Tax II (Course Oufefefetline)

COURSE OUTLINE
Taxation II
Business and Transfer Tax
Class Standing Component:

Quizzes---------------------- 50%
Graded Recitation ---------- 20%
Case/Topic Presentation---- 30%
Academic Year 2015-2016

Atty. Alonette S. Ragodo-Perez, CPA, MMM
COURSE OUTLINE
COURSE MATERIALS
The Text for this course is
Other References:
1) Philippine TRANSFER and BUSINESS TAXES, A New Approach by
Virgilio D. Reyes 2011 Edition;
2) The Law on Transfer and Business Taxation by De Leon and De Leon Jr.,
2009 Edition;
3) Memory Aid in Taxation by San Beda College of Law Bar Operations;
4) Cases and Relevant Topics will be assigned on a weekly basis.
OBJECTIVE, METHODOLOGY AND EVALUATION
Objective:
The aim of this class is to give the students a comprehensive knowledge of
Philippine Transfer and Business Tax, specific, business, percentage, amusement,
and miscellaneous taxes provided for in the National Internal Revenue Code,
including general principles on Tariff and Customs Duties and to relate the same
with the relevant issues decided by the Supreme Court.
I. TRANSFER TAXES
A. Estate Tax
Tax Formula for computation of Estate Tax
Types of Decedent
Properties to be included in the Gross estate
Valuation of properties to be included in the Gross Estate
Deductions from the Gross Estate
Computation of Tax Estate
Net Taxable Estate
Estate Tax Return, Tax Payment and Administrative Requirements
B. Donors Tax
Tax formula for Computation of Donors Tax
Types of Donors
Exempt donations
Deductions from Gross Gifts
Payment of donors tax, donors tax credit and administrative
requirements
II.
Methodology:
Classes will use more of a lecture format. The students shall be the one to discuss
the various topics in this course. Quizzes and graded recitation shall be given every
meeting unless announced otherwise. Students should prepare by reading the
assigned material.
Evaluation:
Evaluation is based on three (3) major exams, quizzes, topic presentation and
graded recitation.
Prelim
Midterm
Finals
Class Standing
25%
25%
25%
BUSINESS TAXES
A. Value added Tax (VAT)

Who are subject to VAT?
VAT on sale of Goods or properties
VAT on sale of services
VAT on importation
B. Percentage Taxes
III. TAX REMEDIES
Remedies in General
Remedies of the government
Remedies of the taxpayer
25%
100%
IV. JURISDICTION OF THE COURT OF TAX APPEALS
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GENERAL INFORMATION
Class Time /Location: Saturday 1:00 PM to 4:000PM
Contact:
Tel No.: 033 335 1759
E-mail: aluet17@yahoo.com
Civil Aspect
Criminal Aspect
V. LOCAL TAXATION
Community Tax
Real Property Taxation
Taxpayers Remedies
VI. TARIFF AND CUSTOM CODE OF THE PHILIPPINES
Jurisdiction
Importation in General
Ordinary /Regular duties
Special Duties
Administrative Proceedings
Judicial Proceedings
NIRC REMEDIES
1. CIR VS. PERF REALTY CORP.
G.R. No. 163345 July 4, 2008
2. CIR vs. MENGUITO
G.R. No.167560 September 07, 2008
3. CIR VS. ENRON SUBIC POWER CORPORATION
G.R. No. 166387, January 19, 2009
4. LUCAS ADAMSON, ET AL. VS. CA ET AL.
G.R. NO. 120935 and G.R. NO. 124557, May 21, 2009
5. SILKAIR (SINGAPORE) PTE. LTD. VS. CIR
G.R. NO. 171383 and 172379, Nov. 14, 2008
Guidelines for the Topic Presentation

6. CIR vs. FIRST EXPRESS PAWNSHOP COMPANY INC.
G.R. Nos. 172045-46, June 16, 2009
7. CIR VS. GONZALEZ
8. RIZAL COMMERCIAL BANKING CORPORATION VS. CIR
Cases:
ESTATE TAX
DIZON VS. CIR
TARIFF AND CUSTOMS CODE

1. Chevron Phil. Inc. vs. Comm. Of the Bureau of Customs
G.R. No. 178759, August 11, 2008
DONORS TAX
METRO PACIFIC CORPORATION VS. CIR
VAT
1. FORT BONIFACIO DEVT CORP. VS. CIR
G.R. No. 158885 and 170680, April 2, 2009
2. Raul Basilio d. Boac et al. vs. Pp. of the Phil.

G.R. NO. 180597, Nov. 7, 2008
2. SAN ROQUE POWER CORP. VS. CIR

G.R. No. 180345, Nov. 25, 2009
4. COC vs. CTA, Las Islas Filipinas Food Corp. & PAT-PRO OVERSEAS Co. LTD.
G.R. No. 171516-17 Feb. 13, 2009
3. KEPCO PHILIPPINES V. CIR

G.R. No. 179356, Dec. 14, 2009
5. Pilipinas Shell Petroleum Corp vs. COC

G.R. No. 176380, June 18, 2009
4. MINDANAO II GEOTHERMAL PARTNERSHIP VS. CIR

5. CIR VS. SONY PHILIPPINES, INC.
6. MEDICARD PHILIPPINES, INC. VS. CIR
7. LVM CONSTRUCTIO CORPORATION VS. SANCHEZ
8. ACCENTURE INC. VS. CIR
9. LUZON HYDRO CORPORATION VS. CIR
6. Secretary of Finance vs. Oro Maura Shipping Lines

G.R. No. 156946, July 15, 2009
3. El Greco Ship Manning vs. COC

G.R. No. 177188, Dec. 04, 2008
Page44
Topic shall be assigned to each student at the start of the semester. The student is
expected to present a 30-minute power point presentation for the topic assigned.
The presentation shall include an outline of the presentation, short introduction,
discussion of the topic assigned, cite at least two (2) relevant cases and conclusion.
Director for San Pablo City and filed the estate tax return10 with the same BIR
Regional Office, showing therein a NIL estate tax liability, computed as follows:
COMPUTATION OF TAX
Conjugal Real Property (Sch. 1)
P10,855,020.00
Conjugal Personal Property (Sch.2)
[G.R. NO. 140944 : April 30, 2008]

RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial Administrator of the
Estate of the deceased JOSE P. FERNANDEZ, Petitioner, v. COURT OF TAX
APPEALS and COMMISSIONER OF INTERNAL REVENUE, Respondents.
DECISION
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules
of Civil Procedure seeking the reversal of the Court of Appeals (CA) Decision2
dated April 30, 1999 which affirmed the Decision3 of the Court of Tax Appeals (CTA)
dated June 17, 1997.4
3,460,591.34
Taxable Transfer (Sch. 3)
Gross Conjugal Estate
14,315,611.34
Less: Deductions (Sch. 4)
187,822,576.06
Net Conjugal Estate
NIL
The Facts
Less: Share of Surviving Spouse
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the
probate of his will5 was filed with Branch 51 of the Regional Trial Court (RTC) of
Manila (probate court).6 The probate court then appointed retired Supreme Court
Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon
(petitioner) as Special and Assistant Special Administrator, respectively, of the
Estate of Jose (Estate). In a letter7 dated October 13, 1988, Justice Dizon informed
respondent Commissioner of the Bureau of Internal Revenue (BIR) of the special
proceedings for the Estate.
NIL.
Petitioner alleged that several requests for extension of the period to file the
required estate tax return were granted by the BIR since the assets of the estate, as
well as the claims against it, had yet to be collated, determined and identified. Thus,
in a letter8 dated March 14, 1990, Justice Dizon authorized Atty. Jesus M. Gonzales
(Atty. Gonzales) to sign and file on behalf of the Estate the required estate tax return
and to represent the same in securing a Certificate of Tax Clearance. Eventually, on
April 17, 1990, Atty. Gonzales wrote a letter9 addressed to the BIR Regional
Net Share in Conjugal Estate

NIL
xxx
Net Taxable Estate
NIL.
Estate Tax Due
NIL.11
Page44
ESTATE TAX
On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G. Umali
issued Certification Nos. 205212 and 205313 stating that the taxes due on the
transfer of real and personal properties14 of Jose had been fully paid and said
properties may be transferred to his heirs. Sometime in August 1990, Justice Dizon
passed away. Thus, on October 22, 1990, the probate court appointed petitioner as
the administrator of the Estate.15
25,000.00
no notice of death
15.00
no CPA Certificate
Petitioner requested the probate court's authority to sell several properties forming
part of the Estate, for the purpose of paying its creditors, namely: Equitable Banking
Corporation (P19,756,428.31), Banque de L'Indochine et. de Suez
(US$4,828,905.90 as of January 31, 1988), Manila Banking Corporation
(P84,199,160.46 as of February 28, 1989) and State Investment House, Inc.
(P6,280,006.21). Petitioner manifested that Manila Bank, a major creditor of the
Estate was not included, as it did not file a claim with the probate court since it had
security over several real estate properties forming part of the Estate.16
However, on November 26, 1991, the Assistant Commissioner for Collection of the
BIR, Themistocles Montalban, issued Estate Tax Assessment Notice No. FAS-E-8791-003269,17 demanding the payment of P66,973,985.40 as deficiency estate tax,
itemized as follows:
Deficiency Estate Tax - 1987
300.00
Total amount due & collectible
P66,973,985.4018
In his letter19 dated December 12, 1991, Atty. Gonzales moved for the
reconsideration of the said estate tax assessment. However, in her letter20 dated
April 12, 1994, the BIR Commissioner denied the request and reiterated that the
estate is liable for the payment of P66,973,985.40 as deficiency estate tax. On May
3, 1994, petitioner received the letter of denial. On June 2, 1994, petitioner filed a
Petition for Review 21 before respondent CTA. Trial on the merits ensued.
As found by the CTA, the respective parties presented the following pieces of
evidence, to wit:
P31,868,414.48
In the hearings conducted, petitioner did not present testimonial evidence but
merely documentary evidence consisting of the following:
25% surcharge - late filing
Nature of Document (sic)
7,967,103.62
Exhibits
late payment
1.
7,967,103.62
Interest
Letter dated October 13, 1988 from Arsenio P. Dizon addressed to the
Commissioner of Internal Revenue informing the latter of the special proceedings for
the settlement of the estate (p. 126, BIR records);
19,121,048.68
"A"
Compromise-non filing
2.
25,000.00
Petition for the probate of the will and issuance of letter of administration filed with
the Regional Trial Court (RTC) of Manila, docketed as Sp. Proc. No. 87-42980 (pp.
107-108, BIR records);
non payment
Page44
Estate tax
"B" & "B-1"
Jose P. Fernandez, as mortgagors, in the total amount of P240,479,693.17 as of

February 28, 1989 (pp. 186-187, BIR records);
3.
"G" & "G-1"
Pleading entitled "Compliance" filed with the probate Court submitting the final
inventory of all the properties of the deceased (p. 106, BIR records);
"C"
4.
9.
Claim of State Investment House, Inc. filed with the RTC, Branch VII of Manila,
docketed as Civil Case No. 86-38599 entitled "State Investment House, Inc.,
Plaintiff, v. Maritime Company Overseas, Inc. and/or Jose P. Fernandez,
Defendants," (pp. 200-215, BIR records);
Attachment to Exh. "C" which is the detailed and complete listing of the properties of
the deceased (pp. 89-105, BIR rec.);
"H" to "H-16"
"C-1" to "C-17"
10.
5.
Letter dated March 14, 1990 of Arsenio P. Dizon addressed to Atty. Jesus M.
Gonzales, (p. 184, BIR records);
Claims against the estate filed by Equitable Banking Corp. with the probate Court in
the amount of P19,756,428.31 as of March 31, 1988, together with the Annexes to
the claim (pp. 64-88, BIR records);
"I"
11.
"D" to "D-24"
6.
Claim filed by Banque de L' Indochine et de Suez with the probate Court in the
amount of US $4,828,905.90 as of January 31, 1988 (pp. 262-265, BIR records);
Letter dated April 17, 1990 from J.M. Gonzales addressed to the Regional Director
of BIR in San Pablo City (p. 183, BIR records);
"J"
12.
"E" to "E-3"
Claim of the Manila Banking Corporation (MBC) which as of November 7, 1987

amounts to P65,158,023.54, but recomputed as of February 28, 1989 at a total
amount of P84,199,160.46; together with the demand letter from MBC's lawyer (pp.
194-197, BIR records);
"F" to "F-3"
Estate Tax Return filed by the estate of the late Jose P. Fernandez through its
authorized representative, Atty. Jesus M. Gonzales, for Arsenio P. Dizon, with
attachments (pp. 177-182, BIR records);
"K" to "K-5"
13.
Certified true copy of the Letter of Administration issued by RTC Manila, Branch 51,
in Sp. Proc. No. 87-42980 appointing Atty. Rafael S. Dizon as Judicial Administrator
of the estate of Jose P. Fernandez; (p. 102, CTA records) and
8.
"L"
Demand letter of Manila Banking Corporation prepared by Asedillo, Ramos and
Associates Law Offices addressed to Fernandez Hermanos, Inc., represented by
14.
Page44
7.
Certification of Payment of estate taxes Nos. 2052 and 2053, both dated April 27,
1990, issued by the Office of the Regional Director, Revenue Region No. 4-C, San
Pablo City, with attachments (pp. 103-104, CTA records.).
Signature of Ma. Anabella A. Abuloc appearing at the lower portion on p. 2 of Exh.

"2";
-do -
"M" to "M-5"
6.
Respondent's [BIR] counsel presented on June 26, 1995 one witness in the person
of Alberto Enriquez, who was one of the revenue examiners who conducted the
investigation on the estate tax case of the late Jose P. Fernandez. In the course of
the direct examination of the witness, he identified the following:
Signature of Raymund S. Gallardo appearing at the Lower portion on p. 2 of Exh.

"2";
Documents/Signatures
7.
BIR Record
Signature of Maximino V. Tagle also appearing on p. 2 of Exh. "2";
1.
-do -
Estate Tax Return prepared by the BIR;
8.
p. 138
Summary of revenue Enforcement Officers Audit Report, dated July 19, 1991;
2.
p. 139
Signatures of Ma. Anabella Abuloc and Alberto Enriquez, Jr. appearing at the lower
Portion of Exh. "1";
9.
-do -
Signature of Alberto Enriquez at the lower portion of Exh. "3";

-do -do 3.
10.
Memorandum for the Commissioner, dated July 19, 1991, prepared by revenue
examiners, Ma. Anabella A. Abuloc, Alberto S. Enriquez and Raymund S. Gallardo;
Reviewed by Maximino V. Tagle
Signature of Ma. Anabella A. Abuloc at the lower portion of Exh. "3";

-do -
pp. 143-144
11.
4.
Signature of Raymond S. Gallardo at the lower portion of Exh. "3";
Signature of Alberto S. Enriquez appearing at the lower portion on p. 2 of Exh. "2";
12.
5.
Signature of Maximino V. Tagle at the lower portion of Exh. "3";
Page44
-do -do -
38,084,015.93
-do Less: Deductions
13.
26,250,000.00
Demand letter (FAS-E-87-91-00), signed by the Asst. Commissioner for Collection
for the Commissioner of Internal Revenue, demanding payment of the amount of
P66,973,985.40; and
Net Conjugal Estate

P 11,834,015.93
p. 169
Less: Share of Surviving Spouse
14.
5,917,007.96
Assessment Notice FAS-E-87-91-00
Net Share in Conjugal Estate
pp. 169-17022
P 5,917,007.96
The CTA's Ruling
Add: Capital/Paraphernal
On June 17, 1997, the CTA denied the said Petition for Review . Citing this Court's
ruling in Vda. de Oate v. Court of Appeals,23 the CTA opined that the
aforementioned pieces of evidence introduced by the BIR were admissible in
evidence. The CTA ratiocinated:
Although the above-mentioned documents were not formally offered as evidence for
respondent, considering that respondent has been declared to have waived the
presentation thereof during the hearing on March 20, 1996, still they could be
considered as evidence for respondent since they were properly identified during
the presentation of respondent's witness, whose testimony was duly recorded as
part of the records of this case. Besides, the documents marked as respondent's
exhibits formed part of the BIR records of the case.24
Properties - P44,652,813.66
Less: Capital/Paraphernal Deductions
44,652,813.66
Net Taxable Estate
P 50,569,821.62
============
Add: 25% Surcharge for Late Filing
Conjugal Real Property
7,483,835.74
P 5,062,016.00
Add: Penalties for-No notice of death
Conjugal Personal Prop.
15.00
33,021,999.93
No CPA certificate
Gross Conjugal Estate
300.00
Page44
Estate Tax Due P 29,935,342.97

Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it
came up with its own computation of the deficiency estate tax, to wit:
P 37,419,493.71
============
exclusive of 20% interest from due date of its payment until full payment thereof
[Sec. 283 (b), Tax Code of 1987].25
Thus, the CTA disposed of the case in this wise:
WHEREFORE, viewed from all the foregoing, the Court finds the petition
unmeritorious and denies the same. Petitioner and/or the heirs of Jose P. Fernandez
are hereby ordered to pay to respondent the amount of P37,419,493.71 plus 20%
interest from the due date of its payment until full payment thereof as estate tax
liability of the estate of Jose P. Fernandez who died on November 7, 1987.
SO ORDERED.26
Aggrieved, petitioner, on March 2, 1998, went to the CA via a Petition for Review .27
The CA's Ruling
On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's
findings, the CA ruled that the petitioner's act of filing an estate tax return with the
BIR and the issuance of BIR Certification Nos. 2052 and 2053 did not deprive the
BIR Commissioner of her authority to re-examine or re-assess the said return filed
on behalf of the Estate.28
On May 31, 1999, petitioner filed a Motion for Reconsideration29 which the CA
denied in its Resolution30 dated November 3, 1999.
Hence, the instant Petition raising the following issues:
1. Whether or not the admission of evidence which were not formally offered by the
respondent BIR by the Court of Tax Appeals which was subsequently upheld by the
Court of Appeals is contrary to the Rules of Court and rulings of this Honorable
Court;
2. Whether or not the Court of Tax Appeals and the Court of Appeals erred in
recognizing/considering the estate tax return prepared and filed by respondent BIR
knowing that the probate court appointed administrator of the estate of Jose P.
Fernandez had previously filed one as in fact, BIR Certification Clearance Nos. 2052
and 2053 had been issued in the estate's favor;
disallowing the valid and enforceable claims of creditors against the estate, as lawful
deductions despite clear and convincing evidence thereof; andcralawlibrary
validating erroneous double imputation of values on the very same estate properties
in the estate tax return it prepared and filed which effectively bloated the estate's
assets.31
The petitioner claims that in as much as the valid claims of creditors against the
Estate are in excess of the gross estate, no estate tax was due; that the lack of a
formal offer of evidence is fatal to BIR's cause; that the doctrine laid down in Vda.
de Oate has already been abandoned in a long line of cases in which the Court
held that evidence not formally offered is without any weight or value; that Section
34 of Rule 132 of the Rules on Evidence requiring a formal offer of evidence is
mandatory in character; that, while BIR's witness Alberto Enriquez (Alberto) in his
testimony before the CTA identified the pieces of evidence aforementioned such that
the same were marked, BIR's failure to formally offer said pieces of evidence and
depriving petitioner the opportunity to cross-examine Alberto, render the same
inadmissible in evidence; that assuming arguendo that the ruling in Vda. de Oate is
still applicable, BIR failed to comply with the doctrine's requisites because the
documents herein remained simply part of the BIR records and were not duly
incorporated in the court records; that the BIR failed to consider that although the
actual payments made to the Estate creditors were lower than their respective
claims, such were compromise agreements reached long after the Estate's liability
had been settled by the filing of its estate tax return and the issuance of BIR
Certification Nos. 2052 and 2053; and that the reckoning date of the claims against
the Estate and the settlement of the estate tax due should be at the time the estate
tax return was filed by the judicial administrator and the issuance of said BIR
Certifications and not at the time the aforementioned Compromise Agreements were
entered into with the Estate's creditors.32
On the other hand, respondent counters that the documents, being part of the
records of the case and duly identified in a duly recorded testimony are considered
evidence even if the same were not formally offered; that the filing of the estate tax
return by the Estate and the issuance of BIR Certification Nos. 2052 and 2053 did
not deprive the BIR of its authority to examine the return and assess the estate tax;
and that the factual findings of the CTA as affirmed by the CA may no longer be
reviewed by this Court via a Petition for Review .33
The Issues
There are two ultimate issues which require resolution in this case:
Page44
Total deficiency estate tax
First. Whether or not the CTA and the CA gravely erred in allowing the admission of
the pieces of evidence which were not formally offered by the BIR; andcralawlibrary
will advance his cause or not to do so at all. In the event he chooses to do the latter,
the trial court is not authorized by the Rules to consider the same.
Second. Whether or not the CA erred in affirming the CTA in the latter's
determination of the deficiency estate tax imposed against the Estate.
However, in People v. Napat-a [179 SCRA 403] citing People v. Mate [103 SCRA
484], we relaxed the foregoing rule and allowed evidence not formally offered to be
admitted and considered by the trial court provided the following requirements are
present, viz.: first, the same must have been duly identified by testimony duly
recorded and, second, the same must have been incorporated in the records of the
case.40
The Petition is impressed with merit.

Under Section 8 of RA 1125, the CTA is categorically described as a court of record.
As cases filed before it are litigated de novo, party-litigants shall prove every minute
aspect of their cases. Indubitably, no evidentiary value can be given the pieces of
evidence submitted by the BIR, as the rules on documentary evidence require that
these documents must be formally offered before the CTA.34 Pertinentis Section 34,
Rule 132 of the Revised Rules on Evidence which reads:
SEC. 34. Offer of evidence. - The court shall consider no evidence which has not
been formally offered. The purpose for which the evidence is offered must be
specified.
The CTA and the CA rely solely on the case of Vda. de Oate, which reiterated this
Court's previous rulings in People v. Napat-a35 and People v. Mate36 on the
admission and consideration of exhibits which were not formally offered during the
trial. Although in a long line of cases many of which were decided after Vda. de
Oate, we held that courts cannot consider evidence which has not been formally
offered,37 nevertheless, petitioner cannot validly assume that the doctrine laid down
in Vda. de Oate has already been abandoned. Recently, in Ramos v. Dizon,38 this
Court, applying the said doctrine, ruled that the trial court judge therein committed
no error when he admitted and considered the respondents' exhibits in the
resolution of the case, notwithstanding the fact that the same were not formally
offered. Likewise, in Far East Bank & Trust Company v. Commissioner of Internal
Revenue,39 the Court made reference to said doctrine in resolving the issues
therein. Indubitably, the doctrine laid down in Vda. De Oate still subsists in this
jurisdiction. In Vda. de Oate, we held that:
From the foregoing provision, it is clear that for evidence to be considered, the same
must be formally offered. Corollarily, the mere fact that a particular document is
identified and marked as an exhibit does not mean that it has already been offered
as part of the evidence of a party. In Interpacific Transit, Inc. v. Aviles [186 SCRA
385], we had the occasion to make a distinction between identification of
documentary evidence and its formal offer as an exhibit. We said that the first is
done in the course of the trial and is accompanied by the marking of the evidence as
an exhibit while the second is done only when the party rests its case and not
before. A party, therefore, may opt to formally offer his evidence if he believes that it
From the foregoing declaration, however, it is clear that Vda. de Oate is merely an
exception to the general rule. Being an exception, it may be applied only when there
is strict compliance with the requisites mentioned therein; otherwise, the general
rule in Section 34 of Rule 132 of the Rules of Court should prevail.
In this case, we find that these requirements have not been satisfied. The assailed
pieces of evidence were presented and marked during the trial particularly when
Alberto took the witness stand. Alberto identified these pieces of evidence in his
direct testimony.41 He was also subjected to cross-examination and re-cross
examination by petitioner.42 But Alberto's account and the exchanges between
Alberto and petitioner did not sufficiently describe the contents of the said pieces of
evidence presented by the BIR. In fact, petitioner sought that the lead examiner, one
Ma. Anabella A. Abuloc, be summoned to testify, inasmuch as Alberto was
incompetent to answer questions relative to the working papers.43 The lead
examiner never testified. Moreover, while Alberto's testimony identifying the BIR's
evidence was duly recorded, the BIR documents themselves were not incorporated
in the records of the case.
A common fact threads through Vda. de Oate and Ramos that does not exist at all
in the instant case. In the aforementioned cases, the exhibits were marked at the
pre-trial proceedings to warrant the pronouncement that the same were duly
incorporated in the records of the case. Thus, we held in Ramos:
In this case, we find and so rule that these requirements have been satisfied. The
exhibits in question were presented and marked during the pre-trial of the case thus,
they have been incorporated into the records. Further, Elpidio himself explained the
contents of these exhibits when he was interrogated by respondents' counsel...
xxx
But what further defeats petitioner's cause on this issue is that respondents' exhibits
were marked and admitted during the pre-trial stage as shown by the Pre-Trial
Order quoted earlier.44
Page44
The Court's Ruling
Per the records of this case, the BIR was directed to present its evidence48 in the
hearing of February 21, 1996, but BIR's counsel failed to appear.49 The CTA denied
petitioner's motion to consider BIR's presentation of evidence as waived, with a
warning to BIR that such presentation would be considered waived if BIR's evidence
would not be presented at the next hearing. Again, in the hearing of March 20, 1996,
BIR's counsel failed to appear.50 Thus, in its Resolution51 dated March 21, 1996,
the CTA considered the BIR to have waived presentation of its evidence. In the
same Resolution, the parties were directed to file their respective memorandum.
Petitioner complied but BIR failed to do so.52 In all of these proceedings, BIR was
duly notified. Hence, in this case, we are constrained to apply our ruling in Heirs of
Pedro Pasag v. Parocha:53
A formal offer is necessary because judges are mandated to rest their findings of
facts and their judgment only and strictly upon the evidence offered by the parties at
the trial. Its function is to enable the trial judge to know the purpose or purposes for
which the proponent is presenting the evidence. On the other hand, this allows
opposing parties to examine the evidence and object to its admissibility. Moreover, it
facilitates review as the appellate court will not be required to review documents not
previously scrutinized by the trial court.
Strict adherence to the said rule is not a trivial matter. The Court in Constantino v.
Court of Appeals ruled that the formal offer of one's evidence is deemed waived
after failing to submit it within a considerable period of time. It explained that the
court cannot admit an offer of evidence made after a lapse of three (3) months
because to do so would "condone an inexcusable laxity if not non-compliance with a
court order which, in effect, would encourage needless delays and derail the speedy
administration of justice."
Applying the aforementioned principle in this case, we find that the trial court had
reasonable ground to consider that petitioners had waived their right to make a
formal offer of documentary or object evidence. Despite several extensions of time
to make their formal offer, petitioners failed to comply with their commitment and
allowed almost five months to lapse before finally submitting it. Petitioners' failure to
comply with the rule on admissibility of evidence is anathema to the efficient,
effective, and expeditious dispensation of justice.
Having disposed ofthe foregoing procedural issue, we proceed to discuss the merits
of the case.
Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the highest
respect and will not be disturbed on appeal unless it is shown that the lower courts
committed gross error in the appreciation of facts.54 In this case, however, we find
the decision of the CA affirming that of the CTA tainted with palpable error.
It is admitted that the claims of the Estate's aforementioned creditors have been
condoned. As a mode of extinguishing an obligation,55 condonation or remission of
debt56 is defined as:
an act of liberality, by virtue of which, without receiving any equivalent, the creditor
renounces the enforcement of the obligation, which is extinguished in its entirety or
in that part or aspect of the same to which the remission refers. It is an essential
characteristic of remission that it be gratuitous, that there is no equivalent received
for the benefit given; once such equivalent exists, the nature of the act changes. It
may become dation in payment when the creditor receives a thing different from that
stipulated; or novation, when the object or principal conditions of the obligation
should be changed; or compromise, when the matter renounced is in litigation or
dispute and in exchange of some concession which the creditor receives.57
Verily, the second issue in this case involves the construction of Section 7958 of the
National Internal Revenue Code59 (Tax Code) which provides for the allowable
deductions from the gross estate of the decedent. The specific question is whether
the actual claims of the aforementioned creditors may be fully allowed as deductions
from the gross estate of Jose despite the fact that the said claims were reduced or
condoned through compromise agreements entered into by the Estate with its
creditors.
"Claims against the estate," as allowable deductions from the gross estate under
Section 79 of the Tax Code, are basically a reproduction of the deductions allowed
under Section 89 (a) (1) (C) and (E) of Commonwealth Act No. 466 (CA 466),
otherwise known as the National Internal Revenue Code of 1939, and which was
the first codification of Philippine tax laws. Philippine tax laws were, in turn, based
on the federal tax laws of the United States. Thus, pursuant to established rules of
statutory construction, the decisions of American courts construing the federal tax
code are entitled to great weight in the interpretation of our own tax laws.60
It is noteworthy that even in the United States, there is some dispute as to whether
the deductible amount for a claim against the estate is fixed as of the decedent's
death which is the general rule, or the same should be adjusted to reflect post-death
developments, such as where a settlement between the parties results in the
reduction of the amount actually paid.61 On one hand, the U.S. court ruled that the
Page44
While the CTA is not governed strictly by technical rules of evidence,45 as rules of
procedure are not ends in themselves and are primarily intended as tools in the
administration of justice, the presentation of the BIR's evidence is not a mere
procedural technicality which may be disregarded considering that it is the only
means by which the CTA may ascertain and verify the truth of BIR's claims against
the Estate.46 The BIR's failure to formally offer these pieces of evidence, despite
CTA's directives, is fatal to its cause.47 Such failure is aggravated by the fact that
not even a single reason was advanced by the BIR to justify such fatal omission.
This, we take against the BIR.
On the other hand, the Internal Revenue Service (Service) opines that post-death
settlement should be taken into consideration and the claim should be allowed as a
deduction only to the extent of the amount actually paid.64 Recognizing the dispute,
the Service released Proposed Regulations in 2007 mandating that the deduction
would be limited to the actual amount paid.65
In announcing its agreement with Propstra,66 the U.S. 5th Circuit Court of Appeals
held:
We are persuaded that the Ninth Circuit's decision...in Propstra correctly apply the
Ithaca Trust date-of-death valuation principle to enforceable claims against the
estate. As we interpret Ithaca Trust, when the Supreme Court announced the dateof-death valuation principle, it was making a judgment about the nature of the
federal estate tax specifically, that it is a tax imposed on the act of transferring
property by will or intestacy and, because the act on which the tax is levied occurs
at a discrete time, i.e., the instance of death, the net value of the property
transferred should be ascertained, as nearly as possible, as of that time. This
analysis supports broad application of the date-of-death valuation rule.67
We express our agreement with the date-of-death valuation rule, made pursuant to
the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United States.68 First.
There is no law, nor do we discern any legislative intent in our tax laws, which
disregards the date-of-death valuation principle and particularly provides that postdeath developments must be considered in determining the net value of the estate.
It bears emphasis that tax burdens are not to be imposed, nor presumed to be
imposed, beyond what the statute expressly and clearly imports, tax statutes being
construed strictissimi juris against the government.69 Any doubt on whether a
person, article or activity is taxable is generally resolved against taxation.70 Second.
Such construction finds relevance and consistency in our Rules on Special
Proceedings wherein the term "claims" required to be presented against a
decedent's estate is generally construed to mean debts or demands of a pecuniary
nature which could have been enforced against the deceased in his lifetime, or
liability contracted by the deceased before his death.71 Therefore, the claims
existing at the time of death are significant to, and should be made the basis of, the
determination of allowable deductions.
WHEREFORE, the instant Petition is GRANTED. Accordingly, the assailed Decision

dated April 30, 1999 and the Resolution dated November 3, 1999 of the Court of
Appeals in CA-G.R. S.P. No. 46947 are REVERSED and SET ASIDE. The Bureau
of Internal Revenue's deficiency estate tax assessment against the Estate of Jose P.
Fernandez is hereby NULLIFIED. No costs.
SO ORDERED.
DONORS TAX
VAT
EN BANC
[G.R. NO. 158885 : October 2, 2009]
FORT BONIFACIO DEVELOPMENT CORPORATION Petitioner, v.
COMMISSIONER OF INTERNAL REVENUE, REGIONAL DIRECTOR, REVENUE
REGION NO. 8, and CHIEF, ASSESSMENT DIVISION, REVENUE REGION NO. 8,
BIR, Respondents.
[G.R. NO. 170680]
FORT BONIFACIO DEVELOPMENT CORPORATION Petitioner, v.
COMMISSIONER OF INTERNAL REVENUE, REVENUE DISTRICT OFFICER,
REVENUE DISTRICT NO. 44, TAGUIG and PATEROS, BUREAU OF INTERNAL
REVENUE. Respondents.
RESOLUTION
LEONARDO-DE CASTRO, J.:
Before us is respondents' Motion for Reconsideration of our Decision dated April 2,
2009 which granted the consolidated petitions of petitioner Fort Bonifacio
Development Corporation, the dispositive portion of which reads:
WHEREFORE, the petitions are GRANTED. The assailed decisions of the Court of
Tax Appeals and the Court of Appeals are REVERSED and SET ASIDE.
Respondents are hereby (1) restrained from collecting from petitioner the amount of
P28,413,783.00 representing the transitional input tax credit due it for the fourth
quarter of 1996; and (2) directed to refund to petitioner the amount of
P347,741,695.74 paid as output VAT for the third quarter of 1997 in light of the
Page44
appropriate deduction is the "value" that the claim had at the date of the decedent's
death.62 Also, as held in Propstra v. U.S., 63 where a lien claimed against the
estate was certain and enforceable on the date of the decedent's death, the fact that
the claimant subsequently settled for lesser amount did not preclude the estate from
deducting the entire amount of the claim for estate tax purposes. These
pronouncements essentially confirm the general principle that post-death
developments are not material in determining the amount of the deduction.
persisting transitional input tax credit available to petitioner for the said quarter, or to
issue a tax credit corresponding to such amount. No pronouncement as to costs.
RA 7716 took effect on January 1, 1996. It amended Section 100 of the Old NIRC
by imposing for the first time value-added-tax on sale of real properties. The
amendment reads:
The Motion for Reconsideration raises the following arguments:
SECTION 100 OF THE OLD NATIONAL INTERNAL REVENUE CODE (OLD NIRC),
AS AMENDED BY REPUBLIC ACT (R.A.) NO. 7716, COULD NOT HAVE
SUPPLIED THE DISTINCTION BETWEEN THE TREATMENT OF REAL
PROPERTIES OR REAL ESTATE DEALERS ON THE ONE HAND, AND THE
TREATMENT OF TRANSACTIONS INVOLVING OTHER COMMERCIAL GOODS
ON THE OTHER HAND, AS SAID DISTINCTION IS FOUND IN SECTION 105
AND, SUBSEQUENTLY, REVENUE REGULATIONS NO. 7-95 WHICH DEFINES
THE INPUT TAX CREDITABLE TO A REAL ESTATE DEALER WHO BECOMES
SUBJECT TO VAT FOR THE FIRST TIME.
II
SECTION 4.105.1 AND PARAGRAPH (A) (III) OF THE TRANSITORY
PROVISIONS OF REVENUE REGULATIONS NO. 7-95 VALIDLY LIMIT THE 8%
TRANSITIONAL INPUT TAX TO THE IMPROVEMENTS ON REAL PROPERTIES.
III
REVENUE REGULATIONS NO. 6-97 DID NOT REPEAL REVENUE
REGULATIONS NO. 7-95.
The instant motion for reconsideration lacks merit.
The first VAT law, found in Executive Order (EO) No. 273 [1987], took effect on
January 1, 1988. It amended several provisions of the National Internal Revenue
Code of 1986 (Old NIRC). EO 273 likewise accommodated the potential burdens of
the shift to the VAT system by allowing newly VAT-registered persons to avail of a
transitional input tax credit as provided for in Section 105 of the Old NIRC. Section
105 as amended by EO 273 reads:
Sec. 105. Transitional Input Tax Credits. - A person who becomes liable to valueadded tax or any person who elects to be a VAT-registered person shall, subject to
the filing of an inventory as prescribed by regulations, be allowed input tax on his
beginning inventory of goods, materials and supplies equivalent to 8% of the value
of such inventory or the actual value-added tax paid on such goods, materials and
supplies, whichever is higher, which shall be creditable against the output tax.
Sec. 100. Value-added-tax on sale of goods or properties. - (a) Rate and base of
tax. - There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, a value-added tax equivalent to 10% of the gross
selling price or gross value in money of the goods, or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferor.
THIRD DIVISION
[G.R. NO. 180345 : November 25, 2009]
SAN ROQUE POWER CORPORATION, Petitioner, v. COMMISSIONER OF
INTERNAL REVENUE, Respondent.
DECISION
CHICO-NAZARIO, J.:
In this Petition for Review on Certiorari, under Rule 45 of the Revised Rules of
Court, petitioner San Roque Power Corporation assails the Decision1 of the Court of
Tax Appeals (CTA) En Banc dated 20 September 2007 in CTA EB No. 248, affirming
the Decision2 dated 23 March 2006 of the CTA Second Division in CTA Case No.
6916, which dismissed the claim of petitioner for the refund and/or issuance of a tax
credit certificate in the amount of Two Hundred Forty-Nine Million Three Hundred
Ninety-Seven Thousand Six Hundred Twenty Pesos and 18/100 (P249,397,620.18)
allegedly representing unutilized input Value Added Tax (VAT) for the period
covering January to December 2002.
Respondent, as the Commissioner of the Bureau of Internal Revenue (BIR), is
responsible for the assessment and collection of all national internal revenue taxes,
fees, and charges, including the Value Added Tax (VAT), imposed by Section 1083
of the National Internal Revenue Code (NIRC) of 1997. Moreover, it is empowered
to grant refunds or issue tax credit certificates in accordance with Section 112 of the
NIRC of 1997 for unutilized input VAT paid on zero-rated or effectively zero-rated
sales and purchases of capital goods, to wit:
SEC. 112. Refunds or Tax Credits of Input Tax. (A) Zero-rated or Effectively Zero-rated Sales'Any VAT-registered person, whose
sales are zero-rated or effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made, apply for the issuance of a
Page44
tax credit certificate or refund of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that such input tax has not been
applied against output tax: Provided, however, That in the case of zero-rated sales
under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the
acceptable foreign currency exchange proceeds thereof had been duly accounted
for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP): Provided, further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods or properties
or services, and the amount of creditable input tax due or paid cannot be directly
and entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.
zero-rated status of petitioner commenced on 27 September 1998 and continued

throughout the year 2002.8
(B) Capital Goods'A VAT-registered person may apply for the issuance of a tax
credit certificate or refund of input taxes paid on capital goods imported or locally
purchased, to the extent the such input taxes have not been applied against output
taxes. The application may be made only within two (2) years after the close of the
taxable quarter when the importation or purchase was made.
Particulars
On the other hand, petitioner is a domestic corporation organized under the

corporate laws of the Republic of the Philippines. On 14 October 1997, it was
incorporated for the sole purpose of building and operating the San Roque
Multipurpose Project in San Manuel, Pangasinan, which is an indivisible project
consisting of the power station, the dam, spillway, and other related facilities.4 It is
registered with the Board of Investments (BOI) on a preferred pioneer status to
engage in the design, construction, erection, assembly, as well as own, commission,
and operate electric power-generating plants and related activities, for which it was
issued the Certificate of Registration No. 97-356 dated 11 February 1998.5 As a
seller of services, petitioner is registered with the BIR as a VAT taxpayer under
Certificate of Registration No. OCN-98-006-007394.6
(January 1, 2002 to
On 11 October 1997, petitioner entered into a Power Purchase Agreement (PPA)

with the National Power Corporation (NPC) to develop the hydro potential of the
Lower Agno River, and to be able to generate additional power and energy for the
Luzon Power Grid, by developing and operating the San Roque Multipurpose
Project. The PPA provides that petitioner shall be responsible for the design,
construction, installation, completion and testing and commissioning of the Power
Station and it shall operate and maintain the same, subject to the instructions of the
NPC. During the cooperation period of 25 years commencing from the completion
date of the Power Station, the NPC shall purchase all the electricity generated by
the Power Plant.7
296,124,429.21
Period Covered
Date Filed
Amount
1st Quarter
March 31, 2002)

April 20, 2002
Tax Due for the Quarter (Box 13C)
P 26,247.27
Input Tax carried over from previous qtr (22B)
Input VAT on Domestic Purchases for the Qtr

(22D)
95,003,348.91
Input VAT on Importation of Goods for the Qtr
(22F)
20,758,668.00
Page44
Because of the exclusive nature of the PPA between petitioner and the NPC,
petitioner applied for and was granted five Certificates of Zero Rate by the BIR,
through the Chief Regulatory Operations Monitoring Division, now the Audit
Information, Tax Exemption & Incentive Division. Based on these certificates, the
For the period January to December 2002, petitioner filed with the respondent its
Monthly VAT Declarations and Quarterly VAT Returns. Its Quarterly VAT Returns
showed excess input VAT payments on account of its importation and domestic
purchases of goods and services, as follows9 :
Total Available Input tax (23)

(22F)
411,886,446.12
18,485,758.00
VAT Refund/TCC Claimed (24A)
173,909,435.66
321,643,021.02
Net Creditable Input Tax (25)
237,977,010.46
237,950,763.19
VAT payable (Excess Input Tax) (26)
(237,950,763.19)
83,692,257.83
Tax Payable (overpayment) (28)
(237,950,763.19)
(83,692,257.83)
2nd Quarter
(April 1, 2002 to
(83,692,257.83)
June 30, 2002)
3rd Quarter
July 24, 2002
(July 1, 2002 to
September 30, 2002)
P blank
October 25, 2002
237,950,763.19
P blank
(22D)
199,428,027.47
65,206,499.83
Page44
(22D)
114,082,153.62
28,924,020.79

(22D)
(22F)
18,166,330.54
1,465,875.00

(22F)
229,817,923.26
2,308,837.00
Blank
134,557,321.16
229,817,923.26
83,692,257.83
(229,817,923.26)
50,865,063.33
(229,817,923.26)
(50,830,066.97)
4th Quarter
(October 1, 2002 to
(50,830,066.97)
January 23, 2003
P 34,996.36
On 19 June 2002, 25 October 2002, 27 February 2003, and 29 May 2003, petitioner
filed with the BIR four separate administrative claims for refund of Unutilized Input
VAT paid for the period January to March 2002, April to June 2002, July to
September 2002, and October to December 2002, respectively. In these letters
addressed to the BIR, Carlos Echevarria (Echevarria), the Vice President and
Director of Finance of petitioner, explained that petitioner's sale of power to NPC are
subject to VAT at zero percent rate, in accordance with Section 108(B)(3) of the
NIRC.10 Petitioner sought to recover the total amount of P250,258,094.25,
Page44
December 31, 2002)
representing its unutilized excess VAT on its importation of capital and other taxable
goods and services for the year 2002, broken down as follows11 :
83,692,257.83
3rd
Qtr
Involved
28,924,020.79
Output Tax
1,465,875.00
Input Tax
30,389,895.79
Domestic Purchases
4th
Importations
34,996.36
Excess Input Tax
18,166,330.54
2,308,837.00
(A)
20,440,171.18
(B)
(C)
P61,243.63
(D) = (B) + (C) '(A)
P207,300,200.07
1st
P43,019,138.00
P 26,247.27
P250,258,094.44
P95,003,348.91
Petitioner amended its Quarterly VAT Returns, particularly the items on (1) Input
VAT on Domestic Purchases during the first quarter of 2002; (2) Input VAT on
Domestic Purchases for the fourth quarter of 2002; and (3) Input VAT on Importation
of Goods for the fourth quarter of 2002. The amendments read as follows12 :
P20,758,668.00
P115,735,769.84
Period Covered
2nd
Date Filed
Amount
18,485,758.00
1st Quarter
Page44
Particulars
65,206,499.83
(238,034,696.40)
(January 1, 2002 to
2nd Quarter
March 31, 2002)
(April 1, 2002 to
April 24, 2003
June 30, 2002)
April 24, 2003
P 26,247.27
P blank
297,719,296.25
238,034,696.40
(22D)
95,126,981.69
(22D)
(22F)
65,206,499.83
20,758,668.00

(22F)
413,604,945.94
18,485,758.00
175,544,002.27
321,643,021.02
175,544,002.27
237,950,763.19
83,692,257.83
Page44

(238,060,943.67)

(83,692,257.83)
114,082,153.62
(83,692,257.83)
(114,082,153.62)
3rd Quarter
(July 1, 2002 to
(114,082,153.62)
September 30, 2002)
4th Quarter
October 25, 2002
(October 1, 2002 to
December 31, 2002)
P blank
January 23, 2003
83,692,257.83
P 34,996.36
(22D)
114,082,153.62
28,924,020.79

(22D)
(22F)
17,918,056.50
1,465,875.00

(22F)
114,082,153.62
Blank
133,573,214.12
Page44
1,573,004.00
(C)
(D) = (B) + (C) '(A)
83,692,257.83
1st
30-May-03
49,880,956.29
P 26,247.27
P95,126,981.69
(49,845,959.93)
P20,758,668.00
P115,859,402.42
(49,845,959.93)
2nd
On 30 May 2003 and 31 July 2003, petitioner filed two letters with the BIR to amend
its claims for tax refund or credit for the first and fourth quarter of 2002, respectively.
Petitioner sought to recover a total amount of P249,397,620.18 representing its
unutilized excess VAT on its importation and domestic purchases of goods and
services for the year 2002, broken down as follows13 :
25-Oct-02
65,206,499.83
Qtr
18,185,758.00
Involved
83,692,257.83
Date Filed
3rd
Output Tax
27-Feb-03
Input Tax
Domestic Purchases
28,924,920.79
Importations
1,465,875,00
Excess Input Tax
30,389,895.79
31-Jul-03
(B)
34,996.36
Page44
4th
(A)
17,918,056.50
3. Whether or not petitioner's importation and purchases of capital goods and

related services are within the scope and meaning of "capital goods" under
Revenue Regulations No. 7-95;
1,573,004.00
19,456,064.14
P61,243.63
4. Whether or not petitioner's input taxes are sufficiently substantiated with VAT
invoices or official receipts;
5. Whether or not the VAT input taxes being claimed for refund/tax credit by
petitioner (had) been credited or utilized against any output taxes or (had) been
carried forward to the succeeding quarter or quarters; andcralawlibrary
P207,175,558.81
P249,397,620.18
Respondent failed to act on the request for tax refund or credit of petitioner, which
prompted the latter to file on 5 April 2004, with the CTA in Division, a Petition for
Review, docketed as CTA Case No. 6916 before it could be barred by the two-year
prescriptive period within which to file its claim. Petitioner sought the refund of the
amount of P249,397,620.18 representing its unutilized excess VAT on its importation
and local purchases of various goods and services for the year 2002.14
During the proceedings before the CTA Second Division, petitioner presented the
following documents, among other pieces of evidence: (1) Petitioner's Amended
Quarterly VAT return for the 4th Quarter of 2002 marked as Exhibit "A," showing the
amount of P42,500,000.00 paid by NTC to petitioner for all the electricity produced
during test runs; (2) the special audit report, prepared by the CPA firm of
Punongbayan and Araullo through a partner, Angel A. Aguilar (Aguilar), and the
attached schedules, marked as Exhibits "J-2" to "J-21"; (3) Sales Invoices and
Official Receipts and related documents issued to petitioner for the year 2002,
marked as Exhibits "J-4-A1" to "J-4-L265"; (4) Audited Financial Statements of
Petitioner for the year 2002, with comparative figures for 2001, marked as Exhibit
"K"; and (5) the Affidavit of Echevarria dated 9 February 2005, marked as Exhibit
"L".15
During the hearings, the parties jointly stipulated on the issues involved:
1. Whether or not petitioner's sales are subject to value-added taxes at effectively
zero percent (0%) rate;
2. Whether or not petitioner incurred input taxes which are attributable to its
effectively zero-rated transactions;
6. Whether or not petitioner is entitled to a refund of VAT input taxes it paid from
January 1, 2002 to December 31, 2002 in the total amount of Two Hundred Forty
Nine Million Three Hundred Ninety Seven Thousand Six Hundred Twenty and
18/100 Pesos (P249,397,620.18).
Simply put, the issue is: whether or not petitioner is entitled to refund or tax credit in
the amount of P249,397,620.18 representing its unutilized input VAT paid on
importation and purchases of capital and other taxable goods and services from
January 1 to December 31, 2002.
After a hearing on the merits, the CTA Second Division rendered a Decision16 dated
23 March 2006 denying petitioner's claim for tax refund or credit. The CTA noted
that petitioner based its claim on creditable input VAT paid, which is attributable to
(1) zero-rated or effectively zero-rated sale, as provided under Section 112(A) of the
NIRC, and (2) purchases of capital goods, in accordance with Section 112(B) of the
NIRC. The court ruled that in order for petitioner to be entitled to the refund or
issuance of a tax credit certificate on the basis of Section 112(A) of the NIRC, it
must establish that it had incurred zero-rated sales or effectively zero-rated sales for
the taxable year 2002. Since records show that petitioner did not make any zerorated or effectively-zero rated sales for the taxable year 2002, the CTA reasoned
that petitioner's claim must be denied. Parenthetically, the court declared that the
claim for tax refund or credit based on Section 112(B) of the NIRC requires
petitioner to prove that it paid input VAT on capital goods purchased, based on the
definition of capital goods provided under Section 4.112-1(b) of Revenue
Regulations No. 7-95 i.e., goods or properties which have an estimated useful life of
greater than one year, are treated as depreciable assets under Section 34(F) of the
NIRC, and are used directly or indirectly in the production or sale of taxable goods
and services. The CTA found that the evidence offered by petitioner the suppliers'
invoices and official receipts and Import Entries and Internal Revenue Declarations
and the audit report of the Court-commissioned Independent Certified Public
Accountant (CPA) are insufficient to prove that the importations and domestic
purchases were classified as capital goods and properties entered as part of the
"Property, Plant and Equipment" account of the petitioner. The dispositive part of the
said Decision reads:
Page44
P42,283,305.00
Not satisfied with the foregoing Decision dated 23 March 2006, petitioner filed a
Motion for Reconsideration which was denied by the CTA Second Division in a
Resolution dated 4 January 2007.18
Petitioner filed an appeal with the CTA En Banc, docketed as CTA EB No. 248. The
CTA En Banc promulgated its Decision19 on 20 September 2007 denying
petitioner's appeal. The CTA En Banc reiterated the ruling of the Division that
petitioner's claim based on Section 112(A) of the NIRC should be denied since it did
not present any records of any zero-rated or effectively zero-rated transactions. It
clarified that since petitioner failed to prove that any sale of its electricity had
transpired, petitioner may base its claim only on Section 112(B) of the NIRC, the
provision governing the purchase of capital goods. The court noted that the report of
the Court-commissioned auditing firm, Punongbayan & Araullo, dealt specifically
with the unutilized input taxes paid or incurred by petitioner on its local and foreign
purchases of goods and services attributable to its zero-rated sales, and not to
purchases of capital goods. It decided that petitioner failed to prove that the
purchases evidenced by the invoices and receipts, which petitioner presented, were
classified as capital goods which formed part of its "Property, Plant and Equipment,"
especially since petitioner failed to present its books of account. The dispositive part
of the said Decision reads:
WHEREFORE, premises considered, the instant petition is hereby DISMISSED.
Accordingly, the assailed Decision and Resolution are hereby AFFIRMED.20
The CTA En Banc denied petitioner's Motion for Reconsideration in a Resolution
dated 22 October 2007.21
Hence, the present Petition for Review where the petitioner raises the following
errors allegedly committed by the CTA En banc:
I
THE COURT OF TAX APPEALS EN BANC COMMITTED SERIOUS ERROR AND
ACTED WITH GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR
EXCESS OF JURISDICTION IN FAILING OR REFUSING TO APPRECIATE THE
OVERWHELMING AND UNCONTROVERTED EVIDENCE SUBMITTED BY THE
PETITIONER, THUS DEPRIVING PETITIONER OF ITS PROPERTY WITHOUT
DUE PROCESS; AND
II
THE COURT OF TAX APPEALS COMMITTED SERIOUS ERROR AND ACTED

WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN RULING THAT THE ABSENCE OF ZERO-RATED SALES BY
PETITIONER DURING THE YEAR COVERED BY THE CLAIM FOR REFUND
DOES NOT ENTITLE PETITIONER TO A REFUND OF ITS EXCESS VAT INPUT
TAXES ATTRIBUTABLE TO ZERO-RATED SALES, CONTRARY TO PROVISIONS
OF LAW.22
The present Petition is meritorious.
The main issue in this case is whether or not petitioner may claim a tax refund or
credit in the amount of P249,397,620.18 for creditable input tax attributable to zerorated or effectively zero-rated sales pursuant to Section 112(A) of the NIRC or for
input taxes paid on capital goods as provided under Section 112(B) of the NIRC.
To resolve the issue, this Court must re-examine the facts and the evidence offered
by the parties. It is an accepted doctrine that this Court is not a trier of facts. It is not
its function to review, examine and evaluate or weigh the probative value of the
evidence presented. However, this rule does not apply where the judgment is
premised on a misapprehension of facts, or when the appellate court failed to notice
certain relevant facts which if considered would justify a different conclusion.23
After reviewing the records, this Court finds that petitioner's claim for refund or credit
is justified under Section 112(A) of the NIRC which states that:
SEC. 112. Refunds or Tax Credits of Input Tax.'
(A) Zero-rated or Effectively Zero-rated Sales'Any VAT-registered person, whose
under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(B)(1) and (2), the
To claim refund or tax credit under Section 112(A), petitioner must comply with the
following criteria: (1) the taxpayer is VAT registered; (2) the taxpayer is engaged in
zero-rated or effectively zero-rated sales; (3) the input taxes are due or paid; (4) the
Page44
WHEREFORE, the instant Petition for Review is DENIED for lack of merit.17
input taxes are not transitional input taxes; (5) the input taxes have not been applied
against output taxes during and in the succeeding quarters; (6) the input taxes
claimed are attributable to zero-rated or effectively zero-rated sales; (7) for zerorated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the
acceptable foreign currency exchange proceeds have been duly accounted for in
accordance with BSP rules and regulations; (8) where there are both zero-rated or
effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot
be directly and entirely attributable to any of these sales, the input taxes shall be
proportionately allocated on the basis of sales volume; and (9) the claim is filed
within two years after the close of the taxable quarter when such sales were
made.24
Based on the evidence presented, petitioner complied with the abovementioned
requirements. Firstly, petitioner had adequately proved that it is a VAT registered
taxpayer when it presented Certificate of Registration No. OCN-98-006-007394,
which it attached to its Petition for Review dated 29 March 2004 filed before the CTA
in Division. Secondly, it is unquestioned that petitioner is engaged in providing
electricity for NPC, an activity which is subject to zero rate, under Section 108(B)(3)
of the NIRC. Thirdly, petitioner offered as evidence suppliers' VAT invoices or official
receipts, as well as Import Entries and Internal Revenue Declarations (Exhibits "J-4A1" to "J-4-L265"), which were examined in the audit conducted by Aguilar, the
Court-commissioned Independent CPA. Significantly, Aguilar noted in his audit
report (Exhibit "J-2") that of the P249,397,620.18 claimed by petitioner, he identified
items with incomplete documentation and errors in computation with a total amount
of P3,266,009.78. Based on these findings, the remaining input VAT of
P246,131,610.40 was properly documented and recorded in the books. The said
report reads:
In performing the procedures referred under the Procedures Performed section of
this report, no matters came to our attention that cause us to believe that the
amount of input VAT applied for as tax credit certificate/refund of P249,397,620.18
for the period January 1, 2002 to December 31, 2002 should be adjusted except for
input VAT claimed with incomplete documentation, those with various and other
exceptions on the supporting documents and those with errors in computation
totaling P3,266,009.78, as discussed in the Findings and Results of the AgreedUpon Audit Procedures Performed sections of this report. We have also ascertained
that the input VAT claimed are properly recorded in the books and, except as
specifically identified in the Findings and Results of the Agreed-Upon Audit
Procedures Performed sections of this report, are properly supported by original and
appropriate suppliers' VAT invoices and/or official receipts.25
claimed for tax refund or credit is net of the input VAT that was already offset against
output VAT amounting to P26,247.27 for the first quarter of 2002 and P34,996.36 for
the fourth quarter of 2002,27 as reflected in the Quarterly VAT Returns.28
The main dispute in this case is whether or not petitioner's claim complied with the
sixth requirement the existence of zero-rated or effectively zero-rated sales, to
which creditable input taxes may be attributed. The CTA in Division and en banc
denied petitioner's claim solely on this ground. The tax courts based this conclusion
on the audited report, marked as Exhibit "J-2," stating that petitioner made no sale
of electricity to NPC in 2002.29 Moreover, the affidavit of Echevarria (Exhibit "L"),
petitioner's Vice President and Director for Finance, contained an admission that no
commercial sale of electricity had been made in favor of NPC in 2002 since the
project was still under construction at that time.30
However, upon closer examination of the records, it appears that on 2002, petitioner
carried out a "sale" of electricity to NPC. The fourth quarter return for the year 2002,
which petitioner filed, reported a zero-rated sale in the amount of P42,500,000.00.31
In the Affidavit of Echevarria dated 9 February 2005 (Exhibit "L"), which was
uncontroverted by respondent, the affiant stated that although no commercial sale
was made in 2002, petitioner produced and transferred electricity to NPC during the
testing period in exchange for the amount of P42,500,000.00, to wit:32
A: San Roque Power Corporation has had no sale yet during 2002. The
P42,500,000.00 which was paid to us by Napocor was something similar to a more
cost recovery scheme. The pre-agreed amount would be about equal to our costs
for producing the electricity during the testing period and we just reflected this in our
4th quarter return as a zero-rated sale. x x x.
The Court is not unmindful of the fact that the transaction described hereinabove
was not a commercial sale. In granting the tax benefit to VAT-registered zero-rated
or effectively zero-rated taxpayers, Section 112(A) of the NIRC does not limit the
definition of "sale" to commercial transactions in the normal course of business.
Conspicuously, Section 106(B) of the NIRC, which deals with the imposition of the
VAT, does not limit the term "sale" to commercial sales, rather it extends the term to
transactions that are "deemed" sale, which are thus enumerated:
SEC 106. Value-Added Tax on Sale of Goods or Properties.
xxx
(1) Transfer, use or consumption not in the course of business of goods or

properties originally intended for sale or for use in the course of business;
Page44
(B) Transactions Deemed Sale. The following transactions shall be deemed sale:
Fourthly, the input taxes claimed, which consisted of local purchases and
importations made in 2002, are not transitional input taxes, which Section 111 of the
NIRC defines as input taxes allowed on the beginning inventory of goods, materials
and supplies.26 Fifthly, the audit report of Aguilar affirms that the input VAT being
(a) Shareholders or investors as share in the profits of the VAT-registered persons;

or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made within sixty (60) days following
the date such goods were consigned; andcralawlibrary
(4) Retirement from or cessation of business, with respect to inventories of taxable
goods existing as of such retirement or cessation. (Our emphasis.)
After carefully examining this provision, this Court finds it an equitable construction
of the law that when the term "sale" is made to include certain transactions for the
purpose of imposing a tax, these same transactions should be included in the term
"sale" when considering the availability of an exemption or tax benefit from the same
revenue measures. It is undisputed that during the fourth quarter of 2002, petitioner
transferred to NPC all the electricity that was produced during the trial period. The
fact that it was not transferred through a commercial sale or in the normal course of
business does not deflect from the fact that such transaction is deemed as a sale
under the law.
The seventh requirement regarding foreign currency exchange proceeds is
inapplicable where petitioner's zero-rated sale of electricity to NPC did not involve
foreign exchange and consisted only of a single transaction wherein NPC paid
petitioner P42,500,000.00 in exchange for the electricity transferred to it by
petitioner. Similarly, the eighth requirement is inapplicable to this case, where the
only sale transaction consisted of an effectively zero-rated sale and there are no
exempt or taxable sales that transpired, which will require the proportionate
allocation of the creditable input tax paid.
The last requirement determines that the claim should be filed within two years after
the close of the taxable quarter when such sales were made. The sale of electricity
to NPC was reported at the fourth quarter of 2002, which closed on 31 December
2002. Petitioner had until 30 December 2004 to file its claim for refund or credit. For
the period January to March 2002, petitioner filed an amended request for refund or
tax credit on 30 May 2003; for the period July 2002 to September 2002, on 27
February 2003; and for the period October 2002 to December 2002, on 31 July
2003.33 In these three quarters, petitioners seasonably filed its requests for refund
and tax credit. However, for the period April 2002 to May 2002, the claim was filed
prematurely on 25 October 2002, before the last quarter had closed on 31
December 2002.34
Despite this lapse in procedure, this Court notes that petitioner was able to
positively show that it was able to accumulate excess input taxes on various
importations and local purchases in the amount of P246,131,610.40, which were
attributable to a transfer of electricity in favor of NPC. The fact that it had filed its
claim for refund or credit during the quarter when the transfer of electricity had taken
place, instead of at the close of the said quarter does not make petitioner any less
entitled to its claim. Given the special circumstances of this case, wherein petitioner
was incorporated for the sole purpose of constructing or operating a power plant
that will transfer all the electricity it generates to NPC, there is no danger that
petitioner would try to fraudulently claim input tax paid on purchases that will be
attributed to sale transactions that are not zero-rated. Substantial justice, equity and
fair play are on the side of the petitioner. Technicalities and legalisms, however,
exalted, should not be misused by the government to keep money not belonging to
it, thereby enriching itself at the expense of its law abiding citizens.
Substantial justice, equity and fair play are on the side of petitioner. Technicalities
and legalisms, however exalted, should not be misused by the government to keep
money not belonging to it, thereby enriching itself at the expense of its law-abiding
citizens. Under the principle of solutio indebiti provided in Art. 2154, Civil Code, the
BIR received something "when there [was] no right to demand it," and thus, it has
the obligation to return it. Heavily militating against respondent Commissioner is the
ancient principle that no one, not even the State, shall enrich oneself at the expense
of another. Indeed, simple justice requires the speedy refund of the wrongly held
taxes.35
It bears emphasis that effective zero-rating is not intended as a benefit to the person
legally liable to pay the tax, such as petitioner, but to relieve certain exempt entities,
such as the NPC, from the burden of indirect tax so as to encourage the
development of particular industries. Before, as well as after, the adoption of the
VAT, certain special laws were enacted for the benefit of various entities and
international agreements were entered into by the Philippines with foreign
governments and institutions exempting sale of goods or supply of services from
indirect taxes at the level of their suppliers. Effective zero-rating was intended to
relieve the exempt entity from being burdened with the indirect tax which is or which
will be shifted to it had there been no exemption. In this case, petitioner is being
exempted from paying VAT on its purchases to relieve NPC of the burden of
additional costs that petitioner may shift to NPC by adding to the cost of the
electricity sold to the latter.36
Section 13 of Republic Act No. 6395, otherwise known as the NPC Charter, further
clarifies that it is the lawmakers' intention that NPC be made completely exempt
from all taxes, both direct and indirect:
Sec. 13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties,
Fees, Imposts and Other Charges by Government and Governmental
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(2) Distribution or transfer to:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service
fees in any court or administrative proceedings in which it may be a party,
restrictions and duties to the Republic of the Philippines, its provinces, cities,
municipalities, and other government agencies and instrumentalities;
(b) From all income taxes, franchise taxes, and realty taxes to be paid to the
National Government, its provinces, cities, municipalities and other government
agencies and instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax and
wharfage fees on import of foreign goods, required for its operations and projects;
andcralawlibrary
(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.
To limit the exemption granted to the NPC to direct taxes, notwithstanding the
general and broad language of the statute will be to thwart the legislative intention in
giving exemption from all forms of taxes and impositions, without distinguishing
between those that are direct and those that are not.37
Congress granted NPC a comprehensive tax exemption because of the significant
public interest involved. This is enunciated in Section 1 of Republic Act No. 6395:
Section 1. Declaration of Policy. Congress hereby declares that (1) the
comprehensive development, utilization and conservation of Philippine water
resources for all beneficial uses, including power generation, and (2) the total
electrification of the Philippines through the development of power from all sources
to meet the needs of industrial development and dispersal and the needs of rural
electrification are primary objectives of the nation which shall be pursued
coordinately and supported by all instrumentalities and agencies of government,
including its financial institutions.
The ability of the NPC to provide sufficient and affordable electricity throughout the
country greatly affects our industrial and rural development. Erroneously and
unjustly depriving industries that generate electrical power of tax benefits that the
law clearly grants will have an immediate effect on consumers of electricity and long
term effects on our economy.
In the same breath, we cannot lose sight of the fact that it is the declared policy of
the State, expressed in Section 2 of Republic Act No. 9136, otherwise known as the
EPIRA Law, "to ensure and accelerate the total electrification of the country;" "to
enhance the inflow of private capital and broaden the ownership base of the power
generation, transmission and distribution sectors;" and "to promote the utilization of
indigenous and new and renewable energy resources in power generation in order
to reduce dependence on imported energy." Further, Section 6 provides that
"pursuant to the objective of lowering electricity rates to end-users, sales of
generated power by generation companies shall be value-added tax zero-rated.
Section 75 of said law succinctly declares that "this Act shall, unless the context
indicates otherwise, be construed in favor of the establishment, promotion,
preservation of competition and power empowerment so that the widest participation
of the people, whether directly or indirectly is ensured."
The objectives as set forth in the EPIRA Law can only be achieved if government
were to allow petitioner and others similarly situated to obtain the input tax credits
available under the law. Denying petitioner such credits would go against the
declared policies of the EPIRA Law.rl
The legislative grant of tax relief (whether in the EPIRA Law or the Tax Code)
constitutes a sovereign commitment of Government to taxpayers that the latter can
avail themselves of certain tax reliefs and incentives in the course of their business
activities here. Such a commitment is particularly vital to foreign investors who have
been enticed to invest heavily in our country's infrastructure, and who have done so
on the firm assurance that certain tax reliefs and incentives can be availed of in
order to enable them to achieve their projected returns on these very long-term and
heavily funded investments. While the government's ability to keep its commitment
is put in doubt, credit rating turns to worse; the costs of borrowing becomes higher
and the harder it will be to attract foreign investors. The country's earnest efforts to
move forward will all be put to naught.
Having decided that petitioner is entitled to claim refund or tax credit under Section
112(A) of the NIRC or on the basis of effectively zero-rated sales in the amount of
P246,131,610.40, there is no more need to establish its right to make the same
claim under Section 112(B) of the NIRC or on the basis of purchase of capital
goods.
Finally, respondent contends that according to well-established doctrine, a tax
refund, which is in the nature of a tax exemption, should be construed strictissimi
juris against the taxpayer.38 However, when the claim for refund has clear legal
Page44
Instrumentalities. - The corporation shall be non-profit and shall devote all its returns
from its capital investment, as well as excess revenues from its operation, for
expansion. To enable the corporation to pay its indebtedness and obligations and in
furtherance and effective implementation of the policy enunciated in Section 1 of this
Act, the corporation is hereby declared exempt:
WHEREFORE, the instant Petition for Review is GRANTED. The Decision of the
Court of Tax Appeals En Banc dated 20 September 2007 in CTA EB Case No. 248,
affirming the Decision dated 23 March 2006 of the CTA Second Division in CTA
Case No. 6916, is REVERSED. Respondent Commissioner of Internal Revenue is
ordered to refund, or in the alternative, to issue a tax credit certificate to petitioner
San Roque Power Corporation in the amount of Two Hundred Forty-Six Million One
Hundred Thirty-One Thousand Six Hundred Ten Pesos and 40/100
(P246,131,610.40), representing unutilized input VAT for the period 1 January 2002
to 31 December 2002. No costs.
SECOND DIVISION
[G.R. NO. 179356 : December 14, 2009]
KEPCO PHILIPPINES CORPORATION, Petitioner, v. COMMISSIONER OF
DECISION
CARPIO MORALES, J.:
Korea Electric Power Corporation (KEPCO) Philippines Corporation (petitioner) is
an independent power producer engaged in selling electricity to the National Power
Corporation (NPC).
After its incorporation and registration with the Securities and Exchange
Commission on June 15, 1995, petitioner forged a Rehabilitation Operation
Maintenance and Management Agreement with NPC for the rehabilitation and
operation of Malaya Power Plant Complex in Pililia, Rizal.1
Petitioner filed before respondent on December 28, 1998 still another claim for
refund representing unutilized input VAT payments attributable to its zero-rated sale
transactions with NPC, including input VAT payments on domestic goods and
services in the amount of P13,191,278.00 for the 4th quarter of 1996. Petitioner also
filed the same claim before the CTA on December 29, 1998, docketed as CTA Case
No. 5704.
The two petitions before the CTA for a refund in the total amount of P22,172,003.26
were consolidated.
In his report, the court-commissioned auditor, Ruben R. Rubio, concluded that the
claimed amount of P20,550,953.93 was properly substantiated for VAT purposes
and subject of a valid refund.
By Decision of March 18, 2003, the CTA granted petitioner partial refund with
respect to unutilized input VAT payment on domestic goods and services qualifying
as capital goods purchased for the 3rd and 4th quarters of 1996 in the amount of
P8,325,350.35. All other claims were disallowed.
Petitioner filed an urgent motion for reconsideration, claiming an additional amount
of P5,012,875.67.
By Resolution of July 8, 2003,2 the CTA denied petitioner's motion, it holding that
part of the additional amount prayed for ? P1,557,676.13 ? involved purchases for
the year 1997, and with respect to the remaining amount of P3,455,199.54, it was
not recorded under depreciable asset accounts, hence, it cannot be considered as
capital goods.
Petitioner appealed under Rule 43 of the Rules of Court before the Court of
Appeals,3 praying only for the refund of P3,455,199.54, claiming that the purchases
represented thereby were used in the rehabilitation of the Malaya Power Plant
Complex which should be considered as capital expense to fall within the purview of
capital goods.
On September 30, 1998, petitioner filed with the Commissioner of Internal Revenue
(respondent) administrative claims for tax refund in the amounts of P4,895,858.01
representing unutilized input Value Added Tax (VAT) payments on domestic
purchases of goods and services for the 3rd quarter of 1996 and P4,084,867.25
representing creditable VAT withheld from payments received from NPC for the
months of April and June 1996.
The appellate court, by Decision of December 11, 2006, affirmed that of the CTA. In
arriving at its decision, the appellate court considered, among other things, the
account vouchers submitted by petitioner which listed the purchases under
inventory accounts as follows:
Petitioner also filed a judicial claim before the Court of Tax Appeals (CTA), docketed
as CTA Case No. 5765, also based on the above-stated amounts.
2) Inventory supplies/lubricants
1) Inventory supplies/materials
3) Inventory supplies/spare parts
Page44
basis and is sufficiently supported by evidence, as in the present case, then the
Court shall not hesitate to grant the same.39
4) Inventory supplies/supplies
(f), 4 used directly or indirectly in the production or sale of taxable goods or services.
(underscoring supplied)
5) Cost/O&M Supplies
6) Cost/O&M Uniforms and Working Clothes
7) Cost/O&M/Supplies
For petitioner's purchases of domestic goods and services to be considered as

"capital goods or properties," three requisites must concur. First, useful life of goods
or properties must exceed one year; second, said goods or properties are treated as
depreciable assets under Section 34 (f) and; third, goods or properties must be used
directly or indirectly in the production or sale of taxable goods and services.
8) Cost/O&M/Repairs and Maintenance

9) Office Supplies
10) Repair and Maintenance/Mechanics
11) Repair and Maintenance/Common/General
12) Repair and Maintenance/Chemicals
Reconsideration of the appellate court's decision having been denied by Resolution
of August 17, 2007, the present Petition for Review on Certiorari was filed.
In the main, petitioner faults the appellate court for not considering the purchases
amounting to P3,455,199.54 as falling under the definition of "capital goods."
The petition is bereft of merit.
Section 4.106-1 (b) of Revenue Regulations No. 7-95 defines capital goods and its
scope in this wise:
From petitioner's evidence, the account vouchers specifically indicate that the
disallowed purchases were recorded under inventory accounts, instead of
depreciable accounts. That petitioner failed to indicate under its fixed assets or
depreciable assets account, goods and services allegedly purchased pursuant to
the rehabilitation and maintenance of Malaya Power Plant Complex, militates
against its claim for refund. As correctly found by the CTA, the goods or properties
must be recorded and treated as depreciable assets under Section 34 (F) of the
NIRC.
Petitioner further contends that since the disallowed items are treated as capital
goods in the general ledger and accounting records, as testified on by its senior
accountant, Karen Bulos, before the CTA, this should have been given more
significance than the account vouchers which listed the items under inventory
accounts.
A general ledger is a record of a business entity's accounts which make up its
financial statements. Information contained in a general ledger is gathered from
source documents such as account vouchers, purchase orders and sales invoices.
In case of variance between the source document and the general ledger, the
former is preferred.
xxx
The account vouchers presented by petitioner confirm that the purchases cannot
qualify as capital goods for they are held as inventory items and not charged to any
depreciable asset account. Petitioner has proffered no explanation why the
disallowed items were not listed under depreciable asset accounts.
SECOND DIVISION
Refund of input taxes on capital goods shall be allowed only to the extent that such
capital goods are used in VAT taxable business. If it is also used in exempt
operations, the input tax refundable shall only be the ratable portion corresponding
to taxable operations.
G.R. No. 193301 : March 11, 2013
"Capital goods or properties" refer to goods or properties with estimated useful life
greater that one year and which are treated as depreciable assets under Section 29
G.R. No. 194637
MINDANAO II GEOTHERMAL PARTNERSHIP, Petitioner, v. COMMISSIONER OF

INTERNAL REVENUE, Respondents.
Page44
(b) Capital Goods. - Only a VAT-registered person may apply for issuance of a tax
credit certificate or refund of input taxes paid on capital goods imported or locally
purchased. The refund shall be allowed to the extent that such input taxes have not
been applied against output taxes. The application should be made within two (2)
years after the close of the taxable quarter when the importation or purchase was
made.
DECISION
CARPIO, J.:
G.R. No. 193301 is a petition for review1 assailing the Decision2 promulgated on 10
March 2010 as well as the Resolution3 promulgated on 28 July 2010 by the Court of
Tax Appeals En Banc (CTA En Banc) in CTA EB No. 513. The CTA En Banc affirmed
the 22 September 2008 Decision4 as well as the 26 June 2009 Amended Decision5
of the First Division of the Court of Tax Appeals (CTA First Division) in CTA Case
Nos. 7227, 7287, and 7317. The CTA First Division denied Mindanao II Geothermal
Partnerships (Mindanao II) claims for refund or tax credit for the first and second
quarters of taxable year 2003 for being filed out of time (CTA Case Nos. 7227 and
7287). The CTA First Division, however, ordered the
Commissioner of Internal Revenue (CIR) to refund or credit to Mindanao II unutilized
input value-added tax (VAT) for the third and fourth quarters of taxable year 2003
(CTA Case No. 7317).
G.R. No. 194637 is a petition for review6 assailing the Decision7 promulgated on 31
May 2010 as well as the Amended Decision8 promulgated on 24 November 2010 by
the CTA En Banc in CTA EB Nos. 476 and 483. In its Amended Decision, the CTA
En Banc reversed its 31 May 2010 Decision and granted the CIRs petition for review
in CTA Case No. 476. The CTA En Banc denied Mindanao I Geothermal
Partnerships (Mindanao I) claims for refund or tax credit for the first (CTA Case No.
7228), second (CTA Case No. 7286), third, and fourth quarters (CTA Case No.
7318) of 2003.
Both Mindanao I and II are partnerships registered with the Securities and
Exchange Commission, value added taxpayers registered with the Bureau of
Internal Revenue (BIR), and Block Power Production Facilities accredited by the
Department of Energy. Republic Act No. 9136, or the Electric Power Industry
Reform Act of 2000 (EPIRA), effectively amended Republic Act No. 8424, or the Tax
Reform Act of 1997 (1997 Tax Code),9 when it decreed that sales of power by
generation companies shall be subjected to a zero rate of VAT.10 Pursuant to
EPIRA, Mindanao I and II filed with the CIR claims for refund or tax credit of
accumulated unutilized and/or excess input taxes due to VAT zero-rated sales in
2003. Mindanao I and II filed their claims in 2005.
G.R. No. 193301 covers three CTA First Division cases, CTA Case Nos. 7227, 7287,
and 7317, which were consolidated as CTA EB No. 513. CTA Case Nos. 7227,
7287, and 7317 claim a tax refund or credit of Mindanao IIs alleged excess or
unutilized input taxes due to VAT zero-rated sales. In CTA Case No. 7227,
Mindanao II claims a tax refund or credit of P3,160,984.69 for the first quarter of
2003. In CTA Case No. 7287, Mindanao II claims a tax refund or credit of
P1,562,085.33 for the second quarter of 2003. In CTA Case No. 7317, Mindanao II
claims a tax refund or credit of P3,521,129.50 for the third and fourth quarters of
2003.
The CTA First Divisions narration of the pertinent facts is as follows:cralawlibrary
xxx
On March 11, 1997, [Mindanao II] allegedly entered into a Built (sic)-OperateTransfer (BOT) contract with the Philippine National Oil Corporation Energy
Development Company (PNOC-EDC) for finance, engineering, supply, installation,
testing, commissioning, operation, and maintenance of a 48.25 megawatt
geothermal power plant, provided that PNOC-EDC shall supply and deliver steam to
Mindanao II at no cost. In turn, Mindanao II shall convert the steam into electric
capacity and energy for PNOC-EDC and shall deliver the same to the National
Power Corporation (NPC) for and in behalf of PNOC-EDC. Mindanao II alleges that
its sale of generated power and delivery of electric capacity and energy of Mindanao
II to NPC for and in behalf of PNOC-EDC is its only revenue-generating activity
which is in the ambit of VAT zero-rated sales under the EPIRA Law, x x x.
xxx
Hence, the amendment of the NIRC of 1997 modified the VAT rate applicable to
sales of generated power by generation companies from ten (10%) percent to zero
(0%) percent.
In the course of its operation, Mindanao II makes domestic purchases of goods and
services and accumulates therefrom creditable input taxes. Pursuant to the
provisions of the National Internal Revenue Code (NIRC), Mindanao II alleges that it
can use its accumulated input tax credits to offset its output tax liability. Considering,
however that its only revenue-generating activity is VAT zero-rated under RA No.
9136, Mindanao IIs input tax credits remain unutilized.
G.R. No. 193301

Mindanao II v. CIR
Thus, on the belief that its sales qualify for VAT zero-rating, Mindanao II adopted the
VAT zero-rating of the EPIRA in computing for its VAT payable when it filed its
Quarterly VAT Returns on the following dates:cralawlibrary
The Facts
CTA Case No.
Period Covered
Page44
MINDANAO I GEOTHERMAL PARTNERSHIP, Petitioner, v. COMMISSIONER OF

To date (September 22, 2008), the application for refund by Mindanao II remains
unacted upon by the CIR. Hence, these three petitions filed on April 22, 2005
covering the 1st quarter of 2003; July 7, 2005 for the 2nd quarter of 2003; and
September 9, 2005 for the 3rd and 4th quarters of 2003. At the instance of
Mindanao II, these petitions were consolidated on March 15, 2006 as they involve
the same parties and the same subject matter. The only difference lies with the
taxable periods involved in each petition.11?r?l1
The Court of Tax Appeals Ruling: Division
In its 22 September 2008 Decision,12 the CTA First Division found that Mindanao II
satisfied the twin requirements for VAT zero rating under EPIRA: (1) it is a
generation company, and (2) it derived sales from power generation. The CTA First
Division also stated that Mindanao II complied with five requirements to be entitled
to a refund:cralawlibrary
compliance with this Courts ruling in Atlas Consolidated Mining and Development
Corporation v. Commissioner of Internal Revenue (Atlas).14 The CTA First Division
declared that the two-year prescriptive period for filing a VAT refund claim should not
be counted from the close of the quarter but from the date of the filing of the VAT
return. As ruled in Atlas, VAT liability or entitlement to a refund can only be
determined upon the filing of the quarterly VAT return.
CTA
Case No. Period
Covered
(2003) Date Filing
Original
Return Amended
Return Administrative
Return Judicial Claim
7227
1st Quarter
23 April 2003
1 April 2004
13 April 2005
22 April 2005
7287
2nd Quarter
22 July 2003
1 April 2004
13 April 2005
7 July 2005
7317
3rd Quarter
25 Oct. 2003
1 April 2004
13 April 2005
9 Sept. 2005
7317
4th Quarter
26 Jan. 2004
1 April 2004
13 April 2005
9 Sept. 200515
Thus, counting from 23 April 2003, 22 July 2003, 25 October 2003, and 26 January
2004, when Mindanao II filed its VAT returns, its administrative claim filed on 13 April
2005 and judicial claims filed on 22 April 2005, 7 July 2005, and 9 September 2005
were timely filed in accordance with Atlas.
3. That such input VAT payments are directly attributable to zero-rated sales or
effectively zero-rated sales;
The CTA First Division found that Mindanao II is entitled to a refund in the modified
amount of P7,703,957.79, after disallowing P522,059.91 from input VAT16 and
deducting P18,181.82 from Mindanao IIs sale of a fully depreciated P200,000.00
Nissan Patrol. The input taxes amounting to P522,059.91 were disallowed for failure
to meet invoicing requirements, while the input VAT on the sale of the Nissan Patrol
was reduced by P18,181.82 because the output VAT for the sale was not included in
the VAT declarations.
4. That the input VAT payments were not applied against any output VAT liability;
and
The dispositive portion of the CTA First Divisions 22 September 2008 Decision
reads:cralawlibrary
5. That the claim for refund was filed within the two-year prescriptive period.13?r?
l1 ???r?bl? ??r??l l?? l?br?r
WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED.

Accordingly, the CIR is hereby ORDERED to REFUND or to ISSUE A TAX CREDIT
CERTIFICATE in the modified amount of SEVEN MILLION SEVEN HUNDRED
THREE THOUSAND NINE HUNDRED FIFTY SEVEN AND 79/100 PESOS
(P7,703,957.79) representing its unutilized input VAT for the four (4) quarters of the
taxable year 2003.
1. There must be zero-rated or effectively zero-rated sales;

2. That input taxes were incurred or paid;
With respect to the fifth requirement, the CTA First Division tabulated the dates of
filing of Mindanao IIs return as well as its administrative and judicial claims, and
concluded that Mindanao IIs administrative and judicial claims were timely filed in
Page44
(2003) Date of Filing

Original Return
Amended Return
7227
1st Quarter
April 23, 2003
July 3, 2002 (sic),
April 1, 2004 &
October 22, 2004
7287
2nd Quarter
July 22, 2003
April 1, 2004
7317
3rd Quarter
Oct. 27, 2003
April 1, 2004
7317
4th Quarter
Jan. 26, 2004
April 1, 2204
Considering that it has accumulated unutilized creditable input taxes from its only
income-generating activity, Mindanao II filed an application for refund and/or
issuance of tax credit certificate with the BIRs Revenue District Office at Kidapawan
City on April 13, 2005 for the four quarters of 2003.
Mindanao II filed a motion for partial reconsideration.18 It stated that the sale of the
fully depreciated Nissan Patrol is a one-time transaction and is not incidental to its
VAT zero-rated operations. Moreover, the disallowed input taxes substantially
complied with the requirements for refund or tax credit.
The CIR also filed a motion for partial reconsideration. It argued that the judicial
claims for the first and second quarters of 2003 were filed beyond the period
allowed by law, as stated in Section 112(A) of the 1997 Tax Code. The CIR further
stated that Section 229 is a general provision, and governs cases not covered by
Section 112(A). The CIR countered the CTA First Divisions 22 September 2008
decision by citing this Courts ruling in Commisioner of Internal Revenue v. Mirant
Pagbilao Corporation (Mirant),19 which stated that unutilized input VAT payments
must be claimed within two years reckoned from the close of the taxable quarter
when the relevant sales were made regardless of whether said tax was paid.
The CTA First Division denied Mindanao IIs motion for partial reconsideration, found
the CIRs motion for partial reconsideration partly meritorious, and rendered an
Amended Decision20 on 26 June 2009. The CTA First Division stated that the claim
for refund or credit with the BIR and the subsequent appeal to the CTA must be filed
within the two-year period prescribed under Section 229. The two-year prescriptive
period in Section 229 was denominated as a mandatory statute of limitations.
Therefore, Mindanao IIs claims for refund for the first and second quarters of 2003
had already prescribed.
The CTA First Division found that the records of Mindanao IIs case are bereft of
evidence that the sale of the Nissan Patrol is not incidental to Mindanao IIs VAT
zero-rated operations. Moreover, Mindanao IIs submitted documents failed to
substantiate the requisites for the refund or credit claims.
The CTA First Division modified its 22 September 2008 Decision to read as
follows:cralawlibrary
WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED.
Accordingly, the CIR is hereby ORDERED to REFUND or to ISSUE A TAX CREDIT
CERTIFICATE to Mindanao II Geothermal Partnership in the modified amount of
TWO MILLION NINE HUNDRED EIGHTY THOUSAND EIGHT HUNDRED EIGHTY
SEVEN AND 77/100 PESOS (P2,980,887.77) representing its unutilized input VAT
for the third and fourth quarters of the taxable year 2003.
SO ORDERED.21?r?l1 ???r?bl? ??r??l l?? l?br?r
Mindanao II filed a Petition for Review,22 docketed as CTA EB No. 513, before the
CTA En Banc.
The Court of Tax Appeals Ruling: En Banc
On 10 March 2010, the CTA En Banc rendered its Decision23 in CTA EB No. 513
and denied Mindanao IIs petition. The CTA En Banc ruled that (1) Section 112(A)
clearly provides that the reckoning of the two-year prescriptive period for filing the
application for refund or credit of input VAT attributable to zero-rated sales or
effectively zero-rated sales shall be counted from the close of the taxable quarter
when the sales were made; (2) the Atlas and Mirant cases applied different tax
codes: Atlas applied the 1977 Tax Code while Mirant applied the 1997 Tax Code; (3)
the sale of the fully-depreciated Nissan Patrol is incidental to Mindanao IIs VAT
zero-rated transactions pursuant to Section 105; (4) Mindanao II failed to comply
with the substantiation requirements provided under Section 113(A) in relation to
Section 237 of the 1997 Tax Code as implemented by Section 4.104-1, 4.104-5, and
4.108-1 of Revenue Regulation No. 7-95; and (5) the doctrine of strictissimi juris on
tax exemptions cannot be relaxed in the present case.
The dispositive portion of the CTA En Bancs 10 March 2010 Decision
reads:cralawlibrary
WHEREFORE, on the basis of the foregoing considerations, the Petition for Review
en banc is DISMISSED for lack of merit. Accordingly, the Decision dated September
22, 2008 and the Amended Decision dated June 26, 2009 issued by the First
Division are AFFIRMED.
The CTA En Banc issued a Resolution25 on 28 July 2010 denying for lack of merit
Mindanao IIs Motion for Reconsideration.26 The CTA En Banc highlighted the
following bases of their previous ruling:cralawlibrary
1. The Supreme Court has long decided that the claim for refund of unutilized input
VAT must be filed within two (2) years after the close of the taxable quarter when
such sales were made.
2. The Supreme Court is the ultimate arbiter whose decisions all other courts should
take bearings.
3. The words of the law are clear, plain, and free from ambiguity; hence, it must be
given its literal meaning and applied without any interpretation.27?r?l1 ???r?bl?
??r??l l?? l?br?r
G.R. No. 194637
Page44
The Facts
G.R. No. 194637 covers two cases consolidated by the CTA EB: CTA EB Case Nos.
476 and 483. Both CTA EB cases consolidate three cases from the CTA Second
Division: CTA Case Nos. 7228, 7286, and 7318. CTA Case Nos. 7228, 7286, and
7318 claim a tax refund or credit of Mindanao Is accumulated unutilized and/or
excess input taxes due to VAT zero-rated sales. In CTA Case No. 7228, Mindanao I
claims a tax refund or credit of P3,893,566.14 for the first quarter of 2003. In CTA
Case No. 7286, Mindanao I claims a tax refund or credit of P2,351,000.83 for the
second quarter of 2003. In CTA Case No. 7318, Mindanao I claims a tax refund or
credit of P7,940,727.83 for the third and fourth quarters of 2003.
Mindanao I is similarly situated as Mindanao II. The CTA Second Divisions narration
of the pertinent facts is as follows:cralawlibrary
xxx
In December 1994, Mindanao I entered into a contract of Build-Operate-Transfer
(BOT) with the Philippine National Oil Corporation Energy Development Corporation
(PNOC-EDC) for the finance, design, construction, testing, commissioning,
operation, maintenance and repair of a 47-megawatt geothermal power plant. Under
the said BOT contract, PNOC-EDC shall supply and deliver steam to Mindanao I at
no cost. In turn, Mindanao I will convert the steam into electric capacity and energy
for PNOC-EDC and shall subsequently supply and deliver the same to the National
Power Corporation (NPC), for and in behalf of PNOC-EDC.
Mindanao Is 47-megawatt geothermal power plant project has been accredited by
the Department of Energy (DOE) as a Private Sector Generation Facility, pursuant
to the provision of Executive Order No. 215, wherein Certificate of Accreditation No.
95-037 was issued.
On June 26, 2001, Republic Act (R.A.) No. 9136 took effect, and the relevant
provisions of the National Internal Revenue Code (NIRC) of 1997 were deemed
modified. R.A. No. 9136, also known as the "Electric Power Industry Reform Act of
2001 (EPIRA), was enacted by Congress to ordain reforms in the electric power
industry, highlighting, among others, the importance of ensuring the reliability,
security and affordability of the supply of electric power to end users. Under the
provisions of this Republic Act and its implementing rules and regulations, the
delivery and supply of electric energy by generation companies became VAT zerorated, which previously were subject to ten percent (10%) VAT.?r?l??
xxx
The amendment of the NIRC of 1997 modified the VAT rate applicable to sales of
generated power by generation companies from ten (10%) percent to zero percent
(0%). Thus, Mindanao I adopted the VAT zero-rating of the EPIRA in computing for
its VAT payable when it filed its VAT Returns, on the belief that its sales qualify for
VAT zero-rating.
Mindanao I reported its unutilized or excess creditable input taxes in its Quarterly
VAT Returns for the first, second, third, and fourth quarters of taxable year 2003,
which were subsequently amended and filed with the BIR.
On April 4, 2005, Mindanao I filed with the BIR separate administrative claims for the
issuance of tax credit certificate on its alleged unutilized or excess input taxes for
taxable year 2003, in the accumulated amount of P14,185, 294.80.
Alleging inaction on the part of CIR, Mindanao I elevated its claims before this Court
on April 22, 2005, July 7, 2005, and September 9, 2005 docketed as CTA Case Nos.
7228, 7286, and 7318, respectively. However, on October 10, 2005, Mindanao I
received a copy of the letter dated September 30, 2003 (sic) of the BIR denying its
application for tax credit/refund.28?r?l1
The Court of Tax Appeals Ruling: Division
On 24 October 2008, the CTA Second Division rendered its Decision29 in CTA Case
Nos. 7228, 7286, and 7318. The CTA Second Division found that (1) pursuant to
Section 112(A), Mindanao I can only claim 90.27% of the amount of substantiated
excess input VAT because a portion was not reported in its quarterly VAT returns; (2)
out of the P14,185,294.80 excess input VAT applied for refund, only P11,657,447.14
can be considered substantiated excess input VAT due to disallowances by the
Independent Certified Public Accountant, adjustment on the disallowances per the
CTA Second Divisions further verification, and additional disallowances per the CTA
Second Divisions further verification;
(3) Mindanao Is accumulated excess input VAT for the second quarter of 2003 that
was carried over to the third quarter of 2003 is net of the claimed input VAT for the
first quarter of 2003, and the same procedure was done for the second, third, and
fourth quarters of 2003; and (4) Mindanao Is administrative claims were filed within
the two-year prescriptive period reckoned from the respective dates of filing of the
quarterly VAT returns.
The dispositive portion of the CTA Second Divisions 24 October 2008 Decision
reads:cralawlibrary
WHEREFORE, premises considered, the consolidated Petitions for Review are
hereby PARTIALLY GRANTED. Accordingly, the CIR is hereby ORDERED TO
ISSUE A TAX CREDIT CERTIFICATE in favor of Mindanao I in the reduced amount
Page44
Mindanao I v. CIR
of TEN MILLION FIVE HUNDRED TWENTY THREE THOUSAND ONE HUNDRED

SEVENTY SEVEN PESOS AND 53/100 (P10,523,177.53) representing Mindanao Is
unutilized input VAT for the four quarters of the taxable year 2003.
10, 2009 Resolution of the CTA Former Second Division in CTA Case Nos. 7228,
7286, and 7318, entitled "Mindanao I Geothermal Partnership v. Commissioner of
Internal Revenue" are hereby AFFIRMED in toto.
SO ORDERED.30?r?l1
Mindanao I filed a motion for partial reconsideration with motion for Clarification31
on 11 November 2008. It claimed that the CTA Second Division should not have
allocated proportionately Mindanao Is unutilized creditable input taxes for the
taxable year 2003, because the proportionate allocation of the amount of creditable
taxes in Section 112(A) applies only when the creditable input taxes due cannot be
directly and entirely attributed to any of the zero-rated or effectively zero-rated sales.
Mindanao I claims that its unreported collection is directly attributable to its VAT
zero-rated sales. The CTA Second Division denied Mindanao Is motion and
maintained the proportionate allocation because there was a portion of the gross
receipts that was undeclared in Mindanao Is gross receipts.
Both the CIR and Mindanao I filed Motions for Reconsideration of the CTA En Bancs
31 May 2010 Decision. In an Amended Decision promulgated on 24 November
2010, the CTA En Banc agreed with the CIRs claim that Section 229 of the NIRC of
1997 is inapplicable in light of this Courts ruling in Mirant. The CTA En Banc also
ruled that the procedure prescribed under Section 112(D) now 112(C)37 of the 1997
Tax Code should be followed first before the CTA En Banc can act on Mindanao Is
claim. The CTA En Banc reconsidered its 31 May 2010 Decision in light of this
Courts ruling in Commissioner of Internal Revenue v. Aichi Forging Company of
Asia, Inc. (Aichi).38?r?l1
The CIR also filed a motion for partial reconsideration32 on 11 November 2008. It
claimed that Mindanao I failed to exhaust administrative remedies before it filed its
petition for review. The CTA Second Division denied the CIRs motion, and cited
Atlas33 as the basis for ruling that it is more practical and reasonable to count the
two-year prescriptive period for filing a claim for refund or credit of input VAT on
zero-rated sales from the date of filing of the return and payment of the tax due.
The dispositive portion of the CTA Second Divisions 10 March 2009 Resolution
reads:cralawlibrary
WHEREFORE, premises considered, the CIRs Motion for Partial Reconsideration
and Mindanao Is Motion for Partial Reconsideration with Motion for Clarification are
hereby DENIED for lack of merit.
The pertinent portions of the CTA En Bancs 24 November 2010 Amended Decision
read:cralawlibrary
C.T.A. Case No. 7228:cralawlibrary
(1) For calendar year 2003, Mindanao I filed with the BIR its Quarterly VAT Returns
for the First Quarter of 2003. Pursuant to Section 112(A) of the NIRC of 1997, as
amended, Mindanao I has two years from March 31, 2003 or until March 31, 2005
within which to file its administrative claim for refund;
(2) On April 4, 2005, Mindanao I applied for an administrative claim for refund of
unutilized input VAT for the first quarter of taxable year 2003 with the BIR, which is
beyond the two-year prescriptive period mentioned above.
SO ORDERED.34?r?l1
On 31 May 2010, the CTA En Banc rendered its Decision35 in CTA EB Case Nos.
476 and 483 and denied the petitions filed by the CIR and Mindanao I. The CTA En
Banc found no new matters which have not yet been considered and passed upon
by the CTA Second Division in its assailed decision and resolution.
The dispositive portion of the CTA En Bancs 31 May 2010 Decision
reads:cralawlibrary
WHEREFORE, premises considered, the Petitions for Review are hereby
DISMISSED for lack of merit. Accordingly, the October 24, 2008 Decision and March
for the second quarter of 2003. Pursuant to
Section 112(A) of the NIRC of 1997, as amended, Mindanao I has two years from
June 30, 2003, within which to file its administrative claim for refund for the second
quarter of 2003, or until June 30, 2005;
(2) On April 4, 2005, Mindanao I applied an administrative claim for refund of
unutilized input VAT for the second quarter of taxable year 2003 with the BIR, which
is within the two-year prescriptive period, provided under Section 112 (A) of the
NIRC of 1997, as amended;
Page44
The Ruling of the Court of Tax Appeals: En Banc
(3) The CIR has 120 days from April 4, 2005 (presumably the date Mindanao I
submitted the supporting documents together with the application for refund) or until
August 2, 2005, to decide the administrative claim for refund;
In recapitulation:cralawlibrary
(4) Within 30 days from the lapse of the 120-day period or from August 3, 2005 to
September 1, 2005, Mindanao I should have elevated its claim for refund to the CTA
in Division;
Claim for the first quarter of 2003 had already prescribed for having been filed
beyond the two-year prescriptive period;
(1) C.T.A. Case No. 7228
(2) C.T.A. Case No. 7286

(5) However, on July 7, 2005, Mindanao I filed its Petition for Review with this Court,
docketed as CTA Case No. 7286, even before the 120-day period for the CIR to
decide the claim for refund had lapsed on August 2, 2005. The Petition for Review
was, therefore, prematurely filed and there was failure to exhaust administrative
remedies;
Claim for the second quarter of 2003 should be dismissed for Mindanao Is failure to
comply with a condition precedent when it failed to exhaust administrative remedies
by filing its Petition for Review even before the lapse of the 120-day period for the
CIR to decide the administrative claim;
xxx
(3) C.T.A. Case No. 7318
Petition for Review was filed beyond the 30-day prescribed period to appeal to the
CTA.
(2) On April 4, 2005, Mindanao I applied an administrative claim for refund of

unutilized input VAT for the third and fourth quarters of taxable year 2003 with the
BIR, which is well within the two-year prescriptive period, provided under Section
112(A) of the NIRC of 1997, as amended;
(3) From April 4, 2005, which is also presumably the date Mindanao I submitted
supporting documents, together with the aforesaid application for refund, the CIR
has 120 days or until August 2, 2005, to decide the claim;
(4) Within thirty (30) days from the lapse of the 120-day period or from August 3,
2005 until September 1, 2005 Mindanao I should have elevated its claim for refund
to the CTA;
(5) However, Mindanao I filed its Petition for Review with the CTA in Division only on
September 9, 2005, which is 8 days beyond the 30-day period to appeal to the CTA.
Evidently, the Petition for Review was filed way beyond the 30-day prescribed
period. Thus, the Petition for Review should have been dismissed for being filed
late.
xxx
IN VIEW OF THE FOREGOING, the Commissioner of Internal Revenues Motion for
Reconsideration is hereby GRANTED; Mindanao Is Motion for Partial
Reconsideration is hereby DENIED for lack of merit.
The May 31, 2010 Decision of this Court En Banc is hereby REVERSED.
Accordingly, the Petition for Review of the Commissioner of Internal Revenue in
CTA EB No. 476 is hereby GRANTED and the entire claim of Mindanao I
Geothermal Partnership for the first, second, third and fourth quarters of 2003 is
hereby DENIED.
SO ORDERED.39?r?l1
The Issues
G.R. No. 193301
Mindanao II v. CIR
Mindanao II raised the following grounds in its Petition for Review:cralawlibrary
I. The Honorable Court of Tax Appeals erred in holding that the claim of Mindanao II
for the 1st and 2nd quarters of year 2003 has already prescribed pursuant to the
Mirant case.
Page44
for the third and fourth quarters of 2003. Pursuant to Section 112(A) of the NIRC of
1997, as amended, Mindanao I therefore, has two years from September 30, 2003
and December 31, 2003, or until September 30, 2005 and December 31, 2005,
respectively, within which to file its administrative claim for the third and fourth
quarters of 2003;
A. The Atlas case and Mirant case have conflicting interpretations of the law as to
the reckoning date of the two year prescriptive period for filing claims for VAT refund.
as the reckoning date in counting the two-year prescriptive period, cannot be

applied retroactively in the case of Mindanao I.
B. The Atlas case was not and cannot be superseded by the Mirant case in light of
Section 4(3), Article VIII of the 1987 Constitution.
B. The Atlas case promulgated by the Third Division of this Honorable Court on
June 8, 2007 was not and cannot be superseded by the Mirant Pagbilao case
promulgated by the Second Division of this Honorable Court on September 12, 2008
in light of the explicit provision of Section 4(3), Article VIII of the 1987
Constitution. ???r?bl? ??r??l l?? l?br?r
C. The ruling of the Mirant case, which uses the close of the taxable quarter when
the sales were made as the reckoning date in counting the two-year prescriptive
period cannot be applied retroactively in the case of Mindanao II. ???r?bl? ??r??
l l?? l?br?r
II. The Honorable Court of Tax Appeals erred in interpreting Section 105 of the 1997
Tax Code, as amended in that the sale of the fully depreciated Nissan Patrol is a
one-time transaction and is not incidental to the VAT zero-rated operation of
Mindanao II.
II. Likewise, the recent ruling of this Honorable Court in Commissioner of Internal
Revenue v. Aichi Forging Company of Asia, Inc., cannot be applied retroactively to
Mindanao I in the present case.41?r?l1 ???r?bl? ??r??l l?? l?br?r
In a Resolution dated 14 December 2011,42 this Court resolved to consolidate G.R.
Nos. 193301 and 194637 to avoid conflicting rulings in related cases.
III. The Honorable Court of Tax Appeals erred in denying the amount disallowed by
the Independent Certified Public Accountant as Mindanao II substantially complied
with the requisites of the 1997 Tax Code, as amended, for refund/tax credit.
The Courts Ruling
A. The amount of P2,090.16 was brought about by the timing difference in the
recording of the foreign currency deposit transaction.
G.R. Nos. 193301 and 194637 both raise the question of the determination of the
prescriptive period, or the interpretation of Section 112 of the 1997 Tax Code, in light
of our rulings in Atlas and Mirant.
B. The amount of P2,752.00 arose from the out-of-pocket expenses reimbursed to

SGV & Company which is substantially suppoerted [sic] by an official receipt.
C. The amount of P487,355.93 was unapplied and/or was not included in Mindanao
IIs claim for refund or tax credit for the year 2004 subject matter of CTA Case No.
7507. ???r?bl? ??r??l l?? l?br?r
IV. The doctrine of strictissimi juris on tax exemptions should be relaxed in the
present case.40?r?l1 ???r?bl? ??r??l l?? l?br?r
G.R. No. 194637
Mindanao I v. CIR
Determination of Prescriptive Period
Mindanao IIs unutilized input VAT tax credit for the first and second quarters of
2003, in the amounts of P3,160,984.69 and P1,562,085.33, respectively, are
covered by G.R. No. 193301, while Mindanao Is unutilized input VAT tax credit for
the first, second, third, and fourth quarters of 2003, in the amounts of
P3,893,566.14, P2,351,000.83, and P7,940,727.83, respectively, are covered by
G.R. No. 194637.
Section 112 of the 1997 Tax Code
The pertinent sections of the 1997 Tax Code, the law applicable at the time of
Mindanao IIs and Mindanao Is administrative and judicial claims,
provide:cralawlibrary
I. The administrative claim and judicial claim in CTA Case No. 7228 were timely filed
pursuant to the case of Atlas Consolidated Mining and Development Corporation v.
Commissioner of Internal Revenue, which was then the controlling ruling at the time
of filing.
A. The recent ruling in the Commissioner of Internal Revenue v. Mirant Pagbilao
Corporation, which uses the end of the taxable quarter when the sales were made
SEC. 112. Refunds or Tax Credits of Input Tax. -(A) Zero-rated or Effectively Zerorated Sales. - Any VAT-registered person, whose sales are zero-rated or effectively
zero-rated may, within two (2) years after the close of the taxable quarter when the
sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales, except transitional input
tax, to the extent that such input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)
(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency
Page44
Mindanao I raised the following grounds in its Petition for Review:cralawlibrary
xxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In
proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days from the
date of submission of complete documents in support of the application filed in
accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure
on the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer affected may, within thirty (30) days from the receipt
of the decision denying the claim or after the expiration of the one hundred twenty
day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.
x x x x 43 (Underscoring supplied) ???r?bl? ??r??l l?? l?br?r
The relevant dates for G.R. No. 193301 (Mindanao II) are:cralawlibrary
CTA
Case No. Period
covered by
VAT Sales in
2003 and
amount Close of
quarter
when sales
were
made
Last day
for filing
application
of tax
refund/tax
credit
certificate
with the
CIR
Actual date of
filing
application for
tax refund/
credit with the
CIR
(administrative
claim)44 Last day for
filing case
with CTA45
Actual Date
of filing case
with CTA
(judicial
claim)
7227
1st Quarter,
P3,160,984.69
31 March
2003
31 March
2005
13 April 2005
12 September
2005
22 April 2005
7287
2nd Quarter,
P1,562,085.33
30 June
2003
30 June
2005
13 April 2005
12 September
2005
7 July 2005
7317
3rd and 4th
Quarters,
P3,521,129.50
30
September
2003
30
September
2005
13 April 2005
12 September
2005
9 September
2005
31
December
2003
2 January
2006
(31
December
2005 being
a Saturday)
The relevant dates for G.R. No. 194637 (Minadanao I) are:cralawlibrary
CTA
Case
No.
Period
covered by
Page44
exchange proceeds thereof had been duly accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further,
That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and
also in taxable or exempt sale of goods or properties or services, and the amount of
creditable input tax due or paid cannot be directly and entirely attributed to any one
of the transactions, it shall be allocated proportionately on the basis of the volume of
sales.?r?l??
2005
4 April 2005
1 September
2005
9 September
2005
31
December
2003
2 January
2006
(31
December
2005 being
a Saturday)
When Mindanao II and Mindanao I filed their respective administrative and judicial
claims in 2005, neither Atlas nor Mirant has been promulgated. Atlas was
promulgated on 8 June 2007, while Mirant was promulgated on 12 September 2008.
It is therefore misleading to state that Atlas was the controlling doctrine at the time of
filing of the claims. The 1997 Tax Code, which took effect on 1 January 1998, was
the applicable law at the time of filing of the claims in issue. As this Court explained
in the recent consolidated cases of Commissioner of Internal Revenue v. San
Roque Power Corporation, Taganito Mining Corporation v. Commissioner of Internal
Revenue, and Philex Mining Corporation v. Commissioner of Internal Revenue (San
Roque):48?r?l1
Clearly, San Roque failed to comply with the 120-day waiting period, the time
expressly given by law to the Commissioner to decide whether to grant or deny San
Roques application for tax refund or credit. It is indisputable that compliance with the
120-day waiting period is mandatory and jurisdictional. The waiting period, originally
fixed at 60 days only, was part of the provisions of the first VAT law, Executive Order
No. 273, which took effect on 1 January 1988. The waiting period was extended to
120 days effective 1 January 1998 under RA 8424 or the Tax Reform Act of 1997.
Thus, the waiting period has been in our statute books for more than fifteen (15)
years before San Roque filed its judicial claim.
Failure to comply with the 120-day waiting period violates a mandatory provision of
law. It violates the doctrine of exhaustion of administrative remedies and renders the
petition premature and thus without a cause of action, with the effect that the CTA
does not acquire jurisdiction over the taxpayers petition. Philippine jurisprudence is
replete with cases upholding and reiterating these doctrinal principles.
The charter of the CTA expressly provides that its jurisdiction is to review on appeal
"decisions of the Commissioner of Internal Revenue in cases involving x x x refunds
of internal revenue taxes." When a taxpayer prematurely files a judicial claim for tax
refund or credit with the CTA without waiting for the decision of the Commissioner,
there is no "decision" of the Commissioner to review and thus the CTA as a court of
special jurisdiction has no jurisdiction over the appeal. The charter of the CTA also
expressly provides that if the Commissioner fails to decide within "a specific period"
Page44
VAT Sales in
2003 and
amount Close of
quarter
when sales
were
made
Last day
for filing
application
of tax
refund/tax
credit
certificate
with the
CIR
Actual date of
filing
application for
tax refund/
credit with the
CIR
(administrative
claim)46 Last day for
filing case
with CTA47
Actual Date
of filing case
with CTA
(judicial
claim)
7227
1st Quarter,
P3,893,566.14
31 March
2003
31 March
2005
4 April 2005
1 September
2005
22 April 2005
7287
2nd Quarter,
P2,351,000.83
30 June
2003
30 June
2005
4 April 2005
1 September
2005
7 July 2005
7317
3rd
and 4th
Quarters,
P7,940,727.83
30
September
2003
30
September
required by law, such "inaction shall be deemed a denial" of the application for tax
refund or credit. It is the Commissioners decision, or inaction "deemed a denial,"
that the taxpayer can take to the CTA for review. Without a decision or an "inaction x
x x deemed a denial" of the Commissioner, the CTA has no jurisdiction over a
petition for review.
meritorious, particularly in claims for tax refunds or credit. Such precedent will
render meaningless compliance with mandatory and jurisdictional requirements, for
then every tax refund case will have to be decided on the numerical correctness of
the amounts claimed, regardless of non-compliance with mandatory and
jurisdictional conditions.
San Roques failure to comply with the 120-day mandatory period renders its petition
for review with the CTA void. Article 5 of the Civil Code provides, "Acts executed
against provisions of mandatory or prohibitory laws shall be void, except when the
law itself authorizes their validity." San Roques void petition for review cannot be
legitimized by the CTA or this Court because Article 5 of the Civil Code states that
such void petition cannot be legitimized "except when the law itself authorizes its
validity." There is no law authorizing the petitions validity.
San Roque cannot also claim being misled, misguided or confused by the Atlas
doctrine because San Roque filed its petition for review with the CTA more than four
years before Atlas was promulgated. The Atlas doctrine did not exist at the time San
Roque failed to comply with the 120-day period. Thus, San Roque cannot invoke the
Atlas doctrine as an excuse for its failure to wait for the 120-day period to lapse. In
any event, the Atlas doctrine merely stated that the two-year prescriptive period
should be counted from the date of payment of the output VAT, not from the close of
the taxable quarter when the sales involving the input VAT were made. The Atlas
doctrine does not interpret, expressly or impliedly, the 120+30 day periods.49
(Emphases in the original; citations omitted)
This Court cannot brush aside the grave issue of the mandatory and jurisdictional
nature of the 120-day period just because the Commissioner merely asserts that the
case was prematurely filed with the CTA and does not question the entitlement of
San Roque to the refund. The mere fact that a taxpayer has undisputed excess
input VAT, or that the tax was admittedly illegally, erroneously or excessively
collected from him, does not entitle him as a matter of right to a tax refund or credit.
Strict compliance with the mandatory and jurisdictional conditions prescribed by law
to claim such tax refund or credit is essential and necessary for such claim to
prosper. Well-settled is the rule that tax refunds or credits, just like tax exemptions,
are strictly construed against the taxpayer.
The burden is on the taxpayer to show that he has strictly complied with the
conditions for the grant of the tax refund or credit.
This Court cannot disregard mandatory and jurisdictional conditions mandated by
law simply because the Commissioner chose not to contest the numerical
correctness of the claim for tax refund or credit of the taxpayer. Non-compliance with
mandatory periods, non-observance of prescriptive periods, and non-adherence to
exhaustion of administrative remedies bar a taxpayers claim for tax refund or credit,
whether or not the Commissioner questions the numerical correctness of the claim
of the taxpayer. This Court should not establish the precedent that non-compliance
with mandatory and jurisdictional conditions can be excused if the claim is otherwise
Prescriptive Period for

the Filing of Administrative Claims
In determining whether the administrative claims of Mindanao I and Mindanao II for
2003 have prescribed, we see no need to rely on either Atlas or Mirant. Section
112(A) of the 1997 Tax Code is clear: "Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the
taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales x x
x."???r?bl? ??r??l l?? l?br?r
We rule on Mindanao I and IIs administrative claims for the first, second, third, and
fourth quarters of 2003 as follows:cralawlibrary
(1) The last day for filing an application for tax refund or credit with the CIR for the
first quarter of 2003 was on 31 March 2005. Mindanao II filed its administrative claim
before the CIR on 13 April 2005, while Mindanao I filed its administrative claim
before the CIR on 4 April 2005. Both claims have prescribed, pursuant to Section
112(A) of the 1997 Tax Code.
second quarter of 2003 was on 30 June 2005. Mindanao II filed its administrative
claim before the CIR on 13 April 2005, while Mindanao I filed its administrative claim
before the CIR on 4 April 2005. Both claims were filed on time, pursuant to Section
third quarter of 2003 was on 30 September 2005. Mindanao II filed its administrative
Page44
It is hornbook doctrine that a person committing a void act contrary to a mandatory

provision of law cannot claim or acquire any right from his void act. A right cannot
spring in favor of a person from his own void or illegal act. This doctrine is repeated
in Article 2254 of the Civil Code, which states, "No vested or acquired right can arise
from acts or omissions which are against the law or which infringe upon the rights of
others." For violating a mandatory provision of law in filing its petition with the CTA,
San Roque cannot claim any right arising from such void petition. Thus, San
Roques petition with the CTA is a mere scrap of paper.
fourth quarter of 2003 was on 2 January 2006. Mindanao II filed its administrative
112(A) of the 1997 Tax Code. ???r?bl? ??r??l l?? l?br?r
Prescriptive Period for
the Filing of Judicial Claims
In determining whether the claims for the second, third and fourth quarters of 2003
have been properly appealed, we still see no need to refer to either Atlas or Mirant,
or even to Section 229 of the 1997 Tax Code. The second paragraph of Section
112(C) of the 1997 Tax Code is clear: "In case of full or partial denial of the claim for
tax refund or tax credit, or the failure on the part of the Commissioner to act on the
application within the period prescribed above, the taxpayer affected may, within
thirty (30) days from the receipt of the decision denying the claim or after the
expiration of the one hundred twenty day-period, appeal the decision or the unacted
claim with the Court of Tax Appeals."???r?bl? ??r??l l?? l?br?r
The mandatory and jurisdictional nature of the 120+30 day periods was explained in
San Roque:cralawlibrary
At the time San Roque filed its petition for review with the CTA, the 120+30 day
mandatory periods were already in the law. Section 112(C) expressly grants the
Commissioner 120 days within which to decide the taxpayers claim. The law is
clear, plain, and unequivocal: "x x x the Commissioner shall grant a refund or issue
the tax credit certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of complete documents." Following the verba legis
doctrine, this law must be applied exactly as worded since it is clear, plain, and
unequivocal. The taxpayer cannot simply file a petition with the CTA without waiting
for the Commissioners decision within the 120-day mandatory and jurisdictional
period. The CTA will have no jurisdiction because there will be no "decision" or
"deemed a denial" decision of the Commissioner for the CTA to review. In San
Roques case, it filed its petition with the CTA a mere 13 days after it filed its
administrative claim with the Commissioner. Indisputably, San Roque knowingly
violated the mandatory 120-day period, and it cannot blame anyone but itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the
CTA the decision or inaction of the Commissioner, thus:cralawlibrary
x x x the taxpayer affected may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration of the one hundred twenty dayperiod, appeal the decision or the unacted claim with the Court of Tax Appeals.
(Emphasis supplied)
This law is clear, plain, and unequivocal. Following the well-settled verba legis
doctrine, this law should be applied exactly as worded since it is clear, plain, and
unequivocal. As this law states, the taxpayer may, if he wishes, appeal the decision
of the Commissioner to the CTA within 30 days from receipt of the Commissioners
decision, or if the Commissioner does not act on the taxpayers claim within the 120day period, the taxpayer may appeal to the CTA within 30 days from the expiration
of the 120-day period.
xxx
There are three compelling reasons why the 30-day period need not necessarily fall
within the two-year prescriptive period, as long as the administrative claim is filed
within the two-year prescriptive period.
First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer
"may, within two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of the creditable
input tax due or paid to such sales." In short, the law states that the taxpayer may
apply with the Commissioner for a refund or credit "within two (2) years," which
means at anytime within two years. Thus, the application for refund or credit may be
filed by the taxpayer with the Commissioner on the last day of the two-year
prescriptive period and it will still strictly comply with the law. The two-year
prescriptive period is a grace period in favor of the taxpayer and he can avail of the
full period before his right to apply for a tax refund or credit is barred by prescription.
Second, Section 112(C) provides that the Commissioner shall decide the application
for refund or credit "within one hundred twenty (120) days from the date of
submission of complete documents in support of the application filed in accordance
with Subsection (A)." The reference in Section 112(C) of the submission of
documents "in support of the application filed in accordance with Subsection A"
means that the application in Section 112(A) is the administrative claim that the
Commissioner must decide within the 120-day period. In short, the two-year
prescriptive period in Section 112(A) refers to the period within which the taxpayer
can file an administrative claim for tax refund or credit. Stated otherwise, the twoyear prescriptive period does not refer to the filing of the judicial claim with the CTA
but to the filing of the administrative claim with the Commissioner. As held in Aichi,
the "phrase within two years x x x apply for the issuance of a tax credit or refund
refers to applications for refund/credit with the CIR and not to appeals made to the
CTA."???r?bl? ??r??l l?? l?br?r
Page44
The theory that the 30-day period must fall within the two-year prescriptive period
adds a condition that is not found in the law. It results in truncating 120 days from
the 730 days that the law grants the taxpayer for filing his administrative claim with
the Commissioner. This Court cannot interpret a law to defeat, wholly or even partly,
a remedy that the law expressly grants in clear, plain, and unequivocal language.
Section 112(A) and (C) must be interpreted according to its clear, plain, and
unequivocal language. The taxpayer can file his administrative claim for refund or
credit at anytime within the two-year prescriptive period. If he files his claim on the
last day of the two-year prescriptive period, his claim is still filed on time. The
Commissioner will have 120 days from such filing to decide the claim. If the
Commissioner decides the claim on the 120th day, or does not decide it on that day,
the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only
the plain meaning but also the only logical interpretation of Section 112(A) and
(C).50 (Emphases in the original; citations omitted)
In San Roque, this Court ruled that "all taxpayers can rely on BIR Ruling No. DA489-03 from the time of its issuance on 10 December 2003 up to its reversal in Aichi
on 6 October 2010, where this Court held that the 120+30 day periods are
mandatory and jurisdictional."51 We shall discuss later the effect of San Roques
recognition of BIR Ruling No. DA-489-03 on claims filed between 10 December
2003 and 6 October 2010. Mindanao I and II filed their claims within this period.
We rule on Mindanao I and IIs judicial claims for the second, third, and fourth
quarters of 2003 as follows:cralawlibrary
G.R. No. 193301
Mindanao II v. CIR
Mindanao II filed its administrative claims for the second, third, and fourth quarters
of 2003 on 13 April 2005. Counting 120 days after filing of the administrative claim
with the CIR (11 August 2005) and 30 days after the CIRs denial by inaction, the last
day for filing a judicial claim with the CTA for the second, third, and fourth quarters of
2003 was on 12 September 2005. However, the judicial claim cannot be filed earlier
than 11 August 2005, which is the expiration of the 120-day period for the
Commissioner to act on the claim.
(1) Mindanao II filed its judicial claim for the second quarter of 2003 before the CTA
on 7 July 2005, before the expiration of the 120-day period. Pursuant to Section
112(C) of the 1997 Tax Code, Mindanao IIs judicial claim for the second quarter of
2003 was prematurely filed.
However, pursuant to San Roques recognition of the effect of BIR Ruling No. DA489-03, we rule that Mindanao IIs judicial claim for the second quarter of 2003
qualifies under the exception to the strict application of the 120+30 day periods.
(2) Mindanao II filed its judicial claim for the third quarter of 2003 before the CTA on
9 September 2005. Mindanao IIs judicial claim for the third quarter of 2003 was thus
filed on time, pursuant to Section 112(C) of the 1997 Tax Code.
(3) Mindanao II filed its judicial claim for the fourth quarter of 2003 before the CTA
on 9 September 2005. Mindanao IIs judicial claim for the fourth quarter of 2003 was
thus filed on time, pursuant to Section 112(C) of the 1997 Tax Code. ???r?bl? ??
r??l l?? l?br?r
G.R. No. 194637
Mindanao I v. CIR
Mindanao I filed its administrative claims for the second, third, and fourth quarters of
2003 on 4 April 2005. Counting 120 days after filing of the administrative claim with
the CIR (2 August 2005) and 30 days after the CIRs denial by inaction,52 the last
day for filing a judicial claim with the CTA for the second, third, and fourth quarters of
2003 was on 1 September 2005. However, the judicial claim cannot be filed earlier
than 2 August 2005, which is the expiration of the 120-day period for the
Commissioner to act on the claim.
(1) Mindanao I filed its judicial claim for the second quarter of 2003 before the CTA
on 7 July 2005, before the expiration of the 120-day period. Pursuant to Section
112(C) of the 1997 Tax Code, Mindanao Is judicial claim for the second quarter of
2003 was prematurely filed. However, pursuant to San Roques recognition of the
effect of BIR Ruling No. DA-489-03, we rule that Mindanao Is judicial claim for the
second quarter of 2003 qualifies under the exception to the strict application of the
120+30 day periods.
Page44
Third, if the 30-day period, or any part of it, is required to fall within the two-year
prescriptive period (equivalent to 730 days), then the taxpayer must file his
administrative claim for refund or credit within the first 610 days of the two-year
prescriptive period. Otherwise, the filing of the administrative claim beyond the first
610 days will result in the appeal to the CTA being filed beyond the two-year
prescriptive period. Thus, if the taxpayer files his administrative claim on the 611th
day, the Commissioner, with his 120-day period, will have until the 731st day to
decide the claim. If the Commissioner decides only on the 731st day, or does not
decide at all, the taxpayer can no longer file his judicial claim with the CTA because
the two-year prescriptive period (equivalent to 730 days) has lapsed. The 30-day
period granted by law to the taxpayer to file an appeal before the CTA becomes
utterly useless, even if the taxpayer complied with the law by filing his administrative
claim within the two-year prescriptive period.
(3) Mindanao I filed its judicial claim for the fourth quarter of 2003 before the CTA on
9 September 2005. Mindanao Is judicial claim for the fourth quarter of 2003 was
thus filed after the prescriptive period, pursuant to Section 112(C) of the 1997 Tax
Code. ???r?bl? ??r??l l?? l?br?r
San Roque: Recognition of BIR Ruling No. DA-489-03
In the consolidated cases of San Roque, the Court En Banc53 examined and ruled
on the different claims for tax refund or credit of three different companies. In San
Roque, we reiterated that "following the verba legis doctrine, Section 112(C) must
be applied exactly as worded since it is clear, plain, and unequivocal. The taxpayer
cannot simply file a petition with the CTA without waiting for the Commissioners
decision within the 120-day mandatory and jurisdictional period. The CTA will have
no jurisdiction because there will be no decision or deemed a denial decision of the
Commissioner for the CTA to review."???r?bl? ??r??l l?? l?br?r
Notwithstanding a strict construction of any claim for tax exemption or refund, the
Court in San Roque recognized that BIR Ruling No. DA-489-03 constitutes equitable
estoppel54 in favor of taxpayers. BIR Ruling No. DA-489-03 expressly states that
the "taxpayer-claimant need not wait for the lapse of the 120-day period before it
could seek judicial relief with the CTA by way of Petition for Review." This Court
discussed BIR Ruling No. DA-489-03 and its effect on taxpayers, thus:cralawlibrary
Taxpayers should not be prejudiced by an erroneous interpretation by the
Commissioner, particularly on a difficult question of law. The abandonment of the
Atlas doctrine by Mirant and Aichi is proof that the reckoning of the prescriptive
periods for input VAT tax refund or credit is a difficult question of law. The
abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers similarly
situated, being made to return the tax refund or credit they received or could have
received under Atlas prior to its abandonment. This Court is applying Mirant and
Aichi prospectively. Absent fraud, bad faith or misrepresentation, the reversal by this
Court of a general interpretative rule issued by the Commissioner, like the reversal
of a specific BIR ruling under Section 246, should also apply prospectively. x x x.
xxx
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative
rule applicable to all taxpayers or a specific ruling applicable only to a particular
taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response
to a query made, not by a particular taxpayer, but by a government agency tasked
with processing tax refunds and credits, that is, the One Stop Shop Inter-Agency
Tax Credit and Drawback Center of the Department of Finance. This government
agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-48903. Thus, while this government agency mentions in its query to the Commissioner
the administrative claim of Lazi Bay Resources Development, Inc., the agency was
in fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay
Resources Development, Inc., where the taxpayer did not wait for the lapse of the
120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all
taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10
December 2003 up to its reversal by this Court in Aichi on 6 October 2010, where
this Court held that the 120+30 day periods are mandatory and jurisdictional.
xxx
Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after
the issuance of BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito
can claim that in filing its judicial claim prematurely without waiting for the 120-day
period to expire, it was misled by BIR Ruling No. DA-489-03. Thus, Taganito can
claim the benefit of BIR Ruling No. DA-489-03, which shields the filing of its judicial
claim from the vice of prematurity. (Emphasis in the original)
Summary of Administrative and Judicial Claims
G.R. No. 193301
Mindanao II v. CIR
Administrative
Claim
Judicial Claim
Action on Claim
1st Quarter, 2003 Filed late -Deny, pursuant to
Section 112(A) of the
1997 Tax Code
2nd Quarter, 2003 Filed on time
Prematurely filed Grant, pursuant to
BIR Ruling No. DA-489-03
3rd Quarter, 2003 Filed on time
Filed on time
Grant, pursuant to
Section 112(C) of the
1997 Tax Code
4th Quarter, 2003 Filed on time
Filed on time
Grant, pursuant to
1997 Tax Code
G.R. No. 194637
Mindanao I v. CIR
Page44
(2) Mindanao I filed its judicial claim for the third quarter of 2003 before the CTA on
9 September 2005. Mindanao Is judicial claim for the third quarter of 2003 was thus
filed after the prescriptive period, pursuant to Section 112(C) of the 1997 Tax Code.
We summarize the rules on the determination of the prescriptive period for filing a
tax refund or credit of unutilized input VAT as provided in Section 112 of the 1997
Tax Code, as follows:cralawlibrary
(1) An administrative claim must be filed with the CIR within two years after the
close of the taxable quarter when the zero-rated or effectively zero-rated sales were
made.
(2) The CIR has 120 days from the date of submission of complete documents in
support of the administrative claim within which to decide whether to grant a refund
or issue a tax credit certificate. The 120-day period may extend beyond the two-year
period from the filing of the administrative claim if the claim is filed in the later part of
the two-year period. If the 120-day period expires without any decision from the CIR,
then the administrative claim may be considered to be denied by inaction.
(3) A judicial claim must be filed with the CTA within 30 days from the receipt of the
CIRs decision denying the administrative claim or from the expiration of the 120-day
period without any action from the CIR.
(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of
its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6
October 2010, as an exception to the mandatory and jurisdictional 120+30 day
periods. ???r?bl? ??r??l l?? l?br?r
"Incidental" Transaction
Mindanao II asserts that the sale of a fully depreciated Nissan Patrol is not an
incidental transaction in the course of its business; hence, it is an isolated
transaction that should not have been subject to 10% VAT.
Section 105 of the 1997 Tax Code does not support Mindanao IIs
position:cralawlibrary
SEC. 105. Persons Liable. - Any person who, in the course of trade or business,
sells barters, exchanges, leases goods or properties, renders services, and any
person who imports goods shall be subject to the value-added tax (VAT) imposed in
Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or
passed on to the buyer, transferee or lessee of the goods, properties or services.
This rule shall likewise apply to existing contracts of sale or lease of goods,
properties or services at the time of the effectivity of Republic Act No. 7716.
The phrase "in the course of trade or business" means the regular conduct or
pursuit of a commercial or an economic activity, including transactions incidental
thereto, by any person regardless of whether or not the person engaged therein is a
nonstock, nonprofit private organization (irrespective of the disposition of its net
income and whether or not it sells exclusively to members or their guests), or
government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this
Code rendered in the Philippines by nonresident foreign persons shall be
considered as being rendered in the course of trade or business. (Emphasis
supplied)
Mindanao II relies on Commissioner of Internal Revenue v. Magsaysay Lines, Inc.
(Magsaysay)55 and Imperial v. Collector of Internal Revenue (Imperial)56 to justify
its position. Magsaysay, decided under the NIRC of 1986, involved the sale of
vessels of the National Development Company (NDC) to Magsaysay Lines, Inc. We
ruled that the sale of vessels was not in the course of NDCs trade or business as it
was involuntary and made pursuant to the Governments policy for privatization.
Magsaysay, in quoting from the CTAs decision, imputed upon Imperial the definition
of "carrying on business." Imperial, however, is an unreported case that merely
stated that "to engage is to embark in a business or to employ oneself therein."57?
r?l1
Mindanao IIs sale of the Nissan Patrol is said to be an isolated transaction.
However, it does not follow that an isolated transaction cannot be an incidental
transaction for purposes of VAT liability. Indeed, a reading of Section 105 of the
1997 Tax Code would show that a transaction "in the course of trade or business"
includes "transactions incidental thereto."???r?bl? ??r??l l?? l?br?r
Mindanao IIs business is to convert the steam supplied to it by PNOC-EDC into
electricity and to deliver the electricity to NPC. In the course of its business,
Page44
Administrative
Claim
Judicial Claim
Action on Claim
1st Quarter, 2003 Filed late -Deny, pursuant to
Section 112(A) of the
1997 Tax Code
2nd Quarter, 2003 Filed on time
Prematurely filed Grant, pursuant to
BIR Ruling No. DA-489-03
3rd Quarter, 2003 Filed on time
Filed late Grant, pursuant to
1997 Tax Code
4th Quarter, 2003 Filed on time
Filed late Grant, pursuant to
1997 Tax Code
Summary of Rules on Prescriptive Periods Involving VAT
Substantiation Requirements
Mindanao II claims that the CTAs disallowance of a total amount of P492,198.09 is
improper as it has substantially complied with the substantiation requirements of
Section 113(A)58 in relation to Section 23759 of the 1997 Tax Code, as
implemented by Section 4.104-1, 4.104-5 and 4.108-1 of Revenue Regulation No.
7-95.60?r?l1
We are constrained to state that Mindanao IIs compliance with the substantiation
requirements is a finding of fact. The CTA En Banc evaluated the records of the
case and found that the transactions in question are purchases for services and that
Mindanao II failed to comply with the substantiation requirements. We affirm the
CTA En Bancs finding of fact, which in turn affirmed the finding of the CTA First
Division. We see no reason to overturn their findings.
WHEREFORE, we PARTIALLY GRANT the petitions. The Decision of the Court of
Tax Appeals En Bane in CT A EB No. 513 promulgated on 10 March 2010, as well
as the Resolution promulgated on 28 July 2010, and the Decision of the Court of
Tax Appeals En Bane in CTA EB Nos. 476 and 483 promulgated on 31 May 2010,
as well as the Amended Decision promulgated on 24 November 2010, are
AFFIRMED with MODIFICATION.
For G.R. No. 193301, the claim of Mindanao II Geothermal Partnership for the first
quarter of 2003 is DENIED while its claims for the second, third, and fourth quarters
of 2003 are GRANTED. For G.R. No. 19463 7, the claims of Mindanao I Geothermal
Partnership for the first, third, and fourth quarters of 2003 are DENIED while its
claim for the second quarter of 2003 is GRANTED.
SO ORDERED.
FIRST DIVISION
G.R. No. 204745, December 08, 2014
MINDANAO II GEOTHERMAL PARTNERSHIP, Petitioner, v. COMMISSIONER OF
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated July 5,
2012 and the Resolution3 dated November 29, 2012 of the Court of Tax Appeals
(CTA) En Banc in CTA EB No. 750, which affirmed the Resolutions dated January
20, 20114 and March 15, 20115 of the CTA Second Division (CTA Division) in CTA
Case Nos. 8082 and 8106 dismissing the claim for refund of excess input valueadded tax (VAT) of petitioner Mindanao II Geothermal Partnership (petitioner) in CTA
Case No. 8082 for being prematurely filed.
The Facts
Petitioner, a partnership duly registered with the Securities and Exchange
Commission, is a VAT-registered entity with VAT/ Tax Identification No. 004-766-953,
and is engaged in the generation, collection, and distribution of electricity.6 On
March 11, 1997, it entered into a Build-Operate-Transfer Contract with the Philippine
National Oil Company-Energy Development Corporation (PNOC-EDC) for the
finance, engineering, supply, installation, testing, commissioning, operation, and
maintenance of a 48.25 megawatt geothermal power plant, provided that the PNOCEDC shall supply and deliver steam to petitioner at no cost. In turn, petitioner shall
convert the steam into electric capacity and energy for the PNOC-EDC, and shall
deliver the same to the National Power Corporation for and on behalf of the PNOCEDC.7 For this purpose, petitioners 48.25 megawatt geothermal power plant was
accredited by the Department of Energy as a Block Power Production Facility,
pursuant to the provisions of Executive Order No. 215. The Energy Regulatory
Commission likewise issued Certificate of Compliance Nos. 03-10-GXT25-0025 and
08-12-GXT25-0025 in petitioners favor.8
On April 24, 2008, July 25, 2008, October 24, 2008, and January 2, 2009, petitioner
filed its quarterly VAT returns for the four (4) quarters of 2008 reflecting the amount
of P6,149,256.25 as unutilized/excess input VAT.9
On December 28, 2009, petitioner filed before the Bureau of Internal Revenue (BIR)
District Office No. 108 of Kidapawan City, Cotabato an administrative claim for
refund/credit of its unapplied and unutilized input VAT for the year 2008 in the
aforesaid amount.10 Thereafter, or on March 30, 2010, petitioner filed its judicial
claim for refund/credit of its unutilized/excess input VAT for the first quarter of 2008
in the amount of P1,624,603.3311 before the CTA, docketed as CTA Case No.
8082.12 About two (2) months later, or on May 27, 2010, petitioner filed its judicial
claim for refund/credit of its unutilized/excess input VAT for the second to fourth
quarters of 2008 in the amount of P4,524,652.9213 before the CTA, docketed as
CTA Case No. 8106. Eventually, the two cases were consolidated by the CTA.14
On December 7, 2010, respondent Commissioner of Internal Revenue (CIR) filed a
Motion to Dismiss,15 praying for the dismissal of CTA Case No. 8082 on the ground
Page44
Mindanao II bought and eventually sold a Nissan Patrol. Prior to the sale, the Nissan
Patrol was part of Mindanao IIs property, plant, and equipment. Therefore, the sale
of the Nissan Patrol is an incidental transaction made in the course of Mindanao IIs
business which should be liable for VAT.
The CTA Division Ruling

In a Resolution20 dated January 20, 2011, the CTA Division granted the CIRs
motion to dismiss, and accordingly, dismissed CTA Case No. 8082 for being
prematurely filed.21 It agreed with the CIRs contention and held that pursuant to
jurisprudence laid down in Aichi, the expiration of the 120-day period is crucial
before a taxpayer may file a judicial claim for refund before the CTA.22 The CTA
Division then concluded that petitioners premature filing of its judicial claim for
refund/credit warrants a dismissal inasmuch as the CTA acquired no jurisdiction
over the same.23
Petitioner moved for reconsideration,24 which was, however, denied in a
Resolution25 dated March 15, 2011. Aggrieved, petitioner appealed to the CTA En
Banc.
The CTA En Banc Ruling
In a Decision26 dated July 5, 2012, the CTA En Banc dismissed petitioners appeal
for lack of merit, and thereby affirmed the ruling of the CTA Division. Also citing
Aichi, the CTA En Banc held that compliance with the 120-day period stated in
Section 112 (D) of the NIRC is a mandatory and judicial requisite in the filing of a
judicial claim for refund/credit of input VAT before the CTA.27 Hence, petitioners
non-compliance therewith is fatal to its refund/credit claim in Case No. 8082, and as
such, the CTA Division correctly dismissed the same on the ground of
prematurity.28
Undaunted, petitioner moved for reconsideration,29 which was, however, denied in
a Resolution30 dated November 29, 2012, hence, this petition.
The Issue Before the Court
The primordial issue for the Courts resolution is whether or not the CTA En Banc
correctly affirmed the CTA Divisions dismissal of petitioners judicial claim for
refund/credit of input VAT in CTA Case No. 8082 for being prematurely filed.
The Courts Ruling
The petition is meritorious.
Section 112 of the NIRC, as amended by RA 9337,31

provides:chanroblesvirtuallawlibrary
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-Rated or Effectively Zero-Rated Sales. any VAT-registered person,
whose sales are zero-rated or effectively zero-rated may, within two (2) years after
the close of the taxable quarter when the sales were made , apply for the issuance
of a tax credit certificate or refund of creditable input tax due or paid attributable to
such sales, except transitional input tax, to the extent that such input tax has not
been applied against output tax: x x x.
xxxx
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. In
proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days from the
date of submission of complete documents in support of the application filed in
accordance with Subsection (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure
on the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer affected may, within thirty (30) days from the receipt
of the decision denying the claim or after the expiration of the one hundred twenty
day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.
x x x x (Emphases and underscoring supplied)
In the Aichi case cited by both the CTA Division and the CTA En Banc, the Court
held that the observance of the 120-day period is a mandatory and jurisdictional
requisite to the filing of a judicial claim for refund/credit of input VAT before the CTA.
Consequently, its non-observance would lead to the dismissal of the judicial claim
on the ground of lack of jurisdiction. Aichi also clarified that the two (2)-year
prescriptive period applies only to administrative claims and not to judicial claims.32
Succinctly put, once the administrative claim is filed within the two (2)-year
prescriptive period, the claimant must wait for the 120-day period to end and,
thereafter, he is given a 30-day period to file his judicial claim before the CTA, even
if said 120-day and 30-day periods would exceed the aforementioned two (2)-year
prescriptive period.33
However, in CIR v. San Roque Power Corporation (San Roque),34 the Court
recognized an exception to the mandatory and jurisdictional nature of the 120-day
period. It ruled that BIR Ruling No. DA-489-03 dated December 10, 2003 provided a
valid claim for equitable estoppel under Section 24635 of the NIRC. In essence, the
aforesaid BIR Ruling stated that the taxpayer-claimant need not wait for the lapse
Page44
of lack of jurisdiction.16 Relying on the case of CIR v. Aichi Forging Company of

Asia, Inc. (Aichi),17 the CIR contended that since the judicial claim for refund/credit
in Case No. 8082 was filed only 107 days from the filing of the administrative
claim,18 it should be dismissed for being prematurely filed for petitioners failure to
comply with the 120-day period prescribed under Section 112 (D) of the National
Internal Revenue Code (NIRC).19
of the 120-day period before it could seek judicial relief with the CTA by way of
Petition for Review.36
MEDICARD PHILIPPINES, INC. VS. CIR
Recently, in Taganito Mining Corporation v. CIR,37 the Court reconciled the

pronouncements in the Aichi and San Roque cases in the following manner:
SECOND DIVISION
Reconciling the pronouncements in the Aichi and San Roque cases, the rule must
therefore be that during the period December 10, 2003 (when BIR Ruling No. DA489-03 was issued) to October 6, 2010 (when the Aichi case was promulgated),
taxpayers-claimants need not observe the 120-day period before it could file a
judicial claim for refund of excess input VAT before the CTA. Before and after the
aforementioned period (i.e., December 10, 2003 to October 6, 2010), the
observance of the 120-day period is mandatory and jurisdictional to the filing of such
claim. (Emphases and underscoring supplied)38
[G.R. No. 181961 : December 05, 2011]
In this case, records disclose that petitioner filed its administrative and judicial
claims for refund/credit of its input VAT in CTA Case No. 8082 on December 28,
2009 and March 30, 2010, respectively, or during the period when BIR Ruling No.
DA-489-03 was in place, i.e., from December 10, 2003 to October 6, 2010. As such,
it need not wait for the expiration of the 120-day period before filing its judicial claim
before the CTA, and hence, is deemed timely filed. In view of the foregoing, both the
CTA Division and the CTA En Banc erred in dismissing outright petitioners claim on
the ground of prematurity.
DECISION
Be that as it may, the Court is not inclined to grant outright petitioners claim for
refund/credit of input VAT in CTA Case No. 8082 in the amount of ?1,624,603.33
representing unutilized input VAT for the first quarter of 2008. This is because the
determination of petitioners entitlement to such claim would necessarily involve
questions of fact, which are not reviewable and cannot be passed upon by the Court
in the exercise of its power of review under Rule 45 of the Rules of Court.39 In
addition, the CTA Division, as affirmed by the CTA En Banc, dismissed the judicial
claim on a preliminary procedural technicality. Hence, the Court deems it prudent to
remand the case to the CTA Division for resolution of the instant case on the merits.
WHEREFORE, premises considered, the assailed Decision dated April 26, 2006 of
the Construction Industry Arbitration Commission in CIAC Case No. 25-2005 is
hereby AFFIRMED.
SO ORDERED.
CIR VS. SONY PHILIPPINES, INC
PEREZ, J.:
Filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, the petition for
review on certiorari at bench seeks the reversal of the 28 September 2007
Decision[1] rendered by the then Thirteenth Division of the Court of Appeals (CA) in
CA-G.R. SP No. 94849,[2] the decretal portion of which states:cralaw
SO ORDERED.[3]
The Facts
Petitioner LVM Construction Corporation (LVM) is a duly licensed construction firm
primarily engaged in the construction of roads and bridges for the Department of
Public Works and Highways (DPWH). Awarded the construction of the Arterial Road
Link Development Project in Southern Leyte (the Project), LVM sub-contracted
approximately 30% of the contract amount with the Joint Venture composed of
respondents F.T. Sanchez Corporation (FTSC), Socor Construction Corporation
(SCC) and Kimwa Construction Development Corporation (KCDC). For the contract
price of P90,061,917.25 which was later on reduced to P86,318,478.38,[4] the Joint
Venture agreed to undertake construction of the portion of the Project starting from
Sta. 154 + 210.20 to Sta. 160 + 480.00. With LVM as the Contractor and the Joint
Venture as Sub-Contractor, the 27 November 1996 Sub-Contract Agreement[5]
executed by the parties pertinently provided as follows:
Page44
WHEREFORE, the petition is GRANTED. The Decision dated July 5, 2012 and the
Resolution dated November 29, 2012 of the Court of Tax Appeals (CTA) En Banc in
CTA EB Case No. 750 are hereby REVERSED and SET ASIDE. Accordingly, CTA
Case No. 8082 is REMANDED to the CTA Second Division for its resolution on the
merits.
LVM CONSTRUCTION CORPORATION, REPRESENTED BY ITS MANAGING

DIRECTOR, ANDRES CHUA LAO, PETITIONER, VS. F.T.
SANCHEZ/SOCOR/KIMWA (JOINT VENTURE), F.T. SANCHEZ CONSTRUCTION
CORPORATION, SOCOR CONSTRUCTION CORPORATION AND KIMWA
CONSTRUCTION AND DEVELOPMENT CORPORATION ALL REPRESENTED BY
FORTUNATO O. SANCHEZ, JR., RESPONDENTS.
4) Ten percent (10%) retention to be deducted for every billing of sub-contractor as

prescribed under the Tender Documents.
xxxx
13) The payment to the SUB-CONTRACTOR shall be made within seven (7) days
after the check issued by DPWH to CONTRACTOR has already been made good.
[6]
For work rendered in the premises, there is no dispute regarding the fact that the
Joint Venture sent LVM a total of 27 Billings. For Billing Nos. 1 to 26, LVM paid the
Joint Venture the total sum of P80,414,697.12 and retained the sum of
P8,041,469.79 by way of the 10% retention stipulated in the Sub-Contract
Agreement.[7] For Billing No. 27 in the sum of P5,903,780.96, on the other hand,
LVM paid the Joint Venture the partial sum of P2,544,934.99 on 31 May 2001,[8]
claiming that it had not yet been fully paid by the DPWH.[9] Having completed the
sub-contracted works, the Joint Venture subsequently demanded from LVM the
settlement of its unpaid claims as well as the release of money retained by the latter
in accordance with the Sub-Contract Agreement. In a letter dated 16 May 2001,
however, LVM apprised the Joint Venture of the fact that its auditors have belatedly
discovered that no deductions for E-VAT had been made from its payments on
Billing Nos. 1 to 26 and that it was, as a consequence, going to deduct the 8.5%
payments for said tax from the amount still due in the premises.[10] In its 14 June
2001 Reply, the Joint Venture claimed that, having issued Official Receipts for every
payment it received, it was liable to pay 10% VAT thereon and that LVM can, in turn,
claim therefrom an equivalent input tax of 10%.[11]
With its claims still unpaid despite the lapse of more than four (4) years from the
completion of the sub-contracted works, the Joint Venture, thru its Managing
Director, Fortunato O. Sanchez, Jr., filed against LVM the 30 June 2005 complaint
for sum of money and damages which was docketed before the Construction
Industry Arbitration Commission (CIAC) as CIAC Case No. 25-2005.[12] Having
submitted a Bill of Particulars in response to LVM's motion therefor,[13] the Joint
Venture went on to file an Amended Complaint dated 23 December 2005 specifying
its claims as follows: (a) P8,041,469.73 as retention monies for Billing Nos. 1 to 26;
(b) P3,358,845.97 as unpaid balance on Billing No. 27; (c) P6,186,570.71 as
interest on unpaid retention money computed at 12% per annum reckoned from 6
August 1999 up to 1 January 2006; and (d) P5,365,677.70 as interest at 12% per
annum on delayed payment of monies collected from DPWH on Billing Nos. 1 to 26.
In addition, the Joint Venture sought indemnity for attorney's fees equivalent to 10%
of the amount collected and/or in a sum not less than P1,000,000.00.[14]
In its 21 October 2005 Answer with Compulsory Counterclaim, LVM maintained that
it did not release the 10% retention for Billing Nos. 1 to 26 on the ground that it had
yet to make the corresponding 8.5% deductions for E-VAT which the Joint Venture
should have paid to the Bureau of Internal Revenue (BIR) and that there is, as a
consequence, a need to offset the sums corresponding thereto from the retention
money still in its possession. Moreover, LVM alleged that the Joint Venture's claims
failed to take into consideration its own outstanding obligation in the total amount of
P21,737,094.05, representing the liquidated damages it incurred as a consequence
of its delays in the completion of the project. In addition to said liquidated damages,
LVM prayed for the grant of its counterclaims for exemplary damages and attorney's
fees.[15] In its 2 January 2006 supplemental answer, LVM likewise argued that the
Joint Venture's prayer for imposition of 12% interest on the retention money and the
balance of Billing No. 27 is bereft of factual and legal bases since no interest was
stipulated in the parties' agreement and it was justified in refusing the release of
said sums claimed.[16]
With the parties' assent to the 19 December 2005 Terms of Reference which
identified, among other matters, the issues to be resolved in the case,[17] the CIAC
proceeded to receive the parties' evidence in support of their respective causes. On
26 April 2006, the CIAC rendered its decision granting the Joint Venture's claims for
the payment of the retention money for Billing Nos. 1 to 26 as well as the interest
thereon and the unpaid balance billing from 6 August 1999 to 1 January 2006 in the
aggregate sum of P11,307,646.68. Discounting the contractual and legal bases for
LVM's claim that it had the right to offset its E-VAT payments from the retention
money still in its possession, the CIAC ruled that the VAT deductions the DPWH
made from its payments to LVM were for the whole project and already included all
its supplies and subcontractors. Instead of withholding said retention money, LVM
was determined to have - to its credit and for its use - the input VAT corresponding
to the 10% equivalent VAT paid by the Joint Venture based on the BIR-registered
official receipts it issued. Finding that the delays incurred by the Joint Venture were
justified, the CIAC likewise denied LVM's counterclaim for liquidated damages for
lack of contractual basis.[18]
Elevated by LVM to the CA through a petition for review filed pursuant to Rule 43 of
the 1997 Rules of Civil Procedure,[19] the CIAC's decision was affirmed in toto in
the herein assailed Decision dated 28 September 2007 rendered by said court's
Thirteenth Division in CA-G.R. SP No. 94849.[20] In upholding the CIAC's rejection
of LVM's insistence on the offsetting of E-VAT payments from the retention money,
the CA ruled as follows:
Clearly, there was no provision in the Sub-Contract Agreement that would hold
Sanchez liable for EVAT on the amounts paid to it by LVM. As pointed out by the
Page44
3) That payment to the SUB-CONTRACTOR shall be on item of work accomplished

in the sub-contracted portion of the project at awarded unit cost of the project less
NINE PERCENT (9%). The SUB-CONTRACTOR shall issue a BIR registered
receipt to the CONTRACTOR.
CIAC in its Award, `the contract documents provide only for the payment of the
awarded cost of the project less 9%. Any other deduction must be clearly stated in
the provisions of the contract or upon agreement of the parties. xxx The tribunal
finds no provision that EVAT will be deducted from the sub-contractor. xxx If [the
Joint Venture] should pay or share in the payment of the EVAT, it must be clearly
defined in the sub-contract agreement.'
Elucidating further, CIAC pointed out that Sanchez, under the contract was required
to issue official receipts registered with the BIR for every payment LVM makes for
the progress billings, which it did. For these official receipts issued by Sanchez to
LVM, Sanchez already paid 10% VAT to the BIR, thus: `The VAT Law is very clear.
Everyone must pay 10% VAT based on their issued official receipts. These receipts
must be official receipts and registered with the BIR. Respondent (LVM) must pay
its output Vat based on its receipts. Complainant (Sanchez) must also pay output
VAT based on its receipts. The law however allow each entity to deduct the input
VAT based on the official receipts issued to it. Clearly, therefore, respondent [LVM],
has to its credit the 10% output VAT paid by claimant [Joint Venture] based on the
official receipts issued to it. Respondent [LVM] can use this input VAT to offset any
output VAT respondent [LVM] must pay for any of its other projects."[21]
LVM's motion for reconsideration of the foregoing decision was denied for lack of
merit in the CA's 26 February 2008 Resolution,[22] hence, this Rule 45 petition for
review on certiorari.
The Issues
LVM urges the grant of its petition for review upon the following errors imputed
against the CA, to wit:
I
CONTRARY TO THE FINDING OF THE COURT OF APPEALS, RESPONDENTS'
LIABILITY TO PAY VALUE ADDED TAX NEED NOT BE STATED IN THE SUBCONTRACT AGREEMENT DATED 27 NOVEMBER 1996 AS THE PROVISIONS
OF REPUBLIC ACT 8424, OTHERWISE KNOWN AS THE NATIONAL INTERNAL
REVENUE CODE OF THE PHILIPPINES, FORM PART OF, AND ARE DEEMED
INCORPORATED AND READ INTO SAID AGREEMENT.
The Court's Ruling

The petition is bereft of merit.
For lack of any stipulation regarding the same in the parties' Sub-Contract
Agreement, we find that the CA correctly brushed aside LVM's insistence on
deducting its supposed E-VAT payments from the retention money demanded by the
Joint Venture. Indeed, a contract constitutes the law between the parties who are,
therefore, bound by its stipulations[24] which, when couched in clear and plain
language, should be applied according to their literal tenor.[25] That there was no
agreement regarding the offsetting urged by LVM may likewise be readily gleaned
from the parties' contemporaneous and subsequent acts which are given primordial
consideration in determining their intention.[26] The record shows that, except for
deducting sums corresponding to the 10% retention agreed upon, 9% as
contingency on sub-contract, 1% withholding tax and such other itemized
miscellaneous expenses, LVM settled the Joint Venture's Billing Nos. 1 to 26 without
any mention of deductions for the E-VAT payments it claims to have advanced.[27]
It was, in fact, only on 16 May 2001 that LVM's Managing Director, Andres C. Lao,
apprised the Joint Venture in writing of its intention to deduct said payments,[28] to
wit:
If you would recall, during our last meeting with Deputy Project Manager of the
DPWH-PJHL, Eng. Jimmy T. Chan, last March 2001 at the PJHL Office in Palo,
Leyte, our company made a commitment to pay up to 99% accomplishment and
release the retention money up to the 23rd partial billing after receipt by our
company of the 27th partial billing from JBIC and GOP relative to the above
mentioned project.
Much as our company wants to comply with said commitment, our auditors recently
discovered that all payments made by us to your Joint Venture, relative to the above
mentioned project were made without the corresponding deduction of the E-VAT of
8.50% x 10/11, which your Joint Venture should have paid to the BIR. Records
would show that from billing number 1 up to 26, no deductions for E-VAT were
made. As a matter of fact, our company was the one who shouldered all payments
due for the E-VAT which should have been deducted from the payments made by us
to your Joint Venture. Copy of the payments made by our company to the BIR
relative to the E-VAT is hereto attached as Annex "1" for your perusal and ready
reference.
THE COURT OF APPEALS ERRED WHEN IT RULED THAT RESPONDENTS ARE

DEEMED TO HAVE ALREADY PAID VALUE ADDED TAX MERELY BECAUSE
RESPONDENTS HAD ALLEGEDLY ISSUED RECEIPTS FOR SERVICES
RENDERED.[23]
This being the case and to offset the advances made by our company, we would like
to inform you that our company would deduct the payments made for E-VAT to the
amount due to your Joint Venture. Only by doing so, would our advances be settled
and liquidated. We hope that our auditor and your auditor can discuss this matter to
avoid any possible conflict regarding this matter.
Page44
II
In taking exception to the CA's affirmance of the CIAC's rejection of its position for
lack of contractual basis, LVM argues that the Joint Venture's liability for E-VAT as
an entity that renders services in the course of trade or business need not be stated
in the Sub-Contract Agreement considering that it is an obligation imposed by law
which forms part of, and is read into, every contract.[33] As correctly argued by the
Joint Venture, however, there are two (2) contracts under the factual milieu of the
case: the main contract DPWH entered into with LVM for the construction of the
Arterial Road Link Development Project in Southern Leyte and the Sub-Contract
Agreement the latter in turn concluded with the Joint Venture over 30% of said
project's contract amount. As the entity which directly dealt with the government
insofar as the main contract was concerned, LVM was itself required by law to pay
the 8.5% VAT which was withheld by the DPWH in accordance with Republic Act
No. 8424[34] or the Tax Reform Act of 1997 as well as the National Internal
Revenue Code of 1997 (NIRC). Section 114 (C) of said law provides as follows:
"Section 114. Return and Payment of Value-Added Tax. xxxx
(C) Withholding of Creditable Value-added Tax. - The Government or any of its
political subdivisions, instrumentalities or agencies, including government-owned or
-controlled corporations (GOCCs) shall, before making payment on account of each
purchase of goods from sellers and services rendered by contractors which are
subject to the value-added tax imposed in Sections 106 and 108 of this Code,
deduct and withhold the value-added tax due at the rate of three percent (3%) of the
gross payment for the purchase of goods and six percent (6%) on gross receipts for
services rendered by contractors on every sale or installment payment which shall
be creditable against the value-added tax liability of the seller or contractor:
Provided, however, That in the case of government public works contractors, the
withholding rate shall be eight and one-half percent (8.5%): Provided, further, That
the payment for lease or use of properties or property rights to nonresident owners
shall be subject to ten percent (10%) withholding tax at the time of payment. For this
purpose, the payor or person in control of the payment shall be considered as the
withholding agent."
For the Sub-Contract Agreement, on the other hand, respondent F. Sanchez
Construction, acting on behalf of the Joint Venture, issued BIR-registered receipts
for the sums paid by LVM for Billing Nos. 1 to 26, indicating the total amount paid by
the latter, the retention fee deducted therefrom and the tax due thereon.[35] These
were in consonance with paragraph 3 of the Sub-Contract Agreement which, after
stating that LVM's payment shall "be on item of work accomplished in the subcontracted portion of the project awarded unit cost of the project less NINE
PERCENT (9%)," simply provided, that "(t)he SUB-CONTRACTOR shall issue a
BIR registered receipt to the CONTRACTOR."[36] As the VAT-registered person, on
the other hand, Fortunato T. Sanchez, Sr.[37] also filed the corresponding Monthly
VAT Declarations[38] with the BIR which, by themselves, are evidence of the Joint
Venture's VAT liability for LVM's payments on its billings. In fixing the base of the tax,
the first paragraph A Section 108 of the NIRC provides that "(t)here shall be levied
assessed and collected, a value-added tax equivalent to ten percent (10%) of gross
receipts derived from the sale or exchange of services, including the use or lease of
properties."
In the absence of any stipulation regarding the Joint Venture's sharing in the VAT
deducted and withheld by the DPWH from its payment on the main contract, the
CIAC and the CA correctly ruled that LVM has no basis in offsetting the amounts of
said tax from the retention still in its possession. VAT is a uniform tax levied on
every importation of goods, whether or not in the course of trade or business, or
imposed on each sale, barter, exchange or lease of goods or properties or on each
rendition of services in the course of trade or business.[39] It is a tax on
transactions, imposed at every stage of the distribution process on the sale, barter,
exchange of goods or property, and on the performance of services, even in the
absence of profit attributable thereto.[40] As an indirect tax that may be shifted or
passed on to the buyer, transferee or lessee of the goods, properties or services,
VAT should be understood not in the context of the person or entity that is primarily,
directly and legally liable for its payment, but in terms of its nature as a tax on
consumption.[41]
Neither do we find merit in LVM's harping over the lack of showing in the record that
the Joint Venture has actually paid its liability for VAT. For this purpose, LVM insists
that the Official Receipts for its payments on the Joint Venture's billing were issued
by respondent F. Sanchez Construction and that the Monthly VAT Declarations
were, in fact, filed by Fortunato Sanchez, Sr. However, the evidence on record is to
the effect that, failing to register with the Securities and Exchange Commission
(SEC) and to obtain a Mayor's Permit and authorization from the BIR to print its
Page44
From the foregoing letter, it is evident that LVM unilaterally broached its intention of
deducting the subject E-VAT payments only on 15 May 2001 or long after the
project's completion on 9 July 1999.[29] In the absence of any stipulation thereon,
however, the CA correctly disallowed the offsetting of said sums from the retention
money undoubtedly due the Joint Venture. Courts are obliged to give effect to the
parties' agreement and enforce the contract to the letter.[30] The rule is settled that
they have no authority to alter a contract by construction or to make a new contract
for the parties; their duty is confined to the interpretation of the one which the parties
have made for themselves, without regard to its wisdom or folly. Courts cannot
supply material stipulations, read into the contract words it does not contain[31] or,
for that matter, read into it any other intention that would contradict its plain import.
[32] This is particularly true in this case where, in addition to the dearth of a meeting
of minds between the parties, their contemporaneous and subsequent acts fail to
yield any intention to offset the said E-VAT payments from the retention money still
in LVM's possession.
official receipts, the Joint Venture apprised LVM of its intention to use respondent F.
Sanchez Construction's BIR-registered receipts.[42] Aside from being indicative of
its knowledge of the foregoing circumstances, LVM's previous unqualified
acceptance of said official receipts should, clearly, bar the belated exceptions it now
takes with respect thereto. A party, having performed affirmative acts upon which
another person based his subsequent actions, cannot thereafter refute his acts or
renege on the effects of the same, to the prejudice of the latter.[43]
To recapitulate, LVM, as Contractor for the Project, was liable for the 8.5% VAT
which was withheld by the DPWH from its payments, pursuant to Section 114 (C) of
the NIRC. Absent any agreement to that effect, LVM cannot deduct the amounts
thus withheld from the sums it still owed the Joint Venture which, as Sub-Contractor
of 30% of the Project, had its own liability for 10% VAT insofar as the sums paid for
the sub-contracted works were concerned. Although the burden to pay an indirect
tax like VAT can, admittedly, be passed on to the purchaser of the goods or
services, it bears emphasizing that the liability to pay the same remains with the
manufacturer or seller like LVM and the Joint Venture. In the same manner that
LVM is liable for the VAT due on the payments made by the DPWH pursuant to the
contract on the Project, the Joint Venture is, consequently, liable for the VAT due on
the payments made by LVM pursuant to the parties' Sub-Contract.cralaw
Accenture, Inc. (Accenture) is a corporation engaged in the business of providing

management consulting, business strategies development, and selling and/or
licensing of software.2 It is duly registered with the Bureau of Internal Revenue
(BIR) as a Value Added Tax (VAT) taxpayer or enterprise in accordance with Section
236 of the National Internal Revenue Code (Tax Code).3rll
On 9 August 2002, Accenture filed its Monthly VAT Return for the period 1 July 2002
to 31 August 2002 (1st period). Its Quarterly VAT Return for the fourth quarter of
2002, which covers the 1st period, was filed on 17 September 2002; and an
Amended Quarterly VAT Return, on 21 June 2004.4 The following are reflected in
Accenture s VAT Return for the fourth quarter of 2002:5rbl r
l l lbrr
Purchases
Amount Input VAT
Domestic Purchases- Capital Goods P12,312,722.00
Domestic Purchases- Goods other than capital Goods
P6,478,950.79
Domestic Purchases- Services
P16,455,868.10
Total Input Tax
P9,355,809.80
P1,231,272.20
P64,789,507.90
P1,645,586.81
WHEREFORE, premises considered, the petition is DENIED for lack of merit and
the CA's 28 September 2007 Decision is, accordingly, AFFIRMED in toto.
Carpio, (Chairperson), Brion, Perez, Sereno, and Reyes, JJ.
SECOND DIVISION
[G.R. NO. 190102 - July 11, 2012]
ACCENTURE, INC., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE,
Respondent.
DECISION
SERENO, J.:
This is a Petition filed under Rule 45 of the 1997 Rules of Civil Procedure, praying
for the reversal of the Decision of the Court of Tax Appeals En Banc (CTA En Banc )
dated 22 September 2009 and its subsequent Resolution dated 23 October
2009.1rll
Zero-rated Sales
P316,113,513.34
Total Sales
P335,640,544.74
Accenture filed its Monthly VAT Return for the month of September 2002 on 24
October 2002; and that for October 2002, on 12 November 2002. These returns
were amended on 9 January 2003. Accenture s Quarterly VAT Return for the first
quarter of 2003, which included the period 1 September 2002 to 30 November 2002
(2nd period), was filed on 17 December 2002; and the Amended Quarterly VAT
Return, on 18 June 2004. The latter contains the following
information:6rbl r l l lbrr
Purchases
Amount Input VAT
Domestic Purchases- Capital Goods P80,765,294.10
Domestic Purchases- Goods other than capital Goods
P13,282,054.17
Domestic Purchases-Services
P63,238,758.00
Total Input Tax
P27,682,459.38
P8,076,529.41
P132,820,541.70
P6,323,875.80
Page44
SO ORDERED.
Out of the P37,038,269.18, only P35,178,844.21 pertained to the allocated input

VAT on Accenture s "domestic purchases of taxable goods which cannot be directly
attributed to its zero-rated sale of services."8 This allocated input VAT was broken
down to P8,811,301.66 for the 1st period and P26,367,542.55 for the 2nd
period.9rll
The excess input VAT was not applied to any output VAT that Accenture was liable
for in the same quarter when the amount was earned or to any of the succeeding
quarters. Instead, it was carried forward to petitioner s 2nd Quarterly VAT Return for
2003.10rll
Thus, on 1 July 2004, Accenture filed with the Department of Finance (DoF) an
administrative claim for the refund or the issuance of a Tax Credit Certificate (TCC).
The DoF did not act on the claim of Accenture. Hence, on 31 August 2004, the latter
filed a Petition for Review with the First Division of the Court of Tax Appeals
(Division), praying for the issuance of a TCC in its favor in the amount of
P35,178,844.21.
The Commissioner of Internal Revenue (CIR), in its Answer,11 argued
thus:rbl r l l lbrr
1. The sale by Accenture of goods and services to its clients are not zero-rated
transactions.
2. Claims for refund are construed strictly against the claimant, and Accenture has
failed to prove that it is entitled to a refund, because its claim has not been fully
substantiated or documented.
chanrobles virtual law library
In a 13 November 2008 Decision,12 the Division denied the Petition of Accenture for
failing to prove that the latter s sale of services to the alleged foreign clients qualified
for zero percent VAT.13rll
In resolving the sole issue of whether or not Accenture was entitled to a refund or an
issuance of a TCC in the amount of P35,178,844.21,14 the Division ruled that
Accenture had failed to present evidence to prove that the foreign clients to which
the former rendered services did business outside the Philippines.15 Ruling that
Accenture s services would qualify for zero-rating under the 1997 National Internal
Revenue Code of the Philippines (Tax Code) only if the recipient of the services was
doing business outside of the Philippines,16 the Division cited Commissioner of
Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc.
(Burmeister)17 as basis.
Accenture appealed the Division s Decision through a Motion for Reconsideration
(MR).18 In its MR, it argued that the reliance of the Division on Burmeister was
misplaced19 for the following reasons:rbl r l l
lbrr
1. The issue involved in Burmeister was the entitlement of the applicant to a refund,
given that the recipient of its service was doing business in the Philippines; it was
not an issue of failure of the applicant to present evidence to prove the fact that the
recipient of its services was a foreign corporation doing business outside the
Philippines.20rll
2. Burmeister emphasized that, to qualify for zero-rating, the recipient of the
services should be doing business outside the Philippines, and Accenture had
successfully established that.21rll
3. Having been promulgated on 22 January 2007 or after Accenture filed its Petition
with the Division, Burmeister cannot be made to apply to this case.22rll
Accenture also cited Commissioner of Internal Revenue v. American Express
(Amex)23 in support of its position. The MR was denied by the Division in its 12
March 2009 Resolution.24rll
Accenture appealed to the CTA En Banc. There it argued that prior to the
amendment introduced by Republic Act No. (R.A.) 9337, 25 there was no
requirement that the services must be rendered to a person engaged in business
conducted outside the Philippines to qualify for zero-rating. The CTA En Banc
agreed that because the case pertained to the third and the fourth quarters of
taxable year 2002, the applicable law was the 1997 Tax Code, and not R.A. 9337.26
Still, it ruled that even though the provision used in Burmeister was Section 102(b)
(2) of the earlier 1977 Tax Code, the pronouncement therein requiring recipients of
services to be engaged in business outside the Philippines to qualify for zero-rating
was applicable to the case at bar, because Section 108(B)(2) of the 1997 Tax Code
was a mere reenactment of Section 102(b)(2) of the 1977 Tax Code.
The CTA En Banc concluded that Accenture failed to discharge the burden of
proving the latter s allegation that its clients were foreign-based.27rll
Page44
Zero-rated Sales
P545,686,639.18
Total Sales
P
P572,880,982.68
The monthly and quarterly VAT returns of Accenture show that, notwithstanding its
application of the input VAT credits earned from its zero-rated transactions against
its output VAT liabilities, it still had excess or unutilized input VAT credits. These VAT
credits are in the amounts of P9,355,809.80 for the 1st period and P27,682,459.38
for the 2nd period, or a total of P37,038,269.18.7rll
Resolute, Accenture filed a Petition for Review with the CTA En Banc, but the latter
affirmed the Division s Decision and Resolution.28 A subsequent MR was also
denied in a Resolution dated 23 October 2009.
Recipient of services must be doing business outside the Philippines for the
transactions to qualify as zero-rated.
Hence, the present Petition for Review29 under Rule 45.
Accenture anchors its refund claim on Section 112(A) of the 1997 Tax Code, which
allows the refund of unutilized input VAT earned from zero-rated or effectively zerorated sales. The provision reads:rl
In a Joint Stipulation of Facts and Issues, the parties and the Division have agreed
to submit the following issues for resolution:rbl r l l
lbrr
SEC. 112. Refunds or Tax Credits of Input Tax. -
4. Whether or not Petitioner is entitled to the refund of the amount of

P35,178,884.21, representing the unutilized input VAT on domestic purchases of
goods and services for the period commencing from 1 July 2002 until 30 November
2002, from its sales of services to various foreign clients.
(A) Zero-Rated or Effectively Zero-Rated Sales. - Any VAT-registered person, whose

under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the
effectively zero-rated sale and also in taxable or exempt sale of goods of properties
proportionately on the basis of the volume of sales. Section 108(B) referred to in the
foregoing provision was first seen when Presidential Decree No. (P.D.) 199431
amended Title IV of P.D. 1158,32 which is also known as the National Internal
Revenue Code of 1977. Several Decisions have referred to this as the 1986 Tax
Code, even though it merely amended Title IV of the 1977 Tax Code.
5. Whether or not Petitioner s claim for refund/tax credit in the amount of

P35,178,884.21, as alleged unutilized input VAT on domestic purchases of goods
and services for the period covering 1 July 2002 until 30 November 2002 are duly
substantiated by proper documents.30rll
Two years thereafter, or on 1 January 1988, Executive Order No. (E.O.) 27333
further amended provisions of Title IV. E.O. 273 by transferring the old Title IV
provisions to Title VI and filling in the former title with new provisions that imposed a
VAT.

For consideration in the present Petition are the following
issues:rbl r l l lbrr
The VAT system introduced in E.O. 273 was restructured through Republic Act No.
(R.A.) 7716.34 This law, which was approved on 5 May 1994, widened the tax base.
Section 3 thereof reads:rl
1. Should the recipient of the services be "doing business outside the Philippines"
for the transaction to be zero-rated under Section 108(B)(2) of the 1997 Tax Code?
chanroblesvirtualawlibrary
SECTION 3. Section 102 of the National Internal Revenue Code, as amended, is

hereby further amended to read as follows:rl
1. Whether or not Petitioner s sales of goods and services are zero-rated for VAT
purposes under Section 108(B)(2)(3) of the 1997 Tax Code.
2. Whether or not petitioner s claim for refund/tax credit in the amount of
P35,178,884.21 represents unutilized input VAT paid on its domestic purchases of
goods and services for the period commencing from 1 July 2002 until 30 November
2002.
3. Whether or not Petitioner has carried over to the succeeding taxable quarter(s) or
year(s) the alleged unutilized input VAT paid on its domestic purchases of goods
and services for the period commencing from 1 July 2002 until 30 November 2002,
and applied the same fully to its output VAT liability for the said period.
xxx
xxx
xxx
Page44
"SEC. 102. Value-added tax on sale of services and use or lease of properties. x x x
2. Has Accenture successfully proven that its clients are entities doing business
outside the Philippines?
"(1) Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported, where the services
are paid for in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
"(2) Services other than those mentioned in the preceding sub-paragraph, the
consideration for which is paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP)."
Essentially, Section 102(b) of the 1977 Tax Code as amended by P.D. 1994, E.O.
273, and R.A. 7716 provides that if the consideration for the services provided by a
VAT-registered person is in a foreign currency, then this transaction shall be
subjected to zero percent rate.
The 1997 Tax Code reproduced Section 102(b) of the 1977 Tax Code in its Section
108(B), to wit:rl
(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.rbl r l l lbrr
(1) Processing, manufacturing or repacking goods for other persons doing business
rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph, the
consideration for which is paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP); x x x.
On 1 November 2005, Section 6 of R.A. 9337, which amended the foregoing
provision, became effective. It reads:
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to
read as follows:
"SEC. 108. Value-added Tax on Sale of Services and Use or Lease of
Properties. (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:rbl r l l lbrr
(1) Processing, manufacturing or repacking goods for other persons doing business
rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
"(2) Services other than those mentioned in the preceding paragraph rendered to a
person engaged in business conducted outside the Philippines or to a nonresident
person not engaged in business who is outside the Philippines when the services
are performed, the consideration for which is paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP); x x x." (Emphasis supplied)cralawlibrary
The meat of Accenture s argument is that nowhere does Section 108(B) of the 1997
Tax Code state that services, to be zero-rated, should be rendered to clients doing
business outside the Philippines, the requirement introduced by R.A. 9337.35
Required by Section 108(B), prior to the amendment, is that the consideration for
the services rendered be in foreign currency and in accordance with the rules of the
Bangko Sentral ng Pilipinas (BSP). Since Accenture has complied with all the
conditions imposed in Section 108(B), it is entitled to the refund prayed for.
In support of its claim, Accenture cites Amex, in which this Court supposedly ruled
that Section 108(B) reveals a clear intent on the part of the legislators not to impose
the condition of being "consumed abroad" in order for the services performed in the
Philippines to be zero-rated.36rll
The Division ruled that this Court, in Amex and Burmeister, did not declare that the
requirement that the client must be doing business outside the Philippines can be
disregarded, because this requirement is expressly provided in Article 108(2) of the
Tax Code.37rll
Accenture questions the Division s application to this case of the pronouncements
made in Burmeister. According to petitioner, the provision applied to the present
case was Section 102(b) of the 1977 Tax Code, and not Section 108(B) of the 1997
Tax Code, which was the law effective when the subject transactions were entered
into and a refund was applied for.
Page44
"(b) Transactions subject to zero-rate. The following services performed in the

Philippines by VAT-registered persons shall be subject to
0%:rbl r l l lbrr
In the Burmeister case, the Supreme Court harmonized both Sections 102(b)(1) and
102(b)(2) of the 1977 Tax Code, as amended, pertaining to zero-rated transactions.
A parallel approach should be accorded to the renumbered provisions of Sections
108(B)(2) and 108(B)(1) of the 1997 NIRC. This means that Section 108(B)(2) must
be read in conjunction with Section 108(B)(1). Section 108(B)(2) requires as follows:
a) services other than processing, manufacturing or repacking rendered by VAT
registered persons in the Philippines; and b) the transaction paid for in acceptable
foreign currency duly accounted for in accordance with BSP rules and regulations.
The same provision made reference to Section 108(B)(1) further imposing the
requisite c) that the recipient of services must be performing business outside of
Philippines. Otherwise, if both the provider and recipient of service are doing
business in the Philippines, the sale transaction is subject to regular VAT as
explained in the Burmeister case x x x.
xxx
xxx
xxx
Clearly, the Supreme Court s pronouncements in the Burmeister case requiring that
the recipient of the services must be doing business outside the Philippines as
mandated by law govern the instant case.38rll
Assuming that the foregoing is true, Accenture still argues that the tax appeals
courts cannot be allowed to apply to Burmeister this Court s interpretation of Section
102(b) of the 1977 Tax Code, because the Petition of Accenture had already been
filed before the case was even promulgated on 22 January 2007,39 to wit:rl
x x x. While the Burmeister case forms part of the legal system and assumes the
same authority as the statute itself, however, the same cannot be applied
retroactively against the Petitioner because to do so will be prejudicial to the
latter.40rll
The CTA en banc is of the opinion that Accenture cannot invoke the non-retroactivity
of the rulings of the Supreme Court, whose interpretation of the law is part of that
law as of the date of its enactment.41rll
We rule that the recipient of the service must be doing business outside the
Philippines for the transaction to qualify for zero-rating under Section 108(B) of the
Tax Code.
This Court upholds the position of the CTA en banc that, because Section 108(B) of
the 1997 Tax Code is a verbatim copy of Section 102(b) of the 1977 Tax Code, any
interpretation of the latter holds true for the former.
Moreover, even though Accenture s Petition was filed before Burmeister was
promulgated, the pronouncements made in that case may be applied to the present
one without violating the rule against retroactive application. When this Court
decides a case, it does not pass a new law, but merely interprets a preexisting
one.42 When this Court interpreted Section 102(b) of the 1977 Tax Code in
Burmeister, this interpretation became part of the law from the moment it became
effective. It is elementary that the interpretation of a law by this Court constitutes
part of that law from the date it was originally passed, since this Court's construction
merely establishes the contemporaneous legislative intent that the interpreted law
carried into effect.43rll
Accenture questions the CTA s application of Burmeister, because the provision
interpreted therein was Section 102(b) of the 1977 Tax Code. In support of its
position that Section 108 of the 1997 Tax Code does not require that the services be
rendered to an entity doing business outside the Philippines, Accenture invokes this
Court s pronouncements in Amex. However, a reading of that case will readily reveal
that the provision applied was Section 102(b) of the 1977 Tax Code, and not Section
108 of the 1997 Tax Code. As previously mentioned, an interpretation of Section
102(b) of the 1977 Tax Code is an interpretation of Section 108 of the 1997 Tax
Code, the latter being a mere reproduction of the former.
This Court further finds that Accenture s reliance on Amex is misplaced.
We ruled in Amex that Section 102 of the 1977 Tax Code does not require that the
services be consumed abroad to be zero-rated. However, nowhere in that case did
this Court discuss the necessary qualification of the recipient of the service, as this
matter was never put in question. In fact, the recipient of the service in Amex is a
nonresident foreign client.
The aforementioned case explains how the credit card system works. The issuance
of a credit card allows the holder thereof to obtain, on credit, goods and services
from certain establishments. As proof that this credit is extended by the
establishment, a credit card draft is issued. Thereafter, the company issuing the
credit card will pay for the purchases of the credit card holders by redeeming the
drafts. The obligation to collect from the card holders and to bear the loss in case
they do not pay rests on the issuer of the credit card.
The service provided by respondent in Amex consisted of gathering the bills and
credit card drafts from establishments located in the Philippines and forwarding
them to its parent company's regional operating centers outside the country. It
Page44
In refuting Accenture s theory, the CTA En Banc ruled that since Section 108(B) of
the 1997 Tax Code was a mere reproduction of Section 102(b) of the 1977 Tax
Code, this Court s interpretation of the latter may be used in interpreting the former,
viz:rl
The Court explained how the services rendered in Amex were considered to have
been performed and consumed in the Philippines, to wit:rl
Consumption is "the use of a thing in a way that thereby exhausts it." Applied to
services, the term means the performance or "successful completion of a
contractual duty, usually resulting in the performer s release from any past or future
liability x x x." The services rendered by respondent are performed or successfully
completed upon its sending to its foreign client the drafts and bills it has gathered
from service establishments here. Its services, having been performed in the
Philippines, are therefore also consumed in the Philippines.44rll
The effect of the place of consumption on the zero-rating of the transaction was not
the issue in Burmeister. Instead, this Court addressed the squarely raised issue of
whether the recipient of services should be doing business outside the Philippines
for the transaction to qualify for zero-rating. We ruled that it should. Thus, another
essential condition for qualification for zero-rating under Section 102(b)(2) of the
1977 Tax Code is that the recipient of the business be doing that business outside
the Philippines. In clarifying that there is no conflict between this pronouncement
and that laid down in Amex, we ruled thus:rl
x x x. As the Court held in Commissioner of Internal Revenue v. American Express
International, Inc. (Philippine Branch), the place of payment is immaterial, much less
is the place where the output of the service is ultimately used. An essential condition
for entitlement to 0% VAT under Section 102 (b) (1) and (2) is that the recipient of
the services is a person doing business outside the Philippines. In this case, the
recipient of the services is the Consortium, which is doing business not outside, but
within the Philippines because it has a 15-year contract to operate and maintain
NAPOCOR s two 100-megawatt power barges in Mindanao. (Emphasis in the
original)45rll
In Amex we ruled that the place of performance and/or consumption of the service is
immaterial. In Burmeister, the Court found that, although the place of the
consumption of the service does not affect the entitlement of a transaction to zerorating, the place where the recipient conducts its business does.
Amex does not conflict with Burmeister. In fact, to fully understand how Section
102(b)(2) of the 1977 Tax Code and consequently Section 108(B)(2) of the 1997 Tax
Code was intended to operate, the two aforementioned cases should be taken
together. The zero-rating of the services performed by respondent in Amex was
affirmed by the Court, because although the services rendered were both performed
and consumed in the Philippines, the recipient of the service was still an entity doing
business outside the Philippines as required in Burmeister.
That the recipient of the service should be doing business outside the Philippines to
qualify for zero-rating is the only logical interpretation of Section 102(b)(2) of the
1977 Tax Code, as we explained in Burmeister:rl
This can only be the logical interpretation of Section 102 (b) (2). If the provider and
recipient of the "other services" are both doing business in the Philippines, the
payment of foreign currency is irrelevant. Otherwise, those subject to the regular
VAT under Section 102 (a) can avoid paying the VAT by simply stipulating payment
in foreign currency inwardly remitted by the recipient of services. To interpret
Section 102 (b) (2) to apply to a payer-recipient of services doing business in the
Philippines is to make the payment of the regular VAT under Section 102 (a)
dependent on the generosity of the taxpayer. The provider of services can choose to
pay the regular VAT or avoid it by stipulating payment in foreign currency inwardly
remitted by the payer-recipient. Such interpretation removes Section 102 (a) as a
tax measure in the Tax Code, an interpretation this Court cannot sanction. A tax is a
mandatory exaction, not a voluntary contribution.
xxx
xxx
xxx
Further, when the provider and recipient of services are both doing business in the
Philippines, their transaction falls squarely under Section 102 (a) governing
domestic sale or exchange of services. Indeed, this is a purely local sale or
exchange of services subject to the regular VAT, unless of course the transaction
falls under the other provisions of Section 102 (b).
Thus, when Section 102 (b) (2) speaks of "services other than those mentioned in
the preceding subparagraph," the legislative intent is that only the services are
different between subparagraphs 1 and 2. The requirements for zero-rating,
including the essential condition that the recipient of services is doing business
outside the Philippines, remain the same under both subparagraphs. (Emphasis in
the original)46rll
Lastly, it is worth mentioning that prior to the promulgation of Burmeister, Congress
had already clarified the intent behind Sections 102(b)(2) of the 1977 Tax Code and
108(B)(2) of the 1997 Tax Code amending the earlier provision. R.A. 9337 added
the following phrase: "rendered to a person engaged in business conducted outside
the Philippines or to a nonresident person not engaged in business who is outside
the Philippines when the services are performed."
Accenture has failed to establish that the recipients of its services do business
outside the Philippines.
Page44
facilitated in the Philippines the collection and payment of receivables belonging to

its Hong Kong-based foreign client.
1. The records of the Securities and Exchange Commission (SEC) show that
Accenture s clients have not established any branch office in which to do business
in the Philippines.
2. For these services, Accenture bills another corporation, Accenture Participations
B.V. (APB), which is likewise a foreign corporation with no "presence in the
Philippines."
3. Only those not doing business in the Philippines can be required under BSP rules
to pay in acceptable currency for their purchase of goods and services from the
Philippines. Thus, in a domestic transaction, where the provider and recipient of
services are both doing business in the Philippines, the BSP cannot require any
party to make payment in foreign currency.48rll
Accenture claims that these documentary pieces of evidence are supported by the
Report of Emmanuel Mendoza, the Court-commissioned Independent Certified
Public Accountant. He ascertained that Accenture s gross billings pertaining to zerorated sales were all supported by zero-rated Official Receipts and Billing
Statements. These documents show that these zero-rated sales were paid in foreign
exchange currency and duly accounted for in the rules and regulations of the
BSP.49rll
In the CTA s opinion, however, the documents presented by Accenture merely
substantiate the existence of the sales, receipt of foreign currency payments, and
inward remittance of the proceeds of these sales duly accounted for in accordance
with BSP rules. Petitioner presented no evidence whatsoever that these clients were
doing business outside the Philippines.50rll
Accenture insists, however, that it was able to establish that it had rendered services
to foreign corporations doing business outside the Philippines, unlike in Burmeister,
which allegedly involved a foreign corporation doing business in the
Philippines.51rll
We deny Accenture s Petition for a tax refund.
The evidence presented by Accenture may have established that its clients are
foreign. This fact does not automatically mean, however, that these clients were
doing business outside the Philippines. After all, the Tax Code itself has provisions
for a foreign corporation engaged in business within the Philippines and vice versa,
to wit:
SEC. 22. Definitions - When used in this Title:rbl r l l

lbrr
xxx
xxx
xxx
(H) The term "resident foreign corporation" applies to a foreign corporation engaged
in trade or business within the Philippines.
(I) The term nonresident foreign corporation applies to a foreign corporation not
engaged in trade or business within the Philippines. (Emphasis in the original)
Consequently, to come within the purview of Section 108(B)(2), it is not enough that
the recipient of the service be proven to be a foreign corporation; rather, it must be
specifically proven to be a nonresident foreign corporation.
There is no specific criterion as to what constitutes "doing" or "engaging in" or
"transacting" business. We ruled thus in Commissioner of Internal Revenue v. British
Overseas Airways Corporation:52rll
x x x. There is no specific criterion as to what constitutes "doing" or "engaging in" or
"transacting" business. Each case must be judged in the light of its peculiar
environmental circumstances. The term implies a continuity of commercial dealings
and arrangements, and contemplates, to that extent, the performance of acts or
works or the exercise of some of the functions normally incident to, and in
progressive prosecution of commercial gain or for the purpose and object of the
business organization. "In order that a foreign corporation may be regarded as
doing business within a State, there must be continuity of conduct and intention to
establish a continuous business, such as the appointment of a local agent, and not
one of a temporary character."53rll
A taxpayer claiming a tax credit or refund has the burden of proof to establish the
factual basis of that claim. Tax refunds, like tax exemptions, are construed strictly
against the taxpayer.54rll
Accenture failed to discharge this burden. It alleged and presented evidence to
prove only that its clients were foreign entities. However, as found by both the CTA
Division and the CTA En Banc, no evidence was presented by Accenture to prove
the fact that the foreign clients to whom petitioner rendered its services were clients
doing business outside the Philippines.
As ruled by the CTA En Banc, the Official Receipts, Intercompany Payment
Requests, Billing Statements, Memo Invoices-Receivable, Memo Invoices-Payable,
and Bank Statements presented by Accenture merely substantiated the existence of
Page44
Accenture argues that based on the documentary evidence it presented,47 it was

able to establish the following circumstances:rbl r l l
lbrr
WHEREFORE, the instant Petition is DENIED. The 22 September 2009 Decision

and the 23 October 2009 Resolution of the Court of Tax Appeals En Banc in C.T.A.
EB No. 477, dismissing the Petition for the refund of the excess or unutilized input
VAT credits of Accenture, Inc., are AFFIRMED.
SO ORDERED.
FIRST DIVISION
G.R. No. 188260, November 13, 2013
LUZON HYDRO CORPORATION, Petitioners, v. COMMISSIONER OF INTERNAL
REVENUE, Respondent.
DECISION
BERSAMIN, J.:
This case involves a claim for refund or tax credit to cover petitioner Luzon Hydro
Corporations unutilized Input Value-Added Tax (VAT) worth P2,920,665.16
corresponding to the four quarters of taxable year 2001.
The Case
The petitioner brought this action in the Court of Tax Appeals (CTA) after the
Commissioner of Internal Revenue (respondent) did not act on the claim (CTA Case
No. 6669). The CTA 2nd Division denied the claim on May 2, 2008 on the ground
that the petitioner did not prove that it had zero-rated sales for the four quarters of
2001.1 The CTA En Banc denied the petitioners motion for reconsideration, and
affirmed the decision of the CTA 2nd Division through its decision dated May 5,
2009.2 Hence, the petitioner appeals the decision of the CTA En Banc.
Antecedents
The petitioner, a corporation duly organized under the laws of the Philippines, has
been registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer under
Taxpayer Identification No. 004-266-526. It was formed as a consortium of several
corporations, namely: Northern Mini Hydro Corporation, Aboitiz Equity Ventures,
Inc., Ever Electrical Manufacturing, Inc. and Pacific Hydro Limited.
Pursuant to the Power Purchase Agreement entered into with the National Power
Corporation (NPC), the electricity produced by the petitioner from its operation of the
Bakun Hydroelectric Power Plant was to be sold exclusively to NPC.3 Relative to its
sale to NPC, the petitioner was granted by the BIR a certificate for Zero Rate for
VAT purposes in the periods from January 1, 2000 to December 31, 2000; February
1, 2000 to December 31, 2000 (Certificate No. Z-162-2000); and from January 2,
2001 to December 31, 2001 (Certificate No. 2001-269). 4
The petitioner alleged herein that it had incurred input VAT in the amount of
P9,795,427.89 on its domestic purchases of goods and services used in its
generation and sales of electricity to NPC in the four quarters of 2001;5 and that it
had declared the input VAT of P9,795,427.89 in its amended VAT returns for the four
quarters on 2001, as follows:6
Exhibit
Date Filed
Period Covered
Input VAT (P)
F
May 25, 2001
1st quarter- 2001
1,903,443.96
I
July 23, 2001
2nd quarter- 2001
2,166,051.96
L
July 23, 2002
3rd quarter- 2001
1,598,482.39
O
July 24, 2002
4th quarter- 2001
4,127,449.58
Total 9,795,427.89
On November 26, 2001, the petitioner filed a written claim for refund or tax credit
relative to its unutilized input VAT for the period from October 1999 to October 2001
aggregating P14,557,004.38.7 Subsequently, on July 24, 2002, it amended the
claim for refund or tax credit to cover the period from October 1999 to May 2002 for
P20,609,047.56.8
The BIR, through Revenue Examiner Felicidad Mangabat of Revenue District Office
No. 2 in Vigan City, concluded an investigation, and made a recommendation in its
Page44
sales, receipt of foreign currency payments, and inward remittance of the proceeds
of such sales duly accounted for in accordance with BSP rules, all of these were
devoid of any evidence that the clients were doing business outside of the
Philippines.55rll
report dated August 19, 2002 favorable to the petitioners claim for the period from
January 1, 2001 to December 31, 2001.9
3. Whether or not the input VAT being claimed by petitioner is attributable to its zerorated sale of electricity to the NPC;
Respondent Commissioner of Internal Revenue (Commissioner) did not ultimately

act on the petitioners claim despite the favorable recommendation. Hence, on April
14, 2003, the petitioner filed its petition for review in the CTA, praying for the refund
or tax credit certificate (TCC) corresponding to the unutilized input VAT paid for the
four quarters of 2001 totalling P9,795,427.88.10
4.Whether or not the operation of the Bakun Hydroelectric Power Plant is directly
connected and attributable to the generation and sale of electricity to NPC, the sole
business of petitioner; and
xxx
7. The petitioner has failed to demonstrate that the taxes sought to be refunded
were erroneously or illegally collected;
8. In an action for tax refund, the burden is upon the taxpayer to prove that he is
entitled thereto, and failure to sustain the same is fatal to the action for tax refund;
9. It is incumbent upon petitioner to show compliance with the provisions of Section
112 and Section 229, both of the National Internal Revenue Code, as amended;
10. Claims for refund are construed strictly against the claimant for the same
partakes the nature of exemption from taxation (Commissioner of Internal Revenue
vs. Ledesma, G.R. No. L-13509, January 30, 1970, 31 SCRA 95) and as such they
are looked upon [with] disfavor (Western Minolco Corp. vs. Commissioner of Internal
Revenue, 124 SCRA 121);
While the case was pending hearing, the Commissioner, through the Assistant
Commissioner for Assessment Services, informed the petitioner by the letter dated
March 3, 2005 that its claim had been granted in the amount of P6,874,762.72, net
of disallowances of P2,920,665.16. Accompanying the letter was the TCC for
P6,874,762.72 (TCC No. 00002618).15
On May 3, 2005, the petitioner filed a Motion for Leave of Court to Amend Petition
for Review in consideration of the partial grant of the claim through TCC No.
00002618. The CTA in Division granted the motion on May 11, 2005, and admitted
the Amended Petition for Review, whereby the petitioner sought the refund or tax
credit in the reduced amount of P2,920,665.16. The CTA in Division also directed
the respondent to file a supplemental answer within ten days from notice.16
When no supplemental answer was filed within the period thus allowed, the CTA in
Division treated the answer filed on May 16, 2003 as the Commissioners answer to
the Amended Petition for Review.17
11. Taxes paid and collected are presumed to have been made in accordance with
the law and regulations, hence, not refundable.12
Thereafter, the petitioner presented testimonial and documentary evidence to

support its claim. On the other hand, the Commissioner submitted the case for
decision based on the pleadings.18 On May 2, 2007, the case was submitted for
decision without the memorandum of the Commissioner.19
xxx
Ruling of the CTA in Division
On October 30, 2003, the parties submitted a Joint Stipulation of Facts and
Issues,13 which the CTA in Division approved on November 10, 2003. The issues to
be resolved were consequently the following:chanRoblesvirtualLawlibrary
The CTA in Division promulgated its decision in favor of the respondent denying the
petition for review, viz:chanRoblesvirtualLawlibrary
1. Whether or not the input value added tax being claimed by petitioner is supported
by sufficient documentary evidence;
2. Whether petitioner has excess and unutilized input VAT from its purchases of
domestic goods and services, including capital goods in the amount of
P9,795,427.88;
In petitioners VAT returns for the four quarters of 2001, no amount of zero-rated
sales was declared. Likewise, petitioner did not submit any VAT official receipt of
payments for services rendered to NPC. The only proof submitted by petitioner is a
letter from Regional Director Rene Q. Aguas, Revenue Region No. 1, stating that
the financial statements and annual income tax return constitute sufficient
secondary proof of effectively zero-rated and that based on their examination and
evaluation of the financial statements and annual income tax return of petitioner for
taxable year 2000, it had annual gross receipts of PhP187,992,524.00. This Court
Page44
Answering on May 29, 2003,11 the Commissioner denied the claim, and raised the
following special and affirmative defenses, to wit:chanRoblesvirtualLawlibrary
5. Whether or not the claim filed by the petitioner was filed within the reglementary
period provided by law.14
cannot give credence to the said letter as it refers to taxable year 2000, while the
instant case refers to taxable year 2001.
need to produce the supporting documents proving the existence of such zero-rated
sales, which is wanting in this case.
Without zero-rated sales for the four quarters of 2001, the input VAT payments of
PhP9,795,427.88 (including the present claim of PhP2,920,665.16) allegedly
attributable thereto cannot be refunded. It is clear under Section 112 (A) of the NIRC
of 1997 that the refund/tax credit of unutilized input VAT is premised on the
existence of zero-rated or effectively zero-rated sales.
Considering that there are no zero-rated sales to speak of for taxable year 2001,
petitioner is, therefore, not entitled to a refund of PhP2,920,665.16 input tax
allegedly attributable thereto since it is basic requirement under Section 112 (A) of
the NIRC that there should exists a zero-rated sales in order to be entitled to a
refund of unutilized input tax.
xxx
It is settled that tax refunds, like tax exemptions, are construed strictly against the
taxpayer and that the claimant has the burden of proof to establish the factual basis
of its claim for tax credit or refund. Failure in this regard, petitioners claim must
therefore, fail.
For petitioners non-compliance with the first requisite of proving that it had
effectively zero-rated sales for the four quarters of 2001, the claimed unutilized input
VAT payments of PhP 2,920,665.16 cannot be granted.
WHEREFORE, the instant Petition for Review is hereby DENIED for lack of merit.
WHEREFORE, the instant Petition for Review is hereby DENIED for lack of
merit.chanRoblesvirtualLawlibrary
SO ORDERED.20
On May 21, 2008, the petitioner moved to reconsider the decision of the CTA in
Division.21 However, the CTA in Division denied the petitioners motion for
reconsideration on September 5, 2008.22chanroblesvirtualawlibrary
SO ORDERED.23
On June 10, 2009, the CTA En Banc also denied the petitioners motion for
reconsideration.24chanroblesvirtualawlibrary
Issue
Aggrieved, the petitioner has appealed, urging as the lone issue: chanrobleslaw
Decision of the CTA En Banc
On May 5, 2009, the CTA En Banc promulgated the assailed decision affirming the
Division, and denying the claim for refund or tax credit,
stating:chanRoblesvirtualLawlibrary
The other argument of petitioner that even if the tax credit certificate will not be used
as evidence, it was able to prove that it has zero-rated sale as shown in its financial
statements and income tax returns quoting the letter opinion of Regional Director
Rene Q. Aguas that the statements and the return are considered sufficient to
establish that it generated zero-rated sale of electricity is bereft of merit. As found by
the Court a quo, the letter opinion refers to taxable year 2000, while the instant case
covers taxable year 2001; hence, cannot be given credence. Even assuming for the
sake of argument that the financial statements, the return and the letter opinion
relates to 2001, the same could not be taken plainly as it is because there is still a
WHETHER THE CTA EN BANC COMMITTED A REVERSIBLE ERROR IN

AFFIRMING THE DECISION OF THE CTA.
In its August 3, 2009 petition for review,25 the petitioner has argued as
follows:chanRoblesvirtualLawlibrary
(1)
Its sale of electricity to NPC was automatically zero-rated pursuant to Republic Act
No. 9136 (EPIRA Law); hence, it need not prove that it had zero-rated sales in the
period from January 1, 2001 to December 31, 2001 by the presentation of VAT
official receipts that would contain all the necessary information required under
Section 113 of the National Internal Revenue Code of 1997, as implemented by
Section 4.108-1 of Revenue Regulations No. 7-95. Evidence of sale of electricity to
NPC other than official receipts could prove zero-rated sales.
(2)
The TCC, once issued, constituted an administrative opinion that deserved
consideration and respect by the CTA En Banc.
(3)
Page44
On October 17, 2008, the petitioner filed a petition for review in the CTA En Banc
(CTA E.B No. 420), posing the main issue whether or not the CTA in Division erred
in denying its claim for refund or tax credit upon a finding that it had not established
its having effectively zero-rated sales for the four quarters of 2001.
The CTA En Banc was devoid of any authority to determine the existence of the
petitioners zero-rated sales, inasmuch as that would constitute an encroachment on
the powers granted to an administrative agency having expertise on the matter.
(4)
The CTA En Banc manifestly overlooked evidence not disputed by the parties and
which, if properly considered, would justify a different conclusion.26

xxx
The petitioner has prayed for the reversal of the decision of the CTA En Banc, and
for the remand of the case to the CTA for the reception of its VAT official receipts as
newly discovered evidence. It has supported the latter relief prayed for by
representing that the VAT official receipts had been misplaced by Edwin Tapay, its
former Finance and Accounting Manager, but had been found only after the CTA En
Banc has already affirmed the decision of the CTA in Division. In the alternative, it
has asked that the Commissioner allow the claim for refund or tax credit of
P2,920,665.16.
In the comment submitted on December 3, 2009,27 the Commissioner has insisted
that the petitioners claim cannot be granted because it did not incur any zero-rated
sale; that its failure to comply with the invoicing requirements on the documents
supporting the sale of services to NPC resulted in the disallowance of its claim for
the input tax; and the claim should also be denied for not being substantiated by
appropriate and sufficient evidence.
In its reply filed on February 4, 2010,28 the petitioner reiterated its contention that it
had established its claim for refund or tax credit; and that it should be allowed to
present the official receipts in a new trial.
Ruling of the Court
The petition is without merit.
Section 112 of the National Internal Revenue Code 1997
provides:chanRoblesvirtualLawlibrary
A claim for refund or tax credit for unutilized input VAT may be allowed only if the
following requisites concur, namely: (a) the taxpayer is VAT-registered; (b) the
taxpayer is engaged in zero-rated or effectively zero-rated sales; (c) the input taxes
are due or paid; (d) the input taxes are not transitional input taxes; (e) the input
taxes have not been applied against output taxes during and in the succeeding
quarters; (f) the input taxes claimed are attributable to zero-rated or effectively zerorated sales; (g) for zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and
108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been
duly accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas; (h) where there are both zero-rated or effectively zero-rated
sales and taxable or exempt sales, and the input taxes cannot be directly and
entirely attributable to any of these sales, the input taxes shall be proportionately
allocated on the basis of sales volume; and (i) the claim is filed within two years
after the close of the taxable quarter when such sales were made.29
The petitioner did not competently establish its claim for refund or tax credit. We
agree with the CTA En Banc that the petitioner did not produce evidence showing
that it had zero-rated sales for the four quarters of taxable year 2001. As the CTA En
Banc precisely found, the petitioner did not reflect any zero-rated sales from its
power generation in its four quarterly VAT returns, which indicated that it had not
made any sale of electricity. Had there been zero-rated sales, it would have reported
them in the returns. Indeed, it carried the burden not only that it was entitled under
the substantive law to the allowance of its claim for refund or tax credit but also that
it met all the requirements for evidentiary substantiation of its claim before the
administrative official concerned, or in the de novo litigation before the CTA in
Division.30
(A) Zero-rated or Effectively Zero-rated Sales--Any VAT-registered person, whose

under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(B)(1) and (2), the
Although the petitioner has correctly contended here that the sale of electricity by a
power generation company like it should be subject to zero-rated VAT under
Republic Act No. 9136,31 its assertion that it need not prove its having actually
made zero-rated sales of electricity by presenting the VAT official receipts and VAT
returns cannot be upheld. It ought to be reminded that it could not be permitted to
substitute such vital and material documents with secondary evidence like financial
statements.
We further find to be lacking in substance and bereft of merit the petitioners
insistence that the CTA En Banc should not have disregarded the letter opinion by
Page44
SEC. 112. Refunds or Tax Credits of Input Tax.--
We further see no reason to grant the prayer of the petitioner for the remand of this
case to enable it to present before the CTA newly discovered evidence consisting in
VAT official receipts.
Ordinarily, the concept of newly discovered evidence is applicable to litigations in
which a litigant seeks a new trial or the re-opening of the case in the trial court.
Seldom is the concept appropriate when the litigation is already on appeal,
particularly in this Court. The absence of a specific rule on newly discovered
evidence at this late stage of the proceedings is not without reason. The propriety of
remanding the case for the purpose of enabling the CTA to receive newly
discovered evidence would undo the decision already on appeal and require the
examination of the pieces of newly discovered evidence, an act that the Court could
not do by virtue of its not being a trier of facts. Verily, the Court has emphasized in
Atlas Consolidated Mining and Development Corporation v. Commissioner of
Internal Revenue32 that a judicial claim for tax refund or tax credit brought to the
CTA is by no means an original action but an appeal by way of a petition for review
of the taxpayers unsuccessful administrative claim; hence, the taxpayer has to
convince the CTA that the quasi-judicial agency a quo should not have denied the
claim, and to do so the taxpayer should prove every minute aspect of its case by
presenting, formally offering and submitting its evidence to the CTA, including
whatever was required for the successful prosecution of the administrative claim as
the means of demonstrating to the CTA that its administrative claim should have
been granted in the first place.
Nonetheless, on the proposition that we may relax the stringent rules of procedure
for the sake of rendering justice, we still hold that the concept of newly discovered
evidence may not apply herein. In order that newly discovered evidence may be a
ground for allowing a new trial, it must be fairly shown that: (a) the evidence is
discovered after the trial; (b) such evidence could not have been discovered and
produced at the trial even with the exercise of reasonable diligence; (c) such
evidence is material, not merely cumulative, corroborative, or impeaching; and (d)
such evidence is of such weight that it would probably change the judgment if
admitted.33
The first two requisites are not attendant. To start with, the proposed evidence was
plainly not newly discovered considering the petitioners admission that its former
Finance and Accounting Manager had misplaced the VAT official receipts. If that
was true, the misplaced receipts were forgotten evidence. And, secondly, the
receipts, had they truly existed, could have been sooner discovered and easily
produced at the trial with the exercise of reasonable diligence. But the petitioner
made no convincing demonstration that it had exercised reasonable diligence. The
Court cannot accept its tender of such receipts and return now, for, indeed, the nonproduction of documents as vital and material as such receipts and return were to
the success of its claim for refund or tax credit was improbable, as it goes against
the sound business practice of safekeeping relevant documents precisely to ensure
their future use to support an eventual substantial claim for refund or tax credit.
WHEREFORE, the Court DENIES the petition for review on certiorari for its lack of
merit; AFFIRMS the decision dated May 5, 2009 of the Court of Tax Appeals En
Banc; and ORDERS the petitioner to pay the costs of
suit.chanRoblesvirtualLawlibrary
SO ORDERED.
NIRC REMEDIES
THIRD DIVISION
[G.R. NO. 163345 : July 4, 2008]
COMMISSIONER OF INTERNAL REVENUE, Petitioners, v. PERF REALTY
CORPORATION, Respondent.
DECISION
REYES, R.T., J.:
FOR Our review on certiorari is the Decision1 of the Court of Appeals (CA) granting
the claim for refund of respondent PERF Realty Corporation (PERF) for creditable
withholding tax for the year 1997.
Facts
Petitioner Commissioner is the head of the Bureau of Internal Revenue (BIR) whose
principal duty is to assess and collect internal revenue taxes. Respondent PERF is a
domestic corporation engaged in the business of leasing properties to various
Page44
BIR Regional Director Rene Q. Aguas to the effect that its financial statements and
its return were sufficient to establish that it had generated zero-rated sale of
electricity. To recall, the CTA En Banc rejected the insistence because, firstly, the
letter opinion referred to taxable year 2000 but this case related to taxable year
2001, and, secondly, even assuming for the sake of argument that the financial
statements, the return and the letter opinion had related to taxable year 2001, they
still could not be taken at face value for the purpose of approving the claim for
refund or tax credit due to the need to produce the supporting documents proving
the existence of the zero-rated sales, which did not happen here. In that respect, the
CTA En Banc properly disregarded the letter opinion as irrelevant to the present
claim of the petitioner.
clients including the Philippine American Life and General Insurance Company
(Philamlife) and Read-Rite Philippines (Read-Rite).
On April 14, 1998, PERF filed its Annual Income Tax Return (ITR) for the year 1997
showing a net taxable income in the amount of P6,430,345.00 and income tax due
of P2,250,621.00.
WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated

November 20, 2001, and Resolution of March 26, 2002 of the Court of Tax Appeals
are SET ASIDE. The Commissioner of Internal Revenue is ordered to REFUND to
the petitioner the amount of P1,280,504.00 as creditable withholding tax for the year
1997.
SO ORDERED.3
For the year 1997, its tenants, Philamlife and Read-Rite, withheld and subsequently
remitted creditable withholding taxes in the total amount of P3,531,125.00.
After deducting creditable withholding taxes in the total amount of P3,531,125.00
from its total income tax due of P2,250,621.00, PERF showed in its 1997 ITR an
overpayment of income taxes in the amount of P1,280,504.00.
On November 3, 1999, PERF filed an administrative claim with the appellate division
of the BIR for refund of overpaid income taxes in the amount of P1,280,504.00.
On December 3, 1999, due to the inaction of the BIR, PERF filed a Petition for
Review with the Court of Tax Appeals (CTA) seeking for the refund of the overpaid
income taxes in the amount of P1,280,504.00.
According to the appellate court, even if the taxpayer has indicated its option for
refund or tax credit in its ITR, it does not mean that it will automatically be entitled to
either option since the Commissioner of Internal Revenue (CIR) must be given the
opportunity to investigate and confirm the veracity of the claim. Thus, there is still a
need to file a claim for refund.
As to the failure of PERF to present its 1998 ITR, the CA observed that there is no
need to rule on its admissibility since the CTA already held that PERF had complied
with the requisites for applying for a tax refund. The sole purpose of requiring the
presentation of PERF's 1998 ITR is to verify whether or not PERF had carried over
the 1997 excess income tax claimed for refund to the year 1998. The verification
process is not incumbent upon PERF; rather, it is the duty of the BIR to disprove the
taxpayer's claim.
CTA Disposition
In a Decision dated November 20, 2001, the CTA denied the petition of PERF on the
ground of insufficiency of evidence. The CTA noted that PERF did not indicate in its
1997 ITR the option to either claim the excess income tax as a refund or tax credit
pursuant to Section 692 (now 76) of the National Internal Revenue Code (NIRC)
The CIR filed a motion for reconsideration which was subsequently denied by the
CA. Thus, this appeal to Us under Rule 45.
Issues
Petitioner submits the following assignment:
PERF moved for reconsideration attaching to its motion its 1998 ITR. The motion
was, however, denied by the CTA in its Resolution dated March 26, 2002.
Aggrieved by the decision of the CTA, PERF filed a Petition for Review with the CA
under Rule 43 of the Rules of Court.
CA Disposition
In a Decision dated July 18, 2003, the CA ruled in favor of PERF, disposing as
follows:
I
THE COURT OF APPEALS ERRED IN GRANTING RESPONDENT'S TAX
REFUND CONSIDERING THE LATTER'S FAILURE TO SUBSTANTIALLY
ESTABLISH ITS CLAIM FOR REFUND.
II
THE COURT OF APPEALS ERRED IN CONSIDERING RESPONDENT'S ANNUAL
CORPORATE INCOME TAX RETURN FOR 1998 NOTWITHSTANDING THAT IT
WAS NOT FORMALLY OFFERED IN EVIDENCE.4 (Underscoring
supplied)cralawlibrary
Our Ruling
We rule in favor of respondent.
Page44
Further, the CTA likewise found that PERF failed to present in evidence its 1998
annual ITR. It held that the failure of PERF to signify its option on whether to claim
for refund or opt for an automatic tax credit and to present its 1998 ITR left the Court
with no way to determine with certainty whether or not PERF has applied or credited
the refundable amount sought for in its administrative and judicial claims for refund.
The CTA, citing Section 10 of Revenue Regulations 6-85 and Citibank, N.A. v. Court
of Appeals,5 determined the requisites for a claim for refund, thus:
1) That the claim for refund was filed within the two (2) year period as prescribed
under Section 230 of the National Internal Revenue Code;
2) That the income upon which the taxes were withheld were included in the return
of the recipient;
3) That the fact of withholding is established by a copy of a statement (BIR Form
1743.1) duly issued by the payor (withholding agent) to the payee, showing the
amount paid and the amount of tax withheld therefrom.6
We find that PERF filed its administrative and judicial claims for refund on
November 3, 1999 and December 3, 1999, respectively, which are within the twoyear prescriptive period under Section 230 (now 229) of the National Internal Tax
Code.
The CTA noted that based on the records, PERF presented certificates of creditable
withholding tax at source reflecting creditable withholding taxes in the amount of
P4,153,604.18 withheld from PERF's rental income of P83,072,076.81 (Exhibits B,
C, D, E, and H). In addition, it submitted in evidence the Monthly Remittance
Returns of its withholding agents to prove the fact of remittance of said taxes to the
BIR. Although the certificates of creditable withholding tax at source for 1997
reflected a total amount of P4,153,604.18 corresponding to the rental income of
P83,072,076.81, PERF is claiming only the amount of P3,531,125.00 pertaining to a
rental income of P70,813,079.00. The amount of P3,531,125.00 less the income tax
due of PERF of P2,250,621.00 leaves the refundable amount of P1,280,504.00.
It is settled that findings of fact of the CTA are entitled to great weight and will not be
disturbed on appeal unless it is shown that the lower courts committed gross error in
the appreciation of facts. We see no cogent reason not to apply the same principle
here.
II. The failure of respondent to indicate its option in its annual ITR to avail itself of
either the tax refund or tax credit is not fatal to its claim for refund.
Respondent PERF did not indicate in its 1997 ITR the option whether to request a
refund or claim the excess withholding tax as tax credit for the succeeding taxable
year.
Citing Section 76 of the NIRC, the CIR opines that such failure is fatal to PERF's
claim for refund.
We do not agree.
In Philam Asset Management, Inc. v. Commissioner of Internal Revenue,7 the Court
had occasion to trace the history of the Final Adjustment Return found in Section 69
(now 76) of the NIRC. Thus:
The provision on the final adjustment return (FAR) was originally found in Section 69
of Presidential Decree (PD) No. 1158, otherwise known as the "National Internal
Revenue Code of 1977." On August 1, 1980, this provision was restated as Section
86 in PD 1705.
On November 5, 1985, all prior amendments and those introduced by PD 1994 were
codified into the National Internal Revenue Code (NIRC) of 1985, as a result of
which Section 86 was renumbered as Section 79.
On July 31, 1986, Section 24 of Executive Order (EO) No. 37 changed all "net
income" phrases appearing in Title II of the NIRC of 1977 to "taxable income."
Section 79 of the NIRC of 1985, however, was not amended.
On July 25, 1987, EO 273 renumbered Section 86 of the NIRC as Section 76, which
was also rearranged to fall under Chapter of Title II of the NIRC. Section 79, which
had earlier been renumbered by PD 1994, remained unchanged.
Thus, Section 69 of the NIRC of 1977 was renumbered as Section 86 under PD
1705; later, as Section 79 under PD 1994; then, as Section 76 under EO 273.
Finally, after being renumbered and reduced to the chaff of a grain, Section 69 was
repealed by EO 37.
Subsequently, Section 69 reappeared in the NIRC (or Tax Code) of 1997 as Section
76, which reads:
"Section 76. Final Adjustment Return. - Every corporation liable to tax under Section
24 shall file a final adjustment return covering the total net income for the preceding
calendar or fiscal year. If the sum of the quarterly tax payments made during the
said taxable year is not equal to the total tax due on the entire taxable net income of
that year the corporation shall either:
"(a) Pay the excess tax still due; or
"(b) Be refunded the excess amount paid, as the case may be.
Page44
I. Respondent substantially complied with the requisites for claim of refund.
Section 76 offers two options: (1) filing for tax refund and (2) availing of tax credit.
The two options are alternative and the choice of one precludes the other. However,
in Philam Asset Management, Inc. v. Commissioner of Internal Revenue,9 the Court
ruled that failure to indicate a choice, however, will not bar a valid request for a
refund, should this option be chosen by the taxpayer later on. The requirement is
only for the purpose of easing tax administration particularly the self-assessment
and collection aspects. Thus:
These two options under Section 76 are alternative in nature. The choice of one
precludes the other. Indeed, in Philippine Bank of Communications v. Commissioner
of Internal Revenue, the Court ruled that a corporation must signify its intention whether to request a tax refund or claim a tax credit - by marking the corresponding
option box provided in the FAR. While a taxpayer is required to mark its choice in
the form provided by the BIR, this requirement is only for the purpose of facilitating
tax collection.
One cannot get a tax refund and a tax credit at the same time for the same excess
income taxes paid. Failure to signify one's intention in the FAR does not mean
outright barring of a valid request for a refund, should one still choose this option
later on. A tax credit should be construed merely as an alternative remedy to a tax
refund under Section 76, subject to prior verification and approval by respondent.
The reason for requiring that a choice be made in the FAR upon its filing is to ease
tax administration, particularly the self-assessment and collection aspects. A
taxpayer that makes a choice expresses certainty or preference and thus
demonstrates clear diligence. Conversely, a taxpayer that makes no choice
expresses uncertainty or lack of preference and hence shows simple negligence or
plain oversight.
subsequent credit of the excess income tax payments for the previous year. Its
failure to present this vital document to support its contention against the grant of a
tax refund to petitioner is certainly fatal.
Fifth, the CTA should have taken judicial notice of the fact of filing and the pendency
of petitioner's subsequent claim for a refund of excess creditable taxes withheld for
1998. The existence of the claim ought to be known by reason of its judicial
functions. Furthermore, it is decisive to and will easily resolve the material issue in
this case. If only judicial notice were taken earlier, the fact that there was no carryover of the excess creditable taxes withheld for 1997 would have already been
crystal clear.
Sixth, the Tax Code allows the refund of taxes to a taxpayer that claims it in writing
within two years after payment of the taxes erroneously received by the BIR.
Despite the failure of petitioner to make the appropriate marking in the BIR form, the
filing of its written claim effectively serves as an expression of its choice to request a
tax refund, instead of a tax credit. To assert that any future claim for a tax refund will
be instantly hindered by a failure to signify one's intention in the FAR is to render
nugatory the clear provision that allows for a two-year prescriptive period.
In fact, in BPI-Family Savings Bank v. CA, this Court even ordered the refund of a
taxpayer's excess creditable taxes, despite the express declaration in the FAR to
apply the excess to the succeeding year. When circumstances show that a choice of
tax credit has been made, it should be respected. But when indubitable
circumstances clearly show that another choice - a tax refund - is in order, it should
be granted. "Technicalities and legalisms, however exalted, should not be misused
by the government to keep money not belonging to it and thereby enrich itself at the
expense of its law-abiding citizens."
x x x
In the present case, although petitioner did not mark the refund box in its 1997 FAR,
neither did it perform any act indicating that it chose a tax credit. On the contrary, it
filed on September 11, 1998, an administrative claim for the refund of its excess
taxes withheld in 1997. In none of its quarterly returns for 1998 did it apply the
excess creditable taxes. Under these circumstances, petitioner is entitled to a tax
refund of its 1997 excess tax credits in the amount of P522,092.10
Third, there is no automatic grant of a tax refund. As a matter of procedure, the BIR
should be given the opportunity "to investigate and confirm the veracity" of a
taxpayer's claim, before it grants the refund. Exercising the option for a tax refund or
a tax credit does not ipso facto confer upon a taxpayer the right to an immediate
availment of the choice made. Neither does it impose a duty on the government to
allow tax collection to be at the sole control of a taxpayer.
In this case, PERF did not mark the refund box in its 1997 FAR. Neither did it
perform any act indicating that it chose tax credit. In fact, in its 1998 ITR, PERF left
blank the portion "Less: Tax Credit/ Payments." That action coupled with the filing of
a claim for refund indicates that PERF opted to claim a refund. Under these
circumstances, PERF is entitled to a refund of its 1997 excess tax credits in the
amount of P1,280,504.00.
Fourth, the BIR ought to have on file its own copies of petitioner's FAR for the
succeeding year, on the basis of which it could rebut the assertion that there was a
III. The failure of respondent to present in evidence the 1998 ITR is not fatal to its
claim for refund.
Page44
In case the corporation is entitled to a refund of the excess estimated quarterly

income taxes paid, the refundable amount shown on its final adjustment return may
be credited against the estimated quarterly income tax liabilities for the taxable
quarters of the succeeding taxable year."8
The reasoning is specious.

PERF attached its 1998 ITR to its motion for reconsideration. The 1998 ITR is a part
of the records of the case and clearly showed that income taxes in the amount of
P1,280,504.00 were not claimed as tax credit in 1998.
In Filinvest Development Corporation v. Commissioner of Internal Revenue,11 the
Court held that the 1997 ITR attached to the motion for reconsideration is part of the
records of that case and cannot be simply ignored by the CTA. Moreover,
technicalities should not be used to defeat substantive rights, especially those that
have been held as a matter of right. We quote:
In the proceedings before the CTA, petitioner presented in evidence its letter of
claim for refund before the BIR to show that it was made within the two-year
reglementary period; its Income Tax Returns for the years 1995 and 1996 to prove
its total creditable withholding tax and the fact that the amounts were declared as
part of its gross income; and several certificates of income tax withheld at source
corresponding to the period of claim to prove the total amount of the taxes
erroneously withheld. More importantly, petitioner attached its 1997 Income Tax
Return to its Motion for Reconsideration, making the same part of the records of the
case. The CTA cannot simply ignore this document.
Thus, we hold that petitioner has complied with all the requirements to prove its
claim for tax refund. The CA, therefore, erred in denying the Petition for Review of
the CTA's denial of petitioner's claim for tax refund on the ground that it failed to
present its 1997 Income Tax Return.
The CA's reliance on Rule 132, Section 34 26 of the Rules on Evidence is
misplaced. This provision must be taken in the light of Republic Act No. 1125, as
amended, the law creating the CTA, which provides that proceedings therein shall
not be governed strictly by technical rules of evidence. Moreover, this Court has
held time and again that technicalities should not be used to defeat substantive
rights, especially those that have been established as a matter of fact.
x x x
We must also point out that, simply by exercising the CIR's power to examine and
verify petitioner's claim for tax exemption as granted by law, respondent CIR could
have easily verified petitioner's claim by presenting the latter's 1997 Income Tax
Return, the original of which it has in its files. However, records show that in the
proceedings before the CTA, respondent CIR failed to comment on petitioner's
formal offer of evidence, waived its right to present its own evidence, and failed to
file its memorandum. Neither did it file an opposition to petitioner's motion to
reconsider the CTA decision to which the 1997 Income Tax Return was appended.
That no one shall unjustly enrich oneself at the expense of another is a longstanding principle prevailing in our legal system. This applies not only to individuals
but to the State as well. In the field of taxation where the State exacts strict
compliance upon its citizens, the State must likewise deal with taxpayers with
fairness and honesty. The harsh power of taxation must be tempered with
evenhandedness. Hence, under the principle of solutio indebiti, the Government has
to restore to petitioner the sums representing erroneous payments of taxes.12
Further, We sustain the CA that there is no need to rule on the issue of the
admissibility of the 1998 ITR since the CTA ruled that PERF already complied with
the requisites of applying for a tax refund. The verification process is not incumbent
on PERF; it is the duty of the CIR to verify whether or not PERF had carried over the
1997 excess income taxes.
WHEREFORE, the petition is DENIED for lack of merit.
SO ORDERED.
THIRD DIVISION
[G.R. NO. 167560 : September 17, 2008]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. DOMINADOR
MENGUITO, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court, assailing the March 31, 2005 Decision1 of the Court of Appeals (CA) which
reversed and set aside the Court of Tax Appeals (CTA) April 2, 2002 Decision2 and
October 10, 2002 Resolution3 ordering Dominador Menguito (respondent) to pay
the Commissioner of Internal Revenue (petitioner) deficiency income and
percentage taxes and delinquency interest.
Page44
The CIR takes the view that the CA erred in considering the 1998 ITR of PERF. It
was not formally offered in evidence. Section 34, Rule 132 of the Revised Rules of
Court states that the court shall consider no evidence which has not been formally
offered.
Based on the Joint Stipulation of Facts and Admissions4 of the parties, the CTA
summarized the factual and procedural antecedents of the case, the relevant
portions of which read:
Petitioner Dominador Menguito [herein respondent] is a Filipino citizen, of legal age,
married to Jeanne Menguito and is engaged in the restaurant and/or cafeteria
business. For the years 1991, 1992 and 1993, its principal place of business was at
Gloriamaris, CCP Complex, Pasay City and later transferred to Kalayaan Bar
(Copper Kettle Cafeteria Specialist or CKCS), Departure Area, Ninoy Aquino
International Airport, Pasay City. During the same years, he also operated a branch
at Club John Hay, Baguio City carrying the business name of Copper Kettle
Cafeteria Specialist (Joint Stipulation of Facts and Admissions, p. 133, CTA
records).
On April 12, 1999, BIR Baguio wrote a letter to Spouses Menguito, informing the
latter that a reinvestigation or reconsideration cannot be given due course by the
mere submission of an uncertified photocopy of the Certificate of Incorporation.
Thus, it avers that the amendment issued is still valid and enforceable.
On May 26, 1999, Petitioner [respondent] filed the present case, praying for the
cancellation and withdrawal of the deficiency income tax and percentage tax
assessments on account of prescription, whimsical factual findings, violation of
procedural due process on the issuance of assessment notices, erroneous address
of notices and multiple credit/ investigation by the Respondent [petitioner] of
Petitioner's [respondent's] books of accounts and other related records for the same
tax year.
xxxx
On September 2, 1997, the assessment notices subject of the instant petition were
issued. These were protested by Ms. Jeanne Menguito, through a letter dated
September 28, 1997 (Exhibit 14, p. 112, BIR Records), on the ground that the 40%
deduction allowed on their computed gross revenue, is unrealistic. Ms. Jeanne
Menguito requested for a period of thirty (30) days within which to coordinate with
the BIR regarding the contested assessment.
On October 10, 1997, BIR Baguio replied, informing the Spouses Menguito that the
source of assessment was not through the disallowance of claimed expenses but on
data received from Club John Hay and Texas Instruments Phils., Inc. Said letter
gave the spouses ten (10) days to present evidence (Exhibit 15, p. 110, BIR
Records).
In an effort to clear an alleged confusion regarding Copper Kettle Cafeteria
Specialist (CKCS) being a sole proprietorship owned by the Spouses, and Copper
Kettle Catering Services, Inc. (CKCS, Inc.) being a corporation with whom Texas
Instruments and Club John Hay entered into a contract, Petitioner [respondent]
submitted to BIR Baguio a photocopy of the SEC Registration of Copper Kettle
Catering Services, Inc. on March 23, 1999 (pp. 134-141, BIR Records).
Instead of filing an Answer, Respondent [herein petitioner] moved to dismiss the

instant petition on July 1, 1999, on the ground of lack of jurisdiction. According to
Respondent [petitioner], the assessment had long become final and executory when
Petitioner [respondent] failed to comply with the letter dated October 10, 1997.
Petitioner opposed said motion on July 21, 1999, claiming that the final decision on
Petitioner's [respondent's] protest is the April 12, 1999 letter of the Baguio Regional
Office; therefore, the filing of the action within thirty (30) days from receipt of the
said letter was seasonably filed. Moreover, Petitioner [respondent] asserted that
granting that the April 12, 1999 letter in question could not be construed to mean as
a denial or final decision of the protest, still Petitioner's [respondent's] appeal was
timely filed since Respondent [petitioner] issued a Warrant of Distraint and/or Levy
against the Petitioner [respondent] on May 3, 1999, which warrant constituted a final
decision of the Respondent [petitioner] on the protest of the taxpayer.
On September 3, 1999, this Court denied Respondent's [petitioner's] 'Motion to
Dismiss' for lack of merit.
Respondent [petitioner] filed his Answer on September 24, 1999, raising the
following Special and Affirmative Defenses:
xxxx
Investigation disclosed that for taxable years 1991, 1992 and 1993, petitioner
[respondent] filed false or fraudulent income and percentage tax returns with intent
to evade tax by under declaring his sales.
The alleged duplication of investigation of petitioner [respondent] by the BIR
Regional Office in Baguio City and by the Revenue District Office in Pasay City is
justified by the finding of fraud on the part of the petitioner [respondent], which is an
exception to the provision in the Tax Code that the examination and inspection of
books and records shall be made only once in a taxable year (Section 235, Tax
Page44
Subsequently, BIR Baguio received information that Petitioner [herein respondent]

has undeclared income from Texas Instruments and Club John Hay, prompting the
BIR to conduct another investigation. Through a letter dated July 28, 1997, Spouses
Dominador Menguito and Jeanne Menguito (Spouses Menguito) were informed by
the Assessment Division of the said office that they have underdeclared sales
totaling P48,721,555.96 (Exhibit 11, p. 83, BIR records). This was followed by a
Preliminary Ten (10) Day Letter dated August 11, 1997, informing Petitioner [herein
respondent] that in the investigation of his 1991, 1992 and 1993 income, business
and withholding tax case, it was found out that there is still due from him the total
sum of P34,193,041.55 as deficiency income and percentage tax.
The aforementioned falsity or fraud was discovered on August 5, 1997. The

assessments were issued on September 2, 1997, or within ten (10) years from the
discovery of such falsity or fraud (Section 223, Tax Code). Hence, the assessments
have not prescribed.
Petitioner's [respondent's] allegation that the assessments were not properly
addressed is rendered moot and academic by his acknowledgment in his protest
letter dated September 28, 1997 that he received the assessments.
Respondent [petitioner] complied with the provisions of Revenue Regulations No.
12-85 by informing petitioner [respondent] of the findings of the investigation in
letters dated July 28, 1997 and August 11, 1997 prior to the issuance of the
assessments.
Petitioner [respondent] did not allege in his administrative protest that there was a
duplication of investigation, that the assessments have prescribed, that they were
not properly addressed, or that the provisions of Revenue Regulations No. 12-85
were not observed. Not having raised them in the administrative level, petitioner
[respondent] cannot raise the same for the first time on appeal (Aguinaldo Industries
Corp. vs. Commissioner of Internal Revenue, 112 SCRA 136).
The assessments were issued in accordance with law and regulations.
be served on the former, coursed through the latter.9 Respondent cited the Joint
Stipulation in which petitioner acknowledged that its (respondent's) business was
called Copper Kettle Cafeteria Specialist, not Copper Kettle Catering Services,
Inc.10
Based on the unrefuted11 CTA summary, the CA rendered the Decision assailed
herein, the dispositive portion of which reads:
WHEREFORE, the instant petition is GRANTED. Reversing the assailed Decision
dated April 2, 2002 and Resolution dated October 10, 2002, the deficiency income
tax and percentage income tax assessments against petitioner in the amounts of
P11,333,233.94 and P2,573,655.82 for taxable years 1991, 1992 and 1993 plus the
20% delinquency interest thereon are annulled.
SO ORDERED.12
Petitioner filed a motion for reconsideration but the CA denied the same in its
October 10, 2002 Resolution.13
Hence, herein recourse to the Court for the reversal of the CA decision and
resolution on the following grounds:
I
The Court of Appeals erred in reversing the decision of the Court of Tax Appeals and
in holding that Copper Kettle Cafeteria Specialist owned by respondent and Copper
Kettle Catering Services, Inc. owned and managed by respondent's wife are not one
and the same.
All presumptions are in favor of the correctness of tax assessments (CIR vs.
Construction Resources of Asia, Inc., 145 SCRA 67), and the burden to prove
otherwise is upon petitioner [respondent].5 (Emphasis supplied)
On April 2, 2002, the CTA rendered a Decision, the dispositive portion of which
reads:
Accordingly, Petitioner [herein respondent] is ORDERED to PAY the Respondent
[herein petitioner] the amount of P11,333,233.94 and P2,573,655.82 as deficiency
income and percentage tax liabilities, respectively for taxable years 1991, 1992 and
1993 plus 20% delinquency interest from October 2, 1997 until full payment thereof.
II
SO ORDERED.6
Respondent filed a motion for reconsideration but the CTA denied the same in its
Resolution of October 10, 2002.7
However, the CA reversed the CTA on these grounds:

Respondent's [herein petitioner's] allegation that Copper Kettle Catering Services,
Inc. and Copper Kettle Cafeteria Specialists are not distinct entities and that the
under-declared sales/revenues of Copper Kettle Catering Services, Inc. pertain to
Copper Kettle Cafeteria Specialist are belied by the evidence on record. In the Joint
Stipulation of Facts submitted before the tax court, respondent [petitioner] admitted
"that petitioner's [herein respondent's] business name is Copper Kettle Cafeteria
Specialist."
Through a Petition for Review8 filed with the CA, respondent questioned the CTA
Decision and Resolution mainly on the ground that Copper Kettle Catering Services,
Inc. (CKCS, Inc.) was a separate and distinct entity from Copper Kettle Cafeteria
Specialist (CKCS); the sales and revenues of CKCS, Inc. could not be ascribed to
CKCS; neither may the taxes due from one, charged to the other; nor the notices to
The Court of Appeals erred in holding that respondent was denied due process for
failure of petitioner to validly serve respondent with the post-reporting and preassessment notices as required by law.
On the first issue, the CTA has ruled that CKCS, Inc. and CKCS are one and the
same corporation because "[t]he contract between Texas Instruments and Copper
Kettle was signed by petitioner's [respondent's] wife, Jeanne Menguito as
proprietress"14
Page44
Code). At any rate, petitioner [respondent], in a letter dated July 18, 1994, waived
his right to the consolidation of said investigation.
Petitioner impugns the findings of the CA, claiming that these are contradicted by
evidence on record consisting of a reply to the September 2, 1997 assessment
notice of BIR Baguio which Jeanne Menguito wrote on September 28, 1997, to wit:
We are in receipt of the assessment notice you have sent us, dated September 2,
1997. Having taken hold of the same only now following our travel overseas, we
were not able to respond immediately and manifest our protest. Also, with the
impending termination of our businesses at 19th Tee, Club John Hay and at Texas
Instruments, Loakan, Baguio City, we have already started the transfer of our
records and books in Baguio City to Manila that we will need more time to review
and sort the records that may have to be presented relative to the assessment x x
x.19 (Emphasis supplied)
Petitioner insists that said reply confirms that the assessment notice is directed
against the businesses which she and her husband, respondent herein, own and
operate at Club John Hay and Texas Instruments, and establishes that she is
protesting said notice not just for herself but also for respondent.20
Moreover, petitioner argues that if it were true that CKCS, Inc. and CKCS are
separate and distinct entities, respondent could have easily produced the articles of
incorporation of CKCS, Inc.; instead, what respondent presented was merely a
photocopy of the incorporation articles.21 Worse, petitioner adds, said document
was not offered in evidence before the CTA, but was presented only before the
CA.22
Petitioner further insists that CKCS, Inc. and CKCS are merely employing the fiction
of their separate corporate existence to evade payment of proper taxes; that the
CTA saw through their ploy and rightly disregarded their corporate individuality,
treating them instead as one taxable entity with the same tax base and liability;23
and that the CA should have sustained the CTA.24
In effect, petitioner would have the Court resolve a purely factual issue25 of whether
or not there is substantial evidence that CKCS, Inc. and CKCS are one and the
same taxable entity.
As a general rule, the Court does not venture into a trial of facts in proceedings
under Rule 45 of the Rules of Courts, for its only function is to review errors of
law.26 The Court declines to inquire into errors in the factual assessment of the CA,
for the latter's findings are conclusive, especially when these are synonymous to
those of the CTA.27 But when the CA contradicts the factual findings of the CTA, the
Court deems it necessary to determine whether the CA was justified in doing so, for
one basic rule in taxation is that the factual findings of the CTA, when supported by
substantial evidence, will not be disturbed on appeal unless it is shown that the CTA
committed gross error in its appreciation of facts.28
The Court finds that the CA gravely erred when it ignored the substantial evidence
on record and reversed the CTA.
In a number of cases, the Court has shredded the veil of corporate identity and ruled
that where a corporation is merely an adjunct, business conduit or alter ego of
another corporation or when they practice fraud on our internal revenue laws,29 the
fiction of their separate and distinct corporate identities shall be disregarded, and
both entities treated as one taxable person, subject to assessment for the same
taxable transaction.
The Court considers the presence of the following circumstances, to wit: when the
owner of one directs and controls the operations of the other, and the payments
effected or received by one are for the accounts due from or payable to the other;30
or when the properties or products of one are all sold to the other, which in turn
immediately sells them to the public,31 as substantial evidence in support of the
finding that the two are actually one juridical taxable personality.
In the present case, overwhelming evidence supports the CTA in disregarding the
separate identity of CKCS, Inc. from CKCS and in treating them as one taxable
entity.
First, in respondent's Petition for Review before the CTA, he expressly admitted that
he "is engaged in restaurant and/or cafeteria business" and that "[i]n 1991, 1992
and 1993, he also operated a branch at Club John Hay, Baguio Citywith a business
Page44
Also, the Certification of Club John Hay and Letter dated July 9, 1997 of Texas
Instruments both addressed to respondent indicate that these companies transacted
with Copper Kettle Catering Services, Inc., owned and managed by JEANNE G.
MENGUITO, NOT petitioner Dominador Menguito. The alleged under-declared
sales income subject of the present assessments were shown to have been earned
by Copper Kettle Catering Services, Inc. in its commercial transaction with Texas
Instruments and Camp John Hay; NOT by petitioner's dealing with these
companies. In fact, there is nothing on record which shows that Texas Instruments
and Camp John Hay conducted business relations with Copper Kettle Cafeteria
Specialist, owned by herein petitioner Dominador Menguito. In the absence,
therefore, of clear and convincing evidence showing that Copper Kettle Cafeteria
Specialist and Copper Kettle Catering Services, Inc. are one and the same,
respondent can NOT validly impute alleged underdeclared sales income earned by
Copper Kettle Catering Services, Inc. as sales income of Copper Kettle Cafeteria
Specialist.15 (Emphasis supplied)
Respondent is adamant that the CA is correct. Many times in the past, the BIR had
treated CKCS separately from CKCS, Inc.: from May 1994 to June 1995, the BIR
sent audit teams to examine the books of account and other accounting records of
CKCS, and based on said audits, respondent was held liable for deficiency taxes, all
of which he had paid.16 Moreover, the certifications17 issued by Club John Hay and
Texas Instruments identify the concessionaire operating therein as CKCS, Inc.,
owned and managed by his spouse Jeanne Menguito, and not CKCS.18
Related to Exhibit "1" is petitioner's Exhibit "14," which is another letter dated
September 28, 1997, in which Jeanne Menguito protested the September 2, 1997
assessment notices directed at Copper Kettle Cafeteria Specialist and referred to
the latter as "our business at 19th Tee Club John Hay and at Texas Instruments"37
Taken along with the Joint Stipulation, Exhibits "A" through "C" and the August 3,
1993 Certification of Camp John Hay, Exhibits "1" and "14," confirm that respondent,
together with his spouse Jeanne Menguito, own, operate and manage a branch of
Copper Kettle Cafeteria Specialist, also called Copper Kettle Catering Services at
Camp John Hay.
Moreover, in Exhibits "A" to "A-1"38 Exhibits "B" to "B-1">39and Exhibits "C" to "C1">40 which are lists of concessionaires that operated in Club John Hay in 1992,
1993 and 1991, respectively,41 it appears that there is no outlet with the name
"Copper Kettle Cafeteria Specialist" as claimed by respondent. The name that
appears in the lists is "19th TEE CAFETERIA (Copper Kettle, Inc.)." However, in the
light of the express admission of respondent that in 1991, 1992 and 1993, he
operated a branch called Copper Kettle Cafeteria Specialist in Club John Hay, the
entries in Exhibits "A" through "C" could only mean that said branch refers to "19th
Tee Cafeteria (Copper Kettle, Inc.)." There is no evidence presented by respondent
that contradicts this conclusion.
In addition, the August 9, 1993 Certification issued by Club John Hay that "COPPER
KETTLE CATERING SERVICES owned and managed by MS. JEANNE G.
MENGUITO is a concessionaire in John Hay since July 1991 up to the present and
is operating the outlet 19TH TEE CAFETERIA AND THE TEE BAR">42 convincingly
establishes that respondent's branch which he refers to as Copper Kettle Cafeteria
Specialist at Club John Hay also appears in the latter's records as "Copper Kettle
Catering Services" with an outlet called "19th Tee Cafeteria and The Tee Bar."
Second, in Exhibit "8">43 and Exhibit "E"44 Texas Instruments identified the
concessionaire operating its canteen as "Copper Kettle Catering Services, Inc"45
and/or "COPPER KETTLE CAFETERIA SPECIALIST SVCS"46 It being settled that
respondent's "Copper Kettle Cafeteria Specialist" is also known as "Copper Kettle
Catering Services," and that respondent and Jeanne Menguito both own, manage
and act as proprietors of the business, Exhibit "8" and Exhibit "E" further establish
that, through said business, respondent also had taxable transactions with Texas
Instruments.
In view of the foregoing facts and circumstances, the Articles of Incorporation of
CKCS, Inc. -- a certified true copy of which respondent attached only to his Reply
filed with the CA47 -- cannot insulate it from scrutiny of its real identity in relation to
CKCS. It is noted that said Articles of Incorporation of CKCS, Inc. was issued in
1989, but documentary evidence indicate that after said date, CKCS, Inc. has also
assumed the name CKCS, and vice-versa. The most concrete indication of this
practice is the 1991 Quarterly Percentage Tax Returns covering the business
name/trade "19th Tee Camp John Hay." In said returns, the taxpayer is identified as
"Copper Kettle Cafeteria Specialist">48or CKCS, not CKCS, Inc. Yet, in several
documents already cited, the purported owner of 19th Tee Bar at Club John Hay is
CKCS, Inc.
All these pieces of evidence buttress the finding of the CTA that in 1991, 1992 and
1993, respondent, together with his spouse Jeanne Menguito, owned and operated
outlets in Club John Hay and Texas Instruments under the names Copper Kettle
Cafeteria Specialist or CKCS and Copper Kettle Catering Services or Copper Kettle
Catering Services, Inc..
Turning now to the second issue.
In respondent's Petition for Review with the CTA, he questioned the validity of the
Assessment Notices,49 all dated September 2, 1997, issued by BIR, Baguio City
against him on the following grounds:
The assessment notices, based on income and percentage tax returns filed for
1991, 1992 and 1993, were issued beyond the three-year prescriptive period under
Section 203 of the Tax Code;50
The assessment notices were addressed to Copper Kettle Specialist, Club John
Hay, Baguio City, despite notice to petitioner that respondent's principal place of
business was at the CCP Complex, Pasay City.51
The assessment notices were issued in violation of the requirement of Revenue
Regulations No. 12-85, dated November 27, 1985, that the taxpayer be issued a
post-reporting notice and pre-assessment notice before the preliminary findings of
deficiency may ripen into a formal assessment;52 and
The assessment notices did not give respondent a 15-day period to reply to the
findings of deficiency.53
The Court notes that nowhere in his Petition for Review did respondent deny that he
received the September 2, 1997 assessment notices. Instead, during the trial,
respondent's witness, Ma. Theresa Nalda (Nalda), testified that she informed the
Page44
name of Copper Kettle Cafeteria Specialist"32 Respondent repeated such

admission in the Joint Stipulation.33 And then in Exhibit "1">34 for petitioner, a July
18, 1994 letter sent by Jeanne Menguito to BIR, Baguio City, she stated thus:
"in connection with the investigation of Copper Kettle Cafeteria Specialist which is
located at 19th Tee Club John Hay, Baguio City under letter of authority nos.
0392897, 0392898, and 0392690 dated May 16, 1994, investigating my income,
business, and withholding taxes for the years 1991, 1992, and 1993"35 (Emphasis
supplied)
Jeanne Menguito signed the letter as proprietor of Copper Kettle Cafeteria
Specialist.36
The CTA correctly upheld the validity of the assessment notices. Citing Section 223
of the Tax Code which provides that the prescriptive period for the issuance of
assessment notices based on fraud is 10 years, the CTA ruled that the assessment
notices issued against respondent on September 2, 1997 were timely because
petitioner discovered the falsity in respondent's tax returns for 1991, 1992 and 1993
only on February 19, 1997.55 Moreover, in accordance with Section 2 of Revenue
Regulation No. 12-85, which requires that assessment notices be sent to the
address indicated in the taxpayer's return, unless the latter gives a notice of change
of address, the assessment notices in the present case were sent by petitioner to
Camp John Hay, for this was the address respondent indicated in his tax returns.56
As to whether said assessment notices were actually received, the CTA correctly
held that since respondent did not testify that he did not receive said notices, it can
be presumed that the same were actually sent to and received by the latter. The
Court agrees with the CTA in considering as hearsay the testimony of Nalda that
respondent did not receive the notices, because Nalda was not competent to testify
on the matter, as she was employed by respondent only in June 1998, whereas the
assessment notices were sent on September 2, 1997.57
Anent compliance with the requirements of Revenue Regulation No. 12-85, the CTA
held:
BIR records show that on July 28, 1997, a letter was issued by BIR Baguio to
Spouses Menguito, informing the latter of their supposed underdeclaration of sales
totaling P48,721,555.96 and giving them 5 days to communicate any objection to
the results of the investigation (Exhibit 11, p. 83, BIR Records). Records likewise
reveal the issuance of a Preliminary Ten (10) Day Letter on August 11, 1997,
informing Petitioner [respondent herein] that the sum of P34,193,041.55 is due from
him as deficiency income and percentage tax (Exhibit 13, p. 173, BIR Records).
Said letter gave the Petitioner [respondent herein] a period of ten (10) days to
submit his objection to the proposed assessment, either personally or in writing,
together with any evidence he may want to present.
xxxx
As to Petitioner's allegation that he was given only ten (10) days to reply to the
findings of deficiency instead of fifteen (15) days granted to a taxpayer under
Revenue Regulations No. 12-85, this Court believes that when Respondent
[petitioner herein] gave the Petitioner [respondent herein] on October 10, 1997 an
additional period of ten (10) days to present documentary evidence or a total of
twenty (20) days, there was compliance with Revenue Regulations No. 12-85 and
the latter was amply given opportunity to present his side x x x.58
The CTA further held that respondent was estopped from raising procedural issues
against the assessment notices, because these were not cited in the September 28,
1997 letter-protest which his spouse Jeanne Menguito filed with petitioner.59
On appeal by respondent,60 the CA resolved the issue, thus:
Moreover, if the taxpayer denies ever having received an assessment from the BIR,
it is incumbent upon the latter to prove by competent evidence that such notice was
indeed received by the addressee. Here, respondent [petitioner herein] merely
alleged that it "forwarded" the assessment notices to petitioner [respondent herein].
The respondent did not show any proof of mailing, registry receipt or
acknowledgment receipt signed by the petitioner [respondent herein]. Since
respondent [petitioner herein] has not adduced sufficient evidence that petitioner
[respondent herein] had in fact received the pre-assessment notice and postreporting notice required by law, it cannot be assumed that petitioner [respondent
herein] had been served said notices.61
No other ground was cited by the CA for the reversal of the finding of the CTA on the
issue.
The CA is gravely mistaken.
In their Petition for Review with the CTA, respondent expressly stated that
"[s]ometime in September 1997, petitioner [respondent herein] received various
assessment notices, all dated 02 September 1997, issued by BIR-Baguio for alleged
deficiency income and percentage taxes for taxable years ending 31 December
1991, 1992 and 1993 x x x"62 In their September 28, 1997 protest to the September
2, 1997 assessment notices, respondent, through his spouses Jeanne Menguito,
acknowledged that "[they] are in receipt of the assessment notice you have sent us,
dated September 2, 1997 x x x"63
Respondent is therefore estopped from denying actual receipt of the September 2,
1997 assessment notices, notwithstanding the denial of his witness Nalda.
As to the address indicated on the assessment notices, respondent cannot question
the same for it is the said address which appears in its percentage tax returns.64
While respondent claims that he had earlier notified petitioner of a change in his
business address, no evidence of such written notice was presented. Under Section
11 of Revenue Regulation No. 12-85, respondent's failure to give written notice of
change of address bound him to whatever communications were sent to the
address appearing in the tax returns for the period involved in the investigation.65
Thus, what remain in question now are: whether petitioner issued and mailed a
post-reporting notice and a pre-assessment notice; and whether respondent actually
received them.
Page44
BIR, Baguio City "that there was no Notice or letter, that we did not receive,
perhaps, because they were not addressed to Mr. Menguito's head office"54
However, while the lack of a post-reporting notice and pre-assessment notice is a

deviation from the requirements under Section 168and Section 269 of Revenue
Regulation No. 12-85, the same cannot detract from the fact that formal
assessments were issued to and actually received by respondents in accordance
with Section 228 of the National Internal Revenue Code which was in effect at the
time of assessment.
It should be emphasized that the stringent requirement that an assessment notice
be satisfactorily proven to have been issued and released or, if receipt thereof is
denied, that said assessment notice have been served on the taxpayer,70 applies
only to formal assessments prescribed under Section 228 of the National Internal
Revenue Code, but not to post-reporting notices or pre-assessment notices. The
issuance of a valid formal assessment is a substantive prerequisite to tax
collection,71 for it contains not only a computation of tax liabilities but also a
demand for payment within a prescribed period, thereby signaling the time when
penalties and interests begin to accrue against the taxpayer and enabling the latter
to determine his remedies therefor. Due process requires that it must be served on
and received by the taxpayer.72
A post-reporting notice and pre-assessment notice do not bear the gravity of a
formal assessment notice. The post-reporting notice and pre-assessment notice
merely hint at the initial findings of the BIR against a taxpayer and invites the latter
to an "informal" conference or clarificatory meeting. Neither notice contains a
declaration of the tax liability of the taxpayer or a demand for payment thereof.
Hence, the lack of such notices inflicts no prejudice on the taxpayer for as long as
the latter is properly served a formal assessment notice. In the case of respondent,
a formal assessment notice was received by him as acknowledged in his Petition for
Review and Joint Stipulation; and, on the basis thereof, he filed a protest with the
BIR, Baguio City and eventually a petition with the CTA.
WHEREFORE, the petition is GRANTED. The March 31, 2005 Decision of the Court
of Appeals is REVERSED and SET ASIDE and the April 2, 2002 Decision and
October 10, 2002 Resolution of the Court of Tax Appeals are REINSTATED.
SO ORDERED.
FIRST DIVISION
[G.R. NO. 166387 - January 19, 2009]
COMMISSIONER OF INTERNAL REVENUE, Petitioners, v. ENRON SUBIC
POWERCORPORATION, Respondents.
RESOLUTION
CORONA, J.:
In this Petition for Review on Certiorari under Rule 45 of the Rules of Court,
petitioner Commissioner of Internal Revenue (CIR) assails the November 24, 2004
decision1 of the Court of Appeals (CA) annulling the formal assessment notice
issued by the CIR against respondent Enron Subic Power Corporation (Enron) for
failure to state the legal and factual bases for such assessment.
Enron, a domestic corporation registered with the Subic Bay Metropolitan Authority
as a freeport enterprise,2 filed its annual income tax return for the year 1996 on April
12, 1997. It indicated a net loss of P7,684,948. Subsequently, the Bureau of Internal
Revenue, through a preliminary five-day letter,3 informed it of a proposed
assessment of an alleged P2,880,817.25 deficiency income tax.4 Enron disputed
the proposed deficiency assessment in its first protest letter.5
On May 26, 1999, Enron received from the CIR a formal assessment notice6
requiring it to pay the alleged deficiency income tax of P2,880,817.25 for the taxable
year 1996. Enron protested this deficiency tax assessment.7
Due to the non-resolution of its protest within the 180-day period, Enron filed a
Petition for Review in the Court of Tax Appeals (CTA). It argued that the deficiency
tax assessment disregarded the provisions of Section 228 of the National Internal
Revenue Code (NIRC), as amended,8 and Section 3.1.4 of Revenue Regulations
(RR) No. 12-999 by not providing the legal and factual bases of the assessment.
Enron likewise questioned the substantive validity of the assessment.10
In a decision dated September 12, 2001, the CTA granted Enron's petition and
ordered the cancellation of its deficiency tax assessment for the year 1996. The CTA
reasoned that the assessment notice sent to Enron failed to comply with the
Page44
There is no doubt that petitioner failed to prove that it served on respondent a postreporting notice and a pre-assessment notice. Exhibit "11">66 of petitioner is a mere
photocopy of a July 28, 1997 letter it sent to respondent, informing him of the initial
outcome of the investigation into his sales, and the release of a preliminary
assessment upon completion of the investigation, with notice for the latter to file any
objection within five days from receipt of the letter. "Exhibit "13">67 of petitioner is
also a mere photocopy of an August 11, 1997 Preliminary Ten (10) Day Letter to
respondent, informing him that he had been found to be liable for deficiency income
and percentage tax and inviting him to submit a written objection to the proposed
assessment within 10 days from receipt of notice. But nowhere on the face of said
documents can be found evidence that these were sent to and received by
respondent. Nor is there separate evidence, such as a registry receipt of the notices
or a certification from the Bureau of Posts, that petitioner actually mailed said
notices.
The CIR appealed the CTA decision to the CA but the CA affirmed it. The CA held
that the audit working papers did not substantially comply with Section 228 of the
NIRC and RR No. 12-99 because they failed to show the applicability of the cited
law to the facts of the assessment. The CIR filed a motion for reconsideration but
this was deemed abandoned when he filed a motion for extension to file a Petition
for Review in this Court.
The CIR now argues that respondent was informed of the legal and factual bases of
the deficiency assessment against it.
We adopt in toto the findings of fact of the CTA, as affirmed by the CA. In
Compagnie Financiere Sucres et Denrees v. CIR,11 we held:
We reiterate the well-established doctrine that as a matter of practice and principle,
[we] will not set aside the conclusion reached by an agency, like the CTA, especially
if affirmed by the [CA]. By the very nature of its function, it has dedicated itself to the
study and consideration of tax problems and has necessarily developed an
expertise on the subject, unless there has been an abuse or improvident exercise of
authority on its part, which is not present here.
The CIR errs in insisting that the notice of assessment in question complied with the
requirements of the NIRC and RR No. 12-99.
A notice of assessment is:
[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a
Pre-Assessment Notice (PAN) within the prescribed period of time, or whose reply
to the PAN was found to be without merit. The Notice of Assessment shall inform the
[t]axpayer of this fact, and that the report of investigation submitted by the Revenue
Officer conducting the audit shall be given due course.
The formal letter of demand calling for payment of the taxpayer's deficiency tax or
taxes shall state the fact, the law, rules and regulations or jurisprudence on which
the assessment is based, otherwise the formal letter of demand and the notice of
assessment shall be void. (emphasis supplied)12
Section 228 of the NIRC provides that the taxpayer shall be informed in writing of
the law and the facts on which the assessment is made. Otherwise, the assessment
is void. To implement the provisions of Section 228 of the NIRC, RR No. 12-99 was
enacted. Section 3.1.4 of the revenue regulation reads:
3.1.4. Formal Letter of Demand and Assessment Notice. - The formal letter of
demand and assessment notice shall be issued by the Commissioner or his duly
authorized representative. The letter of demand calling for payment of the taxpayer's
deficiency tax or taxes shall state the facts, the law, rules and regulations, or
jurisprudence on which the assessment is based, otherwise, the formal letter of
demand and assessment notice shall be void. The same shall be sent to the
taxpayer only by registered mail or by personal delivery. xxx (emphasis supplied)
It is clear from the foregoing that a taxpayer must be informed in writing of the legal
and factual bases of the tax assessment made against him. The use of the word
'shall' in these legal provisions indicates the mandatory nature of the requirements
laid down therein. We note the CTA's findings:
In [this] case, [the CIR] merely issued a formal assessment and indicated therein the
supposed tax, surcharge, interest and compromise penalty due thereon. The
Revenue Officers of the [the CIR] in the issuance of the Final Assessment Notice did
not provide Enron with the written bases of the law and facts on which the subject
assessment is based. [The CIR] did not bother to explain how it arrived at such an
assessment. Moreso, he failed to mention the specific provision of the Tax Code or
rules and regulations which were not complied with by Enron.13
Both the CTA and the CA concluded that the deficiency tax assessment merely
itemized the deductions disallowed and included these in the gross income. It also
imposed the preferential rate of 5% on some items categorized by Enron as costs.
The legal and factual bases were, however, not indicated.
The CIR insists that an examination of the facts shows that Enron was properly
apprised of its tax deficiency. During the pre-assessment stage, the CIR advised
Enron's representative of the tax deficiency, informed it of the proposed tax
deficiency assessment through a preliminary five-day letter and furnished Enron a
copy of the audit working paper14 allegedly showing in detail the legal and factual
bases of the assessment. The CIR argues that these steps sufficed to inform Enron
of the laws and facts on which the deficiency tax assessment was based.
We disagree. The advice of tax deficiency, given by the CIR to an employee of
Enron, as well as the preliminary five-day letter, were not valid substitutes for the
mandatory notice in writing of the legal and factual bases of the assessment. These
steps were mere perfunctory discharges of the CIR's duties in correctly assessing a
taxpayer.15 The requirement for issuing a preliminary or final notice, as the case
may be, informing a taxpayer of the existence of a deficiency tax assessment is
markedly different from the requirement of what such notice must contain. Just
because the CIR issued an advice, a preliminary letter during the pre-assessment
stage and a final notice, in the order required by law, does not necessarily mean that
Enron was informed of the law and facts on which the deficiency tax assessment
was made.
Page44
requirements of a valid written notice under Section 228 of the NIRC and RR No.
12-99. The CIR's motion for reconsideration of the CTA decision was denied in a
resolution dated November 12, 2001.
The law requires that the legal and factual bases of the assessment be stated in the
formal letter of demand and assessment notice. Thus, such cannot be presumed.
Otherwise, the express provisions of Article 228 of the NIRC and RR No. 12-99
would be rendered nugatory. The alleged 'factual bases' in the advice, preliminary
letter and 'audit working papers' did not suffice. There was no going around the
mandate of the law that the legal and factual bases of the assessment be stated in
writing in the formal letter of demand accompanying the assessment notice.
We note that the old law merely required that the taxpayer be notified of the
assessment made by the CIR. This was changed in 1998 and the taxpayer must
now be informed not only of the law but also of the facts on which the assessment is
made.16 Such amendment is in keeping with the constitutional principle that no
person shall be deprived of property without due process.17 In view of the absence
of a fair opportunity for Enron to be informed of the legal and factual bases of the
assessment against it, the assessment in question was void. We reiterate our ruling
in Reyes v. Almanzor, et al.:18
Verily, taxes are the lifeblood of the Government and so should be collected without
unnecessary hindrance. However, such collection should be made in accordance
with law as any arbitrariness will negate the very reason for the Government itself.
of the Bureau of Internal Revenue,

Respondents.
x-- - - - - - - - - - - - - - - - - - - - - - - - x
COMMISSIONER OF G.R. No. 124557
INTERNAL REVENUE,
Petitioner,
Present:
-versus- PUNO, C.J., Chairperson,
CARPIO,
CORONA,
COURT OF APPEALS, COURT LEONARDO-DE CASTRO, and
OF TAX APPEALS, ADAMSON BERSAMIN, JJ.
MANAGEMENT CORPORATION,
LUCAS G. ADAMSON, THERESE
JUNE D. ADAMSON, and SARA Promulgated:
S. DE LOS REYES,
Respondents. May 21, 2009
x--------------------------------------------------x
DECISION
WHEREFORE, the petition is hereby DENIED. The November 24, 2004 decision of
the Court of Appeals isAFFIRMED.
PUNO, C.J.:
No costs.
FIRST DIVISION
LUCAS G. ADAMSON, THERESE G.R. No. 120935
JUNE D. ADAMSON, and SARA
S. DE LOS REYES, in their capacities
as President, Treasurer and Secretary
of Adamson Management Corporation,
Petitioners,
- versus COURT OF APPEALS and
LIWAYWAY VINZONS-CHATO,
in her capacity as Commissioner
Before the Court are the consolidated cases of G.R. No. 120935 and G.R. No.
124557.
G.R. No. 120935 involves a petition for review on certiorari filed by petitioners
LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE LOS
REYES (private respondents), in their respective capacities as president, treasurer
and secretary of Adamson Management Corporation (AMC) against then
Commissioner of Internal Revenue Liwayway Vinzons-Chato (COMMISSIONER),
under Rule 45 of the Revised Rules of Court. They seek to review and reverse the
Decision promulgated on March 21, 1995 and Resolution issued on July 6, 1995 of
the Court of Appeals in CA-G.R. SP No. 35488 (Liwayway Vinzons-Chato, et al. v.
Hon. Judge Erna Falloran-Aliposa, et al.).
G.R. No. 124557 is a petition for review on certiorari filed by the Commissioner,
assailing the Decision dated March 29, 1996 of the Court of Appeals in CA-G.R. SP
No. 35520, titled Commissioner of Internal Revenue v. Court of Tax Appeals,
Adamson Management Corporation, Lucas G. Adamson, Therese June D. Adamson
and Sara S. de los Reyes. In the said Decision, the Court of Appeals upheld the
Resolution promulgated on September 19, 1994 by the Court of Tax Appeals (CTA)
Page44
SO ORDERED.
in C.T.A. Case No. 5075 (Adamson Management Corporation, Lucas G. Adamson,

Therese Adamson and Sara de los Reyes v. Commissioner of Internal Revenue).
The facts, as culled from the findings of the appellate court, follow:
Reyes, and appealable to the CTA. It further held that the said cases cannot
proceed independently of the assessment case pending before the CTA, which has
jurisdiction to determine the civil and criminal tax liability of the respondents therein.
On June 20, 1990, Lucas Adamson and AMC sold 131,897 common shares of stock
in Adamson and Adamson, Inc. (AAI) to APAC Holding Limited (APAC). The shares
were valued at P7,789,995.00.[1] On June 22, 1990, P159,363.21 was paid as
capital gains tax for the transaction.
On October 10, 1994, the Commissioner filed a Petition for Review with the Court of
Appeals assailing the trial courts dismissal of the criminal cases. She averred that it
was not a condition prerequisite that a formal assessment should first be given to
the private respondents before she may file the aforesaid criminal complaints
against them. She argued that the criminal complaints for tax evasion may proceed
independently from the assessment cases pending before the CTA.
On October 15, 1993, the Commissioner issued a Notice of Taxpayer to AMC, Lucas
G. Adamson, Therese June D. Adamson and Sara S. de los Reyes, informing them
of deficiencies on their payment of capital gains tax and Value Added Tax (VAT). The
notice contained a schedule for preliminary conference.
The events preceding G.R. No. 120935 are the following:
On October 22, 1993, the Commissioner filed with the Department of Justice (DOJ)
her Affidavit of Complaint[2] against AMC, Lucas G. Adamson, Therese June D.
Adamson and Sara S. de los Reyes for violation of Sections 45 (a) and (d)[3], and
110[4], in relation to Section 100[5], as penalized under Section 255,[6] and for
violation of Section 253[7], in relation to Section 252 (b) and (d) of the National
Internal Revenue Code (NIRC).[8]
AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes
filed with the DOJ a motion to suspend proceedings on the ground of prejudicial
question, pendency of a civil case with the Supreme Court, and pendency of their
letter-request for re-investigation with the Commissioner. After the preliminary
investigation, State Prosecutor Alfredo P. Agcaoili found probable cause. The Motion
for Reconsideration against the findings of probable cause was denied by the
prosecutor.
On April 29, 1994, Lucas G. Adamson, Therese June D. Adamson and Sara S. de
los Reyes were charged before the Regional Trial Court (RTC) of Makati, Branch
150 in Criminal Case Nos. 94-1842 to 94-1846. They filed a Motion to Dismiss or
Suspend the Proceedings. They invoked the grounds that there was yet no final
assessment of their tax liability, and there were still pending relevant Supreme Court
and CTA cases. Initially, the trial court denied the motion. A Motion for
Reconsideration was however filed, this time assailing the trial courts lack of
jurisdiction over the nature of the subject cases. On August 8, 1994, the trial court
granted the Motion. It ruled that the complaints for tax evasion filed by the
Commissioner should be regarded as a decision of the Commissioner regarding the
tax liabilities of Lucas G. Adamson, Therese June D. Adamson and Sara S. de los
On March 21, 1995, the Court of Appeals reversed the trial courts decision and
reinstated the criminal complaints. The appellate court held that, in a criminal
prosecution for tax evasion, assessment of tax deficiency is not required because
the offense of tax evasion is complete or consummated when the offender has
knowingly and willfully filed a fraudulent return with intent to evade the tax.[9] It ruled
that private respondents filed false and fraudulent returns with intent to evade taxes,
and acting thereupon, petitioner filed an Affidavit of Complaint with the Department
of Justice, without an accompanying assessment of the tax deficiency of private
respondents, in order to commence criminal action against the latter for tax evasion.
[10]
Private respondents filed a Motion for Reconsideration, but the trial court denied the
motion on July 6, 1995. Thus, they filed the petition in G.R. No. 120935, raising the
following issues:
1.
WHETHER OR NOT THE RESPONDENT HONORABLE COURT OF
APPEALS ERRED IN APPLYING THE DOCTRINE IN UNGAB V. CUSI (Nos. L41919-24, May 30, 1980, 97 SCRA 877) TO THE CASE AT BAR.
2.
WHETHER OR NOT AN ASSESSMENT IS REQUIRED UNDER THE
SECOND CATEGORY OF THE OFFENSE IN SECTION 253 OF THE NIRC.
3.
WHETHER OR NOT THERE WAS A VALID ASSESSMENT MADE BY
THE COMMISSIONER IN THE CASE AT BAR.
4.
WHETHER OR NOT THE FILING OF A CRIMINAL COMPLAINT
SERVES AS AN IMPLIED ASSESSMENT ON THE TAX LIABILITY OF THE
TAXPAYER.
5.
WHETHER OR NOT THE FILING OF THE CRIMINAL INFORMATION
FOR TAX EVASION IN THE TRIAL COURT IS PREMATURE BECAUSE THERE IS
YET NO BASIS FOR THE CRIMINAL CHARGE OF WILLFULL INTENT TO EVADE
THE PAYMENT OF A TAX.
Page44
On October 12, 1990, AMC sold to APAC Philippines, Inc. another 229,870 common
shares of stock in AAI for P17,718,360.00. AMC paid the capital gains tax of
P352,242.96.
7.
WHETHER OR NOT THE COURT OF TAX APPEALS HAS
JURISDICTION OVER THE DISPUTE ON WHAT CONSTITUTES THE PROPER
TAXES DUE FROM THE TAXPAYER.
In parallel circumstances, the following events preceded G.R. No. 124557:
On December 1, 1993, AMC, Lucas G. Adamson, Therese June D. Adamson and
Sara S. de los Reyes filed a letter request for re-investigation with the
Commissioner of the Examiners Findings earlier issued by the Bureau of Internal
Revenue (BIR), which pointed out the tax deficiencies.
On March 15, 1994 before the Commissioner could act on their letter-request, AMC,
Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed a
Petition for Review with the CTA. They assailed the Commissioners finding of tax
evasion against them. The Commissioner moved to dismiss the petition, on the
ground that it was premature, as she had not yet issued a formal assessment of the
tax liability of therein petitioners. On September 19, 1994, the CTA denied the
Motion to Dismiss. It considered the criminal complaint filed by the Commissioner
with the DOJ as an implied formal assessment, and the filing of the criminal
informations with the RTC as a denial of petitioners protest regarding the tax
deficiency.
The Commissioner repaired to the Court of Appeals on the ground that the CTA
acted with grave abuse of discretion. She contended that, with regard to the protest
provided under Section 229 of the NIRC, there must first be a formal assessment
issued by the Commissioner, and it must be in accord with Section 6 of Revenue
Regulation No. 12-85. She maintained that she had not yet issued a formal
assessment of tax liability, and the tax deficiency amounts mentioned in her criminal
complaint with the DOJ were given only to show the difference between the tax
returns filed and the audit findings of the revenue examiner.
The Court of Appeals sustained the CTAs denial of the Commissioners Motion to
Dismiss. Thus, the Commissioner filed the petition for review under G.R. No.
124557, raising the following issues:
1.
WHETHER OR NOT THE INSTANT PETITION SHOULD BE
DISMISSED FOR FAILURE TO COMPLY WITH THE MANDATORY
REQUIREMENT OF A CERTIFICATION UNDER OATH AGAINST FORUM
SHOPPING;
2.
WHETHER OR NOT THE CRIMINAL CASE FOR TAX EVASION IN
THE CASE AT BAR CAN PROCEED WITHOUT AN ASSESSMENT;
3.
WHETHER OR NOT THE COMPLAINT FILED WITH THE
DEPARTMENT OF JUSTICE CAN BE CONSTRUED AS AN IMPLIED
ASSESSMENT; and
4.
WHETHER OR NOT THE COURT OF TAX APPEALS HAS
JURISDICTION TO ACT ON PRIVATE RESPONDENTS PETITION FOR REVIEW
FILED WITH THE SAID COURT.
The issues in G.R. No. 124557 and G.R. No. 120935 can be compressed into three:
1.
WHETHER THE COMMISSIONER HAS ALREADY RENDERED AN
ASSESSMENT (FORMAL OR OTHERWISE) OF THE TAX LIABILITY OF AMC,
LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND SARA S. DE LOS
REYES;
2.
WHETHER THERE IS BASIS FOR THE CRIMINAL CASES FOR TAX
EVASION TO PROCEED AGAINST AMC, LUCAS G. ADAMSON, THERESE JUNE
D. ADAMSON AND SARA S. DE LOS REYES; and
3.
WHETHER THE COURT OF TAX APPEALS HAS JURISDICTION TO
TAKE COGNIZANCE OF BOTH THE CIVIL AND THE CRIMINAL ASPECTS OF
THE TAX LIABILITY OF AMC, LUCAS G. ADAMSON, THERESE JUNE D.
ADAMSON AND SARA S. DE LOS REYES.
The case of CIR v. Pascor Realty, et al.[11] is relevant. In this case, then BIR
Commissioner Jose U. Ong authorized revenue officers to examine the books of
accounts and other accounting records of Pascor Realty and Development
Corporation (PRDC) for 1986, 1987 and 1988. This resulted in a recommendation
for the issuance of an assessment in the amounts of P7,498,434.65 and
P3,015,236.35 for the years 1986 and 1987, respectively.
On March 1, 1995, the Commissioner filed a criminal complaint before the DOJ
against PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio,
alleging evasion of taxes in the total amount of P10,513,671.00. Private
respondents filed an Urgent Request for Reconsideration/Reinvestigation disputing
the tax assessment and tax liability.
The Commissioner denied the urgent request for reconsideration/reinvestigation
because she had not yet issued a formal assessment.
Private respondents then elevated the Decision of the Commissioner to the CTA on
a petition for review. The Commissioner filed a Motion to Dismiss the petition on the
Page44
6.
WHETHER OR NOT THE DOCTRINES LAID DOWN IN THE CASES
OF YABES V. FLOJO (No. L-46954, July 20, 1982, 115 SCRA 286) AND CIR V.
UNION SHIPPING CORP. (G.R. No. 66160, May 21, 1990, 185 SCRA 547) ARE
APPLICABLE TO THE CASE AT BAR.
True, as pointed out by the private respondents, an assessment informs the

taxpayer that he or she has tax liabilities. But not all documents coming from the
BIR containing a computation of the tax liability can be deemed assessments.
To start with, an assessment must be sent to and received by a taxpayer, and must
demand payment of the taxes described therein within a specific period. Thus, the
NIRC imposes a 25 percent penalty, in addition to the tax due, in case the taxpayer
fails to pay the deficiency tax within the time prescribed for its payment in the notice
of assessment. Likewise, an interest of 20 percent per annum, or such higher rate
as may be prescribed by rules and regulations, is to be collected from the date
prescribed for its payment until the full payment.[13]
The issuance of an assessment is vital in determining the period of limitation
regarding its proper issuance and the period within which to protest it. Section
203[14] of the NIRC provides that internal revenue taxes must be assessed within
three years from the last day within which to file the return. Section 222,[15] on the
other hand, specifies a period of ten years in case a fraudulent return with intent to
evade was submitted or in case of failure to file a return. Also, Section 228[16] of the
same law states that said assessment may be protested only within thirty days from
receipt thereof. Necessarily, the taxpayer must be certain that a specific document
constitutes an assessment. Otherwise, confusion would arise regarding the period
within which to make an assessment or to protest the same, or whether interest and
penalty may accrue thereon.
It should also be stressed that the said document is a notice duly sent to the
taxpayer. Indeed, an assessment is deemed made only when the collector of
internal revenue releases, mails or sends such notice to the taxpayer.[17]
In the present case, the revenue officers Affidavit merely contained a computation of
respondents tax liability. It did not state a demand or a period for payment. Worse, it
was addressed to the justice secretary, not to the taxpayers.
Respondents maintain that an assessment, in relation to taxation, is simply
understood to mean:
A notice to the effect that the amount therein stated is due as tax and a demand for
payment thereof.[18]
Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for
the proper presentation of tax rolls.[19]
Even these definitions fail to advance private respondents case. That the BIR
examiners Joint Affidavit attached to the Criminal Complaint contained some details
of the tax liabilities of private respondents does not ipso facto make it an
assessment. The purpose of the Joint Affidavit was merely to support and
substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant to be
a notice of the tax due and a demand to the private respondents for payment
thereof.
The fact that the Complaint itself was specifically directed and sent to the
Department of Justice and not to private respondents shows that the intent of the
commissioner was to file a criminal complaint for tax evasion, not to issue an
assessment. Although the revenue officers recommended the issuance of an
assessment, the commissioner opted instead to file a criminal case for tax evasion.
What private respondents received was a notice from the DOJ that a criminal case
for tax evasion had been filed against them, not a notice that the Bureau of Internal
Revenue had made an assessment.
Private respondents maintain that the filing of a criminal complaint must be
preceded by an assessment. This is incorrect, because Section 222 of the NIRC
specifically states that in cases where a false or fraudulent return is submitted or in
cases of failure to file a return such as this case, proceedings in court may be
commenced without an assessment. Furthermore, Section 205 of the same Code
clearly mandates that the civil and criminal aspects of the case may be pursued
simultaneously. In Ungab v. Cusi,[20] petitioner therein sought the dismissal of the
criminal Complaints for being premature, since his protest to the CTA had not yet
Page44
ground that the CTA has no jurisdiction over the subject matter of the petition, as
there was yet no formal assessment issued against the petitioners. The CTA denied
the said motion to dismiss and ordered the Commissioner to file an answer within
thirty (30) days. The Commissioner did not file an answer nor did she move to
reconsider the resolution. Instead, the Commissioner filed a petition for review of the
CTA decision with the Court of Appeals. The Court of Appeals upheld the CTA order.
However, this Court reversed the Court of Appeals decision and the CTA order, and
ordered the dismissal of the petition. We held:
An assessment contains not only a computation of tax liabilities, but also a demand
for payment within a prescribed period. It also signals the time when penalties and
interests begin to accrue against the taxpayer. To enable the taxpayer to determine
his remedies thereon, due process requires that it must be served on and received
by the taxpayer. Accordingly, an affidavit, which was executed by revenue officers
stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax
evasion, cannot be deemed an assessment that can be questioned before the Court
of Tax Appeals.
Neither the NIRC nor the revenue regulations governing the protest of
assessments[12] provide a specific definition or form of an assessment. However,
the NIRC defines the specific functions and effects of an assessment. To consider
the affidavit attached to the Complaint as a proper assessment is to subvert the
nature of an assessment and to set a bad precedent that will prejudice innocent
taxpayers.
Private respondents insist that Section 222 should be read in relation to Section 255
of the NIRC,[21] which penalizes failure to file a return. They add that a tax
assessment should precede a criminal indictment. We disagree. To reiterate, said
Section 222 states that an assessment is not necessary before a criminal charge
can be filed. This is the general rule. Private respondents failed to show that they
are entitled to an exception. Moreover, the criminal charge need only be supported
by a prima facie showing of failure to file a required return. This fact need not be
proven by an assessment.
The issuance of an assessment must be distinguished from the filing of a complaint.
Before an assessment is issued, there is, by practice, a pre-assessment notice sent
to the taxpayer. The taxpayer is then given a chance to submit position papers and
documents to prove that the assessment is unwarranted. If the commissioner is
unsatisfied, an assessment signed by him or her is then sent to the taxpayer
informing the latter specifically and clearly that an assessment has been made
against him or her. In contrast, the criminal charge need not go through all these.
The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified
that a criminal case had been filed against him, not that the commissioner has
issued an assessment. It must be stressed that a criminal complaint is instituted not
to demand payment, but to penalize the taxpayer for violation of the Tax Code.
In the cases at bar, the Commissioner denied that she issued a formal assessment
of the tax liability of AMC, Lucas G. Adamson, Therese June D. Adamson and Sara
S. de los Reyes. She admits though that she wrote the recommendation letter[22]
addressed to the Secretary of the DOJ recommending the filing of criminal
complaints against AMC and the aforecited persons for fraudulent returns and tax
evasion.
The first issue is whether the Commissioners recommendation letter can be
considered as a formal assessment of private respondents tax liability.
In the context in which it is used in the NIRC, an assessment is a written notice and
demand made by the BIR on the taxpayer for the settlement of a due tax liability that
is there definitely set and fixed. A written communication containing a computation
by a revenue officer of the tax liability of a taxpayer and giving him an opportunity to
contest or disprove the BIR examiners findings is not an assessment since it is yet
indefinite.[23]
We rule that the recommendation letter of the Commissioner cannot be considered

a formal assessment. Even a cursory perusal of the said letter would reveal three
key points:
1. It was not addressed to the taxpayers.
2. There was no demand made on the taxpayers to pay the tax liability, nor a
period for payment set therein.
3. The letter was never mailed or sent to the taxpayers by the Commissioner.
In fine, the said recommendation letter served merely as the prima facie basis for
filing criminal informations that the taxpayers had violated Section 45 (a) and (d),
and 110, in relation to Section 100, as penalized under Section 255, and for violation
of Section 253, in relation to Section 252 9(b) and (d) of the Tax Code.[24]
The next issue is whether the filing of the criminal complaints against the private
respondents by the DOJ is premature for lack of a formal assessment.
Section 269 of the NIRC (now Section 222 of the Tax Reform Act of 1997) provides:
Sec. 269. Exceptions as to period of limitation of assessment and collection of
taxes.-(a) In the case of a false or fraudulent return with intent to evade tax or of
failure to file a return, the tax may be assessed, or a proceeding in court after the
collection of such tax may be begun without assessment, at any time within ten
years after the discovery of the falsity, fraud or omission: Provided, That in a fraud
assessment which has become final and executory, the fact of fraud shall be
judicially taken cognizance of in the civil or criminal action for collection thereof
The law is clear. When fraudulent tax returns are involved as in the cases at bar, a
proceeding in court after the collection of such tax may be begun without
assessment. Here, the private respondents had already filed the capital gains tax
return and the VAT returns, and paid the taxes they have declared due therefrom.
Upon investigation of the examiners of the BIR, there was a preliminary finding of
gross discrepancy in the computation of the capital gains taxes due from the sale of
two lots of AAI shares, first to APAC and then to APAC Philippines, Limited. The
examiners also found that the VAT had not been paid for VAT-liable sale of services
for the third and fourth quarters of 1990. Arguably, the gross disparity in the taxes
due and the amounts actually declared by the private respondents constitutes
badges of fraud.
Thus, the applicability of Ungab v. Cusi[25] is evident to the cases at bar. In this
seminal case, this Court ruled that there was no need for precise computation and
formal assessment in order for criminal complaints to be filed against him. It quoted
Mertens Law of Federal Income Taxation, Vol. 10, Sec. 55A.05, p. 21, thus:
An assessment of a deficiency is not necessary to a criminal prosecution for willful
attempt to defeat and evade the income tax. A crime is complete when the violator
has knowingly and willfully filed a fraudulent return, with intent to evade and defeat
Page44
been resolved. The Court held that such protests could not stop or suspend the
criminal action which was independent of the resolution of the protest in the CTA.
This was because the commissioner of internal revenue had, in such tax evasion
cases, discretion on whether to issue an assessment or to file a criminal case
against the taxpayer or to do both.
We now go to the issue of whether the CTA has no jurisdiction to take cognizance of
both the criminal and civil cases here at bar.
Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals) as
amended, the rulings of the Commissioner are appealable to the CTA, thus:
SEC. 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under the National Internal
Revenue Code or other laws or part of law administered by the Bureau of Internal
Revenue;
Republic Act No. 8424, titled An Act Amending the National Internal Revenue Code,
As Amended, And For Other Purposes, later expanded the jurisdiction of the
Commissioner and, correspondingly, that of the CTA, thus:
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases.
The power to interpret the provisions of this Code and other tax laws shall be under
the exclusive and original jurisdiction of the Commissioner, subject to review by the
Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees
or other charges, penalties imposed in relation thereto, or other matters arising
under this Code or other laws or portions thereof administered by the Bureau of
Internal Revenue is vested in the Commissioner, subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals.
The latest statute dealing with the jurisdiction of the CTA is Republic Act No. 9282.
[26] It provides:
SEC. 7. Section 7 of the same Act is hereby amended to read as follows:
Sec. 7. Jurisdiction. The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue or
other laws administered by the Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue Code
or other laws administered by the Bureau of Internal Revenue, where the National
Internal Revenue Code provides a specific period of action, in which case the
inaction shall be deemed a denial;
(3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases
originally decided or resolved by them in the exercise of their original or appellate
jurisdiction;
xxx
(b) Jurisdiction over cases involving criminal offenses as herein provided:
(1) Exclusive original jurisdiction over all criminal offenses arising from violations of
the National Internal Revenue Code or Tariff and Customs Code and other laws
administered by the Bureau of Internal Revenue or the Bureau of Customs:
Provided, however, That offenses or felonies mentioned in this paragraph where the
principal amount of taxes and fees, exclusive of charges and penalties, claimed is
less than One million pesos (P1,000,000.00) or where there is no specified amount
claimed shall be tried by the regular courts and the jurisdiction of the CTA shall be
appellate. Any provision of law or the Rules of Court to the contrary notwithstanding,
the criminal action and the corresponding civil action for the recovery of civil liability
for taxes and penalties shall at all times be simultaneously instituted with, and jointly
determined in the same proceeding by the CTA, the filing of the criminal action
being deemed to necessarily carry with it the filing of the civil action, and no right to
reserve the filling of such civil action separately from the criminal action will be
recognized.
(2) Exclusive appellate jurisdiction in criminal offenses:
(a) Over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax cases originally decided by them, in their respected territorial
jurisdiction.
(b) Over petitions for review of the judgments, resolutions or orders of the Regional
Trial Courts in the exercise of their appellate jurisdiction over tax cases originally
decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit Trial Courts in their respective jurisdiction.
(c) Jurisdiction over tax collection cases as herein provided:
(1) Exclusive original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties: Provided, however, That
collection cases where the principal amount of taxes and fees, exclusive of charges
and penalties, claimed is less than One million pesos (P1,000,000.00) shall be tried
by the proper Municipal Trial Court, Metropolitan Trial Court and Regional Trial
Court.
(2) Exclusive appellate jurisdiction in tax collection cases:
(a) Over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax collection cases originally decided by them, in their respective
territorial jurisdiction.
Page44
the tax. The perpetration of the crime is grounded upon knowledge on the part of the
taxpayer that he has made an inaccurate return, and the governments failure to
discover the error and promptly to assess has no connections with the commission
of the crime.
This hoary principle still underlies Section 269 and related provisions of the present
Tax Code.
These laws have expanded the jurisdiction of the CTA. However, they did not
change the jurisdiction of the CTA to entertain an appeal only from a final decision or
assessment of the Commissioner, or in cases where the Commissioner has not
acted within the period prescribed by the NIRC. In the cases at bar, the
Commissioner has not issued an assessment of the tax liability of private
respondents.
Finally, we hold that contrary to private respondents stance, the doctrines laid down
in CIR v. Union Shipping Co. and Yabes v. Flojo are not applicable to the cases at
bar. In these earlier cases, the Commissioner already rendered an assessment of
the tax liabilities of the delinquent taxpayers, for which reason the Court ruled that
the filing of the civil suit for collection of the taxes due was a final denial of the
taxpayers request for reconsideration of the tax assessment.
IN VIEW WHEREOF, premises considered, judgment is rendered:
1.
In G.R. No. 120935, AFFIRMING the CA decision dated March 21,
1995, which set aside the Regional Trial Courts Order dated August 8, 1994, and
REINSTATING Criminal Case Nos. 94-1842 to 94-1846 for further proceedings
before the trial court; and
2.
In G.R. No. 124557, REVERSING and SETTING ASIDE the Decision of
the Court of Appeals dated March 29, 1996, and ORDERING the dismissal of C.T.A.
Case No. 5075.
No costs.
SO ORDERED.
FIRST DIVISION
[G.R. NOS. 171383 & 172379 : November 14, 2008]
SILKAIR (SINGAPORE) PTE. LTD., Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE, Respondent.
DECISION
CARPIO, J.:
The Case
G.R. No. 171383
Silkair (Singapore) Pte. Ltd. (petitioner) filed this Petition for Review1 to reverse the
Court of Tax Appeals' Decision2 dated 20 October 2005 in C.T.A. Case No. 6217 as
well as the Resolution dated 3 February 2006 denying the Motion for
Reconsideration. In the assailed decision, the Court of Tax Appeals En Banc denied
petitioner's claim for refund or issuance of a tax credit certificate of P4,239,374.81,
representing excise taxes paid on petitioner's purchase of aviation jet fuel from
Petron Corporation (Petron) for the period from 1 January 1999 to 30 June 1999.
G.R. No. 172379
Petitioner filed this Petition for Review3 to reverse the Court of Tax Appeals'
Decision4 dated 5 January 2006 in C.T.A. Case No. 6308 as well as the Resolution
dated 18 April 2006 denying the Motion for Reconsideration. In the assailed
decision, the Court of Tax Appeals En Banc denied petitioner's claim for refund or
issuance of a tax credit certificate of P4,831,224.70, representing excise taxes paid
on petitioner's purchase of aviation jet fuel from Petron for the period from 1 July
1999 to 31 December 1999.
On 2 August 2006, this Court issued a resolution to consolidate both cases since
they involve the same parties and the same issue, whether petitioner is entitled to a
refund of the excise taxes paid on its purchases of aviation jet fuel from Petron.
The Facts
Petitioner is a foreign corporation organized under the laws of Singapore with a
Philippine representative office in Cebu City. It is engaged in business as an on-line
international carrier, operating the Singapore-Cebu-Singapore, Singapore-DavaoCebu-Singapore, and Singapore-Cebu-Davao-Singapore routes.5
From 1 January 1999 to 31 December 1999, petitioner purchased aviation jet fuel
from Petron for use on petitioner's international flights.6 Based on the Aviation
Delivery Receipts and Invoices presented, P3.67 per liter as excise (specific) tax
was added to the amount paid by petitioner on its purchases of aviation jet fuel.7
Petitioner, through its sister company Singapore Airlines Ltd., paid P4,239,374.81
from 1 January 1999 to 30 June 19998 and P4,831,224.70 from 1 July 1999 to 31
December 1999,9 as excise taxes for its purchases of the aviation jet fuel from
Petron. Petitioner, contending that it is exempt from the payment of excise taxes,
filed a formal claim for refund with the Commissioner of Internal Revenue
(respondent).
Page44
(b) Over petitions for review of the judgments, resolutions or orders of the Regional
Trial Courts in the exercise of their appellate jurisdiction over tax collection cases
originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts, in their respective jurisdiction.
Petitioner claims that it is exempt from the payment of excise tax under the 1997
National Internal Revenue Code (NIRC), specifically Section 135, and under Article
4 of the Air Transport Agreement between the Governments of the Republic of the
Philippines and the Republic of Singapore (Air Agreement).10
Section 135 of the NIRC provides:
SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or
Agencies. - Petroleum products sold to the following are exempt from excise tax:
(a) International carriers of Philippine or foreign registry on their use or consumption
outside the Philippines: Provided, That the petroleum products sold to these
international carriers shall be stored in a bonded storage tank and may be disposed
of only in accordance with the rules and regulations to be prescribed by the
Secretary of Finance, upon recommendation of the Commissioner;
(b) Exempt entities or agencies covered by tax treaties, conventions and other
international agreements for their use or consumption: Provided, however, That the
country of said foreign international carrier or exempt entities or agencies exempts
from similar taxes petroleum products sold to Philippine carriers, entities or
agencies; andcralawlibrary
solely on Petron's action over which petitioner has no control. If Petron fails to act or
acts belatedly, petitioner's claim will be barred, depriving petitioner of its private
property.13
Petitioner also maintains that to hold that only Petron can legally claim the refund
will negate the tax exemption expressly granted to petitioner under the NIRC and
the Air Agreement.14 Petitioner argues that a tax exemption is a personal privilege
of the grantee, which is petitioner in this case. Petitioner further argues that a tax
exemption granted to the buyer cannot be availed of by the seller; hence, in the
present case, Petron as seller cannot legally claim the refund. On the other hand, if
only the entity that paid the tax - Petron in this case - can claim the refund, then
petitioner as the grantee of the tax exemption cannot enjoy its tax exemption. In
short, neither petitioner nor Petron can claim the refund, rendering the tax
exemption useless. Petitioner submits that this is contrary to the language and intent
of the NIRC and the Air Agreement.15
Petitioner also cites this Court's Resolution in Maceda v. Macaraig, Jr.,16 quoting
the opinion of the Secretary of Justice which states, thus:
The view which refuses to accord the exemption because the tax is first paid by the
seller disregards realities and gives more importance to form than substance. Equity
and law always exalt substance over form.17
(c) Entities which are by law exempt from direct and indirect taxes.11
Article 4 of the Air Agreement provides:
Petitioner believes that its tax exemption under Section 135 of the NIRC also
includes its entitlement to a refund from the BIR in any case of erroneous payment
of excise tax.18
Art. 4
2. Fuel, lubricants, spare parts, regular equipment and aircraft stores introduced
into, or taken on board aircraft in the territory of one Contracting Party by, or on
behalf of, a designated airline of the other Contracting Party and intended solely for
use in the operation of the agreed services shall, with the exception of charges
corresponding to the services performed, be exempt from the same custom duties,
inspection fees and other duties or taxes imposed in the territory of the first
Contracting Party, even when these supplies are to be used on the parts of the
journey performed over the territory of the Contracting Party in which they are
introduced into or taken on board. The materials referred to above may be required
to be kept under customs supervision and control.12
Petitioner contends that in reality, it paid the excise taxes due on the transactions
and Petron merely remitted the payment to the Bureau of Internal Revenue (BIR).
Petitioner argues that to adhere to the view that Petron is the legal claimant of the
refund will make petitioner's right to recover the erroneously paid taxes dependent
Respondent claims that as explained in Philippine Acetylene Co., Inc. v.

Commissioner of Internal Revenue,19 the nature of an indirect tax allows the tax to
be passed on to the purchaser as part of the commodity's purchase price. However,
an indirect tax remains a tax on the seller. Hence, if the buyer happens to be tax
exempt, the seller is nonetheless liable for the payment of the tax as the same is a
tax not on the buyer but on the seller.20
Respondent insists that in indirect taxation, the manufacturer or seller has the option
to shift the burden of the tax to the purchaser. If and when shifted, the amount
added by the manufacturer or seller becomes part of the purchase price of the
goods. Thus, the purchaser does not really pay the tax but only the price of the
commodity and the liability for the payment of the indirect tax remains with the
manufacturer or seller.21 Since the liability for the excise tax payment is imposed by
law on Petron as the manufacturer of the petroleum products, any claim for refund
should only be made by Petron as the statutory taxpayer.22
The Ruling of the Court of Tax Appeals
Page44
xxx
On 20 October 2005, the Court of Tax Appeals En Banc (CTA) ruled that the excise
tax imposed on the removal of petroleum products by the oil companies is an
indirect tax.23 Although the burden to pay an indirect tax can be passed on to the
purchaser of the goods, the liability to pay the indirect tax remains with the
manufacturer or seller.24 When the manufacturer or seller decides to shift the
burden of the indirect tax to the purchaser, the tax becomes a part of the price;
therefore, the purchaser does not really pay the tax per se but only the price of the
commodity.25
The CTA pointed out that Section 130(A)(2)26 of the NIRC provides that the liability
for the payment of excise taxes is imposed upon the manufacturer or producer of
the petroleum products. Under the law, the manufacturer or producer is the
taxpayer. The CTA stated that it is only the taxpayer that may ask for a refund in
case of erroneous payment of taxes. Citing Cebu Portland Cement Co. v. Collector
of Internal Revenue,27 the CTA ruled that the producer of the goods is the one
entitled to claim for a refund of indirect taxes.28 The CTA held that since the liability
for the excise taxes was placed on Petron as the manufacturer of the petroleum
products and it was shown in the Excise Tax Returns29 that the excise taxes were
paid by Petron, any claim for refund of the excise taxes should only be made by
Petron as the taxpayer. This is in consonance with the rule on strictissimi juris with
respect to tax exemptions. Petitioner cannot be considered the taxpayer because
what was transferred to petitioner was only the burden and not the liability to pay the
excise tax on petroleum products.30
The CTA also considered the Aviation Fuel Supply Agreement between petitioner
and Petron, which states:
Buyer shall pay any taxes, fees or other charges imposed by any national, local or
airport authority on the delivery, sale, inspection, storage and use of fuel, except for
taxes on Seller's income and taxes on raw material. To the extent allowed, Seller
shall show these taxes, fees and other charges as separate items on the invoice for
the account of the Buyer.31
However, the CTA held that even with this provision, the liability for the excise tax
remained with Petron as manufacturer or producer of the aviation jet fuel. The
shifting of the burden of the excise tax to petitioner did not transform petitioner into a
taxpayer. Hence, Petron is the proper party that can claim for refund of any
erroneous excise tax payments.32
G.R. No. 172379
The CTA En Banc held that excise taxes on domestic products are paid by the
manufacturer or producer before removal of the products from the place of
production. The payment of an excise tax, being an indirect tax, can be shifted to
the purchaser of goods but the statutory liability for such payment is still with the
seller or manufacturer.33 The CTA cited Maceda v. Macaraig, Jr.:34
It may be useful to make a distinction, for the purpose of this disposition, between a
direct tax and an indirect tax. A direct tax is a tax for which a taxpayer is directly
liable on the transaction or business it is engaged in. Examples are custom duties
and ad valorem taxes paid by the oil companies to the Bureau of Customs for their
importation of crude oil, and the specific and ad valorem taxes they pay to the
Bureau of Internal Revenue after converting the crude oil into petroleum products.
On the other hand, "indirect taxes are taxes primarily paid by persons who can shift
the burden upon someone else." For example, the excise tax and ad valorem taxes
that the oil companies pay to the Bureau of Internal Revenue upon removal of
petroleum products from its refinery can be shifted to its buyer, like the NPC, by
adding them to the "cash" and/or "selling price."35
The CTA further cited Philippine Acetylene Co., Inc. v. Commissioner of Internal
Revenue36 and Contex Corporation v. Hon. Commissioner of Internal Revenue37
and concluded that the tax sought to be refunded is an excise tax on petroleum
products, partaking of the nature of an indirect tax.38
The CTA further ruled that while it is cognizant of the exempt status of petitioner
under the NIRC and the Air Agreement, it is also aware that the right to claim for
refund of taxes erroneously paid lies with the person statutorily liable to pay the tax
in accordance with Section 204 of the NIRC.39 The CTA also suggested that
petitioner should invoke its tax exemption to Petron before buying the petroleum
products.40 The CTA concluded that the right to claim for the refund of the excise
taxes paid on the petroleum products lies with Petron which paid and remitted the
excise taxes to the BIR.
The Issue
Petitioner submits this sole issue for our consideration: whether petitioner is the
proper party to claim a refund for the excise taxes paid.41
The Ruling of the Court
The issue presented is not novel. In a similar case involving the same parties, this
Court has categorically ruled that "the proper party to question, or seek a refund of
an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by
law and who paid the same even if he shifts the burden thereof to another."42 The
Court added that "even if Petron Corporation passed on to Silkair the burden of the
tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the price
which Silkair had to pay as a purchaser."43
Page44
G.R. No. 171383
Section 129 of the NIRC provides that excise taxes refer to taxes imposed on
specified goods manufactured or produced in the Philippines for domestic sale or
consumption or for any other disposition and to things imported. The excise taxes
are collected from manufacturers or producers before removal of the domestic
products from the place of production. Although excise taxes can be considered as
taxes on production, they are really taxes on property as they are imposed on
certain specified goods.44
Section 148(g) of the NIRC provides that there shall be collected on aviation jet fuel
an excise tax of P3.67 per liter of volume capacity. Since the tax imposed is based
on volume capacity, the tax is referred to as "specific tax."45 However, excise tax,
whether classified as specific or ad valorem tax, is basically an indirect tax imposed
on the consumption of a specified list of goods or products. The tax is directly levied
on the manufacturer upon removal of the taxable goods from the place of production
but in reality, the tax is passed on to the end consumer as part of the selling price of
the goods sold.46
In Commissioner of Internal Revenue v. Philippine Long Distance Company,47 the
Court explained the difference between a direct tax and an indirect tax:
Based on the possibility of shifting the incidence of taxation, or as to who shall bear
the burden of taxation, taxes may be classified into either direct tax or indirect tax.
In context, direct taxes are those that are exacted from the very person who, it is
intended or desired, should pay them; they are impositions for which a taxpayer is
directly liable on the transaction or business he is engaged in.
On the other hand, indirect taxes are those that are demanded, in the first instance,
from, or are paid by, one person in the expectation and intention that he can shift the
burden to someone else. Stated elsewise, indirect taxes are taxes wherein the
liability for the payment of the tax falls on one person but the burden thereof can be
shifted or passed on to another person, such as when the tax is imposed upon
goods before reaching the consumer who ultimately pays for it. When the seller
passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to
pay it, to the purchaser as part of the price of goods sold or services rendered.
(Emphasis supplied)cralawlibrary
In Maceda v. Macaraig, Jr., the Court specifically mentioned excise tax as an
example of an indirect tax where the tax burden can be shifted to the buyer:
On the other hand, "indirect taxes are taxes primarily paid by persons who can shift
the burden upon someone else". For example, the excise and ad valorem taxes that
the oil companies pay to the Bureau of Internal Revenue upon removal of petroleum
products from its refinery can be shifted to its buyer, like the NPC, by adding them to
the cash and/or "selling price."48
When Petron removes its petroleum products from its refinery in Limay, Bataan,49 it
pays the excise tax due on the petroleum products thus removed. Petron, as
manufacturer or producer, is the person liable for the payment of the excise tax as
shown in the Excise Tax Returns filed with the BIR. Stated otherwise, Petron is the
taxpayer that is primarily, directly and legally liable for the payment of the excise
taxes. However, since an excise tax is an indirect tax, Petron can transfer to its
customers the amount of the excise tax paid by treating it as part of the cost of the
goods and tacking it on to the selling price.
As correctly observed by the CTA, this Court held in Philippine Acetylene Co., Inc. v.
Commissioner of Internal Revenue:
It may indeed be that the economic burden of the tax finally falls on the purchaser;
when it does the tax becomes part of the price which the purchaser must pay.50
Even if the consumers or purchasers ultimately pay for the tax, they are not
considered the taxpayers. The fact that Petron, on whom the excise tax is imposed,
can shift the tax burden to its purchasers does not make the latter the taxpayers and
the former the withholding agent.
Petitioner, as the purchaser and end-consumer, ultimately bears the tax burden, but
this does not transform petitioner's status into a statutory taxpayer.
In the refund of indirect taxes, the statutory taxpayer
is the proper party who can claim the refund.
Section 204(c) of the NIRC provides:
Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or
Credit Taxes. The Commissioner may xxx
(c) Credit or refund taxes erroneously or illegally received or penalties imposed
without authority, refund the value of internal revenue stamps when they are
returned in good condition by the purchaser, and, in his discretion, redeem or
change unused stamps that have been rendered unfit for use and refund their value
upon proof of destruction. No credit or refund of taxes or penalties shall be allowed
unless the taxpayer files in writing with the Commissioner a claim for credit or refund
Page44
An excise tax is an indirect tax where the tax burden

can be shifted to the consumer but the tax liability remains with the
manufacturer or producer.
within two (2) years after the payment of the tax or penalty: Provided, however, That
a return filed showing an overpayment shall be considered as a written claim for
credit or refund. (Emphasis and underscoring supplied)cralawlibrary
The person entitled to claim a tax refund is the statutory taxpayer. Section 22(N) of
the NIRC defines a taxpayer as "any person subject to tax." In Commissioner of
Internal Revenue v. Procter and Gamble Phil. Mfg. Corp., the Court ruled that:
A "person liable for tax" has been held to be a "person subject to tax" and properly
considered a "taxpayer." The terms "liable for tax" and "subject to tax" both connote
a legal obligation or duty to pay a tax.51
international carriers or to tax-exempt entities/agencies."53 The Department of

Finance and the BIR recognize the tax exemption granted to international carriers
but they consistently adhere to the view that manufacturers of articles subject to
excise tax are the statutory taxpayers that are liable to pay the tax, thus, the proper
party to claim any tax refunds.
Wherefore, we DENY the petition. We AFFIRM the assailed Decisions dated 20
October 2005 and 5 January 2006 and the Resolutions dated 3 February 2006 and
18 April 2006 of the Court of Tax Appeals in C.T.A. Case Nos. 6217 and 6308,
respectively.
SO ORDERED.
FIRST DIVISION
[G.R. NOS. 172045-46 : June 16, 2009]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. FIRST EXPRESS
PAWNSHOP COMPANY, INC., Respondent.
Even if the tax is shifted by Petron to its customers and even if the tax is billed as a
separate item in the aviation delivery receipts and invoices issued to its customers,
Petron remains the taxpayer because the excise tax is imposed directly on Petron
as the manufacturer. Hence, Petron, as the statutory taxpayer, is the proper party
that can claim the refund of the excise taxes paid to the BIR.
DECISION
The General Terms & Conditions for Aviation Fuel Supply (Supply Contract) signed
between petitioner (buyer) and Petron (seller) provide:
The Commissioner of Internal Revenue (petitioner) filed this Petition for Review1 to
reverse the Court of Tax Appeals' Decision2 dated 24 March 2006 in the
consolidated cases of C.T.A. EB Nos. 60 and 62. In the assailed decision, the Court
of Tax Appeals (CTA) En Banc partially reconsidered the CTA First Division's
Decision3 dated 24 September 2004.
11.3 If Buyer is entitled to purchase any Fuel sold pursuant to the Agreement free of
any taxes, duties or charges, Buyer shall timely deliver to Seller a valid exemption
certificate for such purchase.52 (Emphasis supplied)cralawlibrary
This provision instructs petitioner to timely submit a valid exemption certificate to
Petron in order that Petron will not pass on the excise tax to petitioner. As correctly
suggested by the CTA, petitioner should invoke its tax exemption to Petron before
buying the aviation jet fuel. Petron, however, remains the statutory taxpayer on
those excise taxes.
Revenue Regulations No. 3-2008 (RR 3-2008) provides that "subject to the
subsequent filing of a claim for excise tax credit/refund or product replenishment, all
manufacturers of articles subject to excise tax under Title VI of the NIRC of 1997, as
amended, shall pay the excise tax that is otherwise due on every removal thereof
from the place of production that is intended for exportation or sale/delivery to
CARPIO, J.:
The Case
The Facts
On 28 December 2001, petitioner, through Acting Regional Director Ruperto P.
Somera of Revenue Region 6 Manila, issued the following assessment notices
against First Express Pawnshop Company, Inc. (respondent):
A. Assessment No. 31-1-984 for deficiency income tax of P20,712.58 with
compromise penalty of P3,000;
b. Assessment No. 31-14-000053-985 for deficiency value-added tax (VAT) of
P601,220.18 with compromise penalty of P16,000;
Page44
The excise tax is due from the manufacturers of the petroleum products and is paid
upon removal of the products from their refineries. Even before the aviation jet fuel
is purchased from Petron, the excise tax is already paid by Petron. Petron, being the
manufacturer, is the "person subject to tax." In this case, Petron, which paid the
excise tax upon removal of the products from its Bataan refinery, is the "person
liable for tax." Petitioner is neither a "person liable for tax" nor "a person subject to
tax." There is also no legal duty on the part of petitioner to pay the excise tax;
hence, petitioner cannot be considered the taxpayer.
d. Assessment No. 31-1-000053-987 for deficiency DST of P62,128.87 on pawn

tickets with compromise penalty of P8,500.
Respondent received the assessment notices on 3 January 2002. On 1 February
2002, respondent filed its written protest on the above assessments. Since
petitioner did not act on the protest during the 180-day period,8 respondent filed a
petition before the CTA on 28 August 2002.9
Respondent contended that petitioner did not consider the supporting documents on
the interest expenses and donations which resulted in the deficiency income tax.10
Respondent maintained that pawnshops are not lending investors whose services
are subject to VAT, hence it was not liable for deficiency VAT.11 Respondent also
alleged that no deficiency DST was due because Section 18012 of the National
Internal Revenue Code (Tax Code) does not cover any document or transaction
which relates to respondent. Respondent also argued that the issuance of a pawn
ticket did not constitute a pledge under Section 19513 of the Tax Code.14
In its Answer filed before the CTA, petitioner alleged that the assessment was valid
and correct and the taxpayer had the burden of proof to impugn its validity or
correctness. Petitioner maintained that respondent is subject to 10% VAT based on
its gross receipts pursuant to Republic Act No. 7716, or the Expanded Value-Added
Tax Law (EVAT). Petitioner also cited BIR Ruling No. 221-91 which provides that
pawnshop tickets are subject to DST.15
On 1 July 2003, respondent paid P27,744.88 as deficiency income tax inclusive of
interest.16
After trial on the merits, the CTA First Division ruled, thus:
IN VIEW OF ALL THE FOREGOING, the instant petition is hereby PARTIALLY
GRANTED. Assessment No. 31-1-000053-98 for deficiency documentary stamp tax
in the amount of Sixty-Two Thousand One Hundred Twenty-Eight Pesos and 87/100
(P62,128.87) and Assessment No. 31-14-000053-98 for deficiency documentary
stamp tax on deposits on subscription in the amount of Twelve Thousand Three
Hundred Twenty-Eight Pesos and 45/100 (P12,328.45) are CANCELLED and SET
ASIDE. However, Assessment No. 31-14-000053-98 is hereby AFFIRMED except
the imposition of compromise penalty in the absence of showing that petitioner
consented thereto (UST v. Collector, 104 SCRA 1062; Exquisite Pawnshop Jewelry,
Inc. v. Jaime B. Santiago, et al., supra).
Accordingly petitioner is ORDERED to PAY the deficiency value added tax in the
amount of Six Hundred One Thousand Two Hundred Twenty Pesos and 18/100
(P601,220.18) inclusive of deficiency interest for the year 1998. In addition,
petitioner is ORDERED to PAY 25% surcharge and 20% delinquency interest per
annum from February 12, 2002 until fully paid pursuant to Sections 248 and 249 of
the 1997 Tax Code.
SO ORDERED.17 (Boldfacing in the original)
Both parties filed their Motions for Reconsideration which were denied by the CTA
First Division for lack of merit. Thereafter, both parties filed their respective Petitions
for Review under Section 11 of Republic Act No. 9282 (RA 9282) with the CTA En
Banc.18
On 24 March 2006, the CTA En Banc promulgated a Decision affirming respondent's
liability to pay the VAT and ordering it to pay DST on its pawnshop tickets. However,
the CTA En Banc found that respondent's deposit on subscription was not subject to
DST.19
Aggrieved by the CTA En Banc's Decision which ruled that respondent's deposit on
subscription was not subject to DST, petitioner elevated the case before this Court.
The Ruling of the Court of Tax Appeals
On the taxability of deposit on subscription, the CTA, citing First Southern
Philippines Enterprises, Inc. v. Commissioner of Internal Revenue,20 pointed out
that deposit on subscription is not subject to DST in the absence of proof that an
equivalent amount of shares was subscribed or issued in consideration for the
deposit. Expressed otherwise, deposit on stock subscription is not subject to DST if:
(1) there is no agreement to subscribe; (2) there are no shares issued or any
additional subscription in the restructuring plan; and (3) there is no proof that the
issued shares can be considered as issued certificates of stock.21
The CTA ruled that Section 17522 of the Tax Code contemplates a subscription
agreement. The CTA explained that there can be subscription only with reference to
shares of stock which have been unissued, in the following cases: (a) the original
issuance from authorized capital stock at the time of incorporation; (b) the opening,
during the life of the corporation, of the portion of the original authorized capital
stock previously unissued; or (c) the increase of authorized capital stock achieved
through a formal amendment of the articles of incorporation and registration of the
articles of incorporation with the Securities and Exchange Commission.23
The CTA held that in this case, there was no subscription or any contract for the
acquisition of unissued stock for P800,000 in the taxable year assessed. The
Page44
c. Assessment No. 31-14-000053-986 for deficiency documentary stamp tax (DST)

of P12,328.45 on deposit on subscription with compromise penalty of P2,000;
andcralawlibrary
The Issue
Petitioner submits this sole issue for our consideration: whether the CTA erred on a
question of law in disregarding the rule on finality of assessments prescribed under
Section 228 of the Tax Code. Corollarily, petitioner raises the issue on whether
respondent is liable to pay P12,328.45 as DST on deposit on subscription of capital
stock.
The Ruling of the Court
Petitioner contends that the CTA erred in disregarding the rule on the finality of
assessments prescribed under Section 228 of the Tax Code.25 Petitioner asserts
that even if respondent filed a protest, it did not offer evidence to prove its claim that
the deposit on subscription was an "advance" made by respondent's
stockholders.26 Petitioner alleges that respondent's failure to submit supporting
documents within 60 days from the filing of its protest as required under Section 228
of the Tax Code caused the assessment of P12,328.45 for deposit on subscription
to become final and unassailable.27
Petitioner alleges that revenue officers are afforded the presumption of regularity in
the performance of their official functions, since they have the distinct opportunity,
aside from competence, to peruse records of the assessments. Petitioner invokes
the principle that by reason of the expertise of administrative agencies over matters
falling under their jurisdiction, they are in a better position to pass judgment thereon;
thus, their findings of fact are generally accorded great respect, if not finality, by the
courts. Hence, without the supporting documents to establish the non-inclusion from
DST of the deposit on subscription, petitioner's assessment pursuant to Section 228
of the Tax Code had become final and unassailable.28
Respondent, citing Standard Chartered Bank-Philippine Branches v. Commissioner
of Internal Revenue,29 asserts that the submission of all the relevant supporting
documents within the 60-day period from filing of the protest is directory.
Respondent claims that petitioner requested for additional documents in petitioner's
letter dated 12 March 2002, to wit: (1) loan agreement from lender banks; (2) official
receipts of interest payments issued to respondent; (3) documentary evidence to
substantiate donations claimed; and (4) proof of payment of DST on subscription.30
It must be noted that the only document requested in connection with respondent's
DST assessment on deposit on subscription is proof of DST payment. However,

respondent could not produce any proof of DST payment because it was not
required to pay the same under the law considering that the deposit on subscription
was an advance made by its stockholders for future subscription, and no stock
certificates were issued.31 Respondent insists that petitioner could have issued a
subpoena requiring respondent to submit other documents to determine if the latter
is liable for DST on deposit on subscription pursuant to Section 5(c) of the Tax
Code.32
Respondent argues that deposit on future subscription is not subject to DST under
Section 175 of the Tax Code. Respondent explains:
It must be noted that deposits on subscription represent advances made by the
stockholders and are in the nature of liabilities for which stocks may be issued in the
future. Absent any express agreement between the stockholders and petitioner to
convert said advances/deposits to capital stock, either through a subscription
agreement or any other document, these deposits remain as liabilities owed by
respondent to its stockholders. For these deposits to be subject to DST, it is
necessary that a conversion/subscription agreement be made by First Express and
its stockholders. Absent such conversion, no DST can be imposed on said deposits
under Section 175 of the Tax Code.33 (Underscoring in the original)
Respondent contends that by presenting its GIS and financial statements, it had
already sufficiently proved that the amount sought to be taxed is deposit on future
subscription, which is not subject to DST.34 Respondent claims that it cannot be
required to submit proof of DST payment on subscription because such payment is
non-existent. Thus, the burden of proving that there was an agreement to subscribe
and that certificates of stock were issued for the deposit on subscription rests on
petitioner and his examiners. Respondent states that absent any proof, the
deficiency assessment has no basis and should be cancelled.35
On the Taxability of Deposit on Stock Subscription
DST is a tax on documents, instruments, loan agreements, and papers evidencing
the acceptance, assignment, sale or transfer of an obligation, right or property
incident thereto. DST is actually an excise tax because it is imposed on the
transaction rather than on the document.36 DST is also levied on the exercise by
persons of certain privileges conferred by law for the creation, revision, or
termination of specific legal relationships through the execution of specific
instruments.37 The Tax Code provisions on DST relating to shares or certificates of
stock state:
Section 175. Stamp Tax on Original Issue of Shares of Stock. - On every original
issue, whether on organization, reorganization or for any lawful purpose, of shares
of stock by any association, company or corporation, there shall be collected a
Page44
General Information Sheet (GIS) of respondent showed only a capital structure of

P500,000 as Subscribed Capital Stock and P250,000 as Paid-up Capital Stock and
did not include the assessed amount. Mere reliance on the presumption that the
assessment was correct and done in good faith was unavailing vis - -vis the
evidence presented by respondent. Thus, the CTA ruled that the assessment for
deficiency DST on deposit on subscription has not become final.24
Section 176. Stamp Tax on Sales, Agreements to Sell, Memoranda of Sales,

Deliveries or Transfer of Due-bills, Certificates of Obligation, or Shares or
Certificates of Stock. - On all sales, or agreements to sell, or memoranda of sales,
or deliveries, or transfer of due-bills, certificates of obligation, or shares or
certificates of stock in any association, company or corporation, or transfer of such
securities by assignment in blank, or by delivery, or by any paper or agreement, or
memorandum or other evidences of transfer or sale whether entitling the holder in
any manner to the benefit of such due-bills, certificates of obligation or stock, or to
secure the future payment of money, or for the future transfer of any due-bill,
certificate of obligation or stock, there shall be collected a documentary stamp tax of
One peso and fifty centavos (P1.50) on each Two hundred pesos (P200), or
fractional part thereof, of the par value of such due-bill, certificate of obligation or
stock: Provided, That only one tax shall be collected on each sale or transfer of
stock or securities from one person to another, regardless of whether or not a
certificate of stock or obligation is issued, indorsed, or delivered in pursuance of
such sale or transfer: And provided, further, That in the case of stock without par
value the amount of the documentary stamp tax herein prescribed shall be
equivalent to twenty-five percent (25%) of the documentary stamp tax paid upon the
original issue of said stock.39
In Section 175 of the Tax Code, DST is imposed on the original issue of shares of
stock. The DST, as an excise tax, is levied upon the privilege, the opportunity and
the facility of issuing shares of stock. In Commissioner of Internal Revenue v.
Construction Resources of Asia, Inc.,40 this Court explained that the DST attaches
upon acceptance of the stockholder's subscription in the corporation's capital stock
regardless of actual or constructive delivery of the certificates of stock. Citing
Philippine Consolidated Coconut Ind., Inc. v. Collector of Internal Revenue,41 the
Court held:
The documentary stamp tax under this provision of the law may be levied only once,
that is upon the original issue of the certificate. The crucial point therefore, in the
case before Us is the proper interpretation of the word 'issue.' In other words, when
is the certificate of stock deemed 'issued' for the purpose of imposing the
documentary stamp tax? Is it at the time the certificates of stock are printed, at the
time they are filled up (in whose name the stocks represented in the certificate
appear as certified by the proper officials of the corporation), at the time they are
released by the corporation, or at the time they are in the possession (actual or
constructive) of the stockholders owning them?
xxx
Ordinarily, when a corporation issues a certificate of stock (representing the
ownership of stocks in the corporation to fully paid subscription) the certificate of
stock can be utilized for the exercise of the attributes of ownership over the stocks
mentioned on its face. The stocks can be alienated; the dividends or fruits derived
therefrom can be enjoyed, and they can be conveyed, pledged or encumbered. The
certificate as issued by the corporation, irrespective of whether or not it is in the
actual or constructive possession of the stockholder, is considered issued because it
is with value and hence the documentary stamp tax must be paid as imposed by
Section 212 of the National Internal Revenue Code, as amended.
In Section 176 of the Tax Code, DST is imposed on the sales, agreements to sell,
memoranda of sales, deliveries or transfer of shares or certificates of stock in any
association, company, or corporation, or transfer of such securities by assignment in
blank, or by delivery, or by any paper or agreement, or memorandum or other
evidences of transfer or sale whether entitling the holder in any manner to the
benefit of such certificates of stock, or to secure the future payment of money, or for
the future transfer of certificates of stock. In Compagnie Financiere Sucres et
Denrees v. Commissioner of Internal Revenue, this Court held that under Section
176 of the Tax Code, sales to secure the future transfer of due-bills, certificates of
obligation or certificates of stock are subject to documentary stamp tax.42
Revenue Memorandum Order No. 08-98 (RMO 08-98) provides the guidelines on
the corporate stock documentary stamp tax program. RMO 08-98 states that:
1. All existing corporations shall file the Corporation Stock DST Declaration, and the
DST Return, if applicable when DST is still due on the subscribed share issued by
the corporation, on or before the tenth day of the month following publication of this
Order.
xxx
3. All existing corporations with authorization for increased capital stock shall file
their Corporate Stock DST Declaration, together with the DST Return, if applicable
when DST is due on subscriptions made after the authorization, on or before the
tenth day of the month following the date of authorization. (Boldfacing supplied)
RMO 08-98, reiterating Revenue Memorandum Circular No. 47-97 (RMC 47-97),
also states that what is being taxed is the privilege of issuing shares of stock, and,
therefore, the taxes accrue at the time the shares are issued. RMC 47-97 also
defines issuance as the point in which the stockholder acquires and may exercise
attributes of ownership over the stocks.
Page44
documentary stamp tax of Two pesos (P2.00) on each Two hundred pesos (P200),
or fractional part thereof, of the par value, of such shares of stock: Provided, That in
the case of the original issue of shares of stock without par value the amount of the
documentary stamp tax herein prescribed shall be based upon the actual
consideration for the issuance of such shares of stock: Provided, further, That in the
case of stock dividends, on the actual value represented by each share.38
As pointed out by the CTA, Sections 175 and 176 of the Tax Code contemplate a
subscription agreement in order for a taxpayer to be liable to pay the DST. A
subscription contract is defined as any contract for the acquisition of unissued
stocks in an existing corporation or a corporation still to be formed.43 A stock
subscription is a contract by which the subscriber agrees to take a certain number of
shares of the capital stock of a corporation, paying for the same or expressly or
impliedly promising to pay for the same.44
Q. What is (sic) that payment stands for?
In this case, respondent's Stockholders' Equity section of its Balance Sheet as of 31

December 199845 shows:
Q. Would you know if First Express issued corresponding shares pertinent to the
amount being deposited?cralawred
Stockholders' Equity
1998
1997
Authorized Capital Stock
P 2,000,000.00
P 2,000,000.00
Paid-up Capital Stock
250,000.00
250,000.00
Deposit on Subscription
800,000.00
Retained Earnings 62,820.34
209,607.20
Net Income
(858,498.38)
(146,786.86)
Total
P 254,321.96
P 312,820.34
The GIS submitted to the Securities and Exchange Commission on 31 March 1999
shows the following Capital Structure:46
Mr. Rosario Jr.
B. Financial Profile
A. They did not issue any shares because that is not the payment of subscription.
That is just a mere deposit.
Mr. Rosario Jr.

A. This payment stands as (sic) for the deposit for future subscription.
Atty. Napiza
A. No.
Atty. Napiza
Q. What do you mean by no? Did they or they did not?cralawred
Mr. Rosario Jr.
1. Capital Structure :
Atty. Napiza
Atty. Napiza
Q. Would you know, Mr. Rosario, how much is the Subscribed Capital of First
Express Pawnshop?cralawred
Mr. Rosario Jr.
A. The Subscribed Capital of First Express Pawnshop Company, Inc. for the year
1998 is P500 thousand.
Q. Mr. Rosario, I refer you to the balance sheet of First Express for the year 1998
particularly the entry of deposit on subscription in the amount of P800 thousand, will
you please tell us what is (sic) this entry represents?cralawred
Atty. Napiza
Mr. Rosario Jr.
Mr. Rosario Jr.
A. This amount of P800 thousand represents the case given by the stockholders to
the company but does not necessarily made (sic) payment to subscribed portion.
A. The Paid Up Capital is P250 thousand.
Q. How about the Paid Up Capital?cralawred
Atty. Napiza
Atty. Napiza
Q. Are (sic) all those figures appear in the balance sheet?cralawred
Page44
AUTHORIZED
P2,000,000.00
SUBSCRIBED
500,000.00
PAID-UP 250,000.00
These entries were explained by Miguel Rosario, Jr. (Rosario), respondent's
external auditor, during the hearing before the CTA on 11 June 2003. Rosario
testified in this wise:
Mr. Rosario Jr.
(a) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or
A. The Paid Up Capital appeared here but the Subscribed Portion was not stated.
(Boldfacing supplied)
(b) When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or
Based on Rosario's testimony and respondent's financial statements as of 1998,

there was no agreement to subscribe to the unissued shares. Here, the deposit on
stock subscription refers to an amount of money received by the corporation as a
deposit with the possibility of applying the same as payment for the future issuance
of capital stock.47 In Commissioner of Internal Revenue v. Construction Resources
of Asia, Inc.,48 we held:
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax liabilities
for the taxable quarter or quarters of the succeeding taxable year; or
We are firmly convinced that the Government stands to lose nothing in imposing the
documentary stamp tax only on those stock certificates duly issued, or wherein the
stockholders can freely exercise the attributes of ownership and with value at the
time they are originally issued. As regards those certificates of stocks temporarily
subject to suspensive conditions they shall be liable for said tax only when released
from said conditions, for then and only then shall they truly acquire any practical
value for their owners.rbl rl l lbrr
(e) When an article locally purchased or imported by an exempt person, such as,
but not limited to, vehicles, capital equipment, machineries and spare parts, has
been sold, traded or transferred to non-exempt persons.
(Boldfacing supplied)
Clearly, the deposit on stock subscription as reflected in respondent's Balance
Sheet as of 1998 is not a subscription agreement subject to the payment of DST.
There is no P800,000 worth of subscribed capital stock that is reflected in
respondent's GIS. The deposit on stock subscription is merely an amount of money
received by a corporation with a view of applying the same as payment for
additional issuance of shares in the future, an event which may or may not happen.
The person making a deposit on stock subscription does not have the standing of a
stockholder and he is not entitled to dividends, voting rights or other prerogatives
and attributes of a stockholder. Hence, respondent is not liable for the payment of
DST on its deposit on subscription for the reason that there is yet no subscription
that creates rights and obligations between the subscriber and the corporation.
On the Finality of Assessment as Prescribed
under Section 228 of the Tax Code
(d) When the excise tax due on excisable articles has not been paid; or
The taxpayer shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer
shall be required to respond to said notice. If the taxpayer fails to respond, the
Commissioner or his duly authorized representative shall issue an assessment
based on his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment in such form and manner as may be prescribed by implementing rules
and regulations. Within sixty (60) days from filing of the protest, all relevant
supporting documents shall have been submitted; otherwise, the assessment shall
become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred
eighty (180) days from submission of documents, the taxpayer adversely affected by
the decision or inaction may appeal to the Court of Tax Appeals within thirty (30)
days from receipt of the said decision, or from the lapse of the one hundred eighty
(180)-day period; otherwise, the decision shall become final, executory and
demandable. (Boldfacing supplied)
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly

authorized representative finds that proper taxes should be assessed, he shall first
notify the taxpayer of his findings: Provided, however, That a preassessment notice
shall not be required in the following cases:
Section 228 of the Tax Code49 provides the remedy to dispute a tax assessment
within a certain period of time. It states that an assessment may be protested by
filing a request for reconsideration or reinvestigation within 30 days from receipt of
the assessment by the taxpayer. Within 60 days from filing of the protest, all relevant
supporting documents shall have been submitted; otherwise, the assessment shall
become final.
Page44
Section 228 of the Tax Code provides:
Within 60 days from the filing of protest or until 2 April 2002, respondent should
submit relevant supporting documents. Respondent, having submitted the
supporting documents together with its protest, did not present additional
documents anymore.
In a letter dated 12 March 2002, petitioner requested respondent to present proof of
payment of DST on subscription. In a letter-reply, respondent stated that it could not
produce any proof of DST payment because it was not required to pay DST under
the law considering that the deposit on subscription was an advance made by its
stockholders for future subscription, and no stock certificates were issued.
Since respondent has not allegedly submitted any relevant supporting documents,
petitioner now claims that the assessment has become final, executory and
demandable, hence, unappealable.
had until 31 July 2002 to wait for petitioner's reply to its protest. On 28 August 2002
or within 30 days after the lapse of the 180-day period counted from the filing of the
protest as the supporting documents were simultaneously filed, respondent filed a
petition before the CTA.
Respondent has complied with the requisites in disputing an assessment pursuant
to Section 228 of the Tax Code. Hence, the tax assessment cannot be considered
as final, executory and demandable. Further, respondent's deposit on subscription is
not subject to the payment of DST. Consequently, respondent is not liable to pay the
deficiency DST of P12,328.45.
Wherefore, we DENY the petition. We AFFIRM the Court of Tax Appeals' Decision
dated 24 March 2006 in the consolidated cases of C.T.A. EB Nos. 60 and 62.
SO ORDERED.
CIR VS. GONZALEZ
THIRD DIVISION
We reject petitioner's view that the assessment has become final and unappealable.
It cannot be said that respondent failed to submit relevant supporting documents
that would render the assessment final because when respondent submitted its
protest, respondent attached the GIS and Balance Sheet. Further, petitioner cannot
insist on the submission of proof of DST payment because such document does not
exist as respondent claims that it is not liable to pay, and has not paid, the DST on
the deposit on subscription.
G.R. No. L-34548 November 29, 1988
The term "relevant supporting documents" should be understood as those

documents necessary to support the legal basis in disputing a tax assessment as
determined by the taxpayer. The BIR can only inform the taxpayer to submit
additional documents. The BIR cannot demand what type of supporting documents
should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which
may require the production of documents that a taxpayer cannot submit.rbl
rl l lbrr
The Solicitor General for respondents.
After respondent submitted its letter-reply stating that it could not comply with the
presentation of the proof of DST payment, no reply was received from petitioner.
Section 228 states that if the protest is not acted upon within 180 days from
submission of documents, the taxpayer adversely affected by the inaction may
appeal to the CTA within 30 days from the lapse of the 180-day period. Respondent,
having submitted its supporting documents on the same day the protest was filed,
RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, vs. THE

HONORABLE PACIFICO P. DE CASTRO and PHILIPPINE VIRGINIA TOBACCO
ADMINISTRATION, respondents
Meer, Meer & Meer for petitioner.chanrobles virtual law library
CORTES, J.:
The crux of the instant controversy dwells on the liability of a bank for releasing its
depositor's funds upon orders of the court, pursuant to a writ of garnishment. If in
compliance with the court order, the bank delivered the garnished amount to the
sheriff, who in turn delivered it to the judgment creditor, but subsequently, the order
of the court directing payment was set aside by the same judge, should the bank be
held solidarily liable with the judgment creditor to its depositor for reimbursement of
the garnished funds? The Court does not think so.chanroblesvirtualawlibrary
In Civil Case No. Q-12785 of the Court of First Instance of Rizal, Quezon City
Branch IX entitled "Badoc Planters, Inc. versus Philippine Virginia Tobacco
Page44
In this case, respondent received the tax assessment on 3 January 2002 and it had
until 2 February 2002 to submit its protest. On 1 February 2002, respondent
submitted its protest and attached the GIS and Balance Sheet as of 31 December
1998. Respondent explained that it received P800,000 as a deposit with the
possibility of applying the same as payment for the future issuance of capital stock.
On January 26,1970, BADOC filed an Urgent Ex-Parte Motion for a Writ of

Execution of the said Partial Judgment which was granted on the same day by the
herein respondent judge who acted in place of the Hon. Judge San Diego who had
just been elevated as a Justice of the Court of Appeals. Accordingly, the Branch
Clerk of Court on the very same day, issued a Writ of Execution addressed to
Special Sheriff Faustino Rigor, who then issued a Notice of Garnishment addressed
to the General Manager and/or Cashier of Rizal Commercial Banking Corporation
(hereinafter referred to as RCBC), the petitioner in this case, requesting a reply
within five (5) days to said garnishment as to any property which the Philippine
Virginia Tobacco Administration (hereinafter referred to as "PVTA") might have in the
possession or control of petitioner or of any debts owing by the petitioner to said
defendant. Upon receipt of such Notice, RCBC notified PVTA thereof to enable the
PVTA to take the necessary steps for the protection of its own interest [Record on
Appeal, p. 36] chanrobles virtual law library
Upon an Urgent Ex-Parte Motion dated January 27, 1970 filed by BADOC, the
respondent Judge issued an Order granting the Ex-Parte Motion and directing the
herein petitioner "to deliver in check the amount garnished to Sheriff Faustino Rigor
and Sheriff Rigor in turn is ordered to cash the check and deliver the amount to the
plaintiff's representative and/or counsel on record." [Record on Appeal, p. 20; Rollo,
p. 5.] In compliance with said Order, petitioner delivered to Sheriff Rigor a certified
check in the sum of P 206,916.76.chanroblesvirtualawlibrary chanrobles virtual law
library
Respondent PVTA filed a Motion for Reconsideration dated February 26,1970 which
was granted in an Order dated April 6,1970, setting aside the Orders of Execution
and of Payment and the Writ of Execution and ordering petitioner and BADOC "to
restore, jointly and severally, the account of PVTA with the said bank in the same
condition and state it was before the issuance of the aforesaid Orders by
reimbursing the PVTA of the amount of P 206, 916.76 with interests at the legal rate
from January 27, 1970 until fully paid to the account of the PVTA This is without
prejudice to the right of plaintiff to move for the execution of the partial judgment
pending appeal in case the motion for reconsideration is denied and appeal is taken
from the said partial judgment." [Record on Appeal, p. 58]chanrobles virtual law
library
The Motion for Reconsideration of the said Order of April 6, 1970 filed by herein
petitioner was denied in the Order of respondent judge dated June 10, 1970 and on
June 19, 1970, which was within the period for perfecting an appeal, the herein
petitioner filed a Notice of Appeal to the Court of Appeals from the said
Orders.chanroblesvirtualawlibrary chanrobles virtual law library
This case was then certified by the Court of Appeals to this Honorable Court,
involving as it does purely questions of law.chanroblesvirtualawlibrary chanrobles
virtual law library
The petitioner raises two principal queries in the instant case: 1) Whether or not
PVTA funds are public funds not subject to garnishment; and 2) Whether or not the
respondent Judge correctly ordered the herein petitioner to reimburse the amount
paid to the Special Sheriff by virtue of the execution issued pursuant to the
Order/Partial Judgment dated January 15, 1970.chanroblesvirtualawlibrary
The record reveals that on February 2, 1970, private respondent PVTA filed a
Motion for Reconsideration of the Order/ Partial Judgment of January 15, 1970. This
was granted and the aforementioned Partial Judgment was set aside. The case was
set for hearings on November 4, 9 and 11, 1970 [Rollo, pp. 205-207.] However, in
view of the failure of plaintiff BADOC to appear on the said dates, the lower court
ordered the dismissal of the case against PVTA for failure to prosecute [Rollo, p.
208.] chanrobles virtual law library
It must be noted that the Order of respondent Judge dated April 6, 1970 directing
the plaintiff to reimburse PVTA t e amount of P206,916.76 with interests became
final as to said plaintiff who failed to even file a motion for reconsideration, much
less to appeal from the said Order. Consequently, the order to restore the account of
PVTA with RCBC in the same condition and state it was before the issuance of the
questioned orders must be upheld as to the plaintiff,
BADOC.chanroblesvirtualawlibrary chanrobles virtual law library
However, the questioned Order of April 6, 1970 must be set aside insofar as it
ordered the petitioner RCBC, jointly and severally with BADOC, to reimburse
PVTA.chanroblesvirtualawlibrary chanrobles virtual law library
The petitioner merely obeyed a mandatory directive from the respondent Judge
dated January 27, 1970, ordering petitioner 94 "to deliver in check the amount
garnished to Sheriff Faustino Rigor and Sheriff Rigor is in turn ordered to cash the
check and deliver the amount to the plaintiffs representative and/or counsel on
record." [Record on Appeal, p. 20.] chanrobles virtual law library
PVTA however claims that the manner in which the bank complied with the Sheriffs
Notice of Garnishment indicated breach of trust and dereliction of duty on the part of
the bank as custodian of government funds. It insistently urges that the premature
delivery of the garnished amount by RCBC to the special sheriff even in the
Page44
Administration, et al.," which was an action for recovery of unpaid tobacco

deliveries, an Order (Partial Judgment) was issued on January 15, 1970 by the Hon.
Lourdes P. San Diego, then Presiding Judge, ordering the defendants therein to pay
jointly and severally, the plaintiff Badoc Planters, Inc. (hereinafter referred to as
"BADOC") within 48 hours the aggregate amount of P206,916.76, with legal
interests thereon.chanroblesvirtualawlibrary chanrobles virtual law library
Such allegations must be rejected for lack of merit. In the first place, it should be
pointed out that RCBC did not deliver the amount on the strength solely of a Notice
of Garnishment; rather, the release of the funds was made pursuant to the aforesaid
Order of January 27, 1970. While the Notice of Garnishment dated January 26,
1970 contained no demand of payment as it was a mere request for petitioner to
withold any funds of the PVTA then in its possession, the Order of January 27, 1970
categorically required the delivery in check of the amount garnished to the special
sheriff, Faustino Rigor.chanroblesvirtualawlibrary chanrobles virtual law library
In the second place, the bank had already filed a reply to the Notice of Garnishment
stating that it had in its custody funds belonging to the PVTA, which, in fact was the
basis of the plaintiff in filing a motion to secure delivery of the garnished amount to
the sheriff. [See Rollo, p. 93.] chanrobles virtual law library
Lastly, the bank, upon the receipt of the Notice of Garnishment, duly informed PVTA
thereof to enable the latter to take the necessary steps for the protection of its own
interest [Record on Appeal, p. 36] chanrobles virtual law library
It is important to stress, at this juncture, that there was nothing irregular in the
delivery of the funds of PVTA by check to the sheriff, whose custody is equivalent to
the custody of the court, he being a court officer. The order of the court dated
January 27, 1970 was composed of two parts, requiring: 1) RCBC to deliver in
check the amount garnished to the designated sheriff and 2) the sheriff in turn to
cash the check and deliver the amount to the plaintiffs representative and/or counsel
on record. It must be noted that in delivering the garnished amount in check to the
sheriff, the RCBC did not thereby make any payment, for the law mandates that
delivery of a check does not produce the effect of payment until it has been cashed.
[Article 1249, Civil Code.] chanrobles virtual law library
Moreover, by virtue of the order of garnishment, the same was placed in custodia
legis and therefore, from that time on, RCBC was holding the funds subject to the
orders of the court a quo. That the sheriff, upon delivery of the check to him by
RCBC encashed it and turned over the proceeds thereof to the plaintiff was no
longer the concern of RCBC as the responsibility over the garnished funds passed
to the court. Thus, no breach of trust or dereliction of duty can be attributed to
RCBC in delivering its depositor's funds pursuant to a court order which was merely
in the exercise of its power of control over such funds.
... The garnishment of property to satisfy a writ of execution operates as an
attachment and fastens upon the property a lien by which the property is brought
under the jurisdiction of the court issuing the writ. It is brought into custodia legis,
under the sole control of such court [De Leon v. Salvador, G.R. Nos. L-30871 and L31603, December 28,1970, 36 SCRA 567, 574.]
The respondent judge however, censured the petitioner for having released the
funds "simply on the strength of the Order of the court which. far from ordering an
immediate release of the amount involved, merely serves as a standing authority to
make the release at the proper time as prescribed by the rules." [Rollo, p. 81.]
This argument deserves no serious consideration. As stated earlier, the order
directing the bank to deliver the amount to the sheriff was distinct and separate from
the order directing the sheriff to encash the said check. The bank had no choice but
to comply with the order demanding delivery of the garnished amount in check. The
very tenor of the order called for immediate compliance therewith. On the other
hand, the bank cannot be held liable for the subsequent encashment of the check
as this was upon order of the court in the exercise of its power of control over the
funds placed in custodia legis by virtue of the
garnishment.chanroblesvirtualawlibrary chanrobles virtual law library
In a recent decision [Engineering Construction Inc., v. National Power Corporation,
G.R. No. L-34589, June 29, 1988] penned by the now Chief Justice Marcelo Fernan,
this Court absolved a garnishee from any liability for prompt compliance with its
order for the delivery of the garnished funds. The rationale behind such ruling
deserves emphasis in the present case:
But while partial restitution is warranted in favor of NPC, we find that the Appellate
Court erred in not absolving MERALCO, the garnishee, from its obligations to NPC
with respect to the payment of ECI of P 1,114,543.23, thus in effect subjecting
MERALCO to double liability. MERALCO should not have been faulted for its prompt
obedience to a writ of garnishment. Unless there are compelling reasons such as: a
defect on the face of the writ or actual knowledge on the part of the garnishee of
lack of entitlement on the part of the garnisher, it is not incumbent upon the
garnishee to inquire or to judge for itself whether or not the order for the advance
execution of a judgment is valid.
Section 8, Rule 57 of the Rules of Court provides:
Page44
absence of a demand to deliver made by the latter, before the expiration of the fiveday period given to reply to the Notice of Garnishment, without any reply having
been given thereto nor any prior authorization from its depositor, PVTA and even if
the court's order of January 27, 1970 did not require the bank to immediately deliver
the garnished amount constitutes such lack of prudence as to make it answerable
jointly and severally with the plaintiff for the wrongful release of the money from the
deposit of the PVTA. The respondent Judge in his controverted Order sustained
such contention and blamed RCBC for the supposed "hasty release of the amount
from the deposit of the PVTA without giving PVTA a chance to take proper steps by
informing it of the action being taken against its deposit, thereby observing with
prudence the five-day period given to it by the sheriff." [Rollo, p. 81.] chanrobles
virtual law library
Garnishment is considered as a specie of attachment for reaching credits belonging

to the judgment debtor and owing to him from a stranger to the litigation. Under the
above-cited rule, the garnishee [the third person] is obliged to deliver the credits,
etc. to the proper officer issuing the writ and "the law exempts from liability the
person having in his possession or under his control any credits or other personal
property belonging to the defendant, ..., if such property be delivered or
transferred, ..., to the clerk, sheriff, or other officer of the court in which the action is
pending. [3 Moran, Comments on the Rules of Court 34 (1970 ed.)]
Applying the foregoing to the case at bar, MERALCO, as garnishee, after having
been judicially compelled to pay the amount of the judgment represented by funds in
its possession belonging to the judgment debtor or NPC, should be released from all
responsibilities over such amount after delivery thereof to the sheriff. The reason for
the rule is self-evident. To expose garnishees to risks for obeying court orders and
processes would only undermine the administration of justice. [Emphasis supplied.]
The aforequoted ruling thus bolsters RCBC's stand that its immediate compliance
with the lower court's order should not have been met with the harsh penalty of joint
and several liability. Nor can its liability to reimburse PVTA of the amount delivered
in check be premised upon the subsequent declaration of nullity of the order of
delivery. As correctly pointed out by the petitioner:
xxx
xxx
xxxchanrobles virtual law library
That the respondent Judge, after his Order was enforced, saw fit to recall said Order
and decree its nullity, should not prejudice one who dutifully abided by it, the
presumption being that judicial orders are valid and issued in the regular
performance of the duties of the Court" [Section 5(m) Rule 131, Revised Rules of
Court]. This should operate with greater force in relation to the herein petitioner
which, not being a party in the case, was just called upon to perform an act in
accordance with a judicial flat. A contrary view will invite disrespect for the majesty
of the law and induce reluctance in complying with judicial orders out of fear that
said orders might be subsequently invalidated and thereby expose one to suffer
some penalty or prejudice for obeying the same. And this is what will happen were
the controversial orders to be sustained. We need not underscore the danger of this
as a precedent.chanroblesvirtualawlibrary chanrobles virtual law library
xxx
xxx
xxxchanrobles virtual law library
[ Brief for the Petitioner, Rollo, p. 212; Emphasis supplied.]

From the foregoing, it may be concluded that the charge of breach of trust and/or
dereliction of duty as well as lack of prudence in effecting the immediate payment of
the garnished amount is totally unfounded. Upon receipt of the Notice of
Garnishment, RCBC duly informed PVTA thereof to enable the latter to take the
necessary steps for its protection. However, right on the very next day after its
receipt of such notice, RCBC was already served with the Order requiring delivery of
the garnished amount. Confronted as it was with a mandatory directive,
disobedience to which exposed it to a contempt order, it had no choice but to
comply.chanroblesvirtualawlibrary chanrobles virtual law library
The respondent Judge nevertheless held that the liability of RCBC for the
reimbursement of the garnished amount is predicated on the ruling of the Supreme
Court in the case of Commissioner of Public Highways v. Hon. San Diego [G.R. No.
L-30098, February 18, 1970, 31 SCRA 616] which he found practically on all fours
with the case at bar.chanroblesvirtualawlibrary chanrobles virtual law library
The Court disagrees.chanroblesvirtualawlibrary chanrobles virtual law library
The said case which reiterated the rule in Republic v. Palacio [G.R. No. L-20322,
May 29, 1968, 23 SCRA 899] that government funds and properties may not be
seized under writs of execution or garnishment to satisfy such judgment is definitely
distinguishable from the case at bar.chanroblesvirtualawlibrary chanrobles virtual
law library
In the Commissioner of Public Highways case [supra], the bank which precipitately
allowed the garnishment and delivery of the funds failed to inform its depositor
thereof, charged as it was with knowledge of the nullity of the writ of execution and
notice of garnishment against government funds. In the aforementioned case, the
funds involved belonged to the Bureau of Public Highways, which being an arm of
the executive branch of the government, has no personality of its own separate from
the National Government. The funds involved were government funds covered by
the rule on exemption from execution.chanroblesvirtualawlibrary chanrobles virtual
law library
This brings us to the first issue raised by the petitioner: Are the PVTA funds public
funds exempt from garnishment? The Court holds that they are
not.chanroblesvirtualawlibrary chanrobles virtual law library
Page44
Effect of attachment of debts and credits.-All persons having in their possession or

under their control any credits or other similar personal property belonging to the
party against whom attachment is issued, or owing any debts to the same, all the
time of service upon them of a copy of the order of attachment and notice as
provided in the last preceding section, shall be liable to the applicant for the amount
of such credits, debts or other property, until the attachment be discharged, or any
judgment recovered by him be satisfied, unless such property be delivered or
transferred, or such debts be paid, to the clerk, sheriff or other proper officer of the
court issuing the attachment.
Among the specific powers vested in the PVTA are: 1) to buy Virginia tobacco grown
in the Philippines for resale to local bona fide tobacco manufacturers and leaf
tobacco dealers [Section 4(b), R.A. No. 2265]; 2) to contracts of any kind as may be
necessary or incidental to the attainment of its purpose with any person, firm or
corporation, with the Government of the Philippines or with any foreign government,
subject to existing laws [Section 4(h), R.A. No. 22651; and 3) generally, to exercise
all the powers of a corporation under the Corporation Law, insofar as they are not
inconsistent with the provisions of this Act [Section 4(k), R.A. No. 2265.] chanrobles
virtual law library
From the foregoing, it is clear that PVTA has been endowed with a personality
distinct and separate from the government which owns and controls it. Accordingly,
this Court has heretofore declared that the funds of the PVTA can be garnished
since "funds of public corporation which can sue and be sued were not exempt from
garnishment" [Philippine National Bank v. Pabalan, G.R. No. L-33112, June 15,
1978, 83 SCRA 595, 598.] chanrobles virtual law library
In National Shipyards and Steel Corp. v. CIR [G.R. No. L-17874, August 31, 1964, 8
SCRA 781], this Court held that the allegation to the effect that the funds of the
NASSCO are public funds of the government and that as such, the same may not
be garnished, attached or levied upon is untenable for, as a government-owned or
controlled corporation, it has a personality of its own, distinct and separate from that
of the government. This court has likewise ruled that other govemment-owned and
controlled corporations like National Coal Company, the National Waterworks and
Sewerage Authority (NAWASA), the National Coconut Corporation (NACOCO) the
National Rice and Corn Corporation (NARIC) and the Price Stabilization Council
(PRISCO) which possess attributes similar to those of the PVTA are clothed with
personalities of their own, separate and distinct from that of the government
[National Coal Company v. Collector of Internal Revenue, 46 Phil. 583 (1924);
Bacani and Matoto v. National Coconut Corporation et al., 100 Phil. 471 (1956);
Reotan v. National Rice & Corn Corporation, G.R. No. L-16223, February 27, 1962,
4 SCRA 418.] The rationale in vesting it with a separate personality is not difficult to
find. It is well-settled that when the government enters into commercial business, it
abandons its sovereign capacity and is to be treated like any other corporation
[Manila Hotel Employees' Association v. Manila Hotel Co. and CIR, 73 Phil. 734
(1941).] chanrobles virtual law library
Accordingly, as emphatically expressed by this Court in a 1978 decision,

"garnishment was the appropriate remedy for the prevailing party which could
proceed against the funds of a corporate entity even if owned or controlled by the
government" inasmuch as "by engaging in a particular business thru the
instrumentality of a corporation, the government divests itself pro hac vice of its
sovereign character, so as to render the corporation subject to the rules of law
governing private corporations" [Philippine National Bank v. CIR, G.R No. L-32667,
January 31, 1978, 81 SCRA 314, 319.] chanrobles virtual law library
Furthermore, in the case of PVTA, the law has expressly allowed it funds to answer
for various obligations, including the one sought to be enforced by plaintiff BADOC
in this case (i.e. for unpaid deliveries of tobacco). Republic Act No. 4155, which
discounted the erstwhile support given by the Central Bank to PVTA, established in
lieu thereof a "Tobacco Fund" to be collected from the proceeds of fifty per centum
of the tariff or taxes of imported leaf tobacco and also fifty per centum of the specific
taxes on locally manufactured Virginia type cigarettes.chanroblesvirtualawlibrary
Section 5 of Republic Act No. 4155 provides that this fund shall be expended for the
support or payment of:
1.
Indebtedness of the Philippine Virginia Tobacco Administration and the
former Agricultural Credit and Cooperative Financing Administration to FACOMAS
and farmers and planters regarding Virginia tobacco transactions in previous years;
2.
Indebtedness of the Philippine Virginia Tobacco Administration and the
former Agricultural Credit and Cooperative Financing Administration to the Central
Bank in gradual amounts regarding Virginia tobacco transactions in previous years;
3.
Continuation of the Philippine Virginia Tobacco Administration support and
subsidy operations including the purchase of locally grown and produced Virginia
leaf tobacco, at the present support and subsidy prices, its procurement, redrying,
handling, warehousing and disposal thereof, and the redrying plants trading within
the purview of their contracts; chanrobles virtual law library
4.
Operational, office and field expenses, and the establishment of the
Tobacco Research and Grading Institute. [Emphasis supplied.]
Inasmuch as the Tobacco Fund, a special fund, was by law, earmarked specifically
to answer obligations incurred by PVTA in connection with its proprietary and
commercial operations authorized under the law, it follows that said funds may be
proceeded against by ordinary judicial processes such as execution and
garnishment. If such funds cannot be executed upon or garnished pursuant to a
Page44
Republic Act No. 2265 created the PVTA as an ordinary corporation with all the
attributes of a corporate entity subject to the provisions of the Corporation Law.
Hence, it possesses the power "to sue and be sued" and "to acquire and hold such
assets and incur such liabilities resulting directly from operations authorized by the
provisions of this Act or as essential to the proper conduct of such operations."
[Section 3, Republic Act No. 2265.] chanrobles virtual law library
judgment sustaining the liability of the PVTA to answer for its obligations, then the
purpose of the law in creating the PVTA would be defeated. For it was declared to
be a national policy, with respect to the local Virginia tobacco industry, to encourage
the production of local Virginia tobacco of the qualities needed and in quantities
marketable in both domestic and foreign markets, to establish this industry on an
efficient and economic basis, and to create a climate conducive to local cigarette
manufacture of the qualities desired by the consuming public, blending imported and
native Virginia leaf tobacco to improve the quality of locally manufactured cigarettes
[Section 1, Republic Act No. 4155.] chanrobles virtual law library
questioned Order of the respondent Judge ordering the petitioner, jointly and
severally with BADOC, to restore the account of PVTA are modified
accordingly.chanroblesvirtualawlibrary chanrobles virtual law library
The Commissioner of Public Highways case is thus distinguishable from the case at
bar. In said case, the Philippine National Bank (PNB) as custodian of funds
belonging to the Bureau of Public Highways, an agency of the government, was
chargeable with knowledge of the exemption of such government funds from
execution and garnishment pursuant to the elementary precept that public funds
cannot be disbursed without the appropriation required by law. On the other hand,
the same cannot hold true for RCBC as the funds entrusted to its custody, which
belong to a public corporation, are in the nature of private funds insofar as their
susceptibility to garnishment is concerned. Hence, RCBC cannot be charged with
lack of prudence for immediately complying with the order to deliver the garnished
amount. Since the funds in its custody are precisely meant for the payment of
lawfully-incurred obligations, RCBC cannot rightfully resist a court order to enforce
payment of such obligations. That such court order subsequently turned out to have
been erroneously issued should not operate to the detriment of one who complied
with its clear order.chanroblesvirtualawlibrary chanrobles virtual law library
FIRST DIVISION
Finally, it is contended that RCBC was bound to inquire into the legality and
propriety of the Writ of Execution and Notice of Garnishment issued against the
funds of the PVTA deposited with said bank. But the bank was in no position to
question the legality of the garnishment since it was not even a party to the case. As
correctly pointed out by the petitioner, it had neither the personality nor the interest
to assail or controvert the orders of respondent Judge. It had no choice but to obey
the same inasmuch as it had no standing at all to impugn the validity of the partial
judgment rendered in favor of the plaintiff or of the processes issued in execution of
such judgment.chanroblesvirtualawlibrary chanrobles virtual law library
Petitioner Chevron Philippines, Inc.4 is engaged in the business of importing,

distributing and marketing of petroleum products in the Philippines. In 1996, the
importations subject of this case arrived and were covered by eight bills of lading,
summarized as follows:
WHEREFORE, the petition is hereby granted and the petitioner is ABSOLVED from
any liability to respondent PVTA for reimbursement of the funds garnished. The
TARIFF AND CUSTOMS CODE
[G.R. NO. 178759 : August 11, 2008]

CHEVRON PHILIPPINES, INC., Petitioner, v. COMMISSIONER OF THE BUREAU
OF CUSTOMS, Respondent.
DECISION
CORONA, J.:
This is a Petition for Review on Certiorari 1 of the decision2 and resolution3 of the
Court of Tax Appeals (CTA) en banc dated March 1, 2007 and July 5, 2007,
respectively, in CTA EB Nos. 121 and 122 which reversed the decision of the CTA
First Division dated April 5, 2005 in CTA Case No. 6358.
PRODUCT
ARRIVAL DATE
VESSEL
66,229,960 liters
Nan Hai Crude Oil
3/8/1996
Ex MT
Bona Spray
Page44
RCBC cannot therefore be compelled to make restitution solidarily with the plaintiff
BADOC. Plaintiff BADOC alone was responsible for the issuance of the Writ of
Execution and Order of Payment and so, the plaintiff alone should bear the
consequences of a subsequent annulment of such court orders; hence, only the
plaintiff can be ordered to restore the account of the
PVTA.chanroblesvirtualawlibrary chanrobles virtual law library
SO ORDERED.
6,990,712 liters
Reformate
ARRIVAL DATE
3/18/1996
IED
Ex MT
Orient Tiger
IEIRD
606-96
16,651,177 liters
FCCU Feed Stock
66,229,960 liters
3/21/1996
Nan Hai Crude Oil
Ex MT
Probo Boaning
3/8/1996
3/12/1996
236,317,862 liters
Oman/Dubai Crude Oil
5/10/1996
3/26/1996
604-96
Ex MT
Violet
6,990,712 liters
Reformate
51,878,114 liters
3/18/1996
Ex MT
3/26/1996
Arab Crude Oil
5/10/1996
4/10/1996
605-96
Crown Jewel5
16,651,177 liters
The shipments were unloaded from the carrying vessels onto petitioner's oil tanks
over a period of three days from the date of their arrival. Subsequently, the import
entry declarations (IEDs) were filed and 90% of the total customs duties were paid.
The import entry and internal revenue declarations (IEIRDs) of the shipments were
thereafter filed on the following dates:
FCCU Feed Stock

3/21/1996
3/26/1996
5/10/1996
NO.
600-96
PRODUCT
Page44
ENTRY
602-96
603-96
236,317,862 liters
Oman/Dubai Crude Oil
3/26/1996
3/28/1996
5/10/1996
818-96
51,878,114 liters
Arab Crude Oil
4/10/1996
4/10/1996
6/21/1996
The importations were appraised at a duty rate of 3% as provided under RA 81806
and petitioner paid the import duties amounting to P316,499,021.7 Prior to the
effectivity of RA 8180 on April 16, 1996, the rate of duty on imported crude oil was
10%.
Three years later, then Finance Secretary Edgardo Espiritu received a letter (with
annexes) dated June 10, 1999 from a certain Alfonso A. Orioste denouncing the
deliberate concealment, manipulation and scheme employed by petitioner and
Pilipinas Shell in the importation of crude oil, thereby resulting in huge losses of
revenue for the government. This letter was endorsed to the Bureau of Customs
(BOC) for investigation on July 19, 1999.8
On January 28, 2000, petitioner received a subpoena duces tecum/ad testificandum
from Conrado M. Unlayao, Chief of the Investigation and Prosecution Division,
Customs Intelligence and Investigation Service (IPD-CIIS) of the BOC, to submit
pertinent documents in connection with the subject shipments pursuant to the
investigation he was conducting thereon. It appeared, however, that the Legal
Division of the BOC was also carrying out a separate investigation. Atty. Roberto
Madrid (of the latter office) had gone to petitioner's Batangas Refinery and
requested the submission of information and documents on the same shipments.
This prompted petitioner to seek the creation of a unified team to exclusively handle
the investigation.9
On August 1, 2000, petitioner received from the District Collector of Customs of the
Port of Batangas (District Collector) a demand letter requiring the immediate
settlement of the amount of P73,535,830 representing the difference between the
10% and 3% tariff rates on the shipments. In response, petitioner wrote the District
Collector to inform him of the pending request for the creation of a unified team with
the exclusive authority to investigate the matter. Furthermore, petitioner objected to
the demand for payment of customs duties using the 10% duty rate and reiterated
its position that the 3% tariff rate should instead be applied. It likewise raised the
defense of prescription against the assessment pursuant to Section 1603 of the
Tariff and Customs Code (TCC). Thus, it prayed that the assessment for deficiency
customs duties be cancelled and the notice of demand be withdrawn.10
In a letter petitioner received on October 12, 2000, respondent Commissioner of the
BOC11 stated that it was the IPD-CIIS which was authorized to handle the
investigation, to the exclusion of the Legal Division and the District Collector.12
The IPD-CIIS, through Special Investigator II Domingo B. Almeda and Special
Investigator III Nemesio C. Magno, Jr., issued a finding dated February 2, 2001 that
the import entries were filed beyond the 30-day non-extendible period prescribed
under Section 1301 of the TCC. They concluded that the importations were already
considered abandoned in favor of the government. They also found that fraud was
committed by petitioner in collusion with the former District Collector.13
Thereafter, respondent14 wrote petitioner on October 29, 2001 informing it of the
findings of irregularity in the filing and acceptance of the import entries beyond the
period required by customs law and in the release of the shipments after the same
had already been deemed abandoned in favor of the government. Petitioner was
ordered to pay the amount of P1,180,170,769.21 representing the total dutiable
value of the importations.15
This prompted petitioner to file a Petition for Review in the CTA First Division on
November 28, 2001, asking for the reversal of the decision of respondent.16
In a decision promulgated on April 5, 2005, the CTA First Division ruled that
respondent was correct when he affirmed the findings of the IPD-CIIS on the
existence of fraud. Therefore, prescription was not applicable. Ironically, however, it
also held that petitioner did not abandon the shipments. The shipments should be
subject to the 10% rate prevailing at the time of their withdrawal from the custody of
Page44
601-96
Petitioner sought reconsideration of the April 5, 2005 decision while respondent

likewise filed his motion for partial reconsideration. Both motions were denied in a
resolution dated September 9, 2005.18
After both respondent and petitioner had filed their petitions for review with the CTA
en banc, docketed as CTA EB No. 121 and CTA EB No. 122, respectively, the
petitions were consolidated.
aircraft either (a) by the importer, being holder of the bill of lading, (b) by a duly
licensed customs broker acting under authority from a holder of the bill or (c) by a
person duly empowered to act as agent or attorney-in-fact for each holder:
Provided, That where the entry is filed by a party other than the importer, said
importer shall himself be required to declare under oath and under the penalties of
falsification or perjury that the declarations and statements contained in the entry
are true and correct: Provided, further, That such statements under oath shall
constitute prima facie evidence of knowledge and consent of the importer of
violation against applicable provisions of this Code when the importation is found to
be unlawful. (Emphasis supplied)cralawlibrary
In a decision dated March 1, 2007, the CTA en banc held that it was the filing of the
IEIRDs that constituted entry under the TCC. Since these were filed beyond the 30day period, they were not seasonably "entered" in accordance with Section 1301 in
relation to Section 205 of the TCC. Consequently, they were deemed abandoned
under Sections 1801 and 1802 of the TCC. It also ruled that the notice required
under Customs Memorandum Order No. 15-94 (CMO 15-94) was not necessary in
view of petitioner's actual knowledge of the arrival of the shipments. It likewise
agreed with the CTA Division's finding that petitioner committed fraud when it failed
to file the IEIRD within the 30-day period with the intent to "evade the higher rate."
Thus, petitioner was ordered to pay respondent the total dutiable value of the oil
shipments amounting to P893,781,768.21.19
Section 1801. Abandonment, Kinds and Effect of. - An imported article is deemed
abandoned under any of the following circumstances:
Hence this petition.
Petitioner argues that the IED is an entry contemplated by these sections. According
to it, the congressional deliberations on RA 7651 which amended the TCC to
provide a non-extendible 30-day period show the legislative intent to expedite the
procedure for declaring importations as abandoned. Filing an entry serves as notice
to the BOC of the importer's willingness to complete the importation and to pay the
proper taxes, duties and fees. Conversely, the non-filing of the entry within the
period connotes the importer's disinterest and enables the BOC to consider the
goods as abandoned. Since the IED is a BOC form that serves as basis for payment
of advance duties on importation as required under PD 1853,20 it suffices as an
entry under Sections 1301 and 1801 of the TCC.21
There are three issues for our resolution:

1. whether "entry" under Section 1301 in relation to Section 1801 of the TCC refers
to the IED or the IEIRD;
2. whether fraud was perpetrated by petitioner and
3. whether the importations can be considered abandoned under Section 1801.
"ENTRY" IN SECTIONS 1301 AND 1801 OF THE
TCC REFERS TO BOTH THE IED AND IEIRD
Under Section 1301 of the TCC, imported articles must be entered within a nonextendible period of 30 days from the date of discharge of the last package from a
vessel. Otherwise, the BOC will deem the imported goods impliedly abandoned
under Section 1801. Thus:
Section 1301. Persons Authorized to Make Import Entry. - Imported articles must be
entered in the customhouse at the port of entry within thirty (30) days, which shall
not be extendible from date of discharge of the last package from the vessel or
xxx xxx xxx

b. When the owner, importer, consignee or interested party after due notice, fails to
file an entry within thirty (30) days, which shall not be extendible, from the date of
discharge of the last package from the vessel or aircraft, or having filed such entry,
fails to claim his importation within fifteen (15) days, which shall not likewise be
extendible, from the date of posting of the notice to claim such importation.
We disagree.
The term "entry" in customs law has a triple meaning. It means (1) the documents
filed at the customs house; (2) the submission and acceptance of the documents
and (3) the procedure of passing goods through the customs house.22
The IED serves as basis for the payment of advance duties on importations
whereas the IEIRD evidences the final payment of duties and taxes. The question
is: was the filing of the IED sufficient to constitute "entry" under the TCC?cra
lawlibrary
Page44
the BOC pursuant to Sections 204, 205 and 1408 of the TCC. Petitioner was
therefore liable for deficiency customs duties in the amount of P105,899,569.05.17
Section 205. Entry, or Withdrawal from Warehouse, for Consumption. - Imported

articles shall be deemed "entered" in the Philippines for consumption when the
specified entry form is properly filed and accepted, together with any related
documents regained by the provisions of this Code and/or regulations to be filed
with such form at the time of entry, at the port or station by the customs official
designated to receive such entry papers and any duties, taxes, fees and/or other
lawful charges required to be paid at the time of making such entry have been paid
or secured to be paid with the customs official designated to receive such monies,
provided that the article has previously arrived within the limits of the port of entry.
xxx xxx xxx
Clearly, the operative act that constitutes "entry" of the imported articles at the port
of entry is the filing and acceptance of the "specified entry form" together with the
other documents required by law and regulations. There is no dispute that the
"specified entry form" refers to the IEIRD. Section 205 defines the precise moment
when the imported articles are deemed "entered."
Moreover, in the old case of Go Ho Lim v. The Insular Collector of Customs,23 we
ruled that the word "entry" refers to the regular consumption entry (which, in our
current terminology, is the IEIRD) and not the provisional entry (the IED):
It is disputed by the parties whether the application for the special permit. Exhibit A,
containing the misdeclared weight of the 800 cases of eggs, comes within the
meaning of the word "entry" used in section 1290 of the Revised Administrative
Code, or said word "entry" means only the "original entry and importer's
declaration." The court below reversed the decision of the Insular Collector of
Customs on the ground that the provisions of section 1290 of the Revised
Administrative Code refer to the regular consumption entry and not to a provisional
declaration made in an application for a special permit, as the one filed by the
appellee, to remove the cases of eggs from the customhouse.
This court is of the opinion that certainly the application, Exhibit A, cannot be
considered as a final regular entry of the weight of the 800 cases of eggs imported
by the appellee, taking into account the fact that said application sought the delivery
of said 800 cases of eggs "from the pier after examination," and the special permit
granted, Exhibit E, provided for "delivery to be made after examination by the
appraiser." All the foregoing, together with the circumstance that the appellee had to
file the regular consumption entry which he bound himself to do, as shown by the
application, Exhibit A, logically lead to the conclusion that the declaration of the
weight of the 800 cases of eggs made in said application, is merely a provisional
entry, and as it is subject to verification by the customhouse examiner, it cannot be
considered fraudulent for the purpose of imposing a surcharge of customs duties
upon the importer.24 (Emphasis supplied)cralawlibrary
The congressional deliberations on House Bill No. 4502 which was enacted as RA
765125 amending the TCC lay down the policy considerations for the nonextendible 30-day period for the filing of the import entry in Section 1301:
MR. JAVIER (E.).
xxx xxx xxx
Under Sections 121026 and 1301 of the [TCC], Mr. Speaker, import entries for
imported articles must be filed within five days from the date of discharge of the last
package from the vessel. The five-day period, however, Mr. Speaker, is subject to
an indefinite extension at the discretion of the collector of customs, which more
often than not stretches to more than three months, thus resulting in considerable
delay in the payment of duties and taxes.
This bill, Mr. Speaker, seeks to amend Sections 1210 and 1301 by extending the
five-day period to thirty days, which will no longer be extendible, within which import
entries must be filed for imported articles. Moreover, to give the importer reasonable
time, the bill prescribes a period of fifteen days which may not be extended within
which to claim his importation from the time he filed the import entry. Failure to file
an import entry or to claim the imported articles within the period prescribed under
the proposed measure, such imported articles will be treated as abandoned and
declared as ipso facto the property of the government to be sold at public auction.
Under this new procedure, Mr. Speaker, importers will be constrained under the
threat of having their importation declared as abandoned and forfeited in favor of the
government to file import entries and claim their importation as early as possible
thus accelerating the collection of duties and taxes. But providing for a nonextendible period of 30 days within which to file an import entry, an appeal of fifteen
days within which to claim the imported article, the bill has removed the discretion of
the collector of Customs to extend such period thus minimizing opportunity for graft.
Moreover, Mr. Speaker, with these non-extendible periods coupled with the threat of
declaration of abandonment of imported articles, both the [BOC] and the importer
are under pressure to work for the early release of cargo, thus decongesting all
ports of entry and facilitating the release of goods and thereby promoting trade and
commerce.
Finally, Mr. Speaker, the speedy release of imported cargo coupled with the
sanctions of declaration of abandonment and forfeiture will minimize the pilferage of
imported cargo at the ports of entry.27 (Emphasis supplied)cralawlibrary
Page44
The law itself, in Section 205, defines the meaning of the technical term "entered" as
used in the TCC:
Taxes are the lifeblood of the nation. Tariff and customs duties are taxes constituting
a significant portion of the public revenue which enables the government to carry out
the functions it has been ordained to perform for the welfare of its constituents.29
Hence, their prompt and certain availability is an imperative need30 and they must
be collected without unnecessary hindrance.31 Clearly, and perhaps for that reason
alone, the submission of the IEIRD cannot be left to the exclusive discretion or whim
of the importer.
We hold, therefore, that under the relevant provisions of the TCC,32 both the IED
and IEIRD should be filed within 30 days from the date of discharge of the last
package from the vessel or aircraft. As a result, the position of petitioner, that the
import entry to be filed within the 30-day period refers to the IED and not the IEIRD,
has no legal basis.
THE EXISTENCE OF FRAUD
WAS ESTABLISHED
Petitioner also denies the commission of fraud. It maintains that it had no
predetermined and deliberate intention not to comply with the 30-day period in order
to evade the payment of the 10% rate of duty. Its sole reason for the delayed filing of
IEIRDs was allegedly due to the late arrival of the original copies of the bills of
lading and commercial invoices which its suppliers could send only after the latter
computed the average monthly price of crude oil based on worldwide trading. It
claims that the BOC required these original documents to be attached to the IEIRD.
Petitioner's arguments lack merit.
Fraud, in its general sense, "is deemed to comprise anything calculated to deceive,
including all acts, omissions, and concealment involving a breach of legal or
equitable duty, trust or confidence justly reposed, resulting in the damage to
another, or by which an undue and unconscionable advantage is taken of
another."33 It is a question of fact and the circumstances constituting it must be
alleged and proved in the court below.34 The finding of the lower court as to the
existence or non-existence of fraud is final and cannot be reviewed here unless
clearly shown to be erroneous.35 In this case, fraud was established by the IPD-
CIIS of the BOC. Both the CTA First Division and en banc agreed completely with
this finding.
The evidence showed that petitioner bided its time to file the IEIRD so as to avail of
a lower rate of duty. (At or about the time these developments were taking place, the
bill lowering the duty on these oil products from 10% to 3% was already under
intense discussion in Congress.) There was a calculated and preconceived course
of action adopted by petitioner purposely to evade the payment of the correct
customs duties then prevailing. This was done in collusion with the former District
Collector, who allowed the acceptance of the late IEIRDs and the collection of duties
using the 3% declared rate. A clear indication of petitioner's deliberate intention to
defraud the government was its non-disclosure of discrepancies on the duties
declared in the IEDs (10%) and IEIRDs (3%) covering the shipments.36
It was not by sheer coincidence that, by the time petitioner filed its IEIRDs way
beyond the mandated period, the rate of duty had already been reduced from 10%
to 3%. Both the CTA Division and en banc found the explanation of petitioner (for its
delay in filing) untruthful. The bills of lading and corresponding invoices covering the
shipments were accomplished immediately after loading onto the vessels.37
Notably, the memorandum of a district collector cited by petitioner as basis for its
assertion that original copies were required by the BOC was dated October 30,
2002.38 There is no showing that in 1996, the time pertinent in this case, this was in
fact a requirement.
More importantly, the absence of supporting documents should not have prevented
petitioner from complying with the mandatory and non-extendible period, specially
since the consequences of delayed filing were extremely serious. In addition, these
supporting documents were not conclusive on the government.39 If this kind of
excuse were to be accepted, then the collection of customs duties would be at the
mercy of importers.
Hence, due to the presence of fraud, the prescriptive period of the finality of
liquidation under Section 1603 was inapplicable:
Section 1603. Finality of Liquidation. - When articles have been entered and passed
free of duty or final adjustments of duties made, with subsequent delivery, such
entry and passage free of duty or settlements of duties will, after the expiration of
one (1) year, from the date of the final payment of duties, in the absence of fraud or
protest or compliance audit pursuant to the provisions of this Code, be final and
conclusive upon all parties, unless the liquidation of the import entry was merely
tentative.40
THE IMPORTATIONS WERE ABANDONED
IN FAVOR OF THE GOVERNMENT
Page44
The filing of the IEIRDs has several important purposes: to ascertain the value of
the imported articles, collect the correct and final amount of customs duties and
avoid smuggling of goods into the country.28 Petitioner's interpretation would have
an absurd implication: the 30-day period applies only to the IED while no deadline is
specified for the submission of the IEIRD. Strong issues of public policy militate
against petitioner's interpretation. It is the IEIRD which accompanies the final
payment of duties and taxes. These duties and taxes must be paid in full before the
BOC can allow the release of the imported articles from its custody.
The law is clear and explicit. It gives a non-extendible period of 30 days for the
importer to file the entry which we have already ruled pertains to both the IED and
IEIRD. Thus under Section 1801 in relation to Section 1301, when the importer fails
to file the entry within the said period, he "shall be deemed to have renounced all his
interests and property rights" to the importations and these shall be considered
impliedly abandoned in favor of the government:
Section 1801. Abandonment, Kinds and Effect of. xxx xxx xxx
discharge of the last package from the vessel or aircraft xxxx
From the wording of the amendment, RA 7651 no longer requires that there be other
acts or omissions where an intent to abandon can be inferred. It is enough that the
importer fails to file the required import entries within the reglementary period. The
lawmakers could have easily retained the words used in the old law (with respect to
the intention to abandon) but opted to omit them.43 It would be error on our part to
continue applying the old law despite the clear changes introduced by the
amendment.
Any person who abandons an article or who fails to claim his importation as
provided for in the preceding paragraph shall be deemed to have renounced all his
interests and property rights therein.
NOTICE WAS NOT NECESSARY UNDER

THE CIRCUMSTANCES OF THIS CASE
According to petitioner, the shipments should not be considered impliedly

abandoned because none of its overt acts (filing of the IEDs and paying advance
duties) revealed any intention to abandon the importations.41
Petitioner also avers that the importations could not be deemed impliedly
abandoned because respondent did not give it any notice as required by Section
1801 of the TCC:
Unfortunately for petitioner, it was the law itself which considered the importation
abandoned when it failed to file the IEIRDs within the allotted time. Before it was
amended, Section 1801 was worded as follows:
Sec. 1801. Abandonment, Kinds and Effect of. - An imported article is deemed
xxx xxx xxx
Sec. 1801. Abandonment, Kinds and Effect of. - Abandonment is express when it is
made direct to the Collector by the interested party in writing and it is implied when,
from the action or omission of the interested party, an intention to abandon can be
clearly inferred. The failure of any interested party to file the import entry within
fifteen days or any extension thereof from the discharge of the vessel or aircraft,
shall be implied abandonment. An implied abandonment shall not be effective until
the article is declared by the Collector to have been abandoned after notice thereof
is given to the interested party as in seizure cases.
Any person who abandons an imported article renounces all his interests and
property rights therein.42
discharge of the last package from the vessel or aircraftxxx (Emphasis
supplied)cralawlibrary
Furthermore, it claims that notice and abandonment proceedings were required
under the BOC's guidelines on abandonment (CMO 15-94):
SUBJECT: REVISED GUIDELINES ON ABANDONMENT
xxx xxx xxx
After it was amended by RA 7651, there was an indubitable shift in language as to

what could be considered implied abandonment:
Section 1801. Abandonment, Kinds and Effect of. - An imported article is deemed
B. ADMINISTRATIVE PROVISIONS
xxx xxx xxx
B.2.1 The owner, importer, consignee, interested party or his authorized

broker/representative, after due notice, fails to file an entry within a non-extendible
Page44
B.2 Implied abandonment occurs when:

A. When the owner, importer, consignee of the imported article expressly signifies in
writing to the Collector of Customs his intention to abandon; or
period of thirty (30) days from the date of discharge of last package from the
carrying vessel or aircraft.
xxx xxx xxx
Due notice to the consignee/importer/owner/interested party shall be by means of
posting of a notice to file entry at the Bulletin Board seven (7) days prior to the lapse
of the thirty (30) day period by the Entry Processing Division listing the consignees
who/which have not filed the required import entries as of the date of the posting of
the notice and notifying them of the arrival of their shipment, the name of the
carrying vessel/aircraft, Voy. No. Reg. No. and the respective B/L No./AWB No., with
a warning, as shown by the attached form, entitled: "URGENT NOTICE TO FILE
ENTRY" which is attached hereto as Annex A and made an integral part of this
Order.
C.2.1.4 The Chief, Data Monitoring Unit, shall submit a weekly report to the
Collector of Customs with a listing by vessel, Registry Number of shipments/
importations which shall be deemed abandoned for failure to file entry within the
prescribed period and with certification that per records available, the thirty (30) day
period within which to file the entry therefore has lapsed without the
consignee/importer filing the entry and that the proper posting of notice as required
has been complied with.
xxx xxx xxx
C.2.1.5 Upon receipt of the report, the Collector of Customs shall issue an order to
the Chief, Auction and Cargo Disposal Division, to dispose of the shipment
enumerated in the report prepared by the Chief, Data Monitoring Unit on the ground
that those are abandoned and ipso facto deemed the property of the Government to
be disposed of as provided by law.
xxx xxx xxx

xxx xxx xxx44 (Emphasis supplied)cralawlibrary
C. OPERATIONAL PROVISIONS
We disagree.
xxx xxx xxx
C.2.1 When no entry is filed

C.2.1.1 Within twenty-four (24) hours after the completion of the boarding
formalities, the Boarding Inspector must submit the manifests to the Bay Service or
similar office so that the Entry Processing Division copy may be put to use by said
office as soon as possible.
C..2.1.2 Within twenty-four (24) hours after the completion of the unloading of the
vessel/aircraft, the Inspector assigned in the vessel/aircraft, shall issue a
certification addressed to the Collector of Customs (Attention: Chief, Entry
Processing Division), copy furnished Chief, Data Monitoring Unit, specifically stating
the time and date of discharge of the last package from the vessel/aircraft assigned
to him. Said certificate must be encoded by Data Monitoring Unit in the Manifest
Clearance System.
C.2.1.3 Twenty-three (23) days after the discharge of the last package from the
carrying vessel/aircraft, the Chief, Data Monitoring Unit shall cause the printing of
the URGENT NOTICE TO FILE ENTRY in accordance with the attached form,
Annex A hereof, sign theURGENT NOTICE and cause its posting continuously for
seven (7) days at the Bulletin Board for the purpose until the lapse of the thirty (30)
day period.
Under the peculiar facts and circumstances of this case, due notice was not
necessary. The shipments arrived in 1996. The IEDs and IEIRDs were also filed in
1996. However, respondent discovered the fraud which attended the importations
and their subsequent release from the BOC's custody only in 1999. Obviously, the
situation here was not an ordinary case of abandonment wherein the importer
merely decided not to claim its importations. Fraud was established against
petitioner; it colluded with the former District Collector. Because of this, the scheme
was concealed from respondent. The government was unable to protect itself until
the plot was uncovered. The government cannot be crippled by the malfeasance of
its officials and employees. Consequently, it was impossible for respondent to
comply with the requirements under the rules.
By the time respondent learned of the anomaly, the entries had already been
belatedly filed and the oil importations released and presumably used or sold. It was
a fait accompli. Under such circumstances, it would have been against all logic to
require respondent to still post an "urgent notice to file entry" before declaring the
shipments abandoned.
The minutes of the deliberations in the House of Representatives Committee on
Ways and Means on the proposed amendment to Section 1801 of the TCC show
that the phrase "after due notice" was intended for owners, consignees, importers of
the shipments who live in rural areas or distant places far from the port where the
shipments are discharged, who are unfamiliar with customs procedures and need
the help and advice of people on how to file an entry:
Page44
C.2 On Implied Abandonment:
xxx
MR. FERIA. 1801, your Honor. The question that was raised here in the last hearing
was whether notice is required to be sent to the importer. And, it has been brought
forward that we can dispense with the notice to the importer because the shipping
companies are notifying the importers on the arrival of their shipment. And, so that
notice is sufficient to . . . sufficient for the claimant or importer to know that the
shipments have already arrived.
Second, your Honor, the legitimate businessmen always have . . . they have their
agents with the shipping companies, and so they should know the arrival of their
shipment.
xxx xxx xxx
HON. QUIMPO. Okay. Comparing the two, Mr. Chairman, I cannot help but notice
that in the substitution now there is a failure to provide the phrase AFTER NOTICE
THEREOF IS GIVEN TO THE INTERESTED PARTY, which was in the original. Now
in the second, in the substitution, it has been deleted. I was first wondering whether
this would be necessary in order to provide for due process. I m thinking of certain
cases, Mr. Chairman, where the owner might not have known. This is now on
implied abandonment not the express abandonment.
xxx xxx xxx
HON. QUIMPO. Because I m thinking, Mr. Chairman. I m thinking of certain
situations where the importer even though, you know, in the normal course of
business sometimes they fail to keep up the date or something to that effect.
interest to file the entry even before the arrival of the shipment. That's why we have
a procedure in the bureau whereby importers can file their entries even before the
shipment arrives in the country.45 (Emphasis supplied)cralawlibrary
xxx
Petitioner, a regular, large-scale and multinational importer of oil and oil products,
fell under the category of a knowledgeable importer which was familiar with the
governing rules and procedures in the release of importations.
Furthermore, notice to petitioner was unnecessary because it was fully aware that
its shipments had in fact arrived in the Port of Batangas. The oil shipments were
discharged from the carriers docked in its private pier or wharf, into its shore tanks.
From then on, petitioner had actual physical possession of its oil importations. It was
thus incumbent upon it to know its obligation to file the IEIRD within the 30-day
period prescribed by law. As a matter of fact, importers such as petitioner can, under
existing rules and regulations, file in advance an import entry even before the arrival
of the shipment to expedite the release of the same. However, it deliberately chose
not to comply with its obligation under Section 1301.
The purpose of posting an "urgent notice to file entry" pursuant to Section B.2.1 of
CMO 15-94 is only to notify the importer of the "arrival of its shipment" and the
details of said shipment. Since it already had knowledge of such, notice was
superfluous. Besides, the entries had already been filed, albeit belatedly. It would
have been oppressive to the government to demand a literal implementation of this
notice requirement.
AN ABANDONED ARTICLE SHALL IPSO FACTO BE DEEMED THE PROPERTY
OF THE GOVERNMENT
THE CHAIRMAN. Sometimes their cargoes get lost.

Section 1802 of the TCC provides:
xxx xxx xxx

MR. PARAYNO. Your Honor, I think as a general rule, five days [extendible] to
another five days is a good enough period of time. But we cannot discount that there
are some consignees of shipments located in rural areas or distant from urban
centers where the ports are located to come to the [BOC] and to ask for help
particularly if a ship consignment is made to an individual who is uninitiated with
customs procedures. He will probably have the problem of coming over to the urban
centers, seek the advice of people on how to file entry. And therefore, the five day
extendible to another five days might really be a tight period for some. But the
majority of our importers are knowledgeable of procedures. And in fact, it is in their
Sec. 1802. Abandonment of Imported Articles. - An abandoned article shall ipso

facto be deemed the property of the Government and shall be disposed of in
accordance with the provisions of this Code. (Emphasis supplied)cralawlibrary
The term "ipso facto" is defined as "by the very act itself" or "by mere act." Probably
a closer translation of the Latin term would be "by the fact itself."46 Thus, there was
no need for any affirmative act on the part of the government with respect to the
abandoned imported articles since the law itself provides that the abandoned
articles shall ipso facto be deemed the property of the government. Ownership over
the abandoned importation was transferred to the government by operation of law
under Section 1802 of the TCC, as amended by RA 7651.
Page44
HON. QUIMPO. So just to, you know . . . anyway, this is only a notice to be sent to
them that they have a cargo there.
A historical review of the pertinent provisions of the TCC dispels any view that is
contrary to the automatic transfer of ownership of the abandoned articles to the
government by the mere fact of an importer's failure to file the required entries within
the mandated period.
Under the former Administrative Code, Act 2711,47 Section 1323 of Article XV
thereof provides:
Sec. 1323. When implied abandonment takes effect - Notice - An implied
abandonment shall not take effect until after the property shall be declared by the
collector to have been abandoned and notice to the party in interest as in seizure
cases.
Thereafter, RA 193748 was enacted. Section 1801 thereof provides:
Sec. 1801. Abandonment, Kinds and Effect of. - Abandonment is express when it is
made direct to the Collector by the interested party in writing and it is implied when,
from the action or omission of the interested party, an intention to abandon can be
clearly inferred. The failure of any interested party to file the import entry within
fifteen days or any extension thereof from the discharge of the vessel or aircraft,
shall be implied abandonment. An implied abandonment shall not be effective until
the article is declared by the Collector to have been abandoned after notice thereof
is given to the interested party as in seizure cases.
Petitioner claims it is arbitrary, harsh and confiscatory to deprive importers of their

property rights just because of their failure to timely file the IEIRD. In effect,
petitioner is challenging the constitutionality of Sections 1801 and 1802 by
contending that said provisions are violative of substantive and procedural due
process. We disallow this collateral attack on a presumably valid law:
We have ruled time and again that the constitutionality or validity of laws, orders, or
such other rules with the force of law cannot be attacked collaterally. There is a legal
presumption of validity of these laws and rules. Unless a law or rule is annulled in a
direct proceeding, the legal presumption of its validity stands.51
Besides,
[a] law is deemed valid unless declared null and void by a competent court; more so
when the issue has not been duly pleaded in the trial court. The question of
constitutionality must be raised at the earliest opportunity. xxx The settled rule is that
courts will not anticipate a question of constitutional law in advance of the necessity
of deciding it.52
Be that as it may, the intent of Congress was unequivocal. Our policy makers
wanted to do away with lengthy proceedings before an importation can be
considered abandoned:
x x x x x x xxx
PD 146449 did not amend the provisions of the TCC on abandonment. The latest
amendment was introduced by Section 1802 of RA 7651 which provides:
Sec. 1802. Abandonment of Imported Articles. - An abandoned article shall ipso
facto be deemed the property of the Government and shall be disposed of in
accordance with the provisions of this Code.
The amendatory law, RA 7651, deleted the requirement that there must be a
declaration by the Collector of Customs that the goods have been abandoned by the
importers and that the latter shall be given notice of said declaration before any
abandonment of the articles becomes effective.
No doubt, by using the term "ipso facto" in Section 1802 as amended by RA 7651,
the legislature removed the need for abandonment proceedings and for a
declaration that the imported articles have been abandoned before ownership
thereof can be transferred to the government.50
MR. PARAYNO. Thank you, Mr. Chairman. The proposed amendment to Section
1801 on the abandonment, kinds and effects. This aimed to facilitate, Mr. Chairman,
the process by which this activity is being acted upon at the moment. The intention,
Mr. Chairman, is for the Customs Administration to be able to maximize the revenue
that can be derived from abandoned goods, and the problem that we are
encountering at the moment is that we have to go through a lengthy process similar
to a seizure proceedings to be able to finally declare the cargo, the abandoned
cargo forfeited in favor of the government and therefore, may be disposed of
pursuant to law. And that therefore, the proposed amendment particularly on the
implied abandonment as framed here will do away with the lengthy process of
seizure proceedings and therefore, enable us to dispose of the shipments through
public auction and other modes of disposal as early as possible.
THE CHAIRMAN. In other words, Commissioner, there ll be no need for a seizure in
the case of abandonment because under the proposed bill it's considered to be
government property.53
x x x xxx xxx
CONCLUSION
Page44
Any person who abandons an imported article renounces all his interests and
property rights therein.
Petitioner's failure to file the required entries within a non-extendible period of thirty
days from date of discharge of the last package from the carrying vessel constituted
implied abandonment of its oil importations. This means that from the precise
moment that the non-extendible thirty-day period lapsed, the abandoned shipments
were deemed (that is, they became) the property of the government. Therefore,
when petitioner withdrew the oil shipments for consumption, it appropriated for itself
properties which already belonged to the government. Accordingly, it became liable
for the total dutiable value of the shipments of imported crude oil amounting to
P1,210,280,789.21 reduced by the total amount of duties paid amounting to
P316,499,021.00 thereby leaving a balance of P893,781,768.21.
DECISION
VELASCO, JR., J.:
This appeal by certiorari under Rule 45 seeks to set aside the August 16, 2007
Decision1 of the Sandiganbayan, finding petitioners guilty beyond reasonable doubt
of violating Section 2203 of the Tariff and Customs Code. Petitioners' motion for
reconsideration was denied by the court through its November 14, 2007
Resolution.2
The Facts
WHEREFORE, the petition is hereby DENIED. Petitioner Chevron Philippines, Inc.

is ORDERED to paythe amount of EIGHT HUNDRED NINETY THREE MILLION
SEVEN HUNDRED EIGHTY ONE THOUSAND SEVEN HUNDRED SIXTY EIGHT
PESOS AND TWENTY-ONE CENTAVOS (P893,781,768.21) plus six percent (6%)
legal interest per annum accruing from the date of promulgation of this decision until
its finality. Upon finality of this decision, the sum so awarded shall bear interest at
the rate of twelve percent (12%) per annum until its full satisfaction.
Costs against petitioner.
SO ORDERED.
Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 180597
November 7, 2008
RAUL BASILIO D. BOAC, RAMON B. GOLONG, CESAR F. BELTRAN, and

ROGER A. BASADRE, petitioners
vs.
PEOPLE OF THE PHILIPPINES, respondent.
Raul Basilio Boac, Ramon Betuin Golong, Cesar Fantone Beltran, Roger Alcantara
Basadre, and Benjamin Castaneda Alfonso are members of the Philippine National
Police (PNP)-Criminal Investigation and Detection Group (CIDG). They hold the
ranks of Police Senior Superintendent, Police Inspector, Senior Police Officer II,
Senior Police Officer II, and Senior Police Officer I, respectively. In an information
dated October 18, 2005, they were charged with violation of Sec. 2203 in relation to
Sec. 3612 of the Tariff and Customs Code, as follows:
That on or before July 27, 2004 or prior or subsequent thereto in Cagayan de Oro
City and within the jurisdiction of this Honorable Court, above-named accused P/SR.
SUPT. RAUL BASILIO DONIDA BOAC, SG-26, P/INSP. RAMON BETUIN
GOLONG, SG-22, SPO2 CESAR FANTONE BELTRAN, SG-17, SPO2 ROGER
ALCANTARA BASADRE, SG-17, SPO1 BENJAMIN CASTANEDA ALFONSO, SG16, all public officers being then members of the Philippine National Police, taking
advantage of their official positions, while committing the offense in relation to office,
with grave abuse thereof, conspiring, confederating and mutually helping one
another, did then and there willfully, unlawfully and criminally, without lawful authority
or delegation from the Collector of Customs, flag down, search and seize three (3)
container vans consigned to Japan Trak surplus (Kakiage Surplus).
CONTRARY TO LAW.3
Boac, Golong, and Beltran pleaded not guilty on January 23, 2006; Basadre entered
the same plea on February 20, 2006. Alfonso remained at large. At pretrial, the
prosecution and defense stipulated that in the evening of July 27, 2004, Golong,
Beltran, Basadre, and Alfonso, upon the order of Boac, but without the authority
from and coordination with the Bureau of Customs (BOC), Collection District X,
Cagayan de Oro City, flagged down three container vans consigned to Kakiage
Surplus. The said vans were allowed to be brought to the warehouse of the
consignee and the actual search was done on July 28, 2004.4
Page44
By the very nature of its functions, the CTA is a highly specialized court specifically
created for the purpose of reviewing tax and customs cases. It is dedicated
exclusively to the study and consideration of revenue-related problems and has
necessarily developed an expertise on the subject. Thus, as a general rule, its
findings and conclusions are accorded great respect and are generally upheld by
this Court, unless there is a clear showing of a reversible error or an improvident
exercise of authority. There is no such showing here.
Dario C. Amolata, license customs broker, testified that he went to see the vans
after learning that they were flagged down by petitioners. The following day, he went
to the warehouse with Melvin Yamit and Richard Godoy of the Enforcement and
Security Services of the BOC, Region X to witness the inspection of the vans. No
contrabands were found upon inspection. Yamit corroborated the testimony of
Amolata.6
For the defense, Boac testified that on July 27, 2004, he was in Manila on leave.
Beltran allegedly informed him that three container vans with contrabands were
released by the BOC; thus, Boac instructed Golong and his team to flag down the
subject vans. After the inspection of the vans and without finding any contraband,
Boac directed Golong to leave the premises. Golong corroborated Boac's testimony,
adding that he and his team did not open the vans on July 27, 2004 because there
were no representatives from the BOC. Beltran testified that in the morning of July
27, 2004, Voltaire Sabelina, an appraiser from the BOC, informed him that three
container vans will be released from the pier around 5:00 p.m. It was alleged that
inside the two of the uninspected containers were television sets from Japan.7
Ruling of the Sandiganbayan
In convicting petitioners, the Sandiganbayan applied the following provisions of the
Tariff and Customs Code:
Section 602. The Bureau of Customs, headed by a Commissioner, has, among
other things, the following general duties, powers and jurisdiction, in respect to the
levy of customs duties, to wit:
xxxx
b. The prevention and suppression of smuggling and other frauds upon the
customs;
xxxx
j. The enforcement of the tariff and customs laws and all other laws, rules and
regulations in relation to the tariff and customs administration.
Sec. 2203. Persons Having Police Authority. - For the enforcement of the tariff and
customs laws, the following persons are authorized to effect searches, seizures and
arrests conformably with the provisions of said laws.
xxxx
d. Officers generally empowered by law to effect arrests and execute processes of
the courts, when acting under the direction of the Collector.
Sec. 3612. Violations of Tariff and Customs Laws and Regulations in General. - Any
person who violates a provision of this Code or regulations pursuant thereto, for
which delinquency no specific penalty is provided, shall be punished by a fine of not
more than one thousand pesos or by imprisonment for not more than one year, or
both. If the offender is an alien, he shall be deported after serving the sentence; and
if the offender is a public official or employee, he shall suffer disqualification to hold
public office, to vote and participate in any public election for ten years.
The anti-graft court ruled that petitioners belong to the category of officers in Sec.
2203(d); thus, they needed a written authority from the Commissioner of Customs or
District Collector in order to conduct searches, seizures and arrests. In this case, the
court said, the prosecution established the lack of said written authority; even
Beltran and Golong admitted that they did not have any authorization to search the
vans. The court stated:
Verily, it was evident in the above-quoted provisions of Sec. 602 and Sec. 2203 of
the Tariff and Customs Code that indeed the Tariff and Customs Code vested upon
the Bureau of Customs the authority to enforce the tariff and customs laws,
including the prevention and suppression of smuggling and other frauds committed
against it.
The PNP-CIDG cannot arrogate upon itself the power which, under the law, is
exclusively vested to the Collector of Customs. The PNP-CIDG can only effect
search and seizure upon the direction of the Collector of Customs. Hence, it cannot
on its own effect search and seizure.8
On August 16, 2007, the Sandiganbayan rendered the assailed judgment, the fallo
of which reads:
WHEREFORE, the Court finds accused P/Sr. Supt. Raul Basilio Donida Boac,
P/Insp. Ramon Betuin Golong, SPO2 Cesar Fantone Beltran and SPO2 Roger
Alcantara Basadre GUILTY, beyond reasonable doubt, for violation of Section 2203
of the Tariff and Customs Code, and, pursuant to Section 3612 thereof, are hereby
sentenced each to suffer the penalty of:
(A) imprisonment of one (1) year;
Page44
Atty. Lourdes V. Mangaoang, then Customs District Collector of Cagayan de Oro

City, testified that the CIDG operatives (herein petitioners) did not have a written
authority from the Commissioner of Customs or the District Collector. According to
her, Golong claimed that they had clear orders from Boac to open and search the
vans. She instructed her personnel to open the vans only to show that there was
nothing illegal in their contents. She prepared a letter of protest addressed to Boac
but it was ignored; hence, she filed the instant case.5
(B) pay the fine of ONE THOUSAND PESOS (P1,000.00); and
(b) Maintain peace and order and take all necessary steps to ensure public safety;
(C) disqualification to hold public office, to vote and participate in any public election
for ten years.
(c) Investigate and prevent crimes, effect the arrest of criminal offenders, bring
offenders to justice and assist in their prosecution;
SO ORDERED.[9]
(d) Exercise the general powers to make arrest, search and seizure in accordance
with the Constitution and pertinent laws;
Assigned Errors
THE COURT A QUO ERRED IN FINDING THE PETITIONERS GUILTY BEYOND
REASONABLE DOUBT OF VIOLATION OF SECTION 2203 OF THE TARIFF AND
CUSTOMS CODE DESPITE THE ABSENCE IN ITS OWN FINDINGS THAT THE
PETITIONERS/ACCUSED CONDUCTED SEARCH, SEIZURE OR ARREST AND
DESPITE THE EVIDENCE FROM BOTH PARTIES THAT THE PETITIONERS DID
NOT CONDUCT SEARCH, SEIZURE OR ARREST IN THE INSTANT CASE.
THE COURT A QUO ERRED IN RULING THAT AUTHORITY OR DELEGATION
FROM THE COLLECTOR OF CUSTOMS IS REQUIRED WHEN THE
PETITIONERS FLAGGED DOWN THE CONTAINER VANS OUTSIDE THE
TERRITORIAL JURISDICTION OF THE COLLECTOR OF CUSTOMS IN THE
EXERCISE OF THEIR OFFICIAL DUTIES AS POLICE OFFICERS.
xxxx
In addition, the PNP shall absorb the office of the National Action Committee on
Anti-Hijacking (NACAH) of the Department of National Defense, all the functions of
the present Philippine Air Force Security Command (PAFSECOM), as well as the
police functions of the Coast Guard. In order to perform its powers and functions
efficiently and effectively, the PNP shall be provided with adequate land, sea, and air
capabilities and all necessary material means of resources.11
Petitioners, as members of the PNP-CIDG, also have the following functions under
RA 6975:
Section 35. Support Units. The PNP shall be supported by administrative and
operational support units. The administrative support units shall consist of x x x
xxxx
Petitioners assert that they did not conduct any search, seizure, or arrest; hence,
there was no violation of the Tariff and Customs Code. During the search conducted
in the consignee's warehouse on July 28, 2004, the employees of the owner of the
shipment unloaded the goods under BOC personnel supervision. Petitioners allege
that they only witnessed the search; they did not make any seizures or arrests. After
searching the first van and half of the second van without any contraband being
found, Customs Police Yamit and Godoy decided to stop the search despite the
request of petitioners to continue. Since the Customs Police were already leaving
the area, Boac instructed his team to leave the vicinity.10
(4) Criminal Investigation Unit. Headed by a Director with the rank of chief
superintendent, the Criminal Investigation Unit shall undertake the monitoring,
investigation and prosecution of all crimes involving economic sabotage, and other
crimes of such magnitude and extent as to indicate their commission by highly
placed or professional criminal syndicates and organizations.
Petitioners further claim that the police's authority to stop, search, and effect seizure
and arrest, if necessary, is no longer exclusively vested on the Collector of Customs.
Regular PNP members are generally empowered by law to effect arrests in
accordance with Republic Act No. (RA) 6975, to wit:
Petitioners contend that they were investigating a possible connivance of smugglers

with some corrupt customs personnel. They maintained that their act of flagging
down the container vans was not connected with the enforcement of the tariff and
customs laws, smuggling being a form of economic sabotage which is within the
powers of the PNP-CIDG to monitor and investigate. Thus, according to them, no
prior authority from the Collector of Customs is required in performing their duties as
police officers. Besides, they said they immediately coordinated with the Customs
Police for the latter to conduct the actual search of the container vans; hence, there
was no violation of Sec. 2203.12
Section 24. Powers and Functions. The PNP shall have the following powers and
functions:
(a) Enforce all laws and ordinances relative to the protection of lives and properties;
This unit shall likewise investigate all major cases involving violations of the Revised
Penal Code and operate against organized crime groups, unless the President
assigns the case exclusively to the National Bureau of Investigation (NBI).
Page44
On November 14, 2007, the Sandiganbayan denied petitioners' motion for

reconsideration. Thus, we have this petition.
The Court's Ruling
(SPO2 Cesar Beltran)
The petition is meritorious. Petitioners should be acquitted of the charge.
Q:
The prosecution has the burden of proving the guilt of the accused beyond
reasonable doubt. In this case, it is clear that petitioners neither searched the
container vans nor effected seizure and arrest. The testimony of Customs Broker
Amolata, the prosecution witness, supports this finding:
A:
They talked with the owner of the container vans and they opened the
container vans.
Q:
Who ordered the opening of the container vans?
Atty. Llamas:
A:
The persons from the Bureau of Customs and Mr. Bernales, the owner.
Q:
Did the PNP-CIDG personnel open the container vans?
Q:
What happened, after it was opened?
A:
No, Sir.
A:
They unloaded the cargoes.
Q:
They did not open the container vans?
Q:
Where were you during that time?
A:
Yes, Sir.
A:
We were just there watching the unloading of the contents.[14]
Okay, what happened when Yamit and Godoy arrived?
Q:
You mentioned that you were able to talk with the PNP-CIDG personnel and
they agreed to bring the trucks or the container vans to the warehouse of the
consignee. Is that correct?
(Police Inspector Ramon Golong)
A:
A:
One of the container vans was being unloaded when I arrived while we act as
observers during the stripping of the contents. The employees of the owner of the
shipment were unloading the shipment while the Customs people were supervising
them.15
Q:
Were the container vans opened in the evening of July 27, 2004 after the
trucks were brought to the place of the consignee, were they opened?
Prosecutor Lubigan:
So, what happened there?
Your Honors, what particular time and date is he referring to, Your Honors?
The prosecution does not rebut the above testimonies of petitioners. In fact, when
questioned by Associate Justice Norberto Y. Geraldez, the prosecution witness,
Customs Broker Amolata, attested to the same fact as follows:
Atty. Llamas:
Justice Geraldez:
In the evening, Your Honors, after the container vans were brought to the
warehouse of the consignee on July 27, 2004 whether the container vans were
opened in the evening of July 27, 2004, Your Honors.
Q:
Who brought out the items from the container vans?
A:
The employees of the consignee, Your Honors.
Witness: No, Sir.13
Q:
The PNP-CIDG personnel or the accused did not search, they were just
witnessing the bringing out of the items?
It should be noted that the container vans were brought to the consignee's
warehouse and not to the CIDG headquarters. On July 28, 2004, the container vans
were searched but not by petitioners, as testified to by petitioners Beltran and
Golong, as follows:
A:
They were witnessing also, Your Honors, similar of what were being done by
the employees or personnel of the Environment and Security Services of the Bureau
of Customs as well as myself, Your Honors.
Page44
Yes, Sir.
Q:
Q:
Did they search the items as if they were looking for something?
premises of the consignee to also witness the stripping or taking out of the contents
of the container vans, Sir.
A:
I cannot remember anymore, Your Honors.16
xxxx
When examined by the prosecutor, Amolata testified:

Q:
Did the PNP-CIDG personnel seize any equipment on that shipment? Did
they seize any equipment inside the container vans? Did they seize anything, did
they take anything, did they get anything inside those three container vans?
A:
No, Sir.
Q:
So there was no seizure, Mr. Witness? They did not seize anything?
A:
Yes, Sir.
Q:
Did they make any arrest, did they arrest anybody who were there on the
27th and on the 28th of July 2004?
A:
No, Sir.
Q:
And the searching was-the opening and the taking out of the equipment were
done by the employees of Kakiage Surplus. Am I right, Mr. Witness?
Q:
Would you agree with me, Mr. Witness, that Yamit and Godoy has the keys
with them on July 28, 2004?
A:
I do not know, Sir, whether the keys were being given by Captain Capacite to
them.
Q:
And Yamit and Godoy were direct subordinates of this Captain Capacite.
Would you confirm that?
A:
Yes, Sir.
Q:
And the keys were with Capacite?
A:
Yes, Sir.
Q:
Is it normal procedure despite the fact that the container vans were already
released by the Bureau of Customs, the keys to the container are still held by
Captain Capacite?
xxxx
A:
Yes, Sir.
Q:
It was not done by the PNP-CIDG personnel?
A:
Yes, Sir.17
The search was actually conducted by Customs Police Yamit and Godoy on July 28,
2004. The Customs Police held the keys of the vans, as attested to by Amolata:
Not normal procedure, Sir.
Q:
Not normal procedure, Mr. Witness?
A:
Yes, Sir.18
Furthermore, the vans were opened without the presence of the PNP-CIDG's team
leader, Inspector Golong. Golong testified:
Who has the keys to these container vans, if you know?

Q:
A:
The keys of the container vans were kept by Captain Capacite of the
Enforcement and Security Services of the Bureau of Customs, Sir.
Q:
And what is the business of this Captain Capacite, Mr. Witness, who is from
the Bureau of customs in holding that keys despite the fact that the container vans
were already released by the Bureau of customs Region 10?
A:
He requested to have the keys of the container vans to be kept to him
because according to him, the following morning he should also be there inside the
During the next day, July 28, 2004, could you tell us what happened?
A:
The following day when I arrived at Barangay Agusan, the container vans
were already opened. The Bureau of Customs people and the owner were already
there.19
The search was under the direction of the Customs Police because when the
Customs Police decided to stop the search, petitioners acceded and left the
premises. Boac testified:
Page44
Q:
A:
What happened next?
A:
About after lunch already about 1:30 to 2:00 o'clock in the afternoon he called
me again informing me that the customs personnel are already leaving the premises
and I asked him what happened. He told me that the customs personnel are leaving
and were satisfied that there are no contents on the container vans, however, he
told me that the third container van was not stripped off of its contents and I asked
Mr. Golong why and I told Inspector Golong to talk to one of the customs personnel
to continue stripping the container van.
xxxx
I talked to Mr. Yamit since Inspector Golong told me that they are already stripping
the contents of the third container van and they were already leaving the place, so I
instructed Inspector Golong if I could talk to Yamit and ask Yamit if they could
continue the stripping of the vans, so he gave me the phone and I talked to Mr.
Yamit and told him to continue stripping the third container van up to the last
contents. He told me they are already satisfied that there are no contraband items in
the container vans but I insisted to just continue stripping the contents of the
container van and he told me that they are already being called by their customs
collector in Region 10, sir.
Q:
After this conversation, what did you do?
A:
So, when they are already leaving the place, the customs people, I also
ordered Inspector Golong to immediately leave the place because customs
personnel are already leaving and they don't have anymore business being there
since customs personnel are leaving the place.20
The foregoing testimony, which Golong corroborated, was not disputed by the
prosecution. It is thus very clear that the search was not done by petitioners but by
the Customs Police. Petitioners did not seize anything nor arrested anybody. They
merely observed the search which they requested to be undertaken to check for
contrabands. Notably, the consignee did not file any complaint against petitioners.
An accused has in his favor the presumption of innocence which the Bill of Rights
guarantees. Unless his guilt is shown beyond reasonable doubt, he must be
acquitted. This reasonable doubt standard is demanded by the due process clause
of the Constitution which protects the accused from conviction except upon proof
beyond reasonable doubt of every fact necessary to constitute the crime with which
he is charged. The burden of proof is on the prosecution, and unless it discharges
that burden the accused need not even offer evidence in his behalf, and he would
be entitled to an acquittal. Proof beyond reasonable doubt does not, of course,
mean such degree of proof as, excluding the possibility of error, produce absolute
certainty. Moral certainty only is required, or that degree of proof which produces
conviction in an unprejudiced mind. The conscience must be satisfied that the
accused is responsible for the offense charged.21
Well-entrenched in jurisprudence is the rule that the conviction of the accused must
rest, not on the weakness of the defense, but on the strength of the prosecution.
The burden is on the prosecution to prove guilt beyond reasonable doubt, not on the
accused to prove his innocence.22 In this case, the prosecution failed to show that
petitioners committed the acts prohibited by Sec. 2203 of the Tariff and Customs
Code. There is no such evidence, testimonial or otherwise, that identifies petitioners
as responsible for the alleged illegal search. Hence, acquittal is in order.
As regards the second issue, there is no conflict between the aforequoted
provisions of the Tariff and Customs Code and RA 6975, as amended. The
jurisdiction of the Commissioner of Customs is clearly with regard to customs duties.
Should the PNP suspect anything, it should coordinate with the BOC and obtain the
written authority from the Collector of Customs in order to conduct searches,
seizures, or arrests. Coordination is emphasized in the laws. While it is an admitted
fact that there was no such coordination initiated by the PNP-CIDG in this instance,
nevertheless, petitioners cannot be convicted under the Tariff and Customs Code
since there is no evidence that they did actually search the container vans.
WHEREFORE, the August 16, 2007 Decision and November 14, 2007 Resolution of
the Sandiganbayan are REVERSED and SET ASIDE. Petitioners are ACQUITTED
of the charge against them. No costs.
The information charged petitioners for illegally flagging down, searching, and
seizing the three container vans on July 27, 2004. Petitioners, however, could not
also be held liable for these acts. It is a fact that no search and seizure of the vans
was done on the night of July 27, 2004. The act of flagging down the vehicles is not
among those proscribed by Sec. 2203 of the Tariff and Customs Code. Mere
flagging down of the container vans is not punishable under the said law.
SO ORDERED.
We ruled in People v. Ganguso:
EL GRECO SHIP MANNING AND MANAGEMENT CORPORATION, Petitioner, v.

COMMISSIONER OF CUSTOMS, Respondent.
THIRD DIVISION
[G.R. NO. 177188 : December 4, 2008]
Page44
Q:
DECISION
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised
Rules of Court, filed by petitioner El Greco Ship Manning and Management
Corporation (El Greco), seeking to reverse and set aside the Decision1 of the Court
of Tax Appeals (CTA) En Banc dated 14 March 2007 in C.T.A. EB No. 162. In its
assailed Decision, the CTA En Banc affirmed the Decision2 dated 17 October 2005
of the CTA Second Division in CTA Case No. 6618, ordering the forfeiture of the
vessel M/V Criston, also known as M/V Neptune Breeze, for having been involved in
the smuggling of 35,000 bags of imported rice.
The factual and procedural antecedents of this case are as follows:
On 23 September 2001, the vessel M/V Criston docked at the Port of Tabaco, Albay,
carrying a shipment of 35,000 bags of imported rice, consigned to Antonio Chua, Jr.
(Chua) and Carlos Carillo (Carillo), payable upon its delivery to Albay. Glucer
Shipping Company, Inc. (Glucer Shipping) is the operator of M/V Criston.3
Upon the directive of then Commissioner Titus Villanueva of the Bureau of Customs
(BOC), a Warrant of Seizure and Detention, Seizure Identification No. 06-2001, was
issued by the Legaspi District Collector, on 23 September 2001 for the 35,000 bags
of imported rice shipped by M/V Criston, on the ground that it left the Port of Manila
without the necessary clearance from the Philippine Coast Guard. Since the earlier
Warrant covered only the cargo, but not M/V Criston which transported it, a
subsequent Warrant of Seizure and Detention, Seizure Identification No. 06-2001-A,
was issued on 18 October 2001 particularly for the said vessel. The BOC District
Collector of the Port of Legaspi thereafter commenced proceedings for the forfeiture
of M/V Criston and its cargo under Seizure Identification No. 06-2001-A and Seizure
Identification No. 06-2001, respectively.4
To protect their property rights over the cargo, consignees Chua and Carillo filed
before the Regional Trial Court (RTC) of Tabaco, Albay, a Petition for Prohibition
with Prayer for the Issuance of Preliminary Injunction and Temporary Restraining
Order (TRO) assailing the authority of the Legaspi District Collectors to issue the
Warrants of Seizure and Detention and praying for a permanent injunction against
the implementation of the said Warrants. Their Petition was docketed as Civil Case
No. T-2170.5
After finding the Petition sufficient in form and substance and considering the
extreme urgency of the matter involved, the RTC issued a 72-hour TRO conditioned
upon the filing by Chua and Carillo of a bond in the amount of P31,450,000.00,
representing the value of the goods. After Chua and Carillo posted the required
bond, the 35,000 bags of rice were released to them.6
The Legaspi District Collector held in abeyance the proceedings for the forfeiture of
M/V Criston and its cargo under Seizure Identification No. 06-2001 and Seizure
Identification No. 06-2001-A pending the resolution by the RTC of Civil Case No. T2170. When the RTC granted the Motion to Dismiss Civil Case No. T-2170 filed by
the BOC, the Legaspi District Collector set the hearing of Seizure Identification No.
06-2001 and Seizure Identification No. 06-2001-A. A notice of the scheduled hearing
of the aforementioned seizure cases was sent to Glucer Shipping but it failed to
appear at the hearing so set. After a second notice of hearing was ignored by Glucer
Shipping, the prosecutor was allowed to present his witnesses.7
In the meantime, while M/V Criston was berthing at the Port of Tabaco under the
custody of the BOC, the Province of Albay was hit by typhoon "Manang." In order to
avert any damage which could be caused by the typhoon, the vessel was allowed to
proceed to another anchorage area to temporarily seek shelter. After typhoon
"Manang" had passed through Albay province, M/V Criston, however, failed to return
to the Port of Tabaco and was nowhere to be found.8
Alarmed, the BOC and the Philippine Coast Guard coordinated with the Philippine
Air Force to find the missing vessel. On 8 November 2001, the BOC received
information that M/V Criston was found in the waters of Bataan sporting the name of
M/V Neptune Breeze.9
Based on the above information and for failure of M/V Neptune Breeze to present a
clearance from its last port of call, a Warrant of Seizure and Detention under
Seizure Identification No. 2001-208 was issued against the vessel by the BOC
District Collector of the Port of Manila.10
For the same reasons, the Legaspi District Collector rendered a Decision on 27
June 2002 in Seizure Identification No. 06-2001 and Seizure Identification No. 062001-A ordering the forfeiture of the M/V Criston, also known as M/V Neptune
Breeze, and its cargo, for violating Section 2530 (a), (f) and (k) of the Tariff and
Customs Code.11
In the meantime, El Greco, the duly authorized local agent of the registered owner
of M/V Neptune Breeze, Atlantic Pacific Corporation, Inc. (Atlantic Pacific), filed with
the Manila District Collector, in Seizure Identification No. 2001-208, a Motion for
Intervention and Motion to Quash Warrant of Seizure Detention with Urgent Prayer
for the Immediate Release of M/V Neptune Breeze. El Greco claimed that M/V
Neptune Breeze was a foreign registered vessel owned by Atlantic Pacific, and
different from M/V Criston which had been involved in smuggling activities in
Legaspi, Albay.12
Acting favorably on the motion of El Greco, the Manila District Collector issued an
Order13 dated 11 March 2002 quashing the Warrant of Seizure and Detention it
Page44
CHICO-NAZARIO, J.:
WHEREFORE, pursuant to the authority vested in me by law, it is hereby ordered

and decreed that the Warrant of Seizure and Detention issued thereof be Quashed
for want of factual or legal basis, and that the vessel "M/V Neptune Brreze" be
released to [El Greco] after clearance with the Commissioner of Customs, proper
identification and compliance with existing rules and regulations pertinent in the
premises.
On automatic review by BOC Commissioner Antonio Bernardo, the Order dated 11
March 2002 of the District Collector of the Port of Manila was reversed after finding
that M/V Neptune Breeze and M/V Criston were one and the same and that the
Legaspi District Collector had already acquired prior jurisdiction over the vessel. The
Decision dated 15 January 2003 of the BOC Commissioner, contained in his 2nd
Indorsement14 to the Manila District Collector, decreed:
Respectfully returned to the District Collector, POM, the within case folders in POM
S. I. No. 2001-208, EL GRECO SHIP MANNING AND MANAGEMENT
CORPORATION, Claimant/Intervenor, with the information that the Decision of that
Port in the aforesaid case is hereby REVERSED in view of the following reasons:
1. Subject vessel MV "NEPTUNE BREEZE" and MV "CRISTON" are one and the
same as shown by the vessels documents retrieved by the elements of the
Philippine Coast Guard from MV "CRISTON" during the search conducted on board
thereof when the same was apprehended in Tabaco, Albay, indicating therein the
name of the vessel MV "NEPTUNE BREEZE," the name of the master of the vessel
a certain YUSHAWU AWUDU, etc. These facts were corroborated by the footage of
ABS-CBN taken on board the vessel when the same was subjected to search.
Breeze in order to evade liability since these were distinct and separate vessels as
evidenced by their Certificates of Registry. While M/V Neptune Breeze was
registered in St. Vincent and the Grenadines16 as shown in its Certificate of
Registry No. 7298/N, M/V Criston was registered in the Philippines. Additionally, El
Greco argued that the Order dated 11 March 2002 of the Manila District Collector
already became final and executory for failure of the BOC Commissioner to act
thereon within a period of 30 days in accordance with Section 2313 of the Tariff and
Customs Code.
On 17 October 2005, the CTA Second Division rendered a Decision17 in CTA Case
No. 6618 sustaining the 15 January 2003 Decision of the BOC Commissioner
ordering the forfeiture of M/V Neptune Breeze. Referring to the crime laboratory
report submitted by the Philippine National Police (PNP) stating that the serial
numbers of the engines and the generators of both M/V Criston and M/V Neptune
Breeze were identical, the CTA Second Division concluded that both vessels were
indeed one and the same vessel. The CTA Second Division further ruled that
nothing in the provisions of Section 2313 of the Tariff and Customs Code could
buttress El Greco's contention that the Order dated 11 March 2002 of the Manila
District Collector already became final and executory. The dispositive portion of the
Decision of the CTA Second Division reads:
WHEREFORE, premises considered, the present Petition for Review is hereby
DISMISSED. The Decision in the 2nd Indorsement dated January 15, 2003 of then
Commissioner Bernardo is hereby AFFIRMED.18
In a Resolution19 dated 7 February 2006, the CTA Second Division denied the
Motion for Reconsideration of El Greco for failure to present issues that had not
been previously threshed out in its earlier Decision.
2. Hence, prior jurisdiction over the said vessel was already acquired by the Port of
Legaspi when the said Port issued WSD S.I. No. 06-2001-A and therefore, the
Decision of the latter Port forfeiting the subject vessel supercedes the Decision of
that Port ordering its release.
Undaunted, El Greco elevated its case to the CTA En Banc through a Petition for
Review, docketed as C.T.A. EB No. 162, this time lamenting that it was being
deprived of its property without due process of law. El Greco asserted that the CTA
Second Division violated its constitutional right to due process when it upheld the
forfeiture of M/V Neptune Breeze on the basis of the evidence presented before the
Legaspi District Collector in Seizure Identification No. 06-2001 and Seizure
Identification No. 06-2001-A, of which El Greco was not notified and in which it was
not able to participate.20
Seeking the reversal of the Decision dated 15 January 2003 of the BOC
Commissioner, El Greco filed a Petition for Review with the CTA which was lodged
before its Second Division as CTA Case No. 6618. El Greco averred that the BOC
Commissioner committed grave abuse of discretion in ordering the forfeiture of the
M/V Neptune Breeze in the absence of proof that M/V Neptune Breeze and M/V
Criston were one and the same vessel.15 According to El Greco, it was highly
improbable that M/V Criston was merely assuming the identity of M/V Neptune
In its Decision21 promulgated on 14 March 2007, the CTA En Banc declared that
the CTA Second Division did not commit any error in its disquisition, and dismissed
the Petition of El Greco in C.T.A. EB No. 162 for lack of merit. According to the CTA
En Banc, the appreciation and calibration of evidence on appeal (from the ruling of
the BOC) lies within the sound discretion of its Division, and the latter's findings and
conclusions cannot be set aside unless it has been sufficiently shown that they are
not supported by evidence on record. The CTA En Banc thus disposed:
Page44
issued against M/V Neptune Breeze in Seizure Identification No. 2001-208 for lack
of probable cause that the said vessel was the same one known as M/V Criston
which fled from the jurisdiction of the BOC Legaspi District after being seized and
detained therein for allegedly engaging in smuggling activities. According to the
decretal part of the Manila District Collector's Order:
WHEREFORE, the instant petition is hereby DISMISSED. Accordingly, the assailed

Decision promulgated on October 17, 2005 and Resolution dated February 7, 2006
of the Second Division of this Court, are hereby AFFIRMED.22
Without filing a Motion for Reconsideration with the CTA, El Greco already sought
recourse before this Court via this Petition for Review on Certiorari, raising the
following issues:
I.
WHETHER OR NOT EL GRECO WAS DENIED OF ITS RIGHT TO DUE
PROCESS.
II.
WHETHER OR NOT M/V NEPTUNE BREEZE AND M/V CRISTON ARE ONE AND
THE SAME VESSEL.
III.
WHETHER OR NOT M/V NEPTUNE BREEZE IS QUALIFIED TO BE THE
SUBJECT OF FORFEITURE UNDER SECTION 2531 OF THE TARIFF AND
CUSTOMS CODE.
The primordial issue to be determined by this Court is whether M/V Neptune Breeze
is one and the same as M/V Criston which had been detained at the Port of Tabaco,
Albay, for carrying smuggled imported rice and had fled the custody of the customs
authorities to evade its liabilities.
El Greco insists that M/V Neptune Breeze and M/V Criston are not the same vessel.
In support of its position, El Greco again presents the foreign registration of its
vessel as opposed to the local registration of M/V Criston.
The CTA En Banc, however, affirming the findings of the CTA Second Division, as
well as the Legaspi District Collector, concluded otherwise.
A review of the records of the present case unveils the overwhelming and utterly
significant pieces of evidence that more than meets the quantum of evidence
necessary to establish that M/V Neptune Breeze is the very same vessel as M/V
Criston, which left the anchorage area at Legaspi, Albay, without the consent of the
customs authorities therein while under detention for smuggling 35,000 bags of
imported rice.
The crime laboratory report of the PNP shows that the serial numbers of the engines
and generators of the two vessels are identical. El Greco failed to rebut this piece of
evidence that decisively identified M/V Neptune Breeze as the same as M/V Criston.
We take judicial notice that along with gross tonnage, net tonnage, length and
breadth of the vessel, the serial numbers of its engine and generator are the
necessary information identifying a vessel. In much the same way, the identity of a
land motor vehicle is established by its unique motor and chassis numbers. It is,
thus, highly improbable that two totally different vessels would have engines and
generators bearing the very same serial numbers; and the only logical conclusion is
that they must be one and the same vessel.
Equally significant is the finding of the Legaspi District Collector that all the
documents submitted by M/V Criston were spurious, including its supposed
registration in the Philippines. In a letter dated 14 March 2002, Marina Administrator
Oscar M. Sevilla attested that M/V Criston was not registered with the Marina.
Finally, Customs Guard Adolfo Capistrano testified that the features of M/V Criston
and M/V Neptune Breeze were similar; while Coast Guard Commander Cirilo Ortiz
narrated that he found documents inside M/V Criston bearing the name M/V
Neptune Breeze. These testimonies further fortified the conclusion reached by the
Legaspi District Collector that M/V Criston and M/V Neptune Breeze were one and
the same.
We also take note that the purported operator of M/V Criston, Glucer Shipping, was
a total no-show at the hearings held in Seizure Identification No. 06-2001 and
Seizure Identification No. 06-2001-A before the Legaspi District Collector. Despite
being sent several notices of hearing to its supposed address, Glucer Shipping still
failed to appear in the said proceedings. It becomes highly unfathomable for an
owner to ignore proceedings for the seizure of its vessel, risking the loss of a
property of enormous value.
Well-entrenched is the rule that findings of facts of the CTA are binding on this Court
and can only be disturbed on appeal if not supported by substantial evidence.23
Substantial evidence is that amount of relevant evidence which a reasonable mind
might accept as adequate to justify a conclusion.24
From the foregoing, we can only deduce that there is actually no Glucer Shipping
and no M/V Criston. M/V Criston appears to be a mere fictional identity assumed by
M/V Neptune Breeze so it may conduct its smuggling activities with little risk of
being identified and held liable therefor.
We cannot give much credence to the self-serving denial by El Greco that M/V
Neptune Breeze is not the same as M/V Criston in light of the substantial evidence
Page44
We sustain the determination of the CTA En Banc on this matter.
Neither can we permit El Greco to evade the forfeiture of its vessel, as a

consequence of its being used in smuggling activities, by decrying denial of due
process.
In administrative proceedings, such as those before the BOC, technical rules of
procedure and evidence are not strictly applied and administrative due process
cannot be fully equated with due process in its strict judicial sense.25 The essence
of due process is simply an opportunity to be heard or, as applied to administrative
proceedings, an opportunity to explain one's side or an opportunity to seek
reconsideration of the action or ruling complained of.26
Although it was not able to participate in the proceedings in Seizure Identification
No. 06-2001 and Seizure Identification No. 06-2001-A before the Legaspi District
Collector, it had ample opportunity to present its side of the controversy in Seizure
Identification No. 2001-208 before the Manila District Collector. To recall, full
proceedings were held before the Manila District Collector in Seizure Identification
No. 2001-208. Even the evidence presented by El Greco in the latter proceedings
fails to persuade. The only vital evidence it presented before the Manila District
Collector in Seizure Identification No. 2001-208 was the foreign registration of M/V
Neptune Breeze. It was still the same piece of evidence which El Greco submitted to
this Court. Even when taken into consideration and weighed against each other, the
considerably sparse evidence of El Greco in Seizure Identification No. 2001-208
could not successfully refute the substantial evidence in Seizure Identification No.
06-2001 and Seizure Identification No. 06-2001-A that M/V Neptune Breeze is the
same as M/V Criston.
Moreover, the claim of El Greco that it was denied due process flounders in light of
its ample opportunity to rebut the findings of the Legaspi District Collector in Seizure
Identification No. 06-2001 and No. 06-2001-A before the CTA Second Division in
CTA Case No. 6618 and the CTA En Banc in C.T.A. EB No. 162, and now before
this Court in the Petition at bar. Unfortunately, El Greco was unable to make full use
to its advantage of these repeated opportunities by offering all possible evidence in
support of its case. For example, evidence that could establish that M/V Neptune
Breeze was somewhere else at the time when M/V Criston was being held by
customs authority at the Port of Legaspi, Albay, would have been helpful to El
Greco's cause and very easy to secure, but is glaringly absent herein.
After having established that M/V Neptune Breeze is one and the same as M/V
Criston, we come to another crucial issue in the case at bar, that is, whether the
order of forfeiture of the M/V Neptune Breeze is valid.
The pertinent provisions of the Tariff and Customs Code read:
SEC. 2530. Property Subject to Forfeiture Under Tariff and Customs Law. - Any
vehicle, vessel or aircraft, cargo, articles and other objects shall, under the following
conditions, be subject to forfeiture:
A. Any vehicle, vessel or aircraft, including cargo, which shall be used unlawfully in
the importation or exportation of articles or in conveying and/or transporting
contraband or smuggled articles in commercial quantities into or from any Philippine
port or place. The mere carrying or holding on board of contraband or smuggled
articles in commercial quantities shall subject such vessel, vehicle, aircraft or any
other craft to forfeiture; Provided, That the vessel, or aircraft or any other craft is not
used as duly authorized common carrier and as such a carrier it is not chartered or
leased;
xxx
f. Any article, the importation or exportation of which is effected or attempted
contrary to law, or any article of prohibited importation or exportation, and all other
articles which, in the opinion of the Collector, have been used, are or were intended
to be used as instruments in the importation or exportation of the former;
xxx
k. Any conveyance actually being used for the transport of articles subject to
forfeiture under the tariff and customs laws, with its equipage or trappings, and any
vehicle similarly used, together with its equipage and appurtenances including the
beast, steam or other motive power drawing or propelling the same. The mere
conveyance of contraband or smuggled articles by such beast or vehicle shall be
sufficient cause for the outright seizure and confiscation of such beast or vehicle,
but the forfeiture shall not be effected if it is established that the owner of the means
of conveyance used as aforesaid, is engaged as common carrier and not chartered
or leased, or his agent in charge thereof at the time has no knowledge of the
unlawful act.
The penalty of forfeiture is imposed on any vessel engaged in smuggling, provided
that the following conditions are present:
(1) The vessel is "used unlawfully in the importation or exportation of articles into or
from" the Philippines;
Page44
on record to the contrary. The foreign registration of M/V Neptune Breeze proves
only that it was registered in a foreign country; but it does not render impossible the
conclusions consistently reached by the Legaspi District Collector, the CTA Second
Division and the CTA en banc, and presently by this Court, that M/V Neptune
Breeze was the very same vessel used in the conduct of smuggling activities in the
name M/V Criston.
(3) If the vessel has a capacity of less than 30 tons and is "used in the importation of
articles into any Philippine port or place other than a port of the Sulu Sea, where
importation in such vessel may be authorized by the Commissioner, with the
approval of the department head."27
There is no question that M/V Neptune Breeze, then known as M/V Criston, was
carrying 35,000 bags of imported rice without the necessary papers showing that
they were entered lawfully through a Philippine port after the payment of appropriate
taxes and duties thereon. This gives rise to the presumption that such importation
was illegal. Consequently, the rice subject of the importation, as well as the vessel
M/V Neptune Breeze used in importation are subject to forfeiture. The burden is on
El Greco, as the owner of M/V Neptune Breeze, to show that its conveyance of the
rice was actually legal. Unfortunately, its claim that the cargo was not of foreign
origin but was merely loaded at North Harbor, Manila, was belied by the following
evidence - the Incoming Journal of the Philippine Coast Guard, Certification issued
by the Department of Transportation and Communications (DOTC) Port State
Control Center of Manila, and the letter dated 4 October 2001 issued by the SubPort of North Harbor Collector Edward de la Cuesta, confirming that there was no
such loading of rice or calling of vessel occurring at North Harbor, Manila. It is,
therefore, uncontroverted that the 35,000 bags of imported rice were smuggled into
the Philippines using M/V Neptune Breeze.
We cannot give credence to the argument of El Greco that the Order dated 11
March 2002 of the Manila District Collector, finding no probable cause that M/V
Neptune Breeze is the same as M/V Criston, has already become final and
executory, thus, irreversible, pursuant to Section 2313 of the Tariff and Customs
Code. According to said provision:
SEC. 2313. Review of Commissioner. - The person aggrieved by the decision or
action of the Collector in any matter presented upon protest or by his action in any
case of seizure may, within fifteen (15) days after notification in writing by the
Collector of his action or decision, file a written notice to the Collector with a copy
furnished to the Commissioner of his intention to appeal the action or decision of the
Collector to the Commissioner. Thereupon the Collector shall forthwith transmit all
the records of the proceedings to the Commissioner, who shall approve, modify or
reverse the action or decision of the Collector and take such steps and make such
orders as may be necessary to give effect to his decision: Provided, That when an
appeal is filed beyond the period herein prescribed, the same shall be deemed
dismissed.
If in any seizure proceedings, the Collector renders a decision adverse to the
Government, such decision shall be automatically reviewed by the Commissioner
and the records of the case elevated within five (5) days from the promulgation of
the decision of the Collector. The Commissioner shall render a decision on the
automatic appeal within thirty (30) days from receipts of the records of the case. If
the Collector's decision is reversed by the Commissioner, the decision of the
Commissioner shall be final and executory. However, if the Collector's decision is
affirmed, or if within thirty (30) days from receipt of the record of the case by the
Commissioner no decision is rendered or the decision involves imported articles
whose published value is five million pesos (P5,000,000.00) or more, such decision
shall be deemed automatically appealed to the Secretary of Finance and the
records of the proceedings shall be elevated within five (5) days from the
promulgation of the decision of the Commissioner or of the Collector under appeal,
as the case may be: Provided, further, That if the decision of the Commissioner or of
the Collector under appeal as the case may be, is affirmed by the Secretary of
Finance or if within thirty (30) days from receipt of the records of the proceedings by
the Secretary of Finance, no decision is rendered, the decision of the Secretary of
Finance, or of the Commissioner, or of the Collector under appeal, as the case may
be, shall become final and executory.
In any seizure proceeding, the release of imported articles shall not be allowed
unless and until a decision of the Collector has been confirmed in writing by the
Commissioner of Customs. (Emphasis ours.)
There is nothing in Section 2313 of the Tariff and Customs Code to support the
position of El Greco. As the CTA en banc explained, in case the BOC Commissioner
fails to decide on the automatic appeal of the Collector's Decision within 30 days
from receipt of the records thereof, the case shall again be deemed automatically
appealed to the Secretary of Finance. Also working against El Greco is the fact that
jurisdiction over M/V Neptune Breeze, otherwise known as M/V Criston, was first
acquired by the Legaspi District Collector; thus, the Manila District Collector cannot
validly acquire jurisdiction over the same vessel. Judgment rendered without
jurisdiction is null and void, and void judgment cannot be the source of any right
whatsoever.28
Finally, we strongly condemn the ploy used by M/V Neptune Breeze, assuming a
different identity to smuggle goods into the country in a brazen attempt to defraud
the government and the Filipino public and deprive them of much needed monetary
resources. We further laud the efforts of the Commissioner of the Customs Bureau
and the other executive officials in his department to curb the proliferation of
smuggling syndicates in the country which deserves no less than our full support.
WHEREFORE, in view of the foregoing, the instant Petition is DENIED. The
Decision dated 17 October 2005 and Resolution dated 7 February 2006 of the Court
of Tax Appeals En Banc in CTA EB No. 172 are AFFIRMED. Costs against the
petitioner.
Page44
(2) The articles are imported to or exported from "any Philippine port or place,
except a port of entry"; or
SO ORDERED.
February 4, 2005, he set aside the decree of abandonment and ordered the
institution of proceedings for seizure and forfeiture.11
FIRST DIVISION
Pursuant to the February 4, 2005 decision of the Commissioner, the Republic

instituted proceedings for the seizure and forfeiture of respondents' importation.12 It
contended that, because respondents imported the refined sugar without securing
an import allocation from the SRA, the shipment should be forfeited pursuant to
Section 2530 (f) and (1)-5 of the Tariff and Customs Code of the Philippines
(TCCP).13
COMMISSIONER OF CUSTOMS, Petitioner, v. COURT OF TAX APPEALS, LAS

ISLAS FILIPINAS FOOD CORPORATION and PAT-PRO OVERSEAS CO., LTD.,
Respondents.
RESOLUTION
CORONA, J.:
Respondent Las Islas Filipinas Food Corporation (LIFFC) owned and operated an
industry-specific customs bonded warehouse catering to food manufacturers.1
Among the conditions for its establishment and operations was securing an import
allocation from the Sugar Regulatory Administration (SRA) every time it imported
sugar for its clients.2
On February 20, 2004, Pat-Pro Overseas Company, Ltd. (PPOC), a Thai company,
appointed LIFFC as its "exclusive offshore trading, storage and transfer facility" in
the Philippines for its local and foreign transshipment3 operations.4 Pursuant to this
appointment, it shipped ten (10) twenty-foot containers of refined sugar to LIFFC.
The shipment of refined sugar arrived in Manila on April 24, 2004. Because LIFFC
failed to present an import allocation from the SRA, the shipment became subject of
Alert Order No. A/IE/20040719-101.5 On July 16, 2004, a decree of abandonment
was issued due to LIFFC's failure to file an import entry.6 Thereafter, the Collector of
Customs issued a warrant of seizure and detention7 on July 27, 2004 in view of the
SRA's advice that no import allocation had been granted to LIFFC.8
On August 16, 2004, LIFFC and PPOC (respondents) moved to quash the decree of
abandonment.9 However, in an order dated September 21, 2004,10 the motion was
denied (for being filed out of time as the decree of abandonment had already
attained finality on August 3, 2004).rbl r l l lbrr
Respondents appealed the September 21, 2004 order to the Commissioner of
Customs asserting that they were deprived of due process. They alleged that they
were never notified of the issuance of the decree of abandonment.
After reviewing the evidence on record, the Commissioner found that respondents
were not informed of the abandonment proceedings. Thus, in a decision dated
Respondents, on the other hand, asserted that the refined sugar was merely
transshipped to the Philippines while PPOC was looking for a buyer in the
international market. Thus, an import allocation from the SRA was unnecessary.
In decisions dated February 14, 2005 and February 16, 2005, the Collectors held
that because LIFFC did not secure an import allocation from the SRA, the shipment
was an illegal importation of refined sugar. They ordered its forfeiture in favor of the
government.14
On appeal,15 the Commissioner affirmed the decisions of both Collectors.16
On April 15, 2005, respondents appealed to the Court of Tax Appeals (CTA) via
petitions for review17 contending that the Commissioner erred in affirming the
February 14, 2005 and February 16, 2005 decisions of the Collectors.18 They
insisted that an import allocation from the SRA was unnecessary inasmuch as the
refined sugar was sent to the Philippines only for temporary storage and
warehousing and would be shipped eventually to PPOC's final buyer.
On April 20, 2005, respondents filed a motion to release cargo for exportation upon
filing of a surety bond. The Commissioner opposed the said motion on the basis of
Section 2301 of the TCCP which provides:
Section 2301. Warrant for Detention of Property-Cash Bond. - Upon making any
seizure, the Commissioner shall issue a warrant for the detention of the property;
and if the owner or importer desires to secure the release of the property for
legitimate use, the Collector shall, with the approval of the Commissioner of
Customs, surrender it upon the filing of a cash bond, in an amount fixed by him,
conditioned upon the payment of the appraised value of the article and/or any fine,
expenses and costs which may be adjudged in the case: Provided, That such
importation shall not be released under any bond when there is prima facieevidence
of fraud in the importation of the article: Provided, further, That articles the
importation of which is prohibited by law shall not be released under any
circumstances whatsoever: Provided, finally, That nothing in this section shall be
construed as relieving the owner or importer from any criminal liability which may
Page44
[G.R. NOS. 171516-17 : February 13, 2009]
The Commissioner argued that the shipment could not be released inasmuch as
respondents had no import allocation from the SRA. Thus, there was prima
facieevidence of fraud in the importation of refined sugar.
In a resolution dated July 12, 2005, the CTA granted the motion and ordered the
release of the shipment subject to LIFFC's filing of a continuing surety bond.19
The Commissioner moved for reconsideration but it was denied.20 The CTA ordered
respondents to comply with the July 12, 2005 resolution within 10 days. However,
the release of the shipment was held in abeyance for several months as
respondents failed to comply with the conditions imposed by the said resolution.21 It
was released only on January 6, 200622 when respondents finally complied with all
the conditions stated in the July 12, 2005 resolution.
On March 1, 2006, the Commissioner filed this petition23 seeking the annulment of
the six resolutions (dated July 12, 2005, July 20, 2005, September 27, 2005,
November 8, 2005, December 13, 2005 and January 6, 2006) issued in CTA Case
Nos. 7198 and 7199.24
Section 2103. Articles Entered for Immediate Exportation. - Where an intent to

export the article is shown by the bill of lading, invoice, manifest or other satisfactory
evidence, the whole or part of a bill (not less than one package) may be entered for
immediate exportation under bond. The Collector shall designate the vessel or
aircraft in which the articles are laden constructively as warehouse to facilitate the
direct transfer of the articles to the exporting vessel or aircraft.
Unless it shall appear by the bill of lading, invoice, manifest, or other satisfactory
evidence, that the articles arriving in the Philippines are destined for transshipment,
no exportation thereof shall be permitted except under entry for immediate
exportation under irrevocable domestic letter of credit, bank guaranty or bond in an
amount equal to the ascertained duties, taxes and other
charges.rbl r l l lbrr
Upon the exportation of the articles, and the production of proof of lading of same
beyond the limits of the Philippines, the irrevocable domestic letter of credit, bank
guaranty or bond shall be released.
For an entry for immediate exportation to be allowed under this provision, the
following must concur:
On March 20, 2006, we issued a temporary restraining order enjoining the

implementation of the said resolutions.
(a) there is a clear intent to export the article as shown in the bill of lading, invoice,
cargo manifest or other satisfactory evidence;
The Commissioner basically contends that the CTA committed grave abuse of
discretion when it disregarded Section 2301 of the TCCP and ordered the release of
respondents' shipment of refined sugar.
(b) the Collector must designate the vessel or aircraft wherein the articles are laden
as a constructive warehouse to facilitate the direct transfer of the articles to the
exporting vessel or aircraft;
We grant the petition.
(c) the imported articles are directly transferred from the vessel or aircraft
designated as a constructive warehouse to the exporting vessel or aircraft and
Section 2301 of the TCCP states that seized articles may not be released under
bond if there is prima facieevidence25 of fraud in their importation. Fraud is a
"generic term embracing all multifarious means which human ingenuity can devise
and which are resorted to by one individual to secure an advantage and includes all
surprise, trick, cunning, dissembling and any unfair way by which another is
cheated."26 Since fraud is a state of mind, its presence can only be determined by
examining the attendant circumstances.
Under Section 1202 of the TCCP,27 importation takes place when merchandise is
brought into the customs territory of the Philippines with the intention of unloading
the same at port.
An exception to this rule is transit cargo28 entered for immediate exportation.
Section 2103 of the TCCP provides:
(d) an irrevocable domestic letter of credit, bank guaranty or bond in an amount

equal to the ascertained duties, taxes and other charges is submitted to the
Collector (unless it appears in the bill of lading, invoice, manifest or satisfactory
evidence that the articles are destined for transshipment).
None of the requisites above was present in this case. While respondents insist that
the shipment was sent to the Philippines only for temporary storage and
warehousing, the bill of lading clearly denominated "South Manila, Philippines" as
the port of discharge.29 This not only negated any intent to export but also
contradicted LIFFC's representation. Moreover, the shipment was unloaded from the
carrying vessel for the purpose of storing the same at LIFFC's warehouse.
Importation therefore took place and the only logical conclusion is that the refined
sugar was truly intended for domestic consumption.
Page44
arise from any violation of law committed in connection with the importation of the
article. (emphasis supplied)
BACKGROUND FACTS
All things considered, pursuant to Section 2301 of the TCCP, the shipment of refined
sugar should not be released under bond.
WHEREFORE, the petition is hereby GRANTED. The July 12, 2005, July 20, 2005,
September 27, 2005, November 8, 2005, December 13, 2005 and January 6, 2006
resolutions of the Court of Tax Appeals in CTA Case Nos. 7198 and 7199 are
REVERSED and SET ASIDE.
The March 20, 2006 temporary restraining order enjoining the implementation of the
assailed CTA resolutions is hereby made permanent.
The Court of Tax Appeals is ordered to expeditiously decide CTA Case Nos. 7198
and 7199.
Costs against respondents Las Islas Filipinas Food Corporation and Pat-Pro
Overseas Co., Ltd.
SO ORDERED.
SECOND DIVISION
[G.R. NO. 176380 : June 18, 2009]
PILIPINAS SHELL PETROLEUM CORPORATION, Petitioner, v. COMMISSIONER
OF CUSTOMS, Respondent.
DECISION
BRION, J.:
Before us is the Petition for Review on Certiorari1 filed by petitioner Pilipinas Shell
Petroleum Corporation (Shell) questioning the Decision2 of the Court of Appeals
(CA) in CA-G.R. SP No. 78564. The CA decision set aside the resolutions3 issued
by the Court of Tax Appeals (CTA) in CTA Case No. 6484, which in turn denied the
respondent Commissioner of Customs' (respondent) Motion to Dismiss the Petition
for Review Shell filed with the tax court. The CA decision effectively dismissed
Shell's tax protest case.
Shell is a domestic corporation engaged, among others, in the importation of

petroleum and its by-products into the country. For these importations, Shell was
assessed and required to pay customs duties and internal revenue taxes.
In 1997 and 1998, Shell settled its liabilities for customs duties and internal revenue
taxes using tax credit certificates (TCCs) that were transferred to it for value by
several Board of Investment (BOI)-registered companies. The transfers of the TCCs
to Shell were processed by the transferors-BOI-registered companies and were
eventually approved by the One Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center (the Center). The Center is composed of the following government
agencies: the Department of Finance (DOF), the Bureau of Internal Revenue (BIR),
the Bureau of Customs (BOC), and the BOI. On the belief the TCCs were actually
good and valid, both the BIR and the BOC accepted and allowed Shell to use them
to pay and settle its tax liabilities.
In a letter dated November 3, 1999 (Center's November 3 letter), the Center,
through the Secretary of the DOF, informed Shell that it was cancelling the TCCs
transferred to and used as payment by the oil company, pursuant to its EXCOM
Resolution No. 03-05-99. The Center claimed that after conducting a post-audit
investigation, it discovered that the TCCs had been fraudulently secured by the
original grantees who thereafter transferred them to Shell; no categorical finding
was made regarding Shell's participation in the fraud. In view of the cancellation, the
Center required Shell to pay the BIR and BOC the amounts corresponding to the
TCCs Shell had used to settle its liabilities.
Shell objected to the cancellation of the TCCs claiming that it had been denied due
process. Apparently, Shell had sent a letter to the Center on November 3, 1999
(Shell's November 3 letter) adducing reasons why the TCCs should not be
cancelled; Shell claimed that the Center's November 3 letter cancelling the TCCs
was issued without considering its letter of the same date.
The Center did not act on Shell's November 3 letter; instead, the respondent sent a
letter dated November 19, 1999 (respondent's November 19 letter) to Shell requiring
it to replace the amount equivalent to the amount of the cancelled TCCs used by
Shell to satisfy its customs duties and taxes. The pertinent portion of the
respondent's November 19 letter states:
In view of such cancellation, it becomes apparent that the Customs Official Receipts
previously issued to [Shell] with the applications of the [TCCs] cited in said lists
becomes null and void ab initio. In view thereof, your corporation must have to
replace amount of P209,129,141.00 which is equivalent to the amount of the [TCCs]
cancelled. The corresponding interest, surcharge and penalties thereof shall be
relayed to you in due time after the recomputation.
Page44
Furthermore, while respondents insisted that an import allocation was unnecessary,

they filed an application, albeit belatedly, in the SRA for the shipment of refined
sugar. Respondents' web of conflicting statements and actuations undoubtedly
proves bad faith, if not outright fraud.
Shell submitted its reply letter dated December 23, 1999.4 Shell maintained that the
cancellation was improper since this was done without affording the corporation its
right to due process. It further claimed that the existence of fraud in the issuance
and transfer of the TCCs, or even Shell's participation in the alleged fraud, had not
been sufficiently established.
Three years later, through letters dated February 15, February 20, and April 12,
2002 (respondent's collection letters), the respondent, through Atty. Gil Valera (Atty.
Valera), Deputy Commissioner for Revenue Collections Monitoring Group, formally
demanded from Shell payment of the amounts corresponding to the listed TCCs that
the Center had previously cancelled. Except for the amount due, the respondent's
collection letters were similarly worded, as follows:
In as much as the same [TCCs] were reported as having been utilized to pay your
government obligations earlier, formal demand is hereby being made upon you to
pay back the total amount of x x x within five (5) days from receipt thereof [sic].
Failure on your part to settle your obligation would constrain the Bureau of Customs
to initiate legal action in the regular court.
Please consider this as our last and final demand.
As mentioned, all three letters were signed by Atty. Valera.
Shell replied to the respondent's February 15 and 20, 2002 collection letters via
letters dated February 27 and March 4, 2002. Before it could reply to the
respondent's April 12, 2002 collection letter, Shell received on April 23, 2002 the
summons in one5 of the three collection cases6 filed by respondent against Shell
before the Regional Trial Court (RTC) of Manila. In these collection cases, the
respondent sought to recover the amounts covered by the cancelled TCCs; the
complaints were all similarly worded except for the amount and TCCs involved, and
were signed by Atty. Valera.
On May 23, 2002, Shell filed with the CTA a Petition for Review questioning the
BOC collection efforts for lack of legal and factual basis. To quote the issues Shell
submitted in its CTA petition:
1. Whether or not the TCCs subject of the instant petition for are genuine and
authentic;
2. Whether or not petitioner's right to due process of law was violated by the
issuance of the 1999 collection letter and/or the filing of the collection cases, both of
which seek to enforce the Excom Resolution;
3. Whether or not attempts to collect unpaid duties and taxes, being based on the
bare allegation that the TCCs were fraudulently issued and transferred, can be
given any effect considering that fraud is never presumed but must be proven;
4. Assuming arguendo that fraud was present in the issuance of the original TCCs,
whether or not such fraud can work to the prejudice of an innocent purchaser for
value who is not a party to such fraud;
5. Whether or not the respondent and the DOF/Center are stopped from invalidating
the TCCs and the transfers and utilizations thereof;
6. Whether or not the TCCs, having been utilized, are already functus officio and
can no longer be cancelled.7
The respondent filed a motion to dismiss Shell's Petition for Review on the ground
of prescription. The respondent claimed that Shell's petition was filed beyond the 30day period provided by law for appeals of decisions of the Commissioner of
Customs to the CTA. The respondent also contended that this 30-day period should
be counted from the time Shell received the respondent's collection letters.
Shell countered by invoking the case of Yabes v. Flojo,8 where this Court ruled,
under the circumstances of that case, that a complaint for collection filed in court
may be considered a final decision or assessment of the Commissioner9 that
opened the way for an appeal to the CTA. Applying that principle, Shell contends the
30-day reglementary period should be counted from the date it received the
summons for one of the collection cases filed by respondent or, specifically, on April
23, 2002, not from the date that it received the respondent's collection letters. The
Petition for Review, having been filed on May 23, 2002, was thus instituted within
the period provided by law.
The CTA found the respondent's contentions unmeritorious, and thus denied his
motion to dismiss in a Resolution dated January 28, 2003.10 The tax court noted
that the collection letters were issued and signed only by Atty. Valera, not by the
respondent, so that Shell was justified in not heeding the demand. The CTA
consequently declared that it is the filing of the collection cases in court that should
instead be considered as the final decision of the respondent, and only then should
the 30-day period to appeal commence. The respondent elevated the CTA decision
to the CA after the CTA denied its motion for reconsideration.11
The appellate court annulled and set aside the CTA rulings in its decision dated May
3, 2006.12 It found the collection letters written by Atty. Valera "indicative of
[respondent's] final rulings on the assessments concerning the spurious TCCs xxx
which were then already appealable to the respondent CTA. Each letter carried a
clear demand to pay within five (5) days from receipt, and each also carried a
Page44
Your immediate response to this demand letter shall be appreciated.
warning that 'this [is] our last and final demand.' " On the authority of Atty. Valera to
issue the collection letters, the appellate court pointed to Customs Memorandum
Circular (CMC) No. 27-2001 that delegated the Commissioner's authority on matters
relating to tax credit and transfers of tax credit to Atty. Valera, and to Customs
Memorandum Order (CMO) No. 40-2001 that delegated the authority to sign, file,
and prosecute civil complaints likewise to Atty. Valera.
Shell's attempt to have the CA decision reconsidered proved unsuccessful; hence,
this petition.
(a) Exclusive appellate jurisdiction to review by appeal xxx;

xxx
4. Decisions of the Commissioner of Customs in cases involving liability for customs
duties, fees or other money charges, seizure, detention, or release or property
affected, fines, forfeitures or other penalties in relation thereto, or other matters
arising under the Customs Law or other laws administered by the Bureau of
Customs;
THE PETITION
Shell insists, in this Petition for Review on Certiorari, that its Petition for Review with
the CTA was filed within the 30-day reglementary period that, it posits, should be
counted from the date it received the summons for the collection cases filed by
respondent against it before the regular court. Shell cites this Court's ruling in Yabes
v. Flojo.13
On the assumption that the collection letters amounted to a decision on its protest,
Shell submits that these are not "decision[s] of the Commissioner of Customs"
appealable to the CTA under Section 7, Republic Act (RA) No. 1125, as amended by
RA No. 9282.14 It maintains that it is the Commissioner's decision on the taxpayer's
liability for customs duties and taxes, not the decision of his subordinate, which is
the proper subject of the appeal to the CTA, the delegation of authority under CMC
No. 27-2001 and CMO No. 40-2001 notwithstanding. It additionally claims that Atty.
Valera was prohibited from carrying out his delegated duties under the injunctive writ
issued the RTC of Manila in its Order dated August 27, 2001, and the Temporary
Restraining Order the CA issued on April 4, 2002.
THE COURT'S RULING
These decisions of the respondent involving customs duties specifically refer to his
decisions on administrative tax protest cases, as stated in Section 2402 of the Tariff
and Customs Code of the Philippines (TCCP):
Section 2402. Review by Court of Tax Appeals. - The party aggrieved by a ruling of
the Commissioner in any matter brought before him upon protest or by his action or
ruling in any case of seizure may appeal to the Court of Tax Appeals, in the manner
and within the period prescribed by law and regulations.
Unless an appeal is made to the Court of Tax Appeals in the manner and within the
period prescribed by laws and regulations, the action or ruling of the Commissioner
shall be final and conclusive. [Emphasis supplied.]
A tax protest case, under the TCCP, involves a protest of the liquidation of import
entries. A liquidation is the final computation and ascertainment by the collector of
the duties on imported merchandise, based on official reports as to the quantity,
character, and value thereof, and the collector's own finding as to the applicable rate
of duty; it is akin to an assessment of internal revenue taxes under the National
Internal Revenue Code15 where the tax liability of the taxpayer is definitely
determined.
We resolve to DENY Shell's petition; the present case does not involve a tax protest
case within the jurisdiction of the CTA to resolve.
In the present case, the facts reveal that Shell received three sets of letters:
Section 7 of RA No. 1125, as amended, states:

Sec. 7. Jurisdiction. - The CTA shall exercise:
A. the Center's November 3 letter, signed by the Secretary of Finance, informing it

of the cancellation of the TCCs;
b. the respondent's November 19 letter requiring it to replace the amount equivalent
to the amount of the cancelled TCCs used by Shell; andcralawlibrary
c. the respondent's collection letters issued through Atty. Valera, formally demanding
the amount covered by the cancelled TCCs.
Page44
The parties argue over which act serves as the decision of the respondent that,
under the law, can be the subject of an appeal before the CTA, and from which act
the 30-day period to appeal shall be reckoned. Shell insists it should be the filing of
the collection suits as this was indicative of the finality of the respondent's action.
The respondent, on the other hand, claims, it should be the earlier act of sending
the collection letters where the respondent finally indicated his resolve to collect the
duties due and demandable from Shell.
In light of our conclusion that the present case does not involve a decision of the
respondent on a matter brought to him as a tax protest, Atty. Valera's lack of
authority to issue the collection letters and to institute the collection suits is
irrelevant. For this same reason, the injunction against Atty. Valera cannot be
invoked to enjoin the collection of unpaid taxes due from Shell.
WHEREFORE, we DENY Shell's Petition for Review on Certiorari and AFFIRM the
result of the Decision of the Court of Appeals dated May 3, 2006 in CA-G.R. SP No.
78564, based on the principles and conclusion laid down in this Decision. Shell's
Petition for Review before the Court of Tax Appeals, docketed as CTA Case No.
6484, is DISMISSED.
SO ORDERED.
SECOND DIVISION
[G.R. NO. 156946 : July 15, 2009]
We note in this regard that Shell never protested the original assessments of its tax
liabilities and in fact settled them using the TCCs. These original assessments,
therefore, have become final, incontestable, and beyond any subsequent protest
proceeding, administrative or judicial, to rule upon.
SECRETARY OF FINANCE, Petitioner, v. ORO MAURA SHIPPING LINES,

Respondent.
To be very precise, Shell's petition before the CTA principally questioned the validity
of the cancellation of the TCCs - a decision that was made not by the respondent,
but by the Center. As the CTA has no jurisdiction over decisions of the Center,
Shell's remedy against the cancellation should have been a certiorari petition before
the regular courts, not a tax protest case before the CTA. Records do not show that
Shell ever availed of this remedy. Alternatively, as we held in Shell v. Republic of the
Philippines,17 the appropriate forum for Shell under the circumstances of this case
should be at the collection cases before the RTC where Shell can put up the fact of
its payment as a defense.
BRION, J.:
Parenthetically, our conclusions are fully in step with what we held in Shell v.
Republic18 that a case becomes ripe for filing with the RTC as a collection matter
after the finality of the respondent's assessment. We hereby confirm that this
assessment has long been final, and this recognition of finality removes all
perceived hindrances, based on this case, to the continuation of the collection suits.
In Dayrit v. Cruz,19 we declared on the matter of collection that:
FACTUAL ANTECEDENTS
[A] suit for the collection of internal revenue taxes, where the assessment has
already become final and executory, the action to collect is akin to an action to
enforce the judgment. No inquiry can be made therein as to the merits of the original
case or the justness of the judgment relied upon.
DECISION
We resolve the petition1 filed by the Secretary of Finance (petitioner), assailing the
Decision dated August 26, 2002,2 and Resolution dated January 20, 20033 of the
Court of Appeals (CA) in CA-G.R. SP No. 64644. The CA affirmed the decision4
dated March 29, 2001 of the Court of Tax Appeals (CTA) holding that the
assessment made by the Customs Collector of the Port of Manila on respondent
Oro Maura Shipping Lines' (respondent) vessel M/V "HARUNA" had become final
and conclusive upon all parties, and could no longer be subject to re-assessment.
On November 24, 1992, the Maritime Industry Authority (MARINA) authorized the
importation of one (1) unit vessel M/V "HARUNA"; ex: Shin Shu Maru No. 8, under a
Bareboat Charter, for a period of five (5) years from its actual delivery to the
charterer. The original parties to the bareboat charter agreement were Haruna
Maritime S.A., represented by Mr. Yoji Morinaga of Panama, and Mr. Guerrero G.
Dajao, proprietor and manager of Glory Shipping Lines, the charterer.
On December 29, 1992, the Department of Finance (DOF), in its 1st Indorsement,
allowed the temporary registration of the M/V "HARUNA" and its tax and duty-free
Page44
None of these letters, however, can be considered as a liquidation or an

assessment of Shell's import tax liabilities that can be the subject of an
administrative tax protest proceeding before the respondent whose decision is
appealable to the CTA. Shell's import tax liabilities had long been computed and
ascertained in the original assessments,16 and Shell paid these liabilities using the
TCCs transferred to it as payment. It is even an error to consider the letters as a
"reassessment" because they refer to the same tax liabilities on the same
importations covered by the original assessments. The letters merely reissued the
original assessments that were previously settled by Shell with the use of the TCCs.
However, on account of the cancellation of the TCCs, the tax liabilities of Shell
under the original assessments were considered unpaid; hence, the letters and the
actions for collection. When Shell went to the CTA, the issues it raised in its petition
were all related to the fact and efficacy of the payments made, specifically the
genuineness of the TCCs; the absence of due process in the enforcement of the
decision to cancel the TCCs; the facts surrounding the fraud in originally securing
the TCCs; and the application of estoppel. These are payment and collection issues,
not tax protest issues within the CTA's jurisdiction to rule upon.rbl rl
l lbrr
release to Glory Shipping Lines, subject to the conditions imposed by MARINA. The
Bureau of Customs (BOC) also required Glory Shipping Lines to post a bond in the
amount equal to 150% of the duties, taxes and other charges due on the
importation, conditioned on the re-exportation of the vessel upon termination of the
charter period, but in no case to extend beyond the year 1999.
released under a re-export bond. The DOF referred Kariton's letter to the
Commissioner of Customs for appropriate action, per a 1st Indorsement dated
December 13, 1994. In turn, the Commissioner of Customs, in a 2nd Indorsement
dated December 14, 1994, referred the DOF's 1st Indorsement to the Collector of
Customs of the Port of Manila.
On March 16, 1993, Glory Shipping Lines posted Ordinary Re-Export Bond No. C(9)
121818 for P1,952,000.00, conditioned on the re-export of the vessel within a period
of one (1) year from March 22, 1993, or, in case of default, to pay customs duty, tax
and other charges on the importation of the vessel in the amount of P1,296,710.00.
On the basis of these indorsements and the MARINA appraisal, Kariton filed Import
Entry No. 179260 at the Port of Manila on behalf of the respondent. The Collector of
the Port of Manila accepted the declared value of the vessel at P1,100,000.00 and
assessed duties and taxes amounting to P149,989.00, which the respondent duly
paid on January 4, 1995, as evidenced by Bureau of Customs Official Receipt No.
50245666.
On March 22, 1994, Glory Shipping Lines' re-export bond expired. Almost two (2)
months after, or on May 10, 1994, Glory Shipping Lines sent a Letter of Guarantee
to the Collector guaranteeing to renew the Re-Export Bond on vessel M/V
"HARUNA" on or before May 20, 1994; otherwise, it would pay the duties and taxes
on said vessel. Glory Shipping Lines never complied with its Letter of Guarantee;
neither did it pay the duties and taxes and other charges due on the vessel despite
repeated demands made by the Collector of the Port of Mactan.
Since the re-export bond was not renewed, the Collector of the Port of Mactan
assessed it customs duties and other charges amounting to P1,952,000.00;
thereafter, it sent Glory Shipping Lines several demand letters dated April 22, 1996,
June 21, 1996, and March 10, 1997, respectively. Glory Shipping Lines failed to pay
the assessed duties despite receipt of these demand letters.
Unknown to the Collector of the Port of Mactan, Glory Shipping Lines had already
offered to sell the vessel M/V "HARUNA" to the respondent in October 1994. In fact,
the respondent already applied for an Authority to Import the vessel with MARINA on
October 21, 1994, pegging the proposed acquisition cost of the vessel at
P1,100,000.00. MARINA granted this request through a letter dated December 5,
1994, after finding that the proposed acquisition cost of the vessel reasonable,
taking into consideration the vessel's depreciation due to wear and tear.
On December 2, 1994, Haruna Maritime S.A. and Glory Shipping Lines sold the M/V
"HARUNA" to the respondent without informing or notifying the Collector of the Port
of Mactan.
On December 13, 1994, Kariton and Company (Kariton), representing the
respondent, inquired with the DOF if it could pay the duties and taxes due on the
vessel, with the information that the vessel was acquired by Glory Shipping Lines
through a bareboat charter and was previously authorized by the DOF to be
On November 5, 1997, after discovering that the vessel M/V "HARUNA" had been
sold to the respondent, the Collector of the Port of Mactan sent the respondent a
demand letter for the unpaid customs duties and charges of Glory Shipping Lines.
When the respondent failed to pay, the Collector of the Port of Mactan instituted
seizure proceedings against the vessel M/V "HARUNA" for violation of Section
2530, par. 1, subpar. (1) to (5) of the Tariff and Customs Code of the Philippines
(TCCP).
In his September 1998 Decision,5 the Collector of the Port of Mactan ordered the
forfeiture of the vessel in favor of the Government, after finding that both Glory
Shipping Lines and the respondent acted fraudulently in the transaction.
The Cebu District Collector, acting on the respondent's appeal, reversed the
decision of the Collector of the Port of Mactan in his December 1, 1998 decision,
concluding that while there appeared to be fraud in the sale of the vessel M/V
"HARUNA" by Haruna Maritime S.A. and Glory Shipping Lines to the respondent,
there was no proof that the respondent was a party to the fraud.6 Moreover, the
Cebu District Collector gave weight to MARINA's appraisal of the dutiable value of
the vessel. The decision also held that in light of this appraisal that the Collector of
Custom of the Port of Manila used as basis for his assessment, the customs duty
the Collector of the Port of Manila imposed was unquestionably proper.
On December 14, 1998, the Commissioner of Customs, in a 3rd Indorsement,7
affirmed the decision of the Cebu District Collector and recommended his approval
to the petitioner.
In a 4th Indorsement dated January 8, 1999,8 the petitioner affirmed the
Commissioner's recommendation, but ordered a re-assessment of the vessel based
on the entered value, without allowance for depreciation. The respondent filed a
motion for reconsideration, which the petitioner denied.
Page44
On March 22, 1993, the M/V "HARUNA" arrived at the Port of Mactan. Its Import
Entry No. 120-93 indicated the vessel's dutiable value to be P6,171,092.00 and its
estimated customs duty to be P1,296,710.00.
On May 15, 2000, the respondent filed a Petition for Review with the CTA,9
assailing the petitioner's January 8, 1999 decision. In a decision dated March 29,
2001, the CTA granted the respondent's petition and set aside the petitioner's 4th
Indorsement, thus affirming the previous decision of the Commissioner of
Customs.10
Dissatisfied with this outcome, the petitioner sought its review through a petition filed
with the CA; he claimed that the CTA erred when it held that the petitioner no longer
had authority to order the re-assessment of the vessel.11
The CA affirmed the findings of the CTA in its decision dated August 26, 2002.12
The appellate court concluded that the assessment made by the Collector of the
Port of Manila had already become final and conclusive on all parties, pursuant to
Sections 1407 and 1603 of the TCCP; the respondent paid the assessed duties on
January 4, 1995, while the Collector of the Port of Mactan demanded payment of
additional duties and taxes only on November 5, 1997, or more than one year from
the time the respondent paid. The CA also upheld the findings of the Cebu District
Collector, of the Commissioner of Customs, and of the CTA that the fraud in this
case could not be imputed to the respondent since it was not shown that the
respondent knew about Glory Shipping Lines' infractions.
The CA subsequently denied petitioner's Motion for Reconsideration in its resolution
of January 20, 2003.13 Hence, this petition.
THE PETITION
The petitioner submits three issues for our resolution:
I
WHETHER THE COURT OF APPEALS ERRED IN HOLDING THAT THE
ASSESSMENT MADE BY THE MANILA CUSTOMS COLLECTOR ON THE
SUBJECT VESSEL HAD BECOME FINAL AND CONCLUSIVE UPON ALL
PARTIES.
The petitioner mainly argues that the CA committed a reversible error when it held
that the assessment of the Customs Collector of the Port of Manila had become final
and conclusive on all parties pursuant to Sections 1407 and 1603 of the TCCP.
According to the petitioner, these provisions cannot limit the authority of the
Secretary of Finance or the Commissioner of Customs to assess or collect
deficiency duties; in the exercise of their supervisory powers, the Commissioner and
the Secretary may at any time direct the re-assessment of dutiable articles and
order the collection of deficiency duties. Even assuming that Sections 1407 and
1603 of the TCCP apply to the present case, the petitioner posits that the one-year
limitation14 set forth in these provisions presupposes that the return and all entries,
as passed upon and approved by the Collector, reflect the accurate description and
value of the imported article. Where the article was misdeclared or undervalued, the
statute of limitations does not begin to run until a deficiency assessment has been
issued and settled in full. Lastly, the petitioner claims that the respondent, being a
direct and actual party to the importation, should have ensured that the imported
article was properly declared and assessed the correct duties.
The respondent, on the other hand, claims that the appraisal of the Collector can
only be altered or modified within a year from payment of duties, per Sections 1407
and 1603 of the TCCP; it is only when there is fraud or protest or when the import
entry was merely tentative that settlement of duties will not attain finality. The
petitioner's allegation that there was misdeclaration or undervaluation of the vessel
is not supported by the evidence and is contrary to the findings of the District
Collector of the Port of Cebu, which the petitioner himself affirmed in his 4th
Indorsement dated January 8, 1999. Moreover, the records show that the value of
the vessel was properly declared by the respondent at P1,100,000.00, pursuant to
the appraisal of the MARINA.
The core legal issue for our resolution is whether the Secretary of Finance can order
a re-assessment of the vessel M/V "HARUNA."
THE COURT'S RULING
We find the petition meritorious and rule that the petitioner can order the reassessment of the vessel M/V "HARUNA."
II
III
WHETHER THE COURT OF APPEALS ERRED IN NOT HOLDING THAT A LIEN IN
FAVOR OF THE GOVERNMENT AND AGAINST THE VESSEL EXISTS.
The Collector of the Port of Mactan found that the respondent defrauded the BOC of
the proper customs duty, but the District Collector of Cebu held otherwise on appeal
and absolved the respondent from any participation in the fraud committed by Glory
Shipping Lines. These factual findings and conclusion were affirmed by the
Commissioner of Customs, by the CTA and, ultimately, by the CA. Although in
agreement with the conclusion, the petitioner, however, ordered a reassessment of
Page44
Procedural Issue
WHETHER THE COURT OF APPEALS ERRED IN HOLDING THAT
RESPONDENT WAS AN "INNOCENT PURCHASER."
Factual findings of the lower courts, when affirmed by the CA, are generally
conclusive on the Court.15 For this reason, the Rules of Court provide that only
questions of law may be raised in a Petition for Review on certiorari. We delve into
factual issues and act on the lower courts' factual findings only in exceptional
circumstances, such as when these findings contain palpable errors or are attended
by arbitrariness.16
After a review of the records of the present case, we find that the CTA and the CA
overlooked and misinterpreted factual circumstances that, had they been brought to
light and properly considered, would have changed the outcome of this case. In
particular, a closer scrutiny of the surrounding circumstances of the case and the
respondent's actions reveal the existence of fraud that deprived the State of the
customs duties properly due to it.
A Critical Look at the Facts
Our examination of the facts tells us that there are four significant phases that
should be considered in appreciating the present case.
The first phase is the original tax and duty-free entry of the MV Haruna when Glory
Shipping Lines filed Import Entry No. 120-93 with the Collector of the Port of Mactan
on March 22, 1993. The vessel then had a declared dutiable value of P6,171,092.00
and the estimated customs duty was P1,296,710.00. It was allowed conditional
entry on the basis of a one-year re-export bond that lapsed and was not renewed.
Despite a letter of guarantee subsequently issued by Glory Shipping Lines and
repeated demand letters, no customs duties and charges were paid. The vessel
remained in the Philippines.
The second significant phase occurred when Glory Shipping Lines offered to sell the
vessel to the respondent in October 1994. At that point, the respondent applied for
an Authority to Import the vessel, based on the proposed acquisition cost of
P1,100,000.00. MARINA granted the request based on the proposed acquisition
cost, taking depreciation into account.
From the first to the second phase, bad faith already intervened as Glory Shipping
Lines, instead of paying in accordance with its commitment, simply turned around,
disregarded the demand letters of the Collector of the Port of Mactan, and offered
the vessel for sale to the respondent.
The respondent, for its part, already knew of the status of the vessel (as it in fact
subsequently manifested before the DOF); in fact, what it asked for was an authority
to import, although the vessel was already in the Philippines. The respondent
likewise was the party which secured an appraisal from MARINA knowing fully well
of the vessel's value based on its previous history. It also joined Glory Shipping
Lines in the latter's attempt to evade the payment of the customs duties and
charges demanded by the Collector of the Port of Mactan by pushing through with
the purchase of the vessel without any notification to the Collector of the Port of
Mactan - the Port that first administratively enforced the rules on the vessel's
importation resulting in its tax-free entry and conditional release.
The third phase came when the respondent's representative asked the DOF if it
could pay the duties and taxes due on the vessel, knowing fully well the vessel's
history of entry into the country. The respondent's declared value in the request was
P1.1 Million based on the lower appraisal that it secured from MARINA. The DOF
referred the matter to the Commissioner of Customs who in turn made his own
referral to the Collector of Customs of the Port of Manila. It was the Collector of the
Port of Manila who accepted the declared value of P1.1 Million and assessed duties
and taxes amounting to P149,989.00. The respondent thus paid the customs duties
as approved by the Collector of the Port of Manila. As in the second phase, no
notice was given in this third phase to the Port of Mactan as the Port that allowed
the entry of the vessel into the country and which had existing demand letters for the
customs duties and charges due on the vessel.
The fourth phase started on November 5, 1997 when the Collector of the Port of
Mactan acted after learning of the sale of the vessel to the respondent. The
Collector eventually instituted seizure proceedings that led to the petition currently
with us.
Evidence of Fraud
The tie-up between Glory Shipping Lines and the respondent in the four phases
identified above can better be appreciated if the surrounding facts are considered.
An undisputed given in the narration of the four phases is the valuation of
P6,171,092.00 that Glory Shipping Lines gave when the vessel first entered the
country under Import Permit No. 120-93 on March 22, 1993. When the respondent
made its request with the MARINA for authorization to import the same vessel after
a span of only 19 months, the respondent proposed an acquisition cost of only
P1,100,000.00. Consistent with this proposal, the respondent, through Kariton, gave
the vessel the same declared value in its own Import Entry No. 179260 filed with the
Collector of the Port of Manila. Thus, in a little over a year and a half, the declared
value of the vessel decreased by P5,000,000.00, or an astonishing 80% of its
original price. We find this drop in value within a short period of 19 months to be too
fantastic to be accepted without question, even allowing for depreciation. Equally
fantastic is the change in the customs duties, taxes and other charges due which fell
from P1,296,710.00 in March 1993 to P149,989.00 in January 1995, all because of
Page44
the dutiable value of the vessel based on the original entered value, without
allowance for depreciation.
The drop alone from the undisputed original entry valuation of P6,171,092.00 to the
respondent's new valuation of P1,100,000.00 (or a decrease of 80% from the
original valuation) is already a prima facie evidence of fraud that the rulings below
did not properly appreciate simply because they disregarded the records of the
original entry of the vessel through the Port of Mactan. Section 2503 of the TCCP
provides in this regard that:
Section 2503. Undervaluation, Misclassification and Misdeclaration of Entry. - When
the dutiable value of the imported articles shall be so declared and entered that the
duties, based on the declaration of the importer on the face of the entry, would be
less by ten percent (10%) than should be legally collected, or when the imported
articles shall be so described and entered that the duties based on the importer's
description on the face of the entry would be less by ten percent (10%) than should
be legally collected based on the tariff classification, or when the dutiable weight,
measurement or quantity of imported articles is found upon examination to exceed
by ten percent (10%) or more than the entered weight, measurement or quantity, a
surcharge shall be collected from the importer in an amount of not less than the
difference between the full duty and the estimated duty based upon the declaration
of the importer, nor more than twice of such difference: Provided, That an
undervaluation, misdeclaration in weight, measurement or quantity of more than
thirty percent (30%) between the value, weight, measurement, or quantity declared
in the entry, and the actual value, weight, quantity, or measurement shall constitute
a prima facie evidence of fraud penalized under Section 2530 of this Code:
Provided, further, That any misdeclared or underdeclared imported articles/items
found upon examination shall ipso facto be forfeited in favor of the Government to
be disposed of pursuant to the provision of this Code.
When the undervaluation, misdescription, misclassification or misdeclaration in the
import entry is intentional, the importer shall be subject to the penal provision under
Section 3602 of this Code. [Emphasis supplied.]
The 80% drop in valuation existing in this case renders the consideration and
application of Section 2503 unavoidable.
Significantly, the respondent never explained the considerable disparity between the
dutiable value declared by Glory Shipping Lines and the dutiable value it declared difference of P5,000,000.00 - so as to overturn or contradict this prima facie finding
of fraud. We note that the exercise of due diligence alone would have alerted it to
Glory Shipping Lines' acquisition cost and the vessel's declared value at its first
entry. The respondent, being in the shipping business, should have known the
standard prices of vessels and that the value it proposed to MARINA, as described
in the second phase above, is extraordinarily low compared to the vessel's originally
declared valuation. All these strengthen, rather than weaken, the prima facie
evidence of fraud that the law dictates when an unconscionable disparity of
valuations exists.
Depreciation not factor in determining dutiable value
Neither can the respondent hide behind the excuse that the vessel's dutiable value
at P1,100,000.00 was approved by MARINA via the Authority to Import, taking into
consideration the vessel's depreciation brought about by its ordinary wear and tear.
In the first place, we observe that nowhere in the TCCP does it state that the
depreciated value of an imported item can be used as the basis to determine an
imported item's dutiable value. Section 201 of P.D. No. 1464 (the Tariff and Customs
Code of 1978)17 in this regard provides:
Sec. 201. - Basis of Dutiable Value. - The dutiable value of an imported article
subject to an ad valorem rate of duty shall be based on the cost (fair market value)
of same, like or similar articles, as bought and sold or offered for sale freely in the
usual wholesale quantities in the ordinary course of trade in the principal markets of
the exporting country on the date of exportation to the Philippines (excluding internal
excise taxes to be remitted or rebated) or where there is none on such date, then on
the cost (fair market value) nearest to the date of exportation, including the value of
all container, covering and/or packings of any kind and all other expenses, costs and
charges incident to placing the article in a condition ready for shipment to the
Philippines, and freight as well as insurance premium covering the transportation of
such articles to the port of entry in the Philippines.
Where the fair market value or price of the article cannot be ascertained thereat or
where there exists a reasonable doubt as to the fairness of such value or price, then
the fair market value or price in the principal market in the country of manufacture or
origin, if it is not the country of exportation, or in a third country with the same stage
of economic development as the country of exportation shall be used.
When the dutiable value of the article cannot be ascertained in accordance with the
preceding paragraphs or where there exists a reasonable doubt as to the cost (fair
market value) of the imported article declared in the entry, the correct dutiable value
of the article shall be ascertained by the Commissioner Of Customs from the reports
of the Revenue or Commercial Attache (Foreign Trade Promotion Attache), pursuant
to Republic Act Numbered Fifty-four Hundred and Sixty-six or other Philippine
diplomatic officers or Customs Attaches and from such other information that may
be available to the Bureau of Customs. Such values shall be published by the
Commissioner of Customs from time to time.
When the dutiable value cannot be ascertained as provided in the preceding
paragraphs, or where there exists a reasonable doubt as to the dutiable value of the
imported article declared in the entry, it shall be domestic wholesale selling price of
Page44
the sale, the new application by the vendee, and the change in the Port where the
assessment and collection were made.
(a) not more than twenty-five (25) per cent thereof for expenses and profits;
andcralawlibrary
(b) duties and taxes paid thereon. (as amended by E.O. 156) [Emphasis supplied.]
Even assuming that the depreciated value of the vessel can be considered in
determining the vessel's dutiable value, still, we find that the decrease of 80% from
the original price after the passage of only 19 months cannot be believed and thus
should not be accepted.
Assuming further that MARINA merely committed a mistake in approving the
vessel's proposed acquisition cost at P1,100,000.00, and that the Collector of the
Port of Manila similarly erred, we reiterate the legal principle that estoppel generally
finds no application against the State when it acts to rectify mistakes, errors,18
irregularities, or illegal acts,19 of its officials and agents, irrespective of rank. This
ensures efficient conduct of the affairs of the State without any hindrance on the part
of the government from implementing laws and regulations, despite prior mistakes
or even illegal acts of its agents shackling government operations and allowing
others, some by malice, to profit from official error or misbehavior. The rule holds
true even if the rectification prejudices parties who had meanwhile received
benefits.20
This principle is particularly true when it comes to the collection of taxes. As we
stated in Intra-Strata Assurance Corporation v. Republic of the Philippines:21
It has long been a settled rule that the government is not bound by the errors
committed by its agents. Estoppel does not also lie against the government or any
of its agencies arising from unauthorized or illegal acts of public officers.22 This is
particularly true in the collection of legitimate taxes due where the collection has to
be made whether or not there is error, complicity, or plain neglect on the part of the
collecting agents.23 In CIR v. CTA, we pointedly said:
It is axiomatic that the government cannot and must not be estopped particularly in
matters involving taxes. Taxes are the lifeblood of the nation through which the
government agencies continue to operate and with which the State effects its
functions for the welfare of its constituents. Thus, it should be collected without
unnecessary hindrance or delay. [Emphasis supplied.]
The Respondent's Complicity
That the respondent fully participated in moves to defraud the BOC, as shown by
the recital of the four phases above, is further supported by another factual
circumstance - the respondent's acknowledgment to the DOF that the vessel M/V
"HARUNA" conditionally entered the country under a re-export bond filed with the
BOC. This is plain from the 1st Indorsement of the DOF dated December 13, 1994,
which states:
1st Indorsement
December 13, 1994
Respectfully forwarded to the Commissioner of Customs, Manila, for appropriate
action, the herein letter of even date of Kariton & Company, requesting in behalf of
their client, ORO MAURA SHIPPING LINE to pay the corresponding duties and
taxes due on the vessel MV "HARUNA" (ex. Shinsu Maru No. 8) which was
acquired by Glory Shipping Lines thru bareboat charter under P.D. No. 760, as
amended and previously authorized by this Department to be released under a reexport bond pursuant to Section 1 of P.D. No. 1711 amending P.D. No. 760 under
our 1st Indorsement dated December 29, 1992, copy attached, subject to pertinent
import laws, rules and regulations.
With the knowledge that the vessel was released under a re-export bond, the
respondent should have known that this original entry was subject to specific
conditions, among them, the obligation to guarantee the re-export of the vessel
within a given period, or otherwise to pay the customs duties on the vessel. It should
have known, too, of the conditions of the vessel's release under the re-export bond
and of the state of Glory Shipping Lines' status of compliance.
There was an original but incomplete importation by Glory Shipping Lines that the
respondent could not have simply disregarded proceeds from knowledge of the
vessel's history and the application of the relevant law. In this respect, Section 1202
of the TCCP provides:
Importation begins when the carrying vessel or aircraft enters the jurisdiction of the
Philippines with intention to unlade therein. Importation is deemed terminated upon
payment of the duties, taxes and other charges due upon the articles, or secured to
be paid, at a port of entry and the legal permit for withdrawal shall have been
granted, or in case said articles are free of duties, taxes and other charges, until
they have legally left the jurisdiction of the customs.
In order for an importation to be deemed terminated, the payment of the duties,
taxes, fees and other charges of the item brought into the country must be in full.
For as long as the importation has not been completed, the imported item remains
under the jurisdiction of the BOC.24 From the perspective of process, the
importation that originally started with Glory Shipping Lines was therefore never
Page44
such or similar article in Manila or other principal markets in the Philippines or on the
date the duty become payable on the article under appraisement, on the usual
wholesale quantities and in the ordinary course of trade, minus:
completed and terminated, so that the respondent's present importation is merely a

continuation of that original process.rbl rl l lbrr
Saddled with knowledge of the underlying facts that preceded its purchase, the
conclusion that the respondent fully cooperated with Glory Shipping Lines in
avoiding the original charges and duties due is unavoidable; the respondent
provided the medium (1) to disregard the original duties due on the vessel's first
entry; and (2) to avoid the Port of Mactan where demands for payment of overdue
custom duties already existed. In the process, it of course acted for its own interest
by securing for itself lower dutiable values and lesser duties due. The fact that the
respondent did all these confirms that it participated in the moves to defraud the
BOC of the legitimate taxes due as originally assessed.
Finality of the Port of Manila Assessment
Our finding of fraud leads us to conclude that the assessment of the Collector of the
Port of Manila cannot become final and conclusive pursuant to Section 1603 of the
TCCP, which states:
Section 1603. Finality of Liquidation. - When articles have been entered and passed
free of duty or final adjustments of duties made, with subsequent delivery, such
entry and passage free of duty or settlements of duties will, after the expiration of
one (1) year, from the date of the final payment of duties, in the absence of fraud or
protest or compliance audit pursuant to the provisions of this Code, be final and
conclusive upon all parties, unless the liquidation of the import entry was merely
tentative.
Section 1204. Liability of Importer for Duties. - Unless relieved by laws or

regulations, the liability for duties, taxes, fees and other charges attaching on
importation constitutes a personal debt due from the importer to the government
which can be discharged only by payment in full of all duties, taxes, fees and other
charges legally accruing. It also constitutes a lien upon the articles imported which
may be enforced while such articles are in custody or subject to the control of the
government.
As defined by Black's Law Dictionary, a lien is a claim or charge on property for
payment of some debt, obligation or duty.25 In this particular instance, the obligation
is a tax lien that attaches to imported goods, regardless of ownership.26
Consequently, when the respondent bought the vessel from Glory Shipping Lines on
December 2, 1994, the obligation to pay the BOC P1,296,710.00 as customs duties
had already attached to the vessel and the non-renewal of the re-export bond made
this liability due and demandable. The subsequent transfer of ownership of the
vessel from Glory Shipping Lines to the respondent did not extinguish this liability.
Therefore, while it is true that the respondent had already paid the customs duties
assessed by the Collector of the Port of Manila, this payment did not have the effect
of extinguishing the lien given the tax lien that had attached to the vessel and the
fact that what had been paid was different from what was owed. From the point of
amount alone, the customs duties paid to the Collector at the Port of Manila only
amounted to P149,989.00, while the lien which had attached to the vessel based on
the unpaid assessment by the Collector of the Port of Mactan amounted to
P1,296,710.00.
Nature of a tax lien
When this re-export bond expired on March 22, 1994, Glory Shipping Lines filed a
letter dated May 10, 1994 guaranteeing the renewal of the re-export bond on or
before May 20, 1994, otherwise the duties, taxes and other charges on the vessel
would be paid. Therefore, when May 20, 1994 came and went without the renewal
of the vessel's re-export bond, the obligation to pay customs duties, taxes and other
charges on the importation in the amount of P1,296,710.00 arose and attached to
the vessel. Undoubtedly, this lien was never paid by Glory Shipping Lines, thus it
continued to exist even after the vessel was sold to the respondent. Section 1204 of
the TCCP in this regard states:
Finally, we deem it necessary to reiterate our pronouncement in Chevron Philippines

v. Commissioner of the Bureau of Customs,27 where we discussed the importance
of tariff and customs duties in the following manner:
Taxes are the lifeblood of the nation. Tariff and customs duties are taxes constituting
a significant portion of the public revenue which enables the government to carry out
the functions it has been ordained to perform for the welfare of its constituents.28
Hence, their prompt and certain availability is an imperative need29 and they must
be collected without unnecessary hindrance.30 [Emphasis supplied.]
In keeping with this and other cited rulings, we find in favor of the petitioner and
uphold his order for the re-assessment of the value of the vessel based on the
entered value, which in this case should follow the unpaid assessment made by the
Collector of Customs of the Port of Mactan.
WHEREFORE, we REVERSE the decision of the Court of Appeals dated August 26,
2002 in CA-G.R. SP No. 64644, and REINSTATE WITH MODIFICATION the ruling
Page44
An important factual circumstance that the CTA and the CA appear to have
completely overlooked is that the vessel first entered the Philippines through the
Port of Mactan and it was the Collector of the Port of Mactan who first acquired
jurisdiction over the vessel when he approved the vessel's temporary release from
the custody of the BOC, after Glory Shipping Lines filed Ordinary Re-Export Bond
No. C(9) 121818.
under former Finance Secretary Edgardo Espiritu's 4th Indorsement dated January
8, 1999. The re-assessment shall be based on the unpaid assessment by the
Collector of Customs of the Port of Mactan against respondent Oro Maura Shipping
Lines dated November 5, 1997, made on the basis of M/V HARUNA's entered
value, without allowance for depreciation, but including other taxes and charges
due. Seizure proceedings shall proceed in due course unless the unpaid customs
duties, other taxes and charges are duly paid. Costs against the petitioner.
Page44
SO ORDERED.

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Tax II (Course Oufefefetline)

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Class Standing Component:

Academic Year 2015-2016

A. Value added Tax (VAT)

IV. JURISDICTION OF THE COURT OF TAX APPEALS

Guidelines for the Topic Presentation

TARIFF AND CUSTOMS CODE

2. Raul Basilio d. Boac et al. vs. Pp. of the Phil.

2. SAN ROQUE POWER CORP. VS. CIR

3. KEPCO PHILIPPINES V. CIR

5. Pilipinas Shell Petroleum Corp vs. COC

4. MINDANAO II GEOTHERMAL PARTNERSHIP VS. CIR

6. Secretary of Finance vs. Oro Maura Shipping Lines

3. El Greco Ship Manning vs. COC

[G.R. NO. 140944 : April 30, 2008]

Less: Share of Surviving Spouse

Net Share in Conjugal Estate

25% surcharge - late filing

Nature of Document (sic)

"B" & "B-1"

Jose P. Fernandez, as mortgagors, in the total amount of P240,479,693.17 as of

Claim of the Manila Banking Corporation (MBC) which as of November 7, 1987

Signature of Ma. Anabella A. Abuloc appearing at the lower portion on p. 2 of Exh.

Signature of Raymund S. Gallardo appearing at the Lower portion on p. 2 of Exh.

Signature of Maximino V. Tagle also appearing on p. 2 of Exh. "2";

Estate Tax Return prepared by the BIR;

Signature of Alberto Enriquez at the lower portion of Exh. "3";

Signature of Ma. Anabella A. Abuloc at the lower portion of Exh. "3";

Net Conjugal Estate

Add: 25% Surcharge for Late Filing

Conjugal Real Property

Add: Penalties for-No notice of death

Conjugal Personal Prop.

Gross Conjugal Estate

Estate Tax Due P 29,935,342.97

Total deficiency estate tax

The Petition is impressed with merit.

The Court's Ruling

WHEREFORE, the instant Petition is GRANTED. Accordingly, the assailed Decision

The Motion for Reconsideration raises the following arguments:

zero-rated status of petitioner commenced on 27 September 1998 and continued

On the other hand, petitioner is a domestic corporation organized under the

On 11 October 1997, petitioner entered into a Power Purchase Agreement (PPA)

March 31, 2002)

Input VAT on Domestic Purchases for the Qtr

Total Available Input tax (23)

Input VAT on Domestic Purchases for the Qtr

Input VAT on Importation of Goods for the Qtr

Input Tax carried over from previous qtr (22B)

Input VAT on Domestic Purchases for the Qtr

Input VAT on Importation of Goods for the Qtr

Input VAT on Importation of Goods for the Qtr

Total Available Input tax (23)

December 31, 2002)

Excess Input Tax

(D) = (B) + (C) '(A)

Input VAT on Domestic Purchases for the Qtr

Input VAT on Importation of Goods for the Qtr

Total Available Input tax (23)

Net Creditable Input Tax (25)

Net Creditable Input Tax (25)

Input VAT on Domestic Purchases for the Qtr

Input VAT on Importation of Goods for the Qtr

Input VAT on Importation of Goods for the Qtr