COMMISSIONER OF INTERNAL REVENUE
vs. COURT OF APPEALS and
COMMONWEALTH MANAGEMENT AND
SERVICES CORPORATION
Commonwealth Management and Services
Corporation (COMASERCO, for brevity), is a
corporation duly organized and existing under
the laws of the Philippines. It is an affiliate of
Philippine American Life Insurance Co.
(Philamlife), organized by the latter to perform
collection, consultative and other technical
services, including functioning as an internal
auditor, of Philamlife and its other affiliates.
Petitioner, Commissioner of the Bureau of
Internal Revenue (BIR) issued an
assessment to private respondent
COMASERCO for deficiency value-added tax
(VAT) amounting to P351,851.01, for taxable
year 1988.
With this, COMASERCO filed with the BIR, a
letter-protest objecting to the latter’s finding of
deficiency VAT. In lieu however, the
Commissioner of Internal Revenue sent a
collection letter to COMASERCO demanding
payment of the deficiency VAT.
As a result, COMASERCO filed with the
Court of Tax Appeals a petition for review
contesting the Commissioner’s assessment
asserting that the services it rendered to
Philamlife and its affiliates, relating to
collections, consultative and other technical
assistance, including functioning as an
internal auditor, were on a “no-profit,
reimbursement-of-cost-only” basis. It averred
that it was not engaged in the business of
providing services to Philamlife and its
affiliates. COMASERCO stressed that it was
not profit-motivated, thus not engaged in
business. In fact, it did not generate profit but
suffered a net loss in taxable year 1988,
hence not liable to pay VAT.
The Court of Tax Appeals rendered decision
in favor of the Commissioner of Internal
Revenue.
On its appeal with the Court of Appeals, the
appellate court rendered decision reversing
that of the Court of Tax Appeals. The former
anchored its decision on the ratiocination in
another tax case involving the same parties,
where it was held that COMASERCO was not
liable to pay fixed and contractor’s tax for
services rendered to Philamlife and its
affiliates. The Court of Appeals, in that case,
reasoned that COMASERCO was not
engaged in business of providing services to
Philamlife and its affiliates. In the same
manner, the Court of Appeals held that
COMASERCO was not liable to pay VAT for
it was not engaged in the business of selling
services.
Hence, this case.
ISSUE: Whether or not COMASERCO was
engaged in the sale of services, and thus
liable to pay VAT thereon?
RULING:
YES.
The Court agreed with the Petitioner that to
“engage in business” and to “engage in the
sale of services” are two different things.
Petitioner maintains that the services
rendered by COMASERCO to Philamlife and
its affiliates, for a fee or consideration, are
subject to VAT. VAT is a tax on the value
added by the performance of the service. It is
immaterial whether profit is derived from
rendering the service.
Pursuant to Republic Act No. 7716, the
Expanded VAT Law (EVAT), amending
among other sections, Section 99 of the Tax
Code, it is provided that:
Sec. 105. Persons Liable. — Any person
who, in the course of trade or business, sells,
barters, exchanges, leases goods or
properties, renders services, and any person
who imports goods shall be subject to the
value-added tax (VAT) imposed in Sections
106 and 108 of this Code.
The value-added tax is an indirect tax and the
amount of tax may be shifted or passed on to
the buyer, transferee or lessee of the goods,
properties or services. This rule shall likewise
apply to existing sale or lease of goods,
properties or services at the time of the
effectivity of Republic Act No. 7716.
The phrase “in the course of trade or scientific, industrial or commercial
business” means the regular conduct or undertaking or project.” 11
pursuit of a commercial or an economic
On February 5, 1998, the Commissioner of
activity, including transactions incidental
Internal Revenue issued BIR Ruling No. 010-
thereto, by any person regardless of whether
98 12 emphasizing that a domestic
or not the person engaged therein is a
corporation that provided technical, research,
nonstock, nonprofit organization (irrespective
management and technical assistance to its
of the disposition of its net income and
affiliated companies and received payments
whether or not it sells exclusively to members
on a reimbursement-of-cost basis, without
of their guests), or government entity.
any intention of realizing profit, was subject to
The rule of regularity, to the contrary VAT on services rendered. In fact, even if
notwithstanding, services as defined in this such corporation was organized without any
Code rendered in the Philippines by intention realizing profit, any income or profit
nonresident foreign persons shall be generated by the entity in the conduct of its
considered as being rendered in the course activities was subject to income tax.
of trade or business.
Hence, it is immaterial whether the primary
Contrary to COMASERCO’s contention the purpose of a corporation indicates that it
above provision clarifies that even a non- receives payments for services rendered to
stock, non-profit, organization or government its affiliates on a reimbursement-on-cost
entity, is liable to pay VAT on the sale of basis only, without realizing profit, for
goods or services. VAT is a tax on purposes of determining liability for VAT on
transactions, imposed at every stage of the services rendered. As long as the entity
distribution process on the sale, barter, provides service for a fee, remuneration or
exchange of goods or property, and on the consideration, then the service rendered is
performance of services, even in the absence subject to VAT.
of profit attributable thereto. The term “in the
course of trade or business” requires the
regular conduct or pursuit of a commercial or
an economic activity regardless of whether or
not the entity is profit-oriented.
The definition of the term “in the course of
trade or business” present law applies to all
transactions even to those made prior to its
enactment. Executive Order No. 273 stated
that any person who, in the course of trade or
business, sells, barters or exchanges goods
and services, was already liable to pay VAT.
The present law merely stresses that even a
nonstock, nonprofit organization or
government entity is liable to pay VAT for the
sale of goods and services.
Sec. 108 of the National Internal Revenue
Code of 1997 10 defines the phrase “sale of
services” as the “performance of all kinds of
services for others for a fee, remuneration or
consideration.” It includes “the supply of
technical advice, assistance or services
rendered in connection with technical
management or administration of any
COMMISSIONER OF INTERNAL Interest up to 3-31-2000 P
REVENUE,vs. 3,157,314.41
SONY PHILIPPINES, INC., Respondent. Compromise 25,000.00
3,182,314.41
This petition for review on certiorari seeks to
set aside the May 17, 2007 Decision and the Deficiency VAT Due P
July 5, 2007 Resolution of the Court of Tax 11,141,014.41
Appeals – En Banc1 (CTA-EB), in C.T.A. EB
No. 90, affirming the October 26, 2004
Decision of the CTA-First Division2 which, in DEFICIENCY EXPANDED WITHHOLDING
turn, partially granted the petition for review of TAX (EWT)
respondent Sony Philippines, Inc. (Sony).
The CTA-First Division decision cancelled the (Assessment No. ST-EWT-97-0125-2000)
deficiency assessment issued by petitioner
Commissioner of Internal Revenue (CIR) Basic Tax Due P1,416,976.90
against Sony for Value Added Tax (VAT) but
upheld the deficiency assessment for Add: Penalties
expanded withholding tax (EWT) in the Interest up to 3-31-2000 P550,485.82
amount of ₱1,035,879.70 and the penalties
for late remittance of internal revenue taxes in
the amount of ₱1,269, 593.90.3 Compromise 25,000.00
575,485.82
Deficiency EWT Due P
THE FACTS: 1,992,462.72

On November 24, 1998, the CIR issued DEFICIENCY OF VAT ON ROYALTY

Letter of Authority No. 000019734 (LOA PAYMENTS
19734) authorizing certain revenue officers to
examine Sony’s books of accounts and other (Assessment No. ST-LR1-97-0126-2000)
accounting records regarding revenue taxes
for "the period 1997 and unverified prior Basic Tax Due P
years." On December 6, 1999, a preliminary
assessment for 1997 deficiency taxes and Add: Penalties
penalties was issued by the CIR which Sony Surcharge P 359,177.80
protested. Thereafter, acting on the protest,
the CIR issued final assessment notices, the Interest up to 3-31-2000 87,580.34
formal letter of demand and the details of
discrepancies.4 Said details of the deficiency
Compromise 16,000.00
taxes and penalties for late remittance of
462,758.14
internal revenue taxes are as follows:
Penalties Due P
462,758.14
DEFICIENCY VALUE -ADDED TAX (VAT)

LATE REMITTANCE OF FINAL

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

Basic Tax Due P 7,958,700.00

(Assessment No. ST-LR2-97-0127-2000)
Add: Penalties
Basic Tax Due P After trial, the CTA-First Division disallowed
the deficiency VAT assessment because the
Add: Penalties
subsidized advertising expense paid by Sony
Surcharge P 1,729,690.71 which was duly covered by a VAT invoice
resulted in an input VAT credit. As regards
Interest up to 3-31-2000 508,783.07 the EWT, the CTA-First Division maintained
the deficiency EWT assessment on Sony’s
Compromise 50,000.00 motor vehicles and on professional fees paid
2,288,473.78 to general professional partnerships. It also
assessed the amounts paid to sales agents
Penalties Due P as commissions with five percent (5%) EWT
2,288,473.78 pursuant to Section 1(g) of Revenue
Regulations No. 6-85. The CTA-First Division,
however, disallowed the EWT assessment on
LATE REMITTANCE OF INCOME rental expense since it found that the total
PAYMENTS rental deposit of ₱10,523,821.99 was
(Assessment No. ST-LR3-97-0128-2000) incurred from January to March 1998 which
was again beyond the coverage of LOA
19734. Except for the compromise penalties,
Basic Tax Due P the CTA-First Division also upheld the
Add: Penalties penalties for the late payment of VAT on
royalties, for late remittance of final
25 % Surcharge P 8,865.34 withholding tax on royalty as of December
1997 and for the late remittance of EWT by
some of Sony’s branches.8 In sum, the CTA-
Interest up to 3-31-2000 58.29
First Division partly granted Sony’s petition by
cancelling the deficiency VAT assessment
Compromise 2,000.00 but upheld a modified deficiency EWT
10,923.60 assessment as well as the penalties. Thus,
the dispositive portion reads:
Penalties Due P
10,923.60
WHEREFORE, the petition for review is
hereby PARTIALLY GRANTED. Respondent
is ORDERED to CANCEL and WITHDRAW
GRAND TOTAL P the deficiency assessment for value-added
15,895,632.655 tax for 1997 for lack of merit. However, the
deficiency assessments for expanded
withholding tax and penalties for late
Sony sought re-evaluation of the remittance of internal revenue taxes are
aforementioned assessment by filing a UPHELD.
protest on February 2, 2000. Sony submitted
relevant documents in support of its protest
on the 16th of that same month.6 Accordingly, petitioner is DIRECTED to PAY
the respondent the deficiency expanded
withholding tax in the amount of
On October 24, 2000, within 30 days after the ₱1,035,879.70 and the following penalties for
lapse of 180 days from submission of the said late remittance of internal revenue taxes in
supporting documents to the CIR, Sony filed the sum of ₱1,269,593.90:
a petition for review before the CTA.7
1. VAT on Royalty P 429,242.07 3. Whether or not the withholding assessment
with respect to the 5% withholding tax on
2. Withholding Tax on Royalty 831,428.20
rental deposit in the amount of
3. EWT of Petitioner's Branches 8,923.63 ₱10,523,821.99 is proper; and

Total P 1,269,593.90 4. Whether or not the remittance of final

withholding tax on royalties covering the
Plus 20% delinquency interest from January period January to March 1998 was filed
17, 2000 until fully paid pursuant to Section outside of time.11
249(C)(3) of the 1997 Tax Code.
SO ORDERED.9
Finding no cogent reason to reverse the
The CIR sought a reconsideration of the decision of the CTA-First Division, the CTA-
above decision and submitted the following EB dismissed CIR’s petition on May 17, 2007.
grounds in support thereof: CIR’s motion for reconsideration was denied
A. The Honorable Court committed reversible by the CTA-EB on July 5, 2007.
error in holding that petitioner is not liable for
the deficiency VAT in the amount of
₱11,141,014.41; The CIR is now before this Court via this
petition for review relying on the very same
B. The Honorable court committed reversible grounds it raised before the CTA-First
error in holding that the commission expense Division and the CTA-EB. The said grounds
in the amount of P2,894,797.00 should be are reproduced below:
subjected to 5% withholding tax instead of the
10% tax rate;
C. The Honorable Court committed a GROUNDS FOR THE ALLOWANCE OF THE
reversible error in holding that the withholding PETITION
tax assessment with respect to the 5%
I THE CTA EN BANC ERRED IN RULING
withholding tax on rental deposit in the
THAT RESPONDENT IS NOT LIABLE FOR
amount of ₱10,523,821.99 should be
DEFICIENCY VAT IN THE AMOUNT OF
cancelled; and
PHP11,141,014.41.
D. The Honorable Court committed reversible
II AS TO RESPONDENT’S DEFICIENCY
error in holding that the remittance of final
EXPANDED WITHHOLDING TAX IN THE
withholding tax on royalties covering the
AMOUNT OF PHP1,992,462.72:
period January to March 1998 was filed on
time.10
A. THE CTA EN BANC ERRED IN RULING
THAT THE COMMISSION EXPENSE IN THE
On April 28, 2005, the CTA-First Division
AMOUNT OF PHP2,894,797.00 SHOULD BE
denied the motion for
SUBJECTED TO A WITHHOLDING TAX OF
reconsideration.1avvphi1 Unfazed, the CIR
5% INSTEAD OF THE 10% TAX RATE.
filed a petition for review with the CTA-EB
raising identical issues:
1. Whether or not respondent (Sony) is liable B. THE CTA EN BANC ERRED IN RULING
for the deficiency VAT in the amount of THAT THE ASSESSMENT WITH RESPECT
P11,141,014.41; TO THE 5% WITHHOLDING TAX ON
RENTAL DEPOSIT IN THE AMOUNT OF
2. Whether or not the commission expense in
PHP10,523,821.99 IS NOT PROPER.
the amount of ₱2,894,797.00 should be
subjected to 10% withholding tax instead of
the 5% tax rate;
III THE CTA EN BANC ERRED IN RULING
THAT THE FINAL WITHHOLDING TAX ON
ROYALTIES COVERING THE PERIOD
JANUARY TO MARCH 1998 WAS FILED ON
TIME.12
Upon filing of Sony’s comment, the Court
ordered the CIR to file its reply thereto. The
CIR subsequently filed a manifestation
informing the Court that it would no longer file
a reply. Thus, on December 3, 2008, the
Court resolved to give due course to the
petition and to decide the case on the basis
of the pleadings filed.13
The Court finds no merit in the petition.
The CIR insists that LOA 19734, although it
states "the period 1997 and unverified prior
years," should be understood to mean the
fiscal year ending in March 31, 1998.14 The
Court cannot agree.
Based on Section 13 of the Tax Code, a
Letter of Authority or LOA is the authority
given to the appropriate revenue officer
assigned to perform assessment functions. It
empowers or enables said revenue officer to
examine the books of account and other
accounting records of a taxpayer for the
purpose of collecting the correct amount of
tax.15 The very provision of the Tax Code
that the CIR relies on is unequivocal with
regard to its power to grant authority to
examine and assess a taxpayer.
SEC. 6. Power of the Commissioner to Make
Assessments and Prescribe Additional
Requirements for Tax Administration and
Enforcement. –
(A)Examination of Returns and Determination
of tax Due. – After a return has been filed as
required under the provisions of this Code,
the Commissioner or his duly authorized
representative may authorize the examination
of any taxpayer and the assessment of the
correct amount of tax: Provided, however,
That failure to file a return shall not prevent
the Commissioner from authorizing the
examination of any taxpayer. x x x
[Emphases supplied]
Clearly, there must be a grant of authority
before any revenue officer can conduct an
examination or assessment. Equally
important is that the revenue officer so
authorized must not go beyond the authority
given. In the absence of such an authority,
the assessment or examination is a nullity.
As earlier stated, LOA 19734 covered "the
period 1997 and unverified prior years." For
said reason, the CIR acting through its
revenue officers went beyond the scope of
their authority because the deficiency VAT
assessment they arrived at was based on
records from January to March 1998 or using
the fiscal year which ended in March 31,
1998. As pointed out by the CTA-First
Division in its April 28, 2005 Resolution, the
CIR knew which period should be covered by
the investigation. Thus, if CIR wanted or
intended the investigation to include the year
1998, it should have done so by including it in
the LOA or issuing another LOA.
Upon review, the CTA-EB even added that
the coverage of LOA 19734, particularly the
phrase "and unverified prior years," violated
Section C of Revenue Memorandum Order
No. 43-90 dated September 20, 1990, the
pertinent portion of which reads:
3. A Letter of Authority should cover a taxable
period not exceeding one taxable year. The
practice of issuing L/As covering audit of
"unverified prior years is hereby prohibited. If
the audit of a taxpayer shall include more
than one taxable period, the other periods or
years shall be specifically indicated in the
L/A.16 [Emphasis supplied]
 The fact that due to adverse economic
conditions, Sony-Singapore has granted to
On this point alone, the deficiency VAT
our client a subsidy equivalent to the latter’s
assessment should have been disallowed. Be
advertising expenses will not affect the
that as it may, the CIR’s argument, that
validity of the input taxes from such
Sony’s advertising expense could not be
expenses. Thus, at the most, this is an
considered as an input VAT credit because
additional income of our client subject to
the same was eventually reimbursed by Sony
income tax. We submit further that our client
International Singapore (SIS), is also
is not subject to VAT on the subsidy income
erroneous.
as this was not derived from the sale of
goods or services.22

The CIR contends that since Sony’s

advertising expense was reimbursed by SIS,
Insofar as the above-mentioned subsidy may
the former never incurred any advertising
be considered as income and, therefore,
expense. As a result, Sony is not entitled to a
subject to income tax, the Court agrees.
tax credit. At most, the CIR continues, the
However, the Court does not agree that the
said advertising expense should be for the
same subsidy should be subject to the 10%
account of SIS, and not Sony.17
VAT. To begin with, the said subsidy termed
by the CIR as reimbursement was not even
exclusively earmarked for Sony’s advertising
The Court is not persuaded. As aptly found expense for it was but an assistance or aid in
by the CTA-First Division and later affirmed view of Sony’s dire or adverse economic
by the CTA-EB, Sony’s deficiency VAT conditions, and was only "equivalent to the
assessment stemmed from the CIR’s latter’s (Sony’s) advertising expenses."
disallowance of the input VAT credits that
should have been realized from the
advertising expense of the latter.18 It is
Section 106 of the Tax Code explains when
evident under Section 11019 of the 1997 Tax
VAT may be imposed or exacted. Thus:
Code that an advertising expense duly
covered by a VAT invoice is a legitimate SEC. 106. Value-added Tax on Sale of
business expense. This is confirmed by no Goods or Properties. –
less than CIR’s own witness, Revenue Officer
(A) Rate and Base of Tax. – There shall be
Antonio Aluquin.20 There is also no denying
levied, assessed and collected on every sale,
that Sony incurred advertising expense.
barter or exchange of goods or properties,
Aluquin testified that advertising companies
value-added tax equivalent to ten percent
issued invoices in the name of Sony and the
(10%) of the gross selling price or gross value
latter paid for the same.21 Indubitably, Sony
in money of the goods or properties sold,
incurred and paid for advertising expense/
bartered or exchanged, such tax to be paid
services. Where the money came from is
by the seller or transferor.
another matter all together but will definitely
not change said fact.

Thus, there must be a sale, barter or

exchange of goods or properties before any
The CIR further argues that Sony itself
VAT may be levied. Certainly, there was no
admitted that the reimbursement from SIS
such sale, barter or exchange in the subsidy
was income and, thus, taxable. In support of
given by SIS to Sony. It was but a dole out by
this, the CIR cited a portion of Sony’s protest
SIS and not in payment for goods or
filed before it:
properties sold, bartered or exchanged by
Sony.

In the case of CIR v. Court of Appeals
(CA),23 the Court had the occasion to rule
that services rendered for a fee even on
reimbursement-on-cost basis only and
without realizing profit are also subject to
VAT. The case, however, is not applicable to
the present case. In that case, COMASERCO
rendered service to its affiliates and, in turn,
the affiliates paid the former reimbursement-
on-cost which means that it was paid the cost
or expense that it incurred although without
profit. This is not true in the present case.
Sony did not render any service to SIS at all.
The services rendered by the advertising
companies, paid for by Sony using SIS dole-
out, were for Sony and not SIS. SIS just gave
assistance to Sony in the amount equivalent
to the latter’s advertising expense but never
received any goods, properties or service
from Sony.
Regarding the deficiency EWT assessment,
more particularly Sony’s commission
expense, the CIR insists that said deficiency
EWT assessment is subject to the ten
percent (10%) rate instead of the five percent
(5%) citing Revenue Regulation No. 2-98
dated April 17, 1998.24 The said revenue
regulation provides that the 10% rate is
applied when the recipient of the commission
income is a natural person. According to the
CIR, Sony’s schedule of Selling, General and
Administrative expenses shows the
commission expense as "commission/dealer
salesman incentive," emphasizing the word
salesman.
On the other hand, the application of the five
percent (5%) rate by the CTA-First Division is
based on Section 1(g) of Revenue
Regulations No. 6-85 which provides:
(g) Amounts paid to certain Brokers and
Agents. – On gross payments to customs,
insurance, real estate and commercial
brokers and agents of professional
entertainers – five per centum (5%).25
In denying the very same argument of the
CIR in its motion for reconsideration, the
CTA-First Division, held:
x x x, commission expense is indeed subject
to 10% withholding tax but payments made to
broker is subject to 5% withholding tax
pursuant to Section 1(g) of Revenue
Regulations No. 6-85. While the commission
expense in the schedule of Selling, General
and Administrative expenses submitted by
petitioner (SPI) to the BIR is captioned as
"commission/dealer salesman incentive" the
same does not justify the automatic
imposition of flat 10% rate. As itemized by
petitioner, such expense is composed of
"Commission Expense" in the amount of
P10,200.00 and ‘Broker Dealer’ of
P2,894,797.00.26
The Court agrees with the CTA-EB when it
affirmed the CTA-First Division decision.
Indeed, the applicable rule is Revenue
Regulations No. 6-85, as amended by
Revenue Regulations No. 12-94, which was
the applicable rule during the subject period
of examination and assessment as specified
in the LOA. Revenue Regulations No. 2-98,
cited by the CIR, was only adopted in April
1998 and, therefore, cannot be applied in the
present case. Besides, the withholding tax on
brokers and agents was only increased to
10% much later or by the end of July 2001
under Revenue Regulations No. 6-2001.27
Until then, the rate was only 5%.
The Court also affirms the findings of both the
CTA-First Division and the CTA-EB on the
deficiency EWT assessment on the rental
deposit. According to their findings, Sony
incurred the subject rental deposit in the
amount of ₱10,523,821.99 only from January
to March 1998. As stated earlier, in the
absence of the appropriate LOA specifying
the coverage, the CIR’s deficiency EWT
assessment from January to March 1998, is
not valid and must be disallowed.
Finally, the Court now proceeds to the third
ground relied upon by the CIR.
The CIR initially assessed Sony to be liable
for penalties for belated remittance of its FWT
on royalties (i) as of December 1997; and (ii)
for the period from January to March 1998.
Again, the Court agrees with the CTA-First
Division when it upheld the CIR with respect
to the royalties for December 1997 but
cancelled that from January to March 1998.
The CIR insists that under Section 328 of
Revenue Regulations No. 5-82 and Sections
2.57.4 and 2.58(A)(2)(a)29 of Revenue
Regulations No. 2-98, Sony should also be
made liable for the FWT on royalties from
January to March of 1998. At the same time,
it downplays the relevance of the
Manufacturing License Agreement (MLA)
between Sony and Sony-Japan, particularly
in the payment of royalties.
The above revenue regulations provide the
manner of withholding remittance as well as
the payment of final tax on royalty. Based on
the same, Sony is required to deduct and
withhold final taxes on royalty payments
when the royalty is paid or is payable. After
which, the corresponding return and
remittance must be made within 10 days after
the end of each month. The question now is
when does the royalty become payable?
Under Article X(5) of the MLA between Sony
and Sony-Japan, the following terms of
royalty payments were agreed upon:
(5)Within two (2) months following each semi-
annual period ending June 30 and December
31, the LICENSEE shall furnish to the
LICENSOR a statement, certified by an
officer of the LICENSEE, showing quantities
of the MODELS sold, leased or otherwise
disposed of by the LICENSEE during such
respective semi-annual period and amount of
royalty due pursuant this ARTICLE X
therefore, and the LICENSEE shall pay the
royalty hereunder to the LICENSOR
concurrently with the furnishing of the above
statement.30
Withal, Sony was to pay Sony-Japan royalty
within two (2) months after every semi-annual
period which ends in June 30 and December
31. However, the CTA-First Division found
that there was accrual of royalty by the end of
December 1997 as well as by the end of June
1998. Given this, the FWTs should have been
paid or remitted by Sony to the CIR on
January 10, 1998 and July 10, 1998. Thus, it
was correct for the CTA-First Division and the
CTA-EB in ruling that the FWT for the royalty
from January to March 1998 was seasonably
filed. Although the royalty from January to
March 1998 was well within the semi-annual
period ending June 30, which meant that the
royalty may be payable until August 1998
pursuant to the MLA, the FWT for said royalty
had to be paid on or before July 10, 1998 or
10 days from its accrual at the end of June
1998. Thus, when Sony remitted the same on
July 8, 1998, it was not yet late.
In view of the foregoing, the Court finds no
reason to disturb the findings of the CTA-EB.
WHEREFORE, the petition is DENIED. SO
ORDERED.

MINDANAO II GEOTHERMAL
PARTNERSHIP, Petitioner,
vs.
COMMISSIONER OF INTERNAL
REVENUE, Respondent
G.R. No. 193301 is a petition for review1 assailing
the Decision2 promulgated on 10 March 2010 as
well as the Resolution3 promulgated on 28 July 2010
by the Court of Tax Appeals En Banc (CTA En
Banc) in CTA EB No. 513. The CTA En Banc
affirmed the 22 September 2008 Decision 4 as well
as the 26 June 2009 Amended Decision 5 of the First
Division of the Court of Tax Appeals (CTA First
Division) in CTA Case Nos. 7227, 7287, and 7317.
The CTA First Division denied Mindanao II
Geothermal Partnership’s (Mindanao II) claims for
refund or tax credit for the first and second quarters
of taxable year 2003 for being filed out of time (CTA
Case Nos. 7227 and 7287). The CTA First Division,
however, ordered the
Commissioner of Internal Revenue (CIR) to refund
or credit to Mindanao II unutilized input value-added
tax (VAT) for the third and fourth quarters of taxable
year 2003 (CTA Case No. 7317).
G.R. No. 194637 is a petition for review6 assailing
the Decision7 promulgated on 31 May 2010 as well
as the Amended Decision8 promulgated on 24
November 2010 by the CTA En Banc in CTA EB
Nos. 476 and 483. In its Amended Decision, the
CTA En Banc reversed its 31 May 2010 Decision
and granted the CIR’s petition for review in CTA
Case No. 476. The CTA En Banc denied Mindanao
I Geothermal Partnership’s (Mindanao I) claims for
refund or tax credit for the first (CTA Case No.
7228), second (CTA Case No. 7286), third, and
fourth quarters (CTA Case No. 7318) of 2003.
Both Mindanao I and II are partnerships registered
with the Securities and Exchange Commission,
value added taxpayers registered with the Bureau of
Internal Revenue (BIR), and Block Power
Production Facilities accredited by the Department
of Energy. Republic Act No. 9136, or the Electric
Power Industry Reform Act of 2000 (EPIRA),
effectively amended Republic Act No. 8424, or the
Tax Reform Act of 1997 (1997 Tax Code), 9 when it
decreed that sales of power by generation
companies shall be subjected to a zero rate of
VAT.10 Pursuant to EPIRA, Mindanao I and II filed
with the CIR claims for refund or tax credit of
accumulated unutilized and/or excess input taxes
due to VAT zero-rated sales in 2003. Mindanao I
and II filed their claims in 2005.
G.R. No. 193301
Mindanao II v. CIR
The Facts
G.R. No. 193301 covers three CTA First Division
cases, CTA Case Nos. 7227, 7287, and 7317,
which were consolidated as CTA EB No. 513. CTA
Case Nos. 7227, 7287, and 7317 claim a tax refund
or credit of Mindanao II’s alleged excess or
unutilized input taxes due to VAT zero-rated sales.
In CTA Case No. 7227, Mindanao II claims a tax
refund or credit of ₱3,160,984.69 for the first quarter
of 2003. In CTA Case No. 7287, Mindanao II claims
a tax refund or credit of ₱1,562,085.33 for the
second quarter of 2003. In CTA Case No. 7317,
Mindanao II claims a tax refund or credit of
₱3,521,129.50 for the third and fourth quarters of
2003.
The CTA First Division’s narration of the pertinent
facts is as follows:
xxxx
On March 11, 1997, [Mindanao II] allegedly entered
into a Built (sic)-Operate-Transfer (BOT) contract
with the Philippine National Oil Corporation –
Energy Development Company (PNOC-EDC) for
finance, engineering, supply, installation, testing,
commissioning, operation, and maintenance of a
48.25 megawatt geothermal power plant, provided
that PNOC-EDC shall supply and deliver steam to
Mindanao II at no cost. In turn, Mindanao II shall
convert the steam into electric capacity and energy
for PNOC-EDC and shall deliver the same to the
National Power Corporation (NPC) for and in behalf
of PNOC-EDC. Mindanao II alleges that its sale of
generated power and delivery of electric capacity
and energy of Mindanao II to NPC for and in behalf
of PNOC-EDC is its only revenue-generating activity
which is in the ambit of VAT zero-rated sales under
the EPIRA Law, x x x.
xxxx
Hence, the amendment of the NIRC of 1997
modified the VAT rate applicable to sales of
generated power by generation companies from ten
(10%) percent to zero (0%) percent.
In the course of its operation, Mindanao II makes
domestic purchases of goods and services and
accumulates therefrom creditable input taxes.
Pursuant to the provisions of the National Internal
Revenue Code (NIRC), Mindanao II alleges that it
can use its accumulated input tax credits to offset its
output tax liability. Considering, however that its
only revenue-generating activity is VAT zero-rated
under RA No. 9136, Mindanao II’s input tax credits
remain unutilized.
Thus, on the belief that its sales qualify for VAT
zero-rating, Mindanao II adopted the VAT zero-
rating of the EPIRA in computing for its VAT
payable when it filed its Quarterly VAT Returns on
the following dates:
1. There must be zero-rated or effectively zero-rated
sales;
2. That input taxes were incurred or paid;
3. That such input VAT payments are directly
attributable to zero-rated sales or effectively zero-
rated sales;
4. That the input VAT payments were not applied
against any output VAT liability; and
5. That the claim for refund was filed within the two-
year prescriptive period.13

CTA Period Date of Filing With respect to the fifth requirement, the CTA First
Case Covered Division tabulated the dates of filing of Mindanao II’s
Original Amended
No. (2003) return as well as its administrative and judicial
Return Return
claims, and concluded that Mindanao II’s
7227 1st April 23, July 3, administrative and judicial claims were timely filed in
Quarter 2003 2002 (sic), compliance with this Court’s ruling in Atlas
April 1, Consolidated Mining and Development Corporation
2004 & v. Commissioner of Internal Revenue (Atlas). 14 The
October CTA First Division declared that the two-year
22, 2004 prescriptive period for filing a VAT refund claim
7287 2nd July 22, April 1, should not be counted from the close of the quarter
Quarter 2003 2004 but from the date of the filing of the VAT return. As
ruled in Atlas, VAT liability or entitlement to a refund
7317 3rd Oct. 27, April 1, can only be determined upon the filing of the
Quarter 2003 2004 quarterly VAT return.
7317 4th Jan. 26, April 1,
Quarter 2004 2204 CTA Period Date Filing
Cas Covere
Origin Amende Administrati Judici
Considering that it has accumulated unutilized e d
al d ve al
creditable input taxes from its only income- No. (2003)
Return Return Return Claim
generating activity, Mindanao II filed an application
for refund and/or issuance of tax credit certificate 722 1st 23 1 April 13 April 22
with the BIR’s Revenue District Office at Kidapawan 7 Quarte April 2004 2005 April
City on April 13, 2005 for the four quarters of 2003. r 2003 2005
728 2nd 22 1 April 13 April 7 July
To date (September 22, 2008), the application for 7 Quarte July 2004 2005 2005
refund by Mindanao II remains unacted upon by the r 2003
CIR. Hence, these three petitions filed on April 22, 731 3rd 25 1 April 13 April 9
2005 covering the 1st quarter of 2003; July 7, 2005 7 Quarte Oct. 2004 2005 Sept.
for the 2nd quarter of 2003; and September 9, 2005 r 2003 2005
for the 3rd and 4th quarters of 2003. At the instance
of Mindanao II, these petitions were consolidated on 731 4th 26 1 April 13 April 9
March 15, 2006 as they involve the same parties 7 Quarte Jan. 2004 2005 Sept.
and the same subject matter. The only difference r 2004 200515
lies with the taxable periods involved in each
petition.11 Thus, counting from 23 April 2003, 22 July 2003, 25
October 2003, and 26 January 2004, when
The Court of Tax Appeals’ Ruling: Division Mindanao II filed its VAT returns, its administrative
claim filed on 13 April 2005 and judicial claims filed
In its 22 September 2008 Decision, 12 the CTA First on 22 April 2005, 7 July 2005, and 9 September
Division found that Mindanao II satisfied the twin 2005 were timely filed in accordance with Atlas.
requirements for VAT zero rating under EPIRA: (1) it
is a generation company, and (2) it derived sales The CTA First Division found that Mindanao II is
from power generation. The CTA First Division also entitled to a refund in the modified amount of
stated that Mindanao II complied with five ₱7,703,957.79, after disallowing ₱522,059.91 from
requirements to be entitled to a refund: input VAT16 and deducting ₱18,181.82 from
Mindanao II’s sale of a fully depreciated
₱200,000.00 Nissan Patrol. The input taxes
amounting to ₱522,059.91 were disallowed for
failure to meet invoicing requirements, while the
input VAT on the sale of the Nissan Patrol was
reduced by ₱18,181.82 because the output VAT for
the sale was not included in the VAT declarations.
The dispositive portion of the CTA First Division’s 22
September 2008 Decision reads:
WHEREFORE, the Petition for Review is hereby
PARTIALLY GRANTED. Accordingly, the CIR is
hereby ORDERED to REFUND or to ISSUE A TAX
CREDIT CERTIFICATE in the modified amount of
SEVEN MILLION SEVEN HUNDRED THREE
THOUSAND NINE HUNDRED FIFTY SEVEN AND
79/100 PESOS (₱7,703,957.79) representing its
unutilized input VAT for the four (4) quarters of the
taxable year 2003.
SO ORDERED. 17
Mindanao II filed a motion for partial
reconsideration.18 It stated that the sale of the fully
depreciated Nissan Patrol is a one-time transaction
and is not incidental to its VAT zero-rated
operations. Moreover, the disallowed input taxes
substantially complied with the requirements for
refund or tax credit.
The CIR also filed a motion for partial
reconsideration. It argued that the judicial claims for
the first and second quarters of 2003 were filed
beyond the period allowed by law, as stated in
Section 112(A) of the 1997 Tax Code. The CIR
further stated that Section 229 is a general
provision, and governs cases not covered by
Section 112(A). The CIR countered the CTA First
Division’s 22 September 2008 decision by citing this
Court’s ruling in Commisioner of Internal Revenue v.
Mirant Pagbilao Corporation (Mirant), 19 which stated
that unutilized input VAT payments must be claimed
within two years reckoned from the close of the
taxable quarter when the relevant sales were made
regardless of whether said tax was paid.
The CTA First Division denied Mindanao II’s motion
for partial reconsideration, found the CIR’s motion
for partial reconsideration partly meritorious, and
rendered an Amended Decision20 on 26 June 2009.
The CTA First Division stated that the claim for
refund or credit with the BIR and the subsequent
appeal to the CTA must be filed within the two-year
period prescribed under Section 229. The two-year
prescriptive period in Section 229 was denominated
as a mandatory statute of limitations. Therefore,
Mindanao II’s claims for refund for the first and
second quarters of 2003 had already prescribed.
The CTA First Division found that the records of
Mindanao II’s case are bereft of evidence that the
sale of the Nissan Patrol is not incidental to
Mindanao II’s VAT zero-rated operations. Moreover,
Mindanao II’s submitted documents failed to
substantiate the requisites for the refund or credit
claims.
The CTA First Division modified its 22 September
2008 Decision to read as follows:
WHEREFORE, the Petition for Review is hereby
PARTIALLY GRANTED. Accordingly, the CIR is
hereby ORDERED to REFUND or to ISSUE A TAX
CREDIT CERTIFICATE to Mindanao II Geothermal
Partnership in the modified amount of TWO
MILLION NINE HUNDRED EIGHTY THOUSAND
EIGHT HUNDRED EIGHTY SEVEN AND 77/100
PESOS (₱2,980,887.77) representing its unutilized
input VAT for the third and fourth quarters of the
taxable year 2003.
SO ORDERED.21
Mindanao II filed a Petition for Review, 22 docketed
as CTA EB No. 513, before the CTA En Banc.
The Court of Tax Appeals’ Ruling: En Banc
On 10 March 2010, the CTA En Banc rendered its
Decision23 in CTA EB No. 513 and denied Mindanao
II’s petition. The CTA En Banc ruled that (1) Section
112(A) clearly provides that the reckoning of the
two-year prescriptive period for filing the application
for refund or credit of input VAT attributable to zero-
rated sales or effectively zero-rated sales shall be
counted from the close of the taxable quarter when
the sales were made; (2) the Atlas and Mirant cases
applied different tax codes: Atlas applied the 1977
Tax Code while Mirant applied the 1997 Tax Code;
(3) the sale of the fully-depreciated Nissan Patrol is
incidental to Mindanao II’s VAT zero-rated
transactions pursuant to Section 105; (4) Mindanao
II failed to comply with the substantiation
requirements provided under Section 113(A) in
relation to Section 237 of the 1997 Tax Code as
implemented by Section 4.104-1, 4.104-5, and
4.108-1 of Revenue Regulation No. 7-95; and (5)
the doctrine of strictissimi juris on tax exemptions
cannot be relaxed in the present case.
The dispositive portion of the CTA En Banc’s 10
March 2010 Decision reads:
WHEREFORE, on the basis of the foregoing
considerations, the Petition for Review en banc is
DISMISSED for lack of merit. Accordingly, the
Decision dated September 22, 2008 and the
Amended Decision dated June 26, 2009 issued by
the First Division are AFFIRMED.
SO ORDERED.24
The CTA En Banc issued a Resolution 25 on 28 July
2010 denying for lack of merit Mindanao II’s Motion
for Reconsideration.26 The CTA En Banc highlighted
the following bases of their previous ruling:
1. The Supreme Court has long decided that
the claim for refund of unutilized input VAT
must be filed within two (2) years after the
close of the taxable quarter when such sales
were made.
2. The Supreme Court is the ultimate arbiter
whose decisions all other courts should take
bearings.
3. The words of the law are clear, plain, and
free from ambiguity; hence, it must be given
its literal meaning and applied without any
interpretation.27
G.R. No. 194637
Mindanao I v. CIR
The Facts
G.R. No. 194637 covers two cases consolidated by
the CTA EB: CTA EB Case Nos. 476 and 483. Both
CTA EB cases consolidate three cases from the
CTA Second Division: CTA Case Nos. 7228, 7286,
and 7318. CTA Case Nos. 7228, 7286, and 7318
claim a tax refund or credit of Mindanao I’s
accumulated unutilized and/or excess input taxes
due to VAT zero-rated sales. In CTA Case No.
7228, Mindanao I claims a tax refund or credit of
₱3,893,566.14 for the first quarter of 2003. In CTA
Case No. 7286, Mindanao I claims a tax refund or
credit of ₱2,351,000.83 for the second quarter of
2003. In CTA Case No. 7318, Mindanao I claims a
tax refund or credit of ₱7,940,727.83 for the third
and fourth quarters of 2003.
Mindanao I is similarly situated as Mindanao II. The
CTA Second Division’s narration of the pertinent
facts is as follows:
xxxx
In December 1994, Mindanao I entered into a
contract of Build-Operate-Transfer (BOT) with the
Philippine National Oil Corporation – Energy
Development Corporation (PNOC-EDC) for the
finance, design, construction, testing,
commissioning, operation, maintenance and repair
of a 47-megawatt geothermal power plant. Under
the said BOT contract, PNOC-EDC shall supply and
deliver steam to Mindanao I at no cost. In turn,
Mindanao I will convert the steam into electric
capacity and energy for PNOC-EDC and shall
subsequently supply and deliver the same to the
National Power Corporation (NPC), for and in behalf
of PNOC-EDC.
Mindanao I’s 47-megawatt geothermal power plant
project has been accredited by the Department of
Energy (DOE) as a Private Sector Generation
Facility, pursuant to the provision of Executive Order
No. 215, wherein Certificate of Accreditation No. 95-
037 was issued.
On June 26, 2001, Republic Act (R.A.) No. 9136
took effect, and the relevant provisions of the
National Internal Revenue Code (NIRC) of 1997
were deemed modified. R.A. No. 9136, also known
as the "Electric Power Industry Reform Act of 2001
(EPIRA), was enacted by Congress to ordain
reforms in the electric power industry, highlighting,
among others, the importance of ensuring the
reliability, security and affordability of the supply of
electric power to end users. Under the provisions of
this Republic Act and its implementing rules and
regulations, the delivery and supply of electric
energy by generation companies became VAT zero-
rated, which previously were subject to ten percent
(10%) VAT.
xxxx
The amendment of the NIRC of 1997 modified the
VAT rate applicable to sales of generated power by
generation companies from ten (10%) percent to
zero percent (0%). Thus, Mindanao I adopted the
VAT zero-rating of the EPIRA in computing for its
VAT payable when it filed its VAT Returns, on the
belief that its sales qualify for VAT zero-rating.
Mindanao I reported its unutilized or excess
creditable input taxes in its Quarterly VAT Returns
for the first, second, third, and fourth quarters of
taxable year 2003, which were subsequently
amended and filed with the BIR.
On April 4, 2005, Mindanao I filed with the BIR
separate administrative claims for the issuance of
tax credit certificate on its alleged unutilized or
excess input taxes for taxable year 2003, in the
accumulated amount of ₱14,185, 294.80.
Alleging inaction on the part of CIR, Mindanao I
elevated its claims before this Court on April 22,
2005, July 7, 2005, and September 9, 2005
docketed as CTA Case Nos. 7228, 7286, and 7318,
respectively. However, on October 10, 2005,
Mindanao I received a copy of the letter dated
September 30, 2003 (sic) of the BIR denying its
application for tax credit/refund.28
The Court of Tax Appeals’ Ruling: Division
On 24 October 2008, the CTA Second Division
rendered its Decision29 in CTA Case Nos. 7228,
7286, and 7318. The CTA Second Division found
that (1) pursuant to Section 112(A), Mindanao I can
only claim 90.27% of the amount of substantiated
excess input VAT because a portion was not
reported in its quarterly VAT returns; (2) out of the
₱14,185,294.80 excess input VAT applied for
refund, only ₱11,657,447.14 can be considered
substantiated excess input VAT due to
disallowances by the Independent Certified Public
Accountant, adjustment on the disallowances per
the CTA Second Division’s further verification, and
additional disallowances per the CTA Second
Division’s further verification;
(3) Mindanao I’s accumulated excess input VAT for
the second quarter of 2003 that was carried over to
the third quarter of 2003 is net of the claimed input
VAT for the first quarter of 2003, and the same
procedure was done for the second, third, and
fourth quarters of 2003; and (4) Mindanao I’s
administrative claims were filed within the two-year
prescriptive period reckoned from the respective
dates of filing of the quarterly VAT returns.
The dispositive portion of the CTA Second
Division’s 24 October 2008 Decision reads:
WHEREFORE, premises considered, the
consolidated Petitions for Review are hereby
PARTIALLY GRANTED. Accordingly, the CIR is
hereby ORDERED TO ISSUE A TAX CREDIT
CERTIFICATE in favor of Mindanao I in the reduced
amount of TEN MILLION FIVE HUNDRED
TWENTY THREE THOUSAND ONE HUNDRED
SEVENTY SEVEN PESOS AND 53/100
(₱10,523,177.53) representing Mindanao I’s
unutilized input VAT for the four quarters of the
taxable year 2003.
SO ORDERED.30
Mindanao I filed a motion for partial reconsideration
with motion for Clarification 31 on 11 November 2008.
It claimed that the CTA Second Division should not
have allocated proportionately Mindanao I’s
unutilized creditable input taxes for the taxable year
2003, because the proportionate allocation of the
amount of creditable taxes in Section 112(A) applies
only when the creditable input taxes due cannot be
directly and entirely attributed to any of the zero-
rated or effectively zero-rated sales. Mindanao I
claims that its unreported collection is directly
attributable to its VAT zero-rated sales. The CTA
Second Division denied Mindanao I’s motion and
maintained the proportionate allocation because
there was a portion of the gross receipts that was
undeclared in Mindanao I’s gross receipts.
The CIR also filed a motion for partial
reconsideration32 on 11 November 2008. It claimed
that Mindanao I failed to exhaust administrative
remedies before it filed its petition for review. The
CTA Second Division denied the CIR’s motion, and
cited Atlas33 as the basis for ruling that it is more
practical and reasonable to count the two-year
prescriptive period for filing a claim for refund or
credit of input VAT on zero-rated sales from the
date of filing of the return and payment of the tax
due.
The dispositive portion of the CTA Second
Division’s 10 March 2009 Resolution reads:
WHEREFORE, premises considered, the CIR’s
Motion for Partial Reconsideration and Mindanao I’s
Motion for Partial Reconsideration with Motion for
Clarification are hereby DENIED for lack of merit.
SO ORDERED.34
The Ruling of the Court of Tax Appeals: En Banc
On 31 May 2010, the CTA En Banc rendered its
Decision35 in CTA EB Case Nos. 476 and 483 and
denied the petitions filed by the CIR and Mindanao
I. The CTA En Banc found no new matters which
have not yet been considered and passed upon by
the CTA Second Division in its assailed decision
and resolution.
The dispositive portion of the CTA En Banc’s 31
May 2010 Decision reads:
WHEREFORE, premises considered, the Petitions
for Review are hereby DISMISSED for lack of merit.
Accordingly, the October 24, 2008 Decision and
March 10, 2009 Resolution of the CTA Former
Second Division in CTA Case Nos. 7228, 7286, and
7318, entitled "Mindanao I Geothermal Partnership
vs. Commissioner of Internal Revenue" are hereby
AFFIRMED in toto.
SO ORDERED.36
Both the CIR and Mindanao I filed Motions for
Reconsideration of the CTA En Banc’s 31 May 2010
Decision. In an Amended Decision promulgated on
24 November 2010, the CTA En Banc agreed with
the CIR’s claim that Section 229 of the NIRC of
1997 is inapplicable in light of this Court’s ruling in
Mirant. The CTA En Banc also ruled that the
procedure prescribed under Section 112(D) now
112(C)37 of the 1997 Tax Code should be followed
first before the CTA En Banc can act on Mindanao
I’s claim. The CTA En Banc reconsidered its 31 May
2010 Decision in light of this Court’s ruling in
Commissioner of Internal Revenue v. Aichi Forging
Company of Asia, Inc. (Aichi).38
The pertinent portions of the CTA En Banc’s 24
November 2010 Amended Decision read:
C.T.A. Case No. 7228:
(1) For calendar year 2003, Mindanao I filed with the
BIR its Quarterly VAT Returns for the First Quarter
of 2003. Pursuant to Section 112(A) of the NIRC of
1997, as amended, Mindanao I has two years from
March 31, 2003 or until March 31, 2005 within which
to file its administrative claim for refund;
(2) On April 4, 2005, Mindanao I applied for an
administrative claim for refund of unutilized input
VAT for the first quarter of taxable year 2003 with
the BIR, which is beyond the two-year prescriptive
period mentioned above.
C.T.A. Case No. 7286:
(1) For calendar year 2003, Mindanao I filed with the
BIR its Quarterly VAT Returns for the second
quarter of 2003. Pursuant to
Section 112(A) of the NIRC of 1997, as amended,
Mindanao I has two years from June 30, 2003,
within which to file its administrative claim for refund
for the second quarter of 2003, or until June 30,
2005;
(2) On April 4, 2005, Mindanao I applied an
administrative claim for refund of unutilized input
VAT for the second quarter of taxable year 2003
with the BIR, which is within the two-year
prescriptive period, provided under Section 112 (A)
of the NIRC of 1997, as amended;
(3) The CIR has 120 days from April 4, 2005
(presumably the date Mindanao I submitted the
supporting documents together with the application
for refund) or until August 2, 2005, to decide the
administrative claim for refund;
(4) Within 30 days from the lapse of the 120-day
period or from August 3, 2005 to September 1,
2005, Mindanao I should have elevated its claim for
refund to the CTA in Division;
(5) However, on July 7, 2005, Mindanao I filed its
Petition for Review with this Court, docketed as CTA
Case No. 7286, even before the 120-day period for
the CIR to decide the claim for refund had lapsed on
August 2, 2005. The Petition for Review was,
therefore, prematurely filed and there was failure to
exhaust administrative remedies;
C.T.A. Case No. 7318:
(1) For calendar year 2003, Mindanao I filed with the
BIR its Quarterly VAT Returns for the third and
fourth quarters of 2003. Pursuant to Section 112(A)
of the NIRC of 1997, as amended, Mindanao I
therefore, has two years from September 30, 2003
and December 31, 2003, or until September 30,
2005 and December 31, 2005, respectively, within
which to file its administrative claim for the third and
fourth quarters of 2003;
(2) On April 4, 2005, Mindanao I applied an
administrative claim for refund of unutilized input
VAT for the third and fourth quarters of taxable year
2003 with the BIR, which is well within the two-year
prescriptive period, provided under Section 112(A)
of the NIRC of 1997, as amended;
(3) From April 4, 2005, which is also presumably the
date Mindanao I submitted supporting documents,
together with the aforesaid application for refund,
the CIR has 120 days or until August 2, 2005, to
decide the claim;
(4) Within thirty (30) days from the lapse of the 120-
day period or from August 3, 2005 until September
1, 2005 Mindanao I should have elevated its claim
for refund to the CTA;
(5) However, Mindanao I filed its Petition for Review
with the CTA in Division only on September 9, 2005,
which is 8 days beyond the 30-day period to appeal
to the CTA.
Evidently, the Petition for Review was filed way
beyond the 30-day prescribed period. Thus, the
Petition for Review should have been dismissed for
being filed late.
In recapitulation:
(1) C.T.A. Case No. 7228
Claim for the first quarter of 2003 had already
prescribed for having been filed beyond the two-
year prescriptive period;
(2) C.T.A. Case No. 7286
Claim for the second quarter of 2003 should be
dismissed for Mindanao I’s failure to comply with a
condition precedent when it failed to exhaust
administrative remedies by filing its Petition for
Review even before the lapse of the 120-day period
for the CIR to decide the administrative claim;
(3) C.T.A. Case No. 7318
Petition for Review was filed beyond the 30-day
prescribed period to appeal to the CTA.
xxxx
IN VIEW OF THE FOREGOING, the Commissioner
of Internal Revenue’s Motion for Reconsideration is
hereby GRANTED; Mindanao I’s Motion for Partial
Reconsideration is hereby DENIED for lack of merit.
The May 31, 2010 Decision of this Court En Banc is
hereby REVERSED.
Accordingly, the Petition for Review of the
Commissioner of Internal Revenue in CTA EB No.
476 is hereby GRANTED and the entire claim of
Mindanao I Geothermal Partnership for the first,
second, third and fourth quarters of 2003 is hereby
DENIED.
SO ORDERED.39
The Issues
G.R. No. 193301
Mindanao II v. CIR
Mindanao II raised the following grounds in its
Petition for Review:
I. The Honorable Court of Tax Appeals erred
in holding that the claim of Mindanao II for
the 1st and 2nd quarters of year 2003 has
already prescribed pursuant to the Mirant
case.
A. The Atlas case and Mirant case have conflicting
interpretations of the law as to the reckoning date of
the two year prescriptive period for filing claims for
VAT refund.
B. The Atlas case was not and cannot be
superseded by the Mirant case in light of Section
4(3), Article VIII of the 1987 Constitution.
C. The ruling of the Mirant case, which uses the
close of the taxable quarter when the sales were
made as the reckoning date in counting the two-
year prescriptive period cannot be applied
retroactively in the case of Mindanao II.
II. The Honorable Court of Tax Appeals erred in
interpreting Section 105 of the 1997 Tax Code, as
amended in that the sale of the fully depreciated
Nissan Patrol is a one-time transaction and is not
incidental to the VAT zero-rated operation of
Mindanao II.
III. The Honorable Court of Tax Appeals erred in
denying the amount disallowed by the Independent
Certified Public Accountant as Mindanao II
substantially complied with the requisites of the
1997 Tax Code, as amended, for refund/tax credit.
A. The amount of ₱2,090.16 was brought about by
the timing difference in the recording of the foreign
currency deposit transaction.
B. The amount of ₱2,752.00 arose from the out-of-
pocket expenses reimbursed to SGV & Company
which is substantially suppoerted [sic] by an official
receipt.
C. The amount of ₱487,355.93 was unapplied
and/or was not included in Mindanao II’s claim for
refund or tax credit for the year 2004 subject matter
of CTA Case No. 7507.
IV. The doctrine of strictissimi juris on tax
exemptions should be relaxed in the present case. 40
G.R. No. 194637
Mindanao I v. CIR
Mindanao I raised the following grounds in its
Petition for Review:
I. The administrative claim and judicial claim in CTA
Case No. 7228 were timely filed pursuant to the
case of Atlas Consolidated Mining and Development
Corporation vs. Commissioner of Internal Revenue,
which was then the controlling ruling at the time of
filing.
A. The recent ruling in the Commissioner of Internal
Revenue vs. Mirant Pagbilao Corporation, which
uses the end of the taxable quarter when the sales
were made as the reckoning date in counting the
two-year prescriptive period, cannot be applied
retroactively in the case of Mindanao I.
B. The Atlas case promulgated by the Third Division
of this Honorable Court on June 8, 2007 was not
and cannot be superseded by the Mirant Pagbilao
case promulgated by the Second Division of this
Honorable Court on September 12, 2008 in light of
the explicit provision of Section 4(3), Article VIII of
the 1987 Constitution.
II. Likewise, the recent ruling of this Honorable
Court in Commissioner of Internal Revenue vs. Aichi
Forging Company of Asia, Inc., cannot be applied
retroactively to Mindanao I in the present case.41
In a Resolution dated 14 December 2011, 42 this
Court resolved to consolidate G.R. Nos. 193301 and
194637 to avoid conflicting rulings in related cases.
The Court’s Ruling
Determination of Prescriptive Period
G.R. Nos. 193301 and 194637 both raise the
question of the determination of the prescriptive
period, or the interpretation of Section 112 of the
1997 Tax Code, in light of our rulings in Atlas and
Mirant.
Mindanao II’s unutilized input VAT tax credit for the
first and second quarters of 2003, in the amounts of
₱3,160,984.69 and ₱1,562,085.33, respectively, are
covered by G.R. No. 193301, while Mindanao I’s
unutilized input VAT tax credit for the first, second,
third, and fourth quarters of 2003, in the amounts of
₱3,893,566.14, ₱2,351,000.83, and ₱7,940,727.83, accordance with the rules and regulations of the
respectively, are covered by G.R. No. 194637. Bangko Sentral ng Pilipinas (BSP): Provided,
further, That where the taxpayer is engaged in zero-
C Period Close Last Actual Last Actua rated or effectively zero-rated sale and also in
T covered of day date of day l Date
by quarte for filing taxable or exempt sale of goods or properties or
A for of services, and the amount of creditable input tax due
VAT r filing applicat
C Sales in when applic ion for filing filing or paid cannot be directly and entirely attributed to
as 2003 sales ation tax case case any one of the transactions, it shall be allocated
e and were of tax refund/ with with proportionately on the basis of the volume of sales.
N amount made refund credit CTA45 CTA
o. /tax with the (judici
credit CIR xxxx
al
certific (admini
ate strative claim)
(D) Period within which Refund or Tax Credit of
with claim)44
the
Input Taxes shall be Made. - In proper cases, the
CIR Commissioner shall grant a refund or issue the tax
credit certificate for creditable input taxes within one
72 1st 31 31 13 April 12 22 hundred twenty (120) days from the date of
27 Quarter March March 2005 Septe April
, 2003 2005 submission of complete documents in support of the
mber 2005 application filed in accordance with Subsections (A)
₱3,160,
984.69 2005 and (B) hereof.
72 2nd 30 30 13 April 12 7 July
87 Quarter June June 2005 Septe 2005 In case of full or partial denial of the claim for tax
, 2003 2005
mber refund or tax credit, or the failure on the part of the
₱1,562, Commissioner to act on the application within the
085.33 2005
period prescribed above, the taxpayer affected may,
73 3rd and 30 30 13 April 12 9 within thirty (30) days from the receipt of the
17 4th Septe Septe 2005 Septe Septe decision denying the claim or after the expiration of
Quarter mber mber the one hundred twenty day-period, appeal the
mber mber
s, 2003 2005
₱3,521, 2005 2005 decision or the unacted claim with the Court of Tax
129.50 31 2 Appeals.
Dece Janu
mber ary x x x x 43 (Underscoring supplied)
2003 2006
(31 The relevant dates for G.R. No. 193301 (Mindanao
Dece II) are:
mber
2005
being
a
The relevant dates for G.R. No. 194637 (Minadanao I) are:
Satur
day)
Period CT Close Last Actual Last Actual
Section 112 of the 1997 Tax Code covered of day date of day for Date
Ca by quarter for filing filing filing of filing
The pertinent sections of the 1997 Tax Code, the VAT Sales when applicat applicatio case case
No. in sales ion n for with with
law applicable at the time of Mindanao II’s and 2003 and were of tax tax refund/ CTA47 CTA
Mindanao I’s administrative and judicial claims, amount made refund/t credit with (judicial
provide: ax the claim)
credit CIR
SEC. 112. Refunds or Tax Credits of Input Tax. -(A) certifica (administr
te ative
Zero-rated or Effectively Zero-rated Sales. - Any with the claim)46
VAT-registered person, whose sales are zero-rated CIR
or effectively zero-rated may, within two (2) years
722 1st 31 31 4 April 1 22 April
after the close of the taxable quarter when the sales Quarter, March March 2005 Septem 2005
were made, apply for the issuance of a tax credit ₱3,893,56 2003 2005 ber
certificate or refund of creditable input tax due or 6.14 2005
paid attributable to such sales, except transitional
728 2nd 30 30 4 April 1 7 July
input tax, to the extent that such input tax has not Quarter, June June 2005 Septem 2005
been applied against output tax: Provided, however, ₱2,351,00 2003 2005 ber
That in the case of zero-rated sales under Section 0.83 2005
106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) 731 3rd 30 30 4 April 1 9
and (2), the acceptable foreign currency exchange and 4th Septem Septem 2005 Septem Septem
proceeds thereof had been duly accounted for in Quarters, ber ber ber ber
₱7,940,72 2003 2005 2005 2005
7.83
31 2
Decem Januar
ber y also expressly provides that if the Commissioner
2003 2006
(31
Decem
ber
2005
being
a review. Without a decision or an "inaction x x x
Saturda
y)
When Mindanao II and Mindanao I filed their
respective administrative and judicial claims in
2005, neither Atlas nor Mirant has been
promulgated. Atlas was promulgated on 8 June
2007, while Mirant was promulgated on 12
September 2008. It is therefore misleading to state
that Atlas was the controlling doctrine at the time of
filing of the claims. The 1997 Tax Code, which took
effect on 1 January 1998, was the applicable law at
the time of filing of the claims in issue. As this Court
explained in the recent consolidated cases of
Commissioner of Internal Revenue v. San Roque
Power Corporation, Taganito Mining Corporation v.
Commissioner of Internal Revenue, and Philex
Mining Corporation v. Commissioner of Internal
Revenue (San Roque):48
Clearly, San Roque failed to comply with the 120-
day waiting period, the time expressly given by law
to the Commissioner to decide whether to grant or
deny San Roque’s application for tax refund or
credit. It is indisputable that compliance with the
120-day waiting period is mandatory and
jurisdictional. The waiting period, originally fixed at
60 days only, was part of the provisions of the first
VAT law, Executive Order No. 273, which took
effect on 1 January 1988. The waiting period was
extended to 120 days effective 1 January 1998
under RA 8424 or the Tax Reform Act of 1997.
Thus, the waiting period has been in our statute
books for more than fifteen (15) years before San
Roque filed its judicial claim.
Failure to comply with the 120-day waiting period
violates a mandatory provision of law. It violates the
doctrine of exhaustion of administrative remedies
and renders the petition premature and thus without
a cause of action, with the effect that the CTA does
not acquire jurisdiction over the taxpayer’s petition.
Philippine jurisprudence is replete with cases
upholding and reiterating these doctrinal principles.
The charter of the CTA expressly provides that its
jurisdiction is to review on appeal "decisions of the
Commissioner of Internal Revenue in cases
involving x x x refunds of internal revenue taxes."
When a taxpayer prematurely files a judicial claim
for tax refund or credit with the CTA without waiting
for the decision of the Commissioner, there is no
"decision" of the Commissioner to review and thus
the CTA as a court of special jurisdiction has no
jurisdiction over the appeal. The charter of the CTA
fails to decide within "a specific period" required by
law, such "inaction shall be deemed a denial" of the
application for tax refund or credit. It is the
Commissioner’s decision, or inaction "deemed a
denial," that the taxpayer can take to the CTA for
deemed a denial" of the Commissioner, the CTA
has no jurisdiction over a petition for review.
San Roque’s failure to comply with the 120-day
mandatory period renders its petition for review with
the CTA void. Article 5 of the Civil Code provides,
"Acts executed against provisions of mandatory or
prohibitory laws shall be void, except when the law
itself authorizes their validity." San Roque’s void
petition for review cannot be legitimized by the CTA
or this Court because Article 5 of the Civil Code
states that such void petition cannot be legitimized
"except when the law itself authorizes its validity."
There is no law authorizing the petition’s validity.
It is hornbook doctrine that a person committing a
void act contrary to a mandatory provision of law
cannot claim or acquire any right from his void act.
A right cannot spring in favor of a person from his
own void or illegal act. This doctrine is repeated in
Article 2254 of the Civil Code, which states, "No
vested or acquired right can arise from acts or
omissions which are against the law or which
infringe upon the rights of others." For violating a
mandatory provision of law in filing its petition with
the CTA, San Roque cannot claim any right arising
from such void petition. Thus, San Roque’s petition
with the CTA is a mere scrap of paper.
This Court cannot brush aside the grave issue of the
mandatory and jurisdictional nature of the 120-day
period just because the Commissioner merely
asserts that the case was prematurely filed with the
CTA and does not question the entitlement of San
Roque to the refund. The mere fact that a taxpayer
has undisputed excess input VAT, or that the tax
was admittedly illegally, erroneously or excessively
collected from him, does not entitle him as a matter
of right to a tax refund or credit. Strict compliance
with the mandatory and jurisdictional conditions
prescribed by law to claim such tax refund or credit
is essential and necessary for such claim to
prosper. Well-settled is the rule that tax refunds or
credits, just like tax exemptions, are strictly
construed against the taxpayer.
The burden is on the taxpayer to show that he has
strictly complied with the conditions for the grant of
the tax refund or credit.
This Court cannot disregard mandatory and
jurisdictional conditions mandated by law simply
because the Commissioner chose not to contest the
numerical correctness of the claim for tax refund or
credit of the taxpayer. Non-compliance with
mandatory periods, non-observance of prescriptive
periods, and non-adherence to exhaustion of
administrative remedies bar a taxpayer’s claim for
tax refund or credit, whether or not the
Commissioner questions the numerical correctness
of the claim of the taxpayer. This Court should not
establish the precedent that non-compliance with
mandatory and jurisdictional conditions can be
excused if the claim is otherwise meritorious,
particularly in claims for tax refunds or credit. Such
precedent will render meaningless compliance with
mandatory and jurisdictional requirements, for then
every tax refund case will have to be decided on the
numerical correctness of the amounts claimed,
regardless of non-compliance with mandatory and
jurisdictional conditions.
San Roque cannot also claim being misled,
misguided or confused by the Atlas doctrine
because San Roque filed its petition for review with
the CTA more than four years before Atlas was
promulgated. The Atlas doctrine did not exist at the
time San Roque failed to comply with the 120-day
period. Thus, San Roque cannot invoke the Atlas
doctrine as an excuse for its failure to wait for the
120-day period to lapse. In any event, the Atlas
doctrine merely stated that the two-year prescriptive
period should be counted from the date of payment
of the output VAT, not from the close of the taxable
quarter when the sales involving the input VAT were
made. The Atlas doctrine does not interpret,
expressly or impliedly, the 120+30 day
periods.49 (Emphases in the original; citations
omitted)
Prescriptive Period for
the Filing of Administrative Claims
In determining whether the administrative claims of
Mindanao I and Mindanao II for 2003 have
prescribed, we see no need to rely on either Atlas or
Mirant. Section 112(A) of the 1997 Tax Code is
clear: "Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two
(2) years after the close of the taxable quarter when
the sales were made, apply for the issuance of a tax
credit certificate or refund of creditable input tax due
or paid attributable to such sales x x x."
We rule on Mindanao I and II’s administrative claims
for the first, second, third, and fourth quarters of
2003 as follows:
(1) The last day for filing an application for tax
refund or credit with the CIR for the first quarter of
2003 was on 31 March 2005. Mindanao II filed its
administrative claim before the CIR on 13 April
2005, while Mindanao I filed its administrative claim
before the CIR on 4 April 2005. Both claims have
prescribed, pursuant to Section 112(A) of the 1997
Tax Code.
(2) The last day for filing an application for tax
refund or credit with the CIR for the second quarter
of 2003 was on 30 June 2005. Mindanao II filed its
administrative claim before the CIR on 13 April
2005, while Mindanao I filed its administrative claim
before the CIR on 4 April 2005. Both claims were
filed on time, pursuant to Section 112(A) of the 1997
Tax Code.
(3) The last day for filing an application for tax
refund or credit with the CIR for the third quarter of
2003 was on 30 September 2005. Mindanao II filed
its administrative claim before the CIR on 13 April
2005, while Mindanao I filed its administrative claim
before the CIR on 4 April 2005. Both claims were
filed on time, pursuant to Section 112(A) of the 1997
Tax Code.
(4) The last day for filing an application for tax
refund or credit with the CIR for the fourth quarter of
2003 was on 2 January 2006. Mindanao II filed its
administrative claim before the CIR on 13 April
2005, while Mindanao I filed its administrative claim
before the CIR on 4 April 2005. Both claims were
filed on time, pursuant to Section 112(A) of the 1997
Tax Code.
Prescriptive Period for
the Filing of Judicial Claims
In determining whether the claims for the second,
third and fourth quarters of 2003 have been properly
appealed, we still see no need to refer to either
Atlas or Mirant, or even to Section 229 of the 1997
Tax Code. The second paragraph of Section 112(C)
of the 1997 Tax Code is clear: "In case of full or
partial denial of the claim for tax refund or tax credit,
or the failure on the part of the Commissioner to act
on the application within the period prescribed
above, the taxpayer affected may, within thirty (30)
days from the receipt of the decision denying the
claim or after the expiration of the one hundred
twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals."
The mandatory and jurisdictional nature of the
120+30 day periods was explained in San Roque:
At the time San Roque filed its petition for review
with the CTA, the 120+30 day mandatory periods
were already in the law. Section 112(C) expressly
grants the Commissioner 120 days within which to
decide the taxpayer’s claim. The law is clear, plain,
and unequivocal: "x x x the Commissioner shall
grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty
(120) days from the date of submission of complete
documents." Following the verba legis doctrine, this
law must be applied exactly as worded since it is
clear, plain, and unequivocal. The taxpayer cannot
simply file a petition with the CTA without waiting for
the Commissioner’s decision within the 120-day
mandatory and jurisdictional period. The CTA will
have no jurisdiction because there will be no
"decision" or "deemed a denial" decision of the
Commissioner for the CTA to review. In San
Roque’s case, it filed its petition with the CTA a
mere 13 days after it filed its administrative claim
with the Commissioner. Indisputably, San Roque
knowingly violated the mandatory 120-day period,
and it cannot blame anyone but itself.
Section 112(C) also expressly grants the taxpayer a
30-day period to appeal to the CTA the decision or
inaction of the Commissioner, thus:
x x x the taxpayer affected may, within thirty (30)
days from the receipt of the decision denying the
claim or after the expiration of the one hundred
twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals.
(Emphasis supplied)
This law is clear, plain, and unequivocal. Following
the well-settled verba legis doctrine, this law should
be applied exactly as worded since it is clear, plain,
and unequivocal. As this law states, the taxpayer
may, if he wishes, appeal the decision of the
Commissioner to the CTA within 30 days from
receipt of the Commissioner’s decision, or if the
Commissioner does not act on the taxpayer’s claim
within the 120-day period, the taxpayer may appeal
to the CTA within 30 days from the expiration of the
120-day period.
There are three compelling reasons why the 30-day
period need not necessarily fall within the two-year
prescriptive period, as long as the administrative
claim is filed within the two-year prescriptive period.
First, Section 112(A) clearly, plainly, and
unequivocally provides that the taxpayer "may,
within two (2) years after the close of the taxable
quarter when the sales were made, apply for the
issuance of a tax credit certificate or refund of the
creditable input tax due or paid to such sales." In
short, the law states that the taxpayer may apply
with the Commissioner for a refund or credit "within
two (2) years," which means at anytime within two
years. Thus, the application for refund or credit may
be filed by the taxpayer with the Commissioner on
the last day of the two-year prescriptive period and it
will still strictly comply with the law. The two-year
prescriptive period is a grace period in favor of the
taxpayer and he can avail of the full period before
his right to apply for a tax refund or credit is barred
by prescription.
Second, Section 112(C) provides that the
Commissioner shall decide the application for
refund or credit "within one hundred twenty (120)
days from the date of submission of complete
documents in support of the application filed in
accordance with Subsection (A)." The reference in
Section 112(C) of the submission of documents "in
support of the application filed in accordance with
Subsection A" means that the application in Section
112(A) is the administrative claim that the
Commissioner must decide within the 120-day
period. In short, the two-year prescriptive period in
Section 112(A) refers to the period within which the
taxpayer can file an administrative claim for tax
refund or credit. Stated otherwise, the two-year
prescriptive period does not refer to the filing of the
judicial claim with the CTA but to the filing of the
administrative claim with the Commissioner. As held
in Aichi, the "phrase ‘within two years x x x apply for
the issuance of a tax credit or refund’ refers to
applications for refund/credit with the CIR and not to
appeals made to the CTA."
Third, if the 30-day period, or any part of it, is
required to fall within the two-year prescriptive
period (equivalent to 730 days), then the taxpayer
must file his administrative claim for refund or credit
within the first 610 days of the two-year prescriptive
period. Otherwise, the filing of the administrative
claim beyond the first 610 days will result in the
appeal to the CTA being filed beyond the two-year
prescriptive period. Thus, if the taxpayer files his
administrative claim on the 611th day, the
Commissioner, with his 120-day period, will have
until the 731st day to decide the claim. If the
Commissioner decides only on the 731st day, or
does not decide at all, the taxpayer can no longer
file his judicial claim with the CTA because the two-
year prescriptive period (equivalent to 730 days)
has lapsed. The 30-day period granted by law to the
taxpayer to file an appeal before the CTA becomes
utterly useless, even if the taxpayer complied with
the law by filing his administrative claim within the
two-year prescriptive period.
The theory that the 30-day period must fall within
the two-year prescriptive period adds a condition
that is not found in the law. It results in truncating
120 days from the 730 days that the law grants the
taxpayer for filing his administrative claim with the
Commissioner. This Court cannot interpret a law to
defeat, wholly or even partly, a remedy that the law
expressly grants in clear, plain, and unequivocal
language.
Section 112(A) and (C) must be interpreted
according to its clear, plain, and unequivocal
language. The taxpayer can file his administrative
claim for refund or credit at anytime within the two-
year prescriptive period. If he files his claim on the
last day of the two-year prescriptive
period, his claim is still filed on time. The
Commissioner will have 120 days from such filing to
decide the claim. If the Commissioner decides the
claim on the 120th day, or does not decide it on that
day, the taxpayer still has 30 days to file his judicial
claim with the CTA. This is not only the plain
meaning but also the only logical interpretation of
Section 112(A) and (C).50 (Emphases in the original;
citations omitted)
In San Roque, this Court ruled that "all taxpayers
can rely on BIR Ruling No. DA-489-03 from the time
of its issuance on 10 December 2003 up to its
reversal in Aichi on 6 October 2010, where this
Court held that the 120+30 day periods are
mandatory and jurisdictional." 51 We shall discuss
later the effect of San Roque’s recognition of BIR
Ruling No. DA-489-03 on claims filed between 10
December 2003 and 6 October 2010. Mindanao I
and II filed their claims within this period.
We rule on Mindanao I and II’s judicial claims for the
second, third, and fourth quarters of 2003 as
follows:
G.R. No. 193301
Mindanao II v. CIR
Mindanao II filed its administrative claims for the
second, third, and fourth quarters of 2003 on 13
April 2005. Counting 120 days after filing of the
administrative claim with the CIR (11 August 2005)
and 30 days after the CIR’s denial by inaction, the
last day for filing a judicial claim with the CTA for the
second, third, and fourth quarters of 2003 was on 12
September 2005. However, the judicial claim cannot
be filed earlier than 11 August 2005, which is the
expiration of the 120-day period for the
Commissioner to act on the claim.
(1) Mindanao II filed its judicial claim for the second
quarter of 2003 before the CTA on 7 July 2005,
before the expiration of the 120-day period.
Pursuant to Section 112(C) of the 1997 Tax Code,
Mindanao II’s judicial claim for the second quarter of
2003 was prematurely filed.
However, pursuant to San Roque’s recognition of
the effect of BIR Ruling No. DA-489-03, we rule that
Mindanao II’s judicial claim for the second quarter of
2003 qualifies under the exception to the strict
application of the 120+30 day periods.
(2) Mindanao II filed its judicial claim for the third
quarter of 2003 before the CTA on 9 September
2005. Mindanao II’s judicial claim for the third
quarter of 2003 was thus filed on time, pursuant to
Section 112(C) of the 1997 Tax Code.
(3) Mindanao II filed its judicial claim for the fourth
quarter of 2003 before the CTA on 9 September
2005. Mindanao II’s judicial claim for the fourth
quarter of 2003 was thus filed on time, pursuant to
Section 112(C) of the 1997 Tax Code.
G.R. No. 194637
Mindanao I v. CIR
Mindanao I filed its administrative claims for the
second, third, and fourth quarters of 2003 on 4 April
2005. Counting 120 days after filing of the
administrative claim with the CIR (2 August 2005)
and 30 days after the CIR’s denial by inaction, 52 the
last day for filing a judicial claim with the CTA for the
second, third, and fourth quarters of 2003 was on 1
September 2005. However, the judicial claim cannot
be filed earlier than 2 August 2005, which is the
expiration of the 120-day period for the
Commissioner to act on the claim.
(1) Mindanao I filed its judicial claim for the second
quarter of 2003 before the CTA on 7 July 2005,
before the expiration of the 120-day period.
Pursuant to Section 112(C) of the 1997 Tax Code,
Mindanao I’s judicial claim for the second quarter of
2003 was prematurely filed. However, pursuant to
San Roque’s recognition of the effect of BIR Ruling
No. DA-489-03, we rule that Mindanao I’s judicial
claim for the second quarter of 2003 qualifies under
the exception to the strict application of the 120+30
day periods.
(2) Mindanao I filed its judicial claim for the third
quarter of 2003 before the CTA on 9 September
2005. Mindanao I’s judicial claim for the third quarter
of 2003 was thus filed after the prescriptive period,
pursuant to Section 112(C) of the 1997 Tax Code.
(3) Mindanao I filed its judicial claim for the fourth
quarter of 2003 before the CTA on 9 September
2005. Mindanao I’s judicial claim for the fourth
quarter of 2003 was thus filed after the prescriptive
period, pursuant to Section 112(C) of the 1997 Tax
Code.
San Roque: Recognition of BIR Ruling No. DA-489-
03
In the consolidated cases of San Roque, the Court
En Banc53 examined and ruled on the different
claims for tax refund or credit of three different
companies. In San Roque, we reiterated that
"following the verba legis doctrine, Section 112(C)
must be applied exactly as worded since it is clear,
plain, and unequivocal. The taxpayer cannot simply
file a petition with the CTA without waiting for the
Commissioner’s decision within the 120-day
mandatory and jurisdictional period. The CTA will
have no jurisdiction because there will be no
‘decision’ or ‘deemed a denial decision’ of the
Commissioner for the CTA to review."
Notwithstanding a strict construction of any claim for Taganito can claim that in filing its judicial claim
tax exemption or refund, the Court in San Roque prematurely without waiting for the 120-day period
recognized that BIR Ruling No. DA-489-03 to expire, it was misled by BIR Ruling No. DA-489-
constitutes equitable estoppel54 in favor of 03. Thus, Taganito can claim the benefit of BIR
taxpayers. BIR Ruling No. DA-489-03 expressly Ruling No. DA-489-03, which shields the filing of its
states that the "taxpayer-claimant need not wait for judicial claim from the vice of prematurity.
the lapse of the 120-day period before it could seek (Emphasis in the original)
judicial relief with the CTA by way of Petition for
Review." This Court discussed BIR Ruling No. DA- Summary of Administrative and Judicial Claims
489-03 and its effect on taxpayers, thus:
G.R. No. 193301
Taxpayers should not be prejudiced by an Mindanao II v. CIR
erroneous interpretation by the Commissioner,
particularly on a difficult question of law. The G.R. No. 194637
abandonment of the Atlas doctrine by Mirant and
Aichi is proof that the reckoning of the prescriptive   Administrative Judicial Claim Action on Claim
Claim
periods for input VAT tax refund or credit is a
difficult question of law. The abandonment of the 1st Filed late -- Deny, pursuant to
Quarter, Section 112(A) of the
Atlas doctrine did not result in Atlas, or other 2003 1997 Tax Code
taxpayers similarly situated, being made to return
2nd Filed on time Prematurely filed Grant, pursuant to
the tax refund or credit they received or could have Quarter, BIR Ruling No. DA-489-03
received under Atlas prior to its abandonment. This 2003
Court is applying Mirant and Aichi prospectively. 3rd Filed on time Filed on time Grant, pursuant to
Absent fraud, bad faith or misrepresentation, the Quarter, Section 112(C) of the
reversal by this Court of a general interpretative rule 2003 1997 Tax Code
issued by the Commissioner, like the reversal of a 4th Filed on time Filed on time Grant, pursuant to
specific BIR ruling under Section 246, should also Quarter, Section 112(C) of the
apply prospectively. x x x. 2003 1997 Tax Code
Mindanao I v. CIR
Thus, the only issue is whether BIR Ruling No. DA-
489-03 is a general interpretative rule applicable to   Administrativ Judicial Claim Action on
all taxpayers or a specific ruling applicable only to a e Claim
particular taxpayer. Claim
1st Quarter, Filed late -- Deny, pursuant
BIR Ruling No. DA-489-03 is a general
2003 to
interpretative rule because it was a response to a
Section 112(A)
query made, not by a particular taxpayer, but by a
of the
government agency tasked with processing tax
1997 Tax Code
refunds and credits, that is, the One Stop Shop
Inter-Agency Tax Credit and Drawback Center of 2nd Filed on time Prematurely Grant,
the Department of Finance. This government Quarter, filed pursuant to
agency is also the addressee, or the entity 2003 BIR Ruling No.
responded to, in BIR Ruling No. DA-489-03. Thus, DA-489-03
while this government agency mentions in its query
3rd Filed on time Filed late Grant,
to the Commissioner the administrative claim of Lazi
Quarter, pursuant to
Bay Resources Development, Inc., the agency was
2003 Section 112(C)
in fact asking the Commissioner what to do in cases
of the
like the tax claim of Lazi Bay Resources
1997 Tax Code
Development, Inc., where the taxpayer did not wait
for the lapse of the 120-day period. 4th Quarter, Filed on time Filed late Grant,
2003 pursuant to
Clearly, BIR Ruling No. DA-489-03 is a general Section 112(C)
interpretative rule. Thus, all taxpayers can rely on of the
BIR Ruling No. DA-489-03 from the time of its 1997 Tax Code
issuance on 10 December 2003 up to its reversal by
this Court in Aichi on 6 October 2010, where this Summary of Rules on Prescriptive Periods Involving
Court held that the 120+30 day periods are VAT
mandatory and jurisdictional.
We summarize the rules on the determination of the
Taganito, however, filed its judicial claim with the prescriptive period for filing a tax refund or credit of
CTA on 14 February 2007, after the issuance of BIR unutilized input VAT as provided in Section 112 of
Ruling No. DA-489-03 on 10 December 2003. Truly, the 1997 Tax Code, as follows:
(1) An administrative claim must be filed with the
CIR within two years after the close of the taxable
quarter when the zero-rated or effectively zero-rated
sales were made.
(2) The CIR has 120 days from the date of
submission of complete documents in support of the
administrative claim within which to decide whether
to grant a refund or issue a tax credit certificate. The
120-day period may extend beyond the two-year
period from the filing of the administrative claim if
the claim is filed in the later part of the two-year
period. If the 120-day period expires without any
decision from the CIR, then the administrative claim
may be considered to be denied by inaction.
(3) A judicial claim must be filed with the CTA within
30 days from the receipt of the CIR’s decision
denying the administrative claim or from the
expiration of the 120-day period without any action
from the CIR.
(4) All taxpayers, however, can rely on BIR Ruling
No. DA-489-03 from the time of its issuance on 10
December 2003 up to its reversal by this Court in
Aichi on 6 October 2010, as an exception to the
mandatory and jurisdictional 120+30 day periods.
"Incidental" Transaction
Mindanao II asserts that the sale of a fully
depreciated Nissan Patrol is not an incidental
transaction in the course of its business; hence, it is
an isolated transaction that should not have been
subject to 10% VAT.
Section 105 of the 1997 Tax Code does not support
Mindanao II’s position:
SEC. 105. Persons Liable. - Any person who, in the
course of trade or business, sells barters,
exchanges, leases goods or properties, renders
services, and any person who imports goods shall
be subject to the value-added tax (VAT) imposed in
Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the
amount of tax may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties
or services. This rule shall likewise apply to existing
contracts of sale or lease of goods, properties or
services at the time of the effectivity of Republic Act
No. 7716.
The phrase "in the course of trade or business"
means the regular conduct or pursuit of a
commercial or an economic activity, including
transactions incidental thereto, by any person
regardless of whether or not the person engaged
therein is a nonstock, nonprofit private organization
(irrespective of the disposition of its net income and
whether or not it sells exclusively to members or
their guests), or government entity.
The rule of regularity, to the contrary
notwithstanding, services as defined in this Code
rendered in the Philippines by nonresident foreign
persons shall be considered as being rendered in
the course of trade or business. (Emphasis
supplied)
Mindanao II relies on Commissioner of Internal
Revenue v. Magsaysay Lines, Inc.
(Magsaysay)55 and Imperial v. Collector of Internal
Revenue (Imperial)56 to justify its position.
Magsaysay, decided under the NIRC of 1986,
involved the sale of vessels of the National
Development Company (NDC) to Magsaysay Lines,
Inc. We ruled that the sale of vessels was not in the
course of NDC’s trade or business as it was
involuntary and made pursuant to the Government’s
policy for privatization. Magsaysay, in quoting from
the CTA’s decision, imputed upon Imperial the
definition of "carrying on business." Imperial,
however, is an unreported case that merely stated
that "‘to engage’ is to embark in a business or to
employ oneself therein."
Mindanao II’s sale of the Nissan Patrol is said to be
an isolated transaction.  However, it does not follow
1âwphi1
that an isolated transaction cannot be an incidental
transaction for purposes of VAT liability. Indeed, a
reading of Section 105 of the 1997 Tax Code would
show that a transaction "in the course of trade or
business" includes "transactions incidental thereto."
Mindanao II’s business is to convert the steam
supplied to it by PNOC-EDC into electricity and to
deliver the electricity to NPC. In the course of its
business, Mindanao II bought and eventually sold a
Nissan Patrol. Prior to the sale, the Nissan Patrol
was part of Mindanao II’s property, plant, and
equipment. Therefore, the sale of the Nissan Patrol
is an incidental transaction made in the course of
Mindanao II’s business which should be liable for
VAT.
Substantiation Requirements
Mindanao II claims that the CTA’s disallowance of a
total amount of ₱492,198.09 is improper as it has
substantially complied with the substantiation
requirements of Section 113(A)58 in relation to
Section 23759 of the 1997 Tax Code, as
implemented by Section 4.104-1, 4.104-5 and
4.108-1 of Revenue Regulation No. 7-95.60
We are constrained to state that Mindanao II’s
compliance with the substantiation requirements is a
finding of fact. The CTA En Banc evaluated the
records of the case and found that the transactions
in question are purchases for services and that
Mindanao II failed to comply with the substantiation
requirements. We affirm the CTA En Banc’s finding
of fact, which in turn affirmed the finding of the CTA
First Division. We see no reason to overturn their
findings.
WHEREFORE, we PARTIALLY GRANT the
petitions. The Decision of the Court of Tax Appeals
En Bane in CT A EB No. 513 promulgated on 10
March 2010, as well as the Resolution promulgated
on 28 July 2010, and the Decision of the Court of
Tax Appeals En Bane in CTA EB Nos. 476 and 483
promulgated on 31 May 2010, as well as the
Amended Decision promulgated on 24 November
2010, are AFFIRMED with MODIFICATION.
For G.R. No. 193301, the claim of Mindanao II
Geothermal Partnership for the first quarter of 2003
is DENIED while its claims for the second, third, and
fourth quarters of 2003 are GRANTED. For G.R.
No. 19463 7, the claims of Mindanao I Geothermal
Partnership for the first, third, and fourth quarters of
2003 are DENIED while its claim for the second
quarter of 2003 is GRANTED. SO ORDERED.
POWER SECTOR ASSETS AND LIABILITIES
MANAGEMENT CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL
REVENUE, Respondent
The Case
This petition for review  assails the 27 September
1
2010 Decision  and the 3 August 2011 Resolution  of
2 3
the Court of Appeals in CA-G.R. SP No. 108156.
The Court of Appeals nullified the Decisions dated
13 March 2008 and 14 January 2009 of the
Secretary of Justice in OSJ Case No. 2007- 3 for
lack of jurisdiction.
The Facts
Petitioner Power Sector Assets and Liabilities
Management Corporation (PSALM) is a
government-owned and controlled corporation
created under Republic Act No. 9136 (RA 9136),
also known as the Electric Power Industry Reform
Act of 2001 (EPIRA).  Section 50 of RA 9136 states
4
that the principal purpose of PSALM is to manage
the orderly sale, disposition, and privatization of the
National Power Corporation (NPC) generation
assets, real estate and other disposable assets, and
Independent Power Producer (IPP) contracts with
the objective of liquidating all NPC financial
obligations and stranded contract costs in an
optimal manner.
PSALM conducted public biddings for the
privatization of the Pantabangan-Masiway
Hydroelectric Power Plant (Pantabangan-Masiway
Plant) and Magat Hydroelectric Power Plant (Magat
Plant) on 8 September 2006 and 14 December
2006, respectively. First Gen Hydropower
Corporation with its $129 Million bid and SN Aboitiz
Power Corporation with its $530 Million bid were the
winning bidders for the PantabanganMasiway Plant
and Magat Plant, respectively.
On 28 August 2007, the NPC received a
letter  dated 14 August 2007 from the Bureau of
5
Internal Revenue (BIR) demanding immediate
payment of ₱3,813,080,472  deficiency value-added
6
tax (VAT) for the sale of the Pantabangan-Masiway
Plant and Magat Plant. The NPC indorsed BIR's
demand letter to PSALM.
On 30 August 2007, the BIR, NPC, and PSALM
executed a Memorandum of Agreement
(MOA),  wherein they agreed that:
7
A) NPC/PSALM shall remit under protest to the BIR
the amount of Php 3,813,080,472.00, representing
basic VAT as shown in the BIR letter dated August
14, 2007, upon execution of this Memorandum of
Agreement (MOA).
B) This remittance shall be without prejudice to the
outcome of the resolution of the Issues before the
appropriate courts or body.
C) NPC/PSALM and BIR mutually undertake to
seek final resolution of the Issues by the appropriate
courts or body.
D) BIR shall waive any and all interests and
surcharges on the aforesaid BIR letter, except when
the case is elevated by the BIR before an appellate
court.
E) Nothing contained in this MOA shall be claimed
or construed to be an admission against interest as
to any party or evidence of any liability or
wrongdoing whatsoever nor an abandonment of any
position taken by NPC/PSALM in connection with
the Issues.
F) Each Party to this MOA hereto expressly
represents that the authorized signatory hereto has
the legal authority to bind [the] party to all the terms
of this MOA.
G) Any resolution by the appropriate courts or body
in favor of the BIR, other than a decision by the
Supreme Court, shall not constitute as precedent
and sufficient legal basis as to the taxability of
NPC/PSALM's transactions pursuant to the
privatization of NPC's assets as mandated by the
EPIRA Law.
H) Any resolution in favor of NPC/PSALM by any
appropriate court or body shall be immediately
executory without necessity of notice or demand
from NPC/PSALM. A ruling from the Department of
Justice (DOJ) that is favorable to NPC/PSALM shall
be tantamount to the filing of an application for
refund (in cash)/tax credit certificate (TCC), at the
option of NPC/PSALM. BIR undertakes to
immediately process and approve the application,
and release the tax refund/TCC within fifteen (15)
working days from issuance of the DOJ ruling that is
favorable to NPC/PSALM.
I) Either party has the right to appeal any adverse
decision against it before any appropriate court or
body.
J) In the event of failure by the BIR to fulfill the
undertaking referred to in (H) above, NPC/PSALM
shall assign to DOF its right to the refund of the
subject remittance, and the DOF shall offset such
amount against any liability of NPC/PSALM to the
National Government pursuant to the objectives of
the EPIRA on the application of the privatization
proceeds. 8
In compliance with the MOA, PSALM remitted under
protest to the BIR the amount of ₱3, 813, 080, 472,
representing the total basic VAT due.
On 21 September 2007, PSALM filed with the
Department of Justice (DOJ) a petition for the
adjudication of the dispute with the BIR to resolve
the issue of whether the sale of the power plants
should be subject to VAT. The case was docketed
as OSJ Case No. 2007-3.
On 13 March 2008, the DOJ ruled in favor of
PSALM, thus:
In cases involving purely question[s] of law, such as
in the instant case, between and among the
government-owned and controlled corporation and
government bureau, the issue is best settled in this
Department. In the final analysis, there is but one
party in interest, the Government itself in this
litigation.
The instant petition is an original petition involving
only [a] question of law on whether or not the sale of
the Pantabangan-Masiway and Magat Power Plants
to private entities under the mandate of the EPIRA
is subject to VAT. It is to be stressed that this is not
an appeal from the decision of the Commissioner of
Internal Revenue involving disputed assessments,
refunds of internal revenue taxes, fees or other
charges, or other matters arising under the National
Internal Revenue Code or other law.
Moreover, it must be noted that respondent already
invoked this Office's jurisdiction over it by praying in
respondent's Motion for Extension of Time to File
Comment (On Petitioner's Petition dated 21
September 2007) and later, Omnibus Motion To Lift
Order dated 22 October 2007 and To Admit
Attached Comment. The Court has held that the
filing of motions seeking affirmative relief, such as,
to admit answer, for additional time to answer, for
reconsideration of a default judgment, and to lift
order of default with motion for reconsideration, are
considered voluntary submission to the jurisdiction
of the court. Having sought this Office to grant
extension of time to file answer or comment to the
instant petition, thereby submitting to the jurisdiction
of this Court [sic], respondent cannot now repudiate
the very same authority it sought.
When petitioner was created under Section 49 of
R.A. No. 9136, for the principal purpose to manage
the orderly sale, disposition, and privatization of
NPC generation assets, real estate and other
disposable assets, IPP contracts with the objective
of liquidating all NPC financial obligations and
stranded contract costs in an optimal manner, there
was, by operation of law, the transfer of ownership
of NPC assets. Such transfer of ownership was not
carried out in the ordinary course of transfer which
must be accorded with the required elements
present for a valid transfer, but in this case, in
accordance with the mandate of the law, that
is, EPIRA. Thus, respondent cannot assert that it
was NPC who was the actual seller of the
Pantabangan-Masiway :md Magat Power Plants,
because at the time of selling the aforesaid power
plants, the owner then was already the petitioner
and not the NPC. Consequently, petitioner cannot
also be considered a successor-in-· interest of NPC.
Since it was petitioner who sold the Pantabangan-
Masiway and Magat Power Plants and not the NPC,
through a competitive and public bidding to the
private entities, Section 24(A) of R.A. No. 9337
cannot be applied to the instant case. Neither the
grant of exemption and revocation of the tax
exemption accorded to the NPC, be also affected to
petitioner.
Clearly, the disposition of Pantabangan-Masiway
and Magat Power Plants was not in the regular
conduct or pursuit of a commercial or an economic
activity, but was effected by the mandate of the
EPIRA upon petitioner to direct the orderly sale,
disposition, and privatization of NPC generation
assets, real estate and other disposable assets, and
IPP contracts, and afterward, to liquidate the
outstanding obligations of the NPC.
Verily, to subject the sale of generation assets in
accordance with a privatization plan submitted to
and approved by the President, which is a one time
sale, to VAT would run counter to the purpose of
obtaining optimal proceeds since potential bidders
would necessarily have to take into account such
extra cost of VAT.
WHEREFORE, premises considered, the imposition
by respondent Bureau of lnternal Revenue of
deficiency Value-Added Tax in the amount of
₱3,813,080,472.00 on the privatization sale of the
Pantabangan Masiway and Magat Power Plants,
done in accordance with the mandate of the Electric
Power Industry Reform Act of 2001, is hereby
declared NULL and VOID. Respondent is directed
to refund the amount of ₱3,813,080,472.00 remitted
under protest by petitioner to respondent. 9
The BIR moved for reconsideration, alleging that the
DOJ had no jurisdiction since the dispute involved
tax laws administered by the BIR and therefore
within the jurisdiction of the Court of Tax Appeals
(CTA). Furthermore, the BIR stated that the sale of
the subject power plants by PSALM to private
entities is in the course of trade or business, as
contemplated under Section 105 of the National
Internal Revenue Code (NIRC) of 1997, which
covers incidental transactions. Thus, the sale is
subject to VAT. On 14 January 2009, the DOJ
denied BIR's Motion for Reconsideration. 10
On 7 April 2009,  the BIR Commissioner
11
(Commissioner of Internal Revenue) filed with the
Court of Appeals a petition for certiorari, seeking to
set aside the DOJ's decision for lack of jurisdiction.
In a Resolution dated 23 April 2009, the Court of
Appeals dismissed the petition for failure to attach
the relevant pleadings and documents.  Upon 12
motion for reconsideration, the Court of Appeals
reinstated the petition in its Resolution dated 10 July
2009.13
The Ruling of the Court of Appeals
The Court of Appeals held that the petition filed by
PSALM with the DOJ was really a protest against
the assessment of deficiency VAT, which under
Section 204  of the NIRC of 1997 is within the
14
authority of the Commissioner of Internal Revenue
(CIR) to resolve. In fact, PSALM's objective in filing
the petition was to recover the ₱3,813,080,472 VAT
which was allegedly assessed erroneously and
which PSALM paid under protest to the BIR.
Quoting paragraph H  of the MOA among the BIR,
15
NPC, and PSALM, the Court of Appeals stated that
the parties in effect agreed to consider a DOJ ruling
favorable to PSALM as the latter's application for
refund.
Citing Section 4  of the NIRC of 1997, as amended
16
by Section 3 of Republic Act No. 8424 (RA
8424)  and Section 7  of Republic Act No. 9282 (RA
17 18
9282),  the Court of Appeals ruled that the CIR is
19
the proper body to resolve cases involving disputed
assessments, refunds of internal revenue taxes,
fees or other charges, penalties imposed in relation
thereto, or other matters arising under the NIRC or
other laws administered by the BIR. The Court of
Appeals stressed that jurisdiction is conferred by
law or by the Constitution; the parties, such as in
this case, cannot agree or stipulate on it by
conferring jurisdiction in a body that has none.
Jurisdiction over the person can be waived but not
the jurisdiction over the subject matter which is
neither subject to agreement nor conferred by
consent of the parties. The Court of Appeals held
that the DOJ Secretary erred in ruling that the CIR is
estopped from assailing the jurisdiction of the DOJ
after having agreed to submit to its jurisdiction. As a
general rule, estoppel does not confer jurisdiction
over a cause of action to a tribunal where none, by
law, exists.
In conclusion, the Court of Appeals found that the
DOJ Secretary gravely abused his discretion
amounting to lack of jurisdiction when he assumed
jurisdiction over OSJ Case No. 2007-3. The
dispositive portion of the Court of Appeals' 27
September 2010 Decision reads:
WHEREFORE, premises considered, we hereby
GRANT the petition. Accordingly: (1) the [D]ecision
dated March 13, 2008, and the Decision dated
January 14, 2009 both issued by the public
respondent Secretary of Justice in [OSJ Case No.]
2007-3 are declared NULL and VOID for having
been issued without jurisdiction.
No costs.
SO ORDERED. 20
PSALM moved for reconsideration, which the Court
of Appeals denied in its 3 August 2011 Resolution.
Hence, this petition.
The Issues
Petitioner PSALM raises the following issues:
I. DID THE COURT OF APPEALS MISAPPLY THE
LAW IN GIVING DUE COURSE TO THE PETITION
FOR CERTIORARI IN CA-G.R. SP NO. 108156?
II. DID THE SECRETARY OF JUSTICE ACT IN
ACCORDANCE WITH THE LAW IN ASSUMING
JURISDICTION AND SETTLING THE DISPUTE BY
AND BETWEEN THE BIR AND PSALM?
III. DID THE SECRETARY OF JUSTICE ACT IN
ACCORDANCE WITH THE LAW AND
JURISPRUDENCE IN RENDERING JUDGMENT
THAT THERE SHOULD BE·NO VAT ON THE
PRIVATIZATION, SALE OR DISPOSAL OF
GENERATION ASSETS?
IV. DOES PUBLIC RESPONDENT DESERVE THE
RELIEF OF CERTIORARI? 21
The Ruling of the Court
We find the petition meritorious.
I. Whether the Secretary of Justice has
jurisdiction over the case.
The primary issue in this case is whether the DOJ
Secretary has jurisdiction over OSJ Case No. 2007-
3 which involves the resolution of whether the sale
of the Pantabangan-Masiway Plant and Magat Plant
is subject to VAT.
We agree with the Court of Appeals that jurisdiction
over the subject matter is vested by the Constitution
or by law, and not by the parties to an
action.  Jurisdiction cannot be conferred by consent
22
or acquiescence of the parties  or by erroneous
23
belief of the court, quasi-judicial office or
government agency that it exists.
However, contrary to the ruling of the Court of
Appeals, we find that the DOJ is vested by law with
jurisdiction over this case. This case involves a
dispute between PSALM and NPC, which are both
wholly government owned corporations, and the
BIR, a government office, over the imposition of
VAT on the sale of the two power plants. There is
no question that original jurisdiction is with the CIR,
who issues the preliminary and the final tax
assessments. However, if the government entity
disputes the tax assessment, the dispute is already
between the BIR (represented by the CIR) and
another government entity, in this case, the
petitioner PSALM. Under Presidential Decree No.
242  (PD
24
242), all disputes and
claims solely between government agencies and
offices, including government-owned or
controlled· corporations, shall be
administratively settled or adjudicated by the
Secretary of Justice, the Solicitor General, or the
Government Corporate Counsel, depending on
the issues and government agencies involved.
As regards cases involving only questions of law, it
is the Secretary of Justice who has jurisdiction.
Sections 1, 2, and 3 of PD 242 read:
Section 1. Provisions of law to the contrary
notwithstanding, all disputes, claims and
controversies solely between or among the
departments, bureaus, offices, agencies and
instrumentalities of the National Government,
including constitutional offices or agencies,
arising from the interpretation and application of
statutes, contracts or
agreements, shall henceforth be
administratively settled or adjudicated as
provided hereinafter: Provided, That, this shall not
apply to cases already pending in court at the time
of the effectivity of this decree.
Section 2. In all cases involving only questions
of law, the same shall be submitted to and
settled or adjudicated by the Secretary of
Justice, as Attorney General and ex officio adviser
of all government owned or controlled corporations
and entities, in consonance with Section 83 of the
Revised Administrative Code. His ruling or
determination of the question in each case shall
be conclusive and binding upon all the parties
concerned.
Section 3. Cases involving mixed questions of law
and of fact or only factual issues shall be submitted
to and settled or adjudicated by:
(a) The Solicitor General, with respect to disputes or
claims [or] controversies between or among the
departments, bureaus, offices and other agencies of
the National Government;
(b) The Government Corporate Counsel, with
respect to disputes or claims or controversies
between or among the government-owned or
controlled corporations or entities being served by
the Office of the Government Corporate Counsel;
and
(c) The Secretary of Justice, with respect to all other
disputes or claims or controversies which do not fall
under the categories mentioned in paragraphs (a)
and (b). (Emphasis supplied)
The use of the word "shall" in a statute connotes a
mandatory order or an imperative obligation.  Its 25
use rendered the provisions mandatory and not
merely permissive, and unless PD 242 is declared
unconstitutional, its provisions must be followed.
The use of the word "shall" means that
administrative settlement or adjudication of disputes
and claims between government agencies and
offices, including government-owned or controlled
corporations, is not merely permissive but
mandatory and imperative. Thus, under PD 242, it is
mandatory that disputes and claims "solely"
between government agencies and offices,
including government-owned or controlled
corporations, involving only questions of law, be
submitted to and settled or adjudicated by the
Secretary of Justice.
The law is clear and covers "all disputes, claims
and controversies solely between or among the
departments, bureaus, offices, agencies and
instrumentalities of the National Government,
including constitutional offices or agencies
arising from the interpretation and application of
statutes, contracts or agreements." When the law
says "all disputes, claims and controversies solely"
among government agencies, the law means all,
without exception. Only those cases already
pending in court at the time of the effectivity of PD
242 are not covered by the law.
The purpose of PD 242 is to provide for a speedy
and efficient administrative settlement or
adjudication of disputes between government
offices or agencies under the Executive branch,
as well as to filter cases to lessen the clogged
dockets of the courts. As explained by the Court
in Philippine Veterans Investment Development
Corp. (PHIVIDEC) v. Judge Velez: 26
Contrary to the opinion of the lower court, P.D. No.
242 is not unconstitutional. It does not diminish the
jurisdiction of [the] courts but only prescribes an
administrative procedure for the settlement of
certain types of disputes between or among
departments, bureaus, offices, agencies, and
instrumentalities of the National Government,
including government-owned or controlled
corporations, so that they need not always repair to
the courts for the settlement of controversies arising
from the interpretation and application of statutes,
contracts or agreements. The procedure is not
much different, and no less desirable, than the
arbitration procedures provided in Republic Act No.
876 (Arbitration Law) and in Section 26, R.A. 6715
(The Labor Code). It is an alternative to, or a
substitute for, traditional litigation in court with the
added advantage of avoiding the delays, vexations
and expense of court proceedings. Or, as P.D. No.
242 itself explains, its purpose is "the elimination of
needless clogging of court dockets to prevent the
waste of time and energies not only of the
government lawyers but also of the courts, and
eliminates expenses incurred in the filing and
prosecution of judicial actions."27
PD 242 is only applicable to disputes, claims, and
controversies solely between or among the
departments, bureaus, offices, agencies and
instrumentalities of the National Government,
including government-owned or controlled
corporations, and where no private party is
involved. In other words, PD 242 will only apply
when all the parties involved are purely
government offices and government-owned or
controlled corporations.  Since this case is a
28
dispute between PSALM arid NPC, both
government owned and controlled corporations, and
the BIR, a National Government office, PD 242
clearly applies and the Secretary of Justice has
jurisdiction over this case. In fact, the MOA
executed by the BIR, NPC, and PSALM explicitly
provides that "[a] ruling from the Department of
Justice (DOJ) that is favorable to NPC/PSALM shall
be tantamount to the filing of an application for
refund (in cash)/tax credit certificate (TCC), at the
option of NPC/PSALM."  Such provision indicates
29
that the BIR and petitioner PSALM and the NPC
acknowledged that the Secretary of Justice indeed
has jurisdiction to resolve their dispute.
This case is different from the case of Philippine
National Oil Company v. Court of Appeals,  (PNOC
30
v. CA) which involves not only the BIR (a
government bureau) and the PNOC and PNB (both
government-owned or controlled corporations), but
also respondent Tirso Savellano, a private citizen.
Clearly, PD 242 is not applicable to the case
of PNOCv.CA. Even the ponencia in PNOC v. CA
stated that the dispute in that case is not covered by
PD 242, thus:
Even if, for the sake of argument, that P.D. No. 242
should prevail over Rep. Act No. 1125, the present
dispute would still not be covered by P.D. No. 242.
Section 1 of P.D. No. 242 explicitly provides that
only disputes, claims and controversies solely
between or among departments, bureaus, offices,
agencies, and instrumentalities of the National
Government, including constitutional offices or
agencies, as well as government-owned and
controlled corporations, shall be administratively
settled or adjudicated. While the BIR is obviously
a government bureau, and both PNOC and PNB
are government-owned and controlled
corporations, respondent Savellano is a private.
citizen. His standing in the controversy could not be
lightly brushed aside. It was private respondent
Savellano who gave the BIR the information that
resulted in the investigation of PNOC and PNB; who
requested the BIR Commissioner to reconsider the
compromise agreement in question; and who
initiated the CTA Case No. 4249 by filing a Petition
for Review.  (Emphasis supplied)
31
In contrast, since this case is a
dispute solely between PSALM and NPC, both
government-owned and controlled corporations, and
the BIR, a National Government office, PD 242
clearly applies and the Secretary of Justice has
jurisdiction over this case.
It is only proper that intra-governmental disputes be
settled administratively since the opposing
government offices, agencies and
instrumentalities are all under the President's
executive control and supervision. Section 17,
Article VII of the Constitution states unequivocally
that: "The President shall have control of all the
executive departments, bureaus and offices. He
shall ensure that the laws be faithfully executed."
In Carpio v. Executive Secretary,  the Court
32
expounded on the President's control over all the
executive departments, bureaus and offices, thus:
This presidential power of control over the executive
branch of government extends over all executive
officers from Cabinet Secretary to the lowliest clerk
and has been held by us, in the landmark case
of Mondano vs. Silvosa, to mean "the power of [the
President] to alter or modify or nullify or set aside
what a subordinate officer had done in the
performance of his duties and to substitute the
judgment of the former with that of the latter." It is
said to be at the very "heart of the meaning of Chief
Executive."
Equally well accepted, as a corollary rule to the
control powers of the President, is the "Doctrine of
Qualified Political Agency." As the President cannot
be expected to exercise his control powers all at the
same time and in person, he will have to delegate
some of them to his Cabinet members.
Under this doctrine, which recognizes the
establishment of a single executive, "all executive
and administrative organizations are adjuncts of the
Executive Department, the heads of the various
executive departments are assistants and agents of
the Chief Executive, and, except in cases where the
Chief Executive is required by the Constitution or
law to act in person on the exigencies of the
situation demand that he act personally, the
multifarious executive and administrative functions
of the Chief Executive are performed by and
through the executive departments, and the acts of
the Secretaries of such departments, performed and
promulgated in the regular course of business, are,
unless disapproved or reprobated by the Chief
Executive presumptively the acts of the Chief
Executive."
Thus, and in short, "the President's power of control
is directly exercised by him over the members of the
Cabinet who, in turn, and by his authority, control
the bureaus and other offices under their respective
jurisdictions in the executive department. " 33
This power of control vested by the Constitution in
the President cannot be diminished by law. As held
in Rufino v. Endriga,  Congress cannot by law
34
deprive the President of his power of control, thus:
The Legislature cannot validly enact a law· that puts
a government office in the Executive branch outside
the control of the President in the guise of insulating
that office from politics or making it independent. If
the office is part of the Executive branch, it must
remain subject to the control of the President.
Otherwise, the Legislature can deprive the
President of his constitutional power of control
over "all the executive x x x offices." If the
Legislature can do this with the Executive
branch, then the Legislature can also deal a
similar blow to the Judicial branch by enacting a
law putting decisions of certain lower courts
beyond the review power of the Supreme
Court. This will destroy the system of checks and
balances finely structured in the 1987 Constitution
among the Executive, Legislative, and Judicial
branches.  (Emphasis supplied)
35
Clearly, the President's constitutional power of
control over all the executive departments, bureaus
and offices cannot be curtailed or diminished by law.
"Since the Constitution has given the President the
power of control, with all its awesome implications, it
is the Constitution alone which can curtail such
power."  This. constitutional power of control of
36
the President cannot be diminished by the CTA.
Thus, if two executive offices or agencies
cannot agree, it is only proper and logical that
the President, as the sole Executive who under
the Constitution has control over both offices or
agencies in dispute, should resolve the dispute
instead of the courts. The judiciary should not
intrude in this executive function of determining
which is correct between the opposing
government offices or agencies, which are both
under the sole control of the President. Under
his constitutional power of control, the
President decides the dispute between the two
executive offices. The judiciary cannot
substitute its decision over that of the
President. Only after the President has decided or
settled the dispute can the courts' jurisdiction be
invoked. Until such time, the judiciary should not
interfere since the issue is not yet ripe for judicial
adjudication. Otherwise, the judiciary would infringe
on the President's exercise of his constitutional
power of control over all the executive departments,
bureaus, and offices.
Furthermore, under the doctrine of exhaustion
of administrative remedies, it is mandated that
where a remedy before an administrative body is
provided by statute, relief must be sought by
exhausting this remedy prior to bringing an
action in court in order to give the administrative
body every opportunity to decide a matter that
comes within its jurisdiction.  A litigant cannot go
37
to court without first pursuing his administrative
remedies; otherwise, his action is premature and his
case is not ripe for judicial determination.  PD 242
38
(now Chapter 14, Book IV of Executive Order No.
292), provides for such administrative remedy.
Thus, only after the President has decided the
dispute between government offices and agencies
can the losing party resort to the courts, if it so
desires. Otherwise, a resort to the courts would be
premature for failure to exhaust administrative
remedies. Non-observance of the doctrine of
exhaustion of administrative remedies would result
in lack of cause of action,  which is one of the
39
grounds for the dismissal of a complaint.
The rationale of the doctrine of exhaustion. of
administrative remedies was aptly explained by the
Court in Universal Robina Corp. (Corn Division) v.
Laguna Lake Development Authority: 40
The doctrine of exhaustion of administrative
remedies is a cornerstone of our judicial system.
The thrust of the rule is that courts must allow
administrative agencies to carry out their functions
and discharge their responsibilities within the
specialized areas of their respective competence.
The rationale for this doctrine is obvious. It entails
lesser expenses and provides for the speedier
resolution of the controversies. Comity and
convenience also impel courts of justice to shy away
from a dispute until the system of administrative
redress has been completed. 41
In requiring parties to exhaust administrative
remedies before pursuing action in a court, the
doctrine prevents overworked courts from
considering issues when remedies are available
through administrative channels.  Furthermore, the
42
doctrine endorses a more economical and less
formal means of resolving disputes,  and promotes
43
efficiency since disputes and claims are generally
resolved more quickly and economically through
administrative proceedings rather than through court
litigations.
44
The Court of Appeals ruled that under the 1997
NIRC, the dispute between the parties is within the
authority of the CIR to resolve. Section 4 of the
1997 NIRC reads:
SEC 4. Power of the Commissioner to Interpret Tax
Laws and to Decide Tax Cases. - The power to
interpret the provisions of this Code and other tax
laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review
by the Secretary of Finance.
The power to decide disputed assessments, refunds
in internal revenue taxes, fees or other charges.
penalties imposed in relation thereto, or other
matters arising under this Code or other laws or
portions thereof administered by the Bureau of
Internal Revenue is vested in the Commissioner,
subject to the exclusive appellate jurisdiction of the
Court of Tax Appeals. (Emphasis supplied)
The first paragraph of Section 4 of the 1997 NIRC
provides that the power of the CIR to interpret the
NIRC provisions and other tax laws is subject to
review by the Secretary of Finance, who is the
alter ego of the President. Thus, the constitutional
power of control of the President over all the
executive departments, bureaus, and offices  is still
45
preserved. The President's power of control, which
cannot be limited or withdrawn by Congress, means
the power of the President to alter, modify, nullify, or
set aside the judgment or action of a subordinate in
the performance of his duties. 46
The second paragraph of Section 4 of the 1997
NIRC, providing for the exclusive appellate
jurisdiction of the CTA as regards the CIR's
decisions on matters involving disputed
assessments, refunds in internal revenue taxes,
fees or other charges, penalties imposed in relation
thereto, or other matters arising under NIRC, is in
conflict with PD 242. Under PD 242, all disputes
and claims solely between government agencies
and offices, including government-owned or
controlled corporations, shall be administratively
settled or adjudicated by the Secretary of Justice,
the Solicitor General, or the Government Corporate
Counsel, depending on the issues and government
agencies involved.
To harmonize Section 4 of the 1997 NIRC with PD
242, the following interpretation should be adopted:
(1) As regards private entities and the BIR, the
power to decide disputed assessments, refunds of
internal revenue taxes, fees or other charges,
penalties in relation thereto, or other matters arising
under the NIRC or other laws administered by the.
BIR is vested in the CIR subject to the exclusive
appellate jurisdiction of the CTA, in accordance with
Section 4 of the NIRC; and (2) Where the disputing
parties are all public entities (covers disputes
between the BIR and other government entities), the
case shall be governed by PD 242.
Furthermore, it should be noted that the 1997 NIRC
is a general law governing the imposition of national
internal revenue taxes, fees, and charges.  On the
47
other hand, PD 242 is a special law that applies
only to disputes involving solely government
offices, agencies, or instrumentalities. The
difference between a special law and a general law
was clarified in Vinzons-Chato v. Fortune Tobacco
Corporation: 48
A general statute is one which embraces a class of
subjects or places and does not omit any subject or
place naturally belonging to such class. A special
statute, as the term is generally understood, is one
which relates to particular persons or things of a
class or to a particular portion or section of the state
only.
A general law and a special law on the same
subject are statutes in pari materia and should,
accordingly, be read together and harmonized, if
possible, with a view to giving effect to both. The
rule is that where there are two acts, one of which is
special and particular and the other general which, if
standing alone, would include the same matter and
thus conflict with the special act, the special law
must prevail since it evinces the legislative intent
more clearly than that of a general statute and must
not be taken as intended to affect the more
particular and specific provisions of the earlier act,
unless it is absolutely necessary so to construe it in
order to give its words any meaning at all.
The circumstance that the special law is passed
before or after the general act does not change the
principle. Where the special law is later, it will be
regarded as an exception to, or a qualification of,
the prior general act; and where the general act is
later, the special statute will be construed as
remaining an exception to its terms, unless repealed
expressly or by necessary implication. 49
Thus, even if the 1997 NIRC, a general statute, is
a later act, PD 242, which is a special law, will
still prevail and is treated as an exception to the
terms of the 1997 NIRC with regard solely to
intragovernmental disputes. PD 242 is a special
law while the 1997 NIRC is a general law, insofar as
disputes solely between or among government
agencies are concerned. Necessarily, such disputes
must be resolved under PD 242 and not under the
NIRC, precisely because PD 242 specifically
mandates the settlement of such disputes in
accordance with PD 242. PD 242 is a valid law
prescribing the procedure for administrative
settlement or adjudication of disputes among
government offices, agencies, and instrumentalities
under the executive control and supervision of the
President.50
Even the BIR, through its authorized representative,
then OIC-Commissioner of Internal Revenue Lilian
B. Hefti, acknowledged in the MOA executed by the
BIR, NPC, and PSALM, that the Secretary of Justice
has jurisdiction to resolve its dispute with petitioner
PSALM and the NPC. This is clear from the
provision in the MOA which states:
H) Any resolution in favor of NPC/PSALM by any
appropriate court or body shall be immediately
executory without necessity of notice or demand
from NPC/PSALM. A ruling from the Department
of Justice (DOJ) that is favorable to NPC/PSALM
shall be tantamount to the filing of an
application for refund (in cash)/tax credit
certificate (TCC), at the option of NPC/PSALM.
BIR undertakes to immediately process and
approve the application, and release the tax
refund/TCC within fifteen (15) working days from
issuance of the DOJ ruling that is favorable to
NPC/PSALM. (Emphasis supplied)
PD 242 is now embodied in Chapter 14, Book IV of
Executive Order No. 292 (EO 292), otherwise
known as the Administrative Code of 1987, which
took effect on 24 November 1989.51 The pertinent
provisions read:
Chapter 14- Controversies Among Government
Offices and Corporations
SEC. 66. How Settled. - All disputes, claims and
controversies, solely between or among the
departments, bureaus, offices, agencies and
instrumentalities of the National Government,
including government-owned or controlled
corporations, such as those arising from the
interpretation and application of statutes, contracts
or agreements, shall be administratively settled or
adjudicated in the manner provided in this Chapter.
This Chapter shall, however, not apply to disputes
involving the Congress, the Supreme Court, the
Constitutional Commissions, and local
governments.
SEC. 67. Disputes Involving Questions of Law. - All
cases involving only questions of law shall be
submitted to and settled or adjudicated by the
Secretary of Justice as Attorney-General of the
National Government and as ex officio legal adviser
of all government-owned or controlled corporations.
His ruling or decision thereon shall be conclusive
and binding on all the parties concerned.
SEC. 68. Disputes Involving Questions of Fact and
Law. - Cases involving mixed questions of law and
of fact or only factual issues shall be submitted to
and settled or adjudicated by:
(1) The Solicitor General, if the dispute, claim or
controversy involves only departments, bureaus,
offices and other agencies of the National
Government as well as government-owned or
controlled corporations or entities of whom he is the
principal law officer or general counsel; and
(2) The Secretary of Justice, in all other cases not
falling under paragraph (1).
SEC. 69. Arbitration. - The determination of factual
issues may be referred to an arbitration panel
composed of one representative each of the parties
involved and presided over by a representative of
the Secretary of Justice or the Solicitor General, as
the case may be.
SEC. 70. Appeals. - The decision of the Secretary of
Justice as well as that of the Solicitor General, when
approved by the Secretary of Justice, shall be final
and binding upon the parties involved. Appeals may,
however, be taken to the President where the
amount of the claim or the value of the property
exceeds one million pesos. The decision of the
President shall be final.
SEC. 71. Rules and Regulations. - The Secretary of
Justice shall promulgate the rules and regulations
necessary to carry out the provisions of this
Chapter.
Since the amount involved in this case is more than
one million pesos, the DOJ Secretary's decision
may be appealed to the Office of the President in
accordance with Section 70, Chapter 14, Book IV of
EO 292 and Section 552 of PD 242. If the appeal to
the Office of the President is denied, the aggrieved
party can still appeal to the Court of Appeals under
Section 1, Rule 43 of the 1997 Rules of Civil
Procedure.  However, in order not to further delay
53
the disposition of this case, the Court resolves to
decide the substantive issue raised in the petition.54
II. Whether the sale of the power plants is
subject to VAT.
To resolve the issue of whether the sale of the
Pantabangan-Masiway and Magat Power Plants by
petitioner PSALM to private entities is subject to
VAT, the Court must determine whether the sale is
"in the course of trade or business" as contemplated
under Section 105 of the NIRC, which reads:
SEC 105. Persons Liable. - Any person who, in
the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders
services, and any person who imports .goods
shall be subject to the value-added tax (VAT)
imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the
amount of tax may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties
or services. This rule shall likewise apply to existing
contracts of sale or lease of goods, properties or
services at the time of the effectivity of Republic Act
7716.
The phrase 'in the course of trade or business'
means the regular conduct or pursuit of a
commercial or an economic activity, including
transactions incidental thereto, by any person
regardless of whether or not the person
engaged therein is a nonstock, nonprofit private
organization (irrespective of the disposition of
its net income and whether or not it sells
exclusively to members or their guests), or
government entity.
The rule of regularity, to the contrary
notwithstanding, services as defined in this Code
rendered in the Philippines by nonresident foreign
persons shall be considered as being rendered in
the course of trade or business. (Emphasis
supplied)
Under Section 50 of the EPIRA law, PSALM's
principal purpose is to manage the orderly sale,
disposition, and privatization of the NPC generation
assets, real estate and other disposable assets, and
IPP contracts with the objective of liquidating all
NPC financial obligations and stranded contract
costs in an optimal manner.
PSALM asserts that the privatization of NPC assets,
such as the sale of the Pantabangan-Masiway and
Magat Power Plants, is pursuant to PSALM's
mandate under the EPIRA law and is not conducted
in the course of trade or business. PSALM cited the
13 May 2002 BIR Ruling No. 020- 02, that PSALM' s
sale of assets is not conducted in pursuit of any
commercial or profitable activity as to fall within the
ambit of a VAT-able transaction under Sections 105
and 106 of the NIRC. The pertinent portion of the
ruling adverted to states:
2. Privatization of assets by PSALM is not subject to
VAT
Pursuant to Section 105 in relation to Section 106,
both of the Tax Code of 1997, a value-added tax
equivalent to ten percent (10%) of the gross selling
price or gross value in money of the goods, is
collected from any person, who, in the course of
trade or business, sells, barters, exchanges, leases
goods or properties, which tax shall be paid by the
seller or transferor.
The phrase "in the course of trade or business"
means the regular conduct or pursuit of a
commercial activity, including transactions incidental
thereto.
Since the disposition or sale of the assets is a
consequence of PSALM's mandate to ensure the
orderly sale or disposition of' the property and
thereafter to liquidate the outstanding loans and
obligations of NPC, utilizing the proceeds from sales
and other property contributed to it, including the
proceeds from the Universal Charge, and not
conducted in pursuit of any commercial or profitable
activity, including transactions incidental thereto, the
same will be considered an
isolated ,transaction, which will therefore not be
subject to VAT. (BIR Ruling No. 113-98 dated
July 23, 1998)  (Emphasis supplied)
55
On the other hand, the CIR argues that the previous
exemption of NPC from VAT under Section 13 of
Republic Act No. 6395  (RA 6395) was expressly
56
repealed by Section 24 of Republic Act No.
9337  (RA 9337), which reads:
57
SEC. 24. Repealing Clause. - The following laws or
provisions of laws are hereby repealed and the
persons and/or transactions affected herein are
made subject to the value-added tax subject to the
provisions of Title IV of the National Internal
Revenue Code of 1997, as amended:
(A) Section 13 of R.A. No. 6395 on the exemption
from value-added tax of National Power Corporation
(NPC);
(B) Section 6, fifth paragraph of R.A. No. 9136 on
the zero VAT rate imposed on the sale of generated
power by generation companies; and
(C) All other laws, acts, decrees, executive orders,
issuances and rules and regulations or parts thereof
which are contrary to and inconsistent with any
provisions of this Act are hereby repealed, amended
or modified accordingly.
As a consequence, the CIR posits that the VAT
exemption accorded to PSALM under BIR Ruling
No. 020-02 is also deemed revoked since PSALM is
a successor-in-interest of NPC. Furthermore, the
CIR avers that prior to the sale, NPC still owned the
power plants and not PSALM, which is just
considered as the trustee of the NPC properties.
Thus, the sale made by NPC or its successors-in-
interest of its power plants should be subject to the
10% VAT beginning 1 November 2005 and 12%
VAT beginning 1 February 2007.
We do not agree with the CIR's position, which is
anchored on the wrong premise that PSALM is a
successor-in-interest of NPC. PSALM is not a
successor-in-interest of NPC. Under its charter,
NPC is mandated 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."  With the
58
passage of the EPIRA law which restructured the
electric power industry into generation,
transmission, distribution, and supply sectors, the
NPC is now primarily mandated to perform
missionary electrification function through the Small
Power Utilities Group (SPUG) and is responsible for
providing power generation and associated power
delivery systems in areas that are not connected to
the transmission system.  On the other hand,
59
PSALM, a government-owned and controlled
corporation, was created under the EPIRA law to
manage the orderly sale and privatization of NPC
assets with the objective of liquidating all of NPC's
financial obligations in an optimal manner. Clearly,
NPC and PSALM have different functions. Since
PSALM is not a successor-in-interest of NPC,
the repeal by RA 9337 of NPC's VAT exemption
does not affect PSALM.
In any event, even if PSALM is deemed a
successor-in-interest of NPC, still the sale of the
power plants is not "in the course of trade or
business" as contemplated under Section 105 of the
NIRC, and thus, not subject to VAT. The sale of the
power plants is not in pursuit of a commercial or
economic activity but a governmental function
mandated by law to privatize NPC generation
assets. PSALM was created primarily to liquidate all
NPC financial obligations and stranded contract
costs in an optimal manner. The purpose and
objective of PSALM are explicitly stated in Section
50 of the EPIRA law, thus:
SEC. 50. Purpose and Objective, Domicile and
Term of Existence. - The principal purpose of the
PSALM Corp. is to manage the orderly sale,
disposition, and privatization of NPC generation
assets, real estate and other disposable assets,
and IPP contracts with the objective of
liquidating all NPC financial obligations and
stranded contract costs in an optimal manner.
The PSALM Corp. shall have its principal office and
place of business within Metro Manila.
The PSALM Corp. shall exist for a period of twenty-
five (25) years from the effectivity of this Act, unless
otherwise provided by law, and all assets held by it,
all moneys and properties belonging to it, and all its
liabilities outstanding upon the expiration of its term
of existence shall revert to and be assumed by the
National Government. (Emphasis supplied)
PSALM is limited to selling only NPC assets and
IPP contracts of NPC. The sale of NPC assets by
PSALM is not "in the course of trade or business"
but purely for the specific purpose of privatizing
NPC assets in order to liquidate all NPC financial
obligations. PSALM is tasked to sell and privatize
the NPC assets within the term of its
existence.  The EPIRA law even requires PSALM to
60
submit a plan for the endorsement by the Joint
Congressional Power Commission and the approval
of the President of the total privatization of the NPC
assets and IPP contracts. Section 47 of the EPIRA
law provides:
SEC 47. NPC Privatization. - Except for the assets
of SPUG, the generation assets, real estate, and
other disposable assets as well as IPP contracts of
NPC shall be privatized in accordance with this Act.
Within six (6) months from the effectivity of this Act,
the PSALM Corp. shall submit a plan for the
endorsement by the Joint Congressional Power
Commission and the approval of the President of
the Philippines, on the total privatization of the
generation assets, real estate, other disposable
assets as well as existing IPP contracts of NPC and
thereafter, implement the same, in accordance with
the following guidelines, except as provided for in
Paragraph (f) herein:
(a) The privatization value to the National
Government of the NPC generation assets, real
estate, other disposable assets as well as IPP
contracts shall be optimized;
(b) The participation by Filipino citizens and
corporations in the purchase of NPC assets shall be
encouraged. In the case of foreign investors, at
least seventy-five percent (75%) of the funds used
to acquire NPC-generation assets and IPP contracts
shall be inwardly remitted and registered with the
Bangko Sentral ng Pilipinas;
(c) The NPC plants and/or its IPP contracts
assigned to IPP Administrators, its related assets
and assigned liabilities, if any, shall be grouped in a
manner which shall promote the viability of the
resulting generation companies (gencos), ensure
economic efficiency, encourage competition, foster
reasonable electricity rates and create market
appeal to optimize returns to the government from
the sale and disposition of such assets in a manner
consistent with the objectives of this Act. In the
grouping of the generation assets and IPP contracts
of NPC, the following criteria shall be considered:
(1) A sufficient scale of operations and balance
sheet strength to promote the financial viability of
the restructured units;
(2) Broad geographical groupings to ensure
efficiency of operations but without the formation of
regional companies or consolidation of market
power;
(3) Portfolio of plants and IPP contracts to achieve
management and operational synergy without
dominating any part of the market or the load curve;
and
(4) Such other factors as may be deemed beneficial
to the best interest of the National Government
while ensuring attractiveness to potential investors.
(d) All assets of NPC shall be sold in open and
transparent manner through public bidding, and the
same shall apply to the disposition of IPP contracts;
(e) In cases of transfer of possession,
control, operation or privatization of multi-
purpose hydro facilities, safeguards shall be
prescribed to ensure that the national
government may direct water usage in
cases of shortage to protect potable water,
irrigation, and all other requirements imbued
with public interest;
(f) The Agus and Pulangi complexes in Mindanao
shall be excluded from an1ong the generation
companies that will be initially privatized. Their
ownership shall be transferred to the PSALM Corp.
and both shall continue to be operated by the NPC.
Said complexes may be privatized not earlier than
ten (10) years from the effectivity of this Act, and,
except for Agus Ill, shall not be subject to
BuildOperate-Transfer (B-0-T), Build-Rehabilitate-
OperateTransfer (B-R-0-T) and other variations
thereof pursuant to Republic Act No. 6957. as
amended by Republic Act No. 7718. The
privatization of Agus and Pulangi complexes hall be
left to the discretion of PSALM Corp. in consultation
with Congress;
(g) The steamfield assets and generating plants of
each geothermal complex shall not be sold
separately. They shall be combined and each
geothermal complex shall be sold as one package
through public bidding. The geothermal complexes
covered by this requirement include, but are not
limited to, Tiwi-Makban, Leyte A and B (Tongonan),
Palinpinon, and Mt. Apo;
(h) The ownership of the Caliraya-Botokan-
Kalayaan (CBK) pump storage complex shall be
transferred to the PSALM Corporation;
(i) Not later than three (3) years from the effectivity
of this Act, and in no case later than the initial
implementation of open access, at least seventy
percent (70%) of the total capacity of generating
assets of NPC and of the total capacity of the power
plants under contract with NPC located in Luzon
and Visayas spall have been privatized: Provided,
That any unsold capacity shall be privatized not
later than eight (8) years from the effectivity of this
Act; and
(j) NPC may generate and sell electricity only from
the undisposed generating assets and IPP contracts
of PSALM Corp. and shall not incur any new
obligations to purchase power through bilateral
contracts with generation companies or other
suppliers.
Thus, it is very clear that the sale of the power
plants was an exercise of a governmental
function mandated by law for the primary
purpose of privatizing NPC assets in
accordance with the guidelines imposed by the
EPIRA law.
In the 2006 case of Commissioner of Internal
Revenue v. Magsaysay Lines, Inc.
(Magsaysay),  the Court ruled that the sale of the
61
vessels of the National Development Company
(NDC) to Magsaysay Lines, Inc. is not subject to
VAT since it was not in the course of trade or
business, as it was involuntary and made pursuant
to the government's policy of privatization. The
Court cited the CT A ruling that the phrase "course
of business" or "doing business" connotes regularity
of activity. Thus, since the sale of the vessels was
an isolated transaction, made pursuant to the
government's privatization policy, and which
transaction could no longer be repeated or carried
on with regularity, such sale was not in the course of
trade or business and was not subject to VAT.
Similarly, the sale of the power plants in this case is
not subject to VAT since the sale was made
pursuant to PSALM' s mandate to privatize NPC
assets, and was not undertaken in the course of
trade or business. In selling the power plants,
PSALM was merely exercising a governmental
function for which it was created under the EPIRA
law.
The CIR argues that the Magsaysay case, which
involved the sale in 1988 of NDC vessels, is not
applicable in this case since it was decided under
the 1986 NIRC. The CIR maintains that under
Section 105 of the 1997 NIRC, which amended
Section 99  of the 1986 NIRC, the phrase "in the
62
course of trade or business" was expanded, and
now covers incidental transactions. Since NPC still
owns the power plants and PSALM may only be
considered as trustee of the NPC assets, the sale of
the power plants is considered an incidental
transaction which is subject to VAT.
We disagree with the CIR's position. PSALM owned
the power plants which were sold. PSALM's
ownership of the NPC assets is clearly stated under
Sections 49, 51, and 55 of the EPIRA law. The
pertinent provisions read:
SEC. 49. Creation of Power Sector Assets and
Liabilities Management Corporation. - There is
hereby created a government-owned and -
controlled corporation to be known as the
"Power Sector Assets and Liabilities
Management Corporation," hereinafter referred
to as "PSALM Corp.," which shall take
ownership of all existing NPC generation assets,
liabilities, IPP contracts, real estate and all other
disposable assets. All outstanding obligations of
the NPC arising from loans, issuances of bonds,
securities and other instruments of indebtedness
shall be transferred to and assumed by the PSALM
Corp. within one hundred eighty (180) days from the
approval of this Act.
SEC 51. Powers. - The Corporation shall, in the
performance of its functions and for the attainment
of its objectives, have the following powers:
(a) To formulate and implement a program for the
sale and privatization of the NPC assets and IPP
contracts and the liquidation of the NPC debts and
stranded costs, such liquidation to be completed
within the term of existence of the PSALM Corp.;
(b) To take title to and possession of, administer
and conserve the assets transferred to it; to sell
or dispose of the same at such price and under
such terms and conditions as it may deem
necessary or proper, subject to applicable laws,
rules and regulations;
SEC. 55. Property of PSALM Corp. -The following
funds, assets, contributions and other property
shall constitute the property of PSALM Corp.:
(a) The generation assets, real estate, IPP
contracts, other disposable assets of
NPC, proceeds from the sale or disposition of such
assets and residual assets from B-0-T, R-0-T, and
other variations thereof;
(b) Transfers from the National Government;
(c) Proceeds from loans incurred to restructure or
refinance NPC's transferred liabilities: Provided,
however, That all borrowings shall be fully paid for
by the end of the life of the PSALM Corp.;
(d) Proceeds from the universal charge allocated for
stranded contract costs and the stranded debts of
the NPC;
(e) Net profit of NPC;
(f) Net profit of TRANSCO;
(g) Official assistance, grants, and donations from
external sources; and
(h) Other sources of funds as may be determined by
PSALM Corp. necessary for the above-mentioned
purposes. (Emphasis supplied)
Under the EPIRA law, the ownership of the
generation assets, real estate, IPP contracts, and
other disposable assets of the NPC was transferred
to PSALM. Clearly, PSALM is not a mere trustee of
the NPC assets but is the owner thereof. Precisely,
PSALM, as the owner of the NPC assets, is the
government entity tasked under the EPIRA law to
privatize such NPC assets.
In the more recent case of Mindanao II Geothermal
Partnership v. Commissioner of Internal Revenue
(Mindanao 11),  which was decided under the 1997
63
NIRC, the Court held that the sale of a fully
depreciated vehicle that had been used in Mindanao
II's business was subject to VAT, even if such sale
may be considered isolated. The Court ruled that it
does not follow that an isolated transaction cannot
be an incidental transaction for VAT purposes. The
Court then cited Section 105 of the 1997 NIRC
which shows that a transaction "in the course of
trade or business" includes "transactions incidental
thereto." Thus, the Court held that the sale of the
vehicle is an incidental transaction made in the
course of Mindanao II's business which should be
subject to VAT.
The CIR alleges that the sale made by NPC and/or
its successors-in-interest of the power plants is an
incidental transaction which should be subject to
VAT. This is erroneous. As previously discussed,
the power plants are already owned by PSALM, not
NPC. Under the EPIRA law, the ownership of these
power plants was transferred to PSALM for sale,
disposition, and privatization in order to liquidate all
NPC financial obligations. Unlike the Mindanao
II case, the power plants in this case were not
previously used in PSALM's business. The power
plants, which were previously owned by NPC were
transferred to PSALM for the specific purpose of
privatizing such assets. The sale of the power plants
cannot be considered as an incidental transaction
made in the course of NPC's or PSALM's business.
Therefore, the sale of the power plants should not
be subject to VAT.
Hence, we agree with the Decisions dated 13 March
2008 and 14 January 2009 of the Secretary of
Justice in OSJ Case No. 2007-3 that it was
erroneous for the BIR to hold PSALM liable for
deficiency VAT in the amount of ₱3,813,080,472 for
the sale of the Pantabangan-Masiway and Magat
Power Plants. The ₱3,813,080,472 deficiency VAT
remitted by PSALM under protest should therefore
be refunded to PSALM.
However, to give effect to Section 70, Chapter 14,
Book IV of the Administrative Code of 1987 on
appeals from decisions of the Secretary of Justice,
the BIR is given an opportunity to appeal the
Decisions dated 13 March 2008 and 14 January
2009 of the Secretary of Justice to the Office of the
President within 10 days from finality of this
Decision.64
WHEREFORE, we GRANT the petition.
We SETASIDE the 27 September 2010 Decision
and the 3 August 2011 Resolution of the Court of
Appeals in CA-G.R. SP No. 108156. The Decisions
dated 13 March 2008 and 14 January 2009 of the
Secretary of Justice in OSJ Case No. 2007- 3
are REINSTATED. No costs.SO ORDERED.
Commissioner of Internal Revenue vs. First E-
Bank Tower Condominium Corporation
These twin cases refer to the: 1) Petition for Review
filed by the Bureau of Intemal Revenue (BIR) (G.R.
No. 215801); and 2) Special Civil Action for
Certiorari initiated by the First E-Bank Tower
Condominium Corp. (First E-Bank) (G.R. No.
218924). Both cases assail the following
dispositions of the Court of Appeals in CA-G.R. CV
No. 102266 entitled "In the Matter of Declaratory
Relief on the Validity of BIR Revenue Memorandum
Circular No. 65-2012 'Clarifying the Taxability of
Association Dues, Membership Fees and Other
Assessments !Charges Collected by Condominium
Corporations, 'First E-Bank Tower Condominium
Corp. v. Bureau of Internal Revenue ( BIR )
represented by its Commissioner Kim S.Jacinto-
Henares, et al."
1) Resolution1 dated June 26, 2014 dismissing for
alleged lack of jurisdiction the respective appeals of
the First E-Bank and the BIR et al., viz.:
It appearing from the records that the subject matter
of the instant appeal is the Resolution dated 05
September 2013 of the RTC-Branch 146, Makati
City, declaring "to have been invalidly issued" BIR
Revenue Memorandum Circular No. 65-2012 dated
31 October 2 012 which imposed 12% value added
tax and 32% income tax on association
dues/membership fees and other charges collected
by condominium corporation from its members and
tenants, taking into account Section 7 (a) of
Republic Act No. 9282 (which took effect on 23 April
2004) which expressly provides that the Court of
Tax Appeals has exclusive appellate jurisdiction
over "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," considering that
the Court of Tax Appeals is a highly specialized
body specifically created for the purpose of
reviewing tax cases and resolving tax problems, the
instant appeal is hereby DISMISSED outright for
lack of jurisdiction over the nature and subject
matter of the action.
The Compliance/Manifestation dated 16 May 2014
of RTC Judge Encarnacion Jaja G. Moya and
Branch Clerk of Court Therese Lynn R. Bandong,
Manifestations dated 29 May 2014 and 30 May
2014 of First E-Bank Tower Condominium
Corporation and the Manifestation dated 02 June
2014 ofthe Republic ofthe Philippines are NOTED.
Let the instant appeal
considered CLOSED and TERMINATED.
Let the original records be returned to the trial court.
SO ORDERED.
2) Resolution2 dated November 27, 2014 denying
the parties' respective motions for reconsideration.
The Facts
The First E-Bank filed the petition below for
declaratory relief seeking to declare as invalid
Revenue Memorandum Circular No. 65-2012 (RMC
No. 65-2012) dated October 31, 2012.3 The case
was raffled to the Regional Trial Court, Branch 146,
Makati City.
RMC No. 65-2012 entitled "Clarifying the Taxability
of Association Dues, Membership Fees and Other
Assessments/ Charges Collected by Condominium
Corporations" relevantly reads:
CLARIFICATION
The taxability of association dues, membership
fees, and other assessments/charges collected by a
condominium corporation from its members, tenants
and other entities are discussed hereunder.
I. Income Tax -- The amounts paid in as dues or
fees by members and tenants of a condominium
corporation form part of the gross income of the
latter subject to income tax. This is because a
condominium corporation furnishes its members
and tenants with benefits, advantages, and
privileges in return for such payments. For tax
purposes, the association dues, membership fees,
and other assessments/charges collected by a
condominium corporation constitute income
payments or compensation for beneficial services it
provides to its members and tenants. The previous
interpretation that the assessment dues are funds
which are merely held in trust by a condominium
corporation lacks legal basis and is hereby
abandoned.
Moreover, since a condominium corporation is
subject to income tax, income payments made to it
are subject to applicable withholding taxes under
existing regulations.
II. Value-Added Tax (VAT) -Association dues,
membership fees, and other assessments/charges
collected by a condominium corporation are subject
to VAT since they constitute income payment or
compensation for the beneficial services it provides
to its members and tenants.
Section 105 of the National Internal Revenue Code
of 1997, as amended, provides:
be
"SECTION 105. Persons Liable. -Any person who,
in the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders
services, and any person who imports goods shall
be subject to the value-added tax (VAT) imposed in
Sections 106 to 108 of this Code.
xxx
The phrase 'in the course of trade or business'
means the regular conduct or pursuit of a
commercial or an economic activity, including
transactions incidental thereto, by any person
regardless of whether or not the person engaged
therein is a nonstock, nonprofit private organization
(irrespective of the disposition of its net income and
whether or not it sells exclusively to members or
their guests), or government entity." (Emphasis
supplied)
The above provision is clear -- even a non-stock,
non-profit organization or government entity is liable
to pay VAT on the sale of goods or services. This
conclusion was affirmed by the Supreme Court in
Commissioner of Internal Revenue v. Court of
Appeals and Commonwealth Management and
Services Corporation, G.R. No. 125355, March 30,
2000. In this case, the Supreme Court held:
"(E)ven a non-stock, non-profit organization or
government entity, is liable to pay VAT on the sale
of goods or services. VAT is a tax on transactions,
imposed at every stage of the distribution process
on the sale, barter, exchange of goods or property,
and on the performance of services, even in the
absence of profit attributable thereto. The term "in
the course of trade or business" requires the regular
conduct or pursuit of a commercial or an economic
activity, regardless of whether or not the entity is
profit- oriented.
The definition of the term "in the course of trade or
business" incorporated in the present law applies to
all transactions even to those made prior to its
enactment. Executive Order No. 273 stated that any
person who, in the course of trade or business,
sells, barters or exchanges goods and services, was
already liable to pay VAT. The present law merely
stresses that even a nonstock, nonprofit
organization or government entity is liable to pay
VAT for the sale of goods and services.
Section 108 of the National Internal Revenue Code
of 1997 defines the phrase "sale of services" as the
"performance of all kinds of services for others for a
fee, remuneration or consideration. " It includes "the
supply of technical advice, assistance or services
rendered in connection with technical management
or administration of any scientific, industrial or
commercial undertaking or project."
On February 5, 1998, the Commissioner of Internal
Revenue issued BIR Ruling No. 010-98
emphasizing that a domestic corporation that
provided technical, research, management and
technical assistance to its affiliated companies and
received payments on a reimbursemen-of-cost
basis, without any intention of realizing profit, was
subject to VAT on services rendered. In fact, even if
such corporation was organized without any
intention of realizing profit, any income or profit
generated by the entity in the conduct of its activities
was subject to income tax.
Hence, it is immaterial whether the primary purpose
of a corporation indicates that it receives payments
for services rendered to its affiliates on a
reimbursement-on-cost basis only, without realizing
profit, for purposes of determining liability for VAT
on services rendered. As long as the entity provides
service for a fee, remuneration or consideration,
then the service rendered is subject to VAT."
Accordingly, the gross receipts of condominium
corporations including association dues,
membership fees, and other assessments/charges
are subject to VAT, income tax and income
payments made to it are subject to applicable
withholding taxes under existing regulations.4
The First E-Bank's Allegations
In its Petition dated December 20, 2012, the First E-
Bank essentially alleged: It was a non-stock non-
profit condominium corporation. It owned and
possessed, through its members, a condominium
office building. RMC No. 65-2012 imposed on it two
(2) tax liabilities: 1) value-added tax (VAT) of
P118,971. 53 to be paid on December 2012 and
every month thereafter; and b) income tax
ofP665,904.12 to be paid on or before April 15,
2013 and every year thereafter.5
RMC No. 65-2012 burdened the owners of the
condominium units with income tax and VAT on
their own money which they exclusively used for the
maintenance and preservation of the building and its
premises. RMC No. 65-2012 was oppressive and
confiscatory because it required condominium unit
owners to produce additional amounts for the thirty-
two percent (32%) income tax and twelve percent
(12%) VAT.6
Through the Makati Commercial Estate Association,
Inc., it sent a Letter dated December 5, 2012 to the
BIR Commissioner requesting deferment of RMC
No. 65-2012. A Letter dated December 19, 2012
was likewise sent to Makati City Revenue District
Officer Ricardo B. Espiritu informing him of the
continuous judicial consignation of the income tax
and VAT payments due under RMC No. 65-2012.7
The BIR et al .'s Comments
Under Comment dated February 11, 2013, the BIR
and RDO Espiritu through the Office of the Solicitor
General (OSG) riposted that declaratory relief was
no longer proper here considering that RMC No. 65-
2012 already took effect on October 31, 2012. The
alleged injury which the First E-Bank sought to
prevent had already arisen as of that date.8
By its separate comment,* the BIR's Litigation
Division argued that the petition should be
dismissed for violation of the principle of primary
jurisdiction. Several condominium corporations had
already referred the issue to the BIR Law Division
for further clarification. Ultimately, only the Secretary
of Finance had primary jurisdiction over the issue
raised here. Too, a petition for declaratory relief will
not prosper if the questioned statute had already
been breached, as in this case. RMC No. 65-2012
was only a clarificatory issuance on pertinent laws,
specifically the National Internal Revenue Code
(NIRC). It was merely a restatement of the BIR's
prevailing position on the issue of taxation.9
The First E-Bank's Reply
The First E-Bank replied that judicial consignation of
its tax payments under protest was necessary.10
The Trial Court's Ruling
By Resolution11 dated September 5, 2013, the trial
court ruled that the First E-Bank correctly resorted
to a petition for declaratory relief for the purpose of
invalidating RMC No. 65-2012. On this score, the
trial court declared as invalid RMC No. 65-2012 for
it purportedly expanded the law, created an
additional tax burden on condominium corporations,
and was issued without the requisite notice and
hearing, thus:
As to the validity of the Memorandum Circular
issued, it is respondent's contention that it merely
clarified and was simply issued to restate and clarify
the prevailing position and ruling of the BIR. It was a
mere interpretation of an existing law which has
already been in effect and which was not set to be
amended. However, the same appears to be not
true as it goes beyond its objective to clarify the
existing statute. The assailed Revenue
Memorandum Circular not merely interpreted or
clarified the existing BIR Ruling but in fact legislated
or introduced a new legislation under the mantle of
its quasi-legislative authority. The BIR
Commissioner, under the guise of clarifying income
tax on association dues, made Revenue
Memorandum Circular effective immediately. In so
doing, the passage contravenes the constitutional
mandate of due process of law.12
 The above cited portion of the Memorandum
Circular failed to show what particular law it clarified.
Instead it shows that it merely departed from the
several rulings of the Bureau exempting from
income tax the assessments/charges collected by
condominium corporations from its members, on the
ground that the collection of association dues and
other assessments/charges are merely held in trust
to be used solely for administrative expenses in
implementing its purpose. The new circular in effect
made its own legislation abandoning the previous
rulings of the BIR which became the practice of the
condominium corporations including herein
petitioner. The Revenue Circular changed and
departed from the long standing ruling of the BIR
that association dues and other fees and charges
collected from members are tax exempt. In so
doing, it abruptly charges from taxpayer an
imposition which was then not existing, and worse
made it immediately effective which is prejudicial to
the rights of the petitioner. It did not merely interpret
or clarify but changed altogether the long standing
rules of the Bureau of Internal revenue.13
 Moreover, it is already the common business
practice of petitioner that the association dues,
membership fees and the like are not included as
part of its income and therefore of the VAT. The
advent of the Memorandum Circular 65-2012 issued
by the Commissioner changes the tax liability of
petitioner in the sense that it is now subject to tax. It
created a new tax burden upon petitioner. Petitioner
then could not be faulted to consign judicially as
they claim, the [VAT) amount pending resolution of
the petition for declaratory relief herein filed.
Respondent BIR Commissioner should have
accorded petitioner the opportunity to be heard,
which was the bone of contention of the letter sent
to the Honorable Commissioner which was not
acted upon.
The Revenue Memorandum Circular did not only
clarify an existing law, but changes its import and
interpretation that in so doing it prejudices the right
of the petitioner as a tax payer.14
 Since the BIR in passing the subject memorandum
circular failed to accord respondent or those
similarly situated as a tax payer due notice and
opportunity to be heard, before issuing said circular
it is this court's opinion that the issuance was
arbitrarily and in violation of the due process clause
of the constitution. The respondent in imposing
additional tax burden on petitioner violated the
latter's constitutional right to due notice and
hearing.15
 In another vein, the trial court noted the absence of
proof that the First E-Bank actually made a judicial
consignation of its purported tax payments.16
The BIR et al. moved for reconsideration. It argued
that the petition was premature, RMC No. 65-2012
was valid, and the petition for declaratory relief
should be dismissed for violating the principle of
primary jurisdiction. For its part, the First E-Bank
moved for partial reconsideration, praying that the
consignated funds be released.17
By Order18 dated December 18,2013, the trial court
denied the parties' respective motions for
reconsideration.  It reiterated that the First E-Bank
1avvph!1
properly resorted to a petition for declaratory relief
for the purpose of invalidating RMC No. 65-2012. It
also noted that the First E-Bank appeared to have
judicially consignated the funds only on November
17, 2013, following the resolution of the case on
September 5, 2013. For sure, this judicial
consignation, which was belatedly done, cannot
justify a modification of the aforesaid resolution. The
trial court, nonetheless, pronounced that the First E-
Bank was not precluded from filing the proper
motion to withdraw the consignated amounts upon
the finality of the ruling on the validity of RMC 65-
2012.
The Proceedings before the Court of Appeals
Aggrieved, both parties appealed to the Court of
Appeals. On one hand, the BIR et al. challenged the
trial court's ruling insofar as it: a) decreed that the
First E-Bank correctly availed of the petition for
declaratory relief when it sought to nullify RMC No.
65-2012; and b) declared the same as invalid. On
the other hand, the First E-Bank assailed the trial
court's ruling insofar as it declined to order the
release of the judicially consignated amounts.
The Court of Appeals' Dispositions
By its first assailed Resolution dated June 26, 2014,
the Court of Appeals dismissed the appeal of the
First E-Bank and the joint appeal of the BIR et al. on
ground of lack of jurisdiction. It emphasized that
jurisdiction over the case was exclusively vested in
the Court of Tax Appeals since the trial court's
impugned resolution involved a tax matter.
Both the First E-Bank and the BIR et al., moved for
reconsideration. They commonly asserted that the
Court of Appeals had appellate jurisdiction over their
respective appeals emanating from a petition for
declaratory relief which sought to invalidate RMC
No. 65-2012.19
By its second assailed Resolution20 dated
November 27, 2014, the Court of Appeals denied
the motions for reconsideration and stressed anew
that the Court of Tax Appeals had exclusive
jurisdiction over the appeals.
The Present Petitions
In G.R. No. 218924, the First E-Bank initiated, on
alleged ground of grave abuse of discretion, a
Special Civil Action for Certiorari21 to nullify the
assailed dispositions of the Court of Appeals.
According to the First E-Bank, the Court of Appeals,
not the Court of Tax Appeals, has jurisdiction over
its appeal since the subject matter of the case is not
local tax or taxes per se but a petition to declare as
invalid RMC No. 65-2012. The Court of Appeals
purportedly based its rulings on conjectures and
surmises, not on established facts and law.
In G.R. No. 215801,22 the BIR et al. availed ofRu1e
45 of the Revised Rules of Court. They plead the
same legal issue pertaining to which court has
jurisdiction over the trial court's decision.
Issues
First: Is a petition for declaratory relief proper for the
purpose of invalidating RMC No. 65-2012?
Second: Did the Court of Appeals validly dismiss the
twin appeals on ground of lack of jurisdiction?
Third: Is RMC No. 65-2012 valid?
a) Is a condominium corporation engaged in trade
or business?
b) Are assoc1atwn dues, membership fees, and
other assessments/charges subject to income tax,
value-added tax, and withholding tax?
Fourth: Is the First E-Bank entitled to the release of
its judicially consignated tax payments?
Ruling
A petition for declaratory
relief is not the proper
remedy to seek the invalidation
of RMC No. 65-2012
An action for declaratory relief is governed by
Section 1, Rule 63 of the Revised Rules of Court,
thus:
Section l. Who may file petition. Any person
interested under a deed, will, contract or other
written instrument, or whose rights are affected by a
statute, executive order or regulation, ordinance, or
any other governmental regulation may, before
breach or violation thereof bring an action in the
appropriate Regional Trial Court to determine any
question of construction or validity arising, and for a
declaration of his rights or duties, thereunder.
Declaratory relief requires the following elements:
(1) the subject matter of the controversy must be a
deed, will, contract or other written instrument,
statute, executive order or regulation, or ordinance;
(2) the terms of said documents and the validity
thereof are doubtful and require judicial
construction; (3) there must have been no breach of
the documents in question; (4) there must be an
actual justiciable controversy or the "ripening seeds"
of one between persons whose interests are
adverse; (5) the issue must be ripe for judicial
determination; and (6) adequate relief is not
available through other means or other forms of
action or proceeding.23
The Court rules that certiorari or prohibition, not
declaratory relief, is the proper remedy to assail the
validity or constitutionality of executive
issuances. DOTR v. PPSTA24 is apropos:
The Petition for Declaratory Relief is not the proper
remedy
One of the requisites for an action for declaratory
relief is that it must be filed before any breach or
violation of an obligation. Section 1, Rule
63 of the Rules of Court states, thus:
Thus, there is no actual case involved in a Petition
for Declaratory Relief . It cannot, therefore, be the
proper vehicle to invoke the judicial review powers
to declare a statute unconstitutional.
It is elementary that before this Court can rule on a
constitutional issue, there must first be a justiciable
controversy. A justiciable controversy refers to an
existing case or controversy that is appropriate or
ripe for judicial determination, not one that is
conjectural or merely anticipatory. As We
emphasized in Angara v. Electoral Commission, any
attempt at abstraction could only lead to dialectics
and barren legal questions and to sterile
conclusions unrelated to actualities.
To question the constitutionality of the subject
issuances, respondents should have invoked the
expanded certiorari jurisdiction under Section 1 of
Article VIII of the 1987 Constitution . The adverted
section defines judicial power as the power not only
"to settle actual controversies involving rights which
are legally demandable and enforceable," but also
"to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or
instrumentality of the Government."
There is a grave abuse of discretion when there is
patent violation of the Constitution, the law, or
existing jurisprudence. On this score, it has been
ruled that "the remedies of certiorari and prohibition
are necessarily broader in scope and reach, and the
writ of certiorari or prohibition may be issued to
correct errors of jurisdiction committed not only by a
tribunal, corporation, board or officer exercising
judicial, quasi-judicial or ministerial functions, but
also to set right, undo[,] and restrain any act of
grave abuse of discretion amounting to lack or
excess of jurisdiction by any branch or
instrumentality of the Government, even if the latter
does not exercise judicial, quasi-judicial or
ministerial functions." Thus, petitions for certiorari
and prohibition are the proper remedies where an
action of the legislative branch is seriously alleged
to have infringed the Constitution. (Emphasis
supplied   Notably, the issue at hand has already pended for
In Diaz v. The Secretary of Finance, et al.,25 the
Court, nonetheless, held that a petition for
declaratory relief may be treated as one for
prohibition if the case has far-reaching implications
and raises questions that need to be resolved for
the public good; or if the assailed act or acts of
executive officials are alleged to have usurped
legislative authority, thus:
On August 24, 2010 the Court issued a resolution,
treating the petition as one for prohibition rather
than one for declaratory relief, the characterization
that petitioners Diaz and Timbol gave their action.
The government has sought reconsideration of the
Court's resolution, however, arguing that petitioners'
allegations clearly made out a case for declaratory
relief: an action over which the Court has no original
jurisdiction. The government adds, moreover, that
the petition does not meet the requirements of Rule
65 for actions for prohibition since the BIR did not
exercise judicial, quasi-judicial, or ministerial
functions when it sought to impose VAT on toll fees.
Besides, petitioners Diaz and Timbo !has a plain,
speedy, and adequate remedy in the ordinary
course of law against the BIR action in the form of
an appeal to the Secretary of Finance.
But there are precedents for treating a petition for
declaratory relief as one for prohibition if the case
has far-reaching implications and raises questions
that need to be resolved for the public good. The
Court has also held that a petition for prohibition is a
proper remedy to prohibit or nullify acts of executive
officials that amount to usurpation of legislative
authority.
Here, the imposition of VAT on toll fees has far-
reaching implications. Its imposition would impact,
not only on the more than half a million motorists
who use the tollways everyday, but more so on the
government's effort to raise revenue for funding
various projects and for reducing budgetary deficits.
(Emphasis supplied)
Here, RMC No. 65-2012 has far-reaching
ramifications among condominium corporations
which have proliferated throughout the country. For
numerous Filipino families, professionals, and
students have, for quite sometime now, opted for
condominium living as their new way of life. The
matter of whether indeed the contributions of unit
owners solely intended for maintenance and upkeep
of the common areas of the condominium building
are taxable is imbued with public interest. Suffice it
to state that taxes, being the lifeblood of the
government, occupy a high place in the hierarchy of
State priorities, hence, all questions pertaining to
their validity must be promptly addressed with the
least procedural obstruction.
six (6) years now, first with the trial court, then with
the Court of Appeals, and now with this Court.
Hence, to forestall any further delay, instead of
remanding the cases to the Court of Appeals, we
here and now write finis to these cases once and for
all, Diaz  enunciated:
To dismiss the petition and resolve the issues later,
after the challenged VAT has been imposed, could
cause more mischief both to the tax-paying public
and the government. A belated declaration of nullity
of the BIR action would make any attempt to refund
to the motorists what they paid an administrative
nightmare with no solution. Consequently, it is not
only the right, but the duty of the Court to take
cognizance of and resolve the issues that the
petition raises.
Although the petition does not strictly comply with
the requirements of Rule 65, the Court has ample
power to waive such technical requirements when
the legal questions to be resolved are of great
importance to the public. The same may be said of
the requirement of locus standi which is a mere
procedural requisite.
G.R. No. 218924
The First E-Bank faults the Court of Appeals with
grave abuse of discretion amounting to lack or
excess of jurisdiction when the latter dismissed the
former's appeal from the trial court's Resolution
dated September 5, 2013 and Order dated
December 18, 2013.
A petition for certiorari is proper where the
impugned dispositions, as in this case, are tainted
with grave abuse of discretion amounting to lack or
excess ofjurisdiction.26 More so where a petition for
review on certiorari does not appear to be a plain,
speedy, and adequate remedy to address the First
E Bank's urgent concerns on its accumulated
supposed tax liabilities which will never get halted
until the validity of RMC No. 65-2012 is finally
resolved, and considerations of public welfare and
public policy compel the speedy resolution of the
cases through the extraordinary remedy of
certiorari.
The Court, in some instances, allowed a petition for
certiorari to prosper notwithstanding the availability
of appeal. Mallari v. Banco Filipino Savings &
Mortgage Bank27  enumerates these
instances, viz.:
Indeed, the Court in some instances has allowed a
petition for certiorari to prosper notwithstanding the
availability of an appeal, such as, (a) when public
welfare and the advancement of public policy dictate
it; (b) when the broader interest of justice so
requires; (c) when the writs issued are null; and (d)
when the questioned order amounts to an
oppressive exercise of judicial authority.
So must it be.
G.R. No. 215801
On the part of the BIR et al., they opted to pursue
the regular route under Rule 45 of the Revised
Rules of Court. Surely, being the beneficiary of the
taxes paid by the First E-Bank, the State has no
compelling need to avail of the extraordinary
remedy under Rule 65. At any rate, Rule 45 is
undoubtedly an available remedy in the ordinary
course of law.
The parties' resort to the Court of
Appeals was proper in light of the
then prevailing jurisprudence
We now resolve the issue of jurisdiction.
Section 7 of Republic Act No. 9282 (RA
9282)28 outlines the appellate jurisdiction of the
Court of Tax Appeals, viz.:
Sec. 7. Jurisdiction. -The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by
appeal, as herein provided:
1. Decisions of the Commissioner of Internal
Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue
or other laws administered by the Bureau of Internal
Revenue;
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
oflnternal Revenue, where the National Internal
Revenue Code provides a specific period of action,
in which case the inaction shall be deemed a denial;
3. Decisions, orders or resolutions of the Regional
Trial Courts in local tax cases originally decided or
resolved by them in the exercise of their original or
appellate jurisdiction;
4. Decisions of the Commissioner of Customs in
cases involving liability for customs duties, fees or
other money charges, seizure, detention or release
of property affected, fines, forfeitures or other
penalties in relation thereto, or other matters arising
under the Customs Law or other laws administered
by the Bureau of Customs;
5. Decisions of the Central Board of Assessment
Appeals in the exercise of its appellate jurisdiction
over cases involving the assessment and taxation of
real property originally decided by the provincial or
city board of assessment appeals;
6. Decisions of the Secretary of Finance on customs
cases elevated to him automatically for review from
decisions of the Commissioner of Customs which
are adverse to the Government under Section 2315
of the Tariff and Customs Code;
7. Decisions of the Secretary of Trade and Industry,
in the case of non-agricultural product, commodity
or article, and the Secretary of Agriculture in the
case of agricultural product, commodity or article,
involving dumping and countervailing duties under
Section 301 and 302, respectively, of the Tariff and
Customs Code, and safeguard measures under
Republic Act No. 8800, where either party may
appeal the decision to impose or not to impose said
duties.
On August 30, 2008, the Court en banc decreed
in British American Tobacco v. Camacho, et
al. 29 that the Court of Tax Appeals did not have
jurisdiction to pass upon the constitutionality or
validity of a law or rule, thus:
While the above statute confers on the CTA
jurisdiction to resolve tax disputes in general, this
does not include cases where the constitutionality of
a law or rule is challenged. Where what is assailed
is the validity or constitutionality of a law, or a rule or
regulation issued by the administrative agency in
the performance of its quasi-legislative function, the
regular courts have jurisdiction to pass upon the
same. The determination of whether a specific rule
or set of rules issued by an administrative agency
contravenes the law or the constitution is within the
jurisdiction of the regular courts. Indeed, the
Constitution vests the power of judicial review or the
power to declare a law, treaty, international or
executive agreement, presidential decree, order,
instruction, ordinance, or regulation in the courts,
including the regional trial courts. This is within the
scope of judicial power, which includes the authority
of the courts to determine in an appropriate action
the validity of the acts of the political departments.
Judicial power includes the duty of the courts of
justice to settle actual controversies involving rights
which are legally demandable and enforceable, and
to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or
instrumentality of the Government. (Emphasis
supplied )
The prevailing dictum then was only regular courts
had jurisdiction to pass upon the constitutionality or
validity of tax laws and regulations.
On February 4, 2014, the Court en bane recognized
that the Court of Tax Appeals possessed all such
implied, inherent, and incidental powers necessary
to the full and effective exercise of its appellate
jurisdiction over tax cases. City of Manila v. Judge
Grecia-Cuerdo30  is relevant, thus:
A grant of appellate jurisdiction implies that there is
included in it the power necessary to exercise it
effectively, to make all orders that will preserve the
subject of the action, and to give effect to the final
determination of the appeal. It carries with it the
power to protect that jurisdiction and to make the
decisions of the court thereunder effective. The
court, in aid of its appellate jurisdiction, has authority
to control all auxiliary and incidental matters
necessary to the efficient and proper exercise of
that jurisdiction. For this purpose, it may, when
necessary, prohibit or restrain the performance of
any act which might interfere with the proper
exercise of its rightful jurisdiction in cases pending
before it.
Lastly, it would not be amiss to point out that a court
which is endowed with a particular jurisdiction
should have powers which are necessary to enable
it to act effectively within such jurisdiction. These
should be regarded as powers which are inherent in
its jurisdiction and the court must possess them in
order to enforce its rules of practice and to suppress
any abuses of its process and to defeat any
attempted thwarting of such process.
In this regard, Section 1 of RA 9282 states that the
CTA shall be of the same level as the CA and shall
possess all the inherent powers of a court of justice.
Indeed, courts possess certain inherent powers
which may be said to be implied from a general
grant of jurisdiction, in addition to those expressly
conferred on them. These inherent powers are such
powers as are necessary for the ordinary and
efficient exercise of jurisdiction; or are essential to
the existence, dignity and functions of the courts, as
well as to the due administration of justice; or are
directly appropriate, convenient and suitable to the
execution of their granted powers; and include the
power to maintain the court's jurisdiction and render
it effective in behalf of the litigants.
Thus, this Court has held that "while a court may be
expressly granted the incidental powers necessary
to effectuate its jurisdiction, a grant of jurisdiction, in
the absence of prohibitive legislation, implies the
necessary and usual incidental powers essential to
effectuate it, and, subject to existing laws and
constitutional provisions, every regularly constituted
court has power to do all things that are reasonably
necessary for the administration of justice within the
scope of its jurisdiction and for the enforcement of
its judgments and mandates." Hence, demands,
matters or questions ancillary or incidental to, or
growing out of, the main action, and coming within
the above principles, may be tal{en cognizance of
by the court and determined, since such jurisdiction
is in aid of its authority over the principal matter,
even though the court may thus be called on to
consider and decide matters which, as original
causes of action, would not be within its
cognizance. (Emphasis supplied)
Consequently, the Court held that the authority of
the Court of Tax Appeals to take cognizance of
petitions for certiorari against interlocutory orders of
the RTC in local tax cases was deemed included in
the authority or jurisdiction granted it by law.
The Court underscored that the grant of appellate
jurisdiction to the Court of Tax Appeals included
such power necessary to exercise it effectively.
Besides, a split-jurisdiction between the Court of
Tax Appeals and the Court of Appeals is anathema
to the orderly administration of justice. "The Court
cannot accept that such was the legislative motive,
especially considering that the law expressly
confers on the CTA, the tribunal with the specialized
competence over tax and tariff matters, the role of
judicial review over local tax cases without mention
of any other court that may exercise such
power." 31
On August 16, 2016, in Banco de Oro v. Republic of
the Phils., et al., 32 the Court en bane pronounced
in no uncertain terms that the Court of Tax Appeals
had jurisdiction to rule on the constitutionality or
validity of a tax law or regulation or administrative
issuance, viz.:
The Court of Tax Appeals has undoubted
jurisdiction to pass upon the constitutionality or
validity of a tax law or regulation when raised by the
taxpayer as a defense in disputing or contesting an
assessment or claiming a refund. It is only in the
lawful exercise of its power to pass upon all maters
brought before it, as sanctioned by Section 7 of
Republic Act No. 1125, as amended.
This Court, however, declares that the Court of Tax
Appeals may likewise take cognizance of cases
directly challenging the constitutionality or validity of
a tax law or regulation or administrative issuance
(revenue orders, revenue memorandum circulars,
rulings).
Section 7 of Republic Act No. 1125, as amended, is
explicit that, except for local taxes, appeals from the
decisions of quasi-judicial agencies (Commissioner
of Internal Revenue, Commissioner of Customs,
Secretary of Finance, Central Board of Assessment
Appeals, Secretary of Trade and Industry) on tax-
related problems must be brought exclusively to the
Court of Tax Appeals.
In other words, within the judicial system, the law
intends the Court of Tax Appeals to have exclusive
jurisdiction to resolve all tax problems. Petitions for
writs of certiorari against the acts and omissions
ofthe said quasi-judicial agencies should, thus, be
filed before the Court of Tax Appeals.
Republic Act No. 9282, a special and later law than
Batas Pambansa Big . 129 provides an exception to
the original jurisdiction of the Regional Trial Courts
over actions questioning the constitutionality or
validity of tax laws or regulations. Except for local
tax cases, actions directly challenging the
constitutionality or validity of a tax law or regulation
or administrative issuance may be filed directly
before the Court of Tax Appeals.
Furthermore, with respect to administrative
issuances (revenue orders, revenue memorandum
circulars, or rulings), these are issued by the
Commissioner under its power to make rulings or
opinions in connection with the implementation of
the provisions of internal revenue laws. Tax rulings,
on the other hand, are official positions of the
Bureau on inquiries of taxpayers who request
clarification on certain provisions of the National
Internal Revenue Code, other tax laws, or their
implementing regulations. Hence, the determination
of the validity of these issuances clearly falls within
the exclusive appellate jurisdiction of the Court of
Tax Appeals under Section 7 (1) of Republic Act No.
1125, as amended, subject to prior review by the
Secretary of Finance, as required under Republic
Act No. 8424. (Emphasis supplied)
Banco de Oro further stressed that such undoubted
jurisdiction is exclusively vested in the Court of Tax
Appeals whether it is raised by the taxpayer directly
or as a defense.
Here, following the trial court's denial of their
respective motions for reconsideration, the parties
appealed to the Court of Appeals. On June 26,
2014, the Court of Appeals dismissed the appeals,
and on November 27, 2014, denied the parties'
motions for reconsideration.33
Based on this sequence of events, the whole time
the case was ongoing below, the prevailing doctrine
had been British American Tobacco ordaining that
the Court of Tax Appeals did not have jurisdiction to
decide the validity or constitutionality of laws or
rules. Consequently, the parties correctly elevated
the trial court's resolution to the Court of Appeals,
which should have taken cognizance of, and
resolved, the appeals on the merits.
RMC No. 65-2012 is invalid
We now turn to the substantive issue: Is RMC No.
65-2012 valid?
a) A condominium corporation is not engaged in
trade or business
The issue on whether association dues,
membership fees, and other assessments/charges
collected by a condominium corporation in the usual
course of trade or business is not novel. Yamane v.
BA Lepanto Condominium Corp.34 positively
resolved it, viz.:
Obviously, none of these stated corporate purposes
are geared towards maintaining a livelihood or the
obtention of profit. Even though the Corporation is
empowered to levy assessments or dues from the
unit owners, these amounts collected are not
intended for the incurrence of profit by the
Corporation or its members, but to shoulder the
multitude of necessary expenses that arise from the
maintenance of the Condominium Project. Just as
much is confirmed by Section 1, Article V of the
Amended By-Laws, which enumerate the particular
expenses to be defrayed by the regular
assessments collected from the unit owners. These
would include the salaries of the employees of the
Corporation, and the cost of maintenance and
ordinary repairs of the common areas.
The City Treasurer nonetheless contends that the
collection of these assessments and dues are "with
the end view of getting fu11 appreciative living
values" for the condominium units, and as a result,
profit is obtained once these units are sold at higher
prices. The Court cites with approval the two
counterpoints raised by the Court of Appeals in
rejecting this contention. First, if any profit is
obtained by the sale of the units, it accrues not to
the corporation but to the unit owner. Second, if the
unit owner does obtain profit from the sale of the
corporation, the owner is already required to pay
capital gains tax on the appreciated value of the
condominium unit.
Moreover, the logic on this point of the City
Treasurer is baffling. By this rationale, every Makati
City car owner may be considered as being
engaged in business, since the repairs or
improvements on the car may be deemed oriented
towards appreciating the value of the car upon
resale. There is an evident distinction between
persons who spend on repairs and improvements
on their personal and real property for the purpose
of increasing its resale value, and those who defray
such expenses for the purpose of preserving the
property. The vast majority of persons fall under the
second category, and it would be highly specious to
subject these persons to local business taxes .The
profit motive in such cases is hardly the driving
factor behind such improvements, if it were
contemplated at all. Any profit that would be derived
under such circumstances would merely be
incidental, if not accidental.
Besides, we shudder at the thought of upholding tax
liability on the basis of the standard of "full
appreciative living values," a phrase that defies
statutory explication, commonsensical meaning, the
English language, or even definition from Google."
Full appreciative living values" is nothing but blather
in search of meaning, and to impose a tax hinged
on that standard is both arbitrary and oppressive.
 Again, whatever capacity the Corporation may have
pursuant to its power to exercise acts of ownership
over personal and real property is limited by its
stated corporate purposes, which are by themselves
further limited by the Condominium Act .A
condominium corporation, while enjoying such
powers of ownership, is prohibited by law from
transacting its properties for the purpose of gainful
profit. (Emphasis supplied)
Yamane  did emphasize that a corporation
condominium is not designed to engage in activities
that generate income or profit. A discussion on the
nature of a condominium corporation is, indubitably,
in order.
The creation of the condominium corporation is
sanctioned by Republic Act No. 4726 (RA
4726 )35 (The Condominium Act). Under the law, a
condominium is an interest in real property
consisting of a separate interest in a unit in a
residential, industrial or commercial building and an
undivided interest in common, directly or indirectly,
in the land on which it is located and in other
common areas of the building. To enable the orderly
administration over these common areas which the
unit owners jointly own, RA 4726 permits the
creation of a condominium corporation for the
purpose of holding title to the common areas. The
unit owners shall in proportion to the appurtenant
interests of their respective units automatically be
members or shareholders of the condominium
corporation to the exclusion of others.36
Sections 10 and 22 of RA 4726 focus on the non-
profit purpose of a condominium corporation. Under
Section 10,37 the corporate purposes of a
condominium corporation are limited to holding the
common areas, either in ownership or any other
interest in real property recognized by law;
management of the project; and to such other
purposes necessary, incidental, or convenient to the
accomplishment of these purposes. Additionally,
Section 10 prohibits the articles of incorporation or
by-laws of the condominium corporation from
containing any provisions contrary to the provisions
of RA 4726, the enabling or master deed, or the
declaration of restrictions of the condominium
project.38
Also, under Section 22,39 the condominium
corporation, as the management body, may only act
for the benefit of the condominium owners in
disposing tangible and intangible personal property
by sale or otherwise in proportion to the
condominium owners' respective interests in the
common areas.
Further, Section 940 allows a condominium
corporation to provide for the means by which it
should be managed. Specifically, it authorizes a
condominium corporation to collect association
dues, membership fees, and other
assessments/charges for: a) maintenance of
insurance policies; b) maintenance, utility,
gardening and other services benefiting the
common areas, for the employment of personnel
necessary for the operation of the building, and
legal, accounting and other professional and
technical services; c) purchase of materials,
supplies and the like needed by the common areas;
d) reconstruction of any portion or portions of any
damage to or destruction of the project; and e)
reasonable assessments to meet authorized
expenditures.
In fine, the collection of association dues,
membership fees, and other assessments/charges
is purely for the benefit of the condominium owners.
It is a necessary incident to the purpose to
effectively oversee, maintain, or even improve the
common areas of the condominium as well as its Sec. 31. Taxable Income Defined. The term "taxable
governance. income" means the pertinent items of gross income
specified in this Code, less deductions if any,
As held in Yamane "[t]he profit motive in such cases authorized for such types of income by this Code or
is hardly the driving factor behind such other special laws.
improvements,  if  it were contemplated at all. Any
profit that would be derived under such There is no substantial difference between the
circumstances would merely be incidental, if  not original definition under RA 8424 and the
accidental." More, a condominium corporation is subsequent definition under the TRAIN Law. The
especially formed for the purpose of holding title to only difference is that the phrase "and/or personal
the common area and exists only for the benefit of and additional exemptions" was deleted. Still, both
the condominium owners. Nothing more. the former and current definitions are consistent---
'taxable income' refers to "the pertinent items of
RMC No. 65-2012, sharply departs from Yamane  gross income specified in this Code." A comparison
and the law on condominium corporations. It of RA 8424 and the TRAIN Law shows the items
invalidly declares that the amounts paid as dues or under gross income insofar as they are relevant to
fees by members and tenants of a condominium the present case, viz.:
corporation form part of the gross income of the
latter, thus, subject to income tax, value-added tax, RA 842445 (the law in RA 10963 (signed into
and withholding tax. The reason given --- a effect when RMC No. law on December 19,
condominium corporation furnishes its members 65-2012 was issued on 2017 and took effect
and tenants with benefits, advantages, and October 31, 2012) on January 1, 2018)
privileges in return for such payments,
consequently, these payments constitute taxable Section 32. Gross Section 32. Gross
income or compensation for beneficial services it Income. - Income.-
provides to its members and tenants, hence, subject
to income tax, value-added tax, and withholding tax. (A) General Definition. - (A) General Definition. -
Except when otherwise Except when otherwise
We cannot agree. provided in this Title, provided in this Title,
gross income means all gross income means all
b) Association dues, membership fees, and other income derived from income derived from
assessments/charges are not subject to income tax, whatever source, whatever source,
value-added tax and withholding tax including (but not limited including (but not limited
to) the following items: to) the following items:
First.  Capital is a fund or property existing at one
distinct point in time while income denotes a flow of (1) Compensation for (1) Compensation for
wealth during a definite period of time. Income is services in whatever services in whatever
gain derived and severed from capital.41 Republic form paid, including, but form paid, including, but
Act No. 8424 (RA 8424)42 or the Tax Reform Act of not limited to fees, not limited to fees,
1997 was in effect when RMC No. 65-201 2 was salaries, wages, salaries, wages,
issued on October 31, 2012. In defining taxable commissions, and commissions, and
income, Section 31 of RA 8424 states: similar items; similar items;

Section 31. Taxable Income Defined.- The term (2) Gross income (2) Gross income
taxable income means the pertinent items of gross derived from the derived from the conduct
income specified in this Code, less the deductions conduct of trade or of trade or business or
and/or personal and additional exemptions, if any, business or the exercise the exercise of a
authorized for such types of income by this Code or of a profession; profession;
other special laws.
xxx xxx
Gross income means income derived from whatever
source, including compensation for services; the Section 32. Gross Income. - Section 32. Gross
conduct of trade or business or the exercise of a Income.-
profession; dealings in propetiy; interests; rents;
royalties; dividends; annuities; prizes and winnings;
(A) General Definition. - Except when otherwise
pensions; and a partner's distributive share in the
provided in this Title, gross income means all
net income of a general professional
income derived from whatever source, including (but
partnership,43 among others.
not limited to) the following items: (A) General
Definition. - Except when otherwise provided in this
On December 19, 2017, Section 31 was amended Title, gross income means all income derived from
by Republic Act No. 10963 (RA 10963 )44 (The
TRAIN Law). The provision now reads:
whatever source, including (but not limited to) the
following items:  regardless of the purpose of the fees' eventual use,
(1) Compensation for services in whatever form
paid, including, but not limited to fees, salaries,
wages, commissions, and similar items;        (1)
Compensation for services in whatever form paid,
including, but not limited to fees, salaries, wages,
commissions, and similar items;
(2) Gross income derived from the conduct of trade
or business or the exercise of a profession;  (2)
Gross income derived from the conduct of trade or
business or the exercise of a profession;  these clubs' interest or profit from any investment. In
Section 32 of RA 8424 does not include association
dues, membership fees, and other
assessments/charges collected by condominium
corporations as sources of gross income. The
subsequent amendment under the TRAIN Law
substantially replicates the old Section 32.
Clearly, RMC No. 65-2012 expanded, if not altered,
the list of taxable items in the law. RMC No. 65-
2012, therefore, is void. Besides, where the basic
law and a rule or regulation are in conflict, the basic
law prevails.46
As established in Yamane, the expenditures
incurred by condominium corporations on behalf of
the condominium owners are not intended to
generate revenue nor equate to the cost of doing
business.
In the very recent case of ANPC  v. BIR, 47 the
Court pronounced that membership fees,
assessment dues, and other fees collected by
recreational clubs are not subject to income tax,
thus:
As corectly argued by ANPC, membership fees,
assessment dues, and other fees of similar nature
only constitute contributions to and/or replenishment
of the funds for the maintenance and operations of
the facilities offered by recreational clubs to their
exclusive members . They represent funds "held in
trust" by these clubs to defray their operating and
general costs and hence, only constitute infusion of
capital.
Case law provides that in order to constitute
"income," there must be realized "gain." Clearly,
because of the nature of membership fees and
assessment dues as funds inherently dedicated for
the maintenance, preservation, and upkeep of the
clubs' general operations and facilities, nothing is to
be gained from their collection. This stands in
contrast to the tees received by recreational clubs
coming from their income-generating facilities, such
as bars, restaurants, and food concessionaires, or
from income-generating activities, like the renting
out of sports equipment, services, and other
accommodations: In these latter examples,
gain is already realized fi:om the moment they are
collected because capital maintenance,
preservation. or upkeep is not their pre-determined
purpose. As such, recreational clubs are generally
free to use these fees for whatever purpose they
desire and thus, considered as unencumbered
"fruits" coming from a business transaction.
Further, given these recreational clubs' non-profit
nature, membership fees and assessment dues
cannot be considered as funds that would represent
fact, these fees are paid by the clubs' members
without any expectation of any yield or gain (unlil{e
in stock subscriptions), but only for the above-stated
purposes and in order to retain their membership
therein.
In fine, for as long as these membership fees,
assessment dues, and the like are treated as
collections by recreational clubs from their members
as an inherent consequence of their membership,
and are, by nature, intended for the maintenance,
preservation, and upkeep of the clubs' general
operations and facilities, then these fees cannot be
classified as "the income of recreational clubs from
whatever source" that are "subject to income tax.
Instead, they only form part of capital from which no
income tax may be collected or imposed. (Emphasis
supplied)
Similarly, therefore, assocmtwn dues, membership
fees, and other assessments/charges are not
subject to income tax because they do not
constitute profit or gain. To repeat, they are
collected purely for the benefit of the condominium
owners and are the incidental consequence of a
condominium corporation's responsibility to
effectively oversee, maintain, or even Improve the
common areas of the condominium as well as its
governance.
Second. Association dues, membership fees, and
other assessments/charges do not arise from
transactions involving the sale, barter, or exchange
of goods or property. Nor are they generated by the
performance of services. As such, they are not
subject to value-added tax per Section 105 ofRA
8424, viz.:
Section 105. Persons Liable. -Any person who, in
the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders
services, and any person who imports goods shall
be subject to the value-added tax (VAT) imposed in
Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the
amount of tax may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties
or services. This rule shall likewise apply to existing
contracts of sale or lease of goods, properties or
services at the time of the effectivity of Republic Act
No. 7716.
The phrase "in the course of trade or business"
means the regular conduct or pursuit of a
commercial or an economic activity including
transactions incidental thereto, by any person
regardless of whether or not the person engaged
therein is a non-stock, non-profit private
organization (irrespective of the disposition of its net
income and whether or not it sells exclusively to
members or their guests), or government entity.
The rule of regularity, to the contrary
notwithstanding, services as defined in this Code
rendered in the Philippines by nonresident foreign
persons shall be considered as being course of
trade or business. (Emphasis supplied)
The value-added tax is a burden on transactions
imposed at every stage of the distribution process
on the sale, barter, exchange of goods or property,
and on the performance of services, even in the
absence of profit attributable thereto, so much so
that even a non-stock, non-profit organization or
government entity, is liable to pay value-added tax
on the sale of goods or services.48
Section 106 ofRA 8424 imposes value-added tax on
the sale of goods and properties. The term 'goods'
or 'properties' shall mean all tangible and intangible
objects which are capable of pecuniary estimation.
These 'goods' or 'properties' include real property,
intellectual property, equipment, and rights over
motion picture films.49 Section 106 ofRA 8424
likewise imposes value-added tax on transactions
such as transfer of goods, properties, profits, or
inventories.50
Section 108 of RA 8424 further imposes value-
added tax on sale of services and use or lease of
properties. It defines "sale or exchange of services,"
as follows:
The phrase 'sale or exchange of services'51 means
the performance of all kinds of services in the
Philippines for others for a fee, remuneration or
consideration, including those performed or
rendered by construction and service contractors;
stock, real estate, commercial, customs and
immigration brokers; lessors of property, whether
personal or real; warehousing services; lessors or
distributors of cinematographic films; persons
engaged in milling, processing, manufacturing or
repacking goods for others; proprietors, operators or
keepers of hotels, motels, rest-houses, pension
houses, inns, resorts; proprietors or operators of
restaurants, refreshment parlors, cafes and other
eating places, including clubs and caterers; dealers
in securities; lending investors; transportation
contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes
for hire and other domestic common carriers by land
relative to their transport of goods or cargoes;
common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one
place in the Philippines to another place in the
Philippines; sales of electricity by generation
companies, transmission, and distribution
companies; services of franchise grantees of
electric utilities, telephone and telegraph, radio and
television broadcasting and all other franchise
grantees except those under Section 119 of this
Code and non-life insurance companies (except
their crop insurances), including surety, fidelity,
indemnity and bonding companies; and similar
services regardless of whether or not the
performance thereof calls for the exercise or use of
the physical or mental faculties. x
The phrase 'sale or exchange of services' shall
include the use of intellectual property, use of
certain types of equipment, supplying certain types
of knowledge or information, lease of motion picture
films, and use of transmission or air time.
Both under RA 8424 (Sections 106, 107,52 and
108) and the TRAIN Law, there, too, is no mention
of association dues, membership fees, and other
assessments/charges collected by condominium
corporations being subject to VAT. And rightly so.
For when a condominium corporation manages,
maintains, and preserves the common areas in the
building, it does so only for the benefit of the
condominium owners. It cannot be said to be
engaged in trade or business, thus, the collection of
association dues, membership fees, and other
assessments/charges is not a result of the regular
conduct or pursuit of a commercial or an economic
activity, or any transactions incidental thereto.
Neither can it be said that a condominium
corporation is rendering services to the unit owners
for a fee, remuneration or consideration. Association
dues, membership fees, and other
assessments/charges form part of a pool from which
a condominium corporation must draw funds in
order to bear the costs for maintenance, repair,
improvement, reconstruction expenses and other
administrative expenses.
Indisputably, the nature and purpose of a
condominium corporation negates the carte
blanche application of our value-added tax
provisions on its transactions and activities. CIR v.
Magsaysay Lines, Inc.,53 stated:
Yet VAT is not a singular-minded tax on every
transactional level. Its assessment bears direct
relevance to the taxpayer's role or link in the
production chain. Hence, as affirmed by Section 99
of the Tax Code and its subsequent
incarnations, the tax is levied only on the sale,
barter or exchange of goods or services by persons
who engage in such activities, in the course of trade
or business. These transactions outside the course
of trade or business may invariably contribute to the
production chain, but they do so only as a matter of
accident or incident. As the sales of goods or
services do not occur within the course of trade or
business, the providers of such goods or services
would hardly, if at all, have the opportunity to
appropriately credit any VAT liability as against their
own accumulated VAT collections since the
accumulation of output VAT arises in the first place
only through the ordinary course of trade or
business. (Emphasis supplied)
Too, ANPC54 held that membership fees,
assessment dues, and the like collected by
recreational clubs are not subject to value-added
tax "because in collecting such fees, the club is not
selling its service to the members. Conversely, the
members are not buying services from the club
when dues are paid; hence, there is no economic or
commercial activity to speak of as these dues are
devoted for the operations/maintenance of the
facilities of the organization. As such, there could be
no 'sale, barter or exchange o.f goods or properties,
or sale of a service' to speak of, which would then
be subject to VAT under the 1997 NIRC." This
principle equally applies to condominium
corporations which are similarly situated with
recreational clubs insofar as membership fees,
assessment dues, and other fees of similar nature
collected from condominium owners are devoted to
the operations and maintenance of the facilities of
the condominium. In sum, RMC No. 65-2012
illegally imposes value-added tax on association
dues, membership fees, and other
assessments/charges collected and received by
condominium corporations.
Third.  The withholding tax system was devised for
three (3) primary reasons, i.e. --- (1) to provide
taxpayers a convenient manner to meet their
probable income tax liability; (2) to ensure the
collection of income tax which can otherwise be lost
or substantially reduced through failure to file the
corresponding returns; and (3) to improve the
government's cash flow. This results in
administrative savings, prompt and efficient
collection of taxes, prevention of delinquencies and
reduction of governmental effort to collect taxes
through more complicated means and remedies.55 
Succinctly put, withholding tax is intended to
facilitate the collection of income tax. And if there is
no income tax, withholding tax cannot be collected.
Section 57 of RA 8424 directs that only income, be
it active or passive, earned by a payor-corporation
can be subject to withholding tax, viz. :
Section 57. Withholding of Tax at Source.-
(A) Withholding of Final Tax on Certain Incomes.-
Subject to rules and regulations the Secretary of
Finance may promulgate, upon the recommendation
of the Commissioner, requiring the filing of income
tax return by certain income payees, the tax
imposed or prescribed by Sections 24(8)(1), 24(8)
(2), 24(C), 24(D)(l); 25(A)(2), 25(A)(3), 25(8), 25(C),
25(D), 25(E), 27(D)(l), 27(D)(2), 27(D)(3), 27(D)(5),
28 (A)(4), 28(A)(5), 28(A)(7)(a), 28(A)(7)( b), 28(A)
(7) (c), 28(8)(1), 28(8)(2), 28(8)(3), 28(8)(4), 28(B)
(5)(a), 28(B)(5)(b), 28(B)(5)(c); 33; and 282 of this
Code on specified items of income shall be withheld
by payor-corporation and/or person and paid in the
same manner and subject to the same conditions as
provided in Section 58 ofthis Code.
(B) Withholding of Creditable Tax at Source.- The
Secretary ofFinance may, upon the
recommendation of the Commissioner, require the
withholding of a tax on the items of income payable
to natural or juridical persons, residing in the
Philippines, by payor-corporation/persons as
provided for by law, at the rate of not less than one
percent (l%) but not more than thirty-two percent
(32%) thereof, which shall be credited against the
income tax liability of the taxpayer for the taxable
year.
Although Section 57 (B) was later amended by the
TRAIN Law, it still decrees that the withholding of
tax covers only the income payable to natural or
juridical persons, thus:
Sec. 57. Withholding ofTax at Source.-
(A) x x-
(B) Withholding of Creditable Tax at Source. - The
Secretary of Finance may, upon the
recommendation of the Commissioner, require the
withholding of a tax on the items of income payable
to natural or juridical persons, residing in the
Philippines, by payor-corporation/persons as
provided for by law, at the rate of not less than one
percent (1%) but not more than thirty-two percent
(32%) thereof, which shall be credited against the
income tax liability of the taxpayer for the taxable
year: Provided, That, beginning January 1, 2019,
the rate of withholding shall not be less than one
percent (1%) but not more than fifteen percent
(15%) of the income payment.
Yamane  aptly stated "[e]ven though the
Corporation is empowered to levy assessments or
dues from the unit owners, these amounts collected
are not intended for the incurrence of profit by the
Corporation or its members, but to shoulder the
multitude of necessary expenses that arise from the
maintenance of the Condominium Project. "
Fourth.  Section 4 of RA 8424 empowers the BIR
Commissioner to interpret tax laws and to decide
tax cases:
SEC. 4. Power of the Commissioner to Interpret Tax
Laws and to Decide Tax Cases- The power to
interpret the provisions of this Code and other tax
laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review
by the Secretary of Finance.
The power to decide disputed assessments, refunds
of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other
matters arising under this Code or other laws or
portions thereof administered by the Bureau of
Internal Revenue is vested in the Commissioner,
subject to the exclusive appellate jurisdiction of the
Court of Tax Appeals.
But the BIR Commissioner cannot, in the exercise of
such power, issue administrative rulings or circulars
inconsistent with the law to be implemented.
Administrative issuances must not override,
supplant, or modify the law, they must remain
consistent with the law intended to carry out. Surely,
courts will not countenance administrative
issuances that override, instead of remaining
consistent and in harmony with the law they seek to
apply and implement .56
As shown, the BIR Commissioner expanded or
modified the law when she declared that association
dues, membership fees, and other
assessments/charges are subject to income tax,
value-added tax, and withholding tax. In doing so,
she committed grave abuse of discretion amounting
to lack or excess of jurisdiction. As to what
constitutes 'grave abuse of discretion' and when a
government branch, agency, or instrumentality is
deemed to have committed it, Kilusang Mayo Uno v.
Aquino III57 instructs:
Grave abuse of discretion denotes a "capricious,
arbitrary[,] and whimsical exercise of power. The
abuse of discretion must be patent and gross as to
amount to an evasion of positive duty or to a virtual
refusal to perform a duty enjoined by law, as not to
act at all in contemplation of law, or where the
power is exercised in an arbitrary and despotic
manner by reason of passion or hostility."
Any act of a government branch, agency, or
instrumentality that violates a statute or a treaty is
grave abuse of discretion. However, grave abuse of
discretion pertains to acts of discretion exercised in
areas outside an agency's granted authority and,
thus, abusing the power granted to it. Moreover, it is
the agency's exercise of its power that is examined
and adjudged, not whether its application of the law
is correct. (Emphasis supplied)
In sum, the BIR Commissioner is empowered to
interpret our tax laws but not expand or alter them.
In the case ofRMC No. 65-2012, however, the BIR
Commissioner went beyond, if not, gravely abused
such authority.
If  proper,  the First E-Bank may
recover the consignated amounts,
through a separate action or
proceeding
The general rule is that a void law or administrative
act cannot be the source of legal rights or duties.
Article 7 of the Civil Code enunciates this general
rule, as well as its exception: "Laws are repealed
only by subsequent ones, and their violation or non-
observance shall not be excused by disuse, or
custom or practice to the contrary. When the courts
declared a law to be inconsistent with the
Constitution, the former shall be void and the latter
shall govern. Administrative or executive acts,
orders and regulations shall be valid only when they
are not contrary to the laws or the
Constitution. "58 Jurisprudence is replete with
instances when this Court had directed the refund of
taxes that were paid under invalid tax measures,
thus:
1) In Icard v. The City Council of Baguio , 59 this
Court held that the City of Baguio's ordinances,
namely, Ordinance No. 6 -V (which imposed an
amusement tax of 0.20 for each person entering a
night club) and Ordinance No. 11 -V (which provides
for a property tax on motor vehicles) were ultra
vires. As a consequence, this Court ordered the City
of Baguio to refund to petitioner-appellee in that
case the sum of P254.80 which he paid as
amusement tax.
2) In Matalin Coconut Co., Inc. v. The Municipal
Council of Malabang 60 the Court agreed with the
trial court's finding that the Municipality of
Malabang's Municipal Ordinance No. 45-66,
imposing a "police inspection fee" of P0.30 per sack
of cassava starch or flour was an invalid act of
taxation. The trial court's directive to the municipal
treasurer "to refund to the petitioner the payments it
made under the said ordinance from September 27,
1966 to May 2, 1967, amounting to P25,500.00, as
well as all payments made subsequently
thereafter" was likewise affirmed by this Court.
3) In Cagayan Electric Power and Light, Co. Inc. v.
City of Cagayan de Oro , 61 this Court directed the
City of Cagayan de Oro to refund to CEPALCO the
tax payments made by the latter "on the lease or
rental of electric and/or telecommunication posts,
poles or towers by pole owners to other pole users
at ten percent (10%) of the annual rental income
derived from such lease or rental" after the city's tax
Ordinance No. 9503-2005 was declared invalid.
Petitioner resorted to judicial consignation of its
alleged tax payments in the court, thus, reckons
with the requirements of judicial
consignation, viz.: (1) a debt due; (2) the creditor to
whom tender of payment was made refused without
just cause to accept the payment, or the creditor
was absent, unknown or incapacitated, or several
persons claimed the same right to collect, or the title
of the obligation was lost; (3) the person interested
in the performance of the obligation was given
notice before consignation was made; (4) the
amount was placed at the disposal of the court; and
(5) the person interested in the performance of the
obligation was given notice after the consignation
was made.62

Here, it is imperative to determine whether the First

E-Bank actually complied with the requirements for
judicial consignation. This is a question of fact which
by this Court, not being a trial court cannot pass
upon. The trial court, therefore, thus correctly held
that the First E-Bank may initiate the appropriate
motion for the release of the consignated funds,
upon finality of the judicial determination on the
validity ofRMC No. 65-2012 and only after it has
determined the presence of the requirements for
judicial consignation.

A final word

RMC No. 65-2012 is invalid for ordaining that "gross

receipts of condominium corporations including
association dues, membership fees, and other
assessments/charges are subject to VAT, income
tax and income payments made to it are subject to
applicable withholding taxes." A law will not be
construed as imposing a tax unless it does so
clearly and expressly. In case of doubt, tax laws
must be construed strictly against the government
and in favor of the taxpayer.63 Taxes, as burdens
that must be endured by the taxpayer, should not be
presumed to go beyond what the law expressly and
clearly declares.64

ACCORDINGLY, the Court RESOLVES:

1) To REVERSE and SET ASIDE the assailed

Resolutions dated June 26, 2014 and November 27,
2014 of the Court of Appeals in CA-G.R. CV No.
102266;

2) To DENY the Petition for Review dated February

17,2015 in G.R. No. 215801 and the Special Civil
Action for Certiorari dated February 12, 2015 in
G.R. No. 218924; and

3) To AFFIRM the Resolution dated September 5,

2013 and Order dated December 18, 2013 of the
Regional Trial Court, Branch 146, Makati City in
Special Civil Action No. 12-1236.SO ORDERED.