Вы находитесь на странице: 1из 120

Republic of the Philippines by Section 213 and 218 of the National Internal

SUPREME COURT Revenue Code. This summary tax remedy is distinct


Manila and separate from the other tax remedies (such as
Judicial Civil actions and Criminal actions), and is
SECOND DIVISION not affected or precluded by the pendency of any
other tax remedies instituted by the government.

WHEREFORE, premises considered, judgment is


G.R. No. 120880 June 5, 1997 hereby rendered DISMISSING the petition for
certiorari with prayer for Restraining Order and
Injunction.
FERDINAND R. MARCOS II, petitioner,
vs.
No pronouncements as to costs.
COURT OF APPEALS, THE COMMISSIONER OF THE
BUREAU OF INTERNAL REVENUE and HERMINIA D. SO ORDERED.
DE GUZMAN, respondents.
More than seven years since the demise of the late
Ferdinand E. Marcos, the former President of the
Republic of the Philippines, the matter of the settlement
TORRES, JR., J.: of his estate, and its dues to the government in estate
taxes, are still unresolved, the latter issue being now
In this Petition for Review on Certiorari, Government before this Court for resolution. Specifically, petitioner
action is once again assailed as precipitate and unfair, Ferdinand R. Marcos II, the eldest son of the decedent,
suffering the basic and oftly implored requisites of due questions the actuations of the respondent
process of law. Specifically, the petition assails the Commissioner of Internal Revenue in assessing, and
Decision 1 of the Court of Appeals dated November 29, collecting through the summary remedy of Levy on Real
1994 in CA-G.R. SP No. 31363, where the said court Properties, estate and income tax delinquencies upon the
held: estate and properties of his father, despite the pendency
of the proceedings on probate of the will of the late
In view of all the foregoing, we rule that the president, which is docketed as Sp. Proc. No. 10279 in
deficiency income tax assessments and estate tax
assessment, are already final and (u)nappealable- the Regional Trial Court of Pasig, Branch 156.
and-the subsequent levy of real properties is a tax
remedy resorted to by the government, sanctioned
Petitioner had filed with the respondent Court of Appeals No pronouncements as to cost.
a Petition for Certiorari and Prohibition with an application
for writ of preliminary injunction and/or temporary SO ORDERED.
restraining order on June 28, 1993, seeking to �
Unperturbed, petitioner is now before us assailing the
I. Annul and set aside the Notices of Levy on real validity of the appellate court's decision, assigning the
property dated February 22, 1993 and May 20, following as errors:
1993, issued by respondent Commissioner of
Internal Revenue; A. RESPONDENT COURT MANIFESTLY ERRED
IN RULING THAT THE SUMMARY TAX REMEDIES
II. Annul and set aside the Notices of Sale dated RESORTED TO BY THE GOVERNMENT ARE NOT
May 26, 1993; AFFECTED AND PRECLUDED BY THE
PENDENCY OF THE SPECIAL PROCEEDING FOR
III. Enjoin the Head Revenue Executive Assistant THE ALLOWANCE OF THE LATE PRESIDENT'S
Director II (Collection Service), from proceeding with ALLEGED WILL. TO THE CONTRARY, THIS
the Auction of the real properties covered by Notices PROBATE PROCEEDING PRECISELY PLACED
of Sale. ALL PROPERTIES WHICH FORM PART OF THE
LATE PRESIDENT'S ESTATE IN CUSTODIA LEGIS
OF THE PROBATE COURT TO THE EXCLUSION
After the parties had pleaded their case, the Court of OF ALL OTHER COURTS AND ADMINISTRATIVE
Appeals rendered its Decision 2 on November 29, 1994, AGENCIES.
ruling that the deficiency assessments for estate and
income tax made upon the petitioner and the estate of B. RESPONDENT COURT ARBITRARILY ERRED
the deceased President Marcos have already become IN SWEEPINGLY DECIDING THAT SINCE THE
final and unappealable, and may thus be enforced by the TAX ASSESSMENTS OF PETITIONER AND HIS
PARENTS HAD ALREADY BECOME FINAL AND
summary remedy of levying upon the properties of the UNAPPEALABLE, THERE WAS NO NEED TO GO
late President, as was done by the respondent INTO THE MERITS OF THE GROUNDS CITED IN
Commissioner of Internal Revenue. THE PETITION. INDEPENDENT OF WHETHER
THE TAX ASSESSMENTS HAD ALREADY
WHEREFORE, premises considered judgment is BECOME FINAL, HOWEVER, PETITIONER HAS
hereby rendered DISMISSING the petition for THE RIGHT TO QUESTION THE UNLAWFUL
Certiorari with prayer for Restraining Order and MANNER AND METHOD IN WHICH TAX
Injunction. COLLECTION IS SOUGHT TO BE ENFORCED BY
RESPONDENTS COMMISSIONER AND DE
GUZMAN. THUS, RESPONDENT COURT SHOULD
HAVE FAVORABLY CONSIDERED THE MERITS GRANT INJUNCTIVE RELIEF TO PETITIONER.
OF THE FOLLOWING GROUNDS IN THE SECTION 219 OF THE NIRC NOTWITHSTANDING,
PETITION: COURTS POSSESS THE POWER TO ISSUE A
WRIT OF PRELIMINARY INJUNCTION TO
(1) The Notices of Levy on Real RESTRAIN RESPONDENTS COMMISSIONER'S
Property were issued beyond the AND DE GUZMAN'S ARBITRARY METHOD OF
period provided in the Revenue COLLECTING THE ALLEGED DEFICIENCY
Memorandum Circular No. 38-68. ESTATE AND INCOME TAXES BY MEANS OF
LEVY.
(2) [a] The numerous pending court
cases questioning the late The facts as found by the appellate court are undisputed,
President's ownership or interests in and are hereby adopted:
several properties (both personal
and real) make the total value of his On September 29, 1989, former President Ferdinand
estate, and the consequent estate Marcos died in Honolulu, Hawaii, USA.
tax due, incapable of exact
pecuniary determination at this time.
Thus, respondents' assessment of On June 27, 1990, a Special Tax Audit Team was
the estate tax and their issuance of created to conduct investigations and examinations
the Notices of Levy and Sale are of the tax liabilities and obligations of the late
premature, confiscatory and president, as well as that of his family, associates
oppressive. and "cronies". Said audit team concluded its
investigation with a Memorandum dated July 26,
1991. The investigation disclosed that the Marcoses
[b] Petitioner, as one of the late failed to file a written notice of the death of the
President's compulsory heirs, was decedent, an estate tax returns [sic], as well as
never notified, much less served several income tax returns covering the years 1982
with copies of the Notices of Levy, to 1986, � all in violation of the National Internal
contrary to the mandate of Section Revenue Code (NIRC).
213 of the NIRC. As such, petitioner
was never given an opportunity to
contest the Notices in violation of his Subsequently, criminal charges were filed against
right to due process of law. Mrs. Imelda R. Marcos before the Regional Trial of
Quezon City for violations of Sections 82, 83 and 84
(has penalized under Sections 253 and 254 in
C. ON ACCOUNT OF THE CLEAR MERIT OF THE relation to Section 252 � a & b) of the National
PETITION, RESPONDENT COURT MANIFESTLY
Internal Revenue Code (NIRC).
ERRED IN RULING THAT IT HAD NO POWER TO
The Commissioner of Internal Revenue thereby caretaker) on September 12, 1991, at his last known
caused the preparation and filing of the Estate Tax address at Don Mariano Marcos St. corner P.
Return for the estate of the late president, the Guevarra St., San Juan, M.M. (Annexes "J" and "J-
Income Tax Returns of the Spouses Marcos for the 1" of the Petition). Thereafter, Formal Assessment
years 1985 to 1986, and the Income Tax Returns of notices were served on October 20, 1992, upon Mrs.
petitioner Ferdinand "Bongbong" Marcos II for the Marcos c/o petitioner, at his office, House of
years 1982 to 1985. Representatives, Batasan Pambansa, Quezon City.
Moreover, a notice to Taxpayer inviting Mrs. Marcos
On July 26, 1991, the BIR issued the following: (1) (or her duly authorized representative or counsel), to
Deficiency estate tax assessment no. FAC-2-89-91- a conference, was furnished the counsel of Mrs.
002464 (against the estate of the late president Marcos, Dean Antonio Coronel � but to no avail.
Ferdinand Marcos in the amount of
P23,293,607,638.00 Pesos); (2) Deficiency income The deficiency tax assessments were not protested
tax assessment no. FAC-1-85-91-002452 and administratively, by Mrs. Marcos and the other heirs
Deficiency income tax assessment no. FAC-1-86-91- of the late president, within 30 days from service of
002451 (against the Spouses Ferdinand and Imelda said assessments.
Marcos in the amounts of P149,551.70 and
P184,009,737.40 representing deficiency income tax On February 22, 1993, the BIR Commissioner
for the years 1985 and 1986); (3) Deficiency income issued twenty-two notices of levy on real property
tax assessment nos. FAC-1-82-91-002460 to FAC-1- against certain parcels of land owned by the
85-91-002463 (against petitioner Ferdinand Marcoses � to satisfy the alleged estate tax and
"Bongbong" Marcos II in the amounts of P258.70 deficiency income taxes of Spouses Marcos.
pesos; P9,386.40 Pesos; P4,388.30 Pesos; and
P6,376.60 Pesos representing his deficiency income
On May 20, 1993, four more Notices of Levy on real
taxes for the years 1982 to 1985).
property were issued for the purpose of satisfying
the deficiency income taxes.
The Commissioner of Internal Revenue avers that
copies of the deficiency estate and income tax
On May 26, 1993, additional four (4) notices of Levy
assessments were all personally and constructively
on real property were again issued. The foregoing
served on August 26, 1991 and September 12, 1991
tax remedies were resorted to pursuant to Sections
upon Mrs. Imelda Marcos (through her caretaker Mr.
205 and 213 of the National Internal Revenue Code
Martinez) at her last known address at No. 204
(NIRC).
Ortega St., San Juan, M.M. (Annexes "D" and "E" of
the Petition). Likewise, copies of the deficiency tax
assessments issued against petitioner Ferdinand In response to a letter dated March 12, 1993 sent by
"Bongbong" Marcos II were also personally and Atty. Loreto Ata (counsel of herein petitioner) calling
constructively served upon him (through his the attention of the BIR and requesting that they be
duly notified of any action taken by the BIR affecting Whether or not the proper avenues of assessment and
the interest of their client Ferdinand "Bongbong" collection of the said tax obligations were taken by the
Marcos II, as well as the interest of the late president
� copies of the aforesaid notices were, served on respondent Bureau is now the subject of the Court's
April 7, 1993 and on June 10, 1993, upon Mrs. inquiry.
Imelda Marcos, the petitioner, and their counsel of
record, "De Borja, Medialdea, Ata, Bello, Guevarra Petitioner posits that notices of levy, notices of sale, and
and Serapio Law Office". subsequent sale of properties of the late President
Marcos effected by the BIR are null and void for
Notices of sale at public auction were posted on May
26, 1993, at the lobby of the City Hall of Tacloban
disregarding the established procedure for the
City. The public auction for the sale of the eleven enforcement of taxes due upon the estate of the
(11) parcels of land took place on July 5, 1993. deceased. The case of Domingo vs. Garlitos 4 is
There being no bidder, the lots were declared specifically cited to bolster the argument that "the
forfeited in favor of the government. ordinary procedure by which to settle claims of
indebtedness against the estate of a deceased, person,
On June 25, 1993, petitioner Ferdinand "Bongbong"
Marcos II filed the instant petition for certiorari and
as in an inheritance (estate) tax, is for the claimant to
prohibition under Rule 65 of the Rules of Court, with present a claim before the probate court so that said
prayer for temporary restraining order and/or writ of court may order the administrator to pay the amount
preliminary injunction. therefor." This remedy is allegedly, exclusive, and cannot
be effected through any other means.
It has been repeatedly observed, and not without merit,
that the enforcement of tax laws and the collection of Petitioner goes further, submitting that the probate court
taxes, is of paramount importance for the sustenance of is not precluded from denying a request by the
government. Taxes are the lifeblood of the government government for the immediate payment of taxes, and
and should be collected without unnecessary hindrance. should order the payment of the same only within the
However, such collection should be made in accordance period fixed by the probate court for the payment of all
with law as any arbitrariness will negate the very reason the debts of the decedent. In this regard, petitioner cites
for government itself. It is therefore necessary to the case of Collector of Internal Revenue vs. The
reconcile the apparently conflicting interests of the Administratrix of the Estate of Echarri (67 Phil 502),
authorities and the taxpayers so that the real purpose of where it was held that:
taxation, which is the promotion of the common good,
may be achieved. 3
The case of Pineda vs. Court of First Instance of respondent, claims for payment of estate and income
Tayabas and Collector of Internal Revenue (52 Phil taxes due and assessed after the death of the decedent
803), relied upon by the petitioner-appellant is good
authority on the proposition that the court having need not be presented in the form of a claim against the
control over the administration proceedings has estate. These can and should be paid immediately. The
jurisdiction to entertain the claim presented by the probate court is not the government agency to decide
government for taxes due and to order the whether an estate is liable for payment of estate of
administrator to pay the tax should it find that the income taxes. Well-settled is the rule that the probate
assessment was proper, and that the tax was legal,
due and collectible. And the rule laid down in that court is a court with special and limited jurisdiction.
case must be understood in relation to the case of
Collector of Customs vs. Haygood, supra., as to the Concededly, the authority of the Regional Trial Court,
procedure to be followed in a given case by the sitting, albeit with limited jurisdiction, as a probate court
government to effectuate the collection of the tax. over estate of deceased individual, is not a trifling thing.
Categorically stated, where during the pendency of
judicial administration over the estate of a deceased The court's jurisdiction, once invoked, and made
person a claim for taxes is presented by the effective, cannot be treated with indifference nor should it
government, the court has the authority to order be ignored with impunity by the very parties invoking its
payment by the administrator; but, in the same way authority.
that it has authority to order payment or satisfaction,
it also has the negative authority to deny the same.
While there are cases where courts are required to In testament to this, it has been held that it is within the
perform certain duties mandatory and ministerial in jurisdiction of the probate court to approve the sale of
character, the function of the court in a case of the properties of a deceased person by his prospective heirs
present character is not one of them; and here, the before final adjudication; 5 to determine who are the heirs
court cannot be an organism endowed with latitude of the decedent; 6 the recognition of a natural child; 7 the
of judgment in one direction, and converted into a
mere mechanical contrivance in another direction. status of a woman claiming to be the legal wife of the
decedent; 8 the legality of disinheritance of an heir by the
On the other hand, it is argued by the BIR, that the state's testator; 9 and to pass upon the validity of a waiver of
authority to collect internal revenue taxes is paramount. hereditary rights. 10
Thus, the pendency of probate proceedings over the
estate of the deceased does not preclude the The pivotal question the court is tasked to resolve refers
assessment and collection, through summary remedies, to the authority of the Bureau of Internal Revenue to
of estate taxes over the same. According to the collect by the summary remedy of levying upon, and sale
of real properties of the decedent, estate tax deficiencies,
without the cognition and authority of the court sitting in Sec. 3. Powers and duties of the Bureau. � The
probate over the supposed will of the deceased. powers and duties of the Bureau of Internal Revenue
shall comprehend the assessment and collection of
all national internal revenue taxes, fees, and
The nature of the process of estate tax collection has charges, and the enforcement of all forfeitures,
been described as follows: penalties, and fines connected therewith, including
the execution of judgments in all cases decided in its
Strictly speaking, the assessment of an inheritance favor by the Court of Tax Appeals and the ordinary
tax does not directly involve the administration of a courts. Said Bureau shall also give effect to and
decedent's estate, although it may be viewed as an administer the supervisory and police power
incident to the complete settlement of an estate, conferred to it by this Code or other laws.
and, under some statutes, it is made the duty of the
probate court to make the amount of the inheritance Thus, it was in Vera vs. Fernandez 12 that the court
tax a part of the final decree of distribution of the recognized the liberal treatment of claims for taxes
estate. It is not against the property of decedent, nor
is it a claim against the estate as such, but it is charged against the estate of the decedent. Such taxes,
against the interest or property right which the heir, we said, were exempted from the application of the
legatee, devisee, etc., has in the property formerly statute of non-claims, and this is justified by the necessity
held by decedent. Further, under some statutes, it of government funding, immortalized in the maxim that
has been held that it is not a suit or controversy taxes are the lifeblood of the government. Vectigalia
between the parties, nor is it an adversary
proceeding between the state and the person who nervi sunt rei publicae � taxes are the sinews of the
owes the tax on the inheritance. However, under state.
other statutes it has been held that the hearing and
determination of the cash value of the assets and Taxes assessed against the estate of a deceased
the determination of the tax are adversary person, after administration is opened, need not be
proceedings. The proceeding has been held to be submitted to the committee on claims in the ordinary
necessarily a proceeding in rem. 11 course of administration. In the exercise of its control
over the administrator, the court may direct the
In the Philippine experience, the enforcement and payment of such taxes upon motion showing that the
taxes have been assessed against the estate.
collection of estate tax, is executive in character, as the
legislature has seen it fit to ascribe this task to the
Such liberal treatment of internal revenue taxes in the
Bureau of Internal Revenue. Section 3 of the National
probate proceedings extends so far, even to allowing the
Internal Revenue Code attests to this:
enforcement of tax obligations against the heirs of the
decedent, even after distribution of the estate's approval of the state's claim for estate taxes, before the
properties. same can be enforced and collected.

Claims for taxes, whether assessed before or after On the contrary, under Section 87 of the NIRC, it is the
the death of the deceased, can be collected from the probate or settlement court which is bidden not to
heirs even after the distribution of the properties of
the decedent. They are exempted from the authorize the executor or judicial administrator of the
application of the statute of non-claims. The heirs decedent's estate to deliver any distributive share to any
shall be liable therefor, in proportion to their share in party interested in the estate, unless it is shown a
the inheritance. 13 Certification by the Commissioner of Internal Revenue
that the estate taxes have been paid. This provision
Thus, the Government has two ways of collecting disproves the petitioner's contention that it is the probate
the taxes in question. One, by going after all the
heirs and collecting from each one of them the
court which approves the assessment and collection of
amount of the tax proportionate to the inheritance the estate tax.
received. Another remedy, pursuant to the lien
created by Section 315 of the Tax Code upon all If there is any issue as to the validity of the BIR's decision
property and rights to property belong to the to assess the estate taxes, this should have been
taxpayer for unpaid income tax, is by subjecting said
property of the estate which is in the hands of an pursued through the proper administrative and judicial
heir or transferee to the payment of the tax due the avenues provided for by law.
estate. (Commissioner of Internal Revenue vs.
Pineda, 21 SCRA 105, September 15, 1967.) Section 229 of the NIRC tells us how:

From the foregoing, it is discernible that the approval of Sec. 229. Protesting of assessment. � When the
the court, sitting in probate, or as a settlement tribunal Commissioner of Internal Revenue or his duly
over the deceased is not a mandatory requirement in the authorized representative finds that proper taxes
should be assessed, he shall first notify the taxpayer
collection of estate taxes. It cannot therefore be argued of his findings. Within a period to be prescribed by
that the Tax Bureau erred in proceeding with the levying implementing regulations, the taxpayer shall be
and sale of the properties allegedly owned by the late required to respond to said notice. If the taxpayer
President, on the ground that it was required to seek first fails to respond, the Commissioner shall issue an
the probate court's sanction. There is nothing in the Tax assessment based on his findings.
Code, and in the pertinent remedial laws that implies the
Such assessment may be protested administratively
necessity of the probate or estate settlement court's by filing a request for reconsideration or
reinvestigation in such form and manner as may be 318 and 324 of the old tax code (Republic Act 5203), the
prescribed by implementing regulations within (30) BIR's Notices of Levy on the Marcos properties, were
days from receipt of the assessment; otherwise, the
assessment shall become final and unappealable. issued beyond the allowed period, and are therefore null
and void:
If the protest is denied in whole or in part, the
individual, association or corporation adversely . . . the Notices of Levy on Real Property (Annexes
affected by the decision on the protest may appeal O to NN of Annex C of this Petition) in satisfaction of
to the Court of Tax Appeals within thirty (30) days said assessments were still issued by respondents
from receipt of said decision; otherwise, the decision well beyond the period mandated in Revenue
shall become final, executory and demandable. (As Memorandum Circular No. 38-68. These Notices of
inserted by P.D. 1773) Levy were issued only on 22 February 1993 and 20
May 1993 when at least seventeen (17) months had
already lapsed from the last service of tax
Apart from failing to file the required estate tax return assessment on 12 September 1991. As no notices of
within the time required for the filing of the same, distraint of personal property were first issued by
petitioner, and the other heirs never questioned the respondents, the latter should have complied with
assessments served upon them, allowing the same to Revenue Memorandum Circular No. 38-68 and
lapse into finality, and prompting the BIR to collect the issued these Notices of Levy not earlier than three
(3) months nor later than six (6) months from 12
said taxes by levying upon the properties left by September 1991. In accordance with the Circular,
President Marcos. respondents only had until 12 March 1992 (the last
day of the sixth month) within which to issue these
Petitioner submits, however, that "while the assessment Notices of Levy. The Notices of Levy, having been
of taxes may have been validly undertaken by the issued beyond the period allowed by law, are thus
void and of no effect. 15
Government, collection thereof may have been done in
violation of the law. Thus, the manner and method in
We hold otherwise. The Notices of Levy upon real
which the latter is enforced may be questioned
property were issued within the prescriptive period and in
separately, and irrespective of the finality of the former,
accordance with the provisions of the present Tax Code.
because the Government does not have the unbridled
The deficiency tax assessment, having already become
discretion to enforce collection without regard to the clear
final, executory, and demandable, the same can now be
provision of law." 14
collected through the summary remedy of distraint or levy
pursuant to Section 205 of the NIRC.
Petitioner specifically points out that applying
Memorandum Circular No. 38-68, implementing Sections
The applicable provision in regard to the prescriptive be collected by levy upon real property within three years
period for the assessment and collection of tax deficiency following the assessment of the tax. Since the estate tax
in this instance is Article 223 of the NIRC, which assessment had become final and unappealable by the
pertinently provides: petitioner's default as regards protesting the validity of
the said assessment, there is now no reason why the BIR
Sec. 223. Exceptions as to a period of limitation of cannot continue with the collection of the said tax. Any
assessment and collection of taxes. � (a) In the case objection against the assessment should have been
of a false or fraudulent return with intent to evade tax
or of a failure to file a return, the tax may be
pursued following the avenue paved in Section 229 of the
assessed, or a proceeding in court for the collection NIRC on protests on assessments of internal revenue
of such tax may be begun without assessment, at taxes.
any time within ten (10) years after the discovery of
the falsity, fraud, or omission: Provided, That, in a Petitioner further argues that "the numerous pending
fraud assessment which has become final and
executory, the fact of fraud shall be judicially taken
court cases questioning the late president's ownership or
cognizance of in the civil or criminal action for the interests in several properties (both real and personal)
collection thereof. make the total value of his estate, and the consequent
estate tax due, incapable of exact pecuniary
xxx xxx xxx determination at this time. Thus, respondents'
assessment of the estate tax and their issuance of the
(c) Any internal revenue tax which has been Notices of Levy and sale are premature and oppressive."
assessed within the period of limitation above
prescribed, may be collected by distraint or levy or
He points out the pendency of Sandiganbayan Civil Case
by a proceeding in court within three years following Nos. 0001-0034 and 0141, which were filed by the
the assessment of the tax. government to question the ownership and interests of
the late President in real and personal properties located
xxx xxx xxx within and outside the Philippines. Petitioner, however,
omits to allege whether the properties levied upon by the
The omission to file an estate tax return, and the BIR in the collection of estate taxes upon the decedent's
subsequent failure to contest or appeal the assessment estate were among those involved in the said cases
made by the BIR is fatal to the petitioner's cause, as pending in the Sandiganbayan. Indeed, the court is at a
under the above-cited provision, in case of failure to file a loss as to how these cases are relevant to the matter at
return, the tax may be assessed at any time within ten issue. The mere fact that the decedent has pending
years after the omission, and any tax so assessed may cases involving ill-gotten wealth does not affect the
enforcement of tax assessments over the properties petitioner has not pointed out one single provision in the
indubitably included in his estate. Memorandum of the Special Audit Team which gave rise
to the questioned assessment, which bears a trace of
Petitioner also expresses his reservation as to the falsity. Indeed, the petitioner's attack on the assessment
propriety of the BIR's total assessment of bears mainly on the alleged improbable and
P23,292,607,638.00, stating that this amount deviates unconscionable amount of the taxes charged. But mere
from the findings of the Department of Justice's Panel of rhetoric cannot supply the basis for the charge of
Prosecutors as per its resolution of 20 September 1991. impropriety of the assessments made.
Allegedly, this is clear evidence of the uncertainty on the
part of the Government as to the total value of the estate Moreover, these objections to the assessments should
of the late President. have been raised, considering the ample remedies
afforded the taxpayer by the Tax Code, with the Bureau
This is, to our mind, the petitioner's last ditch effort to of Internal Revenue and the Court of Tax Appeals, as
assail the assessment of estate tax which had already described earlier, and cannot be raised now via Petition
become final and unappealable. for Certiorari, under the pretext of grave abuse of
discretion. The course of action taken by the petitioner
It is not the Department of Justice which is the reflects his disregard or even repugnance of the
government agency tasked to determine the amount of established institutions for governance in the scheme of a
taxes due upon the subject estate, but the Bureau of well-ordered society. The subject tax assessments having
Internal Revenue, 16 whose determinations and become final, executory and enforceable, the same can
assessments are presumed correct and made in good no longer be contested by means of a disguised protest.
faith. 17 The taxpayer has the duty of proving otherwise. In In the main, Certiorari may not be used as a substitute for
the absence of proof of any irregularities in the a lost appeal or remedy. 19 This judicial policy becomes
performance of official duties, an assessment will not be more pronounced in view of the absence of sufficient
disturbed. Even an assessment based on estimates is attack against the actuations of government.
prima facie valid and lawful where it does not appear to
have been arrived at arbitrarily or capriciously. The On the matter of sufficiency of service of Notices of
burden of proof is upon the complaining party to show Assessment to the petitioner, we find the respondent
clearly that the assessment is erroneous. Failure to appellate court's pronouncements sound and resilient to
present proof of error in the assessment will justify the petitioner's attacks.
judicial affirmance of said assessment. 18 In this instance,
Anent grounds 3(b) and (B) � both alleging/claiming assessments, (upon which the Levy and sale of
lack of notice � We find, after considering the facts properties were based), nor appealed the same to
and circumstances, as well as evidences, that there the Court of Tax Appeals.
was sufficient, constructive and/or actual notice of
assessments, levy and sale, sent to herein petitioner There being sufficient service of Notices to herein
Ferdinand "Bongbong" Marcos as well as to his petitioner (and his mother) and it appearing that
mother Mrs. Imelda Marcos. petitioner continuously ignored said Notices despite
several opportunities given him to file a protest and
Even if we are to rule out the notices of assessments to thereafter appeal to the Court of Tax Appeals, �
personally given to the caretaker of Mrs. Marcos at the tax assessments subject of this case, upon
the latter's last known address, on August 26, 1991 which the levy and sale of properties were based,
and September 12, 1991, as well as the notices of could no longer be contested (directly or indirectly)
assessment personally given to the caretaker of via this instant petition for certiorari. 20
petitioner also at his last known address on
September 12, 1991 � the subsequent notices given Petitioner argues that all the questioned Notices of Levy,
thereafter could no longer be ignored as they were
sent at a time when petitioner was already here in
however, must be nullified for having been issued without
the Philippines, and at a place where said notices validly serving copies thereof to the petitioner. As a
would surely be called to petitioner's attention, and mandatory heir of the decedent, petitioner avers that he
received by responsible persons of sufficient age has an interest in the subject estate, and notices of levy
and discretion. upon its properties should have been served upon him.
Thus, on October 20, 1992, formal assessment
notices were served upon Mrs. Marcos c/o the
We do not agree. In the case of notices of levy issued to
petitioner, at his office, House of Representatives, satisfy the delinquent estate tax, the delinquent taxpayer
Batasan Pambansa, Q.C. (Annexes "A", "A-1", "A- is the Estate of the decedent, and not necessarily, and
2", "A-3"; pp. 207-210, Comment/Memorandum of exclusively, the petitioner as heir of the deceased. In the
OSG). Moreover, a notice to taxpayer dated October same vein, in the matter of income tax delinquency of the
8, 1992 inviting Mrs. Marcos to a conference relative
to her tax liabilities, was furnished the counsel of
late president and his spouse, petitioner is not the
Mrs. Marcos � Dean Antonio Coronel (Annex "B", p. taxpayer liable. Thus, it follows that service of notices of
211, ibid). Thereafter, copies of Notices were also levy in satisfaction of these tax delinquencies upon the
served upon Mrs. Imelda Marcos, the petitioner and petitioner is not required by law, as under Section 213 of
their counsel "De Borja, Medialdea, Ata, Bello, the NIRC, which pertinently states:
Guevarra and Serapio Law Office", on April 7, 1993
and June 10, 1993. Despite all of these Notices,
petitioner never lifted a finger to protest the xxx xxx xxx
. . . Levy shall be effected by writing upon said SO ORDERED.
certificate a description of the property upon which
levy is made. At the same time, written notice of the
levy shall be mailed to or served upon the Register
of Deeds of the province or city where the property is
located and upon the delinquent taxpayer, or if he be
absent from the Philippines, to his agent or the
manager of the business in respect to which the
liability arose, or if there be none, to the occupant of
the property in question.

xxx xxx xxx

The foregoing notwithstanding, the record shows that


notices of warrants of distraint and levy of sale were
furnished the counsel of petitioner on April 7, 1993, and
June 10, 1993, and the petitioner himself on April 12,
1993 at his office at the Batasang Pambansa. 21 We
cannot therefore, countenance petitioner's insistence that
he was denied due process. Where there was an
opportunity to raise objections to government action, and
such opportunity was disregarded, for no justifiable
reason, the party claiming oppression then becomes the
oppressor of the orderly functions of government. He who
comes to court must come with clean hands. Otherwise,
he not only taints his name, but ridicules the very
structure of established authority.

IN VIEW WHEREOF, the Court RESOLVED to DENY the


present petition. The Decision of the Court of Appeals
dated November 29, 1994 is hereby AFFIRMED in all
respects.
In this petition for review under Rule 45 of the
SECOND DIVISION
Rules of Court, petitioner Commissioner of Internal
COMMISSIONER OF G.R. No. 145559 Revenue seeks the reversal and setting aside of the
INTERNAL REVENUE, following Resolutions of the Court of Appeals (CA) in
Petitioner, Present:
CA-G.R. SP No. 38413, to wit:
PUNO, J., Chairperson,
SANDOVAL-GUTIERREZ,
- versus - CORONA, 1. Resolution dated May 10,
AZCUNA, and 20001[1] insofar as it ordered
GARCIA, JJ. petitioner to issue a tax credit
to respondent Benguet
Promulgated: Corporation in the amount of
BENGUET CORPORATION, P49,749,223.31 representing
Respondent. July 14, 2006 input VAT/tax attributable to
its sales of gold to the Central
x------------------------------------------------------------- Bank (now Bangko Sentral ng
-----------------------x Pilipinas or BSP) covering the
period from January 1, 1988
to July 31, 1989; and
DECISION

GARCIA, J.:
1 [1]
Penned by Associate Justice Romeo J. Callejo, Sr., now a
member of this Court, and concurred in by Associate Justices
Godardo A. Jacinto (ret.) and Candido V. Rivera (ret.); Rollo, pp.
20-34.
2. Resolution dated October 1988, then Deputy Commissioner Santos also
16, 20002[2] denying issued Revenue Memorandum Circular (RMC)
No. 59-88, again declaring that the sale of gold
petitioner’s motion for
by a VAT-registered taxpayer to the Central
reconsideration. Bank is subject to the zero-rate VAT. No less
than five Rulings were subsequently issued by
The facts, as narrated by the CA in its basic [petitioner] from 1988 to 1990 reiterating and
confirming its position that the sale of gold by a
Resolution of May 10, 2000, are: VAT-registered taxpayer to the Central Bank is
subject to the zero-rate VAT.
[Respondent] is a domestic corporation As a corollary, and in reliance, of the
engaged in mining business, specifically the foregoing issuances, [respondent], during the six
exploration, development and operation of (6) taxable quarters in question covering the
mining properties for purposes of commercial period January 1, 1988 to July 31, 1989, sold
production and the marketing of mine products. gold to the Central Bank and treated these sales
It is a VAT-registered enterprise, with VAT as zero-rated – that is, subject to the 0% VAT.
Registration No. 31-0-000027 issued on January During the same period, [respondent] thus
1, 1988. Sometime in January 1988, incurred input taxes attributable to said sales to
[respondent] filed an application for zero-rating the Central Bank. Consequently, [respondent]
of its sales of mine products, which application filed with the Commissioner of Internal
was duly approved by the [petitioner] Revenue applications for the issuance of Tax
Commissioner of Internal Revenue. Credit Certificates for input VAT Credits
attributable to its export sales - that is, inclusive
On August 28, 1988, then Deputy of direct export sales and sale of gold to the
Commissioner of Internal Revenue Eufracio D. Central Bank corresponding to the same taxable
Santos issued VAT Ruling No. 378-88 which periods, to wit:
declared that the sale of gold to the Central
Bank is considered an export sale and therefore AMOUNT OF TAX CREDIT APPLIED FOR
subject to VAT at 0% rate. On December 14, TAXABLE PERIOD
2 [2]
Rollo, pp. 35-36.
P34,449,817.71 retroactive application of VAT Ruling 008-92
01Jan88 to 30 Apr88 because their claim for refund of input taxes are
P30,382,666.86 not lost because the same are allowable on its
01May88 to 31Jul88 output taxes on the sales of gold to Central
P30,146,774.47 Bank; on its output taxes on other sales; and as
01Aug88 to 31Oct88 deduction to income tax under Section 29 of the
P13,467,663.41 Tax Code.
01Nov88 to 31Jan89
P 7,030,261.29 On the basis of the aforequoted BIR
01Feb89 to 30Apr89 Issuances, [petitioner] thus treated
P18,263,960.28 [respondent’s] sales of gold to the Central Bank
01May89 to 31Jul89 as domestic sales subject to 10% VAT but
allowed [respondent] a total tax credit of only
(CTA Decision dated March 23, 1995; Pages 83-86, P81,991,810.91 which corresponded to VAT
rollo) input taxes attributable to its direct export sales
(CTA Decision dated March 23, 1995; Page
Meanwhile, on January 23, 1992, then 87). Notwithstanding this finding of the
Commissioner Jose U. Ong issued VAT Ruling [petitioner], [respondent] was not refunded the
No. 008-92 declaring and holding that the sales said amounts of tax credit claimed. Thus, to
of gold to the Central Bank are considered suspend the running of the two-year prescriptive
domestic sales subject to 10% VAT instead of period (Sec. 106, NIRC) for claiming refunds or
0% VAT as previously held in BIR Issuances tax credits, [respondent] instituted x x x
from 1998 to 1990. Subsequently, VAT Ruling consolidated Petitions for Review with the
No. 59-92, dated April 28, 1992, x x x were Court of Tax Appeals, praying for the issuance
issued by [petitioner] reiterating the treatment of of “Tax Credit Certificates” for the following
sales of gold to the Central Bank as domestic input VAT credits attributable to export sales
sales, and expressly countenancing the transacted during the taxable quarters or periods
Retroactive application of VAT Ruling No. 008- in question, to wit:
92 to all such sales made starting January 1,
1988, ratiocinating, inter alia, that the mining CTA Case
companies will not be unduly prejudiced by a
Number Amount of Tax Credit Applied denied the whole amount of its claim for tax credit of
for Taxable Period
P131,741,034.22. The tax court held that the alleged
4429 P64,832,374.67
01JAN88 to31JUL88 prejudice to respondent as a result of the retroactive
4495 P43,614,437.88 application of VAT Ruling No. 008-92 issued on
01AUG88to31JAN89
4575 P23,294,221.77 January 23, 1992 to the latter’s gold sales to the
01FEB89 to31JUL89
P131,741,034.22 = Central Bank (CB) from January 1, 1988 to July 31,
TOTAL
1989 is merely speculative and not actual and
Significantly, the total amount of imminent so as to proscribe said Ruling’s
P131,741,034.22, as hereinabove computed,
corresponds to the total input VAT credits retroactivity. The CTA further held that respondent
attributable to export sales made by
[respondent] during the taxable periods set forth would not be unduly prejudiced considering that VAT
and therefore, represents a combination of input
tax attributable to both (1) direct export sales Ruling No. 59-92 which mandates the retroactivity of
and (2) sales of gold to the Central Bank. VAT Ruling No. 008-92 likewise provides for
(Words in brackets added).3[3]
alternative remedies for the recovery of the input VAT.
In a decision dated March 23, 1995,4[4] the
Court of Tax Appeals (CTA) dismissed respondent’s Its motion for reconsideration having been
aforementioned consolidated Petitions for Review and denied by the tax court, respondent appealed to the
CA whereat its recourse was docketed as CA-G.R. SP
3 [3]
CA Resolution; Rollo, pp. 21-24.
4 [4]
Rollo, pp. 51-64.
No. 38413.
[petitioner Commissioner of Internal Revenue]
is hereby ordered to issue [respondent] a TAX
At first, the CA, in a decision dated May 30, CREDIT in the amount of P131,741,034.22.
1996,5[5] affirmed in toto that of the tax court. SO ORDERED.

However, upon respondent’s motion for In its reversal action, the CA ruled that the tax
reconsideration, the CA, in the herein assailed basic credit in the total amount of P131,741,034.22 consists
Resolution dated May 10, 2000, reversed itself by of (1) P81,991,810.91, representing input VAT credits
setting aside its earlier decision of May 30, 1996 and attributable to direct export sales subject to 0% VAT,
ordering herein petitioner to issue in respondent’s and (2) P49,749,223.31, representing input VAT
favor a tax credit in the amount of P131,741,034.22, attributable to sales of gold to the CB which were
to wit: subject to 0% when said sales were made in 1988 and
1989. In effect, the CA rejected the retroactive
IN THE LIGHT OF ALL THE application of VAT Ruling No. 008-92 to the subject
FOREGOING, [respondent’s] Motion for
Reconsideration, x x x as supplemented, is gold sales of respondent because of the resulting
GRANTED. The Decision of this Court, dated
May 30, 1996, affirming the Decision of the prejudice to the latter despite the existence of
Court of Tax Appeals x x x is SET ASIDE. The
alternative modes for the recovery of the input VAT.
5 [5]
Penned by Associate Justice Pacita Canizares-Nye (ret.),
with former Associate Justice Pedro Ramirez (ret.) and former CA
Associate Justice Romeo J. Callejo, Jr., concurring; Rollo, pp. 86-
94.
This time, it was petitioner who moved for a VAT Ruling No. 008-92 to respondent would not
reconsideration but his motion was denied by the CA prejudice the latter.
in its subsequent Resolution of October 16, 2000.
Initially, the Court, in its Resolution of January
6[6]
Hence, petitioner’s present recourse assailing 24, 2001, denied the Petition for lack of
only that portion of the CA Resolution of May 10, verification and certification against forum shopping.
2000 allowing respondent the amount of However, upon petitioner’s manifestation and motion
P49,749,223.31 as tax credit corresponding to the for reconsideration, the Court reinstated the Petition in
input VAT attributable to its sales of gold to the CB its subsequent Resolution of March 5, 2001.7[7]
for the period January 1, 1988 to July 31, 1989. It is
The petition must have to fall.
petitioner’s sole contention that the CA erred in
rejecting the retroactive application of VAT Ruling
We start with the well-entrenched rule that
No. 008-92, dated January 23, 1992, subjecting sales
rulings and circulars, rules and regulations,
of gold to the CB to 10% VAT to respondent’s sales of
promulgated by the Commissioner of Internal
gold during the period from January 1, 1988 to July
Revenue, would have no retroactive application if to
31, 1989. Petitioner posits that, contrary to the ruling
of the appellate court, the retroactive application of
6 [6]
Rollo, pp. 95-96.
7 [7]
Rollo, p. 173.
so apply them would be prejudicial to the taxpayers.8 gathered by the Bureau of Internal Revenue are
materially different from the facts on which the
[8]
ruling is based; or c) where the taxpayer acted in
bad faith.

And this is as it should be, for the Tax Code,


There is no question, therefore, as to the
specifically Section 246 thereof, is explicit that:
prohibition against the retroactive application of the
revocation, modification or reversal, as the case
x x x Any revocation, modification,
or reversal of any rules and regulations maybe, of previously established Bureau on Internal
promulgated in accordance with the preceding
section or any of the rulings or circulars Revenue (BIR) Rulings when the taxpayer’s interest
promulgated by the Commissioner of Internal would be prejudiced thereby. But even if prejudicial
Revenue shall not be given retroactive
application if the revocation, modification, or to a taxpayer, retroactive application is still allowed
reversal will be prejudicial to the taxpayers
except in the following cases: a) where the where: (a) a taxpayer deliberately misstates or omits
taxpayer deliberately misstates or omits material
facts from his return or in any document material facts from his return or any document
required of him by the Bureau of Internal required by the BIR; (b) where subsequent facts
Revenue; b) where the facts subsequently
gathered by the BIR are materially different from
8 [8]
CIR v. Court of Appeals, Court of Tax Appeals &
Alhambra Industries, Inc., G.R. No. 117982, February 6, 1997, which the ruling is based; and (c) where the taxpayer
267 SCRA 557, 564; CIR v. Telefunken Semiconductor Phils., Inc.,
et al., G.R. No. 103915, October 23, 1995, 249 SCRA 401, 407; acted in bad faith.
CIR v. Burroughs Limited and CTA, G.R. No. L-66653, June 19,
1986, 142 SCRA 324, 328; ABS-CBN Broadcasting Corporation v.
CTA and CIR, G.R. No. L-52306, October 12, 1981, 108 SCRA
142, 148.
As admittedly, respondent’s case does not fall value-added tax paid by a VAT-registered
under any of the above exceptions, what is crucial to person/entity in the course of his/its trade or business
determine then is whether the retroactive application on the importation of goods or local purchases of
of VAT Ruling No. 008-92 would be prejudicial to goods or services from a VAT-registered person.9[9]
respondent Benguet Corporation.
On the other hand, when that person or entity
The Court resolves the question in the sells his/its products or services, the VAT-registered
affirmative. taxpayer generally becomes liable for 10% of the
selling price as output VAT or output tax.10[10] Hence,
Input VAT or input tax represents the actual “output tax” is the value-added tax on the sale of
payments, costs and expenses incurred by a VAT- taxable goods or services by any person registered or
registered taxpayer in connection with his purchase of
goods and services. Thus, “input tax” means the

9 [9]
Section 104 (a) of the (old) Tax Code, now Section 110
(A).
10 [10]
Sec. 100 (a) of the (old) Tax Code. Said provision
specifically reads: “Sec. 100 Value-added tax on sales of goods –
(a) Rate and base of tax. – There shall be levied, assessed and
collected on every sale, barter or exchange of goods, a value-added
tax equivalent to 10% of the gross selling price or gross value in
money of the goods sold, bartered or exchanged, such tax to be
paid by the seller or transferor x x x”; now Sec. 106 (A).
required to register under Section 107 of the (old) Tax Simply stated, a taxpayer subject to 10% output
Code.11[11] VAT on its sales of goods and services may recover its
input VAT costs by passing on said costs as output
The VAT system of taxation allows a VAT- VAT to its buyers of goods and services but it cannot
registered taxpayer to recover its input VAT either by claim the same as a refund or tax credit, while a
(1) passing on the 10% output VAT on the gross taxpayer subject to 0% on its sales of goods and
selling price or gross receipts, as the case may be, to services may only recover its input VAT costs by
its buyers, or (2) if the input tax is attributable to the filing a refund or tax credit with the BIR.
purchase of capital goods or to zero-rated sales, by
filing a claim for a refund or tax credit with the BIR.12 Here, the claimed tax credit of input tax
[12]
amounting to P49,749,223.31 represents the costs or
expenses incurred by respondent in connection with
its gold production. Relying on BIR Rulings,
11 [11]
Section 104 (a) of the (old) Tax Code, now Section 110 specifically VAT Ruling No. 378-88, dated August 28,
(A).
12 [12]
Sec. 104 (b) of the (old) Tax Code. Said provision 1988, and VAT Ruling No. 59-88, dated December 14,
specifically reads:
1988, both of which declared that sales of gold to the
(b) Excess Output or Input Tax. – x x x Any input tax attributable
to the purchase of capital goods or to zero-rated sales by a VAT- CB are considered export sales subject to 0%,
registered person may at his option be refunded or credited against
other internal revenue taxes subject to the provisions of Sec. 106;
now Sec. 110 (B).
respondent sold gold to the CB from January 1, 1988
to July 31, 1989 without passing on to the latter its Clearly, from the foregoing, the prejudice to
input VAT costs, obviously intending to obtain a respondent by the retroactive application of VAT
refund or credit thereof from the BIR at the end of the Ruling No. 008-92 to its sales of gold to the CB from
taxable period. However, by the time respondent January 1, 1988 to July 31, 1989 is patently evident.
applied for refund/credit of its input VAT costs, VAT
Ruling No. 008-92 dated January 23, 1992, treating Verily, by reason of the denial of its claim for
sales of gold to the CB as domestic sales subject to refund/credit, respondent has been precluded from
10% VAT, and VAT Ruling No. 059-92 dated April 28, recovering its input VAT costs attributable to its sales
1992, retroactively applying said VAT Ruling No. of gold to the CB during the period mentioned, for the
008-92 to such sales made from January 1, 1988 following reasons:
onwards, were issued. As a result, respondent’s
application for refund/credit was denied and, as First, because respondent could not pass on to
likewise found by the CA, it was even subsequently the CB the 10% output VAT which would be
assessed deficiency output VAT on October 19, 1992 retroactively imposed on said transactions, not having
in the total amounts of P252,283,241.95 for the year passed the same at the time the sales were made on
1988, and P244,318,148.56 for the year 1989.13[13] the assumption that said sales are subject to 0%, and,
hence, maybe refunded or credited later. And second,
13 [13]
May 10, 2000, CA Resolution; Rollo, p. 27.
because respondent could not claim the input VAT
costs as a refund/credit as it has been prevented such subject to 10% VAT, treat the input VAT as cost and
option, the sales in question having been retroactively deduct the same from income for income tax
subjected to 10% VAT, ergo limiting recovery of said purposes.
costs to the application of the same against the output
tax which will result therefrom. We are not persuaded.

Indeed, respondent stands to suffer substantial The first remedy cannot be applied in this case.
economic prejudice by the retroactive application of As correctly found by the CA, respondent has clearly
the VAT Ruling in question. shown that it has no “other transactions” subject to
10% VAT, and petitioner has failed to prove the
But petitioner maintains otherwise, arguing that existence of such “other transactions” against which
respondent will not be unduly prejudiced since there to set off respondent’s input VAT.14[14]
are still other available remedies for it to recover its
input VAT costs. Said remedies, so petitioner points Anent the second remedy, prejudice will still,
out, are for respondent to either (1) use said input indubitably, result because treating the input VAT as
taxes in paying its output taxes in connection with its an income tax deductible expense will yield only a
other sales transactions which are subject to the 10% partial and not full financial benefit of having the
VAT or (2) if there are no other sales transactions 14 [14]
CA Resolution, May 10, 2000; Rollo, p. 30.
input VAT refunded or used as a tax credit. We quote “(b) Excess output or input tax. – xxx
Any input tax attributable to xxx zero-rated
with approval the CA’s observations in this respect, sales by a VAT-registered person may at his
option be refunded or credited against other
thus: internal revenue taxes, subject to the
provisions of Section 106.”

x x x even assuming that input VAT is On the other hand, a tax deduction may
still available for deduction, [respondent] still be used only against gross income for purposes
suffers prejudice. As a zero-rated taxpayer of income tax. A tax deduction is not allowed
(pursuant to the 1988 to 1990 BIR issuances), against other internal revenue taxes such as
[respondent] could have claimed a cash refund excise taxes, documentary stamp taxes, and
or tax credit of the input VAT in the amount of output VAT.
P49,749,223.31. If it had been allowed a cash
refund or tax credit, it could have used the full 2.42.2 In terms of income tax, a tax
amount thereof to pay its other tax obligations deduction is only an expense item in computing
(or, in the case of a cash refund, to fund its income tax liabilities (Sections 27 to 29, Tax
operations). With VAT Ruling No. 059-92, Code) while a tax credit is a direct credit against
[respondent] is precluded from claiming the final income tax due (Section 106[b], Tax
cash refund or tax credit and is limited to the so- Code). This is illustrated in the example below:
called remedy of deducting the input VAT from
gross income. But a cash refund or tax credit is Assume that in 1988, respondent had a
not the same as a tax deduction. A tax gross income of P1,000,000,000 and deductible
deduction has less benefits than a tax credit. expenses in general (such as salaries, utilities,
Consider the following differences; transportation, fuel and costs of sale) of
P500,000,000. Assume also that [respondent]
2.42.1 A tax credit may be used to pay had input VAT of P131,741,034.22, the amount
any national internal revenue tax liability. being claimed in the instant case.
Section 104(b) of the Tax Code states; [Respondent’s] income tax liability, depending
on whether it utilized the input tax as tax credit
or tax deduction, would be as follows:
Gross income (Section 28, Tax Code)
a. Tax credit P1,000,000,000.00
Deductions
Gross Income (Section 28, Tax Code) General (Section 29, Tax Code)
P500,000,000.00
P1,000,000,000.00 Input VAT (VAT Ruling No. 059-92)
Deductions (Section 29, Tax Code) P131,741,034.22P
( 631,741,034.22)
500,000,000.00) Taxable income (Section 27, Tax Code)
Taxable Income (Section 27, Tax Code) P 368,258,966.78

P 500,000.000.00 Tax rate (Section 24[a], Tax Code)


x 35%
Tax rate (Section 24[a], Tax Code) Tax payable
P 128,890,638.02
x 35%
Tax Payable Tax Credit
-
P 175,000,000.00 Tax due
______________
Tax Credit
P 128,890,638.02
(131,741,034.22)
Thus, if the input VAT of
Tax due P131,741,034.22 were to be credited against the
income tax due, the income tax payable is only
P 43,258,965.78 P43,258,965.78. On the other hand, if the input
VAT were to be deducted from gross income
b. Tax deduction before arriving at the net income, the income tax
payable is P128,890,638.02. This is almost
three (3) times the income tax payable if the
input VAT were to be deducted from the income input VAT cost.15[15] (Emphasis in the original;
tax payable. Words in brackets supplied).

As can be seen from above, there is a


substantial difference between a tax credit and a We may add that the prejudice which befell
tax deduction. A tax credit reduces tax
liability while a tax deduction only reduces respondent is all the more highlighted by the fact that
taxable income (emphasis supplied). it has been issued assessments for deficiency output
A tax credit of input VAT fully utilizes VAT on the basis of the same sales of gold to the CB.
the entire amount of P131,741,034.22, since tax
liability is reduced by the said amount. A tax
deduction is not fully utilized because the
savings is only 35% or P46,109,361.98. In the On a final note, the Court is fully cognizant of
above case, therefore, the use of input VAT as a the well-entrenched principle that the Government is
tax deduction results in a loss of 65% of the
input VAT, or P85,631,672.24, which not estopped from collecting taxes because of
[respondent] could have otherwise fully utilized
as a tax credit. mistakes or errors on the part of its agents.16[16] But,

x x x x x x like other principles of law, this also admits of


x x x exceptions in the interest of justice and fair play, as
x x x the deduction of an expense where injustice will result to the taxpayer.17[17]
under Section 29 of the Tax Code is not
tantamount to a recovery of the expense. The
deduction of a bad debt, for instance, does not
result in the recovery of the debt. On the other
15 [15]
hand, a tax credit, because it can be fully Rollo, pp. 30-33.
16[16]
utilized to reduce tax liability, is as good as cash CIR v. Court of Appeals, Court of Tax Appeals and Alhambra
Industries, Inc., supra at p. 565.
and is thus effectively a full recovery of the 17[17]
Ibid.
As this Court has said in ABS-CBN of zero-rating status to the sales of gold to the CB and
Broadcasting Corporation v. Court of Tax Appeals applying a new and contrary position that such sales
and the Commissioner of Internal Revenue:18[18] are now subject to 10%, is clearly inconsistent with
justice and the elementary requirements of fair play.
The insertion of Sec. 338-A [now Sec.
246] into the National Internal Revenue Code x
x x is indicative of legislative intention to Accordingly, we find that the CA did not
support the principle of good faith. In fact, in commit a reversible error in holding that VAT Ruling
the United States x x x it has been held that
the Commissioner or Collector is precluded No. 008-92 cannot be retroactively applied to
from adopting a position inconsistent with one
previously taken where injustice would result respondent’s sales of gold to the CB during the period
therefrom, or where there has been a
misrepresentation to the taxpayer. [Word in January 1, 1988 to July 31, 1989, hence, it is entitled
brackets supplied]. to tax credit in the amount of P49,749,223.31
attributable to such sales.
Here, when respondent sold gold to the CB, it
relied on the formal assurances of the BIR, i.e., VAT
IN VIEW WHEREOF, the instant petition is
Ruling No. 378-88 dated August 28, 1988 and VAT
DENIED and the assailed CA Resolutions are
Ruling RMC No. 59-88 dated December 14, 1988,
AFFIRMED.
that such sales are zero-rated. To retroact a later
ruling – VAT Ruling No. 008-92 - revoking the grant
18 [18]
No costs.
Supra at pp. 151-152
SO ORDERED.
Republic of the Philippines Before us is a Petition for Review on Certiorari
SUPREME COURT
Manila under Rule 45 assailing and seeking to set aside the
Decision19[1] dated December 22, 2005 of the Court of
SECOND DIVISION
Appeals (CA) in CA-G.R. SP No. 78280 which
COMMISSIONER OF INTERNAL G.R. No. 172129
modified the March 18, 2003 Decision20[2] of the Court
REVENUE,
Petitioner, Present: of Tax Appeals (CTA) in CTA Case No. 6133 entitled
Mirant Pagbilao Corporation (Formerly Southern
- versus - QUISUMBING,
Energy Quezon, Inc.) v. Commissioner of Internal
CARPIO MORALES,
TINGA,
Revenue and ordered the Bureau of Internal Revenue
MIRANT PAGBILAO VELASCO, JR., and
CORPORATION (Formerly BRION, JJ. (BIR) to refund or issue a tax credit certificate (TCC)
SOUTHERN ENERGY QUEZON,
in favor of respondent Mirant Pagbilao Corporation
INC.), Promulgated:
Respondent. (MPC) in the amount representing its unutilized input
September 12, 2008
value added tax (VAT) for the second quarter of 1998.
x----------------------------------------------------------------
-------------------------x
19[1]
Rollo, pp. 32-44. Penned by Associate Justice Rosmari D.
Carandang and concurred in by Associate Justices Andres B. Reyes, Jr. and
DECISION Monina Arevalo-Zenarosa.
20[2]
Id. at 47-63. Penned by Presiding Judge Ernesto D. Acosta
concurred in by Associate Judges Juanito C. Castañeda, Jr. and Lovell R.
VELASCO, JR., J.: Bautista.
Also assailed is the CA’s Resolution21[3] of March 31, Under Section 1322[4] of Republic Act No. (RA)
2006 denying petitioner’s motion for reconsideration. 6395, the NPC’s revised charter, NPC is exempt from
all taxes. In Maceda v. Macaraig,23[5] the Court
The Facts construed the exemption as covering both direct and
indirect taxes.
MPC, formerly Southern Energy Quezon, Inc.,
22[4]
and also formerly known as Hopewell (Phil.) Sec. 13. Non-profit Character of the Corporation; Exemption
from all Taxes, Duties, Fees, Imposts and other Charges by
Government and Governmental Instrumentalities. – The [NPC] shall be
Corporation, is a domestic firm engaged in the non-profit and shall devote all its returns x x x as well as excess revenues
from its operation, for expansion. To enable [NPC] to pay its indebtedness
generation of power which it sells to the National and obligations x x x [it] is hereby declared exempt:
Power Corporation (NPC). For the construction of the (a) From the payment of all taxes, duties, fees, imposts,
charges, costs and service x x x and duties to the Republic of
electrical and mechanical equipment portion of its the Philippines, its provinces, cities, municipalities and other
government agencies and instrumentalities;
Pagbilao, Quezon plant, which appears to have been (b) From all income taxes, franchise taxes and realty
taxes x x x;
undertaken from 1993 to 1996, MPC secured the (c) From all import duties, compensating taxes and
services of Mitsubishi Corporation (Mitsubishi) of advanced sales tax, and wharfage fees on import of foreign
goods required for its operations and projects; and
Japan. (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.
21[3] 23[5]
Id. at 45-46. G.R. No. 88291, May 31, 1991, 197 SCRA 771.
May 13, 1999, the Commissioner of Internal Revenue
In the light of the NPC’s tax exempt status, issued VAT Ruling No. 052-99, stating that “the
MPC, on the belief that its sale of power generation supply of electricity by Hopewell Phil. to the NPC,
services to NPC is, pursuant to Sec. 108(B)(3) of the shall be subject to the zero percent (0%) VAT,
Tax Code,24[6] zero-rated for VAT purposes, filed on pursuant to Section 108 (B) (3) of the National
December 1, 1997 with Revenue District Office Internal Revenue Code of 1997.”
(RDO) No. 60 in Lucena City an Application for
Effective Zero Rating. The application covered the It must be noted at this juncture that consistent
construction and operation of its Pagbilao power with its belief to be zero-rated, MPC opted not to pay
station under a Build, Operate, and Transfer scheme. the VAT component of the progress billings from
Mitsubishi for the period covering April 1993 to
Not getting any response from the BIR district September 1996—for the E & M Equipment Erection
office, MPC refiled its application in the form of a Portion of MPC’s contract with Mitsubishi. This
“request for ruling” with the VAT Review Committee prompted Mitsubishi to advance the VAT component
at the BIR national office on January 28, 1999. On as this serves as its output VAT which is essential for

24 [6]
the determination of its VAT payment. Apparently, it
Transactions Subject to Zero Percent (%) Rate. – The following
services performed in the Philippines by VAT-registered persons shall be was only on April 14, 1998 that MPC paid Mitsubishi
subject to zero-percent rate: x x x (3) Services rendered to persons whose
exemption under special laws x x x effectively subjects the supply of such
services to zero percent (0%) rate.
the VAT component for the progress billings from
April 1993 to September 1996, and for which the National Internal Revenue Code (NIRC), MPC
Mitsubishi issued Official Receipt (OR) No. 0189 in went to the CTA via a petition for review, docketed as
the aggregate amount of PhP 135,993,570. CTA Case No. 6133.

On August 25, 1998, MPC, while awaiting Answering the petition, the BIR Commissioner,
approval of its application aforestated, filed its citing Kumagai-Gumi Co. Ltd. v. CIR,25[7] asserted
quarterly VAT return for the second quarter of 1998 that MPC’s claim for refund cannot be granted for this
where it reflected an input VAT of PhP main reason: MPC’s sale of electricity to NPC is not
148,003,047.62, which included PhP 135,993,570 zero-rated for its failure to secure an approved
supported by OR No. 0189. Pursuant to the procedure application for zero-rating.
prescribed in Revenue Regulations No. 7-95, MPC
filed on December 20, 1999 an administrative claim Before the CTA, among the issues stipulated by
for refund of unutilized input VAT in the amount of the parties for resolution were, in gist, the following:
PhP 148,003,047.62.
1. Whether or not [MPC] has unapplied
or unutilized creditable input VAT for the 2nd
quarter of 1998 attributable to zero-rated sales
Since the BIR Commissioner failed to act on its to NPC which are proper subject for refund
pursuant to relevant provisions of the NIRC;
claim for refund and obviously to forestall the running
of the two-year prescriptive period under Sec. 229 of 25[7]
CTA Case No. 4670, July 29, 1997.
2. Whether the creditable input VAT of
MPC for said period, if any, is substantiated by In view of all the foregoing, the instant
documents; and petition is PARTIALLY GRANTED.
Accordingly, respondent is hereby ORDERED
3. Whether the unutilized creditable to REFUND or in the alternative, ISSUE A TAX
input VAT for said quarter, if any, was applied CREDIT CERTIFICATE in favor of the
against any of the VAT output tax of MPC in the petitioner its unutilized input VAT payments
subsequent quarter. directly attributable to its effectively zero-rated
sales for the second quarter of 1998 in the
reduced amount of P10,766,939.48, computed
To provide support to the CTA in verifying and as follows:
analyzing documents and figures and entries Claimed Input VAT
P148,003,047.62
contained therein, the Sycip Gorres & Velayo (SGV),
Less: Disallowances
an independent auditing firm, was commissioned.
a.) As summarized by SGV & Co. in its initial
report (Exh. P)
The Ruling of the CTA I. Input Taxes on Purchases of Services:
1. Supported by documents
other than VAT Ors P
10,629.46
On the basis of its affirmative resolution of the 2. Supported by photocopied VAT OR
879.09
first issue, the CTA, by its Decision dated March 18, II. Input Taxes on Purchases of Goods:
1. Supported by documents other than
2003, granted MPC’s claim for input VAT refund or VAT invoices
165,795.70
credit, but only for the amount of PhP 10,766,939.48. 2. Supported by Invoices with TIN only
1,781.82
The fallo of the CTA’s decision reads: 3. Supported by photocopied VAT
invoices for refund or tax credit have not been amply
3,153.62
III. Input Taxes on Importation of Goods: substantiated by pertinent documents, such as but not
1. Supported by photocopied documents
[IEDs and/or Bureau of Customs limited to VAT ORs, invoices, and other supporting
(BOC) Ors]
716,250.00 documents. Wrote the CTA:
2. Supported by broker’s computations
91,601.00 990,090.69
We agree with the above SGV findings
b.) Input taxes without supporting documents as that out of the remaining taxes of
summarized in Annex A of SGV & Co.’s P136,246,017.45, the amount of P252,477.45
supplementary report (CTA records, was not supported by any document and should
page 134) 252,447.45 therefore be outrightly disallowed.

c.) Claimed input taxes on purchases of services As to the claimed input tax of
from P135,993,570.00 (P136,246,017.45 less
Mitsubishi Corp. for being substantiated by P252,477.45 ) on purchases of services from
dubious OR 135,996,570.0026[8]
Mitsubishi Corporation, Japan, the same is
Refundable Input
found to be of doubtful veracity. While it is true
P10,766,939.48 that said amount is substantiated by a VAT
official receipt with Serial No. 0189 dated April
14, 1998 x x x, it must be observed, however,
SO ORDERED.27[9]
that said VAT allegedly paid pertains to the
services which were rendered for the period
Explaining the disallowance of over PhP 137 1993 to 1996. x x x

million claimed input VAT, the CTA stated that most The Ruling of the CA
of MPC’s purchases upon which it anchored its claims
26 [8]
Should be 135,993,570.00 as per this petition and CA decision.
27[9]
Supra note 2, at 62.
Aggrieved, MPC appealed the CTA’s Decision SO ORDERED.28[10]

to the CA via a petition for review under Rule 43,


docketed as CA-G.R. SP No. 78280. On December The CA agreed with the CTA on MPC’s
22, 2005, the CA rendered its assailed decision entitlement to (1) a zero-rating for VAT purposes for
modifying that of the CTA decision by granting most its sales and services to tax-exempt NPC; and (2) a
of MPC’s claims for tax refund or credit. And in a refund or tax credit for its unutilized input VAT for the
Resolution of March 31, 2006, the CA denied the BIR second quarter of 1998. Their disagreement, however,
Commissioner’s motion for reconsideration. The centered on the issue of proper documentation,
decretal portion of the CA decision reads: particularly the evidentiary value of OR No. 0189.

WHEREFORE, premises considered, the


instant petition is GRANTED. The assailed The CA upheld the disallowance of PhP
Decision of the Court of Tax Appeals dated
March 18, 2003 is hereby MODIFIED. 1,242,538.14 representing zero-rated input VAT
Accordingly, respondent Commissioner of
Internal Revenue is ordered to refund or issue a claims supported only by photocopies of VAT
tax credit certificate in favor of petitioner OR/Invoice, documents other than VAT Invoice/OR,
Mirant Pagbilao Corporation its unutilized input
VAT payments directly attributable to its and mere broker’s computations. But the CA allowed
effectively zero-rated sales for the second
quarter of 1998 in the total amount of MPC’s refund claim of PhP 135,993,570 representing
P146,760,509.48.
input VAT payments for purchases of goods and/or
28[10]
Supra note 1, at 43.
services from Mitsubishi supported by OR No. 0189. April 14, 1998, must be taken conclusively to
The appellate court ratiocinated that the CTA erred in represent the input VAT payments made by MPC to
disallowing said claim since the OR from Mitsubishi Mitsubishi as MPC had no real control on the
was the best evidence for the payment of input VAT issuance of the OR. The CA held that the use of a
by MPC to Mitsubishi as required under Sec. different exchange rate reflected in the OR is of no
110(A)(1)(b) of the NIRC. The CA ruled that the consequence as what the OR undeniably attests and
legal requirement of a VAT Invoice/OR to substantiate acknowledges was Mitsubishi’s receipt of MPC’s
creditable input VAT was complied with through OR input VAT payment.
No. 0189 which must be viewed as conclusive proof
of the payment of input VAT. To the CA, OR No. The Issue
0189 represented an undisputable acknowledgment
and receipt by Mitsubishi of the input VAT payment Hence, the instant petition on the sole issue of
of MPC. “whether or not respondent [MPC] is entitled to the
refund of its input VAT payments made from 1993 to
The CA brushed aside the CTA’s ruling and 1996 amounting to [PhP] 146,760,509.48.”29[11]
disquisition casting doubt on the veracity and
genuineness of the Mitsubishi-issued OR No. 0189. It The Court’s Ruling
reasoned that the issuance date of the said receipt, 29[11]
Rollo, p. 15.
0189 in the amount of PhP 135,996,570 [for US$
As a preliminary matter, it should be stressed 5,190,000 at US$1: PhP 26.203 rate of exchange].
that the BIR Commissioner, while making reference Verily, a claim for tax refund may be based on a
to the figure PhP 146,760,509.48, joins the CA and statute granting tax exemption, or, as Commissioner
the CTA on their disposition on the propriety of the of Internal Revenue v. Fortune Tobacco
refund of or the issuance of a TCC for the amount of Corporation30[12] would have it, the result of
PhP 10,766,939.48. In fine, the BIR Commissioner legislative grace. In such case, the claim is to be
trains his sight and focuses his arguments on the core construed strictissimi juris against the taxpayer,31[13]
issue of whether or not MPC is entitled to a refund for meaning that the claim cannot be made to rest on
PhP 135,993,570 (PhP 146,760,509.48 - PhP vague inference. Where the rule of strict interpretation
10,766,939.48 = PhP 135,993,570) it allegedly paid as against the taxpayer is applicable as the claim for
creditable input VAT for services and goods purchased refund partakes of the nature of an exemption, the
from Mitsubishi during the 1993 to 1996 stretch. claimant must show that he clearly falls under the
exempting statute. On the other hand, a tax refund
may be, as usually it is, predicated on tax refund
The divergent factual findings and rulings of 30 [12]
G.R. Nos. 167274-75, July 21, 2008.
31[13]
the CTA and CA impel us to evaluate the evidence Atlas Consolidated Mining and Development Corporation v.
Commissioner of Internal Revenue, G.R. No. 159490, February 18, 2008,
citing Commissioner of Internal Revenue v. Solidbank Corp., G.R. No.
adduced below, particularly the April 14, 1998 OR 148191, November 25, 2003, 416 SCRA 436, 461.
provisions allowing a refund of erroneous or excess
payment of tax. The return of what was erroneously The Court can review issues of fact where there are
divergent findings by the trial and appellate courts
paid is founded on the principle of solutio indebiti, a
basic postulate that no one should unjustly enrich
As a matter of sound practice, the Court
himself at the expense of another. The caveat against
refrains from reviewing the factual determinations of
32[14]
unjust enrichment covers the government. And as
the CA or reevaluate the evidence upon which its
decisional law teaches, a claim for tax refund proper,
decision is founded. One exception to this rule is
as here, necessitates only the preponderance-of-
when the CA and the trial court diametrically differ in
33[15]
evidence threshold like in any ordinary civil case.
their findings,34[16] as here. In such a case, it is
incumbent upon the Court to review and determine if
We apply the foregoing elementary principles
the CA might have overlooked, misunderstood, or
in our evaluation on whether OR 0189, in the
misinterpreted certain facts or circumstances of
backdrop of the factual antecedents surrounding its
weight, which, if properly considered, would justify a
issuance, sufficiently proves the alleged unutilized
different conclusion.35[17] In the instant case, the CTA,
input VAT claimed by MPC.
unlike the CA, doubted the veracity of OR No. 0189
32 [14]
Commissioner of Internal Revenue v. Fireman’s Fund
34 [16]
Insurance Co., No. L-30644, March 9, 1987, 148 SCRA 315, cited in Uy v. Villanueva, G.R. No. 157851, June 29, 2007, 526 SCRA
Commissioner of Internal Revenue v. Fortune Tobacco Corporation, supra. 73, 84.
33 [15] 35 [17]
Commissioner of Internal Revenue v. Fortune Tobacco Samala v. Court of Appeals, G.R. No. 130826, February 17,
Corporation, ibid. 2004, 423 SCRA 142, 146.
and did not appreciate the same to support MPC’s (1) The input tax covered by OR No. 0189
claim for tax refund or credit. pertains to purchases by MPC from Mitsubishi
covering the period from 1993 to 1996; however,
Petitioner BIR Commissioner, echoing the MPC’s claim for tax refund or credit was filed on
CTA’s stand, argues against the sufficiency of OR No. December 20, 1999, clearly way beyond the two-year
0189 to prove unutilized input VAT payment by MPC. prescriptive period set in Sec. 112 of the NIRC;
He states in this regard that the BIR can require
additional evidence to prove and ascertain payment of (2) MPC failed to explain why OR No. 0189
creditable input VAT, or that the claim for refund or was issued by Mitsubishi (Manila) when the invoices
tax credit was filed within the prescriptive period, or which the VAT were originally billed came from the
had not previously been refunded to the taxpayer. Mitsubishi’s head office in Japan;
(3) The exchange rate used in OR No. 0189
To bolster his position on the dubious character was pegged at PhP 26.203: USD 1 or the exchange
of OR No. 0189, or its insufficiency to prove input rate prevailing in 1993 to 1996, when, on April 14,
VAT payment by MPC, petitioner proffers the 1998, the date OR No. 0189 was issued, the exchange
following arguments: rate was already PhP 38.01 to a US dollar;
(4) OR No. 0189 does not show or include (6) No other documents proving said input
payment of accrued interest which Mitsubishi was VAT payment were presented except OR No. 0189
charging and demanded from MPC for having which, considering the fact that OR No. 0188 was
advanced a considerable amount of VAT. The demand, likewise issued by Mitsubishi and presented before
per records, is embodied in the May 12, 1995 letter of the CTA but admittedly for payments made by MPC
Mitsubishi to MPC; on progress billings covering service purchases from
1993 to 1996, does not clearly show if such input VAT
(5) MPC failed to present to the CTA its VAT payment was also paid for the period 1993 to 1996
returns for the second and third quarters of 1995, and would be beyond the two-year prescriptive
when the bulk of the VAT payment covered by OR period.
No. 0189—specifically PhP 109,329,135.17 of the
total amount of PhP 135,993,570—was billed by The petition is partly meritorious.
Mitsubishi, when such return is necessary to ascertain
that the total amount covered by the receipt or a large Belated payment by MPC of its obligation for
portion thereof was not previously refunded or creditable input VAT
credited; and
As no less found by the CTA, citing the SGV’s
report, the payments covered by OR No. 0189 were
for goods and service purchases made by MPC belated payment of input VAT corresponding to the
through the progress billings from Mitsubishi for the payment of the progress billings from Mitsubishi for
period covering April 1993 to September 1996—for the period covering April 7, 1993 to September 6,
the E & M Equipment Erection Portion of MPC’s 1996. SGV found that OR No. 0189 in the amount of
contract with Mitsubishi.36[18] It is likewise undisputed PhP 135,993,570 (USD 5,190,000) was duly
that said payments did not include payments for the supported by bank statement evidencing payment to
creditable input VAT of MPC. This fact is shown by Mitsubishi (Japan).38[20] Undoubtedly, OR No. 0189
the May 12, 1995 letter37[19] from Mitsubishi where, as proves payment by MPC of its creditable input VAT
earlier indicated, it apprised MPC of the advances relative to its purchases from Mitsubishi.
Mitsubishi made for the VAT payments, i.e., MPC’s
creditable input VAT, and for which it was holding OR No. 0189 by itself sufficiently proves payment
MPC accountable for interest therefor. of VAT

In net effect, MPC did not, for the VATable The CA, citing Sec. 110(A)(1)(B) of the NIRC,
MPC-Mitsubishi 1993 to 1996 transactions adverted held that OR No. 0189 constituted sufficient proof of
to, immediately pay the corresponding input VAT. OR payment of creditable input VAT for the progress
No. 0189 issued on April 14, 1998 clearly reflects the billings from Mitsubishi for the period covering April
36 [18]
Rollo, p. 57.
37 [19] 38 [20]
Id. at 60. Id. at 57.
7, 1993 to September 6, 1996. Sec. 110(A)(1)(B) of As the Court distinctly notes, the law considers a
the NIRC pertinently provides: duly-executed VAT invoice or OR referred to in the
above provision as sufficient evidence to support a
Section 110. Tax Credits. –
claim for input tax credit. And any doubt as to what
A. Creditable Input Tax. –
OR No. 0189 was for or tended to prove should
(1) Any input tax evidenced by a VAT invoice reasonably be put to rest by the SGV report on which
or official receipt issued in accordance with
Section 113 hereof on the following transactions the CTA notably placed much reliance. The SGV
shall be creditable against the output tax:
report stated that “[OR] No. 0189 dated April 14,
(a) Purchase or importation of goods:
1998 is for the payment of the VAT on the progress
xxxx billings” from Mitsubishi Japan “for the period April
(b) Purchase of services on which a value- 7, 1993 to September 6, 1996 for the E & M
added tax has been actually paid.
(Emphasis ours.) Equipment Erection Portion of the Company’s
contract with Mitsubishi Corporation (Japan).”39[21]
Without necessarily saying that the BIR is
precluded from requiring additional evidence to prove VAT presumably paid on April 14, 1998
that input tax had indeed paid or, in fine, that the
taxpayer is indeed entitled to a tax refund or credit for
input VAT, we agree with the CA’s above disposition. 39[21]
Id.
While available records do not clearly indicate is understandable why Mitsubishi, in its effort to
when MPC actually paid the creditable input VAT recover the amount it advanced, used the PhP 26.203:
amounting to PhP 135,993,570 (USD 5,190,000) for USD 1 exchange formula in OR No. 0189 for USD
the aforesaid 1993 to 1996 service purchases, the 5,190,000.
presumption is that payment was made on the date
appearing on OR No. 0189, i.e., April 14, 1998. In No showing of interest payment not fatal to claim
fact, said creditable input VAT was reflected in MPC’s for refund
VAT return for the second quarter of 1998.
Contrary to petitioner’s posture, the matter of
The aforementioned May 12, 1995 letter from nonpayment by MPC of the interests demanded by
Mitsubishi to MPC provides collaborating proof of Mitsubishi is not an argument against the fact of
the belated payment of the creditable input VAT angle. payment by MPC of its creditable input VAT or of the
To reiterate, Mitsubishi, via said letter, apprised MPC authenticity or genuineness of OR No. 0189; for at the
of the VAT component of the service purchases MPC end of the day, the matter of interest payment was
made and reminded MPC that Mitsubishi had between Mitsubishi and MPC and may very well be
advanced VAT payments to which Mitsubishi was covered by another receipt. But the more important
entitled and from which it was demanding interest consideration is the fact that MPC, as confirmed by
payment. Given the scenario depicted in said letter, it the SGV, paid its obligation to Mitsubishi, and the
latter issued to MPC OR No. 0189, for the VAT (A) Zero-rated or Effectively Zero-rated
Sales. – Any VAT-registered person, whose sales
component of its 1993 to 1996 service purchases. are zero-rated or effectively zero-rated may,
within two (2) years after the close of the
taxable quarter when the sales were made,
The next question is, whether or not MPC is apply for the issuance of a tax credit
certificate or refund of creditable input tax
entitled to a refund or a TCC for the alleged unutilized due or paid attributable to such sales, except
transitional input tax, to the extent that such
input VAT of PhP 135,993,570 covered by OR No. input tax has not been applied against output
tax: x x x. (Emphasis ours.)
0189 which sufficiently proves payment of the input
VAT. The above proviso clearly provides in no
uncertain terms that unutilized input VAT payments
We answer the query in the negative. not otherwise used for any internal revenue tax due
the taxpayer must be claimed within two years
Claim for refund or tax credit filed out of time reckoned from the close of the taxable quarter
when the relevant sales were made pertaining to
The claim for refund or tax credit for the the input VAT regardless of whether said tax was
creditable input VAT payment made by MPC paid or not. As the CA aptly puts it, albeit it
embodied in OR No. 0189 was filed beyond the erroneously applied the aforequoted Sec. 112(A),
period provided by law for such claim. Sec. 112(A) of “[P]rescriptive period commences from the close of
the NIRC pertinently reads: the taxable quarter when the sales were made and not
from the time the input VAT was paid nor from the for refund or tax credit filed on December 10, 1999
time the official receipt was issued.”40[22] Thus, when had already prescribed.
a zero-rated VAT taxpayer pays its input VAT a year
after the pertinent transaction, said taxpayer only has Reckoning for prescriptive period under
Secs. 204(C) and 229 of the NIRC inapplicable
a year to file a claim for refund or tax credit of the
unutilized creditable input VAT. The reckoning frame
To be sure, MPC cannot avail itself of the
would always be the end of the quarter when the
provisions of either Sec. 204(C) or 229 of the NIRC
pertinent sales or transaction was made, regardless
which, for the purpose of refund, prescribes a
when the input VAT was paid. Be that as it may, and
different starting point for the two-year prescriptive
given that the last creditable input VAT due for the
limit for the filing of a claim therefor. Secs. 204(C)
period covering the progress billing of September 6,
and 229 respectively provide:
1996 is the third quarter of 1996 ending on September
30, 1996, any claim for unutilized creditable input Sec. 204. Authority of the
Commissioner to Compromise, Abate and
VAT refund or tax credit for said quarter prescribed Refund or Credit Taxes.— The Commissioner
may –
two years after September 30, 1996 or, to be precise, xxxx
on September 30, 1998. Consequently, MPC’s claim (c) Credit or refund taxes erroneously or
illegally received or penalties imposed without
authority, refund the value of internal revenue
40[22]
stamps when they are returned in good
Id. at 37.
condition by the purchaser, and, in his
discretion, redeem or change unused stamps that In any case, no such suit or proceeding
have been rendered unfit for use and refund shall be filed after the expiration of two (2)
their value upon proof of destruction. No credit years from the date of payment of the tax or
or refund of taxes or penalties shall be penalty regardless of any supervening cause
allowed unless the taxpayer files in writing that may arise after payment: Provided,
with the Commissioner a claim for credit or however, That the Commissioner may, even
refund within two (2) years after the payment without a written claim therefor, refund or credit
of the tax or penalty: Provided, however, That any tax, where on the face of the return upon
a return filed showing an overpayment shall be which payment was made, such payment
considered as a written claim for credit or appears clearly to have been erroneously paid.
refund. (Emphasis ours.)

xxxx
Notably, the above provisions also set a two-
Sec. 229. Recovery of Tax Erroneously
or Illegally Collected.— No suit or proceeding year prescriptive period, reckoned from date of
shall be maintained in any court for the recovery payment of the tax or penalty, for the filing of a claim
of any national internal revenue tax hereafter
alleged to have been erroneously or illegally of refund or tax credit. Notably too, both provisions
assessed or collected, or of any penalty claimed
to have been collected without authority, of any apply only to instances of erroneous payment or
sum alleged to have been excessively or in any
manner wrongfully collected without authority, illegal collection of internal revenue taxes.
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 MPC’s creditable input VAT not erroneously paid
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.
For perspective, under Sec. 105 of the NIRC, lease of goods or properties or on each rendition
of services in the course of trade or business as
creditable input VAT is an indirect tax which can be they pass along the production and distribution
chain, the tax being limited only to the value
shifted or passed on to the buyer, transferee, or lessee added to such goods, properties or services by
of the goods, properties, or services of the taxpayer. the seller, transferor or lessor. It is an indirect
tax that may be shifted or passed on to the
The fact that the subsequent sale or transaction buyer, transferee or lessee of the goods,
properties or services. As such, it should be
involves a wholly-tax exempt client, resulting in a understood not in the context of the person or
entity that is primarily, directly and legally
zero-rated or effectively zero-rated transaction, does liable for its payment, but in terms of its nature
not, standing alone, deprive the taxpayer of its right to as a tax on consumption. In either case, though,
the same conclusion is arrived at.
a refund for any unutilized creditable input VAT,
The law that originally imposed the VAT
albeit the erroneous, illegal, or wrongful payment in the country, as well as the subsequent
amendments of that law, has been drawn from
angle does not enter the equation. the tax credit method. Such method adopted the
In Commissioner of Internal Revenue v. mechanics and self-enforcement features of the
VAT as first implemented and practiced in
Seagate Technology (Philippines), the Court explained Europe x x x. Under the present method that
relies on invoices, an entity can credit against or
the nature of the VAT and the entitlement to tax refund subtract from the VAT charged on its sales or
outputs the VAT paid on its purchases, inputs
or credit of a zero-rated taxpayer: and imports.

Viewed broadly, the VAT is a uniform If at the end of a taxable quarter the
tax x x x levied on every importation of goods, output taxes charged by a seller are equal to the
whether or not in the course of trade or business, input taxes passed on by the suppliers, no
or imposed on each sale, barter, exchange or payment is required. It is when the output taxes
exceed the input taxes that the excess has to be taxable quarter when the relevant sales or transactions
paid. If, however, the input taxes exceed the
output taxes, the excess shall be carried over to were made pertaining to the creditable input VAT,
the succeeding quarter or quarters. Should the
input taxes result from zero-rated or effectively applies to the instant case, and not to the other actions
zero-rated transactions or from the acquisition which refer to erroneous payment of taxes.
of capital goods, any excess over the output
taxes shall instead be refunded to the taxpayer As a final consideration, the Court wishes to
or credited against other internal revenue taxes.
remind the BIR and other tax agencies of their duty to
xxxx
treat claims for refunds and tax credits with proper
Zero-rated transactions generally refer attention and urgency. Had RDO No. 60 and, later, the
to the export sale of goods and supply of
services. The tax rate is set at zero. When BIR proper acted, instead of sitting, on MPC’s
applied to the tax base, such rate obviously
results in no tax chargeable against the underlying application for effective zero rating, the
purchaser. The seller of such transactions
charges no output tax, but can claim a refund matter of addressing MPC’s right, or lack of it, to tax
of or a tax credit certificate for the VAT credit or refund could have plausibly been addressed
previously charged by suppliers.41[23]
(Emphasis added.) at their level and perchance freed the taxpayer and the
government from the rigors of a tedious litigation.
Considering the foregoing discussion, it is clear
that Sec. 112(A) of the NIRC, providing a two-year
The all too familiar complaint is that the
prescriptive period reckoned from the close of the
government acts with dispatch when it comes to tax
41[23]
G.R. No. 153866, February 11, 2005, 451 SCRA 132, 141-
143.
collection, but pays little, if any, attention to tax
claims for refund or exemption. It is high time our tax rated sales for the second quarter in the total amount
collectors prove the cynics wrong. of PhP 10,766,939.48.

WHEREFORE, the petition is PARTLY No pronouncement as to costs.


GRANTED. The Decision dated December 22, 2005
and the Resolution dated March 31, 2006 of the CA in SO ORDERED.
CA-G.R. SP No. 78280 are AFFIRMED with the
MODIFICATION that the claim of respondent MPC
for tax refund or credit to the extent of PhP PRESBITERO J. VELASCO, JR.
135,993,570, representing its input VAT payments for
Associate Justice
service purchases from Mitsubishi Corporation of
Japan for the construction of a portion of its Pagbilao, WE CONCUR:
Quezon power station, is DENIED on the ground that
the claim had prescribed. Accordingly, petitioner
LEONARDO A. QUISUMBING
Commissioner of Internal Revenue is ordered to Associate Justice
refund or, in the alternative, issue a tax credit Chairperson
certificate in favor of MPC, its unutilized input VAT
payments directly attributable to its effectively zero-
LEONARDO
CONCHITA CARPIO MORALES A. QUISUMBING
DANTE O. TINGA
Associate Justice
Associate Justice
Associate Justice Chairperson

C E R T I FI CAT I O N
Pursuant to Section 13, Article VIII of the
ARTURO D. BRION Constitution, and the Division Chairperson’s
Associate Justice 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
ATT E S TAT I O N Court’s Division.
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.
REYNATO S. PUNO

Chief Justice
- versus
-
THIRD DIVISION
Corona,

Carpio Morales,
COMMISSIONER OF
and
G.R. No. 152609
INTERNAL REVENUE,
Garcia, JJ
Petitioner,
Present:
AMERICAN EXPRESS
INTERNATIONAL, INC.
Pang
Promulgated:
aniba
(PHILIPPINE BRANCH),
n, J.,
Respondent.
June 29, 2005
Chairman,
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- -- -- -- -- x
Sandoval-
Gutierrez,
DECISION under any of the categories provided

in Section 102(b) of the Tax Code;


PANGANIBAN, J.:
and (3) it is paid for in acceptable

foreign currency that is accounted for

A
s a general rule, the value-

added tax (VAT) system uses in accordance with the regulations of

the destination principle. the Bangko Sentral ng Pilipinas.

However, our VAT law itself provides Since respondent’s services meet

for a clear exception, under which the these requirements, they are zero-

supply of service shall be zero-rated rated. Petitioner’s Revenue

when the following requirements are Regulations that alter or revoke the

met: (1) the service is performed in above requirements are ultra vires

the Philippines; (2) the service falls and invalid.


DISMISSED for lack of merit. The
assailed decision of the Court of Tax
Appeals (CTA) is AFFIRMED in toto.”[3]
The Case

Before us is a Petition for

Review[1] under Rule 45 of the Rules

of Court, assailing the February 28,

2002 Decision[2] of the Court of

Appeals (CA) in CA-GR SP No. 62727.

The assailed Decision disposed as

follows:

“WHEREFORE, premises
considered, the petition is hereby
The Facts
“Amex Philippines registered itself
with the Bureau of Internal Revenue
(BIR), Revenue District Office No. 47
(East Makati) as a value-added tax
Quoting the CTA, the CA narrated (VAT) taxpayer effective March 1988
and was issued VAT Registration
Certificate No. 088445 bearing VAT
the undisputed facts as follows: Registration No. 32A-3-004868. For the
period January 1, 1997 to December 31,
1997, [respondent] filed with the BIR its
“[Respondent] is a Philippine quarterly VAT returns as follows:
branch of American Express
International, Inc., a corporation duly Exhibit Period Covered Date Filed
organized and existing under and by
virtue of the laws of the State of D 1997 1st Qtr. April 18, 1997
Delaware, U.S.A., with office in the F 2nd Qtr. July 21, 1997
G 3rd Qtr. October 2, 1997
Philippines at the Ground Floor, ACE
H 4th Qtr. January 20, 1998
Building, corner Rada and de la Rosa
Streets, Legaspi Village, Makati City. It
is a servicing unit of American Express “On March 23, 1999, however,
International, Inc. - Hongkong Branch [respondent] amended the aforesaid
(Amex-HK) and is engaged primarily to returns and declared the following:
facilitate the collections of Amex-HK
receivables from card members situated
in the Philippines and payment to Taxable Output Zero-rated Domestic Input
service establishments in the Ex Sales VAT Sales Purchases VAT
Philippines. h
19
97 P5,193.66 and P6,799.43, respectively.
[Respondent] cites as basis therefor,
P59,597. P5,959.7P17,513,80 P6,778,182 P677,818.
I 20 2 1.11 .30 23
Section 110 (B) of the 1997 Tax Code, to
1st state:
qtr
J ‘Section 110. Tax
2n 67,517.2 6,751.72 17,937,361 9,333,242. 933,324.2 Credits. -
d
0 .51 90 9
qtr xxx xx
K x xxx
3r 51,936.6 5,193.66 19,627,245 8,438,357. 843,835.7
d
0 .36 00 0
‘(B) Excess Output or
qtr
L 13,080,822 1,308,082.
Input Tax. - If at the end of any
4th 67,994.3 6,799.43 25,231,225 .10 21 taxable quarter the output tax
qtr 0 .22 exceeds the input tax, the
excess shall be paid by the
P247,045 P24,704.P80,309,63 P37,630,60 P3,763,06 VAT-registered person. If the
To .30 53 3.20 4.30 0.43 input tax exceeds the output
tal tax, the excess shall be
carried over to the succeeding
quarter or quarters. Any input
“On April 13, 1999, [respondent] tax attributable to the
filed with the BIR a letter-request for the purchase of capital goods or
refund of its 1997 excess input taxes in to zero-rated sales by a VAT-
the amount of P3,751,067.04, which registered person may at his
amount was arrived at after deducting option be refunded or credited
from its total input VAT paid of against other internal revenue
taxes, subject to the
P3,763,060.43 its applied output VAT
provisions of Section 112.’
liabilities only for the third and fourth
quarters of 1997 amounting to
“There being no immediate action (a) Rate and base
on the part of the [petitioner], of tax. - There
shall be levied,
[respondent’s] petition was filed on April assessed and
15, 1999. collected, a value-
added tax
“In support of its Petition for equivalent to 10%
Review, the following arguments were percent of gross
receipts derived
raised by [respondent]:
by any person
engaged in the
A. Export sales by a sale of services.
VAT-registered person, the The phrase “sale
consideration for which is paid of services”
for in acceptable foreign means the
currency inwardly remitted to performance of all
the Philippines and accounted kinds of services
for in accordance with existing for others for a
regulations of the Bangko fee, remuneration
or consideration,
Sentral ng Pilipinas, are
including those
subject to [VAT] at zero performed or
percent (0%). According to rendered by
[respondent], being a VAT- construction and
registered entity, it is subject service
to the VAT imposed under contractors: stock,
Title IV of the Tax Code, to real estate,
wit: commercial,
customs and
‘Section immigration
102.(sic) Value- brokers; lessors of
added tax on personal property;
sale of services.- lessors or
distributors of
cinematographic tho
films; persons se
engaged in me
milling, ntio
ned
processing,
in
manufacturing or the
repacking goods prec
for others; and edin
similar services g
regardless of sub
whether o[r] not para
the performance grap
thereof calls for h,
the exercise or the
con
use of the
sid
physical or mental erat
faculties: ion
Provided That the is
following services pai
performed in the d
Philippines by for
VAT-registered in
persons shall be acc
subject to 0%: ept
abl
e
(1) x
fore
xx
ign
(2)
curr
Ser
enc
vice
y
s
whi
oth
ch
er
is
tha
rem
n
itte 3, 1989, the pertinent portion
d of which reads as follows:
inw
ardl
y to ‘In Reply,
the please be
Phili informed that, as
ppin a VAT registered
es entity whose
and service is paid for
acc in acceptable
ount
foreign currency
ed
for which is remitted
in inwardly to the
acc Philippines and
ord accounted for in
anc accordance with
e the rules and
with regulations of the
the Central [B]ank of
rule the Philippines,
s
your service
and
reg income is
ulat automatically zero
ion rated effective
s of January 1, 1998.
the [Section 102(a)(2)
BS of the Tax Code
P. x as amended].[4]
x x.’ For this, there is
no need to file an
In addition, application for
[respondent] relied on VAT zero-rate.’
Ruling No. 080-89, dated April
B. Input taxes on were made, apply
domestic purchases of for the issuance of
taxable goods and services tax credit
related to zero-rated revenues certificate or
refund of the input
are available as tax refund in
taxes due or
accordance with Section 106 attributable to
(now Section 112) of the [Tax such sales, to the
Code] and Section 8(a) of extent that such
[Revenue] Regulations [(RR)] input tax has not
No. 5-87, to state: been applied
against output tax.
‘Section x x x. [Section
106. Refunds or 106(a) of the Tax
tax credits of Code]’[5]
input tax. -
‘Section
(A) Zero- 8. Zero-rating. -
rated or (a) In general. - A
effectively Zero- zero-rated sale is
rated Sales. - Any a taxable
VAT-registered transaction for
person, except value-added tax
those covered by purposes. A sale
paragraph (a) by a VAT-
above, whose registered person
sales are zero- of goods and/or
rated or are services taxed at
effectively zero- zero rate shall not
rated, may, within result in any
two (2) years after output tax. The
the close of the input tax on his
taxable quarter purchases of
when such sales goods or services
related to such incumbent upon the
zero-rated sale [respondent] to prove that it is
shall be available entitled thereto under the law
as tax credit or and he who claims exemption
refundable in
must be able to justify his
accordance with
Section 16 of
claim by the clearest grant of
these organic or statu[t]e law. An
Regulations. x x exemption from the common
x.’ [Section 8(a), burden [cannot] be permitted
[RR] 5-87].’[6] to exist upon vague
implications;
“[Petitioner], in his Answer filed on
May 6, 1999, claimed by way of Special 9. Moreover,
and Affirmative Defenses that: [respondent] must prove that
it has complied with the
7. The claim for refund governing rules with reference
is subject to investigation by to tax recovery or refund,
the Bureau of Internal which are found in Sections
Revenue; 204(c) and 229 of the Tax
Code, as amended, which are
8. Taxes paid and quoted as follows:
collected are presumed to
‘Section
have been made in
204. Authority of
accordance with laws and the Commissioner
regulations, hence, not to Compromise,
refundable. Claims for tax Abate and Refund
refund are construed strictly or Credit Taxes. -
against the claimant as they The
partake of the nature of tax Commissioner
exemption from tax and it is may - x x x.
(C) Credit tax or penalty:
or refund taxes Provided,
erroneously or however, That a
illegally received return filed with an
or penalties overpayment shall
imposed without be considered a
authority, refund written claim for
the value of credit or refund.’
internal revenue
stamps when they ‘Section
are returned in 229. Recovery of
good condition by tax erroneously
the purchaser, or illegally
and, in his collected.- No
discretion, suit or proceeding
redeem or change shall be
unused stamps maintained in any
that have been court for the
rendered unfit for recovery of any
use and refund national internal
their value upon revenue tax
proof of hereafter alleged
destruction. No to have been
credit or refund of erroneously or
taxes or penalties illegally assessed
shall be allowed or collected, or of
unless the any penalty
taxpayer files in claimed to have
writing with the been collected
Commissioner a without authority,
claim for credit or or of any sum
refund within two alleged to have
(2) years after been excessively
payment of the or in any manner
wrongfully written claim
collected, until a therefor, refund or
claim for refund or credit any tax,
credit has been where on the face
duly filed with the of the return upon
Commissioner; which payment
but such suit or was made, such
proceeding may payment appears
be maintained, clearly to have
whether or not been erroneously
such tax, penalty paid.’
or sum has been
paid under protest “From the foregoing, the [CTA],
or duress.
through the Presiding Judge Ernesto D.
In any Acosta rendered a decision[7] in favor of
case, no such suit the herein respondent holding that its
or proceeding services are subject to zero-rate
shall be begun pursuant to Section 108(b) of the Tax
(sic) after the
Reform Act of 1997 and Section 4.102-2
expiration of two
(2) years from the (b)(2) of Revenue Regulations 5-96, the
date of payment decretal portion of which reads as
of the tax or follows:
penalty regardless
of any ‘WHEREFORE, in view
supervening of all the foregoing, this Court
cause that may
finds the [petition] meritorious
arise after
payment: and in accordance with law.
Provided, Accordingly, [petitioner] is
however, That the hereby ORDERED to
Commissioner REFUND to [respondent] the
may, even without amount of P3,352,406.59
representing the latter’s as project studies, information, or
excess input VAT paid for the
year 1997.’”[8]
engineering and architectural

designs” for non-resident foreign


Ruling of the Court of Appeals
clients; rather, they were “services

other than the processing,


In affirming the CTA, the CA
manufacturing or repacking of goods
held that respondent’s services fell
for persons doing business outside
under the first type enumerated in
the Philippines.” The consideration in
Section 4.102-2(b)(2) of RR 7-95, as
both types of service, however, was
amended by RR 5-96. More
paid for in acceptable foreign
particularly, its “services were not of
currency and accounted for in
the same class or of the same nature
accordance with the rules and
regulations of the Bangko Sentral ng

Pilipinas.

Furthermore, the CA reasoned

that reliance on VAT Ruling No. 040-

98 was unwarranted. By requiring

that respondent’s services be

consumed abroad in order to be zero-

rated, petitioner went


beyond the sphere of interpretation The Issue

and into that of legislation. Even

granting that it is valid, the ruling Petitioner raises this sole issue

cannot be given retroactive effect, for for our consideration:

it will be harsh and oppressive to


“Whether or not the Court of
Appeals committed reversible error in
respondent, which has already relied holding that respondent is entitled to the
refund of the amount of P3,352,406.59
upon VAT Ruling No. 080-89 for zero allegedly representing excess input VAT
for the year 1997.”[10]
rating.

The Court’s Ruling


Hence, this Petition.[9]

The Petition is unmeritorious.


engaged in milling, processing,
Sole Issue: manufacturing or repacking goods for
others; x x x services of banks, non-
Entitlement to Tax Refund bank financial intermediaries and
finance companies; x x x and similar
services regardless of whether or not
the performance thereof calls for the
exercise or use of the physical or mental
Section 102 of the Tax Code[11] faculties. The phrase 'sale or exchange
of services' shall likewise include:
provides:
x x x
xxx xxx
‘(3) The supply of x
“Sec. 102. Value-added tax on x x commercial knowledge or
sale of services and use or lease of information;
properties. -- (a) Rate and base of tax. -- ‘(4) The supply of
There shall be levied, assessed and any assistance that is
collected, a value-added tax equivalent ancillary and subsidiary to
to ten percent (10%) of gross receipts and is furnished as a means
derived from the sale or exchange of of enabling the application
services x x x. or enjoyment of x x x any
such knowledge or
information as is mentioned
“The phrase 'sale or exchange of in subparagraph (3);
services' means the performance of all x x x
kinds of services in the Philippines for xxx xxx
others for a fee, remuneration or ‘(6) The supply of
consideration, including those technical advice, assistance
performed or rendered by x x x persons or services rendered in
connection with technical ‘(1) Processing,
management or manufacturing or repacking
administration of any x x x goods for other persons doing
commercial undertaking, business outside the
venture, project or scheme; Philippines which goods are
subsequently exported, where
x x x x x the services are paid for in
x xxx acceptable foreign currency
and accounted for in
"The term 'gross receipts’ means accordance with the rules and
regulations of the Bangko
the total amount of money or its
Sentral ng Pilipinas (BSP);
equivalent representing the contract
price, compensation, service fee, rental ‘(2) Services other
or royalty, including the amount charged than those mentioned in the
for materials supplied with the services preceding subparagraph, the
and deposits and advanced payments consideration for which is paid
actually or constructively received for in acceptable foreign
during the taxable quarter for the currency and accounted for in
services performed or to be performed accordance with the rules and
for another person, excluding value- regulations of the [BSP];’”
added tax.
x x x
xxx xxx
"(b) Transactions subject to zero
percent (0%) rate. -- The following
services performed in the Philippines by
VAT-registered persons shall be subject
to zero percent (0%) rate[:] Zero Rating of
“Other” Services
regulations of the BSP, are zero-

The law is very clear. Under rated.

the last paragraph quoted above, Respondent is a VAT-registered

services performed by VAT-registered person that facilitates the collection

persons in the Philippines (other than and payment of receivables

the processing, manufacturing or belonging to its non-resident foreign

repacking of goods for persons doing client, for which it gets paid in

business outside the Philippines), acceptable foreign currency inwardly

when paid in acceptable foreign remitted and accounted for in

currency and accounted for in conformity with BSP rules and

accordance with the rules and regulations. Certainly, the service it

renders in the Philippines is not in the


same category as “processing, Service has been defined as

manufacturing or repacking of goods” “the art of doing something useful for

and should, therefore, be zero-rated. a person or company for a fee”[13] or

In reply to a query of respondent, the “useful labor or work rendered or to

BIR opined in VAT Ruling No. 080-89 be rendered by one person to

that the income respondent earned another.”[14] For facilitating in the

from its parent company’s regional Philippines the collection and

operating centers (ROCs) was payment of receivables belonging to

automatically zero-rated effective its Hong Kong-based foreign client,

January 1, 1988.[12] and getting paid for it in duly

accounted acceptable foreign

currency, respondent renders service


falling under the category of zero credit card system, the credit card

rating. Pursuant to the Tax Code, a company extends credit

VAT of zero percent should, therefore, accommodations to its card holders

be levied upon the supply of that for the purchase of goods and

service.[15] services from its member

establishments, to be reimbursed by

The Credit Card System them later on upon proper billing.


and Its Components
Given the complexities of present-day

For sure, the ancillary business business transactions, the

of facilitating the said collection is components of this system can

different from the main business of certainly function as separate billable

issuing credit cards.[16] Under the services.


Under RA 8484,[17] the credit latter to procure goods or services

card that is issued by banks[18] in “on a continuing basis as long as the

general, or by non-banks in outstanding balance does not exceed

particular, refers to “any card x x x or a specified limit.”[21] The card holder

other credit device existing for the is, therefore, given “the power to

purpose of obtaining x x x goods x x obtain present control of goods or

x or services x x x on credit;”[19] and service on a promise to pay for them

is being used “usually on a revolving in the future.”[22]

basis.”[20] This means that the

consumer-credit arrangement that Business establishments may

exists between the issuer and the extend credit sales through the use of

holder of the credit card enables the the credit card facilities of a non-bank
credit card company to avoid the risk

of uncollectible accounts from their

customers. Under
this system, the establishments do does not redeem the drafts at full

not deposit in their bank accounts the price. The agreement between them

credit card drafts[23] that arise from usually provides for discounts to be

the credit sales. Instead, they merely taken by the company upon its

record their receivables from the redemption of the drafts.[24] At the

credit card company and periodically end of each month, it then bills its

send the drafts evidencing those credit card holders for their

receivables to the latter. respective drafts redeemed during

the previous month. If the holders

The credit card company, in fail to pay the amounts owed, the

turn, sends checks as payment to company sustains the loss.[25]

these business establishments, but it


In the present case,

respondent’s role in the consumer

credit[26]
process described above primarily belong -- takes charge not only of

consists of gathering the bills and redeeming the drafts from the ROCs

credit card drafts of different service and sending the checks to the service

establishments located in the establishments, but also of billing the

Philippines and forwarding them to credit card holders for their

the ROCs outside the country. respective drafts that it has

Servicing the bill is not the same as redeemed. While it usually imposes

billing. For the former type of service finance charges[27] upon the holders,

alone, respondent already gets paid. none may be exacted by respondent

upon either the ROCs or the card

The parent company -- to holders.

which the ROCs and respondent


Branch and Home Office respective incomes. Each may

conduct sales operations in any


By designation alone,
locality as an extension of the
respondent and the ROCs are
principal office.[30]
operated as branches. This means

that each of them is a unit, “an


The extent of accounting
offshoot, lateral extension, or
activity at any of these branches
[28]
division” located at some distance
depends upon company policy,[31] but
from the home office[29] of the parent
the financial reports of the entire
company; carrying separate
business enterprise -- the credit card
inventories; incurring their own
company to which they all belong --
expenses; and generating their
must always show its financial
position, results of operation, and Contrary to petitioner’s

changes in its financial position as a assertion,[34] respondent can sell its

single unit.[32] Reciprocal accounts services to another branch of the

are reconciled or eliminated, because same parent company.[35] In fact, the

they lose all significance when the business concept of a transfer price

branches and home office are viewed allows goods and services to be sold

as a single entity.[33] In like manner, between and among intra-company

intra-company profits or losses must units at cost or above cost.[36] A

be offset against each other for branch may be operated as a

accounting purposes. revenue center, cost center, profit

center or investment center,

depending upon the policies and


accounting system of its parent directly to its parent company

company.[37] Furthermore, the latter abroad, and that the parent

may choose not to make any sale company’s subsequent redemption of

itself, but merely to function as a these drafts and billings of credit card

control center, where most or all of holders is also attributable to

its expenses are allocated to any of respondent, then with greater reason

its branches.[38] should the service rendered by

respondent be zero-rated under our

Gratia argumenti that the VAT system. The service partakes of

sending of drafts and bills by service the nature of export sales as

establishments to respondent is

equivalent to the act of sending them


applied to goods,[39] especially when goods or services”[42] purchased by

rendered in the Philippines by a VAT- the producer or taxpayer.[43] As an

registered person[40] that gets paid in indirect tax[44] on services,[45] its main

acceptable foreign currency object is the transaction[46] itself or,

accounted for in accordance with BSP more concretely, the performance of

rules and regulations. all kinds of services[47] conducted in

the course of trade or business in the

VAT Requirements for Philippines.[48] These services must


the Supply of Service
be regularly conducted in this

The VAT is a tax on country; undertaken in “pursuit of a

consumption[41] “expressed as a commercial or an economic

percentage of the value added to activity;”[49] for a valuable


consideration; and not exempt under payment of receivables belonging to

the Tax Code, other special laws, or a foreign company that is a clearly

any international agreement.[50] separate and distinct entity.

Without doubt, the transactions Second, such service is

respondent entered into with its Hong commercial in nature; carried on over

Kong-based client meet all these a sustained period of time; on a

requirements. significant scale; with a reasonable

degree of frequency; and not at

First, respondent regularly random, fortuitous or attenuated.

renders in the Philippines the service

of facilitating the collection and


Third, for this service, As a general rule, the VAT

respondent definitely receives system uses the destination principle

consideration in foreign currency that as a basis for the jurisdictional reach

is accounted for in conformity with of the tax.[51] Goods and services are

law. taxed only in the country where they

are consumed. Thus, exports are

Finally, respondent is not an zero-rated, while imports are taxed.

entity exempt under any of our laws

or international agreements. Confusion in zero rating arises

because petitioner equates the

Services Subject to performance of a particular type of


Zero VAT
service with the consumption of its
output abroad. In the present case, to the ROCs abroad. The

the facilitation of the collection of consumption contemplated by law,

receivables is different from the contrary to petitioner’s administrative

utilization or consumption of the interpretation,[52] does not imply that

outcome of such service. While the the service be done abroad in order

facilitation is done in the Philippines, to be zero-rated.

the consumption is not. Respondent

renders assistance to its foreign Consumption is “the use of a

clients -- the ROCs outside the thing in a way that thereby exhausts

country -- by receiving the bills of it.”[53] Applied to services, the term

service establishments located here means the performance or

in the country and forwarding them “successful completion of a


contractual duty, usually resulting in Unlike goods, services cannot

the performer’s release from any past be physically used in or bound for a

or future liability x x x.”[54] The specific place when their destination

services rendered by respondent are is determined. Instead, there can

performed or successfully completed only be a “predetermined end of a

upon its sending to its foreign client course”[55] when determining the

the drafts and bills it has gathered service “location or position x x x for

from service establishments here. Its legal purposes.”[56] Respondent’s

services, having been performed in facilitation service has no physical

the Philippines, are therefore also existence, yet takes place upon

consumed in the Philippines. rendition, and therefore upon

consumption, in the Philippines.


Under the destination principle, as “paid for in acceptable foreign

petitioner asserts, such service is currency and accounted for in

subject to VAT at the rate of 10 accordance with the rules and

percent. regulations of the [BSP].”[57] Thus, for

the supply of service to be zero-rated

Respondent’s Services Exempt as an exception, the law merely


from the Destination Principle
requires that first, the service be

However, the law clearly performed in the Philippines; second,

provides for an exception to the the service fall under any of the

destination principle; that is, for a categories in Section 102(b) of the

zero percent VAT rate for services Tax Code; and, third, it be paid in

that are performed in the Philippines, acceptable foreign currency


accounted for in accordance with BSP repacking of goods” as mentioned in

rules and regulations. the provision. Undisputed is the fact

that such service meets the statutory

Indeed, these three condition that it be paid in acceptable

requirements for exemption from the foreign currency duly accounted for in

destination principle are met by accordance with BSP rules. Thus, it

respondent. Its facilitation service is should be zero-rated.

performed in the Philippines. It falls


Performance of Service versus
under the second category found in
Product Arising from
Performance
Section 102(b) of the Tax Code,

because it is a service other than

“processing, manufacturing or
Again, contrary to petitioner’s for persons doing business outside this

stand, for the cost of respondent’s country -- if paid in acceptable foreign

service to be zero-rated, it need not currency and accounted for in

be tacked in as part of the cost of accordance with the rules and

goods exported.[58] The law neither regulations of the BSP, are zero-rated.

imposes such requirement nor The service rendered by respondent is

associates services with exported clearly different from the product that

goods. It simply states that the arises from the rendition of such

services performed by VAT-registered service. The activity that creates the

persons in the Philippines -- services income must not be confused with the

other than the processing, main business in the course of which

manufacturing or repacking of goods that income is realized.[59]


jurisdiction,[62] for the State

Tax Situs of a necessarily has to have “a substantial


Zero-Rated Service
connection”[63] to it, in order to

The law neither makes a enforce a zero rate.[64] The place of

qualification nor adds a condition in payment is immaterial;[65] much less

determining the tax situs of a zero- is the place where the output of the

rated service. Under this criterion, service will be further or ultimately

the place where the service is used.

rendered determines the

jurisdiction[60] to impose the VAT.[61] Statutory Construction


or Interpretation Unnecessary
Performed in the Philippines, such

service is necessarily subject to its


As mentioned at the outset, “[W]here the law speaks in clear and

Section 102(b)(2) of the Tax Code is categorical language, there is no

very clear. Therefore, no statutory room for interpretation. There is only

construction or interpretation is room for application.”[67] The Court

needed. Neither can conditions or has no choice but to “see to it that its

limitations be introduced where none mandate is obeyed.”[68]

is provided for. Rewriting the law is a

forbidden ground that only Congress

may tread upon.

The Court may not construe a

statute that is free from doubt.[66]


No Qualifications accounted for in accordance with the
Under RR 5-87
BSP (then Central Bank) regulations.

In implementing the VAT Section 8 of RR 5-87 states:

provisions of the Tax Code, RR 5-87


“SECTION 8. Zero-rating. -- (a) In
provides for the zero rating of general. -- A zero-rated sale is a taxable
transaction for value-added tax
purposes. A sale by a VAT-registered
services other than the processing, person of goods and/or services taxed
at zero rate shall not result in any output
manufacturing or repacking of goods tax. The input tax on his purchases of
goods or services related to such zero-
rated sale shall be available as tax
-- in general and without credit or refundable in accordance with
Section 16 of these Regulations.
qualifications -- when paid for by the
xxx xxx x
xx
person to whom such services are
“ (c) Zero-rated sales of
rendered in acceptable foreign services. -- The following
services rendered by VAT-
registered persons are
currency inwardly remitted and duly zero-rated:
x x
‘(1) x x x
Services in x xxx
connection with ‘(3)
the processing, Services
manufacturing performed in the
or repacking of Philippines other
goods for than those
persons doing mentioned in
business outside subparagraph
the Philippines, (1) above which
where such are paid for by
goods are the person or
actually shipped entity to whom
out of the the service is
Philippines to rendered in
said persons or acceptable
their assignees foreign currency
and the services inwardly
are paid for in remitted and
acceptable duly accounted
foreign currency for in
inwardly accordance with
remitted and Central Bank
duly accounted regulations.
for under the Where the
regulations of contract involves
the Central Bank payment in both
of the foreign and local
Philippines. currency, only
the service
corresponding to Philippines by VAT-registered hotels
that paid in
foreign currency
shall enjoy zero- and other service establishments.
rating. The
portion paid for
in local currency Again, the condition remains that
shall be subject
to VAT at the these services must be paid in
rate of 10%.’”

acceptable foreign currency inwardly


RR 7-95 remitted and accounted for in
Broad Enough
accordance with the rules and
RR 7-95, otherwise known as the regulations of the BSP. The term
“Consolidated VAT Regulations,”[69] “other service establishments” is
reiterates the above-quoted provision obviously broad enough to cover
and further presents as examples only respondent’s facilitation service.
the services performed in the
Section 4.102-2 of RR 7-95 provides acceptable foreign currency
and accounted for in
accordance with the rules and
thus: regulations of the BSP;

‘(2) Services other


than those mentioned in the
“SECTION 4.102-2. Zero-Rating. preceding subparagraph, e.g.
-- (a) In general. -- A zero-rated sale by those rendered by hotels and
a VAT registered person, which is a other service establishments,
taxable transaction for VAT purposes, the consideration for which is
shall not result in any output tax. paid for in acceptable foreign
However, the input tax on his purchases currency and accounted for in
of goods, properties or services related accordance with the rules and
regulations of the BSP;’”
to such zero-rated sale shall be
available as tax credit or refund in
x x x
accordance with these regulations. xxx xxx

“(b) Transaction subject to zero-


rate. -- The following services performed
in the Philippines by VAT-registered
persons shall be subject to 0%: Meaning of “as well as”
‘(1) Processing, in RR 5-96
manufacturing or repacking
goods for other persons doing
business outside the
Philippines which goods are
subsequently exported, where
the services are paid for in
Section 4.102-2(b)(2) of RR 7- Aside from the already

95 was subsequently amended by RR scopious coverage of services in

5-96 to read as follows: Section 4.102-2(b)(2) of RR 7-95, the

amendment introduced by RR 5-96


“Section 4.102-2(b)(2) -- ‘Services
other than processing, manufacturing or further enumerates specific services
repacking for other persons doing
business outside the Philippines for
goods which are subsequently exported, entitled to zero rating. Although
as well as services by a resident to a
non-resident foreign client such as superfluous, these sample services
project studies, information services,
engineering and architectural designs
and other similar services, the are meant to be merely illustrative.
consideration for which is paid for in
acceptable foreign currency and In this provision, the use of the term
accounted for in accordance with the
rules and regulations of the BSP.’"
“as well as” is not restrictive. As a

prepositional phrase with an

adverbial relation to some other


word, it simply means “in addition to,

besides, also or too.”[70] Ejusdem Generis


Inapplicable

Neither the law nor any of the The canon of statutory

implementing revenue regulations construction known as ejusdem

aforequoted categorically defines or generis or “of the same kind or

limits the services that may be sold specie” does not apply to Section

or exchanged for a fee, remuneration 4.102-2(b)(2) of RR 7-95 as amended

or consideration. Rather, both merely by RR 5-96.

enumerate the items of service that First, although the regulatory

fall under the term “sale or exchange provision contains an enumeration of

of services.”[71] particular or specific words, followed


by the general phrase “and other outputs, no common denominator to

similar services,” such words do not the exclusion of all others

constitute a readily discernible class characterizes these three services.

and are patently not of the same Nothing sets them apart from other

kind.[72] Project studies involve and similar general services that may

investments or marketing; involve advertising, computers,

information services focus on data consultancy, health care,

technology; engineering and management, messengerial work --

architectural designs require to name only a few.

creativity. Aside from calling for the

exercise or use of mental faculties or Second, there is the regulatory

perhaps producing written technical intent to give the general phrase


“and other similar services” a

broader meaning.[73] Clearly, the

preceding phrase “as well as” is not

meant to limit the effect of “and

other similar services.”


Third, and most important, the VAT Ruling No. 040-98 relied

statutory provision upon which this upon by petitioner is a less general

regulation is based is by itself not interpretation at the administrative

restrictive. The scope of the word level,[75] rendered by the BIR

“services” in Section 102(b)(2) of the commissioner upon request of a

Tax Code is broad; it is not taxpayer to clarify certain provisions

susceptible of narrow of the VAT law. As correctly held by

interpretation.[74] the CA, when this ruling states that

the service must be “destined for

VAT Ruling consumption outside of the


Nos. 040-98 and 080-89
Philippines”[76] in order to qualify for

zero rating, it contravenes both the


law and the regulations issued “ignored if judicially found to be

pursuant to it.[77] This portion of VAT erroneous”[80] and “clearly absurd x x

Ruling No. 040-98 is clearly ultra x or improper.”[81] An administrative

vires and invalid.[78] issuance that overrides the law it

merely seeks to interpret, instead of


Although “[i]t is widely remaining consistent and in harmony
accepted that the interpretation with it, will not be countenanced by
placed upon a statute by the this Court.[82]
executive officers, whose duty is to

enforce it, is entitled to great respect In the present case,


by the courts,”[79] this interpretation is respondent has relied upon VAT
not conclusive and will have to be Ruling No. 080-89, which clearly
recognizes its zero rating. Changing

this status will certainly deprive

respondent of a refund of the

substantial amount of excess input

taxes to which it is entitled.

Again, assuming arguendo that

VAT Ruling No. 040-98 revoked VAT

Ruling No. 080-89, such revocation

could not be given


retroactive effect if the application of It is also basic in law that “no x

the latter ruling would only be x x rule x x x shall be given

prejudicial to respondent.[83] Section retrospective effect[85] unless

246 of the Tax Code categorically explicitly stated.”[86] No indication of

declares that “[a]ny revocation x x x such retroactive application to

of x x x any of the rulings x x x respondent does the Court find in VAT

promulgated by the Commissioner Ruling No. 040-98. Neither do the

shall not be given retroactive exceptions enumerated in Section

application if the revocation x x x will 246[87] of the Tax Code apply.

be prejudicial to the taxpayers.”[84] Though vested with the power

to interpret the provisions of the Tax

Code[88] and not bound by


predecessors’ acts or rulings, the BIR clear intent on the part of the

commissioner may render a different legislators not to impose the

construction to a statute[89] only if the condition of being “consumed

new interpretation is in congruence abroad” in order for services

with the law. Otherwise, no amount of performed in the Philippines by a VAT-

interpretation can ever revoke, repeal registered person to be zero-rated.

or modify what the law says. We quote the relevant portions of the

proceedings:

“Consumed Abroad”
Not Required by Legislature “Senator Maceda: Going back to
Section 102 just for the moment. Will the
Gentleman kindly explain to me - I am
referring to the lower part of the first
Interpellations on the subject in paragraph with the ‘Provided’. Section
102. ‘Provided that the following
services performed in the Philippines by
the halls of the Senate also reveal a
VAT registered persons shall be subject with, then they are not entitled to the
to zero percent.’ There are three here. zero ratings. Just like in the export of
What is the difference between the three minerals, if these are not exported, then
here which is subject to zero percent they cannot qualify under this provision
and Section 103 which is exempt of zero rating.
transactions, to being with?
“Senator Maceda: Mr. President,
“Senator Herrera: Mr. President, just one small item so we can leave
in the case of processing and this. Under the proviso, it is required
manufacturing or repacking goods for that the following services be performed
persons doing business outside the in the Philippines.
Philippines which are subsequently
exported, and where the services are “Under No. 2, services other than
paid for in acceptable foreign currencies those mentioned above includes, let us
inwardly remitted, this is considered as say, manufacturing computers and
subject to 0%. But if these conditions computer chips or repacking goods for
are not complied with, they are subject persons doing business outside the
to the VAT. Philippines. Meaning to say, we ship the
goods to them in Chicago or
“In the case of No. 2, again, as Washington and they send the payment
the Gentleman pointed out, these three inwardly to the Philippines in foreign
are zero-rated and the other one that he currency, and that is, of course, zero-
indicated are exempted from the very rated.
beginning. These three enumerations
under Section 102 are zero-rated “Now, when we say ‘services
provided that these conditions indicated other than those mentioned in the
in these three paragraphs are also preceding subsection[,’] may I have
complied with. If they are not complied some examples of these?
“Senator Herrera: Which portion “Senator Herrera: What is
is the Gentleman referring to? important here is that these services are
paid in acceptable foreign currency
“Senator Maceda: I am referring remitted inwardly to the Philippines.
to the second paragraph, in the same
Section 102. The first paragraph is “Senator Maceda: Yes, Mr.
when one manufactures or packages President. Like those Japanese tours
something here and he sends it abroad which include $50 for the services of a
and they pay him, that is covered. That woman or a tourist guide, it is zero-rated
is clear to me. The second paragraph when it is remitted here.
says ‘Services other than those
mentioned in the preceding “Senator Herrera: I guess it can
subparagraph, the consideration of be interpreted that way, although this
which is paid for in acceptable foreign tourist guide should also be considered
currency…’ as among the professionals. If they
earn more than P200,000, they should
“One example I could immediately be covered.
think of -- I do not know why this comes
to my mind tonight -- is for tourism or xxx xxx x
escort services. For example, the xx
services of the tour operator or tour
escort -- just a good name for all kinds Senator Maceda: So, the
of activities -- is made here at the services by Filipino citizens outside the
Midtown Ramada Hotel or at the Philippines are subject to VAT, and I am
Philippine Plaza, but the payment is talking of all services. Do big
made from outside and remitted into the contractual engineers in Saudi Arabia
country. pay VAT?
“Senator Herrera: This provision
applies to a VAT-registered person.
When he performs services in the
Philippines, that is zero-rated.

“Senator Maceda: That is


right."[90]
Legislative Approval substantially unchanged is
By Reenactment
persuasive indication of the adoption

Finally, upon the enactment of by Congress of a prior executive

RA 8424, which substantially carries construction.”[91]

over the particular provisions on zero

rating of services under Section The legislature is presumed to

102(b) of the Tax Code, the principle have reenacted the law with full

of legislative approval of knowledge of the contents of the

administrative interpretation by revenue regulations then in force

reenactment clearly obtains. This regarding the VAT, and to have

principle means that “the approved or confirmed them because

reenactment of a statute they would carry out the legislative


purpose. The particular provisions of

the regulations we have mentioned In sum, having resolved that

earlier are, therefore, re-enforced. transactions of respondent are zero-

“When a statute is susceptible of the rated, the Court upholds the former’s

meaning placed upon it by a ruling of entitlement to the refund as

the government agency charged with determined by the appellate court.

its enforcement and the [l]egislature Moreover, there is no conflict

thereafter [reenacts] the provisions between the decisions of the CTA and

[without] substantial change, such CA. This Court respects the findings

action is to some extent confirmatory and conclusions of a specialized court

that the ruling carries out the like the CTA “which, by the nature of

legislative purpose.”[92] its functions, is dedicated exclusively


to the study and consideration of tax exchange.[94] “[T]he tax paid or

cases and has necessarily developed withheld is not deducted from the tax

an expertise on the subject.”[93] base.”[95] Having been applied for

within the reglementary period,[96]

Furthermore, under a zero- respondent’s refund is in order.

rating scheme, the sale or exchange

of a particular service is completely WHEREFORE, the Petition is

freed from the VAT, because the hereby DENIED, and the assailed

seller is entitled to recover, by way of Decision AFFIRMED. No

a refund or as an input tax credit, the pronouncement as to costs.

tax that is included in the cost of

purchases attributable to the sale or SO ORDERED.


ARTEMIO V. ATTESTATION
PANGANIBA
N
Associate I attest that the conclusions in
Justice
Chairman, the above Decision had been reached
Third Division
in consultation before the case was

W E C O N C U R: assigned to the writer of the opinion

of the Court’s Division.

ANGELINA SANDOVAL- RENATO C. CORONA


GUTIERREZ
Associate Justice Associate Justice ARTEMIO V.
PANGANIBAN
Associate Justice
Chairman, Third
CONCHITA CARPIO MORALES CANCIO C. GARCIA Division
Associate Justice Associate Justice
CERTIFICATION HILARIO G. DAVIDE, JR.

Chief Justice
Pursuant to Section 13, Article
[1]
Rollo, pp. 8-23.
[2]
Id., pp. 25-39. Fifth Division. Penned
VIII of the Constitution, and the by Justice Josefina Guevara-Salonga,
with the concurrence of Justices Godardo
Division Chairman’s Attestation, it is A. Jacinto (Division chair) and Eloy R.
Bello Jr. (member, now retired).
[3]
CA Decision, p. 15; rollo, p. 38.
hereby certified that the conclusions [4]
Outer brackets copied verbatim.
[5]
Ibid.
in the above Decision had been [6]
Ibid.
[7]
CTA Decision, pp. 1-15; rollo, pp. 40-
reached in consultation before the 54. Penned by then Presiding Judge
(now Presiding Justice) Ernesto D.
Acosta, with the concurrence of then
case was assigned to the writer of the Judges Ramon O. de Veyra and Amancio
Q. Saga (both retired).
[8]
opinion of the Court’s Division. CA Decision pp. 2-7; rollo, pp. 26-31.
Boldface characters, underscoring and
italics copied verbatim.
[9]
This case was deemed submitted for [12]
In fact, per VAT Ruling No. 080-89
decision on July 23, 2003, upon this addressed to Spencer F. Lenhart, vice-
Court’s receipt of petitioner’s president and general manager of
Memorandum, signed by Solicitor American Express International, Inc. (AEII
General Alfredo L. Benipayo, Assistant Philippines), BIR Deputy Commissioner
Solicitor General Fernanda Lampas Eufracio D. Santos wrote that “there is
Peralta and Associate Solicitor Romeo D. no need to file an application” for zero
Galzote. Respondent’s Memorandum -- rating.
signed by Attys. Rolando V. Medalla Jr., [13]
Garner (ed. in chief), Black’s Law
Ramon G. Songco, and Ma. Elizabeth E. Dictionary (8th ed., 1999), p. 1399.
Peralta-Loriega -- was received by this [14]
Smith, West’s Law Dictionary (1993),
Court on May 16, 2003. p. 737.
[10]
Petitioner’s Memorandum, p. 9; [15]
§99 [now §105] and §102(b)(2) [now
temporary rollo, p. 9. Original in upper §108(B)(2)] of the Tax Code. See
case. footnote 11; and Deoferio Jr. and
[11]
In the case at bar, the applicable Tax Mamalateo, The Value Added Tax in the
Code refers to the National Internal Philippines (2000), p. 33.
Revenue Code (NIRC) of 1986 as [16]
These are unlike some widely used
amended by Executive Order (EO) No. credit cards, such as Visa and
273 and Republic Act (RA) Nos. 7716 and MasterCard, that are issued by banks.
8241 dated July 25, 1987, May 5, 1994, See Meigs and Meigs, Accounting: The
and December 20, 1996, respectively. Basis for Business Decisions (5th ed.,
Today, the Tax Code refers to 1982), pp. 355-356.
RA 8424 as amended, otherwise known [17]
This is also known as the “Access
as the “Tax Reform Act of 1997,” which Devices Regulation Act of 1998”
took effect on January 1, 1998 approved on February 11, 1998.
(Commissioner of Internal Revenue v. [18]
For example, “Visa and MasterCard
CA, 385 Phil. 875, 883, March 30, 2000). are complex entities in that they are
owned by their member banks, provide services.” Garner (ed. in chief), supra, p.
network services to their member banks, 396.
and provide currency conversion as part Also known as personal credit,
of the network services, but have no it “may be extended by means of a
contracts with cardholders.” Schwartz v. charge account, an installment sale, or
Visa International Corp., 2003 WL by a personal loan.” Editorial staff of
1870370 (Cal. Superior), p. 50, April 7, Prentice-Hall, Inc., supra, p. 164.
2003, per Sabraw, J. [27]
In general, this term refers to
[19]
§3(f) of RA 8484. amounts paid on a percentage basis “for
[20]
Garner (ed. in chief), supra, p. 396. the privilege of making purchases on a
[21]
Ibid. deferred payment basis.” Smith, supra,
[22]
Editorial staff of Prentice-Hall, Inc., p. 314.
Encyclopedic Dictionary of Business Under §3(h) of RA 8484, more
Finance (1960), p. 181. specifically, these are amounts “to be
[23]
Credit card drafts are multi-part paid by the debtor incident to the
business forms signed by customers who extension of credit such as interest or
make purchases using credit cards. discounts, collection fees, credit
These forms are similar to checks that investigation fees, and other service
are drawn upon the funds of credit card charges.”
companies rather than upon the [28]
Garner (ed. in chief), supra, p. 199.
personal bank accounts of customers. [29]
In general, a home office refers to
Meigs and Meigs, supra, p. 355. “the use of a residence for business
[24]
Id., p. 356. purposes.” Smith, supra, p. 389.
[25]
Id., p. 355. More specifically, it is the
[26]
Consumer credit refers to the credit “principal place of business” where the
granted “to an individual to facilitate the main office is located as appearing in the
purchase of consumer goods and corporation’s articles of incorporation.
5th paragraph, §4.107-1 of RR 7-95, transaction affected it. Thus, if
dated December 9, 1995. reciprocal accounts are offset against
[30]
4th paragraph, §4.107-1 of RR 7-95, each other at the end of the financial
dated December 9, 1995. reporting period of the entire business
[31]
Meigs, Mosich, and Larsen, Modern enterprise, an intra-company transfer of
Advanced Accounting (2nd ed., 1979), p. assets will show neither an increase nor
145. a decrease in total assets, precisely
“Indeed, accounting operations because the transferred assets merely
x x x are inevitable, and have to be changed location from one unit of the
effected in the ordinary course of same entity to another; that is, from the
business, wherever the home office x x x home office to any of its branches or
extends its trade to another land through vice versa. In this scenario, there is
a branch office x x x.” Koppel obviously no change in ownership. See
(Philippines), Inc. v. Yatco, 77 Phil. 496, Meigs, Mosich, and Larsen, supra, pp.
512, October 10, 1946, per Hilado, J. 144-146, 149-150, 165.
[34]
[32]
Meigs, Mosich, and Larsen, supra, p. Petitioner’s Memorandum, p. 27;
148. temporary rollo, p. 27.
[35]
[33]
“Reciprocal accounts” are account For financial accounting purposes, the
titles found in the books of accounts of a parent company in Delaware is a single
home office and its branches that may entity composed of its home office, the
be likened to two sides of the same various ROCs and respondent.
coin. When one account -- the Though viewed as one, the parent
Investment in Branch account -- is company and respondent are, in law,
debited by the home office in its own separate and distinct juridical entities.
books for a particular transaction with a Applying Art. 44 of the Civil Code, each
branch, the other account -- the Home is a corporation for private interest or
Office account -- is credited by the latter, purpose to which the law grants a
also in its own books to show how that juridical personality, separate and
distinct from that of each shareholder. criteria of goal congruence, managerial
While the former is duly organized and effort, and sub-unit autonomy. Horngren
existing under and by virtue of the laws & Foster, Cost Accounting: A Managerial
of Delaware, the latter is registered and Emphasis (7th ed., 1991), pp. 855-856 &
operates under Philippine laws. 860.
“The act of one corporation [37]
Under a responsibility accounting
crediting or debiting the other for certain system in which the plans and actions of
items x x x is perfectly compatible with each responsibility center is measured, a
the idea of the domestic entity being or manager may be held accountable for
acting as a mere branch x x x of the sales only (of a revenue center); or for
parent organization. Such operations expenses only (of a cost center); or for
were called for [anyway] by the both revenues and costs (of a profit
exigencies or convenience of the entire center); or for revenues, costs and
business.” Koppel (Philippines), Inc. v. investments (of an investment center).
Yatco, supra, pp. 511-512. Horngren & Foster, id., p. 186.
[36]
A “transfer price” is “[t]he price [38]
Meigs, Mosich, and Larsen, supra, p.
charged by one segment of an 146.
organization for a product or service [39]
Under §100 of the Tax Code, “export
supplied to another segment of the same sales” as applied to goods “means the
organization x x x.” Garner (ed. in sale and shipment or exportation of
chief), supra, p. 1227. goods from the Philippines to a foreign
There are three general country x x x or foreign currency
methods for determining transfer prices; denominated sales.” “Foreign currency
namely, market-based, cost-based, and denominated sales” refers to “sales to
negotiated. The method chosen must non-residents of goods assembled or
lead each sub-unit manager to make manufactured in the Philippines, for
optimal decisions for the organization as delivery to residents in the Philippines
a whole, in order to meet the three and paid for in convertible foreign
currency remitted through the banking 319 Phil. 755, 792 & 797, October 30,
system in the Philippines.” 1995.
[40]
Commissioner of Internal Revenue v. [46]
Deoferio Jr. and Mamalateo, supra,
Cebu Toyo Corp., GR No. 149073, pp. 49 & 89.
February 16, 2005. [47]
Commissioner of Internal Revenue v.
[41]
Deoferio Jr. and Mamalateo, supra, CA, supra, pp. 883-884.
pp. 33 & 67. [48]
2nd paragraph of §102(a) [now 2nd
[42]
Smith, supra, p. 892. paragraph of §108(A)] of the Tax Code.
[43]
See Kapatiran ng mga Naglilingkod See Deoferio Jr. and Mamalateo, supra,
sa Pamahalaan ng Pilipinas, Inc. v. Tan, pp. 89-90.
163 SCRA 371, 378-379, June 30, 1988. [49]
Commissioner of Internal Revenue v.
[44]
An indirect tax “is imposed upon CA, supra, p. 884, per Pardo, J.
goods [before] reaching the consumer [50]
Deoferio Jr. and Mamalateo, supra,
who ultimately pays for it, not as a tax, pp. 81, 82, 91, 92 & 204.
but as a part of the purchase price.” [51]
Deoferio Jr. and Mamalateo, id., pp.
Maceda v. Macaraig Jr., 223 SCRA 217, 43 & 93.
235, June 8, 1993, per Nocon, J.; [52]
Per VAT Ruling No. 040-98, relied
referring to Paras, Taxation upon by petitioner. See Petition, p. 9;
Fundamentals (1966), pp. 24-25. See rollo, p. 16.
Guzman, Crisis Under Arroyo Rages: [53]
Garner (ed. in chief), supra, p. 336.
People Bear the Brunt, IBON Birdtalk: [54]
Id., p. 1173.
Economic and Political Briefing, PSSC [55]
Id., p. 479.
Auditorium, PSSC Bldg., Commonwealth [56]
Id., p. 1421.
Ave., Quezon City, January 13, 2005, p. [57]
§102(b)(2) of the Tax Code.
14. [58]
See 5th paragraph of item 1 in the
[45]
See Tolentino v. Secretary of Finance, reply portion of VAT Ruling No. 040-98,
235 SCRA 630, 657, August 25, 1994, dated November 23, 1998.
and Tolentino v. Secretary of Finance,
[59]
See Alexander Howden & Co., Ltd. v. [68]
Luzon Surety Co., Inc. v. De Garcia,
The Collector (Now Commissioner) of 30 SCRA 111, 116, October 31, 1969, per
Internal Revenue, 121 Phil. 579, 583- Fernando, J. (later CJ.).
584, April 14, 1965. [69]
Contex Corp. v. Commissioner of
[60]
“[N]o state may tax anything not Internal Revenue, 433 SCRA 376, 387,
within its jurisdiction without violating July 2, 2004.
the due process clause of the [70]
Gove (ed. in chief) and the Merriam-
[C]onstitution.” Manila Gas Corp. v. Webster editorial staff, Webster’s Third
Collector of Internal Revenue, 62 Phil. New International Dictionary of the
895, 900, January 17, 1936, per Malcolm, English Language Unabridged (1976), p.
J. 136.
[61]
Deoferio Jr. and Mamalateo, supra, p. [71]
2nd paragraph of §102(a) [now 2nd
93. paragraph of §108(A)] of the Tax Code.
[62]
Alejandro, The Law on Taxation (1966 [72]
See Agpalo, supra, pp. 153-160.
rev. ed.), p. 33. [73]
Ibid.
[63]
Garner (ed. in chief), supra, p. 1503. [74]
See Regalado v. Yulo, 61 Phil. 173,
[64]
De Leon, The Fundamentals of 179, February 15, 1935.
Taxation (12th ed., 1998), p. 3. [75]
De Leon, supra, p. 83.
[65]
Deoferio Jr. and Mamalateo, supra, [76]
See 5th paragraph of item 1 in the
pp. 93. reply portion of VAT Ruling No. 040-98,
[66]
Agpalo, Statutory Construction (2nd dated November 23, 1998.
ed., 1990), p. 45. [77]
CA Decision, p. 11; rollo, p. 34.
[67]
Cebu Portland Cement Co. v. [78]
See Hilado v. Collector of Internal
Municipality of Naga, Cebu, 133 Phil. Revenue, 100 Phil. 288, 295, October 31,
695, 699, August 22, 1968, per 1956.
Fernando, J. (later CJ.). [79]
Philippine Bank of Communications v.
Commissioner of Internal Revenue, 361
Phil. 916, 929, January 28, 1999, per and ABS-CBN Broadcasting Corp. v. CTA,
Quisumbing, J. 195 Phil. 33, 41 & 44, October 12, 1981).
[80]
Ibid, (citing People v. Hernandez, 59 [84]
This section has been retained in RA
Phil. 272, 276, December 22, 1933, and 8424 as amended, with a slight
Molina v. Rafferty, 37 Phil. 545, 555, modification: “preceding section” was
February 1, 1918.) changed to “preceding Sections.”
[81]
Commissioner of Internal Revenue v. [85]
The Municipality Government of
Central Luzon Drug Corp., GR No. Pagsanjan, Laguna v. Reyes, 98 Phil.
159647, April 15, 2005, p. 26, per 654, 658, March 23, 1956.
Panganiban, J. [86]
Dueñas v. Santos Subdivision
[82]
See Commissioner of Internal Revenue Homeowners Association, 431 SCRA 76,
v. CA, 240 SCRA 368, 372, January 20, 89, June 4, 2004, per Quisumbing, J.
1995. (quoting Republic v. Sandiganbayan, 355
[83]
See Commissioner of Internal Phil. 181, 198, July 31, 1998, per
Revenue v. CA, 335 Phil. 219, 226-227, Panganiban, J.). See Home Development
February 6, 1997 (citing Commissioner Mutual Fund v. COA, GR No. 157001,
of Internal Revenue v. Telefunken October 19, 2004, per Carpio, J.
Semiconductor Philippines, Inc., 319 [87]
§246 of the Tax Code provides:
Phil. 523, 530, October 23, 1995; Bank “Non-retroactivity of
of America NT & SA v. CA, 234 SCRA 302, rulings. -- Any revocation, modification, or
reversal of x x x the rulings x x x
306-307, July 21, 1994; Commissioner of promulgated by the Commissioner shall not
Internal Revenue v. CTA, 195 SCRA 444, be given retroactive application if the
460-461, March 20, 1991; Commissioner revocation, modification, or reversal will be
prejudicial to the taxpayers except in the
of Internal Revenue v. Mega General following cases: (a) where the taxpayer
Merchandising Corp., 166 SCRA 166, deliberately misstates or omits material facts
172, September 30, 1988; Commissioner from his return or in any document required
of him by the [BIR]; (b) where the facts
of Internal Revenue v. Burroughs Ltd., subsequently gathered by the [BIR] are
226 Phil. 236, 240-241, June 19, 1986; materially different from the facts on which
the ruling is based; or (c) where the taxpayer Sutherland, Statutory Construction, Vol.
acted in bad faith.”
[88] II, [2nd ed.], sections 403 and 404).
1st paragraph of §4 of RA 8424, the [92]
Commissioner of Internal Revenue v.
Tax Code now in effect.
[89] Solidbank Corp., 416 SCRA 436, 455,
Hilado v. Collector of Internal
November 25, 2003, per Panganiban, J.
Revenue, supra, p. 294.
[90] (footnoting Alexander Howden & Co.,
Interpellations during the second
Ltd. v. The Collector [Now
reading of Committee Report No. 349 on
Commissioner] of Internal Revenue,
Senate Bill No. 1630 - VAT Refinements,
supra, p. 587, per Bengzon, J.P., J.); the
Record of the Senate, 2nd Regular
latter case citing Laxamana v. Baltazar,
Session (February 21, 1994 to April 20,
92 Phil. 32, 34-35, September 19, 1952,
1994), Vol. IV, No. 65, Monday, March 21,
and Mead Corporation v. Commissioner
1994, pp. 536-537. Italics and boldface
of Internal Revenue, 116 F.2d. 187, 194,
copied verbatim, but underscoring ours.
November 29, 1940, per Jones, Circuit J.
See Journal of the Senate, 2nd Regular [93]
Commissioner of Internal Revenue v.
Session (1993-1994), Vol. III, Monday,
CA, supra, pp. 885-886, (citing
March 21, 1994, p. 70.
[91] Commissioner of Internal Revenue v. CA,
ABS-CBN Broadcasting Corp. v. CTA,
204 SCRA 182, 189-190, November 21,
supra, p. 43, per Melencio-Herrera, J.
1991).
(citing Alexander Howden & Co., Ltd. v. [94]
Commissioner of Internal Revenue v.
Collector of Internal Revenue, 121 Phil.
Cebu Toyo Corp., supra. §110(B) of the
579, 587, April 14, 1965, and Biddle v.
Tax Code.
Commissioner of Internal Revenue, 302 [95]
Bank of America NT & SA v. CA,
U.S., 573, 582, 58 S.Ct. 379, 383,
supra, p. 307, per Vitug, J.
January 10, 1938). See In re R. [96]
“x x x within two (2) years after the
Mcculloch Dick, 38 Phil. 41, 77-78, April
close of the taxable quarter x x x,” per
16, 1918, per Carson, J. (quoting
§106 (now §112) of the Tax Code.