UNIVERSITY OF SAN JOSE – RECOLETOS

SCHOOL OF LAW
Cebu City, Philippines
 
 
 
 
 
 
 
 
 
 
 

CASE DIGESTS IN 

TAXATION LAW
2013-2019
(Supreme Court Cases penned by 
Associate Justice Marvic Leonen)
 
 
 
 
 
 
 
 
Digested and Compiled by:
 
BATCH SAMBIGKIS
(USJ-R Law Batch 2020)
TITLE: PELIZLOY REALTY CORP. vs. PROVINCE OF BENGUET
CITATION: G.R. No. 183137, April 10, 2013
PRINCIPLE: The power to tax "is an attribute of sovereignty, and as such, is inherent in the
State. Such, however, is not true for provinces, cities, municipalities and
barangays as they are not the sovereign; rather, they are mere "territorial and
political subdivisions of the Republic of the Philippines".
FACTS:

Petitioner Pelizloy Realty Corporation owns Palm Grove Resort in Tuba, Benguet, which
has facilities like swimming pools, a spa and function halls.

In 2005, the Provincial Board of Benguet approved its Revenue Code of 2005. Section
59, the tax ordinance levied a 10% amusement tax on gross receipts from admissions to
"resorts, swimming pools, bath houses, hot springs and tourist spots."

Pelizloy's posits that amusement tax is an ultra vires act. Thus, it filed an appeal/petition
before the Secretary of Justice. Upon the Secretary’s failure to decide on the appeal within sixty
days, Pelizloy filed a Petition for Declaratory Relief and Injunction before the RTC.

Pelizloy argued that the imposition was in violation of the limitation on the taxing
powers of local government units under Section 133 (i) of the Local Government Code, which
provides that the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of percentage or value-added tax (VAT) on sales, barters
or exchanges or similar transactions on goods or services except as otherwise provided.

The Province of Benguet assailed the that the phrase ‘other places of amusement’ in
Section 140 (a) of the LGC encompasses resorts, swimming pools, bath houses, hot springs, and
tourist spots since Article 131 (b) of the LGC defines "amusement" as "pleasurable diversion and
entertainment synonymous to relaxation, avocation, pastime, or fun."

RTC rendered a Decision assailed Decision dismissing the Petition for Declaratory Relief
and Injunction for lack of merit. Procedurally, the RTC ruled that Declaratory Relief was a proper
remedy. However, it gave credence to the Province of Benguet's assertion that resorts,
swimming pools, bath houses, hot springs, and tourist spots are encompassed by the phrase
‘other places of amusement’ in Section 140 of the LGC.

ISSUE: Whether or not provinces are authorized to impose amusement taxes on

admission fees to resorts, swimming pools, bath houses, hot springs, and tourist
spots for being "amusement places" under the LGC.
RULING:

NO.

Amusement taxes are percentage taxes. However, provinces are not barred from levying
amusement taxes even if amusement taxes are a form of percentage taxes. The levying of
percentage taxes is prohibited "except as otherwise provided" by the LGC. Section 140 provides
such exception.

Section 140 expressly allows for the imposition by provinces of amusement taxes on
"the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing
stadia, and other places of amusement."

However, resorts, swimming pools, bath houses, hot springs, and tourist spots are not
among those places expressly mentioned by Section 140 of the LGC as being subject to
amusement taxes. Thus, the determination of whether amusement taxes may be levied on
admissions to these places hinges on whether the phrase ‘other places of amusement’
encompasses resorts, swimming pools, bath houses, hot springs, and tourist spots.
Under the principle of ejusdem generis, "where a general word or phrase follows an
enumeration of particular and specific words of the same class or where the latter follow the
former, the general word or phrase is to be construed to include, or to be restricted to persons,
things or cases akin to, resembling, or of the same kind or class as those specifically mentioned."

Section 131 (c) of the LGC already provides a clear definition: "Amusement Places"
include theaters, cinemas, concert halls, circuses and other places of amusement where one
seeks admission to entertain oneself by seeing or viewing the show or performances.

As defined in The New Oxford American Dictionary, ‘show’ means "a spectacle or display
of something, typically an impressive one"; while ‘performance’ means "an act of staging or
presenting a play, a concert, or other form of entertainment." As such, the ordinary definitions
of the words ‘show’ and ‘performance’ denote not only visual engagement (i.e., the seeing or
viewing of things) but also active doing (e.g., displaying, staging or presenting) such that actions
are manifested to, and (correspondingly) perceived by an audience.

Considering these, it is clear that resorts, swimming pools, bath houses, hot springs and
tourist spots cannot be considered venues primarily "where one seeks admission to entertain
oneself by seeing or viewing the show or performances". While it is true that they may be
venues where people are visually engaged, they are not primarily venues for their proprietors or
operators to actively display, stage or present shows and/or performances.
TITLE: COMMISSIONER OF INTERNAL REVENUE vs. PHILIPPINE NATIONAL BANK
CITATION: G.R. No. 180290, September 29, 2014
ONE-LINER: Proof of actual remittance of the withheld taxes is not required before the
taxpayer may claim for a tax refund/tax credit certificate.
PRINCIPLE: The certificate of creditable tax withheld at source is the competent proof to
establish the fact that taxes are withheld. It is not necessary for the person who
executed and prepared the certificate of creditable tax withheld at source to be
presented and to testify personally to prove the authenticity of the certificates.
FACTS:
Respondent filed an amended income tax return for taxable year 2000 on June 20, 2002,
declaring no income tax liability as it incurred a net loss from its Regular Banking Unit ("RBU")
transactions. However, respondent had a 10% final income tax liability of ₱210,364,280.00 on
taxable income earned from its Foreign Currency Deposit Unit ("FCDU") transactions for the
same year. In the same return, respondent reported a total amount of ₱245,888,507.00 final
and creditable withholding taxes which was applied against the final income tax due of
₱210,364,280.00 leaving an overpayment of ₱35,524,227.00. In its second amended return,
respondent’s income tax overpayment of ₱35,524,227.00 consisted of the balance of the prior
year's (1999) excess credits of ₱9,057,492.00 to be carried-over as tax credit to the succeeding
quarter/year and excess creditable withholding taxes for taxable year 2000. Respondent filed a
claim for refund or the issuance of a tax credit certificate in the amount of ₱26,466,735.40 for
the taxable year 2000 with the BIR.

Due to BIR's inaction on its administrative claim, respondent appealed before the Court
of Tax Appeals by way of a Petition for Review. The CTA First Division rendered a decision in
favor of respondent.

On appeal by petitioner, the CTA En Banc sustained the First Division’s ruling and held
that the fact of withholding and the amount of taxes withheld from the income payments
received by respondent were sufficiently established by the creditable withholding tax
certificates.

ISSUE: Whether or not the CTA En Banc was correct in its ruling
RULING:

Yes. The certificate of creditable tax withheld at source is the competent proof to
establish the fact that taxes are withheld. It must be noted that upon presentation of a
withholding tax certificate complete in its relevant details and with a written statement that it
was made under the penalties of perjury, the burden of evidence then shifts to the
Commissioner of Internal Revenue to prove that (1) the certificate is not complete; (2) it is false;
or (3) it was not issued regularly. Proof of actual remittance of the withheld taxes is not required
before the taxpayer may claim for a tax refund/tax credit certificate. It is not a requirement for
claiming a tax refund of creditable withholding taxes.
TITLE: CBK POWER COMPANY LIMITED vs. COMMISSIONER OF INTERNAL REVENUE
CITATION: G.R. No. 202066 and G.R. No. 205353. September 30, 2014
FACTS:
CBK Power Company Limited filed two petitions for review assailing the dismissal of its
judicial claim for tax credit of unutilized input taxes on the ground of premature filing.

G.R. No. 202066

On March 26, 2009, petitioner filed an administrative claim with the Bureau of Internal
Revenue Laguna Regional District Office No. 55 for the issuance of a tax credit certificate for
58,802,851.18. This amount represented "unutilized input taxes on its local purchases and/or
importation of goods and services, capital goods and payments for services rendered by non-
residents, which were all attributable to petitioner’s zero-rated sales for the period of January 1,
2007 to December 31, 2007, pursuant to Section 112 (A) of the Tax Code of 1997, as amended."

The next day, March 27, 2009, petitioner filed a petition for review with the Court of Tax
Appeals since respondent had not yet issued a final decision on its administrative
claim. Respondent raised prematurity of judicial claim as one of its defenses in its answer in
which case, the Court of Tax Appeals Third Division granted respondent’s motion and dismissed
the petition for having been prematurely filed.

Petitioner argues that Section 112(C) of the Tax Code, as amended, "is directory and
permissive, and not mandatory nor jurisdictional, as long as it is made within the two (2)-year
prescriptive period prescribed under Section 229 of the same Code.”

G.R. No. 205353

Petitioner filed its original and amended quarterly VAT returns for the four quarters of
2006. From the total reported input tax of 49,347,433.70 for 2006, petitioner sought tax credit
certificates in the amount of 43,806,549.72.

On March 31, 2008, petitioner filed an administrative claim with the Bureau of Internal
Revenue Laguna Regional District Office No. 55 for the issuance of a tax credit certificate for
7,559,943.44, representing unutilized input tax for the period of January 1, 2006 to March 31,
2006. On July 23, 2008, petitioner filed another administrative claim with the Bureau of Internal
Revenue Laguna Regional District Office No. 55 for the issuance of a tax credit certificate for
36,246,606.28, representing unutilized input tax for the period of April 1, 2006 to December 31,
2006.

The Court of Tax Appeals Division consolidated these two petitions on judicial claims for
unutilized input tax covering the taxable year of 2006. On December 3, 2010, the Court of Tax
Appeals Third Division dismissed the consolidated cases for having been prematurely filed. In its
consolidated comment, respondent explained that the two-year period pertains to
administrative claims with the Commissioner of Internal Revenue, while judicial claims with the
Court of Tax Appeals must be made within 30 days reckoned from either receipt of the
Commissioner’s decision or after the lapse of the 120-day period for the Commissioner to act on
the administrative claim. Observance of the 120-day period under Section 112 of the Tax Code is
mandatory and jurisdictional, and non-compliance results in the denial of the claim.

ISSUE: Did the petitioner comply with the timeliness of the judicial claims for the
issuance of tax credit certificates?

RULING:
Yes. The consolidated cases are REMANDED to the Court of Tax Appeals for the
determination and computation of the amounts valid for refund or the issuance of a tax credit
certificate.

Section 112. Refunds or Tax Credits of Input Tax.—

 (C) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In
proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120) days from the date of submission
of complete documents in support of the application filed in accordance with Subsection
(A) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the
failure on the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of
the decision denying the claim or after the expiration of the one hundred twenty day-
period, appeal the decision or the unacted claim with the Court of Tax Appeals.

Timeliness of judicial claim

A simple reading of the provision quoted above reveals that the taxpayer may appeal
the denial or the inaction of the Commissioner of Internal Revenue only within thirty (30) days
from receipt of the decision that denied the claim or the expiration of the 120-day period given
to the Commissioner to decide the claim.

In G.R. No. 202066, petitioner filed its judicial claim on March 27, 2009, only a day after
it had filed its administrative claim on March 26, 2009. In G.R. No. 205353, petitioner filed its
judicial claim on April 23, 2008 for the taxable period of January 1, 2006 to March 31, 2006, just
23 days after it had filed its administrative claim on March 31, 2008. Petitioner also filed its
judicial claim on July 24, 2008 for the taxable period of April 1, 2006 to December 31, 2006, only
a day after it had filed its administrative claim on July 23, 2008.

Clearly, petitioner failed to comply with the 120-day waiting period, the time expressly
given by law to the Commissioner of Internal Revenue to decide whether to grant or deny its
application for tax refund or credit. Nevertheless, since the judicial claims were filed within the
window created in San Roque Case, the petitions are exempted from the strict application of the
120-day mandatory period.

Timeliness of administrative claim

In G.R. No. 205353, the Court of Tax Appeals En Banc ruled that the administrative claim
for the second quarter of 2006 was belatedly filed on July 23, 2008. This is consistent with
Section 112(A) of the Tax Code, as amended, reckoning the two-year period from the close of
the taxable quarter when the sales were made:

Sec. 112. Refunds or Tax Credits of Input Tax. –

(A) Zero-Rated or Effectively Zero-Rated Sales. – Any VATregistered person,
whose sales are zero-rated or effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made, apply for the issuance of a tax
credit certificate or refund of creditable input tax due or paid attributable to such sales,
except transitional input tax, to the extent that such input tax has not been applied
against output tax: Provided, however,That in the case of zerorated sales under Section
106(A)(2)(a)(1), (2) and (b) and Section 108(B)(1) and (2), the acceptable foreign
currency exchange proceeds thereof had been duly accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further,That
where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in
taxable or exempt sale of goods of [sic] properties or services, and the amount of
creditable input tax due or paid cannot be directly and entirely attributed to any one of
the transactions, it shall be allocated proportionately on the basis of the volumes of
sales. . . . (Emphasis supplied) With the close of the second taxable quarter of 2006 being
June 30, 2006, petitioner should have filed its administrative claim for this quarter on or
before June 30, 2008, and not on July23, 2008. This applies the clear text of Section
112(A).
 It is more practical and reasonable to count the two-year prescriptive period for filing a
claim for refund/credit of input VAT on zero-rated sales from the date of filing of the return and
payment of the tax due which, according to the law then existing, should be made within 20
days from the end of each quarter.

The reckoning frame would always be the end of the quarter when the pertinent sales
or transaction was made, regardless when the input VAT was paid, applying Section 112(A) of
the Tax Code and no other provisions that pertain to erroneous tax payments.

The Atlas doctrine, which held that claims for refund or credit of input VAT must comply
with the two-year prescriptive period under Section 229, should be effective only from its
promulgation on 8 June 2007 until its abandonment on 12 September 2008 in
Mirant.1âwphi1 The Atlas doctrine was limited to the reckoning of the two year prescriptive
period from the date of payment of the output VAT. Prior to the Atlas doctrine, the two-year
prescriptive period for claiming refund or credit of input VAT should be governed by Section
112(A) following the verba legis rule. The Mirant ruling, which abandoned the Atlas doctrine,
adopted the verba legis rule, thus applying Section 112(A) in computing the two-year
prescriptive period in claiming refund or credit of input VAT.

Since July 23, 2008 falls within the window of effectivity of Atlas, petitioner’s
administrative claim for the second quarter of 2006 was filed on time considering that petitioner
filed its original VAT return for the second quarter on July 25, 2006.
TITLE: NATIONAL POWER CORPORATION V. CITY OF CABANATUAN
CITATION: G.R. NO. 177332, OCTOBER 1, 2014
ONE-LINER: As a rule, tax exemptions are construed strongly against the claimant.
Exemptions must be shown to exist clearly and categorically, and supported by
clear legal provisions.
PRINCIPLES: "Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided
in the Local Government Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including
government owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the
effectivity of the Local Government Code."

Section 137 of the LGC clearly states that the LGUs can impose franchise tax
"notwithstanding any exemption granted by any law or other special law." This
particular provision of the LGC does not admit any exception.
FACTS:
NPC is a government-owned and controlled corporation created under Commonwealth
Act No. 120, as amended. It is tasked to undertake the "development of hydroelectric
generations of power and the production of electricity from nuclear, geothermal and other
sources, as well as, the transmission of electric power on a nationwide basis. NPC sells electric
power to the residents of Cabanatuan City. Pursuant to section 37 of Ordinance No. 165-92,8 the
CITY assessed the NPC a franchise tax

NPC, whose capital stock was subscribed and paid wholly by the Philippine
Government, refused to pay the tax assessment. It argued that the CITY has no authority to
impose tax on government entities. Petitioner also contended that as a non-profit organization,
it is exempted from the payment of all forms of taxes, charges, duties or fees.

The CITY filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding
that petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of the amount of
tax, and 2% monthly interest.13 THE CITY alleged that petitioner's exemption from local taxes has
been repealed by section 193 of Rep. Act No. 7160 or the Local Government Code.

ISSUE: Whether or not NPC is liable to pay to the City franchise tax?

RULING:

YES, NPC is liable to pay franchise tax.

Section 151 in relation to section 137 of the LGC clearly authorizes the respondent city
government to impose on the petitioner the franchise tax in question.

In its general signification, a franchise is a privilege conferred by government authority,

which does not belong to citizens of the country generally as a matter of common right. In its
specific sense, a franchise may refer to a general or primary franchise, or to a special or
secondary franchise. The former relates to the right to exist as a corporation, by virtue of duly
approved articles of incorporation, or a charter pursuant to a special law creating the
corporation. The right under a primary or general franchise is vested in the individuals who
compose the corporation and not in the corporation itself. On the other hand, the latter refers
to the right or privileges conferred upon an existing corporation such as the right to use the
streets of a municipality to lay pipes of tracks, erect poles or string wires. The rights under a
secondary or special franchise are vested in the corporation and may ordinarily be conveyed or
mortgaged under a general power granted to a corporation to dispose of its property, except
such special or secondary franchises as are charged with a public use.

In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of
a secondary or special franchise. This is to avoid any confusion when the word franchise is used
in the context of taxation. As commonly used, a franchise tax is "a tax on the privilege of
transacting business in the state and exercising corporate franchises granted by the state."53 It is
not levied on the corporation simply for existing as a corporation, upon its property 54 or its
income,55 but on its exercise of the rights or privileges granted to it by the government. Hence, a
corporation need not pay franchise tax from the time it ceased to do business and exercise its
franchise.56 It is within this context that the phrase "tax on businesses enjoying a franchise" in
section 137 of the LGC should be interpreted and understood. Verily, to determine whether the
petitioner is covered by the franchise tax in question, the following requisites should concur: (1)
that petitioner has a "franchise" in the sense of a secondary or special franchise; and (2) that it is
exercising its rights or privileges under this franchise within the territory of the respondent city
government.

NPC fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No.
7395, constitutes petitioner's primary and secondary franchises. It serves as the petitioner's
charter, defining its composition, capitalization, the appointment and the specific duties of its
corporate officers, and its corporate life span. As its secondary franchise, Commonwealth Act
No. 120, as amended, vests the petitioner the following powers which are not available to
ordinary corporations. With these powers, petitioner eventually had the monopoly in the
generation and distribution of electricity. Petitioner also fulfills the second requisite. It is
operating within the respondent city government's territorial jurisdiction pursuant to the
powers granted to it by Commonwealth Act No. 120, as amended.

NPC, however, insists that it is excluded from the coverage of the franchise tax simply
because its stocks are wholly owned by the National Government, and its charter characterized
it as a "non-profit" organization. These contentions must necessarily fail.

To stress, a franchise tax is imposed based not on the ownership but on the exercise by
the corporation of a privilege to do business. The taxable entity is the corporation which
exercises the franchise, and not the individual stockholders. By virtue of its charter, petitioner
was created as a separate and distinct entity from the National Government. It can sue and be
sued under its own name,61 and can exercise all the powers of a corporation under the
Corporation Code.62

To be sure, the ownership by the National Government of its entire capital stock does
not necessarily imply that petitioner is not engaged in business. Section 2 of Pres. Decree No.
202963 classifies government-owned or controlled corporations (GOCCs) into those performing
governmental functions and those performing proprietary functions, viz:

"A government-owned or controlled corporation is a stock or a non-stock

corporation, whether performing governmental or proprietary functions, which
is directly chartered by special law or if organized under the general corporation law is
owned or controlled by the government directly, or indirectly through a parent
corporation or subsidiary corporation, to the extent of at least a majority of its
outstanding voting capital stock x x x." (emphases supplied)

Governmental functions are those pertaining to the administration of government, and

as such, are treated as absolute obligation on the part of the state to perform while proprietary
functions are those that are undertaken only by way of advancing the general interest of
society, and are merely optional on the government.

NPC was created to "undertake the development of hydroelectric generation of power

and the production of electricity from nuclear, geothermal and other sources, as well as the
transmission of electric power on a nationwide basis."66 Pursuant to this mandate, petitioner
generates power and sells electricity in bulk. Certainly, these activities do not partake of the
sovereign functions of the government. They are purely private and commercial undertakings,
albeit imbued with public interest.
 We also do not find merit in the petitioner's contention that its tax exemptions under its
charter subsist despite the passage of the LGC.

As a rule, tax exemptions are construed strongly against the claimant. Exemptions must
be shown to exist clearly and categorically, and supported by clear legal provisions.71 In the case
at bar, the petitioner's sole refuge is section 13 of Rep. Act No. 6395 exempting from, among
others, "all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities." However, section 193 of the LGC withdrew, subject to limited exceptions, the
sweeping tax privileges previously enjoyed by private and public corporations. Section 137 of
the LGC clearly states that the LGUs can impose franchise tax "notwithstanding any exemption
granted by any law or other special law." This particular provision of the LGC does not admit any
exception.
TITLE: SUERTE CIGAR & CIGARETTE FACTORY, petitioner vs. COURT OF COURT OF
APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents
CITATION: G.R. No. 125346, 136328-29, 144942, 148605, 158197, 165499. November 11,
2014
FACTS:
These cases involve the taxability of stemmed leaf tobacco imported and locally
purchased by cigarette manufacturers for use as raw material in the manufacture of their
cigarettes. Under the Tax Code, if it is to be exported or to be used in the manufacture of cigars,
cigarettes, or other tobacco products on which the excise tax will eventually be paid on the
finished product.

La Suerte was assessed by the BIR for the excise tax deficiency amounting to more than
34 million pesos. Law Suerte protested invoking the Tax Code which allows the sale of stemmed
leaf tobacco as raw material by one manufacturer directly to another without payment of the
excise tax. However, the CIR insisted that stemmed leaf tobacco is subject to excise tax “unless
there is an express grant of exemption from the payment of tax.”

La Suerte petitioned for review before the CTA which cancelled the assessment. The CIR
appealed to the CA which reversed the CTA. The CIR invoked a revenue regulation which limits
the exemption from payment of specific tax on stemmed leaf tobacco to sales transactions
between manufacturers classified as L-7 permittees.

ISSUES:
1. Whether stemmed leaf tobacco is subject to excise (specific) tax under Section 141 of
the 1986 Tax Code;
2. Whether Section 137 of the 1986 Tax Code exempting from the payment of specific tax
the sale of stemmed leaf tobacco by one manufacturer to another is not subject to any
qualification and, therefore, exempts an L-7 manufacturer from paying said tax on its
purchase of stemmed leaf tobacco from other manufacturers who are not classified as
L-7 permittees;
3. Whether Section 20 (a) of RR No. V-39, in relation to RR No. 17-67, which limits the
exemption from payment of specific tax on stemmed leaf tobacco to sales transactions
between manufacturers classified as L-7 permittees is a valid exercise by the
Department of Finance of its rulemaking power under Section 338 of the 1939 Tax Code;
4. Whether the possessor or owner of stemmed leaf tobacco may be held liable for the
payment of specific tax if such tobacco product is removed from the place of production
without payment of said tax; and
5. Whether the imposition of excise tax on stemmed leaf tobacco under Section 141 of the
1986 Tax Code constitutes double taxation.

RULING:
1. Yes.
Section 110 of the 1986 Tax Code explicitly provides that 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 articles
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.

When tobacco is harvested and processed either by hand or by machine, all its
products become subject to specific tax. Section 141 reveals the legislative policy to tax
all forms of manufacture tobacco in contract to raw tobacco leaves, including tobacco
refuse or all other tobacco which has been cut, split, twisted, or pressed and is capable
of being smoked without further industrial processing.

In this case, 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 a prepared or partially prepared
tobacco. Despite the differing definitions for “stemmed leaf tobacco” under revenue
 regulations, the onus of proving that stemmed leaf tobacco is not subject to the specific
tax lies with the cigarette manufacturers. Taxation is the rule, exemption is the
exception.

2. Yes. Stemmed leaf tobaccos transferred in bulk between cigarette manufacturers are
exempt from excise tax under the Tax Code vis-à-vis revenue regulations.

Section 137 authorizes a tax exemption subject to the following: (1) that the
stemmed leaf tobacco is sold in bulk as raw material by one manufacturer directly to
another; and (2) that the sale or transfer has complied with the conditions prescribed by
the Department of Finance.

The conditions under which stemmed leaf tobacco may be transferred from one
factory to another without prepayment of specific tax are as follows: (a) the transfer
shall be under official L-7 invoice on which shall be entered the exact weight of the
tobacco at the time of its removal; (b) entry shall be made in the L-7 register in the place
provided on the page for removals; and (c) corresponding debit entry shall be made in
the L-7 register book of the factory receiving the tobacco under the heading, “refuse,
etc., received from the other factory,” showing the date of receipt, assessment and
invoice numbers, name and address of the consignor, for in which received, and weight
of the tobacco.

3. Yes. It is valid.
Under Section 3(h) of RR No. 17-67, entities that were issued by the Bureau of
Internal Revenue with an L-7 permit refer to “manufacturers of tobacco products.”
Hence, the transferor and transferee of the stemmed leaf tobacco must be an L-7
tobacco manufacturer.

The reason behind the tax exemption of stemmed leaf tobacco transferred
between two L-7 manufacturers is that the same had already been previously taxed
when acquired by the L-7 manufacturer from dealers of tobacco. There is no new
product when stemmed leaf tobacco is transferred between two L-7 permit holders.
Thus, there can be no excise tax that will attach. The regulation, therefore, is reasonable
and does not create a new statutory right.

Moreover, although delegation is not allowed as a rule, the power to fill in the
details and manner as to the enforcement and administration of a law may be delegated
to various specialized administrative agencies.

4. No. the importation of stemmed leaf tobacco not included in the exemption. The
transaction contemplated in Section 137 does not include the 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.

5. There is no double taxation in the prohibited sense 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.
TITLE: CITY OF LAPU-LAPU v. PHILIPPINE ECONOMIC ZONE AUTHORITY;
PROVINCE OF BATAAN, REPRESENTED BY GOVERNOR ENRIQUE T. GARCIA, JR.,
AND EMERLINDA S. TALENTO, IN HER CAPACITY AS PROVINCIAL TREASURER OF
BATAAN v. PHILIPPINE ECONOMIC ZONE AUTHORITY
CITATION: G.R. No. 184203 AND G.R. NO. 187583, November 26, 2014
PRINCIPLES: Real property taxes are annual taxes levied on real property such as lands,
buildings, machinery, and other improvements not otherwise specifically
exempted under the Local Government Code.

Real property taxes are ad valorem, with the amount charged based on a fixed
proportion of the value of the property.

Under the law, provinces, cities, and municipalities within the Metropolitan
Manila Area have the power to levy real property taxes within their respective
territories.

The person liable for real property taxes is the "taxable person who had actual
or beneficial use and possession [of the real property for the taxable period,]
whether or not [the person owned the property for the period he or she is being
taxed]."

FACTS:
In G.R. No. 184203, the City of Lapu-Lapu (the City) assails the Court of Appeals’ decision
dated January 11, 2008 and resolution dated August 6, 2008, dismissing the City’s appeal for
being the wrong mode of appeal. The City appealed the Regional Trial Court, Branch 111, Pasay
City’s decision finding the PEZA exempt from payment of real property taxes.

In G.R. No. 187583, the Province of Bataan (the Province) assails the Court of Appeals’
decision dated August 27, 2008 and resolution dated April 16, 2009, granting the PEZA’s petition
for certiorari. The Court of Appeals ruled that the Regional Trial Court, Branch 115, Pasay City
gravely abused its discretion in finding the PEZA liable for real property taxes to the Province of
Bataan.

In 1995, the PEZA was created by virtue of Republic Act No. 7916 or “the Special
Economic Zone Act of 1995” to operate, administer, manage, and develop economic zones in
the country. The PEZA was granted the power to register, regulate, and supervise the
enterprises located in the economic zones. By virtue of the law, the export processing zone in
Mariveles, Bataan became the Bataan Economic Zone and the Mactan Export Processing Zone
the Mactan Economic Zone.

The City contends that due to the enactment of the LGC, specifically withdrawing all tax
exemptions and with the PEZA law of 1995 which did not have any provisions on tax
exemptions, it maintains that PEZA is liable for real property tax.

ISSUE: Whether or not PEZA should be exempted from real property taxation.
RULING: The PEZA is exempt from payment of real property taxes.

Under Section 133(o), local government units have no power to levy taxes of any kind
on the national government, its agencies and instrumentalities and local government units: the
PEZA is an instrumentality of the national government. It is not integrated within the
department framework but is an agency attached to the Department of Trade and Industry.

Attachment, which enjoys "a larger measure of independence", as an instrumentality of

the national government, the PEZA is vested with special functions or jurisdiction by law.
Congress created the PEZA to operate, administer, manage and develop special economic zones
in the Philippines. Being an instrumentality of the national government, the PEZA cannot be
taxed by local government units. Although a body corporate vested with some corporate
powers, the PEZA is not a government-owned or controlled corporation taxable for real
property taxes. To be considered a government-owned or controlled corporation, the entity
must have been organized as a stock or non-stock corporation. Government instrumentalities,
on the other hand, are also created by law but partake of sovereign functions. When a
government entity performs sovereign functions, it need not meet the test of economic viability.

The law created the PEZA's charter. Under the Special Economic Zone Act of 1995, the
PEZA was established primarily to perform the governmental function of operating,
administering, managing, and developing special economic zones to attract investments and
provide opportunities for preferential use of Filipino labor. Under its charter, the PEZA was
created a body corporate endowed with some corporate powers. However, it was not organized
as a stock or non-stock corporation. Nothing in the PEZA's charter provides that the PEZA's
capital is divided into shares. The PEZA also has no members who shall share in the PEZA's
profits. The PEZA does not compete with other economic zone authorities in the country. The
government may even subsidize the PEZA's operations. Under Section 47 of the Special
Economic Zone Act of 1995, "any sum necessary to augment [the PEZA's] capital outlay shall be
included in the General Appropriations Act to be treated as an equity of the national
government."

The PEZA, therefore, need not be economically viable. It is not a government-owned or

controlled corporation liable for real property taxes. The PEZA assumed the non-profit
character, including the tax-exempt status, of the EPZA. The PEZA's predecessor, the EPZA, was
declared non-profit in character with all its revenues devoted for its development,
improvement, and maintenance. Consistent with this non-profit character, the EPZA was
explicitly declared exempt from real property taxes under its charter.

Nevertheless, we rule that the PEZA is exempt from real property taxes by virtue of its
charter. The PEZA assumed the real property exemption of the EPZA under Presidential Decree
No. 66.
TITLE: PHILIPPINE NATIONAL BANK vs. CARMELITA S. SANTOS
CITATION: G.R. No. 208293, December 10, 2014
PRINCIPLE: Taxes are created primarily to generate revenues for the maintenance of the
government. However, this particular tax may also serve as guard against the
release of deposits to persons who have no sufficient and valid claim over the
deposits. Based on the assumption that only those with sufficient and valid
claim to the deposit will pay the taxes for it, requiring the certificate from the
BIR increases the chance that the deposit will be released only to them.
FACTS:
Sometime in May 1996, respondents discovered that their father maintained a premium
savings account and a time deposit with Philippine National Bank (PNB), Sta. Elena-Marikina City
Branch. Respondents went to PNB to withdraw their father’s deposit which required them to
submit necessary documents. By April 26, 1998, respondents had already obtained the
necessary documents. They tried to withdraw the deposit. However, Aguilar informed them that
the deposit had already "been released to a certain Bernardito Manimbo (Manimbo) on April 1,
1997.

On May 20, 1998, respondents filed before the Regional Trial Court of Marikina City a
complaint for sum of money and damages against PNB, Lina B. Aguilar, and a John Doe.
Respondents questioned the release of the deposit amount to Manimbo who had no authority
from them to withdraw their father’s deposit and who failed to present to PNB all the
requirements for such withdrawal. Respondents questioned the release of the deposit amount
to Manimbo who had no authority from them to withdraw their father’s deposit and who failed
to present to PNB all the requirements for such withdrawal.

PNB and Aguilar denied that Angel C. Santos had two separate accounts (premium
deposit account and time deposit account) with PNB. They alleged that Angel C. Santos’ deposit
account was originally a time deposit account that was subsequently converted into a premium
savings account. All documents he submitted appeared to be regular.

The trial court held that PNB and Aguilar were jointly and severally liable to pay
respondents, which was also affirmed by the Court of Appeals.

ISSUES:
1. Whether Lina B. Aguilar is jointly and severally liable with Philippine National Bank for
the release of the deposit to Bernardito Manimbo;

RULING:

1. Yes. Petitioner PNB is a bank from which a degree of diligence higher than that of a good
father of a family is expected. Petitioner PNB and its manager, petitioner Aguilar, failed
to meet even the standard of diligence of a good father of a family. Their actions and
inactions constitute gross negligence. It is for this reason that we sustain the trial court’s
and the Court of Appeals’ rulings that petitioners PNB and Aguilar are solidarily liable
with each other.

In this case, petitioners PNB and Aguilar released Angel C. Santos’ deposit to
Manimbo without having been presented the BIR-issued certificate of payment of, or
exception from, estate tax. Section 97 of the 1997 National Internal Revenue Code
provides – Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights xxx …
If a bank has knowledge of the death of a person, who maintained a bank deposit
account alone, or jointly with another, it shall not allow any withdrawal from the said
deposit account, unless the Commissioner has certified that the taxes imposed thereon
by this Title have been paid.

Taxes are created primarily to generate revenues for the maintenance of the
government. However, this particular tax may also serve as guard against the release of
deposits to persons who have no sufficient and valid claim over the deposits. Based on
the assumption that only those with sufficient and valid claim to the deposit will pay the
taxes for it, requiring the certificate from the BIR increases the chance that the deposit
will be released only to them.
TITLE: BANCO DE ORO vs. REPUBLIC
CITATION: G.R. No. 198756, January 13, 2015
PRINCIPLE: When funds are simultaneously obtained from 20 or more lenders/investors,
there is deemed to be a public borrowing and the bonds at that point intime are
deemed deposit substitutes. Consequently, the seller is required to withhold the
20% final withholding tax on the imputed interest income from the bonds.
FACTS:
Caucus of Development NGO Networks (CODE-NGO) "with the assistance of its financial
advisors, Rizal Commercial Banking Corp. ("RCBC") and several others, requested an approval
from the Department of Finance for the issuance by the Bureau of Treasury of 10-year zero
coupon Treasury Certificates (T-notes). The T-notes would initially be purchased by a special
purpose vehicle on behalf of CODE-NGO, repackaged and sold at a premium to investors as the
PEACe Bonds.

On May 31, 2001, the Bureau of Internal Revenue, in reply to CODENGO’s letters dated
May 10, 15, and 25, 2001, issued BIR Ruling No. 020-2001 on the tax treatment of the proposed
PEACe Bonds. BIR Ruling No. 020-2001, signed by then Commissioner of Internal Revenue René
G. Bañez confirmed that the PEACe Bonds would not be classified as deposit substitutes and
would not be subject to the corresponding withholding tax.

The tax treatment of the proposed PEACe Bonds in BIR Ruling No. 020-2001 was
subsequently reiterated in BIR Ruling No. 035-2001dated August 16, 2001 and BIR Ruling No.
DA-175-01 dated September 29, 2001 (collectively, the 2001 Rulings). In sum, these rulings
pronounced that to be able to determine whether the financial assets, i.e., debt instruments
and securities are deposit substitutes, the "20 or more individual or corporate lenders" rule
must apply.

On October 16, 2001, the Bureau of Treasury held an auction for the 10-year zero-
coupon bonds. Also, on the same date, the Bureau of Treasury issued another memorandum
quoting excerpts of the ruling issued by the Bureau of Internal Revenue concerning the Bonds’
exemption from 20% final withholding tax and the opinion of the Monetary Board on reserve
eligibility.

After the auction, RCBC which participated on behalf of CODE-NGO was declared as the
winning bidder having tendered the lowest bids. Accordingly, on October 18, 2001, the Bureau
of Treasury issued ₱35 billion worth of Bonds at yield-to-maturity of 12.75% to RCBC for
approximately ₱10.17 billion, resulting in a discount of approximately ₱24.83 billion.

On October 7, 2011, "the BIR issued the assailed 2011 BIR Ruling imposing a 20% FWT
on the Government Bonds and directing the BTr to withhold said final tax at the maturity
thereof, [allegedly without] consultation with Petitioners as bond holders, and without
conducting any hearing."

On October 17, 2011, replying to an urgent query from the Bureau of Treasury, the Bureau of
Internal Revenue issued BIR Ruling No. DA 378-201 clarifying that the final withholding tax due
on the discount or interest earned on the PEACe Bonds should "be imposed and withheld not
only on RCBC/CODE NGO but also [on] ‘all subsequent holders of the Bonds.’"

On October 17, 2011, petitioners filed a petition for certiorari, prohibition, and/or
mandamus (with urgent application for a temporary restraining order and/or writ of preliminary
injunction) before this court.
Petitioners insist that the PEACe Bonds are not deposit substitutes as defined under
Section 22(Y) of the 1997 National Internal Revenue Code because there was only one lender
(RCBC) to whom the Bureau of Treasury issued the Bonds.

Petitioners further argue that their income from the Bonds is a "trading gain," which is
exempt from income tax. They insist that "[t]hey are not lenders whose income is considered as
‘interest income or yield’ subject to the 20% FWT under Section 27 (D)(1) of the [1997 National
Internal Revenue Code]" because they "acquired the Government Bonds in the secondary or
tertiary market."

On the other hand, Respondents contend that the discount/interest income derived
from the PEACe Bonds is not a trading gain but interest income subject to income tax.

ISSUE: Whether the PEACe Bonds are "deposit substitutes" and thus subject to 20%
final withholding tax under the 1997 National Internal Revenue Code. Related to
this question is the interpretation of the phrase "borrowing from twenty (20) or
more individual or corporate lenders at any one time" under Section 22(Y) of
the 1997 National Internal Revenue Code, particularly on whether the reckoning
of the 20 lenders includes trading of the bonds in the secondary market.
RULING:
The PEACe Bonds, according to the SC, requires further information for proper
determination of whether these bonds are within the purview of deposit substitutes.

Under Sections 24(B)(1), 27(D)(1), and 28(A)(7) of the 1997 National Internal Revenue
Code, a final withholdingtax at the rate of 20% is imposed on interest on any currency bank
deposit and yield or any other monetary benefit from deposit substitutes and from trust funds
and similar arrangements.

The definition of deposit substitutes was amended under the 1997 National Internal
Revenue Code with the addition of the qualifying phrase for public – borrowing from 20 or more
individual or corporate lenders at any one time. Under Section 22(Y), deposit substitute is
defined thus: SEC. 22.

Definitions- When used in this Title:

....
(Y) The term ‘deposit substitutes’ shall mean an alternative form of obtaining funds
from the public(the term 'public' means borrowing from twenty (20) or more individual
or corporate lenders at any one time) other than deposits, through the issuance,
endorsement, or acceptance of debt instruments for the borrower’s own account, for
the purpose of relending or purchasing of receivables and other obligations, or financing
their own needs or the needs of their agent or dealer. These instruments may include,
but need not be limited to, bankers’ acceptances, promissory notes, repurchase
agreements, including reverse repurchase agreements entered into by and between the
Bangko Sentral ng Pilipinas (BSP) and any authorized agent bank, certificates of
assignment or participation and similar instruments with recourse: Provided, however,
That debt instruments issued for interbank call loans with maturity of not more than
five (5) days to cover deficiency in reserves against deposit liabilities, including those
between or among banks and quasi-banks, shall not be considered as deposit substitute
debt instruments.

Under the 1997 National Internal Revenue Code, Congress specifically defined "public"
to mean "twenty (20) or more individual or corporate lenders at any one time." Hence, the
number of lenders is determinative of whether a debt instrument should be considered a
deposit substitute and consequently subject to the 20% final withholding tax.

20-lender rule
Petitioners contend that "there [is]only one (1) lender (i.e. RCBC) to whom the BTr
issued the Government Bonds." On the other hand, respondents theorize that the word "any"
"indicates that the period contemplated is the entire term of the bond and not merely the point
of origination or issuance[,]" such that if the debt instruments "were subsequently sold in
secondary markets and so on, insuch a way that twenty (20) or more buyers eventually own the
instruments, then it becomes indubitable that funds would be obtained from the "public" as
defined in Section 22(Y) of the NIRC." Indeed, in the context of the financial market, the words
"at any one time" create an ambiguity.
Meaning of "at any one time"
Thus, from the point of view of the financial market, the phrase "at any one time" for
purposes of determining the "20 or more lenders" would mean every transaction executed in
the primary or secondary market in connection with the purchase or sale of securities.
For example, where the financial assets involved are government securities like bonds, the
reckoning of "20 or more lenders/investors" is made at any transaction in connection with the
purchase or sale of the Government Bonds, such as:

1. Issuance by the Bureau of Treasury of the bonds to GSEDs in the primary market;
2. Sale and distribution by GSEDs to various lenders/investors in the secondary market;
3. Subsequent sale or trading by a bondholder to another lender/investor in the
secondary market usually through a broker or dealer; or
4. Sale by a financial intermediary-bondholder of its participation interests in the bonds
to individual or corporate lenders in the secondary market.

When, through any of the foregoing transactions, funds are simultaneously obtained
from 20 or more lenders/investors, there is deemed to be a public borrowing and the bonds at
that point intime are deemed deposit substitutes. Consequently, the seller is required to
withhold the 20% final withholding tax on the imputed interest income from the bonds.

Tax treatment of income derived from the PEACe Bonds

The transactions executed for the sale of the PEACe Bonds are:

1. The issuance of the 35 billion Bonds by the Bureau of Treasury to RCBC/CODE-NGO at

10.2 billion; and
2. The sale and distribution by RCBC Capital (underwriter) on behalf of CODE-NGO of the
PEACe Bonds to undisclosed investors at ₱11.996 billion.

It may seem that there was only one lender — RCBC on behalf of CODE-NGO — to
whom the PEACe Bonds were issued at the time of origination. However, a reading of the
underwriting agreement and RCBC term sheet reveals that the settlement dates for the sale and
distribution by RCBC Capital (as underwriter for CODE-NGO) of the PEACe Bonds to various
undisclosed investors at a purchase price of approximately ₱11.996 would fall on the same day,
October 18, 2001, when the PEACe Bonds were supposedly issued to CODE-NGO/RCBC. In
reality, therefore, the entire ₱10.2 billion borrowing received by the Bureau of Treasury in
exchange for the ₱35 billion worth of PEACe Bonds was sourced directly from the undisclosed
number of investors to whom RCBC Capital/CODE-NGO distributed the PEACe Bonds — all at the
time of origination or issuance. At this point, however, we do not know as to how many
investors the PEACe Bonds were sold to by RCBC Capital.

Should there have been a simultaneous sale to 20 or more lenders/investors, the PEACe
Bonds are deemed deposit substitutes within the meaning of Section 22(Y) of the 1997 National
Internal Revenue Code and RCBC Capital/CODE-NGO would have been obliged to pay the 20%
final withholding tax on the interest or discount from the PEACe Bonds. Further, the obligation
to withhold the 20% final tax on the corresponding interest from the PEACe Bonds would
likewise be required of any lender/investor had the latter turned around and sold said PEACe
Bonds, whether in whole or part, simultaneously to 20 or more lenders or investors.

We note, however, that under Section 24 of the 1997 National Internal Revenue Code,
interest income received by individuals from long-term deposits or investments with a holding
period of not less than five (5) years is exempt from the final tax.

Thus, should the PEACe Bonds be found to be within the coverage of deposit
substitutes, the proper procedure was for the Bureau of Treasury to pay the face value of the
PEACe Bonds to the bondholders and for the Bureau of Internal Revenue to collect the unpaid
final withholding tax directly from RCBC Capital/CODE-NGO, or any lender or investor if such be
the case, as the withholding agents.
TITLE: LUCENA D. DEMAALA vs. COMMISSION ON AUDIT, REPRESENTED BY ITS
CHAIRPERSON COMMISSIONER MA. GRACIA M. PULIDO TAN,
CITATION: G.R. No. 199752, February 17, 2015
PRINCIPLES: The power to tax is an attribute of sovereignty. It is inherent in the state.
Provinces, cities, municipalities, and barangays are mere territorial and political
subdivisions of the state. They act only as part of the sovereign. Thus, they do
not have the inherent power to tax. Their power to tax must be prescribed by
law.

It is settled that a municipal corporation unlike a sovereign state is clothed with

no inherent power of taxation. The charter or statute must plainly show an
intent to confer that power or the municipality, cannot assume it. And the
power when granted is to be construed in strictissimi juris. Any doubt or
ambiguity arising out of the term used in granting that power must be resolved
against the municipality. Inferences, implications, deductions – all these – have
no place in the interpretation of the taxing power of a municipal corporation.

Fiscal autonomy entails “the power to create . . . own sources of revenue.” In

turn, this power necessarily entails enabling local government units with the
capacity to create revenue sources in accordance with the realities and
contingencies present in their specific contexts. The power to create must mean
the local government units’ power to create what is most appropriate and
optimal for them; otherwise, they would be mere automatons that are turned
on and off to perform prearranged operations.

FACTS:
The Sangguniang Panlalawigan of Palawan enacted Provincial Ordinance No. 332-A,
Series of 1995, entitled “An Ordinance Approving and Adopting the Code Governing the Revision
of Assessments, Classification and Valuation of Real Properties in the Province of Palawan”
(Ordinance).Chapter 5, Section 48 of the Ordinance provides for an additional levy on real
property tax for the special education fund at the rate of one-half percent or 0.5%.

In conformity with Section 48 of the Ordinance, the Municipality of Narra, Palawan, with
Demaala as mayor, collected from owners of real properties located within its territory an
annual tax as special education fund at the rate of 0.5% of the assessed value of the property
subject to tax. This collection was affected through the municipal treasurer.

On post-audit, Audit Team Leader Juanito A. Nostratis issued Audit Observation

Memorandum (AOM) No. 03-005 in which he noted supposed deficiencies in the special
education fund collected by the Municipality of Narra. He questioned the levy of the special
education fund at the rate of only 0.5% rather than at 1%, the rate stated in Section 235 of
Republic Act No. 7160, otherwise known as the Local Government Code of 1991 (Local
Government Code).

After evaluating AOM No. 03-005, Regional Cluster Director Sy issued NC No. 2004-04-
101 in the amount of P1,125,416.56. He held Demaala, the municipal treasurer of Narra, and all
special education fund payors liable for the deficiency in special education fund collections.

The Municipality of Narra, through Demaala, filed the Motion for Reconsideration. It
stressed that the collection of the special education fund at the rate of 0.5% was merely in
accordance with the Ordinance. Regional Cluster Director Sy issued an Indorsement denying this
Motion for Reconsideration.
Following this, the Municipality of Narra, through Demaala, filed an appeal with the
Commission on Audit’s Legal and Adjudication Office but was denied.

The Municipality of Narra, through Demaala, then filed a Petition for Review with the
Commission on Audit.
 The Commission on Audit ruled against Demaala and affirmed LAO Local Decision No.
2006-056 with the modification that former Palawan Vice Governor Joel T. Reyes and the other
members of the Sangguniang Panlalawigan of Palawan who enacted the Ordinance were held
jointly and severally liable with Demaala, the municipal treasurer of Narra, and the special
education fund payors.

Thereafter, Demaala, who was no longer the mayor of the Municipality of Narra, filed a
Motion for Reconsideration. Former Vice Governor Joel T. Reyes and the other members of the
Sangguniang Panlalawigan of Palawan who were held liable under Decision No. 2008-087 filed a
separate Motion for Reconsideration. The Commission on Audit’s Decision No. 2011-083 dated
November 16, 2011 affirmed its September 22, 2008 Decision.

ISSUES:
1. Whether or not the respondent committed grave abuse of discretion amounting to lack
or excess of jurisdiction in holding that there was a deficiency in the Municipality of
Narra’s collection of the additional levy for the special education fund. Subsumed in this
issue is the matter of whether a municipality within the Metropolitan Manila Area, a
city, or a province may have an additional levy on real property for the special education
fund at the rate of less than 1%?

2. Whether or not the respondent correctly held that there was a deficiency, whether
respondent committed grave abuse of discretion amounting to lack or excess or
jurisdiction in holding petitioner personally liable for the deficiency.

3. Whether or not the Special Education Fund (SEF) rate is discretionary

RULINGS:

1. YES
Under the Constitution’s declared preference, the taxing powers of local
government units must be resolved in favor of their local fiscal autonomy. In City
Government of San Pablo v. Reyes:

The power to tax is primarily vested in Congress. However, in our jurisdiction, it

may be exercised by local legislative bodies, no longer merely by virtue of a valid
delegation as before, but pursuant to direct authority conferred by Section 5, Article X
of the Constitution.

Section 235 of the Local Government Code allows provinces and cities, as well
as municipalities in Metro Manila, to collect, on top of the basic annual real property
tax, an additional levy which shall exclusively accrue to the special education fund. The
operative phrase in Section 235’s grant to municipalities in Metro Manila, cities, and
provinces of the power to impose an additional levy for the special education fund is
prefixed with “may,” thus, “may levy and collect an annual tax of one percent (1%).”

In this case, the respondent concedes that Section 235’s grant to municipalities
in Metro Manila, to cities, and to provinces of the power to impose an additional levy
for the special education fund makes its collection optional. It is not mandatory that the
levy be imposed and collected. The controversy which the Commission on Audit created
is not whether these local government units have discretion to collect but whether they
have discretion on the rate at which they are to collect. It is respondent’s position that
the option granted to a local government unit is limited to the matter of whether it shall
actually collect, and that the rate at which it shall collect (should it choose to do so) is
fixed by Section 235. In contrast, it is petitioner’s contention that the option given to a
local government unit extends not only to the matter of whether to collect but also to
the rate at which collection is to be made.
2. YES.

It is basic that laws and local ordinances are “presumed to be valid unless and
until the courts declare the contrary in clear and unequivocal terms.”

Having established the propriety of imposing an additional levy for the special
education fund at the rate of 0.5%, it follows that there was nothing erroneous in the
Municipality of Narra’s having acted pursuant to Section 48 of the Ordinance. It could
thus not be faulted for collecting from owners of real properties located within its
territory an annual tax as special education fund at the rate of 0.5% of the assessed
value subject to tax of the property. Likewise, it follows that it was an error for
respondent to hold petitioner personally liable for the supposed deficiency in
collections. Even if a contrary ruling were to be had on the propriety of collecting at a
rate less than 1%, it would still not follow that petitioner is personally liable for
deficiencies. The actions of the officials of the Municipality of Narra are consistent with
the rule that ordinances are presumed valid. The mayor’s actions were done pursuant to
an ordinance which, at the time of the collection, was yet to be invalidated.

3. YES.

Fiscal autonomy entails “the power to create . . . own sources of revenue.” In turn, this
power necessarily entails enabling local government units with the capacity to create
revenue sources in accordance with the realities and contingencies present in their specific
contexts. The power to create must mean the local government units’ power to create what
is most appropriate and optimal for them; otherwise, they would be mere automatons that
are turned on and off to perform prearranged operations. Of course, fiscal autonomy
entails “working within the constraints.” To echo the language of Article X, Section 5 of the
1987 Constitution, this is to say that the taxing power of local government units is “subject
to such guidelines and limitations as the Congress may provide.” It is the 1% as a constraint
on which the respondent Commission on Audit is insisting.

There are, in this case, three (3) considerations that illumine our task of interpretation:
(1) the text of Section 235, which, to reiterate, is cast in permissive language; (2) the
seminal pur-pose of fiscal autonomy; and (3) the jurisprudentially established preference
for weighing the scales in favor of autonomy of local government units. SC found it to be in
keeping with harmonizing these considerations to conclude that Section 235’s specified rate
of 1% is a maximum rate rather than an immutable edict. Accordingly, it was well within the
power of the Sangguniang Panlalawigan of Palawan to enact an ordinance providing for
additional levy on real property tax for the special education fund at the rate of 0.5% rather
than at 1%. Section 235’s permissive language is unqualified. Moreover, there is no limiting
qualifier to the articulated rate of 1% which unequivocally indicates that any and all special
education fund collections must be at such rate.
TITLE: CE CASECNAN WATER AND ENERGY COMPANY, INC., PETITIONER VS.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
CITATION: G.R. No. 203928, July 22, 2015
ONE-LINER: Late filing of tax credit by hydro-electric power plant operator
PRINCIPLE: The thirty (30)-day period provided in Section 112 of the 1997 National Internal
Revenue Code to appeal the decision of the Commissioner of Internal Revenue
or its inaction is statutorily provided. Failure to comply is a jurisdictional error.
The window of exemption created in Commissioner of Internal Revenue v. San
Roque Power Corporation is limited to premature filing of the judicial remedy. It
does not cure lack of jurisdiction due to late filing.
FACTS:
CE Casecnan is incorporated to design, develop, construct, assemble, commission and
operate hydro-electric and GOCCs engaged in energy development, supply, or distribution.

On September 26, 2007, CE Casecnan filed before the BIR an administrative claim for
refund or issuance of tax credit certificate for the excess or unutilized input VAT in the total
amount of P26,066,286.96.11

On March 14, 2008, CE Casecnan filed its Petition for Review, due to the inaction of the
Commissioner of Internal Revenue on its administrative claim.

In his Answer, the Commissioner alleged that prescription has set in regarding
petitioner's claim for refund based on Section 112 (C) of the Tax Code.

Court of Tax Appeals Former Second Division denied CE Casecnan's judicial claim for
having been filed beyond the thirty (30)-day period prescribed in Section 112 (c) of the Tax
Code. Likewise, its Motion for Reconsideration was denied. The Court of Tax Appeals En Banc
also denied the petition.

ISSUE: Whether or not the Court of Tax Appeals En Banc erred in denying petitioner CE
Caseenan claim for refund due to prescription.

Ruling:

Yes, it is barred by prescription.

Section 112. Refunds or Tax Credits of Input Tax. —

C. Period within which Refund or Tax Credit of Input Taxes shall be Made. — In
proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120) days from the date of submission
of complete documents in support of the application filed in accordance with Subsection
(A) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the
failure on the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of
the decision denying the claim or after the expiration of the one hundred twenty day-
period, appeal the decision or the unacted claim with the Court of Tax Appeals.

There is no room for any other interpretation of the text. Resort to an appeal before the
Court of Tax Appeals should be made only within thirty (30) days either from receipt of the
decision denying the claim or the expiration of the one hundred twenty (120)-day period given
to the Commissioner to decide the claim.

Republic Act No. 1125, as amended by Section 9 of Republic Act No. 9282, which
provides a thirty (30)-day period of appeal either from receipt of the adverse decision of the
Commissioner or from the lapse of the period fixed by law for action:
 SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely
affected by a decision, ruling or inaction of the Commissioner of Internal Revenue . . .
may file an appeal with the CTA within thirty (30) days after the receipt of such decision
or ruling or after the expiration of the period fixed by law for action as referred to in
Section 7(a)(2)33 herein.

Rule 42 of the 1997 Rules of Civil Procedure also provides that appeal should be filed
CTA within thirty (30) days from the receipt of the decision or ruling or in the case of inaction as
herein provided, from the expiration of the period fixed by law to act thereon.

In this case, there is even no rule, regulation, or doctrine to support petitioner's stance.
Clearly, the thirty (30)-day statutory period within which to file a petition for review is
jurisdictional. Non-compliance bars the Court of Tax Appeals from taking cognizance of the
appeal and determining the veracity of the tax refund or credit claim.
TITLE: ING Bank N.V. V. COMMISSIONER OF INTERNAL REVENUE
CITATION: G.R. No. 167679, JULY 22, 2015
ONE LINER: A tax amnesty “partakes of an absolute waiver by the Government of its right to
collect what otherwise would be due it.”
FACTS:

ING Bank, "the Philippine branch of Internationale Nederlanden Bank N.V., a foreign
banking corporation incorporated in the Netherlands, is duly authorized by the Bangko Sentral
ng Pilipinas to operate as a branch with full banking authority in the Philippines."

Petitioner ING Bank asserts that it is "qualified to avail of the tax amnesty under Section
5 [of Republic Act No. 9480] and not disqualified under Section 8 [of the same law]."
Furthermore, Petitioner ING Bank claims that it is not liable for withholding taxes on bonuses
accruing to its officers and employees during taxable years 1996 and 1997. It maintains its
position that the liability of the employer to withhold the tax does not arise until such bonus is
actually distributed. Petitioner ING Bank further argues that the Court of Tax Appeals' discussion
on Section 29(j) of the 1993 National Internal Revenue Code and Section 3 of Revenue
Regulations No. 8-90 is not applicable in the issue in this case.

In petitioner's case, bonuses were determined during the year (1996 and 1997) but
were distributed in the succeeding year. No withholding of income tax was affected but the
bonuses were claimed as an expense for the year. Since the bonuses were not subjected to
withholding tax during the year they were claimed as an expense, the same should be
disallowed.

ISSUES:
1. Whether petitioner ING Bank may validly avail itself of the tax amnesty granted by
Republic Act No. 9480;
2. Whether petitioner ING Bank is liable for deficiency withholding tax on accrued bonuses
for the taxable years 1996 and 1997.
RULING:
1. Yes.

Qualified taxpayers with pending tax cases may still avail themselves of the tax
amnesty
program. Thus, the provision in BIR Revenue Memorandum Circular No. 19-2008
excepting "issues and cases which were ruled by any court (even without finality) in
favor of the BIR prior to amnesty availment of the taxpayer" from the benefits of the
law is illegal, invalid, and null and void. The duty to withhold the tax on compensation
arises upon its accrual.

2. Yes.

We hold that the obligation of the payor/employer to deduct and withhold the
related withholding tax arises at the time the income was paid or accrued or recorded as
an expense in the payor's/employer's books, whichever comes first.

Petitioner ING Bank accrued or recorded the bonuses as deductible expense in

its books. Therefore, its obligation to withhold the related withholding tax due from the
deductions for accrued bonuses arose at the time of accrual and not at the time of
actual payment.
TITLE: AIR CANADA VS. COMMISSIONER OF INTERNAL REVENUE
CITATION: GR No. 169507; January 11, 2016
PRINCIPLE: “Offsetting; The taxpayer cannot simply refuse to pay tax on the ground that the
tax liabilities were offset against any alleged claim the taxpayer may have
against the government.”

FACTS:
Air Canada is an offline air carrier selling passage tickets in the Philippines, through a
general sales agent, Aerotel. As an off-line carrier, Air Canada does not have flights originating
from or coming to the Philippines and does not operate any airplane in the Philippines.

Then, Air Canada filed a claim for refund for more than 5 million pesos. It claims that
there was overpayment, saying that the applicable tax rate against it is 2.5% under the law on
tax on Resident Foreign Corporations (RFCs) for international carriers. It argues that, as
an international carrier doing business in the Philippines, it is not subject to tax at the regular
rate of 32%.

Then, Air Canada also claims that it is not taxable because its income is taxable only in
Canada because of the Philippines-Canada Treaty. According to it, even if taxable, the rate
should not exceed 1.5% as stated in said treaty.

However, the CTA ruled that Air Canada was engaged in business in the Philippines
through a local agent that sells airline tickets on its behalf. As such, it should be taxed as a
resident foreign corporation at the regular rate of 32%.

The CTA also said that Air Canada cannot avail of the lower tax rate under the treaty
because it has a "permanent establishment" in the Philippines. Hence, Air Canada cannot avail
of the tax exemption under the treaty.

ISSUE:
Whether or not the taxpayer, Air Canada, may offset his tax liability since Air Canada has
a taxpayer’s refund claim from the Court of Tax Appeals’ findings of its liability. (overpayment
for another tax liability)

RULING:
No. The general rule, based on grounds of public policy is well-settled that no setoff is
admissible against demands for taxes levied for general or local governmental purposes. The
reason on which the general rule is based, is that taxes are not in the nature of contracts
between the party and party but grow out of a duty to, and are the positive acts of the
government, to the making and enforcing of which, the personal consent of individual taxpayers
is not required. * * * If the taxpayer can properly refuse to pay his tax when called upon by the
Collector, because he has a claim against the governmental body which is not included in the tax
levy, it is plain that some legitimate and necessary expenditure must be curtailed. If the
taxpayer’s claim is disputed, the collection of the tax must await and abide the result of a
lawsuit, and meanwhile the financial affairs of the government will be thrown into great
confusion.

In sum, the taxpayer cannot simply refuse to pay tax on the ground that the tax
liabilities were offset against any alleged claim the taxpayer may have against the government.
Such would merely be in keeping with the basic policy on prompt collection of taxes as the
lifeblood of the government.

Here, what is involved is a denial of a taxpayer’s refund claim on account of the Court of
Tax Appeals’ finding of its liability for another tax in lieu of the Gross Philippine Billings tax that
was allegedly erroneously paid.
TITLE: BANCO DE ORO VS. REPUBLIC
CITATION: G.R. NO. 198756, AUGUST 16, 2016
PRINCIPLES: Remedy - Jurisdiction to review the rulings of the Commissioner of Internal
Revenue pertains to the Court of Tax Appeals. In exceptional cases, the Supreme
Court (SC) entertained direct recourse to it when “dictated by public welfare
and the advancement of public policy, or demanded by the broader interest of
justice, or the orders complained of were found to be patent nullities, or the
appeal was considered as clearly an inappropriate remedy.”

Deposit Substitutes - The term ‘deposit substitutes’ shall mean an

alternative form of obtaining funds from the public (the term ‘public’ means
borrowing from twenty [20] or more individual or corporate lenders at any one
time) other than deposits, through the issuance, endorsement, or acceptance of
debt instruments for the borrower’s own account, for the purpose of relending
or purchasing of receivables and other obligations, or financing their own needs
or the needs of their agent or dealer. [20-lender rule]
Interest income from deposit substitutes are necessarily part of taxable income.

Withholding Tax - When there are twenty (20) or more

lenders/investors in a transaction for a specific bond issue, the seller is required
to withhold the twenty percent (20%) final income tax on the imputed interest
income from the bonds.

A final withholding tax at the rate of twenty percent (20%) is imposed

on interest on any currency bank deposit and yield or any other monetary
benefit from deposit substitutes and from trust funds and similar arrangements.
Under Section 24 NIRC, interest income received by individuals from long-term
deposits or investments with a holding period of not less than five (5) years is
exempt from the final tax.

Prescription - The three (3)-year prescriptive period under Section 203

of the 1997 National Internal Revenue Code (NIRC) to assess and collect internal
revenue taxes is extended to ten (10) years in cases of (1) fraudulent returns; (2)
false returns with intent to evade tax; and (3) failure to file a return, to be
computed from the time of discovery of the falsity, fraud, or omission.-

FACTS:

In 2001, the Bureau of Treasury auctioned P30 billion government bonds (later named
PEACe Bond). It stated that the issue being limited to 19 buyers/lenders and while taxable shall
not be subject to the 20% final withholding tax. RCBC, on behalf of CODE-NGO, participated and
won the bid. Banco de Oro, and the other banks, purchased the bonds from RCBC on different
dates. In 2011 (10 years thereafter) barely 11 days before maturity of the PEACe Bonds, the
Commissioner of Internal Revenue issued a BIR Ruling declaring that the PEACe Bonds, being
deposit substitutes, were subject to 20% final withholding tax. And another BIR Ruling, that the
final withholding tax due on the PEACe Bonds should be imposed and withheld not only on RCBC
but also on all subsequent holders of the bonds.

ISSUE: Are the PEACe Bonds proper subject to the 20% FWT? Or iow, Are the PEACe
Bonds considered as deposit substitutes subject to 20%FWT

RULING: NO, they are not.

The term ‘deposit substitutes’ mean an alternative form of obtaining funds from the
public (the term ‘public’ means borrowing from twenty [20] or more individual or corporate
lenders at any one time). And when there are twenty (20) or more lenders/investors in a
transaction for a specific bond issue, the seller is required to withhold the twenty percent (20%)
final income tax on the imputed interest income from the bonds.
 To determine whether the financial assets, i.e., debt instruments and securities, are
deposit substitutes, the "20 or more individual or corporate lenders" rule must apply. Moreover,
the determination of the phrase "at any one time" to determine the "20 or more lenders" is to
be determined at the time of the original issuance. (Bureau of Treasury issued P35 billion worth
of Bonds to RCBC) This being the case, the PEACe Bonds were not to be treated as deposit
substitutes.
TITLE: COMMISSIONER OF INTERNAL REVENUE VS. FITNESS BY DESIGN, INC.
CITATION: G.R. No. 215957, November 9, 2016

FACTS:

On June 2004, respondent Fitness by Design received a copy of the Final Assessment
Notice dated March 17, 2004 issued by petitioner Commissioner of Internal Revenue notifying
the respondent’s tax liabilities for the year 1995. Respondent filed a protest to the notice
pleading prescription. In its answer, petitioner claimed that its right to assess had not yet
prescribed because the 1995 income tax return filed by respondent was false and fraudulent for
its alleged intentional failure to reflect its true sales.

ISSUE: Is Final Assessment Notice Invalid?

RULING:

Yes. The Final Assessment is invalid. There are no due dates in the Final Assessment Notice. This
negates petitioner's demand for payment. Petitioner's contention that April 15, 2004 should be
regarded as the actual due date cannot be accepted. The last paragraph of the Final Assessment
Notice states that the due dates for payment were supposedly reflected in the attached
assessment. Contrary to petitioner's view, April 15, 2004 was the reckoning date of accrual of
penalties and surcharges and not the due date for payment of tax liabilities. The total amount
depended upon when respondent decides to pay. The notice, therefore, did not contain a
definite and actual demand to pay. The Court of Tax Appeals did not err in cancelling the Final
Assessment Notice as well as the Audit Result/Assessment Notice issued by petitioner to
respondent for the year 1995 covering the "alleged deficiency income tax, value-added tax and
documentary stamp tax amounting to P10,647,529.69, inclusive of surcharges and interest" for
lack of due process. Thus, the Warrant of Distraint and/or Levy is void since an invalid
assessment bears no valid effect. Petition is Denied.
TITLE: REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE BUREAU OF INTERNAL
REVENUE (BIR) v. GMCC UNITED DEVELOPMENT CORPORATION, JOSE C. GO,
AND XU XIAN CHUN
CITATION: G.R. NO. 191856, DECEMBER 7, 2016

PRINCIPLE: Except as provided in Section 222, internal revenue taxes shall be assessed
within three (3) years after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for the collection of such
taxes shall be begun after the expiration of such period: Provided, That in a case
where a return is filed beyond the period prescribed by law, the three (3)-year
period shall be counted from the day the return was filed… For the ten-year
period under Section 222(a) to apply, it is not enough that fraud is alleged in the
complaint, it must be established by clear and convincing evidence.

FACTS:

In 1999, GMCC sold condominiums units and parking slots for a total amount of
P5,350,000.00. GMCC did not declare the income it earned from these transactions in its 1999
Auditied Financial Statements. On November 17, 2003, the BIR issued a Notice to Taxpayer to
GMCC, which GMCC ignored. When the BIR issued the Final Assessment Notice, GMCC
responded. In a Letter dated November 23, 2004, GMCC protested the issuance of the Final
Assessment Notice citing that the period to assess and collect the tax had already prescribed.

According to GMCC, assuming that the period to assess had not yet prescribed there
was nothing to declare since it earned no income from the dacion en pago transactions. Even
though the dacion en pago transactions were not included in the GMCC 1998 Financial
Statement, they had been duly reflected in the GMCC 2000 Financial Statement.

ISSUES:

1. Whether the Court of Appeals erred in declaring that the Secretary of Justice did not
commit grave abuse of discretion when he found no probable cause and dismissed the
tax evasion case against the respondent officers of GMCC.

2. Whether the applicable prescriptive period for the tax assessment is the ten-year period
or the three-year period.

RULINGS:
1. NO.

In First Women's Credit Corporation v. Baybay the Court said: It is settled that the
determination of whether probable cause exists to warrant the prosecution in court of
an accused should be consigned and entrusted to the Department of Justice, as
reviewer of the findings of public prosecutors. The court's duty in an appropriate case is
confined to a determination of whether the assailed executive or judicial determination
of probable cause was done without or in excess of jurisdiction or with grave abuse of
discretion amounting to want of jurisdiction. This is consistent with the general rule that
criminal prosecutions may not be restrained or stayed by injunction, preliminary or final,
albeit in extreme cases, exceptional circumstances have been recognized. The rule is
also consistent with this Court's policy of non-interference in the conduct of preliminary
investigations, and of leaving to the investigating prosecutor sufficient latitude of
discretion in the exercise of determination of what constitutes sufficient evidence as will
establish probable cause for the filing of an information against a supposed offender.

As it stands, while the dacion en pago transactions were missing in the GMCC 1998
Financial Statement, they had been listed in the GMCC 2000 Financial Statement.39
Respondents' act of filing and recording said transactions in their 2000 Financial
Statement belie the allegation that they intended to evade paying their tax liability.
2. It is the 3-year prescriptive period.

Section 203 of the National Internal Revenue Code: Period of Limitation Upon
Assessment and Collection. Except as provided in Section 222, internal revenue taxes
shall be assessed within three (3) years after the last day prescribed by law for the filing
of the return, and no proceeding in court without assessment for the collection of such
taxes shall be begun after the expiration of such period: Provided, That in a case where
a return is filed beyond the period prescribed by law, the three (3)-year period shall be
counted from the day the return was filed.

For the ten-year period under Section 222(a) to apply, it is not enough that
fraud is alleged in the complaint, it must be established by clear and convincing
evidence. The petitioner, having failed to discharge the burden of proving fraud, cannot
invoke Section 222(a). In GMCC's case, the last day prescribed by law for filing its 1998
tax return was April 15, 1999. The petitioner had three years or until 2002 to make an
assessment. Since the Preliminary Assessment was made only on December 8, 2003, the
period to assess the tax had already prescribed.
TITLE: COMMISSIONER OF INTERNAL REVENUE vs. SAN MIGUEL CORPORATION
CITATION: G.R. No. 205045/205723 January 25, 2017

FACTS:

SMC wrote a letter requesting the registration and authority to manufacture "San Mig
Light," to be taxed at ₱12.15 per liter, which the BIR granted the request, confirming that SMC
can register, manufacture, and sell "San Mig Light" as a new brand. The CIR issued a Notice of
Discrepancy stating that "San Mig Light," launched in November 1999, is not a new brand but
merely a low-calorie variant of "San Miguel Pale Pilsen." Thus, the application of the higher
excise tax rate for variant products is appropriate (₱19.91 per liter instead of ₱9.15 per liter) and
SMC should not be entitled to a refund or issuance of a tax credit certificate. The CTA sided with
SMC; hence, this petition by the CIR with the SC.

ISSUE: Can the BIR change the classification of San Mig Light from new brand to variant
brand?

RULING: No, the BIR cannot change the classification of San Mig Light from new brand to
variant brand.

RA No. 9334 requires that reclassification of certain fermented liquor

products introduced between January 1, 1997 and December 31, 2003 can only be
done by an act of Congress.
TITLE: COMMISSIONER OF INTERNAL REVENUE VS. APO CEMENT
CORPORATION
CITATION: G.R. No. 193381. February 8, 2017

FACTS:
The Bureau of Internal Revenue (or “BIR”) sent Apo Cement Corporation (or “Apo”) a Final
Assessment Notice (or “FAN”) for deficiency taxes. Apo filed a protest to the FAN but was
denied by the BIR. Subsequently, Apo filed a Petition for Review with the Court of Tax Appeals
(or “CTA”). Later on, Apo availed of the tax amnesty under RA 9480 on January 25, 2008.
Consequently, Apo filed a Motion to Cancel Tax Assessment. On April 2009, the Commissioner
filed its Opposition challenging Apo’s SALN.

The CTA granted Apo’s Motion to Cancel Tax Assessment, and it also found Apo a qualified
tax amnesty applicant under RA 9480 which is fully compliant with the requirements of said law.

The Commissioner filed a Motion for Reconsideration, which the CTA denied. The
Commissioner appealed to the En Banc, which was dismissed.

Hence, the Commissioner filed a Petitioner for Review before the Supreme Court (or “SC”).
On this petition, the Commissioner was directed to submit a sufficient verification, which it did
not comply. The Commissioner argued that while the verification still stated “belief,” it was
qualified by “based on authentic records.” Hence, “the statement implies that the contents of
the petition were based not only on the pleader’s belief but ultimately they are recitals from
authentic records.”

ISSUES:

1. Whether or not the verification in the pleading made by the Commissioner is sufficient.
2. Whether or not Apo is a qualified tax amnesty applicant under RA 9480.
3. Whether or not the proceeding to challenge the Statements of Assets, Liabilities and Net
worth (SALN), as required under RA 9480 to avail of the tax amnesty, was timely filed.
4. Whether or not the Commissioner is the proper party to question the veracity of Apo’s
SALN.

RULING:

1. No. A pleading required to be verified which contains a verification based on “information

and belief”, or upon “knowledge, information and belief”, or lacks a proper verification,
shall be treated as an unsigned pleading. Mere belief is insufficient bases and negates the
verification which should be on the basis of personal knowledge or authentic records. In the
case at bar, the Commissioner’s verification stated “belief based on authentic records”,
which is considered as an unsigned pleading under the Rules. Hence, the verification in the
pleading made by the Commissioner is not sufficient.

2. Yes. Under RA 9480, any person, natural or juridical, who wishes to avail himself of the tax
amnesty authorized and granted under this Act shall filed with the BIR a notice and Tax
Amnesty Return accompanied by a SALN as of December 31, 2005, and pay the applicable
amnesty tax within six months from the effectivity of the IRR. Here, it is undisputed that
Apo had submitted all the documentary requirements and paid the required amnesty tax.
Therefore, Apo is a qualified tax amnesty applicant under RA 9480.

3. No. RA 9480 provides that the proceeding to challenge the SALN must be initiated within
one year following the date of filing of the Tax Amnesty documents. In this case, Apo
availed of the tax amnesty program on January 25, 2008. However, the Commissioner’s
challenge was made only in April 2009. It follows that said challenge was already time-
barred. Hence, the proceeding to challenge the SALN of Apo was not timely filed.
4. No. Under RA 9480, the SALN as of December 31, 2005 shall be considered as true and
correct except where the amount of declared net worth is understated to the extent of 30%
or more as may be established in proceedings initiated by, or at the instance of, parties
other than the BIR or its agents. In the case at bar, the Commissioner challenged the
veracity of Apo’s SALN, which under the law is expressly prohibited. Therefore, the
Commissioner is not the proper party to question the veracity of Apo’s SALN.
TITLE: NATIONAL POWER CORPORATION v. PROVINCIAL GOVERNMENT OF BATAAN
CITATION: G.R. NO. 180654, March 6, 2017
ONE-LINER: Franchise tax can only be imposed on businesses enjoying a franchise.

FACTS:

The National Power Corporation (NPC) received a notice of franchise tax delinquency from
the Provincial Government of Bataan (the Province) covering the years 2001, 2002, and 2003.
The assessment was based on NPC's sale of electricity that it generated from two power plants
in Bataan. Rather than pay the tax or reject it, NPC reserved its right to contest the computation
pending the decision of the Supreme Court in National Power Corporation v. City of Cabanatuan,
where the issue of NPC's exemption from the payment of local franchise tax was then pending.

In 2003, the Court decided in National Power Corporation v. City of Cabanatuan that NPC is
liable for the payment of local franchise tax. NPC replied, however, that it is not liable for the
payment of that tax after Congress enacted Republic Act 9136, or the Electric Power Industry
Reform Act (EPIRA) that took effect in 2001. The new law relieved NPC of the function of
transmitting electricity beginning that year. Consequently, the Province has no right to further
assess it for the 2001, 2002, and 2003 local franchise tax.

However, the Province issued a "Warrant of Levy" on 14 real properties that it used to own
in Bataan. The NPC filed with the RTC a petition for declaration of nullity of the foreclosure sale
with prayer for preliminary mandatory injunction against the Province, but such petition was
denied. Thus, the NPC appealed the RTC Decision to the Court of Appeals.

ISSUES:
1. Whether or not the Court of Appeals has jurisdiction over the case.
2. Whether or not the NPC is liable for the payment of local franchise tax imposed under
Section 137 of Republic Act No. 7160 (the Local Government Code of 1991.

RULING:

As to the first issue:

The Court of Appeals has no jurisdiction over the case.

Republic Act No. 9282, which amended Republic Act No. 1125, took effect on April 23,
2004, and significantly expanded the extent and scope of the cases that the Court of Tax
Appeals was tasked to hear and adjudicate. Under Section 7, paragraph (a)(3), the Court of
Tax Appeals is vested with the exclusive appellate jurisdiction over, among others, appeals
from the "decisions, orders or resolutions of the Regional Trial Courts in local tax cases
originally decided or resolved by them in the exercise of their original or appellate
jurisdiction."

The case a quo is a local tax case that is within the exclusive appellate jurisdiction of
the Court of Tax Appeals. Parenthetically, the case arose from the dispute between NPC
and respondents over the purported franchise tax delinquency of NPC. Although the
complaint filed with the trial court is a Petition for declaration of nullity of foreclosure sale
with prayer for preliminary mandatory injunction, a reading of the petition shows that it
essentially assails the correctness of the local franchise tax assessments by the Province.

As to the second issue:

Section 137 of the Local Government Code provides:

Section 137. Franchise Tax.- Notwithstanding any exemption granted by any law or
other special law, the province may impose a tax on businesses enjoying a franchise, at
a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual
 receipts for the preceding calendar year based on the incoming receipt, or realized,
within its territorial jurisdiction.

Section 137 is categorical in stating that franchise tax can only be imposed on
businesses enjoying a franchise. This goes without saying that without a franchise, a local
government unit cannot impose franchise tax.

Apparently, the enactment of EPIRA separated the transmission and sub-transmission

functions of the state-owned NPC from its generation function, and transferred all its
transmission assets to the then newly-created TRANSCO, which was wholly owned by
PSALM Corporation at that time. Power generation is no longer considered a public utility
operation, and companies which shall engage in power generation and supply of electricity
are no longer required to secure a national franchise.

EPIRA effectively removed power generation from the ambit of local franchise taxes.
Hence, as regards NPC's business of generating electricity, the franchise taxes sought to be
collected by the Provincial Government of Bataan for the latter part of 2001 up to 2003 are
devoid of any statutory basis.
TITLE: CE LUZON GEOTHERMAL POWER CO., INC. VS. COMMISSIONER OF INTERNAL
REVENUE
CITATION: G.R. NO. 197526, 199676, 199677
PRINCIPLE: The 120-day (NOW 90 DAYS UNDER THE TRAIN LAW) and 30-day
reglementary periods under Section 112(C) of the National Internal Revenue
Code are both mandatory and jurisdictional. Non-compliance with these
periods renders a judicial claim for refund of creditable input tax premature.

FACTS:

CE Luzon is a VAT-registered taxpayer. The sale of generated power by generation

companies is a zero-rated transaction under Section 6 of Republic Act No. 9136.

CE Luzon incurred unutilized creditable input tax amounting to P26,574,388.99 for taxable
year 2003. CE Luzon then filed before the Bureau of Internal Revenue an administrative claim
for refund of its unutilized creditable input tax. Without waiting for the Commissioner of
Internal Revenue to act on its claim, or for the expiration of 120 days, CE Luzon instituted before
the Court of Tax Appeals a judicial claim for refund of its first quarter unutilized creditable input
tax on March 30, 2005.

Meanwhile, on June 24, 2005, CE Luzon received the Commissioner of Internal Revenue's
decision denying its claim for refund of creditable input tax for the second quarter of 2003.

On June 30, 2005, CE Luzon filed before the Court of Tax Appeals a judicial claim for refund
of unutilized creditable input tax for the second to fourth quarters of taxable year 2003.

The Court of Tax Appeals En Banc ruled that CE Luzon failed to observe the 120-day period
under Section 112(C) of the National Internal Revenue Code. Hence, it was barred from claiming
a refund of its input VAT for taxable year 2003. The Court of Tax Appeals En Banc held that CE
Luzon's judicial claims were prematurely filed. CE Luzon should have waited either for the
Commissioner of Internal Revenue to render a decision or for the 120-day period to expire
before instituting its judicial claim for refund.

CE Luzon moved for partial reconsideration. On June 27, 2011, the Court of Tax Appeals En
Banc rendered a second Amended Decision, partially granting CE Luzon's claim for unutilized
creditable input tax but only for the second quarter of taxable year 2003 and only up to the
extent of P3,764,386.47. The Court of Tax Appeals En Banc relied on Commissioner of Internal
Revenue v. Aichi Forging Company of Asia, Inc. in partially granting the petition.

The Court of Tax Appeals En Banc found that CE Luzon's judicial claim for refund of input tax
for the second quarter of 2003 was timely filed. However, the Court of Tax Appeals En Banc
disallowed P804,072.02 to be refunded because of CE Luzon's non-compliance with the
documentation and invoicing requirements

ISSUE: Whether or not Non-compliance with these periods: The 120-day (NOW 90 DAYS
UNDER THE TRAIN LAW) and 30-day reglementary periods renders a judicial claim
for refund of creditable input tax premature.

RULING: YES

Excess input tax or creditable input tax is not an erroneously, excessively, or illegally
collected tax. Hence, it is Section 112(C) and not Section 229 of the National Internal Revenue
Code that governs claims for refund of creditable input tax.

The tax credit system allows a VAT-registered entity to "credit against or subtract from the
VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports."
 The VAT paid by a VAT-registered entity on its imports and purchases of goods and services
from another VAT-registered entity refers to input tax. On the other hand, output tax refers to
the VAT due on the sale of goods, properties, or services of a VAT-registered person.

Ordinarily, VAT-registered entities are liable to pay excess output tax if their input tax is less
than their output tax at any given taxable quarter. However, if the input tax is greater than the
output tax, VAT-registered persons can carry over the excess input tax to the succeeding taxable
quarter or quarters.

Nevertheless, if the excess input tax is attributable to zero-rated or effectively zero-rated

transactions, the excess input tax can only be refunded to the taxpayer or credited against the
taxpayer's other national internal revenue tax. Availing any of the two (2) options entail
compliance with the procedure outlined in Section 112, not under Section 229, of the National
Internal Revenue Code.

Section 229 of the National Internal Revenue Code, in relation to Section 204(C), pertains to
the recovery of excessively, erroneously, or illegally collected national internal revenue tax.
Sections 204(C) and 229 provide:

Section 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit
Taxes. - The Commissioner may -

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without
authority, refund the value of internal revenue stamps when they are returned in good
condition by the purchaser, and, in his discretion, redeem or change unused stamps that
have been rendered unfit for use and refund their value upon proof of destruction. No
credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or refund within two (2) years after the payment
of the tax or penalty: Provided, however, That a return filed showing an overpayment shall
be considered as a written claim for credit or refund.

Section 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall
be maintained in any court for the recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, or of any sum alleged to have been
excessively or in any manner wrongfully collected, until a claim for refund or credit has
been duly filed with the Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years
from the date of payment of the tax or penalty regardless of any supervening cause that may
arise after payment: Provided, however, That the Commissioner may, even without a written
claim therefor, refund or credit any tax, where on the face of the return upon which payment
was made, such payment appears clearly to have been erroneously paid.

The procedure outlined above provides that a claim for refund of excessively or erroneously
collected taxes should be made within two (2) years from the date the taxes are paid. Both the
administrative and judicial claims should be brought within the two (2)-year prescriptive period.
Otherwise, they shall forever be barred. However, Section 229 presupposes that the taxes
sought to be refunded were wrongfully paid.

It is unnecessary to construe and harmonize Sections 112(C) and 229 of the National
Internal Revenue Code. Excess input tax or creditable input tax is not an excessively,
erroneously, or illegally collected tax because the taxpayer pays the proper amount of input tax
at the time it is collected. That a VAT-registered taxpayer incurs excess input tax does not mean
that it was wrongfully or erroneously paid. It simply means that the input tax is greater than the
output tax, entitling the taxpayer to carry over the excess input tax to the succeeding taxable
quarters. If the excess input tax is derived from zero-rated or effectively zero-rated transactions,
the taxpayer may either seek a refund of the excess or apply the excess against its other internal
revenue tax.

The distinction between "excess input tax" and "excessively collected taxes" can be
understood further by examining the production process vis-a-vis the VAT system. In
Commissioner of Internal Revenue v. San Roque:

The input VAT is not "excessively" collected as understood under Section 229 because at
the time the input VAT is collected the amount paid is correct and proper. The input VAT is a tax
liability of, and legally paid by, a VAT-registered seller of goods, properties or services used as
input by another VAT-registered person in the sale of his own goods, properties, or services. This
tax liability is true even if the seller passes on the input VAT to the buyer as part of the purchase
price. The second VAT-registered person, who is not legally liable for the input VAT, is the one
who applies the input VAT as credit for his own output VAT. If the input VAT is in fact
"excessively" collected as understood under Section 229, then it is the first VAT-registered
person — the taxpayer who is legally liable and who is deemed to have legally paid for the input
VAT — who can ask for a tax refund or credit under Section 229 as an ordinary refund or credit
outside of the VAT System. In such event, the second VAT-registered taxpayer will have no input
VAT to offset against his own output VAT.

In a claim for refund or credit of "excess" input VAT under Section 110 (B) and Section 112
(A), the input VAT is not "excessively" collected as understood under Section 229. At the time of
payment of the input VAT the amount paid is the correct and proper amount. Under the VAT
System, there is no claim or issue that the input VAT is "excessively" collected, that is, that the
input VAT paid is more than what is legally due. The person legally liable for the input VAT
cannot claim that he overpaid the input VAT by the mere existence of an "excess" input VAT.
The term "excess" input VAT simply means that the input VAT available as credit exceeds the
output VAT, not that the input VAT is excessively collected because it is more than what is
legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for refund or credit
of the input VAT as "excessively" collected under Section 229.

Considering that creditable input tax is not an excessively, erroneously, or illegally collected
tax, Section 112(A) and (C) of the National Internal Revenue Code govern:

Section 112. Refunds or Tax Credits of Input Tax. -

(A) Zero-rated or Effectively Zero-rated Sales. — Any VAT-registered person, whose sales
are zero-rated or effectively zero-rated may, within two (2) years after the close of the
taxable quarter when the sales were made, apply for the issuance of a tax credit certificate
or refund of creditable input tax due or paid attributable to such sales, except transitional
input tax, to the extent that such input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2)
and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds
thereof had been duly accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in
zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or
properties or services, and the amount of creditable input tax due or paid cannot be
directly and entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable
input taxes within one hundred twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance with Subsection (A) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the
part of the Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim
or after the expiration of the one hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals.
 Section 112(C) of the National Internal Revenue Code provides two (2) possible scenarios.
The first is when the Commissioner of Internal Revenue denies the administrative claim for
refund within 120 days. The second is when the Commissioner of Internal Revenue fails to act
within 120 days. Taxpayers must await either for the decision of the Commissioner of Internal
Revenue or for the lapse of 120 days before filing their judicial claims with the Court of Tax
Appeals. Failure to observe the 120-day period renders the judicial claim premature.

CE Luzon's reliance on Atlas is misplaced because Atlas did not squarely address the issue
regarding the prescriptive period in filing judicial claims for refund of creditable input tax. Atlas
did not expressly or impliedly interpret Section 112(C) of the National Internal Revenue Code.
The main issue in Atlas was the reckoning point of the two (2)-year prescriptive period stated in
Section 112(A). The interpretation in Atlas was later rectified in Commissioner of Internal
Revenue v. Mirant Pagbilao Corporation.

It was Aichi that directly tackled and interpreted Section 112(C) of the National Internal
Revenue Code. In determining whether Aichi's judicial claim for refund of creditable input tax
was timely filed, this Court declared:

Section 112 (D) of the NIRC clearly provides that the CIR has "120 days, from the date of the
submission of the complete documents in support of the application [for tax
refund/credit]," within which to grant or deny the claim. In case of full or partial denial by
the CIR, the taxpayer's recourse is to file an appeal before the CTA within 30 days from
receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act
on the application for tax refund/credit, the remedy of the taxpayer is to appeal the
inaction of the CIR to CTA within 30 days.

Respondent's assertion that the non-observance of the 120-day period is not fatal to the
filing of a judicial claim as long as both the administrative and the judicial claims are filed within
the two-year prescriptive period has no legal basis.

There is nothing in Section 112 of the NIRC to support respondent's view. Subsection (A) of
the said provision states that "any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two years after the close of the taxable quarter when the
sales were made, apply for the issuance of a tax credit certificate or refund of creditable input
tax due or paid attributable to such sales." The phrase "within two (2) years . . . apply for the
issuance of a tax credit certificate or refund" refers to applications for refund/credit filed with
the CIR and not to appeals made to the CTA. This is apparent in the first paragraph of subsection
(D) of the same provision, which states that the CIR has "120 days from the submission of
complete documents in support of the application filed in accordance with Subsections (A) and
(B)" within which to decide on the claim.

The Aichi doctrine was reiterated by this Court in San Roque, which held that the 120-day
and 30-day periods in Section 112(C) of the National Internal Revenue Code are both mandatory
and jurisdictional.

In the present case, only CE Luzon's second quarter claim was filed on time. Its claims for
refund of creditable input tax for the first, third, and fourth quarters of taxable year 2003 were
filed prematurely. It did not wait for the Commissioner of Internal Revenue to render a decision
or for the 120-day period to lapse before elevating its judicial claim with the Court of Tax
Appeals.
TITLE: COMMISSIONER OF INTERNAL REVENUE vs. TRANSITIONS OPTICAL
PHILIPPINES, INC.
CITATION: G.R. No. 227544 November 22, 2017
PRINCIPLE: Estoppel applies against a taxpayer who did not only raise at the earliest
opportunity its representative's lack of authority to execute two (2) waivers
of defense of prescription, but was also accorded, through these waivers,
more time to comply with the audit requirements of the Bureau of Internal
Revenue. Nonetheless, a tax assessment served beyond the extended period
is void.

FACTS:

On April 28, 2006, Transitions Optical received a Letter of Authority to authorize Revenue
Officers to examine their books of accounts for internal revenue tax purposes for taxable year
2004. On October 9, 2007, the parties executed the First Waiver of the Defense of Prescription
for the year 2004. This was followed by a Second Waiver dated June 2, 2008.

Thereafter, the Commissioner of Internal Revenue issued a Preliminary Assessment Notice

(PAN) assessing Transitions Optical for its deficiency taxes for 2004. Transitions Optical filed a
written protest. The Commissioner subsequently issued a Final Assessment Notice (FAN) dated
November 28, 2008. Transitions Optical alleged that the demand for deficiency taxes had
already prescribed at the time the FAN was mailed, and claimed that the FAN was void. Years
later, the Commissioner issued a Final Decision on the Disputed Assessment, to which
Transitions Optical filed a Petition for Review before the Court of Tax Appeals. The CTA ruled in
favor of Transitions Optical. The CIR filed a Motion for Reconsideration which was denied. Thus,
they appealed to the Supreme Court.

The CIR contends that “the two Waivers executed by the parties on October 9, 2007 and
June 2, 2008 substantially complied with the requirements of Sections 203 and 222 of the
National Internal Revenue Code. They further maintain that respondent is estopped from
questioning the validity of the waivers since their execution was caused by the delay occasioned
by respondent's own failure to comply with the orders of the Bureau of Internal Revenue to
submit documents for audit and examination. Transition Optical contends that the CTA properly
found the waivers defective and thus void, asserting that it is not estopped from questioning the
validity of the waivers as it raised its objections at the earliest opportunity. It adds that the three
(3)-year prescriptive period for tax assessment primarily benefits the taxpayer, and any waiver
of this period must be strictly scrutinized in light of the requirements of the laws and rules.

ISSUE: Whether or not the waivers were valid; Whether or not Transition Optical has
been estopped from questioning its validity.

RULING:

The Bureau of Internal Revenue was at fault when it accepted respondent's Waivers despite
their non-compliance with the requirements of RMO No. 20-90 and RDAO No. 05-01. However,
Transition Optical also performed acts showing its implied admission of the validity of the
waivers, namely (1) never raising its invalidity at the earliest opportunity, and (2) that it did not
dispute the BIR’s assertion that respondent failed to comply with petitioner’s notices.

But, even as respondent is estopped from questioning the validity of the Waivers, the
assessment is nonetheless void because it was served beyond the supposedly extended period.
TITLE: PHILIPPINE AIRLINES, INC. VS. COMMISSIONER OF INTERNAL REVENUE
CITATION: GR. Nos. 206079-80 & 206309 (Consolidated petitions)
ONE-LINER: Remember PD No. 1590 loves PAL kay under this law, clear kaayo nga exempted
si PAL from all taxes other than the basic corporate income tax or the 2%
franchise tax.
PRINCIPLE: The withholding agent is the payor liable for the tax, and any deficiency in its
amount shall be collected from it. Should the Bureau of Internal Revenue find
that the taxes were not properly remitted, its action is against the withholding
agent, and not against the taxpayer.
FACTS:
These consolidated cases stem from a refund claim by Philippine Airlines, Inc. (PAL) for
final taxes withheld on its interest income from its peso and dollar deposits with the four (4)
agent banks.

G.R. Nos. 206079-80 involves the Petition filed by PAL questioning the denial of its claim
for refund of P510,233.16 and US$65,877.07, representing the final income tax withheld by
Chinabank, PBCom, and Standard Chartered. Meanwhile, G.R. No. 206309 involves the Petition
filed by the Commissioner of Internal Revenue (Commissioner) assailing the grant to PAL of the
tax refund of P1,237,646.43, representing the final income tax withheld and remitted by
JPMorgan.

PAL asserts that it is entitled to a refund of the withheld taxes because it is exempted
from paying the tax on interest income under its franchise, Presidential Decree No. 1590.
However, the Commissioner refused to grant the claim, arguing that PAL failed to prove the
remittance of the withheld taxes to the Bureau of Internal Revenue. Thus, on February 24, 2004,
PAL elevated the case to the Court of Tax Appeals in Division.

The Commissioner contended that PAL’s claim was subject to administrative routinary
investigation or examination by the Bureau of Internal Revenue. She also alleged that PAL’s
claim was not properly documented, and that it must show that it complied with the
prescriptive period for filing refunds under Sections 204(C) and 229 of the National Internal
Revenue Code. It likewise asserted that claims for refund are of the same nature as a tax
exemption, and thus, are strictly construed against the claimant. PAL presented evidence to
support its claim. The Commissioner then submitted the case for decision based on the
pleadings.

The Court of Tax Appeals Special First Division ordered the refund to PAL of
P1,237,646.43 representing the final income tax withheld and remitted by JPMorgan on PAL’s
interest income. However, it denied the refund of P510,223.16 and US$65,877.07, representing
the final income tax withheld by Chinabank, PBCom, and Standard Chartered. The Court of Tax
Appeals Special First Division denied the separate motions for reconsideration filed by the
parties. Thus, both parties filed separate appeals before the Court of Tax Appeals En Banc, which
consolidated the cases.

The Court of Tax Appeals En Banc denied the petitions and affirmed the decision of the
Court of Tax Appeals Special First Division. The Court of Tax Appeals En Banc sustained that PAL
needed to prove the remittance of the withheld taxes because although remittance is the
responsibility of the banks as withholding agents, remittance was put in issue in this case. Thus,
the Court of Tax Appeals Special First Division correctly made a ruling on it. Hence, the present
Petitions via Rule 45 have been filed.

ISSUES:
(1) Whether or not evidence not presented in the administrative claim for refund in the
Bureau of Internal Revenue can be presented in the Court of Tax Appeals;
(2) Whether or not PAL is entitled to its claim for refund for taxes withheld by
Chinabank, PBCom, and Standard Chartered.
RULING:
1. YES.

This Court rules that the Court of Tax Appeals is not limited by the evidence presented
in the administrative claim in the Bureau of Internal Revenue. The claimant may present new
and additional evidence to the Court of Tax Appeals to support its case for tax refund. Section 4
of the National Internal Revenue Code states that the Commissioner has the power to decide on
tax refunds, but his or her decision is subject to the exclusive appellate jurisdiction of the Court
of Tax Appeals.

Republic Act No. 9282, amending Republic Act No. 1125, is the governing law on the
jurisdiction of the Court of Tax Appeals. Section 7 provides that the Court of Tax Appeals has
exclusive appellate jurisdiction over tax refund claims in case the Commissioner fails to act on
them: x x x This means that while the Commissioner has the right to hear a refund claim first, if
he or she fails to act on it, it will be treated as a denial of the refund, and the Court of Tax
Appeals is the only entity that may review this ruling. The power of the Court of Tax Appeals to
exercise its appellate jurisdiction does not preclude it from considering evidence that was not
presented in the administrative claim in the Bureau of Internal Revenue. Republic Act No. 1125
states that the Court of Tax Appeals is a court of record.

No value is given to documentary evidence submitted in the Bureau of Internal Revenue

unless it is formally offered in the Court of Tax Appeals. Thus, the review of the Court of Tax
Appeals is not limited to whether or not the Commissioner committed gross abuse of discretion,
fraud, or error of law, as contended by the Commissioner. As evidence is considered and
evaluated again, the scope of the Court of Tax Appeals’ review covers factual findings.

In the case at bar, the Commissioner failed to act on PAL’s administrative claim. If she
had acted on the refund claim, she could have directed PAL to submit the necessary documents
to prove its case. Furthermore, considering that the refund claim will be litigated anew in the
Court of Tax Appeals, the latter may consider all pieces of evidence formally offered by PAL,
whether or not they were submitted in the administrative level. Thus, the Commissioner’s
contention must fail.

2. YES.
PAL is uncontestably exempt from paying the income tax on interest earned from bank
deposits. Moreover, Presidential Decree No. 1590 provides that any excess payment over taxes
due from PAL’s shall either be refunded or credited against its tax liability for the succeeding
taxable year Thus, PAL is entitled to its claim for refund for taxes withheld.

In Commissioner of Internal Revenue v. Philippine Airlines, Inc., 504 SCRA 90 (2006), this
Court ruled that Section 13 of Presidential Decree No. 1590 is clear and unequivocal in
exempting PAL from all taxes other than the basic corporate income tax or the 2% franchise tax:
While the Court recognizes the general rule that the grant of tax exemptions is strictly construed
against the taxpayer and in favor of the taxing power, Section 13 of the franchise of respondent
leaves no room for interpretation. Its franchise exempts it from paying any tax other than the
option it chooses: either the “basic corporate income tax” or the two percent gross revenue tax.
x x x More recently, PAL’s tax privileges were outlined and confirmed in Commissioner of
Internal Revenue v. Philippine Airlines, Inc. when Republic Act No. 9334 took effect, amending
Section 131 of the National Internal Revenue Code. Republic Act No. 9334 increased the rates of
excise tax imposed on alcohol and tobacco products, and removed the exemption from taxes,
duties and charges, including excise taxes, on importations of cigars, cigarettes, distilled spirits,
wines and fermented liquor into the Philippines. This Court ruled that PAL’s tax exemptions
remain.

In Commissioner of Internal Revenue v. Philippine Airlines, Inc., 818 SCRA 497 (2017),
this Court maintained that despite these amendments to the National Internal Revenue Code,
PAL remains exempt from all other taxes, duties, royalties, registrations, licenses, and other fees
and charges, provided it pays the corporate income tax as granted in its franchise agreement. It
further emphasized that no explicit repeals were made on Presidential Decree No. 1590. Thus,
Presidential Decree No. 1590 and PAL’s tax exemptions subsist. Necessarily, PAL remains
exempt from tax on interest income earned from bank deposits. Moreover, Presidential Decree
No. 1590 provides that any excess payment over taxes due from PAL’s shall either be refunded
or credited against its tax liability for the succeeding taxable year.

Clearly, the withholding agent is the payor liable for the tax, and any deficiency in its
amount shall be collected from it. Should the Bureau of Internal Revenue find that the taxes
were not properly remitted, its action is against the withholding agent, and not against the
taxpayer.
TITLE: INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., vs. THE CITY OF MANILA
CITATION: G.R. No. 185622, October 17, 2018
PRINCIPLE: Entitlement to tax refund - To be entitled to a refund under Section 196 of
the LGC, the taxpayer must comply with the following procedural
requirements: first, file a written claim for refund or credit with the local
treasurer; and second, file a judicial case for refund within two (2) years
from the payment of the tax, fee, or charge, or from the date when the
taxpayer is entitled to a refund or credit.
FACTS:
International Container, a corporation with its principal place of business in Manila,
renewed its business license for 1999. It was assessed for two (2) business taxes: one for which
it was already paying, and another for which it was newly assessed. It was already paying a local
annual business tax for contractors, equivalent to 75% of 1% of its gross receipts for the
preceding calendar year pursuant to Section 18 of Manila Ordinance No. 7794. The newly
assessed business tax was computed at 50% of 1% of its gross receipts for the previous calendar
year, pursuant to Section 21 (A) of Manila Ordinance No. 7794, as amended by Section 1(G) of
Manila Ordinance No. 7807. It paid the additional assessment, but filed a protest letter before
the City Treasurer of Manila.

When the City Treasurer failed to decide International Container's protest within 60
days from the protest, International Container filed before the Regional Trial Court its Petition
for Certiorari and Prohibition with Prayer for the Issuance of a Temporary Restraining Order
against the City Treasurer and Resident Auditor of Manila. The Regional Trial Court granted the
motion and dismissed the Petition for Certiorari and Prohibition. International Container
appealed to the Court of Appeals, which set aside the Regional Trial Court's dismissal and
ordered the case remanded to the Regional Trial Court for further proceedings.

While the Petition for Certiorari and Prohibition was pending, the City of Manila
continued to impose the business tax under Section 21 (A), in addition to the business tax under
Section 18, on International Container so that it would be issued business permits. On June 17,
2003, International Container sent a letter addressed to the City Treasurer of Manila, reiterating
its protest to the business tax under Section 21 (A) and requesting for a refund of its "in
accordance with Section 196 of the Local Government Code.

On July 11, 2003, International Container filed an Amended and Supplemental Petition,
alleging, among others, that since the payment of both business taxes was a pre-condition to
the renewal of International Container's business permit, it was compelled to pay, and had been
paying under protest. It amended its prayer to include not only the refund of business taxes paid
for the first three (3) quarters of 1999, but also the taxes continuously paid afterwards. The
Regional Trial Court dismissed the Amended and Supplemental Petition, for failure to comply
with the requirements of Section 195 of the Local Government Code. It found that when the City
Treasurer failed to act on International Container's protest and continued to collect the business
tax under Section 21 (A), it could be determined that the protest was denied. Under Section 195
of the Local Government Code, International Container had 60 days to appeal the denial to a
competent court. However, instead of appealing the denial, it resorted to a Petition for
Certiorari and Prohibition, which was not a remedy prescribed under Section 195 of the Local
Government Code. By failing to avail of the proper remedy, the assessments made against it
became conclusive and unappealable.

International Container filed a Petition for Review against the City of Manila, before the
Court of Tax Appeals. International Container sent another letter addressed to the City
Treasurer of Manila, reiterating its protest against the business tax under Section 21 (A), and
claiming a refund for the third quarter of 2003 up to the second quarter of 2005.

The Court of Tax Appeals Second Division found that the City of Manila committed
direct double taxation when it imposed a local business tax under Section 21 (A) of Manila
Ordinance No. 7794, as amended by Section 1(G) of Ordinance No. 7807, in addition to the
business tax already imposed under Section 18 of Manila Ordinance No. 7794, as amended.7 It
ordered a partial refund of P6,224,250.00, representing the erroneously paid business taxes for
the third quarter of taxable year 1999. However, it did not order the City of Manila to refund the
business taxes paid by International Container subsequent to the first three (3) quarters of 1999.
The Court of Tax Appeals En Banc issued its Decision, dismissing the Petition for Review for lack
of merit. The Court of Tax Appeals En Banc found that International Container's causes of action
in the Regional Trial Court and Court of Tax Appeals Second Division were different from each
other. In the Regional Trial Court, International Container's action was for the annulment of the
assessment and collection of additional local business tax. In its Amended and Supplemental
Petition, International Container discussed the propriety of the imposition of the business tax
under Section 21 (A) to support the annulment of the assessment.40 According to the Court of
Tax Appeals En Banc, this meant that International Container chose to protest the assessment
pursuant to Section 195 of the Local Government Code, and not to request for a refund as
provided by Section 196.

ISSUES:

1. Whether or not Section 195 or Section 196 of the Local Government Code govern
petitioner International Container Terminal Services, Inc.'s claims for refund from the
fourth quarter of 1999 onwards; and

2. Whether or not petitioner International Container Terminal Services, Inc. complied with
the requirements that would entitle it to the refund it claims.

RULING:
1. Section 196 of the Local Government Code should apply.

If the taxpayer receives an assessment and does not pay the tax, its remedy is strictly
confined to Section 195 of the Local Government Code. Thus, it must file a written protest with
the local treasurer within 60 days from the receipt of the assessment. If the protest is denied, or
if the local treasurer fails to act on it, then the taxpayer must appeal the assessment before a
court of competent jurisdiction within 30 days from receipt of the denial, or the lapse of the 60-
day period within which the local treasurer must act on the protest. In this case, as no tax was
paid, there is no claim for refund in the appeal.

If the taxpayer opts to pay the assessed tax, fee, or charge, it must still file the written
protest within the 60-day period, and then bring the case to court within 30 days from either
the decision or inaction of the local treasurer. In its court action, the taxpayer may, at the same
time, question the validity and correctness of the assessment and seek a refund of the taxes it
paid. "Once the assessment is set aside by the court, it follows as a matter of course that all
taxes paid under the erroneous or invalid assessment are refunded to the taxpayer."

On the other hand, if no assessment notice is issued by the local treasurer, and the
taxpayer claims that it erroneously paid a tax, fee, or charge, or that the tax, fee, or charge has
been illegally collected from him, then Section 196 applies.

Here, there is no dispute on the refund of P6,224,250.00, representing the additional

taxes paid for the first three (3) quarters of 1999, as ordered by the Court of Tax Appeals Second
Division in its May 17, 2006 Decision on to petitioner's entitlement to a refund of the taxes paid
subsequent to the third quarter of 1999, which was denied by the Court of Tax Appeals Second
Division on the ground that petitioner failed to comply with the requirements of Section 195.

When petitioner raised the applicability of Section 196 to the claim for refund of these
subsequent payments, the Court of Tax Appeals Second Division, as affirmed by the Court of Tax
Appeals En Banc, held that Section 196 cannot apply as petitioner previously anchored its claims
under Section 195.

The nature of an action is determined by the allegations in the complaint and the
character of the relief sought. Here, petitioner seeks a refund of taxes that respondents had
collected. Following City of Manila v. Cosmos Bottling Corp, refund is available under both
Sections 195 and 196 of the Local Government Code: for Section 196, because it is the express
remedy sought, and for Section 195, as a consequence of the declaration that the assessment
was erroneous or invalid. Whether the remedy availed of was under Section 195 or Section 196
is not determined by the taxpayer paying the tax and then claiming a refund.

What determines the appropriate remedy is the local government's basis for the
collection of the tax. It is explicitly stated in Section 195 that it is a remedy against a notice of
assessment issued by the local treasurer, upon a finding that the correct taxes, fees, or charges
have not been paid. The notice of assessment must state "the nature of the tax, fee, or charge,
the amount of deficiency, the surcharges, interests and penalties." No such precondition is
necessary for a claim for refund pursuant to Section 196.

Here, no notice of assessment for deficiency taxes was issued by respondent City
Treasurer to petitioner for the taxes collected after the first three (3) quarters of 1999.

The "assessments" from the fourth quarter of 1999 onwards were Municipal License
Receipts; Mayor's Permit, Business Taxes, Fees & Charges Receipts; and Official Receipts issued
by the Office of the City Treasurer for local business taxes, which must be paid as prerequisites
for the renewal of petitioner's business permit in respondent City of Manila. While these
receipts state the amount and nature of the tax assessed, they do not contain any amount of
deficiency, surcharges, interests, and penalties due from petitioner. They cannot be considered
the "notice of assessment" required under Section 195 of the Local Government Code.

When petitioner paid these taxes and filed written claims for refund before respondent
City Treasurer, the subsequent denial of these claims should have prompted resort to the
remedy laid down in Section 196, specifically the filing of a judicial case for the recovery of the
allegedly erroneous or illegally collected tax within the two (2)-year period.

Petitioner appealed the denial of the protest against respondent City Treasurer's
assessment and the action against the denial of its claims for refund. For both issues,
petitioner's arguments are based on the common theory that the additional tax under Section
21 (A) of Manila Ordinance No. 7794, as amended by Section 1(G) of Manila Ordinance No.
7807, is illegal double taxation. Hence, their joinder in one (1) suit was legally appropriate and
avoided a multiplicity of suits.

2. Yes, petitioner complied with the requirements that would entitle it to the refund it
claims.

To be entitled to a refund under Section 196 of the Local Government Code, the
taxpayer must comply with the following procedural requirements: first, file a written claim for
refund or credit with the local treasurer; and second, file a judicial case for refund within two (2)
years from the payment of the tax, fee, or charge, or from the date when the taxpayer is
entitled to a refund or credit.

As to the first requirement, the records show that the following written claims for
refund were made by petitioner: In its June 17, 2003 Letter to the City Treasurer, it claimed a
refund of P27,800,674.36 for taxes paid from the fourth quarter of 1999 up to the second
quarter of 2003.In its August 18, 2005 Letter, it claimed a refund of P14,190,092.90 for taxes
paid for the third quarter of 2003 up to the second quarter of 2005. In her September 1, 2005
Response1 to the August 18, 2005 Letter, City Treasurer Liberty M. Toledo denied the claim.
Thereafter, petitioner sent its January 10, 2007 Letter to the City Treasurer claiming a refund of
taxes paid for the third quarter of 2005 until the fourth quarter of 2006, pursuant to the Court
of Tax Appeals Second Division May 17, 2006 Decision.

As for the taxes paid thereafter and were not covered by these letters, petitioner readily
admits that it did not make separate written claims for refund, citing that "there was no further
necessity" to make these claims. It argues that to file further claims before respondent City
Treasurer would have been "another exercise in futility" as it would have merely raised the
same grounds that it already raised in its June 17, 2003 Letter.

In the present controversy, it can be gleaned from the foregoing discussion that to file
a written claim before the Respondent City Treasurer would have been another exercise in
futility because the grounds for claiming a refund for the subsequent years would have been the
very same grounds cited by petitioner in support of its 17 June 2003 letter that was not acted
upon by Respondent City Treasurer. Thus, it would have been reasonable to expect that any
subsequent written claim would have likewise been denied or would similarly not be acted
upon. This is bolstered by the fact that during the pendency of the instant case, from its initial
stages before the Regional Trial Court up to the present, Respondents have continued and
unceasingly assessed and collected the questioned local business tax.

The doctrine of exhaustion of administrative remedies requires recourse to the

pertinent administrative agency before resorting to court action. When there is an adequate
remedy available with the administrative remedy, then courts will decline to interfere when the
party refuses, or fails, to avail of it. Nonetheless, the failure to exhaust administrative remedies
is not always fatal to a party's cause. If the party can prove that the resort to the administrative
remedy would be an idle ceremony such that it will be absurd and unjust for it to continue
seeking relief that evidently will not be granted to it, then the doctrine would not apply.

As correctly pointed out by petitioner, the filing of written claims with respondent City
Treasurer for every collection of tax under Section 21 (A) of Manila Ordinance No. 7764, as
amended by Section 1(G) of Ordinance No. 7807, would have yielded the same result every
time. This is bolstered by respondent City Treasurer's September 1, 2005 Letter, in which it
stated that it could not act favorably on petitioner's claim for refund until there would have
been a final judicial determination of the invalidity of Section 21 (A).

Further, the issue at the core of petitioner's claims for refund, the validity of Section 21
(A) of Manila Ordinance No. 7794, as amended by Section 1(G) of Manila Ordinance No. 7807, is
a question of law. When the issue raised by the taxpayer is purely legal and there is no question
concerning the reasonableness of the amount assessed, then there is no need to exhaust
administrative remedies. Thus, petitioner's failure to file written claims of refund for all of the
taxes under Section 21 (A) with respondent City Treasurer is warranted under the
circumstances.

Similarly, petitioner complied with the second requirement under Section 196 of the
Local Government Code that it must file its judicial action for refund within two (2) years from
the date of payment, or the date that the taxpayer is entitled to the refund or credit. Among the
reliefs it sought in its Amended and Supplemental Petition before the Regional Trial Court is the
refund of any and all subsequent payments of taxes under Section 21 (A) from the time of the
filing of its Petition until the finality of the case.
TITLE: Philippine Ports Authority vs. City of Davao,
CITATION: 864 SCRA 303, G.R. No. 190324 June 6, 2018
PRINCIPLE: When a tax case is pending on appeal with the Court of Tax Appeals, the Court
of Tax Appeals has the exclusive jurisdiction to enjoin the levy of taxes and the
auction of a taxpayer’s properties in relation to that case.

FACTS:

On June 17, 2004, the Philippine Ports Authority received a letter from the City Assessor
of Davao for the assessment and collection of real property taxes against its administered
properties located at Sasa Port. It appealed the assessment to the Local Board of Assessment
Appeals which was denied. The Philippine Ports Authority appealed before the Central Board of
Assessment Appeals, but this appeal was denied. Thus, it filed an appeal with the Court of Tax
Appeals.

PPA also filed a petition for certiorari with the Court of Appeals, arguing that the City of
Davao’s taxation of its properties and their subsequent auction and sale to satisfy the alleged
tax liabilities were without or in excess of its jurisdiction and contrary to law. While the petition
was pending with the Court of Appeals, the Court of Tax Appeals promulgated a Decision
granting PPA’s appeal, resolving in its favor the issue of its liability for the real estate tax of Sasa
Port and its buildings.

Additionally, the Court of Tax Appeals issued an Entry of Judgment stating that its
Decision became final and executory considering that no appeal to the Supreme Court had been
taken. Thereafter, the Court of Appeals dismissed the petition. It held that the Court of Tax
Appeals had exclusive jurisdiction to determine the matter and said that PPA “should have
applied for the issuance of writ of injunction or prohibition before the Court of Tax Appeals.” It
further found the petition dismissible on the ground that PPA committed forum shopping.

ISSUE:
Whether or not the Court of Appeals had jurisdiction to issue the injunctive relief prayed for by
PPA

RULING:

No, the Court of Appeals has no jurisdiction.

Petitioner has failed to cite any law supporting its contention that the Court of Appeals
has jurisdiction over this case. On the other hand, Section 7 paragraph (a)(5) of Republic Act No.
1125, as amended by Republic Act No. 9282, provides that the Court of Tax Appeals has
exclusive appellate jurisdiction over:

xxx
(5) Decisions of the Central Board of Assessment Appeals in the exercise of its
appellate jurisdiction over cases involving the assessment and taxation of real property
originally decided by the provincial or city board of assessment appeals[.]

The Central Board of Assessment Appeals’ Decision assailed by petitioner before the
Court of Appeals was rendered in the exercise of its appellate jurisdiction over the real property
tax assessment of its properties. Clearly, this falls within the above cited provision. Indeed, there
is no dispute that this Central Board of Assessment Appeals’ decision constitutes one of the
cases covered by the Court of Tax Appeals’ exclusive jurisdiction.

In this case, the Court of Tax Appeals had jurisdiction over petitioner’s appeal to resolve
the question of whether or not it was liable for real property tax. To recall, the real property tax
liability was the very reason for the acts which petitioner wanted to have enjoined. It was, thus,
the Court of Tax Appeals, and not the Court of Appeals, that had the power to preserve the
subject of the appeal, to give effect to its final determination, and, when necessary, to control
auxiliary and incidental matters and to prohibit or restrain acts which might interfere with its
exercise of jurisdiction over petitioner’s appeal. Thus, respondents’ acts carried out pursuant to
the imposition of the real property tax were also within the jurisdiction of the Court of Tax
Appeals.
TITLE: STEAG STATE POWER, INC. (FORMERLY STATE POWER DEVELOPMENT
CORPORATION), PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE,
RESPONDENT.
CITATION: G.R. No. 205282, January 14, 2019
ONE LINER: Interpretations of law made by courts "necessarily always have a retroactive
effect."
This Court, in construing the law, merely declares what a particular provision
has always meant. It does not create new legal obligations.

PRINCIPLE: A claim for unutilized input value-added tax is in the nature of a tax exemption.
Thus, strict adherence to the conditions prescribed by the law is required of the
taxpayer.
FACTS:
Steag State Power is a domestic corporation primarily engaged in power generation and sale of
electricity to the National Power Corporation and is registered with the Bureau of Internal
Revenue as a value-added tax taxpayer. In 2003, Steag State Power started building its power
plant inside the PHIVIDEC Industrial Estate-Misamis Oriental. The construction was completed
on November 15, 2006.

During the construction period, Steag State Power filed its quarterly value-added tax returns
from the first to fourth quarters of 2004 on April 26, 2004, July 26, 2004, October 25, 2004, and
January 25, 2005. It later filed amended value-added tax returns for the taxable quarters on
December 16, 2004 and April 22, 2005. Likewise, for the taxable quarters of 2005, Steag State
Power filed its quarterly value-added tax returns on April 22, 2005, July 26, 2005, October 25,
2005, and January 25, 2006.

Steag State Power filed before the Bureau of Internal Revenue District Office No. 50, South
Makati administrative claims for refund of its allegedly unutilized input value-added tax
payments on capital goods in the total amount of P670,950,937.97.

Due to the Commissioner of Internal Revenue's (Commissioner) inaction on its administrative

claims, Steag State Power filed a Petition for Review on Certiorari before the Court of Tax
Appeals on April 20, 2006, elevating its claim for refund for the taxable year 2004. Through
another Petition, filed on December 27, 2006, it sought judicial recourse involving its claim for
refund for the taxable year 2005. Eventually, the Petitions were consolidated.

In its August 27, 2009 Decision, the Court of Tax Appeals First Division denied the Petitions due
to insufficiency of evidence. It held that the appeals for the administrative claims for refund of
input taxes for January 2004 to May 2005, or the first judicial claim, were filed late. Meanwhile,
the appeal of the refund claim of input taxes for June 2005 to October 2005, or the second
judicial claim, was prematurely filed.

On September 22, 2009, Steag State Power filed its Motion for Reconsideration (with Motion to
Submit Supplemental Evidence). The Motion was partially granted by the Court of Tax Appeals
First Division in its January 5, 2010 Resolution.

Petitioner insists that its claims are timely. It argues that, although the claims were filed beyond
the 120+30-day periods under Section 112 of the National Internal Revenue Code, as amended
(Tax Code), they were nonetheless filed within the two (2)-year period under Section 229 of the
same law. It contends that the timing was in accordance with Revenue Regulation No. 7-95,
which establishes that appeals before the Court of Tax Appeals may be made after the 120-day
period and before the lapse of the two (2)-year period.

Petitioner avers that noncompliance with the 120+30-day periods is not a jurisdictional defect,
but only a case of a "lack of cause of action," which may be subject to the equitable principle of
waiver.
ISSUE:
Whether or not the Petitioner timely file its appeal before the Court of Tax Appeals?

RULING:

No

The issue on the timeliness of respondent's filing of judicial claim is anchored on the nature of
the prescriptive periods under Section 112 of the Tax Code. A plain reading of this provision
reveals that a taxpayer may appeal the Commissioner's denial or inaction only within 30 days
when the decision that denies the claim is received, or when the 120-day period given to the
Commissioner to decide on the claim expires.

In Aichi Forging Company of Asia, Inc.,[43] this Court applied the plain text of the law and
declared that the observance of the 120+30-day periods is crucial in filing an appeal before the
Court of Tax Appeals.

These doctrines were reiterated in San Roque Power Corporation, where this Court stressed
that Section 112, in providing the 120+30 day periods to appeal before the Court of Tax Appeals,
"must be applied exactly as worded since it is clear, plain, and unequivocal."

Petitioner's claim that it filed its judicial claims under Revenue Regulation No. 7-95, which
supposedly allowed claims for refund filed after the 120-day period but before the lapse of the
two (2)-year period, is untenable.

First, petitioner's judicial claims were filed on April 20, 2006 and December 27, 2006; hence,
they were governed by the Tax Code, which clearly provided: (1) 120 days for the Commissioner
to act on a taxpayer's claim; and (2) 30 days for the taxpayer to appeal either from the
Commissioner's decision or from the expiration of the 120-day period in case of the
Commissioner's inaction.

Moreover, Revenue Regulation No. 16-2005, not Revenue Regulation No. 7-95, was the
prevailing rule when petitioner filed its judicial claims. Its Section 4.112-1 faithfully reflected
Section 112 of the Tax Code, as amended by Republic Act No. 9337:
SEC. 4.112-1. Claims for Refund/Tax Credit Certificate of Input Tax. -
....
(d) Period within which refund or tax credit certificate/refund of input taxes shall be made

In proper cases, the Commissioner of Internal Revenue shall grant a tax credit certificate/refund
for creditable input taxes within one hundred twenty (120) days from the date of submission of
complete documents in support of the application filed in accordance with subparagraph (a)
above.

In case of full or partial denial of the claim for tax credit certificate/refund as decided by the
Commissioner of Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals (CTA)
within thirty (30) days from the receipt of said denial, otherwise the decision shall become final.
However, if no action on the claim for tax credit certificate/refund has been taken by the
Commissioner of Internal Revenue after the one hundred twenty (120) day period from the date
of submission of the application with complete documents, the taxpayer may appeal to the CTA
within 30 days from the lapse of the 120-day period.

It is misleading for petitioner to raise its supposed reliance in good faith on Revenue Regulation
No. 7-95, when the rule had already been superseded and revoked by the time it filed its judicial
claims.

Second, under Section 112 of the Tax Code, only the administrative claim for refund of input
value-added tax must be filed within the two (2)-year prescriptive period, the judicial claim need
not be.
Section 112(A) states that:
(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT - registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales[.] (Emphasis supplied)

Third, the right to appeal before the Court of Tax Appeals, being a statutory right, can be
invoked only under the requisites provided by law. Section 11 of Republic Act No. 1125,[50] or
the Court of Tax Appeals Charter, provides a 30-day period of appeal either from receipt of the
Commissioner's adverse decision or from the lapse of the period fixed by law for action. Thus:
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a
decision, ruling or inaction of the Commissioner of Internal Revenue ... may file an appeal with
the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration
of the period fixed by law for action as referred to in Section 7(a)(2) herein.

(B) Appeal shall be made by filing a petition for review under a procedure analogous to that
provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30)
days from the receipt of the decision or ruling or in the case of inaction as herein provided, from
the expiration of the period fixed by law to act thereon. (Emphasis supplied)

In turn, Section 7(a)(2) of the Court of Tax Appeals Charter, as amended, reads:
Sec. 7. Jurisdiction. - The CTA shall exercise:
(a)
Exclusive appellate jurisdiction to review by appeal, as herein provided:
....
(A)
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other
matters arising under the National Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific
period of action, in which case the inaction shall be deemed a denial.

Under the Court of Tax Appeals Charter, the Commissioner's inaction on a claim for refund is
considered a "denial" of the claim, which may be appealed before the Court of Tax Appeals
within 30 days from the expiration of the period fixed by law for action.

Here, since petitioner filed its judicial claims way beyond the 30-day period to appeal, the Court
of Tax Appeals lost its jurisdiction over the Petitions. This Court has held that "jurisdiction over
the subject matter is fundamental for a court to act on a given controversy." Moreover, it
"cannot be waived ... and is not dependent on the consent or objection or the acts or omissions"
of any or both parties. Contrary to petitioner's stance, the Court of Tax Appeals is not precluded
to pass on this issue motu proprio, regardless of any purported stipulation made by the parties.

Further, this Court is not convinced by petitioner's claim that BIR Ruling No. DA-489-03 should
cover both prematurely and belatedly filed claims for tax refund.

There is nothing in the same BIR Ruling that states, expressly or impliedly, that late filings of
judicial claims are acceptable.

A claim for unutilized input value-added tax is in the nature of a tax exemption. Thus, strict
adherence to the conditions prescribed by the law is required of the taxpayer. Refunds need to
be proven and their application raised in the right manner as required by law. Here,
noncompliance with the 120+30-day periods is fatal to the taxpayer's judicial claim.

Hence, the Court of Tax Appeals En Banc properly sustained the Special First Division's dismissal
of the Petition for lack of jurisdiction.
The Motion for Reconsideration is, thus, DENIED.