FIRST DIVISION

[G.R. No. 147188. September 14, 2004.]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE ESTATE OF
BENIGNO P. TODA, JR., Represented by Special Co-administrators Lorna
Kapunan and Mario Luza Bautista, respondents.
Bunag & Associates for respondents.
SYNOPSIS
A Notice of Assessment was sent to Cibeles Insurance Corporation (CIC) by
the Commissioner of Internal Revenue for deficiency income tax arising
from an alleged simulated sale of a 16-storey commercial building known
as Cibeles Building, situated on two parcels of land on Ayala Avenue,
Makati City. On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President
and owner of 99.991% of its issued and outstanding capital stock, to sell
the Cibeles Building and the two parcels of land on which the building
stands for an amount of not less than P90 million. Toda purportedly sold
the property for P100 million to Rafael A. Altonaga, who, in turn, sold the
same property on the same day to Royal Match, Inc. (RMI) for P200 million.
For the sale of the property to RMI, Altonaga paid capital gains tax in the
amount of P10 million. CIC filed its corporate annual income tax return for
the year 1989, declaring, among other things, its gain from the sale of real
property in the amount of P75,728.021. After crediting withholding taxes of
P254,497.00, it paid P26,341,207 for its net taxable income of
P75,987,725. Toda sold his entire shares of stocks in CIC to Le Hun T. Choa
for P12.5 million, as evidenced by a Deed of Sale of Shares of Stocks. Three
and a half years later, Toda died. The Bureau of Internal Revenue (BIR) sent
an assessment notice and demand letter to the CIC for deficiency income
tax for the year 1989 in the amount of P79,099,999.22. The Estate of
Benigno P. Toda, Jr., represented by special co-administrators Lorna
Kapunan and Mario Luza Bautista, received a Notice of Assessment dated 9
January 1995 from the Commissioner of Internal Revenue for deficiency
income tax for the year 1989 in the amount of P79,099,999.22. The Estate
thereafter filed a letter of protest. The Commissioner dismissed the protest.
The Estate filed a petition for review with the CTA alleging that the
Commissioner erred in holding the Estate liable for income tax deficiency;
that the inference of fraud of the sale of the properties is unreasonable and
unsupported. The CTA held that the Commissioner failed to prove that CIC
committed fraud to deprive the government of the taxes due it. Hence, the
CTA declared that the Estate is not liable for deficiency income tax of
P79,099,999.22 and, accordingly, cancelled and set aside the assessment
issued by the Commissioner on 9 January 1995. On appeal, the Court of
Appeals affirmed the CTA decision. Hence, the present petition. aEIADT

The Supreme Court reversed and set aside the decision of the Court of
Appeals. The scheme resorted to by CIC in making it appear that there
were two sales of the subject properties, i.e., from CIC to Altonaga, and
then from Altonaga to RMI, cannot be considered a legitimate tax planning.
Such scheme was tainted with fraud. It is obvious that the objective of the
sale to Altonaga was to reduce the amount of tax to be paid especially that
the transfer from him to RMI would then subject the income to only 5%
individual capital gains tax, and not the 35% corporate income tax. The
sale to him was merely a tax ploy, a sham, and without business purpose
and economic substance. Doubtless, the execution of the two sales was
calculated to mislead the BIR with the end in view of reducing the
consequent income tax liability. In a nutshell, the intermediary transaction,
i.e., the sale of Altonaga, which was prompted more on the mitigation of
tax liabilities than for legitimate business purposes constitutes one of tax
evasion. The Court ordered respondent Estate of Benigno P. Toda, Jr. to pay
P79,099,999.22 as deficiency income tax of Cibeles Insurance Corporation
for the year 1989, plus legal interest from 1 May 1994 until the amount is
fully paid.
SYLLABUS
1.
TAXATION; TAX EVASION AND TAX AVOIDANCE; DISTINGUISHED.
Tax avoidance and tax evasion are the two most common ways used by
taxpayers in escaping from taxation. Tax avoidance is the tax saving
device within the means sanctioned by law. This method should be used by
the taxpayer in good faith and at arms length. Tax evasion, on the other
hand, is a scheme used outside of those lawful means and when availed of,
it usually subjects the taxpayer to further or additional civil or criminal
liabilities. CaHcET
2.
ID.; TAX EVASION; REQUISITES, PRESENT IN THE CASE AT BAR.
Tax evasion connotes the integration of three factors: (1) the end to be
achieved, i.e., the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that a tax is due;
(2) an accompanying state of mind which is described as being "evil," in
"bad faith," "willful," or "deliberate and not accidental"; and (3) a course of
action or failure of action which is unlawful. All these factors are present in
the instant case. It is significant to note that as early as 4 May 1989, prior
to the purported sale of the Cibeles property by CIC to Altonaga on 30
August 1989, CIC received P40 million from RMI, and not from Altonaga.
That P40 million was debited by RMI and reflected in its trial balance as
"other inv. Cibeles Bldg." Also, as of 31 July 1989, another P40 million
was debited and reflected in RMI's trial balance as "other inv. Cibeles
Bldg." This would show that the real buyer of the properties was RMI, and
not the intermediary Altonaga.

3.
ID.; ID.; FRAUD; DEFINED. 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." DcaECT
4.
ID.; ID.; THE EXECUTION OF TWO SALES ON THE SAME DAY FOR
THE SOLE PURPOSE OF REDUCING TAX LIABILITY CONSTITUTES TAX
EVASION. Here, it is obvious that the objective of the sale to Altonaga
was to reduce the amount of tax to be paid especially that the transfer
from him to RMI would then subject the income to only 5% individual
capital gains tax, and not the 35% corporate income tax. Altonaga's sole
purpose of acquiring and transferring title of the subject properties on the
same day was to create a tax shelter. Altonaga never controlled the
property and did not enjoy the normal benefits and burdens of ownership.
The sale to him was merely a tax ploy, a sham, and without business
purpose and economic substance. Doubtless, the execution of the two
sales was calculated to mislead the BIR with the end in view of reducing
the consequent income tax liability. In a nutshell, the intermediary
transaction, i.e., the sale of Altonaga, which was prompted more on the
mitigation of tax liabilities than for legitimate business purposes
constitutes one of tax evasion.
5.
ID.; ID.; TO ALLOW A TAXPAYER TO DENY TAX LIABILITY ON THE
GROUND THAT THE SALE WAS MADE THROUGH ANOTHER AND DISTINCT
ENTITY WHEN THE LATTER WAS MERELY A CONDUIT IS TO SANCTION
CIRCUMVENTION OF TAX LAWS. [A] sale or exchange of assets will have
an income tax incidence only when it is consummated. The incidence of
taxation depends upon the substance of a transaction. The tax
consequences arising from gains from a sale of property are not finally to
be determined solely by the means employed to transfer legal title. Rather,
the transaction must be viewed as a whole, and each step from the
commencement of negotiations to the consummation of the sale is
relevant. A sale by one person cannot be transformed for tax purposes into
a sale by another by using the latter as a conduit through which to pass
title. To permit the true nature of the transaction to be disguised by mere
formalisms, which exist solely to alter tax liabilities, would seriously impair
the effective administration of the tax policies of Congress. To allow a
taxpayer to deny tax liability on the ground that the sale was made
through another and distinct entity when it is proved that the latter was
merely a conduit is to sanction a circumvention of our tax laws. Hence, the
sale to Altonaga should be disregarded for income tax purposes. The two
sale transactions should be treated as a single direct sale by CIC to RMI.
DASCIc

6.
ID.; FALSE RETURNS; PRESCRIPTIVE PERIOD OF TAX ASSESSMENT
IS TEN YEARS; CASE AT BAR. [I]n cases of (1) fraudulent returns; (2) false
returns with intent to evade tax; and (3) failure to file a return, the period
within which to assess tax is ten years from discovery of the fraud,
falsification or omission, as the case may be. It is true that in a query dated
24 August 1989, Altonaga, through his counsel, asked the Opinion of the
BIR on the tax consequence of the two sale transactions. Thus, the BIR was
amply informed of the transactions even prior to the execution of the
necessary documents to effect the transfer. Subsequently, the two sales
were openly made with the execution of public documents and the
declaration of taxes for 1989. However, these circumstances do not negate
the existence of fraud. As earlier discussed those two transactions were
tainted with fraud. And even assuming arguendo that there was no fraud,
we find that the income tax return filed by CIC for the year 1989 was false.
It did not reflect the true or actual amount gained from the sale of the
Cibeles property. Obviously, such was done with intent to evade or reduce
tax liability. As stated above, the prescriptive period to assess the correct
taxes in case of false returns is ten years from the discovery of the falsity.
The false return was filed on 15 April 1990, and the falsity thereof was
claimed to have been discovered only on 8 March 1991. The assessment
for the 1989 deficiency income tax of CIC was issued on 9 January 1995.
Clearly, the issuance of the correct assessment for deficiency income tax
was well within the prescriptive period.
7.
COMMERCIAL LAW; CORPORATION; LIABILITY OF CORPORATE
OFFICERS; INSTANCES WHEN CORPORATE OFFICERS ARE HELD
PERSONALLY LIABLE WITH THE CORPORATION. A corporation has a
juridical personality distinct and separate from the persons owning or
composing it. Thus, the owners or stockholders of a corporation may not
generally be made to answer for the liabilities of a corporation and vice
versa. There are, however, certain instances in which personal liability may
arise. It has been held in a number of cases that personal liability of a
corporate director, trustee, or officer along, albeit not necessarily, with the
corporation may validly attach when: 1. He assents to the (a) patently
unlawful act of the corporation, (b) bad faith or gross negligence in
directing its affairs, or (c) conflict of interest, resulting in damages to the
corporation, its stockholders, or other persons; 2. He consents to the
issuance of watered down stocks or, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto; 3.
He agrees to hold himself personally and solidarily liable with the
corporation; or 4. He is made, by specific provision of law, to personally
answer for his corporate action. TAaIDH
8.
ID.; ID.; ID.; RESPONDENT ESTATE CANNOT DENY LIABILITY FOR
CIC'S DEFICIENCY INCOME TAX FOR THE YEAR 1989, SINCE ITS OBLIGATION

AROSE FROM TODA'S CONTRACTUAL UNDERTAKING IN THE DEED OF SALE

OF SHARES OF STOCK. It is worth noting that when the late Toda sold his
shares of stock to Le Hun T. Choa, he knowingly and voluntarily held
himself personally liable for all the tax liabilities of CIC and the buyer for
the years 1987, 1988, and 1989. . . . When the late Toda undertook and
agreed "to hold the BUYER and Cibeles free from any all income tax
liabilities of Cibeles for the fiscal years 1987, 1988, and 1989," he thereby
voluntarily held himself personally liable therefor.
DECISION
DAVIDE, JR., C.J p:
This Court is called upon to determine in this case whether the tax
planning scheme adopted by a corporation constitutes tax evasion that
would justify an assessment of deficiency income tax. TaHDAS

P254,497.00, it paid P26,341,207 8 for its net taxable income of

P75,987,725.
On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le Hun T.
Choa for P12.5 million, as evidenced by a Deed of Sale of Shares of Stocks.
9 Three and a half years later, or on 16 January 1994, Toda died.
On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an
assessment notice 10 and demand letter to the CIC for deficiency income
tax for the year 1989 in the amount of P79,099,999.22. DIEACH
The new CIC asked for a reconsideration, asserting that the assessment
should be directed against the old CIC, and not against the new CIC, which
is owned by an entirely different set of stockholders; moreover, Toda had
undertaken to hold the buyer of his stockholdings and the CIC free from all
tax liabilities for the fiscal years 19871989. 11

The petitioner seeks the reversal of the Decision 1 of the Court of Appeals
of 31 January 2001 in CA-G.R. SP No. 57799 affirming the 3 January 2000
Decision 2 of the Court of Tax Appeals (CTA) in C.T.A. Case No. 5328, 3
which held that the respondent Estate of Benigno P. Toda, Jr. is not liable for
the deficiency income tax of Cibeles Insurance Corporation (CIC) in the
amount of P79,099,999.22 for the year 1989, and ordered the cancellation
and setting aside of the assessment issued by Commissioner of Internal
Revenue Liwayway Vinzons-Chato on 9 January 1995.

On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by

special co-administrators Lorna Kapunan and Mario Luza Bautista, received
a Notice of Assessment 12 dated 9 January 1995 from the Commissioner of
Internal Revenue for deficiency income tax for the year 1989 in the amount
of P79,099,999.22, computed as follows:

The case at bar stemmed from a Notice of Assessment sent to CIC by the
Commissioner of Internal Revenue for deficiency income tax arising from
an alleged simulated sale of a 16-storey commercial building known as
Cibeles Building, situated on two parcels of land on Ayala Avenue, Makati
City. AHDcCT

Add: Additional gain on sale

On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner
of 99.991% of its issued and outstanding capital stock, to sell the Cibeles
Building and the two parcels of land on which the building stands for an
amount of not less than P90 million. 4
On 30 August 1989, Toda purportedly sold the property for P100 million to
Rafael A. Altonaga, who, in turn, sold the same property on the same day
to Royal Match Inc. (RMI) for P200 million. These two transactions were
evidenced by Deeds of Absolute Sale notarized on the same day by the
same notary public. 5 TcHCDI
For the sale of the property to RMI, Altonaga paid capital gains tax in the
amount of P10 million. 6
On 16 April 1990, CIC filed its corporate annual income tax return 7 for the
year 1989, declaring, among other things, its gain from the sale of real
property in the amount of P75,728.021. After crediting withholding taxes of

Income Tax 1989

Net Income per return

P75,987,725.00

of real property taxable under

ordinary corporate income
but were substituted with
individual capital gains
(P200M 100M)

100,000,000.00

Total Net Taxable Income

P175,987,725.00

per investigation

Tax Due thereof at 35%

P61,595,703.75

Less: Payment already made

1.

Per return

P26,595,704.00

2.

Thru Capital Gains

Tax made by R.A.
Altonaga

10,000,000.00 36,595,704.00

Balance of tax due

P24,999,999.75

Add: 50% Surcharge

12,499,999.88

25% Surcharge

6,249,999.94

Total

P43,749,999.57

Add: Interest 20% from

4/16/90-4/30/94 (.808)

35,349,999.65

TOTAL AMT. DUE & COLLECTIBLE

P79,099,999.22

============
The Estate thereafter filed a letter of protest. 13 THCSEA
In the letter dated 19 October 1995, 14 the Commissioner dismissed the
protest, stating that a fraudulent scheme was deliberately perpetuated by
the CIC wholly owned and controlled by Toda by covering up the additional
gain of P100 million, which resulted in the change in the income structure
of the proceeds of the sale of the two parcels of land and the building
thereon to an individual capital gains, thus evading the higher corporate
income tax rate of 35%.
On 15 February 1996, the Estate filed a petition for review 15 with the CTA
alleging that the Commissioner erred in holding the Estate liable for
income tax deficiency; that the inference of fraud of the sale of the
properties is unreasonable and unsupported; and that the right of the
Commissioner to assess CIC had already prescribed.
In his Answer 16 and Amended Answer, 17 the Commissioner argued that
the two transactions actually constituted a single sale of the property by
CIC to RMI, and that Altonaga was neither the buyer of the property from
CIC nor the seller of the same property to RMI. The additional gain of P100
million (the difference between the second simulated sale for P200 million
and the first simulated sale for P100 million) realized by CIC was taxed at
the rate of only 5% purportedly as capital gains tax of Altonaga, instead of
at the rate of 35% as corporate income tax of CIC. The income tax return
filed by CIC for 1989 with intent to evade payment of the tax was thus

false or fraudulent. Since such falsity or fraud was discovered by the BIR
only on 8 March 1991, the assessment issued on 9 January 1995 was well
within the prescriptive period prescribed by Section 223 (a) of the National
Internal Revenue Code of 1986, which provides that tax may be assessed
within ten years from the discovery of the falsity or fraud. With the sale
being tainted with fraud, the separate corporate personality of CIC should
be disregarded. Toda, being the registered owner of the 99.991% shares of
stock of CIC and the beneficial owner of the remaining 0.009% shares
registered in the name of the individual directors of CIC, should be held
liable for the deficiency income tax, especially because the gains realized
from the sale were withdrawn by him as cash advances or paid to him as
cash dividends. Since he is already dead, his estate shall answer for his
liability. EISCaD
In its decision 18 of 3 January 2000, the CTA held that the Commissioner
failed to prove that CIC committed fraud to deprive the government of the
taxes due it. It ruled that even assuming that a pre-conceived scheme was
adopted by CIC, the same constituted mere tax avoidance, and not tax
evasion. There being no proof of fraudulent transaction, the applicable
period for the BIR to assess CIC is that prescribed in Section 203 of the
NIRC of 1986, which is three years after the last day prescribed by law for
the filing of the return. Thus, the government's right to assess CIC
prescribed on 15 April 1993. The assessment issued on 9 January 1995
was, therefore, no longer valid. The CTA also ruled that the mere ownership
by Toda of 99.991% of the capital stock of CIC was not in itself sufficient
ground for piercing the separate corporate personality of CIC. Hence, the
CTA declared that the Estate is not liable for deficiency income tax of
P79,099,999.22 and, accordingly, cancelled and set aside the assessment
issued by the Commissioner on 9 January 1995.
In its motion for reconsideration, 19 the Commissioner insisted that the
sale of the property owned by CIC was the result of the connivance
between Toda and Altonaga. She further alleged that the latter was a
representative, dummy, and a close business associate of the former,
having held his office in a property owned by CIC and derived his salary
from a foreign corporation (Aerobin, Inc.) duly owned by Toda for
representation services rendered. The CTA denied 20 the motion for
reconsideration, prompting the Commissioner to file a petition for review
21 with the Court of Appeals.
In its challenged Decision of 31 January 2001, the Court of Appeals
affirmed the decision of the CTA, reasoning that the CTA, being more
advantageously situated and having the necessary expertise in matters of
taxation, is "better situated to determine the correctness, propriety, and
legality of the income tax assessments assailed by the Toda Estate." 22

Unsatisfied with the decision of the Court of Appeals, the Commissioner

filed the present petition invoking the following grounds: ACaEcH
I.
THE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT
COMMITTED NO FRAUD WITH INTENT TO EVADE THE TAX ON THE SALE OF
THE PROPERTIES OF CIBELES INSURANCE CORPORATION.
II.
THE COURT OF APPEALS ERRED IN NOT DISREGARDING THE
SEPARATE
CORPORATE
PERSONALITY
OF
CIBELES
INSURANCE
CORPORATION.
III.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE RIGHT OF
PETITIONER TO ASSESS RESPONDENT FOR DEFICIENCY INCOME TAX FOR
THE YEAR 1989 HAD PRESCRIBED.
The Commissioner reiterates her arguments in her previous pleadings and
insists that the sale by CIC of the Cibeles property was in connivance with
its dummy Rafael Altonaga, who was financially incapable of purchasing it.
She further points out that the documents themselves prove the fact of
fraud in that (1) the two sales were done simultaneously on the same date,
30 August 1989; (2) the Deed of Absolute Sale between Altonaga and RMI
was notarized ahead of the alleged sale between CIC and Altonaga, with
the former registered in the Notarial Register of Jocelyn H. Arreza Pabelana
as Doc. 91, Page 20, Book I, Series of 1989; and the latter, as Doc. No. 92,
Page 20, Book I, Series of 1989, of the same Notary Public; (3) as early as 4
May 1989, CIC received P40 million from RMI, and not from Altonaga. The
said amount was debited by RMI in its trial balance as of 30 June 1989 as
investment in Cibeles Building. The substantial portion of P40 million was
withdrawn by Toda through the declaration of cash dividends to all its
stockholders. dctai
For its part, respondent Estate asserts that the Commissioner failed to
present the income tax return of Altonaga to prove that the latter is
financially incapable of purchasing the Cibeles property.
To resolve the grounds raised by the Commissioner, the following questions
are pertinent:
1.

Is this a case of tax evasion or tax avoidance?

2.
Has the period for assessment of deficiency income tax for the
year 1989 prescribed? and
3.
Can respondent Estate be held liable for the deficiency income tax
of CIC for the year 1989, if any?
We shall discuss these questions in seriatim.
Is this a case of tax evasion

or tax avoidance?
Tax avoidance and tax evasion are the two most common ways used by
taxpayers in escaping from taxation. Tax avoidance is the tax saving
device within the means sanctioned by law. This method should be used by
the taxpayer in good faith and at arms length. Tax evasion, on the other
hand, is a scheme used outside of those lawful means and when availed of,
it usually subjects the taxpayer to further or additional civil or criminal
liabilities. 23
Tax evasion connotes the integration of three factors: (1) the end to be
achieved, i.e., the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that a tax is due;
(2) an accompanying state of mind which is described as being "evil," in
"bad faith," "willful," or "deliberate and not accidental"; and (3) a course of
action or failure of action which is unlawful. 24 SITCcE
All these factors are present in the instant case. It is significant to note that
as early as 4 May 1989, prior to the purported sale of the Cibeles property
by CIC to Altonaga on 30 August 1989, CIC received P40 million from RMI,
25 and not from Altonaga. That P40 million was debited by RMI and
reflected in its trial balance 26 as "other inv. Cibeles Bldg." Also, as of 31
July 1989, another P40 million was debited and reflected in RMI's trial
balance as "other inv. Cibeles Bldg." This would show that the real buyer
of the properties was RMI, and not the intermediary Altonaga.
The investigation conducted by the BIR disclosed that Altonaga was a close
business associate and one of the many trusted corporate executives of
Toda. This information was revealed by Mr. Boy Prieto, the assistant
accountant of CIC and an old timer in the company. 27 But Mr. Prieto did
not testify on this matter, hence, that information remains to be hearsay
and is thus inadmissible in evidence. It was not verified either, since the
letter-request for investigation of Altonaga was unserved, 28 Altonaga
having left for the United States of America in January 1990. Nevertheless,
that Altonaga was a mere conduit finds support in the admission of
respondent Estate that the sale to him was part of the tax planning
scheme of CIC. That admission is borne by the records. In its
Memorandum, respondent Estate declared:
Petitioner, however, claims there was a "change of structure" of the
proceeds of sale. Admitted one hundred percent. But isn't this precisely the
definition of tax planning? Change the structure of the funds and pay a
lower tax. Precisely, Sec. 40 (2) of the Tax Code exists, allowing tax free
transfers of property for stock, changing the structure of the property and
the tax to be paid. As long as it is done legally, changing the structure of a
transaction to achieve a lower tax is not against the law. It is absolutely
allowed. HIaTDS

Tax planning is by definition to reduce, if not eliminate altogether, a tax.

Surely petitioner [sic] cannot be faulted for wanting to reduce the tax from
35% to 5%. 29 [Emphasis supplied].

the sale to Altonaga should be disregarded for income tax purposes. 34

The two sale transactions should be treated as a single direct sale by CIC
to RMI. TAIESD

The scheme resorted to by CIC in making it appear that there were two
sales of the subject properties, i.e., from CIC to Altonaga, and then from
Altonaga to RMI cannot be considered a legitimate tax planning. Such
scheme is tainted with fraud.

Accordingly, the tax liability of CIC is governed by then Section 24 of the

NIRC of 1986, as amended (now 27 (A) of the Tax Reform Act of 1997),
which stated as follows:

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." 30
Here, it is obvious that the objective of the sale to Altonaga was to reduce
the amount of tax to be paid especially that the transfer from him to RMI
would then subject the income to only 5% individual capital gains tax, and
not the 35% corporate income tax. Altonaga's sole purpose of acquiring
and transferring title of the subject properties on the same day was to
create a tax shelter. Altonaga never controlled the property and did not
enjoy the normal benefits and burdens of ownership. The sale to him was
merely a tax ploy, a sham, and without business purpose and economic
substance. Doubtless, the execution of the two sales was calculated to
mislead the BIR with the end in view of reducing the consequent income
tax liability. aTEScI
In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which
was prompted more on the mitigation of tax liabilities than for legitimate
business purposes constitutes one of tax evasion. 31
Generally, a sale or exchange of assets will have an income tax incidence
only when it is consummated. 32 The incidence of taxation depends upon
the substance of a transaction. The tax consequences arising from gains
from a sale of property are not finally to be determined solely by the
means employed to transfer legal title. Rather, the transaction must be
viewed as a whole, and each step from the commencement of negotiations
to the consummation of the sale is relevant. A sale by one person cannot
be transformed for tax purposes into a sale by another by using the latter
as a conduit through which to pass title. To permit the true nature of the
transaction to be disguised by mere formalisms, which exist solely to alter
tax liabilities, would seriously impair the effective administration of the tax
policies of Congress. 33
To allow a taxpayer to deny tax liability on the ground that the sale was
made through another and distinct entity when it is proved that the latter
was merely a conduit is to sanction a circumvention of our tax laws. Hence,

Sec. 24.
Rates of tax on corporations. (a) Tax on domestic
corporations. A tax is hereby imposed upon the taxable net income
received during each taxable year from all sources by every corporation
organized in, or existing under the laws of the Philippines, and
partnerships, no matter how created or organized but not including general
professional partnerships, in accordance with the following:
Twenty-five percent upon the amount by which the taxable net income
does not exceed one hundred thousand pesos; and
Thirty-five percent upon the amount by which the taxable net income
exceeds one hundred thousand pesos.
CIC is therefore liable to pay a 35% corporate tax for its taxable net income
in 1989. The 5% individual capital gains tax provided for in Section 34 (h)
of the NIRC of 1986 35 (now 6% under Section 24 (D) (1) of the Tax Reform
Act of 1997) is inapplicable. Hence, the assessment for the deficiency
income tax issued by the BIR must be upheld. aDSHCc
Has the period of
assessment prescribed?
No. Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform
Act of 1997) read:
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 . . ..
Put differently, in cases of (1) fraudulent returns; (2) false returns with
intent to evade tax; and (3) failure to file a return, the period within which
to assess tax is ten years from discovery of the fraud, falsification or
omission, as the case may be.
It is true that in a query dated 24 August 1989, Altonaga, through his
counsel, asked the Opinion of the BIR on the tax consequence of the two

sale transactions. 36 Thus, the BIR was amply informed of the transactions
even prior to the execution of the necessary documents to effect the
transfer. Subsequently, the two sales were openly made with the execution
of public documents and the declaration of taxes for 1989. However, these
circumstances do not negate the existence of fraud. As earlier discussed
those two transactions were tainted with fraud. And even assuming
arguendo that there was no fraud, we find that the income tax return filed
by CIC for the year 1989 was false. It did not reflect the true or actual
amount gained from the sale of the Cibeles property. Obviously, such was
done with intent to evade or reduce tax liability. TSIDEa
As stated above, the prescriptive period to assess the correct taxes in case
of false returns is ten years from the discovery of the falsity. The false
return was filed on 15 April 1990, and the falsity thereof was claimed to
have been discovered only on 8 March 1991. 37 The assessment for the
1989 deficiency income tax of CIC was issued on 9 January 1995. Clearly,
the issuance of the correct assessment for deficiency income tax was well
within the prescriptive period.
Is respondent Estate liable
for the 1989 deficiency
income tax of Cibeles
Insurance Corporation?
A corporation has a juridical personality distinct and separate from the
persons owning or composing it. Thus, the owners or stockholders of a
corporation may not generally be made to answer for the liabilities of a
corporation and vice versa. There are, however, certain instances in which
personal liability may arise. It has been held in a number of cases that
personal liability of a corporate director, trustee, or officer along, albeit not
necessarily, with the corporation may validly attach when: aHcACT
1.
He assents to the (a) patently unlawful act of the corporation, (b)
bad faith or gross negligence in directing its affairs, or (c) conflict of
interest, resulting in damages to the corporation, its stockholders, or other
persons;
2.
He consents to the issuance of watered down stocks or, having
knowledge thereof, does not forthwith file with the corporate secretary his
written objection thereto;
3.
He agrees to hold himself personally and solidarily liable with the
corporation; or
4.
He is made, by specific provision of law, to personally answer for
his corporate action. 38

It is worth noting that when the late Toda sold his shares of stock to Le Hun
T. Choa, he knowingly and voluntarily held himself personally liable for all
the tax liabilities of CIC and the buyer for the years 1987, 1988, and 1989.
Paragraph g of the Deed of Sale of Shares of Stocks specifically provides:
g.
Except for transactions occurring in the ordinary course of
business, Cibeles has no liabilities or obligations, contingent or otherwise,
for taxes, sums of money or insurance claims other than those reported in
its audited financial statement as of December 31, 1989, attached hereto
as "Annex B" and made a part hereof. The business of Cibeles has at all
times been conducted in full compliance with all applicable laws, rules and
regulations. SELLER undertakes and agrees to hold the BUYER and Cibeles
free from any and all income tax liabilities of Cibeles for the fiscal years
1987, 1988 and 1989. 39 [Emphasis Supplied].
When the late Toda undertook and agreed "to hold the BUYER and Cibeles
free from any all income tax liabilities of Cibeles for the fiscal years 1987,
1988, and 1989," he thereby voluntarily held himself personally liable
therefor. Respondent estate cannot, therefore, deny liability for CIC's
deficiency income tax for the year 1989 by invoking the separate
corporate personality of CIC, since its obligation arose from Toda's
contractual undertaking, as contained in the Deed of Sale of Shares of
Stock. ICESTA
WHEREFORE, in view of all the foregoing, the petition is hereby GRANTED.
The decision of the Court of Appeals of 31 January 2001 in CA-G.R. SP No.
57799 is REVERSED and SET ASIDE, and another one is hereby rendered
ordering respondent Estate of Benigno P. Toda Jr. to pay P79,099,999.22 as
deficiency income tax of Cibeles Insurance Corporation for the year 1989,
plus legal interest from 1 May 1994 until the amount is fully paid.
Costs against respondent.
SO ORDERED.

Footnotes
1.
Rollo, 2231. Per Associate Justice Rodrigo V. Cosico, with Associate
Justices Ramon A. Barcelona and Alicia J. Santos concurring.
2.
Id., 3241; CTA Records, 524533. Per Presiding Judge Ernesto D.
Acosta, with Associate Judges Ramon O. De Veyra and Amancio Q. Saga
concurring.
3.
Entitled "The Estate of Benigno P. Toda, Jr., represented by Special
Co-Administrators Lorna Patajo-Kapunan and Mario Luza Bautista versus
Commissioner of Internal Revenue."

4.

CA Rollo, 73.

5.

CA Rollo, 7478; 8892.

6.

Exh. "E," CTA Records, 306.

7.

Exh. "L," CTA Records, 340.

8.

Exh. "M," "M-1," "N" and "N-1," CTA Records, 316317.

9.

Exh. "P," CTA Records, 357365.

31.
See Commissioner of Internal Revenue v. Norton Harrison Co., 120
Phil. 684, 691 (1964); Commissioner of Internal Revenue v. Rufino, G.R. No.
L-33665-68, 27 February 1987, 148 SCRA 42.
32.

Vitug, 138.

33.

Commissioner v. Court Holding Co., 324 U.S. 334 (1945).

34.
See Gregory v. Helvering, 293 U.S. 465 (1935); Frank Lyon Co. v.
United States, 435 U.S. 561 (1978); Commissioner of Internal Revenue v.
Court of Appeals, 361 Phil. 103, 126 (1999) citing Asmussen v. CIR, 36
B.T.A. (F) 878; See also Neff v. U.S., 301 F2d 330; Cohen v. U.S., 192 F Supp
216; Herman v. Comm., 283 F2d 227; Kessner v. Comm., 248 F2d 943;
Comm. V. Pope, 239 F2d 881; U.S. v. Fewel, 255 F2d 396.

10.

BIR Records, 448449.

11.

Id., 446447.

12.

Id., 474475.

13.

Exh. "H," CTA Records, 314315.

14.

Exh. "G," CTA Records, 311312.

15.

CTA Records, 115.

16.

CTA Records, 104111.

17.

Id., 121128.

18.

CTA Records 535540.

(h)
The provisions of paragraph (b) of this section to
the contrary notwithstanding, sales, exchanges or other dispositions of real
property classified as capital assets, including pacto-de-retro sales and
other forms of conditional sale, by individuals, including estates and trusts,
shall be taxed at the rate of 5% based on the gross selling price or the fair
market value prevailing at the time of sale, whichever is higher.

19.

Id., 534, 539.

36.

Exh. "A," CTA Records, 296.

20.

Id., 550; CA Rollo, 32.

37.

Exh. "2," CTA Records, 464.

21.

CA Rollo, 720.

22.

Rollo, 30.

38.
Atrium Management Corporation v. Court of Appeals, G.R. Nos.
109491 and 121794, 28 February 2001, 353 SCRA 23, 31, citing FCY
Construction Group Inc. v. Court of Appeals, G.R. No. 123358, 1 February
2000, 324 SCRA 270.

23.
Jose C. Vitug and Ernesto D. Acosta, Tax Law and Jurisprudence 44
(2nd ed., 2000) (hereafter Vitug).
24.
De Leon, Fundamentals of Taxation 53 (1988 ed.), citing Batter,
Fraud under Federal Tax Law 15 (1953 ed.).
25.

Exh. "3," CTA Records, 476.

26.

Exh. "6," CTA Records, 470.

27.

Exh. "1," CTA Records, 461.

28.

CTA Records, 466.

29.

Respondent's Memorandum, 45; Rollo, 7879.

30.
Commissioner of Internal Revenue v. Court of Appeals, 327 Phil. 1,
33 (1996).

35.

Sec. 34. Capital gains and loses.

xxx

39.

CTA Records, 200201.

xxx

xxx

[G.R. No. 120880. June 5, 1997.]

FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE
COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and HERMINIA D.
DE GUZMAN, respondents.
Ata Habawel Lagmay for petitioner.
Royas, Sales, De Leon & Tecson co-counsel for petitioner.
SYLLABUS
1.
TAXATION; NATIONAL INTERNAL REVENUE CODE; ENFORCEMENT
OF TAX LAWS AND COLLECTION OF TAXES, OF PARAMOUNT IMPORTANCE;
CONFLICTING INTEREST OF AUTHORITIES AND TAXPAYERS MUST BE
RECONCILED TO ACHIEVE REAL PURPOSE OF TAXATION. The
enforcement of tax laws and the collection of taxes, is of paramount
importance for the sustenance of government. Taxes are the lifeblood of
the government and 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 government itself. It is,
therefore, necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is
the promotion of the common good, may be achieved. IEAacT
2.
REMEDIAL LAW; PROBATE COURT; JURISDICTION. The authority
of the Regional Trial Court, sitting, albeit with limited jurisdiction, as a
probate court over estate of deceased individual, is not a trifling thing. The
court's jurisdiction, once invoked, and made effective, cannot be treated
with indifference nor should it be ignored with impunity by the very parties
invoking its authority. It is within the jurisdiction of the probate court to
approve the sale of properties of a deceased person by his prospective
heirs before final adjudication; to determine who are the heirs of the
decedent; the recognition of a natural child; the status of a woman
claiming to be the legal wife of the decedent; the legality of disinheritance
of an heir by the testator; and to pass upon the validity of a waiver of
hereditary rights.
3.
TAXATION; NATIONAL INTERNAL REVENUE CODE; ESTATE TAX;
NATURE OF PROCESS OF COLLECTION. The nature of the process of
estate tax collection has been described as follows: "Strictly speaking, the
assessment of a inheritance tax does not directly involve the
administration of a decedent's estate, although it may be viewed as an
incident to the complete settlement of an estate, and, under some
statutes, it is made the duty of the probate court to make the amount of
the inheritance tax a part of the final decree of distribution of the estate. It
is not against the property of decedent, nor is it a claim against the estate
as such, but it is against the interest or property right which the heir,

legatee, devisee, etc., has in the property formerly held by decedent.

Further, under some statutes, it has been held that it is not a suit or
controversy between the parties, nor it is an adversary proceeding
between the state and the person who owes the tax on the inheritance.
However, under other statutes it has been held that the hearing and
determination of the cash value of the assets and the determination of the
tax are adversary proceedings. The proceeding has been held to be
necessary a proceeding in rem. In the Philippine experience, the
enforcement and collection of estate tax, is executive in character, as the
legislature has seen it fit to ascribe this task to the Bureau of Internal
Revenue. (Section 3 of the National Internal Revenue Code) ASICDH
4.
ID.; ID.; ID.; LIBERAL TREATMENT OF CLAIMS. Thus, it was in Vera
vs. Fernandez that the court recognized the liberal treatment of claims for
taxes charged against the estate of the decedent. Such taxes, we said,
were exempted from the application of the state of non-claims, and this is
justified by the necessity of government funding, immortalized in the
maxim that taxes are the lifeblood of the government. Vectigalia nervi sunt
rei publicae taxes are the sinews of the state. Such liberal treatment of
internal revenue taxes in the probate proceedings extends so far, even to
allowing the enforcement of tax obligations against the heirs of the
decedent, even after distribution of the estate's properties.
5.
ID.; ID.; ID.; COLLECTION THEREOF DOES NOT REQUIRE APPROVAL
OF PROBATE COURT. The approval of the court, sitting in probate, or as a
settlement tribunal over the deceased is not a mandatory requirement in
the collection of estate taxes. It cannot therefore be argued that the Tax
Bureau erred in proceeding with the levying and sale of the properties
allegedly owned by the late President, on the ground that it was required to
seek first the probate court's sanction. There is nothing in the Tax Code,
and in the pertinent remedial laws that implies the necessity of the probate
or estate settlement court's approval of the state's claim for estate taxes,
before the same can be enforced and collected. On the contrary, under
Section 87 of the NIRC, it is the probate or settlement court which is bidden
not to authorize the executor or judicial administrator of the decedent's
estate to deliver any distributive share to any party interested in the
estate, unless it is shown a Certification by the Commissioner of Internal
Revenue that the estate taxes have been paid. This provision disproves the
petitioner's contention that it is the probate court which approves the
assessment and collection of the estate tax. CSTcEI
6.
ID.; ID.; DISTRAINT OR LEVY; REQUIRES FINAL, EXECUTORY AND
DEMANDABLE DEFICIENCY TAX ASSESSMENT; CASE AT BAR. Apart from
failing to file the required estate tax return within the time required for the
filing of the same, petitioner, and the other heirs never questioned the
assessments served upon them, allowing the same to lapse into finality,

and prompting the BIR to collect the said taxes by levying upon the
properties left by President Marcos. The Notices of Levy upon real property
were issued within the prescriptive period and in accordance with the
provisions of the present Tax Code. The deficiency tax assessment, having
already become final executory and demandable, the same can now be
collected through the summary remedy for distraint or levy pursuant to
Section 205 of the NIRC.
7.
ID.; ID.; ESTATE TAX; 10-YEAR PRESCRIPTIVE PERIOD FOR
ASSESSMENT AND COLLECTION OF TAX DEFICIENCY; CASE AT BAR. The
applicable provision in regard to the prescriptive period for the assessment
and collection of tax deficiency in this instance is Section 223 of the NIRC,
which pertinently provides that the case of a false or fraudulent return with
intent to evade tax or of a failure to file a return, the tax may be assessed,
or a proceeding in court for the collection of such tax may be begun
without assessment, at any time within ten (10) years after the discovery
of the falsity, fraud, or omission. The omission to file an estate tax return,
and the subsequent failure to contest or appeal the assessment made by
the BIR is fatal to the petitioner's cause, as under the above-cited
provision, in case of failure to file a return, the tax may be assessed at any
time within ten years after the omission, and any tax so assessed may be
collected by levy upon real property within three years following the
assessment of the tax. Since the estate tax assessment had become final
and unappealable by the petitioner's default as regards protesting the
validity of the said assessment, there is now no reason why the BIR cannot
continue with the collection of the said tax. Any objection against the
assessment should have been pursued following the avenue paved in
Section 229 of the NIRC on protests on assessments of internal revenue
taxes.
8.
REMEDIAL LAW; EVIDENCE; PRESUMPTION THAT OFFICIAL DUTIES
ARE REGULARLY PERFORMED; APPLIED IN CASE AT BAR. It is not the
Department of Justice which is the government agency tasked to
determine the amount of taxes due upon the subject estate, but the
Bureau of Internal Revenue, whose determinations and assessments are
presumed correct and made in good faith. The taxpayer has the duty of
proving otherwise. In the absence of proof of any irregularities in the
performance of official duties, an assessment will not be disturbed. Even
an assessment based on estimates is prima facie valid and lawful where it
does not appear to have been arrived at arbitrarily or capriciously. The
burden of proof is upon the complaining party to show clearly that the
assessment is erroneous. Failure to present proof of error in the
assessment will justify the judicial affirmance of said assessment. In this
instance, petitioner has not pointed out one single provision in the
Memorandum of the Special Audit Team which gave rise to the questioned

assessment, which bears a trace of falsity. Indeed the petitioner's attack on

the assessment bears mainly on the alleged improbable and
unconscionable amount of the taxes charged. But mere rhetoric cannot
supply the basis for the charge of impropriety of the assessment made.
cDACST
9.
ID.; SPECIAL CIVIL ACTION; CERTIORARI; NOT A SUBSTITUTE FOR
LOST APPEAL OF TAX ASSESSMENT. These objections to the assessments
should have been raised, considering the ample remedies afforded the
taxpayer by the Tax Code, with the Bureau of Internal Revenue and the
Court of Tax Appeals, as described earlier, and cannot be raised now via
Petition for Certiorari, under the pretext of grave abuse of discretion. The
course of action taken by the petitioner reflects his disregard or even
repugnance of the established institutions for governance in the scheme of
a well-ordered society. The subject tax assessments having become final
executory and enforceable, the same can no longer be contested by means
of a disguised protest. In the main, Certiorari may not be used as a
substitute for a lost appeal or remedy. This judicial policy becomes more
pronounced in view of the absence of sufficient attack against the
actuations of government.
10.
TAXATION; NATIONAL INTERNAL REVENUE CODE; DISTRAINT OR
LEVY; ESTATE OF THE DECEDENT, NOT THE HEIRS, IS THE DELINQUENT
TAXPAYER; NOTICES TO HEIRS, NOT REQUIRED BY LAW. In the case of
notices of levy issued to satisfy the delinquent estate tax the delinquent
taxpayer is the Estate of the decedent, and not necessarily, and
exclusively, the petitioner as heir of the deceased. In the same vein, in the
matter of income tax delinquency of the late president and his spouse,
petitioner is not the taxpayer liable. Thus, it follows that service of notices
of levy in satisfaction of these tax delinquencies upon the petitioner is not
required by law, as under Section 213 of the NIRC.
11.
CONSTITUTIONAL LAW; BILL OF RIGHTS; DUE PROCESS; NOT
DENIED WHERE PARTY WAS DULY NOTIFIED BUT DISREGARDED
OPPORTUNITY TO RAISE OBJECTIONS ON TAX ASSESSMENT. The record
shows that notices of warrants of distraint and levy of sale were furnished
the counsel of petitioner on April 7, 1993, and June 10 1993, and the
petitioner himself on April 12, 1993 at his office at the Batasang
Pambansa. We cannot, therefore, countenance petitioner's insistence that
he was denied due process. Where there was an opportunity to raise
objections to government action, and such opportunity was disregarded,
for no justifiable reason, the party claiming oppression then becomes the
oppressor of the orderly functions of government. He who comes to court
must come with clean hands. Otherwise, he not only taints his name, but
ridicules the very structure of established authority. TIDHCc

DECISION
TORRES, JR., J p:
In this Petition for Review on Certiorari, Government action is once again
assailed as precipitate and unfair, suffering the basic and oftly implored
requisites of due process of law. Specifically, the petition assails the
Decision 1 of the Court of Appeals dated November 29, 1994 in CA-G.R. SP
No. 31363, where the said court held:
"In view of all the foregoing, we rule that the deficiency income tax
assessments and estate tax assessment, are already final and
(u)nappealable and the subsequent levy of real properties is a tax remedy
resorted to by the government, sanctioned by Section 213 and 218 of the
National Internal Revenue Code. This summary tax remedy is distinct and
separate from the other tax remedies (such as Judicial Civil actions and
Criminal actions), and is not affected or precluded by the pendency of any
other tax remedies instituted by the government.
WHEREFORE, premises considered, judgment is hereby rendered
DISMISSING the petition for certiorari with prayer for Restraining Order and
Injunction.
No pronouncements as to costs.
SO ORDERED."
More than seven years since the demise of the later Ferdinand E. Marcos,
the former President of the Republic of the Philippines, the matter of the
settlement of his estate, and its dues to the government in estate taxes,
are still unresolved, the latter issue being now before this Court for
resolution. Specifically, petitioner Ferdinand R. Marcos II, the eldest son of
the decedent, questions the actuation of the respondent Commissioner of
Internal Revenue in assessing, and collecting through the summary remedy
of Levy on Real Properties, estate and income tax delinquencies upon the
estate and properties of his father, despite the pendency of the
proceedings on probate of the will of the late president, which is docketed
as Sp. Proc. No. 10279 in the Regional Trial Court of Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition for
Certiorari and Prohibition with an application for writ of preliminary
injunction and/or temporary restraining order on June 28, 1993, seeking to

III.
Enjoin the Head Revenue Executive Assistant Director II (Collection
Service), from proceeding with the Auction of the real properties covered
by Notices of Sale.
After the parties had pleaded their case, the Court of Appeals rendered its
Decision 2 on November 29, 1994, ruling that the deficiency assessments
for estate and income tax made upon the petitioner and the estate of the
deceased President Marcos have already become final and unappealable,
and may thus be enforced by the summary remedy of levying upon the
properties of the late President, as was done by the respondent
Commissioner of Internal Revenue.
"WHEREFORE, premises considered judgment is hereby rendered
DISMISSING the petition for Certiorari with prayer for Restraining Order and
Injunction.
No pronouncements as to cost.
SO ORDERED."
Unperturbed, petitioner is now before us assailing the validity of the
appellate court's decision, assigning the following as errors:
A.
RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE
SUMMARY TAX REMEDIES RESORTED TO BY THE GOVERNMENT ARE NOT
AFFECTED AND PRECLUDED BY THE PENDENCY OF THE SPECIAL
PROCEEDING FOR THE ALLOWANCE OF THE LATE PRESIDENT'S ALLEGED
WILL. TO THE CONTRARY, THIS PROBATE PROCEEDING PRECISELY PLACED
ALL PROPERTIES WHICH FORM PART OF THE LATE PRESIDENT'S ESTATE IN
CUSTODIA LEGIS OF THE PROBATE COURT TO THE EXCLUSION OF ALL
OTHER COURTS AND ADMINISTRATIVE AGENCIES.
B.
RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY
DECIDING THAT SINCE THE TAX ASSESSMENTS OF PETITIONER AND HIS
PARENTS HAD ALREADY BECOME FINAL AND UNAPPEALABLE, THERE WAS
NO NEED TO GO INTO THE MERITS OF THE GROUNDS CITED IN THE
PETITION. INDEPENDENT OF WHETHER THE TAX ASSESSMENTS HAD
ALREADY BECOME FINAL, HOWEVER, PETITIONER HAS THE RIGHT TO
QUESTION THE UNLAWFUL MANNER AND METHOD IN WHICH TAX
COLLECTION IS SOUGHT TO BE ENFORCED BY RESPONDENTS
COMMISSIONER AND DE GUZMAN. THUS, RESPONDENT COURT SHOULD
HAVE FAVORABLY CONSIDERED THE MERITS OF THE FOLLOWING GROUNDS
IN THE PETITION:

I.
Annul and set aside the Notices of Levy on real property dated
February 22, 1993 and May 20, 1993, issued by respondent Commissioner
of Internal Revenue;

(1)
The Notices of Levy on Real Property were issued beyond the
period provided in the Revenue Memorandum Circular No. 38-68.

II.

(2)
[a] The numerous pending court cases questioning the late
President's ownership or interests in several properties (both personal and

Annul and set aside the Notices of Sale dated May 26, 1993;

real) make the total value of his estate, and the consequent estate tax due,
incapable of exact pecuniary determination at this time. Thus,
respondents' assessment of the estate tax and their issuance of the
Notices of Levy and Sale are premature, confiscatory and oppressive.
[b]
Petitioner, as one of the late President's compulsory heirs, was
never notified, much less served with copies of the Notices of Levy,
contrary to the mandate of Section 213 of the NIRC. As such, petitioner
was never given an opportunity to contest the Notices in violation of his
right to due process of law.
C.
ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION,
RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT IT HAD NO
POWER TO GRANT INJUNCTIVE RELIEF TO PETITIONER. SECTION 219 OF
THE NIRC NOTWITHSTANDING, COURTS POSSESS THE POWER TO ISSUE A
WRIT OF PRELIMINARY INJUNCTION TO RESTRAIN RESPONDENTS
COMMISSIONER'S AND DE GUZMAN'S ARBITRARY METHOD OF COLLECTING
THE ALLEGED DEFICIENCY ESTATE AND INCOME TAXES BY MEANS OF LEVY.
The facts as found by the appellate court are undisputed, and are hereby
adopted:
"On September 29, 1989, former President Ferdinand Marcos died in
Honolulu, Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to conduct
investigations and examinations of the tax liabilities and obligations of the
late president, as well as that of his family, associates and "cronies". Said
audit team concluded its investigation with a Memorandum dated July 26,
1991. The investigation disclosed that the Marcoses failed to file a written
notice of the death of the decedent, an estate tax returns [sic], as well as
several income tax returns covering the years 1982 to 1986, all in
violation of the National Internal Revenue Code (NIRC).
Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos
before the Regional Trial of Quezon City for violations of Sections 82, 83
and 84 (as penalized under Sections 253 and 254 in relation to Section
252-a & b) of the National Internal Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation and
filing of the Estate Tax Return for the estate of the late president, the
Income Tax Returns of the Spouses Marcos for the years 1985 to 1986, and
the Income Tax Returns of petitioner Ferdinand 'Bongbong' Marcos II for the
years 1982 to 1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax
assessment no. FAC-2-89-91-002464 (against the estate of the late
president Ferdinand Marcos in the amount of P23,293,607,638.00 Pesos);

(2) Deficiency income tax assessment no. FAC-1-85-91-002452 and

Deficiency income tax assessment no. FAC-1-86-91-002451 (against the
Spouses Ferdinand and Imelda Marcos in the amounts of P149,551.70 and
P184,009,737.40 representing deficiency income tax for the years 1985
and 1986); (3) Deficiency income tax assessment nos. FAC-1-82-91-002460
to FAC-1-85-91-002463 (against petitioner Ferdinand 'Bongbong' Marcos II
in the amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and
P6,376.60 Pesos representing his deficiency income taxes for the years
1982 to 1985).
The Commissioner of Internal Revenue avers that copies of the deficiency
estate and income tax assessments were all personally and constructively
served on August 26, 1991 and September 12, 1991 upon Mrs. Imelda
Marcos (through her caretaker Mr. Martinez) at her last known address at
No. 204 Ortega St., San Juan, M.M. (Annexes 'D' and 'E' of the Petition).
Likewise, copies of the deficiency tax assessments issued against
petitioner Ferdinand 'Bongbong' Marcos II were also personally and
constructively served upon him (through his caretaker) on September 12,
1991, at his last known address at Don Mariano Marcos St. corner P.
Guevarra St., San Juan, M.M. (Annexes 'J' and 'J-1' of the Petition).
Thereafter, Formal Assessment notices were served on October 20, 1992,
upon Mrs. Marcos c/o petitioner, at his office, House of Representatives,
Batasan Pambansa, Quezon City. Moreover, a notice to Taxpayer inviting
Mrs. Marcos (or her duly authorized representative to counsel), to a
conference, was furnished the counsel of Mrs. Marcos, Dean Antonio
Coronel but to no avail.
The deficiency tax assessments were not protested administratively, by
Mrs. Marcos and the other heirs of the late president, within 30 days from
service of said assessments.
On February 22, 1993, the BIR Commissioner issued twenty-two notices of
levy on real property against certain parcels of land owned by the
Marcoses to satisfy the alleged estate tax and deficiency income taxes
of Spouses Marcos.
On May 20, 1993, four more Notices of Levy on real property were issued
for the purpose of satisfying the deficiency income taxes.
On May 26, 1993, additional four (4) notices of Levy on real property were
again issued. The foregoing tax remedies were resorted to pursuant to
Sections 205 and 213 of the National Internal Revenue Code (NIRC).
In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata
(counsel of herein petitioner) calling the attention of the BIR and
requesting that they be duly notified of any action taken by the BIR
affecting the interest of their client Ferdinand 'Bongbong' Marcos II, as well

as the interest of the late president copies of the aforesaid notices were
served on April 7, 1993 and on June 10, 1993, upon Mrs. Imelda Marcos,
the petitioner, and their counsel of record, 'De Borja, Medialdea, Ata, Bello,
Guevarra and Serapio Law Office'.
Notices of sale at public auction were posted on May 26, 1993, at the lobby
of the City Hall of Tacloban City. The public auction for the sale of the
eleven (11) parcels of land took place on July 5, 1993. There being no
bidder, the lots were declared forfeited in favor of the government.
On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the
instant petition for certiorari and prohibition under Rule 65 of the Rules of
Court, with prayer for temporary restraining order and/or writ of
preliminary injunction."
It has been repeatedly observed, and not without merit, that the
enforcement of tax laws and the collection of taxes, is of paramount
importance for the sustenance of government. Taxes are the lifeblood of
the government and 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 government itself. It is
therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is
the promotion of the common good, may be achieved. 3
Whether or not the proper avenues of assessment and collection of the
said tax obligations were taken by the respondent Bureau is now the
subject of the Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale
of properties of the late President Marcos effected by the BIR are null and
void for disregarding the established procedure for the enforcement of
taxes due upon the estate of the deceased. The case of Domingo vs.
Garlitos 4 is specifically cited to bolster the argument that "the ordinary
procedure by which to settle claims of indebtedness against the estate of a
deceased, person, as in an inheritance (estate) tax, is for the claimant to
present a claim before the probate court so that said court may order the
administrator to pay the amount therefor." This remedy is allegedly,
exclusive, and cannot be effected through any other means.
Petitioner goes further, submitting that the probate court is not precluded
from denying a request by the government for the immediate payment of
taxes, and should order the payment of the same only within the period
fixed by the probate court for the payment of all the debts of the decedent.
In this regard, petitioner cites the case of Collector of Internal Revenue vs.
The Administratrix of the Estate of Echarri (67 Phil 502), where it was held
that:

"The case of Pineda vs. Court of First Instance of Tayabas and Collector of
Internal Revenue (52 Phil 803), relied upon by the petitioner-appellant is
good authority on the proposition that the court having control over the
administration proceedings has jurisdiction to entertain the claim
presented by the government for taxes due and to order the administrator
to pay the tax should it find that the assessment was proper, and that the
tax was legal, due and collectible. And the rule laid down in that case must
be understood in relation to the case of Collector of Customs vs. Haygood,
supra., as to the procedure to be followed in a given case by the
government to effectuate the collection of the tax. Categorically stated,
where during the pendency of judicial administration over the estate of a
deceased person a claim for taxes is presented by the government, the
court has the authority to order payment by the administrator; but, in the
same way that it has authority to order payment or satisfaction, it also has
the negative authority to deny the same. While there are cases where
courts are required to perform certain duties mandatory and ministerial in
character, the function of the court in a case of the present character is not
one of them; and here, the court cannot be an organism endowed with
latitude of judgment in one direction, and converted into a mere
mechanical contrivance in another direction."
On the other hand, it is argued by the BIR, that the state's authority to
collect internal revenue taxes is paramount. Thus, the pendency of probate
proceedings over the estate of the deceased does not preclude the
assessment and collection, through summary remedies, of estate taxes
over the same. According to the respondent, claims for payment of estate
and income taxes due and assessed after the death of the decedent need
not be presented in the form of a claim against the estate. These can and
should be paid immediately. The probate court is not the government
agency to decide whether an estate is liable for payment of estate of
income taxes. Well-settled is the rule that the probate court is a court with
special and limited jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with
limited jurisdiction, as a probate court over estate of deceased individual,
is not a trifling thing. The court's jurisdiction, once invoked, and made
effective, cannot be treated with indifference nor should it be ignored with
impunity by the very parties invoking its authority.
In testament to this, it has been held that it is within the jurisdiction of the
probate court to approved (sic) the sale of properties of a deceased person
by his prospective heirs before final adjudication; 5 to determine who are
the heirs of the decedent; 6 the recognition of a natural child; 7 the status
of a woman claiming to be the legal wife of the decedent; 8 the legality of
disinheritance of an heir by the testator; 9 and to pass upon the validity of
a waiver of hereditary rights. 10

The pivotal question the court is tasked to resolve refers to the authority of
the Bureau of Internal Revenue to collect by the summary remedy of
levying upon, and sale of real properties of the decedent, estate tax
deficiencies, without the cognition and authority of the court sitting in
probate over the supposed will of the deceased.
The nature of the process of estate tax collection has been described as
follows:
"Strictly speaking, the assessment of an inheritance tax does not directly
involve the administration of a decedent's estate, although it may be
viewed as an incident to the complete settlement of an estate, and, under
some statutes, it is made the duty of the probate court to make the
amount of the inheritance tax a part of the final decree of distribution of
the estate. It is not against the property of decedent, nor is it a claim
against the estate as such, but it is against the interest or property right
which the heir, legatee, devisee, etc., has in the property formerly held by
decedent. Further, under some statutes, it has been held that it is not a
suit or controversy between the parties, nor is it an adversary proceeding
between the state and the person who owes the tax on the inheritance.
However, under other statutes it has been held that the hearing and
determination of the cash value of the assets and the determination of the
tax are adversary proceedings. The proceeding has been held to be
necessarily a proceeding in rem." 11
In the Philippine experience, the enforcement and collection of estate tax,
is executive in character, as the legislature has seen it fit to ascribe this
task to the Bureau of Internal Revenue. Section 3 of the National Internal
Revenue Code attests to this:
"Sec. 3. Powers and duties of the Bureau. The powers and duties of the
Bureau of Internal Revenue shall comprehend the assessment and
collection of all national internal revenue taxes, fees, and charges, and the
enforcement of all forfeitures, penalties, and fines connected therewith,
including the execution of judgments in all cases decided in its favor by the
Court of Tax Appeals and the ordinary courts. Said Bureau shall also give
effect to and administer the supervisory and police power conferred to it
by this Code or other laws."
Thus, it was in Vera vs. Fernandez 12 that the court recognized the liberal
treatment of claims for taxes charged against the estate of the decedent.
Such taxes, we said, were exempted from the application of the statute of
non-claims, and this is justified by the necessity of government funding,
immortalized in the maxim that taxes are the lifeblood of the government.
Vectigalia nervi sunt rei publicae taxes are the sinews of the state.

"Taxes assessed against the estate of a deceased person, after

administration is opened, need not be submitted to the committee on
claims in the ordinary course of administration. In the exercise of its control
over the administrator, the court may direct the payment of such taxes
upon motion showing that the taxes have been assessed against the
estate."
Such liberal treatment of internal revenue taxes in the probate proceedings
extends so far, even to allowing the enforcement of tax obligations against
the heirs of the decedent, even after distribution of the estate's properties.
"Claims for taxes, whether assessed before or after the death of the
deceased, can be collected from the heirs even after the distribution of the
properties of the decedent. They are exempted from the application of the
statute of non-claims. The heirs shall be liable therefor, in proportion to
their share in the inheritance." 13
"Thus, the Government has two ways of collecting the taxes in question.
One, by going after all the heirs and collecting from each one of them the
amount of the tax proportionate to the inheritance received. Another
remedy, pursuant to the lien created by Section 315 of the Tax Code upon
all property and rights to property belong to the taxpayer for unpaid
income tax, is by subjecting said property of the estate which is in the
hands of an heir or transferee to the payment of the tax due the estate.
(Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September
15, 1967.)
From the foregoing, it is discernible that the approval of the court, sitting in
probate, or as a settlement tribunal over the deceased is not a mandatory
requirement in the collection of estate taxes. It cannot therefore be argued
that the Tax Bureau erred in proceeding with the levying and sale of the
properties allegedly owned by the late President, on the ground that it was
required to seek first the probate court's sanction. There is nothing in the
Tax Code, and in the pertinent remedial laws that implies the necessity of
the probate or estate settlement court's approval of the state's claim for
estate taxes, before the same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or
settlement court which is bidden not to authorize the executor or judicial
administrator of the decedent's estate to deliver any distributive share to
any party interested in the estate, unless it is shown a Certification by the
Commissioner of Internal Revenue that the estate taxes have been paid.
This provision disproves the petitioner's contention that it is the probate
court which approves the assessment and collection of the estate tax.

If there is any issue as to the validity of the BIR's decision to assess the
estate taxes, this should have been pursued through the proper
administrative and judicial avenues provided for by law.
Section 229 of the NIRC tells us how:
"Sec. 229.
Protesting of assessment. When the Commissioner of
Internal Revenue or his duly authorized representative finds that proper
taxes should be assessed, he shall first notify the taxpayer of his findings.
Within a period to be prescribed by implementing regulations, the taxpayer
shall be required to respond to said notice. If the taxpayer fails to respond,
the Commissioner shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation in such form and manner as may be
prescribed by implementing regulations within (30) days from receipt of
the assessment; otherwise, the assessment shall become final and
unappealable.
If the protest is denied in whole or in part, the individual, association or
corporation adversely affected by the decision on the protest may appeal
to the Court of Tax Appeals within thirty (30) days from receipt of said
decision; otherwise, the decision shall become final, executory and
demandable. (As inserted by P.D. 1773)"
Apart from failing to file the required estate tax return within the time
required for the filing of the same, petitioner, and the other heirs never
questioned the assessments served upon them, allowing the same to lapse
into finality, and prompting the BIR to collect the said taxes by levying
upon the properties left by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may have
been validly undertaken by the Government, collection thereof may have
been done in violation of the law. Thus, the manner and method in which
the latter is enforced may be questioned separately, and irrespective of the
finality of the former, because the Government does not have the
unbridled discretion to enforce collection without regard to the clear
provision of law." 14
Petitioner specifically points out that applying Memorandum Circular No.
38-68, implementing Sections 318 and 324 of the old tax code (Republic
Act 5203), the BIR's Notices of Levy on the Marcos properties, were issued
beyond the allowed period, and are therefore null and void:
". . . the Notices of Levy on Real Property (Annexes O to NN of Annex C of
this Petition) in satisfaction of said assessments were still issued by
respondents well beyond the period mandated in Revenue Memorandum
Circular No. 38-68. These Notices of Levy were issued on 22 February 1993

and 20 May 1993 when at least seventeen (17) months had already lapsed
from the last service of tax assessment on 12 September 1991. As no
notices of distraint of personal property were first issued by respondents,
the latter should have complied with Revenue Memorandum Circular No.
38-68 and issued these Notices of Levy not earlier than three (3) months
nor later than six (6) months from 12 September 1991. In accordance with
the Circular, respondents only had until 12 March 1992 (the last day of the
sixth month) within which to issue these Notices of Levy. The Notices of
Levy, having been issued beyond the period allowed by law, are thus void
and of no effect." 15
We hold otherwise. The Notices of Levy upon real property were issued
within the prescriptive period and in accordance with the provisions of the
present Tax Code. The deficiency tax assessment, having already become
final, executory, and demandable, the same can now be collected through
the summary remedy of distraint or levy pursuant to Section 205 of the
NIRC.
The applicable provision in regard to the prescriptive period for the
assessment and collection of tax deficiency in this instance is Section 223
of the NIRC, which pertinently provides:
"Sec. 223.
Exceptions as to a 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 a failure to file a return, the tax may be assessed,
or a proceeding in court for the collection of such tax may be begun
without assessment, at any time within ten (10) years after the discovery
of the falsity, fraud, or omission: Provided, That, in 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 the collection thereof. cdphil
xxx

xxx

xxx

(c)
Any internal revenue tax which has been assessed within the
period of limitation above prescribed, may be collected by distraint or levy
or by a proceeding in court within three years following the assessment of
the tax.
xxx

xxx

xxx

The omission to file an estate tax return, and the subsequent failure to
contest or appeal the assessment made by the BIR is fatal to the
petitioner's cause, as under the above-cited provision, in case of failure to
file a return, the tax may be assessed at any time within ten years after
the omission, and any tax so assessed may be collected by levy upon real
property within three years following the assessment of the tax. Since the
estate tax assessment had become final and unappealable by the
petitioner's default as regards protesting the validity of the said

assessment, there is now no reason why the BIR cannot continue with the
collection of the said tax. Any objection against the assessment should
have been pursued following the avenue paved in Section 229 of the NIRC
on protests on assessments of internal revenue taxes.
Petitioner further argues that "the numerous pending court cases
questioning the late president's ownership or interests in several properties
(both real and personal) make the total value of his estate, and the
consequent estate tax due, incapable of exact pecuniary determination at
this time. Thus, respondents' assessment of the estate tax and their
issuance of the Notices of Levy and sale are premature and oppressive."
He points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034
and 0141, which were filed by the government to question the ownership
and interests of the late President in real, and personal properties located
within and outside the Philippines. Petitioner, however, omits to allege
whether the properties levied upon the BIR in the collection of estate taxes
upon the decedent's estate were among those involved in the said cases
pending in the Sandiganbayan. Indeed, the court is at a loss as to how
these cases are relevant to the matter at issue. The mere fact that the
decedent has pending cases involving ill-gotten wealth does not affect the
enforcement of tax assessments over the properties indubitably included in
his estate.
Petitioner also expresses his reservation as to the propriety of the BIR's
total assessment of P23,292,607,638.00, stating that this amount deviates
from the findings of the Department of Justice's Panel of Prosecutors as per
its resolution of 20 September 1991. Allegedly, this is clear evidence of the
uncertainty on the part of the Government as to the total value of the
estate of the late President.
This is, to our mind, the petitioner's last ditch effort to assail the
assessment of estate tax which had already become final and
unappealable.
It is not the Department of Justice which is the government agency tasked
to determine the amount of taxes due upon the subject estate, but the
Bureau of Internal Revenue, 16 whose determinations and assessments are
presumed correct and made in good faith. 17 The taxpayer has the duty of
proving otherwise. In the absence of proof of any irregularities in the
performance of official duties, an assessment will not be disturbed. Even
an assessment based on estimates is prima facie valid and lawful where it
does not appear to have been arrived at arbitrarily or capriciously. The
burden of proof is upon the complaining party to show clearly that the
assessment is erroneous. Failure to present proof of error in the
assessment will justify the judicial affirmance of said assessment. 18 In this
instance, petitioner has not pointed out one single provision in the

Memorandum of the Special Audit Team which gave rise to the questioned
assessment, which bears a trace of falsity. Indeed, the petitioner's attack
on the assessment bears mainly on the alleged improbable and
unconscionable amount of the taxes charged. But mere rhetoric cannot
supply the basis for the charge of impropriety of the assessments made.
Moreover, these objections to the assessments should have been raised,
considering the ample remedies afforded the taxpayer by the Tax Code,
with the Bureau of Internal Revenue and the Court of Tax Appeals, as
described earlier, and cannot be raised now via Petition for Certiorari,
under the pretext of grave abuse of discretion. The course of action taken
by the petitioner reflects his disregard or even repugnance of the
established institutions for governance in the scheme of a well-ordered
society. The subject tax assessments having become final, executory and
enforceable, the same can no longer be contested by means of a disguised
protest. In the main, Certiorari may not be used as a substitute for a lost
appeal or remedy. 19 This judicial policy becomes more pronounced in view
of the absence of sufficient attack against the actuation of government.
On the matter of sufficiency of service of Notices of Assessment to the
petitioner, we find the respondent appellate court's pronouncements sound
and resilient to petitioner's attacks.
"Anent grounds 3(b) and (B) both alleging/claiming lack of notice We
find, after considering the facts and circumstances, as well as evidences,
that there was sufficient, constructive and/or actual notice of assessments,
levy and sale, sent to herein petitioner Ferdinand "Bongbong" Marcos as
well as to his mother Mrs. Imelda Marcos.
Even if we are to rule out the notices of assessments personally given to
the caretaker of Mrs. Marcos at the latter's last known address, on August
26, 1991 and September 12, 1991, as well as the notices of assessment
personally given to the caretaker of petitioner also at his last known
address on September 12, 1991 the subsequent notices given thereafter
could no longer be ignored as they were sent at a time when petitioner was
already here in the Philippines, and at a place where said notices would
surely be called to petitioner's attention, and received by responsible
persons of sufficient age and discretion.
Thus, on October 20, 1992, formal assessment notices were served upon
Mrs. Marcos c/o the petitioner, at his office, House of Representatives,
Batasan Pambansa, Q.C. (Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210,
Comment/Memorandum of OSG). Moreover, a notice to taxpayer dated
October 8, 1992 inviting Mrs. Marcos to a conference relative to her tax
liabilities, was furnished the counsel of Mrs. Marcos Dean Antonio
Coronel (Annex "B", p. 211, ibid). Thereafter, copies of Notices were also
served upon Mrs. Imelda Marcos, the petitioner and their counsel "De

Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office", on April 7,
1993. Despite all of these Notices, petitioner never lifted a finger to protest
the assessments, (upon which the Levy and sale of properties were based),
nor appealed the same to the Court of Tax Appeals.
Their being sufficient service of Notices to herein petitioner (and his
mother) and it appearing that petitioner continuously ignored said Notices
despite several opportunities given him to file a protest and to thereafter
appeal to the Court of Tax Appeals, the tax assessments subject of this
case, upon which the levy and sale of properties were based, could no
longer be contested (directly or indirectly) via this instant petition for
certiorari." 20
Petitioner argues that all the questioned Notices of Levy, however, must be
nullified for having been issued without validly serving copies thereof to
the petitioner. As a mandatory heir of the decedent, petitioner avers that
he has an interest in the subject estate, and notices of levy upon its
properties should have been served upon him.
We do not agree. In the case of notices of levy issued to satisfy the
delinquent estate tax, the delinquent taxpayer is the Estate of the
decedent, and not necessarily and exclusively, the petitioner as heir of the
deceased. In the same vein, in the matter of income tax delinquency of the
late president and his spouse, petitioner is not the taxpayer liable. Thus, it
follows that service of notices of levy in satisfaction of these tax
delinquencies upon the petitioner is not required by law, as under Section
213 of the NIRC, which pertinently states:
"xxx

xxx

xxx

Levy shall be effected by writing upon said certificate a description of the

property upon which levy is made. At the same time, written notice of the
levy shall be mailed to or served upon the Register of Deeds of the
province or city where the property is located and upon the delinquent
taxpayer, or if he be absent from the Philippines, to his agent or the
manager of the business in respect to which the liability arose, or if there
be none, to the occupant of the property in question.
xxx

xxx

government. He who comes to court must come with clean hands.

Otherwise, he not only taints his name, but ridicules the very structure of
established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The
Decision of the Court of Appeals dated November 29, 1994 is hereby
AFFIRMED in all respects.
SO ORDERED.

Footnotes
1.
Penned by Associate Justice Asaali S. Isnani, Chairman; Justices
Corona Ibay Somera and Celia Lipana Reyes, concurring.
2.

Annex "A", Petition, p. 80, Rollo.

3.
Commissioner of Internal Revenue vs. Algue, Inc. et al., G.R. No. L28896, February 17, 1988, 158 SCRA 9.
4.

G.R. No. L-18994, June 29, 8 SCRA 443.

5.
Acebedo vs. Abesamis, G.R. No. 102380, 18 January 1993, 217
SCRA 186.
6.

Reyes vs. Ysip, G.R. No. 7516, May 12, 1955, 97 Phil II.

7.

Gaas vs. Fortich, G.R. No. 3154, Dec. 28, 1929, 54 Phil 196.

8.

Torres vs. Javier, May 24, 1916, 34 Phil 382.

9.
81.

Pecson vs. Mediavillo, G.R. No. 7890, September 29, 1914, 28 Phil

10.

Borromeo-Herrera vs. Borromeo, et al., L-41171, July 23, 1982.

11.

85 C.J.S. # 1191, pp. 1056-1057.

12.

No. L-31364, March 30, 1979, 89 SCRA 199.

xxx"

The foregoing notwithstanding, the record shows that notices of warrants

of distraint and levy of sale were furnished the counsel of petitioner on
April 7, 1993, and June 10, 1993, and the petitioner himself on April 12,
1993 at his office at the Batasang Pambansa. 21 We cannot therefore,
countenance petitioner's insistence that he was denied due process. Where
there was an opportunity to raise objections to government action, and
such opportunity was disregarded, for no justifiable reason, the party
claiming oppression then becomes the oppressor of the orderly functions of

13.
Pineda vs. Court of First Instance of Tayabas, G.R. No. 30921,
February 16, 1929, 52 Phil. 805; Government vs. Pamintuan, G.R. No.
33139, October 11, 1930, 55 Phil. 13.
14.

Petition, p. 50, Rollo.

15.

Ibid., pp. 57-58.

16.

Section 16, National Internal Revenue Code.

17.
Interprovincial Autobus Co., Inc. vs. Collector of Internal Revenue,
G.R. No. 6741, January 31, 1956, 98 Phil 290; CIR vs. Construction
Resources Asia, Inc., G.R. No. 98230, November 25, 1986, 145 SCRA 671;
Sy Po vs. Court of Tax Appeals, et al., G.R. No. L-81446, August 18, 1988,
164 SCRA 524; CIR vs. Bohol Land Transportation Co., 58 O.G. 2407 (1960).
18.

Gutierrez vs. Villegas, G.R. No. L-17117, July 31, 1963, 8 SCRA 527.

19.

De la Paz vs. Panis, G.R. No. 57023, June 22, 1995, 245 SCRA 242.

20.

Court of Appeals Decision, pp. 12-13, Rollo.

21.
Affidavit of Service by the Revenue Officer of the Collection and
Enforcement Division of the BIR, Annex "D", Comment/Memorandum of the
Commissioner of Internal Revenue in the Court of Appeals.

[G.R. Nos. 130371 & 130855. August 4, 2009.]

REPUBLIC OF THE PHILIPPINES, petitioner, vs. FERDINAND R. MARCOS II
and IMELDA R. MARCOS, respondents.
DECISION
PERALTA, J p:
Before this Court is a Petition for Review on Certiorari 1 under Rule 45 of
the Rules of Court, seeking to set aside the March 13, 1997 Decision 2 and
August 27, 1997 Resolution 3 of the Court of Appeals (CA) in CA-G.R. SP
No. 43450. aHTcDA
The facts of the case are as follows:
On January 11, 1996, the Regional Trial Court (RTC) of Pasig City Branch
156, acting as a probate court, in Special Proceeding No. 10279, issued an
Order 4 granting letters testamentary in solidum to respondents Ferdinand
R. Marcos II and Imelda Trinidad Romualdez-Marcos as executors of the last
will and testament of the late Ferdinand E. Marcos.
The dispositive portion of the January 11, 1996 Order reads:
WHEREFORE, finding the Last Will and Testament of Ferdinand Edralin
Marcos to have been duly executed in accordance with law, the same is
hereby ALLOWED AND ADMITTED TO PROBATE.
Upon the filing of a bond in the amount of P50,000.00, let letters
testamentary be issued in solidum to Imelda Trinidad Romualdez-Marcos
AND Ferdinand Romualdez Marcos II, named executors therein. TSIDEa
Pending the filing of said bond and their oath, Commissioner Liwayway
Vinzons-Chato of the Bureau of Internal Revenue is hereby authorized to
continue her functions as Special Administrator of the Estate of Ferdinand
Edralin Marcos.
Let NOTICE be given to all known heirs and creditors of the decedent, and
to any other persons having an interest in the estate for them to lay their
claim against the Estate or forever hold their peace.
SO ORDERED. 5
On January 15, 1996, the petitioner Republic of the Philippines filed a
Motion for Partial Reconsideration 6 in so far as the January 11, 1996 RTC
Order granted letters testamentary to respondents. On the other hand,
respondent Imelda Marcos filed her own motion for reconsideration on the
ground that the will is lost and that petitioner has not proven its existence
and validity.

On February 5, 1996, respondent Ferdinand Marcos II filed a Compliance

stating that he already filed a bond in the amount of P50,000.00 as
directed by the January 11, 1996 RTC Order and that he took his oath as
named executor of the will on January 30, 1996. aEDCSI
On March 13, 1996, the RTC issued Letters of Administration 7 to BIR
Commissioner Liwayway Vinzons-Chato in accordance with an earlier Order
dated September 9, 1994, appointing her as Special Administratrix of the
Marcos Estate.
On April 1, 1996, respondent Ferdinand Marcos II filed a Motion to Revoke
the Letters of Administration issued by the RTC to BIR Commissioner
Vinzons-Chato.
On April 26, 1996, the RTC issued an Order 8 denying the motion for partial
reconsideration filed by petitioner as well as the motion for reconsideration
filed by respondent Imelda Marcos, the penultimate portion of which reads:
Under the Rules, a decedent's testamentary privilege must be accorded
utmost respect. Guided by this legal precept, therefore, in resolving the
two (2) motions at hand, the Court is constrained to DENY both.
Examining the arguments poised by the movants, the Court observed that
these are but a mere rehash of issues already raised and passed upon by
the Court. CIDaTc
One has to review the previous orders issued by the Court in this case,
e.g., the orders dated September 9, 1994, November 25, 1994, as well as
October 3, 1995, to see that even as far back then, the Court has
considered the matter of competency of the oppositors and of
Commissioner Liwayway Vinzons-Chato as having been settled.
It cannot be overstressed that the assailed January 11, 1996 Orders of the
Court was arrived at only after extensive consideration of every legal facet
available on the question of validity of the Will.
WHEREFORE, for lack of merit, the motion for reconsideration filed
separately by petitioner Republic and oppositor Imelda R. Marcos are both
DENIED.
SO ORDERED. 9
On June 6, 1996, petitioner filed with this Court a Petition for Review on
Certiorari, under Ruled 45 of the Rules of Court, questioning the
aforementioned RTC Orders granting letters testamentary to respondents.
On February 5, 1997, the First Division of this Court issued a Resolution
referring the petition to the CA, to wit:
xxx

xxx

xxx

The special civil action for certiorari as well as all the other pleadings filed
herein are REFERRED to the Court of Appeals for consideration and
adjudication on the merits or any other action as it may deem appropriate,
the latter having jurisdiction concurrent with this Court over the Case, and
this Court having been cited to no special and important reason for it to
take cognizance of said case in the first instance. 10 (Emphasis and
Underscoring Supplied) TcEaDS
On March 13, 1997, the CA issued a Decision, 11 dismissing the referred
petition for having taken the wrong mode of appeal, the pertinent portions
of which reads:
Consequently, for having taken the wrong mode of appeal, the present
petition should be dismissed in accordance with the same Supreme Court
Circular 2-90 which expressly provides that:

THE PROBATE COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT ITS

ORDER OF JANUARY 11, 1996, WHICH ADMITTED THE MARCOS WILL TO
PROBATE AND WHICH DIRECTED THE ISSUANCE OF LETTERS
TESTAMENTARY IN SOLIDUM TO PRIVATE RESPONDENTS AS EXECUTORS OF
SAID MARCOS WILL, WAS BASED ON THE EVIDENCE OF THE REPUBLIC
ALONE.
V.
THE PROBATE COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT BOTH
PRIVATE RESPONDENTS HAVE OBSTRUCTED THE TRANSFER TO THE
PHILIPPINES OF THE MARCOS ASSETS DEPOSITED IN THE SWISS BANKS. 15
In the meantime, on October 9, 2002, the RTC, acting on the pending
unresolved motions before it, issued an Order 16 which reads: SDEITC

IN VIEW OF THE FOREGOING, the instant petition for review is hereby

DISMISSED.

WHEREFORE, the Court hereby appoints as joint special administrators of

the estate of the late Ferdinand E. Marcos, the nominee of the Republic of
the Philippines (the Undersecretary of the Department of Justice whom the
Secretary of Justice will designate for this purpose) and Mrs. Imelda
Romualdez Marcos and Mr. Ferdinand R. Marcos II, to serve as such until an
executor is finally appointed.

SO ORDERED. 12

SO ORDERED.

Petitioner filed a Motion for Reconsideration, 13 which was, however

denied by the CA in a Resolution 14 dated August 27, 1997.

The petition is without merit.

4.
Erroneous Appeals An appeal taken to either the Supreme Court
or the Court of Appeals by the wrong or inappropriate mode shall be
dismissed.

Hence, herein petition, with petitioner raising the following assignment of

errors, to wit: IAEcaH

When the assailed Orders granting letters testamentary in solidum to

respondents were issued by the RTC, petitioner sought to question them by
filing a petition for review on certiorari under Rule 45 of the Rules of Court.

I.

Supreme Court Circular No. 2-90, 17 which was then in effect, reads:

THE COURT OF APPEALS GRAVELY ERRED IN DISMISSING THE PETITION ON

TECHNICAL GROUNDS DESPITE THE SUPREME COURT RESOLUTION
SPECIFICALLY REFERRING SAID PETITION FOR A DECISION ON THE MERITS.

2.
Appeals from Regional Trial Courts to the Supreme Court. Except
in criminal cases where the penalty imposed is life imprisonment to
reclusion perpetua, judgments of regional trial courts may be appealed to
the Supreme Court only by petition for review on certiorari in accordance
with Rule 45 of the Rules of Court in relation to Section 17 of the Judiciary
Act of 1948, as amended, this being the clear intendment of the provision
of the Interim Rules that "(a)ppeals to the Supreme Court shall be taken by
petition for certiorari which shall be governed by Rule 45 of the Rules of
Court. (Emphasis and Underscoring Supplied) aITECD

II.
THE PROBATE COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT
RESPONDENTS IMELDA R. MARCOS AND FERDINAND R. MARCOS II SHOULD
BE DISQUALIFIED TO ACT AND SERVE AS EXECUTORS.
III.
THE PROBATE COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT SAID
PRIVATE RESPONDENTS HAVE DENIED AND DISCLAIMED THE VERY
EXISTENCE AND VALIDITY OF THE MARCOS WILL. ETHSAI
IV.

The pertinent portions of Section 17 18 of the Judiciary Act of 1948 read:

The Supreme Court shall further have exclusive jurisdiction to review,
revise, reverse, modify or affirm on certiorari as the law or rules of court
may provide, final judgments and decrees of inferior courts as herein
provided, in

(1)
All cases in which the constitutionality or validity of any treaty, law,
ordinance, or executive order or regulation is in question;

Also, in Southern Negros Development Bank v. Court of Appeals, 22 this

Court ruled:

(2)
All cases involving the legality of any tax, impost, assessment or
toll, or any penalty imposed in relation thereto;

It is incumbent upon private respondent qua appellants to utilize the

correct mode of appeal of the decisions of trial courts to the appellate
courts. In the mistaken choice of their remedy, they can blame no one but
themselves (Jocson v. Baguio, 179 SCRA 550 [1989]; Yucuanseh Drug Co. v.
National Labor Union, 101 Phil. 409 [1957]).

(3)
All cases in which the jurisdiction of any inferior court is in issue;
ETDAaC
(4)
All other cases in which only errors or questions of law are
involved: Provided, however, That if, in addition to constitutional, tax or
jurisdictional questions, the cases mentioned in the three next preceding
paragraphs also involve questions of fact or mixed questions of fact and
law, the aggrieved party shall appeal to the Court of Appeals; and the final
judgment or decision of the latter may be reviewed, revised, reversed,
modified or affirmed by the Supreme Court on writ of certiorari; and
(5)
Final awards, judgments, decisions or orders of the Commission on
Elections, Court of Tax Appeals, Court of Industrial Relations, the Public
Service Commission, and the Workmen's Compensation Commission.
A reading of Supreme Court Circular 2-90, in relation to Section 17 of the
Judiciary Act of 1948, clearly shows that the subject matter of therein
petition, that is, the propriety of granting letters testamentary to
respondents, do not fall within any ground which can be the subject of a
direct appeal to this Court. The CA was thus correct in declaring that the
"issues raised by petitioner do not fall within the purview of Section 17 of
the Judiciary Act of 1948 such that the Supreme Court should take
cognizance of the instant case". 19
Moreover, the Court's pronouncement in Suarez v. Judge Villarama 20 is
instructive: STcHDC
Section 4 of Circular No. 2-90, in effect at the time of the antecedents,
provides that an appeal taken to either the Supreme Court or the Court of
Appeals by the wrong mode or inappropriate mode shall be dismissed. This
rule is now incorporated in Section 5, Rule 56 of the 1997 Rules of Civil
Procedure.
Moreover, the filing of the case directly with this Court runs afoul of the
doctrine of hierarchy of courts. Pursuant to this doctrine, direct resort from
the lower courts to the Supreme Court will not be entertained unless the
appropriate remedy cannot be obtained in the lower tribunals. This Court is
a court of last resort, and must so remain if it is to satisfactorily perform
the functions assigned to it by the Constitution and immemorial tradition.
Thus, a petition for review on certiorari assailing the decision involving
both questions of fact and law must first be brought before the Court of
Appeals. 21

xxx

xxx

xxx

Pursuant to Section 4 of Circular No. 2-90, which provides that "[a]n appeal
taken to either the Supreme Court or the Court of Appeals by the wrong
mode or inappropriate mode shall be dismissed", the only course of action
of the Court to which an erroneous appeal is made is to dismiss the same.
There is no longer any justification for allowing transfers of erroneous
appeals from one court to another (Quesada v. Court of Appeals, G.R. No.
93869, November 12, 1990, First Division, Minute Resolution). 23 AcIaST
Based on the foregoing, petitioner cannot deny that the determination of
whether or not respondents should be disqualified to act as executors is a
question of fact. Hence, the proper remedy was to appeal to the CA, not to
this Court.
Petitioner is adamant, however, that notwithstanding the improper remedy,
the CA should not have dismissed therein petition. Petitioner argues in the
wise:
However, as can be seen in the Resolution of February 5, 1997, (Annex
"H") this Honorable Court deemed it more proper to transmit the first
Petition for Review to respondent appellate court for the reason that:
This Court having been cited to no special and important reason for it to
take cognizance of said case in the first instance. . . .
It would appear then that even though this Honorable Court apparently
considers the Republic's petition as deserving to be given due course, it
deemed it in the best interest of the parties concerned if the Court of
Appeals would first take cognizance of said case, thereby preserving its
stance as a court of last resort. ITEcAD
Additionally, this Honorable Court itself plainly stated that the case under
review is:
. . . REFERRED to the Court of Appeals for consideration and adjudication
on the merit . . . The latter having jurisdiction concurrent with this Court
over the case . . . 24
Petitioner' s arguments are misplaced. To stress, the February 5, 1997
Resolution reads:

The special civil action for certiorari as well as all the other pleadings filed
herein are REFERRED to the Court of Appeals for consideration and
adjudication on the merits or any other action as it may deem appropriate,
the latter having jurisdiction concurrent with this Court over the Case, and
this Court having been cited to no special and important reason for it to
take cognizance of said case in the first instance. 25
Based thereon, this Court agrees with the ruling of the CA that said
resolution gave the CA discretion and latitude to decide the petition as it
may deem proper. The resolution is clear that the petition was referred to
the CA for consideration and adjudication on the merits or any other action
as it may deem appropriate. Thus, no error can be attributed to the CA
when the action it deemed appropriate was to dismiss the petition for
having availed of an improper remedy. More importantly, the action of the
CA was sanctioned under Section 4 of Supreme Court Circular 2-90 which
provides that "an appeal taken to either the Supreme Court or the Court of
Appeals by the wrong mode or inappropriate mode shall be dismissed".
Moreover, petitioner mistakenly relies in Oriental Media, Inc. v. Court of
Appeals, 26 in which this Court made the following pronouncements:
IAEcCT
In the case at bar, there was no urgency or need for Oriental to resort to
the extraordinary remedy of certiorari for when it learned of the case and
the judgment against it on July 25, 1986, due to its receipt of a copy of the
decision by default; no execution had as yet been ordered by the trial
court. As aforementioned, Oriental had still the time and the opportunity to
file a motion for reconsideration, as was actually done. Upon the denial of
its motion for reconsideration in the first case, or at the latest upon the
denial of its petition for relief from judgment, Oriental should have
appealed. Oriental should have followed the procedure set forth in the
Rules of Court for
Rules of procedure are intended to ensure the orderly administration of
justice and the protection of substantive rights in judicial and extrajudicial
proceedings. It is a mistake to purpose that substantive law and adjective
law are contradictory to each other or, as has often been suggested, that
enforcement of procedural rules should never be permitted if it will result
in prejudice to the substantive rights of the litigants. This is not exactly
true; the concept is much misunderstood. As a matter of fact, the policy of
the courts is to give effect to both kinds of law, as complementing each
other, in the just and speedy resolution of the dispute between the parties.
Observance of both substantive rights is equally guaranteed by due
process whatever the source of such rights, be it the Constitution itself or
only a statute or a rule of court. 27 ADSTCa

In the case at bar, as found by this Court in its February 5, 1997 Resolution,
therein petition offered no important or special reason for the Court to take
cognizance of it at the first instance. Petitioner offered no plausible reason
why it went straight to this Court when an adequate and proper remedy
was still available. The CA was thus correct that the remedy that petitioner
should have availed of was to file an appeal under Rule 109 of the Rules of
Court which states:
Section 1.
Orders of judgments from which appeals taken. An
interested person may appeal in special proceedings from an order or
judgment rendered by a Court of First Instance or a Juvenile and Domestic
Relations Court, where such order or judgment:
(a)

allows or disallows a will;

Because of the preceding discussion, herein petition must necessarily fail.

However, even if this Court were to set aside petitioners' procedural
lapses, a careful review of the records of the case reveal that herein
petition is without merit.
At the crux of the controversy is a determination of whether or not
respondents are incompetent to serve as executors of the will of Ferdinand
Marcos. cDTaSH
Ozeata v. Pecson 28 is instructive:
The choice of his executor is a precious prerogative of a testator, a
necessary concomitant of his right to dispose of his property in the manner
he wishes. It is natural that the testator should desire to appoint one of his
confidence, one who can be trusted to carry out his wishes in the disposal
of the estate. The curtailment of this right may be considered as a
curtailment of the right to dispose. And as the rights granted by will take
effect from the time of death (Article 777, Civil Code of the Philippines), the
management of his estate by the administrator of his choice should be
made as soon as practicable, when no reasonable objection to his
assumption of the trust can be interposed any longer. It has been held that
when a will has been admitted to probate, it is the duty of the court to
issue letters testamentary to the person named as executor upon his
application (23 C.J. 1023).
xxx

xxx

xxx

The case of In re Erlanger's Estate, 242 N.Y.S. 249, also reiterates the
same principle.
The courts have always respected the right to which a testator enjoys to
determine who is most suitable to settle his testamentary affairs, and his
solemn selection should not lightly be disregarded. After the admission of a
will to probate, the courts will not name a better executor for the testator

nor disqualify, by a judicial veto, the widow or friend or other person

selected in the will, except upon strict proof of the statutory grounds of
incompetency. Matter of Leland's Will, 219 N.Y. 387, 393, 114 N.E. 854. . . .
29 SaICcT

disqualification. However, after a painstaking review of the records and

evidence on hand, this Court finds that the RTC committed no error or
gross abuse of discretion when it ruled that petitioner failed to substantiate
its allegation.

Section 1 (c), Rule 78 of the Rules of Court defines who are incompetent to
serve as executors, to wit:

Petitioner conveniently omits to state that the two cases against

respondent Imelda Marcos have already been reversed by this Court. Her
conviction in Criminal Case No. 17453 was reversed by this Court in Dans,
Jr. v. People. 34 Likewise, her conviction in Criminal Case No. 17450 was
reversed by this Court in Marcos v. Sandiganbayan. 35 Hence, the so-called
"convictions" against respondent Imelda Marcos cannot serve as a ground
for her disqualification to serve as an executor.

Section 1.
Who are incompetent to serve as executors or
administrators. No person is competent to serve as executor or
administrator who:
xxx

xxx

xxx

(c)
Is in the opinion of the court unfit to execute the duties of trust by
reason of drunkenness, improvidence, or want of understanding or
integrity, or by reason of conviction of an offense involving moral
turpitude. (Emphasis Supplied)
In the case at bar, petitioner anchored its opposition to the grant of letters
testamentary to respondents, specifically on the following grounds: (1)
want of integrity, and (2) conviction of an offense involving moral
turpitude. Petitioner contends that respondents have been convicted of a
number of cases 30 and, hence, should be characterized as one without
integrity, or at the least, with questionable integrity. 31 EcIaTA
The RTC, however, in its January 11, 1996 Order, made the following
findings:
However, except for petitioner Republic's allegation of want of integrity on
the part of Imelda Trinidad Romualdez-Marcos and Ferdinand Romualdez
Marcos II, named executors in the last will and testament, so as to render
them "incompetent" to serve as executors, the Court sees at this time, no
evidence on record, oral or documentary, to substantiate and support the
said allegation. (Emphasis Supplied)
Based on the foregoing, this Court stresses that an appellate court is
disinclined to interfere with the action taken by the probate court in the
matter of removal of an executor or administrator unless positive error or
gross abuse of discretion is shown. 32 The Rules of Court gives the lower
court the duty and discretion to determine whether in its opinion an
individual is unfit to serve as an executor. The sufficiency of any ground for
removal should thus be determined by the said court, whose sensibilities
are, in the first place, affected by any act or omission on the part of the
administrator not conformable to or in disregard of the rules of orders of
the court. 33 CIETDc
Hence, in order to reverse the findings of the RTC, this Court must evaluate
the evidence presented or alleged by petitioner in support of its petition for

On the other hand, the eight cases filed against respondent Ferdinand
Marcos II involve four charges for violation of Section 45 (failure to file
income tax returns) and four charges for violation of Section 50 (nonpayment of deficiency taxes) of the National Internal Revenue Code of
1977 (NIRC).
It is a matter of record, that in CA-G.R. CR No. 18569, 36 the CA acquitted
respondent Ferdinand Marcos II of all the four charges for violation of
Section 50 and sustained his conviction for all the four charges for violation
of Section 45. It, however, bears to stress, that the CA only ordered
respondent Marcos II to pay a fine for his failure to file his income tax
return. Moreover, and as admitted by petitioner, 37 said decision is still
pending appeal. IcDCaS
Therefore, since respondent Ferdinand Marcos II has appealed his
conviction relating to four violations of Section 45 of the NIRC, the same
should not serve as a basis to disqualify him to be appointed as an
executor of the will of his father. More importantly, even assuming
arguendo that his conviction is later on affirmed, the same is still
insufficient to disqualify him as the "failure to file an income tax return" is
not a crime involving moral turpitude.
In Villaber v. Commission on Elections, 38 this Court held:
As to the meaning of "moral turpitude", we have consistently adopted the
definition in Black's Law Dictionary as "an act of baseness, vileness, or
depravity in the private duties which a man owes his fellow men, or to
society in general, contrary to the accepted and customary rule of right
and duty between man and woman, or conduct contrary to justice,
honesty, modesty, or good morals."
In In re Vinzon, the term "moral turpitude" is considered as encompassing
"everything which is done contrary to justice, honesty, or good morals."
DTSIEc

xxx

xxx

xxx

We, however, clarified in Dela Torre vs. Commission on Elections that "not
every criminal act involves moral turpitude", and that ''as to what crime
involves moral turpitude is for the Supreme Court to determine". 39
Moreover, In De Jesus-Paras v. Vailoces: 40
Indeed, it is well-settled that "embezzlement, forgery, robbery, and
swindling are crimes which denote moral turpitude and, as a general rule,
all crimes of which fraud is an element are looked on as involving moral
turpitude" (58 C.J.S., 1206).
The "failure to file an income tax return" is not a crime involving moral
turpitude as the mere omission is already a violation regardless of the
fraudulent intent or willfulness of the individual. This conclusion is
supported by the provisions of the NIRC as well as previous Court decisions
which show that with regard to the filing of an income tax return, the NIRC
considers three distinct violations: (1) a false return, (2) a fraudulent return
with intent to evade tax, and (3) failure to file a return. HASTCa
The same is illustrated in Section 51 (b) of the NIRC which reads:
(b)

Assessment and payment of deficiency tax . . .

In case a person fails to make and file a return or list at the time prescribed
by law, or makes willfully or otherwise, false or fraudulent return or
list . . . . (Emphasis Supplied)
Likewise, in Aznar v. Court of Tax Appeals, 41 this Court observed:
To our minds we can dispense with these controversial arguments on facts,
although we do not deny that the findings of facts by the Court of Tax
Appeals, supported as they are by very substantial evidence, carry great
weight, by resorting to a proper interpretation of Section 332 of the NIRC.
We believe that the proper and reasonable interpretation of said provision
should be that in the three different cases of (1) false return, (2) fraudulent
return with intent to evade tax, (3) failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax may be
begun without assessment, at any time within ten years after the discovery
of the (1) falsity, (2) fraud, and (3) omission. Our stand that the law should
be interpreted to mean a separation of the three different situations of
false return, fraudulent return with intent to evade tax, and failure to file a
return is strengthened immeasurably by the last portion of the provision
which segregates the situations into three different classes, namely,
"falsity", "fraud" and "omission". 42 (Emphasis Supplied)
Applying the foregoing considerations to the case at bar, the filing of a
"fraudulent return with intent to evade tax" is a crime involving moral

turpitude as it entails willfulness and fraudulent intent on the part of the

individual. The same, however, cannot be said for "failure to file a return"
where the mere omission already constitutes a violation. Thus, this Court
holds that even if the conviction of respondent Marcos II is affirmed, the
same not being a crime involving moral turpitude cannot serve as a ground
for his disqualification. SDHAcI
Anent the third error raised by petitioner, the same has no merit.
Petitioner contends that respondents denied the existence of the will, and
are, therefore, estopped from claiming to be the rightful executors thereof.
Petitioner further claims that said actions clearly show that respondents
lack the competence and integrity to serve as officers of the court.
This Court does not agree with the posture taken by petitioner, and
instead, accepts the explanation given by respondents, to wit:
Respondents opposed the petition for probate not because they are
disclaiming the existence of the will, but because of certain legal grounds,
to wit: (a) petitioner does not have the requisite interest to institute it; (b)
the original copy of the will was not attached to the petition for probate as
required by the rules; and (c) the Commissioner of the Bureau of Internal
Revenue is not qualified to be appointed as administrator of the estate. 43
Based on the foregoing, considering the nature of their opposition,
respondents cannot be held guilty of estoppel as they merely acted within
their rights when they put in issue legal grounds in opposing the probate
proceedings. More importantly, even if said grounds were later on
overruled by the RTC, said court was still of opinion that respondents were
fit to serve as executors notwithstanding their earlier opposition. Again, in
the absence of palpable error or gross abuse of discretion, this Court will
not interfere with the RTC' s discretion. EASCDH
As for the remaining errors assigned by petitioner, the same are bereft of
merit. SAHIDc
Petitioner contends that respondents have strongly objected to the transfer
to the Philippines of the Marcos assets deposited in the Swiss Banks 44 and
thus the same should serve as a ground for their disqualification to act as
executors. This Court does not agree. In the first place, the same are mere
allegations which, without proof, deserve scant consideration. Time and
again, this Court has stressed that this Court is a court of law and not a
court of public opinion. Moreover, petitioner had already raised the same
argument in its motion for partial reconsideration before the RTC. Said
court, however, still did not find the same as a sufficient ground to
disqualify respondents. Again, in the absence of palpable error or gross
abuse of discretion, this Court will not interfere with the RTC' s discretion.

Lastly, petitioner argues that the assailed RTC Orders were based solely on
their own evidence and that respondents offered no evidence to show that
they were qualified to serve as executors. 45 It is basic that one who
alleges a fact has the burden of proving it and a mere allegation is not
evidence. 46 Consequently, it was the burden of petitioner (not
respondents) to substantiate the grounds upon which it claims that
respondents should be disqualified to serve as executors, and having failed
in doing so, its petition must necessarily fail.
WHEREFORE, premises considered, the March 13, 1997 Decision and
August 27, 1997 Resolution of the Court of Appeals in CA-G.R. SP No.
43450 are hereby AFFIRMED. STaCIA
The Regional Trial Court of Pasig City, Branch 156, acting as a probate
court in Special Proceeding No. 10279, is hereby ORDERED to issue letters
testamentary, in solidum, to Imelda Romualdez-Marcos and Ferdinand
Marcos II.
SO ORDERED.

Footnotes
1.

Rollo (G.R. No. 130371), pp. 7-41.

2.
Penned by Associate Justice Ramon A. Barcelona, with Associate
Justices Artemon D. Luna and Hilarion L. Aquino, concurring; id. at 45-50.
3.

Id. at 52-55.

4.

Id. at 56-65.

5.

Id. at 65. (Emphasis supplied.)

6.

Id. at 70-79.

7.

Id. at 80.

8.

Id. at 66-69.

9.

Id. at 69.

10.

Id. at 89.

11.

Id. at 45-50.

12.

Id. at 50. (Emphasis supplied.)

13.

Id. at 84-92.

14.

Id. at 52-55.

15.

Id. at 15-16.

16.

Id. at 240-243. (Emphasis supplied)

1. In petitions for the issuance of writs of certiorari,

prohibition, mandamus, quo warranto, and habeas corpus; and
2. In actions brought to prevent and restrain violations of
law concerning monopolies and combinations in restraint of trade.
The Supreme Court shall have exclusive jurisdiction to
review, revise, reverse, modify or affirm on appeal, certiorari or writ of
error, as the law or rules of court may provide, final judgment and decrees
of inferior courts as herein provided, in
(1) All criminal cases involving offenses for which the
penalty imposed is death or life imprisonment; and those involving other
offenses which, although not so punished, arose out of the same
occurrence or which may have been committed by the accused on the
same occasion, as that giving rise to the more serious offense, regardless
of whether the accused are charged as principals, accomplices, or
accessories, or whether they have been tried jointly or separately;
(2) All cases involving petitions for naturalization or
denaturalization; and
(3) All decisions of the Auditor General, if the appellant is a
private person or entity.
19.

Rollo (G.R. No. 130371), p. 48.

20.

G.R. No. 124512, June 27, 2006, 493 SCRA 74.

21.

Id. at 81-82. (Emphasis supplied.)

22.

G.R. No. 112066, June 27, 1994, 233 SCRA 460.

23.

Id. at 464-465.

24.

Rollo (G.R. No. 130371), pp. 17-18.

18.
SEC. 17. Jurisdiction of the Supreme Court. The Supreme Court
shall have original jurisdiction over cases affecting ambassadors, other
public ministers, and consuls; and original and exclusive jurisdiction in
petitions for the issuance of writs of certiorari, prohibition and mandamus
against the Court of Appeals.

25.

Id. at 89. (Emphasis supplied)

26.

G.R. No. 80127, December 6, 1995, 250 SCRA 647.

27.

Id. at 654.

In the following cases, the Supreme Court shall exercise

original and concurrent jurisdiction with the Court of First Instance:

28.

93 Phil. 420 (1953)

29.

Id. at 420-422. (Emphasis supplied).

17.
Guidelines to be observed in Appeals to the Court of Appeals and
to the Supreme Court; March 9, 1990.

30.
Rollo (G.R. No. 130371) pp. 29-31; Some of the criminal convictions
against Imelda R. Marcos are:
(1) Criminal Case No. 17450 for Violation of R.A. 3019
(Anti-Graft Law), Sandiganbayan Decision promulgated on September
24, 1993 sentencing her to imprisonment for an indeterminate period of
nine (9) years and one (1) day, as minimum, to twelve (12) years and ten
(10) days, as maximum, and to suffer perpetual disqualification from public
office.

(6) Criminal Case No. Q-91-29215 for Violation of NIRC of

1977, RTC, Branch 105, Quezon City Decision rendered on July 27, 1995
sentencing accused to imprisonment of six (6) months and to pay a fine of
P2,000.00.
(7) Criminal Case No. Q-91-29216 for Violation of NIRC of
1977, RTC, Branch 105, Quezon City Decision rendered on July 27, 1995
sentencing accused to imprisonment of six (6) months and to pay a fine of
P2,000.00.

(2) Criminal Case No. 17453 for Violation of R.A. 3019

(Anti-Graft Law), Sandiganbayan Decision promulgated on September
24, 1993 sentencing her to imprisonment for an indeterminate period of
nine (9) years and one (1) day, as minimum, to twelve (12) years and ten
(10) days, as maximum, and to suffer perpetual disqualification from public
office.

(8) Criminal Case No. Q-91-29217 for Violation of NIRC of

1977, RTC, Branch 105, Quezon City Decision rendered on July 27, 1995,
sentencing accused to imprisonment of six (6) months and to pay a fine of
P2,000.00.
31.

Rollo (G.R. No. 130371), p. 31.

With regard to the criminal convictions rendered against

Ferdinand R. Marcos II, some of them are:

32.

Borromeo v. Borromeo, 97 Phil. 549, 554 (1955).

(1) Criminal Case No. Q-91-24390 for Violation of NIRC of

1977, RTC, Branch 105, Quezon City Decision rendered on July 27, 1995
sentencing accused to serve imprisonment of three (3) years and to pay a
fine of P30,000.00.
(2) Criminal Case No. Q-91-24391 for Violation of NIRC of
1977, RTC, Branch 105, Quezon City Decision rendered on July 27, 1996
sentencing accused to serve imprisonment of three (3) years and to pay a
fine of P30,000.00.
(3) Criminal Case No. Q-92-212 for Violation of NIRC of
1977, RTC, Branch 105, Quezon City Decision rendered on July 27, 1995
sentencing accused to serve imprisonment of six (6) months and to pay a
fine of P2,000.00.
(4) Criminal Case No. Q-91-29213 for Violation of NIRC of
1977, RTC, Branch 105, Quezon City Decision rendered on July 27, 1995
sentencing accused to imprisonment of six (6) months and to pay a fine of
P2,000.00.
(5) Criminal Case No. Q-91-29214 for Violation of NIRC of
1977, RTC, Branch 105, Quezon City Decision rendered on July 27, 1995
sentencing accused to imprisonment of six (6) months and to pay a fine of
P2,000.00.

33.
Matute v. Court of Appeals, No. L-26751, January 31, 1969, 26
SCRA 768, 784.
34.

349 Phil. 434 (1998).

35.

357 Phil. 762 (1998).

36.
Penned by Associate Justice Gloria C. Paras, with Associate Justices
Lourdes K. Tayao-Jaguros and Oswaldo D. Agcaoili concurring; Dated
October 31, 1997.
37.

Rollo (G.R. No. 130371), p. 31.

38.

420 Phil. 930 (2001).

39.

Id. at 937.

40.

111 Phil. 569, 571 (1961).

41.

157 Phil. 510 (1974).

42.

Id. at 523.

43.

Rollo (G.R. No. 130371), p. 363. (Emphasis supplied.)

44.

Id. at 37.

45.

Id. at 36.

46.
P.T. Cerna Corporation v. Court of Appeals, G.R. No. 91622, April 6,
1993, 221 SCRA 19, 25.

Less: Deductions (Sch. 4)

[G.R. No. 140944. April 30, 2008.]

Less: Share of Surviving SpouseNIL

Net Conjugal Estate

187,822,576.06

NIL

RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial Administrator of

the Estate of the deceased JOSE P. FERNANDEZ, petitioner, vs. COURT OF
TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

Net Share in Conjugal Estate

NIL

DECISION

xxx

xxx

NACHURA, J p:

Net Taxable Estate

Before this Court is a Petition for Review on Certiorari 1 under Rule 45 of

the Rules of Civil Procedure seeking the reversal of the Court of Appeals
(CA) Decision 2 dated April 30, 1999 which affirmed the Decision 3 of the
Court of Tax Appeals (CTA) dated June 17, 1997. 4 THaDAE
The Facts
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition
for the probate of his will 5 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 letter
7 dated October 13, 1988, Justice Dizon informed respondent
Commissioner of the Bureau of Internal Revenue (BIR) of the special
proceedings for the Estate.
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 letter 8 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 letter 9 addressed to the BIR Regional
Director for San Pablo City and filed the estate tax return 10 with the same
BIR Regional Office, showing therein a NIL estate tax liability, computed as
follows: aAcDSC
COMPUTATION OF TAX

Taxable Transfer (Sch. 3)

Gross Conjugal Estate

14,315,611.34

xxx
NIL

.
Estate Tax Due NIL. 11
.
On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G.
Umali issued Certification Nos. 2052 12 and 2053 13 stating that the taxes
due on the transfer of real and personal properties 14 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
EIAScH
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-87-91-003269, 17 demanding the payment of
P66,973,985.40 as deficiency estate tax, itemized as follows: HCSEcI
Deficiency Estate Tax 1987
Estate tax

Conjugal Real Property (Sch. 1) P10,855,020.00

Conjugal Personal Property (Sch. 2)

P31,868,414.48

25% surcharge - late filing

3,460,591.34

late payment
Interest

7,967,103.62

7,967,103.62

19,121,048.68

Compromise

- non filing

non payment

25,000.00

25,000.00

3.

Pleading entitled "Compliance"

filed with the probate Court

no notice of death

15.00

submitting the final inventory

no CPA Certificate

300.00

of all the properties of the

deceased (p. 106, BIR records); "C"

Total amount due & collectible P66,973,985.40 18

===============

4.

Attachment to Exh. "C" which

is the detailed and complete

In his letter 19 dated December 12, 1991, Atty. Gonzales moved for the
reconsideration of the said estate tax assessment. However, in her letter
20 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.

listing of the properties of

As found by the CTA, the respective parties presented the following pieces
of evidence, to wit: STaHIC

of P19,756,428.31 as of March 31,

In the hearings conducted, petitioner did not present testimonial evidence

but merely documentary evidence consisting of the following:

"C-1" to "C-17"

Claims against the estate filed

by Equitable Banking Corp. with

the probate Court in the amount

1988, together with the Annexes

to the claim (pp. 64-88, BIR records);

"D" to "D-24"

Claim filed by Banque de L'

Indochine et de Suez with the

Exhibits
Letter dated October 13, 1988 from

31, 1988 (pp. 262-265, BIR records);

Commissioner of Internal Revenue

7.

informing the latter of the special

"A"

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);

"B" & "B-1"

aAHDIc

"E" to "E-3"

Claim of the Manila Banking

Corporation (MBC) which as of

proceedings for the settlement of

the estate (p. 126, BIR records);

probate Court in the amount of

US $4,828,905.90 as of January

Arsenio P. Dizon addressed to the

2.

5.

6.

Nature of Document (sic)

1.

the deceased (pp. 89-105, BIR rec.);

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);
8.

"F" to "F-3"

Demand letter of Manila Banking

Corporation prepared by Asedillo,

representative, Atty. Jesus M.

Ramos and Associates Law Offices

Gonzales, for Arsenio P. Dizon,

addressed to Fernandez Hermanos,

with attachments (pp. 177-182,

Inc., represented by Jose P.

BIR records);

Fernandez, as mortgagors, in the

13.

total amount of P240,479,693.17

Letter of Administration

as of February 28, 1989

issued by RTC Manila, Branch

(pp. 186-187, BIR records);

9.

"G" & "G-1"

Claim of State Investment

"K" to "K-5"

Certified true copy of the

51, in Sp. Proc. No. 87-42980

appointing Atty. Rafael S.

House, Inc. filed with the

Dizon as Judicial Administrator

RTC, Branch VII of Manila,

of the estate of Jose P.

docketed as Civil Case No.

Fernandez; (p. 102, CTA records)

86-38599 entitled "State

and

Investment House, Inc.,

14.

Plaintiff, versus Maritime

estate taxes Nos. 2052 and

Company Overseas, Inc. and/or

2053, both dated April 27, 1990,

Jose P. Fernandez, Defendants",

issued by the Office of the

(pp. 200-215, BIR records);

10.

"H" to "H-16"

Letter dated March 14, 1990

"L"
Certification of Payment of

Regional Director, Revenue

Region No. 4-C, San Pablo

of Arsenio P. Dizon addressed

City, with attachments

to Atty. Jesus M. Gonzales,

(pp. 103-104, CTA records.).

(p. 184, BIR records);

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:

11.

"I"

Letter dated April 17, 1990

from J.M. Gonzales addressed

to the Regional Director of

Documents/

BIR in San Pablo City

(p. 183, BIR records);
12.

"M" to "M-5"

"J"

Estate Tax Return filed by

the estate of the late Jose P.

Fernandez through its authorized

Signatures
1.

BIR Record

Estate Tax Return prepared by

the BIR;p. 138

2.

Signatures of Ma. Anabella

Abuloc and Alberto Enriquez,

11.

Jr. appearing at the lower

Gallardo at the lower

Portion of Exh. "1";

portion of Exh. "3";

3.

-do-

Memorandum for the Commissioner,

12.

Signature of Raymond S.

-do-

Signature of Maximino

dated July 19, 1991, prepared by

V. Tagle at the lower

revenue examiners, Ma. Anabella A.

portion of Exh. "3";

Abuloc, Alberto S. Enriquez and

13.

Raymund S. Gallardo; Reviewed by

signed by the Asst. Commissioner

Maximino V. Tagle

for Collection for the Commissioner

4.

pp. 143-144

Signature of Alberto S.

payment of the amount of

lower portion on p. 2 of Exh. "2";

-do-

Signature of Ma. Anabella A.

Lower portion on p. 2 of Exh. "2";

Signature of Maximino V.

Tagle also appearing on

p. 2 of Exh. "2"; -doSummary of revenue

Enforcement Officers Audit

9.

p. 139

Signature of Alberto

Enriquez at the lower

portion of Exh. "3";
10.

-do-

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

-do-

Signature of Ma. Anabella A.

portion of Exh. "3";

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: DaCTcA
Conjugal Real Property P5,062,016.00

Abuloc at the lower

-do-

pp. 169-170 22

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: HSCATc

Signature of Raymund S.

Report, dated July 19, 1991;

Assessment Notice FAS-E-87-91-00

-do-

Gallardo appearing at the

8.

p. 169

The CTA's Ruling

lower portion on p. 2 of Exh. "2";

7.

P66,973,985.40; and
14.

Abuloc appearing at the

6.

Demand letter (FAS-E-87-91-00),

of Internal Revenue, demanding

Enriquez appearing at the

5.

-do-

Conjugal Personal Prop. 33,021,999.93

Gross Conjugal Estate

38,084,015.93

Less: Deductions

26,250,000.00


Net Conjugal Estate

The CA's Ruling

P11,834,015.93

Less: Share of Surviving Spouse5,917,007.96

Net Share in Conjugal Estate

P5,917,007.96

On May 31, 1999, petitioner filed a Motion for Reconsideration 29 which

the CA denied in its Resolution 30 dated November 3, 1999.

Add: Capital/Paraphernal
Properties P44,652,813.66

Hence, the instant Petition raising the following issues:

Less: Capital/Paraphernal
Deductions

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; aDCIHE

44,652,813.66

Net Taxable Estate

P50,569,821.62

============
Estate Tax Due P29,935,342.97
Add: 25% Surcharge for Late Filing

7,483,835.74

Add: Penalties for-No notice of death

15.00

No CPA certificate

300.00

Total deficiency estate tax

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

P37,419,493.71

============
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. IaAHCE
SO ORDERED. 26
Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for
review. 27

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;
3.
Whether or not the Court of Tax Appeals and the Court of Appeals
erred in disallowing the valid and enforceable claims of creditors against
the estate, as lawful deductions despite clear and convincing evidence
thereof; and
4.
Whether or not the Court of Tax Appeals and the Court of Appeals
erred in 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 EcDATH
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:
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; and
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.
The Court's Ruling
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 Pertinent is Section 34, Rule 132 of the Revised
Rules on Evidence which reads: HSTAcI
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-a 35 and People
v. Mate 36 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: cIEHAC
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 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.
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 CITSAc
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. AIECSD
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

xxx

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
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. HEDaTA
Per the records of this case, the BIR was directed to present its evidence 48
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 Resolution 51 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 TaDCEc
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. caHIAS
Having disposed of the 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 debt 56 is defined as: AHSEaD

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 79
58 of the National Internal Revenue Code 59 (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.
aESTAI
"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 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. ISTCHE

On the other hand, the Internal Revenue Service (Service) opines that postdeath 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 date-of-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 TCIHSa
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 post-death 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. EHACcT
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.

Footnotes
1.

Dated January 20, 2000, rollo, pp. 8-20.

2.
Particularly docketed as CA-G.R. SP No. 46947; penned by
Associate Justice Marina L. Buzon, with Presiding Justice Jesus M. Elbinias
(now retired) and Associate Justice Eugenio S. Labitoria (now retired),
concurring; id. at 22-31.
3.
Particularly docketed as CTA Case No. 5116; penned by Associate
Judge Ramon O. De Veyra and concurred in by Presiding Judge Ernesto D.
Acosta and Associate Judge Amancio Q. Saga; id. at 33-61. EcHTDI
4.
This case was decided before the CTA was elevated by law to the
same level as the CA by virtue of Republic Act (RA) No. 9282 otherwise
known as "An Act Expanding the Jurisdiction of the Court of Tax Appeals
(CTA), Elevating its Rank to the Level of a Collegiate Court with Special
Jurisdiction and Enlarging its Membership, Amending for the Purpose
Certain Sections of Republic Act No. 1125, as amended, otherwise known
as The Law Creating the Court of Tax Appeals, and for other purposes,"
which was approved on March 30, 2004. Hence, upon its effectivity,
decisions of the CTA are now appealable directly to the Supreme Court.
5.

BIR Records, pp. 1-88.

SDcITH

6.
The said petition is entitled: In the Matter of the Petition to Approve
the Will of Jose P. Fernandez, Carlos P. Fernandez, Petitioner, particularly
docketed as Special Proceedings No. 87-42980; BIR Record, pp. 107-108.
7.

Id. at 126.

8.

Id. at 184.

9.

Id. at 183.

10.

Id. at 182.

11.

Id.

12.

Rollo, p. 68.

13.

Id. at 69.

14.

Lists of Personal and Real Properties of Jose; id. at 70-73.

ASIETa

15.

CTA Record, p. 102.

16.

Rollo, p. 10.

17.

BIR Records, p. 169.

18.

Id.

19.

Id. at 171.

20.
278.

By then BIR Commissioner Liwayway Vinzons-Chato; id. at 277-

21.

CTA Records, pp. 1-7.

22.

Rollo, pp. 37-40 (Emphasis supplied).

HAEDIS

23.
G.R. No. 116149, November 23, 1995, 250 SCRA 283, 287, citing
People v. Napat-a, 179 SCRA 403 (1989) and People v. Mate, 103 SCRA 484
(1981).
24.

CTA Records, p. 148.

25.

Id. at 166-167.

26.

Id. at 167.

27.

CA rollo, pp. 3-17.

28.

Citing Section 16 of the 1993 National Internal Revenue Code.

29.

Rollo, pp. 22-31.

30.

Id. at 32.

31.

Id. at 114-115.

32.

Id.

TaISEH

33.
Respondent BIR's Memorandum dated October 16, 2000; id. at
140-144.
34.
Commissioner of Internal Revenue v. Manila Mining Corporation,
G.R. No. 153204, August 31, 2005, 468 SCRA 571, 588-589.
35.

Supra note 23.

36.

Supra note 23.

acCDSH

37.
Far East Bank & Trust Company v. Commissioner of Internal
Revenue, G.R. No. 149589, September 15, 2006, 502 SCRA 87; Ala-Martin
v. Sultan, G.R. No. 117512, October 2, 2001, 366 SCRA 316, citing Ong v.
Court of Appeals, 301 SCRA 391 (1999), which further cited Candido v.
Court of Appeals, 253 SCRA 78, 82-83 (1996); Republic v. Sandiganbayan,
255 SCRA 438, 456 (1996); People v. Peralta, 237 SCRA 218, 226 (1994);
Vda. De Alvarez vs. Court of Appeals, 231 SCRA 309, 317-318 (1994); and
People v. Cario, et al., 165 SCRA 664, 671 (1988); See also De los Reyes v.
Intermediate Appellate Court, G.R. No. 74768, August 11, 1989, 176 SCRA
394, 401-402 (1989) and People v. Mate, supra note 23, at 493.
38.

G.R. No. 137247, August 7, 2006, 498 SCRA 17, 30-31.

39.

Supra note 29, at 91.

40.

Underscoring supplied.

41.

TSN, June 26, 1995.

42.

TSN, July 12, 1995.

43.

53.
G.R. No. 155483, April 27, 2007, 522 SCRA 410, 416, citing
Constantino v. Court of Appeals, G.R. No. 116018, November 13, 1996, 264
SCRA 59 (Other citations omitted; Emphasis supplied). HScaCT
54.
Filinvest Development Corporation v. Commissioner of Internal
Revenue and Court of Tax Appeals, G.R. No. 146941, August 9, 2007, 529
SCRA 605, 609-610, citing Carrara Marble Philippines, Inc. v. Commissioner
of Customs, 372 Phil. 322, 333-334 (1999) and Commissioner of Internal
Revenue v. Court of Appeals, 358 Phil. 562, 584 (1998).
55.

Art. 1231. Obligations are extinguished:

AcSEHT

Id. at 42-49.

46.
Commissioner of Internal Revenue v. Manila Mining Corporation,
supra note 28, at 593-594. CIaDTE
47.
Far East Bank & Trust Company v. Commissioner of Internal
Revenue, supra note 29, at 90.
48.

CTA Resolution dated January 19, 1996; CTA Records, pp. 113-114.

49.

CTA Records, p. 117.

50.

Id. at 119.

51.

Id. at 120.

52.

CTA Order dated June 17, 1996, CTA Records, p. 138.

(1)

By payment or performance;

(2)

By the loss of the thing due;

(3)

By the condonation or remission of the debt;

(4)

By the confusion or merger of the rights of creditor and

(5)

By compensation;

(6)

By novation. (Emphasis ours.)

TCHcAE

debtor;

44.
Supra note 29, at 31 and 34, citing Marmont Resort Hotel
Enterprises v. Guiang, 168 SCRA 373, 379-380 (1988).
45.
Calamba Steel Center, Inc. (formerly JS Steel Corporation) v.
Commissioner of Internal Revenue, G.R. No. 151857, April 28, 2005, 457
SCRA 482, 494.

Article 1231 of the Civil Code of the Philippines provides:

56.

Article 1270 of the Civil Code of the Philippines provides:

Art. 1270.
Condonation or remission is essentially gratuitous,
and requires the acceptance by the obligor. It may be made expressly or
impliedly.
One and the other kind shall be subject to the rules which govern
inofficious donations. Express condonation shall, furthermore, comply with
the forms of donation. EHCDSI
57.
Tolentino, Commentaries and Jurisprudence on the Civil Code of the
Philippines, Vol. IV, 1991 ed., p. 353, citing 8 Manresa 365.
58.
SEC. 79. Computation of net estate and estate tax. For the
purpose of the tax imposed in this Chapter, the value of the net estate
shall be determined:
(a)
In the case of a citizen or resident of the Philippines, by
deducting from the value of the gross estate

(1)
amounts

Expenses, losses, indebtedness, and taxes. Such

62.

Smith v. C.I.R., 82 T.C.M. (CCH) 909 (2001), aff'd 54 Fed. Appx. 413.

63.

680 F.2d 1248.

(A)
For funeral expenses in an amount equal to five per
centum of the gross estate but in no case to exceed P50,000.00;

64.

47B Corpus Juris Secundum, Internal Revenue subsection 524.

(B)
proceedings;

65.
Prop. Treas. Reg. subsection. 20.2053-1 (b) (1), published as REG143316-03. ECcaDT

For judicial expenses of the testamentary or intestate

(C)
For claims against the estate; Provided, That at the time
the indebtedness was incurred the debt instrument was duly notarized
and, if the loan was contracted within three years before the death of the
decedent, the administrator or executor shall submit a statement showing
the disposition of the proceeds of the loan. (As amended by PD No. 1994)
caSDCA
(D)
For claims of the deceased against insolvent persons where
the value of decedent's interest therein is included in the value of the gross
estate; and
(E)
For unpaid mortgages upon, or any indebtedness in respect
to property, where the value of decedent's interest therein, undiminished
by such mortgage or indebtedness, is included in the value of the gross
estate, but not including any income taxes upon income received after the
death of the decedent, or property taxes not accrued before his death, or
any estate tax. The deduction herein allowed in the case of claims against
the estate, unpaid mortgages, or any indebtedness, shall when founded
upon a promise or agreement, be limited to the extent that they were
contracted bona fide and for an adequate and full reconsideration in
money or money's worth. There shall also be deducted losses incurred
during the settlement of the estate arising from fires, storms, shipwreck, or
other casualties, or from robbery, theft, or embezzlement, when such
losses are not compensated for by insurance or otherwise, and if at the
time of the filing of the return such losses have not been claimed as a
deduction for income tax purposes in an income tax return, and provided
that such losses were incurred not later than last day for the payment of
the estate tax as prescribed in subsection (a) of Section 84. DEcITS
59.
This refers to the 1977 National Internal Revenue Code, as
amended which was effective at the time of Jose's death on November 7,
1987.
60.
Commissioner of Internal Revenue v. Court of Appeals, G.R. No.
123206, March 22, 2000, 328 SCRA 666, 676-677 (citations omitted).
61.

47B Corpus Juris Secundum, Internal Revenue subsection 533.

66.

Supra note 63.

67.
'Smith's Est. v. CIR, 198 F3d 515, 525 (5th Cir. 1999). See also
O'Neal's Est. v. US, 228 F. Supp. 2d 1290 (ND Ala. 2002).
68.

279 U.S. 151, 49 S. Ct. 291, 73 L.Ed. 647 (1929).

69.
Commissioner of Internal Revenue v. The Court of Appeals, Central
Vegetable Manufacturing Co., Inc., and the Court of Tax Appeals, G.R. No.
107135, February 23, 1999, 303 SCRA 508, 516-517, citing Province of
Bulacan v. Court of Appeals, 299 SCRA 442 (1998); Republic v. IAC, 196
SCRA 335 (1991); CIR v. Firemen's Fund Ins. Co., 148 SCRA 315 (1987); and
CIR v. CA, 204 SCRA 182 (1991). DHaECI
70.
Manila International Airport Authority v. Court of Appeals, G.R. No.
155650, July 20, 2006, 495 SCRA 591, 619.
71.
Quirino v. Grospe, G.R. No. 58797, January 31, 1989, 169 SCRA
702, 704-705, citing Gabin v. Melliza, 84 Phil. 794, 796 (1949).

[G.R. No. 144653. August 28, 2001.]

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE, respondent.
Padilla Law Office for petitioner.
The Solicitor General for respondent.
SYNOPSIS
From January 1 to June 30, 1985, the Family Bank and Trust Co. (FBTC)
leased earned income consisting of rentals from its leased properties and
interest from its treasury notes for the period January 1 to June 30, 1985
and was withheld the corresponding amount of P174,065.77. FBTC suffered
losses during the same period and ceased operations on June 30, 1995
with its merger with petitioner BPI. The merger was approved by the
Securities and Exchange Commission on July 1, 1985. BPI, as successor of
FBTC, filed a claim for tax refund of P174,065.77, the amount withheld. The
Bureau of Internal Revenue (BIR) denied the same. The issue was raised to
the Court of Tax Appeals. Citing Section 78 of the Tax Code, it ruled that
the claim, filed beyond two (2) years from the date of approval by the SEC
of the merger, had prescribed. This was affirmed on appeal by the Court of
Appeals. Motion for its reconsideration was denied, hence, this recourse.
Petitioner alleged that the claim for refund was filed on time because the
two (2)-year period commenced to run only after it had filed FBTC's Final
Adjusted Return on April 15, 1986 pursuant to Section 46 (a) of the
National Internal Revenue Code of 1977. STcAIa
Under Section 292 of the Tax Code, the claim for refund must be filed
within two (2) years from date of payment of the tax or penalty. The period,
in cases of subsisting or continuing corporations, begins to run on the date
of the filing of the adjusted final tax return (Section 46 [a] of the Tax Code).
However, in case of dissolution of a corporation, the prescriptive period
begins 30 days after the dissolution as required by Section 78 of the Tax
Code.
SYLLABUS
1.
TAXATION, NATIONAL INTERNAL. REVENUE CODE; WITHHOLDING
TAXES; CLAIM FOR REFUND; 2-YEAR PRESCRIPTIVE PERIOD; DATE OF
COMMENCEMENT; CASE AT BAR. The resolution of this question requires
a determination of when the two-year period of prescription under 292 of
the Tax Code started to run. Generally speaking, it is the Final Adjustment
Return under Section 46 (a) of the Tax Code, in which amounts of the gross
receipts and deductions have been audited and adjusted, which is
reflective of the results of the operations of a business enterprise. It is only

when the return, covering the whole year, is filed that the taxpayer will be
able to ascertain whether a tax is still due or a refund can be claimed
based on the adjusted and audited figures. Hence, this Court has ruled
that, at the earliest, the two-year prescriptive period for claiming a refund
commences to run on the date of filing of the adjusted final tax return. As
the FBTC did not file its quarterly income tax returns for the year 1985,
there was no need for it to file a Final Adjustment Return because there
was nothing for it to adjust or to audit. After it ceased operations on June
30, 1985, its taxable year was shortened to six months, from January 1,
1985 to June 30, 1985. The situation of FBTC is precisely what was
contemplated under 78 of the Tax Code. It thus became necessary for
FBTC to file its income tax return within 30 days after approval by the SEC
of its plan or resolution of dissolution. Thus, 46(a) of the Tax Code applies
only to instances in which the corporation remains subsisting and its
business operations are continuing. In instances in which the corporation is
contemplating dissolution, 78 of the Tax Code applies. Considering that
78 of the Tax Code, in relation to 244 of Revenue Regulation No. 2,
applies to FBTC, the two-year prescriptive period should be counted from
July 30, 1985, i.e., 30 days after the approval by the SEC of its plan for
dissolution. In accordance with 292 of the Tax Code, July 30, 1985 should
be considered the date of payment by FBTC of the taxes withheld on the
earned income. Consequently, the two-year period of prescription ended
on July 30, 1987. As petitioner's claim for tax refund before the Court of Tax
Appeals was filed only on December 29, 1987, it is clear that the claim is
barred by prescription.
2.
STATUTORY CONSTRUCTION; EFFECT OF PARTICULAR AND
GENERAL PROVISIONS IN SAME STATUTE. It is a rule of statutory
construction that "[w]here there is in the same statute a particular
enactment and also a general one which in its most comprehensive sense
would include what is embraced in the former, the particular enactment
must be operative, and the general enactment must be taken to affect only
such cases within its general language as are not within the provisions of
the particular enactment." HScDIC

3.
TAXATION;
BUREAU
OF
INTERNAL
REVENUE;
REVENUE
MEMORANDUM CIRCULAR NO. 14-85, A MERE ADMINISTRATIVE
INTERPRETATION OF LAW WHICH CANNOT PREVAIL OVER A REVENUE
REGULATION. Revenue Memorandum Circular No. 14-85, of then Acting
Commissioner of Internal Revenue Ruben B. Ancheta, referred to an
"information return" in interpreting Executive Order No. 1026, which
amended 78. The circular in question must be considered merely as an
administrative interpretation of the law which in no case is binding on the
courts. The opinion in question cannot be given any effect inasmuch as it is

contrary to 244 of Revenue Regulation No. 2, as amended, which was

issued by the Minister of Finance pursuant to the authority granted to him
by 78 of the Tax Code. This regulation prevails over the memorandum
circular of the Acting Commissioner of Internal Revenue, which petitioner
invokes.
DECISION
MENDOZA, J p:
This is a petition for review on certiorari of the decision, dated April 14,
2000, of the Court of Appeals, 1 affirming the decision of the Court of Tax
Appeals (which denied petitioner Bank of the Philippine Islands' claim for
tax refund for 1985), and the appeals court's resolution, dated August 21,
2000, denying reconsideration. cHaICD
The facts are as follows:
Prior to its merger with petitioner Bank of the Philippine Islands (BPI) on
July 1, 1985, the Family Bank and Trust Co. (FBTC) earned income
consisting of rentals from its leased properties and interest from its
treasury notes for the period January 1 to June 30, 1985. As required by the
Expanded Withholding Tax Regulation, the lessees of FBTC withheld 5
percent of the rental income, in the amount of P118,609.17, while the
Central Bank, from which the treasury notes were purchased by FBTC,
withheld P55,456.60 from the interest earned thereon. Creditable
withholding taxes in the total amount of P174,065.77 were remitted to
respondent Commissioner of Internal Revenue.
FBTC, however, suffered a net loss of about P64,000,000.00 during the
period in question. It also had an excess credit of P2,146,072.57 from the
previous year. Thus, upon its dissolution in 1985, FBTC had a refundable
amount of P2,320,138.34, representing that year's tax credit of
P174,065.77 and the previous year's excess credit of P2,146,072.57.
As FBTC's successor-in-interest, petitioner BPI claimed this amount as tax
refund, but respondent Commissioner of Internal Revenue refunded only
the amount of P2,146,072.57, leaving a balance of P174,065.77.
Accordingly, petitioner filed a petition for review in the Court of Tax Appeals
on December 29, 1987, seeking the refund of the aforesaid amount. 2
However, in its decision rendered on July 19, 1994, the Court of Tax
Appeals dismissed petitioner's petition for review and denied its claim for
refund on the ground that the claim had already prescribed. 3 In its
resolution, dated August 4, 1995, the Court of Tax Appeals denied
petitioner's motion for reconsideration. 4
Petitioner appealed to the Court of Appeals, but, in its decision rendered on
April 14, 2000, the appeals court affirmed the decision of the CTA. 5 The

appeals court subsequently denied petitioner's motion for reconsideration.

6 Hence this petition.
The sole issue in this case is whether petitioner's claim is barred by
prescription. The resolution of this question requires a determination of
when the two-year period of prescription under 292 of the Tax Code
started to run. This provision states:
Recovery of tax erroneously or illegally collected. No suit or proceeding
shall be maintained in any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected
without authority, or of any sum alleged to have been excessive or in any
manner wrongfully collected, until a claim for refund or credit has been
duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid under
protest or duress. DTcACa
In any case, no such suit or proceeding shall be begun after the expiration
of two years from the date of payment of the tax or penalty regardless of
any supervening cause that may arise after payment: Provided, however,
That the Commissioner may, even without a written claim therefor, refund
or credit any tax, where on the face of the return upon which payment was
made, such payment appears clearly to have been erroneously paid.
There is no dispute that FBTC ceased operations on June 30, 1985 upon its
merger with petitioner BPI. The merger was approved by the Securities and
Exchange Commission on July 1, 1985. Petitioner contends, however, that
its claim for refund has not yet prescribed because the two-year
prescriptive period commenced to run only after it had filed FBTC's Final
Adjustment Return on April 15, 1986, pursuant to 46(a) of the National
Internal Revenue Code of 1977 (the law applicable at the time of this
transaction) which provided that
Corporation returns. (a) Requirement. Every corporation subject to the
tax herein imposed, except foreign corporations not engaged in trade or
business in the Philippines shall render, in duplicate, a true and accurate
quarterly income tax return and final or adjustment return in accordance
with the provisions of Chapter X of this Title. The return shall be filed by
the president, vice-president, or other principal officer, and shall be sworn
to by such officer and by the treasurer or assistant treasurer.
On the other hand, the Court of Tax Appeals ruled that the prescriptive
period should be counted from July 31, 1985, 30 days after the approval by
the SEC of the plan of dissolution in view of 78 of the Code, which
provided that

Every corporation shall, within thirty days after the adoption by the
corporation of a resolution or plan for the dissolution of the corporation or
for the liquidation of the whole or any part of its capital stock, including
corporations which have been notified of possible involuntary dissolution
by the Securities and Exchange Commission, render a correct return to the
Commissioner of Internal Revenue, verified under oath, setting forth the
terms of such resolution or plan and such other information as the Minister
of Finance shall, by regulations, prescribe. The dissolving corporation prior
to the issuance of the Certificate of Dissolution by the Securities and
Exchange Commission shall secure a certificate of tax clearance from the
Bureau of Internal Revenue which certificate shall be submitted to the
Securities and Exchange Commission.
Failure to render the return and secure the certificate of tax clearance as
above-mentioned shall subject the officer(s) of the corporation required by
law to file the return under Section 46(a) of this Code, to a fine of not less
than Five Thousand Pesos or imprisonment of not less than two years and
shall make them liable for all outstanding or unpaid tax liabilities of the
dissolving corporation. CAIaHS
Its ruling was sustained by the Court of Appeals.
After due consideration of the parties' arguments, we are of the opinion
that, in case of the dissolution of a corporation, the period of prescription
should be reckoned from the date of filing of the return required by 78 of
the Tax Code. Accordingly, we hold that petitioner's claim for refund is
barred by prescription.
First. Generally speaking, it is the Final Adjustment Return, in which
amounts of the gross receipts and deductions have been audited and
adjusted, which is reflective of the results of the operations of a business
enterprise. It is only when the return, covering the whole year, is filed that
the taxpayer will be able to ascertain whether a tax is still due or a refund
can be claimed based on the adjusted and audited figures. 7 Hence, this
Court has ruled that, at the earliest, the two-year prescriptive period for
claiming a refund commences to run on the date of filing of the adjusted
final tax return. 8

Security and Exchange Commission. Thus, respondent['s] stand that FBTC

operates on a fiscal year basis, based on its income tax return, holds no
ground. This Court believes that FBTC is operating on a calendar year
period based on the audited financial statements and the opinion thereof.
The fiscal period ending June 30, 1985 on the upper left corner of the
income tax return can be concluded as an error on the part of FBTC. It
should have been for the six month period ending June 30, 1985. It should
also be emphasized that "where one corporation succeeds another both
are separate entities and the income earned by the predecessor
corporation before organization of its successor is not income to the
successor" (Mertens, Law of Federal Income Taxation, Vol. 7 S 38.36).
Ruling now on the issue of prescription, this court finds that the petition for
review is filed out of time. FBTC, after the end of its corporate life on June
30, 1985, should have filed its income tax return within thirty days after
the cessation of its business or thirty days after the approval of the Articles
of Merger. This is bolstered by Sec. 78 of the Tax Code and under Sec. 244
of Revenue Regulation No. 2. . . 9
As the FBTC did not file its quarterly income tax returns for the year 1985,
there was no need for it to file a Final adjustment Return because there
was nothing for it to adjust or to audit. After it ceased operations on June
30, 1985, its taxable year was shortened to six months, from January 1,
1985 to June 30, 1985. The situation of FBTC is precisely what was
contemplated under 78 of the Tax Code. It thus became necessary for
FBTC to file its income tax return within 30 days after approval by the SEC
of its plan or resolution of dissolution. Indeed, it would be absurd for FBTC
to wait until the fifteenth day of April, or almost 10 months after it ceased
its operations, before filing its income tax return. DaHcAS

In the case at bar, however, the Court of Tax Appeals, applying 78 of the
Tax Code, held:

Thus, 46(a) of the Tax Code applies only to instances in which the
corporation remains subsisting and its business operations are continuing.
In instances in which the corporation is contemplating dissolution, 78 of
the Tax Code applies. It is a rule of statutory construction that "[w]here
there is in the same statute a particular enactment and also a general one
which in its most comprehensive sense would include what is embraced in
the former, the particular enactment must be operative, and the general
enactment must be taken to affect only such cases within its general
language as are not within the provisions of the particular enactment." 10

Before this Court can rule on the issue of prescription, it is noteworthy to

point out that based on the financial statements of FBTC and the
independent auditor's opinion (Exhs. "A-7" to "A-17"), FBTC operates on a
calendar year basis. Its twelve (12) months accounting period was
shortened at the time it was merged with BPI. Thereby, losing its corporate
existence on July 1, 1985 when the Articles of Merger was approved by the

Petitioner argues that to hold, as the Court of Tax Appeals and the Court of
Appeals do, that 78 applies in case a corporation contemplates dissolution
would lead to absurd results. It contends that it is not feasible for the
certified public accountants to complete their report and audited financial
statements, which are required to be submitted together with the plan of
dissolution to the SEC, within the period contemplated by 78. It maintains

that, in turn, the SEC would not have sufficient time to process the papers
considering that 78 also requires the submission of a tax clearance
certificate before the SEC can approve the plan of dissolution.

effect inasmuch as it is contrary to 244 of Revenue Regulation No. 2, as

amended, which was issued by the Minister of Finance pursuant to the
authority granted to him by 78 of the Tax Code. This provision states:

As the Court of Tax Appeals observed, however, petitioner could have

asked for an extension of time to file its income tax return under 47 of the
NIRC which provides:

SECTION 244. Return of corporations contemplating dissolution or retiring

from business. All corporations, partnership, joint accounts and
associations, contemplating dissolution or retiring from business without
formal dissolution shall, within 30 days after the approval of such
resolution authorizing their dissolution, and within the same period after
their retirement from business, file their income tax returns covering the
profit earned or business done by them from the beginning of the year up
to the date of such dissolution or retirement and pay the corresponding
income tax due thereon upon demand by the Commissioner of Internal
Revenue. . .

Extension of time to file returns. The Commissioner of Internal Revenue

may, in meritorious cases, grant a reasonable extension of time for filing
returns of income (or final and adjustment returns in the case of
corporations), subject to the provisions of section fifty-one of this Code.
Petitioner further argues that the filing of a Final Adjustment Return would
fall due on July 30, 1985, even before the due date for filing the quarterly
return. This argument begs the question. It assumes that a quarterly return
was required when the fact is that, because its taxable year was
shortened, the FBTC did not have to file a quarterly return. In fact,
petitioner presented no evidence that the FBTC ever filed such quarterly
return in 1985.
Finally, petitioner cites a hypothetical situation wherein the directors of a
corporation would convene on June 30, 2000 to plan the dissolution of the
corporation on December 31, 2000, but would submit the plan for
dissolution earlier with the SEC, which, in turn, would approve the same on
October 1, 2000. Following 78 of the Tax Code, the corporation would be
required to submit its complete return on October 31, 2000, although its
actual dissolution would take place only on December 31, 2000. aDcHIC
Suffice it to say that such a situation may likewise be remedied by resort to
47 of the Tax Code. The corporation can ask for an extension of time to
file a complete income tax return until December 31, 2000, when it would
cease operations. This would obviate any difficulty which may arise out of
the discrepancies not covered by 78 of the Tax Code.
In any case, as held in Commissioner of Internal Revenue v. Santos, 11
"Debatable questions are for the legislature to decide. The courts do not sit
to resolve the merits of conflicting issues."
Second. Petitioner contents that what 78 required was an information
return, not an income tax return. It cites Revenue Memorandum Circular
No. 14-85, of then Acting Commissioner of Internal Revenue Ruben B.
Ancheta, referring to an "information return" in interpreting Executive
Order No. 1026, which amended 78. 12
The contention has no merit. The circular in question must be considered
merely as an administrative interpretation of the law which in no case is
binding on the courts. 13 The opinion in question cannot be given any

This regulation prevails over the memorandum circular of the Acting

Commissioner of Internal Revenue, which petitioner invokes.
Thus, as required by 244 of Revenue Regulation No. 2, any corporation
contemplating dissolution must submit tax return on the income earned by
it from the beginning of the year up to the date of its dissolution or
retirement and pay the corresponding tax due upon demand by the
Commissioner of Internal Revenue. Nothing in 78 of the Tax Code limited
the return to be filed by the corporation concerned to a mere information
return. CcAITa
It is noteworthy that 78 of the Tax Code was substantially reproduced first
in 45(c), of the amendments to the same Tax Code, and later in 52(C) of
the National Internal Revenue Code of 1997. Through all the re-enactments
of the law, there has been no change in the authority granted to the
Secretary (formerly Minister) of Finance to require corporations to submit
such other information as he may prescribe. Indeed, Revenue Regulation
No. 2 had been in existence prior to these amendments. Had Congress
intended only information returns, it would have expressly provided so.
Third. Considering that 78 of the Tax Code, in relation to 244 of Revenue
Regulation No. 2, applies to FBTC, the two-year prescriptive period should
be counted from July 30, 1985, i.e., 30 days after the approval by the SEC
of its plan for dissolution. In accordance with 292 of the Tax Code, July 30,
1985 should be considered the date of payment by FBTC of the taxes
withheld on the earned income. Consequently, the two-year period of
prescription ended on July 30, 1987. As petitioner's claim for tax refund
before the Court of Tax Appeals was filed only on December 29, 1987, it is
clear that the claim is barred by prescription.
WHEREFORE, the petition is DENIED for lack of merit.
SO ORDERED.

Footnotes
1.
Per Justice Hilarion L. Aquino and concurred in by Justices
Buenaventura J. Guerrero and Mercedes Gozo-Dadole.
2.

Petition, pp. 2-3; CA Decision, pp. 1-2.

3.

Rollo, pp. 41-47.

4.

Id., pp. 65-73.

5.

CA Decision, p. 9; Rollo, p. 33.

6.

Resolution, dated August 21, 2000; id., p. 35.

7.
Commissioner of Internal Revenue v. TMX Sales, Inc., 205 SCRA
184 (1992).
8.
ACCRA Investments Corp. v. Court of Appeals, 204 SCRA 957
(1991).
9.

CTA Decision, pp. 4-5; CA Rollo, pp. 28-29.

10.
Manila Railroad Co. v. Collector of Customs, 52 Phil. 950, 952
(1929).
11.

277 SCRA 617, 630 (1997).

12.
Annex A to Supplement to Motion for Reconsideration; Rollo, pp.
61-62.
13.
See Victorias Milling Co., Inc. v. Social Security Commission, 4 SCRA
627 (1962) for the distinction between an interpretative rule and a
legislative rule.

Creditable taxes withheld

Foreign tax credit
[G.R. No. 178490. July 7, 2009.]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BANK OF THE
PHILIPPINE ISLANDS, respondent.
DECISION
CHICO-NAZARIO, J p:
This is a Petition for Review assailing the Decision 1 dated 29 April 2005
and the Resolution dated 20 April 2007 of the Court of Appeals in CA-G.R.
SP No. 77655, which annulled and set aside the Decision dated 12 March
2003 of the Court of Tax Appeals (CTA) in CTA Case No. 6276, wherein the
CTA held that respondent Bank of the Philippine Islands (BPI) already
exercised the irrevocable option to carry over its excess tax credits for the
year 1998 to the succeeding years 1999 and 2000 and was, therefore, no
longer entitled to claim the refund or issuance of a tax credit certificate for
the amount thereof. TDCAIS
On 15 April 1999, BPI filed with the Bureau of Internal Revenue (BIR) its
final adjusted Corporate Annual Income Tax Return (ITR) for the taxable
year ending on 31 December 1998, showing a taxable income of
P1,773,236,745.00 and a total tax due of P602,900,493.00.
For the same taxable year 1998, BPI already made income tax payments
for the first three quarters, which amounted to P563,547,470.46. 2 The
bank also received income in 1998 from various third persons, which, were
already subjected to expanded withholding taxes amounting to
P7,685,887.90. BPI additionally acquired foreign tax credit when it paid the
United States government taxes in the amount of $151,467.00, or the
equivalent of P6,190,014.46, on the operations of former's New York
Branch. Finally, respondent BPI had carried over excess tax credit from the
prior year, 1997, amounting to P59,424,222.00. TCSEcI
Crediting the aforementioned amounts against the total tax due from it at
the end of 1998, BPI computed an overpayment to the BIR of income taxes
in the amount of P33,947,101.00. The computation of BPI is reproduced
below:
Total Income Taxes Due

P602,900,493.00

Less: Tax Credits:

Prior year's tax credits P59,424,222.00
Quarterly payments

563,547,470.46

Net Tax Payable/(Refundable)

7,685,887.90

6,190,014.00

636,847,594.00

P(33,947,101.00)

BPI opted to carry over its 1998 excess tax credit, in the amount of
P33,947,101.00, to the succeeding taxable year ending 31 December
1999. 3 For 1999, however, respondent BPI ended up with (1) a net loss in
the amount of P615,742,102.00; (2) its still unapplied excess tax credit
carried over from 1998, in the amount of P33,947,101.00; and (3) more
excess tax credit, acquired in 1999, in the sum of P12,975,750.00. So in
1999, the total excess tax credits of BPI increased to P46,922,851.00,
which it once more opted to carry over to the following taxable year.
EcICSA
For the taxable year ending 31 December 2000, respondent BPI declared in
its Corporate Annual ITR: (1) zero taxable income; (2) excess tax credit
carried over from 1998 and 1999, amounting to P46,922,851.00; and (3)
even more excess tax credit, gained in 2000, in the amount of
P25,207,939.00. This time, BPI failed to indicate in its ITR its choice of
whether to carry over its excess tax credits or to claim the refund of or
issuance of a tax credit certificate for the amounts thereof.
On 3 April 2001, BPI filed with petitioner Commissioner of Internal Revenue
(CIR) an administrative claim for refund in the amount of P33,947,101.00,
representing its excess creditable income tax for 1998.
The CIR failed to act on the claim for tax refund of BPI. Hence, BPI filed a
Petition for Review before the CTA, docketed as CTA Case No. 6276.
IcaEDC
The CTA promulgated its Decision in CTA Case No. 6276 on 12 March 2003,
ruling therein that since BPI had opted to carry over its 1998 excess tax
credit to 1999 and 2000, it was barred from filing a claim for the refund of
the same.
The CTA relied on the irrevocability rule laid down in Section 76 of the
National Internal Revenue Code (NIRC) of 1997, which states that once the
taxpayer opts to carry over and apply its excess income tax to succeeding
taxable years, its option shall be irrevocable for that taxable period and no
application for tax refund or issuance of a tax credit shall be allowed for
the same.
The CTA Decision adjudged:
A close scrutiny of the 1998 income tax return of [BPI] reveals that it opted
to carry over its excess tax credits, the amount subject of this claim, to the

succeeding taxable year by placing an "x" mark on the corresponding box

of said return (Exhibits A-2 & 3-a). For the year 1999, [BPI] again
manifested its intention to carry over to the succeeding taxable period the
subject claim together with the current excess tax credits (Exhibit J). Still
unable to apply its prior year's excess credits in 1999 as it ended up in a
net loss position, petitioner again carried over the said excess credits in
the year 2000 (Exhibit K). caIETS
The court already categorically ruled in a number of cases that once the
option to carry-over and apply the excess quarterly income tax against the
income tax due for the taxable quarters of the succeeding taxable years
has been made, such option shall be considered irrevocable and no
application for cash refund or issuance of a tax credit certificate shall be
allowed therefore (Pilipinas Transport Industries vs. Commissioner of
Internal Revenue, CTA Case No. 6073, dated March 1, 2002; Pilipinas Hino,
Inc. vs. Commissioner of Internal Revenue, CTA Case No. 6074, dated April
19, 2002; Philam Asset Management, Inc. vs. Commissioner of Internal
Revenue, CTA Case No. 6210, dated May 2, 2002; The Philippine Banking
Corporation (now known as Global Business Bank, Inc.) vs. Commissioner
of Internal Revenue, CTA Resolution, CTA Case No. 6280, August 16, 2001.
Since [BPI] already exercised the irrevocable option to carry over its excess
tax credits for the year 1998 to the succeeding years 1999 and 2000, it is,
therefore, no longer entitled to claim for a refund or issuance of a tax
credit certificate. 4
In the end, the CTA decreed:
IN VIEW OF ALL THE FOREGOING, the instant petition for review is hereby
DENIED for lack of merit. 5 CAScIH
BPI filed a Motion for Reconsideration of the foregoing Decision, but the
CTA denied the same in a Resolution dated 3 June 2003.
BPI filed an appeal with the Court of Appeals, docketed as CA-G.R. SP No.
77655. On 29 April 2005, the Court of Appeals rendered its Decision,
reversing that of the CTA and holding that BPI was entitled to a refund of
the excess income tax it paid for 1998.
The Court of Appeals conceded that BPI indeed opted to carry over its
excess tax credit in 1998 to 1999 by placing an "x" mark on the
corresponding box of its 1998 ITR. Nonetheless, there was no actual
carrying over of the excess tax credit, given that BPI suffered a net loss in
1999, and was not liable for any income tax for said taxable period, against
which the 1998 excess tax credit could have been applied. TADaES
The Court of Appeals added that even if Section 76 was to be construed
strictly and literally, the irrevocability rule would still not bar BPI from
seeking a tax refund of its 1998 excess tax credit despite previously opting

to carry over the same. The phrase "for that taxable period" qualified the
irrevocability of the option of BIR to carry over its 1998 excess tax credit to
only the 1999 taxable period; such that, when the 1999 taxable period
expired, the irrevocability of the option of BPI to carry over its excess tax
credit from 1998 also expired.
The Court of Appeals further reasoned that the government would be
unjustly enriched should the appellate court hold that the irrevocability
rule barred the claim for refund of a taxpayer, who previously opted to
carry-over its excess tax credit, but was not able to use the same because
it suffered a net loss in the succeeding year.
Finally, the appellate court cited BPI-Family Savings Bank, Inc. v. Court of
Appeals 6 wherein this Court held that if a taxpayer suffered a net loss in a
year, thus, incurring no tax liability to which the tax credit from the
previous year could be applied, there was no reason for the BIR to withhold
the tax refund which rightfully belonged to the taxpayer. 7 DAaEIc
In a Resolution dated 20 April 2007, the Court of Appeals denied the Motion
for Reconsideration of the CIR. 8
Hence, the CIR filed the instant Petition for Review, alleging that:
I
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING
THAT THE "IRREVOCABILITY RULE" UNDER SECTION 76 OF THE TAX CODE
DOES NOT OPERATE TO BAR PETITIONER FROM ASKING FOR A TAX
REFUND.
II
THE COURT OF APPEALS COMMITTED GRAVE ERROR WHEN IT REVERSED
AND SET ASIDE THE DECISION OF THE COURT OF TAX APPEALS AND HELD
THAT RESPONDENT IS ENTITLED TO THE CLAIMED TAX REFUND. STHAaD
The Court finds merit in the instant Petition.
The Court of Appeals erred in relying on BPI-Family, missing significant
details that rendered said case inapplicable to the one at bar.
In BPI-Family, therein petitioner BPI-Family declared in its Corporate Annual
ITR for 1989 excess tax credits of P185,001.00 from 1988 and P112,491.00
from 1989, totaling P297,492.00. BPI-Family clearly indicated in the same
ITR that it was carrying over said excess tax credits to the following year.
But on 11 October 1990, BPI-Family filed a claim for refund of its
P112,491.00 tax credit from 1989. When no action from the BIR was
forthcoming, BPI-Family filed its claim with the CTA. The CTA denied the
claim for refund of BPI-Family on the ground that, since the bank declared
in its 1989 ITR that it would carry over its tax credits to the following year,

it should be presumed to have done so. In its Motion for Reconsideration

filed with the CTA, BPI-Family submitted its final adjusted ITR for 1989
showing that it incurred P52,480,173.00 net loss in 1990. Still, the CTA
denied the Motion for Reconsideration of BPI-Family. The Court of Appeals
likewise denied the appeal of BPI-Family and merely affirmed the judgment
of the CTA. The Court, however, reversed the CTA and the Court of Appeals.
TEcHCA

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:

This Court decided to grant the claim for refund of BPI-Family after finding
that the bank had presented sufficient evidence to prove that it incurred a
net loss in 1990 and, thus, had no tax liability to which its tax credit from
1989 could be applied. The Court stressed in BPI Family that "the
undisputed fact is that [BPI-Family] suffered a net loss in 1990; accordingly,
it incurred no tax liability to which the tax credit could be applied.
Consequently, there is no reason for the BIR and this Court to withhold the
tax refund which rightfully belongs to the [BPI-Family]." It was on the basis
of this fact that the Court granted the appeal of BPI-Family, brushing aside
all procedural and technical objections to the same through the following
pronouncements:

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.
(Emphases ours.) ESCTaA

Finally, respondents argue that tax refunds are in the nature of tax
exemptions and are to be construed strictissimi juris against the claimant.
Under the facts of this case, we hold that [BPI-Family] has established its
claim. [BPI-Family] may have failed to strictly comply with the rules of
procedure; it may have even been negligent. These circumstances,
however, should not compel the Court to disregard this cold, undisputed
fact: that petitioner suffered a net loss in 1990, and that it could not have
applied the amount claimed as tax credits.
Substantial justice, equity and fair play are on the side of [BPI-Family].
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. If the State expects its taxpayers
to observe fairness and honesty in paying their taxes, so must it apply the
same standard against itself in refunding excess payments of such taxes.
Indeed, the State must lead by its own example of honor, dignity and
uprightness. 9 cAHITS
It is necessary for this Court, however, to emphasize that BPI-Family
involved tax credit acquired by the bank in 1989, which it initially opted to
carry over to 1990. The prevailing tax law then was the NIRC of 1985,
Section 79 10 of which provided:
Sec. 79.
Final Adjustment Return. Every corporation liable to tax
under Section 24 shall file a final adjustment return covering the total net

(a)

Pay the excess tax still due; or

(b)

Be refunded the excess amount paid, as the case may be.

By virtue of the afore-quoted provision, the taxpayer with excess income

tax was given the option to either (1) refund the amount; or (2) credit the
same to its tax liability for succeeding taxable periods.
Section 79 of the NIRC of 1985 was reproduced as Section 76 of the NIRC of
1997, 11 with the addition of one important sentence, which laid down the
irrevocability rule:
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: ETDHaC
(a)

Pay the excess tax still due; or

(b)

Be refunded the excess amount paid, as the case may be.

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 years.
Once the option to carry-over and apply the excess quarterly income tax
against income tax due for the taxable quarters of the succeeding taxable
years has been made, such option shall be considered irrevocable for that
taxable period and no application for tax refund or issuance of a tax credit
certificate shall be allowed therefor. (Emphases ours.)
When BPI-Family was decided by this Court, it did not yet have the
irrevocability rule to consider. Hence, BPI-Family cannot be cited as a
precedent for this case. SAaTHc
The factual background of Philam Asset Management, Inc. v. Commissioner
of Internal Revenue, 12 cited by the CIR, is closer to the instant Petition.

Both involve tax credits acquired and claims for refund filed more than a
decade after those in BPI-Family, to which Section 76 of the NIRC of 1997
already apply.
The Court, in Philam, recognized the two options offered by Section 76 of
the NIRC of 1997 to a taxable corporation whose total quarterly income tax
payments in a given taxable year exceeds its total income tax due. These
options are: (1) filing for a tax refund or (2) availing of a tax credit. The
Court further explained:
The first option is relatively simple. Any tax on income that is paid in
excess of the amount due the government may be refunded, provided that
a taxpayer properly applies for the refund.
The second option works by applying the refundable amount, as shown on
the [Final Adjustment Return (FAR)] of a given taxable year, against the
estimated quarterly income tax liabilities of the succeeding taxable year.
SEIaHT
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. 13 . . .
The Court categorically declared in Philam that: "Section 76 remains clear
and unequivocal. Once the carry-over option is taken, actually or
constructively, it becomes irrevocable." It mentioned no exception or
qualification to the irrevocability rule. EIcTAD
Hence, the controlling factor for the operation of the irrevocability rule is
that the taxpayer chose an option; and once it had already done so, it
could no longer make another one. Consequently, after the taxpayer opts
to carry-over its excess tax credit to the following taxable period, the
question of whether or not it actually gets to apply said tax credit is
irrelevant. Section 76 of the NIRC of 1997 is explicit in stating that once the
option to carry over has been made, "no application for tax refund or
issuance of a tax credit certificate shall be allowed therefor".
The last sentence of Section 76 of the NIRC of 1997 reads: "Once the
option to carry-over and apply the excess quarterly income tax against
income tax due for the taxable quarters of the succeeding taxable years
has been made, such option shall be considered irrevocable for that

taxable period and no application for tax refund or issuance of a tax credit
certificate shall be allowed therefor." The phrase "for that taxable period"
merely identifies the excess income tax, subject of the option, by referring
to the taxable period when it was acquired by the taxpayer. In the present
case, the excess income tax credit, which BPI opted to carry over, was
acquired by the said bank during the taxable year 1998. The option of BPI
to carry over its 1998 excess income tax credit is irrevocable; it cannot
later on opt to apply for a refund of the very same 1998 excess income tax
credit. EHcaAI
The Court of Appeals mistakenly understood the phrase "for that taxable
period" as a prescriptive period for the irrevocability rule. This would mean
that since the tax credit in this case was acquired in 1998, and BPI opted to
carry it over to 1999, then the irrevocability of the option to carry over
expired by the end of 1999, leaving BPI free to again take another option
as regards its 1998 excess income tax credit. This construal effectively
renders nugatory the irrevocability rule. The evident intent of the
legislature, in adding the last sentence to Section 76 of the NIRC of 1997, is
to keep the taxpayer from flip-flopping on its options, and avoid confusion
and complication as regards said taxpayer's excess tax credit. The
interpretation of the Court of Appeals only delays the flip-flopping to the
end of each succeeding taxable period.
The Court similarly disagrees in the declaration of the Court of Appeals that
to deny the claim for refund of BPI, because of the irrevocability rule, would
be tantamount to unjust enrichment on the part of the government. The
Court addressed the very same argument in Philam, where it elucidated
that there would be no unjust enrichment in the event of denial of the
claim for refund under such circumstances, because there would be no
forfeiture of any amount in favor of the government. The amount being
claimed as a refund would remain in the account of the taxpayer until
utilized in succeeding taxable years, 14 as provided in Section 76 of the
NIRC of 1997. It is worthy to note that unlike the option for refund of excess
income tax, which prescribes after two years from the filing of the FAR,
there is no prescriptive period for the carrying over of the same. Therefore,
the excess income tax credit of BPI, which it acquired in 1998 and opted to
carry over, may be repeatedly carried over to succeeding taxable years,
i.e., to 1999, 2000, 2001, and so on and so forth, until actually applied or
credited to a tax liability of BPI. IcEaST
Finally, while the Court, in Philam, was firm in its position that the choice of
option as regards the excess income tax shall be irrevocable, it was less
rigid in the determination of which option the taxpayer actually chose. It
did not limit itself to the indication by the taxpayer of its option in the ITR.

Thus, failure of the taxpayer to make an appropriate marking of its option

in the ITR does not automatically mean that the taxpayer has opted for a
tax credit. The Court ratiocinated in G.R. No. 156637 15 of Philam:

liability the bank may incur; only, no such opportunity arose because it
suffered a net loss in 1999 and incurred zero tax liability in 2000. In G.R.
No. 162004 of Philam, the Court found:

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. aIcETS

First, the fact that it filled out the portion "Prior Year's Excess Credits" in its
1999 FAR means that it categorically availed itself of the carry-over option.
In fact, the line that precedes that phrase in the BIR form clearly states
"Less: Tax Credits/Payments." The contention that it merely filled out that
portion because it was a requirement and that to have done otherwise
would have been tantamount to falsifying the FAR is a long shot.
HEcaIC

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.
xxx

xxx

xxx

. . . Despite the failure of [Philam] 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. 16 (Emphases ours.)
Philam reveals a meticulous consideration by the Court of the evidence
submitted by the parties and the circumstances surrounding the taxpayer's
option to carry over or claim for refund. When circumstances show that a
choice has been made by the taxpayer to carry over the excess income tax
as credit, 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." HCDAcE
Therefore, as to which option the taxpayer chose is generally a matter of
evidence. It is axiomatic that a claimant has the burden of proof to
establish the factual basis of his or her claim for tax credit or refund. Tax
refunds, like tax exemptions, are construed strictly against the taxpayer.
17
In the Petition at bar, BPI was unable to discharge the burden of proof
necessary for the grant of a refund. BPI expressly indicated in its ITR for
1998 that it was carrying over, instead of refunding, the excess income tax
it paid during the said taxable year. BPI consistently reported the said
amount in its ITRs for 1999 and 2000 as credit to be applied to any tax

The FAR is the most reliable firsthand evidence of corporate acts pertaining
to income taxes. In it are found the itemization and summary of additions
to and deductions from income taxes due. These entries are not without
rhyme or reason. They are required, because they facilitate the tax
administration process. 18
BPI itself never denied that its original intention was to carry over the
excess income tax credit it acquired in 1998, and only chose to refund the
said amount when it was unable to apply the same to any tax liability in
the succeeding taxable years. There can be no doubt that BPI opted to
carry over its excess income tax credit from 1998; it only subsequently
changed its mind which it was barred from doing by the irrevocability
rule.
The choice by BPI of the option to carry over its 1998 excess income tax
credit to succeeding taxable years, which it explicitly indicated in its 1998
ITR, is irrevocable, regardless of whether it was able to actually apply the
said amount to a tax liability. The reiteration by BPI of the carry over option
in its ITR for 1999 was already a superfluity, as far as its 1998 excess
income tax credit was concerned, given the irrevocability of the initial
choice made by the bank to carry over the said amount. For the same
reason, the failure of BPI to indicate any option in its ITR for 2000 was
already immaterial to its 1998 excess income tax credit. cSIHCA
WHEREFORE, the instant Petition for Review of the Commissioner for
Internal Revenue is GRANTED. The Decision dated 29 April 2005 and the
Resolution dated 20 April 2007 of the Court of Appeals in CA-G.R. SP No.
77655 are REVERSED and SET ASIDE. The Decision dated 12 March 2003 of
the Court of Tax Appeals in CTA Case No. 6276, denying the claim of
respondent Bank of the Philippine Islands for the refund of its 1998 excess
income tax credits, is REINSTATED. No costs. TaSEHD
SO ORDERED.
Ynares-Santiago, Velasco, Jr., Nachura and Peralta, JJ., concur.

Footnotes
1.
Penned by Associate Justice Bienvenido L. Reyes with Associate
Justices Godardo A. Jacinto and Rosalinda Asuncion-Vicente concurring.
Rollo, pp. 25-33.
2.

Computed as follows:
Quarter covered

Date filed

Quarterly Income Tax Paid

1st Quarter

06-01-98

378,564,898.34

2nd Quarter

08-31-98

184,982,572.12

3rd Quarter 11-27-98

Total

563,547,470.46
============

3.

Exhibit "A-2".

4.

CA rollo, pp. 28-29.

5.

CA rollo, p. 29.

6.

386 Phil. 719 (2000).

7.

Id. at 727.

8.

Rollo, pp. 34-39.

9.
BPI-Family Savings Bank, Inc. v. Court of Appeals, supra note 6 at
728-729.
10.
The provision was erroneously cited as Section 69 in BPI-Family.
While the said provision was indeed Section 69 of the NIRC of 1977, it was
already re-numbered as Section 79 of the NIRC of 1985.
11.

Took effect on 1 January 1998.

12.
761.

G.R. No. 156637 and No. 162004, 14 December 2005, 477 SCRA

13.

Id. at 772.

14.
Philam Asset Management, Inc. v. Commissioner of Internal
Revenue, supra note 12 at 768.
15.
Philam actually involved two consolidated cases, G.R. No. 156637
and G.R. No. 162004. In G.R. No. 156637, therein petitioner Philam paid
excess income tax for 1997. It did not indicate its option to carry over or
refund said excess income tax in its ITR for 1997. On 11 September 1998,

however, it filed a claim for refund of the same. In G.R. No. 162004, Philam
incurred a net loss in 1998 and had unapplied excess creditable income tax
for the same period in the amount of P459,756.07. In its ITR for the
succeeding year of 1999, Philam reported a tax due of only P80,042.00,
creditable withholding tax of P915,995.00, and excess credit carried over
from 1998 of P459,756.07. On 14 November 2000, Philam filed a claim for
tax refund, alleging that its tax liability for 1999 was deducted from its
creditable withholding tax for the same taxable period; leaving its excess
tax credit carried over from 1998 still unapplied.
16.
Philam Asset Management, Inc. v. Commissioner of Internal
Revenue, supra note 12 at 772, 776. See also Commissioner of Internal
Revenue v. PERF Realty Corporation, G.R. No. 163345, 4 July 2008.
17.
Paseo Realty and Development Corporation v. Court of Appeals,
G.R. No. 119286, 13 October 2004, 440 SCRA 235, 247.
[G.R. No. 149671. July 21, 2006.]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SEKISUI JUSHI
PHILIPPINES, INC., respondent.
DECISION
PANGANIBAN, C.J p:
Business enterprises registered with the Philippine Export Zone Authority
(PEZA) may choose between two fiscal incentive schemes: (1) to pay a five
percent preferential tax rate on its gross income and thus be exempt from
all other taxes; or (b) to enjoy an income tax holiday, in which case it is not
exempt from applicable national revenue taxes including the value-added
tax (VAT). The present respondent, which availed itself of the second tax
incentive scheme, has proven that all its transactions were export sales.
Hence, they should be VAT zero-rated. EHACcT
The Case
Before us is a Petition for Review 1 under Rule 45 of the Rules of Court,
challenging the August 16, 2001 Decision 2 of the Court of Appeals (CA) in
CA-G.R. SP No. 64679. The assailed Decision upheld the April 26, 2001
Decision 3 of the Court of Tax Appeals (CTA) in CTA Case No. 5751. The CA
Decision disposed as follows:
"WHEREFORE, premises considered, the present petition for review is
hereby DENIED DUE COURSE and accordingly DISMISSED for lack of merit.
The Decision dated April 26, 2001 of the Court of Tax Appeals in CTA Case
No. 5751 is hereby AFFIRMED and UPHELD." 4

On the other hand, the dispositive portion of the CTA Decision reads:
"WHEREFORE, the instant Petition for Review is PARTIALLY GRANTED.
[Petitioner] is hereby ordered to refund or to issue a Tax Credit Certificate
in favor of the [Respondent] in the amount of P4,377,102.26 representing
excess input taxes paid for the period covering January 1 to June 30, 1997."
5
The Facts
The uncontested 6 facts are narrated by the CA as follows:
"Respondent is a domestic corporation duly organized and existing under
and by virtue of the laws of the Philippines with principal office located at
the Special Export Processing Zone, Laguna Technopark, Bian, Laguna. It
is principally engaged in the business of manufacturing, importing,
exporting, buying, selling, or otherwise dealing in, at wholesale such goods
as strapping bands and other packaging materials and goods of similar
nature, and any and all equipment, materials, supplies used or employed
in or related to the manufacture of such finished products. CADacT
"Having registered with the Bureau of Internal Revenue (BIR) as a valueadded tax (VAT) taxpayer, respondent filed its quarterly returns with the
BIR, for the period January 1 to June 30, 1997, reflecting therein input taxes
in the amount of P4,631,132.70 paid by it in connection with its domestic
purchase of capital goods and services. Said input taxes remained
unutilized since respondent has not engaged in any business activity or
transaction for which it may be liable for output tax and for which said
input taxes may be credited.
"On November 11, 1998, respondent filed with the One-Stop-Shop InterAgency Tax Credit and Duty Drawback Center of the Department of Finance
(CENTER-DOF) two (2) separate applications for tax credit/refund of VAT
input taxes paid for the period January 1 to March 31, 1997 and April 1 to
June 30, 1997, respectively. There being no action on its application for tax
credit/refund under Section 112 (B) of the 1997 National Internal Revenue
Code (Tax Code), as amended, private respondent filed, within the two (2)year prescriptive period under Section 229 of said Code, a petition for
review with the Court of Tax Appeals on March 26, 1999.
"Petitioner filed its Answer to the petition asseverating that: (1) said claim
for tax credit/refund is subject to administrative routinary investigation by
the BIR; (2) respondent miserably failed to show that the amount claimed
as VAT input taxes were erroneously collected or that the same were
properly documented; (3) taxes due and collected are presumed to have
been made in accordance with law, hence, not refundable; (4) the burden
of proof is on the taxpayer to establish his right to a refund in an action for
tax refund. Failure to discharge such duty is fatal to his action; (5)

respondent should show that it complied with the provisions of Section 204
in relation to Section 229 of the 1997 Tax Code; and (6) claims for refund
are strictly construed against the taxpayer as it partakes of the nature of a
tax exemption. Hence, petitioner prayed for the denial of respondent's
petition." 7
Ruling of the Court of Tax Appeals
The CTA ruled that respondent was entitled to the refund. While the
company was registered with the PEZA as an ecozone and was, as such,
exempt from income tax, it availed itself of the fiscal incentive under
Executive Order No. 226. It thereby subjected itself to other internal
revenue taxes like the VAT. 8 The CTA then. found that only input taxes
amounting to P4,377,102.26 were duly substantiated by invoices and
Official Receipts, 9 while those amounting to P254,313.43 had not been
sufficiently proven and were thus disallowed. 10
Ruling of the Court of Appeals
The Court of Appeals upheld the Decision of the CTA. According to the CA,
respondent had complied with the procedural and substantive
requirements for a claim by 1) submitting receipts, invoices, and
supporting papers as evidence; 2) paying the subject input taxes on capital
goods; 3) not applying the input taxes against any output tax liability; and
4) filing the claim within the two-year prescriptive period under Section
229 of the 1997 Tax Code. 11
Hence, this Petition. 12
The Issue
Petitioner raises this sole issue for our consideration:
"Whether or not respondent is entitled to the refund or issuance of tax
credit certificate in the amount of P4,377,102.26 as alleged unutilized
input taxes paid on domestic purchase of capital goods and services for the
period covering January 1 to June 30, 1997." 13
The Court's Ruling
The Petition has no merit. SCHTac
Sole Issue:
Entitlement to Refund
To support the issue raised, petitioner advances the following arguments:
"I.
The Court of Appeals erred in not holding that respondent being
registered with the Philippine Economic Zone Authority (PEZA) as an
[e]cozone [e]xport [e]nterprise, its business is not subject to VAT pursuant

to Section 24 of Republic Act No. 7916 in relation to Section 103 (now Sec.
109) of the Tax Code, as amended by R.A. 7716.
"II.
The Court of Appeals erred in not holding that since respondent is
EXEMPT from Value-Added Tax (VAT), the capital goods and services it
purchased are considered not used in VAT taxable business, hence, is not
allowed any tax credit/refund on VAT input tax previously paid on such
capital goods pursuant to Section 4.106-1 of Revenue Regulations No. 795, and of input taxes paid on services pursuant to Section 4.103-1 of the
same regulations.
"III.
The Court of Appeals erred in not holding that tax refunds being in
the nature of tax exemptions are construed strictissimi juris against
claimants." 14
These issues have previously been addressed by this Court in
Commissioner of Internal Revenue v. Toshiba Information Equipment
(Phils.), 15 Commissioner of Internal Revenue v. Cebu Toyo Corporation, 16
and Commissioner of Internal Revenue v. Seagate Technology (Philippines).
17
An entity registered with the PEZA as an ecozone 18 may be covered by
the VAT system. Section 23 of Republic Act 7916, as amended, gives a
PEZA-registered enterprise the option to choose between two fiscal
incentives: a) a five percent preferential tax rate on its gross income under
the said law; or b) an income tax holiday provided under Executive Order
No. 226 or the Omnibus Investment Code of 1987, as amended. If the
entity avails itself of the five percent preferential tax rate under the first
scheme, it is exempt from all taxes, including the VAT; 19 under the
second, it is exempt from income taxes for a number of years, 20 but not
from other national internal revenue taxes like the VAT. 21
The CA and CTA found that respondent had availed itself of the fiscal
incentive of an income tax holiday under Executive Order No. 226. This
Court respects that factual finding. Absent a sufficient showing of error,
findings of the CTA as affirmed by the CA are deemed conclusive. 22
Moreover, a perusal of the pleadings and supporting documents before us
indicates that when it registered as a VAT-entity a fact admitted by the
parties respondent intended to avail itself of the income tax holiday. 23
Verily, being a question of fact, the type of fiscal incentive chosen cannot
be a subject of this Petition, which should raise only questions of law.
HDCTAc
By availing itself of the income tax holiday, respondent became subject to
the VAT. It correctly registered as a VAT taxpayer, because its transactions
were not VAT-exempt.

Notably, while an ecozone is geographically within the Philippines, it is

deemed a separate customs territory 24 and is regarded in law as foreign
soil. 25 Sales by, suppliers from outside the borders of the ecozone to this
separate customs territory are deemed as exports 26 and treated as export
sales. 27 These sales are zero-rated or subject to a tax rate of zero
percent. 28
Notwithstanding the fact that its purchases should have been zero-rated,
respondent was able to prove that it had paid input taxes in the amount of
P4,377,102.26. The CTA found, and the CA affirmed, that this amount was
substantially supported by invoices and Official Receipts; 29 and petitioner
has not challenged the computation. Accordingly, this Court upholds the
findings of the CTA and the CA.
On the other hand, since 100 percent of the products of respondent are
exported, 30 all its transactions are deemed export sales and are thus VAT
zero-rated. It has been shown that respondent has no output tax with
which it could offset its paid input tax. 31 Since the subject input tax it paid
for its domestic purchases of capital goods and services remained
unutilized, it can claim a refund for the input VAT previously charged by its
suppliers. 32 The amount of P4,377,102.26 is excess input taxes that
justify a refund.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.
No costs, as petitioner is a government agency. cHEATI
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ.,
concur.
Footnotes
1.

Rollo, pp. 8-18.

2.
Id. at 22-27. Special Twelfth Division. Penned by Justice Martin S.
Villarama, Jr., with the concurrence of Justices Conrado M. Vasquez, Jr.
(Division chair) and Eliezer R. de los Santos (member).
3.
Id. at 28-39. Penned by Judge Amancio Q. Saga and concurred in
by Presiding Judge Ernesto D. Acosta (now CTA Presiding Justice).
4.

Assailed CA Decision, p. 6; rollo, p. 27.

5.

CTA Decision, p. 11; rollo, p. 38.

6.

The Petition quoted them in full.

7.

Assailed CA Decision, pp. 1-2; rollo, pp. 22-23.

8.

CTA Decision, p. 10; id. at 37.

9.

Id. at 11; id. at 38.

26.
Commissioner of Internal
Equipment (Phils.), supra note 15.

10.

Id. at 10-11; id. at 37-38.

11.

Assailed CA Decision, p. 5; rollo, p. 26.

12.
To resolve old cases, the Court created the Committee on Zero
Backlog of Cases on January 26, 2006. Consequently, the Court resolved to
prioritize the adjudication of long-pending cases by redistributing them
among all the justices. This case was recently re-raffled and assigned to
the undersigned ponente for study and report.
Petition, p. 4; rollo, p. 11.

14.

Id. at 4-5; id. at 11-12.

15.

466 SCRA 211, August 9, 2005.

16.

451 SCRA 447, February 16, 2005.

17.

451 SCRA 132, February 11, 2005.

18.
An ecozone refers to a selected area that is or has a potential to be
developed as agro-industrial, industrial, tourist/recreational, commercial,
banking, investment and financial centers. See Republic Act No. 7916,
otherwise known as "The Special Economic Zone Act of 1995," Chapter I,
Sec. 4(a).
19.
Commissioner of Internal Revenue v. Toshiba Information
Equipment (Phils.), Inc., supra note 15; Commissioner of Internal Revenue
v. Cebu Toyo Corporation, supra note 16.
20.
The income tax holiday is for a period of 6 years for pioneer
enterprises and 4 years for non-pioneer enterprises. (Executive Order No.
226, as amended, Art. 39).
21.

Supra note 19.

22.
Commissioner of Internal Revenue
Equipment (Phils.), Inc., supra note 15.

v.

Toshiba

Information

While Republic Act No. 9282, elevated the CTA to the level
of the CA, the rule stands, because findings of trial courts for which
specialization is conferred are accorded respect and finality when
supported by substantial evidence.
23.

CTA Decision, p. 6; rollo, p. 33.

24.

Republic Act No. 7916, as amended, Sec. 8.

25.
Commissioner of Internal
(Philippines), supra note 17.

Revenue

v.

Seagate

Technology

v.

Toshiba

27.

Id.

28.

TAX CODE, Sec. 106(A)(2)(a)(5).

29.

CTA Decision, pp. 6 and 11; rollo, pp. 33 and 38.

30.

Id. at 7; id. at 34.

31.

Assailed CA Decision, p. 5; id. at 26.

32.
Commissioner of Internal
(Philippines), supra note 17.

13.

Revenue

Revenue

v.

Seagate

Information

Technology

[G.R. No. 178697. November 17, 2010.]

(Assessment No. ST-EWT-97-0125-2000)

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SONY PHILIPPINES,

INC., respondent.

Basic Tax Due

DECISION
MENDOZA, J p:
This petition for review on certiorari seeks to set aside the May 17, 2007
Decision and the July 5, 2007 Resolution of the Court of Tax Appeals En
Banc 1 (CTA-EB), in C.T.A. EB No. 90, affirming the October 26, 2004
Decision of the CTA-First Division 2 which, in turn, partially granted the
petition for review of respondent Sony Philippines, Inc. (Sony). The CTAFirst Division decision cancelled the deficiency assessment issued by
petitioner Commissioner of Internal Revenue (CIR) against Sony for Value
Added Tax (VAT) but upheld the deficiency assessment for expanded
withholding tax (EWT) in the amount of P1,035,879.70 and the penalties
for late remittance of internal revenue taxes in the amount of
P1,269,593.90. 3 cSICHD

Add: Penalties
Interest up to 3-31-2000

P550,485.82

Compromise

575,485.82

On November 24, 1998, the CIR issued Letter of Authority No. 000019734
(LOA 19734) authorizing certain revenue officers to examine Sony's books
of accounts and other accounting records regarding revenue taxes for "the
period 1997 and unverified prior years." On December 6, 1999, a
preliminary assessment for 1997 deficiency taxes and penalties was issued
by the CIR which Sony protested. Thereafter, acting on the protest, the CIR
issued final assessment notices, the formal letter of demand and the
details of discrepancies. 4 Said details of the deficiency taxes and penalties
for late remittance of internal revenue taxes are as follows:
DEFICIENCY VALUE-ADDED TAX (VAT)
(Assessment No. ST-VAT-97-0124-2000)
Basic Tax Due

P7,958,700.00

Add: Penalties
Interest up to 3-31-2000

P3,157,314.41

Compromise

3,182,314.41

25,000.00

Deficiency VAT Due

P11,141,014.41

=========
DEFICIENCY EXPANDED WITHHOLDING TAX (EWT)

25,000.00

Deficiency EWT Due

P1,992,462.72

=========
DEFICIENCY OF VAT ON ROYALTY PAYMENTS
(Assessment No. ST-LR1-97-0126-2000)
Basic Tax Due

Add: Penalties
Surcharge

THE FACTS:

P1,416,976.90

P359,177.80

Interest up to 3-31-2000

87,580.34

Compromise

462,758.14

16,000.00

Penalties Due

P462,758.14

========
LATE REMITTANCE OF FINAL WITHHOLDING TAX
(Assessment No. ST-LR2-97-0127-2000)
Basic Tax Due

Add: Penalties
Surcharge

P1,729,690.71

Interest up to 3-31-2000

508,783.07

Compromise

2,288,473.78

50,000.00

Penalties Due

P2,288,473.78

=========
LATE REMITTANCE OF INCOME PAYMENTS
(Assessment No. ST-LR3-97-0128-2000)

Basic Tax Due

deficiency assessments for expanded withholding tax and penalties for late
remittance of internal revenue taxes are UPHELD.

Add: Penalties
25% Surcharge P8,865.34
Interest up to 3-31-2000

58.29

Compromise

10,923.60

2,000.00

Penalties Due

P10,923.60

=======
GRAND TOTAL

Accordingly, petitioner is DIRECTED to PAY the respondent the deficiency

expanded withholding tax in the amount of P1,035,879.70 and the
following penalties for late remittance of internal revenue taxes in the sum
of P1,269,593.90:
1.

VAT on Royalty P429,242.07

2.

Withholding Tax on Royalty

831,428.20

3.

EWT of Petitioner's Branches

8,923.63

P15,895,632.65 5
============

Sony sought re-evaluation of the aforementioned assessment by filing a

protest on February 2, 2000. Sony submitted relevant documents in
support of its protest on the 16th of that same month. 6
On October 24, 2000, within 30 days after the lapse of 180 days from
submission of the said supporting documents to the CIR, Sony filed a
petition for review before the CTA. 7
After trial, the CTA-First Division disallowed the deficiency VAT assessment
because the subsidized advertising expense paid by Sony which was duly
covered by a VAT invoice resulted in an input VAT credit. As regards the
EWT, the CTA-First Division maintained the deficiency EWT assessment on
Sony's motor vehicles and on professional fees paid to general professional
partnerships. It also assessed the amounts paid to sales agents as
commissions with five percent (5%) EWT pursuant to Section 1 (g) of
Revenue Regulations No. 6-85. The CTA-First Division, however, disallowed
the EWT assessment on rental expense since it found that the total rental
deposit of P10,523,821.99 was incurred from January to March 1998 which
was again beyond the coverage of LOA 19734. Except for the compromise
penalties, the CTA-First Division also upheld the penalties for the late
payment of VAT on royalties, for late remittance of final withholding tax on
royalty as of December 1997 and for the late remittance of EWT by some
of Sony's branches. 8 In sum, the CTA-First Division partly granted Sony's
petition by cancelling the deficiency VAT assessment but upheld a modified
deficiency EWT assessment as well as the penalties. Thus, the dispositive
portion reads: ICDSca
WHEREFORE, the petition for review is hereby PARTIALLY GRANTED.
Respondent is ORDERED to CANCEL and WITHDRAW the deficiency
assessment for value-added tax for 1997 for lack of merit. However, the

Total

P1,269,593.90
===========

Plus 20% delinquency interest from January 17, 2000 until fully paid
pursuant to Section 249(C)(3) of the 1997 Tax Code.
SO ORDERED. 9 SDIaHE
The CIR sought a reconsideration of the above decision and submitted the
following grounds in support thereof:
A.
The Honorable Court committed reversible error in holding that
petitioner is not liable for the deficiency VAT in the amount of
P11,141,014.41;
B.
The Honorable court committed reversible error in holding that the
commission expense in the amount of P2,894,797.00 should be subjected
to 5% withholding tax instead of the 10% tax rate;
C.
The Honorable Court committed a reversible error in holding that
the withholding tax assessment with respect to the 5% withholding tax on
rental deposit in the amount of P10,523,821.99 should be cancelled; and
D.
The Honorable Court committed reversible error in holding that the
remittance of final withholding tax on royalties covering the period January
to March 1998 was filed on time. 10
On April 28, 2005, the CTA-First Division denied the motion for
reconsideration. Unfazed, the CIR filed a petition for review with the CTA-EB
raising identical issues:
1.
Whether or not respondent (Sony) is liable for the deficiency VAT in
the amount of P11,141,014.41; DHCSTa

2.
Whether or not the commission expense in the amount of
P2,894,797.00 should be subjected to 10% withholding tax instead of the
5% tax rate;
3.
Whether or not the withholding assessment with respect to the 5%
withholding tax on rental deposit in the amount of P10,523,821.99 is
proper; and
4.
Whether or not the remittance of final withholding tax on royalties
covering the period January to March 1998 was filed outside of time. 11
Finding no cogent reason to reverse the decision of the CTA-First Division,
the CTA-EB dismissed CIR's petition on May 17, 2007. CIR's motion for
reconsideration was denied by the CTA-EB on July 5, 2007.
The CIR is now before this Court via this petition for review relying on the
very same grounds it raised before the CTA-First Division and the CTA-EB.
The said grounds are reproduced below: DHIcET
GROUNDS FOR THE ALLOWANCE OF THE
PETITION
I
THE CTA EN BANC ERRED IN RULING THAT RESPONDENT IS NOT LIABLE
FOR DEFICIENCY VAT IN THE AMOUNT OF PHP11,141,014.41.
II
AS TO RESPONDENT'S DEFICIENCY EXPANDED WITHHOLDING TAX IN THE
AMOUNT OF PHP1,992,462.72:
A.
THE CTA EN BANC ERRED IN RULING THAT THE COMMISSION
EXPENSE IN THE AMOUNT OF PHP2,894,797.00 SHOULD BE SUBJECTED TO
A WITHHOLDING TAX OF 5% INSTEAD OF THE 10% TAX RATE.
B.
THE CTA EN BANC ERRED IN RULING THAT THE ASSESSMENT WITH
RESPECT TO THE 5% WITHHOLDING TAX ON RENTAL DEPOSIT IN THE
AMOUNT OF PHP10,523,821.99 IS NOT PROPER. ECcaDT
III
THE CTA EN BANC ERRED IN RULING THAT THE FINAL WITHHOLDING TAX
ON ROYALTIES COVERING THE PERIOD JANUARY TO MARCH 1998 WAS
FILED ON TIME. 12
Upon filing of Sony's comment, the Court ordered the CIR to file its reply
thereto. The CIR subsequently filed a manifestation informing the Court
that it would no longer file a reply. Thus, on December 3, 2008, the Court
resolved to give due course to the petition and to decide the case on the
basis of the pleadings filed. 13

The Court finds no merit in the petition.

The CIR insists that LOA 19734, although it states "the period 1997 and
unverified prior years," should be understood to mean the fiscal year
ending in March 31, 1998. 14 The Court cannot agree.
Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the
authority given to the appropriate revenue officer assigned to perform
assessment functions. It empowers or enables said revenue officer to
examine the books of account and other accounting records of a taxpayer
for the purpose of collecting the correct amount of tax. 15 The very
provision of the Tax Code that the CIR relies on is unequivocal with regard
to its power to grant authority to examine and assess a taxpayer.
cDCEHa
SEC. 6. Power of the Commissioner to Make Assessments and Prescribe
Additional Requirements for Tax Administration and Enforcement.
(A)
Examination of Returns and Determination of tax Due. After a
return has been filed as required under the provisions of this Code, the
Commissioner or his duly authorized representative may authorize the
examination of any taxpayer and the assessment of the correct amount of
tax: Provided, however, That failure to file a return shall not prevent the
Commissioner from authorizing the examination of any taxpayer. . . .
[Emphases supplied]
Clearly, there must be a grant of authority before any revenue officer can
conduct an examination or assessment. Equally important is that the
revenue officer so authorized must not go beyond the authority given. In
the absence of such an authority, the assessment or examination is a
nullity.
As earlier stated, LOA 19734 covered "the period 1997 and unverified prior
years." For said reason, the CIR acting through its revenue officers went
beyond the scope of their authority because the deficiency VAT
assessment they arrived at was based on records from January to March
1998 or using the fiscal year which ended in March 31, 1998. As pointed
out by the CTA-First Division in its April 28, 2005 Resolution, the CIR knew
which period should be covered by the investigation. Thus, if CIR wanted or
intended the investigation to include the year 1998, it should have done so
by including it in the LOA or issuing another LOA. TaISEH
Upon review, the CTA-EB even added that the coverage of LOA 19734,
particularly the phrase "and unverified prior years," violated Section C of
Revenue Memorandum Order No. 43-90 dated September 20, 1990, the
pertinent portion of which reads:

3.
A Letter of Authority should cover a taxable period not exceeding
one taxable year. The practice of issuing L/As covering audit of "unverified
prior years is hereby prohibited. If the audit of a taxpayer shall include
more than one taxable period, the other periods or years shall be
specifically indicated in the L/A. 16 [Emphasis supplied]
On this point alone, the deficiency VAT assessment should have been
disallowed. Be that as it may, the CIR's argument, that Sony's advertising
expense could not be considered as an input VAT credit because the same
was eventually reimbursed by Sony International Singapore (SIS), is also
erroneous.
The CIR contends that since Sony's advertising expense was reimbursed by
SIS, the former never incurred any advertising expense. As a result, Sony is
not entitled to a tax credit. At most, the CIR continues, the said advertising
expense should be for the account of SIS, and not Sony. 17 CIcTAE
The Court is not persuaded. As aptly found by the CTA-First Division and
later affirmed by the CTA-EB, Sony's deficiency VAT assessment stemmed
from the CIR's disallowance of the input VAT credits that should have been
realized from the advertising expense of the latter. 18 It is evident under
Section 110 19 of the 1997 Tax Code that an advertising expense duly
covered by a VAT invoice is a legitimate business expense. This is
confirmed by no less than CIR's own witness, Revenue Officer Antonio
Aluquin. 20 There is also no denying that Sony incurred advertising
expense. Aluquin testified that advertising companies issued invoices in
the name of Sony and the latter paid for the same. 21 Indubitably, Sony
incurred and paid for advertising expense/services. Where the money
came from is another matter all together but will definitely not change said
fact.
The CIR further argues that Sony itself admitted that the reimbursement
from SIS was income and, thus, taxable. In support of this, the CIR cited a
portion of Sony's protest filed before it:
The fact that due to adverse economic conditions, Sony-Singapore has
granted to our client a subsidy equivalent to the latter's advertising
expenses will not affect the validity of the input taxes from such expenses.
Thus, at the most, this is an additional income of our client subject to
income tax. We submit further that our client is not subject to VAT on the
subsidy income as this was not derived from the sale of goods or services.
22 cIACaT
Insofar as the above-mentioned subsidy may be considered as income and,
therefore, subject to income tax, the Court agrees. However, the Court
does not agree that the same subsidy should be subject to the 10% VAT. To
begin with, the said subsidy termed by the CIR as reimbursement was not

even exclusively earmarked for Sony's advertising expense for it was but
an assistance or aid in view of Sony's dire or adverse economic conditions,
and was only "equivalent to the latter's (Sony's) advertising expenses."
Section 106 of the Tax Code explains when VAT may be imposed or
exacted. Thus:
SEC. 106.

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, valueadded tax equivalent to ten percent (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.
Thus, there must be a sale, barter or exchange of goods or properties
before any VAT may be levied. Certainly, there was no such sale, barter or
exchange in the subsidy given by SIS to Sony. It was but a dole out by SIS
and not in payment for goods or properties sold, bartered or exchanged by
Sony. cSDHEC
In the case of CIR v. Court of Appeals (CA), 23 the Court had the occasion
to rule that services rendered for a fee even on reimbursement-on-cost
basis only and without realizing profit are also subject to VAT. The case,
however, is not applicable to the present case. In that case, COMASERCO
rendered service to its affiliates and, in turn, the affiliates paid the former
reimbursement-on-cost which means that it was paid the cost or expense
that it incurred although without profit. This is not true in the present case.
Sony did not render any service to SIS at all. The services rendered by the
advertising companies, paid for by Sony using SIS dole-out, were for Sony
and not SIS. SIS just gave assistance to Sony in the amount equivalent to
the latter's advertising expense but never received any goods, properties
or service from Sony.
Regarding the deficiency EWT assessment, more particularly Sony's
commission expense, the CIR insists that said deficiency EWT assessment
is subject to the ten percent (10%) rate instead of the five percent (5%)
citing Revenue Regulation No. 2-98 dated April 17, 1998. 24 The said
revenue regulation provides that the 10% rate is applied when the
recipient of the commission income is a natural person. According to the
CIR, Sony's schedule of Selling, General and Administrative expenses
shows the commission expense as "commission/dealer salesman
incentive," emphasizing the word salesman.
On the other hand, the application of the five percent (5%) rate by the CTAFirst Division is based on Section 1 (g) of Revenue Regulations No. 6-85
which provides: ScCEIA

(g)
Amounts paid to certain Brokers and Agents. On gross payments
to customs, insurance, real estate and commercial brokers and agents of
professional entertainers five per centum (5%). 25
In denying the very same argument of the CIR in its motion for
reconsideration, the CTA-First Division, held:
. . ., commission expense is indeed subject to 10% withholding tax but
payments made to broker is subject to 5% withholding tax pursuant to
Section 1(g) of Revenue Regulations No. 6-85. While the commission
expense in the schedule of Selling, General and Administrative expenses
submitted by petitioner (SPI) to the BIR is captioned as "commission/dealer
salesman incentive" the same does not justify the automatic imposition of
flat 10% rate. As itemized by petitioner, such expense is composed of
"Commission Expense" in the amount of P10,200.00 and 'Broker Dealer' of
P2,894,797.00. 26
The Court agrees with the CTA-EB when it affirmed the CTA-First Division
decision. Indeed, the applicable rule is Revenue Regulations No. 6-85, as
amended by Revenue Regulations No. 12-94, which was the applicable rule
during the subject period of examination and assessment as specified in
the LOA. Revenue Regulations No. 2-98, cited by the CIR, was only adopted
in April 1998 and, therefore, cannot be applied in the present case.
Besides, the withholding tax on brokers and agents was only increased to
10% much later or by the end of July 2001 under Revenue Regulations No.
6-2001. 27 Until then, the rate was only 5%. TDCAHE
The Court also affirms the findings of both the CTA-First Division and the
CTA-EB on the deficiency EWT assessment on the rental deposit. According
to their findings, Sony incurred the subject rental deposit in the amount of
P10,523,821.99 only from January to March 1998. As stated earlier, in the
absence of the appropriate LOA specifying the coverage, the CIR's
deficiency EWT assessment from January to March 1998, is not valid and
must be disallowed.
Finally, the Court now proceeds to the third ground relied upon by the CIR.
The CIR initially assessed Sony to be liable for penalties for belated
remittance of its FWT on royalties (i) as of December 1997; and (ii) for the
period from January to March 1998. Again, the Court agrees with the CTAFirst Division when it upheld the CIR with respect to the royalties for
December 1997 but cancelled that from January to March 1998.
The CIR insists that under Section 3 28 of Revenue Regulations No. 5-82
and Sections 2.57.4 and 2.58 (A) (2) (a) 29 of Revenue Regulations No. 298, Sony should also be made liable for the FWT on royalties from January
to March of 1998. At the same time, it downplays the relevance of the

Manufacturing License Agreement (MLA) between Sony and Sony-Japan,

particularly in the payment of royalties. cdasiajur
The above revenue regulations provide the manner of withholding
remittance as well as the payment of final tax on royalty. Based on the
same, Sony is required to deduct and withhold final taxes on royalty
payments when the royalty is paid or is payable. After which, the
corresponding return and remittance must be made within 10 days after
the end of each month. The question now is when does the royalty become
payable?
Under Article X (5) of the MLA between Sony and Sony-Japan, the following
terms of royalty payments were agreed upon:
(5)
Within two (2) months following each semi-annual period ending
June 30 and December 31, the LICENSEE shall furnish to the LICENSOR a
statement, certified by an officer of the LICENSEE, showing quantities of
the MODELS sold, leased or otherwise disposed of by the LICENSEE during
such respective semi-annual period and amount of royalty due pursuant
this ARTICLE X therefore, and the LICENSEE shall pay the royalty hereunder
to the LICENSOR concurrently with the furnishing of the above statement.
30 aSDCIE
Withal, Sony was to pay Sony-Japan royalty within two (2) months after
every semi-annual period which ends in June 30 and December 31.
However, the CTA-First Division found that there was accrual of royalty by
the end of December 1997 as well as by the end of June 1998. Given this,
the FWTs should have been paid or remitted by Sony to the CIR on January
10, 1998 and July 10, 1998. Thus, it was correct for the CTA-First Division
and the CTA-EB in ruling that the FWT for the royalty from January to March
1998 was seasonably filed. Although the royalty from January to March
1998 was well within the semi-annual period ending June 30, which meant
that the royalty may be payable until August 1998 pursuant to the MLA,
the FWT for said royalty had to be paid on or before July 10, 1998 or 10
days from its accrual at the end of June 1998. Thus, when Sony remitted
the same on July 8, 1998, it was not yet late.
In view of the foregoing, the Court finds no reason to disturb the findings of
the CTA-EB. IEaCDH
WHEREFORE, the petition is DENIED.
SO ORDERED.
Carpio, Leonardo-de Castro, * Peralta and Abad, JJ., concur.
Footnotes

1.
Penned by Associate Justice Lovell R. Bautista with Presiding Justice
Ernesto D. Acosta and Associate Justices Juanito C. Castaeda, Erlinda P.
Uy, Caesar A. Casanova and Olga Palanca-Enriquez, concurring.
2.
Penned by Presiding Justice Ernesto D. Acosta with Associate Lovell
R. Bautista, concurring.

SEC. 110. Tax Credits.

A. Creditable Input Tax.
(1) Any input tax evidenced by a VAT invoice or official
receipt issued in accordance with Section 113 hereof on the following
transactions shall be creditable against the output tax:

3.

Rollo, pp. 9-10.

4.

Id. at 60-61.

5.

Id.

6.

Id. at 62.

(b) Purchase of services on which a value-added tax has

been actually paid.

7.

Id.

xxx

8.

Id. at 42.

9.

Id. at 83-84.

The term 'input tax' means the value-added tax due from
or paid by a VAT-registered person in the course of his trade or business on
importation of goods or local purchase of goods or services, including lease
or use of property, from a VAT-registered person. It shall also include the
transitional input tax determined in accordance with Section 111 of this
Code.

10.

Id. at 86.

11.

Id. at 43.

12.

Id. at 16-17.

13.

Id. at 253.

14.

Id. at 17-18.

15.

National Internal Revenue Code;

SEC. 13. Authority of a Revenue Officer. Subject to the

rules and regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, a Revenue Officer assigned to
perform assessment functions in any district may, pursuant to a Letter of
Authority issued by the Revenue Regional Director, examine taxpayers
within the jurisdiction of the district in order to collect the correct amount
of tax, or to recommend the assessment of any deficiency tax due in the
same manner that the said acts could have been performed by the
Revenue Regional Director himself. (emphasis supplied)

(a) Purchase or importation of goods:

xxx

xxx

xxx

xxx

xxx

xxx.

xxx.

xxx. (emphasis supplied)

20.

Rollo, p. 66; TSN, February 27, 2003, pp. 33-34 and 36.

21.

Id. at 68; TSN, February 27, 2003, pp. 55-58.

22.

Id. at 22.

23.

CIR v. CA, 385 Phil. 875 (2000).

24.

Rollo, p. 24.

25.

Id. at 75.

26.

Id. at 88.

27.

Id. at 52.

28.

Revenue Regulations No. 5-82

16.
Revenue Memorandum Order No. 43-90 dated September 20,
1990, amending Revenue Memorandum Order No. 37-90 prescribing
revised guidelines for Examination of Returns and Issuance of Letters of
Authority to Audit, rollo, p. 46.

Section 3. Time of Withholding. The obligations of the

payor to deduct and withhold under these regulations arises at time
income which subject to withholding under Section 1 hereof is payable or
paid.

17.

Id. at 21.

29.

18.

Id. at 64.

19.

National Internal Revenue Code;

Section 2.57.4. Time of Withholding. The obligation of

the payor to deduct and withhold the tax under Section 2.57 of these
regulations arises at the time an income is paid or payable, whichever

Revenue Regulations No. 2-98

comes first. The term "payable" refers to the date of the obligation become
due, demandable or legally enforceable.
Section 2.58. Returns and Payment of Taxes Withheld at
Source.
(A) Monthly return and payment of taxes withheld at
source.
xxx

xxx

xxx

(2) When to File

30.

Rollo, p. 81.

*
Designated as additional member in lieu of Justice Antonio Eduardo
B. Nachura per raffle dated April 14, 2010.

[G.R. No. 146984. July 28, 2006.]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MAGSAYSAY LINES,
INC., BALIWAG NAVIGATION, INC., FIM LIMITED OF THE MARDEN GROUP
(HK) and NATIONAL DEVELOPMENT COMPANY, respondents.
DECISION
TINGA, J p:
The issue in this present petition is whether the sale by the National
Development Company (NDC) of five (5) of its vessels to the private
respondents is subject to value-added tax (VAT) under the National Internal
Revenue Code of 1986 (Tax Code) then prevailing at the time of the sale.
The Court of Tax Appeals (CTA) and the Court of Appeals commonly ruled
that the sale is not subject to VAT. We affirm, though on a more
unequivocal rationale than that utilized by the rulings under review. The
fact that the sale was not in the course of the trade or business of NDC is
sufficient in itself to declare the sale as outside the coverage of VAT.
The facts are culled primarily from the ruling of the CTA.
Pursuant to a government program of privatization, NDC decided to sell to
private enterprise all of its shares in its wholly-owned subsidiary the
National Marine Corporation (NMC). The NDC decided to sell in one lot its
NMC shares and five (5) of its ships, which are 3,700 DWT Tween-Decker,
"Kloeckner" type vessels. 1 The vessels were constructed for the NDC
between 1981 and 1984, then initially leased to Luzon Stevedoring
Company, also its wholly-owned subsidiary. Subsequently, the vessels were
transferred and leased, on a bareboat basis, to the NMC. 2
The NMC shares and the vessels were offered for public bidding. Among
the stipulated terms and conditions for the public auction was that the
winning bidder was to pay "a value added tax of 10% on the value of the
vessels." 3 On 3 June 1988, private respondent Magsaysay Lines, Inc.
(Magsaysay Lines) offered to buy the shares and the vessels for
P168,000,000.00. The bid was made by Magsaysay Lines, purportedly for a
new company still to be formed composed of itself, Baliwag Navigation,
Inc., and FIM Limited of the Marden Group based in Hongkong (collectively,
private respondents). 4 The bid was approved by the Committee on
Privatization, and a Notice of Award dated 1 July 1988 was issued to
Magsaysay Lines. CHcESa
On 28 September 1988, the implementing Contract of Sale was executed
between NDC, on one hand, and Magsaysay Lines, Baliwag Navigation, and
FIM Limited, on the other. Paragraph 11.02 of the contract stipulated that
"[v]alue-added tax, if any, shall be for the account of the PURCHASER." 5
Per arrangement, an irrevocable confirmed Letter of Credit previously filed

as bidders bond was accepted by NDC as security for the payment of VAT,
if any. By this time, a formal request for a ruling on whether or not the sale
of the vessels was subject to VAT had already been filed with the Bureau of
Internal Revenue (BIR) by the law firm of Sycip Salazar Hernandez &
Gatmaitan, presumably in behalf of private respondents. Thus, the parties
agreed that should no favorable ruling be received from the BIR, NDC was
authorized to draw on the Letter of Credit upon written demand the
amount needed for the payment of the VAT on the stipulated due date, 20
December 1988. 6
In January of 1989, private respondents through counsel received VAT
Ruling No. 568-88 dated 14 December 1988 from the BIR, holding that the
sale of the vessels was subject to the 10% VAT. The ruling cited the fact
that NDC was a VAT-registered enterprise, and thus its "transactions
incident to its normal VAT registered activity of leasing out personal
property including sale of its own assets that are movable, tangible objects
which are appropriable or transferable are subject to the 10% [VAT]." 7
Private respondents moved for the reconsideration of VAT Ruling No. 56888, as well as VAT Ruling No. 395-88 (dated 18 August 1988), which made
a similar ruling on the sale of the same vessels in response to an inquiry
from the Chairman of the Senate Blue Ribbon Committee. Their motion was
denied when the BIR issued VAT Ruling Nos. 007-89 dated 24 February
1989, reiterating the earlier VAT rulings. At this point, NDC drew on the
Letter of Credit to pay for the VAT, and the amount of P15,120,000.00 in
taxes was paid on 16 March 1989. HDITCS
On 10 April 1989, private respondents filed an Appeal and Petition for
Refund with the CTA, followed by a Supplemental Petition for Review on 14
July 1989. They prayed for the reversal of VAT Rulings No. 395-88, 568-88
and 007-89, as well as the refund of the VAT payment made amounting to
P15,120,000.00. 8 The Commissioner of Internal Revenue (CIR) opposed
the petition, first arguing that private respondents were not the real parties
in interest as they were not the transferors or sellers as contemplated in
Sections 99 and 100 of the then Tax Code. The CIR also squarely defended
the VAT rulings holding the sale of the vessels liable for VAT, especially
citing Section 3 of Revenue Regulation No. 5-87 (R.R. No. 5-87), which
provided that "[VAT] is imposed on any sale or transactions 'deemed sale'
of taxable goods (including capital goods, irrespective of the date of
acquisition)." The CIR argued that the sale of the vessels were among
those transactions "deemed sale," as enumerated in Section 4 of R.R. No.
5-87. It seems that the CIR particularly emphasized Section 4(E)(i) of the
Regulation, which classified "change of ownership of business" as a
circumstance that gave rise to a transaction "deemed sale."

In a Decision dated 27 April 1992, the CTA rejected the CIR's arguments
and granted the petition. 9 The CTA ruled that the sale of a vessel was an
"isolated transaction," not done in the ordinary course of NDC's business,
and was thus not subject to VAT, which under Section 99 of the Tax Code,
was applied only to sales in the course of trade or business. The CTA
further held that the sale of the vessels could not be "deemed sale," and
thus subject to VAT, as the transaction did not fall under the enumeration
of transactions deemed sale as listed either in Section 100(b) of the Tax
Code, or Section 4 of R.R. No. 5-87. Finally, the CTA ruled that any case of
doubt should be resolved in favor of private respondents since Section 99
of the Tax Code which implemented VAT is not an exemption provision, but
a classification provision which warranted the resolution of doubts in favor
of the taxpayer. HTCIcE
The CIR appealed the CTA Decision to the Court of Appeals, 10 which on 11
March 1997, rendered a Decision reversing the CTA. 11 While the appellate
court agreed that the sale was an isolated transaction, not made in the
course of NDC's regular trade or business, it nonetheless found that the
transaction fell within the classification of those "deemed sale" under R.R.
No. 5-87, since the sale of the vessels together with the NMC shares
brought about a change of ownership in NMC. The Court of Appeals also
applied the principle governing tax exemptions that such should be strictly
construed against the taxpayer, and liberally in favor of the government.
12
However, the Court of Appeals reversed itself upon reconsidering the case,
through a Resolution dated 5 February 2001. 13 This time, the appellate
court ruled that the "change of ownership of business" as contemplated in
R.R. No. 5-87 must be a consequence of the "retirement from or cessation
of business" by the owner of the goods, as provided for in Section 100 of
the Tax Code. The Court of Appeals also agreed with the CTA that the
classification of transactions "deemed sale" was a classification statute,
and not an exemption statute, thus warranting the resolution of any doubt
in favor of the taxpayer. 14
To the mind of the Court, the arguments raised in the present petition have
already been adequately discussed and refuted in the rulings assailed
before us. Evidently, the petition should be denied. Yet the Court finds that
Section 99 of the Tax Code is sufficient reason for upholding the refund of
VAT payments, and the subsequent disquisitions by the lower courts on the
applicability of Section 100 of the Tax Code and Section 4 of R.R. No. 5-87
are ultimately irrelevant. CTSAaH
A brief reiteration of the basic principles governing VAT is in order. VAT is
ultimately a tax on consumption, even though it is assessed on many
levels of transactions on the basis of a fixed percentage. 15 It is the end

user of consumer goods or services which ultimately shoulders the tax, as

the liability therefrom is passed on to the end users by the providers of
these goods or services 16 who in turn may credit their own VAT liability (or
input VAT) from the VAT payments they receive from the final consumer (or
output VAT). 17 The final purchase by the end consumer represents the
final link in a production chain that itself involves several transactions and
several acts of consumption. The VAT system assures fiscal adequacy
through the collection of taxes on every level of consumption, 18 yet
assuages the manufacturers or providers of goods and services by
enabling them to pass on their respective VAT liabilities to the next link of
the chain until finally the end consumer shoulders the entire tax liability.
Yet VAT is not a singular-minded tax on every transactional level. Its
assessment bears direct relevance to the taxpayer's role or link in the
production chain. Hence, as affirmed by Section 99 of the Tax Code and its
subsequent incarnations, 19 the tax is levied only on the sale, barter or
exchange of goods or services by persons who engage in such activities, in
the course of trade or business. These transactions outside the course of
trade or business may invariably contribute to the production chain, but
they do so only as a matter of accident or incident. As the sales of goods or
services do not occur within the course of trade or business, the providers
of such goods or services would hardly, if at all, have the opportunity to
appropriately credit any VAT liability as against their own accumulated VAT
collections since the accumulation of output VAT arises in the first place
only through the ordinary course of trade or business. IaCHTS
That the sale of the vessels was not in the ordinary course of trade or
business of NDC was appreciated by both the CTA and the Court of
Appeals, the latter doing so even in its first decision which it eventually
reconsidered. 20 We cite with approval the CTA's explanation on this point:
In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September 30,
1955 (97 Phil. 992), the term "carrying on business" does not mean the
performance of a single disconnected act, but means conducting,
prosecuting and continuing business by performing progressively all the
acts normally incident thereof; while "doing business" conveys the idea of
business being done, not from time to time, but all the time. [J. Aranas,
UPDATED NATIONAL INTERNAL REVENUE CODE (WITH ANNOTATIONS), p.
608-9 (1988)]. "Course of business" is what is usually done in the
management of trade or business. [Idmi v. Weeks & Russel, 99 So. 761,
764, 135 Miss. 65, cited in Words & Phrases, Vol. 10, (1984)].
What is clear therefore, based on the aforecited jurisprudence, is that
"course of business" or "doing business" connotes regularity of activity. In
the instant case, the sale was an isolated transaction. The sale which was
involuntary and made pursuant to the declared policy of Government for

privatization could no longer be repeated or carried on with regularity. It

should be emphasized that the normal VAT-registered activity of NDC is
leasing personal property. 21
This finding is confirmed by the Revised Charter 22 of the NDC which bears
no indication that the NDC was created for the primary purpose of selling
real property. 23
The conclusion that the sale was not in the course of trade or business,
which the CIR does not dispute before this Court, 24 should have
definitively settled the matter. Any sale, barter or exchange of goods or
services not in the course of trade or business is not subject to VAT.
cDHCAE
Section 100 of the Tax Code, which is implemented by Section 4(E)(i) of
R.R. No. 5-87 now relied upon by the CIR, is captioned "Value-added tax on
sale of goods," and it expressly states that "[t]here shall be levied,
assessed and collected on every sale, barter or exchange of goods, a value
added tax . . . ." Section 100 should be read in light of Section 99, which
lays down the general rule on which persons are liable for VAT in the first
place and on what transaction if at all. It may even be noted that Section
99 is the very first provision in Title IV of the Tax Code, the Title that covers
VAT in the law. Before any portion of Section 100, or the rest of the law for
that matter, may be applied in order to subject a transaction to VAT, it
must first be satisfied that the taxpayer and transaction involved is liable
for VAT in the first place under Section 99.
It would have been a different matter if Section 100 purported to define
the phrase "in the course of trade or business" as expressed in Section 99.
If that were so, reference to Section 100 would have been necessary as a
means of ascertaining whether the sale of the vessels was "in the course of
trade or business," and thus subject to VAT. But that is not the case. What
Section 100 and Section 4(E)(i) of R.R. No. 5-87 elaborate on is not the
meaning of "in the course of trade or business," but instead the
identification of the transactions which may be deemed as sale. It would
become necessary to ascertain whether under those two provisions the
transaction may be deemed a sale, only if it is settled that the transaction
occurred in the course of trade or business in the first place. If the
transaction transpired outside the course of trade or business, it would be
irrelevant for the purpose of determining VAT liability whether the
transaction may be deemed sale, since it anyway is not subject to VAT.
TaHDAS
Accordingly, the Court rules that given the undisputed finding that the
transaction in question was not made in the course of trade or business of
the seller, NDC that is, the sale is not subject to VAT pursuant to Section 99

of the Tax Code, no matter how the said sale may hew to those
transactions deemed sale as defined under Section 100. DHACES
In any event, even if Section 100 or Section 4 of R.R. No. 5-87 were to find
application in this case, the Court finds the discussions offered on this
point by the CTA and the Court of Appeals (in its subsequent Resolution)
essentially correct. Section 4 (E)(i) of R.R. No. 5-87 does classify as among
the transactions deemed sale those involving "change of ownership of
business." However, Section 4(E) of R.R. No. 5-87, reflecting Section 100 of
the Tax Code, clarifies that such "change of ownership" is only an attending
circumstance to "retirement from or cessation of business[,] with respect to
all goods on hand [as] of the date of such retirement or cessation." 25
Indeed, Section 4(E) of R.R. No. 5-87 expressly characterizes the "change
of ownership of business" as only a "circumstance" that attends those
transactions "deemed sale," which are otherwise stated in the same
section. 26
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.
Quisumbing, Carpio, Carpio Morales and Velasco Jr., JJ., concur.
Footnotes
1.

Rollo, p. 58.

2.

Id.

3.

Id.

4.

Id. at 59.

5.

Id. at 60.

6.

Id. at 61.

7.

Id.

8.
Private respondents also filed their claim for refund with the BIR on
13 July 1989. Id. at 63.
9.
Decision penned by Associate Judge Constante C. Roaquin,
concurred in by Presiding Judge Ernesto D. Acosta and Acting Associate
Judge Stella Dadivas-Farrales.
10.
The Court of Appeals initially dismissed the CIR's Petition for
Review as it had been filed beyond the reglementary period of appeal, but
such dismissal was subsequently reconsidered. The allowance of the
appeal was the subject of a special civil action for certiorari eventually
denied by the Court in Magsaysay Lines, et al. v. Court of Appeals, 329 Phil.
310 (1996), a decision limited solely to the propriety of the allowance of

the CIR's appeal, without delving on any of the issues now subject for
resolution in the present petition.
11.
Decision penned by then Associate Justice (now Supreme Court
Associate Justice) Romeo J. Callejo, Sr., and concurred in by Associate
Justices Gloria C. Paras and Ruben T. Reyes.
12.

See Rollo, pp. 53-54.

13.
See id. at 31. Resolution also penned by then Associate Justice
(now Supreme Court Associate Justice) Romeo J. Callejo, Sr., and concurred
in by Associate Justices Ramon Mabutas, Jr. and Ruben T. Reyes.
14.

Id. at 33-35.

15.
See Commissioner of Internal Revenue v. Benguet Corporation,
G.R. Nos. 134587 & 134588, 8 July 2005, 463 SCRA 28, 42.
16.
"[T]he amount of tax paid may be shifted or passed on by the
seller to the buyer. What is transferred in such instances is not the liability
for the tax, but the tax burden. In adding or including the VAT due to the
selling price, the seller remains the person primarily and legally liable for
the payment of the tax. What is shifted only to the intermediate buyer and
ultimately to the final purchaser is the burden of the tax." Contex
Corporation v. Commissioner of Internal Revenue, G.R. No. 151135, 2 July
2004, 433 SCRA 376, 385, citing Deoferio, Jr. and Mamalateo, THE VALUE
ADDED TAX IN THE PHILIPPINES 35-36 (1st ed. 2000).
17.
"There is another key characteristic of the VAT that no matter
the number of taxable transactions that precede the final purchase or sale,
it is the end user, or the consumer, that ultimately shoulders the tax.
Despite its name, VAT is generally not intended to be a tax on value added,
but rather as a tax on consumption. Hence, there is a mechanism in the
VAT system that enables firms to offset the tax they have paid on their own
purchases of goods and services against the tax they charge on their sales
of goods and services." Abakada Guro Party List v. Ermita, G.R. Nos.
168056, 168207, 168461, 168463, 168730, 1 September 2005, 469 SCRA
1, 282, J. Tinga, Dissenting and Concurring Opinion.
18.
"The VAT system assures that the government shall reap income
for every transaction that is had, and not just on the final sale or transfer."
Ibid.
19.
See, e.g., Section 105, Republic Act No. 8424 (National Internal
Revenue Code of 1987). The said provision remained intact despite the
passage of Republic Act No. 9337, which expanded the coverage of the
VAT, in 2005.
20.

See rollo, p. 51.

21.
Id. at 69-70, emphasis omitted. See also Commissioner of Internal
Revenue v. Court of Appeals, 385 Phil. 875 (2000). "VAT is a tax on
transactions, imposed at every stage of the distribution process on the
sale, barter, exchange of goods or property, and on the performance of
services, even in the absence of profit attributable thereto. The term "in
the course of trade or business" requires the regular conduct or pursuit of a
commercial or an economic activity, regardless of whether or not the entity
is profit-oriented." Id. at 884.
22.
Pres. Decree No. 1648, entitled Reorganizing
the National
Development Company and Establishing a Revised Charter Therefor, dated
25 October 1979.
23.

See Pres. Decree No. 1648, Secs. 2 and 4.

24.
Notably, the CIR even expressly submits that the earlier decision of
the Court of Appeals, which did rule the sale as an isolated transaction, "is
correct." See rollo, p. 27.
25.
See Section 100(b)(3)(4), 1986 Tax Code, which reads: "Retirement
from or cessation of business, with respect to inventories of taxable goods
existing as of such retirement or cessation."
26.

Section 4 of R.R. No. 5-87 states:

SEC. 4. Transactions "deemed sale." The following

transactions are "deemed sale" pursuant to Section 100 (b):
(a)
Transfer, use or consumption, not in the course of
business. Transfer of goods not in the course of business can take place
when the VAT-registered person withdraws goods from his business for his
personal use;
(b)
Distribution or transfer to shareholders or investors
as share in the profits of the business;
(c)

Transfer to creditors in payment of debt or

obligation;
(d)
Consignment of goods if actual sale is not made
within 60 days following the date such goods were consigned. Consigned
goods returned by the consignee within the 60 day period is not deemed
sold; and
(e)
Retirement from or cessation of business or death
of an individual with respect to all goods on hand, whether capital goods,
stock-in-trade, supplies or materials as of the date of such retirement or
cessation, whether or not the business is continued by the new owner or
successor, estate or heir. The following circumstances shall, among others,
give rise to transactions "deemed sale" for the purposes of this Section:

i.
Change of ownership of business or incorporation
of the business in the case of a single proprietorship;
ii.
Dissolution of a partnership and creation of a new
partnership which takes over the business; and
iii.
Death of an individual who is a VAT-registered
person, even if the estate or heirs of the decedent shall continue to
operate the business.

[G.R. No. 180909. January 19, 2011.]

EXXONMOBIL PETROLEUM AND CHEMICAL HOLDINGS, INC.-PHILIPPINE
BRANCH, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE,
respondent.
DECISION
MENDOZA, J p:
This is a petition for review on certiorari under Rule 45 filed by petitioner
Exxonmobil Petroleum and Chemical Holdings, Inc. Philippine Branch
(Exxon) to set aside the September 7, 2007 Decision 1 of the Court of Tax
Appeals En Banc (CTA-En Banc) in CTA E.B. No. 204, and its November 27,
2007 Resolution 2 denying petitioner's motion for reconsideration.
TEDHaA
THE FACTS
Petitioner Exxon is a foreign corporation duly organized and existing under
the laws of the State of Delaware, United States of America. 3 It is
authorized to do business in the Philippines through its Philippine Branch,
with principal office address at the 17/F The Orient Square, Emerald
Avenue, Ortigas Center, Pasig City. 4
Exxon is engaged in the business of selling petroleum products to domestic
and international carriers. 5 In pursuit of its business, Exxon purchased
from Caltex Philippines, Inc. (Caltex) and Petron Corporation (Petron) Jet A1 fuel and other petroleum products, the excise taxes on which were paid
for and remitted by both Caltex and Petron. 6 Said taxes, however, were
passed on to Exxon which ultimately shouldered the excise taxes on the
fuel and petroleum products. 7
From November 2001 to June 2002, Exxon sold a total of 28,635,841 liters
of Jet A-1 fuel to international carriers, free of excise taxes amounting to
Php105,093,536.47. 8 On various dates, it filed administrative claims for
refund with the Bureau of Internal Revenue (BIR) amounting to
Php105,093,536.47. 9
On October 30, 2003, Exxon filed a petition for review with the CTA 10
claiming a refund or tax credit in the amount of Php105,093,536.47,
representing the amount of excise taxes paid on Jet A-1 fuel and other
petroleum products it sold to international carriers from November 2001 to
June 2002. 11
Exxon and the Commissioner of Internal Revenue (CIR) filed their Joint
Stipulation of Facts and Issues on June 24, 2004, presenting a total of
fourteen (14) issues for resolution. 12

During Exxon's preparation of evidence, the CIR filed a motion dated

January 28, 2005 to first resolve the issue of whether or not Exxon was the
proper party to ask for a refund. 13 Exxon filed its opposition to the motion
on March 15, 2005. SITCEA
On July 27, 2005, the CTA First Division issued a resolution 14 sustaining
the CIR's position and dismissing Exxon's claim for refund. Exxon filed a
motion for reconsideration, but this was denied on July 27, 2006. 15
Exxon filed a petition for review 16 with the CTA En Banc assailing the July
27, 2005 Resolution of the CTA First Division which dismissed the petition
for review, and the July 27, 2006 Resolution 17 which affirmed the said
ruling.
RULING OF THE COURT OF TAX APPEALS EN BANC
In its Decision dated September 7, 2007, the CTA En Banc dismissed the
petition for review and affirmed the two resolutions of the First Division
dated July 27, 2005 and July 27, 2006. Exxon filed a motion for
reconsideration, but it was denied on November 27, 2007.
Citing Sections 130 (A) (2) 18 and 204 (C) in relation to Section 135 (a) 19
of the National Internal Revenue Code of 1997 (NIRC), the CTA ruled that in
consonance with its ruling in several cases, 20 only the taxpayer or the
manufacturer of the petroleum products sold has the legal personality to
claim the refund of excise taxes paid on petroleum products sold to
international carriers. 21
The CTA stated that Section 130 (A) (2) makes the manufacturer or
producer of the petroleum products directly liable for the payment of
excise taxes. 22 Therefore, it follows that the manufacturer or producer is
the taxpayer. 23
This determination of the identity of the taxpayer designated by law is
pivotal as the NIRC provides that it is only the taxpayer who "has the legal
personality to ask for a refund in case of erroneous payment of taxes." 24
DHSCTI
Further, the excise tax imposed on manufacturers upon the removal of
petroleum products by oil companies is an indirect tax, or a tax which is
primarily paid by persons who can shift the burden upon someone else. 25
The CTA cited the cases of Philippine Acetylene Co., Inc. v. Commissioner
of Internal Revenue, 26 Contex Corporation v. Commissioner of Internal
Revenue, 27 and Commissioner of Internal Revenue v. Philippine Long
Distance Telephone Company, 28 and explained that with indirect taxes,
"although the burden of an indirect tax can be shifted or passed on to the
purchaser of the goods, the liability for the indirect tax remains with the
manufacturer." 29 Moreover, "the manufacturer has the option whether or

not to shift the burden of the tax to the purchaser. When shifted, the
amount added by the manufacturer becomes a part of the price, therefore,
the purchaser does not really pay the tax per se but only the price of the
commodity." 30
Going by such logic, the CTA concluded that a refund of erroneously paid or
illegally received tax can only be made in favor of the taxpayer, pursuant
to Section 204 (C) of the NIRC. 31 As categorically ruled in the Cebu
Portland Cement 32 and Contex 33 cases, in the case of indirect taxes, it is
the manufacturer of the goods who is entitled to claim any refund thereof.
34 Therefore, it follows that the indirect taxes paid by the manufacturers or
producers of the goods cannot be refunded to the purchasers of the goods
because the purchasers are not the taxpayers. 35
The CTA also emphasized that tax refunds are in the nature of tax
exemptions and are, thus, regarded as in derogation of sovereign authority
and construed strictissimi juris against the person or entity claiming the
exemption. 36
Finally, the CTA disregarded Exxon's argument that "in effectively holding
that only petroleum products purchased directly from the manufacturers or
producers are exempt from excise taxes, the First Division of [the CTA]
sanctioned a universal amendment of existing bilateral agreements which
the Philippines have with other countries, in violation of the basic principle
of 'pacta sunt servanda.'" 37 The CTA explained that the findings of fact of
the First Division (that when Exxon sold the Jet A-1 fuel to international
carriers, it did so free of tax) negated any violation of the exemption from
excise tax of the petroleum products sold to international carriers. Second,
the right of international carriers to invoke the exemption granted under
Section 135 (a) of the NIRC was neither affected nor restricted in any way
by the ruling of the First Division. At the point of sale, the international
carriers were free to invoke the exemption from excise taxes of the
petroleum products sold to them. Lastly, the lawmaking body was
presumed to have enacted a later law with the knowledge of all other laws
involving the same subject matter. 38 EDIaSH
THE ISSUES
Petitioner now raises the following issues in its petition for review:
I.
WHETHER THE ASSAILED DECISION AND RESOLUTION ERRONEOUSLY
PROHIBITED PETITIONER, AS THE DISTRIBUTOR AND VENDOR OF
PETROLEUM PRODUCTS TO INTERNATIONAL CARRIERS REGISTERED IN
FOREIGN COUNTRIES WHICH HAVE EXISTING BILATERAL AGREEMENTS
WITH THE PHILIPPINES, FROM CLAIMING A REFUND OF THE EXCISE TAXES
PAID THEREON; AND

II.
WHETHER THE ASSAILED DECISIONS ERRED IN AFFIRMING THE DISMISSAL
OF PETITIONER'S CLAIM FOR REFUND BASED ON RESPONDENT'S "MOTION
TO RESOLVE FIRST THE ISSUE OF WHETHER OR NOT THE PETITIONER IS
THE PROPER PARTY THAT MAY ASK FOR A REFUND," SINCE SAID MOTION IS
ESSENTIALLY A MOTION TO DISMISS, WHICH SHOULD HAVE BEEN DENIED
OUTRIGHT BY THE COURT OF TAX APPEALS FOR HAVING BEEN FILED OUT
OF TIME.
RULING OF THE COURT
I.

On respondent's "motion to resolve first

the issue of whether or not the petitioner is

the proper party that may ask for a
refund."
For a logical resolution of the issues, the court will tackle first the issue of
whether or not the CTA erred in granting respondent's Motion to Resolve
First the Issue of Whether or Not the Petitioner is the Proper Party that may
Ask for a Refund. 39 In said motion, the CIR prayed that the CTA First
Division resolve ahead of the other stipulated issues the sole issue of
whether petitioner was the proper party to ask for a refund. 40
Exxon opines that the CIR's motion is essentially a motion to dismiss filed
out of time, 41 as it was filed after petitioner began presenting evidence
42 more than a year after the filing of the Answer. 43 By praying that
Exxon be declared as not the proper party to ask for a refund, the CIR
asked for the dismissal of the petition, as the grant of the Motion to
Resolve would bring trial to a close. 44
Moreover, Exxon states that the motion should have also complied with the
three-day notice and ten-day hearing rules provided in Rule 15 of the Rules
of Court. 45 Since the CIR failed to set its motion for any hearing before the
filing of the Answer, the motion should have been considered a mere scrap
of paper. 46 TCDcSE
Finally, citing Maruhom v. Commission on Elections and Dimaporo, 47
Exxon argues that a defendant who desires a preliminary hearing on
special and affirmative defenses must file a motion to that effect at the
time of filing of his answer. 48
The CIR, on the other hand, counters that it did not file a motion to dismiss.
49 Instead, the grounds for dismissal of the case were pleaded as special
and affirmative defenses in its Answer filed on December 15, 2003. 50
Therefore, the issue of "whether or not petitioner is the proper party to
claim for a tax refund of the excise taxes allegedly passed on by Caltex

and Petron" was included as one of the issues in the Joint Stipulation of
Facts and Issues dated June 24, 2004 signed by petitioner and respondent.
51
The CIR now argues that nothing in the Rules requires the preliminary
hearing to be held before the filing of an Answer. 52 However, a
preliminary hearing cannot be held before the filing of the Answer precisely
because any ground raised as an affirmative defense is pleaded in the
Answer itself. 53
Further, the CIR contends that the case cited by petitioner, Maruhom v.
Comelec, 54 does not apply here. In the said case, a motion to dismiss was
filed after the filing of the answer. 55 And, the said motion to dismiss was
found to be a frivolous motion designed to prevent the early termination of
the proceedings in the election case therein. 56 Here, the Motion to
Resolve was filed not to delay the disposition of the case, but rather, to
expedite proceedings. 57
Rule 16, Section 6 of the 1997 Rules of Civil Procedure provides:
SEC. 6. Pleading grounds as affirmative defenses. If no motion to
dismiss has been filed, any of the grounds for dismissal provided for in this
Rule may be pleaded as an affirmative defense in the answer, and in the
discretion of the court, a preliminary hearing may be had thereon as if a
motion to dismiss had been filed.
The dismissal of the complaint under this section shall be without prejudice
to the prosecution in the same or separate action of a counterclaim
pleaded in the answer. (Underscoring supplied.) IEaCDH
This case is a clear cut application of the above provision. The CIR did not
file a motion to dismiss. Thus, he pleaded the grounds for dismissal as
affirmative defenses in its Answer and thereafter prayed for the conduct of
a preliminary hearing to determine whether petitioner was the proper party
to apply for the refund of excise taxes paid.
The determination of this question was the keystone on which the entire
case was leaning. If Exxon was not the proper party to apply for the refund
of excise taxes paid, then it would be useless to proceed with the case. It
would not make any sense to proceed to try a case when petitioner had no
standing to pursue it.
In the case of California and Hawaiian Sugar Company v. Pioneer Insurance
and Surety Corporation, 58 the Court held that:
Considering that there was only one question, which may even be deemed
to be the very touchstone of the whole case, the trial court had no cogent
reason to deny the Motion for Preliminary Hearing. Indeed, it committed
grave abuse of discretion when it denied a preliminary hearing on a simple

issue of fact that could have possibly settled the entire case. Verily, where
a preliminary hearing appears to suffice, there is no reason to go on to
trial. One reason why dockets of trial courts are clogged is the
unreasonable refusal to use a process or procedure, like a motion to
dismiss, which is designed to abbreviate the resolution of a case. 59
(Underscoring supplied.)
II.

On whether petitioner, as the distributor

and vendor of petroleum products to

international carriers registered in foreign
countries which have existing bilateral
agreements with the Philippines, can claim
a refund of the excise taxes paid thereon
This brings us now to the substantive issue of whether Exxon, as the
distributor and vendor of petroleum products to international carriers
registered in foreign countries which have existing bilateral agreements
with the Philippines, is the proper party to claim a tax refund for the excise
taxes paid by the manufacturers, Caltex and Petron, and passed on to it as
part of the purchase price.
Exxon argues that having paid the excise taxes on the petroleum products
sold to international carriers, it is a real party in interest consistent with the
rules and jurisprudence. 60 cEITCA
It reasons out that the subject of the exemption is neither the seller nor the
buyer of the petroleum products, but the products themselves, so long as
they are sold to international carriers for use in international flight
operations, or to exempt entities covered by tax treaties, conventions and
other international agreements for their use or consumption, among other
conditions. 61
Thus, as the exemption granted under Section 135 attaches to the
petroleum products and not to the seller, the exemption will apply
regardless of whether the same were sold by its manufacturer or its
distributor for two reasons. 62 First, Section 135 does not require that to be
exempt from excise tax, the products should be sold by the manufacturer
or producer. 63 Second, the legislative intent was precisely to make
Section 135 independent from Sections 129 and 130 of the NIRC, 64
stemming from the fact that unlike other products subject to excise tax,
petroleum products of this nature have become subject to preferential tax
treatment by virtue of either specific international agreements or simply of
international reciprocity. 65

Respondent CIR, on the other hand, posits that Exxon is not the proper
party to seek a refund of excise taxes paid on the petroleum products. 66
In so arguing, the CIR states that excise taxes are indirect taxes, the
liability for payment of which falls on one person, but the burden of
payment may be shifted to another. 67 Here, the sellers of the petroleum
products or Jet A-1 fuel subject to excise tax are Petron and Caltex, while
Exxon was the buyer to whom the burden of paying excise tax was shifted.
68 While the impact or burden of taxation falls on Exxon, as the tax is
shifted to it as part of the purchase price, the persons statutorily liable to
pay the tax are Petron and Caltex. 69 As Exxon is not the taxpayer
primarily liable to pay, and not exempted from paying, excise tax, it is not
the proper party to claim for the refund of excise taxes paid. 70
The excise tax, when passed on to the
purchaser, becomes part of the
purchase price.
Excise taxes are imposed under Title VI of the NIRC. They apply to specific
goods manufactured or produced in the Philippines for domestic sale or
consumption or for any other disposition, and to those that are imported.
71 In effect, these taxes are imposed when two conditions concur: first,
that the articles subject to tax belong to any of the categories of goods
enumerated in Title VI of the NIRC; and second, that said articles are for
domestic sale or consumption, excluding those that are actually exported.
72 TICaEc
There are, however, certain exemptions to the coverage of excise taxes,
such as petroleum products sold to international carriers and exempt
entities or agencies. 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:

(c)
Entities which are by law exempt from direct and indirect taxes.
(Underscoring supplied.)
Thus, under Section 135, petroleum products sold to international carriers
of foreign registry on their use or consumption outside the Philippines are
exempt from excise tax, provided that the petroleum products sold to such
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. 73
The confusion here stems from the fact that excise taxes are of the nature
of indirect taxes, the liability for payment of which may fall on a person
other than he who actually bears the burden of the tax.
In Commissioner of Internal Revenue v. Philippine Long Distance Telephone
Company, 74 the Court discussed the nature of indirect taxes as follows:
[I]ndirect taxes are those that are demanded, in the first instance, from, or
are paid by, one person 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 goods sold or services rendered. acCTIS
Accordingly, the party liable for the tax can shift the burden to another, as
part of the purchase price of the goods or services. Although the
manufacturer/seller is the one who is statutorily liable for the tax, it is the
buyer who actually shoulders or bears the burden of the tax, albeit not in
the nature of a tax, but part of the purchase price or the cost of the goods
or services sold.
As petitioner is not the statutory

(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;

taxpayer, it is not entitled to claim a

(b)
Exempt entities or agencies covered by tax treaties, conventions
and other international agreements for their use of 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; and

Sections 129 and 130 of the NIRC provide:

refund of excise taxes paid.

The question we are faced with now is, if the party statutorily liable for the
tax is different from the party who bears the burden of such tax, who is
entitled to claim a refund of the tax paid?

SEC. 129.
Goods subject to Excise Taxes. Excise taxes apply to
goods manufactured or produced in the Philippines for domestic sales or
consumption or for any other disposition and to things imported. The

excise tax imposed herein shall be in addition to the value-added tax

imposed under Title IV.
For purposes of this Title, excise taxes herein imposed and based on weight
or volume capacity or any other physical unit of measurement shall be
referred to as 'specific tax' and an excise tax herein imposed and based on
selling price or other specified value of the good shall be referred to as 'ad
valorem tax.'
SEC. 130.
Products.

Filing of Return and Payment of Excise Tax on Domestic

(A)
Persons Liable to File a Return, Filing of Return on Removal and
Payment of Tax.
(1)
Persons Liable to File a Return. Every person liable to pay excise
tax imposed under this Title shall file a separate return for each place of
production setting forth, among others the description and quantity or
volume of products to be removed, the applicable tax base and the amount
of tax due thereon: Provided, however, That in the case of indigenous
petroleum, natural gas or liquefied natural gas, the excise tax shall be paid
by the first buyer, purchaser or transferee for local sale, barter or transfer,
while the excise tax on exported products shall be paid by the owner,
lessee, concessionaire or operator of the mining claim.
Should domestic products be removed from the place of production without
the payment of the tax, the owner or person having possession thereof
shall be liable for the tax due thereon. TcDIEH
(2)
Time for Filing of Return and Payment of the Tax. Unless
otherwise specifically allowed, the return shall be filed and the excise tax
paid by the manufacturer or producer before removal of domestic products
from place of production: Provided, That the tax excise on locally
manufactured petroleum products and indigenous petroleum/levied under
Sections 148 and 151(A)(4), respectively, of this Title shall be paid within
ten (10) days from the date of removal of such products for the period from
January 1, 1998 to June 30, 1998; within five (5) days from the date of
removal of such products for the period from July 1, 1998 to December 31,
1998; and, before removal from the place of production of such products
from January 1, 1999 and thereafter: Provided, further, That the excise tax
on nonmetallic mineral or mineral products, or quarry resources shall be
due and payable upon removal of such products from the locality where
mined or extracted, but with respect to the excise tax on locally produced
or extracted metallic mineral or mineral products, the person liable shall
file a return and pay the tax within fifteen (15) days after the end of the
calendar quarter when such products were removed subject to such
conditions as may be prescribed by rules and regulations to be

promulgated by the Secretary of Finance, upon recommendation of the

Commissioner. For this purpose, the taxpayer shall file a bond in an
amount which approximates the amount of excise tax due on the removals
for the said quarter. The foregoing rules notwithstanding, for imported
mineral or mineral products, whether metallic or nonmetallic, the excise
tax due thereon shall be paid before their removal from customs custody.
xxx

xxx

xxx

(Italics and underscoring supplied.)

As early as the 1960's, this Court has ruled that the proper party to
question, or to seek a refund of, an indirect tax, is the statutory taxpayer,
or the person on whom the tax is imposed by law and who paid the same,
even if he shifts the burden thereof to another. 75
In Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue, 76
the Court held that the sales tax is imposed on the manufacturer or
producer and not on the purchaser, "except probably in a very remote and
inconsequential sense." 77 Discussing the "passing on" of the sales tax to
the purchaser, the Court therein cited Justice Oliver Wendell Holmes'
opinion in Lash's Products v. United States 78 wherein he said:
"The phrase 'passed the tax on' is inaccurate, as obviously the tax is laid
and remains on the manufacturer and on him alone. The purchaser does
not really pay the tax. He pays or may pay the seller more for the goods
because of the seller's obligation, but that is all. . . . The price is the sum
total paid for the goods. The amount added because of the tax is paid to
get the goods and for nothing else. Therefore it is part of the price . . . ." 79
Proceeding from this discussion, the Court went on to state:
It may indeed be that the economic burden of the tax finally falls on the
purchaser; when it does the tax becomes a part of the price which the
purchaser must pay. It does not matter that an additional amount is billed
as tax to the purchaser. . . . The effect is still the same, namely, that the
purchaser does not pay the tax. He pays or may pay the seller more for the
goods because of the seller's obligation, but that is all and the amount
added because of the tax is paid to get the goods and for nothing else.
HDAaIS
But the tax burden may not even be shifted to the purchaser at all. A
decision to absorb the burden of the tax is largely a matter of economics.
Then it can no longer be contended that a sales tax is a tax on the
purchaser. 80
The above case was cited in the later case of Cebu Portland Cement
Company v. Collector (now Commissioner) of Internal Revenue, 81 where
the Court ruled that as the sales tax is imposed upon the manufacturer or

producer and not on the purchaser, "it is petitioner and not its customers,
who may ask for a refund of whatever amount it is entitled for the
percentage or sales taxes it paid before the amendment of section 246 of
the Tax Code." 82
The Philippine Acetylene case was also cited in the first Silkair (Singapore)
Pte, Ltd. v. Commissioner of Internal Revenue 83 case, where the Court
held that the proper party to question, or to 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.
84
In the Silkair cases, 85 petitioner Silkair (Singapore) Pte, Ltd. (Silkair), filed
with the BIR a written application for the refund of excise taxes it claimed
to have paid on its purchase of jet fuel from Petron. As the BIR did not act
on the application, Silkair filed a Petition for Review before the CTA.
In both cases, the CIR argued that the excise tax on petroleum products is
the direct liability of the manufacturer/producer, and when added to the
cost of the goods sold to the buyer, it is no longer a tax but part of the
price which the buyer has to pay to obtain the article.
In the first Silkair case, the Court ruled:
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. Section
130 (A) (2) of the NIRC provides that "[u]nless otherwise specifically
allowed, the return shall be filed and the excise tax paid by the
manufacturer or producer before removal of domestic products from place
of production." Thus, Petron Corporation, not Silkair, is the statutory
taxpayer which is entitled to claim a refund based on Section 135 of the
NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP
and Singapore.
Even if Petron Corporation passed on to Silkair the burden of the tax, the
additional amount billed to Silkair for jet fuel is not a tax but part of the
price which Silkair had to pay as a purchaser. 86 (Emphasis and
underscoring supplied.)
Citing the above case, the second Silkair case was promulgated a few
months after the first, and stated:
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." 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." 87 IHCacT
The CTA En Banc, thus, held that:
The determination of who is the taxpayer plays a pivotal role in claims for
refund because the same law provides that it is only the taxpayer who has
the legal personality to ask for a refund in case of erroneous payment of
taxes. Section 204 (C) of the 1997 NIRC, [provides] in part, as follows:
SEC. 204.
Authority of the Commissioner to Compromise, Abate, and
Refund or Credit Taxes. The Commissioner may
xxx

xxx

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 within two (2)
years after the payment of the tax or penalty: Provided, however, That a
return showing an overpayment shall be considered as a written claim for
credit or refund.
xxx

xxx

xxx

(Emphasis shown supplied by the CTA.) 88

Therefore, as Exxon is not the party statutorily liable for payment of excise
taxes under Section 130, in relation to Section 129 of the NIRC, it is not the
proper party to claim a refund of any taxes erroneously paid.
There is no unilateral amendment of
existing bilateral agreements of the
Philippines with other countries.
Exxon also argues that in effectively holding that only petroleum products
purchased directly from the manufacturers or producers are exempt from
excise taxes, the CTA En Banc sanctioned a unilateral amendment of
existing bilateral agreements which the Philippines has with other
countries, in violation of the basic international law principle of pacta sunt
servanda. 89 The Court does not agree.
As correctly held by the CTA En Banc:

One final point, petitioner's argument "that in effectively holding that only
petroleum products purchased directly from the manufacturers or
producers are exempt from excise taxes, the First Division of this Court
sanctioned a unilateral amendment of existing bilateral agreements which
the Philippines have (sic) with other countries, in violation of the basic
international principle of "pacta sunt servanda" is misplaced. First, the
findings of fact of the First Division of this Court that "when petitioner sold
the Jet A-1 fuel to international carriers, it did so free of tax" negates any
violation of the exemption from excise tax of the petroleum products sold
to international carriers insofar as this case is concerned. Secondly, the
right of international carriers to invoke the exemption granted under
Section 135 (a) of the 1997 NIRC has neither been affected nor restricted
in any way by the ruling of the First Division of this Court. At the point of
sale, the international carriers are free to invoke the exemption from excise
taxes of the petroleum products sold to them. Lastly, the law-making body
is presumed to have enacted a later law with the knowledge of all other
laws involving the same subject matter." 90 (Underscoring supplied.)
WHEREFORE, the petition is DENIED.

TADaCH

SO ORDERED.
Carpio, Nachura, Peralta and Abad, JJ., concur.
Footnotes
1.
Rollo, pp. 62-88. Penned by Associate Justice Juanito C. Castaeda,
Jr., with Associate Justices Lovell R. Bautista, Erlinda P. Uy, Caesar A.
Casanova and Olga Palanca-Enriquez, concurring. Presiding Justice Ernesto
D. Acosta issued a separate dissenting opinion.
2.

Id. at 89-94.

3.

Id. at 73.

4.

Id.

5.

Id.

6.

Id.

7.

Id.

8.

Id.

9.

Id.

10.

Docketed as CTA Case No. 6809.

11.

Rollo, p. 63.

12.

Id.

13.

Id. at 64.

14.
Id. at 138. Associate Justices Lovell R. Bautista and Caesar A.
Casanova, concurring. Presiding Justice Ernesto D. Acosta issued a
separate dissenting opinion.
15.

Id. at 150.

16.

Id. at 95.

17.

Id. at 62-63.

18.
SEC. 130. Filing of Return and Payment of Excise Tax on Domestic
Products.
(A) Persons Liable to File a Return, Filing of Return on Removal and
Payment of Tax.
xxx

xxx

xxx

(2) Time for Filing of Return and Payment of the Tax. Unless
otherwise specifically allowed, the return shall be filed and the excise tax
paid by the manufacturer or producer before removal of domestic products
from place of production: Provided, That the tax excise on locally
manufactured petroleum products and indigenous petroleum levied under
Sections 148 and 151 (A) (4), respectively, of this Title shall be paid within
ten (10) days from the date of removal of such products for the period from
January 1, 1998 to June 30, 1998; within five (5) days from the date of
removal of such products for the period from July 1, 1998 to December 31,
1998; and, before removal from the place of production of such products
from January 1, 1999 and thereafter: Provided, further, That the excise tax
on nonmetallic mineral or mineral products, or quarry resources shall be
due and payable upon removal of such products from the locality where
mined or extracted, but with respect to the excise tax on locally produced
or extracted metallic mineral or mineral products, the person liable shall
file a return and pay the tax within fifteen (15) days after the end of the
calendar quarter when such products were removed subject to such
conditions as may be prescribed by rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of the
Commissioner. For this purpose, the taxpayer shall file a bond in an
amount which approximates the amount of excise tax due on the removals
for the said quarter. The foregoing rules notwithstanding, for imported
mineral or mineral products, whether metallic or nonmetallic, the excise
tax due thereon shall be paid before their removal from customs custody.
xxx

xxx

xxx

19.
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;
xxx

xxx

xxx

20.
Koyo Manufacturing (Philippines) Corp. v. Commissioner of Internal
Revenue. CTA E.B. No. 194, March 1, 2007; Mobil Philippines, Inc. v.
Commissioner of Internal Revenue, CTA E.B. No. 110, July 26, 2006; Dunlop
Slazenger Phils., Inc. v. Commissioner of Internal Revenue, CTA E.B. No.
102, May 18, 2006; Commissioner of Internal Revenue v. Silkair (Singapore)
Pte. Ltd., CTA E.B. No. 67, January 5, 2006; Commissioner of Internal
Revenue v. Silkair (Singapore) Pte. Ltd., CTA E.B. No. 56, October 20, 2005;
and Commissioner of Internal Revenue v. Silkair (Singapore) Pte. Ltd., CTA
E.B. No. 25, May 20, 2005.
21.

Rollo, p. 74.

22.

Id. at 75.

23.

Id.

24.

Id., citing Section 204 (C) of the NIRC of 1997, which reads:

25.
Id. at 77, citing Maceda v. Macaraig, Jr., et al., 274 Phil. 1060
(1991).
26.

127 Phil. 461 (1967).

27.

G.R. No. 151135, July 2, 2004, 433 SCRA 577.

28.
G.R. No. 140230, December 15, 2005, 478 SCRA 61, citing
Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue, supra
note 27 at 470.
29.

Rollo, p. 77.

30.

Id. at 78.

31.

Id. at 80.

32.
Cebu Portland Cement Company v. Commissioner of Internal
Revenue, 134 Phil. 735 (1968).
33.
Contex Corporation v. Commissioner of Internal Revenue, supra
note 27.
34.
Rollo, p. 79, citing Section 204 (C) of the 1997 NIRC and Cebu
Portland Cement Company v. Collector of Internal Revenue, 134 Phil. 735
(1968).
35.

Id. at 81.

36.

Id.

37.

Id. at 82.

38.

Id.

39.

Id. at 204.

40.

Id. at 205.

(c) Credit or refund taxes erroneously or illegally received or

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

41.

Id. at 397.

42.

Id. at 396.

43.

Id. at 397.

44.

Id. at 396.

45.

Id. at 397.

46.

Id.

47.

387 Phil. 491 (2000).

xxx

48.

Rollo, p. 399.

49.

Id. at 279.

SEC. 204. Authority of the Commissioner to Compromise, Abate

and Refund or Credit Taxes. The Commissioner may
xxx

xxx

xxx

xxx

xxx

50.

Id.

51.

Id.

52.

Id.

53.

Id.

54.

Supra note 47.

55.

Rollo, p. 280.

56.

Id.

57.

Id.

58.

399 Phil. 795 (2000).

59.

Id. at 805.

60.

Rollo, p. 39.

83.
Supra note 75. See also Silkair (Singapore) Pte, Ltd. v.
Commissioner of Internal Revenue, G.R. Nos. 171383 and 172379,
November 14, 2008, 571 SCRA 141.

61.

Id. at 31.

84.

62.

Id. at 32.

63.

Id.

64.

Id., citing BIR Ruling DA-038-98.

85.
Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue,
G.R. No. 173594, February 6, 2008, 544 SCRA 100 and Silkair (Singapore)
Pte, Ltd. v. Commissioner of Internal Revenue, G.R. Nos. 171383 and
172379, November 14, 2008, 571 SCRA 141.

65.

Id. at 34.

66.

Id. at 271.

67.

Id.

68.

Id.

87.
Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue,
G.R. Nos. 171383 and 172379, November 14, 2008, 571 SCRA 141, 153154.

69.

Id. at 273.

88.

Rollo, pp. 75-76.

70.

Id. at 277.

89.

Id. at 34.

90.

Id. at 82.

71.
J.C. Vitug and E.D. Acosta, Tax Law and Jurisprudence, 271 (2006).
See also Republic Act No. 8424 (1997), as amended, Sec. 129.
72.

Id.

73.

Id. at 281.

74.
Supra note 28 at 72, citing Commissioner of Internal Revenue v.
Tours Specialists, Inc., 262 Phil. 437 (1990).
75.
Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue,
G.R. No. 173594, February 6, 2008, 544 SCRA 100, 112; J.C. Vitug and E.D.
Acosta, Tax Law and Jurisprudence, 317 (2006), citing Commissioner of
Internal Revenue v. American Rubber Company and Court of Tax Appeals,

124 Phil. 1471 (1966); Cebu Portland Cement Co. v. Collector of Internal
Revenue, 134 Phil. 735 (1968).
76.

Supra note 26.

77.

Id. at 470.

78.

278 U.S. 175 (1928).

79.

Supra note 26 at 465-466.

80.

Id. at 470, citing 47 Harv. Ld. Rev. 860, 869 (1934).

81.

Supra note 32.

82.

Id. at 743.

Id.

86.
Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue,
supra note 75.

FIRST DIVISION
[G.R. No. 125355. March 30, 2000.]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS
and COMMONWEALTH MANAGEMENT AND SERVICES CORPORATION,
respondents.
The Solicitor General for petitioner.
Benilda V. Quevedo-Santos and Anita A. Diomalanta-Arcinue for private
respondent.
SYNOPSIS
Commonwealth Management and Services Corporation (COMASERCO) is a
corporation duly organized and existing under the laws of the Philippines. It
is an affiliate of Philippine American Life Insurance Co. (Philamlife),
organized by the latter to perform collection, consultative and other
technical services, including functioning as an internal auditor of Philamlife
and its other affiliates. The Bureau of Internal Revenue (BIR) issued an
assessment to private respondent COMASERCO for deficiency value-added
tax (VAT) amounting to P351,851.01, for taxable year 1988. COMASERCO
filed with the Court of Tax Appeals a petition for review contesting the
Commissioner's assessment. COMASERCO asserted that the services it
rendered to Philamlife and its affiliates were on a "no-profit,
reimbursement-of-cost-only" basis, thus they were not engaged in
business. In fact, it did not generate profit but suffered a net loss in taxable
year 1988. COMASERCO averred that since it was not engaged in business,
it was not liable to pay VAT. The Court of Tax Appeals rendered a decision in
favor of the Commissioner of Internal Revenue. Respondent filed with the
Court of Appeals a petition for review of the decision of the Court of Tax
Appeals. After due proceedings, the Court of Appeals rendered a decision
reversing that of the Court of Tax Appeals. The Commissioner of Internal
Revenue filed with the Supreme Court a petition for review on certiorari
assailing the decision of the Court of Appeals. At issue in this case was
whether COMASERCO was engaged in the sale of services, and thus liable
to pay VAT thereon. aESHDA
The Supreme Court agreed with the Commissioner of Internal Revenue.
Contrary to COMASERCO's contention, Sec. 105 of the National Internal
Revenue Code of 1997 clarifies that even a non-stock, non-profit
organization or government entity is liable to pay VAT on the sale of goods
or services. VAT is a tax on transactions, imposed at every stage of the
distribution process on the sale, barter, exchange of goods or property, and
on the performance of services, even in the absence of profit attributable
thereto. There was no merit to respondent's contention that the Court of
Appeals' decision declaring the COMASERCO as not engaged in business

and not liable for the payment of fixed and percentage taxes, binds
petitioner. The issue in the appellate court is different from the present
case, which involves COMASERCO's liability for VAT. Every person who sells,
barters, or exchanges goods and services, in the course of trade or
business, as defined by law, is subject to VAT. The Court reversed the
decision of the Court of Appeals and reinstated the decision of the Court of
Tax Appeals.
SYLLABUS
1.
TAXATION; REPUBLIC ACT NO. 7716 (EXPANDED VAT LAW);
CLARIFIES THAT EVEN A NON-STOCK, NON-PROFIT ORGANIZATION OR
GOVERNMENT ENTITY IS LIABLE TO PAY VAT ON THE SALE OF GOODS OR
SERVICES. On May 28, 1994, Congress enacted Republic Act No. 7716,
the Expanded VAT Law (EVAT), amending among other sections, Section 99
of the Tax Code. On January 1, 1998, Republic Act 8424, the National
Internal Revenue Code of 1997, took effect. Contrary to COMASERCO's
contention the amended law clarifies that even a non-stock, non-profit,
organization or government entity, is liable to pay VAT on the sale of goods
or services. VAT is a tax on transactions, imposed at every stage of the
distribution process on the sale, barter, exchange of goods or property, and
on the performance of services, even in the absence of profit attributable
thereto. The term "in the course of trade or business" requires the regular
conduct or pursuit of a commercial or an economic activity, regardless of
whether or not the entity is profit-oriented. The definition of the term "in
the course of trade or business" incorporated in the present law applies to
all transactions even to those made prior to its enactment. Executive Order
No. 273 stated that any person who, in the course of trade or business,
sells, barters or exchanges goods and services, was already liable to pay
VAT. The present law merely stresses that even a nonstock, nonprofit
organization or government entity is liable to pay VAT for the sale of goods
and services. Section 108 of the National Internal Revenue Code of 1997
defines the phrase "sale of services" as the "performance of all kinds of
services for others for a fee, remuneration or consideration." It includes
"the supply of technical advice, assistance or services rendered in
connection with technical management or administration of any scientific,
industrial or commercial undertaking or project."
2.
ID.; ID.; BIR RULING NO. 010-98; EMPHASIZED THAT AS LONG AS
THE ENTITY PROVIDES SERVICE FOR A FEE, REMUNERATION OR
CONSIDERATION, THEN THE SERVICE RENDERED IS SUBJECT TO VALUE
ADDED TAX (VAT). On February 5, 1998, the Commissioner of Internal
Revenue issued BIR Ruling No. 010-98 emphasizing that a domestic
corporation that provided technical, research, management and technical
assistance to its affiliated companies and received payments on a
reimbursement-of-cost basis, without any intention of realizing profit, was

subject to VAT on services rendered. In fact, even if such corporation was

organized without any intention of realizing profit, any income or profit
generated by the entity in the conduct of its activities was subject to
income tax. Hence, it is immaterial whether the primary purpose of a
corporation indicates that it receives payments for services rendered to its
affiliates on a reimbursement-on-cost basis only, without realizing profit,
for purposes of determining liability for VAT on services rendered. As long
as the entity provides service for a fee, remuneration or consideration,
then the service rendered is subject to VAT.
3.
ID.; TAXES; EXEMPTION FROM THE PAYMENT THEREOF CONSTRUED
STRICTLY AGAINST THE GRANTEE AND LIBERALLY IN FAVOR OF THE
GOVERNMENT; APPLICATION IN CASE AT BAR. It is a rule that because
taxes are the lifeblood of the nation, statutes that allow exemptions are
construed strictly against the grantee and liberally in favor of the
government. Otherwise stated, any exemption from the payment of a tax
must be clearly stated in the language of the law; it cannot be merely
implied therefrom. In the case of VAT, Section 109, Republic Act 8424
clearly enumerates the transactions exempted from VAT. The services
rendered by COMASERCO do not fall within the exemptions.
4.
REMEDIAL LAW; EVIDENCE; CONCLUSIONS OF QUASI-JUDICIAL
AGENCIES; RESPECTED ON APPEAL; CASE AT BAR. Both the
Commissioner of Internal Revenue and the Court of Tax Appeals correctly
ruled that the services rendered by COMASERCO to Philamlife and its
affiliates are subject to VAT. As pointed out by the Commissioner, the
performance of all kinds of services for others for a fee, remuneration or
consideration is considered as sale of services subject to VAT. As
government agency charged with the enforcement of the law, the opinion
of the Commissioner of Internal Revenue, in the absence of any showing
that it is plainly wrong, is entitled to great weight. Also, it has been the
long standing policy and practice of this Court to respect the conclusions of
quasi-judicial agencies, such as the Court of Tax Appeals which, by the
nature of its functions, is dedicated exclusively to the study and
consideration of tax cases and has necessarily developed an expertise on
the subject, unless there has been and abuse or improvident exercise of its
authority. aITDAE
DECISION
PARDO, J p:
What is before the Court is a petition for review on certiorari of the decision
of the Court of Appeals, 1 reversing that of the Court of Tax Appeals, 2
which affirmed with modification the decision of the Commissioner of
Internal Revenue ruling that Commonwealth Management and Services

Corporation, is liable for value added tax for services to clients during
taxable year 1988. Cdpr
Commonwealth Management and Services Corporation (COMASERCO, for
brevity), is a corporation duly organized and existing under the laws of the
Philippines. It is an affiliate of Philippine American Life Insurance Co.
(Philamlife), organized by the latter to perform collection, consultative and
other technical services, including functioning as an internal auditor, of
Philamlife and its other affiliates.
On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an
assessment to private respondent COMASERCO for deficiency value-added
tax (VAT) amounting to P351,851.01, for taxable year 1988, computed as
follows:
"Taxable sale/receipt

P1,679,155.00

===========
10% tax due thereon

167,915.50

25% surcharge 41,978.88

20% interest per annum

125,936.63

Compromise penalty for late payment 16,000.00

TOTAL AMOUNT DUE AND COLLECTIBLEP351,831.01" 3

===========
COMASERCO's annual corporate income tax return ending December 31,
1988 indicated a net loss in its operations in the amount of P6,077.00.
On February 10, 1992, COMASERCO filed with the BIR, a letter-protest
objecting to the latter's finding of deficiency VAT. On August 20, 1992, the
Commissioner of Internal Revenue sent a collection letter to COMASERCO
demanding payment of the deficiency VAT.
On September 29, 1992, COMASERCO filed with the Court of Tax Appeals 4
a petition for review contesting the Commissioner's assessment.
COMASERCO asserted that the services it rendered to Philamlife and its
affiliates, relating to collections, consultative and other technical
assistance, including functioning as an internal auditor, were on a "noprofit, reimbursement-of-cost-only" basis. It averred that it was not
engaged in the business of providing services to Philamlife and its
affiliates. COMASERCO was established to ensure operational orderliness
and administrative efficiency of Philamlife and its affiliates, and not in the
sale of services. COMASERCO stressed that it was not profit-motivated,

thus not engaged in business. In fact, it did not generate profit but suffered
a net loss in taxable year 1988. COMASERCO averred that since it was not
engaged in business, it was not liable to pay VAT. cdasia

On August 7, 1996, we required respondent COMASERCO to file comment

on the petition, and on September 26, 1996, COMASERCO complied with
the resolution. 8

On June 22, 1995, the Court of Tax Appeals rendered decision in favor of
the Commissioner of Internal Revenue, the dispositive portion of which
reads:

We give due course to the petition.

"WHEREFORE, the decision of the Commissioner of Internal Revenue

assessing petitioner deficiency value-added tax for the taxable year 1988
is AFFIRMED with slight modifications. Accordingly, petitioner is ordered to
pay respondent Commissioner of Internal Revenue the amount of
P335,831.01 inclusive of the 25% surcharge and interest plus 20% interest
from January 24, 1992 until fully paid pursuant to Section 248 and 249 of
the Tax Code.
"The compromise penalty of P16,000.00 imposed by the respondent in her
assessment letter shall not be included in the payment as there was no
compromise agreement entered into between petitioner and respondent
with respect to the value-added tax deficiency." 5
On July 26, 1995, respondent filed with the Court of Appeals, a petition for
review of the decision of the Court of Appeals.
After due proceedings, on May 13, 1996, the Court of Appeals rendered
decision reversing that of the Court of Tax Appeals, the dispositive portion
of which reads:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered
REVERSING and SETTING ASIDE the questioned Decision promulgated on
22 June 1995. The assessment for deficiency value-added tax for the
taxable year 1988 inclusive of surcharge, interest and penalty charges are
ordered CANCELLED for lack of legal and factual basis." 6
The Court of Appeals anchored its decision on the ratiocination in another
tax case involving the same parties, 7 where it was held that COMASERCO
was not liable to pay fixed and contractor's tax for services rendered to
Philamlife and its affiliates. The Court of Appeals, in that case, reasoned
that COMASERCO was not engaged in business of providing services to
Philamlife and its affiliates. In the same manner, the Court of Appeals held
that COMASERCO was not liable to pay VAT for it was not engaged in the
business of selling services.
On July 16, 1996, the Commissioner of Internal Revenue filed with this
Court a petition for review on certiorari assailing the decision of the Court
of Appeals.

At issue in this case is whether COMASERCO was engaged in the sale of

services, and thus liable to pay VAT thereon.
Petitioner avers that to "engage in business" and to "engage in the sale of
services" are two different things. Petitioner maintains that the services
rendered by COMASERCO to Philamlife and its affiliates, for a fee or
consideration, are subject to VAT. VAT is a tax on the value added by the
performance of the service. It is immaterial whether profit is derived from
rendering the service. cdasia
We agree with the Commissioner.
Section 99 of the National Internal Revenue Code of 1986, as amended by
Executive Order (E.O.) No. 273 in 1988, provides that:
"SECTION 99. Persons liable. Any person who, in the course of trade or
business, sells, barters or exchanges goods, renders services, or engages
in similar transactions and any person who imports goods shall be subject
to the value-added tax (VAT) imposed in Sections 100 to 102 of this Code."
9
COMASERCO contends that the term "in the course of trade or business"
requires that the "business" is carried on with a view to profit or livelihood.
It avers that the activities of the entity must be profit-oriented.
COMASERCO submits that it is not motivated by profit, as defined by its
primary purpose in the articles of incorporation, stating that it is operating
"only on reimbursement-of-cost basis, without any profit." Private
respondent argues that profit motive is material in ascertaining who to tax
for purposes of determining liability for VAT.
We disagree.
On May 28, 1994, Congress enacted Republic Act No. 7716, the Expanded
VAT Law (EVAT), amending among other sections, Section 99 of the Tax
Code. On January 1, 1998, Republic Act 8424, the National Internal
Revenue Code of 1997, took effect. The amended law provides that:
"SECTION 105. Persons Liable. Any person who, in the course of trade or
business, sells, barters, exchanges, leases goods or properties, renders
services, and any person who imports goods shall be subject to the valueadded tax (VAT) imposed in Sections 106 and 108 of this Code.
"The value-added tax is an indirect tax and the amount of tax may be
shifted or passed on to the buyer, transferee or lessee of the goods,

properties or services. This rule shall likewise apply to existing sale or lease
of goods, properties or services at the time of the effectivity of Republic
Act No. 7716.
"The phrase "in the course of trade or 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 organization (irrespective of the
disposition of its net income and whether or not it sells exclusively to
members of 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."
Contrary to COMASERCO's contention the above provision clarifies that
even a non-stock, non-profit organization or government entity, is liable to
pay VAT on the sale of goods or services. VAT is a tax on transactions,
imposed at every stage of the distribution process on the sale, barter,
exchange of goods or property, and on the performance of services, even
in the absence of profit attributable thereto. The term "in the course of
trade or business" requires the regular conduct or pursuit of a commercial
or an economic activity, regardless of whether or not the entity is profitoriented.
The definition of the term "in the course of trade or business" incorporated
in the present law applies to all transactions even to those made prior to
its enactment. Executive Order No. 273 stated that any person who, in the
course of trade or business, sells, barters or exchanges goods and
services, was already liable to pay VAT. The present law merely stresses
that even a nonstock, nonprofit organization or government entity is liable
to pay VAT for the sale of goods and services. cda
Section 108 of the National Internal Revenue Code of 1997 10 defines the
phrase "sale of services" as the "performance of all kinds of services for
others for a fee, remuneration or consideration." It includes "the supply of
technical advice, assistance or services rendered in connection with
technical management or administration of any scientific, industrial or
commercial undertaking or project." 11
On February 5, 1998, the Commissioner of Internal Revenue issued BIR
Ruling No. 010-98 12 emphasizing that a domestic corporation that
provided technical, research, management and technical assistance to its
affiliated companies and received payments on a reimbursement-of-cost
basis, without any intention of realizing profit, was subject to VAT on
services rendered. In fact, even if such corporation was organized without

any intention of realizing profit, any income or profit generated by the

entity in the conduct of its activities was subject to income tax.
Hence, it is immaterial whether the primary purpose of a corporation
indicates that it receives payments for services rendered to its affiliates on
a reimbursement-on-cost basis only, without realizing profit, for purposes
of determining liability for VAT on services rendered. As long as the entity
provides service for a fee, remuneration or consideration, then the service
rendered is subject to VAT.
At any rate, it is a rule that because taxes are the lifeblood of the nation,
statutes that allow exemptions are construed strictly against the grantee
and liberally in favor of the government. Otherwise stated, any exemption
from the payment of a tax must be clearly stated in the language of the
law; it cannot be merely implied therefrom. 13 In the case of VAT, Section
109, Republic Act 8424 clearly enumerates the transactions exempted
from VAT. The services rendered by COMASERCO do not fall within the
exemptions.
Both the Commissioner of Internal Revenue and the Court of Tax Appeals
correctly ruled that the services rendered by COMASERCO to Philamlife and
its affiliates are subject to VAT. As pointed out by the Commissioner, the
performance of all kinds of services for others for a fee, remuneration or
consideration is considered as sale of services subject to VAT. As the
government agency charged with the enforcement of the law, the opinion
of the Commissioner of Internal Revenue, in the absence of any showing
that it is plainly wrong, is entitled to great weight. 14 Also, it has been the
long standing policy and practice of this Court to respect the conclusions of
quasi-judicial agencies, such as the Court of Tax Appeals which, by the
nature of its functions, is dedicated exclusively to the study and
consideration of tax cases and has necessarily developed an expertise on
the subject, unless there has been an abuse or improvident exercise of its
authority. 15
There is no merit to respondent's contention that the Court of Appeals'
decision in CA-G.R. No. 34042, declaring the COMASERCO as not engaged
in business and not liable for the payment of fixed and percentage taxes,
binds petitioner. The issue in CA-G.R. No. 34042 is different from the
present case, which involves COMASERCO's liability for VAT. As heretofore
stated, every person who sells, barters, or exchanges goods and services,
in the course of trade or business, as defined by law, is subject to VAT.
cdtai
WHEREFORE, the Court GRANTS the petition and REVERSES the decision of
the Court of Appeals in CA-G.R. SP No. 37930. The Court hereby
REINSTATES the decision of the Court of Tax Appeals in C.T.A. Case No.
4853.

No costs.
SO ORDERED.
Davide, Jr., C.J., Puno, Kapunan and Ynares-Santiago, JJ., concur.
Footnotes
1.
In CA-G.R. SP No. 37930, promulgated on May 13, 1996. Justice
Pacita Caizares-Nye, ponente, Justices Pedro A. Ramirez and Salvador J.
Valdez, Jr., concurring. Rollo, pp. 27-31.
2.
In C.T.A. Case No. 4853, promulgated on June 22, 1995. Judge
Ernesto D. Acosta, presiding, Judges Manuel K. Gruba and Ramon O. De
Veyra, concurring. Rollo, pp. 32-42.
3.

CTA Decision, Rollo, p. 32.

4.

Docketed as C.T.A. Case No. 4853.

5.

Rollo, pp. 32-43.

6.

Rollo, pp. 27-31.

7.
Docketed as CA-G.R. SP NO. 34032, Commonwealth Management
and Services Corporation v. Commissioner of Internal Revenue and the
Court of Tax Appeals, promulgated on December 21, 1995. Justice Jaime M.
Lantin, ponente, Justices Eduardo G. Montenegro and Jose C. Dela Rama,
concurring. This decision became final since no petition for review was filed
with this Court.
8.

Rollo, pp. 50-64.

9.

Now in Section 105 of the Tax Code.

10.

Formerly Section 102.

11.
Section 108 (A) (6), National Internal Revenue Code of 1997;
Section 4.102-1, Revenue Regulations No. 7-95 (Value-Added Tax
Regulations), as amended, December 9, 1995.
12.

Upon a query made by Tipco-Bataan Group Incorporated.

13.
Davao Guf Lumber Corporation v. Commissioner of Internal
Revenue, 293 SCRA 76 (1998).
14.
Misamis Oriental Association of Coco Traders, Inc. v. Department of
Finance Secretary, 238 SCRA 63, 68 (1994).
15.
Commissioner of Internal Revenue v. Court of Appeals, 204 SCRA
183, 189-190 (1991).

[G.R. No. 183505. February 26, 2010.]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SM PRIME
HOLDINGS, INC. and FIRST ASIA REALTY DEVELOPMENT CORPORATION,
respondents.
DECISION
DEL CASTILLO, J p:
When the intent of the law is not apparent as worded, or when the
application of the law would lead to absurdity or injustice, legislative
history is all important. In such cases, courts may take judicial notice of the
origin and history of the law, 1 the deliberations during the enactment, 2
as well as prior laws on the same subject matter 3 to ascertain the true
intent or spirit of the law. acITSD
This Petition for Review on Certiorari under Rule 45 of the Rules of Court, in
relation to Republic Act (RA) No. 9282, 4 seeks to set aside the April 30,
2008 Decision 5 and the June 24, 2008 Resolution 6 of the Court of Tax
Appeals (CTA).
Factual Antecedents
Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty
Development Corporation (First Asia) are domestic corporations duly
organized and existing under the laws of the Republic of the Philippines.
Both are engaged in the business of operating cinema houses, among
others. 7
CTA Case No. 7079
On September 26, 2003, the Bureau of Internal Revenue (BIR) sent SM
Prime a Preliminary Assessment Notice (PAN) for value added tax (VAT)
deficiency on cinema ticket sales in the amount of P119,276,047.40 for
taxable year 2000. 8 In response, SM Prime filed a letter-protest dated
December 15, 2003. 9
On December 12, 2003, the BIR sent SM Prime a Formal Letter of Demand
for the alleged VAT deficiency, which the latter protested in a letter dated
January 14, 2004. 10
On September 6, 2004, the BIR denied the protest filed by SM Prime and
ordered it to pay the VAT deficiency for taxable year 2000 in the amount of
P124,035,874.12. 11 SAcCIH
On October 15, 2004, SM Prime filed a Petition for Review before the CTA
docketed as CTA Case No. 7079. 12
CTA Case No. 7085

On May 15, 2002, the BIR sent First Asia a PAN for VAT deficiency on
cinema ticket sales for taxable year 1999 in the total amount of
P35,823,680.93. 13 First Asia protested the PAN in a letter dated July 9,
2002. 14
Subsequently, the BIR issued a Formal Letter of Demand for the alleged
VAT deficiency which was protested by First Asia in a letter dated
December 12, 2002. 15
On September 6, 2004, the BIR rendered a Decision denying the protest
and ordering First Asia to pay the amount of P35,823,680.93 for VAT
deficiency for taxable year 1999. 16
Accordingly, on October 20, 2004, First Asia filed a Petition for Review
before the CTA, docketed as CTA Case No. 7085. 17
CTA Case No. 7111
On April 16, 2004, the BIR sent a PAN to First Asia for VAT deficiency on
cinema ticket sales for taxable year 2000 in the amount of P35,840,895.78.
First Asia protested the PAN through a letter dated April 22, 2004. 18
DCaSHI
Thereafter, the BIR issued a Formal Letter of Demand for alleged VAT
deficiency. 19 First Asia protested the same in a letter dated July 9, 2004.
20
On October 5, 2004, the BIR denied the protest and ordered First Asia to
pay the VAT deficiency in the amount of P35,840,895.78 for taxable year
2000. 21
This prompted First Asia to file a Petition for Review before the CTA on
December 16, 2004. The case was docketed as CTA Case No. 7111. 22
CTA Case No. 7272
Re: Assessment Notice No. 008-02
A PAN for VAT deficiency on cinema ticket sales for the taxable year 2002
in the total amount of P32,802,912.21 was issued against First Asia by the
BIR. In response, First Asia filed a protest-letter dated November 11, 2004.
The BIR then sent a Formal Letter of Demand, which was protested by First
Asia on December 14, 2004. 23
Re: Assessment Notice No. 003-03
A PAN for VAT deficiency on cinema ticket sales in the total amount of
P28,196,376.46 for the taxable year 2003 was issued by the BIR against
First Asia. In a letter dated September 23, 2004, First Asia protested the
PAN. A Formal Letter of Demand was thereafter issued by the BIR to First

Asia, which the latter protested through a letter dated November 11, 2004.
24 cECaHA
On May 11, 2005, the BIR rendered a Decision denying the protests. It
ordered First Asia to pay the amounts of P33,610,202.91 and
P28,590,826.50 for VAT deficiency for taxable years 2002 and 2003,
respectively. 25
Thus, on June 22, 2005, First Asia filed a Petition for Review before the CTA,
docketed as CTA Case No. 7272. 26
Consolidated Petitions
The Commissioner of Internal Revenue (CIR) filed his Answers to the
Petitions filed by SM Prime and First Asia. 27
On July 1, 2005, SM Prime filed a Motion to Consolidate CTA Case Nos.
7085, 7111 and 7272 with CTA Case No. 7079 on the grounds that the
issues raised therein are identical and that SM Prime is a majority
shareholder of First Asia. The motion was granted. 28
Upon submission of the parties' respective memoranda, the consolidated
cases were submitted for decision on the sole issue of whether gross
receipts derived from admission tickets by cinema/theater operators or
proprietors are subject to VAT. 29
Ruling of the CTA First Division
On September 22, 2006, the First Division of the CTA rendered a Decision
granting the Petition for Review. Resorting to the language used and the
legislative history of the law, it ruled that the activity of showing
cinematographic films is not a service covered by VAT under the National
Internal Revenue Code (NIRC) of 1997, as amended, but an activity subject
to amusement tax under RA 7160, otherwise known as the Local
Government Code (LGC) of 1991. Citing House Joint Resolution No. 13,
entitled "Joint Resolution Expressing the True Intent of Congress with
Respect to the Prevailing Tax Regime in the Theater and Local Film Industry
Consistent with the State's Policy to Have a Viable, Sustainable and
Competitive Theater and Film Industry as One of its Partners in National
Development," 30 the CTA First Division held that the House of
Representatives resolved that there should only be one business tax
applicable to theaters and movie houses, which is the 30% amusement tax
imposed by cities and provinces under the LGC of 1991. Further, it held
that consistent with the State's policy to have a viable, sustainable and
competitive theater and film industry, the national government should be
precluded from imposing its own business tax in addition to that already
imposed and collected by local government units. The CTA First Division
likewise found that Revenue Memorandum Circular (RMC) No. 28-2001,

which imposes VAT on gross receipts from admission to cinema houses,

cannot be given force and effect because it failed to comply with the
procedural due process for tax issuances under RMC No. 20-86. 31 Thus, it
disposed of the case as follows: CDEaAI
IN VIEW OF ALL THE FOREGOING, this Court hereby GRANTS the Petitions
for Review. Respondent's Decisions denying petitioners' protests against
deficiency value-added taxes are hereby REVERSED. Accordingly,
Assessment Notices Nos. VT-00-000098, VT-99-000057, VT-00-000122,
003-03 and 008-02 are ORDERED cancelled and set aside.
SO ORDERED. 32
Aggrieved, the CIR moved for reconsideration which was denied by the
First Division in its Resolution dated December 14, 2006. 33
Ruling of the CTA En Banc
Thus, the CIR appealed to the CTA En Banc. 34 The case was docketed as
CTA EB No. 244. 35 The CTA En Banc however denied 36 the Petition for
Review and dismissed 37 as well petitioner's Motion for Reconsideration.
The CTA En Banc held that Section 108 of the NIRC actually sets forth an
exhaustive enumeration of what services are intended to be subject to VAT.
And since the showing or exhibition of motion pictures, films or movies by
cinema operators or proprietors is not among the enumerated activities
contemplated in the phrase "sale or exchange of services," then gross
receipts derived by cinema/theater operators or proprietors from admission
tickets in showing motion pictures, film or movie are not subject to VAT. It
reiterated that the exhibition or showing of motion pictures, films, or
movies is instead subject to amusement tax under the LGC of 1991. As
regards the validity of RMC No. 28-2001, the CTA En Banc agreed with its
First Division that the same cannot be given force and effect for failure to
comply with RMC No. 20-86. TaSEHD
Issue
Hence, the present recourse, where petitioner alleges that the CTA En Banc
seriously erred:
(1)
In not finding/holding that the gross receipts derived by
operators/proprietors of cinema houses from admission tickets [are]
subject to the 10% VAT because:
(a)
THE EXHIBITION OF MOVIES BY CINEMA OPERATORS/PROPRIETORS
TO THE PAYING PUBLIC IS A SALE OF SERVICE;
(b)
UNLESS EXEMPTED BY LAW, ALL SALES OF SERVICES ARE
EXPRESSLY SUBJECT TO VAT UNDER SECTION 108 OF THE NIRC OF 1997;

(c)
SECTION 108 OF THE NIRC OF 1997 IS A CLEAR PROVISION OF LAW
AND THE APPLICATION OF RULES OF STATUTORY CONSTRUCTION AND
EXTRINSIC AIDS IS UNWARRANTED;
(d)
GRANTING WITHOUT CONCEDING THAT RULES OF CONSTRUCTION
ARE APPLICABLE HEREIN, STILL THE HONORABLE COURT ERRONEOUSLY
APPLIED THE SAME AND PROMULGATED DANGEROUS PRECEDENTS;
ADETca
(e)
THERE IS NO VALID, EXISTING PROVISION OF LAW EXEMPTING
RESPONDENTS' SERVICES FROM THE VAT IMPOSED UNDER SECTION 108
OF THE NIRC OF 1997;
(f)
QUESTIONS ON THE WISDOM OF THE LAW ARE NOT PROPER
ISSUES TO BE TRIED BY THE HONORABLE COURT; and
(g)
RESPONDENTS WERE TAXED BASED ON THE PROVISION OF
SECTION 108 OF THE NIRC.
(2)
In ruling that the enumeration in Section 108 of the NIRC of 1997 is
exhaustive in coverage;
(3)
In misconstruing the NIRC of 1997 to conclude that the showing of
motion pictures is merely subject to the amusement tax imposed by the
Local Government Code; and
(4)
38

In invalidating Revenue Memorandum Circular (RMC) No. 28-2001.

Simply put, the issue in this case is whether the gross receipts derived by
operators or proprietors of cinema/theater houses from admission tickets
are subject to VAT. AEIHaS
Petitioner's Arguments
Petitioner argues that the enumeration of services subject to VAT in Section
108 of the NIRC is not exhaustive because it covers all sales of services
unless exempted by law. He claims that the CTA erred in applying the rules
on statutory construction and in using extrinsic aids in interpreting Section
108 because the provision is clear and unambiguous. Thus, he maintains
that the exhibition of movies by cinema operators or proprietors to the
paying public, being a sale of service, is subject to VAT.
Respondents' Arguments
Respondents, on the other hand, argue that a plain reading of Section 108
of the NIRC of 1997 shows that the gross receipts of proprietors or
operators of cinemas/theaters derived from public admission are not
among the services subject to VAT. Respondents insist that gross receipts
from cinema/theater admission tickets were never intended to be subject

to any tax imposed by the national government. According to them, the

absence of gross receipts from cinema/theater admission tickets from the
list of services which are subject to the national amusement tax under
Section 125 of the NIRC of 1997 reinforces this legislative intent.
Respondents also highlight the fact that RMC No. 28-2001 on which the
deficiency assessments were based is an unpublished administrative
ruling. aDcEIH
Our Ruling
The petition is bereft of merit.
The enumeration of services subject to VAT under Section 108 of the NIRC
is not exhaustive
Section 108 of the NIRC of the 1997 reads:
SEC. 108.
Properties.

Value-added Tax on Sale of Services and Use or Lease of

(A)
Rate and Base of Tax. There 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.
The phrase "sale or exchange of services" means the performance of all
kinds of services in the Philippines for others for a fee, remuneration or
consideration, including those performed or rendered by construction and
service contractors; stock, real estate, commercial, customs and
immigration brokers; lessors of property, whether personal or real;
warehousing services; lessors or distributors of cinematographic films;
persons engaged in milling, processing, manufacturing or repacking goods
for others; proprietors, operators or keepers of hotels, motels, rest houses,
pension houses, inns, resorts; proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places, including clubs and
caterers; dealers in securities; lending investors; transportation contractors
on their transport of goods or cargoes, including persons who transport
goods or cargoes for hire and other domestic common carriers by land, air
and water relative to their transport of goods or cargoes; services of
franchise grantees of telephone and telegraph, radio and television
broadcasting and all other franchise grantees except those under Section
119 of this Code; services of banks, non-bank financial intermediaries and
finance companies; and non-life insurance companies (except their crop
insurances), including surety, fidelity, indemnity and bonding companies;
and similar services regardless of whether or not the performance thereof
calls for the exercise or use of the physical or mental faculties. The phrase
"sale or exchange of services" shall likewise include: ECAaTS

(1)
The lease or the use of or the right or privilege to use any
copyright, patent, design or model, plan, secret formula or process,
goodwill, trademark, trade brand or other like property or right;
xxx
(7)

xxx

xxx

The lease of motion picture films, films, tapes and discs; and

(8)
The lease or the use of or the right to use radio, television, satellite
transmission and cable television time.
xxx

xxx

xxx (Emphasis supplied)

A cursory reading of the foregoing provision clearly shows that the

enumeration of the "sale or exchange of services" subject to VAT is not
exhaustive. The words, "including," "similar services," and "shall likewise
include," indicate that the enumeration is by way of example only. 39
Among those included in the enumeration is the "lease of motion picture
films, films, tapes and discs." This, however, is not the same as the
showing or exhibition of motion pictures or films. As pointed out by the CTA
En Banc:
"Exhibition" in Black's Law Dictionary is defined as "To show or display. . . .
To produce anything in public so that it may be taken into possession" (6th
ed., p. 573). While the word "lease" is defined as "a contract by which one
owning such property grants to another the right to possess, use and enjoy
it on specified period of time in exchange for periodic payment of a
stipulated price, referred to as rent (Black's Law Dictionary, 6th ed., p.
889). . . . 40 aSACED
Since the activity of showing motion pictures, films or movies by
cinema/theater operators or proprietors is not included in the enumeration,
it is incumbent upon the court to the determine whether such activity falls
under the phrase "similar services." The intent of the legislature must
therefore be ascertained.
The legislature never intended operators
or proprietors of cinema/theater houses to be covered by VAT
Under the NIRC of 1939 41 the national government imposed amusement
tax on proprietors, lessees, or operators of theaters, cinematographs,
concert halls, circuses, boxing exhibitions, and other places of amusement,
including cockpits, race tracks, and cabaret. 42 In the case of theaters or
cinematographs, the taxes were first deducted, withheld, and paid by the
proprietors, lessees, or operators of such theaters or cinematographs
before the gross receipts were divided between the proprietors, lessees, or
operators of the theaters or cinematographs and the distributors of the
cinematographic films. Section 11 43 of the Local Tax Code, 44 however,

amended this provision by transferring the power to impose amusement

tax 45 on admission from theaters, cinematographs, concert halls, circuses
and other places of amusements exclusively to the local government.
Thus, when the NIRC of 1977 46 was enacted, the national government
imposed amusement tax only on proprietors, lessees or operators of
cabarets, day and night clubs, Jai-Alai and race tracks. 47 ADTCaI
On January 1, 1988, the VAT Law 48 was promulgated. It amended certain
provisions of the NIRC of 1977 by imposing a multi-stage VAT to replace the
tax on original and subsequent sales tax and percentage tax on certain
services. It imposed VAT on sales of services under Section 102 thereof,
which provides:
SECTION 102. Value-added tax on sale of services. (a) Rate and base of
tax. There shall be levied, assessed and collected, a value-added tax
equivalent to 10% percent of gross receipts derived by any person
engaged in the sale of services. The phrase "sale of services" means the
performance of all kinds of services for others for a fee, remuneration or
consideration, including those performed or rendered by construction and
service contractors; stock, real estate, commercial, customs and
immigration brokers; lessors of personal property; lessors or distributors of
cinematographic films; persons engaged in milling, processing,
manufacturing or repacking goods for others; and similar services
regardless of whether or not the performance thereof calls for the exercise
or use of the physical or mental faculties: Provided That the following
services performed in the Philippines by VAT-registered persons shall be
subject to 0%:
(1)
Processing manufacturing or repacking goods for other persons
doing business outside the Philippines which goods are subsequently
exported, . . . cSITDa
xxx

xxx

xxx

"Gross receipts" means the total amount of money or its equivalent

representing the contract price, compensation or service fee, including the
amount charged for materials supplied with the services and deposits or
advance payments actually or constructively received during the taxable
quarter for the service performed or to be performed for another person,
excluding value-added tax.
(b)
Determination of the tax. (1) Tax billed as a separate item in the
invoice. If the tax is billed as a separate item in the invoice, the tax shall
be based on the gross receipts, excluding the tax.
(2)
Tax not billed separately or is billed erroneously in the invoice. If
the tax is not billed separately or is billed erroneously in the invoice, the
tax shall be determined by multiplying the gross receipts (including the

amount intended to cover the tax or the tax billed erroneously) by 1/11.
(Emphasis supplied)
Persons subject to amusement tax under the NIRC of 1977, as amended,
however, were exempted from the coverage of VAT. 49
On February 19, 1988, then Commissioner Bienvenido A. Tan, Jr. issued
RMC 8-88, which clarified that the power to impose amusement tax on
gross receipts derived from admission tickets was exclusive with the local
government units and that only the gross receipts of amusement places
derived from sources other than from admission tickets were subject to
amusement tax under the NIRC of 1977, as amended. Pertinent portions of
RMC 8-88 read: DAEaTS
Under the Local Tax Code (P.D. 231, as amended), the jurisdiction to levy
amusement tax on gross receipts arising from admission to places of
amusement has been transferred to the local governments to the exclusion
of the national government.
xxx

xxx

xxx

Since the promulgation of the Local Tax Code which took effect on June 28,
1973 none of the amendatory laws which amended the National Internal
Revenue Code, including the value added tax law under Executive Order
No. 273, has amended the provisions of Section 11 of the Local Tax Code.
Accordingly, the sole jurisdiction for collection of amusement tax on
admission receipts in places of amusement rests exclusively on the local
government, to the exclusion of the national government. Since the Bureau
of Internal Revenue is an agency of the national government, then it
follows that it has no legal mandate to levy amusement tax on admission
receipts in the said places of amusement.
Considering the foregoing legal background, the provisions under Section
123 of the National Internal Revenue Code as renumbered by Executive
Order No. 273 (Sec. 228, old NIRC) pertaining to amusement taxes on
places of amusement shall be implemented in accordance with BIR
RULING, dated December 4, 1973 and BIR RULING NO. 231-86 dated
November 5, 1986 to wit: DaScCH
". . . Accordingly, only the gross receipts of the amusement places derived
from sources other than from admission tickets shall be subject to . . .
amusement tax prescribed under Section 228 of the Tax Code, as amended
(now Section 123, NIRC, as amended by E.O. 273). The tax on gross
receipts derived from admission tickets shall be levied and collected by the
city government pursuant to Section 23 of Presidential Decree No. 231, as
amended x x x" or by the provincial government, pursuant to Section 11 of
P.D. 231, otherwise known as the Local Tax Code. (Emphasis supplied)

On October 10, 1991, the LGC of 1991 was passed into law. The local
government retained the power to impose amusement tax on proprietors,
lessees, or operators of theaters, cinemas, concert halls, circuses, boxing
stadia, and other places of amusement at a rate of not more than thirty
percent (30%) of the gross receipts from admission fees under Section 140
thereof. 50 In the case of theaters or cinemas, the tax shall first be
deducted and withheld by their proprietors, lessees, or operators and paid
to the local government before the gross receipts are divided between said
proprietors, lessees, or operators and the distributors of the
cinematographic films. However, the provision in the Local Tax Code
expressly excluding the national government from collecting tax from the
proprietors, lessees, or operators of theaters, cinematographs, concert
halls, circuses and other places of amusements was no longer included.
DEaCSA
In 1994, RA 7716 restructured the VAT system by widening its tax base and
enhancing its administration. Three years later, RA 7716 was amended by
RA 8241. Shortly thereafter, the NIRC of 1997 51 was signed into law.
Several amendments 52 were made to expand the coverage of VAT.
However, none pertain to cinema/theater operators or proprietors. At
present, only lessors or distributors of cinematographic films are subject to
VAT. While persons subject to amusement tax 53 under the NIRC of 1997
are exempt from the coverage of VAT. 54 Based on the foregoing, the
following facts can be established:
(1)
Historically, the activity of showing motion pictures, films or
movies by cinema/theater operators or proprietors has always been
considered as a form of entertainment subject to amusement tax.
(2)
Prior to the Local Tax Code, all forms of amusement tax were
imposed by the national government.
(3)
When the Local Tax Code was enacted, amusement tax on
admission tickets from theaters, cinematographs, concert halls, circuses
and other places of amusements were transferred to the local government.
(4)
Under the NIRC of 1977, the national government imposed
amusement tax only on proprietors, lessees or operators of cabarets, day
and night clubs, Jai-Alai and race tracks. cSTCDA
(5)
The VAT law was enacted to replace the tax on original and
subsequent sales tax and percentage tax on certain services.
(6)
When the VAT law was implemented, it exempted persons subject
to amusement tax under the NIRC from the coverage of VAT.
(7)
When the Local Tax Code was repealed by the LGC of 1991, the
local government continued to impose amusement tax on admission

tickets from theaters, cinematographs, concert halls, circuses and other

places of amusements.

Petitioner, in issuing the assessment notices for deficiency VAT against

respondents, ratiocinated that: CSIDTc

(8)
Amendments to the VAT law have been consistent in exempting
persons subject to amusement tax under the NIRC from the coverage of
VAT.

Basically, it was acknowledged that a cinema/theater operator was then

subject to amusement tax under Section 260 of Commonwealth Act No.
466, otherwise known as the National Internal Revenue Code of 1939,
computed on the amount paid for admission. With the enactment of the
Local Tax Code under Presidential Decree (PD) No. 231, dated June 28,
1973, the power of imposing taxes on gross receipts from admission of
persons to cinema/theater and other places of amusement had, thereafter,
been transferred to the provincial government, to the exclusion of the
national or municipal government (Sections 11 & 13, Local Tax Code).
However, the said provision containing the exclusive power of the
provincial government to impose amusement tax, had also been repealed
and/or deleted by Republic Act (RA) No. 7160, otherwise known as the
Local Government Code of 1991, enacted into law on October 10, 1991.
Accordingly, the enactment of RA No. 7160, thus, eliminating the statutory
prohibition on the national government to impose business tax on gross
receipts from admission of persons to places of amusement, led the way to
the valid imposition of the VAT pursuant to Section 102 (now Section 108)
of the old Tax Code, as amended by the Expanded VAT Law (RA No. 7716)
and which was implemented beginning January 1, 1996. 58 (Emphasis
supplied)

(9)
Only lessors or distributors of cinematographic films are included in
the coverage of VAT.
These reveal the legislative intent not to impose VAT on persons already
covered by the amusement tax. This holds true even in the case of
cinema/theater operators taxed under the LGC of 1991 precisely because
the VAT law was intended to replace the percentage tax on certain
services. The mere fact that they are taxed by the local government unit
and not by the national government is immaterial. The Local Tax Code, in
transferring the power to tax gross receipts derived by cinema/theater
operators or proprietor from admission tickets to the local government, did
not intend to treat cinema/theater houses as a separate class. No
distinction must, therefore, be made between the places of amusement
taxed by the national government and those taxed by the local
government. EIAScH
To hold otherwise would impose an unreasonable burden on
cinema/theater houses operators or proprietors, who would be paying an
additional 10% 55 VAT on top of the 30% amusement tax imposed by
Section 140 of the LGC of 1991, or a total of 40% tax. Such imposition
would result in injustice, as persons taxed under the NIRC of 1997 would be
in a better position than those taxed under the LGC of 1991. We need not
belabor that a literal application of a law must be rejected if it will operate
unjustly or lead to absurd results. 56 Thus, we are convinced that the
legislature never intended to include cinema/theater operators or
proprietors in the coverage of VAT.
On this point, it is apropos to quote the case of Roxas v. Court of Tax
Appeals, 57 to wit:
The power of taxation is sometimes called also the power to destroy.
Therefore, it should be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the "hen that lays the golden egg." And,
in order to maintain the general public's trust and confidence in the
Government this power must be used justly and not treacherously.
The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for
the imposition of VAT

We disagree.
The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for
the imposition of VAT on the gross receipts of cinema/theater operators or
proprietors derived from admission tickets. The removal of the prohibition
under the Local Tax Code did not grant nor restore to the national
government the power to impose amusement tax on cinema/theater
operators or proprietors. Neither did it expand the coverage of VAT. Since
the imposition of a tax is a burden on the taxpayer, it cannot be presumed
nor can it be extended by implication. A law will not be construed as
imposing a tax unless it does so clearly, expressly, and unambiguously. 59
As it is, the power to impose amusement tax on cinema/theater operators
or proprietors remains with the local government. IDSaTE
Revenue Memorandum Circular No. 28-2001 is invalid
Considering that there is no provision of law imposing VAT on the gross
receipts of cinema/theater operators or proprietors derived from admission
tickets, RMC No. 28-2001 which imposes VAT on the gross receipts from
admission to cinema houses must be struck down. We cannot
overemphasize that RMCs must not override, supplant, or modify the law,
but must remain consistent and in harmony with, the law they seek to
apply and implement. 60

In view of the foregoing, there is no need to discuss whether RMC No. 282001 complied with the procedural due process for tax issuances as
prescribed under RMC No. 20-86.
Rule on tax exemption does not apply
Moreover, contrary to the view of petitioner, respondents need not prove
their entitlement to an exemption from the coverage of VAT. The rule that
tax exemptions should be construed strictly against the taxpayer
presupposes that the taxpayer is clearly subject to the tax being levied
against him. 61 The reason is obvious: it is both illogical and impractical to
determine who are exempted without first determining who are covered by
the provision. 62 Thus, unless a statute imposes a tax clearly, expressly
and unambiguously, what applies is the equally well-settled rule that the
imposition of a tax cannot be presumed. 63 In fact, in case of doubt, tax
laws must be construed strictly against the government and in favor of the
taxpayer. 64 CDHAcI
WHEREFORE, the Petition is hereby DENIED. The assailed April 30, 2008
Decision of the Court of Tax Appeals En Banc holding that gross receipts
derived by respondents from admission tickets in showing motion pictures,
films or movies are not subject to value-added tax under Section 108 of
the National Internal Revenue Code of 1997, as amended, and its June 24,
2008 Resolution denying the motion for reconsideration are AFFIRMED.
SO ORDERED.
Carpio, Brion, Abad and Perez, JJ., concur.
Footnotes
1.

United States v. De Guzman, 30 Phil. 416, 419-420 (1915).

2.

People v. Degamo, 450 Phil. 159, 179 (2003).

3.
Celestial Nickel Mining Exploration Corporation v. Macroasia
Corporation, G.R. Nos. 169080, 172936, 176226 & 176319, December 19,
2007, 541 SCRA 166, 195.
4.
An Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA),
Elevating its Rank to the Level of a Collegiate Court with Special
Jurisdiction and Enlarging its Membership, Amending for the Purpose
Certain Sections of Republic Act No. 1125, As Amended, otherwise known
as the Law Creating the Court of Tax Appeals, and for Other Purposes.
5.
Rollo, pp. 98-120; penned by Associate Justice Olga PalancaEnriquez and concurred in by Presiding Justice Ernesto D. Acosta and
Associate Justices Juanito C. Castaeda, Jr., Lovell R. Bautista, and Caesar
A. Casanova. Associate Justice Erlinda P. Uy was on official business.

6.
Id. at 121-123; penned by Associate Justice Olga Palanca-Enriquez
and concurred in by Presiding Justice Ernesto D. Acosta and Associate
Justices Juanito C. Castaeda, Jr., Lovell R. Bautista, Erlinda P. Uy, and
Caesar A. Casanova.
7.

Id. at 772.

8.

Id. at 100.

9.

Id.

10.

Id. at 101.

11.

Id.

12.

Id.

13.

Id.

14.

Id.

15.

Id.

16.

Id. at 102.

17.

Id.

18.

Id.

19.

Id.

20.

Id.

21.

Id. at 25-26.

22.

Id. at 103.

23.

Id.

24.

Id. at 104.

25.

Id. at 700.

26.

Id. at 104.

27.

Id. at 28.

28.

Id. at 104-105.

29.

Id. at 29.

30.
Approved by the House on the Third Reading on November 15,
2005. Its counterpart in the Senate, Senate Joint Resolution No. 6, entitled
"Joint Resolution Expressing the True Intent of Congress Regarding the
Imposition of the Value-Added Tax Particularly on the Theater Industry," is
pending in the Committee.

31.
Notice, Publication and Effectivity of Internal Revenue Tax Rules
and Regulations, issued by then Commissioner Bienvenido A. Tan, Jr. on July
24, 1986.
32.

Rollo, p. 247.

33.

Id. at 249-257.

34.

Id. at 32.

35.

Id.

36.

Id. at 119.

37.

Id. at 122.

38.

Id. at 35-36.

39.

See Binay v. Sandiganbayan, 374 Phil. 413, 440 (1999).

40.

Rollo, p. 420.

41.

Commonwealth Act No. 466.

44.

(a) When the amount paid for admission exceeds twenty centavos
but does not exceed twenty-nine centavos, two centavos on each
admission.
xxx

xxx

(i) When the amount paid for admission exceeds ninety-nine

centavos, ten centavos on each admission.
In the case of theaters or cinematographs, the taxes herein
prescribed shall first be deducted and withheld by the proprietors, lessees,
or operators of such theaters or cinematographs and paid to the Collector
of Internal Revenue before the gross receipts are divided between the
proprietors, lessees, or operators of the theaters or cinematographs and
the distributors of the cinematographic films.
In the case of cockpits, race tracks, and cabarets, . . . . For the
purpose of the amusement tax, the term "gross receipts" embraces all the
receipts of the proprietor, lessee, or operator of the amusement place,
excluding the receipts derived by him from the sale of liquors, beverages,
or other articles subject to specific tax, or from any business subject to tax
under this Code.
xxx

xxx

Presidential Decree No. 231 (1973).

45.
SECTION 13. Amusement tax on admission. The province shall
impose a tax on admission to be collected from the proprietors, lessees, or
operators of theaters, cinematographs, concert halls, circuses and other
places of amusements at the following rates:

42.
SECTION 260. Amusement taxes. There shall be collected from
the proprietor, lessee, or operator of theaters, cinematographs, concert
halls, circuses, boxing exhibitions, and other places of amusement the
following taxes:

xxx

43.
SECTION 11. Taxes transferred. The imposition of the taxes
provided in Sections 12, 13, 14, 15, and 16 of this Code heretofore
exercised by the national government or the municipal government, shall
henceforth be exercised by the provincial government, to the exclusion of
the national or municipal government. To avoid any revenue loss, the
province shall levy and collect such taxes as provided in said Sections 12,
13 and 14.

xxx

(a) When the amount paid for admission is one peso or less, twenty
per cent; and
(b) When the amount paid for admission exceeds one peso, thirty
per cent.
In the case of theaters or cinematographs, the taxes herein
prescribed shall first be deducted and withheld by the proprietors, lessees,
or operators of the theaters or cinematographs and paid to the provincial
treasurer concerned thru the municipal treasurer before the gross receipts
are divided between the proprietors, lessees, or operators of the theaters
or cinematographs and the distributors of the cinematographic films.
xxx
46.

xxx

xxx

Presidential Decree No. 1158.

47.
SECTION 268. Amusement taxes. There shall be collected from
the proprietor, lessee or operator of cabarets, day and night clubs, Jai-Alai
and race tracks, a tax equivalent to . . .
48.

Executive Order No. 273.

49.
SECTION 103. Exempt Transactions. The following shall be
exempt from the value-added tax:
(a) Sale of nonfood agricultural; marine and forest products in their
original state by the primary producer or the owner of the land where the
same are produced.
xxx

xxx

xxx

j) Services rendered by persons subject to percentage tax under

Title V;
xxx

xxx

xxx

50.
SECTION 140. Amusement Tax. (a) The province may levy an
amusement tax to be collected from the proprietors, lessees, or operators
of theaters, cinemas, concert halls, circuses, boxing stadia, and other
places of amusement at a rate of not more than thirty percent (30%) of the
gross receipts from admission fees.
b) In the case of theaters or cinemas, the tax shall first be
deducted and withheld by their proprietors, lessees, or operators and paid
to the provincial treasurer before the gross receipts are divided between
said proprietors, lessees, or operators and the distributors of the
cinematographic films.
xxx
51.

xxx

xxx

Republic Act No. 8424.

52.
See Republic Act No. 8761, Republic Act No. 9010, Republic Act No.
9238 and Republic Act No. 9337.
53.
SECTION 125. Amusement Taxes. There shall be collected from
the proprietor, lessee or operator of cockpits, cabarets, night or day clubs,
boxing exhibitions, professional basketball games, Jai-Alai and racetracks, a
tax equivalent to:
(a) Eighteen percent (18%) in the case of cockpits;
(b) Eighteen percent (18%) in the case of cabarets, night or day
clubs;
(c) Ten percent (10%) in the case of boxing exhibitions: Provided,
however, That boxing exhibitions wherein World or Oriental Championships
in any division is at stake shall be exempt from amusement tax: Provided,
further, That at least one of the contenders for World or Oriental
Championship is a citizen of the Philippines and said exhibitions are
promoted by a citizen/s of the Philippines or by a corporation or association
at least sixty percent (60%) of the capital of which is owned by such
citizens;
(d) Fifteen percent (15%) in the case of professional basketball
games as envisioned in Presidential Decree No. 871: Provided, however,
That the tax herein shall be in lieu of all other percentage taxes of
whatever nature and description; and
(e) Thirty percent (30%) in the case of Jai-Alai and racetracks of
their gross receipts, irrespective of whether or not any amount is charged
for admission.
For the purpose of the amusement tax, the term 'gross receipts'
embraces all the receipts of the proprietor, lessee or operator of the
amusement place. Said gross receipts also include income from television,

radio and motion picture rights, if any. A person or entity or association

conducting any activity subject to the tax herein imposed shall be similarly
liable for said tax with respect to such portion of the receipts derived by
him or it.
The taxes imposed herein shall be payable at the end of each
quarter and it shall be the duty of the proprietor, lessee or operator
concerned, as well as any party liable, within twenty (20) days after the
end of each quarter, to make a true and complete return of the amount of
the gross receipts derived during the preceding quarter and pay the tax
due thereon.
54.
SECTION 109. Exempt Transactions. The following shall be
exempt from the value-added tax:
(a) Sale of nonfood agricultural products; marine and forest
products in their original state by the primary producer or the owner of the
land where the same are produced;
xxx

xxx

xxx

(j) Services subject to percentage tax under Title V;

55.

Now 12%.

56.
Commissioner of Internal Revenue v. Solidbank Corp., 462 Phil. 96,
130 (2003).
57.

131 Phil. 773, 780-781 (1968).

58.

Rollo, pp. 671-672; 681 and 693.

59.
Commissioner of Internal Revenue v. Court of Appeals, 338 Phil.
322, 330 (1997).
60.
Commissioner of Internal Revenue v. Court of Appeals, 310 Phil.
392, 397 (1995).
61.
Commissioner of Internal Revenue v. The Phil. American Accident
Insurance Company, Inc., 493 Phil. 785, 793 (2005).
62.
59.

Commissioner of Internal Revenue v. Court of Appeals, supra note

63.
Commissioner of Internal Revenue v. The Phil. American Accident
Insurance Company, Inc., supra.
64.

Id.

[G.R. No. 107434. October 10, 1997.]

CITIBANK, N.A., petitioner, vs. COURT OF APPEALS and COMMISSIONER OF
INTERNAL REVENUE, respondents.
Romulo Mabanta, Buenaventura, Sayoc & De Los Angeles for petitioner.
The Solicitor General for respondents.
SYNOPSIS
In 1979 and 1980 petitioner Citibank N.A.'s tenants withheld and paid to
the Bureau of Internal Revenue taxes on rents to Citibank pursuant to
Section 1 (c) of the Expanded Withholding Tax Regulations (BIR Revenue
Regulations No. 13-78, as amended). Citibank did not include the amounts
withheld under the aforementioned regulations in its corporate income tax
returns for the year 1979 for the reason that the year's operation resulted
in a loss. The taxes withheld were not included as tax credits. Citibank
submitted its claim for refund and thereafter filed a petition for review with
the Court of Tax Appeals concerning the subject claim. The Court of Tax
Appeals granted the refund to the petitioner. The Commissioner of Internal
Revenue appealed to the Court of Appeals. The appellate court reversed
the ruling of the Court of Tax Appeals on the ground that the refund sought
for by petitioner did not involve illegally or erroneously collected taxes.
Respondent court denied the motion for reconsideration of petitioner bank.
Hence, the present petition. cdasia
The Supreme Court ruled that the withheld amounts equivalent to five
percent of the gross rental and remitted to the BIR are considered
creditable withholding taxes under Section 53-f of the National Internal
Revenue Code, i.e., creditable against the income tax liability for that year.
The taxes withheld are in the nature of payment by a taxpayer in order to
extinguish his possible tax obligations. The payments of the withholding
taxes for 1979 and 1980 were creditable to the income tax liability, if any,
of petitioner-bank, determined after the filing by the petitioner-bank of
corporate income tax returns on April 15, 1980 and April 15, 1981. As
petitioner posted losses in its 1979 and 1980 returns, it was not liable for
any income taxes. Consequently, the taxes withheld during the course of
the taxable year, while collected legally under the aforesaid revenue
regulation, became untenable and took on the nature of erroneously
collected taxes at the end of the taxable year.

REFUNDED TO THE TAXPAYER'S FINAL ADJUSTED RETURNS, NOT ON SUCH

PERIODIC OR QUARTERLY BASIS. We have already ruled that income
taxes remitted partially on a periodic or quarterly basis should be credited
or refunded to the taxpayer on the basis of the taxpayer's final adjusted
returns, not on such periodic or quarterly basis. In the present case, there
is no question that the taxes were withheld in accordance with Section
1(c), Rev. Reg. No. 13-78. In that sense, it can be said that they were
withheld legally by the tenants. However, the annual income tax returns of
petitioner-bank for tax years 1979 and 1980 undisputedly reflected the net
losses it suffered. The question arises: whether the taxes withheld
remained legal and correct at the end of each taxable year. We hold in the
negative. cdasia
2.
ID.; ID.; ID.; ID.; THE TAXES WITHHELD ARE IN THE NATURE OF
PAYMENT BY A TAXPAYER IN ORDER TO EXTINGUISH HIS POSSIBLE TAX
OBLIGATION; THEY ARE INSTALLMENTS ON THE ANNUAL TAX WHICH MAY
BE DUE AT THE END OF THE TAXABLE YEAR. The withheld amounts
equivalent to five percent of the gross rental are remitted to the BIR and
are considered creditable withholding taxes under Section 53-f, i.e.,
creditable against income tax liability for that year. The taxes withheld, as
ruled in Gibbs vs. Commissioner of Internal Revenue, 15 SCRA 318, 325,
Nov. 29, 1965 are in the nature of payment by a taxpayer in order to
extinguish his possible tax obligation. They are installments on the annual
tax which may be due at the end of the taxable year.

SYLLABUS

3.
ID.; ID.; ID.; ID.; LIKE THE CORPORATE QUARTERLY INCOME TAX,
CREDITABLE WITHHOLDING TAXES ARE SUBJECT TO ADJUSTMENT UPON
DETERMINATION OF THE CORRECT INCOME TAX LIABILITY AFTER THE
FILING OF THE CORPORATE INCOME TAX RETURN AT THE END OF THE
TAXABLE YEAR. Petitioner's lessees withheld and remitted to the BIR the
amounts now claimed as tax refunds. That they were withheld and
remitted pursuant to Rev. Reg. No. 13-78 does not derogate from the fact
that they were merely partial payments of probable taxes. Like the
corporate quarterly income tax, creditable withholding taxes are subject to
adjustment upon determination of the correct income tax liability after the
filing of the corporate income tax return, as at the end of the taxable year.
This final determination of the corporate income tax liability is provided in
Section 69, NIRC. The taxes thus withheld and remitted are provisional in
nature. We repeat: five percent of the rental income withheld and remitted
to the BIR pursuant to Rev. Reg. No. 13-78 is, unlike the withholding of final
taxes on passive incomes, a creditable withholding tax; that is, creditable
against income tax liability if any, for that taxable year.

1.
TAXATION; NATIONAL INTERNAL REVENUE CODE; RECOVERY OF
TAX ERRONEOUSLY OR ILLEGALLY COLLECTED; INCOME TAXES REMITTED
PARTIALLY ON A PERIODIC OR QUARTERLY BASIS SHOULD BE CREDITED OR

4.
ID.; ID.; ID.; CASE AT BAR; THE TAXES WITHHELD FOR 1979 AND
1980, WHILE COLLECTED LEGALLY UNDER REVENUE REGULATION 12-94,
BECAME UNTENABLE AND TOOK ON THE NATURE OF ERRONEOUSLY

Petition granted.

COLLECTED TAXES AT THE END OF THE TAXABLE YEAR. In this case, the
payments of the withholding taxes for 1979 and 1980 were creditable to
the income tax liability, if any, of petitioner-bank, determined after the
filing of the corporate income tax returns on April 15, 1980 and April 15,
1981. As petitioner posted net losses in its 1979 and 1980 returns, it was
not liable for any income taxes. Consequently and clearly, the taxes
withheld during the course of the taxable year, while collected legally
under the aforesaid revenue regulation, became untenable and took on the
nature of erroneously collected taxes at the end of the taxable year.
5.
ID.; ID.; TAX REFUND; CLAIMANT HAS THE BURDEN OF PROOF TO
ESTABLISH THE FACTUAL BASIS OF CLAIM FOR TAX CREDIT OR REFUND.
In general, there is no disagreement that a claimant has the burden of
proof to establish the factual basis of his or her claim for tax credit or
refund. Tax refunds, like tax exemptions, are construed strictly against the
taxpayer. The mechanics of a tax refund is provided in Rev. Reg. No. 13-78.
A refund claimant is required to prove the inclusion of the income
payments which were the basis of the withholding taxes and the fact of
withholding. However, detailed proof of the truthfulness of each and every
item in the income tax return is not required. That function is lodged in the
Commissioner of Internal Revenue by the NIRC which requires the
commissioner to assess internal revenue taxes within three years after the
last day prescribed by law for the filing of the return.
6.
ID.; ID.; PRESCRIPTION OF ACTION; TO EXPECT PETITIONER TO
HAVE ITS BOOKS AND RECORDS ON HAND DURING THE APPEAL WAS
OBVIOUSLY UNREASONABLE AND VIOLATIVE OF SECTION 235 IN RELATION
TO SECTION 203 OF THE TAX CODE. In the CTA (Court of Tax Appeals),
Respondent Commissioner's refusal to refund was based on the argument
that the claim filed on October 31, 1981 was time-barred. It bears stressing
that the issue of prescription was not raised in the appeal before us. The
issue of operational losses was not raised until the appeal before
Respondent Court was filed on February 5, 1992. By such time, at least a
decade had already passed since the pertinent books and accounting
records of petitioner-bank were closed. Section 235 of the Tax Code
requires the preservation of the books of account and records only "for a
period beginning from the last entry in each book until the last day
prescribed by Section 203." Section 203 provides that internal revenue
taxes shall be assessed within three years after the last day prescribed by
law for the filing of the return, and no proceeding in Court without an
assessment for the collection of such taxes shall begin after the expiration
of such period. To expect petitioner to have its books and records on hand
during the appeal was obviously unreasonable and violative of Section 235
in relation to Section 203 of the Tax Code.

7.
CIVIL CODE; PRINCIPLE OF SOLUTIO INDEBITI; PRINCIPLE THAT NO
ONE, NOT EVEN THE STATE; SHALL ENRICH ONESELF AT THE EXPENSE OF
ANOTHER; SIMPLE JUSTICE REQUIRES THE SPEEDY REFUND OF WRONGLY
HELD TAXES. Worth emphasizing are these uncontested facts: (1) the
amounts withheld were actually remitted to the BIR and (2) the final
adjusted returns which the BIR did not question showed that, for 1979
and 1980, no income taxes from petitioner were due. Hence, 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,
"the obligation to return arises," 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. cdll
DECISION
PANGANIBAN, J p:
The law requires a lessee to withhold and remit to the Bureau of Internal
Revenue (BIR) five percent (5%) of the rental due the lessor, by way of
advance payment of the latter's income tax liability. Is the lessor entitled to
a refund of such withheld amount after it is determined that the lessor was
not, in fact, liable for any income tax at all because its annual operation
resulted in a net loss as shown in its income tax return filed at the end of
the taxable year?
This is the question raised in this petition for review on certiorari of the
Court of Appeals 1 Decision 2 promulgated on May 27, 1992 and
Resolution 3 promulgated on October 5, 1992 in CA-G.R. No. SP-26555,
reversing the decision of the Court of Tax Appeals which allowed the tax
refund.
The Facts
The facts, as found by Respondent Court, are undisputed. 4
"From the pleadings and supporting papers on hand, it can be gathered
that Citibank N.A. Philippine Branch (CITIBANK) is a foreign corporation
doing business in the Philippines. In 1979 and 1980, its tenants withheld
and paid to the Bureau of Internal Revenue the following taxes on rents
due to Citibank, pursuant to Section 1(c) of the Expanded Withholding Tax
Regulations (BIR Revenue Regulations No. 13-78, as amended), to wit:
1979
First quarter

P60,690.97

Second quarter 69,897.08

Third quarter

69,160.89

Fourth quarter 70,160.56

P270,160.56

"WHEREFORE, respondent is hereby ordered to grant the refund of the

amount sought by the petitioner. No costs."

1980
First quarter

P78,370.22

Second quarter 69,049.37

Third quarter

In its decision 6 granting a refund to petitioner, 7 the Court of Tax Appeals

rejected Respondent Commissioner's argument that the claim was not
seasonably filed:

79,139.60

Fourth quarter 72,270.10

P298,829.29
On April 15, 1980, Citibank filed its corporate income tax returns for the
year ended December 31, 1979 (Exh. "E"), showing a net loss of
P74,854,916.00 and its tax credits totalled P6,257,780.00, even without
including the amounts withheld on rental income under the Expanded
Withholding Tax System, the same not having been utilized or applied for
the reason that the year's operation resulted in a loss. (Exh. "E-1 & E-2").
The taxes thus withheld by the tenants from rentals paid to Citibank in
1979 were not included as tax credits although a rental income amounting
to P7,796,811.00 was included in its income declared for the year ended
December 31, 1979 (Exhs. "E-3" & "E-4").
For the year ended December 31, 1980, Citibank's corporate income tax
returns (Exh. "EC"), filed on April 15, 1981, showed a net loss of
P77,071,790.00 for income tax purposes. Its available tax credit
(refundable) at the end of 1980 amounting to P11,532,855.00 (Exh. "BC-1"
& "BC-2") was not utilized or applied. The said available tax credits did not
include the amounts withheld by 'Citibank's tenants from rental payments
in 1980 but the rental payments for that year were declared as part of its
gross income included in its annual income tax returns (Exh. "BC-3").
On October 31, 1981, Citibank submitted its claim for refund of the
aforesaid amounts of P270,160.56 and P298,829, respectively, or a total of
P568,989.85; and on October 12, 1981 filed a petition for review with the
Court of Tax Appeals concerning subject claim for tax refund, docketed as
CTA Case No. 3378. 5
On August 30, 1981, the Court of Tax Appeals adjudged Citibank's
entitlement to the tax refund sought for, representing the 5% tax withheld
and paid on Citibank's rental income for 1979 and 1980 . . . ."

Not satisfied, the Commissioner appealed to the Court of Appeals. In due

course, Respondent Court issued the assailed Decision and Resolution,
ruling that the five percent tax withheld by tenants from the rental income
of Citibank for the years 1979 and 1980 was in accordance with Section
1(c) of the Expanded Withholding Tax Regulations (BIR Revenue Regulation
No. 13-78, as amended) and did not involve illegally or erroneously
collected taxes. The dispositive portion of the Decision reads: 8
"WHEREFORE, the appealed judgment of August 30, 1991, adjudging
Citibank, N.A., Philippine Branch, entitled to a tax refund/credit in the
amount of P569,989.85, representing the 5% withheld tax on Citibank's
rental income for the taxable years 1979 and 1980 is hereby REVERSED.
No pronouncement as to costs." cdtai
Respondent Court denied the motion for reconsideration of the petitionerbank in the assailed Resolution, the dispositive portion of which reads: 9
"WHEREFORE, for want of merit, the motion for reconsideration, dated June
19, 1992, of respondent Citibank, N.A. is hereby DENIED.
SO ORDERED."
Hence, this petition under Rule 45 of the Rules of Court.
The Issues
The appellate court ruled that it was not enough for petitioner to show its
lack of income tax liability against which the five percent withholding tax
could be credited. Petitioner should have also shown that the withholding
tax was illegally or erroneously collected and remitted by the tenants. On
the other hand, petitioner counters that Respondent Court failed to grasp
"two fundamental concepts in the present income tax system, namely: (1)
the yearly computation of the corporate income tax and (2) the nature of
the creditable withholding tax."
In the main, petitioner thus raises the following issues: (1) For creditable
withholding tax to be refundable, when should the illegality or error in its
assessment or collection be reckoned: at the time of withholding or at the
end of the taxable year? (2) Where the income tax returns show that no
income tax is payable to the government, is a creditable withholding tax,
as contradistinguished from a final tax, refundable (or creditable) at the
end of the taxable year?

The Court's Ruling

The petition is meritorious.
First Issue: Determination of the Illegality
or Error in Assessment or Collection
Tax refunds are allowed under Section 230 of the National Internal Revenue
Code:
"SEC. 230.
Recovery of tax erroneously or illegally collected. No suit
or proceeding shall be maintained in any court for the recovery of any
national internal revenue tax hereafter alleged to have been erroneously or
illegally assessed or collected, or of any penalty claimed to have been
collected without authority or of any sum alleged to have been excessive
or in any manner wrongfully collected, until a claim for refund or credit has
been duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid under
protest or duress.
In any case, no such suit or proceeding shall be begun after the expiration
of two years from the date of payment of the tax or penalty regardless of
any supervening cause that may arise after payment: Provided, however,
That the Commissioner may, even without a written claim therefor, refund
or credit any tax, where on the face of the return upon which payment was
made, such payment appears clearly to have been erroneously paid."

We disagree with the Court of Appeals. In several cases, we have already

ruled that income taxes remitted partially on a periodic or quarterly basis
should be credited or refunded to the taxpayer on the basis of the
taxpayer's final adjusted returns, not on such periodic or quarterly basis.
11 For instance, in the recent case of Commissioner of Internal Revenue vs.
Philippine American Life Insurance Co., 12 the Court held:
". . . When applied to taxpayers filing income tax returns on a quarterly
basis, the date of payment mentioned in Section 292 (now Section 230)
must be deemed to be qualified by Sections 68 and 69 of the present Tax
Code . . . .
It may be observed that although quarterly taxes due are required to be
paid within 60 days from the close of each quarter, the fact that the
amount shall be deducted from the tax due for the succeeding quarter
shows that until a final adjustment return shall have been filed, the taxes
paid in the preceding quarters are merely partial taxes due from a
corporation. Neither amount can serve as the final figure to quantify what
is due the government nor what should be refunded to the corporation.
This interpretation may be gleaned from the last paragraph of Section 69
of the Tax Code which provides that the refundable amount, in case a
refund is due a corporation, is that amount which is shown on its final
adjustment return and not on its quarterly returns.
xxx

xxx

xxx

Petitioner maintains that it is entitled to a refund of the five percent

creditable withholding tax in 1979 and 1980, since its operations resulted
in a net loss and thus did not have any income tax liability for such years.
Respondent Court refused to allow the claim for refund for the reason that
the taxes were "not illegally or erroneously collected:" 10

Clearly the prescriptive period of two years should commence to run only
from the time that the refund is ascertained, which can only be determined
after a final adjustment return is accomplished. Private respondent being a
corporation, Section 292 (now Section 230) cannot serve as the sole basis
for determining the two-year prescriptive period for refunds . . . ."

"It is decisively clear that the instant claim for tax refund under scrutiny
does not involve illegally or erroneously collected taxes. It involves the 5%
tax withheld by tenants from the rental income of Citibank for the years
1979 and 1980, in accordance with Section 1(c) of the Expanded
Withholding Tax Regulations (BIR Revenue Regulation No. 13-78 as
amended) . . . .

In the present case, there is no question that the taxes were withheld in
accordance with Section 1(c), Rev. Reg. No. 13-78. In that sense, it can be
said that they were withheld legally by the tenants. However, the annual
income tax returns of petitioner-bank for tax years 1979 and 1980
undisputedly reflected the net losses it suffered. The question arises:
whether the taxes withheld remained legal and correct at the end of each
taxable year. We hold in the negative.

It is thus evident that the tenants or lessee of Citibank were required by

law to withhold and pay to BIR 5% of their rental and, therefore, such
withholding taxes were not illegally or erroneously collected. It was the
burden of Citibank to prove that the taxes it asked to be refunded were
illegally or erroneously collected; an onus probandi Citibank utterly failed
to discharge."

The withholding tax system was devised for two main reasons: first, to
provide the taxpayer a convenient manner to meet his probable income
tax liability; and second, to ensure the collection of the income tax which
could otherwise be lost or substantially reduced through failure to file the
corresponding returns. 13 To these, a third reason may be added: to
improve the government's cash flow. Under Section 53 a-f of the tax code
which was in effect at the time this case ripened, withholding of tax at

source was mandated in cases of: (a) tax free covenant bonds, (b)
payments of interest, dividends, rents, royalties, salaries, wages,
premiums, annuities, compensations, remunerations, emoluments, or other
fixed or determinable annual, periodical, or casual gains, profits and
income, and capital gains of non-resident aliens and foreign corporations;
(c) dividends from a domestic corporation and royalties received by
resident individuals and corporation; (d) certain dividends; (e) interest on
bank deposit; and (f) other items of income payable to resident individuals
or corporations. Section 53-f was amended by Presidential Decree No.
1351, delegating to the Secretary of Finance the power to require the
withholding of a tax, as follows:
"Section 1.
Section 53(f) of the National Internal Revenue Code of
1997 is hereby amended to read as follows:
'(f) The Secretary of Finance may, upon recommendation of the
Commissioner of Internal Revenue, require also the withholding of a tax on
the same items of income payable to persons (natural or juridical) residing
in the Philippines by the same persons mentioned in paragraph (b) (1) of
this Section at the rate of not less than 2-1/2% but not more than 35%
thereof which shall be credited against the income tax liability of the
taxpayer for the taxable year.'"
Pursuant to said P.D. No. 1351 and in accordance with Section 4 in relation
to Section 326 14 of the National Internal Revenue Code, the
Commissioner promulgated on September 7, 1978, Revenue Regulations
No. 13-78 to implement the withholding of creditable income taxes from
certain types of income. Rev. Reg. No. 13-78 requires that a certain
percentage of income be deducted and withheld by a payor, who is
constituted as the withholding agent, and paid to the revenue district
officer or BIR collection agent. Section 1 of this revenue regulation
provides:
"Section 1.
Income payments subject to withholding tax and rates
prescribed therein. Except as herein otherwise provided, there shall be
withheld a creditable income tax at the rates herein specified for each
class of payee from the following items of income payments to persons
residing in the Philippines:
(a)

...

(b)

...

(c)
Rentals. When the gross rental or other payment required to be
made as a condition to the continued use or possession of property,
whether real or personal, to which the payor or obligor has not taken or is
not taking title or in which he has no equity, exceeds five hundred pesos
(P500.00) five per centum (5%).

xxx

xxx

xxx"

Under this system, income is viewed as a flow 15 and is measured over a

period of time known as an "accounting period." An accounting period
covers twelve months, subdivided into four equal segments known as
"quarters." Income realized within the taxpayer's annual accounting period
(fiscal or calendar year) becomes the basis for the computation of the
gross income and the tax liability. 16
The same basic principles apply under the prevailing tax laws. Under the
present tax code, the types of income subject to withholding tax in Section
53, now Section 50, is simplified into three categories: (a) withholding of
final tax on certain incomes; (b) withholding of creditable tax at source;
and (c) tax free covenant bonds. cdasia
Accordingly, the withheld amounts equivalent to five percent of the gross
rental are remitted to the BIR and are considered creditable withholding
taxes under Section 53-f, i.e., creditable against income tax liability for that
year. The taxes withheld, as ruled in Gibbs vs. Commissioner of Internal
Revenue, 17 are in the nature of payment by a taxpayer in order to
extinguish his possible tax obligation. They are installments on the annual
tax which may be due at the end of the taxable year. 18
In this case, petitioner's lessees withheld and remitted to the BIR the
amounts now claimed as tax refunds. That they were withheld and
remitted pursuant to Rev. Reg. No. 13-78 does not derogate from the fact
that they were merely partial payments of probable taxes. Like the
corporate quarterly income tax, creditable withholding taxes are subject to
adjustment upon determination of the correct income tax liability after the
filing of the corporate income tax return, as at the end of the taxable year.
This final determination of the corporate income tax liability is provided in
Section 69, NIRC:
"SEC. 69.
Final Adjustment Return. Every corporation liable to tax
under Section 24 shall file a final adjustment return covering the total
taxable 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.

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."

The taxes thus withheld and remitted are provisional in nature. 19 We

repeat: five per cent of the rental income withheld and remitted to the BIR
pursuant to Rev. Reg. No. 13-78 is, unlike the withholding of final taxes on
passive incomes, a creditable withholding tax; that is, creditable against
income tax liability if any, for that taxable year.
In Commissioner of Internal Revenue vs. TMX Sales, Inc., 20 this Court
ruled that the payments of quarterly income taxes (per Section 68, NIRC)
should be considered mere installments on the annual tax due. These
quarterly tax payments, which are computed based on the cumulative
figures of gross receipts and deductions in order to arrive at a net taxable
income, should be treated as advances or portions of the annual income
tax due, to be adjusted at the end of the calendar or fiscal year. The same
holds true in the case of the withholding of creditable tax at source.
Withholding taxes are "deposits" which are subject to adjustments at the
proper time when the complete tax liability is determined.
In this case, the payments of the withholding taxes for 1979 and 1980
were creditable to the income tax liability, if any, of petitioner-bank,
determined after the filing of the corporate income tax returns on April 15,
1980 and April 15, 1981. As petitioner posted net losses in its 1979 and
1980 returns, it was not liable for any income taxes. Consequently and
clearly, the taxes withheld during the course of the taxable year, while
collected legally under the aforesaid revenue regulation, became
untenable and took on the nature of erroneously collected taxes at the end
of the taxable year.
Second Issue: Onus of Disputing a Claim for Refund
In general, there is no disagreement that a claimant has the burden of
proof to establish the factual basis of his or her claim for tax credit or
refund. 21 Tax refunds, like tax exemptions, are construed strictly against
the taxpayer. The mechanics of a tax refund is provided in Rev. Reg. No.
13-78:
"Section 8.
Claims for tax credit or refund. Claims for tax credit or
refund of income tax deducted and withheld on income payments shall be
given due course only when it is shown on the return that the income
payment received was declared as part of the gross income and the fact of
withholding is established by a copy of the statement, duly issued by the
payor to the payee (BIR Form No. 1743-A) showing the amount paid and
the amount of tax withheld therefrom."
A refund claimant is required to prove the inclusion of the income
payments which were the basis of the withholding taxes and the fact of
withholding. However, detailed proof of the truthfulness of each and every
item in the income tax return is not required. That function is lodged in the

commissioner of internal revenue by the NIRC which requires the

commissioner to assess internal revenue taxes within three years after the
last day prescribed by law for the filing of the return. 22 In San Carlos
Milling Co., Inc. vs. Commissioner of Internal Revenue, 23 the Court held
that the internal revenue branch of government must investigate and
confirm the claims for tax refund or credit before taxpayers may avail
themselves of this option. The grant of a refund is founded on the
assumption that the tax return is valid; that is, the facts stated therein are
true and correct. 24 In fact, even without petitioner's tax claim, the
commissioner can proceed to examine the books, records of the petitionerbank, or any data which may be relevant or material in accordance with
Section 16 of the present NIRC.
In the case in hand, Respondent Commissioner examined petitioner's
income tax returns and presumably found no false declaration in them,
because he did not allege any such false declaration before Respondent
Court and the Court of Tax Appeals (CTA). In the CTA, Respondent
Commissioner's refusal to refund was based on the argument that the
claim filed on October 31, 1981 was time-barred. It bears stressing that
this issue was not raised in the appeal before us. The issue of operational
losses was not raised until the appeal before Respondent Court was filed
on February 5, 1992. By such time, at least a decade had already passed
since the pertinent books and accounting records of petitioner-bank were
closed. Section 235 of the Tax Code requires the preservation of the books
of account and records only "for a period beginning from the last entry in
each book until the last day prescribed by Section 203." Section 203
provides that internal revenue taxes shall be assessed within three years
after the last day prescribed by law for the filing of the return, and no
proceeding in Court without an assessment for the collection of such taxes
shall begin after the expiration of such period. To expect petitioner to have
its books and records on hand during the appeal was obviously
unreasonable and violative of Section 235 in relation to Section 203 of the
Tax Code.
In addition, the Tax Code has placed several safety measures to prevent
falsification of income tax returns which the Court recognized in
Commissioner vs. TMX Sales, Inc.: 25
"Furthermore, Section 321 (now Section 232) of the National Internal
Revenue Code requires that the books of accounts of companies or persons
with gross quarterly sales or earnings exceeding Twenty Five Thousand
Pesos (P25,000.00) be audited and examined yearly by an independent
Certified Public Accountant and their income tax returns be accompanied
by certified balance sheets, profit and loss statements, schedules listing
income producing properties and the corresponding incomes therefrom
and other related statements.

It is generally recognized that before an accountant can make a

certification on the financial statements or render an auditor's opinion, an
audit of the books of accounts has to be conducted in accordance with
generally accepted auditing standards.
Since the audit, as required by Section 321 (now Section 232) of the Tax
Code is to be conducted yearly, then it is the Final Adjustment Return,
where the figures of the gross receipts and deductions have been audited
and adjusted, that is truly reflective of the results of the operations of a
business enterprise. Thus, it is only when the Adjustment Return covering
the whole year is filed that the taxpayer would know whether a tax is still
due or a refund can be claimed based on the adjusted and audited
figures."
Therefore, the alleged irregularity in the declared operational losses is a
matter which must be proven by competent evidence. In resisting the
claims of petitioner, Respondent Commissioner set up the defense of the
legality of the collection of the creditable withholding tax as well as
prescription, instead of presenting an assessment of the proper tax liability
of the petitioner. This fact leads us to the conclusion that the income tax
returns were accepted as accurate and regular by the BIR. aisadc
After this case was filed, the Commissioner clarified on June 27, 1994, the
onus probandi of a taxpayer claiming refund of overpaid withholding taxes,
inter alia, in Revenue Regulation No. 12-94, Section 10:
"Section 10.

Claim for Tax Credit or Refund.

(a)
Claims for Tax Credit or Refund of income tax deducted and
withheld on income payments shall be given due course only when it is
shown on the return that the income payment received has been declared
as part of the gross income and the fact of withholding is established by a
copy of the Withholding Tax Statement duly issued by the payor to the
payee showing the amount paid and the amount of tax withheld therefrom.
(b)
Excess Credits. A taxpayer's excess expanded withholding tax
credits for the taxable quarter/taxable year shall automatically be allowed
as a credit for purposes of filing his income tax return for the taxable
quarter/taxable year immediately succeeding the taxable quarter/taxable
year in which the aforesaid excess credit arose, provided, however, he
submits with his income tax return a copy of his income tax return for the
aforesaid previous taxable period showing the amount of his
aforementioned excess withholding tax credits.
If the taxpayer, in lieu of the aforesaid automatic application of his excess
credit, wants a cash refund or a tax credit certificate for use in payment of
his other national internal tax liabilities, he shall make a written request
therefor. Upon filing of his request, the taxpayer's income tax return

showing the excess expanded withholding tax credits shall be examined.

The excess expanded withholding tax, if any, shall be determined and
refunded/credited to the taxpayer-applicant. The refund/credit shall be
made within a period of sixty (60) days from date of the taxpayer's request
provided, however, that the taxpayer-applicant submitted for audit all his
pertinent accounting records and that the aforesaid records established the
veracity of his claim for a refund/credit of his excess expanded withholding
tax credits."
Prior to Rev. Reg. 12-94, the requisites for a refund were: (1) the income
tax return for the previous year must show that income payment (rental in
this case) was reported as part of the gross income; and (2) the
withholding tax statement of the withholding tax agent must show that
payment of the creditable withholding tax was made. However, even
without this regulation, the commissioner may inspect the books of the
taxpayer and reassess a taxpayer for deficiency tax payments under
Section 7, NIRC. We stress that what was required under Rev. Reg. 12-94
was only a submission of records but the verification of the tax return
remained the function of the commissioner.
Worth emphasizing are these uncontested facts: (1) the amounts withheld
were actually remitted to the BIR and (2) the final adjusted returns
which the BIR did not question showed that, for 1979 and 1980, no
income taxes from petitioner were due. Hence, under the principle of
solutio indebiti provided in Art. 2154, Civil Code, 26 the BIR received
something when "there [was] no right to demand it," and thus "the
obligation to return arises." 27 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.
WHEREFORE, the assailed Decision is hereby REVERSED and the decision
of the Court of Tax Appeals is REINSTATED. No Costs.
SO ORDERED.
Narvasa, C .J ., Romero, Melo and Francisco, JJ ., concur.
Footnotes
1.
Special Tenth Division consisting of JJ . Fidel P. Purisima, chairman
and ponente, Minerva P. Gonzaga-Reyes and Fermin A. Martin, Jr.
2.

Rollo, pp. 24-28.

3.

Rollo, pp. 21-22.

4.

Rollo, pp. 24-26.

5.

Docketed as C.T.A. Case No. 3378.

6.
Penned by Presiding Judge Alex Z. Reyes and concurred in by
Associate Judges Constante C. Roaquin and Ernesto D. Acosta.
7.

CA rollo, pp. 29-31.

8.

Rollo, pp. 24-28.

9.

Rollo, pp. 21-22.

10.

Rollo, pp. 26-27.

11.
Collector vs. Antonio Prieto, 2 SCRA 1007, 1016-1017, August 29,
1961; Gibbs vs. Commissioner of Internal Revenue, 15 SCRA 318, 325,
November 29, 1965; Commissioner of Internal Revenue vs. Carlos Palanca,
18 SCRA 496, 504, October 29, 1966; ACCRA Investments Corporation vs.
Court of Appeals, 204 SCRA 957, 963-964, December 20, 1991;
Commissioner of Internal Revenue vs. TMX Sales, Inc., 205 SCRA 184, 192,
January 15, 1992; and Commissioner of Internal Revenue vs. Philippine
American Life Insurance Co., 244 SCRA 446, 453, May 29, 1995.
12.

Supra, pp. 452-453, per Romero, J .

13.
Cesar C. Rey, Tax Code Annotated, p. 243 citing the explanatory
note to H. Bill No. 1127; and Commissioner of Internal Revenue vs. Malayan
Ins. Co., Inc., 21 SCRA 944, 949, November 18, 1967.
14.

Now, Section 4(j), NIRC.

15.

Madrigal vs. Rafferty, 38 Phil. 414, 418 (1918).

16.

Section 37, NIRC.

17.

15 SCRA 318, 325, November 29, 1965, per Regala, J .

18.
Commissioner of Internal Revenue vs. TMX Sales, Inc., supra, pp.
191-192; Collector vs. Prieto, supra; and ACCRA Investments Corp. vs.
Commissioner, supra.
19.
From the concurring opinion of J. Jose C. Vitug in Commissioner of
Internal Revenue vs. Philippine American Life Insurance Co., supra.
20.

205 SCRA 184, January 15, 1992.

21.
Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd., 244
SCRA 332, 336, May 26, 1995, per Puno, J .
22.

Sections 16 and 203, NIRC.

23.

228 SCRA 135, 141, November 23, 1993, per Padilla, J .

24.
Commissioner of Internal Revenue vs. Court of Tax Appeals, 234
SCRA 348, 357, July 21, 1994 per Regalado, J .
25.

Supra, per Gutierrez, J .

26.
"ART. 2154.
If something is received when there is no right to
demand it, and it was unduly delivered through mistake, the obligation to
return it arises."
27.
Ramie Textiles, Inc. vs. Mathay, Sr., 89 SCRA 586, 591-592, April
30, 1979, per De Castro, J .

[G.R. No. 191498. January 15, 2014.]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MINDANAO II
GEOTHERMAL PARTNERSHIP, respondent.
DECISION
SERENO, C.J p:
This Rule 45 Petition 1 requires this Court to address the question of
timeliness with respect to petitioner's administrative and judicial claims for
refund and credit of accumulated unutilized input Value Added Tax (VAT)
under Section 112 (A) and Section 112 (D) of the 1997 Tax Code. cCDAHE
Petitioner Mindanao II Geothermal Partnership (Mindanao II) assails the
Decision 2 and Resolution 3 of the Court of Tax Appeals En Banc (CTA En
Banc) in CTA En Banc Case No. 448, affirming the Decision in CTA Case No.
7507 of the CTA Second Division. 4 The latter ordered the refund or
issuance of a tax credit certificate in the amount of P6,791,845.24
representing unutilized input VAT incurred for the second, third, and fourth
quarters of taxable year 2004 in favor of herein respondent, Mindanao II.
FACTS
Mindanao II is a partnership registered with the Securities and Exchange
Commission. 5 It is engaged in the business of power generation and sale
of electricity to the National Power Corporation (NAPOCOR) 6 and is
accredited by the Department of Energy. 7 SDTIaE
Mindanao II filed its Quarterly VAT Returns for the second, third and fourth
quarters of taxable year 2004 on the following dates: 8
Date filed

Quarter Taxable Year

OriginalAmended
26 July 2004

12 July 2005

2nd

2004

22 October 2004

12 July 2005

3rd

2004

25 January 2005

12 July 2005

4th

2004

On 6 October 2005, Mindanao II filed with the Bureau of Internal Revenue

(BIR) an application for the refund or credit of accumulated unutilized
creditable input taxes. 9 In support of the administrative claim for refund or
credit, Mindanao II alleged, among others, that it is registered with the BIR
as a value-added taxpayer 10 and all its sales are zero-rated under the
EPIRA law. 11 It further stated that for the second, third, and fourth
quarters of taxable year 2004, it paid input VAT in the aggregate amount of
P7,167,005.84, which were directly attributable to the zero-rated sales. The
input taxes had not been applied against output tax. LLjur

Pursuant to Section 112 (D) of the 1997 Tax Code, the Commissioner of
Internal Revenue (CIR) had a period of 120 days, or until 3 February 2006,
to act on the claim. The administrative claim, however, remained
unresolved on 3 February 2006.
Under the same provision, Mindanao II could treat the inaction of the CIR
as a denial of its claim, in which case, the former would have 30 days to
file an appeal to the CTA, that is, on 5 March 2006. Mindanao II, however,
did not file an appeal within the 30-day period.
Apparently, Mindanao II believed that a judicial claim must be filed within
the two-year prescriptive period provided under Section 112 (A) and that
such time frame was to be reckoned from the filing of its Quarterly VAT
Returns for the second, third, and fourth quarters of taxable year 2004,
that is, from 26 July 2004, 22 October 2004, and 25 January 2005,
respectively. Thus, on 21 July 2006, Mindanao II, claiming inaction on the
part of the CIR and that the two-year prescriptive period was about to
expire, filed a Petition for Review with the CTA docketed as CTA Case No.
6133. 12 ASaTCE
On 8 June 2007, while the application for refund or credit of unutilized input
VAT of Mindanao II was pending before the CTA Second Division, this Court
promulgated Atlas Consolidated Mining and Development Corporation v.
CIR 13 (Atlas). Atlas held that the two-year prescriptive period for the filing
of a claim for an input VAT refund or credit is to be reckoned from the date
of filing of the corresponding quarterly VAT return and payment of the tax.
On 12 August 2008, the CTA Second Division rendered a Decision 14
ordering the CIR to grant a refund or a tax credit certificate, but only in the
reduced amount of P6,791,845.24, representing unutilized input VAT
incurred for the second, third and fourth quarters of taxable year 2004. 15
In support of its ruling, the CTA Second Division held that Mindanao II
complied with the twin requisites for VAT zero-rating under the EPIRA law:
first, it is a generation company, and second, it derived sales from power
generation. It also ruled that Mindanao II satisfied the requirements for the
grant of a refund/credit under Section 112 of the Tax Code: (1) there must
be zero-rated or effectively zero-rated sales; (2) input taxes must have
been incurred or paid; (3) the creditable input tax due or paid must be
attributable to zero-rated sales or effectively zero-rated sales; (4) the input
VAT payments must not have been applied against any output liability; and
(5) the claim must be filed within the two-year prescriptive period. 16
ASaTHc
As to the second requisite, however, the input tax claim to the extent of
P375,160.60 corresponding to purchases of services from Mitsubishi

Corporation was disallowed, since it was not substantiated by official

receipts. 17
As regards to the fifth requirement in section 112 of the Tax Code, the tax
court, citing Atlas, counted from 26 July 2004, 22 October 2004, and 25
January 2005 the dates when Mindanao II filed its Quarterly VAT Returns
for the second, third, and fourth quarters of taxable year 2004,
respectively and determined that both the administrative claim filed on
6 October 2005 and the judicial claim filed on 21 July 2006 fell within the
two-year prescriptive period. 18 CDAEHS
On 1 September 2008, the CIR filed a Motion for Partial Reconsideration, 19
pointing out that prescription had already set in, since the appeal to the
CTA was filed only on 21 July 2006, which was way beyond the last day to
appeal 5 March 2006. 20 As legal basis for this argument, the CIR relied
on Section 112 (D) of the 1997 Tax Code. 21
Meanwhile, on 12 September 2008, this Court promulgated CIR v. Mirant
Pagbilao Corporation (Mirant). 22 Mirant fixed the reckoning date of the
two-year prescriptive period for the application for refund or credit of
unutilized input VAT at the close of the taxable quarter when the relevant
sales were made, as stated in Section 112 (A). 23
On 3 December 2008, the CTA Second Division denied the CIR's Motion for
Partial Reconsideration. 24 The tax court stood by its reliance on Atlas 25
and on its finding that both the administrative and judicial claims of
Mindanao II were timely filed. 26 CScaDH
On 7 January 2009, the CIR elevated the matter to the CTA En Banc via a
Petition for Review. 27 Apart from the contention that the judicial claim of
Mindanao II was filed beyond the 30-day period fixed by Section 112 (D) of
the 1997 Tax Code, 28 the CIR argued that Mindanao II erroneously fixed
26 July 2004, the date when the return for the second quarter was filed, as
the date from which to reckon the two-year prescriptive period for filing an
application for refund or credit of unutilized input VAT under Section 112
(A). As the two-year prescriptive period ended on 30 June 2006, the
Petition for Review of Mindanao II was filed out of time on 21 July 2006. 29
The CIR invoked the recently promulgated Mirant to support this theory.
On 11 November 2009, the CTA En Banc rendered its Decision denying the
CIR's Petition for Review. 30 On the question whether the application for
refund was timely filed, it held that the CTA Second Division correctly
applied the Atlas ruling. 31 It reasoned that Atlas remained to be the
controlling doctrine. Mirant was a new doctrine and, as such, the latter
should not apply retroactively to Mindanao II who had relied on the old
doctrine of Atlas and had acted on the faith thereof. 32 cCaEDA

As to the issue of compliance with the 30-day period for appeal to the CTA,
the CTA En Banc held that this was a requirement only when the CIR
actually denies the taxpayer's claim. But in cases of CIR inaction, the 30day period is not a mandatory requirement; the judicial claim is seasonably
filed as long as it is filed after the lapse of the 120-day waiting period but
within two years from the date of filing of the return. 33
The CIR filed a Motion for Partial Reconsideration 34 of the Decision, but it
was denied for lack of merit. 35
Dissatisfied, the CIR filed this Rule 45 Petition, raising the following
arguments in support of its appeal:
I.
THE CTA 2ND DIVISION LACKED JURISDICTION TO TAKE COGNIZANCE OF
THE CASE. ITAaCc
II.
THE COURT A QUO'S RELIANCE ON THE RULING IN ATLAS IS MISPLACED. 36
ISSUES
The resolution of this case hinges on the question of compliance with the
following time requirements for the grant of a claim for refund or credit of
unutilized input VAT: (1) the two-year prescriptive period for filing an
application for refund or credit of unutilized input VAT; and (2) the 120+30
day period for filing an appeal with the CTA. STDEcA
THE COURT'S RULING
We deny Mindanao II's claim for refund or credit of unutilized input VAT on
the ground that its judicial claims were filed out of time, even as we hold
that its application for refund was filed on time.
I.
MINDANAO II'S APPLICATION FOR
REFUND WAS FILED ON TIME
We find no error in the conclusion of the tax courts that the application for
refund or credit of unutilized input VAT was timely filed. The problem lies
with their bases for the conclusion as to: (1) what should be filed within the
prescriptive period; and (2) the date from which to reckon the prescriptive
period. ScaCEH
We thus take a different route to reach the same conclusion, initially
focusing our discussion on what should be filed within the two-year
prescriptive period.

A.

The Judicial Claim Need Not Be

Filed Within the Two-Year

Prescriptive Period
Section 112 (A) provides: DCaEAS
SEC. 112.

Refunds or Tax Credits of Input Tax.

(A)
Zero-rated or Effectively Zero-rated Sales Any VAT-registered
person, whose sales are zero-rated or effectively zero-rated may, within
two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales, except
transitional input tax, to the extent that such input tax has not been
applied against output tax: Provided, however, That in the case of zerorated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(B)
(1) and (2), the acceptable foreign currency exchange proceeds thereof
had been duly accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the
taxpayer is engaged in zero-rated or effectively zero-rated sale and also in
taxable or exempt sale of goods 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. DCISAE
Both the CTA Second Division and CTA En Banc decisions held that the
phrase "apply for the issuance of a tax credit certificate or refund" in
Section 112 (A) is construed to refer to both the administrative claim filed
with the CIR and the judicial claim filed with the CTA. This view, however,
has no legal basis.
In Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.
(Aichi), we dispelled the misconception that both the administrative and
judicial claims must be filed within the two-year prescriptive period: 37
cECaHA
There is nothing in Section 112 of the NIRC to support respondent's view.
Subsection (A) of the said provision states that "any VAT-registered person,
whose sales are zero-rated or effectively zero-rated may, within two years
after the close of the taxable quarter when the sales were made, apply for
the issuance of a tax credit certificate or refund of creditable input tax due
or paid attributable to such sales." The phrase "within two (2) years . . .
apply for the issuance of a tax credit certificate or refund" refers to
applications for refund/credit filed with the CIR and not to appeals made to
the CTA. This is apparent in the first paragraph of subsection (D) of the
same provision, which states that the CIR has "120 days from the

submission of complete documents in support of the application filed in

accordance with Subsections (A) and (B)" within which to decide on the
claim. HDCAaS
In fact, applying the two-year period to judicial claims would render
nugatory Section 112 (D) of the NIRC, which already provides for a specific
period within which a taxpayer should appeal the decision or inaction of
the CIR. The second paragraph of Section 112 (D) of the NIRC envisions
two scenarios: (1) when a decision is issued by the CIR before the lapse of
the 120-day period; and (2) when no decision is made after the 120-day
period. In both instances, the taxpayer has 30 days within which to file an
appeal with the CTA. As we see it then, the 120-day period is crucial in
filing an appeal with the CTA. (Emphasis supplied)
The message of Aichi is clear: it is only the administrative claim that must
be filed within the two-year prescriptive period; the judicial claim need not
fall within the two-year prescriptive period.
Having disposed of this question, we proceed to the date for reckoning the
prescriptive period under Section 112 (A). ADEaHT
B.

Reckoning Date is the Close of

the Taxable Quarter When the

Relevant Sales Were Made.
The other flaw in the reasoning of the tax courts is their reliance on the
Atlas ruling, which fixed the reckoning point to the date of filing the return
and payment of the tax.
The CIR's Stand
The CIR's stand is that Atlas is not applicable to the case at hand as it
involves Section 230 of the 1977 Tax Code, which contemplates recovery of
tax payments erroneously or illegally collected. On the other hand, this
case deals with claims for tax refund or credit of unutilized input VAT for
the second, third, and fourth quarters of 2004, which are covered by
Section 112 of the 1977 Tax Code. 38 HTCIcE
The CIR further contends that Mindanao II cannot claim good faith reliance
on the Atlas doctrine since the case was decided only on 8 June 2007, two
years after Mindanao II filed its claim for refund or credit with the CIR and
one year after it filed a Petition for Review with the CTA on 21 July 2006. 39
In lieu of Atlas, the CIR proposes that it is the Court's ruling in Mirant that
should apply to this case despite the fact that the latter was promulgated
on 12 September 2008, after Mindanao II had filed its administrative claim
in 2005. 40 It argues that Mirant can be applied retroactively to this case,
since the decision merely interprets Section 112, a provision that was

already effective when Mindanao II filed its claims for tax refund or credit.
cDCSTA
The Taxpayer's Defense
On the other hand, Mindanao II counters that Atlas, decided by the Third
Division of this Court, could not have been superseded by Mirant, a Second
Division Decision of this Court. A doctrine laid down by the Supreme Court
in a Division may be modified or reversed only through a decision of the
Court sitting en banc. 41
Mindanao II further contends that when it filed its Petition for Review, the
prevailing rule in the CTA reckons the two-year prescriptive period from the
date of the filing of the VAT return. 42
Finally, after building its case on Atlas, Mindanao II assails the CIR's
reliance on the Mirant doctrine stating that it cannot be applied
retroactively to this case, lest it violate the rock-solid rule that a judicial
ruling cannot be given retroactive effect if it will impair vested rights. 43
DaScHC
Section 112 (A) is the Applicable Rule
The issue posed is not novel. In the recent case of Commissioner of
Internal Revenue v. San Roque Power Corporation 44 (San Roque), this
Court resolved the threshold question of when to reckon the two-year
prescriptive period for filing an administrative claim for refund or credit of
unutilized input VAT under the 1997 Tax Code in view of our
pronouncements in Atlas and Mirant. In that case, we delineated the scope
and effectivity of the Atlas and Mirant doctrines as follows: cCAIaD
The Atlas doctrine, which held that claims for refund or credit of input VAT
must comply with the two-year prescriptive period under Section 229,
should be effective only from its promulgation on 8 June 2007 until its
abandonment on 12 September 2008 in Mirant. The Atlas doctrine was
limited to the reckoning of the two-year prescriptive period from the date
of payment of the output VAT. Prior to the Atlas doctrine, the two-year
prescriptive period for claiming refund or credit of input VAT should be
governed by Section 112(A) following the verba legis rule. The Mirant
ruling, which abandoned the Atlas doctrine, adopted the verba legis rule,
thus applying Section 112(A) in computing the two-year prescriptive period
in claiming refund or credit of input VAT. (Emphases supplied)
Furthermore, San Roque distinguished between Section 112 and Section
229 of the 1997 Tax Code: CDESIA
The input VAT is not "excessively" collected as understood under Section
229 because at the time the input VAT is collected the amount paid is
correct and proper. The input VAT is a tax liability of, and legally paid by, a

VAT-registered seller of goods, properties or services used as input by

another VAT-registered person in the sale of his own goods, properties, or
services. This tax liability is true even if the seller passes on the input VAT
to the buyer as part of the purchase price. The second VAT-registered
person, who is not legally liable for the input VAT, is the one who applies
the input VAT as credit for his own output VAT. If the input VAT is in fact
"excessively" collected as understood under Section 229, then it is the first
VAT-registered person the taxpayer who is legally liable and who is
deemed to have legally paid for the input VAT who can ask for a tax
refund or credit under Section 229 as an ordinary refund or credit outside
of the VAT System. In such event, the second VAT-registered taxpayer will
have no input VAT to offset against his own output VAT. ITDSAE
In a claim for refund or credit of "excess" input VAT under Section 110(B)
and Section 112(A), the input VAT is not "excessively" collected as
understood under Section 229. At the time of payment of the input VAT the
amount paid is the correct and proper amount. Under the VAT System,
there is no claim or issue that the input VAT is "excessively" collected, that
is, that the input VAT paid is more than what is legally due. The person
legally liable for the input VAT cannot claim that he overpaid the input VAT
by the mere existence of an "excess" input VAT. The term "excess" input
VAT simply means that the input VAT available as credit exceeds the output
VAT, not that the input VAT is excessively collected because it is more than
what is legally due. Thus, the taxpayer who legally paid the input VAT
cannot claim for refund or credit of the input VAT as "excessively" collected
under Section 229. SHIETa
Under Section 229, the prescriptive period for filing a judicial claim for
refund is two years from the date of payment of the tax "erroneously, . . .
illegally, . . . excessively or in any manner wrongfully collected." The
prescriptive period is reckoned from the date the person liable for the tax
pays the tax. Thus, if the input VAT is in fact "excessively" collected, that
is, the person liable for the tax actually pays more than what is legally due,
the taxpayer must file a judicial claim for refund within two years from his
date of payment. Only the person legally liable to pay the tax can file the
judicial claim for refund. The person to whom the tax is passed on as part
of the purchase price has no personality to file the judicial claim under
Section 229. IcSHTA
Under Section 110(B) and Section 112(A), the prescriptive period for filing
a judicial claim for "excess" input VAT is two years from the close of the
taxable quarter when the sale was made by the person legally liable to pay
the output VAT. This prescriptive period has no relation to the date of
payment of the "excess" input VAT. The "excess" input VAT may have been
paid for more than two years but this does not bar the filing of a judicial
claim for "excess" VAT under Section 112(A), which has a different

reckoning period from Section 229. Moreover, the person claiming the
refund or credit of the input VAT is not the person who legally paid the
input VAT. Such person seeking the VAT refund or credit does not claim that
the input VAT was "excessively" collected from him, or that he paid an
input VAT that is more than what is legally due. He is not the taxpayer who
legally paid the input VAT. ScaCEH
As its name implies, the Value-Added Tax system is a tax on the value
added by the taxpayer in the chain of transactions. For simplicity and
efficiency in tax collection, the VAT is imposed not just on the value added
by the taxpayer, but on the entire selling price of his goods, properties or
services. However, the taxpayer is allowed a refund or credit on the VAT
previously paid by those who sold him the inputs for his goods, properties,
or services. The net effect is that the taxpayer pays the VAT only on the
value that he adds to the goods, properties, or services that he actually
sells. ADHaTC
Under Section 110(B), a taxpayer can apply his input VAT only against his
output VAT. The only exception is when the taxpayer is expressly "zerorated or effectively zero-rated" under the law, like companies generating
power through renewable sources of energy. Thus, a non zero-rated VATregistered taxpayer who has no output VAT because he has no sales
cannot claim a tax refund or credit of his unused input VAT under the VAT
System. Even if the taxpayer has sales but his input VAT exceeds his
output VAT, he cannot seek a tax refund or credit of his "excess" input VAT
under the VAT System. He can only carry-over and apply his "excess" input
VAT against his future output VAT. If such "excess" input VAT is an
"excessively" collected tax, the taxpayer should be able to seek a refund or
credit for such "excess" input VAT whether or not he has output VAT. The
VAT System does not allow such refund or credit. Such "excess" input VAT
is not an "excessively" collected tax under Section 229. The "excess" input
VAT is a correctly and properly collected tax. However, such "excess" input
VAT can be applied against the output VAT because the VAT is a tax
imposed only on the value added by the taxpayer. If the input VAT is in fact
"excessively" collected under Section 229, then it is the person legally
liable to pay the input VAT, not the person to whom the tax was passed on
as part of the purchase price and claiming credit for the input VAT under
the VAT System, who can file the judicial claim under Section 229. CTaIHE
Any suggestion that the "excess" input VAT under the VAT System is an
"excessively" collected tax under Section 229 may lead taxpayers to file a
claim for refund or credit for such "excess" input VAT under Section 229 as
an ordinary tax refund or credit outside of the VAT System. Under Section
229, mere payment of a tax beyond what is legally due can be claimed as
a refund or credit. There is no requirement under Section 229 for an output

VAT or subsequent sale of goods, properties, or services using materials

subject to input VAT. IEDHAT
From the plain text of Section 229, it is clear that what can be refunded or
credited is a tax that is "erroneously . . . illegally, . . . excessively or in any
manner wrongfully collected." In short, there must be a wrongful payment
because what is paid, or part of it, is not legally due. As the Court held in
Mirant, Section 229 should "apply only to instances of erroneous payment
or illegal collection of internal revenue taxes." Erroneous or wrongful
payment includes excessive payment because they all refer to payment of
taxes not legally due. Under the VAT System, there is no claim or issue that
the "excess" input VAT is "excessively or in any manner wrongfully
collected." In fact, if the "excess" input VAT is an "excessively" collected
tax under Section 229, then the taxpayer claiming to apply such
"excessively" collected input VAT to offset his output VAT may have no
legal basis to make such offsetting. The person legally liable to pay the
input VAT can claim a refund or credit for such "excessively" collected tax,
and thus there will no longer be any "excess" input VAT. This will upend the
present VAT System as we know it. 45 IDAEHT
Two things are clear from the above quoted San Roque disquisitions. First,
when it comes to recovery of unutilized input VAT, Section 112, and not
Section 229 of the 1997 Tax Code, is the governing law. Second, prior to 8
June 2007, the applicable rule is neither Atlas nor Mirant, but Section 112
(A).
We present the rules laid down by San Roque in determining the proper
reckoning date of the two-year prescriptive period through the following
timeline:

Thus, the task at hand is to determine the applicable period for this case.
In this case, Mindanao II filed its administrative claims for refund or credit
for the second, third and fourth quarters of 2004 on 6 October 2005. The
case thus falls within the first period as indicated in the above timeline. In
other words, it is covered by the rule prior to the advent of either Atlas or
Mirant.
Accordingly, the proper reckoning date in this case, as provided by Section
112 (A) of the 1997 Tax Code, is the close of the taxable quarter when the
relevant sales were made. CIaDTE
C.

The Administrative Claims Were

Timely Filed

We sum up our conclusions so far: (1) it is only the administrative claim

that must be filed within the two-year prescriptive period; and (2) the twoyear prescriptive period begins to run from the close of the taxable quarter
when the relevant sales were made. SHDAEC
Bearing these in mind, we now proceed to determine whether Mindanao II's
administrative claims for the second, third, and fourth quarters of 2004
were timely filed.

MINDANAO II'S
JUDICIAL CLAIMS WERE FILED OUT OF TIME
Notwithstanding the timely filing of the administrative claims, we find that
the CTA En Banc erred in holding that Mindanao II's judicial claims were
timely filed.
A.

30-Day Period Also Applies to

Second Quarter

Appeals from Inaction

Since the zero-rated sales were made in the second quarter of 2004, the
date of reckoning the two-year prescriptive period is the close of the
second quarter, which is on 30 June 2004. Applying Section 112 (A),
Mindanao II had two years from 30 June 2004, or until 30 June 2006 to file
an administrative claim with the CIR. Mindanao II filed its administrative
claim on 6 October 2005, which is within the two-year prescriptive period.
The administrative claim for the second quarter of 2004 was thus timely
filed. For clarity, we present the rules laid down by San Roque in
determining the proper reckoning date of the two-year prescriptive period
through the following timeline: HcACTE

Section 112 (D) of the 1997 Tax Code states the time requirements for
filing a judicial claim for refund or tax credit of input VAT: cCTaSH

Third Quarter
As regards the claim for the third quarter of 2004, the two-year
prescriptive period started to run on 30 September 2004, the close of the
taxable quarter. It ended on 30 September 2006, pursuant to Section 112
(A) of the 1997 Tax Code. Mindanao II filed its administrative claim on 6
October 2005. Thus, since the administrative claim was filed well within
the two-year prescriptive period, the administrative claim for the third
quarter of 2004 was timely filed. (See timeline below) HICcSA

Fourth Quarter
Here, the two-year prescriptive period is counted starting from the close of
the fourth quarter which is on 31 December 2004. The last day of the
prescriptive period for filing an application for tax refund/credit with the
CIR was on 31 December 2006. Mindanao II filed its administrative claim
with the CIR on 6 October 2005. Hence, the claims were filed on time,
pursuant to Section 112 (A) of the 1997 Tax Code. (See timeline below)
HDIATS

II.

(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. (Emphases
supplied)
Section 112 (D) speaks of two periods: the period of 120 days, which
serves as a waiting period to give time for the CIR to act on the
administrative claim for refund or credit, and the period of 30 days, which
refers to the period for interposing an appeal with the CTA. It is with the
30-day period that there is an issue in this case. DcSTaC
The CTA En Banc's holding is that, since the word "or" a disjunctive term
that signifies dissociation and independence of one thing from another is
used in Section 112 (D), the taxpayer is given two options: 1) file an appeal
within 30 days from the CIR's denial of the administrative claim; or 2) file
an appeal with the CTA after expiration of the 120-day period, in which
case the 30-day appeal period does not apply. The judicial claim is
seasonably filed so long as it is filed after the lapse of the 120-day waiting
period but before the lapse of the two-year prescriptive period under
Section 112 (A). 46
We do not agree.
The 30-day period applies not only to instances of actual denial by the CIR
of the claim for refund or tax credit, but to cases of inaction by the CIR as
well. This is the correct interpretation of the law, as held in San Roque: 47

Section 112(C) 48 also expressly grants the taxpayer a 30-day period to

appeal to the CTA the decision or inaction of the Commissioner, thus:
TDcAIH
. . . 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.
This law is clear, plain, and unequivocal. Following the well-settled verba
legis doctrine, this law should be applied exactly as worded since it is clear,
plain, and unequivocal. As this law states, the taxpayer may, if he wishes,
appeal the decision of the Commissioner to the CTA within 30 days from
receipt of the Commissioner's decision, or if the Commissioner does not act
on the taxpayer's claim within the 120-day period, the taxpayer may
appeal to the CTA within 30 days from the expiration of the 120-day period.
(Emphasis supplied) DICSaH
The San Roque pronouncement is clear. The taxpayer can file the appeal in
one of two ways: (1) file the judicial claim within thirty days after the
Commissioner denies the claim within the 120-day period, or (2) file the
judicial claim within thirty days from the expiration of the 120-day period if
the Commissioner does not act within the 120-day period.
B.

The Judicial Claim Was Belatedly

Filed
In this case, the facts are not up for debate. Mindanao II filed its
administrative claim for refund or credit for the second, third, and fourth
quarters of 2004 on 6 October 2005. The CIR, therefore, had a period of
120 days, or until 3 February 2006, to act on the claim. The CIR, however,
failed to do so. Mindanao II then could treat the inaction as a denial and
appeal it to the CTA within 30 days from 3 February 2006, or until 5 March
2006.
Mindanao II, however, filed a Petition for Review only on 21 July 2006, 138
days after the lapse of the 30-day period on 5 March 2006. The judicial
claim was therefore filed late. (See timeline below.) SECIcT

C.

The 30-Day Period to Appeal is

Mandatory and Jurisdictional

However, what is up for debate is the nature of the 30-day time
requirement. The CIR posits that it is mandatory. Mindanao II contends that
the requirement of judicial recourse within 30 days is only directory and

permissive, as indicated by the use of the word "may" in Section 112 (D).
49
The answer is found in San Roque. There, we declared that the 30-day
period to appeal is both mandatory and jurisdictional:
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:
TcSHaD
. . . the taxpayer affected may, within thirty (30) days from the receipt of
the decision denying the claim or after the expiration of the one hundred
twenty day-period, appeal the decision or the unacted claim with the Court
of Tax Appeals. (Emphasis supplied)
This law is clear, plain, and unequivocal. Following the well-settled verba
legis doctrine, this law should be applied exactly as worded since it is clear,
plain, and unequivocal. As this law states, the taxpayer may, if he wishes,
appeal the decision of the Commissioner to the CTA within 30 days from
receipt of the Commissioner's decision, or if the Commissioner does not act
on the taxpayer's claim within the 120-day period, the taxpayer may
appeal to the CTA within 30 days from the expiration of the 120-day period.
TESICD
xxx

xxx

xxx

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). TADaES
xxx

xxx

xxx

When Section 112(C) states that "the taxpayer affected may, within thirty
(30) days from receipt of the decision denying the claim or after the
expiration of the one hundred twenty-day period, appeal the decision or
the unacted claim with the Court of Tax Appeals," the law does not make
the 120+30 day periods optional just because the law uses the word
"may." The word "may" simply means that the taxpayer may or may not
appeal the decision of the Commissioner within 30 days from receipt of the
decision, or within 30 days from the expiration of the 120-day period. . . . .
50
D.

Exception to the mandatory and

jurisdictional nature of the 120+30

day period not applicable
Nevertheless, San Roque provides an exception to the mandatory and
jurisdictional nature of the 120+30 day period BIR Ruling No. DA-489-03
dated 10 December 2003. The BIR ruling declares that the "taxpayerclaimant 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." AHDcCT
Although Mindanao II has not invoked the BIR ruling, we deem it prudent as
well as necessary to dwell on this issue to determine whether this case
falls under the exception.
For this question, we come back to San Roque, which provides that BIR
Ruling No. DA-489-03 is a general interpretative rule; thus, taxpayers can
rely on it from the time of its issuance on 10 December 2003 until its
reversal by this Court in Aichi on 6 October 2010, when the 120+30 day
periods were held to be mandatory and jurisdictional. The Court reasoned
as follows:
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. . . .
. CIDaTc
xxx

xxx

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-489-03. Thus, while this
government agency mentions in its query to the Commissioner the
administrative claim of Lazi Bay Resources Development, Inc., the agency

was in fact asking the Commissioner what to do in cases like the tax claim
of Lazi Bay Resources Development, Inc., where the taxpayer did not wait
for the lapse of the 120-day period. cSTDIC
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. 51
Thus, in San Roque, the Court applied this exception to Taganito Mining
Corporation (Taganito), one of the taxpayers in San Roque. Taganito filed its
judicial claim on 14 February 2007, after the BIR ruling took effect on 10
December 2003 and before the promulgation of Mirant. The Court stated:
IaESCH
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. 52
San Roque was also careful to point out that the BIR ruling does not
retroactively apply to premature judicial claims filed before the issuance of
the BIR ruling: HDAECI
However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for
four reasons: first, it is admittedly an erroneous interpretation of the law;
second, prior to its issuance, the BIR held that the 120-day period was
mandatory and jurisdictional, which is the correct interpretation of the law;
third, prior to its issuance, no taxpayer can claim that it was misled by the
BIR into filing a judicial claim prematurely; and fourth, a claim for tax
refund or credit, like a claim for tax exemption, is strictly construed against
the taxpayer. 53
Thus, San Roque held that taxpayer San Roque Power Corporation, could
not seek refuge in the BIR ruling as it jumped the gun when it filed its
judicial claim on 10 April 2003, prior to the issuance of the BIR ruling on 10
December 2003. The Court stated: SaIACT
San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03
because it filed its judicial claim prematurely on 10 April 2003, before the
issuance of BIR Ruling No. DA-489-03 on 10 December 2003. To repeat, San
Roque cannot claim that it was misled by the BIR into filing its judicial
claim prematurely because BIR Ruling No. DA-489-03 was issued only after
San Roque filed its judicial claim. At the time San Roque filed its judicial

claim, the law as applied and administered by the BIR was that the
Commissioner had 120 days to act on administrative claims. This was in
fact the position of the BIR prior to the issuance of BIR Ruling No. DA-48903. Indeed, San Roque never claimed the benefit of BIR Ruling No. DA-48903 or RMC 49-03, whether in this Court, the CTA, or before the
Commissioner. 54 cTSDAH
San Roque likewise ruled out the application of the BIR ruling to cases of
late filing. The Court held that the BIR ruling, as an exception to the
mandatory and jurisdictional nature of the 120+30 day periods, is limited
to premature filing and does not extend to late filing of a judicial claim.
Thus, the Court found that since Philex Mining Corporation, the other party
in the consolidated case San Roque, filed its claim 426 days after the lapse
of the 30-day period, it could not avail itself of the benefit of the BIR ruling:
Philex's situation is not a case of premature filing of its judicial claim but of
late filing, indeed very late filing. BIR Ruling No. DA-489-03 allowed
premature filing of a judicial claim, which means non-exhaustion of the
120-day period for the Commissioner to act on an administrative claim.
Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because Philex
did not file its judicial claim prematurely but filed it long after the lapse of
the 30-day period following the expiration of the 120-day period. In fact,
Philex filed its judicial claim 426 days after the lapse of the 30-day period.
55 aAEIHC
We sum up the rules established by San Roque on the mandatory and
jurisdictional nature of the 30-day period to appeal through the following
timeline:

Bearing in mind the foregoing rules for the timely filing of a judicial claim
for refund or credit of unutilized input VAT, we rule on the present case of
Mindanao II as follows: SIcCTD
We find that Mindanao II's situation is similar to that of Philex in San Roque.
As mentioned above, Mindanao II filed its judicial claim with the CTA on 21
July 2006. This was after the issuance of BIR Ruling No. DA-489-03 on 10
December 2003, but before its reversal on 5 October 2010. However, while
the BIR ruling was in effect when Mindanao II filed its judicial claim, the
rule cannot be properly invoked. The BIR ruling, as discussed earlier,
contemplates premature filing. The situation of Mindanao II is one of late
filing. To repeat, its judicial claim was filed on 21 July 2006 long after 5
March 2006, the last day of the 30-day period for appeal. In fact, it filed its
judicial claim 138 days after the lapse of the 30-day period. (See timeline
below) DcHSEa

E.

Undersigned dissented in San

Roque to the retroactive application

of the mandatory and jurisdictional
nature of the 120+30 day period.
It is worthy to note that in San Roque, this ponente registered her dissent
to the retroactive application of the mandatory and jurisdictional nature of
the 120+30 day period provided under Section 112 (D) of the Tax Code
which, in her view, is unfair to taxpayers. It has been the view of this
ponente that the mandatory nature of 120+30 day period must be
completely applied prospectively or, at the earliest, only upon the finality
of Aichi in order to create stability and consistency in our tax laws.
Nevertheless, this ponente is mindful of the fact that judicial precedents
cannot be ignored. Hence, the majority view expressed in San Roque must
be applied. aIDHET
SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR CLAIMING REFUND
OR CREDIT OF INPUT VAT
The lessons of this case may be summed up as follows:
A.

Two-Year Prescriptive Period

1.
It is only the administrative claim that must be filed within the twoyear prescriptive period. (Aichi)
2.
The proper reckoning date for the two-year prescriptive period is
the close of the taxable quarter when the relevant sales were made. (San
Roque) CHDAEc
3.
The only other rule is the Atlas ruling, which applied only from 8
June 2007 to 12 September 2008. Atlas states that the two-year
prescriptive period for filing a claim for tax refund or credit of unutilized
input VAT payments should be counted from the date of filing of the VAT
return and payment of the tax. (San Roque)
B.

120+30 Day Period

1.
The taxpayer can file an appeal in one of two ways: (1) file the
judicial claim within thirty days after the Commissioner denies the claim
within the 120-day period, or (2) file the judicial claim within thirty days
from the expiration of the 120-day period if the Commissioner does not act
within the 120-day period.
2.
The 30-day period always applies, whether there is a denial or
inaction on the part of the CIR. cDHAaT

3.
As a general rule, the 30-day period to appeal is both mandatory
and jurisdictional. (Aichi and San Roque)

10.

Id. at 81.

4.
As an exception to the general rule, premature filing is allowed
only if filed between 10 December 2003 and 5 October 2010, when BIR
Ruling No. DA-489-03 was still in force. (San Roque)

11.
On 26 June 2001, Republic Act No. 9136 or the Electric Power
Industry Reform Act of 2000 (EPIRA) came into law, making the sale of
power by a generation company a zero-rated transaction under the ValueAdded Tax (VAT) system. Section 6 of EPIRA provides:

5.
Late filing is absolutely prohibited, even during the time when BIR
Ruling No. DA-489-03 was in force. (San Roque)

Generation Sector. Generation of electric power, a

business affected with public interest shall be competitive and open.

SUMMARY AND CONCLUSION

Upon the effectivity of this Act, any new generation

company shall, before it operates, secure from the Energy Regulatory
Commission (ERC) a certificate of compliance pursuant to the standards set
forth in this Act, as well as health, safety and environmental clearances
from the appropriate government agencies under existing laws.

In sum, our finding is that the three administrative claims for the refund or
credit of unutilized input VAT were all timely filed, while the corresponding
judicial claims were belatedly filed. DCIAST
The foregoing considered, the CTA lost jurisdiction over Mindanao II's
claims for refund or credit. The CTA EB erred in granting these claims.
WHEREFORE, we GRANT the Petition. The assailed Court of Tax Appeals En
Banc Decision dated 11 November 2009 and Resolution dated 3 March
2010 of the * in CTA EB Case No. 448 (CTA Case No. 7507) are hereby
REVERSED and SET ASIDE. A new ruling is entered DENYING respondent's
claim for a tax refund or credit of P6,791,845.24.
SO ORDERED. DaAIHC
Leonardo-de Castro, Bersamin, Villarama, Jr. and Reyes, JJ., concur.
Footnotes
1.

Rollo, pp. 8-42.

2.
Id. at 49-68. CTA En Banc Decision dated 11 November 2009,
penned by Associate Justice Caesar A. Casanova, concurred in by Presiding
Justice Ernesto D. Acosta, and Associate Justices Lovell R. Bautista, Juanito
C. Castaeda, Jr., Olga Palanca-Enriquez, and Erlinda P. Uy.
3.

Id. at 70. CTA Resolution dated 3 March 2010.

4.
Id. at 81-95; dated 12 August 2008, penned by Associate Justice
Juanito C. Castaeda, Jr., concurred in by Associate Justices Erlinda D. Uy
and Olga Palanca-Enriquez.

Any law to the contrary notwithstanding, power generation

shall not be considered a public utility operation. For this purpose, any
person or entity engaged or which shall engage in power generation and
supply of electricity shall not be required to secure a national franchise.
Upon the implementation of retail competition and open
access, the prices charged by a generation company for the supply of
electricity shall not be subject to regulation by the ERC except as otherwise
provided in this Act.
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.
The ERC shall, in determining the existence of market
power abuse or anti-competitive behavior, require from generation
companies the submission of their financial statements. (Emphasis
supplied)
12.

Rollo, p. 85. Also, CTA records, pp. 1-8. Petition for Review, pp. 1-8.

13.

G.R. Nos. 141104 and 148763, 8 June 2007, 524 SCRA 154.

14.

Rollo, pp. 81-95.

15.

Id. at 94.

5.

Id. at 81.

16.

Id. at 88-93.

6.

Id.

17.

Id. at 90-92.

7.

Id. at 82.

18.

Id. at 93.

8.

Id. at 85.

19.

Id. at 96-103.

9.

Id.

20.

Id. at 97-98.

21.

Id.

45.

Id. at 392-397.

22.

586 Phil. 712 (2008).

46.

Rollo, pp. 59-60. Decision, pp. 11-12.

23.

Rollo, pp. 116-118.

47.

Supra note 44, at 387-388.

24.

Id. at 105-107; dated 3 December 2008.

25.

Id. at 106.

26.

Id.

27.

Id. at 108-125.

48.
The section is numbered 112 (D) under RA 8424. However, RA
9337 renumbered the section to 112(C). In San Roque, the Court refers to
Section 112 (D) under RA 8424 as Section 112 (C) as it is currently
numbered. Elsewhere in this Decision, we refer to the provision as Section
112 (D) to make it consistent with references to it made by the Court in
other cases.

28.

Id. at 118-122.

29.

Id. at 117.

30.

Id. at 49-68.

31.

Id. at 58. Decision, p. 10.

32.

Id. at 55-58. Decision, pp. 7-10.

33.

Id. at 59-60. Decision, pp. 11-12.

34.

Id. at 148-154; dated 8 December 2009.

35.

Id. at 70-74, dated 3 March 2010.

36.

Id. at 19.

37.

G.R. No. 184823, 6 October 2010, 632 SCRA 422, 443-444.

38.

Rollo, pp. 33-35.

39.

Id. at 35.

40.

Id. at 36.

41.
Article VIII, Sec. 4 (3) of the 1987 Constitution states: "Cases or
matters heard by a division shall be decided or resolved with the
concurrence of a majority of the Members who actually took part in the
deliberations on the issues in the case and voted thereon, and in no case
without the concurrence of at least three of such Members. When the
required number is not obtained, the case shall be decided en banc:
Provided, that no doctrine or principle of law laid down by the court in a
decision rendered en banc or in division may be modified or reversed
except by the court sitting en banc."
42.

See Rollo, p. 83.

43.

Id. at pp. 36-37.

44.

G.R. No. 187485, 12 February 2013, 690 SCRA 336, 397.

49.

Id. at pp. 179-181.

50.

Rollo, pp. 179-181.

51.

Supra note 44, at 403-404.

52.

Id. at 405.

53.

Id.

54.

Id.

55.

Id. at 405-406.

[G.R. No. 182399. March 12, 2014.]

CS GARMENT, INC., * petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, respondent.
DECISION
SERENO, C.J p:
Before the Court is a Rule 45 petition for review on certiorari, assailing the
respective Decision 1 and Resolution 2 of the Court of Tax Appeals (CTA) en
banc in EB Case No. 287. These judgments in turn affirmed the Decision 3
and the Resolution 4 of the CTA Second Division, which ordered the
cancellation of certain items in the 1998 tax assessments against
petitioner CS Garment, Inc. (CS Garment or petitioner). Accordingly,
petitioner was directed to pay the Bureau of Internal Revenue (BIR) the
remaining portion of the tax assessments. This portion was comprised of
the outstanding deficiency value-added tax (VAT) on CS Garment's
undeclared local sales and on the incidental sale of a motor vehicle;
deficiency documentary stamp tax (DST) on a lease agreement; and
deficiency income tax as a result of the disallowed expenses and
undeclared local sales. However, while the present case was pending
before this Court, CS Garment filed a Manifestation and Motion stating that
the latter had availed itself of the government's tax amnesty program
under Republic Act No. (R.A.) 9480, or the 2007 Tax Amnesty Law.
HECTaA

accounting records for all internal revenue taxes covering the period
January 1, 1998 to December 31, 1998.
On October 23, 2001, petitioner received five (5) formal demand letters
with accompanying Assessment Notices from respondent, through the
Office of the Revenue Director of Revenue Region No. 9, San Pablo City,
requiring it to pay the alleged deficiency VAT, Income, DST and withholding
tax assessments for taxable year 1998 in the aggregate amount of
P2,046,580.10 broken down as follows:
Deficiency VAT
Basic tax due
Add:

Surcharge

Total Amount Payable

On November 24, 1999, petitioner [CS Garment] received from respondent

[CIR] Letter of Authority No. 00012641 dated November 10, 1999,
authorizing the examination of petitioner's books of accounts and other

P659,807.00

Deficiency Income Tax (at Normal Rate of 34%)

Basic tax due
Add:

P78,639.00

Surcharge

39,320.00

Interest 43,251.00

We reproduce the narration of facts culled by the CTA en banc 5 as follows:

Petitioner is registered with the Philippine Economic Zone Authority (PEZA)

under Certificate of Registration No. 89-064, duly approved on December
18, 1989. As such, it is engaged in the business of manufacturing garments
for sale abroad.

157,097.00

Interest 188,516.00

FACTS

Petitioner [CS Garment] is a domestic corporation duly organized and

existing under and by virtue of the laws of the Philippines with principal
office at Road A, Cavite Ecozone, Rosario, Cavite. On the other hand,
respondent is the duly appointed Commissioner of Internal Revenue of the
Philippines authorized under law to perform the duties of said office,
including, inter alia, the power to assess taxpayers for [alleged] deficiency
internal revenue tax liabilities and to act upon administrative protests or
requests for reconsideration/reinvestigation of such assessments.
IHCDAS

P314,194.00

Total Amount Payable

P161,210.00

Deficiency Income Tax (at Special Rate of 5%)

Basic tax due
Add:

P742,574.10

Surcharge

Interest 408,416.00
Compromise Penalty

25,000.00

Total Amount Payable

P1,175,990.10

Deficiency DST
Basic tax due

P806.00

Add:

Surcharge

403.00

Interest 484.00

Total Amount Payable

P1,693.00

Income Tax
Deficiency Tax VAT

Deficiency EWT
Basic tax due
Add:

undeclared local sales of P1,541,936.06 (amounting to P41,936.60) was

subjected to income tax at the rate of 34%. The Second Division found that
total tax liability of CS Garments amounted to P2,029,570.12, plus 20%
delinquency interest pursuant to Section 249(C)(3), and computed the
same as follows:

P22,800.00

Surcharge

11,400.00

Interest 13,680.00

Total Amount Payable

P47,880.00

GRAND TOTAL P2,046,580.10

===========
On November 20, 2001, or within the 30-day period prescribed under
Section 228 of the Tax Code, as amended, petitioner filed a formal written
protest with the respondent assailing the above assessments. AIaDcH
On January 11, 2002, or within the sixty-day period after the filing of the
protest, petitioner submitted to the Assessment Division of Revenue
Region No. 9, San Pablo City, additional documents in support of its
protest.
Respondent failed to act with finality on the protest filed by petitioner
within the period of one hundred eighty (180) days from January 11, 2002
or until July 10, 2002. Hence, petitioner appealed before [the CTA] via a
Petition for Review filed on August 6, 2002 or within thirty (30) days from
the last day of the aforesaid 180-day period.
The case was raffled to the Second Division of [the CTA] for decision. After
trial on the merits, the Second Division rendered the Assailed Decision on
January 4, 2007 upon which the Second Division cancelled respondent's
assessment against CS Garments for deficiency expanded withholding
taxes for CY 1998 amounting to P47,880.00, and partially cancelled the
deficiency DST assessment amounting to P1,963.00. However, the Second
Division upheld the validity of the deficiency income tax assessments by
subjecting the disallowed expenses in the amount of P14,851,478.83 and a
portion of the undeclared local sales P1,541,936.60 (amounting to
P1,500,000.00) to income tax at the special rate of 5%. The remainder of

Basic Tax Due

DST

P314,194.00

at 5%

at 34% TOTAL

P145.00

P817,573.94

25% Surcharge 78,548.50

36.25

20% Interest

102.02 422,898.52

188,516.00

P581,258.50
P283.27
P2,029,570.12

204,393.49

P1,789.44

447.36
925.6

P1,444,865.95 P3,162.40

========= =======
==========
======== ===========
On January 29, 2007, CS Garments filed its "Motion for Partial
Reconsideration" of the said decision. On May 25, 2007, in a resolution, the
Second Division denied CS Garments' motion for lack of merit. (Citations
omitted)
Petitioner appealed the case to the CTA en banc and alleged the following:
(1) the Formal Assessment Notices (FAN) issued by the Commissioner of
Internal Revenue (CIR) did not comply with the requirements of the law; (2)
the income generated by CS Garment from its participation in the Cavite
Export Processing Zone's trade fairs and from its sales to employees were
not subject to 10% VAT; (3) the sale of the company vehicle to its general
manager was not subject to 10% VAT; (4) it had no undeclared local sales
in the amount of P1,541,936.60; and (5) Rule XX, Section 2 of the PEZA
Rules and Regulations allowed deductions from the expenses it had
incurred in connection with advertising and representation; clinic and office
supplies; commissions and professional fees; transportation, freight and
handling, and export fees; and licenses and other taxes. CAIHTE
The CTA en banc affirmed the Decision and Resolution of the CTA Second
Division. As regards the first issue, the banc ruled that the CIR had duly
apprised CS Garment of the factual and legal bases for assessing the
latter's liability for deficiency income tax, as shown in the attached
Schedule of Discrepancies provided to petitioner; and in the subsequent
reference of the CIR to Rule XX, Section 2 of the Rules and Regulations of
R.A. 7916. With respect to the second issue, the CTA pronounced that the

income generated by CS Garment from the trade fairs was subject to

internal revenue taxes, as those transactions were considered "domestic
sales" under R.A. 7916, otherwise known as the Special Economic Zone
Act. With respect to the third issue, the CTA en banc declared that the sale
of the motor vehicle by CS Garment to the latter's general manager in the
amount of P1.6 million was subject to VAT, since the sale was considered
an incidental transaction within the meaning of Section 105 of the NIRC. On
the fourth issue, the CTA found that CS Garment had failed to declare the
latter's total local sales in the amount of P1,541,936.60 in its 1998 income
tax return. The tax court then calculated the income tax liability of
petitioner by subjecting P1.5 million of that liability to the preferential
income tax rate of 5%. This amount represented the extent of the authority
of CS Garment, as a PEZA-registered enterprise, to sell in the local market.
The normal income tax rate of 34% was then charged for the excess
amount of P41,936.60. Finally, as regards the fifth issue, the CTA ruled that
Section 2, Rule XX of the PEZA Rules which enumerates the specific
deductions for ECOZONE Export Enterprises does not mention certain
claims of petitioner as allowable deductions.
Aggrieved, CS Garment filed the present Petition for Review assailing the
Decision of the CTA en banc. However, on 26 September 2008, while the
instant case was pending before this Court, petitioner filed a Manifestation
and Motion stating that it had availed itself of the government's tax
amnesty program under the 2007 Tax Amnesty Law. It thus prays that we
take note of its availment of the tax amnesty and confirm that it is entitled
to all the immunities and privileges under the law. It has submitted to this
Court the following documents, which have allegedly been filed with
Equitable PCI Bank-Cavite EPZA Branch, a supposed authorized agent-bank
of the BIR: 6
1.

Notice of Availment of Tax Amnesty under R.A. 9480

2.

Statement of Assets, Liabilities, and Net worth (SALN)

3.

Tax Amnesty Return (BIR Form No. 2116)

4.
Tax Amnesty Payment Form (Acceptance of Payment Form or BIR
Form No. 0617)
5.
Equitable PCI Bank's BIR Payment Form indicating that CS Garment
deposited the amount of P250,000 to the account of the Bureau of
Treasury-BIR TcHEaI
On 26 January 2009, the Office of the Solicitor General (OSG) filed its
Comment objecting to the Manifestation and Motion of CS Garment. 7 The
OSG asserts that the filing of an application for tax amnesty does not by
itself entitle petitioner to the benefits of the law, as the BIR must still
assess whether petitioner was eligible for these benefits and whether all

the conditions for the availment of tax amnesty had been satisfied. Next,
the OSG claims that the BIR is given a one-year period to contest the
correctness of the SALN filed by CS Garment, thus making petitioner's
motion premature. Finally, the OSG contends that pursuant to BIR Revenue
Memorandum Circular No. (RMC) 19-2008, petitioner is disqualified from
enjoying the benefits of the Tax Amnesty Law, since a judgment was
already rendered in favor of the BIR prior to the tax amnesty availment.
The OSG points out that CS Garment submitted its application for tax
amnesty only on 6 March 2008, which was almost two months after the
CTA en banc issued its 14 January 2008 Decision and more than one year
after the CTA Second Division issued its 4 January 2007 Decision.
On 8 February 2010, the Court required both parties to prepare and file
their respective memoranda within 30 days from notice. 8 After this Court
granted the motions for extension filed by the parties, the OSG eventually
filed its Memorandum on 18 May 2010, and CS Garment on 7 June 2010. It
is worthy to note that in its Memorandum, the OSG did not raise any
argument with respect to petitioner's availment of the tax amnesty
program. Neither did the OSG deny the authenticity of the documents
submitted by CS Garments or mention that a case had been filed against
the latter for availing itself of the tax amnesty program, taking into
account the considerable lapse of time from the moment petitioner filed its
Tax Amnesty Return and Statement of Assets, Liabilities, and Net Worth in
2008.
On 17 July 2013, the parties were ordered 9 to "move in the premises" 10
by informing the Court of the status of the tax amnesty availment of
petitioner CS Garment, including any supervening event that may be of
help to the Court in its immediate disposition of the present case.
Furthermore, the parties were directed to indicate inter alia (a) whether CS
Garment had complied with the requirements of the 2007 Tax Amnesty
Law, taking note of the aforementioned documents submitted; (b) whether
a case had been initiated against petitioner, with respect to its availment
of the tax amnesty program; and (c) whether respondent CIR was still
interested in pursuing the case. Petitioner eventually filed its Compliance
11 on 27 August 2013, and the OSG on 29 November 2013. 12 DHacTC
According to the OSG, 13 CS Garment had already complied with all
documentary requirements of the 2007 Tax Amnesty Law. It also stated
that the BIR Litigation Division had not initiated any case against petitioner
relative to the latter's tax amnesty application. However, the OSG
reiterated that the CIR was still interested in pursuing the case.
ISSUE

The threshold question before this Court is whether or not CS Garment is

already immune from paying the deficiency taxes stated in the 1998 tax
assessments of the CIR, as modified by the CTA.
DISCUSSION
Tax amnesty refers to the articulation of the absolute waiver by a sovereign
of its right to collect taxes and power to impose penalties on persons or
entities guilty of violating a tax law. 14 Tax amnesty aims to grant a
general reprieve to tax evaders who wish to come clean by giving them an
opportunity to straighten out their records. 15 In 2007, Congress enacted
R.A. 9480, which granted a tax amnesty covering "all national internal
revenue taxes for the taxable year 2005 and prior years, with or without
assessments duly issued therefor, that have remained unpaid as of
December 31, 2005." 16 These national internal revenue taxes include (a)
income tax; (b) VAT; (c) estate tax; (d) excise tax; (e) donor's tax; (f)
documentary stamp tax; (g) capital gains tax; and (h) other percentage
taxes. 17 Pursuant to Section 6 of the 2007 Tax Amnesty Law, those who
availed themselves of the benefits of the law became "immune from the
payment of taxes, as well as additions thereto, and the appurtenant civil,
criminal or administrative penalties under the National Internal Revenue
Code of 1997, as amended, arising from the failure to pay any and all
internal revenue taxes for taxable year 2005 and prior years."
Amnesty taxpayers may immediately enjoy
the privileges and immunities under the
2007 Tax Amnesty Law, as soon as they
fulfill the suspensive conditions imposed
therein
A careful scrutiny of the 2007 Tax Amnesty Law would tell us that the law
contains two types of conditions one suspensive, the other resolutory.
Borrowing from the concepts under our Civil Code, a condition may be
classified as suspensive when the fulfillment of the condition results in the
acquisition of rights. On the other hand, a condition may be considered
resolutory when the fulfillment of the condition results in the
extinguishment of rights. In the context of tax amnesty, the rights referred
to are those arising out of the privileges and immunities granted under the
applicable tax amnesty law.
The imposition of a suspensive condition under the 2007 Tax Amnesty Law
is evident from the following provisions of the law: ISEHTa
2007 Tax Amnesty Law Republic Act No. 9480

SECTION 2.
Availment of the Amnesty. Any person, natural or
juridical, who wishes to avail himself of the tax amnesty authorized and
granted under this Act shall file with the Bureau of Internal Revenue (BIR) a
notice and Tax Amnesty Return accompanied by a Statement of Assets,
Liabilities and Networth (SALN) as of December 31, 2005, in such form as
may be prescribed in the implementing rules and regulations (IRR) of this
Act, and pay the applicable amnesty tax within six months from the
effectivity of the IRR.
SECTION 4.
Presumption of Correctness of the SALN. The SALN as of
December 31, 2005 shall be considered as true and correct except where
the amount of declared networth is understated to the extent of thirty
percent (30%) or more as may be established in proceedings initiated by,
or at the instance of, parties other than the BIR or its agents: Provided,
That such proceedings must be initiated within one year following the date
of the filing of the tax amnesty return and the SALN. Findings of or
admission in congressional hearings, other administrative agencies of
government, and/or courts shall be admissible to prove a thirty percent
(30%) under-declaration.
SECTION 6.
Immunities and Privileges. Those who availed
themselves of the tax amnesty under Section 5 hereof, and have fully
complied with all its conditions shall be entitled to the following immunities
and privileges:
(a)
The taxpayer shall be immune from the payment of taxes, as well
as additions thereto, and the appurtenant civil, criminal or administrative
penalties under the National Internal Revenue Code of 1997, as amended,
arising from the failure to pay any and all internal revenue taxes for
taxable year 2005 and prior years.
(b)
The taxpayer's Tax Amnesty Return and the SALN as of December
31, 2005 shall not be admissible as evidence in all proceedings that pertain
to taxable year 2005 and prior years, insofar as such proceedings relate to
internal revenue taxes, before judicial, quasi-judicial or administrative
bodies in which he is a defendant or respondent, and except for the
purpose of ascertaining the networth beginning January 1, 2006, the same
shall not be examined, inquired or looked into by any person or
government office. However, the taxpayer may use this as a defense,
whenever appropriate, in cases brought against him.
(c)
The books of accounts and other records of the taxpayer for the
years covered by the tax amnesty availed of shall not be examined:
Provided, That the Commissioner of Internal Revenue may authorize in
writing the examination of the said books of accounts and other records to
verify the validity or correctness of a claim for any tax refund, tax credit

(other than refund or credit of taxes withheld on wages), tax incentives,

and/or exemptions under existing laws.
All these immunities and privileges shall not apply where the person failed
to file a SALN and the Tax Amnesty Return, or where the amount of
networth as of December 31, 2005 is proven to be understated to the
extent of thirty percent (30%) or more, in accordance with the provisions of
Section 3 hereof.
SECTION 7.
When and Where to File and Pay. The filing of the Tax
Amnesty Return and the payment of the amnesty tax for those availing
themselves of the tax amnesty shall be made within six months starting
from the effectivity of the IRR. It shall be filed at the office of the Revenue
District Officer which has jurisdiction over the legal residence or principal
place of business of the filer. The Revenue District Officer shall issue an
acceptance of payment form authorizing an authorized agent bank, or in
the absence thereof, the collection agent or municipal treasurer concerned,
to accept the amnesty tax payment. ESCcaT
Department of Finance Order No. 29-07: Rules and Regulations to
Implement R.A. 9480
SECTION 6.

Method of Availment of Tax Amnesty.

xxx

xxx

xxx

3.
Payment of Amnesty Tax and Full Compliance. Upon filing of the
Tax Amnesty Return in accordance with Sec. 6 (2) hereof, the taxpayer
shall pay the amnesty tax to the authorized agent bank or in the absence
thereof, the Collection Agent or duly authorized Treasurer of the city or
municipality in which such person has his legal residence or principal place
of business.
The RDO shall issue sufficient Acceptance of Payment Forms, as may be
prescribed by the BIR for the use of or to be accomplished by the
bank, the collection agent or the Treasurer, showing the acceptance of the
amnesty tax payment. In case of the authorized agent bank, the branch
manager or the assistant branch manager shall sign the acceptance of
payment form.
The Acceptance of Payment Form, the Notice of Availment, the SALN, and
the Tax Amnesty Return shall be submitted to the RDO, which shall be
received only after complete payment. The completion of these
requirements shall be deemed full compliance with the provisions of R.A.
9480. (Emphases supplied)
In availing themselves of the benefits of the tax amnesty program,
taxpayers must first accomplish the following forms and prepare them for
submission: (1) Notice of Availment of Tax Amnesty Form; (2) Tax Amnesty

Return Form (BIR Form No. 2116); (3) Statement of Assets, Liabilities and
Net worth (SALN) as of December 31, 2005; and (4) Tax Amnesty Payment
Form (Acceptance of Payment Form or BIR Form No. 0617). 18 TEAcCD
The taxpayers must then compute the amnesty tax due in accordance with
the rates provided in Section 5 of the law, 19 using as tax base their net
worth as of 31 December 2005 as declared in their SALNs. At their option,
the revenue district office (RDO) of the BIR may assist them in
accomplishing the forms and computing the taxable base and the amnesty
tax due. 20 The RDO, however, is disallowed from looking into, questioning
or examining the veracity of the entries contained in the Tax Amnesty
Return, SALN, and other documents they have submitted. 21 Using the Tax
Amnesty Payment Form, the taxpayers must make a complete payment of
the computed amount to an authorized agent bank, a collection agent, or a
duly authorized treasurer of the city or municipality. 22
Thereafter, the taxpayers must file with the RDO or an authorized agent
bank the (1) Notice of Availment of Tax Amnesty Form; (2) Tax Amnesty
Return Form (BIR Form No. 2116); (3) SALN; and (4) Tax Amnesty Payment
Form. 23 The RDO shall only receive these documents after complete
payment is made, as shown in the Tax Amnesty Payment Form. 24 It must
be noted that the completion of these requirements "shall be deemed full
compliance with the provisions of R.A. 9480." 25 In our considered view,
this rule means that amnesty taxpayers may immediately enjoy the
privileges and immunities under the 2007 Tax Amnesty Law as soon as the
aforementioned documents are duly received.
The OSG has already confirmed 26 to this Court that CS Garment has
complied with all of the documentary requirements of the law.
Consequently, and contrary to the assertion of the OSG, no further
assessment by the BIR is necessary. CS Garment is now entitled to invoke
the immunities and privileges under Section 6 of the law.
Similarly, we reject the contention of OSG that the BIR was given a oneyear period to contest the correctness of the SALN filed by CS Garment,
thus making petitioner's motion premature. Neither the 2007 Tax Amnesty
Law nor Department of Finance (DOF) Order No. 29-07 (Tax Amnesty Law
IRR) imposes a waiting period of one year before the applicant can enjoy
the benefits of the Tax Amnesty Law. It can be surmised from the cited
provisions that the law intended the immediate enjoyment of the
immunities and privileges of tax amnesty upon fulfilment of the
requirements. Further, a reading of Sections 4 and 6 of the 2007 Tax
Amnesty Law shows that Congress has adopted a "no questions asked"
policy, so long as all the requirements of the law and the rules are
satisfied. The one-year period referred to in the law should thus be
considered only as a prescriptive period within which third parties,

meaning "parties other than the BIR or its agents," can question the SALN
not as a waiting period during which the BIR may contest the SALN and
the taxpayer prevented from enjoying the immunities and privileges under
the law.

Withholding agents with respect to their withholding tax liabilities

Those with pending cases:

Under the jurisdiction of the PCGG

This clarification, however, does not mean that the amnesty taxpayers
would go scot-free in case they substantially understate the amounts of
their net worth in their SALN. The 2007 Tax Amnesty Law imposes a
resolutory condition insofar as the enjoyment of immunities and privileges
under the law is concerned. Pursuant to Section 4 of the law, third parties
may initiate proceedings contesting the declared amount of net worth of
the amnesty taxpayer within one year following the date of the filing of the
tax amnesty return and the SALN. Section 6 then states that "All these
immunities and privileges shall not apply . . . where the amount of
networth as of December 31, 2005 is proven to be understated to the
extent of thirty percent (30%) or more, in accordance with the provisions of
Section 3 hereof." Accordingly, Section 10 provides that amnesty taxpayers
who willfully understate their net worth shall be (a) liable for perjury under
the Revised Penal Code; and (b) subject to immediate tax fraud
investigation in order to collect all taxes due and to criminally prosecute
those found to have willfully evaded lawful taxes due.

Involving violations of the Anti-Graft and Corrupt Practices Act

Involving violations of the Anti-Money Laundering Law

Nevertheless, in this case we note that the OSG has already indicated 27
that the CIR had not filed a case relative to the tax amnesty application of
CS Garment, from the time the documents were filed in March 2008.
Neither did the OSG mention that a third party had initiated proceedings
challenging the declared amount of net worth of the amnesty taxpayer
within the one-year period. HDTcEI
Taxpayers with pending tax cases are still
qualified to avail themselves of the tax
amnesty program.

A BASIC GUIDE ON THE TAX AMNESTY ACT OF 2007

The following is a basic guide for taxpayers who wish to avail of tax
amnesty pursuant of Republic Act No. 9480 (Tax Amnesty Act of 2007).
Who may avail of the amnesty?

EXCEPT:

xxx

Issues and cases which were ruled by any court (even without
finality) in favor of the BIR prior to amnesty availment of the taxpayer.
(e.g., Taxpayers who have failed to observe or follow BOI and/or PEZA rules
on entitlement to Income Tax Holiday Incentives and other incentives)
Cases involving issues ruled with finality by the Supreme Court
prior to the effectivity of R.A. 9480 (e.g., DST on Special Savings Account)
Taxes passed-on and collected from customers for remittance to
the BIR
Delinquent Accounts/Accounts Receivable considered as assets of
the BIR/Government, including self-assessed tax (Emphasis supplied)
To resolve the matter, we refer to the basic text of the Tax Amnesty Law
and its implementing rules and regulations, viz.: aACEID
Republic Act No. 9480
SECTION 8.
Exceptions. The tax amnesty provided in Section 5
hereof shall not extend to the following persons or cases existing as of the
effectivity of this Act:
xxx
(f)

With respect to its last assertion, the OSG quotes the following guidelines
under BIR RMC 19-2008 to establish that CS Garment is disqualified from
availing itself of the tax amnesty program: 28

xxx

For tax evasion and other criminal offenses under the NIRC and/or
the RPC

xxx

xxx

xxx

Tax cases subject of final and executory judgment by the courts.

DOF Order No. 29-07: Rules and Regulations to Implement R.A. 9480
SECTION 5.
Exceptions. The tax amnesty shall not extend to the
following persons or cases existing as of the effectivity of R.A. 9480:
xxx

xxx

xxx

7.
Tax cases subject of final and executory judgment by the courts.
(Emphases supplied)
We cull from the aforementioned provisions that neither the law nor the
implementing rules state that a court ruling that has not attained finality
would preclude the availment of the benefits of the Tax Amnesty Law. Both
R.A. 9480 and DOF Order No. 29-07 are quite precise in declaring that

"[t]ax cases subject of final and executory judgment by the courts" are the
ones excepted from the benefits of the law. In fact, we have already
pointed out the erroneous interpretation of the law in Philippine Banking
Corporation (Now: Global Business Bank, Inc.) v. Commissioner of Internal
Revenue, viz.:

CANCELLED solely in the light of the availment by CS Garment, Inc. of the

tax amnesty program under Republic Act No. 9480.

The BIR's inclusion of "issues and cases which were ruled by any court
(even without finality) in favor of the BIR prior to amnesty availment of the
taxpayer" as one of the exceptions in RMC 19-2008 is misplaced. RA 9480
is specifically clear that the exceptions to the tax amnesty program include
"tax cases subject of final and executory judgment by the courts." The
present case has not become final and executory when Metrobank availed
of the tax amnesty program. 29 (Emphasis supplied)

Footnotes

While tax amnesty, similar to a tax exemption, must be construed strictly

against the taxpayer and liberally in favor of the taxing authority, 30 it is
also a well-settled doctrine 31 that the rule-making power of administrative
agencies cannot be extended to amend or expand statutory requirements
or to embrace matters not originally encompassed by the law.
Administrative regulations should always be in accord with the provisions
of the statute they seek to carry into effect, and any resulting
inconsistency shall be resolved in favor of the basic law. We thus
definitively declare that the exception "[i]ssues and cases which were ruled
by any court (even without finality) in favor of the BIR prior to amnesty
availment of the taxpayer" under BIR RMC 19-2008 is invalid, as the
exception goes beyond the scope of the provisions of the 2007 Tax
Amnesty Law. 32
Considering the completion of the aforementioned requirements, we find
that petitioner has successfully availed itself of the tax amnesty benefits
granted under the Tax Amnesty Law. Therefore, we no longer see any need
to further discuss the issue of the deficiency tax assessments. CS Garment
is now deemed to have been absolved of its obligations and is already
immune from the payment of taxes including the assessed deficiency in
the payment of VAT, DST, and income tax as affirmed by the CTA en banc
as well as of the additions thereto (e.g., interests and surcharges).
Furthermore, the tax amnesty benefits include immunity from "the
appurtenant civil, criminal, or administrative penalties under the NIRC of
1997, as amended, arising from the failure to pay any and all internal
revenue taxes for taxable year 2005 and prior years." 33 ISAcHD
WHEREFORE, the instant Petition for Review is GRANTED. The 14 January
2008 Decision and 2 April 2008 Resolution of the Court of Tax Appeals en
banc in CTA EB Case No. 287 is hereby SET ASIDE, and the remaining
assessments for deficiency taxes for taxable year 1998 are hereby

SO ORDERED.
Leonardo-de Castro, Bersamin, Villarama, Jr. and Reyes, JJ., concur.

*
The case title indicated in the petition filed with this Court was
followed. According to petitioner, its corporate name under its Articles of
Incorporation is "CS Garment, Inc." and not "CS Garments, Inc.," as
previously referred to in the proceedings before the Court of Tax Appeals.
See Petition for Review at 1, f.n. 1 (filed on 23 May 2008), rollo at 10.
1.
CS Garments, Inc. v. Commissioner of Internal Revenue, EB Case
No. 287 (CTA en banc, 14 January 2008), slip op., rollo at 40-62 (hereinafter
CTA en banc Decision).
2.
CS Garments, Inc. v. Commissioner of Internal Revenue, EB Case
No. 287 (CTA en banc, 2 April 2008), slip op., rollo at 37-39 (hereinafter
CTA en banc Resolution). Both the Decision and the Resolution of the CTA
en banc were penned by CTA Associate Justice Caesar A. Casanova and
concurred in by Justices Ernesto D. Acosta, Juanito C. Castaeda, Jr., Lovell
R. Bautista, Erlinda P. Uy, and Olga Palanca-Enriquez.
3.
CS Garments, Inc. v. Commissioner of Internal Revenue, CTA Case
No. 6520 (CTA 2nd Div., 4 January 2007), slip op., rollo at 63-94
(hereinafter CTA 2nd Div. Decision).
4.
CS Garments, Inc. v. Commissioner of Internal Revenue, CTA Case
No. 6520 (CTA 2nd Div., 25 May 2007), slip op., rollo at 95-97 (hereinafter
CTA Sec. 2nd Div. Resolution). Both the Decision and the Resolution of the
CTA Second Division were penned by CTA Associate Justice Juanito C.
Castaeda, Jr. and concurred in by Justices Erlinda P. Uy and Olga PalancaEnriquez.
5.

CTA en banc Decision, supra note 1, at 2-5, rollo at 41-44.

6.
Annexes A to E of CS Garment's Manifestation and Motion dated 25
September 2008, rollo at 171-175.
7.
Comment (on Petitioner's Manifestation and Motion dated
September 25, 2008) of the OSG (filed on 26 January 2009), rollo at 212220.
8.

Order dated 8 February 2010, rollo at 229-230.

9.

Order dated 17 July 2013, rollo at 321-323.

10.
To clarify, an order to "move in the premises," which is a term of
art employed in this Court, simply means that the parties are obliged to
inform the Court of pertinent developments that may help in the
immediate disposition of the case. See Oliveras v. Lopez, G.R. No. L-29727,
14 December 1988, 168 SCRA 431.
11.

Rollo at 324-352.

12.

Id. at 366-374.

13.

Compliance (filed on 29 November 2013) at 2, rollo at 367.

14.
Metropolitan Bank and Trust Co. v. Commissioner of Internal
Revenue, G.R. No. 178797, 4 August 2009, 595 SCRA 234; and Philippine
Banking Corporation (Now: Global Business Bank, Inc.) v. Commissioner of
Internal Revenue, G.R. No. 170574, 30 January 2009, 577 SCRA 366.
15.

Id.

16.

R.A. 9480, Sec. 1.

17.
BIR Revenue Memorandum Circular (RMC) No. 19-2008, 22
February 2008.
18.
See R.A. 9480, Sec. 2; Department of Finance Department Order
No. (DOF D.O.) 29-07, Rule II, Sec. 6 (1) (Implementing Rules and
Regulations of R.A. 9480); BIR RMC No. 19-2008, 22 February 2008; and
BIR RMC NO. 69-2007, 5 November 2007.
19.
R.A. 9480, Sec. 5 provides: Grant of Tax Amnesty. Except for the
persons or cases covered in Section 8 hereof, any person, whether natural
or juridical, may avail himself of the benefits of tax amnesty under this Act,
and pay the amnesty tax due thereon, based on his networth as of
December 31, 2005 as declared in the SALN as of said period, in
accordance with the following schedule of amnesty tax rates and minimum
amnesty tax payments required: . . .
20.
DOF D.O. 29-07, Rule II, Sec. 6 (2) (c); BIR RMC No. 19-2008, 22
February 2008.
21.

DOF D.O. 29-07, Rule II, Sec. 6 (2) (c). See R.A. 9480, Sec. 6.

22.
DOF D.O. 29-07, Rule II, Sec. 6 (3); R.A. 9480, Secs. 2 & 7; and BIR
RMC NO. 69-2007, 5 November 2007.
23.
See R.A. 9480, Sec. 2; DOF D.O. 29-07, Rule II, Sec. 6 (1); BIR RMC
No. 19-2008, 22 February 2008; and BIR RMC NO. 69-2007, 5 November
2007.
24.

DOF D.O. 29-07, Rule II, Sec. 6 (3).

25.
DOF D.O. 29-07, Rule II, Sec. 6 (3); Philippine Banking Corporation
v. Commissioner of Internal Revenue, supra note 14. See R.A. 9480, Sec. 2
in relation to Sec. 6.
26.

Compliance (filed on 29 November 2013) at 2, rollo at 367.

27.

Compliance (filed on 29 November 2013) at 2, rollo at 367.

28.

BIR RMC 19-2008, 22 February 2008.

29.

Supra note 14.

30.
Metropolitan Bank and Trust Co. v. Commissioner of Internal
Revenue, G.R. No. 178797, 4 August 2009, 595 SCRA 234 (citing Philippine
Banking Corporation, supra note 14).
31.
People v. Maceren, G.R. No. L-32166, 18 October 1977, 79 SCRA
450 (citing Calalang v. Williams, 70 Phil. 726 [1940]; People v. Rosenthal,
68 Phil. 328 [1939]; U.S. v. Tupasi Molina, 29 Phil. 119 [1914]; Santos v.
Estenzo, 109 Phil. 419 [1960]; Teoxon v. Members of the Board of
Administrators, G.R. No. L-25619, 30 June 1970, 33 SCRA 585; Manuel v.
General Auditing Office, G.R. No. L-28952, 29 December 1971, 42 SCRA
660; Deluao v. Casteel, G.R. No. L-21906, 29 August 1969, 29 SCRA 350;
University of Santo Tomas v. Board of Tax Appeals, 93 Phil. 376 [1953]; El
Colector de Rentas Internas v. Villaflor, 69 Phil. 319 [1940]; Wise & Co. v.
Meer, 78 Phil. 655 [1947]; and Del Mar v. Phil. Veterans Administration,
G.R. No. L-27299, 27 June 1973, 51 SCRA 340); Land Bank of the
Philippines v. Court of Appeals, G.R. Nos. 118712 and 118745, 05 July
1996, 258 SCRA 404 (citing Shell Philippines, Inc. v. Central Bank of the
Philippines, 162 SCRA 628 [1988]; Philippine Petroleum Corporation v.
Municipality of Pililla, 198 SCRA 82 [1991]; and Tayug Rural Bank v. Central
Bank, 146 SCRA 120 [1986]).
32.
In Philippine Banking Corporation (supra note 14), we ruled that
the BIR was "misplaced" in including in RMC 19-2008 as one of the
exceptions those "issues and cases which were ruled by any court (even
without finality) in favor of the BIR prior to amnesty availment of the
taxpayer." Since in that case the bank availed itself of the tax amnesty
program before the judgment against it had become "final and executory,"
we resolved to set aside the CTA Decision; see also Metropolitan Bank and
Trust Co. v. Commissioner of Internal Revenue, G.R. No. 178797, 4 August
2009, 595 SCRA 234.
33.

R.A. 9480, Sec. 6 (a).

THIRD DIVISION

VISAYAS GEOTHERMAL POWER COMPANY, petitioner, vs. COMMISSIONER

OF INTERNAL REVENUE, respondent.

SIX HUNDRED NINETY NINE THOUSAND THREE HUNDRED SIXTY SIX PESOS
AND 37/100 (P7,699,366.37) representing unutilized input VAT paid on
domestic purchases of non-capital goods and services, services rendered
by non-residents, and importations of non-capital goods for the first to
fourth quarters of taxable year 2005.

DECISION

SO ORDERED. 4

MENDOZA, J p:

The CTA Second Division found that only the amount of PhP7,699,366.37
was duly substantiated by the required evidence. As to the timeliness of
the filing of the judicial claim, the Court ruled that following the case of
Commissioner of Internal Revenue (CIR) v. Mirant Pagbilao Corporation
(Mirant), 5 both the administrative and judicial claims were filed within the
two-year prescriptive period provided in Section 112 (A) of the National
Internal Revenue Code of 1997 (NIRC), the reckoning point of the period
being the close of the taxable quarter when the sales were made. DASCIc

[G.R. No. 197525. June 4, 2014.]

Before the Court is a petition for review on certiorari under Rule 45 of the
Rules of Court assailing the February 7, 2011 Decision 1 and the June 27,
2011 Resolution 2 of the Court of Tax Appeals En Banc (CTA En Banc), in
CTA EB Case Nos. 561 and 562, which reversed and set aside the April 17,
2009 Decision of the CTA Second Division in CTA Case No. 7559. HcDATC
The Facts:
Petitioner Visayas Geothermal Power Company (VGPC) is a special limited
partnership duly organized and existing under Philippine Laws with its
principal office at Milagro, Ormoc City, Province of Leyte. It is principally
engaged in the business of power generation through geothermal energy
and the sale of generated power to the Philippine National Oil Company
(PNOC), pursuant to the Energy Conversion Agreement.
VGPC filed with the Bureau of Internal Revenue (BIR) its Original Quarterly
VAT Returns for the first to fourth quarters of taxable year 2005 on April 25,
2005, July 25, 2005, October 25, 2006, and January 20, 2006, respectively.
On December 6, 2006, it filed an administrative claim for refund for the
amount of PhP14,160,807.95 with the BIR District Office No. 89 of Ormoc
City on the ground that it was entitled to recover excess and unutilized
input VAT payments for the four quarters of taxable year 2005, pursuant to
Republic Act (R.A.) No. 9136, 3 which treated sales of generated power
subject to VAT to a zero percent (0%) rate starting June 26, 2001. ETIDaH
Nearly one month later, on January 3, 2007, while its administrative claim
was pending, VGPC filed its judicial claim via a petition for review with the
CTA praying for a refund or the issuance of a tax credit certificate in the
amount of PhP14,160,807.95, covering the four quarters of taxable year
2005.
In its April 17, 2009 Decision, the CTA Second Division partially granted the
petition as follows:
WHEREFORE, in view of the foregoing considerations, the Petition for
Review is hereby PARTIALLY GRANTED. Accordingly, respondent is
ORDERED TO REFUND or, in the alternative, TO ISSUE A TAX CREDIT
CERTIFICATE in favor of petitioner the reduced amount of SEVEN MILLION

In its October 29, 2009 Resolution, 6 the CTA Second Division denied the
separate motions for partial reconsideration filed by VGPC and the CIR.
Thus, both VGPC and the CIR appealed to the CTA En Banc.
In the assailed February 7, 2011 Decision, 7 the CTA En Banc reversed and
set aside the decision and resolution of the CTA Second Division, and
dismissed the original petition for review for having been filed prematurely,
to wit:
WHEREFORE, premises considered:
i.
As regards CTA EB Case No. 562, the Petition for Review is hereby
DISMISSED; and
ii.
As regards CTA EB Case No. 561, the Petition for Review is hereby
GRANTED.
Accordingly, the Decision, dated April 17, 2009, and the Resolution, dated
October 29, 2009, of the CTA Former Second Division are hereby
REVERSED and SET ASIDE, and another one is hereby entered DISMISSING
the Petition for Review filed in CTA Case No. 7559 for having been filed
prematurely.
SO ORDERED. 8 ScEaAD
The CTA En Banc explained that although VGPC seasonably filed its
administrative claim within the two-year prescriptive period, its judicial
claim filed with the CTA Second Division was prematurely filed under
Section 112 (D) of the National Internal Revenue Code (NIRC). Citing the
case of CIR v. Aichi Forging Company of Asia, Inc. (Aichi), 9 the CTA En
Banc held that the judicial claim filed 28 days after the petitioner filed its
administrative claim, without waiting for the expiration of the 120-day

period, was premature and, thus, the CTA acquired no jurisdiction over the
case.
The VGPC filed a motion for reconsideration, but the CTA En Banc denied it
in the assailed June 27, 2011 Resolution for lack of merit. It stated that the
case of Atlas Consolidated Mining v. CIR (Atlas) 10 relied upon by the
petitioner had long been abandoned. IcHSCT
Hence, this petition.
ASSIGNMENT OF ERRORS
I
The CTA En Banc erred in finding that the 120-day and 30-day periods
prescribed under Section 112(D) of the 1997 Tax Code are jurisdictional
and mandatory in the filing of the judicial claim for refund. The CTADivision should take cognizance of the judicial appeal as long as it is filed
with the two-year prescriptive period under Section 229 of the 1997 Tax
Code. TICDSc
II
The CTA En Banc erred in finding that Aichi prevails over and/or overturned
the doctrine in Atlas, which upheld the primacy of the two-year period
under Section 229 of the Tax Code. The law and jurisprudence have long
established the doctrine that the taxpayer is duty-bound to observe the
two-year period under Section 229 of the Tax Code when filing its claim for
refund of excess and unutilized VAT.
III
The CTA En Banc erred in finding that Respondent CIR is not estopped from
questioning the jurisdiction of the CTA. Respondent CIR, by her actions and
pronouncements, should have been precluded from questioning the
jurisdiction of the CTA-Division.
IV
The CTA En Banc erred in applying Aichi to Petitioner VGPC's claim for
refund. The novel interpretation of the law in Aichi should not be made to
apply to the present case for being contrary to existing jurisprudence at
the time Petitioner VGPC filed its administrative and judicial claims for
refund. 11 CaATDE
Petitioner VGPC argues that (1) the law and jurisprudence have long
established the rule regarding compliance with the two-year prescriptive
period under Section 112 (D) in relation to Section 229 of the 1997 Tax
Code; (2) Aichi did not overturn the doctrine in Atlas, which upheld the
primacy of the two-year period under Section 229; (3) respondent CIR is

estopped from questioning the jurisdiction of the CTA and Aichi cannot be
indiscriminately applied to all VAT refund cases; (4) applying Aichi
invariably to all VAT refund cases would effectively grant respondent CIR
unbridled discretion to deprive a taxpayer of the right to effectively seek
judicial recourse, which clearly violates the standards of fairness and
equity; and (5) the novel interpretation of the law in Aichi should not be
made to apply to the present case for being contrary to existing
jurisprudence at the time VGPC filed its administrative and judicial claims
for refund. Aichi should be applied prospectively.
Ruling of the Court
Judicial claim not premature
The assignment of errors is rooted in the core issue of whether the
petitioner's judicial claim for refund was prematurely filed. ESCTIA
Two sections of the NIRC are pertinent to the issue at hand, namely Section
112 (A) and (D) and Section 229, 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 tax credit certificate or refund of
creditable input tax due or paid attributable to such sales, except
transitional input tax, to the extent that such input tax has not been
applied against output tax: Provided, however, That in the case of zerorated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)
(1) and (2), the acceptable foreign currency exchange proceeds thereof
had been duly accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the
taxpayer is engaged in zero-rated or effectively zero-rated sale and also in
taxable or exempt sale of goods of 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. IDcHCS
xxx

xxx

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. TSADaI
SEC. 229.
Recovery of Tax Erroneously or Illegally Collected. No
suit or proceeding shall be maintained in any court for the recovery of any
national internal revenue tax hereafter alleged to have been erroneously or
illegally assessed or collected, or of any penalty claimed to have been
collected without authority, of any sum alleged to have been excessively or
in any manner wrongfully collected without authority, or of any sum
alleged to have been excessively or in any manner wrongfully collected,
until a claim for refund or credit has been duly filed with the Commissioner;
but such suit or proceeding may be maintained, whether or not such tax,
penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of
two (2) years from the date of payment of the tax or penalty regardless of
any supervening cause that may arise after payment: Provided, however,
That the Commissioner may, even without a written claim therefor, refund
or credit any tax, where on the face of the return upon which payment was
made, such payment appears clearly to have been erroneously paid.
[Emphases supplied]
It has been definitively settled in the recent En Banc case of CIR v. San
Roque Power Corporation (San Roque), 12 that it is Section 112 of the NIRC
which applies to claims for tax credit certificates and tax refunds arising
from sales of VAT-registered persons that are zero-rated or effectively zerorated, which are, simply put, claims for unutilized creditable input VAT.
DHaECI
Thus, under Section 112 (A), the taxpayer may, within 2 years after the
close of the taxable quarter when the sales were made, via an
administrative claim with the CIR, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such
sales. Under Section 112 (D), the CIR must then act on the claim within
120 days from the submission of the taxpayer's complete documents. In
case of (a) a full or partial denial by the CIR of the claim, or (b) the CIR's
failure to act on the claim within 120 days, the taxpayer may file a judicial
claim via an appeal with the CTA of the CIR decision or unacted claim,
within 30 days (a) from receipt of the decision; or (b) after the expiration of
the 120-day period.

The 2-year period under Section 229 does not apply to appeals before the
CTA in relation to claims for a refund or tax credit for unutilized creditable
input VAT. Section 229 pertains to the recovery of taxes erroneously,
illegally, or excessively collected. 13 San Roque stressed that "input VAT is
not 'excessively' collected as understood under Section 229 because, at
the time the input VAT is collected, the amount paid is correct and proper."
14 It is, therefore, Section 112 which applies specifically with regard to
claiming a refund or tax credit for unutilized creditable input VAT. 15 EITcaH
Upholding the ruling in Aichi, 16 San Roque held that the 120+30 day
period prescribed under Section 112 (D) mandatory and jurisdictional. 17
The jurisdiction of the CTA over decisions or inaction of the CIR is only
appellate in nature and, thus, necessarily requires the prior filing of an
administrative case before the CIR under Section 112. 18 The CTA can only
acquire jurisdiction over a case after the CIR has rendered its decision, or
after the lapse of the period for the CIR to act, in which case such inaction
is considered a denial. 19 A petition filed prior to the lapse of the 120-day
period prescribed under said Section would be premature for violating the
doctrine on the exhaustion of administrative remedies. 20 AcSCaI
There is, however, an exception to the mandatory and jurisdictional nature
of the 120+30 day period. The Court in San Roque noted that BIR Ruling
No. DA-489-03, dated December 10, 2003, expressly stated that the
"taxpayer-claimant need not wait for the lapse of the 120-day period
before it could seek judicial relief with the CTA by way of Petition for
Review." 21 This BIR Ruling was recognized as a general interpretative rule
issued by the CIR under Section 4 22 of the NIRC and, thus, applicable to
all taxpayers. Since the CIR has exclusive and original jurisdiction to
interpret tax laws, it was held that taxpayers acting in good faith should
not be made to suffer for adhering to such interpretations. Section 246 23
of the Tax Code, in consonance with equitable estoppel, expressly provides
that a reversal of a BIR regulation or ruling cannot adversely prejudice a
taxpayer who in good faith relied on the BIR regulation or ruling prior to its
reversal. Hence, taxpayers can rely on BIR Ruling No. DA-489-03 from the
time of its issuance on December 10, 2003 up to its reversal by this Court
in Aichi on October 6, 2010, where it was held that the 120+30 day period
was mandatory and jurisdictional.
Accordingly, the general rule is that the 120+30 day period is mandatory
and jurisdictional from the effectivity of the 1997 NIRC on January 1, 1998,
up to the present. As an exception, judicial claims filed from December 10,
2003 to October 6, 2010 24 need not wait for the exhaustion of the 120day period. CSIHDA
A review of the facts of the present case reveals that petitioner VGPC
timely filed its administrative claim with the CIR on December 6, 2006, and

later, its judicial claim with the CTA on January 3, 2007. The judicial claim
was clearly filed within the period of exception and was, therefore, not
premature and should not have been dismissed by the CTA En Banc.
In the present petition, VGPC prays that the Court grant its claim for refund
or the issuance of a tax credit certificate for its unutilized input VAT in the
amount of PhP14,160,807.95. The CTA Second Division, however, only
awarded the amount of PhP7,699,366.37. The petitioner has failed to
present any argument to support its entitlement to the former amount.
IcHDCS
In any case, the Court would have been precluded from considering the
same as such would require a review of the evidence, which would
constitute a question of fact outside the Court's purview under Rule 45 of
the Rules of Court. The Court, thus, finds that the petitioner is entitled to
the refund awarded to it by the CTA Second Division in the amount of
PhP7,699,366.37.
Atlas doctrine has no relevance
to the 120+30 day period for
filing judicial claim
Although the core issue of prematurity of filing has already been resolved,
the Court deems it proper to discuss the petitioner's argument that the
doctrine in Atlas, which allegedly upheld the primacy of the 2-year
prescriptive period under Section 229, should prevail over the ruling in
Aichi regarding the mandatory and jurisdictional nature of the 120+30 day
period in Section 112.
In this regard, it was thoroughly explained in San Roque that the Atlas
doctrine only pertains to the reckoning point of the 2-year prescriptive
period from the date of payment of the output VAT under Section 229, and
has no relevance to the 120+30 day period under Section 112, to wit:
The Atlas doctrine, which held that claims for refund or credit of input VAT
must comply with the two-year prescriptive period under Section 229,
should be effective only from its promulgation on 8 June 2007 until its
abandonment on 12 September 2008 in Mirant. The Atlas doctrine was
limited to the reckoning of the two-year prescriptive period from the date
of payment of the output VAT. Prior to the Atlas doctrine, the two-year
prescriptive period for claiming refund or credit of input VAT should be
governed by Section 112(A) following the verba legis rule. The Mirant
ruling, which abandoned the Atlas doctrine, adopted the verba legis rule,
thus applying Section 112(A) in computing the two-year prescriptive period
in claiming refund or credit of input VAT. EcSaHA

The Atlas doctrine has no relevance to the 120+30 day periods under
Section 112(C) because the application of the 120+30 day periods was not
in issue in Atlas. The application of the 120+30 day periods was first raised
in Aichi, which adopted the verba legis rule in holding that the 120+30 day
periods are mandatory and jurisdictional. The language of Section 112(C) is
plain, clear, and unambiguous. When Section 112(C) states that "the
Commissioner shall grant a refund or issue the tax credit within one
hundred twenty (120) days from the date of submission of complete
documents," the law clearly gives the Commissioner 120 days within which
to decide the taxpayer's claim. Resort to the courts prior to the expiration
of the 120-day period is a patent violation of the doctrine of exhaustion of
administrative remedies, a ground for dismissing the judicial suit due to
prematurity. Philippine jurisprudence is awash with cases affirming and
reiterating the doctrine of exhaustion of administrative remedies. Such
doctrine is basic and elementary. 25
[Underscoring supplied]
Thus, Atlas is only relevant in determining when to file an administrative
claim with the CIR for refund or credit of unutilized creditable input VAT,
and not for determining when to file a judicial claim with the CTA. From
June 8, 2007 to September 12, 2008, the 2-year prescriptive period to file
administrative claims should be counted from the date of payment of the
output VAT tax. Before and after said period, the 2-year prescriptive period
is counted from the close of the taxable quarter when the sales were
made, in accordance with Section 112 (A). In either case, the mandatory
and jurisdictional 120+30 day period must be complied with for the filing
of the judicial claim with the CTA, except for the period provided under BIR
Ruling No. DA-489-03, as previously discussed. IHCESD
The Court further noted that Atlas was decided in relation to the 1977 Tax
Code which had not yet provided for the 30-day period for the taxpayer to
appeal to the CTA from the decision or inaction of the CIR over claims for
unutilized input VAT. Clearly then, the Atlas doctrine cannot be invoked to
disregard compliance with the 120+30 day mandatory and jurisdictional
period. 26 In San Roque, it was written:
The old rule that the taxpayer may file the judicial claim, without waiting
for the Commissioner's decision if the two-year prescriptive period is about
to expire, cannot apply because that rule was adopted before the
enactment of the 30-day period. The 30-day period was adopted precisely
to do away with the old rule, so that under the VAT System the taxpayer
will always have 30 days to file the judicial claim even if the Commissioner
acts only on the 120th day, or does not act at all during the 120-day
period. With the 30-day period always available to the taxpayer, the
taxpayer can no longer file a judicial claim for refund or credit of input VAT

without waiting for the Commissioner to decide until the expiration of the
120-day period. 27 aSITDC
At any rate, even assuming that the Atlas doctrine was relevant to the
present case, it could not be applied since it was held to be effective only
from its promulgation on June 8, 2007 until its abandonment on September
12, 2008 when Mirant was promulgated. The petitioner in this case filed
both its administrative and judicial claims outside the said period of
effectivity.
Aichi not applied prospectively
Petitioner VGPC also argues that Aichi should be applied prospectively and,
therefore, should not be applied to the present case. This position cannot
be given consideration. aADSIc
Article 8 of the Civil Code provides that judicial decisions applying or
interpreting the law shall form part of the legal system of the Philippines
and shall have the force of law. The interpretation placed upon a law by a
competent court establishes the contemporaneous legislative intent of the
law. Thus, such interpretation constitutes a part of the law as of the date
the statute is enacted. It is only when a prior ruling of the Court is
overruled, and a different view adopted, that the new doctrine may have to
be applied prospectively in favor of parties who have relied on the old
doctrine and have acted in good faith. 28

The petitioner's argument that the CIR should have been estopped from
questioning the jurisdiction of the CTA after actively participating in the
proceedings before the CTA Second Division deserves scant consideration.
IDSETA
It is a well-settled rule that the government cannot be estopped by the
mistakes, errors or omissions of its agents. 32 It has been specifically held
that estoppel does not apply to the government, especially on matters of
taxation. Taxes are the nation's lifeblood through which government
agencies continue to operate and with which the State discharges its
functions for the welfare of its constituents. 33 Thus, the government
cannot be estopped from collecting taxes by the mistake, negligence, or
omission of its agents. Upon taxation depends the ability of the
government to serve the people for whose benefit taxes are collected. To
safeguard such interest, neglect or omission of government officials
entrusted with the collection of taxes should not be allowed to bring harm
or detriment to the people. 34
Rules on claims for refund or tax credit of unutilized input VAT
For clarity and guidance, the Court deems it proper to outline the rules laid
down in San Roque with regard to claims for refund or tax credit of
unutilized creditable input VAT. They are as follows:
1.

When to file an administrative claim with the CIR:

Considering that the nature of the 120+30 day period was first settled in
Aichi, the interpretation by the Court of its being mandatory and
jurisdictional in nature retroacts to the date the NIRC was enacted. It
cannot be applied prospectively as no old doctrine was overturned.
AHCaED

a.

General rule Section 112 (A) and Mirant

The petitioner cannot rely either on the alleged jurisprudence prevailing at

the time it filed its judicial claim. The Court notes that the jurisprudence
relied upon by the petitioner consists of CTA cases. It is elementary that
CTA decisions do not constitute precedent and do not bind this Court or the
public. Only decisions of this Court constitute binding precedents, forming
part of the Philippine legal system. 29

Within 2 years from the date of payment of the output VAT, if the
administrative claim was filed from June 8, 2007 (promulgation of Atlas) to
September 12, 2008 (promulgation of Mirant). IASTDE

As regards the cases 30 which were later decided allegedly in

contravention of Aichi, it is of note that all of them were decided by
Divisions of this Court, and not by the Court En Banc. Any doctrine or
principle of law laid down by the Court, either rendered En Banc or in
Division, may be overturned or reversed only by the Court sitting En Banc.
31 Thus, the cases cited by the petitioner could not have overturned the
doctrine laid down in Aichi.

i.
Within 30 days from the full or partial denial of the administrative
claim by the CIR; or

CIR not estopped

Within 2 years from the close of the taxable quarter when the sales
were made.
b.

Exception Atlas

2.

When to file a judicial claim with the CTA:

a.

General rule Section 112 (D); not Section 229

ii.
Within 30 days from the expiration of the 120-day period provided
to the CIR to decide on the claim. This is mandatory and jurisdictional
beginning January 1, 1998 (effectivity of 1997 NIRC).
b.

Exception BIR Ruling No. DA-489-03

The judicial claim need not await the expiration of the 120-day
period, if such was filed from December 10, 2003 (issuance of BIR Ruling
No. DA-489-03) to October 6, 2010 (promulgation of Aichi). cAHDES
WHEREFORE, the petition is PARTIALLY GRANTED. The February 7, 2011
Decision and the June 27, 2011 Resolution of the Court of Tax Appeals En
Banc, in CTA EB Case Nos. 561 and 562 are REVERSED and SET ASIDE. The
April 17, 2009 Decision and the October 29, 2009 Resolution of the CTA
Former Second Division in CTA Case No. 7559 are REINSTATED.
Public respondent is hereby ORDERED TO REFUND or, in the alternative, TO
ISSUE A TAX CREDIT CERTIFICATE, in favor of the petitioner the amount of
SEVEN MILLION SIX HUNDRED NINETY NINE THOUSAND THREE HUNDRED
SIXTY SIX PESOS AND 37/100 (P7,699,366.37) representing unutilized input
VAT paid on domestic purchases of non-capital goods and services,
services rendered by non-residents, and importations of non-capital goods
for the first to fourth quarters of taxable year 2005.
SO ORDERED.

aIHCSA

Velasco, Jr., Peralta and Villarama, Jr., * JJ., concur.

Leonen, J., I dissent consistent with position in San Roque v. CIR, G.R.
187485 (2013).
Footnotes
*
Designated Acting Member in view of the vacancy in the Third
Division per Special Order No. 1691 dated May 22, 2014.
1.
Rollo, pp. 83-99; penned by Associate Justice Caesar A. Casanova,
and concurred in by Associate Justice Ernesto D. Acosta, Associate Justice
Juanito C. Castaeda, Jr., Associate Justice Lovell R. Bautista, Associate
Justice Erlinda P. Uy, Associate Justice Olga Palanca-Enriquez, Associate
Justice Esperanza R. Fabon-Victorino, Associate Justice Cielito N. MindaroGrulla and Associate Justice Amelia R. Cotangco-Manalastas.
2.

Id. at 109-115.

3.

Electric Power Industry Reform Act of 2001 (EPIRA).

4.

Rollo, pp. 135-136.

5.

586 Phil. 712 (2008).

6.

Rollo, pp. 138-143.

7.

Id. at 83-99.

8.

Id. at 93.

9.

G.R. No. 184823, October 6, 2010, 632 SCRA 422.

10.

551 Phil. 519 (2007).

11.

Rollo, p. 27.

12.

G.R. No. 187485, February 12, 2013, 690 SCRA 336.

13.
CIR v. Visayas Geothermal Power Company, Inc., G.R. No. 181276,
November 11, 2013.
14.

CIR v. San Roque Power Corporation, supra note 12, at 392.

15.
CIR v. Aichi Forging Company of Asia, Inc., G.R. No. 184823,
October 6, 2010, 632 SCRA 422, 437; citing, CIR v. Mirant Pagbilao
Corporation, 586 Phil. 712 (2008).
16.

G.R. No. 184823, October 6, 2010, 632 SCRA 422.

17.

Supra note 12, at 380.

18.

CIR v. Visayas Geothermal Power Company, Inc., supra note 13.

19.
CIR v. Visayas Geothermal Power Company, Inc., supra note 13;
citing Section 7 of R.A. No. 1125, as amended by R.A. No. 9282
Sec. 7. Jurisdiction. The CTA shall exercise:
"a. Exclusive appellate jurisdiction to review by appeal, as
herein provided:
"1. Decisions of the Commissioner of Internal Revenue in
cases involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue or other laws administered by the
Bureau of Internal Revenue;
"2. Inaction by the Commissioner of Internal Revenue in
cases involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relations thereto, or other matters
arising under the National Internal Revenue Code or other laws
administered by the Bureau 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;
xxx

xxx

xxx

[Underscore supplied]
20.

CIR v. San Roque Power Corporation, supra note 12, at 397-398.

21.

Id. at 401.

22.
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.

31.
42.

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.

32.
Republic v. Lorenzo, G.R. No. 172338, December 10, 2012, 687
SCRA 478, 490.

[Underscore supplied]
23.
SEC. 246. Non-Retroactivity of Rulings. Any revocation,
modification or reversal of any of the rules and regulations promulgated in
accordance with the preceding Sections or any of the rulings or circulars
promulgated by the Commissioner shall not be given retroactive
application if the revocation, modification or reversal will be prejudicial to
the taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits
material facts from his return or any document required of him by the
Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau
of Internal Revenue are materially different from the facts on which the
ruling is based; or
(c) Where the taxpayer acted in bad faith.
[Underscore supplied]
24.

CIR v. Visayas Geothermal Power Company, Inc., supra note 13.

25.

CIR v. San Roque Power Corporation, supra note 12, at 397-398.

26.

Id. at 385.

27.

Id. at 398.

28.
Paras v. Paras, 555 Phil. 786, 803 (2007); citing Pesca v. Pesca, 408
Phil. 713.
29.
Nippon Express (Philippines) Corporation v. CIR, G.R. No. 196907,
March 13, 2013, 693 SCRA 457, 466; citing CIR v. San Roque Power
Corporation, G.R. No. 187485, February 12, 2013, 690 SCRA 336.
30.
Microsoft Philippines, Inc. v. CIR, G.R. No. 180173, April 6, 2011,
647 SCRA 398; Silicon Philippines, Inc. v. CIR, G.R. No. 172378, January 17,
2011, 639 SCRA 521; Kepco Philippines Corporation v. CIR, G.R. No.
179961, January 31, 2011, 641 SCRA 70.

33.
764.

Lu v. Lu Ym, Sr., G.R. No. 153690, February 15, 2011, 643 SCRA 23,

CIR v. Petron, G.R. No. 185568, March 21, 2012, 668 SCRA 735,

34.
Philippine National Oil Company v. CA, 496 Phil. 506, 577-578
(2005).

[G.R. No. 205543. June 30, 2014.]

SAN ROQUE POWER CORPORATION, petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE, respondent.
DECISION
LEONARDO-DE CASTRO, J p:
Before the Court is a Petition for Review on Certiorari under Rule 16,
Section 1 of A.M. No. 05-11-07-CTA, otherwise known as the Revised Rules
of the Court of Tax Appeals, in relation to Rule 45 of the Rules of Court,
filed by San Roque Power Corporation (San Roque), seeking the reversal of
the Decision 1 dated June 4, 2012 and Resolution 2 dated January 21, 2013
of the Court of Tax Appeals (CTA) en banc in C.T.A. EB No. 789. The CTA en
banc, in its assailed Decision, affirmed the Decision 3 dated January 10,
2011 of the CTA First Division in C.T.A. Case Nos. 7744 & 7802, which
dismissed the judicial claims of San Roque for the refund or tax credit of its
excess/unutilized creditable input taxes for the four quarters of 2006; and
in its assailed Resolution, denied the Motion for Reconsideration of San
Roque.
San Roque is a domestic corporation principally engaged in the powergeneration business. It is registered with the Board of Investments on a
preferred pioneer status for the construction and operation of hydroelectric
power-generating plants, as well as with the Bureau of Internal Revenue
(BIR) as a Value-Added Tax (VAT) taxpayer. ESTCDA
On October 11, 1997, San Roque entered into a Power Purchase Agreement
(PPA) with the National Power Corporation (NPC) to develop the San Roque
hydroelectric facilities located at Lower Agno River in San Miguel,
Pangasinan (Project) on a build-operate-transfer basis. During the cooperation period of 25 years, commencing from the completion date of the
power station, all the electricity generated by the Project would be sold to
and purchased exclusively by NPC. San Roque commenced commercial
operations in May 2003.
San Roque alleged that in 2006, it incurred creditable input taxes from its
purchase of capital goods, importation of goods other than capital goods,
and payment for the services of non-residents. San Roque subsequently
filed with the BIR separate claims for refund or tax credit of its creditable
input taxes for all four quarters of 2006. San Roque averred that it did not
have any output taxes to which it could have applied said creditable input
taxes because: (a) the sale by San Roque of electricity, generated through
hydropower, a renewable source of energy, is subject to 0% VAT under
Section 108 (B) (7) of the National Internal Revenue Code (NIRC) of 1997,
as amended; and (b) NPC is exempted from all taxes, direct and indirect,
under Republic Act No. 6395, otherwise known as the NPC Charter, so the

sale by San Roque of electricity exclusively to NPC, under the PPA dated
October 11, 1997, is effectively zero-rated under Section 108 (B) (3) of the
NIRC of 1997, as amended. 4 When the Commissioner of Internal Revenue
(CIR) failed to take action on its administrative claims, San Roque filed two
separate Petitions for Review before the CTA, particularly, C.T.A. Case No.
7744 (covering the first, third, and fourth quarters of 2006) and C.T.A. Case
No. 7802 (covering the second quarter of 2006). The two cases were
consolidated before the CTA First Division. TIaDHE
The details concerning the administrative and judicial claims of San Roque
for refund or tax credit of its creditable input taxes for the four quarters of
2006 are summarized in table form below:
Tax

VAT Return

Administrative Claim

Judicial Claim

Filed: April 11, 2007

Filed:

Period
2006
First
2008

Filed: April 21, 2006

March

28,

Quarter Amended: November 7,Amount: P2,857,174.95 CTA Case No. 7744

2006

Amount: P12,114,877.34
Amended: March 10, 2008

(for

1st,

3rd,

and

4th

Quarters
Amount: P3,128,290.74 of 2006)
Second Filed: July 15, 2006

Filed: July 10, 2007

Filed: June 27, 2008

Quarter Amended: November 8,Amount: P15,044,030.82

No. 7802
2006

CTA

Case

Amount: P15,548,630.55

Amended: February 5, Amended: March 10, 2008

2007
Third
2008

Amount: P15,548,630.55

Filed: October 19, 2006 Filed: August 31, 2007 Filed:

March

28,

Quarter Amended: February 5, Amount: P4,122,741.54 CTA Case No. 7744

2007

Amount: P12,114,877.34
Amended: September 21,

Quarters
2007

of 2006)

(for

1st,

3rd,

and

4th

Amount: P3,675,574.21
Fourth Filed: January 22, 2007 Filed: August 31, 2007 Filed:
2008
Quarter Amended: May 12, 2007
No. 7744

March

Amount: P6,223,682.61 CTA

28,
Case

Amount: P12,114,877.34
Amended: September 21,

(for

xxx
1st,

3rd,

and

4th

Quarters
2007

of 2006)

Amount: P5,311,012.39
On January 10, 2011, the CTA First Division rendered a Decision on the
consolidated judicial claims of San Roque, with the following findings:
SDHCac
As to [San Roque's] original applications for refund is concerned, the
Commissioner of Internal Revenue has one hundred twenty days or until
August 9, 2007, November 7, 2007 and December 29, 2007 within which to
make decision. After the lapse of the one hundred twenty[-]day period,
[San Roque] should have elevated its claim with the Court within thirty (30)
days starting from August 10, 2007 to September 8, 2007 for its first
quarter claim, November 8, 2007 to December 7, 2007 for its second
quarter claim, and December 30, 2007 to January 28, 2008 for its third and
fourth quarters claims pursuant to Section 112(D) of the NIRC in relation to
Section 11 of [Republic Act No.] 1125, as amended by Section 9 of
[Republic Act No.] 9282. Unfortunately, the Petitions for Review on March
28, 2008 for the first, third and fourth quarters claims and on June 27,
2008 for the second quarter claim, were filed beyond the 30-day period set
by law and therefore, the Court has no jurisdiction to entertain the subject
matter of the case considering that the 30-day appeal period provided
under Section 11 of [Republic Act No.] 1125 is a jurisdictional requirement
as held in the case of Ker & Co., Ltd. vs. Court of Tax Appeals, . . .: ScTCIE
xxx

xxx

Roque] had thirty days or until August 7, 2008 within which to appeal to
this Court. [San Roque], however, appealed via Petitions for Review on
March 28, 2008 for its first quarter claim and on June 27, 2008 for its
second quarter claim, which are clearly before the lapse of the 120-day
period. This violates the rule on exhaustion of administrative remedies.
HICEca

xxx

Likewise, if we reckoned the one hundred twenty[-]day period from the

date of the amended applications for refund on March 10, 2008 for the first
and second quarters claims and September 21, 2007 for the third and
fourth quarters claims, both Petitions for Review would still be denied.
With respect to the amended application for refund of input tax for the first
and second quarters of 2006 on March 10, 2008, the Commissioner of
Internal Revenue has one hundred twenty days or until July 8, 2008 within
which to make a decision. After the lapse of the said 120-day period, [San

xxx

xxx

The premature invocation of the court's intervention, like the instant

Petitions for Review, is fatal to one's cause of action; and the case is
susceptible of dismissal for failure to state a cause of action. Moreover,
such premature appeal will also warrant the dismissal of the Petitions for
Review inasmuch as no jurisdiction was acquired by the Court in line with
the recent pronouncement made by the Supreme Court in the case of
Commissioner of Internal Revenue vs. Aichi Forging Company of Asia, Inc.
As far as the amended application for refund covering the third and fourth
quarter[s] filed on September 21, 2007 is concerned, the Commissioner of
Internal Revenue has one hundred twenty days or until January 19, 2008
within which to make a decision. After the lapse of the said one hundred
twenty day[-]period, [San Roque] should have elevated its claim with the
Court within thirty (30) days starting from January 20, 2008 to February 18,
2008. Unfortunately, the Petition for Review covering said third and fourth
quarter[s] was filed March 28, 2008 beyond the 30-day period set by law
and therefore, the Court has no jurisdiction to entertain the subject matter
of the case. AScHCD
Other issues raised now become moot and academic. 5
The dispositive portion of the foregoing Decision of the CTA First Division
reads:
WHEREFORE, these consolidated Petitions for Review, CTA Case Nos. 7744
covering the first, third and fourth quarter[s] and 7802 covering [the]
second quarter are hereby DISMISSED since the Court has no jurisdiction
thereof. 6
San Roque filed a Motion for Reconsideration but it was denied by the CTA
First Division in a Resolution 7 dated May 31, 2011.
San Roque filed a Petition for Review before the CTA en banc, protesting
against the retroactive application of Commissioner of Internal Revenue v.
Aichi Forging Company of Asia, Inc. 8 In Aichi, promulgated on October 6,
2010, the Supreme Court strictly required compliance with the 120+30 day
periods under Section 112 of the NIRC of 1997, as amended. CAaSED
In its Decision dated June 4, 2012, the CTA en banc upheld the application
of Aichi and explained that there was no retroactive application of the

same. The 120+30 day periods had already been provided in the NIRC of
1997, as amended, even before the promulgation of Aichi. Aichi merely
interpreted the provisions of Section 112 of the NIRC of 1997, as amended.

2002. In the instant case, San Roque did not comply with the 120+30 day
periods under Section 112 (C) of the NIRC, as amended, thus, the CTA did
not acquire jurisdiction over the judicial claims. TaDIHc

The CTA en banc applied the 120+30 day periods and found, same as the
CTA First Division, that while San Roque timely filed its administrative
claims for refund or tax credit of creditable input taxes for the four quarters
of 2006, it filed its judicial claims beyond the 30-day prescriptive period,
reckoned from the lapse of the 120-day period for the CIR to act on the
original administrative claims. The CTA en banc stressed that the 30-day
period within which to appeal with the CTA is jurisdictional and failure to
comply therewith would bar the appeal and deprive the CTA of its
jurisdiction. 9 SDAcaT

In the end, the CTA en banc decreed:

The CTA en banc further stated in its Decision that even if it counted the
120-day period from the filing of the amended administrative claims for
refund on March 10, 2008 for the first and second quarter claims, and on
September 21, 2007 for the third and fourth quarter claims, the CTA still
did not acquire jurisdiction over C.T.A. Case Nos. 7744 and 7802. Following
the 120+30 day periods, the judicial claims of San Roque for the first and
second quarters were prematurely filed, while the judicial claims for the
third and fourth quarters were filed late.
Lastly, the CTA en banc adjudged that San Roque cannot rely on San Roque
Power Corporation v. Commissioner of Internal Revenue, promulgated on
November 25, 2009 [San Roque (2009)], 10 which granted the claims for
refund or tax credit of the creditable input taxes of San Roque for the four
quarters of 2002, on the following grounds: (a) The main issue in San
Roque (2009) was whether or not San Roque had zero-rated or effectively
zero-rated sales in 2002, to which the creditable input taxes could be
attributed, while the pivotal issue in the instant case is whether or not San
Roque complied with the prescriptive periods under Section 112 of the
NIRC of 1997, as amended, when it filed its administrative and judicial
claims for refund or tax credit of its creditable input taxes for the four
quarters of 2006; (b) The claims for refund or tax credit in San Roque
(2009) involved the four quarters of 2002, when sales of electric power by
generation companies to the NPC were explicitly VAT zero-rated under
Section 6 of Republic Act No. 9136, otherwise known as the Electric Power
Industry Reform Act (EPIRA) of 2001. Eventually, Republic Act No. 9337,
otherwise known as the Extended VAT Law (EVAT Law), took effect on
November 1, 2005, and Section 24 of said law already expressly repealed
Section 6 of the EPIRA; and (3) In San Roque (2009), San Roque failed to
comply with Section 112 (A) 11 of the NIRC of 1997, as amended, and
prematurely filed its administrative claim for the third quarter of 2002 on
October 25, 2002, when its zero-rated sales of electric power to NPC were
made only in the fourth quarter of 2002, which closed on December 31,

Finding no reversible error, we affirm the assailed Decision dated January

10, 2011 and Resolution dated May 31, 2011 rendered by the First Division
in C.T.A. Case Nos. 7744 and 7802.
WHEREFORE, premises considered, the present Petition for Review is
hereby DENIED, and accordingly DISMISSED for lack of merit. 12
In its Resolution dated January 21, 2013, the CTA en banc denied the
Motion for Reconsideration of San Roque.
Hence, San Roque filed the Petition at bar assigning six reversible errors on
the part of the CTA en banc, viz.:
I.
THE HONORABLE CTA EN BANC COMMITTED REVERSIBLE ERROR IN
DISMISSING [SAN ROQUE'S] PETITIONS FOR REVIEW AND APPLYING
RETROACTIVELY THE AICHI RULING IN THAT AT THE TIME IT FILED ITS
PETITIONS FOR REVIEW, [SAN ROQUE] ACTED IN GOOD FAITH IN
ACCORDANCE WITH THE THEN PREVAILING RULE AND JURISPRUDENCE
CONSISTENTLY UPHELD FOR ALMOST A DECADE BY THE HONORABLE CTA
IN THE ABSENCE THEN OF A RULING FROM THIS HONORABLE COURT.
cTIESD
II.
THE HONORABLE CTA EN BANC COMMITTED REVERSIBLE ERROR IN
APPLYING THE AICHI RULING TO [SAN ROQUE'S] CLAIM FILED YEARS
BEFORE ITS PROMULGATION IN THAT THE AICHI RULING, WHICH LAID
DOWN A NEW RULE OF PROCEDURE WHICH AFFECTS SUSBSTANTIVE
RIGHTS, SHOULD BE APPLIED PROSPECTIVELY IN LIGHT OF THE LAW AND
SETTLED JURISPRUDENCE UPHOLDING THE PRINCIPLE OF PROSPECTIVITY.
III.
THE HONORABLE CTA EN BANC COMMITTED REVERSIBLE ERROR IN
APPLYING RETROACTIVELY THE AICHI RULING IN THAT ITS RETROACTIVE
APPLICATION TO [SAN ROQUE'S] PENDING CLAIM WILL BE UNJUST AND
UNFAIR AND WILL CERTAINLY PRODUCE SUBSTANTIAL INEQUITABLE
RESULTS AND GRAVE INJUSTICE TO [SAN ROQUE] AND MANY TAXPAYERS
WHO RELIED IN GOOD FAITH ON ITS THEN CONSISTENT RULINGS FOR
ALMOST A DECADE. ACcDEa
IV.

THE HONORABLE CTA EN BANC COMMITTED REVERSIBLE ERROR IN

APPLYING RETROACTIVELY THE AICHI RULING IN THAT ITS RETROACTIVE
APPLICATION GOES AGAINST THE BASIC POLICIES AND THE SPIRIT OF THE
EPIRA LAW.
V.
[SAN ROQUE] SHOULD BE GIVEN THE SAME TREATMENT AS THOSE
DECIDED IN PRECEDENT CASES PROMULGATED PRIOR TO THE
PROMULGATION OF THE AICHI RULING IN ACCORDANCE WITH THE EQUAL
PROTECTION CLAUSE OF THE CONSTITUTION AND THE DOCTRINE OF
EQUITABLE ESTOPPEL.
VI.
RECENTLY, THIS HONORABLE COURT EN BANC HAS CATEGORICALLY RULED
THAT THE AICHI RULING SHALL BE APPLIED PROSPECTIVELY. 13 TEcADS
There is no merit in the instant Petition.
At the crux of the controversy are the prescriptive periods for the filing of
administrative and judicial claims for refund or tax credit of creditable
input taxes under Section 112 of the NIRC of 1997, as amended, which
provide:
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: . . . aHTEIA
xxx

xxx

xxx

(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. (Emphases supplied.)
DCaEAS

Contrary to the assertion of San Roque, it was only in Aichi that the issue of
the prescriptive periods under Section 112 of the NIRC of 1997, as
amended, was first squarely raised before and addressed by the Court. The
Court significantly ruled in Aichi that: (a) Section 112 of the NIRC of 1997,
as amended, particularly governs claims for refund or tax credit of
creditable input taxes, which is distinct from Sections 204 (C) and 229 of
the same statute which concern erroneously or illegally collected taxes; (b)
The two-year prescriptive period under Section 112 (A) of the NIRC of
1997, as amended, pertains only to administrative claims for refund or tax
credit of creditable input taxes, and not to judicial claims for the same; (c)
Following Commissioner of Internal Revenue v. Mirant Pagbilao Corporation,
14 the two-year prescriptive period under Section 112 (A) of the NIRC of
1997, as amended, is reckoned from the close of the taxable quarter when
the sales were made; (d) In determining the end of the two-year
prescriptive period under Section 112 (A) of the NIRC of 1997, as amended,
the Administrative Code of 1987 prevails over the Civil Code, so that a year
is composed of 12 calendar months; and (e) The 120-day period, under
what is presently Section 112 (C) of the NIRC of 1997, as amended, is
crucial in filing an appeal with the CTA, for whether the CIR issues a
decision on the administrative claim before the lapse of the 120-day period
or the CIR made no decision on the administrative claim after the 120-day
period, the taxpayer has 30 days within which to file an appeal with the
CTA. CcSEIH
The Court en banc had the opportunity to further expound on the
prescriptive periods under Section 112 of the NIRC of 1997, as amended, in
its Decision in the 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, promulgated in 2013 [San Roque
(2013)]. 15
According to the Court in San Roque (2013), the prescriptive periods under
Section 112 of the NIRC of 1997, as amended, shall be interpreted as
follows:
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). 16 (Emphasis
deleted.) cACTaI

The Court emphasized in San Roque (2013) that a claim for refund or tax
credit, like a claim for tax exemption, is construed strictly against the
taxpayer. It cited Aichi and pointed out that one of the conditions for a
judicial claim for refund or tax credit under the VAT system is compliance
with the 120+30 day mandatory and jurisdictional periods under Section
112(C) of the NIRC of 1997, as amended. 17
Guided by the aforementioned law and jurisprudence, the Court now
determines whether or not San Roque complied in the instant case with the
prescriptive periods under Section 112 of the NIRC of 1997, as amended.
As the following tables will show, San Roque filed its administrative claims
for refund or tax credit of its creditable input taxes for the four quarters of
2006 within the two-year prescriptive period under Section 112(A) of the
NIRC of 1997, as amended, whether reckoned from the close of the taxable
quarter when the relevant zero-rated or effectively zero-rated sales were
made, in accordance with Mirant and Aichi; or from the date of filing of the
quarterly VAT return and payment of the tax due 20 days after the close of
the taxable quarter, following Atlas Consolidated Mining and Development
Corporation v. Commissioner of Internal Revenue: 18 aCSDIc

First Quarter

Second Quarter July 20, 2006

Third Quarter
2007

2006 When Relevant Sales

Administrative
were Made

Third Quarter
2007

End

of

the

Prescriptive

Period

Claim

June 30, 2008

September 30, 2006

Fourth Quarter December 31, 2006

2007

July 10, 2007

September 30, 2008

August 31,

December 31, 2008

August 31,

Tax
of Days:

Date of End of 120-

Tax Period
Filing of Returns and
Date of Filing of
2006 Payment of Taxes 20
Administrative
Days after the Close
of Taxable Quarter

End

Prescriptive
Claim

of

the

Two-Year
Period

October 20, 2008

August 31,

January 21, 2009

August 31,

End of 30-day

Period Filing of Day Period for Period to File

Date of Actual No.

Filing of End of 120-

day
Claim

2006 Administrative CIR to Decide

Period to Filing
CTA

Appeal with

Judicial

of Judicial
Claim

First
days

April 11, 2007 August 9, 2007 September 8,

Quarter

2007 20

Second July 10, 2007

days

November 7,

Quarter

2007

Third
2008
Quarter

2007

August 31, 2007

90 days
2007

Quarter

2007

December 7,

March 28, 2008 232

June 27, 2008

233

December 29, January 28,

March

28,

December 29, January 28,

March

28,

2008

Fourth August 31, 2007

2008 90 days

According to Atlas

July 10, 2007

San Roque, however, failed to comply with the 120+30 day periods for the
filing of its judicial claims, as can be gleaned from the table below:
cHaCAS

Two-Year

March 31, 2006 March 31, 2008 April 11, 2007

Second Quarter June 30, 2006

October 20, 2006

Claim

Tax Period
Close of Quarter
Date of Filing of

July 20, 2008

Fourth Quarter January 21, 2006 19

2007

According to Mirant and Aichi

First Quarter

April 20, 2006 April 20, 2008 April 11, 2007

2008

Because San Roque filed C.T.A. Case Nos. 7744 and 7802 beyond the 30day mandatory period under Section 112(C) of the NIRC of 1997, as
amended, the CTA First Division did not acquire jurisdiction over said cases
and correctly dismissed the same. ADcEST

San Roque in the present case is in exactly the same position as Philex
Mining Corporation (Philex) in San Roque (2013). Hence, the ruling of the
Court on the judicial claim of Philex in San Roque (2013) is worth
reproducing hereunder:
Philex timely filed its administrative claim on 20 March 2006, within the
two-year prescriptive period. Even if the two-year prescriptive period is
computed from the date of payment of the output VAT under Section 229,
Philex still filed its administrative claim on time. Thus, the Atlas doctrine is
immaterial in this case. The Commissioner had until 17 July 2006, the last
day of the 120-day period, to decide Philex's claim. Since the
Commissioner did not act on Philex's claim on or before 17 July 2006,
Philex had until 17 August 2006, the last day of the 30-day period, to file
its judicial claim. The CTA EB held that 17 August 2006 was indeed the last
day for Philex to file its judicial claim. However, Philex filed its Petition for
Review with the CTA only on 17 October 2007, or four hundred twenty-six
(426) days after the last day of filing. In short, Philex was late by one year
and 61 days in filing its judicial claim. As the CTA EB correctly found:
cDTACE
Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426
days late. Thus, the Petition for Review in C.T.A. Case No. 7687 should have
been dismissed on the ground that the Petition for Review was filed way
beyond the 30-day prescribed period; thus, no jurisdiction was acquired by
the CTA Division; . . . .
Unlike San Roque and Taganito, Philex's case is not one of premature filing
but of late filing. Philex did not file any petition with the CTA within the
120-day period. Philex did not also file any petition with the CTA within 30
days after the expiration of the 120-day period. Philex filed its judicial
claim long after the expiration of the 120-day period, in fact 426 days after
the lapse of the 120-day period. In any event, whether governed by
jurisprudence before, during, or after the Atlas case, Philex's judicial claim
will have to be rejected because of late filing. Whether the two-year
prescriptive period is counted from the date of payment of the output VAT
following the Atlas doctrine, or from the close of the taxable quarter when
the sales attributable to the input VAT were made following the Mirant and
Aichi doctrines, Philex's judicial claim was indisputably filed late. cEASTa
The Atlas doctrine cannot save Philex from the late filing of its judicial
claim. The inaction of the Commissioner on Philex's claim during the 120day period is, by express provision of law, "deemed a denial" of Philex's
claim. Philex had 30 days from the expiration of the 120-day period to file
its judicial claim with the CTA. Philex's failure to do so rendered the
"deemed a denial" decision of the Commissioner final and inappealable.
The right to appeal to the CTA from a decision or "deemed a denial"

decision of the Commissioner is merely a statutory privilege, not a

constitutional right. The exercise of such statutory privilege requires strict
compliance with the conditions attached by the statute for its exercise.
Philex failed to comply with the statutory conditions and must thus bear
the consequences. 21 (Citations omitted.)
Both the CTA First Division and CTA en banc went a step further and also
computed the 120+30 day periods from the date of filing by San Roque of
its amended administrative claims on March 10, 2008 for the first and
second quarters of 2006, and on September 21, 2007 for the third and
fourth quarters of 2006. According to the CTA First Division and CTA en
banc, if the 120-day period was reckoned from the dates of filing of the
amended administrative claims, the judicial claims for the first and second
quarters were premature, while the judicial claims for the third and fourth
quarters were late. HcDaAI
For the Court, there is no more point in considering the amended
administrative claims for the first and second quarters of 2006. The
amended administrative claims were filed on March 10, 2008 after the
120+30 day periods for filing the judicial claims, counting from the date of
filing of the original administrative claims for the first and second quarters
of 2006, had already expired on September 8, 2007 and December 7,
2007, respectively. Taking cognizance of the amended administrative
claims in such a situation would result in the revival of judicial claims that
had already prescribed.
Meanwhile, San Roque filed its amended administrative claims for the third
and fourth quarters of 2006 on September 21, 2007, before the end of the
120-day period for the CIR to decide on the original administrative claims
for the same taxable quarters. Nonetheless, even if the Court counts the
120+30 day periods from the date of filing of said amended administrative
claims, the judicial claims of San Roque would still be belatedly filed:
ISCTcH
Tax
of Days:

Date of End of 120-

End of 30-day

Period Filing of Day Period for Period to File

Date of Actual No.

Filing of End of 120-

day
Claim

2006 Amended
Period to Filing

CIR to Decide

Administrative
Claim
Third
days

September 21, January 19,

Appeal with

CTA

Judicial

of Judicial
Claim

February 18,

March 28, 2008 69

Quarter 2007

2008

2008

Fourth September 21, January 19,

days
Quarter 2007

2008

February 18,

March 28, 2008 69

2008

Unable to contest the belated filing of its judicial claims, San Roque argues
against the supposedly retroactive application of Aichi and the strict
observance of the 120+30 day periods. EIAScH
As the CTA en banc held, Aichi was not applied retroactively to San Roque
in the instant case. The 120+30 day periods have already been prescribed
under Section 112(C) of the NIRC of 1997, as amended, when San Roque
filed its administrative and judicial claims for refund or tax credit of its
creditable input taxes for the four quarters of 2006. The Court highlights
the pronouncement in San Roque (2013) that strict compliance with the
120+30 day periods is necessary for the judicial claim to prosper, except
for the period from the issuance of BIR Ruling No. DA-489-03 on December
10, 2003 to October 6, 2010 when Aichi was promulgated, which again
reinstated the 120+30 day periods as mandatory and jurisdictional. 22
It is still necessary for the Court to explain herein how BIR Ruling No. DA489-03 is an exception to the strict observance of the 120+30 day periods
for judicial claims. BIR Ruling No. DA-489-03 affected only the 120-day
period as the BIR held therein that "a 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. Neither is it required that the
Commissioner should first act on the claim of a particular taxpayer before
the CTA may acquire jurisdiction, particularly if the claim is about to
prescribe." Consequently, BIR Ruling No. DA-489-03 may only be invoked
by taxpayers who relied on the same and prematurely filed their judicial
claims before the expiration of the 120-day period for the CIR to act on
their administrative claims, provided that the taxpayers filed such judicial
claims from December 10, 2003 to October 6, 2010. BIR Ruling No. DA-48903 did not touch upon the 30-day prescriptive period for filing an appeal
with the CTA and cannot be cited by taxpayers, such as San Roque, who
belatedly filed their judicial claims more than 30 days after receipt of the
adverse decision of the CIR on their administrative claims or the lapse of
120 days without the CIR acting on their administrative claims. Pertaining
to the similarly situated Philex, the Court ruled in San Roque (2013) that:
HACaSc
Philex's situation is not a case of premature filing of its judicial claim but of
late filing, indeed very late filing. BIR Ruling No. DA-489-03 allowed
premature filing of a judicial claim, which means non-exhaustion of the
120-day period for the Commissioner to act on an administrative claim.

Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because Philex
did not file its judicial claim prematurely but filed it long after the lapse of
the 30-day period following the expiration of the 120-day period. In fact,
Philex filed its judicial claim 426 days after the lapse of the 30-day period.
23
San Roque harps that the Court itself categorically declared in the following
paragraph in San Roque (2013) that Aichi shall be applied prospectively:
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. . . .
. 24 (Emphases included.) aTICAc
The Court is not persuaded. The aforequoted paragraph should be
understood in the context of the entire San Roque (2013). The statement
of the Court on applying Mirant and Aichi prospectively should be
understood relative to, and never apart from, Atlas and BIR Ruling No. DA489-03.
The Court explained in San Roque (2013), under the heading "Effectivity
and Scope of the Atlas, Mirant and Aichi Doctrines", that:
The Atlas doctrine, which held that claims for refund or credit of input VAT
must comply with the two-year prescriptive period under Section 229,
should be effective only from its promulgation on 8 June 2007 until its
abandonment on 12 September 2008 in Mirant. The Atlas doctrine was
limited to the reckoning of the two-year prescriptive period from the date
of payment of the output VAT. Prior to the Atlas doctrine, the two-year
prescriptive period for claiming refund or credit of input VAT should be
governed by Section 112(A) following the verba legis rule. The Mirant
ruling, which abandoned the Atlas doctrine, adopted the verba legis rule,
thus applying Section 112(A) in computing the two-year prescriptive period
in claiming refund or credit of input VAT. TaCSAD
The Atlas doctrine has no relevance to the 120+30 day periods under
Section 112(C) because the application of the 120+30 day periods was not
in issue in Atlas. The application of the 120+30 day periods was first raised

in Aichi, which adopted the verba legis rule in holding that the 120+30 day
periods are mandatory and jurisdictional. . . . .
xxx

xxx

xxx

To repeat, a claim for tax refund or credit, like a claim for tax exemption, is
construed strictly against the taxpayer. One of the conditions for a judicial
claim of refund or credit under the VAT System is compliance with the
120+30 day mandatory and jurisdictional periods. Thus, strict compliance
with the 120+30 day periods is necessary for such a claim to prosper,
whether before, during, or after the effectivity of the Atlas doctrine, except
for the period from the issuance of BIR Ruling No. DA-489-03 on 10
December 2003 to 6 October 2010 when the Aichi doctrine was adopted,
which again reinstated the 120+30 day periods as mandatory and
jurisdictional. 25 (Emphases supplied.)
As for BIR Ruling No. DA-489-03, the Court clarified its period of effectivity,
thus: THEDCA
There is no dispute that the 120-day period is mandatory and jurisdictional,
and that the CTA does not acquire jurisdiction over a judicial claim that is
filed before the expiration of the 120-day period. There are, however, two
exceptions to this rule. The first exception is if the Commissioner, through
a specific ruling, misleads a particular taxpayer to prematurely file a
judicial claim with the CTA. Such specific ruling is applicable only to such
particular taxpayer. The second exception is where the Commissioner,
through a general interpretative rule issued under Section 4 of the Tax
Code, misleads all taxpayers into filing prematurely judicial claims with the
CTA. In these cases, the Commissioner cannot be allowed to later on
question the CTA's assumption of jurisdiction over such claim since
equitable estoppel has set in as expressly authorized under Section 246 of
the Tax Code. aITECA
xxx

xxx

xxx

BIR Ruling No. DA-489-03 is a general interpretative rule because it was a

response to a query made, not by a particular taxpayer, but by a
government agency tasked with processing tax refunds and credits, that is,
the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the
Department of Finance. This government agency is also the addressee, or
the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this
government agency mentions in its query to the Commissioner the
administrative claim of Lazi Bay Resources Development, Inc., the agency
was in fact asking the Commissioner what to do in cases like the tax claim
of Lazi Bay Resources Development, Inc., where the taxpayer did not wait
for the lapse of the 120-day period.

Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all
taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its
issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6
October 2010, where this Court held that the 120+30 day periods are
mandatory and jurisdictional. 26 (Emphasis supplied.) TIDaCE
Based on the foregoing, "prospective application" of Aichi and Mirant, in
the context of San Roque (2013), only meant that the rulings in said cases
would not retroactively affect taxpayers who relied on Atlas and/or DA-48903 when they filed their administrative and judicial claims for refund or tax
credit of creditable input taxes during the period when Atlas and DA-48903 were still in effect. Aichi and Mirant can still be applied to cases
involving administrative and judicial claims filed prior to the promulgation
of said cases and outside the period of effectivity of Atlas and DA-489-03,
such as the instant case.
WHEREFORE, premises considered, the instant Petition for Review is
DENIED and the Decision dated June 4, 2012 and Resolution dated January
21, 2013 of the Court of Tax Appeals en banc in C.T.A. EB No. 789 are
AFFIRMED.
No costs.

aAEHCI

SO ORDERED.
Sereno, C.J., Bersamin, Villarama, Jr. and Reyes, JJ., concur.
Footnotes
1.
Rollo, pp. 95-119; penned by Associate Justice Olga PalancaEnriquez with Presiding Justice Ernesto D. Acosta and Associate Justices
Juanito C. Castaeda, Jr., Erlinda P. Uy, Caesar A. Casanova, Esperanza R.
Fabon-Victorino, Cielito N. Mindaro-Grulla, and Amelia R. CotangcoManalastas, concurring, and Associate Justice Lovell R. Bautista, dissenting.
2.
Id. at 88-91; penned by Associate Justice Esperanza R. FabonVictorino with Acting Presiding Justice Juanito C. Castaeda, Jr. and
Associate Justices Erlinda P. Uy, Caesar A. Casanova, Cielito N. MindaroGrulla, and Amelia R. Cotangco-Manalastas, concurring, and Associate
Justice Lovell R. Bautista, dissenting.
3.
Id. at 125-133; penned by Presiding Justice Ernesto D. Acosta with
Associate Justices Erlinda P. Uy and Esperanza Fabon-Victorino, concurring.
4.
SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of
Properties.
xxx

xxx

xxx

B. Transactions Subject to Zero Percent (0%) Rate. The

following services performed in the Philippines by VAT-registered person
shall be subject to zero percent (0%) rate:
xxx

xxx

xxx

(3) Services rendered to persons or entities whose

exemption under special laws or international agreements to which the
Philippines is a signatory effectively subjects the supply of such services to
zero percent (0%) rate.
xxx

xxx

xxx

(7) Sale of power or fuel generated through renewable

sources of energy such as, but not limited to, biomass, solar, wind,
hydropower, geothermal, ocean energy, and other emerging energy
sources using technologies such as fuel cells and hydrogen fuels.

18.
551 Phil. 519 (2007). In San Roque (2013), the Court ruled that
Atlas "should be effective only from its promulgation on 8 June 2007 until
its abandonment on September 12, 2008 in Mirant" (Id. at 397). Some of
the administrative claims of San Roque in the present case were filed
within the period of effectivity of Atlas.
19.

January 20, 2006 fell on a Sunday.

20.
September 8, 2007 is a Saturday. San Roque had until September
10, 2007 to file its Petition for Review with the CTA.
21.
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, supra note
15 at 389-390.
22.

Id. at 403.

5.

Rollo, pp. 130-132.

23.

Id. at 405-406.

6.

Id. at 132.

24.

Id. at 403.

25.

Id. at 397-399.

26.

Id. at 401-404.

7.
Id. at 145-157; penned by Presiding Justice Ernesto D. Acosta with
Associate Justices Erlinda P. Uy, on leave, and Esperanza R. FabonVictorino, concurring.
8.

G.R. No. 184823, October 6, 2010, 632 SCRA 422.

9.
Citing Rizal Commercial Banking Corporation v. Commissioner of
Internal Revenue, 550 Phil. 316, 324 (2007).
10.

G.R. No. 180345, November 25, 2009, 605 SCRA 536.

11.
Under Section 112(A) of the NIRC of 1997, as amended, the VATregistered taxpayer, "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". (Emphasis supplied.)
12.

Rollo, p. 114.

13.

Id. at 50-51.

14.

586 Phil. 712 (2008).

15.
G.R. Nos. 187485, 196113, and 197156, February 12, 2013, 690
SCRA 336.
16.

Id. at 392.

17.

Id. at 399.