FINALS Taxation Full Text Cases

G.R. No.
109289 October 3, 1994 – HAKEEM (just in case walang kukuha)
RUFINO R. TAN, petitioner,
vs.
RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG, as COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. 109446 October 3, 1994
CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. CARAG, MANUELITO O.
CABALLES, ELPIDIO C. JAMORA, JR. and BENJAMIN A. SOMERA, JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF FINANCE and JOSE U. ONG, in his capacity
as COMMISSIONER OF INTERNAL REVENUE, respondents.
Rufino R. Tan for and in his own behalf.
Carag, Caballes, Jamora & Zomera Law Offices for petitioners in G.R. 109446.
VITUG, J.:
These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289, the constitutionality of
Republic Act No. 7496, also commonly known as the Simplified Net Income Taxation Scheme ("SNIT"), amending
certain provisions of the National Internal Revenue Code and, in
G.R. No. 109446, the validity of Section 6, Revenue Regulations No. 2-93, promulgated by public respondents
pursuant to said law.
Petitioners claim to be taxpayers adversely affected by the continued implementation of the amendatory legislation.
In G.R. No. 109289, it is asserted that the enactment of Republic Act

No. 7496 violates the following provisions of the Constitution:
Article VI, Section 26(1) — Every bill passed by the Congress shall embrace only one subject which
shall be expressed in the title thereof.
Article VI, Section 28(1) — The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation.
Article III, Section 1 — No person shall be deprived of . . . property without due process of law, nor
shall any person be denied the equal protection of the laws.
In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 2-93, argue that public
respondents have exceeded their rule-making authority in applying SNIT to general professional partnerships.
The Solicitor General espouses the position taken by public respondents.
The Court has given due course to both petitions. The parties, in compliance with the Court's directive, have filed
their respective memoranda.
G.R. No. 109289
Petitioner contends that the title of House Bill No. 34314, progenitor of Republic Act No. 7496, is a misnomer or, at
least, deficient for being merely entitled, "Simplified Net Income Taxation Scheme for the Self-Employed
and Professionals Engaged in the Practice of their Profession" (Petition in G.R. No. 109289).
The full text of the title actually reads:
An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and
Professionals Engaged In The Practice of Their Profession, Amending Sections 21 and 29 of the
National Internal Revenue Code, as Amended.
The pertinent provisions of Sections 21 and 29, so referred to, of the National Internal Revenue Code, as now
amended, provide:
Sec. 21. Tax on citizens or residents. —
xxx xxx xxx
(f) Simplified Net Income Tax for the Self-Employed and/or Professionals Engaged in the Practice of
Profession. — A tax is hereby imposed upon the taxable net income as determined in Section 27
received during each taxable year from all sources, other than income covered by paragraphs (b),
(c), (d) and (e) of this section by every individual whether
a citizen of the Philippines or an alien residing in the Philippines who is self-employed or practices
his profession herein, determined in accordance with the following schedule:
Not over P10,000 3%
Over P10,000 P300 + 9%

but not over P30,000 of excess over P10,000
Over P30,000 P2,100 + 15%

Over P120,000 P15,600 + 20%

Over P350,000 P61,600 + 30%

of excess over P350,000
Sec. 29. Deductions from gross income. — In computing taxable income subject to tax under
Sections 21(a), 24(a), (b) and (c); and 25 (a)(1), there shall be allowed as deductions the items
specified in paragraphs (a) to (i) of this section: Provided, however, That in computing taxable
income subject to tax under Section 21 (f) in the case of individuals engaged in business or practice
of profession, only the following direct costs shall be allowed as deductions:
(a) Raw materials, supplies and direct labor;
(b) Salaries of employees directly engaged in activities in the course of or pursuant to the business
or practice of their profession;
(c) Telecommunications, electricity, fuel, light and water;
(d) Business rentals;
(e) Depreciation;
(f) Contributions made to the Government and accredited relief organizations for the rehabilitation of
calamity stricken areas declared by the President; and
(g) Interest paid or accrued within a taxable year on loans contracted from accredited financial
institutions which must be proven to have been incurred in connection with the conduct of a
taxpayer's profession, trade or business.
For individuals whose cost of goods sold and direct costs are difficult to determine, a maximum of
forty per cent (40%) of their gross receipts shall be allowed as deductions to answer for business or
professional expenses as the case may be.
On the basis of the above language of the law, it would be difficult to accept petitioner's view that the amendatory
law should be considered as having now adopted a gross income, instead of as having still retained the net income,
taxation scheme. The allowance for deductible items, it is true, may have significantly been reduced by the
questioned law in comparison with that which has prevailed prior to the amendment; limiting, however, allowable
deductions from gross income is neither discordant with, nor opposed to, the net income tax concept. The fact of the
matter is still that various deductions, which are by no means inconsequential, continue to be well provided under
the new law.
Article VI, Section 26(1), of the Constitution has been envisioned so as (a) to prevent log-rolling legislation intended
to unite the members of the legislature who favor any one of unrelated subjects in support of the whole act, (b) to
avoid surprises or even fraud upon the legislature, and (c) to fairly apprise the people, through such publications of
its proceedings as are usually made, of the subjects of legislation. The above objectives of the fundamental law
1
appear to us to have been sufficiently met. Anything else would be to require a virtual compendium of the law which
could not have been the intendment of the constitutional mandate.
Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement that taxation "shall be
uniform and equitable" in that the law would now attempt to tax single proprietorships and professionals differently
from the manner it imposes the tax on corporations and partnerships. The contention clearly forgets, however, that
such a system of income taxation has long been the prevailing rule even prior to Republic Act No. 7496.
Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of
taxation, similarly situated, are to be treated alike both in privileges and liabilities (Juan Luna Subdivision vs.
Sarmiento, 91 Phil. 371). Uniformity does not forfend classification as long as: (1) the standards that are used
therefor are substantial and not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3)
the law applies, all things being equal, to both present and future conditions, and (4) the classification applies
equally well to all those belonging to the same class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs.
PAGCOR, 197 SCRA 52).
What may instead be perceived to be apparent from the amendatory law is the legislative intent to increasingly shift
the income tax system towards the schedular approach in the income taxation of individual taxpayers and to
2
maintain, by and large, the present global treatment on taxable corporations. We certainly do not view this
3
classification to be arbitrary and inappropriate.
Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the process, what he believes to
be an imbalance between the tax liabilities of those covered by the amendatory law and those who are not. With the
legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage
(subjects) and situs (place) of taxation. This court cannot freely delve into those matters which, by constitutional fiat,
rightly rest on legislative judgment. Of course, where a tax measure becomes so unconscionable and unjust as to
amount to confiscation of property, courts will not hesitate to strike it down, for, despite all its plenitude, the power to
tax cannot override constitutional proscriptions. This stage, however, has not been demonstrated to have been
reached within any appreciable distance in this controversy before us.
Having arrived at this conclusion, the plea of petitioner to have the law declared unconstitutional for being violative
of due process must perforce fail. The due process clause may correctly be invoked only when there is a clear
contravention of inherent or constitutional limitations in the exercise of the tax power. No such transgression is so
evident to us.
G.R. No. 109446
The several propositions advanced by petitioners revolve around the question of whether or not public respondents
have exceeded their authority in promulgating Section 6, Revenue Regulations No. 2-93, to carry out Republic Act
No. 7496.
The questioned regulation reads:
Sec. 6. General Professional Partnership — The general professional partnership (GPP) and the
partners comprising the GPP are covered by R. A. No. 7496. Thus, in determining the net profit of
the partnership, only the direct costs mentioned in said law are to be deducted from partnership
income. Also, the expenses paid or incurred by partners in their individual capacities in the practice
of their profession which are not reimbursed or paid by the partnership but are not considered as
direct cost, are not deductible from his gross income.
The real objection of petitioners is focused on the administrative interpretation of public respondents that would
apply SNIT to partners in general professional partnerships. Petitioners cite the pertinent deliberations in Congress
during its enactment of Republic Act No. 7496, also quoted by the Honorable Hernando B. Perez, minority floor
leader of the House of Representatives, in the latter's privilege speech by way of commenting on the questioned
implementing regulation of public respondents following the effectivity of the law, thusly:
MR. ALBANO, Now Mr. Speaker, I would like to get the correct impression of this bill.
Do we speak here of individuals who are earning, I mean, who earn through
business enterprises and therefore, should file an income tax return?
MR. PEREZ. That is correct, Mr. Speaker. This does not apply to corporations. It
applies only to individuals.
(See Deliberations on H. B. No. 34314, August 6, 1991, 6:15 P.M.; Emphasis ours).
Other deliberations support this position, to wit:
MR. ABAYA . . . Now, Mr. Speaker, did I hear the Gentleman from Batangas say that
this bill is intended to increase collections as far as individuals are concerned and to
make collection of taxes equitable?
MR. PEREZ. That is correct, Mr. Speaker.
(Id. at 6:40 P.M.; Emphasis ours).
In fact, in the sponsorship speech of Senator Mamintal Tamano on the Senate version of the SNITS,
it is categorically stated, thus:
This bill, Mr. President, is not applicable to business corporations or to partnerships;

it is only with respect to individuals and professionals. (Emphasis ours)
The Court, first of all, should like to correct the apparent misconception that general professional partnerships are
subject to the payment of income tax or that there is a difference in the tax treatment between individuals engaged
in business or in the practice of their respective professions and partners in general professional partnerships. The
fact of the matter is that a general professional partnership, unlike an ordinary business partnership (which is treated
as a corporation for income tax purposes and so subject to the corporate income tax), is not itself an income
taxpayer. The income tax is imposed not on the professional partnership, which is tax exempt, but on the partners
themselves in their individual capacity computed on their distributive shares of partnership profits. Section 23 of the
Tax Code, which has not been amended at all by Republic Act 7496, is explicit:
Sec. 23. Tax liability of members of general professional partnerships. — (a) Persons exercising a
common profession in general partnership shall be liable for income tax only in their individual
capacity, and the share in the net profits of the general professional partnership to which any taxable
partner would be entitled whether distributed or otherwise, shall be returned for taxation and the tax
paid in accordance with the provisions of this Title.
(b) In determining his distributive share in the net income of the partnership, each partner —
(1) Shall take into account separately his distributive share of the partnership's
income, gain, loss, deduction, or credit to the extent provided by the pertinent
provisions of this Code, and
(2) Shall be deemed to have elected the itemized deductions, unless he declares his
distributive share of the gross income undiminished by his share of the deductions.
There is, then and now, no distinction in income tax liability between a person who practices his profession alone or
individually and one who does it through partnership (whether registered or not) with others in the exercise of a
common profession. Indeed, outside of the gross compensation income tax and the final tax on passive investment
income, under the present income tax system all individuals deriving income from any source whatsoever are
treated in almost invariably the same manner and under a common set of rules.
We can well appreciate the concern taken by petitioners if perhaps we were to consider Republic Act No. 7496 as
an entirely independent, not merely as an amendatory, piece of legislation. The view can easily become myopic,
however, when the law is understood, as it should be, as only forming part of, and subject to, the whole income tax
concept and precepts long obtaining under the National Internal Revenue Code. To elaborate a little, the phrase
"income taxpayers" is an all embracing term used in the Tax Code, and it practically covers all persons who derive
taxable income. The law, in levying the tax, adopts the most comprehensive tax situs of nationality and residence of
the taxpayer (that renders citizens, regardless of residence, and resident aliens subject to income tax liability on
their income from all sources) and of the generally accepted and internationally recognized income taxable base
(that can subject non-resident aliens and foreign corporations to income tax on their income from Philippine
sources). In the process, the Code classifies taxpayers into four main groups, namely: (1) Individuals, (2)
Corporations, (3) Estates under Judicial Settlement and (4) Irrevocable Trusts (irrevocable both as to corpus and as
to income).
Partnerships are, under the Code, either "taxable partnerships" or "exempt partnerships." Ordinarily, partnerships,
no matter how created or organized, are subject to income tax (and thus alluded to as "taxable partnerships") which,
for purposes of the above categorization, are by law assimilated to be within the context of, and so legally
contemplated as, corporations. Except for few variances, such as in the application of the "constructive receipt rule"
in the derivation of income, the income tax approach is alike to both juridical persons. Obviously, SNIT is not
intended or envisioned, as so correctly pointed out in the discussions in Congress during its deliberations on
Republic Act 7496, aforequoted, to cover corporations and partnerships which are independently subject to the
payment of income tax.
"Exempt partnerships," upon the other hand, are not similarly identified as corporations nor even considered as
independent taxable entities for income tax purposes. A general professional partnership is such an example. Here, 4
the partners themselves, not the partnership (although it is still obligated to file an income tax return [mainly for
administration and data]), are liable for the payment of income tax in their individual capacity computed on their
respective and distributive shares of profits. In the determination of the tax liability, a partner does so as
an individual, and there is no choice on the matter. In fine, under the Tax Code on income taxation, the general
professional partnership is deemed to be no more than a mere mechanism or a flow-through entity in the generation
of income by, and the ultimate distribution of such income to, respectively, each of the individual partners.
Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above standing rule as now so
modified by Republic Act
No. 7496 on basically the extent of allowable deductions applicable to all individual income taxpayers on their non-
compensation income. There is no evident intention of the law, either before or after the amendatory legislation, to
place in an unequal footing or in significant variance the income tax treatment of professionals who practice their
respective professions individually and of those who do it through a general professional partnership.
WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs.
SO ORDERED.
Narvasa, C.J., Cruz, Feliciano, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno, Kapunan and
Mendoza, JJ., concur.
Padilla and Bidin, JJ., are on leave.
#Footnotes
1 Justice Isagani A. Cruz on Philippine Political Law 1993 edition, pp. 146-147, citing with approval
Cooley on Constitutional Limitations.
2 A system employed where the income tax treatment varies and made to depend on the kind or
category of taxable income of the taxpayer.
3 A system where the tax treatment views indifferently the tax base and generally treats in common
all categories of taxable income of the taxpayer.
4 A general professional partnership, in this context, must be formed for the sole purpose of
exercising a common profession, no part of the income of which is derived from its engaging in any
trade business; otherwise, it is subject to tax as an ordinary business partnership or, which is to say,
as a corporation and thereby subject to the corporate income tax. The only other exempt partnership
is a joint venture for undertaking construction projects or engaging in petroleum operations pursuant
to an operating agreement under a service contract with the government (see Sections 20, 23 and
24, National Internal Revenue Code).
G.R. No. L-19342 May 25, 1972 – YASHR DATUCABILE
LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, namely: RODOLFO B. OÑA, MARIANO B. OÑA, LUZ B.
OÑA, VIRGINIA B. OÑA and LORENZO B. OÑA, JR., petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
Orlando Velasco for petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Felicisimo R. Rosete, and Special
Attorney Purificacion Ureta for respondent.
BARREDO, J.:p
Petition for review of the decision of the Court of Tax Appeals in CTA Case No. 617, similarly entitled as above, holding that petitioners have constituted an
unregistered partnership and are, therefore, subject to the payment of the deficiency corporate income taxes assessed against them by respondent Commissioner
of Internal Revenue for the years 1955 and 1956 in the total sum of P21,891.00, plus 5% surcharge and 1% monthly interest from December 15, 1958, subject to
the provisions of Section 51 (e) (2) of the Internal Revenue Code, as amended by Section 8 of Republic Act No. 2343 and the costs of the suit, 1 as well as the
resolution of said court denying petitioners' motion for reconsideration of said decision.
The facts are stated in the decision of the Tax Court as follows:
Julia Buñales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oña and
her five children. In 1948, Civil Case No. 4519 was instituted in the Court of First Instance of Manila
for the settlement of her estate. Later, Lorenzo T. Oña the surviving spouse was appointed
administrator of the estate of said deceased (Exhibit 3, pp. 34-41, BIR rec.). On April 14, 1949, the
administrator submitted the project of partition, which was approved by the Court on May 16, 1949
(See Exhibit K). Because three of the heirs, namely Luz, Virginia and Lorenzo, Jr., all surnamed
Oña, were still minors when the project of partition was approved, Lorenzo T. Oña, their father and
administrator of the estate, filed a petition in Civil Case No. 9637 of the Court of First Instance of
Manila for appointment as guardian of said minors. On November 14, 1949, the Court appointed him
guardian of the persons and property of the aforenamed minors (See p. 3, BIR rec.).
The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows that the heirs have undivided
one-half (1/2) interest in ten parcels of land with a total assessed value of P87,860.00, six houses
with a total assessed value of P17,590.00 and an undetermined amount to be collected from the
War Damage Commission. Later, they received from said Commission the amount of P50,000.00,
more or less. This amount was not divided among them but was used in the rehabilitation of
properties owned by them in common (t.s.n., p. 46). Of the ten parcels of land aforementioned, two
were acquired after the death of the decedent with money borrowed from the Philippine Trust
Company in the amount of P72,173.00 (t.s.n., p. 24; Exhibit 3, pp. 31-34 BIR rec.).
The project of partition also shows that the estate shares equally with Lorenzo T. Oña, the
administrator thereof, in the obligation of P94,973.00, consisting of loans contracted by the latter with
the approval of the Court (see p. 3 of Exhibit K; or see p. 74, BIR rec.).
Although the project of partition was approved by the Court on May 16, 1949, no attempt was made
to divide the properties therein listed. Instead, the properties remained under the management of
Lorenzo T. Oña who used said properties in business by leasing or selling them and investing the
income derived therefrom and the proceeds from the sales thereof in real properties and securities.
As a result, petitioners' properties and investments gradually increased from P105,450.00 in 1949 to
P480,005.20 in 1956 as can be gleaned from the following year-end balances:
Y Invest Lan Buil

e
a ment d ding
r
Accou Acc Acc

nt ount ount
1949 — P87,860.00 P17,590.00
1950 P24,657.65 128,566.72 96,076.26
1951 51,301.31 120,349.28 110,605.11
1952 67,927.52 87,065.28 152,674.39
1953 61,258.27 84,925.68 161,463.83
1954 63,623.37 99,001.20 167,962.04
1955 100,786.00 120,249.78 169,262.52
1956 175,028.68 135,714.68 169,262.52
(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104)
From said investments and properties petitioners derived such incomes as profits from installment
sales of subdivided lots, profits from sales of stocks, dividends, rentals and interests (see p. 3 of
Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The said incomes are recorded in the books of account
kept by Lorenzo T. Oña where the corresponding shares of the petitioners in the net income for the
year are also known. Every year, petitioners returned for income tax purposes their shares in the net
income derived from said properties and securities and/or from transactions involving them (Exhibit
3, supra; t.s.n., pp. 25-26). However, petitioners did not actually receive their shares in the yearly
income. (t.s.n., pp. 25-26, 40, 98, 100). The income was always left in the hands of Lorenzo T. Oña
who, as heretofore pointed out, invested them in real properties and securities. (See Exhibit 3, t.s.n.,
pp. 50, 102-104).
On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that
petitioners formed an unregistered partnership and therefore, subject to the corporate income tax,
pursuant to Section 24, in relation to Section 84(b), of the Tax Code. Accordingly, he assessed
against the petitioners the amounts of P8,092.00 and P13,899.00 as corporate income taxes for
1955 and 1956, respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50 and 86, BIR rec.).
Petitioners protested against the assessment and asked for reconsideration of the ruling of
respondent that they have formed an unregistered partnership. Finding no merit in petitioners'
request, respondent denied it (See Exhibit 17, p. 86, BIR rec.). (See pp. 1-4, Memorandum for
Respondent, June 12, 1961).
The original assessment was as follows:
1955
Net income as per investigation ................ P40,209.89
Income tax due thereon ............................... 8,042.00

25% surcharge .............................................. 2,010.50
Compromise for non-filing .......................... 50.00
Total ............................................................... P10,102.50
1956
Net income as per investigation ................ P69,245.23
Income tax due thereon ............................... 13,849.00

25% surcharge .............................................. 3,462.25
Compromise for non-filing .......................... 50.00
Total ............................................................... P17,361.25
(See Exhibit 13, page 50, BIR records)
Upon further consideration of the case, the 25% surcharge was eliminated in line with the ruling of
the Supreme Court in Collector v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so
that the questioned assessment refers solely to the income tax proper for the years 1955 and 1956
and the "Compromise for non-filing," the latter item obviously referring to the compromise in lieu of
the criminal liability for failure of petitioners to file the corporate income tax returns for said years.
(See Exh. 17, page 86, BIR records). (Pp. 1-3, Annex C to Petition)
Petitioners have assigned the following as alleged errors of the Tax Court:
I.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONERS FORMED AN
UNREGISTERED PARTNERSHIP;
II.
THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE CO-
OWNERS OF THE PROPERTIES INHERITED AND (THE) PROFITS DERIVED FROM
TRANSACTIONS THEREFROM (sic);
III.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS WERE LIABLE FOR
CORPORATE INCOME TAXES FOR 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;
IV.
ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTERED

PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE
PETITIONERS WERE AN UNREGISTERED PARTNERSHIP TO THE EXTENT ONLY THAT THEY
INVESTED THE PROFITS FROM THE PROPERTIES OWNED IN COMMON AND THE LOANS
RECEIVED USING THE INHERITED PROPERTIES AS COLLATERALS;
V.
ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE COURT

OF TAX APPEALS ERRED IN NOT DEDUCTING THE VARIOUS AMOUNTS PAID BY THE
PETITIONERS AS INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF THE
PROFITS ACCRUING FROM THE PROPERTIES OWNED IN COMMON, FROM THE
DEFICIENCY TAX OF THE UNREGISTERED PARTNERSHIP.
In other words, petitioners pose for our resolution the following questions: (1) Under the facts found by the Court of
Tax Appeals, should petitioners be considered as co-owners of the properties inherited by them from the deceased
Julia Buñales and the profits derived from transactions involving the same, or, must they be deemed to have formed
an unregistered partnership subject to tax under Sections 24 and 84(b) of the National Internal Revenue Code? (2)
Assuming they have formed an unregistered partnership, should this not be only in the sense that they invested as a
common fund the profits earned by the properties owned by them in common and the loans granted to them upon
the security of the said properties, with the result that as far as their respective shares in the inheritance are
concerned, the total income thereof should be considered as that of co-owners and not of the unregistered
partnership? And (3) assuming again that they are taxable as an unregistered partnership, should not the various
amounts already paid by them for the same years 1955 and 1956 as individual income taxes on their respective
shares of the profits accruing from the properties they owned in common be deducted from the deficiency corporate
taxes, herein involved, assessed against such unregistered partnership by the respondent Commissioner?
Pondering on these questions, the first thing that has struck the Court is that whereas petitioners' predecessor in
interest died way back on March 23, 1944 and the project of partition of her estate was judicially approved as early
as May 16, 1949, and presumably petitioners have been holding their respective shares in their inheritance since
those dates admittedly under the administration or management of the head of the family, the widower and father
Lorenzo T. Oña, the assessment in question refers to the later years 1955 and 1956. We believe this point to be
important because, apparently, at the start, or in the years 1944 to 1954, the respondent Commissioner of Internal
Revenue did treat petitioners as co-owners, not liable to corporate tax, and it was only from 1955 that he considered
them as having formed an unregistered partnership. At least, there is nothing in the record indicating that an earlier
assessment had already been made. Such being the case, and We see no reason how it could be otherwise, it is
easily understandable why petitioners' position that they are co-owners and not unregistered co-partners, for the
purposes of the impugned assessment, cannot be upheld. Truth to tell, petitioners should find comfort in the fact
that they were not similarly assessed earlier by the Bureau of Internal Revenue.
The Tax Court found that instead of actually distributing the estate of the deceased among themselves pursuant to
the project of partition approved in 1949, "the properties remained under the management of Lorenzo T. Oña who
used said properties in business by leasing or selling them and investing the income derived therefrom and the
proceed from the sales thereof in real properties and securities," as a result of which said properties and
investments steadily increased yearly from P87,860.00 in "land account" and P17,590.00 in "building account" in
1949 to P175,028.68 in "investment account," P135.714.68 in "land account" and P169,262.52 in "building account"
in 1956. And all these became possible because, admittedly, petitioners never actually received any share of the
income or profits from Lorenzo T. Oña and instead, they allowed him to continue using said shares as part of the
common fund for their ventures, even as they paid the corresponding income taxes on the basis of their respective
shares of the profits of their common business as reported by the said Lorenzo T. Oña.
It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves to holding the
properties inherited by them. Indeed, it is admitted that during the material years herein involved, some of the said
properties were sold at considerable profit, and that with said profit, petitioners engaged, thru Lorenzo T. Oña, in the
purchase and sale of corporate securities. It is likewise admitted that all the profits from these ventures were divided
among petitioners proportionately in accordance with their respective shares in the inheritance. In these
circumstances, it is Our considered view that from the moment petitioners allowed not only the incomes from their
respective shares of the inheritance but even the inherited properties themselves to be used by Lorenzo T. Oña as
a common fund in undertaking several transactions or in business, with the intention of deriving profit to be shared
by them proportionally, such act was tantamonut to actually contributing such incomes to a common fund and, in
effect, they thereby formed an unregistered partnership within the purview of the above-mentioned provisions of the
Tax Code.
It is but logical that in cases of inheritance, there should be a period when the heirs can be considered as co-owners
rather than unregistered co-partners within the contemplation of our corporate tax laws aforementioned. Before the
partition and distribution of the estate of the deceased, all the income thereof does belong commonly to all the heirs,
obviously, without them becoming thereby unregistered co-partners, but it does not necessarily follow that such
status as co-owners continues until the inheritance is actually and physically distributed among the heirs, for it is
easily conceivable that after knowing their respective shares in the partition, they might decide to continue holding
said shares under the common management of the administrator or executor or of anyone chosen by them and
engage in business on that basis. Withal, if this were to be allowed, it would be the easiest thing for heirs in any
inheritance to circumvent and render meaningless Sections 24 and 84(b) of the National Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the reasons for holding the appellants
therein to be unregistered co-partners for tax purposes, that their common fund "was not something they found
already in existence" and that "it was not a property inherited by them pro indiviso," but it is certainly far fetched to
argue therefrom, as petitioners are doing here, that ergo, in all instances where an inheritance is not actually
divided, there can be no unregistered co-partnership. As already indicated, for tax purposes, the co-ownership of
inherited properties is automatically converted into an unregistered partnership the moment the said common
properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the
heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly
executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate
proceeding. The reason for this is simple. From the moment of such partition, the heirs are entitled already to their
respective definite shares of the estate and the incomes thereof, for each of them to manage and dispose of as
exclusively his own without the intervention of the other heirs, and, accordingly he becomes liable individually for all
taxes in connection therewith. If after such partition, he allows his share to be held in common with his co-heirs
under a single management to be used with the intent of making profit thereby in proportion to his share, there can
be no doubt that, even if no document or instrument were executed for the purpose, for tax purposes, at least, an
unregistered partnership is formed. This is exactly what happened to petitioners in this case.
In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil Code, providing that: "The sharing
of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or
common right or interest in any property from which the returns are derived," and, for that matter, on any other
provision of said code on partnerships is unavailing. In Evangelista, supra, this Court clearly differentiated the
concept of partnerships under the Civil Code from that of unregistered partnerships which are considered as
"corporations" under Sections 24 and 84(b) of the National Internal Revenue Code. Mr. Justice Roberto
Concepcion, now Chief Justice, elucidated on this point thus:
To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are
distinct and different from "partnerships". When our Internal Revenue Code includes "partnerships"
among the entities subject to the tax on "corporations", said Code must allude, therefore, to
organizations which are not necessarily "partnerships", in the technical sense of the term. Thus, for
instance, section 24 of said Code exempts from the aforementioned tax "duly registered general
partnerships," which constitute precisely one of the most typical forms of partnerships in this
jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term corporation includes
partnerships, no matter how created or organized." This qualifying expression clearly indicates that a
joint venture need not be undertaken in any of the standard forms, or in confirmity with the usual
requirements of the law on partnerships, in order that one could be deemed constituted for purposes
of the tax on corporation. Again, pursuant to said section 84(b),the term "corporation" includes,
among others, "joint accounts,(cuentas en participacion)" and "associations", none of which has a
legal personality of its own, independent of that of its members. Accordingly, the lawmaker could not
have regarded that personality as a condition essential to the existence of the partnerships therein
referred to. In fact, as above stated, "duly registered general co-partnerships" — which are
possessed of the aforementioned personality — have been expressly excluded by law (sections 24
and 84[b]) from the connotation of the term "corporation." ....
xxx xxx xxx
Similarly, the American Law
... provides its own concept of a partnership. Under the term "partnership" it includes
not only a partnership as known in common law but, as well, a syndicate, group,
pool, joint venture, or other unincorporated organization which carries on any
business, financial operation, or venture, and which is not, within the meaning of the
Code, a trust, estate, or a corporation. ... . (7A Merten's Law of Federal Income
Taxation, p. 789; emphasis ours.)
The term "partnership" includes a syndicate, group, pool, joint venture or other

unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on. ... . (8 Merten's Law of Federal Income Taxation,
p. 562 Note 63; emphasis ours.)
For purposes of the tax on corporations, our National Internal Revenue Code includes these
partnerships — with the exception only of duly registered general copartnerships — within the
purview of the term "corporation." It is, therefore, clear to our mind that petitioners herein constitute a
partnership, insofar as said Code is concerned, and are subject to the income tax for corporations.
We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner of Internal Revenue, G. R. Nos. L-
24020-21, July 29, 1968, 24 SCRA 198, wherein the Court ruled against a theory of co-ownership pursued by
appellants therein.
As regards the second question raised by petitioners about the segregation, for the purposes of the corporate taxes
in question, of their inherited properties from those acquired by them subsequently, We consider as justified the
following ratiocination of the Tax Court in denying their motion for reconsideration:
In connection with the second ground, it is alleged that, if there was an unregistered partnership, the
holding should be limited to the business engaged in apart from the properties inherited by
petitioners. In other words, the taxable income of the partnership should be limited to the income
derived from the acquisition and sale of real properties and corporate securities and should not
include the income derived from the inherited properties. It is admitted that the inherited properties
and the income derived therefrom were used in the business of buying and selling other real
properties and corporate securities. Accordingly, the partnership income must include not only the
income derived from the purchase and sale of other properties but also the income of the inherited
properties.
Besides, as already observed earlier, the income derived from inherited properties may be considered as individual
income of the respective heirs only so long as the inheritance or estate is not distributed or, at least, partitioned, but
the moment their respective known shares are used as part of the common assets of the heirs to be used in making
profits, it is but proper that the income of such shares should be considered as the part of the taxable income of an
unregistered partnership. This, We hold, is the clear intent of the law.
Likewise, the third question of petitioners appears to have been adequately resolved by the Tax Court in the
aforementioned resolution denying petitioners' motion for reconsideration of the decision of said court. Pertinently,
the court ruled this wise:
In support of the third ground, counsel for petitioners alleges:
Even if we were to yield to the decision of this Honorable Court that the herein
petitioners have formed an unregistered partnership and, therefore, have to be taxed
as such, it might be recalled that the petitioners in their individual income tax returns
reported their shares of the profits of the unregistered partnership. We think it only
fair and equitable that the various amounts paid by the individual petitioners as
income tax on their respective shares of the unregistered partnership should be
deducted from the deficiency income tax found by this Honorable Court against the
unregistered partnership. (page 7, Memorandum for the Petitioner in Support of Their
Motion for Reconsideration, Oct. 28, 1961.)
In other words, it is the position of petitioners that the taxable income of the partnership must be
reduced by the amounts of income tax paid by each petitioner on his share of partnership profits.
This is not correct; rather, it should be the other way around. The partnership profits distributable to
the partners (petitioners herein) should be reduced by the amounts of income tax assessed against
the partnership. Consequently, each of the petitioners in his individual capacity overpaid his income
tax for the years in question, but the income tax due from the partnership has been correctly
assessed. Since the individual income tax liabilities of petitioners are not in issue in this proceeding,
it is not proper for the Court to pass upon the same.
Petitioners insist that it was error for the Tax Court to so rule that whatever excess they might have paid as
individual income tax cannot be credited as part payment of the taxes herein in question. It is argued that to
sanction the view of the Tax Court is to oblige petitioners to pay double income tax on the same income, and,
worse, considering the time that has lapsed since they paid their individual income taxes, they may already be
barred by prescription from recovering their overpayments in a separate action. We do not agree. As We see it, the
case of petitioners as regards the point under discussion is simply that of a taxpayer who has paid the wrong tax,
assuming that the failure to pay the corporate taxes in question was not deliberate. Of course, such taxpayer has
the right to be reimbursed what he has erroneously paid, but the law is very clear that the claim and action for such
reimbursement are subject to the bar of prescription. And since the period for the recovery of the excess income
taxes in the case of herein petitioners has already lapsed, it would not seem right to virtually disregard prescription
merely upon the ground that the reason for the delay is precisely because the taxpayers failed to make the proper
return and payment of the corporate taxes legally due from them. In principle, it is but proper not to allow any
relaxation of the tax laws in favor of persons who are not exactly above suspicion in their conduct vis-a-vis their tax
obligation to the State.
IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals appealed from is affirm with costs
against petitioners.
Makalintal, Zaldivar, Fernando, Makasiar and Antonio, JJ., concur.
Reyes, J.B.L. and Teehankee, JJ., concur in the result.
Castro, J., took no part.

Concepcion, C.J., is on leave.
Footnotes
1 In other words, the assessment was affirmed except for the sum of P100.00 which was the total of
two P50-items purportedly for "Compromise for non-filing" which the Tax Court held to be unjustified,
since there was no compromise agreement to speak of.
G.R. No. L-54108 January 17, 1984 – ABIGAIL HERRERA
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF TAX APPEALS and SMITH KLINE & FRENCH OVERSEAS CO. (PHILIPPINE
BRANCH), respondents.
The Solicitor General for petitioner.
Siguion Reyna, Montecillo & Ongsiako and J.C. Castañeda, Jr. and E.C. Alcantara for respondents.
AQUINO, J.:
This case is about the refund of a 1971 income tax amounting to P324,255. Smith Kline and French Overseas
Company, a multinational firm domiciled in Philadelphia, Pennsylvania, is licensed to do business in the Philippines.
It is engaged in the importation, manufacture and sale of pharmaceuticals drugs and chemicals.
In its 1971 original income tax return, Smith Kline declared a net taxable income of P1,489,277 (Exh. A) and paid
P511,247 as tax due. Among the deductions claimed from gross income was P501,040 ($77,060) as its share of the
head office overhead expenses. However, in its amended return filed on March 1, 1973, there was an overpayment
of P324,255 "arising from underdeduction of home office overhead" (Exh. E). It made a formal claim for the refund of
the alleged overpayment.
It appears that sometime in October, 1972, Smith Kline received from its international independent auditors, Peat,
Marwick, Mitchell and Company, an authenticated certification to the effect that the Philippine share in the
unallocated overhead expenses of the main office for the year ended December 31, 1971 was actually $219,547
(P1,427,484). It further stated in the certification that the allocation was made on the basis of the percentage of
gross income in the Philippines to gross income of the corporation as a whole. By reason of the new adjustment,
Smith Kline's tax liability was greatly reduced from P511,247 to P186,992 resulting in an overpayment of P324,255.
On April 2, 1974, without awaiting the action of the Commissioner of Internal Revenue on its claim Smith Kline filed
a petition for review with the Court of Tax Appeals.
In its decision of March 21, 1980, the Tax Court ordered the Commissioner to refund the overpayment or grant a tax
credit to Smith Kline. The Commissioner appealed to this Court.
The governing law is found in section 37 of the old National Internal Revenue Code, Commonwealth Act No. 466,
which is reproduced in Presidential Decree No. 1158, the National Internal Revenue Code of 1977 and which reads:
SEC. 37. Income form sources within the Philippines. —
xxx xxx xxx
(b) Net income from sources in the Philippines. — From the items of gross income specified in
subsection (a) of this section there shall be deducted the expenses, losses, and other deductions
properly apportioned or allocated thereto and a ratable part of any expenses, losses, or other
deductions which cannot definitely be allocated to some item or class of gross income. The
remainder, if any, shall be included in full as net income from sources within the Philippines.
xxx xxx xxx
Revenue Regulations No. 2 of the Department of Finance contains the following provisions on the deductions to be
made to determine the net income from Philippine sources:
SEC. 160. Apportionment of deductions. — From the items specified in section 37(a), as being
derived specifically from sources within the Philippines there shall be deducted the expenses,
losses, and other deductions properly apportioned or allocated thereto and a ratable part of any
other expenses, losses or deductions which can not definitely be allocated to some item or class of
gross income. The remainder shall be included in full as net income from sources within the
Philippines. The ratable part is based upon the ratio of gross income from sources within the
Philippines to the total gross income.
Example: A non-resident alien individual whose taxable year is the calendar year, derived gross
income from all sources for 1939 of P180,000, including therein:
Interest on bonds of a domestic corporation P9,000
Dividends on stock of a domestic corporation 4,000
Royalty for the use of patents within the Philippines 12,000
Gain from sale of real property located within the Philippines 11,000
Total P36,000
that is, one-fifth of the total gross income was from sources within the Philippines. The remainder of
the gross income was from sources without the Philippines, determined under section 37(c).
The expenses of the taxpayer for the year amounted to P78,000. Of these expenses the amount of
P8,000 is properly allocated to income from sources within the Philippines and the amount of
P40,000 is properly allocated to income from sources without the Philippines.
The remainder of the expense, P30,000, cannot be definitely allocated to any class of income. A
ratable part thereof, based upon the relation of gross income from sources within the Philippines to
the total gross income, shall be deducted in computing net income from sources within the
Philippines. Thus, these are deducted from the P36,000 of gross income from sources within the
Philippines expenses amounting to P14,000 [representing P8,000 properly apportioned to the
income from sources within the Philippines and P6,000, a ratable part (one-fifth) of the expenses
which could not be allocated to any item or class of gross income.] The remainder, P22,000, is the
net income from sources within the Philippines.
From the foregoing provisions, it is manifest that where an expense is clearly related to the production of Philippine-
derived income or to Philippine operations (e.g. salaries of Philippine personnel, rental of office building in the
Philippines), that expense can be deducted from the gross income acquired in the Philippines without resorting to
apportionment.
The overhead expenses incurred by the parent company in connection with finance, administration, and research
and development, all of which direct benefit its branches all over the world, including the Philippines, fall under a
different category however. These are items which cannot be definitely allocated or Identified with the operations of
the Philippine branch. For 1971, the parent company of Smith Kline spent $1,077,739. Under section 37(b) of the
Revenue Code and section 160 of the regulations, Smith Kline can claim as its deductible share a ratable part of
such expenses based upon the ratio of the local branch's gross income to the total gross income, worldwide, of the
multinational corporation.
In his petition for review, the Commissioner does not dispute the right of Smith Kline to avail itself of section 37(b) of
the Tax Code and section 160 of the regulations. But the Commissioner maintains that such right is not absolute
and that as there exists a contract (in this case a service agreement) which Smith Kline has entered into with its
home office, prescribing the amount that a branch can deduct as its share of the main office's overhead expenses,
that contract is binding.
The Commissioner contends that since the share of the Philippine branch has been fixed at $77,060, Smith Kline
itself cannot claim more than the said amount. To allow Smith Kline to deduct more than what was expressly
provided in the agreement would be to ignore its existence. It is a cardinal rule that a contract is the law between the
contracting parties and the stipulations therein must be respected unless these are proved to be contrary to law,
morals, good customs and public policy. There being allegedly no showing to the contrary, the provisions thereof
must be followed.
The Commissioner also argues that the Tax Court erred in relying on the certification of Peat, Marwick, Mitchell and
Company that Smith Kline is entitled to deduct P1,427,484 ($219,547) as its allotted share and that Smith Kline has
not presented any evidence to show that the home office expenses chargeable to Philippine operations exceeded
$77,060.
On the other hand, Smith Kline submits that the contract between itself and its home office cannot amend tax laws
and regulations. The matter of allocated expenses which are deductible under the law cannot be the subject of an
agreement between private parties nor can the Commissioner acquiesce in such an agreement.
Smith Kline had to amend its return because it is of common knowledge that audited financial statements are
generally completed three or four months after the close of the accounting period. There being no financial
statements yet when the certification of January 11, 1972 was made the treasurer could not have correctly
computed Smith Kline's share in the home office overhead expenses in accordance with the gross income formula
prescribed in section 160 of the Revenue Regulations. What the treasurer certified was a mere estimate.
Smith Kline likewise submits that it has presented ample evidence to support its claim for refund. To this end, it has
presented before the Tax Court the authenticated statement of Peat, Marwick, Mitchell and Company to show that
since the gross income of the Philippine branch was P7,143,155 ($1,098,617) for 1971 as per audit report prepared
by Sycip, Gorres, Velayo and Company, and the gross income of the corporation as a whole was $6,891,052, Smith
Kline's share at 15.94% of the home office overhead expenses was P1,427,484 ($219,547) (Exh. G to G-2, BIR
Records, 4-5).
Clearly, the weight of evidence bolsters its position that the amount of P1,427,484 represents the correct ratable
share, the same having been computed pursuant to section 37(b) and section 160.
In a manifestation dated July 19, 1983, Smith Kline declared that with respect to its share of the head office
overhead expenses in its income tax returns for the years 1973 to 1981, it deducted its ratable share of the total
overhead expenses of its head office for those years as computed by the independent auditors hired by the parent
company in Philadelphia, Pennsylvania U.S.A., as soon as said computations were made available to it.
We hold that Smith Kline's amended 1971 return is in conformity with the law and regulations. The Tax Court
correctly held that the refund or credit of the resulting overpayment is in order.
WHEREFORE, the decision of the Tax Court is hereby affirmed. No costs.
SO ORDERED
Makasiar (Chairman), Concepcion, Jr., Guerrero, De Castro and Escolin, JJ., concur.
Abad Santos, J., took no part.
G.R. No. 148191 November 25, 2003 – BEATRICK LIM

vs.
SOLIDBANK CORPORATION, respondent.
DECISION
PANGANIBAN, J.:
Under the Tax Code, the earnings of banks from "passive" income are subject to a twenty percent final withholding
tax (20% FWT). This tax is withheld at source and is thus not actually and physically received by the banks,
because it is paid directly to the government by the entities from which the banks derived the income. Apart from the
20% FWT, banks are also subject to a five percent gross receipts tax (5% GRT) which is imposed by the Tax Code
on their gross receipts, including the "passive" income.
Since the 20% FWT is constructively received by the banks and forms part of their gross receipts or earnings, it
follows that it is subject to the 5% GRT. After all, the amount withheld is paid to the government on their behalf, in
satisfaction of their withholding taxes. That they do not actually receive the amount does not alter the fact that it is
remitted for their benefit in satisfaction of their tax obligations.
Stated otherwise, the fact is that if there were no withholding tax system in place in this country, this 20 percent
portion of the "passive" income of banks would actually be paid to the banks and then remitted by them to the
government in payment of their income tax. The institution of the withholding tax system does not alter the fact that
the 20 percent portion of their "passive" income constitutes part of their actual earnings, except that it is paid directly
to the government on their behalf in satisfaction of the 20 percent final income tax due on their "passive" incomes.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to annul the July 18, 2000
1
Decision and the May 8, 2001 Resolution of the Court of Appeals (CA) in CA-GR SP No. 54599. The decretal
2 3 4
portion of the assailed Decision reads as follows:
"WHEREFORE, we AFFIRM in toto the assailed decision and resolution of the Court of Tax Appeals." 5
The challenged Resolution denied petitioner’s Motion for Reconsideration.
The Facts
Quoting petitioner, the CA summarized the facts of this case as follows:
6
"For the calendar year 1995, [respondent] seasonably filed its Quarterly Percentage Tax Returns reflecting gross
receipts (pertaining to 5% [Gross Receipts Tax] rate) in the total amount of ₱1,474,691,693.44 with corresponding
gross receipts tax payments in the sum of ₱73,734,584.60, broken down as follows:
Period Covered Gross Receipts Gross Receipts Tax

January to March 1994 ₱ 188,406,061.95 ₱ 9,420,303.10
April to June 1994 370,913,832.70 18,545,691.63
July to September 1994 481,501,838.98 24,075,091.95
October to December 1994 433,869,959.81 21,693,497.98
Total ₱ 1,474,691,693.44 ₱ 73,734,584.60
"[Respondent] alleges that the total gross receipts in the amount of ₱1,474,691,693.44 included the sum of
₱350,807,875.15 representing gross receipts from passive income which was already subjected to 20% final
withholding tax.
"On January 30, 1996, [the Court of Tax Appeals] rendered a decision in CTA Case No. 4720 entitled Asian Bank
Corporation vs. Commissioner of Internal Revenue[,] wherein it was held that the 20% final withholding tax on [a]
bank’s interest income should not form part of its taxable gross receipts for purposes of computing the gross
receipts tax.
"On June 19, 1997, on the strength of the aforementioned decision, [respondent] filed with the Bureau of Internal
Revenue [BIR] a letter-request for the refund or issuance of [a] tax credit certificate in the aggregate amount of
₱3,508,078.75, representing allegedly overpaid gross receipts tax for the year 1995, computed as follows:
Gross Receipts Subjected to the Final Tax
Derived from Passive [Income] ₱ 350,807,875.15

Multiply by Final Tax rate 20%
20% Final Tax Withheld at Source ₱ 70,161,575.03
Multiply by [Gross Receipts Tax] rate 5%
Overpaid [Gross Receipts Tax] ₱ 3,508,078.75
"Without waiting for an action from the [petitioner], [respondent] on the same day filed [a] petition for review [with the
Court of Tax Appeals] in order to toll the running of the two-year prescriptive period to judicially claim for the refund
of [any] overpaid internal revenue tax[,] pursuant to Section 230 [now 229] of the Tax Code [also ‘National Internal
Revenue Code’] x x x.
x x x x x x x x x
"After trial on the merits, the [Court of Tax Appeals], on August 6, 1999, rendered its decision ordering x x x
petitioner to refund in favor of x x x respondent the reduced amount of ₱1,555,749.65 as overpaid [gross receipts
tax] for the year 1995. The legal issue x x x was resolved by the [Court of Tax Appeals], with Hon. Amancio Q. Saga
dissenting, on the strength of its earlier pronouncement in x x x Asian Bank Corporation vs. Commissioner of
Internal Revenue x x x, wherein it was held that the 20% [final withholding tax] on [a] bank’s interest income should
not form part of its taxable gross receipts for purposes of computing the [gross receipts tax]." 7
Ruling of the CA
The CA held that the 20% FWT on a bank’s interest income did not form part of the taxable gross receipts in
computing the 5% GRT, because the FWT was not actually received by the bank but was directly remitted to the
government. The appellate court curtly said that while the Tax Code "does not specifically state any exemption, x x x
the statute must receive a sensible construction such as will give effect to the legislative intention, and so as to
avoid an unjust or absurd conclusion." 8
Hence, this appeal. 9
Issue
Petitioner raises this lone issue for our consideration:
"Whether or not the 20% final withholding tax on [a] bank’s interest income forms part of the taxable gross receipts
in computing the 5% gross receipts tax." 10
The Court’s Ruling
The Petition is meritorious.

Sole Issue:
Whether the 20% FWT Forms Part

of the Taxable Gross Receipts
Petitioner claims that although the 20% FWT on respondent’s interest income was not actually received by
respondent because it was remitted directly to the government, the fact that the amount redounded to the bank’s
benefit makes it part of the taxable gross receipts in computing the 5% GRT. Respondent, on the other hand,
maintains that the CA correctly ruled otherwise.
We agree with petitioner. In fact, the same issue has been raised recently in China Banking Corporation v.
CA, where this Court held that the amount of interest income withheld in payment of the 20% FWT forms part of
11
gross receipts in computing for the GRT on banks.
The FWT and the GRT:
Two Different Taxes
The 5% GRT is imposed by Section 119 of the Tax Code, which provides:
12 13
"SEC. 119. Tax on banks and non-bank financial intermediaries. – There shall be collected a tax on gross receipts
derived from sources within the Philippines by all banks and non-bank financial intermediaries in accordance with
the following schedule:
"(a) On interest, commissions and discounts from lending activities as well as income from financial leasing, on the
basis of remaining maturities of instruments from which such receipts are derived.
Short-term maturity not in excess of two (2) years……………………5%
Medium-term maturity – over two (2) years
but not exceeding four (4) years………………………………….…...3%
Long-term maturity:
(i) Over four (4) years but not exceeding
seven (7) years……………………………………………1%
(ii) Over seven (7) years………………………………….….0%
"(b) On dividends……………………………….……..0%
"(c) On royalties, rentals of property, real or personal, profits from exchange and all other items treated as
gross income under Section 28 of this Code………....................................................................5%
14
Provided, however, That in case the maturity period referred to in paragraph (a) is shortened thru pretermination,
then the maturity period shall be reckoned to end as of the date of pretermination for purposes of classifying the
transaction as short, medium or long term and the correct rate of tax shall be applied accordingly.
"Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons
performing similar banking activities."
The 5% GRT is included under "Title V. Other Percentage Taxes" of the Tax Code and is not subject to withholding.
15
The banks and non-bank financial intermediaries liable therefor shall, under Section 125(a)(1), file quarterly returns
16
on the amount of gross receipts and pay the taxes due thereon within twenty (20) days after the end of each
17
taxable quarter.
The 20% FWT, on the other hand, falls under Section 24(e)(1) of "Title II. Tax on Income." It is a tax on passive
18 19
income, deducted and withheld at source by the payor-corporation and/or person as withholding agent pursuant to
Section 50, and paid in the same manner and subject to the same conditions as provided for in Section 51.
20 21
A perusal of these provisions clearly shows that two types of taxes are involved in the present controversy: (1) the
GRT, which is a percentage tax; and (2) the FWT, which is an income tax. As a bank, petitioner is covered by both
taxes.
A percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in
money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in
the sale of services. It is not subject to withholding.
22
An income tax, on the other hand, is a national tax imposed on the net or the gross income realized in a taxable
year. It is subject to withholding.
23
In a withholding tax system, the payee is the taxpayer, the person on whom the tax is imposed; the payor, a
separate entity, acts as no more than an agent of the government for the collection of the tax in order to ensure its
payment. Obviously, this amount that is used to settle the tax liability is deemed sourced from the proceeds
constitutive of the tax base. These proceeds are either actual or constructive. Both parties herein agree that there is
24
no actual receipt by the bank of the amount withheld. What needs to be determined is if there is constructive receipt
thereof. Since the payee -- not the payor -- is the real taxpayer, the rule on constructive receipt can be easily
rationalized, if not made clearly manifest.25
Constructive Receipt
Versus Actual Receipt
Applying Section 7 of Revenue Regulations (RR) No. 17-84, petitioner contends that there is constructive receipt of
26
the interest on deposits and yield on deposit substitutes. Respondent, however, claims that even if there is, it is
27
Section 4(e) of RR 12-80 that nevertheless governs the situation.

28
Section 7 of RR 17-84 states:
"SEC. 7. Nature and Treatment of Interest on Deposits and Yield on Deposit Substitutes. –
‘(a) The interest earned on Philippine Currency bank deposits and yield from deposit substitutes subjected to
the withholding taxes in accordance with these regulations need not be included in the gross income in
computing the depositor’s/investor’s income tax liability in accordance with the provision of Section
29(b), (c) and (d) of the National Internal Revenue Code, as amended.
29 30
‘(b) Only interest paid or accrued on bank deposits, or yield from deposit substitutes declared for purposes
of imposing the withholding taxes in accordance with these regulations shall be allowed as interest expense
deductible for purposes of computing taxable net income of the payor.
‘(c) If the recipient of the above-mentioned items of income are financial institutions, the same shall be
included as part of the tax base upon which the gross receipt[s] tax is imposed.’"
Section 4(e) of RR 12-80, on the other hand, states that the tax rates to be imposed on the gross receipts of banks,
non-bank financial intermediaries, financing companies, and other non-bank financial intermediaries not performing
quasi-banking activities shall be based on all items of income actually received. This provision reads:
"SEC. 4. x x x x x x x x x
"(e) Gross receipts tax on banks, non-bank financial intermediaries, financing companies, and other non-bank
financial intermediaries not performing quasi-banking activities. – The rates of tax to be imposed on the gross
receipts of such financial institutions shall be based on all items of income actually received. Mere accrual shall not
be considered, but once payment is received on such accrual or in cases of prepayment, then the amount actually
received shall be included in the tax base of such financial institutions, as provided hereunder x x x."
Respondent argues that the above-quoted provision is plain and clear: since there is no actual receipt, the FWT is
not to be included in the tax base for computing the GRT. There is supposedly no pecuniary benefit or advantage
accruing to the bank from the FWT, because the income is subjected to a tax burden immediately upon receipt
through the withholding process. Moreover, the earlier RR 12-80 covered matters not falling under the later RR 17-
84.31
We are not persuaded.
By analogy, we apply to the receipt of income the rules on actual and constructive possession provided in Articles
531 and 532 of our Civil Code.
Under Article 531: 32
"Possession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is
subject to the action of our will, or by the proper acts and legal formalities established for acquiring such right."
Article 532 states:
"Possession may be acquired by the same person who is to enjoy it, by his legal representative, by his agent, or by
any person without any power whatever; but in the last case, the possession shall not be considered as acquired
until the person in whose name the act of possession was executed has ratified the same, without prejudice to the
juridical consequences of negotiorum gestio in a proper case." 33
The last means of acquiring possession under Article 531 refers to juridical acts -- the acquisition of possession by
sufficient title – to which the law gives the force of acts of possession. Respondent argues that only items of income
34
actually received should be included in its gross receipts. It claims that since the amount had already been withheld
at source, it did not have actual receipt thereof.
We clarify. Article 531 of the Civil Code clearly provides that the acquisition of the right of possession is through the
proper acts and legal formalities established therefor. The withholding process is one such act. There may not be
actual receipt of the income withheld; however, as provided for in Article 532, possession by any person without any
power whatsoever shall be considered as acquired when ratified by the person in whose name the act of
possession is executed.
In our withholding tax system, possession is acquired by the payor as the withholding agent of the government,
because the taxpayer ratifies the very act of possession for the government. There is thus constructive receipt. The
processes of bookkeeping and accounting for interest on deposits and yield on deposit substitutes that are
subjected to FWT are indeed -- for legal purposes -- tantamount to delivery, receipt or remittance. Besides,
35
respondent itself admits that its income is subjected to a tax burden immediately upon "receipt," although it claims
that it derives no pecuniary benefit or advantage through the withholding process. There being constructive receipt
of such income -- part of which is withheld -- RR 17-84 applies, and that income is included as part of the tax base
upon which the GRT is imposed.
RR 12-80 Superseded by RR 17-84
We now come to the effect of the revenue regulations on interest income constructively received.
In general, rules and regulations issued by administrative or executive officers pursuant to the procedure or
authority conferred by law upon the administrative agency have the force and effect, or partake of the nature, of a
statute. The reason is that statutes express the policies, purposes, objectives, remedies and sanctions intended by
36
the legislature in general terms. The details and manner of carrying them out are oftentimes left to the administrative
agency entrusted with their enforcement.
In the present case, it is the finance secretary who promulgates the revenue regulations, upon recommendation of
the BIR commissioner. These regulations are the consequences of a delegated power to issue legal provisions that
have the effect of law.37
A revenue regulation is binding on the courts as long as the procedure fixed for its promulgation is followed. Even if
the courts may not be in agreement with its stated policy or innate wisdom, it is nonetheless valid, provided that its
scope is within the statutory authority or standard granted by the legislature. Specifically, the regulation must (1) be
38
germane to the object and purpose of the law; (2) not contradict, but conform to, the standards the law
39
prescribes; and (3) be issued for the sole purpose of carrying into effect the general provisions of our tax laws.
40 41
In the present case, there is no question about the regularity in the performance of official duty. What needs to be
determined is whether RR 12-80 has been repealed by RR 17-84.
A repeal may be express or implied. It is express when there is a declaration in a regulation -- usually in its repealing
clause -- that another regulation, identified by its number or title, is repealed. All others are implied repeals. An
42
example of the latter is a general provision that predicates the intended repeal on a substantial conflict between the
existing and the prior regulations. 43
As stated in Section 11 of RR 17-84, all regulations, rules, orders or portions thereof that are inconsistent with the
provisions of the said RR are thereby repealed. This declaration proceeds on the premise that RR 17-84 clearly
reveals such an intention on the part of the Department of Finance. Otherwise, later RRs are to be construed as a
continuation of, and not a substitute for, earlier RRs; and will continue to speak, so far as the subject matter is the
same, from the time of the first promulgation. 44
There are two well-settled categories of implied repeals: (1) in case the provisions are in irreconcilable conflict, the
later regulation, to the extent of the conflict, constitutes an implied repeal of an earlier one; and (2) if the later
regulation covers the whole subject of an earlier one and is clearly intended as a substitute, it will similarly operate
as a repeal of the earlier one. There is no implied repeal of an earlier RR by the mere fact that its subject matter is
45
related to a later RR, which may simply be a cumulation or continuation of the earlier one. 46
Where a part of an earlier regulation embracing the same subject as a later one may not be enforced without
nullifying the pertinent provision of the latter, the earlier regulation is deemed impliedly amended or modified to the
extent of the repugnancy. The unaffected provisions or portions of the earlier regulation remain in force, while its
47
omitted portions are deemed repealed. An exception therein that is amended by its subsequent elimination shall
48
now cease to be so and instead be included within the scope of the general rule. 49
Section 4(e) of the earlier RR 12-80 provides that only items of income actually received shall be included in the tax
base for computing the GRT, but Section 7(c) of the later RR 17-84 makes no such distinction and provides that all
interests earned shall be included. The exception having been eliminated, the clear intent is that the later RR 17-84
includes the exception within the scope of the general rule.
Repeals by implication are not favored and will not be indulged, unless it is manifest that the administrative agency
intended them. As a regulation is presumed to have been made with deliberation and full knowledge of all existing
rules on the subject, it may reasonably be concluded that its promulgation was not intended to interfere with or
abrogate any earlier rule relating to the same subject, unless it is either repugnant to or fully inclusive of the subject
matter of an earlier one, or unless the reason for the earlier one is "beyond peradventure removed." Every effort
50
must be exerted to make all regulations stand -- and a later rule will not operate as a repeal of an earlier one, if by
any reasonable construction, the two can be reconciled. 51
RR 12-80 imposes the GRT only on all items of income actually received, as opposed to their mere accrual, while
RR 17-84 includes all interest income in computing the GRT. RR 12-80 is superseded by the later rule, because
Section 4(e) thereof is not restated in RR 17-84. Clearly therefore, as petitioner correctly states, this particular
provision was impliedly repealed when the later regulations took effect. 52
Reconciling the Two Regulations
Granting that the two regulations can be reconciled, respondent’s reliance on Section 4(e) of RR 12-80 is misplaced
and deceptive. The "accrual" referred to therein should not be equated with the determination of the amount to be
used as tax base in computing the GRT. Such accrual merely refers to an accounting method that recognizes
income as earned although not received, and expenses as incurred although not yet paid.
Accrual should not be confused with the concept of constructive possession or receipt as earlier discussed.
Petitioner correctly points out that income that is merely accrued -- earned, but not yet received -- does not form part
of the taxable gross receipts; income that has been received, albeit constructively, does. 53
The word "actually," used confusingly in Section 4(e), will be clearer if removed entirely. Besides, if actually is that
important, accrual should have been eliminated for being a mere surplusage. The inclusion of accrual stresses the
fact that Section 4(e) does not distinguish between actual and constructive receipt. It merely focuses on the method
of accounting known as the accrual system.
Under this system, income is accrued or earned in the year in which the taxpayer’s right thereto becomes fixed and
definite, even though it may not be actually received until a later year; while a deduction for a liability is to be
accrued or incurred and taken when the liability becomes fixed and certain, even though it may not be actually paid
until later.
54
Under any system of accounting, no duty or liability to pay an income tax upon a transaction arises until the taxable
year in which the event constituting the condition precedent occurs. The liability to pay a tax may thus arise at a
55
certain time and the tax paid within another given time. 56
In reconciling these two regulations, the earlier one includes in the tax base for GRT all income, whether actually or
constructively received, while the later one includes specifically interest income. In computing the income tax
liability, the only exception cited in the later regulations is the exclusion from gross income of interest income, which
is already subjected to withholding. This exception, however, refers to a different tax altogether. To extend
mischievously such exception to the GRT will certainly lead to results not contemplated by the legislators and the
administrative body promulgating the regulations.
Manila Jockey Club

Inapplicable
In Commissioner of Internal Revenue v. Manila Jockey Club, we held that the term "gross receipts" shall not include
57
money which, although delivered, has been especially earmarked by law or regulation for some person other than
the taxpayer. 58
To begin, we have to nuance the definition of gross receipts to determine what it is exactly. In this regard, we note
59
that US cases have persuasive effect in our jurisdiction, because Philippine income tax law is patterned after its US
counterpart. 60
"‘[G]ross receipts’ with respect to any period means the sum of: (a) The total amount received or accrued during
such period from the sale, exchange, or other disposition of x x x other property of a kind which would properly be
included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer
primarily for sale to customers in the ordinary course of its trade or business, and (b) The gross income, attributable
to a trade or business, regularly carried on by the taxpayer, received or accrued during such period x x x." 61
"x x x [B]y gross earnings from operations x x x was intended all operations xxx including incidental, subordinate,
and subsidiary operations, as well as principal operations." 62
"When we speak of the ‘gross earnings’ of a person or corporation, we mean the entire earnings or receipts of such
person or corporation from the business or operations to which we refer." 63
From these cases, "gross receipts" refer to the total, as opposed to the net, income. These are therefore the total
64 65
receipts before any deduction for the expenses of management. Webster’s New International Dictionary, in fact,
66 67
defines gross as "whole or entire."
Statutes taxing the gross "receipts," "earnings," or "income" of particular corporations are found in many
jurisdictions. Tax thereon is generally held to be within the power of a state to impose; or constitutional, unless it
68
interferes with interstate commerce or violates the requirement as to uniformity of taxation. 69
Moreover, we have emphasized that the BIR has consistently ruled that "gross receipts" does not admit of any
deduction. Following the principle of legislative approval by reenactment, this interpretation has been adopted by
70 71
the legislature throughout the various reenactments of then Section 119 of the Tax Code. 72
Given that a tax is imposed upon total receipts and not upon net earnings, shall the income withheld be included in
73
the tax base upon which such tax is imposed? In other words, shall interest income constructively received still be
included in the tax base for computing the GRT?
We rule in the affirmative.

Manila Jockey Club does not apply to this case. Earmarking is not the same as withholding. Amounts earmarked do
not form part of gross receipts, because, although delivered or received, these are by law or regulation reserved for
some person other than the taxpayer. On the contrary, amounts withheld form part of gross receipts, because these
are in constructive possession and not subject to any reservation, the withholding agent being merely a conduit in
the collection process.
The Manila Jockey Club had to deliver to the Board on Races, horse owners and jockeys amounts that never
became the property of the race track. Unlike these amounts, the interest income that had been withheld for the
74
government became property of the financial institutions upon constructive possession thereof. Possession was
indeed acquired, since it was ratified by the financial institutions in whose name the act of possession had been
executed. The money indeed belonged to the taxpayers; merely holding it in trust was not enough. 75
The government subsequently becomes the owner of the money when the financial institutions pay the FWT to
extinguish their obligation to the government. As this Court has held before, this is the consideration for the transfer
of ownership of the FWT from these institutions to the government. It is ownership that determines whether interest
76
income forms part of taxable gross receipts. Being originally owned by these financial institutions as part of their
77
interest income, the FWT should form part of their taxable gross receipts.
Besides, these amounts withheld are in payment of an income tax liability, which is different from a percentage tax
liability. Commissioner of Internal Revenue v. Tours Specialists, Inc. aptly held thus: 78
"x x x [G]ross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the taxpayer
which do not belong to them and do not redound to the taxpayer’s benefit; and it is not necessary that there must be
a law or regulation which would exempt such monies and receipts within the meaning of gross receipts under the
Tax Code." 79
In the construction and interpretation of tax statutes and of statutes in general, the primary consideration is to
ascertain and give effect to the intention of the legislature. We ought to impute to the lawmaking body the intent to
80
obey the constitutional mandate, as long as its enactments fairly admit of such construction. In fact, "x x x no tax
81
can be levied without express authority of law, but the statutes are to receive a reasonable construction with a view
to carrying out their purpose and intent." 82
Looking again into Sections 24(e)(1) and 119 of the Tax Code, we find that the first imposes an income tax; the
second, a percentage tax. The legislature clearly intended two different taxes. The FWT is a tax on passive income,
while the GRT is on business. The withholding of one is not equivalent to the payment of the other.
83
Non-Exemption of FWT from GRT:
Neither Unjust nor Absurd
Taxing the people and their property is essential to the very existence of government. Certainly, one of the highest
attributes of sovereignty is the power of taxation, which may legitimately be exercised on the objects to which it is
84
applicable to the utmost extent as the government may choose. Being an incident of sovereignty, such power is
85
coextensive with that to which it is an incident. The interest on deposits and yield on deposit substitutes of financial
86
institutions, on the one hand, and their business as such, on the other, are the two objects over which the State has
chosen to extend its sovereign power. Those not so chosen are, upon the soundest principles, exempt from
taxation.87
While courts will not enlarge by construction the government’s power of taxation, neither will they place upon tax
88
laws so loose a construction as to permit evasions, merely on the basis of fanciful and insubstantial
distinctions. When the legislature imposes a tax on income and another on business, the imposition must be
89
respected. The Tax Code should be so construed, if need be, as to avoid empty declarations or possibilities of crafty
tax evasion schemes. We have consistently ruled thus:
"x x x [I]t is upon taxation that the [g]overnment chiefly relies to obtain the means to carry on its operations, and it is
of the utmost importance that the modes adopted to enforce the collection of the taxes levied should be summary
and interfered with as little as possible. x x x." 90
"Any delay in the proceedings of the officers, upon whom the duty is devolved of collecting the taxes, may derange
the operations of government, and thereby cause serious detriment to the public." 91
"No government could exist if all litigants were permitted to delay the collection of its taxes." 92
A taxing act will be construed, and the intent and meaning of the legislature ascertained, from its language. Its 93
clarity and implied intent must exist to uphold the taxes as against a taxpayer in whose favor doubts will be
resolved. No such doubts exist with respect to the Tax Code, because the income and percentage taxes we have
94
cited earlier have been imposed in clear and express language for that purpose. 95
This Court has steadfastly adhered to the doctrine that its first and fundamental duty is the application of the law
according to its express terms -- construction and interpretation being called for only when such literal application is
impossible or inadequate without them. In Quijano v. Development Bank of the Philippines, we stressed as follows:
96 97
"No process of interpretation or construction need be resorted to where a provision of law peremptorily calls for
application." 98
A literal application of any part of a statute is to be rejected if it will operate unjustly, lead to absurd results, or
contradict the evident meaning of the statute taken as a whole. Unlike the CA, we find that the literal application of
99
the aforesaid sections of the Tax Code and its implementing regulations does not operate unjustly or contradict the
evident meaning of the statute taken as a whole. Neither does it lead to absurd results. Indeed, our courts are not to
give words meanings that would lead to absurd or unreasonable consequences. We have repeatedly held thus:
100
"x x x [S]tatutes should receive a sensible construction, such as will give effect to the legislative intention and so as
to avoid an unjust or an absurd conclusion." 101
"While it is true that the contemporaneous construction placed upon a statute by executive officers whose duty is to
enforce it should be given great weight by the courts, still if such construction is so erroneous, x x x the same must
be declared as null and void." 102
It does not even matter that the CTA, like in China Banking Corporation, relied erroneously on Manila Jockey Club.
103
Under our tax system, the CTA acts as a highly specialized body specifically created for the purpose of reviewing
tax cases. Because of its recognized expertise, its findings of fact will ordinarily not be reviewed, absent any
104
showing of gross error or abuse on its part. Such findings are binding on the Court and, absent strong reasons for
105
us to delve into facts, only questions of law are open for determination. 106
Respondent claims that it is entitled to a refund on the basis of excess GRT payments. We disagree.
Tax refunds are in the nature of tax exemptions. Such exemptions are strictly construed against the taxpayer,
107
being highly disfavored and almost said "to be odious to the law." Hence, those who claim to be exempt from the
108
payment of a particular tax must do so under clear and unmistakable terms found in the statute. They must be able
to point to some positive provision, not merely a vague implication, of the law creating that right.
109 110
The right of taxation will not be surrendered, except in words too plain to be mistaken. The reason is that the State
1âwphi1
cannot strip itself of this highest attribute of sovereignty -- its most essential power of taxation -- by vague or
ambiguous language. Since tax refunds are in the nature of tax exemptions, these are deemed to be "in derogation
of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption." 111
No less than our 1987 Constitution provides for the mechanism for granting tax exemptions. They certainly cannot 112
be granted by implication or mere administrative regulation. Thus, when an exemption is claimed, it must indubitably
be shown to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim. In the instant
113 114
case, respondent has not been able to satisfactorily show that its FWT on interest income is exempt from the GRT.
Like China Banking Corporation, its argument creates a tax exemption where none exists. 115
No exemptions are normally allowed when a GRT is imposed. It is precisely designed to maintain simplicity in the
tax collection effort of the government and to assure its steady source of revenue even during an economic slump. 116
No Double Taxation
We have repeatedly said that the two taxes, subject of this litigation, are different from each other. The basis of their
imposition may be the same, but their natures are different, thus leading us to a final point. Is there double taxation?
The Court finds none.
Double taxation means taxing the same property twice when it should be taxed only once; that is, "x x x taxing the
same person twice by the same jurisdiction for the same thing." It is obnoxious when the taxpayer is taxed twice,
117
when it should be but once. Otherwise described as "direct duplicate taxation," the two taxes must be imposed on
118 119
the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the
same taxing period; and they must be of the same kind or character. 120
First, the taxes herein are imposed on two different subject matters. The subject matter of the FWT is the passive
income generated in the form of interest on deposits and yield on deposit substitutes, while the subject matter of the
GRT is the privilege of engaging in the business of banking.
A tax based on receipts is a tax on business rather than on the property; hence, it is an excise rather than a 121
property tax. It is not an income tax, unlike the FWT. In fact, we have already held that one can be taxed for
122
engaging in business and further taxed differently for the income derived therefrom. Akin to our ruling in Velilla v.
123
Posadas, these two taxes are entirely distinct and are assessed under different provisions.
124
Second, although both taxes are national in scope because they are imposed by the same taxing authority -- the
national government under the Tax Code -- and operate within the same Philippine jurisdiction for the same purpose
of raising revenues, the taxing periods they affect are different. The FWT is deducted and withheld as soon as the
income is earned, and is paid after every calendar quarter in which it is earned. On the other hand, the GRT is
neither deducted nor withheld, but is paid only after every taxable quarter in which it is earned.
Third, these two taxes are of different kinds or characters. The FWT is an income tax subject to withholding, while
the GRT is a percentage tax not subject to withholding.
In short, there is no double taxation, because there is no taxing twice, by the same taxing authority, within the same
jurisdiction, for the same purpose, in different taxing periods, some of the property in the territory. Subjecting 125
interest income to a 20% FWT and including it in the computation of the 5% GRT is clearly not double taxation.
WHEREFORE, the Petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals are hereby
REVERSED and SET ASIDE. No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.
G.R. No. 170257 September 7, 2011 – RISH SAVIDRA
RIZAL COMMERCIAL BANKING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 seeking to set aside the July 27, 2005 Decision 1 and October
26, 2005 Resolution2 of the Court of Tax Appeals En Banc (CTA-En Banc) in C.T.A. E.B. No. 83 entitled "Rizal
Commercial Banking Corporation v. Commissioner of Internal Revenue."
THE FACTS
Petitioner Rizal Commercial Banking Corporation (RCBC) is a corporation engaged in general banking operations. It
seasonably filed its Corporation Annual Income Tax Returns for Foreign Currency Deposit Unit for the calendar
years 1994 and 1995.3
On August 15, 1996, RCBC received Letter of Authority No. 133959 issued by then Commissioner of Internal
Revenue (CIR) Liwayway Vinzons-Chato, authorizing a special audit team to examine the books of accounts and
other accounting records for all internal revenue taxes from January 1, 1994 to December 31, 1995. 4
On January 23, 1997, RCBC executed two Waivers of the Defense of Prescription Under the Statute of Limitations
of the National Internal Revenue Code covering the internal revenue taxes due for the years 1994 and 1995,
effectively extending the period of the Bureau of Internal Revenue (BIR) to assess up to December 31, 2000. 5
Subsequently, on January 27, 2000, RCBC received a Formal Letter of Demand together with Assessment Notices
from the BIR for the following deficiency tax assessments: 6
Particulars Basic Tax Interest Compromise Penalties Total
Deficiency Income Tax

1995 (ST-INC-95-0199-2000) ₱ 252,150,988.01 ₱ 191,496,585.96 ₱ 25,000.00 ₱ 443,672,573.97
1994 (ST-INC-94-0200-2000) 216,478,397.90 207,819,261.99 25,000.00 424,322,659.89
Deficiency Gross Receipts Tax
1995 (ST-GRT-95-0201-2000) 13,697,083.68 12,428,696.21 2,819,745.52 28,945,525.41
1994 (ST-GRT-94-0202-2000) 2,488,462.38 2,755,716.42 25,000.00 5,269,178.80
Deficiency Final Withholding Tax
1995 (ST-EWT-95-0203-2000) 64,365,610.12 58,757,866.78 25,000.00 123,148,477.15
1994 (ST-EWT-94-0204-2000) 53,058,075.25 59,047,096.34 25,000.00 112,130,171.59
Deficiency Final Tax on FCDU Onshore Income
1995 (ST-OT-95-0205-2000) 81,508,718.20 61,901,963,.52 25,000.00 143,435,681.72
1994 (ST-OT-94-0206-2000) 34,429,503.10 33,052,322.98 25,000.00 67,506,826.08
Deficiency Expanded Withholding Tax
1995 (ST-EWT-95-0207-2000) 5,051,415.22 4,583,640.33 113,000.00 9,748,055.55
1994 (ST-EWT-94-0208-2000) 4,482,740.35 4,067,626.31 78,200.00 8,628,566.66
Deficiency Documentary Stamp Tax
1995 (ST-DST1-95-0209-
2000) 351,900,539.39 315,804,946.26 250,000.00 667,955,485.65
1995 (ST-DST2-95-0210-
2000) 367,207,105.29 331,535,844.68 300,000.00 699,042,949.97
1994 (ST-DST3-94-0211-
2000) 460,370,640.05 512,193,460.02 300,000.00 972,864,100.07
1994 (ST-DST4-94-0212-
2000) 223,037,675.89 240,050,706.09 300,000.00 463,388,381.98
TOTALS ₱2,130,226,954.83 ₱2,035,495,733.89 ₱4,335,945.52 ₱4,170,058,634.49

Disagreeing with the said deficiency tax assessment, RCBC filed a protest on February 24, 2000 and later submitted
the relevant documentary evidence to support it. Much later on November 20, 2000, it filed a petition for review
before the CTA, pursuant to Section 228 of the 1997 Tax Code. 7
On December 6, 2000, RCBC received another Formal Letter of Demand with Assessment Notices dated October
20, 2000, following the reinvestigation it requested, which drastically reduced the original amount of deficiency taxes
to the following:8
Particulars Basic Tax Interest Compromise Penalties Total
Deficiency Income Tax

1995 (INC-95-000003) ₱ 374,348.45 ₱ 346,656.92 ₱ 721,005.37
1994 (INC-94-000002) 1,392,366.28 1,568,605.52 2,960,971.80
Deficiency Gross Receipts Tax
1995 (GRT-95-000004) 2,000,926.96 3,322,589.63 ₱ 1,367,222.04 6,690,738.63
1994 (GRT-94-000003) 138,368.61 161,872.32 300,240.93
Deficiency Final Withholding Tax
1995 (FT-95-000005) 362,203.47 351,287.75 713,491.22
1994 (FT-94-000004) 188,746.43 220,807.47 409,553.90
1995 (OT-95-000006) 81,508,718.20 79,052,291.08 160,561,009.28
1994 (OT-94-000005) 34,429,503.10 40,277,802.26 74,707,305.36
Deficiency Expanded Withholding Tax
1995 (EWT-95-000004) 520,869.72 505,171.80 25,000.00 1,051,041.03
1994 (EWT-94-000003) 297,949.95 348,560.63 25,000.00 671,510.58
1995 (DST-95-000006) 599,890.72 149,972.68 749,863.40
1995 (DST2-95-000002) 24,953,842.46 6,238,460.62 31,192,303.08
1994 (DST-94-000005) 905,064.74 226,266.18 1,131,330.92
1994 (DST2-94-000001) 17,040,104.84 4,260,026.21 21,300,131.05
TOTALS ₱ 164,712,903.44 ₱ 126,155,645.38 ₱ 12,291,947.73 ₱ 303,160,496.55
On the same day, RCBC paid the following deficiency taxes as assessed by the BIR: 9
Particulars 1994 1995 Total

Deficiency Income Tax ₱ 2,965,549.44 ₱ 722,236.11 ₱ 3,687,785.55
Deficiency Gross Receipts Tax 300,695.84 6,701,893.17 7,002,589.01
Deficiency Final Withholding Tax 410,174.44 714,682.02 1,124,856.46
Deficiency Expanded Withholding Tax 672,490.14 1,052,753.48 1,725,243.62
Deficiency Documentary Stamp Tax 1,131,330.92 749,863.40 1,881,194.32
TOTALS ₱ 5,480,240.78 ₱ 9,941,428.18 ₱ 15,421,668.96
RCBC, however, refused to pay the following assessments for deficiency onshore tax and documentary stamp tax
which remained to be the subjects of its petition for review: 10

Basic ₱ 34,429,503.10 ₱ 81,508,718.20 ₱ 115,938,221.30
Interest 40,277,802.26 79,052,291.08 119,330,093.34
Sub Total ₱ 74,707,305.36 ₱ 160,561,009.28 ₱ 235,268,314.64
Basic ₱ 17,040,104.84 ₱ 24,953,842.46 ₱ 41,993,947.30
Surcharge 4,260,026.21 6,238,460.62 10,498,486.83
Sub Total ₱ 21,300,131.05 ₱ 31,192,303.08 ₱ 52,492,434.13
TOTALS ₱ 96,007,436.41 ₱ 191,753,312.36 ₱ 287,760,748.77
RCBC argued that the waivers of the Statute of Limitations which it executed on January 23, 1997 were not valid
because the same were not signed or conformed to by the respondent CIR as required under Section 222(b) of the
Tax Code.11 As regards the deficiency FCDU onshore tax, RCBC contended that because the onshore tax was
collected in the form of a final withholding tax, it was the borrower, constituted by law as the withholding agent, that
was primarily liable for the remittance of the said tax.12
On December 15, 2004, the First Division of the Court of Tax Appeals (CTA-First Division) promulgated its
Decision13 which partially granted the petition for review. It considered as closed and terminated the assessments for
deficiency income tax, deficiency gross receipts tax, deficiency final withholding tax, deficiency expanded
withholding tax, and deficiency documentary stamp tax (not an industry issue) for 1994 and 1995. 14 It, however,
upheld the assessment for deficiency final tax on FCDU onshore income and deficiency documentary stamp tax for
1994 and 1995 and ordered RCBC to pay the following amounts plus 20% delinquency tax: 15

Basic ₱ 22,356,324.43 ₱ 16,067,952.86 ₱ 115,938, 221.30
Interest 26,153,837.08 15,583,713.19 119,330,093.34
Sub Total 48,510,161.51 31,651,666.05 119,330,093.34
Deficiency Documentary Stamp Tax (Industry Issue)
Basic ₱ 17,040,104.84 ₱ 24,953,842.46 ₱ 41,993,947.30
Surcharge 4,260,026.21 6,238,460.62 10,498,486.83
Sub Total 21,300,131.05 31,192,303.08 52,492,434.13
TOTALS ₱ 69,810,292.56 ₱ 62,843,969.13 ₱ 171,822,527.47
Unsatisfied, RCBC filed its Motion for Reconsideration on January 21, 2005, arguing that: (1) the CTA erred in its
addition of the total amount of deficiency taxes and the correct amount should only be ₱ 132,654,261.69 and not ₱
171,822,527.47; (2) the CTA erred in holding that RCBC was estopped from questioning the validity of the waivers;
(3) it was the payor-borrower as withholding tax agent, and not RCBC, who was liable to pay the final tax on FCDU,
and (4) RCBC’s special savings account was not subject to documentary stamp tax. 16
In its Resolution17 dated April 11, 2005, the CTA-First Division substantially upheld its earlier ruling, except for its
inadvertence in the addition of the total amount of deficiency taxes. As such, it modified its earlier decision and
ordered RCBC to pay the amount of ₱ 132,654,261.69 plus 20% delinquency tax. 18
RCBC elevated the case to the CTA-En Banc where it raised the following issues:
I.
Whether or not the right of the respondent to assess deficiency onshore tax and documentary stamp
tax for taxable year 1994 and 1995 had already prescribed when it issued the formal letter of demand
and assessment notices for the said taxable years.
II.
Whether or not petitioner is liable for deficiency onshore tax for taxable year 1994 and 1995.
III.
Whether or not petitioner’s special savings account is subject to documentary stamp tax under then
Section 180 of the 1993 Tax Code.19
The CTA-En Banc, in its assailed Decision, denied the petition for lack of merit. It ruled that by receiving, accepting
and paying portions of the reduced assessment, RCBC bound itself to the new assessment, implying that it
recognized the validity of the waivers.20 RCBC could not assail the validity of the waivers after it had received and
accepted certain benefits as a result of the execution of the said waivers. 21 As to the deficiency onshore tax, it held
that because the payor-borrower was merely designated by law to withhold and remit the said tax, it would then
follow that the tax should be imposed on RCBC as the payee-bank. 22 Finally, in relation to the assessment of the
deficiency documentary stamp tax on petitioner’s special savings account, it held that petitioner’s special savings
account was a certificate of deposit and, as such, was subject to documentary stamp tax. 23
Hence, this petition.
While awaiting the decision of this Court, RCBC filed its Manifestation dated July 22, 2009, informing the Court that
this petition, relative to the DST deficiency assessment, had been rendered moot and academic by its payment of
the tax deficiencies on Documentary Stamp Tax (DST) on Special Savings Account (SSA) for taxable years 1994
and 1995 after the BIR approved its applications for tax abatement. 24
In its November 17, 2009 Comment to the Manifestation, the CIR pointed out that the only remaining issues raised
in the present petition were those pertaining to RCBC’s deficiency tax on FCDU Onshore Income for taxable years
1994 and 1995 in the aggregate amount of ₱ 80,161,827.56 plus 20% delinquency interest per annum. The CIR
prayed that RCBC be considered to have withdrawn its appeal with respect to the CTA-En Banc ruling on its DST on
SSA deficiency for taxable years 1994 and 1995 and that the questioned CTA decision regarding RCBC’s deficiency
tax on FCDU Onshore Income for the same period be affirmed. 25
THE ISSUES
Thus, only the following issues remain to be resolved by this Court:
Whether petitioner, by paying the other tax assessment covered by the waivers of the statute of limitations,
is rendered estopped from questioning the validity of the said waivers with respect to the assessment of
deficiency onshore tax.26
and
Whether petitioner, as payee-bank, can be held liable for deficiency onshore tax, which is mandated by law
to be collected at source in the form of a final withholding tax.27
THE COURT’S RULING
Petitioner is estopped from

questioning the validity of the waivers
RCBC assails the validity of the waivers of the statute of limitations on the ground that the said waivers were merely
attested to by Sixto Esquivias, then Coordinator for the CIR, and that he failed to indicate acceptance or agreement
of the CIR, as required under Section 223 (b) of the 1977 Tax Code. 28 RCBC further argues that the principle of
estoppel cannot be applied against it because its payment of the other tax assessments does not signify a clear
intention on its part to give up its right to question the validity of the waivers. 29
The Court disagrees.
Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on the rule that "an admission or
representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the
person relying thereon." A party is precluded from denying his own acts, admissions or representations to the
prejudice of the other party in order to prevent fraud and falsehood. 30
Estoppel is clearly applicable to the case at bench. RCBC, through its partial payment of the revised assessments
issued within the extended period as provided for in the questioned waivers, impliedly admitted the validity of those
waivers. Had petitioner truly believed that the waivers were invalid and that the assessments were issued beyond
the prescriptive period, then it should not have paid the reduced amount of taxes in the revised assessment.
RCBC’s subsequent action effectively belies its insistence that the waivers are invalid. The records show that on
December 6, 2000, upon receipt of the revised assessment, RCBC immediately made payment on the uncontested
taxes. Thus, RCBC is estopped from questioning the validity of the waivers. To hold otherwise and allow a party to
gainsay its own act or deny rights which it had previously recognized would run counter to the principle of equity
which this institution holds dear.31
Liability for Deficiency

Onshore Withholding Tax
RCBC is convinced that it is the payor-borrower, as withholding agent, who is directly liable for the payment of
onshore tax, citing Section 2.57(A) of Revenue Regulations No. 2-98 which states:
(A) Final Withholding Tax. — Under the final withholding tax system the amount of income tax withheld by the
withholding agent is constituted as a full and final payment of the income tax due from the payee on the said
income. The liability for payment of the tax rests primarily on the payor as a withholding agent. Thus, in case
of his failure to withhold the tax or in case of under withholding, the deficiency tax shall be collected from
the payor/withholding agent. The payee is not required to file an income tax return for the particular income.
(Emphasis supplied)
The petitioner is mistaken.
Before any further discussion, it should be pointed out that RCBC erred in citing the abovementioned Revenue
Regulations No. 2-98 because the same governs collection at source on income paid only on or after January 1,
1998. The deficiency withholding tax subject of this petition was supposed to have been withheld on income paid
during the taxable years of 1994 and 1995. Hence, Revenue Regulations No. 2-98 obviously does not apply in this
case.
In Chamber of Real Estate and Builders’ Associations, Inc. v. The Executive Secretary,32 the Court has explained
that the purpose of the withholding tax system is three-fold: (1) to provide the taxpayer with a convenient way of
paying his tax liability; (2) to ensure the collection of tax, and (3) to improve the government’s cashflow. Under the
withholding tax system, the payor is the taxpayer upon whom the tax is imposed, while the withholding agent simply
acts as an agent or a collector of the government to ensure the collection of taxes. 33
1avvphi1
It is, therefore, indisputable that the withholding agent is merely a tax collector and not a taxpayer, as elucidated by
this Court in the case of Commissioner of Internal Revenue v. Court of Appeals,34 to wit:
In the operation of the withholding tax system, the withholding agent is the payor, a separate entity acting no more
than an agent of the government for the collection of the tax in order to ensure its payments; the payer is the
taxpayer – he is the person subject to tax imposed by law; and the payee is the taxing authority. In other words, the
withholding agent is merely a tax collector, not a taxpayer. Under the withholding system, however, the agent-payor
becomes a payee by fiction of law. His (agent) liability is direct and independent from the taxpayer, because
the income tax is still imposed on and due from the latter. The agent is not liable for the tax as no wealth
flowed into him – he earned no income. The Tax Code only makes the agent personally liable for the tax arising
from the breach of its legal duty to withhold as distinguished from its duty to pay tax since:
"the government’s cause of action against the withholding agent is not for the collection of income tax, but
for the enforcement of the withholding provision of Section 53 of the Tax Code, compliance with which is
imposed on the withholding agent and not upon the taxpayer." 35 (Emphases supplied)
Based on the foregoing, the liability of the withholding agent is independent from that of the taxpayer. The former
1âwphi1
cannot be made liable for the tax due because it is the latter who earned the income subject to withholding tax. The
withholding agent is liable only insofar as he failed to perform his duty to withhold the tax and remit the same to the
government. The liability for the tax, however, remains with the taxpayer because the gain was realized and
received by him.
While the payor-borrower can be held accountable for its negligence in performing its duty to withhold the amount of
tax due on the transaction, RCBC, as the taxpayer and the one which earned income on the transaction, remains
liable for the payment of tax as the taxpayer shares the responsibility of making certain that the tax is properly
withheld by the withholding agent, so as to avoid any penalty that may arise from the non-payment of the
withholding tax due.
RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame on the payor-borrower as the
withholding agent. As such, it is liable for payment of deficiency onshore tax on interest income derived from foreign
currency loans, pursuant to Section 24(e)(3) of the National Internal Revenue Code of 1993:
Sec. 24. Rates of tax on domestic corporations.
xxxx
(e) Tax on certain incomes derived by domestic corporations
xxxx
(3) Tax on income derived under the Expanded Foreign Currency Deposit System. – Income derived by a
depository bank under the expanded foreign currency deposit system from foreign currency transactions with
nonresidents, offshore banking units in the Philippines, local commercial banks including branches of foreign banks
that may be authorized by the Central Bank to transact business with foreign currency depository system units and
other depository banks under the expanded foreign currency deposit system shall be exempt from all taxes, except
taxable income from such transactions as may be specified by the Secretary of Finance, upon recommendation of
the Monetary Board to be subject to the usual income tax payable by banks: Provided, That interest income from
foreign currency loans granted by such depository banks under said expanded system to residents (other
than offshore banking units in the Philippines or other depository banks under the expanded system) shall
be subject to a 10% tax. (Emphasis supplied)
As a final note, this Court has consistently held that findings and conclusions of the CTA shall be accorded the
highest respect and shall be presumed valid, in the absence of any clear and convincing proof to the contrary. 36 The
CTA, as a specialized court dedicated exclusively to the study and resolution of tax problems, has developed an
expertise on the subject of taxation.37 As such, its decisions shall not be lightly set aside on appeal, unless this Court
finds that the questioned decision is not supported by substantial evidence or there is a showing of abuse or
improvident exercise of authority on the part of the Tax Court. 38
WHEREFORE, the petition is DENIED.
SO ORDERED.
JOSE CATRAL MENDOZA

Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson
DIOSDADO M. PERALTA ROBERTO A. ABAD

Associate Justice Associate Justice
MARTIN S. VILLARAMA, JR.*

Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court’s Division.
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Court’s Division.
RENATO C. CORONA
Chief Justice
G.R. No. 160756 March 9, 2010 – DEN HARON
CHAMBER OF REAL ESTATE AND BUILDERS' ASSOCIATIONS, INC., Petitioner,

vs.
THE HON. EXECUTIVE SECRETARY ALBERTO ROMULO, THE HON. ACTING SECRETARY OF FINANCE
JUANITA D. AMATONG, and THE HON. COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO,
JR., Respondents.
DECISION
CORONA, J.:
In this original petition for certiorari and mandamus,1 petitioner Chamber of Real Estate and Builders’ Associations,
Inc. is questioning the constitutionality of Section 27 (E) of Republic Act (RA) 8424 2 and the revenue regulations
(RRs) issued by the Bureau of Internal Revenue (BIR) to implement said provision and those involving creditable
withholding taxes.3
Petitioner is an association of real estate developers and builders in the Philippines. It impleaded former Executive
Secretary Alberto Romulo, then acting Secretary of Finance Juanita D. Amatong and then Commissioner of Internal
Revenue Guillermo Parayno, Jr. as respondents.
Petitioner assails the validity of the imposition of minimum corporate income tax (MCIT) on corporations and
creditable withholding tax (CWT) on sales of real properties classified as ordinary assets.
Section 27(E) of RA 8424 provides for MCIT on domestic corporations and is implemented by RR 9-98. Petitioner
argues that the MCIT violates the due process clause because it levies income tax even if there is no realized gain.
Petitioner also seeks to nullify Sections 2.57.2(J) (as amended by RR 6-2001) and 2.58.2 of RR 2-98, and Section
4(a)(ii) and (c)(ii) of RR 7-2003, all of which prescribe the rules and procedures for the collection of CWT on the sale
of real properties categorized as ordinary assets. Petitioner contends that these revenue regulations are contrary to
law for two reasons: first, they ignore the different treatment by RA 8424 of ordinary assets and capital assets
and second, respondent Secretary of Finance has no authority to collect CWT, much less, to base the CWT on the
gross selling price or fair market value of the real properties classified as ordinary assets.
Petitioner also asserts that the enumerated provisions of the subject revenue regulations violate the due process
clause because, like the MCIT, the government collects income tax even when the net income has not yet been
determined. They contravene the equal protection clause as well because the CWT is being levied upon real estate
enterprises but not on other business enterprises, more particularly those in the manufacturing sector.
The issues to be resolved are as follows:
(1) whether or not this Court should take cognizance of the present case;
(2) whether or not the imposition of the MCIT on domestic corporations is unconstitutional and
(3) whether or not the imposition of CWT on income from sales of real properties classified as ordinary
assets under RRs 2-98, 6-2001 and 7-2003, is unconstitutional.
Overview of the Assailed Provisions
Under the MCIT scheme, a corporation, beginning on its fourth year of operation, is assessed an MCIT of 2% of its
gross income when such MCIT is greater than the normal corporate income tax imposed under Section 27(A). 4 If the
regular income tax is higher than the MCIT, the corporation does not pay the MCIT. Any excess of the MCIT over
the normal tax shall be carried forward and credited against the normal income tax for the three immediately
succeeding taxable years. Section 27(E) of RA 8424 provides:
Section 27 (E). [MCIT] on Domestic Corporations. -
(1) Imposition of Tax. – A [MCIT] of two percent (2%) of the gross income as of the end of the taxable year,
as defined herein, is hereby imposed on a corporation taxable under this Title, beginning on the fourth
taxable year immediately following the year in which such corporation commenced its business operations,
when the minimum income tax is greater than the tax computed under Subsection (A) of this Section for the
taxable year.
(2) Carry Forward of Excess Minimum Tax. – Any excess of the [MCIT] over the normal income tax as
computed under Subsection (A) of this Section shall be carried forward and credited against the normal
income tax for the three (3) immediately succeeding taxable years.
(3) Relief from the [MCIT] under certain conditions. – The Secretary of Finance is hereby authorized to
suspend the imposition of the [MCIT] on any corporation which suffers losses on account of prolonged labor
dispute, or because of force majeure, or because of legitimate business reverses.
The Secretary of Finance is hereby authorized to promulgate, upon recommendation of the Commissioner,
the necessary rules and regulations that shall define the terms and conditions under which he may suspend
the imposition of the [MCIT] in a meritorious case.
(4) Gross Income Defined. – For purposes of applying the [MCIT] provided under Subsection (E) hereof, the
term ‘gross income’ shall mean gross sales less sales returns, discounts and allowances and cost of goods
sold. "Cost of goods sold" shall include all business expenses directly incurred to produce the merchandise
to bring them to their present location and use.
For trading or merchandising concern, "cost of goods sold" shall include the invoice cost of the goods sold, plus
import duties, freight in transporting the goods to the place where the goods are actually sold including insurance
while the goods are in transit.
For a manufacturing concern, "cost of goods manufactured and sold" shall include all costs of production of finished
goods, such as raw materials used, direct labor and manufacturing overhead, freight cost, insurance premiums and
other costs incurred to bring the raw materials to the factory or warehouse.
In the case of taxpayers engaged in the sale of service, "gross income" means gross receipts less sales returns,
allowances, discounts and cost of services. "Cost of services" shall mean all direct costs and expenses necessarily
incurred to provide the services required by the customers and clients including (A) salaries and employee benefits
of personnel, consultants and specialists directly rendering the service and (B) cost of facilities directly utilized in
providing the service such as depreciation or rental of equipment used and cost of supplies: Provided, however, that
in the case of banks, "cost of services" shall include interest expense.
On August 25, 1998, respondent Secretary of Finance (Secretary), on the recommendation of the Commissioner of
Internal Revenue (CIR), promulgated RR 9-98 implementing Section 27(E). 5 The pertinent portions thereof read:
Sec. 2.27(E) [MCIT] on Domestic Corporations. –
(1) Imposition of the Tax. – A [MCIT] of two percent (2%) of the gross income as of the end of the taxable year
(whether calendar or fiscal year, depending on the accounting period employed) is hereby imposed upon any
domestic corporation beginning the fourth (4th) taxable year immediately following the taxable year in which such
corporation commenced its business operations. The MCIT shall be imposed whenever such corporation has zero
or negative taxable income or whenever the amount of minimum corporate income tax is greater than the normal
income tax due from such corporation.
For purposes of these Regulations, the term, "normal income tax" means the income tax rates prescribed under
Sec. 27(A) and Sec. 28(A)(1) of the Code xxx at 32% effective January 1, 2000 and thereafter.
x x x x x x x x x
(2) Carry forward of excess [MCIT]. – Any excess of the [MCIT] over the normal income tax as computed under Sec.
27(A) of the Code shall be carried forward on an annual basis and credited against the normal income tax for the
three (3) immediately succeeding taxable years.
x x x x x x x x x
Meanwhile, on April 17, 1998, respondent Secretary, upon recommendation of respondent CIR, promulgated RR 2-
98 implementing certain provisions of RA 8424 involving the withholding of taxes. 6 Under Section 2.57.2(J) of RR
No. 2-98, income payments from the sale, exchange or transfer of real property, other than capital assets, by
persons residing in the Philippines and habitually engaged in the real estate business were subjected to CWT:
Sec. 2.57.2. Income payment subject to [CWT] and rates prescribed thereon:
x x x x x x x x x
(J) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale,
exchange or transfer of. – Real property, other than capital assets, sold by an individual, corporation, estate, trust,
trust fund or pension fund and the seller/transferor is habitually engaged in the real estate business in accordance
with the following schedule –
Those which are exempt from a Exempt

withholding tax at source as
prescribed in Sec. 2.57.5 of these
regulations.
With a selling price of five hundred 1.5%

thousand pesos (₱500,000.00) or
less.
With a selling price of more than five 3.0%

hundred thousand pesos
(₱500,000.00) but not more than two
million pesos (₱2,000,000.00).
With selling price of more than two 5.0%

million pesos (₱2,000,000.00)
x x x x x x x x x
Gross selling price shall mean the consideration stated in the sales document or the fair market value determined in
accordance with Section 6 (E) of the Code, as amended, whichever is higher. In an exchange, the fair market value
of the property received in exchange, as determined in the Income Tax Regulations shall be used.
Where the consideration or part thereof is payable on installment, no withholding tax is required to be made on the
periodic installment payments where the buyer is an individual not engaged in trade or business. In such a case, the
applicable rate of tax based on the entire consideration shall be withheld on the last installment or installments to be
paid to the seller.
However, if the buyer is engaged in trade or business, whether a corporation or otherwise, the tax shall be deducted
and withheld by the buyer on every installment.
This provision was amended by RR 6-2001 on July 31, 2001:
Sec. 2.57.2. Income payment subject to [CWT] and rates prescribed thereon:
x x x x x x x x x
(J) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale,
exchange or transfer of real property classified as ordinary asset. - A [CWT] based on the gross selling price/total
amount of consideration or the fair market value determined in accordance with Section 6(E) of the Code, whichever
is higher, paid to the seller/owner for the sale, transfer or exchange of real property, other than capital asset, shall
be imposed upon the withholding agent,/buyer, in accordance with the following schedule:
Where the seller/transferor is exempt from [CWT] in Exempt

accordance with Sec. 2.57.5 of these regulations.
Upon the following values of real property, where the
seller/transferor is habitually engaged in the real estate
business.
With a selling price of Five Hundred Thousand Pesos 1.5%
(₱500,000.00) or less.
With a selling price of more than Five Hundred Thousand 3.0%
Pesos (₱500,000.00) but not more than Two Million Pesos
(₱2,000,000.00).
With a selling price of more than two Million Pesos 5.0%
(₱2,000,000.00).
x x x x x x x x x
Gross selling price shall remain the consideration stated in the sales document or the fair market value determined
in accordance with Section 6 (E) of the Code, as amended, whichever is higher. In an exchange, the fair market
value of the property received in exchange shall be considered as the consideration.
x x x x x x x x x
However, if the buyer is engaged in trade or business, whether a corporation or otherwise, these rules shall apply:
(i) If the sale is a sale of property on the installment plan (that is, payments in the year of sale do not exceed 25% of
the selling price), the tax shall be deducted and withheld by the buyer on every installment.
(ii) If, on the other hand, the sale is on a "cash basis" or is a "deferred-payment sale not on the installment plan"
(that is, payments in the year of sale exceed 25% of the selling price), the buyer shall withhold the tax based on the
gross selling price or fair market value of the property, whichever is higher, on the first installment.
In any case, no Certificate Authorizing Registration (CAR) shall be issued to the buyer unless the [CWT] due on the
sale, transfer or exchange of real property other than capital asset has been fully paid. (Underlined amendments in
the original)
Section 2.58.2 of RR 2-98 implementing Section 58(E) of RA 8424 provides that any sale, barter or exchange
subject to the CWT will not be recorded by the Registry of Deeds until the CIR has certified that such transfers and
conveyances have been reported and the taxes thereof have been duly paid: 7
Sec. 2.58.2. Registration with the Register of Deeds. – Deeds of conveyances of land or land and
building/improvement thereon arising from sales, barters, or exchanges subject to the creditable expanded
withholding tax shall not be recorded by the Register of Deeds unless the [CIR] or his duly authorized representative
has certified that such transfers and conveyances have been reported and the expanded withholding tax, inclusive
of the documentary stamp tax, due thereon have been fully paid xxxx.
On February 11, 2003, RR No. 7-2003 8 was promulgated, providing for the guidelines in determining whether a
particular real property is a capital or an ordinary asset for purposes of imposing the MCIT, among others. The
pertinent portions thereof state:
Section 4. Applicable taxes on sale, exchange or other disposition of real property. - Gains/Income derived from
sale, exchange, or other disposition of real properties shall, unless otherwise exempt, be subject to applicable taxes
imposed under the Code, depending on whether the subject properties are classified as capital assets or ordinary
assets;
a. In the case of individual citizen (including estates and trusts), resident aliens, and non-resident aliens engaged in
trade or business in the Philippines;
x x x x x x x x x
(ii) The sale of real property located in the Philippines, classified as ordinary assets, shall be subject to the [CWT]
(expanded) under Sec. 2.57..2(J) of [RR 2-98], as amended, based on the gross selling price or current fair market
value as determined in accordance with Section 6(E) of the Code, whichever is higher, and consequently, to the
ordinary income tax imposed under Sec. 24(A)(1)(c) or 25(A)(1) of the Code, as the case may be, based on net
taxable income.
x x x x x x x x x
c. In the case of domestic corporations. –
x x x x x x x x x
(ii) The sale of land and/or building classified as ordinary asset and other real property (other than land and/or
building treated as capital asset), regardless of the classification thereof, all of which are located in the Philippines,
shall be subject to the [CWT] (expanded) under Sec. 2.57.2(J) of [RR 2-98], as amended, and consequently, to the
ordinary income tax under Sec. 27(A) of the Code. In lieu of the ordinary income tax, however, domestic
corporations may become subject to the [MCIT] under Sec. 27(E) of the Code, whichever is applicable.
x x x x x x x x x
We shall now tackle the issues raised.
Existence of a Justiciable Controversy
Courts will not assume jurisdiction over a constitutional question unless the following requisites are satisfied: (1)
there must be an actual case calling for the exercise of judicial review; (2) the question before the court must be ripe
for adjudication; (3) the person challenging the validity of the act must have standing to do so; (4) the question of
constitutionality must have been raised at the earliest opportunity and (5) the issue of constitutionality must be the
very lis mota of the case.9
Respondents aver that the first three requisites are absent in this case. According to them, there is no actual case
calling for the exercise of judicial power and it is not yet ripe for adjudication because
[petitioner] did not allege that CREBA, as a corporate entity, or any of its members, has been assessed by the BIR
for the payment of [MCIT] or [CWT] on sales of real property. Neither did petitioner allege that its members have
shut down their businesses as a result of the payment of the MCIT or CWT. Petitioner has raised concerns in mere
abstract and hypothetical form without any actual, specific and concrete instances cited that the assailed law and
revenue regulations have actually and adversely affected it. Lacking empirical data on which to base any
conclusion, any discussion on the constitutionality of the MCIT or CWT on sales of real property is essentially an
academic exercise.
Perceived or alleged hardship to taxpayers alone is not an adequate justification for adjudicating abstract issues.
Otherwise, adjudication would be no different from the giving of advisory opinion that does not really settle legal
issues.10
An actual case or controversy involves a conflict of legal rights or an assertion of opposite legal claims which is
susceptible of judicial resolution as distinguished from a hypothetical or abstract difference or dispute. 11 On the other
hand, a question is considered ripe for adjudication when the act being challenged has a direct adverse effect on
the individual challenging it.12
Contrary to respondents’ assertion, we do not have to wait until petitioner’s members have shut down their
operations as a result of the MCIT or CWT. The assailed provisions are already being implemented. As we stated
in Didipio Earth-Savers’ Multi-Purpose Association, Incorporated (DESAMA) v. Gozun:13
By the mere enactment of the questioned law or the approval of the challenged act, the dispute is said to have
ripened into a judicial controversy even without any other overt act. Indeed, even a singular violation of the
Constitution and/or the law is enough to awaken judicial duty.14
If the assailed provisions are indeed unconstitutional, there is no better time than the present to settle such question
once and for all.
Respondents next argue that petitioner has no legal standing to sue:
Petitioner is an association of some of the real estate developers and builders in the Philippines. Petitioners did not
allege that [it] itself is in the real estate business. It did not allege any material interest or any wrong that it may
suffer from the enforcement of [the assailed provisions]. 15
Legal standing or locus standi is a party’s personal and substantial interest in a case such that it has sustained or
will sustain direct injury as a result of the governmental act being challenged. 16 In Holy Spirit Homeowners
Association, Inc. v. Defensor,17 we held that the association had legal standing because its members stood to be
injured by the enforcement of the assailed provisions:
Petitioner association has the legal standing to institute the instant petition xxx. There is no dispute that the
individual members of petitioner association are residents of the NGC. As such they are covered and stand to be
either benefited or injured by the enforcement of the IRR, particularly as regards the selection process of
beneficiaries and lot allocation to qualified beneficiaries. Thus, petitioner association may assail those provisions in
the IRR which it believes to be unfavorable to the rights of its members. xxx Certainly, petitioner and its members
have sustained direct injury arising from the enforcement of the IRR in that they have been disqualified and
eliminated from the selection process.18
In any event, this Court has the discretion to take cognizance of a suit which does not satisfy the requirements of an
actual case, ripeness or legal standing when paramount public interest is involved. 19 The questioned MCIT and CWT
affect not only petitioners but practically all domestic corporate taxpayers in our country. The transcendental
importance of the issues raised and their overreaching significance to society make it proper for us to take
cognizance of this petition.20
Concept and Rationale of the MCIT
The MCIT on domestic corporations is a new concept introduced by RA 8424 to the Philippine taxation system. It
came about as a result of the perceived inadequacy of the self-assessment system in capturing the true income of
corporations.21 It was devised as a relatively simple and effective revenue-raising instrument compared to the normal
income tax which is more difficult to control and enforce. It is a means to ensure that everyone will make some
minimum contribution to the support of the public sector. The congressional deliberations on this are illuminating:
Senator Enrile. Mr. President, we are not unmindful of the practice of certain corporations of reporting constantly a
loss in their operations to avoid the payment of taxes, and thus avoid sharing in the cost of government. In this
regard, the Tax Reform Act introduces for the first time a new concept called the [MCIT] so as to minimize tax
evasion, tax avoidance, tax manipulation in the country and for administrative convenience. … This will go a long
way in ensuring that corporations will pay their just share in supporting our public life and our economic
advancement.22
Domestic corporations owe their corporate existence and their privilege to do business to the government. They also
benefit from the efforts of the government to improve the financial market and to ensure a favorable business
climate. It is therefore fair for the government to require them to make a reasonable contribution to the public
expenses.
Congress intended to put a stop to the practice of corporations which, while having large turn-overs, report minimal
or negative net income resulting in minimal or zero income taxes year in and year out, through under-declaration of
income or over-deduction of expenses otherwise called tax shelters. 23
Mr. Javier (E.) … [This] is what the Finance Dept. is trying to remedy, that is why they have proposed the [MCIT].
Because from experience too, you have corporations which have been losing year in and year out and paid no tax.
So, if the corporation has been losing for the past five years to ten years, then that corporation has no business to
be in business. It is dead. Why continue if you are losing year in and year out? So, we have this provision to avoid
this type of tax shelters, Your Honor.24
The primary purpose of any legitimate business is to earn a profit. Continued and repeated losses after operations
of a corporation or consistent reports of minimal net income render its financial statements and its tax payments
suspect. For sure, certain tax avoidance schemes resorted to by corporations are allowed in our jurisdiction. The
MCIT serves to put a cap on such tax shelters. As a tax on gross income, it prevents tax evasion and minimizes tax
avoidance schemes achieved through sophisticated and artful manipulations of deductions and other stratagems.
Since the tax base was broader, the tax rate was lowered.
To further emphasize the corrective nature of the MCIT, the following safeguards were incorporated into the law:
First, recognizing the birth pangs of businesses and the reality of the need to recoup initial major capital
expenditures, the imposition of the MCIT commences only on the fourth taxable year immediately following the year
in which the corporation commenced its operations. 25 This grace period allows a new business to stabilize first and
make its ventures viable before it is subjected to the MCIT. 26
Second, the law allows the carrying forward of any excess of the MCIT paid over the normal income tax which shall
be credited against the normal income tax for the three immediately succeeding years. 27
Third, since certain businesses may be incurring genuine repeated losses, the law authorizes the Secretary of
Finance to suspend the imposition of MCIT if a corporation suffers losses due to prolonged labor dispute, force
majeure and legitimate business reverses.28
Even before the legislature introduced the MCIT to the Philippine taxation system, several other countries already
had their own system of minimum corporate income taxation. Our lawmakers noted that most developing countries,
particularly Latin American and Asian countries, have the same form of safeguards as we do. As pointed out during
the committee hearings:
[Mr. Medalla:] Note that most developing countries where you have of course quite a bit of room for
underdeclaration of gross receipts have this same form of safeguards.
In the case of Thailand, half a percent (0.5%), there’s a minimum of income tax of half a percent (0.5%) of gross
assessable income. In Korea a 25% of taxable income before deductions and exemptions. Of course the different
countries have different basis for that minimum income tax.
The other thing you’ll notice is the preponderance of Latin American countries that employed this method. Okay,
those are additional Latin American countries.29
At present, the United States of America, Mexico, Argentina, Tunisia, Panama and Hungary have their own versions
of the MCIT.30
MCIT Is Not Violative of Due Process
Petitioner claims that the MCIT under Section 27(E) of RA 8424 is unconstitutional because it is highly oppressive,
arbitrary and confiscatory which amounts to deprivation of property without due process of law. It explains that gross
income as defined under said provision only considers the cost of goods sold and other direct expenses; other
major expenditures, such as administrative and interest expenses which are equally necessary to produce gross
income, were not taken into account. 31 Thus, pegging the tax base of the MCIT to a corporation’s gross income is
tantamount to a confiscation of capital because gross income, unlike net income, is not "realized gain." 32
We disagree.
Taxes are the lifeblood of the government. Without taxes, the government can neither exist nor endure. The
exercise of taxing power derives its source from the very existence of the State whose social contract with its
citizens obliges it to promote public interest and the common good. 33
Taxation is an inherent attribute of sovereignty.34 It is a power that is purely legislative.35 Essentially, this means that
in the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage
(subjects) and situs (place) of taxation.36 It has the authority to prescribe a certain tax at a specific rate for a
particular public purpose on persons or things within its jurisdiction. In other words, the legislature wields the power
to define what tax shall be imposed, why it should be imposed, how much tax shall be imposed, against whom (or
what) it shall be imposed and where it shall be imposed.
As a general rule, the power to tax is plenary and unlimited in its range, acknowledging in its very nature no limits,
so that the principal check against its abuse is to be found only in the responsibility of the legislature (which imposes
the tax) to its constituency who are to pay it.37 Nevertheless, it is circumscribed by constitutional limitations. At the
same time, like any other statute, tax legislation carries a presumption of constitutionality.
The constitutional safeguard of due process is embodied in the fiat "[no] person shall be deprived of life, liberty or
property without due process of law." In Sison, Jr. v. Ancheta, et al.,38 we held that the due process clause may
properly be invoked to invalidate, in appropriate cases, a revenue measure 39 when it amounts to a confiscation of
property.40 But in the same case, we also explained that we will not strike down a revenue measure as
unconstitutional (for being violative of the due process clause) on the mere allegation of arbitrariness by the
taxpayer.41 There must be a factual foundation to such an unconstitutional taint. 42 This merely adheres to the
authoritative doctrine that, where the due process clause is invoked, considering that it is not a fixed rule but rather
a broad standard, there is a need for proof of such persuasive character. 43
Petitioner is correct in saying that income is distinct from capital. 44 Income means all the wealth which flows into the
taxpayer other than a mere return on capital. Capital is a fund or property existing at one distinct point in time while
income denotes a flow of wealth during a definite period of time. 45 Income is gain derived and severed from
capital.46 For income to be taxable, the following requisites must exist:
(1) there must be gain;
(2) the gain must be realized or received and
(3) the gain must not be excluded by law or treaty from taxation. 47
Certainly, an income tax is arbitrary and confiscatory if it taxes capital because capital is not income. In other words,
it is income, not capital, which is subject to income tax. However, the MCIT is not a tax on capital.
The MCIT is imposed on gross income which is arrived at by deducting the capital spent by a corporation in the sale
of its goods, i.e., the cost of goods48 and other direct expenses from gross sales. Clearly, the capital is not being
taxed.
Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieu of the normal net income tax, and
only if the normal income tax is suspiciously low. The MCIT merely approximates the amount of net income tax due
from a corporation, pegging the rate at a very much reduced 2% and uses as the base the corporation’s gross
income.
Besides, there is no legal objection to a broader tax base or taxable income by eliminating all deductible items and
at the same time reducing the applicable tax rate. 49

The United States has a similar alternative minimum tax (AMT) system which is generally characterized by a lower
tax rate but a broader tax base.51 Since our income tax laws are of American origin, interpretations by American
courts of our parallel tax laws have persuasive effect on the interpretation of these laws. 52 Although our MCIT is not
exactly the same as the AMT, the policy behind them and the procedure of their implementation are comparable. On
the question of the AMT’s constitutionality, the United States Court of Appeals for the Ninth Circuit stated in Okin v.
Commissioner:53
In enacting the minimum tax, Congress attempted to remedy general taxpayer distrust of the system growing from
large numbers of taxpayers with large incomes who were yet paying no taxes.
x x x x x x x x x
We thus join a number of other courts in upholding the constitutionality of the [AMT]. xxx [It] is a rational means of
obtaining a broad-based tax, and therefore is constitutional. 54
The U.S. Court declared that the congressional intent to ensure that corporate taxpayers would contribute a
minimum amount of taxes was a legitimate governmental end to which the AMT bore a reasonable relation. 55
American courts have also emphasized that Congress has the power to condition, limit or deny deductions from
gross income in order to arrive at the net that it chooses to tax.56 This is because deductions are a matter of
legislative grace.57
Absent any other valid objection, the assignment of gross income, instead of net income, as the tax base of the
MCIT, taken with the reduction of the tax rate from 32% to 2%, is not constitutionally objectionable.
Moreover, petitioner does not cite any actual, specific and concrete negative experiences of its members nor does it
present empirical data to show that the implementation of the MCIT resulted in the confiscation of their property.
In sum, petitioner failed to support, by any factual or legal basis, its allegation that the MCIT is arbitrary and
confiscatory. The Court cannot strike down a law as unconstitutional simply because of its yokes. 58 Taxation is
necessarily burdensome because, by its nature, it adversely affects property rights. 59 The party alleging the law’s
unconstitutionality has the burden to demonstrate the supposed violations in understandable terms. 60
RR 9-98 Merely Clarifies Section 27(E) of RA 8424
Petitioner alleges that RR 9-98 is a deprivation of property without due process of law because the MCIT is being
imposed and collected even when there is actually a loss, or a zero or negative taxable income:
Sec. 2.27(E) [MCIT] on Domestic Corporations. —
(1) Imposition of the Tax. — xxx The MCIT shall be imposed whenever such corporation has zero or negative
taxable income or whenever the amount of [MCIT] is greater than the normal income tax due from such
corporation. (Emphasis supplied)
RR 9-98, in declaring that MCIT should be imposed whenever such corporation has zero or negative taxable
income, merely defines the coverage of Section 27(E). This means that even if a corporation incurs a net loss in its
business operations or reports zero income after deducting its expenses, it is still subject to an MCIT of 2% of its
gross income. This is consistent with the law which imposes the MCIT on gross income notwithstanding the amount
of the net income. But the law also states that the MCIT is to be paid only if it is greater than the normal net income.
Obviously, it may well be the case that the MCIT would be less than the net income of the corporation which posts a
zero or negative taxable income.
We now proceed to the issues involving the CWT.
The withholding tax system is a procedure through which taxes (including income taxes) are collected. 61 Under
Section 57 of RA 8424, the types of income subject to withholding tax are divided into three categories: (a)
withholding of final tax on certain incomes; (b) withholding of creditable tax at source and (c) tax-free covenant
bonds. Petitioner is concerned with the second category (CWT) and maintains that the revenue regulations on the
collection of CWT on sale of real estate categorized as ordinary assets are unconstitutional.
Petitioner, after enumerating the distinctions between capital and ordinary assets under RA 8424, contends that
Sections 2.57.2(J) and 2.58.2 of RR 2-98 and Sections 4(a)(ii) and (c)(ii) of RR 7-2003 were promulgated "with
grave abuse of discretion amounting to lack of jurisdiction" and "patently in contravention of law" 62 because they
ignore such distinctions. Petitioner’s conclusion is based on the following premises: (a) the revenue regulations use
gross selling price (GSP) or fair market value (FMV) of the real estate as basis for determining the income tax for
the sale of real estate classified as ordinary assets and (b) they mandate the collection of income tax on a per
transaction basis, i.e., upon consummation of the sale via the CWT, contrary to RA 8424 which calls for the payment
of the net income at the end of the taxable period. 63
Petitioner theorizes that since RA 8424 treats capital assets and ordinary assets differently, respondents cannot
disregard the distinctions set by the legislators as regards the tax base, modes of collection and payment of taxes
on income from the sale of capital and ordinary assets.
Petitioner’s arguments have no merit.
Authority of the Secretary of Finance to Order the Collection of CWT on Sales of Real Property Considered
as Ordinary Assets
The Secretary of Finance is granted, under Section 244 of RA 8424, the authority to promulgate the necessary rules
and regulations for the effective enforcement of the provisions of the law. Such authority is subject to the limitation
that the rules and regulations must not override, but must remain consistent and in harmony with, the law they seek
to apply and implement.64 It is well-settled that an administrative agency cannot amend an act of Congress. 65
We have long recognized that the method of withholding tax at source is a procedure of collecting income tax which
is sanctioned by our tax laws.66 The withholding tax system was devised for three primary reasons: first, to provide
the taxpayer a convenient manner to meet his probable income tax liability; second, to ensure the collection of
income tax which can otherwise be lost or substantially reduced through failure to file the corresponding returns and
third, to improve the government’s cash flow.67 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.68
Respondent Secretary has the authority to require the withholding of a tax on items of income payable to any
person, national or juridical, residing in the Philippines. Such authority is derived from Section 57(B) of RA 8424
which provides:
SEC. 57. Withholding of Tax at Source. –
x x x x x x x x x
(B) Withholding of Creditable Tax at Source. The [Secretary] may, upon the recommendation of the [CIR], 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.
The questioned provisions of RR 2-98, as amended, are well within the authority given by Section 57(B) to the
Secretary, i.e., the graduated rate of 1.5%-5% is between the 1%-32% range; the withholding tax is imposed on the
income payable and the tax is creditable against the income tax liability of the taxpayer for the taxable year.
Effect of RRs on the Tax Base for the Income Tax of Individuals or Corporations Engaged in the Real Estate
Business
Petitioner maintains that RR 2-98, as amended, arbitrarily shifted the tax base of a real estate business’ income tax
from net income to GSP or FMV of the property sold.
Petitioner is wrong.
The taxes withheld are in the nature of advance tax payments by a taxpayer in order to extinguish its possible tax
obligation. 69 They are installments on the annual tax which may be due at the end of the taxable year. 70
Under RR 2-98, the tax base of the income tax from the sale of real property classified as ordinary assets remains to
be the entity’s net income imposed under Section 24 (resident individuals) or Section 27 (domestic corporations) in
relation to Section 31 of RA 8424, i.e. gross income less allowable deductions. The CWT is to be deducted from the
net income tax payable by the taxpayer at the end of the taxable year. 71 Precisely, Section 4(a)(ii) and (c)(ii) of RR 7-
2003 reiterate that the tax base for the sale of real property classified as ordinary assets remains to be the net
taxable income:
Section 4. – Applicable taxes on sale, exchange or other disposition of real property. - Gains/Income derived from
sale, exchange, or other disposition of real properties shall unless otherwise exempt, be subject to applicable taxes
imposed under the Code, depending on whether the subject properties are classified as capital assets or ordinary
assets;
x x x x x x x x x
a. In the case of individual citizens (including estates and trusts), resident aliens, and non-resident aliens engaged
in trade or business in the Philippines;
x x x x x x x x x
(ii) The sale of real property located in the Philippines, classified as ordinary assets, shall be subject to the [CWT]
(expanded) under Sec. 2.57.2(j) of [RR 2-98], as amended, based on the [GSP] or current [FMV] as determined in
accordance with Section 6(E) of the Code, whichever is higher, and consequently, to the ordinary income tax
imposed under Sec. 24(A)(1)(c) or 25(A)(1) of the Code, as the case may be, based on net taxable income.
x x x x x x x x x
c. In the case of domestic corporations.
The sale of land and/or building classified as ordinary asset and other real property (other than land and/or building
treated as capital asset), regardless of the classification thereof, all of which are located in the Philippines, shall
be subject to the [CWT] (expanded) under Sec. 2.57.2(J) of [RR 2-98], as amended, and consequently,
to the ordinary income tax under Sec. 27(A) of the Code. In lieu of the ordinary income tax, however, domestic
corporations may become subject to the [MCIT] under Sec. 27(E) of the same Code, whichever is applicable.
(Emphasis supplied)
Accordingly, at the end of the year, the taxpayer/seller shall file its income tax return and credit the taxes withheld
(by the withholding agent/buyer) against its tax due. If the tax due is greater than the tax withheld, then the taxpayer
shall pay the difference. If, on the other hand, the tax due is less than the tax withheld, the taxpayer will be entitled
to a refund or tax credit. Undoubtedly, the taxpayer is taxed on its net income.
The use of the GSP/FMV as basis to determine the withholding taxes is evidently for purposes of practicality and
convenience. Obviously, the withholding agent/buyer who is obligated to withhold the tax does not know, nor is he
privy to, how much the taxpayer/seller will have as its net income at the end of the taxable year. Instead, said
withholding agent’s knowledge and privity are limited only to the particular transaction in which he is a party. In such
a case, his basis can only be the GSP or FMV as these are the only factors reasonably known or knowable by him
in connection with the performance of his duties as a withholding agent.
No Blurring of Distinctions Between Ordinary Assets and Capital Assets
RR 2-98 imposes a graduated CWT on income based on the GSP or FMV of the real property categorized as
ordinary assets. On the other hand, Section 27(D)(5) of RA 8424 imposes a final tax and flat rate of 6% on the gain
presumed to be realized from the sale of a capital asset based on its GSP or FMV. This final tax is also withheld at
source.72
The differences between the two forms of withholding tax, i.e., creditable and final, show that ordinary assets are not
treated in the same manner as capital assets. Final withholding tax (FWT) and CWT are distinguished as follows:
FWT CWT
a) The amount of income tax withheld by a) Taxes withheld on certain income

the withholding agent is constituted as a full payments are intended to equal or at least
and final payment of the income tax due approximate the tax due of the payee on
from the payee on the said income. said income.
b)The liability for payment of the tax rests b) Payee of income is required to report the
primarily on the payor as a withholding income and/or pay the difference between
agent. the tax withheld and the tax due on the
income. The payee also has the right to ask
for a refund if the tax withheld is more than
the tax due.
c) The payee is not required to file an c) The income recipient is still required to
income tax return for the particular file an income tax return, as prescribed in
income.73 Sec. 51 and Sec. 52 of the NIRC, as
amended.74
As previously stated, FWT is imposed on the sale of capital assets. On the other hand, CWT is imposed on the sale
of ordinary assets. The inherent and substantial differences between FWT and CWT disprove petitioner’s contention
that ordinary assets are being lumped together with, and treated similarly as, capital assets in contravention of the
pertinent provisions of RA 8424.
Petitioner insists that the levy, collection and payment of CWT at the time of transaction are contrary to the
provisions of RA 8424 on the manner and time of filing of the return, payment and assessment of income tax
involving ordinary assets.75
The fact that the tax is withheld at source does not automatically mean that it is treated exactly the same way as
capital gains. As aforementioned, the mechanics of the FWT are distinct from those of the CWT. The withholding
agent/buyer’s act of collecting the tax at the time of the transaction by withholding the tax due from the income
payable is the essence of the withholding tax method of tax collection.
No Rule that Only Passive
Incomes Can Be Subject to CWT
Petitioner submits that only passive income can be subjected to withholding tax, whether final or creditable.
According to petitioner, the whole of Section 57 governs the withholding of income tax on passive income. The
enumeration in Section 57(A) refers to passive income being subjected to FWT. It follows that Section 57(B) on
CWT should also be limited to passive income:
SEC. 57. Withholding of Tax at Source. —
(A) Withholding of Final Tax on Certain Incomes. — Subject to rules and regulations, the [Secretary] may
promulgate, upon the recommendation of the [CIR], requiring the filing of income tax return by certain
income payees, the tax imposed or prescribed by Sections 24(B)(1), 24(B)(2), 24(C), 24(D)(1); 25(A)(2),
25(A)(3), 25(B), 25(C), 25(D), 25(E); 27(D)(1), 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(B)(1), 28(B)(2), 28(B)(3), 28(B)(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 of this Code.
(B) Withholding of Creditable Tax at Source. — The [Secretary] may, upon the recommendation of the
[CIR], 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. (Emphasis supplied)
This line of reasoning is non sequitur.
Section 57(A) expressly states that final tax can be imposed on certain kinds of income and enumerates these as
passive income. The BIR defines passive income by stating what it is not:
…if the income is generated in the active pursuit and performance of the corporation’s primary purposes, the same
is not passive income…76
It is income generated by the taxpayer’s assets. These assets can be in the form of real properties that return rental
income, shares of stock in a corporation that earn dividends or interest income received from savings.
On the other hand, Section 57(B) provides that the Secretary can require a CWT on "income payable to natural or
juridical persons, residing in the Philippines." There is no requirement that this income be passive income. If that
were the intent of Congress, it could have easily said so.
Indeed, Section 57(A) and (B) are distinct. Section 57(A) refers to FWT while Section 57(B) pertains to CWT. The
former covers the kinds of passive income enumerated therein and the latter encompasses any income other than
those listed in 57(A). Since the law itself makes distinctions, it is wrong to regard 57(A) and 57(B) in the same way.
To repeat, the assailed provisions of RR 2-98, as amended, do not modify or deviate from the text of Section 57(B).
RR 2-98 merely implements the law by specifying what income is subject to CWT. It has been held that, where a
statute does not require any particular procedure to be followed by an administrative agency, the agency may adopt
any reasonable method to carry out its functions.77 Similarly, considering that the law uses the general term
"income," the Secretary and CIR may specify the kinds of income the rules will apply to based on what is feasible. In
addition, administrative rules and regulations ordinarily deserve to be given weight and respect by the courts 78 in
view of the rule-making authority given to those who formulate them and their specific expertise in their respective
fields.
No Deprivation of Property Without Due Process
Petitioner avers that the imposition of CWT on GSP/FMV of real estate classified as ordinary assets deprives its
members of their property without due process of law because, in their line of business, gain is never assured by
mere receipt of the selling price. As a result, the government is collecting tax from net income not yet gained or
earned.
Again, it is stressed that the CWT is creditable against the tax due from the seller of the property at the end of the
taxable year. The seller will be able to claim a tax refund if its net income is less than the taxes withheld. Nothing is
taken that is not due so there is no confiscation of property repugnant to the constitutional guarantee of due
process. More importantly, the due process requirement applies to the power to tax. 79 The CWT does not impose
new taxes nor does it increase taxes.80 It relates entirely to the method and time of payment.
Petitioner protests that the refund remedy does not make the CWT less burdensome because taxpayers have to
wait years and may even resort to litigation before they are granted a refund. 81 This argument is misleading. The
practical problems encountered in claiming a tax refund do not affect the constitutionality and validity of the CWT as
a method of collecting the tax. 1avvphi1
Petitioner complains that the amount withheld would have otherwise been used by the enterprise to pay labor
wages, materials, cost of money and other expenses which can then save the entity from having to obtain loans
entailing considerable interest expense. Petitioner also lists the expenses and pitfalls of the trade which add to the
burden of the realty industry: huge investments and borrowings; long gestation period; sudden and unpredictable
interest rate surges; continually spiraling development/construction costs; heavy taxes and prohibitive "up-front"
regulatory fees from at least 20 government agencies. 82
Petitioner’s lamentations will not support its attack on the constitutionality of the CWT. Petitioner’s complaints are
essentially matters of policy best addressed to the executive and legislative branches of the government. Besides,
the CWT is applied only on the amounts actually received or receivable by the real estate entity. Sales on
installment are taxed on a per-installment basis.83 Petitioner’s desire to utilize for its operational and capital
expenses money earmarked for the payment of taxes may be a practical business option but it is not a fundamental
right which can be demanded from the court or from the government.
No Violation of Equal Protection
Petitioner claims that the revenue regulations are violative of the equal protection clause because the CWT is being
levied only on real estate enterprises. Specifically, petitioner points out that manufacturing enterprises are not
similarly imposed a CWT on their sales, even if their manner of doing business is not much different from that of a
real estate enterprise. Like a manufacturing concern, a real estate business is involved in a continuous process of
production and it incurs costs and expenditures on a regular basis. The only difference is that "goods" produced by
the real estate business are house and lot units. 84
Again, we disagree.
The equal protection clause under the Constitution means that "no person or class of persons shall be deprived of
the same protection of laws which is enjoyed by other persons or other classes in the same place and in like
circumstances."85 Stated differently, all persons belonging to the same class shall be taxed alike. It follows that the
guaranty of the equal protection of the laws is not violated by legislation based on a reasonable classification.
Classification, to be valid, must (1) rest on substantial distinctions; (2) be germane to the purpose of the law; (3) not
be limited to existing conditions only and (4) apply equally to all members of the same class. 86
The taxing power has the authority to make reasonable classifications for purposes of taxation. 87 Inequalities which
result from a singling out of one particular class for taxation, or exemption, infringe no constitutional limitation. 88 The
real estate industry is, by itself, a class and can be validly treated differently from other business enterprises.
Petitioner, in insisting that its industry should be treated similarly as manufacturing enterprises, fails to realize that
what distinguishes the real estate business from other manufacturing enterprises, for purposes of the imposition of
the CWT, is not their production processes but the prices of their goods sold and the number of transactions
involved. The income from the sale of a real property is bigger and its frequency of transaction limited, making it less
cumbersome for the parties to comply with the withholding tax scheme.
On the other hand, each manufacturing enterprise may have tens of thousands of transactions with several
thousand customers every month involving both minimal and substantial amounts. To require the customers of
manufacturing enterprises, at present, to withhold the taxes on each of their transactions with their tens or hundreds
of suppliers may result in an inefficient and unmanageable system of taxation and may well defeat the purpose of
the withholding tax system.
Petitioner counters that there are other businesses wherein expensive items are also sold infrequently, e.g. heavy
equipment, jewelry, furniture, appliance and other capital goods yet these are not similarly subjected to the
CWT.89 As already discussed, the Secretary may adopt any reasonable method to carry out its functions. 90 Under
Section 57(B), it may choose what to subject to CWT.
A reading of Section 2.57.2 (M) of RR 2-98 will also show that petitioner’s argument is not accurate. The sales of
manufacturers who have clients within the top 5,000 corporations, as specified by the BIR, are also subject to CWT
for their transactions with said 5,000 corporations. 91
Section 2.58.2 of RR No. 2-98 Merely Implements Section 58 of RA 8424
Lastly, petitioner assails Section 2.58.2 of RR 2-98, which provides that the Registry of Deeds should not effect the
regisration of any document transferring real property unless a certification is issued by the CIR that the withholding
tax has been paid. Petitioner proffers hardly any reason to strike down this rule except to rely on its contention that
the CWT is unconstitutional. We have ruled that it is not. Furthermore, this provision uses almost exactly the same
wording as Section 58(E) of RA 8424 and is unquestionably in accordance with it:
Sec. 58. Returns and Payment of Taxes Withheld at Source. –
(E) Registration with Register of Deeds. - No registration of any document transferring real property shall be
effected by the Register of Deeds unless the [CIR] or his duly authorized representative has certified that
such transfer has been reported, and the capital gains or [CWT], if any, has been paid: xxxx any violation of
this provision by the Register of Deeds shall be subject to the penalties imposed under Section 269 of this Code.
(Emphasis supplied)
Conclusion
The renowned genius Albert Einstein was once quoted as saying "[the] hardest thing in the world to understand is
the income tax."92 When a party questions the constitutionality of an income tax measure, it has to contend not only
with Einstein’s observation but also with the vast and well-established jurisprudence in support of the plenary
powers of Congress to impose taxes. Petitioner has miserably failed to discharge its burden of convincing the Court
that the imposition of MCIT and CWT is unconstitutional.
WHEREFORE, the petition is hereby DISMISSED.
Costs against petitioner.
SO ORDERED.
RENATO C. CORONA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
ANTONIO T. CARPIO CONCHITA CARPIO MORALES

PRESBITERO J. VELASCO, JR. ANTONIO EDUARDO B. NACHURA

TERESITA J. LEONARDO-DE CASTRO ARTURO D. BRION

DIOSDADO M. PERALTA MARIANO C. DEL CASTILLO

LUCAS P. BERSAMIN ROBERTO A. ABAD

MARTIN S. VILLARAMA, JR. JOSE PORTUGAL PEREZ

JOSE CATRAL MENDOZA

Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the Court.
REYNATO S. PUNO
Chief Justice
G.R. No. 120721 February 23, 2005 – AMILYN PANDA

MANUEL G. ABELLO, JOSE C. CONCEPCION, TEODORO D. REGALA, AVELINO V. CRUZ, petitioners,
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS, respondents.
DECISION
AZCUNA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure, assailing the decision of the
Court of Appeals in CA –G.R. SP No. 27134, entitled "Comissioner of Internal Revenue v. Manuel G. Abello, Jose
C. Concepcion, Teodoro D. Regala, Avelino V. Cruz and Court of Tax Appeals," which reversed and set aside the
decision of the Court of Tax Appeals (CTA), ordering the Commissioner of Internal Revenue (Commissioner) to
withdraw his letters dated April 21, 1988 and August 4, 1988 assessing donor’s taxes and to desist from collecting
donor’s taxes from petitioners.
During the 1987 national elections, petitioners, who are partners in the Angara, Abello, Concepcion, Regala and
Cruz (ACCRA) law firm, contributed ₱882,661.31 each to the campaign funds of Senator Edgardo Angara, then
running for the Senate. In letters dated April 21, 1988, the Bureau of Internal Revenue (BIR) assessed each of the
petitioners ₱263,032.66 for their contributions. On August 2, 1988, petitioners questioned the assessment through a
letter to the BIR. They claimed that political or electoral contributions are not considered gifts under the National
Internal Revenue Code (NIRC), and that, therefore, they are not liable for donor’s tax. The claim for exemption was
denied by the Commissioner. 1
1ªvvphi1.nét
On September 12, 1988, petitioners filed a petition for review with the CTA, which was decided on October 7, 1991
in favor of the petitioners. As aforestated, the CTA ordered the Commissioner to desist from collecting donor’s taxes
from the petitioners.2
On appeal, the Court of Appeals reversed and set aside the CTA decision on April 20, 1994. The appellate Court
3
ordered the petitioners to pay donor’s tax amounting to ₱263,032.66 each, reasoning as follows:
The National Internal Revenue Code, as amended, provides:
Sec. 91. Imposition of Tax. (a) There shall be levied, assessed, collected, and paid upon the transfer by any person,
resident, or non-resident, of the property by gift, a tax, computed as provided in Section 92. (b) The tax shall apply
whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or
personal, tangible or intangible.
Pursuant to the above-quoted provisions of law, the transfer of property by gift, whether the transfer is in trust or
otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible, is
subject to donor’s or gift tax.
A gift is generally defined as a voluntary transfer of property by one to another without any consideration or
compensation therefor (28 C.J. 620; Santos vs. Robledo, 28 Phil. 250).
In the instant case, the contributions are voluntary transfers of property in the form of money from private
respondents to Sen. Angara, without considerations therefor. Hence, they squarely fall under the definition of
donation or gift.
As correctly pointed out by the Solicitor General:
The fact that the contributions were given to be used as campaign funds of Sen. Angara does not affect the
character of the fund transfers as donation or gift. There was thereby no retention of control over the disposition of
the contributions. There was simply an indication of the purpose for which they were to be used. For as long as the
contributions were used for the purpose for which they were intended, Sen. Angara had complete and absolute
power to dispose of the contributions. He was fully entitled to the economic benefits of the contributions.
Section 91 of the Tax Code is very clear. A donor’s or gift tax is imposed on the transfer of property by gift. 1awphi1.nét
The Bureau of Internal Revenue issued Ruling No. 344 on July 20, 1988, which reads:
Political Contributions. – For internal revenue purposes, political contributions in the Philippines are considered
taxable gift rather than taxable income. This is so, because a political contribution is indubitably not intended by the
giver or contributor as a return of value or made because of any intent to repay another what is his due, but
bestowed only because of motives of philanthropy or charity. His purpose is to give and to bolster the morals, the
winning chance of the candidate and/or his party, and not to employ or buy. On the other hand, the recipient-donee
does not regard himself as exchanging his services or his product for the money contributed. But more importantly
he receives financial advantages gratuitously.
When the U.S. gift tax law was adopted in the Philippines (before May 7, 1974), the taxability of political
contributions was, admittedly, an unsettled issue; hence, it cannot be presumed that the Philippine Congress then
had intended to consider or treat political contributions as non-taxable gifts when it adopted the said gift tax law.
Moreover, well-settled is the rule that the Philippines need not necessarily adopt the present rule or construction in
the United States on the matter. Generally, statutes of different states relating to the same class of persons or things
or having the same purposes are not considered to be in pari materia because it cannot be justifiably presumed that
the legislature had them in mind when enacting the provision being construed. (5206, Sutherland, Statutory
Construction, p. 546.) Accordingly, in the absence of an express exempting provision of law, political contributions in
the Philippines are subject to the donor’s gift tax. (cited in National Internal Revenue Code Annotated by Hector S.
de Leon, 1991 ed., p. 290).
In the light of the above BIR Ruling, it is clear that the political contributions of the private respondents to Sen.
Edgardo Angara are taxable gifts. The vagueness of the law as to what comprise the gift subject to tax was made
concrete by the above-quoted BIR ruling. Hence, there is no doubt that political contributions are taxable gifts. 4
Petitioners filed a motion for reconsideration, which the Court of Appeals denied in its resolution of June 16, 1995. 5
Petitioners thereupon filed the instant petition on July 26, 1995. Raised are the following issues:
1. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO CONSIDER IN ITS
DECISION THE PURPOSE BEHIND THE ENACTMENT OF OUR GIFT TAX LAW?
2. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE INTENTION OF THE
GIVERS IN DETERMINING WHETHER OR NOT THE PETITIONERS’ POLITICAL CONTRIBUTIONS
WERE GIFTS SUBJECT TO DONORS TAX?
3. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO CONSIDER THE
DEFINITION OF AN "ELECTORAL CONTRIBUTION" UNDER THE OMNIBUS ELECTION CODE IN
DETERMINING WHETHER OR NOT POLITICAL CONTRIBUTIONS ARE TAXABLE?
4. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE ADMINISTRATIVE
PRACTICE OF CLOSE TO HALF A CENTURY OF NOT SUBJECTING POLITICAL CONTRIBUTIONS TO
DONORS TAX?
5. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE AMERICAN
JURISPRUDENCE RELIED UPON BY THE COURT OF TAX APPEALS AND BY THE PETITIONERS TO
THE EFFECT THAT POLITICAL CONTRIBUTIONS ARE NOT TAXABLE GIFTS?
6. DID THE HONORABLE COURT OF APPEALS ERR IN NOT APPLYING AMERICAN JURISPRUDENCE
ON THE GROUND THAT THIS WAS NOT KNOWN AT THE TIME THE PHILIPPINES GIFT TAX LAW WAS
ADOPTED IN 1939?
7. DID THE HONORABLE COURT OF APPEALS ERR IN RESOLVING THE CASE MAINLY ON THE
BASIS OF A RULING ISSUED BY THE RESPONDENT ONLY AFTER THE ASSESSMENTS HAD
ALREADY BEEN MADE?
8. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT DID NOT CONSTRUE THE GIFT TAX
LAW LIBERALLY IN FAVOR OF THE TAXPAYER AND STRICLTY AGAINST THE GOVERNMENT IN
ACCORDANCE WITH APPLICABLE PRINCIPLES OF STATUTORY CONSTRUCTION? 6
First, Fifth and Sixth Issues
Section 91 of the National Internal Revenue Code (NIRC) reads:
(A) There shall be levied, assessed, collected and paid upon the transfer by any person, resident or
nonresident, of the property by gift, a tax, computed as provided in Section 92
(B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and
whether the property is real or personal, tangible or intangible.
The NIRC does not define transfer of property by gift. However, Article 18 of the Civil Code, states:
In matters which are governed by the Code of Commerce and special laws, their deficiency shall be supplied by the
provisions of this Code.
Thus, reference may be made to the definition of a donation in the Civil Code. Article 725 of said Code defines
donation as:
. . . an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it.
Donation has the following elements: (a) the reduction of the patrimony of the donor; (b) the increase in the
patrimony of the donee; and, (c) the intent to do an act of liberality or animus donandi. 7
The present case falls squarely within the definition of a donation. Petitioners, the late Manuel G. Abello , Jose C.
8
Concepcion, Teodoro D. Regala and Avelino V. Cruz, each gave ₱882,661.31 to the campaign funds of Senator
Edgardo Angara, without any material consideration. All three elements of a donation are present. The patrimony of
the four petitioners were reduced by ₱882,661.31 each. Senator Edgardo Angara’s patrimony correspondingly
increased by ₱3,530,645.24 . There was intent to do an act of liberality or animus donandi was present since each
9
of the petitioners gave their contributions without any consideration.

Taken together with the Civil Code definition of donation, Section 91 of the NIRC is clear and unambiguous, thereby
leaving no room for construction. In Rizal Commercial Banking Corporation v. Intermediate Appellate Court 10 the
Court enunciated:
It bears stressing that the first and fundamental duty of the Court is to apply the law. When the law is clear and free
from any doubt or ambiguity, there is no room for construction or interpretation. As has been our consistent ruling,
where the law speaks in clear and categorical language, there is no occasion for interpretation; there is only room
for application (Cebu Portland Cement Co. v. Municipality of Naga, 24 SCRA 708 [1968])
Where the law is clear and unambiguous, it must be taken to mean exactly what it says and the court has no choice
but to see to it that its mandate is obeyed (Chartered Bank Employees Association v. Ople, 138 SCRA 273
[1985]; Luzon Surety Co., Inc. v. De Garcia, 30 SCRA 111 [1969]; Quijano v. Development Bank of the
Philippines, 35 SCRA 270 [1970]).
Only when the law is ambiguous or of doubtful meaning may the court interpret or construe its true
intent. Ambiguity is a condition of admitting two or more meanings, of being understood in more than one way, or of
l^vvphi1.net
referring to two or more things at the same time. A statute is ambiguous if it is admissible of two or more possible
meanings, in which case, the Court is called upon to exercise one of its judicial functions, which is to interpret the
law according to its true intent.
Second Issue
Since animus donandi or the intention to do an act of liberality is an essential element of a donation, petitioners
argue that it is important to look into the intention of the giver to determine if a political contribution is a gift.
Petitioners’ argument is not tenable. First of all, donative intent is a creature of the mind. It cannot be perceived
except by the material and tangible acts which manifest its presence. This being the case, donative intent is
presumed present when one gives a part of ones patrimony to another without consideration. Second, donative
intent is not negated when the person donating has other intentions, motives or purposes which do not contradict
donative intent. This Court is not convinced that since the purpose of the contribution was to help elect a candidate,
there was no donative intent. Petitioners’ contribution of money without any material consideration evinces animus
donandi. The fact that their purpose for donating was to aid in the election of the donee does not negate the
presence of donative intent.
Third Issue
Petitioners maintain that the definition of an "electoral contribution" under the Omnibus Election Code is essential to
appreciate how a political contribution differs from a taxable gift. Section 94(a) of the said Code defines electoral
11
contribution as follows:
The term "contribution" includes a gift, donation, subscription, loan, advance or deposit of money or anything of
value, or a contract, promise or agreement to contribute, whether or not legally enforceable, made for the purpose of
influencing the results of the elections but shall not include services rendered without compensation by individuals
volunteering a portion or all of their time in behalf of a candidate or political party. It shall also include the use of
facilities voluntarily donated by other persons, the money value of which can be assessed based on the rates
prevailing in the area.
Since the purpose of an electoral contribution is to influence the results of the election, petitioners again claim that
donative intent is not present. Petitioners attempt to place the barrier of mutual exclusivity between donative intent
and the purpose of political contributions. This Court reiterates that donative intent is not negated by the presence of
other intentions, motives or purposes which do not contradict donative intent.
Petitioners would distinguish a gift from a political donation by saying that the consideration for a gift is the liberality
of the donor, while the consideration for a political contribution is the desire of the giver to influence the result of an
election by supporting candidates who, in the perception of the giver, would influence the shaping of government
policies that would promote the general welfare and economic well-being of the electorate, including the giver
himself.
Petitioners’ attempt is strained. The fact that petitioners will somehow in the future benefit from the election of the
candidate to whom they contribute, in no way amounts to a valuable material consideration so as to remove political
contributions from the purview of a donation. Senator Angara was under no obligation to benefit the petitioners. The
proper performance of his duties as a legislator is his obligation as an elected public servant of the Filipino people
and not a consideration for the political contributions he received. In fact, as a public servant, he may even be called
to enact laws that are contrary to the interests of his benefactors, for the benefit of the greater good.
In fine, the purpose for which the sums of money were given, which was to fund the campaign of Senator Angara in
his bid for a senatorial seat, cannot be considered as a material consideration so as to negate a donation.
Fourth Issue
Petitioners raise the fact that since 1939 when the first Tax Code was enacted, up to 1988 the BIR never attempted
to subject political contributions to donor’s tax. They argue that:
. . . It is a familiar principle of law that prolonged practice by the government agency charged with the execution of a
statute, acquiesced in and relied upon by all concerned over an appreciable period of time, is an authoritative
interpretation thereof, entitled to great weight and the highest respect. . . .12
This Court holds that the BIR is not precluded from making a new interpretation of the law, especially when the old
interpretation was flawed. It is a well-entrenched rule that
. . . erroneous application and enforcement of the law by public officers do not block subsequent correct application
of the statute (PLDT v. Collector of Internal Revenue, 90 Phil. 676), and that the Government is never estopped by
mistake or error on the part of its agents (Pineda v. Court of First Instance of Tayabas, 52 Phil. 803, 807; Benguet
Consolidated Mining Co. v. Pineda, 98 Phil. 711, 724). 13
Seventh Issue
Petitioners question the fact that the Court of Appeals decision is based on a BIR ruling, namely BIR Ruling No. 88-
344, which was issued after the petitioners were assessed for donor’s tax. This Court does not need to delve into
this issue. It is immaterial whether or not the Court of Appeals based its decision on the BIR ruling because it is not
pivotal in deciding this case. As discussed above, Section 91 (now Section 98) of the NIRC as supplemented by the
definition of a donation found in Article 725 of the Civil Code, is clear and unambiguous, and needs no further
elucidation.
Eighth Issue
Petitioners next contend that tax laws are construed liberally in favor of the taxpayer and strictly against the
government. This rule of construction, however, does not benefit petitioners because, as stated, there is here no
room for construction since the law is clear and unambiguous.
Finally, this Court takes note of the fact that subsequent to the donations involved in this case, Congress approved
Republic Act No. 7166 on November 25, 1991, providing in Section 13 thereof that political/electoral contributions,
duly reported to the Commission on Elections, are not subject to the payment of any gift tax. This all the more shows
that the political contributions herein made are subject to the payment of gift taxes, since the same were made prior
to the exempting legislation, and Republic Act No. 7166 provides no retroactive effect on this point.
WHEREFORE, the petition is DENIED and the assailed Decision and Resolution of the Court of Appeals are
AFFIRMED.
No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, and Carpio, JJ., concur.
Ynares-Santiago, J., no part.
G.R. No. 210987 November 24, 2014 – RAUL DELOSA
THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY, Petitioner,

vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, Respondents.
DECISION
VELASCO, JR., J.:
Nature of the Case
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing and seeking the
reversal of the Resolutions of the Court of Appeals (CA) in CA-G.R. SP No. 127984, dated May 23, 2013 and 1
January 21, 2014, which dismissed outright the petitioner's appeal from the Secretary of Finance's review of BIR
Ruling No. 015-12 for lack of jurisdiction.
2
The Facts
Petitioner The Philippine American Life and General Insurance Company (Philamlife) used to own 498,590 Class A
shares in Philam Care Health Systems, Inc. (PhilamCare), representing 49.89% of the latter's outstanding capital
stock. In 2009, petitioner, in a bid to divest itself of its interests in the health maintenance organization industry,
offered to sell its shareholdings in PhilamCare through competitive bidding. Thus, on September 24, 2009,
petitioner's Class A shares were sold for USD 2,190,000, or PhP 104,259,330 based on the prevailing exchange
rate at the time of the sale, to STI Investments, Inc., who emerged as the highest bidder. 3
After the sale was completed and the necessary documentary stamp and capital gains taxes were paid, Philamlife
filed an application for a certificate authorizing registration/tax clearance with the Bureau of Internal Revenue (BIR)
Large Taxpayers Service Division to facilitate the transfer of the shares. Months later, petitioner was informed that it
needed to secure a BIR ruling in connection with its application due to potential donor’s tax liability. In compliance,
petitioner, on January 4, 2012, requested a ruling to confirm that the sale was not subject to donor’s tax, pointing
4
out, in its request, the following: that the transaction cannot attract donor’s tax liability since there was no donative
intent and,ergo, no taxable donation, citing BIR Ruling [DA-(DT-065) 715-09] dated November 27, 2009; that the 5
shares were sold at their actual fair market value and at arm’s length; that as long as the transaction conducted is at
arm’s length––such that a bona fide business arrangement of the dealings is done inthe ordinary course of
business––a sale for less than an adequate consideration is not subject to donor’s tax; and that donor’s tax does not
apply to saleof shares sold in an open bidding process.
On January 4, 2012, however, respondent Commissioner on Internal Revenue (Commissioner) denied Philamlife’s
request through BIR Ruling No. 015-12. As determined by the Commissioner, the selling price of the shares thus
sold was lower than their book value based on the financial statements of PhilamCare as of the end of 2008. As 6
such, the Commisioner held, donor’s tax became imposable on the price difference pursuant to Sec. 100 of the
National Internal Revenue Code (NIRC), viz:
SEC. 100. Transfer for Less Than Adequate and full Consideration.- Where property, other than real property
referred to in Section 24(D), is transferred for less than an adequate and full consideration in money or money’s
worth, then the amount by which the fair market value of the property exceeded the value of the consideration shall,
for the purpose of the tax imposed by this Chapter, be deemed a gift, and shall be included in computing the amount
of gifts made during the calendar year.
The afore-quoted provision, the Commissioner added, is implemented by Revenue Regulation 6-2008 (RR 6-2008),
which provides:
SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK NOT TRADED THROUGH A LOCAL STOCK
EXCHANGE PURSUANT TO SECS. 24(C), 25(A)(3), 25(B), 27(D)(2), 28(A)(7)(c), 28(B)(5)(c) OF THE TAX CODE,
AS AMENDED. —
xxxx
(c) Determination of Amount and Recognition of Gain or Loss –
(c.1) In the case of cash sale, the selling price shall be the consideration per deed of sale.
xxxx
(c.1.4) In case the fair market value of the shares of stock sold, bartered, or exchanged is greater than the amount
of money and/or fair market value of the property received, the excess of the fair market value of the shares of stock
sold, bartered or exchanged overthe amount of money and the fair market value of the property, if any, received as
consideration shall be deemed a gift subject to the donor’stax under Section 100 of the Tax Code, as amended.
xxxx
(c.2) Definition of ‘fair market value’of Shares of Stock. – For purposes of this Section, ‘fair market value’ of the
share of stock sold shall be:
xxxx
(c.2.2) In the case of shares of stock not listed and traded in the local stock exchanges, the book value of the shares
of stock as shown in the financial statements duly certified by an independent certified public accountant nearest to
the date of sale shall be the fair market value.
In view of the foregoing, the Commissioner ruled that the difference between the book value and the selling price in
the sales transaction is taxable donation subject to a 30% donor’s tax under Section 99(B) of the
NIRC. Respondent Commissioner likewise held that BIR Ruling [DA-(DT-065) 715-09], on which petitioner
7
anchored its claim, has already been revoked by Revenue Memorandum Circular (RMC) No. 25-2011. 8
Aggrieved, petitioner requested respondent Secretary of Finance (Secretary) to review BIR Ruling No. 015-12, but
to no avail. For on November 26, 2012, respondent Secretary affirmed the Commissioner’s assailed ruling in its
entirety. 9
Ruling of the Court of Appeals
Not contented with the adverse results, petitioner elevated the case to the CA via a petition for review under Rule
43, assigning the following errors:10
A.
The Honorable Secretary of Finance gravely erred in not finding that the application of Section 7(c.2.2) of RR 06-08
in the Assailed Ruling and RMC 25-11 is void insofar as it altersthe meaning and scope of Section 100 of the Tax
Code.
B.
The Honorable Secretary of Finance gravely erred in finding that Section 100 of the Tax Code is applicable tothe
sale of the Sale of Shares.
1.
The Sale of Shares were sold at their fair market value and for fair and full consideration in money or
money’s worth.
2.
The sale of the Sale Shares is a bona fide business transaction without any donative intent and is
therefore beyond the ambit of Section 100 of the Tax Code.
3.
It is superfluous for the BIR to require an express provision for the exemption of the sale of the Sale
Shares from donor’s tax since Section 100 of the Tax Code does not explicitly subject the
transaction to donor’s tax.
C.
The Honorable Secretary of Finance gravely erred in failing to find that in the absence of any of the grounds
mentioned in Section 246 of the Tax Code, rules and regulations, rulings or circulars – such as RMC 25-11 – cannot
be given retroactive application to the prejudice of Philamlife.
On May 23, 2013, the CA issued the assailed Resolution dismissing the CA Petition, thusly:
WHEREFORE, the Petition for Review dated January 9, 2013 is DISMISSED for lack of jurisdiction.
SO ORDERED.
In disposing of the CA petition, the appellate court ratiocinated that it is the Court of Tax Appeals (CTA), pursuant to
Sec. 7(a)(1) of Republic Act No. 1125 (RA 1125), as amended, which has jurisdiction over the issues raised. The
11
outright dismissal, so the CA held, is predicated on the postulate that BIR Ruling No. 015-12 was issued in the
exercise of the Commissioner’s power to interpret the NIRC and other tax laws. Consequently, requesting for its
review can be categorized as "other matters arising under the NIRC or other laws administered by the BIR," which is
under the jurisdiction of the CTA, not the CA.
Philamlife eventually sought reconsideration but the CA, in its equally assailed January 21, 2014 Resolution,
maintained its earlier position. Hence, the instant recourse.
Issues
Stripped to the essentials, the petition raises the following issues in both procedure and substance:
1. Whether or not the CA erred in dismissing the CA Petition for lack of jurisdiction; and
2. Whether or not the price difference in petitioner’s adverted sale of shares in PhilamCare attracts donor’s
tax.
Procedural Arguments
a. Petitioner’s contentions
Insisting on the propriety of the interposed CA petition, Philamlife, while conceding that respondent Commissioner
issued BIR Ruling No. 015-12 in accordance with her authority to interpret tax laws, argued nonetheless that such
ruling is subject to review by the Secretary of Finance under Sec. 4 of the NIRC, to wit:
SECTION 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 orother 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. Petitioner postulates that there is a need to differentiate the rulings promulgated by the
respondent Commissioner relating to those rendered under the first paragraph of Sec. 4 of the NIRC, which are
appealable to the Secretary of Finance, from those rendered under the second paragraph of Sec. 4 of the NIRC,
which are subject to review on appeal with the CTA.
This distinction, petitioner argues, is readily made apparent by Department Order No. 7-02, as circularized by RMC
12
No. 40-A-02.
Philamlife further averred that Sec.7 of RA 1125, as amended, does not find application in the case at bar since it
only governs appeals from the Commissioner’s rulings under the second paragraph and does not encompass
rulings from the Secretary of Finance in the exercise of his power of review under the first, as what was elevated to
the CA. It added that under RA 1125, as amended, the only decisions of the Secretary appealable to the CTA are
those rendered in customs cases elevated to him automatically under Section 2315 of the Tariff and Customs
Code. 13
There is, thus, a gap in the law when the NIRC, as couched, and RA 1125, as amended, failed to supply where the
rulings of the Secretary in its exercise of its power of review under Sec. 4 of the NIRC are appealable to. This gap,
petitioner submits, was remedied by British American Tobacco v. Camacho wherein the Court ruled that where
14
what is assailed is the validity or constitutionality of a law, or a rule or regulation issued by the administrative
agency, the regular courts have jurisdiction to pass upon the same.
In sum, appeals questioning the decisions of the Secretary of Finance in the exercise of its power of review under
Sec. 4 of the NIRC are not within the CTA’s limited special jurisdiction and, according to petitioner, are appealable to
the CA via a Rule 43 petition for review.
b. Respondents’ contentions
Before the CA, respondents countered petitioner’s procedural arguments by claiming that even assuming arguendo
that the CTA does not have jurisdiction over the case, Philamlife, nevertheless,committed a fatal error when it failed
to appeal the Secretary of Finance’s ruling to the Office of the President (OP). As made apparent by the rules, the
Department of Finance is not among the agencies and quasi-judicial bodies enumerated under Sec. 1, Rule 43 of
the Rules of Court whose decisions and rulings are appealable through a petition for review. This is in stark
15
contrast to the OP’s specific mention under the same provision, so respondents pointed out.
To further reinforce their argument, respondents cite the President’s power of review emanating from his power of
control as enshrined under Sec. 17 of Article VII of the Constitution, which reads:
Section 17.The President shall have control of all the executive departments, bureaus, and offices. He shall ensure
that the laws be faithfully executed.
The nature and extent of the President’s constitutionally granted power of control have beendefined in a plethora of
cases, most recently in Elma v. Jacobi, wherein it was held that:
16
x x x This power of control, which even Congress cannot limit, let alone withdraw, means the power of the Chief
Executive to review, alter, modify, nullify, or set aside what a subordinate, e.g., members of the Cabinet and heads
of line agencies, had done in the performance of their duties and to substitute the judgment of the former for that of
the latter.
In their Comment on the instant petition, however, respondents asseverate that the CA did not err in its holding
respecting the CTA’s jurisdiction over the controversy.
The petition is unmeritorious.
Reviews by the Secretary of Finance pursuant to Sec. 4 of the NIRC are appealable to the CTA
To recapitulate, three different, if not conflicting, positions as indicated below have been advanced by the parties
and by the CA as the proper remedy open for assailing respondents’ rulings:
1. Petitioners: The ruling of the Commissioner is subject to review by the Secretary under Sec. 4 of the
NIRC, and that of the Secretary to the CA via Rule 43;
2. Respondents: The ruling of the Commissioner is subject to review by the Secretary under Sec. 4 of the
NIRC, and that of the Secretary to the Office of the President before appealing to the CA via a Rule 43
petition; and
3. CA: The ruling of the Commissioner is subject to review by the CTA.
We now resolve.
Preliminarily, it bears stressing that there is no dispute that what is involved herein is the respondent
Commissioner’s exercise of power under the first paragraph of Sec. 4 of the NIRC––the power to interpret tax laws.
This, in fact, was recognized by the appellate court itself, but erroneously held that her action in the exercise of such
power is appealable directly to the CTA. As correctly pointed out by petitioner, Sec. 4 of the NIRC readily provides
that the Commissioner’s power to interpret the provisions of this Code and other tax laws is subject to review by the
Secretary of Finance. The issue that now arises is this––where does one seek immediate recourse from the adverse
ruling of the Secretary of Finance in its exercise of its power of review under Sec. 4?
Admittedly, there is no provision in law that expressly provides where exactly the ruling of the Secretary of Finance
under the adverted NIRC provision is appealable to. However, We find that Sec. 7(a)(1) of RA 1125, as amended,
addresses the seeming gap in the law asit vests the CTA, albeit impliedly, with jurisdiction over the CA petition as
"other matters" arising under the NIRC or other laws administered by the BIR. As stated:
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. (emphasis supplied)
Even though the provision suggests that it only covers rulings of the Commissioner, We hold that it is, nonetheless,
sufficient enough to include appeals from the Secretary’s review under Sec. 4 of the NIRC.
It is axiomatic that laws should be given a reasonable interpretation which does not defeat the very purpose for
which they were passed. Courts should not follow the letter of a statute when to do so would depart from the true
17
intent of the legislature or would otherwise yield conclusions inconsistent with the purpose of the act. This Court
18
has, in many cases involving the construction of statutes, cautioned against narrowly interpreting a statute as to
defeat the purpose of the legislator, and rejected the literal interpretation of statutes if todo so would lead to unjust
or absurd results.19
Indeed, to leave undetermined the mode of appeal from the Secretary of Finance would be an injustice to taxpayers
prejudiced by his adverse rulings. To remedy this situation, Weimply from the purpose of RA 1125 and its
amendatory laws that the CTA is the proper forum with which to institute the appeal. This is not, and should not, in
any way, be taken as a derogation of the power of the Office of President but merely as recognition that matters
calling for technical knowledge should be handled by the agency or quasi-judicial body with specialization over the
controversy. As the specialized quasi-judicial agency mandated to adjudicate tax, customs, and assessment cases,
there can be no other court of appellate jurisdiction that can decide the issues raised inthe CA petition, which
involves the tax treatment of the shares of stocks sold. Petitioner, though, nextinvites attention to the ruling in Ursal
v. Court of Tax Appeals to argue against granting the CTA jurisdiction by implication, viz:
20
Republic Act No. 1125 creating the Court of Tax Appeals did not grant it blanket authority to decide any and all tax
disputes. Defining such special court’s jurisdiction, the Act necessarily limited its authority to those matters
enumerated therein. Inline with this idea we recently approved said court’s order rejecting an appeal to it by Lopez &
Sons from the decision of the Collector ofCustoms, because in our opinion its jurisdiction extended only to a review
of the decisions of the Commissioner of Customs, as provided bythe statute — and not to decisions of the Collector
of Customs. (Lopez & Sons vs. The Court of Tax Appeals, 100 Phil., 850, 53 Off. Gaz., [10] 3065).
xxxx
x x x Republic Act No. 1125 is a complete law by itself and expressly enumerates the matters which the Court of
Tax Appeals may consider; such enumeration excludes all others by implication. Expressio unius est exclusio
alterius.
Petitioner’s contention is untenable. Lest the ruling in Ursalbe taken out of context, but worse as a precedent, it must
be noted that the primary reason for the dismissal of the said case was that the petitioner therein lacked the
personality to file the suit with the CTA because he was not adversely affected by a decision or ruling of the
Collector of Internal Revenue, as was required under Sec. 11 of RA 1125. As held:
21
We share the view that the assessor had no personality to resort to the Court of Tax Appeals. The rulings of the
Board of Assessment Appeals did not "adversely affect" him. At most it was the City of Cebu that had been
adversely affected in the sense that it could not thereafter collect higher realty taxes from the abovementioned
property owners. His opinion, it is true had been overruled; but the overruling inflicted no material damage upon him
or his office. And the Court of Tax Appeals was not created to decide mere conflicts of opinion between
administrative officers or agencies. Imagine an income tax examiner resorting to the Court of Tax Appeals whenever
the Collector of Internal Revenue modifies, or lower his assessment on the return of a tax payer! 22
The appellate power of the CTA includes certiorari
Petitioner is quick to point out, however, that the grounds raised in its CA petition included the nullity of Section
7(c.2.2) of RR 06-08 and RMC 25-11. In an attempt to divest the CTA jurisdiction over the controversy, petitioner
then cites British American Tobacco, wherein this Court has expounded on the limited jurisdiction of the CTA in the
following wise:
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
inthe courts, including the regional trial courts. This is within the scope of judicial power, which includes the authority
of the courts to determine inan 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. 23
Vis-a-vis British American Tobacco, it bears to stress what appears to be a contrasting ruling in Asia International
Auctioneers, Inc. v. Parayno, Jr., to wit:
Similarly, in CIR v. Leal, pursuant to Section 116 of Presidential Decree No. 1158 (The National Internal Revenue
Code, as amended) which states that "[d]ealers in securities shall pay a tax equivalent to six (6%) per centum of
their gross income. Lending investors shall pay a tax equivalent to five (5%) per cent, of their gross income," the
CIR issued Revenue Memorandum Order (RMO) No. 15-91 imposing 5% lending investor’s tax on pawnshops
based on their gross income and requiring all investigating units of the BIR to investigate and assess the lending
investor’s tax due from them. The issuance of RMO No. 15-91 was an offshoot of the CIR’s finding that the
pawnshop business is akin to that of "lending investors" as defined in Section 157(u) of the Tax Code.
Subsequently, the CIR issued RMC No. 43-91 subjecting pawn tickets to documentary stamp tax. Respondent
therein, Josefina Leal, owner and operator of Josefina’s Pawnshop, asked for a reconsideration of both RMO No.
15-91 and RMC No. 43-91, but the same was denied by petitioner CIR. Leal then filed a petition for prohibition with
the RTC of San Mateo, Rizal, seeking to prohibit petitioner CIR from implementing the revenue orders. The CIR,
through the OSG, filed a motion to dismiss on the ground of lack of jurisdiction. The RTC denied the motion.
Petitioner filed a petition for certiorari and prohibition with the CA which dismissed the petition "for lack of basis." In
reversing the CA, dissolving the Writ of Preliminary Injunction issued by the trial court and ordering the dismissal of
the case before the trial court, the Supreme Court held that "[t]he questioned RMO No. 15-91 and RMC No. 43-91
are actually rulings or opinions of the Commissioner implementing the Tax Code on the taxability of pawnshops."
They were issued pursuant to the CIR’s power under Section 245 of the Tax Code "to make rulings or opinions in
connection with the implementation of the provisions of internal revenue laws, including ruling on the classification of
articles of sales and similar purposes."The Court held that under R.A. No. 1125 (An Act Creating the Court of Tax
Appeals), as amended, such rulings of the CIR are appealable to the CTA.
In the case at bar, the assailed revenue regulations and revenue memorandum circulars are actually rulings or
opinions of the CIR on the tax treatment of motor vehicles sold at public auction within the SSEZ to implement
Section 12 of R.A. No. 7227 which provides that "exportation or removal of goods from the territory of the [SSEZ] to
the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff
Codeand other relevant tax laws of the Philippines." They were issued pursuant to the power of the CIR under
Section 4 of the National Internal Revenue Code x x x. (emphasis added)
24
The respective teachings in British American Tobacco and Asia International Auctioneers, at first blush, appear to
bear no conflict––that when the validity or constitutionality of an administrative rule or regulation is assailed, the
regular courts have jurisdiction; and if what is assailed are rulings or opinions of the Commissioner on tax
treatments, jurisdiction over the controversy is lodged with the CTA. The problem with the above postulates,
however, is that they failed to take into consideration one crucial point––a taxpayer can raise both issues
simultaneously.
Petitioner avers that there is now a trend wherein both the CTA and the CA disclaim jurisdiction over tax cases: on
the one hand, mere prayer for the declaration of a tax measure’s unconstitutionality or invalidity before the CTA can
result in a petition’s outright dismissal, and on the other hand, the CA will likewise dismiss the same petition should
it find that the primary issue is not the tax measure’s validity but the assessment or taxability of the transaction or
subject involved. To illustrate this point, petitioner cites the assailed Resolution, thusly: Admittedly, in British
American Tobacco vs. Camacho, the Supreme Court has ruled that 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, not the CTA.
xxxx
Petitioner essentially questions the CIR’s ruling that Petitioner’s sale of shares is a taxable donation under Sec. 100
of the NIRC. The validity of Sec. 100 of the NIRC, Sec. 7 (C.2.2) and RMC 25-11 is merely questioned incidentally
since it was used by the CIR as bases for its unfavourable opinion. Clearly, the Petition involves an issue on the
taxability of the transaction rather than a direct attack on the constitutionality of Sec. 100, Sec.7 (c.2.2.) of RR 06-08
and RMC 25-11. Thus, the instant Petition properly pertains to the CTA under Sec. 7 of RA 9282.
As a result of the seemingly conflicting pronouncements, petitioner submits that taxpayers are now at a quandary on
what mode of appeal should be taken, to which court or agency it should be filed, and which case law should be
followed.
Petitioner’s above submission is specious.
In the recent case of City of Manila v. Grecia-Cuerdo, the Court en banc has ruled that the CTA now has the power
25
of certiorari in cases within its appellate jurisdiction. To elucidate:
The prevailing doctrine is that the authority to issue writs of certiorari involves the exercise of original jurisdiction
which must be expressly conferred by the Constitution or by law and cannot be implied from the mere existence of
appellate jurisdiction. Thus, x x x this Court has ruled against the jurisdiction of courts or tribunals over petitions for
certiorari on the ground that there is no law which expressly gives these tribunals such power. Itmust be observed,
however, that x x x these rulings pertain not to regular courts but to tribunals exercising quasijudicial powers. With
respect tothe Sandiganbayan, Republic Act No. 8249 now provides that the special criminal court has exclusive
original jurisdiction over petitions for the issuance of the writs of mandamus, prohibition, certiorari, habeas corpus,
injunctions, and other ancillary writs and processes in aid of its appellate jurisdiction.
In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power to the Supreme Court, in the
exercise of its original jurisdiction, to issue writs of certiorari, prohibition and mandamus. With respect to the Court of
Appeals, Section 9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the appellate court, also in the exercise of its
original jurisdiction, the power to issue, among others, a writ of certiorari, whether or not in aid of its appellate
jurisdiction. As to Regional Trial Courts, the power to issue a writ of certiorari, in the exercise of their original
jurisdiction, is provided under Section 21 of BP 129.
The foregoing notwithstanding, while there is no express grant of such power, with respect to the CTA, Section 1,
Article VIII of the 1987 Constitution provides, nonetheless, that judicial power shall be vested in one Supreme Court
and in such lower courts as may be established by law and that 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.
On the strength of the above constitutional provisions, it can be fairly interpreted that the power of the CTA includes
that of determining whether or not there has been grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of the RTC in issuing an interlocutory order in cases falling within the exclusive appellate
jurisdiction of the tax court. It, thus, follows that the CTA, by constitutional mandate, is vested with jurisdiction to
issue writs of certiorari in these cases.
Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it must have the authority to
issue, among others, a writ of certiorari. In transferring exclusive jurisdiction over appealed tax cases to the CTA, it
can reasonably be assumed that the law intended to transfer also such power as is deemed necessary, if not
indispensable, in aid of such appellate jurisdiction. There is no perceivable reason why the transfer should only be
considered as partial, not total. (emphasis added)
Evidently, City of Manilacan be considered as a departure from Ursal in that in spite of there being no express grant
in law, the CTA is deemed granted with powers of certiorari by implication. Moreover, City of Manila diametrically
opposes British American Tobacco to the effect that it is now within the power of the CTA, through its power of
certiorari, to rule on the validity of a particular administrative ruleor regulation so long as it is within its appellate
jurisdiction. Hence, it can now rule not only on the propriety of an assessment or tax treatment of a certain
transaction, but also on the validity of the revenue regulation or revenue memorandum circular on which the said
assessment is based.
Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA petition not only contested the
applicability of Sec. 100 of the NIRC over the sales transaction but likewise questioned the validity of Sec. 7 (c.2.2)
of RR 06-08 and RMC 25-11 does not divest the CTA of its jurisdiction over the controversy, contrary to petitioner's
arguments.
The price difference is subject to donor's tax
Petitioner's substantive arguments are unavailing. The absence of donative intent, if that be the case, does not
exempt the sales of stock transaction from donor's tax since Sec. 100 of the NIRC categorically states that the
amount by which the fair market value of the property exceeded the value of the consideration shall be deemed a
gift. Thus, even if there is no actual donation, the difference in price is considered a donation by fiction of law.
1âwphi1
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely sets the parameters for
determining the "fair market value" of a sale of stocks. Such issuance was made pursuant to the Commissioner's
power to interpret tax laws and to promulgate rules and regulations for their implementation.
Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued after the sale, was being applied
retroactively in contravention to Sec. 246 of the NIRC. Instead, it merely called for the strict application of Sec. 100,
26
which was already in force the moment the NIRC was enacted.
WHEREFORE, the petition is hereby DISMISSED. The Resolutions of the Court of Appeals in CA-G.R. SP No.
127984 dated May 23, 2013 and January 21, 2014 are hereby AFFIRMED.
SO ORDERED.

Associate Justice
WE CONCUR:
DIOSDADO M. PERALTA
Associate Justice
MARTIN S. VILLARAMA, JR. JOSE CATRAL MENDOZA*

MARVIC MARIO VICTOR F. LEONEN**

Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court's Division.

Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Court's Division.
MARIA LOURDES P.A. SERENO

Chief Justice
G.R. No. 173594 February 6, 2008 – DIANE ALAWI
SILKAIR (SINGAPORE) PTE, LTD., petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
CARPIO MORALES, J.:
Petitioner, Silkair (Singapore) Pte. Ltd. (Silkair), a corporation organized under the laws of Singapore which has a
Philippine representative office, is an online international air carrier operating the Singapore-Cebu-Davao-
Singapore, Singapore-Davao-Cebu-Singapore, and Singapore-Cebu-Singapore routes.
On December 19, 2001, Silkair filed with the Bureau of Internal Revenue (BIR) a written application for the refund
of P4,567,450.79 excise taxes it claimed to have paid on its purchases of jet fuel from Petron Corporation from
January to June 2000.1
As the BIR had not yet acted on the application as of December 26, 2001, Silkair filed a Petition for Review 2 before
the CTA following Commissioner of Internal Revenue v. Victorias Milling Co., Inc., et al. 3
Opposing the petition, respondent Commissioner on Internal Revenue (CIR) alleged in his Answer that, among
other things,
Petitioner failed to prove that the sale of the petroleum products was directly made from a domestic oil
company to the international carrier. The excise tax on petroleum products is the direct liability of the
manufacturer/producer, and when added to the cost of the goods sold to the buyer, it is no longer a tax
but part of the price which the buyer has to pay to obtain the article.4 (Emphasis and underscoring
supplied)
By Decision of May 27, 2005, the Second Division of the CTA denied Silkair’s petition on the ground that as the
excise tax was imposed on Petron Corporation as the manufacturer of petroleum products, any claim for refund
should be filed by the latter; and where the burden of tax is shifted to the purchaser, the amount passed on to it is
no longer a tax but becomes an added cost of the goods purchased. Thus the CTA discoursed:
The liability for excise tax on petroleum products that are being removed from its refinery is imposed on the
manufacturer/producer (Section 130 of the NIRC of 1997). x x x
xxxx
While it is true that in the case of excise tax imposed on petroleum products, the seller thereof may shift the
tax burden to the buyer, the latter is the proper party to claim for the refund in the case of exemption from
excise tax. Since the excise tax was imposed upon Petron Corporation as the manufacturer of
petroleum products, pursuant to Section 130(A)(2), and that the corresponding excise taxes were indeed,
paid by it, . . . any claim for refund of the subject excise taxes should be filed by Petron
Corporation as the taxpayer contemplated under the law. Petitioner cannot be considered as the taxpayer
because it merely shouldered the burden of the excise tax and not the excise tax itself.
Therefore, the right to claim for the refund of excise taxes paid on petroleum products lies with Petron
Corporation who paid and remitted the excise tax to the BIR. Respondent, on the other hand, may only claim
from Petron Corporation the reimbursement of the tax burden shifted to the former by the latter. The excise
tax partaking the nature of an indirect tax, is clearly the liability of the manufacturer or seller who has the
option whether or not to shift the burden of the tax to the purchaser. Where the burden of the tax is
shifted to the [purchaser], the amount passed on to it is no longer a tax but becomes an added cost
on the goods purchased which constitutes a part of the purchase price. The incidence of taxation or the
person statutorily liable to pay the tax falls on Petron Corporation though the impact of taxation or the
burden of taxation falls on another person, which in this case is petitioner Silkair. 5 (Italics in the original;
emphasis and underscoring supplied)
Silkair filed a Motion for Reconsideration 6 during the pendency of which or on September 12, 2005 the Bengzon Law
Firm entered its appearance as counsel,7 without Silkair’s then-counsel of record (Jimenez Gonzales Liwanag Bello
Valdez Caluya & Fernandez or "JGLaw") having withdrawn as such.
By Resolution8 of September 22, 2005, the CTA Second Division denied Silkair’s motion for reconsideration. A copy
of the Resolution was furnished Silkair’s counsel JGLaw which received it on October 3, 2005. 9
On October 13, 2005, JGLaw, with the conformity of Silkair, filed its Notice of Withdrawal of Appearance. 10 On even
date, Silkair, through the Bengzon Law Firm, filed a Manifestation/Motion 11 stating:
Petitioner was formerly represented xxx by JIMENEZ GONZALES LIWANAG BELLO VALDEZ CALUYA &
FERNANDEZ (JGLaw).
1. On 24 August 2005, petitioner served notice to JGLaw of its decision to cease all legal
representation handled by the latter on behalf of the petitioner. Petitioner also requested JGLaw to
make arrangements for the transfer of all files relating to its legal representation on behalf of
petitioner to the undersigned counsel. x x x
2. The undersigned counsel was engaged to act as counsel for the petitioner in the above-entitled
case; and thus, filed its entry of appearance on 12 September 2005. x x x
3. The undersigned counsel, through petitioner, has received information that the Honorable Court
promulgated a Resolution on petitioner’s Motion for Reconsideration. To date, the undersigned
counsel has yet to receive an official copy of the above-mentioned Resolution. In light of the
foregoing, undersigned counsel hereby respectfully requests for an official copy of the Honorable
Court’s Resolution on petitioner’s Motion for Reconsideration x x x.12 (Underscoring supplied)
On October 14, 2005, the Bengzon Law Firm received its requested copy of the September 22, 2005 13 CTA Second
Division Resolution. Thirty-seven days later or on October 28, 2005, Silkair, through said counsel, filed a Motion for
Extension of Time to File Petition for Review14 before the CTA En Banc which gave it until November 14, 2005 to file
a petition for review.
On November 11, 2005, Silkair filed another Motion for Extension of Time. 15 On even date, the Bengzon Law Firm
informed the CTA of its withdrawal of appearance as counsel for Silkair with the information, that Silkair would
continue to be represented by Atty. Teodoro A. Pastrana, who used to be with the firm but who had become a
partner of the Pastrana and Fallar Law Offices.16
The CTA En Banc granted Silkair’s second Motion for Extension of Time, giving Silkair until November 24, 2005 to
file its petition for review. On November 17, 2005, Silkair filed its Petition for Review 17 before the CTA En Banc.
By Resolution of May 19,2006, the CTA En Banc dismissed18 Silkair’s petition for review for having been filed out of
time in this wise:
A petitioner is given a period of fifteen (15) days from notice of award, judgment, final order or resolution, or
denial of motion for new trial or reconsideration to appeal to the proper forum, in this case, the CTA En
Banc. This is clear from both Section 11 and Section 9 of Republic Act No. 9282 x x x.
xxxx
The petitioner, through its counsel of record Jimenez, Gonzalez, L[iwanag], Bello, Valdez, Caluya &
Fernandez Law Offices, received the Resolution dated September 22, 2005 on October 3, 2005. At that
time, the petitioner had two counsels of record, namely, Jimenez, Gonzales, L[iwanag], Bello, Valdez,
Caluya & Fernandez Law Offices and The Bengzon Law Firm which filed its Entry of Appearance on
September 12, 2005. However, as of said date, Atty. Mary Jane B. Austria-Delgado of Jimenez, Gonzales,
L[iwanag], Bello, Valdez, Caluya & Fernandez Law Offices was still the counsel of record considering that
the Notice of Withdrawal of Appearance signed by Atty. Mary Jane B. Austria-Delgado was filed only on
October 13, 2005 or ten (10) days after receipt of the September 22, 2005 Resolution of the Court’s Second
Division. This notwithstanding, Section 2 of Rule 13 of the Rules of Court provides that if any party has
appeared by counsel, service upon him shall be made upon his counsel or one of them, unless service upon
the party himself is ordered by the Court. Where a party is represented by more than one counsel of record,
"notice to any one of the several counsel on record is equivalent to notice to all the counsel (Damasco vs.
Arrieta, et. al., 7 SCRA 224)." Considering that petitioner, through its counsel of record, had received the
September 22, 2005 Resolution as early as October 3, 2005, it had only until October 18, 2005 within which
to file its Petition for Review. Petitioner only managed to file the Petition for Review with the Court En
Banc on November 17, 2005 or [after] thirty (30) days had lapsed from the final date of October 18, 2005 to
appeal.
The argument that it requested Motions for Extension of Time on October 28, 2005 or ten (10) days from the
appeal period and the second Motion for Extension of Time to file its Petition for Review on November 11,
2005 and its allowance by the CTA En Banc notwithstanding, the questioned Decision is no longer
appealable for failure to timely file the necessary Petition for Review. 19 (Emphasis in the original)
In a Separate Concurring Opinion,20 CTA Associate Justice Juanito C. Castañeda, Jr. posited that Silkair is not the
proper party to claim the tax refund.
Silkair filed a Motion for Reconsideration 21 which the CTA En Banc denied.22 Hence, the present Petition for
Review23 which raises the following issues:
I. WHETHER OR NOT THE PETITION FOR REVIEW FILED WITH THE HONORABLE COURT OF TAX
APPEALS EN BANC WAS TIMELY FILED.
II. APPEAL BEING AN ESSENTIAL PART OF OUR JUDICIAL SYSTEM, WHETHER OR NOT
PETITIONER SHOULD BE DEPRIVED OF ITS RIGHT TO APPEAL ON THE BASIS OF TECHNICALITY.
III. ASSUMING THE HONORABLE SUPREME COURT WOULD HOLD THAT THE FILING OF THE
PETITITON FOR REVIEW WITH THE HONORABLE COURT OF TAX APPEALS EN BANC WAS TIMELY,
WHETHER OR NOT THE PETITIONER IS THE PROPER PARTY TO CLAIM FOR REFUND OR TAX
CREDIT.24 (Underscoring supplied)
Silkair posits that "the instant case does not involve a situation where the petitioner was represented by two (2)
counsels on record, such that notice to the former counsel would be held binding on the petitioner, as in the case
of Damasco v. Arrieta, etc., et al.25 x x x heavily relied upon by the respondent"; 26 and that "the case of Dolores De
Mesa Abad v. Court of Appeals27 has more appropriate application to the present case."28
In Dolores De Mesa Abad, the trial court issued an order of November 19, 1974 granting the therein private
respondents’ Motion for Annulment of documents and titles. The order was received by the therein petitioner’s
counsel of record, Atty. Escolastico R. Viola, on November 22, 1974 prior to which or on July 17, 1974, Atty. Vicente
Millora of the Millora, Tobias and Calimlim Law Office had filed an "Appearance and Manifestation." Atty. Millora
received a copy of the trial court’s order on December 9, 1974. On January 4, 1975, the therein petitioners, through
Atty. Ernesto D. Tobias also of the Millora, Tobias and Calimlim Law Office, filed their Notice of Appeal and Cash
Appeal Bond as well as a Motion for Extension of the period to file a Record on Appeal. They filed the Record on
Appeal on January 24, 1975. The trial court dismissed the appeal for having been filed out of time, which was
upheld by the Court of Appeals on the ground that the period within which to appeal should be counted from
November 22, 1974, the date Atty. Viola received a copy of the November 19, 1974 order. The appellate court held
that Atty. Viola was still the counsel of record, he not having yet withdrawn his appearance as counsel for the therein
petitioners. On petition for certiorari, 29 this Court held
x x x [R]espondent Court reckoned the period of appeal from the time petitioners’ original counsel, Atty.
Escolastico R. Viola, received the Order granting the Motion for Annulment of documents and titles on
November 22, 1974. But as petitioners stress, Atty. Vicente Millora of the Millora, Tobias and Calimlim Law
Office had filed an "Appearance and Manifestation" on July 16, 1974. Where there may have been no
specific withdrawal by Atty. Escolastico R. Viola, for which he should be admonished, by the appearance of
a new counsel, it can be said that Atty. Viola had ceased as counsel for petitioners. In fact, Orders
subsequent to the aforesaid date were already sent by the trial Court to the Millora, Tobias and Calimlim
Law Office and not to Atty. Viola.
Under the circumstances, December 9, 1974 is the controlling date of receipt by petitioners’ counsel and
from which the period of appeal from the Order of November 19, 1974 should be reckoned. That being the
case, petitioner’s x x x appeal filed on January 4, 1975 was timely filed. 30 (Underscoring supplied)
The facts of Dolores De Mesa Abad are not on all fours with those of the present case. In any event, more recent
jurisprudence holds that in case of failure to comply with the procedure established by Section 26, Rule 138 31 of the
Rules of Court re the withdrawal of a lawyer as a counsel in a case, the attorney of record is regarded as the
counsel who should be served with copies of the judgments, orders and pleadings. 32 Thus, where no notice of
withdrawal or substitution of counsel has been shown, notice to counsel of record is, for all purposes, notice to the
client.33 The court cannot be expected to itself ascertain whether the counsel of record has been changed. 34
In the case at bar, JGLaw filed its Notice of Withdrawal of Appearance on October 13, 2005 35 after the Bengzon Law
Firm had entered its appearance. While Silkair claims it dismissed JGLaw as its counsel as early as August 24,
2005, the same was communicated to the CTA only on October 13, 2005. 36 Thus, JGLaw was still Silkair’s counsel
of record as of October 3, 2005 when a copy of the September 22, 2005 resolution of the CTA Second Division was
served on it. The service upon JGLaw on October 3, 2005 of the September 22, 2005 resolution of CTA Second
Division was, therefore, for all legal intents and purposes, service to Silkair, and the CTA correctly reckoned the
period of appeal from such date.
TECHNICALITY ASIDE, on the merits, the petition just the same fails.
Silkair bases its claim for refund or tax credit on Section 135 (b) of the NIRC of 1997 which reads
Sec. 135. Petroleum Products sold to International Carriers and Exempt Entities of Agencies. –
Petroleum products sold to the following are exempt from excise tax:
xxxx
(b) Exempt entities or agencies covered by tax treaties, conventions, and other international agreements for
their use and consumption: Provided, however, That the country of said foreign international carrier or
exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers,
entities or agencies; x x x
x x x x,
and Article 4(2) of the Air Transport Agreement between the Government of the Republic of the Philippines and the
Government of the Republic of Singapore (Air Transport Agreement between RP and Singapore) which reads
Fuel, lubricants, spare parts, regular equipment and aircraft stores introduced into, or taken on board aircraft
in the territory of one Contracting party by, or on behalf of, a designated airline of the other Contracting Party
and intended solely for use in the operation of the agreed services shall, with the exception of charges
corresponding to the service performed, be exempt from the same customs duties, inspection fees and other
duties or taxes imposed in the territories of the first Contracting Party , even when these supplies are to be
used on the parts of the journey performed over the territory of the Contracting Party in which they are
introduced into or taken on board. The materials referred to above may be required to be kept under
customs supervision and control.
The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the
tax is imposed by law and who paid the same even if he shifts the burden thereof to another. 37 Section 130 (A) (2) of
the NIRC provides that "[u]nless otherwise specifically allowed, the return shall be filed and the excise tax paid by
the manufacturer or producer before removal of domestic products from place of production." Thus, Petron
Corporation, not Silkair, is the statutory taxpayer which is entitled to claim a refund based on Section 135 of the
NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore.
Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair for jet
fuel is not a tax but part of the price which Silkair had to pay as a purchaser. 38
Silkair nevertheless argues that it is exempt from indirect taxes because the Air Transport Agreement between RP
and Singapore grants exemption "from the same customs duties, inspection fees and other duties or taxes imposed
in the territory of the first Contracting Party."39 It invokes Maceda v. Macaraig, Jr.40 which upheld the claim for tax
credit or refund by the National Power Corporation (NPC) on the ground that the NPC is exempt even from the
payment of indirect taxes.
Silkairs’s argument does not persuade. In Commissioner of Internal Revenue v. Philippine Long Distance
Telephone Company,41 this Court clarified the ruling in Maceda v. Macaraig, Jr., viz:
It may be so that in Maceda vs. Macaraig, Jr., the Court held that an exemption from "all taxes" granted to
the National Power Corporation (NPC) under its charter includes both direct and indirect taxes. But far from
providing PLDT comfort, Maceda in fact supports the case of herein petitioner, the correct lesson
of Maceda being that an exemption from "all taxes" excludes indirect taxes, unless the exempting statute,
like NPC’s charter, is so couched as to include indirect tax from the exemption. Wrote the Court:
x x x However, the amendment under Republic Act No. 6395 enumerated the details covered by the
exemption. Subsequently, P.D. 380, made even more specific the details of the exemption of NPC to
cover, among others, both direct and indirect taxes on all petroleum products used in its operation.
Presidential Decree No. 938 [NPC’s amended charter] amended the tax exemption by simplifying
the same law in general terms. It succinctly exempts NPC from "all forms of taxes, duties[,] fees…"
The use of the phrase "all forms" of taxes demonstrates the intention of the law to give NPC all the
tax exemptions it has been enjoying before…
xxxx
It is evident from the provisions of P.D. No. 938 that its purpose is to maintain the tax exemption of
NPC from all forms of taxes including indirect taxes as provided under R.A. No. 6395 and P.D. 380
if it is to attain its goals. (Italics in the original; emphasis supplied) 42
The exemption granted under Section 135 (b) of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement
between RP and Singapore cannot, without a clear showing of legislative intent, be construed as including indirect
taxes. Statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in
favor of the taxing authority, 43 and if an exemption is found to exist, it must not be enlarged by construction. 44
WHEREFORE, the petition is DENIED.
Costs against petitioner.
SO ORDERED.
Quisumbing,Chairperson, Carpio, Tinga, Velasco, Jr., JJ., concur.
G.R. No. 88291 May 31, 1991 – NORDS
ERNESTO M. MACEDA, petitioner,
vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the President; HON.
VICENTE R. JAYME, in his capacity as Secretary of the Department of Finance; HON. SALVADOR MISON, in
his capacity as Commissioner, Bureau of Customs; HON. JOSE U. ONG, in his capacity as Commissioner of
Internal Revenue; NATIONAL POWER CORPORATION; the FISCAL INCENTIVES REVIEW BOARD; Caltex
(Phils.) Inc.; Pilipinas Shell Petroleum Corporation; Philippine National Oil Corporation; and Petrophil
Corporation, respondents.
Villamor & Villamor Law Offices for petitioner.

Angara, Abello, Concepcion, Regala & Cruz for Pilipinas Shell Petroleum Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex (Phils.), Inc.
GANCAYCO, J.:
This petition seeks to nullify certain decisions, orders, rulings, and resolutions of respondents Executive Secretary,
Secretary of Finance, Commissioner of Internal Revenue, Commissioner of Customs and the Fiscal Incentives
Review Board FIRB for exempting the National Power Corporation (NPC) from indirect tax and duties.
The relevant facts are not in dispute.
On November 3, 1986, Commonwealth Act No. 120 created the NPC as a public corporation to undertake the
development of hydraulic power and the production of power from other sources. 1
On June 4, 1949, Republic Act No. 358 granted NPC tax and duty exemption privileges under—
Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all
taxes, duties, fees, imposts, charges and restrictions of the Republic of the Philippines, its provinces, cities
and municipalities.
On September 10, 1971, Republic Act No. 6395 revised the charter of the NPC wherein Congress declared as a
national policy the total electrification of the Philippines through the development of power from all sources to meet
the needs of industrial development and rural electrification which should be pursued coordinately and supported by
all instrumentalities and agencies of the government, including its financial institutions. The corporate existence of
2
NPC was extended to carry out this policy, specifically to undertake the development of hydro electric 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. Being a non-profit corporation, Section 13 of the law provided in detail the
3
exemption of the NPC from all taxes, duties, fees, imposts and other charges by the government and its
instrumentalities.
On January 22, 1974, Presidential Decree No. 380 amended section 13, paragraphs (a) and (d) of Republic Act No.
6395 by specifying, among others, the exemption of NPC from such taxes, duties, fees, imposts and other charges
imposed "directly or indirectly," on all petroleum products used by NPC in its operation. Presidential Decree No. 938
dated May 27, 1976 further amended the aforesaid provision by integrating the tax exemption in general terms
under one paragraph.
On June 11, 1984, Presidential Decree No. 1931 withdrew all tax exemption privileges granted in favor of
government-owned or controlled corporations including their subsidiaries. However, said law empowered the
4
President and/or the then Minister of Finance, upon recommendation of the FIRB to restore, partially or totally, the
exemption withdrawn, or otherwise revise the scope and coverage of any applicable tax and duty.
Pursuant to said law, on February 7, 1985, the FIRB issued Resolution No. 10-85 restoring the tax and duty
exemption privileges of NPC from June 11, 1984 to June 30, 1985. On January 7, 1986, the FIRB issued resolution
No. 1-86 indefinitely restoring the NPC tax and duty exemption privileges effective July 1, 1985.
However, effective March 10, 1987, Executive Order No. 93 once again withdrew all tax and duty incentives granted
to government and private entities which had been restored under Presidential Decree Nos. 1931 and 1955 but it
gave the authority to FIRB to restore, revise the scope and prescribe the date of effectivity of such tax and/or duty
exemptions.
On June 24, 1987 the FIRB issued Resolution No. 17-87 restoring NPC's tax and duty exemption privileges effective
March 10, 1987. On October 5, 1987, the President, through respondent Executive Secretary Macaraig, Jr.,
confirmed and approved FIRB Resolution No. 17-87.
As alleged in the petition, the following are the background facts:
The following are the facts relevant to NPC's questioned claim for refunds of taxes and duties originally paid
by respondents Caltex, Petrophil and Shell for specific and ad valorem taxes to the BIR; and for Customs
duties and ad valorem taxes paid by PNOC, Shell and Caltex to the Bureau of Customs on its crude oil
importation.
Many of the factual statements are reproduced from the Senate Committee on Accountability of Public
Officers and Investigations (Blue Ribbon) Report No. 474 dated January 12, 1989 and approved by the
Senate on April 21, 1989 (copy attached hereto as Annex "A") and are identified in quotation marks:
1. Since May 27, 1976 when P.D. No. 938 was issued until June 11, 1984 when P.D. No. 1931 was
promulgated abolishing the tax exemptions of all government-owned or-controlled corporations, the oil
firms never paid excise or specific and ad valorem taxes for petroleum products sold and delivered to the
NPC. This non-payment of taxes therefore spanned a period of eight (8) years. (par. 23, p. 7, Annex "A")
During this period, the Bureau of Internal Revenue was not collecting specific taxes on the purchases of
NPC of petroleum products from the oil companies on the erroneous belief that the National Power
Corporation (NPC) was exempt from indirect taxes as reflected in the letter of Deputy Commissioner of
Internal Revenue (DCIR) Romulo Villa to the NPC dated October 29, 1980 granting blanket authority to the
NPC to purchase petroleum products from the oil companies without payment of specific tax (copy of this
letter is attached hereto as petitioner's Annex "B").
2. The oil companies started to pay specific and ad valorem taxes on their sales of oil products to NPC only
after the promulgation of P.D. No. 1931 on June 11, 1984, withdrawing all exemptions granted in favor of
government-owned or-controlled corporations and empowering the FIRB to recommend to the President or
to the Minister of Finance the restoration of the exemptions which were withdrawn. "Specifically, Caltex paid
the total amount of P58,020,110.79 in specific and ad valorem taxes for deliveries of petroleum products to
NPC covering the period from October 31, 1984 to April 27, 1985." (par. 23, p. 7, Annex "A")
3. Caltex billings to NPC until June 10, 1984 always included customs duty without the tax portion.
Beginning June 11, 1984, when P.D. 1931 was promulgated abolishing NPC's tax exemptions, Caltex's
billings to NPC always included both duties and taxes. (Caturla, tsn, Oct. 10, 1988, pp. 1-5) (par. 24, p, 7,
Annex "A")
4. For the sales of petroleum products delivered to NPC during the period from October, 1984 to April, 1985,
NPC was billed a total of P522,016,77.34 (sic) including both duties and taxes, the specific tax component
being valued at P58,020,110.79. (par. 25, p. 8, Annex "A").
5. Fiscal Incentives Review Board (FIRB) Resolution 10-85, dated February 7, 1985, certified true copy of
which is hereto attached as Annex "C", restored the tax exemption privileges of NPC effective retroactively
to June 11, 1984 up to June 30, 1985. The first paragraph of said resolution reads as follows:
1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National Power
Corporation under C.A. No. 120, as amended, are restored up to June 30, 1985.
Because of this restoration (Annex "G") the NPC applied on September 11, 1985 with the BIR for a "refund
of Specific Taxes paid on petroleum products . . . in the total amount of P58,020,110.79. (par. 26, pp. 8-9,
Annex "A")
6. In a letter to the president of the NPC dated May 8, 1985 (copy attached as petitioner's Annex "D"), Acting
BIR Commissioner Ruben Ancheta declared:
FIRB Resolution No. 10-85 serves as sufficient basis to allow NPC to purchase petroleum products
from the oil companies free of specific and ad valorem taxes, during the period in question.
The "period in question" is June 1 1, 1 984 to June 30, 1 985.
7. On June 6, 1985—The president of the NPC, Mr. Gabriel Itchon, wrote Mr. Cesar Virata, Chairman of the
FIRB (Annex "E"), requesting "the FIRB to resolve conflicting rulings on the tax exemption privileges of the
National Power Corporation (NPC)." These rulings involve FIRB Resolutions No. 1-84 and 10-85. (par. 40, p.
12, Annex "A")
8. In a letter to the President of NPC (Annex "F"), dated June 26, 1985, Minister Cesar Virata confirmed the
ruling of May 8, 1985 of Acting BIR Commissioner Ruben Ancheta, (par. 41, p. 12, Annex "A")
9. On October 22, 1985, however, under BIR Ruling No. 186-85, addressed to Hanil Development Co., Ltd.,
a Korean contractor of NPC for its infrastructure projects, certified true copy of which is attached hereto as
petitioner's Annex "E", BIR Acting Commissioner Ruben Ancheta ruled:
In Reply please be informed that after a re-study of Section 13, R.A. 6395, as amended by P.D. 938,
this Office is of the opinion, and so holds, that the scope of the tax exemption privilege enjoyed by
NPC under said section covers only taxes for which it is directly liable and not on taxes which are
only shifted to it. (Phil. Acetylene vs. C.I.R. et al., G.R. L-19707, Aug. 17, 1967) Since contractor's
tax is directly payable by the contractor, not by NPC, your request for exemption, based on the
stipulation in the aforesaid contract that NPC shall assume payment of your contractor's tax liability,
cannot be granted for lack of legal basis." (Annex "H") (emphasis added)
Said BIR ruling clearly states that NPC's exemption privileges covers (sic) only taxes for which it is directly
liable and does not cover taxes which are only shifted to it or for indirect taxes. The BIR, through Ancheta,
reversed its previous position of May 8, 1985 adopted by Ancheta himself favoring NPC's indirect tax
exemption privilege.
10. Furthermore, "in a BIR Ruling, unnumbered, "dated June 30, 1986, "addressed to Caltex (Annex "F"),
the BIR Commissioner declared that PAL's tax exemption is limited to taxes for which PAL is directly liable,
and that the payment of specific and ad valorem taxes on petroleum products is a direct liability of the
manufacturer or producer thereof". (par. 51, p. 15, Annex "A")
11. On January 7, 1986, FIRB Resolution No. 1-86 was issued restoring NPC's tax exemptions retroactively
from July 1, 1985 to a indefinite period, certified true copy of which is hereto attached as petitioner's Annex
"H".
12. NPC's total refund claim was P468.58 million but only a portion thereof i.e. the P58,020,110.79
(corresponding to Caltex) was approved and released by way of a Tax Credit Memo (Annex "Q") dated July
7, 1986, certified true copy of which [is) attached hereto as petitioner's Annex "F," which was assigned by
NPC to Caltex. BIR Commissioner Tan approved the Deed of Assignment on July 30, 1987, certified true
copy of which is hereto attached as petitioner's Annex "G"). (pars. 26, 52, 53, pp. 9 and 15, Annex "A")
The Deed of Assignment stipulated among others that NPC is assigning the tax credit to Caltex in partial
settlement of its outstanding obligations to the latter while Caltex, in turn, would apply the assigned tax credit
against its specific tax payments for two (2) months. (per memorandum dated July 28, 1986 of DCIR Villa,
copy attached as petitioner Annex "G")
13. As a result of the favorable action taken by the BIR in the refund of the P58.0 million tax credit assigned
to Caltex, the NPC reiterated its request for the release of the balance of its pending refunds of taxes paid
by respondents Petrophil, Shell and Caltex covering the period from June 11, 1984 to early part of 1986
amounting to P410.58 million. (The claim of the first two (2) oil companies covers the period from June 11,
1984 to early part of 1986; while that of Caltex starts from July 1, 1985 to early 1986). This request was
denied on August 18, 1986, under BIR Ruling 152-86 (certified true copy of which is attached hereto as
petitioner's Annex "I"). The BIR ruled that NPC's tax free privilege to buy petroleum products covered only
the period from June 11, 1984 up to June 30, 1985. It further declared that, despite FIRB No. 1-86, NPC had
already lost its tax and duty exemptions because it only enjoys special privilege for taxes for which it
is directly liable. This ruling, in effect, denied the P410 Million tax refund application of NPC (par. 28, p. 9,
Annex "A")
14. NPC filed a motion for reconsideration on September 18, 1986. Until now the BIR has not resolved the
motion. (Benigna, II 3, Oct. 17, 1988, p. 2; Memorandum for the Complainant, Oct. 26, 1988, p. 15)." (par.
29, p. 9, Annex "A")
15. On December 22, 1986, in a 2nd Indorsement to the Hon. Fulgencio S. Factoran, Jr., BIR Commissioner
Tan, Jr. (certified true copy of which is hereto attached and made a part hereof as petitioner's Annex "J"),
reversed his previous position and states this time that all deliveries of petroleum products to NPC are tax
exempt, regardless of the period of delivery.
16. On December 17, 1986, President Corazon C. Aquino enacted Executive Order No. 93, entitled
"Withdrawing All Tax and Duty Incentives, Subject to Certain Exceptions, Expanding the Powers of the
Fiscal Incentives Review Board and Other Purposes."
17. On June 24, 1987, the FIRB issued Resolution No. 17-87, which restored NPC's tax exemption privilege
and included in the exemption "those pertaining to its domestic purchases of petroleum and petroleum
products, and the restorations were made to retroact effective March 10, 1987, a certified true copy of which
is hereto attached and made a part hereof as Annex "K".
18. On August 6, 1987, the Hon. Sedfrey A. Ordoñez, Secretary of Justice, issued Opinion No. 77, series of
1987, opining that "the power conferred upon Fiscal Incentives Review Board by Section 2a (b), (c) and (d)
of Executive order No. 93 constitute undue delegation of legislative power and, therefore, [are]
unconstitutional," a copy of which is hereto attached and made a part hereof as Petitioner's Annex "L."
19. On October 5, 1987, respondent Executive Secretary Macaraig, Jr. in a Memorandum to the Chairman
of the FIRB a certified true copy of which is hereto attached and made a part hereof as petitioner's Annex
"M," confirmed and approved FIRB Res. No. 17-87 dated June 24, 1987, allegedly pursuant to Sections 1 (f)
and 2 (e) of Executive Order No. 93.
20. Secretary Vicente Jayme in a reply dated May 20, 1988 to Secretary Catalino Macaraig, who by letter
dated May 2, 1988 asked him to rule "on whether or not, as the law now stands, the National Power
Corporation is still exempt from taxes, duties . . . on its local purchases of . . . petroleum products . . ."
declared that "NPC under the provisions of its Revised Charter retains its exemption from duties and taxes
imposed on the petroleum products purchased locally and used for the generation of electricity," a certified
true copy of which is attached hereto as petitioner's Annex "N." (par. 30, pp. 9-10, Annex "A")
21. Respondent Executive Secretary came up likewise with a confirmatory letter dated June 1 5, 1988 but
without the usual official form of "By the Authority of the President," a certified true copy of which is hereto
attached and made a part hereof as Petitioner's Annex "O".
22. The actions of respondents Finance Secretary and the Executive Secretary are based on the
RESOLUTION No. 17-87 of FIRB restoring the tax and duty exemption of the respondent NPC pertaining to
its domestic purchases of petroleum products (petitioner's Annex K supra).
23. Subsequently, the newspapers particularly, the Daily Globe, in its issue of July 11, 1988 reported that
the Office of the President and the Department of Finance had ordered the BIR to refund the tax payments
of the NPC amounting to Pl.58 Billion which includes the P410 Million Tax refund already rejected by BIR
Commissioner Tan, Jr., in his BIR Ruling No. 152-86. And in a letter dated July 28, 1988 of Undersecretary
Marcelo B. Fernando to BIR Commissioner Tan, Jr. the Pl.58 Billion tax refund was ordered released to
NPC (par. 31, p. 1 0, Annex "A")
24. On August 8, 1988, petitioner "wrote both Undersecretary Fernando and Commissioner Tan requesting
them to hold in abeyance the release of the Pl.58 billion and await the outcome of the investigation in regard
to Senate Resolution No. 227," copies attached as Petitioner's Annexes "P" and "P-1 " (par. 32, p. 10,
Annex "A").
Reacting to this letter of the petitioner, Undersecretary Fernando wrote Commissioner Tan of the BIR dated
August, 1988 requesting him to hold in abeyance the release of the tax refunds to NPC until after the
termination of the Blue Ribbon investigation.
25. In the Bureau of Customs, oil companies import crude oil and before removal thereof from customs
custody, the corresponding customs duties and ad valorem taxes are paid. Bunker fuel oil is one of the
petroleum products processed from the crude oil; and same is sold to NPC. After the sale, NPC applies for
tax credit covering the duties and ad valorem exemption under its Charter. Such applications are processed
by the Bureau of Customs and the corresponding tax credit certificates are issued in favor of NPC which, in
turn assigns it to the oil firm that imported the crude oil. These certificates are eventually used by the
assignee-oil firms in payment of their other duty and tax liabilities with the Bureau of Customs. (par. 70, p.
19, Annex "A")
A lesser amount totalling P740 million, covering the period from 1985 to the present, is being sought by
respondent NPC for refund from the Bureau of Customs for duties paid by the oil companies on the
importation of crude oil from which the processed products sold locally by them to NPC was derived.
However, based on figures submitted to the Blue Ribbon Committee of the Philippine Senate which
conducted an investigation on this matter as mandated by Senate Resolution No. 227 of which the herein
petitioner was the sponsor, a much bigger figure was actually refunded to NPC representing duties and ad
valorem taxes paid to the Bureau of Customs by the oil companies on the importation of crude oil from 1979
to 1985.
26. Meantime, petitioner, as member of the Philippine Senate introduced P.S. Res. No. 227, entitled:
Resolution Directing the Senate Blue Ribbon Committee, In Aid of Legislation, To conduct a Formal
and Extensive Inquiry into the Reported Massive Tax Manipulations and Evasions by Oil
Companies, particularly Caltex (Phils.) Inc., Pilipinas Shell and Petrophil, Which Were Made
Possible By Their Availing of the Non-Existing Exemption of National Power Corporation (NPC) from
Indirect Taxes, Resulting Recently in Their Obtaining A Tax Refund Totalling P1.55 Billion From the
Department of Finance, Their Refusal to Pay Since 1976 Customs Duties Amounting to Billions of
Pesos on Imported Crude Oil Purportedly for the Use of the National Power Corporation, the Non-
Payment of Surtax on Windfall Profits from Increases in the Price of Oil Products in August 1987
amounting Maybe to as Much as Pl.2 Billion Surtax Paid by Them in 1984 and For Other Purposes.
27. Acting on the above Resolution, the Blue Ribbon Committee of the Senate did conduct a lengthy formal
inquiry on the matter, calling all parties interested to the witness stand including representatives from the
different oil companies, and in due time submitted its Committee Report No. 474 . . . — The Blue Ribbon
Committee recommended the following courses of action.
1. Cancel its approval of the tax refund of P58,020,110.70 to the National Power Corporation (NPC)
and its approval of Tax Credit memo covering said amount (Annex "P" hereto), dated July 7, 1986,
and cancel its approval of the Deed of Assignment (Annex "Q" hereto) by NPC to Caltex, dated July
28, 1986, and collect from Caltex its tax liabilities which were erroneously treated as paid or settled
with the use of the tax credit certificate that NPC assigned to said firm.:
1.1. NPC did not have any indirect tax exemption since May 27, 1976 when PD 938 was
issued. Therefore, the grant of a tax refund to NPC in the amount of P58 million was illegal,
and therefore, null and void. Such refund was a nullity right from the beginning. Hence, it
never transferred any right in favor of NPC.
2. Stop the processing and/or release of Pl.58 billion tax refund to NPC and/or oil companies on the
same ground that the NPC, since May 27, 1976 up to June 17, 1987 was never granted any indirect
tax exemption. So, the P1.58 billion represent taxes legally and properly paid by the oil firms.
3. Start collection actions of specific or excise and ad valorem taxes due on petroleum products sold
to NPC from May 27, 1976 (promulgation of PD 938) to June 17, 1987 (issuance of EO 195).
B. For the Bureau of Customs (BOC) to do the following:

1. Start recovery actions on the illegal duty refunds or duty credit certificates for purchases of petroleum
products by NPC and allegedly granted under the NPC charter covering the years 1978-1988 . . .
28. On March 30, 1989, acting on the request of respondent Finance Secretary for clearance to direct the
Bureau of Internal Revenue and of Customs to proceed with the processing of claims for tax credits/refunds
of the NPC, respondent Executive Secretary rendered his ruling, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, the clearance is hereby GRANTED and, accordingly, unless restrained by proper
authorities, that department and/or its line-tax bureaus may now proceed with the processing of the claims of the
National Power Corporation for duty and tax free exemption and/or tax credits/ refunds, if there be any, in
accordance with the ruling of that Department dated May 20,1988, as confirmed by this Office on June 15, 1988 . . . 5
Hence, this petition for certiorari, prohibition and mandamus with prayer for a writ of preliminary injunction and/or
restraining order, praying among others that:
1. Upon filing of this petition, a temporary restraining order forthwith be issued against respondent FIRB
Executive Secretary Macaraig, and Secretary of Finance Jayme restraining them and other persons acting
for, under, and in their behalf from enforcing their resolution, orders and ruling, to wit:
A. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");
B. Memorandum-Order of the Office of the President dated October 5, 1987 (petitioner's Annex "M");
C. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");
D. Order of the Executive Secretary dated March 30, l989 (petitioner's Annex "Q"); and
E. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N").
2. Said temporary restraining order should also include respondent Commissioners of Customs Mison and
Internal Revenue Ong restraining them from processing and releasing any pending claim or application by
respondent NPC for tax and duty refunds.
3. Thereafter, and during the pendency of this petition, to issue a writ or preliminary injunction against
above-named respondents and all persons acting for and in their behalf.
4. A decision be rendered in favor of the petitioner and against the respondents:
A. Declaring that respondent NPC did not enjoy indirect tax exemption privilege since May 27, 1976 up to
the present;
B. Nullifying the setting aside the following:
1. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");
2. Memorandum-Order of the Office of the President dated October 5, 1987 (petitioner's Annex "M");
3. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");
4. Order of the Executive Secretary dated March 30, 1989 (petitioner's Annex "Q");
5. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N"
6. Tax Credit memo dated July 7, 1986 issued to respondent NPC representing tax refund for
P58,020,110.79 (petitioner's Annex "F");
7. Deed of Assignment of said tax credit memo to respondent Caltex dated July 30, 1987
(petitioner's Annex "G");
8. Application of the assigned tax credit of Caltex in payment of its tax liabilities with the Bureau of
Internal Revenue and
9. Illegal duty and tax refunds issued by the Bureau of Customs to respondent NPC by way of tax
credit certificates from 1979 up to the present.
C. Declaring as illegal and null and void the pending claims for tax and duty refunds by respondent NPC with
the Bureau of Customs and the Bureau of Internal Revenue;
D. Prohibiting respondents Commissioner of Customs and Commissioner of Internal Revenue from

enforcing the abovequestioned resolution, orders and ruling of respondents Executive Secretary, Secretary
of Finance, and FIRB by processing and releasing respondent NPC's tax and duty refunds;
E. Ordering the respondent Commissioner of Customs to deny as being null and void the pending claims for
refund of respondent NPC with the Bureau of Customs covering the period from 1985 to the present; to
cancel and invalidate the illegal payment made by respondents Caltex, Shell and PNOC by using the tax
credit certificates assigned to them by NPC and to recover from respondents Caltex, Shell and PNOC all the
amounts appearing in said tax credit certificates which were used to settle their duty and tax liabilities with
the Bureau of Customs.
F. Ordering respondent Commissioner of Internal Revenue to deny as being null and void the pending
claims for refund of respondent NPC with the Bureau of Internal Revenue covering the period from June 11,
1984 to June 17, 1987.
PETITIONER prays for such other relief and remedy as may be just and equitable in the premises. 6
The issues raised in the petition are the following:
To determine whether respondent NPC is legally entitled to the questioned tax and duty refunds, this
Honorable Court must resolve the following issues:
Main issue—
Whether or not the respondent NPC has ceased to enjoy indirect tax and duty exemption with the enactment
of P.D. No. 938 on May 27, 1976 which amended P.D. No. 380, issued on January 11, 1974.
Corollary issues—
1. Whether or not FIRB Resolution No. 10-85 dated February 7, 1985 which restored NPC's tax exemption
privilege effective June 11, 1984 to June 30, 1985 and FIRB Resolution No. 1-86 dated January 7, 1986
restoring NPC's tax exemption privilege effective July 1, 1985 included the restoration of indirect tax
exemption to NPC and
2. Whether or not FIRB could validly and legally issue Resolution No. 17-87 dated June 24, 1987 which
restored NPC's tax exemption privilege effective March 10, 1987; and if said Resolution was validly issued,
the nature and extent of the tax exemption privilege restored to NPC. 7
In a resolution dated June 6, 1989, the Court, without giving due course to the petition, required respondents to
comment thereon, within ten (10) days from notice. The respondents having submitted their comment, on October
10, 1989 the Court required petitioner to file a consolidated reply to the same. After said reply was filed by petitioner
on November 15, 1989 the Court gave due course to the petition, considering the comments of respondents as their
answer to the petition, and requiring the parties to file simultaneously their respective memoranda within twenty (20)
days from notice. The parties having submitted their respective memoranda, the petition was deemed submitted for
resolution.
First the preliminary issues.
Public respondents allege that petitioner does not have the standing to challenge the questioned orders and
resolution.
In the petition it is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a duly-elected
Senator of the Philippines." Public respondent argues that petitioner must show he has sustained direct injury as a
result of the action and that it is not sufficient for him to have a mere general interest common to all members of the
public.
8
The Court however agrees with the petitioner that as a taxpayer he may file the instant petition following the ruling
in Lozada when it involves illegal expenditure of public money. The petition questions the legality of the tax refund to
NPC by way of tax credit certificates and the use of said assigned tax credits by respondent oil companies to pay for
their tax and duty liabilities to the BIR and Bureau of Customs.
Assuming petitioner has the personality to file the petition, public respondents also allege that the proper remedy for
petitioner is an appeal to the Court of Tax Appeals under Section 7 of R.A. No. 125 instead of this petition. However
Section 11 of said law provides—
Sec. 11. Who may appeal; effect of appeal—Any person, association or corporation adversely affected by a
decision or ruling of the Commissioner of Internal Revenue, the Collector of Customs (Commissioner of
Customs) or any provincial or City Board of Assessment Appeals may file an appeal in the Court of Tax
Appeals within thirty days after receipt of such decision or ruling.
From the foregoing, it is only the taxpayer adversely affected by a decision or ruling of the Commissioner of Internal
Revenue, the Commissioner of Customs or any provincial or city Board of Assessment Appeal who may appeal to
the Court of Tax Appeals. Petitioner does not fall under this category.
Public respondents also contend that mandamus does not lie to compel the Commissioner of Internal Revenue to
impose a tax assessment not found by him to be proper. It would be tantamount to a usurpation of executive
functions. 9
Even in Meralco, this Court recognizes the situation when mandamus can control the discretion of the
Commissioners of Internal Revenue and Customs when the exercise of discretion is tainted with arbitrariness and
grave abuse as to go beyond statutory authority. 10
Public respondents then assert that a writ of prohibition is not proper as its function is to prevent an unlawful
exercise of jurisdiction or to prevent the oppressive exercise of legal authority. Precisely, petitioner questions the
11 12
lawfulness of the acts of public respondents in this case.
Now to the main issue.
It may be useful to make a distinction, for the purpose of this disposition, between a direct tax and an indirect tax. A
direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in. Examples are
the custom duties and ad valorem taxes paid by the oil companies to the Bureau of Customs for their importation of
crude oil, and the specific and ad valorem taxes they pay to the Bureau of Internal Revenue after converting the
crude oil into petroleum products.
On the other hand, "indirect taxes are taxes primarily paid by persons who can shift the burden upon someone
else ." For example, the excise and ad valorem taxes that oil companies pay to the Bureau of Internal Revenue
13
upon removal of petroleum products from its refinery can be shifted to its buyer, like the NPC, by adding them to the
"cash" and/or "selling price."
The main thrust of the petition is that under the latest amendment to the NPC charter by Presidential Decree No.
938, the exemption of NPC from indirect taxation was revoked and repealed. While petitioner concedes that NPC
enjoyed broad exemption privileges from both direct and indirect taxes on the petroleum products it used, under
Section 13 of Republic Act No, 6395 and more so under Presidential Decree No. 380, however, by the deletion of
the phrases "directly or indirectly" and "on all petroleum products used by the Corporation in the generation,
transmission, utilization and sale of electric power" he contends that the exemption from indirect taxes was
withdrawn by P.D. No. 938.
Petitioner further states that the exemption of NPC provided in Section 13 of Presidential Decree No. 938 regarding
the payments of "all forms of taxes, etc." cannot be interpreted to include indirect tax exemption. He cites Philippine
Aceytelene Co. Inc. vs. Commissioner of Internal Revenue. Petitioner emphasizes the principle in taxation that the
14
exception contained in the tax statutes must be strictly construed against the one claiming the exemption, and that
the rule that a tax statute granting exemption must be strictly construed against the one claiming the exemption is
similar to the rule that a statute granting taxing power is to be construed strictly, with doubts resolved against its
existence. Petitioner cites rulings of the BIR that the phrase exemption from "all taxes, etc." from "all forms of
15
taxes" and "in lieu of all taxes" covers only taxes for which the taxpayer is directly liable.
16
On the corollary issues. First, FIRB Resolution Nos. 10-85 and 10-86 issued under Presidential Decree No. 1931,
the relevant provision of which are to wit:
P.D. No. 1931 provides as follows:
Sec. 1. The provisions of special or general law to the contrary notwithstanding, all exemptions from the
payment of duties, taxes . . . heretofore granted in favor of government-owned or controlled corporations are
hereby withdrawn. (Emphasis supplied.)
Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the recommendation of the
Fiscal Incentives Review Board . . . is hereby empowered to restore, partially or totally, the exemptions
withdrawn by Section 1 above . . . (Emphasis supplied.)
The relevant provisions of FIRB resolution Nos. 10-85 and 1-86 are the following:
Resolution. No. 10-85
BE IT RESOLVED AS IT IS HEREBY RESOLVED, That:
1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National Power Corporation under
C.A. No. 120 as amended are restored up to June 30, 1985.
2. Provided, That to restoration does not apply to the following:
a. importations of fuel oil (crude equivalent) and coal as per FIRB Resolution No. 1-84;
b. commercially-funded importations; and
c. interest income derived from any investment source.
3. Provided further, That in case of importations funded by international financing agreements, the NPC is hereby
required to furnish the FIRB on a periodic basis the particulars of items received or to be received through such
arrangements, for purposes of tax and duty exemptions privileges. 17
Resolution No. 1-86

BE IT RESOLVED AS IT IS HEREBY RESOLVED: That:
1. Effective July 1, 1985, the tax and duty exemption privileges enjoyed by the National Power Corporation (NPC)
under Commonwealth Act No. 120, as amended, are restored: Provided, That importations of fuel oil (crude oil
equivalent), and coal of the herein grantee shall be subject to the basic and additional import duties; Provided,
further, that the following shall remain fully taxable:
a. Commercially-funded importations; and
b. Interest income derived by said grantee from bank deposits and yield or any other monetary
benefits from deposit substitutes, trust funds and other similar arrangements.
2. The NPC as a government corporation is exempt from the real property tax on land and improvements owned by
it provided that the beneficial use of the property is not transferred to another pursuant to the provisions of Sec.
10(a) of the Real Property Tax Code, as amended. 18
Petitioner does not question the validity and enforceability of FIRB Resolution Nos. 10-85 and 1-86. Indeed, they
were issued in compliance with the requirement of Section 2, P.D. No. 1931, whereby the FIRB should make the
recommendation subject to the approval of "the President of the Philippines and/or the Minister of Finance." While
said Resolutions do not appear to have been approved by the President, they were nevertheless approved by the
Minister of Finance who is also duly authorized to approve the same. In fact it was the Minister of Finance who
signed and promulgated said resolutions. 19
The observation of Mr. Justice Sarmiento in the dissenting opinion that FIRB Resolution Nos. 10-85 and 1-86 which
were promulgated by then Acting Minister of Finance Alfredo de Roda, Jr. and Minister of Finance Cesar E.A Virata,
as Chairman of FIRB respectively, should be separately approved by said Minister of Finance as required by P.D.
1931 is, a superfluity. An examination of the said resolutions which are reproduced in full in the dissenting opinion
show that the said officials signed said resolutions in the dual capacity of Chairman of FIRB and Minister of Finance.
Mr. Justice Sarmiento also makes reference to the case National Power Corporation vs. Province of Albay, wherein20
the Court observed that under P.D. No. 776 the power of the FIRB was only recommendatory and requires the
approval of the President to be valid. Thus, in said case the Court held that FIRB Resolutions Nos. 10-85 and 1-86
not having been approved by the President were not valid and effective while the validity of FIRB 17-87 was upheld
as it was duly approved by the Office of the President on October 5, 1987.
However, under Section 2 of P.D. No. 1931 of June 11, 1984, hereinabove reproduced, which amended P.D. No.
776, it is clearly provided for that such FIRB resolution, may be approved by the "President of the Philippines and/or
the Minister of Finance." To repeat, as FIRB Resolutions Nos. 10-85 and 1-86 were duly approved by the Minister of
Finance, hence they are valid and effective. To this extent, this decision modifies or supersedes the Court's earlier
decision in Albay afore-referred to.
Petitioner, however, argues that under both FIRB resolutions, only the tax and duty exemption privileges enjoyed by
the NPC under its charter, C.A. No. 120, as amended, are restored, that is, only its direct tax exemption privilege;
and that it cannot be interpreted to cover indirect taxes under the principle that tax exemptions are
construed stricissimi juris against the taxpayer and liberally in favor of the taxing authority.
Petitioner argues that the release by the BIR of the P58.0 million refund to respondent NPC by way of a tax credit
certificate which was assigned to respondent Caltex through a deed of assignment approved by the BIR is
21 22
patently illegal. He also contends that the pending claim of respondent NPC in the amount of P410.58 million with
respondent BIR for the sale and delivery to it of bunker fuel by respondents Petrophil, Shell and Caltex from July 1,
1985 up to 1986, being illegal, should not be released.
Now to the second corollary issue involving the validity of FIRB Resolution No. 17-87 issued on June 24, 1987. It
was issued under authority of Executive Order No. 93 dated December 17, 1986 which grants to the FIRB among
others, the power to recommend the restoration of the tax and duty exemptions/incentives withdrawn thereunder.
Petitioner stresses that on August 6, 1987 the Secretary of Justice rendered Opinion No. 77 to the effect that the
powers conferred upon the FIRB by Section 2(a), (b), and (c) and (4) of Executive Order No. 93 "constitute undue
delegation of legislative power and is, therefore, unconstitutional." Petitioner observes that the FIRB did not merely
recommend but categorically restored the tax and duty exemption of the NPC so that the memorandum of the
respondent Executive Secretary dated October 5, 1987 approving the same is a surplusage.
Further assuming that FIRB Resolution No. 17-87 to have been legally issued, following the doctrine in Philippine
Aceytelene, petitioner avers that the restoration cannot cover indirect taxes and it cannot create new indirect tax
exemption not otherwise granted in the NPC charter as amended by Presidential Decree No. 938.
The petition is devoid of merit.
The NPC is a non-profit public corporation created for the general good and welfare wholly owned by the
23
government of the Republic of the Philippines. From the very beginning of its corporate existence, the NPC enjoyed
24
preferential tax treatment to enable the Corporation to pay the indebtedness and obligation and in furtherance and
25
effective implementation of the policy enunciated in Section one of "Republic Act No. 6395" which provides:
26
Sec. 1. Declaration of Policy—Congress hereby declares that (1) the comprehensive development,
utilization and conservation of Philippine water resources for all beneficial uses, including power generation,
and (2) the total electrification of the Philippines through the development of power from all sources to meet
the need of rural electrification are primary objectives of the nation which shall be pursued coordinately and
supported by all instrumentalities and agencies of the government including its financial institutions.
From the changes made in the NPC charter, the intention to strengthen its preferential tax treatment is obvious.
Under Republic Act No. 358, its exemption is provided as follows:
Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all
taxes, duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, its provinces, cities
and municipalities."
Under Republic Act No. 6395:
Sec. 13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and
other Charges by Government and Governmental Instrumentalities.— The Corporation shall be non-profit
and shall devote all its returns from its capital investment, as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one of this Act, the Corporation is hereby
declared exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court or
administrative proceedings in which it may be a party, restrictions and duties to the Republic of the
Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its
provinces, cities, municipalities and other government agencies and instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of
foreign goods required for its operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines,
its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum
products used by the Corporation in the generation, transmission, utilization, and sale of electric power.
(Emphasis supplied.)
Under Presidential Decree No. 380:
Sec. 13. Non-profit Character of the Corporation: Exemption from all Taxes, Duties, Fees, Imposts and
other Charges by the Government and Government Instrumentalities.— The Corporation shall be non-profit
and shall devote all its returns from its capital investment as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one of this Act, the Corporation, including its
subsidiaries, is hereby declared, exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and services fees in any court or
administrative proceedings in which it may be a party, restrictions and duties to the Republic of the
Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its
provinces, cities, municipalities and other governmental agencies and instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of
foreign goods required for its operation and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by the Republic
of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities,
on all petroleum produced used by the Corporation in the generation, transmission, utilization, and sale of
electric power. (Emphasis supplied.)
Under Presidential Decree No. 938:
Sec. 13. Non-profit Character of the Corporation: Exemption from All Taxes, Duties, Fees, Imposts and
Other Charges by the Government and Government Instrumentalities.—The Corporation shall be non-profit
and shall devote all its returns from its capital investment as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay the indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section One of this Act, the Corporation, including its
subsidiaries hereby declared exempt from the payment of all forms of taxes, duties, fees, imposts as well as
costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative
proceedings. (Emphasis supplied.)
It is noted that in the earlier law, R.A. No. 358 the exemption was worded in general terms, as to cover "all taxes,
duties, fees, imposts, charges, etc. . . ." However, the amendment under Republic Act No. 6395 enumerated the
details covered by the exemption. Subsequently, P.D. No. 380, made even more specific the details of the
exemption of NPC to cover, among others, both direct and indirect taxes on all petroleum products used in its
operation. Presidential Decree No. 938 amended the tax exemption by simplifying the same law in general terms. It
succinctly exempts NPC from "all forms of taxes, duties, fees, imposts, as well as costs and service fees including
filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings."
The use of the phrase "all forms" of taxes demonstrate the intention of the law to give NPC all the tax exemptions it
has been enjoying before. The rationale for this exemption is that being non-profit the NPC "shall devote all its
returns from its capital investment as well as excess revenues from its operation, for expansion. To enable the
Corporation to pay the indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, . . ."
27
The preamble of P.D. No. 938 states—
WHEREAS, in the application of the tax exemption provision of the Revised Charter, the non-profit character
of the NPC has not been fully utilized because of restrictive interpretations of the taxing agencies of the
government on said provisions. . . . (Emphasis supplied.)
It is evident from the foregoing that the lawmaker did not intend that the said provisions of P.D. No. 938 shall be
construed strictly against NPC. On the contrary, the law mandates that it should be interpreted liberally so as to
enhance the tax exempt status of NPC.
Hence, petitioner cannot invoke the rule on strictissimi juris with respect to the interpretation of statutes granting tax
exemptions to NPC.
Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case of exemptions in
favor of a government political subdivision or instrumentality. 28
The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or
deductions, even more obvious than with reference to the affirmative or levying provisions of tax statutes, is
to minimize differential treatment and foster impartiality, fairness, and equality of treatment among tax
payers.
The reason for the rule does not apply in the case of exemptions running to the benefit of the government
itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of
money that has to be handled by government in the course of its operations. For these reasons, provisions
granting exemptions to government agencies may be construed liberally, in favor of non tax liability of such
agencies. 29
In the case of property owned by the state or a city or other public corporations, the express exemption should not
be construed with the same degree of strictness that applies to exemptions contrary to the policy of the state, since
as to such property "exemption is the rule and taxation the exception." 30
The contention of petitioner that the exemption of NPC from indirect taxes under Section 13 of R.A. No. 6395 and
P.D. No. 380, is deemed repealed by P.D. No. 938 when the reference to it was deleted is not well-taken.
Repeal by implication is not favored unless it is manifest that the legislature so intended. As laws are presumed to
be passed with deliberation and with knowledge of all existing ones on the subject, it is logical to conclude that in
passing a statute it is not intended to interfere with or abrogate a former law relating to the same subject matter,
unless the repugnancy between the two is not only irreconcilable but also clear and convincing as a result of the
language used, or unless the latter Act fully embraces the subject matter of the earlier. The first effort of a court
31
must always be to reconcile or adjust the provisions of one statute with those of another so as to give sensible effect
to both provisions.32
The legislative intent must be ascertained from a consideration of the statute as a whole, and not of an isolated part
or a particular provision alone. When construing a statute, the reason for its enactment should be kept in mind and
33
the statute should be construed with reference to its intended scope and purpose and the evil sought to be
34
remedied. 35
The NPC is a government instrumentality with the enormous task of undertaking development of hydroelectric
generation of power and production of electricity from other sources, as well as the transmission of electric power on
a nationwide basis, to improve the quality of life of the people pursuant to the State policy embodied in Section E,
Article II of the 1987 Constitution.
It is evident from the provision of P.D. No. 938 that its purpose is to maintain the tax exemption of NPC from all
forms of taxes including indirect taxes as provided for under R.A. No. 6895 and P.D. No. 380 if it is to attain its
goals.
Further, the construction of P.D. No. 938 by the Office charged with its implementation should be given controlling
weight.36
Since the May 8, 1985 ruling of Commissioner Ancheta, to the letter of the Secretary of Finance of June 26, 1985
confirming said ruling, the letters of the BIR of August 18, 1986, and December 22, 1986, the letter of the Secretary
of Finance of February 19, 1987, the Memorandum of the Executive Secretary of October 9, 1987, by authority of
the President, confirming and approving FIRB Resolution No. 17-87, the letter of the Secretary of Finance of May
20, 1988 to the Executive Secretary rendering his opinion as requested by the latter, and the latter's reply of June
15, 1988, it was uniformly held that the grant of tax exemption to NPC under C.A. No. 120, as amended, included
exemption from payment of all taxes relative to NPC's petroleum purchases including indirect taxes. Thus, then
37
Secretary of Finance Vicente Jayme in his letter of May 20, 1988 to the Executive Secretary Macaraig aptly stated
the justification for this tax exemption of NPC —
The issue turns on the effect to the exemption of NPC from taxes of the deletion of the phrase 'taxes
imposed indirectly on oil products and its exemption from 'all forms of taxes.' It is suggested that the change
in language evidenced an intention to exempt NPC only from taxes directly imposed on or payable by it;
since taxes on fuel-oil purchased by it; since taxes on fuel-oil purchased by NPC locally are levied on and
paid by its oil suppliers, NPC thereby lost its exemption from those taxes. The principal authority relied on is
the 1967 case of Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue, 20 SCRA 1056.
First of all, tracing the changes made through the years in the Revised Charter, the strengthening of NPC's
preferential tax treatment was clearly the intention. To the extent that the explanatory "whereas clauses"
may disclose the intent of the law-maker, the changes effected by P.D. 938 can only be read as being
expansive rather than restrictive, including its version of Section 13.
Our Tax Code does not recognize that there are taxes directly imposed and those imposed indirectly. The
textbook distinction between a direct and an indirect tax may be based on the possibility of shifting the
incidence of the tax. A direct tax is one which is demanded from the very person intended to be the payor,
although it may ultimately be shifted to another. An example of a direct tax is the personal income tax. On
the other hand, indirect taxes are those which are demanded from one person in the expectation and
intention that he shall indemnify himself at the expense of another. An example of this type of tax is the
sales tax levied on sales of a commodity.
The distinction between a direct tax and one indirectly imposed (or an indirect tax) is really of no moment.
What is more relevant is that when an "indirect tax" is paid by those upon whom the tax ultimately falls, it is
paid not as a tax but as an additional part of the cost or of the market price of the commodity.
This distinction was made clear by Chief Justice Castro in the Philippine Acetylene case, when he analyzed
the nature of the percentage (sales) tax to determine whether it is a tax on the producer or on the purchaser
of the commodity. Under out Tax Code, the sales tax falls upon the manufacturer or producer. The phrase
"pass on" the tax was criticized as being inaccurate. Justice Castro says that the tax remains on the
manufacturer alone. The purchaser does not pay the tax; he pays an amount added to the price because of
the tax. Therefore, the tax is not "passed on" and does not for that reason become an "indirect tax" on the
purchaser. It is eminently possible that the law maker in enacting P.D. 938 in 1976 may have used lessons
from the analysis of Chief Justice Castro in 1967 Philippine Acetylene case.
When P.D. 938 which exempted NPC from "all forms of taxes" was issued in May 1976, the so-called oil
crunch had already drastically pushed up crude oil Prices from about $1.00 per bbl in 1971 to about $10 and
a peak (as it turned out) of about $34 per bbl in 1981. In 1974-78, NPC was operating the Meralco thermal
plants under a lease agreement. The power generated by the leased plants was sold to Meralco for
distribution to its customers. This lease and sale arrangement was entered into for the benefit of the
consuming public, by reducing the burden on the swiftly rising world crude oil prices. This objective was
achieved by the use of NPC's "tax umbrella under its Revised Charter—the exemption from specific taxes
on locally purchased fuel oil. In this context, I can not interpret P.D. 938 to have withdrawn the exemption
from tax on fuel oil to which NPC was already entitled and which exemption Government in fact was utilizing
to soften the burden of high crude prices.
There is one other consideration which I consider pivotal. The taxes paid by oil companies on oil products
sold to NPC, whether paid to them by NPC or no never entered into the rates charged by NPC to its
customers not even during those periods of uncertainty engendered by the issuance of P.D. 1931 and E. 0.
93 on NP/Cs tax status. No tax component on the fuel have been charged or recovered by NPC through its
rates.
There is an import duty on the crude oil imported by the local refineries. After the refining process, specific
and ad valorem taxes are levied on the finished products including fuel oil or residue upon their withdrawal
from the refinery. These taxes are paid by the oil companies as the manufacturer thereof.
In selling the fuel oil to NPC, the oil companies include in their billings the duty and tax component. NPC
pays the oil companies' invoices including the duty component but net of the tax component. NPC then
applies for drawback of customs duties paid and for a credit in amount equivalent to the tax paid (by the oil
companies) on the products purchased. The tax credit is assigned to the oil companies—as payment, in
effect, of the tax component shown in the sales invoices. (NOTE: These procedures varied over time—
There were instances when NPC paid the tax component that was shifted to it and then applied for tax
credit. There were also side issues raised because of P.D. 1931 and E.O. 93 which withdrew all exemptions
of government corporations. In these latter instances, the resolutions of the Fiscal Incentives Review Board
(FIRB) come into play. These incidents will not be touched upon for purposes of this discussion).
NPC rates of electricity are structured such that changes in its cost of fuel are automatically (without need of
fresh approvals) reflected in the subsequent months billing rates.
This Fuel Cost Adjustment clause protects NPC's rate of return. If NPC should ever accept liability to the tax
and duty component on the oil products, such amount will go into its fuel cost and be passed on to its
customers through corresponding increases in rates. Since 1974, when NPC operated the oil-fired
generating stations leased from Meralco (which plants it bought in 1979), until the present time, no tax on
fuel oil ever went into NPC's electric rates.
That the exemption of NPC from the tax on fuel was not withdrawn by P.D. 938 is impressed upon me by
yet another circumstance. It is conceded that NPC at the very least, is exempt from taxes to which it is
directly liable. NPC therefore could very well have imported its fuel oil or crude residue for burning at its
thermal plants. There would have been no question in such a case as to its exemption from all duties and
taxes, even under the strictest interpretation that can be put forward. However, at the time P.D. 938 was
issued in 1976, there were already operating in the Philippines three oil refineries. The establishment of
these refineries in the Philippines involved heavy investments, were economically desirable and enabled the
country to import crude oil and process / refine the same into the various petroleum products at a savings to
the industry and the public. The refining process produced as its largest output, in volume, fuel oil or
residue, whose conventional economic use was for burning in electric or steam generating plants. Had there
been no use locally for the residue, the oil refineries would have become largely unviable.
Again, in this circumstances, I cannot accept that P.D. 938 would have in effect forced NPC to by-pass the
local oil refineries and import its fossil fuel requirements directly in order to avail itself of its exemption from
"direct taxes." The oil refineries had to keep operating both for economic development and national security
reasons. In fact, the restoration by the FIRB of NPC's exemption after P.D. 1931 and E.O. 93 expressly
excluded direct fuel oil importations, so as not to prejudice the continued operations of the local oil refineries.
To answer your query therefore, it is the opinion of this Department that NPC under the provisions of its
Revised Charter retains its exemption from duties and taxes imposed on the petroleum products purchased
locally and used for the generation of electricity.
The Department in issuing this ruling does so pursuant to its power and function to supervise and control the
collection of government revenues by the application and implementation of revenue laws. It is prepared to
take the measures supplemental to this ruling necessary to carry the same into full effect.
As presented rather extensively above, the NPC electric power rates did not carry the taxes and duties paid
on the fuel oil it used. The point is that while these levies were in fact paid to the government, no part
thereof was recovered from the sale of electricity produced. As a consequence, as of our most recent
information, some P1.55 B in claims represent amounts for which the oil suppliers and NPC are "out-of-
pocket. There would have to be specific order to the Bureaus concerned for the resumption of the
processing of these claims." 38
In the latter of June 15, 1988 of then Executive Secretary Macaraig to the then Secretary of Finance, the said
opinion ruling of the latter was confirmed and its implementation was directed. 39
The Court finds and so holds that the foregoing reasons adduced in the aforestated letter of the Secretary of
Finance as confirmed by the then Executive Secretary are well-taken. When the NPC was exempted from all forms
of taxes, duties, fees, imposts and other charges, under P.D. No. 938, it means exactly what it says, i.e., all forms
of taxes including those that were imposed directly or indirectly on petroleum products used in its operation.
Reference is made in the dissenting opinion to contrary rulings of the BIR that the exemption of the NPC extends
only to taxes for which it is directly liable and not to taxes merely shifted to it. However, these rulings are predicated
on Philippine Acytelene.
The doctrine in Philippine Acytelene decided in 1967 by this Court cannot apply to the present case. It involved the
sales tax of products the plaintiff sold to NPC from June 2, 1953 to June 30,1958 when NPC was enjoying tax
exemption from all taxes under Commonwealth Act No. 120, as amended by Republic Act No. 358 issued on June
4, 1949 hereinabove reproduced.
In said case, this Court held, that the sales tax is due from the manufacturer and not the buyer, so plaintiff cannot
claim exemptions simply because the NPC, the buyer, was exempt.
However, on September 10, 1971, Republic Act No. 6395 was passed as the revised charter of NPC whereby
Section 13 thereof was amended by emphasizing its non-profit character and expanding the extent of its tax
exemption.
As petitioner concedes, Section 13(d) aforestated of this amendment under Republic Act No. 6345 spells out clearly
the exemption of the NPC from indirect taxes. And as hereinabove stated, in P.D. No. 380, the exemption of NPC
from indirect taxes was emphasized when it was specified to include those imposed "directly and indirectly."
Thereafter, under P.D. No. 938 the tax exemption of NPC was integrated under Section 13 defining the same in
general terms to cover "all forms of taxes, duties, fees, imposts, etc." which, as hereinabove discussed, logically
includes exemption from indirect taxes on petroleum products used in its operation.
This is the status of the tax exemptions the NPC was enjoying when P.D. No. 1931 was passed, on the authority of
which FIRB Resolution Nos. 10-85 and 1-86 were issued, and when Executive Order No. 93 was promulgated, by
which FIRB Resolution 17-87 was issued.
Thus, the ruling in Philippine Acetylene cannot apply to this case due to the different environmental circumstances.
As a matter of fact, the amendments of Section 13, under R.A. No. 6395, P.D. No, 380 and P.D. No. 838 appear to
have been brought about by the earlier inconsistent rulings of the tax agencies due to the doctrine in Philippine
Acetylene, so as to leave no doubt as to the exemption of the NPC from indirect taxes on petroleum products it uses
in its operation. Effectively, said amendments superseded if not abrogated the ruling in Philippine Acetylene that the
tax exemption of NPC should be limited to direct taxes only.
In the light of the foregoing discussion the first corollary issue must consequently be resolved in the affirmative, that
is, FIRB Resolution No. 10-85 dated February 7, 1985 and FIRB Resolution No. 1-86 dated January 7, 1986 which
restored NPC's tax exemption privileges included the restoration of the indirect tax exemption of the NPC on
petroleum products it used.
On the second corollary issue as to the validity of FIRB resolution No. 17-87 dated June 24, 1987 which restored
NPC's tax exemption privilege effective March 10, 1987, the Court finds that the same is valid and effective.
It provides as follows:
BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption privileges of the
National Power Corporation, including those pertaining to its domestic purchases of petroleum and
petroleum products, granted under the terms and conditions of Commonwealth Act No. 120 (Creating the
National Power Corporation, defining its powers, objectives and functions, and for other purposes), as
amended, are restored effective March 10, 1987, subject to the following conditions:
1. The restoration of the tax and duty exemption privileges does not apply to the following:
1.1. Importation of fuel oil (crude equivalent) and coal;
1.2. Commercially-funded importations (i.e., importations which include but are not limited to those
financed by the NPC's own internal funds, domestic borrowings from any source whatsoever,
borrowing from foreign-based private financial institutions, etc.); and
1.3. Interest income derived from any source.
2. The NPC shall submit to the FIRB a report of its expansion program, including details of disposition of
relieved tax and duty payments for such expansion on an annual basis or as often as the FIRB may require
it to do so. This report shall be in addition to the usual FIRB reporting requirements on incentive availment. 40
Executive Order No. 93 provides as follows—
Sec. 1. The provisions of any general or special law to the contrary notwithstanding, all tax and duty
incentives granted " to government and private entities are hereby withdrawn, except:
a) those covered by the non-impairment clause of the Constitution;
b) those conferred by effective international agreements to which the Government of the Republic of
the Philippines is a signatory;
c) those enjoyed-by enterprises registered with:
(i) the Board of Investments pursuant to Presidential Decree No. 1789, as amended;
(ii) the Export Processing Zone Authority, pursuant to Presidential Decree No. 66, as
amended;
(iii) the Philippine Veterans Investment Development Corporation Industrial Authority

pursuant to Presidential Decree No. 538, as amended;
d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of Instruction No.
1416;
e) those conferred under the four basic codes namely:
(i) the Tariff and Customs Code, as amended;
(ii) the National Internal Revenue Code, as amended;
(iii) the Local Tax Code, as amended;
(iv) the Real Property Tax Code, as amended;

f) those approved by the President upon the recommendation of the Fiscal Incentives Review Board.
Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as amended, is
hereby authorized to:
a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;
b) revise the scope and coverage of tax and/of duty exemption that may be restored.
c) impose conditions for the restoration of tax and/or duty exemption;
d) prescribe the date or period of effectivity of the restoration of tax and/or duty exemption;
e) formulate and submit to the President for approval, a complete system for the grant of subsidies
to deserving beneficiaries, in lieu of or in combination with the restoration of tax and duty exemptions
or preferential treatment in taxation, indicating the source of funding therefor, eligible beneficiaries
and the terms and conditions for the grant thereof taking into consideration the international
commitments of the Philippines and the necessary precautions such that the grant of subsidies does
not become the basis for countervailing action.
Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review Board shall take into
account any or all of the following considerations:
a) the effect on relative price levels;
b) relative contribution of the beneficiary to the revenue generation effort;
c) nature of the activity the beneficiary is engaged;
d) in general, the greater national interest to be served.
True it is that the then Secretary of Justice in Opinion No. 77 dated August 6, 1977 was of the view that the powers
conferred upon the FIRB by Sections 2(a), (b), (c), and (d) of Executive Order No. 93 constitute undue delegation of
legislative power and is therefore unconstitutional. However, he was overruled by the respondent Executive
Secretary in a letter to the Secretary of Finance dated March 30, 1989. The Executive Secretary, by authority of the
President, has the power to modify, alter or reverse the construction of a statute given by a department secretary. 41
A reading of Section 3 of said law shows that it set the policy to be the greater national interest. The standards of
the delegated power are also clearly provided for.
The required "standard" need not be expressed. In Edu vs. Ericta and in De la Llana vs. Alba this Court held: "The
42 43
standard may be either express or implied. If the former, the non-delegated objection is easily met. The standard
though does not have to be spelled out specifically. It could be implied from the policy and purpose of the act
considered as a whole."
In People vs. Rosenthal the broad standard of "public interest" was deemed sufficient. In Calalang vs. Williams, , it
44 45
was "public welfare" and in Cervantes vs. Auditor General, it was the purpose of promotion of "simplicity, economy
46
and efficiency." And, implied from the purpose of the law as a whole, "national security" was considered sufficient
standard and so was "protection of fish fry or fish eggs.
47 48
The observation of petitioner that the approval of the President was not even required in said Executive Order of the
tax exemption privilege approved by the FIRB unlike in previous similar issuances, is not well-taken. On the
contrary, under Section l(f) of Executive Order No. 93, aforestated, such tax and duty exemptions extended by the
FIRB must be approved by the President. In this case, FIRB Resolution No. 17-87 was approved by the respondent
Executive Secretary, by authority of the President, on October 15, 1987. 49
Mr. Justice Isagani A. Cruz commenting on the delegation of legislative power stated —
The latest in our jurisprudence indicates that delegation of legislative power has become the rule and its
non-delegation the exception. The reason is the increasing complexity of modern life and many technical
fields of governmental functions as in matters pertaining to tax exemptions. This is coupled by the growing
inability of the legislature to cope directly with the many problems demanding its attention. The growth of
society has ramified its activities and created peculiar and sophisticated problems that the legislature cannot
be expected reasonably to comprehend. Specialization even in legislation has become necessary. To many
of the problems attendant upon present day undertakings, the legislature may not have the competence, let
alone the interest and the time, to provide the required direct and efficacious, not to say specific solutions. 50
Thus, in the case of Tablarin vs. Gutierrez, this Court enunciated the rationale in favor of delegation of legislative
51
functions—
One thing however, is apparent in the development of the principle of separation of powers and that is that
the maxim of delegatus non potest delegare or delegati potestas non potest delegare, adopted this practice
(Delegibus et Consuetudiniis Anglia edited by G.E. Woodline, Yale University Press, 1922, Vol. 2, p. 167)
but which is also recognized in principle in the Roman Law d. 17.18.3) has been made to adapt itself to the
complexities of modern government, giving rise to the adoption, within certain limits, of the principle of
subordinate legislation, not only in the United States and England but in practically all modern governments.
(People vs. Rosenthal and Osmeña, 68 Phil. 318, 1939). Accordingly, with the growing complexities of
modern life, the multiplication of the subjects of governmental regulation, and the increased difficulty of
administering the laws, there is a constantly growing tendency toward the delegation of greater power by the
legislative, and toward the approval of the practice by the Courts. (Emphasis supplied.)
The legislative authority could not or is not expected to state all the detailed situations wherein the tax exemption
privileges of persons or entities would be restored. The task may be assigned to an administrative body like the
FIRB.
Moreover, all presumptions are indulged in favor of the constitutionality and validity of the statute. Such presumption
can be overturned if its invalidity is proved beyond reasonable doubt. Otherwise, a liberal interpretation in favor of
constitutionality of legislation should be adopted. 52
E.O. No. 93 is complete in itself and constitutes a valid delegation of legislative power to the FIRB And as above
discussed, the tax exemption privilege that was restored to NPC by FIRB Resolution No. 17-87 of June 1987
includes exemption from indirect taxes and duties on petroleum products used in its operation.
Indeed, the validity of Executive Order No. 93 as well as of FIRB Resolution No. 17-87 has been upheld in Albay. 53
In the dissenting opinion of Mr. Justice Cruz, it is stated that P.D. Nos. 1931 and 1955 issued by President Marcos
in 1984 are invalid as they were presumably promulgated under the infamous Amendment No. 6 and that as they
cover tax exemption, under Section 17(4), Article VIII of the 1973 Constitution, the same cannot be passed "without
the concurrence of the majority of all the members of the Batasan Pambansa." And, even conceding that the
reservation of legislative power in the President was valid, it is opined that it was not validly exercised as there is no
showing that such presidential encroachment was justified under the conditions then existing. Consequently, it is
concluded that Executive Order No. 93, which was intended to implement said decrees, is also illegal. The authority
of the President to sub-delegate to the FIRB powers delegated to him is also questioned.
In Albay, as above stated, this Court upheld the validity of P.D. Nos. 776 and 1931. The latter decree withdrew tax
54
exemptions of government-owned or controlled corporations including their subsidiaries but authorized the FIRB to
restore the same. Nevertheless, in Albay, as above-discussed, this Court ruled that the tax exemptions under FIRB
Resolution Nos. 10-85 and 1-86 cannot be enforced as said resolutions were only recommendatory and were not
duly approved by the President of the Philippines as required by P.D. No. 776. The Court also sustained
55
in Albay the validity of Executive Order No. 93, and of the tax exemptions restored under FIRB Resolution No. 17-87
which was issued pursuant thereto, as it was duly approved by the President as required by said executive order.
Moreover, under Section 3, Article XVIII of the Transitory Provisions of the 1987 Constitution, it is provided that:
All existing laws, decrees, executive orders, proclamation, letters of instructions, and other executive
issuances not inconsistent with this constitution shall remain operative until amended, repealed or revoked.
Thus, P.D. Nos. 776 and 1931 are valid and operative unless it is shown that they are inconsistent with the
Constitution. 1âwphi1
Even assuming arguendo that P.D. Nos. 776, 1931 and Executive Order No. 93 are not valid and are
unconstitutional, the result would be the same, as then the latest applicable law would be P.D. No. 938 which
amended the NPC charter by granting exemption to NPC from all forms of taxes. As above discussed, this
exemption of NPC covers direct and indirect taxes on petroleum products used in its operation. This is as it should
be, if We are to hold as invalid and inoperative the withdrawal of such tax exemptions under P.D. No. 1931 as well
as under Executive Order No. 93 and the delegation of the power to restore these exemptions to the FIRB.
The Court realizes the magnitude of the consequences of this decision. To reiterate, in Albay this Court ruled that
the NPC is liable for real estate taxes as of June 11, 1984 (the date of promulgation of P.D. No. 1931) when NPC
had ceased to enjoy tax exemption privileges since FIRB Resolution Nos. 1085 and 1-86 were not validly issued.
The real estate tax liability of NPC from June 11, 1984 to December 1, 1990 is estimated to amount to P7.49 billion
plus another P4.76 billion in fuel import duties the firm had earlier paid to the government which the NPC now
proposed to pass on to the consumers by another 33-centavo increase per kilowatt hour in power rates on top of the
17-centavo increase per kilowatt hour that took effect just over a week ago., Hence, another case has been filed in
56
this Court to stop this proposed increase without a hearing.
As above-discussed, at the time FIRB Resolutions Nos. 10-85 and 1-86 were issued, P.D. No. 776 dated August 24,
1975 was already amended by P.D. No. 1931 , wherein it is provided that such FIRB resolutions may be approved
57
not only by the President of the Philippines but also by the Minister of Finance. Such resolutions were promulgated
by the Minister of Finance in his own right and also in his capacity as FIRB Chairman. Thus, a separate approval
thereof by the Minister of Finance or by the President is unnecessary.
As earlier stated a reexamination of the ruling in Albay on this aspect is therefore called for and
consequently, Albay must be considered superseded to this extent by this decision. This is because P.D. No. 938
which is the latest amendment to the NPC charter granting the NPC exemption from all forms of taxes certainly
covers real estate taxes which are direct taxes.
This tax exemption is intended not only to insure that the NPC shall continue to generate electricity for the country
but more importantly, to assure cheaper rates to be paid by the consumers.
The allegation that this is in effect allowing tax evasion by oil companies is not quite correct. There are various
1a\^/phi1
arrangements in the payment of crude oil purchased by NPC from oil companies. Generally, the custom duties paid
by the oil companies are added to the selling price paid by NPC. As to the specific and ad valorem taxes, they are
added a part of the seller's price, but NPC pays the price net of tax, on condition that NPC would seek a tax refund
to the oil companies. No tax component on fuel had been charged or recovered by NPC from the consumers
through its power rates. Thus, this is not a case of tax evasion of the oil companies but of tax relief for the NPC.
58
The billions of pesos involved in these exemptions will certainly inure to the ultimate good and benefit of the
consumers who are thereby spared the additional burden of increased power rates to cover these taxes paid or to
be paid by the NPC if it is held liable for the same.
The fear of the serious implication of this decision in that NPC's suppliers, importers and contractors may claim the
same privilege should be dispelled by the fact that (a) this decision particularly treats of only the exemption of the
NPC from all taxes, duties, fees, imposts and all other charges imposed by the government on the petroleum
products it used or uses for its operation; and (b) Section 13(d) of R.A. No. 6395 and Section 13(d) of P.D. No. 380,
both specifically exempt the NPC from all taxes, duties, fees, imposts and all other charges imposed by the
government on all petroleum products used in its operation only, which is the very exemption which this Court
deems to be carried over by the passage of P.D. No. 938. As a matter of fact in Section 13(d) of P.D. No. 380 it is
specified that the aforesaid exemption from taxes, etc. covers those "directly or indirectly" imposed by the "Republic
of the Philippines, its provincies, cities, municipalities and other government agencies and instrumentalities" on said
petroleum products. The exemption therefore from direct and indirect tax on petroleum products used by NPC
cannot benefit the suppliers, importers and contractors of NPC of other products or services.
The Court realizes the laudable objective of petitioner to improve the revenue of the government. The amount of
revenue received or expected to be received by this tax exemption is, however, not going to any of the oil
companies. There would be no loss to the government. The said amount shall accrue to the benefit of the NPC, a
government corporation, so as to enable it to sustain its tremendous task of providing electricity for the country and
at the least cost to the consumers. Denying this tax exemption would mean hampering if not paralyzing the
operations of the NPC. The resulting increased revenue in the government will also mean increased power rates to
be shouldered by the consumers if the NPC is to survive and continue to provide our power requirements. The 59
greater interest of the people must be paramount.
WHEREFORE, the petition is DISMISSED for lack of merit. No pronouncement as to costs.
SO ORDERED.
Narvasa, Melencio-Herrera, Feliciano, Bidin, Medialdea and Regalado, JJ., concur.

Fernan C.J., No part.
Paras, J., I dissent, but the NPC should be refunded not by the consuming public but by the oil companies for
ultimately these oil companies get the benefit of the alleged tax exemption.
Padilla, J., took no part.
Separate Opinions
CRUZ, J., Dissenting:
I join Mr. Justice Abraham F. Sarmiento in his excellent dissent and would stress only the following additional
observations.
A tax exemption represents a loss of revenue to the State and must therefore not be lightly granted or inferred.
When claimed, it must be strictly construed against the taxpayer, who must prove that he comes under the
exemption rather than the rule that every one must contribute his just share in the maintenance of the government.
In the case at bar, the ponencia would justify the tax exemption as having been validly granted under P.D. Nos.
1931 and 1955 and Resolutions Nos. 10-85 and 1-86 of the Fiscal Incentives Review Board. It is also asserted that
FIRB Resolution No. 17-87, which restored MPC's tax exemption effective March 10 1987, was lawfully adopted
pursuant to a valid delegation of power made by Executive Order No. 93.
When P.D. Nos. 1931 and 1955 were issued by President Marcos in 1984, the Batasang Pambansa was already in
existence and discharging its legislative powers. Presumably, these decrees were promulgated under the infamous
Amendment No. 6. Assuming that the reservation of legislative power in the President was then valid, I submit that
the power was nevertheless not validly exercised. My reason is that the President could legislate under the said
amendment only if the Batasang Pambansa "failed or was unable to act adequately on any matter that in his
judgment required immediate action" to meet the "exigency." There is no showing that the presidential
encroachment on legislative prerogatives was justified under these conditions. Simply because the rubber-stamp
legislature then meekly submitted did not make the usurpation valid.
By these decrees, President Marcos, exercising legislative power, delegated it to himself as executive and
empowered himself and/or the Minister of Finance to restore the exemptions previously withdrawn.
As the decrees themselves were invalid it should follow that Executive Order No. 93, which was intended only to
implement them, should also be illegal. But even assuming the legality of the said decrees, I would still question the
authority of the President to sub-delegate the powers delegated to her thereunder.
Such sub-delegation was not permissible because potestas delegata non delegari potest Even if we were to
disregard the opinion of Secretary of Justice Sedfrey A. Ordoñez that there were no sufficient standards in
Executive Order No. 93 (although he was reversed on this legal questions by the Executive Secretary), the
President's delegated authority could still not be extended to the FIRB which was not a delegate of the legislature.
It is remarkable that the respondents could seriously argue that a mere administrative body like the FIRB can
exercise the legislative power to grant tax exemptions. I am not aware that any other such agency, including the
Bureau of Internal Revenue and the Bureau of Customs, has this authority. An administrative body can apply tax
exemptions under existing law but it cannot itself create such exemptions. This is a prerogative of the Congress that
cannot be usurped by or even delegated to a mere administrative body.
In fact, the decrees clearly provided that it was the President and/or the Minister of Finance who could restore the
exemption, subject only to the recommendation of the FIRB. The FIRB was not empowered to directly restore the
exemption. And even if it be accepted that the FIRB merely recommended the exemption, which was approved by
the Finance Minister, there would still be the curious anomaly of Minister Virata upholding his very own act as
chairman of the FIRB.
This Court called it a "travesty of justice" when in Zambales Chromite vs. Court of Appeals, 94 SCRA 261, the
Secretary of Agriculture and Natural Resources approved a decision earlier rendered by him when he was the
Director of Mines, and in Anzaldo vs. Clave, 119 SCRA 353, where the respondent, as presidential executive
assistant, affirmed on appeal to Malacañang his own decision as chairman of the Civil Service Commission.
It is important to note that when P.D. Nos. 1931 and 1955 were issued by President Marcos, the rule under the 1973
Constitution was that "no law granting a tax exemption shall be passed without the concurrence of a majority of all
the members of the Batasang Pambansa." (Art. VIII, Sec. 17[4]). Laws are usually passed by only a majority of
those present in the chamber, there being a quorum, but not where it grants a tax exemption. This requires an
absolute majority. Yet, despite this stringent limitation on the national legislature itself, such stricture does not inhibit
the President and the FIRB in the exercise of their delegated power. It would seem that the delegate has more
power than the principal. Significantly, this limitation is maintained in the present Constitution under Article VI,
Section 28(4).
The ponencia holds that the rule of strict construction is not applicable where the grantee is an agency of the
government itself, like the MPC in the case before us. I notice, however, that the ultimate beneficiaries of the
expected tax credit will be the oil companies, which certainly are not part of the Republic of the Philippines. As the
tax refunds will not be enjoyed by the MPC itself, I see no reason why we should be exceptionally lenient in applying
the exception.
The tax credits involved in this petition are tremendous—no less than Pl.58 billion. This amount could go a long way
in improving the national economy and the well-being of the Filipino people, who deserve the continuing solicitude of
the government, including this Court. I respectfully submit that it is to them that we owe our foremost loyalty.
Gutierrez, Jr., J., concurs
SARMIENTO, J., dissenting:
I would like to point out specifically two things in connection with the majority's disposition as to: (1) Finance
Incentives Review Board FIRB Resolutions Nos. 10-85 and 186; and (2) the National Power Corporation's tax
exemption vis-a-vis our decision in the case of Philippine Acetylene Co., Inc. vs. Commission of Internal
Revenue, and in the light of the provisions of its charter, Republic Act No. 6395, and the various amendments
1
entered into it.
(1)
On pages 20-23 of the Decision, the majority suggests that FIRB Resolutions Nos. 10-85 and 1-86 had validly
restored the National Power Corporation's tax exemption privileges, which Presidential Decree No. 1931 had
meanwhile suspended. I wish to stress that in the case of National Power Corporation vs. Province of Albay, the 2
Court held that the FIRB Resolutions Nos. 10-85 and 1-86 had the bare force of recommendations and did not
operate as a restoration, in the absence of an approval by the President (in then President Marcos' exercise of
legislative powers), of tax exemptions. The Court noted that there is nothing in Presidential Decree No. 776, the
FIRB charter, conferring on it the authority to grant or restore exemptions, other than to make recommendations on
what exemptions to grant or restore. I quote:
x x x x x x x x x
It is to be pointed out that under Presidential Decree No. 776, the power of the FIRB was merely to
"recommend to the President of the Philippines and for reasons of compatibility with the declared economic
policy, the withdrawal, modification, revocation or suspension of the enforceability of any of the abovecited
statutory subsidies or tax exemption grants, except those granted by the Constitution." It has no authority to
impose taxes or revoke existing ones, which, after all, under the Constitution, only the legislature may
accomplish. . . .3
x x x x x x x x x
As the Court held there, it was only on March 10, 1987 that the restoration became effective, not because
Resolutions Nos. 10-85 and 1-86 decreed a restoration, but because of Resolution No. 17-87 which, on the other
hand, carried the approval of the Office of the President . (FIRB Resolution No. 17-87 made the National Power
4
Corporation's exemption effective March 10, 1987.) Hence, the National Power Corporation, so the Court held, was
liable for payment of real property taxes to the Province of Albay between. June 11, 1984, the date Presidential
Decree No. 1931 (withdrawing its tax exemptions) took effect, and March 10, 1987,
As far therefore as the majority in the present case rules that the National Power Corporation is also entitled to a
refund as a result of FIRB Resolutions Nos. 10-15 and 1-86, I respectfully submit that a serious conflict has arisen.
While it is true that FIRB Resolutions Nos. 10-85 and 1-86 were signed by the Finance Minister Cesar Virata, I5
submit nonetheless, as Albay in fact held, that the signature of the Mr. Virata is not enough to restore an exemption.
The reason is that Mr. Virata signed them (FIRB Resolutions Nos. 10-85 and 1-86) in his capacity as chairman of
the Finance Incentives Review Board FIRB. I find this clear from the very Resolutions in question:
FISCAL INCENTIVES REVIEW BOARD

RESOLUTION NO. 10-85
BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That:
1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National Power Corporation
under C.A. No. 120 as amended are restored up to June 30, 1985.
2. Provided, That this restoration does not apply to the following:
a. importations of fuel oil (crude equivalent) and coal as per FIRB Resolution No. 1-84;
b. commercially-funded importations; and
c. interest income derived from any investment source.
3. Provided further, That in case of importations funded by international financing agreements, the NPC is
hereby required to furnish the FIRB on a periodic basis the particulars of items received or to be received
through such arrangements, for purposes of tax and duty exemption privileges.
(Sgd.) ALFREDO PIO DE RODA, JR.

Acting Minister of Finance
Acting Chairman, FIRB
FISCAL INCENTIVES REVIEW BOARD

RESOLUTION NO. 1-86
BE IT RESOLVED, AS IT IS HEREBY RESOLVED: That:
1. Effective July 1, 1985, the tax and duty exemption privileges enjoyed by the National Power Corporation
(NPC) under Commonwealth Act No. 120, as amended, are restored; Provided, That importations of fuel oil
(crude oil equivalent) and coal of the herein grantee shall be subject to the basic and additional import
duties; Provided, further, That the following shall remain fully taxable:
a. Commercially-funded importations; and
b. Interest income derived by said grantee from bank deposits and yield or any other monetary
benefits from deposit substitutes, trust fund and other similar arrangements.
2. The NPC as a government corporation is exempt from the real property tax on land and improvements
owned by it provided that the beneficial use of the property is not transferred to another pursuant to the
provisions of Sec. 40(a) of the Real Property Tax Code, as amended.
(Sgd.) CESAR E.A. VIRATA

Minister of Finance
Chairman-FIRB
I respectfully submit that to say that Mr. Virata's signature is sufficient (please note that Resolution No. 10-85 was
not even signed by Mr. Virata, but rather by Mr. Alfredo Pio de Roda, Jr.) is in fact to confer on the Board actual
"restoration" or even exemption powers, because in all cases, FIRB Resolutions are signed by Mr. Virata (or the
acting chairman) in his capacity as Board Chairman. I submit that we can not consider an FIRB Resolution as an act
of Mr. Virata in his capacity as Minister of Finance (and therefore, as a grant or restoration of tax exemption)
although Mr. Virata also happened to be concurrently, Minister of Finance, because to do so would be to blur the
distinction between the capacities in which he, Mr. Virata, actually acted. I submit that he, Mr. Virata, need have
issued separate approvals of the Resolutions in question, in his capacity as Finance Minister.
Parenthetically, on the issue of the constitutional validity of Executive Order No. 93, insofar as it "delegates" the
power to restore exemptions to the FIRB, I hold that in the first place, Executive Order No. 93 makes no delegation
at all. As the majority points out, "[u]nder Section 1 (f) of Executive Order No. 93, aforestated, such tax and duty
exemptions extended by the FIRB must be approved by the President." Hence, the FIRB does not exercise any
6
power—and as I had held, its powers does not merely recommendatory—and it is the President who in fact
exercises it. It is true that Executive Order No. 93 has set out certain standards by which the FIRB as a reviewing
body, may act, but I do not believe that a genuine delegation question has arisen because precisely, the acts of the
Board are subject to approval by the President, in the exercise of her legislative powers under the Freedom
Constitution.7
(2)
According to the Decision, the National Power Corporation, under its charter, is also exempt from indirect taxes, and
that there is nothing irregular about what is apparently standard operating procedure between the Corporation and
the oil firms in which the latter sell to the Corporation of "net of tax" and that thereafter, the Corporation assigns to
them its tax credit.
I gather first, and with all due respect, that there has been a misunderstanding about so-called indirect taxes and the
theory of shifting taxes. In Philippine Acetylene Co., Inc., supra, the Court intimated that there are no such things as
indirect taxes for purposes of exemption, and that the National Power Corporation's exemption from taxes can not
be claimed, as well, by a manufacturer (who sells his products to the Corporation) on the theory that the taxes he
will shift will be shifted to a tax-exempt entity. According to the Court, "the purchaser does not pay the tax . . . [h]e
pays or may pay the seller more for the goods because of the seller's obligation, but that is all and the amount
added because of the tax is paid to get the goods and for nothing else." 8
It is true that a tax may be shifted, that is, to enable the payor to escape its effects by adding it to the price, thereby
transferring the burden to the purchaser of whom the incidence of the tax settles (indirect tax). I submit, however,
that it is only for purposes of escape from taxation. As Acetylene has clarified, the tax which the manufacturer is
liable to pay directly under a statute is still a personal tax and in "passing and tax on" to the purchaser, he does not
really make the latter pay the tax, and what the latter pays actually is just the price. Thus, for purposes of exemption,
and so Acetylene tells us, the manufacturer can not claim one because the purchaser happens to be exempted from
taxes. Mutatis mutandis and so I respectfully submit, the purchaser can not be allowed to accept the goods "net of
tax" because it never paid for the tax in the first place, and was never liable therefor in the second place.
According to the majority, Philippine Acetylene has been "abrogated," and the majority points to the various
amendments to the charter of the National Power Corporation as authority for its view.
First, there is nothing in those amendments that would remotely point to this conclusion.
Second, Acetylene's pronouncement is founded on the very science of taxation—that indirect taxes are no taxes for
purposes of exemption, and that consequently, one who did not pay taxes can not claim an exemption although the
price he paid for the goods included taxes. To enable him to claim an exemption, as the majority would now enable
him (Acetylene having been "abrogated"), is, I submit, to defeat the very laws of science.
The theory of "indirect taxes" and that no exemption is possible therefrom, so I reiterate, are well-settled concepts of
taxation, as the law of supply and demand is to the law of economics. A President is said (unfairly) to have
attempted it, but one can not repeal the law on supply and demand.
I do not find the National Power Corporation's alleged exemption from indirect tax evident, as the majority finds it
evident, from the Corporation's charter, Republic Act No. 6395, as amended by Presidential Decrees Nos. 380 and
938. It is true that since Commonwealth Act No. 120 (the Corporation's original charter, which Republic Act No.
6395 repealed), the Corporation has enjoyed a "preferential tax treatment," I seriously doubt, however, whether or
not that preference embraces "indirect taxes" as well—which, as I said, are no taxes for purposes of claims for
exemptions by the "indirect payor." And albeit Presidential Decree No. 938 refers to "all forms of taxes," I can not
take that to include, as a matter of logic, "indirect taxes," and as discussed above, that scenario is not possible.
I quite agree that the legislative intent, based on a perusal of Republic Act No. 6395 and subsequent amendatory
statutes was to give the National Power Corporation a broad tax preference on account of the vital functions it
performs, indeed, "to enable the Corporation to pay the indebtedness and obligation and in furtherance and effective
implementation of the policy initiated" by its charter. I submit, however, that that alone can not entitle the
Corporation to claim an exemption for indirect taxes. I also believe that its existing exemption from direct taxes is
sufficient to serve the legislative purpose.
The fact that the National Power Corporation has been tasked with an enormous undertaking "to improve," as the
majority puts it, "the quality of life of the people" pursuant to constitutional mandates is no reason, I believe, to
include indirect taxes within the coverage of its preferential tax treatment. After all, it is exempt from direct taxes,
and the fact that it will be made to shoulder indirect taxes (which are no taxes) will not defeat its exemption or
frustrate the intent of both legislature and Constitution.
I do not think that the majority can point to the various executive constructions as authorities for its own construction.
First and foremost, with respect to then Commissioner Ruben Ancheta's ruling of May 8, 1985 cited on pages 32-33
of the Decision, it is notable that in his BIR Ruling No. 183-85, dated October 22, 1985, he in fact reversed himself, I
quote:
In reply please be informed that after a re-study of Section 13, R.A. 6395 as amended by P.D. No. 938, this
Office is of the opinion, and so holds, that the scope of the tax exemption privilege enjoyed by NPC under
said section covers only taxes for which it is directly liable and not on taxes which are merely shifted to it.
(Phil. Acetylene Co. vs. Comm. of Internal Revenue, 20 SCRA 1056,1967). Since contractor's tax is directly
payable by the contractor, not by NPC, your request for exemption, based on the stipulation in the aforesaid
contract that NPC shall assume payment of your contractor's tax liability, cannot be granted for lack of legal
basis. (emphasis added) 9
In yet another ruling, then Commissioner Bienvenido Tan likewise declared, in connection with an apparent claim for
refund by the Philippine Airlines, that "PAL's tax exemption is limited to taxes for which PAL is directly liable, and
that the payment of specific and ad valorem taxes on petroleum products is a direct liability of the manufacturer or
producer thereof . . ."
10
Again, under BIR Ruling No. 152-86, the Bureau of Internal Revenue reiterated, as to the National Power
Corporation's claim for a refund I quote:
. . . this Office has maintained the stand that your tax exemption privileges covers only taxes for which you
are directly liable. 11
Per BIR Ruling No. 70-043, dated August 27, 1970, the Bureau likewise held that the term "all forms of taxes"
covers only direct taxes, 12
In his letter addressed to former BIR Commissioner Tan, Atty. Reynoso Floreza, BIR Assistant Commissioner for
Legal, opposed Caltex Philippines' claim for a P58-million refund, and although the Commissioner at that time
hedged he was later persuaded by Special Assistant Abraham De la Viña and in fact, instructed Atty. De la Viña to
"prepare [the] corresponding notice to NPC and Caltex" to inform them that their claim has been denied. (Although
13
strangely, he changed his mind later.)
Hence, I do not think that we can judiciously rely on executive construction because executive construction has
been at best, erratic, and at worst, conflicting.
I do not find that majority's historical construction a reliable yardstick in this case, for if the historical development of
the law were any indication, the legislative intent is, on the contrary, to exclude indirect taxes from the coverage of
the National Power Corporation's tax exemption. Thus, under Commonwealth Act No. 120, the Corporation was
made exempt from the payment of all taxes in connection with the issuance of bonds. Under Republic Act No. 358, it
was made exempt from the payment of all taxes, duties, fees, imposts, and charges of the national and local
governments.
Under Republic Act No. 6395, the National Power Corporation was further declared exempt:
(e) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines,
its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum
products used by the Corporation . . .
By virtue of Presidential Decree No. 380, it was made exempt:
(d) from all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by the Republic
of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities,
on all petroleum products used by the corporation in the generation, transmission, utilization and sale of
electric power.
By virtue however of Presidential Decree No. 938, reference to "indirect taxes" was omitted thus:
. . .To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section One of this Act, the Corporation, including its
subsidiaries, is hereby declared exempt from the payment of all forms of taxes, duties, fees, imposts as well
as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings.
The deletion of "indirect taxes" in the Decree is, so I hold, significant, because if the intent of the law were truly to
exempt the National Power Corporation from so-called indirect taxes as well, the law would have said so
specifically, as it said so specifically in Presidential Decree No. 380.
I likewise do not think that the reference to the whereas clauses of Presidential Decree No. 938 is warranted, in
particular, the following whereas clause:
WHEREAS, in the application of the tax exemption provisions of the Revised Charter, the non-profit
character of NPC has not been fully utilized because of the restrictive interpretations of the taxing agencies
of the government on said provisions;
I am not certain whether it can be basis for a "liberal" construction. I am more inclined to believe that the term
"restrictive interpretations" refers to BIR rulings confining the exemption to the Corporation alone (but not its
subsidiaries), and not, rather, to the scope of its exemption. Indeed, as Presidential Decree No. 938 specifically
declares, "the Corporation, including its subsidiaries, is hereby declared exempt . . . " 14
The majority expresses the apprehension that if the National Power Corporation were to be made to assume
"indirect taxes," the latter will be forced to pass them on to the consuming public.
First, and as Acetylene held, we do not even know if the payor will in fact "pass them on." "A decision to absorb the
burden of the tax is largely a matter of economics." Furthermore:
15
In the long run a sales tax is probably shifted to the consumer, but during the period when supply is being
adjusted to changes in demand it must be in part absorbed. In practice the businessman will treat the levy
as an added cost of operation and distribute it over his sales as he would any other cost, increasing by more
than the amount of the tax prices of goods demand for which will be least affected and leaving other prices
unchanged. 47 Harv. Ld. Rev. 860, 869 (1934). 16
It therefore appears to me that any talk of the public ultimately absorbing the tax is pure speculation.
Second, it has typically been the bogeyman that business, with due respect, has invoked to avoid the payment of
tax. And to be sure, the populist allure of that argument has appealed to many, yet it has probably also obscured
what is as fundamental as protecting consumers—preserving public revenue, the very lifeblood of the nation. I am
afraid that this is not healthy policy, and what occurs to me—and what indeed leaves me very uncomfortable—is
that by the stroke of the pen, we should have in fact given away P13,750,214,639.00 (so it is said) of legitimate
government money.
According moreover to Committee Report No. 474 of the Senate, "NPC itself says that it does not use taxes to
increase prices of electricity to consumers because the cost of electric generation and sale already takes into
account the tax component. " 17
I can not accept finally, what to me is an unabashed effort by the oil firms to evade taxes, the arrangement (as I
gather from the Decision) between the National Power Corporation and the oil companies in which the former
assigns its tax credit to the latter. I also presume that this is the natural consequence of the "understanding," as I
discussed above, to purchase oil "net of tax" between NAPOCOR and the oil firms, because logically, the latter will
look for other sources from which to recoup the taxes they had failed to shift and recover their losses as a result.
According to the Decision, no tax is left unpaid because they have been pre-paid before the oil is delivered to the
National Power Corporation. But whatever taxes are paid are in fact wiped out because the subsequent credit
transfer will enable the oil companies to recover the taxes pre- paid.
According to the majority, "[t]his is not a case of tax evasion of the oil companies but a tax relief for the NPC." The
18
problem, precisely, is that while it is NPC which is entitled to "tax relief," the arrangement between NPC and the oil
companies has enabled instead the latter to enjoy relief — when relief is due to NPC alone. The point still remains
that no tax money actually reaches our coffers because as I said, that arrangement enables them to wipe it out. If
the NPC were the direct importer, I would then have no reason to object, after all, the NPC is exempt from direct
taxation and secondly, the money it is paying to finance its importations belongs to the government. The law,
however, gave the exemption to NPC, not the oil companies.
According to the Decision: "The amount of revenue received or expected to be received by this tax exemption is,
however, not going to any of the oil companies. . . " and that "[t]here would be no loss to the government."
19 20
With due respect to the majority, it is erroneous, if not misleading, to say that no money is going to the oil companies
and that the government is not losing anything. Definitely, the tax credit assignment arrangement between the NPC
and the oil firms enables the latter to recover revenue they have paid. And definitely, that means loss for the
government.
The majority is concerned with the high cost of electricity. The increasing cost of electricity is however due to myriad
factors, foremost of which, is the devaluation of the peso and as recent events have suggested, "miscalculations"
21
at the top levels of NPC. I can not however attribute it, as the majority in all earnest attributes it, to the fact, far-
fetched as it is, that the NPC has not been allowed to enjoy exemption from indirect taxes.
Tax exemptions furthermore are a matter of personal privilege of the grantee. It has been held that as such, they
can not be assigned, unless the statute granting them permits an assignment. 22
While "shifting the burden of tax" is a permissible method of avoiding a tax, evading it is a totally different matter.
And while I agree with the National Power Corporation should be given the widest financial assistance possible,
assistance should not be an excuse for plain tax evasion, if not tax fraud, by Big Business, in particular, Big Oil.
(3) Postscripts
With all due respect, I do not think that the majority has appreciated enough the serious implications of its decision
—to the contrary, in particular, its shrinking coffers. I do not think that we are, after all, talking here of "simple"
billions, but in fact, billions upon billions in lost revenue looming large.
I am also afraid that the majority is not quite aware that it is setting a precedent not only for the oil companies but in
fact, for the National Power Corporation's suppliers, importers, and contractors. Although I am not, as of this writing,
aware of their exact number or the precise amount the National Power Corporation has spent in payment of
supplies and equipment, I can imagine that the Corporation's assets consisting of those supplies and equipment,
machines and machinery, are worth no fewer than billions.
With this precedent, there is no stopping indeed the NAPOCOR's suppliers, from makers of storage tanks, steel
towers, cables and cable poles, to builders of dikes, to layers of pipelines, and pipes, from claiming the same
privilege.
There is no stopping the NPC's contractors, from suppliers of cement for plant fixtures and lumber for edifices, to the
very engineers and technicians who designed them, from demanding equal rights.
There will be no stopping the Corporation's transporters, from container van and rig owners to suppliers of service
vehicles of NPC executives, from demanding the privilege.
What is to stop, indeed, caterers of food served in board meetings or in NAPOCOR cafeterias from asking for
exemption, since food billed includes sales taxes shifted to a tax-exempt entity and, following the theory of the
majority, taxes that may be refunded?
What is, indeed, to stop all imagined claimants from demanding all imagined claims, since as we are aware, the rule
of taxation—and consequently, tax exemption—is uniform and equitable? 23
Of course, we have discussed NAPOCOR alone; we have not touched other tax-exempt entities, say, the
Marinduque Mining Corporation and Nonoc Mining Corporation. Per existing records and per reliable information,
Caltex Philippines, between 1979 and 1986, successfully recovered the total sum of P49,835,791.00. In 1985,
Caltex was said to have been refunded the amount of P4,217,423.00 arising from the same tax arrangement with
the Nonoc Mining Corporation.
Again, what is stopping—by virtue of this decision not—only the oil firms but also Marinduque's and Nonoc's
suppliers, importers, and ridiculously, caterers, from claiming a future refund?
The Decision, to be sure, attempts to allay these apprehensions and "dispel[s] [them] by the fact that . . . the
decision particularly treats of only the exemption of the NPC from all taxes, duties, fees, imposts and all other
charges imposed by the government on the petroleum products it need or uses for its operation . . . " Firstly, under
24
Presidential Decree No. 938, the supposed tax exemption of the National Power Corporation covers "all forms of
taxes. If therefore "all forms of taxes covers as well indirect taxes because Presidential Decree No. 380 supposedly
25
extended the Corporation's exemption to indirect taxes (and the majority "deems Presidential Decree No. 380 to
have been carried over to Presidential Decree No. 938"), then the conclusion seems in escapable—following the
logic of the majority—that the Corporation is exempt from all indirect taxes, on petroleum and any and all other
products and services.
The fact of the matter, second of all, is that the Decision is premised on the alleged exemption of the National Power
Corporation from all forms of taxes, meaning, direct and indirect taxes. It is a premise that is allegedly supported by
statutory history, and the legislature's alleged intent to grant the Corporation awesome exemptions. If that were the
case, the Corporation must logically be exempt from all kinds of taxes payable. Logically, the majority can not limit
the sweep of its pronouncement by exempting the National Power Corporation from "indirect taxes on petroleum"
alone. What is sauce for the goose (taxes on petroleum) is also sauce for the gander (all other taxes).
I still would have reason for my fears.
I can not, in all candor, accept the majority's efforts, and going back to the Corporation's charters, to "carry over," in
particular, Section 13(d) of Presidential Decree No. 380, to Presidential Decree No. 938. First of all, if Presidential
Decree No. 938 meant to absorb Presidential Decree No. 380 it would have said so specifically, or at the very least,
left it alone. Obviously, Presidential Decree No. 938 meant otherwise, to begin with, because it is precisely an
amendatory statute. Secondly, a "carry-over" would have allowed this Court to make law, so only it can fit in its
theories.
The country has gone to lengths fashioning an elaborate tax system and an efficient tax collection machinery.
Planners' efforts have seen various shifts in the taxing system, from specific, to ad valorem, to value-added taxation,
purportedly to minimize collection. For this year, the Bureau of Internal Revenue has a collection target of P130
billion, and significantly, it has been unrelenting in its tax and tax-consciousness drive. I am not prepared to cite
numbers but I figure that the money it will lose by virtue of this Decision is a meaningful chunk off its target, and a
significant setback to the government's programs.
I am afraid that by this Decision, the majority has ignored the forest (the welfare of the entire nation) in favor of a
tree (the welfare of a government corporation). The issue, in my opinion, is not the viability of the National Power
Corporation—as if the fate of the nation depended alone on it—but the very survival of the Republic. I am not of
course to be mistaken as being less concerned with NAPOCOR's fiscal chart. The picture, as I see it however, is
that we are in fact assisting the oil companies, out of that alleged concern, in evading taxes at the expense,
needless to state, of our coffers. I do not think that that is a question of legal hermeneutics, but rather, of plain love
of country.
Griño-Aquino, Davide, Jr. and Gutierrez, Jr., JJ., concur

G.R. No. 153866 February 11, 2005 - KEZIAH

vs.
SEAGATE TECHNOLOGY (PHILIPPINES), respondent.
DECISION
PANGANIBAN, J.:
Business companies registered in and operating from the Special Economic Zone in Naga, Cebu -- like herein
respondent -- are entities exempt from all internal revenue taxes and the implementing rules relevant thereto,
including the value-added taxes or VAT. Although export sales are not deemed exempt transactions, they are
nonetheless zero-rated. Hence, in the present case, the distinction between exempt entities and
exempt transactions has little significance, because the net result is that the taxpayer is not liable for the VAT.
Respondent, a VAT-registered enterprise, has complied with all requisites for claiming a tax refund of or credit for
the input VAT it paid on capital goods it purchased. Thus, the Court of Tax Appeals and the Court of Appeals did not
err in ruling that it is entitled to such refund or credit.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to set aside the May 27, 2002
1
Decision of the Court of Appeals (CA) in CA-GR SP No. 66093. The decretal portion of the Decision reads as
2
follows:
"WHEREFORE, foregoing premises considered, the petition for review is DENIED for lack of merit." 3
The Facts
The CA quoted the facts narrated by the Court of Tax Appeals (CTA), as follows:
"As jointly stipulated by the parties, the pertinent facts x x x involved in this case are as follows:
1. [Respondent] is a resident foreign corporation duly registered with the Securities and Exchange Commission to
do business in the Philippines, with principal office address at the new Cebu Township One, Special Economic
Zone, Barangay Cantao-an, Naga, Cebu;
2. [Petitioner] is sued in his official capacity, having been duly appointed and empowered to perform the duties of his
office, including, among others, the duty to act and approve claims for refund or tax credit;
3. [Respondent] is registered with the Philippine Export Zone Authority (PEZA) and has been issued PEZA
Certificate No. 97-044 pursuant to Presidential Decree No. 66, as amended, to engage in the manufacture of
recording components primarily used in computers for export. Such registration was made on 6 June 1997;
4. [Respondent] is VAT [(Value Added Tax)]-registered entity as evidenced by VAT Registration Certification No. 97-
083-000600-V issued on 2 April 1997;
5. VAT returns for the period 1 April 1998 to 30 June 1999 have been filed by [respondent];
6. An administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with supporting documents
(inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for Review), was filed on 4 October 1999
with Revenue District Office No. 83, Talisay Cebu;
7. No final action has been received by [respondent] from [petitioner] on [respondent’s] claim for VAT refund.
"The administrative claim for refund by the [respondent] on October 4, 1999 was not acted upon by the [petitioner]
prompting the [respondent] to elevate the case to [the CTA] on July 21, 2000 by way of Petition for Review in order
to toll the running of the two-year prescriptive period.
"For his part, [petitioner] x x x raised the following Special and Affirmative Defenses, to wit:
1. [Respondent’s] alleged claim for tax refund/credit is subject to administrative routinary investigation/examination
by [petitioner’s] Bureau;
2. Since ‘taxes are presumed to have been collected in accordance with laws and regulations,’ the [respondent] has
the burden of proof that the taxes sought to be refunded were erroneously or illegally collected x x x;
3. In Citibank, N.A. vs. Court of Appeals, 280 SCRA 459 (1997), the Supreme Court ruled that:
"A claimant has the burden of proof to establish the factual basis of his or her claim for tax credit/refund."
4. Claims for tax refund/tax credit are construed in ‘strictissimi juris’ against the taxpayer. This is due to the fact that
claims for refund/credit [partake of] the nature of an exemption from tax. Thus, it is incumbent upon the [respondent]
to prove that it is indeed entitled to the refund/credit sought. Failure on the part of the [respondent] to prove the
same is fatal to its claim for tax credit. He who claims exemption must be able to justify his claim by the clearest
grant of organic or statutory law. An exemption from the common burden cannot be permitted to exist upon vague
implications;
5. Granting, without admitting, that [respondent] is a Philippine Economic Zone Authority (PEZA) registered Ecozone
Enterprise, then its business is not subject to VAT pursuant to Section 24 of Republic Act No. ([RA]) 7916 in relation
to Section 103 of the Tax Code, as amended. As [respondent’s] business is not subject to VAT, the capital goods
and services it alleged to have purchased are considered not used in VAT taxable business. As such, [respondent]
is not entitled to refund of input taxes on such capital goods pursuant to Section 4.106.1 of Revenue Regulations
No. ([RR])7-95, and of input taxes on services pursuant to Section 4.103 of said regulations.
6. [Respondent] must show compliance with the provisions of Section 204 (C) and 229 of the 1997 Tax Code on
filing of a written claim for refund within two (2) years from the date of payment of tax.’
"On July 19, 2001, the Tax Court rendered a decision granting the claim for refund." 4
Ruling of the Court of Appeals
The CA affirmed the Decision of the CTA granting the claim for refund or issuance of a tax credit certificate (TCC) in
favor of respondent in the reduced amount of P12,122,922.66. This sum represented the unutilized but
substantiated input VAT paid on capital goods purchased for the period covering April 1, 1998 to June 30, 1999.
The appellate court reasoned that respondent had availed itself only of the fiscal incentives under Executive Order
No. (EO) 226 (otherwise known as the Omnibus Investment Code of 1987), not of those under both Presidential
Decree No. (PD) 66, as amended, and Section 24 of RA 7916. Respondent was, therefore, considered exempt only
from the payment of income tax when it opted for the income tax holiday in lieu of the 5 percent preferential tax on
gross income earned. As a VAT-registered entity, though, it was still subject to the payment of other national internal
revenue taxes, like the VAT.
Moreover, the CA held that neither Section 109 of the Tax Code nor Sections 4.106-1 and 4.103-1 of RR 7-95 were
applicable. Having paid the input VAT on the capital goods it purchased, respondent correctly filed the
administrative and judicial claims for its refund within the two-year prescriptive period. Such payments were -- to the
extent of the refundable value -- duly supported by VAT invoices or official receipts, and were not yet offset against
any output VAT liability.
Hence this Petition. 5
Sole Issue
Petitioner submits this sole issue for our consideration:
"Whether or not respondent is entitled to the refund or issuance of Tax Credit Certificate in the amount
of P12,122,922.66 representing alleged unutilized input VAT paid on capital goods purchased for the period April 1,
1998 to June 30, 1999." 6
The Petition is unmeritorious.
Sole Issue:
Entitlement of a VAT-Registered PEZA Enterprise to a Refund of or Credit for Input VAT
No doubt, as a PEZA-registered enterprise within a special economic zone, respondent is entitled to the fiscal
7
incentives and benefits provided for in either PD 66 or EO 226. It shall, moreover, enjoy all privileges, benefits,
8 9 10
advantages or exemptions under both Republic Act Nos. (RA) 7227 and 7844.11 12
Preferential Tax Treatment Under Special Laws
If it avails itself of PD 66, notwithstanding the provisions of other laws to the contrary, respondent shall not be
subject to internal revenue laws and regulations for raw materials, supplies, articles, equipment, machineries, spare
parts and wares, except those prohibited by law, brought into the zone to be stored, broken up, repacked,
assembled, installed, sorted, cleaned, graded or otherwise processed, manipulated, manufactured, mixed or used
directly or indirectly in such activities. Even so, respondent would enjoy a net-operating loss carry over; accelerated
13
depreciation; foreign exchange and financial assistance; and exemption from export taxes, local taxes and
licenses.14
Comparatively, the same exemption from internal revenue laws and regulations applies if EO 226 is chosen. Under
15
this law, respondent shall further be entitled to an income tax holiday; additional deduction for labor expense;
simplification of customs procedure; unrestricted use of consigned equipment; access to a bonded manufacturing
warehouse system; privileges for foreign nationals employed; tax credits on domestic capital equipment, as well as
for taxes and duties on raw materials; and exemption from contractors’ taxes, wharfage dues, taxes and duties on
imported capital equipment and spare parts, export taxes, duties, imposts and fees, local taxes and licenses, and 16
real property taxes. 17
A privilege available to respondent under the provision in RA 7227 on tax and duty-free importation of raw materials,
capital and equipment -- is, ipso facto, also accorded to the zone under RA 7916. Furthermore, the latter law --
18 19
notwithstanding other existing laws, rules and regulations to the contrary -- extends to that zone the provision 20
stating that no local or national taxes shall be imposed therein. No exchange control policy shall be applied; and
21
free markets for foreign exchange, gold, securities and future shall be allowed and maintained. Banking and finance 22
shall also be liberalized under minimum Bangko Sentral regulation with the establishment of foreign currency
depository units of local commercial banks and offshore banking units of foreign banks. 23
In the same vein, respondent benefits under RA 7844 from negotiable tax credits for locally-produced materials 24
used as inputs. Aside from the other incentives possibly already granted to it by the Board of Investments, it also
enjoys preferential credit facilities and exemption from PD 1853.
25 26
From the above-cited laws, it is immediately clear that petitioner enjoys preferential tax treatment. It is not subject to 27
internal revenue laws and regulations and is even entitled to tax credits. The VAT on capital goods is an internal
revenue tax from which petitioner as an entity is exempt. Although the transactions involving such tax are not
exempt, petitioner as a VAT-registered person, however, is entitled to their credits.
28
Nature of the VAT and the Tax Credit Method
Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 10 percent levied on every
importation of goods, whether or not in the course of trade or business, or imposed on each sale, barter, exchange
or lease of goods or properties or on each rendition of services in the course of trade or business as they pass 29
along the production and distribution chain, the tax being limited only to the value added to such goods, properties 30
or services by the seller, transferor or lessor. It is an indirect tax that may be shifted or passed on to the buyer,
31
transferee or lessee of the goods, properties or services. As such, it should be understood not in the context of the
32
person or entity that is primarily, directly and legally liable for its payment, but in terms of its nature as a tax on
consumption. In either case, though, the same conclusion is arrived at.
33
The law that originally imposed the VAT in the country, as well as the subsequent amendments of that law, has
34
been drawn from the tax credit method. Such method adopted the mechanics and self-enforcement features of the
35
VAT as first implemented and practiced in Europe and subsequently adopted in New Zealand and Canada. Under 36
the present method that relies on invoices, an entity can credit against or subtract from the VAT charged on its sales
or outputs the VAT paid on its purchases, inputs and imports. 37
If at the end of a taxable quarter the output taxes charged by a seller are equal to the input taxes passed on by the
38 39 40
suppliers, no payment is required. It is when the output taxes exceed the input taxes that the excess has to be
paid. If, however, the input taxes exceed the output taxes, the excess shall be carried over to the succeeding
41
quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions or from the
42
acquisition of capital goods, any excess over the output taxes shall instead be refunded to the taxpayer or
43 44
credited against other internal revenue taxes.

45 46
Zero-Rated and Effectively Zero-Rated Transactions
Although both are taxable and similar in effect, zero-rated transactions differ from effectively zero-rated transactions
as to their source.
Zero-rated transactions generally refer to the export sale of goods and supply of services. The tax rate is set at 47
zero. When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The
48
seller of such transactions charges no output tax, but can claim a refund of or a tax credit certificate for the VAT
49
previously charged by suppliers.
Effectively zero-rated transactions, however, refer to the sale of goods or supply of services to persons or entities
50 51
whose exemption under special laws or international agreements to which the Philippines is a signatory effectively
subjects such transactions to a zero rate. Again, as applied to the tax base, such rate does not yield any tax
52
chargeable against the purchaser. The seller who charges zero output tax on such transactions can also claim a
refund of or a tax credit certificate for the VAT previously charged by suppliers.
Zero Rating and Exemption
In terms of the VAT computation, zero rating and exemption are the same, but the extent of relief that results from
either one of them is not.
Applying the destination principle to the exportation of goods, automatic zero rating is primarily intended to be
53 54
enjoyed by the seller who is directly and legally liable for the VAT, making such seller internationally competitive by
allowing the refund or credit of input taxes that are attributable to export sales. Effective zero rating, on the contrary,
55
is intended to benefit the purchaser who, not being directly and legally liable for the payment of the VAT, will
ultimately bear the burden of the tax shifted by the suppliers.
In both instances of zero rating, there is total relief for the purchaser from the burden of the tax. But in an exemption 56
there is only partial relief, because the purchaser is not allowed any tax refund of or credit for input taxes paid.
57 58
Exempt Transaction >and Exempt Party
The object of exemption from the VAT may either be the transaction itself or any of the parties to the transaction. 59
An exempt transaction, on the one hand, involves goods or services which, by their nature, are specifically listed in
and expressly exempted from the VAT under the Tax Code, without regard to the tax status -- VAT-exempt or not --
of the party to the transaction. Indeed, such transaction is not subject to the VAT, but the seller is not allowed any
60
tax refund of or credit for any input taxes paid.
An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax Code, a special law
or an international agreement to which the Philippines is a signatory, and by virtue of which its taxable transactions
become exempt from the VAT. Such party is also not subject to the VAT, but may be allowed a tax refund of or
61
credit for input taxes paid, depending on its registration as a VAT or non-VAT taxpayer.
As mentioned earlier, the VAT is a tax on consumption, the amount of which may be shifted or passed on by the
seller to the purchaser of the goods, properties or services. While the liability is imposed on one person,
62
the burden may be passed on to another. Therefore, if a special law merely exempts a party as a seller from its
direct liability for payment of the VAT, but does not relieve the same party as a purchaser from its indirect burden of
the VAT shifted to it by its VAT-registered suppliers, the purchase transaction is not exempt. Applying this principle
to the case at bar, the purchase transactions entered into by respondent are not VAT-exempt.
Special laws may certainly exempt transactions from the VAT. However, the Tax Code provides that those falling
63
under PD 66 are not. PD 66 is the precursor of RA 7916 -- the special law under which respondent was registered.
The purchase transactions it entered into are, therefore, not VAT-exempt. These are subject to the VAT; respondent
is required to register.
Its sales transactions, however, will either be zero-rated or taxed at the standard rate of 10 percent, depending 64
again on the application of the destination principle. 65
If respondent enters into such sales transactions with a purchaser -- usually in a foreign country -- for use or
consumption outside the Philippines, these shall be subject to 0 percent. If entered into with a purchaser for use or
66
consumption in the Philippines, then these shall be subject to 10 percent, unless the purchaser is exempt from the
67
indirect burden of the VAT, in which case it shall also be zero-rated.
Since the purchases of respondent are not exempt from the VAT, the rate to be applied is zero. Its exemption under
both PD 66 and RA 7916 effectively subjects such transactions to a zero rate, because the ecozone within which it
68
is registered is managed and operated by the PEZA as a separate customs territory. This means that in such zone
69
is created the legal fiction of foreign territory. Under the cross-border principle of the VAT system being enforced
70 71
by the Bureau of Internal Revenue (BIR), no VAT shall be imposed to form part of the cost of goods destined for
72
consumption outside of the territorial border of the taxing authority. If exports of goods and services from the
Philippines to a foreign country are free of the VAT, then the same rule holds for such exports from the national
73
territory -- except specifically declared areas -- to an ecozone.
Sales made by a VAT-registered person in the customs territory to a PEZA-registered entity are considered exports
to a foreign country; conversely, sales by a PEZA-registered entity to a VAT-registered person in the customs
territory are deemed imports from a foreign country. An ecozone -- indubitably a geographical territory of the
74
Philippines -- is, however, regarded in law as foreign soil. This legal fiction is necessary to give meaningful effect to
75
the policies of the special law creating the zone. If respondent is located in an export processing zone within that
76 77
ecozone, sales to the export processing zone, even without being actually exported, shall in fact be viewed
as constructively exported under EO 226. Considered as export sales, such purchase transactions by respondent
78 79
would indeed be subject to a zero rate. 80
Tax Exemptions Broad and Express
Applying the special laws we have earlier discussed, respondent as an entity is exempt from internal revenue laws
and regulations.
This exemption covers both direct and indirect taxes, stemming from the very nature of the VAT as a tax on
consumption, for which the direct liability is imposed on one person but the indirect burden is passed on to another.
Respondent, as an exempt entity, can neither be directly charged for the VAT on its sales nor indirectly made to
bear, as added cost to such sales, the equivalent VAT on its purchases. Ubi lex non distinguit, nec nos distinguere
debemus. Where the law does not distinguish, we ought not to distinguish.
Moreover, the exemption is both express and pervasive for the following reasons:
First, RA 7916 states that "no taxes, local and national, shall be imposed on business establishments operating
within the ecozone." Since this law does not exclude the VAT from the prohibition, it is deemed included. Exceptio
81
firmat regulam in casibus non exceptis. An exception confirms the rule in cases not excepted; that is, a thing not
being excepted must be regarded as coming within the purview of the general rule.
Moreover, even though the VAT is not imposed on the entity but on the transaction, it may still be passed on and,
therefore, indirectly imposed on the same entity -- a patent circumvention of the law. That no VAT shall be imposed
directly upon business establishments operating within the ecozone under RA 7916 also means that no VAT may be
passed on and imposed indirectly. Quando aliquid prohibetur ex directo prohibetur et per obliquum. When anything
is prohibited directly, it is also prohibited indirectly.
Second, when RA 8748 was enacted to amend RA 7916, the same prohibition applied, except for real property
taxes that presently are imposed on land owned by developers. This similar and repeated prohibition is an 82
unambiguous ratification of the law’s intent in not imposing local or national taxes on business enterprises within the
ecozone.
Third, foreign and domestic merchandise, raw materials, equipment and the like "shall not be subject to x x x
internal revenue laws and regulations" under PD 66 -- the original charter of PEZA (then EPZA) that was later
83
amended by RA 7916. No provisions in the latter law modify such exemption.

84
Although this exemption puts the government at an initial disadvantage, the reduced tax collection ultimately
redounds to the benefit of the national economy by enticing more business investments and creating more
employment opportunities. 85
Fourth, even the rules implementing the PEZA law clearly reiterate that merchandise -- except those prohibited by
law -- "shall not be subject to x x x internal revenue laws and regulations x x x" if brought to the ecozone’s restricted 86
area for manufacturing by registered export enterprises, of which respondent is one. These rules also apply to all
87 88
enterprises registered with the EPZA prior to the effectivity of such rules. 89
Fifth, export processing zone enterprises registered with the Board of Investments (BOI) under EO 226 patently
90
enjoy exemption from national internal revenue taxes on imported capital equipment reasonably needed and
exclusively used for the manufacture of their products; on required supplies and spare part for consigned
91
equipment; and on foreign and domestic merchandise, raw materials, equipment and the like -- except those
92
prohibited by law -- brought into the zone for manufacturing. In addition, they are given credits for the value of the
93
national internal revenue taxes imposed on domestic capital equipment also reasonably needed and exclusively
used for the manufacture of their products, as well as for the value of such taxes imposed on domestic raw
94
materials and supplies that are used in the manufacture of their export products and that form part thereof. 95
Sixth, the exemption from local and national taxes granted under RA 7227 are ipso facto accorded to ecozones. In 96 97
case of doubt, conflicts with respect to such tax exemption privilege shall be resolved in favor of the ecozone. 98
And seventh, the tax credits under RA 7844 -- given for imported raw materials primarily used in the production of
export goods, and for locally produced raw materials, capital equipment and spare parts used by exporters of non-
99
traditional products -- shall also be continuously enjoyed by similar exporters within the ecozone. 101 Indeed, the
100
latter exporters are likewise entitled to such tax exemptions and credits.
Tax Refund as Tax Exemption
To be sure, statutes that grant tax exemptions are construed strictissimi juris against the taxpayer and liberally in 102 103
favor of the taxing authority. 104
Tax refunds are in the nature of such exemptions. Accordingly, the claimants of those refunds bear the burden of
105
proving the factual basis of their claims; and of showing, by words too plain to be mistaken, that the legislature
106
intended to exempt them. In the present case, all the cited legal provisions are teeming with life with respect to the
107
grant of tax exemptions too vivid to pass unnoticed. In addition, respondent easily meets the challenge.
Respondent, which as an entity is exempt, is different from its transactions which are not exempt. The end result,
however, is that it is not subject to the VAT. The non-taxability of transactions that are otherwise taxable is merely a
necessary incident to the tax exemption conferred by law upon it as an entity, not upon the transactions
themselves. Nonetheless, its exemption as an entity and the non-exemption of its transactions lead to the same
108
result for the following considerations:
First, the contemporaneous construction of our tax laws by BIR authorities who are called upon to execute or
administer such laws will have to be adopted. Their prior tax issuances have held inconsistent positions brought
109
about by their probable failure to comprehend and fully appreciate the nature of the VAT as a tax on consumption
and the application of the destination principle. Revenue Memorandum Circular No. (RMC) 74-99, however, now
110
clearly and correctly provides that any VAT-registered supplier’s sale of goods, property or services from the
customs territory to any registered enterprise operating in the ecozone -- regardless of the class or type of the
latter’s PEZA registration -- is legally entitled to a zero rate. 111
Second, the policies of the law should prevail. Ratio legis est anima. The reason for the law is its very soul.
In PD 66, the urgent creation of the EPZA which preceded the PEZA, as well as the establishment of export
processing zones, seeks "to encourage and promote foreign commerce as a means of x x x strengthening our
export trade and foreign exchange position, of hastening industrialization, of reducing domestic unemployment, and
of accelerating the development of the country." 112
RA 7916, as amended by RA 8748, declared that by creating the PEZA and integrating the special economic zones,
"the government shall actively encourage, promote, induce and accelerate a sound and balanced industrial,
economic and social development of the country x x x through the establishment, among others, of special
economic zones x x x that shall effectively attract legitimate and productive foreign investments." 113
Under EO 226, the "State shall encourage x x x foreign investments in industry x x x which shall x x x meet the tests
of international competitiveness[,] accelerate development of less developed regions of the country[,] and result in
increased volume and value of exports for the economy." Fiscal incentives that are cost-efficient and simple to
114
administer shall be devised and extended to significant projects "to compensate for market imperfections, to reward
performance contributing to economic development," and "to stimulate the establishment and assist initial
115
operations of the enterprise." 116
Wisely accorded to ecozones created under RA 7916 was the government’s policy -- spelled out earlier in RA 7227
117
-- of converting into alternative productive uses the former military reservations and their extensions, as well as of
118 119
providing them incentives to enhance the benefits that would be derived from them 121 in promoting economic and
120
social development. 122
Finally, under RA 7844, the State declares the need "to evolve export development into a national effort" in order to 123
win international markets. By providing many export and tax incentives, the State is able to drive home the point 124
that exporting is indeed "the key to national survival and the means through which the economic goals of increased
employment and enhanced incomes can most expeditiously be achieved." 125
The Tax Code itself seeks to "promote sustainable economic growth x x x; x x x increase economic activity; and x x
x create a robust environment for business to enable firms to compete better in the regional as well as the global
market." After all, international competitiveness requires economic and tax incentives to lower the cost of goods
126
produced for export. State actions that affect global competition need to be specific and selective in the pricing of
particular goods or services. 127
All these statutory policies are congruent to the constitutional mandates of providing incentives to needed
investments, as well as of promoting the preferential use of domestic materials and locally produced goods and
128
adopting measures to help make these competitive. Tax credits for domestic inputs strengthen backward linkages.
129
Rightly so, "the rule of law and the existence of credible and efficient public institutions are essential prerequisites
for sustainable economic development." 130
VAT Registration, Not Application for Effective Zero Rating, Indispensable to VAT Refund
Registration is an indispensable requirement under our VAT law. Petitioner alleges that respondent did register for
131
VAT purposes with the appropriate Revenue District Office. However, it is now too late in the day for petitioner to
challenge the VAT-registered status of respondent, given the latter’s prior representation before the lower courts
and the mode of appeal taken by petitioner before this Court.
The PEZA law, which carried over the provisions of the EPZA law, is clear in exempting from internal revenue laws
and regulations the equipment -- including capital goods -- that registered enterprises will use, directly or indirectly,
in manufacturing. EO 226 even reiterates this privilege among the incentives it gives to such
132
enterprises. Petitioner merely asserts that by virtue of the PEZA registration alone of respondent, the latter is not
133
subject to the VAT. Consequently, the capital goods and services respondent has purchased are not considered
used in the VAT business, and no VAT refund or credit is due. This is a non sequitur. By the VAT’s very nature as
134
a tax on consumption, the capital goods and services respondent has purchased are subject to the VAT, although at
zero rate. Registration does not determine taxability under the VAT law.
Moreover, the facts have already been determined by the lower courts. Having failed to present evidence to support
its contentions against the income tax holiday privilege of respondent, petitioner is deemed to have conceded. It is 135
a cardinal rule that "issues and arguments not adequately and seriously brought below cannot be raised for the first
time on appeal." This is a "matter of procedure" and a "question of fairness." Failure to assert "within a
136 137 138
reasonable time warrants a presumption that the party entitled to assert it either has abandoned or declined to
assert it."
139
The BIR regulations additionally requiring an approved prior application for effective zero rating cannot prevail over 140
the clear VAT nature of respondent’s transactions. The scope of such regulations is not "within the statutory
authority x x x granted by the legislature. 141
First, a mere administrative issuance, like a BIR regulation, cannot amend the law; the former cannot purport to do
any more than interpret the latter. The courts will not countenance one that overrides the statute it seeks to apply
142
and implement. 143
Other than the general registration of a taxpayer the VAT status of which is aptly determined, no provision under our
VAT law requires an additional application to be made for such taxpayer’s transactions to be considered effectively
zero-rated. An effectively zero-rated transaction does not and cannot become exempt simply because an
application therefor was not made or, if made, was denied. To allow the additional requirement is to give unfettered
discretion to those officials or agents who, without fluid consideration, are bent on denying a valid application.
Moreover, the State can never be estopped by the omissions, mistakes or errors of its officials or agents. 144
Second, grantia argumenti that such an application is required by law, there is still the presumption of regularity in
the performance of official duty. Respondent’s registration carries with it the presumption that, in the absence of
145
contradictory evidence, an application for effective zero rating was also filed and approval thereof given. Besides, it
is also presumed that the law has been obeyed by both the administrative officials and the applicant.
146
Third, even though such an application was not made, all the special laws we have tackled exempt respondent not
only from internal revenue laws but also from the regulations issued pursuant thereto. Leniency in the
implementation of the VAT in ecozones is an imperative, precisely to spur economic growth in the country and attain
global competitiveness as envisioned in those laws.
A VAT-registered status, as well as compliance with the invoicing requirements, is sufficient for the effective zero 147
rating of the transactions of a taxpayer. The nature of its business and transactions can easily be perused from, as
already clearly indicated in, its VAT registration papers and photocopied documents attached thereto. Hence, its
transactions cannot be exempted by its mere failure to apply for their effective zero rating. Otherwise, their VAT
exemption would be determined, not by their nature, but by the taxpayer’s negligence -- a result not at all
contemplated. Administrative convenience cannot thwart legislative mandate.
Tax Refund or Credit in Order
Having determined that respondent’s purchase transactions are subject to a zero VAT rate, the tax refund or credit
is in order.
As correctly held by both the CA and the Tax Court, respondent had chosen the fiscal incentives in EO 226 over
those in RA 7916 and PD 66. It opted for the income tax holiday regime instead of the 5 percent preferential tax
regime.
The latter scheme is not a perfunctory aftermath of a simple registration under the PEZA law, for EO 226 also has
148 149
provisions to contend with. These two regimes are in fact incompatible and cannot be availed of simultaneously by
the same entity. While EO 226 merely exempts it from income taxes, the PEZA law exempts it from all taxes.
Therefore, respondent can be considered exempt, not from the VAT, but only from the payment of income tax for a
certain number of years, depending on its registration as a pioneer or a non-pioneer enterprise. Besides, the
remittance of the aforesaid 5 percent of gross income earned in lieu of local and national taxes imposable upon
business establishments within the ecozone cannot outrightly determine a VAT exemption. Being subject to VAT,
payments erroneously collected thereon may then be refunded or credited.
Even if it is argued that respondent is subject to the 5 percent preferential tax regime in RA 7916, Section 24 thereof
does not preclude the VAT. One can, therefore, counterargue that such provision merely exempts respondent from
taxes imposed on business. To repeat, the VAT is a tax imposed on consumption, not on business. Although
respondent as an entity is exempt, the transactions it enters into are not necessarily so. The VAT payments made in
excess of the zero rate that is imposable may certainly be refunded or credited.
Compliance with All Requisites for VAT Refund or Credit
As further enunciated by the Tax Court, respondent complied with all the requisites for claiming a VAT refund or
credit.
150
First, respondent is a VAT-registered entity. This fact alone distinguishes the present case from Contex, in which
this Court held that the petitioner therein was registered as a non-VAT taxpayer. Hence, for being merely VAT-
151
exempt, the petitioner in that case cannot claim any VAT refund or credit.
Second, the input taxes paid on the capital goods of respondent are duly supported by VAT invoices and have not
been offset against any output taxes. Although enterprises registered with the BOI after December 31, 1994 would
no longer enjoy the tax credit incentives on domestic capital equipment -- as provided for under Article 39(d), Title
III, Book I of EO 226 -- starting January 1, 1996, respondent would still have the same benefit under a general and
152
express exemption contained in both Article 77(1), Book VI of EO 226; and Section 12, paragraph 2 (c) of RA 7227,
extended to the ecozones by RA 7916.
There was a very clear intent on the part of our legislators, not only to exempt investors in ecozones from national
and local taxes, but also to grant them tax credits. This fact was revealed by the sponsorship speeches in Congress
during the second reading of House Bill No. 14295, which later became RA 7916, as shown below:
"MR. RECTO. x x x Some of the incentives that this bill provides are exemption from national and local taxes; x x x
tax credit for locally-sourced inputs x x x."
xxxxxxxxx
"MR. DEL MAR. x x x To advance its cause in encouraging investments and creating an environment conducive for
investors, the bill offers incentives such as the exemption from local and national taxes, x x x tax credits for locally
sourced inputs x x x." 153
And third, no question as to either the filing of such claims within the prescriptive period or the validity of the VAT
returns has been raised. Even if such a question were raised, the tax exemption under all the special laws cited
above is broad enough to cover even the enforcement of internal revenue laws, including prescription. 154
Summary
To summarize, special laws expressly grant preferential tax treatment to business establishments registered and
operating within an ecozone, which by law is considered as a separate customs territory. As such, respondent is
exempt from all internal revenue taxes, including the VAT, and regulations pertaining thereto. It has opted for the
income tax holiday regime, instead of the 5 percent preferential tax regime. As a matter of law and procedure, its
registration status entitling it to such tax holiday can no longer be questioned. Its sales transactions intended for
export may not be exempt, but like its purchase transactions, they are zero-rated. No prior application for the
effective zero rating of its transactions is necessary. Being VAT-registered and having satisfactorily complied with all
the requisites for claiming a tax refund of or credit for the input VAT paid on capital goods purchased, respondent is
entitled to such VAT refund or credit.
WHEREFORE, the Petition is DENIED and the Decision AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Sandoval-Gutierrez, Corona, Carpio-Morales and Garcia, JJ., concur.
G.R. No. 148191 November 25, 2003 - NURHAINIE

vs.
SOLIDBANK CORPORATION, respondent.
DECISION
PANGANIBAN, J.:
Under the Tax Code, the earnings of banks from "passive" income are subject to a twenty percent final withholding
tax (20% FWT). This tax is withheld at source and is thus not actually and physically received by the banks,
because it is paid directly to the government by the entities from which the banks derived the income. Apart from the
20% FWT, banks are also subject to a five percent gross receipts tax (5% GRT) which is imposed by the Tax Code
on their gross receipts, including the "passive" income.
Since the 20% FWT is constructively received by the banks and forms part of their gross receipts or earnings, it
follows that it is subject to the 5% GRT. After all, the amount withheld is paid to the government on their behalf, in
satisfaction of their withholding taxes. That they do not actually receive the amount does not alter the fact that it is
remitted for their benefit in satisfaction of their tax obligations.
Stated otherwise, the fact is that if there were no withholding tax system in place in this country, this 20 percent
portion of the "passive" income of banks would actually be paid to the banks and then remitted by them to the
government in payment of their income tax. The institution of the withholding tax system does not alter the fact that
the 20 percent portion of their "passive" income constitutes part of their actual earnings, except that it is paid directly
to the government on their behalf in satisfaction of the 20 percent final income tax due on their "passive" incomes.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to annul the July 18, 2000
1
Decision and the May 8, 2001 Resolution of the Court of Appeals (CA) in CA-GR SP No. 54599. The decretal
2 3 4
portion of the assailed Decision reads as follows:
"WHEREFORE, we AFFIRM in toto the assailed decision and resolution of the Court of Tax Appeals." 5
The challenged Resolution denied petitioner’s Motion for Reconsideration.
The Facts
Quoting petitioner, the CA summarized the facts of this case as follows:

6
"For the calendar year 1995, [respondent] seasonably filed its Quarterly Percentage Tax Returns reflecting gross
receipts (pertaining to 5% [Gross Receipts Tax] rate) in the total amount of ₱1,474,691,693.44 with corresponding
gross receipts tax payments in the sum of ₱73,734,584.60, broken down as follows:
Period Covered Gross Receipts Gross Receipts Tax

January to March 1994 ₱ 188,406,061.95 ₱ 9,420,303.10
April to June 1994 370,913,832.70 18,545,691.63
July to September 1994 481,501,838.98 24,075,091.95
October to December 1994 433,869,959.81 21,693,497.98
Total ₱ 1,474,691,693.44 ₱ 73,734,584.60
"[Respondent] alleges that the total gross receipts in the amount of ₱1,474,691,693.44 included the sum of
₱350,807,875.15 representing gross receipts from passive income which was already subjected to 20% final
withholding tax.
"On January 30, 1996, [the Court of Tax Appeals] rendered a decision in CTA Case No. 4720 entitled Asian Bank
Corporation vs. Commissioner of Internal Revenue[,] wherein it was held that the 20% final withholding tax on [a]
bank’s interest income should not form part of its taxable gross receipts for purposes of computing the gross
receipts tax.
"On June 19, 1997, on the strength of the aforementioned decision, [respondent] filed with the Bureau of Internal
Revenue [BIR] a letter-request for the refund or issuance of [a] tax credit certificate in the aggregate amount of
₱3,508,078.75, representing allegedly overpaid gross receipts tax for the year 1995, computed as follows:
Gross Receipts Subjected to the Final Tax
Derived from Passive [Income] ₱ 350,807,875.15

Multiply by Final Tax rate 20%
20% Final Tax Withheld at Source ₱ 70,161,575.03
Multiply by [Gross Receipts Tax] rate 5%
Overpaid [Gross Receipts Tax] ₱ 3,508,078.75
"Without waiting for an action from the [petitioner], [respondent] on the same day filed [a] petition for review [with the
Court of Tax Appeals] in order to toll the running of the two-year prescriptive period to judicially claim for the refund
of [any] overpaid internal revenue tax[,] pursuant to Section 230 [now 229] of the Tax Code [also ‘National Internal
Revenue Code’] x x x.
x x x x x x x x x
"After trial on the merits, the [Court of Tax Appeals], on August 6, 1999, rendered its decision ordering x x x
petitioner to refund in favor of x x x respondent the reduced amount of ₱1,555,749.65 as overpaid [gross receipts
tax] for the year 1995. The legal issue x x x was resolved by the [Court of Tax Appeals], with Hon. Amancio Q. Saga
dissenting, on the strength of its earlier pronouncement in x x x Asian Bank Corporation vs. Commissioner of
Internal Revenue x x x, wherein it was held that the 20% [final withholding tax] on [a] bank’s interest income should
not form part of its taxable gross receipts for purposes of computing the [gross receipts tax]." 7
Ruling of the CA
The CA held that the 20% FWT on a bank’s interest income did not form part of the taxable gross receipts in
computing the 5% GRT, because the FWT was not actually received by the bank but was directly remitted to the
government. The appellate court curtly said that while the Tax Code "does not specifically state any exemption, x x x
the statute must receive a sensible construction such as will give effect to the legislative intention, and so as to
avoid an unjust or absurd conclusion." 8
Hence, this appeal. 9
Issue
Petitioner raises this lone issue for our consideration:
"Whether or not the 20% final withholding tax on [a] bank’s interest income forms part of the taxable gross receipts
in computing the 5% gross receipts tax." 10
The Petition is meritorious.
Sole Issue:
Whether the 20% FWT Forms Part

of the Taxable Gross Receipts
Petitioner claims that although the 20% FWT on respondent’s interest income was not actually received by
respondent because it was remitted directly to the government, the fact that the amount redounded to the bank’s
benefit makes it part of the taxable gross receipts in computing the 5% GRT. Respondent, on the other hand,
maintains that the CA correctly ruled otherwise.
We agree with petitioner. In fact, the same issue has been raised recently in China Banking Corporation v.
CA, where this Court held that the amount of interest income withheld in payment of the 20% FWT forms part of
11
gross receipts in computing for the GRT on banks.
The FWT and the GRT:
Two Different Taxes
The 5% GRT is imposed by Section 119 of the Tax Code, which provides:
12 13
"SEC. 119. Tax on banks and non-bank financial intermediaries. – There shall be collected a tax on gross receipts
derived from sources within the Philippines by all banks and non-bank financial intermediaries in accordance with
the following schedule:
"(a) On interest, commissions and discounts from lending activities as well as income from financial leasing, on the
basis of remaining maturities of instruments from which such receipts are derived.
Short-term maturity not in excess of two (2) years……………………5%
Medium-term maturity – over two (2) years
but not exceeding four (4) years………………………………….…...3%
Long-term maturity:
(i) Over four (4) years but not exceeding
seven (7) years……………………………………………1%
(ii) Over seven (7) years………………………………….….0%
"(b) On dividends……………………………….……..0%
"(c) On royalties, rentals of property, real or personal, profits from exchange and all other items treated as
gross income under Section 28 of this Code………....................................................................5%
14
Provided, however, That in case the maturity period referred to in paragraph (a) is shortened thru pretermination,
then the maturity period shall be reckoned to end as of the date of pretermination for purposes of classifying the
transaction as short, medium or long term and the correct rate of tax shall be applied accordingly.
"Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons
performing similar banking activities."
The 5% GRT is included under "Title V. Other Percentage Taxes" of the Tax Code and is not subject to withholding.
15
The banks and non-bank financial intermediaries liable therefor shall, under Section 125(a)(1), file quarterly returns
16
on the amount of gross receipts and pay the taxes due thereon within twenty (20) days after the end of each
17
taxable quarter.
The 20% FWT, on the other hand, falls under Section 24(e)(1) of "Title II. Tax on Income." It is a tax on passive
18 19
income, deducted and withheld at source by the payor-corporation and/or person as withholding agent pursuant to
Section 50, and paid in the same manner and subject to the same conditions as provided for in Section 51.
20 21
A perusal of these provisions clearly shows that two types of taxes are involved in the present controversy: (1) the
GRT, which is a percentage tax; and (2) the FWT, which is an income tax. As a bank, petitioner is covered by both
taxes.
A percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in
money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in
the sale of services. It is not subject to withholding.
22
An income tax, on the other hand, is a national tax imposed on the net or the gross income realized in a taxable
year. It is subject to withholding.
23
In a withholding tax system, the payee is the taxpayer, the person on whom the tax is imposed; the payor, a
separate entity, acts as no more than an agent of the government for the collection of the tax in order to ensure its
payment. Obviously, this amount that is used to settle the tax liability is deemed sourced from the proceeds
constitutive of the tax base. These proceeds are either actual or constructive. Both parties herein agree that there is
24
no actual receipt by the bank of the amount withheld. What needs to be determined is if there is constructive receipt
thereof. Since the payee -- not the payor -- is the real taxpayer, the rule on constructive receipt can be easily
rationalized, if not made clearly manifest. 25
Constructive Receipt
Versus Actual Receipt
Applying Section 7 of Revenue Regulations (RR) No. 17-84, petitioner contends that there is constructive receipt of
26
the interest on deposits and yield on deposit substitutes. Respondent, however, claims that even if there is, it is
27
Section 4(e) of RR 12-80 that nevertheless governs the situation.

28
Section 7 of RR 17-84 states:
"SEC. 7. Nature and Treatment of Interest on Deposits and Yield on Deposit Substitutes. –
‘(a) The interest earned on Philippine Currency bank deposits and yield from deposit substitutes subjected to
the withholding taxes in accordance with these regulations need not be included in the gross income in
computing the depositor’s/investor’s income tax liability in accordance with the provision of Section
29(b), (c) and (d) of the National Internal Revenue Code, as amended.
29 30
‘(b) Only interest paid or accrued on bank deposits, or yield from deposit substitutes declared for purposes
of imposing the withholding taxes in accordance with these regulations shall be allowed as interest expense
deductible for purposes of computing taxable net income of the payor.
‘(c) If the recipient of the above-mentioned items of income are financial institutions, the same shall be
included as part of the tax base upon which the gross receipt[s] tax is imposed.’"
Section 4(e) of RR 12-80, on the other hand, states that the tax rates to be imposed on the gross receipts of banks,
non-bank financial intermediaries, financing companies, and other non-bank financial intermediaries not performing
quasi-banking activities shall be based on all items of income actually received. This provision reads:
"SEC. 4. x x x x x x x x x
"(e) Gross receipts tax on banks, non-bank financial intermediaries, financing companies, and other non-bank
financial intermediaries not performing quasi-banking activities. – The rates of tax to be imposed on the gross
receipts of such financial institutions shall be based on all items of income actually received. Mere accrual shall not
be considered, but once payment is received on such accrual or in cases of prepayment, then the amount actually
received shall be included in the tax base of such financial institutions, as provided hereunder x x x."
Respondent argues that the above-quoted provision is plain and clear: since there is no actual receipt, the FWT is
not to be included in the tax base for computing the GRT. There is supposedly no pecuniary benefit or advantage
accruing to the bank from the FWT, because the income is subjected to a tax burden immediately upon receipt
through the withholding process. Moreover, the earlier RR 12-80 covered matters not falling under the later RR 17-
84.31
We are not persuaded.
By analogy, we apply to the receipt of income the rules on actual and constructive possession provided in Articles
531 and 532 of our Civil Code.
Under Article 531: 32
"Possession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is
subject to the action of our will, or by the proper acts and legal formalities established for acquiring such right."
Article 532 states:
"Possession may be acquired by the same person who is to enjoy it, by his legal representative, by his agent, or by
any person without any power whatever; but in the last case, the possession shall not be considered as acquired
until the person in whose name the act of possession was executed has ratified the same, without prejudice to the
juridical consequences of negotiorum gestio in a proper case." 33
The last means of acquiring possession under Article 531 refers to juridical acts -- the acquisition of possession by
sufficient title – to which the law gives the force of acts of possession. Respondent argues that only items of income
34
actually received should be included in its gross receipts. It claims that since the amount had already been withheld
at source, it did not have actual receipt thereof.
We clarify. Article 531 of the Civil Code clearly provides that the acquisition of the right of possession is through the
proper acts and legal formalities established therefor. The withholding process is one such act. There may not be
actual receipt of the income withheld; however, as provided for in Article 532, possession by any person without any
power whatsoever shall be considered as acquired when ratified by the person in whose name the act of
possession is executed.
In our withholding tax system, possession is acquired by the payor as the withholding agent of the government,
because the taxpayer ratifies the very act of possession for the government. There is thus constructive receipt. The
processes of bookkeeping and accounting for interest on deposits and yield on deposit substitutes that are
subjected to FWT are indeed -- for legal purposes -- tantamount to delivery, receipt or remittance. Besides,
35
respondent itself admits that its income is subjected to a tax burden immediately upon "receipt," although it claims
that it derives no pecuniary benefit or advantage through the withholding process. There being constructive receipt
of such income -- part of which is withheld -- RR 17-84 applies, and that income is included as part of the tax base
upon which the GRT is imposed.
RR 12-80 Superseded by RR 17-84
We now come to the effect of the revenue regulations on interest income constructively received.
In general, rules and regulations issued by administrative or executive officers pursuant to the procedure or
authority conferred by law upon the administrative agency have the force and effect, or partake of the nature, of a
statute. The reason is that statutes express the policies, purposes, objectives, remedies and sanctions intended by
36
the legislature in general terms. The details and manner of carrying them out are oftentimes left to the administrative
agency entrusted with their enforcement.
In the present case, it is the finance secretary who promulgates the revenue regulations, upon recommendation of
the BIR commissioner. These regulations are the consequences of a delegated power to issue legal provisions that
have the effect of law.37
A revenue regulation is binding on the courts as long as the procedure fixed for its promulgation is followed. Even if
the courts may not be in agreement with its stated policy or innate wisdom, it is nonetheless valid, provided that its
scope is within the statutory authority or standard granted by the legislature. Specifically, the regulation must (1) be
38
germane to the object and purpose of the law; (2) not contradict, but conform to, the standards the law
39
prescribes; and (3) be issued for the sole purpose of carrying into effect the general provisions of our tax laws.
40 41
In the present case, there is no question about the regularity in the performance of official duty. What needs to be
determined is whether RR 12-80 has been repealed by RR 17-84.
A repeal may be express or implied. It is express when there is a declaration in a regulation -- usually in its repealing
clause -- that another regulation, identified by its number or title, is repealed. All others are implied repeals. An
42
example of the latter is a general provision that predicates the intended repeal on a substantial conflict between the
existing and the prior regulations. 43
As stated in Section 11 of RR 17-84, all regulations, rules, orders or portions thereof that are inconsistent with the
provisions of the said RR are thereby repealed. This declaration proceeds on the premise that RR 17-84 clearly
reveals such an intention on the part of the Department of Finance. Otherwise, later RRs are to be construed as a
continuation of, and not a substitute for, earlier RRs; and will continue to speak, so far as the subject matter is the
same, from the time of the first promulgation. 44
There are two well-settled categories of implied repeals: (1) in case the provisions are in irreconcilable conflict, the
later regulation, to the extent of the conflict, constitutes an implied repeal of an earlier one; and (2) if the later
regulation covers the whole subject of an earlier one and is clearly intended as a substitute, it will similarly operate
as a repeal of the earlier one. There is no implied repeal of an earlier RR by the mere fact that its subject matter is
45
related to a later RR, which may simply be a cumulation or continuation of the earlier one. 46
Where a part of an earlier regulation embracing the same subject as a later one may not be enforced without
nullifying the pertinent provision of the latter, the earlier regulation is deemed impliedly amended or modified to the
extent of the repugnancy. The unaffected provisions or portions of the earlier regulation remain in force, while its
47
omitted portions are deemed repealed. An exception therein that is amended by its subsequent elimination shall
48
now cease to be so and instead be included within the scope of the general rule. 49
Section 4(e) of the earlier RR 12-80 provides that only items of income actually received shall be included in the tax
base for computing the GRT, but Section 7(c) of the later RR 17-84 makes no such distinction and provides that all
interests earned shall be included. The exception having been eliminated, the clear intent is that the later RR 17-84
includes the exception within the scope of the general rule.
Repeals by implication are not favored and will not be indulged, unless it is manifest that the administrative agency
intended them. As a regulation is presumed to have been made with deliberation and full knowledge of all existing
rules on the subject, it may reasonably be concluded that its promulgation was not intended to interfere with or
abrogate any earlier rule relating to the same subject, unless it is either repugnant to or fully inclusive of the subject
matter of an earlier one, or unless the reason for the earlier one is "beyond peradventure removed." Every effort
50
must be exerted to make all regulations stand -- and a later rule will not operate as a repeal of an earlier one, if by
any reasonable construction, the two can be reconciled. 51
RR 12-80 imposes the GRT only on all items of income actually received, as opposed to their mere accrual, while
RR 17-84 includes all interest income in computing the GRT. RR 12-80 is superseded by the later rule, because
Section 4(e) thereof is not restated in RR 17-84. Clearly therefore, as petitioner correctly states, this particular
provision was impliedly repealed when the later regulations took effect. 52
Reconciling the Two Regulations
Granting that the two regulations can be reconciled, respondent’s reliance on Section 4(e) of RR 12-80 is misplaced
and deceptive. The "accrual" referred to therein should not be equated with the determination of the amount to be
used as tax base in computing the GRT. Such accrual merely refers to an accounting method that recognizes
income as earned although not received, and expenses as incurred although not yet paid.
Accrual should not be confused with the concept of constructive possession or receipt as earlier discussed.
Petitioner correctly points out that income that is merely accrued -- earned, but not yet received -- does not form part
of the taxable gross receipts; income that has been received, albeit constructively, does. 53
The word "actually," used confusingly in Section 4(e), will be clearer if removed entirely. Besides, if actually is that
important, accrual should have been eliminated for being a mere surplusage. The inclusion of accrual stresses the
fact that Section 4(e) does not distinguish between actual and constructive receipt. It merely focuses on the method
of accounting known as the accrual system.
Under this system, income is accrued or earned in the year in which the taxpayer’s right thereto becomes fixed and
definite, even though it may not be actually received until a later year; while a deduction for a liability is to be
accrued or incurred and taken when the liability becomes fixed and certain, even though it may not be actually paid
until later.
54
Under any system of accounting, no duty or liability to pay an income tax upon a transaction arises until the taxable
year in which the event constituting the condition precedent occurs. The liability to pay a tax may thus arise at a
55
certain time and the tax paid within another given time. 56
In reconciling these two regulations, the earlier one includes in the tax base for GRT all income, whether actually or
constructively received, while the later one includes specifically interest income. In computing the income tax
liability, the only exception cited in the later regulations is the exclusion from gross income of interest income, which
is already subjected to withholding. This exception, however, refers to a different tax altogether. To extend
mischievously such exception to the GRT will certainly lead to results not contemplated by the legislators and the
administrative body promulgating the regulations.
Manila Jockey Club

Inapplicable
In Commissioner of Internal Revenue v. Manila Jockey Club, we held that the term "gross receipts" shall not include
57
money which, although delivered, has been especially earmarked by law or regulation for some person other than
the taxpayer. 58
To begin, we have to nuance the definition of gross receipts to determine what it is exactly. In this regard, we note
59
that US cases have persuasive effect in our jurisdiction, because Philippine income tax law is patterned after its US
counterpart. 60
"‘[G]ross receipts’ with respect to any period means the sum of: (a) The total amount received or accrued during
such period from the sale, exchange, or other disposition of x x x other property of a kind which would properly be
included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer
primarily for sale to customers in the ordinary course of its trade or business, and (b) The gross income, attributable
to a trade or business, regularly carried on by the taxpayer, received or accrued during such period x x x." 61
"x x x [B]y gross earnings from operations x x x was intended all operations xxx including incidental, subordinate,
and subsidiary operations, as well as principal operations." 62
"When we speak of the ‘gross earnings’ of a person or corporation, we mean the entire earnings or receipts of such
person or corporation from the business or operations to which we refer." 63
From these cases, "gross receipts" refer to the total, as opposed to the net, income. These are therefore the total
64 65
receipts before any deduction for the expenses of management. Webster’s New International Dictionary, in fact,
66 67
defines gross as "whole or entire."
68
Moreover, we have emphasized that the BIR has consistently ruled that "gross receipts" does not admit of any
deduction. Following the principle of legislative approval by reenactment, this interpretation has been adopted by
70 71
the legislature throughout the various reenactments of then Section 119 of the Tax Code. 72
Given that a tax is imposed upon total receipts and not upon net earnings, shall the income withheld be included in
73
the tax base upon which such tax is imposed? In other words, shall interest income constructively received still be
included in the tax base for computing the GRT?
We rule in the affirmative.
Manila Jockey Club does not apply to this case. Earmarking is not the same as withholding. Amounts earmarked do
not form part of gross receipts, because, although delivered or received, these are by law or regulation reserved for
some person other than the taxpayer. On the contrary, amounts withheld form part of gross receipts, because these
are in constructive possession and not subject to any reservation, the withholding agent being merely a conduit in
the collection process.
The Manila Jockey Club had to deliver to the Board on Races, horse owners and jockeys amounts that never
became the property of the race track. Unlike these amounts, the interest income that had been withheld for the
74
government became property of the financial institutions upon constructive possession thereof. Possession was
indeed acquired, since it was ratified by the financial institutions in whose name the act of possession had been
executed. The money indeed belonged to the taxpayers; merely holding it in trust was not enough. 75
The government subsequently becomes the owner of the money when the financial institutions pay the FWT to
extinguish their obligation to the government. As this Court has held before, this is the consideration for the transfer
of ownership of the FWT from these institutions to the government. It is ownership that determines whether interest
76
income forms part of taxable gross receipts. Being originally owned by these financial institutions as part of their
77
interest income, the FWT should form part of their taxable gross receipts.
Besides, these amounts withheld are in payment of an income tax liability, which is different from a percentage tax
liability. Commissioner of Internal Revenue v. Tours Specialists, Inc. aptly held thus: 78
"x x x [G]ross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the taxpayer
which do not belong to them and do not redound to the taxpayer’s benefit; and it is not necessary that there must be
a law or regulation which would exempt such monies and receipts within the meaning of gross receipts under the
Tax Code." 79
In the construction and interpretation of tax statutes and of statutes in general, the primary consideration is to
ascertain and give effect to the intention of the legislature. We ought to impute to the lawmaking body the intent to
80
obey the constitutional mandate, as long as its enactments fairly admit of such construction. In fact, "x x x no tax
81
can be levied without express authority of law, but the statutes are to receive a reasonable construction with a view
to carrying out their purpose and intent." 82
Looking again into Sections 24(e)(1) and 119 of the Tax Code, we find that the first imposes an income tax; the
second, a percentage tax. The legislature clearly intended two different taxes. The FWT is a tax on passive income,
while the GRT is on business. The withholding of one is not equivalent to the payment of the other.
83
Non-Exemption of FWT from GRT:
Neither Unjust nor Absurd
Taxing the people and their property is essential to the very existence of government. Certainly, one of the highest
attributes of sovereignty is the power of taxation, which may legitimately be exercised on the objects to which it is
84
applicable to the utmost extent as the government may choose. Being an incident of sovereignty, such power is
85
coextensive with that to which it is an incident. The interest on deposits and yield on deposit substitutes of financial
86
institutions, on the one hand, and their business as such, on the other, are the two objects over which the State has
chosen to extend its sovereign power. Those not so chosen are, upon the soundest principles, exempt from
taxation.87
While courts will not enlarge by construction the government’s power of taxation, neither will they place upon tax
88
laws so loose a construction as to permit evasions, merely on the basis of fanciful and insubstantial
distinctions. When the legislature imposes a tax on income and another on business, the imposition must be
89
respected. The Tax Code should be so construed, if need be, as to avoid empty declarations or possibilities of crafty
tax evasion schemes. We have consistently ruled thus:
"x x x [I]t is upon taxation that the [g]overnment chiefly relies to obtain the means to carry on its operations, and it is
of the utmost importance that the modes adopted to enforce the collection of the taxes levied should be summary
and interfered with as little as possible. x x x." 90
"Any delay in the proceedings of the officers, upon whom the duty is devolved of collecting the taxes, may derange
the operations of government, and thereby cause serious detriment to the public." 91
"No government could exist if all litigants were permitted to delay the collection of its taxes." 92
A taxing act will be construed, and the intent and meaning of the legislature ascertained, from its language. Its 93
clarity and implied intent must exist to uphold the taxes as against a taxpayer in whose favor doubts will be
resolved. No such doubts exist with respect to the Tax Code, because the income and percentage taxes we have
94
cited earlier have been imposed in clear and express language for that purpose. 95
This Court has steadfastly adhered to the doctrine that its first and fundamental duty is the application of the law
according to its express terms -- construction and interpretation being called for only when such literal application is
impossible or inadequate without them. In Quijano v. Development Bank of the Philippines, we stressed as follows:
96 97
"No process of interpretation or construction need be resorted to where a provision of law peremptorily calls for
application." 98
A literal application of any part of a statute is to be rejected if it will operate unjustly, lead to absurd results, or
contradict the evident meaning of the statute taken as a whole. Unlike the CA, we find that the literal application of
99
the aforesaid sections of the Tax Code and its implementing regulations does not operate unjustly or contradict the
evident meaning of the statute taken as a whole. Neither does it lead to absurd results. Indeed, our courts are not to
give words meanings that would lead to absurd or unreasonable consequences. We have repeatedly held thus:
100
"x x x [S]tatutes should receive a sensible construction, such as will give effect to the legislative intention and so as
to avoid an unjust or an absurd conclusion." 101
"While it is true that the contemporaneous construction placed upon a statute by executive officers whose duty is to
enforce it should be given great weight by the courts, still if such construction is so erroneous, x x x the same must
be declared as null and void." 102
It does not even matter that the CTA, like in China Banking Corporation, relied erroneously on Manila Jockey Club.
103
Under our tax system, the CTA acts as a highly specialized body specifically created for the purpose of reviewing
tax cases. Because of its recognized expertise, its findings of fact will ordinarily not be reviewed, absent any
104
showing of gross error or abuse on its part. Such findings are binding on the Court and, absent strong reasons for
105
us to delve into facts, only questions of law are open for determination. 106
Respondent claims that it is entitled to a refund on the basis of excess GRT payments. We disagree.
Tax refunds are in the nature of tax exemptions. Such exemptions are strictly construed against the taxpayer,
107
being highly disfavored and almost said "to be odious to the law." Hence, those who claim to be exempt from the
108
payment of a particular tax must do so under clear and unmistakable terms found in the statute. They must be able
to point to some positive provision, not merely a vague implication, of the law creating that right.
109 110
The right of taxation will not be surrendered, except in words too plain to be mistaken. The reason is that the State
1âwphi1
cannot strip itself of this highest attribute of sovereignty -- its most essential power of taxation -- by vague or
ambiguous language. Since tax refunds are in the nature of tax exemptions, these are deemed to be "in derogation
of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption." 111
No less than our 1987 Constitution provides for the mechanism for granting tax exemptions. They certainly cannot 112
be granted by implication or mere administrative regulation. Thus, when an exemption is claimed, it must indubitably
be shown to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim. In the instant
113 114
case, respondent has not been able to satisfactorily show that its FWT on interest income is exempt from the GRT.
Like China Banking Corporation, its argument creates a tax exemption where none exists. 115
No exemptions are normally allowed when a GRT is imposed. It is precisely designed to maintain simplicity in the
tax collection effort of the government and to assure its steady source of revenue even during an economic slump. 116
No Double Taxation
We have repeatedly said that the two taxes, subject of this litigation, are different from each other. The basis of their
imposition may be the same, but their natures are different, thus leading us to a final point. Is there double taxation?
The Court finds none.
Double taxation means taxing the same property twice when it should be taxed only once; that is, "x x x taxing the
same person twice by the same jurisdiction for the same thing." It is obnoxious when the taxpayer is taxed twice,
117
when it should be but once. Otherwise described as "direct duplicate taxation," the two taxes must be imposed on
118 119
the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the
same taxing period; and they must be of the same kind or character. 120
First, the taxes herein are imposed on two different subject matters. The subject matter of the FWT is the passive
income generated in the form of interest on deposits and yield on deposit substitutes, while the subject matter of the
GRT is the privilege of engaging in the business of banking.
A tax based on receipts is a tax on business rather than on the property; hence, it is an excise rather than a 121
property tax. It is not an income tax, unlike the FWT. In fact, we have already held that one can be taxed for
122
engaging in business and further taxed differently for the income derived therefrom. Akin to our ruling in Velilla v.
123
Posadas, these two taxes are entirely distinct and are assessed under different provisions.
124
Second, although both taxes are national in scope because they are imposed by the same taxing authority -- the
national government under the Tax Code -- and operate within the same Philippine jurisdiction for the same purpose
of raising revenues, the taxing periods they affect are different. The FWT is deducted and withheld as soon as the
income is earned, and is paid after every calendar quarter in which it is earned. On the other hand, the GRT is
neither deducted nor withheld, but is paid only after every taxable quarter in which it is earned.
Third, these two taxes are of different kinds or characters. The FWT is an income tax subject to withholding, while
the GRT is a percentage tax not subject to withholding.
In short, there is no double taxation, because there is no taxing twice, by the same taxing authority, within the same
jurisdiction, for the same purpose, in different taxing periods, some of the property in the territory. Subjecting 125
interest income to a 20% FWT and including it in the computation of the 5% GRT is clearly not double taxation.
WHEREFORE, the Petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals are hereby
REVERSED and SET ASIDE. No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.
G.R. No. 187485 February 12, 2013 – JOHAIRA SARA
COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
SAN ROQUE POWER CORPORATION, Respondent.
X----------------------------X
G.R. No. 196113
TAGANITO MINING CORPORATION, Petitioner,

vs.
x----------------------------x
G.R. No. 197156
PHILEX MINING CORPORATION, Petitioner,

vs.
DECISION
CARPIO, J.:
The Cases
G.R. No. 187485 is a petitiOn for review1 assailing the Decision2 promulgated on 25 March 2009 as well as the
Resolution3 promulgated on 24 April 2009 by the Court of Tax Appeals En Banc (CTA EB) in CTA EB No. 408. The
CTA EB affirmed the 29 November 2007 Amended Decision4 as well as the 11 July 2008 Resolution 5 of the Second
Division of the Court of Tax Appeals (CTA Second Division) in CTA Case No. 6647. The CTA Second Division
ordered the Commissioner of Internal Revenue (Commissioner) to refund or issue a tax credit for P483,797,599.65
to San Roque Power Corporation (San Roque) for unutilized input value-added tax (VAT) on purchases of capital
goods and services for the taxable year 2001.
G.R. No. 196113 is a petition for review6 assailing the Decision7 promulgated on 8 December 2010 as well as the
Resolution8 promulgated on 14 March 2011 by the CTA EB in CTA EB No. 624. In its Decision, the CTA EB
reversed the 8 January 2010 Decision9 as well as the 7 April 2010 Resolution 10of the CTA Second Division and
granted the CIR’s petition for review in CTA Case No. 7574. The CTA EB dismissed, for having been prematurely
filed, Taganito Mining Corporation’s (Taganito) judicial claim for P8,365,664.38 tax refund or credit.
G.R. No. 197156 is a petition for review11 assailing the Decision12promulgated on 3 December 2010 as well as the
Resolution13 promulgated on 17 May 2011 by the CTA EB in CTA EB No. 569. The CTA EB affirmed the 20 July
2009 Decision as well as the 10 November 2009 Resolution of the CTA Second Division in CTA Case No. 7687.
The CTA Second Division denied, due to prescription, Philex Mining Corporation’s (Philex) judicial claim for
P23,956,732.44 tax refund or credit.
On 3 August 2011, the Second Division of this Court resolved 14 to consolidate G.R. No. 197156 with G.R. No.
196113, which were pending in the same Division, and with G.R. No. 187485, which was assigned to the Court En
Banc. The Second Division also resolved to refer G.R. Nos. 197156 and 196113 to the Court En Banc, where G.R.
No. 187485, the lower-numbered case, was assigned.
G.R. No. 187485

CIR v. San Roque Power Corporation
The Facts
The CTA EB’s narration of the pertinent facts is as follows:
[CIR] is the duly appointed Commissioner of Internal Revenue, empowered, among others, to act upon and approve
claims for refund or tax credit, with office at the Bureau of Internal Revenue ("BIR") National Office Building, Diliman,
Quezon City.
[San Roque] is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines
with principal office at Barangay San Roque, San Manuel, Pangasinan. It was incorporated in October 1997 to
design, construct, erect, assemble, own, commission and operate power-generating plants and related facilities
pursuant to and under contract with the Government of the Republic of the Philippines, or any subdivision,
instrumentality or agency thereof, or any governmentowned or controlled corporation, or other entity engaged in the
development, supply, or distribution of energy.
As a seller of services, [San Roque] is duly registered with the BIR with TIN/VAT No. 005-017-501. It is likewise
registered with the Board of Investments ("BOI") on a preferred pioneer status, to engage in the design,
construction, erection, assembly, as well as to own, commission, and operate electric power-generating plants and
related activities, for which it was issued Certificate of Registration No. 97-356 on February 11, 1998.
On October 11, 1997, [San Roque] entered into a Power Purchase Agreement ("PPA") with the National Power
Corporation ("NPC") to develop hydro-potential of the Lower Agno River and generate additional power and energy
for the Luzon Power Grid, by building the San Roque Multi-Purpose Project located in San Manuel, Pangasinan.
The PPA provides, among others, that [San Roque] shall be responsible for the design, construction, installation,
completion, testing and commissioning of the Power Station and shall operate and maintain the same, subject to
NPC instructions. During the cooperation period of twenty-five (25) years commencing from the completion date of
the Power Station, NPC will take and pay for all electricity available from the Power Station.
On the construction and development of the San Roque Multi- Purpose Project which comprises of the dam,
spillway and power plant, [San Roque] allegedly incurred, excess input VAT in the amount of ₱559,709,337.54 for
taxable year 2001 which it declared in its Quarterly VAT Returns filed for the same year. [San Roque] duly filed with
the BIR separate claims for refund, in the total amount of ₱559,709,337.54, representing unutilized input taxes as
declared in its VAT returns for taxable year 2001.
However, on March 28, 2003, [San Roque] filed amended Quarterly VAT Returns for the year 2001 since it
increased its unutilized input VAT to the amount of ₱560,200,283.14. Consequently, [San Roque] filed with the BIR
on even date, separate amended claims for refund in the aggregate amount of ₱560,200,283.14.
[CIR’s] inaction on the subject claims led to the filing by [San Roque] of the Petition for Review with the Court [of Tax
Appeals] in Division on April 10, 2003.
Trial of the case ensued and on July 20, 2005, the case was submitted for decision. 15
The Court of Tax Appeals’ Ruling: Division
The CTA Second Division initially denied San Roque’s claim. In its Decision 16 dated 8 March 2006, it cited the
following as bases for the denial of San Roque’s claim: lack of recorded zero-rated or effectively zero-rated sales;
failure to submit documents specifically identifying the purchased goods/services related to the claimed input VAT
which were included in its Property, Plant and Equipment account; and failure to prove that the related construction
costs were capitalized in its books of account and subjected to depreciation.
The CTA Second Division required San Roque to show that it complied with the following requirements of Section
112(B) of Republic Act No. 8424 (RA 8424)17 to be entitled to a tax refund or credit of input VAT attributable to
capital goods imported or locally purchased: (1) it is a VAT-registered entity; (2) its input taxes claimed were paid on
capital goods duly supported by VAT invoices and/or official receipts; (3) it did not offset or apply the claimed input
VAT payments on capital goods against any output VAT liability; and (4) its claim for refund was filed within the two-
year prescriptive period both in the administrative and judicial levels.
The CTA Second Division found that San Roque complied with the first, third, and fourth requirements, thus:
The fact that [San Roque] is a VAT registered entity is admitted (par. 4, Facts Admitted, Joint Stipulation of Facts,
Records, p. 157). It was also established that the instant claim of ₱560,200,823.14 is already net of the ₱11,509.09
output tax declared by [San Roque] in its amended VAT return for the first quarter of 2001. Moreover, the entire
amount of ₱560,200,823.14 was deducted by [San Roque] from the total available input tax reflected in its amended
VAT returns for the last two quarters of 2001 and first two quarters of 2002 (Exhibits M-6, O-6, OO-1 & QQ-1). This
means that the claimed input taxes of ₱560,200,823.14 did not form part of the excess input taxes of
₱83,692,257.83, as of the second quarter of 2002 that was to be carried-over to the succeeding quarters. Further,
[San Roque’s] claim for refund/tax credit certificate of excess input VAT was filed within the two-year prescriptive
period reckoned from the dates of filing of the corresponding quarterly VAT returns.
For the first, second, third, and fourth quarters of 2001, [San Roque] filed its VAT returns on April 25, 2001, July 25,
2001, October 23, 2001 and January 24, 2002, respectively (Exhibits "H, J, L, and N"). These returns were all
subsequently amended on March 28, 2003 (Exhibits "I, K, M, and O"). On the other hand, [San Roque] originally
filed its separate claims for refund on July 10, 2001, October 10, 2001, February 21, 2002, and May 9, 2002 for the
first, second, third, and fourth quarters of 2001, respectively, (Exhibits "EE, FF, GG, and HH") and subsequently
filed amended claims for all quarters on March 28, 2003 (Exhibits "II, JJ, KK, and LL"). Moreover, the Petition for
Review was filed on April 10, 2003. Counting from the respective dates when [San Roque] originally filed its VAT
returns for the first, second, third and fourth quarters of 2001, the administrative claims for refund (original and
amended) and the Petition for Review fall within the two-year prescriptive period. 18
San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its 29 November 2007 Amended
Decision,19 the CTA Second Division found legal basis to partially grant San Roque’s claim. The CTA Second
Division ordered the Commissioner to refund or issue a tax credit in favor of San Roque in the amount of
₱483,797,599.65, which represents San Roque’s unutilized input VAT on its purchases of capital goods and
services for the taxable year 2001. The CTA based the adjustment in the amount on the findings of the independent
certified public accountant. The following reasons were cited for the disallowed claims: erroneous computation;
failure to ascertain whether the related purchases are in the nature of capital goods; and the purchases pertain to
capital goods. Moreover, the reduction of claims was based on the following: the difference between San Roque’s
claim and that appearing on its books; the official receipts covering the claimed input VAT on purchases of local
services are not within the period of the claim; and the amount of VAT cannot be determined from the submitted
official receipts and invoices. The CTA Second Division denied San Roque’s claim for refund or tax credit of its
unutilized input VAT attributable to its zero-rated or effectively zero-rated sales because San Roque had no record
of such sales for the four quarters of 2001.
The dispositive portion of the CTA Second Division’s 29 November 2007 Amended Decision reads:
WHEREFORE, [San Roque’s] "Motion for New Trial and/or Reconsideration" is hereby PARTIALLY GRANTED and
this Court’s Decision promulgated on March 8, 2006 in the instant case is hereby MODIFIED.
Accordingly, [the CIR] is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX CREDIT
CERTIFICATE in favor of [San Roque] in the reduced amount of Four Hundred Eighty Three Million Seven Hundred
Ninety Seven Thousand Five Hundred Ninety Nine Pesos and Sixty Five Centavos (₱483,797,599.65) representing
unutilized input VAT on purchases of capital goods and services for the taxable year 2001.
SO ORDERED.20
The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007. The CTA Second Division
issued a Resolution dated 11 July 2008 which denied the CIR’s motion for lack of merit.
The Court of Tax Appeals’ Ruling: En Banc
The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San Roque’s claim for
refund or tax credit in its entirety as well as for the setting aside of the 29 November 2007 Amended Decision and
the 11 July 2008 Resolution in CTA Case No. 6647.
The CTA EB dismissed the CIR’s petition for review and affirmed the challenged decision and resolution.
The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc.21 and Revenue Memorandum Circular
No. 49-03,22 as its bases for ruling that San Roque’s judicial claim was not prematurely filed. The pertinent portions
of the Decision state:
More importantly, the Court En Banc has squarely and exhaustively ruled on this issue in this wise:
It is true that Section 112(D) of the abovementioned provision applies to the present case. However, what
the petitioner failed to consider is Section 112(A) of the same provision. The respondent is also covered by the
two (2) year prescriptive period. We have repeatedly held that the claim for refund with the BIR and the subsequent
appeal to the Court of Tax Appeals must be filed within the two-year period.
Accordingly, the Supreme Court held in the case of Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue that the two-year prescriptive period for filing a claim for input tax is reckoned
from the date of the filing of the quarterly VAT return and payment of the tax due. If the said period is about to
expire but the BIR has not yet acted on the application for refund, the taxpayer may interpose a petition for
review with this Court within the two year period.
In the case of Gibbs vs. Collector, the Supreme Court held that if, however, the Collector (now Commissioner) takes
time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the
Court of Tax Appeals before the end of the two-year period without awaiting the decision of the Collector.
Furthermore, in the case of Commissioner of Customs and Commissioner of Internal Revenue vs. The Honorable
Court of Tax Appeals and Planters Products, Inc., the Supreme Court held that the taxpayer need not wait
indefinitely for a decision or ruling which may or may not be forthcoming and which he has no legal right to
expect. It is disheartening enough to a taxpayer to keep him waiting for an indefinite period of time for a ruling or
decision of the Collector (now Commissioner) of Internal Revenue on his claim for refund. It would make matters
more exasperating for the taxpayer if we were to close the doors of the courts of justice for such a relief until after
the Collector (now Commissioner) of Internal Revenue, would have, at his personal convenience, given his go
signal.
This Court ruled in several cases that once the petition is filed, the Court has already acquired jurisdiction over the
claims and the Court is not bound to wait indefinitely for no reason for whatever action respondent (herein petitioner)
may take. At stake are claims for refund and unlike disputed assessments, no decision of respondent
(herein petitioner) is required before one can go to this Court. (Emphasis supplied and citations omitted)
Lastly, it is apparent from the following provisions of Revenue Memorandum Circular No. 49-03 dated August 18,
2003, that [the CIR] knows that claims for VAT refund or tax credit filed with the Court [of Tax Appeals] can proceed
simultaneously with the ones filed with the BIR and that taxpayers need not wait for the lapse of the subject 120-day
period, to wit:
In response to [the] request of selected taxpayers for adoption of procedures in handling refund cases that are
aligned to the statutory requirements that refund cases should be elevated to the Court of Tax Appeals before the
lapse of the period prescribed by law, certain provisions of RMC No. 42-2003 are hereby amended and new
provisions are added thereto.
In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to wit:
I.) A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:
In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals involving a claim
for refund/TCC that is pending at the administrative agency (Bureau of Internal Revenue or OSS-DOF), the
administrative agency and the tax court may act on the case separately. While the case is pending in the tax
court and at the same time is still under process by the administrative agency, the litigation lawyer of the BIR, upon
receipt of the summons from the tax court, shall request from the head of the investigating/processing office for the
docket containing certified true copies of all the documents pertinent to the claim. The docket shall be presented to
the court as evidence for the BIR in its defense on the tax credit/refund case filed by the taxpayer. In the meantime,
the investigating/processing office of the administrative agency shall continue processing the refund/TCC case until
such time that a final decision has been reached by either the CTA or the administrative agency.
If the CTA is able to release its decision ahead of the evaluation of the administrative agency, the latter shall
cease from processing the claim. On the other hand, if the administrative agency is able to process the claim of
the taxpayer ahead of the CTA and the taxpayer is amenable to the findings thereof, the concerned taxpayer must
file a motion to withdraw the claim with the CTA.23 (Emphasis supplied)
G.R. No. 196113

Taganito Mining Corporation v. CIR
The Facts
The CTA Second Division’s narration of the pertinent facts is as follows:
Petitioner, Taganito Mining Corporation, is a corporation duly organized and existing under and by virtue of the laws
of the Philippines, with principal office at 4th Floor, Solid Mills Building, De La Rosa St., Lega[s]pi Village, Makati
City. It is duly registered with the Securities and Exchange Commission with Certificate of Registration No. 138682
issued on March 4, 1987 with the following primary purpose:
To carry on the business, for itself and for others, of mining lode and/or placer mining, developing, exploiting,
extracting, milling, concentrating, converting, smelting, treating, refining, preparing for market, manufacturing,
buying, selling, exchanging, shipping, transporting, and otherwise producing and dealing in nickel, chromite, cobalt,
gold, silver, copper, lead, zinc, brass, iron, steel, limestone, and all kinds of ores, metals and their by-products and
which by-products thereof of every kind and description and by whatsoever process the same can be or may
hereafter be produced, and generally and without limit as to amount, to buy, sell, locate, exchange, lease, acquire
and deal in lands, mines, and mineral rights and claims and to conduct all business appertaining thereto, to
purchase, locate, lease or otherwise acquire, mining claims and rights, timber rights, water rights, concessions and
mines, buildings, dwellings, plants machinery, spare parts, tools and other properties whatsoever which this
corporation may from time to time find to be to its advantage to mine lands, and to explore, work, exercise, develop
or turn to account the same, and to acquire, develop and utilize water rights in such manner as may be authorized
or permitted by law; to purchase, hire, make, construct or otherwise, acquire, provide, maintain, equip, alter, erect,
improve, repair, manage, work and operate private roads, barges, vessels, aircraft and vehicles, private telegraph
and telephone lines, and other communication media, as may be needed by the corporation for its own purpose,
and to purchase, import, construct, machine, fabricate, or otherwise acquire, and maintain and operate bridges,
piers, wharves, wells, reservoirs, plumes, watercourses, waterworks, aqueducts, shafts, tunnels, furnaces, cook
ovens, crushing works, gasworks, electric lights and power plants and compressed air plants, chemical works of all
kinds, concentrators, smelters, smelting plants, and refineries, matting plants, warehouses, workshops, factories,
dwelling houses, stores, hotels or other buildings, engines, machinery, spare parts, tools, implements and other
works, conveniences and properties of any description in connection with or which may be directly or indirectly
conducive to any of the objects of the corporation, and to contribute to, subsidize or otherwise aid or take part in any
operations;
and is a VAT-registered entity, with Certificate of Registration (BIR Form No. 2303) No. OCN 8RC0000017494.
Likewise, [Taganito] is registered with the Board of Investments (BOI) as an exporter of beneficiated nickel silicate
and chromite ores, with BOI Certificate of Registration No. EP-88-306.
Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue vested with authority to
exercise the functions of the said office, including inter alia, the power to decide refunds of internal revenue taxes,
fees and other charges, penalties imposed in relation thereto, or other matters arising under the National Internal
Revenue Code (NIRC) or other laws administered by Bureau of Internal Revenue (BIR) under Section 4 of the
NIRC. He holds office at the BIR National Office Building, Diliman, Quezon City.
[Taganito] filed all its Monthly VAT Declarations and Quarterly Vat Returns for the period January 1, 2005 to
December 31, 2005. For easy reference, a summary of the filing dates of the original and amended Quarterly VAT
Returns for taxable year 2005 of [Taganito] is as follows:
Exhibit(s) Quarter Nature of Mode of filing Filing Date

the Return
L to L-4 1st Original Electronic April 15, 2005
M to M-3 Amended Electronic July 20, 2005
N to N-4 Amended Electronic October 18, 2006
Q to Q-3 2nd Original Electronic July 20, 2005
R to R-4 Amended Electronic October 18, 2006
U to U-4 3rd Original Electronic October 19, 2005
V to V-4 Amended Electronic October 18, 2006
Y to Y-4 4th Original Electronic January 20, 2006
Z to Z-4 Amended Electronic October 18, 2006
As can be gleaned from its amended Quarterly VAT Returns, [Taganito] reported zero-rated sales amounting to
P1,446,854,034.68; input VAT on its domestic purchases and importations of goods (other than capital goods) and
services amounting to P2,314,730.43; and input VAT on its domestic purchases and importations of capital goods
amounting to P6,050,933.95, the details of which are summarized as follows:
Period Zero-Rated Sales Input VAT on Input VAT on Total Input VAT
Covered Domestic Domestic
Purchases and Purchases and
Importations Importations
of Goods and of Capital
Services Goods
01/01/05 - P551,179,871.58 P1,491,880.56 P239,803.22 P1,731,683.78
03/31/05
04/01/05 - 64,677,530.78 204,364.17 5,811,130.73 6,015,494.90
06/30/05
07/01/05 - 480,784,287.30 144,887.67 - 144,887.67
09/30/05
10/01/05 - 350,212,345.02 473,598.03 - 473,598.03
12/31/05
TOTAL P1,446,854,034.68 P2,314,730.43 P6,050,933.95 P8,365,664.38
On November 14, 2006, [Taganito] filed with [the CIR], through BIR’s Large Taxpayers Audit and Investigation
Division II (LTAID II), a letter dated November 13, 2006 claiming a tax credit/refund of its supposed input VAT
amounting to ₱8,365,664.38 for the period covering January 1, 2004 to December 31, 2004. On the same date,
[Taganito] likewise filed an Application for Tax Credits/Refunds for the period covering January 1, 2005 to December
31, 2005 for the same amount.
On November 29, 2006, [Taganito] sent again another letter dated November 29, 2004 to [the CIR], to correct the
period of the above claim for tax credit/refund in the said amount of ₱8,365,664.38 as actually referring to the period
covering January 1, 2005 to December 31, 2005.
As the statutory period within which to file a claim for refund for said input VAT is about to lapse without action on
the part of the [CIR], [Taganito] filed the instant Petition for Review on February 17, 2007.
In his Answer filed on March 28, 2007, [the CIR] interposes the following defenses:
4. [Taganito’s] alleged claim for refund is subject to administrative investigation/examination by the Bureau
of Internal Revenue (BIR);
5. The amount of ₱8,365,664.38 being claimed by [Taganito] as alleged unutilized input VAT on domestic
purchases of goods and services and on importation of capital goods for the period January 1, 2005 to
December 31, 2005 is not properly documented;
6. [Taganito] must prove that it has complied with the provisions of Sections 112 (A) and (D) and 229 of the
National Internal Revenue Code of 1997 (1997 Tax Code) on the prescriptive period for claiming tax
refund/credit;
7. Proof of compliance with the prescribed checklist of requirements to be submitted involving claim for VAT
refund pursuant to Revenue Memorandum Order No. 53-98, otherwise there would be no sufficient
compliance with the filing of administrative claim for refund, the administrative claim thereof being
mere proforma, which is a condition sine qua non prior to the filing of judicial claim in accordance
with the provision of Section 229 of the 1997 Tax Code. Further, Section 112 (D) of the Tax Code, as
amended, requires the submission of complete documents in support of the application filed with the
BIR before the 120-day audit period shall apply, and before the taxpayer could avail of judicial remedies
as provided for in the law. Hence, [Taganito’s] failure to submit proof of compliance with the above-stated
requirements warrants immediate dismissal of the petition for review.
8. [Taganito] must prove that it has complied with the invoicing requirements mentioned in Sections 110 and
113 of the 1997 Tax Code, as amended, in relation to provisions of Revenue Regulations No. 7-95.
9. In an action for refund/credit, the burden of proof is on the taxpayer to establish its right to refund, and
failure to sustain the burden is fatal to the claim for refund/credit (Asiatic Petroleum Co. vs. Llanes, 49
Phil. 466 cited in Collector of Internal Revenue vs. Manila Jockey Club, Inc., 98 Phil. 670);
10. Claims for refund are construed strictly against the claimant for the same partake the nature of
exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such,
they are looked upon with disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124
SCRA 1211).
SPECIAL AND AFFIRMATIVE DEFENSES
11. The Court of Tax Appeals has no jurisdiction to entertain the instant petition for review for failure on the part of
[Taganito] to comply with the provision of Section 112 (D) of the 1997 Tax Code which provides, thus:
Section 112. Refunds or Tax Credits of Input Tax. –
x x x x x x x x x
(D) Period within which refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred (120) days from
the date of submission of complete documents in support of the application filed in accordance with
Subsections (A) and (B) hereof.
In cases of full or partial denial 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 dayperiod,
appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied.)
12. As stated, [Taganito] filed the administrative claim for refund with the Bureau of Internal Revenue on November
14, 2006. Subsequently on February 14, 2007, the instant petition was filed. Obviously the 120 days given to the
Commissioner to decide on the claim has not yet lapsed when the petition was filed. The petition was prematurely
filed, hence it must be dismissed for lack of jurisdiction.
During trial, [Taganito] presented testimonial and documentary evidence primarily aimed at proving its supposed
entitlement to the refund in the amount of ₱8,365,664.38, representing input taxes for the period covering January
1, 2005 to December 31, 2005. [The CIR], on the other hand, opted not to present evidence. Thus, in the Resolution
promulgated on January 22, 2009, this case was submitted for decision as of such date, considering [Taganito’s]
"Memorandum" filed on January 19, 2009 and [the CIR’s] "Memorandum" filed on December 19, 2008. 24
The CTA Second Division partially granted Taganito’s claim. In its Decision 25 dated 8 January 2010, the CTA
Second Division found that Taganito complied with the requirements of Section 112(A) of RA 8424, as amended, to
be entitled to a tax refund or credit of input VAT attributable to zero-rated or effectively zero-rated sales. 26
The pertinent portions of the CTA Second Division’s Decision read:
Finally, records show that [Taganito’s] administrative claim filed on November 14, 2006, which was amended on
November 29, 2006, and the Petition for Review filed with this Court on February 14, 2007 are well within the two-
year prescriptive period, reckoned from March 31, 2005, June 30, 2005, September 30, 2005, and December 31,
2005, respectively, the close of each taxable quarter covering the period January 1, 2005 to December 31, 2005.
In fine, [Taganito] sufficiently proved that it is entitled to a tax credit certificate in the amount of ₱8,249,883.33
representing unutilized input VAT for the four taxable quarters of 2005.
WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly,
[the CIR] is hereby ORDERED to REFUND to [Taganito] the amount of EIGHT MILLION TWO HUNDRED FORTY
NINE THOUSAND EIGHT HUNDRED EIGHTY THREE PESOS AND THIRTY THREE CENTAVOS
(P8,249,883.33) representing its unutilized input taxes attributable to zero-rated sales from January 1, 2005 to
December 31, 2005.
SO ORDERED.27
The Commissioner filed a Motion for Partial Reconsideration on 29 January 2010. Taganito, in turn, filed a
Comment/Opposition on the Motion for Partial Reconsideration on 15 February 2010.
In a Resolution28 dated 7 April 2010, the CTA Second Division denied the CIR’s motion. The CTA Second Division
ruled that the legislature did not intend that Section 112 (Refunds or Tax Credits of Input Tax) should be read in
isolation from Section 229 (Recovery of Tax Erroneously or Illegally Collected) or vice versa. The CTA Second
Division applied the mandatory statute of limitations in seeking judicial recourse prescribed under Section 229 to
claims for refund or tax credit under Section 112.
On 29 April 2010, the Commissioner filed a Petition for Review before the CTA EB assailing the 8 January 2010
Decision and the 7 April 2010 Resolution in CTA Case No. 7574 and praying that Taganito’s entire claim for refund
be denied.
In its 8 December 2010 Decision,29 the CTA EB granted the CIR’s petition for review and reversed and set aside the
challenged decision and resolution.
The CTA EB declared that Section 112(A) and (B) of the 1997 Tax Code both set forth the reckoning of the two-year
prescriptive period for filing a claim for tax refund or credit over input VAT to be the close of the taxable quarter
when the sales were made. The CTA EB also relied on this Court’s rulings in the cases of Commissioner of Internal
Revenue v. Aichi Forging Company of Asia, Inc. (Aichi) 30 and Commisioner of Internal Revenue v. Mirant Pagbilao
Corporation (Mirant).31 Both Aichi and Mirant ruled that the two-year prescriptive period to file a refund for input VAT
arising from zero-rated sales should be reckoned from the close of the taxable quarter when the sales were
made. Aichi further emphasized that the failure to await the decision of the Commissioner or the lapse of 120-day
period prescribed in Section 112(D) amounts to a premature filing.
The CTA EB found that Taganito filed its administrative claim on 14 November 2006, which was well within the
period prescribed under Section 112(A) and (B) of the 1997 Tax Code. However, the CTA EB found that Taganito’s
judicial claim was prematurely filed. Taganito filed its Petition for Review before the CTA Second Division on 14
February 2007. The judicial claim was filed after the lapse of only 92 days from the filing of its administrative claim
before the CIR, in violation of the 120-day period prescribed in Section 112(D) of the 1997 Tax Code.
The dispositive portion of the Decision states:
WHEREFORE, the instant Petition for Review is hereby GRANTED. The assailed Decision dated January 8, 2010
and Resolution dated April 7, 2010 of the Special Second Division of this Court are hereby REVERSED and SET
ASIDE. Another one is hereby entered DISMISSING the Petition for Review filed in CTA Case No. 7574 for having
been prematurely filed.
SO ORDERED.32
In his dissent,33 Associate Justice Lovell R. Bautista insisted that Taganito timely filed its claim before the CTA.
Justice Bautista read Section 112(C) of the 1997 Tax Code (Period within which Refund or Tax Credit of Input
Taxes shall be Made) in conjunction with Section 229 (Recovery of Tax Erroneously or Illegally Collected). Justice
Bautista also relied on this Court’s ruling in Atlas Consolidated Mining and Development Corporation v.
Commissioner of Internal Revenue (Atlas),34 which stated that refundable or creditable input VAT and illegally or
erroneously collected national internal revenue tax are the same, insofar as both are monetary amounts which are
currently in the hands of the government but must rightfully be returned to the taxpayer. Justice Bautista concluded:
Being merely permissive, a taxpayer claimant has the option of seeking judicial redress for refund or tax credit of
excess or unutilized input tax with this Court, either within 30 days from receipt of the denial of its claim, or after the
lapse of the 120-day period in the event of inaction by the Commissioner, provided that both administrative and
judicial remedies must be undertaken within the 2-year period. 35
Taganito filed its Motion for Reconsideration on 29 December 2010. The Commissioner filed an Opposition on 26
January 2011. The CTA EB denied for lack of merit Taganito’s motion in a Resolution 36 dated 14 March 2011. The
CTA EB did not see any justifiable reason to depart from this Court’s rulings in Aichi and Mirant.
G.R. No. 197156

Philex Mining Corporation v. CIR
The Facts
The CTA EB’s narration of the pertinent facts is as follows:
[Philex] is a corporation duly organized and existing under the laws of the Republic of the Philippines, which is
principally engaged in the mining business, which includes the exploration and operation of mine properties and
commercial production and marketing of mine products, with office address at 27 Philex Building, Fairlaine St.,
Kapitolyo, Pasig City.
[The CIR], on the other hand, is the head of the Bureau of Internal Revenue ("BIR"), the government entity tasked
with the duties/functions of assessing and collecting all national internal revenue taxes, fees, and charges, and
enforcement of all forfeitures, penalties and fines connected therewith, including the execution of judgments in all
cases decided in its favor by [the Court of Tax Appeals] and the ordinary courts, where she can be served with court
processes at the BIR Head Office, BIR Road, Quezon City.
On October 21, 2005, [Philex] filed its Original VAT Return for the third quarter of taxable year 2005 and Amended
VAT Return for the same quarter on December 1, 2005.
On March 20, 2006, [Philex] filed its claim for refund/tax credit of the amount of ₱23,956,732.44 with the One Stop
Shop Center of the Department of Finance. However, due to [the CIR’s] failure to act on such claim, on October 17,
2007, pursuant to Sections 112 and 229 of the NIRC of 1997, as amended, [Philex] filed a Petition for Review,
docketed as C.T.A. Case No. 7687.
In [her] Answer, respondent CIR alleged the following special and affirmative defenses:
4. Claims for refund are strictly construed against the taxpayer as the same partake the nature of an
exemption;
5. The taxpayer has the burden to show that the taxes were erroneously or illegally paid. Failure on the part
of [Philex] to prove the same is fatal to its cause of action;
6. [Philex] should prove its legal basis for claiming for the amount being refunded. 37
The CTA Second Division, in its Decision dated 20 July 2009, denied Philex’s claim due to prescription. The CTA
Second Division ruled that the two-year prescriptive period specified in Section 112(A) of RA 8424, as amended,
applies not only to the filing of the administrative claim with the BIR, but also to the filing of the judicial claim with the
CTA. Since Philex’s claim covered the 3rd quarter of 2005, its administrative claim filed on 20 March 2006 was
timely filed, while its judicial claim filed on 17 October 2007 was filed late and therefore barred by prescription.
On 10 November 2009, the CTA Second Division denied Philex’s Motion for Reconsideration.
Philex filed a Petition for Review before the CTA EB praying for a reversal of the 20 July 2009 Decision and the 10
November 2009 Resolution of the CTA Second Division in CTA Case No. 7687.
The CTA EB, in its Decision38 dated 3 December 2010, denied Philex’s petition and affirmed the CTA Second
Division’s Decision and Resolution.
The pertinent portions of the Decision read:
In this case, while there is no dispute that [Philex’s] administrative claim for refund was filed within the two-year
prescriptive period; however, as to its judicial claim for refund/credit, records show that on March 20, 2006, [Philex]
applied the administrative claim for refund of unutilized input VAT in the amount of ₱23,956,732.44 with the One
Stop Shop Center of the Department of Finance, per Application No. 52490. From March 20, 2006, which is also
presumably the date [Philex] submitted supporting documents, together with the aforesaid application for refund, the
CIR has 120 days, or until July 18, 2006, within which to decide the claim. Within 30 days from the lapse of the 120-
day period, or from July 19, 2006 until August 17, 2006, [Philex] should have elevated its claim for refund to the
CTA. However, [Philex] filed its Petition for Review only on October 17, 2007, which is 426 days way beyond the 30-
day period prescribed by law.
Evidently, the Petition for Review in CTA Case No. 7687 was filed 426 days late. Thus, the Petition for Review in
CTA Case No. 7687 should have been dismissed on the ground that the Petition for Review was filed way beyond
the 30-day prescribed period; thus, no jurisdiction was acquired by the CTA in Division; and not due to prescription.
WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED DUE COURSE, and
accordingly, DISMISSED. The assailed Decision dated July 20, 2009, dismissing the Petition for Review in CTA
Case No. 7687 due to prescription, and Resolution dated November 10, 2009 denying [Philex’s] Motion for
Reconsideration are hereby AFFIRMED, with modification that the dismissal is based on the ground that the Petition
for Review in CTA Case No. 7687 was filed way beyond the 30-day prescribed period to appeal.
SO ORDERED.39
G.R. No. 187485

CIR v. San Roque Power Corporation
The Commissioner raised the following grounds in the Petition for Review:
I. The Court of Tax Appeals En Banc erred in holding that [San Roque’s] claim for refund was not
prematurely filed.
II. The Court of Tax Appeals En Banc erred in affirming the amended decision of the Court of Tax Appeals
(Second Division) granting [San Roque’s] claim for refund of alleged unutilized input VAT on its purchases of
capital goods and services for the taxable year 2001 in the amount of P483,797,599.65. 40
G.R. No. 196113

Taganito Mining Corporation v. CIR
Taganito raised the following grounds in its Petition for Review:
I. The Court of Tax Appeals En Banc committed serious error and acted with grave abuse of discretion
tantamount to lack or excess of jurisdiction in erroneously applying the Aichi doctrine in violation of
[Taganito’s] right to due process.
II. The Court of Tax Appeals committed serious error and acted with grave abuse of discretion amounting to
lack or excess of jurisdiction in erroneously interpreting the provisions of Section 112 (D). 41
G.R. No. 197156

Philex Mining Corporation v. CIR
Philex raised the following grounds in its Petition for Review:

I. The CTA En Banc erred in denying the petition due to alleged prescription. The fact is that the petition was
filed with the CTA within the period set by prevailing court rulings at the time it was filed.
II. The CTA En Banc erred in retroactively applying the Aichi ruling in denying the petition in this instant
case.42
For ready reference, the following are the provisions of the Tax Code applicable to the present cases:
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.
xxxx
Section 110(B):
Sec. 110. Tax Credits. —
(B) Excess Output or Input Tax. — If at the end of any taxable quarter the output tax exceeds the input tax, the
excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter or quarters: [Provided, That the input tax inclusive of input VAT carried
over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of the
output VAT:]43 Provided, however, That any input tax attributable to zero-rated sales by a VAT-registered
person may at his option be refunded or credited against other internal revenue taxes, subject to the
provisions of Section 112.
Section 112:44
Sec. 112. Refunds or Tax Credits of Input Tax. —
(A) Zero-Rated or Effectively Zero-Rated Sales.— Any VAT-registered person, whose sales are zero-
rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when
the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax
due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has
not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section
106(A)(2) (a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency exchange
proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively
zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of
creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it
shall be allocated proportionately on the basis of the volume of sales.
(B) Capital Goods.- A VAT — registered person may apply for the issuance of a tax credit certificate or
refund of input taxes paid on capital goods imported or locally purchased, to the extent that such input taxes
have not been applied against output taxes. The application may be made only within two (2) years after the
close of the taxable quarter when the importation or purchase was made.
(C) Cancellation of VAT Registration. — A person whose registration has been cancelled due to retirement
from or cessation of business, or due to changes in or cessation of status under Section 106(C) of this Code
may, within two (2) years from the date of cancellation, apply for the issuance of a tax credit certificate for
any unused input tax which may be used in payment of his other internal revenue taxes
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsection (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration
of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax
Appeals.
(E) Manner of Giving Refund. — Refunds shall be made upon warrants drawn by the Commissioner or by
his duly authorized representative without the necessity of being countersigned by the Chairman,
Commission on Audit, the provisions of the Administrative Code of 1987 to the contrary notwithstanding:
Provided, that refunds under this paragraph shall be subject to post audit by the Commission on Audit.
Section 229:
Recovery of Tax Erroneously or Illegally Collected. — No suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have
been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with
the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided,
however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the
face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.
(All emphases supplied)
I. Application of the 120+30 Day Periods
a. G.R. No. 187485 - CIR v. San Roque Power Corporation
On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the Commissioner on 28 March
2003, San Roque filed a Petition for Review with the CTA docketed as CTA Case No. 6647. From this we gather
two crucial facts: first, San Roque did not wait for the 120-day period to lapse before filing its judicial claim; second,
San Roque filed its judicial claim more than four (4) years before the Atlas45 doctrine, which was promulgated by the
Court on 8 June 2007.
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. 46
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." 47 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 also expressly provides that if the
Commissioner fails to decide within "a specific period" required by law, such "inaction shall be deemed a
denial"48 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 review. Without a decision or an "inaction x x x deemed a denial" of the
Commissioner, the CTA has no jurisdiction over a petition for review.49
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." 50 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.51 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+3052 day periods.
In fact, Section 106(b) and (e) of the Tax Code of 1977 as amended, which was the law cited by the Court
in Atlas as the applicable provision of the law did not yet provide for the 30-day period for the taxpayer to appeal to
the CTA from the decision or inaction of the Commissioner. 53 Thus, the Atlas doctrine cannot be invoked by
anyone to disregard compliance with the 30-day mandatory and jurisdictional period. Also, the difference
between the Atlas doctrine on one hand, and the Mirant54 doctrine on the other hand, is a mere 20 days.
The Atlas doctrine counts the two-year prescriptive period from the date of payment of the output VAT, which
means within 20 days after the close of the taxable quarter. The output VAT at that time must be paid at the time of
filing of the quarterly tax returns, which were to be filed "within 20 days following the end of each quarter."
Thus, in Atlas, the three tax refund claims listed below were deemed timely filed because the administrative claims
filed with the Commissioner, and the petitions for review filed with the CTA, were all filed within two years from the
date of payment of the output VAT, following Section 229:
Date of Filing Return Date of Filing Date of Filing

Period Covered
& Payment of Tax Administrative Claim Petition With CTA
2nd Quarter, 1990 20 July 1990 21 August 1990 20 July 1992
Close of Quarter
30 June 1990
3rd Quarter, 1990 18 October 1990 21 November 1990 9 October 1992
Close of Quarter
30 September 1990
4th Quarter, 1990 20 January 1991 19 February 1991 14 January 1993
Close of Quarter
31 December 1990
Atlas paid the output VAT at the time it filed the quarterly tax returns on the 20th, 18th, and 20th day after the close
of the taxable quarter. Had the twoyear prescriptive period been counted from the "close of the taxable quarter" as
expressly stated in the law, the tax refund claims of Atlas would have already prescribed. In contrast,
the Mirant doctrine counts the two-year prescriptive period from the "close of the taxable quarter when the sales
were made" as expressly stated in the law, which means the last day of the taxable quarter. The 20-day
difference55 between the Atlas doctrine and the later Mirant doctrine is not material to San Roque’s claim for
tax refund.
Whether the Atlas doctrine or the Mirant doctrine is applied to San Roque is immaterial because what is at issue in
the present case is San Roque’s non-compliance with the 120-day mandatory and jurisdictional period, which is
counted from the date it filed its administrative claim with the Commissioner. The 120-day period may extend
beyond the two-year prescriptive period, as long as the administrative claim is filed within the two-year prescriptive
period. However, San Roque’s fatal mistake is that it did not wait for the Commissioner to decide within the 120-day
period, a mandatory period whether the Atlas or the Mirant doctrine is applied.
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)56 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.
b. G.R. No. 196113 - Taganito Mining Corporation v. CIR
Like San Roque, Taganito also filed its petition for review with the CTA without waiting for the 120-day period to
lapse. Also, like San Roque, Taganito filed its judicial claim before the promulgation of the Atlas doctrine. Taganito
filed a Petition for Review on 14 February 2007 with the CTA. This is almost four months before the adoption of
the Atlas doctrine on 8 June 2007. Taganito is similarly situated as San Roque - both cannot claim being misled,
misguided, or confused by the Atlas doctrine.
However, Taganito can invoke BIR Ruling No. DA-489-03 57 dated 10 December 2003, which expressly ruled that the
"taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with
the CTA by way of Petition for Review." Taganito filed its judicial claim after the issuance of BIR Ruling No. DA-
489-03 but before the adoption of the Aichi doctrine. Thus, as will be explained later, Taganito is deemed to have
filed its judicial claim with the CTA on time.
c. G.R. No. 197156 – Philex Mining Corporation v. CIR
Philex (1) filed on 21 October 2005 its original VAT Return for the third quarter of taxable year 2005; (2) filed on 20
March 2006 its administrative claim for refund or credit; (3) filed on 17 October 2007 its Petition for Review with the
CTA. The close of the third taxable quarter in 2005 is 30 September 2005, which is the reckoning date in computing
the two-year prescriptive period under Section 112(A).
Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period. Even if the two-
year prescriptive period is computed from the date of payment of the output VAT under Section 229, Philex still filed
its administrative claim on time. Thus, the Atlas doctrine is immaterial in this case. The Commissioner had until
17 July 2006, the last day of the 120-day period, to decide Philex’s claim. Since the Commissioner did not act on
Philex’s claim on or before 17 July 2006, Philex had until 17 August 2006, the last day of the 30-day period, to file its
judicial claim. The CTA EB held that 17 August 2006 was indeed the last day for Philex to file its judicial
claim. However, Philex filed its Petition for Review with the CTA only on 17 October 2007, or four hundred twenty-
six (426) days after the last day of filing. In short, Philex was late by one year and 61 days in filing its judicial
claim. As the CTA EB correctly found:
Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426 days late. Thus, the Petition for
Review in C.T.A. Case No. 7687 should have been dismissed on the ground that the Petition for Review was filed
way beyond the 30-day prescribed period; thus, no jurisdiction was acquired by the CTA Division; x x x 58 (Emphasis
supplied)
Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing. Philex did not file any
petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA within 30 days after
the expiration of the 120-day period. Philex filed its judicial claim long after the expiration of the 120-day period, in
fact 426 days after the lapse of the 120-day period. In any event, whether governed by jurisprudence before,
during, or after the Atlas case, Philex’s judicial claim will have to be rejected because of late filing. Whether
the two-year prescriptive period is counted from the date of payment of the output VAT following the Atlas doctrine,
or from the close of the taxable quarter when the sales attributable to the input VAT were made following
the Mirant and Aichi doctrines, Philex’s judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the Commissioner on
Philex’s claim during the 120-day period is, by express provision of law, "deemed a denial" of Philex’s claim. Philex
had 30 days from the expiration of the 120-day period to file its judicial claim with the CTA. Philex’s failure to do so
rendered the "deemed a denial" decision of the Commissioner final and inappealable. The right to appeal to the CTA
from a decision or "deemed a denial" decision of the Commissioner is merely a statutory privilege, not a
constitutional right. The exercise of such statutory privilege requires strict compliance with the conditions attached
by the statute for its exercise.59 Philex failed to comply with the statutory conditions and must thus bear the
consequences.
II. Prescriptive Periods under Section 112(A) and (C)
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 twoyear 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 days60), 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).
III. "Excess" Input VAT and "Excessively" Collected Tax
The input VAT is not "excessively" collected as understood under Section 229 because at the time the input VAT
is collected the amount paid is correct and proper. The input VAT is a tax liability of, and legally paid by, a VAT-
registered seller61 of goods, properties or services used as input by another VAT-registered person in the sale of his
own goods, properties, or services. This tax liability is true even if the seller passes on the input VAT to the buyer as
part of the purchase price. The second VAT-registered person, who is not legally liable for the input VAT, is the one
who applies the input VAT as credit for his own output VAT.62 If the input VAT is in fact "excessively" collected as
understood under Section 229, then it is the first VAT-registered person - the taxpayer who is legally liable and who
is deemed to have legally paid for the input VAT - who can ask for a tax refund or credit under Section 229 as an
ordinary refund or credit outside of the VAT System. In such event, the second VAT-registered taxpayer will have
no input VAT to offset against his own output VAT.
In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section 112(A), the input VAT is not
"excessively" collected as understood under Section 229. At the time of payment of the input VAT the amount paid
is the correct and proper amount. Under the VAT System, there is no claim or issue that the input VAT is
"excessively" collected, that is, that the input VAT paid is more than what is legally due. The person legally liable for
the input VAT cannot claim that he overpaid the input VAT by the mere existence of an "excess" input VAT. The
term "excess" input VAT simply means that the input VAT available as credit exceeds the output VAT, not that the
input VAT is excessively collected because it is more than what is legally due. Thus, the taxpayer who legally paid
the input VAT cannot claim for refund or credit of the input VAT as "excessively" collected under Section 229.
Under Section 229, the prescriptive period for filing a judicial claim for refund is two years from the date of payment
of the tax "erroneously, x x x illegally, x x x excessively or in any manner wrongfully collected." The prescriptive
period is reckoned from the date the person liable for the tax pays the tax. Thus, if the input VAT is in fact
"excessively" collected, that is, the person liable for the tax actually pays more than what is legally due, the taxpayer
must file a judicial claim for refund within two years from his date of payment. Only the person legally liable to pay
the tax can file the judicial claim for refund. The person to whom the tax is passed on as part of the
purchase price has no personality to file the judicial claim under Section 229.63
Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for "excess" input VAT is
two years from the close of the taxable quarter when the sale was made by the person legally liable to pay
the output VAT. This prescriptive period has no relation to the date of payment of the "excess" input VAT. The
"excess" input VAT may have been paid for more than two years but this does not bar the filing of a judicial claim for
"excess" VAT under Section 112(A), which has a different reckoning period from Section 229. Moreover, the person
claiming the refund or credit of the input VAT is not the person who legally paid the input VAT. Such person seeking
the VAT refund or credit does not claim that the input VAT was "excessively" collected from him, or that he paid an
input VAT that is more than what is legally due. He is not the taxpayer who legally paid the input VAT.
As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in the chain of
transactions. For simplicity and efficiency in tax collection, the VAT is imposed not just on the value added by the
taxpayer, but on the entire selling price of his goods, properties or services. However, the taxpayer is allowed a
refund or credit on the VAT previously paid by those who sold him the inputs for his goods, properties, or services.
The net effect is that the taxpayer pays the VAT only on the value that he adds to the goods, properties, or services
that he actually sells.
Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only exception is when
the taxpayer is expressly "zero-rated or effectively zero-rated" under the law, like companies generating power
through renewable sources of energy. 64 Thus, a non zero-rated VAT-registered taxpayer who has no output VAT
because he has no sales cannot claim a tax refund or credit of his unused input VAT under the VAT System. Even if
the taxpayer has sales but his input VAT exceeds his output VAT, he cannot seek a tax refund or credit of his
"excess" input VAT under the VAT System. He can only carry-over and apply his "excess" input VAT against
his future output VAT. If such "excess" input VAT is an "excessively" collected tax, the taxpayer should be able to
seek a refund or credit for such "excess" input VAT whether or not he has output VAT. The VAT System does not
allow such refund or credit. Such "excess" input VAT is not an "excessively" collected tax under Section 229. The
"excess" input VAT is a correctly and properly collected tax. However, such "excess" input VAT can be applied
against the output VAT because the VAT is a tax imposed only on the value added by the taxpayer. If the input VAT
is in fact "excessively" collected under Section 229, then it is the person legally liable to pay the input VAT, not the
person to whom the tax was passed on as part of the purchase price and claiming credit for the input VAT under the
VAT System, who can file the judicial claim under Section 229.
Any suggestion that the "excess" input VAT under the VAT System is an "excessively" collected tax under Section
229 may lead taxpayers to file a claim for refund or credit for such "excess" input VAT under Section 229 as an
ordinary tax refund or credit outside of the VAT System. Under Section 229, mere payment of a tax beyond what is
legally due can be claimed as a refund or credit. There is no requirement under Section 229 for an output VAT or
subsequent sale of goods, properties, or services using materials subject to input VAT.
From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that is "erroneously, x x x
illegally, x x x excessively or in any manner wrongfully collected." In short, there must be a wrongful
payment because what is paid, or part of it, is not legally due. As the Court held in Mirant, Section 229 should
"apply only to instances of erroneous payment or illegal collection of internal revenue taxes." Erroneous or
wrongful payment includes excessive payment because they all refer to payment of taxes not legally due. Under
the VAT System, there is no claim or issue that the "excess" input VAT is "excessively or in any manner wrongfully
collected." In fact, if the "excess" input VAT is an "excessively" collected tax under Section 229, then the taxpayer
claiming to apply such "excessively" collected input VAT to offset his output VAT may have no legal basis to make
such offsetting. The person legally liable to pay the input VAT can claim a refund or credit for such "excessively"
collected tax, and thus there will no longer be any "excess" input VAT. This will upend the present VAT System as
we know it.
IV. Effectivity and Scope of the Atlas , Mirant and Aichi Doctrines
The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-year
prescriptive period under Section 229, should be effective only from its promulgation on 8 June 2007 until its
abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to the reckoning of the two-year
prescriptive period from the date of payment of the output VAT. Prior to the Atlas doctrine, the two-year prescriptive
period for claiming refund or credit of input VAT should be governed by Section 112(A) following the verba
legis rule. The Mirant ruling, which abandoned the Atlas doctrine, adopted the verba legis rule, thus applying
Section 112(A) in computing the two-year prescriptive period in claiming refund or credit of input VAT.
The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C) because the application of the
120+30 day periods was not in issue in Atlas. The application of the 120+30 day periods was first raised in Aichi,
which adopted the verba legis rule in holding that the 120+30 day periods are mandatory and jurisdictional. The
language of Section 112(C) is plain, clear, and unambiguous. When Section 112(C) states that "the Commissioner
shall grant a refund or issue the tax credit within one hundred twenty (120) days from the date of submission of
complete documents," the law clearly gives the Commissioner 120 days within which to decide the taxpayer’s claim.
Resort to the courts prior to the expiration of the 120-day period is a patent violation of the doctrine of exhaustion of
administrative remedies, a ground for dismissing the judicial suit due to prematurity. Philippine jurisprudence is
awash with cases affirming and reiterating the doctrine of exhaustion of administrative remedies. 65 Such doctrine is
basic and elementary.
When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from 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 law does not make the 120+30 day periods optional just because the law
uses the word "may." The word "may" simply means that the taxpayer may or may not appeal the decision of the
Commissioner within 30 days from receipt of the decision, or within 30 days from the expiration of the 120-day
period. Certainly, by no stretch of the imagination can the word "may" be construed as making the 120+30 day
periods optional, allowing the taxpayer to file a judicial claim one day after filing the administrative claim with the
Commissioner.
The old rule66 that the taxpayer may file the judicial claim, without waiting for the Commissioner’s decision if the two-
year prescriptive period is about to expire, cannot apply because that rule was adopted before the enactment of the
30-day period. The 30-day period was adopted precisely to do away with the old rule, so that under the VAT
System the taxpayer will always have 30 days to file the judicial claim even if the Commissioner acts only
on the 120th day, or does not act at all during the 120-day period. With the 30-day period always available to
the taxpayer, the taxpayer can no longer file a judicial claim for refund or credit of input VAT without waiting for the
Commissioner to decide until the expiration of the 120-day period.
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the taxpayer.
One of the conditions for a judicial claim of refund or credit under the VAT System is compliance with the 120+30
day mandatory and jurisdictional periods. Thus, strict compliance with the 120+30 day periods is necessary for such
a claim to prosper, whether before, during, or after the effectivity of the Atlas doctrine, except for the period from the
issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when the Aichi doctrine was
adopted, which again reinstated the 120+30 day periods as mandatory and jurisdictional.
V. Revenue Memorandum Circular No. 49-03 (RMC 49-03) dated 15 April 2003
There is nothing in RMC 49-03 that states, expressly or impliedly, that the taxpayer need not wait for the 120-day
period to expire before filing a judicial claim with the CTA. RMC 49-03 merely authorizes the BIR to continue
processing the administrative claim even after the taxpayer has filed its judicial claim, without saying that the
taxpayer can file its judicial claim before the expiration of the 120-day period. RMC 49-03 states: "In cases where
the taxpayer has filed a ‘Petition for Review’ with the Court of Tax Appeals involving a claim for refund/TCC that is
pending at the administrative agency (either the Bureau of Internal Revenue or the One- Stop Shop Inter-Agency
Tax Credit and Duty Drawback Center of the Department of Finance), the administrative agency and the court may
act on the case separately." Thus, if the taxpayer files its judicial claim before the expiration of the 120-day period,
the BIR will nevertheless continue to act on the administrative claim because such premature filing cannot divest the
Commissioner of his statutory power and jurisdiction to decide the administrative claim within the 120-day period.
On the other hand, if the taxpayer files its judicial claim after the 120- day period, the Commissioner can still
continue to evaluate the administrative claim. There is nothing new in this because even after the expiration of the
120-day period, the Commissioner should still evaluate internally the administrative claim for purposes of opposing
the taxpayer’s judicial claim, or even for purposes of determining if the BIR should actually concede to the
taxpayer’s judicial claim. The internal administrative evaluation of the taxpayer’s claim must necessarily continue to
enable the BIR to oppose intelligently the judicial claim or, if the facts and the law warrant otherwise, for the BIR to
concede to the judicial claim, resulting in the termination of the judicial proceedings.
What is important, as far as the present cases are concerned, is that the mere filing by a taxpayer of a
judicial claim with the CTA before the expiration of the 120-day period cannot operate to divest the
Commissioner of his jurisdiction to decide an administrative claim within the 120-day mandatory
period, unless the Commissioner has clearly given cause for equitable estoppel to apply as expressly
recognized in Section 246 of the Tax Code.67
VI. BIR Ruling No. DA-489-03 dated 10 December 2003
BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section 246 of the Tax Code. BIR
Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait for the lapse of the 120-day
period before it could seek judicial relief with the CTA by way of Petition for Review." Prior to this ruling, the
BIR held, as shown by its position in the Court of Appeals, 68 that the expiration of the 120-day period is mandatory
and jurisdictional before a judicial claim can be filed.
There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does not acquire
jurisdiction over a judicial claim that is filed before the expiration of the 120-day period. There are, however, two
exceptions to this rule. The first exception is if the Commissioner, through a specific ruling, misleads a particular
taxpayer to prematurely file a judicial claim with the CTA. Such specific ruling is applicable only to such particular
taxpayer. The second exception is where the Commissioner, through a general interpretative rule issued under
Section 4 of the Tax Code, misleads all taxpayers into filing prematurely judicial claims with the CTA. In these
cases, the Commissioner cannot be allowed to later on question the CTA’s assumption of jurisdiction over such
claim since equitable estoppel has set in as expressly authorized under Section 246 of the Tax Code.
Section 4 of the Tax Code, a new provision introduced by RA 8424, expressly grants to the Commissioner the
power to interpret tax laws, thus:
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.
Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers acting in good
faith should not be made to suffer for adhering to general interpretative rules of the Commissioner interpreting tax
laws, should such interpretation later turn out to be erroneous and be reversed by the Commissioner or this Court.
Indeed, Section 246 of the Tax Code expressly provides that a reversal of a BIR regulation or ruling cannot
adversely prejudice a taxpayer who in good faith relied on the BIR regulation or ruling prior to its reversal. Section
246 provides as follows:
Sec. 246. Non-Retroactivity of Rulings. — Any revocation, modification or reversal of any of the rules and
regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated
by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will
be prejudicial to the taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document
required of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from
the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith. (Emphasis supplied)
Thus, a general interpretative rule issued by the Commissioner may be relied upon by taxpayers from the time the
rule is issued up to its reversal by the Commissioner or this Court. Section 246 is not limited to a reversal only by the
Commissioner because this Section expressly states, "Any revocation, modification or reversal" without specifying
who made the revocation, modification or reversal. Hence, a reversal by this Court is covered under Section 246.
Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult
question of law. The abandonment of the Atlas doctrine by Mirant and Aichi69 is proof that the reckoning of the
prescriptive periods for input VAT tax refund or credit is a difficult question of law. The abandonment of
the Atlas doctrine did not result in Atlas, or other taxpayers similarly situated, being made to return the tax refund or
credit they received or could have received under Atlas prior to its abandonment. This Court is
applying Mirant and Aichi prospectively. Absent fraud, bad faith or misrepresentation, the reversal by this Court of a
general interpretative rule issued by the Commissioner, like the reversal of a specific BIR ruling under Section 246,
should also apply prospectively. As held by this Court in CIR v. Philippine Health Care Providers, Inc.:70
In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section 246 of the 1997 Tax
Code, the Commissioner of Internal Revenue is precluded from adopting a position contrary to one
previously taken where injustice would result to the taxpayer. Hence, where an assessment for deficiency
withholding income taxes was made, three years after a new BIR Circular reversed a previous one upon which the
taxpayer had relied upon, such an assessment was prejudicial to the taxpayer. To rule otherwise, opined the Court,
would be contrary to the tenets of good faith, equity, and fair play.
This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp. in the later cases
1âwphi1
of Commissioner of Internal Revenue v. Borroughs, Ltd., Commissioner of Internal Revenue v. Mega Gen. Mdsg.
Corp., Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.) Inc., and Commissioner of Internal
Revenue v. Court of Appeals. The rule is that the BIR rulings have no retroactive effect where a grossly unfair
deal would result to the prejudice of the taxpayer, as in this case.
More recently, in Commissioner of Internal Revenue v. Benguet Corporation, wherein the taxpayer was entitled to
tax refunds or credits based on the BIR’s own issuances but later was suddenly saddled with deficiency taxes due to
its subsequent ruling changing the category of the taxpayer’s transactions for the purpose of paying its VAT, this
Court ruled that applying such ruling retroactively would be prejudicial to the taxpayer. (Emphasis supplied)
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all taxpayers
or a specific ruling applicable only to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not by a
particular taxpayer, but by a government agency tasked with processing tax refunds and credits, that is, the One
Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. This government
agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this government
agency mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources Development,
Inc., the agency was in fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources
Development, Inc., where the taxpayer did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, 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 by this Court in Aichi on 6 October
2010, where this Court held that the 120+30 day periods are mandatory and jurisdictional
However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it is admittedly an
erroneous interpretation of the law; second, prior to its issuance, the BIR held that the 120-day period was
mandatory and jurisdictional, which is the correct interpretation of the law; third, prior to its issuance, no taxpayer
can claim that it was misled by the BIR into filing a judicial claim prematurely; and fourth, a claim for tax refund or
credit, like a claim for tax exemption, is strictly construed against the taxpayer.
San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial claim prematurely
on 10 April 2003, before the issuance of BIR Ruling No. DA-489-03 on 10 December 2003. To repeat, San Roque
cannot claim that it was misled by the BIR into filing its judicial claim prematurely because BIR Ruling No. DA-489-
03 was issued only after San Roque filed its judicial claim. At the time San Roque filed its judicial claim, the law as
applied and administered by the BIR was that the Commissioner had 120 days to act on administrative claims. This
was in fact the position of the BIR prior to the issuance of BIR Ruling No. DA-489-03. Indeed, San Roque never
claimed the benefit of BIR Ruling No. DA-489-03 or RMC 49-03, whether in this Court, the CTA, or before the
Commissioner.
Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of BIR Ruling No.
DA-489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial claim prematurely without
waiting for the 120-day period to expire, it was misled by BIR Ruling No. DA-489-03. Thus, Taganito can claim the
benefit of BIR Ruling No. DA-489-03, which shields the filing of its judicial claim from the vice of prematurity.
Philex’s situation is not a case of premature filing of its judicial claim but of late filing, indeed very late filing. BIR
Ruling No. DA-489-03 allowed premature filing of a judicial claim, which means non-exhaustion of the 120-day
period for the Commissioner to act on an administrative claim. Philex cannot claim the benefit of BIR Ruling No. DA-
489-03 because Philex did not file its judicial claim prematurely but filed it long after the lapse of the 30-day
period following the expiration of the 120-day period. In fact, Philex filed its judicial claim 426 days after the
lapse of the 30-day period.
VII. Existing Jurisprudence
There is no basis whatsoever to the claim that in five cases this Court had already made a ruling that the filing dates
of the administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive
period. The effect of the claim of the dissenting opinions is that San Roque’s failure to wait for the 120-day
mandatory period to lapse is inconsequential, thus allowing San Roque to claim the tax refund or credit. However,
the five cases cited by the dissenting opinions do not support even remotely the claim that this Court had already
made such a ruling. None of these five cases mention, cite, discuss, rule or even hint that compliance with
the 120-day mandatory period is inconsequential as long as the administrative and judicial claims are filed
within the two-year prescriptive period.
In CIR v. Toshiba Information Equipment (Phils.), Inc.,71 the issue was whether any output VAT was actually passed
on to Toshiba that it could claim as input VAT subject to tax credit or refund. The Commissioner argued that
"although Toshiba may be a VAT-registered taxpayer, it is not engaged in a VAT-taxable business." The
Commissioner cited Section 4.106-1 of Revenue Regulations No. 75 that "refund of input taxes on capital goods
shall be allowed only to the extent that such capital goods are used in VAT-taxable business." In the words of the
Court, "Ultimately, however, the issue still to be resolved herein shall be whether respondent Toshiba is entitled to
the tax credit/refund of its input VAT on its purchases of capital goods and services, to which this Court answers in
the affirmative." Nowhere in this case did the Court discuss, state, or rule that the filing dates of the administrative
and judicial claims are inconsequential, as long as they are within the two-year prescriptive period.
In Intel Technology Philippines, Inc. v. CIR,72 the Court stated: "The issues to be resolved in the instant case are (1)
whether the absence of the BIR authority to print or the absence of the TIN-V in petitioner’s export sales invoices
operates to forfeit its entitlement to a tax refund/credit of its unutilized input VAT attributable to its zero-rated sales;
and (2) whether petitioner’s failure to indicate "TIN-V" in its sales invoices automatically invalidates its claim for a tax
credit certification." Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the
administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive period.
In AT&T Communications Services Philippines, Inc. v. CIR,73 the Court stated: "x x x the CTA First Division,
conceding that petitioner’s transactions fall under the classification of zero-rated sales, nevertheless denied
petitioner’s claim ‘for lack of substantiation,’ x x x." The Court quoted the ruling of the First Division that "valid
VAT official receipts, and not mere sale invoices, should have been submitted" by petitioner to substantiate its
claim. The Court further stated: "x x x the CTA En Banc, x x x affirmed x x x the CTA First Division," and "petitioner’s
motion for reconsideration having been denied x x x, the present petition for review was filed." Clearly, the sole
issue in this case is whether petitioner complied with the substantiation requirements in claiming for tax refund or
credit. Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the administrative and
judicial claims are inconsequential, as long as they are within the two-year prescriptive period.
In CIR v. Ironcon Builders and Development Corporation,74 the Court put the issue in this manner: "Simply put, the
sole issue the petition raises is whether or not the CTA erred in granting respondent Ironcon’s application for refund
of its excess creditable VAT withheld." The Commissioner argued that "since the NIRC does not specifically grant
taxpayers the option to refund excess creditable VAT withheld, it follows that such refund cannot be allowed." Thus,
this case is solely about whether the taxpayer has the right under the NIRC to ask for a cash refund
of excess creditable VAT withheld. Again, nowhere in this case did the Court discuss, state, or rule that the filing
dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period.
In CIR v. Cebu Toyo Corporation,75 the issue was whether Cebu Toyo was exempt or subject to VAT. Compliance
with the 120-day period was never an issue in Cebu Toyo. As the Court explained:
Both the Commissioner of Internal Revenue and the Office of the Solicitor General argue that respondent Cebu
Toyo Corporation, as a PEZA-registered enterprise, is exempt from national and local taxes, including VAT,
under Section 24 of Rep. Act No. 7916 and Section 109 of the NIRC. Thus, they contend that respondent Cebu
Toyo Corporation is not entitled to any refund or credit on input taxes it previously paid as provided under Section
4.103-1 of Revenue Regulations No. 7-95, notwithstanding its registration as a VAT taxpayer. For petitioner claims
that said registration was erroneous and did not confer upon the respondent any right to claim recognition of the
input tax credit.
The respondent counters that it availed of the income tax holiday under E.O. No. 226 for four years from August 7,
1995 making it exempt from income tax but not from other taxes such as VAT. Hence, according to respondent,
its export sales are not exempt from VAT, contrary to petitioner’s claim, but its export sales is subject to 0%
VAT. Moreover, it argues that it was able to establish through a report certified by an independent Certified Public
Accountant that the input taxes it incurred from April 1, 1996 to December 31, 1997 were directly attributable to its
export sales. Since it did not have any output tax against which said input taxes may be offset, it had the option to
file a claim for refund/tax credit of its unutilized input taxes.
Considering the submission of the parties and the evidence on record, we find the petition bereft of merit.
Petitioner’s contention that respondent is not entitled to refund for being exempt from VAT is untenable.
This argument turns a blind eye to the fiscal incentives granted to PEZA-registered enterprises under Section 23 of
Rep. Act No. 7916. Note that under said statute, the respondent had two options with respect to its tax burden. It
could avail of an income tax holiday pursuant to provisions of E.O. No. 226, thus exempt it from income taxes for a
number of years but not from other internal revenue taxes such as VAT; or it could avail of the tax exemptions on all
taxes, including VAT under P.D. No. 66 and pay only the preferential tax rate of 5% under Rep. Act No. 7916. Both
the Court of Appeals and the Court of Tax Appeals found that respondent availed of the income tax holiday for four
(4) years starting from August 7, 1995, as clearly reflected in its 1996 and 1997 Annual Corporate Income Tax
Returns, where respondent specified that it was availing of the tax relief under E.O. No. 226. Hence, respondent is
not exempt from VAT and it correctly registered itself as a VAT taxpayer. In fine, it is engaged in taxable
rather than exempt transactions. (Emphasis supplied)
Clearly, the issue in Cebu Toyo was whether the taxpayer was exempt from VAT or subject to VAT at 0% tax
rate. If subject to 0% VAT rate, the taxpayer could claim a refund or credit of its input VAT. Again, nowhere in this
case did the Court discuss, state, or rule that the filing dates of the administrative and judicial claims are
inconsequential, as long as they are within the two-year prescriptive period.
While this Court stated in the narration of facts in Cebu Toyo that the taxpayer "did not bother to wait for the
Resolution of its (administrative) claim by the CIR" before filing its judicial claim with the CTA, this issue was not
raised before the Court. Certainly, this statement of the Court is not a binding precedent that the taxpayer need not
wait for the 120-day period to lapse.
Any issue, whether raised or not by the parties, but not passed upon by the Court, does not have any value
as precedent. As this Court has explained as early as 1926:
It is contended, however, that the question before us was answered and resolved against the contention of the
appellant in the case of Bautista vs. Fajardo (38 Phil. 624). In that case no question was raised nor was it even
suggested that said section 216 did not apply to a public officer. That question was not discussed nor referred to by
any of the parties interested in that case. It has been frequently decided that the fact that a statute has been
accepted as valid, and invoked and applied for many years in cases where its validity was not raised or passed on,
does not prevent a court from later passing on its validity, where that question is squarely and properly raised and
presented. Where a question passes the Court sub silentio, the case in which the question was so passed is
not binding on the Court (McGirr vs. Hamilton and Abreu, 30 Phil. 563), nor should it be considered as a
precedent. (U.S. vs. Noriega and Tobias, 31 Phil. 310; Chicote vs. Acasio, 31 Phil. 401; U.S. vs. More, 3 Cranch
[U.S.] 159, 172; U.S. vs. Sanges, 144 U.S. 310, 319; Cross vs. Burke, 146 U.S. 82.) For the reasons given in the
case of McGirr vs. Hamilton and Abreu, supra, the decision in the case of Bautista vs. Fajardo, supra, can have no
binding force in the interpretation of the question presented here. 76 (Emphasis supplied)
In Cebu Toyo, the nature of the 120-day period, whether it is mandatory or optional, was not even raised as an
issue by any of the parties. The Court never passed upon this issue. Thus, Cebu Toyo does not constitute
binding precedent on the nature of the 120-day period.
There is also the claim that there are numerous CTA decisions allegedly supporting the argument that the filing
dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period. Suffice it to state that CTA decisions do not constitute precedents, and do not bind this Court or
the public. That is why CTA decisions are appealable to this Court, which may affirm, reverse or modify the CTA
decisions as the facts and the law may warrant. Only decisions of this Court constitute binding precedents, forming
part of the Philippine legal system.77 As held by this Court in The Philippine Veterans Affairs Office v. Segundo:78
x x x Let it be admonished that decisions of the Supreme Court "applying or interpreting the laws or the
Constitution . . . form part of the legal system of the Philippines," and, as it were, "laws" by their own right because
they interpret what the laws say or mean. Unlike rulings of the lower courts, which bind the parties to specific
cases alone, our judgments are universal in their scope and application, and equally mandatory in
character. Let it be warned that to defy our decisions is to court contempt. (Emphasis supplied)
The same basic doctrine was reiterated by this Court in De Mesa v. Pepsi Cola Products Phils., Inc.:79
The principle of stare decisis et non quieta movere is entrenched in Article 8 of the Civil Code, to wit:
ART. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the legal system of
the Philippines.
It enjoins adherence to judicial precedents. It requires our courts to follow a rule already established in a final
decision of the Supreme Court. That decision becomes a judicial precedent to be followed in subsequent cases
by all courts in the land. The doctrine of stare decisis is based on the principle that once a question of law has been
examined and decided, it should be deemed settled and closed to further argument. (Emphasis supplied)
VIII. Revenue Regulations No. 7-95 Effective 1 January 1996

Section 4.106-2(c) of Revenue Regulations No. 7-95, by its own express terms, applies only if the taxpayer files the
judicial claim "after" the lapse of the 60-day period, a period with which San Roque failed to comply. Under Section
4.106-2(c), the 60-day period is still mandatory and jurisdictional.
Moreover, it is a hornbook principle that a prior administrative regulation can never prevail over a later contrary law,
more so in this case where the later law was enacted precisely to amend the prior administrative regulation and the
law it implements.
The laws and regulation involved are as follows:
1977 Tax Code, as amended by Republic Act No. 7716 (1994)
Sec. 106. Refunds or tax credits of creditable input tax. —
(a) x x x x
(d) Period within which refund or tax credit of input tax shall be made - In proper cases, the Commissioner
shall grant a refund or issue the tax credit for creditable input taxes within sixty (60) days from the date of
submission of complete documents in support of the application filed in accordance with subparagraphs (a)
and (b) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the
part of the Commissioner to act on the application within the period prescribed above, the taxpayer
affected may, within thirty (30) days from receipt of the decision denying the claim or after the
expiration of the sixty-day period, appeal the decision or the unacted claim with the Court of Tax
Appeals.
Revenue Regulations No. 7-95 (1996)
Section 4.106-2. Procedures for claiming refunds or tax credits of input tax — (a) x x x
xxxx
(c) Period within which refund or tax credit of input taxes shall be made. — In proper cases, the Commissioner shall
grant a tax credit/refund for creditable input taxes within sixty (60) days from the date of submission of complete
documents in support of the application filed in accordance with subparagraphs (a) and (b) above.
In case of full or partial denial of the claim for tax credit/refund as decided by the Commissioner of Internal Revenue,
the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the receipt of said denial, otherwise
the decision will become final. However, if no action on the claim for tax credit/refund has been taken by the
Commissioner of Internal Revenue after the sixty (60) day period from the date of submission of the
application but before the lapse of the two (2) year period from the date of filing of the VAT return for the
taxable quarter, the taxpayer may appeal to the Court of Tax Appeals.
xxxx
1997 Tax Code
Section 112. Refunds or Tax Credits of Input Tax —
(A) x x x
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be made. — In proper cases, the Commissioner
shall grant the refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of complete documents in support of the application filed in accordance with
Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the
hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.
There can be no dispute that under Section 106(d) of the 1977 Tax Code, as amended by RA 7716, the
Commissioner has a 60-day period to act on the administrative claim. This 60-day period is mandatory and
jurisdictional.
Did Section 4.106-2(c) of Revenue Regulations No. 7-95 change this, so that the 60-day period is no longer
mandatory and jurisdictional? The obvious answer is no.
Section 4.106-2(c) itself expressly states that if, "after the sixty (60) day period," the Commissioner fails to act on
the administrative claim, the taxpayer may file the judicial claim even "before the lapse of the two (2) year
period." Thus, under Section 4.106-2(c) the 60-day period is still mandatory and jurisdictional.
Section 4.106-2(c) did not change Section 106(d) as amended by RA 7716, but merely implemented it, for two
reasons. First, Section 4.106-2(c) still expressly requires compliance with the 60-day period. This cannot be
disputed.1âwphi1
Second, under the novel amendment introduced by RA 7716, mere inaction by the Commissioner during the 60-
day period is deemed a denial of the claim. Thus, Section 4.106-2(c) states that "if no action on the claim for tax
refund/credit has been taken by the Commissioner after the sixty (60) day period," the taxpayer "may" already file
the judicial claim even long before the lapse of the two-year prescriptive period. Prior to the amendment by RA
7716, the taxpayer had to wait until the two-year prescriptive period was about to expire if the Commissioner did
not act on the claim.80 With the amendment by RA 7716, the taxpayer need not wait until the two-year prescriptive
period is about to expire before filing the judicial claim because mere inaction by the Commissioner during the 60-
day period is deemed a denial of the claim. This is the meaning of the phrase "but before the lapse of the two
(2) year period" in Section 4.106-2(c). As Section 4.106- 2(c) reiterates that the judicial claim can be filed only
"after the sixty (60) day period," this period remains mandatory and jurisdictional. Clearly, Section 4.106-2(c) did
not amend Section 106(d) but merely faithfully implemented it.
Even assuming, for the sake of argument, that Section 4.106-2(c) of Revenue Regulations No. 7-95, an
administrative issuance, amended Section 106(d) of the Tax Code to make the period given to the Commissioner
non-mandatory, still the 1997 Tax Code, a much later law, reinstated the original intent and provision of Section
106(d) by extending the 60-day period to 120 days and re-adopting the original wordings of Section 106(d).
Thus, Section 4.106-2(c), a mere administrative issuance, becomes inconsistent with Section 112(D), a later law.
Obviously, the later law prevails over a prior inconsistent administrative issuance.
Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the Commissioner has 120 days to
act on an administrative claim. The taxpayer can file the judicial claim (1) only within thirty days after the
Commissioner partially or fully denies the claim within the 120- day period, or (2) only within thirty days from
the expiration of the 120- day period if the Commissioner does not act within the 120-day period.
There can be no dispute that upon effectivity of the 1997 Tax Code on 1 January 1998, or more than five
years before San Roque filed its administrative claim on 28 March 2003, the law has been clear: the 120- day
period is mandatory and jurisdictional. San Roque’s claim, having been filed administratively on 28 March 2003, is
governed by the 1997 Tax Code, not the 1977 Tax Code. Since San Roque filed its judicial claim before the
expiration of the 120-day mandatory and jurisdictional period, San Roque’s claim cannot prosper.
San Roque cannot also invoke Section 4.106-2(c), which expressly provides that the taxpayer can only file the
judicial claim "after" the lapse of the 60-day period from the filing of the administrative claim. San Roque filed its
judicial claim just 13 days after filing its administrative claim. To recall, San Roque filed its judicial claim on 10
April 2003, a mere 13 days after it filed its administrative claim.
Even if, contrary to all principles of statutory construction as well as plain common sense, we gratuitously apply now
Section 4.106-2(c) of Revenue Regulations No. 7-95, still San Roque cannot recover any refund or credit
because San Roque did not wait for the 60-day period to lapse, contrary to the express requirement in
Section 4.106-2(c). In short, San Roque does not even comply with Section 4.106-2(c). A claim for tax refund or
credit is strictly construed against the taxpayer, who must prove that his claim clearly complies with all the conditions
for granting the tax refund or credit. San Roque did not comply with the express condition for such statutory grant.
A final word. Taxes are the lifeblood of the nation. The Philippines has been struggling to improve its tax efficiency
collection for the longest time with minimal success. Consequently, the Philippines has suffered the economic
adversities arising from poor tax collections, forcing the government to continue borrowing to fund the budget
deficits. This Court cannot turn a blind eye to this economic malaise by being unduly liberal to taxpayers who do not
comply with statutory requirements for tax refunds or credits. The tax refund claims in the present cases are not a
pittance. Many other companies stand to gain if this Court were to rule otherwise. The dissenting opinions will turn
on its head the well-settled doctrine that tax refunds are strictly construed against the taxpayer.
WHEREFORE, the Court hereby (1) GRANTS the petition of the Commissioner of Internal Revenue in G.R. No.
187485 to DENY the P483,797,599.65 tax refund or credit claim of San Roque Power Corporation; (2) GRANTS the
petition of Taganito Mining Corporation in G.R. No. 196113 for a tax refund or credit of P8,365,664.38; and
(3) DENIES the petition of Philex Mining Corporation in G.R. No. 197156 for a tax refund or credit of
P23,956,732.44.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
I join the disent of J. Velasco; but I partly

(source document unreadable)
separate Dissenting Opinion)
MARIA LOURDES P. A. SERENO
Chief Justice
I dissent TERESITA J. LEONARDO-DE CASTRO

(Please Dissenting Opinion)
PRESBITERO J. VELASCO, JR. Associate Justice
Associate Justice
ARTURO D. BRION DIOSDADO M. PERALTA

I join J. Leonen in his separate opinion

LUCAS P. BERSAMIN
MARIANO C. DEL CASTILLO
Associate Justice
Associate Justice
ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.

I join the dissent of J. Velasco

JOSE PORTUGAL PEREZ
JOSE C. MENDOZA
Associate Justice
Associate Justice
I join the dissent of J. Velasco

BIENVENIDO L. REYES
ESTELA M. PERLAS-BERNABE
Associate Justice
Associate Justice
See separate opinion

MARVIC MARIO VICTOR F. LEONEN
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the Court.
MARIA LOURDES P. A. SERENO

Chief Justice
[ G.R. No. 222239, January 15, 2020 ] - ROGELIO
ASSOCIATION OF INTERNATIONAL SHIPPING LINES, INC., APL CO. PTE LTD., AND MAERSK-FILIPINAS,
INC., PETITIONERS, V. SECRETARY OF FINANCE AND COMMISSIONER OF INTERNAL REVENUE,
RESPONDENTS.
DECISION
LAZARO-JAVIER, J.:
Antecedents
On July 1, 2005, Republic Act No. 93371 (RA 9337) was enacted, amending select provisions of the 1997 National
Internal Revenue Code (NIRC), namely, Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117,
119, 121, 148, 151, 236, 237 and 288.
In relation to these amendments, then Commissioner of Internal Revenue (CIR) Lilian Hefti issued Revenue
Memorandum Circular No. 31-20082 (RMC 31-2008) dated January 30, 2008. It sought to "clarify certain provisions
of the National Internal Revenue Code of 1997, as amended (Code), as it applies to shipping companies and their
agents as well as their suppliers to ensure that the law is properly implemented and taxes are properly collected, in
a manner that aligns with acceptable business practices." Its relevant portions read:
Q-3: Are on-line international sea carriers subject to VAT?
A-3: No. On-line international sea carriers are not subject to VAT they being subject to percentage tax under Title V
of the Tax Code. They are liable to the three percent (3%) percentage tax imposed on their gross receipts from
outbound fares and freight, pursuant to Section 118 of the Code.
However, if these on-line international sea carriers engage in other transactions not exempt under Section 119 of
the Code, they shall be liable to the twelve percent (12%) VAT on these transactions.
Q-4: Are demurrage fees collected by on-line international sea carriers due to delay by the shipper in unloading their
inbound cargoes subject to tax?
A-4: Yes, Demurrage fees, which are in the nature of rent for the use of property of the carrier in the Philippines is
considered income from Philippine source and is subject to income tax under the regular rate as the other types of
income of the on-line carrier. Said other line of business may likewise be subject to VAT or percentage tax applying
the rule on threshold discussed in the succeeding paragraph.
Q-5: Are detention fees and other charges collected by international sea carriers subject to tax?
A-5: Detention fees and other charges relating to outbound cargoes and inbound cargoes are all considered
Philippine-sourced income of the international sea carriers they being collected for the use of property or rendition of
services in the Philippines, and are subject to the Philippine income tax under the regular rate, and to the Value
added tax, if the total annual receipts from all the VAT-registered activities exceeds one million five hundred
thousand pesos (P1,500,000.00). However, if the total annual gross receipts do not exceed one million five hundred
thousand pesos, said taxpayer is liable to pay the 3% percentage tax.
xxx
Q-14: Are sales of goods, supplies, equipment, fuel and services to persons engaged in international shipping
operations subject to VAT?
A-14: The sale of goods, supplies, equipment, fuel and services including leases of property) to the common carrier
to be used in its international sea transport operations is zero-rated. Provided, that the same is limited to goods,
supplies, equipment, fuel and services pertaining to or attributable to the transport of goods and passengers from a
port in the Philippine directly to a foreign port without docking or stopping at any other port in the Philippines to
unload passengers and/or cargoes loaded in and from another domestic port; Provided, further, that if any portion of
such fuel, equipment, goods or supplies and services is used for purposes other than that mentioned in this
paragraph, such portion of fuel, equipment, goods, supplies and services shall be subject to 12% VAT.
xxx
Q-34: Are commission incomes received by the local shipping agents from their foreign principals subject to VAT?
A-34: The commission income or fees received by the local shipping agents for outbound freights/fares received by
their foreign principals which are on-line international sea carriers (touching any port in the Philippines as part of
their operation) shall be zero-rated pursuant to the provisions of Section 108(B)(4) of the Code. Said provision does
not require that payments of the commission income or fees for "services rendered to persons engaged in
international shipping operations, including leases of property for use thereof," be paid in acceptable foreign
currency in order that such transaction may be zero-rated. On the other hand, commission income or fees received
by the local shipping agents pertaining to inbound freights/fares received by their foreign principals/on-line
international sea carriers or pertaining to freights/fares received by off-line international sea carriers shall be subject
to VAT at 12%.
Five (5) years after the enactment of RA 9337, on December 6, 2010, petitioners Association of International
Shipping Lines, Inc.3 (AISL), APL Co. Pte. Ltd.4 (APL), and Maersk-Filipinas, Inc. (Maersk) sought to nullify RMC
31-2008 via a petition for declaratory relief entitled "Association of International Shipping Lines, Inc. (AISL), APL Co.
Pte. Ltd. (APL), and Maersk-Filipinas, Inc. (Maersk) v. Commissioner of Internal Revenue." The case was raffled to
RTC-Branch 98, Quezon City, and docketed as Civil Case No. Q-09-64241.5
Petitioners prayed that the trial court: 1) issue a writ of preliminary injunction enjoining the then BIR Commissioner
and her representatives, agents, or those acting under her instructions or on her behalf from implementing,
enforcing, or acting pursuant to or on the basis of the challenged provisions of RMC 31-2008; and 2) render
judgment declaring these challenged provisions void.6
According to petitioners, RMC 31-2008 was void insofar as it imposed regular tax rate of thirty percent (30%) and
twelve percent (12%) VAT on the demurrage and detention fees collected by international shipping carriers from
shippers or consignees for delay in the return of containers, on the domestic portion of services to persons engaged
in international shipping operations, and on commission income received by local shipping agents from international
shipping carriers or in connection with inbound shipments.
By Order7 dated May 18, 2012, Branch 98 held that international carriers were not subject to income tax under
Section 28 (A)(1)(3b)8 of the NIRC. Too, demurrage fees were not considered income derived from other or
separate business of the international carrier. Being incidental to the trade or business of the international carrier,
demurrage fees should instead form part of the Gross Philippine Billings (GPB) subject to 2.5% tax under Section
28. Further the law did not expressly impose 12% VAT on the domestic portion of the services rendered by
international carriers.9 Thus:
WHEREFORE, premises considered, and pursuant to Rule 35 of the 1997 Rules of Civil Procedure, the Court
grants the motion for summary judgment and declares as INVALID, the pertinent portions of Revenue Memorandum
Circular No. 31-2008, insofar as the latter subjects the: a) demurrage and detention fees to the regular corporate
income tax rate under Section 28(A)(1) and 12% VAT; b) domestic portion of the services rendered to persons
engaged in international shipping operation to 12% VAT; and c) commission income or fees received by local
shipping agents from international shipping carriers for the latter's inbound freights/fares to 12% VAT, for being
contrary to Section 28 (A)(1), and (3) and Section 108 (B)(4) of the National Internal Revenue Code of 1997, as
amended.
SO ORDERED.10
The Order became final and executory as of June 16, 2012.11
On March 7, 2013, Republic Act No. 1037812 (RA 10378) was enacted, amending Section 28 (A)(3)(a) of the NIRC.
The provision now reads:
SEC. 28. Rates of Income Tax on Foreign Corporations.—
(A) Tax on Resident Foreign Corporations. —
(1) xxx
(2) xxx
(3)International Carrier. — An international carrier doing business in the Philippines shall pay a tax of
two and one-half percent (2 1/2 %) on its 'Gross Philippine Billings' as defined hereunder:
(a) International Air Carrier. — 'Gross Philippine Billings' refers to the amount of gross
revenue derived from carriage of persons, excess baggage, cargo, and mail originating from
the Philippines in a continuous and uninterrupted f1ight, irrespective of the place of sale or
issue and the place of payment of the ticket or passage document: Provided, That tickets
revalidated, exchanged and/or indorsed to another international airline form part of the Gross
Philippine Billings if the passenger boards a plane in a port or point in the Philippines:
Provided, further, That for a flight which originates from the Philippines, but transshipment of
passenger takes place at any part outside the Philippines on another airline, only the aliquot
portion of the cost of the ticket corresponding to the leg flown from the Philippines to the
point of transshipment shall form part of Gross Philippine Billings.
(b) International Shipping. — 'Gross Philippine Billings' means gross revenue whether for
passenger, cargo or mail originating from the Philippines up to final destination, regardless of
the place of sale or payments of the passage or freight documents.
Provided, That international carriers doing business in the Philippines may avail of a preferential rate or exemption
from the tax herein imposed on their gross revenue derived from the carriage of persons and their excess baggage
on the basis of an applicable tax treaty or international agreement to which the Philippines is a signatory or on the
basis of reciprocity such that an international carrier, whose home country grants income tax exemption to Philippine
carriers, shall likewise be exempt from the tax imposed under this provision.
x x x.
The Secretary of Finance, thereafter, issued the implementing rules under Revenue Regulation No. 15-201313 (RR
15-2013), the validity of which is now the subject of this petition.
The Proceedings Before the Trial Court
Over three (3) years later, on December 4, 2013, petitioners initiated the present petition for declaratory relief,14 this
time, challenging Section 4.4 of RR 15-2013 and impleading as respondents both the Secretary of Finance and the
CIR. Section 4.4 reads:
4.4) Taxability of Income Other Than Income From International Transport Services. — All items of income derived
by international carriers that do not form part of Gross Philippine Billings as defined under these Regulations shall
be subject to tax under the pertinent provisions of the NIRC, as amended.
Demurrage fees, which are in the nature of rent for the use of property of the carrier in the Philippines, is
considered income from Philippine source and is subject to income tax under the regular rate as the other
types of income of the on-line carrier.
Detention fees and other charges relating to outbound cargoes and inbound cargoes are all considered
Philippine-sourced income of international sea carriers they being collected for the use of property or
rendition of services in the Philippines, and are subject to the Philippine income tax under the regular
rate. (Emphasis supplied)
The case was raffled to RTC-Branch 77, Quezon City, and docketed Special Civil Action No. R-QZN-13-05590-CV,
then presided by Acting Presiding Judge Cleto R. Villacorta III.
Petitioners' Arguments
Petitioners argued that Section 4.4 of RR 15-2013 invalidly subjects demurrage and detention fees collected by
international shipping carriers to regular corporate income tax rate. This very same imposition had been previously
declared invalid by Branch 98 through its final and executory Order dated May 18, 2012.15 Section 4.4 of RR 15-
2013 should not, therefore, be given effect by reason of res judicata.16 The treatment of demurrage and detention
fees on the carriage of cargoes prior to and after the enactment of RA 10378 did not change. There is nothing in RA
10378 which even touches on demurrage and detention fees, much less, provides or even implies that they should
be treated as income subject to tax at the regular corporate income tax rate.17
In fact, RR 15-2013 unduly widens the scope of RA 10378 by imposing additional taxes on international shipping
carriers not authorized or provided by law. Besides, demurrage and detentions fees are not income but penalties
imposed by the carrier on the charterer, shipper, consignee, or receiver, as the case may be, to allow the carrier to
recover losses or expenses associated with or caused by the undue delay in the loading and/or discharge of the
latter's shipments from the containers.18 They are akin to damages.19 Assuming that demurrage and detention
fees may be treated as income, these fees are taxable only if they form part of Gross Philippine Billings (GPB) and
taxed at the preferential rate of 2.5%.20
Further, RR 15-2013 is invalid because it was promulgated without public hearing as required by the Revised
Administrative Code and case law. Also, no copies of RR 15-2013 were filed with the University of the Philippines -
Law Center, as required by the Revised Administrative Code, thus, the same is deemed not to have become
effective.21
Respondents' Arguments
By Comment22 dated February 3, 2014, the Secretary of Finance, through the Office of the Solicitor General (OSG),
countered that the Order dated May 18, 2012 in Civil Case No. Q-09-64241 did not preclude the Secretary of
Finance from issuing Section 4.4 of RR 15-2013 because a) the first case involves RMC 31-2008 which the CIR
issued to clarify matters involving common carriers by sea, in relation to their transport of passengers, goods, and
services, while the second case involves RR 15-2013 which the Secretary of Finance issued pursuant to his
mandate under RA 10378; b) RMC 31-2008 was issued based on the authority of the CIR to interpret the provisions
of the NIRC while RR 15-2013 was issued by virtue of the authority of the Secretary of Finance under RA 10378;
and c) the Secretary of Finance was not impleaded as respondent in the first case, thus, he is not bound by the
finality of Order dated May 18, 2012. Besides, the Secretary of Finance and the CIR are two (2) distinct officials
governing two (2) separate agencies.
According to respondents, RR 15-2013 does not expand the provisions of RA 10378. It simply clarifies what
constitutes Gross Philippine Billings (GPB) such that anything outside the definition of GPB is subject to the regular
income tax rate for resident foreign corporations. Thus, the law need not specifically mention demurrage or
detention fees as among those falling outside the definition of GPB.23
Respondents stress that demurrage and detention fees are income. They not only serve as penalties for
consignees, they also serve as compensation for extended use of containers. As resident foreign corporations, they
are covered by the provisions on the regular income tax rate and not the preferential rate of 2.5% imposed on
GPB.24
Lastly, respondents argue that the absence of public hearing prior to the publication of RR 15-2013 or non-
submission of copies thereof to the UP Law Center did not render it ineffective. An interpretative regulation such as
RR 15-2013, to be effective, needs nothing further than its bare issuance for it gives no real consequence more than
what the law itself already prescribes. It adds nothing to the law and does not affect the substantial rights of any
person.25
In its Answer26 dated January 27, 2014, the CIR, through the BIR Litigation Department riposted that the trial court
had no jurisdiction over the petition for declaratory relief because its subject matter involved a revenue regulation.
Under Commonwealth Act No. 5527 (CA 55), actions for declaratory relief do not apply to cases involving tax
liabilities under any law administered by the BIR.28 Further, res judicata does not apply to the case.
Petitioners' Omnibus Motion
Petitioners subsequently filed an Omnibus Motion 1) for Judicial Notice; and 2) for Summary Judgment29 dated
December 4, 2014.
Petitioners prayed that the trial court take judicial notice of the following: 1) the existence of RMC 31-2008; 2) the
final and executory Order dated May 18, 2012 in Civil Case No. Q-09-64241 and its Certificate of Finality dated
August 28, 2012; 3) the enactment of Republic Act No. 1037830 (RA 10378), which recognized the principle of
reciprocity for grant of income tax exemptions to international shipping carriers and rationalized the taxes imposed
thereon; and 4) the issuance of RR 15-2013.
Petitioners also filed a motion for summary judgment on ground that there was no genuine issue as to any material
fact and/or the facts were undisputed and certain based on the pleadings, admissions, and affidavits on record.
The Ruling of the Trial Court
Following the parties' exchange of pleadings, the trial court, then presided by Acting Presiding Judge Villacorta,
through its first assailed Order31 dated September 15, 2015: 1) granted petitioners' motion for judicial notice of the
existence of RMC 31-2008, the issuance of Order dated May 18, 2012 in Civil Case No. Q-09-64241 and its
corresponding Certificate of Finality dated August 28, 2012, and the enactment of RA 10378 - all these being the
official acts of different branches of government; 2) declared that it had no jurisdiction over the petition for
declaratory relief pursuant to CA 55 which removed from regional trial courts the authority to rule on cases involving
one's liability for tax, duty, or charge collectible under any law administered by the Bureau of Customs or the BIR; 3)
ruled against the application of res judicata to the case because --- first, res judicata does not give rise to a cause of
action for the purpose of initiating a complaint, res judicata being a shield not a sword and executive and legislative
authorities have the power to enact laws and rules to supersede judge-made laws or rules, second, the enactment
and implementation of RA 10378 constituted a supervening event which negated the application of res judicata,
third, there is no similarity of parties, subject matters, and causes of action between the present case and Civil Case
No. Q-09-64241; and 4) found RR No. 15-2013 to be a reasonable tax regulation and an interpretative issuance, the
effectivity of which does not require a public hearing, nay, prior registration with the UP Law Center. Thus, the trial
court decreed:
WHEREFORE:
(1) The Motion for Judicial Notice is granted. This Court declares that the issuance of (i) RMC 31-2008, (ii)
RTC-Branch 98 Order dated May 18, 2012 in Civil Case No. Q-09-64241, (iii) RTC-Branch 98 Certification of
the finality of the Order dated May 18, 2012 in Civil Case No. Q-09- 64241, (iv) RA 10378, and (v) RR 15-
2013, is an established fact in this case.
(2) The Motion for Summary Judgment is denied and as a result the instant petition for declaratory relief
is dismissed.
Costs de oficio.
SO ORDERED.32
Petitioners' partial motion for reconsideration was denied under Order dated January 8, 2016.
The Present Petition
Petitioners now seek, on pure questions of law, the Court's discretionary appellate jurisdiction to review and reverse
the assailed dispositions. They essentially reiterate the arguments raised in their petition for declaratory
relief, i.e. a) res judicata and immutability of judgments apply to this case and the enactment of RA 10378 is not a
supervening event which operates to negate the application of the aforesaid principles; b) RR 15-2013 is invalid
because it erroneously subjects demurrage and detention fees collected by international shipping carriers to regular
income tax rate, albeit these are not income; and c) RR 15-2013 is not an interpretative issuance, thus, a public
hearing and prior registration with the UP Law Center are required for its validity and effectivity.
Respondents Secretary of Finance and CIR, through Senior State Solicitor Jonathan dela Vega, submits: Res
judicata does not apply here because there is no commonality of parties between this case and Civil Case No. Q-
09-64241. The Secretary of Finance and the CIR are two (2) distinct officials.33 RR 15-2013 does not add to the
provisions of RA 10378. It simply clarifies how the GPB of international sea carriers should be determined. Its
issuance is germane to the purpose of the law.34 Lastly, RR 15-2013 is an interpretative regulation, thus, to be
effective, it need not be filed with the UP Law Center.35
Petitioners' Reply36 dated October 27, 2016 echoes their previous arguments against RR 15-2013.
Issues
1. Does res judicata apply in this case?
2. Is a petition for declaratory relief proper for the purpose of invalidating RR No. 15-2013?
3. Is RR 15-2013 a valid revenue regulation?
Ruling
Res judicata does not apply here
Res judicata applies in the concept of "bar by prior judgment" if the following requisites concur: (1) the former
judgment or order must be final; (2) the judgment or order must be on the merits; (3) the decision must have been
rendered by a court having jurisdiction over the subject matter and the parties; and (4) there must be, between the
first and the second action, identity of parties, of subject matter, and of causes of action.37
Here, we rule that there is no substantial identity of parties and subject matter.
a) No substantial identity of parties
Tambunting, Jr. v. Sumabat38 explains the nature of a petition for declaratory relief, thus:
An action for declaratory relief should be filed by a person interested under a deed, will, contract or other written
instrument, and whose rights are affected by a statute, executive order, regulation or ordinance before breach or
violation thereof. The purpose of the action is to secure an authoritative statement of the rights and obligations of the
parties under a statute, deed, contract, etc. for their guidance in its enforcement or compliance and not to settle
issues arising from its alleged breach. It may be entertained only before the breach or violation of the statute, deed,
contract, etc. to which it refers. Where the law or contract has already been contravened prior to the filing of an
action for declaratory relief, the court can no longer assume jurisdiction over the action. In other words, a court has
no more jurisdiction over an action for declaratory relief if its subject, i.e., the statute, deed, contract, etc., has
already been infringed or transgressed before the institution of the action. Under such circumstances, inasmuch as
a cause of action has already accrued in favor of one or the other party, there is nothing more for the court to
explain or clarify short of a judgment or final order. (Emphasis supplied)
Thus, it is required that the parties to the action for declaratory relief be those whose rights or interests are affected
by the contract or statute being questioned.39 Section 2 of Rule 63 of the Rules of Court further underscores that a
judgment in a petition for declaratory relief binds only the impleaded parties:
Section 2. Parties. — All persons who have or claim any interest which would be affected by the declaration shall be
made parties; and no declaration shall, except as otherwise provided in these Rules, prejudice the rights of persons
not parties to the action. (2a, R64)
Heirs of Marcelino Doronio v. Heirs of Fortunato Doronio40 further elucidates on this principle, thus:
Petitioners cannot also use the finality of the RTC decision in Petition Case No. U-920 as a shield against the
verification of the validity of the deed of donation. According to petitioners, the said final decision is one for quieting
of title. In other words, it is a case for declaratory relief under Rule 64 (now Rule 63) of the Rules of Court, which
provides:
SECTION 1. 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, or ordinance, may, before breach or
violation thereof, bring an action to determine any question of construction or validity arising under the instrument or
statute and for a declaration of his rights or duties thereunder.
An action for the reformation of an instrument, to quiet title to real property or remove clouds therefrom, or to
consolidate ownership under Article 1607 of the Civil Code, may be brought under this rule.
SECTION 2. Parties. - All persons shall be made parties who have or claim any interest which would be affected by
the declaration; and no declaration shall, except as otherwise provided in these rules, prejudice the rights of persons
not parties to the action.
However, respondents were not made parties in the said Petition Case No. U-920. Worse, instead of issuing
summons to interested parties, the RTC merely allowed the posting of notices on the bulletin boards
of Barangay Cabalitaan, Municipalities of Asingan and Lingayen, Pangasinan. As pointed out by the CA, citing the
ruling of the RTC:
x x x In the said case or Petition No. U-920, notices were posted on the bulletin boards of barangay Cabalitaan,
Municipalities of Asingan and Lingayen, Pangasinan, so that there was a notice to the whole world and during the
initial hearing and/or hearings, no one interposed objection thereto.
Suits to quiet title are not technically suits in rem, nor are they, strictly speaking, in personam, but being against the
person in respect of the res, these proceedings are characterized as quasi in rem. The judgment in such
proceedings is conclusive only between the parties. Thus, respondents are not bound by the decision in Petition
Case No. U-920 as they were not made parties in the said case. (Emphasis supplied)
Applying the foregoing principles here, we find that there is no identity of parties between Civil Case No. Q-09-
64241 and this case.
The final and executory Order dated May 18, 2012 of RTC-Branch 98 in Civil Case No. Q-09-64241 is only binding
on herein petitioners Association of International Shipping Lines, Inc., APL Co. Pte. Ltd. and Maersk-Filipinas, Inc.
and the lone respondent in that case, the CIR. Meanwhile, in this case, although the petitioners are the same, the
respondents include not only the CIR but the Secretary of Finance as well. Note that the Secretary of Finance was
not party in Civil Case No. Q-09-64241. Consequently, the Secretary of Finance is not bound by the final and
executory judgment in Civil Case No. Q-09-64241. Additionally, unlike in the said case, it is the Secretary of
Finance's issuance which is the subject of the present challenge, not the CIR's.
The distinction between the CIR and the Secretary of Finance, as respondents, is not hairsplitting. On one hand,
when BIR Commissioner Lilian B. Hefti issued RMC 31-2008 on January 30, 2008, she did so under the auspices of
Section 441 of the NIRC. On the other hand, when Secretary Cesar Purisima issued RR 15-2013 on September 20,
2013, he did so in obedience to the legislative directive under Section 542 of RA 10378 and pursuant to his rule-
making power under Section 24443 of the NIRC.
Verily, the Commissioner and the Secretary cannot be considered as one, For when they issued their respective
revenue memoranda or regulation, they did so pursuant to the separate powers and prerogatives granted by law.
b) No substantial identity of subject matter
While it is true that RMC 31-2008, subject of Civil Case No. Q-09- 64241, on one hand, and RR 15-2013, subject of
the present case, on the other, both treat demurrage and detention fees to be within the prism of regular corporate
income tax rate, each, however, differs from the other with respect to the authority from which it emanated.
In Civil Case No. Q-09-64241, what was challenged was the CIR's authority to issue RMC 31-2008 pursuant to
Section 4 of the NIRC. On the other hand, what is being challenged here is the Secretary of Finance's authority to
issue RR 15-2013 in accordance with Section 244 of the NIRC and Section 5 of RA 10378. The CIR and the
Secretary of Finance derive their respective powers from two (2) distinct sources, thus, their respective issuances,
too, are separate and independent of each other.
More, the supposed invalidity of the CIR's issuance in Civil Case No. Q-09-64241 does not preclude the Secretary
of Finance from rendering his issuance on the same subject.
More important, the judgment in Civil Case No. Q-09-64241 does not rise to a level of a judicial precedent to be
followed in subsequent cases by all courts in the land, since the same was rendered by a regional trial court, and
not by this Court. Verily, the Order dated May 18, 2012 of RTC-Branch 98, although binding on the CIR, cannot
serve as a judicial precedent for the purpose of precluding the Secretary of Finance from promulgating a similar
issuance on the same subject.
A petition for declaratory

relief is not the proper remedy
to seek the invalidation of RR 15-2013;
petition is treated as one for prohibition
To begin with, the trial court dismissed the case below, among others, for lack of jurisdiction pursuant to Section 1 of
CA 55, which reads:
Section 1. Section one of Act Numbered Thirty-seven hundred and thirty-six is hereby amended so as to read as
follows:
"SECTION 1. Construction. — Any person interested under a deed, contract or other written instrument, or whose
rights are affected by a statute, may bring an action in a Court of First Instance to determine any question of
construction or validity arising under such deed, contract, instrument or statute and for a declaration of his rights or
duties thereunder: Provided, however, That the provisions of this Act shall not apply to cases where a taxpayer
questions his liability for the payment of any tax, duty, or charge collectible under any law administered by the
Bureau of Customs or the Bureau of Internal Revenue." (Emphasis supplied)
In CJH Development Corp. v. BIR,44 this Court clarified that CA 55 is still good law, thus:
CJH alleges that CA No. 55 has already been repealed by the Rules of Court; thus, the remedy of declaratory relief
against the assessment made by the BOC is proper. It cited the commentaries of Moran allegedly to the effect that
declaratory relief lies against assessments made by the BIR and BOC. Yet in National Dental Supply Co. v. Meer,
this Court held that:
From the opinion of the former Chief Justice Moran may be deduced that the failure to incorporate the above
proviso [CA No. 55 in section 1, rule 66, [now Rule 64 is not due to an intention to repeal it but rather to the desire to
leave its application to the sound discretion of the court, which is the sole arbiter to determine whether a case is
meritorious or not. And even if it be desired to incorporate it in rule 66, it is doubted if it could be done under the
rule-making power of the Supreme Court considering that the nature of said proviso is substantive and not
adjective, its purpose being to lay down a policy as to the right of a taxpayer to contest the collection of taxes on the
part of a revenue officer or of the Government. With the adoption of said proviso, our law-making body has asserted
its policy on the matter, which is to prohibit a taxpayer to question his liability for the payment of any tax that may be
collected by the Bureau of Internal Revenue. As this Court well said, quoting from several American cases, "The
Government may fix the conditions upon which it will consent to litigate the validity of its original taxes..." "The power
of taxation being legislative, all incidents are within the control of the Legislature." In other words, it is our
considered opinion that the proviso contained in Commonwealth Act No. 55 is still in full force and effect and bars
the plaintiff from filing the present action.
As a substantive law that has not been repealed by another statute, CA No. 55 is still in effect and holds sway.
Precisely, it has removed from the courts' jurisdiction over petitions for declaratory relief involving tax
assessments. The Court cannot repeal, modify or alter an act of the Legislature. (Emphasis supplied)
CIR v. Standard Insurance, Co., Inc.45 further reinforced the rule that regional trial courts have no jurisdiction over
petitions for declaratory relief against the imposition of tax liability or validity of tax assessments:
The more substantial reason that should have impelled the RTC to desist from taking cognizance of the
respondent's petition for declaratory relief except to dismiss the petition was its lack of jurisdiction.
We start by reminding the respondent about the inflexible policy that taxes, being the lifeblood of the Government,
should be collected promptly and without hindrance or delay. Obeisance to this policy is unquestionably dictated by
law itself. Indeed, Section 218 of the NIRC expressly provides that "[n]o court shall have the authority to grant an
injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by th[e] [NIRC]." Also,
pursuant to Section 1115 of R.A. No. 1125, as amended, the decisions or rulings of the Commissioner of Internal
Revenue, among others, assessing any tax, or levying, or distraining, or selling any property of taxpayers for the
satisfaction of their tax liabilities are immediately executory, and their enforcement is not to be suspended by any
appeals thereof to the Court of Tax Appeals unless "in the opinion of the Court [of Tax Appeals] the collection by the
Bureau of Internal Revenue or the Commissioner of Customs may jeopardize the interest of the Government and/or
the taxpayer," in which case the Court of Tax Appeals "at any stage of the proceeding may suspend the said
collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than
double the amount."
In view of the foregoing, the RTC not only grossly erred in giving due course to the petition for declaratory relief, and
in ultimately deciding to permanently enjoin the enforcement of the specified provisions of the NIRC against the
respondent, but even worse acted without jurisdiction. (Emphasis supplied)
Tambunting, Jr. v. Sumabat,46 explained the nature of a petition for declaratory relief, thus:
An action for declaratory relief should be filed by a person interested under a deed, will, contract or other written
instrument, and whose rights are affected by a statute, executive order, regulation or ordinance before breach or
violation thereof. The purpose of the action is to secure an authoritative statement of the rights and obligations of
the parties under a statute, deed, contract, etc. for their guidance in its enforcement or compliance and not to settle
issues arising from its alleged breach. It may be entertained only before the breach or violation of the statute, deed,
contract, etc. to which it refers. Where the law or contract has already been contravened prior to the filing of an
action for declaratory relief, the court can no longer assume jurisdiction over the action. In other words, a court has
no more jurisdiction over an action for declaratory relief if its subject, i.e., the statute, deed, contract, etc., has
already been infringed or transgressed before the institution of the action. Under such circumstances, inasmuch as
a cause of action has already accrued in favor of one or the other party, there is nothing more for the court to
explain or clarify short of a judgment or final order.
Verily, since there is no actual case involved in a petition for declaratory relief, it cannot be the proper vehicle to
invoke the power of judicial review to declare a statute as invalid or unconstitutional. As decreed in DOTR v.
PPSTA,47 the proper remedy is certiorari or prohibition, thus:
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:
xxx
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)
In Diaz et at v. Secretary of Finance, et al.,48 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 Timbol 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, RR 15-2013 greatly impacts the Philippine maritime industry since it is considered "as more of the 'backbone'
of the Philippines' burgeoning economy due to its significance both for trade and transportation."49 For this reason
and the fact that the issue at hand has already pended since 2013 or for more than six (6) years now, first with the
trial court and now with this Court, we resolve to treat the present case as one for certiorari or prohibition and settle
the controversy once and for all. Diaz aptly enunciated:
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. (Emphasis supplied)
RR 15-2013 is a valid
issuance
In treating demurrage and detention fees as regular income subject to regular income tax rate, the Secretary of
Finance relied on Section 28(A)(I)(3a) of the NIRC, as amended by RA 10378, viz.:
SEC. 28. Rates of Income Tax on Foreign Corporations. —
(A) Tax on Resident Foreign Corporations. —
(1) xxx
(2) xxx
(3). International Carrier.—An international carrier doing business in the Philippines shall pay a tax of
two and one-half percent (2 1/2 %) on its 'Gross Philippine Billings' as defined hereunder:
(c) International Air Carrier. — 'Gross Philippine Billings' refers to the amount of gross
revenue derived from carriage of persons, excess baggage, cargo, and mail originating from
the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or
issue and the place of payment of the ticket or passage document: Provided, That tickets
revalidated, exchanged and/or indorsed to another international airline form part of the Gross
Philippine Billings if the passenger boards a plane in a port or point in the Philippines:
Provided, further, That for a flight which originates from the Philippines, but transshipment of
passenger takes place at any part outside the Philippines on another airline, only the aliquot
portion of the cost of the ticket corresponding to the leg flown from the Philippines to the
point of transshipment shall form part of Gross Philippine Billings.
(d) International Shipping. — 'Gross Philippine Billings' means gross revenue whether for
passenger, cargo or mail originating from the Philippines up to final destination, regardless of
the place of sale or payments of the passage or freight documents.
Provided, That international carriers doing business in the Philippines may avail of a preferential rate or exemption
from the tax herein imposed on their gross revenue derived from the carriage of persons and their excess baggage
on the basis of an applicable tax treaty or international agreement to which the Philippines is a signatory or on the
basis of reciprocity such that an international carrier, whose home country grants income tax exemption to Philippine
carriers, shall likewise be exempt from the tax imposed under this provision.(Emphasis supplied)
x x x.
This provision is still in effect since it was not amended by RA 10963 or the Tax Reform for Acceleration and
Inclusion law.
To determine whether demurrage and detention fees are subject to the preferential 2.5% rate, we refer to the
definition of "Gross Philippine Billings" (GPB) under Section 28(A)(I)(3a) of the NIRC, as amended by RA
10378, viz.: "gross revenue whether for passenger, cargo or mail originating from the Philippines up to final
destination, regardless of the place of sale or payments of the passage or freight documents."
RR 15-2013 echoes this definition, thus:
B) Determination of Gross Philippine Billings of International Sea Carriers. — In computing for "Gross Philippine
Billings" of international sea carriers, there shall be included the total amount of gross revenue whether for
passenger, cargo, and/or mail originating from the Philippines up to final destination, regardless of the place of sale
or payments of the passage or freight documents.
xxx
Verily, the GPB covers gross revenue derived from transportation of passengers, cargo and/or mail originating from
the Philippines up to the final destination. Any other income, therefore, is subject to the regular income tax rate.
When the law is clear, there is no other recourse but to apply it regardless of its perceived harshness. Dura lex sed
lex.50
Under RR 15-2013, demurrage and detention fees are not deemed within the scope of GPB. For demurrage fees
"which are in the nature of rent for the use of property of the carrier in the Philippines, is considered income from
Philippine source and is subject to income tax under the regular rate as the other types of income of the on-line
carrier." On the other hand, detention fees and other charges "relating to outbound cargoes and inbound cargoes
are all considered Philippine-sourced income of international sea carriers they being collected for the use of
property or rendition of services in the Philippines, and are subject to the Philippine income tax under the regular
rate."
Demurrage fee is the allowance or compensation due to the master or owners of a ship, by the freighter, for the time
the vessel may have been detained beyond the time specified or implied in the contract of affreightment or the
charter-party. It is only an extended freight or reward to the vessel, in compensation for the earnings the carrier is
improperly caused to lose.51
Detention occurs when the consignee holds on to the carrier's container outside of the port, terminal, or depot
beyond the free time that is allotted. Detention fee is charged when import containers have been picked up, but the
container (regardless if it is full or empty) is still in the possession of the consignee and has not been returned within
the allotted time. Detention fee is also charged for export containers in which the empty container has been picked
up for loading, and the loaded container is returned to the steamship line after the allotted free time.52
Indeed, the exclusion of demurrage and detention fees from the preferential rate of 2.5% is proper since they are
not considered income derived from transportation of persons, goods and/or mail, in accordance with the
rule expressio unios est exclusio alterius.
Demurrage and detention fees definitely form part of an international sea carrier's gross income. For they are
acquired in the normal course of trade or business. 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.53
Surely, gross income means income derived from whatever source, including compensation for services; the
conduct of trade or business or the exercise of a profession; dealings in property; interests; rents; royalties;
dividends; annuities; prizes and winnings; pensions; and a partner's distributive share in the net income of a general
professional partnership,54 among others. Demurrage and detention fees fall within the definition of "gross income"
- the former is considered as rent payment for the vessel; and the latter, compensation for use of a carrier's
container.
RR 15-2013 is an
interpretative and internal issuance
An interpretative or implementing rule is defined under Section 2 (2), Chapter 1, Book VIII of the Revised
Administrative Code, viz.:
Section 2. Definitions. - As used in this Book:
xxx
(2) "Rule" means any agency statement of general applicability that implements or interprets a law, fixes and
describes the procedures in, or practice requirements of, an agency, including its regulations. The term includes
memoranda or statements concerning the internal administration or management of an agency not affecting the
rights of, or procedure available to, the public.
Chapter 2 of Book VII of the same Code further provides the manner by which administrative rules attain effectivity:
Section 3. Filing.-
-1 Every agency shall file with the University of the Philippines Law Center three (3) certified copies of every
rule adopted by it. Rules in force on the date of effectivity of this Code which are not filed within three (3)
months from that date shall not thereafter be the basis of any sanction against any party or persons.
-2 The records officer of the agency, or his equivalent functionary, shall carry out the requirements of this
section under pain of disciplinary action.
-3 A permanent register of all rules shall be kept by the issuing agency and shall be open to public
inspection.
Section 4. Effectivity. - In addition to other rule-making requirements provided by law not inconsistent with this
Book, each rule shall become effective fifteen (15) days from the date of filing as above provided unless a different
date is fixed by law, or specified in the rule in cases of imminent danger to public health, safety and welfare, the
existence of which must be expressed in a statement accompanying the rule. The agency shall take appropriate
measures to make emergency rules known to persons who may be affected by them.
SECTION 5. Publication and Recording.—The University of the Philippines Law Center shall:
-1 Publish a quarterly bulletin setting forth the text of rules filed with it during the preceding quarter; and
-2 Keep an up-to-date codification of all rules thus published and remaining in effect, together with a
complete index and appropriate tables.
SECTION 6. Omission of Some Rules.— (1) The University of the Philippines Law Center may omit from the bulletin
or the codification any rule if its publication would be unduly cumbersome, expensive or otherwise inexpedient, but
copies of that rule shall be made available on application to the agency which adopted it, and the bulletin shall
contain a notice stating the general subject matter of the omitted rule and new copies thereof may be obtained.
(2) Every rule establishing an offense or defining an act which, pursuant to law is punishable as a crime or subject to
a penalty shall in all cases be published in full text.
SECTION 7. Distribution of Bulletin and Codified Rules.—The University of the Philippines Law Center shall furnish
one (1) free copy each of every issue of the bulletin and of the codified rules or supplements to the Office of the
President, Congress, all appellate courts and the National Library. The bulletin and the codified rules shall be made
available free of charge to such public officers or agencies as the Congress may select, and to other persons at a
price sufficient to cover publication and mailing or distribution costs.
SECTION 8. Judicial Notice.—The court shall take judicial notice of the certified copy of each rule duly filed or as
published in the bulletin or the codified rules.
SECTION 9. Public Participation.—(1) If not otherwise required by law, an agency shall, as far as practicable,
publish or circulate notices of proposed rules and afford interested parties the opportunity to submit their views prior
to the adoption of any rule.
-2 In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have been
published in a newspaper of general circulation at least two (2) weeks before the first hearing thereon.
-3 In case of opposition, the rules on contested cases shall be observed. (Emphasis supplied)
Excepted are interpretative regulations and those merely internal in nature, which do not require filing with the U.P.
Law Center for their effectivity. On this score, ASTEC v. ERC55 is proper:
As interpretative regulations, the policy guidelines of the ERC on the treatment of discounts extended by power
suppliers are also not required to be filed with the U.P. Law Center in order to be effective. Section 4, Chapter 2,
Book VII of the Administrative Code of 1987 requires every rule adopted by an agency to be filed with the U.P. Law
Center to be effective. However, in Board of Trustees of the Government Service Insurance System v. Velasco, this
Court pronounced that "[n]ot all rules and regulations adopted by every government agency are to be filed with the
UP Law Center." Interpretative regulations and those merely internal in nature are not required to be filed with the
U.P. Law Center. Paragraph 9 (a) of the Guidelines for Receiving and Publication of Rules and Regulations Filed
with the U.P. Law Center states:
9. Rules and Regulations which need not be filed with the U.P. Law Center, shall, among others, include but not be
limited to, the following:
a. Those which are interpretative regulations and those merely internal in nature, that is, regulating only the
personnel of the Administrative agency and not the public. (Emphasis supplied)
RR 15-2013 is an internal issuance for the guidance of "all internal revenue officers and others concerned." It is also
an interpretative issuance vis-à-vis RA 10378, thus:
SECTION 2. SCOPE. — Pursuant to Section 244 of the National Internal Revenue Code of 1997 (NIRC), as
amended, and Section 5 of RA No. 10378, these Regulations are hereby promulgated to implement RA No. 10378,
amending Sections 28(A)(3)(a), 109, 118 and 236 of the NIRC.
RR 15-2013 merely sums up the rules by which international carriers may avail of preferential rates or exemption
from income tax on their gross revenues derived from the carriage of persons and their excess baggage based on
the principle of reciprocity or an applicable tax treaty or international agreement to which the Philippines is a
signatory. Interpretative regulations are intended to interpret, clarify or explain existing statutory regulations under
which the administrative body operates. Their purpose or objective is merely to construe the statute being
administered and purport to do no more than interpret the statute. Simply, they try to say what the statute means
and refer to no single person or party in particular but concern all those belonging to the same class which may be
covered by the said rules.56
Indeed, when an administrative rule is merely interpretative in nature, its applicability needs nothing further than its
bare issuance, for it gives no real consequence more than what the law itself has already prescribed.57 As such,
RR 15-2013 need not pass through a public hearing or consultation, get published, nay, registered with the U.P.
Law Center for its effectivity.
ACCORDINGLY, the petition is DENIED for lack of merit. The Orders dated September 15, 2015 and January 8,
2016 of the Regional Trial Court, Branch 77, Quezon City, in Special Civil Action No. R-QZN-13-05590-CV
are AFFIRMED.
SO ORDERED.
Peralta, C.J., (Chairperson), Caguioa, J. Reyes, Jr., and Lopez, JJ., concur.
[ G.R. No. 240729, August 24, 2020 ] – MEE
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. T SHUTTLE SERVICES, INC., RESPONDENT.
RESOLUTION
INTING, J.:
This resolves the Petition for Review on Certiorari1 under Rule 45 of the Rules of Court filed by the Commissioner of
Internal Revenue (CIR) against T Shuttle Services, Inc. (respondent) assailing the Decision2 dated April 3, 2018 and
the Resolution3 dated July 16, 2018 issued by the Court of Tax Appeals (CTA) En Banc in CTA EB No. 1565 (CTA
Case No. 8650).
The relevant facts, as gathered by the CTA En Banc, are as follows:
On July 15, 2009, the CIR issued to respondent a Letter of Notice (LN) No. 057-RLF-07-00-00047 informing it of the
discrepancy found after comparing its tax returns for Calendar Year (CY) 2007 with the Reconciliation of Listings for
Enforcement and Third-Party Matching under the Tax Reconciliation System. The LN was received and signed by a
certain Malou Bohol on July 24, 2009.4
Subsequently, the Bureau of Internal Revenue (BIR), through LN Task Force Head Salina B. Marinduque, issued a
follow-up letter dated August 24, 2009. The letter was received and signed by a certain Amado Ramos.5
Due to the inaction of respondent, the CIR issued to it, on January 12, 2010, the following: (1) Letter of Authority
(LOA) No. 200800044533 for the examination of its book of accounts; and other accounting records and (2) a Notice
of Informal Conference (NIC).6
On March 29, 2010, the CIR issued a Preliminary Assessment Notice (PAN) with attached Details of Discrepancies
that found respondent liable for deficiency income tax (IT) and value-added tax (VAT) in the total amount of
P6,485,579.49.7
On July 20, 2010, the CIR issued a Final Assessment Notice (FAN), assessing respondent with deficiency VAT in
the amount of P3,720,488.73 and deficiency IT in the amount of P5,305,486.50.8
On November 28, 2012, the Revenue District Officer (RDO) issued a Preliminary Collection Letter requesting
respondent to pay the assessed tax liability within 10 days from notice.9
On January 23, 2013, the RDO issued a Final Notice Before Seizure (FNBS) giving respondent the last opportunity
to settle its tax liability within 10 days from notice.10
On March 20, 2013, respondent sent a letter to the RDO and the collection officers stating that: (1) it is not aware of
any pending liability for CY 2007; (2) that Mr. B. Benitez, who signed and received the preliminary notices, was a
disgruntled rank-and-file employee not authorized to receive the notices; and (3) Mr. B. Benitez did not forward the
notices to it. Respondent also requested a grace period of one month to review its documents.11
In a letter dated April 2, 2013, the RDO denied the requested one-month grace period.12
On April 19, 2013, respondent protested the FNBS. It claimed that it is not liable for any deficiency IT for CY 2007;
that being a common carrier, it is exempt from the payment of VAT; that the service of the NIC was invalid; and that
it did not receive the PAN and FAN prior to the issuance of the FNBS.13
On April 23, 2013, respondent was constructively served with a Warrant of Distraint and/or Levy (WDL) No. 057-03-
13-074-R.14
Aggrieved, on May 2, 2013, respondent filed a Petition for Review (With Prayer for Preliminary Injunction and
Issuance of a Temporary Restraining Order) with the CTA in Division.15
In the Answer dated August 22, 2013, the CIR prayed for the denial of the petition for review arguing that: (1) no
error or illegality can be ascribed to his assessment for deficiency tax liability as due process was observed; (2)
respondent failed to interpose a timely protest against the FAN and to submit within the prescribed period of 60 days
supporting documents to refute the findings of the revenue examiners; (3) respondent is liable for deficiency IT and
deficiency VAT; and (4) the presumption of the propriety and exactness of tax assessments is in his favor.16
Ruling of the CTA sitting in Division (CTA Division)
In the Decision dated August 30, 2016, the CTA Division granted respondent's petition for review. Accordingly, it
cancelled and set aside the following: (1) the FAN dated July 20, 2010 and the attached Assessment Notices No. F-
057-LNTF-07-IT-002 and F-057-LNTF-07-VT-002, respectively assessing respondent for deficiency IT of
P5,305,486.50 and deficiency VAT of P3,720,488.73, or a total of P9,025,975.23, for CY 2007; and (2) WDL No.
057-03-13-074-12 served on April 23, 2013.
The CTA Division found that respondent was not accorded due process in the issuance of the PAN and the FAN as
there was failure to prove that the notices were properly and duly served upon and received by respondent. Hence,
it declared void the assessments made against respondent for deficiency IT and deficiency VAT.17
In the Resolution dated November 16, 2016, the CTA Division denied the CIR's motion for reconsideration. Hence,
the CIR filed a petition for review with the CTA En Banc.
Ruling of the CTA En Banc
In the assailed Decision18 dated April 3, 2018, the CTA En Banc denied the petition for review for lack of
merit. Thus, it affirmed the ruling of the CTA Division that the CIR failed to prove that the PAN and the FAN were
Ꮮαwρhi ৷
properly and duly served upon and received by respondent. Consequently, it declared void the deficiency IT and
VAT for CY 2007 assessed against respondent for failure to accord respondent due process in their issuance.19
Furthermore, even assuming that the PAN and the FAN were properly and duly served upon and received by
respondent, the CTA En Banc ruled that the deficiency IT and VAT assessments against respondent for CY 2007
are still void for failure to demand payment of the taxes due within a specific period. It observed that the FAN and
the assessment notices attached to it failed to prescribe a definite period for respondent to pay the alleged
deficiency taxes.20
The CIR filed motion for reconsideration, but the CTA En Banc denied it in the Resolution21 dated July 16, 2018.
Hence, the present petition raising the following grounds:
WHILE MAINTAINING THAT THE CTA HAS NO JURISDICTION OVER THE ORIGINAL PETITION SINCE THE
DEFICIENCY TAX ASSESSMENT HAS ALREADY BECOME FINAL, EXECUTORY AND DEMANDABLE, THE
CTA ERRED IN DECLARING THE ASSESSMENTS VOID FOR THE ALLEGED FAILURE ON THE PART OF
PETITIONER TO PROVE SERVICE THEREOF TO RESPONDENT.
THE CTA EN BANC ERRED IN RULING THAT THE FINAL ASSESSMENT NOTICE ISSUED AGAINST
RESPONDENT IS VOID FOR ALLEGEDLY NOT CONTAINING A DEFINITE DUE DATE FOR PAYMENT OF THE
TAX LIABILITIES.22
The Court's Ruling
The petition lacks merit.
At the outset, it bears stressing that a review of appeals filed before this Court is "not a matter of right, but of sound
judicial discretion."23 Further, a petition under Rule 45 of the Rules of Court should raise only questions of law
which must be distinctly set forth.24 A question is one of law when the appellate court can determine the issue
raised without reviewing or evaluating the evidence; otherwise, it is a question of fact.25
Factual questions are not the proper subject of an appeal by certiorari. It is not for the Court to once again analyze
or weigh evidence that has already been considered in the lower courts.26
The question of whether the CIR was able to sufficiently prove that the PAN and the FAN were properly and duly
served upon and received by respondent is, undeniably, a question of fact. In the case, the CTA En Banc ruled in
the negative; hence, it sustained the CTA Division's finding that respondent was not accorded due process and
declared void the assessments made against respondent for deficiency IT and VAT for CY 2007.
The Court recognizes that the CTA's findings can only be disturbed on appeal if they are not supported by
substantial evidence, or there is a showing of gross error or abuse on the part of the tax court.27 There is no such
gross error or abuse in this case.
Section 228 of the National Internal Revenue Code (NIRC) of 1997, as amended, requires the assessment to inform
the taxpayer in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall
be void. Section 228 pertinently provides:
SEC. 228. Protesting of Assessment. – When the Commissioner or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a pre-
assessment notice shall not be required in the following cases:
xxxx
The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the
assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to
said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an
assessment based on his findings.
xxxx
(Emphasis supplied)
To highlight the due process requirement in Section 228 of the NIRC, Section 3 of Revenue Regulations (RR) 12-
9928 dated September 6, 1999 provides:
SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. —
3.1 Mode of procedures in the issuance of a deficiency tax assessment:
3.1.1 Notice for informal conference. — The Revenue Officer who audited the taxpayer's records shall,
among others, state in his report whether or not the taxpayer agrees with his findings that the taxpayer is
liable for deficiency tax or taxes. If the taxpayer is not amenable, based on the said Officer's submitted
report of investigation, the tax payer shall be informed, in writing, by the Revenue District Office or by the
Special Investigation Division, as the case may be (in the case Revenue Regional Offices) or by the Chief of
Division concerned (in the case of the BIR National Office) of the discrepancy or discrepancies in the
taxpayer's payment of his internal revenue taxes, for the purpose of "Informal Conference," in order to afford
the taxpayer with an opportunity to present his side of the case. If the taxpayer fails to respond within fifteen
(15) days from date of receipt of the notice for informal conference, he shall be considered in default, in
which case, the Revenue District Officer or the Chief of the Special Investigation Division of the Revenue
Regional Office, or the Chief of Division in the National Office, as the case may be, shall endorse the case
with the least possible delay to the Assessment Division of the Revenue Regional Office or to the
Commissioner or his duly authorized representative, as the case may be, for appropriate review and
issuance of a deficiency tax assessment, if warranted.
3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by the Assessment Division or
by the Commissioner or his duly authorized representative, as the case may be, it is determined that there
exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the
taxpayer, at least by registered mail, a Preliminary Assessment Notice (PAN) for the proposed assessment,
showing in detail, the facts and the law, rules and regulations, or jurisprudence on which the proposed
assessment is based x x x. If the taxpayer fails to respond within fifteen (15) days from date of receipt of the
PAN, he shall be considered in default, in which case, a formal letter of demand and assessment notice
shall be caused to be issued by the said Office, calling for payment of the taxpayer's deficiency tax liability,
inclusive of the applicable penalties.
xxxx
3.1.4 Formal Letter of Demand and Assessment Notice. — The formal letter of demand and assessment
notice shall be issued by the Commissioner or his duly authorized representative. The letter of demand
calling for payment of the taxpayer's deficiency tax or taxes shall state the facts, the law, rules and
regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand and
assessment notice shall be void x x x. The same shall be sent to the taxpayer only by registered mail or by
personal delivery. If sent by personal delivery, the taxpayer or his duly authorized representative shall
acknowledge receipt thereof in the duplicate copy of the letter of demand, showing the following: (a) His
name; (b) signature; (c) designation and authority to act for and in behalf of the taxpayer, if acknowledged
received by a person other than the taxpayer himself; and (d) date of receipt thereof.
xxxx
As can be gleaned from the above provisions, service of the PAN or the FAN to the taxpayer may be made by
registered mail. Under Section 3(v), Rule 131 of the Rules of Court, there is a disputable presumption that "a letter
duly directed and mailed was received in the regular course of the mail." However, the presumption is subject to
controversion and direct denial, in which case the burden is shifted to the party favored by the presumption to
establish that the subject mailed letter was actually received by the addressee.29
In view of respondent's categorical denial of due receipt of the PAN and the FAN, the burden was shifted to the CIR
to prove that the mailed assessment notices were indeed received by respondent or by its authorized
representative.
As ruled by the CTA En Banc, the CIR's mere presentation of Registry Receipt Nos. 5187 and 2581 was insufficient
to prove respondent's receipt of the PAN and the FAN. It held that the witnesses for the CIR failed to identify and
authenticate the signatures appearing on the registry receipts; thus, it cannot be ascertained whether the signatures
appearing in the documents were those of respondent's authorized representatives. It further noted that Revenue
Officer Joseph V. Galicia (Galicia), the CIR's witness, had in fact admitted during cross-examination that he was
uncertain whether the PAN and FAN were actually received by respondent.30
In the present petition, the CIR contends that he had presented competent proof of actual mailing and receipt of the
assessment notices. He, likewise, insists that Galicia was incompetent to testify as to the authentication of the
signatures of respondent appearing on the subject registry return receipts. He avers that Galicia had neither control
on the acceptance of the receipts nor connection with the taxpayer to verify the signatures appearing thereon. Thus,
he maintains that Galicia's testimony, although not objected to, had no probative value that can be used as
justification by the CTA En Banc in the assailed Decision.
Citing Section 36, Rule 130 of the Rules of Court which provides that a witness can testify only to those facts which
he knows of his personal knowledge, the CIR argues that Galicia had no capacity to validate the signatures
appearing on the registry return receipts. The CIR also invokes CTA Associate Justice Catherine T. Manahan's
Dissenting Opinion,31 which referred to the testimony of Galicia from his Judicial Affidavit and concluded that
petitioner was able to establish actual mailing and receipt of the assessment notices.
The Court sees no reason to set aside the findings of the CTA En Banc. "It is doctrinal that the Court will not lightly
set aside the conclusions reached by the CTA which, by the very nature of its functions, has accordingly developed
an exclusive expertise on the resolution unless there has been an abuse or improvident exercise of
authority."32 Likewise, it has been the long-standing policy and practice of the Court to respect the conclusions of
quasi-judicial agencies such as the CTA, a highly specialized body specifically created for the purpose of reviewing
tax cases.33 In the absence of any clear and convincing proof that the findings of the CTA are not supported by
substantial evidence or that there is a showing that it committed a gross error or abuse, the Court must presume
that the CTA rendered a decision which is valid in every respect.34
In any event, the Court finds significant the fairly recent issuance by no less than the CIR himself of Revenue
Memorandum Order No. (RMO) 40-201935 dated May 30, 2019, which prescribes the procedures for the proper
service of assessment notices in accordance with the provisions of Section 3.1.6 of RR 18-2013.36 RMO 40-2019
pertinently provides:
12. The Chief of the Assessment Division or the Head of the Reviewing Office shall maintain a record of all
assessment notices that were issued with the following details:
12.1 Type of Assessment Notice (PAN/FLD/FAN/FDDA);
12.2 Assessment Notice Number, if applicable;
12.3 Date of Assessment Notice;
12.4 Name of Taxpayer;
12.5 Registered Address;
12.6 Mode of Service;
12.7 Date of Service;
12.8 Name of Taxpayer/Person who received the assessment notice;
12.9 Position/designation/relationship to the taxpayer, if not personally served to the taxpayer named in the
assessment notice;
12.10 Address/place where the assessment notice was served/delivered in case the assessment notice was served
in a place other than his registered address; and
12.11 Status – Indicate whether the deficiency tax assessment is
a. Paid;
b. Unprotested; or
c. Disputed.
As can be gleaned above, a detailed record of all assessment notices issued by the CIR is required. Notably,
Ꮮαwρhi ৷
among the details to be recorded by the Chief of the Assessment Division or the Head of the Reviewing Office are
the "[n]ame of [t]axpayer/[p]erson who received the assessment notice" and, more importantly, the
"[p]osition/designation/relationship to the taxpayer, if not served to the taxpayer named in the assessment notice."
While RMO 40-2019 was not yet in force at the time the questioned PAN and FAN in the case were issued, the fact
of such subsequent issuance of RMO 40-2019 by the CIR gives the Court all the more reason to affirm, if only for
consistency and uniformity, the CTA En Banc's finding that the CIR failed to prove that the PAN and the FAN were
properly and duly served upon and received by respondent. Here, the CIR failed to identify and authenticate the
signatures appearing on Registry Receipt Nos. 5187 and 2581 for the purpose of ascertaining whether such
signatures were those of respondent's authorized representative/s. Hence, it is readily apparent that the CIR could
not have complied with the requirement of noting the position/designation/relationship of Mr. B. Benitez, the
recipient, to respondent, the taxpayer.
Additionally, the argument of the CIR that the deficiency tax assessments have already become final, executory,
and demandable should be premised on the validity of the assessments themselves. As it was established that the
deficiency IT and VAT assessments for CY 2007 are void for failure to accord respondent due process in their
issuance, the CIR's argument necessarily fails.
Besides, even granting that the PAN and the FAN were properly and duly served upon and received by respondent
the Court affirms the CTA En Banc's ruling that the FAN and the assessment notices attached to it are still void for
failure to demand payment of the taxes due within a specific period.
As held in Commissioner of Internal Revenue v. Fitness by Design, Inc.:37
A final assessment is a notice "to the effect that the amount therein stated is due as tax and a demand for payment
thereof." This demand for payment signals the time "when penalties and interests begin to accrue against the
taxpayer and enabling the latter to determine his remedies[.]" Thus, it must be "sent to and received by the taxpayer,
and must demand payment of the taxes described therein within a specific period." (Italics supplied.)
In this case, the CTA En Banc observed that the last paragraph of the FAN indicates that the CIR would still issue a
formal letter of demand and assessment notice should respondent fail to respond to the FAN within the 15-day
period given to it to present in writing its side of the case. However, the CTA En Banc found nothing in the record
that reveals that the CIR had issued a final demand containing a specific or definite period of payment following the
expiration of the 15-day period given to respondent to respond to the FAN. Further, the CTA En Banc observed that
the assessment notices attached to the FAN also did not prescribe a definite period for respondent to pay the
alleged deficiency taxes.
Again, the matter of whether the subject assessments contained a definite period within which to pay the assessed
taxes is a question of fact which this Court will not entertain in the present appeal under Rule 45. There being no
showing of gross error or abuse on the part of the CTA En Banc in its findings of fact, the Court accords respect to
the latter's finding that the FAN dated July 20, 2010 and the assessment notices attached to it did not contain a
definite period within which to pay the assessed taxes. As such, even assuming that the assessments were duly
served on and received by respondent, they are still void and without any legal consequence.
WHEREFORE, the petition for review on certiorari is DENIED. The assailed Decision dated April 3, 2018 and the
Resolution dated dated July 16, 2018 issued by the Court of Tax Appeals En Banc in CTA EB No. 1565 (CTA Case
No. 8650) are AFFIRMED.
SO ORDERED.
Perlas-Bernabe, S.A.J. (Chairperson), Hernando, and Delos Santos, JJ., concur.
Baltazar-Padilla, J., on official leave.
G.R. No. 227544, November 22, 2017 - AIZA
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. TRANSITIONS PHILIPPINES,

OPTICAL INC., Respondent.
DECISION
LEONEN, J.:
Estoppel applies against a taxpayer who did not only raise at the earliest opportunity its
representative's lack of authority to execute two (2) waivers of defense of prescription, but was also
accorded, through these waivers, more time to comply with the audit requirements of the Bureau of
Internal Revenue. Nonetheless, a tax assessment served beyond the extended period is void.
This Petition for Review on Certiorari1 seeks to nullify and set aside the June 7, 2016 Decision2 and
September 26, 2016 Resolution3 of the Court of Tax Appeals En Banc in CTA EB No. 1251. The Court
of Tax Appeals En Banc affirmed its First Division's September 1, 2014 Decision,4 cancelling the
deficiency assessments against Transitions Optical Philippines, Inc. (Transitions Optical).
On April 28, 2006, Transitions Optical received Letter of Authority No. 00098746 dated March 23,
2006 from Revenue Region No. 9, San Pablo City, of the Bureau of Internal Revenue. It was signed
by then Officer-in-Charge-Regional Director Corazon C. Pangcog and it authorized Revenue Officers
Jocelyn Santos and Levi Visaya to examine Transition Optical's books of accounts for internal revenue
tax purposes for taxable year 2004.5
On October 9, 2007, the parties allegedly executed a Waiver of the Defense of Prescription (First
Waiver).6 In this supposed First Waiver, the prescriptive period for the assessment of Transition
Optical's internal revenue taxes for the year 2004 was extended to June 20, 2008.7 The document
was signed by Transitions Optical's Finance Manager, Pamela Theresa D. Abad, and by Bureau of
Internal Revenue's Revenue District Officer Myrna S. Leonida.8
This was followed by another supposed Waiver of the Defense of Prescription (Second Waiver) dated
June 2, 2008. This time, the prescriptive period was supposedly extended to November 30, 2008.9
Thereafter, the Commissioner of Internal Revenue, through Regional Director Jaime B. Santiago
(Director Santiago), issued a Preliminary Assessment Notice (PAN) dated November 11, 2008,
assessing Transitions Optical for its deficiency taxes for taxable year 2004. Transitions Optical filed a
written protest on November 26, 2008.10
The Commissioner of Internal Revenue, again through Director Santiago, subsequently issued against
Transitions Optical a Final Assessment Notice (FAN) and a Formal Letter of Demand (FLD) dated
November 28, 2008 for deficiency income tax, value-added tax, expanded withholding tax, and final
tax for taxable year 2004 amounting to P19,701,849.68.11
In its Protest Letter dated December 8, 2008 against the FAN, Transitions Optical alleged that the
demand for deficiency taxes had already prescribed at the time the FAN was mailed on December 2,
2008. In its Supplemental Protest, Transitions Optical pointed out that the FAN was void because the
FAN indicated 2006 as the return period, but the assessment covered calendar year 2004.12
Years later, the Commissioner of Internal Revenue, through Regional Director Jose N. Tan, issued a
Final Decision on the Disputed Assessment dated January 24, 2012, holding Transitions Optical liable
for deficiency taxes in the total amount of P19,701,849.68 for taxable year 2004, broken down as
follows:
Tax Amount
Income Tax P 3,153,371.04
Value-Added Tax 1,231,393.47
Expanded Withholding Tax 175,339.51
Final Tax on Royalty 14,026,247.90
Final Tax on Interest Income 1,115,497.76
Total P 19,701,849.6813
On March 16, 2012, Transitions Optical filed a Petition for Review before the Court of Tax Appeals.14
In her Answer, the Commissioner of Internal Revenue interposed that Transitions Optical's claim of
prescription was inappropriate because the executed Waiver of the Defense of Prescription extended
the assessment period. She added that the posting of the FAN and FLD was within San Pablo City
Post Office's exclusive control. She averred that she could not be faulted if the FAN and FLD were
posted for mailing only on December 2, 2008 since November 28, 2008 fell on a Friday and the next
supposed working day, December 1, 2008, was declared a Special Holiday.15
After trial and upon submission of the parties' memoranda, the First Division of the Court of Tax
Appeals (First Division) rendered a Decision on September 1, 2014.16 It held:
In summary therefore, the Court hereby finds the subject Waivers to be defective and therefore void.
Nevertheless, granting for the sake of argument that the subject Waivers were validly executed, for
failure of respondent however to present adequate supporting evidence to prove that it issued the
FAN and the FLD within the extended period agreed upon in the 2nd Waiver, the subject assessment
must be cancelled for being issued beyond the prescriptive period provided by law to assess.
WHEREFORE, in light of the foregoing considerations, the instant Petition for Review is
hereby GRANTED. Accordingly, the Final Assessment Notice, Formal Letter of Demand and Final
Decision on Disputed Assessment finding petitioner Transitions Optical Philippines, Inc. liable for
deficiency income tax, deficiency expanded withholding tax, deficiency value-added tax and
de1iciency final tax for taxable year 2004 in the total amount of P19,701,849.68 are
hereby CANCELLED and SET ASIDE.
SO ORDERED.17 (Emphasis in the original)
The Commissioner of Internal Revenue filed a Motion for Reconsideration, which was denied by the
First Division in its Resolution18 dated November 7, 2014.
The Court of Tax Appeals En Bane affirmed the First Division Decision19 and subsequently denied the
Commissioner of Internal Revenue's Motion for Reconsideration.20
Hence, this Petition was filed before this Court. Transitions Optical filed its Comment.21
Petitioner contends that "[t]he two Waivers executed by the parties on October 9, 2007 and June 2,
2008 substantially complied with the requirements of Sections 203 and 222 of the [National Internal
Revenue Code]."22 She adds that technical rules of procedure of administrative bodies, such as those
provided in Revenue Memorandum Order (RMO) No. 20-90 issued on April 4, 1990 and Revenue
Delegation Authority Order (RDAO) No. 05-01 issued on August 2, 2001, must be liberally applied to
promote justice.23 At any rate, petitioner maintains that respondent is estopped from questioning the
validity of the waivers since their execution was caused by the delay occasioned by respondent's own
failure to comply with the orders of the Bureau of Internal Revenue to submit documents for audit
and examination.24
Furthermore, petitioner argues that the assessment required to be issued within the three (3)-year
period provided in Sections 203 and 222 of the National Internal Revenue Code refer to petitioner's
actual issuance of the notice of assessment to the taxpayer or what is usually known as PAN, and not
the FAN issued in case the taxpayer files a protest.25
On the other hand, respondent contends that the Court of Tax Appeals properly found the waivers
defective, and therefore, void. It adds that the three (3)-year prescriptive period for tax assessment
primarily benefits the taxpayer, and any waiver of this period must be strictly scrutinized in light of
the requirements of the laws and rules.26 Respondent posits that the requirements for valid waivers
are not mere technical rules of procedure that can be set aside.27
Respondent further asserts that it is not estopped from questioning the validity of the waivers as it
raised its objections at the earliest opportunity.28 Besides, the duty to ensure compliance with the
requirements of RMO No. 20-90 and RDAO No. 05-01, including proper authorization of the
taxpayer's representative, fell primarily on petitioner and her revenue officers. Thus, petitioner came
to court with unclean hands and cannot be permitted to invoke the doctrine of
estoppel.29 Respondent insists that there was no clear showing that the signatories in the waivers
were duly sanctioned to act on its behalf.30
Even assuming that the waivers were valid, respondent argues that the assessment would still be
void as the FAN was served only on December 4, 2008, beyond the extended period of November 30,
2008.31 Contrary to petitioner's stance, respondent counters that the assessment required to be
served within the three (3)-year prescriptive period is the FAN and FLD, not just the PAN.32 According
to respondent, "it is the FAN and FLD that formally notif[y] the taxpayer, and categorically [demand]
from him, that a deficiency tax is due."33
The issues for this Court's resolution are:
First, whether or not the two (2) Waivers of the Defense of Prescription entered into by the parties on
October 9, 2007 and June 2, 2008 were valid; and
Second, whether or not the assessment of deficiency taxes against respondent Transitions Optical
Philippines, Inc. for taxable year 2004 had prescribed.
This Court denies the Petition. The Court of Tax Appeals committed no reversible error in cancelling
the deficiency tax assessments.
As a general rule, petitioner has three (3) years to assess taxpayers from the filing of the return.
Section 203 of the National Internal Revenue Code provides:
Section 203. Period of Limitation Upon Assessment and Collection. — Except as provided in Section
222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by
law for the filing of the return, and no proceeding in court without assessment for the collection of
such taxes shall be begun after the expiration of such period: Provided, That in a case where a return
is filed beyond the period prescribed by law, the three (3) year period shall be counted from the day
the return was filed. For purposes of this Section, a return filed before the last day prescribed by law
for the filing thereof shall be considered as filed on such last day.
An exception to the rule of prescription is found in Section 222(b) and (d) of this Code, viz:
Section 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. —
....

(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the
Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be
assessed within the period agreed upon. The period so agreed upon may be extended by subsequent
written agreement made before the expiration of the period previously agreed upon.

....

(d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in
paragraph (b) hereinabove, may be collected by distraint or levy or by a proceeding in court within the
period agreed upon in writing before the expiration of the five (5) year period. The period so agreed
upon may be extended by subsequent written agreements made before the expiration of the period
previously agreed upon.
Thus, the period to assess and collect taxes may be extended upon the Commissioner of Internal
Revenue and the taxpayer's written agreement, executed before the expiration of the three (3)-year
period.
In this case, two (2) waivers were supposedly executed by the parties extending the prescriptive
periods for assessment of income tax, value-added tax, and expanded and final withholding taxes to
June 20, 2008, and then to November 30, 2008.
The Court of Tax Appeals, both its First Division and En Banc, declared as defective and void the two
(2) Waivers of the Defense of Prescription for non-compliance with the requirements for the proper
execution of a waiver as provided in RMO No. 20-90 and RDAO No. 05-01. Specifically, the Court of
Tax Appeals found that these Waivers were not accompanied by a notarized written authority from
respondent, authorizing the so-called representatives to act on its behalf. Likewise, neither the
Revenue District Office's acceptance date nor respondent's receipt of the Bureau of Internal
Revenue's acceptance was indicated in either document.34
However, Presiding Justice Roman G. Del Rosario (Justice Del Rosario) in his Separate Concurring
Opinion35 in the Court of Tax Appeals June 7, 2016 Decision, found that respondent is estopped from
claiming that the waivers were invalid by reason of its own actions, which persuaded the government
to postpone the issuance of the assessment. He discussed:
In the case at bar, respondent performed acts that induced the BIR to defer the issuance of the
assessment. Records reveal that to extend the BIR's prescriptive period to assess respondent for
deficiency taxes for taxable year 2004, respondent executed two (2) waivers. The first Waiver dated
October 2007 extended the period to assess until June 20, 2008, while the second Waiver, which was
executed on June 2, 2008, extended the period to assess the taxes until November 30, 2008. As a
consequence of the issuance of said waivers, petitioner delayed the issuance of the assessment.
Notably, when respondent filed its protest on November 26, 2008 against the Preliminary
Assessment Notice dated November 11, 2008, it merely argued that it is not liable for the assessed
deficiency taxes and did not raise as an issue the invalidity of the waiver and the prescription of
petitioner's right to assess the deficiency taxes. In its protest dated December 8, 2008 against the
FAN, respondent argued that the year being audited in the FAN has already prescribed at the time
such FAN was mailed on December 2, 2008. Respondent even stated in that protest that it received
the letter (referring to the FAN dated November 28, 2008) on December 5, 2008, which accordingly
is five (5) days after the waiver it issued had prescribed. The foregoing narration plainly does not
suggest that respondent has any objection to its previously executed waivers. By the principle of
estoppel, respondent should not be allowed to question the validity of the waivers.36
In Commissioner of Internal Revenue v. Next Mobile, Inc. (formerly Nextel Communications Phils.,
Inc.),37 this Court recognized the doctrine of estoppel and upheld the waivers when both the taxpayer
and the Bureau of Internal Revenue were in pari delicto. The taxpayer's act of impugning its waivers
after benefitting from them was considered an act of bad faith:
In this case, respondent, after deliberately executing defective waivers, raised the ve1y same
deficiencies it caused to avoid the tax liability determined by the BIR during the extended
assessment period. It must be remembered that by virtue of these Waivers, respondent was given
the opportunity to gather and submit documents to substantiate its claims before the [Commissioner
of Internal Revenue] during investigation. It was able to postpone the payment of taxes, as well as
contest and negotiate the assessment against it. Yet, after enjoying these benefits, respondent
challenged the validity of the Waivers when the consequences thereof were not in its favor. In other
words, respondent's act of impugning these Waivers after benefiting therefrom and allowing
petitioner to rely on the same is an act of bad faith.38
This Court found the taxpayer estopped from questioning the validity of its waivers:
Respondent executed five Waivers and delivered them to petitioner, one after the other. It allowed
petitioner to rely on them and did not raise any objection against their validity until petitioner
assessed taxes and penalties against it. Moreover, the application of estoppel is necessary to prevent
the undue injury that the government would suffer because of the cancellation of petitioner's
assessment of respondent's tax liabilities.39 (Emphasis in the original)
Parenthetically, this Court stated that when both parties continued to deal with each other in spite of
knowing and without rectifying the defects of the waivers, their situation is "dangerous and open to
abuse by unscrupulous taxpayers who intend to escape their responsibility to pay taxes by mere
expedient of hiding behind technicalities."40
Estoppel similarly applies in this case
Indeed, the Bureau of Internal Revenue was at fault when it accepted respondent's Waivers despite
their non compliance with the requirements of RMO No. 20-90 and RDAO No. 05-01.
Nonetheless, respondent's acts also show its implied admission of the validity of the
waivers. First, respondent never raised the invalidity of the Waivers at the earliest opportunity, either
in its Protest to the PAN, Protest to the FAN, or Supplemental Protest to the FAN.41 It thereby
impliedly recognized these Waivers' validity and its representatives' authority to execute them.
Respondent only raised the issue of these Waivers' validity in its Petition for Review filed with the
Court of Tax Appeals.42 In fact, as pointed out by Justice Del Rosario, respondent's Protest to the FAN
clearly recognized the validity of the Waivers,43 when it stated:
This has reference to the Final Assessment Notice ("[F]AN") issued by your office, dated November
28, 2008. The said letter was received by Transitions Optical Philippines[,] Inc. (TOPI) on December
5, 2008, five days after the waiver we issued which was valid until November 30, 2008 had
prescribed.44 (Emphasis supplied)
Second, respondent does not dispute petitioner's assertion45 that respondent repeatedly failed to

comply with petitioner's notices, directing it to submit its books of accounts and related records for
examination by the Bureau of Internal Revenue. Respondent also ignored the Bureau of Internal
Revenue's request for an Informal Conference to discuss other "discrepancies" found in the partial
documents submitted. The Waivers were necessary to give respondent time to fully comply with the
Bureau of Internal Revenue notices for audit examination and to respond to its Informal Conference
request to discuss the discrepancies.46 Thus, having benefitted from the Waivers executed at its
instance, respondent is estopped from claiming that they were invalid and that prescription had set
in.
II
But, even as respondent is estopped from questioning the validity of the Waivers, the assessment is
nonetheless void because it was served beyond the supposedly extended period.
The First Division of the Court of Tax Appeals found that "the date indicated in the envelope/mail
matter containing the FAN and the FLD is December 4, 2008, which is considered as the date of their
mailing."47 Since the validity period of the second Waiver is only until November 30, 2008,
prescription had already set in at the time the FAN and the FLD were actually mailed on December 4,
2008.
For lack of adequate supporting evidence, the Court of Tax Appeals rejected petitioner's claim that
the FAN and the FLD were already delivered to the post office for mailing on November 28, 2008 but
were actually processed by the post office on December 2, 2008, since December 1, 2008 was
declared a Special Holiday.48 The testimony of petitioner's witness, Dario A. Consignado, Jr., that he
brought the mail matter containing the FAN and the FLD to the post office on November 28, 2008
was considered self-serving, uncorroborated by any other evidence. Additionally, the Certification
presented by petitioner certifying that the FAN issued to respondent was delivered to its
Administrative Division for mailing on November 28, 2008 was found insufficient to prove that the
actual date of mailing was November 28, 2008.
This Court finds no clear and convincing reason to overturn these factual findings of the Court of Tax
Appeals.
Finally, petitioner's contention that the assessment required to be issued within the three (3) year or
extended period provided in Sections 203 and 222 of the National Internal Revenue Code refers to
the PAN is untenable.
Considering the functions and effects of a PAN vis à vis a FAN, it is clear that the assessment
contemp1ated in Sections 203 and 222 of the National Internal Revenue Code refers to the service of
the FAN upon the taxpayer.
A PAN merely informs the taxpayer of the initial findings of the Bureau of Internal Revenue.49 It
contains the proposed assessment, and the facts, law, rules, and regulations or jurisprudence on
which the proposed assessment is based.50 It does not contain a demand for payment but usually
requires the taxpayer to reply within 15 days from receipt. Otherwise, the Commissioner of Internal
Revenue will finalize an assessment and issue a FAN.
The PAN is a part of due process.51 It gives both the taxpayer and the Commissioner of Internal
Revenue the opportunity to settle the case at the earliest possible time without the need for the
issuance of a FAN.
On the other hand, a FAN contains not only a computation of tax liabilities but also a demand for
payment within a prescribed period.52 As soon as it is served, an obligation arises on the part of the
taxpayer concerned to pay the amount assessed and demanded. It also signals the time when
penalties and interests begin to accrue against the taxpayer. Thus, the National Internal Revenue
Code imposes a 25% penalty, in addition to the tax due, in case the taxpayer fails to pay the
deficiency tax within the time prescribed for its payment in the notice of assessment.53 Likewise, an
interest of 20% per annum, or such higher rate as may be prescribed by rules and regulations, is to
be collected from the date prescribed for payment until the amount is fully paid.54 Failure to file an
administrative protest within 30 days from receipt of the FAN will render the assessment final,
executory, and demandable.
WHEREFORE, the Petition is DENIED. The June 7, 2016 Decision and September 26, 2016
Resolution of the Court of Tax Appeals En Banc in CTA EB No. 1251 are AFFIRMED.
SO ORDERED.
Bersamin,** (Acting Chairperson), Martires, and Gesmundo, JJ., concur.

Velasco, Jr., J., on official leave.
February 9, 2018
N O T I C E O F J U D G M E N T
Sirs /Mesdames:
Please take notice that on November 22, 2017 a Decision, copy attached hereto, was rendered by
the Supreme Court in the above-entitled case, the original of which was received by this Office on
February 9, 2018 at 9:50 a.m.
Very truly yours,
(SGD.) WILFREDO V. LAPITAN

Division Clerk of Court
G.R. No. 192173 July 29, 2015 – BAI RIYA
COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
STANDARD CHARTERED BANK, Respondent.
DECISION
PEREZ, J.:
For the Court's consideration is a Petition for Review on Certiorari which seeks to reverse and set aside the 1 March
2010 Decision and the 30 April 2010 Resolution of the Court of Tax Appeals (CTA) En Banc in CTA EB Case No.
1 2
522, affirming in toto the Decision and Resolution dated 27 February 2009 and 29 July 2009, respectively, of the
3 4
Second Division of the CTA (CTA in Division) in CTA Case No. 7165. The court a quo cancelled and set aside the
Formal Letter of Demand and Assessment Notices dated 24 June 2004 issued by petitioner against respondent for
deficiency income tax, final income tax – Foreign Currency Deposit Unit (FCDU), and expanded withholding tax
(EWT) in the aggregate amount of ₱33,076,944.18, including increments covering taxable year 1998, for having
been issued beyond the reglementary period.
The Facts
As found by the CT A in Division and affirmed by the CT A En Banc, the factual antecedents of the case and the
proceedings conducted thereon were as follows:
On July 14, 2004, [respondent] received [petitioner's] Formal Letter of Demand dated June 24, 2004, for alleged
deficiency income tax, final income tax - FCDU, [withholding tax - compensation (WTC)], EWT, [final withholding tax
(FWT)], and increments for taxable year 1998 in the aggregate amount of ₱33,326,211.37, broken down as follows:
Compromise
Tax Basic Tax Interest Total
Penalty
Income Tax 3,594,272.00 3,803,936.67 25,000.00 7,423,208.67
Final Income Tax – 11,748,483.99 12,433,808.31 25,000.00 24,207,292.30
FCDU
Withholding Tax – 50,282.59 55,450.48 12,000.00 117,733.07
Compensation
Expanded 678,361.62 748,081.59 20,000.00 1,446,443.21
Withholding Tax
Final Withholding 56,845.84 62,688.28 12,000.00 131,534.12
Tax
TOTAL 16,128,246.04 17,103,965.33 94,000.00 33,326,211.37
On August 12, 2004, [respondent] protested the said assessment by filing a letter-protest dated August 9, 2004
addressed to the BIR Deputy Commissioner for Large Taxpayers' Service stating the factual and legal bases of the
assessment, and requested that it be withdrawn and cancelled. As of the date of filing of this Petition for Review,
[petitioner] has not rendered a decision on [respondent's] protest.
In view of [petitioner's] inaction on [respondent's] protest, on March 9, 2005, [respondent] filed the present Petition
for Review.
xxxx
On October 14, 2005, [respondent] filed a Motion for Leave of Court to Serve Supplemental Petition, with attached
Supplemental Petition for Review, pursuant to Rule 10 of the 1997 Rules of Civil Procedure, as amended, in view of
the alleged payments made by [respondent] through the BIR's Electronic Filing and Payment System (eFPS) as
regards its deficiency [WTC] and [FWT] assessments in the amounts of ₱124,967.73 and ₱139,713.l l, respectively.
In its Supplemental Petition for Review, (respondent) seeks to be fully credited of the payments it made to cover the
deficiency [WTC] and [FWT]. Thus, the remaining assessments cover only the deficiency income tax, final income
tax – FCDU, and [EWT] in the modified total amount of ₱33,076,944.18, computed as follows:
Compromise
Basic Tax Interest Total
Tax Penalty
Income Tax 3,594,272.00 3,803,936.67 25,000.00 7,423,208.67
Final Income Tax – 11,748,483.99 12,433,808.31 25,000.00 24,207,292.30
FCDU
Expanded 678,361.62 748,081.59 20,000.00 1,446,443.21
Withholding Tax
TOTAL 16,021,117.61 16,985,826.57 70,000.00 33,076,944.18
Finding merit in [respondent's] motion, the same was granted and the Supplemental Petition for Review was
admitted in a Resolution dated December 12, 2005.
[Respondent] presented Chona G. Reyes, its Vice-President, as witness, and documentary exhibits which were
admitted by the Court in its Resolutions dated October 1, 2007, and January 31, 2008.
On the other hand, [petitioner] presented Juan M. Luna, Jr., Revenue Officer II of the BIR LTAID I, as witness, and
documentary evidence marked as Exhibits "1 " to "4 ".
Thereafter, the parties were ordered to file their simultaneous memoranda, within thirty (30) days from notice, after
which the case shall be deemed submitted for decision.
[Petitioner;s] "Memorandum" was filed on August 4, 2008, while [respondent's] Memorandum was filed on October
24, 2008 after a series of motions for extension of time to file memorandum were granted by the [c]ourt. The case
was deemed submitted for decision on November 12, 2008. 5
The Ruling of the CTA in Division
In a Decision dated 27 February 2009, the CTA in Division granted respondent's petition for the cancellation and
6
setting aside of the subject Formal Letter of Demand and Assessment Notices dated 24 June 2004 on the ground
that petitioner's right to assess respondent for the deficiency income tax, final income tax - FCDU, and EWT
covering taxable year 1998 was already barred by prescription. The court a quo explained that although petitioner
offered in evidence copies of the Waivers of Statute of Limitations executed by the parties, for the purpose of
justifying the extension of period to assess respondent, the subject waivers, particularly the First and Second
Waivers dated 20 July 2001 and 4 April 2002, respectively, failed to strictly comply and conform with the provisions
of Revenue Memorandum Order (RMO) No. 20-90, citing the case of Philippine Journalists, Inc. v. CIR. It therefore
7
concluded that since the aforesaid waivers were invalid, it necessarily follows that the subsequent waivers did not in
any way cure these defects. Neither did it extend the prescriptive period to assess. Accordingly, it ruled that the
assailed Formal Letter of Demand and Assessment Notices are void for having been issued beyond the
reglementary period. Having rendered such ruling, the CT A in Division decided not to pass upon other incidental
8
issues raised before it for being moot.
On 29 July 2009, the CTA in Division denied petitioner's Motion for Reconsideration thereof for lack of merit. 9
Aggrieved, petitioner appealed to the CT A En Banc by filing a Petition for Review under Section 18 of Republic Act
(R.A.) No. 1125, as amended by R.A. No. 9282, on 3 September 2009, docketed as CTA EB No. 522.
10
The Ruling of the CTA En Banc
The CT A En Banc affirmed in toto both the aforesaid Decision and Resolution rendered by the CTA in Division in
CTA Case No. 7165, pronouncing that there was no cogent justification to disturb the findings and conclusion
spelled out therein, since what petitioner merely prayed was for the appellate court to view and appreciate the
arguments/discussions raised by petitioner in her own perspective of things, which unfortunately had already been
considered and passed upon.
In other words, the CT A En Banc simply concurred with the ruling that petitioner's subject Formal Letter of Demand
and Assessment Notices (insofar as to the deficiency income tax, final income tax - FCDU, and EWT) shall be
cancelled considering that the same was already barred by prescription for having been issued beyond the three-
year prescriptive period provided for in Section 203 of the National Internal Revenue Code (NIRC) of 1997, as
amended. The waivers of the statute of limitations executed by the parties did not extend the aforesaid prescriptive
period because they were invalid for failure to comply with and conform to the requirements set forth in RMO No.
20-90.
Upon denial of petitioner's Motion for Reconsideration thereof, it filed the instant Petition for Review on Certiorari
before this Court seeking the reversal of the 1 March 2010 Decision and the 30 April 2010 Resolution rendered in
11 12
CTA EB No. 522, based on the sole ground, to wit: The CT A En Banc committed reversible error in not holding that
respondent is estopped from questioning the validity of the waivers of the Statute of Limitations executed by its
representatives in view of the partial payments it made on the deficiency taxes sought to be collected in petitioner's
Formal Letter of Demand and Assessment Notices dated 24 June 2004. The Issues
The primary issue presented before this Court is whether or not petitioner's right to assess respondent for deficiency
income tax, final income tax - FCDU, and EWT covering taxable year 1998 has already prescribed under Section
203 of the NIRC of 1997, as amended, for failure to comply with the requirements set forth in RMO No. 20-90 dated
4 April 1990, pertaining to the proper and valid execution of a waiver of the Statute of Limitations, and in accordance
with existing jurisprudential pronouncements.
Subsequently, even assuming that petitioner's right to assess had indeed prescribed, another issue was submitted
for our consideration, to wit: whether or not respondent is estopped from questioning the validity of the waivers of
the Statute of Limitations executed by its representatives in view of the partial payments it made on the deficiency
taxes (i.e. WTC and FWT) sought to be collected in petitioner's Formal Letter of Demand and Assessment Notices
dated 24 June 2004.
Our Ruling
We find no merit in the petition.
At the outset, the period for petitioner to assess and collect an internal revenue tax is limited only to three years by
Section 203 of the NIRC of 1997., as amended, quoted hereunder as follows: SEC. 203. Period of Limitation Upon
Assessment and Collection. – Except as provided in Section 222, internal revenue taxes shall be assessed within
three years after the last day prescribed by law for the filing of the return, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in a
case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the
day the return was filed.
For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day. (Emphasis supplied)
This mandate governs the question of prescription of the government's right to assess internal revenue taxes
primarily to safeguard the interests of taxpayers from unreasonable investigation by not indefinitely extending the
period of assessment and depriving the taxpayer of the assurance that it will no longer be subjected to further
investigation for taxes after the expiration of reasonable period of time. 13
Thus, in the present case, petitioner only had three years, counted from the date of actual filing of the return or from
the last date prescribed by law for the filing of such return, whichever comes later, to assess a national internal
revenue tax or to begin a court proceeding for the collection thereof without an assessment. However, one of the
exceptions to the three-year prescriptive period on the assessment of taxes is that provided for under Section
222(b) of the NIRC of 1997, as amended, which states:
SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. –
xxxx
(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the
Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed
within the period agreed upon.
The period so agreed upon may be extended by subsequent written agreement made before the expiration of the
period previously agreed upon. (Emphasis supplied)
From the foregoing, the above provision authorizes the extension of the original three-year prescriptive period by the
execution of a valid waiver, where the taxpayer and the Commissioner of Internal Revenue (CIR) may stipulate to
extend the period of assessment by a written 1 agreement executed prior to the lapse of the period prescribed by
law, and by subsequent written agreements before the expiration of the period previously agreed upon. It must be
kept in mind that the very reason why the law provided for prescription is to give taxpayers peace of mind, that is, to
safeguard them from unreasonable examination, investigation, or assessment. The law on prescription, being a
remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to
the law on prescription should perforce be strictly construed. 14
In the landmark case of Philippine Journalists, Inc. v. CIR (PJI case), we pronounced that a waiver is not
15
automatically a renunciation of the right to invoke the defense of prescription. A waiver of the Statute of Limitations
is nothing more than "an agreement between the taxpayer and the Bureau of Internal Revenue (BIR) that the period
to issue an assessment and collect the taxes due is extended to a date certain." It is a bilateral agreement, thus
necessitating the very signatures of both the CIR and the taxpayer to give birth to a valid agreement. Furthermore,
indicating in the waiver the date of acceptance by the BIR is necessary in order to determine whether the parties
(the taxpayer and the government) had entered into a waiver "before the expiration of the time prescribed in Section
203 (the three-year prescriptive period) for the assessment of the tax." When the period of prescription has expired,
there will be no more need to execute a waiver as there will be nothing more to extend. Hence, no implied consent .
can be presumed, nor can it be contended that the concurrence to such waiver is a mere formality.
In delineation of the same sense about the waiver of the Statute of Limitations, RMO No. 20-90 and Revenue
Delegation Authority Order (RDAO) No. 05-01 were issued on 4 April 1990 and 2 August 2001, respectively. The
said revenue orders outline the procedure for the proper execution of a waiver, viz.: 16
1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not after __ 19 _",
which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-
year period of prescription, should be filled up.
2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a
corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated
by the taxpayer to a representative, such delegation should be in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has
accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However,
before signing the waiver, the CIR. or the revenue official authorized by him must make sure that the waiver
is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the
expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent
agreement is executed.
6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case,
the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt
by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was
notified of the acceptance of the BIR and the perfection of the agreement. (Emphases supplied)
The provisions of the RMO and RDAO explicitly show their mandatory nature, requiring strict compliance. Hence,
failure to comply with any of the requisites renders a waiver defective and ineffectual. It is worth mentioning that
strict compliance with the requirements set forth in RMO No. 20-90 has been upheld in the PJI case. In reversing
17
the decision of the Court of Appeals promulgated on 5 August 2003, this Court ruled that:
The NIRC, under Sections 203 and 222, provides for a statute of limitations on the assessment and collection of
internal revenue taxes in order to safeguard the interest of the taxpayer against unreasonable investigation.
Unreasonable investigation contemplates cases where the period of assessment extends indefinitely because this
deprives the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the
expiration of a reasonable period of time x x x
xxxx
RMO No. 20-90 implements these provisions of the NIRC relating to the period of prescription for the assessment
and collection of taxes. A cursory reading of the Order supports petitioner's argument that the RMO must be strictly
followed, x x x" (Emphasis supplied)
18
Applying the rules and rulings, the waivers in question were defective and did not validly extend the original three-
year prescriptive period. As correctly found by the CT A in Division, and affirmed in toto by the CT A En Banc, the
subject waivers of the Statute of Limitations were in clear violation of RMO No. 20-90:
1) This case involves assessment amounting to more than ₱1,000,000.00. For this, RMO No. 20-90 requires
the Commissioner of Internal Revenue to sign for the BIR. A perusal of the First and Second Waivers of the
1avvphi1
Statute of Limitations shows that they were signed by Assistant Commissioner-Large Taxpayers Service
Virginia L. Trinidad and Assistant Commissioner-Large Taxpayers Service Edwin R. Abella respectively, and
not by the Commissioner of Internal Revenue;
2) The date of acceptance by the Assistant Commissioner-Large Taxpayers Service Virginia L. Trinidad of
the First Waiver was not indicated therein;
3) The date of acceptance by the Assistant Commissioner-Large Taxpayers Service Edwin R. Abella of the
Second Waiver was not indicated therein;
4) The First and Second Waivers of Statute of Limitations did not specify the kind and amount of the tax due;
and
5) The tenor of the Waiver of the Statute of Limitations signed by petitioner's authorized representative failed
to comply with the prescribed requirements of RMO No. 20-90. The subject waiver speaks of a request for
extension of time within which to present additional documents, whereas the waiver provided under RMO
No. 20-90 pertains to the approval by the Commissioner of Internal Revenue of the taxpayer's request for re-
investigation and/or
reconsideration of his/its pending internal revenue case. 19
Taking into consideration the foregoing defects in the First and Second Waivers presented and admitted in evidence
before the court a quo, the period to assess the tax liabilities of respondent for taxable year 1998 was never
extended. Consequently, when the succeeding waivers of Statute of Limitations were subsequently executed
covering the same tax liabilities of respondent, and there being no assessment having been issued as of that time,
prescription has already set in. We therefore hold that the subject waivers did not extend the period to assess the
subject deficiency tax liabilities of respondent for taxable year 1998. The aforesaid waivers cannot be considered as
"subsequent written agreement(s) made before the expiration of the period previously agreed upon" referred to in
the second sentence of the earlier quoted Section 222(b) of the NIRC of 1997, as amended, since there is no
"period previously agreed upon" to speak of.
As regards petitioner's insistence that respondent is already estopped from impugning the validity of the subject
waivers considering that it made partial payments on the deficiency taxes being collected, particularly as to the
payment of its deficiency WTC and FWT assessments in the amounts of ₱124,967.73 and ₱139,713.11,
respectively, we find this argument bereft of merit.
As aptly found in the 29 July 2009 Resolution of the CTA in Division, although respondent paid the deficiency WTC
and FWT assessments, it did not waive the defense of prescription as regards the remaining tax deficiencies, it
being on record that respondent continued to raise the issue of prescription in its Pre-Trial Brief filed on 15 August
2005, Joint Stipulations of Facts and Issues filed on 1 September 2005, direct testimonies of its witness, and
Memorandum filed on 24 October 2008. More so, even petitioner did not consider such payment of respondent as a
waiver of the defense of prescription, but merely raised the issue of estoppel in her Motion for Reconsideration of
the aforesaid decision. From the conduct of both parties, there can be no estoppel in this case. 20
Upon payment of the assessed deficiency in the WTC in the amount of ₱124,967.73 and in the FWT in the amount
of µ139,713.11, respondent filed a Motion for Leave of Court to Serve Supplemental Petition, with attached
Supplemental Petition for Review. As stated in the CTA En Banc affirmed decision of the CTA in Division, "[i]n its
Supplemental Petition for Review, respondent seeks to be fully credited of the payments it made to cover the
deficiency WTC and FWT. Thus, the remaining assessments cover only the deficiency income tax, final income tax
– FCDU, and (EWT) in the modified total amount of ₱33,076,944.18, x x x". The aforesaid motion was granted and
21
the supplemental petition was admitted by the CT A in Division. Undeniably, the acceptance of said payments was
never questioned by petitioner. Indeed, the decision of the CTA in Division, which decision was affirmed by the CTA
En Banc, covered only the remaining questioned assessment, namely: income tax, final income tax -FCDU, and
EWT. Clearly, the payment of the deficiency WTC and FWT was made together with the reiteration in the petition for
the cancellation of the assessment notices on the alleged deficiency income tax, final income tax - FCDU, and EWT.
When respondent paid the deficiency WTC and FWT assessments, petitioner accepted said payment without any
opposition. This effectively extinguished respondent's obligation to pay the subject taxes. It bears emphasis that,
obligations are extinguished, among others, by payment or performance. Under Article 1232 of the Civil Code,
22
payment means not only the delivery of money but also the performance, in any other manner, of an obligation. As
intended, which intention was recognized by the CT A in · Division and CT A En Banc, the question regarding the
income tax, final income tax - FCDU, and EWT, was kept unaffected by the payment of the deficiency WTC and
FWT assessments.
By way of reiteration, taking into consideration the foregoing flaws found in the subject waivers, the same are void,
and the supposed suspensions of the prescriptive periods within which to issue the subject assessments were not
legally effected. And the facts of this case do not call for the application of the doctrine of estoppel.
It must be remembered that the execution of a Waiver of Statute of Limitations may be beneficial to the taxpayer or
to the BIR, or to both. Considering however, that it results to a derogation of some of the rights of the taxpayer, the
same must be executed in accordance with pre-set guidelines and procedural requirements. Otherwise, it does not
serve its purpose, and the taxpayer has all the right to invoke its nullity. For that reason, this Court cannot turn blind
on the importance of the Statute of Limitations upon the assessment and collection of internal revenue taxes
provided for under the NIRC. The law prescribing a limitation of actions for the collection of the income tax is
beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to
act properly in the making of the assessment, and to citizens because after the lapse of the period of prescription,
citizens would have a feeling of security against unscrupulous tax agents who may find an excuse to inspect the
books of taxpayers, not to determine the latter's real liability, but to take advantage of every opportunity to molest
peaceful, law-abiding citizens. Without such a legal defense, taxpayers would furthermore be under obligation to
always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The
law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the
beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which
recommends the approval of the law. 23
In fine, considering the defects in the First and Second Waivers, the period to assess or collect deficiency taxes for
the taxable year 1998 was never extended. Consequently, the Formal Letter of Demand and Assessment Notices
dated 24 June 2004 for deficiency income tax, FCDU, and EWT in the aggregate amount of 1!33,076,944.18,
including increments, were issued by the BIR beyond the three-year prescriptive period and are therefore
void. WHEREFORE, the petition is DENIED for lack of merit. No costs.
24
SO ORDERED.
JOSE PORTUGAL PEREZ

Associate Justice
WE CONCUR:
TERESITA J. LEONARDO DE-CASTRO *
Associate Justice
Acting Chairperson
DIOSDADO M. PERALTA **
LUCAS P. BERSAMIN
ESTELA M. PERLAS-BERNABE
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the
writer of the opinion of the Court's Division. ·
TERESITA J. LEONARDO DE-CASTRO

Associate Justice
Acting Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, it is hereby
certified that the conclusions in the above Decision were reached in consultation before the case was assigned to
the writer of the opinion of the Court's Division.
ANTONIO T. CARPIO
Acting Chief Justice
G.R. No. 211289, January 14, 2019 - ABBAH
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, v. LA FLOR DELA ISABELA, INC., RESPONDENT.
DECISION
J. REYES, JR., J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to reverse and set
aside the September 30, 2013 Decision1 and the February 10, 2014 Resolution2 of the Court of Tax Appeals (CTA) En
Banc in CTA EB No. 951, which affirmed the August 3, 2012 Decision3 and the October 5, 2012 Resolution of the CTA
Third Division (CTA Division).
Factual background
Respondent La Flor dela Isabela, Inc. (La Flor) is a domestic corporation duly organized and existing under Philippine
Law. It filed monthly returns for the Expanded Withholding Tax (EWT) and Withholding Tax on Compensation (WTC)
for calendar year 2005.4
On September 3, 2008, La Flor, through its president, executed a Waiver of the Statute of Limitations (Waiver)5 in
connection with its internal revenue liabilities for the calendar year ending December 31, 2005. On February 16, 2009,
it executed another Waiver6 to extend the period of assessment until December 31, 2009.
On November 20, 2009, La Flor received a copy of the Preliminary Assessment Notice for deficiency taxes for the
taxable year 2005. Meanwhile, on December 2, 2009, it executed another Waiver.7
On January 7, 2010, La Flor received the following Formal Letter of Demand and Final Assessment Notices (FANs): (1)
LTEADI-II CP-05-00007 for penalties for late filing and payment of WTC; (2) LTADI-II CP 05-00008 for penalties for
late filing and payment of EWT; (3) LTADI-II WE-05-00062 for deficiency assessment for EWT; and (4) LTEADI-II WC-
05-00038 for deficiency assessment for WTC. The above-mentioned assessment notices were all dated December 17,
2009 and covered the deficiency taxes for the taxable year 2005.8
On January 15, 2010, La Flor filed its Letter of Protest contesting the assessment notices. On July 20, 2010, petitioner
Commissioner of Internal Revenue (CIR) issued the Final Decision on Disputed Assessment (FDDA) involving the
alleged deficiency withholding taxes in the aggregate amount of P6,835,994.76. Aggrieved, it filed a petition for
review before the CTA Division.
CTA Division Decision
In its August 3, 2012 Decision, the CTA Division ruled in favor of La Flor and cancelled the deficiency tax assessments
against it. It noted that based on the dates La Flor had filed its returns for EWT and WTC, the CIR had until February
15, 2008 to March 1, 2009 to issue an assessment pursuant to the three-year prescriptive period under Section 203 of
the National Internal Revenue Code (NIRC). The CTA Division pointed out that the assessment was issued beyond the
prescriptive period considering that the CIR issued the FANs only on December 17, 2009. Thus, it posited that the
assessment was barred by prescription.
On the other hand, the CTA Division ruled that the Waivers entered into by the CIR and La Flor did not effectively
extend the prescriptive period for the issuance of the tax assessments. It pointed out that only the February 16, 2009
Waiver was stipulated upon and the Waivers dated September 3, 2008 and December 2, 2009 were never presented
or offered in evidence. In addition, the CTA Division highlighted that the Waiver dated February 16, 2009 did not
comply with the provisions of Revenue Memorandum Order (RMO) No. 20-90 because it failed to state the nature and
amount of the tax to be assessed.
Thus, it disposed:
WHEREFORE, the Petition for Review is hereby GRANTED. Accordingly, the Formal Letter of Demand, with Final
Assessment Notices LTEADI-WC-05-00038, LTEADI-WE-05-00062, LTEADI-CP-05-00007, LTEADI-CP-05-00008, all
dated December 17, 2009 are hereby CANCELLED and SET ASIDE.
SO ORDERED.9
The CIR moved for reconsideration but it was denied by the CTA Division in its October 5, 2012
Resolution.10 Undeterred, it filed a Petition for Review11 before the CTA En Banc.
CTA En Banc Decision
In its September 30, 2013 Decision, the CTA En Banc affirmed the Decision of the CTA Division. The tax court agreed
that the EWT and WTC assessments were barred by prescription. It explained that the Waivers dated September 3,
2008 and December 2, 2009 were inadmissible because they were never offered in evidence. The CTA En Banc added
that these documents were neither incorporated in the records nor duly identified by testimony. It also elucidated that
the Waiver dated February 16, 2009 was defective because it failed to comply with RMO No. 20-90 as it did not
specify the kind and amount of tax involved. As such, the CTA En Banc concluded that the prescriptive period for the
assessment of EWT and WTC for 2005 was not extended in view of the inadmissibility and invalidity of the Waivers
between the CIR and La Flor. Thus, it disposed:
WHEREFORE, premises considered, the assailed Decision dated August 3, 2012 and the Resolution dated October 5,
2012 are AFFIRMED. The Petition for Review is hereby DISMISSED.
SO ORDERED.12
The CIR moved for reconsideration, but it was denied by the CTA En Banc in its February 10, 2014 Resolution.
Hence, this present petition raising the following:
Issues
WHETHER THE PRESCRIPTIVE PERIOD UNDER SECTION 203 OF THE NIRC APPLIES TO EWT AND WTC
ASSESSMENTS; and
II
WHETHER LA FLOR'S EWT AND WTC ASSESSMENTS FOR 2005 WERE BARRED BY PRESCRIPTION.
The CIR argued that the prescriptive period under Section 203 of the NIRC does not apply to withholding agents such
as La Flor. It explained that the amount collected from them is not the tax itself but rather a penalty. The CIR pointed
out that the provision of Section 203 of the NIRC only mentions assessment of taxes as distinguished from
assessment of penalties. It highlighted that La Flor was made liable for EWT and WTC deficiencies in its capacity as a
withholding agent and not in its personality as a taxpayer.
On the other hand, the CIR maintained that even applying the periods set in Section 203 of the NIRC, the EWT and
WTC assessment of La Flor had not yet prescribed. It pointed out that La Flor had executed three Waivers extending
the prescriptive period under the NIRC. The CIR lamented that the CTA erred in disregarding them because evidence
not formally offered may be considered if they form part of the records. It noted that in the Answer it filed before the
CTA Division, the subject Waivers were included as annexes. In addition, the CIR assailed that failure to comply with
RMO No. 20-90 does not invalidate the Waivers.
In its Comment13 dated August 15, 2014, La Flor countered that the CIR's petition for review should be denied outright
for procedural infirmities. It pointed out that the petition failed to comply with Bar Matter (B.M.) No. 1922 because the
date of issue of the Mandatory Continuing Legal Education (MCLE) compliance of the counsels of the CIR was not
indicated. In addition, La Flor noted that the petition for review did not observe Section 2, Rule 7 of the Rules of Court
requiring the paragraphs to be numbered. Further, it asserted that the assessment of the EWT and WTC had
prescribed because it went beyond the prescriptive period provided under Section 203 of the NIRC. La Flor also
assailed that the Waivers should not be considered because they were neither offered in evidence nor complied with
the requirements under RMO No. 20-90.
In its Reply14 dated February 18, 2015, the CIR brushed aside the allegations of procedural infirmities of its petition for
review. It elucidated that failure to indicate the date of issue of the MCLE compliance is no longer a ground for
dismissal and that it had stated the MCLE certificate compliance numbers of its counsels. The CIR posited that the
Rules of Court does not penalize the failure to number the paragraphs in pleadings.
The Court's Ruling
Other than challenging the merits of the CIR's petition, La Flor believes that the former's petition for review
on certiorari should be dismissed outright on procedural grounds. It points out that failure to include the date of issue
of the MCLE compliance number of a counsel in a pleading is a ground for dismissal. Further, La Flor highlights that
the paragraphs in the CIR's petition for review on certiorari were not numbered.
In People v. Arrojado,15 the Court had already clarified that failure to indicate the number and date of issue of the
counsel's MCLE compliance will no longer result in the dismissal of the case, to wit:
In any event, to avoid inordinate delays in the disposition of cases brought about by a counsel's failure to indicate in
his or her pleadings the number and date of issue of his or her MCLE Certificate of Compliance, this Court issued
an En Banc Resolution, dated January 14, 2014 which amended B.M. No. 1922 by repealing the phrase "Failure to
disclose the required information would cause the dismissal of the case and the expunction of the pleadings from the
records" and replacing it with "Failure to disclose the required information would subject the counsel to appropriate
penalty and disciplinary action." Thus, under the amendatory Resolution, the failure of a lawyer to indicate in his or
her pleadings the number and date of issue of his or her MCLE Certificate of Compliance will no longer result in the
dismissal of the case and expunction of the pleadings from the records. Nonetheless, such failure will subject the
lawyer to the prescribed fine and/or disciplinary action.
On the other hand, even La Flor recognizes that Section 2, Rule 7 of the Rules of Court does not provide for any
punishment for failure to number the paragraphs in a pleading. In short, the perceived procedural irregularities in the
petition for review on certiorari do not justify its outright dismissal. Procedural rules are in place to facilitate the
adjudication of cases and avoid delay in the resolution of rival claims.16 In addition, courts must strive to resolve cases
on their merits, rather than summarily dismiss them on technicalities.17 This is especially true when the alleged
procedural rules violated do not provide any sanction at all or when the transgression thereof does not result in a
dismissal of the action.
Nevertheless, the Court finds no reason to reverse the CTA in invalidating the assessments against La Flor.
Withholding taxes are internal revenue taxes covered by Section 203 of the NIRC.
Section 203 of the NIRC provides for the ordinary prescriptive period for the assessment and collection of taxes, to
wit:
SEC. 203. Period of Limitation Upon Assessment and Collection. — Except as provided in Section 222, internal
revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the
expiration of such period: Provided, That in case where a return is filed beyond the period prescribed by law, the three
(3)-year period shall be counted from the day the return was filed. For purposes of this Section, a return filed before
the last day prescribed by law for the filing thereof shall be considered as filed on such last day. (Emphasis supplied)
On the other hand, Section 222(a)18 of the NIRC provides for instances where the ordinary prescriptive period of three
years for the assessment and collection of taxes is extended to 10 years, i.e., false return, fraudulent returns, or
failure to file a return. In short, the relevant provisions in the NIRC concerning the prescriptive period for the
assessment of internal revenue taxes provide for an ordinary and extraordinary period for assessment.
The CIR, however, forwards a novel theory that Section 203 is inapplicable in the present assessment of EWT and
WTC deficiency against La Flor. It argues that withholding taxes are not contemplated under the said provision
considering that they are not internal revenue taxes but are penalties imposed on the withholding agent should it fail
to remit the proper amount of tax withheld.
In Chamber of Real Estate and Builders' Associations, Inc. v. Hon. Executive Secretary Romulo,19 the Court had
succinctly explained the withholding tax system observed in our jurisdiction, to wit:
We have long recognized that the method of withholding tax at source is a procedure of collecting income tax which is
sanctioned by our tax laws. The withholding tax system was devised for three primary reasons: first, to provide the
taxpayer a convenient manner to meet his probable income tax liability; second, to ensure the collection of income
tax which can otherwise be lost or substantially reduced through failure to file the corresponding returns and third, 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.
Under the existing withholding tax system, the withholding agent retains a portion of the amount received by the
income earner. In turn, the said amount is credited to the total income tax payable in transactions covered by the
EWT. On the other hand, in cases of income payments subject to WTC and Final Withholding Tax, the amount withheld
is already the entire tax to be paid for the particular source of income. Thus, it can readily be seen that the payee is
the taxpayer, the person on whom the tax is imposed, while the payor, a separate entity, acts as the government's
agent for the collection of the tax in order to ensure its payment.20
As a consequence of the withholding tax system, two distinct liabilities arise — one for the income earner/payee and
another for the withholding agent. In Rizal Commercial Banking Corporation v. Commissioner of Internal
Revenue,21 the Court elaborated:
It is, therefore, indisputable that the withholding agent is merely a tax collector and not a taxpayer, as elucidated by
this Court in the case of Commissioner of Internal Revenue v. Court of Appeals, to wit:
In the operation of the withholding tax system, the withholding agent is the payor, a separate entity acting no more
than an agent of the government for the collection of the tax in order to ensure its payments; the payer is the
taxpayer — he is the person subject to tax imposed by law; and the payee is the taxing authority. In other words, the
withholding agent is merely a tax collector, not a taxpayer. Under the withholding system, however, the agent-payor
becomes a payee by fiction of law. His (agent) liability is direct and independent from the taxpayer, because the
income tax is still imposed on and due from the latter. The agent is not liable for the tax as no wealth flowed into him
— he earned no income. The Tax Code only makes the agent personally liable for the tax arising from the breach of its
legal duty to withhold as distinguished from its duty to pay tax since:
"the government's cause of action against the withholding agent is not for the collection of income tax, but for the
enforcement of the withholding provision of Section 53 of the Tax Code, compliance with which is imposed on the
withholding agent and not upon the taxpayer."
Based on the foregoing, the liability of the withholding agent is independent from that of the taxpayer. The former
cannot be made liable for the tax due because it is the latter who earned the income subject to withholding tax. The
withholding agent is liable only insofar as he failed to perform his duty to withhold the tax and remit the same to the
government. The liability for the tax, however, remains with the taxpayer because the gain was realized and received
by him. (Citations omitted)
It is true that withholding tax is a method of collecting tax in advance22 and that a withholding tax on income
necessarily implies that the amount of tax withheld comes from the income earned by the
taxpayer/payee.23 Nonetheless, the Court does not agree with the CIR that withholding tax assessments are merely an
imposition of a penalty on the withholding agent, and thus, outside the coverage of Section 203 of the NIRC.
The CIR cites National Development Company v. Commissioner of Internal Revenue 24 as basis that withholding taxes
are only penalties imposed on the withholding agent, to wit:
The petitioner also forgets that it is not the NDC that is being taxed. The tax was due on the interests earned by the
Japanese shipbuilders. It was the income of these companies and not the Republic of the Philippines that was subject
to the tax the NDC did not withhold.
In effect, therefore, the imposition of the deficiency taxes on the NDC is a penalty for its failure to withhold the same
from the Japanese shipbuilders. Such liability is imposed by Section 53(c) of the Tax Code, thus:
Section 53(c). Return and Payment. — Every person required to deduct and withhold any tax under this section shall
make return thereof, in duplicate, on or before the fifteenth day of April of each year, and, on or before the time fixed
by law for the payment of the tax, shall pay the amount withheld to the officer of the Government of the Philippines
authorized to receive it. Every such person is made personally liable for such tax, and is indemnified against the
claims and demands of any person for the amount of any payments made in accordance with the provisions of this
section. (As amended by Section 9, R.A. No. 2343.)
In Philippine Guaranty Co. v. The Commissioner of Internal Revenue and the Court of Tax Appeals, the Court quoted
with approval the following regulation of the BIR on the responsibilities of withholding agents:
In case of doubt, a withholding agent may always protect himself by withholding the tax due, and promptly causing a
query to be addressed to the Commissioner of Internal Revenue for the determination whether or not the income paid
to an individual is not subject to withholding. In case the Commissioner of Internal Revenue decides that the income
paid to an individual is not subject to withholding, the withholding agent may thereupon remit the amount of tax
withheld. (2nd par., Sec. 200, Income Tax Regulations).
"Strict observance of said steps is required of a withholding agent before he could be released from liability," so said
Justice Jose P. Bengson, who wrote the decision. "Generally, the law frowns upon exemption from taxation; hence, an
exempting provision should be construed strictissimi juris."
The petitioner was remiss in the discharge of its obligation as the withholding agent of the government and so should
be held liable for its omission.
A careful analysis of the above-quoted decision, however, reveals that the Court did not equate withholding tax
assessments to the imposition of civil penalties imposed on tax deficiencies. The word "penalty" was used to
underscore the dynamics in the withholding tax system that it is the income of the payee being subjected to tax and
not of the withholding agent. It was never meant to mean that withholding taxes do not fall within the definition of
internal revenue taxes, especially considering that income taxes are the ones withheld by the withholding agent.
Withholding taxes do not cease to become income taxes just because it is collected and paid by the withholding agent.
The liability of the withholding agent is distinct and separate from the tax liability of the income earner. It is premised
on its duty to withhold the taxes paid to the payee. Should the withholding agent fail to deduct the required amount
from its payment to the payee, it is liable for deficiency taxes and applicable penalties. In Commissioner of Internal
Revenue v. Procter & Gamble Philippine Manufacturing Corporation 25 the Court explained:
It thus becomes important to note that under Section 53 (c) of the NIRC, the withholding agent who is "required to
deduct and withhold any tax" is made "personally liable for such tax" and indeed is indemnified against any claims and
demands which the stockholder might wish to make in questioning the amount of payments effected by the
withholding agent in accordance with the provisions of the NIRC. The withholding agent, P&G-Phil., is directly
and independently liable for the correct amount of the tax that should be withheld from the dividend
remittances. The withholding agent is, moreover, subject to and liable for deficiency assessments,
surcharges and penalties should the amount of the tax withheld be finally found to be less than the
amount that should have been withheld under law.
A "person liable for tax" has been held to be a "person subject to tax" and properly considered a "taxpayer." The
terms "liable for tax" and "subject to tax" both connote legal obligation or duty to pay a tax. It is very difficult, indeed
conceptually impossible, to consider a person who is statutorily made "liable for tax" as not "subject to tax." By any
reasonable standard, such a person should be regarded as a party in interest, or as a person having sufficient legal
interest, to bring a suit for refund of taxes he believes were illegally collected from him. (Emphasis supplied)
Thus, withholding tax assessments such as EWT and WTC clearly contemplate deficiency internal revenue taxes. Their
aim is to collect unpaid income taxes and not merely to impose a penalty on the withholding agent for its failure to
comply with its statutory duty. Further, a holistic reading of the Tax Code reveals that the CIR's interpretation of
Section 203 is erroneous. Provisions of the NIRC itself recognize that the tax assessment for withholding tax
deficiency is different and independent from possible penalties that may be imposed for the failure of withholding
agents to withhold and remit taxes. For one, Title X, Chapter I of the NIRC provides for additions to the tax or
deficiency tax and is applicable to all taxes, fees and charges under the Tax Code.
In addition, Section 247(b) of the NIRC provides:
SEC. 247. General Provisions. —
xxxx
(b) If the withholding agent is the Government or any of its agencies, political subdivisions or instrumentalities, or a
government-owned or controlled corporation the employee thereof responsible for the withholding and remittance of
the tax shall be personally liable for the additions to the tax prescribed herein.
On the other hand, Section 251 of the Tax Code reads:
SEC. 251. Failure of a Withholding Agent to Collect and Remit Tax. — Any person required to withhold, account for
and remit any tax imposed by this Code or who willfully fails to withhold such tax, or account for and remit such tax,
or aids or abets in any manner to evade any such tax or the payment thereof, shall, in addition to other penalties
provided for under this Chapter, be liable upon conviction to a penalty equal to the total amount of the tax not
withheld, or not accounted for and remitted.
Based on the above-cited provisions, it is clear to see that the "penalties" are amounts collected on top of the
deficiency tax assessments including deficiency withholding tax assessments. Thus, it was wrong for the CIR to
restrict the EWT and WTC assessments against La Floras only for the purpose of imposing penalties and not for the
collection of internal revenue taxes.
The CIR further argues that even if Section 203 of the NIRC was applicable, the assessments against La Flor had yet
to prescribe. It points out that La Flor had executed three Waivers to extend the statutory prescriptive period. The CIR
insists that the Waivers should have been considered even if they were not offered in evidence because the CTA is not
strictly governed by technical rules of evidence. It adds that the requirements under RMO No. 20-90 are not
mandatory.
In Commissioner of Internal Revenue v. Systems Technology Institute, Inc.,26 the Court had ruled that waivers
extending the prescriptive period of tax assessments must be compliant with RMO No. 20-90 and must indicate the
nature and amount of the tax due, to wit:
These requirements are mandatory and must strictly be followed. To be sure, in a number of cases, this Court
did not hesitate to strike down waivers which failed to strictly comply with the provisions of RMO 20-90 and RDAO 05-
01.
xxxx
The Court also invalidated the waivers executed by the taxpayer in the case of Commissioner of Internal Revenue v.
Standard Chartered Bank, because: (1) they were signed by Assistant Commissioner-Large Taxpayers Service and not
by the CIR; (2) the date of acceptance was not shown; (3) they did not specify the kind and amount of the tax due;
and (4) the waivers speak of a request for extension of time within which to present additional documents and not for
reinvestigation and/or reconsideration of the pending internal revenue case as required under RMO No. 20-90.
Tested against the requirements of RMO 20-90 and relevant jurisprudence, the Court cannot but agree with the CTA's
finding that the waivers subject of this case suffer from the following defects:
xxxx
3. Similar to Standard Chartered Bank, the waivers in this case did not specify the kind of tax and the amount of tax
due. It is established that a waiver of the statute of limitations is a bilateral agreement between the taxpayer and the
BIR to extend the period to assess or collect deficiency taxes on a certain date. Logically, there can be no
agreement if the kind and amount of the taxes to be assessed or collected were not indicated. Hence,
specific information in the waiver is necessary for its validity. (Emphasis supplied)
In the present case, the September 3, 2008, February 16, 2009 and December 2, 2009 Waivers failed to indicate the
specific tax involved and the exact amount of the tax to be assessed or collected. As above-mentioned, these details
are material as there can be no true and valid agreement between the taxpayer and the CIR absent these information.
Clearly, the Waivers did not effectively extend the prescriptive period under Section 203 on account of their invalidity.
The issue on whether the CTA was correct in not admitting them as evidence becomes immaterial since even if they
were properly offered or considered by the CTA, the same conclusion would be reached — the assessments had
prescribed as there was no valid waiver.
WHEREFORE, the petition is DENIED. The September 30, 2013 Decision and the February 10, 2014 Resolution of
the Court of Tax Appeals En Banc in CTA EB No. 951 are AFFIRMED.
SO ORDERED.
Carpio, Senior Associate Justice (Chairperson), Perlas-Bernabe, Caguioa, and Hernando,*JJ., concur.
[ G.R. No. 238914, June 08, 2020 ] – MIDA AND LANSON
QATAR AIRWAYS COMPANY WITH LIMITED LIABILITY, PETITIONER, VS. COMMISSIONER OF INTERNAL
REVENUE, RESPONDENT.
DECISION
REYES, J. JR., J.:
The Court subscribes to the time-honored doctrine that the findings and conclusions of the Court of Tax Appeals
(CTA) are accorded with the highest respect given its expertise on the subject.1 This case is no exception.
Assailed in this Petition for Review on Certiorari2 filed under Rule 45 of the Rules of Court are the September 5,
2017 Decision3 and the April 12, 2018 Resolution4 of the CTA En Banc in CTA EB No. 1468.
The Facts
On November 30, 2011, Qatar Airways Company with Limited Liability (petitioner) filed, through the Electronic Filing
and Payment System (eFPS) of the Bureau of Internal Revenue (BIR), its 2nd Quarterly Income Tax Return (ITR)
for the Fiscal Year ending March 31, 2012 and paid the corresponding tax due thereon in the amount of
P29,540,836.00. The said filing was one day late. Thus, petitioner sent a Letter dated April 11, 2012 addressed to
respondent Commissioner of Internal Revenue (CIR) requesting for the abatement of surcharge.5
On May 18, 2012, BIR issued Assessment Notice No. QA-12-000-135 informing petitioner of the following
charges/fees: a) 25% surcharge in the amount of P7,385,209.00; b) interest amounting to P16,186.76 for late
payment; and c) compromise penalty of P50,000.00.6
On July 3, 2012, via the eFPS,7 petitioner paid a total of P66,186.76 to cover for the compromise penalty and the
interest for late payment. As for the P7,385,209.00 surcharge, petitioner bent Letters dated July 4, 20128 and March
7, 20139 to the CIR requesting for its abatement or cancellation on the ground that its imposition was unjust and
excessive considering that: 1) petitioner paid the tax due just one day after the deadline; 2) such belated filing was
due to circumstances beyond petitioner's control; and 3) petitioner acted in good faith.
In a Letter10 dated October 3, 2013 signed by the Legal Taxpayers Service Officer-in-Charge Assistant
Commissioner Alfredo V. Misajon (OIC-ACIR Misajon), the BIR informed petitioner that its application for abatement
has been denied and that its payment of P61686.76 shall be deemed as partial payment of the total amount due
(i.e. P7,451,39.D.76). The BIR also requested that the balance of P7,385,209.00 be paid within 10 days from receipt
of the letter.
Petitioner sought reconsideration, but the BIR denied due course11 thereon after finding that no new/additional
justification was introduced as provided under Revenue Regulations (RR) No. 13-2001, and reiterated the request
for payment of the balance within 10 days.
Undeterred, petitioner appealed for another reconsideration, but in a Letter12 dated April 3, 2014, the CIR denied
petitioner's request for the last time, viz.:
03 April 2014
Mr. Abdallah A. Okasha

Country Manager Philippines
Qatar Airways Company with Limited Liability
Units 803-804, One Global Place, 5th Ave., cor 25th St.
Bonifacio Global City, Taguig City
Dear Mr. Okasha:
We refer to the letter dated 19 February 2014 of your counsel, Atty. Estrella V. Martinez, addressed to [OIC-ACIR
Misajon] and forwarded to this Office, requesting another reconsideration of the earlier denial of your company's
application for abatement of surcharge in the amount of [P]7,385.209.00, imposed for the late filing of the
2nd Quarterly Income Tax Return for the Fiscal Year 2012 (Ju1y 2011 to September 2011).
As may be recalled, in a letter dated 03 October 2013, OIC-ACIR Misajon informed you of the denial of [your]
company's application for abatement of surcharge. Thereafter, you filed, [through] counsel, a request for
reconsideration contending inter-alia, that the late filing of such return was due to circumstances beyond the
company's control as it was due to a technical failure brought about by faulty internet connection at the company's
office on 29 November 2011. In [a] letter dated 10 February 2014, OIC-ACIR Misajon informed you of the denial of
such request for reconsideration as you did not introduce any new/additional justifiable reason as provided under
[RR] No. 13-2001, as an1ended by RR [No.] 4-2012. Dissatisfied still, you filed, [through] counsel, the present letter,
which, in effect, is a second request or motion for reconsideration.
Kindly be informed that there is no law, rules or regulations that allow a second request or motion for
reconsideration of a decision on abatement cases. This is a prohibited pleading. Be that as it may, we find no
cogent reason to depart from our earlier findings. There was no advice on eFPS Unavailability on 29 November
2011, which means that no technical problems were encountered in eFPS on that day. Also, if you claimed that you
had log-in problems on the night of 29 November 2011, filing of the return should have been done on the first
working hour of the following day. But as it [were], the return was filed and paid only on the following day, 30
November 2011, at 1:38 in the afternoon.
Further, you were given a period of sixty (60) days to file the return. You chose, however, to file it on the last day
[when] you could have filed it any day before. An acceptable reason that may be advanced for failing to file the
return on time is if there is a major natural catastrophe. This is not, however, the situation in the present case. To us,
any other reasons could have been avoided if the filing was made earlier or before the deadline.
Based thereon, the instant request for reconsideration is hereby denied. This denial is final. No further request for
reconsideration, or other letters or pleadings of similar import, shall be entertained.
Accordingly, we reiterate our request that the amount of Seven Million Three Hundred Eighty[-]Five Thousand Two
Hundred Nine Pesos Only ([P]7,385,209.00) be paid within ten (10) days upon receipt of this notice, thru the [eFPS]
to any Authorized Agent Bank (AAB) for large taxpayers. Otherwise, we shall be constrained to enforce the
collection thereof [through the] administrative summary remedies provided by law, without further notice. (Emphases
and underscoring in the original)
Very truly yours,
(sgd.)
KIM S. JACINTO-HENARES
Commissioner of Internal Revenue
Hence, on May 8, 2014, petitioner filed a Petition for Review13 before the CTA docketed as CTA Case No. 8816.
The Ruling of the CTA Division

The 2nd Division of the CTA denied the petition for lack of jurisdiction. It held that the 30-day period to file a Petition
for Review already commenced when petitioner received the February 10, 2014 letter of the BIR denying petitioner's
request for reconsideration. It ratiocinated that since petitioner sought reconsideration for the second time and
waited for the BIR's action thereon, it therefore had no jurisdiction over the petition for review belatedly filed on May
8, 2014. Thus, the dispositive portion of its Decision14 dated January 22, 2016 reads:
WHEREFORE, premises considered, the Petition for Review filed by [petitioner] is hereby DENIED for lack of
jurisdiction.
SO ORDERED.
Petitioner filed a Motion for Reconsideration,15 but the same was denied in a Resolution16 dated May 25, 2016.
The Ruling of the CTA En Banc
Upon appeal, the CTA En Banc ruled that while the petition for review was seasonably filed, the surcharge imposed
by the BIR was not unjust nor excessive pursuant to Section 248(A)(1)17 of the 1997 National Internal Revenue
Code (NIRC). The pertinent portion of the CTA En Banc Decision reads as follows:
WHEREFORE, the Petition for Review filed by [petitioner] on June 10, 2016 is hereby DENIED, for lack of merit.
SO ORDERED.
The Motion for Reconsideration filed by petitioner was denied by the CTA En Banc in a Resolution dated April 12,
2018.
The Court's Ruling
The Court finds no merit in the present petition.
The authority of the CIR to abate or cancel a tax liability is enshrined in Section 204(B) of the 1997 NIRC, viz.:
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. -
The Commissioner may -
xxxx
(B) Abate or cancel a tax liability, when:
(1) The tax or any portion thereof appears to be unjustly or excessively assessed; or
(2) The administration and collection costs involved do not justify the collection of the amount due.
On September 27, 2001, the BIR issued Revenue Regulations (RR) No. 13-200118 prescribing the guidelines on
the implementation of Section 204(B) regarding abatement or cancellation of internal revenue tax liabilities. Section
2 of RR No. 13-2001 is hereunder summarized, to wit:
SEC. 2. INSTANCES WHEN THE PENALTIES AND/OR INTEREST IMPOSED ON THE TAXPAYER MAY BE
ABATED OR CANCELLED ON THE GROUND THAT THE IMPOSITION THEREOF IS UNJUST OR EXCESSIVE. -
2.1 When the filing of the return/payment of the tax is made at the wrong venue;
2.2 When [the] taxpayer's mistake in payment of his tax due is due to erroneous written official advice from a
revenue officer;
2.3 When [the] taxpayer fails to file the return and pay the tax on time due to substantial losses from
prolonged labor dispute, force majeure, legitimate business reverses such as in the following instances,
provided, however, that the abatement shall only cover the surcharge and the compromise penalty and not
the interest;
xxxx
2.4 When the assessment is brought about or the result of taxpayer's non-compliance with the law due to a
difficult interpretation of said law;
2.5 When [the] taxpayer fails to file the return and pay the correct tax on time due to circumstances beyond
his control provided, however, that abatement shall cover only the surcharge and the compromise penalty
and not the interest; [and]
2.6 Late payment of the tax under meritorious circumstances.

Here, petitioner insists that the surcharge of P7,385,209.00 should be abated under RR No. 13-2001 for being
unjust and excessive. Petitioner claims its belated filing of ITR was due to a technical problem beyond its control.
1âшphi1
To recall, the CTA En Banc, citing the CIR's April 3, 2014 Letter, found that there was no advice on eFPS
unavailability on November 29, 2011 and the delay could have been easily avoided had petitioner undertook to file
its ITR earlier or before the deadline. Moreover, the CTA En Banc ruled that the surcharge was not unjust nor
excessive.
The Court will not set aside lightly the conclusions reached by the CTA which, by the very nature of its functions, is
dedicated exclusively to the resolution of tax problems and has, accordingly, developed an expertise on the subject,
unless there has been an abuse or improvident exercise of authority.19
In the present case, the Court finds no abuse of authority on the part of the CTA. Verily, the findings of the CTA,
supported as they are by logic and law, carry great weight in the proper interpretation of what constitutes as
"circumstances beyond control." Undeniably, a technical malfunction is not a situation too bleak so as to render
petitioner completely without recourse. As correctly observed by the CTA, petitioner would not incur delay in the
filing of its ITR if only it filed the same before the deadline and not at the 11th hour or on the last day of filing. On
petitioner's averment that it had difficulty in interpreting the correct Gross Philippine Billings Computation for income
tax under the then newly-issued RR No. 11-2011, the CTA aptly stated that:
To avoid delay, petitioner could file a tentative quarterly income tax return if it was still unsure with the figures
contained therein to avoid paying the [25%] surcharge for late filing. Thereafter, it could modify, change, or amend
the tentative return already filed if warranted, pursuant to Section 6(A) of the 1997 NIRC.20
Further, the Court agrees that the surcharge imposed upon petitioner was not unjust or excessive pursuant to
Section 248(A)(1) of the 1997 NIRC which provides for the imposition of a penalty equivalent to 25% of the amount
due for failure to timely file any return and pay the tax due thereon. Dura lex sed lex. While the Court commiserates
with the unfortunate plight of petitioner, the Court, like the CTA, is still bound to apply and give effect to the
applicable law and rules.
WHEREFORE, premises considered, the Decision dated September 5, 2017 and Resolution dated April 12, 2018 of
the Court of Tax Appeals En Banc in CTA EB No. 1468 are hereby AFFIRMED.
SO ORDERED.
Peralta, C. J., (Chairperson), Caguioa, (Working Chairperson), Lazaro-Javier, and Lopez, JJ., concur.
C.T.A. EB CRIM. NO. 006, People vs Kintanar, 03 December 2010 - JUBY
(please see PDF)
G.R. No. 222837, July 23, 2018 - HARRY
MACARIO LIM GAW, JR., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
TIJAM, J.:
Before Us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court filed by Macario
Lim Gaw, Jr. (petitioner) assailing the Decision2 dated December 22, 2014 and Resolution3 dated
February 2, 2016 of the Court of Tax Appeals (CTA) En Banc in CTA EB Criminal Case No. 026.
Antecedent Facts
Sometime in November 2007, petitioner acquired six (6) parcels of land. To finance its acquisition,
petitioner applied for, and was granted a Short Term Loan (STL) Facility from Banco De Oro (BDO) in
the amount of P2,021,154,060.00.4
From April to June 2008, petitioner acquired four (4) more parcels of land. Again, petitioner applied
for and was granted an STL Facility from BDO in the amount of P2,732,666,785.5
Petitioner entered into an Agreement to Sell6 with Azure Corporation for the sale and transfer of real
properties to a joint venture company, which at the time was still to be formed and incorporated.
Then on July 11, 2008, petitioner conveyed the 10 parcels of land to Eagle I Landholdings, Inc.
(Eagle I), the joint venture company referred to in the Agreement to Sell.7
In compliance with Revenue Memorandum Order No. 15-2003,8 petitioner requested the Bureau of
Internal Revenue (BIR)-Revenue District Office (RDO) No. 52 for the respective computations of the
tax liabilities due on the sale of the 10 parcels of land to Eagle I.9
In accordance with the One Time Transactions (ONETT) Computation sheets, petitioner paid Capital
Gains Tax amounting to P505,177,213.8110 and Documentary Stamp Tax amounting to
P330,390.00.11
On July 23, 2008, the BIR-RDO No. 52 issued the corresponding Certificates Authorizing Registration
and Tax Clearance Certificates.12
Two years later, Commissioner of Internal Revenue (respondent) opined that petitioner was not liable
for the 6% capital gains tax but for the 32% regular income tax and 12% value added tax, on the
theory that the properties petitioner sold were ordinary assets and not capital assets. Further,
respondent found petitioner to have misdeclared his income, misclassified the properties and used
multiple tax identification numbers to avoid being assessed the correct amount of taxes.13
Thus, on August 25, 2010, respondent issued a Letter of Authority14 to commence investigation on
petitioner's tax account.
The next day, respondent filed before the Department of Justice (DOJ) a Joint Complaint
Affidavit15 for tax evasion against petitioner for violation of Sections 25416 and 25517 of the National
Internal Revenue Code (NIRC).
The DOJ then filed two criminal informations for tax evasion against petitioner docketed as CTA
Criminal Case Nos. O-206 and O-207.18 At the time the Informations were filed, the respondent has
not issued a final decision on the deficiency assessment against petitioner. Halfway through the trial,
the respondent issued a Final Decision on Disputed Assessment (FDDA)19 against petitioner,
assessing him of deficiency income tax and VAT covering taxable years 2007 and 2008.
With respect to the deficiency assessment against petitioner for the year 2007, petitioner filed a
petition for review with the CTA, docketed as CTA Case No. 8502. The clerk of court of the CTA
assessed petitioner for filing fees which the latter promptly paid.20
However, with respect to the deficiency assessment against petitioner for the year 2008, the same
involves the same tax liabilities being recovered in the pending criminal cases. Thus, petitioner was
confused as to whether he has to separately file an appeal with the CTA and pay the corresponding
filing fees considering that the civil action for recovery of the civil liability for taxes and penalties was
deemed instituted in the criminal case.21
Thus, petitioner filed before the CTA a motion to clarify as to whether petitioner has to file a separate
petition to question the deficiency assessment for the year 2008.22
On June 6, 2012, the CTA issued a Resolution23 granting petitioner's motion and held that the
recovery of the civil liabilities for the taxable year 2008 was deemed instituted with the consolidated
criminal cases, thus:
WHEREFORE, in light of the foregoing considerations, the prosecution's Motion for Leave of Court to
Amend Information and Admit Attached Amended Information filed on May 16, 2012
is GRANTED. Accordingly, the Amended Information for CTA Crim. No. O-206 attached thereto is
hereby ADMITTED. Re-arraignment of [petitioner] in said case is set on June 13, 2012 at 9:00
a.m.
As regards, [petitioner's] Urgent Motion (With Leave of Court for Confirmation that the Civil Action
for Recovery of Civil Liability for Taxes and Penalties is Deemed Instituted in the Consolidated
Criminal Cases) filed on May 30, 2012, the same is hereby GRANTED. The civil action for recovery of
the civil liabilities of [petitioner] for taxable year 2008 stated in the [FDDA] dated May 18, 2012
is DEEMED INSTITUTED with the instant consolidated criminal cases, without prejudice to the right
of the [petitioner] to avail of whatever additional legal remedy he may have, to prevent the said
FDDA from becoming final and executory for taxable year 2008.
Additionally, [petitioner] is not precluded from instituting a Petition for Review to assail the
assessments for taxable year 2007, as reflected in the said FDDA dated May 18, 2012.
SO ORDERED.24
However, as a caution, petitioner still filed a Petition for Review Ad Cautelam (with Motion for
Consolidation with CTA Criminal Case Nos. O-206 and O-207).25 Upon filing of the said petition, the
clerk of court of the CTA assessed petitioner with "zero filing fees."26
Meanwhile, the CTA later acquitted petitioner in Criminal Case Nos. O-206 and O-207 and directed
the litigation of the civil aspect in CTA Case No. 8503 in its Resolution27 dated January 3, 2013, to
wit:
WHEREFORE, all the foregoing considered, the [petitioner's] "DEMURRER TO EVIDENCE" is

hereby GRANTED and CTA Crim. Case Nos. O-206 and O-207 are hereby DISMISSED. Accordingly,
[petitioner] is hereby ACQUITTED on reasonable doubt in said criminal cases.
As regards CTA Case No. 8503, an Answer having been filed in this case on August 17, 2012, let this
case be set for Pre-Trial on January 23, 2013 at 9:00 a.m.
SO ORDERED.28
Thereafter, respondent filed a Motion to Dismiss29 the Petition for Review Ad Cautelam on the ground
that the CTA First Division lacks jurisdiction to resolve the case due to petitioner's non-payment of
the filing fees.
On March 1, 2013, the CTA First Division issued a Resolution30 granting the Motion to Dismiss. His
motion for reconsideration being denied, petitioner elevated the case to the CTA En Banc. The latter
however affirmed the dismissal of the case in its Decision31 dated December 22, 2014, thus:
WHEREFORE, premises considered, the instant Petition for Review is DENIED for lack of merit. The
Resolutions of the First Division of this Court promulgated on 01 March 2013 and 24 June 2013 are
hereby AFFIRMED.
Costs against the petitioner.
SO ORDERED.32
Petitioner's motion for reconsideration was likewise denied by the CTA En Banc in its
Resolution33 dated February 2, 2016.
Issues
Petitioner raises the following arguments:
IN RESOLVING CTA EB CRIM. CASE NO. 026, THE CTA EN BANC HAS NOT ONLY DECIDED
QUESTIONS OF SUBSTANCE IN A WAY NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE
DECISIONS OF THIS HONORABLE COURT, BUT HAS ALSO DEPRIVED PETITIONER OF HIS RIGHT TO
DUE PROCESS AS TO CALL FOR AN EXERCISE OF SUPERVISION, CONSIDERING THAT:
THE CTA EN BANC COMMITTED SERIOUS REVERSIBLE ERROR AND EFFECTIVELY DENIED
PETITIONER DUE PROCESS BY DISMISSING THE PETITION FOR REVIEW AD CAUTELAM SUPPOSEDLY
FOR LACK OF JURISDICTION DUE TO PETITIONER'S FAILURE TO PAY DOCKET AND OTHER LEGAL
FEES.
BASED ON APPLICABLE LAWS AND JURISPRUDENCE, AS AFFIRMED BY THE CTA IN ITS PAST
PRONOUNCEMENTS IN THE CONSOLIDATED CASES, IT HAD ALREADY ACQUIRED JURISDICTION
OVER CTA CASE NO. 8503, AND THEREFORE COULD NOT BE DIVESTED OF SUCH JURISDICTION
UNTIL FINAL JUDGMENT.
THE ZERO-FILING-FEE ASSESSMENT IN CTA CASE NO. 8503 ISSUED BY THE CLERK OF COURT OF
THE CTA WAS CONSISTENT WITH APPLICABLE LAWS AND JURISPRUDENCE, AS AFFIRMED BY THE
CTA IN ITS PAST PRONOUNCEMENTS IN THE CONSOLIDATED CASES.
C
PETITIONER WAS DEPRIVED OF DUE PROCESS WHEN HIS PETITION WAS DISMISSED WITHOUT
FIRST BEING AFFORDED A FAIR OPPORTUNITY TO PAY PROPERLY ASSESSED FILING FEES.
II
THE CTA EN BANC COMMITTED SERIOUS REVERSIBLE ERROR IN DEPRIVING PETITIONER OF HIS
RIGHT TO ASSAIL THE DEFICIENCY ASSESSMENTS AGAINST HIM FOR TAXABLE YEAR 2008 AND
SANCTIONING RESPONDENT'S DENIAL OF PETITIONER'S RIGHT TO DUE PROCESS DESPITE THE
FOLLOWING FACTUAL CIRCUMSTANCES WHICH RENDER THE ASSESSMENTS NULL AND VOID:
THE LETTER OF AUTHORITY NO. 2009-00044669 WHICH COVERS THE AUDIT OF "UNVERIFIED
PRIOR YEARS" IS INVALID, BEING IN DIRECT CONTRAVENTION OF SECTION C OF REVENUE
MEMORANDUM ORDER NO. 43-90.
THE FORMAL LETTER OF DEMAND DATED 08 APRIL 2011 AND FINAL DECISION ON DISPUTED
ASSESSMENT NO. 2012-0001 DATED 18 MAY 2012 WERE IMPROPERLY SERVED ON PETITIONER.
RESPONDENT DISREGARDED PETITIONER'S PROTEST LETTER DATED 07 JUNE 2011 AND

ADDITIONAL SUBMISSIONS IN SUPPORT OF HIS PROTEST.
THE DEFICIENCY TAX ASSESSMENTS AGAINST PETITIONER FOR TAXABLE YEAR 2008 HAVE NO
FACTUAL AND LEGAL BASES.
IT HAS BEEN A CASE OF PERSECUTION RATHER THAN PROSECUTION ON THE PART OF THE
RESPONDENT AGAINST PETITIONER, WARRANTING NOT ONLY AN ACQUITTAL BUT ALSO THE
DISMISSAL OF THE CIVIL ASPECT OF CTA CRIMINAL CASE NOS. O-206 AND O-207.
III
IN THE INTEREST OF THE EXPEDITIOUS ADMINISTRATION OF JUSTICE, THIS HONORABLE COURT

MAY ALREADY RESOLVE THE CIVIL ASPECT OF CTA CRIMINAL CASE NOS. O-206 AND O-207 ON THE
MERITS.34
Ultimately, the issues for Our resolution are: 1) whether the CTA erred in dismissing CTA Case No.
8503 for failure of the petitioner to pay docket fees; 2) in the event that the CTA erred in dismissing
the case, whether this Court can rule on the merits of the case; and 3) whether the petitioner is
liable for the assessed tax deficiencies.
Arguments of the Petitioner
Petitioner claims that since the FDDA covering the year 2008 was also the subject of the tax evasion
cases, the civil action for the recovery of civil liability for taxes and penalties was deemed instituted
in the consolidated criminal cases as a matter of law. Thus, if the civil liability for recovery of taxes
and penalties is deemed instituted in the criminal case, it is the State, not the taxpayer that files the
Information and pays the filing fee. Petitioner claims that there is no law or rule that requires
petitioner to pay filing fees in order for the CTA to rule on the civil aspect of the consolidated criminal
cases filed against him.35
Petitioner likewise asserts that when they filed the Petition for Review Ad Cautelam the clerk of court
made a "zero filing fee" assessment. It is therefore a clear evidence that the civil action for recovery
of taxes was deemed instituted in the criminal actions. Thus, the CTA has long acquired jurisdiction
over the civil aspect of the consolidated criminal cases.36 Therefore, the CTA erred in dismissing the
case for nonpayment of docket fees.
Petitioner further argues that in order not to prolong the resolution of the issues and considering that
the records transmitted to this Court are sufficient to determine and resolve whether petitioner is
indeed liable for deficiency income tax, this Court can exercise its prerogative to rule on the civil
aspect of the CTA Criminal Case Nos. O-206 and O-207.37
Arguments of the Respondent
Respondent, through the Office of the Solicitor General (OSG) argues that the tax evasion cases filed
against petitioner were instituted based on Sections 254 and 255 of the NIRC, that in all criminal
cases instituted before the CTA, the civil aspect of said cases, which constitutes the recovery by the
government of the taxes and penalties relative to the criminal action shall not be subject to
reservation for a separate civil action.38 On the other hand, the civil remedy to contest the
correctness or validity of disputed tax assessment is covered by Section 939 of Republic Act (R.A.) No.
9282.40 The difference between the criminal case for tax evasion filed by the government for the
imposition of criminal liability on the taxpayer and the Petition for Review filed by the petitioner for
the purpose of questioning the FDDA is glaringly apparent. The mere appearance of the word "civil
action" does not give rise to the conclusion that all "civil" remedies pertain to the same reliefs. The
petitioner cannot simultaneously allege that the petition for review is the civil action that is deemed
instituted with the criminal action and at the same time avail of the separate taxpayer's remedy to
contest the FDDA through a petition for review.41
Respondent further argues that in ruling upon the merits of the Petition for Review Ad
Cautelam would prompt this Court to become a trier of facts, which is improper, especially in a
Petition for Review under Rule 45 of the Rules of Court. Additionally, assuming that the CTA En
Banc erred in affirming the dismissal ordered by the CTA First Division due to non-payment of docket
fees, the correct remedy is to remand the case and order the CTA to compute the required docket
fees and reinstate the case upon payment of the same.42
Ruling of the Court
The petition is partly granted.
The civil action filed by the

petitioner to question the FDDA is
not deemed instituted with the
criminal case for tax evasion
Rule 9, Section 11 of A.M. No. 05-11-07-CTA,43 otherwise known as the Revised Rules of the Court of
Tax Appeals (RRCTA), states that:
SEC. 11. Inclusion of civil action in criminal action. – In cases within the jurisdiction of the Court, the
criminal action and the corresponding civil action for the recovery of civil liability for taxes and
penalties shall be deemed jointly instituted in the same proceeding. The filing of the criminal action
shall necessarily carry with it the filing of the civil action. No right to reserve the filing of such civil
action separately from the criminal action shall be allowed or recognized.
Petitioner claimed that by virtue of the above provision, the civil aspect of the criminal case, which is
the Petition for Review Ad Cautelam, is deemed instituted upon the filing of the criminal action. Thus,
the CTA had long acquired jurisdiction over the civil aspect of the consolidated criminal cases.
Therefore, the CTA erred in dismissing the case.
We do not agree.
Rule 111, Section 1(a)44 of the Rules of Court provides that what is deemed instituted with the
criminal action is only the action to recover civil liability arising from the crime.45 Civil liability arising
from a different source of obligation, such as when the obligation is created by law, such civil liability
is not deemed instituted with the criminal action.
It is well-settled that the taxpayer's obligation to pay the tax is an obligation that is created by law
and does not arise from the offense of tax evasion, as such, the same is not deemed instituted in the
criminal case.46
In the case of Republic of the Philippines v. Patanao, 47 We held that:
Civil liability to pay taxes arises from the fact, for instance, that one has engaged himself
in business, and not because of any criminal act committed by him. The criminal liability
arises upon failure of the debtor to satisfy his civil obligation. The incongruity of the factual premises
and foundation principles of the two cases is one of the reasons for not imposing civil indemnity on
the criminal infractor of the income tax law. x x x Considering that the Government cannot seek
satisfaction of the taxpayer's civil liability in a criminal proceeding under the tax law or, otherwise
stated, since the said civil liability is not deemed included in the criminal action, acquittal of the
taxpayer in the criminal proceeding does not necessarily entail exoneration from his liability to pay
the taxes. It is error to hold, as the lower court has held that the judgment in the criminal cases Nos.
2089 and 2090 bars the action in the present case. The acquittal in the said criminal cases
cannot operate to discharge defendant appellee from the duty of paying the taxes which
the law requires to be paid, since that duty is imposed by statute prior to and
independently of any attempts by the taxpayer to evade payment. Said obligation is not a
consequence of the felonious acts charged in the criminal proceeding nor is it a mere civil
liability arising from crime that could be wiped out by the judicial declaration of non
existence of the criminal acts charged. x x x.48(Citations omitted and emphasis ours)
Further, in a more recent case of Proton Pilipinas Corp. v. Republic of the Phils., 49 We ruled that:
While it is true that according to the aforesaid Section 4, of Republic Act No. 8249, the institution of
the criminal action automatically carries with it the institution of the civil action for the recovery of
civil liability, however, in the case at bar, the civil case for the collection of unpaid customs
duties and taxes cannot be simultaneously instituted and determined in the same
proceedings as the criminal cases before the Sandiganbayan, as it cannot be made the civil
aspect of the criminal cases filed before it. It should be borne in mind that the tax and the
obligation to pay the same are all created by statute; so are its collection and payment
governed by statute. The payment of taxes is a duty which the law requires to be paid. Said
obligation is not a consequence of the felonious acts charged in the criminal proceeding
nor is it a mere civil liability arising from crime that could be wiped out by the judicial
declaration of non-existence of the criminal acts charged. Hence, the payment and
collection of customs duties and taxes in itself creates civil liability on the part of the
taxpayer. Such civil liability to pay taxes arises from the fact, for instance, that one has
engaged himself in business, and not because of any criminal act committed by
him.50 (Citations omitted and emphasis ours)
The civil action for the recovery of

civil liability for taxes and penalties
that is deemed instituted with the
criminal action is not the Petition
for Review Ad Cautelam filed by
petitioner
Under Sections 254 and 255 of the NIRC, the government can file a criminal case for tax evasion
against any taxpayer who willfully attempts in any manner to evade or defeat any tax imposed in the
tax code or the payment thereof. The crime of tax evasion is committed by the mere fact that the
taxpayer knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all
of the tax. It is therefore not required that a tax deficiency assessment must first be issued for a
criminal prosecution for tax evasion to prosper.51
While the tax evasion case is pending, the BIR is not precluded from issuing a final decision on a
disputed assessment, such as what happened in this case. In order to prevent the assessment from
becoming final, executory and demandable, Section 9 of R.A. No. 9282 allows the taxpayer to file
with the CTA, a Petition for Review within 30 days from receipt of the decision or the inaction of the
respondent.
The tax evasion case filed by the government against the erring taxpayer has, for its purpose, the
imposition of criminal liability on the latter. While the Petition for Review filed by the petitioner was
aimed to question the FDDA and to prevent it from becoming final. The stark difference between
them is glaringly apparent. As such, the Petition for Review Ad Cautelam is not deemed instituted
with the criminal case for tax evasion.
In fact, in the Resolution52 dated June 6, 2012, the CTA recognized the separate and distinct
character of the Petition for Review from the criminal case, to wit:
As regards, [petitioner's] Urgent Motion (With Leave of Court for Confirmation that the Civil Action
for Recovery of Civil Liability for Taxes and Penalties is Deemed Instituted in the Consolidated
Criminal Cases) filed on May 30, 2012, the same is hereby GRANTED. The civil action for recovery of
the civil liabilities of [petitioner] for taxable year 2008 stated in the [FDDA] dated May 18, 2012
is DEEMED INSTITUTED with the instant consolidated criminal cases, without prejudice to the
right of the [petitioner] to avail of whatever additional legal remedy he may have, to
prevent the said FDDA from becoming final and executory for taxable year
2008.53 (Emphasis ours)
In the said resolution, what is deemed instituted with the criminal action is only the government's
recovery of the taxes and penalties relative to the criminal case. The remedy of the taxpayer to
appeal the disputed assessment is not deemed instituted with the criminal case. To rule otherwise
would be to render nugatory the procedure in assailing the tax deficiency assessment.
The CTA En Banc erred in

affirming the dismissal of the case
for nonpayment of docket fees
While it is true that the Petition for Review Ad Cautelam is not deemed instituted with the criminal
case, We hold that the CTA En Banc still erred in affirming the dismissal of the case.
Rule 6, Section 3 of the RRCTA provides that:
SEC. 3. Payment of docket fees. – The Clerk of Court shall not receive a petition for review for filing
unless the petitioner submits proof of payment of the docket fees. Upon receipt of the petition or the
complaint, it will be docketed and assigned a number, which shall be placed by the parties on all
papers thereafter filed in the proceeding. The Clerk of Court will then issue the necessary summons
to the respondent or defendant.
Basic is the rule that the payment of docket and other legal fees is both mandatory and jurisdictional.
The court acquires jurisdiction over the case only upon the payment of the prescribed fees.54
However, the mere failure to pay the docket fees at the time of the filing of the complaint, or in this
case the Petition for Review Ad Cautelam, does not necessarily cause the dismissal of the case. As
this Court held in Camaso v. TSM Shipping (Phils.), Inc.,55 while the court acquires jurisdiction over
any case only upon the payment of the prescribed docket fees, its nonpayment at the time of filing of
the initiatory pleading does not automatically cause its dismissal so long as the docket fees are paid
within a reasonable period; and that the party had no intention to defraud the government.56
In this case, records reveal that petitioner has no intention to defraud the government in not paying
the docket fees. In fact, when he appealed the FDDA insofar as the taxable year 2007 was
concerned, he promptly paid the docket fees when he filed his Petition for Review.
Confusion resulted when the FDDA also covered tax deficiencies pertaining to taxable year 2008
which was also the subject of the consolidated criminal cases for tax evasion. To guide the petitioner,
he sought the advise of the CTA First Division on whether he was still required to pay the docket
fees. The CTA First Division issued its Resolution57 dated June 6, 2012 ruling that the civil action for
recovery of the civil liabilities of petitioner for taxable year 2008 stated in the FDDA was deemed
instituted with the consolidated criminal cases. Pursuant to said CTA Resolution, the Clerk of Court
issued a computed "zero filing fees"58 when petitioner filed his Petition for Review Ad Cautelam.
Petitioner merely relied on good faith on the pronouncements of the CTA First Division that he is no
longer required to pay the docket fees. As such, the CTA cannot just simply dismiss the case on the
ground of nonpayment of docket fees. The CTA should have instead directed the clerk of court to
assess the correct docket fees and ordered the petitioner to pay the same within a reasonable period.
It should be borne in mind that technical rules of procedure must sometimes give way, in order to
resolve the case on the merits and prevent a miscarriage of justice.
This Court will not however rule on

the merits of the CTA Case No.
8503
Rule 4, Section 3(a), paragraph 1 of the RRCTA provides that the CTA First Division has exclusive
appellate jurisdiction over decisions of the Commissioner of Internal Revenue on 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, to wit:
SEC. 3. Cases within the jurisdiction of the Court in Divisions. – The Court in Divisions shall exercise:
(a) Exclusive original or appellate jurisdiction to review by appeal the following:
(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 Code or other laws
administered by the Bureau of Internal Revenue;
The above provision means that the CTA exercises exclusive appellate jurisdiction to resolve
decisions of the commissioner of internal revenue. There is no other court that can exercise such
jurisdiction. "[I]t should be noted that the CTA has developed an expertise on the subject of taxation
because it is a specialized court dedicated exclusively to the study and resolution of tax
problems."59 Thus, this Court has no jurisdiction to review tax cases at the first instance without first
letting the CTA to study and resolve the same.
Under Rule 16, Section 160 of the RRCTA, this Court's review of the decision of the CTA En Banc is
limited in determining whether there is grave abuse of discretion on the part of the CTA in resolving
the case. Basic is the rule that delving into factual issues in a petition for review on certiorari is not a
proper recourse, since a Rule 45 petition is only limited to resolutions on questions of law.61
Here, petitioner insists that the 10 parcels of idle land he sold on July 11, 2008 in a single transaction
to Eagle I are capital assets. Thus, the said parcels of land are properly subject to capital gains tax
and documentary stamp tax and not to the regular income tax and value-added tax. The CIR, on the
other hand argues that the 10 parcels of land sold by petitioner are ordinary assets, hence should be
subject to income tax and value-added tax. The CIR reasoned that the sole purpose of petitioner in
acquiring the said lots was for the latter to make a profit. Further, the buying and selling of the said
lots all occurred within the period of eight months and it involved sale transactions with a ready
buyer.62
Section 39(A)(1) of the National Internal Revenue Code (NIRC) provides that:
(1) Capital Assets. - the term 'capital assets' means property held by the taxpayer (whether or not
connected with his trade or business), but does not include stock in trade of the taxpayer or other
property of a kind which would properly be included in the inventory of the taxpayer if on hand at the
close of the taxable year, or property held by the taxpayer primarily for sale to customers in the
ordinary course of his trade or business, or property used in the trade or business, of a character
which is subject to the allowance for depreciation provided in Subsection (F) of Section 34; or real
property used in trade or business of the taxpayer.
The distinction between capital asset and ordinary asset was further defined in Section 2(a) and (b)
Revenue Regulations No. 7-2003,63 thus:
a. Capital assets shall refer to all real properties held by a taxpayer, whether or not connected with
his trade or business, and which are not included among the real properties considered as ordinary
assets under Sec. 39(A)(1) of the Code.
b. Ordinary assets shall refer to all real properties specifically excluded from the definition of capital
assets under Sec. 39(A)(1) of the Code, namely:
1. Stock in trade of a taxpayer or other real property of a kind which would properly be included in
the inventory of the taxpayer if on hand at the close of the taxable year; or
2. Real property held by the taxpayer primarily for sale to customers in the ordinary course of his
trade or business; or
3. Real property used in trade or business (i.e., buildings and/or improvements) of a character which
is subject to the allowance for depreciation provided for under Sec. 34(F) of the Code; or
4. Real property used in trade or business of the taxpayer.
The statutory definition of capital assets is negative in nature. Thus, if the property or asset is not
among the exceptions, it is a capital asset; conversely, assets falling within the exceptions are
ordinary assets.64
To determine as to whether the transaction between petitioner and Eagle I is an isolated transaction
or whether the 10 parcels of land sold by petitioner is classified as capital assets or ordinary assets
should properly be resolved by the CTA. Thus, it would be more prudent for Us to remand the case to
CTA for the latter to conduct a full-blown trial where both parties are given the chance to present
evidence of their claim. Well-settled is the rule that this Court is not a trier of facts.
Considering Our foregoing disquisitions, the proper remedy is to remand the case to the CTA First
Division and to order the Clerk of Court to assess the correct docket fees for the Petition for
Review Ad Cautelam and for petitioner to pay the same within ten (10) days from receipt of the
correct assessment of the clerk of court.
WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The Decision dated December 22,

2014 and Resolution dated February 2, 2016 of the Court of Tax Appeals En Banc in CTA EB Criminal
Case No. 026 are REVERSED and SET ASIDE. The case is REMANDED to the Court of Tax Appeals
First Division to conduct futher proceedings in CTA Case No. 8503 and to ORDER the Clerk of Court
to assess the correct docket fees. Petitioner Mariano Lim Gaw, Jr., is likewise ORDERED to pay the
correct docket fees within ten (10) days from the receipt of the correct assessment of the Clerk of
Court.
SO ORDERED.
Leonardo-De Castro, (Chairperson), Peralta,*Del Castillo, and Gesmundo,**JJ., concur.

G.R. No. 198076, November 19, 2014 – HAKEEM AND SASHELA
TAGANITO MINING CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL

REVENUE, Respondent.
DECISION
MENDOZA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
April 18, 2011 Decision1 and the August 9, 2011 Resolution2 of the Court of Tax Appeals (CTA) En
Banc, in CTA EB Case No. 559, which reversed and set aside the July 31, 2009 Decision3 of the
Second Division of the CTA (CTA Division) in CTA Case No. 6867, ordering the refund of unutilized
input taxes in the amount of P3,636,854.07 to petitioner Taganito Mining Corporation (Taganito). chanrobleslaw
The Facts
Taganito is a corporation duly organized and existing under the laws of the Philippines, primarily
engaged in the business of exploring, producing and exporting beneficiated nickel silicate ores and
chromite ores. It is a duly registered VAT (value-added tax) entity and likewise registered with the
Board of Investments as an exporter.
Taganito filed all its monthly and quarterly VAT returns from January 1, 2002 to December 31, 2002,
as follows:chanroblesvirtuallawlibrary
Period Covered Date Filed

1st Quarter 2002 April 13, 2002
2nd Quarter 2002 July 11, 2002
3rd Quarter 2002 October 21, 2002
4th Quarter 2002 January 17, 2003
On December 30, 2003, Taganito filed with respondent Commissioner of Internal Revenue (CIR),
through its Excise Taxpayers’ Assistance Division under the Large Taxpayers Division, an application
for refund of its excess input VAT paid on its domestic purchases of taxable goods and services and
importation of goods amounting to P4,447,651.32 for the period January 1, 2002 to December 3,
2002.
On February 19, 2004, 51 days after the filing of its application with the CIR, Taganito filed with the
CTA a petition for review. At that time, the CIR had not yet finally acted upon Taganito’s application
for refund. The CIR answered that the claim for refund was still subject to investigation.
On October 27, 2009, the CTA Division partially granted Taganito’s petition and ordered the CIR to
refund the amount of P3,636,854.07. The dispositive portion of the decision reads as follows: chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY

GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND to petitioner the amount
of THREE MILLION SIX HUNDRED THIRTY SIX THOUSAND EIGHT HUNDRED FIFTY FOUR
PESOS AND 7/100 CENTAVOS (P3,636,854.07), representing its unutilized input taxes
attributable to zero-rated sales from January 1, 2002 to December 31, 2002.
SO ORDERED. 4
The CIR moved for reconsideration, arguing that the petition for review was prematurely filed
because Taganito did not wait for the lapse of 120 days mandated by Section 112(D) of the National
Internal Revenue Code of 1997 (NIRC). Therefore, the CTA was bereft of jurisdiction to rule on the
petition. The said motion was denied.
The CIR then filed a petition for review before the CTA En Banc, claiming that Taganito failed to
exhaust administrative remedies under Section 112(D) of the NIRC before resorting to judicial
appeal, and that it failed to present concrete and convincing proof that the CIR did not have enough
reason to deny its administrative claim for refund.
In the assailed Decision, dated April 18, 2011, the CTA En Banc granted the petition, reversed and
set aside the decision and the resolution of the CTA Division, and ordered the case dismissed for
being prematurely filed.
Citing the case of CIR v. Aichi Forging Company of Asia, Inc.5 (Aichi), the CTA En Banc concluded that
the premature filing of a petition for review before the CTA in a claim for refund or credit of input VAT
warranted a dismissal inasmuch as no jurisdiction was acquired by the CTA. It stated that in claiming
a tax refund or tax credit under Section 112 of the NIRC, the taxpayer should apply for refund/credit
of unutilized input VAT within two years after the close of the taxable quarter when the sales were
made. Thereafter, the CIR has 120 days from the date of the submission of the complete documents
within which to grant or deny the claim. If the CIR decided during the 120-day period, or failed to act
on the application for tax refund/credit after the 120-day period, the remedy of the tax payer is to
appeal the decision or inaction of the CIR to the CTA within 30 days from the decision or inaction.
The CTA En Banc ruled that a violation of Section 112 would lead to the dismissal of the petitioner’s
appeal or petition due to prematurity, notwithstanding the timely filing of the administrative
application for refund or tax credit. It stated that the petition did not comply with the prescribed
period because Taganito filed its application for tax refund or tax credit on December 30, 2003, but it
appealed before the CTA only 51 days later, on February 19, 2004, in clear contravention of Section
112 and Aichi. In fine, the CTA En Banc dismissed the petition on the ground that the CTA Division
failed to acquire jurisdcition over the case.
In the assailed Resolution, dated August 9, 2011, the CTA En Banc denied Taganito’s motion for
reconsideration.
Hence, the present petition.
Grounds for the Petition
The Court of Tax Appeals En Banc committed serious error and acted with grave abuse of
discretion tantamount to lack or excess of jurisdiction in erroneously applying
the Aichi doctrine to the instant case for the following reasons: chanroblesvirtuallawlibrary
The Aichi ruling is issued in violation of Art. VIII, Sec. 4(3) 6 of the 1987 Constitution.
The Aichi doctrine is an erroneous application of the law.
Even if the Aichi doctrine is good law, its application to the instant case will be in violation
of Petitioner’s right to due process and the principles of stare decisis and lex prospicit, non
respicit.
Respondent disputes Petitioner’s entitlement to the VAT refund merely on the basis of the
technicality offered by Aichi, and on an unsupported allegation that Petitioner did not
prove that the Respondent did not have enough reason to deny Petitioner’s claim. 7
Taganito argued that prior to Aichi, it was well-settled that a taxpayer need not wait for the decision
of the CIR on its administrative claim for refund before it could file its judicial claim for refund,
consonant with the period provided in Section 229 of the NIRC stating that no suit for the recovery of
erroneously or illegally collected tax should be filed after the expiration of two years from the date of
payment of the tax.
The CIR commented that the Aichi decision is a sound ruling which merely applied the clear
provisions of the law; that Section 229 of the NIRC does not apply because unutilized input VAT is
not an erroneously or illegally collected tax; and that Section 112 of the NIRC specifically governs
refunds of unutilized input VAT.8chanrobleslaw
Taganito replied that the issue on the prescriptive periods for filing the application for tax
credit/refund of unutilized input tax has been finally put to rest in the Court’s decision in the
consolidated cases of Commission of Internal Revenue vs. San Roque Power Corporation (G.R. No.
187485), Taganito Mining Corporation vs. Commissioner of Internal Revenue (G.R. No. 196113),
and Philex Mining Corporation vs. Commissioner of Internal Revenue (G.R. No. 197156) (San
Roque).9chanrobleslaw
Taganito, in accordance with the said decision, argued that since it filed its judicial claim after the
issuance of BIR Ruling No. DA-489-03, but before the adoption of the Aichi doctrine, it can invoke
BIR Ruling No. DA-489-03 which ruled that the “taxpayer-claimant need not wait for the lapse of the
120-day period before it could seek judicial relief with the CTA by way of Petition for Review.”
Therefore, its petition for review was not prematurely filed before the CTA. chanrobleslaw
Ruling of the Court
The sole issue at hand is whether or not Taganito’s judicial claim for refund/credit was prematurely
filed.
The Court finds merit in Taganito’s position in its Reply.
The Court, in San Roque,10 conclusively settled that it is Section 112 of the NIRC which applies
specifically to claims for tax credit certificates and tax refunds specifically for unutilized creditable
input VAT, and not Section 229. The recent case of Visayas Geothermal Power Company vs.
Commissioner of Internal Revenue,11 encapsulates the relevant ruling in San Roque, as follows: chanRoblesvirtualLawlibrary
Two sections of the NIRC are pertinent to the issue at hand, namely Section 112 (A) and (D) and
Section 229, to wit: chanRoblesvirtualLawlibrary
SEC. 112. Refunds or Tax Credits of Input Tax. –
(A) Zero-rated or Effectively Zero-rated Sales.- Any VAT-registered person, whose sales
are zero-rated or effectively zero-rated may, within two (2) years after the close of the
taxable quarter when the sales were made, apply for the issuance of a tax credit certificate
or refund of creditable input tax due or paid attributable to such sales, except transitional
input tax, to the extent that such input tax has not been applied against output tax: Provided,
however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section
108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP):
Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and
also in taxable or exempt sale of goods of properties or services, and the amount of creditable input
tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be
allocated proportionately on the basis of the volume of sales. cralawred
xxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made.- In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120) days from the date of submission
of complete documents in support of the application filed in accordance with Subsections (A)
and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the
part of the Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision denying the
claim or after the expiration of the one hundred twenty day period, appeal the decision or
the unacted claim with the Court of Tax Appeals.
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall
be maintained in any court for the recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed
to have been collected without authority, of any sum alleged to have been excessively or in any
manner wrongfully collected without authority, or of any sum alleged to have been excessively or in
any manner wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty,
or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years
from the date of payment of the tax or penalty regardless of any supervening cause that may
arise after payment: Provided, however, That the Commissioner may, even without a written claim
therefor, refund or credit any tax, where on the face of the return upon which payment was made,
such payment appears clearly to have been erroneously paid.
[Emphases supplied]
It has been definitively settled in the recent En Banc case of CIR v. San Roque Power Corporation
(San Roque), that it is Section 112 of the NIRC which applies to claims for tax credit certificates and
tax refunds arising from sales of VAT-registered persons that are zero-rated or effectively zero-rated,
which are, simply put, claims for unutilized creditable input VAT.
Thus, under Section 112(A), the taxpayer may, within 2 years after the close of the taxable quarter
when the sales were made, via an administrative claim with the CIR, apply for the issuance of a tax
credit certificate or refund of creditable input tax due or paid attributable to such sales. Under
Section 112(D), the CIR must then act on the claim within 120 days from the submission of the
taxpayer’s complete documents. In case of (a) a full or partial denial by the CIR of the claim, or (b)
the CIR’s failure to act on the claim within 120 days, the taxpayer may file a judicial claim via an
appeal with the CTA of the CIR decision or unacted claim, within 30 days (a) from receipt of the
decision; or (b) after the expiration of the 120-day period.
The 2-year period under Section 229 does not apply to appeals before the CTA in relation
to claims for a refund or tax credit for unutilized creditable input VAT. Section 229 pertains
to the recovery of taxes erroneously, illegally, or excessively collected. San Roque stressed that
"input VAT is not ‘excessively’ collected as understood under Section 229 because, at the time the
input VAT is collected, the amount paid is correct and proper." It is, therefore, Section 112 which
applies specifically with regard to claiming a refund or tax credit for unutilized creditable input VAT.
Upholding the ruling in Aichi, San Roque held that the 120+30 day period prescribed under Section
112(D) is mandatory and jurisdictional. The jurisdiction of the CTA over decisions or inaction of the
CIR is only appellate in nature and, thus, necessarily requires the prior filing of an administrative
case before the CIR under Section 112. The CTA can only acquire jurisdiction over a case after the
CIR has rendered its decision, or after the lapse of the period for the CIR to act, in which case such
inaction is considered a denial. A petition filed prior to the lapse of the 120-day period prescribed
under said Section would be premature for violating the doctrine on the exhaustion of administrative
remedies.
There is, however, an exception to the mandatory and jurisdictional nature of the 120+30 day
period. The Court in San Roque noted that BIR Ruling No. DA-489-03, dated December 10, 2003,
expressly stated that the "taxpayer-claimant need not wait for the lapse of the 120-day period before
it could seek judicial relief with the CTA by way of Petition for Review." This BIR Ruling was
recognized as a general interpretative rule issued by the CIR under Section 4 of the NIRC and, thus,
applicable to all taxpayers. Since the CIR has exclusive and original jurisdiction to interpret tax laws,
it was held that taxpayers acting in good faith should not be made to suffer for adhering to such
interpretations. Section 246 of the Tax Code, in consonance with equitable estoppel, expressly
provides that a reversal of a BIR regulation or ruling cannot adversely prejudice a taxpayer who in
good faith relied on the BIR regulation or ruling prior to its reversal. Hence, taxpayers can rely on
BIR Ruling No. DA-489-03 from the time of its issuance on December 10, 2003 up to its reversal by
this Court in Aichi on October 6, 2010, where it was held that the 120+30 day period was mandatory
and jurisdictional.
Accordingly, the general rule is that the 120+30 day period is mandatory and jurisdictional from the
effectivity of the 1997 NIRC on January 1, 1998, up to the present. As an exception, judicial claims
filed from December 10, 2003 to October 6, 2010 need not wait for the exhaustion of the 120-day
period.12
From the foregoing, it is clear that the two-year period under Section 229 does not apply to claims
for a refund or tax credit for unutilized creditable input VAT because it is not considered “excessively”
collected. Instead, San Roque settled that Section 112 applies to claims for a refund or tax credit for
unutilized creditable input VAT, thereby making the 120+30 day period prescribed therein mandatory
and jurisdictional in nature.
As an exception to the mandatory and jurisdictional nature of the 120+30 day period, judicial claims
filed between December 10, 2003 or from the issuance of BIR Ruling No. DA-489-03, up to October
6, 2010 or the reversal of the ruling in Aichi, need not wait for the lapse of the 120+30 day period in
consonance with the principle of equitable estoppel.
In the present case, Taganito filed its judicial claim with the CTA on February 19, 2004,
clearly within the period of exception of December 10, 2003 to October 6, 2010. Its judicial claim
was, therefore, not prematurely filed and should not have been dismissed by the CTA En Banc.
WHEREFORE, the petition is GRANTED. The April 18, 2011 Decision and the August 9, 2011
Resolution of the Court of Tax Appeals En Banc, in CTA EB Case No. 559 are REVERSED and SET
ASIDE. The July 31, 2009 Decision and the October 27, 2009 Resolution of the CTA Former Second
Division in CTA Case No. 6867 are hereby REINSTATED.
The Commissioner of Internal Revenue is hereby ORDERED TO REFUND or, in the alternative, TO

ISSUE A TAX CREDIT CERITICATE in favor of Taganito Mining Corporation the amount of THREE
MILLION SIX HUNDRED THIRTY SIX THOUSAND EIGHT HUNDRED FIFTY FOUR PESOS AND
7/100 (P3,636,854.07), representing the unutilized input taxes attributable to its zero-rated sales
from January 1, 2002 to December 31, 2002.
SO ORDERED. cralawlawlibrary
Carpio, (Chairperson), Brion, Del Castillo, and Leonen, JJ., concur.

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G.R. No.

109289 October 3, 1994 – HAKEEM (just in case walang kukuha)

G.R. No. 109446 October 3, 1994

Rufino R. Tan for and in his own behalf.

In G.R. No. 109289, it is asserted that the enactment of Republic Act

The Solicitor General espouses the position taken by public respondents.

G.R. No. 109289

The full text of the title actually reads:

Sec. 21. Tax on citizens or residents. —

xxx xxx xxx

Not over P10,000 3%

Over P10,000 P300 + 9%

Over P30,000 P2,100 + 15%

Over P120,000 P15,600 + 20%

Over P350,000 P61,600 + 30%

(a) Raw materials, supplies and direct labor;

(c) Telecommunications, electricity, fuel, light and water;

(d) Business rentals;

classification to be arbitrary and inappropriate.

G.R. No. 109446

The questioned regulation reads:

Other deliberations support this position, to wit:

MR. PEREZ. That is correct, Mr. Speaker.

(Id. at 6:40 P.M.; Emphasis ours).

This bill, Mr. President, is not applicable to business corporations or to partnerships;

WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs.

Padilla and Bidin, JJ., are on leave.

G.R. No. L-19342 May 25, 1972 – YASHR DATUCABILE

Orlando Velasco for petitioners.

Y Invest Lan Buil

Accou Acc Acc

The original assessment was as follows:

Net income as per investigation ................ P40,209.89

Income tax due thereon ............................... 8,042.00

Net income as per investigation ................ P69,245.23

Income tax due thereon ............................... 13,849.00

(See Exhibit 13, page 50, BIR records)

ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTERED

ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE COURT

xxx xxx xxx

Similarly, the American Law

The term "partnership" includes a syndicate, group, pool, joint venture or other

In support of the third ground, counsel for petitioners alleges:

Makalintal, Zaldivar, Fernando, Makasiar and Antonio, JJ., concur.

Reyes, J.B.L. and Teehankee, JJ., concur in the result.

Castro, J., took no part.

G.R. No. L-54108 January 17, 1984 – ABIGAIL HERRERA

COMMISSIONER OF INTERNAL REVENUE, petitioner,

The Solicitor General for petitioner.

SEC. 37. Income form sources within the Philippines. —

xxx xxx xxx

xxx xxx xxx

Interest on bonds of a domestic corporation P9,000

Dividends on stock of a domestic corporation 4,000

Royalty for the use of patents within the Philippines 12,000

Gain from sale of real property located within the Philippines 11,000

WHEREFORE, the decision of the Tax Court is hereby affirmed. No costs.

Abad Santos, J., took no part.

G.R. No. 148191 November 25, 2003 – BEATRICK LIM

COMMISSIONER OF INTERNAL REVENUE, petitioner,

portion of the assailed Decision reads as follows:

The challenged Resolution denied petitioner’s Motion for Reconsideration.