REVENUE REGULATIONS

FORT BONIFACIO DEV'T CORP. vs. CIR

At the time petitioner is selling lots (since October 1996), VAT

was not yet imposed on the sale of real properties. RA
7716 (Expanded E-VAT Law) which took effect on Jan. 1,
1996, amended pertinent provisions of NIRC.
Sec. 100 (old NIRC) was amended by including "real
properties" in the definition of the term "goods or
properties," thus, subjecting sale of "real properties" to
VAT.
Prior to RA 7716, real estate transactions were not subject
to VAT. Thus, sale of lots by petitioner became subject to a
10% VAT.
Petitioner claims for transitional or presumptive input tax
credit of 8% of the total value of the real properties listed
in its inventory (basis: Sec. 105 of the NIRC) Petitioner
seeks for refund.
On the subsequent cases petitioner filed, it sought refund
and correction of unauthorized limitation of the term real
properties to improvements thereon by RR 7-95 and the
error of CTA and CA in sustaining said Regulations."
Petitioners arguments:
1) E-VAT law (RA 7716) expanded the coverage of the
original VAT Law (EO 273), spec. Sec.100 of the old NIRC.
While under EO 273, the term "goods" did not include real
properties, RA 7716, in amending Sec.100, explicitly
included in the term "goods" "real properties held
primarily for sale to customers or held for lease in the
ordinary course of trade or business." Consequently, the
sale, barter, or exchange of real properties was made
subject to a VAT equivalent to 10% (later increased to
12%, pursuant to RA 9337) of the gross selling price of
real properties.
2) E-VAT Law did not amend Sec.105. Thus, the latter
remained effective even after the enactment of E-VAT
Law.
3) On Dec. 9, 1995, Secretary of Finance and the CIR issued RR
No. 7-95, which provides that VAT is imposed on every sale,
barter or exchange or transactions "deemed sale" of taxable
goods or properties at the rate of 10% of the gross selling price.

Petitioner argues that Sec. 4.100-1 of RR 7-95 explicitly

limited the term "goods" as regards real properties to
"improvements, such as buildings, roads, drainage
systems, and other similar structures," thereby excluding
the real property itself from the coverage of the term
"goods" as it is used in Sec.105 of the NIRC.
4) CA erred in not holding that RR No. 6-97 has
effectively repealed or repudiated RR No. 7-95 insofar as

the latter limited the transitional/presumptive input tax

credit which may be claimed under Sec. 105 of the NIRC
to the improvements on real properties."
5) Sec. 4.105-1 of RR No. 7-95 stating that ---in the case
of real estate dealers, the basis of the input tax credit shall
be the improvements---has been deleted by RR No. 6-97
(dated Jan. 2, 1997), which amended RR No. 7-95.
6) RR No. 6-97 was issued to implement RA 8241 (the law
amending E-VAT Law), which took effect on Jan. 1, 1997.
Petitioner notes that Sec. 4.105-1 of RR No. 6-97 is but a
reenactment of Sec. 4.105-1 of RR No. 7-95, with the only
difference being that the following paragraph in RR No. 795 was deleted: However, in the case of real estate
dealers, the basis of the presumptive input tax shall be the
improvements, such as buildings, roads, drainage systems,
and other similar structures, constructed on or after the
effectivity of E.O. 273 (January 1, 1988).
Petitioner calls this an express repeal, and with the
deletion of the above paragraph, what stands "is the
statutory definition in Sec. 100 of the NIRC of the term
goods in Sec. 105 thereof."
7) CA erred in holding that RR No. 7-95 is a valid
implementation of the NIRC since it is contrary to Sec.
105 of the NIRC; it in fact amends the same, limiting the
scope of Sec. 105 "to less than what the law provides." ;
that RR No. 7-95 delimited the coverage of Sec. 105 and
practically amended it in violation of the fundamental
principle that administrative regulations are subordinate to
the law.
CIRs arguments:
1) The 8% input tax credit provided for in Sec. 105 of the
NIRC, in relation to Sec. 100 thereof, is based on the
value of the improvements on the land.
2) taxpayer is entitled to the input tax credit under Sec.
105 of NIRC only if it has previously paid VAT or sales
taxes on its inventory of land.
3) Sec. 4.105-1 of RR No. 7-95 of the BIR which
implemented Sec. 105 of the NIRC, is valid.
4) petitioners claim for 8% transitional/presumptive input
tax is inconsistent with the intent of the law in granting
such tax refund or tax credit since it failed to meet the
conditions under Sec. 105 in relation to Sec. 100 of the
Tax Code, as amended by EO 273 (effective Jan.1, 1988.
5) RR No. 7-95 is valid and consistent with provisions of
the NIRC. Moreover, Petitioner is not legally entitled to
any transitional input tax credit, since No transitory input
tax on inventory of land is allowed. Sec. 105 of NIRC, as

amended by RA 7716, and as implemented by RR No. 795, expressly provides that no transitional input tax credit
shall be allowed to real estate dealers in respect of their
beginning inventory of land brought into the VAT regime
beginning January 1, 1996 (supra).
6) Quoting Art. 7, Civil Code, Sec. 4.105-1 of RR No. 795 has the force and effect of a law since it is not contrary
to any law or the Constitution. When the administrative
agency promulgates rules and regulations, it makes a new
law with the force and effect of a valid law.
ISSUES: W/N RR No. 7-95 is a valid implementation of
Sec. 105 of the NIRC?
RULING 1: NO. There is no logic that coheres with either
E.O. No. 273 or RA 7716. The very idea of excluding the
real properties itself from the beginning inventory simply
runs counter to what the transitional input tax credit seeks
to accomplish for persons engaged in the sale of goods,
whether or not such "goods" take the form of real
properties or more mundane commodities.
Under Sec. 105, the beginning inventory of "goods" forms
part of the valuation of the transitional input tax credit.
Sec. 4.100-1 of RR No. 7-95 itself includes in its
enumeration of "goods or properties" such "real properties
held primarily for sale to customers or held for lease in the
ordinary course of trade or business." Said definition was
taken from the very statutory language of Sec. 100 of the
Old NIRC. By limiting the definition of goods to
"improvements" in Sec. 4.105-1, the BIR not only
contravened the definition of "goods" as provided in the
Old NIRC, but also the definition which the same revenue
regulation itself has provided.
Sec. 105 does include the particular properties to be
included in the inventory, namely goods, materials and
supplies. It is questionable whether the CIR has the power
to actually redefine the concept of "goods", as she did
when she excluded real properties from the class of goods
which real estate companies in the business of selling real
properties may include in their inventory.
It is of course axiomatic that a rule or regulation must bear
upon, and be consistent with, the provisions of the
enabling statute if such rule or regulation is to be valid. In
case of conflict between a statute and an administrative
order, the former must prevail.
Indeed, CIR has no power to limit the meaning and
coverage of the term "goods" in Sec. 105 of the Old NIRC
absent statutory authority or basis to make and justify such
limitation.

Furthermore, Sec. 4.105-1 of RR 7-95 is inconsistent with

Sec. 105 of the old NIRC
As regards Sec. 4.105-1 of RR 7-95 which limited the 8%
transitional input tax credit to the value of the
improvements on the land, the same contravenes the
provision of Sec. 105 of the old NIRC, in relation to Sec.
100 of the same Code, as amended by RA 7716, which
defines "goods or properties,"
As mandated by Article 7, Civil Code, an administrative
rule or regulation cannot contravene the law on which it is
based.
RR 7-95 is inconsistent with Sec. 105 insofar as the
definition of the term "goods" is concerned. This is a
legislative act beyond the authority of CIR and the
Secretary of Finance. Rules and regulations promulgated
by admin agencies, which are the product of a delegated
legislative power to create new and additional legal
provisions that have the effect of law, should be within the
scope of the statutory authority granted by the legislature
to the objects and purposes of the law, and should not be
in contradiction to, but in conformity with, the standards
prescribed by law.
To be valid, administrative rule or regulation must
conform, not contradict, the provisions of the enabling
law. An implementing rule or regulation cannot modify,
expand, or subtract from the law it is intended to
implement. Any rule that is not consistent with the statute
itself is null and void.
While administrative agencies, such as BIR, may issue
regulations to implement statutes, they are without
authority to limit the scope of the statute to less than what
it provides, or extend or expand the statute beyond its
terms, or in any way modify explicit provisions of the law.
A quasi-judicial body or an administrative agency cannot
amend an act of Congress. Hence, in case of discrepancy
between basic law and interpretative or administrative
ruling, basic law prevails.
Hence, RR 7-95, insofar as it restricts the definition of
"goods" as basis of transitional input tax credit under Sec.
105 is a nullity. 8% transitional input tax credit should
include the value of the real properties as well.
To give Sec. 105 a restrictive construction that transitional
input tax credit applies only when taxes were previously
paid on the properties in the beginning inventory and there
is a law imposing the tax which is presumed to have been
paid, is to impose conditions or requisites to the
application of the transitional tax input credit which are
not found in the law. The courts must not read into the law
what is not there. To do so will violate the principle of

separation of powers which prohibits this Court from

engaging in judicial legislation.

ISSUE: W/N petitioner is entitled to the refund on specific

taxes on stemmed tobacco which it paid under protest?

COMPANIA GENERAL DE TABACOS DE FILIPINAS vs. CIR

RULING: NO. Both Sections 137 and 141 of the former

Tax Code allowed the sale of stemmed leaf tobacco
without any pre-payment of tax.

Prior to June 1993, petitioner sold its tobacco to cigar and

cigarette manufacturers without prepayment of any excise
tax, there being no notice of assessment from nor
collection made by CIR.
Beginning June 1993, however, CIR imposed upon
petitioner, specific tax to any removal, sale or transfer of
its tobacco products. Petitioner paid under protest.
Petitioner claims for refund. Argument: it was exempt
from paying said taxes, pursuant to Sec. 137 and 141 of
NIRC and Sec. 20 of RR No. V-39, which exempted the
transfer of stripped tobacco for use in the manufacture of
other tobacco products from prepayment of excise tax.
CTA: granted the claim. Basis: exemption from specific
tax granted by Sections 137 and 141 of the Tax Code
applies to stemmed leaf tobacco. Stemmed leaf tobacco is
solely meant to be the raw material of cigarettes and other
tobacco products which are subject to excise tax. Also,
BIR went beyond its rule-making power and arrogated
legislative power unto itself when it issued both RR Nos.
17-67 and V-39 since by using the power to classify, the
BIR actually amended and amplified the tax law.
CA set aside CTAs decision. Basis: petitioner is not
entitled to a refund since it was liable to pay the tobacco
excise tax based on Sections 137 and 141 of the NIRC in
relation to RR Nos. V-39 and 17-67. Both Sections 137
and 141 contain the qualifying phrase "under such
conditions as may be prescribed in the regulations of the
Department of Finance" for certain tobacco products to
avail of the tax exemption. Nothing irregular or illegal in
the issuance of said RR.
Petitioner argument before SC: it is exempt from paying
the specific tax on its stemmed tobacco since its tobacco
leaves are unfit for consumption and the cigar and
cigarette manufacturers, who are the end users of its
product, pay excise taxes thereon.
CIR: under RR No. 17-67, stemmed leaf tobacco is
classified as "partially manufactured tobacco", hence
subject to specific tax under Section 141 of the NIRC.
Stemmed leaf tobacco is exempt from specific tax only
when sold as raw material by one L-7 directly to another
L-7, as prescribed by RR No. V-39. Since petitioner is
engaged in re-drying, pursuant to RR No. 17-67, it cannot
claim any exemption from specific tax.

It must be stressed, however, that a careful reading of the

aforementioned provisions show that such sale is qualified
by and is subject to "such conditions as may be prescribed
in the regulations of the Department of Finance." Said
conditions were provided for in RR Nos. V-39 and 17-67,
which were issued to clarify and implement the foregoing
provisions of the Tax Code. Hence, said provisions of the
Tax Code must be read and interpreted in accordance with
said regulations.
Section 20 of RR No. V-39 Section 20 must be construed
in relation to Section 2(m)(1) of RR No. 17-67, which
classifies stemmed leaf tobacco as "partially manufactured
tobacco", and Section 3 thereof which provides for the
different designations for persons dealing with tobacco, to
wit: L-3, L-4, L-6, L-7, etc. Section 3(h) of RR No. 17-67
describes an L-7 as a "manufacturer of tobacco products."
Petitioners arguments impugning the validity of RR Nos.
V-39 and 17-67 deserve slight consideration.
First, both regulations were issued pursuant to Section 245
(now Section 244) of the Tax Code. The authority of the
Secretary of Finance, in conjunction with the CIR, to
promulgate needful rules and regulations for the effective
enforcement of internal revenue laws cannot be
controverted. Such rules and regulations, as well as
administrative opinions and rulings, ordinarily deserve to
be given weight and respect by the courts.
Second, RR Nos. V-39 and 17-67 clearly shows that said
regulations did not modify or deviate from the text of
Sections 137 and 141 but merely implemented and
clarified said two provisions by providing certain
conditions under which stemmed leaf tobacco may be
exempted from prepayment of specific tax.
ASTURIAS
CUSTOMS

SUGAR

CENTRAL

v. COMMISSIONER

OF

1975-Petitioner made 2 importations of jute bags (container

for sugar). 1st---Jan.8, 1967 was entered free of customs
duties and special import tax upon petitioner's filing of
Re-exportation and Special Import Tax Bond, conditioned
upon the exportation of the jute bags within 1 year from
importation. 2nd shipment Feb.8, 1957, entered free of
customs duties and special import tax upon the petitioner's
filing of Re-exportation and Special Import Tax Bond,
with the same conditions as in bond no. 1.

Of total number of imported jute bags only 33,647 were

exported within 1 year after their importation. Petitioner
requested for a week's extension of Re-exportation and
Special Import Tax Bond no. 6.
Nevertheless, Collector of Customs required petitioner to
pay customs duties and special import tax due thereon.
Petitioner paid under protest.
Petitioner demanded refund pursuant to sec.106(b) in rel.
to sec.105(x) of the Tariff and Customs Code.
Collector of Customs denied the claim. Commissioner of
Customs upheld the decision. CTA affirmed.
Petitioners arguments: CTA erred in not declaring that it
is within the power of the Collector of Customs and/or the
Commissioner of Customs to extend the period of 1 year
within which the jute bags should be exported.
ISSUE: W/N the Commissioner of Customs is vested,
under Philippine Tariff Act of 1909, with discretion to
extend the period of 1yr. provided in Sec. 23 of the Act?
RULING: 1)Section 23 reads: SEC. 23. That containers, such as
casks, large metal, glass, or other receptacles which are, in the opinion
of the collector of customs, of such a character as to be readily
identifiable may be delivered to the importer thereof upon identification
and the giving of a bond with sureties satisfactory to the collector of
customs in an amount equal to double the estimated duties thereon,
conditioned for the exportation thereof or payment of the corresponding
duties thereon within one year from the date of importation, under such
rules and regulations as the Insular Collector of Customs shall provide. 1

To implement the section 23, Customs Admin. Order 389

(dated Dec. 6, 1940) was promulgated, paragraph XXVIII of
which provides that "bonds for the re-exportation of cylinders
and other containers are good for 12 months without extension,"
and paragraph XXXI, that " bonds for customs brokers,
commercial samples, repairs and those filed to guarantee the reexportation of cylinders and other containers are not
extendible."

And insofar as jute bags as containers are concerned,

Customs Admin. Order 66 (dated Aug. 25, 1948) was issued,
prescribing rules and regulations governing importation,
exportation and identification thereof under section 23 of
the Philippine Tariff Act of 1909. Said administrative
order provides:
That importation of jute bags intended for use as
containers of Philippine products for exportation to
foreign countries shall be declared in a regular import
entry supported by a surety bond in an amount equal to
double the estimated duties, conditioned for the
exportation or payment of the corresponding duties
thereon within one year from the date of importation.

Section 23 and the superseding sec. 105(x) of the Tariff

and Customs Code, while fixing at 1ye. the period within
which the containers mentioned must be exported, they
are silent as to whether said period may be extended. By
reason of this silence, Bureau of Customs issued Admin.
Orders 389 and 66 to eliminate confusion and provide a
guide as to how it shall apply the law, and to make
officially known its policy to consider the one-year period
mentioned in the law as non-extendible.
The questioned administrative orders is in consonance
with the intention of the legislature to limit the period
within which to export imported containers to one year,
without extension, from the date of importation.
Otherwise, in enacting the Tariff and Customs Code to
supersede the Philippine Tariff Act of 1909, Congress
would have amended section 23 of the latter law so as to
overrule the long-standing view of the Commissioner of
Customs that the one-year period therein mentioned is not
extendible.
Implied legislative approval by failure to change a longstanding administrative construction is not essential to
judicial respect for the construction but is an element
which greatly increases the weight given such
construction.6
The correctness of the interpretation given a statute by the
agency charged with administering its provision is
indicated where it appears that Congress, with full
knowledge of the agency's interpretation, has made
significant additions to the statute without amending it to
depart from the agency's view.7
Considering that BoC is charged with implementing and
enforcing the provisions of our Tariff and Customs Code,
the construction placed by it should be given controlling
weight.
In applying the doctrine or principle of respect for
administrative or practical construction, the courts often
refer to several factors which may be regarded as bases of
the principle, as factors leading the courts to give the
principle controlling weight in particular instances, or as
independent rules in themselves. These factors are:
1)respect due the governmental agencies charged with
administration, their competence, expertness, experience,
and informed judgment and the fact that they frequently
are the drafters of the law they interpret; 2) the agency is
the one on which the legislature must rely to advise it as to
the practical working out of the statute, and practical
application of the statute presents the agency with unique
opportunity and experiences for discovering deficiencies,
inaccuracies, or improvements in the statute;
A construction of a statute which creates an inconsistency
should be avoided when a reasonable interpretation can be

adopted which will not do violence to the plain words of the act
and will carry out the intention of Congress.

TAN vs. DEL ROSARIO, JR

Consolidated case challenging the constitutionality of RA
7496 (Simplified Net Income Taxation Scheme ("SNIT")),
amending certain provisions of the NIRC; also,
challenging the validity of Sec. 6, RR No. 2-93.
1st case: petitioners asserted that the enactment of RA
7496 violates the following provisions of the Constitution:
Art.VI, Sec. 26(1) Every bill passed by the Congress shall
embrace only one subject which shall be expressed in the title
thereof.
Art.VI, Sec. 28(1) The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive system of
taxation.
Art. III, Sec. 1 No person shall be deprived of . . . property
without due process of law, nor shall any person be denied the equal
protection of the laws.

--(1st case)
Petitioners arguments 1): The amendatory law should be
considered as having now adopted a gross income, instead
of as having still retained the net income, taxation scheme.
***Article VI, Sec. 26(1), of the Constitution has been
envisioned so as (a) to prevent log-rolling legislation
intended to unite the members of the legislature who favor
any one of unrelated subjects in support of the whole act,
(b) to avoid surprises or even fraud upon the legislature,
and (c) to fairly apprise the people, through such
publications of its proceedings as are usually made, of the
subjects of legislation. The objectives of the fundamental
law appear have been sufficiently met.
2) (main argument) RA No. 7496 violates the constitutional
requirement that taxation "shall be uniform and equitable"
in that the law would now attempt to tax single
proprietorships and professionals differently from the
manner it imposes the tax on corporations and
partnerships.
RULING: NO VIOLATION OF the Constitution.
Uniformity of taxation, merely requires that all subjects or
objects of taxation, similarly situated, are to be treated
alike both in privileges and liabilities. It is valid as long
as: (1) the standards that are used therefor are substantial
and not arbitrary, (2) the categorization is germane to
achieve the legislative purpose, (3) the law applies, all
things being equal, to both present and future conditions,
and (4) the classification applies equally well to all those
belonging to the same class.

It is apparent from the amendatory law that legislative

intent to increasingly shift the income tax system towards
the schedular approach in the income taxation of
individual taxpayers and to maintain, by and large, the
present global treatment 3 on taxable corporations. This
classification is not arbitrary and inappropriate.
Important note: Legislature has the discretion to determine
the nature (kind), object (purpose), extent (rate), coverage
(subjects) and situs (place) of taxation. The Court cannot
freely delve into those matters which, by constitutional
fiat, rightly rest on legislative judgment.
----(2nd case)
petitioner questions the authority of public respondents
(Sec. of Finance and CIR) in promulgating Sec. 6, RRs
No. 2-93, to carry out RA No. 7496.
Objection of petitioners is focused on the administrative
interpretation of public respondents that would apply
SNIT to partners in general professional partnerships.
Petitioners cite the deliberations in Congress during its
enactment of RA 7496,that Honorable Perez, minority
floor leader of the HoR, in his privilege speech by way of
commenting on the questioned implementing regulation of
public respondents, declared that the law applies only to
individuals, not corporations.
ISSUE: W/N the law applies to individuals?
RULING: YES. At the outset, a general professional
partnership, unlike an ordinary business partnership
(which is treated as a corporation for income tax purposes
and so subject to the corporate income tax), is not itself an
income taxpayer. The income tax is imposed not on the
professional partnership, which is tax exempt, but on the
partners themselves in their individual capacity computed
on their distributive shares of partnership profits. Sec. 23
of the Tax Code, which has not been amended at all by RA
7496, is explicit.
There is no distinction in income tax liability between a
person who practices his profession alone or individually
and one who does it through partnership (registered or not)
with others in the exercise of a common profession.
When the law is understood, as it should be, as only
forming part of, and subject to, the whole income tax
concept and precepts long obtaining under the NIRC.
Under NIRC, SNIT is not intended or envisioned, as so
correctly pointed out in the discussions in Congress during
its deliberations on RA 7496, to cover corporations and
partnerships which are independently subject to the
payment of income tax.

Partners themselves, not the partnership, are liable for the

payment of income tax in their individual capacity
computed on their respective and distributive shares of
profits.
Sec. 6 of RR No. 2-93 did not alter, but merely confirmed,
the above standing rule as now so modified by RA 7496
on basically the extent of allowable deductions applicable
to all individual income taxpayers on their noncompensation income. There is no evident intention of the
law, either before or after the amendatory legislation, to
place in an unequal footing or in significant variance the
income tax treatment of professionals who practice their
respective professions individually and of those who do it
through a general professional partnership.
CIR vs. SEAGATE TECHNOLOGY

Respondent is VAT-registered entity. Later, it claimed for a

refund of VAT input taxes. The case reached CTA.
CIRs defense: 1) claim for tax refund/credit is subject to
administrative routinary investigation/examination by
CIR. Since taxes are presumed to have been collected in
accordance with laws and regulations, respondent has the
burden of proof that the taxes sought to be refunded were
erroneously or illegally collected.
2) Granting, that respondent is a PEZA registered Ecozone
Enterprise, then its business is not subject to VAT pursuant
to Section 24 of RA 7916 in relation to Section 103 of the
Tax Code, as amended. As its business is not subject to
VAT, the capital goods and services it alleged to have
purchased are considered not used in VAT taxable
business. As such, it is not entitled to refund of input taxes
on such capital goods pursuant to Section 4.106.1 of RR
No. 7-95, and of input taxes on services pursuant to
Section 4.103 of said regulations.
3) respondent did register for VAT purposes with the
appropriate Revenue District Office. By virtue of the
PEZA registration alone of respondent, the latter is not
subject to the VAT. Consequently, the capital goods and
services respondent has purchased are not considered used
in the VAT business, and no VAT refund or credit is due.
ISSUE: W/N the application of Effective Zero Rating is
necessary?
RULING: NO. VAT Registration, Not Application for
Effective Zero Rating, Indispensable to VAT Refund
By the VATs very nature as a tax on consumption, the
capital goods and services respondent has purchased are
subject to VAT, although at zero rate. Registration does not
determine taxability under the VAT law.

The PEZA law, which carried over the provisions of the

EPZA law, is clear in exempting from internal revenue
laws and regulations the equipment -- including capital
goods -- that registered enterprises will use, directly or
indirectly, in manufacturing.
EO 226 even reiterates this privilege among the incentives
it gives to such enterprises.
BIR regulations additionally requiring an approved prior
application for effective zero rating cannot prevail over
the clear VAT nature of respondents transactions. The
scope of such regulations is not "within the statutory
authority x x x granted by the legislature.
First, a mere administrative issuance, like a BIR
regulation, cannot amend the law; the former cannot
purport to do any more than interpret the latter. The courts
will not countenance one that overrides the statute it seeks
to apply and implement.
Other than the general registration of a taxpayer the VAT
status of which is aptly determined, no provision under
our VAT law requires an additional application to be made
for such taxpayers transactions to be considered
effectively zero-rated. To allow the additional requirement
is to give unfettered discretion to those officials or agents
who, without fluid consideration, are bent on denying a
valid application. Moreover, the State can never be
estopped by the omissions, mistakes or errors of its
officials or agents.
CLARK INVESTORS AND LOCATORS ASSOCIATION INC.,
vs. SEC. OF FINANCE AND CIR

Petition to annul RRs No. 2-2012 issued by the Department

of Finance.
Congress enacted RA No. 7227 which mandated the
accelerated conversion of the Clark and Subic military
reservations into special economic zones. Sec. 12 thereof
provides for the creation of the Subic Special Economic
Zone. Based on Sec. 12 (c), in lieu of national and local
taxes, all businesses and enterprises operating within the
Zone shall pay a preferential gross income tax rate of 5%.
In addition, Sec. 12 (b) provides that such businesses and
enterprises shall be exempt from the payment of all taxes
and duties on the importation of raw materials, capital,
and equipment into the Subic Special Economic Zone.
Meanwhile, Congress enacted RA No. 9400 which
extended the aforementioned tax and fiscal incentives
under RA No. 7227 to the Clark Freeport Zone. By way of
amendment. Businesses and enterprises within Clark
Freeport Zone are similarly exempt from payment of all
taxes and duties on importation of raw materials, capital
and equipment.

DOF, upon recommendation of BIR, issued RR 2-2012

which imposed VAT and excise tax on the importation of
petroleum and petroleum products from abroad and into
the Freeport or Economic Zones.
Petitioners arguments: 1) RR 2-2012 is void and contrary
to RA No. 7227, -- Bases Conversion and Development
Act of 1992, as amended by RA No. 9400.
2) respondents acted with grave abuse of discretion in
issuing RR 2-2012. By imposing the VAT and excise tax
on the importation of petroleum and petroleum products
from abroad and into the Freeport or Economic Zones, RR
2-2012 unilaterally revoked the tax exemption granted by
RA No. 7227 and RA No. 9400 to the businesses and
enterprises operating within the Subic Special Economic
Zone and Clark Freeport Zone.
Respondents contention: special civil action for certiorari
cannot be used to assail RR 2-2012 which was issued by
the respondents in the exercise of their quasi-legislative or
rule-making powers. Certiorari can only be used against a
public officer exercising judicial or quasi-judicial powers.
2) Sec. 3 of RR 2-2012 allows the businesses and
enterprises operating within the Subic Special Economic
Zone and Clark Freeport Zone to claim for a tax refund
upon submission of competent proof that they used the
imported fuel exclusively within the respective zones.
Thus, RR 2-2012 is consistent with RAs 7227 and 9400.
ISSUE: W/N certiorari is the proper remedy?
RULING: NO. 1st, respondents did not act in any judicial
or quasi-judicial capacity. A petition for certiorari under
Rule 65 of the 1997 Rules of Civil Procedure, as amended,
is a special civil action that may be invoked only against a
tribunal, board, or officer exercising judicial or quasijudicial functions.
For such action to prosper, the ff. must concur: 1) it must
be directed against a tribunal, board, or officer exercising
judicial or quasi-judicial functions; 2) the tribunal, board,
or officer must have acted without or in excess of
jurisdiction or with grave abuse of discretion amounting to
lack or excess of jurisdiction; and 3) there is no appeal or
any plain, speedy, and adequate remedy in the ordinary
course of law.
A respondent is said to be exercising judicial function
where he has the power to determine what the law is and
what the legal rights of the parties are, and then
undertakes to determine these questions and adjudicate
upon the rights of the parties.
Quasi-judicial function-- action, discretion, etc., of public
administrative officers or bodies required to investigate

facts, or ascertain the existence of facts, hold hearings, and

draw conclusions from them, as a basis for their official
action and to exercise discretion of a judicial nature.
Before a tribunal, board, or officer may exercise judicial
or quasi-judicial acts, it is necessary that there be a law
that gives rise to some specific rights of persons or
property under which adverse claims to such rights are
made, and the controversy ensuing therefrom is brought
before a tribunal, board, or officer clothed with power and
authority to determine the law and adjudicate the
respective rights of the contending parties.
Respondents do not fall within the ambit of a tribunal,
board, or officer exercising judicial or quasi-judicial
functions. They issued RR 2-2012 in the exercise of their
quasi-legislative or rule-making powers, and not judicial
or quasi-judicial functions. Thus, respondents did not
adjudicate or determine the rights of the parties.
To determine whether a RR is quasi-legislative in nature,
reference is made in: BPI Leasing Corporation v. CA where
SC ruled that RR 19-86 was quasi-legislative in nature
because it was issued by the Secretary of Finance in the exercise
of his rule-making powers under Sec. 244 of NIRC. The Court
finds the questioned RR to be legislative in nature. Sec. 1
thereof plainly states that it was promulgated pursuant to Sec.
277 of the NIRC. Sec. 277 (now Sec. 244) is an express grant of
authority to the Secretary of Finance to promulgate all needful
rules and regulations for the effective enforcement of the
provisions of the NIRC. The application of Sec. 277 calls for the
exercise of quasi-legislative or rule-making authority. Thus, RR
19-86 was issued pursuant to the rule-making power of the
Secretary of Finance, thus making it legislative and not
interpretative as alleged by BLC.

Similarly, here, RR 2-2012 was also issued by the

Secretary of Finance based on Sec. 244 of the NIRC.
(reference: Sec. 1 of RR 2-2012)
Conformably with the ruling in BPI Leasing Corporation
that the application of Sec. 244 of the NIRC is an exercise
of quasi-legislative or rule-making powers of the
Secretary of Finance, and since RR 2-2012 was issued by
the Secretary of Finance based on Sec. 244 of the NIRC,
such administrative issuance is therefore quasi-legislative
in nature which is outside the scope of a petition for
certiorari. issued by the Secretary of Finance based on
Sec. 244 of the NIRC, such administrative issuance is
therefore quasi-legislative in nature which is outside the
scope of a petition for certiorari.
CHAMBER OF REAL ESTATE AND BUILDERS ASSOC. v.
ALBERTO ROMULO, ET AL

Petitioner challenge the constitutionality of Sec. 27 (E) of

RA 8424 and the revenue regulations issued by BIR to
implement said provision and those involving creditable
withholding taxes.

Petitioner assails the validity of the imposition of

minimum corporate income tax (MCIT) on corporations
and creditable withholding tax (CWT) on sales of real
properties classified as ordinary assets.
Respondent Secretary of Finance, on the recommendation
of the CIR, promulgated RR 9-98 implementing Sec.
27(E). It provides for MCIT on domestic corporations and
is implemented by RR 9-98.

person, national or juridical, residing in the Philippines.

Such authority is derived from Sec. 57(B) of RA 8424.
The questioned provisions of RR 2-98, as amended, are
well within the authority given by Sec. 57(B) to the
Secretary, i.e., the graduated rate of 1.5%-5% is between
the 1%-32% range; the withholding tax is imposed on the
income payable and the tax is creditable against the
income tax liability of the taxpayer for the taxable year.

Meanwhile, on April 17, 1998, respondent Secretary, upon

recommendation of respondent CIR, promulgated RR 298 implementing certain provisions of RA 8424 involving
the withholding of taxes. Under Sec. 2.57.2(J) of RR No.
2-98, income payments from the sale, exchange or transfer
of real property, other than capital assets, by persons
residing in the Philippines and habitually engaged in the
real estate business were subjected to CWT.

CIR vs. MICHEL J. LHUILLIER PAWNSHOP, INC.,

Petitioners contention: 1) Sec.s 2.57.2(J) and 2.58.2 of

RR 2-98 and Sec.s 4(a)(ii) and (c)(ii) of RR 7-2003 were
promulgated "with grave abuse of discretion amounting to
lack of jurisdiction" and "patently in contravention of
law". Since RA 8424 treats capital assets and ordinary
assets differently, respondents cannot disregard the
distinctions set by the legislators as regards the tax base,
modes of collection and payment of taxes on income from
the sale of capital and ordinary assets.

CTA declared RMO No. 15-91 and RMC No. 43-91 null
and void insofar as they classify pawnshops as lending
investors subject to 5% percentage tax.

The assailed provisions prescribe the rules and procedures

for the collection of CWT on the sale of real properties
categorized as ordinary assets. Petitioner contends that
these revenue regulations are contrary to law. Reasons: 1)
they ignore the different treatment by RA 8424 of ordinary
assets and capital assets; and 2) Secretary of Finance has
no authority to collect CWT, much less, to base the CWT
on the gross selling price or fair market value of the real
properties classified as ordinary assets.

Lhuillier: 1) RMO No. 15-91 and RMC No. 43-91 are not
implementing rules but are new and additional tax
measures, which only Congress is empowered to enact.
Besides, they are invalid because they have never been
published in the Official Gazette or any newspaper of
general circulation.

ISSUE: W/N Sec. of Finance has the authority to order

collection of CWT on Sales of Real Property considered
as ordinary assets?
RULING: YES, by virtue of Sec. 244 of RA 8424---Sec.of
Finance has the authority to promulgate the necessary
rules and regulations for the effective enforcement of the
provisions of the law. Such authority is subject to the
limitation that the rules and regulations must not override,
but must remain consistent and in harmony with, the law
they seek to apply and implement. It is well-settled that an
administrative agency cannot amend an act of Congress.
Method of withholding tax at source is a procedure of
collecting income tax which is sanctioned by our tax laws.
Respondent Secretary has the authority to require the
withholding of a tax on items of income payable to any

CIR Ong issued Revenue Memo. Order (RMO) No. 15-91

imposing a 5% lending investors tax on pawnshops.
This RMO was clarified by RMC No. 43-91.
Pursuant to these issuances, BIR demanded from Lhuillier
g payment of deficiency.

CIR argument before SC: RMO No. 15-91 and RMC No.
43-91, which subject pawnshops to the 5% lending
investors tax based on their gross income, are valid.
Being mere interpretations of the NIRC, they need not be
published.

2) pawnshops are strictly regulated by the Central Bank

pursuant to P.D. 114-- Pawnshop Regulation Act. On the
other hand, there is no special law governing lending
investors. Due to the wide differences between the two,
pawnshops had never been considered as lending investors
for tax purposes.
ISSUE: W/N RMO No. 15-91 and RMC No. 43-91 are
valid?
RULING: NO. Consequently, Lhuillier is not liable to pay the
5% lending investors tax.

RMO No. 15-91 and RMC No. 43-91 were issued in

accordance with the power of the CIR to make rulings and
opinions in connection with the implementation of internal
revenue laws, which was bestowed by then Sec. 245 of the
NIRC of 1977, as amended by E.O. No. 273. Such power
of the CIR cannot be controverted.

However, in the exercise of such power, CIR cannot issue

administrative rulings or circulars not consistent with the
law sought to be applied. Administrative issuances must
not override, supplant or modify the law, but must remain
consistent with the law they intend to carry out. Only
Congress can repeal or amend the law.
The CIR argues that both issuances are mere rules and
regulations implementing then Sec. 116 of the NIRC, as
amended.
**NIRC of 1977 as renumbered and rearranged by E.O. No. 273 is a
later law than the NIRC of 1986, as amended by P.D. Nos. 1991, 1994,
2006 and 2031. The citation of the specific Code is important for us to
determine the intent of the law.

Under Sec. 157(u) of the NIRC of 1986, as amended, the

term lending investor includes "all persons who make a
practice of lending money for themselves or others at
interest." A pawnshop, on the other hand, is defined under
Sec. 3 of P.D. No. 114 as "a person or entity engaged in
the business of lending money on personal property
delivered as security for loans and shall be synonymous,
and may be used interchangeably, with pawnbroker or
pawn brokerage."
While it is true that pawnshops are engaged in the
business of lending money, they are not considered
"lending investors" for the purpose of imposing the 5%
percentage taxes.
Reasons: 1) Congress never intended pawnshops to be
treated in the same way as lending investors. Sec. 116 of
the NIRC of 1977, as renumbered and rearranged by E.O.
No. 273, was basically lifted from Sec. 175 of the NIRC
of 1986, which treated both tax subjects differently.
The definition of lending investors found in Sec. 157 (u)
of the NIRC of 1986 is not found in the NIRC of 1977, as
amended by E.O. No. 273, where Sec. 116 invoked by the
CIR is found. However, as emphasized earlier, both the
NIRC of 1986 and the NIRC of 1977 dealt with
pawnshops and lending investors differently. Thus, it was
the intent of Congress to deal with both subjects
differently. Hence, we must likewise interpret the statute
to conform with such legislative intent.
2) Sec. 116 of the NIRC of 1977, as amended by E.O. No.
273, subjects to percentage tax dealers in securities and
lending investors only. There is no mention of pawnshops.
Under the maxim the mention of one thing implies the
exclusion of another thing not mentioned, if a statute
enumerates the things upon which it is to operate,
everything else must necessarily and by implication be
excluded from its operation and effect.

3) BIR had ruled several times prior to the issuance of

RMO No. 15-91 and RMC 43-91 that pawnshops were not
subject to the 5% percentage tax imposed by Sec. 116 of
the NIRC of 1977, as amended by E.O. No. 273. This was
even admitted by the CIR in RMO No. 15-91 itself.
Considering that Sec. 116 of the NIRC of 1977, as
amended, was practically lifted from Sec. 175 of the
NIRC of 1986, as amended, and there being no change in
the law, the interpretation thereof should not have been
altered.
It may not be amiss to state that, as pointed out by the
respondent, pawnshops was sought to be included as
among those subject to 5% percentage tax by House Bill
No. 11197 in 1994. Sec. 13.
If pawnshops were covered within the term lending
investor, there would have been no need to introduce such
amendment to include owners of pawnshops. At any rate,
such proposed amendment was not adopted. Instead, the
approved bill which became R.A. No. 7716 repealed Sec.
116 of NIRC of 1977, as amended, which was the basis of
RMO No. 15-91 and RMC No. 43-91.
Since Sec. 116 of the NIRC of 1977, which breathed life
on the questioned administrative issuances, had already
been repealed, RMO 15-91 and RMC 43-91, which
depended upon it, are deemed automatically repealed.
Hence, even granting that pawnshops are included within
the term lending investors, the assessment from 27 May
1994 onward would have no leg to stand on.
Adding to the invalidity of the RMC No. 43-91 and RMO No.
15-91 is the absence of publication. While the rule-making
authority of the CIR is not doubted, like any other government
agency, the CIR may not disregard legal requirements or
applicable principles in the exercise of quasi-legislative powers.
Let us first distinguish between two kinds of administrative
issuances: the legislative rule and the interpretative rule. A
legislative rule is in the nature of subordinate legislation,
designed to implement a primary legislation by providing the
details thereof. An interpretative rule, on the other hand, is
designed to provide guidelines to the law which the
administrative agency is in charge of enforcing.
When an administrative rule is merely interpretative in nature,
its applicability needs nothing further than its bare issuance, for
it gives no real consequence more than what the law itself has
already prescribed. When, on the other hand, the administrative
rule goes beyond merely providing for the means that can
facilitate or render least cumbersome the implementation of the
law but substantially increases the burden of those governed, it
behooves the agency to accord at least to those directly affected
a chance to be heard, and thereafter to be duly informed, before
that new issuance is given the force and effect of law.15
RMO No. 15-91 and RMC No. 43-91 cannot be viewed simply
as implementing rules or corrective measures revoking in the

process the previous rulings of past Commissioners.

Specifically, they would have been amendatory provisions
applicable to pawnshops. Without these disputed CIR issuances,
pawnshops would not be liable to pay the 5% percentage tax,
considering that they were not specifically included in Sec. 116
of the NIRC of 1977, as amended. In so doing, the CIR did not
simply interpret the law. The due observance of the
requirements of notice, hearing, and publication should not have
been ignored.

BIR RULINGS
SUPREME TRANSLINER, INC., vs. BPI FAMILY SAVINGS
BANK, INC.,

On April 24, 1995, Supreme Transliner, Inc. obtained a

loan from BPI Family Savings Bank.
For non-payment of the loan, the mortgage was
extrajudicially foreclosed. Eventually, property was
awarded to BPI.
Before the expiration of the one-year redemption period,
the mortgagors redeemed the property.
On June 11, 1997, the mortgagors filed a complaint
against the bank to recover the allegedly unlawful and
excessive charges.
BPIs defense: the redemption price reflecting the
stipulated interest, charges and/or expenses, is valid and in
accordance with documents signed by the mortgagors.
TC: dismissed the complaint. Plaintiffs-mortgagors are
bound by the terms of the mortgage loan documents
(estoppel) CA reversed.
Petitioners prayer: for the return of all asset-acquired
expenses including capital gains tax.
ISSUE: W/N the foreclosing mortgagee should pay capital
gains tax upon execution of the certificate of sale?
RULING: NO. Petitioner is correct. There is no legal basis
for the inclusion of capital gains tax due on the
extrajudicial foreclosure sale in the redemption price.
Under Revenue Regulations (RR) No. 13-85 (Dec. 12,
1985), every sale or exchange or other disposition of real
property classified as capital asset under Section 34(a) of
the Tax Code shall be subject to the final capital gains tax.
Section 2.2 of Revenue Memorandum Order (RMO) No.
29-86 (as amended by RMO No. 16-88 and as further amended
by RMO Nos. 27-89 and 6-92) states that these conditional
sales "necessarily include mortgage foreclosure sales."
Further, for real property foreclosed by a bank on or after
Sep. 3, 1986, the capital gains tax and documentary stamp

tax must be paid before title to the property can be

consolidated in favor of the bank.
RR No. 4-99 issued on March 16, 1999, further amends
RMO No. 6-92 relative to the payment of Capital Gains
Tax and Documentary Stamp Tax on extrajudicial
foreclosure sale of capital assets initiated by banks,
finance and insurance companies.
Although the subject foreclosure sale and redemption took
place before the effectivity of RR No. 4-99, its provisions
may be given retroactive effect in this case. (Section 246
of the NIRC of 1997)
SEC. 246. Non-Retroactivity of Rulings. Any revocation,
modification, or reversal of any of the rules and regulations
promulgated in accordance with the preceding Sections or any
of the rulings or circulars promulgated by the Commissioner
shall not be given retroactive application if the revocation,
modification, or reversal will be prejudicial to the taxpayers,
except in the following cases:
(a) where the taxpayer deliberately misstates or omits material
facts from his return or in any document required of him by the
Bureau of Internal Revenue;
(b) where the facts subsequently gathered by the Bureau of
Internal Revenue are materially different from the facts on
which the ruling is based; or
(c) where the taxpayer acted in bad faith.

Here, the retroactive application of RR No. 4-99 is more

consistent with the policy of aiding the exercise of the
right of redemption. RR No. 4-99 "has curbed the inequity
of imposing a capital gains tax even before the expiration
of the redemption period [since] there is yet no transfer of
title and no profit or gain is realized by the mortgagor at
the time of foreclosure sale but only upon expiration of the
redemption period."
While revenue regulations as a general rule have no
retroactive effect, if the revocation is due to the fact that
the regulation is erroneous or contrary to law, such
revocation shall have retroactive operation as to affect past
transactions, because a wrong construction of the law
cannot give rise to a vested right that can be invoked by a
taxpayer.
Considering that petitioners-mortgagors exercised their
right of redemption before the expiration of the statutory
one-year period, petitioner bank is not liable to pay the
capital gains tax due on the extrajudicial foreclosure sale.
There was no actual transfer of title from the ownersmortgagors to the foreclosing bank. Hence, the inclusion
of the said charge in the total redemption price was
unwarranted and the corresponding amount paid by the
petitioners-mortgagors should be returned to them.

WHEREFORE, BPI Family Savings Bank, Inc. is ordered to

RETURN the amounts representing capital gains and
documentary stamp taxes to petitioners and to retain only the
sum provided in RR No. 4-99 as documentary stamps tax due on
the foreclosure sale.
CIR vs. SAN ROQUE POWER CORPORATION

RESOLUTION

MR filed by San Roque. Prayer: that the rule established

in SCs Feb. 12, 2013 Decision be given only a
prospective effect, arguing that "the manner by which BIR
and CTA actually treated the 120 + 30 day periods
constitutes an operative fact the effects, hence, cannot be
erased or undone.
CIRs argument: Taganito Mining Corporation's judicial
claim for tax credit or refund was prematurely filed before
the CTA and should be disallowed because BIR Ruling No. DA-48903 was issued by a Deputy Commissioner, not by the Commissioner of
Internal Revenue.

ISSUE: W/N the BIR and CTA rulings constitute

operative fact?
RULING: MR denied.
Gen. Rule: void law or administrative act cannot be the
source of legal rights or duties. Article 7 of the Civil Code
enunciates this rule-- "Laws are repealed only by subsequent ones,
and their violation or non-observance shall not be excused by disuse, or
custom or practice to the contrary. When the courts declared a law to be
inconsistent with the Constitution, the former shall be void and the
latter shall govern. Administrative or executive acts, orders and
regulations shall be valid only when they are not contrary to the laws or
the Constitution."

The doctrine of operative fact is an exception to the

general rule, such that a judicial declaration of invalidity
may not necessarily obliterate all the effects and
consequences of a void act prior to such declaration.
For this doctrine to apply, there must be a law or executive
issuance, that is invalidated by the court.
From the passage of such law or promulgation of such
executive issuance until its invalidation by the court, the
effects of the law or executive issuance, when relied upon
by the public in good faith, may have to be recognized as
valid.
However, in this case, there is no such law or executive
issuance that has been invalidated by the Court except
BIR Ruling No. DA-489-03.
San Roques argument to justify the application of the
doctrine of operative fact as an exemption: BIR and the
CTA in actual practice did not observe and did not require
refund seekers to comply with the120+30 day periods."

This is incorrect because an administrative practice is

neither a law nor an executive issuance. Moreover, there is
even no such administrative practice by the BIR as
claimed by San Roque.
In BIR Ruling No. DA-489-03 dated 10 December 2003,
the Deputy Commissioner Buag ruled that "a taxpayerclaimant need not wait for the lapse of the 120-day period
before it could seek judicial relief with the CTA by way of
Petition for Review." Buag, citing the Feb. 7, 2002
decision of CA, stated that the claim for refund with the
Commissioner could be pending simultaneously with a
suit for refund filed before the CTA.
Before the issuance of the above BIR Ruling , there was no
BIR administrative practice that supported simultaneous
filing of claims; it considered the 120+30 day periods
mandatory and jurisdictional.
Thus, prior to the BIR Ruling, BIRs actual administrative
practice was to contest simultaneous filing of claims at the
administrative and judicial levels, until the CA declared in
its Feb. 7, 2002 decision that the BIRs position was
wrong. Said decision is the basis of BIR Ruling No. DA489-03 dated Dec. 10, 2003 allowing simultaneous filing.
From then on taxpayers could rely in good faith on BIR
Ruling No. DA-489-03 even though it was erroneous as
this Court subsequently decided in Aichi that the 120+30
day periods were mandatory and jurisdictional.
At the time San Roque filed its petition for review with
the CTA, the 120+30 day mandatory periods were already
in the law. Section112(C) expressly grants the
Commissioner 120 days within which to decide the
taxpayers claim. Hence, taxpayer cannot simply file a
petition with the CTA without waiting for the
Commissioners decision within the 120-day mandatory
and jurisdictional period.
In San Roques case, it filed its petition with the CTA, 13
days after it filed its administrative claim with the
Commissioner. Hence, San Roque knowingly violated the
mandatory 120-day period, and it cannot blame anyone
but itself.
To repeat, a claim for tax refund or credit, like a claim for
tax exemption, is construed strictly against the taxpayer.
One of the conditions for a judicial claim of refund or
credit under the VAT System is compliance with the
120+30 day mandatory and jurisdictional periods. Thus,
strict compliance with the 120+30 day periods is
necessary for such a claim to prosper, whether before,
during, or after the effectivity of the Atlas doctrine, except
for the period from the issuance of BIR Ruling No. DA489-03 on 10 December 2003 to 6 October 2010 when the

Aichi doctrine was adopted, which again reinstated the

120+30 day periods as mandatory and jurisdictional.

CSEZ all the incentives granted to enterprises within the

Subic Special Economic Zone (SSEZ) under RA 7227.

San Roques argument must, therefore, fail. The doctrine

of operative fact is an argument for the application of
equity and fair play. In the present case, we applied the
doctrine of operative fact when we recognized
simultaneous filing during the period between 10
December 2003, when BIR Ruling No. DA-489-03 was
issued, and 6 October 2010, when this Court promulgated
Aichi declaring the 120+30 day periods mandatory and
jurisdictional, thus reversing BIR Ruling No. DA-489-03.

Sec. 12 of RA 7227 provides duty-free importations and

exemptions of businesses within the SSEZ from local and
national taxes. Thus, in accordance with the tax exemption
certificates granted to respondent Puregold, it filed its
Annual Income Tax Returns and paid the 5% preferential
tax, in lieu of all other national and local taxes for the
period of January 1998 to May 2004.

The doctrine of operative fact is in fact incorporated in

Section 246 of the Tax Code, whereby taxpayers may rely
upon a rule or ruling issued by the Commissioner from the
time the rule or ruling is issued up to its reversal by the
Commissioner or this Court. The reversal is not given
retroactive effect. There must, however, be a rule or ruling
issued by the Commissioner that is relied upon by the
taxpayer in good faith. A mere administrative practice, not
formalized into a rule or ruling, will not suffice because
such a mere administrative practice may not be uniformly
and consistently applied. An administrative practice, if not
formalized as a rule or ruling, will not be known to the
general public and can be availed of only by those within
formal contacts with the government agency.

On July 25, 2005, in Coconut Oil Refiners v. Torres,

however, SC annulled Sec. 5 of EO 80, in effect
withdrawing the preferential tax treatment herein enjoyed
by all businesses located in the CSEZ.
On Nov. 7, 2005, then Deputy Commissioner for Special
Concems/OIC-Large Taxpayers Service of BIR issued a
Preliminary Assessment Notice regarding unpaid VAT and
excise tax on wines, liquors and tobacco products
imported by Puregold from January 1998 to May 2004.
Pending the resolution of Puregold's protest, RA 9399 was
enacted, granting tax amnesty (relief from civil, crim., and
admin. liability for non-payment of taxes) to business enterprises
affected by SC's rulings in John Hay People's Coalition v.
Lim and Coconut Oil Refiners.

Here, the ruling subject of the operative fact doctrine is

BIR Ruling No. DA-489-03 dated 10 December 2003.
Prior to this date, there is no such rule or ruling calling for
the application of the operative fact doctrine in Section
246. Section246, being an exemption to statutory taxation,
must be applied strictly against the taxpayer claiming such
exemption.

On July 27, 2007, Puregold availed itself of the tax

amnesty under RA 9399.

Further argument of San Roque: SC should not decide the

present case in violation of the rulings of the CTA;
otherwise, there will be adverse effects on the national
economy. It cites cases decided by the CTA to underscore
that the CTA did not treat the 120+30 day periods as
mandatory and jurisdictional.

BIR asserted that the availment of the tax amnesty under

RA 9399 did not relieve Puregold of its liability for
deficiency VAT, excise taxes, and inspection fees under
Sec. 13l(A) of the 1997 NIRC.

However, CTA or CA rulings are not the executive

issuances covered by Section 246 of the Tax Code, which
adopts the operative fact doctrine. CTA or CA decisions
are specific rulings applicable only to the parties to the
case and not to the general public. CTA or CA decisions,
do not have any value as precedents.
CIR vs. PUREGOLD DUTY FREE, INC.,

Puregold had been issued Certificate of Tax Exemption

No. 94-4, later superseded by Certificate of Tax Exemption No.
98-54, which enumerated the tax incentives granted to it,
including tax and duty-free importation of goods.
Certificates were issued pursuant to Sec. 5 of EO 80,
extending to business enterprises operating within the

Nonetheless, on Oct. 26, 2007, Puregold received a

demand letter from the BIR for the payment of deficiency
VAT and excise taxes on its importations of alcohol and
tobacco products from January 1998 to May 2004.

Puregolds argument before the CTA: doctrines of

operative fact and non-retroactivity of rulings bar the CIR
from assessing it of deficiency VAT and excise taxes.
CIRs defense: pursuant to Sec. 13 l(A) of the 1997 NIRC,
only importations of distilled spirits, wines, and cigarettes
to the freeports in Subic, Cagayan, and Zamboanga, as
well as importations by government-owned duty free
shops, are exempt from the payment of VAT and excise
taxes.
CTA cancelled the assessment against Puregold in view of
its availment of tax amnesty under RA 9399.

CIRs argument before SC: Puregold's liability to pay the

assessed deficiency taxes remains since these were not
incurred by Puregold due to SCs decisions in John Hay
and Coconut Oil, but are clearly imposable taxes and
duties on Puregold's importation of alcohol and tobacco
products under the 1997 NIRC. Even without these
rulings, Puregold as a non-chartered SEZ remains liable
for payment of VAT and excise taxes on its importation of
alcohol and tobacco products from Jan. 1998 to May
2004.
ISSUE: W/N Puregold can avail of Tax Amnesty under
RA 9399?
RULING: YES. Resolution of CTA AFFIRMED. Accordingly,
assessment against Puregold supposedly representing deficiency VAT
and excise taxes on its importations of alcohol and tobacco products
from January 1998 to May 2004 is CANCELLED

CIRs position is erroneous. It negates the remedial

measure contemplated in RA 9399 against SCs decisions
in John Hay and Coconut Oil.
It is worthy to note that Sec. 1 of RA 9399 explicitly and
unequivocally mentions businesses within the CSEZ as
among the beneficiaries of the tax amnesty provided by
RA 9399.
SECTION 1. Grant of Tax Amnesty. - Registered business
enterprises operating prior to the effectivity of this Act within
the special economic zones and freeports created pursuant to
Section 15 of Republic Act No. 7227, as amended x x x may
avail themselves of the benefits of remedial tax amnesty x x x
incurred by them or that might have accrued to them due to the
rulings of the SC in the cases of John Hay People's Coalition v.
Lim, et. al., dated 24 October 2003 and Coconut Oil Refiners
Association, Inc. v. Torres, et. al., dated 29 July 2005 xx x.

To conclude that Puregold a registered business

enterprise operating within the CSEZ - cannot avail of the
amnesty extended by the law with regard to its liability
under Section 13 l(A) of the 1997 NIRC simply goes
against the plain and unambiguous language of RA 9399.
Furthermore, to review the factual milieu, Puregold
enjoyed duty-free importations and exemptions from local
and national taxes under EO 80, a privilege which
extended to business enterprises operating within the
CSEZ all the incentives granted to enterprises within
SSEZ by RA 7227. Hence, Puregold was repeatedly issued
tax exemption certificates and the BIR itself did not assess
any deficiency taxes from the time the 1997 NIRC took
effect in January 1998.
BIR itself, one year after the 1997 NIRC took effect,
confirmed through BIR Ruling No. 149-99 that the tax
incentives extended to CSEZ operators by EO 80 were not
affected by the 1997 NIRC.

Meanwhile, Puregold is correct. BIR Ruling 149-99 has

not been reversed or overruled either by the CIR or the
Courts. In fact, the tax incentives enjoyed by businesses
within CSEZ as provided for in EO 80 were even upheld
by the BIR through a succeeding ruling.
Without a doubt, the effectivity of Sec. 5, EO 80 and the
privileges enjoyed by Puregold and similarly situated
enterprises were not put into question until SC
categorically voided that provision in Coconut Oil on July
29, 2005.
In other words, without the ruling in Coconut Oil,
Puregold would have had continued to enjoy tax-free
importation of alcohol and tobacco products into the
CSEZ. It cannot, therefore, be gainsaid that the subject
deficiency taxes first assessed by the BIR in November
2005, just months after the promulgation of Coconut Oil,
accrued because of such ruling. Hence, with more reason,
these deficiency taxes are encompassed by the remedial
measure that is RA 9399.
SC subscribes to the doctrine of operative fact, which
recognizes that a judicial declaration of invalidity may not
necessarily obliterate all the effects and consequences of a
void act prior to such declaration.
SCs ruling in Coconut Oil cannot be retroactively applied
to obliterate the effect of Section 5 of EO 80 and the
various rulings of the former CIR prior to the
promulgation of our Decision in 2005.
***citing Serrano de Agbayani v. PNB: an unconstitutional EO
or a municipal ordinance, cannot be the source of any legal
rights or duties. Nor can it justify any official act taken under it.
Its repugnancy to the fundamental law once judicially declared
results in its being to all intents and purposes a mere scrap of
paper.
Such a view may not however be sufficiently realistic. Prior to
the declaration of nullity such challenged legislative or
executive act must have been in force and had to be complied
with. This is so as until after the judiciary, in an appropriate
case, declares its invalidity, it is entitled to obedience and
respect. Parties may have acted under it and may have changed
their positions.
It is now accepted as a doctrine that prior to its being nullified,
its existence as a fact must be reckoned with. It would be to
deprive the law of its quality of fairness and justice then, if there
be no recognition of what had transpired prior to such
adjudication.

TAX TREATIES

TAADA vs. ANGARA

WTO Agreement was ratified by the President.

Petitioners argument: WTO proviso derogates from the

power to tax, lodged in the Congress. And while the
Constitution allows Congress to authorize the President to
fix tariff rates, import and export quotas, tonnage and
wharfage dues, and other duties or imposts, such authority
is subject to "specified limits and . . . such limitations and
restrictions" as Congress may provide, as in fact it did
under Sec. 401 of the Tariff and Customs Code.
ISSUE: W/N the provisions of said agreement and its
annexes limit, restrict, or impair the exercise of legislative
power by Congress?
RULING: Sovereignty Limited by International Law and
Treaties.
While sovereignty has been deemed absolute and allencompassing on the domestic level, it is however subject
to restrictions and limitations voluntarily agreed to by the
Philippines, expressly or impliedly, as a member of the
family of nations.
By doctrine of incorporation, the country is bound by
generally accepted principles of international law, which
are considered to be automatically part of our own laws.
By their inherent nature, treaties really limit or restrict the
absoluteness of sovereignty. By their voluntary act,
nations may surrender some aspects of their state power in
exchange for greater benefits granted by or derived from a
convention or pact. Thus, treaties have been used to record
agreements between States concerning the regulation of
commercial relations, among others.
UN Charter Other Treaties Limit Sovereignty
Philippine Congress is restricted in its power to
appropriate, in such a way that is compelled to appropriate
funds whether it agrees with such peace-keeping expenses
or not.
Other Treaties Limit Sovereignty
(a) Bilateral convention with US regarding taxes on
income, where the Philippines agreed to exempt from tax,
income received in the Philippines by the Federal Reserve
Bank of US, the Export/Import Bank of the US, the
Overseas Private Investment Corporation of US. Likewise,
wages, salaries and similar remunerations paid by the US
to its citizens for labor and personal services performed by
them as employees or officials of US are exempt from
income tax by the Philippines.
(b) Bilateral agreements with Belgium, Kingdom of
Sweden, and French Republic, providing for the
avoidance of double taxation.
(e) Bilateral air transport agreement with Korea, Japan,
and Belgium where the Philippines agreed to exempt from

all customs duties, inspection fees and other duties or

taxes aircrafts of South Korea, and charges fuel,
lubricating oils, spare parts, regular equipment, stores on
board Japanese aircrafts while on Philippine soil.
(g) Bilateral air service agreement with Belgium where the
Philippines granted Belgian air carriers the same
privileges as those granted to Japanese and Korean air
carriers under separate air service agreements.
In the foregoing treaties, the Philippines has effectively
agreed to limit the exercise of its sovereign powers of
taxation, eminent domain and police power.
Consideration: the reciprocal commitment of the other
contracting states in granting the same privilege and
immunities to the Philippines, its officials and its citizens.
DEUTSCHE BANK AG MANILA BRANCH, vs. CIR

Pursuant to Section 28(A)(5) of NIRC of 1997, petitioner

withheld and remitted to CIR an amount representing the
15% branch profit remittance tax (BPRT) on its regular
banking unit net income remitted to Deutsche Bank
Germany (DB Germany) for 2002 and prior taxable years.
Believing that it made an overpayment, petitioner filed an
administrative claim for refund. On the same date, it a
confirmation of its entitlement to the preferential tax rate
of 10% under the RP-Germany Tax Treaty. It applied for a
tax treaty relief, in substantial compliance with RMO No.
1-2000.
Petitioners argument: considering that it has met all the
conditions under Article 10 of the RP-Germany Tax
Treaty, its claim should be granted. Filing of a tax treaty
relief application is not a condition precedent to the
availment of a preferential tax rate.
Respondents answer: prior application under RMO No. 12000 is mandatory in character. RMO No. 1-2000 was
issued pursuant to the authority of the Secretary of
Finance to promulgate rules and regulations for the
effective implementation of the NIRC.
ISSUE: W/N petitioner is entitled to a preferential tax rate
of 10% BPRT in accordance with the RP-Germany Tax
Treaty?
RULING: YES. Under Section 28(A)(5) of the NIRC, any
profit remitted to its head office shall be subject to a tax of
15% based on the total profits applied for or earmarked for
remittance without any deduction of the tax component.
Petitioner: invokes paragraph 6, Article 10 of the RPGermany Tax Treaty, which provides that where a resident
of the Federal Republic of Germany has a branch in the
Republic of the Philippines, this branch may be subjected
to the branch profits remittance tax withheld at source in

accordance with Philippine law but shall not exceed 10%

of the gross amount of the profits remitted by that branch
to the head office.
By virtue of the RP-Germany Tax Treaty, we are bound to
extend to a branch in the Philippines, remitting to its head
office in Germany, the benefit of a preferential rate
equivalent to 10% BPRT.
Moreover, Constitution provides for adherence to the
general principles of international law as part of the law of
the land. The international principle of pacta sunt
servanda demands the performance in good faith of treaty
obligations on the part of the states that enter into the
agreement. Every treaty in force is binding upon the
parties, and obligations under the treaty must be
performed by them in good faith. More importantly,
treaties have the force and effect of law in this
jurisdiction.
Tax treaties are entered into "to reconcile the national
fiscal legislations of the contracting parties and, in turn,
help the taxpayer avoid simultaneous taxations in two
different jurisdictions." Tax conventions are drafted with a
view towards the elimination of international juridical
double taxation (imposition of comparable taxes in two or more
states on the same taxpayer in respect of the same subject matter and
for identical periods).

Tax treaties are entered into to minimize, if not eliminate

the harshness of international juridical double taxation,
which is why they are also known as double tax treaty or
double tax agreements.
Likewise, it must be stressed that there is nothing in RMO
No. 1-2000 which would indicate a deprivation of
entitlement to a tax treaty relief for failure to comply with
the 15-day period.
Bearing in mind the rationale of tax treaties, the period of
application for the availment of tax treaty relief as
required by RMO No. 1-2000 should not operate to divest
entitlement to the relief as it would constitute a violation
of the duty required by good faith in complying with a tax
treaty. The denial of the availment of tax relief for the
failure of a taxpayer to apply within the prescribed period
under the administrative issuance would impair the value
of the tax treaty. At most, the application for a tax treaty
relief from the BIR should merely operate to confirm the
entitlement of the taxpayer to the relief.
The obligation to comply with a tax treaty must take
precedence over the objective of RMO No. 1-2000.
Logically, noncompliance with tax treaties has negative
implications on international relations, and unduly
discourages foreign investors. While the consequences
sought to be prevented by RMO No. 1-2000 involve an

administrative procedure, these may be remedied through

other system management processes, e.g., the imposition
of a fine or penalty. But we cannot totally deprive those
who are entitled to the benefit of a treaty for failure to
strictly comply with an administrative issuance requiring
prior application for tax treaty relief.

be deprived of this most essential power and attribute of

sovereignty by vague implications of law. Rather, being
derogatory of sovereignty, the governing principle is that
tax exemptions are to be construed strictly against the
taxpayer and liberally in favor of the taxing authority; and
he who claims an exemption must be able to justify his
claim by the clearest grant of statute.
HERE, petitioner seeks a refund. Tax refunds are a
derogation of the States taxing power. Hence, like tax
exemptions, they are construed strictly against the
taxpayer and liberally in favor of the State. Significantly,
petitioner cannot point to any specific provision of
NIRC authorizing its claim for an exemption or
refund.
Rather, Section 176 of the NIRC applicable to the issue
provides that the future transfer of shares of stocks is
subject to documentary stamp tax. Pursuant to such, sales
to secure "the future transfer of due-bills, certificates of
obligation or certificates of stock" are liable for
documentary stamp tax. No exemption from such payment
of documentary stamp tax is specified therein.
CONCEPT AND NATURE OF TAXATION
TAXATION
DEFINITION
COMPAIGNE FINANCIERE SUCRES ET DEBREES vs. CIR

Petitioner transferred its 8% equity interest in the Makati

Shangri-La Hotel and Resort to Kerry Holdings Ltd. It
was compelled to pay documentary stamps tax and capital
gains tax on the transfer.
Petitioner claimed for refund. Contention: the transfer of
deposits on stock subscriptions is not a sale/assignment of
shares of stock subject to documentary stamps tax and
capital gains tax.
CTA denied the claim. Reason: pursuant to Section 176 of
the Tax Code, sales "to secure the future payment of
money or for the future transfer of any bond, due-bill,
certificates of obligation or stock" are taxable.
Furthermore, petitioner admitted that it profited from the
sale of shares of stocks. Such profit is subject to capital
gains tax.
ISSUE: W/N the assignment of deposits on stock
subscriptions is subject to documentary stamps tax and
capital gains tax?
RULING: YES. First, Taxation is one of the three basic
and necessary attributes of sovereignty. The State cannot

CIR v. CA
the President issued a Memorandum creating a Task Force
to investigate the tax liabilities of manufacturers engaged
in tax evasion scheme.
CIR issued a RMC 37-93 reclassifying best selling
cigarettes bearing the brands "Hope," "More," and
"Champion" as cigarettes of foreign brands subject to a
higher rate of tax.
Respondent Fortune Tobacco questioned the validity of
the reclassification of said brands of cigarettes as violative
of its right to due process and equal protection of law.
CIR filed a complaint with DOJ against respondent
Fortune, for alleged fraudulent tax evasion on nonpayment of the correct amount of income tax, ad valorem
tax and value-added tax for the year 1992.
Private Rs.s arguments: per Fortunes VAT returns, correct
taxable sales for 1992 was in the amount of the
manufacturers registered wholesale price in accordance
with SEC. 142(c) of the Tax Code and paid the amount of
P4,805,254,523 as ad valorem tax.
Petitioners averment: 1) SEC. 127(b) lays down the rule
that in determining the gross selling price of goods subject
to ad valorem tax, it is the price, excluding the valueadded tax, at which the goods are sold at wholesale price
in the place of production or through their sales agents to
the public. The registered wholesale price shall then be
used for computing the ad valorem tax which is imposable

upon removal of the taxable goods from the place of

production.
2) Fortune used the manufacturers registered wholesale
price in selling the goods to alleged fictitious individuals
and dummy corporations for the purpose of evading the
payment of the correct ad valorem tax.
ISSUE: WON Fortune evaded his tax liabilities?
RULING: NO. Before Fortune could be prosecuted for
tax evasion, the fact that the deficiency income, ad
valorem and value-added taxes were due from Fortune for
the year 1992 should first be established.
Fortune received from CIF the deficiency assessment
notices on August 24, 1993. However, under SEC. 229 of
the Tax Code, the taxpayer has the right to move for
reconsideration of the assessment issued by the
Commissioner of Internal Revenue within thirty (30) days
from receipt of the assessment; and if the motion for
reconsideration is denied, it may appeal to the CA within
thirty (30) days from receipt of the Commissioners
decision. Here, Fortune received the Commissioners
assessment notice dated August 13, 1993 on August 24,
1993 asking for the payment of the deficiency taxes.
Within thirty (30) days from receipt thereof, Fortune
moved for reconsideration. The Commissioner has not
resolved the request for reconsideration up to the present.
Hence, before the tax liabilities of Fortune are first finally
determined, it cannot be correctly asserted that it have
wilfully attempted to evade or defeat the taxes sought to
be collected from Fortune. In plain words, before one is
prosecuted for wilful attempt to evade or defeat any tax
under SEC.s 253 and 255 of the Tax Code, the fact that a
tax is due must first be proved.

SISON V. ANCHETA
BP 135 was enacted. Sison alleged that SEC. 1 thereof,
unduly discriminated against him by the imposition of
higher rates upon his income as a professional, that it
amounts to class legislation, and that it transgresses
against the equal protection and due process clauses of the
Constitution as well as the rule requiring uniformity in
taxation.
ISSUE: Whether BP 135 violates the due process and
equal protection clauses, and the rule on uniformity in
taxation?
RULING: NO. lack of factual foundation.
Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be

taxed at the same rate. The taxing power has the authority
to make reasonable and natural classifications for
purposes of taxation. Where the differentitation conforms
to the practical dictates of justice and equity, similar to the
standards of equal protection, it is not discriminatory
within the meaning of the clause and is therefore uniform.
Taxpayers may be classified into different categories, such
as recipients of compensation income as against
professionals. Recipients of compensation income are not
entitled to make deductions for income tax purposes as
there is no practically no overhead expense, while
professionals and businessmen have no uniform costs or
expenses necessary to produce their income. There is
ample justification to adopt the gross system of income
taxation to compensation income, while continuing the
system of net income taxation as regards professional and
business income.

PHIL. GUARANTY CO., INC. v. CIR

Petitioner entered into reinsurance contracts with foreign
insurance companies not doing business in the country,
thereby ceding to foreign reinsurers a portion of the
premiums on insurance it has originally underwritten in
the Philippines. Premiums paid by such companies were
excluded by the petitioner from its gross income when it
file its income tax returns.
CIR assessed against petitioners withholding taxes on the
ceded reinsurance premiums.
Petitioners contention: premiums are not subject to tax
for the premiums did not constitute income from sources
within the Philippines because the foreign reinsurers did
not engage in business in the Philippines, and CIR's
previous rulings did not require insurance companies to
withhold income tax due from foreign companies.
ISSUE: WON insurance companies are not required to
withhold tax on reinsurance premiums ceded to foreign
insurance companies, which deprives the government
from collecting the tax due from them?
RULING: NO. The power to tax is an attribute of
sovereignty. It is a power emanating from necessity. It is a
necessary burden to preserve the State's sovereignty and a
means to give the citizenry an army to resist an
aggression, a navy to defend its shores from invasion, a
corps of civil servants to serve, public improvement
designed for the enjoyment of the citizenry and those
which come within the State's territory, and facilities and
protection which a government is supposed to provide.
Considering that the reinsurance premiums in question
were afforded protection by the government and the

recipient foreign reinsurers exercised rights and privileges

guaranteed by our laws, such reinsurance premiums and
reinsurers should share the burden of maintaining the
state.
The petitioner's defense of reliance of good faith on
rulings of the CIR requiring no withholding of tax due on
reinsurance premiums may free the taxpayer from the
payment of surcharges or penalties imposed for failure to
pay the corresponding withholding tax, but it certainly
would not exculpate it from liability to pay such
withholding tax. The Government is not estopped from
collecting taxes by the mistakes or errors of its agents.
Collector v. Yuseco
petitioner did not file income tax returns for the calendar
years 1945 and 1946. Petitioner wrote the respondent,
requesting that he be informed as to how the assessments
were arrived at.
However, respondent demanded the payment of the
aforesaid assessments.
On January 6, 1953, respondent issued a warrant of
distraint and levy upon petitioner's properties which,
however, was not executed. On January 16, 1953
petitioner sought the withdrawal and/or reconsideration of
said warrant. Meanwhile, on July 2, 1953, respondent
issued a revised assessment notice which reduced the
original assessment for the 1946 income tax to P2,447.30,
including surcharge. On July 18, 1953, petitioner asked
that he be informed of the action upon his petition for
reinvestigation. This request was reiterated in his letter of
August 18, 1953 wherein he acknowledged receipt of the
modified assessment for the 1946 income tax. On
September 1, 1953, respondent wrote petitioner
demanding from the latter payment of the said sum of
P2,447.30 as income tax for the year 1946 plus penalties
incident to delinquency, and reiterating the demand for the
unrevised income tax assessment for 1945 in the sum of
P134.14, but respondent did not take any further action
thereafter to effect collection of the assessment.
On January 20, 1955, respondent again issued a warrant of
distraint and levy on the properties of petitioner, this time
only to effect collection of the said sum of P2,447.80 as
income tax for 1946. The distraint being still enforce,
petitioner on December 12, 1955 filed his petition for
prohibition with this Court.
The petitioner Collector of Internal Revenue assails the
jurisdiction of the respondent Court of Tax Appeals to take
cognizance of the respondent taxpayer's petition that seeks
to enjoin him (the petitioner) from collecting his income
taxes due for the years 1945 and 1946 and surcharges by
summary distraint of and levy upon his personal and real
properties, under the provisions of SEC.s 316 to 330 of the
NIRC. The petitioner's contention is that the respondent
taxpayer cannot bring in the respondent Court an
independent special civil action for prohibition without
taking to said Court an appeal from the decision or ruling
of the Collector of Internal Revenue in the cases provided
for in SEC.s 7 and 11 of RA No. 1125.

ISSUE: WON the CTA has jurisdiction over the case.

RULING: SEC.s 7, 9 and 11 of Republic No. 1125,
creating the Court of Tax Appeals refer and limit only to
appeals from decisions or rulings of the Collector of
Internal Revenue, Commissioner of Customs and
Provincial or City Boards of Assessment Appeals in the
proper cases. Nowhere does the law expressly vest in the
Court of Tax Appeals original jurisdiction to issue writs of
prohibition and injunction independently of, and apart
from, an appealed case. The writ of prohibition or
injunction that it may issue under the provisions of SEC.
11, RA No. 1125, to suspend the collection of taxes, is
merely ancillary to and in furtherance of its appellate
jurisdiction in the cases mentioned in SEC. 7 of the Act.
The power to issue the writ exists only in cases appealed
to it. This is reflected on the explanatory note of the bill
(House No. 175), creating the Court of Tax Appeals.
CIR V. ALGUE
Private respondent corporation Algue Inc. filed its income
tax returns for 1958 and 1959 showing deductions, for
promotional fees paid, from their gross income, thus
lowering their taxable income. Algue was engaged in
engineering, construction, and the like business and he
was assessed by the CIR for delinquency income taxes
based on such deductions contending that the claimed
deduction is disallowed because it was not an ordinary,
reasonable and necessary expense.
A warrant for levy and distraint was filed against Algue on
which, was reconsidered by the CTA.
On the deduction of the subject amount, the CTA held that
it was proper to deduct it on the premise that it was a
business expense in the form of actual payment for
services rendered. These were in the form of promotional
fees. The CIR held a different view that expenses were
properly disallowed, not constituting business expenses.
Arguments:
CIR- the claimed deduction of P75,000.00 was properly
disallowed because it was not an ordinary reasonable or
necessary business expense. Payments are fictitious
because most of the payees are members of the same
family in control of Algue and that there is not enough
substantiation of such payments.
CTA- 75K had been legitimately paid by Algue Inc. for
actual services rendered in the form of promotional fees.
These were collected by the Payees for their work in the
creation of the Vegetable Oil Investment Corporation of
the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development
Company.
ISSUE: WON CIR correctly disallowed the P75,000.00
deduction claimed by Algue as legitimate business
expenses in its income tax returns.
RULING: Taxes are the lifeblood of the government and
so should be collected without unnecessary hindrance,
made in accordance with law.

Originally, CIR claimed that the 75K promotional fees to

be personal holding company income, but later on
conformed to the decision of CTA.
There is no dispute that the payees duly reported their
respective shares of the fees in their income tax returns
and paid the corresponding taxes thereon. CTA also found,
after examining the evidence, that no distribution of
dividends was involved. CIR suggests a tax dodge, an
attempt to evade a legitimate assessment by involving an
imaginary deduction.
Algue Inc. was a family corporation where strict business
procedures were not applied and immediate issuance of
receipts was not required. at the end of the year, when the
books were to be closed, each payee made an accounting
of all of the fees received by him or her, to make up the
total of P75,000.00. This arrangement was understandable
in view of the close relationship among the persons in the
family corporation.
The burden is on the taxpayer to prove the validity of the
claimed deduction. In this case, Algue Inc. has proved that
the payment of the fees was necessary and reasonable in
the light of the efforts exerted by the payees in inducing
investors and prominent businessmen to venture in an
experimental enterprise and involve themselves in a new
business requiring millions of pesos.
Taxes are what we pay for civilization society. Without
taxes, the government would be paralyzed for lack of the
motive power to activate and operate it. Hence, despite the
natural reluctance to surrender part of one's hard earned
income to the taxing authorities, every person who is able
to must contribute his share in the running of the
government. The government for its part, is expected to
respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance
their moral and material values
Taxation must be exercised reasonably and in accordance
with the prescribed procedure. If it is not, then the
taxpayer has a right to complain and the courts will then
come to his succour.
SARASOLA V TRINIDAD
Gregorio Sarasola filed this case for injunction against the
Collector of Internal Revenue from the alleged illegal
collection of taxes in the CFI Manila. Averment: he was
not engaged in the business of a commission merchant in
Manila therefore he was not liable to pay the taxes and
cannot comply to the demand of the Internal Revenue
under protest. And he must be entitled to recover the
interest for the illegal collection that the Commission did
to him.
ISSUE: WON the provision prohibiting the court from
granting an injunction to restrain the collection of taxes
constitutional?

RULING: Public policy decrees that, since upon prompt

collection of revenue there depends the very existence of
government itself, whatever determination shall be arrived
at by the Legislature should not be interfered with, unless
there be a clear violation of some constitutional inhibition.
"It is upon taxation that the several states chiefly rely to
obtain the means to carry on their respective governments,
and it is of the utmost importance to all of them that the
modes adopted to enforce the taxes levied should be
interfered with as little as possible. Any delay in the
proceedings of the officers, upon whom the duty is
devolved of collecting the taxes, may derange the
operations of government, and thereby cause serious
detriment to the public."
"The Government may fix the conditions upon which it
will consent to litigate the validity of its original taxes."
"The power of taxation being legislative, all the incidents
are within the control of the Legislature."
"The people of a state give to their government a right of
taxing themselves and their property, and as the exigencies
of the Government cannot be limited, they prescribe no
limit to the exercise of this right, resting confidently on
the interest of the legislator and on the influence of the
constituents over their representatives, to guard
themselves against its abuse."
Applying these well-known principles to the case at bar, it
would seem that the legislature has considered that a law
providing for the payment of a tax with a right to bring a
suit before a tribunal to recover back the same without
interest is a full and adequate remedy for the aggrieved
taxpayer. The disallowance of interest in such case, like
the other steps prescribed as conditional to recovery, has
been made one of the conditions which the lawmakers
have seen fit to attach to the remedy provided.
As the Legislature in the exercise of its wide discretionary
power, has deemed the remedy provided in SEC. 1579 of
the Administrative Code to be an adequate mode of testing
the validity of an internal revenue tax and has willed that
such a remedy shall be exclusive, the courts not only owe
it to a coordinate branch of the government to respect the
opinion thus announced, but have no right to interfere with
the enforcement of such a law. Therefore, Sarasola is not
entitled to avail injunction against the Collector of Internal
Revenue.
POWER OF TAXATION (COMPARED W/ OTHER POWERS)

NTC v. CA
NTC served on PLDT, assessment notices and demands
for payment of: supervision and regulation fee, permit fee,
among others, pursuant to Section 40 (e) of the PSA
PLDTs arguments: 1) The assessments were being made
to raise revenues and not as mere reimbursements for
actual regulatory expense.

NTC: denied PLDTs protest. The fee should be based on

the market value of PLDT's outstanding capital stock
inclusive of stock dividends and premium, and not on the
par value of PLDT's capital stock excluding stock
dividends and premium, as contended by PLDT.
ISSUE: W/N the proper basis for the computation of
subject fee under Section 40(e) of the Public Service Act?
RULING: YES. Proper basis for the computation of
subject fee under Section 40(e) of the Public Service Act,
as amended by Republic Act No. 3792, is "the capital
stock subscribed or paid and not, alternatively, the
property and equipment.
It is not the NTC that imposed such a fee. It is the
legislature itself. Since Congress has the power to exercise
the State inherent powers of Police Power, Eminent
Domain and Taxation, the distinction between police
power and the power to tax, which could be significant if
the exercising authority were mere political subdivisions
(since delegation by it to such political subdivisions of one
power does not necessarily include the other), would not
be of any moment when, as in the case under
consideration, Congress itself exercises the power. All that
is to be done would be to apply and enforce the law when
sufficiently definitive and not constitutional infirm.
The term "capital" and other terms used to describe the
capital structure of a corporation are of universal
acceptance, and their usages have long been established in
jurisprudence
In the same way that the Court in PLDT vs. PSC has
rejected the "value of the property and equipment" as
being the proper basis for the fee imposed by Section
40(e) of the Public Service Act, as amended by Republic
Act No. 3792, so also must the Court disallow the idea of
computing the fee on "the par value of [PLDT's] capital
stock subscribed or paid excluding stock dividends,
premiums, or capital in excess of par." Neither, however,
is
the
assessment
made
by
the
National
Telecommunications Commission on the basis of the
market value of the subscribed or paid-in capital stock
acceptable since it is itself a deviation from the explicit
language of the law.
LTO, et al. vs. CITY OF BUTUAN
Respondents assertion: 1) one of the salient provisions
introduced by LGC is in the area of local taxation which
allows LGUs to collect registration fees or charges along

with, in its view, the corresponding issuance of all kinds of

licenses or permits for the driving of tricycles.
2) Sec. 133 of LGC is their basis for said ordinance, which
authorize LGUs to collect registration fees or charges
along with corresponding issuance of all kinds of licenses
or permits for the driving of tricycles.
LTOs contention: one of the functions of the National
Government, that has been transferred to LGUs is the
franchising authority over tricycles-for-hire of the LTFRB
but NOT the authority of the LTO to register all motor
vehicles and to issue to qualified persons of licenses to
drive such vehicles.
ISSUE: W/N LTOs power to register, tricycles in particular,
as well as to issue licenses for the driving thereof, has
likewise devolved to local government units?
RULING: No. Police power and taxation, along with
eminent domain, are inherent powers of sovereignty which
the State might share with local government units by
delegation given under a constitutional or a statutory fiat.
All these inherent powers are for a public purpose and
legislative in nature but the similarities just about end
there. The basic aim of police power is public good and
welfare. Taxation, in its case, focuses on the power
of government to raise revenue in order to support its
existence and carry out its legitimate objectives. Although
correlative to each other in many respects, the grant of one
doesnot necessarily carry with it the grant of the other.
The two powers are, by tradition and jurisprudence,
separate and distinct powers, varying in their respective
concepts, character, scopes and limitations. To construe
the tax provisions of Section 133(1)indistinctively would
result in the repeal to that extent of LTO's regulatory
power which evidently has not been intended
PURPOSE/S OF TAXATION

CALTEX v. COA
COA requested from Caltex to remit its tax contributions
to Oil Price Stabilization Fund (OPSF) pursuant to Section
8 of P.D. No. 1956.
Caltex denied the request: contention: OPSF contributions
are not for a public purpose because they go to a special
fund of the government. OPSF is not in the form of
taxation, therefore not for revenue purposes.
ISSUE: W/N OPSF contributions are for non-revenue
purposes of the government and it is still in the form of
taxation?
RULING: YES. Taxation is no longer envisioned as a measure
merely to raise revenue to support the existence of the government;
taxes may be levied with a regulatory purpose to provide means for
the rehabilitation and stabilization of a threatened industry which is

affected with public interest as to be within the police power of the

state.
The oil industry is greatly imbued with public interest as it
vitally affects the general welfare. Any unregulated
increase in oil prices could hurt the lives of a majority of
the people and cause economic crisis of untold
proportions. It would have a chain reaction in terms of,
among others, demands for wage increases and upward
spiralling of the cost of basic commodities. The
stabilization then of oil prices is of prime concern which
the state, via its police power, may properly address. Also,
P.D. No. 1956, as amended by E.O. No. 137, explicitly
provides that the source of OPSF is taxation.
PAL vs. EDU
PAL is exempt from tax payment. It has not been paying
motor vehicle registration since 1956.
Land Registration Commissioner required all tax exempt
entities including PAL to pay motor vehicle registration
fees. Contention: registration fees of motor vehicles are
not taxes, but regulatory fees imposed as an incident of the
exercise of the police power of the state. Thus, while PAL
is exempted from payment of tax, it is not exempt from
paying regulatory fees, such as motor vehicle registration
fees.
ISSUE: W/N registration fees as to motor vehicles are taxes
to which PAL is exempted?
RULING: yes. PAL is exempt from paying such fees,
except for the period between June 27, 1968 to April 9,
1979 where its tax exemption in the franchise was
repealed.
Taxes are for revenue whereas fees are exactions for
purposes of regulation and inspection, and are for that
reason limited in amount to what is necessary to cover the
cost of the services rendered in that connection. It is the
object of the charge, and not the name that determines
whether a charge is a tax or a fee.
The money collected under Motor Vehicle Law accrues to
the funds for the construction and maintenance of public
roads, streets and bridges. As fees are not collected for
regulatory purposes as an incident to the enforcement
of regulations governing the operation of motor vehicles
on public highways, but to provide revenue with which the
Government, is to construct and maintain public highways
for everyones use. Thus, they are taxes, not merely fees.

Section 21 of the P.D.464 (Real Property Tax Code) is

unconstitutional because it accelerated the application of
the general revision of assessments to January 1, 1987
thereby increasing in real property taxes by 100% to 400%
on improvements, and up to 100% on land which would
necessarily lead to an increase in real property taxes
amounting to confiscation of property.
Additionally, P.D.464 is unconstitutional insofar as it
imposes an additional 1% tax on all property owners to
raise funds for education, as real property tax is admittedly
a local tax for local governments.
RULING: To continue collecting real property taxes based
on valuations arrived at several years ago, in disregard of
the increases in the value of real properties that have
occurred since then, is not in consonance with a sound tax
system. Fiscal adequacy, which is one of the
characteristics of a sound tax system, requires that sources
of revenues must be adequate to meet government
expenditures and their variations.
TAGANITO MINING v. CIR

Petitioner TMC was obligated to pay royalty to the

government over and above other taxes. It removed,
shipped and sold substantial quantities of Beneficiated
Nickel Silicate ore and Chromite ore and paid excise taxes
in
compliance with Sec.151(3) of the Tax Code.
Petitioners contention: it is entitled to claim for refund of
excise tax because the actual market value that should be
made the basis of these taxes is that amount specified by
the independent surveyor abroad after analysis of the
products.
CIRs defense: in action for refund, burder of proof is
upon the taxpayer to establish its right over the same.
ISSUE: W/N TMC is entitled to refund?
RULING: NO. It would be impossible for one to comply
with the date prescribed by law for payment of excise
taxes if one has to wait for the final analysis done in the
country where it is to be shipped. This set-up established
by petitioner is contrary to the principle of administrative
feasibility. Tax laws should be capable of convenient, just,
and effective administration, which is why it fixes a
standard or uniform tax base upon which taxes should be
paid. In case of excise taxes on minerals and mineral
products, the basis provided by law is the actual market
value of this minerals at the time of removal.
**Tax refund partake of the nature of an exemption, and
as such, tax exemption cannot be allowed unless granted
in the most explicit and categorical language. Taxes are
what we pay for civilized society. Without taxes, the
government would be paralyzed for lack of the motive
power to activate and operate it

PRINCIPLES OF SOUND TAX SYSTEM

CHAVEZ v. ONGPIN

Frank Chavezs contention: E.O.73 providing for the

collection of Real Property taxes as provided for under

THEORY AND BASIS OF TAXATION

CIR v. CA

Taxes are the lifeblood of the government and so should

be collected without unnecessary hindrance On the other
hand, 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.
Algue Inc.,was assessed with delinquency income taxes. It
claimed for P75k deduction.
CTA: the claimed deduction had been legitimately paid by
Algue for actual services rendered. The payment was in
the form of promotional fees. These were collected by the
Payees for their work. The amount was earned through the
joint efforts of the persons among whom it was
distributed.
Philippine Sugar Estate Development Company had
earlier appointed Algue as its agent, authorizing it to sell
its land, factories and oil manufacturing process. For this
sale, Algue received as agent a commission of
P126,000.00, and it was from this commission that the
P75,000.00 promotional fees were paid to the individuals
who worked for the formation of a new corporation.
CIR disallowed the deduction claimed by Algue as
legitimate business expenses in its income tax returns.
Contention: the claimed deduction was not an ordinary
reasonable or necessary business expense; that payees
duly reported their respective shares of the fees in their
income tax returns and paid the corresponding taxes
thereon. These payments are fictitious because most of the
payees are members of the same family in control of
Algue. It is argued that no indication was made as to how
such payments were made, whether by check or in cash,
and there is not enough substantiation of such payments.
In short, the petitioner suggests a tax dodge, an attempt to
evade a legitimate assessment by involving an imaginary
deduction.
ISSUE: W/N CIR correctly disallowed the deduction
claimed by Algue as legitimate business expenses in its
income tax returns?
RULING: NO. The claimed deduction by the Algue was
permitted under Internal Revenue Code and should
therefore not have been disallowed by CIR.
SC agrees with CTA that the amount of the promotional
fees was not excessive. The total commission paid by
PSUEDC to the Algue was P125k. After deducting the

said fees, Algue still had a balance of P50k as clear profit

from the transaction. The amount of P75k was 60% of the
total commission. This was a reasonable proportion,
considering that it was the payees who did practically
everything, from the formation of the new corp. to the
actual purchase by it of the Sugar Estate properties. This
finding of CTA is in accord with Sec. 30, of the Tax Code
and Revenue Regulations No. 2, Section 70 (1).
The Solicitor General is correct when he says that the
burden is on the taxpayer to prove the validity of the
claimed deduction. However, in this case, the onus has
been discharged satisfactorily. Algue has proved that the
payment of the fees was necessary and reasonable in the
light of the efforts exerted by the payees in inducing
investors and prominent businessmen to venture in an
experimental enterprise and involve themselves in a new
business requiring millions of pesos.
It is said that taxes are what we pay for civilization
society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and
operate it. Hence, despite the natural reluctance to
surrender part of one's hard earned income to the taxing
authorities, every person who is able to must contribute
his share in the running of the government. The
government for its part, is expected to respond in the form
of tangible and intangible benefits intended to improve the
lives of the people and enhance their moral and material
values. This symbiotic relationship is the rationale of
taxation and should dispel the erroneous notion that it is
an arbitrary method of exaction by those in the seat of
power.
But even as we concede the inevitability and
indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in
accordance with the prescribed procedure. If it is not, then
the taxpayer has a right to complain and the courts will
then come to his succor.
PABLO LORENZO V. JUAN POSADAS
Lorenzo, in his capacity as trustee of the estate of Thomas
Hanley, deceased, filed for refund of the amount he paid
as as inheritance tax on the estate of the deceased.
Lorenzos argument: that the liability to pay a tax may
arise at a certain time and the tax may be paid within
another given time.

Pozadas filed a motion in the testamentary proceedings

praying that the trustee, Lorenzo, be ordered to pay to the
Government the said sum of P2,052.74. He contend that it
is the duty of the executor to pay the inheritance tax
before the delivery of the decedent's property to the
trustee. Delivery to the trustee was delivery to the cestui
que trust, the beneficiery in this case.
ISSUE: Has there been deliquency in the payment of the
inheritance tax? If so, should the additional interest
claimed by the defendant be paid by the estate?
RULING: YES. The estate which Lorenzo represents has
been delinquent in the payment of inheritance tax and,
therefore, liable for the payment of interest and surcharge
provided by law in such cases.
The mere fact that the estate of the deceased was placed in
trust did not remove it from the operation of our
inheritance tax laws or exempt it from the payment of the
inheritance tax.
To hold that the payment of the tax could be postponed or
delayed by the creation of a trust of the type at hand, the
result would be plainly disastrous. Testators may provide,
as Thomas Hanley has provided, that their estates be not
delivered to their beneficiaries until after the lapse of a
certain period of time. In the case at bar, the period is ten
years. In other cases, the trust may last for fifty years, or
for a longer period which does not offend the rule against
petuities. The collection of the tax would then be left to
the will of a private individual. The mere suggestion of
this result is a sufficient warning against the accpetance of
the essential to the very exeistence of government.
The obligation to pay taxes rests not upon the privileges
enjoyed by, or the protection afforded to, a citizen by the
government but upon the necessity of money for the
support of the state. Thus, no one is allowed to object to or
resist the payment of taxes solely because no personal
benefit to him can be pointed out.
That taxes must be collected promptly is a policy deeply
intrenched in our tax system. Thus, no court is allowed to
grant injunction to restrain the collection of any internal
revenue tax.

DOCTRINES IN TAXATION
Prospectivity

SAN ROQUE v. CIR

San Roque filed for claims for refund or tax credit of its
creditable input taxes for all four quarters of 2006. It
averred that it did not have any output taxes to which it
could have applied said creditable input taxes because: a)
the sale by San Roque of electricity is subject to 0% VAT
under Sec. 108(B)(7) of the NIRC of 1997, as amended;
and b) NPC is exempted from all taxes under NPC
Charter, so the sale by San Roque of electricity
exclusively to NPC, on Oct. 11, 1997, is effectively zerorated under Sec.108(B)(3) of NIRC of 1997, as amended.
CTA ruled: 1) CIR has 120 days (or until Aug. 9, 2007, Nov. 7,
2007 and Dec. 29, 2007) within which to make decision. After
the lapse of the period, San Roque should have elevated
its claim with the Court within 30 days (from Aug.10, 2007 to
Sep.8, 2007 for its first quarter claim) , (Nov.8, 2007 to December 7,
2007 for its second quarter claim), and (Dec. 30, 2007 to Jan. 28, 2008
for its third and fourth quarters claims ) pursuant to Sec. 112(D)
of NIRC in rel. to Sec.11 of RA 1125, as amended by Sec. 9
of RA 9282.
2) With respect to the amended application for refund of
input tax for the first and second quarters of 2006 on
March 10, 2008, the CIR has 120 days or until July 8,
2008 to make a decision. After the said period, [San
Roque] had 30days or until August 7, 2008 within which
to appeal to the Court.
San Roque appealed for its first quarter claim and on June
27, 2008 for its second quarter claim, which are clearly
before the lapse of the 120-day period, but was denied.

Premature appeal will warrant the dismissal of the

Petitions since no jurisdiction was acquired by the Court
in line with the recent pronouncement made by SC in the
case of CIR vs. Aichi Forging Company of Asia, Inc.

period from the issuance of BIR Ruling No. DA-489-03

on Dec. 10, 2003 to Oct. 6, 2010 (when Aichi was

Petitioners argument: against the retroactive application

of CIR v. Aichi Forging Company of Asia, Inc promulgated
on Oct. 6, 2010.

(explanation as to how BIR Ruling No. DA-489-03 is an exception to

the strict observance of the 120+30 day periods for judicial claims)

In Aichi, SC strictly required compliance with the 120+30 day

periods under Section 112 of the NIRC of 1997, as amended.

CTA en banc upheld the application of Aichi. Reason:

there was no retroactive application of the same. The
120+30 day periods had already been provided in the
NIRC of 1997, as amended, even before the promulgation
of Aichi. Aichi merely interpreted the provisions of
Section 112 of the NIRC of 1997, as amended.
Hence, while San Roque timely filed its administrative
claims for refund or tax credit of creditable input taxes for
the four quarters of 2006, it filed its judicial claims
beyond the 30-day prescriptive period, reckoned from the
lapse of the 120-day period for CIR to act on the original
administrative claims.
Lastly, CTA en banc adjudged that San Roque cannot rely
on San Roque Power Corporation v. CIR, promulgated on
Nov. 25, 2009 [San Roque (2009)], which granted the claims
for refund or tax credit of the creditable input taxes of San
Roque for the four quarters of 2002, on the ground, among
others: The claims for refund or tax credit in San Roque
(2009) involved the four quarters of 2002,when sales of
electric power by generation companies to the NPC were
explicitly VAT zero-rated under Section 6 of the Electric
Power Industry Reform Act (EPIRA) of 2001.
Eventually, (EVAT Law), took effect on Nov. 1, 2005, and
Section 24 of said law already expressly repealed Section
6 of the EPIRA.
San Roque argues against the supposedly retroactive
application of Aichi and the strict observance of the
120+30 day periods.
ISSUE: W/N Aichi ruling may be applied to San roques
claim, filed years before its promulgation? Stater
otherwise, W/N the Aichi ruling can be applied
retroactively?
RULING: NO. The 120+30 day periods have already
been prescribed under Section 112(C) of the NIRC of
1997, as amended, when San Roque filed its
administrative and judicial claims for refund or tax credit
of its creditable input taxes for the four quarters of 2006.
Strict compliance with the 120+30 day periods is
necessary for the judicial claim to prosper, except for the

promulgated, which again reinstated the 120+30day periods as

mandatory and jurisdictional.)

BIR Ruling No. DA-489-03 affected only the 120-day period

as the BIR held therein that "a taxpayer-claimant need not

wait for the lapse of the 120-day period before it could
seek judicial relief with the CTA by way of Petition for
Review.
BIR Ruling No. DA-489-03 may only be invoked by
taxpayers who relied on the same and prematurely filed
their judicial claims before the expiration of the 120-day
period for the CIR to act on their administrative claims,
provided that the taxpayers filed such judicial claims from
Dec. 10, 2003 to Oct. 6,2010.
BIR Ruling No. DA-489-03 did not touch upon the 30-day
prescriptive period for filing an appeal with the CTA and
cannot be cited by San Roque, who belatedly filed its
judicial claims more than 30 days after receipt of the
adverse decision of the CIR on their administrative claims
or the lapse of 120 days without the CIR acting on their
administrative claims.
The Atlas doctrine--which held that claims for refund or credit
of input VAT must comply with the 2-year prescriptive period
under Section 229,---should be effective only from its

promulgation on 8 June 2007 until its abandonment on 12

September 2008 in Mirant. Atlas doctrine was limited to
the reckoning of the 2-year prescriptive period from
payment of the output VAT.
Prior to the Atlas doctrine, the 2-year prescriptive period
for claiming refund or credit of input VAT should be
governed by Section 112(A) following the verba legis
rule. The Mirant ruling, which abandoned the Atlas
doctrine, adopted the verba legis rule, thus applying
Section 112(A) in computing the two-year prescriptive
period in claiming refund or credit of input VAT.
The Atlas doctrine has no relevance to the 120+30 day
periods under Section 112(C) because the application of
the 120+30 day periods was not in issue in Atlas. The
application of the 120+30 day periods was first raised in
Aichi, which adopted the verba legisrule in holding that
the 120+30 day periods are mandatory and jurisdictional.
A claim for tax refund or credit, like claim for tax
exemption, is construed strictly against the taxpayer. One
of the conditions for a judicial claim of refund or credit
under the VAT System is compliance with the 120+30 day
mandatory and jurisdictional periods. Thus, strict
compliance with the 120+30 day periods is necessary for

such a claim to prosper, whether before, during, or after

the effectivity of the Atlas doctrine, except for the period
from the issuance of BIR Ruling No. DA-489-03 on 10
December 2003 to 6 October 2010 when the Aichi
doctrine was adopted, which again reinstated the 120+30
day periods as mandatory and jurisdictional.
As for BIR Ruling No. DA-489-03, there is no dispute that
the 120-day period is mandatory and jurisdictional, and
that the CTA does not acquire jurisdiction over a judicial
claim that is filed before the expiration of the 120-day
period. 2 exceptions: 1) if the Commissioner, through a
specific ruling, misleads a particular taxpayer to
prematurely file a judicial claim with the CTA. Such
specific ruling is applicable only to such particular
taxpayer; and 2) where the Commissioner, through a
general interpretative rule issued under Section 4 of the
Tax Code, misleads all taxpayers into filing prematurely
judicial claims with the CTA.
In these cases, the Commissioner cannot be allowed to
later on question the CTAs assumption of jurisdiction
over such claim since equitable estoppel has set in as
expressly authorized under Section 246 of the Tax Code.
Based on the foregoing, "prospective application" of Aichi
and Mirant only meant that the rulings in said cases would
not retroactively affect taxpayers who relied on Atlas
and/or DA-489-03 when they filed their administrative
and judicial claims for refund or tax credit of creditable
input taxes during the period when Atlas and DA-489-03
were still in effect. Aichi and Mirant can still be applied to
cases involving administrative and judicial claims filed
prior to the promulgation of said cases and outside the
period of effectivity of Atlas and DA-489-03, such as the
instant case.
Imprescriptibility
DELA VINA V. GOVT OF THE PHILIPPINES

In In re Estate of the deceased Juan de la Via, the

collector of Internal Revenue had filed a claim for the
payment of unpaid income tax allegedly due from said
estate for the years 1919, 1920, 1923, 1924, 1926, 1928,
1929, 1930 and 1931.
In that case, the court ordered the administratrix to give
preference to the payment to the Government the amount
of the back taxes owing for the years 1926, 1928, 1929,
1930 and 1931, and held that the payment of the back
taxes for the years 1919, 1920, 1923 and 1924 was not
demandable because the government's action has
prescribed.
ISSUE: W/N the general law regarding prescription of
actions found in the Code of Civil Procedure, is applicable
to cases involving governments claim filed in the matter
of the estate of the deceased Via?

RULING: YES. The court affirmatively resolved this

question with respect to the claim for the years 1919,
1920, 1923, and 1924, applying thereto the prescription of
6 years pursuant to number 2 of section 43, Code of Civil
Procedure.
Having shown that the government's action to collect
judicially the back taxes in question, does not prescribed,
the only remaining point for determination is whether the
action of the government should be conditioned upon the
fact that the discovery of the erroneous, false and
fraudulent return of the taxpayer, should take place within
3 years following the date of such return or the date of the
payment of the tax, as required by section 9 (a) of the Act
No. 2833 in order that the collector of Internal Revenue
may collect the back tax owing.
The three-year prescription refers to the discovery of
erroneous, false, or fraudulent returns, and to tax
assessments and their summary collection, but not to their
collection through judicial channels.
The motion filed by the Collector of Internal Revenue in
this case, is equivalent to a judicial action for the
collection of the accured income tax. Thus, the fact that
the omission of the net income from the administrator's
return was discovered after the period of three years from
the filing of such return, on March 13, 1926, does not
prevent the collection of the proper tax assessed after such
discovery.
Hence, the estate of the deceased Juan de la Via should
pay the back income taxes owing therefrom.
DOUBLE TAXATION
Nursery Care Corp v. Acevedo
City of Manila assessed and collected taxes from the
individual petitioners pursuant to Section 15 (Tax on
Wholesalers, Distributors, or Dealers) and Section 17 (Tax on
Retailers) of the Revenue Code of Manila. At the same
time, it imposed additional taxes upon the petitioners
pursuant to Section 21 of the Revenue Code of Manila, as
amended, as a condition for the renewal of their respective
business licenses for the year 1999.
Petitioners argument: enforcement of Section 21 of the
Revenue Code of Manila against them constituted double
taxation because the local business taxes under Section 15
and Section 17 of the Revenue Code of Manila were
already being paid by them. Section 21 exempted all
registered businesses in the City of Manila from paying
the tax imposed under Section 21; and that the exemption
was more in accord with Section 143 of the Local

Government Code, the law that vested in the municipal

and city governments the power to impose business taxes.

petitioners of taxes pursuant to Section 21 of the Revenue

Code of Manila

Respondent: no double taxation; the taxes imposed

pursuant to Section 21 were in the concept of indirect
taxes upon the consumers of the goods and services sold
by a business establishment.

1st. Section 21 of the Revenue Code of Manila imposed

the tax on a person who sold goods and services in the
course of trade or business based on a certain percentage
of his gross sales or receipts in the preceding calendar
year, while Section 15 and Section 17 likewise imposed
the tax on a person who sold goods and services in the
course of trade or business but only identified such person
with particularity, namely, the wholesaler, distributor or
dealer (Section 15), and the retailer (Section 17), all the
taxes being imposed on the privilege of doing business
in the City of Manila in order to make the taxpayers
contribute to the citys revenues were imposed on the
same subject matter and for the same purpose.

ISSUE: W/N there is double taxation?

RULING: YES. Double taxation means taxing the same
property twice when it should be taxed only once; that is,
"taxing the same person twice by the same jurisdiction for
the same thing." Otherwise described as "direct duplicate
taxation," the two taxes must be imposed on the same
subject matter, for the same purpose, by the same taxing
authority, within the same jurisdiction, during the same
taxing period; and the taxes must be of the same kind or
character.
Using said test, there double taxation if respondent is
subjected to the taxes under both Sections 14 and 21 of
Tax Ordinance No. 7794, since these are being imposed:
(1) on the same subject matter the privilege of doing
business in the City of Manila; (2) for the same purpose
to make persons conducting business within the City of
Manila contribute to city revenues; (3) by the same taxing
authority petitioner City of Manila; (4) within the same
taxing jurisdiction within the territorial jurisdiction of
the City of Manila; (5) for the same taxing periods per
calendar year; and (6) of the same kind or character a
local business tax imposed on gross sales or receipts of the
business.
Thus, petitioner should not have been subjected to taxes
under Section 21 of the Manila Revenue Code for the
fourth quarter of 2001, considering thati t had already
been paying local business tax under Section 14 of the
same ordinance.
Accordingly, respondents assessment under both Sections
14 and 21 had no basis. Petitioner is indeed liable to pay
business taxes to the City of Manila; nevertheless,
considering that the former has already paid these taxes
under Section 14 of the Manila Revenue Code, it is
exempt from the same payments under Section 21 of the
same code. Hence, payments made under Section 21 must
be refunded in favor of petitioner.
All elements of double taxation concurred upon the City
of Manilas assessment on and collection from the

2nd. the taxes were imposed by the same taxing authority

(the City of Manila) and within the same jurisdiction in
the same taxing period (i.e., per calendar year).
3rd. the taxes were all in the nature of local business taxes.
Procter & Gamble Co. v. Municipality of Jagna
Municipal Council of Jagna enacted Municipal Ordinance
No. 4, Series of 1957 imposing storage fees of all
exportable copra deposited in the bodega within the
jurisdiction of the municipality of Jagna.
P&G averred: the Ordinance, even if presumed valid, is
inapplicable to it because it is not engaged in the business
or occupation of buying or selling of copra, but is only
storing copra in connection with its main business of
manufacturing soap and other similar products. Thus, to
be compelled to pay the storage fees would amount to
double taxation.
RULING: NO double taxation. The question of whether
P&G is engaged in that business or not, is irrelevant
because the storage fee is an imposition on the privilege of
storing copra in a bodega within defendant municipality
by persons, firms or corporations. Section 1 of the
challenged Ordinance does not state that said persons,
firms or corporations should be engaged in the business or
occupation of buying or selling copra. Moreover, by
P&G's own admission that it is a consolidated corporation
with its trading company, it will be hard to segregate the
copra it uses for trading from that it utilizes for
manufacturing.
Thus, P&Gs payment of storage fees imposed by the
Ordinance does not amount to double taxation. For double
taxation to exist, the same property must be taxed twice,
when it should be taxed but once. Double taxation has also

been defined as taxing the same person twice by the same

jurisdiction for the same thing. A tax on P&G's products is
different from a tax on the privilege of storing copra in a
bodega situated within the territorial boundary of
defendant municipality.
Sanchez v. CIR
Sanchez owns a building leased to other persons. CIR
made demand upon her for the payment of income tax for
the year 1950, and a real estate dealer's tax for the year
1946 to 1950.
TC: Sanchez is a dealer pursuant to section 194 (s) of the
NIRC, as amended by RA Nos. 42 and 588, hence, the
collection of real estate dealers tax is legal.
Sanchezs argument: she is already paying real estate taxes
on her property, as well as income tax on the income
derive therefrom, so that to further subject its rentals to the
"real estate dealers' tax" amounts to double taxation.
ISSUE: W/N there is double taxation?
RULING: None. First, Real estate dealers" includes all
persons who for their own account are engaged in the sale
of lands, buildings or interests therein or in leasing real
estate. (R. A. No. 42).
Considering that she has been continuously leasing the
same to third persons since its construction in 1947; that
she manages her property herself; and that said leased
holding appears to be her main source of livelihood,
Sanchez is thus a real estate dealer as defined by section
194 (s) of the Internal Revenue Code, as amended by RA
No. 42.
License tax may be levied upon a business or occupation
although the land or property used there in is subject to
property tax", and that "the state may collect an ad
valorem tax on property used in a calling, and at the same
time impose a license tax on the pursuit of that calling",
the imposition of the latter kind of tax being in no sense a
double tax.
Evidence shows, however, that the apartment house in
question was constructed only in 1947, while the real
estate dealer's tax demanded of and paid by appellant was
for the year 1946 to 1950. Hence, Sanchez is entitled to a
refund of the tax paid for the year 1946.
Punzalan v. Municipal Board of Manila

Petitioners sought the nullification of Ordinance No. 3398

of the City of Manila together with the provision of the
Manila charter authorizing it and the refund of taxes
collected under the ordinance but paid under protest.
The ordinance imposes a municipal occupation tax on
persons exercising various professions in the city and
penalizes non-payment of the tax.
Having already paid their occupation tax under section
201 of the NIRC, petitioners, upon being required to pay
the additional tax prescribed in the ordinance filed this
suit. They alleged that the questioned provision amounts
to double taxation. They argued that the ordinance is
unjust and oppressive because it creates discrimination
within a class in that, while professionals with offices in
Manila have to pay the tax, outsiders who have no offices
in the city but practice their profession therein are not
subject to the tax.
ISSUE: W/N there is double taxation?
RULING: NONE. The ordinance imposes the tax upon
every person "exercising" or "pursuing" in the City of
Manila naturally any one of the occupations named, but
does not say that such person must have his office in
Manila. The argument against double taxation may not be
invoked where one tax is imposed by the state and the
other is imposed by the city, it being widely recognized
that there is nothing inherently obnoxious in the
requirement that license fees or taxes be exacted with
respect to the same occupation, calling or activity by both
the state and the political subdivisions thereof
CIR v. S Johnson & Sons
Respondent was granted by SC Johnson and Son, USA,
the right to use the trademark, patents and technology
owned by the latter. For the use of such, respondent must
pay SC Johnson and Son, USA royalties based on a
percentage of net sales and subjected the same to 25%
withholding tax on royalty payments which [respondent]
paid.
Later, respondent filed a claim for refund of overpaid
withholding tax on royalties arguing that the preferential
tax rate of 10% should apply to it; that royalties paid by
the [respondent] to SC Johnson and Son, USA is only
subject to 10% withholding tax pursuant to RP-US Tax
Treaty [Art. 13 Par. 2 (b) (iii)] in relation to the RP-West
Germany Tax Treaty [Article 12 (2) (b)]"

Petitioners argument: Under Article 13(2) (b) (iii) of the

RP-US Tax Treaty, known as the "most favored nation"
clause, the lowest rate of the Philippine tax at 10% may be
imposed on royalties derived by a resident of the US from
sources within the Philippines only if the circumstances of
the resident of the US are similar to those of the resident
of West Germany. Since the RP-US Tax Treaty contains
no "matching credit" provision as that provided under
Article 24 of the RP-West Germany Tax Treaty, the tax on
royalties under the RP-US Tax Treaty is not paid under
similar circumstances as those obtaining in the RP-West
Germany Tax Treaty. Also, the "most favored nation"
clause cannot be invoked since, when a tax treaty
contemplates circumstances attendant to the payment of a
tax, or royalty remittances for that matter, these must refer
to tax-related circumstances.
S.C. Johnson: the "most favored nation" clause under the
RP-US Tax Treaty refers to royalties paid under similar
circumstances as those royalties subject to tax in other
treaties; that the phrase "paid under similar circumstances"
refer to the subject matter of the tax, i.e., royalties,
because the "most favored nation" clause is intended to
allow the taxpayer in one state to avail of more liberal
provisions contained in another tax treaty wherein the
country of residence of such taxpayer is also a party
thereto, subject to the basic condition that the subject
matter of taxation in that other tax treaty is the same as
that in the original tax treaty under which the taxpayer is
liable; thus, the RP-US Tax Treaty speaks of "royalties of
the same kind paid under similar circumstances".
ISSUE: W/N private respondent is entitled to the 10% rate
granted under the RP-West Germany Tax Treaty, since
there is no payment of taxes on royalties under similar
circumstances?
RULING: NO. The tax rates on royalties and the
circumstances of payment thereof are the same for all the
recipients of such royalties and there is no disparity based
on nationality in the circumstances of such payment.
On the other hand, a reading of the various tax treaties will
show that there is no similarity in the provisions on relief
from or avoidance of double taxation as this is a matter of
negotiation between the contracting parties.
The RP-US Tax Treaty is just one of a number of bilateral
treaties which the Philippines has entered into for the
avoidance of double taxation. Purpose of the agreement:
to reconcile the national fiscal legislations of the

contracting parties in order to help the taxpayer avoid

simultaneous taxation in two different jurisdictions.
**
double taxation= imposition of comparable taxes in two
or more states on the same taxpayer in respect of the same
subject matter and for identical periods. Rationale for
doing away with double taxation: to encourage the free
flow of goods and services and the movement of capital,
technology and persons between countries, conditions
deemed vital in creating robust and dynamic economies.
Double taxation usually takes place when a person is
resident of a contracting state and derives income from, or
owns capital in, the other contracting state and both states
impose tax on that income or capital.
To eliminate double taxation, a tax treaty resorts to several
methods. 1st method. It sets out the respective rights to tax
of the state of source or situs and of the state of residence
with regard to certain classes of income or capital. In
some cases, an exclusive right to tax is conferred on one
of the contracting states; however, for other items of
income or capital, both states are given the right to tax,
although the amount of tax that may be imposed by the
state of source is limited.
2nd method. It applies whenever the state of source is given
a full or limited right to tax together with the state of
residence. In this case, the treaties make it incumbent
upon the state of residence to allow relief in order to avoid
double taxation. There are two methods of relief the
exemption method and the credit method. In the
exemption method, the income or capital which is taxable
in the state of source or situs is exempted in the state of
residence, although in some instances it may be taken into
account in determining the rate of tax applicable to the
taxpayer's remaining income or capital. In the credit
method, although the income or capital which is taxed in
the state of source is still taxable in the state of residence,
the tax paid in the former is credited against the tax levied
in the latter. The basic difference between the two
methods is that in the exemption method, the focus is on
the income or capital itself, whereas the credit method
focuses upon the tax.
In negotiating tax treaties, the underlying rationale for
reducing the tax rate is that the Philippines will give up a
part of the tax in the expectation that the tax given up for
this particular investment is not taxed by the other
country.

Thus petitioner correctly opined that the phrase "royalties

paid under similar circumstances" in the most favored
nation clause of the US-RP Tax Treaty necessarily
contemplated "circumstances that are tax-related".
Here, the state of source is the Philippines because the
royalties are paid for the right to use property or rights, i.e.
trademarks, patents and technology, located within the
Philippines. The US is the state of residence since the
taxpayer, S. C. Johnson and Son, U. S. A., is based there.
Under the RP-US Tax Treaty, the state of residence and
the state of source are both permitted to tax the royalties,
with a restraint on the tax that may be collected by the
state of source. Furthermore, the method employed to give
relief from double taxation is the allowance of a tax credit
to citizens or residents of the US (in an appropriate amount
based upon the taxes paid or accrued to the Philippines) against
the US tax, but such amount shall not exceed the
limitations provided by US law for the taxable year. Under
Article 13, Philippines may impose one of three rates
25% of the gross amount of the royalties; 15% when the
royalties are paid by a corporation registered with the
Philippine Board of Investments and engaged in preferred
areas of activities; or the lowest rate of Philippine tax that
may be imposed on royalties of the same kind paid under
similar circumstances to a resident of a third state.

The most favored nation clause is intended to establish the

principle of equality of international treatment by
providing that the citizens or subjects of the contracting
nations may enjoy the privileges accorded by either party
to those of the most favored nation. The essence of the
principle is to allow the taxpayer in one state to avail of
more liberal provisions granted in another tax treaty to
which the country of residence of such taxpayer is also a
party provided that the subject matter of taxation, in this
case royalty income, is the same as that in the tax treaty
under which the taxpayer is liable.
Both Article 13 of the RP-US Tax Treaty and Article 12
(2) (b) of the RP-West Germany Tax Treaty, speaks of tax
on royalties for the use of trademark, patent, and
technology. The entitlement of the 10% rate by U.S. firms
despite the absence of a matching credit (20% for
royalties) would derogate from the design behind the most
grant equality of international treatment since the tax
burden laid upon the income of the investor is not the
same in the two countries. The similarity in the
circumstances of payment of taxes is a condition for the
enjoyment of most favored nation treatment precisely to
underscore the need for equality of treatment.

ESCAPE FROM TAXATION

Given the purpose underlying tax treaties and the rationale
for the most favored nation clause, the concessional tax
rate of 10% under the RP-Germany Tax Treaty should
apply only if the taxes imposed upon royalties in the RPUS Tax Treaty and in the RP-Germany Tax Treaty are paid
under similar circumstances. This means that private
respondent must prove that the RP-US Tax Treaty grants
similar tax reliefs to residents of the US in respect of the
taxes imposable upon royalties earned from sources within
the Philippines as those allowed to their German
counterparts under the RP-Germany Tax Treaty.
The RP-US and the RP-West Germany Tax Treaties do not
contain similar provisions on tax crediting. Article 24 of
the RP-Germany Tax Treaty expressly allows crediting
against German income and corporation tax of 20% of the
gross amount of royalties paid under the law of the
Philippines. On the other hand, Article 23 of the RP-US
Tax Treaty, which is the counterpart provision with respect
to relief for double taxation, does not provide for similar
crediting of 20% of the gross amount of royalties paid.

CIR v. Estate of Toda

A Notice of Assessment was sent to Cibeles Insurance

Corporation (CIC) by CIR for deficiency income tax
arising from an alleged simulated sale of a commercial
building.
CICs contention: assessment should be directed against
the old CIC, and not against the new CIC, which is owned
by an entirely different set of stockholders; moreover,
Toda had undertaken to hold the buyer of his
stockholdings and the CIC free from all tax liabilities for
the fiscal years 1987-1989.
Estate of Benigno Toda, Jr, received a Notice of
Assessment from CIR for deficiency income tax for the
year 1989. The Estate argued that the Commissioner erred
in holding the Estate liable for income tax deficiency.
Commissioners argument: the two transactions actually
constituted a single sale of the property by CIC to RMI,
and that Altonaga was neither the buyer of the property
from CIC nor the seller of the same property to RMI. The
additional gain of P100M realized by CIC was taxed at the
rate of only 5% purportedly as capital gains tax of
Altonaga, instead of at the rate of 35% as corporate

income tax of CIC. The income tax return filed by CIC for
1989 with intent to evade payment of the tax was thus
false or fraudulent.
CIR insisted that: the sale by CIC of the Cibeles property
was in connivance with its dummy Altonaga, who was
financially incapable of purchasing it. She further points
out that the documents prove the fact of fraud in that (1)
the two sales were done simultaneously on the same date;
(2) the Deed of Absolute Sale between Altonaga and RMI
was notarized ahead of the alleged sale between CIC and
Altonaga; and (3) as early as 4 May 1989, CIC received
P40 million from RMI, and not from Altonaga. The said
amount was debited by RMI in its trial balance as of 30
June 1989 as investment in Cibeles Building. The
substantial portion of P40 million was withdrawn by Toda
through the declaration of cash dividends to all its
stockholders.
Respondent Estate: the Commissioner failed to present the
income tax return of Altonaga to prove that the latter is
financially incapable of purchasing the Cibeles property.
ISSUE: Is this a case of tax evasion or tax avoidance,
Hence, respondent should pay deficiency?
RULING: TAX EVASION.
Tax avoidance and tax evasion are the two most common
ways used by taxpayers in escaping from taxation. Tax
avoidance is the tax saving device within the means
sanctioned by law. This method should be used by the
taxpayer in good faith. Tax evasion, on the other hand, is a
scheme used outside of those lawful means and when
availed of, it usually subjects the taxpayer to further or
additional civil or criminal liabilities.
Tax evasion connotes the integration of 3 factors: (1) the
end to be achieved, i.e., the payment of less than that
known by the taxpayer to be legally due, or the nonpayment of tax when it is shown that a tax is due; (2) an
accompanying state of mind which is described as being
"evil," in "bad faith," "willfull," or "deliberate and not
accidental"; and (3) a course of action or failure of action
which is unlawful.
All these factors are present in the instant case. As early as
4 May 1989, prior to the purported sale by CIC to
Altonaga on 30 August 1989, CIC received P40 million
from RMI, and not from Altonaga. That P40 million was
debited by RMI and reflected in its trial balance as "other
inv. Cibeles Bldg." Also, as of 31 July 1989, another P40
million was debited and reflected in RMIs trial balance as
"other inv. Cibeles Bldg." This would show that the real
buyer of the properties was RMI.

The investigation conducted by the BIR disclosed that

Altonaga was a mere conduit.
The scheme resorted to by CIC in making it appear that
there were two sales of the subject properties, i.e., from
CIC to Altonaga, and then from Altonaga to RMI cannot
be considered a legitimate tax planning. Such scheme is
tainted with fraud.
To allow a taxpayer to deny tax liability on the ground that
the sale was made through another and distinct entity
when it is proved that the latter was merely a conduit is to
sanction a circumvention of our tax laws. Hence, the sale
to Altonaga should be disregarded for income tax
purposes. The two sale transactions should be treated as a
single direct sale by CIC to RMI.
Silkair (Singapore) PTE, LTD v. CIR

Petitioner Silkiar filed with the BIR an administrative

claim for the refund of excise taxes which it allegedly
erroneously paid on its purchases of aviation jet fuel
(basis: BIR Ruling No. 339-92 on Dec. 1, 1992, declaring
petitioners Singapore-Cebu-Singapore route is an international
flight by an international carrier and that the petroleum products
purchased by the petitioner should not be subject to excise taxes
under Section 135 of the 1997 NIRC). Sec. 135 exempts from
excise taxes the entities covered by tax treaties,

conventions and other international agreements; provided

that the country of said carrier or exempt entity likewise
exempts from similar taxes the petroleum products sold to
Philippine carriers or entities. In this regard, petitioner
relied on the reciprocity clause under Article 4(2) of the
Air Transport Agreement entered between the RP. and the
Republic of Singapore.
CTA: petitioner was qualified for tax exemption under
Section 135(b) of the NIRC, as long as Republic of
Singapore exempts from similar taxes petroleum products
sold to Philippine carriers, entities or agencies under
Article 4(2) of the Air Transport Agreement. However,
petitioner was not entitled to the excise tax exemption for
failure to present proof that it was authorized to operate in
the Philippines.
Petitioners argument: the clear intent of the provisions of
the NIRC and the Air Transport Agreement is to exempt
aviation fuel purchased by petitioner as an exempt entity
from the payment of excise tax, whether such is a direct or
an indirect tax. The excise tax on aviation fuel, though
initially payable by the manufacturer or producer, attaches
to the goods and becomes the liability of the person
having possession thereof.

CIR: an excise tax, being an indirect tax, is the direct

liability of the manufacturer or producer. When an excise
tax on petroleum products is added to the cost of goods
sold to the buyer, it is no longer a tax but becomes part of
the price which the buyer has to pay to obtain the article.
Petitioner cannot seek reimbursement for its alleged
erroneous payment of the excise tax since it is neither the
entity required by law nor the entity statutorily liable to
pay the said tax.
ISSUE: W/N petitioner is the proper party to claim for the
refund/tax credit of excise taxes paid on aviation fuel?
RULING: NO. Based on the possibility of shifting the
incidence of taxation, or as to who shall bear the burden of
taxation, taxes may be classified into either direct tax or
indirect tax.
In context, direct taxes are those that are exacted from the
very person who, it is intended or desired, should pay
them; they are impositions for which a taxpayer is directly
liable on the transaction or business he is engaged in.

applicable to certain specified or selected goods or articles

manufactured or produced in the Philippines for domestic
sale or consumption or for any other disposition and to
things imported into the Philippines. These excise taxes
may be considered taxes on production as they are
collected only from manufacturers and producers.
Basically an indirect tax, excise taxes are directly levied
upon the manufacturer or importer upon removal of the
taxable goods from its place of production or from the
customs custody. These taxes, however, may be actually
passed on to the end consumer as part of the transfer value
or selling price of the goods sold, bartered or exchanged.
Hence, it is clear that the proper party to question, or
claim a refund or tax credit of an indirect tax is the
statutory taxpayer, which is the company on which the tax
is imposed by law and which paid the same even if the
burden thereof was shifted or passed on to another.

On the other hand, indirect taxes are those that are

demanded, in the first instance, from, or are paid by, one
person in the expectation and intention that he can shift
the burden to someone else.

Tax refunds are in the nature of tax exemptions which

represent a loss of revenue to the government. These
exemptions, therefore, must not rest on vague, uncertain
or indefinite inference, but should be granted only by a
clear and unequivocal provision of law on the basis of
language too plain to be mistaken. Such exemptions must
be strictly construed against the taxpayer, as taxes are the
lifeblood of the government.

Thus, indirect taxes are taxes wherein the liability for the
payment of the tax falls on one person but the burden
thereof can be shifted or passed on to another person, such
as when the tax is imposed upon goods before reaching
the consumer who ultimately pays for it. When the seller
passes on the tax to his buyer, he, in effect, shifts the tax
burden, not the liability to pay it, to the purchaser as part
of the purchase price of goods sold or services rendered.

The exemption granted under Section 135 (b) of the NIRC

of 1997 and Article 4(2) of the Air Transport Agreement
between RP and Singapore cannot, without a clear
showing of legislative intent, be construed as including
indirect taxes. Statutes granting tax exemptions must be
construed in strictly against the taxpayer and liberally in
favor of the taxing authority, and if an exemption is found
to exist, it must not be enlarged by construction.

Title VI of the NIRC deals with excise taxes on certain

goods. Pursuant to Section 129, excise taxes refer to taxes