented,47 it was able to establish the After all, the Tax Code itself has provisions for a foreign
following circumstances: corporation engaged in business within the Philippines
and vice versa, to wit:
1. The records of the Securities and Exchange
Commission (SEC) show that Accenture’s clients have SEC. 22. Definitions - When used in this Title:
not established any branch office in which to do
business in the Philippines. xxx xxx xxx

2. For these services, Accenture bills another (H) The term "resident foreign corporation" applies to a
corporation, Accenture Participations B.V. (APB), which foreign corporation engaged in trade or business within
is likewise a foreign corporation with no "presence in the Philippines.
the Philippines."
(I) The term ‘nonresident foreign corporation’ applies to
3. Only those not doing business in the Philippines can a foreign corporation not engaged in trade or business
be required under BSP rules to pay in acceptable within the Philippines. (Emphasis in the original)
 WHEREFORE, the instant Petition is DENIED. The 22
Consequently, to come within the purview of Section September 2009 Decision and the 23 October 2009
108(B)(2), it is not enough that the recipient of the Resolution of the Court of Tax Appeals En Banc in C.T.A.
service be proven to be a foreign corporation; rather, it EB No. 477, dismissing the Petition for the refund of the
must be specifically proven to be a nonresident foreign excess or unutilized input VAT credits of Accenture, Inc.,
corporation. are AFFIRMED.

There is no specific criterion as to what constitutes SO ORDERED.

"doing" or "engaging in" or "transacting" business. We
ruled thus in Commissioner of Internal Revenue v.
British Overseas Airways Corporation:52

x x x. There is no specific criterion as to what constitutes

"doing" or "engaging in" or "transacting" business. Each
case must be judged in the light of its peculiar
environmental circumstances. The term implies a
continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of
acts or works or the exercise of some of the functions
normally incident to, and in progressive prosecution of
commercial gain or for the purpose and object of the
business organization. "In order that a foreign
corporation may be regarded as doing business within a
State, there must be continuity of conduct and intention
to establish a continuous business, such as the
appointment of a local agent, and not one of a
temporary character."53

A taxpayer claiming a tax credit or refund has the

burden of proof to establish the factual basis of that
claim.1âwphi1 Tax refunds, like tax exemptions, are
construed strictly against the taxpayer.54

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.55
 G.R. No. 119385 August 5, 1999 statutory authority to grant the incentive. In January,
1995, the same Resident Auditor caused the
NATIONAL TOBACCO ADMINISTRATION represented disallowance of the same benefit paid in 1994, for the
herein by Administrator same reason.
AMANTE SIAPNO, EVANGELISTA A. GARCIA, RICARDO
BRIONES, CLARITA B. CASTRO, On April 25, 1994, the petitioner appealed to the
CRISTINA LOPEZ, JESUS C. BONDOC and ROSALINA C. Commission on Audit, praying for the lifting of the
CARINO, petitioners, disallowance in question, pointing out that: (1) Benefits
vs. received by employees as of July 1, 1989 not integrated
COMMISSION ON AUDIT, respondent. into the standardized salary rates shall continue to be
authorized, pursuant to Section 12 R.A. 6758; (2) the
PURISIMA, J.: benefit having been received for so many years, even
prior to the effectivity of the Salary Standardization Law
At bar is a petition for review on certiorari under Rule of 1989, has been a vested right, on the part of the
45 of the Revised Rules of Court to review and set aside recipients and (3) such allowance regularly granted,
the decision of the Commission on Audit1 dated forms part of the total compensation package of NTA
February 7, 1995 in COA Decision No. 95-108.2 Officers and employees, and, therefore, the
disallowance thereof amounts to unauthorized
The National Tobacco Administration (NTA, for short), diminution of pay.
under Executive Order No. 116, as amended by
Executive Order No. 245,3 is a government-owned and On February 7, 1995, the Commission on Audit came
controlled corporation (GOCC, for brevity) tasked to out with its questioned Decision the pertinent portion
supervise and improve the viability of the tobacco of which, reads:
industry in this country.
After a thorough evaluation, this Office believes and so
On August 9, 1989, Congress passed Republic Act No. holds that the disallowance of the Auditor on the
6758,4 entitled "An Act Prescribing a Revised payment of the mid-year social amelioration benefits or
Compensation and Position Classification in the the educational assistance benefits is in order. It bears
Government and for Other Purposes." On October 2, stress that Sec. 5.6 of CCC No. 10 (Implementing R.A.
1989, pursuant to Section 23 of said law, the 6758) is so explicit when it provides that:
Department of Budget and Management (DBM) issued
Corporate Compensation Circular No. 10 (CCC No. 10) to Payment of other allowances/fringe benefit and all
serve as the Implementing Rules and Regulations of R.A. other forms of compensation granted on top of basic
No. 6758.1âwphi1.nêt salary, whether in cash or in kind, not mentioned in Sub-
Paragraphs 5.4 and 5.5 above shall be discontinued
Pertinent records shows that even prior to the effective November 1, 1989. Payment made for such
effectively of Republic Act. No. 6758, officials and allowance/fringe benefits after said date shall be
employees of the NTA have been enjoying Mid-Year considered as illegal disbursement of public Funds.
Social Amelioration Benefit equivalent to one-and-half
(11/2) month of their basic salary. From 1989 to 1993, Since the educational assistance or the mid-year social
however, the said benefit was reduced to one (1) month amelioration is not among those allowances mentioned
of the basic salary due to the financial/budgetary in Sub-pars. 5.4 and 5.5 of CCC No. 10, the same shall be
constraints. In May, 1993, the nomenclature of subject discontinued effective November 1, 1989 and
social amelioration benefit was changed to educational considering that NTA paid its official/employees this
assistance in order to reflect the rationale behind the type of allowance, such payments shall be considered as
same, which is to encourage its beneficiaries to pursue illegal disbursement of public funds.
graduate studies and to finance the schooling of their
children. The provision of Sec. 12 second sentence thereof as
invoked by the Administrator should be read in
Sometime in February, 1994, Miss Dalisay E. Aracan, conjunction with the first sentence thus —
Resident Auditor of NTA, issued a Notice of
Disallowance of the payment of the educational for Consolidation of Allowances and Compensation — All
calendar year 1993, opining that the NTA has no allowances except for representation and
transportation allowances; clothing and laundry SAID SOCIAL AMELIORATION/EDUCATIONAL
allowances; subsistence [sic] allowance of marine ASSISTANCE BENEFIT AND COA's DISALLOWANCE
officers and crew on board government vessels and THEREOF IS AN ILLEGAL VIOLATION OF SUCH RIGHT.
hospital personnel; hazard pay; allowances of foreign
service personnel stationed abroad; and such other Petitioners raise the pivotal issues: (1) whether or not
additional compensation not otherwise specified herein the social amelioration or educational assistance benefit
as may be determined by the DBM shall be deemed given to the individual petitioners prior to enactment of
included in the standardized salary rates herein R.A. 6758 is authorized under the law, (2) whether or
prescribed. Such other additional compensation, not the disallowance of the said benefit is tantamount
whether in cash or in kind, being received by to diminution of pay, and (3) whether or not the
incumbents only as of July 1, 1989 not integrated into individual petitioners have acquired a vested right
the standardized salary rates shall continue to be thereover.
authorized. . . .
FIRST ISSUE:
xxx xxx xxx
Proper Interpretation of Sections 12 and 17 of R.A. 6758
Premises considered and for lack of legal basis, the in Relation to Sub-paragraphs 4.1, 5.4 and 5.5 of
herein request of the Administrator, NTA for the lifting Corporate Compensation Circular No. 10, the
of the disallowance in question, may not be given due Implementing Rules and Regulation of R.A. 6758.
course.5 [Emphasis; supplied]
A. Sec. 12 and 17 of R.A. 6758, read:
Undaunted, petitioner found their way to this Court via
the present Petition for Review on Certiorari, filed on Sec. 12: Consolidation of Allowances and Compensation
April 24, 1995, seeking the annulment of the said COA — All allowances, except for representation and
Decision; theorizing that the respondent Commission on transportation allowances; clothing and laundry
Audit erred: allowances; subsistence allowance of marine officers
and crew on board government vessels and hospital
I. personnel; hazard pay; allowances of foreign service
personnel stationed abroad; and such other additional
IN HOLDING THAT THE PAYMENT OF SUBJECT SOCIAL compensation not otherwise specified herein as may be
AMELIORATION/EDUCATIONAL ASSISTANCE BENEFIT — determined by the DBM, shall be deemed included in
A BENEFIT CONTINUOUSLY BEING RECEIVED BY the standardized salary rates herein prescribed. Such
INDIVIDUAL PETITIONERS AND OTHER NTA EMPLOYEES other additional compensation, whether in cash or in
STARTING WAY BEFORE THE EFFECTIVITY OF THE kind, being received by incumbents only as of July 1,
SALARY STANDARDIZATION LAW (R.A. 6758) ON 1 JULY 1989 not integrated into the standardized salary rates
1989 — IS NOT AUTHORIZED UNDER THE SAME LAW shall continue to be authorized.
(R.A. 6758) OR IS OTHERWISE WITHOUT LEGAL BASIS.
Existing additional compensation of any national
II. government official or employee paid from local funds
of a local government unit shall be absorbed into the
IN FAILING TO REALIZE AND CONSIDER THAT THE basic salary of said official or employee and shall be paid
DISALLOWANCE OF THE PAYMENT OF SUBJECT SOCIAL by the National Government.
AMELIORATION/EDUCATIONAL ASSISTANCE BENEFIT IS
CONSTITUTIVE OF DIMINUTION OF COMPENSATION while
PROSCRIBED UNDER EXISTING LAWS AND IN VIOLATION
OF THE GENERAL WELFARE CLAUSE OF THE Sec. 17. Salaries of Incumbents — Incumbents of
CONSTITUTION; positions presently receiving salaries and additional
compensation/fringe benefits including those absorbed
III. from local government units and other emoluments, the
aggregate of which exceeds the standardized salary rate
IN FAILING TO RECOGNIZE THAT INDIVIDUAL as herein prescribed, shall continue to receive such
PETITIONERS AND OTHER SIMILARLY SITUATED NTA excess compensation, which shall be referred to as
EMPLOYEES HAVE ACQUIRED A VESTED RIGHT OVER transition allowance. The transition allowance shall be
reduced by the amount of salary adjustment that the
incumbent shall received [sic] in the future. xxx xxx xxx

B. Sec. 4.1 of CCC No. 10: 5.4 The rates of the following allowances/fringe benefits
which are not integrated into the basic salary and which
4.0 DEFINITION OF TERMS are allowed to be continued after June 30, 1989 shall be
subject to the condition that the grant of such benefit is
4.1. The present salary of an incumbent for purposes of covered by statutory authority.
this Circular shall refer to the sum total of actual basic
salary including allowances enumerated hereunder, 5.4.1 Representation and Transportation Allowances
being received as of June 30, 1989 and certified and (RATA) of incumbent of the position authorized to
authorized by the DBM. receive the same at the highest amount legally
authorized as of June 30, 1989 of the level of his
4.1.1 Cost-of-Living Allowance (COLA)/Bank Equity Pay position within the particular GOCC/GFI;
(BEP) equivalent to forty percent (40%) of basic salary
or P300.00 per month, whichever is higher; 5.4.2 Uniform and Clothing Allowance at a rate as
previously authorized;
4.1.2 Amelioration Allowance equivalent to ten percent
(10%) of basic salary or P150.00 per month, which ever 5.4.3 Hazard Pay as authorized by law;
is higher;
5.4.4 Honoraria/additional compensation for employees
4.1.3 COLA granted to GOCCs/GFIs covered by the on detail with special projects of inter-agency
Compensation and Position Classification Plan for the undertakings;
regular agencies/offices of the National Government
and to GOCCs/GFIs following the Compensation and 5.4.5 Honoraria for services rendered by researchers,
Position Classification Plan under LOImp. No. 104/CCC experts and specialists who are of acknowledged
No. 1 and LOImp. No. 97/CCC No. 2, in the amount of authorities in their field of specialization;
P550. 00 per month for those whose monthly basic
salary is P1,500.00 and below, and P500.00 for those 5.4.6 Honoraria for lecturers and resource
whose monthly basic salary is P1,501.00 and above, persons/speakers;
granted on top of the COLA/BEP mentioned in Item 4.
1.1 above; 5.4.7 Overtime Pay in accordance to Memorandum
Order No. 228;
4.1.4 Stabilization Allowance; and
5.4.8 Clothing/laundry allowances and subsistence of
4.1.5 Allowance/fringe benefits converted into marine officers and crew on board GOCCs/GFIs owned
"Transition Allowance" pursuant to Memorandum vessels and used in their operations, and of hospital
Order No. 177, as implemented by Corporate Budget personnel who attend directly to patients and who by
Circular No. 15, both series of 1988. nature of their duties are required to wear uniforms;

4.2 Allowances enumerated above are deemed 5.4.9 Quarters Allowance of officials and employees
integrated into the basic salary, for the position who are presently entitled to the same;
effective July 1, 1989.
5.4.10 Overseas, Living Quarters and other allowances
4.3 Transition allowance, for purposes of this circular presently authorized for personnel stationed abroad;
shall mean the excess of the present salary of the
incumbent defined in Item 4.1 hereinabove, over the 5.4.11 Night Differential of personnel on night duty;
eighth step of the Salary Grade to which his position is
allocated. 5.4.12 Per Diems of members of governing Boards of
GOCCs/GFIs at the rate as prescribed in their respective
C. Sub-Paragraphs 5.4, 5.5 and 5.6 of CCC. No. 10: Charters;

5.0 IMPLEMENTING PROCEDURES 5.4.13 Flying Pay of personnel undertaking aerial flights;
5.4.14 Per Diems/Allowances of Chairman and Second Sentence of Section 12, R.A. 6758 — . . . Such
Members/Staff of collegial bodies and Committees; and other additional compensation, whether in cash or in
kind, being received by incumbents only as of July 1,
5.4.15 Per Diems/Allowances of officials and employees 1989 not integrated into the standardized salary rates
on official foreign and local travel outside of their shall continue to be authorized;
official station;
xxx xxx xxx
5.5 Other allowances/fringe benefits not likewise
Integrated into the basic salary and allowed to be Sec. 17: Salaries of Incumbents — Incumbents of
continued only for incumbents as of June 30, 1989 position presently receiving salaries and additional
subject to the condition that the grant of the same is compensation/fringe benefits including those absorbed
with appropriate authorization either from the DBM, from local government units and other emoluments, the
Office of the President or legislative issuances are as aggregate of which exceeds the standardized salary rate
follows. as herein prescribed, shall continue to be receive such
excess compensation, which shall be referred as
5.5.1 Rice Subsidy; transition allowance. The transition allowance shall be
reduced by the amount of the salary adjustment that
5.5.2 Sugar Subsidy; the incumbent shall received in the future.

5.5.3 Death Benefits other than those granted by the It is the submission of the Commission on Audit that
GSIS; payment of the educational assistance in question is not
authorized not authorized under Republic Act No. 6758,
5.5.4 Medical/Dental/Optical Allowances/Benefits; arguing "that the provision of Sec. 12, second sentence
thereof as invoked by the Administrator [representing
5.5.5 Children's Allowance; the petitioner herein] should be read in conjunction
with the first sentence. . . .;"7 and if the entire Section
5.5.6 Special Duty Pay/Allowance; 12 is further considered in relation to sub-paragraphs
5.4, 5.5 and 5.6 of CCC No. 10, respondent concluded
5.5.7 Meal Subsidy; that the grant of subject educational assistance would
have no legal basis at all.
5.5.8 Longevity Pay; and
Confusion as to the proper interpretation of Section 12
5.5.9 Teller's Allowance. springs from two seemingly contradictory provisions.
The last clause of the first sentence of Section 12, reads:
5.6 Payment of other allowance/fringe benefits and all
other forms of compensation granted on top of basic [A]nd such other additional compensation not
salary, whether in cash or in kind, not mentioned in Sub- otherwise specified herein as may be determined by the
paragraphs 5.4 and 5.5 above shall be discontinued DBM shall be deemed included in the standardized
effective November 1, 1989. Payment made for such salary rates herein prescribed;
allowance/fringe benefits after said date shall be
considered as illegal disbursement of public funds. while the second sentence of Section 12 is to the
following effect:
Petitioners maintain "that since they have been
receiving the social amelioration or educational Such other additional compensation, whether in cash or
assistance benefit before July 1, 1989, when R.A No. in kind, being received by incumbents only as of July 1,
6758 took effect, and the benefit was not integrated 1989 not integrated into the standardized salary rates
into their standardized salary rate, they are entitled to shall continue to be authorized.
receive it even after the effectivity of the said Act"6
They base their claim on the second sentence of Section Before proceeding to rule on the proper interpretation
12 and on Section 17 of the Salary Standardization Law of the two provisos aforecited, the salient features of
which, for the sake of thoroughness and clarity of the provision as a whole should first be pondered upon
discussion, we deem it expedient to quote again, to wit: tackled.
 (3) Hazard pay;
Under the first sentence of Section 12, all allowances
are integrated into the prescribed salary rates, except: (4) Honoraria/additional compensation for employees
on detail with special projects or inter-agency
(1) representation and transportation allowances undertakings;
(RATA);
(5) Honoraria for services rendered by researchers,
(2) clothing and laundry allowances; experts and specialists who are of acknowledged
authorities in their fields of specialization;
(3) subsistence allowances of marine officers and crew
on board government vessels; (6) Honoraria for lectures and resource persons or
speakers;
(4) subsistence allowance of hospital personnel;
(7) Overtime pay in accordance to Memorandum Order
(5) hazard pay; No. 228;

(6) allowance of foreign service personnel stationed (8) Clothing/laundry allowances and subsistence
abroad; and allowance of marine officers and crew on board
GOCCs/GFIs owned vessels and used in their operations,
(7) such other additional compensation not otherwise and of hospital personnel who attend directly to
specified in Section 12 as may be determined by the patients and who by nature of their duties are required
DBM. to wear uniforms;

Analyzing No. 7, which is the last clause of the first (9) Quarters Allowance of officials and employees who
sentence of Section 12, in relation to the other benefits are presently entitled to the same;
therein enumerated, it can be gleaned unerringly that it
is a "catch-all proviso." Further reflection on the nature (10) Overseas, Living Quarters and other allowances
of subject fringe benefits indicates that all of them have presently authorized for personnel stationed abroad;
one thing in common — they belong to one category of
privilege called allowances which are usually granted to (11) Night differential of personnel on night duty;
officials and employees of the government to defray or
reimburse the expenses incurred in the performance of (12) Per Diems of members of the governing Boards of
their official functions. In Philippine Ports Authority vs. GOCCs/GFIs at the rate as prescribed in their respective
Commission on Audit,8 this Court rationalized that "if Charters;
these allowances are consolidated with the
standardized rate, then the government official or (13) Flying pay of personnel undertaking aerial flights;
employee will be compelled to spend his personal funds
in attending to his duties.1âwphi1.nêt (14) Per Diems/Allowances of Chairman and Members
or Staff of collegial bodies and Committees; and
The conclusion — that the enumerated fringe benefits
are in the nature of allowance — finds support in sub- (15) Per Diems/Allowances of officials and employees
paragraphs 5.4 and 5.5 of CCC No. 10. on official foreign and local travel outside of their
official station.
Sub-paragraph 5.4 enumerates the allowance/fringe
benefits which are not integrated into the basic salary In addition, sub-paragraph 5.5 of the same
and which may be continued after June 30, 1989 subject Implementing Rules provides for the other
to the condition that the grant of such benefit is allowances/fringe benefits not likewise integrated into
covered by statutory authority, to wit: the basic salary allowed to be continued only for
incumbents as of June 30, 1989 subject to the condition
(1) RATA; that the grant of the same is with appropriate
authorization either from the DBM, Office of the
(2) Uniform and Clothing allowances; President or legislative issuance's, as follows:
(1) Rice Subsidy; of the subject statute.12 With this rules and the
foregoing distinction elaborated upon, it is evident that
(2) Sugar Subsidy; the two seemingly irreconcilable propositions are
susceptible to perfect harmony. Accordingly, the Court
(3) Death Benefits other than those granted by the GSIS; concludes that the under the aforesaid "catch-all
proviso," the legislative intent is just to include the
(4) Medical/Dental/Optical Allowances/Benefits; fringe benefits which are in the nature of allowances
and since the benefits under controversy is not the
(5) Children's Allowances; same category, it is safe to hold that subject educational
assistance is not one of the fringe benefits within the
(6) Special Duty Pay/Allowance; contemplation of the first sentence of Section 12 but
rather, the second sentence of Section 12, in relation to
(7) Meal Subsidy; Section 17 of R.A. No. 6758, considering that (1) the
recipients were incumbents when R.A. No. 6758 took
(8) Longevity Pay; and effect on July 1, 1989, (2) were, in fact, receiving the
same, at the time, and (3) such additional compensation
(9) Teller's Allowance. is distinct and separate from the specific allowances
above-listed, as the former is not integrated into the
On the other hand, the challenged financial incentive is standardized salary rate. Simply stated, the challenged
awarded by the government in order to encourage the benefit is covered by the second sentence of Section 12
beneficiaries to pursue further studies and to help them of R.A. No. 6758, the application of sub-paragraphs 5.4
underwrite the expenses for the education of their and 5.5 of CCC No. 10 being only confined to the first
children and dependents. In other words, subject sentence of Section 12, particularly the last clause
benefit is in the nature of financial assistance and not of thereof which amplifies the "catch-all proviso."
an allowance. For the former, reimbursement is not
necessary while for the latter, reimbursement is Furthermore, the non-inclusion by the Department of
required. Not only that, the former is basically an Budget and Management of the controverted
incentive wage which is defined as "a bonus or other educational assistance in Sub-paragraph 5.4 and 5.5 of
payment made to employees in addition to guaranteed CCC No. 10 is expected since the term allowance does
hourly wages"9 while the latter cannot be reckoned not include the questioned benefit which belongs to a
with as a bonus or additional income, strictly speaking. different genus. The argument that the said fringe
benefit should be disallowed on the ground that it is not
It is indeed decisively clear that the benefits mentioned mentioned in the Implementing Rules of the Statute is
in the first sentence of Section 12 and sub-paragraphs consequently fallacious. It is a settled rule of legal
5.4 and 5.5 of CCC No. 10 are entirely different from the hermeneutics that the implementing rules and
benefit in dispute, denominated as Educational regulations (CCC No. 10, in this case) cannot amend the
Assistance. The distinction elucidated upon is material act of Congress (R.A.. 6758). The second sentence of
in arriving at the correct interpretation of the two R.A. No. 6758 expressly provides that "such additional
seemingly contradictory provisions of Section 12. compensation . . . being received by incumbents . . . not
integrated into the standardized salary rates shall
Cardinal is the rule in statutory constriction "that the continue to be authorized." To be sure, the said Circular
particular words, clauses and phrases should not be cannot go beyond the terms and provisions of the
studied as detached and isolated expressions, but the statute as to prohibit something permitted and allowed
whole and every part of the statute must be considered by law.13 The Circular cannot extend the law or expand
in fixing the meaning of any of its parts and in order to its coverage as the power to amend or repeal a statute
produce a harmonious whole. A statute must so is vested in the legislature.14
construed as to harmonize and give effect to all its
provisions whenever possible."10 And the rule — that Conformably, as mandated by the second sentence of
statute must be construed as a whole — requires that Section 12, in relation to Section 17 of the Republic Act
apparently conflicting provisions should be reconciled under interpretation, the mid-year educational
and harmonized, if at all possible.11 It is likewise a basic assistance should continue to be authorized.
precept in statutory construction that the intent of the
legislature is the controlling factor in the interpretation THE SECOND AND THE THIRD ISSUES:
That the Disallowance of the Payment of Subject On October 31, 1981, Basco was removed from his
Educational Assistance Constitutes Diminution of position as Deputy Sheriff by no less than this Court
Compensation; That the NTA Employees Have Already upon a finding of serious misconduct in an
Acquired a Vested Right Over the Same. administrative complaint lodged by a certain Nena
Tordesillas. The Court held:
Gleanable from the wordings of the second sentence of
Section 12 of R.A. No. 6758 is the intention of Congress WHEREFORE, FINDING THE RESPONDENT DEPUTY
to prevent any diminution of the pay and the benefits SHERIFF HUMBERTO BASCO OF THE CITY COURT OF
being received by incumbents at the time of the MANILA GUILTY OF SERIOUS MISCONDUCT IN OFFICE
enactment of the Salary Standardization Law. Verily, FOR THE SECOND TIME, HE IS HEREBY DISMISSED FROM
disallowing any such benefit is against the spirit of the THE SERVICE WITH FORFEITURE OF ALL RETIREMENT
Statute and is inconsistent with the principle of equity BENEFITS AND WITH PREJUDICE TO REINSTATEMENT TO
which "regards the spirit and not the letter. . ."15 of the ANY POSITION IN THE NATIONAL OR LOCAL
law. Hence, while it cannot be said that the NTA GOVERNMENT, INCLUDING ITS AGENCIES AND
employees have acquired a vested right over the INSTRUMENTALITIES, OR GOVERNMENT-OWNED OR
educational assistance in dispute as it is always subject CONTROLLED CORPORATIONS.
to availability of funds,16 nevertheless, disallowing the
same, where funds are available as in the case under xxx xxx xxx 2
consideration, would be violative of the principle of
equity. Subsequently, Basco ran as a candidate for Councilor in
the Second District of the City of Manila during the
WHEREFORE, the petition is hereby GRANTED; the January 18, 1988, local elections. He won and,
assailed COA Decision, No. 95-108 is SET ASIDE, and the accordingly, assumed office.
disallowance in question LIFTED. No pronouncement as
to cost.1âwphi1.nêt After his term, Basco sought re-election in the May 11,
1992 synchronized national elections. Again, he
SO ORDERED. succeeded in his bid and he was elected as one of the
six (6) City Councilors. However, his victory this time did
not remain unchallenged. In the midst of his successful
G.R. No. 125955 June 19, 1997 re-election, he found himself besieged by lawsuits of his
opponents in the polls who wanted to dislodge him
from his position.
WILMER GREGO, petitioner,
vs. One such case was a petition for quo warranto 3 filed
COMMISSION ON ELECTIONS and HUMBERTO BASCO, before the COMELEC by Cenon Ronquillo, another
respondents. candidate for councilor in the same district, who alleged
Basco's ineligibility to be elected councilor on the basis
of the Tordesillas ruling. At about the same time, two
ROMERO, J.: more cases were also commenced by Honorio Lopez II
in the Office of the Ombudsman and in the Department
The instant special civil action for certiorari and of Interior and Local Government. 4 All these challenges
prohibition impugns the resolution of the Commission were, however, dismissed, thus, paving the way for
on Elections (COMELEC) en banc in SPA No. 95-212 Basco's continued stay in office.
dated July 31, 1996, dismissing petitioner's motion for
reconsideration of an earlier resolution rendered by the Despite the odds previously encountered, Basco
COMELEC's First Division on October 6, 1995, which also remained undaunted and ran again for councilor in the
dismissed the petition for disqualification 1 filed by May 8, 1995, local elections seeking a third and final
petitioner Wilmer Grego against private respondent term. Once again, he beat the odds by emerging sixth in
Humberto Basco. a battle for six councilor seats. As in the past, however,
his right to office was again contested. On May 13,
The essential and undisputed factual antecedents of the 1995, petitioner Grego, claiming to be a registered voter
case are as follows: of Precinct No. 966, District II, City of Manila, filed with
the COMELEC a petition for disqualification, praying for ex post facto, bill of attainder, and retroactive
Basco's disqualification, for the suspension of his legislation which impairs vested rights. It is also a class
proclamation, and for the declaration of Romualdo S. legislation and unconstitutional on the account.
Maranan as the sixth duly elected Councilor of Manila's
Second District. 3. Respondent had already been proclaimed. And the
petition being a preproclamation contest under the
On the same day, the Chairman of the Manila City Board Marquez v. Comelec Ruling, supra, it should be
of Canvassers (BOC) was duly furnished with a copy of dismissed by virtue of said pronouncement.
the petition. The other members of the BOC learned
about this petition only two days later. 4. Respondent's three-time election as candidate for
councilor constitutes implied pardon by the people of
The COMELEC conducted a hearing of the case on May previous misconduct (Aguinaldo v. Comelec G.R.
14, 1995, where it ordered the parties to submit 105128; Rice v. State 161 SCRA 401; Montgomery v.
simultaneously their respective memoranda. Newell 40 SW 2d 4181; People v. Bashaw 130 P. 2nd
237, etc.).
Before the parties could comply with this directive,
however, the Manila City BOC proclaimed Basco on May 5. As petition to nullify certificate of candidacy, the
17, 1995, as a duly elected councilor for the Second instant case has prescribed; it was premature as an
District of Manila, placing sixth among several election protest and it was not brought by a proper
candidates who vied for the seats. 5 Basco immediately party in interest as such protest.:
took his oath of office before the Honorable Ma. Ruby
Bithao-Camarista, Presiding Judge, Metropolitan Trial PRAYER
Court, Branch I, Manila.
WHEREFORE it is respectfully prayed that the instant
In view of such proclamation, petitioner lost no time in case be dismissed on instant motion to dismiss the
filing an Urgent Motion seeking to annul what he prayer for restraining order denied (sic). If this
considered to be an illegal and hasty proclamation Honorable Office is not minded to dismiss, it is
made on May 17, 1995, by the Manila City BOC. He respectfully prayed that instant motion be considered
reiterated Basco's disqualification and prayed anew that as respondent's answer. All other reliefs and remedies
candidate Romualdo S. Maranan be declared the just and proper in the premises are likewise hereby
winner. As expected, Basco countered said motion by prayed for.
filing his Urgent Opposition to: Urgent Motion (with
Reservation to Submit Answer and/or Motion to Dismiss After the parties' respective memoranda had been filed,
Against Instant Petition for Disqualification with the COMELEC's First Division resolved to dismiss the
Temporary Restraining Order). petition for disqualification on October 6, 1995, ruling
that "the administrative penalty imposed by the
On June 5, 1995, Basco filed his Motion to Dismiss Supreme Court on respondent Basco on October 31,
Serving As Answer pursuant to the reservation he made 1981 was wiped away and condoned by the electorate
earlier, summarizing his contentions and praying as which elected him" and that on account of Basco's
follows: proclamation on May 17, 1995, as the sixth duly elected
councilor of the Second District of Manila, "the petition
Respondent thus now submits that the petitioner is not would no longer be viable." 6
entitled to relief for the following reasons:
Petitioner's motion for reconsideration of said
1. The respondent cannot be disqualified on the ground resolution was later denied by the COMELEC en banc in
of Section 40 paragraph b of the Local Government its assailed resolution promulgated on July 31, 1996. 7
Code because the Tordesillas decision is barred by Hence, this petition.
laches, prescription, res judicata, lis pendens, bar by
prior judgment, law of the case and stare decisis; Petitioner argues that Basco should be disqualified from
running far any elective position since he had been
2. Section 4[0] par. B of the Local Government Code "removed from office as a result of an administrative
may not be validly applied to persons who were case" pursuant to Section 40 (b) of Republic Act No.
dismissed prior to its effectivity. To do so would make it
7160, otherwise known as the Local Government Code In this regard, petitioner submits that although the
(the Code), which took effect on January 1, 1992. 8 Code took effect only on January 1, 1992, Section 40 (b)
must nonetheless be given retroactive effect and
Petitioner wants the Court to likewise resolve the applied to Basco's dismissal from office which took
following issues, namely: place in 1981. It is stressed that the provision of the law
as worded does not mention or even qualify the date of
1. Whether or not Section 40 (b) of Republic Act No. removal from office of the candidate in order for
7160 applies retroactively to those removed from office disqualification thereunder to attach. Hence, petitioner
before it took effect on January 1, 1992; impresses upon the Court that as long as a candidate
was once removed from office due to an administrative
2. Whether or not private respondent's election in 1988, case, regardless of whether it took place during or prior
1992 and in 1995 as City Councilor of Manila wiped to the effectivity of the Code, the disqualification
away and condoned the administrative penalty against applies. 9 To him, this interpretation is made more
him; evident by the manner in which the provisions of
Section 40 are couched. Since the past tense is used in
3. Whether or not private respondent's proclamation as enumerating the grounds for disqualification, petitioner
sixth winning candidate on May 17, 1995, while the strongly contends that the provision must have also
disqualification case was still pending consideration by referred to removal from office occurring prior to the
COMELEC, is void ab initio; and effectivity of the Code. 10

4. Whether or not Romualdo S. Maranan, who placed We do not, however, subscribe to petitioner's view. Our
seventh among the candidates for City Councilor of refusal to give retroactive application to the provision of
Manila, may be declared a winner pursuant to Section 6 Section 40 (b) is already a settled issue and there exist
of Republic Act No. 6646. no compelling reasons for us to depart therefrom. Thus,
in Aguinaldo v. COMELEC, 11 reiterated in the more
While we do not necessarily agree with the conclusions recent cases of Reyes v. COMELEC 12 and Salalima v.
and reasons of the COMELEC in the assailed resolution, Guingona, Jr., 13 we ruled, thus:
nonetheless, we find no grave abuse of discretion on its
part in dismissing the petition for disqualification. The The COMELEC applied Section 40 (b) of the Local
instant petition must, therefore, fail. Government Code (Republic Act 7160) which provides:

We shall discuss the issues raised by petitioner in Sec. 40. The following persons are disqualified from
seriatim. running for any elective local positions:

I. Does Section 40 (b) of Republic Act No. 7160 apply xxx xxx xxx
retroactively to those removed from office before it
took effect on January 1, 1992? (b) Those removed from office as a result of an
administrative case.
Section 40 (b) of the Local Government Code under
which petitioner anchors Basco's alleged disqualification Republic Act 7160 took effect only on January 1, 1992.
to run as City Councilor states:
The rule is:
Sec. 40. Disqualifications. — The following persons are
disqualified from running for any elective local position: xxx xxx xxx

xxx xxx xxx . . . Well-settled is the principle that while the

Legislature has the power to pass retroactive laws
(b) Those removed from office as a result of an which do not impair the obligation of contracts, or
administrative case; affect injuriously vested rights, it is equally true that
statutes are not to be construed as intended to have a
xxx xxx xxx retroactive effect so as to affect pending proceedings,
unless such intent is expressly declared or clearly and
necessarily implied from the language of the
enactment. . . . (Jones v. Summers, 105 Cal. App. 51, 286 assumption, of course, is untenable considering that
Pac. 1093; U.S. v. Whyel 28 (2d) 30; Espiritu v. Cipriano, Basco was NOT subject to any disqualification at all
55 SCRA 533 [1974], cited in Nilo v. Court of Appeals, under Section 40 (b) of the Local Government Code
128 SCRA 519 [1974]. See also Puzon v. Abellera, 169 which, as we said earlier, applies only to those removed
SCRA 789 [1989]; Al-Amanah Islamic Investment Bank of from office on or after January 1, 1992. In view of the
the Philippines v. Civil Service Commission, et al., G.R. irrelevance of the issue posed by petitioner, there is no
No. 100599, April 8, 1992). more reason for the Court to still dwell on the matter at
length.
There is no provision in the statute which would clearly
indicate that the same operates retroactively. Anent Basco's alleged circumvention of the prohibition
in Tordesillas against reinstatement to any position in
It, therefore, follows that [Section] 40 (b) of the Local the national or local government, including its agencies
Government Code is not applicable to the present case. and instrumentalities, as well as government-owned or
(Emphasis supplied). controlled corporations, we are of the view that
petitioner's contention is baseless. Neither does
That the provision of the Code in question does not petitioner's argument that the term "any position" is
qualify the date of a candidate's removal from office broad enough to cover without distinction both
and that it is couched in the past tense should not deter appointive and local positions merit any consideration.
us from applying the law prospectively. The basic tenet
in legal hermeneutics that laws operate only Contrary to petitioner's assertion, the Tordesillas
prospectively and not retroactively provides the decision did not bar Basco from running for any elective
qualification sought by petitioner. A statute, despite the position. As can be gleaned from the decretal portion of
generality in its language, must not be so construed as the said decision, the Court couched the prohibition in
to overreach acts, events or matters which transpired this wise:
before its passage. Lex prospicit, non respicit. The law
looks forward, not backward. 14 . . . AND WITH PREJUDICE TO REINSTATEMENT TO ANY
POSITION IN THE NATIONAL OR LOCAL GOVERNMENT,
II. Did private respondent's election to office as City INCLUDING ITS AGENCIES AND INSTRUMENTALITIES, OR
Councilor of Manila in the 1988, 1992 and 1995 GOVERNMENT-OWNED OR CONTROLLED
elections wipe away and condone the administrative CORPORATIONS.
penalty against him, thus restoring his eligibility for
public office? In this regard, particular attention is directed to the use
of the term "reinstatement." Under the former Civil
Petitioner maintains the negative. He quotes the earlier Service Decree, 16 the law applicable at the time Basco,
ruling of the Court in Frivaldo v. COMELEC 15 to the a public officer, was administratively dismissed from
effect that a candidate's disqualification cannot be office, the term "reinstatement" had a technical
erased by the electorate alone through the meaning, referring only to an appointive position. Thus:
instrumentality of the ballot. Thus:
Art. VIII. PERSONNEL POLICIES AND STANDARDS.
. . . (T)he qualifications prescribed for elective office
cannot be erased by the electorate alone. The will of Sec. 24. Personnel Actions. —
the people as expressed through the ballot cannot cure
the vice of ineligibility, especially if they mistakenly xxx xxx xxx
believed, as in this case, that the candidate was
qualified. . . . (d) Reinstatement. — Any person who has been
permanently APPOINTED to a position in the career
At first glance, there seems to be a prima facie service and who has, through no delinquency or
semblance of merit to petitioner's argument. However, misconduct, been separated therefrom, may be
the issue of whether or not Basco's triple election to reinstated to a position in the same level for which he is
office cured his alleged ineligibility is actually beside the qualified.
point because the argument proceeds on the
assumption that he was in the first place disqualified xxx xxx xxx
when he ran in the three previous elections. This
(Emphasis supplied).
The inapplicability of the abovementioned provision to
The Rules on Personnel Actions and Policies issued by the present case is very much patent on its face
the Civil Service Commission on November 10, 1975, 17 considering that the same refers only to a void
provides a clearer definition. It reads: proclamation in relation to contested returns and NOT
to contested qualifications of a candidate.
RULE VI. OTHER PERSONNEL ACTIONS
Next, petitioner cites Section 6 of Rep. Act 6646 which
Sec. 7. Reinstatement is the REAPPOINTMENT of a states:
person who was previously separated from the service
through no delinquency or misconduct on his part from Sec. 6. Effect of Disqualification Case. — Any candidate
a position in the career service to which he was who has been declared by final judgment to be
permanently appointed, to a position for which he is disqualified shall not be voted for, and the votes cast for
qualified. (Emphasis supplied). him shall not be counted. If for any reason, a candidate
is not declared by final judgment before an election to
In light of these definitions, there is, therefore, no basis be disqualified and he is voted for and receives the
for holding that Basco is likewise barred from running winning number of votes in such election, the Court or
for an elective position inasmuch as what is Commission shall continue with the trial and hearing of
contemplated by the prohibition in Tordesillas is the action, inquiry or protest and, upon motion of the
reinstatement to an appointive position. complainant or any intervenor, may during the
pendency thereof order the suspension of the
III. Is private respondent's proclamation as sixth winning proclamation of such candidate whenever the evidence
candidate on May 17, 1995, while the disqualification of his guilt is strong. (Emphasis supplied).
case was still pending consideration by COMELEC, void
ab initio? This provision, however, does not support petitioner's
contention that the COMELEC, or more properly
To support its position, petitioner argues that Basco speaking, the Manila City BOC, should have suspended
violated the provisions of Section 20, paragraph (i) of the proclamation. The use of the word "may" indicates
Republic Act No. 7166, Section 6 of Republic Act No. that the suspension of a proclamation is merely
6646, as well as our ruling in the cases of Duremdes v. directory and permissive in nature and operates to
COMELEC, 18 Benito v. COMELEC 19 and Aguam v. confer discretion. 21 What is merely made mandatory,
COMELEC. 20 according to the provision itself, is the continuation of
the trial and hearing of the action, inquiry or protest.
We are not convinced. The provisions and cases cited Thus, in view of this discretion granted to the COMELEC,
are all misplaced and quoted out of context. For the the question of whether or not evidence of guilt is so
sake of clarity, let us tackle each one by one. strong as to warrant suspension of proclamation must
be left for its own determination and the Court cannot
Section 20, paragraph (i) of Rep. Act 7166 reads: interfere therewith and substitute its own judgment
unless such discretion has been exercised whimsically
Sec. 20. Procedure in Disposition of Contested Election and capriciously. 22 The COMELEC, as an administrative
Returns. — agency and a specialized constitutional body charged
with the enforcement and administration of all laws and
xxx xxx xxx regulations relative to the conduct of an election,
plebiscite, initiative, referendum, and recall, 23 has
(i) The board of canvassers shall not proclaim any more than enough expertise in its field that its findings
candidate as winner unless authorized by the or conclusions are generally respected and even given
Commission after the latter has ruled on the objections finality. 24 The COMELEC has not found any ground to
brought to it on appeal by the losing party. Any suspend the proclamation and the records likewise fail
proclamation made in violation hereof shall be void ab to show any so as to warrant a different conclusion
initio, unless the contested returns will not adversely from this Court. Hence, there is no ample justification to
affect the results of the election. hold that the COMELEC gravely abused its discretion.

xxx xxx xxx

It is to be noted that Section 5, Rule 25 of the COMELEC The rule-making power must be confined to details for
Rules of Procedure 25 states that: regulating the mode or proceeding to carry into effect
the law as it has been enacted. The power cannot be
Sec. 5. Effect of petition if unresolved before completion extended to amending or expanding the statutory
of canvass. — . . . (H)is proclamation shall be suspended requirements or to embrace matters not covered by the
notwithstanding the fact that he received the winning statute. Rules that subvert the statute cannot be
number of votes in such election. sanctioned (University of Santo Tomas v. Board of Tax
Appeals, 93 Phil. 376, 382, citing 12 C.J. 845-46. As to
However, being merely an implementing rule, the same invalid regulations, see Collector of Internal Revenue v.
must not override, but instead remain consistent with Villaflor, 69 Phil. 319; Wise & Co. v. Meer, 78 Phil. 655,
and in harmony with the law it seeks to apply and 676; Del Mar v. Phil. Veterans Administration, L-27299,
implement. Administrative rules and regulations are June 27, 1973, 51 SCRA 340, 349).
intended to carry out, neither to supplant nor to
modify, the law. 26 Thus, in Miners Association of the xxx xxx xxx
Philippines, Inc. v. Factoran, Jr., 27 the Court ruled that:
. . . The rule or regulations should be within the scope of
We reiterate the principle that the power of the statutory authority granted by the legislature to the
administrative officials to promulgate rules and administrative agency (Davis, Administrative Law, p.
regulations in the implementation of a statute is 194, 197, cited in Victorias Milling Co., Inc. v. Social
necessarily limited only to carrying into effect what is Security Commission, 114 Phil. 555, 558).
provided in the legislative enactment. The principle was
enunciated as early as 1908 in the case of United States In case of discrepancy between the basic law and a rule
v. Barrias. The scope of the exercise of such rule-making or regulation issued to implement said law, the basic
power was clearly expressed in the case of United law prevails because said rule or regulations cannot go
States v. Tupasi Molina, decided in 1914, thus: "Of beyond the terms and provisions of the basic law
course, the regulations adopted under legislative (People v. Lim, 108 Phil. 1091).
authority by a particular department must be in
harmony with the provisions of the law, and for the sole Since Section 6 of Rep. Act 6646, the law which Section
purpose of carrying into effect its general provisions. By 5 of Rule 25 of the COMELEC Rules of Procedure seeks
such regulations, of course, the law itself can not be to implement, employed the word "may," it is,
extended. So long, however, as the regulations relate therefore, improper and highly irregular for the
solely to carrying into effect the provision of the law, COMELEC to have used instead the word "shall" in its
they are valid. rules.

Recently, the case of People v. Maceren gave a brief Moreover, there is no reason why the Manila City BOC
delineation of the scope of said power of administrative should not have proclaimed Basco as the sixth winning
officials: City Councilor. Absent any determination of irregularity
in the election returns, as well as an order enjoining the
Administrative regulations adopted under legislative canvassing and proclamation of the winner, it is a
authority by a particular department must be in mandatory and ministerial duty of the Board of
harmony with the provisions of the law, and should be Canvassers concerned to count the votes based on such
for the sole purpose of carrying into effect its general returns and declare the result. This has been the rule as
provisions. By such regulations, of course, the law itself early as in the case of Dizon v. Provincial Board of
cannot be extended (U.S. v. Tupasi Molina, supra). An Canvassers of Laguna 28 where we clarified the nature
administrative agency cannot amend an act of Congress of the functions of the Board of Canvassers, viz.:
(Santos v. Estenzo, 109 Phil. 419, 422; Teoxon vs.
Members of the Board of Administrators, L-25619, June The simple purpose and duty of the canvassing board is
30, 1970, 33 SCRA 585; Manuel vs. General Auditing to ascertain and declare the apparent result of the
Office, L-28952, December 29, 1971, 42 SCRA 660; voting. All other questions are to be tried before the
Deluao v. Casteel, L-21906, August 29, 1969, 29 SCRA court or other tribunal for contesting elections or in quo
350). warranto proceedings. (9 R.C.L., p. 1110)

To the same effect is the following quotation:

 to the rule that a second placer may not be declared the
. . . Where there is no question as to the genuineness of winning candidate, finds no application in this case. The
the returns or that all the returns are before them, the exception is predicated on the concurrence of two
powers and duties of canvassers are limited to the assumptions, namely: (1) the one who obtained the
mechanical or mathematical function of ascertaining highest number of votes is disqualified; and (2) the
and declaring the apparent result of the election by electorate is fully aware in fact and in law of a
adding or compiling the votes cast for each candidate as candidate's disqualification so as to bring such
shown on the face of the returns before them, and then awareness within the realm of notoriety but would
declaring or certifying the result so ascertained. (20 C.J., nonetheless cast their votes in favor of the ineligible
200-201) [Emphasis supplied] candidate. Both assumptions, however, are absent in
this case. Petitioner's allegation that Basco was well-
Finally, the cases of Duremdes, Benito and Aguam, known to have been disqualified in the small
supra, cited by petitioner are all irrelevant and community where he ran as a candidate is purely
inapplicable to the factual circumstances at bar and speculative and conjectural, unsupported as it is by any
serve no other purpose than to muddle the real issue. convincing facts of record to show notoriety of his
These three cases do not in any manner refer to void alleged disqualification. 30
proclamations resulting from the mere pendency of a
disqualification case. In sum, we see the dismissal of the petition for
disqualification as not having been attended by grave
In Duremdes, the proclamation was deemed void ab abuse of discretion. There is then no more legal
initio because the same was made contrary to the impediment for private respondent's continuance in
provisions of the Omnibus Election Code regarding the office as City Councilor for the Second District of Manila.
suspension of proclamation in cases of contested
election returns. WHEREFORE, the instant petition for certiorari and
prohibition is hereby DISMISSED for lack of merit. The
In Benito, the proclamation of petitioner Benito was assailed resolution of respondent Commission on
rendered ineffective due to the Board of Canvassers' Elections (COMELEC) in SPA 95-212 dated July 31, 1996
violation of its ministerial duty to proclaim the is hereby AFFIRMED. Costs against petitioner.
candidate receiving the highest number of votes and
pave the way to succession in office. In said case, the SO ORDERED.
candidate receiving the highest number of votes for the
mayoralty position died but the Board of Canvassers,
instead of proclaiming the deceased candidate winner, G.R. No. 183505 February 26, 2010
declared Benito, a mere second-placer, the mayor.

Lastly, in Aguam, the nullification of the proclamation COMMISSIONER OF INTERNAL REVENUE, Petitioner,
proceeded from the fact that it was based only on vs.
advanced copies of election returns which, under the SM PRIME HOLDINGS, INC. and FIRST ASIA REALTY
law then prevailing, could not have been a proper and DEVELOPMENT CORPORATION, Respondents.
legal basis for proclamation.
DECISION
With no precedent clearly in point, petitioner's
arguments must, therefore, be rejected. DEL CASTILLO, J.:

IV. May Romualdo S. Maranan, a seventh placer, be When the intent of the law is not apparent as worded,
legally declared a winning candidate? or when the application of the law would lead to
absurdity or injustice, legislative history is all important.
Obviously, he may not be declared a winner. In the first In such cases, courts may take judicial notice of the
place, Basco was a duly qualified candidate pursuant to origin and history of the law,1 the deliberations during
our disquisition above. Furthermore, he clearly received the enactment,2 as well as prior laws on the same
the winning number of votes which put him in sixth subject matter3 to ascertain the true intent or spirit of
place. Thus, petitioner's emphatic reference to Labo v. the law.
COMELEC, 29 where we laid down a possible exception
This Petition for Review on Certiorari under Rule 45 of amount of ₱35,823,680.93 for VAT deficiency for
the Rules of Court, in relation to Republic Act (RA) No. taxable year 1999.16
9282,4 seeks to set aside the April 30, 2008 Decision5
and the June 24, 2008 Resolution6 of the Court of Tax Accordingly, on October 20, 2004, First Asia filed a
Appeals (CTA). Petition for Review before the CTA, docketed as CTA
Case No. 7085.17
Factual Antecedents
CTA Case No. 7111
Respondents SM Prime Holdings, Inc. (SM Prime) and
First Asia Realty Development Corporation (First Asia) On April 16, 2004, the BIR sent a PAN to First Asia for
are domestic corporations duly organized and existing VAT deficiency on cinema ticket sales for taxable year
under the laws of the Republic of the Philippines. Both 2000 in the amount of ₱35,840,895.78. First Asia
are engaged in the business of operating cinema protested the PAN through a letter dated April 22,
houses, among others.7 2004.18

CTA Case No. 7079 Thereafter, the BIR issued a Formal Letter of Demand
for alleged VAT deficiency.19 First Asia protested the
On September 26, 2003, the Bureau of Internal Revenue same in a letter dated July 9, 2004.20
(BIR) sent SM Prime a Preliminary Assessment Notice
(PAN) for value added tax (VAT) deficiency on cinema On October 5, 2004, the BIR denied the protest and
ticket sales in the amount of ₱119,276,047.40 for ordered First Asia to pay the VAT deficiency in the
taxable year 2000.8 In response, SM Prime filed a letter- amount of ₱35,840,895.78 for taxable year 2000.21
protest dated December 15, 2003.9
This prompted First Asia to file a Petition for Review
On December 12, 2003, the BIR sent SM Prime a Formal before the CTA on December 16, 2004. The case was
Letter of Demand for the alleged VAT deficiency, which docketed as CTA Case No. 7111.22
the latter protested in a letter dated January 14,
2004.10 CTA Case No. 7272

On September 6, 2004, the BIR denied the protest filed Re: Assessment Notice No. 008-02
by SM Prime and ordered it to pay the VAT deficiency
for taxable year 2000 in the amount of A PAN for VAT deficiency on cinema ticket sales for the
₱124,035,874.12.11 taxable year 2002 in the total amount of
₱32,802,912.21 was issued against First Asia by the BIR.
On October 15, 2004, SM Prime filed a Petition for In response, First Asia filed a protest-letter dated
Review before the CTA docketed as CTA Case No. November 11, 2004. The BIR then sent a Formal Letter
7079.12 of Demand, which was protested by First Asia on
December 14, 2004.23
CTA Case No. 7085
Re: Assessment Notice No. 003-03
On May 15, 2002, the BIR sent First Asia a PAN for VAT
deficiency on A PAN for VAT deficiency on cinema ticket sales in the
total amount of ₱28,196,376.46 for the taxable year
cinema ticket sales for taxable year 1999 in the total 2003 was issued by the BIR against First Asia. In a letter
amount of ₱35,823,680.93.13 First Asia protested the dated September 23, 2004, First Asia protested the
PAN in a letter dated July 9, 2002.14 PAN. A Formal Letter of Demand was thereafter issued
by the BIR to First Asia, which the latter protested
Subsequently, the BIR issued a Formal Letter of Demand through a letter dated November 11, 2004. 24
for the alleged VAT deficiency which was protested by
First Asia in a letter dated December 12, 2002.15 On May 11, 2005, the BIR rendered a Decision denying
the protests. It ordered First Asia to pay the amounts of
On September 6, 2004, the BIR rendered a Decision ₱33,610,202.91 and ₱28,590,826.50 for VAT deficiency
denying the protest and ordering First Asia to pay the for taxable years 2002 and 2003, respectively.25
 admission to cinema houses, cannot be given force and
Thus, on June 22, 2005, First Asia filed a Petition for effect because it failed to comply with the procedural
Review before the CTA, docketed as CTA Case No. due process for tax issuances under RMC No. 20-86.31
7272.26 Thus, it disposed of the case as follows:

Consolidated Petitions IN VIEW OF ALL THE FOREGOING, this Court hereby

GRANTS the Petitions for Review. Respondent’s
The Commissioner of Internal Revenue (CIR) filed his Decisions denying petitioners’ protests against
Answers to the Petitions filed by SM Prime and First deficiency value-added taxes are hereby REVERSED.
Asia.27 Accordingly, Assessment Notices Nos. VT-00-000098,
VT-99-000057, VT-00-000122, 003-03 and 008-02 are
On July 1, 2005, SM Prime filed a Motion to Consolidate ORDERED cancelled and set aside.
CTA Case Nos. 7085, 7111 and 7272 with CTA Case No.
7079 on the grounds that the issues raised therein are SO ORDERED.32
identical and that SM Prime is a majority shareholder of
First Asia. The motion was granted.28 Aggrieved, the CIR moved for reconsideration which
was denied by the First Division in its Resolution dated
Upon submission of the parties’ respective memoranda, December 14, 2006.33
the consolidated cases were submitted for decision on
the sole issue of whether gross receipts derived from Ruling of the CTA En Banc
admission tickets by cinema/theater operators or
proprietors are subject to VAT.29 Thus, the CIR appealed to the CTA En Banc.34 The case
was docketed as CTA EB No. 244.35 The CTA En Banc
Ruling of the CTA First Division however denied36 the Petition for Review and
dismissed37 as well petitioner’s Motion for
On September 22, 2006, the First Division of the CTA Reconsideration.
rendered a Decision granting the Petition for Review.
Resorting to the language used and the legislative The CTA En Banc held that Section 108 of the NIRC
history of the law, it ruled that the activity of showing actually sets forth an exhaustive enumeration of what
cinematographic films is not a service covered by VAT services are intended to be subject to VAT. And since
under the National Internal Revenue Code (NIRC) of the showing or exhibition of motion pictures, films or
1997, as amended, but an activity subject to movies by cinema operators or proprietors is not among
amusement tax under RA 7160, otherwise known as the the enumerated activities contemplated in the phrase
Local Government Code (LGC) of 1991. Citing House "sale or exchange of services," then gross receipts
Joint Resolution No. 13, entitled "Joint Resolution derived by cinema/ theater operators or proprietors
Expressing the True Intent of Congress with Respect to from admission tickets in showing motion pictures, film
the Prevailing Tax Regime in the Theater and Local Film or movie are not subject to VAT. It reiterated that the
Industry Consistent with the State’s Policy to Have a exhibition or showing of motion pictures, films, or
Viable, Sustainable and Competitive Theater and Film movies is instead subject to amusement tax under the
Industry as One of its Partners in National LGC of 1991. As regards the validity of RMC No. 28-
Development,"30 the CTA First Division held that the 2001, the CTA En Banc agreed with its First Division that
House of Representatives resolved that there should the same cannot be given force and effect for failure to
only be one business tax applicable to theaters and comply with RMC No. 20-86.
movie houses, which is the 30% amusement tax
imposed by cities and provinces under the LGC of 1991. Issue
Further, it held that consistent with the State’s policy to
have a viable, sustainable and competitive theater and Hence, the present recourse, where petitioner alleges
film industry, the national government should be that the CTA En Banc seriously erred:
precluded from imposing its own business tax in
addition to that already imposed and collected by local (1) In not finding/holding that the gross receipts derived
government units. The CTA First Division likewise found by operators/proprietors of cinema houses from
that Revenue Memorandum Circular (RMC) No. 28- admission tickets [are] subject to the 10% VAT because:
2001, which imposes VAT on gross receipts from
(a) THE EXHIBITION OF MOVIES BY CINEMA provision is clear and unambiguous. Thus, he maintains
OPERATORS/PROPRIETORS TO THE PAYING PUBLIC IS A that the exhibition of movies by cinema operators or
SALE OF SERVICE; proprietors to the paying public, being a sale of service,
is subject to VAT.
(b) UNLESS EXEMPTED BY LAW, ALL SALES OF SERVICES
ARE EXPRESSLY SUBJECT TO VAT UNDER SECTION 108 Respondents’ Arguments
OF THE NIRC OF 1997;
Respondents, on the other hand, argue that a plain
(c) SECTION 108 OF THE NIRC OF 1997 IS A CLEAR reading of Section 108 of the NIRC of 1997 shows that
PROVISION OF LAW AND THE APPLICATION OF RULES the gross receipts of proprietors or operators of
OF STATUTORY CONSTRUCTION AND EXTRINSIC AIDS IS cinemas/theaters derived from public admission are not
UNWARRANTED; among the services subject to VAT. Respondents insist
that gross receipts from cinema/theater admission
(d) GRANTING WITHOUT CONCEDING THAT RULES OF tickets were never intended to be subject to any tax
CONSTRUCTION ARE APPLICABLE HEREIN, STILL THE imposed by the national government. According to
HONORABLE COURT ERRONEOUSLY APPLIED THE SAME them, the absence of gross receipts from
AND PROMULGATED DANGEROUS PRECEDENTS; cinema/theater admission tickets from the list of
services which are subject to the national amusement
(e) THERE IS NO VALID, EXISTING PROVISION OF LAW tax under Section 125 of the NIRC of 1997 reinforces
EXEMPTING RESPONDENTS’ SERVICES FROM THE VAT this legislative intent. Respondents also highlight the
IMPOSED UNDER SECTION 108 OF THE NIRC OF 1997; fact that RMC No. 28-2001 on which the deficiency
assessments were based is an unpublished
(f) QUESTIONS ON THE WISDOM OF THE LAW ARE NOT administrative ruling.
PROPER ISSUES TO BE TRIED BY THE HONORABLE
COURT; and Our Ruling

(g) RESPONDENTS WERE TAXED BASED ON THE The petition is bereft of merit.
PROVISION OF SECTION 108 OF THE NIRC.
The enumeration of services subject to VAT under
(2) In ruling that the enumeration in Section 108 of the Section 108 of the NIRC is not exhaustive
NIRC of 1997 is exhaustive in coverage;
Section 108 of the NIRC of the 1997 reads:
(3) In misconstruing the NIRC of 1997 to conclude that
the showing of motion pictures is merely subject to the SEC. 108. Value-added Tax on Sale of Services and Use
amusement tax imposed by the Local Government or Lease of Properties. —
Code; and
(A) Rate and Base of Tax. — There shall be levied,
(4) In invalidating Revenue Memorandum Circular assessed and collected, a value-added tax equivalent to
(RMC) No. 28-2001.38 ten percent (10%) of gross receipts derived from the
sale or exchange of services, including the use or lease
Simply put, the issue in this case is whether the gross of properties.
receipts derived by operators or proprietors of
cinema/theater houses from admission tickets are The phrase "sale or exchange of services" means the
subject to VAT. performance of all kinds of services in the Philippines
for others for a fee, remuneration or consideration,
Petitioner’s Arguments including those performed or rendered by construction
and service contractors; stock, real estate, commercial,
Petitioner argues that the enumeration of services customs and immigration brokers; lessors of property,
subject to VAT in Section 108 of the NIRC is not whether personal or real; warehousing services; lessors
exhaustive because it covers all sales of services unless or distributors of cinematographic films; persons
exempted by law. He claims that the CTA erred in engaged in milling, processing, manufacturing or
applying the rules on statutory construction and in using repacking goods for others; proprietors, operators or
extrinsic aids in interpreting Section 108 because the keepers of hotels, motels, rest houses, pension houses,
inns, resorts; proprietors or operators of restaurants, which one owning such property grants to another the
refreshment parlors, cafes and other eating places, right to possess, use and enjoy it on specified period of
including clubs and caterers; dealers in securities; time in exchange for periodic payment of a stipulated
lending investors; transportation contractors on their price, referred to as rent (Black’s Law Dictionary, 6th
transport of goods or cargoes, including persons who ed., p. 889). x x x40
transport goods or cargoes for hire and other domestic
common carriers by land, air and water relative to their Since the activity of showing motion pictures, films or
transport of goods or cargoes; services of franchise movies by cinema/ theater operators or proprietors is
grantees of telephone and telegraph, radio and not included in the enumeration, it is incumbent upon
television broadcasting and all other franchise grantees the court to the determine whether such activity falls
except those under Section 119 of this Code; services of under the phrase "similar services." The intent of the
banks, non-bank financial intermediaries and finance legislature must therefore be ascertained.
companies; and non-life insurance companies (except
their crop insurances), including surety, fidelity, The legislature never intended operators
indemnity and bonding companies; and similar services
regardless of whether or not the performance thereof or proprietors of cinema/theater houses to be covered
calls for the exercise or use of the physical or mental by VAT
faculties. The phrase "sale or exchange of services" shall
likewise include: Under the NIRC of 1939,41 the national government
imposed amusement tax on proprietors, lessees, or
(1) The lease or the use of or the right or privilege to use operators of theaters, cinematographs, concert halls,
any copyright, patent, design or model, plan, secret circuses, boxing exhibitions, and other places of
formula or process, goodwill, trademark, trade brand or amusement, including cockpits, race tracks, and
other like property or right; cabaret.42 In the case of theaters or cinematographs,
the taxes were first deducted, withheld, and paid by the
xxxx proprietors, lessees, or operators of such theaters or
cinematographs before the gross receipts were divided
(7) The lease of motion picture films, films, tapes and between the proprietors, lessees, or operators of the
discs; and theaters or cinematographs and the distributors of the
cinematographic films. Section 1143 of the Local Tax
(8) The lease or the use of or the right to use radio, Code,44 however, amended this provision by
television, satellite transmission and cable television transferring the power to impose amusement tax45 on
time. admission from theaters, cinematographs, concert halls,
circuses and other places of amusements exclusively to
x x x x (Emphasis supplied) the local government. Thus, when the NIRC of 197746
was enacted, the national government imposed
A cursory reading of the foregoing provision clearly amusement tax only on proprietors, lessees or
shows that the enumeration of the "sale or exchange of operators of cabarets, day and night clubs, Jai-Alai and
services" subject to VAT is not exhaustive. The words, race tracks.47
"including," "similar services," and "shall likewise
include," indicate that the enumeration is by way of On January 1, 1988, the VAT Law48 was promulgated. It
example only.39 amended certain provisions of the NIRC of 1977 by
imposing a multi-stage VAT to replace the tax on
Among those included in the enumeration is the "lease original and subsequent sales tax and percentage tax on
of motion picture films, films, tapes and discs." This, certain services. It imposed VAT on sales of services
however, is not the same as the showing or exhibition under Section 102 thereof, which provides:
of motion pictures or films. As pointed out by the CTA
En Banc: SECTION 102. Value-added tax on sale of services. — (a)
Rate and base of tax. — There shall be levied, assessed
"Exhibition" in Black’s Law Dictionary is defined as "To and collected, a value-added tax equivalent to 10%
show or display. x x x To produce anything in public so percent of gross receipts derived by any person
that it may be taken into possession" (6th ed., p. 573). engaged in the sale of services. The phrase "sale of
While the word "lease" is defined as "a contract by services" means the performance of all kinds of services
for others for a fee, remuneration or consideration,
including those performed or rendered by construction Under the Local Tax Code (P.D. 231, as amended), the
and service contractors; stock, real estate, commercial, jurisdiction to levy amusement tax on gross receipts
customs and immigration brokers; lessors of personal arising from admission to places of amusement has
property; lessors or distributors of cinematographic been transferred to the local governments to the
films; persons engaged in milling, processing, exclusion of the national government.
manufacturing or repacking goods for others; and
similar services regardless of whether or not the xxxx
performance thereof calls for the exercise or use of the
physical or mental faculties: Provided That the following Since the promulgation of the Local Tax Code which
services performed in the Philippines by VAT-registered took effect on June 28, 1973 none of the amendatory
persons shall be subject to 0%: laws which amended the National Internal Revenue
Code, including the value added tax law under Executive
(1) Processing manufacturing or repacking goods for Order No. 273, has amended the provisions of Section
other persons doing business outside the Philippines 11 of the Local Tax Code. Accordingly, the sole
which goods are subsequently exported, x x x jurisdiction for collection of amusement tax on
admission receipts in places of amusement rests
xxxx exclusively on the local government, to the exclusion of
the national government. Since the Bureau of Internal
"Gross receipts" means the total amount of money or Revenue is an agency of the national government, then
its equivalent representing the contract price, it follows that it has no legal mandate to levy
compensation or service fee, including the amount amusement tax on admission receipts in the said places
charged for materials supplied with the services and of amusement.
deposits or advance payments actually or constructively
received during the taxable quarter for the service Considering the foregoing legal background, the
performed or to be performed for another person, provisions under Section 123 of the National Internal
excluding value-added tax. Revenue Code as renumbered by Executive Order No.
273 (Sec. 228, old NIRC) pertaining to amusement taxes
(b) Determination of the tax. — (1) Tax billed as a on places of amusement shall be implemented in
separate item in the invoice. — If the tax is billed as a accordance with BIR RULING, dated December 4, 1973
separate item in the invoice, the tax shall be based on and BIR RULING NO. 231-86 dated November 5, 1986 to
the gross receipts, excluding the tax. wit:

(2) Tax not billed separately or is billed erroneously in "x x x Accordingly, only the gross receipts of the
the invoice. — If the tax is not billed separately or is amusement places derived from sources other than
billed erroneously in the invoice, the tax shall be from admission tickets shall be subject to x x x
determined by multiplying the gross receipts (including amusement tax prescribed under Section 228 of the Tax
the amount intended to cover the tax or the tax billed Code, as amended (now Section 123, NIRC, as amended
erroneously) by 1/11. (Emphasis supplied) by E.O. 273). The tax on gross receipts derived from
admission tickets shall be levied and collected by the
Persons subject to amusement tax under the NIRC of city government pursuant to Section 23 of Presidential
1977, as amended, however, were exempted from the Decree No. 231, as amended x x x" or by the provincial
coverage of VAT.49 government, pursuant to Section 11 of P.D. 231,
otherwise known as the Local Tax Code. (Emphasis
On February 19, 1988, then Commissioner Bienvenido supplied)
A. Tan, Jr. issued RMC 8-88, which clarified that the
power to impose amusement tax on gross receipts On October 10, 1991, the LGC of 1991 was passed into
derived from admission tickets was exclusive with the law. The local government retained the power to
local government units and that only the gross receipts impose amusement tax on proprietors, lessees, or
of amusement places derived from sources other than operators of theaters, cinemas, concert halls, circuses,
from admission tickets were subject to amusement tax boxing stadia, and other places of amusement at a rate
under the NIRC of 1977, as amended. Pertinent portions of not more than thirty percent (30%) of the gross
of RMC 8-88 read: receipts from admission fees under Section 140
thereof.50 In the case of theaters or cinemas, the tax (7) When the Local Tax Code was repealed by the LGC of
shall first be deducted and withheld by their 1991, the local government continued to impose
proprietors, lessees, or operators and paid to the local amusement tax on admission tickets from theaters,
government before the gross receipts are divided cinematographs, concert halls, circuses and other places
between said proprietors, lessees, or operators and the of amusements.
distributors of the cinematographic films. However, the
provision in the Local Tax Code expressly excluding the (8) Amendments to the VAT law have been consistent in
national government from collecting tax from the exempting persons subject to amusement tax under the
proprietors, lessees, or operators of theaters, NIRC from the coverage of VAT.
cinematographs, concert halls, circuses and other places
of amusements was no longer included. (9) Only lessors or distributors of cinematographic films
are included in the coverage of VAT.
In 1994, RA 7716 restructured the VAT system by
widening its tax base and enhancing its administration. These reveal the legislative intent not to impose VAT on
Three years later, RA 7716 was amended by RA 8241. persons already covered by the amusement tax. This
Shortly thereafter, the NIRC of 199751 was signed into holds true even in the case of cinema/theater operators
law. Several amendments52 were made to expand the taxed under the LGC of 1991 precisely because the VAT
coverage of VAT. However, none pertain to law was intended to replace the percentage tax on
cinema/theater operators or proprietors. At present, certain services. The mere fact that they are taxed by
only lessors or distributors of cinematographic films are the local government unit and not by the national
subject to VAT. While persons subject to amusement government is immaterial. The Local Tax Code, in
tax53 under the NIRC of 1997 are exempt from the transferring the power to tax gross receipts derived by
coverage of VAT.54 cinema/theater operators or proprietor from admission
tickets to the local government, did not intend to treat
Based on the foregoing, the following facts can be cinema/theater houses as a separate class. No
established: distinction must, therefore, be made between the
places of amusement taxed by the national government
(1) Historically, the activity of showing motion pictures, and those taxed by the local government.
films or movies by cinema/theater operators or
proprietors has always been considered as a form of To hold otherwise would impose an unreasonable
entertainment subject to amusement tax. burden on cinema/theater houses operators or
proprietors, who would be paying an additional 10%55
(2) Prior to the Local Tax Code, all forms of amusement VAT on top of the 30% amusement tax imposed by
tax were imposed by the national government. Section 140 of the LGC of 1991, or a total of 40% tax.
Such imposition would result in injustice, as persons
(3) When the Local Tax Code was enacted, amusement taxed under the NIRC of 1997 would be in a better
tax on admission tickets from theaters, cinematographs, position than those taxed under the LGC of 1991. We
concert halls, circuses and other places of amusements need not belabor that a literal application of a law must
were transferred to the local government. be rejected if it will operate unjustly or lead to absurd
results.56 Thus, we are convinced that the legislature
(4) Under the NIRC of 1977, the national government never intended to include cinema/theater operators or
imposed amusement tax only on proprietors, lessees or proprietors in the coverage of VAT.
operators of cabarets, day and night clubs, Jai-Alai and
race tracks. On this point, it is apropos to quote the case of Roxas v.
Court of Tax Appeals,57 to wit:
(5) The VAT law was enacted to replace the tax on
original and subsequent sales tax and percentage tax on The power of taxation is sometimes called also the
certain services. power to destroy. Therefore, it should be exercised with
caution to minimize injury to the proprietary rights of a
(6) When the VAT law was implemented, it exempted taxpayer. It must be exercised fairly, equally and
persons subject to amusement tax under the NIRC from uniformly, lest the tax collector kill the "hen that lays
the coverage of VAT.1auuphil the golden egg." And, in order to maintain the general
public's trust and confidence in the Government this
power must be used justly and not treacherously. Revenue Memorandum Circular No. 28-2001 is invalid

The repeal of the Local Tax Code by the LGC of 1991 is Considering that there is no provision of law imposing
not a legal basis for the imposition of VAT VAT on the gross receipts of cinema/theater operators
or proprietors derived from admission tickets, RMC No.
Petitioner, in issuing the assessment notices for 28-2001 which imposes VAT on the gross receipts from
deficiency VAT against respondents, ratiocinated that: admission to cinema houses must be struck down. We
cannot overemphasize that RMCs must not override,
Basically, it was acknowledged that a cinema/theater supplant, or modify the law, but must remain consistent
operator was then subject to amusement tax under and in harmony with, the law they seek to apply and
Section 260 of Commonwealth Act No. 466, otherwise implement.60
known as the National Internal Revenue Code of 1939,
computed on the amount paid for admission. With the In view of the foregoing, there is no need to discuss
enactment of the Local Tax Code under Presidential whether RMC No. 28-2001 complied with the
Decree (PD) No. 231, dated June 28, 1973, the power of procedural due process for tax issuances as prescribed
imposing taxes on gross receipts from admission of under RMC No. 20-86.
persons to cinema/theater and other places of
amusement had, thereafter, been transferred to the Rule on tax exemption does not apply
provincial government, to the exclusion of the national
or municipal government (Sections 11 & 13, Local Tax Moreover, contrary to the view of petitioner,
Code). However, the said provision containing the respondents need not prove their entitlement to an
exclusive power of the provincial government to impose exemption from the coverage of VAT. The rule that tax
amusement tax, had also been repealed and/or deleted exemptions should be construed strictly against the
by Republic Act (RA) No. 7160, otherwise known as the taxpayer presupposes that the taxpayer is clearly
Local Government Code of 1991, enacted into law on subject to the tax being levied against him.61 The
October 10, 1991. Accordingly, the enactment of RA No. reason is obvious: it is both illogical and impractical to
7160, thus, eliminating the statutory prohibition on the determine who are exempted without first determining
national government to impose business tax on gross who are covered by the provision.62 Thus, unless a
receipts from admission of persons to places of statute imposes a tax clearly, expressly and
amusement, led the way to the valid imposition of the unambiguously, what applies is the equally well-settled
VAT pursuant to Section 102 (now Section 108) of the rule that the imposition of a tax cannot be presumed.63
old Tax Code, as amended by the Expanded VAT Law In fact, in case of doubt, tax laws must be construed
(RA No. 7716) and which was implemented beginning strictly against the government and in favor of the
January 1, 1996.58 (Emphasis supplied) taxpayer.64

We disagree. WHEREFORE, the Petition is hereby DENIED. The

assailed April 30, 2008 Decision of the Court of Tax
The repeal of the Local Tax Code by the LGC of 1991 is Appeals En Banc holding that gross receipts derived by
not a legal basis for the imposition of VAT on the gross respondents from admission tickets in showing motion
receipts of cinema/theater operators or proprietors pictures, films or movies are not subject to value-added
derived from admission tickets. The removal of the tax under Section 108 of the National Internal Revenue
prohibition under the Local Tax Code did not grant nor Code of 1997, as amended, and its June 24, 2008
restore to the national government the power to Resolution denying the motion for reconsideration are
impose amusement tax on cinema/theater operators or AFFIRMED.
proprietors. Neither did it expand the coverage of VAT.
Since the imposition of a tax is a burden on the SO ORDERED.
taxpayer, it cannot be presumed nor can it be extended G.R. No. 145559 July 14, 2006
by implication. A law will not be construed as imposing
a tax unless it does so clearly, expressly, and COMMISSIONER OF INTERNAL REVENUE, petitioner,
unambiguously.59 As it is, the power to impose vs.
amusement tax on cinema/theater operators or BENGUET CORPORATION, respondent.
proprietors remains with the local government.
DECISION 1988 to July 31, 1989, sold gold to the Central Bank and
treated these sales as zero-rated – that is, subject to the
GARCIA, J.: 0% VAT. During the same period, [respondent] thus
incurred input taxes attributable to said sales to the
In this petition for review under Rule 45 of the Rules of Central Bank. Consequently, [respondent] filed with the
Court, petitioner Commissioner of Internal Revenue Commissioner of Internal Revenue applications for the
seeks the reversal and setting aside of the following issuance of Tax Credit Certificates for input VAT Credits
Resolutions of the Court of Appeals (CA) in CA-G.R. SP attributable to its export sales - that is, inclusive of
No. 38413, to wit: direct export sales and sale of gold to the Central Bank
corresponding to the same taxable periods, to wit:
1. Resolution dated May 10, 20001 insofar as it ordered
petitioner to issue a tax credit to respondent Benguet
Corporation in the amount of P49,749,223.31
representing input VAT/tax attributable to its sales of AMOUNT OF TAX CREDIT APPLIED FOR
gold to the Central Bank (now Bangko Sentral ng
Pilipinas or BSP) covering the period from January 1, AMOUNT OF TAX TAXABLE PERIOD
1988 to July 31, 1989; and CREDIT APPLIED FOR

2. Resolution dated October 16, 20002 denying P34,449,817.71 01Jan88 to 30 Apr88

petitioner's motion for reconsideration. P30,382,666.86 01May88 to 31Jul88

The facts, as narrated by the CA in its basic Resolution P13,467,663.41 01 Nov88 to 31Jan89
of May 10, 2000, are:
P7,030,261.29 01 Feb89 to 30Apr89
[Respondent] is a domestic corporation engaged in P18,263,960.28 01May89 to 31Jul89
mining business, specifically the exploration,
development and operation of mining properties for Meanwhile, on January 23, 1992, then Commissioner
purposes of commercial production and the marketing Jose U. Ong issued VAT Ruling No. 008-92 declaring and
of mine products. It is a VAT-registered enterprise, with holding that the sales of gold to the Central Bank are
VAT Registration No. 31-0-000027 issued on January 1, considered domestic sales subject to 10% VAT instead
1988. Sometime in January 1988, [respondent] filed an of 0% VAT as previously held in BIR Issuances from 1998
application for zero-rating of its sales of mine products, to 1990. Subsequently, VAT Ruling No. 59-92, dated
which application was duly approved by the [petitioner] April 28, 1992, x x x were issued by [petitioner]
Commissioner of Internal Revenue. reiterating the treatment of sales of gold to the Central
Bank as domestic sales, and expressly countenancing
On August 28, 1988, then Deputy Commissioner of the Retroactive application of VAT Ruling No. 008-92 to
Internal Revenue Eufracio D. Santos issued VAT Ruling all such sales made starting January 1, 1988,
No. 378-88 which declared that the sale of gold to the ratiocinating, inter alia, that the mining companies will
Central Bank is considered an export sale and therefore not be unduly prejudiced by a retroactive application of
subject to VAT at 0% rate. On December 14, 1988, then VAT Ruling 008-92 because their claim for refund of
Deputy Commissioner Santos also issued Revenue input taxes are not lost because the same are allowable
Memorandum Circular (RMC) No. 59-88, again declaring on its output taxes on the sales of gold to Central Bank;
that the sale of gold by a VAT-registered taxpayer to the on its output taxes on other sales; and as deduction to
Central Bank is subject to the zero-rate VAT. No less income tax under Section 29 of the Tax Code.
than five Rulings were subsequently issued by
[petitioner] from 1988 to 1990 reiterating and On the basis of the aforequoted BIR Issuances,
confirming its position that the sale of gold by a VAT- [petitioner] thus treated [respondent's] sales of gold to
registered taxpayer to the Central Bank is subject to the the Central Bank as domestic sales subject to 10% VAT
zero-rate VAT. but allowed [respondent] a total tax credit of only
P81,991,810.91 which corresponded to VAT input taxes
As a corollary, and in reliance, of the foregoing attributable to its direct export sales (CTA Decision
issuances, [respondent], during the six (6) taxable dated March 23, 1995; Page 87). Notwithstanding this
quarters in question covering the period January 1, finding of the [petitioner], [respondent] was not
refunded the said amounts of tax credit claimed. Thus, Resolution dated May 10, 2000, reversed itself by
to suspend the running of the two-year prescriptive setting aside its earlier decision of May 30, 1996 and
period (Sec. 106, NIRC) for claiming refunds or tax ordering herein petitioner to issue in respondent's favor
credits, [respondent] instituted x x x consolidated a tax credit in the amount of P131,741,034.22, to wit:
Petitions for Review with the Court of Tax Appeals,
praying for the issuance of "Tax Credit Certificates" for IN THE LIGHT OF ALL THE FOREGOING, [respondent's]
the following input VAT credits attributable to export Motion for Reconsideration, x x x as supplemented, is
sales transacted during the taxable quarters or periods GRANTED. The Decision of this Court, dated May 30,
in question, to wit: 1996, affirming the Decision of the Court of Tax Appeals
x x x is SET ASIDE. The [petitioner Commissioner of
CTA Case Amount of Tax Taxable Period Internal Revenue] is hereby ordered to issue
Credit Applied for [respondent] a TAX CREDIT in the amount of
Number P131,741,034.22.
4429 P64,832,374.67 01JAN 88 to 31JUL88
SO ORDERED.
4495 P43,614,437.88 01AUG 88to 31JAN89
4575 P23,294,221.77 01FEB 89 to 31JUL89 In its reversal action, the CA ruled that the tax credit in
the total amount of P131,741,034.22 consists of (1)
P131,741,034.22 = TOTAL
P81,991,810.91, representing input VAT credits
attributable to direct export sales subject to 0% VAT,
Significantly, the total amount of P131,741,034.22, as and (2) P49,749,223.31, representing input VAT
hereinabove computed, corresponds to the total input attributable to sales of gold to the CB which were
VAT credits attributable to export sales made by subject to 0% when said sales were made in 1988 and
[respondent] during the taxable periods set forth and 1989. In effect, the CA rejected the retroactive
therefore, represents a combination of input tax application of VAT Ruling No. 008-92 to the subject gold
attributable to both (1) direct export sales and (2) sales sales of respondent because of the resulting prejudice
of gold to the Central Bank. (Words in brackets added).3 to the latter despite the existence of alternative modes
for the recovery of the input VAT.
In a decision dated March 23, 1995,4 the Court of Tax
Appeals (CTA) dismissed respondent's aforementioned This time, it was petitioner who moved for a
consolidated Petitions for Review and denied the whole reconsideration but his motion was denied by the CA in
amount of its claim for tax credit of P131,741,034.22. its subsequent Resolution of October 16, 2000.
The tax court held that the alleged prejudice to
respondent as a result of the retroactive application of Hence, petitioner's present recourse assailing only that
VAT Ruling No. 008-92 issued on January 23, 1992 to the portion of the CA Resolution of May 10, 2000 allowing
latter's gold sales to the Central Bank (CB) from January respondent the amount of P49,749,223.31 as tax credit
1, 1988 to July 31, 1989 is merely speculative and not corresponding to the input VAT attributable to its sales
actual and imminent so as to proscribe said Ruling's of gold to the CB for the period January 1, 1988 to July
retroactivity. The CTA further held that respondent 31, 1989. It is petitioner's sole contention that the CA
would not be unduly prejudiced considering that VAT erred in rejecting the retroactive application of VAT
Ruling No. 59-92 which mandates the retroactivity of Ruling No. 008-92, dated January 23, 1992, subjecting
VAT Ruling No. 008-92 likewise provides for alternative sales of gold to the CB to 10% VAT to respondent's sales
remedies for the recovery of the input VAT. of gold during the period from January 1, 1988 to July
31, 1989. Petitioner posits that, contrary to the ruling of
Its motion for reconsideration having been denied by the appellate court, the retroactive application of VAT
the tax court, respondent appealed to the CA whereat Ruling No. 008-92 to respondent would not prejudice
its recourse was docketed as CA-G.R. SP No. 38413. the latter.

At first, the CA, in a decision dated May 30, 1996,5 Initially, the Court, in its Resolution of January 24, 2001,
affirmed in toto that of the tax court. 6 denied the Petition for lack of verification and
certification against forum shopping. However, upon
However, upon respondent's motion for petitioner's manifestation and motion for
reconsideration, the CA, in the herein assailed basic
reconsideration, the Court reinstated the Petition in its services. Thus, "input tax" means the value-added tax
subsequent Resolution of March 5, 2001.7 paid by a VAT-registered person/entity in the course of
his/its trade or business on the importation of goods or
The petition must have to fall. local purchases of goods or services from a VAT-
registered person.9
We start with the well-entrenched rule that rulings and
circulars, rules and regulations, promulgated by the On the other hand, when that person or entity sells
Commissioner of Internal Revenue, would have no his/its products or services, the VAT-registered taxpayer
retroactive application if to so apply them would be generally becomes liable for 10% of the selling price as
prejudicial to the taxpayers.8 output VAT or output tax.10 Hence, "output tax" is the
value-added tax on the sale of taxable goods or services
And this is as it should be, for the Tax Code, specifically by any person registered or required to register under
Section 246 thereof, is explicit that: Section 107 of the (old) Tax Code.11

x x x Any revocation, modification, or reversal of any The VAT system of taxation allows a VAT-registered
rules and regulations promulgated in accordance with taxpayer to recover its input VAT either by (1) passing
the preceding section or any of the rulings or circulars on the 10% output VAT on the gross selling price or
promulgated by the Commissioner of Internal Revenue gross receipts, as the case may be, to its buyers, or (2) if
shall not be given retroactive application if the the input tax is attributable to the purchase of capital
revocation, modification, or reversal will be prejudicial goods or to zero-rated sales, by filing a claim for a
to the taxpayers except in the following cases: a) where refund or tax credit with the BIR.12
the taxpayer deliberately misstates or omits material
facts from his return or in any document required of Simply stated, a taxpayer subject to 10% output VAT on
him by the Bureau of Internal Revenue; b) where the its sales of goods and services may recover its input VAT
facts subsequently gathered by the Bureau of Internal costs by passing on said costs as output VAT to its
Revenue are materially different from the facts on buyers of goods and services but it cannot claim the
which the ruling is based; or c) where the taxpayer same as a refund or tax credit, while a taxpayer subject
acted in bad faith. to 0% on its sales of goods and services may only
recover its input VAT costs by filing a refund or tax
There is no question, therefore, as to the prohibition credit with the BIR.
against the retroactive application of the revocation,
modification or reversal, as the case maybe, of Here, the claimed tax credit of input tax amounting to
previously established Bureau on Internal Revenue (BIR) P49,749,223.31 represents the costs or expenses
Rulings when the taxpayer's interest would be incurred by respondent in connection with its gold
prejudiced thereby. But even if prejudicial to a taxpayer, production. Relying on BIR Rulings, specifically VAT
retroactive application is still allowed where: (a) a Ruling No. 378-88, dated August 28, 1988, and VAT
taxpayer deliberately misstates or omits material facts Ruling No. 59-88, dated December 14, 1988, both of
from his return or any document required by the BIR; which declared that sales of gold to the CB are
(b) where subsequent facts gathered by the BIR are considered export sales subject to 0%, respondent sold
materially different from which the ruling is based; and gold to the CB from January 1, 1988 to July 31, 1989
(c) where the taxpayer acted in bad faith. without passing on to the latter its input VAT costs,
obviously intending to obtain a refund or credit thereof
As admittedly, respondent's case does not fall under from the BIR at the end of the taxable period. However,
any of the above exceptions, what is crucial to by the time respondent applied for refund/credit of its
determine then is whether the retroactive application input VAT costs, VAT Ruling No. 008-92 dated January
of VAT Ruling No. 008-92 would be prejudicial to 23, 1992, treating sales of gold to the CB as domestic
respondent Benguet Corporation. sales subject to 10% VAT, and VAT Ruling No. 059-92
dated April 28, 1992, retroactively applying said VAT
The Court resolves the question in the affirmative. Ruling No. 008-92 to such sales made from January 1,
1988 onwards, were issued. As a result, respondent's
Input VAT or input tax represents the actual payments, application for refund/credit was denied and, as
costs and expenses incurred by a VAT-registered likewise found by the CA, it was even subsequently
taxpayer in connection with his purchase of goods and assessed deficiency output VAT on October 19, 1992 in
the total amounts of P252,283,241.95 for the year 1988, income tax deductible expense will yield only a partial
and P244,318,148.56 for the year 1989.13 and not full financial benefit of having the input VAT
refunded or used as a tax credit. We quote with
Clearly, from the foregoing, the prejudice to respondent approval the CA's observations in this respect, thus:
by the retroactive application of VAT Ruling No. 008-92
to its sales of gold to the CB from January 1, 1988 to July x x x even assuming that input VAT is still available for
31, 1989 is patently evident. deduction, [respondent] still suffers prejudice. As a
zero-rated taxpayer (pursuant to the 1988 to 1990 BIR
Verily, by reason of the denial of its claim for issuances), [respondent] could have claimed a cash
refund/credit, respondent has been precluded from refund or tax credit of the input VAT in the amount of
recovering its input VAT costs attributable to its sales of P49,749,223.31. If it had been allowed a cash refund or
gold to the CB during the period mentioned, for the tax credit, it could have used the full amount thereof to
following reasons: pay its other tax obligations (or, in the case of a cash
refund, to fund its operations). With VAT Ruling No.
First, because respondent could not pass on to the CB 059-92, [respondent] is precluded from claiming the
the 10% output VAT which would be retroactively cash refund or tax credit and is limited to the so-called
imposed on said transactions, not having passed the remedy of deducting the input VAT from gross income.
same at the time the sales were made on the But a cash refund or tax credit is not the same as a tax
assumption that said sales are subject to 0%, and, deduction. A tax deduction has less benefits than a tax
hence, maybe refunded or credited later. And second, credit. Consider the following differences;
because respondent could not claim the input VAT costs
as a refund/credit as it has been prevented such option, 2.42.1 A tax credit may be used to pay any national
the sales in question having been retroactively internal revenue tax liability. Section 104(b) of the Tax
subjected to 10% VAT, ergo limiting recovery of said Code states;
costs to the application of the same against the output
tax which will result therefrom. "(b) Excess output or input tax. – xxx Any input tax
attributable to xxx zero-rated sales by a VAT-registered
Indeed, respondent stands to suffer substantial person may at his option be refunded or credited
economic prejudice by the retroactive application of the against other internal revenue taxes, subject to the
VAT Ruling in question. provisions of Section 106."

But petitioner maintains otherwise, arguing that On the other hand, a tax deduction may be used only
respondent will not be unduly prejudiced since there against gross income for purposes of income tax. A tax
are still other available remedies for it to recover its deduction is not allowed against other internal revenue
input VAT costs. Said remedies, so petitioner points out, taxes such as excise taxes, documentary stamp taxes,
are for respondent to either (1) use said input taxes in and output VAT.
paying its output taxes in connection with its other sales
transactions which are subject to the 10% VAT or (2) if 2.42.2 In terms of income tax, a tax deduction is only an
there are no other sales transactions subject to 10% expense item in computing income tax liabilities
VAT, treat the input VAT as cost and deduct the same (Sections 27 to 29, Tax Code) while a tax credit is a
from income for income tax purposes. direct credit against final income tax due (Section
106[b], Tax Code). This is illustrated in the example
We are not persuaded. below:

The first remedy cannot be applied in this case. As Assume that in 1988, respondent had a gross income of
correctly found by the CA, respondent has clearly P1,000,000,000 and deductible expenses in general
shown that it has no "other transactions" subject to (such as salaries, utilities, transportation, fuel and costs
10% VAT, and petitioner has failed to prove the of sale) of P500,000,000. Assume also that [respondent]
existence of such "other transactions" against which to had input VAT of P131,741,034.22, the amount being
set off respondent's input VAT.14 claimed in the instant case. [Respondent's] income tax
liability, depending on whether it utilized the input tax
Anent the second remedy, prejudice will still, as tax credit or tax deduction, would be as follows:
indubitably, result because treating the input VAT as an
a. Tax credit x x x the deduction of an expense under Section 29 of
the Tax Code is not tantamount to a recovery of the
Gross Income (Section 28, Tax Code) P1,000,000,000.00
expense. The deduction of a bad debt, for instance,
Deductions (Section 29, Tax Code) ( 500,000,000.00)
does not result in the recovery of the debt. On the other
Taxable Income (Section 27, Tax Code) hand, a tax credit, because it can be fully utilized to
P 500,000.000.00
reduce tax liability, is as good as cash and is thus
Tax rate (Section 24[a], Tax Code) x 35%
effectively a full recovery of the input VAT cost.15
Tax Payable P 175,000,000.00
(Emphasis in the original; Words in brackets supplied).
Tax Credit (131,741,034.22)
We may add that the prejudice which befell respondent
Tax due P 43,258,965.78
is all the more highlighted by the fact that it has been
b. Tax deduction issued assessments for deficiency output VAT on the
Gross income (Section 28, Tax Code) basis of the same sales of gold to the CB.
P1,000,000,000.00
Deductions On a final note, the Court is fully cognizant of the well-
General (Section 29, Tax Code) P500,000,000.00 entrenched principle that the Government is not
estopped from collecting taxes because of mistakes or
Input VAT (VAT Ruling No. 059- P131,741,034.22 P 631,741,034.22)
92) errors on the part of its agents.16 But, like other
principles of law, this also admits of exceptions in the
Taxable income (Section 27, Tax Code) P 368,258,966.78
interest of justice and fair play, as where injustice will
Tax rate (Section 24[a], Tax Code) x 35% result to the taxpayer.17
Tax payable P 128,890,638.02
As this Court has said in ABS-CBN Broadcasting
Tax Credit -
Corporation v. Court of Tax Appeals and the
Tax due ______________
Commissioner of Internal Revenue:18
P 128,890,638.02
The insertion of Sec. 338-A [now Sec. 246] into the
National Internal Revenue Code x x x is indicative of
Thus, if the input VAT of P131,741,034.22 were to be
legislative intention to support the principle of good
credited against the income tax due, the income tax
faith. In fact, in the United States x x x it has been held
payable is only P43,258,965.78. On the other hand, if
that the Commissioner or Collector is precluded from
the input VAT were to be deducted from gross income
adopting a position inconsistent with one previously
before arriving at the net income, the income tax
taken where injustice would result therefrom, or where
payable is P128,890,638.02. This is almost three (3)
there has been a misrepresentation to the taxpayer.
times the income tax payable if the input VAT were to
[Word in brackets supplied].
be deducted from the income tax payable.
Here, when respondent sold gold to the CB, it relied on
As can be seen from above, there is a substantial
the formal assurances of the BIR, i.e., VAT Ruling No.
difference between a tax credit and a tax deduction. A
378-88 dated August 28, 1988 and VAT Ruling RMC No.
tax credit reduces tax liability while a tax deduction only
59-88 dated December 14, 1988, that such sales are
reduces taxable income (emphasis supplied).
zero-rated. To retroact a later ruling – VAT Ruling No.
008-92 - revoking the grant of zero-rating status to the
A tax credit of input VAT fully utilizes the entire amount
sales of gold to the CB and applying a new and contrary
of P131,741,034.22, since tax liability is reduced by the
position that such sales are now subject to 10%, is
said amount. A tax deduction is not fully utilized
clearly inconsistent with justice and the elementary
because the savings is only 35% or P46,109,361.98. In
requirements of fair play.
the above case, therefore, the use of input VAT as a tax
deduction results in a loss of 65% of the input VAT, or
Accordingly, we find that the CA did not commit a
P85,631,672.24, which [respondent] could have
reversible error in holding that VAT Ruling No. 008-92
otherwise fully utilized as a tax credit.
cannot be retroactively applied to respondent's sales of
gold to the CB during the period January 1, 1988 to July
xxx xxx xxx
31, 1989, hence, it is entitled to tax credit in the amount
of P49,749,223.31 attributable to such sales.
 Internal Revenue (BIR) as a VAT taxpayer and a
IN VIEW WHEREOF, the instant petition is DENIED and withholding agent.6
the assailed CA Resolutions are AFFIRMED.
Respondent Toshiba filed its VAT returns for the first
No costs. and second quarters of taxable year 1996, reporting
input VAT in the amount of P13,118,542.007 and
SO ORDERED. P5,128,761.94,8 respectively, or a total of
P18,247,303.94. It alleged that the said input VAT was
[G.R. NO. 150154 : August 9, 2005] from its purchases of capital goods and services which
COMMISSIONER OF INTERNAL REVENUE, Petitioners, remained unutilized since it had not yet engaged in any
v. business activity or transaction for which it may be
liable for any output VAT.9 Consequently, on 27 March
TOSHIBA INFORMATION EQUIPMENT (PHILS.), INC., 1998, respondent Toshiba filed with the One-Stop Shop
Respondent. Inter-Agency Tax Credit and Duty Drawback Center of
the Department of Finance (DOF) applications for tax
credit/refund of its unutilized input VAT for 01 January
DECISION to 31 March 1996 in the amount of P14,176,601.28,10
and for 01 April to 30 June 1996 in the amount of
CHICO-NAZARIO, J.: P5,161,820.79,11 for a total of P19,338,422.07. To toll
the running of the two-year prescriptive period for
In this Petition for Review under Rule 45 of the Rules of judicially claiming a tax credit/refund, respondent
Court, petitioner Commissioner of Internal Revenue Toshiba, on 31 March 1998, filed with the CTA a Petition
(CIR) prays for the reversal of the decision of the Court for Review. It would subsequently file an Amended
of Appeals in CA-G.R. SP No. 59106,1 affirming the order Petition for Review on 10 November 1998 so as to
of the Court of Tax Appeals (CTA) in CTA Case No. conform to the evidence presented before the CTA
5593,2 which ordered said petitioner CIR to refund or, during the hearings.
in the alternative, to issue a tax credit certificate to
respondent Toshiba Information Equipment (Phils.), Inc. In his Answer to the Amended Petition for Review
(Toshiba), in the amount of P16,188,045.44, before the CTA, petitioner CIR raised several Special and
representing unutilized input value-added tax (VAT) Affirmative Defenses, to wit'
payments for the first and second quarters of 1996.
5. Assuming without admitting that petitioner filed a
There is hardly any dispute as to the facts giving rise to claim for refund/tax credit, the same is subject to
the present Petition. investigation by the Bureau of Internal Revenue.

Respondent Toshiba was organized and established as a 6. Taxes are presumed to have been collected in
domestic corporation, duly-registered with the accordance with law. Hence, petitioner must prove that
Securities and Exchange Commission on 07 July 1995,3 the taxes sought to be refunded were erroneously or
with the primary purpose of engaging in the business of illegally collected.
manufacturing and exporting of electrical and
mechanical machinery, equipment, systems, 7. Petitioner must prove the allegations supporting its
accessories, parts, components, materials and goods of entitlement to a refund.
all kinds, including, without limitation, to those relating
to office automation and information technology, and 8. Petitioner must show that it has complied with the
all types of computer hardware and software, such as provisions of Sections 204(c) and 229 of the 1997 Tax
HDD, CD-ROM and personal computer printed circuit Code on the filing of a written claim for refund within
boards.4 two (2) years from the date of payment of the tax.

On 27 September 1995, respondent Toshiba also 9. Claims for refund of taxes are construed strictly
registered with the Philippine Economic Zone Authority against claimants, the same being in the nature of an
(PEZA) as an ECOZONE Export Enterprise, with principal exemption from taxation.12
office in Laguna Technopark, Biñan, Laguna.5 Finally,
on 29 December 1995, it registered with the Bureau of
After evaluating the evidence submitted by respondent An ECOZONE enterprise is a VAT-exempt entity. Sales of
Toshiba,13 the CTA, in its Decision dated 10 March goods, properties, and services by persons from the
2000, ordered petitioner CIR to refund, or in the Customs Territory to ECOZONE enterprises shall be
alternative, to issue a tax credit certificate to subject to VAT at zero percent (0%).
respondent Toshiba in the amount of
P16,188,045.44.14 Respondent Toshiba bases its claim for tax
credit/refund on Section 106(b) of the Tax Code of
In a Resolution, dated 24 May 2000, the CTA denied 1977, as amended, which reads:
petitioner CIR's Motion for Reconsideration for lack of
merit.15 SEC. 106. Refunds or tax credits of creditable input tax. '

The Court of Appeals, in its Decision dated 27 (b) Capital goods. - A VAT-registered person may apply
September 2001, dismissed petitioner CIR's Petition for for the issuance of a tax credit certificate or refund of
Review and affirmed the CTA Decision dated 10 March input taxes paid on capital goods imported or locally
2000. purchased, to the extent that such input taxes have not
been applied against output taxes. The application may
Comes now petitioner CIR before this Court assailing the be made only within two (2) years after the close of the
above-mentioned Decision of the Court of Appeals taxable quarter when the importation or purchase was
based on the following grounds' made.17

1. The Court of Appeals erred in holding that Petitioner CIR, on the other hand, opposes such claim
petitioner's failure to raise in the Tax Court the on account of Section 4.106-1(b) of Revenue
arguments relied upon by him in the petition, is fatal to Regulations (RR) No. 7-95, otherwise known as the VAT
his cause. Regulations, as amended, which provides as follows'

2. The Court of Appeals erred in not holding that Sec. 4.106-1. Refunds or tax credits of input tax. '
respondent being registered with the Philippine
Economic Zone Authority (PEZA) as an Ecozone Export ...
Enterprise, its business is not subject to VAT pursuant to
Section 24 of Republic Act No. 7916 in relation to (b) Capital Goods. - - Only a VAT-registered person may
Section 103 (now 109) of the Tax Code. apply for issuance of a tax credit certificate or refund of
input taxes paid on capital goods imported or locally
3. The Court of Appeals erred in not holding that since purchased. The refund shall be allowed to the extent
respondent's business is not subject to VAT, the capital that such input taxes have not been applied against
goods and services it purchased are considered not output taxes. The application should be made within
used in VAT taxable business, and, therefore, it is not two (2) years after the close of the taxable quarter
entitled to refund of input taxes on such capital goods when the importation or purchase was made.
pursuant to Section 4.106-1 of Revenue Regulations No.
7-95 and of input taxes on services pursuant to Section Refund of input taxes on capital goods shall be allowed
4.103-1 of said Regulations. only to the extent that such capital goods are used in
VAT taxable business. If it is also used in exempt
4. The Court of Appeals erred in holding that operations, the input tax refundable shall only be the
respondent is entitled to a refund or tax credit of input ratable portion corresponding to the taxable
taxes it paid on zero-rated transactions.16 operations.

Ultimately, however, the issue still to be resolved herein "Capital goods or properties" refer to goods or
shall be whether respondent Toshiba is entitled to the properties with estimated useful life greater than one
tax credit/refund of its input VAT on its purchases of year and which are treated as depreciable assets under
capital goods and services, to which this Court answers Section 29(f), used directly or indirectly in the
in the affirmative. production or sale of taxable goods or services.
(Underscoring ours.)
I
Petitioner CIR argues that although respondent Toshiba transactions. These are transactions exempted from
may be a VAT-registered taxpayer, it is not engaged in a VAT by special laws or international agreements to
VAT-taxable business. According to petitioner CIR, which the Philippines is a signatory. Since such
respondent Toshiba is actually VAT-exempt, invoking transactions are not subject to VAT, the sellers cannot
the following provision of the Tax Code of 1977, as pass on any output VAT to the purchasers of goods,
amended' properties, or services, and they may not claim tax
credit/refund of the input VAT they had paid thereon.
SEC. 103. Exempt transactions. - The following shall be
exempt from value-added tax. Section 103(q) of the Tax Code of 1977, as amended,
cannot apply to transactions of respondent Toshiba
(q) Transactions which are exempt under special laws, because although the said section recognizes that
except those granted under Presidential Decree No. 66, transactions covered by special laws may be exempt
529, 972, 1491, and 1590, and non-electric cooperatives from VAT, the very same section provides that those
under Republic Act No. 6938, or international falling under Presidential Decree No. 66 are not.
agreements to which the Philippines is a signatory.18 Presidential Decree No. 66, creating the Export
Processing Zone Authority (EPZA), is the precursor of
Since respondent Toshiba is a PEZA-registered Rep. Act No. 7916, as amended,20 under which the
enterprise, it is subject to the five percent (5%) EPZA evolved into the PEZA. Consequently, the
preferential tax rate imposed under Chapter III, Section exception of Presidential Decree No. 66 from Section
24 of Republic Act No. 7916, otherwise known as The 103(q) of the Tax Code of 1977, as amended, extends
Special Economic Zone Act of 1995, as amended. likewise to Rep. Act No. 7916, as amended.
According to the said section, "[e]xcept for real property
taxes on land owned by developers, no taxes, local and This Court agrees, however, that PEZA-registered
national, shall be imposed on business establishments enterprises, which would necessarily be located within
operating within the ECOZONE. In lieu thereof, five ECOZONES, are VAT-exempt entities, not because of
percent (5%) of the gross income earned by all business Section 24 of Rep. Act No. 7916, as amended, which
enterprises within the ECOZONE shall be paid' " The five imposes the five percent (5%) preferential tax rate on
percent (5%) preferential tax rate imposed on the gross gross income of PEZA-registered enterprises, in lieu of
income of a PEZA-registered enterprise shall be in lieu all taxes; but, rather, because of Section 8 of the same
of all national taxes, including VAT. Thus, petitioner CIR statute which establishes the fiction that ECOZONES are
contends that respondent Toshiba is VAT-exempt by foreign territory.
virtue of a special law, Rep. Act No. 7916, as amended.
It is important to note herein that respondent Toshiba is
It would seem that petitioner CIR failed to differentiate located within an ECOZONE. An ECOZONE or a Special
between VAT-exempt transactions from VAT-exempt Economic Zone has been described as'
entities. In the case of Commissioner of Internal
Revenue v. Seagate Technology (Philippines),19 this . . . [S]elected areas with highly developed or which
Court already made such distinction' have the potential to be developed into agro-industrial,
industrial, tourist, recreational, commercial, banking,
An exempt transaction, on the one hand, involves goods investment and financial centers whose metes and
or services which, by their nature, are specifically listed bounds are fixed or delimited by Presidential
in and expressly exempted from the VAT under the Tax Proclamations. An ECOZONE may contain any or all of
Code, without regard to the tax status - VAT-exempt or the following: industrial estates (IEs), export processing
not - of the party to the transaction' zones (EPZs), free trade zones and tourist/recreational
centers.21
An exempt party, on the other hand, is a person or
entity granted VAT exemption under the Tax Code, a The national territory of the Philippines outside of the
special law or an international agreement to which the proclaimed borders of the ECOZONE shall be referred to
Philippines is a signatory, and by virtue of which its as the Customs Territory.22
taxable transactions become exempt from VAT'
Section 8 of Rep. Act No. 7916, as amended, mandates
Section 103(q) of the Tax Code of 1977, as amended, that the PEZA shall manage and operate the ECOZONES
relied upon by petitioner CIR, relates to VAT-exempt as a separate customs territory;23 thus, creating the
fiction that the ECOZONE is a foreign territory.24 As a which are subject to taxes under the NIRC rather than
result, sales made by a supplier in the Customs Territory the 5% special tax regime:
to a purchaser in the ECOZONE shall be treated as an
exportation from the Customs Territory. Conversely, (a) Sale of goods (i.e., merchandise). 'This shall be
sales made by a supplier from the ECOZONE to a treated as indirect export hence, considered subject to
purchaser in the Customs Territory shall be considered zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5),
as an importation into the Customs Territory. NIRC and Sec. 23 of R.A. No. 7916 in relation to ART.
77(2) of the Omnibus Investments Code.
Given the preceding discussion, what would be the VAT
implication of sales made by a supplier from the (b) Sale of Service. 'This shall be treated subject to zero
Customs Territory to an ECOZONE enterprise? percent (0%) VAT under the "cross border doctrine" of
chanroblesvirtualawlibrary the VAT System, pursuant to VAT Ruling No. 032-98
dated Nov. 5, 1998.
The Philippine VAT system adheres to the Cross Border
Doctrine, according to which, no VAT shall be imposed (3) In the final analysis, any sale of goods, property or
to form part of the cost of goods destined for services made by a VAT registered supplier from the
consumption outside of the territorial border of the Customs Territory to any registered enterprise
taxing authority. Hence, actual export of goods and operating in the ecozone, regardless of the class or type
services from the Philippines to a foreign country must of the latter's PEZA registration, is actually qualified and
be free of VAT; while, those destined for use or thus legally entitled to the zero percent (0%) VAT.
consumption within the Philippines shall be imposed Accordingly, all sales of goods or property to such
with ten percent (10%) VAT.25 enterprise made by a VAT registered supplier from the
Customs Territory shall be treated subject to 0% VAT,
Applying said doctrine to the sale of goods, properties, pursuant to Sec. 106(A)(2)(a)(5), NIRC, in relation to
and services to and from the ECOZONES,26 the BIR ART. 77(2) of the Omnibus Investments Code, while all
issued Revenue Memorandum Circular (RMC) No. 74- sales of services to the said enterprises, made by VAT
99, on 15 October 1999. Of particular interest to the registered suppliers from the Customs Territory, shall be
present Petition is Section 3 thereof, which reads' treated effectively subject to the 0% VAT, pursuant to
Section 108(B)(3), NIRC, in relation to the provisions of
SECTION 3. Tax Treatment Of Sales Made By a VAT R.A. No. 7916 and the "Cross Border Doctrine" of the
Registered Supplier from The Customs Territory, To a VAT system.
PEZA Registered Enterprise.'
This Circular shall serve as a sufficient basis to entitle
(1) If the Buyer is a PEZA registered enterprise which is such supplier of goods, property or services to the
subject to the 5% special tax regime, in lieu of all taxes, benefit of the zero percent (0%) VAT for sales made to
except real property tax, pursuant to R.A. No. 7916, as the aforementioned ECOZONE enterprises and shall
amended: serve as sufficient compliance to the requirement for
prior approval of zero-rating imposed by Revenue
(a) Sale of goods (i.e., merchandise). 'This shall be Regulations No. 7-95 effective as of the date of the
treated as indirect export hence, considered subject to issuance of this Circular.
zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5),
NIRC and Sec. 23 of R.A. No. 7916, in relation to ART. Indubitably, no output VAT may be passed on to an
77(2) of the Omnibus Investments Code. ECOZONE enterprise since it is a VAT-exempt entity. The
VAT treatment of sales to it, however, varies depending
(b) Sale of service. 'This shall be treated subject to zero on whether the supplier from the Customs Territory is
percent (0%) VAT under the "cross border doctrine" of VAT-registered or not.
the VAT System, pursuant to VAT Ruling No. 032-98
dated Nov. 5, 1998. Sales of goods, properties and services by a VAT-
registered supplier from the Customs Territory to an
(2) If Buyer is a PEZA registered enterprise which is not ECOZONE enterprise shall be treated as export sales. If
embraced by the 5% special tax regime, hence, subject such sales are made by a VAT-registered supplier, they
to taxes under the NIRC, e.g., Service Establishments shall be subject to VAT at zero percent (0%). In zero-
rated transactions, the VAT-registered supplier shall not
pass on any output VAT to the ECOZONE enterprise, and From the foregoing, the VAT-registered person who can
at the same time, shall be entitled to claim tax avail as tax credit or refund of the input tax on his
credit/refund of its input VAT attributable to such sales. purchases of goods, services or properties is the seller
Zero-rating of export sales primarily intends to benefit whose sale is zero-rated. Applying the foregoing
the exporter (i.e., the supplier from the Customs provision to the case at bench, the VAT-registered
Territory), who is directly and legally liable for the VAT, supplier, whose sale of goods and services to
making it internationally competitive by allowing it to respondent is zero-rated, can avail as tax credit or
credit/refund the input VAT attributable to its export refund the input taxes on its (supplier) own purchases
sales. of goods and services related to its zero-rated sale of
goods and services to respondent. On the other hand,
Meanwhile, sales to an ECOZONE enterprise made by a respondent, as the buyer in such zero-rated sale of
non-VAT or unregistered supplier would only be exempt goods and services, could not have paid input taxes for
from VAT and the supplier shall not be able to claim which it can claim as tax credit or refund.27
credit/refund of its input VAT.
Before anything else, this Court wishes to point out that
Even conceding, however, that respondent Toshiba, as a petitioner CIR is working on the erroneous premise that
PEZA-registered enterprise, is a VAT-exempt entity that respondent Toshiba is claiming tax credit or refund of
could not have engaged in a VAT-taxable business, this input VAT based on Section 4.100-2,28 in relation to
Court still believes, given the particular circumstances of Section 4.106-1(a),29 of RR No. 7-95, as amended,
the present case, that it is entitled to a credit/refund of which allows the tax credit/refund of input VAT on zero-
its input VAT. rated sales of goods, properties or services. Instead,
respondent Toshiba is basing its claim for tax credit or
II refund on Sec. 4.106-1(b) of the same regulations,
Prior to RMC No. 74-99, however, PEZA-registered which allows a VAT-registered person to apply for tax
enterprises availing of the income tax holiday under credit/refund of the input VAT on its capital goods.
Executive Order No. 226, as amended, were deemed While in the former, the seller of the goods, properties
subject to VAT. or services is the one entitled to the tax credit/refund;
in the latter, it is the purchaser of the capital goods.
In his Petition, petitioner CIR opposed the grant of tax
credit/refund to respondent Toshiba, reasoning thus' Nevertheless, regardless of his mistake as to the basis
for respondent Toshiba's application for tax
In the first place, respondent could not have paid input credit/refund, petitioner CIR validly raised the question
taxes on its purchases of goods and services from VAT- of whether any output VAT was actually passed on to
registered suppliers because such purchases being zero- respondent Toshiba which it could claim as input VAT
rated, that is, no output tax was paid by the suppliers, subject to credit/refund. If the VAT-registered supplier
no input tax was shifted or passed on to respondent. from the Customs Territory did not charge any output
The VAT is an indirect tax and the amount of tax may be VAT to respondent Toshiba believing that it is exempt
shifted or passed on to the buyer, transferee or lessee from VAT or it is subject to zero-rated VAT, then
of the goods, properties or services (Section 105, 1997 respondent Toshiba did not pay any input VAT on its
Tax Code). purchase of capital goods and it could not claim any tax
credit/refund thereof.
Secondly, Section 4.100-2 of Revenue Regulations No. 7-
95 provides: The rule that any sale by a VAT-registered supplier from
the Customs Territory to a PEZA-registered enterprise
"SEC. 4.100-2. Zero-rated sales. A zero-rated sale by a shall be considered an export sale and subject to zero
VAT-registered person, which is a taxable transaction percent (0%) VAT was clearly established only on 15
for VAT purposes, shall not result in any output tax. October 1999, upon the issuance of RMC No. 74-99.
However, the input tax on his purchases of goods, Prior to the said date, however, whether or not a PEZA-
properties or services related to such zero-rated sale registered enterprise was VAT-exempt depended on the
shall be available as tax credit or refund in accordance type of fiscal incentives availed of by the said
with these regulations." 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,30 cannot be lightly The sale of capital goods by suppliers from the Customs
disregarded considering the great number of PEZA- Territory to respondent Toshiba in the present Petition
registered enterprises which did rely on it to determine took place during the first and second quarters of 1996,
its tax liabilities, as well as, its privileges. way before the issuance of RMC No. 74-99, and when
the old rule was accepted and implemented by no less
According to the old rule, Section 23 of Rep. Act No. than the BIR itself. Since respondent Toshiba opted to
7916, as amended, gives the PEZA-registered enterprise avail itself of the income tax holiday under Exec. Order
the option to choose between two sets of fiscal No. 226, as amended, then it was deemed subject to
incentives: (a) The five percent (5%) preferential tax the ten percent (10%) VAT. It was very likely therefore
rate on its gross income under Rep. Act No. 7916, as that suppliers from the Customs Territory had passed
amended; and (b) the income tax holiday provided on output VAT to respondent Toshiba, and the latter,
under Executive Order No. 226, otherwise known as the thus, incurred input VAT. It bears emphasis that the
Omnibus Investment Code of 1987, as amended.31 CTA, with the help of SGV & Co., the independent
accountant it commissioned to make a report, already
The five percent (5%) preferential tax rate on gross thoroughly reviewed the evidence submitted by
income under Rep. Act No. 7916, as amended, is in lieu respondent Toshiba consisting of receipts, invoices, and
of all taxes. Except for real property taxes, no other vouchers, from its suppliers from the Customs Territory.
national or local tax may be imposed on a PEZA- Accordingly, this Court gives due respect to and adopts
registered enterprise availing of this particular fiscal herein the CTA's findings that the suppliers of capital
incentive, not even an indirect tax like VAT. goods from the Customs Territory did pass on output
VAT to respondent Toshiba and the amount of input
Alternatively, Book VI of Exec. Order No. 226, as VAT which respondent Toshiba could claim as
amended, grants income tax holiday to registered credit/refund.
pioneer and non-pioneer enterprises for six-year and
four-year periods, respectively.32 Those availing of this Moreover, in another circular, Revenue Memorandum
incentive are exempt only from income tax, but shall be Circular (RMC) No. 42-2003, issued on 15 July 2003, the
subject to all other taxes, including the ten percent BIR answered the following question'
(10%) VAT.
Q-5: Under Revenue Memorandum Circular (RMC) No.
This old rule clearly did not take into consideration the 74-99, purchases by PEZA-registered firms automatically
Cross Border Doctrine essential to the VAT system or qualify as zero-rated without seeking prior approval
the fiction of the ECOZONE as a foreign territory. It from the BIR effective October 1999.
relied totally on the choice of fiscal incentives of the
PEZA-registered enterprise. Again, for emphasis, the old 1) Will the OSS-DOF Center still accept applications from
VAT rule for PEZA-registered enterprises was based on PEZA-registered claimants who were allegedly billed
their choice of fiscal incentives: (1) If the PEZA- VAT by their suppliers before and during the effectivity
registered enterprise chose the five percent (5%) of the RMC by issuing VAT invoices/receipts?
preferential tax on its gross income, in lieu of all taxes, chanroblesvirtualawlibrary
as provided by Rep. Act No. 7916, as amended, then it
would be VAT-exempt; (2) If the PEZA-registered A-5(1): If the PEZA-registered enterprise is paying the
enterprise availed of the income tax holiday under Exec. 5% preferential tax in lieu of all other taxes, the said
Order No. 226, as amended, it shall be subject to VAT at PEZA-registered taxpayer cannot claim TCC or refund
ten percent (10%). Such distinction was abolished by for the VAT paid on purchases. However, if the taxpayer
RMC No. 74-99, which categorically declared that all is availing of the income tax holiday, it can claim VAT
sales of goods, properties, and services made by a VAT- credit provided:
registered supplier from the Customs Territory to an
ECOZONE enterprise shall be subject to VAT, at zero A. The taxpayer-claimant is VAT-registered;
percent (0%) rate, regardless of the latter's type or class
of PEZA registration; and, thus, affirming the nature of a b. Purchases are evidenced by VAT invoices or receipts,
PEZA-registered or an ECOZONE enterprise as a VAT- whichever is applicable, with shifted VAT to the
exempt entity. purchaser prior to the implementation of RMC No. 74-
99; andcralawlibrary
c. The supplier issues a sworn statement under 5593, ordering said petitioner CIR to refund or, in the
penalties of perjury that it shifted the VAT and declared alternative, to issue a tax credit certificate to
the sales to the PEZA-registered purchaser as taxable respondent Toshiba, in the amount of P16,188,045.44,
sales in its VAT returns. representing unutilized input VAT for the first and
second quarters of 1996.
For invoices/receipts issued upon the effectivity of RMC G.R. No. 151135 July 2, 2004
No. 74-99, the claims for input VAT by PEZA-registered
companies, regardless of the type or class of PEZA CONTEX CORPORATION, petitioner,
registration, should be denied. vs.
HON. COMMISSIONER OF INTERNAL REVENUE,
Under RMC No. 42-2003, the DOF would still accept respondent.
applications for tax credit/refund filed by PEZA-
registered enterprises, availing of the income tax
holiday, for input VAT on their purchases made prior to DECISION
RMC No. 74-99. Acceptance of applications essentially
implies processing and possible approval thereof
depending on whether the given conditions are met. QUISUMBING, J.:
Respondent Toshiba's claim for tax credit/refund arose
from the very same circumstances recognized by Q-5(1) For review is the Decision1 dated September 3, 2001, of
and A-5(1) of RMC No. 42-2003. It therefore seems the Court of Appeals, in CA-G.R. SP No. 62823, which
irrational and unreasonable for petitioner CIR to oppose reversed and set aside the decision2 dated October 13,
respondent Toshiba's application for tax credit/refund 2000, of the Court of Tax Appeals (CTA). The CTA had
of its input VAT, when such claim had already been ordered the Commissioner of Internal Revenue (CIR) to
determined and approved by the CTA after due hearing, refund the sum of P683,061.90 to petitioner as
and even affirmed by the Court of Appeals; while it erroneously paid input value-added tax (VAT) or in the
could accept, process, and even approve applications alternative, to issue a tax credit certificate for said
filed by other similarly-situated PEZA-registered amount. Petitioner also assails the appellate court’s
enterprises at the administrative level. Resolution,3 dated December 19, 2001, denying the
motion for reconsideration.
III
Findings of fact by the CTA are respected and adopted Petitioner is a domestic corporation engaged in the
by this Court. business of manufacturing hospital textiles and
garments and other hospital supplies for export.
Finally, petitioner CIR, in a last desperate attempt to Petitioner’s place of business is at the Subic Bay
block respondent Toshiba's claim for tax credit/refund, Freeport Zone (SBFZ). It is duly registered with the Subic
challenges the allegation of said respondent that it Bay Metropolitan Authority (SBMA) as a Subic Bay
availed of the income tax holiday under Exec. Order No. Freeport Enterprise, pursuant to the provisions of
226, as amended, rather than the five percent (5%) Republic Act No. 7227.4 As an SBMA-registered firm,
preferential tax rate under Rep. Act No. 7916, as petitioner is exempt from all local and national internal
amended. Undoubtedly, this is a factual matter that revenue taxes except for the preferential tax provided
should have been raised and threshed out in the lower for in Section 12 (c)5 of Rep. Act No. 7227. Petitioner
courts. Giving it credence would belie petitioner CIR's also registered with the Bureau of Internal Revenue
assertion that it is raising only issues of law in its (BIR) as a non-VAT taxpayer under Certificate of
Petition that may be resolved without need for Registration RDO Control No. 95-180-000133.
reception of additional evidences. Once more, this
Court respects and adopts the finding of the CTA, From January 1, 1997 to December 31, 1998, petitioner
affirmed by the Court of Appeals, that respondent purchased various supplies and materials necessary in
Toshiba had indeed availed of the income tax holiday the conduct of its manufacturing business. The suppliers
under Exec. Order No. 226, as amended. of these goods shifted unto petitioner the 10% VAT on
the purchased items, which led the petitioner to pay
WHEREFORE, based on the foregoing, this Court input taxes in the amounts of P539,411.88 and
AFFIRMS the decision of the Court of Appeals in CA-G.R. P504,057.49 for 1997 and 1998, respectively.6
SP. No. 59106, and the order of the CTA in CTA Case No.
Acting on the belief that it was exempt from all national taxpayer as evidenced by the Certificate of Registration
and local taxes, including VAT, pursuant to Rep. Act No. RDO Control No. 95-180-000133 issued by RDO
7227, petitioner filed two applications for tax refund or Rosemarie Ragasa of BIR RDO No. 18 of the Subic Bay
tax credit of the VAT it paid. Mr. Edilberto Carlos, Freeport Zone and thus it is exempt from VAT, pursuant
revenue district officer of BIR RDO No. 19, denied the to Rep. Act No. 7227, said the CTA.
first application letter, dated December 29, 1998.
Nonetheless, the CTA held that the petitioner is exempt
Unfazed by the denial, petitioner on May 4, 1999, filed from the imposition of input VAT on its purchases of
another application for tax refund/credit, this time supplies and materials. It pointed out that under Section
directly with Atty. Alberto Pagabao, the regional 12(c) of Rep. Act No. 7227 and the Implementing Rules
director of BIR Revenue Region No. 4. The second letter and Regulations of the Bases Conversion and
sought a refund or issuance of a tax credit certificate in Development Act of 1992, all that petitioner is required
the amount of P1,108,307.72, representing erroneously to pay as a SBFZ-registered enterprise is a 5%
paid input VAT for the period January 1, 1997 to preferential tax.
November 30, 1998.
The CTA also disallowed all refunds of input VAT paid by
When no response was forthcoming from the BIR the petitioner prior to June 29, 1997 for being barred by
Regional Director, petitioner then elevated the matter the two-year prescriptive period under Section 229 of
to the Court of Tax Appeals, in a petition for review the Tax Code. The tax court also limited the refund only
docketed as CTA Case No. 5895. Petitioner stressed that to the input VAT paid by the petitioner on the supplies
Section 112(A)7 if read in relation to Section 106(A)(2) and materials directly used by the petitioner in the
(a)8 of the National Internal Revenue Code, as amended manufacture of its goods. It struck down all claims for
and Section 12(b)9 and (c) of Rep. Act No. 7227 would input VAT paid on maintenance, office supplies, freight
show that it was not liable in any way for any value- charges, and all materials and supplies shipped or
added tax. delivered to the petitioner’s Makati and Pasay City
offices.
In opposing the claim for tax refund or tax credit, the
BIR asked the CTA to apply the rule that claims for Respondent CIR then filed a petition, docketed as CA-
refund are strictly construed against the taxpayer. Since G.R. SP No. 62823, for review of the CTA decision by the
petitioner failed to establish both its right to a tax Court of Appeals. Respondent maintained that the
refund or tax credit and its compliance with the rules on exemption of Contex Corp. under Rep. Act No. 7227 was
tax refund as provided for in Sections 20410 and 22911 limited only to direct taxes and not to indirect taxes
of the Tax Code, its claim should be denied, according to such as the input component of the VAT. The
the BIR. Commissioner pointed out that from its very nature, the
value-added tax is a burden passed on by a VAT
On October 13, 2000, the CTA decided CTA Case No. registered person to the end users; hence, the direct
5895 as follows: liability for the tax lies with the suppliers and not
Contex.
WHEREFORE, in view of the foregoing, the Petition for
Review is hereby PARTIALLY GRANTED. Respondent is Finding merit in the CIR’s arguments, the appellate
hereby ORDERED to REFUND or in the alternative to court decided CA-G.R. SP No. 62823 in his favor, thus:
ISSUE A TAX CREDIT CERTIFICATE in favor of Petitioner
the sum of P683,061.90, representing erroneously paid WHEREFORE, premises considered, the appealed
input VAT. decision is hereby REVERSED AND SET ASIDE. Contex’s
claim for refund of erroneously paid taxes is DENIED
SO ORDERED.12 accordingly.

In granting a partial refund, the CTA ruled that SO ORDERED.13

petitioner misread Sections 106(A)(2)(a) and 112(A) of
the Tax Code. The tax court stressed that these In reversing the CTA, the Court of Appeals held that the
provisions apply only to those entities registered as VAT exemption from duties and taxes on the importation of
taxpayers whose sales are zero-rated. Petitioner does raw materials, capital, and equipment of SBFZ-
not fall under this category, since it is a non-VAT registered enterprises under Rep. Act No. 7227 and its
implementing rules covers only "the VAT imposable the Tax Code is erroneous and devoid of legal basis. It
under Section 107 of the [Tax Code], which is a direct contends that the provisions of Rep. Act No. 7227
liability of the importer, and in no way includes the clearly and unambiguously mandate that no local and
value-added tax of the seller-exporter the burden of national taxes shall be imposed upon SBFZ-registered
which was passed on to the importer as an additional firms and hence, said law should govern the case.
costs of the goods."14 This was because the exemption Petitioner calls our attention to regulations issued by
granted by Rep. Act No. 7227 relates to the act of both the SBMA and BIR clearly and categorically
importation and Section 10715 of the Tax Code providing that the tax exemption provided for by Rep.
specifically imposes the VAT on importations. The Act No. 7227 includes exemption from the imposition of
appellate court applied the principle that tax VAT on purchases of supplies and materials.
exemptions are strictly construed against the taxpayer.
The Court of Appeals pointed out that under the The respondent takes the diametrically opposite view
implementing rules of Rep. Act No. 7227, the exemption that while Rep. Act No. 7227 does grant tax exemptions,
of SBFZ-registered enterprises from internal revenue such grant is not all-encompassing but is limited only to
taxes is qualified as pertaining only to those for which those taxes for which a SBFZ-registered business may be
they may be directly liable. It then stated that directly liable. Hence, SBFZ locators are not relieved
apparently, the legislative intent behind Rep. Act No. from the indirect taxes that may be shifted to them by a
7227 was to grant exemptions only to direct taxes, VAT-registered seller.
which SBFZ-registered enterprise may be liable for and
only in connection with their importation of raw At this juncture, it must be stressed that the VAT is an
materials, capital, and equipment as well as the sale of indirect tax. As such, the amount of tax paid on the
their goods and services. goods, properties or services bought, transferred, or
leased may be shifted or passed on by the seller,
Petitioner timely moved for reconsideration of the transferor, or lessor to the buyer, transferee or
Court of Appeals decision, but the motion was denied. lessee.17 Unlike a direct tax, such as the income tax,
which primarily taxes an individual’s ability to pay based
Hence, the instant petition raising as issues for our on his income or net wealth, an indirect tax, such as the
resolution the following: VAT, is a tax on consumption of goods, services, or
certain transactions involving the same. The VAT, thus,
A. WHETHER OR NOT THE EXEMPTION FROM ALL LOCAL forms a substantial portion of consumer expenditures.
AND NATIONAL INTERNAL REVENUE TAXES PROVIDED
IN REPUBLIC ACT NO. 7227 COVERS THE VALUE ADDED Further, in indirect taxation, there is a need to
TAX PAID BY PETITIONER, A SUBIC BAY FREEPORT distinguish between the liability for the tax and the
ENTERPRISE ON ITS PURCHASES OF SUPPLIES AND burden of the tax. As earlier pointed out, the amount of
MATERIALS. tax paid may be shifted or passed on by the seller to the
buyer. What is transferred in such instances is not the
B. WHETHER OR NOT THE COURT OF TAX APPEALS liability for the tax, but the tax burden. In adding or
CORRECTLY HELD THAT PETITIONER IS ENTITLED TO A including the VAT due to the selling price, the seller
TAX CREDIT OR REFUND OF THE VAT PAID ON ITS remains the person primarily and legally liable for the
PURCHASES OF SUPPLIES AND RAW MATERIALS FOR payment of the tax. What is shifted only to the
THE YEARS 1997 AND 1998.16 intermediate buyer and ultimately to the final purchaser
is the burden of the tax.18 Stated differently, a seller
Simply stated, we shall resolve now the issues who is directly and legally liable for payment of an
concerning: (1) the correctness of the finding of the indirect tax, such as the VAT on goods or services is not
Court of Appeals that the VAT exemption embodied in necessarily the person who ultimately bears the burden
Rep. Act No. 7227 does not apply to petitioner as a of the same tax. It is the final purchaser or consumer of
purchaser; and (2) the entitlement of the petitioner to a such goods or services who, although not directly and
tax refund on its purchases of supplies and raw legally liable for the payment thereof, ultimately bears
materials for 1997 and 1998. the burden of the tax.19

On the first issue, petitioner argues that the appellate Exemptions from VAT are granted by express provision
court’s restrictive interpretation of petitioner’s VAT of the Tax Code or special laws. Under VAT, the
exemption as limited to those covered by Section 107 of
transaction can have preferential treatment in the
following ways: Petitioner’s claim, however, for exemption from VAT for
its purchases of supplies and raw materials is
(a) VAT Exemption. An exemption means that the sale incongruous with its claim that it is VAT-Exempt, for
of goods or properties and/or services and the use or only VAT-Registered entities can claim Input VAT
lease of properties is not subject to VAT (output tax) Credit/Refund.
and the seller is not allowed any tax credit on VAT
(input tax) previously paid.20 This is a case wherein the The point of contention here is whether or not the
VAT is removed at the exempt stage (i.e., at the point of petitioner may claim a refund on the Input VAT
the sale, barter or exchange of the goods or properties). erroneously passed on to it by its suppliers.

The person making the exempt sale of goods, properties While it is true that the petitioner should not have been
or services shall not bill any output tax to his customers liable for the VAT inadvertently passed on to it by its
because the said transaction is not subject to VAT. On supplier since such is a zero-rated sale on the part of the
the other hand, a VAT-registered purchaser of VAT- supplier, the petitioner is not the proper party to claim
exempt goods/properties or services which are exempt such VAT refund.
from VAT is not entitled to any input tax on such
purchase despite the issuance of a VAT invoice or Section 4.100-2 of BIR’s Revenue Regulations 7-95, as
receipt.21 amended, or the "Consolidated Value-Added Tax
Regulations" provide:
(b) Zero-rated Sales. These are sales by VAT-registered
persons which are subject to 0% rate, meaning the tax Sec. 4.100-2. Zero-rated Sales. A zero-rated sale by a
burden is not passed on to the purchaser. A zero-rated VAT-registered person, which is a taxable transaction
sale by a VAT-registered person, which is a taxable for VAT purposes, shall not result in any output tax.
transaction for VAT purposes, shall not result in any However, the input tax on his purchases of goods,
output tax. However, the input tax on his purchases of properties or services related to such zero-rated sale
goods, properties or services related to such zero-rated shall be available as tax credit or refund in accordance
sale shall be available as tax credit or refund in with these regulations.
accordance with these regulations.22
The following sales by VAT-registered persons shall be
Under Zero-rating, all VAT is removed from the zero- subject to 0%:
rated goods, activity or firm. In contrast, exemption only
removes the VAT at the exempt stage, and it will (a) Export Sales
actually increase, rather than reduce the total taxes
paid by the exempt firm’s business or non-retail "Export Sales" shall mean
customers. It is for this reason that a sharp distinction
must be made between zero-rating and exemption in ...
designating a value-added tax.23
(5) Those considered export sales under Articles 23 and
Apropos, the petitioner’s claim to VAT exemption in the 77 of Executive Order No. 226, otherwise known as the
instant case for its purchases of supplies and raw Omnibus Investments Code of 1987, and other special
materials is founded mainly on Section 12 (b) and (c) of laws, e.g. Republic Act No. 7227, otherwise known as
Rep. Act No. 7227, which basically exempts them from the Bases Conversion and Development Act of 1992.
all national and local internal revenue taxes, including
VAT and Section 4 (A)(a) of BIR Revenue Regulations No. ...
1-95.24
(c) Sales to persons or entities whose exemption under
On this point, petitioner rightly claims that it is indeed special laws, e.g. R.A. No. 7227 duly registered and
VAT-Exempt and this fact is not controverted by the accredited enterprises with Subic Bay Metropolitan
respondent. In fact, petitioner is registered as a NON- Authority (SBMA) and Clark Development Authority
VAT taxpayer per Certificate of Registration25 issued by (CDA), R. A. No. 7916, Philippine Economic Zone
the BIR. As such, it is exempt from VAT on all its sales Authority (PEZA), or international agreements, e.g.
and importations of goods and services. Asian Development Bank (ADB), International Rice
Research Institute (IRRI), etc. to which the Philippines is
a signatory effectively subject such sales to zero-rate."

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.

On the second issue, it may not be amiss to re-

emphasize that the petitioner is registered as a NON-
VAT taxpayer and thus, is exempt from VAT. As an
exempt VAT taxpayer, it is not allowed any tax credit on
VAT (input tax) previously paid. In fine, even if we are to
assume that exemption from the burden of VAT on
petitioner’s purchases did exist, petitioner is still not
entitled to any tax credit or refund on the input tax
previously paid as petitioner is an exempt VAT taxpayer.

Rather, it is the petitioner’s suppliers who are the

proper parties to claim the tax credit and accordingly
refund the petitioner of the VAT erroneously passed on
to the latter.

Accordingly, we find that the Court of Appeals did not

commit any reversible error of law in holding that
petitioner’s VAT exemption under Rep. Act No. 7227 is
limited to the VAT on which it is directly liable as a seller
and hence, it cannot claim any refund or exemption for
any input VAT it paid, if any, on its purchases of raw
materials and supplies.

WHEREFORE, the petition is DENIED for lack of merit.

The Decision dated September 3, 2001, of the Court of
Appeals in CA-G.R. SP No. 62823, as well as its
Resolution of December 19, 2001 are AFFIRMED. No
pronouncement as to costs.

SO ORDERED.
 [G.R. No. 181136 : June 13, 2012] refund/tax credit certificates for the total amount of
P9,324,283.30.
WESTERN MINDANAO POWER CORPORATION,
PETITIONER, VS. COMMISSIONER OF INTERNAL The CIR filed its Comment on the CTA Petition, arguing
REVENUE, RESPONDENT. that WMPC was not entitled to the latter’s claim for a
tax refund in view of its failure to comply with the
DECISION invoicing requirements under Section 113 of the NIRC in
relation to Section 4.108-1 of RR 7-95, which provides:
SERENO, J.:
SECTION 4.108-1. Invoicing Requirements — All VAT-
This is a Petition for Review under Rule 45 seeking the registered persons shall, for every sale or lease of goods
reversal of the 15 November 2007 Decision and 9 or properties or services, issue duly registered receipts
January 2008 Resolution of the Court of Tax Appeals or sales or commercial invoices which must show:
(CTA) En Banc in C.T.A. EB No. 272,[1] which upheld the
Court of Tax Appeals Second Division’s denial of the 1. the name, TIN and address of seller;
Petition for refund of unutilized input Value Added Tax 2. date of transaction;
(VAT) on the ground that the Official Receipts of 3. quantity, unit cost and description of merchandise or
petitioner Western Mindanao Power Corporation nature of service;
(WMPC) did not contain the phrase “zero-rated,” as 4. the name, TIN, business style, if any, and address of
required under Revenue Regulations No. 7-95 (RR 7- the VAT-registered purchaser, customer or client;
95).cralaw 5. the word “zero rated” imprinted on the invoice
covering zero-rated sales; and
Petitioner WMPC is a domestic corporation engaged in 6. the invoice value or consideration.
the production and sale of electricity. It is registered
with the Bureau of Internal Revenue (BIR) as a VAT In the case of sale of real property subject to VAT and
taxpayer. Petitioner alleges that it sells electricity solely where the zonal or market value is higher than the
to the National Power Corporation (NPC), which is in actual consideration, the VAT shall be separately
turn exempt from the payment of all forms of taxes, indicated in the invoice or receipt.
duties, fees and imposts, pursuant to Section 13[2] of
Republic Act (R.A.) No. 6395 (An Act Revising the Only VAT-registered persons are required to print their
Charter of the National Power Corporation). In view TIN followed by the word “VAT” in their invoice or
thereof and pursuant to Section 108(B) (3) of the receipts and this shall be considered as a “VAT Invoice.”
National Internal Revenue Code (NIRC),[3] petitioner’s All purchases covered by invoices other than “VAT”
power generation services to NPC is zero-rated. Invoice" shall not give rise to any input tax.

Under Section 112(A) of the NIRC,[4] a VAT-registered If the taxable person is also engaged in exempt
taxpayer may, within two years after the close of the operations, he should issue separate invoices or
taxable quarter, apply for the issuance of a tax credit or receipts for the taxable and exempt operations. A “VAT
refund of creditable input tax due or paid and Invoice” shall be issued only for sales of goods,
attributable to zero-rated or effectively zero-rated sales. properties or services subject to VAT imposed in
Hence, on 20 June 2000 and 13 June 2001, WMPC filed Sections 100 and 102 of the Code.
with the Commissioner of Internal Revenue (CIR)
applications for a tax credit certificate of its input VAT The invoice or receipt shall be prepared at least in
covering the taxable 3rd and 4th quarters of 1999 duplicate, the original to be given to the buyer and the
(amounting to P3,675,026.67)[5] and all the taxable duplicate to be retained by the seller as part of his
quarters of 2000 (amounting to P5,649,256.81).[6] accounting records. (Underscoring supplied.)

Noting that the CIR was not acting on its application, WMPC countered that the invoicing and accounting
and fearing that its claim would soon be barred by requirements laid down in RR 7-95 were merely
prescription, WMPC on 28 September 2001 filed with “compliance requirements,” which were not
the Court of Tax Appeals (CTA) in Division a Petition for indispensable to establish the claim for refund of excess
Review docketed as C.T.A. Case No. 6335, seeking and unutilized input VAT. Also, Section 113 of the NIRC
prevailing at the time the sales transactions were made
did not expressly state that failure to comply with all
the invoicing requirements would result in the Petitioner submitted in evidence its Quarterly Value
disallowance of a tax credit refund. [7] The express Added Tax Returns for the 3rd and 4th quarters of 1999
requirement – that “the term ‘zero-rated sale’ shall be and the four quarters of 2000 to prove that it had duly
written or printed prominently” on the VAT invoice or reported the input taxes paid on its domestic purchases
official receipt for sales subject to zero percent (0%) VAT of goods and services (Exhibits ‘E’ to ‘J’). However, a
– appeared in Section 113 of the NIRC only after it was closer examination of the returns clearly shows that the
amended by Section 11 of R.A. 9337.[8] This same do not reflect any zero-rated or effectively zero-
amendment cannot be applied retroactively, rated sales allegedly incurred during the said periods.
considering that it took effect only on 1 July 2005, or The spaces provided for such amounts were left blank,
long after petitioner filed its claim for a tax refund, and which only shows that there existed no zero-rated or
considering further that the RR 7-95 is punitive in effectively zero-rated sales for the 3rd and 4th quarters
nature. Further, since there was no statutory of 1999 and the four quarters of 2000.
requirement for imprinting the phrase “zero-rated” on In addition, the CTA En Banc noted that petitioner’s
official receipts prior to 1 July 2005, the RR 7-95 Official Receipts and VAT Invoices did not have the word
constituted undue expansion of the scope of the “zero-rated” imprinted/stamped thereon, contrary to
legislation it sought to implement. the clear mandate of Section 4.108-1 of RR 7-95.

CTA Second Division Decision CTA Presiding Justice Ernesto Acosta filed a Concurring
and Dissenting Opinion. Justice Acosta disagreed with
On 1 September 2006, the CTA Second Division the majority’s view regarding the supposed mandatory
dismissed[9] the Petition. It held that while petitioner requirement of imprinting the term “zero-rated” on
submitted in evidence its Quarterly VAT Returns for the official receipts or invoices. He opined that Section 113
periods applied for, “the same do not reflect any zero- in relation to Section 237[12] of the NIRC does not
rated or effectively zero-rated sales allegedly incurred require the imprinting of the phrase “zero-rated” on an
during said periods. The spaces provided for such invoice or official receipt for the document to be
amounts were left blank, which only shows that there considered valid for the purpose of claiming a refund or
existed no zero-rated or effectively zero-rated sales for an issuance of a tax credit certificate. Hence, the
the 3rd and 4th quarters of 1999 and the four quarters absence of the term “zero-rated” in an invoice or official
of 2000.”[10] Moreover, it found that petitioner’s VAT receipt does not affect its admissibility or competency
Invoices and Official Receipts did not contain on their as evidence in support of a refund claim. Also, assuming
face the phrase “zero-rated,” contrary to Section 4.108- that stamping the term “zero-rated” on an invoice or
1 of RR 7-95. official receipt is a requirement of the current NIRC, the
denial of a refund claim is not the imposable penalty for
Petitioner moved for reconsideration, but the motion failure to comply with that requirement.
was denied by the CTA in Division in its Resolution dated
30 January 2007.[11] Nevertheless, Justice Acosta agreed with the “decision
to deny the claim due to petitioner’s failure to prove the
CTA En Banc Decision input taxes it paid on its domestic purchases of goods
and services during the period involved.”
On 13 March 2007, WMPC appealed to the CTA En
Banc, which on 15 November 2007 issued a Decision WMPC filed a Motion for Reconsideration, which was
dismissing the appeal and affirming the CTA ruling. The denied by the CTA En Banc in a Resolution dated 9
CTA En Banc held that the receipts and evidence January 2008.[13]
presented by petitioner failed to fully substantiate the
existence of the latter’s effectively zero-rated sales to Hence, the present Petition.
NPC for the 3rd and 4th quarters of taxable year 1999
and the four quarters of taxable year 2000. The CTA En Issue
Banc quoted the CTA Second Division finding that the
Quarterly VAT Returns that petitioner adduced in
evidence did not reflect any zero-rated or effectively Whether the CTA En Banc seriously erred in dismissing
zero-rated sales allegedly incurred during the said the claim of petitioner for a refund or tax credit on input
period, to wit:
tax on the ground that the latter’s Official Receipts do tax credit.[15] Hence, the mere fact that petitioner’s
not contain the phrase “zero-rated” application for zero-rating has been approved by the CIR
does not, by itself, justify the grant of a refund or tax
Our Ruling credit. The taxpayer claiming the refund must further
comply with the invoicing and accounting requirements
We deny the Petition. mandated by the NIRC, as well as by revenue
regulations implementing them. [16]
Being a derogation of the sovereign authority, a statute
granting tax exemption is strictly construed against the Under the NIRC, a creditable input tax should be
person or entity claiming the exemption. When based evidenced by a VAT invoice or official receipt,[17] which
on such statute, a claim for tax refund partakes of the may only be considered as such when it complies with
nature of an exemption. Hence, the same rule of strict the requirements of RR 7-95, particularly Section 4.108-
interpretation against the taxpayer-claimant applies to 1. This section requires, among others, that “(i)f the sale
the claim.[14] is subject to zero percent (0%) value-added tax, the
term ‘zero-rated sale’ shall be written or printed
In the present case, petitioner’s claim for a refund or tax prominently on the invoice or receipt.”
credit of input VAT is anchored on Section 112(A) of the
NIRC, viz: We are not persuaded by petitioner’s argument that RR
7-95 constitutes undue expansion of the scope of the
Section 112. Refunds or Tax Credits of Input Tax. - legislation it seeks to implement on the ground that the
statutory requirement for imprinting the phrase “zero-
(A) Zero-rated or Effectively Zero-rated Sales. - any VAT- rated” on VAT official receipts appears only in Republic
registered person, whose sales are zero-rated or Act No. 9337. This law took effect on 1 July 2005, or
effectively zero-rated may, within two (2) years after long after petitioner had filed its claim for a refund.
the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or RR 7-95, which took effect on 1 January 1996, proceeds
refund of creditable input tax due or paid attributable to from the rule-making authority granted to the Secretary
such sales, except transitional input tax, to the extent of Finance by the NIRC for the efficient enforcement of
that such input tax has not been applied against output the same Tax Code and its amendments. In Panasonic
tax: Provided, however, That in the case of zero-rated Communications Imaging Corporation of the Philippines
sales under Section 106(A)(2)(a)(1), (2) and (B) and v. Commissioner of Internal Revenue,[18] we ruled that
Section 108 (B)(1) and (2), the acceptable foreign this provision is “reasonable and is in accord with the
currency exchange proceeds thereof had been duly efficient collection of VAT from the covered sales of
accounted for in accordance with the rules and goods and services.” Moreover, we have held in Kepco
regulations of the Bangko Sentral ng Pilipinas (BSP): Philippines Corporation v. Commissioner of Internal
Provided, further, That where the taxpayer is engaged Revenue[19] that the subsequent incorporation of
in zero-rated or effectively zero-rated sale and also in Section 4.108-1 of RR 7-95 in Section 113 (B) (2) (c) of
taxable or exempt sale of goods of properties or R.A. 9337 actually confirmed the validity of the
services, and the amount of creditable input tax due or imprinting requirement on VAT invoices or official
paid cannot be directly and entirely attributed to any receipts – a case falling under the principle of legislative
one of the transactions, it shall be allocated approval of administrative interpretation by
proportionately on the basis of the volume of sales. reenactment.

Thus, a taxpayer engaged in zero-rated or effectively In fact, this Court has consistently held as fatal the
zero-rated sale may apply for the issuance of a tax failure to print the word “zero-rated” on the VAT
credit certificate, or refund of creditable input tax due invoices or official receipts in claims for a refund or
or paid, attributable to the sale. credit of input VAT on zero-rated sales, even if the
claims were made prior to the effectivity of R.A. 9337.
In a claim for tax refund or tax credit, the applicant [20] Clearly then, the present Petition must be denied.
must prove not only entitlement to the grant of the
claim under substantive law. It must also show In addition, it is notable that the CTA Second Division
satisfaction of all the documentary and evidentiary and the CTA En Banc, including Presiding Justice Acosta
requirements for an administrative claim for a refund or in his Concurring and Dissenting Opinion, both found
that petitioner failed to sufficiently substantiate the Second Division) in CTA Case No. 6647. The CTA Second
existence of its effectively zero-rated sales to NPC for Division ordered the Commissioner of Internal Revenue
the 3rd and 4th quarters of taxable year 1999, as well as (Commissioner) to refund or issue a tax credit for
all four quarters of taxable year 2000. It must also be P483,797,599.65 to San Roque Power Corporation (San
noted that the CTA is a highly specialized court Roque) for unutilized input value-added tax (VAT) on
dedicated exclusively to the study and consideration of purchases of capital goods and services for the taxable
revenue-related problems, in which it has necessarily year 2001.
developed an expertise.[21] Hence, its factual findings,
when supported by substantial evidence, will not be G.R. No. 196113 is a petition for review6 assailing the
disturbed on appeal.[22] We find no sufficient reason to Decision7 promulgated on 8 December 2010 as well as
exempt the present case from this general rule.cralaw the Resolution8 promulgated on 14 March 2011 by the
CTA EB in CTA EB No. 624. In its Decision, the CTA EB
WHEREFORE, premises considered, we DENY the reversed the 8 January 2010 Decision9 as well as the 7
Petition and AFFIRM the Decision dated 15 November April 2010 Resolution10of the CTA Second Division and
2007 and Resolution dated 9 January 2008 of the Court granted the CIR’s petition for review in CTA Case No.
of Tax Appeals En Banc in CTA EB No. 272. 7574. The CTA EB dismissed, for having been
prematurely filed, Taganito Mining Corporation’s
SO ORDERED. (Taganito) judicial claim for P8,365,664.38 tax refund or
G.R. No. 187485 February 12, 2013 credit.

COMMISSIONER OF INTERNAL REVENUE, Petitioner, G.R. No. 197156 is a petition for review11 assailing the
vs. Decision12promulgated on 3 December 2010 as well as
SAN ROQUE POWER CORPORATION, Respondent. the Resolution13 promulgated on 17 May 2011 by the
CTA EB in CTA EB No. 569. The CTA EB affirmed the 20
X----------------------------X July 2009 Decision as well as the 10 November 2009
Resolution of the CTA Second Division in CTA Case No.
G.R. No. 196113 7687. The CTA Second Division denied, due to
prescription, Philex Mining Corporation’s (Philex)
TAGANITO MINING CORPORATION, Petitioner, judicial claim for P23,956,732.44 tax refund or credit.
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent. On 3 August 2011, the Second Division of this Court
resolved14 to consolidate G.R. No. 197156 with G.R. No.
x----------------------------x 196113, which were pending in the same Division, and
with G.R. No. 187485, which was assigned to the Court
G.R. No. 197156 En Banc. The Second Division also resolved to refer G.R.
Nos. 197156 and 196113 to the Court En Banc, where
PHILEX MINING CORPORATION, Petitioner, G.R. No. 187485, the lower-numbered case, was
vs. assigned.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
G.R. No. 187485
DECISION CIR v. San Roque Power Corporation

CARPIO, J.: The Facts

The Cases The CTA EB’s narration of the pertinent facts is as

follows:
G.R. No. 187485 is a petitiOn for review1 assailing the
Decision2 promulgated on 25 March 2009 as well as the [CIR] is the duly appointed Commissioner of Internal
Resolution3 promulgated on 24 April 2009 by the Court Revenue, empowered, among others, to act upon and
of Tax Appeals En Banc (CTA EB) in CTA EB No. 408. The approve claims for refund or tax credit, with office at
CTA EB affirmed the 29 November 2007 Amended the Bureau of Internal Revenue ("BIR") National Office
Decision4 as well as the 11 July 2008 Resolution5 of the Building, Diliman, Quezon City.
Second Division of the Court of Tax Appeals (CTA
[San Roque] is a domestic corporation duly organized ₱560,200,283.14. Consequently, [San Roque] filed with
and existing under and by virtue of the laws of the the BIR on even date, separate amended claims for
Philippines with principal office at Barangay San Roque, refund in the aggregate amount of ₱560,200,283.14.
San Manuel, Pangasinan. It was incorporated in October
1997 to design, construct, erect, assemble, own, [CIR’s] inaction on the subject claims led to the filing by
commission and operate power-generating plants and [San Roque] of the Petition for Review with the Court
related facilities pursuant to and under contract with [of Tax Appeals] in Division on April 10, 2003.
the Government of the Republic of the Philippines, or
any subdivision, instrumentality or agency thereof, or Trial of the case ensued and on July 20, 2005, the case
any governmentowned or controlled corporation, or was submitted for decision.15
other entity engaged in the development, supply, or
distribution of energy. The Court of Tax Appeals’ Ruling: Division

As a seller of services, [San Roque] is duly registered The CTA Second Division initially denied San Roque’s
with the BIR with TIN/VAT No. 005-017-501. It is claim. In its Decision16 dated 8 March 2006, it cited the
likewise registered with the Board of Investments following as bases for the denial of San Roque’s claim:
("BOI") on a preferred pioneer status, to engage in the lack of recorded zero-rated or effectively zero-rated
design, construction, erection, assembly, as well as to sales; failure to submit documents specifically
own, commission, and operate electric power- identifying the purchased goods/services related to the
generating plants and related activities, for which it was claimed input VAT which were included in its Property,
issued Certificate of Registration No. 97-356 on Plant and Equipment account; and failure to prove that
February 11, 1998. the related construction costs were capitalized in its
books of account and subjected to depreciation.
On October 11, 1997, [San Roque] entered into a Power
Purchase Agreement ("PPA") with the National Power The CTA Second Division required San Roque to show
Corporation ("NPC") to develop hydro-potential of the that it complied with the following requirements of
Lower Agno River and generate additional power and Section 112(B) of Republic Act No. 8424 (RA 8424)17 to
energy for the Luzon Power Grid, by building the San be entitled to a tax refund or credit of input VAT
Roque Multi-Purpose Project located in San Manuel, attributable to capital goods imported or locally
Pangasinan. The PPA provides, among others, that [San purchased: (1) it is a VAT-registered entity; (2) its input
Roque] shall be responsible for the design, construction, taxes claimed were paid on capital goods duly
installation, completion, testing and commissioning of supported by VAT invoices and/or official receipts; (3) it
the Power Station and shall operate and maintain the did not offset or apply the claimed input VAT payments
same, subject to NPC instructions. During the on capital goods against any output VAT liability; and (4)
cooperation period of twenty-five (25) years its claim for refund was filed within the two-year
commencing from the completion date of the Power prescriptive period both in the administrative and
Station, NPC will take and pay for all electricity available judicial levels.
from the Power Station.
The CTA Second Division found that San Roque
On the construction and development of the San Roque complied with the first, third, and fourth requirements,
Multi- Purpose Project which comprises of the dam, thus:
spillway and power plant, [San Roque] allegedly
incurred, excess input VAT in the amount of The fact that [San Roque] is a VAT registered entity is
₱559,709,337.54 for taxable year 2001 which it admitted (par. 4, Facts Admitted, Joint Stipulation of
declared in its Quarterly VAT Returns filed for the same Facts, Records, p. 157). It was also established that the
year. [San Roque] duly filed with the BIR separate claims instant claim of ₱560,200,823.14 is already net of the
for refund, in the total amount of ₱559,709,337.54, ₱11,509.09 output tax declared by [San Roque] in its
representing unutilized input taxes as declared in its amended VAT return for the first quarter of 2001.
VAT returns for taxable year 2001. Moreover, the entire amount of ₱560,200,823.14 was
deducted by [San Roque] from the total available input
However, on March 28, 2003, [San Roque] filed tax reflected in its amended VAT returns for the last two
amended Quarterly VAT Returns for the year 2001 since quarters of 2001 and first two quarters of 2002 (Exhibits
it increased its unutilized input VAT to the amount of M-6, O-6, OO-1 & QQ-1). This means that the claimed
input taxes of ₱560,200,823.14 did not form part of the effectively zero-rated sales because San Roque had no
excess input taxes of ₱83,692,257.83, as of the second record of such sales for the four quarters of 2001.
quarter of 2002 that was to be carried-over to the
succeeding quarters. Further, [San Roque’s] claim for The dispositive portion of the CTA Second Division’s 29
refund/tax credit certificate of excess input VAT was November 2007 Amended Decision reads:
filed within the two-year prescriptive period reckoned
from the dates of filing of the corresponding quarterly WHEREFORE, [San Roque’s] "Motion for New Trial
VAT returns. and/or Reconsideration" is hereby PARTIALLY GRANTED
and this Court’s Decision promulgated on March 8, 2006
For the first, second, third, and fourth quarters of 2001, in the instant case is hereby MODIFIED.
[San Roque] filed its VAT returns on April 25, 2001, July
25, 2001, October 23, 2001 and January 24, 2002, Accordingly, [the CIR] is hereby ORDERED to REFUND or
respectively (Exhibits "H, J, L, and N"). These returns in the alternative, to ISSUE A TAX CREDIT CERTIFICATE in
were all subsequently amended on March 28, 2003 favor of [San Roque] in the reduced amount of Four
(Exhibits "I, K, M, and O"). On the other hand, [San Hundred Eighty Three Million Seven Hundred Ninety
Roque] originally filed its separate claims for refund on Seven Thousand Five Hundred Ninety Nine Pesos and
July 10, 2001, October 10, 2001, February 21, 2002, and Sixty Five Centavos (₱483,797,599.65) representing
May 9, 2002 for the first, second, third, and fourth unutilized input VAT on purchases of capital goods and
quarters of 2001, respectively, (Exhibits "EE, FF, GG, and services for the taxable year 2001.
HH") and subsequently filed amended claims for all
quarters on March 28, 2003 (Exhibits "II, JJ, KK, and LL"). SO ORDERED.20
Moreover, the Petition for Review was filed on April 10,
2003. Counting from the respective dates when [San The Commissioner filed a Motion for Partial
Roque] originally filed its VAT returns for the first, Reconsideration on 20 December 2007. The CTA Second
second, third and fourth quarters of 2001, the Division issued a Resolution dated 11 July 2008 which
administrative claims for refund (original and amended) denied the CIR’s motion for lack of merit.
and the Petition for Review fall within the two-year
prescriptive period.18 The Court of Tax Appeals’ Ruling: En Banc

San Roque filed a Motion for New Trial and/or The Commissioner filed a Petition for Review before the
Reconsideration on 7 April 2006. In its 29 November CTA EB praying for the denial of San Roque’s claim for
2007 Amended Decision,19 the CTA Second Division refund or tax credit in its entirety as well as for the
found legal basis to partially grant San Roque’s claim. setting aside of the 29 November 2007 Amended
The CTA Second Division ordered the Commissioner to Decision and the 11 July 2008 Resolution in CTA Case
refund or issue a tax credit in favor of San Roque in the No. 6647.
amount of ₱483,797,599.65, which represents San
Roque’s unutilized input VAT on its purchases of capital The CTA EB dismissed the CIR’s petition for review and
goods and services for the taxable year 2001. The CTA affirmed the challenged decision and resolution.
based the adjustment in the amount on the findings of
the independent certified public accountant. The The CTA EB cited Commissioner of Internal Revenue v.
following reasons were cited for the disallowed claims: Toledo Power, Inc.21 and Revenue Memorandum
erroneous computation; failure to ascertain whether Circular No. 49-03,22 as its bases for ruling that San
the related purchases are in the nature of capital goods; Roque’s judicial claim was not prematurely filed. The
and the purchases pertain to capital goods. Moreover, pertinent portions of the Decision state:
the reduction of claims was based on the following: the
difference between San Roque’s claim and that More importantly, the Court En Banc has squarely and
appearing on its books; the official receipts covering the exhaustively ruled on this issue in this wise:
claimed input VAT on purchases of local services are not
within the period of the claim; and the amount of VAT It is true that Section 112(D) of the abovementioned
cannot be determined from the submitted official provision applies to the present case. However, what
receipts and invoices. The CTA Second Division denied the petitioner failed to consider is Section 112(A) of the
San Roque’s claim for refund or tax credit of its same provision. The respondent is also covered by the
unutilized input VAT attributable to its zero-rated or two (2) year prescriptive period. We have repeatedly
held that the claim for refund with the BIR and the can proceed simultaneously with the ones filed with the
subsequent appeal to the Court of Tax Appeals must be BIR and that taxpayers need not wait for the lapse of
filed within the two-year period. the subject 120-day period, to wit:

Accordingly, the Supreme Court held in the case of Atlas In response to [the] request of selected taxpayers for
Consolidated Mining and Development Corporation vs. adoption of procedures in handling refund cases that
Commissioner of Internal Revenue that the two-year are aligned to the statutory requirements that refund
prescriptive period for filing a claim for input tax is cases should be elevated to the Court of Tax Appeals
reckoned from the date of the filing of the quarterly before the lapse of the period prescribed by law, certain
VAT return and payment of the tax due. If the said provisions of RMC No. 42-2003 are hereby amended
period is about to expire but the BIR has not yet acted and new provisions are added thereto.
on the application for refund, the taxpayer may
interpose a petition for review with this Court within In consonance therewith, the following amendments
the two year period. are being introduced to RMC No. 42-2003, to wit:

In the case of Gibbs vs. Collector, the Supreme Court I.) A-17 of Revenue Memorandum Circular No. 42-2003
held that if, however, the Collector (now Commissioner) is hereby revised to read as follows:
takes time in deciding the claim, and the period of two
years is about to end, the suit or proceeding must be In cases where the taxpayer has filed a "Petition for
started in the Court of Tax Appeals before the end of Review" with the Court of Tax Appeals involving a claim
the two-year period without awaiting the decision of for refund/TCC that is pending at the administrative
the Collector. agency (Bureau of Internal Revenue or OSS-DOF), the
administrative agency and the tax court may act on the
Furthermore, in the case of Commissioner of Customs case separately. While the case is pending in the tax
and Commissioner of Internal Revenue vs. The court and at the same time is still under process by the
Honorable Court of Tax Appeals and Planters Products, administrative agency, the litigation lawyer of the BIR,
Inc., the Supreme Court held that the taxpayer need not upon receipt of the summons from the tax court, shall
wait indefinitely for a decision or ruling which may or request from the head of the investigating/processing
may not be forthcoming and which he has no legal right office for the docket containing certified true copies of
to expect. It is disheartening enough to a taxpayer to all the documents pertinent to the claim. The docket
keep him waiting for an indefinite period of time for a shall be presented to the court as evidence for the BIR
ruling or decision of the Collector (now Commissioner) in its defense on the tax credit/refund case filed by the
of Internal Revenue on his claim for refund. It would taxpayer. In the meantime, the investigating/processing
make matters more exasperating for the taxpayer if we office of the administrative agency shall continue
were to close the doors of the courts of justice for such processing the refund/TCC case until such time that a
a relief until after the Collector (now Commissioner) of final decision has been reached by either the CTA or the
Internal Revenue, would have, at his personal administrative agency.
convenience, given his go signal.
If the CTA is able to release its decision ahead of the
This Court ruled in several cases that once the petition is evaluation of the administrative agency, the latter shall
filed, the Court has already acquired jurisdiction over cease from processing the claim. On the other hand, if
the claims and the Court is not bound to wait the administrative agency is able to process the claim of
indefinitely for no reason for whatever action the taxpayer ahead of the CTA and the taxpayer is
respondent (herein petitioner) may take. At stake are amenable to the findings thereof, the concerned
claims for refund and unlike disputed assessments, no taxpayer must file a motion to withdraw the claim with
decision of respondent (herein petitioner) is required the CTA.23 (Emphasis supplied)
before one can go to this Court. (Emphasis supplied and
citations omitted) G.R. No. 196113
Taganito Mining Corporation v. CIR
Lastly, it is apparent from the following provisions of
Revenue Memorandum Circular No. 49-03 dated August The Facts
18, 2003, that [the CIR] knows that claims for VAT
refund or tax credit filed with the Court [of Tax Appeals]
The CTA Second Division’s narration of the pertinent properties of any description in connection with or
facts is as follows: which may be directly or indirectly conducive to any of
the objects of the corporation, and to contribute to,
Petitioner, Taganito Mining Corporation, is a subsidize or otherwise aid or take part in any
corporation duly organized and existing under and by operations;
virtue of the laws of the Philippines, with principal office
at 4th Floor, Solid Mills Building, De La Rosa St., and is a VAT-registered entity, with Certificate of
Lega[s]pi Village, Makati City. It is duly registered with Registration (BIR Form No. 2303) No. OCN
the Securities and Exchange Commission with 8RC0000017494. Likewise, [Taganito] is registered with
Certificate of Registration No. 138682 issued on March the Board of Investments (BOI) as an exporter of
4, 1987 with the following primary purpose: beneficiated nickel silicate and chromite ores, with BOI
Certificate of Registration No. EP-88-306.
To carry on the business, for itself and for others, of
mining lode and/or placer mining, developing, Respondent, on the other hand, is the duly appointed
exploiting, extracting, milling, concentrating, converting, Commissioner of Internal Revenue vested with
smelting, treating, refining, preparing for market, authority to exercise the functions of the said office,
manufacturing, buying, selling, exchanging, shipping, including inter alia, the power to decide refunds of
transporting, and otherwise producing and dealing in internal revenue taxes, fees and other charges,
nickel, chromite, cobalt, gold, silver, copper, lead, zinc, penalties imposed in relation thereto, or other matters
brass, iron, steel, limestone, and all kinds of ores, arising under the National Internal Revenue Code (NIRC)
metals and their by-products and which by-products or other laws administered by Bureau of Internal
thereof of every kind and description and by Revenue (BIR) under Section 4 of the NIRC. He holds
whatsoever process the same can be or may hereafter office at the BIR National Office Building, Diliman,
be produced, and generally and without limit as to Quezon City.
amount, to buy, sell, locate, exchange, lease, acquire
and deal in lands, mines, and mineral rights and claims [Taganito] filed all its Monthly VAT Declarations and
and to conduct all business appertaining thereto, to Quarterly Vat Returns for the period January 1, 2005 to
purchase, locate, lease or otherwise acquire, mining December 31, 2005. For easy reference, a summary of
claims and rights, timber rights, water rights, the filing dates of the original and amended Quarterly
concessions and mines, buildings, dwellings, plants VAT Returns for taxable year 2005 of [Taganito] is as
machinery, spare parts, tools and other properties follows:
whatsoever which this corporation may from time to
time find to be to its advantage to mine lands, and to Quarter Nature of Mode of filing Filing Date
explore, work, exercise, develop or turn to account the the Return
same, and to acquire, develop and utilize water rights in
such manner as may be authorized or permitted by law; 1st Original Electronic April 15, 2005
to purchase, hire, make, construct or otherwise, Amended Electronic July 20, 2005
acquire, provide, maintain, equip, alter, erect, improve,
repair, manage, work and operate private roads, barges, Amended Electronic October 18, 2
vessels, aircraft and vehicles, private telegraph and
2nd Original Electronic July 20, 2005
telephone lines, and other communication media, as
may be needed by the corporation for its own purpose, Amended Electronic October 18, 2
and to purchase, import, construct, machine, fabricate,
or otherwise acquire, and maintain and operate bridges, 3rd Original Electronic October 19, 2
piers, wharves, wells, reservoirs, plumes, watercourses, Amended Electronic October 18, 2
waterworks, aqueducts, shafts, tunnels, furnaces, cook
ovens, crushing works, gasworks, electric lights and 4th Original Electronic January 20, 2
power plants and compressed air plants, chemical Amended Electronic October 18, 2
works of all kinds, concentrators, smelters, smelting
plants, and refineries, matting plants, warehouses,
As can be gleaned from its amended Quarterly VAT
workshops, factories, dwelling houses, stores, hotels or
Returns, [Taganito] reported zero-rated sales
other buildings, engines, machinery, spare parts, tools,
amounting to P1,446,854,034.68; input VAT on its
implements and other works, conveniences and
domestic purchases and importations of goods (other 53-98, otherwise there would be no sufficient
than capital goods) and services amounting to compliance with the filing of administrative claim for
P2,314,730.43; and input VAT on its domestic purchases refund, the administrative claim thereof being mere
and importations of capital goods amounting to proforma, which is a condition sine qua non prior to the
P6,050,933.95, the details of which are summarized as filing of judicial claim in accordance with the provision
follows: of Section 229 of the 1997 Tax Code. Further, Section
112 (D) of the Tax Code, as amended, requires the
(MAY TABLE JAN) submission of complete documents in support of the
application filed with the BIR before the 120-day audit
On November 14, 2006, [Taganito] filed with [the CIR], period shall apply, and before the taxpayer could avail
through BIR’s Large Taxpayers Audit and Investigation of judicial remedies as provided for in the law. Hence,
Division II (LTAID II), a letter dated November 13, 2006 [Taganito’s] failure to submit proof of compliance with
claiming a tax credit/refund of its supposed input VAT the above-stated requirements warrants immediate
amounting to ₱8,365,664.38 for the period covering dismissal of the petition for review.
January 1, 2004 to December 31, 2004. On the same
date, [Taganito] likewise filed an Application for Tax 8. [Taganito] must prove that it has complied with the
Credits/Refunds for the period covering January 1, 2005 invoicing requirements mentioned in Sections 110 and
to December 31, 2005 for the same amount. 113 of the 1997 Tax Code, as amended, in relation to
provisions of Revenue Regulations No. 7-95.
On November 29, 2006, [Taganito] sent again another
letter dated November 29, 2004 to [the CIR], to correct 9. In an action for refund/credit, the burden of proof is
the period of the above claim for tax credit/refund in on the taxpayer to establish its right to refund, and
the said amount of ₱8,365,664.38 as actually referring failure to sustain the burden is fatal to the claim for
to the period covering January 1, 2005 to December 31, refund/credit (Asiatic Petroleum Co. vs. Llanes, 49 Phil.
2005. 466 cited in Collector of Internal Revenue vs. Manila
Jockey Club, Inc., 98 Phil. 670);
As the statutory period within which to file a claim for
refund for said input VAT is about to lapse without 10. Claims for refund are construed strictly against the
action on the part of the [CIR], [Taganito] filed the claimant for the same partake the nature of exemption
instant Petition for Review on February 17, 2007. from taxation (Commissioner of Internal Revenue vs.
Ledesma, 31 SCRA 95) and as such, they are looked
In his Answer filed on March 28, 2007, [the CIR] upon with disfavor (Western Minolco Corp. vs.
interposes the following defenses: Commissioner of Internal Revenue, 124 SCRA 1211).

4. [Taganito’s] alleged claim for refund is subject to SPECIAL AND AFFIRMATIVE DEFENSES
administrative investigation/examination by the Bureau
of Internal Revenue (BIR); 11. The Court of Tax Appeals has no jurisdiction to
entertain the instant petition for review for failure on
5. The amount of ₱8,365,664.38 being claimed by the part of [Taganito] to comply with the provision of
[Taganito] as alleged unutilized input VAT on domestic Section 112 (D) of the 1997 Tax Code which provides,
purchases of goods and services and on importation of thus:
capital goods for the period January 1, 2005 to
December 31, 2005 is not properly documented; Section 112. Refunds or Tax Credits of Input Tax. –

6. [Taganito] must prove that it has complied with the xxx xxx xxx
provisions of Sections 112 (A) and (D) and 229 of the
National Internal Revenue Code of 1997 (1997 Tax (D) Period within which refund or Tax Credit of Input
Code) on the prescriptive period for claiming tax Taxes shall be Made. – In proper cases, the
refund/credit; Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred
7. Proof of compliance with the prescribed checklist of (120) days from the date of submission of complete
requirements to be submitted involving claim for VAT documents in support of the application filed in
refund pursuant to Revenue Memorandum Order No. accordance with Subsections (A) and (B) hereof.
In cases of full or partial denial for tax refund or tax In fine, [Taganito] sufficiently proved that it is entitled
credit, or the failure on the part of the Commissioner to to a tax credit certificate in the amount of
act on the application within the period prescribed ₱8,249,883.33 representing unutilized input VAT for the
above, the taxpayer affected may, within thirty (30) four taxable quarters of 2005.
days from the receipt of the decision denying the claim
or after the expiration of the one hundred twenty WHEREFORE, premises considered, the instant Petition
dayperiod, appeal the decision or the unacted claim for Review is hereby PARTIALLY GRANTED. Accordingly,
with the Court of Tax Appeals. (Emphasis supplied.) [the CIR] is hereby ORDERED to REFUND to [Taganito]
the amount of EIGHT MILLION TWO HUNDRED FORTY
12. As stated, [Taganito] filed the administrative claim NINE THOUSAND EIGHT HUNDRED EIGHTY THREE
for refund with the Bureau of Internal Revenue on PESOS AND THIRTY THREE CENTAVOS (P8,249,883.33)
November 14, 2006. Subsequently on February 14, representing its unutilized input taxes attributable to
2007, the instant petition was filed. Obviously the 120 zero-rated sales from January 1, 2005 to December 31,
days given to the Commissioner to decide on the claim 2005.
has not yet lapsed when the petition was filed. The
petition was prematurely filed, hence it must be SO ORDERED.27
dismissed for lack of jurisdiction.
The Commissioner filed a Motion for Partial
During trial, [Taganito] presented testimonial and Reconsideration on 29 January 2010. Taganito, in turn,
documentary evidence primarily aimed at proving its filed a Comment/Opposition on the Motion for Partial
supposed entitlement to the refund in the amount of Reconsideration on 15 February 2010.
₱8,365,664.38, representing input taxes for the period
covering January 1, 2005 to December 31, 2005. [The In a Resolution28 dated 7 April 2010, the CTA Second
CIR], on the other hand, opted not to present evidence. Division denied the CIR’s motion. The CTA Second
Thus, in the Resolution promulgated on January 22, Division ruled that the legislature did not intend that
2009, this case was submitted for decision as of such Section 112 (Refunds or Tax Credits of Input Tax) should
date, considering [Taganito’s] "Memorandum" filed on be read in isolation from Section 229 (Recovery of Tax
January 19, 2009 and [the CIR’s] "Memorandum" filed Erroneously or Illegally Collected) or vice versa. The CTA
on December 19, 2008.24 Second Division applied the mandatory statute of
limitations in seeking judicial recourse prescribed under
The Court of Tax Appeals’ Ruling: Division Section 229 to claims for refund or tax credit under
Section 112.
The CTA Second Division partially granted Taganito’s
claim. In its Decision25 dated 8 January 2010, the CTA The Court of Tax Appeals’ Ruling: En Banc
Second Division found that Taganito complied with the
requirements of Section 112(A) of RA 8424, as On 29 April 2010, the Commissioner filed a Petition for
amended, to be entitled to a tax refund or credit of Review before the CTA EB assailing the 8 January 2010
input VAT attributable to zero-rated or effectively zero- Decision and the 7 April 2010 Resolution in CTA Case
rated sales.26 No. 7574 and praying that Taganito’s entire claim for
refund be denied.
The pertinent portions of the CTA Second Division’s
Decision read: In its 8 December 2010 Decision,29 the CTA EB granted
the CIR’s petition for review and reversed and set aside
Finally, records show that [Taganito’s] administrative the challenged decision and resolution.
claim filed on November 14, 2006, which was amended
on November 29, 2006, and the Petition for Review filed The CTA EB declared that Section 112(A) and (B) of the
with this Court on February 14, 2007 are well within the 1997 Tax Code both set forth the reckoning of the two-
two-year prescriptive period, reckoned from March 31, year prescriptive period for filing a claim for tax refund
2005, June 30, 2005, September 30, 2005, and or credit over input VAT to be the close of the taxable
December 31, 2005, respectively, the close of each quarter when the sales were made. The CTA EB also
taxable quarter covering the period January 1, 2005 to relied on this Court’s rulings in the cases of
December 31, 2005. Commissioner of Internal Revenue v. Aichi Forging
Company of Asia, Inc. (Aichi)30 and Commisioner of of excess or unutilized input tax with this Court, either
Internal Revenue v. Mirant Pagbilao Corporation within 30 days from receipt of the denial of its claim, or
(Mirant).31 Both Aichi and Mirant ruled that the two- after the lapse of the 120-day period in the event of
year prescriptive period to file a refund for input VAT inaction by the Commissioner, provided that both
arising from zero-rated sales should be reckoned from administrative and judicial remedies must be
the close of the taxable quarter when the sales were undertaken within the 2-year period.35
made. Aichi further emphasized that the failure to await
the decision of the Commissioner or the lapse of 120- Taganito filed its Motion for Reconsideration on 29
day period prescribed in Section 112(D) amounts to a December 2010. The Commissioner filed an Opposition
premature filing. on 26 January 2011. The CTA EB denied for lack of merit
Taganito’s motion in a Resolution36 dated 14 March
The CTA EB found that Taganito filed its administrative 2011. The CTA EB did not see any justifiable reason to
claim on 14 November 2006, which was well within the depart from this Court’s rulings in Aichi and Mirant.
period prescribed under Section 112(A) and (B) of the
1997 Tax Code. However, the CTA EB found that G.R. No. 197156
Taganito’s judicial claim was prematurely filed. Taganito Philex Mining Corporation v. CIR
filed its Petition for Review before the CTA Second
Division on 14 February 2007. The judicial claim was The Facts
filed after the lapse of only 92 days from the filing of its
administrative claim before the CIR, in violation of the The CTA EB’s narration of the pertinent facts is as
120-day period prescribed in Section 112(D) of the 1997 follows:
Tax Code.
[Philex] is a corporation duly organized and existing
The dispositive portion of the Decision states: under the laws of the Republic of the Philippines, which
is principally engaged in the mining business, which
WHEREFORE, the instant Petition for Review is hereby includes the exploration and operation of mine
GRANTED. The assailed Decision dated January 8, 2010 properties and commercial production and marketing of
and Resolution dated April 7, 2010 of the Special mine products, with office address at 27 Philex Building,
Second Division of this Court are hereby REVERSED and Fairlaine St., Kapitolyo, Pasig City.
SET ASIDE. Another one is hereby entered DISMISSING
the Petition for Review filed in CTA Case No. 7574 for [The CIR], on the other hand, is the head of the Bureau
having been prematurely filed. of Internal Revenue ("BIR"), the government entity
tasked with the duties/functions of assessing and
SO ORDERED.32 collecting all national internal revenue taxes, fees, and
charges, and enforcement of all forfeitures, penalties
In his dissent,33 Associate Justice Lovell R. Bautista and fines connected therewith, including the execution
insisted that Taganito timely filed its claim before the of judgments in all cases decided in its favor by [the
CTA. Justice Bautista read Section 112(C) of the 1997 Court of Tax Appeals] and the ordinary courts, where
Tax Code (Period within which Refund or Tax Credit of she can be served with court processes at the BIR Head
Input Taxes shall be Made) in conjunction with Section Office, BIR Road, Quezon City.
229 (Recovery of Tax Erroneously or Illegally Collected).
Justice Bautista also relied on this Court’s ruling in Atlas On October 21, 2005, [Philex] filed its Original VAT
Consolidated Mining and Development Corporation v. Return for the third quarter of taxable year 2005 and
Commissioner of Internal Revenue (Atlas),34 which Amended VAT Return for the same quarter on
stated that refundable or creditable input VAT and December 1, 2005.
illegally or erroneously collected national internal
revenue tax are the same, insofar as both are monetary On March 20, 2006, [Philex] filed its claim for refund/tax
amounts which are currently in the hands of the credit of the amount of ₱23,956,732.44 with the One
government but must rightfully be returned to the Stop Shop Center of the Department of Finance.
taxpayer. Justice Bautista concluded: However, due to [the CIR’s] failure to act on such claim,
on October 17, 2007, pursuant to Sections 112 and 229
Being merely permissive, a taxpayer claimant has the of the NIRC of 1997, as amended, [Philex] filed a
option of seeking judicial redress for refund or tax credit Petition for Review, docketed as C.T.A. Case No. 7687.
 2006, which is also presumably the date [Philex]
In [her] Answer, respondent CIR alleged the following submitted supporting documents, together with the
special and affirmative defenses: aforesaid application for refund, the CIR has 120 days,
or until July 18, 2006, within which to decide the claim.
4. Claims for refund are strictly construed against the Within 30 days from the lapse of the 120-day period, or
taxpayer as the same partake the nature of an from July 19, 2006 until August 17, 2006, [Philex] should
exemption; have elevated its claim for refund to the CTA. However,
[Philex] filed its Petition for Review only on October 17,
5. The taxpayer has the burden to show that the taxes 2007, which is 426 days way beyond the 30- day period
were erroneously or illegally paid. Failure on the part of prescribed by law.
[Philex] to prove the same is fatal to its cause of action;
Evidently, the Petition for Review in CTA Case No. 7687
6. [Philex] should prove its legal basis for claiming for was filed 426 days late. Thus, the Petition for Review in
the amount being refunded.37 CTA Case No. 7687 should have been dismissed on the
ground that the Petition for Review was filed way
The Court of Tax Appeals’ Ruling: Division beyond the 30-day prescribed period; thus, no
jurisdiction was acquired by the CTA in Division; and not
The CTA Second Division, in its Decision dated 20 July due to prescription.
2009, denied Philex’s claim due to prescription. The CTA
Second Division ruled that the two-year prescriptive WHEREFORE, premises considered, the instant Petition
period specified in Section 112(A) of RA 8424, as for Review is hereby DENIED DUE COURSE, and
amended, applies not only to the filing of the accordingly, DISMISSED. The assailed Decision dated
administrative claim with the BIR, but also to the filing July 20, 2009, dismissing the Petition for Review in CTA
of the judicial claim with the CTA. Since Philex’s claim Case No. 7687 due to prescription, and Resolution dated
covered the 3rd quarter of 2005, its administrative November 10, 2009 denying [Philex’s] Motion for
claim filed on 20 March 2006 was timely filed, while its Reconsideration are hereby AFFIRMED, with
judicial claim filed on 17 October 2007 was filed late and modification that the dismissal is based on the ground
therefore barred by prescription. that the Petition for Review in CTA Case No. 7687 was
filed way beyond the 30-day prescribed period to
On 10 November 2009, the CTA Second Division denied appeal.
Philex’s Motion for Reconsideration.
SO ORDERED.39
The Court of Tax Appeals’ Ruling: En Banc
G.R. No. 187485
Philex filed a Petition for Review before the CTA EB CIR v. San Roque Power Corporation
praying for a reversal of the 20 July 2009 Decision and
the 10 November 2009 Resolution of the CTA Second The Commissioner raised the following grounds in the
Division in CTA Case No. 7687. Petition for Review:

The CTA EB, in its Decision38 dated 3 December 2010, I. The Court of Tax Appeals En Banc erred in holding that
denied Philex’s petition and affirmed the CTA Second [San Roque’s] claim for refund was not prematurely
Division’s Decision and Resolution. filed.

The pertinent portions of the Decision read: II. The Court of Tax Appeals En Banc erred in affirming
the amended decision of the Court of Tax Appeals
In this case, while there is no dispute that [Philex’s] (Second Division) granting [San Roque’s] claim for
administrative claim for refund was filed within the two- refund of alleged unutilized input VAT on its purchases
year prescriptive period; however, as to its judicial claim of capital goods and services for the taxable year 2001
for refund/credit, records show that on March 20, 2006, in the amount of P483,797,599.65. 40
[Philex] applied the administrative claim for refund of
unutilized input VAT in the amount of ₱23,956,732.44 G.R. No. 196113
with the One Stop Shop Center of the Department of Taganito Mining Corporation v. CIR
Finance, per Application No. 52490. From March 20,
Taganito raised the following grounds in its Petition for Sec. 110. Tax Credits. —
Review:
(B) Excess Output or Input Tax. — If at the end of any
I. The Court of Tax Appeals En Banc committed serious taxable quarter the output tax exceeds the input tax,
error and acted with grave abuse of discretion the excess shall be paid by the VAT-registered person. If
tantamount to lack or excess of jurisdiction in the input tax exceeds the output tax, the excess shall be
erroneously applying the Aichi doctrine in violation of carried over to the succeeding quarter or quarters:
[Taganito’s] right to due process. [Provided, That the input tax inclusive of input VAT
carried over from the previous quarter that may be
II. The Court of Tax Appeals committed serious error credited in every quarter shall not exceed seventy
and acted with grave abuse of discretion amounting to percent (70%) of the output VAT:]43 Provided,
lack or excess of jurisdiction in erroneously interpreting however, That any input tax attributable to zero-rated
the provisions of Section 112 (D).41 sales by a VAT-registered person may at his option be
refunded or credited against other internal revenue
G.R. No. 197156 taxes, subject to the provisions of Section 112.
Philex Mining Corporation v. CIR
Section 112:44
Philex raised the following grounds in its Petition for
Review: Sec. 112. Refunds or Tax Credits of Input Tax. —

I. The CTA En Banc erred in denying the petition due to (A) Zero-Rated or Effectively Zero-Rated Sales.— Any
alleged prescription. The fact is that the petition was VAT-registered person, whose sales are zero-rated or
filed with the CTA within the period set by prevailing effectively zero-rated may, within two (2) years after
court rulings at the time it was filed. the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or
II. The CTA En Banc erred in retroactively applying the refund of creditable input tax due or paid attributable to
Aichi ruling in denying the petition in this instant such sales, except transitional input tax, to the extent
case.42 that such input tax has not been applied against output
tax: Provided, however, That in the case of zero-rated
The Court’s Ruling sales under Section 106(A)(2) (a)(1), (2) and (B) and
Section 108(B)(1) and (2), the acceptable foreign
For ready reference, the following are the provisions of currency exchange proceeds thereof had been duly
the Tax Code applicable to the present cases: accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP):
Section 105: Provided, further, That where the taxpayer is engaged
in zero-rated or effectively zero-rated sale and also in
Persons Liable. — Any person who, in the course of taxable or exempt sale of goods or properties or
trade or business, sells, barters, exchanges, leases services, and the amount of creditable input tax due or
goods or properties, renders services, and any person paid cannot be directly and entirely attributed to any
who imports goods shall be subject to the value-added one of the transactions, it shall be allocated
tax (VAT) imposed in Sections 106 to 108 of this Code. proportionately on the basis of the volume of sales.

The value-added tax is an indirect tax and the amount (B) Capital Goods.- A VAT — registered person may
of tax may be shifted or passed on to the buyer, apply for the issuance of a tax credit certificate or
transferee or lessee of the goods, properties or services. refund of input taxes paid on capital goods imported or
This rule shall likewise apply to existing contracts of sale locally purchased, to the extent that such input taxes
or lease of goods, properties or services at the time of have not been applied against output taxes. The
the effectivity of Republic Act No. 7716. application may be made only within two (2) years after
the close of the taxable quarter when the importation
xxxx or purchase was made.

Section 110(B): (C) Cancellation of VAT Registration. — A person whose

registration has been cancelled due to retirement from
or cessation of business, or due to changes in or without a written claim therefor, refund or credit any
cessation of status under Section 106(C) of this Code tax, where on the face of the return upon which
may, within two (2) years from the date of cancellation, payment was made, such payment appears clearly to
apply for the issuance of a tax credit certificate for any have been erroneously paid.
unused input tax which may be used in payment of his
other internal revenue taxes (All emphases supplied)

(D) Period within which Refund or Tax Credit of Input I. Application of the 120+30 Day Periods
Taxes shall be Made. — In proper cases, the
Commissioner shall grant a refund or issue the tax credit a. G.R. No. 187485 - CIR v. San Roque Power
certificate for creditable input taxes within one hundred Corporation
twenty (120) days from the date of submission of
complete documents in support of the application filed On 10 April 2003, a mere 13 days after it filed its
in accordance with Subsection (A) and (B) hereof. amended administrative claim with the Commissioner
on 28 March 2003, San Roque filed a Petition for Review
In case of full or partial denial of the claim for tax refund with the CTA docketed as CTA Case No. 6647. From this
or tax credit, or the failure on the part of the we gather two crucial facts: first, San Roque did not wait
Commissioner to act on the application within the for the 120-day period to lapse before filing its judicial
period prescribed above, the taxpayer affected may, claim; second, San Roque filed its judicial claim more
within thirty (30) days from the receipt of the decision than four (4) years before the Atlas45 doctrine, which
denying the claim or after the expiration of the one was promulgated by the Court on 8 June 2007.
hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals. Clearly, San Roque failed to comply with the 120-day
waiting period, the time expressly given by law to the
(E) Manner of Giving Refund. — Refunds shall be made Commissioner to decide whether to grant or deny San
upon warrants drawn by the Commissioner or by his Roque’s application for tax refund or credit. It is
duly authorized representative without the necessity of indisputable that compliance with the 120-day waiting
being countersigned by the Chairman, Commission on period is mandatory and jurisdictional. The waiting
Audit, the provisions of the Administrative Code of 1987 period, originally fixed at 60 days only, was part of the
to the contrary notwithstanding: Provided, that refunds provisions of the first VAT law, Executive Order No. 273,
under this paragraph shall be subject to post audit by which took effect on 1 January 1988. The waiting period
the Commission on Audit. was extended to 120 days effective 1 January 1998
under RA 8424 or the Tax Reform Act of 1997. Thus, the
Section 229: waiting period has been in our statute books for more
than fifteen (15) years before San Roque filed its judicial
Recovery of Tax Erroneously or Illegally Collected. — No claim.
suit or proceeding shall be maintained in any court for
the recovery of any national internal revenue tax Failure to comply with the 120-day waiting period
hereafter alleged to have been erroneously or illegally violates a mandatory provision of law. It violates the
assessed or collected, or of any penalty claimed to have doctrine of exhaustion of administrative remedies and
been collected without authority, or of any sum alleged renders the petition premature and thus without a
to have been excessively or in any manner wrongfully cause of action, with the effect that the CTA does not
collected, until a claim for refund or credit has been acquire jurisdiction over the taxpayer’s petition.
duly filed with the Commissioner; but such suit or Philippine jurisprudence is replete with cases upholding
proceeding may be maintained, whether or not such and reiterating these doctrinal principles.46
tax, penalty, or sum has been paid under protest or
duress. The charter of the CTA expressly provides that its
jurisdiction is to review on appeal "decisions of the
In any case, no such suit or proceeding shall be filed Commissioner of Internal Revenue in cases involving x x
after the expiration of two (2) years from the date of x refunds of internal revenue taxes."47 When a
payment of the tax or penalty regardless of any taxpayer prematurely files a judicial claim for tax refund
supervening cause that may arise after payment: or credit with the CTA without waiting for the decision
Provided, however, That the Commissioner may, even of the Commissioner, there is no "decision" of the
Commissioner to review and thus the CTA as a court of taxpayer to show that he has strictly complied with the
special jurisdiction has no jurisdiction over the appeal. conditions for the grant of the tax refund or credit.
The charter of the CTA also expressly provides that if
the Commissioner fails to decide within "a specific This Court cannot disregard mandatory and
period" required by law, such "inaction shall be deemed jurisdictional conditions mandated by law simply
a denial"48 of the application for tax refund or credit. It because the Commissioner chose not to contest the
is the Commissioner’s decision, or inaction "deemed a numerical correctness of the claim for tax refund or
denial," that the taxpayer can take to the CTA for credit of the taxpayer. Non-compliance with mandatory
review. Without a decision or an "inaction x x x deemed periods, non-observance of prescriptive periods, and
a denial" of the Commissioner, the CTA has no non-adherence to exhaustion of administrative
jurisdiction over a petition for review.49 remedies bar a taxpayer’s claim for tax refund or credit,
whether or not the Commissioner questions the
San Roque’s failure to comply with the 120-day numerical correctness of the claim of the taxpayer. This
mandatory period renders its petition for review with Court should not establish the precedent that non-
the CTA void. Article 5 of the Civil Code provides, "Acts compliance with mandatory and jurisdictional
executed against provisions of mandatory or prohibitory conditions can be excused if the claim is otherwise
laws shall be void, except when the law itself authorizes meritorious, particularly in claims for tax refunds or
their validity." San Roque’s void petition for review credit. Such precedent will render meaningless
cannot be legitimized by the CTA or this Court because compliance with mandatory and jurisdictional
Article 5 of the Civil Code states that such void petition requirements, for then every tax refund case will have
cannot be legitimized "except when the law itself to be decided on the numerical correctness of the
authorizes [its] validity." There is no law authorizing the amounts claimed, regardless of non-compliance with
petition’s validity. mandatory and jurisdictional conditions.

It is hornbook doctrine that a person committing a void San Roque cannot also claim being misled, misguided or
act contrary to a mandatory provision of law cannot confused by the Atlas doctrine because San Roque filed
claim or acquire any right from his void act. A right its petition for review with the CTA more than four
cannot spring in favor of a person from his own void or years before Atlas was promulgated. The Atlas doctrine
illegal act. This doctrine is repeated in Article 2254 of did not exist at the time San Roque failed to comply
the Civil Code, which states, "No vested or acquired with the 120- day period. Thus, San Roque cannot
right can arise from acts or omissions which are against invoke the Atlas doctrine as an excuse for its failure to
the law or which infringe upon the rights of others."50 wait for the 120-day period to lapse. In any event, the
For violating a mandatory provision of law in filing its Atlas doctrine merely stated that the two-year
petition with the CTA, San Roque cannot claim any right prescriptive period should be counted from the date of
arising from such void petition. Thus, San Roque’s payment of the output VAT, not from the close of the
petition with the CTA is a mere scrap of paper. taxable quarter when the sales involving the input VAT
were made. The Atlas doctrine does not interpret,
This Court cannot brush aside the grave issue of the expressly or impliedly, the 120+3052 day periods.
mandatory and jurisdictional nature of the 120-day
period just because the Commissioner merely asserts In fact, Section 106(b) and (e) of the Tax Code of 1977
that the case was prematurely filed with the CTA and as amended, which was the law cited by the Court in
does not question the entitlement of San Roque to the Atlas as the applicable provision of the law did not yet
refund. The mere fact that a taxpayer has undisputed provide for the 30-day period for the taxpayer to appeal
excess input VAT, or that the tax was admittedly to the CTA from the decision or inaction of the
illegally, erroneously or excessively collected from him, Commissioner.53 Thus, the Atlas doctrine cannot be
does not entitle him as a matter of right to a tax refund invoked by anyone to disregard compliance with the 30-
or credit. Strict compliance with the mandatory and day mandatory and jurisdictional period. Also, the
jurisdictional conditions prescribed by law to claim such difference between the Atlas doctrine on one hand, and
tax refund or credit is essential and necessary for such the Mirant54 doctrine on the other hand, is a mere 20
claim to prosper. Well-settled is the rule that tax days. The Atlas doctrine counts the two-year
refunds or credits, just like tax exemptions, are strictly prescriptive period from the date of payment of the
construed against the taxpayer.51 The burden is on the output VAT, which means within 20 days after the close
of the taxable quarter. The output VAT at that time
must be paid at the time of filing of the quarterly tax decision within the 120-day mandatory and
returns, which were to be filed "within 20 days jurisdictional period. The CTA will have no jurisdiction
following the end of each quarter." because there will be no "decision" or "deemed a
denial" decision of the Commissioner for the CTA to
Thus, in Atlas, the three tax refund claims listed below review. In San Roque’s case, it filed its petition with the
were deemed timely filed because the administrative CTA a mere 13 days after it filed its administrative claim
claims filed with the Commissioner, and the petitions with the Commissioner. Indisputably, San Roque
for review filed with the CTA, were all filed within two knowingly violated the mandatory 120-day period, and
years from the date of payment of the output VAT, it cannot blame anyone but itself.
following Section 229:
Section 112(C) also expressly grants the taxpayer a 30-
(MAY TABLE JAN) day period to appeal to the CTA the decision or inaction
of the Commissioner, thus:
Atlas paid the output VAT at the time it filed the
quarterly tax returns on the 20th, 18th, and 20th day x x x the taxpayer affected may, within thirty (30) days
after the close of the taxable quarter. Had the twoyear from the receipt of the decision denying the claim or
prescriptive period been counted from the "close of the after the expiration of the one hundred twenty day-
taxable quarter" as expressly stated in the law, the tax period, appeal the decision or the unacted claim with
refund claims of Atlas would have already prescribed. In the Court of Tax Appeals. (Emphasis supplied)
contrast, the Mirant doctrine counts the two-year
prescriptive period from the "close of the taxable This law is clear, plain, and unequivocal. Following the
quarter when the sales were made" as expressly stated well-settled verba legis doctrine, this law should be
in the law, which means the last day of the taxable applied exactly as worded since it is clear, plain, and
quarter. The 20-day difference55 between the Atlas unequivocal. As this law states, the taxpayer may, if he
doctrine and the later Mirant doctrine is not material to wishes, appeal the decision of the Commissioner to the
San Roque’s claim for tax refund. CTA within 30 days from receipt of the Commissioner’s
decision, or if the Commissioner does not act on the
Whether the Atlas doctrine or the Mirant doctrine is taxpayer’s claim within the 120-day period, the
applied to San Roque is immaterial because what is at taxpayer may appeal to the CTA within 30 days from the
issue in the present case is San Roque’s non-compliance expiration of the 120-day period.
with the 120-day mandatory and jurisdictional period,
which is counted from the date it filed its administrative b. G.R. No. 196113 - Taganito Mining Corporation v. CIR
claim with the Commissioner. The 120-day period may
extend beyond the two-year prescriptive period, as long Like San Roque, Taganito also filed its petition for
as the administrative claim is filed within the two-year review with the CTA without waiting for the 120-day
prescriptive period. However, San Roque’s fatal mistake period to lapse. Also, like San Roque, Taganito filed its
is that it did not wait for the Commissioner to decide judicial claim before the promulgation of the Atlas
within the 120-day period, a mandatory period whether doctrine. Taganito filed a Petition for Review on 14
the Atlas or the Mirant doctrine is applied. February 2007 with the CTA. This is almost four months
before the adoption of the Atlas doctrine on 8 June
At the time San Roque filed its petition for review with 2007. Taganito is similarly situated as San Roque - both
the CTA, the 120+30 day mandatory periods were cannot claim being misled, misguided, or confused by
already in the law. Section 112(C)56 expressly grants the Atlas doctrine.
the Commissioner 120 days within which to decide the
taxpayer’s claim. The law is clear, plain, and However, Taganito can invoke BIR Ruling No. DA-489-
unequivocal: "x x x the Commissioner shall grant a 0357 dated 10 December 2003, which expressly ruled
refund or issue the tax credit certificate for creditable that the "taxpayer-claimant need not wait for the lapse
input taxes within one hundred twenty (120) days from of the 120-day period before it could seek judicial relief
the date of submission of complete documents." with the CTA by way of Petition for Review." Taganito
Following the verba legis doctrine, this law must be filed its judicial claim after the issuance of BIR Ruling No.
applied exactly as worded since it is clear, plain, and DA-489-03 but before the adoption of the Aichi
unequivocal. The taxpayer cannot simply file a petition doctrine. Thus, as will be explained later, Taganito is
with the CTA without waiting for the Commissioner’s
deemed to have filed its judicial claim with the CTA on following the Atlas doctrine, or from the close of the
time. taxable quarter when the sales attributable to the input
VAT were made following the Mirant and Aichi
c. G.R. No. 197156 – Philex Mining Corporation v. CIR doctrines, Philex’s judicial claim was indisputably filed
late.
Philex (1) filed on 21 October 2005 its original VAT
Return for the third quarter of taxable year 2005; (2) The Atlas doctrine cannot save Philex from the late filing
filed on 20 March 2006 its administrative claim for of its judicial claim. The inaction of the Commissioner on
refund or credit; (3) filed on 17 October 2007 its Petition Philex’s claim during the 120-day period is, by express
for Review with the CTA. The close of the third taxable provision of law, "deemed a denial" of Philex’s claim.
quarter in 2005 is 30 September 2005, which is the Philex had 30 days from the expiration of the 120-day
reckoning date in computing the two-year prescriptive period to file its judicial claim with the CTA. Philex’s
period under Section 112(A). failure to do so rendered the "deemed a denial"
decision of the Commissioner final and inappealable.
Philex timely filed its administrative claim on 20 March The right to appeal to the CTA from a decision or
2006, within the two-year prescriptive period. Even if "deemed a denial" decision of the Commissioner is
the two-year prescriptive period is computed from the merely a statutory privilege, not a constitutional right.
date of payment of the output VAT under Section 229, The exercise of such statutory privilege requires strict
Philex still filed its administrative claim on time. Thus, compliance with the conditions attached by the statute
the Atlas doctrine is immaterial in this case. The for its exercise.59 Philex failed to comply with the
Commissioner had until 17 July 2006, the last day of the statutory conditions and must thus bear the
120-day period, to decide Philex’s claim. Since the consequences.
Commissioner did not act on Philex’s claim on or before
17 July 2006, Philex had until 17 August 2006, the last II. Prescriptive Periods under Section 112(A) and (C)
day of the 30-day period, to file its judicial claim. The
CTA EB held that 17 August 2006 was indeed the last There are three compelling reasons why the 30-day
day for Philex to file its judicial claim. However, Philex period need not necessarily fall within the two-year
filed its Petition for Review with the CTA only on 17 prescriptive period, as long as the administrative claim
October 2007, or four hundred twenty-six (426) days is filed within the two-year prescriptive period.
after the last day of filing. In short, Philex was late by
one year and 61 days in filing its judicial claim. As the First, Section 112(A) clearly, plainly, and unequivocally
CTA EB correctly found: provides that the taxpayer "may, within two (2) years
after the close of the taxable quarter when the sales
Evidently, the Petition for Review in C.T.A. Case No. were made, apply for the issuance of a tax credit
7687 was filed 426 days late. Thus, the Petition for certificate or refund of the creditable input tax due or
Review in C.T.A. Case No. 7687 should have been paid to such sales." In short, the law states that the
dismissed on the ground that the Petition for Review taxpayer may apply with the Commissioner for a refund
was filed way beyond the 30-day prescribed period; or credit "within two (2) years," which means at
thus, no jurisdiction was acquired by the CTA Division; x anytime within two years. Thus, the application for
x x58 (Emphasis supplied) refund or credit may be filed by the taxpayer with the
Commissioner on the last day of the two-year
Unlike San Roque and Taganito, Philex’s case is not one prescriptive period and it will still strictly comply with
of premature filing but of late filing. Philex did not file the law. The twoyear prescriptive period is a grace
any petition with the CTA within the 120-day period. period in favor of the taxpayer and he can avail of the
Philex did not also file any petition with the CTA within full period before his right to apply for a tax refund or
30 days after the expiration of the 120-day period. credit is barred by prescription.
Philex filed its judicial claim long after the expiration of
the 120-day period, in fact 426 days after the lapse of Second, Section 112(C) provides that the Commissioner
the 120-day period. In any event, whether governed by shall decide the application for refund or credit "within
jurisprudence before, during, or after the Atlas case, one hundred twenty (120) days from the date of
Philex’s judicial claim will have to be rejected because of submission of complete documents in support of the
late filing. Whether the two-year prescriptive period is application filed in accordance with Subsection (A)." The
counted from the date of payment of the output VAT reference in Section 112(C) of the submission of
documents "in support of the application filed in on the 120th day, or does not decide it on that day, the
accordance with Subsection A" means that the taxpayer still has 30 days to file his judicial claim with
application in Section 112(A) is the administrative claim the CTA. This is not only the plain meaning but also the
that the Commissioner must decide within the 120-day only logical interpretation of Section 112(A) and (C).
period. In short, the two-year prescriptive period in
Section 112(A) refers to the period within which the III. "Excess" Input VAT and "Excessively" Collected Tax
taxpayer can file an administrative claim for tax refund
or credit. Stated otherwise, the two-year prescriptive The input VAT is not "excessively" collected as
period does not refer to the filing of the judicial claim understood under Section 229 because at the time the
with the CTA but to the filing of the administrative claim input VAT is collected the amount paid is correct and
with the Commissioner. As held in Aichi, the "phrase proper. The input VAT is a tax liability of, and legally
‘within two years x x x apply for the issuance of a tax paid by, a VAT-registered seller61 of goods, properties
credit or refund’ refers to applications for refund/credit or services used as input by another VAT-registered
with the CIR and not to appeals made to the CTA." person in the sale of his own goods, properties, or
services. This tax liability is true even if the seller passes
Third, if the 30-day period, or any part of it, is required on the input VAT to the buyer as part of the purchase
to fall within the two-year prescriptive period price. The second VAT-registered person, who is not
(equivalent to 730 days60), then the taxpayer must file legally liable for the input VAT, is the one who applies
his administrative claim for refund or credit within the the input VAT as credit for his own output VAT.62 If the
first 610 days of the two-year prescriptive period. input VAT is in fact "excessively" collected as
Otherwise, the filing of the administrative claim beyond understood under Section 229, then it is the first VAT-
the first 610 days will result in the appeal to the CTA registered person - the taxpayer who is legally liable and
being filed beyond the two-year prescriptive period. who is deemed to have legally paid for the input VAT -
Thus, if the taxpayer files his administrative claim on the who can ask for a tax refund or credit under Section 229
611th day, the Commissioner, with his 120-day period, as an ordinary refund or credit outside of the VAT
will have until the 731st day to decide the claim. If the System. In such event, the second VAT-registered
Commissioner decides only on the 731st day, or does taxpayer will have no input VAT to offset against his
not decide at all, the taxpayer can no longer file his own output VAT.
judicial claim with the CTA because the two-year
prescriptive period (equivalent to 730 days) has lapsed. In a claim for refund or credit of "excess" input VAT
The 30-day period granted by law to the taxpayer to file under Section 110(B) and Section 112(A), the input VAT
an appeal before the CTA becomes utterly useless, even is not "excessively" collected as understood under
if the taxpayer complied with the law by filing his Section 229. At the time of payment of the input VAT
administrative claim within the two-year prescriptive the amount paid is the correct and proper amount.
period. Under the VAT System, there is no claim or issue that
the input VAT is "excessively" collected, that is, that the
The theory that the 30-day period must fall within the input VAT paid is more than what is legally due. The
two-year prescriptive period adds a condition that is not person legally liable for the input VAT cannot claim that
found in the law. It results in truncating 120 days from he overpaid the input VAT by the mere existence of an
the 730 days that the law grants the taxpayer for filing "excess" input VAT. The term "excess" input VAT simply
his administrative claim with the Commissioner. This means that the input VAT available as credit exceeds
Court cannot interpret a law to defeat, wholly or even the output VAT, not that the input VAT is excessively
partly, a remedy that the law expressly grants in clear, collected because it is more than what is legally due.
plain, and unequivocal language. Thus, the taxpayer who legally paid the input VAT
cannot claim for refund or credit of the input VAT as
Section 112(A) and (C) must be interpreted according to "excessively" collected under Section 229.
its clear, plain, and unequivocal language. The taxpayer
can file his administrative claim for refund or credit at Under Section 229, the prescriptive period for filing a
anytime within the two-year prescriptive period. If he judicial claim for refund is two years from the date of
files his claim on the last day of the two-year payment of the tax "erroneously, x x x illegally, x x x
prescriptive period, his claim is still filed on time. The excessively or in any manner wrongfully collected." The
Commissioner will have 120 days from such filing to prescriptive period is reckoned from the date the
decide the claim. If the Commissioner decides the claim person liable for the tax pays the tax. Thus, if the input
VAT is in fact "excessively" collected, that is, the person able to seek a refund or credit for such "excess" input
liable for the tax actually pays more than what is legally VAT whether or not he has output VAT. The VAT System
due, the taxpayer must file a judicial claim for refund does not allow such refund or credit. Such "excess"
within two years from his date of payment. Only the input VAT is not an "excessively" collected tax under
person legally liable to pay the tax can file the judicial Section 229. The "excess" input VAT is a correctly and
claim for refund. The person to whom the tax is passed properly collected tax. However, such "excess" input
on as part of the purchase price has no personality to VAT can be applied against the output VAT because the
file the judicial claim under Section 229.63 VAT is a tax imposed only on the value added by the
taxpayer. If the input VAT is in fact "excessively"
Under Section 110(B) and Section 112(A), the collected under Section 229, then it is the person legally
prescriptive period for filing a judicial claim for "excess" liable to pay the input VAT, not the person to whom the
input VAT is two years from the close of the taxable tax was passed on as part of the purchase price and
quarter when the sale was made by the person legally claiming credit for the input VAT under the VAT System,
liable to pay the output VAT. This prescriptive period who can file the judicial claim under Section 229.
has no relation to the date of payment of the "excess"
input VAT. The "excess" input VAT may have been paid Any suggestion that the "excess" input VAT under the
for more than two years but this does not bar the filing VAT System is an "excessively" collected tax under
of a judicial claim for "excess" VAT under Section Section 229 may lead taxpayers to file a claim for refund
112(A), which has a different reckoning period from or credit for such "excess" input VAT under Section 229
Section 229. Moreover, the person claiming the refund as an ordinary tax refund or credit outside of the VAT
or credit of the input VAT is not the person who legally System. Under Section 229, mere payment of a tax
paid the input VAT. Such person seeking the VAT refund beyond what is legally due can be claimed as a refund or
or credit does not claim that the input VAT was credit. There is no requirement under Section 229 for an
"excessively" collected from him, or that he paid an output VAT or subsequent sale of goods, properties, or
input VAT that is more than what is legally due. He is services using materials subject to input VAT.
not the taxpayer who legally paid the input VAT.
From the plain text of Section 229, it is clear that what
As its name implies, the Value-Added Tax system is a tax can be refunded or credited is a tax that is "erroneously,
on the value added by the taxpayer in the chain of x x x illegally, x x x excessively or in any manner
transactions. For simplicity and efficiency in tax wrongfully collected." In short, there must be a
collection, the VAT is imposed not just on the value wrongful payment because what is paid, or part of it, is
added by the taxpayer, but on the entire selling price of not legally due. As the Court held in Mirant, Section 229
his goods, properties or services. However, the taxpayer should "apply only to instances of erroneous payment
is allowed a refund or credit on the VAT previously paid or illegal collection of internal revenue taxes."
by those who sold him the inputs for his goods, Erroneous or wrongful payment includes excessive
properties, or services. The net effect is that the payment because they all refer to payment of taxes not
taxpayer pays the VAT only on the value that he adds to legally due. Under the VAT System, there is no claim or
the goods, properties, or services that he actually sells. issue that the "excess" input VAT is "excessively or in
any manner wrongfully collected." In fact, if the
Under Section 110(B), a taxpayer can apply his input "excess" input VAT is an "excessively" collected tax
VAT only against his output VAT. The only exception is under Section 229, then the taxpayer claiming to apply
when the taxpayer is expressly "zero-rated or effectively such "excessively" collected input VAT to offset his
zero-rated" under the law, like companies generating output VAT may have no legal basis to make such
power through renewable sources of energy.64 Thus, a offsetting. The person legally liable to pay the input VAT
non zero-rated VAT-registered taxpayer who has no can claim a refund or credit for such "excessively"
output VAT because he has no sales cannot claim a tax collected tax, and thus there will no longer be any
refund or credit of his unused input VAT under the VAT "excess" input VAT. This will upend the present VAT
System. Even if the taxpayer has sales but his input VAT System as we know it.
exceeds his output VAT, he cannot seek a tax refund or
credit of his "excess" input VAT under the VAT System. IV. Effectivity and Scope of the Atlas , Mirant and Aichi
He can only carry-over and apply his "excess" input VAT Doctrines
against his future output VAT. If such "excess" input VAT
is an "excessively" collected tax, the taxpayer should be
The Atlas doctrine, which held that claims for refund or
credit of input VAT must comply with the two-year The old rule66 that the taxpayer may file the judicial
prescriptive period under Section 229, should be claim, without waiting for the Commissioner’s decision
effective only from its promulgation on 8 June 2007 if the two-year prescriptive period is about to expire,
until its abandonment on 12 September 2008 in Mirant. cannot apply because that rule was adopted before the
The Atlas doctrine was limited to the reckoning of the enactment of the 30-day period. The 30-day period was
two-year prescriptive period from the date of payment adopted precisely to do away with the old rule, so that
of the output VAT. Prior to the Atlas doctrine, the two- under the VAT System the taxpayer will always have 30
year prescriptive period for claiming refund or credit of days to file the judicial claim even if the Commissioner
input VAT should be governed by Section 112(A) acts only on the 120th day, or does not act at all during
following the verba legis rule. The Mirant ruling, which the 120-day period. With the 30-day period always
abandoned the Atlas doctrine, adopted the verba legis available to the taxpayer, the taxpayer can no longer file
rule, thus applying Section 112(A) in computing the two- a judicial claim for refund or credit of input VAT without
year prescriptive period in claiming refund or credit of waiting for the Commissioner to decide until the
input VAT. expiration of the 120-day period.

The Atlas doctrine has no relevance to the 120+30 day To repeat, a claim for tax refund or credit, like a claim
periods under Section 112(C) because the application of for tax exemption, is construed strictly against the
the 120+30 day periods was not in issue in Atlas. The taxpayer. One of the conditions for a judicial claim of
application of the 120+30 day periods was first raised in refund or credit under the VAT System is compliance
Aichi, which adopted the verba legis rule in holding that with the 120+30 day mandatory and jurisdictional
the 120+30 day periods are mandatory and periods. Thus, strict compliance with the 120+30 day
jurisdictional. The language of Section 112(C) is plain, periods is necessary for such a claim to prosper,
clear, and unambiguous. When Section 112(C) states whether before, during, or after the effectivity of the
that "the Commissioner shall grant a refund or issue the Atlas doctrine, except for the period from the issuance
tax credit within one hundred twenty (120) days from of BIR Ruling No. DA-489-03 on 10 December 2003 to 6
the date of submission of complete documents," the October 2010 when the Aichi doctrine was adopted,
law clearly gives the Commissioner 120 days within which again reinstated the 120+30 day periods as
which to decide the taxpayer’s claim. Resort to the mandatory and jurisdictional.
courts prior to the expiration of the 120-day period is a
patent violation of the doctrine of exhaustion of V. Revenue Memorandum Circular No. 49-03 (RMC 49-
administrative remedies, a ground for dismissing the 03) dated 15 April 2003
judicial suit due to prematurity. Philippine jurisprudence
is awash with cases affirming and reiterating the There is nothing in RMC 49-03 that states, expressly or
doctrine of exhaustion of administrative remedies.65 impliedly, that the taxpayer need not wait for the 120-
Such doctrine is basic and elementary. day period to expire before filing a judicial claim with
the CTA. RMC 49-03 merely authorizes the BIR to
When Section 112(C) states that "the taxpayer affected continue processing the administrative claim even after
may, within thirty (30) days from receipt of the decision the taxpayer has filed its judicial claim, without saying
denying the claim or after the expiration of the one that the taxpayer can file its judicial claim before the
hundred twenty-day period, appeal the decision or the expiration of the 120-day period. RMC 49-03 states: "In
unacted claim with the Court of Tax Appeals," the law cases where the taxpayer has filed a ‘Petition for
does not make the 120+30 day periods optional just Review’ with the Court of Tax Appeals involving a claim
because the law uses the word "may." The word "may" for refund/TCC that is pending at the administrative
simply means that the taxpayer may or may not appeal agency (either the Bureau of Internal Revenue or the
the decision of the Commissioner within 30 days from One- Stop Shop Inter-Agency Tax Credit and Duty
receipt of the decision, or within 30 days from the Drawback Center of the Department of Finance), the
expiration of the 120-day period. Certainly, by no administrative agency and the court may act on the
stretch of the imagination can the word "may" be case separately." Thus, if the taxpayer files its judicial
construed as making the 120+30 day periods optional, claim before the expiration of the 120-day period, the
allowing the taxpayer to file a judicial claim one day BIR will nevertheless continue to act on the
after filing the administrative claim with the administrative claim because such premature filing
Commissioner. cannot divest the Commissioner of his statutory power
and jurisdiction to decide the administrative claim Tax Code, misleads all taxpayers into filing prematurely
within the 120-day period. judicial claims with the CTA. In these cases, the
Commissioner cannot be allowed to later on question
On the other hand, if the taxpayer files its judicial claim the CTA’s assumption of jurisdiction over such claim
after the 120- day period, the Commissioner can still since equitable estoppel has set in as expressly
continue to evaluate the administrative claim. There is authorized under Section 246 of the Tax Code.
nothing new in this because even after the expiration of
the 120-day period, the Commissioner should still Section 4 of the Tax Code, a new provision introduced
evaluate internally the administrative claim for by RA 8424, expressly grants to the Commissioner the
purposes of opposing the taxpayer’s judicial claim, or power to interpret tax laws, thus:
even for purposes of determining if the BIR should
actually concede to the taxpayer’s judicial claim. The Sec. 4. Power of the Commissioner To Interpret Tax
internal administrative evaluation of the taxpayer’s Laws and To Decide Tax Cases. — The power to
claim must necessarily continue to enable the BIR to interpret the provisions of this Code and other tax laws
oppose intelligently the judicial claim or, if the facts and shall be under the exclusive and original jurisdiction of
the law warrant otherwise, for the BIR to concede to the Commissioner, subject to review by the Secretary of
the judicial claim, resulting in the termination of the Finance.
judicial proceedings.
The power to decide disputed assessments, refunds of
What is important, as far as the present cases are internal revenue taxes, fees or other charges, penalties
concerned, is that the mere filing by a taxpayer of a imposed in relation thereto, or other matters arising
judicial claim with the CTA before the expiration of the under this Code or other laws or portions thereof
120-day period cannot operate to divest the administered by the Bureau of Internal Revenue is
Commissioner of his jurisdiction to decide an vested in the Commissioner, subject to the exclusive
administrative claim within the 120-day mandatory appellate jurisdiction of the Court of Tax Appeals.
period, unless the Commissioner has clearly given cause
for equitable estoppel to apply as expressly recognized Since the Commissioner has exclusive and original
in Section 246 of the Tax Code.67 jurisdiction to interpret tax laws, taxpayers acting in
good faith should not be made to suffer for adhering to
VI. BIR Ruling No. DA-489-03 dated 10 December 2003 general interpretative rules of the Commissioner
interpreting tax laws, should such interpretation later
BIR Ruling No. DA-489-03 does provide a valid claim for turn out to be erroneous and be reversed by the
equitable estoppel under Section 246 of the Tax Code. Commissioner or this Court. Indeed, Section 246 of the
BIR Ruling No. DA-489-03 expressly states that the Tax Code expressly provides that a reversal of a BIR
"taxpayer-claimant need not wait for the lapse of the regulation or ruling cannot adversely prejudice a
120-day period before it could seek judicial relief with taxpayer who in good faith relied on the BIR regulation
the CTA by way of Petition for Review." Prior to this or ruling prior to its reversal. Section 246 provides as
ruling, the BIR held, as shown by its position in the follows:
Court of Appeals,68 that the expiration of the 120-day
period is mandatory and jurisdictional before a judicial Sec. 246. Non-Retroactivity of Rulings. — Any
claim can be filed. revocation, modification or reversal of any of the rules
and regulations promulgated in accordance with the
There is no dispute that the 120-day period is preceding Sections or any of the rulings or circulars
mandatory and jurisdictional, and that the CTA does not promulgated by the Commissioner shall not be given
acquire jurisdiction over a judicial claim that is filed retroactive application if the revocation, modification or
before the expiration of the 120-day period. There are, reversal will be prejudicial to the taxpayers, except in
however, two exceptions to this rule. The first exception the following cases:
is if the Commissioner, through a specific ruling,
misleads a particular taxpayer to prematurely file a (a) Where the taxpayer deliberately misstates or omits
judicial claim with the CTA. Such specific ruling is material facts from his return or any document required
applicable only to such particular taxpayer. The second of him by the Bureau of Internal Revenue;
exception is where the Commissioner, through a
general interpretative rule issued under Section 4 of the
(b) Where the facts subsequently gathered by the Semiconductor (Phils.) Inc., and Commissioner of
Bureau of Internal Revenue are materially different Internal Revenue v. Court of Appeals. The rule is that
from the facts on which the ruling is based; or the BIR rulings have no retroactive effect where a
grossly unfair deal would result to the prejudice of the
(c) Where the taxpayer acted in bad faith. (Emphasis taxpayer, as in this case.
supplied)
More recently, in Commissioner of Internal Revenue v.
Thus, a general interpretative rule issued by the Benguet Corporation, wherein the taxpayer was entitled
Commissioner may be relied upon by taxpayers from to tax refunds or credits based on the BIR’s own
the time the rule is issued up to its reversal by the issuances but later was suddenly saddled with
Commissioner or this Court. Section 246 is not limited to deficiency taxes due to its subsequent ruling changing
a reversal only by the Commissioner because this the category of the taxpayer’s transactions for the
Section expressly states, "Any revocation, modification purpose of paying its VAT, this Court ruled that applying
or reversal" without specifying who made the such ruling retroactively would be prejudicial to the
revocation, modification or reversal. Hence, a reversal taxpayer. (Emphasis supplied)
by this Court is covered under Section 246.
Thus, the only issue is whether BIR Ruling No. DA-489-
Taxpayers should not be prejudiced by an erroneous 03 is a general interpretative rule applicable to all
interpretation by the Commissioner, particularly on a taxpayers or a specific ruling applicable only to a
difficult question of law. The abandonment of the Atlas particular taxpayer.
doctrine by Mirant and Aichi69 is proof that the
reckoning of the prescriptive periods for input VAT tax BIR Ruling No. DA-489-03 is a general interpretative rule
refund or credit is a difficult question of law. The because it was a response to a query made, not by a
abandonment of the Atlas doctrine did not result in particular taxpayer, but by a government agency tasked
Atlas, or other taxpayers similarly situated, being made with processing tax refunds and credits, that is, the One
to return the tax refund or credit they received or could Stop Shop Inter-Agency Tax Credit and Drawback Center
have received under Atlas prior to its abandonment. of the Department of Finance. This government agency
This Court is applying Mirant and Aichi prospectively. is also the addressee, or the entity responded to, in BIR
Absent fraud, bad faith or misrepresentation, the Ruling No. DA-489-03. Thus, while this government
reversal by this Court of a general interpretative rule agency mentions in its query to the Commissioner the
issued by the Commissioner, like the reversal of a administrative claim of Lazi Bay Resources
specific BIR ruling under Section 246, should also apply Development, Inc., the agency was in fact asking the
prospectively. As held by this Court in CIR v. Philippine Commissioner what to do in cases like the tax claim of
Health Care Providers, Inc.:70 Lazi Bay Resources Development, Inc., where the
taxpayer did not wait for the lapse of the 120-day
In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, period.
this Court held that under Section 246 of the 1997 Tax
Code, the Commissioner of Internal Revenue is Clearly, BIR Ruling No. DA-489-03 is a general
precluded from adopting a position contrary to one interpretative rule. Thus, all taxpayers can rely on BIR
previously taken where injustice would result to the Ruling No. DA-489-03 from the time of its issuance on
taxpayer. Hence, where an assessment for deficiency 10 December 2003 up to its reversal by this Court in
withholding income taxes was made, three years after a Aichi on 6 October 2010, where this Court held that the
new BIR Circular reversed a previous one upon which 120+30 day periods are mandatory and jurisdictional
the taxpayer had relied upon, such an assessment was
prejudicial to the taxpayer. To rule otherwise, opined However, BIR Ruling No. DA-489-03 cannot be given
the Court, would be contrary to the tenets of good faith, retroactive effect for four reasons: first, it is admittedly
equity, and fair play. an erroneous interpretation of the law; second, prior to
its issuance, the BIR held that the 120-day period was
This Court has consistently reaffirmed its ruling in ABS- mandatory and jurisdictional, which is the correct
CBN Broadcasting Corp.1âwphi1 in the later cases of interpretation of the law; third, prior to its issuance, no
Commissioner of Internal Revenue v. Borroughs, Ltd., taxpayer can claim that it was misled by the BIR into
Commissioner of Internal Revenue v. Mega Gen. Mdsg. filing a judicial claim prematurely; and fourth, a claim
Corp., Commissioner of Internal Revenue v. Telefunken
for tax refund or credit, like a claim for tax exemption, is the claim that this Court had already made such a
strictly construed against the taxpayer. ruling. None of these five cases mention, cite, discuss,
rule or even hint that compliance with the 120-day
San Roque, therefore, cannot benefit from BIR Ruling mandatory period is inconsequential as long as the
No. DA-489-03 because it filed its judicial claim administrative and judicial claims are filed within the
prematurely on 10 April 2003, before the issuance of two-year prescriptive period.
BIR Ruling No. DA-489-03 on 10 December 2003. To
repeat, San Roque cannot claim that it was misled by In CIR v. Toshiba Information Equipment (Phils.), Inc.,71
the BIR into filing its judicial claim prematurely because the issue was whether any output VAT was actually
BIR Ruling No. DA-489-03 was issued only after San passed on to Toshiba that it could claim as input VAT
Roque filed its judicial claim. At the time San Roque filed subject to tax credit or refund. The Commissioner
its judicial claim, the law as applied and administered by argued that "although Toshiba may be a VAT-registered
the BIR was that the Commissioner had 120 days to act taxpayer, it is not engaged in a VAT-taxable business."
on administrative claims. This was in fact the position of The Commissioner cited Section 4.106-1 of Revenue
the BIR prior to the issuance of BIR Ruling No. DA-489- Regulations No. 75 that "refund of input taxes on capital
03. Indeed, San Roque never claimed the benefit of BIR goods shall be allowed only to the extent that such
Ruling No. DA-489-03 or RMC 49-03, whether in this capital goods are used in VAT-taxable business." In the
Court, the CTA, or before the Commissioner. words of the Court, "Ultimately, however, the issue still
to be resolved herein shall be whether respondent
Taganito, however, filed its judicial claim with the CTA Toshiba is entitled to the tax credit/refund of its input
on 14 February 2007, after the issuance of BIR Ruling VAT on its purchases of capital goods and services, to
No. DA-489-03 on 10 December 2003. Truly, Taganito which this Court answers in the affirmative." Nowhere
can claim that in filing its judicial claim prematurely in this case did the Court discuss, state, or rule that the
without waiting for the 120-day period to expire, it was filing dates of the administrative and judicial claims are
misled by BIR Ruling No. DA-489-03. Thus, Taganito can inconsequential, as long as they are within the two-year
claim the benefit of BIR Ruling No. DA-489-03, which prescriptive period.
shields the filing of its judicial claim from the vice of
prematurity. In Intel Technology Philippines, Inc. v. CIR,72 the Court
stated: "The issues to be resolved in the instant case are
Philex’s situation is not a case of premature filing of its (1) whether the absence of the BIR authority to print or
judicial claim but of late filing, indeed very late filing. the absence of the TIN-V in petitioner’s export sales
BIR Ruling No. DA-489-03 allowed premature filing of a invoices operates to forfeit its entitlement to a tax
judicial claim, which means non-exhaustion of the 120- refund/credit of its unutilized input VAT attributable to
day period for the Commissioner to act on an its zero-rated sales; and (2) whether petitioner’s failure
administrative claim. Philex cannot claim the benefit of to indicate "TIN-V" in its sales invoices automatically
BIR Ruling No. DA-489-03 because Philex did not file its invalidates its claim for a tax credit certification." Again,
judicial claim prematurely but filed it long after the nowhere in this case did the Court discuss, state, or rule
lapse of the 30-day period following the expiration of that the filing dates of the administrative and judicial
the 120-day period. In fact, Philex filed its judicial claim claims are inconsequential, as long as they are within
426 days after the lapse of the 30-day period. the two-year prescriptive period.

VII. Existing Jurisprudence In AT&T Communications Services Philippines, Inc. v.

CIR,73 the Court stated: "x x x the CTA First Division,
There is no basis whatsoever to the claim that in five conceding that petitioner’s transactions fall under the
cases this Court had already made a ruling that the filing classification of zero-rated sales, nevertheless denied
dates of the administrative and judicial claims are petitioner’s claim ‘for lack of substantiation,’ x x x." The
inconsequential, as long as they are within the two-year Court quoted the ruling of the First Division that "valid
prescriptive period. The effect of the claim of the VAT official receipts, and not mere sale invoices, should
dissenting opinions is that San Roque’s failure to wait have been submitted" by petitioner to substantiate its
for the 120-day mandatory period to lapse is claim. The Court further stated: "x x x the CTA En Banc,
inconsequential, thus allowing San Roque to claim the x x x affirmed x x x the CTA First Division," and
tax refund or credit. However, the five cases cited by "petitioner’s motion for reconsideration having been
the dissenting opinions do not support even remotely denied x x x, the present petition for review was filed."
Clearly, the sole issue in this case is whether petitioner taxes it incurred from April 1, 1996 to December 31,
complied with the substantiation requirements in 1997 were directly attributable to its export sales. Since
claiming for tax refund or credit. Again, nowhere in this it did not have any output tax against which said input
case did the Court discuss, state, or rule that the filing taxes may be offset, it had the option to file a claim for
dates of the administrative and judicial claims are refund/tax credit of its unutilized input taxes.
inconsequential, as long as they are within the two-year
prescriptive period. Considering the submission of the parties and the
evidence on record, we find the petition bereft of merit.
In CIR v. Ironcon Builders and Development
Corporation,74 the Court put the issue in this manner: Petitioner’s contention that respondent is not entitled
"Simply put, the sole issue the petition raises is whether to refund for being exempt from VAT is untenable. This
or not the CTA erred in granting respondent Ironcon’s argument turns a blind eye to the fiscal incentives
application for refund of its excess creditable VAT granted to PEZA-registered enterprises under Section 23
withheld." The Commissioner argued that "since the of Rep. Act No. 7916. Note that under said statute, the
NIRC does not specifically grant taxpayers the option to respondent had two options with respect to its tax
refund excess creditable VAT withheld, it follows that burden. It could avail of an income tax holiday pursuant
such refund cannot be allowed." Thus, this case is solely to provisions of E.O. No. 226, thus exempt it from
about whether the taxpayer has the right under the income taxes for a number of years but not from other
NIRC to ask for a cash refund of excess creditable VAT internal revenue taxes such as VAT; or it could avail of
withheld. Again, nowhere in this case did the Court the tax exemptions on all taxes, including VAT under
discuss, state, or rule that the filing dates of the P.D. No. 66 and pay only the preferential tax rate of 5%
administrative and judicial claims are inconsequential, under Rep. Act No. 7916. Both the Court of Appeals and
as long as they are within the two-year prescriptive the Court of Tax Appeals found that respondent availed
period. of the income tax holiday for four (4) years starting from
August 7, 1995, as clearly reflected in its 1996 and 1997
In CIR v. Cebu Toyo Corporation,75 the issue was Annual Corporate Income Tax Returns, where
whether Cebu Toyo was exempt or subject to VAT. respondent specified that it was availing of the tax relief
Compliance with the 120-day period was never an issue under E.O. No. 226. Hence, respondent is not exempt
in Cebu Toyo. As the Court explained: from VAT and it correctly registered itself as a VAT
taxpayer. In fine, it is engaged in taxable rather than
Both the Commissioner of Internal Revenue and the exempt transactions. (Emphasis supplied)
Office of the Solicitor General argue that respondent
Cebu Toyo Corporation, as a PEZA-registered enterprise, Clearly, the issue in Cebu Toyo was whether the
is exempt from national and local taxes, including VAT, taxpayer was exempt from VAT or subject to VAT at 0%
under Section 24 of Rep. Act No. 7916 and Section 109 tax rate. If subject to 0% VAT rate, the taxpayer could
of the NIRC. Thus, they contend that respondent Cebu claim a refund or credit of its input VAT. Again, nowhere
Toyo Corporation is not entitled to any refund or credit in this case did the Court discuss, state, or rule that the
on input taxes it previously paid as provided under filing dates of the administrative and judicial claims are
Section 4.103-1 of Revenue Regulations No. 7-95, inconsequential, as long as they are within the two-year
notwithstanding its registration as a VAT taxpayer. For prescriptive period.
petitioner claims that said registration was erroneous
and did not confer upon the respondent any right to While this Court stated in the narration of facts in Cebu
claim recognition of the input tax credit. Toyo that the taxpayer "did not bother to wait for the
Resolution of its (administrative) claim by the CIR"
The respondent counters that it availed of the income before filing its judicial claim with the CTA, this issue
tax holiday under E.O. No. 226 for four years from was not raised before the Court. Certainly, this
August 7, 1995 making it exempt from income tax but statement of the Court is not a binding precedent that
not from other taxes such as VAT. Hence, according to the taxpayer need not wait for the 120-day period to
respondent, its export sales are not exempt from VAT, lapse.
contrary to petitioner’s claim, but its export sales is
subject to 0% VAT. Moreover, it argues that it was able Any issue, whether raised or not by the parties, but not
to establish through a report certified by an passed upon by the Court, does not have any value as
independent Certified Public Accountant that the input precedent. As this Court has explained as early as 1926:
 Unlike rulings of the lower courts, which bind the
It is contended, however, that the question before us parties to specific cases alone, our judgments are
was answered and resolved against the contention of universal in their scope and application, and equally
the appellant in the case of Bautista vs. Fajardo (38 Phil. mandatory in character. Let it be warned that to defy
624). In that case no question was raised nor was it our decisions is to court contempt. (Emphasis supplied)
even suggested that said section 216 did not apply to a
public officer. That question was not discussed nor The same basic doctrine was reiterated by this Court in
referred to by any of the parties interested in that case. De Mesa v. Pepsi Cola Products Phils., Inc.:79
It has been frequently decided that the fact that a
statute has been accepted as valid, and invoked and The principle of stare decisis et non quieta movere is
applied for many years in cases where its validity was entrenched in Article 8 of the Civil Code, to wit:
not raised or passed on, does not prevent a court from
later passing on its validity, where that question is ART. 8. Judicial decisions applying or interpreting the
squarely and properly raised and presented. Where a laws or the Constitution shall form a part of the legal
question passes the Court sub silentio, the case in which system of the Philippines.
the question was so passed is not binding on the Court
(McGirr vs. Hamilton and Abreu, 30 Phil. 563), nor It enjoins adherence to judicial precedents. It requires
should it be considered as a precedent. (U.S. vs. Noriega our courts to follow a rule already established in a final
and Tobias, 31 Phil. 310; Chicote vs. Acasio, 31 Phil. 401; decision of the Supreme Court. That decision becomes a
U.S. vs. More, 3 Cranch [U.S.] 159, 172; U.S. vs. Sanges, judicial precedent to be followed in subsequent cases
144 U.S. 310, 319; Cross vs. Burke, 146 U.S. 82.) For the by all courts in the land. The doctrine of stare decisis is
reasons given in the case of McGirr vs. Hamilton and based on the principle that once a question of law has
Abreu, supra, the decision in the case of Bautista vs. been examined and decided, it should be deemed
Fajardo, supra, can have no binding force in the settled and closed to further argument. (Emphasis
interpretation of the question presented here.76 supplied)
(Emphasis supplied)
VIII. Revenue Regulations No. 7-95 Effective 1 January
In Cebu Toyo, the nature of the 120-day period, 1996
whether it is mandatory or optional, was not even
raised as an issue by any of the parties. The Court never Section 4.106-2(c) of Revenue Regulations No. 7-95, by
passed upon this issue. Thus, Cebu Toyo does not its own express terms, applies only if the taxpayer files
constitute binding precedent on the nature of the 120- the judicial claim "after" the lapse of the 60-day period,
day period. a period with which San Roque failed to comply. Under
Section 4.106-2(c), the 60-day period is still mandatory
There is also the claim that there are numerous CTA and jurisdictional.
decisions allegedly supporting the argument that the
filing dates of the administrative and judicial claims are Moreover, it is a hornbook principle that a prior
inconsequential, as long as they are within the two-year administrative regulation can never prevail over a later
prescriptive period. Suffice it to state that CTA decisions contrary law, more so in this case where the later law
do not constitute precedents, and do not bind this Court was enacted precisely to amend the prior administrative
or the public. That is why CTA decisions are appealable regulation and the law it implements.
to this Court, which may affirm, reverse or modify the
CTA decisions as the facts and the law may warrant. The laws and regulation involved are as follows:
Only decisions of this Court constitute binding
precedents, forming part of the Philippine legal 1977 Tax Code, as amended by Republic Act No. 7716
system.77 As held by this Court in The Philippine (1994)
Veterans Affairs Office v. Segundo:78
Sec. 106. Refunds or tax credits of creditable input tax.
x x x Let it be admonished that decisions of the Supreme —
Court "applying or interpreting the laws or the
Constitution . . . form part of the legal system of the (a) x x x x
Philippines," and, as it were, "laws" by their own right
because they interpret what the laws say or mean.
(d) Period within which refund or tax credit of input tax (D) Period within which Refund or Tax Credit of Input
shall be made - In proper cases, the Commissioner shall Taxes shall be made. — In proper cases, the
grant a refund or issue the tax credit for creditable input Commissioner shall grant the refund or issue the tax
taxes within sixty (60) days from the date of submission credit certificate for creditable input taxes within one
of complete documents in support of the application hundred twenty (120) days from the date of submission
filed in accordance with subparagraphs (a) and (b) of complete documents in support of the application
hereof. In case of full or partial denial of the claim for filed in accordance with Subsections (A) and (B) hereof.
tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the In case of full or partial denial of the claim for tax refund
period prescribed above, the taxpayer affected may, or tax credit, or the failure on the part of the
within thirty (30) days from receipt of the decision Commissioner to act on the application within the
denying the claim or after the expiration of the sixty-day period prescribed above, the taxpayer affected may,
period, appeal the decision or the unacted claim with within thirty (30) days from the receipt of the decision
the Court of Tax Appeals. denying the claim or after the expiration of the hundred
twenty day-period, appeal the decision or the unacted
Revenue Regulations No. 7-95 (1996) claim with the Court of Tax Appeals.

Section 4.106-2. Procedures for claiming refunds or tax There can be no dispute that under Section 106(d) of
credits of input tax — (a) x x x the 1977 Tax Code, as amended by RA 7716, the
Commissioner has a 60-day period to act on the
xxxx administrative claim. This 60-day period is mandatory
and jurisdictional.
(c) Period within which refund or tax credit of input
taxes shall be made. — In proper cases, the Did Section 4.106-2(c) of Revenue Regulations No. 7-95
Commissioner shall grant a tax credit/refund for change this, so that the 60-day period is no longer
creditable input taxes within sixty (60) days from the mandatory and jurisdictional? The obvious answer is no.
date of submission of complete documents in support
of the application filed in accordance with Section 4.106-2(c) itself expressly states that if, "after
subparagraphs (a) and (b) above. the sixty (60) day period," the Commissioner fails to act
on the administrative claim, the taxpayer may file the
In case of full or partial denial of the claim for tax judicial claim even "before the lapse of the two (2) year
credit/refund as decided by the Commissioner of period." Thus, under Section 4.106-2(c) the 60-day
Internal Revenue, the taxpayer may appeal to the Court period is still mandatory and jurisdictional.
of Tax Appeals within thirty (30) days from the receipt
of said denial, otherwise the decision will become final. Section 4.106-2(c) did not change Section 106(d) as
However, if no action on the claim for tax credit/refund amended by RA 7716, but merely implemented it, for
has been taken by the Commissioner of Internal two reasons. First, Section 4.106-2(c) still expressly
Revenue after the sixty (60) day period from the date of requires compliance with the 60-day period. This cannot
submission of the application but before the lapse of be disputed.1âwphi1
the two (2) year period from the date of filing of the
VAT return for the taxable quarter, the taxpayer may Second, under the novel amendment introduced by RA
appeal to the Court of Tax Appeals. 7716, mere inaction by the Commissioner during the 60-
day period is deemed a denial of the claim. Thus,
xxxx Section 4.106-2(c) states that "if no action on the claim
for tax refund/credit has been taken by the
1997 Tax Code Commissioner after the sixty (60) day period," the
taxpayer "may" already file the judicial claim even long
Section 112. Refunds or Tax Credits of Input Tax — before the lapse of the two-year prescriptive period.
Prior to the amendment by RA 7716, the taxpayer had
(A) x x x to wait until the two-year prescriptive period was about
to expire if the Commissioner did not act on the
xxxx claim.80 With the amendment by RA 7716, the taxpayer
need not wait until the two-year prescriptive period is
about to expire before filing the judicial claim because Even if, contrary to all principles of statutory
mere inaction by the Commissioner during the 60-day construction as well as plain common sense, we
period is deemed a denial of the claim. This is the gratuitously apply now Section 4.106-2(c) of Revenue
meaning of the phrase "but before the lapse of the two Regulations No. 7-95, still San Roque cannot recover any
(2) year period" in Section 4.106-2(c). As Section 4.106- refund or credit because San Roque did not wait for the
2(c) reiterates that the judicial claim can be filed only 60-day period to lapse, contrary to the express
"after the sixty (60) day period," this period remains requirement in Section 4.106-2(c). In short, San Roque
mandatory and jurisdictional. Clearly, Section 4.106-2(c) does not even comply with Section 4.106-2(c). A claim
did not amend Section 106(d) but merely faithfully for tax refund or credit is strictly construed against the
implemented it. taxpayer, who must prove that his claim clearly
complies with all the conditions for granting the tax
Even assuming, for the sake of argument, that Section refund or credit. San Roque did not comply with the
4.106-2(c) of Revenue Regulations No. 7-95, an express condition for such statutory grant.
administrative issuance, amended Section 106(d) of the
Tax Code to make the period given to the Commissioner A final word. Taxes are the lifeblood of the nation. The
non-mandatory, still the 1997 Tax Code, a much later Philippines has been struggling to improve its tax
law, reinstated the original intent and provision of efficiency collection for the longest time with minimal
Section 106(d) by extending the 60-day period to 120 success. Consequently, the Philippines has suffered the
days and re-adopting the original wordings of Section economic adversities arising from poor tax collections,
106(d). Thus, Section 4.106-2(c), a mere administrative forcing the government to continue borrowing to fund
issuance, becomes inconsistent with Section 112(D), a the budget deficits. This Court cannot turn a blind eye
later law. Obviously, the later law prevails over a prior to this economic malaise by being unduly liberal to
inconsistent administrative issuance. taxpayers who do not comply with statutory
requirements for tax refunds or credits. The tax refund
Section 112(D) of the 1997 Tax Code is clear, claims in the present cases are not a pittance. Many
unequivocal, and categorical that the Commissioner has other companies stand to gain if this Court were to rule
120 days to act on an administrative claim. The taxpayer otherwise. The dissenting opinions will turn on its head
can file the judicial claim (1) only within thirty days after the well-settled doctrine that tax refunds are strictly
the Commissioner partially or fully denies the claim construed against the taxpayer.
within the 120- day period, or (2) only within thirty days
from the expiration of the 120- day period if the WHEREFORE, the Court hereby (1) GRANTS the petition
Commissioner does not act within the 120-day period. of the Commissioner of Internal Revenue in G.R. No.
187485 to DENY the P483,797,599.65 tax refund or
There can be no dispute that upon effectivity of the credit claim of San Roque Power Corporation; (2)
1997 Tax Code on 1 January 1998, or more than five GRANTS the petition of Taganito Mining Corporation in
years before San Roque filed its administrative claim on G.R. No. 196113 for a tax refund or credit of
28 March 2003, the law has been clear: the 120- day P8,365,664.38; and (3) DENIES the petition of Philex
period is mandatory and jurisdictional. San Roque’s Mining Corporation in G.R. No. 197156 for a tax refund
claim, having been filed administratively on 28 March or credit of P23,956,732.44.
2003, is governed by the 1997 Tax Code, not the 1977
Tax Code. Since San Roque filed its judicial claim before SO ORDERED.
the expiration of the 120-day mandatory and
jurisdictional period, San Roque’s claim cannot prosper.

San Roque cannot also invoke Section 4.106-2(c), which

expressly provides that the taxpayer can only file the
judicial claim "after" the lapse of the 60-day period from
the filing of the administrative claim. San Roque filed its
judicial claim just 13 days after filing its administrative
claim. To recall, San Roque filed its judicial claim on 10
April 2003, a mere 13 days after it filed its
administrative claim.
 G.R. No. 188260 November 13, 2013 The petitioner alleged herein that it had incurred input
VAT in the amount of ₱9,795,427.89 on its domestic
LUZON HYDRO CORPORATION, Petitioner, purchases of goods and services used in its generation
vs. and sales of electricity to NPC in the four quarters of
COMMISSIONER OF INTERNAL REVENUE, Respondent. 2001;5 and that it had declared the input VAT of
₱9,795,427.89 in its amended VAT returns for the four
DECISION quarters on 2001, as follows:6

BERSAMIN, J.: Exhibit Date Filed Period Covered Input VAT (P)
F May 25, 2001 1st quarter – 2001
This case involves a claim for refund or tax credit to 1,903,443.96
cover petitioner Luzon Hydro Corporation's unutilized I July 23, 2001 2nd quarter – 2001
Input Value-Added Tax (VAT) worth 1 2,920,665 .16 2,166,051.96
corresponding to the four quarters of taxable year 2001. L July 23, 2002 3rd quarter –2001
1,598,482.39
The Case O July 24, 2002 4th quarter – 2001
4,127,449.58
The petitioner brought this action in the Court of Tax Total 9,795,427.89
Appeals (CTA) after the Commissioner of Internal On November 26, 2001, the petitioner filed a written
Revenue (respondent) did not act on the claim (CTA claim for refund or tax credit relative to its unutilized
Case No. 6669). The CTA 2nd Division denied the claim input VAT for the period from October 1999 to October
on May 2, 2008 on the ground that the petitioner did 2001 aggregating ₱14,557,004.38.7 Subsequently, on
not prove that it had zero-rated sales for the four July 24, 2002, it amended the claim for refund or tax
quarters of 2001.1 The CT A En Banc denied the credit to cover the period from October 1999 to May
petitioner's motion for reconsideration, and affirmed 2002 for ₱20,609,047.56.8
the decision of the CTA 2nd Division through its decision
dated May 5, 2009.2 Hence, the petitioner appeals the The BIR, through Revenue Examiner Felicidad Mangabat
decision of the CTA En Banc. of Revenue District Office No. 2 in Vigan City, concluded
an investigation, and made a recommendation in its
Antecedents report dated August 19, 2002 favorable to the
petitioner’s claim for the period from January 1, 2001 to
The petitioner, a corporation duly organized under the December 31, 2001.9
laws of the Philippines, has been registered with the
Bureau of Internal Revenue (BIR) as a VAT taxpayer Respondent Commissioner of Internal Revenue
under Taxpayer Identification No. 004-266-526. It was (Commissioner) did not ultimately act on the
formed as a consortium of several corporations, petitioner’s claim despite the favorable
namely: Northern Mini Hydro Corporation, Aboitiz recommendation. Hence, on April 14, 2003, the
Equity Ventures, Inc., Ever Electrical Manufacturing, Inc. petitioner filed its petition for review in the CTA, praying
and Pacific Hydro Limited. for the refund or tax credit certificate (TCC)
corresponding to the unutilized input VAT paid for the
Pursuant to the Power Purchase Agreement entered four quarters of 2001 totalling ₱9,795,427.88.10
into with the National Power Corporation (NPC), the
electricity produced by the petitioner from its operation Answering on May 29, 2003,11 the Commissioner
of the Bakun Hydroelectric Power Plant was to be sold denied the claim, and raised the following special and
exclusively to NPC.3 Relative to its sale to NPC, the affirmative defenses, to wit:
petitioner was granted by the BIR a certificate for Zero
Rate for VAT purposes in the periods from January 1, xxxx
2000 to December 31, 2000; February 1, 2000 to
December 31, 2000 (Certificate No. Z-162-2000); and 7. The petitioner has failed to demonstrate that the
from January 2, 2001 to December 31, 2001 (Certificate taxes sought to be refunded were erroneously or
No. 2001-269).4 illegally collected;
8. In an action for tax refund, the burden is upon the
taxpayer to prove that he is entitled thereto, and failure On May 3, 2005, the petitioner filed a Motion for Leave
to sustain the same is fatal to the action for tax refund; of Court to Amend Petition for Review in consideration
of the partial grant of the claim through TCC No.
9. It is incumbent upon petitioner to show compliance 00002618. The CTA in Division granted the motion on
with the provisions of Section 112 and Section 229, both May 11, 2005, and admitted the Amended Petition for
of the National Internal Revenue Code, as amended; Review, whereby the petitioner sought the refund or tax
credit in the reduced amount of ₱2,920,665.16. The CTA
10. Claims for refund are construed strictly against the in Division also directed the respondent to file a
claimant for the same partakes the nature of exemption supplemental answer within ten days from notice.16
from taxation (Commissioner of Internal Revenue vs.
Ledesma, G.R. No. L-13509, January 30, 1970, 31 SCRA When no supplemental answer was filed within the
95) and as such they are looked upon [with] disfavor period thus allowed, the CTA in Division treated the
(Western Minolco Corp. vs. Commissioner of Internal answer filed on May 16, 2003 as the Commissioner’s
Revenue, 124 SCRA 121); answer to the Amended Petition for Review.17

11. Taxes paid and collected are presumed to have been Thereafter, the petitioner presented testimonial and
made in accordance with the law and regulations, documentary evidence to support its claim. On the
hence, not refundable.12 other hand, the Commissioner submitted the case for
decision based on the pleadings.18 On May 2, 2007, the
xxxx case was submitted for decision without the
memorandum of the Commissioner.19
On October 30, 2003, the parties submitted a Joint
Stipulation of Facts and Issues,13 which the CTA in Ruling of the CTA in Division
Division approved on November 10, 2003. The issues to
be resolved were consequently the following: The CTA in Division promulgated its decision in favor of
the respondent denying the petition for review, viz:
1. Whether or not the input value added tax being
claimed by petitioner is supported by sufficient In petitioner’s VAT returns for the four quarters of 2001,
documentary evidence; no amount of zero-rated sales was declared. Likewise,
petitioner did not submit any VAT official receipt of
2. Whether petitioner has excess and unutilized input payments for services rendered to NPC. The only proof
VAT from its purchases of domestic goods and services, submitted by petitioner is a letter from Regional
including capital goods in the amount of ₱9,795,427.88; Director Rene Q. Aguas, Revenue Region No. 1, stating
that the financial statements and annual income tax
3. Whether or not the input VAT being claimed by return constitute sufficient secondary proof of
petitioner is attributable to its zero-rated sale of effectively zero-rated and that based on their
electricity to the NPC; examination and evaluation of the financial statements
and annual income tax return of petitioner for taxable
4.Whether or not the operation of the Bakun year 2000, it had annual gross receipts of
Hydroelectric Power Plant is directly connected and Ph₱187,992,524.00. This Court cannot give credence to
attributable to the generation and sale of electricity to the said letter as it refers to taxable year 2000, while
NPC, the sole business of petitioner; and 5. Whether or the instant case refers to taxable year 2001.
not the claim filed by the petitioner was filed within the
reglementary period provided by law.14 Without zero-rated sales for the four quarters of 2001,
the input VAT payments of Ph₱9,795,427.88 (including
While the case was pending hearing, the Commissioner, the present claim of Ph₱2,920,665.16) allegedly
through the Assistant Commissioner for Assessment attributable thereto cannot be refunded. It is clear
Services, informed the petitioner by the letter dated under Section 112 (A) of the NIRC of 1997 that the
March 3, 2005 that its claim had been granted in the refund/tax credit of unutilized input VAT is premised on
amount of ₱6,874,762.72, net of disallowances of the existence of zero-rated or effectively zero-rated
₱2,920,665.16. Accompanying the letter was the TCC for sales.
₱6,874,762.72 (TCC No. 00002618).15
xxxx
It is settled that tax refunds, like tax exemptions, are
For petitioner’s non-compliance with the first requisite construed strictly against the taxpayer and that the
of proving that it had effectively zero-rated sales for the claimant has the burden of proof to establish the factual
four quarters of 2001, the claimed unutilized input VAT basis of its claim for tax credit or refund. Failure in this
payments of Ph₱2,920,665.16 cannot be granted. regard, petitioner’s claim must therefore, fail.

WHEREFORE, the instant Petition for Review is hereby WHEREFORE, the instant Petition for Review is hereby
DENIED for lack of merit. DENIED for lack of merit.

SO ORDERED.20 SO ORDERED.23

On May 21, 2008, the petitioner moved to reconsider On June 10, 2009, the CTA En Banc also denied the
the decision of the CTA in Division.21 However, the CTA petitioner’s motion for reconsideration.24
in Division denied the petitioner’s motion for
reconsideration on September 5, 2008.22 Issue

Decision of the CTA En Banc Aggrieved, the petitioner has appealed, urging as the
lone issue: –
On October 17, 2008, the petitioner filed a petition for
review in the CTA En Banc (CTA E.B No. 420), posing the WHETHER THE CTA EN BANC COMMITTED A
main issue whether or not the CTA in Division erred in REVERSIBLE ERROR IN AFFIRMING THE DECISION OF
denying its claim for refund or tax credit upon a finding THE CTA.
that it had not established its having effectively zero-
rated sales for the four quarters of 2001. In its August 3, 2009 petition for review,25 the
petitioner has argued as follows:
On May 5, 2009, the CTA En Banc promulgated the
assailed decision affirming the Division, and denying the (1) Its sale of electricity to NPC was automatically zero-
claim for refund or tax credit, stating: rated pursuant to Republic Act No. 9136 (EPIRA Law);
hence, it need not prove that it had zero-rated sales in
The other argument of petitioner that even if the tax the period from January 1, 2001 to December 31, 2001
credit certificate will not be used as evidence, it was by the presentation of VAT official receipts that would
able to prove that it has zero-rated sale as shown in its contain all the necessary information required under
financial statements and income tax returns quoting the Section 113 of the National Internal Revenue Code of
letter opinion of Regional Director Rene Q. Aguas that 1997, as implemented by Section 4.108-1 of Revenue
the statements and the return are considered sufficient Regulations No. 7-95. Evidence of sale of electricity to
to establish that it generated zero-rated sale of NPC other than official receipts could prove zero-rated
electricity is bereft of merit. As found by the Court a sales.
quo, the letter opinion refers to taxable year 2000,
while the instant case covers taxable year 2001; hence, (2) The TCC, once issued, constituted an administrative
cannot be given credence. Even assuming for the sake opinion that deserved consideration and respect by the
of argument that the financial statements, the return CTA En Banc.
and the letter opinion relates to 2001, the same could
not be taken plainly as it is because there is still a need (3) The CTA En Banc was devoid of any authority to
to produce the supporting documents proving the determine the existence of the petitioner’s zero-rated
existence of such zero-rated sales, which is wanting in sales, inasmuch as that would constitute an
this case. Considering that there are no zero-rated sales encroachment on the powers granted to an
to speak of for taxable year 2001, petitioner is, administrative agency having expertise on the matter.
therefore, not entitled to a refund of Ph₱2,920,665.16
input tax allegedly attributable thereto since it is basic (4) The CTA En Banc manifestly overlooked evidence not
requirement under Section 112 (A) of the NIRC that disputed by the parties and which, if properly
there should exists a zero-rated sales in order to be considered, would justify a different conclusion.26
entitled to a refund of unutilized input tax.
The petitioner has prayed for the reversal of the services, and the amount of creditable input tax due or
decision of the CTA En Banc, and for the remand of the paid cannot be directly and entirely attributed to any
case to the CTA for the reception of its VAT official one of the transactions, it shall be allocated
receipts as newly discovered evidence. It has supported proportionately on the basis of the volume of sales.
the latter relief prayed for by representing that the VAT
official receipts had been misplaced by Edwin Tapay, its xxxx
former Finance and Accounting Manager, but had been
found only after the CTA En Banc has already affirmed A claim for refund or tax credit for unutilized input VAT
the decision of the CTA in Division. In the alternative, it may be allowed only if the following requisites concur,
has asked that the Commissioner allow the claim for namely: (a) the taxpayer is VAT-registered; (b) the
refund or tax credit of ₱2,920,665.16. taxpayer is engaged in zero-rated or effectively zero-
rated sales; (c) the input taxes are due or paid; (d) the
In the comment submitted on December 3, 2009,27 the input taxes are not transitional input taxes; (e) the input
Commissioner has insisted that the petitioner’s claim taxes have not been applied against output taxes during
cannot be granted because it did not incur any zero- and in the succeeding quarters; (f) the input taxes
rated sale; that its failure to comply with the invoicing claimed are attributable to zero-rated or effectively
requirements on the documents supporting the sale of zero-rated sales; (g) for zero-rated sales under Section
services to NPC resulted in the disallowance of its claim 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the
for the input tax; and the claim should also be denied acceptable foreign currency exchange proceeds have
for not being substantiated by appropriate and been duly accounted for in accordance with the rules
sufficient evidence. and regulations of the Bangko Sentral ng Pilipinas; (h)
where there are both zero-rated or effectively zero-
In its reply filed on February 4, 2010,28 the petitioner rated sales and taxable or exempt sales, and the input
reiterated its contention that it had established its claim taxes cannot be directly and entirely attributable to any
for refund or tax credit; and that it should be allowed to of these sales, the input taxes shall be proportionately
present the official receipts in a new trial. allocated on the basis of sales volume; and (i) the claim
is filed within two years after the close of the taxable
Ruling of the Court quarter when such sales were made.29

The petition is without merit. The petitioner did not competently establish its claim
for refund or tax credit.1avvphi1 We agree with the CTA
Section 112 of the National Internal Revenue Code 1997 En Banc that the petitioner did not produce evidence
provides: showing that it had zero-rated sales for the four
quarters of taxable year 2001. As the CTA En Banc
SEC. 112. Refunds or Tax Credits of Input Tax.— precisely found, the petitioner did not reflect any zero-
rated sales from its power generation in its four
(A) Zero-rated or Effectively Zero-rated Sales--Any VAT- quarterly VAT returns, which indicated that it had not
registered person, whose sales are zero-rated or made any sale of electricity. Had there been zero-rated
effectively zero-rated may, within two (2) years after sales, it would have reported them in the returns.
the close of the taxable quarter when the sales were Indeed, it carried the burden not only that it was
made, apply for the issuance of a tax credit certificate or entitled under the substantive law to the allowance of
refund of creditable input tax due or paid attributable to its claim for refund or tax credit but also that it met all
such sales, except transitional input tax, to the extent the requirements for evidentiary substantiation of its
that such input tax has not been applied against output claim before the administrative official concerned, or in
tax: Provided, however, That in the case of zero-rated the de novo litigation before the CTA in Division.30
sales under Section 106(A)(2)(a)(1), (2) and (B) and
Section 108(B)(1) and (2), the acceptable foreign Although the petitioner has correctly contended here
currency exchange proceeds thereof had been duly that the sale of electricity by a power generation
accounted for in accordance with the rules and company like it should be subject to zero-rated VAT
regulations of the Bangko Sentral ng Pilipinas (BSP): under Republic Act No. 9136,31 its assertion that it
Provided, further, That where the taxpayer is engaged need not prove its having actually made zero-rated sales
in zero-rated or effectively zero-rated sale and also in of electricity by presenting the VAT official receipts and
taxable or exempt sale of goods or properties or VAT returns cannot be upheld. It ought to be reminded
that it could not be permitted to substitute such vital including whatever was required for the successful
and material documents with secondary evidence like prosecution of the administrative claim as the means of
financial statements. demonstrating to the CTA that its administrative claim
should have been granted in the first place.
We further find to be lacking in substance and bereft of
merit the petitioner’s insistence that the CTA En Banc Nonetheless, on the proposition that we may relax the
should not have disregarded the letter opinion by BIR stringent rules of procedure for the sake of rendering
Regional Director Rene Q. Aguas to the effect that its justice, we still hold that the concept of newly
financial statements and its return were sufficient to discovered evidence may not apply herein. In order that
establish that it had generated zero-rated sale of newly discovered evidence may be a ground for
electricity. To recall, the CTA En Banc rejected the allowing a new trial, it must be fairly shown that: (a) the
insistence because, firstly, the letter opinion referred to evidence is discovered after the trial; (b) such evidence
taxable year 2000 but this case related to taxable year could not have been discovered and produced at the
2001, and, secondly, even assuming for the sake of trial even with the exercise of reasonable diligence; (c)
argument that the financial statements, the return and such evidence is material, not merely cumulative,
the letter opinion had related to taxable year 2001, they corroborative, or impeaching; and (d) such evidence is
still could not be taken at face value for the purpose of of such weight that it would probably change the
approving the claim for refund or tax credit due to the judgment if admitted.33
need to produce the supporting documents proving the
existence of the zero-rated sales, which did not happen The first two requisites are not attendant. To start with,
here. In that respect, the CTA En Banc properly the proposed evidence was plainly not newly
disregarded the letter opinion as irrelevant to the discovered considering the petitioner s admission that
present claim of the petitioner. its former Finance and Accounting Manager had
misplaced the VAT official receipts. If that was true, the
We further see no reason to grant the prayer of the misplaced receipts were forgotten evidence. And,
petitioner for the remand of this case to enable it to secondly, the receipts, had they truly existed, could
present before the CTA newly discovered evidence have been sooner discovered and easily produced at the
consisting in VAT official receipts. trial with the exercise of reasonable diligence. But the
petitioner made no convincing demonstration that it
Ordinarily, the concept of newly discovered evidence is had exercised reasonable diligence. The Court cannot
applicable to litigations in which a litigant seeks a new accept its tender of such receipts and return now, for,
trial or the re-opening of the case in the trial court. indeed, the non-production of documents as vital and
Seldom is the concept appropriate when the litigation is material as such receipts and return were to the success
already on appeal, particularly in this Court. The of its claim for refund or tax credit was improbable, as it
absence of a specific rule on newly discovered evidence goes against the sound business practice of safekeeping
at this late stage of the proceedings is not without relevant documents precisely to ensure their future use
reason. The propriety of remanding the case for the to support an eventual substantial claim for refund or
purpose of enabling the CTA to receive newly tax credit.
discovered evidence would undo the decision already
on appeal and require the examination of the pieces of WHEREFORE, the Court DENIES the petition for review
newly discovered evidence, an act that the Court could on certiorari for its lack of merit; AFFIRMS the decision
not do by virtue of its not being a trier of facts. Verily, dated May 5, 2009 of the Court of Tax Appeals En Bane;
the Court has emphasized in Atlas Consolidated Mining and ORDERS the petitioner to pay the costs of suit.
and Development Corporation v. Commissioner of
Internal Revenue32 that a judicial claim for tax refund SO ORDERED.
or tax credit brought to the CTA is by no means an
original action but an appeal by way of a petition for
review of the taxpayer’s unsuccessful administrative
claim; hence, the taxpayer has to convince the CTA that
the quasi-judicial agency a quo should not have denied
the claim, and to do so the taxpayer should prove every
minute aspect of its case by presenting, formally
offering and submitting its evidence to the CTA,
 G.R. No. L-8799 August 31, 1956 quarter of 1951, inclusive, cooking appliances and
liquified petroleum gas in cylinders in the following
THE CITY OF MANILA, plaintiff-appellee, amounts:
vs.
THE INTER-ISLAND GAS SERVICE, INC., defendant- Period of sales
appellant.
Amount of sales
Pedro Lopez for appellant.
City Fiscal Eugenio Angeles and Assistant Fiscal Arsenio 4th quarter 1949
Nañawa for appellee.
P207,651.53
CONCEPCION, J.:
1st quarter 1950
The City of Manila instituted this action for the
collection of a sum of money allegedly due from the 190,936.92
defendant Inter-Island Gas Service, Inc., by way of
deficiency municipal tax. The main issue is whether 2nd quarter 1950
liquified flammable gas comes within the purview of
section 1, Group 2, of Ordinance No. 1925 of the City of 188,796.79
Manila, as amended by Ordinance No. 3364 thereof,
which provides that: 3rd quarter 1950

. . . there shall be paid to the City Treasurer for engaging 212,542.53

in any of the business or occupations below
enumerated, quarterly license fees based on gross sales 4th quarter 1950
or receipts realized during the preceding quarter, in
accordance with the rates herein prescribed: Provided, 206,696.26
however, That a person engaging in any business or
occupation for the first time shall pay the initial license 1st quarter 1951
fee based on the probable gross sales of receipts for the
first quarter beginning from the date of the opening of 216,346.69
the business as indicated herein for the corresponding
business or occupation. 2nd quarter 1951

xxx xxx xxx 219,283.45

Group 2. — Retail dealers in new (not yet used) 3rd quarter 1951
merchandise, which dealers are not yet subject to the
payment of any municipal tax, such as:(1) Retail dealers 184,290.85
in general merchandise and (2) retail dealers exclusively
engaged in the sale of electrical supplies; sporting 4th quarter 1951
goods; office equipment and materials; rice; textile
including knitted wares; hardware, including, glassware; 191,138.62
cooking utensils and construction materials; papers;
books, including stationary. Both parties stipulated: "3. That the defendant paid the different amount
alleged in paragraph 4 of the complaint corresponding
"1. That the plaintiff is a municipal corporation created to the quarters therein stated based on its sales of
and existing under the laws of the Philippines and that cooking appliances only;
the defendant is a corporation likewise created by any
existing under the laws of the Philippines; "4. That the total claim of the plaintiff against the
defendant under section 1, Group 2, of Ordinance No.
"2. That the defendant sold at retail in the City of 1925, as last amended by Ordinance No. 3364 is
Manila from the 4th quarter of 1949 to the a 4th P11,250.00, based on the defendant's sales alleged in
paragraph 2 of the complaint computed at the rate of
P1,250.00 quarterly corresponding to the first, second, 4. Further assuming arguendo that Ordinance No. 1925,
third and fourth quarterly of 1951, and the first quarter as amended, is valid, yet the lower court erred in not
of 1952; and finding that to apply it to the liquefied gas business of
the defendant will constitute double taxation; hence,
"5. That the defendant has paid the prescribed fees unconstitutional and void. .
under Ordinance No. 3259 of the City of Manila, 'An
Ordinance prescribing regulations for storage, 5. The lower court erred in ordering the defendant to
installations, use and transportation of compressed and pay the City of Manila the sum of P8,861.00 as
liquefied, inflammable gases other than acetylene, and deficiency tax due under Ordinance No. 1925, as
providing fees therefor", covering the same quarters amended by Ordinance No. 3364, and to pay the costs.
mentioned in paragraph 4 of the complaint.
In support of the first two assignments of error
Then the case was submitted for decision, whereupon appellant cites paragraphs (m) and (o) of section 18 of
the Court of First Instance of Manila rendered judgment the Revised Charter of Manila (Republic Act No. 409)
for the plaintiff, the dispositive part of which, as authorizing said city:
amended reads as follows:
"(m) To tax, fix the license fee and regulate the . . .
Therefore, this Court is of opinion and so holds, that the storage and sale of . . . petroleum or any of the products
City Government of Manila has the right to impose tax thereof and of all other highly combustible or explosive
on liquefied flammable gas under Ordinance No. 925, as materials
amended by Ordinance No. 3364. And for this reason,
the defendant Inter-Island Gas Service, Inc., is hereby xxx xxx xxx
sentenced to pay to the City of Manila the sum of
P8,361 as deficiency tax due from the year 1952, "(o) To tax and fix the license fee on dealers in general
inclusive, including the amount of P50 as surcharge merchandise. . . . .
thereon, and the payment of the costs . . .
Then appellant argues that liquefied flammable gas is
The defendant has appealed from this decision and now included in said paragraph (m) and, hence, excluded
in maintains that: . from the connotation of the word "merchandise," as
used in paragraph (o). This argument at first impressed
1. The lower court erred in not holding and declaring the court, but, upon further reflection, we are
that the No. 1925 as amended (imposing a tax for persuaded that it is not decisive on the issue before us.
purposes of revenue), does not clearly provided that it Indeed, although the clause "petroleum or any of the
applies to the sale of liquified flammable gas. products thereof and all other said paragraph (m) may
indicate the intent of Congress of the Philippines to
2. The lower court erred in not holding and declaring include liquefied flammable gas within the purview of
that the provisions of section 1, Group 2, of Ordinance said paragraph, it does not follow necessarily that in
No. 1925, as amended by Ordinance No. 3364, are and using the word "merchandise", in Municipal Ordinance
clearly within the legislative powers granted to the No. 1925, as amended, the Municipal Board of Manila
Municipal Board of Manila, if said Ordinance is applied intended to convey thereto the restricted meaning
to the sale of liquefied flammable gas. allegedly given to the term "merchandise" in paragraph
(o) of Section 18 of its Revised Charter, or to exclude
3. That assuming arguendo that under the provision of liquefied flammable gas from the operation of said
section 1, Group 2, of Ordinance No. 1925, as last ordinance. In this connection, it should be noted that
amended by Ordinance No. 3364, liquefied flammable the authority of the City of Manila to tax dealers in
gas in included, still the lower court erred in not finding liquefied flammable gas under its Revised Charter, is
and declaring that said Ordinance No. 1925, as conceded. Accordingly, the question whether the grant
amended, is a percentage tax; hence, the complaint of power appears in paragraph (m) or in paragraph (o)
does not state a cause of action because no allegation of the aforementioned Section 18, is immaterial to the
has been made that the ordinance in question had exercise of said authority.
previously been approved by the President of the
Philippines.
As already adverted to, the case hinges on the used) merchandise, which dealers are not yet subject to
connotation of the term "merchandise" as used in said the payment of any municipal tax." Liquefied flammable
ordinance, or the interest of the Municipal Board in gas is a "new" object of commerce, and hence,
connection therewith. Referring to the meaning of said merchandise, and, at the time of the passage of said
word, Corpus Juris Secundum has the following to say: ordinance, dealers therein were not, as yet, subject to
the payment of any municipal tax. In short, the first and
The word "merchandise," employed as a noun, is second assignments of error are untenable.
defined as meaning the objects of commerce; the
subjects of commerce and traffic; whatever is usually Under the third assignment of error, it is claimed that
bought and sold in trade, or market, or by merchants; the tax imposed under the ordinance in question is in
goods; ware; commodities, goods, or wares bought and the nature of a percentage tax. The schedule of taxes
sold for gain; commodities or goods to trade with; a under the aforementioned Group 2 is a follows:
commercial commodity or commercial commodities in
general. Class

The term is also defined as meaning things which are Quarterly gross sales
ordinarily bought and sold; anything movable, anything Quarterly license fee
customarily bought and sold for profit; any movable 1.  Over to  P125,000.00  P1,250.00
object of trade or traffic; any article which is the object
2.  P100,000.00 to  125,000.00  P1,125.00
of commerce, or which may be bought or sold in trade;
the staple of a mercantile business; that which is passed 3.  90,000.00 to  99,999.99  1,000.00
from hand to hand by purchase and sale. (Vol. 57 pp. 4.  80,000.00 to  89,999.99  900.00
1056-1057.)
5.  70,000.00 to  79,999.99  800.00
Inasmuch as, admittedly, liquefied gas may be, and is 6.  60,000.00 to  69,999.99  700.00
being, bought and sold in trade, it clearly is a
merchandise, and comes within the purview of the 7.  50,000.00 to  59,999.99  600.00
ordinary import of this world. Was it used in this sense 8.  45,000.00 to  49,999.99  500.00
in Ordinance No. 1925, as amended, as, in effect, held
9.  40,000.00 to  44,999.99  450.00
by the lower court or did the Municipal Board intend to
convey therewith the meaning allegedly given thereto 10.  36,000.00 to  39,999.99  400.00
in paragraph (o) of Section 18 of Republic Act No. 409,
11.  33,000.00 to  35,999.99  360.00
as contended by defendant-appellant? We find
ourselves unable to accept the latter view, not only 12.  30,000.00 to  32,999.99  330.00
because the former is more in accord with the simple 13.  27,500.00 to  29,999.99  300.00
and usual connotation of said term, but, also, because it
appears that said ordinance has not followed the 14.  25,750.00 to  27,499.99  275.00
classification made in Section 18 of Republic Act No. 15.  22,500.00 to  24,999.99  250.00
109. Thus, for instance, although the word
"merchandise" appears in paragraph (o) of said Section 16.  20,500.00 to  22,499.99  225.00
18, it is included in Group 2 of said ordinance, together 17.  18,700.00 to  20,499.99  205.00
with electrical supplies, sporting goods, textiles,
18.  17,200.00 to  18,699.99  187.00
hardware, including glassware, and cooking utensils,
which are found in paragraph (n) of said Article 18. 19.  15,500.00 to  17,199.99  172.00
Moreover, said Group 2 refers to "retail dealers in new
20.  14,100.00 to  15,499.99  155.00
(not yet used) merchandise, which dealers are not yet
subject to the payment of any municipal tax, such as: (1) 21.  12,700.00 to  14,099.99  141.00
Retail dealers in general merchandise . . . ." Obviously, 22.  11,500.00 to  12,699.99  127.00
the enumeration made in said Group 2 is not all
inclusive. It merely illustrates some of the objects the 23.  10,500.00 to  11,499.99  115.00
dealers in which are taxed under its provision. The word 24.  9,500.00 to  10,499.99  105.00
"merchandise" as used therein has not restrictive
meaning. Said group taxes dealers in all "new (not yet 25.  8,700.00 to  9,499.99  95.00
26.  8,000.00 to  8,699.99  87.00
27.  7,200.00 to  7,999.99  80.00
28.  6,300.00 to  7,199.99  72.00
29.  5,500.00 to  6,299.99  63.00
30.  5,000.00 to  5,499.99  55.00
31.  4,500.00 to  4,999.99  50.00
32.  4,400.00 to  4,999.99  45.00
33.  3,500.00 to  3,999.99  40.00
34.  Less than to  3,500.00  35.00
PROVIDED, That retail dealers only rice, whose quarterly
sales do not exceed two thousand pesos (P2,000) shall
only pay a quarterly license fee of eighteen pesos (P18).
(Appellee's Brief, pp. 2-3.)

This is not a percentage tax. It is a graduated tax, not

based on a given ratio between the gross income and
the burden imposed upon the taxpayer.

The fourth assignment of error is even more devoid of

merit because: (1) the fees paid by the defendant under
Ordinance No. 3259 — for the storage, installation, use
and transportation of compressed inflammable gases —
was charged by way of license fees, in the exercise of
the police power of the State, not under its inherent
power of taxation; and (2) double taxation is not
prohibited in our Constitution.

Being a mere consequence of the previous assignments

of error, the last one needs no discussion.

Wherefore, the decision appealed from is hereby

affirmed, with cost against defendant-appellant. It is so
ordered.
 G.R. No. 148191 November 25, 2003 The challenged Resolution denied petitioner’s Motion
for Reconsideration.
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs. The Facts
SOLIDBANK CORPORATION, respondent.
Quoting petitioner, the CA6 summarized the facts of
DECISION this case as follows:

PANGANIBAN, J.: "For the calendar year 1995, [respondent] seasonably

filed its Quarterly Percentage Tax Returns reflecting
Under the Tax Code, the earnings of banks from gross receipts (pertaining to 5% [Gross Receipts Tax]
"passive" income are subject to a twenty percent final rate) in the total amount of ₱1,474,691,693.44 with
withholding tax (20% FWT). This tax is withheld at corresponding gross receipts tax payments in the sum
source and is thus not actually and physically received of ₱73,734,584.60, broken down as follows:
by the banks, because it is paid directly to the
government by the entities from which the banks Period Covered Gross Receipts
derived the income. Apart from the 20% FWT, banks are Gross Receipts Tax
also subject to a five percent gross receipts tax (5% GRT) January to March 1994 ₱ 188,406,061.95
which is imposed by the Tax Code on their gross ₱ 9,420,303.10
receipts, including the "passive" income. April to June 1994 370,913,832.70
18,545,691.63
Since the 20% FWT is constructively received by the July to September 1994 481,501,838.98
banks and forms part of their gross receipts or earnings, 24,075,091.95
it follows that it is subject to the 5% GRT. After all, the October to December 1994 433,869,959.81
amount withheld is paid to the government on their 21,693,497.98
behalf, in satisfaction of their withholding taxes. That Total ₱ 1,474,691,693.44
they do not actually receive the amount does not alter ₱ 73,734,584.60
the fact that it is remitted for their benefit in
satisfaction of their tax obligations. "[Respondent] alleges that the total gross receipts in
the amount of ₱1,474,691,693.44 included the sum of
Stated otherwise, the fact is that if there were no ₱350,807,875.15 representing gross receipts from
withholding tax system in place in this country, this 20 passive income which was already subjected to 20%
percent portion of the "passive" income of banks would final withholding tax.
actually be paid to the banks and then remitted by them
to the government in payment of their income tax. The "On January 30, 1996, [the Court of Tax Appeals]
institution of the withholding tax system does not alter rendered a decision in CTA Case No. 4720 entitled Asian
the fact that the 20 percent portion of their "passive" Bank Corporation vs. Commissioner of Internal
income constitutes part of their actual earnings, except Revenue[,] wherein it was held that the 20% final
that it is paid directly to the government on their behalf withholding tax on [a] bank’s interest income should
in satisfaction of the 20 percent final income tax due on not form part of its taxable gross receipts for purposes
their "passive" incomes. of computing the gross receipts tax.

The Case "On June 19, 1997, on the strength of the

aforementioned decision, [respondent] filed with the
Before us is a Petition for Review1 under Rule 45 of the Bureau of Internal Revenue [BIR] a letter-request for the
Rules of Court, seeking to annul the July 18, 2000 refund or issuance of [a] tax credit certificate in the
Decision2 and the May 8, 2001 Resolution3 of the Court aggregate amount of ₱3,508,078.75, representing
of Appeals4 (CA) in CA-GR SP No. 54599. The decretal allegedly overpaid gross receipts tax for the year 1995,
portion of the assailed Decision reads as follows: computed as follows:

"WHEREFORE, we AFFIRM in toto the assailed decision Gross Receipts Subjected to the Final Tax
and resolution of the Court of Tax Appeals."5 Derived from Passive [Income] ₱
350,807,875.15
Multiply by Final Tax rate 20%
20% Final Tax Withheld at Source ₱ The Court’s Ruling
70,161,575.03
Multiply by [Gross Receipts Tax] rate 5% The Petition is meritorious.
Overpaid [Gross Receipts Tax] ₱
3,508,078.75 Sole Issue:

"Without waiting for an action from the [petitioner], Whether the 20% FWT Forms Part
[respondent] on the same day filed [a] petition for of the Taxable Gross Receipts
review [with the Court of Tax Appeals] in order to toll
the running of the two-year prescriptive period to Petitioner claims that although the 20% FWT on
judicially claim for the refund of [any] overpaid internal respondent’s interest income was not actually received
revenue tax[,] pursuant to Section 230 [now 229] of the by respondent because it was remitted directly to the
Tax Code [also ‘National Internal Revenue Code’] x x x. government, the fact that the amount redounded to the
bank’s benefit makes it part of the taxable gross
xxx xxx xxx receipts in computing the 5% GRT. Respondent, on the
other hand, maintains that the CA correctly ruled
"After trial on the merits, the [Court of Tax Appeals], on otherwise.
August 6, 1999, rendered its decision ordering x x x
petitioner to refund in favor of x x x respondent the We agree with petitioner. In fact, the same issue has
reduced amount of ₱1,555,749.65 as overpaid [gross been raised recently in China Banking Corporation v.
receipts tax] for the year 1995. The legal issue x x x was CA,11 where this Court held that the amount of interest
resolved by the [Court of Tax Appeals], with Hon. income withheld in payment of the 20% FWT forms part
Amancio Q. Saga dissenting, on the strength of its of gross receipts in computing for the GRT on banks.
earlier pronouncement in x x x Asian Bank Corporation
vs. Commissioner of Internal Revenue x x x, wherein it The FWT and the GRT:
was held that the 20% [final withholding tax] on [a]
bank’s interest income should not form part of its Two Different Taxes
taxable gross receipts for purposes of computing the
[gross receipts tax]."7 The 5% GRT is imposed by Section 11912 of the Tax
Code,13 which provides:
Ruling of the CA
"SEC. 119. Tax on banks and non-bank financial
The CA held that the 20% FWT on a bank’s interest intermediaries. – There shall be collected a tax on gross
income did not form part of the taxable gross receipts in receipts derived from sources within the Philippines by
computing the 5% GRT, because the FWT was not all banks and non-bank financial intermediaries in
actually received by the bank but was directly remitted accordance with the following schedule:
to the government. The appellate court curtly said that
while the Tax Code "does not specifically state any "(a) On interest, commissions and discounts from
exemption, x x x the statute must receive a sensible lending activities as well as income from financial
construction such as will give effect to the legislative leasing, on the basis of remaining maturities of
intention, and so as to avoid an unjust or absurd instruments from which such receipts are derived.
conclusion."8

Hence, this appeal.9 "(b) On dividends……………………………….……..0%

Issue "(c) On royalties, rentals of property, real or personal,

profits from exchange and all other items treated as
Petitioner raises this lone issue for our consideration: gross income under Section 2814 of this
Code………....................................................................5%
"Whether or not the 20% final withholding tax on [a]
bank’s interest income forms part of the taxable gross Provided, however, That in case the maturity period
receipts in computing the 5% gross receipts tax."10 referred to in paragraph (a) is shortened thru
pretermination, then the maturity period shall be amount withheld. What needs to be determined is if
reckoned to end as of the date of pretermination for there is constructive receipt thereof. Since the payee --
purposes of classifying the transaction as short, medium not the payor -- is the real taxpayer, the rule on
or long term and the correct rate of tax shall be applied constructive receipt can be easily rationalized, if not
accordingly. made clearly manifest.25

"Nothing in this Code shall preclude the Commissioner Constructive Receipt

from imposing the same tax herein provided on persons Versus Actual Receipt
performing similar banking activities."
Applying Section 7 of Revenue Regulations (RR) No. 17-
The 5% GRT15 is included under "Title V. Other 84,26 petitioner contends that there is constructive
Percentage Taxes" of the Tax Code and is not subject to receipt of the interest on deposits and yield on deposit
withholding. The banks and non-bank financial substitutes.27 Respondent, however, claims that even if
intermediaries liable therefor shall, under Section there is, it is Section 4(e) of RR 12-8028 that
125(a)(1),16 file quarterly returns on the amount of nevertheless governs the situation.
gross receipts and pay the taxes due thereon within
twenty (20)17 days after the end of each taxable Section 7 of RR 17-84 states:
quarter.
"SEC. 7. Nature and Treatment of Interest on Deposits
The 20% FWT,18 on the other hand, falls under Section and Yield on Deposit Substitutes. –
24(e)(1)19 of "Title II. Tax on Income." It is a tax on
passive income, deducted and withheld at source by the ‘(a) The interest earned on Philippine Currency bank
payor-corporation and/or person as withholding agent deposits and yield from deposit substitutes subjected to
pursuant to Section 50,20 and paid in the same manner the withholding taxes in accordance with these
and subject to the same conditions as provided for in regulations need not be included in the gross income in
Section 51.21 computing the depositor’s/investor’s income tax liability
in accordance with the provision of Section 29(b),29
A perusal of these provisions clearly shows that two (c)30 and (d) of the National Internal Revenue Code, as
types of taxes are involved in the present controversy: amended.
(1) the GRT, which is a percentage tax; and (2) the FWT,
which is an income tax. As a bank, petitioner is covered ‘(b) Only interest paid or accrued on bank deposits, or
by both taxes. yield from deposit substitutes declared for purposes of
imposing the withholding taxes in accordance with
A percentage tax is a national tax measured by a certain these regulations shall be allowed as interest expense
percentage of the gross selling price or gross value in deductible for purposes of computing taxable net
money of goods sold, bartered or imported; or of the income of the payor.
gross receipts or earnings derived by any person
engaged in the sale of services.22 It is not subject to ‘(c) If the recipient of the above-mentioned items of
withholding. income are financial institutions, the same shall be
included as part of the tax base upon which the gross
An income tax, on the other hand, is a national tax receipt[s] tax is imposed.’"
imposed on the net or the gross income realized in a
taxable year.23 It is subject to withholding. Section 4(e) of RR 12-80, on the other hand, states that
the tax rates to be imposed on the gross receipts of
In a withholding tax system, the payee is the taxpayer, banks, non-bank financial intermediaries, financing
the person on whom the tax is imposed; the payor, a companies, and other non-bank financial intermediaries
separate entity, acts as no more than an agent of the not performing quasi-banking activities shall be based
government for the collection of the tax in order to on all items of income actually received. This provision
ensure its payment. Obviously, this amount that is used reads:
to settle the tax liability is deemed sourced from the
proceeds constitutive of the tax base.24 These proceeds "SEC. 4. x x x x x x x x x
are either actual or constructive. Both parties herein
agree that there is no actual receipt by the bank of the
"(e) Gross receipts tax on banks, non-bank financial amount had already been withheld at source, it did not
intermediaries, financing companies, and other non- have actual receipt thereof.
bank financial intermediaries not performing quasi-
banking activities. – The rates of tax to be imposed on We clarify. Article 531 of the Civil Code clearly provides
the gross receipts of such financial institutions shall be that the acquisition of the right of possession is through
based on all items of income actually received. Mere the proper acts and legal formalities established
accrual shall not be considered, but once payment is therefor. The withholding process is one such act. There
received on such accrual or in cases of prepayment, may not be actual receipt of the income withheld;
then the amount actually received shall be included in however, as provided for in Article 532, possession by
the tax base of such financial institutions, as provided any person without any power whatsoever shall be
hereunder x x x." considered as acquired when ratified by the person in
whose name the act of possession is executed.
Respondent argues that the above-quoted provision is
plain and clear: since there is no actual receipt, the FWT In our withholding tax system, possession is acquired by
is not to be included in the tax base for computing the the payor as the withholding agent of the government,
GRT. There is supposedly no pecuniary benefit or because the taxpayer ratifies the very act of possession
advantage accruing to the bank from the FWT, because for the government. There is thus constructive receipt.
the income is subjected to a tax burden immediately The processes of bookkeeping and accounting for
upon receipt through the withholding process. interest on deposits and yield on deposit substitutes
Moreover, the earlier RR 12-80 covered matters not that are subjected to FWT are indeed -- for legal
falling under the later RR 17-84.31 purposes -- tantamount to delivery, receipt or
remittance.35 Besides, respondent itself admits that its
We are not persuaded. income is subjected to a tax burden immediately upon
"receipt," although it claims that it derives no pecuniary
By analogy, we apply to the receipt of income the rules benefit or advantage through the withholding process.
on actual and constructive possession provided in There being constructive receipt of such income -- part
Articles 531 and 532 of our Civil Code. of which is withheld -- RR 17-84 applies, and that
income is included as part of the tax base upon which
Under Article 531:32 the GRT is imposed.

"Possession is acquired by the material occupation of a RR 12-80 Superseded by RR 17-84

thing or the exercise of a right, or by the fact that it is
subject to the action of our will, or by the proper acts We now come to the effect of the revenue regulations
and legal formalities established for acquiring such on interest income constructively received.
right."
In general, rules and regulations issued by
Article 532 states: administrative or executive officers pursuant to the
procedure or authority conferred by law upon the
"Possession may be acquired by the same person who is administrative agency have the force and effect, or
to enjoy it, by his legal representative, by his agent, or partake of the nature, of a statute.36 The reason is that
by any person without any power whatever; but in the statutes express the policies, purposes, objectives,
last case, the possession shall not be considered as remedies and sanctions intended by the legislature in
acquired until the person in whose name the act of general terms. The details and manner of carrying them
possession was executed has ratified the same, without out are oftentimes left to the administrative agency
prejudice to the juridical consequences of negotiorum entrusted with their enforcement.
gestio in a proper case."33
In the present case, it is the finance secretary who
The last means of acquiring possession under Article promulgates the revenue regulations, upon
531 refers to juridical acts -- the acquisition of recommendation of the BIR commissioner. These
possession by sufficient title – to which the law gives regulations are the consequences of a delegated power
the force of acts of possession.34 Respondent argues to issue legal provisions that have the effect of law.37
that only items of income actually received should be
included in its gross receipts. It claims that since the
A revenue regulation is binding on the courts as long as modified to the extent of the repugnancy.47 The
the procedure fixed for its promulgation is followed. unaffected provisions or portions of the earlier
Even if the courts may not be in agreement with its regulation remain in force, while its omitted portions
stated policy or innate wisdom, it is nonetheless valid, are deemed repealed.48 An exception therein that is
provided that its scope is within the statutory authority amended by its subsequent elimination shall now cease
or standard granted by the legislature.38 Specifically, to be so and instead be included within the scope of the
the regulation must (1) be germane to the object and general rule.49
purpose of the law;39 (2) not contradict, but conform
to, the standards the law prescribes;40 and (3) be Section 4(e) of the earlier RR 12-80 provides that only
issued for the sole purpose of carrying into effect the items of income actually received shall be included in
general provisions of our tax laws.41 the tax base for computing the GRT, but Section 7(c) of
the later RR 17-84 makes no such distinction and
In the present case, there is no question about the provides that all interests earned shall be included. The
regularity in the performance of official duty. What exception having been eliminated, the clear intent is
needs to be determined is whether RR 12-80 has been that the later RR 17-84 includes the exception within
repealed by RR 17-84. the scope of the general rule.

A repeal may be express or implied. It is express when Repeals by implication are not favored and will not be
there is a declaration in a regulation -- usually in its indulged, unless it is manifest that the administrative
repealing clause -- that another regulation, identified by agency intended them. As a regulation is presumed to
its number or title, is repealed. All others are implied have been made with deliberation and full knowledge
repeals.42 An example of the latter is a general of all existing rules on the subject, it may reasonably be
provision that predicates the intended repeal on a concluded that its promulgation was not intended to
substantial conflict between the existing and the prior interfere with or abrogate any earlier rule relating to
regulations.43 the same subject, unless it is either repugnant to or fully
inclusive of the subject matter of an earlier one, or
As stated in Section 11 of RR 17-84, all regulations, unless the reason for the earlier one is "beyond
rules, orders or portions thereof that are inconsistent peradventure removed."50 Every effort must be
with the provisions of the said RR are thereby repealed. exerted to make all regulations stand -- and a later rule
This declaration proceeds on the premise that RR 17-84 will not operate as a repeal of an earlier one, if by any
clearly reveals such an intention on the part of the reasonable construction, the two can be reconciled.51
Department of Finance. Otherwise, later RRs are to be
construed as a continuation of, and not a substitute for, RR 12-80 imposes the GRT only on all items of income
earlier RRs; and will continue to speak, so far as the actually received, as opposed to their mere accrual,
subject matter is the same, from the time of the first while RR 17-84 includes all interest income in
promulgation.44 computing the GRT. RR 12-80 is superseded by the later
rule, because Section 4(e) thereof is not restated in RR
There are two well-settled categories of implied repeals: 17-84. Clearly therefore, as petitioner correctly states,
(1) in case the provisions are in irreconcilable conflict, this particular provision was impliedly repealed when
the later regulation, to the extent of the conflict, the later regulations took effect.52
constitutes an implied repeal of an earlier one; and (2) if
the later regulation covers the whole subject of an Reconciling the Two Regulations
earlier one and is clearly intended as a substitute, it will
similarly operate as a repeal of the earlier one.45 There Granting that the two regulations can be reconciled,
is no implied repeal of an earlier RR by the mere fact respondent’s reliance on Section 4(e) of RR 12-80 is
that its subject matter is related to a later RR, which misplaced and deceptive. The "accrual" referred to
may simply be a cumulation or continuation of the therein should not be equated with the determination
earlier one.46 of the amount to be used as tax base in computing the
GRT. Such accrual merely refers to an accounting
Where a part of an earlier regulation embracing the method that recognizes income as earned although not
same subject as a later one may not be enforced received, and expenses as incurred although not yet
without nullifying the pertinent provision of the latter, paid.
the earlier regulation is deemed impliedly amended or
Accrual should not be confused with the concept of To begin, we have to nuance the definition of gross
constructive possession or receipt as earlier discussed. receipts59 to determine what it is exactly. In this regard,
Petitioner correctly points out that income that is we note that US cases have persuasive effect in our
merely accrued -- earned, but not yet received -- does jurisdiction, because Philippine income tax law is
not form part of the taxable gross receipts; income that patterned after its US counterpart.60
has been received, albeit constructively, does.53
"‘[G]ross receipts’ with respect to any period means the
The word "actually," used confusingly in Section 4(e), sum of: (a) The total amount received or accrued during
will be clearer if removed entirely. Besides, if actually is such period from the sale, exchange, or other
that important, accrual should have been eliminated for disposition of x x x other property of a kind which would
being a mere surplusage. The inclusion of accrual properly be included in the inventory of the taxpayer if
stresses the fact that Section 4(e) does not distinguish on hand at the close of the taxable year, or property
between actual and constructive receipt. It merely held by the taxpayer primarily for sale to customers in
focuses on the method of accounting known as the the ordinary course of its trade or business, and (b) The
accrual system. gross income, attributable to a trade or business,
regularly carried on by the taxpayer, received or
Under this system, income is accrued or earned in the accrued during such period x x x."61
year in which the taxpayer’s right thereto becomes fixed
and definite, even though it may not be actually "x x x [B]y gross earnings from operations x x x was
received until a later year; while a deduction for a intended all operations xxx including incidental,
liability is to be accrued or incurred and taken when the subordinate, and subsidiary operations, as well as
liability becomes fixed and certain, even though it may principal operations."62
not be actually paid until later.54
"When we speak of the ‘gross earnings’ of a person or
Under any system of accounting, no duty or liability to corporation, we mean the entire earnings or receipts of
pay an income tax upon a transaction arises until the such person or corporation from the business or
taxable year in which the event constituting the operations to which we refer."63
condition precedent occurs.55 The liability to pay a tax
may thus arise at a certain time and the tax paid within From these cases, "gross receipts"64 refer to the total,
another given time.56 as opposed to the net, income.65 These are therefore
the total receipts before any deduction66 for the
In reconciling these two regulations, the earlier one expenses of management.67 Webster’s New
includes in the tax base for GRT all income, whether International Dictionary, in fact, defines gross as "whole
actually or constructively received, while the later one or entire."
includes specifically interest income. In computing the
income tax liability, the only exception cited in the later Statutes taxing the gross "receipts," "earnings," or
regulations is the exclusion from gross income of "income" of particular corporations are found in many
interest income, which is already subjected to jurisdictions.68 Tax thereon is generally held to be
withholding. This exception, however, refers to a within the power of a state to impose; or constitutional,
different tax altogether. To extend mischievously such unless it interferes with interstate commerce or violates
exception to the GRT will certainly lead to results not the requirement as to uniformity of taxation.69
contemplated by the legislators and the administrative
body promulgating the regulations. Moreover, we have emphasized that the BIR has
consistently ruled that "gross receipts" does not admit
Manila Jockey Club of any deduction.70 Following the principle of legislative
Inapplicable approval by reenactment,71 this interpretation has
been adopted by the legislature throughout the various
In Commissioner of Internal Revenue v. Manila Jockey reenactments of then Section 119 of the Tax Code.72
Club,57 we held that the term "gross receipts" shall not
include money which, although delivered, has been Given that a tax is imposed upon total receipts and not
especially earmarked by law or regulation for some upon net earnings,73 shall the income withheld be
person other than the taxpayer.58 included in the tax base upon which such tax is
imposed? In other words, shall interest income
constructively received still be included in the tax base In the construction and interpretation of tax statutes
for computing the GRT? and of statutes in general, the primary consideration is
to ascertain and give effect to the intention of the
We rule in the affirmative. legislature.80 We ought to impute to the lawmaking
body the intent to obey the constitutional mandate, as
Manila Jockey Club does not apply to this case. long as its enactments fairly admit of such
Earmarking is not the same as withholding. Amounts construction.81 In fact, "x x x no tax can be levied
earmarked do not form part of gross receipts, because, without express authority of law, but the statutes are to
although delivered or received, these are by law or receive a reasonable construction with a view to
regulation reserved for some person other than the carrying out their purpose and intent."82
taxpayer. On the contrary, amounts withheld form part
of gross receipts, because these are in constructive Looking again into Sections 24(e)(1) and 119 of the Tax
possession and not subject to any reservation, the Code, we find that the first imposes an income tax; the
withholding agent being merely a conduit in the second, a percentage tax. The legislature clearly
collection process. intended two different taxes. The FWT is a tax on
passive income, while the GRT is on business.83 The
The Manila Jockey Club had to deliver to the Board on withholding of one is not equivalent to the payment of
Races, horse owners and jockeys amounts that never the other.
became the property of the race track.74 Unlike these
amounts, the interest income that had been withheld Non-Exemption of FWT from GRT:
for the government became property of the financial
institutions upon constructive possession thereof. Neither Unjust nor Absurd
Possession was indeed acquired, since it was ratified by
the financial institutions in whose name the act of Taxing the people and their property is essential to the
possession had been executed. The money indeed very existence of government. Certainly, one of the
belonged to the taxpayers; merely holding it in trust highest attributes of sovereignty is the power of
was not enough.75 taxation,84 which may legitimately be exercised on the
objects to which it is applicable to the utmost extent as
The government subsequently becomes the owner of the government may choose.85 Being an incident of
the money when the financial institutions pay the FWT sovereignty, such power is coextensive with that to
to extinguish their obligation to the government. As this which it is an incident.86 The interest on deposits and
Court has held before, this is the consideration for the yield on deposit substitutes of financial institutions, on
transfer of ownership of the FWT from these the one hand, and their business as such, on the other,
institutions to the government.76 It is ownership that are the two objects over which the State has chosen to
determines whether interest income forms part of extend its sovereign power. Those not so chosen are,
taxable gross receipts.77 Being originally owned by upon the soundest principles, exempt from taxation.87
these financial institutions as part of their interest
income, the FWT should form part of their taxable gross While courts will not enlarge by construction the
receipts. government’s power of taxation,88 neither will they
place upon tax laws so loose a construction as to permit
Besides, these amounts withheld are in payment of an evasions, merely on the basis of fanciful and
income tax liability, which is different from a percentage insubstantial distinctions.89 When the legislature
tax liability. Commissioner of Internal Revenue v. Tours imposes a tax on income and another on business, the
Specialists, Inc. aptly held thus:78 imposition must be respected. The Tax Code should be
so construed, if need be, as to avoid empty declarations
"x x x [G]ross receipts subject to tax under the Tax Code or possibilities of crafty tax evasion schemes. We have
do not include monies or receipts entrusted to the consistently ruled thus:
taxpayer which do not belong to them and do not
redound to the taxpayer’s benefit; and it is not "x x x [I]t is upon taxation that the [g]overnment chiefly
necessary that there must be a law or regulation which relies to obtain the means to carry on its operations,
would exempt such monies and receipts within the and it is of the utmost importance that the modes
meaning of gross receipts under the Tax Code."79 adopted to enforce the collection of the taxes levied
should be summary and interfered with as little as courts, still if such construction is so erroneous, x x x the
possible. x x x."90 same must be declared as null and void."102

"Any delay in the proceedings of the officers, upon It does not even matter that the CTA, like in China
whom the duty is devolved of collecting the taxes, may Banking Corporation,103 relied erroneously on Manila
derange the operations of government, and thereby Jockey Club. Under our tax system, the CTA acts as a
cause serious detriment to the public."91 highly specialized body specifically created for the
purpose of reviewing tax cases.104 Because of its
"No government could exist if all litigants were recognized expertise, its findings of fact will ordinarily
permitted to delay the collection of its taxes."92 not be reviewed, absent any showing of gross error or
abuse on its part.105 Such findings are binding on the
A taxing act will be construed, and the intent and Court and, absent strong reasons for us to delve into
meaning of the legislature ascertained, from its facts, only questions of law are open for
language.93 Its clarity and implied intent must exist to determination.106
uphold the taxes as against a taxpayer in whose favor
doubts will be resolved.94 No such doubts exist with Respondent claims that it is entitled to a refund on the
respect to the Tax Code, because the income and basis of excess GRT payments. We disagree.
percentage taxes we have cited earlier have been
imposed in clear and express language for that Tax refunds are in the nature of tax exemptions.107
purpose.95 Such exemptions are strictly construed against the
taxpayer, being highly disfavored108 and almost said
This Court has steadfastly adhered to the doctrine that "to be odious to the law." Hence, those who claim to be
its first and fundamental duty is the application of the exempt from the payment of a particular tax must do so
law according to its express terms -- construction and under clear and unmistakable terms found in the
interpretation being called for only when such literal statute. They must be able to point to some positive
application is impossible or inadequate without them.96 provision, not merely a vague implication,109 of the law
In Quijano v. Development Bank of the Philippines,97 creating that right.110
we stressed as follows:
The right of taxation will not be surrendered, except in
"No process of interpretation or construction need be words too plain to be mistaken.1âwphi1 The reason is
resorted to where a provision of law peremptorily calls that the State cannot strip itself of this highest attribute
for application." 98 of sovereignty -- its most essential power of taxation --
by vague or ambiguous language. Since tax refunds are
A literal application of any part of a statute is to be in the nature of tax exemptions, these are deemed to
rejected if it will operate unjustly, lead to absurd be "in derogation of sovereign authority and to be
results, or contradict the evident meaning of the statute construed strictissimi juris against the person or entity
taken as a whole.99 Unlike the CA, we find that the claiming the exemption."111
literal application of the aforesaid sections of the Tax
Code and its implementing regulations does not operate No less than our 1987 Constitution provides for the
unjustly or contradict the evident meaning of the mechanism for granting tax exemptions.112 They
statute taken as a whole. Neither does it lead to absurd certainly cannot be granted by implication or mere
results. Indeed, our courts are not to give words administrative regulation. Thus, when an exemption is
meanings that would lead to absurd or unreasonable claimed, it must indubitably be shown to exist, for every
consequences.100 We have repeatedly held thus: presumption is against it,113 and a well-founded doubt
is fatal to the claim.114 In the instant case, respondent
"x x x [S]tatutes should receive a sensible construction, has not been able to satisfactorily show that its FWT on
such as will give effect to the legislative intention and so interest income is exempt from the GRT. Like China
as to avoid an unjust or an absurd conclusion."101 Banking Corporation, its argument creates a tax
exemption where none exists.115
"While it is true that the contemporaneous construction
placed upon a statute by executive officers whose duty No exemptions are normally allowed when a GRT is
is to enforce it should be given great weight by the imposed. It is precisely designed to maintain simplicity
in the tax collection effort of the government and to
assure its steady source of revenue even during an Third, these two taxes are of different kinds or
economic slump.116 characters. The FWT is an income tax subject to
withholding, while the GRT is a percentage tax not
No Double Taxation subject to withholding.

We have repeatedly said that the two taxes, subject of In short, there is no double taxation, because there is no
this litigation, are different from each other. The basis taxing twice, by the same taxing authority, within the
of their imposition may be the same, but their natures same jurisdiction, for the same purpose, in different
are different, thus leading us to a final point. Is there taxing periods, some of the property in the territory.125
double taxation? Subjecting interest income to a 20% FWT and including
it in the computation of the 5% GRT is clearly not
The Court finds none. double taxation.

Double taxation means taxing the same property twice WHEREFORE, the Petition is GRANTED. The assailed
when it should be taxed only once; that is, "x x x taxing Decision and Resolution of the Court of Appeals are
the same person twice by the same jurisdiction for the hereby REVERSED and SET ASIDE. No costs.
same thing."117 It is obnoxious when the taxpayer is
taxed twice, when it should be but once.118 Otherwise SO ORDERED.
described as "direct duplicate taxation,"119 the two
taxes must be imposed on the same subject matter, for
the same purpose, by the same taxing authority, within
the same jurisdiction, during the same taxing period;
and they must be of the same kind or character.120

First, the taxes herein are imposed on two different

subject matters. The subject matter of the FWT is the
passive income generated in the form of interest on
deposits and yield on deposit substitutes, while the
subject matter of the GRT is the privilege of engaging in
the business of banking.

A tax based on receipts is a tax on business rather than

on the property; hence, it is an excise121 rather than a
property tax.122 It is not an income tax, unlike the FWT.
In fact, we have already held that one can be taxed for
engaging in business and further taxed differently for
the income derived therefrom.123 Akin to our ruling in
Velilla v. Posadas,124 these two taxes are entirely
distinct and are assessed under different provisions.

Second, although both taxes are national in scope

because they are imposed by the same taxing authority
-- the national government under the Tax Code -- and
operate within the same Philippine jurisdiction for the
same purpose of raising revenues, the taxing periods
they affect are different. The FWT is deducted and
withheld as soon as the income is earned, and is paid
after every calendar quarter in which it is earned. On
the other hand, the GRT is neither deducted nor
withheld, but is paid only after every taxable quarter in
which it is earned.
 passed on to it is no longer a tax but becomes an added
cost of the goods purchased. Thus the CTA discoursed:

The liability for excise tax on petroleum

G.R. No. 173594             February 6, 2008 products that are being removed from its
refinery is imposed on the
SILKAIR (SINGAPORE) PTE, LTD., petitioner, manufacturer/producer (Section 130 of the
vs. NIRC of 1997). x x x
COMMISSIONER OF INTERNAL REVENUE, respondent.
xxxx
DECISION
While it is true that in the case of excise tax
CARPIO MORALES, J.: imposed on petroleum products, the seller
thereof may shift the tax burden to the buyer,
Petitioner, Silkair (Singapore) Pte. Ltd. (Silkair), a the latter is the proper party to claim for the
corporation organized under the laws of Singapore refund in the case of exemption from excise
which has a Philippine representative office, is an online tax. Since the excise tax was imposed upon
international air carrier operating the Singapore-Cebu- Petron Corporation as the manufacturer of
Davao-Singapore, Singapore-Davao-Cebu-Singapore, petroleum products, pursuant to Section 130(A)
and Singapore-Cebu-Singapore routes. (2), and that the corresponding excise taxes
were indeed, paid by it, . . . any claim for refund
On December 19, 2001, Silkair filed with the Bureau of of the subject excise taxes should be filed by
Internal Revenue (BIR) a written application for the Petron Corporation as the taxpayer
refund of P4,567,450.79 excise taxes it claimed to have contemplated under the law. Petitioner cannot
paid on its purchases of jet fuel from Petron be considered as the taxpayer because it merely
Corporation from January to June 2000.1 shouldered the burden of the excise tax and not
the excise tax itself.
As the BIR had not yet acted on the application as of
December 26, 2001, Silkair filed a Petition for Therefore, the right to claim for the refund of
Review2 before the CTA following Commissioner of excise taxes paid on petroleum products lies
Internal Revenue v. Victorias Milling Co., Inc., et al. 3 with Petron Corporation who paid and remitted
the excise tax to the BIR. Respondent, on the
Opposing the petition, respondent Commissioner on other hand, may only claim from Petron
Internal Revenue (CIR) alleged in his Answer that, Corporation the reimbursement of the tax
among other things, burden shifted to the former by the latter. The
excise tax partaking the nature of an indirect
Petitioner failed to prove that the sale of the tax, is clearly the liability of the manufacturer or
petroleum products was directly made from a seller who has the option whether or not to
domestic oil company to the international shift the burden of the tax to the
carrier. The excise tax on petroleum products is purchaser. Where the burden of the tax is
the direct liability of the shifted to the [purchaser], the amount passed
manufacturer/producer, and when added to on to it is no longer a tax but becomes
the cost of the goods sold to the buyer, it is no an added cost on the goods purchased which
longer a tax but part of the price which the constitutes a part of the purchase price. The
buyer has to pay to obtain the incidence of taxation or the person statutorily
article.4 (Emphasis and underscoring supplied) liable to pay the tax falls on Petron Corporation
though the impact of taxation or the burden of
By Decision of May 27, 2005, the Second Division of the taxation falls on another person, which in this
CTA denied Silkair’s petition on the ground that as the case is petitioner Silkair.5 (Italics in the original;
excise tax was imposed on Petron Corporation as the emphasis and underscoring supplied)
manufacturer of petroleum products, any claim for
refund should be filed by the latter; and where the Silkair filed a Motion for Reconsideration 6 during the
burden of tax is shifted to the purchaser, the amount pendency of which or on September 12, 2005 the
Bengzon Law Firm entered its appearance as Second Division Resolution. Thirty-seven days later or
counsel,7 without Silkair’s then-counsel of record on October 28, 2005, Silkair, through said counsel, filed
(Jimenez Gonzales Liwanag Bello Valdez Caluya & a Motion for Extension of Time to File Petition for
Fernandez or "JGLaw") having withdrawn as such. Review14 before the CTA En Banc which gave it until
November 14, 2005 to file a petition for review.
By Resolution8 of September 22, 2005, the CTA Second
Division denied Silkair’s motion for reconsideration. A On November 11, 2005, Silkair filed another Motion for
copy of the Resolution was furnished Silkair’s counsel Extension of Time.15 On even date, the Bengzon Law
JGLaw which received it on October 3, 2005. 9 Firm informed the CTA of its withdrawal of appearance
as counsel for Silkair with the information, that Silkair
On October 13, 2005, JGLaw, with the conformity of would continue to be represented by Atty. Teodoro A.
Silkair, filed its Notice of Withdrawal of Pastrana, who used to be with the firm but who had
Appearance.10 On even date, Silkair, through the become a partner of the Pastrana and Fallar Law
Bengzon Law Firm, filed a Offices.16
11
Manifestation/Motion  stating:
The CTA En Banc granted Silkair’s second Motion for
Petitioner was formerly represented xxx by Extension of Time, giving Silkair until November 24,
JIMENEZ GONZALES LIWANAG BELLO VALDEZ 2005 to file its petition for review. On November 17,
CALUYA & FERNANDEZ (JGLaw). 2005, Silkair filed its Petition for Review 17 before the
CTA En Banc.
1. On 24 August 2005, petitioner served
notice to JGLaw of its decision to cease By Resolution of May 19,2006, the CTA En Banc
all legal representation handled by the dismissed18 Silkair’s petition for review for having been
latter on behalf of the petitioner. filed out of time in this wise:
Petitioner also requested JGLaw to
make arrangements for the transfer of A petitioner is given a period of fifteen (15) days
all files relating to its legal from notice of award, judgment, final order or
representation on behalf of petitioner resolution, or denial of motion for new trial or
to the undersigned counsel. x x x reconsideration to appeal to the proper forum,
in this case, the CTA En Banc. This is clear from
2. The undersigned counsel was both Section 11 and Section 9 of Republic Act
engaged to act as counsel for the No. 9282 x x x.
petitioner in the above-entitled case;
and thus, filed its entry of appearance xxxx
on 12 September 2005. x x x
The petitioner, through its counsel of record
3. The undersigned counsel, through Jimenez, Gonzalez, L[iwanag], Bello, Valdez,
petitioner, has received information Caluya & Fernandez Law Offices, received the
that the Honorable Court promulgated Resolution dated September 22, 2005 on
a Resolution on petitioner’s Motion for October 3, 2005. At that time, the petitioner
Reconsideration. To date, the had two counsels of record, namely, Jimenez,
undersigned counsel has yet to receive Gonzales, L[iwanag], Bello, Valdez, Caluya &
an official copy of the above-mentioned Fernandez Law Offices and The Bengzon Law
Resolution. In light of the Firm which filed its Entry of Appearance on
foregoing, undersigned counsel hereby September 12, 2005. However, as of said date,
respectfully requests for an official copy Atty. Mary Jane B. Austria-Delgado of Jimenez,
of the Honorable Court’s Resolution on Gonzales, L[iwanag], Bello, Valdez, Caluya &
petitioner’s Motion for Fernandez Law Offices was still the counsel of
Reconsideration x x x.12 (Underscoring record considering that the Notice of
supplied) Withdrawal of Appearance signed by Atty. Mary
Jane B. Austria-Delgado was filed only on
On October 14, 2005, the Bengzon Law Firm received its October 13, 2005 or ten (10) days after receipt
requested copy of the September 22, 2005 13 CTA of the September 22, 2005 Resolution of the
 Court’s Second Division. This WHETHER OR NOT THE PETITIONER IS THE
notwithstanding, Section 2 of Rule 13 of the PROPER PARTY TO CLAIM FOR REFUND OR TAX
Rules of Court provides that if any party has CREDIT.24 (Underscoring supplied)
appeared by counsel, service upon him shall be
made upon his counsel or one of them, unless Silkair posits that "the instant case does not involve a
service upon the party himself is ordered by the situation where the petitioner was represented by two
Court. Where a party is represented by more (2) counsels on record, such that notice to the former
than one counsel of record, "notice to any one counsel would be held binding on the petitioner, as in
of the several counsel on record is equivalent to the case of Damasco v. Arrieta, etc., et al. 25 x x x heavily
notice to all the counsel (Damasco vs. Arrieta, relied upon by the respondent"; 26 and that "the case
et. al., 7 SCRA 224)." Considering that of Dolores De Mesa Abad v. Court of Appeals 27 has more
petitioner, through its counsel of record, had appropriate application to the present case." 28
received the September 22, 2005 Resolution as
early as October 3, 2005, it had only until In Dolores De Mesa Abad, the trial court issued an order
October 18, 2005 within which to file its Petition of November 19, 1974 granting the therein private
for Review. Petitioner only managed to file the respondents’ Motion for Annulment of documents and
Petition for Review with the Court En Banc  on titles. The order was received by the therein petitioner’s
November 17, 2005 or [after] thirty (30) days counsel of record, Atty. Escolastico R. Viola, on
had lapsed from the final date of October 18, November 22, 1974 prior to which or on July 17, 1974,
2005 to appeal. Atty. Vicente Millora of the Millora, Tobias and Calimlim
Law Office had filed an "Appearance and
The argument that it requested Motions for Manifestation." Atty. Millora received a copy of the trial
Extension of Time on October 28, 2005 or ten court’s order on December 9, 1974. On January 4, 1975,
(10) days from the appeal period and the the therein petitioners, through Atty. Ernesto D. Tobias
second Motion for Extension of Time to file its also of the Millora, Tobias and Calimlim Law Office, filed
Petition for Review on November 11, 2005 and their Notice of Appeal and Cash Appeal Bond as well as
its allowance by the CTA En a Motion for Extension of the period to file a Record on
Banc notwithstanding, the questioned Decision Appeal. They filed the Record on Appeal on January 24,
is no longer appealable for failure to timely file 1975. The trial court dismissed the appeal for having
the necessary Petition for Review. 19 (Emphasis been filed out of time, which was upheld by the Court of
in the original) Appeals on the ground that the period within which to
appeal should be counted from November 22, 1974, the
In a Separate Concurring Opinion,20 CTA Associate date Atty. Viola received a copy of the November 19,
Justice Juanito C. Castañeda, Jr. posited that Silkair is 1974 order. The appellate court held that Atty. Viola
not the proper party to claim the tax refund. was still the counsel of record, he not having yet
withdrawn his appearance as counsel for the therein
Silkair filed a Motion for Reconsideration21 which the petitioners. On petition for certiorari, 29 this Court held
CTA En Banc denied.22 Hence, the present Petition for
Review23 which raises the following issues: x x x [R]espondent Court reckoned the period of
appeal from the time petitioners’ original
I. WHETHER OR NOT THE PETITION FOR REVIEW counsel, Atty. Escolastico R. Viola, received the
FILED WITH THE HONORABLE COURT OF TAX Order granting the Motion for Annulment of
APPEALS EN BANC WAS TIMELY FILED. documents and titles on November 22, 1974.
But as petitioners stress, Atty. Vicente Millora of
II. APPEAL BEING AN ESSENTIAL PART OF OUR the Millora, Tobias and Calimlim Law Office had
JUDICIAL SYSTEM, WHETHER OR NOT filed an "Appearance and Manifestation" on July
PETITIONER SHOULD BE DEPRIVED OF ITS RIGHT 16, 1974. Where there may have been no
TO APPEAL ON THE BASIS OF TECHNICALITY. specific withdrawal by Atty. Escolastico R. Viola,
for which he should be admonished, by the
III. ASSUMING THE HONORABLE SUPREME appearance of a new counsel, it can be said that
COURT WOULD HOLD THAT THE FILING OF THE Atty. Viola had ceased as counsel for
PETITITON FOR REVIEW WITH THE HONORABLE petitioners. In fact, Orders subsequent to the
COURT OF TAX APPEALS EN BANC WAS TIMELY, aforesaid date were already sent by the trial
 Court to the Millora, Tobias and Calimlim Law (b) Exempt entities or agencies covered by tax
Office and not to Atty. Viola. treaties, conventions, and other international
agreements for their use and
Under the circumstances, December 9, 1974 is consumption: Provided, however, That the
the controlling date of receipt by petitioners’ country of said foreign international carrier or
counsel and from which the period of appeal exempt entities or agencies exempts from
from the Order of November 19, 1974 should similar taxes petroleum products sold to
be reckoned. That being the case, petitioner’s x Philippine carriers, entities or agencies; x x x
x x appeal filed on January 4, 1975 was timely
filed.30 (Underscoring supplied) x x x x,

The facts of Dolores De Mesa Abad are not on all fours and Article 4(2) of the Air Transport Agreement
with those of the present case. In any event, more between the Government of the Republic of the
recent jurisprudence holds that in case of failure to Philippines and the Government of the Republic of
comply with the procedure established by Section 26, Singapore (Air Transport Agreement between RP and
Rule 13831 of the Rules of Court re the withdrawal of a Singapore) which reads
lawyer as a counsel in a case, the attorney of record is
regarded as the counsel who should be served with Fuel, lubricants, spare parts, regular equipment
copies of the judgments, orders and pleadings. 32 Thus, and aircraft stores introduced into, or taken on
where no notice of withdrawal or substitution of board aircraft in the territory of one Contracting
counsel has been shown, notice to counsel of record is, party by, or on behalf of, a designated airline of
for all purposes, notice to the client. 33 The court cannot the other Contracting Party and intended solely
be expected to itself ascertain whether the counsel of for use in the operation of the agreed services
record has been changed.34 shall, with the exception of charges
corresponding to the service performed, be
In the case at bar, JGLaw filed its Notice of Withdrawal exempt from the same customs duties,
of Appearance on October 13, 200535 after the Bengzon inspection fees and other duties or taxes
Law Firm had entered its appearance. While Silkair imposed in the territories of the first
claims it dismissed JGLaw as its counsel as early as Contracting Party , even when these supplies
August 24, 2005, the same was communicated to the are to be used on the parts of the journey
CTA only on October 13, 2005. 36 Thus, JGLaw was still performed over the territory of the Contracting
Silkair’s counsel of record as of October 3, 2005 when a Party in which they are introduced into or taken
copy of the September 22, 2005 resolution of the CTA on board. The materials referred to above may
Second Division was served on it. The service upon be required to be kept under customs
JGLaw on October 3, 2005 of the September 22, 2005 supervision and control.
resolution of CTA Second Division was, therefore, for all
legal intents and purposes, service to Silkair, and the The proper party to question, or seek a refund of, an
CTA correctly reckoned the period of appeal from such indirect tax is the statutory taxpayer, the person on
date. whom the tax is imposed by law and who paid the same
even if he shifts the burden thereof to
TECHNICALITY ASIDE, on the merits, the petition just the another.37 Section 130 (A) (2) of the NIRC provides that
same fails. "[u]nless otherwise specifically allowed, the return shall
be filed and the excise tax paid by the manufacturer or
Silkair bases its claim for refund or tax credit on Section producer before removal of domestic products from
135 (b) of the NIRC of 1997 which reads place of production." Thus, Petron Corporation, not
Silkair, is the statutory taxpayer which is entitled to
Sec. 135. Petroleum Products sold to claim a refund based on Section 135 of the NIRC of 1997
International Carriers and Exempt Entities of and Article 4(2) of the Air Transport Agreement
Agencies. – Petroleum products sold to the between RP and Singapore.
following are exempt from excise tax:

xxxx
Even if Petron Corporation passed on to Silkair the xxxx
burden of the tax, the additional amount billed to Silkair
for jet fuel is not a tax but part of the price which Silkair It is evident from the provisions of P.D.
had to pay as a purchaser.38 No. 938 that its purpose is to maintain
the tax exemption of NPC from all
Silkair nevertheless argues that it is exempt from forms of taxes including indirect taxes
indirect taxes because the Air Transport Agreement as provided under R.A. No. 6395 and
between RP and Singapore grants exemption "from the P.D. 380 if it is to attain its goals. (Italics
same customs duties, inspection fees and other duties in the original; emphasis supplied)42
or taxes imposed in the territory of the first Contracting
Party."39 It invokes Maceda v. Macaraig, Jr.40 which The exemption granted under Section 135 (b) of the
upheld the claim for tax credit or refund by the National NIRC of 1997 and Article 4(2) of the Air Transport
Power Corporation (NPC) on the ground that the NPC is Agreement between RP and Singapore cannot, without
exempt even from the payment of indirect taxes. a clear showing of legislative intent, be construed as
including indirect taxes. Statutes granting tax
Silkairs’s argument does not persuade. In Commissioner exemptions must be construed in strictissimi
of Internal Revenue v. Philippine Long Distance juris against the taxpayer and liberally in favor of the
Telephone Company,41 this Court clarified the ruling taxing authority, 43 and if an exemption is found to exist,
in Maceda v. Macaraig, Jr., viz: it must not be enlarged by construction. 44

It may be so that in Maceda vs. Macaraig, Jr., WHEREFORE, the petition is DENIED.
the Court held that an exemption from "all
taxes" granted to the National Power Costs against petitioner.
Corporation (NPC) under its charter includes
both direct and indirect taxes. But far from SO ORDERED.
providing PLDT comfort, Maceda in fact
supports the case of herein petitioner, the
correct lesson of Maceda being that an
exemption from "all taxes" excludes indirect
taxes, unless the exempting statute, like NPC’s
charter, is so couched as to include indirect tax
from the exemption. Wrote the Court:

x x x However, the amendment under

Republic Act No. 6395 enumerated the
details covered by the exemption.
Subsequently, P.D. 380, made even
more specific the details of the
exemption of NPC to cover, among
others, both direct and indirect taxes on
all petroleum products used in its
operation. Presidential Decree No. 938
[NPC’s amended charter] amended the
tax exemption by simplifying the same
law in general terms. It succinctly
exempts NPC from "all forms of taxes,
duties[,] fees…"

The use of the phrase "all forms" of

taxes demonstrates the intention of the
law to give NPC all the tax exemptions it
has been enjoying before…
 Petitioner claims that the SSDA is in the nature of a
regular savings account since both types of accounts
have the following common features:

G.R. No. 170574               January 30, 2009 a. They are both evidenced by a passbook;

PHILIPPINE BANKING CORPORATION (NOW: GLOBAL b. The depositors can make deposits or
BUSINESS BANK, INC.), Petitioner, withdrawals anytime which are not subject to
vs. penalty; and
COMMISSIONER OF INTERNAL REVENUE, Respondent.
c. Both can have an Automatic Transfer
DECISION Agreement (ATA) with the depositor’s current
or checking account.6
CARPIO, J.:
Petitioner alleges that the only difference between the
The Case regular savings account and the SSDA is that the SSDA is
for depositors who maintain savings deposits with a
The Philippine Banking Corporation, now, Global substantial average daily balance, and as an incentive,
Business Bank, Inc., (petitioner) filed this Petition for they are given higher interest rates than regular savings
Review1 to reverse the Court of Tax Appeals’ accounts. These deposits are classified separately in
Decision2 dated 23 November 2005 in CTA EB No. 63 petitioner’s financial statements in order to maintain a
(C.T.A. Case No. 6395). In the assailed decision, the separate record for savings deposits with substantial
Court of Tax Appeals En Banc ordered petitioner to pay balances entitled to higher interest rates. 7
₱17,595,488.75 and ₱47,767,756.24 as deficiency
documentary stamp taxes for the taxable years 1996 Petitioner maintains that the tax assessments are
and 1997, respectively, on its bank product called erroneous because Section 180 of the 1977 NIRC does
"Special/Super Savings Deposit Account" (SSDA). not include deposits evidenced by a passbook among
the enumeration of instruments subject to DST.
The Facts Petitioner asserts that the language of the law is clear
and requires no interpretation. 8 Section 180 of the 1977
Petitioner is a domestic corporation duly licensed as a NIRC, as amended,9 provides:
banking institution.3 For the taxable years 1996 and
1997, petitioner offered its SSDA to its depositors. The Sec. 180. Stamp tax on all loan agreements, promissory
SSDA is a form of a savings deposit evidenced by a notes, bills of exchange, drafts, instruments and
passbook and earning a higher interest rate than a securities issued by the government or any of its
regular savings account. Petitioner believes that the instrumentalities, certificates of deposit bearing
SSDA is not subject to Documentary Stamp Tax (DST) interest and others not payable on sight or demand. —
under Section 180 of the 1977 National Internal On all loan agreements signed abroad wherein the
Revenue Code (NIRC), as amended.4 object of the contract is located or used in the
Philippines; bills of exchange (between points within the
On 10 January 2000, the Commissioner of Internal Philippines), drafts, instruments and securities issued by
Revenue (respondent) sent petitioner a Final the Government or any of its instrumentalities
Assessment Notice assessing deficiency DST based on or certificates of deposits drawing interest, or orders
the outstanding balances of its SSDA, including for the payment of any sum of money otherwise than at
increments, in the total sum of ₱17,595,488.75 for 1996 the sight or on demand, or on all promissory notes,
and ₱47,767,756.24 for 1997. These assessments were whether negotiable or non-negotiable, except bank
based on the outstanding balances of the SSDA notes issued for circulation, and on each renewal of any
appearing in the schedule attached to petitioner’s such note, there shall be collected a documentary
audited financial statements for the taxable years 1996 stamp tax of Thirty centavos (₱0.30) on each Two
and 1997.5 hundred pesos, or fractional part thereof, of the face
value of any such agreement, bill of exchange, draft,
certificate of deposit, or note: provided, that only one
documentary stamp tax shall be imposed on either loan
agreement, or promissory note issued to secure such the SSDA is supposed to be and not on the basis of what
loan, whichever will yield a higher tax: provided, the law specifically states. Petitioner points out the
however, that loan agreements or promissory notes the differences between the SSDA and time deposits: 12
aggregate of which does not exceed Two hundred fifty
thousand pesos (₱250,000) executed by an individual
for his purchase on installment for his personal use or SSDA
that of his family and not for business, resale, barter or
1. The holding
hire of a house, lot, motor vehicle, appliance or period is fixed beforehand. 1. The holding period floats at th
furniture shall be exempt from the payment of the the depositor. It can be 30, 60, 90
documentary stamp tax provided under this section. or more and as an incentive for m
(Boldfacing supplied) longer holding period, the depo
higher interest.
Petitioner insists that the SSDA, being issued in the form
2. There isof
of a passbook, cannot be construed as a certificate pre-termination because there is no 2. No pre-termination and the
deposit subject to DST under Section 180 partial withdrawal of a certificate. Pre-
of the 1977 account is simply reverted to a
NIRC. Petitioner explains that the SSDA is a necessary results in the surrender and
termination savings status in case of early
cancellation
offshoot of the deregulated interest rate regime in bank of the certificate of deposit. withdrawal or if the required holdi
10
deposits.  Petitioner elucidates: not met.

With the removal of the respective interest rate ceilings Petitioner also argues that even on the assumption that
on savings and time deposit, banks are enabled to a passbook evidencing the SSDA is a certificate of
legitimately offer higher rates on savings account which deposit, no DST will be imposed because only
may even be at par with rates on time deposit. negotiable certificates of deposits are subject to tax
Practically, the distinction between a savings and a time under Section 180 of the 1977 NIRC. 13 Petitioner
deposit was removed insofar as interest rates are reasons that a savings passbook is not a negotiable
concerned. This being so, and for the legitimate purpose instrument and it cannot be denied that savings
of further enticing deposits for savings account, banks passbooks have never been taxed as certificates of
have evolved a product – the Super/Special Savings deposits.14
Account – which offers the flexibility of a savings
deposit but does away with the rigidity of a time deposit Petitioner alleges that prior to the passage of Republic
account and with interest rate at par with the latter. Act No. 924315 (RA 9243), there was no law subjecting
This is offered as an incentive for depositors who SSDA to DST during the taxable years 1996 and 1997.
maintain or who wish to maintain deposits with The amendatory provision in RA 9243 now specifically
substantial average daily balance. Such depositors will includes "certificates or other evidences of deposits that
be entitled to an attractive interest rate, a rate higher are either drawing interest significantly higher than the
than that to which the regular savings account is regular savings deposit taking into consideration the
entitled. Just like an ordinary savings, Super/Special size of the deposit and the risks involved or drawing
Savings Deposits can be withdrawn anytime. Of course, interest and having a specific maturity
to be entitled to preferential interest rate, such account 16
date."  Petitioner admits that with this new taxing
must conform to a stated minimum deposit balance clause, its SSDA is now subject to DST. However, the fact
within a specified holding period. Otherwise, the remains that this provision was non-existent during the
depositor will lose the incentive of a higher interest rate taxable years 1996 and 1997 subject of the assessments
and the account will revert to an ordinary savings in the present case.17
account and be entitled only to prevailing rates of
interest applicable to regular savings account. And
Respondent, through the Office of the Solicitor General,
unlike a time deposit account, the Super/Special Savings
contends that the SSDA is substantially the same and
Account comes in the form of a passbook, hence need
identical to that of a time deposit account because in
not be formally renewed in the manner that a time
order to avail of the SSDA, one has to deposit a
deposit certificate has to be formally surrendered and
minimum of ₱50,000 and this amount must be
renewed upon maturity.11
maintained for a required period of time to earn higher
interest rates.18 In a time deposit account, the minimum
Petitioner argues that the DST is imposed on the basis deposit requirement is ₱20,000 and this amount must
of a mere inference or perceived implication of what be maintained for the agreed period to earn the agreed
interest rate. If a time deposit is pre-terminated, a the relation of debtor and creditor between the bank
penalty will be imposed resulting in a lower interest and the depositor is created."26
income. In a regular savings account, the interest rate is
fixed and there is no penalty imposed for as long as the The CTA pointed out that this Court neither referred to
required minimum balance is maintained. Thus, a particular form of deposit nor limited the coverage to
respondent asserts that the SSDA is a time deposit time deposits only. This Court used the term "written
account, albeit in the guise of a regular savings account acknowledgment" which means that for as long as there
evidenced by a passbook.19 is some written memorandum of the fact that the bank
accepted a deposit of a sum of money from a depositor,
Respondent explains that under Section 180 of the 1977 the writing constitutes a certificate of deposit. The CTA
NIRC, certificates of deposits deriving interest are held that a passbook representing an interest-earning
subject to the payment of DST. Petitioner’s passbook deposit account issued by a bank qualifies as a
evidencing its SSDA is considered a certificate of certificate of deposit drawing interest. 27
deposit, and being very similar to a time deposit
account, it should be subject to the payment of DST. 20 The CTA emphasized that Section 180 of the 1977 NIRC
imposes DST on documents, whether the documents
Respondent also argues that Section 180 of the 1977 are negotiable or non-negotiable. 28 The CTA held that
NIRC categorically states that certificates of deposit petitioner’s argument that Section 180 of the 1977 NIRC
deriving interest are subject to DST without limiting the imposes the DST only on negotiable certificates of
enumeration to negotiable certificates of deposit. Based deposit as implied from the old tax provision is
on the definition of a certificate of deposit in Far East erroneous.29 Section 217 of Commonwealth Act No.
Bank and Trust Company v. Querimit,21 a certificate of 466, as amended (old NIRC) reads:
deposit may or may not be negotiable, since it may be
payable only to the depositor.22 Sec. 217. Stamp tax on negotiable promissory notes,
bills of exchange, drafts, certificate of deposit bearing
The Ruling of the Court of Tax Appeals interest and others not payable on sight or demand. -
On all bills of exchange (between points within the
On 23 November 2005, the Court of Tax Appeals En Philippines), drafts or certificates of deposit drawing
Banc (CTA) affirmed the Decision and Resolution of the interest, or orders for the payment of any sum of
CTA’s Second Division. The dispositive portion reads: money otherwise than at sight or on demand, or all
negotiable promissory notes, except bank notes issued
WHEREFORE, the instant petition is DENIED for lack of for circulation, and on each renewal of any such note,
merit. Accordingly, the petitioner is there shall be collected a documentary stamp tax of
hereby ORDERED to PAY the amounts of four centavos on each two hundred pesos, or fractional
₱17,595,488.75 and ₱47,767,756.24 as deficiency part thereof, of the face value of any such bill of
documentary stamp taxes for the taxable years 1996 exchange, draft, certificate of deposit, or note. (As
and 1997, plus 25% surcharge for late payment and 20% amended by Sec. 6, Republic Act No. 40) 30 (Emphasis in
annual delinquency interest for late payment from the original)
January 20, 2002 until fully paid pursuant to Sections
248 and 249 of the Tax Code.23 The CTA observed that the requirement of negotiability
pertains to promissory notes only. Such intention is
The CTA ruled that a deposit account with the same disclosed by the fact that the word negotiable was
features as a time deposit, i.e., a fixed term in order to written before promissory notes followed by a comma,
earn a higher interest rate, is subject to DST imposed in hence, the word negotiable  modifies promissory notes
Section 180 of the 1977 NIRC. 24 It is clear that only. Therefore, with respect to all other documents
"certificates of deposit drawing interest" are subject to mentioned in Section 217 of the old NIRC, the attribute
DST. The CTA, citing Far East Bank and Trust Company v. of negotiability is not required.31 The CTA added that
Querimit,25 defined a certificate of deposit as "a written the applicable provision is Section 180 of the 1977 NIRC
acknowledgment by a bank or banker of the receipt of a and not Section 217 of the old NIRC. 32 Section 180 of the
sum of money on deposit which the bank or banker 1977 NIRC provides that the following are subject to
promises to pay to the depositor, to the order of the DST, to wit: (1) Loan Agreements; (2) Bills of Exchange;
depositor, or some other person or his order, whereby (3) Drafts; (4) Instruments and Securities issued by the
Government or any of its instrumentalities; (5)
Certificates of Deposits drawing interest; (6) Orders for drawing interest," and how do they differ from a regular
the payment of any sum of money otherwise than at savings account?
sight or on demand; and (7) Promissory Notes, whether
negotiable or non-negotiable. Therefore, the DST is Section 180 of the 1977 NIRC, as amended, provides:
imposed on all certificates of deposit drawing interest
without any qualification.33 Sec. 180. Stamp tax on all loan agreements, promissory
notes, bills of exchange, drafts, instruments and
The CTA held that a certificate of time deposit, a type of securities issued by the government or any of its
a certificate of deposit drawing interest, is subject to instrumentalities, certificates of deposit bearing
DST. The CTA observed that the SSDA has the same interest and others not payable on sight or demand. —
nature and characteristics as a time deposit. 34 The CTA On all loan agreements signed abroad wherein the
discussed the similarities of a time deposit account with object of the contract is located or used in the
an SSDA: Philippines; bills of exchange (between points within the
Philippines), drafts, instruments and securities issued by
In order for the depositor to earn the agreed higher the Government or any of its instrumentalities
interest rate in a Special/Super Savings Account, the or certificates of deposits drawing interest, or orders
required minimum amount of deposit must not only be for the payment of any sum of money otherwise than at
met but should also be maintained for a definite period. the sight or on demand, or on all promissory notes,
Thus, the Special/Super Savings Account is a deposit whether negotiable or non- negotiable, except bank
with a fixed term. Withdrawal before the expiration of notes issued for circulation, and on each renewal of any
said fixed term results to the reduction of the interest such note, there shall be collected a documentary
rate. The fixed term and reduction of interest rate in stamp tax of Thirty centavos (₱0.30) on each Two
case of pre-termination are essentially the features of a hundred pesos, or fractional part thereof, of the face
time deposit. Hence, this Court concurs with the value of any such agreement, bill of exchange, draft,
conclusion reached in the assailed Decision that certificate of deposit, or note: provided, that only one
petitioner’s Special/Super Savings Deposits and documentary stamp tax shall be imposed on either loan
certificates of time deposit are substantially the same, if agreement, or promissory note issued to secure such
not one and the same product, and therefore both are loan, whichever will yield a higher tax: provided,
subject to the DST on certificates of deposit. 35 however, that loan agreements or promissory notes the
aggregate of which does not exceed Two hundred fifty
The CTA stated that the fact that the SSDA is evidenced thousand pesos (₱250,000) executed by an individual
by a passbook is immaterial because in determining for his purchase on installment for his personal use or
whether certain instruments are subject to DST, that of his family and not for business, resale, barter or
substance would control over form and labels. 36 hire of a house, lot, motor vehicle, appliance or
furniture shall be exempt from the payment of the
On 14 December 2005, petitioner appealed to this Court documentary stamp tax provided under this
the CTA decision.37 section. lavvphil.zw+(Boldfacing and underscoring
supplied)
The Issue
In Far East Bank and Trust Company v. Querimit,39 the
Petitioner submits this sole issue for our consideration: Court defined a certificate of deposit as "a written
whether petitioner’s product called Special/Super acknowledgment by a bank or banker of the receipt of a
Savings Account is subject to DST under Section 180 of sum of money on deposit which the bank or banker
the 1977 NIRC prior to the passage of RA 9243 in 2004. 38 promises to pay to the depositor, to the order of the
depositor, or to some other person or his order,
The Ruling of the Court whereby the relation of debtor and creditor between
the bank and the depositor is created." A certificate of
The issue in the present case is whether petitioner’s deposit is also defined as "a receipt issued by a bank for
SSDAs are "certificates of deposits drawing interest" as an interest-bearing time deposit coming due at a
used in Section 180 of the 1977 NIRC. If they are, then specified future date."40
the SSDAs are subject to DST. If not, then they are
merely regular savings account which concededly are
not subject to DST. So what are "certificates of deposits
 The deposit operations of a bank as listed in the Bangko interest
Sentral ng Pilipinas Manual of Regulations for maintained
Banks41 consist of the following: the regu
interest ra
1. Demand Deposits – are deposits, subject to
withdrawal either by check or thru the
automated tellering machines which are Based on the definition and comparison, it is clear that a
otherwise known as current or checking certificate of deposit drawing interest as used in Section
accounts. The Bank may or may not pay interest 180 of the 1977 NIRC refers to a time deposit account.
on these accounts.42 As the Bureau of Internal Revenue (BIR) explained in
Revenue Memorandum Circular No. 16-2003, 46 the
2. Savings Deposits – are interest-bearing distinct features of a certificate of deposit from a
deposits which are withdrawable either upon technical point of view are as follows:
presentation of a properly accomplished
withdrawal slip together with the corresponding a. Minimum deposit requirement;
passbook or thru the automated tellering
machines.43 b. Stated maturity period;

3. Negotiable Order of Withdrawal Accounts – c. Interest rate is higher than the ordinary
are interest-bearing savings deposit which are savings account;
withdrawable by means of Negotiable Orders of
Withdrawal.44 d. Not payable on sight or demand, but upon
maturity or in case of pre-termination, prior
4. Time Deposits – are interest-bearing deposits notice is required; and
with specific maturity dates and evidenced by
certificates issued by the bank.45 e. Early withdrawal penalty in the form of
partial loss or total loss of interest in case of
Petitioner treats the SSDA as a regular savings deposit pre-termination.
account since it is evidenced by a passbook and allows
withdrawal. Respondent treats the SSDA as a time The SSDA is for depositors who maintain savings
deposit account because of the higher interest rates deposits with substantial average daily balance and
and holding period. It is then significant to differentiate which earn higher interest rates. The holding period of
a regular savings deposit and a time deposit vis-à-vis the an SSDA floats at the option of the depositor at 30, 60,
SSDA to determine if the SSDA is a certificate of deposit 90, 120 days or more and for maintaining a longer
drawing interest referred to in Section 180 of the 1977 holding period, the depositor earns higher interest
NIRC. A comparison of a savings account, time deposit rates. There is no pre-termination of accounts in an
account, and SSDA is shown in the table below: SSDA because the account is simply reverted to an
ordinary savings status in case of early or partial
withdrawal or if the required holding period is not met.
Savings Account Time Deposit SSDA
Based on the foregoing, the SSDA has all of the distinct
Regular savings interest Higher interest rate features
Higher interest rateof a certificate of deposit.

None Fixed Term Fixed TermPetitioner argues that a deposit account evidenced by a
passbook cannot be construed as a certificate of deposit
: Passbook Certificate of Time Passbook
subject to DST under Section 180 of the 1977 NIRC.
Deposit
In International Exchange Bank v. Commissioner of
tion None With penalty Internal Revenue,47 this Court categorically ruled that a
With penalty
passbook representing an interest earning deposit
od None Yes Yes account issued by a bank qualifies as a certificate of
deposit drawing interest and should be subject to DST.
Allowed Withdrawal amounts Allowed provided the
The Court added that "a document to be deemed a
to pre-termination minimum amount to
certificate of deposit requires no specific form as long as
earn the higher
there is some written memorandum that the bank
accepted a deposit of a sum of money from a DST on deposits. Because of what has happened so far
depositor."48 is, we don't know whether the examiner is gonna come
in and say, "This savings deposit is not savings but it’s
Petitioner also argues that prior to the passage of RA time deposit." So, I think what DOF has done is to
9243, there was no law subjecting SSDA to DST. eliminate any confusion. They said that a deposit that
In International Exchange Bank v. Commissioner of has a maturity...
Internal Revenue,49 the Court held that the amendment
to include "other evidences of deposits that are drawing THE CHAIRMAN. Uh-huh.
interest significantly higher than the regular savings
deposit" was intended to eliminate the ambiguity. The MR. ANDAYA. ...which is time, in effect, regardless of
Court explained: what form it takes should be subject to DST.

If at all, the further amendment was intended to THE CHAIRMAN. Would you include savings deposit
eliminate precisely the scheme used by banks of issuing now?
passbooks to "cloak" its time deposits as regular savings
deposits. This is reflected from the following exchanges MR. ANDAYA. So that if we cloaked a deposit as savings
between Mr. Miguel Andaya of the Bankers Association deposit but it has got a fixed maturity...
of the Philippines and Senator Ralph Recto, Senate
Chairman of the Committee on Ways and Means, during THE CHAIRMAN. Uh-huh.
the deliberations on Senate Bill No. 2518 which
eventually became RA 9243: MR. ANDAYA. ..that would fall under the
purview.  (Italics in the original)
MR. MIGUEL ANDAYA (Bankers Association of the
Philippines). Just to clarify. Savings deposit at the DST is imposed on Certificates of Deposits Bearing
present is not subject to DST. Interest
including a special savings account evidenced by a
THE CHAIRMAN. That’s right. passbook.

MR. ANDAYA. Time deposit is subject. I agree with you Documentary stamp tax is a tax on documents,
in principle that if we are going to encourage deposits, instruments, loan agreements, and papers evidencing
whether savings or time... the acceptance, assignment, sale or transfer of an
obligation, right or property incident thereto. A DST is
THE CHAIRMAN. Uh-huh. actually an excise tax because it is imposed on the
transaction rather than on the document. 50 A DST is also
MR. ANDAYA. ...it’s questionable whether we should tax levied on the exercise by persons of certain privileges
it with DST at all, even the question of imposing final conferred by law for the creation, revision, or
withholding tax has been raised as an issue. termination of specific legal relationships through the
execution of specific instruments.51 Hence, in imposing
THE CHAIRMAN. If I had it my way, I'll cut it by half. the DST, the Court considers not only the document but
also the nature and character of the transaction.
MR. ANDAYA. Yeah, but I guess concerning the
constraint of government revenue, even the industry Section 180 of the 1977 NIRC imposes a DST of ₱0.30 on
itself right now is not pushing in that direction, but in each ₱200 of the face value of any certificate of deposit
the long term, when most of us in this room are gone, drawing interest. As correctly observed by the CTA, a
we hope that DST will disappear from the face of this certificate of deposit is a written acknowledgment by a
earth, no. bank of the receipt of a sum of money on deposit which
the bank promises to pay to the depositor, to the order
Now, I think the move of the DOF to expand the of the depositor, or to some other person or his order,
coverage of or to add that phrase, "Other evidence of whereby the relation of debtor or creditor between the
indebtedness," it just removed ambiguity. When we bank and the depositor is created.52
testified earlier in the House on this very same bill, we
did not interpose any objections if only for the sake of Petitioner’s SSDA has the following features:
avoiding further ambiguity in the implementation of
 1. Although the money placed in the SSDA can deposit while petitioner's Investment Savings Account
be withdrawn anytime, the money is subject to (ISA) transaction is through a passbook. Despite the
a holding period in order to earn a higher differences in the form of any documents, the CTA en
interest rate. Otherwise, in case of premature banc ruled that a time deposit and ISA have essentially
withdrawal, the depositor will not earn the the same attributes and features. It explained that like
preferred interest ranging from 8% or higher time deposit, ISA transactions bear a fixed term or
but only the normal interest rate on regular maturity because the bank acknowledges receipt of a
savings deposit. sum of money on deposit which the bank promises to
pay the depositor, bearer or to the order of a bearer on
2. In order to qualify for an SSDA, the depositor a specified period of time. Section 180 of the 1997 NIRC
must place a substantial amount of money of does not prescribed the form of a certificate of deposit.
not less than ₱50,000. This amount is even It may be any 'written acknowledgment by a bank of the
larger than what is needed to open a time receipt of money on deposit.' The definition of a
deposit which is ₱20,000. Aside from the certificate of deposit is all encompassing to include a
substantial amount of money required, this savings account deposit such as ISA. (Emphasis
amount must be maintained within a certain supplied)
period just like a time deposit.
Availment of the Tax Amnesty Program
3. On the issue of penalty, in an SSDA, if the
depositor withdraws the money and the On 24 May 2007, during the pendency of this case
balance falls below the "minimum balance" of before this Court, Republic Act No. 9480 or "An Act
₱50,000, the interest is reduced. This condition Enhancing Revenue Administration and Collection by
is identical to that imposed on a time deposit Granting an Amnesty on All Unpaid Internal Revenue
that is withdrawn before maturity. 53 Taxes Imposed by the National Government for Taxable
Year 2005 and Prior Years" (RA 9480), lapsed into law.
Based on these features, it is clear that the SSDA is a
certificate of deposit drawing interest subject to DST The pertinent provisions of RA 9480 are:
even if it is evidenced by a passbook and non-negotiable
in character. In International Exchange Bank v. Section 1. Coverage. There is hereby authorized and
Commissioner of Internal Revenue,54 we held that: granted a tax amnesty which shall cover all national
internal revenue taxes for the taxable year 2005 and
A document to be deemed a certificate of deposit prior years, with or without assessments duly issued
requires no specific form as long as there is some therefor, that have remained unpaid as of December
written memorandum that the bank accepted a deposit 31, 2005: Provided, however, That the amnesty hereby
of a sum of money from a depositor. What is important authorized and granted shall not cover persons or cases
and controlling is the nature or meaning conveyed by enumerated under Section 8 hereof.
the passbook and not the particular label or
nomenclature attached to it, inasmuch as substance, xxx
not form, is paramount.lavvph!l.net
Sec. 6. Immunities and Privileges. Those who availed
Moreover, a certificate of deposit may be payable to the themselves of the tax amnesty under Section 5 hereof,
depositor, to the order of the depositor, or to some and have fully complied with all its conditions shall be
other person or his order. From the use of the entitled to the following immunities and privileges:
conjunction or, instead of and, the negotiable character
of a certificate of deposit is immaterial in determining 1. The taxpayer shall be immune from the payment of
the imposition of DST.55 taxes, as well as addition thereto, and the appurtenant
civil, criminal or administrative penalties under the
In Banco de Oro Universal Bank v. Commissioner of National Internal Revenue Code of 1997, as amended,
Internal Revenue,56 this Court upheld the CTA’s decision arising from the failure to pay any and all internal
and ruled: revenue taxes for taxable year 2005 and prior years.

The CTA en banc  likewise declared that in practice, a xxx

time deposit transaction is covered by a certificate of
Sec. 8. Exceptions. The tax amnesty provided in Section The Acceptance of Payment Form, the Notice of
5 hereof shall not extend to the following persons or Availment, the SALN, and the Tax Amnesty Return shall
cases existing as of the effectivity of this Act: be submitted to the RDO, which shall be received only
after complete payment. The completion of these
1. Withholding agents with respect to their requirements shall be deemed full compliance with the
withholding tax liabilities; provisions of RA 9480. (Emphasis supplied)

2. Those with pending cases falling under the The BIR issued Revenue Memorandum Circular No. 19-
jurisdiction of the Presidential Commission on 2008 (RMC 19-2008).58 The pertinent provisions are:
Good Government;
Who may avail of the amnesty?
3. Those with pending cases involving
unexplained or unlawfully acquired wealth or The following taxpayers may avail of the Tax Amnesty
under the Anti-Graft and Corrupt Practices Act; Program:

4. Those with pending cases filed in court P Individuals

involving violation of the Anti-Money
Laundering Law; P Estates and Trusts

5. Those with pending criminal cases for tax P Corporations

evasion and other criminal offenses under
Chapter II of Title X of the National Internal P Cooperatives and tax-exempt entities that have
Revenue Code of 1997, as amended, and the become taxable as of December 31, 2005
felonies of frauds, illegal exactions and
transactions, and malversation of public funds P Other juridical entities including partnerships.
and property under Chapters III and IV of Title
VII of the Revised Penal Code; and Ø Fiscal year taxpayers may likewise avail of the tax
amnesty using their Financial Statement ending in any
6. Tax cases subject of final and executory month of 2005.
judgment by the courts. (Emphasis supplied)
EXCEPT:
The Department of Finance (DOF) issued DOF
Department Order No. 29-07 (DO 29-07). 57 Section 6 of Q Withholding agents with respect to their withholding
DO 29-07 provides: tax liabilities

SEC. 6. Method of Availment of Tax Amnesty. - Q Those with pending cases:

1. Forms/Documents to be filed. - To avail of the general Q Under the jurisdiction of the PCGG
tax amnesty, concerned taxpayers shall file the
following documents/requirements: Q Involving violations of the Anti-Graft and Corrupt
Practices Act
a. Notice of Availment in such form as may be
prescribed by the BIR; Q Involving violations of the Anti-Money Laundering
Law
b. Statements of Assets, Liabilities and
Networth (SALN) as of December 31, 2005 in Q For tax evasion and other criminal offenses under the
such form, as may be prescribed by the BIR; NIRC and/or the RPC

c. Tax Amnesty Return in such form as may be Q Issues and cases which were ruled by any court
prescribed by the BIR. (even without finality) in favor of the BIR prior to
amnesty availment of the taxpayer. (e.g. Taxpayers
xxx who have failed to observe or follow BOI and/or PEZA
rules on entitlement to Income Tax Holiday Incentives The DST is one of the taxes covered by the Tax Amnesty
and other incentives) Program under RA 9480. 63 As discussed above,
petitioner is clearly liable to pay the DST on its SSDA for
Q Cases involving issues ruled with finality by the the years 1996 and 1997. However, petitioner, as the
Supreme Court prior to the effectivity of RA 9480 (e.g. absorbed corporation, can avail of the tax amnesty
DST on Special Savings Account) benefits granted to Metrobank.

Q Taxes passed on and collected from customers for Records show that Metrobank, a qualified tax amnesty
remittance to the BIR applicant,64 has duly complied with the requirements
enumerated in RA 9480, as implemented by DO 29-07
Q Delinquent Accounts/Accounts Receivable considered and RMC 19-2008.65 Considering that the completion of
as assets of the BIR/Government, including self- these requirements shall be deemed full compliance
assessed tax. (Emphasis supplied) with the tax amnesty program,66 the law mandates that
the taxpayer shall thereafter be immune from the
The BIR also issued Revenue Memorandum Circular No. payment of taxes, and additions thereto, as well as the
69-2007 (RMC 69-2007).59 The pertinent portion appurtenant civil, criminal or administrative penalties
provides: under the NIRC of 1997, as amended, arising from the
failure to pay any and all internal revenue taxes for
Q-32 May surviving or new corporations avail of the taxable year 2005 and prior years.67
tax amnesty in behalf of the corporations absorbed or
dissolved pursuant to a merger or consolidation that The BIR’s inclusion of "issues and cases which were
took effect prior to Taxable Year 2005? Can they avail of ruled by any court (even without finality) in favor of the
the Tax Amnesty? BIR prior to amnesty availment of the taxpayer" as one
of the exceptions in RMC 19-2008 is misplaced. RA 9480
A-32 Yes, these companies can avail of the tax amnesty is specifically clear that the exceptions to the tax
for purposes of obtaining tax clearances for the amnesty program include "tax cases subject of final and
dissolved or absorbed corporations. (Emphasis supplied) executory judgment by the courts." The present case
has not become final and executory when Metrobank
On 21 September 2007, Metropolitan Bank and Trust availed of the tax amnesty program.
Company (Metrobank), the surviving entity that
absorbed petitioner’s banking business, filed a Tax Wherefore, we GRANT the petition, and SET ASIDE the
Amnesty Return,60 paid the amnesty tax and fully Court of Tax Appeals’ Decision dated 23 November 2005
complied with all the requirements 61 of the Tax in CTA EB No. 63 solely in view of petitioner’s availment
Amnesty Program under RA 9480. Petitioner alleges of the Tax Amnesty Program.
that by virtue of this availment, petitioner is now
deemed "immune from the payment of taxes as well as SO ORDERED
additions thereto," and is statutorily discharged from
paying all internal revenue tax liabilities for the taxable G.R. No. 167330             June 12, 2008
year 2005 and prior years. Petitioner contends that the
availment includes all deficiency tax assessments of the PHILIPPINE HEALTH CARE PROVIDERS, INC., petitioner,
BIR subject of this petition. vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
A tax amnesty is a general pardon or the intentional
overlooking by the State of its authority to impose DECISION
penalties on persons otherwise guilty of violation of a
tax law. It partakes of an absolute waiver by the CORONA, J.:
government of its right to collect what is due it and to
give tax evaders who wish to relent a chance to start Is a health care agreement in the nature of an insurance
with a clean slate. A tax amnesty, much like a tax contract and therefore subject to the documentary
exemption, is never favored nor presumed in law. The stamp tax (DST) imposed under Section 185 of Republic
grant of a tax amnesty, similar to a tax exemption, must Act 8424 (Tax Code of 1997)?
be construed strictly against the taxpayer and liberally
in favor of the taxing authority.62
This is an issue of first impression. The Court of Appeals (a) Room and Board
(CA) answered it affirmatively in its August 16, 2004
decision1 in CA-G.R. SP No. 70479. Petitioner Philippine (b) Services of physician and/or surgeon
Health Care Providers, Inc. believes otherwise and or specialist
assails the CA decision in this petition for review under
Rule 45 of the Rules of Court. (c) Use of operating room and recovery
room
Petitioner is a domestic corporation whose primary
purpose is "[t]o establish, maintain, conduct and (d) Standard Nursing Services
operate a prepaid group practice health care delivery
system or a health maintenance organization to take (e) Drugs and Medication for use in the
care of the sick and disabled persons enrolled in the hospital except those which are used to
health care plan and to provide for the administrative, dissolve blood clots in the vascular
legal, and financial responsibilities of the systems (i.e., trombolytic agents)
organization."2 Individuals enrolled in its health care
programs pay an annual membership fee and are (f) Anesthesia and its administration
entitled to various preventive, diagnostic and curative
medical services provided by its duly licensed (g) Dressings, plaster casts and other
physicians, specialists and other professional technical miscellaneous supplies
staff participating in the group practice health delivery
system at a hospital or clinic owned, operated or (h) Laboratory tests, x-rays and other
accredited by it.3 necessary diagnostic services

The pertinent part of petitioner's membership or health (i) Transfusion of blood and other blood
care agreement4 provides: elements

VII BENEFITS Condition for in-Patient Care. The provision of

the services or benefits mentioned in the
Subject to paragraphs VIII [on pre-existing immediately preceding paragraph shall be
medical condition] and X [on claims for subject to the following conditions:
reimbursement] of this Agreement, Members
shall have the following Benefits under this (a) The Hospital Confinement must be
Agreement: approved by [petitioner's] Physician,
Participating Physician or [petitioner's]
In-Patient Services. In the event that a Member Medical Coordinator in that Hospital
contract[s] sickness or suffers injury which prior to confinement.
requires confinement in a participating
Hospital[,] the services or benefits stated below (b) The confinement shall be in a
shall be provided to the Member free of charge, Participating Hospital and the
but in no case shall [petitioner] be liable to pay accommodation shall be in accordance
more than P75,000.00 in benefits with respect with the Member[']s benefit
to anyone sickness, injury or related causes. If a classification.
member has exhausted such maximum benefits
with respect to a particular sickness, injury or (c) Professional services shall be
related causes, all accounts in excess of provided only by the [petitioner's]
P75,000.00 shall be borne by the enrollee. It Physicians or Participating Physicians.
is[,] however, understood that the payment by
[petitioner] of the said maximum in In-Patient (d) If discharge from the Hospital has
Benefits to any one member shall preclude a been authorized by [petitioner's]
subsequent payment of benefits to such attending Physician or Participating
member in respect of an unrelated sickness, Physician and the Member shall fail or
injury or related causes happening during the refuse to do so, [petitioner] shall not be
remainder of his membership term.
 responsible for any charges incurred 2) CBC (Complete Blood Count)
after discharge has been authorized.
* Hemoglobin *
Out-Patient Services. A Member is entitled free Hematocrit
of charge to the following services or benefits
which shall be rendered or administered either * Differential *
in [petitioner's] Clinic or in a Participating RBC/WBC
Hospital under the direction or supervision of
[petitioner's] Physician, Participating Physician 3) Chest X-ray
or [petitioner's] Medical Coordinator.
4) Urinalysis
(a) Gold Plan Standard Annual Physical
Examination on the anniversary date of 5) Fecalysis
membership, to be done at
[petitioner's] designated hospital/clinic, (c) Preventive Health Care, which shall
to wit: include:

(i) Taking a medical history (i) Periodic Monitoring of

Health Problems
(ii) Physical examination
(ii) Family planning counseling
(iii) Chest x-ray
(iii) Consultation and advices on
(iv) Stool examination diet, exercise and other healthy
habits
(v) Complete Blood Count
(iv) Immunization but excluding
(vi) Urinalysis drugs for vaccines used

(vii) Fasting Blood Sugar (FBS) (d) Out-Patient Care, which shall
include:
(viii) SGPT
(i) Consultation, including
(ix) Creatinine specialist evaluation

(x) Uric Acid (ii) Treatment of injury or illness

(xi) Resting Electrocardiogram (iii) Necessary x-ray and

laboratory examination
(xii) Pap Smear (Optional for
women 40 years and above) (iv) Emergency medicines
needed for the immediate
(b) Platinum Family Plan/Gold Family
Plan and Silver Annual Physical relief of symptoms
Examination.
(v) Minor surgery not requiring
The following tests are to be done as confinement
part of the Member[']s Annual check-up
program at [petitioner's] designated Emergency Care. Subject to the conditions and
clinic, to wit: limitations in this Agreement and those
specified below, a Member is entitled to receive
1) Routine Physical Examination emergency care [in case of emergency. For this
 purpose, all hospitals and all attending company or corporation transacting the
physician(s) in the Emergency Room business of accident, fidelity, employer's
automatically become accredited. In liability, plate, glass, steam boiler, burglar,
participating hospitals, the member shall be elevator, automatic sprinkler, or other branch
entitled to the following services free of charge: of insurance (except life, marine, inland, and
(a) doctor's fees, (b) emergency room fees, (c) fire insurance), and all bonds, undertakings, or
medicines used for immediate relief and during recognizances, conditioned for the performance
treatment, (d) oxygen, intravenous fluids and of the duties of any office or position, for the
whole blood and human blood products, (e) doing or not doing of anything therein specified,
dressings, casts and sutures and (f) x-rays, and on all obligations guaranteeing the validity
laboratory and diagnostic examinations and or legality of any bond or other obligations
other medical services related to the emergency issued by any province, city, municipality, or
treatment of the patient.] 5 Provided, however, other public body or organization, and on all
that in no case shall the total amount payable obligations guaranteeing the title to any real
by [petitioner] for said Emergency, inclusive of estate, or guaranteeing any mercantile credits,
hospital bill and professional fees, exceed which may be made or renewed by any such
P75,000.00. person, company or corporation, there shall be
collected a documentary stamp tax of fifty
If the Member received care in a non- centavos (P0.50) on each four pesos (P4.00), or
participating hospital, [petitioner] shall fractional part thereof, of the premium charged.
6
reimburse [him]  80% of the hospital bill or the (emphasis supplied)
amount of P5,000.00[,] whichever is lesser, and
50% of the professional fees of non- Petitioner protested the assessment in a letter dated
participating physicians based on [petitioner's] February 23, 2000. As respondent did not act on the
schedule of fees provided that the total protest, petitioner filed a petition for review in the
amount[,] inclusive of hospital bills and Court of Tax Appeals (CTA) seeking the cancellation of
professional fee shall not exceed P5,000.00. the deficiency VAT and DST assessments.

On January 27, 2000, respondent Commissioner of On April 5, 2002, the CTA rendered a decision, 7 the
Internal Revenue sent petitioner a formal demand letter dispositive portion of which read:
and the corresponding assessment notices demanding
the payment of deficiency taxes, including surcharges WHEREFORE, in view of the foregoing, the
and interest, for the taxable years 1996 and 1997 in the instant Petition for Review is PARTIALLY
total amount of P224,702,641.18. The assessment GRANTED. Petitioner is hereby ORDERED to PAY
represented the following: the deficiency VAT amounting
to P22,054,831.75 inclusive of 25% surcharge
Value Added Tax (VAT) DST plus 20% interest from January 20, 1997 until
fully paid for the 1996 VAT deficiency
1996 P     45,767,596.23 P     55,746,352.19 and P31,094,163.87 inclusive of 25% surcharge
1997 54,738,434.03 68,450,258.73 plus 20% interest from January 20, 1998 until
fully paid for the 1997 VAT deficiency.
P     100,506,030.26 P     124,196,610.92
Accordingly, VAT Ruling No. [231]-88 is declared
void and without force and effect. The 1996 and
The deficiency DST assessment was imposed on 1997 deficiency DST assessment against
petitioner's health care agreement with the members of petitioner is hereby CANCELLED AND SET ASIDE.
its health care program pursuant to Section 185 of the Respondent is ORDERED to DESIST from
1997 Tax Code which provides: collecting the said DST deficiency tax.

Section 185. Stamp tax on fidelity bonds and SO ORDERED.8

other insurance policies. - On all policies of
insurance or bonds or obligations of the nature Respondent appealed the CTA decision to the
of indemnity for loss, damage, or liability made CA9 insofar as it cancelled the DST assessment. He
or renewed by any person, association or claimed that petitioner's health care agreement was a
contract of insurance subject to DST under Section 185 inland and fire insurance), bond or obligation in the
of the 1997 Tax Code. nature of indemnity for loss, damage, or liability.

On August 16, 2004, the CA rendered its decision. 10 It Under the law, a contract of insurance is an agreement
held that petitioner's health care agreement was in the whereby one undertakes for a consideration to
nature of a non-life insurance contract subject to DST: indemnify another against loss, damage or liability
arising from an unknown or contingent event. 14 The
WHEREFORE, the petition for review is event insured against must be designated in the
GRANTED. The Decision of the Court of Tax contract and must either be unknown or contingent. 15
Appeals, insofar as it cancelled and set aside the
1996 and 1997 deficiency documentary stamp Petitioner's health care agreement is primarily a
tax assessment and ordered petitioner to desist contract of indemnity. And in the recent case of Blue
from collecting the same is REVERSED and SET Cross Healthcare, Inc. v. Olivares,16 this Court ruled that
ASIDE. a health care agreement is in the nature of a non-life
insurance policy.
Respondent is ordered to pay the amounts
of P55,746,352.19 and P68,450,258.73 as Contrary to petitioner's claim, its health care agreement
deficiency Documentary Stamp Tax for 1996 is not a contract for the provision of medical services.
and 1997, respectively, plus 25% surcharge for Petitioner does not actually provide medical or hospital
late payment and 20% interest per annum from services but merely arranges for the same 17 and pays for
January 27, 2000, pursuant to Sections 248 and them up to the stipulated maximum amount of
249 of the Tax Code, until the same shall have coverage. It is also incorrect to say that the health care
been fully paid. agreement is not based on loss or damage because,
under the said agreement, petitioner assumes the
SO ORDERED.11 liability and indemnifies its member for hospital,
medical and related expenses (such as professional fees
Petitioner moved for reconsideration but the CA denied of physicians). The term "loss or damage" is broad
it. Hence, this petition. enough to cover the monetary expense or liability a
member will incur in case of illness or injury.
Petitioner essentially argues that its health care
agreement is not a contract of insurance but a contract Under the health care agreement, the rendition of
for the provision on a prepaid basis of medical services, hospital, medical and professional services to the
including medical check-up, that are not based on loss member in case of sickness, injury or emergency or his
or damage. Petitioner also insists that it is not engaged availment of so-called "out-patient services" (including
in the insurance business. It is a health maintenance physical examination, x-ray and laboratory tests,
organization regulated by the Department of Health, medical consultations, vaccine administration and
not an insurance company under the jurisdiction of the family planning counseling) is the contingent event
Insurance Commission. For these reasons, petitioner which gives rise to liability on the part of the member.
asserts that the health care agreement is not subject to In case of exposure of the member to liability, he would
DST. be entitled to indemnification by petitioner.

We do not agree. Furthermore, the fact that petitioner must relieve its
member from liability by paying for expenses arising
The DST is levied on the exercise by persons of certain from the stipulated contingencies belies its claim that its
privileges conferred by law for the creation, revision, or services are prepaid. The expenses to be incurred by
termination of specific legal relationships through the each member cannot be predicted beforehand, if they
execution of specific instruments.12 It is an excise upon can be predicted at all. Petitioner assumes the risk of
the privilege, opportunity, or facility offered at paying for the costs of the services even if they are
exchanges for the transaction of the business. 13 In significantly and substantially more than what the
particular, the DST under Section 185 of the 1997 Tax member has "prepaid." Petitioner does not bear the
Code is imposed on the privilege of making or costs alone but distributes or spreads them out among a
renewing any policy of insurance (except life, marine, large group of persons bearing a similar risk, that is,
among all the other members of the health care plus 25% surcharge for late payment and 20% interest
program. This is insurance. per annum from January 27, 2000 until full payment
thereof.
Petitioner's health care agreement is substantially
similar to that involved in Philamcare Health Systems, Costs against petitioner.
Inc.  v. CA.18 The health care agreement in  that case
entitled the subscriber to avail of the hospitalization SO ORDERED.
benefits, whether ordinary or emergency, listed therein.
It also provided for "out-patient benefits" such as
annual physical examinations, preventive health care
and other out-patient services. This Court ruled
in Philamcare Health Systems, Inc.:

[T]he insurable interest of [the subscriber] in

obtaining the health care agreement was his
own health. The health care agreement was in
the nature of non-life insurance, which is G.R. No. 127777 October 1, 1999
primarily a contract of indemnity. Once the
member incurs hospital, medical or any other PETRONILA C. TUPAZ, petitioner,
expense arising from sickness, injury or other vs.
stipulated contingency, the health care provider HONORABLE BENEDICTO B. ULEP Presiding Judge of
must pay for the same to the extent agreed RTC Quezon City, Branch 105, and PEOPLE OF THE
upon under the contract.19 (emphasis supplied) PHILIPPINES, respondents.

Similarly, the insurable interest of every member of PARDO, J.:

petitioner's health care program in obtaining the health
care agreement is his own health. Under the The case before us is a special civil action
agreement, petitioner is bound to indemnify any for certiorari  with application for temporary restraining
member who incurs hospital, medical or any other order seeking to enjoin respondent Judge Benedicto B.
expense arising from sickness, injury or other stipulated Ulep of the Regional Trial Court, Quezon City, Branch
contingency to the extent agreed upon under the 105, from trying Criminal Case No. Q-91-17321, and to
contract. nullify respondent judge's order reviving the
information therein against petitioner, for violation of
Petitioner's contention that it is a health maintenance the Tax Code, as the offense charged has prescribed or
organization and not an insurance company is would expose petitioner to double
irrelevant. Contracts between companies like petitioner jeopardy.1âwphi1.nêt
and the beneficiaries under their plans are treated as
insurance contracts.20 The facts are as follows:

Moreover, DST is not a tax on the business transacted On June 8, 1990, State Prosecutor (SP) Esteban A.
but an excise on the privilege, opportunity, or facility Molon, Jr. filed with the Metropolitan Trial Court
offered at exchanges for the transaction of the (MeTC), Quezon City, Branch 33, an information against
business.21 It is an excise on the facilities used in the accused Petronila C. Tupaz and her late husband Jose J.
transaction of the business, separate and apart from Tupaz, Jr., as corporate officers of El Oro Engravers
the business itself.22 Corporation, for nonpayment of deficiency corporate
income tax for the year 1979, amounting to
WHEREFORE, the petition is hereby DENIED. The August P2,369,085.46, in violation of Section 51 (b) in relation
16, 2004 decision of the Court of Appeals in CA-G.R. SP to Section 73 of the Tax Code of
No. 70479 is AFFIRMED. 1977. 1 On September 11, 1990, the MeTC dismissed the
information for lack of jurisdiction. On November 16,
Petitioner is ordered to pay the amounts 1990, the trial court denied the prosecution's motion
of P55,746,352.19 and P68,450,258.73 as deficiency for reconsideration.
documentary stamp tax for 1996 and 1997, respectively,
On January 10, 1991, SP Molon filed with the Regional Subsequently, accused Petronila C. Tupaz filed with the
Trial Court, Quezon City, two (2) informations, docketed Regional Trial Court, Quezon City, Branch 105, a petition
as Criminal Case Nos. Q-91-17321 2 and Q-9l- for reinvestigation, which Judge Ulep granted in an
17322, 3 against accused and her late husband, for the order dated August 30, 1994. 8
same alleged nonpayment of deficiency corporate
income tax for the year 1979. Criminal Case No. Q-91- On September 5, 1994, Senior State Prosecutor
17321 was raffled to Branch 105, 4 presided over by Bernelito R. Fernandez stated that no new issues were
respondent Judge Benedicto B. Ulep; Q-91-17322 was raised in the request for reinvestigation, and no cogent
raffled to Branch 86, then presided over by Judge reasons existed to alter, modify or reverse the findings
Antonio P. Solano. The identical informations read as of the investigating prosecutor. He considered the
follows: reinvestigation as terminated, and recommended the
prompt arraignment and trial of the accused. 9
That in Quezon City, Metro Manila and
within the jurisdiction of this Honorable On September 20, 1994, the trial court (Branch No. 105)
Court and upon verification and audit arraigned accused Petronila C. Tupaz in Criminal Case
conducted by the Bureau of Internal No. Q-91-17321, and she pleaded not guilty to the
Revenue on the 1979 corporate annual information therein.
income tax return and financial
statements of El Oro Engravers Corp., On October 17, 1994, the prosecution filed with the
with office address at 809 Epifanio delos Regional Trial Court, Quezon City, Branch 105, a motion
Santos Avenue, Quezon City, Metro for leave to file amended information in Criminal Case
Manila, it was ascertained that said No. Q91-17321 to allege expressly the date of the
corporation was found liable to pay the commission of the offense, to wit: on or about August
amount of P2,369,085.46, as deficiency 1984 or subsequently thereafter. Despite opposition of
corporate income tax for the year 1979 the accused, on March 2, 1995, the trial court granted
and that, despite demand of the the motion and admitted the amended
payment of the aforesaid deficiency tax information. 10 Petitioner was not re-arraigned on the
by the Bureau of Internal Revenue and amended information. However, the amendment was
received by said corporation, which only on a matter of form. 11 Hence, there was no need
demand has already become final, said to re-arraign the accused. 12
El Oro Engravers Corp., through above-
named accused, the responsible On December 5, 1995, accused filed with the Regional
corporate-officers of said corporation, Trial Court, Quezon City, Branch 105, a motion for leave
failed and refused, despite repeated to file and admit motion for reinvestigation. The trial
demands, and still fail and refuse to pay court granted the motion in its order dated December
said tax liability. 13, 1995.

CONTRARY TO LAW. 5 Prior to this, on October 18, 1995, Judge Ulep issued an
order directing the prosecution to withdraw the
On September 25, 1991, both accused posted bail bond information in Criminal Case No. Q-91-17322, pending
in the sum of P1,000.00 each, for their provisional before Regional Trial Court, Quezon City, Branch 86,
liberty. after discovering that said information was identical to
the one filed with Regional Trial Court, Quezon City,
On November 6, 1991, accused filed with the Regional Branch 105. On April 16, 1996, State Prosecutor Alfredo
Trial Court, Quezon City, Branch 86, a motion to P. Agcaoili filed with the trial court a motion to
dismiss/quash 6 information (Q-91-17322) for the withdraw information in Criminal Case No. Q-91-17321.
reason that it was exactly the same as the information Prosecutor Agcaoili thought that accused was charged
against the accused pending before RTC, Quezon City, in Criminal Case No. Q-91-17321, for nonpayment of
Branch 105 (Q-91-17321). However, on November 11, deficiency contractor's tax, but found that accused was
1991, Judge Solano denied the motion. 7 exempted from paying said tax.

In the meantime, on July 25, 1993, Jose J. Tupaz, Jr. died On May 15, 1996, Prosecutor Agcaoili filed with the
in Quezon City. Regional Trial Court, Quezon City, Branch 86, a motion
for consolidation of Criminal Case No. Q-91-17322 with with the Department of Justice only on June 8, 1989,
Criminal Case No. Q-91-17321 pending before the and the offense was committed in April 1980 when she
Regional Trial Court, Quezon City, Branch 105. On the filed the income tax return covering taxable year 1979.
same date, the court 13 granted the motion for
consolidation. Petitioner was charged with nonpayment of deficiency
corporate income tax for the year 1979, which tax
On May 20, 1996, Judge Ulep of Regional Trial Court, return was filed in April 1980. On July 16, 1984, the
Quezon City, Branch 105, granted the motion for Bureau of Internal Revenue (BIR) issued a notice of
withdrawal of the information in Criminal Case No. Q- assessment. Petitioner contends that the July 16, 1984
91-17321 and dismissed the case, as prayed for by the assessment was made out of time.
prosecution.
Petitioner avers that while Sections 318 and 319 of the
On May 28, 1996, Prosecutor Agcaoili filed with the NIRC of 1977 provide a five (5) year period of limitation
Regional Trial Court, Quezon City, Branch 105, a motion for the assessment and collection of internal revenue
to reinstate information in Criminal Case Q-91- taxes, Batas Pambansa Blg. 700, enacted on February
17321, 14 stating that the motion to withdraw 22, 1984, amended the two sections and reduced the
information was made through palpable mistake, and period to three (3) years. As provided under B.P. Blg.
was the result of excusable neglect. He thought that 700, the BIR has three (3) years to assess the tax
Criminal Case No. Q-91-17321 was identical to Criminal liability, counted from the last day of filing the return, or
Case No. Q-90-12896, wherein accused was charged from the date the return is filed, whichever comes later.
with nonpayment of deficiency contractor's tax, Since the tax return was filed in April 1980, the
amounting to P346,879.29. assessment made on July 16, 1984 was beyond the
three (3) year prescriptive period.
Over the objections of accused, on August 6, 1996, the
Regional Trial Court, Quezon City, Branch 105, granted Petitioner submits that B.P. Blg. 700 must be given
the motion and ordered information in Criminal Case retroactive effect since it is favorable to the accused.
No. Q-91-17321 reinstated. 15 On September 24, 1996, Petitioner argues that Article 22 of the Revised Penal
accused filed with the trial court a motion for Code, regarding the allowance of retroactive application
reconsideration. On December 4, 1996, the trial court of penal laws when favorable to the accused shall apply
denied the motion. in this case.

Hence, this petition. The Solicitor General, in his comment, maintains that
the prescriptive period for assessment and collection of
On July 9, 1997, we required respondents to comment petitioner's deficiency corporate income tax was five (5)
on the petition within ten (10) days from notice. On years. The Solicitor General asserts that the shortened
October 10, 1997, the Solicitor General filed his period of three (3) years provided under B.P. Blg. 700
comment. 16 applies to assessments and collections of internal
revenue taxes beginning taxable year 1984. Since the
On October 26, 1998, the Court resolved to give due deficiency corporate income tax was for taxable year
course to the petition and required the parties to file 1979, then petitioner was still covered by the five (5)
their respective memoranda within twenty (20) days year period. Thus, the July 16, 1984 tax assessment was
from notice. The parties have complied. made within the prescribed period.1âwphi1.nêt

Petitioner submits that respondent judge committed a At the outset, it must be stressed that "internal revenue
grave abuse of discretion in reinstating the information taxes are self-assessing and no further assessment by
in Criminal Case No. Q-91-17321 because (a) the offense the government is required to create the tax liability. An
has prescribed; or (b) it exposes her to double jeopardy. assessment, however, is not altogether inconsequential;
it is relevant in the proper pursuit of judicial and extra
As regards the issue of prescription, petitioner contends judicial remedies to enforce taxpayer liabilities and
that: (a) the period of assessment has prescribed, certain matters that relate to it, such as the imposition
applying the three (3) year period provided under Batas of surcharges and interest, and in the application of
Pambansa No. 700; (b) the offense has prescribed since statues of limitations and in the establishment of tax
the complaint for preliminary investigation was filed liens." 17
An assessment contains not only a computation of tax 1984. When petitioner failed to question or protest the
liabilities, but also a demand for payment within a deficiency assessment thirty (30) days therefrom, or on
prescribed period. The ultimate purpose of assessment August 16, 1984, it became final and unappealable.
is to ascertain the amount that each taxpayer is to Consequently, it was from this period that the
pay. 18 An assessment is a notice to the effect that the prescriptive period of five (5) years commenced. Thus,
amount therein stated is due as tax and a demand for the complaint filed with the Department of Justice on
payment thereof. 19 Assessments made beyond the June 8, 1989 was within the prescribed period.
prescribed period would not be binding on the
taxpayer. 20 We agree with the Solicitor General that the offense has
not prescribed. Petitioner was charged with failure to
We agree with the Solicitor General that the shortened pay deficiency income tax after repeated demands by
period of three (3) years prescribed under B.P. Blg. 700 the taxing authority. In Lim, Sr. v. Court of Appeals, 22 we
is not applicable to petitioner. B.P. Blg. 700, effective stated that by its nature the violation could only be
April 5, 1984, specifically states that the shortened committed after service of notice and demand for
period of three years shall apply to assessments and payment of the deficiency taxes upon the taxpayer.
collections of internal revenue taxes beginning taxable Hence, it cannot be said that the offense has been
year 1984. Assessments made on or after April 5, 1984 committed as early as 1980, upon filing of the income
are governed by the five-year period if the taxes tax return. This is so because prior to the finality of the
assessed cover taxable years prior to January 1, assessment, the taxpayer has not committed any
1984. 21 The deficiency income tax under consideration violation for nonpayment of the tax. The offense was
is for taxable year 1979. Thus, the period of assessment committed only after the finality of the assessment
is still five (5) years, under the old law. The income tax coupled with taxpayer's willful refusal to pay the taxes
return was filed in April 1980. Hence, the July 16, 1984 within the allotted period. In this case, when the notice
tax assessment was issued within the prescribed period of assessment was issued on July 16, 1984, the taxpayer
of five (5) years, from the last day of filing the return, or still had thirty (30) days from receipt thereof to protest
from the date the return is filed, whichever comes later. or question the assessment. Otherwise, the assessment
would become final and unappealable. 23 As he did not
Art. 22 of the Revised Penal Code finds no application in protest, the assessment became final and unappealable
this case for the simple reason that the provisions on on August 16, 1984. Consequently, when the complaint
the period of assessment can not be considered as for preliminary investigation was filed with the
penal in nature. Department of Justice on June 8, 1989, the criminal
action was instituted within the five (5) year prescriptive
Petitioner also asserts that the offense has prescribed. period.
Petitioner invokes Section 340 (now 281 of 1997 NIRC)
of the Tax Code which provides that violations of any Petitioner contends that by reinstating the information,
provision of the Code prescribe in five (5) years. the trial court exposed her to double jeopardy. Neither
Petitioner asserts that in this case, it began to run in the prosecution nor the trial court obtained her
1979, when she failed to pay the correct corporate tax permission before the case was dismissed. She was
due during that taxable year. Hence, when the BIR placed in jeopardy for the first time after she pleaded to
instituted criminal proceedings on June 8, 1989, by filing a valid complaint filed before a competent court and
a complaint for violation of the Tax Code with the the case was dismissed without her express consent.
Department of Justice for preliminary investigation it When the trial court reinstated the information
was beyond the prescriptive period of five (5) years. At charging the same offense, it placed her in double
most, the BIR had until 1984 to institute criminal jeopardy.
proceedings.
Petitioner also asserts that the trial court gravely erred
On the other hand, the Solicitor General avers that the when, over her objections, it admitted the amended
information for violation of the Tax Code was filed information. She submits that the amendment is
within the prescriptive period of five (5) years provided substantial in nature, and would place her in double
in Section 340 (now 281 in 1997 NIRC) of the Code. It is jeopardy.
only when the assessment has become final and
unappealable that the five (5) year period commences On the other hand, the Solicitor General contends that
to run. A notice of assessment was issued on July 16, reinstating the information does not violate petitioner's
right against double jeopardy. He asserts that petitioner
induced the dismissal of the complaint when she sought
the reinvestigation of her tax liabilities. By such
inducement, petitioner waived or was estopped from
claiming her right against double jeopardy.

The Solicitor General further contends that,

assuming arguendo that the case was dismissed without
petitioner's consent, there was no valid dismissal of the
case since Prosecutor Agcaoili was under a mistaken
assumption that it was a charge of nonpayment of
contractor's tax.

We sustain petitioner's contention. The reinstatement

of the information would expose her to double
jeopardy. An accused is placed in double jeopardy if he
is again tried for an offense for which he has been
convicted, acquitted or in another manner in which the
indictment against him was dismissed without his
consent. In the instant case, there was a valid complaint
filed against petitioner to which she pleaded not guilty.
The court dismissed the case at the instance of the
prosecution, without asking for accused-petitioner's
consent. This consent cannot be implied or
presumed. 24 Such consent must be expressed as to
have no doubt as to the accused's conformity. 25 As
petitioner's consent was not expressly given, the
dismissal of the case must be regarded as final and with
prejudice to the re-filing of the case. 26 Consequently,
G.R. No. 113459             November 18, 2002
the trial court committed grave abuse of discretion in
reinstating the information against petitioner in
COMMISSIONER OF INTERNAL REVENUE petitioner,
violation of her constitutionally protected right against
vs.
double jeopardy.
JOSEFINA LEAL, respondent.
WHEREFORE, we GRANT the petition. We enjoin the
DECISION
lower court, the Regional Trial Court of Quezon City,
Branch 105, from trying Criminal Case No. Q-91-17321
SANDOVAL-GUTIERREZ, J.:
and order its dismissal. Costs de oficio.
Pursuant to Section 116 of Presidential Decree No.
SO ORDERED.
1158,1 (The National Internal Revenue Code of 1977, as
amended [Tax Code for brevity]), which provides:
Puno, Kapunan and Ynares-Santiago, JJ., concur.
"SEC. 116. Percentage tax on dealers in securities;
Davide, Jr., C.J., pls. see dissenting opinion.
lending investors. – Dealers in securities shall pay a tax
equivalent to six (6%) per centum of their gross income.
Lending investors shall pay a tax equivalent to five (5%)
per cent of their gross income." (emphasis added)

the Commissioner of Internal Revenue, petitioner,

issued Revenue Memorandum Order (RMO) No. 15-91
dated March 11, 1991,2 imposing 5% lending investor’s
tax on pawnshops based on their gross income and
requiring all investigating units of the Bureau of Internal Revised Rules of Court (now 1997 Rules of Civil
Revenue (BIR) to investigate and assess the lending Procedure, as amended), docketed as CA-G.R. SP No.
investor’s tax due from them. The issuance of RMO No. 28824. Petitioner alleged that in denying the motion to
15-91 was an offshoot of petitioner’s evaluation that dismiss, the RTC Judge acted without or in excess of his
the nature of pawnshop business is akin to that of jurisdiction, or with grave abuse of discretion. In its
"lending investors," which term is defined in Section Decision dated December 23, 1993, the Court of
157 (u) of the Tax Code in this wise: Appeals dismissed the petition "for lack of legal
basis"11 and ruled that "the (RTC) order denying the
"(u) Lending investors include all persons who make a motion to dismiss is subject to immediate challenge
practice of lending money for themselves or others at before the Supreme Court (not the Court of Appeals),
interests." which is the sole authority to determine and resolve an
issue purely of law pursuant to Section 5, Article VIII of
Subsequently, petitioner issued Revenue Memorandum the 1987 Constitution."12 Nonetheless, the Court of
Circular (RMC) No. 43-91 dated May 27, Appeals resolved the case on the merits, sustaining the
1992,3 subjecting the pawn ticket to the documentary RTC ruling that the questioned revenue orders are "new
stamp tax as prescribed in Title VII of the Tax Code. additional measures which only Congress is empowered
to impose."13
Adversely affected by those revenue orders, herein
respondent Josefina Leal, owner and operator of Hence, the instant petition for review on certiorari
Josefina’s Pawnshop in San Mateo, Rizal, asked for a under Rule 45 of the Rules of Court raising the following
reconsideration of both RMO No. 15-91 and RMC No. issues:
43-91 but the same was denied with finality by
petitioner in its BIR Ruling No. 221-91 dated October 30, 1. WHETHER THE COURT OF APPEALS HAS
1991.4 JURISDICTION OVER A PETITION FOR
CERTIORARI UNDER RULE 65 OF THE RULES OF
Consequently, on March 18, 1992, respondent filed with COURT WHERE THE AUTHORITY OF THE
the Regional Trial Court (RTC), Branch 75, San Mateo, REGIONAL TRIAL COURT TO REVIEW THE
Rizal, a petition for prohibition, docketed as Civil Case SUBJECT REVENUE ORDERS IS BEING
No. 849-92,5 seeking to prohibit petitioner from QUESTIONED;
implementing the revenue orders.
2. WHETHER IT IS THE RTC OR THE COURT OF
Petitioner, through the Office of the Solicitor General, TAX APPEALS WHICH HAS JURISDICTION OVER
filed a motion to dismiss6 the petition on the ground THE INSTANT CASE.
that the RTC has no jurisdiction to review the
questioned revenue orders and to enjoin their Anent the first issue, petitioner contends that the Court
implementation. Petitioner contends that the subject of Appeals has "original jurisdiction to issue writs of
revenue orders were issued pursuant to his power "to mandamus, prohibition, certiorari, habeas corpus and
make rulings or opinions in connection with the quo warranto, and auxiliary writs or processes, whether
implementation of the provisions of internal revenue or not in aid of its appellate jurisdiction," pursuant to
laws."7 Thus, the case falls within the exclusive appellate Section 9(1) of Batas Pambansa Blg. 129. Petitioner thus
jurisdiction of the Court of Tax Appeals, citing Section 7 claims that his petition for certiorari filed with the Court
(1) of Republic Act No. 1125.8 of Appeals pursuant to Rule 65 of the Rules of Court is
the proper recourse to assail the RTC order denying his
The RTC, through then Presiding Judge Andres B. Reyes, motion to dismiss.
Jr.,9 issued an order on April 27, 1992 10 denying the
motion to dismiss, holding that the revenue orders are Petitioner’s contention is meritorious. The Court of
not assessments to implement a Tax Code provision, but Appeals erred in holding that it has no jurisdiction over
are "in effect new taxes (against pawnshops) which are petitioner’s special civil action for certiorari under Rule
not provided for under the Code," and which only 65 of the Rules. While this Court exercises original
Congress is empowered to impose. jurisdiction to issue the extraordinary writ of certiorari
(as well as the writs of prohibition, mandamus, quo
Petitioner then filed with the Court of Appeals a petition warranto, and habeas corpus),14 such power is not
for certiorari and prohibition under Rule 65 of the exclusive to this Court but is concurrent with the Court
of Appeals15 and the Regional Trial Courts.16 We for the issuance of the said writs against the first level
reiterate our pronouncement on this issue in Morales (inferior) courts must be filed with the Regional Trial
vs. Court of Appeals:17 Court and those against the latter, with the Court of
Appeals. A direct invocation of this Court’s original
"Under Section 9 (1) of B.P. Blg. 129, the Court of jurisdiction to issue these writs should be allowed only
Appeals has concurrent original jurisdiction with the where there are special and important reasons therefor,
Supreme Court pursuant to Section 5 (1) of Article VIII of specifically and sufficiently set forth in the petition. This
the Constitution and Section 17 (1) of the Judiciary Act is the established policy to prevent inordinate demands
of 1948, and with the Regional Trial Court pursuant to upon the Court’s time and attention, which are better
Section 21 (1) of B.P. Blg. 129 to issue writs of certiorari, devoted to matters within its exclusive jurisdiction, and
mandamus, prohibition, habeas corpus, and quo to prevent further over-crowding of the Court’s
warranto. These are original actions, not modes of docket.18 Thus, it was proper for petitioner to institute
appeals. the special civil action for certiorari with the Court of
Appeals assailing the RTC order denying his motion to
"Since what the petitioner filed in CA-G.R. SP No. 40670 dismiss based on lack of jurisdiction.
was a special civil action for certiorari under Rule 65,
the original jurisdiction of the Court of Appeals thereon While the Court of Appeals correctly took cognizance of
is beyond doubt. the petition for certiorari, however, let it be stressed
that the jurisdiction to review the rulings of the
"This error of the Court of Appeals was due to its Commissioner of Internal Revenue pertains to the Court
misapplication of Section 5 (2) (c) of Article VIII of the of Tax Appeals, not to the RTC.
Constitution and of that portion of Section 17 of the
Judiciary Act of 1948 vesting upon the Supreme Court The questioned RMO No. 15-91 and RMC No. 43-91 are
exclusive jurisdiction to review, revise, reverse, modify, actually rulings or opinions of the Commissioner
or affirm on certiorari as the law or rules of court may implementing the Tax Code on the taxability of
provide, final judgments and decrees of inferior courts pawnshops. This is clear from petitioner’s RMO No. 15-
in all cases in which the jurisdiction of any inferior court 91, pertinent portion of which reads:
is in issue. It forgot that this constitutional and statutory
provisions pertain to the appellate – not original – "A restudy of P.D. 114 (the Pawnshop Regulation Act)
jurisdiction of the Supreme Court, as correctly shows that the principal activity of pawnshops is lending
maintained by the petitioner. An appellate jurisdiction money at interest and incidentally accepting a ‘pawn’ of
refers to a process which is but a continuation of the personal property delivered by the pawner to the
original suit, not a commencement of a new action, pawnee as security for the loan (Sec. 3, ibid.). Clearly,
such as that of a special civil action for certiorari. The this makes pawnshop business akin to lending investor’s
general rule is that a denial of a motion to dismiss or to business activity which is broad enough to encompass
quash in criminal cases is interlocutory and cannot be the business of lending money at interest by any person
the subject of an appeal or of a special civil action for whether natural or juridical. Such being the case,
certiorari. Nevertheless, this Court has allowed a special pawnshops shall be subject to the 5% lending investor’s
civil action for certiorari where a lower court has acted tax based on their gross income pursuant to Section 116
without or in excess of jurisdiction or with grave abuse of the Tax Code, as amended."19
of discretion in denying a motion to dismiss or to quash.
The petitioner believed that the RTC below did so; Such revenue orders were issued pursuant to
hence, the special civil action for certiorari before the petitioner's powers under Section 245 of the Tax Code,
Court of Appeals appeared to be the proper remedy." which states:
(emphasis added)
"SEC. 245. Authority of the Secretary of Finance to
Such concurrence of original jurisdiction among the promulgate rules and regulations. – The Secretary of
Regional Trial Court, the Court of Appeals and this Finance, upon recommendation of the Commissioner,
Court, however, does not mean that the party seeking shall promulgate all needful rules and regulations for
any of the extraordinary writs has the absolute freedom the effective enforcement of the provisions of this
to file his petition in the court of his choice. The Code.
hierarchy of courts in our judicial system determines the
appropriate forum for these petitions. Thus, petitions
"The authority of the Secretary of Finance to determine This Court, in Rodriguez, etc. vs. Blaquera,
articles similar or analogous to those subject to a rate of etc.,20 ruled:
sales tax under certain category enumerated in Section
163 and 165 of this Code shall be without prejudice to "Plaintiff maintains that this is not an appeal
the power of the Commissioner of Internal Revenue to from a ruling of the Collector of Internal
make rulings or opinions in connection with the Revenue, but merely an attempt to nullify
implementation of the provisions of internal revenue General Circular No. V-148, which does not
laws, including ruling on the classification of articles of adjudicate or settle any controversy, and that,
sales and similar purposes." (emphasis added) accordingly, this case is not within the
jurisdiction of the Court of Tax Appeals.
Under Republic Act No. 1125 (An Act Creating the Court
of Tax Appeals [CTA for brevity]), as amended, such "We find no merit in this pretense. General
rulings of the Commissioner of Internal Revenue are Circular No. V-148 directs the officers charged
appealable to that court, thus: with the collection of taxes and license fees to
adhere strictly to the interpretation given by the
"SEC. 7. Jurisdiction. – The Court of Tax Appeals shall defendant to the statutory provisions
exercise exclusive appellate jurisdiction to review by abovementioned, as set forth in the Circular.
appeal, as herein provided - The same incorporates, therefore, a decision of
the Collector of Internal Revenue (now
(1) Decisions of the Commissioner of Internal Commissioner of Internal Revenue) on the
Revenue in cases involving disputed manner of enforcement of the said statute, the
assessments, refunds of internal revenue taxes, administration of which is entrusted by law to
fees or other charges, penalties imposed in the Bureau of Internal Revenue. As such, it
relation thereto, or other matters arising under comes within the purview of Republic Act No.
the National Internal Revenue Code or other 1125, Section 7 of which provides that the Court
laws or part of law administered by the Bureau of Tax Appeals ‘shall exercise exclusive
of Internal Revenue; appellate jurisdiction to review by appeal x x x
decisions of the Collector of Internal Revenue in
x x x x x x x x x." (emphasis added) x x x matters arising under the National Internal
Revenue Code or other law or part of the law
"SEC. 11. Who may appeal; effect of appeal. – administered by the Bureau of Internal
Any person, association or corporation Revenue.’ x x x." (emphasis added)
adversely affected by a decision or ruling of the
Commissioner of Internal Revenue, or the In the same vein, we held in Meralco Securities
Commissioner of Customs or any provincial or Corporation vs. Savellano,21 thus:
city Board of Assessment Appeals may file an
appeal in the Court of Tax Appeals within thirty "Respondent judge has no jurisdiction to take
days after the receipt of such decision or ruling. cognizance of the case because the subject matter
thereof clearly falls within the scope of cases now
x x x x x x x x x." (emphasis added) exclusively within the jurisdiction of the Court of Tax
Appeals. Section 7 of Republic Act No. 1125, enacted
"SEC. 18. x x x. – No judicial proceedings against June 16, 1954, granted to the Court of Tax Appeals
the Government involving matters arising under exclusive appellate jurisdiction to review by appeal,
the National Internal Revenue Code, the among others, decisions of the Commissioner of
Customs Law or the Assessment Law shall be Internal Revenue in cases involving disputed
maintained, except as herein provided, until assessments, refunds of internal revenue taxes, fees or
and unless an appeal has been previously filed other charges, penalties imposed in relation thereto, or
with the Court of Tax Appeals and disposed of in other matters arising under the National Internal
accordance with the provisions of this Act. Revenue Code or other law or part of law administered
by the Bureau of Internal Revenue. The law transferred
x x x x x x x x x." (emphasis added) to the Court of Tax Appeals jurisdiction over all cases
involving said assessments previously cognizable by
Courts of First Instance, and even those already pending
in said courts. The question of whether of not to impose BENGZON, J.P., J.:
a deficiency tax assessment on Meralco Securities
Corporation undoubtedly comes within the purview of Don Pedro Roxas and Dona Carmen Ayala, Spanish
the words "disputed assessments" or of "other matters subjects, transmitted to their grandchildren by
arising under the National Internal Revenue Code…." In hereditary succession the following properties:
the case of Blaquera, etc. vs. Rodriguez, etc.(103 Phil.
511 [1958]), this Court ruled that ‘the determination of (1) Agricultural lands with a total area of 19,000
the correctness or incorrectness of a tax assessment to hectares, situated in the municipality of
which the taxpayer is not agreeable, falls within the Nasugbu, Batangas province;
jurisdiction of the Court of Tax Appeals and not of the
Court of First Instance, for under the provisions of (2) A residential house and lot located at Wright
Section 7 of Republic Act No. 1125, the Court of Tax St., Malate, Manila; and
Appeals has exclusive appellate jurisdiction to review,
on appeal, any decision of the Collector of Internal (3) Shares of stocks in different corporations.
Revenue in cases involving disputed assessments and
other matters arising under the National Internal To manage the above-mentioned properties, said
Revenue Code or other law or part of law administered children, namely, Antonio Roxas, Eduardo Roxas and
by the Bureau of Internal Revenue.’" Jose Roxas, formed a partnership called Roxas y
Compania.
Here, as earlier mentioned, respondent Josefina Leal,
being a pawnshop owner, is assailing the revenue AGRICULTURAL LANDS
orders imposing 5% lending investor’s tax on
pawnshops issued by petitioner. Clearly then, she At the conclusion of the Second World War, the tenants
should have filed her petition with the Court of Tax who have all been tilling the lands in Nasugbu for
Appeals, not the RTC. Indeed, the Court of Appeals generations expressed their desire to purchase from
erred in holding that the RTC order should have been Roxas y Cia. the parcels which they actually occupied.
challenged before this Court. For its part, the Government, in consonance with the
constitutional mandate to acquire big landed estates
WHEREFORE, the petition is GRANTED. Accordingly: (1) and apportion them among landless tenants-farmers,
the assailed Decision dated December 23, 1993 of the persuaded the Roxas brothers to part with their
Court of Appeals in CA-G.R. SP No. 28824 is SET ASIDE; landholdings. Conferences were held with the farmers
(2) the Order dated April 27, 1992 and the Writ of in the early part of 1948 and finally the Roxas brothers
Preliminary Injunction dated May 21, 1992 both issued agreed to sell 13,500 hectares to the Government for
by the RTC, Branch 75, San Mateo, Rizal in Civil Case No. distribution to actual occupants for a price of
849-92, are declared NULL and VOID for having been P2,079,048.47 plus P300,000.00 for survey and
issued without jurisdiction; and (3) Civil Case No. 849-92 subdivision expenses.
is ordered DISMISSED.
It turned out however that the Government did not
SO ORDERED. have funds to cover the purchase price, and so a special
arrangement was made for the Rehabilitation Finance
Corporation to advance to Roxas y Cia. the amount of
P1,500,000.00 as loan. Collateral for such loan were the
G.R. No. L-25043             April 26, 1968 lands proposed to be sold to the farmers. Under the
arrangement, Roxas y Cia. allowed the farmers to buy
ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., the lands for the same price but by installment, and
in their own respective behalf and as judicial co- contracted with the Rehabilitation Finance Corporation
guardians of JOSE ROXAS, petitioners, to pay its loan from the proceeds of the yearly
vs. amortizations paid by the farmers.
COURT OF TAX APPEALS and COMMISSIONER OF
INTERNAL REVENUE, respondents. In 1953 and 1955 Roxas y Cia. derived from said
installment payments a net gain of P42,480.83 and
Leido, Andrada, Perez and Associates for petitioners. P29,500.71. Fifty percent of said net gain was reported
Office of the Solicitor General for respondents. for income tax purposes as gain on the sale of capital
asset held for more than one year pursuant to Section considered the partnership as engaged in the business
34 of the Tax Code. of real estate, hence, 100% of the profits derived
therefrom was taxed.
RESIDENTIAL HOUSE
The following deductions were disallowed:
During their bachelor days the Roxas brothers lived in
the residential house at Wright St., Malate, Manila,
which they inherited from their grandparents. After ROXAS Y CIA.:
Antonio and Eduardo got married, they resided
1953
somewhere else leaving only Jose in the old house. In
fairness to his brothers, Jose paid to Roxas y Cia. rentals Tickets for Banquet in honor of
for the house in the sum of P8,000.00 a year. P 40.00
          S. Osmeña

ASSESSMENTS Gifts of San Miguel beer 28.00

Contributions to —
On June 17, 1958, the Commissioner of Internal
Revenue demanded from Roxas y Cia the payment of Philippine Air Force Chapel 100.00
real estate dealer's tax for 1952 in the amount of
P150.00 plus P10.00 compromise penalty for late Manila Police Trust Fund 150.00
payment, and P150.00 tax for dealers of securities for
Philippines Herald's fund for Manila's
1952 plus P10.00 compromise penalty for late payment.
neediest families 100.00
The assessment for real estate dealer's tax was based
on the fact that Roxas y Cia. received house rentals from
1955
Jose Roxas in the amount of P8,000.00. Pursuant to Sec.
194 of the Tax Code, an owner of a real estate who Contributions to Contribution to
derives a yearly rental income therefrom in the amount           Our Lady of Fatima Chapel, FEU 50.00
of P3,000.00 or more is considered a real estate dealer
and is liable to pay the corresponding fixed tax. ANTONIO ROXAS:
1953
The Commissioner of Internal Revenue justified his
demand for the fixed tax on dealers of securities against Contributions to —
Roxas y Cia., on the fact that said partnership made Pasay City Firemen Christmas Fund
profits from the purchase and sale of securities. 25.00
Pasay City Police Dept. X'mas fund 50.00
In the same assessment, the Commissioner assessed
deficiency income taxes against the Roxas Brothers for 1955
the years 1953 and 1955, as follows:
Contributions to —

1953 1955 Baguio City Police Christmas fund 25.00

Antonio Roxas P7,010.00 P5,813.00 Pasay City Firemen Christmas fund 25.00
Eduardo Roxas 7,281.00 5,828.00
Jose Roxas 6,323.00 5,588.00 Pasay City Police Christmas fund 50.00

The deficiency income taxes resulted from the inclusion EDUARDO ROXAS:
as income of Roxas y Cia. of the unreported 50% of the 1953
net profits for 1953 and 1955 derived from the sale of
the Nasugbu farm lands to the tenants, and the Contributions to —
disallowance of deductions from gross income of Hijas de Jesus' Retiro de Manresa
various business expenses and contributions claimed by 450.00
Roxas y Cia. and the Roxas brothers. For the reason that Philippines Herald's fund for Manila's
Roxas y Cia. subdivided its Nasugbu farm lands and sold neediest families
them to the farmers on installment, the Commissioner 100.00
 1955 The Commissioner of Internal Revenue contends that
Roxas y Cia. could be considered a real estate dealer
Contributions to Philippines because it engaged in the business of selling real estate.
          Herald's fund for Manila's The business activity alluded to was the act of
          neediest families 120.00 subdividing the Nasugbu farm lands and selling them to
JOSE ROXAS: the farmers-occupants on installment. To bolster his
stand on the point, he cites one of the purposes of
1955 Roxas y Cia. as contained in its articles of partnership,
quoted below:
Contributions to Philippines
          Herald's fund for Manila's
4. (a) La explotacion de fincas urbanes
          neediest families 120.00
pertenecientes a la misma o que pueden
pertenecer a ella en el futuro, alquilandoles por
The Roxas brothers protested the assessment but los plazos y demas condiciones, estime
inasmuch as said protest was denied, they instituted an convenientes y vendiendo aquellas que a juicio
appeal in the Court of Tax Appeals on January 9, 1961. de sus gerentes no deben conservarse;
The Tax Court heard the appeal and rendered judgment
on July 31, 1965 sustaining the assessment except the The above-quoted purpose notwithstanding, the
demand for the payment of the fixed tax on dealer of proposition of the Commissioner of Internal Revenue
securities and the disallowance of the deductions for cannot be favorably accepted by Us in this isolated
contributions to the Philippine Air Force Chapel and transaction with its peculiar circumstances in spite of
Hijas de Jesus' Retiro de Manresa. The Tax Court's the fact that there were hundreds of vendees. Although
judgment reads: they paid for their respective holdings in installment for
a period of ten years, it would nevertheless not make
WHEREFORE, the decision appealed from is the vendor Roxas y Cia. a real estate dealer during the
hereby affirmed with respect to petitioners ten-year amortization period.
Antonio Roxas, Eduardo Roxas, and Jose Roxas
who are hereby ordered to pay the respondent It should be borne in mind that the sale of the Nasugbu
Commissioner of Internal Revenue the amounts farm lands to the very farmers who tilled them for
of P12,808.00, P12,887.00 and P11,857.00, generations was not only in consonance with, but more
respectively, as deficiency income taxes for the in obedience to the request and pursuant to the policy
years 1953 and 1955, plus 5% surcharge and 1% of our Government to allocate lands to the landless. It
monthly interest as provided for in Sec. 51(a) of was the bounden duty of the Government to pay the
the Revenue Code; and modified with respect agreed compensation after it had persuaded Roxas y
to the partnership Roxas y Cia. in the sense that Cia. to sell its haciendas, and to subsequently subdivide
it should pay only P150.00, as real estate them among the farmers at very reasonable terms and
dealer's tax. With costs against petitioners. prices. However, the Government could not comply
with its duty for lack of funds. Obligingly, Roxas y Cia.
Not satisfied, Roxas y Cia. and the Roxas brothers shouldered the Government's burden, went out of its
appealed to this Court. The Commissioner of Internal way and sold lands directly to the farmers in the same
Revenue did not appeal. way and under the same terms as would have been the
case had the Government done it itself. For this
The issues: magnanimous act, the municipal council of Nasugbu
passed a resolution expressing the people's gratitude.
(1) Is the gain derived from the sale of the
Nasugbu farm lands an ordinary gain, hence The power of taxation is sometimes called also the
100% taxable? power to destroy. Therefore it should be exercised with
caution to minimize injury to the proprietary rights of a
(2) Are the deductions for business expenses taxpayer. It must be exercised fairly, equally and
and contributions deductible? uniformly, lest the tax collector kill the "hen that lays
the golden egg". And, in order to maintain the general
(3) Is Roxas y Cia. liable for the payment of the public's trust and confidence in the Government this
fixed tax on real estate dealers? power must be used justly and not treacherously. It
does not conform with Our sense of justice in the Tax Code. It should be noted however that the
instant case for the Government to persuade the contributions were not made to the Philippines Herald
taxpayer to lend it a helping hand and later on to but to a group of civic spirited citizens organized by the
penalize him for duly answering the urgent call. Philippines Herald solely for charitable purposes. There
is no question that the members of this group of citizens
In fine, Roxas y Cia. cannot be considered a real estate do not receive profits, for all the funds they raised were
dealer for the sale in question. Hence, pursuant to for Manila's neediest families. Such a group of citizens
Section 34 of the Tax Code the lands sold to the farmers may be classified as an association organized exclusively
are capital assets, and the gain derived from the sale for charitable purposes mentioned in Section 30(h) of
thereof is capital gain, taxable only to the extent of the Tax Code.
50%.
Rightly, the Commissioner of Internal Revenue
DISALLOWED DEDUCTIONS disallowed the contribution to Our Lady of Fatima
chapel at the Far Eastern University on the ground that
Roxas y Cia. deducted from its gross income the amount the said university gives dividends to its stockholders.
of P40.00 for tickets to a banquet given in honor of Located within the premises of the university, the
Sergio Osmena and P28.00 for San Miguel beer given as chapel in question has not been shown to belong to the
gifts to various persons. The deduction were claimed as Catholic Church or any religious organization. On the
representation expenses. Representation expenses are other hand, the lower court found that it belongs to the
deductible from gross income as expenditures incurred Far Eastern University, contributions to which are not
in carrying on a trade or business under Section 30(a) of deductible under Section 30(h) of the Tax Code for the
the Tax Code provided the taxpayer proves that they reason that the net income of said university injures to
are reasonable in amount, ordinary and necessary, and the benefit of its stockholders. The disallowance should
incurred in connection with his business. In the case at be sustained.
bar, the evidence does not show such link between the
expenses and the business of Roxas y Cia. The findings Lastly, Roxas y Cia. questions the imposition of the real
of the Court of Tax Appeals must therefore be estate dealer's fixed tax upon it, because although it
sustained. earned a rental income of P8,000.00 per annum in
1952, said rental income came from Jose Roxas, one of
The petitioners also claim deductions for contributions the partners. Section 194 of the Tax Code, in
to the Pasay City Police, Pasay City Firemen, and Baguio considering as real estate dealers owners of real estate
City Police Christmas funds, Manila Police Trust Fund, receiving rentals of at least P3,000.00 a year, does not
Philippines Herald's fund for Manila's neediest families provide any qualification as to the persons paying the
and Our Lady of Fatima chapel at Far Eastern University. rentals. The law, which states: 1äwphï1.ñët

The contributions to the Christmas funds of the Pasay . . . "Real estate dealer" includes any person
City Police, Pasay City Firemen and Baguio City Police engaged in the business of buying, selling,
are not deductible for the reason that the Christmas exchanging, leasing or renting property on his
funds were not spent for public purposes but as own account as principal and holding himself
Christmas gifts to the families of the members of said out as a full or part-time dealer in real estate
entities. Under Section 39(h), a contribution to a or as an owner of rental property or properties
government entity is deductible when used exclusively rented or offered to rent for an aggregate
for public purposes. For this reason, the disallowance amount of three thousand pesos or more a year:
must be sustained. On the other hand, the contribution . . . (Emphasis supplied) .
to the Manila Police trust fund is an allowable deduction
for said trust fund belongs to the Manila Police, a is too clear and explicit to admit construction. The
government entity, intended to be used exclusively for findings of the Court of Tax Appeals or, this point is
its public functions. sustained.1äwphï1.ñët

The contributions to the Philippines Herald's fund for To Summarize, no deficiency income tax is due for 1953
Manila's neediest families were disallowed on the from Antonio Roxas, Eduardo Roxas and Jose Roxas. For
ground that the Philippines Herald is not a corporation 1955 they are liable to pay deficiency income tax in the
or an association contemplated in Section 30 (h) of the
sum of P109.00, P91.00 and P49.00, respectively,
computed as follows: * Net taxable income
Tax Due P147,250.00
ANTONIO ROXAS
Tax paid 147,159.00
Net income per return
Add: 1/3 share, profits in Roxas y Cia. P 153,249.15
Deficiency P91.00
Less amount declared 146,135.46 ===========
JOSE ROXAS
Amount understated P 7,113.69
Net income per return
Contributions disallowed 115.00
Add: 1/3 share, profits in Roxas y Cia. P153,429.15
Less amount reported 146,135.46
P 7,228.69
Less 1/3 share of contributions
Amount understated 7,113.69
amounting to P21,126.06 disallowed
from partnership but allowed to Less 1/3 share of contributions
partners 7,042.02 disallowed from partnership but
allowed as deductions to partners 7,042.02
Net income per review
Net income per review
Less: Exemptions
Less: Exemption
Net taxable income
Net income subject to tax
Tax due 154,169.00
Tax due P102,763.00
Tax paid 154,060.00
Tax paid 102,714.00
Deficiency P 109.00
========== Deficiency P 49.00
===========
EDUARDO ROXAS

Net income per return WHEREFORE, the decision appealed from is modified.
Roxas y Cia. is hereby ordered to pay the sum of
Add: 1/3 share, profits in Roxas y Cia P 153,249.15 P150.00 as real estate dealer's fixed tax for 1952, and
Antonio Roxas, Eduardo Roxas and Jose Roxas are
Less profits declared 146,052.58 ordered to pay the respective sums of P109.00, P91.00
and P49.00 as their individual deficiency income tax all
Amount understated P 7,196.57 corresponding for the year 1955. No costs. So ordered.

Less 1/3 share in contributions

amounting to P21,126.06 disallowed
from partnership but allowed to
partners 7,042.02

Net income per review

Less: Exemptions
 In the first, L-24796, the corresponding government
officials seek — on certiorari and prohibition — to annul
the order and writ of execution issued by the Court of
First Instance of Bulacan in its Civil Case 3035-M
allowing Pinagcamaligan Indo-Agro Development
Corporation, Inc. (Piadeco, for short) to haul its logs in
the area hereinafter to be mentioned.

In the second, L-25459, it was Piadeco's turn to ask —

on prohibition and injunction — for a ruling that
G.R. No. L-24796           June 28, 1968 respondent government officials are "without authority
and jurisdiction to stop logging operations, construction
DIRECTOR OF FORESTRY, FOREST STATION WARDEN, of the roads, cutting, gathering and removing of timber
DISTRICT 13, BUREAU OF FORESTRY, BOARD OF and other forest products" from said corporation's
DIRECTORS, NATIONAL WATERWORKS AND private woodland area.
SEWERAGE AUTHORITY 1 and CHIEF OF STAFF, ARMED
FORCES OF THE PHILIPPINES, petitioners, Because of their interrelation, the two case are here
vs. jointly considered.
HON. EMMANUEL M. MUÑOZ, as Judge of the Court of
First Instance of Bulacan, Branch I, the SHERIFF OF THE The following undisputed facts control:
PROVINCE of BULACAN, and PINAGCAMALIGAN INDO-
AGRO DEVELOPMENT CORPORATION, Piadeco claims to be the owner of Some 72,000
INC., respondents. hectares of land 3 located in the municipalities of Angat,
Norzagaray and San Jose del Monte, province of
----------------------------- Bulacan, and in Antipolo and Montalban, province of
Rizal. Piadeco's evidence of ownership consists of Titulo
G.R. No. L-25459           June 28, 1968 de Propiedad  No. 4136, dated April 25, 1894,4 and a
deed of absolute sale of July 12, 1962, in its favor.
PINAGCAMALIGAN INDO-AGRO DEVELOPMENT Piadeco applied for registration as  private  woodland
CORPORATION, INC., petitioner, some 10,000 hectares of this land. The Bureau of
vs. Forestry, on December 4, 1963, issued in Piadeco's
HON. MACARIO PERALTA, JR., in his capacity as the name Certificate of Private Woodland Registration No.
Secretary of National Defense; PWR 2065-New, covering but a portion of the land an
HON. ENETERIO DE JESUS, in his capacity as aggregate area of 4,400 hectares and an average stand
Undersecretary of National Defense; of 87.20 cubic meters, situated in the municipalities of
GENERAL RIGOBERTO ATIENZA, in his capacity as the Angat, Norzagaray, and San Jose del Monte, all of the
Chief of Staff; 2 Armed Forces of the Philippines, province of Bulacan, and Montalban, in Rizal. It was to
COLONEL MANUEL V. REYES, in his capacity as the expire on December 31, 1964. By virtue of the
Judge Advocate General, Armed Forces of the registration certificate, Piadeco conducted logging
Philippines; operations..
and the TASK FORCES COMMANDER, Task Force
Preserve (Tabak Division), 1st Infantry Division, Fort The controversy in the these cases began on April 11,
Magsaysay, Nueva Ecija, respondents. 1964, when Acting Director of Forestry Apolonio F.
Rivera issued an order cancelling PWR No. 2065-New.
Office of the Solicitor General for petitioner Director of He required Piadeco to surrender the original certificate
Forestry, et al. to him. Ground for this cancellation was that Piadeco
Gualberto Cruz for respondent Pinagcamaligan Indo- had violated forestry rules and regulations for cutting
Agro Development Corporation. trees within the Angat and Marikina Watershed
Reservations, expressly excluded from the said
SANCHEZ, J.: certificate.5

Two original actions involving divers legal questions are On April 14, 1964, Forest Station Warden Reinaldo B.
now before this Court. Marquez, District 13, Bureau of Forestry, wrote Piadeco
requesting the latter to desist, effective the same day, of causing them to dry up to the prejudice and
April 14, 1964, from conducting its logging operation irreparable injury of the inhabitants thereof. Piadeco file
inside or outside the area covered by PWR 2065-New, written opposition on May 13, 1964.
and to refrain from removing logs already cut unless
they have been scaled and properly invoiced by forestry On May 14, 1964, acting on the aforesaid motion for
officers. reconsideration and opposition thereto, the judge
below ruled that although Piadeco is entitled to
Previously, on April 10, 1964, Nawasa's board of injunction, the continuance thereof would cause great
directors advised Piadeco, by letter, of the revocation of damage to the government, while Piadeco can be fully
the 1964 grant to Piadeco, of a right of way from a compensated for any damages Piadeco may suffer
barrio in Bosoboso, Antipolo, to Montalban, Rizal, as an because of the dissolution thereof. That bond, however,
access road to its logging concession under PWR 2061. was not filed by the forestry officials.

Offshot of the foregoing is Piadeco's petition On July 13, 1964, upon Piadeco's May 5 motion earlier
for certiorari and prohibition with preliminary adverted to, the forestry officials were declared in
injunction, lodged on April 17, 1964 with the Court of default.
First Instance of Bulacan.6 This petition was directed
against the Director of Forestry, Forest Station Warden On July 24, 1964, said forestry officials filed a verified
Marquez and Nawasa, essentially upon the averment motion to set aside the default order and to admit their
that their acts heretofore narrated were "all precipitate, answer thereto attached. They pleaded excusable
arbitrary, whimsical and capricious." On the same day, neglect and/or oversight of the clerk of the records of
April 17, 1964, Judge Emmanuel M. Muñoz of the the Records section of the Bureau of Forestry.
Bulacan court directed the government authorities to
show cause why preliminary injunction should not issue. On July 29, 1964, the court shunted aside the foregoing
motion for the reason that their six days' delay was not
On May 4, 1964, over the Director of Forestry's excusable and their answer was prepared only after
opposition, the judge ordered the issuance — upon a three days from their receipt of the order of default. A
P10,000-bond — of a writ of preliminary injunction motion for reconsideration registered by the forestry
restraining the Director of Forestry, the Forest Station officials on August 12, 1964 was unavailing. The court
Warden and Nawasa from carrying out and executing below struck down that motion on September 4, 1964.
the April 10, 1964 revocation by Nawasa of Piadeco's
right of way, the April 11, 1964 order of the Director of Thus it is, that Piadeco submitted evidence ex parte to
Forestry, and the April 14, 1964 directive of the Forest the court below against the Director of Forestry and the
Station Warden, heretofore mentioned. Forest Station Warden.

On May 5, 1964, Piadeco moved to declare the forestry Piadeco had, in the meantime, entered into an amicable
officials in default for failure to answer its petition on settlement with Nawasa whereby Piadeco's case against
time. Nawasa was withdrawn, the right of way granted by
Nawasa to Piadeco remaining revoked and cancelled;
On May 6, 1964, unaware of Piadeco's May 5 motion, and Nawasa's counterclaim against Piadeco was also
the forestry officials, upon a motion dated April 29, withdrawn in consideration of P1,651.59 paid by
1964, asked the Bulacan court to dismiss Piadeco's Piadeco to Nawasa, representing the former's liabilities
petition upon the averments that said court had no to the latter.
jurisdiction over their persons or the subject matter of
the petition, and that administrative remedies have not On December 29, 1964, the court below rendered
yet been exhausted by Piadeco. On the same date, too, judgment. It approved Piadeco's compromise
but in a separate motion, said forestry official asked for agreement with Nawasa. It held that Piadeco was
a reconsideration of the lower court's order granting the  owner of the land in question; that its operation
preliminary injunction, bottomed upon their charge that was not in violation of forestry rules and regulations;
the illegal cutting of trees by Piadeco inside the Angat that aside from its regulation certificate, Piadeco was
and Marikina Watershed Reservations — which are the permitted by Nawasa thru the latter's Resolution 1050,
main source of water supply of the City of Manila and Section of 1963, to conduct selective logging within the
its surrounding towns and cities — poses a grave danger Angat-Marikina Watershed upon payment of P2.00 for
every cubic meter of timber classified in the first group logging operations including the hauling of about 600
and P1.75 belonging to the second group; that similar pieces (unscaled) and 1,000 pieces of mixed (scaled and
permits were issued to other individuals by the Director unscaled) timber from the log ponds.
of Forestry with the acquiescence of Nawasa; that
Piadeco's logging under Resolution 1050 aforesaid could On May 12, 1965, the Bulacan court presided over
not be contrary to forestry rules and regulations; and temporarily by Judge Ricardo C. Puno set Piadeco's
that, upon the doctrine laid down in Santiago vs. motion for execution for hearing on May 27, 1965.
Basilan Lumber Co., L-15532, October 31, 1963, even if Before the day of the hearing arrived, however, Piadeco
Piadeco's private woodland was unregistered, it still withdrew its ex parte motion for execution with the
retains its inherent "rights of ownership, among which manifestation that it would look for a more expeditious
are (its) rights to the fruits of the land and to exclude way or a more appropriate remedy to enable it to haul
any persons from the enjoyment and disposal thereof", the logs before the rains set in. But on May 27, 1965,
its only liability being the payment of surcharges on the Piadeco refiled its motion for execution with Judge
timber severed from the land. Thereupon, the court Muñoz, who had meanwhile resumed his duties.
reinstated the writ of preliminary injunction earlier
issued and made it permanent, with costs.. On June 1, 1965, Judge Muñoz granted Piadeco's
motion. In line therewith, on June 3, 1965, the
Meanwhile, on December 28, 1964, one day before the corresponding writ of execution was issued, directing a
rendition of the judgment just mentioned, Piadeco special sheriff to make effective and execute the
applied for the renewal of its Certificate of Private aforesaid lower court's decision of December 29, 1964.
Woodland Registration PWR 2065-New, which would
expire on the last day of that month. On January 12, Execution notwithstanding, the forestry officials still
1965, in reply thereto, Assistant Director of Forestry J. L. refused to permit Piadeco to haul its logs. Because of
Utleg denied the renewal requested. He informed this, on June 11, 1965, Piadeco asked the court below to
Piadeco that its Titulo de Propiedad 4136 was not declare the forestry officials and those acting under
registerable under Forestry Administrative Order No. them in contempt. On June 30, 1965, the forestry
12-2 which took effect on January 1, 1963. The officials opposed. They averred that Piadeco's
expiration of its registration certificate and the non- registration certificate already expired on December 31,
renewal thereof notwithstanding, Piadeco continued 1964; that despite this expiration, Piadeco continued
logging operations. It was about this time that illegal illegal logging operations, which resulted in the seizure
logging was denounced by some members of Congress of its logs: that after December 31, 1964, the December
thereby attracting national attention. This led to a 29, 1964 decision of the court below became  functus
directive by the President of the Philippines on March 8, officio  and could no longer be executed. Piadeco's
1965 to stop all illegal logging operations. Complying rejoinder of July 1, 1965 was that its registration
therewith, the Secretary of Agriculture and Natural certificate is not expirable and that it is not a license.
Resources wrote the Secretary of National Defense with
the request that units of the Armed Forces of the On July 8, 1965, the judge came out with an order
Philippines be detailed at the areas involved, deputizing declaring that notwithstanding "the expiration of
them agents of the Bureau of Forestry to assist in the petitioner's [Piadeco's] license (?) on December 31,
enforcement of forest laws, rules and regulations, and 1964, their said property remains registered with the
the protection of the forests. The Secretary of National Bureau of Forestry subject only to renewal, in which
Defense, in turn, direct the Chief of Staff of the Armed case it can still pursue its logging operations,
Forces to implement the request. And, the Chief of Staff conditioned upon the payment by it of forest charges."
dispatched at ask force of the army into the Angat area, The judge took into consideration a certificate issued on
which impounded and seized all logs cut by Piadeco and May 4, 1965 by Assistant Director of Forestry J. L. Utleg,
other loggers which were purportedly conducting illegal as officer-in-charge, that "all the timber cut ... during
operations. the lifetime" of the registration certificate "may be
transported by" Piadeco "provided they are properly
On May 11, 1965, Piadeco sought from the Bulacan documented." Finding that Piadeco "complied with all
court an ex parte writ of execution of the December 29, the requirements of the Bureau of Forestry and the
1964 decision. That decision had by then become Bureau of Internal Revenue as regards the proper
final  for failure of the forestry officials to appeal documentation of the logs in question," the judge
therefrom. Piadeco prayed that it be not molested in its thereupon directed the forestry officials "and all
members of the Armed Forces stationed along the way" called attention to the fact that the writ of preliminary
to allow Piadeco "to haul its logs which have already injunction issued by the court below on May 4, 1964 in
been properly documented." Civil Case 3035-M is still enforceable and has not yet
been dissolved because the forestry officials have not
This precipitated the filing on July 28, 1965 by the filed their P10,000.00-bond as required by the trial
Director of Forestry, the Forest Station Warden, the court in its order of May 14, 1964.
Armed Forces Chief of Staff 7 of an original petition with
this Court (L-24796, now at bar) for certiorari and On October 8, 1965, this Court denied the two motions
prohibition with preliminary injunction to annul the of Piadeco, declared that the writ of preliminary
June 1,1965 order of execution, the June 3, 1965 writ of injunction it issued stands enforced and is effective until
execution and the July 8, 1965 order allowing Piadeco to otherwise lifted, and authorized the Solicitor General to
haul its logs. Named respondents were Piacedo, Judge effect the removal of all the logs subject of his motion
Emmanuel M. Muñoz of the Bulacan court, and the of August 17, 1965 from the log ponds but only for the
Provincial Sheriff of Bulacan.. purpose of turning them over to the Armed Forces for
safekeeping and custody pending final resolution of the
On July 30, 1965, this Court issued a writ of preliminary case.
injunction, as prayed for by the aforenamed
government officials. On August 3, 1965, Piadeco sought On October 14, 1965, Piadeco traversed the averments
the dissolution thereof for the reason, amongst others, of the forestry officials' petition before this Court, thru
that Mr. J. L. Utleg, Assistant Director of Forestry and an answer dated October 12, admission of which was
Officer-in-Charge of the Bureau of Forestry, was already however denied for being late. The case was submitted
agreeable mentioned, as per his letter of June 7, 1965 to without further memoranda.
Piadeco informing the latter that the writ of execution
was being referred to the Forest Station Warden for Meanwhile, a companion case (L-25459, also at
compliance. On August 9, 1965, the Solicitor General bar)emerged from subsequent events hereunder
blocked Piadeco's motion to dissolve, with an allegation, related.
amongst others, that the June 7, 1965 letter just
mentioned was deemed recalled when the Director On October 20, 1965, pending this Court's resolution of
Forestry — realizing that the said writ would allow the foregoing petition of the forestry officials (L-24796),
Piadeco to continue logging after the expiration and Piadeco wrote the Director of Forestry with a request to
non-renewal of its certificate in a public forest area or in grant it "AUTHORITY to cut, gather and remove timber"
an area excluded from the expired permit — did not from its alleged private woodland. At the same time, it
give effect to the said letter. advised the Director of Forestry that "in the absence of
such authority or permit", it "shall cut, gather and
On August 18, 1965, manifestation was made by the remove timber from the said area subject to the
Solicitor General to this Court thru a motion dated payment of regular forest charge and 300% surcharge
August 17, 1965, that the logs seized and imposed by for unlawful cutting in accordance with the penal
the armed forces were being exposed to the elements; provisions" of Section 266 of the Tax Code.
that the rainy season having set in, there was grave
danger that the said logs might deteriorate and become On November 4, 1965, Acting Director J. L. Utleg
useless. He thus prayed that the forestry officials be replied. He told Piadeco that "pending meticulous
authorized to turn the logs over to the engineer corps of study" of its application for renewal of PWR 2065-New,
the Armed Forces for the construction of prefabricated his "[o]ffice is not now in a position to grant" the
schoolhouses pursuant to General Circular V-337, series desired authority and "will consider any cutting,
of 1961, of the Bureau of Internal Revenue. On August gathering and removal of timber" from the land "to be
31, 1965, Piadeco objected upon the ground that the illegal, hence, subject to the provisions of Section 266 of
said logs are still its private property; and that there is the National Internal Revenue Code."
no law empowering the State to seize, confiscate and
turn over the cut logs to the Armed Forces. Obviously taking the foregoing letter as a case, Piadeco,
on December 6, 1965, advised the Director that
On September 29, 1965, Piadeco, in turn, petitioned for immediately upon receipt of said letter, it (Piadeco)
preliminary injunction and moved again to dissolve this resumed logging operations within its private woodland
Court's writ of preliminary injunction of July 30, 1965. It area in the municipality of Montalban, Rizal, "thereby
subjecting all timber cut therefrom to the payment of After respondents' answer, and hearing on oral
300% penalty, plus regular forest charges." Piadeco also arguments, the case was submitted for decision.
requested the Director to inform the Task Force
Commander that it "can be allowed to continue its 1. Basic to an intelligent appraisal of the rights of
logging operation within their private woodland" Piadeco, who comes to us as an alleged private wood
subject to Section 266 of the Tax Code. landowner, is the all-important question: Is Piadeco's
title registrable with the Bureau of Forestry?
So, on December 7, 1965, Acting Director J. L. Utleg
notified the Task Force Commander, through the The pertinent statutory provision is Section 1829 of the
Undersecretary of National Defense, that Piadeco "can Revised Administrative Code, viz:
conduct logging operations within its private woodland,
as it is a constitutional right on its part to use and enjoy SEC. 1829. Registration of title to private forest
its own property and the fruits thereof" but that land. — Every private owner of land containing
whatever timber cut therefrom "should be subject to timber, firewood and other minor forest
the payment not only of the regular charges but also of products shall register his title to the same with
the surcharges imposed by Section 166" of the Tax the Director of Forestry. A list of such owners,
Code. This notwithstanding, the army authorities with a statement of the boundaries of their
refused to heed Utleg's December 7, 1965 letter and property, shall be furnished by said Director to
stood pat on its posture not to allow Piadeco to conduct the Collector of Internal Revenue, and the same
logging operations. shall be supplemented from time to time as
occasion may require.
Hence, it was Piadeco's turn to come to this Court on
December 22, 1965 on an original petition for injunction Upon application of the Director of Forestry the
and prohibition (L-25459 aforesaid) against respondents fiscal of the province in which any such land lies
Secretary of National Defense, the Undersecretary of shall render assistance in the examination of
National Defense, the Chief of Staff, the Judge Advocate the title thereof with a view to its registration in
General and the Task Force Commander (Task Force the Bureau of Forestry.
Preserve, Tabak Division). Specifically, Piadeco charges
as follows: On December 17, 1965, army men [Capt. Ampliatory thereof is Section 7, Forestry Administrative
Zamuco, Lt. Oresque, Sgts. Albino, Gutierrez, Ramirez, Order 12-1 of July 1, 1941, as amended by Forestry
and Sawada, and Cpl. Manlapus], boisterously, Administrative Order 12-2, which took effect on January
unlawfully, wilfully, and feloniously entered — upon 1, 1963. It reads:
orders of a certain Major Elfano — Piadeco's land at
Barrio Anginan, Montalban, Rizal, outside the 7. Titles that may be registered. — Only the
watershed reservations. They made a portion of the following titles covering lands containing
land their private quarters. They prevented Piadeco's timber, firewood and other minor forest
officers (a) from continuing its logging operations, products may be registered under and pursuant
especially the construction of the road inside the land; to Section 1829 of the Revised Administrative
(b) from cutting, gathering and removing timber and Code;
other forest products therefrom; and (c)from living and
moving in freedom and engaging in the pursuit of (a) Administrative titles granted by the present
happiness on said land. Piadeco asks principally that Government, such as homestead patent, free
respondent officials be declared "without authority and patent, and sales patent; and
jurisdiction to stop logging operations, construction of
the roads, cutting, gathering and removing of timber (b) Judicial titles, such as Torrens Title obtained
and other forest products from the Private Woodland under the Land Registration Act (Act 496, as
area" of the former. amended) or under the Cadastral Act (Act No.
2259, as amended).
There was a prayer for the issuance of a writ of
preliminary injunction which this Court, however, The amendment of Forestry Administrative Order 12-1
denied on December 31, 1965, and upon by Forestry Administrative Order 12-2 consisted in
reconsideration, on February 1, 1966. the omission of one paragraph, paragraph (c), which
particularized as one of the titles registrable pursuant to
Section 1829 of the Revised Administrative Code, objects and purposes of the law. A rule shaped out by
"[t]itles granted by the Spanish sovereignty in the jurisprudence is that when Congress authorized the
islands and duly recognized as valid titles under the promulgation of administrative rules and regulations to
existing laws." implement a given legislation, "[a]ll that is required is
that the regulation should be germane to the objects
Piadeco's position is that such amendment contravenes and purposes of the law; that the regulation be not in
said Section 1829, which does not specify the titles that contradiction with it, but conform to the standards that
are registrable thereunder; and that it is diametrically the law prescribes."8 In Geukeko vs. Araneta, 102 Phil.
opposed to the Opinion of the Attorney General of 706, 712, we pronounced that the necessity for vesting
October 15, 1919, which ruled that a royal title "issued administrative authorities with power to make rules and
in September, 1896, and inscribed in the Registry of regulations for various and varying details of
Property within a year after its issuance is valid, and management has been recognized and upheld by the
therefore its owner is entitled to the benefits" of courts.
Section 1829 aforesaid. Also cited are the Opinion of the
Secretary of the Interior of November 7, 1916, stating And we are certainly totally unprepared to jettison
that registration under Section 1829 is not subject to Forestry Administrative Order 12-2 as illegal and
change and revocation unless title is established in a unreasonable.
different person by judicial declaration; the Opinion of
the Director of Forestry of January 8, 1925, which Spanish titles are quite dissimilar to administrative and
recognized as registrable, titles "such an  informacion judicial titles under the present system. Although
posesoria ..., composicion con el estado and purchase evidences of ownership, these Spanish titles may be lost
under the Spanish sovereignty" amongst others; and the thru prescription. They are, therefore, neither
Opinion of the Collector of Internal Revenue of February indefeasible nor imprescriptible. The law in this
6, 1926, declaring imperfect titles within the purview of jurisdiction, both under the present sovereignty and the
Section 45(a) of Act 2874, as also registrable. previous Spanish regime is that ordinary prescription of
ten years may take place against a title recorded in the
True it is that the law, Section 1829, does not describe Registry of Property "in virtue of another title also
with particularity titles that may be registered with the recorded,"9 and extra-ordinary prescription of thirty
Bureau of Forestry. Concededly, too, administrative years will run, even "without need of title or of good
authorities in the past considered as registrable, titles faith."10 For possession for along period fixed by law,
issued during the Spanish regime. In fact, as late as the "unquestionable foundation of the prescription of
1962, Forestry Administrative Order 12-1 was still in ownership ... weakens and destroys the force and value
force, authorizing registration of such Spanish titles. But of the best possible title to the thing possessed by one
when Forestry Administrative Order 12-2 came into who is not the owner thereof." 11 The exception, of
effect on January 1, 1963, that order should be deemed course, is the Torrens title, expressly recognized to be
to have repealed all such previous administrative indefeasible and impresciptible.12
determinations.
And more. If a Spanish title covering forest land is found
There should be no question now that Forestry to be invalid, that land is public forest land, is part of
Administrative Order 12-2 has the force and effect of the public domain, and cannot be
law. It was promulgated pursuant to law. Section 1817, appropriated.13 Before private interests have
Revised Administrative Code, empowers the Bureau of intervened, the government may decide for itself what
Forestry, with the approval of the department head, to portions of the public domain shall be set aside and
issue regulations "deemed expedient or necessary to reserved as forest land.14 Possession of forest lands,
secure the protection and conservation of the public however long, cannot ripen into private ownership. 15
forests in such manner as to insure a continued supply
of valuable timber and other forest products for the In this case, it is undisputed that Picadeco's title which it
future, and regulating the use and occupancy of the sought to register was issued by the Spanish sovereignty
forests and forest reserves, to the same end." Forestry — Titulo de Propiedad  No. 4136, dated April 25 or 29,
Administrative Order 12-2 was recommended by the 1894. It is unmistakably not one of those enumerated in
Director of Forestry, and approved by the Secretary of Section 7 aforesaid. It should not have been allowed
Agriculture and Natural Resources. It is no less a valid registration in the first place. Obviously, registration
law. It is an administrative regulation germane to the thereof can never be renewed.
2. Piadeco is nonetheless insistent in its plea that it can license shall be considered as unlawful cutting,
still cut, gather, and remove timber from its alleged gathering and removing of forest products from
private woodland, upon payment of forest charges and public forest and shall be subject to the charges
surcharges. prescribed in such cases in this Chapter. (As
amended by Rep. Act No. 173, approved June
The purposes of registration, as succinctly stated in 20, 1947.)17
Section 6, Forestry Administrative Order 12-1 dated July
1, 1941, are: Following this provision in the Tax Code is Section 267,
which in part provides:
6. Objects of registration  — (a) to exempt the
owners of private woodlands from the payment SEC. 267. Surcharges for illegal cutting and
of forest products gathered therefrom for removal of forest products or for delinquency. —
commercial or industrial purposes. Where forest products are unlawfully cut or
gathered in any public forest without license or,
(b) To regulate the transportation of forest if under license, in violation of the terms
products gathered or collected therefrom and thereof, the charges on such products shall be
to avoid fraud which may be committed in increased by three hundred  per centum....
connection with utilization of such forest
products with respect to their origin. To recapitulate, registration of titles by the owners of
private woodlands with the Bureau of Forestry results in
(c) To determine the legality of private claims an exemption "from the payment of forest products
for the protection of the interest of the owners gathered therefrom for commercial or industrial
as well as of the Government, and to exclude all purposes." If an owner fails to so register, he is obliged
land claimed under valid titles from the mass of to pay forest charges, as prescribed in Sections 264 and
the public forest in order to facilitate the 265 of the Tax Code, because "he still retain(s) his rights
protection, administration, and supervision of of ownership, among which are his rights to the fruits of
the latter. the land and to exclude any person from the enjoyment
and disposal thereof (Art. 429, New Civil
The foregoing has in part gained judicial approval Code)."18 However, as provided in Section 266 above-
in Santiago vs. Basilan Lumber Company, L-15532, quoted, if an owner does not register his title, but he
October 31, 1963, where we pronounced: "Obviously, desires to cut, gather and remove timber and other
the purpose of the registration required in Section 1829 forest products from his land, he may "secure a license
of the Administrative Code is to exempt the titled from the Director of Forestry in accordance with the
owner  of the land from the payment of forestry charges Forest Law and regulations." If he does not, under the
as provided for under Section 266 of the National same Section 266, his cutting, gathering and removing
Internal Revenue Code."16 And Section 266 of the Tax of timber and other forest products "shall be considered
Code, therein mentioned, provides in full: as unlawful cutting, gathering and removing of forest
products from public forests and shall be subject to the
SEC. 266. Charges collectible on forest products charges prescribed in such cases." And this would bring
cut, gathered and removed from unregistered into play Section 267, where, as heretofore quoted, the
private lands. — The charges above prescribed charges on forest products "unlawfully cut and gathered
shall be collected on all forest products cut, in any public forest without license, or, if under license,
gathered and removed  from any private in violation of the terms thereof ... shall be increased by
land  the title to which is not registered with the three hundred  per centum."
Director of Forestry as required by the Forest
Law: Provided, however, That in the absence of But it should be stressed that all of the situations herein
such registration, the owner  who desires to cut, mentioned refer specifically to owners  of private
gather and remove timber and other forest woodlands. The position Piadeco has taken is a jump
products from such land shall secure a license ahead of where it should be. We are not ready to grant
from the Director of Forestry in accordance with the assumption that Piadeco owns the forest land it
the Forest Law and regulations. The cutting, and seeks to register. Such unwillingness can come from
the removing of timber and other forest even a superficial assessment of Piadeco's pretensions
products  from said private lands  without
of ownership based on the Titulo de Propiedad in Two (2) vast parcels of land (agricultural and
question. mountainous lands), together with the
improvements thereon, including all the trees in
Neither said Titulo, nor a copy thereof, was presented in the mountains, all mineral deposits or resources
the two proceedings before us. What we have is merely (  pertenecia minera), including lime, gravel and
a description thereof, viz: lumber for ship building, located in the
Provinces of Bulacan, Rizal, Quezon and Quezon
TITULO DE PROPIEDAD NUMERO 4136 City, and bounded, on the North, by Sierra
DATED APRIL 25, 1894, ISSUED BY Madre Mountains and Rio Grande (Laog to
GOBIERNO CIVIL DE LA PROVINCIA Kinabayunan); on the East, by Maputi, Umiray
and Caliwatcanan (Ibona Estate and Public
DE BULACAN
Land); on the South by Susong Dalaga and
Cupang (Hegmatangan to Pinugay) and on the
Titulo de Propiedad Numero 4136, in the name West, by Pugad-Lawin and Sapang-Alat
of Dn. Mariano San Pedro y Esteban, dated April (Pinugay, Public Land, Bignay, Lauan to Laog).
25, 1894, being a gratuitous composicion title,
grated to Dn. Mariano San Pedroy Esteban, by The various types of titles granted by the Spanish
the Spanish Government in the Philippines, crown, it will be remembered, were: (1) the "titulo real"
pursuant to Resolution dated April 14, 1894, of or royal grant; (2) the "concession especial" or special
the Board of Land Adjustment of the (Spanish) grant; (3) the "composicion con el estado" title or
Administration Civil de Filipinas, as authorized adjustment title; (4) the "titulo de compra" or title by
under Royal Decree of May 14, 1867 and August purchase; and (5) the "informacion posesoria" or
31, 1888, and signed by Dn. Alejandro Garcia, El possessory information title, which could become a
Jefede la Provincia de Bulacan and Dn. Mariano "titulo gratuito" or a gratuitous title.19
Lopez Delgado El Secretario de la Junta, with
the Seal of the Spanish Government in the Piadeco's Titulo appears to be an adjustment title.
Philippines attached thereto and to said Titulo Piadeco asserts in its answer in L-24796 20 that it is a
de Propiedad Numero 4136, is affixed a "Sello "titulo de composicion con el estado" 21 or a
10aA*s 1894 y 95 de Peso" documentary stamp "composicion" with the State. 22 The given description
bearing Serial Number NO. 292-404 inscribed in of Titulo de Propiedad  No. 4136 above-quoted calls it a
the Office of the Registry of Property of "gratuitous composition title."
Bulacan, on pages 127 and 129 of Book I, for
Norzagaray, as Tax Declaration (Fincas) Nos. 57 Title by "composicion con el estado" was granted by
and 58, Inscripcion No. 1, on July 16, 1894 (or the Direccion General de Administracion Civil, pursuant
within one (1) year from April 25, 1894, to the Royal Decree of June 25, 1880, or by the Chief of
pursuant to Royal Decree of January 12, 1863), the Province by delegation, pursuant to the Royal
the inscription of the said TITULO DE Decree of August 31, 1888, or under the Royal Decree of
PROPIEDAD NUMERO 4136 of Dn. Mariano San February 13,1894, otherwise known as the Maura Law.
Pedro y Esteban, having been accomplished by The theory behind this title is that all lands belong to
the Office of the Land Registry of Bulacan, on the State. Applicants to be entitled to adjustment must
the said date of July 16, 1894, by the then possess the lands sought to be acquired for a number of
Registrar of Bulacan, Dn. Miguel de Lizan, as years.23 These titles, as the "titulo real", altho evidences
follows: of ownership, may be lost by prescription. 24

Ynscrito el titulo que precede, a los folios ciento Piadeco's Titulo de Propiedad  4136, as heretofore
veinti-sietey ciento veintinueve del Tomo described, was signed, pursuant to the Royal Decrees of
primero de Norzagaray, fincas numeros May 14, 1867 and August 31, 1888, by Dn. Alejandro
cincuenta y siete y cincuenta y ocho inscripcion Garcia, el Jefe de la Provincial de Bulacan, and Dn.
numero uno, Bulacan, diez y seis de julio de mil Mariano Lopez Delgado, el Secretario de la Junta,
ocho cientos noventa y cuatro (Fdo.) MIGUEL purportedly with the Seal of the Spanish Government in
DE LIZAN. the Philippines.
The main difficulty here lies with the requirements, then Adjustment of Lands" and the rubric of the said
obtaining, for the issuance of Spanish adjustment titles. Inspector General of Forests and is serially numbered,
pursuant to the Circular dated February 14, 1894 of the
The Royal Decree of August 31, 1888 — under which General Directorate of Civil Administration. In the same
Piadeco's title was issued — classified public lands breath, however, Piadeco avers that the title was
subject to adjustment into two groups: approved by the Chief of the Province of Bulacan as
Deputy of the General Directorate of Civil
First. Those bounded at any point thereof by other lands Administration and the said Chief issued Titulo 4136
belonging to the State, and those which, though entirely pursuant to the Royal Decree of August 31,
encircled by private lands, had a total area of more than 1888.27 These averments, we must say, merely
30 hectares. emphasize the necessity of adducing evidence to prove
the validity of Piadeco's title, which should be done in
Second. Those with an area of less than 30 hectares and appropriate land registration proceedings. Ramirez vs.
entirely bounded by private lands. Director of Lands, 60 Phil. 114, 123, struck down a
similar title covering land which it thereupon declared
By this royal decree, adjustment of the lands of the first public forest land, upon grounds, amongst others, that
group just mentioned continued to be heard and the title was not issued by the proper authority. On this
determined by the general directorate of civil ground, this Court there specifically declared —
administration with the intervention of the Inspector
General of Forests; adjustment of lands of the second Judging from the area of the land 28 in question
group were heard and determined by "a provincial and that of the two-third portions from which it
board for the adjustment of lands "headed by a Civil or has been segregated, upon the supposition that
Military-Civil Governor as president. When the the three-third portions above-mentioned
provincial board approves the adjustment, "the chief of constitute the whole tract of land which had
the province, in his capacity as deputy of the General originally passed from Tomas Ilao, it is obvious
Directorate of Civil Administration, shall issue the that the same belonged to the first group, as
corresponding title."25 defined in the aforesaid Royal Decree, on the
ground that the area thereof greatly exceeded
The property here involved unquestionably belongs to thirty hectares and was not entirely bounded by
the first group. That is because the area thereof is more private lands. Notwithstanding such facts, the
than 30 hectares (72,000 or 74,000 hectares); and, title Exhibit D-2 was not issued by the General
going by the descripcion of its boundaries, the property Directorate of Civil Administration with the
is bounded by public land. In particular, the description intervention of the Inspector General of Forests,
is that it is "bounded, on the North, by Sierra Madre but merely by the provincial board, in open
Mountains  and Rio Grande  (Laog to Kinabayunan); on violation of the laws and regulations relative
the East, by Maputi, Umiray and Caliwatcanan (Ibona thereto.29
Estate and Public Land); on the South by Susong Dalaga
and Cupang (Hegmatangan to Pinugay) and on the But an important moiety here is the deeply disturbing
West, by Pugad-Lawin and Sapang-Alat (Pinugay, Public intertwine of two undisputed facts. First. The title
Land, Bignay, Lauanto Laog)."26 embraces land "located in the Provinces of Bulacan,
Rizal, Quezon, and Quezon City." Second. The title was
As stated, the title were was "signed by Dn. Alejandro signed only by the provincial officials of Bulacan, and
Garcia, El Jefe de la Provincia de Bulacan, and by Dn. inscribed only in the Land Registry of Bulacan. Why? The
Mariano Lopez Delgado, El Secretario de la Junta, with situation, indeed, cries desperately for a plausible
the Seal of the Spanish Government in the Philippines answer.
attached thereto."
To be underscored at this point is the well-embedded
Piadeco now claims before this Court that its title principle that private ownership of land must be proved
"appears to be issued by (on its face) the DIRECTOR not only through the genuineness of title but also with a
GENERAL DE ADMINISTRACION DE FILIPINAS"; that the clear identity of the land claimed. 30 This Court ruled in a
title is in printed form, with the dry seal in the form of a case involving a Spanish title acquired by purchase that
mountain, bearing the inscription, "Office of the the land must be concretely measured per hectare or
Inspector General of Forests in the Philippine Islands — per quiñon, not in mass (cuerpos ciertos),31 That fact
that the Royal Decree of August 31, 1888 used 30 to their successors, the provincial boards established by
hectares as a basis for classifying lands strongly suggests Decree on Municipal Organization issued on May 19,
that the land applied for must be measured per hectare. 1893, all records and documents which they may hold in
their possession.40
Here, no definite are seems to have been mentioned in
the title. In Piadeco's "Rejoinder to Opposition" dated Doubt on Piadeco's title here supervenes when we
April 28, 1964 filed in Civil Case 3035-M, it specified the come to consider that that title was either dated April
area covered by its Titulo de Propiedad as 74,000 29 or April 25, 1894, twelve or eight days after the
hectares.32 In its "Opposition" of May 13, 1964 in the publication of the Maura Law.
same case, it described the land as containing 72,000
hectares.33 Which is which? This but accentuates the Let us now take a look, as near as the record allows, at
nebulous identity of Piadeco's land. Piadeco's how Piadeco exactly acquired its rights under the Titulo.
ownership thereof then equally suffers from vagueness, The original owner appearing thereon was Don Mariano
fatal at least in these proceedings. San Pedro y Esteban. From Piadeco's explanation — not
its evidence —41 we cull the following: On December
Piadeco asserts that Don Mariano San Pedro y Esteban, 3,1894, Don Mariano mortgaged the land under  pacto
the original owner appearing on the title, acquired his de retro, redeemable within 10 years, for P8,000.00 to
rights over the property by prescription under Articles 4 one Don Ignacio Conrado. This transaction was said to
and 5 of the Royal Decree of June 25, 1880, 34 the basic have been registered or inscribed on December 4, 1894.
decree that authorized adjustment of lands. By this Don Mariano failed to redeem within the stipulated
decree, applications for adjustment — showing the period. When Don Ignacio died, his daughter, Maria
location, boundaries and area of land applied for — Socorro Conrado, his only her, adjudicated the land to
were to be filed with the Direccion General de herself. At about the same time, Piadeco was
Administracion Civil, which then ordered organized. Its certificate of registration was issued by
the classification and survey  of the land with the the Securities and Exchange Commission on June 27,
assistance of the interested party or his legal 1932. Later, Maria Socorro, heir of Don Ignacio, became
representative.35 a shareholder of Piadeco when she conveyed the land
to Piadeco's treasurer and an incorporator, Trinidad B.
The Royal Decree of June 5, 1880 also fixed the period Estrada, in consideration of a certain amount of Piadeco
for filing applications for adjustment at one year from shares. Thereafter, Trinidad B. Estrada assigned the land
the date of the publication of the decree in the Gaceta to Piadeco. Then came to the scene a certain Fabian
de Manila  on September 10, 1880, extended for Castillo, appearing as sole heir of Don Mariano, the
another year by the Royal Order of July 15, 1881. 36 If original owner of the land. Castillo also executed an
Don Mariano sought adjustment within the time affidavit of adjudication to himself over the same land,
prescribed, as he should have, then, seriously to be and then sold the same to Piadeco. Consideration
considered here are the Royal Orders of November 25, therefor was paid partially by Piadeco, pending the
1880 and of October 26, 1881, which limited registration of the land under Act 496.
adjustment to 1,000 hectares of arid lands, 500 hectares
of land with trees and 100 hectares of irrigable The question may well be asked: Why was full payment
lands.37 And, at the risk of repetition, it should be stated of the consideration to Fabian Castillo made to depend
again that Piadeco's Titulo  is held out to embrace on the registration of the land under the Torrens
72,000 or 74,000 hectares of lands. system, if Piadeco was sure of the validity of Titulo de
Propiedad  4136? This, and other factors herein pointed
But if more were needed, we have the Maura Law out, cast great clouds of doubt that hang most
(Royal Decree of February 13, 1894), published in conspicuously over Piadeco's title.
the Gaceta de Manila on April 17, 1894.38 That decree
required a second petition for adjustment within six The standing presumption, we must not forget, is that
months from publication, for those who had not yet land pertains to the State, and any person seeking to
secured their titles at the time of the publication of the establish ownership over land must conclusively show
law.39 Said law also abolished the provincial boards for that he is the owner. 42 And his presumption clings with
the adjustment of lands established by Royal Decree of greater force here where "a portion" of the land
December 26, 1884, and confirmed by Royal Decree of Piadeco claims is, as Piadeco itself admits, directly
August 31, 1888, which boards were directed to deliver affected by Proclamation No. 71 dated March 10, 1927
of the then Governor-General Leonard Wood of the thereof, or of his representatives, to obey, follow or
Philippines, which reserved for watershed purposes an implement instructions of the said Director of
area of 62,309.0952 hectares of land located in Forestry."43 To him, a condition expressly written into
Montalban, Province of Rizal, in San Jose del Monte, the registration certificate was being violated. Piadeco
Norzagaray, Angat, San Rafael, and San Miguel, Province was found to be cutting trees within the Angat and
of Bulacan, in Peñaranda, Province of Nueva Ecija, and Marikina Watershed Reservations in direct
in Infanta, Province of Tayabas (now Quezon),subject to contravention of a specific prohibition in the certificate.
"private rights if any there be." Private rights must then And this, upon the basis of positive and actual findings
have to be proved. It will be remembered that, by of qualified and competent forestry officers.
Article VIII of the Treaty of Paris of December 10,1898,
property of the public domain was relinquished and Quite revealing is Piadeco's admission 44 before the court
ceded by the Kingdom of Spain to the United States of below that "it made cuttings on that portion of its own
America, which, of course, transferred the same to the private land within the Angat and Marikina Watershed
present Republic. Reservation where it was constructing its access road to
the area covered by P.W.P. No. 2065  to the construction
Assertion has likewise been made that Piadeco's title of which no objection was interposed by ... Nawasa as
has already been judicially recognized in the judgment per its resolution No. 126, Series of 1964."45 Deducible
rendered in Civil Case 3035-M, the case below, at least from the foregoing is that Piadeco was
insofar as the portion of the land that lies in Bulacan is cutting within  the watershed reservations outside the
concerned. This is less than persuasive. Piadeco's title area covered by its registration certificate,
was not directly in issue in the court below. A reading of altho  within the land it claims in private ownership,
the decision thereof suggests that said title was not which is now disputed.
submitted therein. The judge did not even examine that
title. According to the decision, Piadeco's ownership Piadeco's registration certificate should remain
was gleaned merely from the registration certificate cancelled. It could be stricken down anytime. It is a
which stated that a copy of Piadeco's land title, nullity. And, notwithstanding the fact that said
including the corresponding plan, was submitted to the registration certificate had expired and was not
Director of Forestry. A mere statement by the judge renewed, Piadeco had the temerity to continue
below that Piadeco appears to be the owner of the land operations. Correctly, there was necessity for freezing
cannot wipe out the objectionable features of its title. forthwith Piadeco's illegal acts.46

From all the foregoing, our conclusion is that we cannot 4. True it is that the judgment below virtually reinstated
give  prima facie value to Piadeco's title. We cannot thus Piadeco's registration certificate. However, as shall be
truly state that Piadeco is a private woodland owner for discussed later on in this opinion, that judgment has
purpose of these proceedings. This all the more now no legal effect. For, said certificate, by its very
strengthens our view that Piadeco needs to acquire an terms, expired on December 31, 1964. Piadeco cannot
indefeasible title to be entitled to registration under be heard to protest further.
Section 1829 of the Revised Administrative Code.
But Piadeco still insists that it objected to the expiry
3. Even on the assumption that Piadeco's alleged title is date of the registration certificate, when it was issued
registrable, said corporation cannot complain against that certificate. Granting the truth of this averment,
the cancellation thereof by the Director of Forestry on Piadeco nonetheless accepted the certificate, did not
April 11, 1964. Why? follow up its objection to its logical conclusion, sat
supinely until the certificate was cancelled; only then
When the Director of Forestry cancelled Piadeco's did it renew the bid that its registration certificate is
registration certificate, he only performed his duty as he non-expirable.
saw fit. By Forestry Administrative Order 12-2, "[t]he
Director of Forestry may cancel a certificate of At all events, Piadeco's submission is inaccurate.
registration for any violation of the provision of this Forestry Administrative Order 12-2, promulgated
Order or of the forest and internal revenue laws and pursuant to law, amended Section 11 of Forestry
regulations or of the terms and conditions embodied in Administrative Order 12-1, the pertinent part of which
the certificate, or when found that the area is no longer reads:
covered with forest, or upon failure of the landowner
 (b) Duration of the certificate. — The certificate cut, gather and remove timber, and more important,
of registration issued under this Order shall be credible evidence of private ownership over the forestry
made to expire on the last day of the 12th land in question, Piadeco's logging operations logically
month from the date of its issuance. descend to the level of unlawful cutting from public
forests.
This regulation is not without rational basis. This Court
had occasion to say once47 that: "Land may be classified Seizure made by the government authorities here of
as forestry or mineral today, and, by reason of the logs illegally cut cannot be branded as illegal. It was but
exhaustion of the timber or mineral, be classified as in obedience to Bureau of Internal Revenue General
agricultural land tomorrow. And vice-versa, by reason of Circular No. V-337 of May 24, 1961, which prescribed
the rapid growth of timber or the discovery of valuable rules on the disposition of illegally cut logs, pursuant to
minerals, land classified as agricultural today may be a directive from the Office of the President to the
differently classified tomorrow." Forestry Administrative Secretary of Finance on March 22, 1961. Section 3 of
Order 12-2 verily declares that certificates "are Circular V-337 declares as follows:
renewable for as long as there are substantial amounts
of forestry in the area, upon filing of the necessary 3. Logs illegally cut from public forests, such as
application therefor" and that those "cancelled for timberlands, forest reserves other than national
causes may be renewed upon submission of application parks, 50 communal forests and communal
for registration by the owner and if the cause of pastures shall be subject to seizure and
cancellation is explained satisfactorily." 48 If only for delivered to the nearest Bureau of Internal
purposes of effective regulation, annual registration of Revenue Officer who in turn shall deliver them
private woodlands cannot be successfully assailed. to the duly authorized representative of the
Armed Forces of the Philippines for use in the
5. We cannot place our stamp of approval on Piadeco's manufacture of prefabricated school houses.
claim that it should be permitted to remove from the The illegal cutter shall not be allowed to pay the
premises those logs that have already been cut before forest charges and surcharges and other fees on
December 31, 1964, the expiry date of its registration the logs cut. However, if such forest charges
certificate. We have already said that its registration and fees have already been paid, the same shall
certificate is a nullity. Even if it is not, the facts and the be retained by the Bureau of Internal Revenue
law will not support its plea. Officer concerned as part of the collection for
forest charges, but shall not be the basis for the
It is not altogether clear whether the 600 pieces of release of such logs. On the other hand, such
unscaled and the 1,000 pieces of mixed (scaled and payment shall be used as evidence should the
unscaled)timber sought to be hauled by Piadeco, were illegal cutter be prosecuted in court for the
cut before December 31, 1964. Piadeco could present violation of the corresponding forest laws.51
only one auxiliary invoice thereon, which but covers 256
logs and that very invoice stated that those logs were Could this Court then justifiably order the delivery to
"cut or ordered cut" in the area covered by P.W.R. No. Piadeco of the logs impounded right there on the land?
2065-New, "after its expiration on Dec. 31, 1964."49 The answer must certainly have to be in the negative; a
contrary posture is tantamount to abetting a wrong. The
Worse, a factual assumption that the logs were cut logs belong to the State. They are not Piadeco's.
before that date, is meaningless in law. A contrary view Piadeco cannot later on come back to claim them by
would easily lend itself to misuse and mischief. For, curing defects in the proof of its ownership over the
loopholes could then be bored through which an land. It has submitted the controversy over the logs for
unscrupulous logger may crawl. Such that a holder of a decision to this Court. Any ruling thereon should bind
registration certificate could be at complete liberty to Piadeco. It cannot be overturned by fresh convincing
just cut and cut during the lifetime of that certificate proof of ownership, which it should have offered in the
and leave the hauling for later, as he pleases, even long first place.
after expiry thereof. This, we must say, should not be
allowed to pass. We hold that government seizure of Piadeco's logs here
complained of is valid.
6. Absent a valid registration certificate under Section
1829 of the Revised Administrative Code, or a license to
7. The view this Court takes of the cases at bar is but in therefore, "[e]qually fundamental with the private right
adherence to public policy that should be followed with is that of the public to regulate in the common
respect to forest lands. Many have written much, and interest.55
many more have spoken, and quite often, about the
pressing need for forest preservation, conservation, These precepts more than suffice to sustain the validity
protection, development and reforestation. Not without of the government's action with respect to Piadeco's
justification. For, forests constitute a vital segment of logging operations.
any country's natural resources. It is of common
knowledge by now that absence of the necessary green 8. We come to consider the effects of the judgment in
cover on our lands produces a number of adverse or ill Civil Case 3035-M, where the Court of First Instance of
effects of serious proportions. Without the trees, Bulacan adjudged Piadeco's operation not to be in
watersheds try up; rivers and lakes which they supply violation of forestry rules and regulations and made
are emptied of their contents. The fish disappear. permanent the writ of preliminary injunction issued
Denuded areas become dust bowls. As waterfalls cease against the defaulting forestry authorities, upon
to function, so will hydroelectric plants. With the rains, Piadeco's  ex-parte  evidence. That judgment, it should
the fertile topsoil is washed away; geological erosion be remembered, is sought to be executed by Piadeco
results. With erosion come the dreaded floods that and the execution proceedings in that case are not
wreak havoc and destruction to property — crops, before this Court on review.
livestock, houses and highways — not to mention
precious human lives. Indeed, the foregoing Said judgment enjoined the forestry officials from
observations should be written down in a lumberman's carrying out and executing the order of April 11, 1964
decalogue. and the implementing letter of April 14, 1964, cancelling
Piadeco's registration certificate, PWR 2065-New. But
Because of the importance of forests to the nation, the when execution was ordered on June 1, 1965, and the
State's police power has been wielded to regulate the writ of execution issued on June 3, 1965, and when the
use and occupancy of forests and forest reserves. court ordered on July 8, 1965 that Piadeco be allowed
to haul its logs, the registration certificate had already
To be sure, the validity of the exercise of police power expired  on December 31, 1964. It is, therefore, not
in the name of the general welfare cannot be seriously inappropriate for us to say that judgment had already
attacked. Our Government has definite instructions become  functus officio56 and can no longer be executed.
from the Constitution's preamble to "promote the
general welfare." Jurisprudence has time and again The over-all position we have here taken should dispose
upheld the police power over individual rights, because of all other issues raised by the parties; hence,
of the general welfare. Five decades ago, Mr. Justice unnecessary is a discussion thereof.
Malcolm made it clear that the "right of the individual is
necessarily subject to reasonable restraint by general For the reasons given —
law for the common good" and that the "liberty of the
citizen may be restrained in the interest of public The petition for certiorari and prohibition in L-24796 is
health, or of the public order and safety, or otherwise hereby granted; the June 1, 1965 order of execution,
within the proper scope of the police power." 52 Mr. the June 3, 1965 writ of execution issued pursuant
Justice Laurel, about twenty years later, affirmed the thereto, and the July 8, 1965 order, allowing respondent
precept when he declared that "the state in order to Pinagcamaligan Indo-Agro Development Corporation,
promote the general welfare may interfere with Inc. to haul its logs, all of the Court of First Instance of
personal liberty, with property, and with business and Bulacan in Civil Case 3035-M, are hereby declared null
occupations" and that"[p]ersons and property may be and void; the writ of preliminary injunction issued
subjected to all kinds of restraints and burdens, in order herein is hereby made permanent; and the Chief of the
to secure the general comfort, health, and prosperity of Engineer Corps, Armed Forces of the Philippines, who
the state."53 Recently, we quoted from a leading was permitted by this Court on October 8, 1965 to
American case,54 which pronounced that "neither retain for safekeeping and custody the logs previously
property rights nor contract rights are absolute; for seized by the State from the log ponds of respondent
government cannot exist if the citizen may at will use Pinagcamaligan Indo-Agro Development Corporation,
his property to the detriment of his fellow, or exercise Inc., is now given authority to use the same for the
his freedom of contract to work them harm," and that, manufacture of prefabricated school houses; and —
The petition of Pinagcamaligan Indo-Agro Development
Corporation, Inc. for injunction and prohibition in L- SYLLABUS
25459 is hereby denied.
1. JURISDICTION; EXCLUSIVE APPELLATE JURISDICTION
Costs in both cases against Pinagcamaligan Indo-Agro OF SUPREME COURT OVER CASES INVOLVING VALIDITY
Development Corporation, Inc. So ordered. OF ASSESSMENT. — The Supreme Court has exclusive
appellate jurisdiction over all cases involving the legality
of any tax, assessment, or toll, or any penalty in relation
thereto. As the legality or validity of, the documentary,
stamp tax was involved in the present appeal the Court
of Appeals has no jurisdiction over the case and the
judgment rendered therein is null and void.

2. CARRIES; FREIGHT TICKETS ARE BILLS OF LANDING

WITHIN THE MEANING OF DOCUMENTARY STAMP TAX
LAW. — Freight tickets of bus companies are "bills of
lading or receipts" within the meaning of the
Documentary Stamp Tax Law. Bills of Lading, in modern
jurisprudence, are not those issued by masters of
vessels alone; they now comprehended all forms of
transportation, whether be sea or land, and include bus
receipts for cargo transported.

3. ID.; ID.; FAILURE STATE VALUE ON RECEIPT CREATES

PRESUMPTION OF LIABILITY. — Failure to state the
value of the merchandise for which the receipt was
issued creates a presumption of liability of the taxpayer
to pay tax on the receipts. The presumption, however, is
not conclusive; the taxpayer can adduce evidence that
the tax is not collectible because the value of the
merchandise concerned does not exceed the amount of
P5.

4. PLEADING AND PRACTICE; ACTIONS FOR RECOVERY

OF TAXES; BURDEN OF PROOF ON TAXPAYER. — In
actions for the recovery of taxes assessed and collected,
the taxpayer has the burden of proving that the
assessment is illegal.

5. TAXATION; DOCUMENTARY STAMP TAX; PARTY

MAKING OR ISSUING IS LIABLE. — Section 1449 of the
Revised Administrative Code of 1917 provides that the
[G.R. No. L-6741. January 31, 1956.] documentary stamp tax should be paid by the one
"making, signing, issuing, accepting, or transferring the
INTERPROVINCIAL AUTOBUS CO., INC., Petitioner, v. same. In the case at bar, the receipts were made and
COLLECTOR OF INTERNAL REVENUE, Respondent. issued by the transportation company; it is therefore
liable for the payment of the tax thereon.
E. G. Castañeda, Leonardo Sevilla and Ramon C.
Aquino for petitioner. 6. ID.; ID.; ID.; PERIOD WITHIN WHICH TAX MAY BE
ASSESSED. — Section 332, paragraph (a), National
Solicitor General Juan Liwag, Assistant Solicitor Internal Revenue Code provides that the period within
General Guillermo E. Torres and Solicitor Felicisimo R. which a tax may be assessed is ten years after the
Rosete for respondent. discovery of the falsity, fraud or omission. Paragraph (c)
of the same section refer to the collection of the tax by the 194,406 receipts. The tax thus assessed amounted
distraint or by levy or by a proceeding in court, and the to P7,776.24, which was collected from the deposit of
period prescribed is within five years after the the plaintiff in the Misamis Occidental branch of the
assessment of the tax. In order, however, to sustain the
Philippine National Bank. Plaintiff demanded the refund
claim of the invalidity of the levy, it is necessary to
of the amount, and upon refusal of the defendant,
allege and prove that the levy took place after five years
from the date of the assessment. The date of plaintiff filed the action. The Court of First Instance of
assessment has not been proved in the present case, so Misamis Occidental having rendered judgment in favor
exemption from levy may not be invoked. In any event, of the plaintiff, the defendant appealed to the Court of
the collection was made within ten years after the Appeals. This court reversed the decision appealed from
discovery and the liability of petitioner is not thereby and absolved the defendant from the complaint. Hence,
affected.
this appeal.In this Court petitioner-appellant presents
DECISION the following propositions: (1) that the judgment of the
Court of Appeals is null and void, because it had no
LABRADOR, J.: jurisdiction of the case, which involves the validity of an
assessment; (2) that the decision of the Court of
This is an appeal by way of certiorari from a decision of Appeals is erroneous because freight receipts are not
the Court of Appeals reversing the judgment of the bills of lading within the meaning of Section 1449, sub-
Court of First Instance of Misamis Occidental in civil paragraph (r), of the Revised Administrative Code of
case No. 1161, entitled The Interprovincial Autobus Co., 1917, and because the provision of section 121 of the
Inc., plaintiff versus Bibiano L. Meer as Collector of Revised Documentary Stamp Tax Regulations, to the
Internal Revenue, defendant and absolving the effect that if the bill of lading fails to state the value of
defendant- appellant therein from the complaint. the goods shipped, it must be held that the tax is due, is
illegal; (3) that the documentary stamp tax on freight
Plaintiff is a common carrier engaged in transporting receipts should be paid by the shipper of the
passengers and freight by means of TPU buses in merchandise, not by the carrier; and (4) that the
Misamis Occidental and Northern Zamboanga. collection of the tax is illegal because it was done
Sometime in the year 1941 the provincial revenue agent beyond the period of limitation fixed by law for its
for Misamis Occidental examined the stubs of the collection. The first proposition, that the Court of
freight receipts that had been issued by the plaintiff. He Appeals had no jurisdiction of the appeal from the Court
found that the stubs of the receipts issued during the of First Instance, is well founded. Both the Constitution
years 1936 to 1938 were not preserved; but those for and the Judiciary Act of 1948 grant to the Supreme
the years 1939 to 1940 were available. By referring, Court exclusive appellate jurisdiction over all cases
however, to the conductors’ daily reports for 1936 to involving the legality of any tax, assessment, or toll, or
1938, he was able to ascertain the number of receipts any penalty in relation thereto. The Court of Appeals in
for those years and these, together with those for 1939 turn has no jurisdiction over cases the exclusive
to 1940, gave a total during the 5-year period from 1936 appellate jurisdiction of which is granted the Supreme-
to 1940, of 194,406 freight receipts issued. Both the Court. As the legality or validity of the tax is involved in
said daily reports of plaintiff’s conductors and the the present appeal the Supreme Court is the one that
available stubs did not state the value of the goods had jurisdiction thereof and the Court of Appeals had
transported thereunder. Pursuant, however, to sections none. The decision of the Court of Appeals was,
121 and 127 of the Revised Documentary Stamp Tax therefore, null and void. But the claim that freight
Regulations of the Department of Finance promulgated tickets of bus companies are not "bills of lading or
on September 16, 1924, he assumed that the value of receipts" within the meaning of the Documentary
the goods covered by each of the above- mentioned Stamp Tax Law is without merit. Bills of lading, in
freight receipts amounted to more than P5, and modern jurisprudence, are not those issued by masters
assessed a documentary stamp tax of P0.04 on each of of vessels alone; they now comprehend all forms of
transportation, whether by sea or land, and includes used by common carriers in the transportation of
bus receipts for cargo transported. merchandise or goods for the collection of fees therefor
are considered as bills of lading, and the original thereof
"The term ‘bill of lading’ is frequently defined, especially issued or used should bear the documentary stamp as
by the order authorities, as a writing signed by the provided by paragraphs (q) and (r) of section 1449 of
master of a vessel acknowledging the receipt of goods the Administrative Code
on board to be transported to a certain part and there
delivered to a designated person or on his order. This
definition was formulated at a time when goods were The above regulations were promulgated under the
authority of section 79 (B) of the Administrative Code
principally transported by sea and, while adequate in
view of the conditions existing at that early day, is too (originally section 2 of Act 2803), which expressly
provides:
narrow to suit present conditions. As comprehending all
methods of transportation, a bill of lading may be "The Department Head shall have power to
defined as a written acknowledgment of the receipt of promulgate, whenever he may see fit to do so, all rules,
goods and an agreement to transport and to deliver regulations, orders, circulars, memorandums, and other
them at a specified place to a person named or on his instructions, not contrary to law, necessary to regulate
order. Such instruments are sometimes called ’shipping the proper working and harmonious and efficient
receipts,’ ‘forwarders’ receipts’ and ‘receipts for administration of each and all of the offices and
transportation.’ The designation, however, is not dependencies of his Department, and for the strict
material, and neither is the form of the instrument. If it enforcement and proper execution of the laws relative
contains an acknowledgment by the carrier of the to matters under the jurisdiction of said Department;
receipt of goods for transportation, it is, in legal effect, a but none of said rules or orders shall prescribe penalties
bill of lading." for the violation thereof, except as expressly authorized
by law. .
Section 227 of the National Internal Revenue Code
imposes the tax on receipts for goods or effects shipped Did the Secretary of Finance infringe or violate any right
from one port or place to another port or place in the of the taxpayer when he directed that the tax is to be
Philippines. The use of the word place after port and of collected in all cases where the bill of lading or receipt
the word "receipt" shows that the receipts for goods does not state that the shipment is worth P5 or less, or,
shipped on land are included. in the language of the petitioner-appellant, when he
(Secretary) created a presumption of liability to the tax
The next claim involves the validity of Department of if the receipt fails to state such value? It can not be
Finance Regulation No. 26 dated September 16, 1924, denied that the regulation is merely a directive to the
which provides: tax officers; it does not purport to change or modify the
law; it does not create a liability to the stamp tax when
"SEC. 121. Basis of the tax and affixture of stamps. —
Bills of lading are exempt from the documentary stamp the value of the goods does not appear on the face of
the receipt. The practical usefulness of the directive
tax imposed by paragraphs (q) and (r) of section 1449 of
the Administrative Code when the value of the goods becomes evident when account is taken of the fact that
tax officers are in no position to witness the issuance of
shipped is P5 or less. Unless the bill of lading states that
the goods are worth P5 or less, it must be held that the receipts and check the value of the goods for which
they are issued. If tax officers were to assess or collect
tax is due, and internal revenue officers will see to it
that the tax is paid in all cases where the bill of lading the tax only when they find that the value of the goods
covered by the receipts is more than five pesos, the
does not state that the shipment is worth P5 or less.
assessment and collection of the tax would be well-nigh
"SEC. 127. ‘Chits,’ memorandum slips, and other papers impossible, as it is impossible for tax collectors to
not in the usual commercial form of bills of lading, when determine from the receipts alone, if they do not
contain the value of the goods, whether the goods regulations for such examinations. Such regulations,
receipted for exceed P5, or not. The regulation impliedly once established and found to be in conformity with the
required the statement of the value of the goods in the general purposes of the law, are just as binding upon all
receipts; so that the collection of the tax can be of the parties, as if the regulations had been written in
enforced. This the petitioner-appellant failed to do and the original law itself. (United States v. Grimaud, 22 U.
he now claims the unreasonableness of the provision as S., 506; Williamson v. United States, 207 U. S., 425;
a basis for his exemption. We find that the regulation is United States v. United Verde Copper Co., 196 U. S.,
not only useful, practical and necessary for the 207.)" (United States v. Tupasi Molina, 29 Phil., 119,
enforcement of the law on the tax on bills of lading and 125.)
receipts, but also reasonable in its provisions.
Another reason for sustaining the validity of the
The regulation above quoted falls within the scope of regulation may be found in the principle of legislative
the administrative power of the Secretary of Finance, as approval by re-enactment. The regulations were
authorized in Section 79 (B) of the Revised approved on September 16, 1924. When the National
Administrative Code, because it is essential to the strict Internal Revenue Code was approved on February 18,
enforcement and proper execution of the law which it 1939, the same provisions on stamp tax, bills of lading
seeks to implement. Said regulations have the force and and receipts were reenacted. There is a presumption
effect of law. that the Legislature reenacted the law on the tax with
full knowledge of the contents of the regulations then in
"In the very nature of things in many cases it becomes force regarding bills of lading and receipts, and that it
impracticable for the legislative department of the approved or confirmed them because they carry out the
Government to provide general regulations for the legislative purpose.
various and varying details for the management of a
particular department of the Government. It therefore ". . . Of course, the rule does not operate to freeze a
becomes convenient for the legislative department of meaning which is in evident conflict with the clearly
the Government, by Law, in a most general way, to expressed legislative intent. Helvering v. Hallock, 309 U.
provide for the conduct, control and management of S. 106, 119-121, 60 S. Ct. 444, 84 L. Ed. 604 A.L.R. 1368.
the work of the particular department of the But where a statute is susceptible of the meaning
Government; to authorize certain persons, in charge of placed upon it by Treasury ruling and Congress
the management, control, and direction of the thereafter reenacts the provision without substantial
particular department, to adopt certain rules and change, such action is to some extent confirmatory that
regulations providing for the detail of the management the ruling carries out the congressional purpose."
and control of such department. Such regulations have (Mead Corporation v. Commissioner of Internal
uniformly been held to have the force of law, whenever Revenue, 116 F [2d] 187, p. 194)
they are found to be in consonance and in harmony
with the general purposes and objects of the law. Many "The fact that an identical Treasury Regulation with
illustrations might be given. For instance, the Civil regard to computation of stamp tax on conveyances
Service Board is given authority to examine applicants had been in effect during several re-enactments of the
for various positions within the Government service. statute was pursuasive evidence of congressional
The law generally provides the conditions in a most approval thereof. . . .." (Railroad Federal Sav. and Loan
general way, authorizing the chief of such Bureau to Ass’n. v. United States, 135 F [2d], p. 290)
provide rules and regulations for the management of
the conduct of examinations, etc. The law provides that "The law, I believe, is now settled that substantial re-
the Collector of Customs shall examine persons who enactment of legislation which has been construed by
become applicants to act as captains of ships for the Treasury regulations is at least strong evidence of
coastwise trade, providing at the same time that the legislative approval of such construction. It is presumed
Collector of Customs shall establish rules and that Congress knew of the existing administrative
interpretations of the statute. . . ." (Cargill v. United contention. It is a common knowledge that when barrio
States, 46 F. Supp. 712, 716.)\ residents or those living in farms go to town and bring
along with them their daily needs on their daily
"Regulations promulgated by the Commissioner of produce, they ordinarily do not secure receipts for these
Internal Revenue under authority of the Revenue Act of baggages or cargoes but keep these under their seats.
1928 acquired the effect of law by substantial re- The common practice is for a passenger carrying
enactment of provision of the 1928 Act in the 1932 cargoes of small value not to secure receipts therefor;
Revenue Act. . . ." (S. Slater & Sons, Inc., v. White, etc., for convenience and economy he keeps them under his
33 F. Supp. 329, 330.) seat in the bus so as to make them easily accessible
It is to be noted that the regulation does not purport to when he goes down, and at the same time save the few
modify or change the law in the sense that when the centavos that the issuance of the receipt entails. On the
value of the merchandise (for which the receipt is other hand, receipts for valuable cargo are demanded,
issued) does not appear thereon the tax shall always be to insure against their loss. Our conclusion is that the
imposed. Such a meaning would have the effect of receipts must have been issued for shipments or
changing the law; the regulation should not be merchandise in excess of P5 in value. The evidence
understood in this illegal or authorized sense. The submitted notwithstanding, the fact that it has not been
regulation should be considered merely as a directive to contradicted fails to prove to our satisfaction that the
internal revenue officers to assess the tax and collect merchandise for which receipts were issued were
the same. As already adverted to, it only creates a actually worth P5 or less. Furthermore, the rule is that
presumption of the liability of the taxpayer, which in actions for the recovery of taxes assessed and
presumption, however, is not conclusive upon the collected, the taxpayer has the burden of proving that
taxpayer who can adduce evidence that the tax is not the assessment is illegal.
collectible because the value of the merchandise
concerned does not exceed the amount of P5. It was in "All presumptions are in favor of the correctness of tax
pursuance of this interpretation of the regulation that assessments. The good faith of tax assessors and the
the trial court permitted evidence to be introduced to validity of their actions are presumed. They will be
show that the petitioner-appellant is not subject to the presumed to have taken into consideration all the facts
tax on the receipts. to which their attention was called. No presumption can
be indulged that all of the public officials of the state in
Claim is made that the evidence submitted by the the various counties who have to do with the
petitioner- appellant proved that the freight receipts assessment of property for taxation will knowingly
covered shipment of merchandise worth not more than violate the duties imposed upon them by
P5. It is argued in support of this claim that the said law."chanrob1es virtual 1aw library
freight receipts were issued to people carrying
agricultural produce from one place to another, perhaps "As a logical outgrowth of the presumption in favor of
from their farms to the towns or to their residences. the validity of assessments, when such assessments are
The Court of Appeals’ decision, upon which the claim is assailed, the burden of proof is upon the complaining
made, does not state that said receipts were actually party. It is incumbent upon the property owner clearly
issued for shipments the value of which was not more to show that the assessment was erroneous, in order to
than P5 each. The decision of the Court of Appeals in relieve himself from it." (51 Am. Jur. pp. 620-621.)
fact is that the petitioner-appellant "merely tried to
establish through his witnesses" the facts above "The burden is on him who seeks the recovery of a tax
mentioned, which is not a finding that the receipts already paid to establish those facts which show its
covered merchandise more than P5 in value. Upon invalidity. United States v. Anderson, 269 U. S. 422, 428,
consideration of the claim and the testimonies with 70 L. ed. 347, 46 Sup. Ct. Rep. 131; Fidelity Title & T. Co.
which it is supported, we are unable to agree with said v. United States, 259 U. S. 304, 306, 66 L. ed., 953, 954,
42 Sup. Ct. Rep. 514. . . ." (Compañia General de 1941. In order to sustain the claim of the invalidity of
Tabacos v. Collector of Int. Rev., 73 L. ed., 704, 706.) the levy, it is necessary for the plaintiff to allege and
prove that the levy took place after five years from the
". . .. But the presumption is that taxes paid are rightly date of the assessments. But the date of the assessment
collected upon assessments correctly made by the has not been proved. This is a material matter that the
commissioner, and in a suit to recover them the burden petitioner-appellant should have proved to assail the
rests upon the taxpayer to prove all the facts necessary levy. Because of his failure to do so the exemption from
to establish the illegality of the collection. United States levy may not be invoked by him. Besides, the question
v. Anderson, supra. See United States v. Rindskopt, 106 was not raised in the pleadings as a ground to void the
U. S. 419, 26 L. ed., . . ." (Niles Bement Pond Co. v. collection of the amount. The court cannot assume that
United States, 74 L. ed., 901, 904.) the levy and distraint took place beyond the period
prescribed by law. This conclusion is supported by the
The rule above-mentioned has not been complied with presumption of the regularity of the acts of public
and the action for recovery must be denied. officers. In any event the collection was made in 1947,
within ten years after the discovery in 1941, and the
It is also contended that the tax should be collected liability of petitioner-appellant is not thereby affected.
from the holder of the receipt, and not from the one
who collected it, which is the transportation company. For the foregoing considerations, the judgment of the
There is no merit in this contention because the law Court of Appeals is declared void and that of the Court
expressly provides that the tax should be paid by the of First Instance, reversed and the respondent-appellee
one "making, signing, issuing, accepting, or transferring absolved from the complaint. With costs against the
the same." (Section 1449, Revised Administrative Code petitioner-appellant.
of 1917) . The receipts were made and issued by the
transportation company; it is therefore liable for the
payment of the tax thereon.

The last contention of the petitioner-appellant is that

the tax could no longer be collectible because the same
was assessed and collected after seven years, the tax
[G.R. No. 128315. June 29, 1999.]
having been due in 1936-1938 and the assessment
having been made in the year 1947. The period within COMMISSIONER OF INTERNAL REVENUE, Petitioner, v.
which a tax may be assessed is ten years after the PASCOR REALTY AND DEVELOPMENT CORPORATION,
discovery of the falsity, fraud or omission (section 332, ROGELIO A. DIO and VIRGINIA S. DIO, Respondents.
paragraph (a), National Internal Revenue Code).
Petitioner-appellant cites, in support of his contention, DECISION
paragraph (c) of the same action. This paragraph refers
to the collection of the tax by distraint or by levy or by a
PANGANIBAN, J.:
proceeding in court, and the period prescribed is within
five years after the assessment of the tax.
An assessment contains not only a computation of tax
Was the levy justified? The discovery, according to the liabilities, but also a demand for payment within a
pleadings, took place in the year 1941 and the warrant prescribed period. It also signals the time when
penalties and interests begin to accrue against the
of distraint or levy was issued on September 30, 1946
taxpayer. To enable the taxpayer to determine his
(paragraphs 3 and 4 of the complaint). The pleadings do remedies thereon, due process requires that it must be
not show, neither does the evidence, the specific date served on and received by the taxpayer. Accordingly, an
of the assessment. It is only alleged in the complaint affidavit, which was executed by revenue officers
that the examination of the books took place in the year stating the tax liabilities of a taxpayer and attached to a
criminal complaint for tax evasion, cannot be deemed complaint filed by the Commissioner of Internal
an assessment that can be questioned before the Court Revenue (BIR) against them.
of Tax Appeals.
"In a letter dated May 17, 1995, the CIR denied the
Statement of the Case urgent request for reconsideration/reinvestigation of
the private respondents on the ground that no formal
Before this Court is a Petition for Review assessment has as yet been issued by the
on Certiorari under Rule 45 of the Rules of Court praying Commissioner.
for the nullification of the October 30, 1996 Decision 1
of the Court of Appeals 2 in CA-GR SP No. 40853, which "Private respondents then elevated the Decision of the
effectively affirmed the January 25, 1996 Resolution 3 of CIR dated May 17, 1995 to the Court of Tax Appeals on
the Court of Tax Appeals 4 in CTA Case No. 5271. The a petition for review docketed as CTA Case No. 5271 on
CTA disposed as follows: July 21,1995. On September 6, 1995, the CIR filed a
Motion to Dismiss the petition on the ground that the
"WHEREFORE, finding [the herein petitioner’s] ‘Motion CTA has no jurisdiction over the subject matter of the
to dismiss’ as UNMERITORIOUS, the same is hereby petition, as there was no formal assessment issued
DENIED. [The CIR] is hereby given a period of thirty (30) against the petitioners. The CTA denied the said motion
days from receipt hereof to file her answer." to dismiss in a Resolution dated January 25, 1996 and
ordered the CIR to file an answer within thirty (30) days
Petitioner also seeks to nullify the February 13, 1997
from receipt of said resolution. The CIR received the
Resolution 5 of the Court of Appeals denying
resolution on January 31, 1996 but did not file an
reconsideration.chanrobles virtual lawlibrary
answer nor did she move to reconsider the resolution.

"Instead, the CIR filed this petition on June 7, 1996,

The Facts alleging as grounds that:chanrob1es virtual 1aw library

As found by the Court of Appeals, the undisputed facts ‘Respondent Court of Tax Appeals acted with grave
of the case are as follows: abuse of discretion and without jurisdiction in
considering the affidavit/report of the revenue officer
"It appears that by virtue of Letter of Authority No. and the indorsement of said report to the secretary of
001198, then BIR Commissioner Jose U. Ong authorized justice as assessment which may be appealed to the
Revenue Officers Thomas T. Que, Sonia T. Estorco and Court of Tax Appeals;
Emmanuel M. Savellano to examine the books of
accounts and other accounting records of Pascor Realty Respondent Court of Tax Appeals acted with grave
and Development Corporation, (PRDC) for the years abuse of discretion in considering the denial by
ending 1986, 1987 and 1988. The said examination petitioner of private respondents’ Motion for
resulted in a recommendation for the issuance of an Reconsideration as [a] final decision which may be
assessment in the amounts of P7,498,434.65 and appealed to the Court of Tax Appeals.’
P3,015,236.35 for the years 1986 and 1987,
respectively. "In denying the motion to dismiss filed by the CIR, the
Court of Tax Appeals stated:
"On March 1, 1995, the Commissioner of Internal
Revenue filed a criminal complaint before the ‘We agree with petitioners’ contentions, that the
Department of Justice against the PRDC, its President criminal complaint for tax evasion is the assessment
Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging issued, and that the letter denial of May 17, 1995 is the
evasion of taxes in the total amount of P10,513,671.00. decision properly appealable to [u]s. Respondent’s
Private respondents PRDC, Et. Al. filed an Urgent ground of denial, therefore, that there was no formal
Request for Reconsideration/Reinvestigation disputing assessment issued, is untenable.
the tax assessment and tax liability.
‘It is the Court’s honest belief, that the criminal case for
"On March 23, 1995, private respondents received a tax evasion is already an assessment. The complaint,
subpoena from the DOJ in connection with the criminal more particularly, the Joint Affidavit of Revenue
Examiners Lagmay and Savellano attached thereto,
contains the details of the assessment like the kind and the said assessment could be the subject of a protest.
amount of tax due, and the period covered. By definition, an assessment is simply the statement of
‘Petitioners are right, in claiming that the provisions of the details and the amount of tax due from a taxpayer.
Republic Act No. 1125, relating to exclusive appellate Based on this definition, the details of the tax contained
jurisdiction of this Court, do not, make any mention of in the BIR examiners’ Joint Affidavit, 8 which was
‘formal assessment.’ The law merely states, that this attached to the criminal Complaint, constituted an
Court has exclusive appellate jurisdiction over decisions assessment. Since the assailed Order of the CTA was
of the Commissioner of Internal Revenue on disputed merely interlocutory and devoid of grave abuse of
assessments, and other matters arising under the discretion, a petition for certiorari did not lie.
National Internal Revenue Code, other law or part
administered by the Bureau of Internal Revenue Code. Issues

‘As far as this Court is concerned, the amount and kind Petitioners submit for the consideration of this Court
of tax due, and the period covered, are sufficient details the following issues:
needed for an ‘assessment’ these details are more than
complete, compared to the following definitions of the "(1) Whether or not the criminal complaint for tax
term as quoted hereunder. Thus: evasion can be construed as an assessment.
‘Assessment is laying a tax. Johnson City v. Clinchfield R.
Co., 43 S.W. (2d) 386, 387, 163 Tenn. 332. (Words and (2) Whether or not an assessment is necessary before
Phrases, Permanent Edition, Vo. 4, p. 446) criminal charges for tax evasion may be instituted.

‘The word assessment when used in connection with (3) Whether or not the CTA can take cognizance of the
taxation, may have more than one meaning. The case in the absence of an assessment."
ultimate purpose of an assessment to such a connection
is to ascertain the amount that each taxpayer is to pay. In the main, the Court will revolve whether the revenue
More commonly, the word ‘assessment’ means the officers’ Affidavit-Report, which was attached to the
official valuation of a taxpayer’s property for purpose of criminal Complaint filed with the Department of Justice,
taxation. State v. New York, N.H. and H.R. Co. 22 A. 765, constituted an assessment that could be questioned
768, 60 Conn. 326, 325. (Ibid. p. 445)’ before the Court of Tax Appeals.

‘From the above, 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,
The Court’s Ruling
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
The petition is meritorious.
there being a denial of their letter disputing such
assessment, this Court unquestionably acquired
Petitioner argues that the filing of the criminal
jurisdiction over the instant petition for review.’" 6 
complaint with the Department of Justice cannot in any
way be construed as a formal assessment of private
As earlier observed, the Court of Appeals sustained the
respondents’ tax liabilities. This position is based on
CTA and dismissed the petition.
Section 205 of the National Internal Revenue Code 10
(NIRC), which provides that remedies for the collection
Hence, this recourse to this Court. 7 
of the deficient taxes may be by either civil or criminal
Ruling of the Court of Appeals
action. Likewise, petitioner cites Section 223 (a) of the
same Code, which states that in case of failure to file a
return, the tax may be assessed or a proceeding in court
The Court of Appeals held that the tax court committed
may be begun without assessment.
no grave abuse of discretion in ruling that the Criminal
Complaint for tax evasion filed by the Commissioner of
Respondents, on the other hand, maintain that an
Internal Revenue with the Department of Justice
assessment is not an action or proceeding for the
constituted an "assessment" of the tax due, and that
collection of taxes, but merely a notice that the amount
stated therein is due as tax and that the taxpayer is to make an assessment or to protest the same, or
required to pay the same. Thus, qualifying as an whether interest and penalty may accrue thereon.
assessment was the BIR examiners’ Joint Affidavit, It should also be stressed that the said document is a
which contained the details of the supposed taxes due notice duly sent to the taxpayer. Indeed, an assessment
from respondent for taxable years ending 1987 and is deemed made only when the collector of internal
1988, and which was attached to the tax evasion revenue releases, mails or sends such notice to the
Complaint filed with the DOJ. Consequently, the denial taxpayer. 16 
by the BIR of private respondents’ request for
reinvestigation of the disputed assessment is properly In the present case, the revenue officers’ Affidavit
appealable to the CTA. merely contained a computation of respondents’ tax
liability. It did not state a demand or a period for
We agree with petitioner. Neither the NIRC nor the payment. Worse, it was addressed to the justice
revenue regulations governing the protest of secretary, not to the taxpayers.
assessments 11 provide a specific definition or form of
an assessment. However, the NIRC defines the specific Respondents maintain that an assessment, in relation to
functions and effects of an assessment. To consider the taxation, is simply understood to mean:
affidavit attached to the Complaint as a proper
assessment is to subvert the nature of an assessment "A notice to the effect that the amount therein stated is
and to set a bad precedent that will prejudice innocent due as tax and a demand for payment thereof." 17 
taxpayers.
"Fixes the liability of the taxpayer and ascertains the
True, as pointed out by the private respondents, an facts and furnishes the data for the proper presentation
assessment informs the taxpayer that he or she has tax of tax rolls." 18 
liabilities. But not all documents coming from the BIR
containing a computation of the tax liability can be Even these definitions fail to advance private
deemed assessments. respondents’ case. That the BIR examiners’ Joint
Affidavit attached to the Criminal Complaint contained
To start with, an assessment must be sent to and some details of the tax liabilities of private respondents
received by a taxpayer, and must demand payment of does not ipso facto make it an assessment. The purpose
the taxes described therein within a specific period. of the Joint Affidavit was merely to support and
Thus, the NIRC imposes a 25 percent penalty, in substantiate the Criminal Complaint for tax evasion.
addition to the tax due, in case the taxpayer fails to pay Clearly, it was not meant to be a notice of the tax due
the deficiency tax within the time prescribed for its and a demand to the private respondents for payment
payment in the notice of assessment. Likewise, an thereof.
interest of 20 percent per annum, or such higher rate as
may be prescribed by rules and regulations, is to be The fact that the Complaint itself was specifically
collected from the date prescribed for its payment until directed and sent to the Department of Justice and not
the full payment. 12  to private respondents shows that the intent of the
commissioner was to file a criminal complaint for tax
The issuance of an assessment is vital in determining evasion, not to issue an assessment. Although the
the period of limitation regarding its proper issuance revenue officers recommended the issuance of an
and the period within which to protest it. Section 203 assessment, the commissioner opted instead to file a
13 of the NIRC provides that internal revenue taxes criminal case for tax evasion. What private respondents
must be assessed within three years from the last day received was a notice from the DOJ that a criminal case
within which to file the return. Section 222, 14 on the for tax evasion had been filed against them, not a notice
other hand, specifies a period of ten years in case a that the Bureau of Internal Revenue had made an
fraudulent return with intent to evade was submitted or assessment.
in case of failure to file a return. Also, Section 228 15 of
the same law states that said assessment may be In addition, what private respondents sent to the
protested only within thirty days from receipt thereof. commissioner was a motion for a reconsideration of the
Necessarily, the taxpayer must be certain that a specific tax evasion charges filed, not of an assessment, as
document constitutes an assessment. Otherwise, shown thus:
confusion would arise regarding the period within which
 been made against him or her. In contrast, the criminal
"This is to request for reconsideration of the tax evasion charge need not go through all these. The criminal
charges against my client PASCOR Realty and charge is filed directly with the DOJ. Thereafter, the
Development Corporation and for the same to be taxpayer is notified that a criminal case had been filed
referred to the Appellate Division in order to give my against him, not that the commissioner has issued an
client the opportunity of a fair and objective hearing." assessment. It must be stressed that a criminal
19  complaint is instituted not to demand payment, but to
penalize the taxpayer for violation of the Tax Code.
Additional Issues: Assessment Not Necessary
Before Filing of Criminal Complaint WHEREFORE, the petition is hereby GRANTED. The
assailed Decision is REVERSED and SET ASIDE. CTA Case
Private respondents maintain that the filing of a No. 5271 is likewise DISMISSED. No costs.
criminal complaint must be preceded by an assessment.
This is incorrect, because Section 222 of the NIRC SO ORDERED.
specifically states that in cases where a false or Vitug, Purisima and Gonzaga-Reyes, JJ., concur.
fraudulent return is submitted or in cases of failure to Romero, J., Abroad on official business
file a return such as this case, proceedings in court may
be commenced without an assessment. Furthermore,
Section 205 of the same Code clearly mandates that the
civil and criminal aspects of the case may be pursued
simultaneously. In Ungab v. Cusi, 20 petitioner therein
sought the dismissal of the criminal Complaints for
being premature, since his protest to the CTA had not
yet been resolved. The Court held that such protests
could not stop or suspend the criminal action which was
independent of the resolution of the protest in the CTA.
This was because the commissioner of internal revenue
had, in such tax evasion cases, discretion on whether to
issue an assessment or to file a criminal case against the
taxpayer or to do both.

Private respondents insist that Section 222 should be

read in relation to Section 255 of the NIRC, 21 which
penalizes failure to file a return. They add that a tax
assessment should precede a criminal indictment. We
disagree. To reiterate, said Section 222 states that an
assessment is not necessary before a criminal charge
can be filed. This is the general rule. Private
respondents failed to show that they are entitled to an G.R. No. L-13656             January 31, 1962
exception. Moreover, the criminal charge need only be COLLECTOR OF INTERNAL REVENUE, (now
supported by a prima facie showing of failure to file a Commissioner), petitioner, 
required return. This fact need not be proven by an vs.
assessment. ALBERTO D. BENIPAYO, respondent.
Office of the Solicitor General for petitioner.
The issuance of an assessment must be distinguished Carlos J. Antiporda for respondent.
from the filing of a complaint. Before an assessment is
issued, there is, by practice, a pre-assessment notice DIZON, J.:
sent to the taxpayer. The taxpayer is then given a
chance to submit position papers and documents to This is an appeal taken by the Collector of Internal
prove that the assessment is unwarranted. If the Revenue from the decision of the Court of Tax Appeals
commissioner is unsatisfied, an assessment signed by dated January 23, 1948, reversing the one rendered by
him or her is then sent to the taxpayer informing the the former, thereby relieving respondent Alberto D.
latter specifically and clearly that an assessment has Benipayo from the payment of the deficiency
amusement tax assessed against him in the total children. During this said period due, perhaps,
amount of P12,093.45. to the absence of agents in the premises,
subject taxpayer was able to manipulate the
Respondent is the owner and operator of the Lucena issuance of tickets in the way and manner
Theater located in the municipality of Lucena, Quezon. alleged in Asst. De Guia's indorsement report
On October 3, 1953 Internal Revenue Agent Romeo de mentioned above. But during the period from
Guia investigated respondent's amusement tax liability July 14 to July 24, 1955, when agents of this
in connection with the operation of said theater during Office supervised in the sales of admission
the period from August, 1952 to September, 1953. On tickets the sales for adults soared upwards to
October 15, 1953 De Guia submitted his report to the 76% while that for children dropped
Provincial Revenue Agent to the effect that respondent correspondingly to 24%.
had disproportionately issued tax-free 20-centavo
children's tickets. His finding was that during the years It is opined without fear of contradiction that
1949 to 1951 the average ratio of adults and children the ratio of three (3) adults to every one (1)
patronizing the Lucena Theater was 3 to 1, i.e., for every child in the audience or a proportion of 75:25 as
three adults entering the theater, one child was also reckoned in Asst. De Guia's indorsement report
admitted, while during the period in question, the to this Office's new findings of a proportion of
proportion is reversed - three children to one adult. 76:24, represents and conveys the true picture
From this he concluded that respondent must have of the situation under the law of averages,
fraudulently sold two tax-free 20-centavo tickets, in provided that the film being shown is not a
order to avoid payment of the amusement tax children's show. There is no hard and fast rule
prescribed in Section 260 of the National Internal in this regard, but this findings would seem to
Revenue Code. Based on the average ratio between admit no contradiction.
adult and children attendance in the past years,
Examiner de Guia recommended a deficiency Please note that the new findings of this Office
amusement tax assessment against respondent in the is not a direct proof of what has transpired
sum of P11,193.45, inclusive of 25% surcharge, plus a during the period investigated by Asst. De Guia
suggested compromise penalty of P900.00 for violation and now pending before the Conference
of section 260 of the National Internal Revenue Code, or Staff", . . (Exh. 3, BIR Record, p. 137-138).
a total sum of P12,093.45 covering the period from
August, 1952 to September, 1953 inclusive. On July 14, After considering said report, the Conference Staff of
1954, petitioner issued a deficiency amusement tax the Bureau of Internal Revenue recommended to the
assessment against respondent, demanding from the Collector of Internal Revenue the issuance of the
latter the payment of the total sum of P12,152.93 deficiency amusement tax assessment in question.
within thirty days from receipt thereof. On August 16,
1954, respondent filed the corresponding protest with The only issue in this appeal is whether or not there is
the Conference Staff of the Bureau of Internal Revenue. sufficient evidence in the record showing that
After due hearing, the Conference Staff submitted to respondent, during the period under review, sold and
petitioner Collector of Internal Revenue its finding to issued to his adult customers two tax-free 20-centavo
the effect that the "meager reports of these fieldmen children's tickets, instead of one 40-centavo ticket for
(Examiner de Guia and the Provincial Revenue Agent of each adult customer; to cheat or defraud the
Quezon) are mere presumptions and conclusions, Government. On this question the Court of Tax Appeals
devoid of findings of the fact of the alleged fraudulent said the following in the appealed decision:.
practices of the herein taxpayer". In view thereof, and
as recommended by the Conference Staff, petitioner To our mind, the appealed decision has no
referred the case back to the Provincial Revenue Agent factual basis and must be reversed. An
of Quezon for further investigation. The report assessment fixes and determines the tax liability
submitted by Provincial Revenue Officer H.I. Bernardo of a taxpayer. As soon as it is served, an
after this last investigation partly reads as follows:. obligation arises on the part of the taxpayer
concerned to pay the amount assessed and
The returns from July 1 to July 11, showed that demanded. Hence, assessments should not be
31.43% of the entire audience of 12,754 based on mere presumptions no matter how
consisted of adults, the remaining 68.57% of reasonable or logical said presumptions may be.
 Assuming arguendothat the average ratio of Padilla, Bautista Angelo, Labrador, Concepcion, Reyes,
adults and children patronizing the Lucena J.B.L., Barrera, Paredes and De Leon, JJ., concur.
Theater from 1949 to 1951 was 3 to 1, the same Bengzon, C.J., took no part.
does not give rise to the inference that the
same conditions existed during the years in
question (1952 and 1953). The fact that almost
the same ratio existed during the month of July,
1955 does not provide a sufficient inference on
the conditions in 1952 and 1953. . .

In order to stand the test of judicial scrutiny, the

assessment must be based on actual facts. The
presumption of correctness of assessment
being a mere presumption cannot be made to
rest on another presumption that the
circumstances in 1952 and 1953 are presumed
to be the same as those existing in 1949 to 1951
and July 1955. In the case under consideration
there are no substantial facts to support the
assessment in question. ...

A review of the records has not disclosed anything

sufficient to justify a reversal of the above finding made
by the Court of Tax Appeals. It should be borne in mind
that to sustain the deficiency tax assessed against
respondent would amount, in effect, to a finding that he
had, for a considerable period of time, cheated and
defrauded the government by selling to each adult
patron two children's tax-free tickets instead of one
ticket subject to the amusement tax provided for in
Section 260 of the National Internal Revenue Code.
Fraud is a serious charge and, to be sustained, it must
be supported by clear and convincing proof which, in
the present case, is lacking.

The claim that respondent admitted having resorted to

the anomalous practice already mentioned is not
entirely correct. What respondent appears to have
admitted was that during a certain limited period he
had adopted a sort of rebate system applicable to cases
where adults and children came in groups and were al
anomalous practice already mentioned is not entirely
correct. What respondent appears to have admitted
G.R. No. 76281 September 30, 1991
was that during a certain limited period he had adopted
a sort of rebate ystem applicable to cases where adults
and children came in group and were all charged 20 COMMISSIONER OF INTERNAL REVENUE, petitioner, 
centavo admission tickets. This practice was, however, vs.
discontinued when he was informed by the Bureau of WYETH SUACO LABORATORIES, INC. and THE COURT
Internal Revenue that it was not in accordance with law. OF TAX APPEALS, respondents.

WHEREFORE, the appealed judgment is hereby affirmed

with costs.
FERNAN, C.J.: Thereafter, Wyeth Suaco through its tax consultant SGV
&Co., sent the Bureau of Intemal Revenue two (2)
The sole issue in this petition for review on certiorari is letters dated January 17, 1975 and February 8, 1975,
whether or not petitioner's right to collect deficiency protesting the assessments and requesting their
withholding tax at source and sales tax liabilities from cancellation or withdrawal on the ground that said
private respondent is barred by prescription. assessments lacked factual or legal basis.

The antecedent facts are as follows: Wyeth Suaco argued that it was not liable to pay
withholding tax at source on the accrued royalties and
Private respondent Wyeth Suaco Laboratories, Inc. dividends because they have yet to be remitted or paid
(Wyeth Suaco for brevity) is a domestic corporation abroad. It claimed that it was not able to remit the
engaged in the manufacture and sale of assorted balance of fifty percent (50%) of the accrued royalties to
pharmaceutical and nutritional products. Its accounting its foreign licensors because of Central Bank Circular No.
period is on a fiscal year basis ending October 31 of 289 allowing remittance of royalties up to fifty percent
every year. (50%) only. With regard to what the Bureau of Internal
Revenue claimed as the amount of P2,952,391.00
By virtue of Letter of Authority No. 52415 dated June forming part of the cash dividends declared in 1973,
17, 1974 issued by then Commissioner of Internal Wyeth Suaco alleged that the same was due its foreign
Revenue Misael P. Vera, Revenue Examiner Dante stockholders. Again, Wyeth Suaco was not able to remit
Kabigting conducted an investigation and examination these dividends because of the restriction of the Central
of the books of accounts of Wyeth Suaco. 1 On October Bank in a memorandum implementing CB Circular No.
15, 1974, he submitted a report containing the result of 289 dated February 21, 1970. Thus, Wyeth Suaco's
his investigation. The report disclosed that Wyeth Suaco contention was that a withholding tax at source on
was paying royalties to its foreign licensors as well as royalties and dividends becomes due and payable only
remuneration for technical services to Wyeth upon their actual payment or remittance.
International Laboratories of London. Wyeth Suaco was
also found to have declared cash dividends on On the matter of the withholding tax at source on
September 27, 1973 and these were paid on October remuneration for technical services, Wyeth Suaco
31, 1973. However, it allegedly failed to remit insisted that it was up-to-date in remitting the
withholding tax at source for the fourth (4th) quarter of corresponding withholding tax on this income to the
1973 on accrued royalties, remuneration for technical Bureau of Internal Revenue.
services and cash dividends, resulting in a deficiency
withholding tax at source in the aggregate amount of As to the assessed deficiency sales tax, Wyeth Suaco
P3,178,994.15.2 maintained that the difference between its landed cost
figure (which is the basis for computing the
Moreover, it was reported that during the periods from advancesales tax) and that of the revenue examiner,
November 1, 1972 to December 31, 1972 and January 1, was due to the use of estimated amounts by the Bureau
1973 to October 31, 1973, Wyeth Suaco deducted the of Customs and to foreign exchange differential.
cost of non-deductible raw materials, resulting in its
alleged failure to pay the correct amount of advance Wyeth Suaco however, admitted liability with respect to
sales tax. There was reportedly also a short payment of the short payment of advance sales tax in the amount
advance sales tax in its importation of "Mega Polymycin of P1,000.00 on its importation of "Mega Polymycin D." 5
D" on October 3, 1972. All these resulted in a deficiency
sales tax in the amount of P60,855.21 and compromise On September 12, 1975, the Commissioner of Internal
penalty in the amount of P300.00 or a total amount of Revenue asked Wyeth Suaco to avail itself of the
P61,155.21.3 compromise settlement under LOI 308. In its answer,
Wyeth Suaco manifested its conformity to a 10%
Consequently, the Bureau of Internal Revenue assessed compromise provided it be applied only to the basic
Wyeth Suaco on the aforesaid tax liabilities in two (2) sales tax, excluding surcharge and interest. As to the
notices dated December 16, 1974 and December 17, deficiency withholding tax at source, Wyeth took
1974. These assessment notices were both received by exception on the ground that it involves purely a legal
Wyeth Suaco on December 19, 1974.4 question and some of the amounts included in the
assessment have already bee paid.
On December 10, 1979, petitioner, thru then acting The basis of the above decision was the finding of the
Commissioner of Internal Revenue Ruben B. Ancheta, Tax Court that while the assessments for the deficiency
rendered a decision reducing the assessment of the taxes were made within the five-year period of
withholding tax at source for 1973 to P1,973,112.86. limitation, the right of petitioner to collect the same has
However, the amount of P61,155.21 as deficiency sales already prescribed, in accordance with Section 319 (c)
tax remained the same.6 of the Tax Code of 1977. The said law provides that an
assessment of any internal revenue tax within the five-
Thereafter, Wyeth Suaco filed a petition for review in year period of limitation may be collected by distraint or
Court of Tax Appeals on January 18, 1980, praying that levy or by a proceeding in court, but only if begun
lpeti tioner be enjoined from enforcing the assessments within five (5) years after the assessment of the tax.
by reason of prescription and that the assessments be
declared null and void for lack of legal and factual basis. 7 Hence, this recourse by petitioner.

On February 7, 1980, petitioner issued a warrant of The applicable laws in the instant case are Sections 318
distrain of personal property and warrant of levy of real and 319 (c) of the National Internal Revenue Code of
property again private respondent to enforce collection 1977 (now Sections 203 and 224 of the National Internal
of the deficiency taxes. These were served on private Revenue Code of 1986), to wit:
respondent on March 12, 1980. 8 However, collection of
the deficiency taxes by virtue of warrants of distraint SEC. 318. Period of limitation upon assessment
and levy was enjoined by respondent court upon and collection — Except as provided in the
motion of Wyeth Suaco in a resolution dated May 22, succeeding section, internal revenue taxes shall
1980.9 be assessed within five years after the return
was filed, and no proceeding in court without
On May 30, 1980, petitioner filed his answer to Wyeth assessment for the collection of such taxes shall
Suaco's petition for review praying, among others, that be begun after the expiration of such period. ...
private respondent be declared liable to pay the
amount of P61,155.21 as deficiency sales tax for the SEC. 319. Exceptions as to period of limitations
periods November 1, 1972 to December 31, 1972 and of assessment and collection of taxes. —
January 1, 1973 to October 31, 1973, plus 14% annual
interest thereon from December 17, 1974 until payment x x x           x x x          x x x
thereof pursuant to Section 183 (now Section 193) of
the Tax Code, and the amount of P1,973,112.86 as (c) Where the assessment of any internal
deficie withholding tax at source for the 4th quarter of revenue tax has been made within the period of
1973 plus 5% surcharge and 14% per annum interest limitation above-prescribed such tax may be
thereon from December 16, 1974 to December 16, collected by distraint or levy by a proceeding in
1977, pursuant to Section 51 (e) of the Tax Code of court, but only if begun (1) within five years
1977, as amended.10 after the assessment of the tax, or (2) prior the
expiration of any period for collection agreed
On August 29, 1986, the Court of Tax Appeals rendered upon in writing by the Commissioner and the
a decision enjoining the Commissioner of Internal taxpayer before the expiration of such five-year
Revenue from collecting the deficiency taxes, the period. The period so agreed upon may be
dispositive portion of which reads as follows: extended by subsequent agreements in writing
made before the expiration of the period
WHEREFORE, the decision appealed from is previously agreed upon. (emphasis supplied)
hereby reversed and respondent Commissioner
of Internal Revenue is hereby enjoined from The main thrust of petitioner for the allowance of this
collecting the deficiency withholding tax at petition is that the five-year prescriptive period
source for the fourth quarter of 1973 as well as provided by law to mak a collection by distraint or levy
the deficiency sales tax assessed against or by a proceeding in court has not yet prescribed.
petitioner (Wyeth Suaco). Without Although he admits that more than five (5) years have
pronouncement as to costs.11 already lapsed from the time the assessment notices
were received by private respondent on December 19,
1974 up to the time the warrants of distraint and levy
were served on March 12, 1980, he avers that the waived it (prescription in writing)". ... (emphasis
running of the prescriptive period was stayed or supplied)
interrupted when Wyeth Suaco protested the
assessments. Petitioner argues that the protest letters Thus, the pivotal issue in this case is whether or not
sent by SGV & Co. in behalf of Wyeth Suaco dated Wyeth Suaco sought reinvestigation or reconsideration
January 17, 1975 and February 8, 1975, requesting for of the deficiency tax assessments issued by the Bureau
withdrawal and cancellation of the assessments were of Internal Revenue.
actually requests for reinvestigation or reconsideration,
which could interrupt the running of the five-year After carefully examining the records of the case, we
prescriptive period. find that Wyeth Suaco admitted that it was seeking
reconsideration of the tax assessments as shown in a
Wyeth Suaco, on the other hand, maintains the position letter of James A. Gump, its President and General
that it never asked for a reinvestigation nor Manager, dated April 28, 1975, the relevant portion of
reconsideration of th assessments. What it requested which is quoted hereunder, to wit:
was the cancellation and with drawal of the
assessments for lack of legal and factual basis. Thus, its We submit this letter as a follow-up to our
protest letters dated January 17, 1975 and February 8, protest filed with your office, through our tax
1975 did not suspend or interrupt the running of the advisers, Sycip, Gorres, Velayo & Co., on January
five-year prescriptive period. 20 and February 10, 1975 regarding alleged
deficiency on withholding tax at source of
Settled is the rule that the prescriptive period provided P3,178,994.15 and on percentage tax of
by law to make a collection by distraint or levy or by a P60,855.21, including interest and
proceeding in court is interrupted once a taxpayer surcharges, on which we are seeking
requests for reinvestigation or reconsideration of the reconsideration.15 (emphasis supplied)
assessment. In the case of Commissioner of Internal
Revenue vs. Capitol Subdivision, Inc.,12 this Court held: Furthermore, when Wyeth Suaco thru its tax consultant
SGV & Co. sent the letters protesting the assessments,
The period of prescription of action to collect a the Bureau of Internal Revenue, Manufacturing Audit
taxpayer's deficiency income tax assessment is Division, conducted a review and reinvestigation of the
interrupted when the taxpayer request for a assessments. This fact was admitted by Wyeth Suaco
review or reconsideration of said assessment, thru its Finance Manager in a letter dated July 1, 1975
and starts to run again when said request is addressed to the Chief, Tax Accounts Division. The
denied. pertinent portion of said letter reads as follows:

In another case, this Court stated that the statutory This will acknowledge receipt of your letter
period of limitation for collection may be interrupted if dated May 22, 1975 regarding our alleged
by the taxpayer's repeated requests or positive acts the income and business tax deficiencies for fiscal
Government has been, for good reasons, persuaded to year 1972/73.
postpone collection to make him feel that the demand
was not unreasonable or that no harassment or x x x           x x x          x x x
injustice is meant by the Goverrument. 13 Also in the
case of Cordero vs. Gonda,14 we held: Nevertheless, please be advised that the
deficiency tax stated in your letter is what we
Partial payment would not prevent the are protesting on pursuant to the letters we
government from suing the taxpayer. Because, filed with the Bureau of Internal Revenue on
by such act of payment, the government is not January 20, 1975 and on February 10, 1975.
thereby "persuaded to postpone collection to
make him feel that the demand was not x x x           x x x          x x x
unreasonable or that no harassment or injustice
is meant." This is the underlying reason behind As we understand, the matter is now
the rule that the prescriptive period is arrested undergoing review and consideration by your
by the taxpayer's request for re-examination or Manufacturing Audit Division. Pending the
reinvestigation — even if he "has not previously outcome of their decision, we regret our
 inability to make settlement. ... 16 (Emphasis Bureau of Internal Revenue once the incomes subject to
supplied) withholding tax at source have actually been paid. Thus,
private respondent avers that it was not liable to remit
Although the protest letters prepared by SGV & Co. in the taxes withheld at source on royalties and dividends
behalf of private respondent did not categorically state unless these incomes have been actually paid to its
or use th words "reinvestigation" and "reconsideration," foreign licensors and stockholders.
the same are to be treated as letters of reinvestigation
and reconsideration. By virtue of these letters, the It is said that taxes are what we pay for civilized society.
Bureau of Internal Revenue ordered its Manufacturing Without taxes, the government would be paralyzed for
Audit Division to review the assessment made. lack of the motive power to activate and operate it. ... It
Furthermore, private respondent's claim that it did not is the lifeblood of the government and so should be
seek reinvestigation or reconsideration of the collected without unnecessary hindrance ... 17
assessments is belied by the subsequent
correspondence or letters written by its officers, as In line with this principle, the Tax Code, particularly
shown above. Section 54 (a) [now Section 51 (a)] provides that "the
Commissioner of Internal Revenue may, with the
These letters of Wyeth Suaco interrupted the running of approval of the Secretary of Finance, require the
the five-year prescriptive period to collect the withholding agents to pay or deposit the taxes deducted
deficiency taxes. The Bureau of Internal Revenue, after and withheld at more frequent intervals when
having reviewed the record of Wyeth Suaco, in necessary to protect the interest of the government.
accordance with its request for reinvestigation, The return shall be filed and the payment made within
rendered a final assessment. This final assessment issue 25 days from the close of each calendar quarter".
by then Acting Commissioner Ruben B. Ancheta was Presently, Revenue Regulation No. 6-85 effective July 1,
date December 10, 1979 and received by private 1985, requires the filing of monthly return and payment
respondent on January 2, 1980, fixed its tax liability at of taxes withheld at source within (10) days after the
P1,973,112.86 as deficiency withholding tax at source end of each month.
and P61,155.21 as deficiency sales tax. It was only upon
receipt by Wyeth Suaco of this final assessment that the Moreover, the records show that Wyeth Suaco adopted
five-year prescriptive period started to run again. the accrual method of accounting wherein the effect of
transactions and other events on assets and liabilities
Verily, the original assessments dated December 16 and are recognized and reported in the time periods to
17, 1974 were both received by Wyeth Suaco on which they relate rather than only when cash is
December 19, 1974. However, when Wyeth Suaco received or paid. The "Report of Investigation"
protested the assessments and sought its submitted by the tax examiner indicated that accrual
reconsideration in two (2) letters received by the was the basis of the taxpayer's return. 18 Thus, private
Bureau of Internal Revenue on January 20 and February respondent recorded accrued royalties and dividends
10, 1975, the prescriptive period was interrupted. This payable as well as the withholding tax at source payable
period started to run again when the Bureau of Internal on these incomes. Having deducted and withheld the
Revenue served the final assessment to Wyeth Suaco on tax at source and having recorded the withholding tax
January 2, 1980. Since the warrants of distraint and levy at source payable in its books of accounts, private
were served on Wyeth Suaco on March 12, 1980, then, respondent was obligated to remit the same to the
only about four (4) months of the five-year prescriptive Bureau of Internal Revenue.
period was used.
With regard to the accuracy of the assessment on
Having resolved the issue of prescription, we now come deficiency sales tax, we rule that the examiner's
to the merits of the case. assessment should be given full weight and credit, in
the absence of proof submitted by Wyeth Suaco to the
Wyeth Suaco questions the legality of the regulation contrary. This is in line with our ruling in several cases
imposed by the Bureau of Intemal Revenue of requiring wherein we said that tax assessments by tax examiners
a withholding agent or taxpayer to remit the taxes are presumed correct and made in good faith. The
deducted and withheld at source on incomes which taxpayer has the duty to prove otherwise. In the
have not yet been paid. It maintains the stand that absence of proof of any irregularities in the
withholding tax at source should only be remitted to the performance of duties, an assessment duly made by a
Bureau of Internal Revenue examiner and approved by
his superior officers will not be disturbed. All
presumptions are in favor of the correctness of tax
assessments.19 The case of Commissioner of Internal
Revenue vs. Construction Resources of Asia,
Inc.,20 where this Court cited 51 Am. Jur. pp. 620-621,
states the principle in detail, thus:

All presumptions are in favor of the correctness

of tax assessments. The good faith of tax
assessors and the validity of their actions are
presumed. They will be presumed to have taken
into consideration all the facts to which their
attention was called. No presumption can be
indulged that all of the public officials of the
State in the various counties who have to do
with the assessment of property for taxation
will knowingly violate the duties imposed upon
them by law.

The final assessment issued by the Bureau of Internal

Revenue declared the issuance of deficiency sales tax
assessments to be legal and valid. It was ascertained
that during the investigation, Wyeth Suaco deducted
non-deductible raw materials which were not subjected
to advance sales tax thereby resulting in its failure to
pay the correct amount of sales tax under Section 183,
G.R. No. 136975             March 31, 2005
in relation to Section 186 and 186-B of the Tax Code,
prior to and after amendment by Presidential Decree
COMMISSION OF INTERNAL REVENUE, Petitioner, 
No. 69. Wyeth Suaco was not able to refute this by
vs.
submitting supporting documents.21
HANTEX TRADING CO., INC., respondent.
WHEREFORE, the petition is GRANTED. Wyeth Suaco
DECISION
Laboratories, Inc, is hereby ordered to pay the Bureau
of Internal Revenue the amount of P1,973,112.86 as
CALLEJO, SR., J.:
deficiency withholding tax at source, with interest and
surcharge in accordance with law, without prejudice to
Before us is a petition for review of the Decision 1 of the
any reduction brought about by payments or remittance
Court of Appeals (CA) which reversed the Decision 2 of
made. Wyeth Suaco Laboratories, Inc. is also ordered to
the Court of Tax Appeals (CTA) in CTA Case No. 5126,
pay the Bureau of Internal Revenue the amount of
upholding the deficiency income and sales tax
P60,855.21 as deficiency sales tax with interest and
assessments against respondent Hantex Trading Co.,
surcharge in accordance with law. Costs against private
Inc.
respondent.
The Antecedents
SO ORDERED.
The respondent is a corporation duly organized and
existing under the laws of the Philippines. Being
engaged in the sale of plastic products, it imports
synthetic resin and other chemicals for the manufacture
of its products. For this purpose, it is required to file an
Import Entry and Internal Revenue Declaration
(Consumption Entry) with the Bureau of Customs under thereof, the original copies had been eaten by
Section 1301 of the Tariff and Customs Code. termites.10

Sometime in October 1989, Lt. Vicente Amoto, Acting In a Letter dated June 28, 1990, the IIPO requested the
Chief of Counter-Intelligence Division of the Economic Chief of the Collection Division, Manila International
Intelligence and Investigation Bureau (EIIB), received Container Port, and the Acting Chief of the Collection
confidential information that the respondent had Division, Port of Manila, to authenticate the machine
imported synthetic resin amounting to P115,599,018.00 copies of the import entries supplied by the informer.
but only declared P45,538,694.57.3 According to the However, Chief of the Collection Division Merlita D.
informer, based on photocopies of 77 Consumption Tomas could not do so because the Collection Division
Entries furnished by another informer, the 1987 did not have the original copies of the entries. Instead,
importations of the respondent were understated in its she wrote the IIPO that, as gleaned from the records,
accounting records.4 Amoto submitted a report to the the following entries had been duly processed and
EIIB Commissioner recommending that an inventory released after the payment of duties and taxes:
audit of the respondent be conducted by the Internal
Inquiry and Prosecution Office (IIPO) of the EIIB. 5 IMPORTER – HANTEX TRADING CO., INC. – SERIES OF 198
ENTRY NO. DATE RELEASED ENTRY NO. DATE R
Acting on the said report, Jose T. Almonte, then
03058-87 1/30/87 50265-87 12/9/87
Commissioner of the EIIB, issued Mission Order No. 398-
896 dated November 14, 1989 for the audit and 09120-87 3/20/87 46427-87 11/27/8
investigation of the importations of Hantex for 1987. 18089-87 5/21/87 30764-87 8/21/87
The IIPO issued subpoena duces tecum and ad 19439-87 6/2/87 30833-87 8/20/87
testificandum for the president and general manager of
19441-87 6/3/87 34690-87 9/16/87
the respondent to appear in a hearing and bring the
following: 11667-87 4/15/87 34722-87 9/11/87
23294-87 7/7/87 43234-87 11/2/87
1. Books of Accounts for the year 1987; 45478-87 11/16/87 44850-87 11/16/8
45691-87 12/2/87 44851-87 11/16/8
2. Record of Importations of Synthetic Resin and
25464-87 7/16/87 46461-87 11/19/8
Calcium Carbonate for the year 1987;
26483-87 7/23/87 46467-87 11/18/8
3. Income tax returns & attachments for 1987; 29950-87 8/11/87 48091-87 11-27-8
and
Acting Chief of the Collection Division of the Bureau of
4. Record of tax payments.7 Customs Augusto S. Danganan could not authenticate
the machine copies of the import entries as well, since
However, the respondent’s president and general the original copies of the said entries filed with the
manager refused to comply with the subpoena, Bureau of Customs had apparently been eaten by
contending that its books of accounts and records of termites. However, he issued a certification that the
importation of synthetic resin and calcium bicarbonate following enumerated entries were filed by the
had been investigated repeatedly by the Bureau of respondent which were processed and released from
Internal Revenue (BIR) on prior occasions. 8 The IIPO the Port of Manila after payment of duties and taxes, to
explained that despite such previous investigations, the wit:
EIIB was still authorized to conduct an investigation
pursuant to Section 26-A of Executive Order No. 127. Hantex Trading Co., Inc.
Still, the respondent refused to comply with the Entry No. Date Released Entry No. Date Re
subpoena issued by the IIPO. The latter forthwith
3903 1/29/87 22869 4/8/87
secured certified copies of the Profit and Loss
Statements for 1987 filed by the respondent with the 4414 1/20/87 19441 3/31/87
Securities and Exchange Commission (SEC). 9 However, 10683 2/17/87 24189 4/21/87
the IIPO failed to secure certified copies of the 12611 2/24/87 26431 4/20/87
respondent’s 1987 Consumption Entries from the
12989 2/26/87 45478 7/3/87
Bureau of Customs since, according to the custodian
 17050 3/13/87 26796 4/23/87On February 12, 1991, Deputy Commissioner Deoferio,
17169 3/13/87 28827 4/30/87Jr. issued a Memorandum to the BIR Assistant
Commissioner for Special Operations Service, directing
18089 3/16/87 31617 5/14/87
the latter to prepare a conference letter advising the
19439 4/1/87 39068 6/5/87 respondent of its deficiency taxes.14
21189 4/3/87 42581 6/21/87
43451 6/29/87 42793 6/23/87Meanwhile, as ordered by the Regional Director,
42795 6/23/87 45477 7/3/87 Revenue Enforcement Officers Saturnino D. Torres and
Wilson Filamor conducted an investigation on the 1987
35582 not received 85830 11/13/87
importations of the respondent, in the light of the
45691 7/3/87 86650 not received
records elevated by the EIIB to the BIR, inclusive of the
46187 7/8/87 87647 photocopies of the Consumption Entries. They were to
11/18/87
46427 7/3/87 88829 ascertain the respondent’s liability for deficiency sales
11/23/87
and income taxes for 1987, if any. Per Torres’ and
57669 8/12/87 92293 12/3/87
Filamor’s Report dated March 6, 1991 which was based
62471 8/28/87 93292 12/7/87on the report of the EIIB and the documents/records
63187 9/2/87 96357 12/16/87
appended thereto, there was a prima facie case of fraud
66859 9/15/87 96822 against the respondent in filing its 1987 Consumption
12/15/87
Entry reports with the Bureau of Customs. They found
67890 9/17/87 98823 not received
that the respondent had unrecorded importation in the
68115 9/15/87 99428 12/28/87
total amount of P70,661,694.00, and that the amount
69974 9/24/87 99429 12/28/87
was not declared in its income tax return for 1987. The
72213 10/2/87 99441 District Revenue Officer and the Regional Director of the
12/28/87
15
77688 10/16/87 101406 1/5/87 BIR concurred with the report.
84253 11/10/87 101407 1/8/87
Based on the said report, the Acting Chief of the Special
85534 11/11/87 3118 1-19-87Investigation Branch wrote the respondent and invited
its representative to a conference at 10:00 a.m. of
Bienvenido G. Flores, Chief of the Investigation Division, March 14, 1991 to discuss its deficiency internal
and Lt. Leo Dionela, Lt. Vicente Amoto and Lt. Rolando revenue taxes and to present whatever documentary
Gatmaitan conducted an investigation. They relied on and other evidence to refute the same. 16 Appended to
the certified copies of the respondent’s Profit and Loss the letter was a computation of the deficiency income
Statement for 1987 and 1988 on file with the SEC, the and sales tax due from the respondent, inclusive of
machine copies of the Consumption Entries, Series of increments:
1987, submitted by the informer, as well as excerpts
from the entries certified by Tomas and Danganan. B. Computations:
1. Cost of Sales Ratio A2/A1 85.49
Based on the documents/records on hand, inclusive of
the machine copies of the Consumption Entries, the EIIB 2. Undeclared Sales – Imported A3/B1 110,0
found that for 1987, the respondent had importations 3. Undeclared Gross Profit B2-A3 15,96
totaling P105,716,527.00 (inclusive of advance sales C. Deficiency Taxes Due:
tax). Compared with the declared sales based on the 1. Deficiency Income Tax B3 x 35% 5,589
Profit and Loss Statements filed with the SEC, the
50% Surcharge C1 x 50% 2,794
respondent had unreported sales in the amount
of P63,032,989.17, and its corresponding income tax Interest to 2/28/91 C1 x 57.5% 3,213
liability was P41,916,937.78, inclusive of penalty charge Total 11,59
and interests. 2. Deficiency Sales Tax
at 10% 7,290
EIIB Commissioner Almonte transmitted the entire
docket of the case to the BIR and recommended the at 20% 10,49
collection of the total tax assessment from the Total Due 17,78
respondent.13 Less: Advanced Sales Taxes Paid 11,63
Deficiency Sales Tax 6,147
 50% Surcharge C2 x 50% On February 12, 1992, the Chief of the Accounts
3,073,521.52
Interest to 2/28/91 Receivables/Billing Division of the BIR sent a letter to
5,532,338.73
the respondent demanding payment of its tax liability
Total 14,752,903.28
due for 1987 within ten (10) days from notice, on pain
of the collection tax due via a warrant of distraint and
The invitation was reiterated in a Letter dated March levy and/or judicial action.22 The Warrant of Distraint
15, 1991. In his Reply dated March 15, 1991, Mariano O. and/or Levy23was actually served on the respondent on
Chua, the President and General Manager of the January 21, 1992. On September 7, 1992, it wrote the
respondent, requested that the report of Torres and Commissioner of Internal Revenue protesting the
Filamor be set aside on the following claim: assessment on the following grounds:

… [W]e had already been investigated by RDO I. THAT THE ASSESSMENT HAS NO FACTUAL AS
No. 23 under Letters of Authority Nos. 0322988 WELL AS LEGAL BASIS, THE FACT THAT NO
RR dated Oct. 1, 1987, 0393561 RR dated Aug. INVESTIGATION OF OUR RECORDS WAS EVER
17, 1988 and 0347838 RR dated March 2, 1988, MADE BY THE EIIB WHICH RECOMMENDED ITS
and re-investigated by the Special Investigation ISSUANCE.24
Team on Aug. 17, 1988 under Letter of
Authority No. 0357464 RR, and the Intelligence II. THAT GRANTING BUT WITHOUT ADMITTING
and Investigation Office on Sept. 27, 1988 under THAT OUR PURCHASES FOR 1987 AMOUNTED
Letter of Authority No. 0020188 NA, all for TO P105,716,527.00 AS CLAIMED BY THE EIIB,
income and business tax liabilities for 1987. The THE ASSESSMENT OF A DEFICIENCY INCOME
Economic Intelligence and Investigation Bureau TAX IS STILL DEFECTIVE FOR IT FAILED TO
on Nov. 20, 1989, likewise, confronted us on the CONSIDER OUR REAL PURCHASES
same information for the same year. OF P45,538,694.57. 25

In all of these investigations, save your request III. THAT THE ASSESSMENT OF A DEFICIENCY
for an informal conference, we welcomed them SALES TAX IS ALSO BASELESS AND UNFOUNDED
and proved the contrary of the allegation. Now, CONSIDERING THAT WE HAVE DUTIFULLY PAID
with your new inquiry, we think that there will THE SALES TAX DUE FROM OUR BUSINESS.26
be no end to the problem.
In view of the impasse, administrative hearings were
Madam, we had been subjected to so many conducted on the respondent’s protest to the
investigations and re-investigations for 1987 assessment. During the hearing of August 20, 1993, the
and nothing came out except the payment of IIPO representative presented the photocopies of the
deficiency taxes as a result of oversight. Tax Consumption and Import Entries and the Certifications
evasion through underdeclaration of income issued by Tomas and Danganan of the Bureau of
had never been proven.18 Customs. The IIPO representative testified that the
Bureau of Customs failed to furnish the EIIB with
Invoking Section 23519 of the 1977 National Internal certified copies of the Consumption and Import Entries;
Revenue Code (NIRC), as amended, Chua requested that hence, the EIIB relied on the machine copies from their
the inquiry be set aside. informer.27

The petitioner, the Commissioner of Internal Revenue, The respondent wrote the BIR Commissioner on July 12,
through Assistant Commissioner for Collection Jaime M. 1993 questioning the assessment on the ground that
Maza, sent a Letter dated April 15, 1991 to the the EIIB representative failed to present the original, or
respondent demanding payment of its deficiency authenticated, or duly certified copies of the
income tax of P13,414,226.40 and deficiency sales tax Consumption and Import Entry Accounts, or excerpts
of P14,752,903.25, inclusive of surcharge and thereof if the original copies were not readily available;
interest.20 Appended thereto were the Assessment or, if the originals were in the official custody of a public
Notices of Tax Deficiency Nos. FAS-1-87-91-001654 and officer, certified copies thereof as provided for in
FAS-4-87-91-001655.21 Section 12, Chapter 3, Book VII, Administrative
Procedure, Administrative Order of 1987. It stated that
the only copies of the Consumption Entries submitted to
the Hearing Officer were mere machine copies liability. The Commissioner emphasized that her
furnished by an informer of the EIIB. It asserted that the decision was final.32
letters of Tomas and Danganan were unreliable because
of the following: The respondent forthwith filed a petition for review in
the CTA of the Commissioner’s Final Assessment Letter
In the said letters, the two collection officers dated December 10, 1993 on the following grounds:
merely submitted a listing of alleged import
entry numbers and dates released of alleged First. The alleged 1987 deficiency income tax
importations by Hantex Trading Co., Inc. of assessment (including increments) and the alleged 1987
merchandise in 1987, for which they certified deficiency sales tax assessment (including increments)
that the corresponding duties and taxes were are void ab initio, since under Sections 16(a) and 49(b)
paid after being processed in their offices. In of the Tax Code, the Commissioner shall examine a
said letters, no amounts of the landed costs and return after it is filed and, thereafter, assess the correct
advance sales tax and duties were stated, and amount of tax. The following facts obtaining in this case,
no particulars of the duties and taxes paid per however, are indicative of the incorrectness of the tax
import entry document was presented. assessments in question: the deficiency interests
imposed in the income and percentage tax deficiency
The contents of the two letters failed to indicate assessment notices were computed in violation of the
the particulars of the importations per entry provisions of Section 249(b) of the NIRC of 1977, as
number, and the said letters do not constitute amended; the percentage tax deficiency was computed
as evidence of the amounts of importations of on an annual basis for the year 1987 in accordance with
Hantex Trading Co., Inc. in 1987.28 the provision of Section 193, which should have been
computed in accordance with Section 162 of the 1977
The respondent cited the following findings of the NIRC, as amended by Pres. Decree No. 1994 on a
Hearing Officer: quarterly basis; and the BIR official who signed the
deficiency tax assessments was the Assistant
… [T]hat the import entry documents do not Commissioner for Collection, who had no authority to
constitute evidence only indicate that the tax sign the same under the NIRC.
assessments in question have no factual basis,
and must, at this point in time, be withdrawn Second. Even granting arguendo that the deficiency
and cancelled. Any new findings by the IIPO taxes and increments for 1987 against the respondent
representative who attended the hearing could were correctly computed in accordance with the
not be used as evidence in this hearing, because provisions of the Tax Code, the facts indicate that the
all the issues on the tax assessments in question above-stated assessments were based on alleged
have already been raised by the herein documents which are inadmissible in either
taxpayer.29 administrative or judicial proceedings. Moreover, the
alleged bases of the tax computations were anchored
The respondent requested anew that the income tax on mere presumptions and not on actual facts. The
deficiency assessment and the sales tax deficiency alleged undeclared purchases for 1987 were based on
assessment be set aside for lack of factual and legal mere photocopies of alleged import entry documents,
basis. not the original ones, and which had never been duly
certified by the public officer charged with the custody
The BIR Commissioner30 wrote the respondent on of such records in the Bureau of Customs. According to
December 10, 1993, denying its letter-request for the the respondent, the alleged undeclared sales were
dismissal of the assessments. 31 The BIR Commissioner computed based on mere presumptions as to the
admitted, in the said letter, the possibility that the alleged gross profit contained in its 1987 financial
figures appearing in the photocopies of the statement. Moreover, even the alleged financial
Consumption Entries had been tampered with. She statement of the respondent was a mere machine copy
averred, however, that she was not proscribed from and not an official copy of the 1987 income and
relying on other admissible evidence, namely, the business tax returns. Finally, the respondent was
Letters of Torres and Filamor dated August 7 and 22, following the accrual method of accounting in 1987, yet,
1990 on their investigation of the respondent’s tax the BIR investigator who computed the 1987 income tax
deficiency failed to allow as a deductible item the
alleged sales tax deficiency for 1987 as provided for increments thereof, issued by the BIR is hereby
under Section 30(c) of the NIRC of 1986. 33 REVERSED. No costs.37

The Commissioner did not adduce in evidence the The Ruling of the Court of Appeals
original or certified true copies of the 1987
Consumption Entries on file with the Commission on The CA held that the income and sales tax deficiency
Audit. Instead, she offered in evidence as proof of the assessments issued by the petitioner were unlawful and
contents thereof, the photocopies of the Consumption baseless since the copies of the import entries relied
Entries which the respondent objected to for being upon in computing the deficiency tax of the respondent
inadmissible in evidence.34 She also failed to present any were not duly authenticated by the public officer
witness to prove the correct amount of tax due from it. charged with their custody, nor verified under oath by
Nevertheless, the CTA provisionally admitted the said the EIIB and the BIR investigators. 38 The CA also noted
documents in evidence, subject to its final evaluation of that the public officer charged with the custody of the
their relevancy and probative weight to the issues import entries was never presented in court to lend
involved.35 credence to the alleged loss of the originals. 39 The CA
pointed out that an import entry is a public document
On December 11, 1997, the CTA rendered a decision, which falls within the provisions of Section 19, Rule 132
the dispositive portion of which reads: of the Rules of Court, and to be admissible for any legal
purpose, Section 24, Rule 132 of the Rules of Court
IN THE LIGHT OF ALL THE FOREGOING, should apply.40 Citing the ruling of this Court in Collector
judgment is hereby rendered DENYING the of Internal Revenue v. Benipayo,41 the CA ruled that the
herein petition. Petitioner is hereby ORDERED assessments were unlawful because they were based
TO PAY the respondent Commissioner of on hearsay evidence. The CA also ruled that the
Internal Revenue its deficiency income and respondent was deprived of its right to due process of
sales taxes for the year 1987 in the amounts law.
of P11,182,350.26 and P12,660,382.46,
respectively, plus 20% delinquency interest per The CA added that the CTA should not have just
annum on both deficiency taxes from April 15, brushed aside the legal requisites provided for under
1991 until fully paid pursuant to Section 283(c) the pertinent provisions of the Rules of Court in the
(3) of the 1987 Tax Code, with costs against the matter of the admissibility of public documents,
petitioner. considering that substantive rules of evidence should
not be disregarded. It also ruled that the certifications
SO ORDERED.36 made by the two Customs Collection Chiefs under the
guise of supporting the respondent’s alleged tax
The CTA ruled that the respondent was burdened to deficiency assessments invoking the best evidence
prove not only that the assessment was erroneous, but obtainable rule under the Tax Code should not be
also to adduce the correct taxes to be paid by it. The permitted to supplant the best evidence rule under
CTA declared that the respondent failed to prove the Section 7, Rule 130 of the Rules of Court.
correct amount of taxes due to the BIR. It also ruled that
the respondent was burdened to adduce in evidence a Finally, the CA noted that the tax deficiency
certification from the Bureau of Customs that the assessments were computed without the tax returns.
Consumption Entries in question did not belong to it. The CA opined that the use of the tax returns is
indispensable in the computation of a tax deficiency;
On appeal, the CA granted the petition and reversed the hence, this essential requirement must be complied
decision of the CTA. The dispositive portion of the with in the preparation and issuance of valid tax
decision reads: deficiency assessments.42

FOREGOING PREMISES CONSIDERED, the The Present Petition

Petition for Review is GRANTED and the
December 11, 1997 decision of the CTA in CTA The Commissioner of Internal Revenue, the petitioner
Case No. 5162 affirming the 1987 deficiency herein, filed the present petition for review under Rule
income and sales tax assessments and the 45 of the Rules of Court for the reversal of the decision
of the CA and for the reinstatement of the ruling of the for reconsideration of the decision of the CA is not a
CTA. condition sine qua non for the filing of a petition for
review under Rule 45. As we held in Almora v. Court of
As gleaned from the pleadings of the parties, the Appeals:46
threshold issues for resolution are the following: (a)
whether the petition at bench is proper and complies Rule 45, Sec. 1 of the Rules of Court, however,
with Sections 4 and 5, Rule 7 of the Rules of Court; (b) distinctly provides that:
whether the December 10, 1991 final assessment of the
petitioner against the respondent for deficiency income A party may appeal by certiorari from a
tax and sales tax for the latter’s 1987 importation of judgment of the Court of Appeals, by
resins and calcium bicarbonate is based on competent filing with the Supreme Court a petition
evidence and the law; and (c) the total amount of for certiorari within fifteen (15) days
deficiency taxes due from the respondent for 1987, if from notice of judgment, or of the
any. denial of his motion for reconsideration
filed in due time. (Emphasis supplied)
On the first issue, the respondent points out that the
petition raises both questions of facts and law which The conjunctive "or" clearly indicates that the
cannot be the subject of an appeal by certiorari under 15-day reglementary period for the filing of a
Rule 45 of the Rules of Court. The respondent notes petition for certiorari under Rule 45 commences
that the petition is defective because the verification either from notice of the questioned judgment
and the certification against forum shopping were not or from notice of denial of the appellant’s
signed by the petitioner herself, but only by the motion for reconsideration. A prior motion for
Regional Director of the BIR. The respondent submits reconsideration is not indispensable for a
that the petitioner should have filed a motion for petition for review on certiorari under Rule 45
reconsideration with the CA before filing the instant to prosper. …47
petition for review.43
While Rule 45 of the Rules of Court provides that only
We find and so rule that the petition is sufficient in questions of law may be raised by the petitioner and
form. A verification and certification against forum resolved by the Court, under exceptional circumstances,
shopping signed by the Regional Director constitutes the Court may take cognizance thereof and resolve
sufficient compliance with the requirements of Sections questions of fact. In this case, the findings and
4 and 5, Rule 7 of the Rules of Court. Under Section 10 conclusion of the CA are inconsistent with those of the
of the NIRC of 1997,44 the Regional Director has the CTA, not to mention those of the Commissioner of
power to administer and enforce internal revenue laws, Internal Revenue. The issues raised in this case relate to
rules and regulations, including the assessment and the propriety and the correctness of the tax
collection of all internal revenue taxes, charges and assessments made by the petitioner against the
fees. Such power is broad enough to vest the Revenue respondent, as well as the propriety of the application
Regional Director with the authority to sign the of Section 16, paragraph (b) of the 1977 NIRC, as
verification and certification against forum shopping in amended by Pres. Decree Nos. 1705, 1773, 1994 and
behalf of the Commissioner of Internal Revenue. There Executive Order No. 273, in relation to Section 3, Rule
is no other person in a better position to know the 132 of the Rules of Evidence. There is also an imperative
collection cases filed under his jurisdiction than the need for the Court to resolve the threshold factual
Revenue Regional Director. issues to give justice to the parties, and to determine
whether the CA capriciously ignored, misunderstood or
Moreover, under Revenue Administrative Order No. 5- misinterpreted cogent facts and circumstances which, if
83,45 the Regional Director is authorized to sign all considered, would change the outcome of the case.
pleadings filed in connection with cases referred to the
Revenue Regions by the National Office which, On the second issue, the petitioner asserts that since
otherwise, require the signature of the petitioner. the respondent refused to cooperate and show its 1987
books of account and other accounting records, it was
We do not agree with the contention of the respondent proper for her to resort to the best evidence obtainable
that a motion for reconsideration ought to have been – the photocopies of the import entries in the Bureau of
filed before the filing of the instant petition. A motion Customs and the respondent’s financial statement filed
with the SEC.48 The petitioner maintains that these documents from the custodian of the import entries. It
import entries were admissible as secondary evidence simply relied on the report of the EIIB agents that the
under the best evidence obtainable rule, since they import entry documents were no longer available
were duly authenticated by the Bureau of Customs because they were eaten by termites. The respondent
officials who processed the documents and released the posits that the two collectors of the Bureau of Customs
cargoes after payment of the duties and taxes never authenticated the xerox copies of the import
due.49 Further, the petitioner points out that under the entries; instead, they only issued certifications stating
best evidence obtainable rule, the tax return is not therein the import entry numbers which were
important in computing the tax deficiency. 50 processed by their office and the date the same were
released.60
The petitioner avers that the best evidence obtainable
rule under Section 16 of the 1977 NIRC, as amended, The respondent argues that it was not necessary for it
legally cannot be equated to the best evidence rule to show the correct assessment, considering that it is
under the Rules of Court; nor can the best evidence questioning the assessments not only because they are
rule, being procedural law, be made strictly operative in erroneous, but because they were issued without
the interpretation of the best evidence obtainable rule factual basis and in patent violation of the assessment
which is substantive in character. 51 The petitioner posits procedures laid down in the NIRC of 1977, as
that the CTA is not strictly bound by technical rules of amended.61 It is also pointed out that the petitioner
evidence, the reason being that the quantum of failed to use the tax returns filed by the respondent in
evidence required in the said court is merely substantial computing the deficiency taxes which is contrary to
evidence.52 law;62 as such, the deficiency assessments constituted
deprivation of property without due process of law. 63
Finally, the petitioner avers that the respondent has the
burden of proof to show the correct assessments; Central to the second issue is Section 16 of the NIRC of
otherwise, the presumption in favor of the correctness 1977, as amended,64 which provides that the
of the assessments made by it stands. 53 Since the Commissioner of Internal Revenue has the power to
respondent was allowed to explain its side, there was make assessments and prescribe additional
no violation of due process.54 requirements for tax administration and enforcement.
Among such powers are those provided in paragraph (b)
The respondent, for its part, maintains that the resort to thereof, which we quote:
the best evidence obtainable method was illegal. In the
first place, the respondent argues, the EIIB agents are (b) Failure to submit required returns,
not duly authorized to undertake examination of the statements, reports and other documents. –
taxpayer’s accounting records for internal revenue tax When a report required by law as a basis for the
purposes. Hence, the respondent’s failure to accede to assessment of any national internal revenue tax
their demands to show its books of accounts and other shall not be forthcoming within the time fixed
accounting records cannot justify resort to the use of by law or regulation or when there is reason to
the best evidence obtainable method. 55 Secondly, when believe that any such report is false, incomplete
a taxpayer fails to submit its tax records upon demand or erroneous, the Commissioner shall assess the
by the BIR officer, the remedy is not to assess him and proper tax on the best evidence obtainable.
resort to the best evidence obtainable rule, but to
punish the taxpayer according to the provisions of the In case a person fails to file a required return or
Tax Code.56 other document at the time prescribed by law,
or willfully or otherwise files a false or
In any case, the respondent argues that the photocopies fraudulent return or other document, the
of import entries cannot be used in making the Commissioner shall make or amend the return
assessment because they were not properly from his own knowledge and from such
authenticated, pursuant to the provisions of Sections information as he can obtain through testimony
2457 and 2558 of Rule 132 of the Rules of Court. It avers or otherwise, which shall be prima facie correct
that while the CTA is not bound by the technical rules of and sufficient for all legal purposes.65
evidence, it is bound by substantial rules. 59 The
respondent points out that the petitioner did not even This provision applies when the Commissioner of
secure a certification of the fact of loss of the original Internal Revenue undertakes to perform her
administrative duty of assessing the proper tax against a The law allows the BIR access to all relevant or material
taxpayer, to make a return in case of a taxpayer’s failure records and data in the person of the taxpayer. It places
to file one, or to amend a return already filed in the BIR. no limit or condition on the type or form of the medium
by which the record subject to the order of the BIR is
The petitioner may avail herself of the best evidence or kept. The purpose of the law is to enable the BIR to get
other information or testimony by exercising her power at the taxpayer’s records in whatever form they may be
or authority under paragraphs (1) to (4) of Section 7 of kept. Such records include computer tapes of the said
the NIRC: records prepared by the taxpayer in the course of
business.68 In this era of developing information-storage
(1) To examine any book, paper, record or other technology, there is no valid reason to immunize
data which may be relevant or material to such companies with computer-based, record-keeping
inquiry; capabilities from BIR scrutiny. The standard is not the
form of the record but where it might shed light on the
(2) To obtain information from any office or accuracy of the taxpayer’s return.
officer of the national and local governments,
government agencies or its instrumentalities, In Campbell, Jr. v. Guetersloh,69 the United States (U.S.)
including the Central Bank of the Philippines Court of Appeals (5th Circuit) declared that it is the duty
and government owned or controlled of the Commissioner of Internal Revenue to investigate
corporations; any circumstance which led him to believe that the
taxpayer had taxable income larger than reported.
(3) To summon the person liable for tax or Necessarily, this inquiry would have to be outside of the
required to file a return, or any officer or books because they supported the return as filed. He
employee of such person, or any person having may take the sworn testimony of the taxpayer; he may
possession, custody, or care of the books of take the testimony of third parties; he may examine and
accounts and other accounting records subpoena, if necessary, traders’ and brokers’ accounts
containing entries relating to the business of and books and the taxpayer’s book accounts. The
the person liable for tax, or any other person, to Commissioner is not bound to follow any set of
appear before the Commissioner or his duly patterns. The existence of unreported income may be
authorized representative at a time and place shown by any practicable proof that is available in the
specified in the summons and to produce such circumstances of the particular situation. Citing its ruling
books, papers, records, or other data, and to in Kenney v. Commissioner,70 the U.S. appellate court
give testimony; declared that where the records of the taxpayer are
manifestly inaccurate and incomplete, the
(4) To take such testimony of the person Commissioner may look to other sources of information
concerned, under oath, as may be relevant or to establish income made by the taxpayer during the
material to such inquiry; …66 years in question.71

The "best evidence" envisaged in Section 16 of the 1977 We agree with the contention of the petitioner that the
NIRC, as amended, includes the corporate and best evidence obtainable may consist of hearsay
accounting records of the taxpayer who is the subject of evidence, such as the testimony of third parties or
the assessment process, the accounting records of other accounts or other records of other taxpayers similarly
taxpayers engaged in the same line of business, circumstanced as the taxpayer subject of the
including their gross profit and net profit sales. 67 Such investigation, hence, inadmissible in a regular
evidence also includes data, record, paper, document or proceeding in the regular courts. 72 Moreover, the
any evidence gathered by internal revenue officers from general rule is that administrative agencies such as the
other taxpayers who had personal transactions or from BIR are not bound by the technical rules of evidence. It
whom the subject taxpayer received any income; and can accept documents which cannot be admitted in a
record, data, document and information secured from judicial proceeding where the Rules of Court are strictly
government offices or agencies, such as the SEC, the observed. It can choose to give weight or disregard such
Central Bank of the Philippines, the Bureau of Customs, evidence, depending on its trustworthiness.
and the Tariff and Customs Commission.
However, the best evidence obtainable under Section
16 of the 1977 NIRC, as amended, does not include
mere photocopies of records/documents. The Admissions in the said entries of the importers’
petitioner, in making a preliminary and final tax documents are admissions against interest and
deficiency assessment against a taxpayer, cannot presumptively correct.77
anchor the said assessment on mere machine copies of
records/documents. Mere photocopies of the In fine, then, the petitioner acted arbitrarily and
Consumption Entries have no probative weight if capriciously in relying on and giving weight to the
offered as proof of the contents thereof. The reason for machine copies of the Consumption Entries in fixing the
this is that such copies are mere scraps of paper and are tax deficiency assessments against the respondent.
of no probative value as basis for any deficiency income
or business taxes against a taxpayer. Indeed, in United The rule is that in the absence of the accounting records
States v. Davey,73 the U.S. Court of Appeals (2nd Circuit) of a taxpayer, his tax liability may be determined by
ruled that where the accuracy of a taxpayer’s return is estimation. The petitioner is not required to compute
being checked, the government is entitled to use the such tax liabilities with mathematical exactness.
original records rather than be forced to accept Approximation in the calculation of the taxes due is
purported copies which present the risk of error or justified. To hold otherwise would be tantamount to
tampering.74 holding that skillful concealment is an invincible barrier
to proof.78 However, the rule does not apply where the
In Collector of Internal Revenue v. Benipayo,75 the Court estimation is arrived at arbitrarily and capriciously. 79
ruled that the assessment must be based on actual
facts. The rule assumes more importance in this case We agree with the contention of the petitioner that, as
since the xerox copies of the Consumption Entries a general rule, tax assessments by tax examiners are
furnished by the informer of the EIIB were furnished by presumed correct and made in good faith. All
yet another informer. While the EIIB tried to secure presumptions are in favor of the correctness of a tax
certified copies of the said entries from the Bureau of assessment. It is to be presumed, however, that such
Customs, it was unable to do so because the said entries assessment was based on sufficient evidence. Upon the
were allegedly eaten by termites. The Court can only introduction of the assessment in evidence, a prima
surmise why the EIIB or the BIR, for that matter, failed facie case of liability on the part of the taxpayer is
to secure certified copies of the said entries from the made.80 If a taxpayer files a petition for review in the
Tariff and Customs Commission or from the National CTA and assails the assessment, the prima
Statistics Office which also had copies thereof. It bears facie presumption is that the assessment made by the
stressing that under Section 1306 of the Tariff and BIR is correct, and that in preparing the same, the BIR
Customs Code, the Consumption Entries shall be the personnel regularly performed their duties. This rule for
required number of copies as prescribed by tax initiated suits is premised on several factors other
regulations.76 The Consumption Entry is accomplished in than the normal evidentiary rule imposing proof
sextuplicate copies and quadruplicate copies in other obligation on the petitioner-taxpayer: the presumption
places. In Manila, the six copies are distributed to the of administrative regularity; the likelihood that the
Bureau of Customs, the Tariff and Customs Commission, taxpayer will have access to the relevant information;
the Declarant (Importer), the Terminal Operator, and and the desirability of bolstering the record-keeping
the Bureau of Internal Revenue. Inexplicably, the requirements of the NIRC.81
Commissioner and the BIR personnel ignored the copy
of the Consumption Entries filed with the BIR and relied However, the prima facie correctness of a tax
on the photocopies supplied by the informer of the EIIB assessment does not apply upon proof that an
who secured the same from another informer. The BIR, assessment is utterly without foundation, meaning it is
in preparing and issuing its preliminary and final arbitrary and capricious. Where the BIR has come out
assessments against the respondent, even ignored the with a "naked assessment," i.e., without any foundation
records on the investigation made by the District character, the determination of the tax due is without
Revenue officers on the respondent’s importations for rational basis.82 In such a situation, the U.S. Court of
1987. Appeals ruled83 that the determination of the
Commissioner contained in a deficiency notice
The original copies of the Consumption Entries were of disappears. Hence, the determination by the CTA must
prime importance to the BIR. This is so because such rest on all the evidence introduced and its ultimate
entries are under oath and are presumed to be true and determination must find support in credible evidence.
correct under penalty of falsification or perjury.
The issue that now comes to fore is whether the tax the tax deficiency assessment in question was based on
deficiency assessment against the respondent based on (a) the findings of the agents of the EIIB which was
the certified copies of the Profit and Loss Statement based, in turn, on the photocopies of the Consumption
submitted by the respondent to the SEC in 1987 and Entries; (b) the Profit and Loss Statements of the
1988, as well as certifications of Tomas and Danganan, respondent for 1987 and 1988; and (c) the certifications
is arbitrary, capricious and illegal. The CTA ruled that of Tomas and Danganan dated August 7, 1990 and
the respondent failed to overcome the prima facie August 22, 1990:
correctness of the tax deficiency assessment issued by
the petitioner, to wit: In reply, please be informed that after a
thorough evaluation of the attending facts, as
The issue should be ruled in the affirmative as well as the laws and jurisprudence involved, this
petitioner has failed to rebut the validity or Office holds that you are liable to the assessed
correctness of the aforementioned tax deficiency taxes. The conclusion was arrived at
assessments. It is incongruous for petitioner to based on the findings of agents of the Economic
prove its cause by simply drawing an inference Intelligence & Investigation Bureau (EIIB) and of
unfavorable to the respondent by attacking the our own examiners who have painstakingly
source documents (Consumption Entries) which examined the records furnished by the Bureau
were the bases of the assessment and which of Customs and the Securities & Exchange
were certified by the Chiefs of the Collection Commission (SEC). The examination conducted
Division, Manila International Container Port disclosed that while your actual sales for 1987
and the Port of Manila, as having been amounted to P110,731,559.00, you declared for
processed and released in the name of the taxation purposes, as shown in the Profit and
petitioner after payment of duties and taxes Loss Statements, the sum of P47,698,569.83
and the duly certified copies of Financial only. The difference, therefore,
Statements secured from the Securities and of P63,032,989.17 constitutes as undeclared or
Exchange Commission. Any such inference unrecorded sales which must be subjected to
cannot operate to relieve petitioner from the income and sales taxes.
bearing its burden of proof and this Court has
no warrant of absolution. The Court should You also argued that our assessment has no
have been persuaded to grant the reliefs sought basis since the alleged amount of
by the petitioner should it have presented any underdeclared importations were lifted from
evidence of relevance and competence uncertified or unauthenticated xerox copies of
required, like that of a certification from the consumption entries which are not admissible
Bureau of Customs or from any other agencies, in evidence. On this issue, it must be considered
attesting to the fact that those consumption that in letters dated August 7 and 22, 1990, the
entries did not really belong to them. Chief and Acting Chief of the Collection Division
of the Manila International Container Port and
The burden of proof is on the taxpayer Port of Manila, respectively, certified that the
contesting the validity or correctness of an enumerated consumption entries were filed,
assessment to prove not only that the processed and released from the port after
Commissioner of Internal Revenue is wrong but payment of duties and taxes. It is noted that the
the taxpayer is right (Tan Guan v. CTA, 19 SCRA certification does not touch on the genuineness,
903), otherwise, the presumption in favor of the authenticity and correctness of the
correctness of tax assessment stands (Sy Po v. consumption entries which are all xerox copies,
CTA, 164 SCRA 524). The burden of proving the wherein the figures therein appearing may have
illegality of the assessment lies upon the been tampered which may render said
petitioner alleging it to be so. In the case at bar, documents inadmissible in evidence, but for tax
petitioner miserably failed to discharge this purposes, it has been held that the
duty.84 Commissioner is not required to make his
determination (assessment) on the basis of
We are not in full accord with the findings and evidence legally admissible in a formal
ratiocination of the CTA. Based on the letter of the proceeding in Court (Mertens, Vol. 9, p. 214,
petitioner to the respondent dated December 10, 1993, citing Cohen v. Commissioner). A statutory
 notice may be based in whole or in part upon Based on the above findings, it clearly shows
admissible evidence (Llorente v. Commissioner, that a prima facie case of fraud exists in the
74 TC 260 (1980); Weimerskirch v. herein transaction of the taxpayer, as a
Commissioner, 67 TC 672 (1977); and Rosano v. consequence of which, said transaction has not
Commissioner, 46 TC 681 (1966). In the case been possibly entered into the books of
also of Weimerskirch v. Commissioner (1977), accounts of the subject taxpayer.87
the assessment was given due course in the
presence of admissible evidence as to how the In fine, the petitioner based her finding that the 1987
Commissioner arrived at his determination, importation of the respondent was underdeclared in
although there was no admissible evidence with the amount of P105,761,527.00 on the worthless
respect to the substantial issue of whether the machine copies of the Consumption Entries. Aside from
taxpayer had unreported or undeclared income such copies, the petitioner has no other evidence to
from narcotics sale. …85 prove that the respondent imported goods
costing P105,761,527.00. The petitioner cannot find
Based on a Memorandum dated October 23, 1990 of solace on the certifications of Tomas and Danganan
the IIPO, the source documents for the actual cost of because they did not authenticate the machine copies
importation of the respondent are the machine copies of the Consumption Entries, and merely indicated
of the Consumption Entries from the informer which therein the entry numbers of Consumption Entries and
the IIPO claimed to have been certified by Tomas and the dates when the Bureau of Customs released the
Danganan: same. The certifications of Tomas and Danganan do not
even contain the landed costs and the advance sales
The source documents for the total actual cost taxes paid by the importer, if any. Comparing the
of importations, abovementioned, were the certifications of Tomas and Danganan and the machine
different copies of Consumption Entries, Series copies of the Consumption Entries, only 36 of the entry
of 1987, filed by subject with the Bureau of numbers of such copies are included in the said
Customs, marked Annexes "F-1" to "F-68." The certifications; the entry numbers of the rest of the
total cost of importations is the sum of the machine copies of the Consumption Entries are not
Landed Costs and the Advance Sales Tax as found therein.
shown in the annexed entries. These entries
were duly authenticated as having been Even if the Court would concede to the petitioner’s
processed and released, after payment of the contention that the certification of Tomas and
duties and taxes due thereon, by the Chief, Danganan authenticated the machine copies of the
Collection Division, Manila International Consumption Entries referred to in the certification, it
Container Port, dated August 7, 1990, "Annex- appears that the total cost of importations inclusive of
G," and the Port of Manila, dated August 22, advance sales tax is only P64,324,953.00 – far from the
1990, "Annex-H." So, it was established that amount of P105,716,527.00 arrived at by the EIIB and
subject-importations, mostly resins, really the BIR,88 or even the amount of P110,079,491.61
belong to HANTEX TRADING CO., INC.86 arrived at by Deputy Commissioner Deoferio, Jr. 89 As
gleaned from the certifications of Tomas and Danganan,
It also appears on the worksheet of the IIPO, as culled the goods covered by the Consumption Entries were
from the photocopies of the Consumption Entries from released by the Bureau of Customs, from which it can
its informer, that the total cost of the respondent’s be presumed that the respondent must have paid the
importation for 1987 was P105,761,527.00. Per the taxes due on the said importation. The petitioner did
report of Torres and Filamor, they also relied on the not adduce any documentary evidence to prove
photocopies of the said Consumption Entries: otherwise.

The importations made by taxpayer verified by Thus, the computations of the EIIB and the BIR on the
us from the records of the Bureau of Customs quantity and costs of the importations of the
and xerox copies of which are hereto attached respondent in the amount of P105,761,527.00 for 1987
shows the big volume of importations made and have no factual basis, hence, arbitrary and capricious.
not declared in the income tax return filed by The petitioner cannot rely on the presumption that she
taxpayer. and the other employees of the BIR had regularly
performed their duties. As the Court held in Collector of
Internal Revenue v. Benipayo,90 in order to stand judicial IN LIGHT OF ALL THE FOREGOING, the petition is
scrutiny, the assessment must be based on facts. The GRANTED. The Decision of the Court of Appeals is SET
presumption of the correctness of an assessment, being ASIDE. The records are REMANDED to the Court of Tax
a mere presumption, cannot be made to rest on Appeals for further proceedings, conformably with the
another presumption. decision of this Court. No costs.

Moreover, the uncontroverted fact is that the BIR SO ORDERED.

District Revenue Office had repeatedly examined the
1987 books of accounts of the respondent showing its Puno, (Chairman), Austria-Martinez, Tinga, and Chico-
importations, and found that the latter had minimal Nazario, JJ., concur.
business tax liability. In this case, the presumption that
the District Revenue officers performed their duties in
accordance with law shall apply. There is no evidence
on record that the said officers neglected to perform
their duties as mandated by law; neither is there
evidence aliunde that the contents of the 1987 and
1988 Profit and Loss Statements submitted by the
respondent with the SEC are incorrect.

Admittedly, the respondent did not adduce evidence to

prove its correct tax liability. However, considering that
it has been established that the petitioner’s assessment
is barren of factual basis, arbitrary and illegal, such
failure on the part of the respondent cannot serve as a
basis for a finding by the Court that it is liable for the
amount contained in the said assessment; otherwise,
the Court would thereby be committing a travesty.

On the disposition of the case, the Court has two

options, namely, to deny the petition for lack of merit
and affirm the decision of the CA, without prejudice to
the petitioner’s issuance of a new assessment against
the respondent based on credible evidence; or, to
remand the case to the CTA for further proceedings, to
enable the petitioner to adduce in evidence certified
true copies or duplicate original copies of the
Consumption Entries for the respondent’s 1987
importations, if there be any, and the correct tax
deficiency assessment thereon, without prejudice to the
right of the respondent to adduce controverting
evidence, so that the matter may be resolved once and
for all by the CTA. In the higher interest of justice to
both the parties, the Court has chosen the latter option.
After all, as the Tax Court of the United States
emphasized in Harbin v. Commissioner of Internal
Revenue,91 taxation is not only practical; it is vital. The
obligation of good faith and fair dealing in carrying out
its provision is reciprocal and, as the government should
never be over-reaching or tyrannical, neither should a
taxpayer be permitted to escape payment by the
concealment of material facts.
G.R. No. L-18956 April 27, 1972
 REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, Revenue made its first demand for the payment of
vs. P13,136.00 as forest charges and surcharges in the
MARSMAN DEVELOPMENT COMPANY and/or F.H. letter dated October 15, 1953 (Exh. M). After further
BURGESS, in his capacity as Liquidator of the Marsman
investigation, a second assessment in the total amount
Development Company, defendants-appellants.
of P45,541.66 was demanded from the defendant
corporation representing sales tax and surcharges, and
BARREDO, J.:p is contained in the letter dated September 13, 1954
(Exh. A). The third assessment for the payment of
Appeal from the decision of the Court of First Instance P456.12 representing 25% surcharge for discharging
of Manila, the Honorable Conrado, M. Vasquez, lumber without permit was made on November 8, 1954
presiding, sentencing defendants-appellants to pay the (Exh. B).
amounts of P44,134.35, P6,603.20 and P456.12, plus
legal interest from August 26, 1959, on the first item, The first acknowledgment by the defendant corporation
and, from September 5, 1958, on the later two, of its receipt of assessment contained in the letter of
representing sales taxes and forest charges, together September 13, 1954, Exh. A, was the letter of the
with surcharges and penalties. defendant corporation under the signature of its
counsel, Atty. Pedro L. Moya dated December 28, 1954,
As found by His Honor, the factual setting of the wherein it is requested that said defendant be furnished
decision is as follows: with an itemized statement of the said taxes and
Defendant corporation was a timber licensee holding wherein notice is served of its intention to question the
Timber Licensee Agreement No. 37-A, with concessions validity and the legality of the assessments and to
in the Municipality of Basud and Mondazo, Camarines appear before the Conference Staff of the Bureau of
Norte. Sometime before October 15, 1953 an Internal Revenue in connection with the said tax (Exhibit
investigation was conducted on the business operation B). In reply to the letter, Exhibit B, the Bureau of
and activities of the corporation leading to the discovery Internal Revenue wrote Atty. Moya a letter dated
that certain taxes were due (from) it on logs produced February 11, 1955 informing him that before the case
from its concession. On October 15, 1953, the Deputy may be acted upon by the Conference Staff, it was
Collector of Internal Revenue demanded the payment necessary that the defendant corporation comply within
of P13,136.00 representing forest charges due from 10 days from date of said letter, with the provisions of
May 18, 1950 to September 30, 1953, and a surcharge Dept. Order No. 213 dated November 2, 1954 which
of 25% (Exh. M). On September 13, 1954, after further required, among others, that requests for
investigation another assessment was sent to the reinvestigation or reexamination of tax assessments
defendant corporation by the Bureau of Internal shall be made in writing under oath of the taxpayer
Revenue demanding from it the total sum of P45,541.66 concerned, specifying the ground or grounds relied
representing deficiency sales tax, forest charges, upon for the revision of the assessment and
surcharges and penalties (Exh. A). On November 8, 1954 accompanied by such documents and other documents
another assessment was addressed to the defendant relied upon in support of the request; and that, as a
corporation for the payment of P456.12 as 25% general rule, the revision will be granted only upon
surcharge for discharging lumber without permit (Exh. payment of one-half of the total assessments and upon
P). The three assessments totalling P59,133.78 are the filing of a bond to guarantee the payment of the
subject matter of the instant case for collection. balance of the tax (Exhibit C). Acknowledgment of
Exhibit C was made by Atty. Moya in the latter's letter of
xxx xxx xxx February 23, 1955 wherein, for the reasons therein
stated, he requested exemption from the requirements
The-contention of the defendant that the assessment in
contained in the letter Exhibit C (Exhibit D). In Reply to
question have not yet become final and executory is not
Exhibit D, the Collector of Internal Revenue wrote Atty.
borne out by the record. The Bureau of Internal
Moya on May 3, 1955 informing him that his request to
exempt his client from the requirements contained in countermanded or withheld. Finding no merit in the
the letter dated February 11, 1955, cannot be favorably protests of the defendant corporation, a warrant of
considered and that in order that the Conference Staff distraint and levy was issued against it by the Bureau of
may be directed to hear the case on the merits, the said Internal Revenue on July 3, 1956 (Exhibit O).
requirements must be complied with within five days
from receipt of said letter; otherwise, the "assessment
will be considered final" (Exhibit E). A follow-up letter On August 3, 1956, defendant corporation again wrote
dated June 4, 1955, was addressed to Atty. Moya after the Collector of Internal Revenue acknowledging the
discovering that the requirements mentioned in the receipt of the warrant of distraint and levy served upon
letters dated February 11, 1955 and March 3, 1955 have it and reiterating its request for a specification of the
not been complied with inspite of the considerable different items of the assessment, subject to the right to
length of time that had already elapsed (Exhibit F). In contest the legality and validity of the same within 30
the last paragraph of the said letter, Exhibit F, the days after receipt of said specifications (Exh. J). The
defendant corporation was warned that unless the record does not show what action was taken on the
aforementioned requirements are complied with within request contained in said letter on August 3, 1956. The
five (5) days from receipt, the "case will be considered next communication appearing in the record is that of
abandoned and appropriate action will be taken in the Commissioner of Internal Revenue dated July 30,
accordance with law". Again on November 14, 1955, 1959, addressed to the defendant corporation
after discovering that the letters dated February 11, demanding on the letter the payment of the assessment
1955, March 3, 1955 and June 4, 1955 have remained of P45,541.66 which has remained unpaid, and
unheeded by the defendant corporation, the latter was informing the said corporation that if they do not settle
given another chance of complying with the said tax obligation within five days from receipt thereof,
requirements mentioned within five days from receipt the Bureau of Internal Revenue will be constrained to
of said letter otherwise, the Bureau of Internal Revenue file an action in Court for the collection thereof without
"will be constrained to enforce the immediate collection further notice (Exhibit I). Defendant corporation replied
of the deficiency percentage tax and forest charges to Exhibit I in a letter dated August 17, 1959 stating that
due" (Exhibit G). it needed more time to go over the records and
vouchers, and requesting for an extension of 10 days
(Exhibit E). In another letter of same date, the
On April 27, 1956, the Bureau of Internal Revenue defendant corporation reiterated its exception to the
issued "final tax notices" to the defendant corporation. validity and legality of the assessment against it in the
Although the letters containing the "final tax notices" sum of P45,541.66 and its request for a detailed
were not presented in evidence, the defendants admit statement of the transactions involved (Exhibit L).
having received the same, as shown by the contents of [Record on Appeal pp. 188-189, 190-195.]
defendant corporation's letters dated May 10, 1956,
Exhibit H, and August 7, 1956, Exhibit J. In said Exhibit H
defendant corporation again protested the assessment According to the Record on Appeal, and as additionally
of P45,541.66 and reiterated its request for stated also by the trial court, the original complaint filed
specification of the items disputing the assessment in on September 5, 1958 prayed for the payment of only
question. It further requests for a period of 30 days P13,695.96, and it was only in an amended complaint
from the receipt of the specifications within which to filed on August 26, 1959 and admitted on September
consider its tax liability, further reserving its right to 23, 1959 that, for the first time, the amount of
contest the legality or validity of the assessment or any P59,133.78 was judicially demanded to be paid.
particular items thereof within the said period of 30
days. Defendant corporation also protested the sending
of final notices and requested that they be
Upon these facts, appellants now complain that informed that his request for investigation would not be
given due course unless his client priorly complied
within ten (10) days from Februaxy 11, 1955, the date of
I. THE LOWER COURT ERRED IN DECLARING the letter of the Bureau, with the provisions of
THAT THE NOTICES OF THE COMMISSIONER Department Order No. 213, dated November 2, 1954,
OF INTERNAL REVENUE DATED APRIL 27, which required inter alia, that requests for
1956 WERE THE "ASSESSMENTS" THAT reinvestigation or reexamination of tax assessments
BECAME FINAL AND EXECUTORY. should be made in writing and under oath of the
taxpayer concerned, specifying the ground or grounds
relied upon for the requested revision and accompanied
by the documents relied upon, in support of the
II. THE LOWER COURT ERRED IN DECLARING
request, as well as by the payment of one-half of the
THAT THE GOVERNMENT'S RIGHT TO
total assessments, plus a bond to guarantee payment of
ASSESS AND COLLECT THE TAXES FOR THE
the balance, but appellants failed to comply with said
YEARS 1947 TO SEPTEMBER 23, 1949 HAS
conditions: that in reply to Atty. Moya's request for
NOT PRESCRIBED.
exemption from the Department order, on March 3,
1955 (not May), the attorney was advised that his
request was denied and that if the corporation failed to
III. THE LOWER COURT LIKEWISE ERRED IN comply therewith within five (5) days from receipt of
DECLARING THAT THE GOVERNMENT'S the letter, "the assessment (would) be considered final";
RIGHT TO COLLECT THE SUM OF P45,541.66 that on June 4, 1955, said Atty. Moya was reminded in
HAS NOT PRESCRIBED. writing that the previous demands had not been
properly attended to, with the warning that should
appellants further fail to comply with the requirements
IV. THE LOWER COURT FURTHER ERRED IN NOT in the letter of February 11, 1955, within five (5) days
DECLARING THAT SUIT AGAINST F.H. from receipt thereof, the "case (would) be considered
BURGESS IN HIS CAPACITY AS LIQUIDATOR abandoned and appropriate action (would) be taken in
OF MARSMAN DEVELOPMENT COMPANY accordance with law"; that even as late as November
HAS PRESCRIBED AND IN ORDERING HIM TO 14, 1955, the corporation was again advised to comply
PAY THE SUMS CONTAINED IN ITS with the earlier communications of February 11, 1955,
DECISION. March 3, 1955 and June 4, 1955, within five days,
otherwise, the Bureau of Internal Revenue would "be
constrained to enforce immediate collection of the
deficiency percentage tax and forest charges due"; that
The Court does not agree.
as nothing was done by it to comply with this last letter,
Anent the first assignment of error, it may be stated the Bureau of Internal Revenue issued, on April 27,
that regardless of what might have been alleged in 1956, "final tax notices" to it, and all that the latter did
appellee's pleadings and memoranda, the facts proven after receipt thereof was to reiterate, by its letters of
by evidence, which are not alleged to have been May 19, 1956 and August 7, 1956, its request for
objected to as varying supposed judicial admissions, specification of the items involved in the assessment
unmistakably show that when Atty. Pedro L. Moya and for another period of 30 days within which to
acknowledged receipt on December 28, 1954, on behalf consider its tax liabilities, reserving once more its right
of appellant corporation, of the Bureau of Internal to contest the legality or validity of the assessment and
Revenue's assessments of September 13, 1954 and to protest the issuance of the "final tax notices"; that
November 8, 1954, requesting at the same time for a evidently tired of awaiting compliance by the said
reinvestigation before the Conference Staff, he was appellant, the Bureau of Internal Revenue issued on July
3, 1956 a warrant of distraint and levy against it, which unwarranted, without doing anything to comply with
it acknowledged on August 3, 1956, only to reiterate the statutory and reglementary requirements for the
again its position previously stated of asking for reconsideration of the assessment made against him. In
specification and reserving its right to contest the any event, since appellant corporation did nothing from
validity of the assessment; that, finally, on July 30, 1959, December, 1954 when it acknowledged receipt of the
after three years, the Commissioner of Internal Revenue assessment now impugned to appeal the same, if such
made extrajudicial demand for payment of the amounts an appeal was possible, to the Court of Tax Appeals,
in question within five (5) days, and since no payment even after it was warned by the Bureau of Internal
came, and instead, defendants asked for more time to Revenue that its failure to comply with the
go over the records and, under separate cover, requirements for reconsideration within five (5) days
questioned for the nth time, the validity of the would result in its being "considered" final, We find no
assessment, the present action was filed. merit in appellants' posture that the assessments here
in question has not yet become final and executory.
Under these circumstances, it is plain that His Honor Consequently, overruling of appellants' first assignment
committed no error in holding that the period to of error is clearly in order.
question the tax assessments herein involved had
already expired when the Commissioner of Internal In their second assignment of error, appellants raise the
Revenue initiated this suit against defendants. issue of prescription. They point out that the Collector
Defendant corporation aknowledged receipt of the said of Internal Revenue had only five years within which to
assessments way back on December 28, 1954, and, in assess the percentage and forest charges herein
fact, it requested for a reinvestigation before the involved. Since it does not appear, however, that
Conference Staff, but when the Bureau demanded appellant corporation had filed any return in relation to
compliance with the prerequisites aforementioned of the taxes herein involved, and it was incumbent upon
such reinvestigation, the corporation failed to comply. appellants to show that such a return had been
The corporation did ask for exemption, but when this submitted,2 We find the following holding of His Honor
request was denied, again there was no compliance. In to be fully in accordance with law:
view of such non-compliance, in its letter of March 3,
1955, the Bureau unequivocally warned the corporation Defendants' contention that the right to assess the
percentage and forest charges for the period from 1947
that should it fail further to comply, within five days
from receipt thereof, the "assessments (would) be to September 23, 1949 had already prescribed is based
on the provision of Section 231 of the Revenue Code
considered final". still no compliance came. Subsequent
follow-up letters brought no better results. which requires the Collector of Internal Revenue to
assess the tax within the period of five years. The Court
As it appears, therefore, appellant corporation, by its agrees with the plaintiff that said Section 231 is not
own omission, made it impossible for the Bureau of applicable in this case inasmuch as defendant
Internal Revenue to act on its motion for corporation did not file returns for the taxes in
reconsideration. Not that it would have otherwise question. The pertinent provision applicable herein is
mattered, for it has been held that the mere filing of Section 332 (a) which provides that "in case of a false or
such a motion does not suspend the running of the fraudulent return or of a failure to file a return, the tax
period for the collection of the tax,1 which implies that may be assessed ... at anytime within ten years after the
any assessment made by the Bureau is supposed to be discovery of the falsity, fraud or omission." The
final and executory, insofar as the taxpayer is assessments made on October 15, 1953, September 13,
concerned, unless revised by the Bureau in accordance 1954, and November 3, 1954 were all within the
with law and regulations, but it is to be emphasized that aforecited 10-year period for the assessment of the tax.
a taxpayer cannot delay the collection of taxes by the
Even if the Court were to consider, as appellants
simple expedient of barely asking for clarification or
reconsideration, very often unnecessary and suggest, the fact brought out in their brief but not found
by the trial court that what are being sought to be Appellants' last assignment of error was disposed of by
collected are deficiency taxes, thereby implying a return the trial court this wise:
must have been filed, nothing can he gained by
The defendants further contend that the present action
appellants, for in order that the filing of a return may
serve as the starting point of the period for the making is already barred under section 77 of the Corporation
Law, Act No. 1459, as amended, which allows the
of an assessment, the return must be as substantive
complete as to include the needed details on which the corporate existence of a corporation to continue only
for three years after its dissolution, for the purpose of
full assessment may be made, and appellants have not
shown that such was the nature of the return they presenting or defending suits by or against it, and to
settle and close its affairs. They point out that inasmuch
would infer had been filed by the corporation.3
as the Marsman Development Co. was extra-judicially
Appellants' third assignment of error does not require dissolved on April 23, 1954, a fact admitted in the
any extended discussion. The argument thereunder that amended complaint, the filing of both the original
the judicial action for the recovery of the bigger amount complaint on September 8, 1958 and the amended
of P45,541.66 was not filed within five (5) years from complaint on August 26, 1956 was beyond the aforesaid
September 13, 1954, the date of the earliest three-year period.
assessment, has neither factual nor legal basis. As aptly
explained by his Honor, such argument proceeds from The record shows that the filing of the amended
complaint was intended, among others, to include as a
the erroneous premises that because the amended
complaint in which the said amount was first alleged party defendant, in an alternative capacity, Mr. F.H.
Burgess, who is the liquidator of the Marsman
and demanded was formally admitted by the court only
on September 23, 1959 and that the filing of said Development Co. Although it is an admitted fact that
the defendant corporation was extrajudicially dissolved
amended complaint on August 26, 1959 is immaterial.
While in the procedural sense, especially in relation to on April 23, 1954, there is no claim that the affairs of
said corporation had already been finally liquidated or
the possible necessity of and time for the filing of
responsive and other corresponding pleadings, an settled. Evidently, Mr. F.H. Burgess is still continuing in
his aforesaid capacity as liquidator of the Marsman
amended complaint is deemed filed only as of the date
of its admission, nothing in Breslin v. Luzon, 84 Phil. 625, Development Co. While section 77 of the Corporation
Law provides for a three-year period for the
relied upon by appellant, was intended to modify the
self-evident proposition that for practical reasons and to continuation of the corporate existence of the
corporation for purposes of liquidation, there is nothing
avoid the complications that may rise from undue
delays in the admission thereof, such an amended in said provision which bars an action for the recovery
of the debts of the corporation against the liquidator
complaint must be considered as filed, for the purposes
of such a substantive matter as prescription, on the date thereof, after the lapse of the said three-year period.
it is actually filed with the court, regardless of when it is We agree with His Honor. The stress given by appellants
ultimately formally admitted by the court. After all, the to the extinction of the corporate and juridical
only purpose of requiring leave of and formal admission personality as such of appellant corporation by virtue of
by the court of an amended pleading after issues have its extra-judicial dissolution which admittedly took place
already been joined as to the original ones is to prevent on April 23, 1954 is misdirected. While Section 77 of the
the injection of other issues which might either to be Corporation Law does provide that:
considered as barred already or made the subject of
another proceeding, if they are not anyway Every corporation whose charter expires by its own
indispensable for the resolution of the original ones and limitation or is annulled by forfeiture or otherwise, or
no unnecessary multiplicity of suits would result; so, whose corporate existence for other purposes is
when the court ultimately admits the amendment, the terminated in any other manner, shall nevertheless be
legal effect, for substantive purposes, of such admission continued as a body corporate for three years after the
retroacts as a rule to the date of its actual filing. time when it would have been so dissolved, for the
purpose of prosecuting and defending suits by or thereof, the assessment aforementioned, made within
against it and of enabling it gradually to settle and close the three years, definitely established the Government
its affairs, to dispose of and convey its property and to as a creditor of the corporation for whom the liquidator
divide its capital stock, but not for the purpose of is supposed to hold assets of the corporation. And since
continuing the business for which it was established. the suit at bar is only for the collection of taxes finally
assessed against the corporation within the three years
the next provision, Section 78, adds for clarification: invoked by appellants, their fourth assignment of error
At any time during said three years said corporation is cannot be sustained. As to the allegation that appellant
authorized and empowered to convey all of its property Burgess has not in fact received any property or asset of
to trustees for the benefit of members, stock-holders, the corporation, that is a matter that can well be taken
creditors, and others interested. From and after any care of in the execution of the judgment which may be
such conveyance by the corporation of its property in rendered herein, albeit it seems some kind of fraud
trust for the benefit of its members, stockholders, would be perceptible, if the corporation had been
creditors, and others in interest, all interest which the dissolved without leaving any assets whatsoever with
corporation had in the property terminates, the legal the liquidator.
interest vests in the trustee, and the beneficial interest ACCORDINGLY, the judgment of the trial court is
in the members,stockholders, creditors, or other affirmed with costs against the appellants.
persons in interest.
Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando,
It is to be recalled that the assessments against Teehankee, Makasiar and Antonio, JJ., co
appellant corporation for deficiency taxes due for its
operations since 1947 were made by the Bureau of
Internal Revenue on October 15, 1953, September 13,
1954 and November 8, 1954, such that the first was
before its dissolution and the last two not later than six
months after such dissolution. Thus, in whatever way
the matter may be viewed, the Government became the
creditor of the corporation before the completion of its
dissolution by the liquidation of its assets. Appellant
F.H. Burgess, whom it chose as liquidator, became in
law the trustee of all its assets for the benefit of all
persons enumerated in Section 78, including its
creditors, among whom is the Government, for the
taxes herein involved. To assume otherwise would
render the extra-judicial dissolution illegal and void,
since, according to Section 62 of the Corporation Law,
such kind of dissolution is permitted only when it "does
not affect the rights of any creditor having a claim
against the corporation." It is immaterial that the
present action was filed after the expiration of three
years after April 23, 1954, for at the very least, and
assuming that judicial enforcement of taxes may not be
initiated after said three years despite the fact that the
actual liquidation has not been terminated and the one
in charge thereof is still holding the assets of the
corporation, obviously for the benefit of all the creditors
 Subsequently, however, PBCom suffered losses so that
when it filed its Annual Income Tax Returns for the year-
ended December 31, 1986, the petitioner likewise
G.R. No. 112024 January 28, 1999 reported a net loss of P14,129,602.00, and thus
declared no tax payable for the year.
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs. But during these two years, PBCom earned rental
COMMISSIONER OF INTERNAL REVENUE, COURT OF income from leased properties. The lessees withheld
TAX APPEALS and COURT OF APPEALS, respondent. and remitted to the BIR withholding creditable taxes of
P282,795.50 in 1985 and P234,077.69 in 1986.

QUISUMBING, J.: On August 7, 1987, petitioner requested the

Commissioner of Internal Revenue, among others, for a
This petition for review assails the Resolution 1 of the tax credit of P5,016,954.00 representing the
Court of Appeals dated September 22, 1993 affirming overpayment of taxes in the first and second quarters of
the Decision2 and a Resolution 3 of the Court Of Tax 1985.
Appeals which denied the claims of the petitioner for
tax refund and tax credits, and disposing as follows: Thereafter, on July 25, 1988, petitioner filed a claim for
refund of creditable taxes withheld by their lessees
IN VIEW OF ALL, THE FOREGOING, the instant petition from property rentals in 1985 for P282,795.50 and in
for review, is DENIED due course. The Decision of the 1986 for P234,077.69.
Court of Tax Appeals dated May 20, 1993 and its
resolution dated July 20, 1993, are hereby AFFIRMED in Pending the investigation of the respondent
toto. Commissioner of Internal Revenue, petitioner instituted
a Petition for Review on November 18, 1988 before the
SO ORDERED.4 Court of Tax Appeals (CTA). The petition was docketed
as CTA Case No. 4309 entitled: "Philippine Bank of
The Court of Tax Appeals earlier ruled as follows: Communications vs. Commissioner of Internal
Revenue."
WHEREFORE, Petitioner's claim for refund/tax credits of
overpaid income tax for 1985 in the amount of The losses petitioner incurred as per the summary of
P5,299,749.95 is hereby denied for having been filed petitioner's claims for refund and tax credit for 1985
beyond the reglementary period. The 1986 claim for and 1986, filed before the Court of Tax Appeals, are as
refund amounting to P234,077.69 is likewise denied follows:
since petitioner has opted and in all likelihood
automatically credited the same to the succeeding year. 1985 1986
The petition for review is dismissed for lack of merit.
——— ———
SO ORDERED.5
Net Income (Loss) (P25,317,288.00) (P14,129,602.00)
The facts on record show the antecedent circumstances
pertinent to this case. Tax Due NIL NIL

Petitioner, Philippine Bank of Communications (PBCom), Quarterly tax.

a commercial banking corporation duly organized under
Philippine laws, filed its quarterly income tax returns for Payments Made 5,016,954.00 —
the first and second quarters of 1985, reported profits,
and paid the total income tax of P5,016,954.00. The Tax Withheld at Source 282,795.50 234,077.69
taxes due were settled by applying PBCom's tax credit
memos and accordingly, the Bureau of Internal Revenue ———————— ———————
(BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85
for P3,401,701.00 and P1,615,253.00, respectively. Excess Tax Payments P5,299,749.50* P234,077.69
=============== ============= Petitioner argues that its claims for refund and tax
credits are not yet barred by prescription relying on the
* CTA's decision reflects PBCom's 1985 tax claim as applicability of Revenue Memorandum Circular No. 7-85
P5,299,749.95. A forty five centavo difference was issued on April 1, 1985. The circular states that overpaid
noted. income taxes are not covered by the two-year
prescriptive period under the tax Code and that
On May 20, 1993, the CTA rendered a decision which, as taxpayers may claim refund or tax credits for the excess
stated on the outset, denied the request of petitioner quarterly income tax with the BIR within ten (10) years
for a tax refund or credit in the sum amount of under Article 1144 of the Civil Code. The pertinent
P5,299,749.95, on the ground that it was filed beyond portions of the circular reads:
the two-year reglementary period provided for by law.
The petitioner's claim for refund in 1986 amounting to REVENUE MEMORANDUM CIRCULAR NO. 7-85
P234,077.69 was likewise denied on the assumption
that it was automatically credited by PBCom against its SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF
tax payment in the succeeding year. EXCESS CORPORATE INCOME TAX RESULTING FROM
THE FILING OF THE FINAL ADJUSTMENT RETURN.
On June 22, 1993, petitioner filed a Motion for
Reconsideration of the CTA's decision but the same was TO: All Internal Revenue Officers and Others Concerned.
denied due course for lack of merit. 6
Sec. 85 And 86 Of the National Internal Revenue Code
Thereafter, PBCom filed a petition for review of said provide:
decision and resolution of the CTA with the Court of
Appeals. However on September 22, 1993, the Court of xxx xxx xxx
Appeals affirmed in toto the CTA's resolution dated July
20, 1993. Hence this petition now before us. The foregoing provisions are implemented by Section 7
of Revenue Regulations Nos. 10-77 which provide;
The issues raised by the petitioner are:
xxx xxx xxx
I. Whether taxpayer PBCom — which relied in good
faith on the formal assurances of BIR in RMC No. 7-85 It has been observed, however, that because of the
and did not immediately file with the CTA a petition for excess tax payments, corporations file claims for
review asking for the refund/tax credit of its 1985-86 recovery of overpaid income tax with the Court of Tax
excess quarterly income tax payments — can be Appeals within the two-year period from the date of
prejudiced by the subsequent BIR rejection, applied payment, in accordance with sections 292 and 295 of
retroactivity, of its assurances in RMC No. 7-85 that the the National Internal Revenue Code. It is obvious that
prescriptive period for the refund/tax credit of excess the filing of the case in court is to preserve the judicial
quarterly income tax payments is not two years but ten right of the corporation to claim the refund or tax
(10).7 credit.

II. Whether the Court of Appeals seriously erred in It should he noted, however, that this is not a case of
affirming the CTA decision which denied PBCom's claim erroneously or illegally paid tax under the provisions of
for the refund of P234,077.69 income tax overpaid in Sections 292 and 295 of the Tax Code.
1986 on the mere speculation, without proof, that there
were taxes due in 1987 and that PBCom availed of tax- In the above provision of the Regulations the
crediting that year.8 corporation may request for the refund of the overpaid
income tax or claim for automatic tax credit. To insure
Simply stated, the main question is: Whether or not the prompt action on corporate annual income tax returns
Court of Appeals erred in denying the plea for tax showing refundable amounts arising from overpaid
refund or tax credits on the ground of prescription, quarterly income taxes, this Office has promulgated
despite petitioner's reliance on RMC No. 7-85, changing Revenue Memorandum Order No. 32-76 dated June 11,
the prescriptive period of two years to ten years? 1976, containing the procedure in processing said
returns. Under these procedures, the returns are merely
pre-audited which consist mainly of checking
mathematical accuracy of the figures of the return. Respondent Commissioner of Internal Revenue, through
After which, the refund or tax credit is granted, and, this Solicitor General, argues that the two-year prescriptive
procedure was adopted to facilitate immediate action period for filing tax cases in court concerning income
on cases like this. tax payments of Corporations is reckoned from the date
of filing the Final Adjusted Income Tax Return, which is
In this regard, therefore, there is no need to file generally done on April 15 following the close of the
petitions for review in the Court of Tax Appeals in order calendar year. As precedents, respondent
to preserve the right to claim refund or tax credit the Commissioner cited cases which adhered to this
two year period. As already stated, actions hereon by principle, to wit ACCRA Investments Corp. vs. Court of
the Bureau are immediate after only a cursory pre-audit Appeals, et al., 11 and Commissioner of Internal
of the income tax returns. Moreover, a taxpayer may Revenue vs. TMX Sales, Inc., et al.. 12 Respondent
recover from the Bureau of Internal Revenue excess Commissioner also states that since the Final Adjusted
income tax paid under the provisions of Section 86 of Income Tax Return of the petitioner for the taxable year
the Tax Code within 10 years from the date of payment 1985 was supposed to be filed on April 15, 1986, the
considering that it is an obligation created by law latter had only until April 15, 1988 to seek relief from
(Article 1144 of the Civil Code).9 (Emphasis supplied.) the court. Further, respondent Commissioner stresses
that when the petitioner filed the case before the CTA
Petitioner argues that the government is barred from on November 18, 1988, the same was filed beyond the
asserting a position contrary to its declared circular if it time fixed by law, and such failure is fatal to petitioner's
would result to injustice to taxpayers. Citing ABS CBN cause of action.
Broadcasting Corporation vs. Court of Tax Appeals 10
petitioner claims that rulings or circulars promulgated After a careful study of the records and applicable
by the Commissioner of Internal Revenue have no jurisprudence on the matter, we find that, contrary to
retroactive effect if it would be prejudicial to taxpayers, the petitioner's contention, the relaxation of revenue
In ABS-CBN case, the Court held that the government is regulations by RMC 7-85 is not warranted as it
precluded from adopting a position inconsistent with disregards the two-year prescriptive period set by law.
one previously taken where injustice would result
therefrom or where there has been a misrepresentation Basic is the principle that "taxes are the lifeblood of the
to the taxpayer. nation." The primary purpose is to generate funds for
the State to finance the needs of the citizenry and to
Petitioner contends that Sec. 246 of the National advance the common weal. 13 Due process of law
Internal Revenue Code explicitly provides for this rules under the Constitution does not require judicial
as follows: proceedings in tax cases. This must necessarily be so
because it is upon taxation that the government chiefly
Sec. 246 Non-retroactivity of rulings— Any revocation, relies to obtain the means to carry on its operations and
modification or reversal of any of the rules and it is of utmost importance that the modes adopted to
regulations promulgated in accordance with the enforce the collection of taxes levied should be
preceding section or any of the rulings or circulars summary and interfered with as little as possible. 14
promulgated by the Commissioner shall not be given
retroactive application if the revocation, modification or From the same perspective, claims for refund or tax
reversal will be prejudicial to the taxpayers except in credit should be exercised within the time fixed by law
the following cases: because the BIR being an administrative body enforced
to collect taxes, its functions should not be unduly
a). where the taxpayer deliberately misstates or omits delayed or hampered by incidental matters.
material facts from his return or in any document
required of him by the Bureau of Internal Revenue; Sec. 230 of the National Internal Revenue Code (NIRC)
of 1977 (now Sec. 229, NIRC of 1997) provides for the
b). where the facts subsequently gathered by the prescriptive period for filing a court proceeding for the
Bureau of Internal Revenue are materially different recovery of tax erroneously or illegally collected, viz.:
from the facts on which the ruling is based;
Sec. 230. Recovery of tax erroneously or illegally
c). where the taxpayer acted in bad faith. collected. — No suit or proceeding shall be maintained
in any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously more specific and less general interpretations of tax
or illegally assessed or collected, or of any penalty laws) which are issued from time to time by the
claimed to have been collected without authority, or of Commissioner of Internal Revenue. It is widely accepted
any sum alleged to have been excessive or in any that the interpretation placed upon a statute by the
manner wrongfully collected, until a claim for refund or executive officers, whose duty is to enforce it, is entitled
credit has been duly filed with the Commissioner; but to great respect by the courts. Nevertheless, such
such suit or proceeding may be maintained, whether or interpretation is not conclusive and will be ignored if
not such tax, penalty, or sum has been paid under judicially found to be erroneous. 20 Thus, courts will not
protest or duress. countenance administrative issuances that override,
instead of remaining consistent and in harmony with
In any case, no such suit or proceedings shall begun the law they seek to apply and implement. 21
after the expiration of two years from the date of
payment of the tax or penalty regardless of any In the case of People vs. Lim, 22 it was held that rules
supervening cause that may arise after payment; and regulations issued by administrative officials to
Provided however, That the Commissioner may, even implement a law cannot go beyond the terms and
without a written claim therefor, refund or credit any provisions of the latter.
tax, where on the face of the return upon which
payment was made, such payment appears clearly to Appellant contends that Section 2 of FAO No. 37-1 is
have been erroneously paid. (Emphasis supplied) void because it is not only inconsistent with but is
contrary to the provisions and spirit of Act. No 4003 as
The rule states that the taxpayer may file a claim for amended, because whereas the prohibition prescribed
refund or credit with the Commissioner of Internal in said Fisheries Act was for any single period of time
Revenue, within two (2) years after payment of tax, not exceeding five years duration, FAO No 37-1 fixed no
before any suit in CTA is commenced. The two-year period, that is to say, it establishes an absolute ban for
prescriptive period provided, should be computed from all time. This discrepancy between Act No. 4003 and
the time of filing the Adjustment Return and final FAO No. 37-1 was probably due to an oversight on the
payment of the tax for the year. part of Secretary of Agriculture and Natural Resources.
Of course, in case of discrepancy, the basic Act prevails,
In Commissioner of Internal Revenue vs. Philippine for the reason that the regulation or rule issued to
American Life Insurance Co., 15 this Court explained the implement a law cannot go beyond the terms and
application of Sec. 230 of 1977 NIRC, as follows: provisions of the
latter. . . . In this connection, the attention of the
Clearly, the prescriptive period of two years should technical men in the offices of Department Heads who
commence to run only from the time that the refund is draft rules and regulation is called to the importance
ascertained, which can only be determined after a final and necessity of closely following the terms and
adjustment return is accomplished. In the present case, provisions of the law which they intended to
this date is April 16, 1984, and two years from this date implement, this to avoid any possible misunderstanding
would be April 16, 1986. . . . As we have earlier said in or confusion as in the present case.23
the TMX Sales case, Sections 68. 16 69, 17 and 70 18 on
Quarterly Corporate Income Tax Payment and Section Further, fundamental is the rule that the State cannot
321 should be considered in conjunction with it 19 be put in estoppel by the mistakes or errors of its
officials or agents. 24 As pointed out by the respondent
When the Acting Commissioner of Internal Revenue courts, the nullification of RMC No. 7-85 issued by the
issued RMC 7-85, changing the prescriptive period of Acting Commissioner of Internal Revenue is an
two years to ten years on claims of excess quarterly administrative interpretation which is not in harmony
income tax payments, such circular created a clear with Sec. 230 of 1977 NIRC. for being contrary to the
inconsistency with the provision of Sec. 230 of 1977 express provision of a statute. Hence, his interpretation
NIRC. In so doing, the BIR did not simply interpret the could not be given weight for to do so would, in effect,
law; rather it legislated guidelines contrary to the amend the statute.
statute passed by Congress.
It is likewise argued that the Commissioner of Internal
It bears repeating that Revenue memorandum-circulars Revenue, after promulgating RMC No. 7-85, is estopped
are considered administrative rulings (in the sense of by the principle of non-retroactively of BIR rulings.
Again We do not agree. The Memorandum Circular, Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997
stating that a taxpayer may recover the excess income NIRC) provides that any excess of the total quarterly
tax paid within 10 years from date of payment because payments over the actual income tax computed in the
this is an obligation created by law, was issued by the adjustment or final corporate income tax return, shall
Acting Commissioner of Internal Revenue. On the other either (a) be refunded to the corporation, or (b) may be
hand, the decision, stating that the taxpayer should still credited against the estimated quarterly income tax
file a claim for a refund or tax credit and corresponding liabilities for the quarters of the succeeding taxable
petition fro review within the year.
two-year prescription period, and that the lengthening
of the period of limitation on refund from two to ten The corporation must signify in its annual corporate
years would be adverse to public policy and run counter adjustment return (by marking the option box provided
to the positive mandate of Sec. 230, NIRC, - was the in the BIR form) its intention, whether to request for a
ruling and judicial interpretation of the Court of Tax refund or claim for an automatic tax credit for the
Appeals. Estoppel has no application in the case at bar succeeding taxable year. To ease the administration of
because it was not the Commissioner of Internal tax collection, these remedies are in the alternative, and
Revenue who denied petitioner's claim of refund or tax the choice of one precludes the other.
credit. Rather, it was the Court of Tax Appeals who
denied (albeit correctly) the claim and in effect, ruled As stated by respondent Court of Appeals:
that the RMC No. 7-85 issued by the Commissioner of
Internal Revenue is an administrative interpretation Finally, as to the claimed refund of income tax over-paid
which is out of harmony with or contrary to the express in 1986 — the Court of Tax Appeals, after examining the
provision of a statute (specifically Sec. 230, NIRC), adjusted final corporate annual income tax return for
hence, cannot be given weight for to do so would in taxable year 1986, found out that petitioner opted to
effect amend the statute.25 apply for automatic tax credit. This was the basis used
(vis-avis the fact that the 1987 annual corporate tax
Art. 8 of the Civil Code 26 recognizes judicial decisions, return was not offered by the petitioner as evidence) by
applying or interpreting statutes as part of the legal the CTA in concluding that petitioner had indeed availed
system of the country. But administrative decisions do of and applied the automatic tax credit to the
not enjoy that level of recognition. A memorandum- succeeding year, hence it can no longer ask for refund,
circular of a bureau head could not operate to vest a as to [sic] the two remedies of refund and tax credit are
taxpayer with shield against judicial action. For there alternative. 30
are no vested rights to speak of respecting a wrong
construction of the law by the administrative officials That the petitioner opted for an automatic tax credit in
and such wrong interpretation could not place the accordance with Sec. 69 of the 1977 NIRC, as specified
Government in estoppel to correct or overrule the in its 1986 Final Adjusted Income Tax Return, is a finding
same. 27 Moreover, the non-retroactivity of rulings by of fact which we must respect. Moreover, the 1987
the Commissioner of Internal Revenue is not applicable annual corporate tax return of the petitioner was not
in this case because the nullity of RMC No. 7-85 was offered as evidence to contovert said fact. Thus, we are
declared by respondent courts and not by the bound by the findings of fact by respondent courts,
Commissioner of Internal Revenue. Lastly, it must be there being no showing of gross error or abuse on their
noted that, as repeatedly held by this Court, a claim for part to disturb our reliance thereon. 31
refund is in the nature of a claim for exemption and
should be construed in strictissimi juris against the WHEREFORE, the, petition is hereby DENIED, The
taxpayer.28 decision of the Court of Appeals appealed from is
AFFIRMED, with COSTS against the
On the second issue, the petitioner alleges that the petitioner.1âwphi1.nêt
Court of Appeals seriously erred in affirming CTA's
decision denying its claim for refund of P234,077.69 (tax SO ORDERED.
overpaid in 1986), based on mere speculation, without
proof, that PBCom availed of the automatic tax credit in
1987.
G.R. No. 108067 January 20, 2000
 CYANAMID PHILIPPINES, INC., petitioner, Less: Amount already assessed
vs. 5,161,788.00
THE COURT OF APPEALS, THE COURT OF TAX APPEALS BALANCE 75,709.00
and COMMISSIONER OF INTERNAL REVENUE, monthly interest from
respondent. 1,389,639.00 44,108.00
Compromise penalties
QUISUMBING, J.:
TOTAL AMOUNT DUE
Petitioner disputes the decision1 of the Court of 3,774,867.50 119,817.00
Appeals which affirmed the decision2 of the Court of
Tax Appeals, ordering petitioner to pay respondent On March 4, 1985, petitioner protested the assessments
Commissioner of Internal Revenue the amount of three particularly, (1) the 25% Surtax Assessment of
million, seven hundred seventy-four thousand, eight P3,774,867.50; (2) 1981 Deficiency Income Assessment
hundred sixty seven pesos and fifty centavos of P119,817.00; and 1981 Deficiency Percentage
(P3,774,867.50) as 25% surtax on improper Assessment of P8,846.72.4 Petitioner, through its
accumulation of profits for 1981, plus 10% surcharge external accountant, Sycip, Gorres, Velayo & Co.,
and 20% annual interest from January 30, 1985 to claimed, among others, that the surtax for the undue
January 30, 1987, under Sec. 25 of the National Internal accumulation of earnings was not proper because the
Revenue Code.1âwphi1.nêt said profits were retained to increase petitioner's
working capital and it would be used for reasonable
The Court of Tax Appeals made the following factual business needs of the company. Petitioner contended
findings: that it availed of the tax amnesty under Executive Order
No. 41, hence enjoyed amnesty from civil and criminal
Petitioner, Cyanamid Philippines, Inc., a corporation prosecution granted by the law.
organized under Philippine laws, is a wholly owned
subsidiary of American Cyanamid Co. based in Maine, On October 20, 1987, the CIR in a letter addressed to
USA. It is engaged in the manufacture of pharmaceutical SGV & Co., refused to allow the cancellation of the
products and chemicals, a wholesaler of imported assessment notices and rendered its resolution, as
finished goods, and an importer/indentor. follows:

On February 7, 1985, the CIR sent an assessment letter It appears that your client availed of Executive Order
to petitioner and demanded the payment of deficiency No. 41 under File No. 32A-F-000455-41B as certified and
income tax of one hundred nineteen thousand eight confirmed by our Tax Amnesty Implementation Office
hundred seventeen (P119,817.00) pesos for taxable on October 6, 1987.
year 1981, as follows:
In reply thereto, I have the honor to inform you that the
Net income disclosed by the return as audited availment of the tax amnesty under Executive Order No.
14,575,210.00 41, as amended is sufficient basis, in appropriate cases,
Add: Discrepancies: for the cancellation of the assessment issued after
Professional fees/yr. 17018 August 21, 1986. (Revenue Memorandum Order No. 4-
261,877.00 87) Said availment does not, therefore, result in
per investigation cancellation of assessments issued before August 21,
110,399.37 1986. as in the instant case. In other words, the
Total Adjustment assessments in this case issued on January 30, 1985
152,477.00 despite your client's availment of the tax amnesty under
Net income per Investigation Executive Order No. 41, as amended still subsist.
14,727,687.00
Less: Personal and additional exemptions Such being the case, you are therefore, requested to
Amount subject to tax urge your client to pay this Office the aforementioned
14,727,687.00 deficiency income tax and surtax on undue
Income tax due thereon . . . 25% Surtax accumulation of surplus in the respective amounts of
2,385,231.50 3,237,495.00 P119,817.00 and P3,774,867.50 inclusive of interest
thereon for the year 1981, within thirty (30) days from
receipt hereof, otherwise this office will be constrained accounts receivable, inventory and even its sales for the
to enforce collection thereof thru summary remedies period is adequate to meet the normal needs of the
prescribed by law. business. This can be determined by computing the
current asset to liability ratio of the company:
This constitutes the final decision of this Office on this
matter.5 current ratio = current assets/ current liabilities

Petitioner appealed to the Court of Tax Appeals. During = P 47,052,535.00 / P21,275,544.00

the pendency of the case, however, both parties agreed
to compromise the 1981 deficiency income tax = 2.21: 1
assessment of P119,817.00. Petitioner paid a reduced ========
amount — twenty-six thousand, five hundred seventy-
seven pesos (P26,577.00) — as compromise settlement. The significance of this ratio is to serve as a primary test
However, the surtax on improperly accumulated profits of a company's solvency to meet current obligations
remained unresolved. from current assets as a going concern or a measure of
adequacy of working capital.
Petitioner claimed that CIR's assessment representing
the 25% surtax on its accumulated earnings for the year xxx xxx xxx
1981 had no legal basis for the following reasons: (a)
petitioner accumulated its earnings and profits for We further reject petitioner's argument that "the
reasonable business requirements to meet working accumulated earnings tax does not apply to a publicly-
capital needs and retirement of indebtedness; (b) held corporation" citing American jurisprudence to
petitioner is a wholly owned subsidiary of American support its position. The reference finds no application
Cyanamid Company, a corporation organized under the in the case at bar because under Section 25 of the NIRC
laws of the State of Maine, in the United States of as amended by Section 5 of P.D. No. 1379 [1739] (dated
America, whose shares of stock are listed and traded in September 17, 1980), the exceptions to the
New York Stock Exchange. This being the case, no accumulated earnings tax are expressly enumerated, to
individual shareholder income taxes by petitioner's wit: Bank, non-bank financial intermediaries,
accumulation of earnings and profits, instead of corporations organized primarily, and authorized by the
distribution of the same. Central Bank of the Philippines to hold shares of stock of
banks, insurance companies, or personal holding
In denying the petition, the Court of Tax Appeals made companies, whether domestic or foreign. The law on
the following pronouncements: the matter is clear and specific. Hence, there is no need
to resort to applicable cases decided by the American
Petitioner contends that it did not declare dividends for Federal Courts for guidance and enlightenment as to
the year 1981 in order to use the accumulated earnings whether the provision of Section 25 of the NIRC should
as working capital reserve to meet its "reasonable apply to petitioner.
business needs". The law permits a stock corporation to
set aside a portion of its retained earnings for specified Equally clear and specific are the provisions of E.O. 41
purposes (citing Section 43, paragraph 2 of the particularly with respect to its effectivity and
Corporation Code of the Philippines). In the case at bar, coverage . . .
however, petitioner's purpose for accumulating its
earnings does not fall within the ambit of any of these . . . Said availment does not result in cancellation of
specified purposes. assessments issued before August 21, 1986 as
petitioner seeks to do in the case at bar. Therefore, the
assessments in this case, issued on January 30, 1985
More compelling is the finding that there was no need despite petitioner's availment of the tax amnesty under
for petitioner to set aside a portion of its retained E.O. 41 as amended, still subsist.
earnings as working capital reserve as it claims since it
had considerable liquid funds. A thorough review of xxx xxx xxx
petitioner's financial statement (particularly the Balance
Sheet, p. 127, BIR Records) reveals that the corporation WHEREFORE, petitioner Cyanamid Philippines, Inc., is
had considerable liquid funds consisting of cash ordered to pay respondent Commissioner of Internal
Revenue the sum of P3,774,867.50 representing 25% for each taxable year, a tax equal to twenty-five per-
surtax on improper accumulation of profits for 1981, centum of the undistributed portion of its accumulated
plus 10% surcharge and 20% annual interest from profits or surplus which shall be in addition to the tax
January 30, 1985 to January 30, 1987.6 imposed by section twenty-four, and shall be computed,
collected and paid in the same manner and subject to
Petitioner appealed the Court of Tax Appeal's decision the same provisions of law, including penalties, as that
to the Court of Appeals. Affirming the CTA decision, the tax.
appellate court said:
(b) Prima facie evidence. — The fact that any
In reviewing the instant petition and the arguments corporation is mere holding company shall be prima
raised herein, We find no compelling reason to reverse facie evidence of a purpose to avoid the tax upon its
the findings of the respondent Court. The respondent shareholders or members. Similar presumption will lie
Court's decision is supported by evidence, such as in the case of an investment company where at any
petitioner corporation's financial statement and balance time during the taxable year more than fifty per centum
sheets (p. 127, BIR Records). On the other hand the in value of its outstanding stock is owned, directly or
petitioner corporation could only come up with an indirectly, by one person.
alternative formula lifted from a decision rendered by a
foreign court (Bardahl Mfg. Corp. vs. Commissioner, 24 (c) Evidence determinative of purpose. — The fact that
T.C.M. [CCH] 1030). Applying said formula to its the earnings or profits of a corporation are permitted to
particular financial position, the petitioner corporation accumulate beyond the reasonable needs of the
attempts to justify its accumulated surplus earnings. To business shall be determinative of the purpose to avoid
Our mind, the petitioner corporation's alternative the tax upon its shareholders or members unless the
formula cannot overturn the persuasive findings and corporation, by clear preponderance of evidence, shall
conclusion of the respondent Court based, as it is, on prove the contrary.
the applicable laws and jurisprudence, as well as
standards in the computation of taxes and penalties (d) Exception. — The provisions of this sections shall not
practiced in this jurisdiction. apply to banks, non-bank financial intermediaries,
corporation organized primarily, and authorized by the
WHEREFORE, in view of the foregoing, the instant Central Bank of the Philippines to hold shares of stock of
petition is hereby DISMISSED and the decision of the banks, insurance companies, whether domestic or
Court of Tax Appeals dated August 6, 1992 in C.T.A. foreign.
Case No. 4250 is AFFIRMED in toto.7
The provision discouraged tax avoidance through
Hence, petitioner now comes before us and assigns as corporate surplus accumulation. When corporations do
sole issue: not declare dividends, income taxes are not paid on the
undeclared dividends received by the shareholders. The
WHETHER THE RESPONDENT COURT ERRED IN tax on improper accumulation of surplus is essentially a
HOLDING THAT THE PETITIONER IS LIABLE FOR THE penalty tax designed to compel corporations to
ACCUMULATED EARNINGS TAX FOR THE YEAR 1981.8 distribute earnings so that the said earnings by
shareholders could, in turn, be taxed.
Sec. 259 of the old National Internal Revenue Code of
1977 states: Relying on decisions of the American Federal Courts,
petitioner stresses that the accumulated earnings tax
Sec. 25. Additional tax on corporation improperly does not apply to Cyanamid, a wholly owned subsidiary
accumulating profits or surplus — of a publicly owned company.10 Specifically, petitioner
cites Golconda Mining Corp. vs. Commissioner, 507 F.2d
(a) Imposition of tax. — If any corporation is formed or 594, whereby the U.S. Ninth Circuit Court of Appeals
availed of for the purpose of preventing the imposition had taken the position that the accumulated earnings
of the tax upon its shareholders or members or the tax could only apply to a closely held corporation.
shareholders or members of another corporation,
through the medium of permitting its gains and profits A review of American taxation history on accumulated
to accumulate instead of being divided or distributed, earnings tax will show that the application of the
there is levied and assessed against such corporation, accumulated earnings tax to publicly held corporations
has been problematic. Initially, the Tax Court and the the period of time it takes to convert cash into raw
Court of Claims held that the accumulated earnings tax materials, raw materials into inventory, and inventory
applies to publicly held corporations. Then, the Ninth into sales, including the time it takes to collect payment
Circuit Court of Appeals ruled in Golconda that the for the
accumulated earnings tax could only apply to closely sales.18
held corporations. Despite Golconda, the Internal
Revenue Service asserted that the tax could be imposed Using this formula, petitioner contends, Cyanamid
on widely held corporations including those not needed at least P33,763,624.00 pesos as working
controlled by a few shareholders or groups of capital. As of 1981, its liquid asset was only
shareholders. The Service indicated it would not follow P25,776,991.00. Thus, petitioner asserts that Cyanamid
the Ninth Circuit regarding publicly held corporations.11 had a working capital deficit of P7,986,633.00.19
In 1984, American legislation nullified the Ninth Circuit's Therefore, the P9,540,926.00 accumulated income as of
Golconda ruling and made it clear that the accumulated 1981 may be validly accumulated to increase the
earnings tax is not limited to closely held petitioner's working capital for the succeeding year.
corporations.12 Clearly, Golconda is no longer a reliable
precedent. We note, however, that the companies where the
"Bardahl" formula was applied, had operating cycles
The amendatory provision of Section 25 of the 1977 much shorter than that of petitioner. In Atlas Tool Co.,
NIRC, which was PD 1739, enumerated the corporations Inc, vs. CIR,20 the company's operating cycle was only
exempt from the imposition of improperly accumulated 3.33 months or 27.75% of the year. In Cataphote Corp.
tax: (a) banks; (b) non-bank financial intermediaries; (c) of Mississippi vs. United States,21 the corporation's
insurance companies; and (d) corporations organized operating cycle was only 56.87 days, or 15.58% of the
primarily and authorized by the Central Bank of the year. In the case of Cyanamid, the operating cycle was
Philippines to hold shares of stocks of banks. Petitioner 288.35 days, or 78.55% of a year, reflecting that
does not fall among those exempt classes. Besides, the petitioner will need sufficient liquid funds, of at least
rule on enumeration is that the express mention of one three quarters of the year, to cover the operating costs
person, thing, act, or consequence is construed to of the business. There are variations in the application
exclude all others.13 Laws granting exemption from tax of the "Bardahl" formula, such as average operating
are construed strictissimi juris against the taxpayer and cycle or peak operating cycle. In times when there is no
liberally in favor of the taxing power.14 Taxation is the recurrence of a business cycle, the working capital
rule and exemption is the exception.15 The burden of needs cannot be predicted with accuracy. As stressed by
proof rests upon the party claiming exemption to prove American authorities, although the "Bardahl" formula is
that it is, in fact, covered by the exemption so well-established and routinely applied by the courts, it
claimed,16 a burden which petitioner here has failed to is not a precise rule. It is used only for administrative
discharge. convenience.22 Petitioner's application of the "Bardahl"
formula merely creates a false illusion of exactitude.
Another point raised by the petitioner in objecting to
the assessment, is that increase of working capital by a Other formulas are also used, e.g. the ratio of current
corporation justifies accumulating income. Petitioner assets to current liabilities and the adoption of the
asserts that respondent court erred in concluding that industry standard.23 The ratio of current assets to
Cyanamid need not infuse additional working capital current liabilities is used to determine the sufficiency of
reserve because it had considerable liquid funds based working capital. Ideally, the working capital should
on the 2.21:1 ratio of current assets to current equal the current liabilities and there must be 2 units of
liabilities. Petitioner relies on the so-called "Bardahl" current assets for every unit of current liability, hence
formula, which allowed retention, as working capital the so-called "2 to 1" rule.24
reserve, sufficient amounts of liquid assets to carry the
company through one operating cycle. The "Bardahl"17 As of 1981 the working capital of Cyanamid was
formula was developed to measure corporate liquidity. P25,776,991.00, or more than twice its current
The formula requires an examination of whether the liabilities. That current ratio of Cyanamid, therefore,
taxpayer has sufficient liquid assets to pay all of its projects adequacy in working capital. Said working
current liabilities and any extraordinary expenses capital was expected to increase further when more
reasonably anticipated, plus enough to operate the funds were generated from the succeeding year's sales.
business during one operating cycle. Operating cycle is Available income covered expenses or indebtedness for
that year, and there appeared no reason to expect an need for the accumulation of the earnings and profits,
impending "working capital deficit" which could have the accumulation was not for the reasonable needs of
necessitated an increase in working capital, as the business, and the penalty tax would apply.
rationalized by petitioner. (Mertens. Law of Federal Income Taxation, Vol. 7,
Chapter 39, p, 103).30
In Basilan Estates, Inc. vs. Commissioner of Internal
Revenue,25 we held that: In the present case, the Tax Court opted to determine
the working capital sufficiency by using the ratio
. . . [T]here is no need to have such a large amount at between current assets to current liabilities. The
the beginning of the following year because during the working capital needs of a business depend upon nature
year, current assets are converted into cash and with of the business, its credit policies, the amount of
the income realized from the business as the year goes, inventories, the rate of the turnover, the amount of
these expenses may well be taken care of. [citation accounts receivable, the collection rate, the availability
omitted]. Thus, it is erroneous to say that the taxpayer of credit to the business, and similar factors. Petitioner,
is entitled to retain enough liquid net assets in amounts by adhering to the "Bardahl" formula, failed to impress
approximately equal to current operating needs for the the tax court with the required definiteness envisioned
year to cover "cost of goods sold and operating by the statute. We agree with the tax court that the
expenses:" for "it excludes proper consideration of burden of proof to establish that the profits
funds generated by the collection of notes receivable as accumulated were not beyond the reasonable needs of
trade accounts during the course of the year."26 the company, remained on the taxpayer. This Court will
not set aside lightly the conclusion reached by the Court
If the CIR determined that the corporation avoided the of Tax Appeals which, by the very nature of its function,
tax on shareholders by permitting earnings or profits to is dedicated exclusively to the consideration of tax
accumulate, and the taxpayer contested such a problems and has necessarily developed an expertise on
determination, the burden of proving the determination the subject, unless there has been an abuse or
wrong, together with the corresponding burden of first improvident exercise of authority.31 Unless rebutted,
going forward with evidence, is on the taxpayer. This all presumptions generally are indulged in favor of the
applies even if the corporation is not a mere holding or correctness of the CIR's assessment against the
investment company and does not have an taxpayer. With petitioner's failure to prove the CIR
unreasonable accumulation of earnings or profits.27 incorrect, clearly and conclusively, this Court is
constrained to uphold the correctness of tax court's
In order to determine whether profits are accumulated ruling as affirmed by the Court of Appeals.
for the reasonable needs to avoid the surtax upon
shareholders, it must be shown that the controlling WHEREFORE, the instant petition is DENIED, and the
intention of the taxpayer is manifest at the time of decision of the Court of Appeals, sustaining that of the
accumulation, not intentions declared subsequently, Court of Tax Appeals, is hereby AFFIRMED. Costs against
which are mere afterthoughts.28 Furthermore, the petitioner.1âwphi1.nêt
accumulated profits must be used within a reasonable
time after the close of the taxable year. In the instant SO ORDERED.
case, petitioner did not establish, by clear and
convincing evidence, that such accumulation of profit
was for the immediate needs of the business.

In Manila Wine Merchants, Inc. vs. Commissioner of

Internal Revenue,29 we ruled:

To determine the "reasonable needs" of the business in

order to justify an accumulation of earnings, the Courts
of the United States have invented the so-called
"Immediacy Test" which construed the words
"reasonable needs of the business" to mean the
immediate needs of the business, and it was generally
held that if the corporation did not prove an immediate
 filed the action. The Court of First Instance of Misamis
Occidental having rendered judgment in favor of the
Plaintiff, the Defendant appealed to the Court of
Appeals. This court reversed the decision appealed from
and absolved the Defendant from the complaint. Hence,
[G.R. No. L-6741. January 31, 1956.] this appeal.

INTERPROVINCIAL AUTOBUS CO., INC., Petitioner, vs. In this Court Petitioner-Appellant presents the following
COLLECTOR OF INTERNAL REVENUE, Respondent. propositions:chanroblesvirtuallawlibrary (1) that the
judgment of the Court of Appeals is null and void,
because it had no jurisdiction of the case, which
involves the validity of an assessment; chan
DECISION roblesvirtualawlibrary(2) that the decision of the Court
of Appeals is erroneous because freight receipts are not
LABRADOR, J.: bills of lading within the meaning of Section 1449, sub-
paragraph (r), of the Revised Administrative Code of
This is an appeal by way of certiorari from a decision of 1917, and because the provision of section 121 of the
the Court of Appeals reversing the judgment of the Revised Documentary Stamp Tax Regulations, to the
Court of First Instance of Misamis Occidental in civil effect that if the bill of lading fails to state the value of
case No. 1161, entitled The Interprovincial Autobus Co., the goods shipped, it must be held that the tax is due, is
Inc., Plaintiff versus Bibiano L. Meer as Collector of illegal; chan roblesvirtualawlibrary(3) that the
Internal Revenue, Defendant and absolving the documentary stamp tax on freight receipts should be
Defendant- Appellant therein from the complaint. paid by the shipper of the merchandise, not by the
carrier; chan roblesvirtualawlibraryand (4) that the
Plaintiff is a common carrier engaged in transporting collection of the tax is illegal because it was done
passengers and freight by means of TPU buses in beyond the period of limitation fixed by law for its
Misamis Occidental and Northern Zamboanga. collection.
Sometime in the year 1941 the provincial revenue agent
for Misamis Occidental examined the stubs of the The first proposition, that the Court of Appeals had no
freight receipts that had been issued by the Plaintiff. He jurisdiction of the appeal from the Court of First
found that the stubs of the receipts issued during the Instance, is well founded. Both the Constitution and the
years 1936 to 1938 were not preserved; chan Judiciary Act of 1948 grant to the Supreme Court
roblesvirtualawlibrarybut those for the years 1939 to exclusive appellate jurisdiction over all cases involving
1940 were available. By referring, however, to the the legality of any tax, assessment, or toll, or any
conductors’ daily reports for 1936 to 1938, he was able penalty in relation thereto. The Court of Appeals in turn
to ascertain the number of receipts for those years and has no jurisdiction over cases the exclusive appellate
these, together with those for 1939 to 1940, gave a jurisdiction of which is granted the Supreme-Court. As
total during the 5-year period from 1936 to 1940, of the legality or validity of the tax is involved in the
194,406 freight receipts issued. Both the said daily present appeal the Supreme Court is the one that had
reports of Plaintiff’s conductors and the available stubs jurisdiction thereof and the Court of Appeals had none.
did not state the value of the goods transported The decision of the Court of Appeals was, therefore, null
thereunder. Pursuant, however, to sections 121 and 127 and void.
of the Revised Documentary Stamp Tax Regulations of
the Department of Finance promulgated on September But the claim that freight tickets of bus companies are
16, 1924, he assumed that the value of the goods not “bills of lading or receipts” within the meaning of
covered by each of the above- mentioned freight the Documentary Stamp Tax Law is without merit. Bills
receipts amounted to more than P5, and assessed a of lading, in modern jurisprudence, are not those issued
documentary stamp tax of P0.04 on each of the 194,406 by masters of vessels alone; chan
receipts. The tax thus assessed amounted to P7,776.24, roblesvirtualawlibrarythey now comprehend all forms
which was collected from the deposit of the Plaintiff in of transportation, whether by sea or land, and includes
the Misamis Occidental branch of the Philippine bus receipts for cargo transported.
National Bank. Plaintiff demanded the refund of the
amount, and upon refusal of the Defendant, Plaintiff
“The term ‘bill of lading’ is frequently defined, especially (originally section 2 of Act 2803), which expressly
by the order authorities, as a writing signed by the provides:chanroblesvirtuallawlibrary
master of a vessel acknowledging the receipt of goods
on board to be transported to a certain part and there “The Department Head shall have power to promulgate,
delivered to a designated person or on his order. This whenever he may see fit to do so, all rules, regulations,
definition was formulated at a time when goods were orders, circulars, memorandums, and other instructions,
principally transported by sea and, while adequate in not contrary to law, necessary to regulate the proper
view of the conditions existing at that early day, is too working and harmonious and efficient administration of
narrow to suit present conditions. As comprehending all each and all of the offices and dependencies of his
methods of transportation, a bill of lading may be Department, and for the strict enforcement and proper
defined as a written acknowledgment of the receipt of execution of the laws relative to matters under the
goods and an agreement to transport and to deliver jurisdiction of said Department; chan
them at a specified place to a person named or on his roblesvirtualawlibrarybut none of said rules or orders
order. Such instruments are sometimes called ‘shipping shall prescribe penalties for the violation thereof,
receipts,’ ‘forwarders’ receipts’ and ‘receipts for except as expressly authorized by law cralaw .”
transportation.’ The designation, however, is not
material, and neither is the form of the instrument. If it Did the Secretary of Finance infringe or violate any right
contains an acknowledgment by the carrier of the of the taxpayer when he directed that the tax is to be
receipt of goods for transportation, it is, in legal effect, a collected in all cases where the bill of lading or receipt
bill of lading.” (9 Am. Jur. 662, Italics supplied.) does not state that the shipment is worth P5 or less, or,
in the language of the Petitioner-Appellant, when he
Section 227 of the National Internal Revenue Code (Secretary) created a presumption of liability to the tax
imposes the tax on receipts for goods or effects shipped if the receipt fails to state such value? It cannot be
from one port or place to another port or place in the denied that the regulation is merely a directive to the
Philippines. The use of the word place after port and of tax officers; chan roblesvirtualawlibraryit does not
the word “receipt” shows that the receipts for goods purport to change or modify the law; chan
shipped on land are included. roblesvirtualawlibraryit does not create a liability to the
stamp tax when the value of the goods does not appear
The next claim involves the validity of Department of on the face of the receipt. The practical usefulness of
Finance Regulation No. 26 dated September 16, 1924, the directive becomes evident when account is taken of
which provides:chanroblesvirtuallawlibrary the fact that tax officers are in no position to witness
the issuance of receipts and check the value of the
“SEC. 121. Basis of the tax and affixture of stamps. — goods for which they are issued. If tax officers were to
Bills of lading are exempt from the documentary stamp assess or collect the tax only when they find that the
tax imposed by paragraphs (q) and (r) of section 1449 of value of the goods covered by the receipts is more than
the Administrative Code when the value of the goods five pesos, the assessment and collection of the tax
shipped is P5 or less. Unless the bill of lading states that would be well-nigh impossible, as it is impossible for tax
the goods are worth P5 or less, it must be held that the collectors to determine from the receipts alone, if they
tax is due, and internal revenue officers will see to it do not contain the value of the goods, whether the
that the tax is paid in all cases where the bill of lading goods receipted for exceed P5, or not. The regulation
does not state that the shipment is worth P5 or less.” impliedly required the statement of the value of the
goods in the receipts; chan roblesvirtualawlibraryso that
“SEC. 127. ‘Chits,’ memorandum slips, and other papers the collection of the tax can be enforced. This the
not in the usual commercial form of bills of lading, when Petitioner-Appellant failed to do and he now claims the
used by common carriers in the transportation of unreasonableness of the provision as a basis for his
merchandise or goods for the collection of fees therefor exemption. We find that the regulation is not only
are considered as bills of lading, and the original thereof useful, practical and necessary for the enforcement of
issued or used should bear the documentary stamp as the law on the tax on bills of lading and receipts, but
provided by paragraphs (q) and (r) of section 1449 of also reasonable in its provisions.
the Administrative Code.”
The regulation above quoted falls within the scope of
The above regulations were promulgated under the the administrative power of the Secretary of Finance, as
authority of section 79 (B) of the Administrative Code authorized in Section 79 (B) of the Revised
Administrative Code, because it is essential to the strict force regarding bills of lading and receipts, and that it
enforcement and proper execution of the law which it approved or confirmed them because they carry out the
seeks to implement. Said regulations have the force and legislative purpose.
effect of law.
“ cralaw Of course, the rule does not operate to freeze a
“In the very nature of things in many cases it becomes meaning which is in evident conflict with the clearly
impracticable for the legislative department of the expressed legislative intent. Helvering vs. Hallock, 309
Government to provide general regulations for the U. S. 106, 119-121, 60 S. Ct. 444, 84 L. Ed. 604 A.L.R.
various and varying details for the management of a 1368. But where a statute is susceptible of the meaning
particular department of the Government. It therefore placed upon it by Treasury ruling and Congress
becomes convenient for the legislative department of thereafter reenacts the provision without substantial
the Government, by Law, in a most general way, to change, such action is to some extent confirmatory that
provide for the conduct, control and management of the ruling carries out the congressional purpose.”
the work of the particular department of the (Mead Corporation vs. Commissioner of Internal
Government; chan roblesvirtualawlibraryto authorize Revenue, 116 F [2d] 187, p. 194)
certain persons, in charge of the management, control,
and direction of the particular department, to adopt “The fact that an identical Treasury Regulation with
certain rules and regulations providing for the detail of regard to computation of stamp tax on conveyances
the management and control of such department. Such had been in effect during several re-enactments of the
regulations have uniformly been held to have the force statute was pursuasive evidence of congressional
of law, whenever they are found to be in consonance approval thereof cralaw ..” (Railroad Federal Sav. and
and in harmony with the general purposes and objects Loan Ass’n. vs. United States, 135 F [2d], p. 290)
of the law. Many illustrations might be given. For
instance, the Civil Service Board is given authority to “The law, I believe, is now settled that substantial re-
examine applicants for various positions within the enactment of legislation which has been construed by
Government service. The law generally provides the Treasury regulations is at least strong evidence of
conditions in a most general way, authorizing the chief legislative approval of such construction. It is presumed
of such Bureau to provide rules and regulations for the that Congress knew of the existing administrative
management of the conduct of examinations, etc. The interpretations of the statute cralaw .” (Cargill vs.
law provides that the Collector of Customs shall United States, 46 F. Supp. 712, 716.)
examine persons who become applicants to act as
captains of ships for the coastwise trade, providing at “Regulations promulgated by the Commissioner of
the same time that the Collector of Customs shall Internal Revenue under authority of the Revenue Act of
establish rules and regulations for such examinations. 1928 acquired the effect of law by substantial re-
Such regulations, once established and found to be in enactment of provision of the 1928 Act in the 1932
conformity with the general purposes of the law, are Revenue Act cralaw .” (S. Slater & Sons, Inc., vs. White,
just as binding upon all of the parties, as if the etc., 33 F. Supp. 329, 330.)
regulations had been written in the original law itself.
(United States vs. Grimaud, 22 U. S., 506; chan It is to be noted that the regulation does not purport to
roblesvirtualawlibraryWilliamson vs. United States, 207 modify or change the law in the sense that when the
U. S., 425; chan roblesvirtualawlibraryUnited States vs. value of the merchandise (for which the receipt is
United Verde Copper Co., 196 U. S., 207.)” (United issued) does not appear thereon the tax shall always be
States vs. Tupasi Molina, 29 Phil., 119, 125.) imposed. Such a meaning would have the effect of
changing the law; chan roblesvirtualawlibrarythe
Another reason for sustaining the validity of the regulation should not be understood in this illegal or
regulation may be found in the principle of legislative authorized sense. The regulation should be considered
approval by re-enactment. The regulations were merely as a directive to internal revenue officers to
approved on September 16, 1924. When the National assess the tax and collect the same. As already adverted
Internal Revenue Code was approved on February 18, to, it only creates a presumption of the liability of the
1939, the same provisions on stamp tax, bills of lading taxpayer, which presumption, however, is not
and receipts were reenacted. There is a presumption conclusive upon the taxpayer who can adduce evidence
that the Legislature reenacted the law on the tax with that the tax is not collectible because the value of the
full knowledge of the contents of the regulations then in merchandise concerned does not exceed the amount of
P5. It was in pursuance of this interpretation of the assessment of property for taxation will knowingly
regulation that the trial court permitted evidence to be violate the duties imposed upon them by law.”
introduced to show that the Petitioner-Appellant is not
subject to the tax on the receipts. “As a logical outgrowth of the presumption in favor of
the validity of assessments, when such assessments are
Claim is made that the evidence submitted by the assailed, the burden of proof is upon the complaining
Petitioner- Appellant proved that the freight receipts party. It is incumbent upon the property owner clearly
covered shipment of merchandise worth not more than to show that the assessment was erroneous, in order to
P5. It is argued in support of this claim that the said relieve himself from it.” (51 Am. Jur. pp. 620-621.)
freight receipts were issued to people carrying
agricultural produce from one place to another, perhaps “The burden is on him who seeks the recovery of a tax
from their farms to the towns or to their residences. already paid to establish those facts which show its
The Court of Appeals’ decision, upon which the claim is invalidity. United States vs. Anderson, 269 U. S. 422,
made, does not state that said receipts were actually 428, 70 L. ed. 347, 46 Sup. Ct. Rep. 131; chan
issued for shipments the value of which was not more roblesvirtualawlibraryFidelity Title & T. Co. vs. United
than P5 each. The decision of the Court of Appeals in States, 259 U. S. 304, 306, 66 L. ed., 953, 954, 42 Sup.
fact is that the Petitioner-Appellant “merely tried to Ct. Rep. 514 cralaw .” (Compañia General de Tabacos vs.
establish through his witnesses” the facts above Collector of Int. Rev., 73 L. ed., 704, 706.)
mentioned, which is not a finding that the receipts
covered merchandise more than P5 in value. Upon “ cralaw. But the presumption is that taxes paid are
consideration of the claim and the testimonies with rightly collected upon assessments correctly made by
which it is supported, we are unable to agree with said the commissioner, and in a suit to recover them the
contention. It is a common knowledge that when barrio burden rests upon the taxpayer to prove all the facts
residents or those living in farms go to town and bring necessary to establish the illegality of the collection.
along with them their daily needs on their daily United States vs. Anderson, supra. See United States vs.
produce, they ordinarily do not secure receipts for these Rindskopt, 106 U. S. 419, 26 L. ed., cralaw” (Niles
baggages or cargoes but keep these under their seats. Bement Pond Co. vs. United States, 74 L. ed., 901, 904.)
The common practice is for a passenger carrying
cargoes of small value not to secure receipts therefor; The rule above-mentioned has not been complied with
chan roblesvirtualawlibraryfor convenience and and the action for recovery must be denied.
economy he keeps them under his seat in the bus so as
to make them easily accessible when he goes down, and It is also contended that the tax should be collected
at the same time save the few centavos that the from the holder of the receipt, and not from the one
issuance of the receipt entails. On the other hand, who collected it, which is the transportation company.
receipts for valuable cargo are demanded, to insure There is no merit in this contention because the law
against their loss. Our conclusion is that the receipts expressly provides that the tax should be paid by the
must have been issued for shipments or merchandise in one “making, signing, issuing, accepting, or transferring
excess of P5 in value. The evidence submitted the same.” (Section 1449, Revised Administrative Code
notwithstanding, the fact that it has not been of 1917) . The receipts were made and issued by the
contradicted fails to prove to our satisfaction that the transportation company; chan roblesvirtualawlibraryit is
merchandise for which receipts were issued were therefore liable for the payment of the tax thereon.
actually worth P5 or less. Furthermore, the rule is that
in actions for the recovery of taxes assessed and The last contention of the Petitioner-Appellant is that
collected, the taxpayer has the burden of proving that the tax could no longer be collectible because the same
the assessment is illegal. was assessed and collected after seven years, the tax
having been due in 1936-1938 and the assessment
“All presumptions are in favor of the correctness of tax having been made in the year 1947. The period within
assessments. The good faith of tax assessors and the which a tax may be assessed is ten years after the
validity of their actions are presumed. They will be discovery of the falsity, fraud or omission (section 332,
presumed to have taken into consideration all the facts paragraph (a), National Internal Revenue Code).
to which their attention was called. No presumption can Petitioner-Appellant cites, in support of his contention,
be indulged that all of the public officials of the state in paragraph (c) of the same action. This paragraph refers
the various counties who have to do with the to the collection of the tax by distraint or by levy or by a
proceeding in court, and the period prescribed is within
five years after the assessment of the tax.

Was the levy justified? The discovery, according to the

pleadings, took place in the year 1941 and the warrant
of distraint or levy was issued on September 30, 1946
(paragraphs 3 and 4 of the complaint). The pleadings do
not show, neither does the evidence, the specific date [G.R. No. 109444. March 31, 1995.]
of the assessment. It is only alleged in the complaint
that the examination of the books took place in the year DELANO T. PADILLA, Petitioner, v. HON. PATRICIA STO.
1941. In order to sustain the claim of the invalidity of TOMAS in her capacity as Chairman of the CIVIL
the levy, it is necessary for the Plaintiff to allege and SERVICE COMMISSION, HON. THELMA GAMINDE in her
prove that the levy took place after five years from the capacity as Board Chairman II of the MERIT SYSTEM
date of the assessments. But the date of the assessment PROTECTION BOARD, and the ADMINISTRATIVE
has not been proved. This is a material matter that the ACTION BOARD of the DEPARTMENT OF
Petitioner-Appellant should have proved to assail the TRANSPORTATION AND COMMUNICATIONS,
levy. Because of his failure to do so the exemption from Respondents.
levy may not be invoked by him. Besides, the question
was not raised in the pleadings as a ground to void the
collection of the amount. The court cannot assume that DECISION
the levy and distraint took place beyond the period
prescribed by law. This conclusion is supported by the
presumption of the regularity of the acts of public KAPUNAN, J.:
officers. In any event the collection was made in 1947,
within ten years after the discovery in 1941, and the
liability of Petitioner-Appellant is not thereby affected. In this special civil action for Certiorari, petitioner
Delano Padilla seeks to set aside the resolution 1 of
For the foregoing considerations, the judgment of the public respondent Civil Service Commission (CSC) which
Court of Appeals is declared void and that of the Court confirmed the decision of respondent Merit System
of First Instance, reversed and the Respondent-Appellee Protection Board (MSPB) dismissing petitioner from the
absolved from the complaint. With costs against the service after finding him guilty of the charges in the
Petitioner-Appellant. administrative complaint filed by the Land
Transportation Office (LTO) of the Department of
Transportation and Communications (DOTC). Resolution
No. 92-1849 dated November 17, 1992 denying
petitioner's motion for reconsideration is likewise
assailed here.

The relevant antecedents of the instant petition are as

follows:nadchanroblesvirtualawlibrary

On November 2, 1988, an administrative complaint 2 for

gross dishonesty, gross neglect of duty, inefficiency and
incompetence in the performance of official duties and
gross violation of the law, rules and reasonable office
regulations was filed against petitioner Delano Padilla,
former officer-in-charge of the Land Transportation
Office (LTO) of Bacolod City. It was alleged that
petitioner succeeded in having caused and approved
the registration and/or transfer of ownership of twelve
(12) carnapped and stolen vehicles despite prior
knowledge that existing laws, rules and regulations
were violated in the registration and transfer thereof.
As contended by complainant LTO, petitioner failed to Petitioner filed a motion for reconsideration of the
require confirmation of the Certificate of Registration above-mentioned decision. However, instead of ruling
and Official Receipts corresponding to the subject on the merits of the motion, the AAB-DOTC deferred
vehicles from the LTO district offices which issued the action thereon and scheduled the case for hearing on
same. Had he done so, no registration and/or transfer June 30, 1989. The said hearing was reset for July 25,
of the vehicles would have been possible because all 1989, then September 4 and 5, 1989. On September 14,
the supporting documents pertinent to them were 1989, petitioner
spurious.
On November 20, 1989, petitioner's motion for
Petitioner was given five (5) days from receipt thereof reconsideration was denied.
to answer the charges filed against him.
Thereafter, petitioner appealed to the Merit System
Accordingly, petitioner filed his answer 3 dated Protection Board (MSPB) seeking reversal of the AAB-
December 26, 1988 vehemently denying the charges DOTC's decision.
against him. He contended that the twelve (12) motor
vehicles were covered by proper clearances, certificates On March 25, 1991, the MSPB rendered a decision
and similar documents issued by the Constabulary affirming the decision of the AAB-DOTC. Petitioner's
Highway Patrol Group (CHPG). He claimed that the appeal was therefore ordered dismissed. 6 A motion for
charges were baseless and were filed only to maliciously reconsideration of the same was denied on February 17,
taint his good name and reputation. 1992.

The matter was set for hearing on April 20, 1989. Aggrieved by the foregoing rulings, petitioner elevated
However, only prosecutor Ramon Cuyco and his the case to respondent Civil Service Commission (CSC)
witness, Alfonso Alianza, were present. Petitioner and invoking the following grounds, to
his counsel failed to appear despite due notice. wit:nadchanroblesvirtualawlibrary
Consequently, the case was heard ex-parte and was
considered submitted for decision. 1.) The decision of the MSPB is not supported by any
substantial or competent evidence.
After considering the evidence on record, respondent
Administrative Action Board (AAB) of the Department of 2.) Gross errors of law and irregularities were
Transportation and Communications (DOTC) through committed in the promulgation of the questioned
then DOTC Secretary Rainerio Reyes rendered a decision.
decision, 4 the dispositive portion of which
reads:nadchanroblesvirtualawlibrary 3.) Respondent Padilla was not afforded his
constitutional right of due process.
WHEREFORE, in view of the foregoing respondent
Delano T. Padilla is hereby found guilty of the charges 4.) Lone witness of Complainant DOTC admitted that
filed against him, and accordingly sentenced as Respondent Padilla is not guilty of the charge filed
follows:nadchanroblesvirtualawlibrary against him. 7

(a) That he is hereby dismissed from the service; On July 16, 1992, respondent CSC issued Resolution No.
92-888, the decretal portion of which
(b) That he is disqualified for reemployment in the reads:nadchanroblesvirtualawlibrary
government service;
WHEREFORE, foregoing premises considered, this
(c) That his leave credits and retirement benefits are Commission hereby rules that Delano T. Padilla is guilty
hereby declared forfeited; and of Gross Dishonesty, Gross Neglect of Duty, Inefficiency
and Incompetence in the Performance of Official Duties
(d) That his civil service eligibility is hereby and Gross violation of Law, Rules and Reasonable Office
recommended to be cancelled. Regulations and is meted out the penalty of dismissal.
Accordingly, the MSPB decision is hereby confirmed. 8
SO ORDERED. 5
A motion for reconsideration of the same decision was RIGHTS OF HEREIN PETITIONER-APPELLANT
denied in Resolution No. 92-1849 dated November 17, BECAUSE HE WAS NOT GIVEN SUFFICIENT
1992. OPPORTUNITY TO DEFEND HIMSELF,
HENCE, THE QUESTIONED DECISIONS AND
Subsequently, petitioner filed a Motion for New Trial RESOLUTIONS ARE NULL AND VOID AB
seeking the reversal of Resolution Nos. 92-888 and 92- INITIO;
1849. Said motion was considered a second motion for
reconsideration, hence, was accordingly denied on IV. THE EVIDENCE ON RECORD CLEARLY SHOW
February 16, 1993 in Resolution No. 93-511-A by THAT THE CHARGES AGAINST THE HEREIN
respondent CSC. PETITIONER-APPELLANT RELIED UPON BY
DOTC IN ITS UNDATED DECISION AND
On April 6, 1993, petitioner came to this Court on a RESOLUTION DATED NOVEMBER 20, 1989,
petition for Certiorari and raised the following grounds AS WELL AS THE DECISIONS OF THE MERIT
for allowance of his petition, SYSTEM PROTECTION BOARD OF THE CIVIL
viz:nadchanroblesvirtualawlibrary SERVICE COMMISSION DATED MARCH 25,
1991 AND FEBRUARY 21, 1992 AND THE
I. THE QUESTIONED UNDATED DECISION AND RESOLUTION OF THE CIVIL SERVICE
THE RESOLUTION DATED NOVEMBER 20, COMMISSION DATED JULY 16, 1992
1989 OF DOTC WHICH IMPOSE THE PROVED THAT THE PETITIONER-APPELLANT
PENALTY OF OUTRIGHT DISMISSAL UPON IS NOT GUILTY OF THE CHARGES FILED
HEREIN PETITIONER-APPELLANT AS WELL AS AGAINST HIM. 9
THE DECISIONS OF THE MERIT SYSTEM
PROTECTION BOARD DATED MARCH 25, The petition is not impressed with merit.
1991 AND FEBRUARY 17, 1992 AND THE
DECISION OF THE RESPONDENT-APPELLEE, Petitioner contends that his constitutional right to due
CIVIL SERVICE COMMISSION, DATED JULY process was violated when on April 20, 1989 the
16, 1992 WHICH AFFIRMED THE DISMISSAL scheduled hearing proceeded despite his, and his
OF THE PETITIONER-APPELLANT IS NOT counsel's absence. He claims that nobody testified
SUPPORTED BY ANY SUBSTANTIAL OR during the hearing and that the supporting documents
COMPETENT EVIDENCE AS BORNE OUT BY were not presented or marked in evidence.
THE RECORDS.
Petitioner's position cannot be sustained.
II. GROSS ERRORS OF LAW AND
IRREGULARITIES WERE COMMITTED IN THE The essence of due process is that a party be afforded
DECISION AND RESOLUTION reasonable opportunity to be heard and to submit any
PROMULGATED BY DOTC AS WELL AS IN evidence he may have in support of his defense. 10 In
THE QUESTIONED DECISIONS OF THE MERIT administrative proceedings such as the one at bench,
SYSTEM PROTECTION BOARD OF THE CIVIL due process simply means the opportunity to explain
SERVICE COMMISSION AND THE one's side or the opportunity to seek a reconsideration
RESOLUTIONS OF THE RESPONDENT- of the action or ruling complained of. 11 In the instant
APPELLEE HEREIN; case, petitioner does not deny the fact that he was
furnished a copy of the charges against him wherein he
III. THE QUESTIONED UNDATED DECISION AND was required to file an answer and to state whether he
THE RESOLUTION DATED NOVEMBER 20, wanted a formal investigation. Petitioner did file his
1989 OF DOTC AS WELL AS THE DECISIONS answer. As to the scheduled hearing on April 20, 1989,
OF THE MERIT SYSTEM PROTECTION BOARD petitioner admits that he was notified. The fact that he
DATED MARCH 25, 1991 AND FEBRUARY 17, filed a motion for postponement did not necessarily
1992 AND RESOLUTIONS NOS. 92-888, 92- mean that his motion was granted, hence, the
1849 AND 93-511-A DATED JULY 16, 1992, scheduled hearing proceeded ex-parte. Consequently, a
NOVEMBER 17, 1992 AND FEBRUARY 16, decision was rendered by the AAB-DOTC. From said
1993 OF HEREIN RESPONDENT-APPELLEE, decision, petitioner filed a motion for reconsideration.
RESPECTIVELY, VIOLATED THE Thereafter, on account of the liberality of the AAB-
CONSTITUTIONAL AND DUE PROCESS DOTC, he was heard and was allowed to present his
evidence. His motion for reconsideration having been In the case at bench, it was clearly established from the
denied, he filed an appeal with the MSPB and, later on, records that petitioner did not require the submission
a motion for reconsideration. Not satisfied, he again of Certificates of Clearance from the agencies of
filed an appeal with respondent CSC and, later on, a previous registration affecting the twelve (12) motor
motion for reconsideration. Clearly therefore, petitioner vehicles in question. For had he done so, he would have
was given ample opportunity to present his case. He discovered that the documents submitted to him were
was not denied his right to due process. One may be spurious per verification from the alleged agencies of
heard, not only by verbal presentation but also, previous registration. This amply demonstrates
sometimes more eloquently, through pleadings. 12 petitioner's obvious disregard of the law, rules and
"Due process is not semper et ubique judicial process." regulations, gross neglect of duty, dishonesty and
13 Hence, a formal or trial-type hearing is not, at all incompetence in the performance of official functions.
times, necessary. So long as a party is afforded fair and To our mind, the evidence is clear and substantial to
reasonable opportunity to explain his side, the support the conclusion that petitioner indeed failed to
requirement of due process is complied with. discharge an essential official function reposed on him.
nadchanroblesvirtuallawlibrary In administrative proceedings where evidence
submitted is substantial, meaning, evidence that a
Petitioner further maintains that he is not guilty of the reasonable mind might accept as adequate to support a
charges hurled against him and that the DOTC decision conclusion, 14 the proper penalty must be imposed on
is not supported by evidence on record. that erring official.

This contention is belied by the evidence on record. In a vain attempt to escape culpability, petitioner
vigorously maintains that the documents submitted to
For the purpose of determining the authenticity and him, i.e., the deed of sale, the certificate of registration
genuineness of the Certificate of Registration attached and the PC Clearance of the CHPG, may properly
to an application for registration of a transferred motor approximate the legal requirement of a Certificate of
vehicle, the Department of Transportation and Clearance or confirmation from the previous agency.
Communications issued Memorandum Circular No. 123 This is untenable. DOTC rules and regulations
on December 27, 1989 with the following pertinent unequivocably outline the petitioner's duties and
provision on the mandatory requirement of a Certificate obligations as head of an agency. He has to require a
of Clearance from the previous agency of registration, Certificate of Clearance from the previous LTO issuing
thus:nadchanroblesvirtualawlibrary agency, in addition to a clearance from CHPG. Anything
short of that is an abdication of his duties as head of an
2. In the case where the transferred motor vehicle is LTO office.
being registered in any Agency other than the Agency
where the vehicle has been originally registered, a On this point, we quote with favor the following
Certificate of Clearance shall first be obtained from such findings and conclusions of respondent AAB-
Agency of previous registration; provided, however, DOTC:nadchanroblesvirtualawlibrary
that such clearance shall state, among others, the
description of the motor vehicle, name of the The absence of such 'confirmation' or 'clearance'
registrant/owner, file number of the Registration required by Memorandum Circular No. 123, supra, was
Certificate, date of registration, Official Receipt number the main and sole cause for the registration and transfer
of payment and the amount of payment. of ownership of the eleven (11) (sic) motor vehicles
hereinabove mentioned. Such criminal violation, which
From the foregoing, a Certificate of Clearance or are also administrative offenses, as now prosecuted in
confirmation is mandatory for all transfers of ownership these administrative proceedings, are, therefore,
of motor vehicles when done in an agency, or district traceable to only one cause the complete absence of
office as the case may be, other than the issuing agency lawfully issued 'confirmation' or 'clearance'.
of such certificate of registration. When the Accordingly, the following rule, shall apply:
requirement is dispensed with, the evil sought to be
avoided and eliminated, that is, the concealment of the 'El que es causa de la causa es causa del mal causado."
true status and identity of the motor vehicle, remains He who is the cause of the cause is the cause of the evil
unabated. caused. (1 Cuello Calon, Codigo Penal, 12th ed. 1968,
pp. 335-336)
 WHEREFORE, premises considered, the instant petition
The utility, therefore, of the 'spurious documents' to is hereby DISMISSED for lack of merit.
support the registration and transfer of ownership of nadchanroblesvirtuallawlibrary
the eleven (11) (sic) motor vehicles, and his citation and
use of 'number plates' which do not properly and legally SO ORDERED.
pertain to the said eleven (11) (sic) motor vehicles were
supportive actions to the absence of such 'confirmation'
or 'clearance' in order to make possible the registration
and transfers of such vehicles clearly portrayed. In fact,
respondent did succeed in so registering said motor
vehicles and in transferring the ownership thereof, until
found through an operational audit conducted by
complainant Land Transportation Office's investigator,
witness, Mr. Alfonso Alianza. The facts established by
testimonial and documentary evidence disclosed most
clearly and positively that respondent Delano T. Padilla,
has been proved by substantial evidence (Ang Tibay v.
Court of Industrial Relations, 69 Phil. 635, 642), to have
been guilty of 'gross dishonesty, gross neglect of duty,
and of willful violation of law, and reasonable office
rules and regulations. The magnitude of the acts
committed compels us, while the massive evidence
marshalled by the prosecution dictate that a finding of
guilt against respondent be a matter of duty. Among
those in the service of the government, it has been a
policy declared that:nadchanroblesvirtualawlibrary

Sec. 2. Declaration of Policy. — It is the policy of the

state to promote a high standard of ethics in public
service. Public officials and employees shall at all times
be accountable to the people and shall discharge their
duties with utmost responsibility, integrity,
competence, and loyalty, act with patriotism and G.R. Nos. 141104 & 148763 June 8, 2007
justice, lead modest lives, and uphold public interest
over personal interest. (REP ACT NO. 6713).cralaw ATLAS CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION, petitioner,
The foregoing policy should always be the polestar of vs.
official performance. Without such guiding star, the COMMISSIONER OF INTERNAL REVENUE, respondent.
public service shall fail. Respondent Padilla's actions in
the eleven (11) (sic) motor vehicles did not only run DECISION
afoul of the pertinent laws, and rules connected
therewith, but also did violence to the foregoing basic CHICO-NAZARIO, J.:
policy of the state. 15
Before this Court are the consolidated cases involving
Well-settled is the rule that where findings of an the unsuccessful claims of herein petitioner Atlas
administrative body which has acquired expertise Consolidated Mining and Development Corporation
because its jurisdiction is confined to specific matters (petitioner corporation) for the refund/credit of the
are amply supported by substantial evidence, such input Value Added Tax (VAT) on its purchases of capital
findings are accorded not only respect but also finality. goods and on its zero-rated sales in the taxable quarters
16 of the years 1990 and 1992, the denial of which by the
Court of Tax Appeals (CTA), was affirmed by the Court of
Appeals.
Petitioner corporation is engaged in the business of
mining, production, and sale of various mineral Thus, petitioner corporation comes before this Court,
products, such as gold, pyrite, and copper concentrates. via a Petition for Review on Certiorari under Rule 45 of
It is a VAT-registered taxpayer. It was initially issued VAT the Revised Rules of Court, assigning the following
Registration No. 32-A-6-002224, dated 1 January 1988, errors committed by the Court of Appeals –
but it had to register anew with the appropriate
revenue district office (RDO) of the Bureau of Internal I. THE COURT OF APPEALS ERRED IN
Revenue (BIR) when it moved its principal place of AFFIRMING THE REQUIREMENT OF
business, and it was re-issued VAT Registration No. 32- REVENUE REGULATIONS NO. 2-88 THAT AT
0-004622, dated 15 August 1990.1 LEAST 70% OF THE SALES OF THE [BOARD
OF INVESTMENTS (BOI)]-REGISTERED FIRM
G.R. No. 141104 MUST CONSIST OF EXPORTS FOR ZERO-
RATING TO APPLY.
Petitioner corporation filed with the BIR its VAT Return
for the first quarter of 1992.2 It alleged that it likewise II. THE COURT OF APPEALS ERRED IN
filed with the BIR the corresponding application for the AFFIRMING THAT PETITIONER FAILED TO
refund/credit of its input VAT on its purchases of capital SUBMIT SUFFICIENT EVIDENCE SINCE
goods and on its zero-rated sales in the amount of FAILURE TO SUBMIT PHOTOCOPIES OF VAT
P26,030,460.00.3 When its application for refund/credit INVOICES AND RECEIPTS IS NOT A FATAL
remained unresolved by the BIR, petitioner corporation DEFECT.
filed on 20 April 1994 its Petition for Review with the
CTA, docketed as CTA Case No. 5102. Asserting that it III. THE COURT OF APPEALS ERRED IN RULING
was a "zero-rated VAT person," it prayed that the CTA THAT THE JUDICIAL CLAIM WAS FILED
order herein respondent Commissioner of Internal BEYOND THE PRESCRIPTIVE PERIOD SINCE
Revenue (respondent Commissioner) to refund/credit THE JUDICIAL CLAIM WAS FILED WITHIN
petitioner corporation with the amount of TWO (2) YEARS FROM THE FILING OF THE
P26,030,460.00, representing the input VAT it had paid VAT RETURN.
for the first quarter of 1992. The respondent
Commissioner opposed and sought the dismissal of the IV. THE COURT OF APPEALS ERRED IN NOT
petition for review of petitioner corporation for failure ORDERING CTA TO ALLOW THE RE-OPENING
to state a cause of action. After due trial, the CTA OF THE CASE FOR PETITIONER TO PRESENT
promulgated its Decision4 on 24 November 1997 with ADDITIONAL EVIDENCE.8
the following disposition –
G.R. No. 148763
WHEREFORE, in view of the foregoing, the instant claim
for refund is hereby DENIED on the ground of G.R. No. 148763 involves almost the same set of facts as
prescription, insufficiency of evidence and failure to in G.R. No. 141104 presented above, except that it
comply with Section 230 of the Tax Code, as amended. relates to the claims of petitioner corporation for
Accordingly, the petition at bar is hereby DISMISSED for refund/credit of input VAT on its purchases of capital
lack of merit. goods and on its zero-rated sales made in the last three
taxable quarters of 1990.
The CTA denied the motion for reconsideration of
petitioner corporation in a Resolution5 dated 15 April Petitioner corporation filed with the BIR its VAT Returns
1998. for the second, third, and fourth quarters of 1990, on 20
July 1990, 18 October 1990, and 20 January 1991,
When the case was elevated to the Court of Appeals as respectively. It submitted separate applications to the
CA-G.R. SP No. 47607, the appellate court, in its BIR for the refund/credit of the input VAT paid on its
Decision,6 dated 6 July 1999, dismissed the appeal of purchases of capital goods and on its zero-rated sales,
petitioner corporation, finding no reversible error in the the details of which are presented as follows –
CTA Decision, dated 24 November 1997. The
subsequent motion for reconsideration of petitioner (SEARCH NIYO IF GUSTO NIYO)
corporation was also denied by the Court of Appeals in
its Resolution,7 dated 14 December 1999.
When the BIR failed to act on its applications for There being similarity of parties, subject matter, and
refund/credit, petitioner corporation filed with the CTA issues, G.R. Nos. 141104 and 148763 were consolidated
the following petitions for review – pursuant to a Resolution, dated 4 September 2006,
issued by this Court. The ruling of this Court in these
(SEARCH NIYO IF GUSTO NIYO) cases hinges on how it will resolve the following key
issues: (1) prescription of the claims of petitioner
which were eventually consolidated. The respondent corporation for input VAT refund/credit; (2) validity and
Commissioner contested the foregoing Petitions and applicability of Revenue Regulations No. 2-88 imposing
prayed for the dismissal thereof. The CTA ruled in favor upon petitioner corporation, as a requirement for the
of respondent Commissioner and in its Decision,9 dated VAT zero-rating of its sales, the burden of proving that
30 October 1997, dismissed the Petitions mainly on the the buyer companies were not just BOI-registered but
ground that the prescriptive periods for filing the same also exporting 70% of their total annual production; (3)
had expired. In a Resolution,10 dated 15 January 1998, sufficiency of evidence presented by petitioner
the CTA denied the motion for reconsideration of corporation to establish that it is indeed entitled to
petitioner corporation since the latter presented no input VAT refund/credit; and (4) legal ground for
new matter not already discussed in the court's prior granting the motion of petitioner corporation for re-
Decision. In the same Resolution, the CTA also denied opening of its cases or holding of new trial before the
the alternative prayer of petitioner corporation for a CTA so it could be given the opportunity to present the
new trial since it did not fall under any of the grounds required evidence.
cited under Section 1, Rule 37 of the Revised Rules of
Court, and it was not supported by affidavits of merits Prescription
required by Section 2 of the same Rule.
The prescriptive period for filing an application for tax
Petitioner corporation appealed its case to the Court of refund/credit of input VAT on zero-rated sales made in
Appeals, where it was docketed as CA-G.R. SP No. 1990 and 1992 was governed by Section 106(b) and (c)
46718. On 15 September 2000, the Court of Appeals of the Tax Code of 1977, as amended, which provided
rendered its Decision,11 finding that although petitioner that –
corporation timely filed its Petitions for Review with the
CTA, it still failed to substantiate its claims for the SEC. 106. Refunds or tax credits of input tax. – x x x.
refund/credit of its input VAT for the last three quarters
of 1990. In its Resolution,12 dated 27 June 2001, the (b) Zero-rated or effectively zero-rated sales. – Any
appellate court denied the motion for reconsideration person, except those covered by paragraph (a) above,
of petitioner corporation, finding no cogent reason to whose sales are zero-rated may, within two years after
reverse its previous Decision. the close of the quarter when such sales were made,
apply for the issuance of a tax credit certificate or
Aggrieved, petitioner corporation filed with this Court refund of the input taxes attributable to such sales to
another Petition for Review on Certiorari under Rule 45 the extent that such input tax has not been applied
of the Revised Rules of Court, docketed as G.R. No. against output tax.
148763, raising the following issues –
xxxx
A. WHETHER OR NOT THE COURT OF APPEALS
ERRED IN HOLDING THAT PETITIONER'S CLAIM (e) Period within which refund of input taxes may be
IS BARRED UNDER REVENUE REGULATIONS made by the Commissioner. – The Commissioner shall
NOS. 2-88 AND 3-88 I.E., FOR FAILURE TO refund input taxes within 60 days from the date the
PTOVE [sic] THE 70% THRESHOLD FOR ZERO- application for refund was filed with him or his duly
RATING TO APPLY AND FOR FAILURE TO authorized representative. No refund of input taxes
ESTABLISH THE FACTUAL BASIS FOR THE shall be allowed unless the VAT-registered person files
INSTANT CLAIM. an application for refund within the period prescribed in
paragraphs (a), (b) and (c) as the case may be.
B. WHETHER OR NOT THE COURT OF APPEALS
ERRED IN FINDING THAT THERE IS NO BASIS TO By a plain reading of the foregoing provision, the two-
GRANT PETITIONER'S MOTION FOR NEW TRIAL. year prescriptive period for filing the application for
refund/credit of input VAT on zero-rated sales shall be
determined from the close of the quarter when such Considering that ACCRAIN filed its claim for refund as
sales were made. early as December 29, 1983 with the respondent
Commissioner who failed to take any action thereon
Petitioner contends, however, that the said two-year and considering further that the non-resolution of its
prescriptive period should be counted, not from the claim for refund with the said Commissioner prompted
close of the quarter when the zero-rated sales were ACCRAIN to reiterate its claim before the Court of Tax
made, but from the date of filing of the quarterly VAT Appeals through a petition for review on April 13, 1984,
return and payment of the tax due 20 days thereafter, the respondent appellate court manifestly committed a
in accordance with Section 110(b) of the Tax Code of reversible error in affirming the holding of the tax court
1977, as amended, quoted as follows – that ACCRAIN's claim for refund was barred by
prescription.
SEC. 110. Return and payment of value-added tax. – x x
x. It bears emphasis at this point that the rationale in
computing the two-year prescriptive period with
(b) Time for filing of return and payment of tax. – The respect to the petitioner corporation's claim for refund
return shall be filed and the tax paid within 20 days from the time it filed its final adjustment return is the
following the end of each quarter specifically prescribed fact that it was only then that ACCRAIN could ascertain
for a VAT-registered person under regulations to be whether it made profits or incurred losses in its business
promulgated by the Secretary of Finance: Provided, operations. The "date of payment", therefore, in
however, That any person whose registration is ACCRAIN's case was when its tax liability, if any, fell due
cancelled in accordance with paragraph (e) of Section upon its filing of its final adjustment return on April 15,
107 shall file a return within 20 days from the 1982.
cancellation of such registration.
In another case, Commissioner of Internal Revenue v.
It is already well-settled that the two-year prescriptive TMX Sales, Inc.,15 this Court further expounded on the
period for instituting a suit or proceeding for recovery same matter –
of corporate income tax erroneously or illegally paid
under Section 23013 of the Tax Code of 1977, as A re-examination of the aforesaid minute resolution of
amended, was to be counted from the filing of the final the Court in the Pacific Procon case is warranted under
adjustment return. This Court already set out in ACCRA the circumstances to lay down a categorical
Investments Corporation v. Court of Appeals,14 the pronouncement on the question as to when the two-
rationale for such a rule, thus – year prescriptive period in cases of quarterly corporate
income tax commences to run. A full-blown decision in
Clearly, there is the need to file a return first before a this regard is rendered more imperative in the light of
claim for refund can prosper inasmuch as the the reversal by the Court of Tax Appeals in the instant
respondent Commissioner by his own rules and case of its previous ruling in the Pacific Procon case.
regulations mandates that the corporate taxpayer
opting to ask for a refund must show in its final Section 292 (now Section 230) of the National Internal
adjustment return the income it received from all Revenue Code should be interpreted in relation to the
sources and the amount of withholding taxes remitted other provisions of the Tax Code in order to give effect
by its withholding agents to the Bureau of Internal the legislative intent and to avoid an application of the
Revenue. The petitioner corporation filed its final law which may lead to inconvenience and absurdity. In
adjustment return for its 1981 taxable year on April 15, the case of People vs. Rivera (59 Phil. 236 [1933]), this
1982. In our Resolution dated April 10, 1989 in the case Court stated that statutes should receive a sensible
of Commissioner of Internal Revenue v. Asia Australia construction, such as will give effect to the legislative
Express, Ltd. (G.R. No. 85956), we ruled that the two- intention and so as to avoid an unjust or an absurd
year prescriptive period within which to claim a refund conclusion. INTERPRETATIO TALIS IN AMBIGUIS SEMPER
commences to run, at the earliest, on the date of the FRIENDA EST, UT EVITATUR INCONVENIENS ET
filing of the adjusted final tax return. Hence, the ABSURDUM. Where there is ambiguity, such
petitioner corporation had until April 15, 1984 within interpretation as will avoid inconvenience and absurdity
which to file its claim for refund. is to be adopted. Furthermore, courts must give effect
to the general legislative intent that can be discovered
from or is unraveled by the four corners of the statute,
and in order to discover said intent, the whole statute, where the tax account was paid on installment, the
and not only a particular provision thereof, should be computation of the two-year prescriptive period under
considered. (Manila Lodge No. 761, et al. vs. Court of Section 306 (Section 292) of the Tax Code, should be
Appeals, et al. 73 SCRA 162 [1976) Every section, from the date of the last installment.
provision or clause of the statute must be expounded by
reference to each other in order to arrive at the effect In the instant case, TMX Sales, Inc. filed a suit for a
contemplated by the legislature. The intention of the refund on March 14, 1984. Since the two-year
legislator must be ascertained from the whole text of prescriptive period should be counted from the filing of
the law and every part of the act is to be taken into the Adjustment Return on April 15,1982, TMX Sales, Inc.
view. (Chartered Bank vs. Imperial, 48 Phil. 931 [1921]; is not yet barred by prescription.
Lopez vs. El Hoger Filipino, 47 Phil. 249, cited in Aboitiz
Shipping Corporation vs. City of Cebu, 13 SCRA 449 The very same reasons set forth in the afore-cited cases
[1965]). concerning the two-year prescriptive period for claims
for refund of illegally or erroneously collected income
Thus, in resolving the instant case, it is necessary that tax may also apply to the Petitions at bar involving the
we consider not only Section 292 (now Section 230) of same prescriptive period for claims for refund/credit of
the National Internal Revenue Code but also the other input VAT on zero-rated sales.
provisions of the Tax Code, particularly Sections 84, 85
(now both incorporated as Section 68), Section 86 (now It is true that unlike corporate income tax, which is
Section 70) and Section 87 (now Section 69) on reported and paid on installment every quarter, but is
Quarterly Corporate Income Tax Payment and Section eventually subjected to a final adjustment at the end of
321 (now Section 232) on keeping of books of accounts. the taxable year, VAT is computed and paid on a purely
All these provisions of the Tax Code should be quarterly basis without need for a final adjustment at
harmonized with each other. the end of the taxable year. However, it is also equally
true that until and unless the VAT-registered taxpayer
xxxx prepares and submits to the BIR its quarterly VAT
return, there is no way of knowing with certainty just
Therefore, the filing of a quarterly income tax returns how much input VAT16 the taxpayer may apply against
required in Section 85 (now Section 68) and its output VAT;17 how much output VAT it is due to pay
implemented per BIR Form 1702-Q and payment of for the quarter or how much excess input VAT it may
quarterly income tax should only be considered mere carry-over to the following quarter; or how much of its
installments of the annual tax due. These quarterly tax input VAT it may claim as refund/credit. It should be
payments which are computed based on the cumulative recalled that not only may a VAT-registered taxpayer
figures of gross receipts and deductions in order to directly apply against his output VAT due the input VAT
arrive at a net taxable income, should be treated as it had paid on its importation or local purchases of
advances or portions of the annual income tax due, to goods and services during the quarter; the taxpayer is
be adjusted at the end of the calendar or fiscal year. also given the option to either (1) carry over any excess
This is reinforced by Section 87 (now Section 69) which input VAT to the succeeding quarters for application
provides for the filing of adjustment returns and final against its future output VAT liabilities, or (2) file an
payment of income tax. Consequently, the two-year application for refund or issuance of a tax credit
prescriptive period provided in Section 292 (now certificate covering the amount of such input VAT.18
Section 230) of the Tax Code should be computed from Hence, even in the absence of a final adjustment return,
the time of filing the Adjustment Return or Annual the determination of any output VAT payable
Income Tax Return and final payment of income tax. necessarily requires that the VAT-registered taxpayer
make adjustments in its VAT return every quarter,
In the case of Collector of Internal Revenue vs. Antonio taking into consideration the input VAT which are
Prieto (2 SCRA 1007 [1961]), this Court held that when a creditable for the present quarter or had been carried
tax is paid in installments, the prescriptive period of two over from the previous quarters.
years provided in Section 306 (Section 292) of the
National Internal Revenue Code should be counted from Moreover, when claiming refund/credit, the VAT-
the date of the final payment. This ruling is reiterated in registered taxpayer must be able to establish that it
Commissioner of Internal Revenue vs. Carlos Palanca does have refundable or creditable input VAT, and the
(18 SCRA 496 [1966]), wherein this Court stated that same has not been applied against its output VAT
liabilities – information which are supposed to be 1992 was not only unsigned by its supposed authorized
reflected in the taxpayer's VAT returns. Thus, an representative, Ma. Paz R. Semilla, Manager-Finance
application for refund/credit must be accompanied by and Treasury, but it was not dated, stamped, and
copies of the taxpayer's VAT return/s for the taxable initialed by the BIR official who purportedly received the
quarter/s concerned. same. The CTA, in its Decision,19 dated 24 November
1997, in CTA Case No. 5102, made the following
Lastly, although the taxpayer's refundable or creditable observations –
input VAT may not be considered as illegally or
erroneously collected, its refund/credit is a privilege This Court, likewise, rejects any probative value of the
extended to qualified and registered taxpayers by the Application for Tax Credit/Refund of VAT Paid (BIR Form
very VAT system adopted by the Legislature. Such input No. 2552) [Exhibit "B'] formally offered in evidence by
VAT, the same as any illegally or erroneously collected the petitioner on account of the fact that it does not
national internal revenue tax, consists of monetary bear the BIR stamp showing the date when such
amounts which are currently in the hands of the application was filed together with the signature or
government but must rightfully be returned to the initial of the receiving officer of respondent's Bureau.
taxpayer. Therefore, whether claiming refund/credit of Worse still, it does not show the date of application and
illegally or erroneously collected national internal the signature of a certain Ma. Paz R. Semilla indicated in
revenue tax, or input VAT, the taxpayer must be given the form who appears to be petitioner's authorized
equal opportunity for filing and pursuing its claim. filer.

For the foregoing reasons, it is more practical and A review of the records reveal that the original of the
reasonable to count the two-year prescriptive period for aforecited application was lost during the time
filing a claim for refund/credit of input VAT on zero- petitioner transferred its office (TSN, p. 6, Hearing of
rated sales from the date of filing of the return and December 9, 1994). Attempt was made to prove that
payment of the tax due which, according to the law petitioner exerted efforts to recover the original copy,
then existing, should be made within 20 days from the but to no avail. Despite this, however, We observe that
end of each quarter. Having established thus, the petitioner completely failed to establish the missing
relevant dates in the instant cases are summarized and dates and signatures abovementioned. On this score,
reproduced below – said application has no probative value in
(SEARCH NIYO IF GUSTO NIYO) demonstrating the fact of its filing within two years after
- the [filing of the VAT return for the quarter] when
petitioner's sales of goods were made as prescribed
20 April 1994 under Section 106(b) of the Tax Code. We believe thus
that petitioner failed to file an application for refund in
The above table readily shows that the administrative due form and within the legal period set by law at the
and judicial claims of petitioner corporation for refund administrative level. Hence, the case at bar has failed to
of its input VAT on its zero-rated sales for the last three satisfy the requirement on the prior filing of an
quarters of 1990 were all filed within the prescriptive application for refund with the respondent before the
period. commencement of a judicial claim for refund, as
prescribed under Section 230 of the Tax Code. This fact
However, the same cannot be said for the claim of constitutes another one of the many reasons for not
petitioner corporation for refund of its input VAT on its granting petitioner's judicial claim.
zero-rated sales for the first quarter of 1992. Even
though it may seem that petitioner corporation filed in As pointed out by the CTA, in serious doubt is not only
time its judicial claim with the CTA, there is no showing the fact of whether petitioner corporation timely filed
that it had previously filed an administrative claim with its administrative claim for refund of its input VAT for
the BIR. Section 106(e) of the Tax Code of 1977, as the first quarter of 1992, but also whether petitioner
amended, explicitly provided that no refund of input corporation actually filed such administrative claim in
VAT shall be allowed unless the VAT-registered taxpayer the first place. For failing to prove that it had earlier
filed an application for refund with respondent filed with the BIR an application for refund/credit of its
Commissioner within the two-year prescriptive period. input VAT for the first quarter of 1992, within the period
The application of petitioner corporation for prescribed by law, then the case instituted by petitioner
refund/credit of its input VAT for the first quarter of
corporation with the CTA for the refund/credit of the SEC. 2. Zero-rating. – (a) Sales of raw materials to BOI-
very same tax cannot prosper. registered exporters. – Sales of raw materials to export-
oriented BOI-registered enterprises whose export sales,
Revenue Regulations No. 2-88 and the 70% export under rules and regulations of the Board of
requirement Investments, exceed seventy percent (70%) of total
annual production, shall be subject to zero-rate under
Under Section 100(a) of the Tax Code of 1977, as the following conditions:
amended, a 10% VAT was imposed on the gross selling
price or gross value in money of goods sold, bartered or "(1) The seller shall file an application with the BIR,
exchanged. Yet, the same provision subjected the ATTN.: Division, applying for zero-rating for each and
following sales made by VAT-registered persons to 0% every separate buyer, in accordance with Section 8(d) of
VAT – Revenue Regulations No. 5-87. The application should
be accompanied with a favorable recommendation
(1) Export sales; and from the Board of Investments."

(2) Sales to persons or entities whose exemption under "(2) The raw materials sold are to be used exclusively by
special laws or international agreements to which the the buyer in the manufacture, processing or repacking
Philippines is a signatory effectively subjects such sales of his own registered export product;
to zero-rate.
"(3) The words "Zero-Rated Sales" shall be prominently
"Export Sales" means the sale and shipment or indicated in the sales invoice. The exporter (buyer) can
exportation of goods from the Philippines to a foreign no longer claim from the Bureau of Internal Revenue or
country, irrespective of any shipping arrangement that any other government office tax credits on their zero-
may be agreed upon which may influence or determine rated purchases;
the transfer of ownership of the goods so exported, or
foreign currency denominated sales. "Foreign currency (b) Sales of raw materials to foreign buyer. – Sales of
denominated sales", means sales to nonresidents of raw materials to a nonresident foreign buyer for
goods assembled or manufactured in the Philippines, delivery to a resident local export-oriented BOI-
for delivery to residents in the Philippines and paid for registered enterprise to be used in manufacturing,
in convertible foreign currency remitted through the processing or repacking of the said buyer's goods and
banking system in the Philippines. paid for in foreign currency, inwardly remitted in
accordance with Central Bank rules and regulations shall
These are termed zero-rated sales. A zero-rated sale is be subject to zero-rate.
still considered a taxable transaction for VAT purposes,
although the VAT rate applied is 0%. A sale by a VAT- It is the position of the respondent Commissioner,
registered taxpayer of goods and/or services taxed at affirmed by the CTA and the Court of Appeals, that
0% shall not result in any output VAT, while the input Section 2 of Revenue Regulations No. 2-88 should be
VAT on its purchases of goods or services related to applied in the cases at bar; and to be entitled to the
such zero-rated sale shall be available as tax credit or zero-rating of its sales to PASAR and PHILPHOS,
refund.20 petitioner corporation, as a VAT-registered seller, must
be able to prove not only that PASAR and PHILPHOS are
Petitioner corporation questions the validity of Revenue BOI-registered corporations, but also that more than
Regulations No. 2-88 averring that the said regulations 70% of the total annual production of these
imposed additional requirements, not found in the law corporations are actually exported. Revenue
itself, for the zero-rating of its sales to Philippine Regulations No. 2-88 merely echoed the requirement
Smelting and Refining Corporation (PASAR) and imposed by the BOI on export-oriented corporations
Philippine Phosphate, Inc. (PHILPHOS), both of which registered with it.
are registered not only with the BOI, but also with the
then Export Processing Zone Authority (EPZA).21 While this Court is not prepared to strike down the
validity of Revenue Regulations No. 2-88, it finds that its
The contentious provisions of Revenue Regulations No. application must be limited and placed in the proper
2-88 read – context. Note that Section 2 of Revenue Regulations No.
2-88 referred only to the zero-rated sales of raw
materials to export-oriented BOI-registered enterprises shall be considered constructively exported for
whose export sales, under BOI rules and regulations, purposes of this provision: (1) sales to bonded
should exceed seventy percent (70%) of their total manufacturing warehouses of export-oriented
annual production. manufacturers; (2) sales to export processing zones; (3)
sales to registered export traders operating bonded
Section 2 of Revenue Regulations No. 2-88, should not trading warehouses supplying raw materials used in the
have been applied to the zero-rating of the sales made manufacture of export products under guidelines to be
by petitioner corporation to PASAR and PHILPHOS. At set by the Board in consultation with the Bureau of
the onset, it must be emphasized that PASAR and Internal Revenue and the Bureau of Customs; (4) sales
PHILPHOS, in addition to being registered with the BOI, to foreign military bases, diplomatic missions and other
were also registered with the EPZA and located within agencies and/or instrumentalities granted tax
an export-processing zone. Petitioner corporation does immunities, of locally manufactured, assembled or
not claim that its sales to PASAR and PHILPHOS are repacked products whether paid for in foreign currency
zero-rated on the basis that said sales were made to or not: Provided, further, That export sales of registered
export-oriented BOI-registered corporations, but rather, export trader may include commission income; and
on the basis that the sales were made to EPZA- Provided, finally, That exportation of goods on
registered enterprises operating within export consignment shall not be deemed export sales until the
processing zones. Although sales to export-oriented export products consigned are in fact sold by the
BOI-registered enterprises and sales to EPZA-registered consignee.
enterprises located within export processing zones were
both deemed export sales, which, under Section 100(a) Sales of locally manufactured or assembled goods for
of the Tax Code of 1977, as amended, shall be subject to household and personal use to Filipinos abroad and
0% VAT distinction must be made between these two other non-residents of the Philippines as well as
types of sales because each may have different returning Overseas Filipinos under the Internal Export
substantiation requirements. Program of the government and paid for in convertible
foreign currency inwardly remitted through the
The Tax Code of 1977, as amended, gave a limited Philippine banking systems shall also be considered
definition of export sales, to wit: "The sale and export sales. (Underscoring ours.)
shipment or exportation of goods from the Philippines
to a foreign country, irrespective of any shipping The afore-cited provision of the Omnibus Investments
arrangement that may be agreed upon which may Code of 1987 recognizes as export sales the sales of
influence or determine the transfer of ownership of the export products to another producer or to an export
goods so exported, or foreign currency denominated trader, provided that the export products are actually
sales." Executive Order No. 226, otherwise known as exported. For purposes of VAT zero-rating, such
the Omnibus Investments Code of 1987 - which, in the producer or export trader must be registered with the
years concerned (i.e., 1990 and 1992), governed BOI and is required to actually export more than 70% of
enterprises registered with both the BOI and EPZA, its annual production.
provided a more comprehensive definition of export
sales, as quoted below: Without actual exportation, Article 23 of the Omnibus
Investments Code of 1987 also considers constructive
"ART. 23. "Export sales" shall mean the Philippine port exportation as export sales. Among other types of
F.O.B. value, determined from invoices, bills of lading, constructive exportation specifically identified by the
inward letters of credit, landing certificates, and other said provision are sales to export processing zones.
commercial documents, of export products exported Sales to export processing zones are subjected to
directly by a registered export producer or the net special tax treatment. Article 77 of the same Code
selling price of export product sold by a registered establishes the tax treatment of goods or merchandise
export producer or to an export trader that brought into the export processing zones. Of particular
subsequently exports the same: Provided, That sales of relevance herein is paragraph 2, which provides that
export products to another producer or to an export "Merchandise purchased by a registered zone
trader shall only be deemed export sales when actually enterprise from the customs territory and subsequently
exported by the latter, as evidenced by landing brought into the zone, shall be considered as export
certificates of similar commercial documents: Provided, sales and the exporter thereof shall be entitled to the
further, That without actual exportation the following benefits allowed by law for such transaction."
 the said buyer's goods and paid for in acceptable
Such tax treatment of goods brought into the export foreign currency and accounted for in accordance with
processing zones are only consistent with the the rules and regulations of the Bangko Sentral ng
Destination Principle and Cross Border Doctrine to Pilipinas (BSP);
which the Philippine VAT system adheres. According to
the Destination Principle,22 goods and services are (3) The sale of raw materials or packaging materials to
taxed only in the country where these are consumed. In an export-oriented enterprise whose export sales
connection with the said principle, the Cross Border exceed seventy percent (70%) of total annual
Doctrine23 mandates that no VAT shall be imposed to production;
form part of the cost of the goods destined for
consumption outside the territorial border of the taxing Any enterprise whose export sales exceed 70% of the
authority. Hence, actual export of goods and services total annual production of the preceding taxable year
from the Philippines to a foreign country must be free shall be considered an export-oriented enterprise upon
of VAT, while those destined for use or consumption accreditation as such under the provisions of the Export
within the Philippines shall be imposed with 10% Development Act (R.A. 7844) and its implementing rules
VAT.24 Export processing zones25 are to be managed as and regulations;
a separate customs territory from the rest of the
Philippines and, thus, for tax purposes, are effectively (4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP);
considered as foreign territory. For this reason, sales by and
persons from the Philippine customs territory to those
inside the export processing zones are already taxed as (5) Those considered export sales under Articles 23 and
exports. 77 of Executive Order No. 226, otherwise known as the
Omnibus Investments Code of 1987, and other special
Plainly, sales to enterprises operating within the export laws, e.g. Republic Act No. 7227, otherwise known as
processing zones are export sales, which, under the Tax the Bases Conversion and Development Act of 1992.
Code of 1977, as amended, were subject to 0% VAT. It is
on this ground that petitioner corporation is claiming The Tax Code of 1997, as amended,27 later adopted the
refund/credit of the input VAT on its zero-rated sales to foregoing definition of export sales, which are subject to
PASAR and PHILPHOS. 0% VAT.

The distinction made by this Court in the preceding This Court then reiterates its conclusion that Section 2
paragraphs between the zero-rated sales to export- of Revenue Regulations No. 2-88, which applied to zero-
oriented BOI-registered enterprises and zero-rated sales rated export sales to export-oriented BOI-registered
to EPZA-registered enterprises operating within export enterprises, should not be applied to the applications
processing zones is actually supported by subsequent for refund/credit of input VAT filed by petitioner
development in tax laws and regulations. In Revenue corporation since it based its applications on the zero-
Regulations No. 7-95, the Consolidated VAT Regulations, rating of export sales to enterprises registered with the
as amended,26 the BIR defined with more precision EPZA and located within export processing zones.
what are zero-rated export sales –
Sufficiency of evidence
(1) The sale and actual shipment of goods from the
Philippines to a foreign country, irrespective of any There can be no dispute that the taxpayer-claimant has
shipping arrangement that may be agreed upon which the burden of proving the legal and factual bases of its
may influence or determine the transfer of ownership claim for tax credit or refund, but once it has submitted
of the goods so exported paid for in acceptable foreign all the required documents, it is the function of the BIR
currency or its equivalent in goods or services, and to assess these documents with purposeful dispatch.28
accounted for in accordance with the rules and It therefore falls upon herein petitioner corporation to
regulations of the Bangko Sentral ng Pilipinas (BSP); first establish that its sales qualify for VAT zero-rating
under the existing laws (legal basis), and then to present
(2) The sale of raw materials or packaging materials to a sufficient evidence that said sales were actually made
non-resident buyer for delivery to a resident local and resulted in refundable or creditable input VAT in
export-oriented enterprise to be used in manufacturing, the amount being claimed (factual basis).
processing, packing or repacking in the Philippines of
It would initially appear that the applications for input VAT. It is in this regard that petitioner corporation
refund/credit filed by petitioner corporation cover only has failed, both in the administrative and judicial level.
input VAT on its purportedly zero-rated sales to PASAR
and PHILPHOS; however, a more thorough perusal of its Applications for refund/credit of input VAT with the BIR
applications, VAT returns, pleadings, and other records must comply with the appropriate revenue regulations.
of these cases would reveal that it is also claiming As this Court has already ruled, Revenue Regulations
refund/credit of its input VAT on purchases of capital No. 2-88 is not relevant to the applications for
goods and sales of gold to the Central Bank of the refund/credit of input VAT filed by petitioner
Philippines (CBP). corporation; nonetheless, the said applications must
have been in accordance with Revenue Regulations No.
This Court finds that the claims for refund/credit of 3-88, amending Section 16 of Revenue Regulations No.
input VAT of petitioner corporation have sufficient legal 5-87, which provided as follows –
bases.
SECTION 16. Refunds or tax credits of input tax. –
As has been extensively discussed herein, Section
106(b)(2), in relation to Section 100(a)(2) of the Tax xxxx
Code of 1977, as amended, allowed the refund/credit of
input VAT on export sales to enterprises operating (c) Claims for tax credits/refunds. – Application for Tax
within export processing zones and registered with the Credit/Refund of Value-Added Tax Paid (BIR Form No.
EPZA, since such export sales were deemed to be 2552) shall be filed with the Revenue District Office of
effectively zero-rated sales.29 The fact that PASAR and the city or municipality where the principal place of
PHILPHOS, to whom petitioner corporation sold its business of the applicant is located or directly with the
products, were operating inside an export processing Commissioner, Attention: VAT Division.
zone and duly registered with EPZA, was never raised as
an issue herein. Moreover, the same fact was already A photocopy of the purchase invoice or receipt
judicially recognized in the case Atlas Consolidated evidencing the value added tax paid shall be submitted
Mining & Development Corporation v. Commissioner of together with the application. The original copy of the
Internal Revenue.30 Section 106(c) of the same Code said invoice/receipt, however, shall be presented for
likewise permitted a VAT-registered taxpayer to apply cancellation prior to the issuance of the Tax Credit
for refund/credit of the input VAT paid on capital goods Certificate or refund. In addition, the following
imported or locally purchased to the extent that such documents shall be attached whenever applicable:
input VAT has not been applied against its output VAT.
Meanwhile, the effective zero-rating of sales of gold to xxxx
the CBP from 1989 to 199131 was already affirmed by
this Court in Commissioner of Internal Revenue v. "3. Effectively zero-rated sale of goods and services.
Benguet Corporation,32 wherein it ruled that –
"i) photo copy of approved application for zero-rate if
At the time when the subject transactions were filing for the first time.
consummated, the prevailing BIR regulations relied
upon by respondent ordained that gold sales to the "ii) sales invoice or receipt showing name of the person
Central Bank were zero-rated. The BIR interpreted Sec. or entity to whom the sale of goods or services were
100 of the NIRC in relation to Sec. 2 of E.O. No. 581 s. delivered, date of delivery, amount of consideration,
1980 which prescribed that gold sold to the Central and description of goods or services delivered.
Bank shall be considered export and therefore shall be
subject to the export and premium duties. In coming "iii) evidence of actual receipt of goods or services.
out with this interpretation, the BIR also considered Sec.
169 of Central Bank Circular No. 960 which states that "4. Purchase of capital goods.
all sales of gold to the Central Bank are considered
constructive exports. x x x. "i) original copy of invoice or receipt showing the date
of purchase, purchase price, amount of value-added tax
This Court now comes to the question of whether paid and description of the capital equipment locally
petitioner corporation has sufficiently established the purchased.
factual bases for its applications for refund/credit of
"ii) with respect to capital equipment imported, the 3(c), Rule 130 of the Rules of Court and the doctrine
photo copy of import entry document for internal enunciated in Compania Maritima vs. Allied Free
revenue tax purposes and the confirmation receipt Workers Union (77 SCRA 24), as well as Section 8 of
issued by the Bureau of Customs for the payment of the Republic Act No. 1125:
value-added tax.
1. The party who desires to introduce as evidence such
"5. In applicable cases, voluminous documents must, after motion and approval
by the Court, present:
where the applicant's zero-rated transactions are
regulated by certain government agencies, a statement (a) a Summary containing, among others, a
therefrom showing the amount and description of sale chronological listing of the numbers, dates and amounts
of goods and services, name of persons or entities covered by the invoices or receipts and the amount/s of
(except in case of exports) to whom the goods or tax paid; and (b) a Certification of an independent
services were sold, and date of transaction shall also be Certified Public Accountant attesting to the correctness
submitted. of the contents of the summary after making an
examination, evaluation and audit of the voluminous
In all cases, the amount of refund or tax credit that may receipts and invoices. The name of the accountant or
be granted shall be limited to the amount of the value- partner of the firm in charge must be stated in the
added tax (VAT) paid directly and entirely attributable motion so that he/she can be commissioned by the
to the zero-rated transaction during the period covered Court to conduct the audit and, thereafter, testify in
by the application for credit or refund. Court relative to such summary and certification
pursuant to Rule 32 of the Rules of Court.
Where the applicant is engaged in zero-rated and other
taxable and exempt sales of goods and services, and the 2. The method of individual presentation of each and
VAT paid (inputs) on purchases of goods and services every receipt, invoice or account for marking,
cannot be directly attributed to any of the identification and comparison with the originals thereof
aforementioned transactions, the following formula need not be done before the Court or Clerk of Court
shall be used to determine the creditable or refundable anymore after the introduction of the summary and CPA
input tax for zero-rated sale: certification. It is enough that the receipts, invoices,
vouchers or other documents covering the said
Amount of Zero-rated Sale accounts or payments to be introduced in evidence
Total Sales must be pre-marked by the party concerned and
submitted to the Court in order to be made accessible
X to the adverse party who desires to check and verify the
Total Amount of Input Taxes correctness of the summary and CPA certification.
= Likewise, the originals of the voluminous receipts,
Amount Creditable/Refundable invoices or accounts must be ready for verification and
comparison in case doubt on the authenticity thereof is
In case the application for refund/credit of input VAT raised during the hearing or resolution of the formal
was denied or remained unacted upon by the BIR, and offer of evidence.
before the lapse of the two-year prescriptive period, the
taxpayer-applicant may already file a Petition for Since CTA Cases No. 4831, 4859, 4944,33 and 5102,34
Review before the CTA. If the taxpayer's claim is were still pending before the CTA when the said Circular
supported by voluminous documents, such as receipts, was issued, then petitioner corporation must have
invoices, vouchers or long accounts, their presentation complied therewith during the course of the trial of the
before the CTA shall be governed by CTA Circular No. 1- said cases.
95, as amended, reproduced in full below –
In Commissioner of Internal Revenue v. Manila Mining
In the interest of speedy administration of justice, the Corporation,35 this Court denied the claim of therein
Court hereby promulgates the following rules governing respondent, Manila Mining Corporation, for refund of
the presentation of voluminous documents and/or long the input VAT on its supposed zero-rated sales of gold
accounts, such as receipts, invoices and vouchers, as to the CBP because it was unable to substantiate its
evidence to establish certain facts pursuant to Section claim. In the same case, this Court emphasized the
importance of complying with the substantiation evidence into consideration. (Emphasis and italics
requirements for claiming refund/credit of input VAT on supplied)
zero-rated sales, to wit –
A "sales or commercial invoice" is a written account of
For a judicial claim for refund to prosper, however, goods sold or services rendered indicating the prices
respondent must not only prove that it is a VAT charged therefor or a list by whatever name it is known
registered entity and that it filed its claims within the which is used in the ordinary course of business
prescriptive period. It must substantiate the input VAT evidencing sale and transfer or agreement to sell or
paid by purchase invoices or official receipts. transfer goods and services.

This respondent failed to do. A "receipt" on the other hand is a written

acknowledgment of the fact of payment in money or
Revenue Regulations No. 3-88 amending Revenue other settlement between seller and buyer of goods,
Regulations No. 5-87 provides the requirements in debtor or creditor, or person rendering services and
claiming tax credits/refunds. client or customer.

xxxx These sales invoices or receipts issued by the supplier

are necessary to substantiate the actual amount or
Under Section 8 of RA1125, the CTA is described as a quantity of goods sold and their selling price, and taken
court of record. As cases filed before it are litigated de collectively are the best means to prove the input VAT
novo, party litigants should prove every minute aspect payments.36
of their cases. No evidentiary value can be given the
purchase invoices or receipts submitted to the BIR as Although the foregoing decision focused only on the
the rules on documentary evidence require that these proof required for the applicant for refund/credit to
documents must be formally offered before the CTA. establish the input VAT payments it had made on its
purchases from suppliers, Revenue Regulations No. 3-88
This Court thus notes with approval the following also required it to present evidence proving actual zero-
findings of the CTA: rated VAT sales to qualified buyers, such as (1)
photocopy of the approved application for zero-rate if
x x x [S]ale of gold to the Central Bank should not be filing for the first time; (2) sales invoice or receipt
subject to the 10% VAT-output tax but this does not showing the name of the person or entity to whom the
ipso fact mean that [the seller] is entitled to the amount goods or services were delivered, date of delivery,
of refund sought as it is required by law to present amount of consideration, and description of goods or
evidence showing the input taxes it paid during the year services delivered; and (3) the evidence of actual receipt
in question. What is being claimed in the instant of goods or services.
petition is the refund of the input taxes paid by the
herein petitioner on its purchase of goods and services. Also worth noting in the same decision is the weight
Hence, it is necessary for the Petitioner to show proof given by this Court to the certification by the
that it had indeed paid the input taxes during the year independent certified public accountant (CPA), thus –
1991. In the case at bar, Petitioner failed to discharge
this duty. It did not adduce in evidence the sales Respondent contends, however, that the certification of
invoice, receipts or other documents showing the input the independent CPA attesting to the correctness of the
value added tax on the purchase of goods and services. contents of the summary of suppliers' invoices or
receipts which were examined, evaluated and audited
xxx by said CPA in accordance with CTA Circular No. 1-95 as
amended by CTA Circular No. 10-97 should substantiate
Section 8 of Republic Act 1125 (An Act Creating the its claims.
Court of Tax Appeals) provides categorically that the
Court of Tax Appeals shall be a court of record and as There is nothing, however, in CTA Circular No. 1-95, as
such it is required to conduct a formal trial (trial de amended by CTA Circular No. 10-97, which either
novo) where the parties must present their evidence expressly or impliedly suggests that summaries and
accordingly if they desire the Court to take such schedules of input VAT payments, even if certified by an
independent CPA, suffice as evidence of input VAT July 1 to December 31, 1991. Our examination included
payments. inspection of the pertinent suppliers' invoices and
official receipts and such other auditing procedures as
xxxx we considered necessary in the circumstances. x x x

The circular, in the interest of speedy administration of As the certification merely stated that it used "auditing
justice, was promulgated to avoid the time-consuming procedures considered necessary" and not auditing
procedure of presenting, identifying and marking of procedures which are in accordance with generally
documents before the Court. It does not relieve accepted auditing principles and standards, and that the
respondent of its imperative task of pre-marking examination was made on "input tax payments by the
photocopies of sales receipts and invoices and Manila Mining Corporation," without specifying that the
submitting the same to the court after the independent said input tax payments are attributable to the sales of
CPA shall have examined and compared them with the gold to the Central Bank, this Court cannot rely thereon
originals. Without presenting these pre-marked and regard it as sufficient proof of the respondent's
documents as evidence – from which the summary and input VAT payments for the second semester.37
schedules were based, the court cannot verify the
authenticity and veracity of the independent auditor's As for the Petition in G.R. No. 141104, involving the
conclusions. input VAT of petitioner corporation on its zero-rated
sales in the first quarter of 1992, this Court already
There is, moreover, a need to subject these invoices or found that the petitioner corporation failed to comply
receipts to examination by the CTA in order to confirm with Section 106(b) of the Tax Code of 1977, as
whether they are VAT invoices. Under Section 21 of amended, imposing the two-year prescriptive period for
Revenue Regulation, No. 5-87, all purchases covered by the filing of the application for refund/credit thereof.
invoices other than a VAT invoice shall not be entitled to This bars the grant of the application for refund/credit,
a refund of input VAT. whether administratively or judicially, by express
mandate of Section 106(e) of the same Code.
xxxx
Granting arguendo that the application of petitioner
While the CTA is not governed strictly by technical rules corporation for the refund/credit of the input VAT on its
of evidence, as rules of procedure are not ends in zero-rated sales in the first quarter of 1992 was actually
themselves but are primarily intended as tools in the and timely filed, petitioner corporation still failed to
administration of justice, the presentation of the present together with its application the required
purchase receipts and/or invoices is not mere supporting documents, whether before the BIR or the
procedural technicality which may be disregarded CTA. As the Court of Appeals ruled –
considering that it is the only means by which the CTA
may ascertain and verify the truth of the respondent's In actions involving claims for refund of taxes assessed
claims. and collected, the burden of proof rests on the
taxpayer. As clearly discussed in the CTA's decision,
The records further show that respondent miserably petitioner failed to substantiate its claim for tax refunds.
failed to substantiate its claims for input VAT refund for Thus:
the first semester of 1991. Except for the summary and
schedules of input VAT payments prepared by "We note, however, that in the cases at bar, petitioner
respondent itself, no other evidence was adduced in has relied totally on Revenue Regulations No. 2-88 in
support of its claim. determining compliance with the documentary
requirements for a successful refund or issuance of tax
As for respondent's claim for input VAT refund for the credit. Unmentioned is the applicable and specific
second semester of 1991, it employed the services of amendment later introduced by Revenue Regulations
Joaquin Cunanan & Co. on account of which it (Joaquin No. 3-88 dated April 7, 1988 (issued barely after two
Cunanan & Co.) executed a certification that: months from the promulgation of Revenue Regulations
No. 2-88 on February 15, 1988), which amended Section
We have examined the information shown below 16 of Revenue Regulations No. 5-87 on refunds or tax
concerning the input tax payments made by the Makati credits of input tax. x x x.
Office of Manila Mining Corporation for the period from
xxxx
"Petitioner should have taken the foresight to introduce
"A thorough examination of the evidence submitted by in evidence all of the missing documents
the petitioner before this court reveals outright the abovementioned. Cases filed before this Court are
failure to satisfy documentary requirements laid down litigated de novo. This means that party litigants should
under the above-cited regulations. Specifically, endeavor to prove at the first instance every minute
petitioner was not able to present the following aspect of their cases strictly in accordance with the
documents, to wit: Rules of Court, most especially on documentary
evidence." (pp. 37-42, Rollo)
"a) sales invoices or receipts;
Tax refunds are in the nature of tax exemptions. It is
"b) purchase invoices or receipts; regarded as in derogation of the sovereign authority,
and should be construed in strictissimi juris against the
"c) evidence of actual receipt of goods; person or entity claiming the exemption. The taxpayer
who claims for exemption must justify his claim by the
"d) BOI statement showing the amount and description clearest grant of organic or statute law and should not
of sale of goods, etc. be permitted to stand on vague implications (Asiatic
Petroleum Co. v. Llanes, 49 Phil. 466; Northern Phil.
"e) original or attested copies of invoice or receipt on Tobacco Corp. v. Mun. of Agoo, La Union, 31 SCRA 304;
capital equipment locally purchased; and Reagan v. Commissioner, 30 SCRA 968; Asturias Sugar
Central, Inc. v. Commissioner of Customs, 29 SCRA 617;
"f) photocopy of import entry document and Davao Light and Power Co., Inc. v. Commissioner of
confirmation receipt on imported capital equipment. Customs, 44 SCRA 122).

"There is the need to examine the sales invoices or There is no cogent reason to fault the CTA's conclusion
receipts in order to ascertain the actual amount or that the SGV's certificate is "self-destructive", as it finds
quantity of goods sold and their selling price. Without comfort in the very SGV's stand, as follows:
them, this Court cannot verify the correctness of
petitioner's claim inasmuch as the regulations require "It is our understanding that the above procedure are
that the input taxes being sought for refund should be sufficient for the purpose of the Company. We make no
limited to the portion that is directly and entirely presentation regarding the sufficiency of these
attributable to the particular zero-rated transaction. In procedures for such purpose. We did not compare the
this instance, the best evidence of such transaction are total of the input tax claimed each quarter against the
the said sales invoices or receipts. pertinent VAT returns and books of accounts. The above
procedures do not constitute an audit made in
"Also, even if sales invoices are produced, there is the accordance with generally accepted auditing standards.
further need to submit evidence that such goods were Accordingly, we do not express an opinion on the
actually received by the buyer, in this case, by CBP, company's claim for input VAT refund or credit. Had we
Philp[h]os and PASAR. performed additional procedures, or had we made an
audit in accordance with generally accepted auditing
xxxx standards, other matters might have come to our
attention that we would have accordingly reported on."
"Lastly, this Court cannot determine whether there
were actual local and imported purchase of capital The SGV's "disclaimer of opinion" carries much weight
goods as well as domestic purchase of non-capital as it is petitioner's independent auditor. Indeed, SGV
goods without the required purchase invoice or receipt, expressed that it "did not compare the total of the input
as the case may be, and confirmation receipts. tax claimed each quarter against the VAT returns and
books of accounts."38
"There is, thus, the imperative need to submit before
this Court the original or attested photocopies of Moving on to the Petition in G.R. No. 148763,
petitioner's invoices or receipts, confirmation receipts concerning the input VAT of petitioner corporation on
and import entry documents in order that a full its zero-rated sales in the second, third, and fourth
ascertainment of the claimed amount may be achieved. quarters of 1990, the appellate court likewise found
that petitioner corporation failed to sufficiently The distinction between a question of law and a
establish its claims. Already disregarding the question of fact is clear-cut. It has been held that
declarations made by the Court of Appeals on its "[t]here is a question of law in a given case when the
erroneous application of Revenue Regulations No. 2-88, doubt or difference arises as to what the law is on a
quoted hereunder is the rest of the findings of the certain state of facts; there is a question of fact when
appellate court after evaluating the evidence submitted the doubt or difference arises as to the truth or
in accordance with the requirements under Revenue falsehood of alleged facts."42
Regulations No. 3-88 –
Whether petitioner corporation actually made zero-
The Secretary of Finance validly adopted Revenue rated sales; whether it paid input VAT on these sales in
Regulations [No.] x x x 3-98 pursuant to Sec. 245 of the the amount it had declared in its returns; whether all
National Internal Revenue Code, which recognized his the input VAT subject of its applications for
power to "promulgate all needful rules and regulations refund/credit can be attributed to its zero-rated sales;
for the effective enforcement of the provisions of this and whether it had not previously applied the input VAT
Code." Thus, it is incumbent upon a taxpayer intending against its output VAT liabilities, are all questions of fact
to file a claim for refund of input VATs or the issuance of which could only be answered after reviewing,
a tax credit certificate with the BIR x x x to prove sales examining, evaluating, or weighing the probative value
to such buyers as required by Revenue Regulations No. of the evidence it presented, and which this Court does
3-98. Logically, the same evidence should be presented not have the jurisdiction to do in the present Petitions
in support of an action to recover taxes which have for Review on Certiorari under Rule 45 of the revised
been paid. Rules of Court.

x x x Neither has [herein petitioner corporation] Granting that there are exceptions to the general rule,
presented sales invoices or receipts showing sales of when this Court looked into questions of fact under
gold, copper concentrates, and pyrite to the CBP, particular circumstances,43 none of these exist in the
[PASAR], and [PHILPHOS], respectively, and the dates instant cases. The Court of Appeals, in both cases, found
and amounts of the same, nor any evidence of actual a dearth of evidence to support the claims for
receipt by the said buyers of the mineral products. It refund/credit of the input VAT of petitioner corporation,
merely presented receipts of purchases from suppliers and the records bear out this finding. Petitioner
on which input VATs were allegedly paid. Thus, the corporation itself cannot dispute its non-compliance
Court of Tax Appeals correctly denied the claims for with the requirements set forth in Revenue Regulations
refund of input VATs or the issuance of tax credit No. 3-88 and CTA Circular No. 1-95, as amended. It
certificates of petitioner [corporation]. Significantly, in concentrated its arguments on its assertion that the
the resolution, dated 7 June 2000, this Court directed substantiation requirements under Revenue
the parties to file memoranda discussing, among others, Regulations No. 2-88 should not have applied to it,
the submission of proof for "its [petitioner's] sales of while being conspicuously silent on the evidentiary
gold, copper concentrates, and pyrite to buyers." requirements mandated by other relevant regulations.
Nevertheless, the parties, including the petitioner, failed
to address this issue, thereby necessitating the Re-opening of cases/holding of new trial before the CTA
affirmance of the ruling of the Court of Tax Appeals on
this point.39 This Court now faces the final issue of whether the
prayer of petitioner corporation for the re-opening of its
This Court is, therefore, bound by the foregoing facts, as cases or holding of new trial before the CTA for the
found by the appellate court, for well-settled is the reception of additional evidence, may be granted.
general rule that the jurisdiction of this Court in cases Petitioner corporation prays that the Court exercise its
brought before it from the Court of Appeals, by way of a discretion on the matter in its favor, consistent with the
Petition for Review on Certiorari under Rule 45 of the policy that rules of procedure be liberally construed in
Revised Rules of Court, is limited to reviewing or pursuance of substantive justice.
revising errors of law; findings of fact of the latter are
conclusive.40 This Court is not a trier of facts. It is not its This Court, however, cannot grant the prayer of
function to review, examine and evaluate or weigh the petitioner corporation.
probative value of the evidence presented.41
An aggrieved party may file a motion for new trial or effect, be alleged and incorporated in the motion itself;
reconsideration of a judgment already rendered in and this will be deemed a substantial compliance with
accordance with Section 1, Rule 37 of the revised Rules the formal requirements of the law, provided, of course,
of Court, which provides – that the movant, or other individual with personal
knowledge of the facts, take oath as to the truth
SECTION 1. Grounds of and period for filing motion for thereof, in effect converting the entire motion for new
new trial or reconsideration. – Within the period for trial into an affidavit.45 The motion of petitioner
taking an appeal, the aggrieved party may move the corporation was prepared and verified by its counsel,
trial court to set aside the judgment or final order and and since the ground for the motion was premised on
grant a new trial for one or more of the following causes said counsel's excusable negligence or mistake, then the
materially affecting the substantial rights of said party: obvious conclusion is that he had personal knowledge
of the facts relating to such negligence or mistake.
(a) Fraud, accident, mistake or excusable negligence Hence, it can be said that the motion of petitioner
which ordinary prudence could not have guarded corporation for the re-opening of its cases and/or
against and by reason of which such aggrieved party has holding of new trial was in substantial compliance with
probably been impaired in his rights; or the formal requirements of the revised Rules of Court.

(b) Newly discovered evidence, which he could not, with Even so, this Court finds no sufficient ground for
reasonable diligence, have discovered and produced at granting the motion of petitioner corporation for the re-
the trial, and which if presented would probably alter opening of its cases and/or holding of new trial.
the result.
In G.R. No. 141104, petitioner corporation invokes the
Within the same period, the aggrieved party may also Resolution,46 dated 20 July 1998, by the CTA in another
move fore reconsideration upon the grounds that the case, CTA Case No. 5296, involving the claim of
damages awarded are excessive, that the evidence is petitioner corporation for refund/credit of input VAT for
insufficient to justify the decision or final order, or that the third quarter of 1993. The said Resolution allowed
the decision or final order is contrary to law. the re-opening of CTA Case No. 5296, earlier dismissed
by the CTA, to give the petitioner corporation the
In G.R. No. 148763, petitioner corporation attempts to opportunity to present the missing export documents.
justify its motion for the re-opening of its cases and/or
holding of new trial before the CTA by contending that The rule that the grant or denial of motions for new trial
the "[f]ailure of its counsel to adduce the necessary rests on the discretion of the trial court,47 may likewise
evidence should be construed as excusable negligence be extended to the CTA. When the denial of the motion
or mistake which should constitute basis for such re- rests upon the discretion of a lower court, this Court will
opening of trial as for a new trial, as counsel was of the not interfere with its exercise, unless there is proof of
belief that such evidence was rendered unnecessary by grave abuse thereof.48
the presentation of unrebutted evidence indicating that
respondent [Commissioner] has acknowledged the sale That the CTA granted the motion for re-opening of one
of [sic] PASAR and [PHILPHOS] to be zero-rated." 44 The case for the presentation of additional evidence and,
CTA denied such motion on the ground that it was not yet, deny a similar motion in another case filed by the
accompanied by an affidavit of merit as required by same party, does not necessarily demonstrate grave
Section 2, Rule 37 of the revised Rules of Court. The abuse of discretion or arbitrariness on the part of the
Court of Appeals affirmed the denial of the motion, but CTA. Although the cases involve identical parties, the
apart from this technical defect, it also found that there causes of action and the evidence to support the same
was no justification to grant the same. can very well be different. As can be gleaned from the
Resolution, dated 20 July 1998, in CTA Case No. 5296,
On the matter of the denial of the motion of the petitioner corporation was claiming refund/credit of the
petitioner corporation for the re-opening of its cases input VAT on its zero-rated sales, consisting of actual
and/or holding of new trial based on the technicality export sales, to Mitsubishi Metal Corporation in Tokyo,
that said motion was unaccompanied by an affidavit of Japan. The CTA took into account the presentation by
merit, this Court rules in favor of the petitioner petitioner corporation of inward remittances of its
corporation. The facts which should otherwise be set export sales for the quarter involved, its Supply Contract
forth in a separate affidavit of merit may, with equal with Mitsubishi Metal Corporation, its 1993 Annual
Report showing its sales to the said foreign corporation, have been otherwise had his counsel proceeded
and its application for refund. In contrast, the present differently. It has been held time and again that
Petitions involve the claims of petitioner corporation for blunders and mistakes made in the conduct of the
refund/credit of the input VAT on its purchases of proceedings in the trial court as a result of the
capital goods and on its effectively zero-rated sales to ignorance, inexperience or incompetence of counsel do
CBP and EPZA-registered enterprises PASAR and not qualify as a ground for new trial. If such were to be
PHILPHOS for the second, third, and fourth quarters of admitted as valid reasons for re-opening cases, there
1990 and first quarter of 1992. There being a difference would never be an end to litigation so long as a new
as to the bases of the claims of petitioner corporation counsel could be employed to allege and show that the
for refund/credit of input VAT in CTA Case No. 5926 and prior counsel had not been sufficiently diligent,
in the Petitions at bar, then, there are resulting experienced or learned.
variances as to the evidence required to support them.
Moreover, negligence, to be "excusable," must be one
Moreover, the very same Resolution, dated 20 July which ordinary diligence and prudence could not have
1998, in CTA Case No. 5296, invoked by petitioner guarded against.51 Revenue Regulations No. 3-88,
corporation, emphasizes that the decision of the CTA to which was issued on 15 February 1988, had been in
allow petitioner corporation to present evidence "is effect more than two years prior to the filing by
applicable pro hac vice or in this occasion only as it is petitioner corporation of its earliest application for
the finding of [the CTA] that petitioner [corporation] has refund/credit of input VAT involved herein on 21 August
established a few of the aforementioned material 1990. CTA Circular No. 1-95 was issued only on 25
points regarding the possible existence of the export January 1995, after petitioner corporation had filed its
documents together with the prior and succeeding Petitions before the CTA, but still during the pendency
returns for the quarters involved, x x x" [Emphasis of the cases of petitioner corporation before the tax
supplied.] Therefore, the CTA, in the present cases, court. The counsel of petitioner corporation does not
cannot be bound by its ruling in CTA Case No. 5296, allege ignorance of the foregoing administrative
when these cases do not involve the exact same regulation and tax court circular, only that he no longer
circumstances that compelled it to grant the motion of deemed it necessary to present the documents required
petitioner corporation for re-opening of CTA Case No. therein because of the presentation of alleged
5296. unrebutted evidence of the zero-rated sales of
petitioner corporation. It was a judgment call made by
Finally, assuming for the sake of argument that the non- the counsel as to which evidence to present in support
presentation of the required documents was due to the of his client's cause, later proved to be unwise, but not
fault of the counsel of petitioner corporation, this Court necessarily negligent.
finds that it does not constitute excusable negligence or
mistake which would warrant the re-opening of the Neither is there any merit in the contention of
cases and/or holding of new trial. petitioner corporation that the non-presentation of the
required documentary evidence was due to the
Under Section 1, Rule 37 of the Revised Rules of Court, excusable mistake of its counsel, a ground under
the "negligence" must be excusable and generally Section 1, Rule 37 of the revised Rules of Court for the
imputable to the party because if it is imputable to the grant of a new trial. "Mistake," as it is referred to in the
counsel, it is binding on the client. To follow a contrary said rule, must be a mistake of fact, not of law, which
rule and allow a party to disown his counsel's conduct relates to the case.52 In the present case, the supposed
would render proceedings indefinite, tentative, and mistake made by the counsel of petitioner corporation
subject to re-opening by the mere subterfuge of is one of law, for it was grounded on his interpretation
replacing the counsel. What the aggrieved litigant and evaluation that Revenue Regulations No. 3-88 and
should do is seek administrative sanctions against the CTA Circular No. 1-95, as amended, did not apply to his
erring counsel and not ask for the reversal of the court's client's cases and that there was no need to comply
ruling.49 with the documentary requirements set forth therein.
And although the counsel of petitioner corporation
As elucidated by this Court in another case,50 the advocated an erroneous legal position, the effects
general rule is that the client is bound by the action of thereof, which did not amount to a deprivation of his
his counsel in the conduct of his case and he cannot client's right to be heard, must bind petitioner
therefore complain that the result of the litigation might corporation. The question is not whether petitioner
corporation succeeded in establishing its interests, but entitled to the re-opening of its cases and/or holding of
whether it had the opportunity to present its side.53 new trial since the non-presentation of the required
documentary evidence before the BIR and the CTA by
Besides, litigation is a not a "trial and error" proceeding. its counsel does not constitute excusable negligence or
A party who moves for a new trial on the ground of mistake as contemplated in Section 1, Rule 37 of the
mistake must show that ordinary prudence could not revised Rules of Court.
have guarded against it. A new trial is not a refuge for
the obstinate.54 Ordinary prudence in these cases WHEREFORE, premises considered, the instant Petitions
would have dictated the presentation of all available for Review are hereby DENIED, and the Decisions, dated
evidence that would have supported the claims for 6 July 1999 and 15 September 2000, of the Court of
refund/credit of input VAT of petitioner corporation. Appeals in CA-G.R. SP Nos. 47607 and 46718,
Without sound legal basis, counsel for petitioner respectively, are hereby AFFIRMED. Costs against
corporation concluded that Revenue Regulations No. 3- petitioner.
88, and later on, CTA Circular No. 1-95, as amended, did
not apply to its client's claims. The obstinacy of
petitioner corporation and its counsel is demonstrated
in their failure, nay, refusal, to comply with the
appropriate administrative regulations and tax court
circular in pursuing the claims for refund/credit, now
subject of G.R. Nos. 141104 and 148763, even though
these were separately instituted in a span of more than
two years. It is also evident in the failure of petitioner
corporation to address the issue and to present
additional evidence despite being given the opportunity
to do so by the Court of Appeals. As pointed out by the
appellate court, in its Decision, dated 15 September
2000, in CA-G.R. SP No. 46718 –
G.R. No. L-52306 October 12, 1981
x x x Significantly, in the resolution, dated 7 June 2000,
this Court directed the parties to file memoranda ABS-CBN BROADCASTING CORPORATION, petitioner,
discussing, among others, the submission of proof for vs.
"its [petitioner's] sales of gold, copper concentrates, COURT OF TAX APPEALS and THE COMMISSIONER OF
and pyrite to buyers." Nevertheless, the parties, INTERNAL REVENUE, respondents.
including the petitioner, failed to address this issue,
thereby necessitating the affirmance of the ruling of the
Court of Tax Appeals on this point.55 MELENCIO-HERRERA, J.:

Summary This is a Petition for Review on certiorari of the Decision

of the Court of Tax Appeals in C.T.A. Case No. 2809,
Hence, although this Court agreed with the petitioner dated November 29, 1979, which affirmed the
corporation that the two-year prescriptive period for assessment by the Commissioner of Internal Revenue,
the filing of claims for refund/credit of input VAT must dated April 16, 1971, of a deficiency withholding income
be counted from the date of filing of the quarterly VAT tax against petitioner, ABS-CBN Broadcasting
return, and that sales to EPZA-registered enterprises Corporation, for the years 1965, 1966, 1967 and 1968 in
operating within economic processing zones were the respective amounts of P75,895.24, P99,239.18,
effectively zero-rated and were not covered by Revenue P128,502.00 and P222, 260.64, or a total of
Regulations No. 2-88, it still denies the claims of P525,897.06.
petitioner corporation for refund of its input VAT on its
purchases of capital goods and effectively zero-rated During the period pertinent to this case, petitioner
sales during the second, third, and fourth quarters of corporation was engaged in the business of telecasting
1990 and the first quarter of 1992, for not being local as well as foreign films acquired from foreign
established and substantiated by appropriate and corporations not engaged in trade or business within
sufficient evidence. Petitioner corporation is also not the Philippines. for which petitioner paid rentals after
withholding income tax of 30%of one-half of the film 4. The local distributor should withhold 30% of one-half
rentals. of the film rentals paid to the non-resident foreign film
distributor and pay the same to this office in accordance
In so far as the income tax on non-resident corporations with law unless the non- resident foreign film
is concerned, section 24 (b) of the National Internal distributor makes a prior settlement of its income tax
Revenue Code, as amended by Republic Act No. 2343 liability. (Emphasis ours).
dated June 20, 1959, used to provide:
Pursuant to the foregoing, petitioner dutifully withheld
(b) Tax on foreign corporations.—(1) Non-resident and turned over to the Bureau of Internal Revenue the
corporations.— There shall be levied, collected, and amount of 30% of one-half of the film rentals paid by it
paid for each taxable year, in lieu of the tax imposed by to foreign corporations not engaged in trade or business
the preceding paragraph, upon the amount received by within the Philippines. The last year that petitioner
every foreign corporation not engaged in trade or withheld taxes pursuant to the foregoing Circular was in
business within the Philippines, from an sources within 1968.
the Philippines, as interest, dividends, rents, salaries,
wages, premiums, annuities, compensations, On June 27, 1968, Republic Act No. 5431 amended
remunerations, emoluments, or other fixed or Section 24 (b) of the Tax Code increasing the tax rate
determinable annual or periodical gains, profits, and from 30 % to 35 % and revising the tax basis from "such
income, a tax equal to thirty per centum of such amount" referring to rents, etc. to "gross income," as
amount. (Emphasis supplied) follows:

On April 12, 1961, in implementation of the (b) Tax on foreign corporations.—(1) Non-resident
aforequoted provision, the Commissioner of Internal corporations.—A foreign corporation not engaged in
Revenue issued General Circular No. V-334 reading trade or business in the Philippines including a foreign
thus: life insurance company not engaged in the life insurance
business in the Philippines shall pay a tax equal to
In connection with Section 24 (b) of Tax Code, the thirty-five per cent of the gross income received during
amendment introduced by Republic Act No. 2343, each taxable year from all sources within the
under which an income tax equal to 30% is levied upon Philippines, as interests, dividends, rents, royalties,
the amount received by every foreign corporation not salaries, wages, premiums, annuities, compensations,
engaged in trade or business within the Philippines from remunerations for technical services or otherwise,
all sources within this country as interest, dividends, emoluments or other fixed or determinable annual,
rents, salaries, wages, premiums, annuities, periodical or casual gains, profits, and income, and
compensations, remunerations, emoluments, or other capital gains, Provided however, That premiums shah
fixed or determinable annual or periodical gains, profits, not include reinsurance premiums. (Emphasis supplied)
and income, it has been determined that the tax is still
imposed on income derived from capital, or labor, or On February 8, 1971, the Commissioner of Internal
both combined, in accordance with the basic principle Revenue issued Revenue Memorandum Circular No. 4-
of income taxation (Sec. 39, Income Tax Regulations), 71, revoking General Circular No. V-334, and holding
and that a mere return of capital or investment is not that the latter was "erroneous for lack of legal basis,"
income (Par. 5,06, 1 Mertens Law of Federal 'Taxation). because "the tax therein prescribed should be based on
Since according to the findings of the Special Team who gross income without deduction whatever," thus:
inquired into business of the non-resident foreign film
distributors, the distribution or exhibition right on a film After a restudy and analysis of Section 24 (b) of the
is invariably acquired for a consideration, either for a National Internal Revenue Code, as amended by
lump sum or a percentage of the film rentals, whether Republic Act No. 5431, and guided by the interpretation
from a parent company or an independent outside given by tax authorities to a similar provision in the
producer, apart of the receipts of a non-resident foreign Internal Revenue Code of the United States, on which
film distributor derived from said film represents, the aforementioned provision of our Tax Code was
therefore, a return of investment. patterned, this Office has come to the conclusion that
the tax therein prescribed should be based on gross
xxx xxx xxx income without t deduction whatever. Consequently,
the ruling in General Circular No. V-334, dated April 12,
1961, allowing the deduction of the proportionate cost delinquency pursuant to Section 51 (e) of the National
of production or exhibition of motion picture films from Internal Revenue Code, as amended.
the rental income of non- resident foreign corporations,
is erroneous for lack of legal basis. WHEREFORE, the decision appealed from is hereby
affirmed at petitioner's cost.
In view thereof, General Circular No. V-334, dated April
12, 1961, is hereby revoked and henceforth, local films SO ORDERED. 2
distributors and exhibitors shall deduct and withhold
35% of the entire amount payable by them to non- The issues raised are two-fold:
resident foreign corporations, as film rental or royalty,
or whatever such payment may be denominated, I. Whether or not respondent can apply General Circular
without any deduction whatever, pursuant to Section No. 4-71 retroactively and issue a deficiency assessment
24 (b), and pay the withheld taxes in accordance with against petitioner in the amount of P 525,897.06 as
Section 54 of the Tax Code, as amended. deficiency withholding income tax for the years 1965,
1966, 1967 and 1968.
All rulings inconsistent with this Circular is likewise
revoked. (Emphasis ours) II. Whether or not the right of the Commissioner of
Internal Revenue to assess the deficiency withholding
On the basis of this new Circular, respondent income tax for the year 196,5 has prescribed. 3
Commissioner of Internal Revenue issued against
petitioner a letter of assessment and demand dated Upon the facts and circumstances of the case, review is
April 15, 1971, but allegedly released by it and received warranted.
by petitioner on April 12, 1971, requiring them to pay
deficiency withholding income tax on the remitted film In point is Sec. 338-A (now Sec. 327) of the Tax Code. As
rentals for the years 1965 through 1968 and film royalty inserted by Republic Act No. 6110 on August 9, 1969, it
as of the end of 1968 in the total amount of provides:
P525,897.06 computed as follows:
Sec. 338-A. Non-retroactivity of rulings. — Any
(SEARCH NIYO IF GUSTO NIYO, AKO KASE AYOKO) revocation, modification, or reversal of and of the rules
and regulations promulgated in accordance with the
On May 5, 1971, petitioner requested for a preceding section or any of the rulings or circulars
reconsideration and withdrawal of the assessment. promulgated by the Commissioner of Internal Revenue
However, without acting thereon, respondent, on April shall not be given retroactive application if the
6, 1976, issued a warrant of distraint and levy over relocation, modification, or reversal will be prejudicial
petitioner's personal as well as real properties. The to the taxpayers, except in the following cases: (a)
petitioner then filed its Petition for Review with the where the taxpayer deliberately mis-states or omits
Court of Tax Appeals whose Decision, dated November material facts from his return or any document required
29, 1979, is, in turn, the subject of this review. The Tax of him by the Bureau of Internal Revenue: (b) where the
Court held: facts subsequently gathered by the Bureau of Internal
Revenue are materially different from the facts on
For the reasons given, the Court finds the assessment which the ruling is based; or (c) where the taxpayer
issued by respondent on April 16, 1971 against acted in bad faith. (italics for emphasis)
petitioner in the amounts of P75,895.24, P 99,239.18,
P128,502.00 and P222,260.64 or a total of P525,897.06 It is clear from the foregoing that rulings or circulars
as deficiency withholding income tax for the years 1965, promulgated by the Commissioner of Internal Revenue
1966, 1967 and 1968, respectively, in accordance with have no retroactive application where to so apply them
law. As prayed for, the petition for review filed in this would be prejudicial to taxpayers. The prejudice to
case is dismissed, and petitioner ABS-CBN Broadcasting petitioner of the retroactive application of
Corporation is hereby ordered to pay the sum of Memorandum Circular No. 4-71 is beyond question. It
P525,897.06 to respondent Commissioner of Internal was issued only in 1971, or three years after 1968, the
Revenue as deficiency withholding income tax for the last year that petitioner had withheld taxes under
taxable years 1965 thru 1968, plus the surcharge and General Circular No. V-334. The assessment and
interest which have accrued thereon incident to demand on petitioner to pay deficiency withholding
income tax was also made three years after 1968 for a
period of time commencing in 1965. Petitioner was no (b) Tax on foreign corporation.—(1) Non-resident
longer in a position to withhold taxes due from foreign corporations. — There shall be levied, collected and
corporations because it had already remitted all film paid for each taxable year, in lieu of the tax imposed by
rentals and no longer had any control over them when the preceding paragraph, upon the amount received by
the new Circular was issued. And in so far as the every foreign corporation not engaged in trade or
enumerated exceptions are concerned, admittedly, business within the Philippines, from all sources within
petitioner does not fall under any of them. the Philippines, as interest, dividends, rents, salaries,
wages, premiums annuities, compensations,
Respondent claims, however, that the provision on non- remunerations, emoluments, or other fixed or
retroactivity is inapplicable in the present case in that determinable annual or periodical gains, profits, and
General Circular No. V-334 is a nullity because in effect, income, a tax equal to thirty per centum of such
it changed the law on the matter. The Court of Tax amount: PROVIDED, HOWEVER, THAT PREMIUMS SHALL
Appeals sustained this position holding that: NOT INCLUDE REINSURANCE PREMIUMS. (double
"Deductions are wholly and exclusively within the emphasis ours).
power of Congress or the law-making body to grant,
condition or deny; and where the statute imposes a tax Republic Act No. 3841, dated likewise on June 22, 1963,
equal to a specified rate or percentage of the gross or followed after, omitting the proviso and inserting some
entire amount received by the taxpayer, the authority words (also in bold letters).
of some administrative officials to modify or change,
much less reduce, the basis or measure of the tax (b) Tax on foreign corporations.—(1) Non-resident
should not be read into law." 4 Therefore, the Tax Court corporations.—There shall be levied, collected and paid
concluded, petitioner did not acquire any vested right for each taxable year, in lieu of the tax imposed by the
thereunder as the same was a nullity. preceding paragraph, upon the amount received by
every foreign corporation not engaged in trade or
The rationale behind General Circular No. V-334 was business within the Philippines, from all sources within
clearly stated therein, however: "It ha(d) been the Philippines, as interest, dividends, rents, salaries,
determined that the tax is still imposed on income wages, premiums, annuities, compensations,
derived from capital, or labor, or both combined, in remunerations, emoluments, or other fixed or
accordance with the basic principle of income determinable annual or periodical OR CASUAL gains,
taxation ...and that a mere return of capital or profits and income, AND CAPITAL GAINS, a tax equal to
investment is not income ... ." "A part of the receipts of thirty per centum of such amount. 6 (double emphasis
a non-resident foreign film distributor derived from said supplied)
film represents, therefore, a return of investment." The
Circular thus fixed the return of capital at 50% to The principle of legislative approval of administrative
simplify the administrative chore of determining the interpretation by re-enactment clearly obtains in this
portion of the rentals covering the return of capital." 5 case. It provides that "the re-enactment of a statute
substantially unchanged is persuasive indication of the
Were the "gross income" base clear from Sec. 24 (b), adoption by Congress of a prior executive construction.
perhaps, the ratiocination of the Tax Court could be 7 Note should be taken of the fact that this case
upheld. It should be noted, however, that said Section involves not a mere opinion of the Commissioner or
was not too plain and simple to understand. The fact ruling rendered on a mere query, but a Circular formally
that the issuance of the General Circular in question was issued to "all internal revenue officials" by the then
rendered necessary leads to no other conclusion than Commissioner of Internal Revenue.
that it was not easy of comprehension and could be
subjected to different interpretations. It was only on June 27, 1968 under Republic Act No.
5431, supra, which became the basis of Revenue
In fact, Republic Act No. 2343, dated June 20, 1959, Memorandum Circular No. 4-71, that Sec. 24 (b) was
supra, which was the basis of General Circular No. V- amended to refer specifically to 35% of the "gross
334, was just one in a series of enactments regarding income."
Sec. 24 (b) of the Tax Code. Republic Act No. 3825 came
next on June 22, 1963 without changing the basis but This Court is not unaware of the well-entrenched
merely adding a proviso (in bold letters). principle that the Government is never estopped from
collecting taxes because of mistakes or errors on the
part of its
agents. 8 In fact, utmost caution should be taken in this
regard. 9 But, like other principles of law, this also
admits of exceptions in the interest of justice and
fairplay. The insertion of Sec. 338-A into the National
Internal Revenue Code, as held in the case of Tuason, Jr.
vs. Lingad, 10 is indicative of legislative intention to
support the principle of good faith. In fact, in the United
States, from where Sec. 24 (b) was patterned, it has
been held that the Commissioner of Collector is
precluded from adopting a position inconsistent with
one previously taken where injustice would result
therefrom, 11 or where there has been a
misrepresentation to the taxpayer. 12

We have also noted that in its Decision, the Court of Tax

Appeals further required the petitioner to pay interest
and surcharge as provided for in Sec. 51 (e) of the Tax
Code in addition to the deficiency withholding tax of P
525,897.06. This additional requirement is much less
called for because the petitioner relied in good faith and
religiously complied with no less than a Circular issued
"to all internal revenue officials" by the highest official
of the Bureau of Internal Revenue and approved by the
then Secretary of Finance. 13

With the foregoing conclusions arrived at, resolution of

the issue of prescription becomes unnecessary.

WHEREFORE, the judgment of the Court of Tax Appeals

is hereby reversed, and the questioned assessment set
aside. No costs.

SO ORDERED.