Republic of the Philippines by Section 213 and 218 of the National Internal
SUPREME COURT Revenue Code. This summary tax remedy is distinct
Manila
SECOND DIVISION
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.
TORRES, JR., J.:
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
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 late
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 actuations 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 �
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;
II. Annul and set aside the Notices of Sale dated
May 26, 1993;
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:
(1) The Notices of Levy on Real
Property were issued beyond the
period provided in the Revenue
Memorandum Circular No. 38-68.
(2) [a] The numerous pending court
cases questioning the late
President's ownership or interests in
several properties (both personal
and 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
(has 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 or 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 approve 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 only 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 Article 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 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 the
collection thereof.
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 by 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 actuations 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
and June 10, 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.
There 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 SO ORDERED.
certificate a description of the property upon which
levy is made. At the same time, written notice of the
levy shall be mailed to or served upon the Register
of Deeds of the province or city where the property is
located and upon the delinquent taxpayer, or if he be
absent from the Philippines, to his agent or the
manager of the business in respect to which the
liability arose, or if there be none, to the occupant of
the property in question.

xxx xxx xxx

The foregoing notwithstanding, the record shows that

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

IN VIEW WHEREOF, the Court RESOLVED to DENY the

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

GARCIA, J.:
1 [1]
Penned by Associate Justice Romeo J. Callejo, Sr., now a
member of this Court, and concurred in by Associate Justices
Godardo A. Jacinto (ret.) and Candido V. Rivera (ret.); Rollo, pp.
20-34.
 2. Resolution dated October
16, 20002[2] denying
petitioner’s motion for
reconsideration.
The facts, as narrated by the CA in its basic
Resolution of May 10, 2000, are:
[Respondent] is a domestic corporation
engaged in mining business, specifically the
exploration, development and operation of
mining properties for purposes of commercial
production and the marketing of mine products.
It is a VAT-registered enterprise, with VAT
Registration No. 31-0-000027 issued on January
1, 1988. Sometime in January 1988,
[respondent] filed an application for zero-rating
of its sales of mine products, which application
was duly approved by the [petitioner]
Commissioner of Internal Revenue.
On August 28, 1988, then Deputy
Commissioner of Internal Revenue Eufracio D.
Santos issued VAT Ruling No. 378-88 which
declared that the sale of gold to the Central
Bank is considered an export sale and therefore
subject to VAT at 0% rate. On December 14,
2 [2]
Rollo, pp. 35-36.
1988, then Deputy Commissioner Santos also
issued Revenue Memorandum Circular (RMC)
No. 59-88, again declaring that the sale of gold
by a VAT-registered taxpayer to the Central
Bank is subject to the zero-rate VAT. No less
than five Rulings were subsequently issued by
[petitioner] from 1988 to 1990 reiterating and
confirming its position that the sale of gold by a
VAT-registered taxpayer to the Central Bank is
subject to the zero-rate VAT.
As a corollary, and in reliance, of the
foregoing issuances, [respondent], during the six
(6) taxable quarters in question covering the
period January 1, 1988 to July 31, 1989, sold
gold to the Central Bank and treated these sales
as zero-rated – that is, subject to the 0% VAT.
During the same period, [respondent] thus
incurred input taxes attributable to said sales to
the Central Bank. Consequently, [respondent]
filed with the Commissioner of Internal
Revenue applications for the issuance of Tax
Credit Certificates for input VAT Credits
attributable to its export sales - that is, inclusive
of direct export sales and sale of gold to the
Central Bank corresponding to the same taxable
periods, to wit:
AMOUNT OF TAX CREDIT APPLIED FOR
TAXABLE PERIOD
 P34,449,817.71
01Jan88 to 30 Apr88
P30,382,666.86
01May88 to 31Jul88
P30,146,774.47
01Aug88 to 31Oct88
P13,467,663.41
01Nov88 to 31Jan89
P 7,030,261.29
01Feb89 to 30Apr89
P18,263,960.28
01May89 to 31Jul89
(CTA Decision dated March 23, 1995; Pages 83-86,
rollo)
Meanwhile, on January 23, 1992, then
Commissioner Jose U. Ong issued VAT Ruling
No. 008-92 declaring and holding that the sales
of gold to the Central Bank are considered
domestic sales subject to 10% VAT instead of
0% VAT as previously held in BIR Issuances
from 1998 to 1990. Subsequently, VAT Ruling
No. 59-92, dated April 28, 1992, x x x were
issued by [petitioner] reiterating the treatment of
sales of gold to the Central Bank as domestic
sales, and expressly countenancing the
Retroactive application of VAT Ruling No. 008-
92 to all such sales made starting January 1,
1988, ratiocinating, inter alia, that the mining
companies will not be unduly prejudiced by a
retroactive application of VAT Ruling 008-92
because their claim for refund of input taxes are
not lost because the same are allowable on its
output taxes on the sales of gold to Central
Bank; on its output taxes on other sales; and as
deduction to income tax under Section 29 of the
Tax Code.
On the basis of the aforequoted BIR
Issuances, [petitioner] thus treated
[respondent’s] sales of gold to the Central Bank
as domestic sales subject to 10% VAT but
allowed [respondent] a total tax credit of only
P81,991,810.91 which corresponded to VAT
input taxes attributable to its direct export sales
(CTA Decision dated March 23, 1995; Page
87). Notwithstanding this finding of the
[petitioner], [respondent] was not refunded the
said amounts of tax credit claimed. Thus, to
suspend the running of the two-year prescriptive
period (Sec. 106, NIRC) for claiming refunds or
tax credits, [respondent] instituted x x x
consolidated Petitions for Review with the
Court of Tax Appeals, praying for the issuance
of “Tax Credit Certificates” for the following
input VAT credits attributable to export sales
transacted during the taxable quarters or periods
in question, to wit:
CTA Case
 Number Amount of Tax Credit Applied denied the whole amount of its claim for tax credit of
for Taxable Period
P131,741,034.22. The tax court held that the alleged
4429 P64,832,374.67
01JAN88 to31JUL88 prejudice to respondent as a result of the retroactive
4495 P43,614,437.88 application of VAT Ruling No. 008-92 issued on
01AUG88to31JAN89
4575 P23,294,221.77 January 23, 1992 to the latter’s gold sales to the
01FEB89 to31JUL89
P131,741,034.22 = Central Bank (CB) from January 1, 1988 to July 31,
TOTAL
1989 is merely speculative and not actual and
Significantly, the total amount of imminent so as to proscribe said Ruling’s
P131,741,034.22, as hereinabove computed,
corresponds to the total input VAT credits retroactivity. The CTA further held that respondent
attributable to export sales made by
[respondent] during the taxable periods set forth would not be unduly prejudiced considering that VAT
and therefore, represents a combination of input
tax attributable to both (1) direct export sales Ruling No. 59-92 which mandates the retroactivity of
and (2) sales of gold to the Central Bank. VAT Ruling No. 008-92 likewise provides for
(Words in brackets added).3[3]
alternative remedies for the recovery of the input VAT.
In a decision dated March 23, 1995,4[4] the
Court of Tax Appeals (CTA) dismissed respondent’s Its motion for reconsideration having been
aforementioned consolidated Petitions for Review and denied by the tax court, respondent appealed to the
CA whereat its recourse was docketed as CA-G.R. SP
3 [3]
CA Resolution; Rollo, pp. 21-24.
4 [4]
Rollo, pp. 51-64.
No. 38413.

At first, the CA, in a decision dated May 30,
1996,5[5] affirmed in toto that of the tax court.
However, upon respondent’s motion for
reconsideration, the CA, in the herein assailed basic
Resolution dated May 10, 2000, reversed itself by
setting aside its earlier decision of May 30, 1996 and
ordering herein petitioner to issue in respondent’s
favor a tax credit in the amount of P131,741,034.22,
to wit:
IN THE LIGHT OF ALL THE
FOREGOING, [respondent’s] Motion for
Reconsideration, x x x as supplemented, is
GRANTED. The Decision of this Court, dated
May 30, 1996, affirming the Decision of the
Court of Tax Appeals x x x is SET ASIDE. The
5 [5]
Penned by Associate Justice Pacita Canizares-Nye (ret.),
with former Associate Justice Pedro Ramirez (ret.) and former CA
Associate Justice Romeo J. Callejo, Jr., concurring; Rollo, pp. 86-
94.
[petitioner Commissioner of Internal Revenue]
is hereby ordered to issue [respondent] a TAX
CREDIT in the amount of P131,741,034.22.
SO ORDERED.
In its reversal action, the CA ruled that the tax
credit in the total amount of P131,741,034.22 consists
of (1) P81,991,810.91, representing input VAT credits
attributable to direct export sales subject to 0% VAT,
and (2) P49,749,223.31, representing input VAT
attributable to sales of gold to the CB which were
subject to 0% when said sales were made in 1988 and
1989. In effect, the CA rejected the retroactive
application of VAT Ruling No. 008-92 to the subject
gold sales of respondent because of the resulting
prejudice to the latter despite the existence of
alternative modes for the recovery of the input VAT.
 This time, it was petitioner who moved for a VAT Ruling No. 008-92 to respondent would not
reconsideration but his motion was denied by the CA prejudice the latter.
in its subsequent Resolution of October 16, 2000.
Initially, the Court, in its Resolution of January
6[6]
Hence, petitioner’s present recourse assailing 24, 2001, denied the Petition for lack of
only that portion of the CA Resolution of May 10, verification and certification against forum shopping.
2000 allowing respondent the amount of However, upon petitioner’s manifestation and motion
P49,749,223.31 as tax credit corresponding to the for reconsideration, the Court reinstated the Petition in
input VAT attributable to its sales of gold to the CB its subsequent Resolution of March 5, 2001.7[7]
for the period January 1, 1988 to July 31, 1989. It is
The petition must have to fall.
petitioner’s sole contention that the CA erred in
rejecting the retroactive application of VAT Ruling
We start with the well-entrenched rule that
No. 008-92, dated January 23, 1992, subjecting sales
rulings and circulars, rules and regulations,
of gold to the CB to 10% VAT to respondent’s sales of
promulgated by the Commissioner of Internal
gold during the period from January 1, 1988 to July
Revenue, would have no retroactive application if to
31, 1989. Petitioner posits that, contrary to the ruling
of the appellate court, the retroactive application of
6 [6]
Rollo, pp. 95-96.
7 [7]
Rollo, p. 173.
so apply them would be prejudicial to the taxpayers.8 gathered by the Bureau of Internal Revenue are
materially different from the facts on which the
[8]
ruling is based; or c) where the taxpayer acted in
bad faith.

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

There is no question, therefore, as to the
specifically Section 246 thereof, is explicit that:
prohibition against the retroactive application of the
revocation, modification or reversal, as the case
x x x Any revocation, modification,
or reversal of any rules and regulations maybe, of previously established Bureau on Internal
promulgated in accordance with the preceding
section or any of the rulings or circulars Revenue (BIR) Rulings when the taxpayer’s interest
promulgated by the Commissioner of Internal would be prejudiced thereby. But even if prejudicial
Revenue shall not be given retroactive
application if the revocation, modification, or to a taxpayer, retroactive application is still allowed
reversal will be prejudicial to the taxpayers
except in the following cases: a) where the where: (a) a taxpayer deliberately misstates or omits
taxpayer deliberately misstates or omits material
facts from his return or in any document material facts from his return or any document
required of him by the Bureau of Internal required by the BIR; (b) where subsequent facts
Revenue; b) where the facts subsequently
gathered by the BIR are materially different from
8 [8]
CIR v. Court of Appeals, Court of Tax Appeals &
Alhambra Industries, Inc., G.R. No. 117982, February 6, 1997, which the ruling is based; and (c) where the taxpayer
267 SCRA 557, 564; CIR v. Telefunken Semiconductor Phils., Inc.,
et al., G.R. No. 103915, October 23, 1995, 249 SCRA 401, 407; acted in bad faith.
CIR v. Burroughs Limited and CTA, G.R. No. L-66653, June 19,
1986, 142 SCRA 324, 328; ABS-CBN Broadcasting Corporation v.
CTA and CIR, G.R. No. L-52306, October 12, 1981, 108 SCRA
142, 148.
 As admittedly, respondent’s case does not fall
under any of the above exceptions, what is crucial to
determine then is whether the retroactive application
of VAT Ruling No. 008-92 would be prejudicial to
respondent Benguet Corporation.
The Court resolves the question in the
affirmative.
Input VAT or input tax represents the actual
payments, costs and expenses incurred by a VAT-
registered taxpayer in connection with his purchase of
goods and services. Thus, “input tax” means the
value-added tax paid by a VAT-registered
person/entity in the course of his/its trade or business
on the importation of goods or local purchases of
goods or services from a VAT-registered person.9[9]
On the other hand, when that person or entity
sells his/its products or services, the VAT-registered
taxpayer generally becomes liable for 10% of the
selling price as output VAT or output tax.10[10] Hence,
“output tax” is the value-added tax on the sale of
taxable goods or services by any person registered or
9 [9]
Section 104 (a) of the (old) Tax Code, now Section 110
(A).
10 [10]
Sec. 100 (a) of the (old) Tax Code. Said provision
specifically reads: “Sec. 100 Value-added tax on sales of goods –
(a) Rate and base of tax. – There shall be levied, assessed and
collected on every sale, barter or exchange of goods, a value-added
tax equivalent to 10% of the gross selling price or gross value in
money of the goods sold, bartered or exchanged, such tax to be
paid by the seller or transferor x x x”; now Sec. 106 (A).
required to register under Section 107 of the (old) Tax
Code.11[11]
The VAT system of taxation allows a VAT-
registered taxpayer to recover its input VAT either by
(1) passing on the 10% output VAT on the gross
selling price or gross receipts, as the case may be, to
its buyers, or (2) if the input tax is attributable to the
purchase of capital goods or to zero-rated sales, by
filing a claim for a refund or tax credit with the BIR.12
[12]
11 [11]
Section 104 (a) of the (old) Tax Code, now Section 110
(A).
12 [12]
Sec. 104 (b) of the (old) Tax Code. Said provision
specifically reads:
(b) Excess Output or Input Tax. – x x x Any input tax attributable
to the purchase of capital goods or to zero-rated sales by a VAT-
registered person may at his option be refunded or credited against
other internal revenue taxes subject to the provisions of Sec. 106;
now Sec. 110 (B).
Simply stated, a taxpayer subject to 10% output
VAT on its sales of goods and services may recover its
input VAT costs by passing on said costs as output
VAT to its buyers of goods and services but it cannot
claim the same as a refund or tax credit, while a
taxpayer subject to 0% on its sales of goods and
services may only recover its input VAT costs by
filing a refund or tax credit with the BIR.
Here, the claimed tax credit of input tax
amounting to P49,749,223.31 represents the costs or
expenses incurred by respondent in connection with
its gold production. Relying on BIR Rulings,
specifically VAT Ruling No. 378-88, dated August 28,
1988, and VAT Ruling No. 59-88, dated December 14,
1988, both of which declared that sales of gold to the
CB are considered export sales subject to 0%,
respondent sold gold to the CB from January 1, 1988
to July 31, 1989 without passing on to the latter its
input VAT costs, obviously intending to obtain a
refund or credit thereof from the BIR at the end of the
taxable period. However, by the time respondent
applied for refund/credit of its input VAT costs, VAT
Ruling No. 008-92 dated January 23, 1992, treating
sales of gold to the CB as domestic sales subject to
10% VAT, and VAT Ruling No. 059-92 dated April 28,
1992, retroactively applying said VAT Ruling No.
008-92 to such sales made from January 1, 1988
onwards, were issued. As a result, respondent’s
application for refund/credit was denied and, as
likewise found by the CA, it was even subsequently
assessed deficiency output VAT on October 19, 1992
in the total amounts of P252,283,241.95 for the year
1988, and P244,318,148.56 for the year 1989.13[13]
13 [13]
May 10, 2000, CA Resolution; Rollo, p. 27.
Clearly, from the foregoing, the prejudice to
respondent by the retroactive application of VAT
Ruling No. 008-92 to its sales of gold to the CB from
January 1, 1988 to July 31, 1989 is patently evident.
Verily, by reason of the denial of its claim for
refund/credit, respondent has been precluded from
recovering its input VAT costs attributable to its sales
of gold to the CB during the period mentioned, for the
following reasons:
First, because respondent could not pass on to
the CB the 10% output VAT which would be
retroactively imposed on said transactions, not having
passed the same at the time the sales were made on
the assumption that said sales are subject to 0%, and,
hence, maybe refunded or credited later. And second,
because respondent could not claim the input VAT
costs as a refund/credit as it has been prevented such
option, the sales in question having been retroactively
subjected to 10% VAT, ergo limiting recovery of said
costs to the application of the same against the output
tax which will result therefrom.
Indeed, respondent stands to suffer substantial
economic prejudice by the retroactive application of
the VAT Ruling in question.
But petitioner maintains otherwise, arguing that
respondent will not be unduly prejudiced since there
are still other available remedies for it to recover its
input VAT costs. Said remedies, so petitioner points
out, are for respondent to either (1) use said input
taxes in paying its output taxes in connection with its
other sales transactions which are subject to the 10%
VAT or (2) if there are no other sales transactions
subject to 10% VAT, treat the input VAT as cost and
deduct the same from income for income tax
purposes.
We are not persuaded.
The first remedy cannot be applied in this case.
As correctly found by the CA, respondent has clearly
shown that it has no “other transactions” subject to
10% VAT, and petitioner has failed to prove the
existence of such “other transactions” against which
to set off respondent’s input VAT.14[14]
Anent the second remedy, prejudice will still,
indubitably, result because treating the input VAT as
an income tax deductible expense will yield only a
partial and not full financial benefit of having the
14 [14]
CA Resolution, May 10, 2000; Rollo, p. 30.
input VAT refunded or used as a tax credit. We quote
with approval the CA’s observations in this respect,
thus:
x x x even assuming that input VAT is
still available for deduction, [respondent] still
suffers prejudice. As a zero-rated taxpayer
(pursuant to the 1988 to 1990 BIR issuances),
[respondent] could have claimed a cash refund
or tax credit of the input VAT in the amount of
P49,749,223.31. If it had been allowed a cash
refund or tax credit, it could have used the full
amount thereof to pay its other tax obligations
(or, in the case of a cash refund, to fund its
operations). With VAT Ruling No. 059-92,
[respondent] is precluded from claiming the
cash refund or tax credit and is limited to the so-
called remedy of deducting the input VAT from
gross income. But a cash refund or tax credit is
not the same as a tax deduction. A tax
deduction has less benefits than a tax credit.
Consider the following differences;
2.42.1 A tax credit may be used to pay
any national internal revenue tax liability.
Section 104(b) of the Tax Code states;
“(b) Excess output or input tax. – xxx
Any input tax attributable to xxx zero-rated
sales by a VAT-registered person may at his
option be refunded or credited against other
internal revenue taxes, subject to the
provisions of Section 106.”
On the other hand, a tax deduction may
be used only against gross income for purposes
of income tax. A tax deduction is not allowed
against other internal revenue taxes such as
excise taxes, documentary stamp taxes, and
output VAT.
2.42.2 In terms of income tax, a tax
deduction is only an expense item in computing
income tax liabilities (Sections 27 to 29, Tax
Code) while a tax credit is a direct credit against
final income tax due (Section 106[b], Tax
Code). This is illustrated in the example below:
Assume that in 1988, respondent had a
gross income of P1,000,000,000 and deductible
expenses in general (such as salaries, utilities,
transportation, fuel and costs of sale) of
P500,000,000. Assume also that [respondent]
had input VAT of P131,741,034.22, the amount
being claimed in the instant case.
[Respondent’s] income tax liability, depending
on whether it utilized the input tax as tax credit
or tax deduction, would be as follows:
 Gross income (Section 28, Tax Code)
a. Tax credit P1,000,000,000.00
Deductions
Gross Income (Section 28, Tax Code) General (Section 29, Tax Code)
P500,000,000.00
P1,000,000,000.00 Input VAT (VAT Ruling No. 059-92)
Deductions (Section 29, Tax Code) P131,741,034.22P
( 631,741,034.22)
500,000,000.00) Taxable income (Section 27, Tax Code)
Taxable Income (Section 27, Tax Code) P 368,258,966.78

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

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

As can be seen from above, there is a

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

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

x x x exceptions in the interest of justice and fair play, as
x x x the deduction of an expense where injustice will result to the taxpayer.17[17]
under Section 29 of the Tax Code is not
tantamount to a recovery of the expense. The
deduction of a bad debt, for instance, does not
result in the recovery of the debt. On the other
15 [15]
hand, a tax credit, because it can be fully Rollo, pp. 30-33.
16[16]
utilized to reduce tax liability, is as good as cash CIR v. Court of Appeals, Court of Tax Appeals and Alhambra
Industries, Inc., supra at p. 565.
and is thus effectively a full recovery of the 17[17]
Ibid.
 As this Court has said in ABS-CBN of zero-rating status to the sales of gold to the CB and
Broadcasting Corporation v. Court of Tax Appeals applying a new and contrary position that such sales
and the Commissioner of Internal Revenue:18[18] are now subject to 10%, is clearly inconsistent with
justice and the elementary requirements of fair play.
The insertion of Sec. 338-A [now Sec.
246] into the National Internal Revenue Code x
x x is indicative of legislative intention to Accordingly, we find that the CA did not
support the principle of good faith. In fact, in commit a reversible error in holding that VAT Ruling
the United States x x x it has been held that
the Commissioner or Collector is precluded No. 008-92 cannot be retroactively applied to
from adopting a position inconsistent with one
previously taken where injustice would result respondent’s sales of gold to the CB during the period
therefrom, or where there has been a
misrepresentation to the taxpayer. [Word in January 1, 1988 to July 31, 1989, hence, it is entitled
brackets supplied]. to tax credit in the amount of P49,749,223.31
attributable to such sales.
Here, when respondent sold gold to the CB, it
relied on the formal assurances of the BIR, i.e., VAT
IN VIEW WHEREOF, the instant petition is
Ruling No. 378-88 dated August 28, 1988 and VAT
DENIED and the assailed CA Resolutions are
Ruling RMC No. 59-88 dated December 14, 1988,
AFFIRMED.
that such sales are zero-rated. To retroact a later
ruling – VAT Ruling No. 008-92 - revoking the grant
18 [18]
No costs.
Supra at pp. 151-152
SO ORDERED.
 Republic of the Philippines Before us is a Petition for Review on Certiorari
SUPREME COURT
Manila under Rule 45 assailing and seeking to set aside the
Decision19[1] dated December 22, 2005 of the Court of
SECOND DIVISION
Appeals (CA) in CA-G.R. SP No. 78280 which
COMMISSIONER OF INTERNAL G.R. No. 172129
modified the March 18, 2003 Decision20[2] of the Court
REVENUE,
Petitioner, Present: of Tax Appeals (CTA) in CTA Case No. 6133 entitled
Mirant Pagbilao Corporation (Formerly Southern
- versus - QUISUMBING,
Energy Quezon, Inc.) v. Commissioner of Internal
CARPIO MORALES,
TINGA,
Revenue and ordered the Bureau of Internal Revenue
MIRANT PAGBILAO VELASCO, JR., and
CORPORATION (Formerly BRION, JJ. (BIR) to refund or issue a tax credit certificate (TCC)
SOUTHERN ENERGY QUEZON,
in favor of respondent Mirant Pagbilao Corporation
INC.), Promulgated:
Respondent. (MPC) in the amount representing its unutilized input
September 12, 2008
value added tax (VAT) for the second quarter of 1998.
x----------------------------------------------------------------
-------------------------x
19[1]
Rollo, pp. 32-44. Penned by Associate Justice Rosmari D.
Carandang and concurred in by Associate Justices Andres B. Reyes, Jr. and
DECISION Monina Arevalo-Zenarosa.
20[2]
Id. at 47-63. Penned by Presiding Judge Ernesto D. Acosta
concurred in by Associate Judges Juanito C. Castañeda, Jr. and Lovell R.
VELASCO, JR., J.: Bautista.
Also assailed is the CA’s Resolution21[3] of March 31,
2006 denying petitioner’s motion for reconsideration.
The Facts
MPC, formerly Southern Energy Quezon, Inc.,
and also formerly known as Hopewell (Phil.)
Corporation, is a domestic firm engaged in the
generation of power which it sells to the National
Power Corporation (NPC). For the construction of the
electrical and mechanical equipment portion of its
Pagbilao, Quezon plant, which appears to have been
undertaken from 1993 to 1996, MPC secured the
services of Mitsubishi Corporation (Mitsubishi) of
Japan.
21[3]
Id. at 45-46.
Under Section 1322[4] of Republic Act No. (RA)
6395, the NPC’s revised charter, NPC is exempt from
all taxes. In Maceda v. Macaraig,23[5] the Court
construed the exemption as covering both direct and
indirect taxes.
22[4]
Sec. 13. Non-profit Character of the Corporation; Exemption
from all Taxes, Duties, Fees, Imposts and other Charges by
Government and Governmental Instrumentalities. – The [NPC] shall be
non-profit and shall devote all its returns x x x as well as excess revenues
from its operation, for expansion. To enable [NPC] to pay its indebtedness
and obligations x x x [it] is hereby declared exempt:
(a) From the payment of all taxes, duties, fees, imposts,
charges, costs and service x x x and duties to the Republic of
the Philippines, its provinces, cities, municipalities and other
government agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty
taxes x x x;
(c) From all import duties, compensating taxes and
advanced sales tax, and wharfage fees on import of foreign
goods required for its operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other
charges imposed by the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies
and instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization, and
sale of electric power.
23[5]
G.R. No. 88291, May 31, 1991, 197 SCRA 771.

In the light of the NPC’s tax exempt status,
MPC, on the belief that its sale of power generation
services to NPC is, pursuant to Sec. 108(B)(3) of the
Tax Code,24[6] zero-rated for VAT purposes, filed on
December 1, 1997 with Revenue District Office
(RDO) No. 60 in Lucena City an Application for
Effective Zero Rating. The application covered the
construction and operation of its Pagbilao power
station under a Build, Operate, and Transfer scheme.
Not getting any response from the BIR district
office, MPC refiled its application in the form of a
“request for ruling” with the VAT Review Committee
at the BIR national office on January 28, 1999. On
24 [6]
Transactions Subject to Zero Percent (%) Rate. – The following
services performed in the Philippines by VAT-registered persons shall be
subject to zero-percent rate: x x x (3) Services rendered to persons whose
exemption under special laws x x x effectively subjects the supply of such
services to zero percent (0%) rate.
May 13, 1999, the Commissioner of Internal Revenue
issued VAT Ruling No. 052-99, stating that “the
supply of electricity by Hopewell Phil. to the NPC,
shall be subject to the zero percent (0%) VAT,
pursuant to Section 108 (B) (3) of the National
Internal Revenue Code of 1997.”
It must be noted at this juncture that consistent
with its belief to be zero-rated, MPC opted not to pay
the VAT component of the progress billings from
Mitsubishi for the period covering April 1993 to
September 1996—for the E & M Equipment Erection
Portion of MPC’s contract with Mitsubishi. This
prompted Mitsubishi to advance the VAT component
as this serves as its output VAT which is essential for
the determination of its VAT payment. Apparently, it
was only on April 14, 1998 that MPC paid Mitsubishi
the VAT component for the progress billings from
April 1993 to September 1996, and for which
Mitsubishi issued Official Receipt (OR) No. 0189 in
the aggregate amount of PhP 135,993,570.
On August 25, 1998, MPC, while awaiting
approval of its application aforestated, filed its
quarterly VAT return for the second quarter of 1998
where it reflected an input VAT of PhP
148,003,047.62, which included PhP 135,993,570
supported by OR No. 0189. Pursuant to the procedure
prescribed in Revenue Regulations No. 7-95, MPC
filed on December 20, 1999 an administrative claim
for refund of unutilized input VAT in the amount of
PhP 148,003,047.62.
Since the BIR Commissioner failed to act on its
claim for refund and obviously to forestall the running
of the two-year prescriptive period under Sec. 229 of
the National Internal Revenue Code (NIRC), MPC
went to the CTA via a petition for review, docketed as
CTA Case No. 6133.
Answering the petition, the BIR Commissioner,
citing Kumagai-Gumi Co. Ltd. v. CIR,25[7] asserted
that MPC’s claim for refund cannot be granted for this
main reason: MPC’s sale of electricity to NPC is not
zero-rated for its failure to secure an approved
application for zero-rating.
Before the CTA, among the issues stipulated by
the parties for resolution were, in gist, the following:
1. Whether or not [MPC] has unapplied
or unutilized creditable input VAT for the 2nd
quarter of 1998 attributable to zero-rated sales
to NPC which are proper subject for refund
pursuant to relevant provisions of the NIRC;
25[7]
CTA Case No. 4670, July 29, 1997.
 2. Whether the creditable input VAT of
MPC for said period, if any, is substantiated by In view of all the foregoing, the instant
documents; and petition is PARTIALLY GRANTED.
Accordingly, respondent is hereby ORDERED
3. Whether the unutilized creditable to REFUND or in the alternative, ISSUE A TAX
input VAT for said quarter, if any, was applied CREDIT CERTIFICATE in favor of the
against any of the VAT output tax of MPC in the petitioner its unutilized input VAT payments
subsequent quarter. directly attributable to its effectively zero-rated
sales for the second quarter of 1998 in the
reduced amount of P10,766,939.48, computed
To provide support to the CTA in verifying and as follows:
analyzing documents and figures and entries Claimed Input VAT
P148,003,047.62
contained therein, the Sycip Gorres & Velayo (SGV),
Less: Disallowances
an independent auditing firm, was commissioned.
a.) As summarized by SGV & Co. in its initial
report (Exh. P)
The Ruling of the CTA I. Input Taxes on Purchases of Services:
1. Supported by documents
other than VAT Ors P
10,629.46
On the basis of its affirmative resolution of the 2. Supported by photocopied VAT OR
879.09
first issue, the CTA, by its Decision dated March 18, II. Input Taxes on Purchases of Goods:
1. Supported by documents other than
2003, granted MPC’s claim for input VAT refund or VAT invoices
165,795.70
credit, but only for the amount of PhP 10,766,939.48. 2. Supported by Invoices with TIN only
1,781.82
The fallo of the CTA’s decision reads: 3. Supported by photocopied VAT
 invoices for refund or tax credit have not been amply
3,153.62
III. Input Taxes on Importation of Goods: substantiated by pertinent documents, such as but not
1. Supported by photocopied documents
[IEDs and/or Bureau of Customs limited to VAT ORs, invoices, and other supporting
(BOC) Ors]
716,250.00 documents. Wrote the CTA:
2. Supported by broker’s computations
91,601.00 990,090.69
We agree with the above SGV findings
b.) Input taxes without supporting documents as that out of the remaining taxes of
summarized in Annex A of SGV & Co.’s P136,246,017.45, the amount of P252,477.45
supplementary report (CTA records, was not supported by any document and should
page 134) 252,447.45 therefore be outrightly disallowed.

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

million claimed input VAT, the CTA stated that most The Ruling of the CA
of MPC’s purchases upon which it anchored its claims
26 [8]
Should be 135,993,570.00 as per this petition and CA decision.
27[9]
Supra note 2, at 62.
 Aggrieved, MPC appealed the CTA’s Decision
to the CA via a petition for review under Rule 43,
docketed as CA-G.R. SP No. 78280. On December
22, 2005, the CA rendered its assailed decision
modifying that of the CTA decision by granting most
of MPC’s claims for tax refund or credit. And in a
Resolution of March 31, 2006, the CA denied the BIR
Commissioner’s motion for reconsideration. The
decretal portion of the CA decision reads:
WHEREFORE, premises considered, the
instant petition is GRANTED. The assailed
Decision of the Court of Tax Appeals dated
March 18, 2003 is hereby MODIFIED.
Accordingly, respondent Commissioner of
Internal Revenue is ordered to refund or issue a
tax credit certificate in favor of petitioner
Mirant Pagbilao Corporation its unutilized input
VAT payments directly attributable to its
effectively zero-rated sales for the second
quarter of 1998 in the total amount of
P146,760,509.48.
SO ORDERED.28[10]
The CA agreed with the CTA on MPC’s
entitlement to (1) a zero-rating for VAT purposes for
its sales and services to tax-exempt NPC; and (2) a
refund or tax credit for its unutilized input VAT for the
second quarter of 1998. Their disagreement, however,
centered on the issue of proper documentation,
particularly the evidentiary value of OR No. 0189.
The CA upheld the disallowance of PhP
1,242,538.14 representing zero-rated input VAT
claims supported only by photocopies of VAT
OR/Invoice, documents other than VAT Invoice/OR,
and mere broker’s computations. But the CA allowed
MPC’s refund claim of PhP 135,993,570 representing
input VAT payments for purchases of goods and/or
28[10]
Supra note 1, at 43.
services from Mitsubishi supported by OR No. 0189.
The appellate court ratiocinated that the CTA erred in
disallowing said claim since the OR from Mitsubishi
was the best evidence for the payment of input VAT
by MPC to Mitsubishi as required under Sec.
110(A)(1)(b) of the NIRC. The CA ruled that the
legal requirement of a VAT Invoice/OR to substantiate
creditable input VAT was complied with through OR
No. 0189 which must be viewed as conclusive proof
of the payment of input VAT. To the CA, OR No.
0189 represented an undisputable acknowledgment
and receipt by Mitsubishi of the input VAT payment
of MPC.
The CA brushed aside the CTA’s ruling and
disquisition casting doubt on the veracity and
genuineness of the Mitsubishi-issued OR No. 0189. It
reasoned that the issuance date of the said receipt,
April 14, 1998, must be taken conclusively to
represent the input VAT payments made by MPC to
Mitsubishi as MPC had no real control on the
issuance of the OR. The CA held that the use of a
different exchange rate reflected in the OR is of no
consequence as what the OR undeniably attests and
acknowledges was Mitsubishi’s receipt of MPC’s
input VAT payment.
The Issue
Hence, the instant petition on the sole issue of
“whether or not respondent [MPC] is entitled to the
refund of its input VAT payments made from 1993 to
1996 amounting to [PhP] 146,760,509.48.”29[11]
The Court’s Ruling
29[11]
Rollo, p. 15.

As a preliminary matter, it should be stressed
that the BIR Commissioner, while making reference
to the figure PhP 146,760,509.48, joins the CA and
the CTA on their disposition on the propriety of the
refund of or the issuance of a TCC for the amount of
PhP 10,766,939.48. In fine, the BIR Commissioner
trains his sight and focuses his arguments on the core
issue of whether or not MPC is entitled to a refund for
PhP 135,993,570 (PhP 146,760,509.48 - PhP
10,766,939.48 = PhP 135,993,570) it allegedly paid as
creditable input VAT for services and goods purchased
from Mitsubishi during the 1993 to 1996 stretch.
The divergent factual findings and rulings of
the CTA and CA impel us to evaluate the evidence
adduced below, particularly the April 14, 1998 OR
0189 in the amount of PhP 135,996,570 [for US$
5,190,000 at US$1: PhP 26.203 rate of exchange].
Verily, a claim for tax refund may be based on a
statute granting tax exemption, or, as Commissioner
of Internal Revenue v. Fortune Tobacco
Corporation30[12] would have it, the result of
legislative grace. In such case, the claim is to be
construed strictissimi juris against the taxpayer,31[13]
meaning that the claim cannot be made to rest on
vague inference. Where the rule of strict interpretation
against the taxpayer is applicable as the claim for
refund partakes of the nature of an exemption, the
claimant must show that he clearly falls under the
exempting statute. On the other hand, a tax refund
may be, as usually it is, predicated on tax refund
30 [12]
G.R. Nos. 167274-75, July 21, 2008.
31[13]
Atlas Consolidated Mining and Development Corporation v.
Commissioner of Internal Revenue, G.R. No. 159490, February 18, 2008,
citing Commissioner of Internal Revenue v. Solidbank Corp., G.R. No.
148191, November 25, 2003, 416 SCRA 436, 461.
provisions allowing a refund of erroneous or excess
payment of tax. The return of what was erroneously The Court can review issues of fact where there are
divergent findings by the trial and appellate courts
paid is founded on the principle of solutio indebiti, a
basic postulate that no one should unjustly enrich
As a matter of sound practice, the Court
himself at the expense of another. The caveat against
refrains from reviewing the factual determinations of
32[14]
unjust enrichment covers the government. And as
the CA or reevaluate the evidence upon which its
decisional law teaches, a claim for tax refund proper,
decision is founded. One exception to this rule is
as here, necessitates only the preponderance-of-
when the CA and the trial court diametrically differ in
33[15]
evidence threshold like in any ordinary civil case.
their findings,34[16] as here. In such a case, it is
incumbent upon the Court to review and determine if
We apply the foregoing elementary principles
the CA might have overlooked, misunderstood, or
in our evaluation on whether OR 0189, in the
misinterpreted certain facts or circumstances of
backdrop of the factual antecedents surrounding its
weight, which, if properly considered, would justify a
issuance, sufficiently proves the alleged unutilized
different conclusion.35[17] In the instant case, the CTA,
input VAT claimed by MPC.
unlike the CA, doubted the veracity of OR No. 0189
32 [14]
Commissioner of Internal Revenue v. Fireman’s Fund
34 [16]
Insurance Co., No. L-30644, March 9, 1987, 148 SCRA 315, cited in Uy v. Villanueva, G.R. No. 157851, June 29, 2007, 526 SCRA
Commissioner of Internal Revenue v. Fortune Tobacco Corporation, supra. 73, 84.
33 [15] 35 [17]
Commissioner of Internal Revenue v. Fortune Tobacco Samala v. Court of Appeals, G.R. No. 130826, February 17,
Corporation, ibid. 2004, 423 SCRA 142, 146.
and did not appreciate the same to support MPC’s
claim for tax refund or credit.
Petitioner BIR Commissioner, echoing the
CTA’s stand, argues against the sufficiency of OR No.
0189 to prove unutilized input VAT payment by MPC.
He states in this regard that the BIR can require
additional evidence to prove and ascertain payment of
creditable input VAT, or that the claim for refund or
tax credit was filed within the prescriptive period, or
had not previously been refunded to the taxpayer.
To bolster his position on the dubious character
of OR No. 0189, or its insufficiency to prove input
VAT payment by MPC, petitioner proffers the
following arguments:
(1) The input tax covered by OR No. 0189
pertains to purchases by MPC from Mitsubishi
covering the period from 1993 to 1996; however,
MPC’s claim for tax refund or credit was filed on
December 20, 1999, clearly way beyond the two-year
prescriptive period set in Sec. 112 of the NIRC;
(2) MPC failed to explain why OR No. 0189
was issued by Mitsubishi (Manila) when the invoices
which the VAT were originally billed came from the
Mitsubishi’s head office in Japan;
(3) The exchange rate used in OR No. 0189
was pegged at PhP 26.203: USD 1 or the exchange
rate prevailing in 1993 to 1996, when, on April 14,
1998, the date OR No. 0189 was issued, the exchange
rate was already PhP 38.01 to a US dollar;
 (4) OR No. 0189 does not show or include
payment of accrued interest which Mitsubishi was
charging and demanded from MPC for having
advanced a considerable amount of VAT. The demand,
per records, is embodied in the May 12, 1995 letter of
Mitsubishi to MPC;
(5) MPC failed to present to the CTA its VAT
returns for the second and third quarters of 1995,
when the bulk of the VAT payment covered by OR
No. 0189—specifically PhP 109,329,135.17 of the
total amount of PhP 135,993,570—was billed by
Mitsubishi, when such return is necessary to ascertain
that the total amount covered by the receipt or a large
portion thereof was not previously refunded or
credited; and
(6) No other documents proving said input
VAT payment were presented except OR No. 0189
which, considering the fact that OR No. 0188 was
likewise issued by Mitsubishi and presented before
the CTA but admittedly for payments made by MPC
on progress billings covering service purchases from
1993 to 1996, does not clearly show if such input VAT
payment was also paid for the period 1993 to 1996
and would be beyond the two-year prescriptive
period.
The petition is partly meritorious.
Belated payment by MPC of its obligation for
creditable input VAT
As no less found by the CTA, citing the SGV’s
report, the payments covered by OR No. 0189 were
for goods and service purchases made by MPC
through the progress billings from Mitsubishi for the
period covering April 1993 to September 1996—for
the E & M Equipment Erection Portion of MPC’s
contract with Mitsubishi.36[18] It is likewise undisputed
that said payments did not include payments for the
creditable input VAT of MPC. This fact is shown by
the May 12, 1995 letter37[19] from Mitsubishi where, as
earlier indicated, it apprised MPC of the advances
Mitsubishi made for the VAT payments, i.e., MPC’s
creditable input VAT, and for which it was holding
MPC accountable for interest therefor.
In net effect, MPC did not, for the VATable
MPC-Mitsubishi 1993 to 1996 transactions adverted
to, immediately pay the corresponding input VAT. OR
No. 0189 issued on April 14, 1998 clearly reflects the
36 [18]
Rollo, p. 57.
37 [19]
Id. at 60.
belated payment of input VAT corresponding to the
payment of the progress billings from Mitsubishi for
the period covering April 7, 1993 to September 6,
1996. SGV found that OR No. 0189 in the amount of
PhP 135,993,570 (USD 5,190,000) was duly
supported by bank statement evidencing payment to
Mitsubishi (Japan).38[20] Undoubtedly, OR No. 0189
proves payment by MPC of its creditable input VAT
relative to its purchases from Mitsubishi.
OR No. 0189 by itself sufficiently proves payment
of VAT
The CA, citing Sec. 110(A)(1)(B) of the NIRC,
held that OR No. 0189 constituted sufficient proof of
payment of creditable input VAT for the progress
billings from Mitsubishi for the period covering April
38 [20]
Id. at 57.
7, 1993 to September 6, 1996. Sec. 110(A)(1)(B) of
the NIRC pertinently provides:
Section 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:
(a) Purchase or importation of goods:
xxxx
(b) Purchase of services on which a value-
added tax has been actually paid.
(Emphasis ours.)
Without necessarily saying that the BIR is
precluded from requiring additional evidence to prove
that input tax had indeed paid or, in fine, that the
taxpayer is indeed entitled to a tax refund or credit for
input VAT, we agree with the CA’s above disposition.
As the Court distinctly notes, the law considers a
duly-executed VAT invoice or OR referred to in the
above provision as sufficient evidence to support a
claim for input tax credit. And any doubt as to what
OR No. 0189 was for or tended to prove should
reasonably be put to rest by the SGV report on which
the CTA notably placed much reliance. The SGV
report stated that “[OR] No. 0189 dated April 14,
1998 is for the payment of the VAT on the progress
billings” from Mitsubishi Japan “for the period April
7, 1993 to September 6, 1996 for the E & M
Equipment Erection Portion of the Company’s
contract with Mitsubishi Corporation (Japan).”39[21]
VAT presumably paid on April 14, 1998
39[21]
Id.
 While available records do not clearly indicate
when MPC actually paid the creditable input VAT
amounting to PhP 135,993,570 (USD 5,190,000) for
the aforesaid 1993 to 1996 service purchases, the
presumption is that payment was made on the date
appearing on OR No. 0189, i.e., April 14, 1998. In
fact, said creditable input VAT was reflected in MPC’s
VAT return for the second quarter of 1998.
The aforementioned May 12, 1995 letter from
Mitsubishi to MPC provides collaborating proof of
the belated payment of the creditable input VAT angle.
To reiterate, Mitsubishi, via said letter, apprised MPC
of the VAT component of the service purchases MPC
made and reminded MPC that Mitsubishi had
advanced VAT payments to which Mitsubishi was
entitled and from which it was demanding interest
payment. Given the scenario depicted in said letter, it
is understandable why Mitsubishi, in its effort to
recover the amount it advanced, used the PhP 26.203:
USD 1 exchange formula in OR No. 0189 for USD
5,190,000.
No showing of interest payment not fatal to claim
for refund
Contrary to petitioner’s posture, the matter of
nonpayment by MPC of the interests demanded by
Mitsubishi is not an argument against the fact of
payment by MPC of its creditable input VAT or of the
authenticity or genuineness of OR No. 0189; for at the
end of the day, the matter of interest payment was
between Mitsubishi and MPC and may very well be
covered by another receipt. But the more important
consideration is the fact that MPC, as confirmed by
the SGV, paid its obligation to Mitsubishi, and the
latter issued to MPC OR No. 0189, for the VAT
component of its 1993 to 1996 service purchases.
The next question is, whether or not MPC is
entitled to a refund or a TCC for the alleged unutilized
input VAT of PhP 135,993,570 covered by OR No.
0189 which sufficiently proves payment of the input
VAT.
We answer the query in the negative.
Claim for refund or tax credit filed out of time
The claim for refund or tax credit for the
creditable input VAT payment made by MPC
embodied in OR No. 0189 was filed beyond the
period provided by law for such claim. Sec. 112(A) of
the NIRC pertinently reads:
(A) Zero-rated or Effectively Zero-rated
Sales. – Any VAT-registered person, whose sales
are zero-rated or effectively zero-rated may,
within two (2) years after the close of the
taxable quarter when the sales were made,
apply for the issuance of a tax credit
certificate or refund of creditable input tax
due or paid attributable to such sales, except
transitional input tax, to the extent that such
input tax has not been applied against output
tax: x x x. (Emphasis ours.)
The above proviso clearly provides in no
uncertain terms that unutilized input VAT payments
not otherwise used for any internal revenue tax due
the taxpayer must be claimed within two years
reckoned from the close of the taxable quarter
when the relevant sales were made pertaining to
the input VAT regardless of whether said tax was
paid or not. As the CA aptly puts it, albeit it
erroneously applied the aforequoted Sec. 112(A),
“[P]rescriptive period commences from the close of
the taxable quarter when the sales were made and not
from the time the input VAT was paid nor from the
time the official receipt was issued.”40[22] Thus, when
a zero-rated VAT taxpayer pays its input VAT a year
after the pertinent transaction, said taxpayer only has
a year to file a claim for refund or tax credit of the
unutilized creditable input VAT. The reckoning frame
would always be the end of the quarter when the
pertinent sales or transaction was made, regardless
when the input VAT was paid. Be that as it may, and
given that the last creditable input VAT due for the
period covering the progress billing of September 6,
1996 is the third quarter of 1996 ending on September
30, 1996, any claim for unutilized creditable input
VAT refund or tax credit for said quarter prescribed
two years after September 30, 1996 or, to be precise,
on September 30, 1998. Consequently, MPC’s claim
40[22]
Id. at 37.
for refund or tax credit filed on December 10, 1999
had already prescribed.
Reckoning for prescriptive period under
Secs. 204(C) and 229 of the NIRC inapplicable
To be sure, MPC cannot avail itself of the
provisions of either Sec. 204(C) or 229 of the NIRC
which, for the purpose of refund, prescribes a
different starting point for the two-year prescriptive
limit for the filing of a claim therefor. Secs. 204(C)
and 229 respectively provide:
Sec. 204. Authority of the
Commissioner to Compromise, Abate and
Refund or Credit Taxes.— The Commissioner
may –
xxxx
(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.
xxxx
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.
(Emphasis ours.)
Notably, the above provisions also set a two-
year prescriptive period, reckoned from date of
payment of the tax or penalty, for the filing of a claim
of refund or tax credit. Notably too, both provisions
apply only to instances of erroneous payment or
illegal collection of internal revenue taxes.
MPC’s creditable input VAT not erroneously paid
 For perspective, under Sec. 105 of the NIRC,
creditable input VAT is an indirect tax which can be
shifted or passed on to the buyer, transferee, or lessee
of the goods, properties, or services of the taxpayer.
The fact that the subsequent sale or transaction
involves a wholly-tax exempt client, resulting in a
zero-rated or effectively zero-rated transaction, does
not, standing alone, deprive the taxpayer of its right to
a refund for any unutilized creditable input VAT,
albeit the erroneous, illegal, or wrongful payment
angle does not enter the equation.
In Commissioner of Internal Revenue v.
Seagate Technology (Philippines), the Court explained
the nature of the VAT and the entitlement to tax refund
or credit of a zero-rated taxpayer:
Viewed broadly, the VAT is a uniform
tax x x x levied on every importation of goods,
whether or not in the course of trade or business,
or imposed on each sale, barter, exchange or
lease of goods or properties or on each rendition
of services in the course of trade or business as
they pass along the production and distribution
chain, the tax being limited only to the value
added to such goods, properties or services by
the seller, transferor or lessor. It is an indirect
tax that may be shifted or passed on to the
buyer, transferee or lessee of the goods,
properties or services. As such, it should be
understood not in the context of the person or
entity that is primarily, directly and legally
liable for its payment, but in terms of its nature
as a tax on consumption. In either case, though,
the same conclusion is arrived at.
The law that originally imposed the VAT
in the country, as well as the subsequent
amendments of that law, has been drawn from
the tax credit method. Such method adopted the
mechanics and self-enforcement features of the
VAT as first implemented and practiced in
Europe x x x. Under the present method that
relies on invoices, an entity can credit against or
subtract from the VAT charged on its sales or
outputs the VAT paid on its purchases, inputs
and imports.
If at the end of a taxable quarter the
output taxes charged by a seller are equal to the
input taxes passed on by the suppliers, no
payment is required. It is when the output taxes
 exceed the input taxes that the excess has to be taxable quarter when the relevant sales or transactions
paid. If, however, the input taxes exceed the
output taxes, the excess shall be carried over to were made pertaining to the creditable input VAT,
the succeeding quarter or quarters. Should the
input taxes result from zero-rated or effectively applies to the instant case, and not to the other actions
zero-rated transactions or from the acquisition which refer to erroneous payment of taxes.
of capital goods, any excess over the output
taxes shall instead be refunded to the taxpayer As a final consideration, the Court wishes to
or credited against other internal revenue taxes.
remind the BIR and other tax agencies of their duty to
xxxx
treat claims for refunds and tax credits with proper
Zero-rated transactions generally refer attention and urgency. Had RDO No. 60 and, later, the
to the export sale of goods and supply of
services. The tax rate is set at zero. When BIR proper acted, instead of sitting, on MPC’s
applied to the tax base, such rate obviously
results in no tax chargeable against the underlying application for effective zero rating, the
purchaser. The seller of such transactions
charges no output tax, but can claim a refund matter of addressing MPC’s right, or lack of it, to tax
of or a tax credit certificate for the VAT credit or refund could have plausibly been addressed
previously charged by suppliers.41[23]
(Emphasis added.) at their level and perchance freed the taxpayer and the
government from the rigors of a tedious litigation.
Considering the foregoing discussion, it is clear
that Sec. 112(A) of the NIRC, providing a two-year
The all too familiar complaint is that the
prescriptive period reckoned from the close of the
government acts with dispatch when it comes to tax
41[23]
G.R. No. 153866, February 11, 2005, 451 SCRA 132, 141-
143.
collection, but pays little, if any, attention to tax
claims for refund or exemption. It is high time our tax rated sales for the second quarter in the total amount
collectors prove the cynics wrong. of PhP 10,766,939.48.

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

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

C E R T I FI CAT I O N
Pursuant to Section 13, Article VIII of the
ARTURO D. BRION Constitution, and the Division Chairperson’s
Associate Justice Attestation, I certify that the conclusions in the above
Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the
ATT E S TAT I O N Court’s Division.
I attest that the conclusions in the above
Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the
Court’s Division.
REYNATO S. PUNO

Chief Justice
 - versus
-
THIRD DIVISION
Corona,

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

in Section 102(b) of the Tax Code;

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

foreign currency that is accounted for

A
s a general rule, the value-

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

the destination principle. the Bangko Sentral ng Pilipinas.

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

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

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

when the following requirements are Regulations that alter or revoke the

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

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

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

Before us is a Petition for

Review[1] under Rule 45 of the Rules

of Court, assailing the February 28,

2002 Decision[2] of the Court of

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

The assailed Decision disposed as

follows:

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

designs” for non-resident foreign

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

other than the processing,

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

Pilipinas.

Furthermore, the CA reasoned

that reliance on VAT Ruling No. 040-

98 was unwarranted. By requiring

that respondent’s services be

consumed abroad in order to be zero-

rated, petitioner went

beyond the sphere of interpretation
and into that of legislation. Even
granting that it is valid, the ruling
cannot be given retroactive effect, for
it will be harsh and oppressive to
respondent, which has already relied
upon VAT Ruling No. 080-89 for zero
rating.
Hence, this Petition.[9]
The Issue
Petitioner raises this sole issue
for our consideration:
“Whether or not the Court of
Appeals committed reversible error in
holding that respondent is entitled to the
refund of the amount of P3,352,406.59
allegedly representing excess input VAT
for the year 1997.”[10]
The Court’s Ruling
The Petition is unmeritorious.
 engaged in milling, processing,
Sole Issue: manufacturing or repacking goods for
others; x x x services of banks, non-
Entitlement to Tax Refund bank financial intermediaries and
finance companies; x x x and similar
services regardless of whether or not
the performance thereof calls for the
exercise or use of the physical or mental
Section 102 of the Tax Code[11] faculties. The phrase 'sale or exchange
of services' shall likewise include:
provides:
x x x
xxx xxx
‘(3) The supply of x
“Sec. 102. Value-added tax on x x commercial knowledge or
sale of services and use or lease of information;
properties. -- (a) Rate and base of tax. -- ‘(4) The supply of
There shall be levied, assessed and any assistance that is
collected, a value-added tax equivalent ancillary and subsidiary to
to ten percent (10%) of gross receipts and is furnished as a means
derived from the sale or exchange of of enabling the application
services x x x. or enjoyment of x x x any
such knowledge or
information as is mentioned
“The phrase 'sale or exchange of in subparagraph (3);
services' means the performance of all x x x
kinds of services in the Philippines for xxx xxx
others for a fee, remuneration or ‘(6) The supply of
consideration, including those technical advice, assistance
performed or rendered by x x x persons or services rendered in
 connection with technical ‘(1) Processing,
management or manufacturing or repacking
administration of any x x x goods for other persons doing
commercial undertaking, business outside the
venture, project or scheme; Philippines which goods are
subsequently exported, where
x x x x x the services are paid for in
x xxx acceptable foreign currency
and accounted for in
"The term 'gross receipts’ means accordance with the rules and
regulations of the Bangko
the total amount of money or its
Sentral ng Pilipinas (BSP);
equivalent representing the contract
price, compensation, service fee, rental ‘(2) Services other
or royalty, including the amount charged than those mentioned in the
for materials supplied with the services preceding subparagraph, the
and deposits and advanced payments consideration for which is paid
actually or constructively received for in acceptable foreign
during the taxable quarter for the currency and accounted for in
services performed or to be performed accordance with the rules and
for another person, excluding value- regulations of the [BSP];’”
added tax.
x x x
xxx xxx
"(b) Transactions subject to zero
percent (0%) rate. -- The following
services performed in the Philippines by
VAT-registered persons shall be subject
to zero percent (0%) rate[:] Zero Rating of
“Other” Services
 regulations of the BSP, are zero-

The law is very clear. Under rated.

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

services performed by VAT-registered person that facilitates the collection

persons in the Philippines (other than and payment of receivables

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

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

business outside the Philippines), acceptable foreign currency inwardly

when paid in acceptable foreign remitted and accounted for in

currency and accounted for in conformity with BSP rules and

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

renders in the Philippines is not in the

same category as “processing, Service has been defined as

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

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

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

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

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

from its parent company’s regional Philippines the collection and

operating centers (ROCs) was payment of receivables belonging to

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

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

accounted acceptable foreign

currency, respondent renders service

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

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

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

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

service.[15] services from its member

establishments, to be reimbursed by

The Credit Card System them later on upon proper billing.

and Its Components
Given the complexities of present-day

For sure, the ancillary business business transactions, the

of facilitating the said collection is components of this system can

different from the main business of certainly function as separate billable

issuing credit cards.[16] Under the services.

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

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

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

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

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

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

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

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

basis.”[20] This means that the

consumer-credit arrangement that Business establishments may

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

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

of uncollectible accounts from their

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

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

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

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

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

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

send the drafts evidencing those credit card holders for their

receivables to the latter. respective drafts redeemed during

the previous month. If the holders

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

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

these business establishments, but it

 In the present case,

respondent’s role in the consumer

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

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

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

establishments located in the establishments, but also of billing the

Philippines and forwarding them to credit card holders for their

the ROCs outside the country. respective drafts that it has

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

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

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

upon either the ROCs or the card

The parent company -- to holders.

which the ROCs and respondent

Branch and Home Office respective incomes. Each may

conduct sales operations in any

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

that each of them is a unit, “an

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

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

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

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

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

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

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

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

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

accounting purposes. revenue center, cost center, profit

center or investment center,

depending upon the policies and

accounting system of its parent directly to its parent company

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

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

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

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

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

its branches.[38] should the service rendered by

respondent be zero-rated under our

Gratia argumenti that the VAT system. The service partakes of

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

establishments to respondent is

equivalent to the act of sending them

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

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

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

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

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

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

the course of trade or business in the

VAT Requirements for Philippines.[48] These services must

the Supply of Service
be regularly conducted in this

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

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

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

consideration; and not exempt under payment of receivables belonging to

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

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

Without doubt, the transactions Second, such service is

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

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

requirements. significant scale; with a reasonable

degree of frequency; and not at

First, respondent regularly random, fortuitous or attenuated.

renders in the Philippines the service

of facilitating the collection and

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

respondent definitely receives system uses the destination principle

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

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

law. taxed only in the country where they

are consumed. Thus, exports are

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

entity exempt under any of our laws

or international agreements. Confusion in zero rating arises

because petitioner equates the

Services Subject to performance of a particular type of

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

the facilitation of the collection of consumption contemplated by law,

receivables is different from the contrary to petitioner’s administrative

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

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

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

the consumption is not. Respondent

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

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

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

service establishments located here means the performance or

in the country and forwarding them “successful completion of a

contractual duty, usually resulting in Unlike goods, services cannot

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

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

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

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

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

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

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

services, having been performed in facilitation service has no physical

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

consumed in the Philippines. rendition, and therefore upon

consumption, in the Philippines.

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

petitioner asserts, such service is currency and accounted for in

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

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

the supply of service to be zero-rated

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

from the Destination Principle
requires that first, the service be

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

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

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

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

that are performed in the Philippines, acceptable foreign currency

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

rules and regulations. the provision. Undisputed is the fact

that such service meets the statutory

Indeed, these three condition that it be paid in acceptable

requirements for exemption from the foreign currency duly accounted for in

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

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

performed in the Philippines. It falls

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

because it is a service other than

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

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

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

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

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

imposes such requirement nor The service rendered by respondent is

associates services with exported clearly different from the product that

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

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

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

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

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

 jurisdiction,[62] for the State

Tax Situs of a necessarily has to have “a substantial

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

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

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

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

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

the place where the service is used.

rendered determines the

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

or Interpretation Unnecessary
Performed in the Philippines, such

service is necessarily subject to its

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

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

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

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

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

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

is provided for. Rewriting the law is a

forbidden ground that only Congress

may tread upon.

The Court may not construe a

statute that is free from doubt.[66]

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

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

provisions of the Tax Code, RR 5-87

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

acceptable foreign currency inwardly

RR 7-95 remitted and accounted for in
Broad Enough
accordance with the rules and
RR 7-95, otherwise known as the regulations of the BSP. The term
“Consolidated VAT Regulations,”[69] “other service establishments” is
reiterates the above-quoted provision obviously broad enough to cover
and further presents as examples only respondent’s facilitation service.
the services performed in the
Section 4.102-2 of RR 7-95 provides
thus:
“SECTION 4.102-2. Zero-Rating.
-- (a) In general. -- A zero-rated sale by
a VAT registered person, which is a
taxable transaction for VAT purposes,
shall not result in any output tax.
However, the input tax on his purchases
of goods, properties or services related
to such zero-rated sale shall be
available as tax credit or refund in
accordance with these regulations.
“(b) Transaction subject to zero-
rate. -- 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, where
the services are paid for in
acceptable foreign currency
and accounted for in
accordance with the rules and
regulations of the BSP;
‘(2) Services other
than those mentioned in the
preceding subparagraph, e.g.
those rendered by hotels and
other service establishments,
the consideration for which is
paid for in acceptable foreign
currency and accounted for in
accordance with the rules and
regulations of the BSP;’”
x x x
xxx xxx
Meaning of “as well as”
in RR 5-96
 Section 4.102-2(b)(2) of RR 7- Aside from the already

95 was subsequently amended by RR scopious coverage of services in

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

amendment introduced by RR 5-96

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

prepositional phrase with an

adverbial relation to some other

word, it simply means “in addition to,

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

Inapplicable

Neither the law nor any of the The canon of statutory

implementing revenue regulations construction known as ejusdem

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

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

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

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

enumerate the items of service that First, although the regulatory

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

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

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

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

constitute a readily discernible class characterizes these three services.

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

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

investments or marketing; involve advertising, computers,

information services focus on data consultancy, health care,

technology; engineering and management, messengerial work --

architectural designs require to name only a few.

creativity. Aside from calling for the

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

perhaps producing written technical intent to give the general phrase

“and other similar services” a

broader meaning.[73] Clearly, the

preceding phrase “as well as” is not

meant to limit the effect of “and

other similar services.”

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

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

regulation is based is by itself not interpretation at the administrative

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

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

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

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

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

the service must be “destined for

VAT Ruling consumption outside of the

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

zero rating, it contravenes both the

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

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

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

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

merely seeks to interpret, instead of

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

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

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

this status will certainly deprive

respondent of a refund of the

substantial amount of excess input

taxes to which it is entitled.

Again, assuming arguendo that

VAT Ruling No. 040-98 revoked VAT

Ruling No. 080-89, such revocation

could not be given

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

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

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

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

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

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

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

shall not be given retroactive exceptions enumerated in Section

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

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

to interpret the provisions of the Tax

Code[88] and not bound by

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

commissioner may render a different legislators not to impose the

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

new interpretation is in congruence abroad” in order for services

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

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

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

proceedings:

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

“Senator Maceda: That is

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

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

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

over the particular provisions on zero

rating of services under Section The legislature is presumed to

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

of legislative approval of knowledge of the contents of the

administrative interpretation by revenue regulations then in force

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

principle means that “the approved or confirmed them because

reenactment of a statute they would carry out the legislative

purpose. The particular provisions of

the regulations we have mentioned In sum, having resolved that

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

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

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

the government agency charged with determined by the appellate court.

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

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

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

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

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

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

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

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

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

within the reglementary period,[96]

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

rating scheme, the sale or exchange

of a particular service is completely WHEREFORE, the Petition is

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

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

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

tax that is included in the cost of

purchases attributable to the sale or SO ORDERED.

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

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

of the Court’s Division.

ANGELINA SANDOVAL- RENATO C. CORONA

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