TAXATION LAW REVIEW
GENERAL PRINCIPLES MEMAID
Xavier University College of Law
M. ALO, J. CABELTES, J. DELA CERNA, N. GAID, S. GOMEZ, A. MAANDIG, S. A. MUNDER - GANDAMRA, J. SABADO
1. Ferrer vs. Bautista GR
210551 June 30, 2015
– ALO
CASES MEMAID
M. ALO, J. CABELTES, J. DELA CERNA, N. GAID, S. GOMEZ, A. MAANDIG, S. A. MUNDER - GANDAMRA, J. SABADO
FACTS
Petitioner, a Quezon City property owner, questions the validity of 1.
the two ordinances.
Respondent Quezon City Council enacted an ordinance, Socialized
Housing Tax (SHT) of Quezon City, which will collect 0.5% on the
assessed value of land in excess of Php 100,000.00. This shall
accrue to the Socialized Housing Programs of the Quezon City
Government. The special assessment shall go to the General Fund
under a special account to be established for the purpose.
On the other hand, Ordinance No. SP-2235 and S-2013 was
enacted collecting garbage fees on residential properties which shall
be deposited solely and exclusively in an earmarked special account
under the general fund to be utilized for garbage collections.
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ISSUE RULING
Whether or not the 1. The SHT is valid. The tax is within the power of Quezon City
Socialized Housing Tax Government to impose. LGUs may be considered as having properly
is valid. exercised their police power only if there is a lawful subject and a lawful
method. Herein, the tax is not a pure exercise of taxing power or
2. Whether or not the merely to raise revenue; it is levied with a regulatory purpose. The
ordinance on Garbage levy is primarily in the exercise of the police power for the general
Fee violates the rule on welfare of the entire city. It is greatly imbued with public interest. On
double taxation. the question of inequality, the disparities between a real property owner
and an informal settler as two distinct classes are too obvious and need not
3. Whether or not the be discussed at length. The differentiation conforms to the practical
Garbage Fee imposition dictates of justice and equity and is not discriminatory within the meaning of
is valid the Constitution. Removing slum areas in Quezon City is not only beneficial
to the underprivileged and homeless constituents but advantageous to the
real property owners as well. The situation will improve the value of their
property investments, fully enjoying the same in view of an orderly, secure,
and safe community, and will enhance the quality of life of the poor, making
them law-abiding constituents and better consumers of business products.
Notably, the public purpose of a tax may legally exist even if the motive
which impelled the legislature to impose the tax was to favor one over
another. Further, the reasonableness of Ordinance No. SP-2095 cannot be
disputed. It is not confiscatory or oppressive since the tax being imposed
therein is below what the Urban Development and Housing Act(UDHA)
actually allows. Even better, on certain conditions, the ordinance grants a
tax credit.
Subject to the provisions of the Local Government Code (LGC) and
consistent with the basic policy of local autonomy, every Local Government
Unit (LGU) is now empowered and authorized to create its own sources of
revenue and to levy taxes, fees, and charges which shall accrue
exclusively to the LGU as well as to apply its resources and assets for
productive, developmental, or welfare purposes, in the exercise or
furtherance of their governmental or proprietary powers and functions.
2.. NO. Pursuant to Section 16 of the LGC and in the proper exercise of
its corporate powers under Section 22 of the same, the Sangguniang
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 Panlungsod of Quezon City, like other local legislative bodies, is
empowered to enact ordinances, approve resolutions, and appropriate
funds for the general welfare of the city and its inhabitants. In this regard,
the LGUs shall share with the national government the responsibility
in the management and maintenance of ecological balance within
their territorial jurisdiction. The Ecological Solid Waste Management Act
of 2000, affirms this authority as it expresses that the LGUs shall be
primarily responsible for the implementation and enforcement of its
provisions. Necessarily, LGUs are statutorily sanctioned to impose and
collect such reasonable fees and charges for services rendered. The
fee imposed for garbage collections under Ordinance No. SP-2235 is a
charge fixed for the regulation of an activity as provided by the same. As
opposed to petitioner’s opinion, the garbage fee is not a tax. Hence, not
being a tax, the contention that the garbage fee under Ordinance No. SP-
2235 violates the rule on double taxation must necessarily fail.

3. NO. It violates the equal protection clause of the Constitution and the
provisions of the LGC that an ordinance must be equitable and based
as far as practicable on the taxpayer’s ability to pay, and not unjust,
excessive, oppressive, confiscatory. For the purpose of garbage
collection, there is, in fact, no substantial distinction between an occupant
of a lot, on one hand, and an occupant of a unit in a condominium,
socialized housing project or apartment, on the other hand. Most likely,
garbage output produced by these types of occupants is uniform and does
not vary to a large degree; thus, a similar schedule of fee is both just and
equitable.

The rates being charged by the ordinance are unjust and inequitable:
a resident of a 200-sq.-m. unit in a condominium or socialized housing
project has to pay twice the amount than a resident of a lot similar in size;
unlike unit occupants, all occupants of a lot with an area of 200 sq. m. and
less have to pay a fixed rate of Php100.00; and the same amount of
garbage fee is imposed regardless of whether the resident is from a
condominium or from a socialized housing project.

Indeed, the classifications under Ordinance No. SP-2235 are not germane
to its declared purpose of “promoting shared responsibility with the
residents to attack their common mindless attitude in overconsuming the
present resources and in generating waste.”160 Instead of simplistically
categorizing the payee into land or floor occupant of a lot or unit of a
condominium, socialized housing project or apartment, respondent City
Council should have considered factors that could truly measure the
amount of wastes generated and the appropriate fee for its collection.

2. Diaz vs. Sec of

Finance GR 193007 Petitioners Renato V. Diaz and Aurora Ma. F. Timbol assails the 1. WON the government is Sec. 108 of the NIRC, as amended. VAT is levied, assessed, and

CASES MEMAID
M. ALO, J. CABELTES, J. DELA CERNA, N. GAID, S. GOMEZ, A. MAANDIG, S. A. MUNDER - GANDAMRA, J. SABADO `
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 July 19, 2011 –
CABELTES validity of the impending imposition of VAT by the BIR on the
collections of tollway operators.
May toll fees collected by Petitioners claim that, since the VAT would result in increased
tollway operators be toll fees, they have an interest as regular users of tollways in
subjected to value-added stopping the BIR action. Additionally, Diaz claims that he sponsored
tax? the approval of RA 7716 or EVAT Law and RA 8424, the 1997 NIRC.
Timbol, on the other hand, claims that she served as Assistant
Secretary of the Department of TRB.
Petitioners hold the view that Congress did not, when it enacted
the NIRC, intend to include toll fees within the meaning of “sale of
services” that are subject to VAT; that a toll fee is a “user’s tax,” not
a sale of services; that to impose VAT on toll fees would amount to a
tax on public service; and that, since VAT was never factored into
the formula for computing toll fees, its imposition would violate the
non-impairment clause of the constitution.
Court issued a TRO, enjoining the implementation of the VAT.
The OSG avers that the NIRC imposes VAT on all kinds of services
of franchise grantees, including tollway operations, except where the
law provides otherwise; that the Court should seek the meaning and
intent of the law from the words used in the statute; and that the
imposition of VAT on tollway operations has been the subject as
early as 2003 of several BIR rulings and circulars.5
The government also argues that petitioners have no right to
invoke the non-impairment of contracts clause since they clearly
have no personal interest in existing toll operating agreements
(TOAs) between the government and tollway operators. At any rate,
the non-impairment clause cannot limit the State’s sovereign taxing
power which is generally read into contracts.
Finally, the government contends that the non-inclusion of VAT
in the parametric formula for computing toll rates cannot exempt
tollway operators from VAT. In any event, it cannot be claimed that
the rights of tollway operators to a reasonable rate of return will be
impaired by the VAT since this is imposed on top of the toll rate.
Further, the imposition of VAT on toll fees would have very minimal
effect on motorists using the tollways.
Petitioners point out that tollway operators cannot be regarded
as franchise grantees under the NIRC since they do not hold
legislative franchises. Further, the BIR intends to collect the VAT by
rounding off the toll rate and putting any excess collection in an
escrow account. But this would be illegal since only the Congress
CASES MEMAID
M. ALO, J. CABELTES, J. DELA CERNA, N. GAID, S. GOMEZ, A. MAANDIG, S. A. MUNDER - GANDAMRA, J. SABADO
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unlawfully expanding VAT collected, on the gross receipts derived from the sale or exchange of
coverage by including services as well as from the use or lease of properties. The third paragraph
tollway operators and defines “sale or exchange of services” as follows
tollway operations in the
terms “franchise grantees” “The phrase ‘sale or exchange of services’ means the performance
and “sale of services” under of all kinds of services in the Philippines for others for a fee, remuneration
Section 108 of the Code; or consideration, including those performed or rendered by construction
NO. and service contractors; stock, real estate, …. xxx … and all other
franchise grantees except those under Section 119 of this Code and non-
and life insurance companies (except their crop insurances), xxx and similar
services regardless of whether or not the performance thereof calls for the
2. WON the imposition of exercise or use of the physical or mental faculties.”
VAT on tollway operators;
It is plain from the above that the law imposes VAT on “all kinds of
a) amounts to a tax on tax services” rendered in the Philippines for a fee, including those specified in
and not a tax on services; the list. The enumeration of affected services is not exclusive.11 By
NO. qualifying “services” with the words “all kinds,” Congress has given the
term “services” an all-encompassing meaning. Thus, every activity that
b) will impair the tollway can be imagined as a form of “service” rendered for a fee should be
operators’ right to a deemed included unless some provision of law especially excludes it.
reasonable return of
investment under their Now, do tollway operators render services for a fee? P.D. 1112 or the Toll
TOAs; NO Operation Decree, essentially, tollway operators construct, maintain, and
operate expressways, also called tollways, at the operators’ expense.
c) is not administratively Tollways serve as alternatives to regular public highways that meander
feasible and cannot be through populated areas and branch out to local roads. Traffic in the
implemented. FEASIBLE regular public highways is for this reason slow-moving. In consideration for
constructing tollways at their expense, the operators are allowed to collect
government-approved fees from motorists using the tollways until such
operators could fully recover their expenses and earn reasonable returns
from their investments.
Tollway operators are franchise grantees and they do not belong to
exceptions (the low-income radio and/or television broadcasting companies
with gross annual incomes of less than P10 million and gas and water
utilities) that Section 119 spares from the payment of VAT. The word
“franchise” broadly covers government grants of a special right to do an act
or series of acts of public concern.14
Nothing in Section 108 indicates that the “franchise grantees” it speaks of
are those who hold legislative franchises. The term “franchise” has been
broadly construed as referring, not only to authorizations that Congress
directly issues in the form of a special law, but also to those granted by
administrative agencies to which the power to grant franchises has been
delegated by Congress.
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 can modify VAT rates and authorize its disbursement. Finally, BIR
Revenue Memorandum Circular 63-2010 (BIR RMC 63-2010), which
directs toll companies to record an accumulated input VAT of zero
balance in their books as of August 16, 2010, contravenes Section
111 of the NIRC which grants entities that first become liable to VAT
a transitional input tax credit of 2% on beginning inventory. For this
reason, the VAT on toll fees cannot be implemented.
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2.Petitioners argue that a toll fee is a “user’s tax” and to impose VAT
on toll fees is tantamount to taxing a tax. Actually, petitioners base this
argument on the following discussion in MIAA v. CA: As can be seen, the
discussion in the MIAA case on toll roads and toll fees was made, not to
establish a rule that tollway fees are user’s tax, but to make the point that
airport lands and buildings are properties of public dominion and that the
collection of terminal fees for their use does not make them private
properties. Tollway fees are not taxes. Indeed, they are not assessed and
collected by the BIR and do not go to the general coffers of the
government.
In sum, fees paid by the public to tollway operators for use of the
tollways, are not taxes in any sense. A tax is imposed under the taxing
power of the government principally for the purpose of raising revenues to
fund public expenditures.27 Toll fees, on the other hand, are collected by
private tollway operators as reimbursement for the costs and expenses
incurred in the construction, maintenance and operation of the tollways, as
well as to assure them a reasonable margin of income. Although toll fees
are charged for the use of public facilities, therefore, they are not
government exactions that can be properly treated as a tax. Taxes may be
imposed only by the government under its sovereign authority, toll fees
may be demanded by either the government or private individuals or
entities, as an attribute of ownership.
2.A. Parenthetically, VAT on tollway operations cannot be deemed a
tax on tax due to the nature of VAT as an indirect tax. Thus, the seller
remains directly and legally liable for payment of the VAT, but the buyer
bears its burden since the amount of VAT paid by the former is added to
the selling price. Once shifted, the VAT ceases to be a tax30 and simply
becomes part of the cost that the buyer must pay in order to purchase the
good, property or service.
2.B..No personality. She will neither be prejudiced by nor be affected
by the alleged diminution in return of investments that may result from the
VAT imposition. She has no interest at all in the profits to be earned under
the TOAs. The interest in and right to recover investments solely belongs to
the private tollway investors.
2.C. .Administrative feasibility is one of the canons of a sound tax
system. It simply means that the tax system should be capable of being
effectively administered and enforced with the least inconvenience to the
taxpayer. Non-observance of the canon, however, will not render a tax
imposition invalid “except to the extent that specific constitutional or
statutory limitations are impaired.”34 Thus, even if the imposition of VAT on
tollway operations may seem burdensome to implement, it is not
necessarily invalid unless some aspect of it is shown to violate any law or
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3. Manila Memorial vs. RA 7432 was passed into law (amended by RA 9257), granting
Sec of DSWD GR senior citizens 20% discount on certain establishments.
175356 December 3,
2013 – DELA CERNA To implement the tax provisions of RA 9257, the Secretary of
Finance and the DSWD issued its own Rules and Regulations.
Feeling aggrieved by the tax deduction scheme, petitioners filed the
present recourse, praying that Section 4 of RA 7432,
as amended by RA 9257, and the implementing rules and
regulations issued by the DSWD and the DOF be declared
unconstitutional insofar as these allow business establishments to
claim the 20% discount given to senior citizens as a tax deduction;
that the DSWD and the DOF be prohibited from enforcing the same;
and that the tax credit treatment of the 20% discount under the
former Section 4 (a) of RA 7432 be reinstated.
Petitioners emphasized that they are not questioning the 20%
discount granted to senior citizens but are only assailing the
constitutionality of the tax deduction scheme prescribed under RA
9257 and the implementing rules and regulations issued by the
DSWD and the DOF.
Petitioners posit that:
1. the tax deduction scheme contravenes Article III, Section 9
of the Constitution, which provides that: "private property
shall not be taken for public use without just compensation."
2. argue that we have previously ruled in Central Luzon Drug
Corporation that the 20% discount is an exercise of the
power of eminent domain, thus, requiring the payment of
just compensation.
Respondents, on the other hand:
1. question the filing of the instant Petition directly with the
Supreme Court as this disregards the hierarchy of courts.
2. assert that there is no justiciable controversy as petitioners
failed to prove that the tax deduction treatment is not a "fair
and full equivalent of the loss sustained" by them.
3. As to the constitutionality of RA 9257 and its implementing
rules and regulations, respondents contend that petitioners
failed to overturn its presumption of constitutionality.
4. maintain that the tax deduction scheme is a legitimate
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1. Whether the petition
presents an actual case or
controversy
2. Whether Sec.4 of RA No.
9257 and its implementing
rules and regulations,
insofar as they provide that
the 20% discount to senior
citizens may be claimed as
a tax deduction by the
private establishments, are
invalid an unconstitutional.
the Constitution.
The petition lacks merit.
1. We shall first resolve the procedural issue. When the constitutionality of
a law is put in issue, judicial review may be availed of only if the following
requisites concur: "(1) the existence of an actual and appropriate case; (2)
the existence of personal and substantial interest on the part of the party
raising the question of constitutionality; (3) recourse to judicial review is
made at the earliest opportunity; and (4) the question of constitutionality is
the lis mota of the case." (General v. Urro, G.R. No. 191560, March 29,
2011)
In this case, the tax deduction scheme challenged by petitioners has a
direct adverse effect on them. Thus, there exists an actual case or
controversy.
2. The law is valid and constitutional.
The tax deduction scheme does not fully reimburse petitioners for the
discount privilege accorded to senior citizens. This is because the discount
is treated as a deduction, a tax-deductible expense that is subtracted from
the gross income and results in a lower taxable income. Being a tax
deduction, the discount does not reduce taxes owed on a peso for peso
basis but merely offers a fractional reduction in taxes owed.
Theoretically, the treatment of the discount as a deduction reduces the net
income of the private establishments concerned. The discounts given
would have entered the coffers and formed part of the gross sales of the
private establishments, were it not for R.A. No. 9257. The permanent
reduction in their total revenues is a forced subsidy corresponding to the
taking of private property for public use or benefit. This constitutes
compensable taking for which petitioners would ordinarily become entitled
to a just compensation. Just compensation is defined as the full and fair
equivalent of the property taken from its owner by the expropriator. The
measure is not the takers gain but the owners loss.
A tax deduction does not offer full reimbursement of the senior citizen
discount. As such, it would not meet the definition of just compensation.
Having said that, this raises the question of whether the State, in promoting
the health and welfare of a special group of citizens, can impose upon
private establishments the burden of partly subsidizing a government
program. The Court believes so.
The Senior Citizens Act was enacted primarily to maximize the contribution
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 exercise of the State’s police power. of senior citizens to nation-building, and to grant benefits and privileges to
them for their improvement and wellbeing as the State considers them an
integral part of our society.

The priority given to senior citizens finds its basis in the Constitution as set
forth in the law itself.

As a form of reimbursement, the law provides that business establishments

extending the twenty percent discount to senior citizens may claim the
discount as a tax deduction.

The law is a legitimate exercise of police power which, similar to the

power of eminent domain, has general welfare for its object. Police
power is not capable of an exact definition, but has been purposely veiled
in general terms to underscore its comprehensiveness to meet all
exigencies and provide enough room for an efficient and flexible response
to conditions and circumstances, thus assuring the greatest benefits.

For this reason, when the conditions so demand as determined by the

legislature, property rights must bow to the primacy of police power
because property rights, though sheltered by due process, must yield to
general welfare.

Police power as an attribute to promote the common good would be diluted

considerably if on the mere plea of petitioners that they will suffer loss of
earnings and capital, the questioned provision is invalidated. Moreover, in
the absence of evidence demonstrating the alleged confiscatory effect of
the provision in question, there is no basis for its nullification in view of the
presumption of validity which every law has in its favor.

Given these, it is incorrect for petitioners to insist that the grant of the
senior citizen discount is unduly oppressive to their business, because
petitioners have not taken time to calculate correctly and come up with a
financial report, so that they have not been able to show properly whether
or not the tax deduction scheme really works greatly to their disadvantage.

Thus, the court found that the 20% discount as well as the tax deduction
scheme is a valid exercise of the police power of the State.

(Dissenting opinion:The main points of Justice Carpio’s Dissent may be

summarized as follows: (1) the discussion on eminent domain in Central
Luzon Drug Corporation is not obiter dicta; (2) allowable taking, in police
power, is limited to property that is destroyed or placed outside the
commerce of man for public welfare; (3) the amount of mandatory discount
is private property within the ambit of Article III, Section 9 of the
Constitution; and (4) the permanent reduction in a private establishment’s
total revenue, arising from the mandatory discount, is a taking of private
property for public use or benefit, hence, an exercise of the power of
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The petitioner is a domestic corporation engaged in the business of
4. Southern Luzon vs. drugstore operation in the Philippines while the respondents are
DSWD GR 199669 government' agencies, office and bureau tasked to monitor
April 25, 2017 – GAID compliance with R.A. Nos. 9257 and 9442, promulgate implementing
rules and regulations for their effective implementation, as well as
prosecute and revoke licenses of erring establishments.
On April 23, 1992, R.A. No. 7432, entitled “An Act to Maximize the
Contribution of Senior Citizens to Nation-Building, Grant Benefits
and Special Privileges and For Other Purposes,” was enacted.
Under the said law, a senior citizen, who must be at least 60 years
old and has an annual income of not more than P60,000.00,4 may
avail of the privileges provided in Section 4 thereof, one of which is
20% discount on the purchase of medicines.
On February 26, 2004, then President Gloria Macapagal-Arroyo
signed R.A. No. 9257, amending some provisions of R.A. No. 7432.
The new law retained the 20% discount on the purchase of
medicines but removed the annual income ceiling thereby qualifying
all senior citizens to the privileges under the law. Further, R.A. No.
9257 modified the tax treatment of the discount granted to senior
citizens, from tax credit to tax deduction from gross income,
computed based on the net cost of goods sold or services rendered.
The change in the tax treatment of the discount given to senior
citizens did not sit well with some drugstore owners and
corporations, claiming it affected the profitability of their business.
Respondent assailed the constitutionality of Section 4(a) of R.A. No.
9257 primarily on the ground that it amounts to taking of private
property without payment of just compensation.
This is a Petition for Review on Certiorari1 under Rule 45 of the
Rules of Court, assailing the Decision of the Court of Appeals which
dismissed the petition for prohibition filed by Southern Luzon Drug
Corporation (petitioner) against the DSWD, National Council on
Disability Affairs (NCDA), the Department of Finance (DOF) and BIR
(collectively, the respondents). The petition sought to prohibit the
implementation of Section 4(a) of Republic Act (R.A.) No. 9257,
otherwise known as the “Expanded Senior Citizens Act of 2003” and
Section 32 of R.A. No. 9442, which amends the “Magna Carta for
Disabled Persons,” particularly the granting of 20% discount on
the purchase of medicines by senior citizens and persons with
disability (PWD), respectively, and treating them as tax
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eminent domain requiring the payment of just compensation.)
Whether or not the 20% YES. The subject laws do not violate the equal protection clause. The
Sales Discount for Senior equal protection clause is not infringed by legislation which applies only to
Citizens PWDs does not those persons falling within a specified class. If the groupings are
violate the petitioner’s characterized by substantial distinctions that make real differences, one
right to equal protection class may be treated and regulated differently from another." For a
of the law and therefore a classification to be valid, (1) it must be based upon substantial
valid exercise. distinctions, (2) it must be germane to the purposes of the law, (3) it
must not be limited to existing conditions only, and (4) it must apply
equally to all members of the same class.
In Gerochi v. Department of Energy, 527 SCRA 696 (2007), the Court
passed upon one of the inherent powers of the state, the police power,
where it emphasized, thus: [P]olice power is the power of the state to
promote public welfare by restraining and regulating the use of liberty and
property. It is the most pervasive, the least limitable, and the most
demanding of the three fundamental powers of the State. The justification
is found in the Latin maxim salus populi est suprema lex (the welfare of the
people is the supreme law) and sic utere tuo ut alienum non laedas (so use
your property as not to injure the property of others).
As an inherent attribute of sovereignty which virtually extends to all public
needs, police power grants a wide panoply of instruments through which
the State, as parens patriae, gives effect to a host of its regulatory powers.
We have held that the power to “regulate” means the power to protect,
foster, promote, preserve, and control, with due regard for the interests,
first and foremost, of the public, then of the utility and of its patrons. It is in
the exercise of its police power that the Congress enacted R.A. Nos. 9257
and 9442, the laws mandating a 20% discount on purchases of medicines
made by senior citizens and PWDs. It is also in further exercise of this
power that the legislature opted that the said discount be claimed as
tax deduction, rather than tax credit, by covered establishments.
Anent the question regarding the shift from tax credit to tax
deduction, suffice it is to say that it is within the province of Congress
to do so in the exercise of its legislative power. It has the authority to
choose the subject of legislation, outline the effective measures to
achieve its declared policies and even impose penalties in case of
noncompliance. It has the sole discretion to decide which policies to
pursue and devise means to achieve them, and courts often do not
interfere in this exercise for as long as it does not transcend constitutional
limitations. “In performing this duty, the legislature has no guide but its
judgment and discretion and the wisdom of experience.”
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 deduction.
5. Nursery Care vs. The issue here concerns double taxation. There is double taxation
Acevedo GR 180651 when the same taxpayer is taxed twice when he should be taxed
July 30, 2014 only once for the same purpose by the same taxing authority within
-GOMEZ the same jurisdiction during the same taxing period, and the taxes
are of the same kind or character. Double taxation is obnoxious.
The City of Manila assessed and collected taxes from the individual
petitioners pursuant to Section 15 (Tax on Wholesalers, Distributors,
or Dealers) and Section 17 (Tax on Retailers) of the Revenue Code
of Manila. At the same time, the City of Manila imposed additional
taxes upon the petitioners pursuant to Section 21 ( Tax on Business
Subject to the Excise, Value- Added or Percentage Taxes under the
NIRC) of the Revenue Code of Manila, as amended, as a condition
for the renewal of their respective business licenses for the year
1999.
To comply with the City of Manila’s assessment of taxes under
Section 21, the petitioners paid under protest the amounts
corresponding to the first quarter of 1999. By letter dated March 1,
1999, the petitioners formally requested the Office of the City
Treasurer for the tax credit or refund of the local business taxes paid
under protest. However, then City Treasurer Anthony Acevedo
denied the request. The petitioners, through their representative,
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Whether the petitioners
were entitled to the tax
credit or tax refund for the
taxes paid under Section
21 of the Revenue Code of
Manila
Taxation; Tax Deduction; Senior Citizen Discount; Person with Disability
Discount; It is provided in Section 4(a) of Republic Act (RA) No. 9257 and
Section 32 of RA No. 9442 that establishments may claim the discounts as
“tax deduction based on the net cost of the goods sold or services
rendered.”—Covered establishments are also provided with a mechanism
to recoup the amount of discounts they grant the senior citizens and
PWDs. It is provided in Section 4(a) of R.A. No. 9257 and Section 32 of
R.A. No. 9442 that establishments may claim the discounts as “tax
deduction based on the net cost of the goods sold or services rendered.”
Basically, whatever amount was given as discount, covered
establishments may claim an equal amount as an expense or tax
deduction. The trouble is that the petitioner, in protesting the change in the
tax treatment of the discounts, apparently seeks tax incentive and not
merely a return of the amount given as discounts. It premised its
interpretation of financial losses in terms of the effect of the change in the
tax treatment of the discount on its tax liability; hence, the claim that the
measure was confiscatory. However, as mentioned earlier in the
discussion, loss of profits is not the inevitable result of the change in
tax treatment of the discounts; it is more appropriately a
consequence of poor business decision.
YES.
Ratio decidendi: Double taxation means taxing the same property twice
when it should be taxed only once; that is, “taxing the same person twice
by the same jurisdiction for the same thing.” It is obnoxious when the
taxpayer is taxed twice, when it should be but once. Otherwise described
as “direct duplicate taxation,” 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 the taxes must be
of the same kind or character. [City of Manila v. Coca-Cola Bottlers
Philippines, Inc., 595 SCRA 299 (2009)]
On the basis of the rulings in City of Manila v. Coca-Cola Bottlers
Philippines, Inc., 595 SCRA 299 (2009) and Swedish Match Philippines,
Inc. v. The Treasurer of the City of Manila, 700 SCRA 428 (2013), the
Court now holds that all the elements of double taxation concurred upon
the City of Manila’s assessment on and collection from the petitioners of
taxes for the first quarter of 1999 pursuant to Section 21 of the Revenue
Code of Manila. Firstly, because Section 21 of the Revenue Code of Manila
imposed the tax on a person who sold goods and services in the course of
trade or business based on a certain percentage of his gross sales or
receipts in the preceding calendar year, while Section 15 and Section 17
likewise imposed the tax on a person who sold goods and services in the
`
 thereafter sought the reconsideration of the denial of their request. course of trade or business but only identified such person with
Still, the City Treasurer did not reconsider. particularity, namely, the wholesaler, distributor or dealer (Section 15), and
the retailer (Section 17), all the taxes — being imposed on the privilege of
The petitioners then filed their respective petitions for certiorari in the doing business in the City of Manila in order to make the taxpayers
RTC of Manila and the parties submitted the issue of whether the contribute to the city’s revenues — were imposed on the same subject
collection of taxes under Section 21 of Ordinance No. 7794, as matter and for the same purpose. Secondly, the taxes were imposed by the
amended, constitutes double taxation. same taxing authority (the City of Manila) and within the same jurisdiction
in the same taxing period (i.e., per calendar year). Thirdly, the taxes were
RTC DECISION: The Court perceives of no instance of the all in the nature of local business taxes.
constitutionally proscribed double taxation, in the strict, narrow or
obnoxious sense, imposed upon the petitioners under Sections 15
and 17, on the one hand, and under Section 21, on the other, of the
questioned Ordinance. The tax imposed under Sections 15 and 17,
as against that imposed under Section 21, are levied against
different tax objects or subject matter. The tax under Section 15 is
imposed upon wholesalers, distributors or dealers, while that under
Section 17 is imposed upon retailers. In short, taxesimposed under
Sections 15 and 17 is a tax on the business of wholesalers,
distributors, dealers and retailers. On the other hand, the tax
imposed upon herein petitioners under Section 21 is not a tax
against the business of the petitioners (as wholesalers, distributors,
dealers or retailers) but is rather a tax against consumers or end-
users of the articles sold by petitioners. In effect, the petitioners only
act as the collection or withholding agent of the City while the ones
actually paying the tax are the consumers or end-users of the
articles being sold by petitioners. Hence, there is no double taxation
in the narrow, strict or obnoxious sense, involved in the imposition of
taxes by the City of Manila under Sections 15, 17 and 21 of the
questioned Ordinance.

CA DECISION: Dismissed the case outright on the ground that the

issues involved are pure questions of law.

6. REPUBLIC OF THE In 1977, the Public Estates Authority (PEA) was created by PD 1084 Whether PRA should pay NO. PRA is not a GOCC, but an incorporated government instrumentality.
PHILIPPINES, to provide a coordinated, economical, and efficient reclamation of the real property tax It is exempt from payment of real property tax. Furthermore, reclaimed
represented by the lands, and the administration and operation of lands belonging to, lands are part of public domain and exempt from payment of real estate
PHILIPPINE managed and/or operated by the government with the object of taxes
RECLAMATION maximizing their utilization and hastening their development
AUTHORITY (PRA), consistent with public interest. It was designated as the agency The Administrative Code defines a GOCC as “an agency organized as
petitioner, v. CITY OF primarily responsible for integrating, directing, and coordinating all stock or non-stock corporation…”. Many government instrumentalities are
PARANAQUE, reclamation projects for and on behalf of the national government. vested with corporate powers, but they do not become stock or non-stock
respondent corporations, which is a necessary condition before an instrumentality is
In 2004, by virtue of EO 380, PEA was transformed into the deemed a GOCC. Two requisites must concur before one may be
GR 191109, July 18, Philippine Reclamation Authority (PRA), which shall perform all the classified as a stock corporation: (1) it has capital stock divided into shares;
2012 powers and functions of PEA relating to reclamation activities. and (2) it is authorized to distribute dividends and allotments of surplus and
profits to its stockholders.
By virtue of this mandate, PRA reclaimed several portions of the
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 foreshore and offshore areas of Manila Bay, including those located
in Paranaque. The City Treasurer issued Warrants of Levy on PRA’s
reclaimed properties based on the assessment for delinquent real
property taxes made by the City Assessor for tax years 2001 and
2002. PRA filed a petition for prohibition with prayer for TRO and/or
preliminary injunction, but this was denied by the RTC. A public
auction sale was commenced by the City Treasurer in 2003.
After an exchange of several pleadings and the failure of both parties
to arrive at a compromise agreement, PRA filed a Motion for Leave
to File and Admit Attached Supplemental Petition which sought to
declare as null and void the assessment for real property taxes, the
levy based on the said assessment, the public auction sale
conducted in 2003, and the Certificates of Sale issued pursuant to
the auction sale.
The RTC dismissed PRA’s petition. In ruling that PRA was not
exempt from payment of real property taxes, the RTC reasoned out
that it was a GOCC, from which local tax exemption was withdrawn
by Sec. 193 of the Local Government Code. This prompted PRA to
file the current petition for certiorari.
7. La Suerte Cigar vs.
CA GR 125346 This is a consolidation of six petitions for review of several decisions
November 11, 2014 –
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In the case at bench, PRA is not a GOCC because it is neither a stock nor
a non-stock corporation. It cannot be considered as a stock corporation
because although it has a capital stock divided into no par value shares, it
is not authorized to distribute dividends, surplus allotments or profits to
stockholders. PRA cannot be considered a non-stock corporation because
it does not have members. Moreover, it was not organized for any
charitable/religious/educational/cultural/etc. purpose as provided in the
Corporation Code. Specifically, it was created to manage all government
reclamation projects.
Furthermore, the 1987 Constitution, in Sec. 16 of Art. XII, authorizes
Congress to create GOCCs through special charters on two conditions: (1)
the GOCC must be established for the common good; and (2) it must meet
the test of economic viability. In this case, PRA fails to meet the test of
economic viability. Undoubtedly, the purpose behind its creation was not
for economic or commercial activities. Neither was it created to compete in
the marketplace, considering that there were no other competing
reclamation companies being operated by the private sector. PRA was
created essentially to perform a public service.
The respondent has no valid or legal basis in taxing the subject reclaimed
lands managed by PRA. It is clear from Sec. 234 of the Local Government
Code that real property owned by the Republic of the Philippines is exempt
from real property tax unless the beneficial use thereof has been granted to
a taxable person. In this case, there is no proof that PRA granted the
beneficial use of the subject reclaimed lands to a taxable entity. This
exemption should be read in relation to Sec. 133 of the same Code, which
prohibits local governments from imposing taxes or fees or charges of any
kind on the National Government, its agencies and instrumentalities.
The reclaimed lands are still part of the public domain, owned by the State
and, therefore, exempt from payment of real estate taxes. Jurisprudence
has previously held that foreshore and submerged areas irrefutably belong
to the public domain and were inalienable unless reclaimed, classified as
alienable lands open to disposition and further declared no longer needed
for public service. The fact that alienable lands of the public domain were
transferred to the PRA did not automatically make such lands private.
Reclaimed lands retain their inherent potential as areas for public use or
public service.
Reclaimed lands such as the subject lands in issue are reserved lands for
public use. They are properties of public dominion. The ownership of such
lands remains with the State unless they are withdrawn by law or
presidential proclamation from public use.
1. Whether stemmed leaf 1. Excise tax is a tax on the production, sale, or consumption of a specific
`
 MUNDER
of the Court of Appeals, involving three cigarette manufacturers and
the Commissioner of Internal Revenue.
Taxability of stemmed leaf
tobacco imported and Under the 1997 NIRC: stemmed leaf tobacco is subject to an excise
locally purchased by tax of P0.75 for each kilogram thereof.
cigarette manufacturers for
use as raw material in the 1939 Tax Code: imposed specific (excise) taxes on manufactured
manufacture of their products of tobacco, but excluded cigars and cigarettes, which were
cigarettes. subject to tax under a different section. [Section 136]
XPN: Sec 132 of the 1939 Code: “stemmed leaf tobacco . . . may be
sold in bulk as raw material by one manufacturer directly to another,
under such conditions as may be prescribed in the regulations of the
Department of Finance, without the prepayment of the tax.”
“Stemmed leaf tobacco,” as herein used means leaf tobacco which
has had the stem or midrib removed. The term does not include
broken leaf tobacco.
Almost 40 years from the enactment of the 1939 Tax Code,
Presidential Decree No. 1158-A, otherwise known as the “National
Internal Revenue Code of 1977,” was promulgated on June 3, 1977.
Section 132 was renumbered as Section 144, and Section 136 as
Section 148.
Sections 144 and 148 were subsequently renumbered as Sections
120 and 125, respectively under Presidential Decree No. 1994,
which took effect on January 1, 1986 (1986 Tax Code); then as
Sections 137 and 141 under Executive Order No. 273; and finally as
Sections 140 and 144 under Republic Act No. 8424 or the “Tax
Reform Act of 1997.” However, the provisions remained basically
unchanged.
The business transactions of La Suerte, Fortune, and Sterling that
the Commissioner found to be taxable for specific tax took place
during the effectivity of the 1986 Tax Code, as amended by
Executive Order No. 273.
1st case
La Suerte: P34,934,827.67 deficiency excise tax on La Suerte’s
entire importation and local purchase of stemmed leaf tobacco for
the period covering January 1, 1986 to June 30, 1989.
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tobacco is subject to excise
(specific) tax under Section
141 of the 1986 Tax Code
[YES]
2. Whether stemmed leaf
tobacco imported by La
Suerte, Fortune, and
Sterling is exempt from
specific tax under Section
137 of the 1986 Tax Code
[NO]
3. Whether the imposition
of excise tax on stemmed
leaf tobacco under Section
141 of the 1986 Tax Code
constitutes double taxation
taxation in the prohibited
sense when specific tax is
imposed on stemmed leaf
tobacco and again on the
finished product of which
stemmed leaf tobacco is a
raw material. [NO]
commodity in a country. Section 110 of the 1986 Tax Code explicitly
provides that the “excise taxes on domestic products shall be paid by the
manufacturer or producer before [the] removal [of those products] from the
place of production.” “It does not matter to what use the article[s] subject to
tax is put; the excise taxes are still due, even though the articles are
removed merely for storage in some other place and are not actually sold
or consumed.” The excise tax based on weight, volume capacity or any
other physical unit of measurement is referred to as “specific tax.” If based
on selling price or other specified value, it is referred to as “ad valorem” tax.
Stemmed leaf tobacco is subject to the specific tax under Section 141(b). It
is a partially prepared tobacco. The removal of the stem or midrib from the
leaf tobacco makes the resulting stemmed leaf tobacco prepared or
partially prepared tobacco. Since the Tax Code contained no definition of
“partially prepared tobacco,” then the term should be construed in its
general, ordinary, and comprehensive sense.
2. However, importation of stemmed leaf tobacco is not included in the
exemption under Section 137. The transaction contemplated in Section
137 does not include importation of stemmed leaf tobacco for the reason
that the law uses the word “sold” to describe the transaction of
transferring the raw materials from one manufacturer to another.
The Tax Code treats an importer and a manufacturer differently. Section
123 clearly distinguishes between goods manufactured or produced in the
Philippines and things imported. The law uses the proper term “importation”
or “imported” whenever the transaction involves bringing in articles from
foreign countries as provided under Section 125 (cf. Section 124).
Whenever the Tax Code refers to importers and manufacturers, they are
separately mentioned as two distinct persons or entities (Sections 156 and
160). Under Chapter II, whenever the law uses the word manufacturer, it
only means local manufacturer or producer of domestic products (Sections
150, 151, and 152 of the 1939 Tax Code).
Contrary to La Suerte’s claim, Chapter V, Section 61 of RR No. V-39195 is
not applicable to justify the tax exemption of its importation of stemmed leaf
tobacco because from the title of Chapter V, the provision particularly
refers to specific taxes on imported cigars, cigarettes, smoking and
chewing tobacco.
3. Finally, excise taxes are essentially taxes on property because they are
levied on certain specified goods or articles manufactured or produced in
the Philippines for domestic sale or consumption or for any other
`
 Commissioner denied La Suerte’s protest, insisting that stemmed
leaf tobacco is subject to excise tax “unless there is an express grant
of exemption from [the] payment of tax.” The deeficiency specific tax
was based on La Suerte’s importation and local purchase of
stemmed leaf tobacco covering the period from January 1, 1986 to
June 30, 1989.
disposition, and on goods imported. In this case, there is no double
taxation in the prohibited sense despite the fact that they are paying the
specific tax on the raw material and on the finished product in which the
raw material was a part, because the specific tax is imposed by explicit
provisions of the Tax Code on two different articles or products: (1) on the
stemmed leaf tobacco; and (2) on cigar or cigarette.

CA ruled in favor of the BIR assessment and ordered La Suerte to
pay.
2nd case
Fortune case: deficiency excise tax in the amount of P28,938,446.25
for its importation of tobacco strips from January 1, 1986 to June 30,
1989.
Court of Tax Appeals ruled in favor of Fortune and set aside the
Commissioner’s assessment of P28,938,446.25 as deficiency excise
tax.
Fortune received another letter from the Bureau of Internal Revenue,
demanding payment of P1,989,821.86 as deficiency specific tax on
its importation of stemmed leaf tobacco from July 1, 1989 to
November 30, 1990. When the MR to the BIR was denied, Fortune
appealed to the CTA. CTA granted the appeal and set aside the
deficiency excise tax on stemmed leaf tobacco. BIR appealed this
decision but was denied up to the CA, hence they brought it up to
the SC.
The contention that the cigarette manufacturers are doubly taxed because
they are paying the specific tax on the raw material and on the finished
product in which the raw material was a part is also devoid of merit. For
double taxation in the objectionable or prohibited sense to exist, “the same
property must be taxed twice, when it should be taxed but once.” “Both
taxes must be imposed on the same property or subject- matter, for the
same purpose, by the same . . . taxing authority, within the same
jurisdiction or taxing district, during the same taxing period, and they must
be the same kind or character of tax.”
In this case, there is no double taxation in the prohibited sense because
the specific tax is imposed by explicit provisions of the Tax Code on two (2)
different articles or products: (1) on the stemmed leaf tobacco; and (2) on
cigar or cigarette.
Doctrine: Statutes granting tax exemptions must be construed in strictissimi
juris against the taxpayer and liberally in favor of the taxing authority.

3rd case

La Suerte imported stemmed leaf tobacco from various sellers

abroad. The Commissioner “assessed specific taxes on the
stemmed leaf tobacco in the amount of P175,909.50, which La
Suerte paid under protest.

CTA ruled in favor of La Suerte. CA also ruled in favor of La Suerte.

Hence this case.

4th case

Sterling received a pre- assessment notice for alleged deficiency

excise tax on its importation and local purchase of stemmed-leaf
tobacco for P5,187,432.00 covering the period from November 1986
to January 1989. The CTA ruled for Sterling in cancelling the

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 assessment but the CA reversed and ruled in favor of BIR. Thus,
Sterling brought the case to the SC.
8. CIR vs. St. Luke's GR St. Luke’s Medical Center, Inc. (St. Luke’s) is a hospital organized as
195909 September 26, a non-stock and non-profit corporation.
2012 – SABADO
On 16 December 2002, the Bureau of Internal Revenue (BIR)
assessed St. Luke’s deficiency taxes amounting to P76,063,116.06
for 1998, comprised of deficiency income tax, value-added tax,
withholding tax on compensation and expanded withholding tax. The
BIR reduced the amount to P63,935,351.57 during trial in the First
Division of the CTA.
On 14 January 2003, St. Luke’s filed an administrative protest with
the BIR against the deficiency tax assessments. The BIR did not act
on the protest within the 180-day period under Section 228 of the
NIRC. Thus, St. Luke’s appealed to the CTA.
The CTA ruled that St. Luke’s is a non-stock and nonprofit charitable
institution covered by Section 30(E) and
(G) of the NIRC. This ruling would exempt all income derived by St.
Luke’s from services to its patients, whether paying or non-paying.
The CTA reiterated its earlier decision in St. Luke’s Medical Center,
Inc. v. Commissioner of Internal Revenue,16 which examined the
primary purposes of St. Luke’s under its articles of incorporation and
various documents17 identifying St. Luke’s as a charitable institution.
The CTA held that Section 27(B) of the present NIRC does not apply
to St. Luke’s. The CTA explained that to apply the 10% preferential
rate, Section 27(B) requires a hospital to be “non-profit.” On the
other hand, Congress specifically used the word “non-stock” to
qualify a charitable “corporation or association” in Section 30(E) of
the NIRC. According to the CTA, this is unique in the present tax
code, indicating an intent to exempt this type of charitable
organization from income tax. Section 27(B) does not require that
the hospital be “non-stock.” The CTA stated, “it is clear that non-
stock, non-profit hospitals operated exclusively for charitable
purpose are exempt from income tax on income received by them as
such, applying the provision of Section 30(E) of the NIRC of 1997, as
amended.”
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Whether St. Luke’s is liable
for deficiency income tax in
1998 under Section 27(B)
of the NIRC, which imposes
a preferential tax rate of
10% on the income of
proprietary non-profit
hospitals.
The Court partly grants the petition of the BIR but on a different ground. We
hold that Section 27(B) of the NIRC does not remove the income tax
exemption of proprietary non-profit hospitals under Section 30(E) and (G).
Section 27(B) on one hand, and Section 30(E) and (G) on the other hand,
can be construed together without the removal of such tax exemption.
The effect of the introduction of Section 27(B) is to subject the taxable
income of two specific institutions, namely, proprietary non-profit
educational institutions and proprietary non-profit hospitals, among the
institutions covered by Section 30, to the 10% preferential rate under
Section 27(B) instead of the ordinary 30% corporate rate under the last
paragraph of Section 30 in relation to Section 27(A)(1).
The only qualifications for hospitals are that they must be proprietary and
non-profit. “Proprietary” means private, following the definition of a
“proprietary educational institution” as “any private school maintained and
administered by private individuals or groups” with a government permit.
“Non-profit” means no net income or asset accrues to or benefits any
member or specific person, with all the net income or asset devoted to the
institution’s purposes and all its activities conducted not for profit. “Non-
profit” does not necessarily mean “charitable.”
Charity is essentially a gift to an indefinite number of persons which
lessens the burden of government. In other words, charitable institutions
provide for free goods and services to the public which would otherwise fall
on the shoulders of government. Thus, as a matter of efficiency, the
government forgoes taxes which should have been spent to address public
needs, because certain private entities already assume a part of the
burden. This is the rationale for the tax exemption of charitable institutions.
Charitable institutions are not ipso facto entitled to a tax exemption. The
requirements for a tax exemption are specified by the law granting it. The
power of Congress to tax implies the power to exempt from tax. Congress
can create tax exemptions, subject to the constitutional provision that “[n]o
law granting any tax exemption shall be passed without the concurrence of
a majority of all the Members of Congress.” The requirements for a tax
exemption are strictly construed against the taxpayer because an
exemption restricts the collection of taxes necessary for the existence of
the government.
For real property taxes, the incidental generation of income is permissible
because the test of exemption is the use of the property. The Constitution
`
 provides that “[c]haritable institutions, churches and personages or
convents appurtenant thereto, mosques, non-profit cemeteries, and all
lands, buildings, and improvements, actually, directly, and exclusively used
for religious, charitable, or educational purposes shall be exempt from
taxation.” The test of exemption is not strictly a requirement on the intrinsic
nature or character of the institution. The test requires that the institution
use the property in a certain way, i.e. for a charitable purpose. The
Constitution exempts charitable institutions only from real property taxes.

There is no dispute that St. Luke’s is organized as a non-stock and non-

profit charitable institution. However, this does not automatically exempt St.
Luke’s from paying taxes. This only refers to the organization of St. Luke’s.
Even if St. Luke’s meets the test of charity, a charitable institution is not
ipso facto tax exempt. To be exempt from real property taxes, Section
28(3), Article VI of the Constitution requires that a charitable institution use
the property “actually, directly and exclusively” for charitable purposes. To
be exempt from income taxes, Section 30(E) of the NIRC requires that a
charitable institution must be “organized and operated exclusively” for
charitable purposes. Likewise, to be exempt from income taxes, Section
30(G) of the NIRC requires that the institution be “operated exclusively” for
social welfare.

The Supreme Court finds that St. Luke’s is a corporation that is not
“operated exclusively” for charitable or social welfare purposes insofar as
its revenues from paying patients are concerned; Such income from for-
profit activities, under the last paragraph of Section 30, is merely subject to
income tax, previously at the ordinary corporate rate but now at the
preferential 10% rate pursuant to Section 27(B).

9. CIR vs. De La Salle

GR 196596 November Sometime in 2004, the BIR issued to DLSU Letter of Authority (LOA) I. Whether DLSU’s income We now adopt YMCA as precedent and hold that: 1. The last
9, 2016 – CABELTES No. 2794 authorizing its revenue officers to examine the latter’s and revenues proved to paragraph of Section 30 of the Tax Code is without force and effect with
books of accounts and other accounting records for all internal have been used actually, respect to non-stock, nonprofit educational institutions, provided, that the
revenue taxes for the period Fiscal Year Ending 2003 and Unverified directly and exclusively for non-stock, nonprofit educational institutions prove that its assets and
Prior Years. educational purposes are revenues are used actually, directly and exclusively for educational
exempt from duties and purposes. 2. The tax-exemption constitutionally-granted to nonstock,
Subsequently, the BIR through a Formal Letter of Demand taxes; YES nonprofit educational institutions, is not subject to limitations imposed by
assessed DLSU the following deficiency taxes: (1) income tax on law.
rental earnings from restaurants/canteens and bookstores operating II. Whether the entire
within the campus; (2) value-added tax (VAT) on business income; assessment should be We find that unlike Article VI, Section 28(3) of the Constitution
and (3) documentary stamp tax (DST) on loans and lease contracts. voided because of the (pertaining to charitable institutions, churches, parsonages or convents,
The BIR demanded the payment of P17,303,001.12, inclusive of defective LOA; not entirely mosques, and nonprofit cemeteries), which exempts from tax only the
surcharge, interest and penalty for taxable years 2001, 2002 and void. The assessment for assets, i.e., “all lands, buildings, and improvements, actually, directly, and
2003. taxable year 2003 is valid. exclusively used for religious, charitable, or educational purposes. . .”
Article XIV, Section 4(3) categorically states that “[a]ll revenues and
DLSU, a non-stock, nonprofit educational institution, principally III. Whether the CTA assets . . . used actually, directly, and exclusively for educational purposes
anchored its petition on Article XIV, Section 4(3) of the Constitution, correctly admitted DLSU’s

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 which reads: (3) All revenues and assets of non-stock, nonprofit
educational institutions used actually, directly, and exclusively for
educational purposes shall be exempt from taxes and duties.
The CTA Division partially granted DLSU’s petition for review.
On May 13, 2010, the Commissioner appealed to the CTA En Banc
arguing that DLSU’s use of its revenues and assets for
noneducational or commercial purposes removed these items from
the exemption coverage under the Constitution.
DLSU formally offered to the CTA Division supplemental pieces
of documentary evidence to prove that its rental income was used
actually, directly and exclusively for educational purposes.13 The
Commissioner did not promptly object to the formal offer of
supplemental evidence despite notice.
The CTA En Banc dismissed the Commissioner’s petition for
review and sustained the findings of the CTA Division.
Tax on rental income - the CTA En Banc found that DLSU
was able to prove that a portion of the assessed rental income was
used actually, directly and exclusively for educational purposes;
hence, exempt from tax - part of its rental income had indeed been
used to pay the loan it obtained to build the university’s Physical
Education — Sports Complex.
DST on loan and mortgage transactions -DLSU proved its
remittance of the DST due on its loan and mortgage documents.23
The CTA En Banc found that DLSU’s DST payments had been
remitted to the BIR, evidenced by the stamp on the documents made
by a DST imprinting machine, which is allowed under Section 200(D)
of the NIRC (Tax Code).
Admissibility of DLSU’s supplemental evidence - Notably,
the law creating the CTA provides that proceedings before it shall
not be governed strictly by the technical rules of evidence
The CTA En Banc held that a LOA should cover only one
taxable period and that the practice of issuing a LOA covering audit
of unverified prior years is prohibited.30 The prohibition is consistent
with RMO No. 43-90, which provides that if the audit includes more
than one taxable period, the other periods or years shall be
specifically indicated in the LOA. Hence, the assessments for
deficiency income tax, VAT and DST for taxable years 2001 and
2002 are void, but the assessment for taxable year 2003 is valid.
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supplemental pieces of
evidence; YES
IV. Whether the CTA’s
appreciation of the
sufficiency of DLSU’s
evidence may be disturbed
by the Court. The CTA’s
appreciation of evidence
is conclusive unless the
CTA is shown to have
manifestly overlooked
certain relevant facts not
disputed by the parties
and which, if properly
considered, would justify
a different conclusion.
shall be exempt from taxes and duties.”
Further, a plain reading of the Constitution would show that Article
XIV, Section 4(3) does not require that the revenues and income must
have also been sourced from educational activities or activities related to
the purposes of an educational institution. The phrase all revenues is
unqualified by any reference to the source of revenues. Thus, so long as
the revenues and income are used actually, directly and exclusively for
educational purposes, then said revenues and income shall be exempt
from taxes and duties.81 We find it helpful to discuss at this point the
taxation of revenues versus the taxation of assets.
The crucial point of inquiry then is on the use of the assets or on the
use of the revenues. These are two things that must be viewed and treated
separately. But so long as the assets or revenues are used actually,
directly and exclusively for educational purposes, they are exempt from
duties and taxes.
2. The relevant provision is Section C of RMO No. 43-90, the
pertinent portion of which reads: 3. A Letter of Authority [LOA] should cover
a taxable period not exceeding one taxable year. The practice of issuing
[LOAs] covering audit of unverified prior years is hereby prohibited. If the
audit of a taxpayer shall include more than one taxable period, the other
periods or years shall be specifically indicated in the [LOA].98
3. We uphold the CTA Division’s admission of the supplemental
evidence on distinct but mutually reinforcing grounds, to wit: (1) the
Commissioner failed to timely object to the formal offer of supplemental
evidence; and (2) the CTA is not governed strictly by the technical rules of
evidence. First, the failure to object to the offered evidence renders it
admissible, and the court cannot, on its own, disregard such evidence.
4. As disclosed by DLSU, the Commissioner did not oppose the
supplemental formal offer of evidence despite notice.107 The
Commissioner objected to the admission of the supplemental evidence
only when the case was on appeal to the CTA En Banc. By the time the
Commissioner raised her objection, it was too late; the formal offer,
admission and evaluation of the supplemental evidence were all fait
accompli.
5. It is doctrinal that the Court will not lightly set aside the conclusions
reached by the CTA which, by the very nature of its function of being
dedicated exclusively to the resolution of tax problems, has developed an
expertise on the subject, unless there has been an abuse or improvident
exercise of authority.116 We thus accord the findings of fact by the CTA
with the highest respect.
`
 The Commissioner submits the following arguments: DLSU’s
rental income is taxable regardless of how such income is derived,
used or disposed of.35 DLSU’s operations of canteens and
bookstores within its campus even though exclusively serving the
university community do not negate income tax liability.
10. LG Electronics vs. CIR On March 21, 1998, LG received a formal assessment notice and
GR 165451 December demand letter from the BIR. LG was assessed deficiency income tax
3, 2014 – GOMEZ of P267,365,067.41 for the taxable year of 1994.The deficiency was
computed on the basis of (a) disallowed interest expenses for being
unsupported; (b) disallowed salary expenses for not being subjected
to withholding tax on compensation; (c) imputation of alleged
undeclared sales; and (d) disallowed brokerage fees for not being
subjected to expanded withholding tax. LG, through its external
auditor, Sycip Gorres Velayo & Company (SGV), filed on April 17,
1998 an administrative protest with the BIR against the tax
assessment.
On June 16, 1998, LG filed a supplemental protest. It requested for a
reconsideration and reinvestigation of the tax assessment. It claimed
that the assessment did not have factual and legal bases. LG also
subsequently submitted supporting documents.
Without waiting for the CIR’s resolution of the protest, LG filed a
Petition forReview before the CTAon January 11, 1999. The CIR
argued before the CTA that the assessment issued was in
accordance with law since the interest expenses claimed by LG were
unsupported by sufficient proof. LG had undeclared income.
Brokerage fees and other charges were not subjected to expanded
withholding tax. Moreover, the details in the assessment notice
substantially complied with the provisions of Section 228 of the Tax
Code, the taxpayer having been informed in writing of the law and
the facts on which the assessment was based.
In its Decision dated May 11, 2004, the CTA ruled that LG was liable
for the payment of P27,181,887.82, representing deficiency income
tax for taxable year 1994, including 20% delinquency interest
computed from March 18, 1998.
On November 18, 2004, LG filed the present Petition for Review on
Certiorari. Petitioner then filed a Manifestation dated January 29,
2008 stating that it availed itself of the tax amnesty provided under
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whether petitioner is
entitled to the immunities
and privileges under the
Tax Amnesty Law or
Republic Act No. 9480.
6. The parties failed to raise credible basis for us to disturb the CTA’s
findings that DLSU had used actually, directly and exclusively for
educational purposes a portion of its assessed income and that it had
remitted the DST payments though an online imprinting machine.
YES.
RATIO DECIDENDI: who availed themselves of the tax amnesty under
Section 5 hereof, and have fully complied with all its conditions shall be
entitled to the following immunities and privileges: (a) The taxpayer shall be
immune from the payment of taxes, as well as additions thereto, and the
appurtenant civil, criminal or administrative penalties under the National
Internal Revenue Code of 1997, as amended, arising from the failure to
pay any and all internal revenue taxes for taxable year 2005 and prior
years. (b) The taxpayer’s Tax Amnesty Return and the SALN as of
December 31, 2005 shall not be admissible as evidence in all proceedings
that pertain to taxable year 2005 and prior years, insofar as such
proceedings relate to internal revenue taxes, before judicial, quasi-judicial
or administrative bodies in which he is a defendant or respondent, and
except for the purpose of ascertaining the net worth beginning January 1,
2006, the same shall not be examined, inquired or looked into by any
person or government office. However, the taxpayer may use this as a
defense, whenever appropriate, in cases brought against him. (c) The
books of accounts and other records of the taxpayer for the years covered
by the tax amnesty availed of shall not be examined: Provided, That the
Commissioner of Internal Revenue may authorize in writing the
examination of the said books of accounts and other records to verify the
validity or correctness of a claim for any tax refund, tax credit (other than
refund or credit of taxes withheld on wages), tax incentives, and/or
exemptions under existing laws. All these immunities and privileges shall
not apply where the person failed to file a SALN and the Tax Amnesty
Return, or where the amount of net worth as of December 31, 2005 is
proven to be under-stated to the extent of thirty percent (30%) or more, in
accordance with the provisions of Section 3 hereof.
In several cases, this court explained the nature of a tax amnesty. In
Metropolitan Bank and Trust Co. v. Commissioner of Internal Revenue, 595
SCRA 234 (2009): A tax amnesty is a general pardon or the intentional
overlooking by the State of its authority to impose penalties on persons
otherwise guilty of violation of a tax law. It partakes of an absolute waiver
by the government of its right to collect what is due it and to give tax
`
 Republic Act No. 948028 by paying the total amount of
P8,647,565.50.29 In addition, the BIR, through Assistant
Commissioner James Roldan, issued a ruling on January 25, 2008,
which held that petitioner complied with the provisions of Republic
Act No. 9480. Petitioner is, thus, entitled to the immunities and
privileges provided for under the law including “civil, criminal or
administrative penalties under the National Internal Revenue Code.
According to respondent, petitioner cannot claim the tax amnesty
provided under Republic Act No. 9480 for the following reasons: (1)
accounts receivable by the Bureau of Internal Revenue as of the
date of amnesty are not covered since these constitute government
property; (2) cases that have already been favorably ruled upon by
the trial court or appellate courts prior to the availment of tax
amnesty are not covered; and (3) petitioner’s case involves
withholding taxes that are not covered by the Tax Amnesty Act.
11. CHINA BANKING China Banking Corporation is a universal bank duly organized and
CORPORATION, existing under the laws of the Philippines. For the taxable years 1982
petitioner, v. to 1986, CBC was engaged in transactions involving sales of foreign
COMMISSIONER OF exchange to the BSP, commonly known as SWAP transactions.
INTERNAL CBC did not file tax returns or pay tax on the SWAP transactions for
REVENUE, those taxable years.
respondent
On April 19, 1989, CBC received an assessment from the BIR
GR 172509, February finding CBC liable for deficiency documentary stamp tax (DST) on
4, 2015 the sales of foreign bills of exchange to BSP. CBC sent a letter of
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Whether the right of the
BIR to collect the assessed
DST from CBC is barred by
prescription
evaders who wish to relent a chance to start with a clean slate. A tax
amnesty, much like a tax exemption, is never favored or presumed in law.
The grant of a tax amnesty, similar to a tax exemption, must be construed
strictly against the taxpayer and liberally in favor of the taxing authority.
Under Republic Act No. 9480 and BIR Revenue Memorandum Circular No.
55-2007, the qualified taxpayer may immediately avail of the immunities
and privileges upon submission of the required documents. This is clear
from Section 2 of Republic Act No. 9480:
SEC. 2. Availment of the Amnesty.—Any person, natural or juridical, who
wishes to avail himself of the tax amnesty authorized and granted under
this Act shall file with the Bureau of Internal Revenue (BIR) a notice and
Tax Amnesty Return accompanied by a Statement of Assets, Liabilities and
Net Worth (SALN) as of December 31, 2005, in such form as may be
prescribed in the implementing rules and regulations (IRR) of this Act, and
pay the applicable amnesty tax within six months from the effectivity of the
IRR.
The law is clear. Only final and executory judgments are excluded from the
coverage of the tax amnesty program, hence:
SEC. 8. Exceptions. —The tax amnesty provided in Section 5 hereof shall
not extend to the following persons or cases existing as of the effectivity of
this Act: . . . .
(f) Tax cases subject of final and executory judgment by the courts.
This exception was reproduced in the Implementing Rules and Regulations
of the law:
SEC. 5. Exceptions.—The tax amnesty shall not extend to the following
persons or cases existing as of the effectivity of RA 9480: . . . .
7. Tax cases subject of final and executory judgment by the courts.
We hold that only cases that involve final and executory judgments are
excluded from the tax amnesty program.
YES. Prescription has set in.
When the assessment was issued, the applicable rule was Sec. 319 of the
NIRC. The time limit for the government to collect the assessed tax is set at
3 years, to be reckoned from the date the BIR sends the assessment to the
taxpayer. Sec. 319 also states that the assessed tax must be collected by
distraint or levy and/or court proceeding within the 3-year period.
In this case, the records do not show when the assessment notice was
sent. Nevertheless, the latest possible date was on the same date CBC
`
 protest to the BIR, raising the defenses of double taxation, absence
of liability, due process violation, etc. It requested a reinvestigation to
substantiate these assertions.
In 2001, more than 12 years after the filing of the protest, the CIR
rendered a decision reiterating the deficiency DST assessment and
ordered the payment thereof plus increments within 30 days from
receipt.
On Jan. 18, 2002, CBC filed a Petition for Review with the CTA. On
March 11, 2002, the CIR filed an Answer with a demand for CBC to
pay the assessed DST. In 2005, after trial on the merits, the CTA
Second Division denied CBC’s petition. CBC’s Motion for
Reconsideration was also denied. CBC appealed to the CTA En
Banc but their appeal, and subsequent motion for reconsideration,
was also denied.
CBC now brings the issue before the SC via a Rule 45 petition,
raising for the first time the argument of prescription. CBC states that
the government had 3 years from receipt of the assessment (in
1989) to collect the tax. Within that time frame, however, neither a
warrant of distraint or levy was issued, nor a collection case filed in
court. In its answering comment, the CIR did not have any
discussion on the question of prescription.
12. Air Canada vs. CIR Air Canada is a foreign corporation organized and existing under the
GR 169507 January laws of Canada. On April 24, 2000, it was granted an authority to
11, 2016 – MUNDER operate as an offline carrier by the Civil Aeronautics Board, subject
to certain conditions, which authority would expire on April 24, 2005.
As an off-line carrier, Air Canada does not have flights originating
Gross Income and from or coming to the Philippines and does not operate any airplane
Exclusions: Income from in the Philippines.
whatever source
On July 1, 1999, Air Canada engaged the services of Aerotel Ltd.,
Corp. (Aerotel) as its general sales agent in the Philippines. Aerotel
sells Air Canada’s passage documents in the Philippines.
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1. Whether Air Canada is
subject to the 2½% tax on
Gross Philippine Billings
pursuant to Section 28(A)
(3). [NO]
2. WON Air Canada is a
resident foreign corporation
engaged in trade or
business and thus, can be
subject to the regular
corporate income tax of
32% pursuant to Section
received it. Assuming that April 19, 1989 is the reckoning date, the BIR had
3 years from then to collect. However, the records of this case show that
there was neither a warrant of distraint or levy served on CBC’s properties
nor a collection case filed in court by the BIR within the 3-year period. The
attempt of BIR to collect the tax through its Answer with demand to pay did
not comply with the NIRC. The demand was made almost 13 years from
the date from which the prescriptive period is to be reckoned.
Furthermore, Sec. 320 of the NIRC clearly provides that a request alone
will not suspend the statute of limitations. Two things must concur: there
must be a request for reinvestigation AND the CIR must have granted it. In
the present case, there is no showing from the records that the CIR ever
granted the request for reinvestigation filed by CBC. That being the case, it
cannot be said that the running of the prescriptive period was effectively
suspended.
As a rule, the failure to raise the defense of prescription at the
administrative level prevents the taxpayer from raising it at the appeal
stage. However, this rule is not absolute. When the pleadings or the
evidence on record show that the claim is barred by prescription, the court
must dismiss the claim even if prescription is not raised as a defense. In
this case, the fact that the claim of the government is time-barred is a
matter of record. The conclusion that prescription has set in was arrived at
using the evidence on record. The date of receipt of assessment was not
disputed, and the date of the attempt to collect was determined by merely
checking the records.
The court also held that the no-estoppel rule in favor of the State is not
absolute. Estoppel prevented the government from invoking the rule
against raising the issue of prescription for the first time on appeal. The BIR
failed to raise the issue of prescription at the trial court/admin level, and
there was injustice in the fact that the BIR unduly delayed the assessment
and collection of the DST. The fact that it took more than 12 years caused
untold prejudice to CBC, keeping the latter in the dark for so long.
1. Air Canada is not is not liable to tax on Gross Philippine Billings under
Section 28(A)(3). The tax attaches only when the carriage of persons,
excess baggage, cargo, and mail originated from the Philippines in a
continuous and uninterrupted flight, regardless of where the passage
documents were sold. Not having flights to and from the Philippines,
petitioner is clearly not liable for the Gross Philippine Billings tax.
2. Petitioner falls within the definition of resident foreign corporation under
Section 28(A)(1), thus, it may be subject to 32% tax on its taxable income.
The section provides:
`
 For the period ranging from the third quarter of 2000 to the second
quarter of 2002, Air Canada, through Aerotel, filed quarterly and
annual income tax returns and paid the income tax on Gross
Philippine Billings in the total amount of ₱5,185,676.77.
On November 28, 2002, Air Canada filed a written claim for refund of
alleged erroneously paid income taxes amounting to ₱5,185,676.77
before the Bureau of Internal Revenue (BIR). It’s basis was found in
the revised definition of Gross Philippine Billings under Section 28(A)
(3)(a) of the 1997 National Internal Revenue Code (NIRC) which
provides:
SEC. 28. Rates of Income Tax on Foreign Corporations. -
(A) Tax on Resident Foreign Corporations. -
....
(3) International Carrier. - An international carrier doing
business in the Philippines shall pay a tax of two and one-
half percent (2 1/2%) on its ‘Gross Philippine Billings’ as
defined hereunder:
(a) International Air Carrier. - ‘Gross Philippine Billings’
refers to the amount of gross revenue derived from
carriage of persons, excess baggage, cargo and mail
originating from the Philippines in a continuous and
uninterrupted flight, irrespective of the place of sale
or issue and the place of payment of the ticket or
passage document: Provided, That tickets revalidated,
exchanged and/or indorsed to another international
airline form part of the Gross Philippine Billings if the
passenger boards a plane in a port or point in the
Philippines: Provided, further, That for a flight which
originates from the Philippines, but transshipment of
passenger takes place at any port outside the Philippines
on another airline, only the aliquot portion of the cost of
the ticket corresponding to the leg flown from the
Philippines to the point of transshipment shall form part of
Gross Philippine Billings. (Emphasis supplied)
To prevent the running of the prescriptive period, Air Canada filed a
Petition for Review before the Court of Tax Appeals (CTA).
The CTA denied the petition. It found that Air Canada was engaged
in business in the Philippines through a local agent that sells airline
tickets on its behalf. As such, it held that while Air Canada was not
liable for tax on its Gross Philippine Billings under Section 28(A)(3), it
was nevertheless liable to pay the 32% corporate income tax on
income derived from the sale of airline tickets within the Philippines
pursuant to Section 28(A)(1). On appeal, the CTA En Banc affirmed
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19
28(A)(1) [YES]
3. Whether the Republic of
the Philippines-Canada Tax
Treaty is enforceable [YES]
4. Whether petitioner Air
Canada is entitled to the
refund. [NO]
SEC. 28. Rates of Income Tax on Foreign Corporations. -
(A) Tax on Resident Foreign Corporations. -
(1) In General. - Except as otherwise provided in this Code, a corporation
organized, authorized, or existing under the laws of any foreign country,
engaged in trade or business within the Philippines, shall be subject to an
income tax equivalent to thirty-five percent (35%) of the taxable income
derived in the preceding taxable year from all sources within the
Philippines: Provided, That effective January 1, 1998, the rate of income
tax shall be thirty-four percent (34%); effective January 1, 1999, the rate
shall be thirty-three percent (33%); and effective January 1, 2000 and
thereafter, the rate shall be thirty-two percent (32%)
The Court in Commissioner of Internal Revenue v. British Overseas
Airways Corporation declared British Overseas Airways Corporation, an
international air carrier with no landing rights in the Philippines, as a
resident foreign corporation engaged in business in the Philippines through
its local sales agent that sold and issued tickets for the airline company.
According to said case, 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.
An offline carrier is “any foreign air carrier not certificated by the Civil
Aeronautics Board, but who maintains office or who has designated or
appointed agents or employees in the Philippines, who sells or offers for
sale any air transportation in behalf of said foreign air carrier and/or others,
or negotiate for, or holds itself out by solicitation, advertisement, or
otherwise sells, provides, furnishes, contracts, or arranges for such
transportation.”
Petitioner is undoubtedly “doing business” or “engaged in trade or
business” in the Philippines. In the case at hand, Aerotel performs acts or
works or exercises functions that are incidental and beneficial to the
purpose of petitioner’s business. The activities of Aerotel bring direct
receipts or profits to petitioner. Further, petitioner was issued by the Civil
Aeronautics Board an authority to operate as an offline carrier in the
Philippines for a period of five years. Petitioner is, therefore, a resident
foreign corporation that is taxable on its income derived from sources
within the Philippines.
3. Our Constitution provides for adherence to the general principles of
international law as part of the law of the land. The time-honored
international principle of pacta sunt servanda demands the performance in
`
 the ruling of the CTA First Division. good faith of treaty obligations on the part of the states that enter into the
agreement. Every treaty in force is binding upon the parties, and
obligations under the treaty must be performed by them in good faith. More
importantly, treaties have the force and effect of law in this jurisdiction.
(Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue).

While petitioner is taxable as a resident foreign corporation under Section

28(A)(1) on its taxable income from sale of airline tickets in the Philippines,
it could only be taxed at a maximum of 1½% of gross revenues, pursuant
to Article VIII of the Republic of the Philippines-Canada Tax Treaty that
applies to petitioner as a “foreign corporation organized and existing under
the laws of Canada.”

The second paragraph of Article VIII states that “profits from sources within
a Contracting State derived by an enterprise of the other Contracting State
from the operation of ships or aircraft in international traffic may be taxed in
the first-mentioned State but the tax so charged shall not exceed the lesser
of a) one and one-half per cent of the gross revenues derived from sources
in that State; and b) the lowest rate of Philippine tax imposed on such
profits derived by an enterprise of a third State.”

4. As discussed in South African Airways, the grant of a refund is founded

on the assumption that the tax return is valid, that is, the facts stated
therein are true and correct. The deficiency assessment, although not yet
final, created a doubt as to and constitutes a challenge against the truth
and accuracy of the facts stated in said return which, by itself and without
unquestionable evidence, cannot be the basis for the grant of the refund.

In this case, the P5,185,676.77 Gross Philippine Billings tax paid by

petitioner was computed at the rate of 1 ½% of its gross revenues
amounting to P345,711,806.08149 from the third quarter of 2000 to the
second quarter of 2002. It is quite apparent that the tax imposable under
Section 28(A)(l) of the 1997 NIRC 32% of taxable income, that is, gross
income less deductions will exceed the maximum ceiling of 1 ½% of gross
revenues as decreed in Article VIII of the Republic of the Philippines-
Canada Tax Treaty. Hence, no refund is forthcoming.

Toledo Power Corporation (TPC) is a general partnership principally Whether TPC is entitled to No. The burden of proving entitlement to a tax refund rests on the
13. CIR vs. Toledo Power engaged in the business of power generation and sale of electricity a refund or credit of taxpayer.This, the TPC failed to do.
Co. GR 196415 to the National Power Corporation (NPC), Cebu Electric Cooperative unutilized input VAT
December 2, 2015 – III (CEBECO), Atlas Consolidated Mining and Development attributable Section 651 of the EPIRA provides that the sale of generated power by
SABADO Corporation (ACMDC), and Atlas Fertilizer Corporation (AFC). to its sales of electricity to generation companies shall be zerorated. Section 4(x) of the same law
CEBECO, ACMDC, and states that a generation company “refers to any person or entity authorized
On December 22, 2003, TPC filed with the Bureau of Internal AFC? by the ERC to operate facilities used in the generation of electricity.”
Revenue (BIR) Regional District Office (RDO) No. 83 an Corollarily, to be entitled to a refund or credit of unutilized input VAT
administrative claim for refund or credit of its unutilized input Value- attributable to the sale of electricity under the EPIRA, a taxpayer must
Added Tax (VAT) for the taxable year 2002 in the total amount of establish: (1) that it is a generation company, and (2) that it derived sales

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 P14,254,013.27 under Republic Act No. 9136 or the Electric Power
Industry Reform Act of 2001 (EPIRA) and the National Internal
Revenue Code of 1997 (NIRC).
On April 22, 2004, due to the inaction of the Commissioner of
Internal Revenue (CIR), TPC filed with the CTA a Petition for
Review. In response to the Petition for Review, the CIR argued that
TPC failed to prove its entitlement to a tax refund or credit.
On November 11, 2009, the CTA Division rendered a Decision
partially granting TPC’s claim in the reduced amount of
P7,598,279.29.9 Since NPC is exempt from the payment of all taxes,
including VAT, the CTA Division allowed TPC to claim a refund or
credit of its unutilized input VAT attributable to its zero-rated sales of
electricity to NPC for the taxable year 2002. The CTA Division,
however, denied the claim attributable to TPC’s sales of electricity to
CEBECO, ACMDC and AFC due to the failure of TPC to prove that it
is a generation company under the EPIRA. The CTA Division did not
consider the said sales as valid zero-rated sales because TPC did
not submit a Certificate of Compliance (COC) from the Energy
Regulatory Commission (ERC).
TPC moved for partial reconsideration contending that as an existing
generation company, it was not required to obtain a COC from the
ERC as a prerequisite for its operations, and that the issue of
whether it is a generation company was never raised during the trial.
On November 22, 2010, the CTA En Banc rendered a Decision
dismissing both Petitions. It sustained the findings of the CTA
Division that both the administrative and the judicial claims were
timely filed and that TPC’s noncompliance with RMO No. 53-98 was
not fatal to its claim. Also, since TPC was not yet issued a COC in
2002, the CTA En Banc agreed with the CTA Division that TPC’s
sales of electricity to CEBECO, ACMDC, and AFC for the taxable
year 2002 could not qualify for a VAT zero-rating under the EPIRA
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from power generation.
In this case, TPC failed to present a COC from the ERC during the trial. On
partial reconsideration, TPC argued that there was no need for it to present
a COC because the parties already stipulated in the JSFI that TPC is a
generation company and that it became entitled to the rights under the
EPIRA when it filed its application with the ERC on June 20, 2002. We find
the arguments raised by TPC unavailing.
Obviously, the parties did not stipulate that TPC is a generation company.
They only stipulated that TPC is engaged in the business of power
generation and that it filed an application with the ERC on June 20, 2002.
However, being engaged in the business of power generation does not
make TPC a generation company under the EPIRA. Neither did TPC’s
filing of an application for COC with the ERC automatically entitle TPC to
the rights of a generation company under the EPIRA.
At this point, a distinction must be made between a generation facility and
a generation company. A generation facility is defined under the EPIRA
Rules and Regulations as “a facility for the production of electricity.” While
a generation company, as previously mentioned, “refers to any person or
entity authorized by the ERC to operate facilities used in the generation of
electricity.” Based on the
foregoing definitions, what differentiates a generation facility from a
generation company is that the latter is authorized by the ERC to operate,
as evidenced by a COC.
Under the EPIRA, all new generation companies and existing generation
facilities are required to obtain a COC from the ERC. New generation
companies must show that they have complied with the requirements,
standards, and guidelines of the ERC before they can operate. As for
existing generation facilities, they must submit to the ERC an application
for a COC together with the required documents
within ninety (90) days from the effectivity of the EPIRA Rules and
Regulations. Based on the documents submitted, the ERC will determine
whether the applicant has complied with the standards and requirements
for operating a generation company. If the applicant is found compliant,
only then will the ERC issue a COC. In this case, when the EPIRA took
effect in 2001, TPC was an existing generation facility. And at the time the
sales of electricity to CEBECO, ACMDC, and AFC were made in 2002,
TPC was not yet a generation company under EPIRA. Although it filed an
application for a COC on June 20, 2002, it did not automatically become a
generation Company. Consequently, TPC’s sales of electricity to CEBECO,
ACMDC, and AFC cannot qualify for VAT zerorating under the EPIRA.
But while TPC’s sales of electricity to CEBECO, ACMDC, and AFC are not
zero-rated, we cannot hold it liable for deficiency VAT by imposing 10%
VAT on said sales of electricity as what the CIR wants us to do. As a rule,
`
 taxes cannot be subject to compensation because the government and the
taxpayer are not creditors and debtors of each other.

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