Edem, Michael Joy E.

2013-0505

Metro Rail Transit vs. Court of Tax Appeals et.al

G.R. No. 16273
Facts:

This petition for certiorari under Rule 65 of the Revised Rules of Civil Procedure assails the
August 2, 2004 resolution of the Court of Tax Appeals (CTA) in C.T.A. Case No. 6719, which
declared petitioner Metro Rail Transit Corporation (MRT) to have waived its right to present
evidence; as well as its October 18, 2004 resolution denying MRT's motion for reconsideration.

The antecedent facts show that on July 4, 2003, MRT filed a Petition for Review with the CTA
questioning the Formal Assessment Notices issued by the Commissioner of the Bureau of
Internal Revenue (BIR) directing the former to pay P595,904,278.01 representing deficiency in
expanded withholding tax and value added tax for the taxable years 1995-1997.

At the pre-trial, the parties entered into a stipulation of facts and issues, which was approved
by the CTA on November 12, 2003. After the presentation of its first witness, MRT requested
for the resetting of the hearing on March 23, 2004.

However, on March 22, 2004, MRT filed an Urgent Motion for Postponement because it is still
in the process of gathering the documents necessary to support its case. The March 23, 2004
hearing was thus moved to May 11, 2004. On May 7, 2004, however, MRT filed an Urgent
Motion for Postponement to allow its new counsel to study the records which are yet to be
turned over by its former lawyer. Said new and old counsels entered and withdrew their
appearance, respectively, on June 11, 2004. The hearing was rescheduled to June 15, 2004 but
was again moved, upon motion of MRT, to July 27, 2004, "with a final warning" to present
evidence.

On July 27, 2004, MRT requested for another resetting of the hearing in view of the possibility
of a compromise agreement with the BIR, but was denied by the CTA.In a resolution dated
August 2, 2004, the CTA declared MRT to have lost its right to present evidence, thus'

Confirming the order given in open court on 27 July 2004, the Court declared petitioner's
counsel to have WAIVED his right to present evidence in view of a previous warning given to
him for failure to present his case.

Issue:
Whether or not MRT is Exempted from any Tax Liabilities.

Held:
The Court of Appeals dismissed the government’s bid to stop Mandaluyong City from taking
over the properties of the Metro Rail Transit Corporation (MRTC) for failure to pay over P2-
billion worth of property taxes from 2003 to 2005.

Government lawyers argued that being a government agency, DOTC is exempted from paying
taxes.But the local government maintained that MRT stations covering Ortigas Avenue, Shaw
Boulevard and Boni Avenue, although built under a build-lease-transfer agreement, is silent on
whether it is exempted from paying real property tax. The local government added that since
improvements have been made, the improvements can also be subject to tax.The case involves
real properties in Mandaluyong that forms part of the Metro Rail Transit System consisting of
buildings that serve as MRT stations, railways, carriageways as well as improvements of the
stations. In 2005, Mandaluyong City Assessor issued a notice of delinquency to MRTC and
demanded payment of taxes worth P1, 306, 617, 522.96.The DOTC filed a complaint to nullify
the tax assessment and warrant of levy before the Mandaluyong court. It also asked the court
to stop the selling of the properties at a public auction but the court denied their petition.
Then, in 2006, the City Treasurer proceeded to the auction of the real properties setting a price
Edem, Michael Joy E.
2013-0505

of P1.483-billion but since there were no bidders, it was forfeited in favor of the Mandaluyong
City.
In the recent ruling, the appeals court said under Republic Act 9282 or the law expanding the
jurisdiction of the Court of Tax Appeals said that the Tax Court has the jurisdiction to review
decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction
over cases involving the assessment and taxation of real property originally decided by the
provincial board of assessment appeals.

“In our minds, judicial respect to a co-equal court and broader interests of justice are served by
deferring the resolution of the instant issue to the CTA,” the appeals court said.
“In other words, since the appellate jurisdiction over cases involving assessment and taxation of
real properties lies with the CTA, it follows that petitions for certiorari seeking the nullification
of interlocutory orders issued in such tax cases should likewise be filed before said appellate
court,” it added.
Edem, Michael Joy E.
2013-0505

Commisioner of Internal Revenue vs. La Suerte Cigar and Cigarette Factory Inc.
G.R. No. 139803

Facts:

In its resolution, dated 15 November 2000, the Supreme Court denied the Petition for Review on
Certiorari submitted by the Commissioner of Internal Revenue for non-compliance with the
procedural requirement of verification explicit in Sec. 4, Rule 7 of the 1997 Rules of Civil
Procedure and, furthermore, because the appeal was not pursued by the Solicitor-General. When
the motion for reconsideration filed by the petitioner was likewise denied, petitioner filed the
instant motion seeking an elucidation on the supposed discrepancy between the pronouncement
of this Court, on the one hand that would require the participation of the Office of the Solicitor-
General and pertinent provisions of the Tax Code, on the other hand, that allow legal officers of
the Bureau of Internal Revenue (BIR) to institute and conduct judicial action in behalf of the
Government under Sec, 220 of the Tax Reform Act of 1997.

Issue:

Are the legal officer of the BIR authorized to institute appeal proceedings (as distinguished from
commencement of proceeding) without the participation of the Solicitor-General?

Held:

NO. The institution or commencement before a proper court of civil and criminal actions and
proceedings arising under the Tax Reform Act which “shall be conducted by legal officers of the
Bureau of Internal Revenue” is not in dispute. An appeal from such court, however, is not a
matter of right. Sec. 220 of the Tax Reform Act must not be understood as overturning the long-
established procedure before this Court in requiring the Solicitor-General to represent the
interest of the Republic. This court continues to maintain that it is the Solicitor-General who has
the primary responsibility to appear for the government in appellate proceedings. This
pronouncement finds justification in the various laws defining the Office of the Solicitor-General,
beginning with Act No. 135, which took effect on 16 June 1901, up to the present Administrative
Code of 1987. Sec. 35, Chapter 12, Title III, Book IV of the said code outlines the powers and
functions of the Office of the Solicitor General which includes, but not limited to, its duty to—
1. Represent the Government in the Supreme Court and the Court of Appeals in all criminal
proceedings; represent the Government and its officers in the Supreme Court, the Court of
Appeals, and all other courts or tribunals in all civil actions and special proceedings in which the
Government or any officer thereof in his official capacity is a party.
2. Appear in any court in any action involving the validity of any treaty, law, executive order, or
proclamation, rule or regulation when in his judgment his intervention is necessary or when
requested by the Court.
Edem, Michael Joy E.
2013-0505

Commisioner of Internal Revenue vs. Toshiba Information Equipment (Phils.). Inc.

G.R. No. 150154

Facts:

Toshiba was claiming a refund for the input tax it paid on unutilized capital goods purchased. H
owever, the CIR said that it cannot because the capital goods and services it purchased are cons
idered not used in VAT taxable business and therefore, it is not entitled to refund of input taxes.
Toshiba, on the other hand, contended that it is PEZA-
registered and located within the ecozone and therefore for, VAT-exempt entity

Issue:

Whether or not Toshiba is entitled to refund for the input tax it paid on unutilized capital goods
purchased considering that it is registered with PEZA and located within the ecozone

Held:

Yes. CIR failed to differentiate between VAT-exempt transactions from VAT-

exempt entities. An exempt transactions are transactions specifically listed in and expressly exe
mpted from VAT under the Tax Code without regard to the tax status, VAT-
exempt or not, of the taxpayer. An exempt party, on the other hand, is a person or entity grant
ed VAT-
exemption under the Tax Code, special law or an international agreement to which the Philippi
nes is a signatory and by virtue of which its taxable transactions become exempt from VAT.

Toshiba, a PEZA-registered and located within a ecozone is a VAT-

exempt entity because of Sec 8 of Ta 7916 which establishes the fiction that ecozones are foreig
n territory. Therefore, a supplier from the custom territory cannot pass on output VAT to an eco
zone enterprise, like Toshiba, since it is exempt.
Edem, Michael Joy E.
2013-0505

Commissioner of Internal Revenue vs. Manila Mining Corporation

G.R. No. 153204

Facts:

Respondent Manila Mining Corporation (MMC), a VAT-registered enterprise, filed its VAT Returns
for the year of 1991 with the BIR. MMC, relying on Sec. 2 of Executive Order (E.O.) 581 as
amended which provides that gold sold to the Central Bank is considered an export sale which
under Section 100(a)(1) of the NIRC, as amended by E.O. 273, is subject to zero-rated if such sale
is made by a VAT-registered person, filed an application for tax refund/credit of the input VAT it
paid from such year. The Commissioner of Internal Revenue (CIR) failed to act upon MMC’s
application within sixty (60) days from the dates of filing. MMC was then filed a Petition for
Review against the CIR before the Court of Tax Appeals (CTA) seeking the issuance of tax credit
certificate or refund. The CIR specifically denied the veracity of the amounts stated in MMC’s VAT
returns and application for credit/refund as the same continued to be under investigation.
However, such was not verified prompting MMC to file a “SUPPLEMENT (To Annotation of
Admission)” alleging that as the reply was not under oath, “an implied admission of its requests
arose” as a consequence thereof. The CTA granted MMC’s Request for Admissions and denied
the CIR’s Motion to Admit Reply. The CTA denied MMC’s claim for refund of input VAT for failure
to prove that it paid the amounts claimed as such for the year 1991, no sales invoices, receipts
or other documents as required having been presented. Upon appeal of MMC to the Court of
Appeals (CA), it reversed the decision of the CTA and granted MMC’s claim for refund or issuance
of tax credit certificates on the ground that there was no need for MMC to present the
photocopies of the purchase invoices or receipts evidencing the VAT paid and the best evidence
rule is misplaced since this rule does not apply to matters which have been judicially admitted.

ISSUE:

Whether or not MMC adduced sufficient evidence to prove its claim for refund of its input VAT
for taxable year 1991.

HELD:

As export sales, the sale of gold to the Central Bank is zero-rated, hence, no tax is chargeable to
it as purchaser. Zero rating is primarily intended to be enjoyed by the seller – MMC, which
charges no output VAT but can claim a refund of or a tax credit certificate for the input VAT
previously charged to it by suppliers. For a judicial claim for refund to prosper, however, MMC
must not only prove that it is a VAT registered entity and that it filed its claims within the
prescriptive period. It must substantiate the input VAT paid by purchase invoices or official
receipts. It is required that a photocopy of the purchase invoice or receipt evidencing the value
added tax paid shall be submitted together with the application. This MMC failed to do.
Edem, Michael Joy E.
2013-0505

Philippine Geothermal, Inc. vs. The Commissioner of Internal Revenue

G.R No. 154028

FACTS: Petitioner is a resident foreign corporation licensed by the Securities and Exchange
Commission (SEC) to engage in the exploration, development and exploitation of geothermal
energy and resources in the Philippines. Petitioner then entered into a service contract with the
National Power Corporation (NPC) to supply steam to the latter.

Petitioner billed NPC, Value Added Tax (VAT) computed at ten percent of the service fee charged
on the supply of steam. NPC did not pay the VAT. To avoid any possible tax deficiency, petitioner
remitted VAT equivalent to 1/11 of the fees received from NPC.

Petitioner filed an administrative claim for refund with the Bureau of Internal Revenue. According
to petitioner, the sale of steam to NPC is a VAT-exempt transaction under the Tax Code. Petitioner
claimed that Fiscal Incentives Review Board (FIRB) Resolution No. 17-87, approved by President
Aquino pursuant to Executive Order No. 93,5 expressly exempted NPC from VAT.

Since respondent failed to act on the claim, petitioner filed a petition to toll the running of the two-
year prescriptive period before the Court of Tax Appeals.

ISSUE: whether petitioner’s supply of steam to NPC is a VAT-exempt transaction.

:
RULING: Taxation; National Power Corporation (NPC); It has been the lawmakers’ intention that
the NPC is to be completely tax exempt from all forms of taxes—both direct and indirect.—In
Maceda v. Macaraig, Jr., this Court ruled that Republic Act No. 358 exempts the NPC from all
taxes, duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, and its
provinces, cities and municipalities. This exemption is broad enough to include both direct and
indirect taxes the NPC may be required to pay. To limit the exemption granted 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. A chronological review of the
NPC laws will show that it has been the lawmakers’ intention that the NPC is to be completely tax
exempt from all forms of taxes—both direct and indirect.

Tax refunds are in the nature of tax exemptions, and are to be construed strictissimi juris against
the entity claiming the same.—In this case, the only issue is the amount of refund to be granted
based on the amount of tax erroneously paid. Tax refunds are in the nature of tax exemptions, and
are to be construed strictissimi juris against the entity claiming the same. Thus, the burden of proof
rests upon the taxpayer to establish by sufficient and competent evidence, its entitlement to a claim
for refund. In the Bureau of Internal Revenue’s Ruling dated March 15, 1996, that the supply of
steam by petitioner to NPC is exempt from VAT, petitioner has indubitably established its basis
for claiming a refund.

Value Added Tax (VAT); For indirect taxes like VAT, the proper party to question or seek a refund
of the tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid
the same even when he shifts the burden thereof to an-other.—That NPC may have reimbursed
petitioner the 10% VAT is not a ground for the denial of the claim for refund. The CTA overlooked
the fact that it was petitioner who paid the VAT out of its own service fee. The erroneous payments
of the VAT were only discontinued when the BIR issued its Ruling No. DA-111-96 in favor of
petitioner on March 15, 1996. By then, petitioner had already remitted a sizeable amount of
P39,328,775.41 to the Government. The only recourse of petitioner is the complete restitution of
the erroneous payments of taxes. The amount of refund should have been based on the VAT
Returns filed by the taxpayer. Whether NPC had reimbursed petitioner is not the concern of the
CTA. It is solely a matter between petitioner and NPC. For indirect taxes like VAT, the proper
party to question or seek a refund of the tax is the statutory taxpayer, the person on whom the tax
is imposed by law and who paid the same even when he shifts the burden thereof to another.
Edem, Michael Joy E.
2013-0505

Petitioner has the legal personality to apply for a refund since it is the one who made the erroneous
VAT payments and who will suffer financially by paying in good faith what it had believed to be
its potential VAT liability.

Under the principle of solutio indebiti, the government has to restore to the taxpayer the sums
representing erroneous payments of taxes.—Under the principle of solutio indebiti, the
government has to restore to petitioner the sums representing erroneous payments of taxes. It is of
no moment whether NPC had already reimbursed petitioner or not because in this case, there
should have been no VAT paid at all.

The Summary of Payments and Official Receipts issued by a supplier is not a reliable basis for
determining the VAT payments for said supplier—reliance should be had on the VAT Returns
filed by the taxpayer to determine the actual amount remitted to the BIR for the purpose of
ascertaining the refund due.—The Summary of Payments and Official Receipts issued by a
supplier is not a reliable basis for determining the VAT payments of said supplier. The CTA
grossly misappreciated the evidence and erroneously concluded in this case that NPC paid the
VAT. The CTA should have relied on the VAT Returns filed by the taxpayer to determine the
actual amount remitted to the BIR for the purpose of ascertaining the refund due. The presentation
of the VAT Returns is considered sufficient to ascertain the amount of the refund. Thus, upon
finding that the supply of steam to NPC is exempt from VAT, the CTA should have ordered
respondent to reimburse petitioner the full amount of P39,328,775.41 as erroneously paid VAT.
Edem, Michael Joy E.
2013-0505

CDCP Mining Corporation vs. Commissioner of Internal Revenue

G.R. No. 122213

Facts:

1 February 1999 in G.R. No. 122161 in consolidation with G.R. No. 120991, the Courts First
Division granted the Commissioners petition in G.R. No. 122161, set aside the aforementioned
Court of Appeals Decision, and reinstated the CTAs Decision. The judgment in G.R. No. 122161
thus affirmed the CTAs ruling that CDCP was entitled to a tax refund of Thirty Eight Thousand
Four Hundred Sixty One Pesos and Eighty Six Centavos (P38,461.86). Said ruling, which had long
become final, is wildly disparate from CDCPs present claim that it is entitled to a tax refund of
Three Million Two Hundred Twenty Six Thousand Eight Hundred Nine Pesos and Fifteen Centavos
(P3,226,809.15).
The parties have not filed any pleading since 1996, or one year before the promulgation of
the Decision in G.R. No. 122161. Neither have they made the Court aware of any reason that the
present petition is moot, though it takes no great stretch of imagination to assume their inaction
was precisely due to the resolution of their conflicting claims by virtue of the Decision in G.R. No.
122161. Nonetheless, a brief ruling on the merits in this case would suffice, consistent with
our Decision in G.R. No. 122161, which after all was but an affirmation of a long-standing doctrine
applied by this Court in resolution of the legal question involved.

Issue:

Whether or not CDCP is entitled for Tax Refund

Held:

The Court of Tax Appeals rendered a decision granting [CDCPs] claim for refund only in the
amount of P38,461.86, without interest. The tax court ruled that [CDCP] is entitled to a refund
of the specific taxes that it paid during the period September 23, 1980 to June 30, 1982, prior to
which the claim had prescribed, but at the rates specified under Sections 1 and 2 of R.A. No.
1435, without interest."
The respondent Commissioner of Internal Revenue is hereby ordered to refund in favor of
petitioner CDCP Mining Corporation, the sum of P38,461.86 without interest, equivalent to 25%
partial refund of specific taxes paid on its purchases of gasoline, oils and lubricants, diesel, fuel
oils, and kerosene pursuant to the provision of Section 5 of Republic Act No. 1435, in relation to
Section 142 (b) and (c) of the National Internal Revenue Code and Section 145 as prescribed
under Sections 1 and 2 of R.A. 1435
Edem, Michael Joy E.
2013-0505

Commissioner of Internal Revenue vs. Benguet Corporation

G.R. No. 134587

Facts:
Benguet Corporation is a domestic corporation engaged in the exploration, development and
operation of mineral resources, and the sale or marketing thereof to various entities. It is a VAT
registered enterprise.
The transactions in question occurred during the period between 1988 and 1991. Under Sec. 99
of NIRC as amended by E.O. 273 s. 1987 then in effect, any person who, in the course of trade
or business, sells, barters or exchanges goods, renders services, or engages in similar
transactions and any person who imports goods is liable for output VAT at rates of either 10%
or 0% (zero-rated) depending on the classification of the transaction under Sec. 100 of the
NIRC.
In January of 1988, Benguet applied for and was granted by the BIR zero-rated status on its sale
of gold to Central Bank. On 28 August 1988 VAT Ruling No. 3788-88 was issued which declared
that the sale of gold to Central Bank is considered as export sale subject to zero-rate pursuant
to
Section 100 of the Tax Code, as amended by EO 273.
Relying on its zero-rated status and the above issuances, Benguet sold gold to the Central Bank
during the period of 1 August 1989 to 31 July 1991 and entered into transactions that resulted
in input VAT incurred in relation to the subject sales of gold. It then filed applications for tax
refunds/credits
corresponding to input VAT.
However, such request was not granted due to BIR VAT Ruling No. 008-92 dated 23 January
1992 that was issued subsequent to the consummation of the subject sales of gold to the
Central Ban`k which provides that sales of gold to the Central Bank shall not be considered as
export sales and thus, shall be subject to 10% VAT. BIR VAT Ruling No. 008-92 withdrew,
modified, and superseded all inconsistent BIR issuances.
Both petitioner and Benguet agree that the retroactive application of VAT Ruling No. 008-92 is
valid only if such application would not be prejudicial to the Benguet pursuant Sec. 246 of the
NIRC.

Issues:
(1) WON Benguet’s sale of gold to the Central Bank during the
period when such was classified by BIR issuances as zerorated could be taxed validly at a 10%
rate after the consummation of the transactions involved; (2) WON there was prejudice to
Benguet Corp due to the new BIR VAT Ruling.

Held:
(1) NO. At the time when the subject transactions were consummated, the prevailing BIR
regulations relied upon by Benguet ordained that gold sales to the Central Bank were zero-
rated. Benguet should not be faulted for relying on the BIRs interpretation of the said laws and
regulations.
Edem, Michael Joy E.
2013-0505

While it is true, as CIR alleges, that government is not estopped from collecting taxes which
remain unpaid on account of the errors or mistakes of its agents and/or officials and there
could be no vested right arising from an erroneous interpretation of law, these principles must
give way to
exceptions based on and in keeping with the interest of justice and fair play. (then the Court
cited the ABS-CBN case).

(2) YES. The adverse effect is that Benguet Corp became the unexpected and unwilling debtor
to the BIR of the amount equivalent to the total VAT cost of its product, a liability it previously
could have recovered from the BIR in a zero-rated scenario or at least passed on to the Central
Bank had it known it would have been taxed at a 10% rate. Thus, it is clear that Benguet
suffered economic prejudice when it consummated sales of gold to the Central Bank were
taken out of the zero-rated category. The change in the VAT rating of Benguet’s transactions
with the Central Bank resulted in the twin loss of its exemption from payment of output VAT
and its opportunity to recover input VAT, and at the same time subjected it to the 10%
VAT sans the option to pass on this cost to the Central Bank, with the total prejudice in money
terms being equivalent to the 10% VAT levied on its sales of gold to the Central Bank.
Even assuming that the right to recover Benguets excess payment of income tax has not yet
prescribed, this relief would only address Benguet’s overpayment of income tax but not the
other burdens discussed above. Verily, this remedy is not a feasible option for Benguet because
the very reason why it was issued a deficiency tax assessment is that its input VAT
was not enough to offset its retroactive output VAT. Indeed, the burden of having to go through
an unnecessary and cumbersome refund process is prejudice enough
Edem, Michael Joy E.
2013-0505

Commissioner of Internal Revenue vs. American Express International, Inc.

(Philippine Branch) G.R. No. 152609

FACTS:

Respondent] is a Philippine branch of American Express International, Inc., a corporation duly

organized and existing under and by virtue of the laws of the State of Delaware, U.S.A. It is a
servicing unit of American Express International, Inc. – Hongkong Branch (Amex-HK) and is
engaged primarily to facilitate the collections of Amex-HK receivables from card members
situated in the Philippines and payment to service establishments in the Philippines.
Amex Philippines registered itself with the Bureau of Internal Revenue (BIR), as a value-added
tax (VAT) taxpayer effective March 1988.

On April 1999 respondent filed with the BIR a letter-request for the refund of its 1997 excess
input taxes citing as basis therefor, Section 110 (B) of the 1997 Tax Code to wit:

‘Section 110. Tax Credits. –

‘(B) Excess Output or Input Tax. – If at the end of any taxable quarter the output tax exceeds
the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the
output tax, the excess shall be carried over to the succeeding quarter or quarters. Any input tax
attributable to the purchase of capital goods or to zero-rated sales by a VAT-registered person
may at his option be refunded or credited against other internal revenue taxes, subject to the
provisions of Section 112.’

There being no immediate action on the part of the [petitioner], [respondent’s] petition was
filed on April 15, 1999.

In addition, [respondent] relied on VAT Ruling No. 080-89, dated April 3, 1989, the pertinent
portion of which reads as follows:

‘In Reply, please be informed that, as a VAT registered entity whose service is paid for in
acceptable foreign currency which is remitted inwardly to the Philippines and accounted for in
accordance with the rules and regulations of the Central [B]ank of the Philippines, your service
income is automatically zero rated effective January 1, 1998. [Section 102(a)(2) of the Tax Code
as amended]

B. Input taxes on domestic purchases of taxable goods and services related to zero-rated
revenues are available as tax refund in accordance with Section 106 (now Section 112) of the
[Tax Code] and Section 8(a) of [Revenue] Regulations [(RR)] No. 5-87, to state:

‘Section 106. Refunds or tax credits of input tax. –

(A) Zero-rated or effectively Zero-rated Sales. – Any VAT-registered person, except those
covered by paragraph (a) above, whose sales are zero-rated or are effectively zero-rated, may,
within two (2) years after the close of the taxable quarter when such sales were made, apply
for the issuance of tax credit certificate or refund of the input taxes due or attributable to such
sales, to the extent that such input tax has not been applied against output tax. x x x. [Section
106(a) of the Tax Code]’

ISSUE:

Whether or not petitioner is entitled to a refund

Edem, Michael Joy E.
2013-0505

HELD:

YES. Section 102 of the Tax Code provides:

“(b) Transactions subject to zero percent (0%) rate. — The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate[:]

‘(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP);

‘(2) Services other than those mentioned in the preceding subparagraph, the consideration for
which is paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the [BSP];’”

Under the last paragraph quoted above, services performed by VAT-registered persons in the
Philippines (other than the processing, manufacturing or repacking of goods for persons doing
business outside the Philippines), when paid in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the BSP, are zero-rated.

Respondent is a VAT-registered person that facilitates the collection and payment of

receivables belonging to its non-resident foreign client, for which it gets paid in acceptable
foreign currency inwardly remitted and accounted for in conformity with BSP rules and
regulations. Certainly, the service it renders in the Philippines is not in the same category as
“processing, manufacturing or repacking of goods” and should, therefore, be zero-rated. In
reply to a query of respondent, the BIR opined in VAT Ruling No. 080-89 that the income
respondent earned from its parent company’s regional operating centers (ROCs) was
automatically zero-rated effective January 1, 1988.

In sum, having resolved that transactions of respondent are zero-rated, the Court upholds the
former’s entitlement to the refund as determined by the appellate court. Moreover, there is no
conflict between the decisions of the CTA and CA. This Court respects the findings and
conclusions of a specialized court like the CTA “which, by the nature of its functions, is
dedicated exclusively to the study and consideration of tax cases and has necessarily developed
an expertise on the subject.”93

Furthermore, under a zero-rating scheme, the sale or exchange of a particular service is

completely freed from the VAT, because the seller is entitled to recover, by way of a refund or
as an input tax credit, the tax that is included in the cost of purchases attributable to the sale
or exchange.94 “[T]he tax paid or withheld is not deducted from the tax base.” Having been
applied for within the reglementary period,96 respondent’s refund is in order.
Edem, Michael Joy E.
2013-0505

Philippine Phosphate Fertilizer Corporation vs. Commissioner of Internal Revenue

G.R. No. 141973

FACTS:

Respondent Philippine Phosphate Fertilizer Corporation (Philphos) is a domestic corporation

engaged in the manufacture and production of fertilizers for domestic and international
distribution, based in Leyte Industrial Development Estate, an export processing zone. It is also
registered with the Export Processing Zone Authority (EPZA), now known as the Philippine Export
Zone Authority (PEZA).

The manufacture of fertilizers required Philphos to purchase fuel and petroleum products for its
machineries, which are considered indispensable by Philphos, as they are used to run the
machines and equipment and in the transformation of raw materials into fertilizer. The fuel
supplies are secured domestically from local distributors, Petron Corporation (Petron), which
imports the same and pays the corresponding customs duties to the Bureau of Customs. When
the fuel and petroleum products are delivered at Philphos’s manufacturing plant, it is billed by
Petron the corresponding customs duties imposed on these products. Effectively thus, Philphos
reimburses Petron for the customs duties on the purchased fuels and petroleum products which
are passed on by the Petron as part of the selling price.

Philphos made several purchases from Petron of fuels and other petroleum products used
directly or indirectly in the manufacture of fertilizers for the period of October 1991 until June
1992. During the period in question, Philphos indirectly paid as customs duties.

In a letter to the Bureau of Customs, Philphos sought the refund of customs duties it had paid for
the period covering the months of October to December 1991, and January to June, 1992. It
pointed out that Philphos, being an enterprise registered with the export processing zone, is
entitled to tax incentives under Presidential Decree No. 66 (EPZA Law), it also argued that the
customs duties billed by Petron on Philphos should be refunded.

The Bureau of Customs denied the claim for refund. Hence, a Petition for Review was filed with
the Court of Tax Appeals. The CTA ruled for Philphos. The matter was elevated by the
Commissioner of Customs (Commissioner) to the Court of Appeals (CA), which eventually
affirmed the CTA’s Decision.

Both the CTA and the CA relied upon Section 17(1) of the EPZA Law to justify the conclusion that
Philphos is entitled to the refund. It likewise insists that controlling in this case is Section 18(i) of
the EPZA Law, under which claims for refunds similar to Philphos’s are precluded. Finally, the
Commissioner posits that since a refund on tax credit partake the nature of an exemption, the
grant thereof must be explicit. Petitioner dispute the legal basis for the exemption.

Section 17 and 18 of the EPZA Law 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. (emphasis supplied)

SEC. 18. Additional Incentives. A zone registered enterprise shall also enjoy the
following incentives:
Xxx
Edem, Michael Joy E.
2013-0505

(i)Tax credit. – Every registered zone enterprise shall enjoy a tax credit equivalent to the
sales, compensating and specific taxes and duties on supplies, raw materials and semi-
manufactured products used in the manufacture, processing or production of its export
products and forming part thereof; x x x. (emphasis supplied)

ISSUE:

WON Philphos is entitled for tax exemption

HELD:

The relief sought for erroneously paid taxes would be a return to the taxpayer of the amount
paid to the government. The Tax Reform Act of 1997 authorizes either a refund or credit as a
means of recovery of tax erroneously or illegally collected. It may be that there is no essential
difference between a tax refund and a tax credit since both are modes of recovering taxes
erroneously or illegally paid to the government. Yet, there are unmistakable formal and practical
differences between the two modes. Formally, a tax refund requires a physical return of the sum
erroneously paid by the taxpayer, while a tax credit involves the application of the reimbursable
amount against any sum that may be due and collectible from the taxpayer. On the practical side,
the taxpayer to whom the tax is refunded would have the option, among others, to invest for
profit the returned sum, an option not proximately available if the taxpayer chooses instead to
receive a tax credit.

It should be noted that the initial letter to the Commissioner, Philphos specifically requested the
refund of P20, 149, 473.77. However, in its Petition for Review before the CTA, Philphos prayed
for the issuance of "corresponding tax credits" in the same amount. Still, there is no vehement
insistence on the part of Philphos that the return of the amount paid should come in the form of
a refund or a credit.

The CTA, as affirmed by the CA, ordered the issuance of a Tax Credit Certificate in favor of
Philphos. No elaboration was made as to why the relief granted was a tax credit and not a refund,
but it is deduce that such was the relief afforded as it was the relief prayed for by Philphos in
its Petition before the tax court. However, a slight modification of the award is necessary so as
not to render nugatory the proscription under Section 18(i) that a tax credit avails only if the
supplies form part of the export product. Instead of awarding a Tax Credit Certificate to Philphos,
a refund of the same amount is warranted under the circumstances.

The grant of exemption under Section 17(1) is clear and unambiguous. There is neither logic nor
need to cast a speck of uncertainly on a doubt-free situation to resolve the resulting forced
question in favor of the government. The disposition arises not out of a blind solicitude towards
the concerns of business, but from the duty to affirm and enforce a crystal-clear legislative policy
and initiative intent. Indeed, the revenue collectors of the government should be cautious before
attempting to gut away at concessions the State itself has deemed worthy of award to deserving
investors. It is unsound practice and uncouth behaviour to invite over guests to dinner at home,
then charge them for the use of the silverware before allowing them to dine.

WHEREFORE, the Petition for Review is DENIED. The assailed Decisions of the Court of Appeals
and of the Court of Tax Appeals are AFFIRMED. SO ORDERED.
Edem, Michael Joy E.
2013-0505

Commissioner of Internal Revenue vs. Bank of Commerce

G.R. No. 149636

Facts:
In 1994 and 1995, the respondent Bank of Commerce derived passive income in the form of interests or
discounts from its investments in government securities and private commercial papers.On several
occasions during that period, it paid 5% gross receipts tax on its income. Included therein were the
respondent bank’s passive income from the said investments amounting to P85M+, which had already
been subjected to a final tax of 20%.

Meanwhile, CTA held in the Case ASIA BANK CORP. VS CIR, that the 20% final withholding tax on interest
income from banks does not form part of taxable gross receipts for Gross Receipts Tax (GRT) purposes.
The CTA relied on Sec 4(e) of Revenue Regulations.12-80.

Relying on the said decision, the respondent bank filed an administrative claim for refund with the
Commissioner of Internal Revenue on July 19, 1996. It claimed that it had overpaid its gross receipts tax
for 1994 to 1995 by P853K+ …submitted its own computation

Before the Commissioner could resolve the claim, the respondent bank filed a petition for review with the
CTA

CIR ANSWERED:

The alleged refundable/creditable gross receipts taxes were collected and paid pursuant to law and
pertinent BIR implementing rules and regulations; hence, the same are not refundable. Petitioner must
prove that the income from which the refundable/creditable taxes were paid from, were declared and
included in its gross income during the taxable year under review;

That the alleged excessive payment does automatically warrant the refund/credit

Claims for tax refund/credit are construed in strictissimi juris against the taxpayer as it partakes the
nature of an exemption from tax and it is incumbent upon the petitioner to prove that it is entitled
thereto under the law. Otherwise refund will not be allowed.

CTA summarized the issues:

WON the final income tax withheld should form part of the gross receipts of the taxpayer for GRT
purposes;

WON the respondent bank was entitled to a refund of P853,842.54.

RESPONDENT BANK’s contends:

that for purposes of computing the 5% gross receipts tax, the final withholding tax does not form part of gross
receipts

CIR contends:

that the Court defined "gross receipts" as "all receipts of taxpayers excluding those which have been especially
earmarked by law or regulation for the government or some person other than the taxpayer" in CIR v. Manila
Jockey Club, Inc.,7 he claimed that such definition was applicable only to a proprietor of an amusement place, not a
banking institution which is an entirely different entity altogether. As such, according to the Commissioner, the
ruling of the Court in Manila Jockey Club was inapplicable.

CTA HELD:

ORDERED to REFUND in favor of petitioner Bank of Commerce the amount of P355k+ representing validly
proven erroneously withheld taxes from interest income derived from its investments in government
securities for the years 1994 and 1995.
Edem, Michael Joy E.
2013-0505
- relied on the ruling in Manila Jockey Club, and held that the term "gross receipts" excluded those which
had been especially earmarked by law or regulation for the government or persons other than the
taxpayer.

CIR filed for petition for review with CA alleging that:

There is no provision of law which excludes the 20% final income tax withheld under Section 50(a) of the
Tax Code in the computation of the 5% gross receipts tax.
that the ruling of this Court in Manila Jockey Club, which was affirmed in Visayan Cebu Terminal Co., Inc.
v. Commissioner of Internal Revenue,14 is not decisive. He averred that the factual milieu in the said case is
different, involving as it did the "wager fund."
The Commissioner further pointed out that in Manila Jockey Club, the Court ruled that the race track’s
commission did not form part of the gross receipts, and as such were not subjected to the 20%
amusement tax.
the issue in Visayan Cebu Terminal was whether or not the gross receipts corresponding to 28% of the
total gross income of the service contractor delivered to the Bureau of Customs formed part of the gross
receipts was subject to 3% of contractor’s tax under Section 191 of the Tax Code.
On the other hand, resp Bank was a banking institution and not a contractor. The petitioner insisted that
the term "gross receipts" is self-evident; it includes all items of income of the respondent bank regardless
of whether or not the same were allocated or earmarked for a specific purpose, to distinguish it from net
receipts.

CA rendered judgment dismissing the petition.

CA held that the P17,076,850.90 representing the final withholding tax derived from passive investments
subjected to final tax should not be construed as forming part of the gross receipts of the respondent
bank upon which the 5% gross receipts tax should be imposed.
That the final withholding tax was a trust fund for the government; hence, does not form part of the
respondent’s gross receipts. The legal ownership of the amount had already been vested in the
government.
That subjecting the Final Withholding Tax (FWT) to the 5% of gross receipts tax would result in double
taxation.
In favor of resp Bank.

Hence the petition by CIR

THE COURT OF APPEALS ERRED IN HOLDING THAT THE 20% FINAL WITHHOLDING TAX ON BANK’S INTEREST
INCOME DOES NOT FORM PART OF THE TAXABLE GROSS RECEIPTS IN COMPUTING THE 5% GROSS RECEIPTS TAX

ISSUE: IS THERE DOUBLE TAXATION?

HELD:

SC reverse the ruling of the CA that subjecting the Final Withholding Tax (FWT) to the 5% of gross receipts tax
would result in double taxation.

In CIR v. Solidbank CorporatioN, SC said that the two taxes, subject of this litigation, are different from
each other. The basis of their imposition may be the same, but their natures are different.

NO DOUBLE TAXATION

Double taxation means taxing the same property twice when it should be taxed only once; that is, "xxx taxing the
same person twice by the same jurisdiction for the same thing." It is obnoxious when the taxpayer is taxed twice,
when it should be but once. Otherwise described as "direct duplicate taxation," the two taxes must be imposed on the
same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the
same taxing period; and they must be of the same kind or character.

First, the taxes herein are imposed on two different subject matters. The subject matter of the FWT is the
passive income generated in the form of interest on deposits and yield on deposit substitutes, while the
subject matter of the GRT is the privilege of engaging in the business of banking.

A tax based on receipts is a tax on business rather than on the property; hence, it is an excise rather than a
property tax. It is not an income tax, unlike the FWT. In fact, we have already held that one can be taxed
for engaging in business and further taxed differently for the income derived therefrom. Akin to our ruling
in Velilla v. Posadas, these two taxes are entirely distinct and are assessed under different provisions.
Edem, Michael Joy E.
2013-0505
Second, although both taxes are national in scope because they are imposed by the same taxing authority –
the national government under the Tax Code – and operate within the same Philippine jurisdiction for the
same purpose of raising revenues, the taxing periods they affect are different. The FWT is deducted and
withheld as soon as the income is earned, and is paid after every calendar quarter in which it is earned. On
the other hand, the GRT is neither deducted nor withheld, but is paid only after every taxable quarter in
which it is earned.

Third, these two taxes are of different kinds or characters. The FWT is an income tax subject to
withholding, while the GRT is a percentage tax not subject to withholding.

In short, there is no double taxation, because there is no taxing twice, by the same taxing authority, within the same
jurisdiction, for the same purpose, in different taxing periods, some of the property in the territory. Subjecting
interest income to a 20% FWT and including it in the computation of the 5% GRT is clearly not double taxation.