[G. R. No. 141658. March 18, 2005]
1326) (The
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.
THE PHILIPPINE AMERICAN ACCIDENT INSURANCE
COMPANY, INC., THE PHILIPPINE AMERICAN ASSURANCE
COMPANY, INC., and THE PHILIPPINE AMERICAN GENERAL
INSURANCE CO., INC., respondents.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review[1] assailing the
Decision[2] of 7 January 2000 of the Court of Appeals in
CA-G.R. SP No. 36816. The Court of Appeals affirmed the
Decision[3] of 5 January 1995 of the Court of Tax Appeals
(CTA) in CTA Cases Nos. 2514, 2515 and 2516. The CTA
ordered the Commissioner of Internal Revenue
(petitioner) to refund a total of P29,575.02 to respondent
companies (respondents).
Antecedent Facts
Respondents are domestic corporations licensed to
transact insurance business in the country. From August
1971 to September 1972, respondents paid the Bureau of
Internal Revenue under protest the 3% tax imposed on
lending investors by Section 195-A[4] of Commonwealth
Act No. 466 (CA 466), as amended by Republic Act No.
6110 (RA 6110) and other laws. CA 466 was the National
Internal Revenue Code (NIRC) applicable at the time.
Respondents paid the following amounts: P7,985.25 from
Philippine American (PHILAM) Accident Insurance
Company; P7,047.80 from PHILAM Assurance Company;
and P14,541.97 from PHILAM General Insurance Company.
These amounts represented 3% of each companys interest
income from mortgage and other loans. Respondents also
paid the taxes required of insurance companies under CA
466.
On 31 January 1973, respondents sent a letter-claim to
petitioner seeking a refund of the taxes paid under
protest. When respondents did not receive a response,
each respondent filed on 26 April 1973 a petition for
review with the CTA. These three petitions, which were
later consolidated, argued that respondents were not
lending investors and as such were not subject to the 3%
lending investors tax under Section 195-A.
The CTA archived respondents case for several years
while another case with a similar issue was pending
before the higher courts. When respondents case was
reinstated, the CTA ruled that respondents were entitled
to their refund.
The Ruling of the Court of Tax Appeals
The CTA held that respondents are not taxable as lending
investors because the term lending investors does not
embrace insurance companies. The CTA traced the
history of the tax on lending investors, as follows:
Originally, a person who was engaged in lending money at
interest was taxed as a money lender. [Sec. 1464(x), Rev.
Adm. Code] The term money lenders was defined as
including all persons who make a practice of lending
money for themselves or others at interest. [Sec. 1465(v),
id.] Under this law, an insurance company was not
considered a money lender and was not taxable as such.
To quote from an old BIR Ruling:
The lending of money at interest by insurance companies
constitutes a necessary incident of their regular business.
For this reason, insurance companies are not liable to tax
as money lenders or real estate brokers for making or
negotiating loans secured by real property. (Ruling,
February 28, 1920; BIR 135.2) (The Internal Revenue Law,
Annotated, 2nd ed., 1929, by B.L. Meer, page 143)
The same rule has been applied to banks.
For making investments on salary loans, banks will not be
required to pay the money lenders tax imposed by this
subsection, for the reason that money lending is
considered a mere incident of the banking business. [See
1
Ruling No. 43, (October 8, 1926) 25 Off. Gaz.
Internal Revenue Law, Annotated, id.)
The term money lenders was later changed to lending
investors but the definition of the term remains the
same. [Sec. 1464(x), Rev. Adm. Code, as finally amended
by Com. Act No. 215, and Sec. 1465(v) of the same Code,
as finally amended by Act No. 3963] The same law is
embodied in the present National Internal Revenue Code
(Com. Act No. 466) without change, except in the amount
of the tax. [See Secs. 182(A) (3) (dd) and 194(u), National
Internal Revenue Code.]
It is a well-settled rule that an administrative
interpretation of a law which has been followed and
applied for a long time, and thereafter the law is re-
enacted without substantial change, such administrative
interpretation is deemed to have received legislative
approval. In short, the administrative interpretation
becomes part of the law as it is presumed to carry out the
legislative purpose.[5]
The CTA held that the practice of lending money at
interest is part of the insurance business. CA 466 already
taxes the insurance business. The CTA pointed out that
the law recognizes and even regulates this practice of
lending money by insurance companies.
The CTA observed that CA 466 also treated differently
insurance companies from lending investors in regard to
fixed taxes. Under Section 182(A)(3)(gg), insurance
companies were subject to the same fixed tax as banks
and finance companies. The CTA reasoned that insurance
companies were grouped with banks and finance
companies because the latters lending activities were
also integral to their business. In contrast, lending
investors were taxed at a different fixed tax under
Section 182(A)(3)(dd) of CA 466. The CTA stated that
insurance companies xxx had never been required by
respondent [CIR] to pay the fixed tax imposed on lending
investors xxx.[6]
The dispositive portion of the Decision of 5 January 1995
of the Court of Tax Appeals (CTA Decision) reads:
WHEREFORE, premises considered, petitioners Philippine
American Accident Insurance Co., Philippine American
Assurance Co., and Philippine American General Insurance
Co., Inc. are not taxable on their lending transactions
independently of their insurance business. Accordingly,
respondent is hereby ordered to refund to petitioner[s]
the sum of P7,985.25, P7,047.80 and P14,541.97 in CTA
Cases No. 2514, 2515 and 2516, respectively representing
the fixed and percentage taxes when (sic) paid by
petitioners as lending investor from August 1971 to
September 1972.
No pronouncement as to cost.
SO ORDERED.[7]
Dissatisfied, petitioner elevated the matter to the Court
of Appeals.[8]
The Ruling of the Court of Appeals
The Court of Appeals ruled that respondents are not
taxable as lending investors. In its Decision of 7 January
2000 (CA Decision), the Court of Appeals affirmed the
ruling of the CTA, thus:
WHEREFORE, premises considered, the petition is
DISMISSED, hereby AFFIRMING the decision, dated January
5, 1995, of the Court of Tax Appeals in CTA Cases Nos.
2514, 2515 and 2516.
SO ORDERED.[9]
Petitioner appealed the CA Decision to this Court.
The Issues
Petitioner raises the sole issue:
WHETHER RESPONDENT INSURANCE COMPANIES ARE
SUBJECT TO THE 3% PERCENTAGE TAX AS LENDING
INVESTORS UNDER SECTIONS 182(A)(3)(DD) AND 195-A,
RESPECTIVELY IN RELATION TO SECTION 194(U), ALL OF
THE NIRC.[10]
The Ruling of the Court
The petition lacks merit.
On the Additional Issue Raised by Petitioner
Section 182(A)(3)(dd) of CA 466 imposes an annual fixed
tax on lending investors, depending on their location.[11]
The sole question before the CTA was whether
respondents were subject to the percentage tax on
lending investors under Section 195-A. Petitioner raised
for the first time the issue of the fixed tax in the Petition
for Review[12] petitioner filed before the Court of
Appeals.
Ordinarily, a party cannot raise for the first time on
appeal an issue not raised in the trial court.[13] The
Court of Appeals should not have taken cognizance of the
issue on respondents supposed liability under Section
182(A)(3)(dd). However, we cannot entirely fault the
Court of Appeals or petitioner. Even if the percentage tax
on lending investors was the sole issue before it, the CTA
ordered petitioner to refund to the PHILAM companies the
fixed and percentage taxes [t]hen paid by petitioners as
lending investor.[14] Although the amounts for refund
consisted only of what respondents paid as percentage
taxes, the CTA Decision also ordered the refund to
respondents of the fixed tax on lending investors.
Respondents in their pleadings deny any liability under
Section 182(A)(3)(dd), on the same ground that they are
not lending investors.
The question of whether respondents should pay the fixed
tax under Section 182(A)(3)(dd) revolves around the same
issue of whether respondents are taxable as lending
investors. In similar circumstances, the Court has held
that an appellate court may consider an unassigned error
if it is closely related to an error that was properly
assigned.[15] This rule properly applies to the present
case. Thus, we shall consider and rule on the issue of
whether respondents are subject to the fixed tax under
Section 182(A)(3)(dd).
Whether Insurance Companies are
Taxable as Lending Investors
Invoking Sections 195-A and 182(A)(3)(dd) in relation to
Section 194(u) of CA 466, petitioner argues that insurance
companies are subject to two fixed taxes and two
percentage taxes. Petitioner alleges that:
As a lending investor, an insurance company is subject to
an annual fixed tax of P500.00 and another P500.00 under
Section 182 (A)(3)(dd) and (gg) of the Tax Code. As an
underwriter, an insurance company is subject to the 3%
tax of the total premiums collected and another 3% on
the gross receipts as a lending investor under Sections 255
and 195-A, respectively of the same Code. xxx[16]
Petitioner also contends that the refund granted to
respondents is in the nature of a tax exemption, and
cannot be allowed unless granted explicitly and
categorically.
The rule that tax exemptions should be construed strictly
against the taxpayer presupposes that the taxpayer is
clearly subject to the tax being levied against him. Unless
a statute imposes a tax clearly, expressly and
unambiguously, what applies is the equally well-settled
rule that the imposition of a tax cannot be presumed.[17]
Where there is doubt, tax laws must be construed strictly
against the government and in favor of the taxpayer.[18]
This is because taxes are burdens on the taxpayer, and
should not be unduly imposed or presumed beyond what
the statutes expressly and clearly import.[19]
Section 182(A)(3)(dd) of CA 466 also provides:
Sec. 182. Fixed taxes. (A) On business xxx
xxx
(3) Other fixed taxes. The following fixed taxes shall be
collected as follows, the amount stated being for the
whole year, when not otherwise specified;
xxx
(dd) Lending investors
1. In chartered cities and first class municipalities, five
hundred pesos;
2. In second and third class municipalities, two hundred
and fifty pesos;
2
3. In fourth and fifth class municipalities and municipal
districts, one hundred and twenty-five pesos; Provided,
That lending investors who do business as such in more
than one province shall pay a tax of five hundred pesos.
Section 195-A of CA 466 provides:
Sec. 195-A. Percentage tax on dealers in securities;
lending investors. Dealers in securities and lending
investors shall pay a tax equivalent to three per centum
on their gross income.
Neither Section 182(A)(3)(dd) nor Section 195-A mentions
insurance companies. Section 182(A)(3)(dd) provides for
the taxation of lending investors in different localities.
Section 195-A refers to dealers in securities and lending
investors. The burden is thus on petitioner to show that
insurance companies are lending investors for purposes of
taxation.
In this case, petitioner does not dispute that respondents
are in the insurance business. Petitioner merely alleges
that the definition of lending investors under CA 466 is
broad enough to encompass insurance companies.
Petitioner insists that because of Section 194(u), the two
principal activities of the insurance business, namely,
underwriting and investment, are separately taxable.[20]
Section 194(u) of CA 466 states:
(u) Lending investor includes all persons who make a
practice of lending money for themselves or others at
interest.
xxx
As can be seen, Section 194(u) does not tax the practice
of lending per se. It merely defines what lending investors
are. The question is whether the lending activities of
insurance companies make them lending investors for
purposes of taxation.
We agree with the CTA and Court of Appeals that it does
not. Insurance companies cannot be considered lending
investors under CA 466, as amended.
Definition of Lending
Investors under CA 466 Does
Not Include Insurance
Companies.
The definition in Section 194(u) of CA 466 is not broad
enough to include the business of insurance companies.
The Insurance Code of 1978[21] is very clear on what
constitutes an insurance company. It provides that an
insurer or insurance company shall include all individuals,
partnerships, associations or corporations xxx engaged as
principals in the insurance business, excepting mutual
benefit associations.[22] More specifically, respondents
fall under the category of insurance corporations as
defined in Section 185 of the Insurance Code, thus:
SECTION 185. Corporations formed or organized to save
any person or persons or other corporations harmless
from loss, damage, or liability arising from any unknown
or future or contingent event, or to indemnify or to
compensate any person or persons or other corporations
for any such loss, damage, or liability, or to guarantee
the performance of or compliance with contractual
obligations or the payment of debts of others shall be
known as insurance corporations.
Plainly, insurance companies and lending investors are
different enterprises in the eyes of the law. Lending
investors cannot, for a consideration, hold anyone
harmless from loss, damage or liability, nor provide
compensation or indemnity for loss. The underwriting of
risks is the prerogative of insurers, the great majority of
which are incorporated insurance companies[23] like
respondents.
Granting of Mortgage and
other Loans are Investment
Practices that are Part of the
Insurance Business.
True, respondents granted mortgage and other kinds of
loans. However, this was not done independently of
respondents insurance business. The granting of certain
loans is one of several means of investment allowed to
insurance companies. No less than the Insurance Code
mandates and regulates this practice.[24]
Unlike the practice of lending investors, the lending
activities of insurance companies are circumscribed and
strictly regulated by the State. Insurance companies
cannot freely lend to themselves or others as lending
investors can,[25] nor can insurance companies grant
simply any kind of loan. Even prior to 1978, the Insurance
Code prescribed strict rules for the granting of loans by
insurance companies.[26] These provisions on mortgage,
collateral and policy loans were reiterated in the
Insurance Code of 1978 and are still in force today.
Petitioner concedes that respondents investment
practices are as much a part of the insurance business as
the task of underwriting. Nevertheless, petitioner argues
that such investment practices are separately taxable
under CA 466.
The CTA and the Court of Appeals found that the
investment of premiums and other funds received by
respondents through the granting of mortgage and other
loans was necessary to respondents business and hence,
should not be taxed separately.
Insurance companies are required by law to possess and
maintain substantial legal reserves to meet their
obligations to policyholders.[27] This obviously cannot be
accomplished through the collection of premiums alone,
as the legal reserves and capital and surplus insurance
companies are obligated to maintain run into millions of
pesos. As such, the creation of investment income has
long been held to be generally, if not necessarily,
essential to the business of insurance.[28]
The creation of investment income in the manner
sanctioned by the laws on insurance is thus part of the
business of insurance, and the fruits of these investments
are essentially income from the insurance business. This
is particularly true if the invested assets are held either
as reserved funds to provide for policy obligations or as
capital and surplus to provide an extra margin of safety
which will be attractive to insurance buyers.[29]
The Court has also held that when a company is taxed on
its main business, it is no longer taxable further for
engaging in an activity or work which is merely a part of,
incidental to and is necessary to its main business.[30]
Respondents already paid percentage and fixed taxes on
their insurance business. To require them to pay
percentage and fixed taxes again for an activity which is
necessarily a part of the same business, the law must
expressly require such additional payment of tax. There
is, however, no provision of law requiring such additional
payment of tax.
Sections 195-A and 182(A)(3)(dd) of CA 466 do not require
insurance companies to pay double percentage and fixed
taxes. They merely tax lending investors, not lending
activities. Respondents were not transformed into lending
investors by the mere fact that they granted loans, as
these investments were part of, incidental and necessary
to their insurance business.
Different Tax Treatment of
Insurance Companies and
Lending Investors.
Section 182(A)(3) of CA 466 accorded different tax
treatments to lending investors and insurance companies.
The relevant portions of Section 182 state:
Sec. 182. Fixed taxes. (A) On business xxx
(3) Other fixed taxes. The following fixed taxes shall be
collected as follows, the amount stated being for the
whole year, when not otherwise specified;
xxx
(dd) Lending investors
1. In chartered cities and first class municipalities, five
hundred pesos;
2. In second and third class municipalities, two hundred
and fifty pesos;
3. In fourth and fifth class municipalities and municipal
districts, one hundred and twenty-five pesos; Provided,
3
That lending investors who do business as such in more
than one province shall pay a tax of five hundred pesos.
xxx
(gg) Banks, insurance companies, finance and investment
companies doing business in the Philippines and franchise
grantees, five hundred pesos.
xxx (Emphasis supplied.)
The separate provisions on lending investors and
insurance companies demonstrate an intention to treat
these businesses differently. If Congress intended
insurance companies to be taxed as lending investors,
there would be no need for Section 182(A)(3)(gg). Section
182(A)(3)(dd) would have been sufficient. That insurance
companies were included with banks, finance and
investment companies also supports the CTAs conclusion
that insurance companies had more in common with the
latter enterprises than with lending investors. As the CTA
pointed out, banks also regularly lend money at interest,
but are not taxable as lending investors.
We find no merit in petitioners contention that Congress
intended to subject respondents to two percentage taxes
and two fixed taxes. Petitioners argument goes against
the doctrine of strict interpretation of tax impositions.
Petitioners argument is likewise not in accord with
existing jurisprudence. In Commissioner of Internal
Revenue v. Michel J. Lhuillier Pawnshop, Inc.,[31] the
Court ruled that the different tax treatment accorded to
pawnshops and lending investors in the NIRC of 1977 and
the NIRC of 1986 showed the intent of Congress to deal
with both subjects differently. The same reasoning
applies squarely to the present case.
Even the current tax law does not treat insurance
companies as lending investors. Under Section 108(A)[32]
of the NIRC of 1997, lending investors and non-life
insurance companies, except for their crop insurances,
are subject to value-added tax (VAT). Life insurance
companies are exempt from VAT, but are subject to
percentage tax under Section 123 of the NIRC of 1997.
Indeed, the fact that Sections 195-A and 182(A)(3)(dd) of
CA 466 failed to mention insurance companies already
implies the latters exclusion from the coverage of these
provisions. When a statute enumerates the things upon
which it is to operate, everything else by implication
must be excluded from its operation and effect.[33]
Definition of Lending
Investors in CA 466 is Not
New.
Petitioner does not dispute that it issued a ruling in 1920
to the effect that the lending of money at interest was a
necessary incident of the insurance business, and that
insurance companies were thus not subject to the tax on
money lenders. Petitioner argues only that the 1920
ruling does not apply to the instant case because RA 6110
introduced the definition of lending investors to CA 466
only in 1969.
The subject definition was actually introduced much
earlier, at a time when lending investors were still
referred to as money lenders. Sections 45 and 46 of the
Internal Revenue Law of 1914[34] (1914 Tax Code) state:
SECTION 45. Amount of Tax on Business. Fixed taxes on
business shall be collected as follows, the amount stated
being for the whole year, when not otherwise specified:
xxx
(x) Money lenders, eighty pesos;
xxx
SECTION 46. Words and Phrases Defined. In applying the
provisions of the preceding section words and phrases
shall be taken in the sense and extension indicated
below:
xxx
Money lender includes all persons who make a practice of
lending money for themselves or others at interest.
(Emphasis supplied)
As can be seen, the definitions of money lender under the
1914 Tax Code and lending investor under CA 466 are
identical. The term money lender was merely changed to
lending investor when Act No. 3963 amended the Revised
Administrative Code in 1932.[35] This same definition of
lending investor has since appeared in Section 194(u) of
CA 466 and later tax laws.
Note that insurance companies were not included among
the businesses subject to an annual fixed tax under the
1914 Tax Code.[36] That Congress later saw the need to
introduce Section 182(A)(3)(gg) in CA 466 bolsters our
view that there was no legislative intent to tax insurance
companies as lending investors. If insurance companies
were already taxed as lending investors, there would
have been no need for a separate provision specifically
requiring insurance companies to pay fixed taxes.
The Court Accords Great
Weight to the Factual Findings
of the CTA.
Dedicated exclusively to the study and consideration of
tax problems, the CTA has necessarily developed an
expertise in the subject of taxation that this Court has
recognized time and again. For this reason, the findings
of fact of the CTA, particularly when affirmed by the
Court of Appeals, are generally conclusive on this Court
absent grave abuse of discretion or palpable error,[37]
which are not present in this case.
WHEREFORE, we DENY the instant petition and AFFIRM
the Decision of 7 January 2000 of the Court of Appeals in
CA-G.R. SP No. 36816.
SO ORDERED.
PANASONIC COMMUNICATIONS G.R. No. 178090
IMAGING CORPORATION OF THE
PHILIPPINES (formerly MATSUSHITA
BUSINESS MACHINE CORPORATION
OF THE PHILIPPINES),
Petitioner, Present:
Carpio, J., Chairperson,
- versus - Brion,
Del Castillo,
Abad, and
Perez, JJ.
COMMISSIONER OF INTERNAL
REVENUE, Promulgated:
Respondent.
February 8, 2010
x ---------------------------------------------------------------------
------------------ x
DECISION
ABAD, J.:
This petition for review puts in issue the May 23, 2007
Decision[1] of the Court of Tax Appeals (CTA) en banc in
CTA EB 239, entitled Panasonic Communications Imaging
Corporation of the Philippines v. Commissioner of Internal
Revenue, which affirmed the denial of petitioners claim
for refund.
The Facts and the Case
Petitioner Panasonic Communications Imaging Corporation
of the Philippines (Panasonic) produces and exports plain
paper copiers and their sub-assemblies, parts, and
components. It is registered with the Board of
Investments as a preferred pioneer enterprise under the
Omnibus Investments Code of 1987. It is also a registered
value-added tax (VAT) enterprise.
From April 1 to September 30, 1998 and from October 1,
1998 to March 31, 1999, petitioner Panasonic generated
export sales amounting to US$12,819,475.15 and
US$11,859,489.78, respectively, for a total of
4
US$24,678,964.93. Believing that these export sales were
zero-rated for VAT under Section 106(A)(2)(a)(1) of the
1997 National Internal Revenue Code as amended by
Republic Act (R.A.) 8424 (1997 NIRC),[2] Panasonic paid
input VAT of P4,980,254.26 and P4,388,228.14 for the
two periods or a total of P9,368,482.40 attributable to its
zero-rated sales.
Claiming that the input VAT it paid remained unutilized
or unapplied, on March 12, 1999 and July 20, 1999
petitioner Panasonic filed with the Bureau of Internal
Revenue (BIR) two separate applications for refund or tax
credit of what it paid. When the BIR did not act on the
same, Panasonic filed on December 16, 1999 a petition
for review with the CTA, averring the inaction of the
respondent Commissioner of Internal Revenue (CIR) on its
applications.
After trial or on August 22, 2006 the CTAs First Division
rendered judgment,[3] denying the petition for lack of
merit. The First Division said that, while petitioner
Panasonics export sales were subject to 0% VAT under
Section 106(A)(2)(a)(1) of the 1997 NIRC, the same did
not qualify for zero-rating because the word zero-rated
was not printed on Panasonics export invoices. This
omission, said the First Division, violates the invoicing
requirements of Section 4.108-1 of Revenue Regulations
(RR) 7-95.[4]
Its motion for reconsideration having been denied, on
January 5, 2007 petitioner Panasonic appealed the First
Divisions decision to the CTA en banc. On May 23, 2007
the CTA en banc upheld the First Divisions decision and
resolution and dismissed the petition. Panasonic filed a
motion for reconsideration of the en banc decision but
this was denied. Thus, petitioner filed the present
petition in accordance with R.A. 9282.[5]
The Issue Presented
The sole issue presented in this case is whether or not the
CTA en banc correctly denied petitioner Panasonics claim
for refund of the VAT it paid as a zero-rated taxpayer on
the ground that its sales invoices did not state on their
faces that its sales were zero-rated.
The Courts Ruling
The VAT is a tax on consumption, an indirect tax that the
provider of goods or services may pass on to his
customers. Under the VAT method of taxation, which is
invoice-based, an entity can subtract from the VAT
charged on its sales or outputs the VAT it paid on its
purchases, inputs and imports.[6] For example, when a
seller charges VAT on its sale, it issues an invoice to the
buyer, indicating the amount of VAT he charged. For his
part, if the buyer is also a seller subjected to the
payment of VAT on his sales, he can use the invoice
issued to him by his supplier to get a reduction of his own
VAT liability. The difference in tax shown on invoices
passed and invoices received is the tax paid to the
government. In case the tax on invoices received exceeds
that on invoices passed, a tax refund may be claimed.
Under the 1997 NIRC, if at the end of a taxable quarter
the seller charges output taxes[7] equal to the input
taxes[8] that his suppliers passed on to him, no payment
is required of him. It is when his output taxes exceed his
input taxes that he has to pay the excess to the BIR. If
the input taxes exceed the output taxes, however, the
excess payment shall be carried over to the succeeding
quarter or quarters. Should the input taxes result from
zero-rated or effectively zero-rated transactions or from
the acquisition of capital goods, any excess over the
output taxes shall instead be refunded to the taxpayer.[9]
Zero-rated transactions generally refer to the export sale
of goods and services. The tax rate in this case is set at
zero. When applied to the tax base or the selling price of
the goods or services sold, such zero rate results in no tax
chargeable against the foreign buyer or customer. But,
although the seller in such transactions charges no output
tax, he can claim a refund of the VAT that his suppliers
charged him. The seller thus enjoys automatic zero
rating, which allows him to recover the input taxes he
paid relating to the export sales, making him
internationally competitive.[10]
For the effective zero rating of such transactions,
however, the taxpayer has to be VAT-registered and must
comply with invoicing requirements.[11] Interpreting
these requirements, respondent CIR ruled that under
Revenue Memorandum Circular (RMC) 42-2003, the
taxpayers failure to comply with invoicing requirements
will result in the disallowance of his claim for refund.
RMC 42-2003 provides:
A-13. Failure by the supplier to comply with the invoicing
requirements on the documents supporting the sale of
goods and services will result to the disallowance of the
claim for input tax by the purchaser-claimant.
If the claim for refund/TCC is based on the existence of
zero-rated sales by the taxpayer but it fails to comply
with the invoicing requirements in the issuance of sales
invoices (e.g., failure to indicate the TIN), its claim for
tax credit/refund of VAT on its purchases shall be denied
considering that the invoice it is issuing to its customers
does not depict its being a VAT-registered taxpayer whose
sales are classified as zero-rated sales. Nonetheless, this
treatment is without prejudice to the right of the
taxpayer to charge the input taxes to the appropriate
expense account or asset account subject to
depreciation, whichever is applicable. Moreover, the case
shall be referred by the processing office to the
concerned BIR office for verification of other tax
liabilities of the taxpayer.
Petitioner Panasonic points out, however, that in
requiring the printing on its sales invoices of the word
zero-rated, the Secretary of Finance unduly expanded,
amended, and modified by a mere regulation (Section
4.108-1 of RR 7-95) the letter and spirit of Sections 113
and 237 of the 1997 NIRC, prior to their amendment by
R.A. 9337.[12] Panasonic argues that the 1997 NIRC,
which applied to its paymentsspecifically Sections 113
and 237required the VAT-registered taxpayers receipts or
invoices to indicate only the following information:
(1) A statement that the seller is a VAT-registered person,
followed by his taxpayer's identification number (TIN);
(2) The total amount which the purchaser pays or is
obligated to pay to the seller with the indication that
such amount includes the value-added tax;
(3) The date of transaction, quantity, unit cost and
description of the goods or properties or nature of the
service; and
(4) The name, business style, if any, address and
taxpayers identification number (TIN) of the purchaser,
customer or client.
Petitioner Panasonic points out that Sections 113 and 237
did not require the inclusion of the word zero-rated for
zero-rated sales covered by its receipts or invoices. The
BIR incorporated this requirement only after the
enactment of R.A. 9337 on November 1, 2005, a law that
did not yet exist at the time it issued its invoices.
But when petitioner Panasonic made the export sales
subject of this case, i.e., from April 1998 to March 1999,
5
the rule that applied was Section 4.108-1 of RR 7-95,
otherwise known as the Consolidated Value-Added Tax
Regulations, which the Secretary of Finance issued on
December 9, 1995 and took effect on January 1, 1996. It
already required the printing of the word zero-rated on
the invoices covering zero-rated sales. When R.A. 9337
amended the 1997 NIRC on November 1, 2005, it made
this particular revenue regulation a part of the tax code.
This conversion from regulation to law did not diminish
the binding force of such regulation with respect to acts
committed prior to the enactment of that law.
Section 4.108-1 of RR 7-95 proceeds from the rule-making
authority granted to the Secretary of Finance under
Section 245 of the 1977 NIRC (Presidential Decree 1158)
for the efficient enforcement of the tax code and of
course its amendments.[13] The requirement is
reasonable and is in accord with the efficient collection
of VAT from the covered sales of goods and services. As
aptly explained by the CTAs First Division, the
appearance of the word zero-rated on the face of
invoices covering zero-rated sales prevents buyers from
falsely claiming input VAT from their purchases when no
VAT was actually paid. If, absent such word, a successful
claim for input VAT is made, the government would be
refunding money it did not collect.[14]
Further, the printing of the word zero-rated on the
invoice helps segregate sales that are subject to 10% (now
12%) VAT from those sales that are zero-rated.[15] Unable
to submit the proper invoices, petitioner Panasonic has
been unable to substantiate its claim for refund.
Petitioner Panasonics citation of Intel Technology
Philippines, Inc. v. Commissioner of Internal Revenue[16]
is misplaced. Quite the contrary, it strengthens the
position taken by respondent CIR. In that case, the CIR
denied the claim for tax refund on the ground of the
taxpayers failure to indicate on its invoices the BIR
authority to print. But Sec. 4.108-1 required only the
following to be reflected on the invoice:
1. The name, taxpayers identification number (TIN) and
address of seller;
2. Date of transaction;
3. Quantity, unit cost and description of merchandise or
nature of service;
4. The name, TIN, business style, if any, and address of
the VAT-registered purchaser, customer or client;
5. The word zero-rated imprinted on the invoice covering
zero-rated sales; and
6. The invoice value or consideration.
This Court held that, since the BIR authority to print is
not one of the items required to be indicated on the
invoices or receipts, the BIR erred in denying the claim
for refund. Here, however, the ground for denial of
petitioner Panasonics claim for tax refundthe absence of
the word zero-rated on its invoicesis one which is
specifically and precisely included in the above
enumeration. Consequently, the BIR correctly denied
Panasonics claim for tax refund.
This Court will not set aside lightly the conclusions
reached by the CTA which, by the very nature of its
functions, is dedicated exclusively to the resolution of tax
problems and has accordingly developed an expertise on
the subject, unless there has been an abuse or
improvident exercise of authority.[17] Besides, statutes
that grant tax exemptions are construed strictissimi juris
against the taxpayer and liberally in favor of the taxing
authority. Tax refunds in relation to the VAT are in the
nature of such exemptions. The general rule is that
claimants of tax refunds bear the burden of proving the
factual basis of their claims. Taxes are the lifeblood of
the nation. Therefore, statutes that allow exemptions are
construed strictly against the grantee and liberally in
favor of the government.[18]
WHEREFORE, the petition is DENIED for lack of merit.
Costs against petitioner.
SO ORDERED.
SOUTHERN PHILIPPINES G.R. No. 179632
POWER CORPORATION,
Petitioner, Present:
VELASCO, JR., J., Chairperson,
- versus - PERALTA,
ABAD,
MENDOZA, and
PERLAS-BERNABE, JJ.
COMMISSIONER OF INTERNAL
REVENUE, Promulgated:
Respondent.
October 19, 2011
x ---------------------------------------------------------------------
------------------ x
DECISION
ABAD, J.:
The case is about the sufficiency of sales invoices and
receipts, which do not have the words zero-rated
imprinted on them, to evidence zero-rated transactions,
a requirement in taxpayers claim for tax credit or refund.
The Facts and the Case
Petitioner Southern Philippines Power Corporation (SPP),
a power company that generates and sells electricity to
the National Power Corporation (NPC), applied with the
Bureau of Internal Revenue (BIR) for zero-rating of its
transactions under Section 108(B)(3) of the National
Internal Revenue Code (NIRC). The BIR approved the
application for taxable years 1999 and 2000.
On June 20, 2000 SPP filed a claim with respondent
Commissioner of Internal Revenue (CIR) for a
P5,083,371.57 tax credit or refund for 1999. On July 13,
2001 SPP filed a second claim of P6,221,078.44 in tax
credit or refund for 2000. The amounts represented
unutilized input VAT attributable to SPPs zero-rated sale
of electricity to NPC.
On September 29, 2001, before the lapse of the two-year
prescriptive period for such actions, SPP filed with the
Court of Tax Appeals (CTA) Second Division a petition for
review covering its claims for refund or tax credit. The
petition claimed only the aggregate amount of
P8,636,126.75 which covered the last two quarters of
1999 and the four quarters in 2000.
In his Comment on the petition, the CIR maintained that
SPP is not entitled to tax credit or refund since (a) the
BIR was still examining SPPs claims for the same; (b) SPP
failed to substantiate its payment of input VAT; (c) its
right to claim refund already prescribed, and (d) SPP has
not shown compliance with Section 204(c) in relation to
Section 229 of the NIRC as amended and Revenue
Regulation (RR) 5-87 as amended by RR 3-88.
In a Decision dated April 26, 2006, the Second Division[1]
denied SPPs claims, holding that its zero-rated official
receipts did not correspond to the quarterly VAT returns,
bearing a difference of P800,107,956.61. Those receipts
only support the amount of P118,945,643.88. Further,
these receipts do not bear the words zero-rated in
violation of RR 7-95. The Second Division denied SPPs
motion for reconsideration on August 15, 2006.
6
On appeal, the CTA En Banc affirmed the Second Divisions
decision dated July 31, 2007.[2] The CTA En Banc
rejected SPPs contention that its sales invoices reflected
the words zero-rated, pointing out that it is on the
official receipts that the law requires the printing of such
words. Moreover, SPP did not report in the corresponding
quarterly VAT return the sales subject of its zero-rated
receipts. The CTA En Banc denied SPPs motion for
reconsideration on September 19, 2007.
The Issues Presented
The case presents the following issues:
1. Whether or not the CTA En Banc correctly rejected the
invoices that SPP presented and, thus, ruled that it failed
to prove the zero-rated or effectively zero-rated sales
that it made;
2. Whether or not the CTA En Banc correctly ruled that
the words BIR-VAT Zero Rate Application Number
419.2000 imprinted on SPPs invoices did not comply with
RR 7-95;
3. Whether or not the CTA En Banc correctly held that
SPP should have declared its zero-rated sales in its VAT
returns for the subject period of the claim; and
4. Whether or not the CTA En Banc correctly ruled that
SPP was not entitled to a tax refund or credit.
The Courts Rulings
One and Two. The Court reiterated in San Roque Power
Corporation v. Commissioner of Internal Revenue[3] the
following criteria governing claims for refund or tax
credit under Section 112(A) of the NIRC:
(1) The taxpayer is VAT-registered;
(2) The taxpayer is engaged in zero-rated or effectively
zero-rated sales;
(3) The input taxes are due or paid;
(4) The input taxes are not transitional input taxes;
(5) The input taxes have not been applied against output
taxes during and in the succeeding quarters;
(6) The input taxes claimed are attributable to zero-rated
or effectively zero-rated sales;
(7) For zero-rated sales under Section 106(A)(2)(1) and
(2); 106(B); and 108(B)(1) and (2), the acceptable foreign
currency exchange proceeds have been duly accounted
for in accordance with BSP rules and regulations;
(8) Where there are both zero-rated or effectively zero-
rated sales and taxable or exempt sales, and the input
taxes cannot be directly and entirely attributable to any
of these sales, the input taxes shall be proportionately
allocated on the basis of sales volume; and
(9) The claim is filed within two years after the close of
the taxable quarter when such sales were made.
While acknowledging that SPPs sale of electricity to NPC
is a zero-rated transaction,[4] the CTA En Banc ruled that
SPP failed to establish that it made zero-rated sales.
True, SPP submitted official receipts and sales invoices
stamped with the words BIR VAT Zero-Rate Application
Number 419.2000 but the CTA En Banc held that these
were not sufficient to prove the fact of sale.
But NIRC Section 110 (A.1) provides that the input tax
subject of tax refund is to be evidenced by a VAT invoice
or official receipt issued in accordance with Section 113.
Section 113 has been amended by Republic Act (R.A.)
9337 but it is the unamended version that covers the
period when the transactions in this case took place. It
reads:
Section 113. Invoicing and Accounting Requirements for
VAT-Registered Persons.

A. Invoicing Requirements. A VAT-registered person shall,
for every sale, issue an invoice or receipt. In addition to
the information required under Section 237, the following
information shall be indicated in the invoice or receipt:
(1) A statement that the seller is a VAT-registered person,
followed by his taxpayers identification number (TIN);
and
(2) The total amount which the purchaser pays or is
obligated to pay to the seller with the indication that
such amount includes the value-added tax. (Emphasis
supplied)
The above does not distinguish between an invoice and a
receipt when used as evidence of a zero-rated
transaction. Consequently, the CTA should have accepted
either or both of these documents as evidence of SPPs
zero-rated transactions.
Section 237 of the NIRC also makes no distinction
between receipts and invoices as evidence of a
commercial transaction:
SEC. 237. Issuance of Receipts or Sales or Commercial
Invoices. All persons subject to an internal revenue tax
shall, for each sale or transfer of merchandise or for
services rendered valued at Twenty-five pesos (P25.00) or
more, issue duly registered receipts or sales or
commercial invoices, prepared at least in duplicate,
showing the date of transaction, quantity, unit cost and
description of merchandise or nature of service:
Provided, however, That in the case of sales, receipts or
transfers in the amount of One hundred pesos (P100.00)
or more, or regardless of the amount, where the sale or
transfer is made by a person liable to value-added tax to
another person also liable to value-added tax; or where
the receipt is issued to cover payment made as rentals,
commissions, compensations or fees, receipts or invoices
shall be issued which shall show the name, business style,
if any, and address of the purchaser, customer or client:
Provided, further, That where the purchaser is a VAT-
registered person, in addition to the information herein
required, the invoice or receipt shall further show the
Taxpayer Identification Number (TIN) of the purchaser.
The original of each receipt or invoice shall be issued to
the purchaser, customer or client at the time the
transaction is effected, who, if engaged in business or in
the exercise of profession, shall keep and preserve the
same in his place of business for a period of three (3)
years from the close of the taxable year in which such
invoice or receipt was issued, while the duplicate shall be
kept and preserved by the issuer, also in his place of
business, for a like period.
The Commissioner may, in meritorious cases, exempt any
person subject to internal revenue tax from compliance
with the provisions of this Section. (Emphasis supplied)
The Court held in Seaoil Petroleum Corporation v.
Autocorp Group[5] that business forms like sales invoices
are recognized in the commercial world as valid between
the parties and serve as memorials of their business
transactions. And such documents have probative value.
Three. The CTA also did not accept SPPs official receipts
due to the absence of the words zero-rated on it. The
omission, said that court, made the receipts non-
compliant with RR 7-95, specifically Section 4.108.1. But
Section 4.108.1 requires the printing of the words zero-
rated only on invoices, not on official receipts:
Section 4.108-1. Invoicing Requirements. All VAT-
registered persons shall, for every sale or lease of goods
or properties or services, issue duly registered receipts or
sales or commercial invoices which must show:
7
1. The name, TIN and address of seller;
2. Date of transaction;
3. Quantity, unit cost and description of merchandise or
nature of service;
4. The name, TIN, business style, if any, and address of
the VAT-registered purchaser, customer or client;
5. The word "zero-rated" imprinted on the invoice
covering zero-rated sales; and
6. The invoice value or consideration.
x x x x (Emphasis supplied)
Actually, it is R.A. 9337 that in 2005 required the printing
of the words zero-rated on receipts. But, since the
receipts and invoices in this case cover sales made from
1999 to 2000, what applies is Section 4.108.1 above which
refers only to invoices.
A claim for tax credit or refund, arising out of zero-rated
transactions, is essentially based on excess payment. In
zero-rating a transaction, the purpose is not to benefit
the person legally liable to pay the tax, like SPP, but to
relieve exempt entities like NPC which supplies electricity
to factories, offices, and homes, from having to shoulder
the tax burden that ultimately would be passed to the
public.
The principle of solutio indebiti should govern this case
since the BIR received something that it was not entitled
to. Thus, it has to return the same. The government
should not use technicalities to hold on to money that
does not belong to it.[6] Only a preponderance of
evidence is needed to grant a claim for tax refund based
on excess payment.[7]
Notably, SPP does no other business except sell the power
it produces to NPC, a fact that the CIR did not contest in
the parties joint stipulation of facts.[8] Consequently, the
likelihood that SPP would claim input taxes paid on
purchases attributed to sales that are not zero-rated is
close to nil.
Four. The Court finds that SPP failed to indicate its zero-
rated sales in its VAT returns. But this is not sufficient
reason to deny it its claim for tax credit or refund when
there are other documents from which the CTA can
determine the veracity of SPPs claim.
Of course, such failure if partaking of a criminal act
under Section 255 of the NIRC could warrant the criminal
prosecution of the responsible person or persons. But the
omission does not furnish ground for the outright denial
of the claim for tax credit or refund if such claim is in
fact justified.
Five. The CTA denied SPPs claim outright for failure to
establish the existence of zero-rated sales, disregarding
SPPs sales invoices and receipts which evidence them.
That court did not delve into the question of SPPs
compliance with the other requisites provided under
Section 112 of the NIRC.
Consequently, even as the Court holds that SPPs sales
invoices and receipts would be sufficient to prove its
zero-rated transactions, the case has to be remanded to
the CTA for determination of whether or not SPP has
complied with the other requisites mentioned. Such
matter involves questions of fact and entails the need to
examine the records. The Court is not a trier of facts and
the competence needed for examining the relevant
accounting books or records is undoubtedly with the CTA.
WHEREFORE, the Court GRANTS the petition, SETS ASIDE
the Court of Tax Appeals En Banc decision dated July 31,
2007 and resolution dated September 19, 2007, and
REMANDS the case to the Court of Tax Appeals Second
Division for further hearing as stated above.
SO ORDERED.

COMMISSIONER OF INTERNAL REVENUE,
Petitioner,
- versus -
PHILIPPINE AIRLINES, INC.,
Respondent.
G.R. No. 180043
Present:
YNARES-SANTIAGO, J.,
Chairperson,
CARPIO,*
CHICO-NAZARIO,
VELASCO, JR., and
PERALTA, JJ.
Promulgated:
July 14, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:
In this Petition for Review on Certiorari, under Rule 45 of
the Revised Rules of Court, petitioner Commissioner of
Internal Revenue assails the Decision[1] of the Court of
Tax Appeals (CTA) En Banc dated 9 August 2007 in CTA EB
No. 221, affirming the Decision[2] dated 14 June 2006 of
the CTA First Division in CTA Case No. 6735, which
granted the claim of respondent Philippine Airlines, Inc.
(PAL) for the refund of its Overseas Communications Tax
(OCT) for the period April to December 2001.
Petitioner, as the Commissioner of the Bureau of Internal
Revenue (BIR), is responsible for the assessment and
collection of all national internal revenue taxes, fees,
and charges, including the 10% Overseas Communications
Tax (OCT), imposed by Section 120 of the National
Internal Revenue Code (NIRC) of 1997, which reads:
SEC. 120. Tax on Overseas Dispatch, Message or
Conversation Originating from the Philippines. -
(A) Persons LiableThere shall be collected upon every
overseas dispatch, message or conversation transmitted
from the Philippines by telephone, telegraph, telewriter
exchange, wireless and other communication equipment
service, a tax of ten percent (10%) on the amount paid of
[the transaction involving overseas dispatch, message or
conversation] such services. The tax imposed in this
Section shall be payable by the person paying for the
services rendered and shall be paid to the person
rendering the services who is required to collect and pay
the tax within twenty (20) days after the end of each
quarter.
On the other hand, respondent is a domestic corporation
organized under the corporate laws of the Republic of the
Philippines; declared the national flag carrier of the
8
country; and the grantee under Presidential Decree No.
1590[3] of a franchise to establish, operate, and maintain
transport services for the carriage of passengers, mail,
and property by air, in and between any and all points
and places throughout the Philippines, and between the
Philippines and other countries.[4]
For the period January to December 2001, the Philippine
Long Distance Telephone Company (PLDT) collected from
respondent the 10% OCT on the amount paid by the latter
for overseas telephone calls it had made through the
former. In all, PLDT collected from respondent the
amount of P202,471.18 as OCT for 2001, summarized as
follows[5]:
PERIOD
AMOUNT
January to March 2001
P 75,332.26
April to June 2001
50,271.43
July to September 2001
43,313.96
October to December 2001
33,553.53
Total
P 202,471.18
On 8 April 2003, respondent filed with the BIR an
administrative claim for refund of the P202,471.18 OCT it
alleged to have erroneously paid in 2001. In a letter[6]
dated 4 April 2003, addressed to petitioner, Ma. Stella L.
Diaz (Diaz), the Assistant Vice-President for Financial
Planning & Analysis of respondent, explained that the
claim for refund of respondent was based on its franchise,
Section 13 of Presidential Decree No. 1590, which granted
it (1) the option to pay either the basic corporate income
tax on its annual net taxable income or the two percent
franchise tax on its gross revenues, whichever was lower;
and (2) the exemption from all other taxes, duties,
royalties, registration, license and other fees and charges
imposed by any municipal, city, provincial or national
authority or government agency, now or in the future,
except only real property tax. Also invoking BIR Ruling
No. 97-94[7] dated 13 April 1994, Diaz maintained that,
other than being liable for basic corporate income tax or
the franchise tax, whichever was lower, respondent was
clearly exempted from all other taxes, including OCT, by
virtue of the in lieu of all taxes clause in Section 13 of
Presidential Decree No. 1590.
Petitioner failed to act on the request for refund of
respondent, which prompted respondent to file on 4 June
2003, with the CTA in Division, a Petition for Review,
docketed as CTA Case No. 6735. Respondent sought the
refund of the amount P127,138.92, representing OCT,
which PLDT erroneously collected from respondent for
the second, third and fourth quarters of 2001.[8] The
claim of respondent for the refund of the OCT for the
first quarter of 2001, amounting to P75,323.26, had
already prescribed after the passing of more than two
years since said amount was paid.
Respondent alleged in its Petition that per its
computation, reflected in its annual income tax return, it
incurred a net loss in 2001 resulting in zero basic
corporate income tax liability, which was necessarily
lower than the franchise tax due on its gross revenues.
Respondent argued that in opting for the basic corporate
income tax, regardless of whether or not it actually paid
any amount as tax, it was already entitled to the
exemption from all other taxes granted to it by Section 13
of Presidential Decree No. 1590. [9]
After a hearing on the merits, the CTA First Division
rendered a Decision[10] dated 14 June 2006, the
dispositive part of which reads:

WHEREFORE, the Petition for Review is hereby GRANTED.
Respondent is ORDERED to refund to the petitioner the
substantiated amount of P126,243.80 representing the
erroneously collected 10% Overseas Communications Tax
for the period April to December 2001.
The CTA First Division reasoned that under Section 13 of
Presidential Decree No. 1590, respondent had the option
to choose between two alternatives: the basic corporate
income tax and the franchise tax, whichever would result
in a lower amount of tax, and this would be in lieu of all
other taxes, with the exception only of tax on real
property. In the event that respondent incurred a net loss
for the taxable year resulting in zero basic corporate
income tax liability, respondent could not be required to
pay the franchise tax before it could avail itself of the
exemption from all other taxes under Section 13 of
Presidential Decree No. 1590. The possibility that
respondent would incur a net loss for a given taxable
period and, thus, have zero liability for basic corporate
income tax, was already anticipated by Section 13 of
Presidential Decree No. 1590, the very same section
granting respondent tax exemption, since it authorized
respondent to carry over its excess net loss as a
deduction for the next five taxable years.
However, the CTA First Division held that out of the total
amount of P127,138.92 respondent sought to refund, only
the amount of P126,243.80 was supported by either
original or photocopied PLDT billing statements, original
office receipts, and original copies of check vouchers of
respondent. Respondent was also able to prove, through
testimonial evidence, that the OCT collected by PLDT
from it was included in the quarterly percentage tax
returns of PLDT for the second, third, and fourth quarters
of 2001, which were submitted to and received by an
authorized agent bank of the BIR.[11]
Not satisfied with the foregoing Decision dated 14 June
2006, petitioner filed a Motion for Reconsideration, which
was denied by the CTA First Division in a Resolution dated
17 October 2006. [12]
Petitioner filed an appeal with the CTA en banc,
docketed as CTA EB No. 221. The latter promulgated its
Decision[13] on 9 August 2007 denying petitioners appeal.
The CTA En Banc found that Presidential Decree No. 1590
does not provide that only the actual payment of basic
corporate income tax or franchise tax by respondent
would entitle it to the tax exemption provided under
Section 13 of the latters franchise. Like the CTA First
Division, the CTA en banc ruled that by providing for net
loss carry-over, Presidential Decree No. 1590 recognized
the possibility that respondent would end up with a net
loss in the computation of its taxable income, which
would mean zero liability for basic corporate income tax.
The CTA En Banc further cited Commissioner of Internal
Revenue v. Philippine Airlines, Inc.[14] (PAL case) to
support its conclusions. In the said case, this Court
declared that despite the fact that respondent did not
pay any basic corporate income tax, given its net loss
position for the taxable years concerned, it was still
exempted from paying all other taxes, including final
withholding tax on interest income, pursuant to Section
13 of Presidential Decree No. 1590. Lastly, the CTA en
banc sustained the finding of the CTA First Division that
respondent was only able to establish its claim for OCT
refund in the amount of P126,243.80.
The CTA En Banc denied petitioners Motion for
Reconsideration in a Resolution dated 11 October
2007.[15]
Hence, the present Petition for Review where the
petitioner raises the following issues:
9
I
THE COURT OF TAX APPEALS EN BANC ERRED IN HOLDING
THAT THE PHRASE IN LIEU OF ALL OTHER TAXES IN
SECTIONS 13 AND 14 OF PRESIDENTIAL DECREE NO. 1590
DOES NOT CONTEMPLATE THE FULFILLMENT OF A
CONDITION BEFORE THE EXEMPTION FROM ALL OTHER
TAXES MAY BE APPLIED; AND
II
TAX REFUNDS ARE IN THE NATURE OF TAX EXEMPTIONS.
AS SUCH, THEY SHOULD BE CONSTRUED STRICTISSIMI
JURIS AGAINST THE PERSON OR ENTITY CLAIMING THE
EXEMPTION.[16]
The present Petition is without merit.
Petitioner argues that the PAL case is not applicable to
the case at bar, since the former involves final
withholding tax on interest income, while the latter
concerns another type of tax, the OCT.[17]
Petitioners argument is untenable.
Pertinent portions of Section 13 of Presidential Decree
No. 1590 are quoted hereunder:
Section 13. In consideration of the franchise and rights
hereby granted, the grantee shall pay to the Philippine
Government during the life of this franchise, whichever of
subsections (a) and (b) hereunder will result in a lower
tax:
(a) The basic corporate income tax based on the
grantees annual net taxable income computed in
accordance with the provisions of the National Internal
Revenue Code; or
(b) A franchise tax of two per cent (2%) of the gross
revenues, derived by the grantee from all sources,
without distinction as to transport or non-transport
operations; provided, that with respect to international
air-transport service, only the gross passenger, mail and
freight revenues from its outgoing flights shall be subject
to this tax.
The tax paid by grantee under either of the above
alternatives shall be in lieu of all other taxes, duties,
royalties, registration, license, and other fees and
charges of any kind, nature, or description imposed,
levied, established, assessed or collected by any
municipal, city, provincial, or national authority or
government agency, now or in the future x x x
xxxx
The grantee, shall, however, pay the tax on its real
property in conformity with existing law.
The language used in Section 13 of Presidential Decree
No. 1590, granting respondent tax exemption, is clearly
all-inclusive. The basic corporate income tax or franchise
tax paid by respondent shall be in lieu of all other taxes,
duties, royalties, registration, license, and other fees and
charges of any kind, nature, or description imposed,
levied, established, assessed or collected by any
municipal, city, provincial, or national authority or
government agency, now or in the future x x x, except
only real property tax. Even a meticulous examination of
Presidential Decree No. 1590 will not reveal any provision
therein limiting the tax exemption of respondent to final
withholding tax on interest income or excluding from said
exemption the OCT.
Moreover, although the PAL case may involve a different
type of tax, certain pronouncements made by the Court
therein are still significant in the instant case.
In the PAL case, petitioner likewise opposed the claim for
refund of respondent based on the argument that the
latter was not exempted from final withholding tax on
interest income, because said tax should be deemed part
of the basic corporate income tax, which respondent had
opted to pay. This Court was unconvinced by petitioners
argument, ratiocinating that basic corporate income tax,
under Section 13(a) of Presidential Decree No. 1590,
relates to the general rate of 35% (reduced to 32% by the
year 2000) imposed on taxable income by Section 27(A) of
the NIRC. Although the definition of gross income is broad
enough to include all passive incomes, the passive
incomes already subjected to different rates of final tax
to be withheld at source shall no longer be included in
the computation of gross income, which shall be used in
the determination of taxable income. The interest
income of respondent is already subject to final
withholding tax of 20%, and no longer to the basic
corporate income tax of 35%. Having established that
final tax on interest income is not part of the basic
corporate income tax, then the former is considered as
among all other taxes from which respondent is exempted
under Section 13 of Presidential Decree No. 1590.
It is true that the discussion in the PAL case on gross
income is immaterial to the case at bar. OCT is not even
an income tax. It is a business tax, which the government
imposes on the gross annual sales of operators of
communication equipment sending overseas dispatches,
messages or conversations from the Philippines. According
to Section 120 of the NIRC, the person paying for the
services rendered (respondent, in this case) shall pay the
OCT to the person rendering the service (PLDT); the
latter, in turn, shall remit the amount to the BIR. If this
Court deems that final tax on interest income which is
also an income tax, but distinct from basic corporate
income tax is included among all other taxes from which
respondent is exempt, then with all the more reason
should the Court consider OCT, which is altogether a
different type of tax, as also covered by the said
exemption.
Petitioner further avers that respondent cannot avail
itself of the benefit of the in lieu of all other taxes
proviso in Section 13 of Presidential Decree No. 1590
when it made no actual payment of either the basic
corporate income tax or the franchise tax.
Petitioner made the same averment in the PAL case,
which the Court rejected for the following reasons:
A careful reading of Section 13 rebuts the argument of
the CIR that the in lieu of all other taxes proviso is a
mere incentive that applies only when PAL actually pays
something. It is clear that PD 1590 intended to give
respondent the option to avail itself of Subsection (a) or
(b) as consideration for its franchise. Either option
excludes the payment of other taxes and dues imposed or
collected by the national or the local government. PAL
has the option to choose the alternative that results in
lower taxes. It is not the fact of tax payment that
exempts it, but the exercise of its option.
Under Subsection (a), the basis for the tax rate is
respondents annual net taxable income, which (as earlier
discussed) is computed by subtracting allowable
deductions and exemptions from gross income. By basing
the tax rate on the annual net taxable income, PD 1590
necessarily recognized the situation in which taxable
income may result in a negative amount and thus
translate into a zero tax liability.
xxxx
10
The fallacy of the CIRs argument is evident from the fact
that the payment of a measly sum of one peso would
suffice to exempt PAL from other taxes, whereas a zero
liability arising from its losses would not. There is no
substantial distinction between a zero tax and a one-peso
tax liability.[18] (Emphases ours.)
In insisting that respondent needs to actually pay a
certain amount as basic corporate income tax or franchise
tax, before it can enjoy the tax exemption granted to it,
petitioner places too much reliance on the use of the
word pay in the first line of Section 13 of Presidential
Decree No. 1590.
It must do well for petitioner to remember that a statutes
clauses and phrases should not be taken as detached and
isolated expressions, but the whole and every part
thereof must be considered in fixing the meaning of any
of its parts.[19] A strict interpretation of the word pay in
Section 13 of Presidential Decree No. 1590 would
effectively render nugatory the other rights categorically
conferred upon the respondent by its franchise.
Section 13 of Presidential Decree No. 1590 clearly gives
respondent the option to pay either basic corporate
income tax on its net taxable income or franchise tax on
its gross revenues, whichever would result in lower tax.
The rationale for giving respondent such an option is
explained in the PAL case, to wit:
Notably, PAL was owned and operated by the government
at the time the franchise was last amended. It can
reasonably be contemplated that PD 1590 sought to assist
the finances of the government corporation in the form of
lower taxes. When the respondent operates at a loss (as
in the instant case), no taxes are due; in this [sic]
instances, it has a lower tax liability than that provided
by Subsection (b).[20]
In the event that respondent incurs a net loss, it shall
have zero liability for basic corporate income tax, the
lowest possible tax liability. There being no qualification
to the exercise of its options under Section 13 of
Presidential Decree No. 1590, then respondent is free to
choose basic corporate income tax, even if it would have
zero liability for the same in light of its net loss position
for the taxable year. Additionally, a ruling by this Court
compelling respondent to pay a franchise tax when it
incurs a net loss and is, thus, not liable for any basic
corporate income tax would be contrary to the evident
intent of the law to give respondent options and to make
the latter liable for the least amount of tax.
Moreover, then President Ferdinand E. Marcos, the author
of Presidential Decree No. 1590, was mindful of the
possibility that respondent would incur a net loss for a
taxable year, resulting in zero tax liability for basic
corporate income tax, when he included in the franchise
of respondent the following provisions:
For the purposes of computing the basic corporate
income tax as provided herein, the grantee is authorized:
xxxx
(2) To carry over as a deduction from taxable income any
net loss incurred in any year up to five years following the
year of such loss.
In allowing respondent to carry over its net loss for five
consecutive years following the year said loss was
incurred, Presidential Decree No. 1590 takes into account
the possibility that respondent shall be in a net loss
position for six years straight, during which it shall have
zero basic corporate income tax liability. The Court also
notes that net loss carry-over may only be used in the
computation of basic corporate income tax. Hence, if
respondent is required to pay a franchise tax every time
it has zero basic corporate income tax liability due to net
loss, then it shall never have the opportunity to avail
itself of the benefit of net loss carry-over.
Finally, petitioner contends that according to well-
established doctrine, a tax refund, which is in the nature
of a tax exemption, should be construed strictissimi juris
against the taxpayer.[21] However, when the claim for
refund has clear legal basis and is sufficiently supported
by evidence, as in the present case, then the Court shall
not hesitate to grant the same.
In its previous discussion, the Court has already
established that by merely exercising its option to pay for
basic corporate income tax even if it had zero liability for
the same due to its net loss position in 2001 respondent
was already exempted from all other taxes, including the
OCT. Therefore, respondent is entitled to recover the
amount of OCT erroneously collected from it in 2001.
Also, the CTA, both in Division and en banc, found that
respondent submitted ample evidence to prove its
payment of OCT to PLDT during the second, third, and
fourth quarters of 2001, in the total amount of
P126,243.80, which, in turn, was paid by PLDT to the BIR.
Said finding by the CTA, being factual in nature, is
already conclusively binding upon this Court. Under our
tax system, the CTA acts as a highly specialized body
specifically created for the purpose of reviewing tax
cases. Accordingly, its findings of fact are generally
regarded as final, binding, and conclusive on this Court,
and will not ordinarily be reviewed or disturbed on appeal
when supported by substantial evidence, in the absence
of gross error or abuse on its part.[22]
WHEREFORE, the instant Petition for Review is DENIED.
The Decision of the Court of Tax Appeals En Banc dated 9
August 2007 in CTA EB No. 221, affirming the Decision
dated 14 June 2006 of the CTA First Division in CTA Case
No. 6735, which granted the claim of Philippine Airlines,
Inc. for a refund of Overseas Communications Tax
erroneously collected from it for the period April to
December 2001, in the amount of P126,243.80, is
AFFIRMED. No costs.
SO ORDERED.
SAN ROQUE POWER CORPORATION,
Petitioner,
- versus -
COMMISSIONER OF INTERNAL REVENUE,
Respondent.
G.R. No. 180345
Present:
CORONA, J.,
Chairperson,
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.
Promulgated:
November 25, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - -x
11
DECISION
CHICO-NAZARIO, J.:
In this Petition for Review on Certiorari, under
Rule 45 of the Revised Rules of Court, petitioner San
Roque Power Corporation assails the Decision[1] of the
Court of Tax Appeals (CTA) En Banc dated 20 September
2007 in CTA EB No. 248, affirming the Decision[2] dated
23 March 2006 of the CTA Second Division in CTA Case No.
6916, which dismissed the claim of petitioner for the
refund and/or issuance of a tax credit certificate in the
amount of Two Hundred Forty-Nine Million Three Hundred
Ninety-Seven Thousand Six Hundred Twenty Pesos and
18/100 (P249,397,620.18) allegedly representing
unutilized input Value Added Tax (VAT) for the period
covering January to December 2002.
Respondent, as the Commissioner of the Bureau of
Internal Revenue (BIR), is responsible for the assessment
and collection of all national internal revenue taxes,
fees, and charges, including the Value Added Tax (VAT),
imposed by Section 108[3] of the National Internal
Revenue Code (NIRC) of 1997. Moreover, it is empowered
to grant refunds or issue tax credit certificates in
accordance with Section 112 of the NIRC of 1997 for
unutilized input VAT paid on zero-rated or effectively
zero-rated sales and purchases of capital goods, to wit:
SEC. 112. Refunds or Tax Credits of Input Tax. -
(A) Zero-rated or Effectively Zero-rated Sales—Any VAT-
registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund
of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that
such input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated sales
under Section 106(A)(2)(a)(1), (2) and (B) and Section 108
(B)(1) and (2), the acceptable foreign currency exchange
proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP): Provided, further, That where
the taxpayer is engaged in zero-rated or effectively zero-
rated sale and also in taxable or exempt sale of goods or
properties or services, and the amount of creditable input
tax due or paid cannot be directly and entirely attributed
to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.
(B) Capital Goods—A VAT-registered person may apply for
the issuance of a tax credit certificate or refund of input
taxes paid on capital goods imported or locally
purchased, to the extent the such input taxes have not
been applied against output taxes. The application may
be made only within two (2) years after the close of the
taxable quarter when the importation or purchase was
made.
On the other hand, petitioner is a domestic corporation
organized under the corporate laws of the Republic of the
Philippines. On 14 October 1997, it was incorporated for
the sole purpose of building and operating the San Roque
Multipurpose Project in San Manuel, Pangasinan, which is
an indivisible project consisting of the power station, the
dam, spillway, and other related facilities.[4] It is
registered with the Board of Investments (BOI) on a
preferred pioneer status to engage in the design,
construction, erection, assembly, as well as own,
commission, and operate electric power-generating plants
and related activities, for which it was issued the
Certificate of Registration No. 97-356 dated 11 February
1998.[5] As a seller of services, petitioner is registered
with the BIR as a VAT taxpayer under Certificate of
Registration No. OCN-98-006-007394.[6]
Tax Due for the Quarter (Box 13C)
P blank
Input Tax carried over from previous qtr (22B)
237,950,763.19
Input VAT on Domestic Purchases for the Qtr

On 11 October 1997, petitioner entered into a Power (22D)

Purchase Agreement (PPA) with the National Power 65,206,499.83
Corporation (NPC) to develop the hydro potential of the Input VAT on Importation of Goods for the Qtr
Lower Agno River, and to be able to generate additional
power and energy for the Luzon Power Grid, by (22F)
developing and operating the San Roque Multipurpose 18,485,758.00
Project. The PPA provides that petitioner shall be Total Available Input tax (23)
responsible for the design, construction, installation, 321,643,021.02
completion and testing and commissioning of the Power VAT Refund/TCC Claimed (24A)
Station and it shall operate and maintain the same, 237,950,763.19
subject to the instructions of the NPC. During the Net Creditable Input Tax (25)
cooperation period of 25 years commencing from the 83,692,257.83
completion date of the Power Station, the NPC shall VAT payable (Excess Input Tax) (26)
purchase all the electricity generated by the Power (83,692,257.83)
Plant.[7] Tax Payable (overpayment) (28)
(83,692,257.83)
Because of the exclusive nature of the PPA between
petitioner and the NPC, petitioner applied for and was 3rd Quarter
granted five Certificates of Zero Rate by the BIR, through
the Chief Regulatory Operations Monitoring Division, now (July 1, 2002 to
the Audit Information, Tax Exemption & Incentive
Division. Based on these certificates, the zero-rated September 30, 2002)
status of petitioner commenced on 27 September 1998 October 25, 2002
and continued throughout the year 2002.[8] Tax Due for the Quarter (Box 13C)
P blank
For the period January to December 2002, petitioner filed Input Tax carried over from previous qtr (22B)
with the respondent its Monthly VAT Declarations and 199,428,027.47
Quarterly VAT Returns. Its Quarterly VAT Returns showed Input VAT on Domestic Purchases for the Qtr
excess input VAT payments on account of its importation
and domestic purchases of goods and services, as (22D)
follows[9]: 28,924,020.79
Input VAT on Importation of Goods for the Qtr
Period Covered
Date Filed (22F)
Particulars 1,465,875.00
Amount Total Available Input tax (23)
1st Quarter 229,817,923.26
VAT Refund/TCC Claimed (24A)
(January 1, 2002 to Blank
Net Creditable Input Tax (25)
March 31, 2002) 229,817,923.26
April 20, 2002 VAT payable (Excess Input Tax) (26)
Tax Due for the Quarter (Box 13C) (229,817,923.26)
P 26,247.27 Tax Payable (overpayment) (28)
Input Tax carried over from previous qtr (22B) (229,817,923.26)
296,124,429.21
Input VAT on Domestic Purchases for the Qtr 4th Quarter

(22D) (October 1, 2002 to

95,003,348.91
Input VAT on Importation of Goods for the Qtr December 31, 2002)
January 23, 2003
(22F) Tax Due for the Quarter (Box 13C)
20,758,668.00 P 34,996.36
Total Available Input tax (23) Input Tax carried over from previous qtr (22B)
411,886,446.12 114,082,153.62
VAT Refund/TCC Claimed (24A) Input VAT on Domestic Purchases for the Qtr
173,909,435.66
Net Creditable Input Tax (25) (22D)
237,977,010.46 18,166,330.54
VAT payable (Excess Input Tax) (26) Input VAT on Importation of Goods for the Qtr
(237,950,763.19)
Tax Payable (overpayment) (28) (22F)
(237,950,763.19) 2,308,837.00
Total Available Input tax (23)
2nd Quarter 134,557,321.16
VAT Refund/TCC Claimed (24A)
(April 1, 2002 to 83,692,257.83
Net Creditable Input Tax (25)
June 30, 2002) 50,865,063.33
July 24, 2002 VAT payable (Excess Input Tax) (26)
12
(50,830,066.97) (January 1, 2002 to
Tax Payable (overpayment) (28)
(50,830,066.97) March 31, 2002)
April 24, 2003
Tax Due for the Quarter (Box 13C)
On 19 June 2002, 25 October 2002, 27 February 2003, and P 26,247.27
29 May 2003, petitioner filed with the BIR four separate Input Tax carried over from previous qtr (22B)
administrative claims for refund of Unutilized Input VAT 297,719,296.25
paid for the period January to March 2002, April to June Input VAT on Domestic Purchases for the Qtr
2002, July to September 2002, and October to December
2002, respectively. In these letters addressed to the BIR, (22D)
Carlos Echevarria (Echevarria), the Vice President and 95,126,981.69
Director of Finance of petitioner, explained that
petitioner’s sale of power to NPC are subject to VAT at (22F)
zero percent rate, in accordance with Section 108(B)(3) 20,758,668.00
of the NIRC.[10] Petitioner sought to recover the total Total Available Input tax (23)
amount of P250,258,094.25, representing its unutilized 413,604,945.94
excess VAT on its importation of capital and other taxable VAT Refund/TCC Claimed (24A)
goods and services for the year 2002, broken down as 175,544,002.27
follows[11]: Net Creditable Input Tax (25)
175,544,002.27
Qtr VAT payable (Excess Input Tax) (26)
Involved (238,060,943.67)
Tax Payable (overpayment) (28)
Output Tax (238,034,696.40)

Input Tax 2nd Quarter

(April 1, 2002 to
Domestic Purchases
Importations June 30, 2002)
Excess Input Tax April 24, 2003
Tax Due for the Quarter (Box 13C)
(A) P blank
(B) Input Tax carried over from previous qtr (22B)
(C) 238,034,696.40
(D) = (B) + (C) –(A) Input VAT on Domestic Purchases for the Qtr
1st
P 26,247.27 (22D)
P95,003,348.91 65,206,499.83
P20,758,668.00 Input VAT on Importation of Goods for the Qtr
P115,735,769.84
2nd (22F)
- 18,485,758.00
65,206,499.83 Total Available Input tax (23)
18,485,758.00 321,643,021.02
83,692,257.83 VAT Refund/TCC Claimed (24A)
3rd 237,950,763.19
- Net Creditable Input Tax (25)
28,924,020.79 83,692,257.83
1,465,875.00 VAT payable (Excess Input Tax) (26)
30,389,895.79 (83,692,257.83)
4th Tax Payable (overpayment) (28)
34,996.36 (83,692,257.83)
18,166,330.54
2,308,837.00 3rd Quarter
20,440,171.18
(July 1, 2002 to
P61,243.63
P207,300,200.07 September 30, 2002)
P43,019,138.00 October 25, 2002
P250,258,094.44 Tax Due for the Quarter (Box 13C)
P blank
Input Tax carried over from previous qtr (22B)
Petitioner amended its Quarterly VAT Returns, 83,692,257.83
particularly the items on (1) Input VAT on Domestic Input VAT on Domestic Purchases for the Qtr
Purchases during the first quarter of 2002; (2) Input VAT
on Domestic Purchases for the fourth quarter of 2002; and (22D)
(3) Input VAT on Importation of Goods for the fourth 28,924,020.79
quarter of 2002. The amendments read as follows[12]: Input VAT on Importation of Goods for the Qtr

Period Covered (22F)

Date Filed 1,465,875.00
Particulars Total Available Input tax (23)
Amount 114,082,153.62
1st Quarter VAT Refund/TCC Claimed (24A)
Blank
13
Net Creditable Input Tax (25) 3rd
114,082,153.62 27-Feb-03
VAT payable (Excess Input Tax) (26) -
(114,082,153.62) 28,924,920.79
Tax Payable (overpayment) (28) 1,465,875,00
(114,082,153.62) 30,389,895.79
4th
4th Quarter 31-Jul-03
34,996.36
(October 1, 2002 to 17,918,056.50
1,573,004.00
December 31, 2002) 19,456,064.14
January 23, 2003
Tax Due for the Quarter (Box 13C)
P 34,996.36 P61,243.63
Input Tax carried over from previous qtr (22B) P207,175,558.81
114,082,153.62 P42,283,305.00
Input VAT on Domestic Purchases for the Qtr P249,397,620.18

(22D)
17,918,056.50 Respondent failed to act on the request for tax refund or
Input VAT on Importation of Goods for the Qtr credit of petitioner, which prompted the latter to file on
5 April 2004, with the CTA in Division, a Petition for
(22F) Review, docketed as CTA Case No. 6916 before it could
1,573,004.00 be barred by the two-year prescriptive period within
Total Available Input tax (23) which to file its claim. Petitioner sought the refund of
133,573,214.12 the amount of P249,397,620.18 representing its unutilized
VAT Refund/TCC Claimed (24A) excess VAT on its importation and local purchases of
83,692,257.83 various goods and services for the year 2002.[14]
Net Creditable Input Tax (25)
49,880,956.29 During the proceedings before the CTA Second Division,
VAT payable (Excess Input Tax) (26) petitioner presented the following documents, among
(49,845,959.93) other pieces of evidence: (1) Petitioner’s Amended
Tax Payable (overpayment) (28) Quarterly VAT return for the 4th Quarter of 2002 marked
(49,845,959.93) as Exhibit “A,” showing the amount of P42,500,000.00
paid by NTC to petitioner for all the electricity produced
during test runs; (2) the special audit report, prepared by
On 30 May 2003 and 31 July 2003, petitioner filed two the CPA firm of Punongbayan and Araullo through a
letters with the BIR to amend its claims for tax refund or partner, Angel A. Aguilar (Aguilar), and the attached
credit for the first and fourth quarter of 2002, schedules, marked as Exhibits “J-2” to “J-21”; (3) Sales
respectively. Petitioner sought to recover a total amount Invoices and Official Receipts and related documents
of P249,397,620.18 representing its unutilized excess VAT issued to petitioner for the year 2002, marked as Exhibits
on its importation and domestic purchases of goods and “J-4-A1” to “J-4-L265”; (4) Audited Financial Statements
services for the year 2002, broken down as follows[13]: of Petitioner for the year 2002, with comparative figures
for 2001, marked as Exhibit “K”; and (5) the Affidavit of
Qtr Echevarria dated 9 February 2005, marked as Exhibit
Involved “L”.[15]

Date Filed During the hearings, the parties jointly stipulated on the
issues involved:
Output Tax
1. Whether or not petitioner’s sales are subject to
Input Tax value-added taxes at effectively zero percent (0%) rate;

2. Whether or not petitioner incurred input taxes

which are attributable to its effectively zero-rated
Domestic Purchases transactions;
Importations
Excess Input Tax 3. Whether or not petitioner’s importation and
purchases of capital goods and related services are within
the scope and meaning of “capital goods” under Revenue
(A) Regulations No. 7-95;
(B)
(C) 4. Whether or not petitioner’s input taxes are
(D) = (B) + (C) –(A) sufficiently substantiated with VAT invoices or official
1st receipts;
30-May-03
P 26,247.27 5. Whether or not the VAT input taxes being claimed
P95,126,981.69 for refund/tax credit by petitioner (had) been credited or
P20,758,668.00 utilized against any output taxes or (had) been carried
P115,859,402.42 forward to the succeeding quarter or quarters; and
2nd
25-Oct-02 6. Whether or not petitioner is entitled to a refund
- of VAT input taxes it paid from January 1, 2002 to
65,206,499.83 December 31, 2002 in the total amount of Two Hundred
18,185,758.00 Forty Nine Million Three Hundred Ninety Seven Thousand
83,692,257.83 Six Hundred Twenty and 18/100 Pesos (P249,397,620.18).
14

Simply put, the issue is: whether or not petitioner
is entitled to refund or tax credit in the amount of
P249,397,620.18 representing its unutilized input VAT
paid on importation and purchases of capital and other
taxable goods and services from January 1 to December
31, 2002.
After a hearing on the merits, the CTA Second Division
rendered a Decision[16] dated 23 March 2006 denying
petitioner’s claim for tax refund or credit. The CTA noted
that petitioner based its claim on creditable input VAT
paid, which is attributable to (1) zero-rated or effectively
zero-rated sale, as provided under Section 112(A) of the
NIRC, and (2) purchases of capital goods, in accordance
with Section 112(B) of the NIRC. The court ruled that in
order for petitioner to be entitled to the refund or
issuance of a tax credit certificate on the basis of Section
112(A) of the NIRC, it must establish that it had incurred
zero-rated sales or effectively zero-rated sales for the
taxable year 2002. Since records show that petitioner
did not make any zero-rated or effectively-zero rated
sales for the taxable year 2002, the CTA reasoned that
petitioner’s claim must be denied. Parenthetically, the
court declared that the claim for tax refund or credit
based on Section 112(B) of the NIRC requires petitioner to
prove that it paid input VAT on capital goods purchased,
based on the definition of capital goods provided under
Section 4.112-1(b) of Revenue Regulations No. 7-95—i.e.,
goods or properties which have an estimated useful life of
greater than one year, are treated as depreciable assets
under Section 34(F) of the NIRC, and are used directly or
indirectly in the production or sale of taxable goods and
services. The CTA found that the evidence offered by
petitioner—the suppliers’ invoices and official receipts
and Import Entries and Internal Revenue Declarations and
the audit report of the Court-commissioned Independent
Certified Public Accountant (CPA) are insufficient to
prove that the importations and domestic purchases were
classified as capital goods and properties entered as part
of the “Property, Plant and Equipment” account of the
petitioner. The dispositive part of the said Decision
reads:
WHEREFORE, the instant Petition for Review is DENIED for
lack of merit.[17]
Not satisfied with the foregoing Decision dated 23 March
2006, petitioner filed a Motion for Reconsideration which
was denied by the CTA Second Division in a Resolution
dated 4 January 2007.[18]
Petitioner filed an appeal with the CTA En Banc,
docketed as CTA EB No. 248. The CTA En Banc
promulgated its Decision[19] on 20 September 2007
denying petitioner’s appeal. The CTA En Banc reiterated
the ruling of the Division that petitioner’s claim based on
Section 112(A) of the NIRC should be denied since it did
not present any records of any zero-rated or effectively
zero-rated transactions. It clarified that since petitioner
failed to prove that any sale of its electricity had
transpired, petitioner may base its claim only on Section
112(B) of the NIRC, the provision governing the purchase
of capital goods. The court noted that the report of the
Court-commissioned auditing firm, Punongbayan &
Araullo, dealt specifically with the unutilized input taxes
paid or incurred by petitioner on its local and foreign
purchases of goods and services attributable to its zero-
rated sales, and not to purchases of capital goods. It
decided that petitioner failed to prove that the purchases
evidenced by the invoices and receipts, which petitioner
presented, were classified as capital goods which formed
part of its “Property, Plant and Equipment,” especially
since petitioner failed to present its books of account.
The dispositive part of the said Decision reads:
15
WHEREFORE, premises considered, the instant petition is
hereby DISMISSED. Accordingly, the assailed Decision and
Resolution are hereby AFFIRMED.[20]
The CTA En Banc denied petitioner’s Motion for
Reconsideration in a Resolution dated 22 October
2007.[21]
Hence, the present Petition for Review where the
petitioner raises the following errors allegedly committed
by the CTA En banc:
I
THE COURT OF TAX APPEALS EN BANC COMMITTED
SERIOUS ERROR AND ACTED WITH GRAVE ABUSE OF
DISCRETION TANTAMOUNT TO LACK OR EXCESS OF
JURISDICTION IN FAILING OR REFUSING TO APPRECIATE
THE OVERWHELMING AND UNCONTROVERTED EVIDENCE
SUBMITTED BY THE PETITIONER, THUS DEPRIVING
PETITIONER OF ITS PROPERTY WITHOUT DUE PROCESS;
AND
II
THE COURT OF TAX APPEALS COMMITTED SERIOUS ERROR
AND ACTED WITH GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN
RULING THAT THE ABSENCE OF ZERO-RATED SALES BY
PETITIONER DURING THE YEAR COVERED BY THE CLAIM
FOR REFUND DOES NOT ENTITLE PETITIONER TO A REFUND
OF ITS EXCESS VAT INPUT TAXES ATTRIBUTABLE TO ZERO-
RATED SALES, CONTRARY TO PROVISIONS OF LAW.[22]
The present Petition is meritorious.
The main issue in this case is whether or not petitioner
may claim a tax refund or credit in the amount of
P249,397,620.18 for creditable input tax attributable to
zero-rated or effectively zero-rated sales pursuant to
Section 112(A) of the NIRC or for input taxes paid on
capital goods as provided under Section 112(B) of the
NIRC.
To resolve the issue, this Court must re-examine the facts
and the evidence offered by the parties. It is an accepted
doctrine that this Court is not a trier of facts. It is not its
function to review, examine and evaluate or weigh the
probative value of the evidence presented. However,
this rule does not apply where the judgment is premised
on a misapprehension of facts, or when the appellate
court failed to notice certain relevant facts which if
considered would justify a different conclusion.[23]
After reviewing the records, this Court finds that
petitioner’s claim for refund or credit is justified under
Section 112(A) of the NIRC which states that:
SEC. 112. Refunds or Tax Credits of Input Tax.—
(A) Zero-rated or Effectively Zero-rated Sales—Any VAT-
registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund
of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that
such input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated sales
under Section 106(A)(2)(a)(1), (2) and (B) and Section
108(B)(1) and (2), the acceptable foreign currency
exchange proceeds thereof had been duly accounted for
in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP): Provided, further, That
where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt
sale of goods or properties or services, and the amount of
creditable input tax due or paid cannot be directly and
entirely attributed to any one of the transactions, it shall
be allocated proportionately on the basis of the volume
of sales.
To claim refund or tax credit under Section 112(A),
petitioner must comply with the following criteria: (1)
the taxpayer is VAT registered; (2) the taxpayer is
engaged in zero-rated or effectively zero-rated sales; (3)
the input taxes are due or paid; (4) the input taxes are
not transitional input taxes; (5) the input taxes have not
been applied against output taxes during and in the
succeeding quarters; (6) the input taxes claimed are
attributable to zero-rated or effectively zero-rated sales;
(7) for zero-rated sales under Section 106(A)(2)(1) and
(2); 106(B); and 108(B)(1) and (2), the acceptable foreign
currency exchange proceeds have been duly accounted
for in accordance with BSP rules and regulations; (8)
where there are both zero-rated or effectively zero-rated
sales and taxable or exempt sales, and the input taxes
cannot be directly and entirely attributable to any of
these sales, the input taxes shall be proportionately
allocated on the basis of sales volume; and (9) the claim
is filed within two years after the close of the taxable
quarter when such sales were made.[24]
Based on the evidence presented, petitioner complied
with the abovementioned requirements. Firstly,
petitioner had adequately proved that it is a VAT
registered taxpayer when it presented Certificate of
Registration No. OCN-98-006-007394, which it attached to
its Petition for Review dated 29 March 2004 filed before
the CTA in Division. Secondly, it is unquestioned that
petitioner is engaged in providing electricity for NPC, an
activity which is subject to zero rate, under Section
108(B)(3) of the NIRC. Thirdly, petitioner offered as
evidence suppliers’ VAT invoices or official receipts, as
well as Import Entries and Internal Revenue Declarations
(Exhibits “J-4-A1” to “J-4-L265”), which were examined
in the audit conducted by Aguilar, the Court-
commissioned Independent CPA. Significantly, Aguilar
noted in his audit report (Exhibit “J-2”) that of the
P249,397,620.18 claimed by petitioner, he identified
items with incomplete documentation and errors in
computation with a total amount of P3,266,009.78.
Based on these findings, the remaining input VAT of
P246,131,610.40 was properly documented and recorded
in the books. The said report reads:
In performing the procedures referred under the
Procedures Performed section of this report, no matters
came to our attention that cause us to believe that the
amount of input VAT applied for as tax credit
certificate/refund of P249,397,620.18 for the period
January 1, 2002 to December 31, 2002 should be adjusted
except for input VAT claimed with incomplete
documentation, those with various and other exceptions
on the supporting documents and those with errors in
computation totaling P3,266,009.78, as discussed in the
Findings and Results of the Agreed-Upon Audit Procedures
Performed sections of this report. We have also
ascertained that the input VAT claimed are properly
recorded in the books and, except as specifically
identified in the Findings and Results of the Agreed-Upon
Audit Procedures Performed sections of this report, are
properly supported by original and appropriate suppliers’
VAT invoices and/or official receipts.[25]
Fourthly, the input taxes claimed, which consisted of
local purchases and importations made in 2002, are not
transitional input taxes, which Section 111 of the NIRC
defines as input taxes allowed on the beginning inventory
16
of goods, materials and supplies.[26] Fifthly, the audit
report of Aguilar affirms that the input VAT being claimed
for tax refund or credit is net of the input VAT that was
already offset against output VAT amounting to
P26,247.27 for the first quarter of 2002 and P34,996.36
for the fourth quarter of 2002,[27] as reflected in the
Quarterly VAT Returns.[28]
The main dispute in this case is whether or not
petitioner’s claim complied with the sixth requirement—
the existence of zero-rated or effectively zero-rated
sales, to which creditable input taxes may be attributed.
The CTA in Division and en banc denied petitioner’s claim
solely on this ground. The tax courts based this
conclusion on the audited report, marked as Exhibit “J-
2,” stating that petitioner made no sale of electricity to
NPC in 2002.[29] Moreover, the affidavit of Echevarria
(Exhibit “L”), petitioner’s Vice President and Director for
Finance, contained an admission that no commercial sale
of electricity had been made in favor of NPC in 2002 since
the project was still under construction at that time.[30]
However, upon closer examination of the records, it
appears that on 2002, petitioner carried out a “sale” of
electricity to NPC. The fourth quarter return for the year
2002, which petitioner filed, reported a zero-rated sale in
the amount of P42,500,000.00.[31] In the Affidavit of
Echevarria dated 9 February 2005 (Exhibit “L”), which
was uncontroverted by respondent, the affiant stated
that although no commercial sale was made in 2002,
petitioner produced and transferred electricity to NPC
during the testing period in exchange for the amount of
P42,500,000.00, to wit:[32]
A: San Roque Power Corporation has had no sale yet
during 2002. The P42,500,000.00 which was paid to us by
Napocor was something similar to a more cost recovery
scheme. The pre-agreed amount would be about equal to
our costs for producing the electricity during the testing
period and we just reflected this in our 4th quarter return
as a zero-rated sale. x x x.
The Court is not unmindful of the fact that the
transaction described hereinabove was not a commercial
sale. In granting the tax benefit to VAT-registered zero-
rated or effectively zero-rated taxpayers, Section 112(A)
of the NIRC does not limit the definition of “sale” to
commercial transactions in the normal course of business.
Conspicuously, Section 106(B) of the NIRC, which deals
with the imposition of the VAT, does not limit the term
“sale” to commercial sales, rather it extends the term to
transactions that are “deemed” sale, which are thus
enumerated:
SEC 106. Value-Added Tax on Sale of Goods or
Properties.
xxxx
(B) Transactions Deemed Sale.—The following
transactions shall be deemed sale:
(1) Transfer, use or consumption not in the
course of business of goods or properties originally
intended for sale or for use in the course of business;
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of
the VAT-registered persons; or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not
made within sixty (60) days following the date such goods
were consigned; and

(4) Retirement from or cessation of business,
with respect to inventories of taxable goods existing as of
such retirement or cessation. (Our emphasis.)
After carefully examining this provision, this Court finds it
an equitable construction of the law that when the term
“sale” is made to include certain transactions for the
purpose of imposing a tax, these same transactions should
be included in the term “sale” when considering the
availability of an exemption or tax benefit from the same
revenue measures. It is undisputed that during the fourth
quarter of 2002, petitioner transferred to NPC all the
electricity that was produced during the trial period. The
fact that it was not transferred through a commercial sale
or in the normal course of business does not deflect from
the fact that such transaction is deemed as a sale under
the law.
The seventh requirement regarding foreign currency
exchange proceeds is inapplicable where petitioner’s
zero-rated sale of electricity to NPC did not involve
foreign exchange and consisted only of a single
transaction wherein NPC paid petitioner P42,500,000.00
in exchange for the electricity transferred to it by
petitioner. Similarly, the eighth requirement is
inapplicable to this case, where the only sale transaction
consisted of an effectively zero-rated sale and there are
no exempt or taxable sales that transpired, which will
require the proportionate allocation of the creditable
input tax paid.
The last requirement determines that the claim should be
filed within two years after the close of the taxable
quarter when such sales were made. The sale of
electricity to NPC was reported at the fourth quarter of
2002, which closed on 31 December 2002. Petitioner had
until 30 December 2004 to file its claim for refund or
credit. For the period January to March 2002, petitioner
filed an amended request for refund or tax credit on 30
May 2003; for the period July 2002 to September 2002, on
27 February 2003; and for the period October 2002 to
December 2002, on 31 July 2003.[33] In these three
quarters, petitioners seasonably filed its requests for
refund and tax credit. However, for the period April 2002
to May 2002, the claim was filed prematurely on 25
October 2002, before the last quarter had closed on 31
December 2002.[34]
Despite this lapse in procedure, this Court notes that
petitioner was able to positively show that it was able to
accumulate excess input taxes on various importations
and local purchases in the amount of P246,131,610.40,
which were attributable to a transfer of electricity in
favor of NPC. The fact that it had filed its claim for
refund or credit during the quarter when the transfer of
electricity had taken place, instead of at the close of the
said quarter does not make petitioner any less entitled to
its claim. Given the special circumstances of this case,
wherein petitioner was incorporated for the sole purpose
of constructing or operating a power plant that will
transfer all the electricity it generates to NPC, there is no
danger that petitioner would try to fraudulently claim
input tax paid on purchases that will be attributed to sale
transactions that are not zero-rated. Substantial justice,
equity and fair play are on the side of the petitioner.
Technicalities and legalisms, however, exalted, should
not be misused by the government to keep money not
belonging to it, thereby enriching itself at the expense of
its law abiding citizens.
Substantial justice, equity and fair play are on
the side of petitioner. Technicalities and legalisms,
however exalted, should not be misused by the
government to keep money not belonging to it, thereby
enriching itself at the expense of its law-abiding citizens.
17
Under the principle of solutio indebiti provided in Art.
2154, Civil Code, the BIR received something “when there
[was] no right to demand it,” and thus, it has the
obligation to return it. Heavily militating against
respondent Commissioner is the ancient principle that no
one, not even the State, shall enrich oneself at the
expense of another. Indeed, simple justice requires the
speedy refund of the wrongly held taxes.[35]
It bears emphasis that effective zero-rating is not
intended as a benefit to the person legally liable to pay
the tax, such as petitioner, but to relieve certain exempt
entities, such as the NPC, from the burden of indirect tax
so as to encourage the development of particular
industries. Before, as well as after, the adoption of the
VAT, certain special laws were enacted for the benefit of
various entities and international agreements were
entered into by the Philippines with foreign governments
and institutions exempting sale of goods or supply of
services from indirect taxes at the level of their
suppliers. Effective zero-rating was intended to relieve
the exempt entity from being burdened with the indirect
tax which is or which will be shifted to it had there been
no exemption. In this case, petitioner is being exempted
from paying VAT on its purchases to relieve NPC of the
burden of additional costs that petitioner may shift to
NPC by adding to the cost of the electricity sold to the
latter.[36]
Section 13 of Republic Act No. 6395, otherwise known as
the NPC Charter, further clarifies that it is the
lawmakers’ intention that NPC be made completely
exempt from all taxes, both direct and indirect:
Sec. 13. Non-profit Character of the Corporation;
Exemption from all Taxes, Duties, Fees, Imposts and
Other Charges by Government and Governmental
Instrumentalities. - The corporation shall be non-profit
and shall devote all its returns from its capital
investment, as well as excess revenues from its
operation, for expansion. To enable the corporation to
pay its indebtedness and obligations and in furtherance
and effective implementation of the policy enunciated in
Section 1 of this Act, the corporation is hereby declared
exempt:
(a) From the payment of all taxes, duties,
fees, imposts, charges, costs and service fees in any court
or administrative proceedings in which it may be a party,
restrictions and duties to the Republic of the Philippines,
its provinces, cities, municipalities, and other
government agencies and instrumentalities;
(b) From all income taxes, franchise taxes,
and realty taxes to be paid to the National Government,
its provinces, cities, municipalities and other government
agencies and instrumentalities;
(c) From all import duties, compensating
taxes and advanced sales tax and wharfage fees on
import of foreign goods, required for its operations and
projects; and
(d) From all taxes, duties, fees, imposts, and
all other charges imposed by the Republic of the
Philippines, its provinces, cities, municipalities and other
government agencies and instrumentalities, on all
petroleum products used by the corporation in the
generation, transmission, utilization, and sale of electric
power.
To limit the exemption granted to the NPC to direct
taxes, notwithstanding the general and broad language of
the statute will be to thwart the legislative intention in
giving exemption from all forms of taxes and impositions,
without distinguishing between those that are direct and
those that are not.[37]
Congress granted NPC a comprehensive tax exemption
because of the significant public interest involved. This is
enunciated in Section 1 of Republic Act No. 6395:
Section 1. Declaration of Policy. Congress
hereby declares that (1) the comprehensive development,
utilization and conservation of Philippine water resources
for all beneficial uses, including power generation, and
(2) the total electrification of the Philippines through the
development of power from all sources to meet the needs
of industrial development and dispersal and the needs of
rural electrification are primary objectives of the nation
which shall be pursued coordinately and supported by all
instrumentalities and agencies of government, including
its financial institutions.
The ability of the NPC to provide sufficient and affordable
electricity throughout the country greatly affects our
industrial and rural development. Erroneously and
unjustly depriving industries that generate electrical
power of tax benefits that the law clearly grants will have
an immediate effect on consumers of electricity and long
term effects on our economy.
In the same breath, we cannot lose sight of the
fact that it is the declared policy of the State, expressed
in Section 2 of Republic Act No. 9136, otherwise known as
the EPIRA Law, “to ensure and accelerate the total
electrification of the country;” “to enhance the inflow of
private capital and broaden the ownership base of the
power generation, transmission and distribution sectors;”
and “to promote the utilization of indigenous and new
and renewable energy resources in power generation in
order to reduce dependence on imported energy.”
Further, Section 6 provides that “pursuant to the
objective of lowering electricity rates to end-users, sales
of generated power by generation companies shall be
value-added tax zero-rated.
Section 75 of said law succinctly declares that “this
Act shall, unless the context indicates otherwise, be
construed in favor of the establishment, promotion,
preservation of competition and power empowerment so
that the widest participation of the people, whether
directly or indirectly is ensured.”
The objectives as set forth in the EPIRA Law can
only be achieved if government were to allow petitioner
and others similarly situated to obtain the input tax
credits available under the law. Denying petitioner such
credits would go against the declared policies of the
EPIRA Law.
The legislative grant of tax relief (whether in the
EPIRA Law or the Tax Code) constitutes a sovereign
commitment of Government to taxpayers that the latter
can avail themselves of certain tax reliefs and incentives
in the course of their business activities here. Such a
commitment is particularly vital to foreign investors who
have been enticed to invest heavily in our country’s
infrastructure, and who have done so on the firm
assurance that certain tax reliefs and incentives can be
availed of in order to enable them to achieve their
projected returns on these very long-term and heavily
funded investments. While the government’s ability to
keep its commitment is put in doubt, credit rating turns
to worse; the costs of borrowing becomes higher and the
harder it will be to attract foreign investors. The
country’s earnest efforts to move forward will all be put
to naught.
Having decided that petitioner is entitled to claim refund
or tax credit under Section 112(A) of the NIRC or on the
18
basis of effectively zero-rated sales in the amount of
P246,131,610.40, there is no more need to establish its
right to make the same claim under Section 112(B) of the
NIRC or on the basis of purchase of capital goods.
Finally, respondent contends that according to well-
established doctrine, a tax refund, which is in the nature
of a tax exemption, should be construed strictissimi juris
against the taxpayer.[38] However, when the claim for
refund has clear legal basis and is sufficiently supported
by evidence, as in the present case, then the Court shall
not hesitate to grant the same.[39]
WHEREFORE, the instant Petition for Review is GRANTED.
The Decision of the Court of Tax Appeals En Banc dated
20 September 2007 in CTA EB Case No. 248, affirming the
Decision dated 23 March 2006 of the CTA Second Division
in CTA Case No. 6916, is REVERSED. Respondent
Commissioner of Internal Revenue is ordered to refund, or
in the alternative, to issue a tax credit certificate to
petitioner San Roque Power Corporation in the amount of
Two Hundred Forty-Six Million One Hundred Thirty-One
Thousand Six Hundred Ten Pesos and 40/100
(P246,131,610.40), representing unutilized input VAT for
the period 1 January 2002 to 31 December 2002. No
costs.
SO ORDERED.
G.R. No. 186223, October 01, 2014
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v.
PHILIPPINE ASSOCIATED SMELTING AND REFINING
CORPORATION, Respondent.
RESOLUTION
REYES, J.:
The instant petition filed under Rule 45 of the Revised
Rules of Court seeks to reverse and set aside the Court of
Tax Appeals (CTA) En Bane Decision1 dated November 12,
2008 in CTA E.B. Case No. 351 (CTA Case No. 7565)
entitled "Philippine Associated Smelting and Refining
Corporation v. The Honorable Commissioner of Internal
Revenue" which ruled that respondent is a PEZA-
registered enterprise and enjoys tax exemption privilege;
hence, it is exempt from paying the excise tax on
petroleum products in issue and entitled to seek a refund
thereof. The Resolution2 dated January 30, 2009 denied
the motion for reconsideration filed by the Commissioner
of Internal Revenue (petitioner).
The respondent Philippine Associated Smelting and
Refining Corporation (PASAR) is a domestic corporation
engaged in the business of processing, smelting, refining
and exporting refined copper cathodes and other copper
products, and a registered Zone Export Enterprise with
the Export Processing Zone Authority (EPZA).3 PASAR uses
petroleum products for its manufacturing and other
processes, and purchases it from local distributors, which
import the same and pay the corresponding excise taxes.
The excise taxes paid are then passed on by the local
distributors to its purchasers. In this particular case,
Petron passed on to PASAR the excise taxes it paid on the
petroleum products bought by the latter during the
period of January 2005 to October 2005, totalling eleven
million six hundred eighty-seven thousand four hundred
sixty-seven 62/100 (P11,687,467.62).
In December 2006, PASAR filed a claim for refund and/or
tax credit with the Office of the Regional Director of
Region XIV, which denied the same in a letter dated
January 3, 2007.4cralawred
PASAR then filed a petition for review with the Court of
Tax Appeals (CTA) Second Division, which was contested
by the petitioner. The petitioner also filed a motion to
preliminarily resolve whether PASAR is the proper party
to ask for a refund. Thereafter, the parties agreed to the
following stipulation of
issues:chanRoblesvirtualLawlibrary
1. Whether or not petroleum products purchased from
Petron and delivered to PASAR to be used in its operation
in LIDE are exempt from excise taxes under Section 17 of
P.D. No. 66 and thus entitled to a refund or issuance of a
tax credit certificate.
2. Whether or not PASAR is the proper party to claim for
refund or issuance of tax credit certificate for excise
taxes paid.
3. Whether or not the claim for tax credit/refund is
properly substantiated by receipts and invoices.
4. Whether or not the claim for tax credit/refund is
timely filed.5
On September 19, 2007, the CTA Second Division issued a
Resolution6 granting the petitioner's motion to
preliminarily resolve whether PASAR is the proper party
to ask for a refund, and dismissed its petition for review.
When its motion for reconsideration was denied in the
Resolution7 dated December 3, 2007, PASAR filed a
petition for review with the CTA En Banc.
In the assailed Resolution8 dated November 12, 2008, the
CTA En Banc set aside CTA Resolutions dated September
19, 2007 and December 3, 2007, and ordered the remand
of the petition for review to the CTA Second Division for
reception of evidence and determination of the amount
to be refunded to the petitioner. The petitioner filed a
motion for reconsideration, which was denied by the CTA
En Banc in the assailed Resolution9 dated January 30,
2009.
In granting PASAR's petition for review, the CTA En Banc
ruled that it is the proper party to claim the
refund/credit, citing Commissioner of Customs v.
Philippine Phosphate Fertilizer Corp.10 and Philippine
Phosphate Fertilizer Corporation v. Commissioner of
Internal Revenue.11 According to the CTA, since PASAR is
a PEZA-registered entity enjoying tax exemption privilege
under Presidential Decree (P.D.) No. 66 and subsequently,
Republic Act (R.A.) No. 7916, it is exempt from payment
of excise taxes on petroleum products. And following the
Court's ruling in the Philippine Phosphate Fertilizer
Corporation, PASAR, therefore, may seek
refund.12cralawred
The grounds relied upon in this petition are as
follows:chanRoblesvirtualLawlibrary
I.
THE CTA SHOULD HAVE DISMISSED RESPONDENT'S
PETITION FOR REVIEW FOR LACK OF JURISDICTION OVER
THE SUBJECT MATTER OF THE CASE.
II.
THE CTA EN BANC'S RELIANCE ON COMMISSIONER OF
CUSTOMS V. PHILIPPINE PHOSPHATE FERTILIZER
CORPORATION AND PHILIPPINE PHOSPHATE FERTILIZER
CORPORATION V. COMMISSIONER OF INTERNAL REVENUE IS
MISPLACED.
III.
RESPONDENT IS NOT THE PROPER PARTY TO CLAIM A TAX
CREDIT AND/OR REFUND.
IV.
19
THE SPECIFIC TAXES HEREIN SOUGHT TO BE
REFUNDED/CREDITED DO NOT FORM PART OF THE EXPORT
PRODUCTS MANUFACTURED BY RESPONDENT AND,
THEREFORE, NOT REFUNDABLE.13
The petitioner contends that the CTA has no jurisdiction
over the BIR Regional Director's denial of PASAR's claim,
arguing that the CTA's exclusive appellate jurisdiction
pertains only to decisions of the Commissioner of Internal
Revenue, as provided in Section 7 of R.A. No. 1125, as
amended by Section 7 of R.A. No. 9282. The petitioner
also objects to the CTA En Banc's application of the
Commissioner of Customs and Philphos cases in the
present case and argues that Commissioner of Customs
involved the tax refund/credit of customs duties and not
excise taxes; Philphos, on the other hand, did not
squarely resolve the issue of whether an EPZA-registered
enterprise is exempt from paying the excise taxes on
petroleum products indirectly used. The petitioner also
contends that the proper party to seek a tax
refund/credit is the statutory taxpayer or the person on
whom the tax was imposed and paid the same, which in
this case was Petron, even though the latter subsequently
shifted the burden to PASAR. Finally, the petitioner
believes that Section 17 of P.D. No. 66 does not clearly
provide that petroleum products delivered to EPZA-
registered enterprises are exempt from taxes, and that
the petroleum products purchased by PASAR from Petron
do not form part of the export products it
manufactures.14cralawred
Respondent, meanwhile, claims that the petitioner is
estopped from questioning the jurisdiction of the CTA.
Respondent also contends, in sum, that Commissioner of
Customs and Philphos are applicable in this case, that it is
the proper party to apply for a tax refund and that it is
exempted from paying excise taxes.15cralawred
At the outset, it must be stated that the Court will limit
the issue to be resolved in this case to whether PASAR is
the proper party to claim the tax credit/refund on the
excise taxes paid on the petroleum products purchased
from Petron. The other grounds raised by the petitioner,
i.e., jurisdiction and the factual basis of PASAR's claim for
tax refund/credit, are not proper at the moment
inasmuch as the CTA En Banc's review only dealt with the
petitioner's "motion to preliminary resolve the issue of
whether or not [respondent] is the proper party that may
ask for a refund."16 And on this issue, the Court finds that
the CTA En Banc did not commit any reversible error
when it ruled that PASAR is the proper party to file a
claim for the refund/credit of excise taxes. Hence, the
petition must be denied.
PASAR is a business enterprise registered with the EPZA
pursuant to P.D. No. 66.17 There is no dispute as regards
its use of fuel and petroleum products for the processing,
smelting and refining of its export copper products, and
that Petron, from which PASAR purchased its fuel and
petroleum, products, passed on the excise taxes paid to
the latter. In ruling that PASAR is the proper party to file
the claim for the refund/credit, the CTA En Bane chiefly
relied on the Court's rulings in Commissioner of Customs
v. Philippine Phosphate Fertilizer Corp.18 and Philippine
Phosphate Fertilizer Corporation v. Commissioner of
Internal Revenue.19cralawred
Commissioner of Customs involved a claim for refund by
Philippine Phosphate Fertilizer Corporation (Philphos) of
the customs duties it indirectly paid on fuel and
petroleum products purchased from Petron Corporation
for the period of October 1991 until June 1992. This was
opposed by the Commissioner of Customs. One of the
issues raised in the case was the legal basis for Philphos'
exemption from duties and taxes, it being an EPZA-
registered company. While it may be true that
Commissioner of Customs involved the refund of customs
duties paid on petroleum products, it was nevertheless
correctly applied by the CTA En Banc.
Notably, in Commissioner of Customs, the Court squarely
interpreted the exemption granted under Section 17 of
P.D. No. 66 as applicable to both customs duties and
internal revenue taxes, viz:chanroblesvirtuallawlibrary
The next pivotal question then that must be resolved is
whether PASAR has the legal personality to file the claim
for the refund of the excise taxes passed on by Petron.
The petitioner insists that PASAR is not the proper party
to seek a refund of an indirect tax, such as an excise tax
or Value Added Tax, because it is not the statutory
taxpayer. The petitioner's argument, however, has no
merit.

The incentives offered to enterprises duly registered with
the PEZA consist, among others, of tax exemptions, x x x
Section 17 of the EPZA Law particularizes the tax benefits
accorded to duly registered enterprises. It states:
SEC. 17. Tax Treatment of Merchandize in the Zone. - (1)
Except as otherwise provided in this Decree, foreign and
domestic merchandise, raw materials, supplies, articles,
equipment, machineries, spare parts and wares of every
description, except those prohibited by law, brought into
the Zone to be sold, stored, broken up, repacked,
assembled, installed, sorted, cleaned, graded, or
otherwise processed, manipulated, manufactured, mixed
with foreign or domestic merchandise or used whether
directly or indirectly in such activity, shall not be subject
to customs and internal revenue laws and regulations nor
to local tax ordinances, the following provisions of law to
the contrary notwithstanding.
The cited provision certainly covers petroleum supplies
used, directly or indirectly, by Philphos to facilitate its
production of fertilizers, subject to the minimal
requirement that these supplies are brought into the
zone. The supplies are not subject to customs and
internal revenue laws and regulations, nor to local tax
ordinances. It is clear that Section 17(1) considers such
supplies exempt even if they are used indirectly, as they
had been in this case.20 (Emphasis and underscoring ours)
Thus, the Court affirmed the refund of customs duties
granted by the CTA and in closing, stated that "[t]he
grant of exemption under Section 17(1) is clear and
unambiguous, x x x."21cralawred
The rule that it is the statutory taxpayer which has the
legal personality to file a claim for refund23 finds no
applicability in this case. In Philippine Airlines, Inc. v.
Commissioner of Internal Revenue,24 the Court
distinguished between the kinds of exemption enjoyed by
a claimant in order to determine the propriety of a tax
refund claim. "If the law confers an exemption from both
direct or indirect taxes, a claimant is entitled to a tax
refund even if it only bears the economic burden of the
applicable tax. On the other hand, if the exemption
conferred only applies to direct taxes, then the statutory
taxpayer is regarded as the proper party to file the
refund claim."25 In PASAR's case, Section 17 of P.D. No.
66, as affirmed in Commissioner of Customs, specifically
declared that supplies, including petroleum products,
whether used directly or indirectly, shall not be subject
to internal revenue laws and regulations. Such exemption
includes the payment of excise taxes, which was passed
on to PASAR by Petron. PASAR, therefore, is the proper
party to file a claim for refund.
WHEREFORE, the petition is DENIED for lack of merit.
Accordingly, the Decision dated November 12, 2008 and
its Resolution dated January 30, 2009 of the Court of Tax
Appeals En Banc in CTA E.B. Case No. 351 are hereby
AFFIRMED in toto.
SO ORDERED.

Philphos, meanwhile, involved Philphos' claim for refund

of excise taxes passed on by Petron. One of the issues
identified by the Court in the case was whether the CTA
should have granted the claim for refund. In resolving
said issue, the Court ruled that the CTA erred when it
disallowed the petitioner's claim due to its failure to
present invoices as there is nothing in CTA Circular No. 1-
95 that requires its presentation. The issue of whether
the petitioner was entitled to exemption from payment of
excise taxes was not lengthily discussed by the Court
because it was already undisputed. Thus, the Court
stated:chanRoblesvirtualLawlibrary

In this case, there is no dispute that petitioner is entitled

to exemption from the payment of excise taxes by virtue
of its being an EPZA registered enterprise. As stated by
the CTA, the only thing left to be determined is whether
or not petitioner is entitled to the amount claimed for
refund.

xxxx

Since it is not disputed that petitioner is entitled to tax

exemption, it should not be precluded from presenting
evidence to substantiate the amount of refund it is
claiming on mere technicality especially in this case,
where the failure to present invoices at the first instance
was adequately explained by petitioner.22 (Emphasis
ours)

Applying the foregoing rulings in this case, it is therefore

undeniable that PASAR is exempted from payment of
excise taxes.

20