MEDICARD PHILIPPINES, INC VS. COMMISSIONER OF INTERNAL REVENUE (GR NO.
Under the NLRC, unless authorized by the CIR himself or by his duly authorized
222743) APRIL 5, 2017
FACTS: MEDICARD is a health maintenance organization (HMO) that provides prepaid
health and medical insurance coverage to its clients. Individuals enrolled in its health care
programs pay an annual membership fee and are entitled to various preventive, diagnostic
and curative medical services provided by duly licensed physicians, specialists, and other
professional technical staff participating in the group practice health delivery system at a
hospital or clinic owned, operated or accredited by it.
MEDICARD filed it first, second, and third quarterly VAT Returns through Electronic Filing and
Payment System (EFPS) on April 20, July 25, and October 25, 2006, respectively, and its
fourth quarterly VAT Return on January 25, 2007.
Upon finding some discrepancies between MEDICARD’s Income Tax Returns (ITR) and VAT
Returns, the CIR issued a Letter Notice (LN) dated September 20, 2007. Subsequently, the
CIR also issued a Preliminary Assessment Notice (PAN) against MEDICARD for deficiency
VAT. MEDICARD received CIR’s FAN dated December 10, 2007 for allegedly deficiency VAT
for taxable year 2006 including penalties.
MEDICARD filed a protest arguing, among others, that that the services it render is not limited
merely to arranging for the provision of medical and/or hospitalization services but include
actual and direct rendition of medical and laboratory services. On June 19, 2009, MEDICARD
received CIR’s Final Decision denying its protest. The petitioner MEDICARD proceeded to file
a petition for review before the CTA.
The CTA Division held that the determination of deficiency VAT is not limited to the issuance
of Letter of Authority (LOA) alone and that in lieu of an LOA, an LN was issued to MEDICARD
informing it if the discrepancies between its ITRs and VAT Returns and this procedure is
authorized under Revenue Memorandum Order (RMO) No. 30-2003 and 42-2003. Also, the
amounts that MEDICARD earmarked and eventually paid to doctors, hospitals and clinics
cannot be excluded from the computation of its gross receipts because the act of earmarking
or allocation is by itself an act of ownership and management over the funds by MEDICARD
which is beyond the contemplation of RR No. 4-2007. Furthermore, MEDICARD’s earnings
from its clinics and laboratory facilities cannot be excluded from its gross receipts because the
operation of these clinics and laboratory is merely an incident to MEDICARD’s line of
business as an HMO.
MEDICARD filed a Motion for Reconsideration but it was denied. Petitioner elevated the
matter to the CTA en banc.
CTA en banc partially granted the petition only insofar as 10% VAT rate for January 2006 is
concerned but sustained the findings of the CTA Division.
ISSUES:
Is the absence of the Letter of Authority fatal?
Should the amounts that MEDICARD earmarked and eventually paid to the medical service
providers still form part of its gross receipts for VAT purposes?
RULING:
Yes. The absence of the LOA violated MEDICARD’s right to due process. An LOA is the
authority given to the appropriate revenue officer assigned to perform assessment functions.
representative, through an LOA, an examination of the taxpayer cannot ordinarily be
undertaken. An LOA is premised on the fact that the examination of a taxpayer who has
already filed his tax returns is a power that statutorily belongs only to the CIR himself or his
duly authorized representatives. In this case, there is no dispute that no LOA was issued prior
to the issuance of a PAN and FAN against MEDICARD. Therefore, no LOA was also served
on MEDICARD.
No. The VAT is a tax on the value added by the performance of the service by the taxpayer. It
is, thus, this service and the value charged thereof by the taxpayer that is taxable under the
NLRC.
RENATO V. DIAZ AND AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE and
THE COMMISSIONER OF INTERNAL REVENUE
Facts: Petitioners Renato Diaz and Aurora Ma. F. Timbol filed a petition for declaratory relief
assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of
Internal Revenue (BIR) on the collections of tollway operators. They alleged that the
Congress when it enacted the NIRC did not intend to include toll fees within the meaning of
"sale of services" that are subject to VAT; that a toll fee is a "users tax," not a sale of services;
that to impose VAT on toll fees would amount to a tax on public service; and that, since VAT
was never factored into the formula for computing toll fees, its imposition would violate the
non-impairment clause of the constitution. The government averred that the NIRC imposes
VAT on all kinds of services of franchise grantees, including tollway operations, except where
the law provides otherwise; that the Court should seek the meaning and intent of the law from
the words used in the statute; and that the imposition of VAT on tollway operations has been
the subject as early as 2003 of several BIR rulings and circulars.
Issue: Whether or not toll fees collected by tollway operators may be subjected to value-
added tax.
Ruling: Yes. If the legislative intent was to exempt tollway operations from VAT, as petitioners
so strongly allege, then it would have been well for the law to clearly say so. Tax exemptions
must be justified by clear statutory grant and based on language in the law too plain to be
mistaken. The operation by the government of a tollway does not change the character of the
road as one for public use. Someone must pay for the maintenance of the road, either the
public indirectly through the taxes they pay the government, or only those among the public
who actually use the road through the toll fees they pay upon using the road. The tollway
system is even a more efficient and equitable manner of taxing the public for the maintenance
of public roads. The charging of fees to the public does not determine the character of the
property whether it is for public dominion or not. Article 420 of the Civil Code defines property
of public dominion as "one intended for public use." Even if the government collects toll fees,
the road is still "intended for public use" if anyone can use the road under the same terms and
conditions as the rest of the public. The charging of fees, the limitation on the kind of vehicles
that can use the road, the speed restrictions and other conditions for the use of the road do
not affect the public character of the road.
CIR v. Aichi Forging Company

FACTS:

 Aichi forging, a VAT entity filed a claim for refund of input VAT for its zero-rated sales
with the Dept. of Finance One-Stop Inter-Agency Tax Credit and Duty Drawback Center
on Sept 30, 2004.
 On the same date, it filed a Petition for Review with the CTA.
 CTA partially granted the refund by reducing the leaseless claims.
 CIR filed a Motion for Reconsideration insisting that they were filed beyond the
prescriptive period in accordance to Art. 13 that: 1 year = 365 days and that filing an
administrative claim is a condition precedent before a judicial claim can be filed with the
CTA.
 CTA and CTA En Banc denied petition.

ISSUE:
1. W/N the claim was filed with the prescriptive period of 2 year provided under Sec. 112 (A)
NIRC
2. W/N filing an administrative claim is a condition precedent to a judicial claim for refund.

HELD:
1. Yes. Sec. 204 (c) and 229 are applied only in instances of erroneous payment and illegal
collection. Sec. 112 (A) of NIRC applies here. Sec. 31 Chapter VIII Book I of the
Administrative Code of 1987 being the more recent law governing legal period applies making
1 year = 12 months. The principle of Lex Posterioni Derogati Priori applies. Thus, since it
is filed on exactly Sept. 30, 2004 filing is timely.

2. Yes. Sec. 112 (D) of the NIRC clearly provides that the CIR has 120 days from date of the
submission of the complete documents in support of the application within which to grant or
deny the claim. In case of full or partial denial by the CIR, the recourse is to appeal before
the CTA within 30 days from receipt of the decision of the CIR. However, if after the 120-day
period the CIR fails to act on the application for tax refund, the remedy is to appeal the
inaction of the CIR to the CTA within 30 days.