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TAXATION LAW 2 (B) Properties.

- The estate shall be appraised at its fair market value as of the


time of death. However, the appraised value of real property as of the time of
DIGESTS AND PROVISIONS COMPILATION death shall be, whichever is higher of -

A. ESTATE TAX (1) The fair market value as determined by the Commissioner, or

(2) The fair market value as shown in the schedule of values fixed by
A.1. General Principles / Determination of the Estate Tax the Provincial and City Assessors.

SEC. 84 Rates of Estate Tax. - There shall be levied, assessed,


collected and paid upon the transfer of the net estate as determined in
accordance with Sections 85 and 86 of every decedent, whether resident or
nonresident of the Philippines, a tax based on the value of such net estate, as 01. Lorenzo v. Posadas (JT)
computed in accordance with the following schedule: June 18, 1937
If the net estate is:
Petitioner: Pablo Lorenzo, as trustee of the estate of Thomas Hanley, deceased
Respondent: Juan Posadas, the Collector of Internal Revenue
Over But Not The Tax shall Plus Of the Excess
Over be Over Facts
In 1922, Thomas Hanley, an Irish person residing in Zamboanga, died. He left
P 200,000 Exempt behind a will and a lot of real and personal properties. The will provided that all
real estate owned by Hanley at the time of his death should not be sold or
P 200,000 550,000 0 5% P 200,000 disposed until after 10 years. Such property shall be handled and managed by
executors,  and  only  after  ten  years  will  the  estate  pass  on  to  Hanley’s  nephew,  
500,000 2,000,000 P 15,000 8% 500,000 Matthew. The lower court deemed it necessary for the appointment of a trustee
for the estate, so a man named Moore was appointed as trustee. He later
2,000,000 5,000,000 135,000 11% 2,000,000 resigned, and petitioner Pablo Lorenzo was appointed as the new trustee.

The CIR assessed the estate a tax amounting to P2,052, which represented an
5,000,000 10,000,000 465,000 15% 5,000,000
inheritance tax and delinquency penalties. Petitioner paid the amount under
protest. They claimed a refund, stating that the tax imposed should have been
10,000,000 And Over 1,215,000 20% 10,000,000
lower.

Issues: There were five main questions raised. See ratio.


Held: Refund sought by petitioner was not granted.
SEC. 88. Determination of the Value of the Estate.
Ratio:
(A) Usufruct. - To determine the value of the right of usufruct, use or habitation, I. When does the inheritance tax accrue and when must it be satisfied?
as well as that of annuity, there shall be taken into account the probable life of A. The inheritance tax is an excise or privilege tax imposed on the
the beneficiary in accordance with the latest Basic Standard Mortality Table, to right to succeed to, receive or take property by or under a will, deed
be approved by the Secretary of Finance, upon recommendation of the or grant, which is operative at or after death.
Insurance Commissioner.

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1. It is a tax upon transmission or the transfer of property of a B. The CIR in this case allowed the deductions representing expenses
decedent. and disbursements of executors, as well as the proven debts of the
2. In our succession law, the property of the deceased ancestor deceased.
belongs  to  the  heirs  at  the  moment  of  the  ancestor’s  death,  as   C. However, the compensation entitled to be received by the trustee
completely as if the ancestor had executed and delivered a for his services to the estate may not be lawfully deducted.
deed for the same before his death. 1. There is no law or statute authorizing this.
B. Plaintiff contends that such tax only applies to situation with forced 2. Besides, the trust was created and intended for the
heirs. This is wrong. preservation, and not the administration, of the estate.
1. The Civil Code does not make any distinction between classes IV. What law governs the case at bar? Should the provisions of Act No.
of heirs. 3606 favorable to the tax-payer be given retroactive effect?
2. The authentication and probate of a will does not affect the A. Inheritance taxes are governed by the statute in force at the time of
time when succession takes place, as succession takes place the death of the decedent.
in  any  event  at  the  moment  of  the  decedent’s  death. B. Any intent that a tax law be applied retroactively should be perfectly
C. When must this tax be paid, then? clear.
1. According to Section 1544 of the (old) Revised Admin Code, C. Since Act No. 3606 went into effect on 1930, eight years after
the  tax  must  be  paid  “within  the  six  months  subsequent to the Hanley breathed his last breath, and there was no clear provision
death of the predecessor; but if judicial testamentary or as to a retroactive application, then that Act cannot apply in this
intestate proceedings shall be instituted prior to the expiration case.
of said period, the payment shall be made by the executor or V. Has there been delinquency in the payment of the inheritance tax? If so,
administrator before delivering to each beneficiary his share.” should the additional interest claimed by the defendant in his appeal be
2. Such section applies to situations where there are no fiduciary paid by the estate?
heirs, first heirs, legatees or donees. (The case did not A. As   a   premise,   “the   mere   failure   to   pay   one's   tax   does   not   render  
elaborate as to how the nephew, Matthew Hanley, is not a one delinquent until and unless the entire period has elapsed within
fiduciary heir, first heir, legatee or donee.) which the taxpayer is authorized by law to make such payment
3. Thus, the inheritance tax should have been paid before the without being subjected to the payment of penalties for failure to
delivery of the properties to Moore, the first trustee. (The facts pay  his  taxes  within  the  prescribed  period.”
are silent as to when the proceedings were instituted, though.) B. Arguments of both sides
II. Should the inheritance tax be computed on the basis of the value of the 1. Respondent contends that the provisions of the Admin Code,
estate at the time of the testator's death, or on its value ten years later? as quoted above, should apply, with which the Supreme Court
A. The right of the State to an inheritance tax accrues at the moment agreed.
of   a   person’s   death,   notwithstanding   the   postponement   of   the   2. However, Petitioner contends that since the property was yet
actual possession or enjoyment of the estate by the beneficiary. to be delivered to the true beneficiary (Matthew Hanley), as the
B. The tax, then, is measured by the value of the property at the time property was delivered only to a trustee (Moore and Lorenzo),
of death, regardless of future appreciation or depreciation. then they should not yet be required to pay the tax.
C. Thus,   petitioner’s   contention   that   the   tax   should   have   been   3. Respondent then counter-argued that the delivery to the
measured ten years after the death (which was the time when the trustee was, in essence, a delivery to the cestui que trust,
nephew can finally enjoy or dispose of the estate) is incorrect. which is Matthew Hanley. The SC agreed to this.
III. In determining the net value of the estate subject to tax, is it proper to C. A trustee is but an instrument or agent for the cestui que trust.
deduct the compensation due to trustees? 1. The appointment of a trustee was valid and in conformity with
A. Judicial expenses of testamentary or intestate proceedings are Hanley’s  will,  as  there  was  an  intention  to  appoint  a  trustee.
allowed as deductions for inheritance tax. 2. Moore, upon his acceptance of the estate as trustee,
acknowledged the fact that the estate did not belong to him,
but to the cestui que trust.
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3. Moore did not acquire any beneficial interest in the estate. (C) Revocable Transfer. -
D. To rule that the appointment of a trustee postpones the payment of (1) To the extent of any interest therein, of which the decedent has at
tax is against public policy. any time made a transfer (except in case of a bona fide sale for an
1. In that case, decedents can just appoint trustees, who would adequate and full consideration in money or money's worth) by trust
have terms as long as fifty years, in order to evade the tax. or otherwise, where the enjoyment thereof was subject at the date
2. Tax statutes should be construed to avoid the possibilities of of his death to any change through the exercise of a power (in
tax evasion. whatever capacity exerciseable) by the decedent alone or by the
E. Thus, the delinquency in paying the inheritance tax arose when decedent in conjunction with any other person (without regard to
Moore was appointed as the trustee. when or from what source the decedent acquired such power), t o
alter, amend, revoke, or terminate, or where any such power is
relinquished in contemplation of the decedent's death.
RR 02-03 – Consolidated RRs on Estate Tax
(2) For the purpose of this Subsection, the power to alter, amend or
revoke shall be considered to exist on the date of the decedent's
Refer to file in the Dropbox folder.
death even though the exercise of the power is subject to a
precedent giving of notice or even though the alteration,
amendment or revocation takes effect only on the expiration of a
stated period after the exercise of the power, whether or not on or
A.2. Gross Estate before the date of the decedent's death notice has been given or
the power has been exercised. In such cases, proper adjustment
shall be made representing the interests which would have been
SEC. 85. Gross Estate. - The value of the gross estate of the decedent excluded from the power if the decedent had lived, and for such
shall be determined by including the value at the time of his death of all property, purpose if the notice has not been given or the power has not been
real or personal, tangible or intangible, wherever situated: Provided, however, exercised on or before the date of his death, such notice shall be
that in the case of a nonresident decedent who at the time of his death was not a considered to have been given, or the power exercised, on the date
citizen of the Philippines, only that part of the entire gross estate which is situated of his death.
in the Philippines shall be included in his taxable estate.
(D) Property Passing Under General Power of Appointment. - To the
(A) Decedent's Interest. - To the extent of the interest therein of the extent of any property passing under a general power of appointment
decedent at the time of his death; exercised by the decedent: (1) by will, or (2) by deed executed in
contemplation of, or intended to take effect in possession or enjoyment
(B) Transfer in Contemplation of Death. - To the extent of any interest at, or after his death, or (3) by deed under which he has retained for his
therein of which the decedent has at any time made a transfer, by trust life or any period not ascertainable without reference to his death or for
or otherwise, in contemplation of or intended to take effect in any period which does not in fact end before his death (a) the
possession or enjoyment at or after death, or of which he has at any possession or enjoyment of, or the right to the income from, the property,
time made a transfer, by trust or otherwise, under which he has retained or (b) the right, either alone or in conjunction with any person, to
for his life or for any period which does not in fact end before his death designate the persons who shall possess or enjoy the property or the
(1) the possession or enjoyment of, or the right to the income from the income therefrom; except in case of a bona fide sale for an adequate
property, or (2) the right, either alone or in conjunction with any person, and full consideration in money or money's worth.
to designate the person who shall possess or enjoy the property or the
income therefrom; except in case of a bonafide sale for an adequate (E) Proceeds of Life Insurance. - To the extent of the amount receivable
and full consideration in money or money's worth. by the estate of the deceased, his executor, or administrator, as
insurance under policies taken out by the decedent upon his own life,
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irrespective of whether or not the insured retained the power of considered as situated in the Philippines: Provided, still further, that no tax shall
revocation, or to the extent of the amount receivable by any beneficiary be collected under this Title in respect of intangible personal property: (a) if the
designated in the policy of insurance, except when it is expressly decedent at the time of his death or the donor at the time of the donation was a
stipulated that the designation of the beneficiary is irrevocable. citizen and resident of a foreign country which at the time of his death or donation
did not impose a transfer tax of any character, in respect of intangible personal
(F) Prior Interests. - Except as otherwise specifically provided therein, property of citizens of the Philippines not residing in that foreign country, or (b) if
Subsections (B), (C) and (E) of this Section shall apply to the transfers, the laws of the foreign country of which the decedent or donor was a citizen and
trusts, estates, interests, rights, powers and relinquishment of powers, resident at the time of his death or donation allows a similar exemption from
as severally enumerated and described therein, whether made, created, transfer or death taxes of every character or description in respect of intangible
arising, existing, exercised or relinquished before or after the effectivity personal property owned by citizens of the Philippines not residing in that foreign
of this Code. country.

(G) Transfers of Insufficient Consideration. - If any one of the transfers, The term 'deficiency' means: (a) the amount by which tax imposed by this
trusts, interests, rights or powers enumerated and described in Chapter exceeds the amount shown as the tax by the donor upon his return; but
Subsections (B), (C) and (D) of this Section is made, created, exercised the amount so shown on the return shall first be increased by the amount
or relinquished for a consideration in money or money's worth, but is not previously assessed (or Collected without assessment) as a deficiency, and
a bona fide sale for an adequate and full consideration in money or decreased by the amounts previously abated, refunded or otherwise repaid in
money's worth, there shall be included in the gross estate only the respect of such tax, or (b) if no amount is shown as the tax by the donor, then the
excess of the fair market value, at the time of death, of the property amount by which the tax exceeds the amounts previously assessed, (or collected
otherwise to be included on account of such transaction, over the value without assessment) as a deficiency, but such amounts previously assessed, or
of the consideration received therefor by the decedent. collected without assessment, shall first be decreased by the amount previously
abated, refunded or otherwise repaid in respect of such tax.
(H) Capital of the Surviving Spouse. - The capital of the surviving spouse
of a decedent shall not, for the purpose of this Chapter, be deemed a
part of his or her gross estate.

02. CIR v. Fisher (AD)


G.R. No. L-11622 | January 28, 1961
The Collector of Internal Revenue, petitioner
SEC. 104. Definitions. - For purposes of this Title, the terms 'gross
Douglas Fisher and Bettina Fisher, and the Court of Tax Appeals, respondents
estate' and 'gifts' include real and personal property, whether tangible or Barrera, J.:
intangible, or mixed, wherever situated: Provided, however, That where the
decedent or donor was a nonresident alien at the time of his death or donation, FACTS:
as the case may be, his real and personal property so transferred but which are Walter G. Stevenson,  born  in  the  Philippines  of  British  parents  (so  he’s  
situated outside the Philippines shall not be included as part of his 'gross
not Pinoy) and married to Beatrice Mauricia Stevenson another British
estate' or 'gross gift': Provided, further, That franchise which must be exercised
died on February 22, 1951 in San Francisco, California, U.S.A. where
in the Philippines; shares, obligations or bonds issued by any corporation or
he and his wife moved and established their permanent residence.
sociedad anonima organized or constituted in the Philippines in accordance with
In his will executed in San Francisco, Stevenson instituted his wife
its laws; shares, obligations or bonds by any foreign corporation eighty-five
Beatrice as his sole heiress to the real and personal properties
percent (85%) of the business of which is located in the Philippines; shares,
acquired by the spouses while residing in the Philippines, of which the
obligations or bonds issued by any foreign corporation if such shares, obligations
item relevant to our discussion is the 210,000 shares of stock of
or bonds have acquired a business situs in the Philippines; shares or rights in
Mindanao Mother Lode Mines, Inc. (at P0.38 per share/ P79,800).
any partnership, business or industry established in the Philippines, shall be

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Ancillary administration proceedings were instituted in the Court of In this last return, the estate claimed that it had overpaid the
First Instance of Manila for the settlement of the estate in the Philippines government. It therefore asked for a refund. The Collector denied
and Ian Murray Statt was appointed ancillary administrator of the the claim.
estate, who filed a preliminary estate and inheritance tax return with
the reservation of having the properties declared therein finally ISSUE:
appraised at their values six months after the death of Stevenson Whether or not the estate can avail itself of the reciprocity proviso
and in order to secure the waiver of the CIR on the inheritance tax embodied in Section 122 of the National Internal Revenue Code
due on the 210,000 shares of stock which the estate then desired to granting exemption from the payment of estate and inheritance
dispose in the United States. taxes on the 210,000 shares of stock in the Mindanao Mother Lode
The CIR accepted the valuation of the personal properties declared Mines Inc.;
therein.
The Collector assessed the state the amount of P5,147.98 for estate tax HELD: No, it cannot because the law requires total reciprocity.
and P10,875,26 or inheritance tax, or a total of P16,023.23. Both of
these assessments were paid by the estate. Argument of the CIR:
First amendment of the estate and inheritance tax return (not so CIR disputes the action of the Tax Court in exempting the Spouses
important): Fisher from paying inheritance tax on the 210,000 shares of stock
The ancillary administrator filed an amended estate and inheritance tax in virtue of the reciprocity proviso of Section 122 of the NIRC, in relation
return in pursuance of his earlier reservation. to Section 13851 of the California Revenue and Taxation Code, on the
In this amended return the valuation of the 210,000 shares of stock in ground that:
the Mindanao Mother Lode Mines, Inc. was reduced from P79,800.00 to o (2) the reciprocity exemptions granted by section 122 of the
P42,000.00 based on the market notation of the stock from the San National Internal Revenue Code can only be availed of by
Francisco California Stock Exchange six months after the death of residents of foreign countries and not of residents of a state in
Stevenson. the United States; and
In the meantime, Beatrice Mauricia Stevenson assigned all her o (3) there is no "total" reciprocity between the Philippines
rights and interests in the estate to the spouses, Douglas and and the state of California in that while the Philippines
Bettina Fisher, respondents herein. exempts payment of both estate and inheritance taxes on
Second amendment of the estate and inheritance tax return: intangible personal properties, the US only exempts the
The ancillary administrator filed a second amended estate and payment of inheritance tax.
inheritance tax return. It declared the same assets, except that it
contained new claims for additional exemption and deduction to RATIO:
wit: Section 122 of our National Internal Revenue Code, in pertinent part,
o (1) deduction in the amount of P4,000.00 from the gross estate provides:
of the decedent as provided for in Section 861 (4) of the U.S. o ... And, provided, further, That no tax shall be collected under
Federal Internal Revenue Code which the ancillary this Title in respect of intangible personal property (a) if the
administrator argued was allowable by way of the reciprocity decedent at the time of his death was a resident of a foreign
granted by Section 122 of the NIRC, and country which at the time of his death did not impose a transfer
o (2) exemption from the imposition of estate and of tax or death tax of any character in respect of intangible
inheritance taxes on the 210,000 shares of stock in the personal property of citizens of the Philippines not residing in
Mindanao Mother Lode Mines, Inc. pursuant to the that foreign country, or (b) if the laws of the foreign country
reciprocity proviso of Section 122 of the NIRC of which the decedent was a resident at the time of his
death allow a similar exemption from transfer taxes or
death taxes of every character in respect of intangible

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personal property owned by citizens of the Philippines not Applying these laws in the manner the Court of Tax Appeals did in the
residing in that foreign country." (Emphasis supplied). instant case, we will have a situation where a Californian, who is non-
On the other hand, Section 13851 of the California Inheritance Tax Law, resident in the Philippines but has intangible personal properties here,
insofar as pertinent, reads:. will be subject to the payment of an estate tax, although exempt from
o "SEC. 13851, Intangibles of nonresident: Conditions. the payment of the inheritance tax. This being the case, will a Filipino,
Intangible personal property is exempt from the tax non-resident of California, but with intangible personal properties there,
imposed by this part if the decedent at the time of his death be entitled to the exemption clause of the California law, since the
was a resident of a territory or another State of the United Californian has not been exempted from every character of legacy,
States or of a foreign state or country which then imposed succession, or death tax because he is, under our law, under obligation
a legacy, succession, or death tax in respect to intangible to pay an estate tax? Upon the other hand, if we exempt the
personal property of its own residents, but either:. Californian from paying the estate tax, we do not thereby entitle a
o (a) Did not impose a legacy, succession, or death tax of any Filipino to be exempt from a similar estate tax in California
character in respect to intangible personal property of residents because under the Federal Law, which is equally enforceable in
of this State, or California he is bound to pay the same, there being no reciprocity
o (b) Had in its laws a reciprocal provision under which recognized in respect thereto. In both instances, the Filipino citizen is
intangible personal property of a non-resident was exempt always at a disadvantage. We do not believe that our legislature has
from legacy, succession, or death taxes of every character intended such an unfair situation to the detriment of our own
if the Territory or other State of the United States or government and people.
foreign state or country in which the nonresident resided We, therefore, find and declare that the lower court erred in exempting
allowed a similar exemption in respect to intangible the estate in question from payment of the inheritance tax.
personal property of residents of the Territory or State of In view of the express provisions of both the Philippine and California
the United States or foreign state or country of residence laws that the exemption would apply only if the law of the other grants
of the decedent." an exemption from legacy, succession, or death taxes of every
It is clear from both these quoted provisions that the reciprocity character, there could not be partial reciprocity. It would have to be
must be total, that is, with respect to transfer or death taxes of any total or none at all.
and every character, in the case of the Philippine law, and to legacy,
succession, or death taxes of any and every character, in the case
of the California law. Therefore, if any of the two states collects or
imposes and does not exempt any transfer, death, legacy, or
03. Zapanta v. Posadas (RS)
succession tax of any character, the reciprocity does not work. This is
*6 separate actions against the Commissioner of Internal Revenue and his
the underlying principle of the reciprocity clauses in both laws.
deputy
In the Philippines, upon the death of any citizen or resident, or non-
resident with properties therein, there are imposed upon his estate
Plaintiffs-appellees: Rufina Zapanta, Rosario Pineda, Olimpio Guanzon, Leoncia
and its settlement, both an estate and an inheritance tax. Under the
Pineda, Emigdio David, Geronima Pineda, et al.
laws of California, only inheritance tax is imposed. On the other
Defendant-appellants: Juan Posadas, Jr., et al.
hand, the Federal Internal Revenue Code imposes an estate tax on
non-residents who are not citizens of the United States, but does not
Laws:
provide for any exemption on the basis of reciprocity.
Section 1536 of the Administrative Code, as amended by Section 10 of
(The next paragraph is the pinaka-explanation of the doctrine. I think this
Act No. 2835
paragraph is crucial. Pero sorry kasi di ko siya nagets so I copy-pasted it na
o "Every transmission by virtue of inheritance, devise, bequest,
lang verbatim.)
gift mortis causa, or advance in anticipation of inheritance,

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devise, or bequest of real property located in the Philippine Essentially, the principal characteristic of a donation mortis causa,
Islands and real rights in such property; * * *" which distinguishes it from a donation inter vivos, is that in the former, it
Section 1 of Act No. 3031 is the donor's death that determines the acquisition of, or the right
to, the property, and that it is revocable at the will of the donor.
FACTS: In the donations in question, their effect, that is, the acquisition of, or the
Father Braulio Pineda died in January 1925 without any ascendants or right to, the property, was produced while the donor was still alive, for,
descendants, leaving a will in which he instituted his sister Irene Pineda according to their expressed terms they were to have this effect upon
as his sole heiress. acceptance, and this took place during the donor's lifetime. The nature
During his lifetime Father Braulio donated some of his property by of these donations is not affected by the fact that they were
public instruments to the six plaintiffs, severally, with the condition subject to a condition, since it was imposed as a resolutory
that some of them would pay him a certain amount of rice, and others of condition, and in this sense, it necessarily implies that the right came
money every year, and with the express provision that failure to into existence first as well as its effect, because otherwise there would
fulfill this condition would revoke the donations ipso facto. be nothing to resolve upon the non-fulfillment of the condition imposed.
o These six plaintiff- donees are relatives, and some of them Neither does the fact that these donations are revocable, give them the
brothers of Father Braulio Pineda. character of donations mortis causa, inasmuch as the revocation is not
o The donations contained another clause that they would take made to depend on the donor's exclusive will, but on the failure to
effect upon acceptance. They were accepted during Father fulfill the condition imposed.
Braulio's lifetime by every one of the donees. Neither can these donations be considered as an advance on
The trial court in deciding these six cases, held that the donations to inheritance or legacy, according to the terms of section 1536 of the
the six plaintiffs made by the deceased Father Braulio Pineda are Administrative Code, because they are neither an inheritance nor a
donations inter vivos, and therefore, not subject to the inheritance legacy.
tax, and ordered the defendants to return to each of the plaintiffs the o And it cannot be said that the plaintiffs received such advance
sums paid by the latter. on inheritance or legacy, since they were not heirs or
Defendants appealed. legatees of their predecessor in interest upon his death
(sec. 1540 of the Administrative Code).
ISSUE: Whether the donations made by Father Braulio Pineda to each of the o Neither can it be said that they obtained this inheritance or
plaintiffs are donations inter vivos, or mortis causa, for it is the latter upon which legacy by virtue of a document which does not contain the
the Administrative Code imposes inheritance tax. requisites of a will (sec. 618 of the Code of Civil Procedure).
Besides, if the donations made by the plaintiffs are, as the appellants
HELD: Donations were made inter vivos; thus, they are not subject to inheritance contend, mortis causa, then they must be governed by the law on
tax. testate succession (art. 620 of the Civil Code). In such a case, the
Judgment appealed from is affirmed. documents in which these donations appear, being instruments which
do not contain the requisites of a will, are not valid to transmit the
RATIO: property to the donees (sec. 618, Code of Civil Procedure.) Then the
[Said donations are inter vivos because] it is so expressly stated in the defendants are not justified in collecting from the donees the inheritance
instruments in which they appear. tax on property which has not been legally transferred to them, and in
o They were made in consideration of the donor's affection for which they acquired no right.
the donees, and of the services they had rendered him, but he
has charged them with the obligation to pay him a certain
amount of rice and money, respectively, each year during his
lifetime, the donations to become effective upon acceptance.

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04. Tuason v. Posadas (HV) the donation inter vivos she had made to them in 1922 and 1923, must
Topic: Gross Estate be added to the net amount that is to be taxed.
Relevant Laws: Sec. 85 & 104 NIRC
G.R. No. L-30885 STREET, J., dissenting:
January 23, 1930
AVANCEÑA, C.J.: The two plaintiffs in this case are suing to recover two several sums of money,
the payment of which has been exacted from them in the character of taxes upon
Petitioners: ALFONSO TUASON Y ANGELES and MARIANO TUASON Y inheritance, and it is very manifest to me that the taxes in question were imposed,
ANGELES and have been collected, in violation of that portion of section 3 of the Autonomy
Respondents: JUAN POSADAS, JR., Collector of Internal Revenue Act (Jones Law) which declares that the rule of taxation in these Islands shall be
uniform. To demonstrate this conclusion it is desirable to fix in the mind the exact
Facts: state of fact upon which the decision should turn. In this connection we note that
On September 15, 1922, Esperanza Tuason y Chuajap made a donation inter the plaintiffs are not persons who would have inherited any part of the estate of
vivos of certain property to plaintiff Mariano Tuason y Angeles. On April 30, 1923, Esperanza Tuason y Chuajap, if she had died intestate. It is clear therefore that
she made another donation inter vivos to Alfonso Tuason y Angeles, the other the donations made to the two plaintiffs in 1922 and 1923, respectively, were not
plaintiff. On January 5, 1926, she died of senile weakness at the age of 73, made "in anticipation of inheritance," and they are therefore not taxable in that
leaving a will bequeathing of P5,025 to Mariano Tuason y Angeles. Her judicial character. The gifts in question were donations inter vivos, and as such they
administratrix paid the prescribed inheritance tax on these two bequests. should be free from the inheritance tax.

Issues: Further to illustrate this, let it be supposed that a person, desirous of conferring a
Are the donations inter vivos made in anticipation of death part of Gross Estate? benefit upon two persons held in about equal esteem, makes a gift of P10,000 to
- YES one and P9,900 to the other. In a subsequent will, in order to equalize the gifts,
the same benefactor gives a legacy of P100 to the second donee. Under the
Held: statute, as interpreted by the court, the first donee is not liable to any inheritance
tax, but the second is liable upon the entire amount first given to him. This shows
Petition DISMISSED.
the lack of logical relation between the incidence of the tax and the fact taken as
Decision of lower court REVERSED.
a basis for its imposition.
Ratio:
It will be noted that we do not here question the proposition that section 1540 of
1. When the law say all gifts, it doubtless refers to gifts inter vivos, and not
the Administrative Code might lawfully operate upon a donee who at the time of
mortis causa. Both the letter and the spirit of the law leave no room for
receiving the gift inter vivos belongs to the class who could take by intestate
any other interpretation. Such, clearly, is the tenor of the language
succession, in the absence of a will, for in this case the donation may be made in
which refers to donation that took effect before the donor's death, and
anticipation of inheritance (sec. 1536, Adm. Code). It was for this very reason
not to mortis causa donations, which can only be made with the
that the undersigned sustained the position in Zapanta vs. Posadas (52 Phil.,
formalities of a will, and can only take effect after the donor's death.
557), that the gifts there made were taxable. But section 1540 of the
When such gifts have been made in anticipation of inheritance, devise,
Administrative Code cannot, in my opinion, properly be interpreted to extend to
bequest, or gift mortis causa, when the donee, after the death of the
gifts inter vivos made to a person not in a position to take as heir of the donor
donor proves to be his heir, devisee or donee mortis causa, for the
dying intestate.
purpose of evading the tax, and it is to prevent this that it provides that
they shall be added to the resulting amount.
In closing I wish to point out that the vital difference between this case and that
under consideration in Zapanta vs. Posadas, supra, is that in the latter case the
This being so, and it appearing that the appellees after the death of
donees were persons who would have been heirs of the donor if the latter had
Esperanza Tuason y Chuajap, were found to be legatees under her will,
died intestate, while in this case the donees are not in such position.
8
05. Dison v. Posadas (HQ) It is the theory of Dison that he received and holds that properties by a
consummated gift, and that Act No. 2601, being the inheritance
Topic: Estate Tax statute, does NOT tax gifts.
Relevant Laws: Issues:
Act No. 2601 (Chapter 40, Section 1540) – Inheritance Tax Statute 1. Whether or not section 1540 of the Administrative Code (Act No. 2601)
subjects Dison to the payment of an inheritance tax? - YES
G.R. No. L-36770
November 4, 1932 Held:
Butte, J. Petition DENIED.
Decision of lower court AFFIRMED.
Petitioners: Luis W. Dison (“Dison”)
Respondents: Juan  Posadas,  Jr.,  Collector  of  Internal  Revenue  (“Posadas”) Ratio:
The Court held that section 1540 is applicable and the tax was properly
Facts: assessed by the Collector of Internal Revenue. Accordingly, Section
Dison filed an appeal from the decision of CFI Pampanga for the 1540 states that:
recovery of an inheritance tax (P 2,808.73) paid under protest.
“Additions of Gifts and Advances. After the aforementioned
Dison alleged in his complaint that the tax is illegal because he
deductions have been made, there shall be added to the
received the property, which is the basis of the tax, from his father resulting amount the value of all gifts or advances made
before his death by a deed of gift inter vivos, which was duly accepted by the predecessor to any of those who, after his death,
and registered before the death of his father. shall prove to be his heirs, devises, legatees, or donees
The only pieces of evidence introduced were the proof of payment of mortis causa. “
the tax under protest and the deed of gift executed by Felix Dison
(father) on April 9, 1928 in favor of his son Dison. The deed of gift The facts may not warrant the inference that the conveyance
transferred 22 tracts of land to the donee, reserving to the donor for his (acknowledged by the donor five days before his death and accepted by
life the usufruct of 3 tracts. the  donee  one  day  before  the  donor’s  death)  was  fraudulently  made  for  
It was acknowledged by the donor before notary public on April 16, and the purpose of evading the inheritance tax.
was formally accepted by Dison on April 17, which he acknowledged However, the facts do warrant the inference that the transfer was an
before the notary public on April 20. advancement upon the inheritance which the donee, as the sole
and forced heir of the donor, would be entitled to receive upon the
death of the donor.
The argument by Dison that he is not an heir of his father within the
April 9 April 16 April 17 April 20 April 21
meaning of section 1540 because his father in his lifetime had given him
Donor Acknowledgm Formal Acknowledgm Death
executed ent by donor accepta ent by Dison 1 day of Felix all  his  father’s  property  and  left  no  property  to  be  inherited,  is  fallacious.
Deed of before notary nce by before notary Dison It is not stated whether or not the father left a will, but in any event,
Gift public Dison public (donor)
Dison could not be deprived of his share of inheritance because
the Civil Code confers upon him the status of a forced heir.
Moreover,   the   Court   construed   the   expression   in   section   1540   “any   of  
At the trial, the parties agreed to the following stipulation of facts: 1.)
those who, after his death,  shall  prove  to  be  his  heirs”,  to  include those
Felix Dison died on April 21, 1928, 2.) before his death, Felix Dison
who, by our law, are given the status and rights of heirs,
made a gift inter vivos in favor of Luis Dison of all his properties
regardless of the quantity of property they may receive as such
according to a deed of gift, 3.) that Luis Dison did not receive property of
heirs.
any kind from Felix Dison upon the death of the latter, and 4.) that Luis
Dison was a legitimate and only child of Felix Dison.
9
Other Matter: Dison also attacked the constitutionality of section 1540, possession of the said lands, received the fruits thereof and obtained
based on the sole ground that such section levies a tax upon gifts inter the corresponding TCTs.
vivos, which violates section 3 of the organic Act. Accordingly, it Tuazon died without leaving any forced heir and her will which was
provides  “that  no  bill  which  may  be  enacted  into  law  shall  embrace  more   admitted to probate, she bequeathed to each of the donees the sum of
than one subject, and that subject shall be expressed in the title of the P5,000.
bill.” After the estate had been distributed among the instituted legatees and
Neither the title of the Act nor chapter 40 of the Admin Code makes any before delivery of their respective shares, CIR ruled that the donees and
reference to a tax on gifts. legatees should pay as inheritance tax the sums of P16,673 and
It can also be argued that section 1540 plainly does not tax gifts per se P13,951.45, respectively. Of these sums P15,191.48 was levied as tax
but only when those gifts are made to those who shall prove to be the on the donation to De Roces and P1,481.52 on her legacy, and,
heirs, devisees, legatees or donees mortis causa of the donor. likewise, P12,388.95 was imposed upon the donation made to De
Section 1540 the law presumes that such gifts have been made in Richards and P1,462.50 on her legacy.
anticipation of inheritance, devise, bequest, or gift mortis causa, when De Roces's argument:
the donee, after the death of the donor proves to be his heir, devisee or - Sec. 1540 of the Administrative Code does NOT include
donee mortis causa, for the purpose of evading the tax, and it is to donations inter vivos and if it does, it is unconstitutional, null and
prevent this that it provides that they shall be added to the void because the Legislature has no authority to impose inheritance
resulting amount. tax on donations inter vivos and it contravenes the fundamental rule
The Court held that there is no merit in this attack upon the of uniformity of taxation.
constitutionality of section 1540 under the view of the facts. CIR’s  argument:
- The words "all gifts" refer clearly to donations inter vivos.
- Citing the doctrine in Tuason: "all gifts" refers to gifts inter vivos,
because the law considers them as advances in anticipation of
06. Vidal de Roces v. Posadas (PM) inheritance in the sense that they are gifts inter vivos made in
consideration of death.
Topic: imposition of inheritance tax on donations inter vivos in consideration of
death Issues:
Relevant Laws: Whether or not Sec. 1540 of the Administrative Code includes donation inter
Section 1540 of the Administrative Code (Act No. 2061) – Inheritance Tax vivos and, thus, subject De Roces, and De Richards to the payment of an
Statute inheritance tax? - YES

G.R. No. L-34937 Held:


March 13, 1933 Judgment appealed from is AFFIRMED.
Imperial, J.
Ratio:
Plaintiff-appellants: Concepcion Vidal De Roces and her husband, Marcos Section 1536 of the Administrative Code provides that every
Roces, and Elvira Vidal De Richards transmission by virtue of inheritance, devise, bequest, gift mortis causa,
Defendant-apellee: Juan Posadas, Jr. and CIR or advance in anticipation of inheritance, devise, or bequest shall be
subject to tax.
Facts: Section 1540 then provides that after deductions have been made,
Tuazon donated certain parcels of land to De Roces and De Richards, there shall be added to the resulting amount the value of all gifts or
who accepted them in the same public documents, and which were duly advances made by the predecessor to any of those who, after his death,
recorded in the registry of deeds. By virtue of said donations, they took shall prove to be his heirs, devisees, legatees, or donees mortis causa.

10
The gifts referred to in section 1540 are, obviously, those DISSENTING OPINION OF JUSTICE VILLAREAL: Donations inter vivos made
donations inter vivos that take effect immediately or during the lifetime to persons who are not forced heirs, but who are instituted legatees in the
of the donor but are made in consideration or in contemplation of donor's will, should be presumed as not made mortis causa, unless the contrary
death. Gifts inter vivos, the transmission of which is NOT made in is proven. In the case under consideration, the burden of the proof rests with the
contemplation of the donor's death should NOT be understood as person who contends that the donation inter vivos has been made mortis causa.
included within the said legal provision for the reason that it would
amount to imposing a direct tax on property and not on the transmission
thereof. A.3. Deductions
The language refers to donation that took effect before the donor's
death, and not to mortis causa donations, which can only be made with
the formalities of a will, and can only take effect after the donor's death. SEC. 86. Computation of Net Estate - For the purpose of the tax
HOWEVER, if the donee inter vivos was found to be legatees, heirs, imposed in this Chapter, the value of the net estate shall be determined:
devisees OR donees mortis causa of the decedent, then they would
have to pay the inheritance tax. The reason for this is because the (A) Deductions Allowed to the Estate of Citizen or a Resident. - In the case
donation inter vivos is deemed to be a transfer in anticipation of of a citizen or resident of the Philippines, by deducting from the value of the
inheritance/death, meaning that it is a scheme to evade payment of gross estate—
taxes. (1) Expenses, Losses, Indebtedness, and taxes. - Such amounts –
It be may be inferred from the allegations of De Roces and De Richards (a) For actual funeral expenses or in an amount equal to five
that said donations inter vivos were made in consideration of the percent (5%) of the gross estate, whichever is lower, but in no
donor's death. We refer to the allegations that such transmissions were case to exceed Two hundred thousand pesos (P200,000);
effected in the month of March, 1925, that the donor died in January,
1926, and that the donees were instituted legatees in the donor's will (b) For judicial expenses of the testamentary or intestate
which was admitted to probate. It is from these allegations, especially proceedings;
the last, that we infer a presumption juris tantum that said
donations were made mortis causa and, as such, are subject to the (c) For claims against the estate: Provided, That at the time the
payment of inheritance tax. The law considers such transmissions indebtedness was incurred the debt instrument was duly
in the form of gifts inter vivos, as advances on inheritance. notarized and, if the loan was contracted within three (3) years
Such interpretation of the law is not in conflict with the rule laid down in before the death of the decedent, the administrator or executor
the case of Tuason wherein it was said that the expression "all gifts" shall submit a statement showing the disposition of the
refers to gifts inter vivos, because the law considers them as advances proceeds of the loan;
in anticipation of inheritance in the sense that they are gifts inter
vivos made in consideration of death. In that case, it was not held (d) For claims of the deceased against insolvent persons where
that that kind of gifts consisted in those made completely independent of the value of decedent's interest therein is included in the value
death or without regard to it. of the gross estate; and
Section 1540 did not violate the constitutional provision regarding
uniformity of taxation. It cannot be null and void on this ground because (e) For unpaid mortgages upon, or any indebtedness in respect to,
it equally subjects to the same tax all of those donees who later become property where the value of decedent's interest therein,
heirs, legatees or donees mortis causa by the will of the donor. undiminished by such mortgage or indebtedness, is included in
In a nutshell: Even if a donation is made inter vivos, it is presumed as the value of the gross estate, but not including any income tax
made mortis causa if it is made in   consideration   of   donor’s   death and upon income received after the death of the decedent, or
therefore, it is subject to inheritance tax. property taxes not accrued before his death, or any estate tax.
The deduction herein allowed in the case of claims against the

11
estate, unpaid mortgages or any indebtedness shall, when
founded upon a promise or agreement, be limited to the extent Twenty percent (20%) of the value, if the prior decedent died more
that they were contracted bona fide and for an adequate and than four (4) years but not more than five (5) years prior to the
full consideration in money or money's worth. There shall also death of the decedent, or if the property was transferred to him by
be deducted losses incurred during the settlement of the estate gift within the same period prior to his death;
arising from fires, storms, shipwreck, or other casualties, or
from robbery, theft or embezzlement, when such losses are not These deductions shall be allowed only where a donor's tax or
compensated for by insurance or otherwise, and if at the time estate tax imposed under this Title was finally determined and paid
of the filing of the return such losses have not been claimed as by or on behalf of such donor, or the estate of such prior decedent,
a deduction for the income tax purposes in an income tax as the case may be, and only in the amount finally determined as
return, and provided that such losses were incurred not later the value of such property in determining the value of the gift, or the
than the last day for the payment of the estate tax as gross estate of such prior decedent, and only to the extent that the
prescribed in Subsection (A) of Section 91. value of such property is included in the decedent's gross estate,
and only if in determining the value of the estate of the prior
(2) Property Previously Taxed. - An amount equal to the value decedent, no deduction was allowable under paragraph (2) in
specified below of any property forming a part of the gross estate respect of the property or properties given in exchange therefor.
situated in the Philippines of any person who died within five (5) Where a deduction was allowed of any mortgage or other lien in
years prior to the death of the decedent, or transferred to the determining the donor's tax, or the estate tax of the prior decedent,
decedent by gift within five (5) years prior to his death, where such which was paid in whole or in part prior to the decedent's death,
property can be identified as having been received by the decedent then the deduction allowable under said Subsection shall be
from the donor by gift, or from such prior decedent by gift, bequest, reduced by the amount so paid. Such deduction allowable shall be
devise or inheritance, or which can be identified as having been reduced by an amount which bears the same ratio to the amounts
acquired in exchange for property so received: allowed as deductions under paragraphs (1) and (3) of this
Subsection as the amount otherwise deductible under said
One hundred percent (100%) of the value, if the prior decedent died paragraph (2) bears to the value of the decedent's estate. Where
within one (1) year prior to the death of the decedent, or if the the property referred to consists of two or more items, the
property was transferred to him by gift within the same period prior aggregate value of such items shall be used for the purpose of
to his death; computing the deduction.

Eighty percent (80%) of the value, if the prior decedent died more (3) Transfers for Public Use. - The amount of all the bequests,
than one (1) year but not more than two (2) years prior to the death legacies, devises or transfers to or for the use of the Government of
of the decedent, or if the property was transferred to him by gift the Republic of the Philippines, or any political subdivision thereof,
within the same period prior to his death; for exclusively public purposes.

Sixty percent (60%) of the value, if the prior decedent died more (4) The Family Home. - An amount equivalent to the current fair
than two (2) years but not more than three (3) years prior to the market value of the decedent's family home: Provided, however,
death of the decedent, or if the property was transferred to him by That if the said current fair market value exceeds One million pesos
gift within the same period prior to his death; (P1,000,000), the excess shall be subject to estate tax. As a sine
qua non condition for the exemption or deduction, said family home
Forty percent (40%) of the value, if the prior decedent died more must have been the decedent's family home as certified by the
than three (3) years but not more than four (4) years prior to the barangay captain of the locality.
death of the decedent, or if the property was transferred to him by
gift within the same period prior to his death;
12
(5) Standard Deduction. - An amount equivalent to One million pesos of the decedent, or if the property was transferred to him by gift
(P1,000,000). within the same period prior to his death;

(6) Medical Expenses. - Medical Expenses incurred by the decedent Sixty percent (60%) of the value, if the prior decedent died more
within one (1) year prior to his death which shall be duly than two (2) years but not more than three (3) years prior to the
substantiated with receipts: Provided, That in no case shall the death of the decedent, or if the property was transferred to him by
deductible medical expenses exceed Five Hundred Thousand gift within the same period prior to his death;
Pesos (P500,000).
Forty percent (40%) of the value, if the prior decedent died more
(7) Amount Received by Heirs Under Republic Act No. 4917. - Any than three (3) years but not more than four (4) years prior to the
amount received by the heirs from the decedent - employee as a death of the decedent, or if the property was transferred to him by
consequence of the death of the decedent-employee in accordance gift within the same period prior to his death; and
with Republic Act No. 4917: Provided, That such amount is
included in the gross estate of the decedent.
Twenty percent (20%) of the value, if the prior decedent died more
than four (4) years but not more than five (5) years prior to the
(B) Deductions Allowed to Nonresident Estates. - In the case of a nonresident
death of the decedent, or if the property was transferred to him by
not a citizen of the Philippines, by deducting from the value of that part of his
gift within the same period prior to his death.
gross estate which at the time of his death is situated in the Philippines:

(1) Expenses, Losses, Indebtedness and Taxes. - That proportion of These deductions shall be allowed only where a donor's tax, or
the deductions specified in paragraph (1) of Subsection (A) of this estate tax imposed under this Title is finally determined and paid by
Section which the value of such part bears to the value of his entire or on behalf of such donor, or the estate of such prior decedent, as
gross estate wherever situated; the case may be, and only in the amount finally determined as the
value of such property in determining the value of the gift, or the
(2) Property Previously Taxed. - An amount equal to the value gross estate of such prior decedent, and only to the extent that the
specified below of any property forming part of the gross estate value of such property is included in that part of the decedent's
situated in the Philippines of any person who died within five (5) gross estate which at the time of his death is situated in the
years prior to the death of the decedent, or transferred to the Philippines; and only if, in determining the value of the net estate of
decedent by gift within five (5) years prior to his death, where such the prior decedent, no deduction is allowable under paragraph (2)
property can be identified as having been received by the decedent of Subsection (B) of this Section, in respect of the property or
from the donor by gift, or from such prior decedent by gift, bequest, properties given in exchange therefore. Where a deduction was
devise or inheritance, or which can be identified as having been allowed of any mortgage or other lien in determining the donor's tax,
acquired in exchange for property so received: or the estate tax of the prior decedent, which was paid in whole or
in part prior to the decedent's death, then the deduction allowable
under said paragraph shall be reduced by the amount so paid.
One hundred percent (100%) of the value if the prior decedent died
Such deduction allowable shall be reduced by an amount which
within one (1) year prior to the death of the decedent, or if the
bears the same ratio to the amounts allowed as deductions under
property was transferred to him by gift, within the same period prior
paragraphs (1) and (3) of this Subsection as the amount otherwise
to his death;
deductible under paragraph (2) bears to the value of that part of the
decedent's gross estate which at the time of his death is situated in
Eighty percent (80%) of the value, if the prior decedent died more the Philippines. Where the property referred to consists of two (2)
than one (1) year but not more than two (2) years prior to the death or more items, the aggregate value of such items shall be used for
the purpose of computing the deduction.

13
(3) Transfers for Public Use. - The amount of all bequests, legacies, COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF
devises or transfers to or for the use of the Government of the APPEALS, COURT OF TAX APPEALS and JOSEFINA P. PAJONAR, as
Republic of the Philippines or any political subdivision thereof, for Administratrix of the Estate of Pedro P. Pajonar, respondents.
exclusively public purposes.
Facts:
(C) Share in the Conjugal Property. - the net share of the surviving spouse in
the conjugal partnership property as diminished by the obligations properly 1. Pedro Pajonar was a part of the infamous Death March by reason of
chargeable to such property shall, for the purpose of this Section, be deducted which he suffered shock and became insane. His sister Josefina
from the net estate of the decedent. Pajonar became the guardian over his person, while his property was
placed under the guardianship of the PNB by the RTC of Dumaguete,
(D) Miscellaneous Provisions. - No deduction shall be allowed in the case of a Branch 31, Special Proceedings 1254. He died on Jan. 10, 1988.
nonresident not a citizen of the Philippines, unless the executor, administrator, or
anyone of the heirs, as the case may be, includes in the return required to be 2. PNB filed an accounting of the decedent's property under guardianship
filed under Section 90 the value at the time of his death of that part of the gross valued at P3,037,672.09 in Special Proceedings No. 1254. However,
estate of the nonresident not situated in the Philippines. the PNB did not file an estate tax return, instead it advised Pedro's heirs
to execute an extrajudicial settlement and to pay the taxes on his estate.
(E) Tax Credit for Estate Taxes paid to a Foreign Country. - On April 5, 1988, pursuant to the assessment by the BIR, the estate of
Pedro Pajonar paid taxes in the amount of P2,557.

(1) In General. - The tax imposed by this Title shall be credited with the
3. Josefina filed a petition with the RTC of Dumaguete for the issuance in
amounts of any estate tax imposed by the authority of a foreign country.
her favor of letters of administration of the estate of her brother. The
case was docketed as Special Proceedings No. 2399. On July 18, 1988,
(2) Limitations on Credit. - The amount of the credit taken under this the RTC appointed Josefina as the regular administratrix of Pedro's
Section shall be subject to each of the following limitations: estate.

(a) The amount of the credit in respect to the tax paid to any 4. Pursuant to a second assessment by the BIR for deficiency estate tax,
country shall not exceed the same proportion of the tax against the estate of Pedro paid estate tax in the amount of P1,527,790.98.
which such credit is taken, which the decedent's net estate Josefina in her capacity as administratrix and heir of Pedro's estate,
situated within such country taxable under this Title bears to filed a protest on January 11, 1989 with the BIR praying that the estate
his entir net estate; and tax payment in the amount of P1,527,790.98, or at least some portion of
it, be returned to the heirs.
(b) The total amount of the credit shall not exceed the same
proportion of the tax against which such credit is taken, which 5. However without waiting for her protest to be resolved by the BIR,
the decedent's net estate situated outside the Philippines Josefina filed a petition for review with the CTA, praying for the refund of
taxable under this Title bears to his entire net estate. P1,527,790.98, or in the alternative, P840,202.06, as erroneously paid
estate tax.

6. CTA ordered the CIR to refund Josefina the amount of P252,585.59,


representing erroneously paid estate tax for the year 1988.
07. CIR v. CA and Pajonar (KF)
[G.R. No. 123206. March 22, 2000] 7. Among the deductions from the gross estate allowed by the CTA
were the amounts of P60,753 representing the notarial fee for the
Extrajudicial Settlement and the amount of P50,000 as the
14
attorney's fees in Special Proceedings No. 1254 for guardianship. decedent for purposes of arriving at the value of the net estate, have
been construed by the federal and state courts of the United States to
8. CIR filed a MR of the CTA's May 6, 1993 decision asserting that the include all expenses "essential to the collection of the assets,
notarial fee for the Extrajudicial Settlement and the attorney's fees in the payment of debts or the distribution of the property to the persons
guardianship proceedings are NOT deductible expenses. entitled to it." In other words, the expenses must be essential to the
proper settlement of the estate.
9. CTA issued the assailed Resolution ordering the Commissioner of
Internal Revenue to refund Josefina, as administratrix of the estate of 4. Expenditures incurred for the individual benefit of the heirs, devisees
Pedro Pajonar, the amount of P76,502.42 representing erroneously paid or legatees are NOT deductible. This distinction has been carried over
estate tax for the year 1988. Also, the CTA upheld the validity of the to our jurisdiction. Thus, in Lorenzo v. Posadas the Court construed the
deduction of the notarial fee for the Extrajudicial Settlement and the phrase "judicial expenses of the testamentary or intestate proceedings"
attorney's fees in the guardianship proceedings. as not including the compensation paid to a trustee of the decedent's
estate when it appeared that such trustee was appointed for the
10. CIR filed with the CA a petition for review of the CTA's May 6, 1993 purpose of managing the decedent's real estate for the benefit of the
Decision and its June 7, 1994 Resolution, questioning the validity of the testamentary heir. In another case, the Court disallowed the
abovementioned deductions. On December 21, 1995, the Court of premiums paid on the bond filed by the administrator as an expense of
Appeals denied the Commissioner's petition. administration since the giving of a bond is in the nature of a
qualification for the office, and not necessary in the settlement of the
Issue: WON the notarial fee paid for the extrajudicial settlement in the amount of estate. Neither may attorney's fees incident to litigation incurred by
P60,753 and the attorney's fees in the guardianship proceedings in the amount of the heirs in asserting their respective rights be claimed as a
P50,000 may be allowed as deductions from the gross estate of decedent in deduction from the gross estate.
order to arrive at the value of the net estate
5. Coming to the case at bar, the notarial fee paid for the extrajudicial
Held:   Notarial   fees   and   atty’s   fees   may   be   allowed   as   deductions   from  
settlement is clearly a deductible expense since such settlement
gross estate
effected a distribution of Pedro's estate to his lawful heirs.

1. The deductions from the gross estate permitted under section 79 of the
6. Similarly, the attorney's fees paid to PNB for acting as the guardian
Tax Code basically reproduced the deductions allowed under
of   Pedro’s   property during his lifetime should also be considered
Commonwealth Act No. 466 (CA 466), otherwise known as the National
as a deductible administration expense. PNB provided a detailed
Internal Revenue Code of 1939, and which was the first codification of
accounting of decedent's property and gave advice as to the proper
Philippine tax laws.
settlement of the latter's estate, acts which contributed towards the
collection of decedent's assets and the subsequent settlement of the
2. Section 89 (a) (1) (B) of CA 466 also provided for the deduction of the estate.
"judicial expenses of the testamentary or intestate proceedings" for
purposes of determining the value of the net estate. Philippine tax laws Other matters: (portions of CTA decision which is cited by the SC)
were, in turn, based on the federal tax laws of the United States. In
accord with established rules of statutory construction, the decisions of 1. This Court adopts the view under American jurisprudence that expenses
American courts construing the federal tax code are entitled to great incurred in the extrajudicial settlement of the estate should be allowed
weight in the interpretation of our own tax laws. as a deduction from the gross estate. "There is no requirement of formal
administration. It is sufficient that the expense be a necessary
3. Judicial expenses are expenses of administration. Administration contribution toward the settlement of the case."
expenses, as an allowable deduction from the gross estate of the

15
2. The attorney's fees of P50,000.00, which were already incurred but not thereto. Such expenses may include executor's or administrator's fees,
yet paid, refers to the guardianship proceeding filed by PNB, as attorney's fees, court fees and charges, appraiser's fees, clerk hire,
guardian over the ward of Pedro Pajonar, docketed as Special costs of preserving and distributing the estate and storing or maintaining
Proceeding No. 1254 in the RTC of Dumaguete. it, brokerage fees or commissions for selling or disposing of the estate,
and the like. Deductible attorney's fees are those incurred by the
3. The guardianship proceeding had been terminated upon delivery of the executor or administrator in the settlement of the estate or in defending
residuary estate to the heirs entitled thereto. Thereafter, PNB was or prosecuting claims against or due the estate.
discharged of any further responsibility. Attorney's fees in order to be
deductible from the gross estate must be essential to the 7. It is clear then that the extrajudicial settlement was for the purpose
collection of assets, payment of debts or the distribution of the of payment of taxes and the distribution of the estate to the heirs.
property to the persons entitled to it. The services for which the fees The execution of the extrajudicial settlement necessitated the
are charged must relate to the proper settlement of the estate. In this notarization of the same. Hence the Contract of Legal Services of March
case, the guardianship proceeding was necessary for the distribution of 28, 1988 entered into between respondent Josefina and counsel was
the property of the late Pedro to his rightful heirs. presented in evidence for the purpose of showing that the amount of
P60,753.00 was for the notarization of the Extrajudicial Settlement. It
4. PNB was appointed as guardian over the assets of the late Pedro follows then that the notarial fee of P60,753.00 was incurred
Pajonar, who, even at the time of his death, was incompetent by reason primarily to settle the estate of the deceased Pedro. Said amount
of insanity. The expenses incurred in the guardianship proceeding was should then be considered an administration expenses actually and
but a necessary expense in the settlement of the decedent's estate. necessarily incurred in the collection of the assets of the estate,
Therefore, the attorney's fee incurred in the guardianship proceedings payment of debts and distribution of the remainder among those entitled
amounting to P50,000.00 is a reasonable and necessary business thereto. Thus, the notarial fee of P60,753 incurred for the
expense deductible from the gross estate of the decedent. Extrajudicial Settlement should be allowed as a deduction from the
gross estate.
5. Attorneys' and guardians' fees incurred in a trustee's accounting of a
taxable inter vivos trust attributable to the usual issues involved in such
an accounting was held to be proper deductions because these are
expenses incurred in terminating an inter vivos trust that was
08. De Guzman v. De Guzman-Carillo (MR)
includible in the decedent's estate. Attorney's fees are allowable GR No. L.-29276
deductions if incurred for the settlement of the estate. It is noteworthy to May 18, 1978
point that PNB was appointed the guardian over the assets of the Aquino, J.
deceased. Necessarily the assets of the deceased formed part of his
gross estate. Accordingly, all expenses incurred in relation to the estate Petitioner: Testate Estate of the Late Felix J. de Guzman. VICTORINO G. DE
of the deceased will be deductible for estate tax purposes provided GUZMAN, administrator-appellee
these are necessary and ordinary expenses for administration of the
Respondent: CRISPINA DE GUZMAN- CARILLO, ARSENIO DE GUZMAN and
settlement of the estate.
HONORA T A DE GUZMAN-MENDIOLA, oppositors-appellants
6. Although the Tax Code specifies "judicial expenses of the testamentary Facts
or intestate proceedings," there is no reason why expenses incurred in
the administration and settlement of an estate in extrajudicial Deceased testator was survived by 8 children and his will was probated
proceedings should not be allowed. However, deduction is limited to Letter of administration were issued to his son Doc Victorino pursuant to
such administration expenses as are actually and necessarily an order of the court in a special proceeding
incurred in the collection of the assets of the estate, payment of
the debts, and distribution of the remainder among those entitled
16
One of the properties left was a residential house, adjudicated to the 8 I. expenses for the renovation and improvement of the family home
children pro-indiviso, each being given a 1/8 share
The project of partition was signed by all children and approved by court includes repair of terrace and interior, bathroom, fence
order dated April 14, 1967, but subject to the outcome of the instant according   the   oppositors   they’re   not   necessary   expenses of
accounting incident: administration, as clarified in the Lizarraga case: administration
o Administrator (Victorino) submitted 4 accounting reports for expenses should be those which are necessary for the management of
June 1974-September 1967 the estate, for protecting it against destruction or deterioration, and,
o 3 heirs interposed objections to his disbursements, which possibly, for the production of fruits. They are expenses entailed for the
breakdown consists of: expenses for the improvement and preservation and productivity of the estate and its management for
renovation of the house, living expenses of Librada de purposes of liquidation, payment of debts, and distribution of the residue
Guzman while occupying the home without paying rent and among the persons entitled thereto.
other expenses (which will be mentioned more specifically in SC: the partition was pro-indiviso; 5 of the 8 consented to the expenses;
the ratio) they obviously redounded to the benefit of the owners—preservation of
o the probate court instructed the administrator not to make home and social standing. Thus, probate court did not err
these expenses without first seeking authority of court – such
was obtained by order. It is from that order that the oppositors
now appeal to the SC II. expenses incurred by Librada de Guzman as occupant of the house without
paying rent
Issue
Includes house help, light and water bill, gas, oil etc.
WON  the  expenses  made  by  the  administrator  were  “necessary  expenses  in  the   Probate court allowed the use of estate income for this simply because
care,   management   and   settlement   of   the   estate”—YES to some, NO to others, the occupany of that heir did not prevent the others from themselves
discusses in the ratio. The outline topic is IV of the ratio occupying also
SC: these were personal expenses, inuring only to her benefit and
Ratio should not be charged against the estate. She should shoulder these.
Trial court erred in approving these
Preliminaries

court cited important provisions. The one cited below is the only III. other expenses
important one for the ratio. But if you wanna check the others: sec. 1(c)
rule 81, sec. 8,9,10 rule 85 Includes Steno notes, representation expenses, expenses in celebration
An executor or administrator is allowed the necessary expenses in of the first death anniversary
the care, management, and settlement of the estate…   entitled to SC: all disallowed because they have nothing to do with care,
possess and manage the decedent’s  real  and  personal   estate as long management   and   settlement   of   estate.   Only   expenses   for   lawyer’s  
as it is necessary for the payment of the debts and the expenses of subsistence and gift to the physician attending to the deceased when he
administration…   accountable   for   the whole   decedent’s   estate which was still alive should be allowed
has come into his possession, with all the interest, profit, and income
thereof, and with the proceeds of so much of such estate as is sold by
him, at the price at which it was sold (Sec. 3, Rule 84; Secs. 1 and 7, IV. irrigation fee (OUTLINE TOPIC ALERT!!! ETO LANG!!!)
Rule 85, Rules of Court)
But actually, none of the provisions are important to the outline topic. Oppositors: should not be a deductible expense on the ground that it
Haha seems to be a duplication of the item of P1,320 as irrigation fee for the
same 1966-67 crop year

17
Administrator   explained   that   the   P1,320   represented   “allotments”   for   deficiency estate tax (P31.8 million as the estate tax itself, with the rest of the
irrigation fees to the 8 tenants who cultivated Intan crop and were amount being surcharges and penalties for late payment). The BIR basically
treated  as  “assumed  expenses”  deducting  from  farming  expenses  from   reduced the deductions filed beforehand, and only the amount actually paid to
the value of the net harvests the creditors, and not the amount that was due to the creditors at the time of the
SC: the explanation was not clear but it was not disputed by the death of Jose Fernandez, was allowed as a deduction.
oppositors. The sum of P1,049.58 was paid to Penaranda Irrigation
System   as   shown   by   an   OR.   It   was   included   in   the   administrator’s   The BIR denied the motion to reconsider the tax assessment, so the case was
accounting as part of farming expenses and properly allowed as elevated to the CTA, then the CA, and finally the SC.
legitimate expense of administration
Issue and Held: W/N the deductible amount of the estate can be adjusted by
post-death developments—NO.

Note: The bulk of the ratio of the case is based on an evidentiary issue. Basically,
09. Dizon v. CIR (JT) in the trials in the CTA and the CA, the BIR presented evidence that were not
April 30, 2008 formally offered, which were considered by both courts. The BIR relied on the
SC’s   ruling   in   Onate v. CA and Ramos v. Dizon, wherein the SC allowed the
Petitioner: Rafael Dizon, in his capacity as the Judicial Administrator of the evidence to be used, even if the same were not formally offered. However, in
Estate of the deceased Jose Fernandez those cases, the evidence was duly presented and marked during the pre-trial
Respondent: CTA and CIR and was thus incorporated into the records of the case. Such circumstances
were completely absent in this case, so the CTA and CA should not have
Facts considered the evidence of BIR.
Jose Fernandez died. A petition for the probate of his will was filed with the
Manila RTC, who appointed the late Supreme Court Justice Arsenio Dizon and Ratio (on the estate tax deductions):
Atty. Rafael Dizon (petitioner herein) as administrator and assistant administrator,
respectively,  of  Fernandez’s  estate.  Justice  Dizon  then  filed  an  estate  tax  return   I. Section 86 of the NIRC (then Section 79) allows as deductions from the
with the BIR Regional Office. The return showed a nil (or completely zero) estate value of the gross estate the amounts represented as claims against the
tax liability. (The gross value of the estate was estimated at P14 million, while the estate.
deductions presented amounted to P187 million.) II. To answer the question on allowable deduction (i.e. whether the
deductible amount of the estate can be adjusted by post-death
The BIR Regional Director then issued a certification, stating that the taxes due developments, such as condonation of debts), the SC turned to the
on the transfer   of   Fernandez’s   properties   had   been   fully   paid,   and   may   be   American legal system, on which the NIRC was based.
transferred to his heirs. A. There are two American theories on the issue:
1. In Propstra v. US, where a lien claimed against the estate was
Thereafter, Rafael Dizon (who at this point became the administrator at this point certain and enforceable on the date of the decedent's death,
as   Justice   Dizon   passed   away)   requested   the   probate   court’s   authority   to   sell   the fact that the claimant subsequently settled for a lesser
some   of   the   estate’s   properties   to   pay   off   Fernandez’s   creditors,   namely   amount did not preclude the estate from deducting the entire
Equitable   Bank,   Banque   de   L’Indochine,   Manila   Bank   and   State   Investment   amount of the claim for estate tax purposes. This principle is
House. The amounts paid to these creditors, however, were significantly lower called  the  “Ithaca Trust date-of-death valuation principle.”
than their respective claims. Some claims were lowered due to compromise 2. The Internal Revenue Service or IRS, on the other hand, says
agreements, while others were fully condoned. that post-death developments should be taken into
consideration,   and   that   the   creditors’   claim   should   be   allowed  
A few months later, the Assistant Commissioner of BIR issued an Estate Tax only to the extent of the amount paid
Assessment Notice, demanding the estate to pay around P66.9 million as B. Our Supreme Court affirmed the theory stated in Propstra.
18
1. Elaborating   on   the   “Ithaca Trust date-of-death valuation
principle,”   the   US   court   said   in   Propstra that the estate tax is
basically a tax imposed on the act of transferring property by
A.5. Administrative Requirements
will or intestacy.
2. Because the act on which the tax is imposed occurs at a very
distinct time (i.e. the instance of death of the decedent), the SEC. 89. Notice of Death to be Filed. - In all cases of transfers
value of the property transferred should be ascertained as of subject to tax, or where, though exempt from tax, the gross value of the estate
that time. exceeds Twenty thousand pesos (P20,000), the executor, administrator or any of
3. In addition, there is no Philippine law that disallows or the legal heirs, as the case may be, within two (2) months after the decedent's
disregards the date-of-death valuation principle. (Remember death, or within a like period after qualifying as such executor or administrator,
that tax statutes are construed strictissimi juris against the shall give a written notice thereof to the Commissioner.
taxing authority.)
4. Also,   in   our   Rules   of   Court,   the   term   “claims”   is   generally  
SEC. 90. Estate Tax Returns.
construed to consist of those debts which could have been
enforced against the deceased in his lifetime, or liability
contracted by the deceased before his death. (A) Requirements. - In all cases of transfers subject to the tax imposed
III. Thus, the claims existing at the time of death are significant to, and herein, or where, though exempt from tax, the gross value of the estate
should be made the basis of, the determination of allowable deductions. exceeds Two hundred thousand pesos (P200,000), or regardless of the
gross value of the estate, where the said estate consists of registered or
registrable property such as real property, motor vehicle, shares of
stock or other similar property for which a clearance from the Bureau of
Internal Revenue is required as a condition precedent for the transfer of
A.4. Exemptions ownership thereof in the name of the transferee, the executor, or the
administrator, or any of the legal heirs, as the case may be, shall file a
return under oath in duplicate, setting forth:
SEC. 87. Exemption of Certain Acquisitions and
Transmissions (1) The value of the gross estate of the decedent at the time of his
death, or in case of a nonresident, not a citizen of the Philippines,
The following shall not be taxed: of that part of his gross estate situated in the Philippines;
(A) The merger of usufruct in the owner of the naked title;
(2) The deductions allowed from gross estate in determining the estate
(B) The transmission or delivery of the inheritance or legacy by the fiduciary as defined in Section 86; and
heir or legatee to the fideicommissary;
(3) Such part of such information as may at the time be ascertainable
(C) The transmission from the first heir, legatee or donee in favor of another and such supplemental data as may be necessary to establish the
beneficiary, in accordance with the desire of the predecessor; and correct taxes.

(D) All bequests, devises, legacies or transfers to social welfare, cultural Provided, however, That estate tax returns showing a gross value
and charitable institutions, no part of the net income of which insures to exceeding Two million pesos (P2,000,000) shall be supported with
the benefit of any individual: Provided, however, That not more than a statement duly certified to by a Certified Public Accountant
thirty percent (30%) of the said bequests, devises, legacies or transfers containing the following:
shall be used by such institutions for administration purposes.

19
(a) Itemized assets of the decedent with their corresponding respect of which the extension is granted shall be paid on or before the
gross value at the time of his death, or in the case of a date of the expiration of the period of the extension, and the running of
nonresident, not a citizen of the Philippines, of that part of the Statute of Limitations for assessment as provided in Section 203 of
his gross estate situated in the Philippines; this Code shall be suspended for the period of any such extension.

(b) Itemized deductions from gross estate allowed in Section Where the taxes are assessed by reason of negligence, intentional
86; and disregard of rules and regulations, or fraud on the part of the taxpayer,
no extension will be granted by the Commissioner.
(c) The amount of tax due whether paid or still due and
outstanding. If an extension is granted, the Commissioner may require the executor,
or administrator, or beneficiary, as the case may be, to furnish a bond in
(B) Time for filing. - For the purpose of determining the estate tax provided such amount, not exceeding double the amount of the tax and with such
for in Section 84 of this Code, the estate tax return required under the sureties as the Commissioner deems necessary, conditioned upon the
preceding Subsection (A) shall be filed within six (6) months from the payment of the said tax in accordance with the terms of the extension.
decedent's death.
(C) Liability for Payment - The estate tax imposed by Section 84 shall be
A certified copy of the schedule of partition and the order of the court
paid by the executor or administrator before delivery to any beneficiary
approving the same shall be furnished the Commissioner within thirty
of his distributive share of the estate. Such beneficiary shall to the
(30) after the promulgation of such order.
extent of his distributive share of the estate, be subsidiarily liable for the
payment of such portion of the estate tax as his distributive share bears
(C) Extension of Time. - The Commissioner shall have authority to grant,
to the value of the total net estate.
in meritorious cases, a reasonable extension not exceeding thirty (30)
days for filing the return.
(D) For the purpose of this Chapter, the term 'executor' or 'administrator'
means the executor or administrator of the decedent, or if there is no
(D) Place of Filing. - Except in cases where the Commissioner otherwise
executor or administrator appointed, qualified, and acting within the
permits, the return required under Subsection (A) shall be filed with an
Philippines, then any person in actual or constructive possession of any
authorized agent bank, or Revenue District Officer, Collection Officer, or
property of the decedent.
duly authorized Treasurer of the city or municipality in which the
decedent was domiciled at the time of his death or if there be no legal
residence in the Philippines, with the Office of the Commissioner. SEC. 92. Discharge of Executor or Administrator from
Personal Liability. - If the executor or administrator makes a written
SEC. 91. Payment of Tax. – application to the Commissioner for determination of the amount of the estate tax
and discharge from personal liability therefore, the Commissioner (as soon as
(A) Time of Payment. - The estate tax imposed by Section 84 shall be paid possible, and in any event within one (1) year after the making of such
at the time the return is filed by the executor, administrator or the heirs. application, or if the application is made before the return is filed, then within one
(1) year after the return is filed, but not after the expiration of the period
(B) Extension of Time. - When the Commissioner finds that the payment prescribed for the assessment of the tax in Section 203 shall not notify the
on the due date of the estate tax or of any part thereof would impose executor or administrator of the amount of the tax. The executor or administrator,
undue hardship upon the estate or any of the heirs, he may extend the upon payment of the amount of which he is notified, shall be discharged from
time for payment of such tax or any part thereof not to exceed five (5) personal liability for any deficiency in the tax thereafter found to be due and shall
years, in case the estate is settled through the courts, or two (2) years in be entitled to a receipt or writing showing such discharge.
case the estate is settled extrajudicially. In such case, the amount in

20
SEC. 93. Definition of Deficiency. - As used in this Chapter, the the Commissioner that the tax fixed in this Chapter had been paid is shown; but
term 'deficiency' means: he may pay the executor or judicial administrator without said certification if the
credit is included in the inventory of the estate of the deceased.

(a) The amount by which the tax imposed by this Chapter exceeds the
amount shown as the tax by the executor, administrator or any of the SEC. 96. Restitution of Tax Upon Satisfaction of
heirs upon his return; but the amounts so shown on the return shall first Outstanding Obligations. - If after the payment of the estate tax, new
be increased by the amounts previously assessed (or collected without obligations of the decedent shall appear, and the persons interested shall have
assessment) as a deficiency and decreased by the amount previously satisfied them by order of the court, they shall have a right to the restitution of the
abated, refunded or otherwise repaid in respect of such tax; or proportional part of the tax paid.

(b) If no amount is shown as the tax by the executor, administrator or any of


the heirs upon his return, or if no return is made by the executor, SEC. 97. Payment of Tax Antecedent to the Transfer of
administrator, or any heir, then the amount by which the tax exceeds the Shares, Bonds or Rights. - There shall not be transferred to any new
amounts previously assessed (or collected without assessment) as a owner in the books of any corporation, sociedad anonima, partnership, business,
deficiency; but such amounts previously assessed or collected without or industry organized or established in the Philippines any share, obligation, bond
assessment shall first be decreased by the amounts previously abated, or right by way of gift inter vivos or mortis causa, legacy or inheritance, unless a
refunded or otherwise repaid in respect of such tax. certification from the Commissioner that the taxes fixed in this Title and due
thereon have been paid is shown.
SEC. 94. Payment before Delivery by Executor or
If a bank has knowledge of the death of a person, who maintained a bank deposit
Administrator. - No judge shall authorize the executor or judicial
account alone, or jointly with another, it shall not allow any withdrawal from the
administrator to deliver a distributive share to any party interested in the estate
said deposit account, unless the Commissioner has certified that the taxes
unless a certification from the Commissioner that the estate tax has been paid is
imposed thereon by this Title have been paid: Provided, however, That the
shown.
administrator of the estate or any one (1) of the heirs of the decedent may, upon
authorization by the Commissioner, withdraw an amount not exceeding Twenty
SEC. 95. Duties of Certain Officers and Debtors. - Registers thousand pesos (P20,000) without the said certification. For this purpose, all
of Deeds shall not register in the Registry of Property any document transferring withdrawal slips shall contain a statement to the effect that all of the joint
real property or real rights therein or any chattel mortgage, by way of gifts inter depositors are still living at the time of withdrawal by any one of the joint
vivos or mortis causa, legacy or inheritance, unless a certification from the depositors and such statement shall be under oath by the said depositors.
Commissioner that the tax fixed in this Title and actually due thereon had been
paid is show, and they shall immediately notify the Commissioner, Regional 10. Government v. Pamintuan (AD)
Director, Revenue District Officer, or Revenue Collection Officer or Treasurer of G.R. No. L-33139 | October 11, 1930
the city or municipality where their offices are located, of the non payment of the The Government of the Philippine Islands, plaintiff-appellants
tax discovered by them. Any lawyer, notary public, or any government officer who, Jose Ma. Pamintuan, et al., defendants-appellees.
by reason of his official duties, intervenes in the preparation or acknowledgment
of documents regarding partition or disposal of donation intervivos or mortis *Simple case lang. After your first reading, you can just read the bold parts for
causa, legacy or inheritance, shall have the duty of furnishing the Commissioner, review.
Regional Director, Revenue District Officer or Revenue Collection Officer of the
place where he may have his principal office, with copies of such documents and FACTS:
any information whatsoever which may facilitate the collection of the In 1920, Florentino Pamintuan, represented by J. V. Ramirez or his
aforementioned tax. Neither shall a debtor of the deceased pay his debts to the attorney-in-fact, filed income-tax return for the year 1919, paying the
heirs, legatee, executor or administrator of his creditor, unless the certification of

21
amount of P 672 and the additional sum of P151.01 as a result of a
subsequent assessment received from the CIR ISSUE: W/N the lower court erred in holding that the failure of the plaintiff to file
In 1925, Florentino Pamintuan died in Washington, D. C., U. S. A., its claim with the committee on claims and appraisals barred it from collecting the
leaving the defendants herein as his heirs. tax in questions in this action.
Intestate proceedings were instituted in the Court of First Instance of
Manila HELD: Yes
The CFI of Manila appointed commissioners for the appraisal of the
property left by the deceased Pamintuan. RATIO:
That the said committee, after the publications of the notices required by This court held in Pineda vs. Court of First Instance of Tayabas and
law, held the necessary sessions in accordance with said notices for the Collector of Internal Revenue
presentation and determination of all claims and credits against the o “the  clear  weight  of  judicial  authority  is  to  the  effect  that  claims
estate of the deceased Pamintuan. for taxes and assessments, whether assessed before or after
The committee rendered its report which was duly approved by the the death of the decedent, are not required to be presented
court, and in which report it appears that the only claims presented and to  the  committee”
that were approved were those of Tomasa Centeno, Jose, Paz, Caridad, The administration proceedings of the late Florentino Pamintuan having
and Natividad Pamintuan and Cavanna, Aboitiz and Agan (and no been closed, and his estate distributed among his heirs, the
claim from the Government of the Philippines). defendants herein, they are responsible for the payment of the
The duly appointed judicial administrator of the estate of the deceased income tax here in question in proportion to the share of each in
Florentino Pamintuan presented a proposed partition of the said estate, in accordance with section 731 of the Code of Civil
decedent's estate which was approved by the court, the court Procedure, and the doctrine of this court laid down in Lopez vs.
ordering the delivery to the heirs, the defendants herein, of their Enriquez:
respective shares of the inheritance after paying the corresponding o ESTATE; LIABILITY OF HEIRS AND DISTRIBUTEES. —
inheritance taxes which were duly paid in the amount of P25,047.19 as Heirs are not required to respond with their own property for
appears on the official receipt No. 4421361. the debts of their deceased ancestors. But even after the
The intestate proceedings were definitely closed on October 27, partition of an estate, heirs and distributees are liable
1926, by order of the court of the same date. individually for the payment of all lawful outstanding
Subsequent to the distribution of the decedent's estate to the claims against the estate in proportion to the amount or
defendants herein, in 1927, the the Government of the Philippines value of the property they have respectively received from
discovered the fact that the deceased Florentino Pamintuan has the estate. The hereditary property consists only of that part
not paid P462 as additional income tax and surcharge for the which remains after the settlement of all lawful claims against
calendar year 1919, on account of the sale made by him on the estate, for the settlement of which the entire estate is first
November 14, 1919, of his house and lot located in Manila, from liable. The heirs cannot, by any act of their own or by
which sale he realized a net profit or income of P11,000, which was not agreement among themselves, reduce the creditors' security
included in his income-tax return filed for said year 1919. for the payment of their claims.
The defendants cannot disprove that the deceased Florentino For the reasons stated, we are of opinion and so hold that claims for
Pamintuan made a profit of P11,000 in the sale of the house because income taxes need not be filed with the committee on claims and
they have destroyed the voluminous records and evidences regarding appraisals appointed in the course of testate proceedings and may
the sale in question and other similar transactions and other expenses be collected even after the distribution of the decedent's estate
tending to reduce the profit obtained as mentioned above. among his heirs, who shall be liable therefor in proportion to their
share in the inheritance.
Demand for the payment of the income tax referred to herein was made
on February 24, 1927, on the defendants but they refused and still
refuse to pay the same either in full or in part.

22
11. CIR v. Pineda (RS) October 19, 1953, more than five years from the date
GR No. L-22734, September 15, 1967 the return was filed; hence, the right to assess income
Petitioner: Commissioner of Internal Revenue (CIR) tax for 1947 had prescribed.
Respondent: Manuel Pineda (Manuel, for brevity), as one of the heirs of Accordingly, SC remanded the case to the CTA for further proceedings.
deceased Anastasio Pineda (Anastasio, for brevity) In the CTA, no further evidence was presented.
11/29/1963 – CTA held Manuel liable for the payment corresponding
LAW: in-text to his share (only his portion) of the deficiency taxes.
o CIR appealed to SC arguing that Manuel should be held liable
FACTS: for all the deficiency taxes assessed by the CTA (P760.28).
5/23/1945 – Anastasio died, survived by wife, Felicisima Bagtas, and 15 Manuel opposed: he should be liable only for the
children, the eldest of whom is Manuel, a lawyer. unpaid IT due the estate only up to his share
o Estate proceedings in the CFI of Manila – widow was Manuel relies on Government of the Philippine
appointed administratrix. Islands v. Pamintuan: SC   held   that   “after   the  
o Estate was divided and awarded to the heirs. partition of an estate, heirs and distributees are liable
o 6/8/1948 – proceedings were terminated. individually for the payment of all lawful outstanding
o Manuel’s   share   – P2,500.00 (two thousand five hundred claims against the estate in proportion to the amount
pesos) or value of the property they have respectively
After the estate proceedings were closed, the Bureau of Internal received  from  the  estate.”
Revenue (BIR) investigated the income tax (IT) liability of the estate for
the years 1945-1948; it found that the corresponding returns were not ISSUE: Whether Manuel should be held liable for the whole deficiency tax, and
filed. not just for his corresponding share in the estate of his father.
o Representative of the CIR filed said returns for the estate on
the basis of info acquired from the estate proceedings; the HELD: Government can require Manuel to pay the full amount of the deficiency
estate was assessed deficiency taxes. tax.
Manuel received the assessment; he contested it. Subsequently, he
appealed to the Court of Tax Appeals (CTA), alleging that he was RATIO:
appealing   “only   that   proportionate   part   or   portion   pertaining to him as Pineda is liable for the assessment as an heir and as a holder-
one  of  the  heirs.”   transferee of property belonging to the estate/ taxpayer (Note:
CTA   reversed   the   CIR’s   decision.   Ground:   CIR’s   right   to   assess   has   differentiate!).
already prescribed. o As an heir he is individually answerable for the part of the tax
o CIR appealed. proportionate to the share he received from the inheritance.
o SC affirmed the findings of the CTA in respect to the His liability [as an heir], however, cannot exceed the amount of
assessment for income tax for the year 1947 but held that the his share.
right to assess and collect the taxes for 1945 and 1946 has not o As a holder of property belonging to the estate, Pineda is
prescribed. liable for the tax up to the amount of the property in his
For 1945 and 1946, the returns were filed on August possession.
24, 1953; assessments for both taxable years were Reason:   Gov’t   has   a   lien   on   the   P2,500.00,   which  
made within five years therefrom or on October 19, Manuel received from the estate as his share in the
1953; and the action to collect the tax was filed within inheritance, for unpaid IT for which said estate is
five years from the latter date, on August 7, 1957. liable, pursuant to the last paragraph of Section 315
For taxable year 1947, however, the return was filed of the Tax Code, which states:
on March 1, 1948; the assessment was made on

23
“If  any  person,  corporation,  partnership,  joint- Petitioner: COMMISSIONER OF INTERNAL REVENUE
account (cuenta en participation), Respondents: LILIA YUSAY GONZALES and THE COURT OF TAX APPEALS
association, or insurance company liable to
pay the income tax, neglects or refuses to Facts:
pay the same after demand, the amount Matias Yusay, a resident of Pototan, Iloilo, died intestate on May 13, 1948,
leaving two heirs, namely, Jose S. Yusay (Jose), a legitimate child, and Lilia
shall be a lien in favor of the Government of
Yusay Gonzales (Lilia), an acknowledged natural child. Intestate proceedings
the Philippines from the time when the
for the settlement of his estate were instituted in the Court of First Instance of
assessment was made by the Commissioner
Iloilo
of Internal Revenue until paid with interest, Jose was therein appointed administrator.
penalties, and costs that may accrue in On May 11, 1949 Jose filed with the Bureau of Internal Revenue an estate and
addition thereto upon all property and rights inheritance tax return declaring therein the following properties:
to property belonging to the taxpayer:  x  x  x”  
By   virtue   of   such   lien,   the   Gov’t   can   subject  
the   whole   property   in   Manuel’s   possession   Personal properties
(i.e., P2,500) to satisfy the IT assessment in
Palay P6,444.00
the sum of P760.28.
Carabaos 1,000.00 P7,444.00
After such payment, Pineda will have a right of
contribution from his co- heirs, to achieve an Real properties:
adjustment of the proper share of each heir in the Capital, 74 parcels )
distributable estate.
Government has two ways of collecting the tax in question. Conjugal 19 parcels) assessed at P179,760.00
1. by going after all the heirs and collecting from each one of them
the amount of the tax proportionate to the inheritance received. Total gross estate P187,204.00
(used in Gov’t  v.  Pamintuan, supra) The return mentioned no heir.
2. by subjecting said property of the estate which is in the hands of The fair market value of the real properties was computed by increasing the
an heir or transferee to the payment of the tax due the estate. assessed value by forty percent.
(used in this case) Based on the above findings, the Bureau of Internal Revenue assessed on
The BIR should be given the necessary discretion to avail itself October 29, 1953 estate and inheritance taxes in the sums of P6,849.78 and
of the most expeditious way to collect the tax as may be P16,970.63, respectively.
envisioned in the particular provision of the Tax Code above Later on BIR increased this assessment and added delinquency interest
quoted, because taxes are the lifeblood of government and Upon investigation however the Bureau of Internal Revenue found the
following properties:
their prompt and certain availability is an imperious need

Personal properties:
12. CIR v. Gonzales (HV)
Palay P6,444.00
Topic: Administrative Requirements
Carabaos 1,500.00
Relevant Laws: Sec. 89-97 NIRC
Packard Automobile 2,000.00
2 Aparadors 500.00 P10,444.00
G.R. No. L-19495
November 24, 1966
Real properties:
BENGZON, J.P., J.:
Capital, 25 parcels assessed at P87,715.32

24
The Commissioner of Internal Revenue filed a proof of claim for the estate and
1/2 of Conjugal, 130 parcels assessed at P121,425.00 P209,140.32
inheritance taxes due and a motion for its allowance with the settlement court
Total P219,584.32 in voting priority of lien pursuant to Section 315 of the Tax Code.
Lilia alleged non-receipt of the assessment
The fair market value of the real properties was computed by increasing the Lilia also disputed the legality of the assessment. She claimed that the right to
assessed value by forty percent make the same had prescribed inasmuch as more than five years had elapsed
Jose requested extension of time to pay the tax by posting a surety bond. since the filing of the estate and inheritance tax return on May 11, 1949
BIR denied the request and issued a warrant of distraint and levy which he BIR   rejected   Lilia’s   disposition   that   (1)   that   the   right   to   assess   the   taxes   in  
transmitted to the Municipal Treasurer of Pototan for execution. This warrant question has not been lost by prescription since the return which did not
was not enforced because all the personal properties subject to distraint were name the heirs cannot be considered a true and complete return sufficient to
located in Iloilo City. start the running of the period of limitations of five years under Section 331
The Provincial Treasurer of Iloilo requested the BIR Provincial Revenue Officer of the Tax Code and pursuant to Section 332 of the same Code he has ten
to furnish him copies of the assessment notices to support a motion for years within which to make the assessment counted from the discovery on
payment of taxes which the Provincial Fiscal would file in CFI Iloilo. September 24, 1953 of the identity of the heirs; and (2) that the estate's
The records do not however show whether the Provincial Fiscal filed a claim administrator waived the defense of prescription when he filed a surety bond
with the Court of First Instance for the taxes due. on March 3, 1955 to guarantee payment of the taxes in question and when
Internal Revenue Commissioner caused the estate of Matias Yusay to be he requested postponement of the payment of the taxes pending
reinvestigated for estate and inheritance tax liability issuing the following determination of who the heirs are by the settlement court.
assessment: CTA ruled in favor of Lilia
Estate tax P16,246.04
Issues:
5% surcharge 411.29 2. Was the petition for review in the Court of Tax Appeals within the 30-day
period provided for in Section 11 of Republic Act 1125? YES
Delinquency interest 11,868.90 3. Lilia Yusay's cause seeks to resist the legality of the assessment in question.
Should she maintain it in the settlement court or should she elevate her cause
Compromise to the Court of Tax Appeals? Appealing to CTA
No notice of death P15.00 4. Has the right of the Commissioner of Internal Revenue to assess the estate
Late payment 40.00 55.00 and inheritance taxes in question prescribed? NO

Total P28,581.23 Held:


Petition DISMISSED.
Inheritance Tax P38,178.12 Decision of lower court REVERSED.

5% surcharge 1,105.86 Ratio:


1. The counting of the thirty days within which to institute an appeal in the
Delinquency interest 28,808.75 Court of Tax Appeals should commence from the date of receipt of the
decision of the Commissioner on the disputed assessment, not from the date
Compromise for late payment 50.00 the assessment was issued. Accordingly, the thirty-day period should begin
running from March 14, 1960, the date Lilia Yusay received the appealable
Total P69,142.73 decision. From said date to April 13, 1960, when she filed her appeal in the
Court of Tax Appeals, is exactly thirty days. Hence, the appeal was timely.
Total estate and inheritance taxes P97,723.96 2. Lilia acted correctly by appealing to the latter court. An action involving a
disputed assessment for internal revenue taxes falls within the exclusive
The widower received the assessment and still made no payments despite
jurisdiction of the Court of Tax Appeals. An action involving a disputed
repeated demands.
assessment for internal revenue taxes falls within the exclusive jurisdiction of
the Court of Tax Appeals. It is in that forum, to the exclusion of the Court of

25
First Instance, where she could ventilate her defenses against the assessment. taxes filed in the settlement court (Court of First Instance of Iloilo),
Moreover, the settlement court, where the Commissioner would wish Lilia suffice it to state that it would be unjust to the taxpayer if We were to
Yusay to contest the assessment, is of limited jurisdiction. And under the Rules, sustain such a view. The Court of First Instance acting as a settlement
its authority relates only to matters having to do with the settlement of court is not the proper tribunal to pass upon such defense, therefore it
estates and probate of wills of deceased persons. Said court has no jurisdiction would be but futile to raise it therein. Moreover, the Tax Code does not
to adjudicate the contentions in question, which — assuming they do not bar the right to contest the legality of the tax after a taxpayer pays it.
come exclusively under the Tax Court's cognizance — must be submitted to Under Section 306 thereof, he can pay the tax and claim a refund
the Court of First Instance in the exercise of its general jurisdiction. therefor. A fortiori his willingness to pay the tax is no waiver to raise
3. In a case where the return was made on the wrong form, the Supreme Court defenses against the tax's legality.
of the United States held that the filing thereof did not start the running of
the period of limitations. The Commissioner claims that fraud attended the Evidently the estate return filed is defective.
filing of the return; that this being so, Section 332(a) of the Tax Code would *First, it was incomplete. It declared only ninety-three parcels of land representing
apply. It may be well to note that the assessment letter itself did not impute about 400 hectares and left out ninety-two parcels covering 503 hectares.
fraud in the return with intent to evade payment of tax. Fraud is a question of *Second, the return mentioned no heir. Thus, no inheritance tax could be assessed. As a
fact. As the court a quo found that no fraud was alleged and proved therein. matter of law, on the basis of the return, there would be no occasion for the imposition
of estate and inheritance taxes. When there is no heir - the return showed none - the
Paragraph (a) of Section 93 of the Tax Code lists the requirements of a valid intestate estate is escheated to the State.
return. It states:
A return need not be complete in all particulars. It is sufficient if it complies
(a) Requirements.—In all cases of inheritance or transfers subject to either the substantially with the law. There is substantial compliance (1) when the return is
estate tax or the inheritance tax, or both, or where, though exempt from both made in good faith and is not false or fraudulent; (2) when it covers the entire period
taxes, the gross value of the estate exceeds three thousand pesos, the executor, involved; and (3) when it contains information as to the various items of income,
administrator, or anyone of the heirs, as the case may be, shall file a return under deduction and credit with such definiteness as to permit the computation and
oath in duplicate, setting forth (1) the value of the gross estate of the decedent at assessment of the tax.
the time of his death, or, in case of a nonresident not a citizen of the Philippines ;
(2) the deductions allowed from gross estate in determining net estate as defined
in section eighty-nine; (3) such part of such information as may at the time be
ascertainable and such supplemental data as may be necessary to establish the
correct taxes.

A return need not be complete in all particulars. It is sufficient if it complies


substantially with the law. There is substantial compliance (1) when the return is
made in good faith and is not false or fraudulent; (2) when it covers the entire
period involved; and (3) when it contains information as to the various items of
income, deduction and credit with such definiteness as to permit the computation
and assessment of the tax.

SEC. 332. Exceptions as to period of limitation of assessment and collection of


taxes.— (a) In the case of a false or fraudulent return with intent to evade tax or of
a failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten
years after the discovery of the falsity, fraud or omission.

Anent the Commissioner's contention that Lilia Yusay is estopped from


raising the defense of prescription because she failed to raise the same in
her answer to the motion for allowance of claim and for the payment of

26
TAXATION LAW 2 3,000,000 5,000,000 204,000 10% 3,000,000
DIGESTS AND PROVISIONS COMPILATION
5,000,000 10,000,000 404,000 12% 5,000,000

B.  DONOR’S  TAX 10,000,000 1,004,000 15% 10,000,000

B.1. General Principles/Determination of the Donor’s Tax


(B) Tax Payable by Donor if Donee is a Stranger. - When the donee or
beneficiary is stranger, the tax payable by the donor shall be thirty
SEC. 98. Imposition of Tax. –
percent (30%) of the net gifts. For the purpose of this tax, a 'stranger,' is
a person who is not a:
(A) There shall be levied, assessed, collected and paid upon the transfer
by any person, resident or nonresident, of the property by gift, a tax, (1) Brother, sister (whether by whole or half-blood), spouse, ancestor
computed as provided in Section 99. and lineal descendant; or

(B) The tax shall apply whether the transfer is in trust or otherwise, whether
(2) Relative by consanguinity in the collateral line within the fourth
the gift is direct or indirect, and whether the property is real or personal,
degree of relationship.
tangible or intangible.

(C) Any contribution in cash or in kind to any candidate, political party or


SEC. 99. Rates of Tax Payable by Donor. – coalition of parties for campaign purposes shall be governed by the
Election Code, as amende
(A) In General. - The tax for each calendar year shall be computed on the
basis of the total net gifts made during the calendar year in accordance SEC. 100. Transfer for Less Than Adequate and full
with the following schedule:
Consideration. - Where property, other than real property referred to in
Section 24(D), is transferred for less than an adequate and full consideration in
If the net gift is:
money or money's worth, then the amount by which the fair market value of the
property exceeded the value of the consideration shall, for the purpose of the tax
Over But Not Over The Tax Plus Of the Excess imposed by this Chapter, be deemed a gift, and shall be included in computing
Shall be Over the amount of gifts made during the calendar year.

P 100,000 Exempt SEC. 102. Valuation of Gifts Made in Property. - If the gift is
made in property, the fair market value thereof at the time of the gift shall be
P 100,000 200,000 0 2% P100,000
considered the amount of the gift. In case of real property, the provisions of
Section 88(B) shall apply to the valuation thereof.
200,000 500,000 2,000 4% 200,000

500,000 1,000,000 14,000 6% 500,000 SEC. 104. Definitions. - For purposes of this Title, the terms 'gross
estate' and 'gifts' include real and personal property, whether tangible or
1,000,000 3,000,000 44,000 8% 1,000,000 intangible, or mixed, wherever situated: Provided, however, That where the
decedent or donor was a nonresident alien at the time of his death or donation,

1
as the case may be, his real and personal property so transferred but which are Facts:
situated outside the Philippines shall not be included as part of his 'gross Spouses Diego and Catalina Danlag were the owners of 6 parcels of
estate' or 'gross gift': Provided, further, That franchise which must be exercised unregistered land. They executed 3 deeds of donation mortis causa,
in the Philippines; shares, obligations or bonds issued by any corporation or involving parcels 1,2,3&4 dated March 4, 1965 and October 13, 1966 in
sociedad anonima organized or constituted in the Philippines in accordance with favor of Mercedes Pilapil.
its laws; shares, obligations or bonds by any foreign corporation eighty-five All deed contained reservation of the rights of the donors:
percent (85%) of the business of which is located in the Philippines; shares, o To amend, cancel or revoke the donation during their lifetime,
obligations or bonds issued by any foreign corporation if such shares, obligations and
or bonds have acquired a business situs in the Philippines; shares or rights in o To sell, mortgage, or encumber the properties donated during
any partnership, business or industry established in the Philippines, shall be the  donors’  lifetime,  if  deemed  necessary
considered as situated in the Philippines: Provided, still further, that no tax shall 1973  (Donation  Inter  Vivos):  Diego,  with  his  wife’s  consent,  executed  a  
be collected under this Title in respect of intangible personal property: (a) if the deed of donation inter vivos covering the same parcels of land plus 2
decedent at the time of his death or the donor at the time of the donation was a other parcels of land again in favor of Mercedes.
citizen and resident of a foreign country which at the time of his death or donation The deed contained two conditions:
did not impose a transfer tax of any character, in respect of intangible personal o Danlag spouses shall continue to enjoy the fruits of the land
property of citizens of the Philippines not residing in that foreign country, or (b) if during their lifetime, and
the laws of the foreign country of which the decedent or donor was a citizen and o The donee cannot sell or dispose the land during the lifetime
resident at the time of his death or donation allows a similar exemption from of the said spouses, without their prior consent and
transfer or death taxes of every character or description in respect of intangible approval.
personal property owned by citizens of the Philippines not residing in that foreign 1978 (Sale, Revocation): Spouses Danlag sold parcels 3&4 to
country. Spouses Gestopa. Subsequently, the Danlags executed a deed of
revocation recovering the 6 parcels of land subject of the deed of
The term 'deficiency' means: (a) the amount by which tax imposed by this donation inter vivos.
Chapter exceeds the amount shown as the tax by the donor upon his return; but 1983: Mercedes filed with the RTC a petition against the Gestopas and
the amount so shown on the return shall first be increased by the amount Danlags for quieting of title. She alleged that she was an illegitimate
previously assessed (or Collected without assessment) as a deficiency, and daughter of Diego and the latter executed a Deed of Donation
decreased by the amounts previously abated, refunded or otherwise repaid in conveying to her the 6 parcels of land in recognition of the services she
respect of such tax, or (b) if no amount is shown as the tax by the donor, then the rendered. Moreover, she accepted the donation, and openly and
amount by which the tax exceeds the amounts previously assessed, (or collected publicly exercised rights of ownership over the donated properties, and
without assessment) as a deficiency, but such amounts previously assessed, or caused the transfer of the tax declarations to her name.
collected without assessment, shall first be decreased by the amount previously Mercedes also added that through machination, intimidation and undue
abated, refunded or otherwise repaid in respect of such tax. influence,  Diego  persuaded  Eulalio  Pilapil  (Mercedes’  husband)  to  buy  2  
out of 6 parcels covered by the donation. Furthermore, she averred that
01. Spouses Gestopa v. CA (HQ) Diego had no legal basis in revoking the donation and then selling 2
Topic: Donor’s  Tax  [Donation Inter vivos vs. mortis causa] parcels of land to Gestopas, since Mercedes complied with the
Relevant Laws: - conditions and she had not been guilty of any act of ingratitude.
G.R. No. 111904
October 5, 2000 On the other hand, the Gestopas and Danlags averred that deed of
Quisumbing, J. donation inter vivos was null and void because it was obtained by
Mercedes through machinations and undue influence.
Petitioners: Spouses Agripino Gestopa and Isabel Silario Gestopa
Respondents: Court of Appeals and Mercedes Danlag y Pilapil

2
Even assuming it was validly executed, the intention was for the Ratio:
donation to take effect upon the death of the donor. Further, the In ascertaining the intention of the donor,   all   of   the   deed’s   provisions  
1
donation was void for it left the donor Diego without any property at all. must be read together. The Court held that the donation was indeed
inter vivos due to the following:
RTC: rendered judgment in favor of the Gestopas and Danlags: o Love and Affection – the granting clause shows that Diego
o Declared the Donations mortis causa and inter vivos as donated the properties out of love and affection for the donee,
revoked, hence no legal effect which is a mark of a donation inter vivos
o Declared Diego as the absolute and exclusive owner of the 6 o Reservation of Lifetime Usufruct – it indicates that the donor
parcels of land intended to transfer the naked ownership over the properties to
o Declared the Deeds of Sale between Diego and Gestopas the donee
valid and enforceable o Reservation of Sufficient Properties – indicated that the
o Ordered all tax declarations in the name of Mercedes be donor intended to with the 6 parcels of land
cancelled o Acceptance of the Donee – an acceptance clause is a mark
*In rendering the above decision, RTC found that the reservation that the donation is inter vivos. Acceptance is a requirement for
clause in all the deeds of donation indicated that Diego did not donation inter vivos, while donations mortis causa, being in the
make any donation. form of a will, are not required to be accepted by the donees
during  the  donor’s  lifetime  (Alejandro vs. Geraldez)
CA:  reversed  RTC’s  decision,  ruled  in  favor  of  Mercedes
o Declared the deed of donation inter vivos remains in full force The attending circumstances in the execution of the subject
and effect donation also demonstrated the real intent of the donor to transfer
o Declared Revocation of donation null and void the ownership over the subject properties upon its execution.
o Declared Mercedes as the absolute and exclusive owner of the Prior to the execution of donation inter vivos, the Danlag spouses
6 parcels of land already executed three donations mortis causa hence they were aware
o Declared the Deed of Sale not validly executed, hence null and of the difference between the two donations. If they did not intend to
void
o Ordered Spouses Gestopa to reconvey the parcels of land to
Mercedes within 30 days from finality of judgment.
1
*CA held that the reservation by the donor of lifetime usufruct Deed of Donation:
"That for and in consideration of the love and affection which the Donor inspires in the
indicated the he transferred to Mercedes the ownership over
Donee and as an act of liberality and generosity, the Donor hereby gives, donates, transfer
the donated properties; that the right to sell belonged to the
and conveys by way of donation unto the herein Donee, her heirs, assigns and successors,
donee   and   donor’s   right   referred   to   that   of   merely   giving   consent;;   the above-described parcels of land;
that the donor changed his intention by donating inter vivos
properties already donated mortis causa That it is the condition of this donation that the Donor shall continue to enjoy all the
Issues: fruits of the land during his lifetime and that of his spouse and that the donee cannot
1. Whether the donation was inter vivos or mortis causa – INTER VIVOS sell or otherwise, dispose of the lands without the prior consent and approval by the
Donor and her spouse during their lifetime.
xxx
Held:
That for the same purpose as hereinbefore stated, the Donor further states that he has
Petition DENIED. reserved for himself sufficient properties in full ownership or in usufruct enough for his
Decision of CA AFFIRMED. maintenance of a decent livelihood in consonance with his standing in society.

That the Donee hereby accepts the donation and expresses her thanks and gratitude for
the kindness and generosity of the Donor."

3
donate inter vivos, they would not again donate the four lots already Facts:
donated mortis causa. Li Seng Giap, his wife Tang Ho, and their thirteen children appear to be
Gestopas  cannot  also  use  the  deed  of  revocation  to  show  the  Danlag’s   the stockholder of two close family corporations.
intent since its validity is one of the issues in this case. BIR made an examination of the books of the two corporation and found
that each of Li Seng Giap's 13 children had a total investment therein of
Other Matter: Was the revocation valid? No. A valid donation, once approximately P63,195.00, in shares issued to them by their father Li
accepted, becomes irrevocable, except on account of officiousness, Seng Giap.
failure by the donee to comply with the charges imposed in the The CIR regarded these transfers as undeclared gifts and assessed
donation, or ingratitude. against Li Seng Giap and his children donor's and donee's taxes in the
The donors-spouses Danlags did not invoke any of the above reasons total amount of P76,995.31, including penalties, surcharges, interests,
in the deed of revocation. Instead, the deed only stated that although and compromise fee due to the delayed payment of the taxes.
the said donation was inter vivos, the intention of the spouses was that The heirs paid the sum of P53,434.50, representing the amount of the
of mortis causa (as shown in par. 3 of the deed to the effect that the basic taxes, and put up a surety bond to guarantee payment of the
donee cannot dispose and/or sell the properties during the lifetime of balance demanded.
the spouses). Thereafter, they requested the CIR for a revision of their tax
Further,  Gestopas  cited  Mercedes’  vehemence  in  prohibiting  the  donor   assessments, and submitted donor's and donee's gift tax returns
to gather coconut trees and her filing of instant petition for quieting of showing that the children received gifts inter vivos and proper nuptias,
title. Even assuming that Mercedes prevented the donor from gathering as follows:
coconuts, such is not considered as an act covered by Article 765 of the o Each child received by way of gift inter vivos, every year from
Civil Code (acts of ingratitude). Same thing with the filing for quieting of 1939 to 1950 (except in 1947 and 1948) P4,000 in cash;
title as she merely asserted what she believed was her right under the o Each of the eight children who married during the period
law. aforesaid, were given an additional P20,000 as dowry or gift
propter nuptias;
o Unmarried children received roughly an equivalent amount in
1949, also by way of gifts inter vivos, so that the total
02. Tang Ho v. Board of Tax Appeals (PM) donations made to each and every child, as of 1950, stood at
Topic: treatment of donation of spouses P63,190.
Relevant Laws: The heirs admit that these gifts were not reported; but contend that as
Provisions  on  donor’s  tax  in  the  Old Internal Revenue Code, Spanish Civil Code the cash donated came from the conjugal funds, they constituted
of 1889 individual donations by each of the spouses Li Seng Giap and Tang Ho
of one half of the amount received by the donees in each instance, up to
G.R. No. L-5949 a total of P31,505 to each of the thirteen children from each parent.
November 19, 1955 They further alleged that the children's stockholding in the two family
Reyes, J.B.L., J. corporations were purchased by them with savings from the aforesaid
cash donations received from their parents.
Petitioners: Tang Ho, William Lee, Henri Lee, Sofia Lee Teehankee, Thomas Tang  Ho’s  argument   - since the cash donated came from the conjugal
Lee, Anthony Lee, Julia Lee Kaw, Charles Lee, Valeriana Lee Yu, Victor Lee, funds, they are be considered as donations by BOTH spouses, for
Silvino Lee, Mary Lee, John Lee, And Peter Lee, for themselves and as Heirs of which two separate TAX exemptions may be claimed in each instance,
Li Seng Giap one for each spouse.
The Collector refused to revise his original assessments; and the heirs
Respondents: Board Of Tax Appeals and The Collector Of Internal Revenue appealed to the then Board of Tax Appeals. The Board of Tax Appeals
upheld the decision of the CIR; hence, this petition for review.

4
during its existence by the husband alone in favor of the common
Issues: children, is taxable to him exclusively as sole donor.
Whether or not the donations made by Li Seng Giap to his children from Appellants herein are therefore in error when they contend that it is
the conjugal property should be taxed against the husband alone, or enough that the property donated should belong to the conjugal
against husband and wife – against husband ALONE! partnership in order that the donation be considered and taxed as a
Whether or not petitioners should be allowed the tax deduction claimed donation of both husband and wife, even if the husband should appear
by them – NO! ONLY ONE exemption or deduction can be claimed as the sole donor. There is no blinking the fact that, under the old Civil
for every such gift. Code, to be a donation by both spouses, taxable to both, the wife must
expressly join the husband in making the gift; her participation
Held: therein cannot be implied.
Petition DENIED In the original claim for tax refund, filed with the CIR, Li Seng Giap,
Judgment appealed from AFFIRMED describes himself as "the undersigned donor" without in any way
mentioning his wife as a co-participant in the donation.
Ratio: Hence, in this case, ONLY ONE exemption or deduction can be claimed
The stock transfers from Li Seng Giap to his children were donations, as for every such gift, and not two, as claimed by the heirs.
supported by the following circumstances:
o None of the transferees appeared to possess adequate
independent means to buy the shares.
o The total of the alleged cash donations to each child is
03. Gibbs v. Collector of Internal Revenue (KF)
practically identical to the value of the shares supposedly
G.R. No. L-14166 April 28, 1962
purchased by each donee.
Plaintiff-Petitioner: Finley J. Gibbs, As Trustee For Johnson Kelley Gibbs,
o There is no evidence other than the belated sworn gift tax
Allison Defrance Gibbs, Candace Gibbs, Douglas Fletcher Gibbs, And Reginald
returns of the spouses Li Seng Giap and Ang Tang Ho, and
Kelley Gibbs
their children, appellants herein, to support their contention that
Intervenors-Petitioners: Allison J. Gibbs And Esther K. Gibbs
the shares were acquired by purchase.
Respondents: Collector Of Internal Revenue And Court Of Tax Appeals
o For the parent to donate cash to enable the donee to buy from
----------------------------
him shares of equivalent value is, for all intents and purposes,
G.R. No. L-14320 April 28, 1962
a donation of such shares to the purchaser donee.
Petitioner: Collector Of Internal Revenue
Furthermore, a written notice to the Collector of each donation of
Respondent: Finley J. Gibbs, As Trustee For Johnson Kelley Gibbs, Allison
P10,000 or more, must be given within thirty days after the donation,
Defrance Gibbs, 
Candace Gibbs, Douglas Fletcher Gibbs And Reginald Kelley
Sec. 114). On their own admission, appellants failed to file for ten
Gibbs
successive years, the corresponding returns for the alleged yearly gifts
Respondents-Intervenors: Allison J. Gibbs And Esther K. Gibbs.
of P4,000 to each child, and likewise failed to give the notices for the
P20,000 marriage gifts to each married child.
These are two (2) appeals, one by the plaintiff and the plaintiffs-intervenors and
The filing of the gift tax returns only after assessments and part
the other by the Government, from a decision of the CTA
payment of the taxes demanded by the Collector, amply justify the Tax
Board's distrust of the veracity of the appellants' belated tax returns
Facts:
Under the Civil Code of 1889, a donation by the husband, alone
1. Allison   and   Esther   Gibbs   executed   documents   entitled   “Deed   of   Sale  
does not become in law a donation by both spouses merely
and Declaration   of   Trust”   whereby   they   transferred   53,   000   Lepanto  
because it involves property of the conjugal partnership. A
Consolidated Mines shares of stock to their 5 children, in consideration
donation of property belonging to the conjugal partnership, made
of  the  sum  of  P26,  227.70  to  be  paid  “on  or  before  December  1950.”  

5
2. The market value of said 53,000 shares on September 25, 1950 was If the trustors were earnestly concerned in providing ample funds to assure
P34,980.00. the support, maintenance, care, health, higher education and travel of their
3. The  instituted  trustee  was  Allison’s  brother,  Finley  Gibb. children and the launching of their career after they had become of age, the
4. Spouses Gibb sent a letter to the CIR asking for a ruling on whether or trustors would not have really meant to require them to pay the
not gift taxes should be paid. consideration stipulated in the trust agreements.
5. CIR initially assessed the spouses a donee gift tax of P75 on each of If the intent was really that the stipulated interest be paid, the trustee could
the beneficiaries or a total of about P750 and a donor gift tax of P774.04 have authorized the trustors to sell, mortgage, hypothecate or otherwise
on each of the trustors, or P1,548.08 for both. These assessments were dispose of the stocks to raise the necessary funds.
based upon the DIFFERENCE between said market value of the shares The corpus of the trust was never totally or partially sold, hypothecated or
of stock and the stipulated consideration for transfer thereof. encumbered. Instead, after December 7, 1950, when the Central Bank
6. Subsequently, CIR revised his assessment of the donor gift tax by authorized the conversion of the shares of stock covered by the first set of
increasing it from P774.04 to P342.84 for each trustor, or a total of trust agreements from resident stocks to non-resident stocks, the
P1,685.68. The next day, the donee gift taxes were, also, increased, corresponding cash dividends and stock dividends declared by the mining
from the aforementioned total sum of P750.40 to P17,856.90. company were sent directly to the trustee in the United States, thus
7. Within the period fixed by law, said donor and donee gift taxes in the enabling the trustors to create dollar assets in the United States.
sums of P1,685.68 and P17,856.90, respectively, were paid. The compromise agreements were made with knowledge of the fact that the
Subsequently, the refund of P17,106.50, representing the difference CIR was already investigating whether the stipulated consideration was real
between the amount if the first assessment (P750.40) for donee gift or fictitious.
taxes and that of the second assessment thereof (P17,856.90) was There being no real consideration for the transfer, gift taxes should be
demanded. Their demand was denied. based on the full market value of the shares of stock at the time of the
8. Trustee Finley Gibb appealed to the Secretary of Finance and instituted respective transfer, and not merely on the difference between the said
a civil suit in the CFI for recovery of the amount. market value and the consideration stipulated in the trust agreements.
9. Spouses Gibb again, by 5 separate documents each, had created 10
additional and separate trusts, each involving 22,400 shares of stock of 2. The questions as to who shall pay any given tax and what shall be the basis
the same mining company, in favor of each of the aforementioned thereof are determined by law, the operation of which can not be affected by
beneficiaries, for the stipulated consideration of P17,430. The market the provisions of a contract to which the Government is not a party. This, of
value of said 22,400 shares was then P19,264.00 course, is without prejudice to the right, if any, of a party to the trust agreements
10. These additional deeds of trust impelled CIR to assess donor gift taxes. to demand reimbursement from the other party. But such right of reimbursement
CIR held that the gift taxes are available on the FULL MARKET VALUE is independent of, and foreign to, the right and duty of the defendant to collect the
of all the shares of stock thus placed in trust — instead of upon the taxes in the manner and under the conditions prescribed by law.
difference between said market value and the stipulated considerations.
Thus, the amounts paid under protest for the two (2) sets of trusts in Appeal by the Collector of Internal Revenue:
question aggregate P56,911.78 . CTA agreed. 1. Interest chargeable on the amounts representing the taxes in question
In support of the theory that interest is due, not only for said period of
Issue: WON CTA was correct in ruling that the gift taxes on the transfer of the extension but, also, from the fifteenth day of May of the year following
shares of stock should be based on the full market value of shares of stock (NOT that in which the trust had been constituted, defendant cites section
diff between market value and stipulated consideration) 119(b) (2) of the Tax Code, according to which:
“If  the  part  of  the  deficiency  the  time  for  payment  of  which  is  extended  is  
Held: Gift taxes on the transfer of shares should be based on the full not paid in accordance with the terms of the extension, there shall be
market value of shares of stock. collected, as a part of the taxes, interest on such unpaid amount at the
rate of one per centum a month from the date the same was originally
1. The agreements made by the parties were mere devises to avoid and evade due  until  it  is  paid.”
the payment of the corresponding gift taxes:
6
This provision applies only when the taxes are not paid within the to the children after the company shall have first settled its present
extension granted by the Collector or Commissioner of Internal bonded indebtedness. It was later modified again providing that the
Revenue. It is inapplicable to the case at bar, for the taxes involved annual interests accruing on the principal shall be paid to the heirs of
herein were paid within said extension of time Enrico.
- Mrs. Estefania Pirovano, in behalf of her children, formally accepted the
2. Interest on the sum to be refunded by the Government donation and the BOD took notice of the formal acceptance.
The matter of payment of interest on sums collected by way of taxes, Stockholders formally ratified, with certain conditions—payment   won’t  
which the Government is subsequently sentenced to refund to the be made until the bonded indebtedness be liquidated and all fees and
taxpayer, depends upon whether or not the collection of said sums is expenses deducted from the premiums. Later on though, majority of the
manifestly unwarranted. In the case at bar, it is clearly not so, in the light stockholders voted to revoke the resolution granting the donation.
of the attending circumstances. Hence, the amount refundable by the - Thus, Estefania repping the kids, brought an action for the recovery the
Government, pursuant to the decision appealed from, should draw amount with damages to the CFI, ultimately culminating in this Court.
no interest. The SC ruled there that the donation was valid and binding and ordered
De la Rama to pay. And they did.

Start of present case:


04. Pirovano v. Commissioner of Internal Revenue (MR) CIR   assessed   donees’   gift   tax   plus   surcharges,   interests   and   penalties   against  
the   appellants   and   donors’   gift   tax   against   De   la   Rama,   which   the   latter   paid.  
GR No. L-19865
Appellants  contested  CIR’s  assessment  and  made   a claim for refund, which the
July 31, 1965
CIR overruled. The petitions for review were tried jointly and the CTA held that
the  donor’s  gift  tax  was  erroneously  assessed  and  paid,  but  the  donees’  gift  tax  
Reyes, J.B.L., J.
was correctly assessed. MR denied.

Petitioners: MARIA CARLA PIROVANO, etc., et al., petitioners-appellants


Issue
Respondents: CIR
WON the assessment of donees’  gift  taxes  as  well  as  surcharge  and  interest  is  
proper—YES on both
Facts
This is a sequel to the case of Pirovano vs. De la Rama Steamship Co (96 Phil
Ratio
335).  Here’s  what  happened:
On the Assessment
- De la Rama Steamship Co., along with other Philippine and American
Appellants’  memorandum:
insurance  companies,  insured  Enrico  Pirovano’s  life,  the  latter  being  its  
- dispute  the  lower  court’s  finding  that  the  renunciation  by  De  la  Rama  of  
President and General Manager. De la Rama designated itself
its rights over the life insurance proceeds was motivated purely by
beneficiary of the policies obtained by it. Due to the Japanese
gratitude and liberality, since in the previous decision the SC ruled that
occupation, De la Rama was unable to pay the premiums on the
the transfer to the children was a remuneratory donation
policies issued by the Philippines insurers, but able to pay the American
- they contend that it was made for full and adequate compensation for
ones because it had a NY office. Enrico then died.
the valuable services of Enrico to the company, hence the donation
- After   the   liberation,   De   la   Rama’s   Board   of   Directors   adopted a
does not constitute a taxable gift under Sec. 108 NIRC
resolution setting aside Php 4 million out of the proceeds expected to be
SC:
collected from the insurance policies to give to the minor children of
- neither Spanish nor Anglo-American law considered that past services
Enrico, convertible into shares of the company. It received Php 643
rendered without relying on a coetaneous promise to be paid constituted
million from the policies. And then the BOD modified its resolution
cause or consideration that would make a conveyance anything other
renouncing  the  entire  Php  643  to  the  children,  on  the  condition  that  it’s  
than a donation
retained by the company as a loan to it at 5% interest/annum, payable

7
- Art. 726 of the CC—“When   a   person   gives   to   another   a   thing…   on   anything else. Obviously the instant case doesn’t   fall   under   the   same  
account   of   the   latter’s   merits  or   of   the  services   rendered   by   him   to   the   category)
donor,   provided   they   do   not   constitute   a   demandable   debt,…   there   is  
also  a  donation.”   On the surcharge and interest
- Records do not show that Enrico was not already fully compensated for - appellants contest that the assessment and deman were prematurely
the work that he did for the company. The fact that his services were so made; records show that they failed to file any gift tax return and failed
valuable  did  not  make  it  a  recoverable  debt.  This  was  clear  in  the  BOD’s   to pay. This situation is covered by Sec. 119(b.1 and c) and sec. 120
resolution—“out   of   gratitude…”   The   consideration   for   the  donation   was   NIRC
therefore gratitude for the services, not the services themselves - The lower found that the non-filing of the return was due to a reasonable
- Besides, whether simple or remuneratory donation, it remained a gift cause and not willful neglect so it rightfully eliminated the 25%
pursuant to Chapter 2, Title III of the NIRC surcharge as ad valorem penalty initially imposed also by the CIR
- But  the  appellants  contend  that  it  shouldn’t  be  the  entire  amount  that’s   pursuant to sec. 120 NIRC
considered a gift for the purposes of taxation, but only that part that - But the sec. 119 provisions do not allow the CIR or courts any power
constitute an excess of the amount paid as compensation. They cited not to impose surcharge and interest
Sec.   111   NIRC:   “Where   property   is   transferred   for   less   than   an  
adequate   and   full   consideration   in   money   or   money’s   worth, then the
amount by which the value of the property exceeded the value of the
B.2. Exemptions
consideration shall, for the purpose of the tax imposed by this Chapter,
be  deemed  a  gift,  x  x  x.”
- But as the Court has seen, the services were rendered long before the SEC. 101. Exemption of Certain Gifts. - The following gifts or
company ceded the value of the insurance policies to the children and donations shall be exempt from the tax provided for in this Chapter:
the cession was not a result of a bargain or mutual exchange of
promises (A) In the Case of Gifts Made by a Resident. –
- Anglo-American law treats a subsequent promise to pay for past (1) Dowries or gifts made on account of marriage and before its
services (like one to pay for improvements already made without prior celebration or within one year thereafter by parents to each of their
request from the promisor) to be nudum pactum, which is unenforceable. legitimate, recognized natural, or adopted children to the extent of
The consideration must always consist of a legal benefit to the promisee the first Ten thousand pesos (P10,000)
or some legal detriment to the promisor
- Eto   na…   as   stated   by   CJ   Griffith   of   the   SC   of   Mississippi:   “Love   and   (2) Gifts made to or for the use of the National Government or any
affection are not considerations of value—thev are not estimable in entity created by any of its agencies which is not conducted for
terms of value. Nor are sentiments of gratitude for gratuitous past profit, or to any political subdivision of the said Government; and
favors or kindnesses; nor are obligations which are merely moral. It has
been well said that if a moral obligation were alone sufficient it would (3) Gifts in favor of an educational and/or charitable, religious, cultural
remove the necessity for any consideration at all, since the fact of or social welfare corporation, institution, accredited nongovernment
making a promise  imposes,  the  moral  obligation  to  perform  it.”  – just in organization, trust or philanthrophic organization or research
case, cause he likes to ask these kinds of things sometimes institution or organization: Provided, however, That not more than
- It is of course possible that a donation or gift should impose also a thirty percent (30%) of said gifts shall be used by such donee for
burden on the donee. An example is when a parcel of land is donated administration purposes. For the purpose of the exemption, a 'non-
by A to B on the condition that B would assume the mortgage existing profit educational and/or charitable corporation, institution,
on the land. In this case the donee can demand that the gift tax be accredited nongovernment organization, trust or philanthrophic
imposed  only  the  value  of  the  land  less  the  mortgage.  (Court  didn’t  say   organization and/or research institution or organization' is a school,
college or university and/or charitable corporation, accredited

8
nongovernment organization, trust or philanthrophic organization RA 7166 – An Act Providing for Synchronized National
and/or research institution or organization, incorporated as a
nonstock entity, paying no dividends, governed by trustees who
and Local Elections and for Electoral Reforms.
receive no compensation, and devoting all its income, whether
students' fees or gifts, donation, subsidies or other forms of Sec. 13. Authorized Expenses of Candidates and Political Parties. - The
philanthrophy, to the accomplishment and promotion of the agreement amount that a candidate or registered political party may spend for
purposes enumerated in its Articles of Incorporation. election campaign shall be as follows:

(B) In the Case of Gifts Made by a Nonresident not a Citizen of the For candidates. - Ten pesos (P10.00) for President and Vice-President; and for
Philippines. other candidates Three Pesos (P3.00) for every voter currently registered in the
(1) Gifts made to or for the use of the National Government or any constituency where he filed his certificate of candidacy: Provided, That a
entity created by any of its agencies which is not conducted for candidate without any political party and without support from any political party
profit, or to any political subdivision of the said Government. may be allowed to spend Five Pesos (P5.00) for every such voter; and

(2) Gifts in favor of an educational and/or charitable, religious, cultural For political parties. - Five pesos (P5.00) for every voter currently registered in
or social welfare corporation, institution, foundation, trust or the constituency or constituencies where it has official candidates.
philanthrophic organization or research institution or organization:
Provided, however, That not more than thirty percent (30% of said Any provision of law to the contrary notwithstanding any contribution in cash or in
gifts shall be used by such donee for administration purposes. kind to any candidate or political party or coalition of parties for campaign
purposes, duly reported to the Commission shall not be subject to the payment of
(C) Tax Credit for Donor's Taxes Paid to a Foreign Country. – any gift tax.
(1) In General. - The tax imposed by this Title upon a donor who was a
citizen or a resident at the time of donation shall be credited with
the amount of any donor's tax of any character and description
imposed by the authority of a foreign country.
RA 10165 – Foster Care Act
SEC. 3. Definition of Terms. - For purposes of this Act, the following terms are
(2) Limitations on Credit. - The amount of the credit taken under this defined:
Section shall be subject to each of the following limitations: (a) Agency refers to any child-caring or child-placing institution licensed and
accredited by the Department of Social Welfare and Development
(a) The amount of the credit in respect to the tax paid (DSWD) to implement the foster care program.
to any country shall not exceed the same proportion
of the tax against which such credit is taken, which (b) Child refers to a person below eighteen (18) years of age, or one who is
the net gifts situated within such country taxable over eighteen (18) but is unable to fully take care of or protect oneself
under this Title bears to his entire net gifts; and from abuse, neglect, cruelty, exploitation or discrimination because of a
physical or mental disability or condition.
(b) The total amount of the credit shall not exceed the
(c) Child Case Study Report refers to a written report prepared by a social
same proportion of the tax against which such credit
worker containing all the necessary information about a child.
is taken, which the donor's net gifts situated outside
the Philippines taxable under this title bears to his
(d) Child with Special Needs refers to a child with developmental or
entire net gifts.
physical disability.

9
(e) Family refers to the parents or brothers and sisters, whether of the full (a) A child who is abandoned, surrendered, neglected, dependent or
or half-blood, of the child. orphaned;

(f) Foster Care refers to the provision of planned temporary substitute (b) A child who is a victim of sexual, physical, or any other form of abuse or
parental care to a child by a foster parent. exploitation;

(g) Foster Child refers to a child placed under foster care. (c) A child with special needs;

(h) Foster Family Care License refers to the document issued by the (d) A child whose family members are temporarily or permanently unable or
DSWD authorizing the foster parent to provide foster care. unwilling to provide the child with adequate care;

(i) Foster Parent refers to a person, duly licensed by the DSWD, to provide (e) A child awaiting adoptive placement and who would have to be
foster care. prepared for family life;

(j) Foster Placement Authority (FPA) refers to the document issued by the (f) A child who needs long-term care and close family ties but who cannot
DSWD authorizing the placement of a particular child with the foster be placed for domestic adoption;
parent.
(g) A child whose adoption has been disrupted;
(k) Home Study Report refers to a written report prepared by a social
worker containing the necessary information on a prospective parent or (h) A child who is under socially difficult circumstances, such as, but not
family member. limited to, a street child, a child in armed conflict or a victim of child
labor or trafficking; .
(l) Matching refers to the judicious pairing of a child with foster parent and
family members based on the capacity and commitment of the foster (i) A child who committed a minor offense but is released on recognizance,
parent to meet the individual needs of the particular child and the or who is in custody supervision or whose case is dismissed; and
capacity of the child to benefit from the placement.
(j) A child who is in need of special protection as assessed by a social
(m) Parent refers to the biological or adoptive parent or legal guardian of a worker, an agency or the DSWD.
child.
Provided, That in the case of (b), (c), (t), (h), (i), and (j), the child must have
(n) Placement refers to the physical transfer of the child with the foster no family willing and capable of caring and providing for him.
parent.
SEC. 5. Who May Be a Foster Parent. - An applicant who meets all of the
(o) Relatives refer to the relatives of a child, other than family members, following qualifications may be a foster parent:
within the fourth degree of consanguinity or affinity.
(a) Must be of legal age;
(p) Social Worker refers to the registered and! licensed social worker of the
DSWD, local government unit (LGU) or agency. (b) Must be at least sixteen (16) years older than the child unless the foster
parent is a relative;

SEC. 4. Who May Be Placed Under Foster Care. - The following may be (c) Must have a genuine interest, capacity and commitment in parenting
placed in foster care: and is able to provide a familial atmosphere for the child;

10
(d) Must have a healthy and harmonious relationship with each family
member living with him or her; For purposes of this section, only one (1) foster parent can treat the foster child
as a dependent for a particular taxable year. As such, no other parent or foster
(e) Must be of good moral character; parent can claim the said child as a dependent for that period.

(f) Must be physically and mentally capable and emotionally mature; SEC. 23. Incentives to Agencies. - Agencies shall be entitled to the following
tax incentives:
(g) Must have sufficient resources to be able to provide for the family's (a) Exemption from Income Tax. - Agencies shall be exempt from income
needs; tax on the income derived by it as such organization pursuant to Section
30 of the NIRC of 1997, as implemented by Revenue Regulation (RR)
(h) Must be willing to further hone or be trained on knowledge, attitudes and No. 13-98; and
skills in caring for a child; and
(b) Qualification as a Donee Institution. - Agencies can also apply for
(i) Must not already have the maximum number of children under his foster qualification as a donee institution.
care at the time of application or award, as may be provided in the
implementing rules and regulations (IRR) of this Act. SEC. 24. Incentives to Donors. - Donors of an agency shall be entitled to the
following:
Provided, That in determining who is the best suited foster parent, the relatives of
the child shall be given priority, so long as they meet the above qualifications: (a) Allowable Deductions. - Donors shall be granted allowable deductions
Provided, further, That an alien possessing the above qualifications and who has from its gross income to the extent of the amount donated to agencies
resided in the Philippines for at least twelve (12) continuous months and in accordance with Section 34(H) of the NIRC of 1997; and
maintains such residence until the termination of placement by the DSWD or
expiration of the foster family license, may qualify as a foster parent. (b) Exemption from Donor's Tax. - Donors shall be exempted from donor's
tax under Section 101 of the NIRC of 1997; Provided, That not more
than thirty percent (30%) of the amount of donations shall be spent for
administrative expenses.
SEC. 22. Assistance and Incentives to Foster Parent. -

(a) Support Care Services. - The DSWD, the social service units of LGUs
and agencies shall provide support care services to include, but not
RR 07-2011 – Tax treatment of campaign contributions
limited to, counseling, visits, training on child care and development, and expenditures
respite care, skills training and livelihood assistance.
SECTION 1. Background. — In the course of an election period, various
(b) Additional Exemption for Dependents. - For purposes of claiming the contributions are given to candidates "for the purpose of influencing the result of
Twenty-five thousand pesos (PhP25,000.00) additional exemption for the elections" [Sec. 94 (a) of Batas Pambansa Bilang 881, otherwise known as
foster parents for each depe4dent not exceeding four (4) as provided for the Omnibus Election Code of the Philippines]. The final paragraph of Section 13
by Republic Act No. 9504, the definition of the term "dependent" under of Republic Act No. 7166, provides that such campaign contributions in cash or in
Section 35(B) of the National Internal Revenue Code (NIRC) of 1997· kind to any candidate, duly reported to the Commission on Elections
shall be amended to include "foster child"; Provided, That all other 11 (COMELEC), are exempt from the imposition of Donor's Tax. However, in
conditions provided for under the aforesaid section of the NIRC of 1997 instances when these campaign contributions are not fully utilized by a candidate
must be complied with: Provided, further, That this additional exemption for campaign purposes, there is a need to clarify the treatment of these excess
shall be allowed only if the period of foster care is at least a continuous campaign funds, for tax purposes.
period of one (1) taxable year.
11
SECTION 2. Policies and Guidelines. (1) Each gift made during the calendar year which is to be included in
computing net gifts;
1. As a general rule, campaign contributions are not included in the
taxable income of the candidate to whom they were given, the reason (2) The deductions claimed and allowable;
being that such contributions were given not for the personal
expenditure/enrichment of the concerned candidate, but for the purpose (3) Any previous net gifts made during the same calendar year;
of utilizing such contributions for his/her campaign. Thus, to be
considered as exempt from income tax, these campaign contributions (4) The name of the donee; and
must have been utilized to cover a candidate's expenditures for his/her
electoral campaign. (5) Such further information as may be required by rules and
regulations made pursuant to law.
2. Unutilized/excess campaign funds, that is, campaign contributions net of
the candidate's campaign expenditures, shall be considered as subject (B) Time and Place of Filing and Payment. - The return of the donor
to income tax, and as such, must be included in the candidate's taxable required in this Section shall be filed within thirty (30) days after the date
income as stated in his/her Income Tax Return (ITR) filed for the subject the gift is made and the tax due thereon shall be paid at the time of filing.
taxable year. Except in cases where the Commissioner otherwise permits, the return
shall be filed and the tax paid to an authorized agent bank, the Revenue
3. Any candidate—winning or losing—who fails to file with the COMELEC District Officer, Revenue Collection Officer or duly authorized Treasurer
the appropriate Statement of Expenditures required under the Omnibus of the city or municipality where the donor was domiciled at the time of
Election Code, shall be automatically precluded from claiming such the transfer, or if there be no legal residence in the Philippines, with the
expenditures as deductions from his/her campaign contributions. As Office of the Commissioner. In the case of gifts made by a nonresident,
such, the entire amount of such campaign contributions shall be the return may be filed with the Philippine Embassy or Consulate in the
considered as directly subject to income tax. country where he is domiciled at the time of the transfer, or directly with
the Office of the Commissioner.

SECTION 3. Repealing Clause -- All existing issuances, or portions thereof,


which are inconsistent herewith are hereby revoked, repealed or amended RR 02-03 – Consolidated RRs on Estate Tax
accordingly.
Refer to file in the Dropbox folder. (Sections 10-13)
SECTION 4. Effectivity. – These Regulations shall take effect immediately

B.3. Administrative Requirements

SEC. 103. Filing of Return and Payment of Tax. –

(A) Requirements. - any individual who makes any transfer by gift (except
those which, under Section 101, are exempt from the tax provided for in
this Chapter) shall, for the purpose of the said tax, make a return under
oath in duplicate. The return shall set forth:

12
TAXATION LAW 2 COMASERCO then protested the assessment. It went to the CTA and filed a
petition for review contesting the assessment. In its defense, COMASERCO
DIGESTS AND PROVISIONS COMPILATION asserted that its services for Philamlife were on a “no   profit,   reimbursement-of-
cost-only”   basis, and that COMASERCO was established to ensure the
C. Value Added Tax orderliness and efficiency of Philamlife, and not in the sale of services. As
COMASERCO is not profit-motivated,  it  was  not  engaged  in  business.  Hence,  it’s  
not liable to pay VAT. This did not impress the CTA, who upheld the assessment
C.1. Basic Elements. of the BIR.

The Court of Appeals reversed the decision of the CTA. The CA used as legal
01. CIR v. Commonwealth Mgt. (COMASERCO) (JT)
basis another case with COMASERCO. In that case, COMASERCO was held to
Topic: VAT Liability
not  be  liable  for  fixed  and  contractor’s  tax  for  services  rendered  to  Philamlife,  as  
Relevant Laws:
the CA found that COMASERCO was not engaged in the business of providing
NIRC Section 105
services for Philamlife.

G.R. No. 125355


March 30, 2000
Issue: Whether or not COMASERCO was engaged in the business of selling
Pardo, J.
services, and thus liable for VAT?

Petitioners: CIR
Held:
Respondents: CA; Commonwealth Management and Services Corporation
Petition GRANTED
(COMASERCO)
Decision of the Court of Appeals is REVERSED.
Summary: COMASERCO was organized to perform certain services for
Ratio:
Philamlife  on  a  “reimbursement-of-cost-only”  basis.  In  1988,  COMASERCO’s  ITR  
I. What is VAT?
showed that it was at a loss. However, the BIR assessed COMASERCO to have
A. VAT is a tax on transactions.
deficiency VAT. COMASERCO asserts since it was not earning any profit, and
B. It is imposed at every stage of the distribution process on—
since it was not profit-motivated, then it is not liable to pay VAT. The SC
1. The sale, barter, exchange of goods or property, and
disagreed. Section 105 of the NIRC provides that non-stock, non-profit
2. The performance of services
corporations are subject to VAT, and any sale of service for a fee, remuneration
C. It is imposed even in the absence of attributable profit.
or consideration is also subject to VAT. Since COMASERCO receives
II. Who are liable to pay VAT?
remuneration in the form of reimbursements, its services are VAT-able.
A. Section 99 of the old NIRC provides that any person who, in the
course of trade or business, sells, barters or exchanges goods, or
Facts:
renders services, shall be subject to VAT.
COMASERCO, respondent corporation in this case, is a corporation duly
B. However, Section 105 of the new NIRC (the 1997 one), amended
organized under Philippine law. It is an affiliate of Philamlife, who organized
the old law.
COMASERCO to perform collection and consultation services, as well as
1. Section 105 should be construed to include non-stock non-
technical assistance, for Philamlife. In 1992, BIR assessed COMASERCO for
profit corporations and government entities in the coverage of
deficiency VAT for the year 1988, amounting to P351K. Such amount was
payment of VAT on the sale of goods or services.
inclusive of surcharges and penalties. However, the income tax return on
2. The  term  “sale  of  services”  includes the performance of all
COMASERCO for 1988 showed that it had a net operating loss, amounting to
kinds of services for a fee, remuneration or consideration.
P6k.
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

Services include technical assistance and administration of FACTS:


projects, among others. The NDC decided to sell its National Marine Corporation shares and five
3. In BIR Ruling 010-98, the BIR held that domestic corporations (5) of its ships pursuant to a government program of privatization.
providing technical assistance and receiving payments, on a The NMC shares and the vessels were offered for public bidding.
“reimbursement-of-costs”   basis,   without   any   intention   of   Among the stipulated terms and conditions for the public auction was
realizing profit, are subject to VAT. that the winning bidder was to pay "a value added tax of 10% on the
4. In this case, COMASERCO receives reimbursements of its value of the vessels."
expenses,  and  the  SC  construed  this  to  be  classified  as  a  “fee,   Private Respondent Magsaysay Lines, Inc. (Magsaysay Lines) offered
remuneration  or  consideration.” to buy the shares and the vessels for P168 Million.
C. Hence, as long as the COMASERCO provides its services for The bid was approved and a Notice of Award was issued to Magsaysay
remuneration (or for reimbursements), then the service rendered is Lines.
subject to VAT. The implementing Contract of Sale was executed.
1. The   CA   ruling   on   COMASERCO’s   exemption   from   fixed   and   Paragraph 11.02 of the contract stipulated that "[v]alue-added tax, if any,
contractor’s   tax   is   different,   as   those   taxes   are   different   from   shall be for the account of the PURCHASER."
VAT.
An  irrevocable  confirmed  Letter  of  Credit,  “bidders’  bond”  was  accepted  
by NDC as security for the payment of VAT, if any.
A formal request for a ruling on whether or not the sale of the vessels
was subject to VAT had been filed with the BIR by Sycip Salazar
02. CIR v. Magsaysay Lines (AD) Hernandez & Gatmaitan, in behalf of Magsaysay Lines.
Topic: Basic elements of Value Added Tax Thus, the parties agreed that should no favorable ruling be received
Relevant Laws: Sec 105 NIRC – Persons Liable; from the BIR, NDC was authorized to draw on the Letter of Credit, upon
Sec. 106 NIRC Vat on Sale of good or properties (B) – Transactions deemed written demand, the amount needed for the payment of the VAT.
sale Magsaysay Lines received VAT Ruling No. 568-88 from the BIR,
holding that the sale of the vessels was subject to the 10% VAT.
G.R. No. 146984 o The ruling cited the fact that NDC was a VAT-registered
July 28, 2006 enterprise, and thus its "transactions incident to its normal VAT
registered activity of leasing out personal property including
Commissioner of Internal Revenue, petitioner sale of its own assets that are movable, tangible objects which
Magsaysay Lines, Inc., Baliwag Navigation, Inc., Fim Limited of the Marden are appropriable or transferable are subject to the 10% VAT."
Group (HK) and National Development Company, respondents Magsaysay Lines moved for reconsideration. Their motion was denied.
At this point, NDC drew on the Letter of Credit to pay for the VAT, and
Summary: The NDC decided to sell its National Marine Corporation shares and the amount of P15,120,000 in taxes was paid.
five (5) of its ships. Magsaysay Lines had the winning bid. The issue here is Magsaysay Lines filed an Appeal and Petition for Refund with the CTA.
whether or not the transaction is subject to VAT because Magsaysay would be They prayed for the reversal of the VAT Ruling as well as the refund of
liable to pay for it. The SC ruled that VAT is levied only on the sale, barter or the VAT payment made.
exchange of goods or services by persons who engage in such activities, in the The CTA granted the petition.
course of trade or business. The sale herein was an isolated transaction. It o The CTA ruled that the sale of a vessel was an "isolated
was involuntary and could no longer be repeated or carried on with regularity. transaction,"   not   done   in   the   ordinary   course   of   NDC’s  
Hence, the sale is not subject to VAT. business, and was thus not subject to VAT, which under

2
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

Section 99 of the Tax Code, was applied only to sales in the o Hence, as affirmed by Section 99 of the Tax Code and its
course of trade or business. subsequent incarnations, the tax is levied only on the sale,
o The CTA further held that the sale of the vessels could not be barter or exchange of goods or services by persons who
"deemed sale," and thus subject to VAT, as the transaction did engage in such activities, in the course of trade or business.
not fall under the enumeration of transactions deemed sale as o These transactions outside the course of trade or business
listed either in Section 100(b) of the Tax Code, or Section 4 of may invariably contribute to the production chain, but they do
R.R. No. 5-87. so only as a matter of accident or incident.
The CIR appealed to the CA. o As the sales of goods or services do not occur within the
o "Change of ownership of business" as contemplated in R.R. course of trade or business, the providers of such goods or
No. 5-87 must be a consequence of the "retirement from or services would hardly, if at all, have the opportunity to
cessation of business" by the owner of the goods, as provided appropriately credit any VAT liability as against their own
for in Section 100 of the Tax Code accumulated VAT collections since the accumulation of
output VAT arises in the first place only through the
ISSUE: Whether the sale by NDC of 5 of its vessels to Magsaysay Lines is ordinary course of trade or business
subject to VAT under the NIRC of 1986 then prevailing at the time of the sale
THAT THE SALE OF THE VESSELS WAS NOT IN THE ORDINARY COURSE
HELD: Not subject to VAT OF TRADE OR BUSINESS OF NDC
In Imperial v. Collector of Internal Revenue, the term "carrying on
RATIO: business" does not mean the performance of a single disconnected act,
but means conducting, prosecuting and continuing business by
BASIC PRINCIPLES GOVERNING VAT: performing progressively all the acts normally incident thereof; while
VAT is ultimately a tax on consumption, even though it is assessed "doing business" conveys the idea of business being done, not from
on many levels of transactions on the basis of a fixed percentage. time to time, but all the time. "Course of business" is what is usually
It is the end user of consumer goods or services which ultimately done in the management of trade or business.
shoulders the tax, as the liability therefrom is passed on to the end What is clear therefore is that "course of business" or "doing
1
users by the providers of these goods or services who in turn may business" connotes regularity of activity. In the instant case, the
credit their own VAT liability (or input VAT) from the VAT payments they sale was an isolated transaction. The sale which was involuntary
receive from the final consumer (or output VAT). and made pursuant to the declared policy of Government for
o The final purchase by the end consumer represents the final privatization could no longer be repeated or carried on with
link in a production chain that itself involves several regularity. It should be emphasized that the normal VAT-registered
transactions and several acts of consumption. activity of NDC is leasing personal property.
The VAT system assures fiscal adequacy through the collection of taxes This finding is confirmed by the Revised Charter of the NDC which
on every level of consumption, yet assuages the manufacturers or bears no indication that the NDC was created for the primary purpose of
providers of goods and services by enabling them to pass on their selling real property.
respective VAT liabilities to the next link of the chain until finally the end Any sale, barter or exchange of goods or services not in the course of
consumer shoulders the entire tax liability. trade or business is not subject to VAT.
HOWEVER: Section 100 of the Tax Code, is captioned "Value-added tax on sale of
VAT is not a singular-minded tax on every transactional level. Its goods," and it expressly states that "[t]here shall be levied, assessed
assessment bears direct relevance to the   taxpayer’s   role   or   link   in   the   and collected on every sale, barter or exchange of goods, a value
production chain. added tax x x x."

3
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

o Section 100 should be read in light of Section 99, which lays 03. CIR v. Sony (RS)
down the general rule on which persons are liable for VAT Topic: Basic elements of VAT; When VAT is imposed; There must be sale of
in the first place and on what transaction if at all. goods/services
o Before any portion of Section 100 may be applied in order to Relevant Laws:
subject a transaction to VAT, it must first be satisfied that the Sec. 106, NIRC – see ratio
taxpayer and transaction involved is liable for VAT in the first
place under Section 99
GR No. 178697
It would have been a different matter if Section 100 purported to define November 17, 2010.
the phrase "in the course of trade or business" as expressed in Section Mendoza, J.
99. If that were so, reference to Section 100 would have been
necessary as a means of ascertaining whether the sale of the vessels Petitioners: Commissioner of Internal Revenue
was "in the course of trade or business," and thus subject to VAT. But Respondents: Sony Philippines, Inc.
that is not the case.
o What Section 100 and Section 4(E)(i) of R.R. No. 5-87 Summary:
elaborate on is not the meaning of "in the course of trade CIR assessed Sony Philippines (Sony) deficiency VAT when it disallowed the
or business," but instead the identification of the advertising expenses, which the latter incurred. The CTA-FD, CTA-EB and the
transactions which may be deemed as sale. SC ruled that Sony is not liable to pay deficiency VAT because (1) Sony actually
o It would become necessary to ascertain whether under those incurred the advertising expenses, and (2) that although the advertising
two provisions the transaction may be deemed a sale, only if it expenses were ultimately reimbursed by Sony International Singapore (SIS),
is settled that the transaction occurred in the course of VAT still should not be imposed because there was no sale of goods/properties,
trade or business in the first place. which   is   the   basis   of   the   imposition   of   the   same.   The   SC   explicitly   said:   “Thus,
o If the transaction transpired outside the course of trade or there must be a sale, barter or exchange of goods or properties before any
business, it would be irrelevant for the purpose of determining VAT may be levied. Certainly, there was no such sale, barter or exchange in
VAT liability whether the transaction may be deemed sale, the subsidy given by SIS to Sony. It was but a dole out by SIS and not in
since it anyway is not subject to VAT payment for goods or properties sold, bartered or exchanged by Sony.”
Section 4 (E)(i) of R.R. No. 5-87 does classify as among the
transactions deemed sale those involving "change of ownership of
business." However, Section 4(E) of R.R. No. 5-87, reflecting Section Facts:
100 of the Tax Code, clarifies that such "change of ownership" is 11/24/1998 – CIR issued Letter of Authority (LOA) No. 19734
only an attending circumstance to "retirement from or cessation of authorizing   revenue   officers   to   examine   Sony’s   books  of   accounts   and
business, with respect to all goods on hand as of the date of such other  accounting  records  regarding  revenue  taxes  for  “the period 1997
retirement or cessation." and  unverified  prior  years.”
o Indeed, Section 4(E) of R.R. No. 5-87 expressly characterizes
12/6/1999 – Preliminary assessment for 1997 deficiency taxes was
the "change of ownership of business" as only a
issued by the CIR which Sony protested. Acting on the protest, CIR
"circumstance" that attends those transactions "deemed 1
issued final assessments notices, the formal letter of demand and the
sale," which are otherwise stated in the same section.
details of discrepancies.

1
See original for computation of VAT deficiency.
4
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

Sony sought reevaluation of the aforementioned assessment by filing a Ratio:


protest on February 2, 2000. Sony submitted relevant documents in THERE MUST BE A GRANT OF AUTHORITY BEFORE ANY REVENUE OFFICER CAN
th CONDUCT AN EXAMINATION OR ASSESSMENT.
support of its protest on the 16 of that same month.
o The  CIR  insists  that  LOA  19734,  although  it  states  “the  period  
10/24/2000 - within 30 days after the lapse of 180 days from submission
1997   and   unverified   prior   years,”   should   be   understood   to  
of the said supporting documents to the CIR, Sony filed a petition for
mean the fiscal year ending in March 31, 1998. SC does not
review before the CTA.
agree.
After trial, the CTA-First Division (CTA-FD) disallowed the deficiency
o Based on Section 13 of the Tax Code, a Letter of Authority or
VAT assessment because the subsidized advertising expense paid by
LOA is the authority given to the appropriate revenue officer
Sony which was duly covered by a VAT invoice resulted in an input VAT
assigned to perform assessment functions. It empowers or
credit. (Note: When a company incurs expenses subject to VAT, it
enables said revenue officer to examine the books of account
results to an input VAT credit. On the other hand, when the same
and other accounting records of a taxpayer for the purpose of
company receives income from VATable transactions, it results to an
2 collecting the correct amount of tax.
output VAT. The input VAT credit is used to offset the output VAT,
o The very provision of the Tax Code that the CIR relies on is
which is ultimately a liability of the subject company.) (There is also a
unequivocal with regard to its power to grant authority to
discussion on the EWT deficiency assessments, but it is irrelevant to
examine and assess a taxpayer.
our topic.)
SEC. 6. Power of the Commissioner to Make
Except for the compromise penalties, the CTA-FD also upheld the
Assessments and Prescribe Additional
penalties for the late payment of VAT on royalties, for late remittance of
Requirements for Tax Administration and
final withholding tax on royalty as of December 1997 and for the late
Enforcement. –
remittance  of  EWT  by  some  of  Sony’s  branches  
(A)Examination of Returns and Determination of tax
CTA-FD  partly  granted  Sony’s  petition  by  cancelling  the  deficiency  
Due. – After a return has been filed as required under
VAT assessment but upheld a modified deficiency EWT assessment
the provisions of this Code, the Commissioner or his
as well as the penalties. duly authorized representative may authorize the
CIR sought a reconsideration, which the CTA-FD denied. CIR then examination of any taxpayer and the assessment
raised identical issues before the CTA-EB which the latter dismissed. of the correct amount of tax: Provided, however,
CIR’s  MR  is  denied. That failure to file a return shall not prevent the
Commissioner from authorizing the examination of
any taxpayer. x x x [Emphases supplied]
Issues: o Clearly, there must be a grant of authority before any revenue
Whether or not Sony is liable to pay deficiency VAT – NO, SONY IS officer can conduct an examination or assessment. Equally
NOT LIABLE FOR DEFICIENCY VAT. important is that the revenue officer so authorized must not go
beyond the authority given. In the absence of such an authority,
Held: the assessment or examination is a nullity.
Petition DISMISSED. o As  earlier  stated,  LOA  19734  covered  “the  period  1997  and  
CTA-EB decision is AFFIRMED. unverified   prior   years.”   For   said   reason,   the   CIR   acting  
through its revenue officers went beyond the scope of
2
Section 110, NIRC – “x  x  x  The  term  “input  VAT”  means  the  value-added tax due from or their authority because the deficiency VAT assessment
paid by a VAT-registered person in the course of his trade or business on importation of they arrived at was based on records from January to
goods or local purchase of goods or services, including lease or use of property, from a
VAT-registered person. It shall also include the transitional input tax determined in
March 1998 or using the fiscal year which ended in March
accordance  with  Section  111  of  this  Code.  x  x  x” 31, 1998. As pointed out by the CTAFirst Division in its
5
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

April 28, 2005 Resolution, the CIR knew which period SC’s  answer: Insofar as the abovementioned subsidy
should be covered by the investigation. Thus, if CIR may be considered as income and, therefore, subject
wanted or intended the investigation to include the year to income tax, the Court agrees. However, the Court
1998, it should have done so by including it in the LOA or does not agree that the same subsidy should be
issuing another LOA. subject to the 10% VAT. To begin with, the said
o Upon review, the CTAEB even added that the coverage of subsidy termed by the CIR as reimbursement was not
LOA  19734,  particularly  the  phrase  “and  unverified  prior  years,”   even   exclusively   earmarked   for   Sony’s   advertising  
violated Section C of Revenue Memorandum Order No. 4390 expense for it was but an assistance or aid in view of
dated September 20, 1990, the pertinent portion of which Sony’s  dire  or  adverse  economic  conditions,  and  was
reads: only   “equivalent   to   the   latter’s   (Sony’s)   advertising  
3. A Letter of Authority should cover a taxable period expenses.”  
not exceeding one taxable year. The practice of Section 106 of the Tax Code explains when
issuing  L/As  covering  audit  of  “unverified  prior  years  is   VAT may be imposed or exacted.
hereby prohibited. If the audit of a taxpayer shall o SEC. 106. Value-added Tax on
include more than one taxable period, the other Sale of Goods or Properties. –
periods or years shall be specifically indicated in the
L/A. [Emphasis supplied] (A) Rate and Base of Tax. – There
On this point alone, the deficiency VAT assessment shall be levied, assessed and
should have been disallowed. collected on every sale, barter or
VAT CANNOT BE IMPOSED ON THE ADVERTISING EXPENSE BECAUSE THERE IS exchange of goods or properties,
NO SALE OF GOODS OR PROPERTIES INVOLVED. (Note: This is where Sony value-added tax equivalent to ten
International’s   reimbursement   of   the   advertising   expense   becomes   percent (10%) of the gross
significant.) selling price or gross value in
o CIR’s  argument,  that  Sony’s  advertising  expense  could  not  be   money of the goods or properties
considered as an input VAT credit because the same was sold, bartered or exchanged,
eventually reimbursed by Sony International Singapore (SIS), such tax to be paid by the seller
is also erroneous. or transferor.
o As aptly found by the CTA-FD and later affirmed by the CTA-- Main doctrine: Thus, there must be a sale, barter or
EB,   Sony’s   deficiency   VAT   assessment   stemmed   from   the   exchange of goods or properties before any VAT
CIR’s   disallowance   of   the   input   VAT   credits   that   should   have   may be levied. Certainly, there was no such sale,
been realized from the advertising expense of the latter. barter or exchange in the subsidy given by SIS to
o Section 110, NIRC - an advertising expense duly covered Sony. It was but a dole out by SIS and not in
by a VAT invoice is a legitimate business expense. payment for goods or properties sold, bartered or
o CIR’s   own   witness:   Revenue   Officer   Antonio   Alquin   (Alquin)   - exchanged by Sony.
testified that advertising companies issued invoices in the o CIR v. CA, 385 Phil. 875 (2000) – cited by the SC but does not
name of Sony and the latter paid for the same. (Conclusion: apply  squarely  in  Sony’s  case
Sony  incurred  advertising  expenses.  “Where  the  money  came   The SC ruled that services rendered for a fee even on
from is another matter all together but will definitely not change reimbursement-on-cost basis only and without
said  fact.“) realizing profit are also subject to VAT.
o CIR further argues that Sony itself admitted that the However, CIR v. CA is not applicable to the present
reimbursement from SIS was income and, thus, taxable. case.
6
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

In CIR v. CA, COMASERCO rendered service to its Both SM Prime and First Asia are served with Preliminary Assessment Notice
affiliates and, in turn, the affiliates paid the former (PAN) and Formal Letter of Demand to pay the VAT deficiency. Both protested
reimbursement-on-cost, which means that it was paid the assessment and demand letter. BIR denied both protests. Both companies
the cost or expense that it incurred although without then filed a petition for review before CTA. In 2005, SM Prime filed a Motion to
profit. Consolidate CTA Cases on the grounds that the issues raised therein are
This is not true in the present case. Sony did not identical and that SM Prime is a majority shareholder of First Asia. The motion
render any service to SIS at all. The services was granted. The CTA ruled that the activity of showing cinematographic films is
rendered by the advertising companies, paid for by not a service covered by VAT under the NIRC of 1997, as amended, but an
Sony using SIS dole-out, were for Sony and not SIS. activity subject to amusement tax under RA 7160, otherwise known as the Local
SIS just gave assistance to Sony in the amount Government Code (LGC) of 1991. CIR appealed to CTA En Banc which the CTA
equivalent   to   the   latter’s   advertising   expense   but   En Banc denied. SC ruled that the enumeration of services subject to VAT
never received any goods, properties or service from under Section 108 of the NIRC is not exhaustive. The legislature never
Sony. intended to include cinema/theater operators or proprietors in the coverage
of VAT.

Facts:
C.2. VAT on Importations.
•   In   consolidation,   both   SM   Prime   and   First   Asia   received   PAN   and   a   demand  
letter to pay VAT Defiency[A PAN is issued If a taxpayer fails to respond to the
No case assigned. Letter of Notice or the Notice of Informal Conference within the prescribed period,
or fails to settle his tax liabilities. PANThe taxpayer, however, may file a protest
against the PAN/FAN and request for a reinvestigation or reconsideration. If the
protest is valid, it shall be acted upon by the revenue officer. Otherwise, the
C.3. VAT-taxable Transactions. taxpayer shall be informed in writing that his/her/its request has been denied and
the case shall be referred to the appropriate BIR office to effect collection of the
deficiency taxes.] Both protested the said PAN. BIR denied both protests thus the
04. CIR v. SM Prime Holdings (HV) consolidation of the cases under the CTA first division because of the issues are
Topic: VATable transactions identical and that SM Prime is a majority shareholder of First Asia.
Relevant Laws/ BIR Issuances: •   The CTA First Division held that the House of Representatives resolved that
•  Section  102  and  108  of  the  NIRC  of  the  1997   there should only be one business tax applicable to theaters and movie houses,
•  Revenue  Memorandum  Circular  (RMC)  No.  28-2001 which is the 30% amusement tax imposed by cities and provinces under the LGC
•  RMC    No.  20-86 of 1991. Further,  it  held  that  consistent  with  the  State’s  policy  to  have  a  viable,  
sustainable and competitive theater and film industry, the national government
G.R. No. 183505 should be precluded from imposing its own business tax in addition to that
February 26, 2010 already imposed and collected by local government units. The CTA First Division
DEL CASTILLO, J. likewise found that Revenue Memorandum Circular (RMC) No. 28-2001, which
imposes VAT on gross receipts from admission to cinema houses, cannot be
Petitioners: Commissioner of Internal Revenue (CIR) given force and effect because it failed to comply with the procedural due
Respondents: SM Prime Holdings, Inc. (SM Prime) and First Asia Realty process for tax issuances under RMC No. 20-86.
Development Corporation (First Asia) •   The CTA En Banc held that Section 108 of the NIRC actually sets forth an
exhaustive enumeration of what services are intended to be subject to VAT (This
Summary: is later corrected by SC). And since the showing or exhibition of motion pictures,

7
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

films or movies by cinema operators or proprietors is not among the enumerated •   SEC. 108. Value-added Tax on Sale of Services and Use or Lease of
activities  contemplated  in  the  phrase  “sale  or  exchange  of  services,”  then  gross   Properties. —
receipts derived by cinema/ theater operators or proprietors from admission (A) Rate and Base of Tax. — There shall be levied, assessed and
tickets in showing motion pictures, film or movie are not subject to VAT. It collected, a value-added tax equivalent to ten percent (10%) of gross receipts
reiterated that the exhibition or showing of motion pictures, films, or movies is derived from the sale or exchange of services, including the use or lease of
instead subject to amusement tax under the LGC of 1991. As regards the validity properties.
of RMC No. 28-2001, the CTA En Banc agreed with its First Division that the The  phrase  “sale  or  exchange  of  services”  means  the  performance  of  
same cannot be given force and effect for failure to comply with RMC No. 20-86. all kinds of services in the Philippines for others for a fee, remuneration or
•   Petitioner   argues   that   the   enumeration   of   services   subject to VAT in Section consideration, including those performed or rendered by construction and service
108 of the NIRC is not exhaustive because it covers all sales of services unless contractors; stock, real estate, commercial, customs and immigration brokers;
exempted by law. He claims that the CTA erred in applying the rules on statutory lessors of property, whether personal or real; warehousing services; lessors or
construction and in using extrinsic aids in interpreting Section 108 because the distributors of cinematographic films; persons engaged in milling, processing,
provision is clear and unambiguous. Thus, he maintains that the exhibition of manufacturing or repacking goods for others; proprietors, operators or keepers of
movies by cinema operators or proprietors to the paying public, being a sale of hotels, motels, rest houses, pension houses, inns, resorts; proprietors or
service, is subject to VAT. operators of restaurants, refreshment parlors, cafes and other eating places,
•  Respondents,  on  the  other  hand,  argue  that  a  plain  reading of Section 108 of including clubs and caterers; dealers in securities; lending investors;
the NIRC of 1997 shows that the gross receipts of proprietors or operators of transportation contractors on their transport of goods or cargoes, including
cinemas/theaters derived from public admission are not among the services persons who transport goods or cargoes for hire and other domestic common
subject to VAT. Respondents insist that gross receipts from cinema/theater carriers by land, air and water relative to their transport of goods or cargoes;
admission tickets were never intended to be subject to any tax imposed by the services of franchise grantees of telephone and telegraph, radio and television
national government. According to them, the absence of gross receipts from broadcasting and all other franchise grantees except those under Section 119 of
cinema/theater admission tickets from the list of services which are subject to the this Code; services of banks, non-bank financial intermediaries and finance
national amusement tax under Section 125 of the NIRC of 1997 reinforces this companies; and non-life insurance companies (except their crop insurances),
legislative intent. Respondents also highlight the fact that RMC No. 28-2001 on including surety, fidelity, indemnity and bonding companies; and similar services
which the deficiency assessments were based is an unpublished administrative regardless of whether or not the performance thereof calls for the exercise or use
ruling. of   the   physical   or   mental   faculties.   The   phrase   “sale   or   exchange   of   services”  
shall likewise include:
Issues: (1) The lease or the use of or the right or privilege to use any
1. WON the gross receipts derived by operators or proprietors of copyright, patent, design or model, plan, secret formula or process, goodwill,
cinema/theater houses from admission tickets are subject to VAT? --- YES trademark, trade brand or other like property or right;
xxxx
Held: (7) The lease of motion picture films, films, tapes and discs; and
•  Petition  DENIED (8) The lease or the use of or the right to use radio, television, satellite
•   Decision   of   CTA   AFFIRMED   that that gross receipts derived by transmission and cable television time.
respondents from admission tickets in showing motion pictures, films or x x x x (Emphasis supplied)
movies are not subject to value-added tax •   SECTION 102. Value-added tax on sale of services. — (a) Rate and base of
tax. — There shall be levied, assessed and collected, a value-added tax
Ratio: equivalent to 10% percent of gross receipts derived by any person engaged in
•   The enumeration of services subject to VAT under Section 108 of the the  sale  of  services.  The  phrase  “sale  of  services”  means  the  performance  of  all  
NIRC is not exhaustive. The   words,   “including,”   “similar   services,”   and   “shall   kinds of services for others for a fee, remuneration or consideration, including
likewise  include,”  indicate  that  the  enumeration is by way of example only. those performed or rendered by construction and service contractors; stock, real

8
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

estate, commercial, customs and immigration brokers; lessors of personal from theaters, cinematographs, concert halls, circuses and other places of
property; lessors or distributors of cinematographic films; persons engaged in amusements.
milling, processing, manufacturing or repacking goods for others; and similar (8) Amendments to the VAT law have been consistent in exempting
services regardless of whether or not the performance thereof calls for the persons subject to amusement tax under the NIRC from the coverage of
exercise or use of the physical or mental faculties: Provided That the following VAT.
services performed in the Philippines by VAT-registered persons shall be subject (9) Only lessors or distributors of cinematographic films are included in
to 0%: the coverage of VAT.
(1) Processing manufacturing or repacking goods for other persons doing These reveal the legislative intent not to impose VAT on persons already
business outside the Philippines which goods are subsequently exported, x x x covered by the amusement tax. This holds true even in the case of
xxxx cinema/theater operators taxed under the LGC of 1991 precisely because
“Gross  receipts”  means  the  total  amount  of  money  or  its  equivalent  representing   the VAT law was intended to replace the percentage tax on certain services.
the contract price, compensation or service fee, including the amount charged for The mere fact that they are taxed by the local government unit and not by
materials supplied with the services and deposits or advance payments actually the national government is immaterial. The Local Tax Code, in transferring
or constructively received during the taxable quarter for the service performed or the power to tax gross receipts derived by cinema/theater operators or
to be performed for another person, excluding value-added tax. proprietor from admission tickets to the local government, did not intend to
(b) Determination of the tax. — (1) Tax billed as a separate item in the treat cinema/theater houses as a separate class. No distinction must,
invoice. — If the tax is billed as a separate item in the invoice, the tax shall be therefore, be made between the places of amusement taxed by the national
based on the gross receipts, excluding the tax. government and those taxed by the local government.
(2) Tax not billed separately or is billed erroneously in the invoice. — If the •  The legislature never intended to include cinema/theater operators or
tax is not billed separately or is billed erroneously in the invoice, the tax shall be proprietors in the coverage of VAT.
determined by multiplying the gross receipts (including the amount intended to •  The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis
cover the tax or the tax billed erroneously) by 1/11. (Emphasis supplied) for the imposition of VAT
•   The SC emphasized on this established facts: •    Roxas v. Court of Tax Appeals: The power of taxation is sometimes called also
(1) Historically, the activity of showing motion pictures, films or movies by the power to destroy. Therefore, it should be exercised with caution to minimize
cinema/theater operators or proprietors has always been considered as a injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally
form of entertainment subject to amusement tax. and uniformly, lest the tax collector kill  the  “hen  that  lays  the  golden  egg.” And,
(2) Prior to the Local Tax Code, all forms of amusement tax were imposed in order to maintain the general public's trust and confidence in the Government
by the national government. this power must be used justly and not treacherously.
(3) When the Local Tax Code was enacted, amusement tax on admission
tickets from theaters, cinematographs, concert halls, circuses and other
places of amusements were transferred to the local government.
(4) Under the NIRC of 1977, the national government imposed amusement 05. Diaz v. Secretary of Finance (HQ)
tax only on proprietors, lessees or operators of cabarets, day and night Topic: Value-Added Tax
clubs, Jai-Alai and race tracks. Relevant Laws/Issuances:
(5) The VAT law was enacted to replace the tax on original and subsequent Section 108, NIRC, RMC 63-2010
sales tax and percentage tax on certain services. Section 109 & 119, NIRC
(6) When the VAT law was implemented, it exempted persons subject to Also, PD 1112 – Toll Operation Decree
amusement tax under the NIRC from the coverage of VAT.
(7) When the Local Tax Code was repealed by the LGC of 1991, the local G.R. No. 193007
government continued to impose amusement tax on admission tickets July 19, 2011

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TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

Abad, J. o NIRC imposes VAT on ALL kinds of services of franchise


grantees, including tollway operations, except where the
Petitioners: Renato Diaz (Diaz) and Aurora Ma. Timbol (Timbol) law provides otherwise.
Respondents: The Secretary of Finance and the Commissioner of Internal o Petitioners have no right to invoke the non-impairment of
Revenue (CIR) contracts clause since they clearly have no personal interest
in existing toll operating agreements. Nonetheless, the non-
Summary: impairment   clause   CANNOT   limit   the   State’s   sovereign   taxing  
Petitioners Diaz and Timbol assailed the validity of the imposition of VAT on power
the collections of tollway operators. They argued that toll fees were not o The non-inclusion of VAT in the parametric formula for
included   in   the   meaning   of   “sale   of   services”   that   are   subject   to   VAT.   The   SC   computing toll rates CANNOT exempt tollway operators from
held that toll fees collected may be subjected to VAT considering that under VAT.
Section 108 of NIRC, VAT is levied on ALL KINDS OF SERVICES rendered in
the Philippines for a fee, unless otherwise excluded by law. Moreover, Petitioners’  Reply:
tollway   operators   not   only   come   under   the   broad   term   of   “all   kinds   of   services”   o Tollway operators cannot be regarded as franchise grantees
but they are also under a specific class of “franchise   grantees”   which   are   under the NIRC since they do not hold legislative franchises.
subject to VAT. Not being included as franchise grantees exempted under o In its implementation, BIR intends to collect the VAT by
Section 119 or among the VAT-exempt transactions under Section 109, VAT rounding off the toll rate and putting any excess collection in an
imposition on tollway operations is VALID. escrow account – this is illegal since only the Congress can
modify VAT rates and authorize its disbursement
Facts: o RMC 63-2010, which directs toll companies to record an
Petitioners Diaz and Timbol filed a petition for declaratory relief assailing accumulated input VAT of zero balance on August 16, 2010
the validity of the impending imposition of VAT by BIR on the on their books contravenes Section 111 of the NIRC which
collections of tollway operators. grants entities that first become liable to VAT a transitional
Diaz and Timbol hold the view that Congress did not, when it enacted input credit of 2% on beginning inventory.
the  NIRC,  intend  to  include  toll  fees  within  the  meaning  of  “sale  of  
services”  that  are  subject  to  VAT Issue: May toll fees collected by tollway operators be subjected to VAT? YES
Additionally, Diaz and Timbol argued:
o That a toll  fee  is  a  “user’s  tax,”  not  a  sale  of  service Held:
o That to impose VAT on toll fees would amount to a tax on Petition DISMISSED
public services TRO SET ASIDE
o That since VAT was never factored into the formula for
computing toll fees, its imposition would violate the non- Ratio:
impairment clause of the Constitution
On August 13, 2010, the Court issued a TRO enjoining the “ALL  KINDS  OF  SERVICES”
implementation of the VAT. It required the government (represented by Under Section 108, VAT is levied, assessed, and collected on the gross
DOF Sec. Purisima and CIR Jacinto-Henares) to comment on such receipts derived from the sale or exchange of services as well as from
petition. the use or lease of properties.
“Sales  or  exchange  of  services”  is  defined under Section 108 as:
OSG’s  comment:   xxx xxx xxx

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VALUE ADDED TAX (VAT)

The phrase 'sale or exchange of services' means the performance of all especially excludes it. (taxation is the rule, exemption is the
kinds of services in the Philippines for others for a fee, remuneration exception!)
or consideration, including those performed or rendered by:
1. construction and service contractors; NATURE OF TOLLWAY
2. stock, real estate, commercial, customs and immigration brokers; OPERATIONS:
3. lessors of property, whether personal or real; warehousing DO TOLLWAY OPERATORS RENDER
services; SERVICES FOR A FEE?
4. lessors or distributors of cinematographic films; PD 1112 (Toll Operation Decree) establishes the legal basis for the
5. persons engaged in milling processing, manufacturing or repacking services that tollway operators render
goods for others; Essentially, tollway operators construct, maintain, and operate
6. proprietors, operators or keepers of hotels, motels, resthouses, expressways,  also  called  tollways,  at  the  operators’  expense.
pension houses, inns, resorts; Now, in consideration for constructing tollways at their expense, the
7. proprietors or operators of restaurants, refreshment parlors, cafes operators are allowed to collect government-approved fees from
and other eating places, including clubs and caterers; motorists using the tollways until such operators could fully recover their
8. dealers in securities; expenses and earn reasonable returns from their investments
9. lending investors; transportation contractors on their transport of When a tollway operator takes a toll fee from a motorist, the fee is in
goods or cargoes, including persons who transport goods or effect  for  the  latter’s  use  of  the  tollway  facilities  over  which  the  operator  
cargoes for hire another domestic common carriers by land, air and enjoys private proprietary rights
water relative to their transport of goods or cargoes; Hence, the tollway operator is no different from the following
10. services of franchise grantees of telephone and telegraph, service providers under Section 108 (see enumeration) who allow
radio and television broadcasting and all other franchise others to use their properties or facilities for a fee.
grantees except those under Section 119 of this Code; Moreover,  Section  108  subjects  to  VAT  “all  kinds  of  services”  rendered  
11. services of banks, non-bank financial intermediaries and finance for a fee “regardless   of   whether   or   not   the   performance   thereof  
companies; calls for the exercise or use of the physical or  mental  faculties.” -
12. and non-life insurance companies (except their crop insurances), which means that “services”   to   be   subject   to   VAT   need   not   fall  
including surety, fidelity, indemnity and bonding companies; under the traditional concept of services, the personal or
13. and similar services regardless of whether or not the professional kinds that require the use of human knowledge and skills.
performance thereof calls for the exercise or use of the
physical or mental faculties FRANCHISE GRANTEES WHO ARE SUBJECT TO VAT
xxx xxx xxx Tollway   operators   not   only   come   under   the   broad   term   “all   kinds   of  
Accordingly,  the  law  imposes  VAT  on  “all  kinds  of  services”  rendered  in   services”,   but   also   under   the   specific   class   described   as   “all   other  
the Philippines for a fee, including those specified in the list. franchise  grantees”  who  are  subject  to  VAT
By   qualifying   the   “services”   with   the   words   “all   kinds”, Congress has Moreover, tollway operators do NOT belong to exceptions which
given the term “services”  an  all-encompassing meaning. Section 119 exempts from the payment of VAT.
The listing of specific services are intended to illustrate how pervasive Also,   NOTHING   in   Section   108   indicates   that   the   “franchise   grantees”  
and   broad   VAT’s   reach, rather than establish concrete limits to its are those who hold legislative franchises. In fact, the law did not make a
application. distinction (which the petitioners did) between franchises granted by
Every  activity  that  can  be  imagined  as  a  form  of  “service”  rendered Congress and franchises granted by some other government agencies.
for a fee should be deemed included, unless some provision of law Hence,  the  term  “franchise”  has  been  broadly  construed  as  referring  to  
both granted by Congress and administrative agencies.

11
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

Petitioners contend that the public nature of the services rendered by For  this  reason,  even  assuming  that  toll  fees  were  deemed  as  a  “user’s  
tollway   operators   excludes   such   services   from   the   term   “sale   of   tax”,   VAT   on   tollway   operations   cannot   be   a   tax   on   tax   since   VAT   is  
services”  under  Section  108. assessed  against  tollway  operator’s  gross  receipts  and  NOT  necessarily  
However, nothing in Section 108 supports this contention. In fact, by on toll fees.
specifically including electric utilities, telephone, telegraph, and
broadcasting companies in its list of VAT-covered businesses, Section OTHER MATTERS:
108 opens other companies rendering public service for a fee to The Court ruled that non-observance of one of the canons of sound tax
the imposition of VAT. system (administrative feasibility) will not render a tax imposition invalid.
Businesses of a public nature such as public utilities and the collection Also, the implementation of imposition of VAT on tollway operations is
of tolls or charges for its use or service is a franchise. yet to be seen. Hence, any declaration by the Court that the manner of
implementation is illegal or unconstitutional would be premature.
TOLL  FEE  IS  NOT  A  “USER’S  TAX” Moreover, it cannot declare RMC 63-2010 as illegal for the very same
reason.
Petitioners  argue  that  a  toll  fee  is  a  “user’s  tax”  and  to  impose  VAT  on  
toll fees is tantamount to taxing a tax (they cited MIAA vs. CA as their
basis for this argument) C.4. VAT Exempt Transactions.
In the said case, the Court equated terminal  fees  to  a  “user’s  tax”  which  
the petitioners argued that such must also pertain to tollway fees.
(Remember in MIAA case, the discussion on toll roads and toll fees was 06. Tambunting Pawnshop v. CIR (PM)
made,   not   to   establish   a   rule   that   tollway   fees   are   user’s   tax,   but to Topic: exemption of pawnshops from VAT
make the point that airport lands and buildings are properties of public Relevant Laws:
dominion and that the collection of terminal fees for their use does not Section 108 of the NIRC
make them private properties) R.A. 9238 (An Act Amending Certain Sections of the NIRC of 1997, As
In sum, fees paid by the public to tollway operators for use of the Amended, by Excluding Several Services From The Coverage of the Value-
tollways, are not taxes in any sense. Added Tax and Re-Imposing the Gross Receipts Tax on Banks and Non-
TAX: purpose is to raise revenues to fund public expenditures Bank Financial Intermediaries Performing Quasi-Banking Functions and
TOLL FEES: collected by private tollway operators as reimbursement Other Non-Bank Financial Intermediaries Beginning January 01, 2004)
for the costs and expenses incurred in the construction, maintenance
and operation of the tollways, as well as to assure them a reasonable G.R. No. 179085
margin of income Janurary 21, 2010
Carpio Morales, J.
NATURE OF VAT: AN INDIRECT TAX
VAT ON TOLLWAY OPERATIONS CANNOT BE DEEMED A TAX ON TAX Petitioner: Tambunting Pawnshop, Inc.
In indirect taxation, a distinction is made between the liability for the tax Respondent: CIR
and burden of the tax.
The seller remains directly and legally liable for payment of the VAT, Summary:
but the buyer bears its burden since the amount of VAT paid by the Tambunting pawnshop was protesting the deficiency VAT assessed against
former is added to the selling price. them, alleging that it is not liable because a pawnshop is not enumerated as
VAT on tollway operations is NOT really a tax on the tollway user, BUT one of those engaged in "sale or exchange of services" in Section 108 of the
on the tollway operations. NIRC.

12
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

Prior to the passage of the EVAT Law in 1994, pawnshops were treated as Pawnshops are not under 108 of the NIRC but are specifically classified as
lending  investors  subject  to  lending  investor’s  tax.  Subsequently,  pawnshops   “other  Non-bank  Financial  Intermediaries”  by  RA  9238.  
were treated jurisprudentiallly as VAT-able enterprises under the general
Prior to the passage of the EVAT Law in 1994, pawnshops were treated as
classification  of  “sale  or  exchange  of  service”.  RA  9238,  which  was  passed  
lending investors subject to lending investor's tax.
in   2004,   finally   classified   pawnshops   as   “other   non-bank financial
intermediaries. By virtue of this law, pawnshops are no longer subject to Subsequently, pawnshops were then treated as VAT-able enterprises under
VAT, but to percentage tax on gross receipts. the general classification of "sale or exchange of services" under Section 108
(A) of the Tax Code of 1997, as amended. Finally, R.A. No. 9238 [which was
Facts: passed in 2004] classified pawnshops as Other Non-bank Financial
Intermediaries.
CIR assessed Tambunting pawnshop for deficiency Value-Added Tax for the
taxable year 1999. At the time of the disputed assessment, that is, for the year 2000, pawnshops
were not subject to 10% VAT under the general provision on "sale or exchange
Tambunting was ordered by the BIR to pay P3 million representing deficiency
of services" as defined under Section 108 (A) of the Tax Code of 1997, which
VAT.
states: "'sale or exchange of services' means the performance of all kinds of
Tambunting alleged that it is NOT liable for tax because a pawnshop is not services in the Philippines for others for a fee, remuneration or
enumerated as one of those engaged in "sale or exchange of services" in consideration . . . ."
Section 108 of the NIRC.
Instead, due to the specific nature of its business, pawnshops were then
The nature of the business of pawnshops does not fall under "service" as subject to 10% VAT under the category of non-bank financial intermediaries.
defined under the Legal Thesaurus of William C. Burton (accommodate, The Court finds that pawnshops should have been treated as non-bank
administer to, advance, afford, aid, assist, attend, be of use, care for, come to financial intermediaries from the very beginning, subject to the appropriate
the aid of, commodere, comply, confer a benefit, contribute to, cooperate,
taxes provided by law, thus –
deservire, discharge one's duty, do a service, do one's bidding, fill an office,
forward, furnish aid, furnish assistance, give help, lend, aid, minister to, o Under the NIRC of 1977, pawnshops should have been levied the 5%
promote, render help, servire, submit, succor, supply aid, take care of, tend, percentage tax on gross receipts imposed on bank and non-bank
wait on, work for) financial intermediaries under (now) Section 121 of the Tax Code of
1997
o With the imposition of the VAT under the EVAT Law, pawnshops
Issues:
should have been subjected to the 10% VAT imposed on banks and
Whether or not pawnshops are subject to VAT pursuant to Section 108 of NIRC. non-bank financial intermediaries and financial institutions under (now)
Section 108 of the Tax Code of 1997

Held: o However, through the years, various laws effectively deferred the levy,
collection, and assessment of 10% VAT on services rendered by
Petition is IN PART granted. Decision of CTA AFFIRMED with the banks, non-bank financial intermediaries, finance companies, and
MODIFICATION that the assessment deficiency value-added taxes for other financial intermediaries not performing quasi-banking functions
the taxable year 1999 and for surcharges and delinquency interest on from 1994 to December 31, 2002;
deficient Value-Added Tax and Documentary Income Tax are SET
ASIDE. o With no further deferments given by law, the levy, collection and
assessment of the 10% VAT on banks, non-bank financial
Ratio: intermediaries, finance companies, and other financial intermediaries

13
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

not performing quasi-banking functions were finally made effective for a fee, remuneration or consideration, including those
beginning January 1, 2003; performed or rendered by construction and service
o 2004: Finally, with the enactment of R.A. No. 9238 in 2004, the contractors
services of banks, non-bank financial intermediaries, finance
companies, and other financial intermediaries not performing quasi- 2. SEC. 103. Exempt Transactions. – The following shall be
banking functions were specifically exempted from VAT, and the 0% to exempt from the value-added tax:
5% percentage tax on gross receipts on other non-bank financial (l) Medical, dental, hospital and veterinary services except
intermediaries was reimposed under Section 122 of the Tax Code of those rendered by professionals
1997.
3. Section 246 of the 1997 Tax Code, as amended, provides
Coming now to the issue at hand - Since petitioner is a non-bank financial that rulings, circulars, rules and regulations promulgated by
intermediary: the Commissioner of Internal Revenue have no retroactive
o For the tax years 1996-2002 it is actually subject to 10% VAT. application if to apply them would prejudice the
taxpayer. The exceptions to this rule are: (1) where the
HOWEVER, with the levy, assessment and collection of VAT
taxpayer deliberately misstates or omits material facts from
from non-bank financial intermediaries being specifically
his return or in any document required of him by the
deferred by law then petitioner is NOT liable for VAT during
Bureau of Internal Revenue; (2) where the facts
these tax years.
subsequently gathered by the Bureau of Internal Revenue
o Starting January 1, 2003 petitioner is LIABLE for 10% VAT for are materially different from the facts on which the ruling is
said tax year with the full implementation of the VAT system on non- based, or (3) where the taxpayer acted in bad faith.
bank financial intermediaries starting this date.
o Beginning 2004 up to the present, by virtue of R.A. No. 9238,
petitioner is NO longer liable for VAT but it is subject to percentage tax G.R. No. 168129
on gross receipts from 0% to 5%, as the case may be. April 24, 2007
SANDOVAL-GUTIERREZ, J.

Petitioner: Commissioner of Internal Revenue


Respondent: Philippine Health Care Providers, Inc.
07. CIR v. Phil. Health Care Providers (KF)
Topic: VAT exempt transactions Summary:
The Philippine Health Care Providers (PHCPI), a health care
Relevant Laws: organization for sick and disabled persons enrolled in a health care plan,
1. SEC. 102. Value-added tax on sale of services and use or wrote BIR inquiring whether the services it provides are exempt from the
lease of properties. – (a) Rate and base of tax. – There payment of the VAT. BIR issued a ruling, confirmed by the BIR Regional
shall be levied, assessed and collected, a value-added tax Director, stating that PHCPI was exempt from the VAT coverage. BIR
equivalent to 10% of gross receipts derived from the sale then sent PHCPI 2 notices for deficiency in its payment of the VAT and
or exchange of services, including the use or lease of documentary stamp taxes (DST) f P224M+ for taxable years 1996 and
properties. 1997. PHCPI is subject to VAT since it is not considered exempted
under Section 103 of the NIRC. It can be seen from its letter to BIR
The   phrase   “sale   or   exchange   of   service”  means   that its services that it is not actually rendering medical service but
the performance of all kinds of services in the Philippines merely acting as a conduit between the members and their

14
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

accredited and recognized hospitals and clinics. recognized hospitals and clinics.
Further, Section 246 of the 1997 Tax Code, as amended, provides However, after a careful review of the facts of the case, the CTA
that rulings, circulars, rules and regulations promulgated by the CIR resolved  to  grant  petitioner's  "Motion  for  Partial  Reconsideration”  relying  
have no retroactive application if to apply them would prejudice the on Sec.246 of the 1977 Tax code which provides that in the absence of
taxpayer. PHCPI did not fall under any of the exceptions. Therefore, the showing of bad faith, the retroactive revocation of the BIR Ruling will be
CIR is precluded from adopting a position contrary to one previously prejudicial to PHCPI. Accordingly, the VAT assessment issued against
taken where injustice would result to the taxpayer, in this case, to PHCPI for the taxable years 1996 and 1997 was WITHDRAWN and
PHCPI. SET ASIDE.
CA affirmed the CTA Resolution.
Facts:
The Philippine Health Care Providers, Inc. (PHCPI), is a 
corporation
organized and existing under the laws of the Republic of the Philippines. Issues:
Its   primary   purpose   is   “To   establish,   maintain,   conduct   and   operate   a   1. WON PHCPI’s   services   are   subject   to   VAT   -- YES. HOWEVER,
prepaid group practice health care delivery system or a health because of the VAT ruling exempting PHCPI from VAT, it cannot be
maintenance organization to take care of the sick and disabled persons retroactively revoked and therefore, PHCPI is still exempt.
enrolled in the health care plan and to provide for the administrative, 2. WON VAT Ruling No. 231-88 exempting respondent from payment
legal,  and  financial  responsibilities  of  the  organization.” of VAT has retroactive application -- NO
On July 25, 1987, President Aquino issued E.O. No. 273, amending the
NIRC of 1977 imposing VAT on the sale of goods and services. This Held:
E.O. took effect on January 1, 1988. Petition DENIED/DISMISSED.
Before the effectivity of E.O. No. 273, PHCPI wrote the CIR inquiring Decision of CA AFFIRMED.
whether the services it provides to the participants in its health care
program are exempt from the payment of the VAT. Ratio:
BIR issued a ruling, confirmed by the BIR Regional Director, stating that 1. Section 102 of the NIRC as amended provides that there shall be levied
PHCPI was exempt from the VAT coverage. a VAT equivalent to 12% of gross receipts derived from the sale or
Meanwhile, on January 1, 1996, R.A. No. 7716 (Expanded VAT or E- exchange of services…   The   phrase "sale or exchange of service"
VAT Law) took effect, amending further the NIRC of 1977. Then on means the performance of all kinds of services in the Philippines for
January 1, 1998, R.A. No. 8424 (NIRC of 1997) became effective. This consideration.
new Tax Code substantially adopted and reproduced the provisions of Section 103 of the same Code specifies the exempt
E.O. No. 273 on VAT and R.A. No. 7716 on E-VAT. transactions from the provision, which includes medical, dental, hospital
BIR then sent PHCPI 2 notices for deficiency in its payment of the VAT and veterinary services except those rendered by professionals.
and documentary stamp taxes (DST) of P224M+ (total amount; It  can  be  seen  from  PHCPI’s  letter  to  BIR  that  its  services  that  
100.5M+ deficiency VAT and 124M+ DST) for taxable years 1996 and it is not actually rendering medical service but merely acting as a
1997. conduit between the members and their accredited and recognized
PHCPI protested, but BIR did not take any action, so PHCPI filed with hospitals and clinics.
the CTA a petition for review.
CTA: ordered PHCPI to pay a reduced deficiency VAT and declared the PHPCPI’s  letter
BIR ruling void, saying that PHCPI is a service contractor subject to Under the prepaid group practice health care delivery system
VAT since it does not actually render medical service but merely acts as adopted   by   Health   Care,   individuals   enrolled   in   Health   Care’s   health  
a conduit between the members and petitioner's accredited and care program are entitled to preventive, diagnostic, and corrective

15
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

medical services to be dispensed   by   Health   Care’s   duly   licensed   o (3) where the taxpayer acted in bad faith.
physicians, specialists, and other professional technical staff PHCPI did not fall under any of these exceptions.
participating in said group practice health care delivery system PHCPI's failure to refer to itself as a health maintenance
established and operated by Health Care. Such medical services will be organization is not an indication of bad faith or a deliberate attempt to
dispensed in a hospital or clinic owned, operated, or accredited by make false representations.
Health Care. To be entitled to receive such medical services from The term "health maintenance organization" was first recorded in
Health   Care,   an   individual   must   enroll   in   Health   Care’s   health   care   the Philippine statute books only upon the passage of "The National
program  and  pay  an  annual  fee.  Enrollment  in  Health  Care’s  health  care   Health Insurance Act of 1995" which defines a "health maintenance org"
program is on a year-to-year basis and enrollees are issued as one of the classes of a "health care provider."
identification cards. Thus, the VAT Ruling was issued in PHCPI's favor, and the term
CTA’s  conclusions: "health maintenance organization" was yet unknown or had no
o Respondent “is  not  actually   rendering  medical   significance for taxation purposes. PHCPI therefore, believed in good
service but merely acting as a conduit faith that it was VAT exempt for the taxable years 1996 and 1997 on the
between the members and their accredited basis of the VAT Ruling.
and recognized hospitals and clinics.” CIR is precluded from adopting a position contrary to one
o It merely “provides   and   arranges   for   the   previously taken where injustice would result to the taxpayer.
provision of pre-need health care services to
its members for a fixed prepaid fee for a
specified  period  of  time.”
o It then “contracts   the   services   of   physicians,  
medical and dental practitioners, clinics and
hospitals to perform such services to its
enrolled  members;;”  and
o Respondent “also   enters   into   contract   with  
clinics, hospitals, medical professionals and
then negotiates with them regarding payment
schemes, financing and other procedures in
the delivery of  health  services.”

Thus, it does NOT fall under VAT-exempt transactions.

2. Section 246 of the 1997 Tax Code, as amended, provides that rulings,
circulars, rules and regulations promulgated by the CIR have no
retroactive application if to apply them would prejudice the taxpayer.
The exceptions to this rule are:
o (1) where the taxpayer deliberately misstates or omits material
facts from his return or in any document required of him by the
BIR
o (2) where the facts subsequently gathered by the BIR are
materially different from the facts on which the ruling is based,
or

16
TAXATION LAW 2 shipping arrangement that may be agreed upon which
may influence or determine the transfer of ownership of
DIGESTS AND PROVISIONS COMPILATION the goods so exported and paid for in acceptable foreign
currency or its equivalent in goods or services, and
C. Value Added Tax (part 2) accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP)
(2) Sale of raw materials or packaging materials to a
C.5. Zero-Rated Transactions nonresident buyer for delivery to a resident local export-
oriented enterprise to be used in manufacturing,
SEC. 106. VAT on sale of Goods or Properties processing, packing or repacking in the Philippines of
the said buyer's goods and paid for in acceptable foreign
(A) Rate and Base of Tax. - There shall be levied, assessed and
currency and accounted for in accordance with the rules
collected on every sale, barter or exchange of goods or properties, value- and regulations of the Bangko Sentral ng Pilipinas
added tax equivalent to ten percent (10%) of the gross selling price or gross (BSP);
value in money of the goods or properties sold, bartered or exchanged, such
(3) Sale of raw materials or packaging materials to export-
tax to be paid by the seller or transferor.
oriented enterprise whose export sales exceed seventy
percent (70%) of total annual production;
(1) The term 'goods' or 'properties' shall mean all tangible and intangible
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP);
objects which are capable of pecuniary estimation and shall include:
and
(5) Those considered export sales under Executive Order
(a) Real properties held primarily for sale to customers or held
NO. 226, otherwise known as the Omnibus Investment
for lease in the ordinary course of trade or business;
Code of 1987, and other special laws.
(b) The right or the privilege to use patent, copyright, design or
model, plan, secret formula or process, goodwill, trademark,
(b) Foreign Currency Denominated Sale. - The phrase 'foreign
trade brand or other like property or right;
currency denominated sale' means sale to a nonresident of
(c) The right or the privilege to use in the Philippines of any
goods, except those mentioned in Sections 149 and 150,
industrial, commercial or scientific equipment;
assembled or manufactured in the Philippines for delivery to
(d) The right or the privilege to use motion picture films, tapes
a resident in the Philippines, paid for in acceptable foreign
and discs; and
currency and accounted for in accordance with the rules and
(e) Radio, television, satellite transmission and cable television
regulations of the Bangko Sentral ng Pilipinas (BSP).
time.

The term 'gross selling price' means the total amount of money or (c) Sales to persons or entities whose exemption under special
its equivalent which the purchaser pays or is obligated to pay to the laws or international agreements to which the Philippines is a
seller in consideration of the sale, barter or exchange of the goods or signatory effectively subjects such sales to zero rate.
properties, excluding the value-added tax. The excise tax, if any, on
such goods or properties shall form part of the gross selling price. (B) Transactions Deemed Sale. - The following transactions shall be deemed
sale:
(1) Transfer, use or consumption not in the course of business of goods
(2) The following sales by VAT-registered persons shall be subject to
or properties originally intended for sale or for use in the course of
zero percent (0%) rate:
business;
(a) Export Sales. - The term 'export sales' means:
(2) Distribution or transfer to:
(1) The sale and actual shipment of goods from the
Philippines to a foreign country, irrespective of any
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

(a) Shareholders or investors as share in the profits of the VAT- SEC. 108(b). Transactions Subject to Zero Percent Rate
registered persons; or
(b) Creditors in payment of debt; The following services performed in the Philippines by VAT- registered persons
shall be subject to zero percent (0%) rate.
(3) Consignment of goods if actual sale is not made within sixty (60) days
following the date such goods were consigned; and (1) Processing, manufacturing or repacking goods for other persons doing
business outside the Philippines which goods are subsequently
(4) Retirement from or cessation of business, with respect to inventories exported, where the services are paid for in acceptable foreign
of taxable goods existing as of such retirement or cessation. currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
(C) Changes in or Cessation of Status of a VAT-registered Person. - The tax (2) Services other than those mentioned in the preceding paragraph, the
imposed in Subsection (A) of this Section shall also apply to goods disposed of or consideration for which is paid for in acceptable foreign currency and
existing as of a certain date if under circumstances to be prescribed in rules and accounted for in accordance with the rules and regulations of the
regulations to be promulgated by the Secretary of Finance, upon recommendation Bangko Sentral ng Pilipinas (BSP);
of the Commissioner, the status of a person as a VAT-registered person changes or
is terminated. (3) Services rendered to persons or entities whose exemption under
special laws or international agreements to which the Philippines is a
signatory effectively subjects the supply of such services to zero
(D) Determination of the Tax. -
percent (0%) rate;

(1) The tax shall be computed by multiplying the total amount indicated in (4) Services rendered to vessels engaged exclusively in international
the invoice by one-eleventh (1/11) shipping; and

(2) Sales Returns, Allowances and Sales Discounts. - The value of (5) Services performed by subcontractors and/or contractors in
goods or properties sold and subsequently returned or for which processing, converting, of manufacturing goods for an enterprise
whose export sales exceed seventy percent (70%) of total annual
allowances were granted by a VAT-registered person may be
production.
deducted from the gross sales or receipts for the quarter in which a
refund is made or a credit memorandum or refund is issued. Sales
discount granted and indicated in the invoice at the time of sale and
the grant of which does not depend upon the happening of a future
event may be excluded from the gross sales within the same quarter 01. American Express v. CIR (MR)
it was given. Topic: When are sales/services zero-rated for VAT entities, according the Tax
Code; requirements to claim refund for zero-rated sales/services
(3) Authority of the Commissioner to Determine the Appropriate Tax Relevant Laws: In text because the reading of the law is important in this case
Base. - The Commissioner shall, by rules and regulations prescribed
by the Secretary of Finance, determine the appropriate tax base in CTA Case No. 6099
cases where a transaction is deemed a sale, barter or exchange of April 19, 2002
goods or properties under Subsection (B) hereof, or where the gross
selling price is unreasonably lower than the actual market value. Petitioner: American Express International, Inc.—Philippine branch
Respondent: CIR

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VALUE ADDED TAX (VAT)

Facts: 6. WON its entitled then to a refund


American Express International Inc. (Amex hereafter) is a corporation duly
organized under the laws of US. Petitioner here is a servicing unit of Amex Held:
Hong  Kong,  engaged  in  faciliating  the  collection  of  Amex  HK’s  receivables   Petition PARTIALLY GRANTED.
frrom cardholders residing or situated in the Philippines as well as payment CIR ordered to refund to Amex the unutilized VAT input pyments
of Amex HK to Amex accredited service establishments and merchants in
the Philippines Ratio:
Petitioner is a VAT entity since March 1988. BIR issued VAT Ruling No. CIR contends that Revenue Regulations No. 5-96 (which implements Sec. 102
080-90 addressed to petitioner stating that as a VAT entity whose “service   of Tax Code) has already amended VAT Ruling 080-89. In relation to this,
is paid for in acceptable foreign currency which is remitted inwardly Revenue Regulations 7-95 is also important. Here quoted:
to the Philippines and accounted for in accordance with the rules and
regulations of the Central Bank of the Philippines, your service (from RR 5-96)   “Section   4.102-2(b)(2) — "…services   by   a   resident to a
income is automatically zero rated effective January 1, 1988 [Sec. non-resident foreign client such as project studies, information services,
102(a)(2)   Tax   Code]”   and   there   would   be   no   need   to   file   application   for   …the consideration for which is paid for in acceptable foreign currency and
zero-rate accounted for in accordance with the rules and regulations of the BSP." . . .
For taxable eyar 1988, petitioner generated revenues which were paid for
in HK currency inwardly remitted to the Phil and accounted for in (from RR 7-95) "(b) Transaction subject to zero-rate. —
accordance with the rules and regulations of BSP so It asserts that those (1) Processing, manufacturing or repacking of goods for other persons
revenues are zero-rated doing business outside the Philippines which goods are subsequently
During the same period it paid input VAT (Php 3,972,249.24) on domestic exported, where the services are paid for in acceptable foreign currency
purchases of taxable goods/services, but claims that its output VAT liability and accounted for in accordance with the rules and regulations of the BSP;
udring the period only amounted to Php 4,688.18 so obviously it had (2) Services other than those mentioned in the preceding subparagraph,
unutilized VAT input of more than Php 3 million e.g., those rendered by hotels and other service establishments, the
It filed its quarterly VAT returns, reflecting the zero-rated sales, output consideration for which is paid for in accordance with foreign currency and
VAT, input VAT and excess input VAT. Petitioner claims the VAT accounted for in accordance with the rules and regulations of the BSP; . . .
payments in 1988 were paid in the course of business and its unapplied
input VAT payments subject of this case had not been carried over to the ^ They basically say that if the service is paid for in acceptable foreign
first quarter of 1999 and thus filed a claim for refund currency and accounted for in accordance with rules of BSP, zero-rated na.
(NOT  IMPT)  CIR’s  affirmative  defenses:  BIR  is  still  investigating  the  claim; However, in interpreting the above rulings, CIR issued VAT Ruling 040-98
claims for tax refund strictly construed against taxpayer; petitioner must providing:
prove its compliance with proviions governing tax recovery or refund in
Sec. 204(c) and 229 of tax code "The sales of services subject to zero percent (0%) VAT under Section
108(B)(2) of the Tax Code of 1997, are limited to such sales which are
Issues: (proposed by parties) destined for consumption outside of the Philippines in that such rating also
1. WON Amex has excess input taxes extends  to…  other  similar  services.  .  .  ."
2. WON the excess input taxes are attributable to its purchases that are
directly related to the performance of its business or service xxx xxx xxx
3. WON Amex input taxes had not been carried over
4. WON VAT Ruling no. 080-89 is applicable to the transactions involved Accordingly, the onus of taxation under our VAT system is in the country
5. Assuming its not applicable, WON Amex nevertheless qualifies as a where the goods, property or services are destined and consumed. This is
zero-rated VAT entity pursuant to Sec. 102(B)(2) NIRC the reason why under our VAT Law, goods, property or services destined
3
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

to be consumed in the Philippines are subject to the 10% VAT whereas 2) that input taxes were incurred or paid; - petitioner submitted various
exports are zero-rated. (Sections 105 and 108, Tax Code of 1997)." (take suppliers’  invoices  and  official  receipts to prove this
note of this reasoning) 3) that such input V A T payments are directly attributable to zero-rated sales
or effectively zero-rated sale - however, not all of the substantiated input
In short nadagdagan ng criteria: they should be paid for in acceptable foreign VAT payments were directly attributable to zero-rated sales
currency in accordance with rules of BSP, PLUS consumed outside of the 4) that the input V A T payments were not applied against any output VAT
Philippines, before they can be considered zero-rated. liability; - the return presented proves that no carry over was made
According to CIR, the services rendered by Amex Phil to Amex HK— 5) that the claim for refund was filed within the two-year prescriptive period –
payment to service establishments in the Phil and collection of receivables pasok
from cardholders—although rendered to a non-resident foreign client, are
nevertheless performed in the Philippines and not consumed abroad.
Hence, the onus is within the Philippines 02. CIR v. Placer Dome Technical Services Inc. (RK)
(Not important:) CIR also contends that they are not within the Topic: VAT; Zero-rated; Sale of Services
classification of zero-rated  sales  or  services  in  the  law,  not  being  “project   Relevant Laws:
studies, info services, engineering and architectural design and other
1986 NIRC: Section 102. Value-Added Tax on Sale of Services and Use or
similar  services”
Lease of Properties.
(b) Transactions Subject to Zero Percent (0%) Rate.   ─   The   following  
SC agrees with petitioner that VAT Ruling 040-98 contravenes the terms of the
services performed in the Philippines by VAT-registered persons shall be
statute itself
subject to zero percent (0%) rate:
Sec. 108 of the Tax Code only requires payment of the services in a
(1) Processing, manufacturing or repacking goods for other
acceptable foreign currency in accordance with rules of BSP. But the VAT
persons doing business outside the Philippines which goods are
ruling further requires that the services be destined for consumption subsequently exported, where the services are paid for in
abroad acceptable foreign currency and accounted for in accordance with
Implementing rules cannot amend the act of Congress! the rules and regulations of the Bangko Sentral ng Pilipinas
So even if VAT ruling 080-90 is not applicable anymore, petitioner still (BSP);
qualifies under Sec. 108(B)(2) Tax Code. In the case of Amex—Phil (2) Services other than those mentioned in the preceding
Branch v. CIR (CTA Case no. 5813)—same thing lang basically: "The subparagraph, the consideration for which is paid for in
provisions of Section 108(B)(2) of the Tax Reform Act of 1997 and Section acceptable foreign currency and accounted for in accordance with
4.102-2(b)(2) are to clear to admit of interpretation advanced by the rules and regulations of the [BSP].
Respondent. The former merely provides that services other than those
enumerated in the preceding paragraph shall be subject to zero percent G.R. No. 164365
(0%) rate for as long as the consideration is paid for in acceptable foreign January 8, 2007
currency and accounted for in accordance with the rules and regulations of TINGA, J.:
the Bangko Sentral ng Pilipinas."
Petitioners: CIR
Regarding the refund, the governing law is Sec. 112(A) in relation to Sec. Respondents: Placer Dome Technical Services (Phils,), Inc.
108(B)(2) Tax Code. In conformity with this, to be entitled to refund or tax
credit, the following must be complied with: Summary: A pit in San Antonio Mines leaked contaminating Makalupnit and Boac
1) there must be zero-rated or effectively zero-rated sales; - here, petitioner is Rivers in Marinduque. PDI engaged the services of PDTSL, a non-resident foreign
VAT entity and its service fee earnings were paid for in acceptable foreign corporation to do clean-up. PDTSI in turn, engaged herein respondent Placer to
currency (USD), accounted for in accordance with BSP rules implement the clean-up. As per their agreement, Placer will be paid in dollars.
4
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

Subsequently, placer filed a claim for refund of its excess input vat arguing that the November 1996: PDTSL and respondent entered into the Implementation
services it rendered for PDTSL is vat zero-rated. The CTA and SC ruled in favour of Agreement.
respondent. They cited the case of CIR v. American Express International, Inc. to o Payment  Term:  “an  amount of money, in U.S. Funds, equal to all
rebut all the arguments of the CIR. Essentially, CIR had two grounds: (1) that the Costs incurred for Implementation Services performed under the
services rendered by Placer was not among those enumerated in RR 6-95 and (2) Agreement,”  as  well  as  “a  fee  agreed  to  1%  of  costs.”
that the goods was not actually delivered abroad as services was done here. For August 1998: Respondent amended its quarterly VAT returns for Q3 and
the first argument, SC said the enumeration in the RR is not an exclusive list and Q4 of 1996, and all four quarters of 1997.
merely illustrative. For the second, SC said that the services rendered by Placer fall o Input VAT declared: P43, 015,461.98
under the exception (continue reading below for more details to this). o Excess Input VAT: P42, 837,933.60
September 1998: Respondent filed an administrative claim for the refund
Background: In CIR v. American Express International, Inc., the SC ruled that of its reported total input VAT payments in relation to the project it
under   the   NIRC   of   1986,   “services   performed   by   VAT-registered persons in the contracted with PDTSL, amounting to P43,015,461.98
Philippines (other than processing, manufacturing or repacking of goods for persons o Argued that revenues pursuant to the agreement qualified as
doing business outside the Philippines), when paid in acceptable foreign currency zero-rated sales under Section 102(b)(2) of the then Tax Code
and accounted for in accordance with the rules and regulations of the BSP, are since it was paid in foreign currency inwardly remitted to the
zero-rated.”   If   this   present   petition   is   granted,   it   would   be   an   extreme step of Philippines (NOTE: as per the agreement, the payment was in
rejecting CIR v. American Express International, Inc. as precedent—a recourse USD. The refund claim is the Peso equivalent.)
which the SC is unwilling to take. CIR did not act on this claim so respondent filed a Petition for Review with
the CTA praying for refund of its total reported excess input VAT
P42,837,933.60.
Facts: o CTA   supported   respondent’s   position   that   its   sale   of   services   to  
PDTSL constituted a zero-rated transaction hence refund was
INCIDENT of March 1996: Mine tailings from Taipan Pit (a part of San granted but only to the extent of P17,178,373.12 because not all
Antonio Mines in Marinduque owned by Marcopper Mining Corporation reported input VAT were supported by VAT invoices.
“Marcopper”)   started   to   escape   through   the   Makalupnit   Tunnel   and   Boac   o MR denied.
Rivers. To contain the damage, Placer Dome, Inc. (PDI), 39.9% owner of Petition for review in CA affirmed CTA rulings. Hence the present petition.
Marcopper undertook clean up and rehabilitation of the two rivers. PDI
engaged Placer Dome Technical Services Limited (PDTSL), a non- Issues: MAIN: Whether or not the sale of service by respondent Placer to PDTSL,
resident foreign corporation from Canada, to carry out the project. PDTSL a non resident foreign corporation, is vat-zero rated thereby allowing the former to
in turn engaged the services of Placer Dome Technical Services claim for deduction. (YES)
(Philippines), Inc., herein respondents, a domestic corporation and
registered VAT entity, to implement project in PH. Held: Petition is DENIED. No pronouncement as to costs.
o Review of the CAST:
MARCOPPER—owns San Antonio Mines from which Ratio:
the leaky Taipan Pit is situated 1. What does Section 102 of the 1986 NIRC say?
1

PDI—owns 39.9% of Marcopper, and undertook the


clean-up by engaging:
PDTSL—a non-resident foreign corporation with office 1
Section 102. Value-Added Tax on Sale of Services and Use or Lease of Properties.
in Canada (a) x x x
Respondent Placer—engaged by PDTSL to implement (b) Transactions Subject to Zero Percent (0%) Rate.   ─   The   following   services  
performed in the Philippines by VAT-registered persons shall be subject to zero
the clean-up; a domestic corporation, VAT registered.
percent (0%) rate:
5
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

The law explicitly provides that a zero-rated VAT transaction in Commissioner of Internal Revenue v. American Express”   #Burnnnn. In
includes services by VAT-registered persons other than fact,   “The discussion of the issues in American Express was
processing, manufacturing or repacking goods for other persons comprehensive enough as to address each issue now presently raised
doing business outside the Philippines, which goods are before  us”  #applycoldwatertoburnedarea
subsequently exported, the consideration for which is paid in
foreign currency and accounted for in accordance with the 4. Summary of American Express Case (You may skip): American Express involved
rules and regulations of the BSP. transactions invoked as "zero-rated" by 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
2. So if the law is explicit and clear, why does the CIR still insist?
with BSP rules and regulations." The CIR in that case relied extensively on the same VAT
VAT Ruling No. 5-96 interpreting RR No 5-96: IN   THE   CIR’s   Ruling No. 040-98 now cited before us. However, the Court would conclude in American
OWN OPINION, there are only two categories of services that are Express that the opinion therein that the service must be destined for consumption outside of
subject to zero percent VAT, namely: the Philippines was "clearly ultra vires and invalid."
i. Services other than processing, manufacturing or
repacking for other persons doing business outside the 5. What is the nature of VAT as imposed on services?
Philippines for goods which are subsequently exported;
WHAT: The VAT is a tax on consumption "expressed as a percentage of the
and
value added to goods or services" purchased by the producer or taxpayer.
ii. Services by a resident to a non-resident foreign client,
OBJECT: As an indirect tax on services, its main object is the transaction itself or,
such as project studies, information services, more concretely, the performance of all kinds of services conducted in the course
engineering and architectural designs and other similar of trade or business in the Philippines.
services. CONDITION: These services must be regularly conducted in this country;
CIR explains that the services rendered by respondent were not undertaken in "pursuit of a commercial or an economic activity;" for a valuable
for goods which were subsequently exported. Likewise, it is consideration; and not exempt under the Tax Code, other special laws, or any
argued that the services rendered by respondent were not similar international agreement.
to "project studies, information services, engineering and 6. Which services are VAT zero-rated
(1) Processing, manufacturing or repacking goods for other persons doing
architectural designs" which were destined to be consumed
business outside the Philippines which goods are subsequently exported, where
abroad by non-resident foreign clients.
the services are paid for in acceptable foreign currency and accounted for in
NOTE: there is another VAT Ruling cited but the point is, the accordance with the rules and regulations of the BSP; and
VAT  Ruling  is  the  CIR’s  basis. (2) Services other than those mentioned in the preceding subparagraph, the
consideration for which is paid for in acceptable foreign currency and accounted
3. Ahh, kaya pala and tigas ng ulo ni CIR, may VAT Ruling pala siya. But for in accordance with the rules and regulations of the BSP.
what does the SC have to say about that?  “Unfortunately for petitioner, 7. Is the second category vague? NO. It simply means: services performed by VAT-registered
his arguments are no longer fresh. The Court spurned them 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
(1) Processing, manufacturing or repacking goods for other persons doing zero-rated
business outside the Philippines which goods are subsequently exported, 8. On to first contention: That services rendered by respondent were not
where the services are paid for in acceptable foreign currency and
similar to "project studies, information services, engineering and
accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP); architectural  designs”  as  provided  in  the  RR  5-96.
(2) Services other than those mentioned in the preceding subparagraph, First, although the regulatory provision contains an
the consideration for which is paid for in acceptable foreign currency and enumeration of particular or specific words, followed by the
accounted for in accordance with the rules and regulations of the [BSP].
x x x 20 general phrase "and other similar services," such words do

6
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

not constitute a readily discernible class and are patently not imply that the service be done abroad in order to be
of the same kind zero-rated.
Second, there is the regulatory intent to give the general phrase ii. Consumption is "the use of a thing in a way that
"and other similar services" a broader meaning. Clearly, the thereby exhausts it." Applied to services, the term
preceding phrase "as well as" is not meant to limit the effect means the performance or "successful completion
of "and other similar services." of a contractual duty, usually resulting in the
Third, and most important, the statutory provision upon performer's release from any past or future liability x
which this regulation is based is by itself not restrictive. The x x" The services rendered by respondent are
scope of the word "services" in Section 102(b)(2) of the [1986 performed or successfully completed upon its sending to
NIRC] is broad; it is not susceptible of narrow interpretation. its foreign client the drafts and bills it has gathered from
9. On the second contention: that the services rendered by respondent service establishments here. Its services, having been
were not for goods which were subsequently exported, hence, the onus of performed in the Philippines, are therefore also
taxation of the revenue arising therefrom, for VAT purposes, is also within consumed in the Philippines.
the Philippines iii. Unlike goods, services cannot be physically used in
GR: the VAT system uses the destination principle as a or bound for a specific place when their destination
basis for the jurisdictional reach of the tax. Goods and is determined. Instead, there can only be a
services are taxed only in the country where they are consumed. "predetermined end of a course" when determining
Thus, exports are zero-rated, while imports are taxed. the service "location or position x x x for legal
EXC: zero percent VAT rate for services that are performed in purposes." Respondent's facilitation service has no
the Philippines, "paid for in acceptable foreign currency and physical existence, yet takes place upon rendition, and
accounted for in accordance with the rules and regulations therefore upon consumption, in the Philippines. Under
of the [BSP]." Thus, for the supply of service to be zero-rated as the destination principle, as petitioner asserts, such
an exception, the law merely requires that: service is subject to VAT at the rate of 10 percent.
i. first, the service be performed in the Philippines; Again, contrary to petitioner's stand, for the cost of
ii. second, the service fall under any of the categories in respondent's service to be zero-rated, it need not be tacked
Section 102(b) of the Tax Code; and, in as part of the cost of goods exported. The law neither
iii. third, it be paid in acceptable foreign currency accounted imposes such requirement nor associates services with
for in accordance with BSP rules and regulations. exported goods. It simply states that the services performed
Confusion in zero rating arises because petitioner equates by VAT-registered persons in the Philippines — services
the performance of a particular type of service with the other than the processing, manufacturing or repacking of
consumption of its output abroad. goods for persons doing business outside this country — if
i. In the present case, the facilitation of the collection of paid in acceptable foreign currency and accounted for in
receivables is different from the utilization or accordance with the rules and regulations of the BSP, are
consumption of the outcome of such service. While the zero-rated. The service rendered by respondent is clearly
facilitation is done in the Philippines, the consumption is different from the product that arises from the rendition of
not. Respondent renders assistance to its foreign clients such service. The activity that creates the income must not be
— the ROCs outside the country — by receiving the bills confused with the main business in the course of which that
of service establishments located here in the country income is realized.
and forwarding them to the ROCs abroad. The The law neither makes a qualification nor adds a condition in
consumption contemplated by law, contrary to determining the tax situs of a zero-rated service. Under this
petitioner's administrative interpretation, does not criterion, the place where the service is rendered determines the
7
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

jurisdiction to impose the VAT. Performed in the Philippines, Facts:


such service is necessarily subject to its jurisdiction, for the BWSC [respondent] is a domestic corporation duly organized and
State necessarily has to have "a substantial connection" to it, existing under and by virtue of the laws of the Philippines with principal
in order to enforce a zero rate. The place of payment is address located at Daruma Building, Jose P. Laurel Avenue, Lanang,
immaterial; much less is the place where the output of the Davao City.
service will be further or ultimately used. It is represented that a foreign consortium composed of Burmeister and
NOTE: the SC also cited legislative deliberations to support this Wain Scandinavian Contractor A/S (BWSC-Denmark), Mitsui Engineering
theory. and Shipbuilding, Ltd., and Mitsui and Co., Ltd. entered into a contract with
the National Power Corporation (NAPOCOR) for the operation and
It   is   indubitable   that   petitioner’s   arguments   cannot   withstand   the   Court’s   ruling   maintenance   of   [NAPOCOR’s]   two   power   barges.   The   Consortium  
in American Express, a precedent warranting stare decisis application and one appointed BWSC-Denmark as its coordination manager.
which, in any event, we are disinclined to revisit at this juncture. BWSC-Denmark established [respondent] which subcontracted the actual
operation and maintenance of   NAPOCOR’s   two   power   barges   as   well   as  
WHEREFORE, the petition is DENIED. No pronouncement as to costs. the performance of other duties and acts which necessarily have to be
done in the Philippines.
SO ORDERED. NAPOCOR paid capacity and energy fees to the Consortium in a mixture
of currencies (Mark, Yen, and Peso). The freely convertible non-Peso
component   is   deposited   directly   to   the   Consortium’s   bank   accounts   in  
03. CIR v. Burmeister (KB) Denmark and Japan, while the Peso-denominated component is deposited
Topic: VAT Zero-rated Transactions; services and payment in foreign currency in a separate and special designated bank account in the Philippines.
Relevant Laws: Section 102(b) (in case) On the other hand, the Consortium pays [respondent] in foreign
G.R. No. 153205 currency inwardly remitted to the Philippines through the banking system.
January 22, 2007 In order to ascertain the tax implications of the above transactions,
Carpio, J. [respondent] sought a ruling from the BIR which responded with BIR
Ruling No. 023-95 dated February 14, 1995, declaring therein that if
Petitioners: CIR [respondent] chooses to register as a VAT person and the
Respondents: Burmeister and Wain Scandinavian Contractor Mindanao Inc. consideration for its services is paid for in acceptable foreign
(BWSC) currency and accounted for in accordance with the rules and
Summary: BWSC services were subjected to Zero-Rate VAT based on BIR rulings. regulations of the Bangko Sentral ng Pilipinas, the aforesaid services
BWSC misinterpreted a Revenue Regulation by the BIR and paid 10% VAT on its shall be subject to VAT at zero-rate.
sales of services to the Consortium. BWSC now seeks refund. Refund is granted [Respondent] chose to register as a VAT taxpayer.
but not on the basis that it was a zero-rated transaction but on the basis of non- On December 29, 1997, [respondent] availed of the Voluntary Assessment
retroactivity of the prejudicial revocation of BIR Rulings that granted them 0 % VAT Program (VAP) of the BIR. It allegedly misinterpreted Revenue
on   its   services.   SC   discussed   that   BWSC’s   services   to   the   consortium   cannot   Regulations No. 5-96 dated February 20, 1996 to be applicable to its
legally qualify for 0% VAT. An essential condition for entitlement to 0% VAT case.
under Section 102(b)(1) and (2) is that the recipient of the services is a person In [conformity] with the aforecited Revenue Regulations, [respondent]
doing business outside the Philippines. In this case, the recipient of the services subjected its sale of services to the Consortium to the 10% VAT in the
is the Consortium, which is doing business not outside, but within the Philippines total amount of P103,558,338.11 representing April to December 1996
because it has a 15-year contract to operate and maintain   NAPOCOR’s   two   100- sales since said Revenue Regulations No. 5-96 became effective only on
megawatt power barges in Mindanao. April 1996. The sum of P43,893,951.07, representing January to March
1996 sales was subjected to zero rate. Consequently, [respondent] filed its
8
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

1996 amended VAT return consolidating therein the VAT output and input (1) Processing, manufacturing or repacking goods for other
taxes for the four calendar quarters of 1996. It paid the amount persons doing business outside the Philippines which goods
of P6,994,659.67   through   BIR’s   collecting   agent,   PCIBank,   as   its   output   are subsequently exported, where the services are paid for in
tax liability for the year 1996 acceptable foreign currency and accounted for in accordance with
On January 7,1999, [respondent] was able to secure VAT Ruling No. the rules and regulations of the Bangko Sentral ng Pilipinas(BSP);
003-99 from the VAT Review Committee which reconfirmed BIR
Ruling No. 023-95 "insofar as it held that the services being rendered (2) Services other than those mentioned in the preceding
by BWSCMI is subject to VAT at zero percent (0%)." sub-paragraph, the consideration for which is paid for in
On the strength of the aforementioned rulings, [respondent] on April acceptable foreign currency and accounted for in accordance with
22,1999, filed a claim for the issuance of a tax credit certificate with the rules and regulations of the Bangko Sentral ng
Revenue District No. 113 of the BIR. [Respondent] believed that it Pilipinas (BSP);
erroneously paid the output VAT for 1996 due to its availment of the
Voluntary Assessment Program (VAP) of the BIR (3) Services rendered to persons or entities whose exemption
under special laws or international agreements to which the
Issues: Philippines is a signatory effectively subjects the supply of such
1. Whether or not BWSC is engaged in a zero-rated transaction --- NO services to zero rate;
2.Whether or not BWSC is entitled to the refund of P6,994,659.67 as erroneously
paid output VAT for the year 1996 --- YES
(4) Services rendered to vessels engaged exclusively in
international shipping; and
Held: WHEREFORE, the Court DENIES the petition.

(5) Services performed by subcontractors and/or contractors in


Ratio:
processing, converting, or manufacturing goods for an enterprise
whose export sales exceed seventy percent (70%) of total annual
1. Zero-Rated Transaction
production.

At the outset, the Court declares that the denial of the instant petition is not on the
BWSC claims that it complied with the requirements of the Tax Code for
ground  that  respondent’s  services  are  subject  to  0%  VAT.  Rather,  it  is  based  on  the  
zero rating under the second paragraph of Section 102(b).
non-retroactivity of the prejudicial revocation of BIR Ruling No. 023-95 and VAT
Ruling No. 003-99, which   held   that   respondent’s   services   are   subject   to   0%   VAT  
BWSC asserts that
and which respondent invoked in applying for refund of the output VAT.
(1) the payment of its service fees was in acceptable foreign currency,
(2) there was inward remittance of the foreign currency into the
Section 102(b) of the Tax Code, the applicable provision in 1996 when Philippines, and
respondent rendered the services and paid the VAT in question, enumerates (3) accounting of such remittance was in accordance with BSP rules.
which services are zero-rated, thus:
Moreover, BWSC contends that its services which "constitute the actual
operation and management of two (2) power barges in Mindanao" are not
(b) Transactions subject to zero-rate. ―  The  following  services  performed   "even remotely similar to project studies, information services and
in the Philippines by VAT-registered persons shall be subject to 0%: (only engineering and architectural designs under Section 4.102-2(b)(2) of
par 1 and 2 related to this case) Revenue Regulations No. 5-96."
As  such,  BWSC’s  services  need  not  be  "destined  to  be  consumed  abroad  
in order to be VAT zero-rated."
9
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

BWSC is mistaken. An essential condition for entitlement to 0% VAT under Section 102(b)(1)
and (2) is that the recipient of the services is a person doing business
Another essential condition for qualification to zero-rating under Section outside the Philippines. In this case, the recipient of the services is the
102(b)(2) is that the recipient of such services is doing business outside Consortium, which is doing business not outside, but within the Philippines
the Philippines. because it has a 15-year   contract   to   operate   and   maintain   NAPOCOR’s  
The phrase "for other persons doing business outside the Philippines" also two 100-megawatt power barges in Mindanao.
pertains to the general term "services" ; In short, services other than Therefore,  respondent’s  services  to  the  Consortium,  not  being  supplied  to  
processing, manufacturing, or repacking of goods must likewise be a person doing business outside the Philippines, cannot legally qualify for
performed for persons doing business outside the Philippines. 0% VAT.
If the provider and recipient of the "other services" are both doing business
in the Philippines, the payment of foreign currency is irrelevant. Otherwise, 2. Refund
those subject to the regular VAT under Section 102(a) can avoid paying
the VAT by simply stipulating payment in foreign currency inwardly In seeking a refund of its excess output tax, respondent relied on VAT Ruling No.
remitted by the recipient of services. 003-99,28 which reconfirmed BIR Ruling No. 023-95 "insofar as it held that the
o To interpret Section 102(b)(2) to apply to a payer-recipient of services being rendered by BWSCMI is subject to VAT at zero percent (0%)."
services doing business in the Philippines is to make the payment Respondent’s  reliance on these BIR rulings binds petitioner.
of the regular VAT under Section 102(a) dependent on the
generosity of the taxpayer. The provider of services can choose Petitioner’s   filing   of  his   Answer   before   the   CTA   challenging   respondent’s   claim   for  
to pay the regular VAT or avoid it by stipulating payment in refund effectively serves as a revocation of VAT Ruling No. 003-99 and BIR Ruling
foreign currency inwardly remitted by the payer-recipient. Such No. 023-95. However, such revocation cannot be given retroactive effect since it will
interpretation removes Section 102(a) as a tax measure in the prejudice   respondent.   Changing   respondent’s   status   will   deprive   respondent   of   a  
Tax Code, an interpretation this Court cannot sanction. A tax is a refund of a substantial amount representing excess output tax. Section 246 of the
mandatory exaction, not a voluntary contribution. Tax Code provides that any revocation of a ruling by the Commissioner of Internal
When Section 102(b)(2) stipulates payment in "acceptable foreign Revenue shall not be given retroactive application if the revocation will prejudice the
currency" under BSP rules, only those not doing business in the taxpayer. Further, there is no showing of the existence of any of the exceptions
Philippines can be required under BSP rules to pay in acceptable foreign enumerated in Section 246 of the Tax Code for the retroactive application of such
currency for their purchase of goods or services from the Philippines. In a revocation.
domestic transaction, where the provider and recipient of services are both
doing business in the Philippines, the BSP cannot require any party to However,  upon  the  filing  of  petitioner’s  Answer  dated  2  March  2000  before  the  CTA  
make payment in foreign currency. contesting  respondent’s  claim  for  refund,  respondent’s  services  shall  be  subject  to  
When Section 102(b)(2) speaks of "[s]ervices other than those the regular 10% VAT. Such filing is deemed a revocation of VAT Ruling No. 003-99
mentioned in the preceding subparagraph," the legislative intent is and BIR Ruling No. 023-95
that only the services are different between subparagraphs 1 and 2. The
requirements for zero-rating, including the essential condition that the
recipient of services is doing business outside the Philippines, remain the 04. CIR v. Sekisui Jushi (RS)
same under both subparagraphs. Topic: VAT zero-rated transactions; Unutilized Input VAT already paid may be
In this case, the payer-recipient  of  respondent’s  services  is  the  Consortium   reimbursed
which is a joint-venture doing business in the Philippines. While the
Consortium’s  principal  members  are  non-resident foreign corporations, the G.R. No. 149671
Consortium itself is doing business in the Philippines. July 21, 2006
Panganiban, C.J.
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TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

materials and goods of similar nature, and any and all equipment,
Petitioners: Commissioner of Internal Revenue materials, supplies used or employed in or related to the
Respondents: Sekisui Jushi Philippines, Inc. manufacture of such finished products.
Having registered with the Bureau of Internal Revenue (BIR) as a value-
Summary: added tax (VAT) taxpayer, respondent filed its quarterly returns with the
Sekisui is a tax-registered entity operating within a PEZA. It paid input VAT on its BIR, for the period January 1 to June 30, 1997, reflecting therein input
domestic purchases of goods and services. Subsequently, it applied for a refund of taxes in the amount of P4,631,132.70 paid by it in connection with its
its unutilized input VAT since there is no corresponding output VAT against which it domestic purchase of capital goods and services. Said input taxes
can be offset. CIR said that Sekisui failed to show that it is entitled to a refund. The remained unutilized since respondent has not engaged in any business
case proceeded, with the CTA and CA ultimately holding that Sekisui is in fact activity or transaction for which it may be liable for output tax and for which
entitled to the refund it sought. The SC agreed with the CTA and CA. It held that a said input taxes may be credited.
PEZA-registered entity is entitled to choose between 2 fiscal incentive schemes: (1) 11/11/1998 – Sekisui filed with the One-Stop-Shop Inter-Agency Tax
to pay a five percent preferential tax rate on its gross income and thus be exempt Credit and Duty Drawback Center of the Department of Finance (A
from all other taxes; or (2) to enjoy an income tax holiday, in which case it is not mouthful!   But   you   can   just   say   “CENTER-DOF”)   two   (2)   separate  
exempt from applicable national revenue taxes including the value-added tax applications for tax credit/refund of VAT input taxes paid for the period
(VAT). Since Sekisui chose the latter scheme, it is not exempt from paying VAT. January 1 to March 31, 1997 and April 1 to June 30, 1997, respectively.
HOWEVER, Sekisui was able to prove that its sales are zero-exempt; thus, it 3/26/1999 – There being no action on its application for tax credit/refund
had no resulting Output VAT against which the Input VAT it previously paid under Section 112 (B) of the 1997 National Internal Revenue Code (Tax
can be offset. Since the subject input tax it paid for its domestic purchases of Code), as amended, private respondent filed, within the two (2)year
capital goods and services remained unutilized (because, obviously, it cannot prescriptive period under Section 229 of said Code, a petition for review
be offset from a non-existent output VAT), it can claim a refund for the input with the Court of Tax Appeals
VAT previously charged by its suppliers. The amount of P4,377,102.26 (duly CIR’s  Answer: Petitioner filed its Answer to the petition asseverating that:
substantiated) is excess input taxes that justify a refund. 1. said claim for tax credit/refund is subject to administrative routinary
investigation by the BIR;
2. Respondent miserably failed to show that the amount claimed as VAT
Facts: input taxes were erroneously collected or that the same were properly
Preliminary: Business enterprises registered with the Philippine Export documented;
Zone Authority (PEZA) may choose between two fiscal incentive schemes: 3. taxes due and collected are presumed to have been made in
(1) to pay a five percent preferential tax rate on its gross income and thus accordance with law, hence, not refundable;
be exempt from all other taxes; or (2) to enjoy an income tax holiday, in 4. the burden of proof is on the taxpayer to establish his right to a refund
which case it is not exempt from applicable national revenue taxes in an action for tax refund. Failure to discharge such duty is fatal to his
including the value-added tax (VAT). The present respondent (Sekisui), action;
which availed itself of the second tax incentive scheme, has proven that all 5. respondent should show that it complied with the provisions of Section
its transactions were export sales. Hence, they should be VAT zero-rated. 204 in relation to Section 229 of the 1997 Tax Code; and
Sekisui Jushi Philippines, Inc. (Sekisui) is a domestic corporation duly 6. claims for refund are strictly construed against the taxpayer as it
organized and existing under and by virtue of the laws of the Philippines partakes of the nature of a tax exemption. Hence, petitioner prayed for
with principal office located at the Special Export Processing  Zone,  Laguna   the  denial  of  respondent’s  petition.
Technopark,  Biñan, Laguna.
o It is principally engaged in the business of manufacturing, CTA RULING: Sekisui was entitled to the refund. While the company was
importing, exporting, buying, selling, or otherwise dealing in, at registered with the PEZA as an ecozone and was, as such, exempt from
wholesale such goods as strapping bands and other packaging income tax, it availed itself of the fiscal incentive under Executive Order
11
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

(EO) No. 226. It thereby subjected itself to other internal revenue taxes like By availing itself of the income tax holiday, Sekisui became subject to the
the VAT. VAT. It correctly registered as a VAT taxpayer, because its transactions
CA RULING: CA upheld the Decision of the CTA. According to the CA, were not VAT-exempt.
respondent had complied with the procedural and substantive Notably, while an ecozone is geographically within the Philippines, it is
requirements for a claim by 1) submitting receipts, invoices, and supporting deemed a separate customs territory and is regarded in law as
papers as evidence; 2) paying the subject input taxes on capital goods; 3) foreign soil (take note!).
not applying the input taxes against any output tax liability; and 4) filing the o Sales by suppliers from outside the borders of the ecozone
claim within the twoyear prescriptive period under Section 229 of the 1997 to this separate customs territory are deemed as exports and
Tax Code. treated as export sales (NOTE: SALES ARE FROM OUTSIDE
THE ECOZONE TO THE INSIDE. Conversely, these are
Issues: Whether or not respondent is entitled to the refund or issuance of tax credit deemed purchases of the PEZA-registered entity).
certificate in the amount of P4,377,102.26 as alleged unutilized input taxes paid on o These sales are zero-rated or subject to a tax rate of zero
domestic purchase of capital goods and services percent (0%).
for the period covering January 1 to June 30, 1997. – YES, SEKISUI IS ENTITLED o Notwithstanding the fact that its purchases should have been
TO A REFUND OF THE UNUTILIZED INPUT VAT zero-rated, Sekisui was able to prove that it had paid input taxes
in the amount of P4,377,102.26. The CTA found, and the CA
Held: affirmed, that this amount was substantially supported by invoices
Petition has no merit. DISMISSED. and Official Receipts, and petitioner has not challenged the
CA decision is AFFIRMED. computation. Accordingly, this Court upholds the findings of the
CTA and the CA.
Ratio: On the other hand, since 100% of the products of Sekisui are exported,
all its transactions are deemed export sales and are thus VAT zero--
ENTITLEMENT TO REFUND rated (ie, NO OUTPUT VAT.)
An entity registered with the PEZA as an ecozone may be covered by o (So, rundown: The suppliers from outside the ecozone are
the VAT system. deemed exporters of goods to the ecozone, which is regarderd in
o Section 23 of Republic Act 7916, as amended, gives a PEZA-- law as foreign soil. Similarly, Sekisui, a PEZA-registered entity, is
registered enterprise the option to choose between two fiscal an  actual  exporter  of  goods  to  other  countries.  Both  of  the  entities’  
incentives: sales are zero-exempt. We are concerned with the zero-exempt
i. a five percent (5%) preferential tax rate on its gross transaction of Sekisui.)
income under the said law (if the entity avails of this It has been shown that Sekisui has no output tax with which it could offset
rate, it is exempt from all taxes, including VAT); or its paid input tax (hence, input tax is unutilized).
ii. an income tax holiday provided under Executive Since the subject input tax it paid for its domestic purchases of
Order No. 226 or the Omnibus Investment Code of capital goods and services remained unutilized (because, obviously,
1987, as amended (if the entity avails of this tax it cannot be offset from a non-existent output VAT), it can claim a
holiday, it is exempt from income taxes for a number refund for the input VAT previously charged by its suppliers. The
of years, but not from other national internal amount of P4,377,102.26 (duly substantiated) is excess input taxes
revenue taxes like the VAT) that justify a refund.
CA and CTA found that Sekisui availed itself of the fiscal incentive of an
income tax holiday refund under EO 226.
o Absent a sufficient showing of error, findings of the CTA as affirmed by the CA
are deemed conclusive. Thus, the SC respects that finding.

12
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VALUE ADDED TAX (VAT)

05. CIR v. Seagate Technology (HV) •   Administrative claim for refund of VAT input taxes in the amount of
Topic: VAT zero-rated transactions P28,369,226.38 with supporting documents (inclusive of the P12,267,981.04 VAT
Relevant Laws/ BIR Issuances: input taxes subject of this Petition for Review), was filed on 4 October 1999 with
•  Section  106  and  108  B  of  the  NIRC  of  the  1997   Revenue District Office No. 83, Talisay Cebu;
•   No   final   action   has   been   received   by   Seagate   from   CIR   on   Seagate’s   claim   for  
G.R. No. 153866 VAT refund.
February 11, 2005 Citibank, N.A. vs. Court of Appeals, 280 SCRA 459 (1997), the Supreme Court
PANGANIBAN, J. ruled that:
“A  claimant  has  the  burden  of  proof  to  establish  the  factual  basis  of  his or her claim
Petitioners: Commissioner of Internal Revenue (CIR) for  tax  credit/refund.”
Respondents: SEAGATE TECHNOLOGY (PHILIPPINES) (abbre. Seagate) •   Claims   for   tax   refund/tax   credit   are   construed   in   ‘strictissimi   juris’   against  
the taxpayer. This is due to the fact that claims for refund/credit [partake of]
Summary: the nature of an exemption from tax. Thus, it is incumbent upon the
Seagate applied for tax refund for VAT Input Taxes. BIR denied the claim for refund, [respondent] to prove that it is indeed entitled to the refund/credit sought.
CTA ruled Failure on the part of the [respondent] to prove the same is fatal to its claim
Special laws that expressly grant preferential tax treatment to business for tax credit. He who claims exemption must be able to justify his claim by
establishments registered and operating within an ecozone, which by law is the clearest grant of organic or statutory law. An exemption from the
considered as a separate customs territory. As such, Seagate is exempt from all common burden cannot be permitted to exist upon vague implications;
internal revenue taxes, including the VAT, and regulations pertaining thereto. It has •   Granting,   without   admitting,   that   [respondent]   is   a   Philippine   Economic   Zone  
opted for the income tax holiday regime, instead of the 5 percent preferential tax Authority (PEZA) registered Ecozone Enterprise, then its business is not subject to
regime. As a matter of law and procedure, its registration status entitling it to such VAT pursuant to Section 24 of Republic Act No. ([RA]) 7916 in relation to Section
tax holiday can no longer be questioned. Its sales transactions intended for 103  of  the  Tax  Code,  as  amended.    As  Seagate’s  business  is  not  subject  to  VAT,  
export may not be exempt, but like its purchase transactions, they are zero- the capital goods and services it alleged to have purchased are considered not
rated. No prior application for the effective zero rating of its transactions is used in VAT taxable business. As such, Seagate is not entitled to refund of input
necessary. Being VAT-registered and having satisfactorily complied with all taxes on such capital goods pursuant to Section 4.106.1 of Revenue Regulations
the requisites for claiming a tax refund of or credit for the input VAT paid on No. ([RR])7-95, and of input taxes on services pursuant to Section 4.103 of said
capital goods purchased, Seagate is entitled to such VAT refund or credit. regulations.
•The  CTA  rendered  a  decision  granting  for  the  claim  for  refund.
Facts: •CA  affirmed  the  CTA’s  Decision  granting  the  claim  for  refund  or  issuance  of  a  tax  
•   Seagate   is   a   resident   foreign   corporation   duly   registered   with   the   Securities   and   credit certificate (TCC) in favor of respondent in the reduced amount of
Exchange Commission to do business in the Philippines, with principal office P12,122,922.66. This sum represented the unutilized but substantiated input VAT
address at the new Cebu Township One, Special Economic Zone, Barangay paid on capital goods purchased for the period covering April 1, 1998 to June 30,
Cantao-an, Naga, Cebu 1999.
•   CIR is sued in his official capacity, having been duly appointed and empowered to perform the duties •CA   provided   that   Seagate   availed   itself   only   of   the   fiscal   incentives   under  
of his office, including, among others, the duty to act and approve claims for refund or tax credit; Executive Order No. (EO) 226 (otherwise known as the Omnibus Investment Code
Seagate is registered with the Philippine Export Zone Authority (PEZA) and has been issued PEZA of 1987), not of those under both Presidential Decree No. (PD) 66, as amended,
Certificate No. 97-044 pursuant to Presidential Decree No. 66, as amended, to engage in the and Section 24 of RA 7916. Respondent was, therefore, considered exempt only
manufacture of recording components primarily used in computers for export. Such registration was from the payment of income tax when it opted for the income tax holiday in lieu of
made on 6 June 1997; the 5 percent preferential tax on gross income earned. As a VAT-registered entity,
•  Seagate  is  VAT  registered  entity.    VAT  returns  for  the  period  1  April  1998  to  30  June  1999  have  been   though, it was still subject to the payment of other national internal revenue taxes,
filed.
like the VAT. Moreover, the CA held that neither Section 109 of the Tax Code nor

13
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

Sections 4.106-1 and 4.103-1 of RR 7-95 were applicable. Having paid the input
VAT on the capital goods it purchased, respondent correctly filed the •Nature of the VAT and the Tax Credit Method:
administrative and judicial claims for its refund within the two-year Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 10
prescriptive period. Such payments were -- to the extent of the refundable (now 12) % levied on every importation of goods, whether or not in the course of
value -- duly supported by VAT invoices or official receipts, and were not yet trade or business, or imposed on each sale, barter, exchange or lease of goods or
offset against any output VAT liability. properties or on each rendition of services in the course of trade or business as they
pass along the production and distribution chain, the tax being limited only to the
value added to such goods, properties or services by the seller, transferor or lessor.
Issue: It is an indirect tax that may be shifted or passed on to the buyer, transferee
1. WON Seagate is entitled to the refund or issuance of Tax Credit Certificate in the or lessee of the goods, properties or services. As such, it should be understood
amount of P12,122,922.66 representing alleged unutilized input VAT paid on capital not in the context of the person or entity that is primarily, directly and legally liable
goods purchased for the period April 1, 1998 to June 30, 1999? --- for its payment, but in terms of its nature as a tax on consumption. In either case,
though, the same conclusion is arrived at. If at the end of a taxable quarter the
Held: output taxes charged by a seller are equal to the input taxes passed on by the
•  Petition  DENIED suppliers, no payment is required. It is when the output taxes exceed the input
•  Decision  AFFIRMED taxes that the excess has to be paid. If, however, the input taxes exceed the output
taxes, the excess shall be carried over to the succeeding quarter or quarters.
Ratio: Should the input taxes result from zero-rated or effectively zero-rated transactions
•  No doubt, as a PEZA-registered enterprise within a special economic zone, or from the acquisition of capital goods, any excess over the output taxes shall
Seagate is entitled to the fiscal incentives and benefits provided for in either instead be refunded to the taxpayer or credited against other internal revenue taxes.
PD 66[9] or EO 226. It shall, moreover, enjoy all privileges, benefits,
advantages or exemptions under both Republic Act Nos. (RA) 7227 and 7844. Zero-Rated and Effectively Zero-Rated Transactions (IMPT!)
•Preferential Tax Treatment Under Special Laws: If it avails itself of PD 66,
notwithstanding the provisions of other laws to the contrary, respondent shall Although both are taxable and similar in effect, zero-rated transactions differ from
not be subject to internal revenue laws and regulations for raw materials, effectively zero-rated transactions as to their source.
supplies, articles, equipment, machineries, spare parts and wares, except Zero-rated transactions generally refer to the export sale of goods and supply
those prohibited by law, brought into the zone to be stored, broken up, of services. The tax rate is set at zero. When applied to the tax base, such rate
repacked, assembled, installed, sorted, cleaned, graded or otherwise obviously results in no tax chargeable against the purchaser. The seller of such
processed, manipulated, manufactured, mixed or used directly or indirectly in transactions charges no output tax, but can claim a refund of or a tax credit
such activities. Even so, respondent would enjoy a net-operating loss carry certificate for the VAT previously charged by suppliers.
over; accelerated depreciation; foreign exchange and financial assistance;
and exemption from export taxes, local taxes and licenses. Effectively zero-rated transactions, however, refer to the sale of goods or
•   Comparatively, the same exemption from internal revenue laws and regulations supply of services to persons or entities whose exemption under special laws
applies if EO 226 is chosen. Under this law, respondent shall further be entitled to or international agreements to which the Philippines is a signatory effectively
an income tax holiday; additional deduction for labor expense; simplification of subjects such transactions to a zero rate. Again, as applied to the tax base, such
customs procedure; unrestricted use of consigned equipment; access to a bonded rate does not yield any tax chargeable against the purchaser. The seller who
manufacturing warehouse system; privileges for foreign nationals employed; tax charges zero output tax on such transactions can also claim a refund of or a tax
credits on domestic capital equipment, as well as for taxes and duties on raw credit certificate for the VAT previously charged by suppliers.
materials; and exemption from contractors’  taxes,  wharfage  dues,  taxes  and  duties  
on imported capital equipment and spare parts, export taxes, duties, imposts and Zero Rating and Exemption (IMPT!)
fees, local taxes and licenses, and real property taxes.

14
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

In terms of the VAT computation, zero rating and exemption are the same, but the Since the purchases of Seagateare not exempt from the VAT, the rate to be
extent of relief that results from either one of them is not. applied is zero. Its exemption under both PD 66 and RA 7916 effectively
subjects such transactions to a zero rate, because the ecozone within which it
Applying the destination principle to the exportation of goods, automatic zero is registered is managed and operated by the PEZA as a separate customs
rating is primarily intended to be enjoyed by the seller who is directly and territory. This means that in such zone is created the legal fiction of foreign
legally liable for the VAT, making such seller internationally competitive by territory. Under the cross-border principle of the VAT system being enforced
allowing the refund or credit of input taxes that are attributable to export sales. by the BIR, no VAT shall be imposed to form part of the cost of goods
Effective zero rating, on the contrary, is intended to benefit the purchaser who, not destined for consumption outside of the territorial border of the taxing
being directly and legally liable for the payment of the VAT, will ultimately bear the authority. If exports of goods and services from the Philippines to a foreign
burden of the tax shifted by the suppliers. In both instances of zero rating, there is country are free of the VAT, then the same rule holds for such exports from
total relief for the purchaser from the burden of the tax. But in an exemption there is the national territory -- except specifically declared areas -- to an ecozone.
only partial relief, because the purchaser is not allowed any tax refund of or credit
for input taxes paid. Sales made by a VAT-registered person in the customs territory to a PEZA-
registered entity are considered exports to a foreign country; conversely, sales by a
Exempt Transaction and Exempt Party (IMPT!) PEZA-registered entity to a VAT-registered person in the customs territory are
deemed imports from a foreign country. An ecozone -- indubitably a geographical
The object of exemption from the VAT may either be the transaction itself or territory of the Philippines -- is, however, regarded in law as foreign soil. This legal
any of the parties to the transaction. An exempt transaction, on the one hand, fiction is necessary to give meaningful effect to the policies of the special law
involves goods or services which, by their nature, are specifically listed in and creating the zone. If respondent is located in an export processing zone within that
expressly exempted from the VAT under the Tax Code, without regard to the tax ecozone, sales to the export processing zone, even without being actually exported,
status -- VAT-exempt or not -- of the party to the transaction. Indeed, such shall in fact be viewed as constructively exported under EO 226. Considered as
transaction is not subject to the VAT, but the seller is not allowed any tax refund of export sales, such purchase transactions by respondent would indeed be subject to
or credit for any input taxes paid. a zero rate.

An exempt party, on the other hand, is a person or entity granted VAT exemption -END-
under the Tax Code, a special law or an international agreement to which the (Since topic focus for this case is zero rated transactions, the following part may not be read anymore
Philippines is a signatory, and by virtue of which its taxable transactions become but added here in this digest for future reference)
exempt from the VAT. Such party is also not subject to the VAT, but may be allowed
Tax Exemptions Broad and Express
a tax refund of or credit for input taxes paid, depending on its registration as a VAT
Applying the special laws we have earlier discussed, respondent as an entity is exempt from internal
or non-VAT taxpayer. revenue laws and regulations.
This exemption covers both direct and indirect taxes, stemming from the very nature of the VAT as a
As mentioned earlier, the VAT is a tax on consumption, the amount of which may be tax on consumption, for which the direct liability is imposed on one person but the indirect burden is
shifted or passed on by the seller to the purchaser of the goods, properties or passed on to another. Respondent, as an exempt entity, can neither be directly charged for the VAT on
services. While the liability is imposed on one person, the burden may be passed on its sales nor indirectly made to bear, as added cost to such sales, the equivalent VAT on its purchases.
to another. Therefore, if a special law merely exempts a party as a seller from its Ubi lex non distinguit, nec nos distinguere debemus. Where the law does not distinguish, we ought
direct liability for payment of the VAT, but does not relieve the same party as a not to distinguish.
purchaser from its indirect burden of the VAT shifted to it by its VAT-registered
Moreover, the exemption is both express and pervasive for the following reasons:
suppliers, the purchase transaction is not exempt. Applying this principle to the
case at bar, the purchase transactions entered into by respondent are not VAT- First,   RA   7916   states   that   “no   taxes,   local   and   national,   shall   be   imposed   on   business   establishments  
exempt. operating within the   ecozone.”   Since   this   law   does   not   exclude   the   VAT   from   the   prohibition,   it   is  
deemed included. Exceptio firmat regulam in casibus non exceptis. An exception confirms the rule in

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VALUE ADDED TAX (VAT)

cases not excepted; that is, a thing not being excepted must be regarded as coming within the purview of Tax Refund as Tax Exemption
the general rule. Moreover, even though the VAT is not imposed on the entity but on the transaction, it
may still be passed on and, therefore, indirectly imposed on the same entity -- a patent circumvention of To be sure, statutes that grant tax exemptions are construed strictissimi juris against the taxpayer and
the law. That no VAT shall be imposed directly upon business establishments operating within the liberally in favor of the taxing authority.
ecozone under RA 7916 also means that no VAT may be passed on and imposed indirectly. Quando
aliquid prohibetur ex directo prohibetur et per obliquum. When anything is prohibited directly, it is also Tax refunds are in the nature of such exemptions. Accordingly, the claimants of those refunds bear the
prohibited indirectly. burden of proving the factual basis of their claims; and of showing, by words too plain to be mistaken,
that the legislature intended to exempt them. In the present case, all the cited legal provisions are
Second, when RA 8748 was enacted to amend RA 7916, the same prohibition applied, except for real teeming with life with respect to the grant of tax exemptions too vivid to pass unnoticed. In addition,
property taxes that presently are imposed on land owned by developers. This similar and repeated respondent easily meets the challenge.
prohibition  is  an  unambiguous  ratification  of  the  law’s  intent  in  not  imposing  local  or  national  taxes  on  
business enterprises within the ecozone. Respondent, which as an entity is exempt, is different from its transactions which are not exempt. The
end result, however, is that it is not subject to the VAT. The non-taxability of transactions that are
Third,  foreign  and  domestic  merchandise,  raw  materials,  equipment  and  the  like  “shall  not  be  subject  to   otherwise taxable is merely a necessary incident to the tax exemption conferred by law upon it as an
x x x internal  revenue  laws  and  regulations”  under  PD  66  -- the original charter of PEZA (then EPZA) entity, not upon the transactions themselves. Nonetheless, its exemption as an entity and the non-
that was later amended by RA 7916. No provisions in the latter law modify such exemption. exemption of its transactions lead to the same result for the following considerations:

Although this exemption puts the government at an initial disadvantage, the reduced tax collection First, the contemporaneous construction of our tax laws by BIR authorities who are called upon to
ultimately redounds to the benefit of the national economy by enticing more business investments and execute or administer such laws will have to be adopted. Their prior tax issuances have held
creating more employment opportunities. inconsistent positions brought about by their probable failure to comprehend and fully appreciate the
nature of the VAT as a tax on consumption and the application of the destination principle. Revenue
Fourth, even the rules implementing the PEZA law clearly reiterate that merchandise -- except those Memorandum Circular No. (RMC) 74-99, however, now clearly and correctly provides that any VAT-
prohibited by law -- “shall  not  be  subject  to  x  x  x  internal  revenue  laws  and  regulations  x  x  x”  if  brought   registered   supplier’s   sale   of   goods,   property   or   services   from   the   customs   territory   to   any   registered  
to  the  ecozone’s  restricted  area  for  manufacturing  by  registered  export  enterprises,  of  which  respondent   enterprise operating in the ecozone -- regardless  of  the  class  or  type  of  the  latter’s  PEZA  registration  --
is one. These rules also apply to all enterprises registered with the EPZA prior to the effectivity of such is legally entitled to a zero rate.
rules.
Second, the policies of the law should prevail. Ratio legis est anima. The reason for the law is its very
Fifth, export processing zone enterprises registered with the Board of Investments (BOI) under EO 226 soul.
patently enjoy exemption from national internal revenue taxes on imported capital equipment
reasonably needed and exclusively used for the manufacture of their products; on required supplies and In PD 66, the urgent creation of the EPZA which preceded the PEZA, as well as the establishment of
spare part for consigned equipment; and on foreign and domestic merchandise, raw materials, export   processing   zones,   seeks   “to   encourage   and   promote   foreign   commerce   as   a   means   of   x   x   x  
equipment and the like -- except those prohibited by law -- brought into the zone for manufacturing. In strengthening our export trade and foreign exchange position, of hastening industrialization, of reducing
addition, they are given credits for the value of the national internal revenue taxes imposed on domestic domestic  unemployment,  and  of  accelerating  the  development  of  the  country.”
capital equipment also reasonably needed and exclusively used for the manufacture of their
products,[94] as well as for the value of such taxes imposed on domestic raw materials and supplies that RA 7916, as amended by RA 8748, declared that by creating the PEZA and integrating the special
are used in the manufacture of their export products and that form part thereof. economic  zones,  “the  government  shall actively encourage, promote, induce and accelerate a sound and
balanced industrial, economic and social development of the country x x x through the establishment,
Sixth, the exemption from local and national taxes granted under RA 7227 are ipso facto accorded to among others, of special economic zones x x x that shall effectively attract legitimate and productive
ecozones. In case of doubt, conflicts with respect to such tax exemption privilege shall be resolved in foreign  investments.”
favor of the ecozone.
Under  EO  226,  the  “State  shall  encourage  x  x  x  foreign  investments  in  industry  x  x  x  which  shall  x  x  x  
And seventh, the tax credits under RA 7844 -- given for imported raw materials primarily used in the meet the tests of international competitiveness[,] accelerate development of less developed regions of
production of export goods, and for locally produced raw materials, capital equipment and spare parts the country[,] and   result   in   increased   volume   and   value   of   exports   for   the   economy.”[114]   Fiscal  
used by exporters of non-traditional products -- shall also be continuously enjoyed by similar exporters incentives that are cost-efficient and simple to administer shall be devised and extended to significant
within the ecozone. Indeed, the latter exporters are likewise entitled to such tax exemptions and credits. projects   “to   compensate   for   market   imperfections,   to   reward   performance contributing to economic
development,”  and  “to  stimulate  the  establishment  and  assist  initial  operations  of  the  enterprise.”

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Even if it is argued that respondent is subject to the 5 percent preferential tax regime in RA 7916,
Wisely  accorded  to  ecozones  created  under  RA  7916[117]  was  the  government’s  policy   -- spelled out Section 24 thereof does not preclude the VAT. One can, therefore, counterargue that such provision
earlier in RA 7227 -- of converting into alternative productive uses the former military reservations and merely exempts respondent from taxes imposed on business. To repeat, the VAT is a tax imposed on
their extensions, as well as of providing them incentives to enhance the benefits that would be derived consumption, not on business. Although respondent as an entity is exempt, the transactions it enters
from them in promoting economic and social development. into are not necessarily so. The VAT payments made in excess of the zero rate that is imposable may
certainly be refunded or credited.
Finally, under RA 7844,  the  State  declares  the  need  “to  evolve  export  development  into  a  national  effort”  
in order to win international markets. By providing many export and tax incentives, the State is able to Compliance with All Requisites for VAT Refund or Credit
drive  home  the  point  that  exporting  is  indeed  “the  key  to  national survival and the means through which
the economic goals of increased employment and enhanced incomes can most expeditiously be As further enunciated by the Tax Court, respondent complied with all the requisites for claiming a VAT
achieved.” refund or credit. First, respondent is a VAT-registered entity. This fact alone distinguishes the present
case from Contex, in which this Court held that the petitioner therein was registered as a non-VAT
The   Tax   Code   itself   seeks   to   “promote   sustainable   economic   growth   x   x   x;;   x   x   x   increase   economic   taxpayer. Hence, for being merely VAT-exempt, the petitioner in that case cannot claim any VAT
activity; and x x x create a robust environment for business to enable firms to compete better in the refund or credit.
regional   as   well   as   the   global   market.”   After   all,   international   competitiveness   requires   economic   and  
tax incentives to lower the cost of goods produced for export. State actions that affect global Second, the input taxes paid on the capital goods of respondent are duly supported by VAT invoices and
competition need to be specific and selective in the pricing of particular goods or services. have not been offset against any output taxes.

All these statutory policies are congruent to the constitutional mandates of providing incentives to VAT Registration, Not Application for Effective Zero Rating, Indispensable to VAT Refund
needed investments, as well as of promoting the preferential use of domestic materials and locally
produced goods and adopting measures to help make these competitive. Tax credits for domestic inputs Registration is an indispensable requirement under our VAT law. Petitioner alleges that respondent did
strengthen  backward  linkages.    Rightly  so,  “the  rule  of  law  and  the  existence  of  credible and efficient register for VAT purposes with the appropriate Revenue District Office. However, it is now too late in
public  institutions  are  essential  prerequisites  for  sustainable  economic  development.” the day for petitioner to challenge the VAT-registered   status   of   respondent,   given   the   latter’s   prior  
representation before the lower courts and the mode of appeal taken by petitioner before this Court.
Tax Refund or Credit in Order
The PEZA law, which carried over the provisions of the EPZA law, is clear in exempting from internal
Having   determined   that   respondent’s   purchase   transactions   are   subject   to   a   zero   VAT   rate,   the   tax   revenue laws and regulations the equipment -- including capital goods -- that registered enterprises will
refund or credit is in order. use, directly or indirectly, in manufacturing. EO 226 even reiterates this privilege among the incentives
it gives to such enterprises. Petitioner merely asserts that by virtue of the PEZA registration alone of
As correctly held by both the CA and the Tax Court, respondent had chosen the fiscal incentives in EO respondent, the latter is not subject to the VAT. Consequently, the capital goods and services
226 over those in RA 7916 and PD 66. It opted for the income tax holiday regime instead of the 5 respondent has purchased are not considered used in the VAT business, and no VAT refund or credit is
percent preferential tax regime. due.  This  is  a  non  sequitur.    By  the  VAT’s  very  nature  as  a  tax  on  consumption,  the  capital  goods  and  
services respondent has purchased are subject to the VAT, although at zero rate. Registration does not
The latter scheme is not a perfunctory aftermath of a simple registration under the PEZA law, for EO determine taxability under the VAT law.
226 also has provisions to contend with. These two regimes are in fact incompatible and cannot be
availed of simultaneously by the same entity. While EO 226 merely exempts it from income taxes, the Moreover, the facts have already been determined by the lower courts. Having failed to present
PEZA law exempts it from all taxes. evidence to support its contentions against the income tax holiday privilege of respondent, petitioner is
deemed  to  have  conceded.    It  is  a  cardinal  rule  that  “issues  and  arguments  not  adequately  and  seriously  
Therefore, respondent can be considered exempt, not from the VAT, but only from the payment of brought   below   cannot   be   raised   for   the   first   time   on   appeal.”   This   is   a   “matter   of   procedure”   and   a  
income tax for a certain number of years, depending on its registration as a pioneer or a non-pioneer “question  of  fairness.”    Failure  to  assert  “within  a reasonable time warrants a presumption that the party
enterprise. Besides, the remittance of the aforesaid 5 percent of gross income earned in lieu of local and entitled  to  assert  it  either  has  abandoned  or  declined  to  assert  it.”
national taxes imposable upon business establishments within the ecozone cannot outrightly determine a
VAT exemption. Being subject to VAT, payments erroneously collected thereon may then be refunded The BIR regulations additionally requiring an approved prior application for effective zero rating cannot
or credited. prevail over the clear VAT   nature   of   respondent’s   transactions.     The   scope   of   such   regulations   is   not  
“within  the  statutory  authority  x  x  x  granted  by  the  legislature.

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First, a mere administrative issuance, like a BIR regulation, cannot amend the law; the former cannot Summary:
purport to do any more than interpret the latter. The courts will not countenance one that overrides the Toshiba is a PEZA-registered corporation located inside an Ecozone. It filed VAT
statute it seeks to apply and implement. returns in 1996, with P18 million as input VAT. It claimed a refund of the VAT paid
because Toshiba had yet to engage in any business activity for which it may be
Other than the general registration of a taxpayer the VAT status of which is aptly determined, no
provision under our VAT   law   requires   an   additional   application   to   be   made   for   such   taxpayer’s  
liable for output VAT. The Supreme Court held that (1) an Ecozone is considered a
transactions to be considered effectively zero-rated. An effectively zero-rated transaction does not and foreign territory, and (2) pursuant to the Cross Border Doctrine (CBD), no VAT shall
cannot become exempt simply because an application therefor was not made or, if made, was denied. be imposed to form part of the cost of goods destined for consumption outside of
To allow the additional requirement is to give unfettered discretion to those officials or agents who, the territorial border of the taxing authority. Thus, being in an Ecozone, which is
without fluid consideration, are bent on denying a valid application. Moreover, the State can never be outside of the territorial border of the taxing authority, Toshiba is a VAT-exempt
estopped by the omissions, mistakes or errors of its officials or agents. entity. Lastly, the Supreme Court also held that since output VAT was passed on to
Toshiba, and thus incurring input VAT, it can validly obtain a tax credit or a tax
Second, grantia argumenti that such an application is required by law, there is still the presumption of
refund, pursuant to certain RRs and RMCs of BIR.
regularity  in  the  performance  of  official  duty.  Respondent’s  registration  carries  with  it  the  presumption
that, in the absence of contradictory evidence, an application for effective zero rating was also filed and
approval thereof given. Besides, it is also presumed that the law has been obeyed by both the Facts:
administrative officials and the applicant. Toshiba (Philippines) is a domestic corporation primarily engaged in the business of
manufacturing and exporting all types of computer hardware and software. It is duly
Third, even though such an application was not made, all the special laws we have tackled exempt registered with SEC and the Philippine Economic Zone Authority (PEZA) as an
respondent not only from internal revenue laws but also from the regulations issued pursuant thereto. Ecozone Export Enterprise, with its principal office in Biñan. It is also registered with
Leniency in the implementation of the VAT in ecozones is an imperative, precisely to spur economic the BIR as a VAT taxpayer and a withholding agent.
growth in the country and attain global competitiveness as envisioned in those laws.

A VAT-registered status, as well as compliance with the invoicing requirements, is sufficient for the
Toshiba filed its VAT returns for the first half of 1996, with a total amount of P18
effective zero rating of the transactions of a taxpayer. The nature of its business and transactions can million as input VAT. It alleged that the said input VAT was from its purchase of
easily be perused from, as already clearly indicated in, its VAT registration papers and photocopied capital goods and services, which remained unutilized because Toshiba had yet to
documents attached thereto. Hence, its transactions cannot be exempted by its mere failure to apply for engage in any business activity for which it may be liable for output VAT.
their effective zero rating. Otherwise, their VAT exemption would be determined, not by their nature, Thereafter, Toshiba applied for a tax credit/refund, which the CIR did not allow. The
but  by  the  taxpayer’s  negligence  -- a result not at all contemplated. Administrative convenience cannot Court of Tax Appeals granted the tax credit/refund, and the CA agreed with the
thwart legislative mandate. CTA. Hence, this petition by the CIR.

Issue/Held: Whether or not Toshiba is entitled to the tax credit/refund of its input
06. CIR v. Toshiba (JT) VAT on its purchases of capital goods and services—YES.
Topic: An Ecozone enterprise is a VAT-exempt entity. Sales of goods, properties,
and services by persons from the Customs Territory to Ecozone enterprises shall be Ratio:
subject to VAT at zero percent (0%). I. VAT-exempt transactions v. VAT-exempt entities
A. Arguments of the parties
G.R. No. 150154 1. Toshiba:   Pursuant   to   Section   106(b)   of   the   1977   Tax   Code,   “A  
Aug. 9, 2005 VAT-registered person may apply for the issuance of a tax credit
Chico-Nazario, J. certificate or refund of input taxes paid on capital goods imported
or locally purchased, to the extent that such input taxes have not
Petitioner: CIR been  applied  against  output  taxes.”
Respondent: Toshiba Information Equipment (Philippines), Inc. 2. CIR:

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a.RR 7-95:   “Refund of input taxes on capital goods shall be A. PEZA-registered enterprises, such as Toshiba, are located within so-
allowed only to the extent that such capital goods are used in called  “Ecozones.”
VAT taxable business. If it is also used in exempt operations, 1. Such registered enterprises are actually tax-exempt, not because
the input tax refundable shall only be the ratable portion a 5% preferential tax rate on gross income is imposed in lieu of all
corresponding  to  the  taxable  operations.” taxes, but because of the fiction that Ecozones are foreign
b. Section   103   of   the   1977   Tax   Code:   “The   following   shall   be   territory.
exempt from value-added tax: xxx Transactions which are 2. Sales made by a supplier in the Customs Territory to a purchaser
exempt under special laws, except those granted under located in the Ecozone shall be treated as an exportation, while
Presidential Decree No. 66, 529, 972, 1491, and 1590, and sales made by a supplier from within the Ecozone to a purchaser
non-electric cooperatives under Republic Act No. 6938, or in the Customs Territory shall be considered an importation.
international agreements to which the Philippines is a B. According to the Cross Border Doctrine (CBD), to which the Philippine
signatory VAT system adheres to: NO VAT SHALL BE IMPOSED TO FORM
B. Supreme  Court’s  ruling PART OF THE COST OF GOODS DESTINED FOR CONSUMPTION
1. CIR failed to distinguish between a VAT-exempt transaction and a OUTSIDE OF THE TERRITORIAL BORDER OF THE TAXING
VAT-exempt entity. Citing CIR v. Seagate: AUTHORITY. #icapslockmoparaintense
a. An exempt transaction: involves goods or services which, by 1. As a consequence of the CBD, no output VAT may be passed on
their nature, are specifically listed in and expressly exempted to an Ecozone enterprise since it is a VAT-exempt entity.
from the VAT under the Tax Code, without regard to the tax 2. The VAT treatment of sales to an Ecozone enterprise, however,
status – VAT-exempt or not – of the party to the transaction varies, depending on whether the supplier is VAT-registered or
b. An exempt party: a person or entity granted VAT exemption not, pursuant to the rules laid down in RMC 74-99:
under the Tax Code, a special law or an international a. Sales by a VAT-registered supplier to an Ecozone enterprise
agreement to which the Philippines is a signatory, and by shall be treated as an export sale, which subjects it to 0%
virtue of which its taxable transactions become exempt from VAT.
VAT b. In zero-rated transactions, the VAT-registered supplier
2. Section 103 of the 1977 Tax Code, which the CIR used as legal shall not pass on any output VAT to the Ecozone enterprise,
basis for its arguments, relates to VAT-exempt transactions. and at the same time, shall be entitled to claim tax
a. Section 103 provides for VAT-exempt transactions by virtue credit/refund of its input VAT attributable to such sales.
of special laws. c. Zero-rating of export sales primarily intends to benefit the
b. Since these transactions are not subject to VAT, the sellers exporter (i.e., the supplier from the Customs Territory), who
cannot pass on any of the output VAT to the purchasers, and is directly and legally liable for the VAT, making it
they may not claim a tax refund/credit of the input VAT paid internationally competitive by allowing it to credit/refund the
thereon. input VAT attributable to its export sales.
3. However, the exception to the exception granted in Section 103 d. Sales by a non-registered supplier to an Ecozone enterprise
provides that those transactions falling PD 66 are not granted would only exempt the supplier from VAT, and the supplier
exemptions. cannot be allowed to claim a credit or refund of its input VAT.
a. PD 66 created the Export Processing Zone Authority (EPZA), C. Thus, even if according to the 1977 Tax Code, PEZA-registered
which is now the PEZA. enterprises are not exempt from VAT, they are actually and in reality
b. Under PD 66, PEZA-registered enterprises are subject to a exempt by virtue of the Cross Border Doctrine.
5% preferential tax rate in lieu of all taxes. III. Other matters regarding zero-rated transactions
II. VAT on Ecozone enterprises, pursuant to PD 66

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A. Prior to the passage of RMC 74-99, which came out on October 15, WHEREFORE, based on the foregoing, this Court AFFIRMS the decision of the
1999, a PEZA-registered enterprise may be VAT-exempt, depending Court of Appeals in CA-G.R. SP. No. 59106, and the order of the CTA in CTA Case
on the type of fiscal incentive availed of by such enterprise. No. 5593, ordering said petitioner CIR to refund or, in the alternative, to issue a tax
B. Such enterprise can either choose: credit certificate to respondent Toshiba, in the amount of P16,188,045.44,
1. 5% preferential tax rate on gross income, imposed in lieu of all representing unutilized input VAT for the first and second quarters of 1996.
taxes or
2. Income tax holiday (exemption from income tax, but not to other
taxes, including VAT) 07. Contex v. CIR (AD)
C. The old rule did not take into consideration the CBD, or the legal
G.R. No. 151135
fiction that the Ecozone is a foreign territory.
July 2, 2004
D. Toshiba availed of the income tax holiday.
Contex Corporation, petitioner
1. It was likely, then, that suppliers from the Customs Territory had
Hon. Commissioner of Internal Revenue, respondent
passed on output VAT to Toshiba, and the latter, thus, incurred
input VAT.
FACTS:
2. With the help of accountants from SGV, the CTA found that the
Contex is a domestic corporation engaged in the business of
suppliers of capital goods from the Customs Territory passed on
manufacturing hospital textiles and garments and other hospital supplies
output VAT to Toshiba.
for export.
E. This shows that Toshiba did in fact incur input VAT, but according to
Contex’s  place  of  business  is  at  the  Subic  Bay  Freeport  Zone  (SBFZ).
certain regulations and circulars of BIR, such input VAT may be
It is duly registered with the Subic Bay Metropolitan Authority (SBMA) as
claimed as either a credit or refund.
F. The legal bases for this conclusion are as follows (IMPORTANT!) a Subic Bay Freeport Enterprise, pursuant to the provisions of Republic
1. RMC 74-99:   “PURCHASES BY PEZA-REGISTERED FIRMS Act No. 7227.
AUTOMATICALLY QUALIFY AS ZERO-RATED without seeking As an SBMA-registered firm, Contex is exempt from all local and
prior approval from the BIR” national internal revenue taxes except for the preferential tax in
2
2. RR 7-95, Section 4.100-2:  “A zero-rated sale by a VAT-registered Section 12 (c) of Rep. Act No. 7227.
person, which is a taxable transaction for VAT purposes, shall not Contex also registered with the BIR as a non-VAT taxpayer under
result in any output tax. However, the INPUT TAX ON HIS Certificate of Registration
PURCHASES OF GOODS, PROPERTIES OR SERVICES From 1997 to 1998, Contex purchased various supplies and materials
RELATED TO SUCH ZERO-RATED SALE SHALL BE necessary in the conduct of its manufacturing business.
AVAILABLE AS TAX CREDIT OR REFUND in accordance with The suppliers of these goods shifted unto petitioner the 10% VAT on
these  regulations.” the purchased items, which led the petitioner to pay input taxes in the
3. RMC 42-2003:  “  xxx    if  the  taxpayer  is  availing  of  the income tax amounts of P539,411.88 and P504,057.49 for 1997 and 1998, respectively.
holiday, it can claim VAT credit provided: (1) The taxpayer-
claimant is VAT-registered; (2) purchases are evidenced by VAT 2
invoices or receipts, whichever is applicable, with shifted VAT to (c) The provision of existing laws, rules and regulations to the contrary notwithstanding, no
taxes, local and national, shall be imposed within the Subic Special Economic
the purchaser prior to the implementation of RMC No. 74-99; and Zone (stress supplied). In lieu of paying taxes, three percent (3%) of the gross income earned
(3) the supplier issues a sworn statement under penalties of by all businesses and enterprises within the Subic Special Economic Zone shall be remitted to
perjury that it shifted the VAT and declared the sales to the the National Government, one percent (1%) each to the local government units affected by the
declaration of the zone in proportion to their population area, and other factors. In addition,
PEZA-registered purchaser as taxable sales in its VAT returns. there is hereby established a development fund of one percent (1%) of the gross income
earned by all businesses and enterprises within the Subic Special Economic Zone to be
utilized for the development of municipalities outside the City of Olongapo and the Municipality
of Subic, and other municipalities contiguous to the base areas.
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Acting on the belief that it was exempt from all national and local The case went up to the CA.
taxes, including VAT, pursuant to Rep. Act No. 7227, Contex filed two o CIR maintained that the exemption of Contex Corp. under Rep.
applications for tax refund or tax credit of the VAT it paid. Act No. 7227 was limited only to direct taxes and not to indirect
Revenue district officer of BIR denied the first application letter taxes such as the input component of the VAT. From its very
Unfazed by the denial, Contex filed another application for tax nature, the value-added tax is a burden passed on by a VAT
refund/credit, this time directly with the regional director of BIR Revenue registered person to the end users; hence, the direct liability for
Region No. 4. the tax lies with the suppliers and not Contex.
When no response was received, Contex then elevated the matter to The  CA  found  merit  in  CIR’s  arguments  and  decided in favor of it.
the Court of Tax Appeals. o The exemption from duties and taxes on the importation of raw
o Contex stressed that Section 112(A)7 if read in relation to Section materials, capital, and equipment of SBFZ-registered enterprises
106(A)(2)(a)8 of the National Internal Revenue Code, as under Rep. Act No. 7227 and its implementing rules covers only
amended and Section 12(b)9 and (c) of Rep. Act No. 7227 would "the VAT imposable under Section 107 of the Tax Code, which is
show that it was not liable in any way for any value-added tax. a direct liability of the importer, and in no way includes the
In opposing the claim for tax refund or tax credit, the BIR asked the CTA to value-added tax of the seller-exporter the burden of which
apply the rule that claims for refund are strictly construed against the was passed on to the importer as an additional costs of the
taxpayer. goods."
o Since Contex failed to establish both its right to a tax refund or tax o This was because the exemption granted by Rep. Act No. 7227
credit and its compliance with the rules on tax refund as provided relates to the act of importation and Section 10715 of the Tax
for in Sections 20410 and 22911 of the Tax Code, its claim should Code specifically imposes the VAT on importations.
be denied. o The appellate court applied the principle that tax exemptions are
CTA granted partial refund. strictly construed against the taxpayer. The CA pointed out that
o CTA ruled that Contex misread Sections 106(A)(2)(a) and 112(A) under the implementing rules of Rep. Act No. 7227, the
of the Tax Code. exemption of SBFZ-registered enterprises from internal revenue
o These provisions apply only to those entities registered as VAT taxes is qualified as pertaining only to those for which they
taxpayers whose sales are zero-rated. Contex does not fall under may be directly liable. It then stated that apparently, the
this category, since it is a non-VAT taxpayer as evidenced by the legislative intent behind Rep. Act No. 7227 was to grant
Certificate of Registration issued by RDO Rosemarie Ragasa of exemptions only to direct taxes, which SBFZ-registered
BIR of the Subic Bay Freeport Zone and thus it is exempt from enterprise may be liable for and only in connection with their
VAT, pursuant to Rep. Act No. 7227 importation of raw materials, capital, and equipment as well
Nonetheless, the CTA held that the petitioner is exempt from the as the sale of their goods and services.
imposition of input VAT on its purchases of supplies and materials.
o It pointed out that under Section 12(c) of Rep. Act No. 7227 and ISSUES:
the Implementing Rules and Regulations of the Bases Conversion W/N the CA correctly held that the VAT exemption embodied in Rep. Act
and Development Act of 1992, all that Contex is required to No. 7227 does not apply to Contex as a purchaser; and
pay as a SBFZ-registered enterprise is a 5% preferential tax. The entitlement of the petitioner to a tax refund on its purchases of
o The tax court also limited the refund only to the input VAT paid by supplies and raw materials for 1997 and 1998.
the petitioner on the supplies and materials directly used by
Contex in the manufacture of its goods. RATIO:
o It struck down all claims for input VAT paid on maintenance, office Contex’s  Arguments:
supplies, freight charges, and all materials and supplies shipped CA’s   restrictive interpretation of Contex’s   VAT   exemption   as   limited   to  
or  delivered  to  Contex’s Makati and Pasay City offices. those covered by Section 107 of the Tax Code is erroneous.
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VALUE ADDED TAX (VAT)

o It contends that the provisions of Rep. Act No. 7227 clearly and The person making the exempt sale of goods,
unambiguously mandate that no local and national taxes shall be properties or services shall not bill any output tax to
imposed upon SBFZ-registered firms and hence, said law should his customers because the said transaction is not
govern the case. subject to VAT.
CIR takes the opposite view that while Rep. Act No. 7227 does grant tax On the other hand, a VAT-registered purchaser of VAT-
exemptions, such grant is not all-encompassing but is limited only to those exempt goods/properties or services which are exempt
taxes for which a SBFZ-registered business may be directly liable. Hence, from VAT is not entitled to any input tax on such
SBFZ locators are not relieved from the indirect taxes that may be shifted purchase despite the issuance of a VAT invoice or
to them by a VAT-registered seller. receipt.
o (b) Zero-rated Sales. These are sales by VAT-registered
SC: persons which are subject to 0% rate, meaning the tax
The VAT is an indirect tax. As such, the amount of tax paid on the goods, burden is not passed on to the purchaser. A zero-rated sale by
properties or services bought, transferred, or leased may be shifted or a VAT-registered person, which is a taxable transaction for VAT
passed on by the seller, transferor, or lessor to the buyer, transferee purposes, shall not result in any output tax. However, the input
or lessee. tax on his purchases of goods, properties or services related to
o Unlike a direct tax, such as the income tax, which primarily taxes such zero-rated sale shall be available as tax credit or refund in
an   individual’s   ability   to   pay   based   on   his   income   or   net   wealth,   accordance with these regulations.
an indirect tax, such as the VAT, is a tax on consumption of Under Zero-rating, all VAT is removed from the zero-
goods, services, or certain transactions involving the same. The rated goods, activity or firm. In contrast, exemption only
VAT, thus, forms a substantial portion of consumer expenditures. removes the VAT at the exempt stage, and it will actually
Further, in indirect taxation, there is a need to distinguish between the increase, rather than reduce the total taxes paid by the
liability for the tax and the burden of the tax. exempt   firm’s   business or non-retail customers. It is for
o As earlier pointed out, the amount of tax paid may be shifted or this reason that a sharp distinction must be made
passed on by the seller to the buyer. What is transferred in such between zero-rating and exemption in designating a
instances is not the liability for the tax, but the tax burden. In value-added tax.
adding or including the VAT due to the selling price, the seller Contex’s  claim  to  VAT  exemption is founded mainly on Section 12 (b)
remains the person primarily and legally liable for the and (c) of Rep. Act No. 7227, which basically exempts them from all
payment of the tax. national and local internal revenue taxes, including VAT and Section 4
o What is shifted only to the intermediate buyer and ultimately to (A)(a) of BIR Revenue Regulations No. 1-95.24
the final purchaser is the burden of the tax. o Here, Contex rightly claims that it is indeed VAT-Exempt and this
Exemptions from VAT are granted by express provision of the Tax Code or fact is not controverted by the CIR.
special laws. Under VAT, the transaction can have preferential treatment in o In fact, Contex is registered as a NON-VAT taxpayer per
the following ways: Certificate of Registration issued by the BIR. As such, it is
o (a) VAT Exemption. An exemption means that the sale of goods exempt from VAT on all its sales and importations of goods
or properties and/or services and the use or lease of and services.
properties is not subject to VAT (output tax) and the seller is Petitioner’s  claim,  however,  for  exemption  from  VAT  for  its  purchases
not allowed any tax credit on VAT (input tax) previously paid. This of supplies and raw materials is incongruous with its claim that it is
is a case wherein the VAT is removed at the exempt stage (i.e., at VAT-Exempt, for only VAT-Registered entities can claim Input VAT
the point of the sale, barter or exchange of the goods or Credit/Refund.
properties).

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VALUE ADDED TAX (VAT)

The point of contention here is whether or not the petitioner may claim a On the second issue regardingthe entitlement of Contex to a tax refund on its
refund on the Input VAT erroneously passed on to it by its suppliers. purchases of supplies and raw materials for 1997 and 1998

While it is true that the petitioner should not have been liable for the VAT Contex is registered as a NON-VAT taxpayer and thus, is exempt from
inadvertently passed on to it by its supplier since such is a zero-rated sale VAT.
on the part of the supplier, the petitioner is not the proper party to claim As an exempt VAT taxpayer, it is not allowed any tax credit on VAT (input
such VAT refund. tax) previously paid. In fine, even if we are to assume that exemption from
o Section 4.100-2  of  BIR’s  Revenue  Regulations  7-95, as amended, the   burden   of   VAT   on   petitioner’s   purchases   did   exist,   Contex is still not
or the "Consolidated Value-Added Tax Regulations" provide: entitled to any tax credit or refund on the input tax previously paid as
Sec. 4.100-2. Zero-rated Sales. A zero-rated sale by a petitioner is an exempt VAT taxpayer.
VAT-registered person, which is a taxable transaction for Rather, it is Contex’s  suppliers  who  are  the  proper  parties  to  claim  the  
VAT purposes, shall not result in any output tax. tax credit and accordingly refund the petitioner of the VAT erroneously
However, the input tax on his purchases of goods, passed on to the latter.
properties or services related to such zero-rated sale Accordingly, we find that the Court of Appeals did not commit any
shall be available as tax credit or refund in accordance reversible   error   of   law   in   holding   that   petitioner’s   VAT   exemption   under  
with these regulations. Rep. Act No. 7227 is limited to the VAT on which it is directly liable as a
The following sales by VAT-registered persons shall be seller and hence, it cannot claim any refund or exemption for any input
subject to 0%: VAT it paid, if any, on its purchases of raw materials and supplies.
(a) Export Sales
"Export Sales" shall mean. . . WHEREFORE, the petition is DENIED for lack of merit. The Decision dated
(5) Those considered export sales under Articles 23 September 3, 2001, of the Court of Appeals in CA-G.R. SP No. 62823, as well as its
and 77 of Executive Order No. 226, otherwise Resolution of December 19, 2001 are AFFIRMED. No pronouncement as to costs.
known as the Omnibus Investments Code of 1987,
and other special laws, e.g. Republic Act No. 7227, C.6. Input VAT
otherwise known as the Bases Conversion and
Development Act of 1992.
(c) Sales to persons or entities whose SEC. 110. Tax Credits.
exemption under special laws, e.g. R.A. No. A. Creditable Input Tax. -
7227 duly registered and accredited
enterprises with Subic Bay Metropolitan (1) Any input tax evidenced by a VAT invoice or official receipt issued in
Authority (SBMA) and Clark Development accordance with Section 113 hereof on the following transactions shall be
Authority (CDA), R. A. No. 7916, Philippine creditable against the output tax:
Economic Zone Authority (PEZA), or
international agreements, e.g. Asian (a) Purchase or importation of goods:
Development Bank (ADB), International Rice (i) For sale; or
Research Institute (IRRI), etc. to which the (ii) For conversion into or intended to form part of a finished product
Philippines is a signatory effectively subject for sale including packaging materials; or
such sales to zero-rate." (iii) For use as supplies in the course of business; or
Since the transaction is deemed a zero-rated sale, Contex’s  supplier may (iv) For use as materials supplied in the sale of service; or
claim an Input VAT credit with no corresponding Output VAT liability.
Congruently, no Output VAT may be passed on to the petitioner.
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VALUE ADDED TAX (VAT)

(v) For use in trade or business for which deduction for depreciation succeeding quarter or quarters. any input tax attributable to the purchase of capital
or amortization is allowed under this Code, except automobiles, goods or to zero-rated sales by a VAT-registered person may at his option be
aircraft and yachts. refunded or credited against other internal revenue taxes, subject to the provisions
of Section 112.
(b) Purchase of services on which a value-added tax has been actually (C) Determination of Creditable Input Tax. - The sum of the excess input tax
paid. carried over from the preceding month or quarter and the input tax creditable to a
VAT-registered person during the taxable month or quarter shall be reduced by the
(2) The input tax on domestic purchase of goods or properties shall be amount of claim for refund or tax credit for value-added tax and other adjustments,
creditable: such as purchase returns or allowances and input tax attributable to exempt sale.
The claim for tax credit referred to in the foregoing paragraph shall include not only
(a) To the purchaser upon consummation of sale and on importation of those filed with the Bureau of Internal Revenue but also those filed with other
goods or properties; and government agencies, such as the Board of Investments the Bureau of Customs.
(b) To the importer upon payment of the value-added tax prior to the
release of the goods from the custody of the Bureau of Customs.

However, in the case of purchase of services, lease or use of properties,


01. ABAKADA v. Ermita – Main Case (HQ)
Topic: Input VAT (Nature)
the input tax shall be creditable to the purchaser, lessee or licensee upon
payment of the compensation, rental, royalty or fee. Relevant Laws/Issuances:
R.A. No. 9337 (VAT Reform Act): particularly Section 8 which amends
Section 110 of the NIRC
(3) A VAT-registered person who is also engaged in transactions not subject Section 110, NIRC
to the value-added tax shall be allowed tax credit as follows:
G.R. No. 168056
(a) Total input tax which can be directly attributed to transactions subject September 1, 2005
to value-added tax; and Petitioners: ABAKADA GURO PARTY LIST (Formerly AASJAS)
(b) A ratable portion of any input tax which cannot be directly attributed to Respondents: EXECUTIVE SECRETARY EDUARDO ERMITA; SECRETARY OF THE
DEPARTMENT OF FINANCE CESAR PURISIMA; and COMMISSIONER OF INTERNAL
either activity.
REVENUE GUILLERMO PARAYNO, JR.
G.R. No. 168207
The term 'input tax' means the value-added tax due from or paid by a VAT- Petitioners: AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E.
registered person in the course of his trade or business on importation of ESTRADA, PANFILO M. LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL, AND SERGIO
goods or local purchase of goods or services, including lease or use of R. OSMEÑA III
property, from a VAT-registered person. It shall also include the transitional Respondents: ERMITA, PURISIMA, PARAYNO, JR.
input tax determined in accordance with Section 111 of this Code. G.R. No. 168461
Petitioners: ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. et. al.
Respondents: PURISIMA, PARAYNO, JR.
The term 'output tax' means the value-added tax due on the sale or lease
G.R. No. 168463
of taxable goods or properties or services by any person registered or
Petitioners: Francis Escudero et. al.
required to register under Section 236 of this Code. Respondents: ERMITA, PURISIMA, PARAYNO, JR.
G.R. No. 168730
(B) Excess Output or Input Tax. - If at the end of any taxable quarter the output Petitioners: BATAAN GOVERNOR ENRIQUE T. GARCIA, JR.
tax exceeds the input tax, the excess shall be paid by the Vat-registered person. If Respondents: EDUARDO R. ERMITA, in his capacity as the Executive Secretary;
the input tax exceeds the output tax, the excess shall be carried over to the HON. MARGARITO TEVES, in his capacity as Secretary of Finance; HON. JOSE

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TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

MARIO BUNAG, in his capacity as the OIC Commissioner of the Bureau of Internal o National government deficit as a percentage of GDP of the previous year exceeds
Revenue; and HON. ALEXANDER AREVALO, in his capacity as the OIC one and one-half percent (1 ½ %).
Commissioner of the Bureau of Customs, G.R. No. 168207
Sen. Pimentel et. al. filed a petition for certiorari assailing the constitutionality of Sections 4,
(This  case  is  very  long  and  the  it’s  all  about  VAT.  But,  you  may  skip  the  gray  parts   5 & 6 of RA No. 9337
since they do not directly discuss INPUT VAT :) Again,  they  questioned  the  “stand-by  authority”  of  the  President  to  increase  the  VAT  rate  to  
12%, on the ground that it amounts to an undue delegation of legislative power
Also, they contend that the increase in VAT rate contingent on any of the 2 conditions being
Summary: (on Input VAT) satisfied violates the due process clause
Petitioners assail the constitutionality of RA No. 9337 or the VAT Reform Act o 12% increase is ambiguous because it does not state if the rate would be returned
amending several provisions in the NIRC. In relation to input tax, Section 8, which to the original 10% if the conditions are no longer satisfied
o rate is unfair and unreasonable
amends Section 110, imposes 70% limit on the input tax which may be credited o increased in VAT rate should only be based on fiscal adequacy
against the output tax and provides for the amortization of input tax on depreciable
goods over 60-month period. The petitioners contend that such amendment was G.R. No. 168461
unconstitutional for being arbitrary, oppressive, excessive and confiscatory and Association of Pilipinas Shell Dealers et. al. assailed the following
argued that the input tax partakes the nature of a property that may not be provisions of RA No. 9337:
confiscated, appropriated, or limited without due process of law. The SC disagreed o Section 8 (amending Section 110 (A)(2) of NIRC): requiring that
with the petitioners and held that input tax is not a property or property right but a the input tax on depreciable goods shall be amortized over
VAT-registered   person’s   entitlement   to   creditable   input   tax   was   a   mere   statutory   60-month period, if the acquisition cost (excluding the VAT
component) exceeds 1million pesos
privilege. Accordingly, the State can modify, limit, remove or restore such privilege.
o Section 8 (amending Section 110 (B) of NIRC): imposing 70%
In sum, the SC ruled that the VAT Reform Act was valid and should therefore be limit on the amount of input tax to be credited against the
implemented. output tax [NOTE: No more 70% limit, this was already
repealed by R.A. No. 9361, see Tax Code]
o Section 12 (amending Section 114(c) of NIRC): authorizing the Government or
any of its political subdivisions etc. to deduct 5% final withholding tax on gross
Facts:
payments of goods and services subject to VAT
Background: R.A. No. 9337 is a consolidation of the 3 legislative bills, namely
House Bill Nos. 3555 and 3705, and Senate Bill No. 1950. When the law took effect They contend that these provisions are unconstitutional for being arbitrary,
on July 1, 2005, the SC issued a TRO 5pm the same day because of the confusion oppressive, excessive and confiscatory
in its implementation. There were many complaints aired in tv and radio that prices They contested the sections which impose limitations on the amount of
will go up by a certain % due to its implementation, which the Court said is not input tax that may be claimed. They argue that the input tax partakes
necessarily correct. the nature of a property that may not be confiscated, appropriated, or
limited without due process of law.
G.R. No. 168056 Furthermore, the input tax credit (like any other property or property rights)
Before the effectivity of RA No. 9337, ABAKADA GURO Party List et. al. filed a petition may be transferred or disposed of, and that by limiting the same, the
for prohibition. They question the constitutionality of Sections 4, 5 & 6 of the said law, government gets to tax a profit or value-added even if there is no profit or
amending Sections 106, 107 & 108 respectively of the NIRC. value-added
Section 4 10% VAT Sale of goods and properties The petitioners also believe that these provisions violate the constitutional
Section 5 10% VAT Importation of Goods guarantee of equal protection of law as the limitation on the creditable
Section 6 10% VAT Sale of Services and use or lease of properties input tax if: (1) the entity has a high ratio of input tax; or (2) invests in
capital equipment; or (3) has several transactions with the government, is
The questioned provisions contained a uniform proviso authorizing the President, upon the not based on real and substantial differences to meet a valid classification.
recommendation of the Secretary of Finance, to raise the VAT to 12% (effective January 1,
Lastly, they contend that the 70% limit is anything but progressive,
2006) after any of the following conditions have been satisfied:
o VAT collection as a percentage of Gross Domestic Product (GDP) of the violative of Article VI Section 28(1) of the Constitution – “The rule of
previous year exceeds two and four-fifth percent (2 4/5 %); or
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TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

taxation shall be uniform and equitable. The Congress shall evolve a policy. That Congress chose to do so in such a manner is not within the province of the
progressive  system  of  taxation.” Court to inquire into, its task being to interpret the law.

G.R. No. 168463 (more on procedural issues - irrelevant) Whether or not Section 8 of R.A. No. 9337 (which amends the input
Rep. Escudero etc. filed a petition for certiorari questioning the constitutionality of R.A. No. tax parts of NIRC) is constitutional – YES, CONSTITUTIONAL!
9337 on the following grounds:
o Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of Held:
legislative power, in violation of Article VI, Section 28(2) of the Constitution –
“The  Congress  may,  by  law,  authorize  the  President  to  fix  within  specified  limits,   R.A. No. 9337, not being unconstitutional, the Petitions are hereby
and subject to such limitations and restrictions as it may impose, tariff rates, DISMISSED
import and export quotas, tonnage and wharfage dues, and other duties or There being NO constitutional impediment to the full enforcement and
imposts within the framework of the national development program of the implementation of R.A. No. 9337, the TRO issued is LIFTED
Government.”
o The Bicameral Conference Committee acted without jurisdiction in deleting the
Ratio:
no pass on provisions present in Senate Bill No. 1950 and House Bill No. 3705;
and Re: Input Tax – In sum, the case states that input tax is NOT a property or a
o Insertion by the Bicameral Conference Committee of several Sections which property right within the constitutional purview of the due process clause. A
were present in Senate Bill No. 1950, violates Article VI, Section 24(1) of the VAT-registered   person’s   entitlement   to   the   creditable   input   tax   is   a   MERE  
Constitution, which provides that all appropriation, revenue or tariff bills shall
originate exclusively in the House of Representatives STATUTORY PRIVILEGE. Accordingly, the state may change or take away
rights, which were created by the law of the state, although it may not take
G.R. No. 168730 away property, which was vested by virtue of such rights.
Gov. Garcia filed a petition for certiorari and prohibition alleging
unconstitutionality of the law based on the following grounds: PRELIMINARY DISCUSSION:
o that the creditable input tax in effect allows VAT-registered VALUE-ADDED TAX (recall)
establishments to retain a portion of the taxes they collect, The VAT is a tax on spending or consumption
thus violating the principle that tax collection and revenue should It is levied on the sale, barter, exchange or lease of goods or properties and services.
be solely allocated for public purpose and expenditures Indirect Tax – the seller of goods or services may pass on the amount of tax paid to the buyer
o allowing the VAT-registered establishments to pass on the Background: Before, the value-added system of sales taxation was a single-stage tax
tax to the consumers is inequitable, in violation of Article VI, computed  under  the  “cost  deduction  method”,  payable only by the original seller. NOW, it
Section 28(1) of the Constitution was modified and a mixture of the “cost   deduction   method” and “tax   credit   method” is
used to determine the VAT payable.
Under  the  “tax  credit  method”,  an  entity  can  CREDIT  against  or  SUBTRACT  from  the  VAT  
OSG’s  comments: charged on its sales or outputs the VAT paid on its purchases, inputs and imports. ----INPUT
Basically, OSG contends that the law enjoys the presumption of TAX
constitutionality and the petitioners failed to cast doubt on its validity
OSG  also  refuted  petitioners’  arguments  and  manifested  that  RA  No.  9337   INPUT TAX/INPUT VAT (vs. OUTPUT TAX/OUTPUT VAT)
is   the   anchor   of   the   government’s   fiscal   reform   agenda.   A reform in the It is defined as the VAT due from or paid by a VAT-registered person on
value-added system of taxation is the core revenue measure that will tilt the importation of goods or local purchase of good and services,
the balance towards a sustainable macroeconomic environment necessary including lease or use of property, in the course of trade or business,
for economic growth. from a VAT-registered person.
On the other hand, OUTPUT TAX is the value-added tax due on the sale
Issues: or lease of taxable goods or properties or services by any person
On the issue regarding authority of the President to increase the VAT to 12%, subject to registered or required to register under the law.
certain conditions – SC ruled that this was not a delegation of legislative power. It is simply In effect, the OUTPUT VAT of the VAT-registered SELLER becomes the
a delegation of ascertainment of facts upon which enforcement and administration of the INPUT VAT of the VAT-registered BUYER. Now, if the latter (BUYER)
increase rate under the law is contingent. The intent and will to increase the VAT rate to
sold the goods, he can reduce the related OUTPUT VAT of his sales by
12% came from Congress and the task of the President is to simply execute the legislative
the INPUT VAT from his purchases. (This is due to a tax principle that

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VALUE ADDED TAX (VAT)

the value of goods previously subjected to VAT should NOT be subjected In computing the VAT, 3 possible scenarios may arise:
to the same tax.) o 1.) If at the end of a taxable quarter the output taxes charged by
the seller are equal to the input taxes that he paid and passed
To illustrate: on by the suppliers, then no payment is required
Seller Buyer Computation: o 2.) When the output taxes exceed the input taxes, the person
VAT Payable shall be liable for the excess, which has to be paid to the (BIR)
Selling 100 Paid to Seller 112 Output VAT 18 o 3.) If the input taxes exceed the output taxes, the excess shall
Price: from sales be carried over to the succeeding quarter or quarters. Should
Output 12 Sold to another: 168 Less: Input (12) the input taxes result from zero-rated or effectively zero-rated
VAT (12% SP: 150 VAT transactions, any excess over the output taxes shall instead be
of the SP) Output VAT: 18 (Output VAT of refunded to the taxpayer or credited against other internal
(150*12%) the ‘seller’) revenue taxes, at  the  taxpayer’s  option.
TOTAL 112 VAT Payable 6 Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input
tax. Thus, a person can credit his input tax only up to the extent of
70% of the output tax.
*At the end of any taxable period, if the output VAT exceeds the input VAT,
In   layman’s   term,   the value-added taxes that a person/taxpayer paid
ONLY such excess amount is payable to the BIR.
and passed on to him by a seller can ONLY be credited up to 70% of
the value-added taxes that is due to him on a taxable transaction.
ON THE IMPOSITION OF 70% LIMITATION ON THE AMOUNT OF INPUT TAX There is no retention of any tax collection because the person/taxpayer has already
THAT MAY BE CREDITED AGAINST THE OUTPUT TAX previously paid the input tax to a seller, and the seller will subsequently remit such input tax
to the BIR. The party directly liable for the payment of the tax is the seller. What only needs
Petitioners claim that the contested sections impose limitations on the to be done is for the person/taxpayer to apply or credit these input taxes, as evidenced by
amount of input tax that may be claimed. receipts, against his output taxes.
In effect, a portion of the input tax that has already been paid cannot now Bottom line: The right to input tax as against the output tax is clearly
be credited against the output tax. a privilege created by law, a privilege that also can remove, or in this
Petitioners’   argument   is   not   absolute.   It   assumes   that   the   input   tax   case, limit.
exceeds 70% of the output tax, and therefore, the input tax in excess of Additional Info (not in the case): Subsequently, R.A. 9361 removed the
70% remains uncredited. However, to the extent that the input tax is 70% cap on input VAT. Hence, the computation for the VAT due will be
less than 70% of the output tax, then 100% of such input tax is still simpler (Output VAT – Input VAT = Net VAT Due OR Excess Input Tax.
creditable. The excess input tax can be carried over the next period.)
More importantly, the excess  input  tax,  if  any,  is  retained  in  a  business’  
books of accounts and remains creditable in the succeeding ON THE AMORTIZATION OF INPUT TAX ON DEPRECIABLE GOODS OVER 60-
quarter/s. This is explicitly allowed by Section 110(B), which provides that
MONTH PERIOD (IF ACQUISITION COST EXCEEDS 1MILLION)
"if the input tax exceeds the output tax, the excess shall be carried over to
the succeeding quarter or quarters." Petitioners also contest as arbitrary, oppressive, excessive and
In addition, Section 112(B) allows a VAT-registered person to apply for the confiscatory, Section 8 amending Section 110(A) of NIRC which provides:
issuance of a tax credit certificate or refund for any unused input o the input tax on goods purchased or imported in a calendar month
taxes, to the extent that such input taxes have not been applied against for use in trade or business for depreciation is allowed under this
the output taxes. Such unused input tax may be used in payment of his Code, shall be spread evenly over the month of acquisition
other internal revenue taxes. and the fifty-nine (59) succeeding months if the aggregate
acquisition cost for such goods, excluding the VAT component
thereof, exceeds 1million pesos
Another contention (petition filed by Garcia) was that the limitation on the
o PROVIDED, that if the estimated useful life of the capital goods
creditable input tax in effect allows VAT-registered establishments to retain
is less than 5 years, as used for depreciation purposes, then the
a portion of the taxes they collect, which violates the principle that tax
input VAT shall be spread over such a shorter period
collection and revenue should be for public purposes and expenditures.
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller,
Petitioners’   argument   is   without   basis   because   the   taxpayer   is   NOT  
when he buys goods. Output tax meanwhile is the tax due to the person when he sells goods. permanently deprived of his privilege to credit the input tax. Such spread
out only poses a delay in the crediting of the input tax.
27
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

Again, for whatever is the purpose of the 60-month amortization, this R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT
involves executive policy and legislative wisdom in which the Court cannot rate of 0% or 10% (or 12%) does not apply to sales of goods or services with gross annual
intervene. sales or receipts not exceeding P1.5million.

PROGRESSIVITY OF TAXATION
ON THE 5% (now *7%) CREDITABLE WITHHOLDING TAX IMPOSED ON PAYMENTS
Petitioners contend that the limitation on the creditable input tax is anything but regressive.
MADE BY THE GOVERNMENT FOR TAXABLE TRANSACTIONS (Sec. 12 of RA 9337,
It is the smaller business with higher input tax-output tax ratio that will suffer the
which amended Section 114 of NIRC) consequences.
The creditable input VAT for sales to government would be the 5% (now *7%) standard Progressive  taxation  is  built  on  the  principle  of  the  taxpayer’s  ability  to  pay.  
input VAT and 5% final withholding VAT based on sales to government. The VAT is an antithesis of progressive taxation. By its very nature, it is regressive.
Section 114(C) merely provides a method of collection, or a more simplified VAT The Constitution does not really prohibit the imposition of indirect taxes which, like the
withholding system VAT, are regressive. What  it  simply  provides  is  that  Congress  shall  ‘evolve  a  progressive  
The amendment provides a uniform rate of 5% final VAT, which constitutes as full payment system  of  taxation.’
of the tax payable on the transaction Resort to indirect taxes should be minimized but not avoided entirely because it is difficult,
The other 5% (now *7%) effectively accounts for the standard input VAT (deemed input if not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to
VAT), in lieu of the actual input VAT directly or attributable to the taxable transaction. pay.
Again, the Court need not explore the rationale behind the provision. It is clear that Congress In the case of the VAT, the law minimizes the regressive effects of this imposition by
intended to treat differently taxable transactions with the government providing for zero rating of certain transactions.

OTHER MATTERS: (just in case he asks)

EQUAL PROTECTION CLAUSE


The power of the State to make reasonable and natural classifications for the purposes of 02. ABAKADA v. Ermita – MR (RK)
taxation has long been established.
NOTE: (1) Since this is an MR, no facts, case went straight to the Ratio. (2) For
As a rule, the judiciary will not interfere with such power absent a clear showing of
unreasonableness, discrimination, or arbitrariness. Facts, Issues, Parties, Laws & other relevant data, see preceding case.
Petitioners point out that the limitation on the creditable input tax if the entity has a high
ratio of input tax, or invests in capital equipment, or has several transactions with the ISSUES:
government, is not based on real and substantial differences to meet a valid classification. –
BASELESS! 1. WON Bicameral Committee should have acted on the no pass-on provision (TOPIC FOR
The law does not make any classification in the subject of taxation, the kind of property, the CONSTI)
rates to be levied or the amounts to be raised, the methods of assessment, valuation and
2. WON RA 9337 grossly violates the constitutional imperative on exclusive origination of
collection.
While the implementation  of  the  law  may  yield  varying  end  results  depending  on  one’s  profit   revenue bills under Section 24 of Article VI of the Constitution when the Senate introduced
margin and value-added, the Court cannot go beyond what the legislature has laid down and amendments not connected with VAT (TOPIC FOR CONTSTI)
interfere with the affairs of business. 3. WON R.A.   No.   9337’s   stand- by authority to the Executive to increase the VAT rate,
especially on account of the recommendatory power granted to the Secretary of Finance,
UNIFORMITY AND EQUITABILITY OF TAXATION constitutes undue delegation of legislative power. (TOPIC FOR ADMIN)
Uniformity in taxation means that all taxable articles or kinds of property of the same class 4. WON burdening the consumers with significantly higher prices under a
shall be taxed at the same rate.
VAT regime vis-à-vis a 3% gross tax renders the law unconstitutional for
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or
12%) on all goods and services. being arbitrary, oppressive and inequitable. (NO)
Neither does the law make any distinction as to the type of industry or trade that will bear the 5. WON section 110(A)(2) and Section 110(B) of the NIRC, as amended by
70% limitation on the creditable input tax, 5-year amortization of input tax paid on purchase the EVAT Law, imposing limitations on the amount of input VAT that may
of capital goods or the 5% final withholding tax by the government.
be claimed as a credit against output VAT, as well as Section 114(C) of the
It must be stressed that the rule of uniform taxation does not deprive Congress of the
power to classify subjects of taxation, and only demands uniformity within the NIRC, as amended by the EVAT Law, requiring the government or any of
particular class. its instrumentalities to withhold a 5% final withholding VAT on their gross
payments on purchases of goods and services is constitutional. (YES, it is
constitutional)

28
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

6. WON a VAT-registered  person’s  entitlement  to  the  creditable  input  tax  is  a Issue 6: Petitioners also reiterate their argument that the input tax is a property or
property right that cannot be taken away without due process. (NO, it is a property right. In the same breath, the Court reiterates its finding that it is not a
merely a statutory right) property or a property right, and a VAT-registered   person’s   entitlement   to   the  
7. WON right to credit the input VAT, though merely a statutory privilege, has creditable input tax is a mere statutory privilege.
already evolved into a vested right that the State cannot remove. (NO)
As the Court stated in its Decision, the right to credit the input tax is a mere
RATIO: creation of law.
Prior to the enactment of multi-stage sales taxation, the sales taxes paid at
ISSUE 4: With   regard   to   petitioner   Garcia’s   arguments,   the   Court   also   finds   the   every level of distribution are not recoverable from the taxes payable.
same to be without merit. As stated in the assailed Decision, the Court recognizes With the advent of Executive Order No. 273 imposing a 10% multi-stage
the burden that the consumers will be bearing with the passage of R.A. No. 9337. tax on all sales, it was only then that the crediting of the input tax paid on
purchase or importation of goods and services by VAT-registered persons
But as was also stated by the Court, it cannot strike down the law as
against the output tax was established.
unconstitutional simply because of its yokes.
This continued with the Expanded VAT Law (R.A. No. 7716), and The Tax
The legislature has spoken and the only role that the Court plays in the
Reform Act of 1997 (R.A. No. 8424). The right to credit input tax as
picture is to determine whether the law was passed with due regard to the
against the output tax is clearly a privilege created by law, a privilege that
mandates of the Constitution.
also the law can limit. It should be stressed that a person has no vested
Inasmuch as the Court finds that there are no constitutional infirmities with right in statutory privileges
its passage, the validity of the law must therefore be upheld.
Issue 7: Petitioners also contend that even if the right to credit the input VAT is
ISSUE 5: Finally, petitioners Association of Pilipinas Shell Dealers, Inc. reiterated
merely a statutory privilege, it has already evolved into a vested right that the State
their arguments in the petition, citing this time, the dissertation of Associate Justice cannot remove.
Dante O. Tinga in his Dissenting Opinion.
The   concept   of   “vested   right”   is   a   consequence   of   the   constitutional  
Petitioner’s   basis   is   theoretical   illustration. Their illustration of
guaranty of due process that expresses a present fixed interest which in
the possible effects of the 70% limitation, while seemingly concrete, still right reason and natural justice is protected against arbitrary state action; it
remains theoretical. Theories have no place in this case as the Court must includes not only legal or equitable title to the enforcement of a demand
only deal with an existing case or controversy that is appropriate or ripe for but also exemptions from new obligations created after the right has
judicial determination, not one that is conjectural or merely anticipatory. become vested.
The Court will not intervene absent an actual and substantial controversy
Rights are considered vested when the right to enjoyment is a present
admitting of specific relief through a decree conclusive in nature, as
interest, absolute, unconditional, and perfect or fixed and irrefutable
distinguished from an opinion advising what the law would be upon a
Minita V. Chico-Nazario in her Concurring Opinion, which the Court
hypothetical state of facts.
adopts,  petitioners’  right to the input VAT credits has not yet vested, thus –
Impact of the 70% limitation on creditable input tax will ultimately
depend on management and operation of business.
“It should be remembered that prior to Rep. Act No. 9337, the petroleum
o With or without these VAT provisions, an entrepreneur who does
dealers’   input   VAT   credits   were   inexistent   – they were unrecognized and
not have the keen to adapt to economic variables will surely
disallowed by law. The petroleum dealers had no such property called
perish in the competition.
input VAT credits. It is only rational, therefore, that they cannot acquire
o The arguments posed are within the realm of business, and the
vested rights to the use of such input VAT credits when they were never
solution lies also in business.
entitled to such credits in the first place, at least, not until Rep. Act No.
9337. “

29
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

under special laws or international agreements to which the Philippines is a


Ponente’s  view: signatory effectively subjects the supply of such services to zero (0%) rate.

“My view, at this point, when Rep. Act No. 9337 has not yet even been Facts: (Super Short Case lang)
implemented,   is   that   petroleum   dealers’   right   to   use   their   input   VAT   as   Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel
credit against their output VAT unlimitedly has not vested, being a mere along United Nations Avenue in Manila.
expectancy of a future benefit and being contingent on the continuance of It  leases  6,768.53  square  meters  of  the  hotel’s  premises  to  the  Philippine  
Section 110 of the National Internal Revenue Code of 1997, prior to its Amusement and Gaming Corporation [hereafter, PAGCOR] for casino
amendment by Rep. Act No. 9337.” operations.   It   also   caters   food   and   beverages   to   PAGCOR’s   casino  
patrons  through  the  hotel’s  restaurant  outlets.  
Artemio  V.  Panganiban’s view: Acesite incurred VAT amounting to P30,152,892.02 from its rental income
and sale of food and beverages to PAGCOR during said period.
“Moreover, there is no vested right in generally accepted accounting Acesite tried to shift the said taxes to PAGCOR by incorporating it in
principles. These refer to accounting concepts, measurement techniques, the amount assessed to PAGCOR but the latter refused to pay the taxes
and   standards   of   presentation   in   a   company’s   financial   statements,   and   on account of its tax exempt status.
are not rooted in laws of nature, as are the laws of physical science, for Acesite paid the VAT. However, Acesite belatedly arrived at the conclusion
these are merely developed and continually modified by local and that its transaction with PAGCOR was subject to zero rate as it was
international regulatory accounting bodies. To state otherwise and rendered to a tax-exempt entity.
recognize such asset account as a vested right is to limit the taxing power Acesite now files claim for refund
of the State. Unlimited, plenary, comprehensive and supreme, this power o CTA ruling:
cannot be unduly restricted by mere creations of the State.” Acesite is subject to zero percent tax pursuant to Section
102 (b)(3) [now 106(A)(C)] insofar as its gross income
WHEREFORE, the Motions for Reconsideration are hereby DENIED WITH
from rentals and sales to PAGCOR, a tax exempt entity
FINALITY. The temporary restraining order issued by the Court is LIFTED.
by virtue of a special law. Accordingly, the amounts of
P21,413,026.78 and P8,739,865.24, representing the
03. CIR v. Acesite (KB) 10% EVAT on its sales of food and services and gross
Topic: Input VAT; indirect tax exemption rentals, respectively from PAGCOR shall, as a matter of
Relevant Laws: course, be refunded to the petitioner for having been
inadvertently remitted to the respondent.
G.R. No. 147295
February 16, 2007 Issues:
Velasco, JR., J. Whether   PAGCOR’s   tax   exemption privilege includes the indirect tax of
VAT to entitle Acesite to zero percent (0%) VAT rate; --- YES
Petitioners: CIR Whether the zero percent (0%) VAT rate under then Section 102 (b)(3) of
Respondents: Acesite Hotel Corporation the Tax Code (now Section 108 (B)(3) of the Tax Code of 1997) legally
applies to Acesite. --- YES
Summary: Acesite, owner of the Holiday Inn, provides leasing and catering
services to PAGCOR. Acesite belatedly arrived at the conclusion that its transaction
with PAGCOR was subject to zero rate as it was rendered to a tax-exempt Held:
entity. Acesite now claims for refund. SC grants refund citing Section 102 (b) (3) of Petition DENIED.
the 1977 Tax Code: Services rendered to persons or entities whose exemption Decision of lower court AFFIRMED
30
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

the former Section 102 (b) (3) of the 1977 Tax Code, as amended (now Sec. 108 [b]
Ratio: [3] of R.A. 8424), which provides:
PAGCOR is exempt from payment of indirect taxes
Section 102. Value-added tax on sale of services – (a) Rate and base of
It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an tax – There shall be levied, assessed and collected, a value-added tax
exemption from the payment of taxes. Section 13 of P.D. 1869 pertinently provides: equivalent to 10% of gross receipts derived by any person engaged in the
sale of services x x x; Provided, that the following services performed in
Sec. 13. Exemptions. – the Philippines by VAT-registered persons shall be subject to 0%.
(2) Income and other taxes. – (a) Franchise Holder: No tax of any kind or form, income or
otherwise, as well as fees, charges or levies of whatever nature, whether National or
Local, shall be assessed and collected under this Franchise from the Corporation; nor 3) Services rendered to persons or entities whose exemption under
shall any form of tax or charge attach in any way to the earnings of the Corporation, special laws or international agreements to which the Philippines is a
except a Franchise Tax of five (5%) percent of the gross revenue or earnings derived by the signatory effectively subjects the supply of such services to zero (0%) rate
Corporation from its operation under this Franchise. Such tax shall be due and payable quarterly
to the National Government and shall be in lieu of all kinds of taxes, levies, fees or assessments
of any kind, nature or description, levied, established or collected by any municipal, provincial, or The rationale for the exemption from indirect taxes provided for in P.D. 1869 and
national government authority. the extension of such exemption to entities or individuals dealing with PAGCOR in
casino operations are best elucidated from the 1987 case of Commissioner of
(b) Others: The exemptions herein granted for earnings derived from the operations
conducted under the franchise specifically from the payment of any tax, income or Internal Revenue v. John Gotamco & Sons, Inc., where the absolute tax
otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and exemption of the World Health Organization (WHO) upon an international
extend to corporation(s), association(s), agency(ies), or individual(s) with whom the agreement was upheld. We held in said case that the exemption of contractee WHO
Corporation or operator has any contractual relationship in connection with the
operations of the casino(s) authorized to be conducted under this Franchise and to those
should be implemented to mean that the entity or person exempt is the contractor
receiving compensation or other remuneration from the Corporation or operator as a result of itself who constructed the building owned by contractee WHO, and such does not
essential facilities furnished and/or technical services rendered to the Corporation or operator. violate the rule that tax exemptions are personal because the manifest intention of
the agreement is to exempt the contractor so that no contractor’s  tax  may  be  
A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption shifted to the contractee WHO. Thus, the proviso in P.D. 1869, extending the
to taxes with no distinction on whether the taxes are direct or indirect. We are exemption to entities or individuals dealing with PAGCOR in casino operations, is
one with the CA ruling that PAGCOR is also exempt from indirect taxes, like clearly to proscribe any indirect tax, like VAT, that may be shifted to PAGCOR.
VAT,

The manner of charging VAT does not make PAGCOR liable to said tax
04. CIR v. Sony (KF)
It is true that VAT can either be incorporated in the value of the goods, properties, or services sold or leased, Topic: Input VAT
in which case it is computed as 1/11 of such value, or charged as an additional 10% to the value. Verily, the
seller or lessor has the option to follow either way in charging its clients and customer. In the instant case,
G.R. No. 178697
Acesite followed the latter method, that is, charging an additional 10% of the gross sales and rentals. Be November 17, 2010
that as it may, the use of either method, and in particular, the first method, does not denigrate the fact that Mendoza, J.
PAGCOR is exempt from an indirect tax, like VAT.

Petitioner: COMMISSIONER OF INTERNAL REVENUE


VAT exemption extends to Acesite
Respondent: SONY PHILIPPINES, INC

Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite,
Summary: CIR issued Letter of Authority authorizing certain revenue officers to
the latter is not liable for the payment of it as it is exempt in this particular
examine  Sony’s  books  of  accounts  and  other  accounting  records  regarding  revenue  
transaction by operation of law to pay the indirect tax. Such exemption falls within taxes for “the   period   1997   and   unverified   prior   years.” It assessed Sony of
Deficiency VAT in the amount of 11M. CTA-First Division as upheld by the CTA-EB,
31
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

disallowed such deficiency. The SC upheld such disallowance on the ground that for value-added tax for 1997 for lack of merit.
the CIR went beyond its scope of authority since their letter of authority states “the   CIR sought reconsideration but CTA denied such motion.
period 1997 and unverified prior years” because the deficiency VAT CIR filed Petition for Review with the CTA-EB but the same was dismissed.
assessment they arrived at was based on records from January to March 1998 CIR’s  MR  was  also  denied  by  the  CTA-EB.
or using the fiscal year which ended in March 31, 1998. Hence, this petition.

Further, the SC agrees that the advertising expense as paid by SIS was income to ISSUE (ONLY THE RELEVANT): WON the CTA en banc erred in ruling that
Sony but the same should NOT be subject to 10% VAT. There must be a sale, respondent is not liable for deficiency vat in the amount of P11,141,014.41. - NO
barter or exchange of goods or properties before any VAT may be levied.
Certainly, there WAS NO SUCH SALE, BARTER OR EXCHANGE IN THE HELD: Petition is DENIED.
SUBSIDY GIVEN BY SIS TO SONY.
RATIO:
FACTS: 1. The CIR insists that   LOA   19734,   although   it   states   “the   period   1997   and
Nov. 24, 1998: the CIR issued Letter of Authority No. 000019734 (LOA unverified   prior   years,”   should   be understood to mean the fiscal year
19734) authorizing   certain   revenue   officers   to   examine   Sony’s   books   of   ending in March 31, 1998. THE COURT CANNOT AGREE.
accounts and other accounting records regarding revenue taxes for “the   Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the
period  1997  and  unverified  prior  years.” authority given to the appropriate revenue officer assigned to perform
Dec. 6, 1999: a preliminary assessment for 1997 deficiency taxes and assessment functions.
penalties was issued by the CIR which Sony protested. Thereafter, acting CIR relies on:
on the protest, the CIR issued final assessment notices, the formal letter of SEC. 6. Power of the Commissioner to Make
demand and the details of discrepancies. Assessments and Prescribe Additional Requirements
Assessment: for Tax Administration and Enforcement. –
o Deficiency Value -Added Tax (Vat): 11,141,014.4 o (A)Examination of Returns and Determination of tax Due. – After
o Deficiency Expanded Withholding Tax (EWT): 1,992,462.72 a return has been filed as required under the provisions of this
o Deficiency Of Vat On Royalty Payments: 462,758.14 Code, the Commissioner or his duly authorized representative
o Late Remittance Of Final Withholding Tax: 2,288,473.78 may authorize the examination of any taxpayer and the
o Late Remittance Of Income Payments: 10,923.60 assessment of the correct amount of tax: Provided, however,
o GRAND TOTAL: 15,895,632.65 That failure to file a return shall not prevent the Commissioner
Feb 2, 2000: Sony sought re-evaluation of the aforementioned assessment from authorizing the examination of any taxpayer.
by filing a protest. Clearly, there must be a grant of authority before any revenue officer can
Oct. 24, 2000: within 30 days after the lapse of 180 days from submission conduct an examination or assessment. Equally important is that the
of the said supporting documents to the CIR, Sony filed a petition for revenue officer so authorized must not go beyond the authority given. In
review before the CTA. the absence of such an authority, the assessment or examination is a
CTA-First Division (ONLY THE RELEVANT IN THIS CASE): nullity.
o disallowed the deficiency VAT assessment because the As  earlier  stated,  LOA  19734  covered  “the  period  1997  and  unverified  prior  
subsidized advertising expense paid by Sony which was duly years.”   For  said   reason,   the   CIR acting through its revenue officers went
covered by a VAT invoice resulted in an input VAT credit. beyond the scope of their authority because the deficiency VAT
Dispositive portion reads (ONLY THE RELEVANT): assessment they arrived at was based on records from January to
WHEREFORE, the petition for review is hereby March 1998 or using the fiscal year which ended in March 31, 1998.
PARTIALLY GRANTED. Respondent is ORDERED to Upon review, the CTA-EB even added that the coverage of LOA 19734,
CANCEL and WITHDRAW the deficiency assessment violated Section C of RMO No. 43-90 which states: A Letter of Authority
32
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

should cover a taxable period not exceeding one taxable year. On this The Court had the occasion to rule that services rendered for a fee even
point alone, the deficiency VAT assessment should have been disallowed. on reimbursement-on-cost basis only and without realizing profit are also
subject to VAT. The case, however, is not applicable to the present case.
2. (IMPORTANT): CIR’s  argument,  that  Sony’s  advertising  expense  could  not   Sony did not render any service to SIS at all. The services rendered by the
be considered as an input VAT credit because the same was eventually advertising companies, paid for by Sony using SIS dole-out, were for Sony
reimbursed by Sony International Singapore (SIS), is also erroneous. and not SIS. SIS just gave assistance to Sony in the amount equivalent to
The CIR contends that  since  Sony’s  advertising  expense  was  reimbursed the   latter’s   advertising   expense   but   never   received   any   goods,   properties
by SIS, the former never incurred any advertising expense. As a result, or service from Sony.
Sony is not entitled to a tax credit. At most, the said advertising expense
should be for the account of SIS, and not Sony.
^The  Court  is  not  persuaded.  Sony’s  deficiency  VAT assessment stemmed
from  the  CIR’s  disallowance  of  the  input  VAT  credits  that  should  have  been   RR 16-05.
realized from the advertising expense of the latter. It is evident under
Section 110 of the 1997 Tax Code that an advertising expense duly
covered by a VAT invoice is a legitimate business expense. There is See file in the Dropbox folder. Or if you could upload a better file, please do. Haha.
also no denying that Sony incurred advertising expense. Indubitably, Sony Thanks!
incurred and paid for advertising expense/ services. Where the money
came from is another matter all together but will definitely not change said
fact.
The CIR further argues that Sony itself admitted that the reimbursement
from SIS was income and, thus, taxable. Insofar as the above-mentioned
subsidy may be considered as income and, therefore, subject to
income tax, the Court agrees. However, the Court does not agree that
the same subsidy should be subject to the 10% VAT. To begin with, the
said subsidy termed by the CIR as reimbursement was not even
exclusively  earmarked  for  Sony’s  advertising  expense for it was but an
assistance or   aid   in   view   of   Sony’s   dire   or   adverse   economic  
conditions, and   was   only   “equivalent   to   the   latter’s   (Sony’s)   advertising  
expenses.”
3
Section 106 of the Tax Code explains when VAT may be imposed or
exacted. Thus, there must be a sale, barter or exchange of goods or
properties before any VAT may be levied. Certainly, there WAS NO
SUCH SALE, BARTER OR EXCHANGE IN THE SUBSIDY GIVEN BY
SIS TO SONY. It was but a dole out by SIS and not in payment for goods
or properties sold, bartered or exchanged by Sony.

3
SEC. 106. Value-added Tax on Sale of Goods or Properties. –

(A) Rate and Base of Tax. – There shall be levied, assessed and collected on every sale,
barter or exchange of goods or properties, value-added tax equivalent to ten percent (10%) of
the gross selling price or gross value in money of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferor.
33
TAXATION LAW 2 • There are 2 cases consolidated here. Basically the same issue but for
th rd
different periods—4 quarter 1996 and 3 quarter 1997
DIGESTS AND PROVISIONS COMPILATION
Issues:
C. Value Added Tax WON FBDC is entitled to transitional/presumptive input tax credit—YES

(The numbers are not important here. The point of this case is just a proper
C.7. Withholding/Presumptive/Transitional Input VAT interpretation of the law. So it’s pretty simple!)

01-A. Fort Bonifacio v. CIR (main case) (MR) Held:


• Petition GRANTED
G.R. No. 158885
April 2, 2009 • Decision of lower court REVERSED
Tinga J.
Ratio:
Petitioners: Fort Bonifacio Development Corporation (FBDC) Development of the law subject of this case
Respondents: COMMISSIONER OF INTERNAL REVENUE, REGIONAL • It was in Sec. 105 of the old NIRC when the concept of transitional input
DIRECTOR, REVENUE REGION NO. 8, and CHIEF, ASSESSMENT DIVISION, tax credits was introduced—“A person who becomes liable to VAT or
REVENUE REGION NO. 8, BIR any person who elects to be a VAT-registered person shall… be
allowed input tax on his beginning inventory of goods… 8% of the value
Facts: of such inventory or the actual VAT paid… whichever is higher, which
• FBDC is engaged in development and sale of real property. it acquired shall be creditable against output tax” (note: the input tax creditable
from the government the tract of land which is now Global City. Sale against output tax Is based on the inventory of goods)
was conummated prior to enactment of RA 7166 so it wasn’t paying • When RA7166 was enacted, sec. 100 included real properties in the
VAT. It began selling lots and developing. When RA 7166 was enacted, meaning of goods or properties subject to VAT. Prior to this law, they
the law included real properties in the definition of goods and properties weren’t included—“Value-added tax on sale of goods or properties… (1)
subject to VAT The term goods or properties shall mean… (A) Real properties held
• Thus, the subsequent real estate transactions became subject to VAT. primarily for sale to customers or held for lease in the ordinary course of
FBDC had been remitting output VAT payments and also invoked its trade or business;”
right to transitional input tax credits (Read sec. 111 to understand the • Sec. 105 of old NIRC was carried over to Sec. 111 of the 1997 NIRC,
concept) with only the modification that you have to file your inventory according
• FBDC executed 2 contracts to sell with Metro Pacific Corp. FBDC sent to the rules prescribed by the Secretary of Finance. The rest of the
two (2) letters to the BIR requesting appropriate action on whether its provision remained intact.
use of its presumptive input VAT on its land inventory, to the extent of • And then RR 7-95 came out, sec. 4.105-1 creates the confusion for this
P28,413,783.00 in partial payment of its output VAT, was in order. BIR case—“However, in the case of real estate dealers, the basis of
recommended that the claimed presumptive input tax credit be presumptive input tax shall be the improvements, such as buildings,
disallowed. roads, drainage systems, and other similar structures, constructed on or
• BIR issued notice for deficiency VAT and disallowing presumptive input after the effectivity of EO 273” (note: the NIRC provision based it on the
tax credit arising from land inventory on the basis of RR 7-95 and RMC inventory of all the goods, and now the RR bases it on the
3-96, from which the CIR bases its opinion—Section 4.105-1 of RR 7-95 improvements only)
(all in the ratio to avoid repeating) • SC said it’s clear that those eregullarly engaged in real estate business
• CTA affirmed the assessment and so did CA. Hence, this petition for are accorded the same treatment as the merchants of other goods. In
review the same way that a milliner considers his hats as goods, a real esate
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

dealer holds real estate property, whether or not it contains acquired through donation, donor’s tax for which the
improvements, as his goods donor’s liable; if through in/testate sucession it would be
• amendments introduced by Rep. Act No. 7716 to Section 100, coupled subject to estate tax. Following the reasoning of the CTA,
with the fact that the said law left Section 105 intact, reveal the lack of all of these goods and properties would be excluded for
any legislative intention to make persons or entities in the real estate being sales not in the course of business and which
business subject to a VAT treatment different from those engaged in the should not be able to claim credit. But again, nothing in the
sale of other goods or properties or in any other commercial trade or old NIRC speaks of prior tax payments as requisite to
business. claim the credit.
• The RR is incongruent with the statute. The statute must prevail. ! It is apparent that the transitional input tax credit operates
• But the CIR must have a rationale behind Sec. 4.105-1. SC explores to benefit newly VAT-registered persons, whether or not
and shoots it down here: they previously paid taxes in the acquisition of their
The CTA’s main thesis is that the transitional input tax credit is beginning inventory of goods, materials and supplies.
conditioned on the prior payment of sales tax or VAT During that period of transition from non-VAT to VAT
! RA 7716 subjected various persons to VAT for the first status, the transitional input tax credit serves to alleviate
time, leaving them unable to claim input tax credit on the impact of the V A T on the taxpayer. At the very
purchases made before they became subject to VAT. The beginning, the V A T-registered taxpayer is obliged to
transitional input tax credit was put in place to alleviate the remit a significant portion of the income it derived from its
iniquitous loss. So here, it would be improper for FBDC, sales as output VAT. The transitional input tax credit
which acquired the properties from the government tax- mitigates this initial diminution of the taxpayer’s income by
free, to claim transitional input tax credit. But for the affording the opportunity to offset the losses incurred
improvements, which materials used for construction were through the remittance of the output VAT at a stage when
bought after the effectivity of RA 7716 and thus subject to the person is yet unable to credit input VAT payments.
VAT, they could claim transitional input tax credit ! Further, the rate of the transitional input tax credit is “8%
SC: it makes sense but it’s wrong eh. of the value of such inventory or the actual value-added
! Sec. 25 of EO No. 273 already does that. If the only tax paid on such goods, materials and supplies, whichever
purpose for the credit is to allow some mode of is higher.”38 If indeed the transitional input tax credit is
accreditation of previously-paid sales taxes, then sec. 25 premised on the previous payment of VAT, then it does
would’ve sufficed. Obviously Sec. 105 was an assurance not make sense to afford the taxpayer the benefit of such
that tax credit would endure long after the last goods credit based on “8% of the value of such inventory” should
made subject to sales tax have been consumed. So the the same prove higher than the actual VAT paid.
purpose of the credit is not just confined to transition from ! To emphasize, the common standard for the application of
sales tax to VAT transitional input tax credit is simply that the taxpayer in
! Furthermore, the credit is also given to someone who question has become liable to VAT or has elected to be a
ELECTS to be a VAT-registered person. It applies not only VAT-registered person. The law is neutral and
to those who already have businesses but even to those accommodating in ascertaining who should be entitled to
starter ones. Following the reasoning of CTA, such person tax credit here. CIR should have the same attitude
shouldn’t be allowed to claim the credit because he has ! Let us clarify the distinction between the presumptive input
not paid previous taxes tax credit and the transitional input tax credit. it is plain that
! Now if the goods properties were acquired from a person the presumptive input tax credit is highly limited in
not in the course of business it wouldn’t be subject to VAT, application as it may be claimed only by “persons or firms
but capital gains tax where it’s the seller that’s liable; if engaged in the processing of sardines, mackerel and milk,
2
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

and in manufacturing refined sugar and cooking oil”; and power to limit the meaning and coverage of the term “goods” in Section
“public works contractors.” Clearly, for more than a decade 105 of the NIRC.
now, the term “presumptive input tax credit” has
contemplated a particularly idiosyncratic tax credit far 2. The SC used statcon to rule that on the statutory definition of the term
divorced from its original usage in the transitory provisions “goods” (i.e., in construing a statute, courts have to ascertain the
of E.O. No. 273. There is utterly no sense then in latching legislative intent from the whole act).
on to the term as having any significant meaning for the
purpose of the cases at bar. A. Citing Section 105 of the NIRC: “Transitional Input Tax Credits—A
! Lastly, the offending provisions in RR 7-95 were actually person who becomes liable to value-added tax or any person who
deleted with the enactment of RR 6-97—which highlights elects to be a VAT-registered person shall, subject to the filing of an
the continuing absurdity of the BIR’s position. The inventory as prescribed by regulations, be allowed input tax on his
transactions involved in the first case are covered under 7- beginning inventory of goods, materials and supplies xxx”
95, while those of the second case, under 6-97. So no
question can even be had about the transactions in the B. Under Section 105, then, the beginning inventory of “goods”
second case forms part of the valuation for transitional input tax credit.
! In the case they also shoot down Justice Carpio’s
dissent—dissent to what, it didn’t say. But he adopts the C. With respect to real property dealers, the real properties
CIR’s view with basically the same argument. And likewise, themselves constitute “goods” and are the operating assets of
SC said this reasoning has been debunked the real estate dealer.

3. Now, Section 4.100-1 of RR 7-95, includes “real properties held


primarily for sale to customers or held for lease in the ordinary course of
01-B. Fort Bonifacio v. CIR (Motion for Recon.) (JT) business.”
October 2. 2009
Leonardo-Castro, J. 4. However, Section 4.105-1 of RR 7-95 limited the definition of goods: “in
case of real estate dealers, the basis of the presumptive input tax
Facts shall be the improvements.”
This is a Motion for Reconsideration of the SC decision of the Supreme Court
dated April 2, 2009, which granted the petition of Fort Bonifacio. In that decision, A. This provision in RR 7-95 is inconsistent with Section 105 of the
CIR was restrained from collecting from Fort Bonifacio the amount of P28M NIRC. Such provision went beyond the scope of the power of the
representing transitional input tax credit, and was directed to refund the petitioner CIR and the Secretary of Finance.
an amount of P347M paid as output VAT.
B. To be valid, an administrative regulation must conform and not
Issue/Held: contradict the provisions of the enabling ,law. Any rule/regulation
W/N the MR should be granted—hell no. Boom. Busted. inconsistent with the statute is null and void.

Ratio: (In the interest of time, I shall not do my usual outline-format ratio.) 5. RR 6-97, however, finally deleted said provision. Thus, the allowable
transitional input tax credit is not limited to improvements on real
1. In the original decision, the Court struck down Section 4.105-1 of RR 7- properties.
95 for being in conflict with the law. SC held then that the CIR had no

3
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VALUE ADDED TAX (VAT)

6. The SC then proceeded to break, impair and shatter the dissent of Fort Bonifacio Development Corporation, petitioner
Justice Carpio: Commissioner of Internal Revenue And Revenue District Officer, Revenue
District No. 44, Taguig and Pateros, Bureau of Internal Revenue, respondents
Del Castillo, J.:
A. Justice Carpio basically states that the transitional input tax credit
applies only when the taxes were previously paid on properties in FACTS:
the beginning inventory, and that there should be a law imposing • Fort Bonifacio Development Corporation (FBDC) is a duly registered
the tax presumed to have been paid. domestic corporation engaged in the development and sale of real
property.
• Basically, his argument is that without any VAT or other input • 1995 - FB DC purchased from the national government a portion of
business tax imposed by law on the real properties at the time the Fort Bonifacio reservation, now known as the Fort Bonifacio
Global City (Global City).
of the sale, the transitional input tax cannot be presumed to
• 1996 - RA 7716 restructured the Value-Added Tax (VAT) system
have been paid.
o RA 7716 extended the coverage of VAT to “real properties
held primarily for sale to customers or held for lease in the
B. SC said that Justice Carpio is wrong, mostly because the language ordinary course of trade or business”
of Section 105 is explicit: the law does not contemplate the o (Take note na nauna yung pag-purchase bago siya inadd ng
payment of a prior tax on such inventory. law as a VAT-able transaction)
• So FB DC submitted to BIR an inventory of all its real properties,
7. It is apparent that the transitional input tax credit operates to benefit the book value of which aggregated P71,227,503,200.
o Based on this value, petitioner claimed that it is entitled to a
newly VAT-registered persons, whether or not they previously paid
transitional input tax credit of P5,698,200,256 pursuant to
taxes in the acquisition of their beginning inventory of goods, materials Section 105 of the old NIRC.
and supplies.  SEC. 105. Transitional input tax credits. – A person
who becomes liable to value-added tax or any person
A. During that period of transition from non-VAT to VAT status, the who elects to be a VAT-registered person shall,
transitional input tax credit serves to alleviate the impact of the VAT subject to the filing of an inventory as prescribed by
on the taxpayer. regulations, be allowed input tax on his beginning
inventory of goods, materials and supplies
equivalent to 8% of the value of such inventory or
B. At the very beginning, the VAT-registered taxpayer is obliged to the actual value-added tax paid on such goods,
remit a significant portion of the income it derived from its sales as materials and supplies, whichever is higher,
output VAT. which shall be creditable against the output tax
• FB DC started selling Global City lots to interested buyers.
C. The transitional input tax credit mitigates this initial diminution of the • For the first quarter of 1997, FB DC generated about P 3.7B from its
taxpayer’s income by affording the opportunity to offset the losses sales and lease of lots, on which the output VAT payable was
about P 370M.
incurred through the remittance of the output VAT at a stage when
o FB DC paid the output VAT by making cash payments to
the person is yet unable to credit input VAT payments. the BIR totalling P 360M and crediting its unutilized input tax
credit on purchases of goods and services of P 8,883,644.48.
• Realizing that its transitional input tax credit was not applied in
computing its output VAT for the first quarter of 1997, FB filed with
02. Fort Bonifacio v. CIR (2012) (AD) the BIR a claim for refund of the P 360M erroneously paid as
G.R. No. 173425 output VAT for the said period.
September 4, 2012
Ruling of the Court of Tax Appeals

4
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VALUE ADDED TAX (VAT)

o Prior payment of taxes is inherent in the nature of a


• The CTA denied FB DC’s claim for refund. transitional input tax.
• According to the CTA, "the benefit of transitional input tax credit
comes with the condition that business taxes should have been HELD: The petition is meritorious.
paid first." (wala nga naman kasing VAT imposed nung binili ng FB DC
yung land so bakit sila papayagan mag-input tax credit) RATIO:
o In this case, since FB DC acquired the Global City property
under a VAT-free sale transaction, it cannot avail of the Prior payment of taxes is not required for a taxpayer to avail of the 8%
transitional input tax credit. (Kaya siya considered VAT-free transitional input tax credit
sale kasi binili nila yung land prior to the inclusion of the “real • Section 105 of the old NIRC reads:
properties held primarily for sale to customers..” ekek as VAT- o SEC. 105. Transitional input tax credits. – A person who
able transactions in 1996) becomes liable to value-added tax or any person who elects to
be a VAT-registered person shall, subject to the filing of an
Ruling of the Court of Appeals inventory as prescribed by regulations, be allowed input tax
on his beginning inventory of goods, materials and
• The CA affirmed the decision of the CTA. supplies equivalent to 8% of the value of such inventory or
• The CA agreed that petitioner is not entitled to the 8% transitional the actual value-added tax paid on such goods, materials
input tax credit since it did not pay any VAT when it purchased the and supplies, whichever is higher, which shall be
Global City property. creditable against the output tax. (Emphasis supplied.)
o Transitional input tax credit is allowed only when business • Contrary to the view of the CTA and the CA, there is nothing in the
taxes have been paid and passed-on as part of the above-quoted provision to indicate that prior payment of taxes is
purchase price. necessary for the availment of the 8% transitional input tax credit.
Obviously, all that is required is for the taxpayer to file a beginning
ISSUE: inventory with the BIR.
• Whether petitioner is entitled to a refund of P 360 M erroneously paid as • To require prior payment of taxes, is not only tantamount to judicial
output VAT for the first quarter of 1997, the resolution of which depends legislation but would also render nugatory the provision in Section
on (6 things actually but ito lang yung tingin ko relevant): 105 of the old NIRC that the transitional input tax credit shall be
o Whether there must have been previous payment of "8% of the value of [the beginning] inventory OR the actual [VAT] paid
business tax by petitioner on its land before it may claim on such goods, materials and supplies, whichever is higher" because
the input tax credit granted by Section 105 of the NIRC the actual VAT (now 12%) paid on the goods, materials, and supplies
would always be higher than the 8% (now 2%) of the beginning
Petitioner’s Arguments: inventory which, following the view of Justice Carpio, would have to
• FB DC claims that it is entitled to recover the amount of P 360 M exclude all goods, materials, and supplies where no taxes were paid.
erroneously paid as output VAT for the first quarter of 1997 since its (so parang sabi niya na useless yung option between 1) 8% of value of
transitional input tax credit of P 5,698,200,256 is more than sufficient to beginning inventory or 2) actual VAT paid on the goods WHICHEVER
cover its output VAT liability for the said period. (di ko to gets) IS HIGHER kasi mas mataas lagi yung actual VAT paid kesa dun sa isa
• FB DC assails the pronouncement of the CA that prior payment of na kelangan mo pa tanggalin yung value ng goods on which you didn’t
taxes is required to avail of the 8% transitional input tax credit. pay any taxes)
o It contends that there is nothing in Section 105 of the old • Clearly, limiting the value of the beginning inventory only to goods,
NIRC to support such conclusion. materials, and supplies, where prior taxes were paid, was not the
intention of the law. Otherwise, it would have specifically stated that
Respondents’ Arguments the beginning inventory excludes goods, materials, and supplies where
• CIR, on the other hand, maintains that FB DC is not entitled to a no taxes were paid.
transitional input tax credit because no taxes were paid in the • As retired Justice Consuelo Ynares-Santiago has pointed out in her
acquisition of the Global City property. Concurring Opinion in the earlier case of Fort Bonifacio:

5
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VALUE ADDED TAX (VAT)

o If the intent of the law were to limit the input tax to cases • In our Decision dated April 2, 2009, in the related case of Fort
where actual VAT was paid, it could have simply said that Bonifacio, we explained that:
the tax base shall be the actual value-added tax paid. o The clear language of the law entitles new trades or
o Instead, the law as framed contemplates a situation where businesses to avail of the tax credit once they become
a transitional input tax credit is claimed even if there was VAT-registered.
no actual payment of VAT in the underlying transaction. In o The transitional input tax credit, whether under the Old
such cases, the tax base used shall be the value of the NIRC or the New NIRC, may be claimed by a newly-VAT
beginning inventory of goods, materials and supplies. registered person such as when a business as it
• Moreover, prior payment of taxes is not required to avail of the commences operations.
transitional input tax credit because it is not a tax refund per se but o Following the theory of the CTA, the new enterprise should be
a tax credit. Tax credit is not synonymous to tax refund. able to claim the transitional input tax credit because it has
o Tax refund is defined as the money that a taxpayer overpaid presumably paid taxes, VAT in particular, in the purchase of
and is thus returned by the taxing authority. the goods, materials and supplies in its beginning inventory.
o Tax credit, on the other hand, is an amount subtracted  Consequently, as the CTA held below, if the new
directly from one’s total tax liability. It is any amount given enterprise has not paid VAT in its purchases of such
to a taxpayer as a subsidy, a refund, or an incentive to goods, materials and supplies, then it should not be
encourage investment. able to claim the tax credit.
 Thus, unlike a tax refund, prior payment of taxes  However, it is not always true that the acquisition
is not a prerequisite to avail of a tax credit. of such goods, materials and supplies entail the
o Commissioner of Internal Revenue v. Central Luzon Drug Corp. payment of taxes on the part of the new business.
– we declared that prior payment of taxes is not required in In fact, this could occur as a matter of course by virtue
order to avail of a tax credit. of the operation of various provisions of the NIRC,
 While a tax liability is essential to the availment or use and not only on account of a specially legislated
of any tax credit, prior tax payments are not. On the exemption.
contrary, for the existence or grant solely of such  Let us cite a few examples drawn from the New NIRC.
credit, neither a tax liability nor a prior tax • If the goods or properties are not
payment is needed. The Tax Code is in fact replete acquired from a person in the course of
with provisions granting or allowing tax credits, even trade or business, the transaction would
though no taxes have been previously paid. not be subject to VAT under Section 105.
• In this case, when FB DC realized that its transitional input tax credit The sale would be subject to capital gains
was not applied in computing its output VAT for the 1st quarter of 1997, taxes under Section 24 (D), but since capital
it filed a claim for refund to recover the output VAT it erroneously or gains is a tax on passive income it is the
excessively paid. seller, not the buyer, who generally would
• In filing a claim for tax refund, FB DC is simply applying its transitional shoulder the tax.
input tax credit against the output VAT it has paid. Hence, it is merely • If the goods or properties are acquired
availing of the tax credit incentive given by law to first time VAT through donation, the acquisition would
taxpayers. not be subject to VAT but to donor’s tax
• As we have said in the earlier case of Fort Bonifacio, the provision under Section 98 instead. It is the donor who
on transitional input tax credit was enacted to benefit first time would be liable to pay the donor’s tax, and
VAT taxpayers by mitigating the impact of VAT on the taxpayer. the donation would be exempt if the donor’s
o Thus, contrary to the view of Justice Carpio, the granting of a total net gifts during the calendar year does
transitional input tax credit in favor of FB DC, which would be not exceed P 100,000.00.
paid out of the general fund of the government, would be an • If the goods or properties are acquired
appropriation authorized by law, specifically Section 105 of the through testate or intestate succession,
old NIRC. the transfer would not be subject to VAT
but liable instead for estate tax under Title

6
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

III of the New NIRC. If the net estate does 03. LVM Construction v. Sanchez
not exceed P 200,000.00, no estate tax
Topic: Withholding, Transitional, Presumptive Input VAT; No agreement to
would be assessed.
 The interpretation proffered by the CTA would deduct VAT; Both parties are liable to pay VAT since they are both
exclude goods and properties which are acquired manufacturer/sellers
through sale not in the ordinary course of trade or Relevant Laws:
business, donation or through succession, from • Section 114 (c), Tax Code of 1997 (see ratio)
the beginning inventory on which the transitional
input tax credit is based. This prospect all but
G.R. No. 1819061
highlights the ultimate absurdity of the
respondents’ position. Again, nothing in the Old December 5, 2011
NIRC (or even the New NIRC) speaks of such a Perez, J.
possibility or qualifies the previous payment of
VAT or any other taxes on the goods, materials Petitioner: LVM Construction Corp., represented by its Managing Director,
and supplies as a pre-requisite for inclusion in the Andres Chua Lao
beginning inventory. Respondents: FT Sanchez/Socor/Kimwa (“Joint Venture” or “JV”), FT Sanchez
o It is apparent that the transitional input tax credit operates to
Construction Corporation, Socor Construction Corporation, Kimwa Construction
benefit newly VAT-registered persons, whether or not they
previously paid taxes in the acquisition of their beginning Development Corporation, all represented by Fortunato O. Sanchez, Jr.
inventory of goods, materials and supplies. During that
period of transition from non-VAT to VAT status, the Summary: (please highlight the main doctrine of the case. Please and thank
transitional input tax credit serves to alleviate the impact of the you!)
VAT on the taxpayer. At the very beginning, the VAT- LVM Construction Corp. was engaged by the DPWH for the construction of roads
registered taxpayer is obliged to remit a significant portion of
and bridges. LVM subcontracted one of the projects to a Joint Venture. After
the income it derived from its sales as output VAT. The
transitional input tax credit mitigates this initial diminution of the completion, the JV demanded full payment to which LVM responded that they
taxpayer's income by affording the opportunity to offset the discovered that no deductions for VAT were made on previous payments and as
losses incurred through the remittance of the output VAT at a such they were going to deduct 8.5% (now 5%) from the payments still due. The
stage when the person is yet unable to credit input VAT JV disputed this and argued that all the receipts issued to LVM would have made
payments. JV subject to VAT and, hence, LVM could claim such as input tax. Can LVM
• In view of the foregoing, we find petitioner entitled to the 8% transitional rightfully deduct the amount representing the withholding VAT due on its
input tax credit provided in Section 105 of the old NIRC. The fact that it transaction with DPWH? The SC says “no, no, no.” Supreme Court held that as
acquired the Global City property under a tax-free transaction makes no
difference as prior payment of taxes is not a pre-requisite. an entity, which dealt directly with the government insofar as the main
• WHEREFORE, the petition is hereby GRANTED. Respondent contract was concerned, LVM was itself required by law to pay the 8.5%
Commissioner of Internal Revenue is ordered to refund to petitioner Fort (now 5%) VAT, which was withheld by DPWH. Given that the JV complied
Bonifacio Development Corporation the amount of P 359,652,009.47 with their own obligation when they paid their VAT from their gross
paid as output VAT for the first quarter of 1997 in light of the transitional receipts and the fact that the contract between LVM and the JV did not
input tax credit available to petitioner for the said quarter, or in the stipulate any obligation on LVM assuming the VAT, LVM has no basis to
alternative, to issue a tax credit certificate corresponding to such withhold payments. Although the burden to pay an indirect tax like the VAT
amount.
can be passed on, the liability to pay the same remains with the seller. In
this case, both LVM and the JV are liable for their respective VAT
obligations as respective sellers.

Facts:

7
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

• Petitioner LVM Construction Corporation (LVM) is a duly licensed of its unpaid claims as well as the release of money
construction firm primarily engaged in the construction of roads and retained by the latter in accordance with the Subcontract
bridges for the Department of Public Works and Highways (DPWH). Agreement.
o Awarded the construction of the Arterial Road Link • 5/15/2001 – (SOURCE OF CONFLICT) LVM sent the Joint Venture a
Development Project in Southern Leyte (the Project), LVM letter apprising the latter of the fact that its auditors have belatedly
subcontracted approximately 30% of the contract amount discovered that no deductions for EVAT had been made from its
with the Joint Venture composed of respondents F.T. payments on Billing Nos. 1 to 26 and that it was, as a consequence,
Sanchez Corporation (FTSC), Socor Construction Corporation going to deduct the 8.5% payments for said tax from the amount
(SCC) and Kimwa Construction Development Corporation still due in the premises.
(KCDC). o 6/14/2001 – Joint Venture’s Reply: having issued Official
o For the contract price of P90,061,917.25 which was later on Receipts for every payment it received, it was liable to pay
reduced to P86,318,478.38, the Joint Venture agreed to 10% VAT thereon and that LVM can, in turn, claim there
undertake construction of the portion of the Project starting from an equivalent input tax of 10%. (Note that the JV was
from Sta. 154 + 210.20 to Sta. 160 + 480.00. With LVM as the correct in asserting this. More on this in the ratio.)
Contractor and the Joint Venture as Subcontractor, the 27 • 6/30/2005 - With its claims still unpaid despite the lapse of more than 4
November 1996 Subcontract Agreement executed by the years from the completion of the subcontracted works, the Joint Venture,
parties pertinently provided: thru its Managing Director, Fortunato O. Sanchez, Jr., filed against LVM
 3) That payment to the SUBCONTRACTOR shall be a complaint for sum of money and damages which was docketed before
on item of work accomplished in the subcontracted the Construction Industry Arbitration Commission (CIAC)
portion of the project at awarded unit cost of the o 12/23/2005 – Joint Venture filed an Amended Complaint
project less NINE PERCENT (9%). The SUB- specifying its claims:
CONTRACTOR shall issue a BIR registered receipt to  P8,041,469.73 as retention monies for Billing Nos. 1
the CONTRACTOR. to 26;
 4) Ten percent (10%) retention to be deducted for  P3,358,845.97 as unpaid balance on Billing No. 27;
every billing of subcontractor as prescribed under the  P6,186,570.71 as interest on unpaid retention money
Tender Documents. x x x computed at 12% per annum reckoned from 6 August
 13) The payment to the SUBCONTRACTOR shall be 1999 up to 1 January 2006; and
made within seven (7) days after the check issued by  P5,365,677.70 as interest at 12% per annum on
DPWH to CONTRACTOR has already been made delayed payment of monies collected from DPWH on
good. Billing Nos. 1 to 26.
• For work rendered in the premises, there is no dispute regarding the  attorney’s fees equivalent to 10% of the amount
fact that the Joint Venture sent LVM a total of 27 Billings. For Billing Nos. collected and/or in a sum not less than P1,000,000.00
1 to 26, LVM paid the Joint Venture the total sum of P80,414,697.12 • LVM’s Answer with Compulsory Counterclaim – argued that it did not
and retained the sum of P8,041,469.79 by way of the 10% retention release the 10% retention for Billing Nos. 1 to 26 on the ground that it
stipulated in the Subcontract Agreement. had yet to make the corresponding 8.5% deductions for EVAT which the
• For Billing No. 27 in the sum of P5,903,780.96, on the other hand, LVM Joint Venture should have paid to the BIR and that there is, as a
paid the Joint Venture the partial sum of P2,544,934.99 on 31 May 2001, consequence, a need to offset the sums corresponding thereto from the
claiming that it had not yet been fully paid by the DPWH. retention money still in its possession. Other allegations:
o Having completed the subcontracted works, the Joint o Joint Venture’s claims failed to take into consideration its own
Venture subsequently demanded from LVM the settlement outstanding obligation in the total amount of P21,737,094.05,

8
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

representing the liquidated damages it incurred as a • For lack of any stipulation regarding the same in the parties’
consequence of its delays in the completion of the project. Subcontract Agreement, the SC finds that the CA correctly brushed
o Joint Venture’s prayer for imposition of 12% interest on the aside LVM’s insistence on deducting its supposed EVAT payments
retention money and the balance of Billing No. 27 is bereft of from the retention money demanded by the Joint Venture.
factual and legal bases since no interest was stipulated in the o (This rule on contracts actually plays a large part in resolving
parties’ agreement and it was justified in refusing the release of the issue) A contract constitutes the law between the parties
said sums claimed. who are, therefore, bound by its stipulations which, when
• 4/26/2006 – CIAC granted the Joint Venture’s claims for payment of couched in clear and plain language, should be applied
the retention money for Billing Nos. 1 to 26, as well as the interest according to their literal tenor.
thereon and the unpaid balance billing from 6 August 1999 to 1 January • (Intent of the parties is also considered) That there was no agreement
2006 in the aggregate sum of P11,307,646.68. regarding the offsetting urged by LVM may likewise be readily gleaned
• CIAC ruling: from the parties’ contemporaneous and subsequent acts, which are
o Discounted the contractual and legal bases for LVM’s claim given primordial consideration in determining their intention.
that it had the right to offset its EVAT payments from the o The record shows that, except for deducting sums
retention money still in its possession, corresponding to the 10% retention agreed upon, 9% as
o The VAT deductions the DPWH made from its payments to contingency on subcontract, 1% withholding tax and such other
LVM were for the whole project and already included all its itemized miscellaneous expenses, LVM settled the Joint
supplies and subcontractors. Venture’s Billing Nos. 1 to 26 without any mention of
o Instead of withholding said retention money, LVM was deductions for the EVAT payments it claims to have advanced
determined to have – to its credit and for its use – the input o It only on 16 May 2001 that LVM’s Managing Director,
VAT corresponding to the 10% equivalent VAT paid by the Andres C. Lao, apprised the Joint Venture in writing of its
Joint Venture based on the BIR-registered official receipts it intention to deduct said payments.
issued.  It is evident that LVM unilaterally broached its
o Finding that the delays incurred by the Joint Venture were intention of deducting the subject EVAT payments
justified, the CIAC likewise denied LVM’s counterclaim for only on 15 May 2001 or long after the project’s
liquidated damages for lack of contractual basis. completion on 9 July 1999.
• CA – affirmed in toto the CIAC’s decision. MR was denied; hence,  In the absence of any stipulation thereon, however,
this petition. the CA correctly disallowed the offsetting of said sums
from the retention money undoubtedly due the Joint
Issue: Venture.
Whether or not the Joint Venture is required to pay their VAT obligations --- NO!  Courts are obliged to give effect to the parties’
The Joint Venture already paid as a consequene of the issuance of BIR- agreement and enforce the contract to the letter.
registered receipts. (Kung nagbayad na si JV, bakit pa babawasan ulit ni LVM?  The rule is settled that they have no authority to alter
Eh di doble bayad si JV. So, dapat hindi na ibawas ni LVM.) a contract by construction or to make a new contract
for the parties; their duty is confined to the
Held: interpretation of the one which the parties have made
• Petition DISMISSED. for themselves, without regard to its wisdom or folly.
• CA’s decision affirmed in toto.  Courts cannot supply material stipulations, read into
the contract words it does not contain or, for that
Ratio: matter, read into it any other intention that would
contradict its plain import.
9
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

 This is particularly true in this case where, in addition control of the payment shall be considered as the
to the dearth of a meeting of minds between the withholding agent.”
parties, their contemporaneous and subsequent acts • For the Subcontract Agreement, respondent F. Sanchez Construction,
fail to yield any intention to offset the said EVAT acting on behalf of the Joint Venture, issued Preregistered receipts
payments from the retention money still in LVM’s for the sums paid by LVM for Billing Nos. 1 to 26, indicating the total
possession. amount paid by the latter, the retention fee deducted therefrom and
• LVM argues: Joint Venture’s liability for EVAT as an entity that renders the tax due thereon (JV already paid the tax)
services in the course of trade or business need not be stated in the • As the VAT registered person, Fortunate T. Sanchez, Sr. also filed
Sub Contract Agreement considering that it is an obligation imposed by the corresponding Monthly VAT Declarations with the BIR which,
law, which forms part of, and is read into, every contract. by themselves, are evidence of the Joint Venture’s VAT liability for
• Joint Venture argues (and correctly, mind): LVM’s payments on its billings.
o There are 2 contracts in this case: that of the main contract o In fixing the base of the tax, the first paragraph A Section 108
between DPWH and LWM, and the Subcontract Agreement of the NIRC provides that “(t)here shall be levied assessed and
between LVM and the Joint Venture collected, a value-added tax equivalent to ten percent (10%) of
o As the entity which directly dealt with the government gross receipts derived from the sale or exchange of services,
insofar as the main contract was concerned, LVM was including the use or lease of properties.”
itself required by law to pay the 8.5% VAT which was • In the absence of any stipulation regarding the Joint Venture’s sharing
withheld by the DPWH in accordance with the Tax Code of in the VAT deducted and withheld by the DPWH from its payment on
1997. the main contract, the CIAC and the CA correctly ruled that LVM has no
o Sec. 114(c) of the Code provides: basis in offsetting the amounts of said tax from the retention still in its
(C) Withholding of Creditable Value-added Tax. The possession.
Government or any of its political subdivisions, • VAT is a uniform tax levied on every importation of goods, whether
instrumentalities or agencies, including government owned or not in the course of trade or business, or imposed on each sale,
or controlled corporations (GOCCs) shall, before making barter, exchange or lease of goods or properties or on each
payment on account of each purchase of goods from rendition of services in the course of trade or business.
sellers and services rendered by contractors which are o It is a tax on transactions, imposed at every stage of the
subject to the value-added tax imposed in Sections 106 distribution process on the sale, barter, exchange of
and 108 of this Code, deduct and withhold the value- goods or property, and on the performance of services,
added tax due at the rate of three percent (3%) of the even in the absence of profit attributable thereto.
gross payment for the purchase of goods and six percent o As an indirect tax that may be shifted or passed on to the
(6%) on gross receipts for services rendered by buyer, transferee or lessee of the goods, properties or
contractors on every sale or installment payment which services, VAT should be understood not in the context of
shall be creditable against the value-added tax liability of the person or entity that is primarily, directly and legally
the seller or contractor: Provided, however, That in the liable for its payment, but in terms of its nature as a tax on
case of government public works contractors, the consumption
withholding rate shall be eight and one-half percent • To recapitulate, LVM, as Contractor for the Project, was liable for the
(8.5%): Provided, further, That the payment for lease or 8.5% VAT which was withheld by the DPWH from its payments,
use of properties or property rights to nonresident owners pursuant to Section 114 (C) of the NIRC. Absent any agreement to that
shall be subject to ten percent (10%) withholding tax at the effect, LVM cannot deduct the amounts thus withheld from the sums it
time of payment. For this purpose, the payor or person in still owed the Joint Venture which, as Subcontractor of 30% of the

10
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

Project, had its own liability for 10% VAT insofar as the sums paid for 2. When a zero-rated VAT taxpayer pays its input VAT a year after the pertinent
the subcontracted works were concerned. Although the burden to pay transaction, said taxpayer only has a year to file a claim for refund or tax credit of
an indirect tax like VAT can, admittedly, be passed on to the purchaser the unutilized creditable input VAT. The reckoning frame would always be the
of the goods or services, it bears emphasizing that the liability to pay the end of the quarter when the pertinent sales or transaction was made, regardless
same remains with the manufacturer or seller like LVM and the Joint when the input VAT was paid.
Venture. In the same manner that LVM is liable for the VAT due on the
payments made by the DPWH pursuant to the contract on the Project, Facts:
the Joint Venture is, consequently, liable for the VAT due on the • CIR filed a Petition for Review on Certiorari under Rule 45 assailing and
payments made by LVM pursuant to the parties’ Subcontract. seeking to set aside the Decision dated December 22, 2005 of the CA
(Thus the present case)
• MPC, formerly Southern Energy Quezon, Inc., and also formerly known
C.8. Withholding/Presumptive/Transitional Input VAT as Hopewell (Phil.) Corporation, is a domestic firm engaged in the
generation of power which it sells to the National Power Corporation
(NPC). Input VAT Refund stems from amount paid for the
01. CIR v. Mirant (HV) construction of the electrical and mechanical equipment portion of
Topic: VAT refunds its Pagbilao, Quezon plant, which appears to have been
Relevant Laws: undertaken from 1993 to 1996, MPC secured the services of
• Sec. 108(B)(3), 110 and 112, Tax Code Mitsubishi Corporation (Mitsubishi) of Japan.
• Section 13 RA 6395 • Under its charter, NPC is exempt from all taxes both direct and
indirect as ruled in Maceda v. Macaraig.
G.R. No. 172129 • MPC’s CONTENTION:
September 12, 2008 MPC, believes that its sale of power generation services to NPC is,
VELASCO, JR., J.: pursuant to Sec. 108(B)(3) of the Tax Code, zero-rated for VAT
purposes.
Petitioners: CIR It therefore filed on December 1, 1997 with Revenue District Office
Respondents: MIRANT PAGBILAO CORPORATION (MPC) (RDO) No. 60 in Lucena City an Application for Effective Zero Rating.
The application covered the construction and operation of its Pagbilao
Summary: power station under a Build, Operate, and Transfer scheme.
MPC paid late to Mitsubishi the pertaining input VAT (evidenced by OR 0189 • WHAT MADE THE ISSUE:
among other items claimed for refund) for the construction of the electrical and Consistent with its belief to be zero-rated, MPC opted not to pay
mechanical equipment portion of its Pagbilao, Quezon plant, which appears to the VAT component of the progress billings from Mitsubishi for the
have been undertaken from 1993 to 1996. As a consequence, MPC claimed for period covering April 1993 to September 1996—for the E & M
input VAT refund against BIR. Both the CTA and CA agreed that it is an input Equipment Erection Portion of MPC’s contract with Mitsubishi.
VAT. But as ruled by SC, the time for claiming its refund has prescribed. MPC’s This prompted Mitsubishi to advance the VAT component as this
creditable input VAT is not erroneously paid. SC also ruled that the time to claim serves as its output VAT which is essential for the determination of
it as refund has prescribed. its VAT payment. Apparently, it was only on April 14, 1998 that
MPC paid Mitsubishi the VAT component for the progress billings
Doctrines: from April 1993 to September 1996, and for which Mitsubishi
1. Failure to secure an approved application for zero-rating makes sales to issued Official Receipt (OR) No. 0189 in the aggregate amount of
tax-exempt entities subject to 12% VAT. PhP 135,993,570.

11
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

MPC, while awaiting approval of its application, MPC filed its quarterly ((((((summarized(in(Annex(A(of(SGV(&(Co.’s(
VAT return for the second quarter of 1998 where it reflected an input ((((((supplementary(report((CTA(records,(page(134)((((((((((((((((( ((((((( ((((252,447.45(
VAT of PhP 148,003,047.62, which included PhP 135,993,570 ((
supported by OR No. 0189. Pursuant to the procedure prescribed in c.)((((Claimed(input(taxes(on(purchases(of(services(from(
Revenue Regulations No. 7-95, MPC filed on December 20, 1999 an Mitsubishi(Corp.(for(being(substantiated(by(dubious(OR( (((((((((((((135,996,570.00(
%
administrative claim for refund of unutilized input VAT in the amount of
Refundable%Input% %%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%P10,766,939.48%
PhP 148,003,047.62.
• WHAT HAPPENED NEXT:
• CA rendered its assailed decision modifying that of the CTA decision by
BIR failed to act on MPC’s claim for refund and the case was
granting most of MPC’s claims for tax refund or credit. CA ordered to
elevated to CTA
refund or issue a tax credit certificate in favor of petitioner Mirant
• CTA partially granted input VAT Refund for MPC disallowing items
Pagbilao Corporation its unutilized input VAT payments directly
not substantiated with receipts.
attributable to its effectively zero-rated sales for the second quarter of
CTA commissioned SGV in verifying and analyzing documents and
1998 in the total amount of P146,760,509.48.
figures and entries to determine whether MPC has unapplied or
• CA agreed on:
unutilized creditable input VAT for the 2nd quarter of 1998 attributable to
(1) a zero-rating for VAT purposes for its sales and services to tax-
zero-rated sales to NPC, if creditable input VAT of MPC for said period
exempt NPC; and
is substantiated and if unutilized creditable input VAT for said quarter, if
(2) a refund or tax credit for its unutilized input VAT for the second
any, was applied against any of the VAT output tax of MPC in the
quarter of 1998, with only a disagreement on evidentiary value of OR
subsequent quarter.
No. 0189.
CTA decides:

Issues:
Claimed(Input(VAT((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( ( (P148,003,047.62(
1. WON MPC is entitled to the refund of its input VAT payments made
from 1993 to 1996 amounting to [PhP] 146,760,509.48? --- PARTLY.
Less:%%Disallowances%
(a.)((((As(summarized(by(SGV(&(Co.(in(its(initial(report( THERE ARE ITEMS WHICH HAVE BEEN PRESCRIBED.
I.((Input(Taxes(on(Purchases(of(Services:( Held:
(((((1.(Supported(by(documents( • Petition of CIR PARTLY GRANTED.
((((((((((((other(than(VAT(Ors((((((((((((((((((((( ( ( ( (P(((10,629.46( • Decision of CA AFFIRMED WITH MODIFICATION.
(((((2.(Supported(by(photocopied(VAT(OR((((((((((((( ( ( (((((((((((879.09(
II.(Input(Taxes(on(Purchases(of(Goods:( Ratio:
(((((1.(Supported(by(documents(other(than( • Verily, a claim for tax refund may be based on a statute granting tax
((((((((((((VAT(invoices((((((((((((((((((((((((((((((((((( ( ( ( (((((165,795.70( exemption, or, as Commissioner of Internal Revenue v. Fortune
(((((2.(Supported(by(Invoices(with(TIN(only(((((((( ( ( ((((((((1,781.82( Tobacco Corporation would have it, the result of legislative grace. In
(((((3.(Supported(by(photocopied(VAT(
such case, the claim is to be construed strictissimi juris against the
((((((((((((invoices((((((((((((((((((((((((((((((((((((((((((((((( ( ( ( ((((((((3,153.62(
taxpayer, meaning that the claim cannot be made to rest on vague
III.(Input(Taxes(on(Importation(of(Goods:(
inference. Where the rule of strict interpretation against the taxpayer is
((((((1.(Supported(by(photocopied(documents(
applicable as the claim for refund partakes of the nature of an
(((((((((((([IEDs(and/or(Bureau(of(Customs(
exemption, the claimant must show that he clearly falls under the
(((((((((((((BOC)(Ors](((((((((((((((((((((((((((((((((((((((((((((716,250.00(
((((((2.(Supported(by(broker’s(computations((((((((91,601.00( ((((((((( ((((990,090.69( exempting statute. On the other hand, a tax refund may be, as usually it
(( is, predicated on tax refund provisions allowing a refund of erroneous or
b.)((Input(taxes(without(supporting(documents(as( excess payment of tax. The return of what was erroneously paid is

12
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

founded on the principle of solutio indebiti, a basic postulate that no one (1) Any input tax evidenced by a VAT invoice or official receipt issued in
should unjustly enrich himself at the expense of another. The caveat accordance with Section 113 hereof on the following transactions shall
against unjust enrichment covers the government. And as decisional be creditable against the output tax:
law teaches, a claim for tax refund proper, as here, necessitates (a) Purchase or importation of goods:
only the preponderance-of-evidence threshold like in any ordinary xxx
civil case. (b) Purchase of services on which a value-added tax has been actually
• SC notes that the BIR Commissioner, while making reference to paid.
the figure PhP 146,760,509.48, joins the CA and the CTA on their xxx
disposition on the propriety of the refund of or the issuance of a The law considers a duly-executed VAT invoice or OR referred to in the
TCC for the amount of PhP 10,766,939.48. In fine, the BIR above provision as sufficient evidence to support a claim for input tax
Commissioner trains his sight and focuses his arguments on the credit. And any doubt as to what OR No. 0189 was for or tended to
core issue of whether or not MPC is entitled to a refund for PhP prove should reasonably be put to rest by the SGV report on which the
135,993,570 (PhP 146,760,509.48 - PhP 10,766,939.48 = PhP CTA notably placed much reliance. The SGV report stated that “[OR] No.
135,993,570) it allegedly paid as creditable input VAT for services 0189 dated April 14, 1998 is for the payment of the VAT on the progress
and goods purchased from Mitsubishi during the 1993 to 1996 billings” from Mitsubishi Japan “for the period April 7, 1993 to
stretch. September 6, 1996 for the E & M Equipment Erection Portion of the
• The SC usually may not review issues of fact where there are Company’s contract with Mitsubishi Corporation (Japan).
divergent findings by the trial and appellate courts. One exception • Therefore, VAT is presumably paid on April 14, 1998 for OR 0189
to this rule is when the CA and the trial court diametrically differ in when MPC paid to Mitsubishi
their findings. • The claim for refund or tax credit for the creditable input VAT
• Belated payment by MPC of its obligation for creditable input VAT – it is payment made by MPC embodied in OR No. 0189 was filed beyond
no less found by the CTA, citing the SGV’s report, the payments the period provided by law for such claim. Sec. 112(A) of the NIRC
covered by OR No. 0189 were for goods and service purchases made pertinently reads:
by MPC through the progress billings from Mitsubishi for the period (A) Zero-rated or Effectively Zero-rated Sales. – Any VAT-
covering April 1993 to September 1996—for the E & M Equipment registered person, whose sales are zero-rated or effectively zero-
Erection Portion of MPC’s contract with Mitsubishi. In net effect, MPC rated may, within two (2) years after the close of the taxable
did not, for the VATable MPC-Mitsubishi 1993 to 1996 transactions quarter when the sales were made, apply for the issuance of a tax
adverted to, immediately pay the corresponding input VAT. OR No. credit certificate or refund of creditable input tax due or paid
0189 issued on April 14, 1998 clearly reflects the belated payment of attributable to such sales, except transitional input tax, to the
input VAT corresponding to the payment of the progress billings from extent that such input tax has not been applied against output tax:
Mitsubishi for the period covering April 7, 1993 to September 6, 1996. x x x.
SGV found that OR No. 0189 in the amount of PhP 135,993,570 (USD (Nota Bene: From articles found at Punongbayan & Araullo website:
5,190,000) was duly supported by bank statement evidencing payment The Supreme Court (SC) has issued two different decisions on the
to Mitsubishi (Japan). Undoubtedly, OR No. 0189 proves payment by reckoning of the two-year period. In Atlas Consolidated and Mining
MPC of its creditable input VAT relative to its purchases from Mitsubishi. Corp. v. Commissioner of Internal Revenue (CIR) case (G.R. Nos.
• OR No. 0189 by itself sufficiently proves payment of VAT (however 141104 and 148763, June 8, 2007), the SC ruled that the two-year
it has prescribed its status for refund) prescriptive period for filing a claim for refund of input VAT shall be
Section 110. Tax Credits. – counted from the date of filing of the return. In the following year, the
A. Creditable Input Tax. – SC ruled in CIR v. Mirant Pagbilao Corporation case (G.R. No. 172129,
September 12, 2008) that refund must be claimed within two years from

13
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

the close of the taxable quarter when the relevant sales were made. – for its payment, but in terms of its nature as a tax on consumption. In
This however is not the focus of our discussion, therefore in gray ink) either case, though, the same conclusion is arrived at.
• Thus, when a zero-rated VAT taxpayer pays its input VAT a year The law that originally imposed the VAT in the country, as well as the
after the pertinent transaction, said taxpayer only has a year to file subsequent amendments of that law, has been drawn from the tax
a claim for refund or tax credit of the unutilized creditable input credit method. Such method adopted the mechanics and self-
VAT. The reckoning frame would always be the end of the quarter enforcement features of the VAT as first implemented and practiced in
when the pertinent sales or transaction was made, regardless Europe x x x. Under the present method that relies on invoices, an
when the input VAT was paid. Be that as it may, and given that the entity can credit against or subtract from the VAT charged on its sales
last creditable input VAT due for the period covering the progress billing or outputs the VAT paid on its purchases, inputs and imports.
of September 6, 1996 is the third quarter of 1996 ending on September If at the end of a taxable quarter the output taxes charged by a seller
30, 1996, any claim for unutilized creditable input VAT refund or tax are equal to the input taxes passed on by the suppliers, no payment is
credit for said quarter prescribed two years after September 30, 1996 or, required. It is when the output taxes exceed the input taxes that the
to be precise, on September 30, 1998. Consequently, MPC’s claim excess has to be paid. If, however, the input taxes exceed the output
for refund or tax credit filed on December 10, 1999 had already taxes, the excess shall be carried over to the succeeding quarter or
prescribed. (See Sec. 204(C) and 229 which SC decided will not quarters. Should the input taxes result from zero-rated or effectively
apply for MPC for prescription issue) zero-rated transactions or from the acquisition of capital goods, any
• MPC’s creditable input VAT not erroneously paid. MPC’s sale of excess over the output taxes shall instead be refunded to the taxpayer
electricity to NPC is not zero-rated for its failure to secure an or credited against other internal revenue taxes.
approved application for zero-rating. xxxx
Under Sec. 105 of the NIRC, creditable input VAT is an indirect tax Zero-rated transactions generally refer to the export sale of goods and
which can be shifted or passed on to the buyer, transferee, or lessee of supply of services. The tax rate is set at zero. When applied to the tax
the goods, properties, or services of the taxpayer. The fact that the base, such rate obviously results in no tax chargeable against the
subsequent sale or transaction involves a wholly-tax exempt client, purchaser. The seller of such transactions charges no output tax, but
resulting in a zero-rated or effectively zero-rated transaction, does not, can claim a refund of or a tax credit certificate for the VAT previously
standing alone, deprive the taxpayer of its right to a refund for any charged by suppliers.
unutilized creditable input VAT, albeit the erroneous, illegal, or wrongful • The Court wishes to remind the BIR and other tax agencies of their duty
payment angle does not enter the equation. to treat claims for refunds and tax credits with proper attention and
In Commissioner of Internal Revenue v. Seagate Technology urgency. Had RDO No. 60 and, later, the BIR proper acted, instead of
(Philippines), the Court explained the nature of the VAT and the sitting, on MPC’s underlying application for effective zero rating, the
entitlement to tax refund or credit of a zero-rated taxpayer: matter of addressing MPC’s right, or lack of it, to tax credit or refund
Viewed broadly, the VAT is a uniform tax x x x levied on every could have plausibly been addressed at their level and perchance freed
importation of goods, whether or not in the course of trade or business, the taxpayer and the government from the rigors of a tedious litigation.
or imposed on each sale, barter, exchange or lease of goods or The all too familiar complaint is that the government acts with
properties or on each rendition of services in the course of trade or dispatch when it comes to tax collection, but pays little, if any,
business as they pass along the production and distribution chain, the attention to tax claims for refund or exemption. It is high time our
tax being limited only to the value added to such goods, properties or tax collectors prove the cynics wrong.
services by the seller, transferor or lessor. It is an indirect tax that may • WHEREFORE, the petition is PARTLY GRANTED. The Decision dated
be shifted or passed on to the buyer, transferee or lessee of the goods, December 22, 2005 and the Resolution dated March 31, 2006 of the CA
properties or services. As such, it should be understood not in the in CA-G.R. SP No. 78280 are AFFIRMED with the MODIFICATION that
context of the person or entity that is primarily, directly and legally liable the claim of respondent MPC for tax refund or credit to the extent of
PhP 135,993,570, representing its input VAT payments for service
14
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

purchases from Mitsubishi Corporation of Japan for the construction of a 112, NIRC. While agreeing with the conclusion of CTA 2D, CTA EB based its
portion of its Pagbilao, Quezon power station, is DENIED on the ground ruling on Sec. 229 (instead of Sec.112).
that the claim had prescribed. Accordingly, petitioner Commissioner of
Internal Revenue is ordered to refund or, in the alternative, issue a tax SC agreed with CTA 2D that the administrative claim was filed on time
credit certificate in favor of MPC, its unutilized input VAT payments following Section 112, NIRC and used the Admin Code ‘formula’ in computing the
directly attributable to its effectively zero-rated sales for the second time. It further stated that Sec. 229 (applied by CTA EB) was inapplicable as this
quarter in the total amount of PhP 10,766,939.48. provision pertains to tax erroneously paid which is not the case for creditable
input VAT.
Notwithstanding Aichi’s timely filing of the admin claim, SC directed CTA 2D to
dismiss Aichi’s claim as it was prematurely filed. SC ruled that compliance of
02. CIR v. Aichi (HQ) the 120+30 day period is crucial in filing a judicial claim and that it’s
Topic: Input VAT Refund observance is mandatory and jurisdictional. Accordingly, non-observance
Relevant Laws: of this technical rule would result in the dismissal of the claim for input VAT
• Section 112, NIRC (compared to Sec. 114, 204 & 209) refund/credit, just like what happened to Aichi. 
• Also, Admin Code (compared to Art. 13, NCC)
Facts:
The “Aichi Doctrine” • On September 30, 2004 (dates are relevant in this case), Aichi filed a
It is a well-settled rule in our jurisdiction that refunds and tax credits are in the claim for refund/credit of input VAT for the period July 1, 2002 to
nature of tax exemptions, hence, strictly construed against the taxpayer. September 30, 2002 with CIR, through Dept. of Finance One-Stop Shop
A taxpayer must prove NOT only his entitlement to a refund BUT also his Inter-Agency Tax Credit and Duty Drawback Center.
COMPLIANCE with the PROCEDURAL DUE PROCESS as NON-
OBSERVANCE of the prescriptive periods within which to file the • On the same date, Aichi filed a Petition for Review with CTA for the
ADMINISTRATIVE and the JUDICIAL claims would result in the DENIAL of his refund/credit of the SAME input VAT.
claim.
• In this Petition, Aichi alleged that for the period July-September 2002, it
generated and recorded zero-rated sales in the amount of
G.R. No. 184823 P131++million, and it incurred and paid input VAT amounting to P3.9++
October 6, 2010 million from purchases and importation attributable to its zero-rated
sales.
Petitioner: Commissioner of Internal Revenue • Moreover, Aichi said that in its application for refund/credit with the CIR,
Respondent: Aichi Forging Company of Asia, Inc. it only claimed the amount of P3.8++ million (lesser)
[Domestic corporation, engaged in manufacturing producing, and processing of
steel and its by-products, VAT-registered, some products are registered with BOI
• CIR filed its Answer raising the following affirmative defenses: (bold –
as a pioneer status] issues in this case)
o Claim for refund is subject to administrative investigation
Summary: by the BIR
Aichi filed a claim for input VAT refund/credit simultaneously with CIR and o Aichi must prove that it paid VAT input taxes for the period in
CTA. CIR contended that Aichi was not entitled to such refund/credit as the claim question
was filed beyond the 2-year period and/or simultaneous filing of such claim o Aichi must prove that its sales are export sales
before the CIR and CTA is fatal such that it would result in the dismissal of the o Aichi must prove that the claim was files within 2 year
nd
claim. CTA 2 Division held that the claim was filed on time based on Section period prescribed in Section 229

15
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

o In action for refund, the burden of proof is on the taxpayer administrative claim is a “condition precedent” before a judicial
o Claims for refund are construed strictly against the claimant claim can be filed and the rationale of this requirement is not
only on the doctrine of exhaustion of admin remedies BUT also
nd
• Trial ensued. CTA 2 Division rendered a decision partially on the fact that the CTA is an appellate body which exercises
granting Aichi’s claim for refund/credit. the power of judicial review over admin actions of the BIR
• CTA: Pursuant to Section 112 of the NIRC, Aichi must comply with the
nd
following requisites to be entitled to input VAT refund/credit • CTA 2 Division denied the Motion
o Taxpayer is engaged in sales which are zero-rated or
effectively zero-rated • CIR elevated the matter to the CTA En Banc
nd
o Taxpayer is VAT-registered • CTA En Banc: Affirmed the 2 Division’s decision allowing the partial
o Claim must be filed within 2 years after the close of the tax refund
taxable quarter when such sales were made • On the reckoning point for counting the 2-year period: CTA EB held
o Creditable input tax due or paid must be attributable to such that it should start from the payment of tax subject claim for refund,
sales, except the transitional input tax, to the extent that such citing Section 229, NIRC.
input tax has not been applied against the output tax rd
• In this case, Aichi filed its VAT Return for the taxable 3 quarter of 2002
on October 20, 2002 – hence, administrative and judicial claims for
• CTA found that Aichi complied with the first 3 requisites. refund filed on September 30, 2004 were filed on time because Aichi
th
• However for the 4 requisite, CTA found that there are some documents has until October 20, 2004 within which to file its claim for refund. [this is
and claims of Aichi that are baseless and have not been satisfactorily wrong!-SC]
substantiated.
• CTA Decision: Petition for Review partially granted, CIR is ordered to • CTA EB also did NOT agree with CIR’s contention that NIRC requires
REFUND or ISSUE a TAX CREDIT CERTIFICATE in favor of Aichi in the previous filing of an administrative claim for refund prior to judicial
the amount of P3,239,119.25, computed as follows: claim.
• CTA EB further said that such should not be the case as the law does
Amount of Claimed Input VAT P 3,891,123.82 NOT prohibit the simultaneous filing of the administrative and
Less: Exceptions as found by the ICPA (41,020.37) judicial claims for refund. What is controlling is that both claims for
Net Creditable Input VAT 3,850,103.45 refund must be filed within the 2-year prescriptive period. [SC disagreed
Less: Output VAT Due (610,984.20)
and said prior filing of admin claim is jurisdictional!]
Excess Creditable Input VAT P 3,239,119.25
• CIR filed MR, CTA EB denied.
• CIR appealed to the SC.
• CIR filed a Motion for Partial Reconsideration
• CIR’s contention:
Issue: Whether or not Aichi’s claim for input VAT refund/credit should be
o Filed beyond the 2-year period – CIR reasoned that since
dismissed - YES
the year 2004 was a leap year, the filing of the claim for tax
Sub-issues:
refund/credit on September 30, 2004 was beyond the 2-year
Whether or not the claims for tax refund/claim were filed within the 2-
period, which expired on September 29, 2004. (cited Article 13
year prescriptive period? YES
of NCC which states that when the law speaks of a year, it is
Whether the non-observance of 120-day period is fatal to the filing of a
equivalent to 365 days)
judicial claim?

o Simultaneous filing of administrative and judicial claim –


contravenes Sections 112 and 229; Prior filing of an
16
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

- YES, following the 120(+30)day period is mandatory and prescribed for each taxpayer: Provided, however, That
jurisdictional. Non-observance would result in the dismissal of VAT-registered persons shall pay the value-added tax on a
the claim  monthly basis.
Any person, whose registration has been cancelled in
accordance with Section 236, shall file a return and pay the
Held: tax due thereon within twenty-five (25) days from the date of
• Petition GRANTED. cancellation of registration: Provided, That only one
nd
• CTA 2 Division is directed to DISMISS Aichi’s claim for input VAT consolidated return shall be filed by the taxpayer for his
refund/credit principal place of business or head office and all branches.
xxxx
Ratio:
Sec. 204. Authority of the Commissioner to Compromise,
UNUTILIZED INPUT VAT MUST BE CLAIMED WITHIN 2 YEARS AFTER
Abate and Refund or Credit Taxes. – The Commissioner
THE CLOSE OF THE TAXABLE QUARTER WHEN THE SALES ARE may –
MADE xxxx
• The pivotal question of when to reckon the running of 2-year (c) Credit or refund taxes erroneously or illegally received or
prescriptive period has already been resolved in CIR vs. Mirant penalties imposed without authority, refund the value of
Pagbilao Corp. internal revenue stamps when they are returned in good
• In that case, SC ruled that Section 112(A), NIRC is the applicable condition by the purchaser, and, in his discretion, redeem or
change unused stamps that have been rendered unfit for
provision in determining the start of the 2-year period for claiming a
use and refund their value upon proof of destruction. No
refund/credit and NOT Sections 204(C) and 229, NIRC.
credit or refund of taxes or penalties shall be allowed
unless the taxpayer files in writing with the
SEC. 112. Refunds or Tax Credits of Input Tax. – Commissioner a claim for credit or refund within two (2)
(A) Zero-rated or Effectively Zero-rated Sales – Any VAT- years after the payment of the tax or penalty: Provided,
registered person, whose sales are zero-rated or effectively however, That a return filed showing an overpayment shall
zero-rated may, within two (2) years after the close of the be considered as a written claim for credit or refund.
taxable quarter when the sales were made, apply for the xxxx
issuance of a tax credit certificate or refund of creditable
input tax due or paid attributable to such sales, except SEC. 229. Recovery of tax erroneously or illegally
transitional input tax, to the extent that such input tax has not collected. –
been applied against output tax xxx No suit or proceeding shall be maintained in any court for the
nd
(CTA 2 division correctly applied this provision) recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or
• The above provision clearly provides that unutilized input VAT payments collected, or of any penalty claimed to have been collected
not otherwise used for any internal revenue tax due the taxpayer must without authority, or of any sum alleged to have been
be claimed within 2 years reckoned from the close of the taxable excessively or in any manner wrongfully collected, until a
claim for refund or credit has been duly filed with the
quarter when the relevant sales were made pertaining to the input
Commissioner; but such suit or proceeding may be
VAT regardless of whether said tax was paid or not.
maintained, whether or not such tax, penalty or sum has
been paid under protest or duress.
SEC. 114. Return and Payment of Value-Added Tax. – In any case, no such suit or proceeding shall be filed
(A) In General. – Every person liable to pay the value-added after the expiration of two (2) years from the date of
tax imposed under this Title shall file a quarterly return of payment of the tax or penalty regardless of any
the amount of his gross sales or receipts within twenty- supervening cause that may arise after payment:
five (25) days following the close of each taxable quarter Provided, however, That the Commissioner may, even

17
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

without written claim therefor, refund or credit any tax, where of days is irrelevant), it is the latter that must prevail following the legal
on the face of the return upon which payment was made, maxim lex posteriori derogat priori (latter/recent law prevails over an
such payment appears clearly to have been erroneously earlier law)
paid. th
• In short, as long as the claim was filed on the last day of the 24
(CTA EB erroneously applied the above provisions)
month (2years) from the day the taxpayer filed its final adjusted
return – such claim was filed within the reglementary period.
• Notably, the above provisions also set a 2-year prescriptive period,
• Now, applying this to the present case, the two-year period to file a
reckoned from date of payment of the tax or penalty, for the filing of a
claim for tax refund/credit for the period July 1, 2002 to September 30,
claim of refund/credit.
2002 expired on September 30, 2004. Hence, Aichi’s administrative
• However, BOTH provisions apply ONLY to instances of
claim was timely filed.
ERRONEOUS PAYMENT or ILLEGAL COLLECTION of internal
revenue taxes.
So, what’s the fault of Aichi?
AICHI’S CREDITABLE INPUT VAT NOT ERRONEOUSLY PAID
Answer: THE FILING OF JUDICIAL CLAIM WAS PREMATURE
• For perspective, under Sec. 105 of the NIRC, creditable input VAT is an
indirect tax which can be shifted or passed on to the buyer, transferee,
• Notwithstanding the timely filing of the administrative claim, SC is
or lessee of the goods, properties, or services of the taxpayer.
constrained to DENY Aichi’s claim for tax refund/credit having
• The fact that the subsequent sale or transaction involves a wholly-tax
been filed in violation of Section 112(D) of the NIRC
exempt client, resulting in a zero-rated or effectively zero- rated
transaction, does NOT, standing alone, deprive the taxpayer of its
SEC. 112. Refunds or Tax Credits of Input Tax. –
right to a refund for any unutilized creditable input VAT, albeit the xxxx
erroneous, illegal, or wrongful payment angle does not enter the (D) Period within which Refund or Tax Credit of Input
equation. Taxes shall be Made. – In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate for
• Based on the foregoing, it is clear that Sec. 112 (A) of the NIRC, creditable input taxes within one hundred twenty (120) days
providing a two-year prescriptive period reckoned from the close from the date of submission of complete documents in
support of the application filed in accordance with
of the taxable quarter when the relevant sales or transactions were
Subsections (A) and (B) hereof.
made pertaining to the creditable input VAT, applies to the instant
case, and not to the other actions which refer to erroneous payment of In case of full or partial denial of the claim for tax refund or
taxes. tax credit, or the failure on the part of the Commissioner to
nd
(so, tama si CTA 2 Division, mali si CTA EB) act on the application within the period prescribed above,
the taxpayer affected may, within thirty (30) days from
ADMINISTRATIVE CLAIM WAS TIMELY FILED the receipt of the decision denying the claim or after the
expiration of the one hundred twenty day-period, appeal
• Note, the CIR relied on Article 13 of NCC which provides that a year is
the decision or the unacted claim with the Court of Tax
equivalent to 365 days.
Appeals.
• Following such provision and taking into account that the year 2004 was
a leap year, the 2-year period to file a claim for tax refund/credit the
• To reiterate: Section 112(D) clearly provides that the CIR has "120 days,
period July-September 2002 expired on September 29, 2004.
from the date of the submission of the complete documents in support
• SC DISAGREED. of the application [for tax refund/credit]," within which to grant or deny
• In CIR vs. Primetown Property Group, SC said as between NCC the claim.
(year=365 days) and the Admin Code (1year = 12months, the number

18
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

• In case of full or partial denial by the CIR, the taxpayer’s recourse is to • Therefore, the 120-day period is crucial in filing an appeal with the
file an appeal before the CTA within 30 days from receipt of the decision CTA.
of the CIR. • The case of CIR vs. Victorias Milling relied upon by Aichi was found
• However, if after the 120-day period the CIR fails to act on the inapplicable in this case as the tax involved in that case is Sec. 229 of
application for tax refund/credit, the remedy of the taxpayer is to NIRC (as discussed above, Sec. 229 does NOT apply to refunds/credits
appeal the inaction of the CIR to CTA within 30 days. of input VAT)
• In this case, the administrative and the judicial claims were
simultaneously filed on September 30, 2004. Obviously, Aichi did not • In sum, the PREMATURE FILING of Aichi’s claim for refund/credit
wait for the decision of the CIR or the lapse of the 120-day period. of input VAT BEFORE THE CTA warrants DISMISSAL inasmuch as
NO JURISDICTION WAS ACQUIRED by the CTA.
• Aichi’s assertion: Non-observance of the 120-day period is not fatal to
the filing of a judicial claim as long as both the administrative and the For additional info regarding the legal consequences of this case (along with the Atlas and Mirant
cases) please see http://www.punongbayan-
judicial claims are filed within the two-year prescriptive period – SC said araullo.com/pnawebsite/pnahome.nsf/section_docs/SO352D_22-2-11 
that it has no legal basis.

• Section 112(A) states that "any VAT- registered person, whose sales
are zero-rated or effectively zero-rated may, within two years after the 03. Western Mindanao Power Corp. v. CIR (KF)
close of the taxable quarter when the sales were made, apply for the Topic: VAT Refunds
issuance of a tax credit certificate or refund of creditable input tax due or G. R. No. 181136
paid attributable to such sales." June 13, 2012
• The phrase "within two (2) years x x x apply for the issuance of a SERENO, J.
tax credit certificate or refund" refers to applications for
refund/credit filed with the CIR and not to appeals made to the CTA. Petitioner: Western Mindanao Power Corporation
This is apparent in the first paragraph of subsection (D) of the same Respondent: Commissioner of Internal Revenue
provision, which states that the CIR has "120 days from the submission
of complete documents in support of the application filed in accordance Summary: WMPC is a VAT-registered taxpayer. It alleges that it sells electricity
with Subsections (A) and (B)" within which to decide on the claim. solely to NPC, which is exempt from the payment of all forms of taxes. Therefore,
WMPC’s power generation services to NPC is zero-rated. Under Section 112 (A)
• In fact, applying the two-year period to judicial claims would render of the NIRC, WMPC may apply for the issuance of a tax credit or refund to zero-
nugatory Section 112(D) of the NIRC, which already provides for a rated sales. And so it did. It filed a petition for review seeking refund/tax credit
specific period within which a taxpayer should appeal the decision or with the CTA Division. CIR contended such application. CTA Division, as upheld
inaction of the CIR. by CTA-EB, denies the petition of WMPC. The SC also denies the petition. The
applicant must prove not only entitlement to the grant of the claim under
• The second paragraph of Section 112(D) of the NIRC envisions two substantive law. It must also show satisfaction of all the documentary and
scenarios: evidentiary requirements for an administrative claim for a refund or tax credit.
o when a decision is issued by the CIR before the lapse of the
120-day period; and FACTS:
o when no decision is made after the 120-day period. • WMPC is a domestic corporation engaged in the production and sale of
• In both instances, the taxpayer has 30 days within which to file an electricity. It is registered with the BIR as a VAT taxpayer.
appeal with the CTA.

19
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

• WMPC alleges that it sells electricity solely to the NPC, which is in turn • WMPC countered:
exempt from the payment of all forms of taxes, duties, fees and o that the invoicing and accounting requirements laid down in RR
imposts, pursuant to Section 13 of R.A. No. 6395 (An Act Revising the 7-95 were merely “compliance requirements,” which were not
Charter of the National Power Corporation). In view thereof and indispensable to establish the claim for refund of excess
pursuant to Section 108(B) (3) of the NIRC, WMPC’s power and unutilized input VAT
generation services to NPC is zero-rated. o Section 113 of the NIRC prevailing at the time the sales
• Under Section 112(A) of the NIRC, a VAT-registered taxpayer may, transactions were made did not expressly state that failure to
within two years after the close of the taxable quarter, apply for the comply with all the invoicing requirements would result in the
issuance of a tax credit or refund of creditable input tax due or disallowance of a tax credit refund.
paid and attributable to zero-rated or effectively zero-rated sales. o The express requirement – that “the term ‘zero-rated sale’
• WMPC filed with the CIR applications for a tax credit certificate of its shall be written or printed prominently” on the VAT invoice or
rd th
input VAT covering the taxable"3 and 4 quarters of 1999 (amounting official receipt for sales subject to zero percent (0%) VAT –
to ₱3,675,026.67) and all the taxable quarters of 2000 (amounting to appeared in Section 113 of the NIRC only after it was
₱5,649,256.81). amended by Section 11 of R.A. 9337. This amendment cannot
• WMPC filed with the CTA in Division a Petition for Review seeking be applied retroactively.
refund/tax credit certificates for the total amount of ₱9,324,283.30. o there was no statutory requirement for imprinting the phrase
• The CIR argues that WMPC was not entitled to the latter’s claim for a “zero-rated” on official receipts prior to July 1, 2005, the RR 7-
tax refund in view of its failure to comply with the invoicing requirements 95 constituted undue expansion of the scope of the legislation
under Section 113 of the NIRC in relation to Section 4.108-1 of RR 7- it sought to implement.
95
1 • CTA Division: Dismissed the petition.
o While WMPC submitted in evidence its Quarterly VAT Returns
""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" for the periods applied for, “the same do not reflect any zero-
1
SECTION 4.108-1. Invoicing Requirements — All VAT-registered persons
shall, for every sale or lease of goods or properties or services, issue duly
rated or effectively zero-rated sales allegedly incurred during
registered receipts or sales or commercial invoices which must show: said periods. The spaces provided for such amounts were left
1. the name, TIN and address of seller; blank, which only shows that there existed no zero-rated or
2. date of transaction; rd th
effectively zero-rated sales for the 3 and 4 quarters of
3. quantity, unit cost and description of merchandise or nature
of service; 1999 and the four quarters of 2000.”
4. the name, TIN, business style, if any, and address of the o WMPC’s VAT Invoices and Official Receipts did not contain on
VAT-registered purchaser, customer or client; their face the phrase “zero-rated,” contrary to Section 4.108-1
5. the word “zero rated” imprinted on the invoice covering
zero-rated sales; and of RR 7-95.
6. the invoice value or consideration. • CTA-EB: upheld CTA Division Decision.
In the case of sale of real property subject to VAT
and where the zonal or market value is higher than the actual
consideration, the VAT shall be separately indicated in the ISSUE: WON the CTA En Banc seriously erred in dismissing the claim of
invoice or receipt. petitioner for a refund or tax credit on input tax on the ground that the latter’s
Only VAT-registered persons are required to Official Receipts do not contain the phrase “zero-rated”
print their TIN followed by the word “VAT” in their invoice
or receipts and this shall be considered as a “VAT Invoice.”
All purchases covered by invoices other than “VAT” HELD: We DENY the petition.
Invoice" shall NOT give rise to any input tax.
If the taxable person is also engaged in exempt """"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
operations, he should issue separate invoices or receipts for the imposed in Sections 100 and 102 of the Code.
taxable and exempt operations. A “VAT Invoice” shall be issued The invoice or receipt shall be prepared at least in duplicate, the original to be given to the
only for sales of goods, properties or services subject to VAT buyer and the duplicate to be retained by the seller as part of his accounting records.
20
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

falling under the principle of legislative approval of administrative


RATIO: interpretation by reenactment. Thus, RR7-95 does not constitute undue
• WMPC’s claim for a refund or tax credit of input VAT is anchored on expansion of the scope of the legislation.
2
Section 112(A) of the NIRC . Thus, a taxpayer engaged in zero-rated or • This Court has consistently held as fatal the failure to print the word
effectively zero-rated sale may apply for the issuance of a tax credit “zero-rated” on the VAT invoices or official receipts in claims for a
certificate, or refund of creditable input tax due or paid, attributable to refund or credit of input VAT on zero-rated sales, even if the claims
the sale. were made prior to the effectivity of R.A. 9337.
• In a claim for tax refund or tax credit, the applicant must prove not
only entitlement to the grant of the claim under substantive law. It must
also show satisfaction of all the documentary and evidentiary
requirements for an administrative claim for a refund or tax credit.
• Hence, the mere fact that WMPC’s application for zero-rating has been
04. CIR v. San Roque (MR)
approved by the CIR does not, by itself, justify the grant of a refund or Topic: How to construe the 120+30 day period in Sec. 112 NIRC
tax credit. The taxpayer claiming the refund must further comply with Relevant Laws: NIRC, Sec. 112
the invoicing and accounting requirements mandated by the NIRC, as
well as by revenue regulations implementing them. G.R. Nos. 187485, 196113, 197113
• Under the NIRC, a creditable input tax should be evidenced by a February 12, 2013
VAT invoice or official receipt, which may only be considered as such Carpio, J.
when it complies with the requirements of RR 7-95, particularly
Section 4.108-1. This section requires, among others, that “(i)f the sale Petitioners:
st
is subject to zero percent (0%) value-added tax, the term ‘zero-rated 1 case—CIR
nd
sale’ shall be written or printed prominently on the invoice or 2 case—Taganito Mining Corp.
rd
receipt.” 3 case—Philex Mining Corp.
Respondents:
• The subsequent incorporation of Section 4.108-1 of RR 7-95 in Section
113 (B) (2) (c) of R.A. 9337 actually confirmed the validity of the 1st case—San Roque Power Corp.
nd
2 case—CIR
imprinting requirement on VAT invoices or official receipts – a case rd
3 case—CIR
"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
2
Section 112. Refunds or Tax Credits of Input Tax. - Summary: The best way to handle this case is to not read it at all and just
(A) Zero-rated or Effectively Zero-rated Sales. - any VAT-registered person, pray you don’t get called to recite it.
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 Facts:
attributable to such sales, except transitional input tax, to the extent that such CIR v. San Roque Power Corp.
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 • San Roque is a domestic corp involved in power-generating plants and
Section 108 (B)(1) and (2), the acceptable foreign currency exchange related facilities under contract with the Government; registered with
proceeds thereof had been duly accounted for in accordance with the rules BIR and Bureau of Investments (BOI)
and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further,
That where the taxpayer is engaged in zero-rated or effectively zero-rated
• It enetered into a power purchase agreement (PPA) with National
sale and also in taxable or exempt sale of goods of properties or services, Power Corp (NPC) to generate additional power for the Luzon Power
and the amount of creditable input tax due or paid cannot be directly and Grid—it shall construct, operate and maintain the Power Station
entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.

21
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

• During the development San Roque incurred excess input VAT and filed Taganito Mining Corp v. CIR
claims for refund representing unutilized input taxes on the basis of • Taganito is a domestic corp engaged in mining, duly registered with
zero-rated sales (Sec. 112(a)) SEC and a VAT-registered entity, registered also with BOI
• Due to CIR’s 13 day inaction, it filed a petition for review with CTA • It filed its quarterly VAT returns and reported zero-rated sales; filed a tax
• CTA EB: cited CIR v. Toledo in ruling that San Roque’s claim was not credit/refund with CIR on the basis of zero-rated sales (sec.112(a)) and
prematurely filed. Claim for refund with the BIR must be filed within 2 input VAT on its domestic purchases and importations of capital goods
years. Also , in the case of ATLAS CONSOLIDATED MINING CORP (sec.112(b)). As the staturoy period within which to file the claim
vs. CIR: the 2 year prescriptvie period for filing a claim for input tax for refund was about to lapse without action by CIR, Taganito filed
is reckoned from the date of the filing of the quarterly VAT return a petition for review with the CTA
and payment of the tax due. If the said period is about to expire but • CIR claimed as an affirmative defense the fact that the 120 day period
the BIR not yet acted on the application for refund, the taxpayer provided in sec. 112(d) had not yet lapsed when the petition for review
but the BIR has not yet acted on the application, the taxpayer may was filed by Taganito and thus prematurely filed
interpose a petition for review with this Court within the 2 year • CTA EB: Sec. 112(a) and (b) both set forth the reckoning period for the
period. It is also apparent from RMC 49-03 that claims for VAT refund 2 year prescriptive period for filing a claim—the close of the taxable
filed with the CTA can proceed simultaneously with the ones filed quarter when the sales were made. It also relied on the cases of AICHI
in BIR: (not that important) and MIRANT
In cases where the taxpayer has filed a “Petition for Review”  Both ruled that two-year prescriptive period to file a refund
with the Court of Tax Appeals involving a claim for for input VAT arising from zero-rated sales should be
refund/TCC that is pending at the administrative agency reckoned from the close of the taxable quarter when the
(Bureau of Internal Revenue or OSS- DOF), sales were made. Aichi further emphasized that the failure
the administrative agency and the tax court may act on the to await the decision of the Commissioner or the lapse of
case separately. While the case is pending in the tax court and 120-day period prescribed in Section 112(D) amounts to a
at the same time is still under process by the administrative premature filing.
agency, the litigation lawyer of the BIR, upon receipt of the  Here, the CTA claim was filed after a lapse of only 92 days
summons from the tax court, shall request from the head of the from the filing with the CIR, in violation of the 120 day
investigating/processing office for the docket containing period.
certified true copies of all the documents pertinent to the claim.
The docket shall be presented to the court as evidence for the Philex Mining Corp.
BIR in its defense on the tax credit/refund case filed by the • Philex is a domestic corp engaged in the mining business. It filed its
taxpayer. In the meantime, the investigating/processing office VAT returns and a claim for tax refund. Due to CIR’s inaction, it filed a
of the administrative agency shall continue processing the petition for review with the CTA
refund/TCC case until such time that a final decision has been • CTA EB: Philex’s administrative claim (claim forrefund with CIR) was
reached by either the CTA or the administrative agency. properly filed within the 2 year prescriptive period. From March 20,
If the CTA is able to release its decision ahead of the 2006, which was the date of sumbission of all the supporting documents
evaluation of the administrative agency, the latter shall cease together with the application, the Commissioner had 120 days to decide
from processing the claim. On the other hand, if the (July 18, 2006). Within 30 days from the lapse of the 120, Philex should
administrative agency is able to process the claim of the have elevated its claim to CTA—that would’ve been between between
taxpayer ahead of the CTA and the taxpayer is amenable to (July 17-August 17). But Philex only filed its judicial claim on
the findings thereof, the concerned taxpayer must file a motion October 17, 2007. I mean that’s 426 days way too late!
to withdraw the claim with the CTA.

22
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

Issues: Compliance with the 120 day period is MANDATORY AND


2. What is the proper reading of Sec. 112 and the applicability of the Atlas, JURISDICTIONAL. Failure to comply violates the doctrine of exhaustion
Aichi and Mirant rulings to these cases? of administrative remedies and renders the petition premature and
without cause of action. Thus, CTA did not acquire jurisdiction
Held: • It is the Commissioner’s decision, or inaction “deemed a denial,” that the
• San Roque and Taganito filed prematurely. Philex filed too late. taxpayer can take to the CTA for review. Without a decision or an
“inaction x x x deemed a denial” of the Commissioner, the CTA has no
Ratio: jurisdiction over a petition for review. For violating a mandatory
NIRC Provisions. provision of law in filing its petition with the CTA, San Roque cannot
Sec. 110(B) If at the end of any taxable quarter the output tax exceeds the input claim any right arising from such void petition. Thus, San Roque’s
tax, the excess shall be paid by the VAT-registered person. If the input tax petition with the CTA is a mere scrap of paper.
exceeds the output tax, the excess shall be carried over to the succeeding • Tax refunds are like tax exemptions, construed strictly against the
quarter or quarters… Provided, however, That any input tax attributable to zero- taxpayer
rated sales by a VAT-registered person may at his option be refunded or credited • San Roque cannot also claim being misled by the ATLAS doctrine. The
against other internal revenue taxes, subject to the provisions of Section 112. Atlas doctrine didn’t even exist when it first filed its administrative claim,
Sec. 112. Refunds or Tax Credits of Input Tax. — and it filed its judicial claim more than 4 years before the doctrine was
(A) Zero-Rated or Effectively Zero-Rated Sales.— Any V A Tregistered person, even promulgated
whose sales are zero-rated or effectively zerorated may, within two (2) years • In any case, here’s the ATLAS DOCTRINE—two-year prescriptive
after the close of the taxable quarter when the sales were made, apply for the period should be counted from the date of payment of the output VAT,
issuance of a tax credit certificate or refund of creditable input tax due or paid not from the close of the taxable quarter when the sales involving the
attributable to such sales,… input VAT were made. (basis: Sec. 229 NIRC)
(B) Capital Goods.- A VAT — registered person may apply for the issuance of a • While the MIRANT DOCTRINE—counts the two-year prescriptive period
tax credit certificate or refund of input taxes paid on capital goods imported or from the “close of the taxable quarter when the sales were made” as
locally purchased, to the extent that such input taxes have not been applied expressly stated in the law, which a means the last day of the taxable
against output taxes. The application may be made only within two (2) years after quarter.
the close of the taxable quarter • The difference between these periods is only 20 days—20 days is the
when the importation or purchase was made." period within which to pay output VAT after the close of the taxable
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In quarter
proper cases, the Commissioner shall grant a refund or issue the tax credit • But what both cases discussed is the 2 year period within which to file
certificate for creditable input taxes within one hundred twenty (120) days the administrative claim. Neither case discussed the 120 day period
from the date of submission of complete documents in support of the given to CIR to decide the claim and then the 30 days after the lapse of
application filed… the former within which to file the judicial claim. So neither case are
In case of full or partial denial… or the failure on the part of the really material to the present one
Commissioner to act on the application within the period prescribed above, • The 120 day period may extend beyond the 2 year prescriptive period,
the taxpayer affected may, within thirty (30) days from the receipt of the as long as the administrative claim is filed within the 2 year prescriptive
decision… or after the expiration of the one hundred twenty day-period, period
appeal the decision or the unacted claim with the Court of Tax Appeals. • so it’s clear: Taxpayer may file claim for refund/credit with the CIR
within 2 years counted after the close of the taxable quarter. The
San Roque Power Corp. CIR is given 120 days upon submission of all supporting
• San Roque filed its judicial claim a mere 13 days after filing its documents with the application to decide the application. From the
administrative claim, not waiting for the 120 day period to lapse.
23
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

receipt of the decision or after the lapse of the 120 day period with of submission of complete documents in support of the application filed
inaction by the CIR, the taxpayer may file his judicial claim with the in accordance with subsection (a)—clearly, the two-year prescriptive
CTA. period does not refer to the filing of the judicial claim with the CTA but to
the filing of the administrative claim with the Commissioner.
Taganito Mining Corp v. CIR 3. if the 30-day period, or any part of it, is required to fall within the two-
• Taganito also filed its judicial claim without waiting for the lapse of the year prescriptive period (equivalent to 730 days60), then the taxpayer
120 day period and before the Atlas doctrine was promulgated. So it’s in must file his administrative claim for refund or credit within the first 610
the same boat as San Roque days of the two-year prescriptive period. Otherwise, the filing of the
• However, it can invoke BIR Ruling DA-489-03, which expressly ruled administrative claim beyond the first 610 days will result in the appeal to
that “taxpayer-claimant need not wait for the lapse of the 120-day period the CTA being filed beyond the two-year prescriptive period.
before it could seek judicial relief with the CTA by way of Petition for
Review.” B. Excess input VAT is not “excessively collected” tax
• The AICHI DOCTRINE, which was promulgated after the above ruling • According to sec. 229 of the NIRC the prescriptive period for filing a
finally said that the 120+30 days period is mandatory. judicial claim for refund is two years from the date of payment of the tax
• But Taganito filed its judicial claim after the promulgation of the BIR “erroneously, x x x illegally, x x x excessively or in any manner
Ruling and before the Aichi doctrine—so given the law applicable during wrongfully collected.” The prescriptive period is reckoned from the date
that period, it rightfully filed its petition for review with the CTA the person liable for the tax pays the tax.
• This was the basis of ATLAS in saying that the prescriptive period for
Philex Mining Corp v. CIR filing the administrative claim is 2 years after payment of the output VAT,
• Whether you count the 2 year prescriptive period according to the Atlas instead of 2 years after the close of the taxable quarter as stated in sec.
or Mirant doctrin, pasok pa rin, so the administrative claim was timely 112. It classified this excess input VAT as erroneously collected tax. But
filed. However, as stated in the facts it filed its judicial claim 426 days it isn’t
after the last day of filing • The input VAT is not “excessively” collected as understood under
• The right to file a petition for review with the CTA is merely a statutory Section 229 because at the time the input VAT is collected the amount
privilege, not a constitutional right. The exercise of such privilege paid is correct and proper. The input VAT is a tax liability of, and legally
requires strict complaince with the conditions attached by the statute for paid by, a V A T-registered seller61 of goods, properties or services
its exercise used as input by another VAT-registered person in the sale of his own
goods, properties, or services. This tax liability is true even if the seller
This is really the end of the point of the case. But the SC went on for another 20 passes on the input VAT to the buyer as part of the purchase price. The
pages discussing some related things. In case sir asks… second VATregistered person, who is not legally liable for the input VAT,
is the one who applies the input VAT as credit for his own output V A
A. 3 reasons why the 30-day period need not necessarily fall within the 2 T .62 If the input V A T is in fact “excessively” collected as understood
year prescriptive period under Section 229, then it is the first VAT-registered person - the
1. Sec. 112(a) clearly provides that the taxpayer may apply with the taxpayer who is legally liable and who is deemed to have legally paid for
Commissioner for a refund or credit “within two (2) years,” which means the input VAT - who can ask for a tax refund or credit under Section 229
at anytime within two years. This is a grace period in favor of the • The term “excess” input VAT simply means that the input VAT available
taxpayer and he can avail of the full period before his right to apply for a as credit exceeds the output VAT, not that the input VAT is excessively
tax refund or credit is barred by prescription. collected because it is more than what is legally due. Thus, the taxpayer
2. Sec. 112(c) provides that the Commissioner shall decide the application who legally paid the input VAT cannot claim for refund or credit of the
for refund or credit “within one hundred twenty (120) days from the date input VAT as “excessively” collected under Section 229.

24
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

• As the name implies, the Value-Added Tax system is a tax on the value 120- day period, the Commissioner can still continue to evaluate the
added by the taxpayer in the chain of transactions. For simplicity and administrative claim.
efficiency in tax collection, the VAT is imposed not just on the value
added by the taxpayer, but on the entire selling price of his goods, E. BIR Ruling DA-489-03 (eto yung operative fact na sinasabi ni sir last class
properties or services. However, the taxpayer is allowed a refund or that you can find in the San Roque case)
credit on the VAT previously paid by those who sold him the inputs for • The ruling provides a valid claim for equitable estoppel under Section
his goods, properties, or services. The net effect is that the taxpayer 246 of the Tax Code. BIR Ruling No. DA-489- 03 expressly states that
pays the VAT only on the value that he adds to the goods, properties, or the “taxpayer-claimant need not wait for the lapse of the 120-day period
services that he actually sells. before it could seek judicial relief with the CTA by way of Petition for
• Under Section 110(B), a taxpayer can apply his input VAT only against Review.”
his output VAT. The only exception is when the taxpayer is expressly • There is no dispute that the 120-day period is mandatory and
“zero-rated or effectively zero-rated” jurisdictional. There are, however, two exceptions to this rule.
 The first exception is if the Commissioner, through a specific
C. Effectivity and scope of the ATLAS, MIRANT AND AICHI doctrines ruling, misleads a particular taxpayer to prematurely file a
• The ATLAS doctrine was effective until the promulgation of the MIRANT judicial claim with the CTA. Such specific ruling is applicable
doctrine. Remember that these 2 only tackled the 2 year prescriptive only to such particular taxpayer.
period, not the 120+30 days  The second exception is where the Commissioner, through a
• It was AICHI that held that the 120+30 day period is mandatory. general interpretative rule issued under Section 4 of the Tax
• According to Sec. 112(c), “the taxpayer affected may, within thirty (30) Code, misleads all taxpayers into filing prematurely judicial
days from receipt of the decision denying the claim or after the claims with the CTA.
expiration of the one hundred twenty-day period, appeal the decision or  The Ruling falls under the second type—because the query
the unacted claim with the Court of Tax Appeals,” the law does not was made by a government agency tasked with processing tax
make the 120+30 day periods optional just because the law uses the refunds and credits. Even if that specific department in the
word “may.” The word “may” simply means that the taxpayer may or DOF mentioned Lazi Bay Resources specifically in its query, it
may not appeal the decision of the Commissioner within 30 days from was in effect asking the BIR what it should do in all similar
receipt of the decision, or within 30 days from the expiration of the 120- cases. So other petitioners could rely on this ruling.
day period. Certainly, by no stretch of the imagination can the word  Sec. 246 expressly provides that a reversal of a BIR regulation
“may” be construed as making the 120+30 day periods optional, or ruling cannot adversely prejudice a taxpayer who in good
allowing the taxpayer to file a judicial claim one day after filing the faith relied on the BIR regulation or ruling prior to its reversal.
administrative claim with the Commissioner. • So Taganito rightfully relied on it because it filed its judicial claim after
its promulgation. But San Roque filed its claim prior to this. It cannot be
D. RMC 49-03 given retroactive application to benefit San Roque too because first, it is
• San Roque used this (in blue in the Facts part) to bolster its claim that admittedly an erroneous interpretation of the law; second, prior to its
the 120=30 day period is not mandatory. But actually, it doesn’t say that issuance, the BIR held that the 120-day period was mandatory and
the period is not mandatory. It only says that if the taxpayer files its jurisdictional, which is the correct interpretation of the law; third, prior to
judicial claim before the expiration of the 120-day period, the BIR will its issuance, no taxpayer can claim that it was misled by the BIR into
nevertheless continue to act on the administrative claim because such filing a judicial claim prematurely; and fourth, a claim for tax refund or
premature filing cannot divest the Commissioner of his statutory power credit, like a claim for tax exemption, is strictly construed against the
and jurisdiction to decide the administrative claim within the 120-day taxpayer.
period. On the other hand, if the taxpayer files its judicial claim after the
F. Existing jurisprudence
25
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

• There is no basis to the claim that in five cases this Court had already • Did Section 4.106-2(c) of Revenue Regulations No. 7-95 change this,
made a ruling that the filing dates of the administrative and judicial so that the 60-day period is no longer mandatory and jurisdictional? The
claims are inconsequential, as long as they are within the two- year obvious answer is no.
prescriptive period. • Section 4.106-2(c) itself expressly states that if, “after the sixty (60) day
• In all those cases, nowhere did the Court discuss, state, or rule that the period,” the Commissioner fails to act on the administrative claim, the
filing dates of the administrative and judicial claims are inconsequential, taxpayer may file the judicial claim even “before the lapse of the two (2)
as long as they are within the two-year prescriptive period. year period.” Thus, under Section 4.106-2(c) the 60-day period is still
• In CIR v. Toshiba, the issue was whether any output VAT was actually mandatory and jurisdictional.
passed on to Toshiba that it could claim as input VAT subject to tax • Prior to the amendment by RA 7716, the taxpayer had to wait until the
credit or refund. Doesn’t say the periods are inconsequential two-year prescriptive period was about to expire if the Commissioner did
• Intel Technology v. CIR—wasn’t an issue there either not act on the claim.80 With the amendment by RA 7716, the taxpayer
• AT&T Communication Services v, CIR—the issue was whether need not wait until the two-year prescriptive period is about to expire
petitioner was able to substantiate its claim that the subject sales were before filing the judicial claim because mere inaction by the
zero-rated Commissioner during the 60-day period is deemed a denial of the claim.
• CIR v. Cebu Toyo—the issue was whether or not Cebu Toyo was • Even assuming, for the sake of argument, that Section 4.106-2(c) of
exempt or subject to VAT. While this Court stated in the narration of Revenue Regulations No. 7-95, an administrative issuance, amended
facts in Cebu Toyo that the taxpayer “did not bother to wait for the Section 106(d) of the Tax Code to make the period given to the
Resolution of its (administrative) claim by the CIR” before filing its Commissioner nonmandatory, still the 1997 Tax Code, a much later law,
judicial claim with the CTA, this issue was not raised before the Court. reinstated the original intent and provision of Section 106(d) by
Certainly, this statement of the Court is not a binding precedent that the extending the 60-day period to 120 days
taxpayer need not wait for the 120-day period to lapse.
• Any issue, whether raised or not by the parties, but not passed upon by
the Court, does not have any value as precedent.
• There is also the claim that there are numerous CTA decisions allegedly 05. Nippon Express v. CIR (RK)
supporting the argument that the filing dates of the administrative and
Topic: VAT Refund
judicial claims are inconsequential, as long as they are within the
Relevant Laws: SEC. 112. Refunds or Tax Credits of Input Tax.
twoyear prescriptive period. Suffice it to state that CTA decisions do not
constitute precedents, and do not bind this Court or the public. That’s
(D) Period within which Refund or Tax Credit of Input Taxes shall be
why they’re appealable.
Made. - In proper cases, the Commissioner shall grant a refund or issue
G. RR 7-95 (LAST NA TO OMG!!!) the tax credit certificate for creditable input taxes within one hundred
twenty (120) days from the date of submission of compete documents in
• The regulations, by its own express terms, applies only if the taxpayer
support of the application filed in accordance with Subsections (A) and
files the judicial claim “after” the lapse of the 60-day period, a period
(B) hereof.
with which San Roque failed to comply. Under Section 4.106-2(c), the
60-day period is still mandatory and jurisdictional.
• There can be no dispute that under Section 106(d) of the 1977 Tax In case of full or partial denial of the claim for tax refund or tax credit, or
Code, as amended by RA 7716, the Commissioner has a 60-day period the failure on the part of the Commissioner to act on the application
to act on the administrative claim. This 60-day period is mandatory and within the period prescribed above, the taxpayer affected may, within
jurisdictional. thirty (30) days from the receipt of the decision denying the claim or

26
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

after the expiration of the one hundred twenty day-period, appeal the b. September 22, 2010: CTA-EB amended decision upon MR
decision or the unacted claim with the Court of Tax Appeals. and affirmed March 24, decision—citing AT&T v CIR, no
distinction between sales invoice and an OR as acceptable
G.R. No. 196907 proof for claim of refund or tax credit.
March 13, 2013 c. March 24, 2009: CTA-EB reversed setting aside March 24
MENDOZA, J.: decision and dismissed petition for review for lack of
jurisdiction—observance of the 120-day period is
Petitioners: Nippon Express (Philippines) Corp. (Nippon)—registered with jurisdictional, note that here Nippon filed after only 1 day. With
SEC, VAT registered entity regard use of OR, distinguish between VAT invoice (seller’s
Respondents: Commissioner of Internal Revenue (CIR) proof of sale to buyer) and VAT receipt (buyer’s proof of
payment)
Summary: Nippon filed a judicial claim on April 25, 2003 a day after filing 5. Hence this petition
an administrative claim. CTA-D granted the petition on the basis of Estoppel—
Issue: (1) WON CTA has no jurisdiction to entertain the case NO; (2) WON
that the CIR has waived the right to object the premature filing for failing to
Nippon’s invoices are insufficient proof to support zero-rated sales No
include such in its answer. CTA-EB reversed and dismissed the petition because
pronouncement
the observance of the period is jurisdictional. The SC denied the petition. It
reiterated that the provision is clear and that observance of the period is Held: Wherefore, the petition is DENIED
jurisdictional. As a rule, judicial claims filed from January 1, 1998 until the
present, should strictly adhere to the 120+30 day period in Section 112 of the Ratio:
NIRC. As an exception, from December 10, 2003 until October 6, 2010, judicial
claims may be filed even before the expiration of the 120 day period pursuant to 1. THE LAW IS CLEAR AND REQUIRES NO INTERPRETATION: appeal
BIR-DA Ruling 849-03. Here, Nippon filed a premature judicial claim on August denial within 30 days or the inaction of the CIR after the after expiration
25, 2003. of 120 days given to the CIR to decide. This issue has been decided in
Rizal Banking Corp. V. IAC and BF Homes.
Facts:
2. THE 120+30 DAY PERIOD IS MANDATORY AND JURISDICTIONAL:
1. April 24, 2003: Nippon filed an administrative claim for refund of See CIR v. San Roque above. Thus, not only is the filing premature,
Php20, 345, 824.29 for excess input tax attributable to its effectively the CTA would also result in the non-acquisition of jurisdiction to hear.
zero-rated sales in 2001 (see text for computation). Corollary, the jurisdictional issue may be raised even on appeal. Thus,
2. April 25, 2003: the next day, pending review, Nippon filed with the CTA CIR’s failure to immediately object is of no moment.
requesting tax credit certificate.
• EXCEPTION: BIR Ruling No. DA-489-03 expressly stated that
3. CTA DIVISION
a taxpayer need not wait for the lapse of the 120 day period
a. January 26, 2009: CTA-D denied petition
before seeking judicial relief. Tax payers cannot be faulted for
b. March 24, 2009: CTA-D amended decision upon MR—non
relying in this declaration by the BIR. Thus, taxpayers may be
observance of periods waived by CIR for failure to object.
allowed to file its judicial claim even before the expiration of the
4. CTA EN BANC
120 day period. However, this exception is to be observed
a. June 11, 2010: CTA-EB reversed March 24 decision and claim
from its issuance on December 10, 2003 until its reversal in
for refund denied for lack of merit—sales invoice issued by
Aichi on October 6, 2010.
Nippon insufficient to establish zero-rated sale of service
noting that without VAT-OR, payments received by Nippon
could not qualify for zero-rating.

27
TAX 2 DIGESTS – ATTY. MONTERO
VALUE ADDED TAX (VAT)

3. SUMMARY: As a rule, judicial claims filed from January 1, 1998 until


the present, should strictly adhere to the 120+30 day period in Section
112 of the NIRC. As an exception, from December 10, 2003 until
October 6, 2010, judicial claims may be filed even before the expiration
of the 120 day period.

4. NIPPON’s RELIANCE TO PREVIOUS CTA RULING IS NOT A


DEFENSE: Nippon claims that CTA decisions support the argument
that filing dates are inconsequential so long as they are within the 2 year
prescriptive period. However, CTA decisions do not constitute
precedents and do not bind the SC and the public.

5. CONCLUSION: petition must fail because the judicial claim was filed on
April 25, 2003, a day after Nippon submitted its administrative claim to
the CIR. The filing of the petition for review with the CTA was premature
and the CTA had no jurisdiction to hear the evidence.

**** END OF VAT CASE DIGESTS ****

28
TAXATION LAW 2 In a letter dated 12 July 2002, addressed to petitioner CIR, PAL
requested for the refund of its unapplied creditable withholding tax for
DIGESTS AND PROVISIONS COMPILATION FY 2000-2001.
Acting on the aforementioned letter of PAL, the BIR issued Tax
D. Other Business Taxes Verification Notice No. 00201448, authorizing Revenue Officer Cueto, Jr.
to verify the supporting documents and pertinent records relative to the
claim of PAL for refund of its unapplied creditable withholding tax for FY
D.1. Percentage Tax 2000-20001.
There was a call for a conference by the BIR.
01. CIR v. PAL (KB, originally by AD) BIR officers and PAL representatives attended the scheduled informal
G.R. No. 180066 conference, during which BIR informed PAL that it was denying the
COMMISSIONER OF INTERNAL REVENUE, Petitioner claim for refund of PAL and, instead, was assessing PAL for deficiency
PHILIPPINE AIRLINES, INC., Respondent MCIT for FY 2000-2001.
The PAL representatives argued that PAL was not liable for MCIT under
Topic: Other business taxes; Percentage tax; MCIT its franchise.
Summary: In FY 2000-2001 PAL allegedly incurred zero taxable income and they BIR assessed PAL for P262,474,732.54, representing deficiency MCIT
did no pay any MCIT for the period. BIR now assesses PAL for deficiency MCIT. for FY 2000-2001, plus interest and compromise penalty.
PAL argued that it was not liable for MCIT under its franchise. The issue now is The BIR denied with finality the protest of PAL and reiterated the
w/n PAL is liable for deficiency MCIT. The court held that PAL is NOT liable. request that PAL immediately pay its deficiency MCIT for FY 2000-2001,
According   to   PAL’s   Franchise,   PAL   shall   pay   the   Government   either basic inclusive of penalties incident to delinquency. PAL filed a Petition for
corporate income tax OR franchise tax, whichever is lower and that the tax Review with the CTA, ruling in favor of PAL. Formal Letter of Demand
paid by PAL, under either of these alternatives, shall be in lieu of all other for the payment of deficiency Minimum Corporate Income Tax was
taxes, duties, royalties, registration, license, and other fees and charges, except CANCELLED and WITHDRAWN.
only real property tax. Franchise tax, on the other hand, shall be two per cent CTA en banc denied the Petition of the CIR for lack of merit.
(2%) of the gross revenues derived by PAL from all sources, whether
transport or non-transport operations. In its income tax return for FY 2000- ISSUE: Whether PAL is liable for deficiency MCIT for FY 2000-2001.
2001, PAL reported no net taxable income for the period, resulting in zero basic HELD: No.
corporate income tax, which would necessarily be lower than any franchise tax
due from PAL for the same period. RATIO:
According to PD 1590 (PAL’s  franchise), the taxation of PAL, during the
FACTS: lifetime of its franchise, shall be governed by two fundamental rules,
particularly:
PAL is a domestic corporation organized under the corporate laws of o PAL shall pay the Government either basic corporate
the Philippines; declared the national flag carrier of the country; and the income tax OR franchise tax, whichever is lower; and
grantee under PD No. 15904 of a franchise to establish, operate, and o The tax paid by PAL, under either of these alternatives, shall
maintain transport services for the carriage of passengers, mail, and be in lieu of all other taxes, duties, royalties, registration,
property by air, in and between any and all points and places throughout license, and other fees and charges, except only real property
the Philippines, and between the Philippines and other countries. tax.
For its fiscal year ending 31 March 2001 (FY 2000-2001), PAL The basic corporate income tax of PAL shall be based on its annual net
allegedly incurred zero taxable income, which left it with unapplied taxable income, computed in accordance with the NIRC.
creditable withholding tax in the amount of P2,334,377.95. PAL did not o PD 1590 also explicitly authorizes PAL, in the computation of
pay any MCIT for the period. its basic corporate income tax, to
TAX 2 DIGESTS – ATTY. MONTERO
OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

depreciate its assets twice as fast the normal rate of Although this may be the general rule in determining the income tax
depreciation; and due from a domestic corporation under the NIRC of 1997, it can only
carry over as a deduction from taxable income any be applied to PAL to the extent allowed by the provisions in the
net loss incurred in any year up to five years following franchise of PAL specifically governing its taxation.
the year of such loss.
Hence, PAL cannot be subjected to MCIT for FY 2000-2001. (Court gave 6
Franchise tax, on the other hand, shall be two per cent (2%) of the reasons)
gross revenues derived by PAL from all sources, whether
transport or nontransport operations. However, with respect to First, Section 13(a) of PD 1590 refers to "basic corporate income tax."
international air-transport service, the franchise tax shall only be o In a prev. CIR v. Philippine Airlines, Inc. case, the Court
imposed on the gross passenger, mail, and freight revenues of PAL already settled that the "basic corporate income tax," under
from its outgoing flights. Section 13(a) of PD 1590, relates to the general rate of 35%
In its income tax return for FY 2000-2001, PAL reported no net taxable (reduced to 32% by the year 2000) as stipulated in Section
income for the period, resulting in zero basic corporate income tax, 27(A).
which would necessarily be lower than any franchise tax due from PAL Section 13(a) of PD 1590 requires that the basic corporate income tax
for the same period. be computed in accordance with the NIRC. This means that PAL shall
The CIR though, assessed PAL for MCIT for FY 2000-2001. Why? compute its basic corporate income tax using the rate and basis
o Section 13(a) of PD No. 1590 provides that the corporate prescribed by the NIRC of 1997 for the said tax.
income tax of PAL shall be computed in accordance with the There is nothing in Section 13(a) of PD 1590 to support the
NIRC. And, since the NIRC imposes MCIT, then PAL is contention of the CIR that PAL is subject to the entire Title II of the
subject to the same. NIRC , entitled "Tax on Income."

The Court is not persuaded. Second, Section 13(a) of PD 1590 further provides that the basic
The arguments of the CIR are contrary to the plain meaning and corporate income tax of PAL shall be based on its annual net taxable
obvious intent of PD 1590, the franchise of PAL. income. This is consistent with Section 27(A) of the NIRC, which
(E) Minimum Corporate Income Tax on Domestic Corporations. – provides that the rate of basic corporate income tax of 32%, shall be
o (1) Imposition of Tax. – A minimum corporate income tax of imposed on the taxable income of the domestic corporation.
two percent (2%) of the gross income as of the end of the In comparison, the 2% MCIT under Section 27(E) shall be based on
taxable year, as defined herein, is hereby imposed on a the gross income of the domestic corporation.
corporation taxable under this Title, beginning on the fourth o However, the gross income, as the basis for MCIT, is given a
taxable year immediately following the year in which such special definition under Section 27(E)(4), different from the
corporation commenced its business operations, when the general one under Section 34 of the same Code.
minimum income tax is greater than the tax computed o According to the last paragraph of Section 27(E)(4), gross
under Subsection (A) [Sec. 27] for the taxable year. income of a domestic corporation engaged in the sale of
Hence, a domestic corporation must pay whichever is higher of: service means gross receipts, less sales returns,
o the income tax under Section 27(A) of the NIRC, computed by allowances, discounts and cost of services.
applying the tax rate therein to the taxable income of the "Cost of services" refers to all direct costs and
corporation; or expenses necessarily incurred to provide the services
o The MCIT under Section 27(E), also of the NIRC of 1997, required by the customers and clients including
equivalent to 2% of the gross income of the corporation.

2
TAX 2 DIGESTS – ATTY. MONTERO
OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

(a) salaries and employee benefits of o In this case, in addition to being a public utility providing air-
personnel, consultants, and specialists transport service, PAL is also the official flag carrier of the
directly rendering the service; and country.
(b) cost of facilities directly utilized in The imposition of MCIT on PAL, as the CIR insists, would result in a
providing the service, such as depreciation situation that contravenes the objective of Section 13 of PD 1590.
or rental of equipment used and cost of In effect, PAL would not just have two, but three tax alternatives.
supplies.
o Noticeably, inclusions in and exclusions/deductions from gross Fifth, the CIR posits that PAL may not invoke in the instant case the "in
income for MCIT purposes are more limited than the gross lieu of all other taxes" clause in Section 13 of PD 1590, if it did not pay
income used in the computation of basic corporate income tax. anything at all as basic corporate income tax or franchise tax. As a
In light of the foregoing, there is an apparent distinction between result, PAL should be made liable for "other taxes" such as MCIT.
taxable income, which is the basis for basic corporate income tax Substitution Theory)
under Section 27(A); and gross income, which is the basis for the o The Court already rejected the Substitution Theory in prev.
MCIT under Section 27(E). case of CIR v PAL, to wit:
The two terms cannot be used interchangeably. Under Subsection (a), the basis for the tax rate is respondent’s  annual  
Ergo, CIR is not correct in saying that since Section 13(a) of PD No. net taxable income. By basing the tax rate on the annual net taxable
1590 provides that the corporate income tax of PAL shall be computed income, PD 1590 necessarily recognized the situation in which
in accordance with the NIRC. And, since the NIRC imposes MCIT, then taxable income may result in a negative amount and thus translate
PAL is subject to the same. into a zero tax liability.
o Notably, PAL was owned and operated by the government at
Third, even if the basic corporate income tax and the MCIT are both the time the franchise was last amended. PD 1590 sought to
income taxes under Section 27, and one is paid in place of the other, assist the finances of the government corporation in the form of
the two are distinct and separate taxes. lower taxes.
The MCIT is different from the basic corporate income tax, not just in
the rates, but also in the bases for their computation. And sixth, PD 1590 explicitly allows PAL, in computing its basic
o Not being covered by Section 13(a) of PD 1590, then MCIT is corporate income tax, to carry over as deduction any net loss incurred in
included in "all other taxes" from which PAL is exempted. any year, up to five years following the year of such loss. Therefore, PD
Given the fundamental differences between the basic corporate income 1590 does not only consider the possibility that, at the end of a taxable
tax and the MCIT, , it is not baseless for this Court to rule that, pursuant period, PAL shall end up with zero annual net taxable income, but also
to the franchise of PAL, it is subject to the first tax, yet exempted the likelihood that PAL shall incur net loss.
from the second.
Another argument of the CIR:
Fourth, the evident intent of Section 13 of PD 1590 is to extend to PAL The CIR calls the attention of the Court to RMC No. 66-2003, on
tax concessions not ordinarily available to other domestic corporations. "Clarifying the Taxability of Philippine Airlines (PAL) for Income Tax
Section 13 of PD 1590 is not unusual. Purposes:
A public utility is granted special tax treatment (including tax o “Section   27(E)   of   the   Code,   as   implemented   by   Revenue  
exceptions/exemptions) under its franchise, as an inducement for the Regulations No. 9-98, provides that MCIT of two percent (2%)
acceptance of the franchise and the rendition of public service by the of the gross income as of the end of the taxable year
said public utility. imposed upon any domestic corporation beginning the 4th
taxable year immediately following the taxable year in which

3
TAX 2 DIGESTS – ATTY. MONTERO
OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

such corporation commenced its business operations. The from the territory of the Subic Special Economic Zone to
MCIT shall be imposed whenever such corporation has zero the other parts of the Philippine territory shall be subject
or negative taxable income or whenever the amount of to customs duties and taxes under the Customs and Tariff
MCIT is greater than the normal income tax due from such Code and other relevant tax laws of the Philippines;
corporation.
SC: (c) The provisions of existing laws, rules and
But the Court is unconvinced. regulations to the contrary notwithstanding, no taxes,
RMC No. 66-2003 was issued only in 2003, more than two years after local and national, shall be imposed within the Subic
FY 2000-2001 of PAL. This violates the well-entrenched principle that Special Economic Zone. In lieu of paying taxes, three percent
statutes, including administrative rules and regulations, operate (3%) of the gross income earned by all businesses and
prospectively only, unless the legislative intent to the contrary is enterprises within the Subic Special Economic Zone shall be
manifest by express terms or by necessary implication.28 remitted to the National Government, one percent (1%) each to
Moreover, despite the claims of the CIR that RMC No. 66-2003 is just a the local government units affected by the declaration of the
clarificatory and internal issuance, the Court observes that RMC No. 66- zone in proportion to their population area, and other factors. In
2003 does more than just clarify a previous regulation and goes beyond addition, there is hereby established a development fund of
mere internal administration. one percent (1%) of the gross income earned by all businesses
It effectively increases the tax burden of PAL and other taxpayers who and enterprises within the Subic Special Economic Zone to be
are similarly situated, making them liable for a tax for which they were utilized for the development of municipalities outside the City
not liable before. Therefore, RMC No. 66-2003 cannot be given effect of Olongapo and the Municipality of Subic, and other
without previous notice or publication to those who will be affected municipalities contiguous to be base areas.
thereby
Pursuant to this, private respondents (which are corporations doing business
within the SBF) applied for certificates of tax exemption. Basically the exemption
allowed them to engage in the business of importing, exporting, etc. of general
D.2. Excise Tax merchandise, including liquor and tobacco products, with a corresponding
uniformly-granted tax exemption on importations of raw materials.
01. Republic v. Caguioa (JT)
October 15,2007 Thirteen years later, RA 9334 came into effect, wherein Section 131 of the NIRC
was   amended,   stating:   “The provision of any special or general law to the
Facts contrary notwithstanding, the importation of cigars and cigarettes, distilled
Congress enacted RA 7227 or the Bases Conversion Act which created the spirits, fermented liquors and wines into the Philippines, even if destined
Subic Special Economic and Freeport Zone (SBF). The pertinent provisions are for tax and duty free shops, shall be subject to all applicable taxes, duties,
as follows: charges, including excise taxes due thereon. This shall apply to cigars and
cigarettes, distilled spirits, fermented liquors and wines brought directly into the
(b) The Subic Special Economic Zone shall be duly chartered or legislated freeports of the Subic Economic Freeport Zone,
operated and managed as a separate customs territory created under Republic Act No. 7227.”
ensuring free flow or movement of goods and capital
within, into and exported out of the Subic Special In short, all importations of liquor and tobacco products were treated as ordinary
Economic Zone, as well as provide incentives such as tax importations subject to all applicable taxes, including excise tax.
and duty-free importations of raw materials, capital and
equipment. However, exportation or removal of goods
4
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OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

Thereafter, the Collector of Customs of Subic directed Subic Bay Metropolitan 2. There is no vested right in a tax exemption, more so when the
Authority (SBMA) to require the payment of the relevant taxes. In response to latest expression of legislative intent renders its continuance
this, the private respondent enterprises filed a petition for declaratory relief to doubtful. Being a mere statutory privilege, a tax exemption may be
have certain portions of RA 9334 declared unconstitutional. modified or withdrawn at will by the granting authority.
3. Tax exemptions are construed strictissimi juris against the taxpayer and
The trial court held that the private respondents were entitled to enjoy the tax liberally in favor of the taxing authority.
incentives in RA 7227, which vested in them a clear and unmistakable right to be 4. A tax exemption cannot be grounded upon the continued existence of a
exempted from the taxes, which RA 9334 would violate if implemented. The trial statute which precludes its change or repeal. No law is irrepealable.
court then granted a writ of preliminary injunction, directing SBMA to enjoin from Congress, in the legitimate exercise of its lawmaking powers, can
implementing the provisions of RA 9334. enact a law withdrawing a tax exemption just as efficaciously as it
may grant the same.
Issue/Held: Are the private respondent enterprises exempted from paying the 5. The rights granted by the certificates of exemption are not absolute. The
excise taxes? NO. certificates are basically licenses, which is neither property nor property
right. A license can be revoked at any time, as no right is conferred on
Ratio: the licenseholder.
The clear provisions of RA 9334 expressed the intent of the Congress to 6. The right, assuming there is one, granted by the certificates of
withdraw the exemption granted to the private respondents. exemption   must   bow   down   to   the   State’s   exercise   of   police   power.  
Taxes may be implemented through police power. Public welfare was
RA 7227 RA 9334 the reason behind the revocation of the exemption. Smugglers
The provision of any special or general The provision of any special or general often used the tax exemption in order to advance their operations
law to the contrary notwithstanding, the law to the contrary notwithstanding, the 7. As a rule, courts should avoid issuing a writ of preliminary injunction
importation of cigars and cigarettes, importation of cigars and cigarettes, which would in effect dispose of the main case without trial.
distilled spirits, fermented liquors and distilled spirits, fermented liquors and 8. A court may issue a writ of preliminary injunction only when the
wines into the Philippines, even if wines into the Philippines, even if petitioner assailing a statute has made out a case of unconstitutionality
destined for tax and duty free shops, destined for tax and duty free shops, or invalidity strong enough, in the mind of the judge, to overcome the
shall be subject to all applicable taxes, shall be subject to all applicable taxes, presumption of validity, in addition to a showing of a clear legal right to
duties, charges, including excise taxes duties, charges, including excise taxes the remedy sought.
due thereon. Provided, however, That due thereon. This shall apply to 9. The feared injurious effects of the imposition of taxes on tobacco and
this shall not apply to cigars and cigars and cigarettes, distilled liquor products on  private  respondents’  businesses  cannot  outweigh  the  
cigarettes, fermented spirits and spirits, fermented liquors and wines dire consequences that the non-collection of taxes, not to mention the
wines brought directly into the duly brought directly into the duly chartered unabated smuggling inside the SBF, would wreak on the government.
chartered or legislated freeports of the or legislated freeports of the Subic Whatever damage would befall private respondents must perforce
Subic Economic Freeport Zone, Economic Freeport Zone, created take a back seat to the pressing need to curb smuggling and raise
created under Republic Act No. 7227 under Republic Act No. 7227 revenues for governmental functions. (Again, this goes back to the
police power of the State.)
Thus, the passage of RA 9334 effectively removed the tax exemption
granted to the private respondent enterprises.

In addition, the Supreme Court listed additional bases for its ruling:
1. Every presumption must be indulged in favor of the constitutionality of a
statute.
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OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

02. Silkair v. CIR (AD) (b) Exempt entities or agencies covered by tax
Summary: These are three different SC cases. It actually involves the same treaties, conventions and other international
parties (Silkair as petitioner and CIR as respondent) and almost the same agreements for their use or consumption: Provided,
issues in each case. If you can still remember from Tax 1, Silkair was however, That the country of said foreign international
claiming that it is a tax-exempt entity and therefore it is exempt from carrier or exempt entities or agencies exempts from
payment of excise tax (an indirect tax) shifted unto it by the seller, Petron. similar taxes petroleum products sold to Philippine
The SC held that an   “exempt   from   all   taxes”   clause   must   specifically   carriers, entities or agencies; and
provide that the exemption given by law also covers indirect taxes. The SC xxxx
also noted that it is Petron which is statutorily liable for the excise tax. Petitioner also invoked Article 4(2) of the Air Transport Agreement
Whatever amount was shifted unto Silkair was not a tax per se; rather, it between the Government of the Republic of the Philippines and the
was a normal part of the purchase price that the buyer pays for. Therefore, Government of the Republic of Singapore (Air Transport Agreement
Silkair is not the proper property to claim the refund, it not being the between RP and Singapore) which reads: Art. 4
statutory taxpayer. (Paulit-ulit lang itong doctrines na ‘to in the three cases.) o 2. Fuel, lubricants, spare parts, regular equipment and aircraft
stores introduced into, or taken on board aircraft in the territory
FACTS: of one Contracting Party by, or on behalf of, a designated
Silkair (Singapore) Pte. Ltd. is a foreign corporation duly licensed by airline of the other Contracting Party and intended solely for
SEC to do business in the Philippines as an on-line international carrier use in the operation of the agreed services shall, with the
operating the Cebu-Singapore-Cebu and Davao-Singapore-Davao exception of charges corresponding to the service performed,
routes. be exempt from the same customs duties, inspection fees and
other duties or taxes imposed in the territory of the first
In the course of its international flight operations, Silkair purchased
Contracting Party, even when these supplies are to be used on
aviation fuel from Petron Corporation (Petron) from July 1, 1998 to
the parts of the journey performed over the territory of the
December 31, 1998, paying the excise taxes thereon in the sum
Contracting Party in which they are introduced into or taken on
of P5,007,043.39.
board. The materials referred to above may be required to be
In 1999, Silkair filed an administrative claim for the refund 4
kept under customs supervision and control.
of P5,007,043.39 representing excise taxes on the purchase of jet fuel
from Petron, which it alleged to have been erroneously paid. The claim
CASE #1: February 6, 2008
is based on Section 135 (a) and (b) of the 1997 Tax Code, which
provides:
RATIO:
o SEC. 135. Petroleum Products Sold to International Carriers
and Exempt Entities or Agencies. – Petroleum products sold to
The proper party to question, or seek a refund of, an indirect tax is the
the following are exempt from excise tax:
statutory taxpayer, the person on whom the tax is imposed by law and who
(a) International carriers of Philippine or foreign
paid the same even if he shifts the burden thereof to another.
registry on their use or consumption outside the
Philippines: Provided, That the petroleum products Section 130 (A) (2) of the NIRC provides that "unless otherwise
specifically allowed, the return shall be filed and the excise tax paid by
sold to these international carriers shall be stored in a
bonded storage tank and may be disposed of only in the manufacturer or producer before removal of domestic products from
place of production." Thus, Petron Corporation, not Silkair, is the
accordance with the rules and regulations to be
statutory taxpayer which is entitled to claim a refund based on
prescribed by the Secretary of Finance, upon
Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport
recommendation of the Commissioner;
Agreement between RP and Singapore.

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OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

Even if Petron Corporation passed on to Silkair the burden of the tax, o A tax exemption is a personal privilege of the grantee, which is
the additional amount billed to Silkair for jet fuel is not a tax but Silkair in this case.
part of the price which Silkair had to pay as a purchaser. o It further argues that a tax exemption granted to the buyer
Silkair nevertheless invokes Maceda v. Macaraig, Jr. which upheld the cannot be availed of by the seller; hence, in the present case,
claim for tax credit or refund by the National Power Corporation (NPC) Petron as seller cannot legally claim the refund.
on the ground that the NPC is exempt even from the payment of indirect o On the other hand, if only the entity that paid the tax - Petron in
taxes. this case - can claim the refund, then petitioner as the grantee
o In Commissioner of Internal Revenue v. Philippine Long of the tax exemption cannot enjoy its tax exemption. In short,
Distance Telephone Company, this Court clarified the ruling neither petitioner nor Petron can claim the refund, rendering
in Maceda v. Macaraig, Jr., viz: the tax exemption useless.
It may be so that in Maceda vs. Macaraig, Jr., the Petitioner also cites this Court's Resolution in Maceda v. Macaraig,
Court held that an exemption from "all taxes" granted Jr., quoting the opinion of the Secretary of Justice which states, thus:
to the National Power Corporation (NPC) under its o The view which refuses to accord the exemption because the
charter includes both direct and indirect taxes. But far tax is first paid by the seller disregards realities and gives more
from providing PLDT comfort, Maceda in fact supports importance to form than substance. Equity and law always
the case of herein petitioner, the correct lesson of exalt substance over form.
Maceda being that an exemption from "all taxes"
excludes indirect taxes, unless the exempting CIR’s  Arguments:
statute,   like   NPC’s   charter,   is   so   couched   as   to   As explained in Philippine Acetylene Co., Inc. v. Commissioner of
include indirect tax from the exemption. Internal Revenue, the nature of an indirect tax allows the tax to be
The exemption granted under Section 135 (b) of the NIRC of 1997 passed on to the purchaser as part of the commodity's purchase price.
and Article 4(2) of the Air Transport Agreement between RP and However, an indirect tax remains a tax on the seller. Hence, if the
Singapore cannot, without a clear showing of legislative intent, be buyer happens to be tax exempt, the seller is nonetheless liable for
construed as including indirect taxes. the payment of the tax as the same is a tax not on the buyer but on
WHEREFORE, the petition is DENIED. the seller.
In indirect taxation, the manufacturer or seller has the option to shift the
CASE #2: November 14, 2008 burden of the tax to the purchaser. If and when shifted, the amount
added by the manufacturer or seller becomes part of the purchase
Silkair’s  Arguments: price of the goods. Thus, the purchaser does not really pay the tax
Silkair contends that in reality, it paid the excise taxes due on the but only the price of the commodity and the liability for the payment
transactions and Petron merely remitted the payment to the Bureau of of the indirect tax remains with the manufacturer or seller.
Internal Revenue (BIR). Since the liability for the excise tax payment is imposed by law on
Further, to adhere to the view that Petron is the legal claimant of the Petron as the manufacturer of the petroleum products, any claim for
refund will make Silkair's right to recover the erroneously paid taxes refund should only be made by Petron as the statutory taxpayer
dependent solely on Petron's action over which petitioner has no control.
If Petron fails to act or acts belatedly, Silkair's claim will be barred, RATIO:
depriving it of its private property. An excise tax is an indirect tax where the tax burden can be shifted to the
To hold that only Petron can legally claim the refund will negate the tax consumer but the tax liability remains with the manufacturer or producer.
exemption expressly granted to Silkair under the NIRC and the Air Excise tax, whether classified as specific or ad valorem tax, is basically
Agreement. an indirect tax imposed on the consumption of a specified list of goods

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OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

or products. The tax is directly levied on the manufacturer upon removal Even if the consumers or purchasers ultimately pay for the tax,
of the taxable goods from the place of production but in reality, the tax is they are not considered the taxpayers.
passed on to the end consumer as part of the selling price of the goods Silkair, as the purchaser and end-consumer, ultimately bears the tax
sold. burden, but this does not transform petitioner's status into a statutory
In Commissioner of Internal Revenue v. Philippine Long Distance taxpayer.
Company, the Court explained the difference between a direct tax and
an indirect tax: In the refund of indirect taxes, the statutory taxpayer is the proper party
o Based on the possibility of shifting the incidence of taxation, or who can claim the refund.
as to who shall bear the burden of taxation, taxes may be The person entitled to claim a tax refund is the statutory taxpayer.
classified into either direct tax or indirect tax. Section 22(N) of the NIRC defines a taxpayer as "any person subject to
o In context, direct taxes are those that are exacted from the tax."
very person who, it is intended or desired, should pay them; In Commissioner of Internal Revenue v. Procter and Gamble Phil. Mfg.
they are impositions for which a taxpayer is directly liable on Corp., the Court ruled that:
the transaction or business he is engaged in. o A "person liable for tax" has been held to be a "person subject
o On the other hand, indirect taxes are those that are to tax" and properly considered a "taxpayer." The terms "liable
demanded, in the first instance, from, or are paid by, one for tax" and "subject to tax" both connote a legal obligation or
person in the expectation and intention that he can shift duty to pay a tax.
the burden to someone else. Stated elsewise, indirect taxes The excise tax is due from the manufacturers of the petroleum products
are taxes wherein the liability for the payment of the tax and is paid upon removal of the products from their refineries. Even
falls on one person but the burden thereof can be shifted before the aviation jet fuel is purchased from Petron, the excise tax is
or passed on to another person, such as when the tax is already paid by Petron. Petron, being the manufacturer, is the "person
imposed upon goods before reaching the consumer who subject to tax."
ultimately pays for it. When the seller passes on the tax to In this case, Petron, which paid the excise tax upon removal of the
his buyer, he, in effect, shifts the tax burden, not the products from its Bataan refinery, is the "person liable for tax."
liability to pay it, to the purchaser as part of the price of Silkair is neither a "person liable for tax" nor "a person subject to tax."
goods sold or services rendered. (Emphasis supplied) There is also no legal duty on its part to pay the excise tax; hence,
When Petron removes its petroleum products from its refinery, it pays Silkair cannot be considered the taxpayer.
the excise tax due on the petroleum products thus removed. Even if the tax is shifted by Petron to its customers and even if the tax is
Petron, as manufacturer or producer, is the person liable for the billed as a separate item in the aviation delivery receipts and invoices
payment of the excise tax as shown in the Excise Tax Returns filed with issued to its customers, Petron remains the taxpayer because the
the BIR. Stated otherwise, Petron is the taxpayer that is primarily, excise tax is imposed directly on Petron as the manufacturer. Hence,
directly and legally liable for the payment of the excise taxes. Petron, as the statutory taxpayer, is the proper party that can claim the
However, since an excise tax is an indirect tax, Petron can transfer to its refund of the excise taxes paid to the BIR.
customers the amount of the excise tax paid by treating it as part of
the cost of the goods and tacking it on to the selling price. CASE #3: January 20, 2012
As correctly observed by the CTA, this Court held in Philippine
Acetylene Co., Inc. v. Commissioner of Internal Revenue: In three previous cases involving the same parties, this Court has already settled
o It may indeed be that the economic burden of the tax finally the issue of whether petitioner is the proper party to seek the refund of excise
falls on the purchaser; when it does the tax becomes part of taxes paid on its purchase of aviation fuel from a local manufacturer/seller.
the price which the purchaser must pay.

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OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

Following the principle of stare decisis, the present petition must therefore be Even if the tax is shifted by Petron to its customers and even if the tax is
denied. billed as a separate item in the aviation delivery receipts and invoices
Excise tax is basically an indirect tax. While the tax is directly levied issued to its customers, Petron remains the taxpayer because the
upon the manufacturer/importer upon removal of the taxable goods from excise tax is imposed directly on Petron as the manufacturer.
its place of production or from the customs custody, the tax, in reality, is Hence, Petron, as the statutory taxpayer, is the proper party that
actually passed on to the end consumer as part of the transfer value or can claim the refund of the excise taxes paid to the BIR.
selling price of the goods, sold, bartered or exchanged. Petitioner’s  contention  that  the  CTA  and  CA  rulings  would  put  to  naught  
In early cases, we have ruled that for indirect taxes (such as valued- the exemption granted under Section 135 (b) of the 1997 Tax Code and
added tax or VAT), the proper party to question or seek a refund of the Article 4 of the Air Transport Agreement is not well-taken. Since the
tax is the statutory taxpayer, the person on whom the tax is imposed by supplier herein involved is also Petron, our pronouncement in the
law and who paid the same even when he shifts the burden thereof to second Silkair case, relative to the contractual undertaking of petitioner
another. to submit a valid exemption certificate for the purpose, is relevant. We
Thus, in Contex Corporation v. Commissioner of Internal Revenue, we thus noted:
held that while it is true that petitioner corporation should not have been In the third Silkair case decided last year, the Court called the attention
liable for the VAT inadvertently passed on to it by its supplier since their to the consistent rulings in the previous two Silkair cases that petitioner
transaction is a zero-rated sale on the part of the supplier, the petitioner as the purchaser and end-consumer of the aviation fuel is not the proper
is not the proper party to claim such VAT refund. Rather, it is the party to claim for refund of excise taxes paid thereon.
petitioner’s  suppliers   who   are   the   proper   parties   to   claim   the   tax   credit   o The situation clearly called for the application of the
and accordingly refund the petitioner of the VAT erroneously passed on doctrine, stare decisis et non quieta movere. Follow past
to the latter. precedents and do not disturb what has been settled. Once a
In the first Silkair case, this Court categorically declared: case has been decided one way, any other case involving
o The proper party to question, or seek a refund of, an exactly the same point at issue, as in the case at bar, should
indirect tax is the statutory taxpayer, the person on whom be decided in the same manner.
the tax is imposed by law and who paid the same even if The Court thus finds no cogent reason to deviate from those previous
he shifts the burden thereof to another. Thus, Petron rulings on the same issues herein raised.
Corporation, not Silkair, is the statutory taxpayer which is WHEREFORE, the petition for review on certiorari is DENIED.
entitled to claim a refund based on Section 135 of the NIRC of
1997 and Article 4(2) of the Air Transport Agreement between
03. Exxonmobil v. CIR (RS)
RP and Singapore.
G.R. No. 180909
o Even if Petron Corporation passed on to Silkair the burden of
January 19, 2011
the tax, the additional amount billed to Silkair for jet fuel is not
a tax but part of the price which Silkair had to pay as a
Petitioner: Exxonmobil Petroleum Chemical Holdings, Inc. – Philippine Branch
purchaser.
(Exxon)
Just a few months later, the decision in the second Silkair case was
Respondent: CIR
promulgated, reiterating the rule that in the refund of indirect taxes such
as excise taxes, the statutory taxpayer is the proper party who can claim
Mendoza, J.
the refund. We also clarified that petitioner Silkair, as the purchaser
and end-consumer, ultimately bears the tax burden, but this does
Topic: Nature of an excise tax; who can claim a refund on excise taxes paid
not transform its status into a statutory taxpayer.
Related Law: in-text

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OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

SUMMARY: Exxon is a foreign company that deals in petroleum products. It o CIR filed a motion to dismiss on the ground that Exxon is not
purchased fuel from Caltex and Petron which it subsequently sold to international the proper party to claim the refund of excise taxes paid on
st
carriers. Exxon claimed a refund for the excise taxes it paid. CTA 1 Division and petroleum products sold to international carriers. CTA
CTA En Banc ruled in favor of the CIR based on the ground propounded by the granted this.
latter   as   regards   Exxon’s   legal   incapacity to claim such refund. SC denied o CTA also said that Section 130(A)(2) makes the manufacturer
Exxon’s   appeal,   citing   that   it   is   not   the   proper   party   to   claim   a   refund   of   excise   or producer of the petroleum products directly liable for the
taxes. SC said that the excise tax, when passed on to the purchaser, payment of excise taxes. Therefore, it follows that the
becomes part of the purchase price. SC cited the case of PLDT in regard to manufacturer or producer is the taxpayer.
the nature of indirect taxes, a type of tax under which an excise tax falls. It is
characterized by the setup where the entity statutorily liable is different from the ISSUE:
one who has the burden of paying it. Court also cited the cases of Phil. Acetelyne Whether Exxon, as the distributor and vendor of petroleum products to
and Silkair cases where it said that the proper party to question, or seek a international carriers registered in foreign countries which have existing bilateral
refund of, an indirect tax is the statutory taxpayer, the person on whom the agreements with the Philippines, is the proper party to claim a tax refund for the
tax is imposed by law and who paid the same even if he shifts the burden excise taxes paid by the manufacturers, Caltex and Petron, and passed on to it
thereof to another. Since Exxon is not the statutory taxpayer, it cannot claim the as part of the purchase price.
refund it sought.
Basically, the issue is w/n CTA erred in holding that Exxon is prohibited from
FACTS claiming a refund for the excise tax it paid – NO! CTA was correct.
Exxon – foreign company organized and existing under the laws of the
State of Delaware, USA. It is authorized to do business in the HELD: Petition DENIED!
Philippines through its Philippine Branch (petitioner here)
o engaged in the business of selling petroleum products to RATIO:
domestic and international carriers EXXON’S ARGUMENTS:
Exxon purchased from Petron and Caltex Jet A- 1 fuel and other Having paid the excise taxes on the petroleum products sold to
petroleum products, the excise taxes on which were paid for and international carriers, it is a real party in interest consistent with the rules
remitted by both Caltex and Petron. and jurisprudence
o Said taxes, however, were passed on to Exxon which …[T]he   subject   of   the   exemption   is   neither   the   seller nor the buyer of
ultimately shouldered the excise taxes on the fuel and the petroleum products, but the products themselves, so long as they
petroleum products are sold to international carriers for use in international flight operations,
Nov. 2001 – June 2002 - Exxon sold a total of 28,635,841 liters of Jet A- or to exempt entities covered by tax treaties, conventions and other
1 fuel to international carriers, free of excise taxes amounting to international agreements for their use or consumption, among other
Php105,093,536.47. conditions
1
o It filed with the BIR a claim for refund of the same. Thus, as the exemption granted under Section 135 attaches to the
10/20/2003 – Exxon filed a petition for review with the CTA claiming a
refund/tax credit of the same amount 1
“SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or
CIR raised the question of whether Exxon was the proper party to claim Agencies. - Petroleum products sold to the following are exempt from excise tax: (a)
a refund International carriers of Philippine or foreign registry on their use or consumption outside
st the Philippines: Provided, That the petroleum products sold to these international carriers
CTA 1 Div. (CTA-Div1) and CTA-En Banc (CTA-EB) ruled in favor of
shall be stored in a bonded storage tank and may be disposed of only in accordance with
CIR the rules and regulations to be prescribed by the Secretary of Finance, upon
In the CTA recommendation  of  the  Commissioner;;  x  x  x”

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OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

petroleum products and not to the seller, the exemption will apply o Thus, under Section 135, petroleum products sold to
regardless of whether the same were sold by its manufacturer or its international carriers of foreign registry on their use or
distributor for two reasons: consumption outside the Philippines are exempt from excise
o First, Section 135 does not require that to be exempt from tax, provided that the petroleum products sold to such
excise tax, the products should be sold by the manufacturer or international carriers shall be stored in a bonded storage tank
producer. and may be disposed of only in accordance with the rules and
o Second, the legislative intent was precisely to make Section regulations to be prescribed by the Secretary of Finance, upon
135 independent from Sections 129 and 130 of the NIRC, recommendation of the Commissioner
stemming from the fact that unlike other products subject to o The confusion here stems from the fact that excise taxes are of
excise tax, petroleum products of this nature have become the nature of indirect taxes, the liability for payment of which
subject to preferential tax treatment by virtue of either specific may fall on a person other than he who actually bears the
international agreements or simply of international reciprocity. burden of the tax.
CIR’S ARGUMENTS: o CIR v. PLDT – Court discussed indirect taxes:
Txcise taxes are indirect taxes, the liability for payment of which falls on “[I]ndirect   taxes   are   those   that   are   demanded,   in   the  
one person, but the burden of payment may be shifted to another first instance, from, or are paid by, one person to
Here, the sellers of the petroleum products or Jet A-1 fuel subject to someone else. Stated elsewise, indirect taxes are
excise tax are Petron and Caltex, while Exxon was the buyer to whom taxes wherein the liability for the payment of the tax
the burden of paying excise tax was shifted. While the impact or burden falls on one person but the burden thereof can be
of taxation falls on Exxon, as the tax is shifted to it as part of the shifted or passed on to another person, such as when
purchase price, the persons statutorily liable to pay the tax are Petron the tax is imposed upon goods before reaching the
and Caltex. consumer who ultimately pays for it. When the seller
As Exxon is not the taxpayer primarily liable to pay, and not exempted passes on the tax to his buyer, he, in effect, shifts the
from paying, excise tax, it is not the proper party to claim for the refund tax burden, not the liability to pay it, to the purchaser,
of excise taxes paid as  part  of  the  goods  sold  or  services  rendered.”
SC: Accordingly, the party liable for the tax can shift the
THE EXCISE TAX, WHEN PASSED ON TO THE PURCHASER, BECOMES PART OF burden to another, as part of the purchase price of the
THE PURCHASE PRICE. goods or services. Although the manufacturer/seller is
o Excise taxes are imposed under Title VI of the NIRC. They the one who is statutorily liable for the tax, it is the
apply to specific goods manufactured or produced in the buyer who actually shoulders or bears the burden of
Philippines for domestic sale or consumption or for any the tax, albeit not in the nature of a tax, but part of the
other disposition, and to those that are imported. purchase price or the cost of the goods or services
o In effect, these taxes are imposed when two conditions concur: sold.
first, that the articles subject to tax belong to any of the AS PETITIONER IS NOT THE STATUTORY TAXPAYER, IT IS NOT ENTITLED TO
categories of goods enumerated in Title VI of the NIRC; and CLAIM A REFUND OF EXCISE TAXES PAID.
2 3
second, that said articles are for domestic sale or o Sec. 129 and 130 of the NIRC are important to answer the
consumption, excluding those that are actually exported. question: if the party statutorily liable for the tax is different
o There are, however, certain exemptions to the coverage of
excise taxes, such as petroleum products sold to international 2
SEC. 129. Goods subject to Excise Taxes. - Excise taxes apply to goods manufactured
carriers and exempt entities or agencies [See footnote on Sec. or produced in the Philippines for domestic sales or consumption or for any other
135 (a)]. disposition and to things imported. The excise tax imposed herein shall be in addition to the
value-added tax imposed under Title IV.
11
TAX 2 DIGESTS – ATTY. MONTERO
OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

from the party who bears the burden of such tax, who is shifted to the purchaser at all. A decision to absorb
entitled to claim a refund of the tax paid? the burden of the tax is largely a matter of economics.
o As   early   as   the   1960’s,   this   Court   has   ruled   that   the   proper   Then it can no longer be contended that a sales tax is
party to question, or to seek a refund of, an indirect tax, is the a  tax  on  the  purchaser.”
statutory taxpayer, or the person on whom the tax is imposed o Phil. Acetelyne was cited in Cebu Portland Cement v. Collector
by law and who paid the same, even if he shifts the burden and Silkair v. CIR cases.
st
thereof to another. o 1 Silkair case – SC  said:  “The proper party to question, or
o Phil. Acetelyne Co. v. CIR – discussed   “passing   on”   of   the   seek a refund of, an indirect tax is the statutory taxpayer,
sales  tax  to  the  buyer;;  cited  Justice  Wendell  Holmes’  opinion  in   the person on whom the tax is imposed by law and who
a US case paid the same even if he shifts the burden thereof to
Holmes: “The  phrase  ‘passed  the  tax  on’  is  inaccurate,   another. x x x Even if Petron Corporation passed on to
as obviously the tax is laid and remains on the Silkair the burden of the tax, the additional amount billed
manufacturer and on him alone. The purchaser does to Silkair for jet fuel is not a tax but part of the price which
not really pay the tax. He pays or may pay the seller Silkair  had  to  pay  as  a  purchaser.”
nd
more  for  the  goods  because  of  the  seller’s  obligation,   o 2 Silkair case – SC said: The issue presented is not novel. In
but that is all. x x x The price is the sum total paid for a similar case involving the same parties, this Court has
the goods. The amount added because of the tax is categorically ruled that "the proper party to question, or seek a
paid to get the goods and for nothing else. Therefore refund of an indirect tax is the statutory taxpayer, the person
it  is  part  of  the  price  x  x  x.” on whom the tax is imposed by law and who paid the same
SC in Phil. Acetelyne: “It may indeed be that the even if he shifts the burden thereof to another." The Court
economic burden of the tax finally falls on the added that "even if Petron Corporation passed on to Silkair the
purchaser; when it does the tax becomes a part of the burden of the tax, the additional amount billed to Silkair for jet
price which the purchaser must pay. It does not fuel is not a tax but part of the price which Silkair had to pay
matter that an additional amount is billed as tax to the as a purchaser."
purchaser. x x x The effect is still the same, namely, o Therefore, as Exxon is not the party statutorily liable for
that the purchaser does not pay the tax. He pays or payment of excise taxes under Section 130, in relation to
may pay the seller more for the goods because of the Section 129 of the NIRC, it is not the proper party to claim a
seller’s   obligation,   but   that   is   all   and   the amount refund of any taxes erroneously paid.
added because of the tax is paid to get the goods and
for nothing else. But the tax burden may not even be

04. CIR v. Shell (HV)


For purposes of this Title, excise taxes herein imposed and based on weight or volume Topic: Excise tax exemptions
capacity or any other physical unit of measurement shall be referred to as 'specific tax' and Relevant Laws:
an excise tax herein imposed and based on selling price or other specified value of the
good shall be referred to as 'ad valorem tax.' Sec 130D, 135, 148 NIRC
PD 1539
3
SEC. 130. Filing of Return and Payment of Excise Tax on Domestic Products. -
(A) Persons Liable to File a Return, Filing of Return on Removal and Payment of Tax.
xxx
G.R. No. 188497
(2) Time for Filing of Return and Payment of the Tax. - Unless otherwise specifically April 25, 2012
allowed, the return shall be filed and the excise tax paid by the manufacturer or producer VILLARAMA, JR., J.:
before removal of domestic products from place of production: x x x

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OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

Petitioners: CIR On July 18, 2002, Shell filed with the Large Taxpayers Audit &
Respondents: Pilipinas Shell Petroleum (Shell) Investigation Division II of the BIR a formal claim for refund or tax credit
in the total amount of P28,064,925.15, representing excise taxes it
Summary: allegedly paid on sales and deliveries of gas and fuel oils to various
Shell filed various formal claims for refunds pertaining to alleged erroneously international carriers during the period October to December 2001.
paid excise taxes it on sales and deliveries of gas and fuel oils to various Subsequently, on October 21, 2002, a similar claim for refund or tax
international carriers. CIR made no actions  on  Shell’s  claims.  Shell  then  filed  with   credit was filed by Shell with the BIR covering the period January to
the CTA petition for review and decided that Shell must be granted the refund. March 2002 in the amount of P41,614,827.99. Again, on July 3, 2003,
CIR appealed to the CTA En Banc then filed MR but still the decision favors Shell filed another formal claim for refund or tax credit in the amount of
Shell. SC  reversed  CTA’s  Decision  thus  providing  for the said doctrine below. P30,652,890.55 covering deliveries from April to June 2002.
Shell filed petitions for review before the CTA since no action was
Doctrines: taken by the CIR on its claims.
1. Excise tax is a tax on the manufacturer and not on the purchaser, and CTA’s   First   Division   ruled   that   Shell is entitled to the refund of excise
there being no express grant under the NIRC of exemption from payment of taxes in the reduced amount of P95,014,283.00. The CTA First Division
excise tax to local manufacturers of petroleum products sold to relied on a previous ruling rendered by the CTA En Banc in the case of
international carriers, and absent any provision in the Code authorizing “Pilipinas Shell Petroleum Corporation v. Commissioner of Internal
the refund or crediting of such excise taxes paid, the Court holds that Sec. Revenue” where the CTA also granted Shell’s   claim   for   refund   on   the  
135 (a) should be construed as prohibiting the shifting of the burden of the basis of excise tax exemption for petroleum products sold to
excise tax to the international carriers who buys petroleum products from international carriers of foreign registry for their use or consumption
the local manufacturers. Said provision thus merely allows the outside the Philippines.
international carriers to purchase petroleum products without the excise CIR’s  motion  for  reconsideration  was  denied  by  the  CTA  First  Division.
tax component as an added cost in the price fixed by the manufacturers or
distributors/sellers. Consequently, the oil companies which sold such CIR’s  CONTENTIONS:
petroleum products to international carriers are not entitled to a refund of Section 148 NIRC expressly subjects the petroleum products to an
excise taxes previously paid on the goods. excise tax before they are removed from the place of production.
2. Time and again, we have held that tax refunds are in the nature of tax exemptions which result to
Refuted by CTA as it is the obvious intent of the law is to grant excise
loss of revenue for the government. Upon the person claiming an exemption from tax payments rests
tax exemption to international carriers and exempt entities as buyers of
the burden of justifying the exemption by words too plain to be mistaken and too categorical to be
misinterpreted, it is never presumed nor be allowed solely on the ground of equity. These petroleum products and not to the manufacturers or producers of said
exemptions, therefore, must not rest on vague, uncertain or indefinite inference, but should be goods. Since the excise taxes are collected from manufacturers or
granted only by a clear and unequivocal provision of law on the basis of language too plain to be producers before removal of the domestic products from the place of
mistaken. Such exemptions must be strictly construed against the taxpayer, as taxes are the lifeblood production, respondent paid the subject excise taxes as manufacturer or
of the government. producer of the petroleum products pursuant to Sec. 148 of the NIRC.
The excise tax on petroleum products attached to the said goods before
Facts: their sale or delivery to international carriers, as in fact Shell averred
CIR appeals in this case the Decision and Resolution of CTA En Banc dismissing the that   it   paid   the   excise   tax   on   its   petroleum   products   when   it   “withdrew  
petition for review filed by CIR assailing   the   CTA   First   Division’s   Decision   and   petroleum products from its place of production for eventual sale and
Resolution which ordered CIR to refund the excise taxes paid by Shell on petroleum
delivery to various international carriers as well  as  to  other  customers.”
products it sold to international carriers.
Shell is engaged in the business of processing, treating and refining
Sec. 135 (a) and (c) granting exemption from the payment of excise tax
petroleum for the purpose of producing marketable products and the
on petroleum products can only be interpreted to mean that Shell
subsequent sale thereof.

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OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

cannot pass on to international carriers and exempt agencies the excise erroneously paid taxes on the petroleum products sold to tax-exempt
taxes it paid as a manufacturer or producer. international carriers.
Also Shell contends that requiring it to shoulder the burden of excise
The only specific provision of the law which grants tax credit or tax refund of the excise taxes on petroleum products sold to international carriers would
taxes paid refers to those cases where goods locally produced or manufactured are effectively defeat the principle of international comity upon which the
actually exported which is not so in this case. grant of tax exemption on aviation fuel used in international flights was
Sec. 130 (D) is explicit on the circumstances under which a taxpayer may claim for a
founded. If the excise taxes paid by respondent are not allowed to be
refund of excise taxes paid on manufactured products, which express enumeration did not
include those excise taxes paid on petroleum products which were eventually sold to
refunded or credited based on the exemption provided in Sec. 135 (a),
international carriers (expressio unius est exclusio alterius). Shell avers that the manufacturers or oil companies would then be
The principles laid down in Maceda vs.Macaraig,Jjr. And Philippine constrained to shift the tax burden to international carriers in the form of
Acetylene co. vs.CIR are applicable to this case. addition to the selling price.
The CTA refuted this by declaring that what was put in issue in said Maceda v. Macaraig, Jr. and Philippine Acetylene Co. v. CIR not
case   was   NPC’s   right   to   claim   for   refund   of   indirect   taxes.     Here,   applicable.
respondent’s   claim   for   refund   is   not   anchored   on   the   exemption   of   the   Commissioner of International Revenue v. Tours Specialists, Inc. - the inclusion of hotel
room  charges  remitted  by  partner  foreign  tour  agents  in  respondent  TSI’s  gross  receipts  
buyer from direct and indirect taxes but on the tax exemption of the
for purposes of computing   the   3%   contractor’s   tax.     TSI   opposed   the   deficiency  
goods themselves under Sec. 135. NPC purchases oil from oil
assessment invoking, among others, Presidential Decree No. 31, which exempts foreign
companies, NPC is entitled to claim reimbursement from the BIR for that tourists from paying hotel room tax. This Court upheld the CTA in ruling that while CIR
part of the purchase price that represents excise taxes paid by the oil may claim that the 3% contractor’s   tax   is   imposed   upon   a   different   incidence,   i.e.,   the  
company to the BIR. Philippine Acetylene Co. v. CIR, on the other gross receipts of the tourist agency which he asserts includes the hotel room charges
hand, involved sales tax, which is a tax on the transaction, which this entrusted to it, the effect would be to impose a tax, and though different, it nonetheless
Court held as due from the seller even if such tax cannot be passed on imposes a tax actually on room charges. One way or the other, said the CTA, it would
to the buyers who are tax-exempt entities. In this case, the excise tax not have the effect of promoting tourism in the Philippines as that would increase the
costs or expenses by the addition of a hotel room tax in the overall expenses of said
is a tax on the goods themselves. While indeed it is the
tourists.
manufacturer who has the duty to pay the said tax, by specific
provision of law, Sec. 135, the goods are stripped of such tax
Issue:
under the circumstances provided therein. Philippine Acetylene Co.,
1. WON Shell as manufacturer or producer of petroleum products is
Inc. v. CIR was thus not anchored on an exempting provision of law but
exempt from the payment of excise tax on such petroleum
merely on the argument that the tax burden cannot be passed on to
products it sold to international carriers. --- NO
someone.
Held:
Petition of CIR - GRANTED.
Shell’s  CONTENTION:
Decision of CTA – REVERSED
Shell maintains that since petroleum products sold to qualified
Tax refund denied
international carriers are exempt from excise tax, no taxes should be
Ratio:
imposed on the article, to which goods the tax attaches, whether in the
hands of the said international carriers or the petroleum manufacturer or Because an excise tax is a tax on the manufacturer and not on the
producer. As these excise taxes have been erroneously paid taxes, purchaser, and there being no express grant under the NIRC of
they can be recovered under Sec. 229 of the NIRC. Respondent exemption from payment of excise tax to local manufacturers of
contends   that   contrary   to   petitioner’s   assertion,   Sections   204   and   229   petroleum products sold to international carriers, and absent any
authorizes respondent to maintain a suit or proceeding to recover such provision in the Code authorizing the refund or crediting of such
excise taxes paid, the Court holds that Sec. 135 (a) should be
construed as prohibiting the shifting of the burden of the excise

14
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OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

tax to the international carriers who buys petroleum products from the proper party to seek a tax refund. Thus, a foreign airline company
the local manufacturers. Said provision thus merely allows the who purchased locally manufactured petroleum products for use in its
international carriers to purchase petroleum products without the international flights, as well as a foreign oil company who likewise
excise tax component as an added cost in the price fixed by the bought petroleum products from local manufacturers and later sold
manufacturers or distributors/sellers. Consequently, the oil these to international carriers, have no legal personality to file a claim
companies which sold such petroleum products to international for tax refund or credit of excise taxes previously paid by the local
carriers are not entitled to a refund of excise taxes previously paid manufacturers even if the latter passed on to the said buyers the tax
on the goods. burden in the form of additional amount in the price.
Excise taxes, as the term is used in the NIRC, refer to taxes If an airline company purchased jet fuel from an unregistered
applicable to certain specified goods or articles manufactured or supplier who could not present proof of payment of specific tax,
produced in the Philippines for domestic sales or consumption or the company is liable to pay the specific tax on the date of
for any other disposition and to things imported into the purchase. Since the excise tax must be paid upon withdrawal from
Philippines. These taxes are imposed in addition to the value- the place of production, respondent cannot anchor its claim for
added tax (VAT). An excise tax is basically an indirect tax. Indirect refund on the theory that the excise taxes due thereon should not
taxes are those that are demanded, in the first instance, from, or have been collected or paid in the first place.
are paid by, one person in the expectation and intention that he Sec. 229 of the NIRC allows the recovery of taxes erroneously or illegally collected.
can shift the burden to someone else. Stated elsewise, indirect An  “erroneous  or  illegal  tax”  is  defined  as  one  levied  without  statutory  authority,  or  
taxes are taxes wherein the liability for the payment of the tax falls upon property not subject to taxation or by some officer having no authority to levy
the tax, or one which is some other similar respect is illegal.  However,  Shell’s  locally  
on one person but the burden thereof can be shifted or passed on
manufactured petroleum products are clearly subject to excise tax under Sec. 148. Hence,
to another person, such as when the tax is imposed upon goods
its claim for tax refund may not be predicated on Sec. 229 of the NIRC allowing a refund
before reaching the consumer who ultimately pays for it. When the of   erroneous   or   excess   payment   of   tax.   Respondent’s   claim   is   premised   on   what   it  
seller passes on the tax to his buyer, he, in effect, shifts the tax determined  as  a  tax  exemption  “attaching  to  the  goods  themselves,”  which  must  be  based  
burden, not the liability to pay it, to the purchaser as part of the on a statute granting  tax  exemption,  or  “the  result  of  legislative  grace.”  Such  a  claim  is  to  
price of goods sold or services rendered. be construed strictissimi juris against the taxpayer, meaning that the claim cannot be
While the exemption found in Sec. 134 makes reference to the made to rest on vague inference. Where the rule of strict interpretation against the
nature and quality of the goods manufactured (domestic denatured taxpayer is applicable as the claim for refund partakes of the nature of an exemption, the
claimant must show that he clearly falls under the exempting statute.
alcohol) without regard to the tax status of the buyer of the said
Pursuant to our ruling in Philippine Acetylene, a tax exemption being enjoyed by the
goods, Sec. 135 deals with the tax treatment of a specified article
buyer cannot be the basis of a claim for tax exemption by the manufacturer or seller of
(petroleum products) in relation to its buyer or consumer. the goods for any tax due to it as the manufacturer or seller. The excise tax imposed on
Respondent’s  failure  to  make  this  important  distinction  apparently   petroleum products under Sec. 148 is the direct liability of the manufacturer who cannot
led it to mistakenly assume that the tax exemption under Sec. 135 thus invoke the excise tax exemption granted to its buyers who are international carriers.
(a)   “attaches   to   the   goods   themselves”   such   that   the   excise tax In Maceda v. Macaraig, Jr., the Court ruled that because of the tax
should not have been paid in the first place. exemptions privileges being enjoyed by NPC under existing laws, the
In the previous cases involving excise taxes on petroleum products sold tax burden may not be shifted to it by the oil companies who shall
to international carriers, what was only resolved is the question of who pay for fuel oil taxes on oil they supplied to NPC
is the proper party to claim the refund of excise taxes paid on petroleum (The ratio continues to discuss PD 1359 and the old 1977 Tax Code)
products if such tax was either paid by the international carriers Founded on the principles of international comity and reciprocity, P.D. No. 1359 granted
themselves or incorporated into the selling price of the petroleum exemption from payment of excise tax but only to foreign international carriers who are
products sold to them. We have ruled in the said cases that the allowed to purchase petroleum products free of specific tax provided the country of said
carrier also grants tax exemption to Philippine carriers. Both the earlier
statutory taxpayer, the local manufacturer of the petroleum products
who is directly liable for the payment of excise tax on the said goods, is amendment in the 1977 Tax Code and the present Sec. 135 of the

15
TAX 2 DIGESTS – ATTY. MONTERO
OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

1997 NIRC did not exempt the oil companies from the payment of Facts: (lifted from Tax I digest, thanks Lee!!) very loooooong case
excise tax on petroleum products manufactured and sold by them 1. This petition for review assails the validity of the ff. for allegedly violating
to international carriers. the equal protection and uniformity clauses of the Constitution:
a. Section 145 of the NIRC, as recodified by RA 8424;
b. RA 9334, which further amended Section 145 of the NIRC on
January 1, 2005;
c. Revenue Regulations Nos. 1-97, 9-2003, and 22-2003; and
05. Brit.-Am. Tobacco v. Camacho (HQ, orig. by RS) d. Revenue Memorandum Order No. 6-2003.
Topic: Excise Tax (Classification Freeze Provision)
2. Sec. 145 provides for 4 TIERS of tax rates based on the NET RETAIL
Relevant Laws/Issuances: 4
PRICE (NRP) per pack of cigarettes. (Note that NRP is determined
R.A. No. 9334 - AN ACT INCREASING THE EXCISE TAX RATES
by a survey done on Oct. 1, 1996)
IMPOSED ON ALCOHOL AND TOBACCO PRODUCTS…
a. The tiers (low-, medium-, high-, premium-priced):
NRP (excluding excise tax and Tax Rate
G.R. No. 163583
VAT)
August 20, 2008
> P 10 per pack P 13.44 per pack
10 >= X > 6.50 per pack [>=, 8.96
Petitioner: British American Tobacco (BAT)
greater than or equal]
Respondents: Camacho (DOF Secretary), Parayno (CIR) 5
6.50 >= X >= 5 per pack 5.60
Respondent-intervenors: Philip Morris Phils. Mfg. Inc. (Philip), Fortune Tobacco
< 5 per pack 1.12
(Fortune), Mighty Corp (Mighty), JT Intl (JT)

Summary: British American Tobacco assailed the validity of Sec. 145, NIRC as b. New brands shall be classified according to their CURRENT
amended by RA 9334, specifically the CLASSIFICATION FREEZE PROVISION, NET RETAIL PRICE (CNRP).
arguing that such provision violates the equal protection and uniformity clauses c. “The classification of each brand of cigarettes based on its
of the Constitution. British averred that the new brands of cigarettes are at a average net retail price as of October 1, 1996, as set forth
6
disadvantage since a higher excise tax rate is imposed on them as compared to in Annex   “D” of this Act, shall remain in force until
old brands, notwithstanding the fact their prices are almost the same (same revised  by  Congress.”  
range). The reason for this discrepancy was the timing of the classification of the d. As such, new brands of cigarettes shall be taxed according to
respective brands. Moreover, British argued that the classification freeze their current net retail price while   existing   or   “old”   brands  
provision was arbitrary, or motivated by a hostile or oppressive attitude to unduly
favor older brands over newer brands.
4
NRP - price at which the cigarette is sold on retail in 20 major supermarkets in Metro
SC upheld the validity of such provision mainly based on the presumption of Manila (for brands of cigarettes marketed nationally), excluding the amount intended to
constitutionality of laws which British failed to overcome. Moreover, the case cover the applicable excise tax and the value-added tax. For brands which are marketed
presented legislative deliberations which showed that the legislative classification only outside Metro Manila, the net retail price shall mean the price at which the cigarette is
under the classification freeze provision was rationally related to achieve certain sold in five major supermarkets in the region excluding the amount intended to cover the
applicable excise tax and the value-added tax.
legitimate state interests and was done in good faith. (also, SC said that this is a 5
Excerpt from the law: If the net retail price (excluding the excise tax and the value-added
matter of policy which is not a justiciable issue – basta yung Consti term) tax) is Five pesos (P5.00) but does not exceed Six pesos and fifty centavos (P6.50) per
pack, the tax shall be Five pesos and sixty centavos (P5.60) per pack
6
Annex D – classification of each brand of cigarette accdg. to their average NRPrice.
16
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OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

shall be taxed based on their net retail price as of October 1, 8. 9/1/2003 – BAT filed for injunction with prayer for a TRO. Said
1996. petition sought to enjoin the implementation of Section 145 of the NIRC,
3. Revenue Regulation 1-97 (RR 1-97) – classified the existing brands of Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue
cigarettes as those DULY REGISTERED OR ACTIVE BRANDS prior to Memorandum Order No. 6-2003 on the ground that they discriminate
January 1, 1997. against new brands of cigarettes, in violation of the equal protection and
a. NEW BRANDS – are those registered after January 1, 1997. uniformity provisions of the Constitution.
According. to RR 1-97, they shall be CLASSIFIED a. CIR filed OPPOSITION to the application for issuance of the
ACCORDING TO THEIR CNRP. But, they shall be initially TRO.
assessed at their suggested retail price until such time that the i. RTC-Makati DENIED application for TRO. Ground:
appropriate survey to determine their current net retail price is courts have no authority to restrain the collection of
conducted. taxes.
4. June 2001 - BAT introduced into the market Lucky Strike Filter, Lucky b. DOF Sec. Camacho filed Motion to Dismiss (MoD), contending
Strike Lights and Lucky Strike Menthol Lights cigarettes, with a that the petition is premature for lack of an actual controversy
suggested retail price of P9.90 per pack. Pursuant to Sec. 145 (c) or urgent necessity to justify judicial intervention.
quoted above, the Lucky Strike brands were initially assessed the i. 3/4/2004 – RTC-Makati DENIED the MOD and issued
excise tax at P8.96 per pack. a writ of preliminary injunction to enjoin the
5. RR 9-2003, amending RR 1-97 - provided periodic review every two implementation of Revenue Regulations Nos. 1-97, 9-
years or earlier of the current net retail price of new brands and variants 2003, 22-2003 and Revenue Memorandum Order No.
thereof for the purpose of establishing and updating their tax 6-2003.
classification ii. RESPONDENTS CIR and DOF Sec. filed Motion for
6. Revenue Memorandum Order 6-2003 (RMO 6-2003) - issued on Recon. (MoR) – granted. At the hearing, both
March 11, 2003, prescribing the guidelines and procedures in petitioner BAT and respondent BIR stipulated that the
establishing current net retail prices of new brands of cigarettes and only issue in this case is the constitutionality of the
alcohol products. assailed law, order, and regulations.
7. RR 22-2003 - issued on August 8, 2003 to implement the revised tax iii. 5/12/2004 – RTC-Makati decision: ALL ASSAILED
classification of certain new brands introduced in the market after LAWS ARE CONSTITUTIONAL (later on modified by
January 1, 1997, based on the survey of their current net retail price. the SC in this decision). Also lifted the preliminary
a. Survey revealed the CNRP that Lucky Strike variants were Injunction.
sold. iv. Petitioner brought case to SC on pure questions of
Lucky Strike Variant CNRP law.
Lucky Strike Filter 22.54 9. RA 9334 (An Act Increasing The Excise Tax Rates Imposed on Alcohol
Lucky Strike Lights 22.61 And Tobacco Products, Amending For The Purpose Sections 131, 141,
Lucky Strike Menthol Lights 21.23 143, 144, 145 and 288 of the NIRC of 1997, As Amended), took effect
on January 1, 2005 (RA  9334  took  effect  while  petitioner’s  case  was  
pending before the SC.) Among others, RA 9334 provided the ff.:
a. Increased the excise tax rates provided in paragraph (c) of
b. Respondent Commissioner of the Bureau of Internal Revenue
Section 145;
thus recommended the applicable tax rate of P13.44 per pack
b. Mandated that new brands of cigarettes shall initially be
inasmuch   as   Lucky   Strike’s   average   net   retail   price   is   above  
classified according to their suggested net retail price, until
P10.00 per pack.
such time that their correct tax bracket is finally determined

17
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OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

under a specified period and, after which, their classification d. The brands   under   Annex   “D”   were   also   classified   based  
shall remain in force until revised by Congress; on their current net retail price, the only difference being
c. Retained   Annex   “D”   as   tax   base   of   those   surveyed   as   of   that they were the first ones so classified since they were
October 1, 1996 including the classification of brands for the the only brands surveyed as of October 1, 1996, or prior to
same  products  which,  although  not  set  forth  in  said  Annex  “D,”   the effectivity of RA 8240 on January 1, 1997.
were registered on or before January 1, 1997 and were being e. Due to this legislative classification scheme, it is possible that
commercially produced and marketed on or after October 1, over time the net retail price of a previously classified brand,
1996, and which continue to be commercially produced and whether   it   be   a   brand   under   Annex   “D”   or   a   new brand
marketed after the effectivity of this Act. Said classification classified after the effectivity of RA 8240 on January 1, 1997,
shall remain in force until revised by Congress; would increase (due to inflation, increase of production costs,
d. Provided a legislative freeze on brands of cigarettes manufacturer’s   decision   to   increase   its   prices,   etc.) to a point
introduced between the period January 2, 1997 to December that its net retail price pierces the tax bracket to which it was
31, 2003, such that said cigarettes shall remain in the previously classified. Consequently, even if its present day
classification under which the BIR has determined them to net retail price would make it fall under a higher tax
belong as of December 31, 2003, until revised by Congress bracket, the previously classified brand would continue to
(CLASSFICATION FREEZE PROVISION). be subject to the excise tax rate under the lower tax
10. Under   RA   9334,   the   excise   tax   due   on   petitioner’s   products   was   bracket by virtue of the legislative classification freeze.
increased to P25.00 per pack. In the implementation thereof, 11. Note also that Section 4(B)(e)(c), 2nd paragraph of RR 1-97, as amended by Section 2 of
respondent CIR assessed   petitioner’s   importation   of   911,000   packs of RR 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance
Lucky Strike cigarettes at the increased tax rate of P25.00 per pack, Division II) II(b) of RMO 6-2003 somewhat grants the BIR the power to reclassify or
rendering it liable for taxes in the total sum of P22,775,000.00. update the classification of new brands every two years or earlier. (This is not
a. Hence, petitioner filed a Motion to Admit Attached Supplement important to the doctrine of uniformity. But recall that RTC-Makati
and a Supplement to the petition for review, assailing the upheld the constitutionality of these laws. However, the SC in this case
constitutionality   of   RA   9334   insofar   as   it   retained   Annex   “D”   considered them invalid (see dispositive portion if you must). This why
and praying for a downward classification of Lucky Strike the prayers in this petition are only partially granted: only the
products at the bracket taxable at P8.96 per pack. constitutionality of §145 NIRC, as amended by RA 9334, is affirmed.)
b. Petitioner contended that the continued use   of   Annex   “D”   as  
the tax base of existing brands of cigarettes gives undue ISSUE/HELD: Whether or not the classification freeze provision violates the
protection to said brands which are still taxed based on their equal protection and uniformity of taxation clauses of the Constitution (main
price as of October 1996 notwithstanding that they are now issue) – NO
sold at the same or even at a higher price than new brands like
Lucky Strike. Thus, old brands of cigarettes such as This case also discusses the excise tax system for cigarette products, the
Marlboro and Philip Morris which, like Lucky Strike, are process it underwent before it became RA 9334 which amended Section 145 of
sold at or more than P22.00 per pack, are taxed at the rate the NIRC (whew)
of P10.88 per pack, while Lucky Strike products are taxed
at P26.06 per pack. RATIO:
c. The assailed feature of RA 9334 pertains to the UNIFORMITY OF TAXATION CLAUSE
1. Constitutional limitation: The rule of taxation shall be uniform and equitable.
mechanism where, after a brand is classified based on its
a. This requirement is met according to Justice Laurel in Philippine Trust
current net retail price, the classification is frozen and Company v. Yatco,  decided  in  1940,  when   the   tax   “operates with the same
only Congress can thereafter reclassify the same force  and  effect  in  every  place  where  the  subject  may  be  found.”  
(CLASSIFICATION FREEZE PROVISION)
18
TAX 2 DIGESTS – ATTY. MONTERO
OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

b. Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power 1. DOF Version
has the authority to make reasonable and natural classifications for purposes Recommended to Congress a shift from the then existing ad valorem taxation
of taxation system to a specific taxation system with respect to sin products, including
c. Where  “the  differentiation”  complained  of  “conforms  to  the  practical  dictates   cigarettes
of   justice   and   equity”   it   “is   not   discriminatory   within   the   meaning   of   this   Reason: Ad valorem taxation system was a source of massive tax leakages -
clause  and  is  therefore  uniform.”   Taxpayer was able to evade paying the correct amount of taxes through the
2. There is quite a similarity then to the standard of equal protection for all that is required undervaluation of the price of cigarettes using various marketing arms and
is   that   the   tax   “applies   equally   to   all   persons,   firms   and   corporations   placed   in   similar   dummy corporations
situation. Proposed a specific taxation system where the cigarettes would be taxed based
on volume or on a per pack basis which was believed to be less susceptible to
EQUAL PROTECTION CLAUSE price manipulation
1. Rational Basis Test Suggested the use of a three-tiered system (operates substantially the same
a. Under this test, a legislative classification, to survive an equal protection manner as the four-tiered system under RA 8240)
challenge, must be shown to rationally further a legitimate state interest. The Contained a provision for the periodic adjustment of the excise tax rates and
classifications must be reasonable and rest upon some ground of difference tax brackets, and a corresponding periodic resurvey and reclassification of
having a fair and substantial relation to the object of the legislation. cigarette brands based on the increase in the consumer price index as
b. A legislative classification that is reasonable does not offend the constitutional determined by the CIR subject to certain guidelines
guaranty of the equal protection of the laws. The classification is considered Note:  DOF’s  proposal,  insofar  as  the  periodic  adjustment  of  tax  rates  and  tax  
valid and reasonable provided that: brackets, and the periodic resurvey and reclassification of cigarette brands
i. it rests on substantial distinctions; are concerned, did not gain approval from Congress
ii. it is germane to the purpose of the law; 2. House’s  Committee  on Ways and Means
iii. it applies, all things being equal, to both present and future
Proposed a different excise tax system which used a specific tax as a basic tax
conditions; and
with an ad valorem comparator
iv. it applies equally to all those belonging to the same class
Deleted the proposal to have a periodic adjustment of tax rates and the tax
brackets as well as periodic resurvey and reclassification of cigarette brands
CLASSIFICATION FREEZE PROVISION (EXCISE TAX SYSTEM) 3. Senate’s  Committee  on  Ways  and  Means
Introduced a four-tiered system and contained a periodic excise tax rate and
(Recall) tax bracket adjustment as well as a periodic resurvey and reclassification of
brands provision to be conducted by the DOF in coordination with the BIR
Excise Taxes are classified as follows:
and NSO based on the increase in the consumer price index
Debate ensued involving the adjustment clause, those against it argued that it
SPECIFIC – an excise tax based on weight or volume capacity or any other is corruption friendly in the sense that it shifts the discretion from the House
physical unit of measurement (example: Specific excise tax of P1.00 per piece of of Representatives and this Chamber to the Secretary of Finance and that it is
cigar produced – usually for sin products) anti-competitive (if marketing position would be adjusted every two years, the
established companies will survive, but the new players will have tremendous
difficulty)
AD-VALOREM – an excise tax based on selling price or other specified value of
4. Bicameral Conference Committee (this is the prevailing version)
the goods (example: Ad-valorem tax of 20% of the wholesale price imposed on
Four-tiered system with minor adjustments as to the excise tax
importation of non-essential goods – usually for luxury products)
rate per tier
Deleted the power of DOF and BIR to periodically adjust the
*Note: To compute for excise tax, VAT is NOT included in the tax base, while to
excise tax rate and tax brackets, and periodically resurvey and
compute for VAT, the excise tax is included in the tax base
reclassify the cigarette brands based on the increase in the
consumer price index

19
TAX 2 DIGESTS – ATTY. MONTERO
OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

Classification Freeze: In lieu of the above, the classification BUOYANT AND STABLE REVENUE GENERATION
of existing brands based on their average net retail price as of o With the frozen tax classifications, the revenue inflow would
October   1,   1996   was   “frozen”   and   a   fixed   across-the-board remain stable and the government would be able to predict
12% increase in the excise tax rate of each tier after three with a greater degree of certainty the amount of taxes that a
years from the effectivity of the Act cigarette manufacturer would pay given the trend in its sales
volume over time
REASONS for FIXING the EXCISE TAX RATE and FREEZING the
CLASSIFICATION EASE OF PROJECTION OF REVENUES
The fixing of the excise tax rates was done to avoid confusion o Previously classified cigarette brands would be prevented from
The frozen classification was intended to give stability to the industry moving either upward or downward their tax brackets despite
as the BIR would be prevented from tinkering with the classification the changes in their net retail prices in the future and, as a
since it would remain unchanged despite the increase in the net retail result, the amount of taxes due from them would remain
prices of the previously classified brands (assure the industry players predictable – hence, aid in the revenue planning of the
that there would be no new impositions as long as the law is government
unchanged)
The classification freeze provision could hardly be considered arbitrary, OTHER MATTERS:
or motivated by a hostile or oppressive attitude to unduly favor older SC declared Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as
amended by Section 2 of Revenue Regulations 9-2003, and Sections II(1)(b), II(4)(b),
brands over newer brands
II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of Revenue Memorandum
Order No. 6-2003, insofar as pertinent to cigarettes packed by machine, INVALID
SIMPLIFICATION OF TAX ADMINISTRATION OF SIN PRODUCTS insofar as they grant the BIR the power to reclassify or update the classification of new
o The classification freeze provision was in the main the result of brands every two years or earlier (from delibs, Congress does not intend this, actually it
Congress’s   earnest   efforts   to improve the efficiency and rejected this proposal)
effectivity of the tax administration over sin products while On the argument that the classification freeze violates Paragraph 2, Article III, Part II of
trying to balance the same with other state interests General Agreement on Tariffs and Trade (GATT) 7 – SC said that the classification freeze
provision uniformly applies to all newly introduced brands in the market, whether
imported or locally manufactured. It does not purport to single out imported cigarettes in
ELIMINATION OF POTENTIAL AREAS FOR ABUSE AND
order to unduly favor locally produced ones.
CORRUPTION IN TAX COLLECTION
o On the part of the manufacturers: Periodic reclassification of
PURPOSE OF EXCISE TAXES:
brands would tempt the cigarette manufacturers to manipulate
1. To curtail consumption of certain commodities which are considered harmful to the
their price levels or bribe the tax implementers in order to allow individual as well as the community as a whole
their brands to be classified at a lower tax bracket even if their 2. To protect domestic industries from competition caused by similar imported products
net retail prices have already migrated to a higher tax bracket 3. To distribute tax burden in proportion to benefit derived from a particular government
after the adjustment of the tax brackets to the increase in the service
consumer price index 4. To raise revenue
o On the part of the BIR: They may use the power to periodically
adjust the tax rate and reclassify the brands as a tool to unduly
7
oppress the taxpayer in order for the government to achieve its The products of the territory of any contracting party imported into the territory of any
other contracting party shall not be subject, directly or indirectly, to internal taxes or other
revenue targets for a given year internal charges of any kind in excess of those applied, directly or indirectly, to like
domestic products. Moreover, no contracting party shall otherwise apply internal taxes or
other internal charges to imported or domestic products in a manner contrary to the
principles set forth in paragraph 1
20
TAX 2 DIGESTS – ATTY. MONTERO
OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

06. CIR v. Fortune Tobacco (KF) Code took effect. The present Tax Code provides for 12%
Topic: validity of RR 17-99 proviso re: amount of excise tax to be paid increase on Jan. 1, 2000. It also states that during the transition
Relevant Laws: period, i.e., within the next 3 years from the effectivity of the Tax
Sec. 145, NIRC: Code, the excise tax shall not be lower than the tax due from
“The   excise   tax   from   any   brand   of   cigarettes   within   the   next three (3) years from the each brand on Oct. 1, 1996.
effectivity of R. A. No. 8240 shall not be lower than the tax, which is due from each brand o BIR issued RR 17-99 which provides that the excise tax paid
on October 1, 1996. shall not be lower than what is actually paid prior to the effectivity
xxx of the present Tax Code. (Check relevant laws above for the
The rates of excise tax on cigars and cigarettes under paragraphs (1), (2), (3) and (4) exact words of the law.)
hereof, shall be increased by twelve percent (12%) on January 1,  2000.    xxx”
Fortune Tobacco paid in advance excise taxes for the year 2003 and
the period covering January 1 to May 31, 2004.
Sec. 1, Rev. Reg. 17-99:
In June 2004, Fortune Tobacco filed an administrative claim for tax
“  xxx  Provided,  however,  that  the  new  specific  tax  rate  for  any  existing  brand  of  cigars  [and]  
cigarettes packed by machine, distilled spirits, wines and fermented liquors shall not be
refund with the CIR for erroneously and/or illegally collected taxes in the
lower than the excise tax that is  actually  being  paid  prior  to  January  1,  2000” amount of P491 million.
CTA First Division ruled in favor of Fortune and granted its claim for
G.R. No. 180006 refund which was upheld by the CTA en banc.
September 28, 2011 Hence, this petition for review on certiorari.
Brion, J. Fortune’s  arguments:
CIR is guilty of “unauthorized  administrative  legislation”. In
Petitioners: Commissioner of Internal Revenue including the proviso in Sec. 1 of RR 17-99 that requires the
Respondents: Fortune Tobacco Corporation payment  of  the  “excise  tax  actually  being  paid  prior  to  January  1,  
2000”  if  this  amount  is  higher  than  the   new specific tax rate, the
Summary: CIR went beyond the language of the law and usurped Congress’  
Fortune paid excise taxes in advance and claimed refund for it. Fortune argues power.
that CIR is guilty of unauthorized administrative legislation in issuing the proviso Section 145(c) of the 1997 Tax Code read and interpreted as it is
in Sec. 1 of RR 17-99 which requires the payment of higher amount between the written; it imposes a 12% increase on the rates of excise taxes
tax paid under the previous law and amount under the present Tax Code. CIR provided under sub-paragraphs (1), (2), (3), and (4) only; it does
contends that the intent of the law is to increase tax collection. not say that the tax due during the transition period shall continue
to be collected if the amount is higher than the new specific tax
SC held that the said rule of CIR should apply ONLY during the transition period rates. It contends that the “higher  tax  rule”  applies  only  to  the  
as clearly provided by Sec. 145 of 1997 NIRC. It also held that raising revenue is three-year transition period to offset the burden caused by the
not the sole objective of the law, that RR 17-99 violated the rule on uniformity of shift from ad valorem to specific taxes.
taxation, and that the omission in the law reveals the legislative intent not to CIR’s  arguments:
adopt  the  “higher  tax  rule”. The inclusion of the proviso was made to carry into effect the
law’s   intent and   is   well   within   the   scope   of   CIR’s   delegated  
Facts: legislative authority. CTA’s  strict  interpretation  of  the  law  ignored  
Background Laws: Congress’   intent   “to   increase   the   collection   of   excise   taxes   by  
o Prior to Jan. 1, 1997, the excises taxes on cigarettes were in the increasing  specific  tax  rates  on  ‘sin’  products.”  
form of ad valorem taxes, pursuant to Sec. 142 of the 1977 Tax There is no plausible reason why the new specific tax rates due
Code. This was repealed by several laws until the present Tax beginning January 1, 2000 should not be subject to the same

21
TAX 2 DIGESTS – ATTY. MONTERO
OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

rule as those due during the transition period. The adoption of Rule of uniformity of taxation violated by the proviso in Section 1, RR
the   “higher   tax   rule”   during   the   transition   period   unmistakably   17-99
shows the intent of Congress not to lessen the excise tax o Uniformity in taxation requires that all subjects or objects of
collection. taxation, similarly situated, are to be treated alike both in
privileges and liabilities
Issues: o Example:
Whether  the  “higher  tax  rule”  should  apply  beyond  the  3-year transition (A) (B) (C) (D) (E)
period as provided under RR 17-99. NO!
Ad Specific Specific New New
Held: Valorem Tax under Tax Due Specific Specific
Brand
Petition DENIED Tax Due Section Jan 1997 Tax imposi Tax Due
Judgment appealed from AFFIRMED prior to 145(C)(4) to Dec ng 12% by Jan
Jan 1997 1999 increase by 2000 per
Ratio: Jan 2000 RR 17-99
Stare Decisis Brand 5.50 1.00/pack 5.50 1.12/pack 5.50
o In the 2008 Fortune Tobacco case, the Court upheld the tax A
refund claims of Fortune after finding invalid the proviso in Sec. Brand 3.30 1.00/pack 3.30 1.12/pack 3.30
1 of RR 17-99. B
o In the said case, SC ruled that by adding the qualification that Brand 1.09 1.00/pack 1.09 1.12/pack 1.12
the tax due after the 12% increase becomes effective shall not C
be lower than the tax actually paid prior to Jan. 1, 2000, RR o Although the brands all belong to the same category, the
17-99 effectively imposes a tax which is the higher amount proviso in Sec. 1, RR 17-99 authorized the imposition of
between the ad valorem tax being paid at the end of the 3-yr different (and grossly disproportionate) tax rates (see column
transition period and the specific tax increased by 12% – a [D]). It effectively extended the qualification stated in the 3rd
situation not supported by the plain wording of Section paragraph of Section 145(c) of the 1997 Tax Code that was
145 of the Tax Code supposed to apply only during the transition period.

Raising government revenue is not the sole objective of RA 8240 The omission in the law in fact reveals the legislative intent not to adopt
o Congressional deliberations show that the shift from ad the  “higher  tax  rule”
valorem to specific taxes introduced by the law was also o The  1997  Tax  Code’s  provisions  on  excise  taxes  have  omitted  
intended to curb the corruption that became endemic to the the adoption of certain tax measures. To our mind, these
imposition of ad valorem taxes. Since ad valorem taxes were omissions are telling indications of the intent of Congress NOT
based on the value of the goods, the prices of the goods were to adopt the omitted tax measures.
often manipulated to yield lesser taxes. o They are not simply unintended lapses in   the   law’s   wording  
o The imposition of specific taxes, which are based on the that, as the CIR claims, are nevertheless covered by the spirit
volume of goods produced, would prevent price of the law. Had the intention of Congress been solely to
manipulation and also cure the unequal tax treatment created increase revenue collection, a provision similar to the third
by the skewed valuation of similar goods. paragraph of Section 145(c) would have been incorporated in
Sections 141 and 142 of the 1997 Tax Code.

22
TAXATION LAW 2 Respondents: Filinvest Development Corporation (FDC)

DIGESTS AND PROVISIONS COMPILATION Note: It’s  a  long  case  with  many  issues  but  the  DST  part  in  the  ratio  is  in  black  
and  it’s  the  only  relevant  portion.  
D. Other Business Taxes
Facts:
FDC owns 80% of Filinvest Alaban Inc (FAI), and 67.42% of Filinvest
D.3. Documentary Stamp Tax Land Inc. (FLI)—recognize the case yet?
FDC and FAI entered into a deed of exchange with FLI transferring their
parcels of land in exchange for shares of stock in the latter. FLI’s  
01. CIR v. Filinvest (MR)
ownership structure changed:
Topic: DST can be assessed on instructional letters as well as cash and journal
vouchers for cash advances
Stockholder % shares prior to exchange % shares after exchange
Relevant Laws:
FDC 67.42 61.03
“Sec.   180.   Stamp tax on all loan agreements, promissory notes, bills of
FAI 0 9.96
exchange, drafts, instruments and securities issued by the government or any of
Others 32.58 29.01
its instrumentalities, certificates of deposit bearing interest and others not
payable on sight or demand.—On all loan agreements signed abroad wherein
the object of the contract is located or used in the Philippines; bill of exchange FLI requested a ruling from BIR to the effect that no gain or loss should
(between points within the Philippines), drafts, instruments and securities issued be recognized. BIR issued Ruling no. S-34-046-97 finding that the
by the Government or any of its instrumentalities or certificates of deposits transaction   falls   under   Sec.   34(c)(2)   old   NIRC   providing   “(n)o gain or
drawing interest, or orders for the payment of any sum of money otherwise than loss shall be recognized if property is transferred to a corporation by a
at sight or on demand, or on all promissory notes, whether negotiable or non- person in exchange for a stock such corporation of which as a result of
negotiable, except bank notes issued for circulation, and on each renewal of any such exchange said person, alone or together with others, not
such note, there shall be collected a documentary stamp tax of Thirty centavos exceeding four (4) persons, gains control of said corporation.”
(P0.30) on each two hundred pesos, or fractional part thereof, of the face value FDC also extended afvances to its affiliates; also entered into a
of any such agreement, bill of exchange, draft, certificate of deposit or note… shareholder’s  agreement  with  RHPL  for  the  formation  of  a  joint  venture.  
Sec. 173. Stamp taxes upon documents, instruments, loan agreements and It paid its subscription in the joint venture via deed of assignment and
papers.— Upon documents, instruments, loan agreements, and papers, and eventually reported a net loss
upon acceptances, assignments, sales, and transfers of the obligation, right or FDC received formal notice of deficiency income and documentary
property incident thereto, there shall be levied, collected and paid for, and in stamp taxes assessed on the exchange executed with FAI and FLI;
respect of the transaction so had or accomplished, the corresponding dilution   resulting   from   the   shareholder’s   agreement;;   and   the   arms’s  
documentary stamp taxes prescribed in the following Sections of this Title, by the length interet rate and DST imposable on the advances extended to its
person making, signing, issuing, accepting , or transferring the same wherever affiliates—it protested
the document is made, signed, issued, accepted or transferred when the For failure of CIR to act within the statutory period, petition for review
obligation or right arises from Philippine sources or the property is situated in the with CTA
Philippines, and at the same time such act is done or transaction had... FDC’s  side
o No gain assessed on the FAI and FLI transaction
G.R. Nos. 163653 and 167689 o CIR cannot impute theoretical interest on the cash advances
July 19, 2011 because interests cannot be demanded in the absence of
Perez, J. stipulation

Petitioners: CIR
TAX 2 DIGESTS – ATTY. MONTERO
OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

o Not being promissory notes or certificates of obligations, extended substantial sums of money as cash advances to its said affiliates for the purpose
the instructional letters, cash and journal vouchers of providing them financial assistance for their operational and capital expenditures
evidencing such cash advances were not subject to DST seemingly indicate that the situation sought to be addressed by the subject provision
exists.
o No IT may be imposed on prospective gain   from   FDC’s  
However, the power does not include the right to impute theoretical interests to the
shareholdings in the joint venture
controlled taxpayers transactions. “Income”  has  been  variously  interpreted  to  mean  “cash  
CIR’s  side received or  its  equivalent”,  “the  amount  of  money   coming to a person within a specific
o The resultant diminution of shares in FLI did not give FDC time”  or  “something  distinct  from  principal  or  capital.” Otherwise stated, there must be
more  control  so  the  transaction  shouldn’t  be  tax  free proof of the actual or, at the very least, probable receipt or realization by the controlled
o Cash advances extended to affiliates were interest free despite taxpayer of the item of gross income sought to be distributed, apportioned or allocated
he interest bearing loans FDC obtained from banking There’s  no  evidence  of  actual  or  possible  showing  that  the advances extended to the its
institutions—so CIR invoked its transfer pricing power (sec. 43 affiliates had resulted to interests subsequently assessed by CIR
While admitting that FDC obtained interest-bearing loans from commercial banks,
old NIRC)
advances  were  sourced  from  the  corporation’s  rights  offering  in  1995  as  well  as  the  sale  
o DST is imposable on the instructional letters and cash and
of its investment in Bonifacio Land in 1997. More significantly, said witness testified that
journal vouchers on the strength of Sec. 180 (quoted said advances: (a) were extended to give FLI, FAI, DSCC and FCI financial assistance
above) and RR 9-94 providing that loan transactions are for their operational and capital expenditures; and, (b) were all temporarily in nature
subject to tax irrespective of w/n they are evidence by since they were repaid within the duration of one week to three months and were
formal agreement or by mere office memo evidenced by mere journal entries, cash vouchers and instructional  letters.”
o FDC realized gain from dilution of its shares in the joint venture
CTA ruling: with the exception of deficiency IT on the interest income With respect to the deed of exchange between FDC, FAI and FLI
Elements for non-recognition of gain or loss under Sec. 34(c)(2) old NIRC: (a) the
realized from advances to affiliates, CTA cancelled the rest of deficiency
transferee is a corporation; (b) the transferee exchanges its shares of stock for
IT and DST
property/ies of the transferor; (c) the transfer is made by a person, acting alone or
together with others, not exceeding four persons; and, (d) as a result of the exchange the
Issues: transferor, alone or together with others, not exceeding four, gains control of the
1. WON the instructional letters as well as cash and journal vouchers transferee.
evidencing the cash advances FDC extended to the affiliates must be FDC’s  61.03%  control  of  FLI’s  outstanding  shares  should  be  appreciated  in  combination  
subject to DST—YES with the new shares issued to FAI, which represents 9.96% control of said transferee
(All other issues will be dealt with in blue) corporation.   Together   FDC’s   2,579,575,000   shares   (61.03%)   and   FAI’s   420,877,000  
shares  (9.96%)  clearly  add  up  to  3,000,452,000  shares  or  70.99%  of  FLI’s  4,226,629,000  
shares.   Since   the   term   “control”   is   clearly   defined   as   “ownership   of   stocks   in   a  
Held:
corporation possessing at least fifty-one percent of the total voting power of classes of
It’s  complicated.   stocks  entitled  to  one  vote”  under  Section  34  (c)  (6)  [c]  of  the  1993  NIRC,  the  exchange  
of property for stocks between FDC FAI and FLI clearly qualify as a tax-free transaction
Ratio:
On the imposition of DST (TOPIC ALERT!)
On the CIR imputing interests on the advances FDC extended to its affiliates. See Sec. 173 and 180 old NIRC quoted in relevant laws
Invoking Section 43 of the 1993 NIRC in relation to Section 179(b) of Revenue
When read in conjunction with Section 173 of the 1993 NIRC, the
Regulation No. 2, the CIR maintains that it is vested with the power to allocate, distribute
or apportion income or deductions between or among controlled organizations, trades or foregoing   provision   concededly   applies   to   “(a)ll   loan   agreements,  
businesses  even  in  the  absence  of  fraud,  since  said  power  is  intended  “to  prevent  evasion   whether made or signed in the Philippines, or abroad when the
of taxes or  clearly  to  reflect  the  income  of  any  such  organizations,  trades  or  businesses.” obligation or right arises from Philippine sources or the property or
FDC and its affiliates come within the purview of this provision. Aside from owning object  of  the  contract  is  located  or  used  in  the  Philippines.”  
significant portions of the shares of stock of FLI, FAI, DSCC and FCI, the fact that FDC

2
TAX 2 DIGESTS – ATTY. MONTERO
OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

Correlatively, Section 3 (b) and Section 6 of Revenue Regulations No. CA however applied the non-retroactivity of rulings (Sec. 246 old NIRC)
9-94 provide as follows: in favor of FDC in this case. But FDC cannot invoke this doctrine
because it was not the entity to which the ruling (BIR Ruling No. 116-98)
“Section   3.   Definition of Terms.—For purposes of these Regulations, the was addressed anyway
following term shall mean: Imposition of deficiency interest is justified under Sec. 249 (a) and (b) of
(b)   ‘Loan   agreement’—refers to a contract in writing where one of the parties the  NIRC  which  authorizes  the  assessment  of  the  same  “at  the  rate  of  
delivers to another money or other consumable thing, upon the condition that the twenty percent (20%), or such higher rate as may be prescribed by
same amount of the same kind and quality shall be paid. The term shall include regulations”,  from  the  date prescribed for payment
credit facilities, which may be evidenced by credit memo, advice or drawings. Compromise penalty is, in turn, warranted under Sec. 25069 of the
The   terms   ‘Loan   Agreement”   under   Section   180   and   “Mortgage’   under   Section   NIRC which  prescribes  the  imposition  thereof  “in  case  of  each  failure  to  
195, both of the Tax Code, as amended, generally refer to distinct and separate file an information or return, statement or list, or keep any record or
instruments. A loan agreement shall be taxed under Section 180, while a deed of supply  any  information  required”  on  the  date  prescribed
mortgage  shall  be  taxed  under  Section  195.”
“Section  6.  Stamp on all Loan Agreements.—All loan agreements whether made On dilution of FDC shares in FAC.
or signed in the Philippines, or abroad when the obligation or right arises from Findings and conclusions of CTA are binding. It found that no deficiency IT can be
Philippine sources or the property or object of the contract is located in the assess   on   the   gain   on   the   supposed   dilution   or   increase   in   the   value   of   FDC’s  
Philippines shall be subject to the documentary stamp tax of thirty centavos shareholdings in FAC, which CIR failed to establish
Bearing in the mind the meaning of gross income, it cannot be gainsaid, even then, that a
(P0.30) on each two hundred pesos, or fractional part thereof, of the face value
mere increase or appreciation in the value of said shares cannot be considered income for
of any such agreements, pursuant to Section 180 in relation to Section 173 of the
taxation   purposes.   Since   “a   mere   advance   in   the   value   of   the   property   of   a   person   or  
Tax Code. corporation  in  no  sense  constitute  the  ‘income’  specified  in the  revenue  law,”  it  has  been  
In cases where no formal agreements or promissory notes have been executed held in the early case of Fisher vs. Trinidad that  it  “constitutes  and  can  be  treated  merely  
to cover credit facilities, the documentary stamp tax shall be based on the as  an  increase  of  capital.”
amount of drawings or availment of the facilities, which may be evidenced by
credit/debit memo, advice or drawings by any form of check or withdrawal slip,
under  Section  180  of  the  Tax  Code.”
02. Phil. Banking Corp v. CIR (RK)
Applying the said provisions, we find that the instructional letters as well
Topic: Special economic zones; Equal protection clause
as the journal and cash vouchers evidencing the advances FDC
Relevant Laws:
extended to its affiliates in 1996 and 1997 qualified as loan agreements
Section 180, 1977 NIRC: Stamp tax on all loan agreements, promissory
upon which documentary stamp taxes may be imposed. notes, bills of exchange, drafts, instruments and securities issued by the
CA erred in utilizing BIR Ruling No. 116-98, which, strictly speaking, government or any of its instrumentalities, certificates of deposit bearing
could be invoked only by ASB Development Corporation, the taxpayer interest and others not payable on sight or demand. — On all loan
who sought the same. In said ruling, the CIR opined that documents like agreements signed abroad wherein the object of the contract is located or used
those evidencing the advances FDC extended to its affiliates are not in the Philippines; bills of exchange (between points within the Philippines),
subject to documentary stamp tax drafts, instruments and securities issued by the Government or any of its
instrumentalities or certificates of deposits drawing interest, or orders for the
CIR argued that the ruling was later modified in BIR Ruling no. 108-99
payment of any sum of money otherwise than at the sight or on demand, or on all
that inter office memos evidencing lending or borrowing extended by a
promissory notes, whether negotiable or non-negotiable, except bank notes
corporation to it affiliates are akin to promissory notes and thus subject issued for circulation, and on each renewal of any such note, there shall be
to DST collected a documentary stamp tax of Thirty centavos (P0.30) on each Two
hundred pesos, or fractional part thereof, of the face value of any such
agreement, bill of exchange, draft, certificate of deposit, or note: provided, that

3
TAX 2 DIGESTS – ATTY. MONTERO
OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

only one documentary stamp tax shall be imposed on either loan agreement, or o What is SSDA—it is a form of savings deposit evidence by a
promissory note issued to secure such loan, whichever will yield a higher tax: passbook and earning higher interest rate than a regular
provided, however, that loan agreements or promissory notes the aggregate of savings account offered to depositors who maintain savings
which does not exceed Two hundred fifty thousand pesos (P250,000) executed
deposit with a substantial (50K minimum) daily balance.
by an individual for his purchase on installment for his personal use or that of his
family and not for business, resale, barter or hire of a house, lot, motor vehicle, CIR BELIEVES SSDA IS SUBJECT TO DST: On 10 January 2000, CIR sent
appliance or furniture shall be exempt from the payment of the documentary final assessment of deficiency DST to PBC in the sum of P17, 595, 488.
stamp tax provided under this section. (Boldfacing supplied) 75 and P47, 767,756.24 for 1996 and 1997, respectively.
PBC’S CONTENTION—THE SSDA IS NOT SUBJECT TO DST UNDER SEC 180
G.R. No. 170574 OF 1977 NIRC BECAUSE IT IS LIKE A REGULAR SAVINGS ACCOUNT
January 30, 2009 o Section 180 of the old NIRC does not include deposits
Carpio, J. evidenced by a passbook among the enumeration of
1
instruments subject to DST.
Petitioners: Philippine Banking Corporation (presently Global Business Bank, o SSDA is in the nature of a regular savings account because:
Inc.) Both are evidence by passbook
Respondents: Commissioner of Internal Revenue Depositors can make deposits or withdrawals anytime
Both can have automatic transfer agreement
Summary: PBC, in 1996 and 1997 offered the Super/Special Savings Deposit o The only difference between SSDA and regular savings
Account   (“SSDA”).   The   CIR   contends   that   these   are   actually   time   deposit   account is that the SSDA is for depositors who maintain
accounts that are subject to DST. PBC, on the contrary, says that it is a regular savings deposits with a substantial average daily balance, and
savings account not subject to DST. In fact as proof, depositors have a passbook as an incentive, they are given higher interest rates than
which means that it really is a savings account. Under the 1977 (NOTE: 1997 regular savings accounts.
NIRC   took   effect   in   1998)   NIRC,   Section   180,   “certificates   of   deposit   bearing   o THUS, the SSDA, being issued in the form of a passbook,
interest”  are  subject  to  DST.  In  banking  terms,  this  “certificate  of  deposit  bearing   cannot be construed as a certificate of deposit subject to DST
interest”  is  a  time  deposit.  The  issue  here  is  WON  SSDA  is  subject  to  DST.  To   under Section 180 of the 1977 NIRC
answer   this,   the   court   needs   to   determine   whether   the   SSDA   is   “certificate   of   Even assuming that the passbook is a certificate of
deposit bearing interest.”   After   examining   the   SSDA,   it   was   found   out   by   the   deposit, no DST will be imposed because only
COURT   that   it   was   indeed   a  “certificate   of  deposit  bearing  interest.”   See   below   negotiable certificates of deposits are subject to tax
as to why. The petitioner argues that the passbook is not a certificate of deposit. under Section 180 of the 1977 NIRC; the passbook is
But, the court, citing jurisprudence, said that a certificate of deposit has no non-negotiable
particular form and need not be negotiable. Hence, the SSDA passbook can be a CIR’S CONTENTION—THE SSDA IS SUBJECT TO DST BECAUSE IT IS A TIME
certificate of deposit. As such, it is subject to DST. In the end though, the Court DEPOSIT, ALBEIT IN THE GUISE OF A REGULAR SAVINGS ACCOUNT EVIDENCED
declared that petitioner need not pay the deficiency DST because it has availed BY A PASSBOOK
of the Amnesty. o Under Section 180 of the 1977 NIRC, certificates of deposits
deriving interest are subject to the payment of DST
Facts: o SDA is substantially the same and identical to that of a time
BACKGROUND: This case is a petition for review to reverse CTA-EB deposit account because in order to avail of the SSDA, one
decision   ordering   Philippine   Banking   Corp   (“PBC”)   to   pay   deficiency   has to deposit a minimum of P50,000 and this amount must be
DST taxes on its bank product Special/Super Savings Deposit Account maintained for a required period of time to earn higher interest
(“SSDA”) rates.
PBC’s  SSDA: PBC, in 1996 and 1997, offered SSDA to its depositors
1
See above quoted provision
4
TAX 2 DIGESTS – ATTY. MONTERO
OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

Minimum for Time deposit is P20,000 CTA RULING: PBC PAYS DST ON SSDA
o It   is   argued   that   PBC’s   passbook   evidencing   its   SSDA   is   o A deposit account with the same features as a time deposit, i.e., a fixed term in
considered a certificate of deposit, and being very similar to a order to earn a higher interest rate, is subject to DST imposed in Section 180
of the 1977 NIRC.
time deposit account, it should be subject to the payment of
o The CTA held that a passbook representing an interest-earning deposit
DST
account issued by a bank qualifies as a certificate of deposit drawing interest.
In any case, Section 180 of the 1977 NIRC The CTA emphasized that Section 180 of the 1977 NIRC imposes
categorically states that certificates of deposit deriving DST on documents, whether the documents are negotiable or non-
interest are subject to DST without limiting the negotiable.
enumeration to negotiable certificates of deposit; o Section 180 of the 1977 NIRC provides that the following are subject to DST,
Passbook, even if non-negotiable, still constitutes to wit: (1) Loan Agreements; (2) Bills of Exchange; (3) Drafts; (4)
certificate of deposit. Instruments and Securities issued by the Government or any of its
instrumentalities; (5) Certificates of Deposits drawing interest; (6) Orders for
NOTE: RA 9243(2004)now specifically includes "certificates or other
the payment of any sum of money otherwise than at sight or on demand; and
evidences of deposits that are either drawing interest significantly higher (7) Promissory Notes, whether negotiable or non-negotiable. Therefore, the
than the regular savings deposit taking into consideration the size of the DST is imposed on all certificates of deposit drawing interest without any
deposit and the risks involved or drawing interest and having a specific qualification.
maturity date." o APPLIED TO PBC:
o Today, it is undisputed that SSDA is subject to DST. PBC In order for the depositor to earn the agreed higher interest rate in
contends, that back in 1996 and 1997, under the 1977 NIRC, it SSDA, the required minimum amount of deposit must not only be
was not. met but should also be maintained for a definite period.
o PBC was ordered to pay the DST
WHY OFFER SSDA? (JUST IN CASE HE ASKS)
o Basically, at that time interest rates were no longer regulated with a ceiling.
Thus, banks can offer higher interest returns even to regular savings account.
o Thus,  SSDA’s  were  offered  which  has  the  characteristics  of  a  regular  savings  
account but without the rigidity of a time deposit (e.i., can withdraw anytime). Issues:
2. Whether   PBC’s   product   called   Special/Super   Savings   Account   is  
Time Deposits SSDA
subject to DST under Section 180 of the 1977 NIRC prior to the
passage of RA 9243 in 2004.
1. The holding period is 1. The holding period floats at the option of the
fixed beforehand. depositor. It can be 30, 60, 90 or 120 days or Held: YES, SSDA is subject to DST. BUT, PBC does not need to pay because it
more and as an incentive for maintaining a
availed of the amnesty program.
longer holding period, the depositor earns higher
interest.
Ratio:
To answer this issue, it must be determined whether SSDAs are
2. There is pre- 2. No pre-termination and the passbook account
"certificates of deposits drawing interest" as used in Section 180 of
termination because there is simply reverted to an ordinary savings status in
is no partial withdrawal of case of early or partial withdrawal or if the the 1977 NIRC.
a certificate. Pre- required holding period is not met. o If they are, then the SSDAs are subject to DST.
termination results in the o If not, then they are merely regular savings account which
surrender and cancellation concededly are not subject to DST
of the certificate of What is a certificate of deposit drawing interest?
deposit. o FEBTC v. Querimit: a written acknowledgment by a bank or
banker of the receipt of a sum of money on deposit which the

5
TAX 2 DIGESTS – ATTY. MONTERO
OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)

bank or banker promises to pay to the depositor, to the order of From a technical point of view, what are the  “certificate  of  deposit  
the depositor, or to some other person or his order, whereby drawing interest”?  ACCORDING  TO  RMC  16-2003, they have:
the relation of debtor and creditor between the bank and the o Minimum deposit requirement;
depositor is created. The SSDA is for depositors who maintain savings
Okay, Malabo pa rin. deposits with substantial average daily balance
What   does   the   “certificate   of   deposit   drawing   interest”   refer   to   in   (50,000) and which earn higher interest rates.
terms of bank practice? IT REFERS TO TIME DEPOSITS. o Stated maturity period;
o PBC treats SSDA as a regular savings deposit account since it The holding period of an SSDA floats at the option of
is evidenced by a passbook and allows withdrawal. the depositor at 30, 60, 90, 120 days or more and for
o CIR treats the SSDA as a time deposit account because of the maintaining a longer holding period, the depositor
higher interest rates and holding period. earns higher interest rates.
o OKAY,  so  let’s  compare:   o Interest rate is higher than the ordinary savings account;
See above
Savings Account Time Deposit SSDA
o Not payable on sight or demand, but upon maturity or in case
Interest rate Regular savings Higher interest rate Higher interest rate of pre-termination, prior notice is required; and
interest There is no pre-termination of accounts in an SSDA
because the account is simply reverted to an ordinary
Period None Fixed Term Fixed Term
savings status in case of early or partial withdrawal or
Evidenced by: Passbook Certificate of Time Passbook if the required holding period is not met
Deposit o Early withdrawal penalty in the form of partial loss or total loss
of interest in case of pre-termination.
Pre-termination None With penalty With penalty See above
o Based on the foregoing, the SSDA has all of the distinct
Holding Period None Yes Yes
features of a certificate of deposit
Withdrawal Allowed Withdrawal Allowed provided Okay, so this is what the Court said. It did not really
amounts to pre- the minimum say that it is a time deposit. Nevertheless, it is a
termination amount to earn the certificate of deposit bearing interest. As such, SSDA
higher interest rate is subject to DST
is maintained,
But,   what   about   the   fact   that   SSDA’s   are   covered   by   passbooks,  
otherwise, the
regular savings
hence, could be withdrawn anytime unlike a time deposit. (NOTE:
interest rate will PBC is really banking on the passbook because it is proof of a
apply. savings account, and such has no DST)
o International Exchange Bank v. Commissioner of Internal
Revenue -- a passbook representing an interest earning
o Based on the definition and comparison, it is clear that a
deposit account issued by a bank qualifies as a certificate of
certificate of deposit drawing interest as used in Section
deposit drawing interest and should be subject to DST
180 of the 1977 NIRC refers to a time deposit account.
o A document to be deemed a certificate of deposit requires no
This is where the CIR is coming from; they say that
specific form as long as there is some written memorandum
the SSDA is actually a time deposit. But is it? Well the
that the bank accepted a deposit of a sum of money from a
court did not categorically say yes, or no, but just read
depositor.
below.

6
TAX 2 DIGESTS – ATTY. MONTERO
OTHER BUSINESS TAXES (PERCENTAGE & EXCISE TAXES)
61
o What is important and controlling is the nature or meaning complied with all the requirements of the Tax Amnesty
conveyed by the passbook and not the particular label or Program under RA 9480.
nomenclature attached to it, inasmuch as substance, not form, o Petitioner alleges that by virtue of this availment, petitioner is
is paramount. now deemed "immune from the payment of taxes as well as
o THUS, a passbook can be considered a certificate of additions thereto," and is statutorily discharged from paying all
deposit in relation to section 180 of the NIRC. internal revenue tax liabilities for the taxable year 2005 and
BUT WAIT, what is DST anyway? (At last!!) prior years. Petitioner contends that the availment includes all
o Documentary stamp tax is a tax on documents, instruments, deficiency tax assessments of the BIR subject of this petition.
loan agreements, and papers evidencing the acceptance, o The DST is one of the taxes covered by the Tax Amnesty
63
assignment, sale or transfer of an obligation, right or property Program under RA 9480. As discussed above, petitioner is
incident thereto. clearly liable to pay the DST on its SSDA for the years 1996
o A DST is actually an excise tax because it is imposed on the and 1997. However, petitioner, as the absorbed corporation,
transaction rather than on the document. can avail of the tax amnesty benefits granted to Metrobank.
o A DST is also levied on the exercise by persons of certain
privileges conferred by law for the creation, revision, or Wherefore, we GRANT the petition, and SET ASIDE the   Court   of   Tax   Appeals’  
termination of specific legal relationships through the execution Decision  dated  23  November  2005  in  CTA  EB  No.  63  solely  in  view  of  petitioner’s  
of specific instruments. availment of the Tax Amnesty Program.
o Hence, in imposing the DST, the Court considers not only the
document but also the nature and character of the transaction. NOTE: SSDA is subject to DST, but no need to pay because of the amnesty.
To make it simple really, Section 180 of the 1977 NIRC imposes
P0.30 on each P200 of any certificate of deposit drawing interest.
Now the question is WON the SSDA is a certificate of deposit
drawing interest. The answer to this is YES, as discussed above.
This is true even if the SSDA is evidenced by a passbook and is
non-negotiable in character.

Given these, PBC should pay right? NO.


o Out of nowhere, an amnesty issue comes in.
o On 24 May 2007, during the pendency of this case before this
Court, Republic Act No. 9480 or "An Act Enhancing Revenue
Administration and Collection by Granting an Amnesty on All
Unpaid Internal Revenue Taxes Imposed by the National
Government for Taxable Year 2005 and Prior Years" (RA
9480), lapsed into law.
o On 21 September 2007, Metropolitan Bank and Trust
Company (Metrobank), the surviving entity that absorbed PBC,
60
filed a Tax Amnesty Return, paid the amnesty tax and fully

7
TAXATION LAW 2 Normally, deposit substitutes, like the forthcoming Retail Treasury Bond offering,
are subject to the 20% final withholding tax, Purisima explained. There was some
DIGESTS AND PROVISIONS COMPILATION question as to the proper treatment for the PEACe Bonds since there was a 2001
ruling making it subject to ordinary income tax instead of the 20% final
E. Remedies withholding tax, which was then superseded by BIR rulings in 2004 and 2005.â

The recent BIR Ruling makes it clear that the PEACe bonds are treated the same
E.1. Administration way as all other government securities for tax purposes, he added. The Finance
chief further opined that no other government borrowing would be affected by the
01. BIR Ruling 370-2011 BIR ruling.

Secretary Purisima, BIR Commissioner Kim Jacinto-Henares, and National


MAIN POINTl Bureau of Internal Revenue (BIR) confirmed that the 20% final Treasurer Roberto Tan, today met with government securities eligible dealers to
withholding tax is applicable to the so-called PEACe Bonds. discuss this development and have agreed to coordinate on its implementation.

In the Ruling, the BIR stated that the Bureau of the Treasury should withhold the
applicable tax from the P35 Billion face value of the bonds which is set to be paid
out on October 18, 2011. The tax due is estimated at almost P5 Billion. E.2. Powers of the CIR

The PEACe Bonds, also known as "Poverty Eradication and Alleviation


01. Fitness by Design v. CIR (KB)
Certificates" were issued by the Treasury in 2001 and are set to mature on
Topic: Remedies; Powers to obtain information, summon, examine and take
October 18, 2011.
testimony of persons
Relevant Laws:
Responding to a query from the Department of Finance, the BIR confirmed that
BIR Ruling Nos. DA-491-04 and 008-05, dated September 13, 2004 and July 28,
G.R. No. 177982
2005 respectively, applied to the PEACe Bonds. These Rulings held that all
October 17, 2008
Government Securities issued by the Treasury are "deposit substitutes" and
Carpio Morales, J.
therefore subject to the 20% withholding tax.
Petitioners: Fitness by Design
The 2004 and 2005 Rulings effectively reversed an earlier 2001 Ruling of the BIR,
Respondents: CIR
which found that the PEACe Bonds were exempt from the 20% final withholding
tax.
Summary: CIR assessed Fitness for defiency income taxes. Fitness protests
claiming that such was beyond the 3 year prescriptive period. CIR then answers
Sought for comment, Finance Secretary Cesar V. Purisima stated that the recent
that  Fitness’s  ITR  was  false  and  fraudulent  and  it  may  be  assessed  at  any  time  
BIR Ruling merely confirms that existing rulings on the tax treatment of Treasury
within 10 years from discovery of such fraud. During the hearing of the case on
Bills and Treasury Bonds apply to the PEACe Bonds and provides appropriate
the issue of prescription, CPA Sablan, the former bookkeeper of Fitness, illegally
legal basis for the Treasury to withhold the tax.
took   custody   of   Fitness’s   accounting   records   and   turned   them   over   to   the   BIR.  
BIR now uses such documents to assess Fitness and files a criminal case
He stressed that the PEACe Bonds are very unique among government
against them. The issue now is whether or not BIR can use such documents
securities. They are the only outstanding government securities where there was
without the consent of the petitioner. The court ruled that Section 5 of tax code
some question as to the applicable tax.
allows the BIR to all relevant or material records and data in the person of the
taxpayer, and the BIR can accept documents which cannot be admitted in a
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

judicial proceeding where the Rules of Court are strictly observed. To require be judicially taken cognizance of in the civil or criminal action for the collection
the consent of the taxpayer would defeat the intent of the law to help the thereof.
BIR assess and collect the correct amount of taxes.
BIR in fact filed on March 10, 2005 a criminal complaint against the
Facts: officers and accountant of petitioner.
On March 17, 2004, the CIR assessed Fitness by Design, Inc. (Fitness) On motion of petitioner in CTA Case No. 7160, a preliminary hearing on
for deficiency income taxes for the tax year 1995 in the total amount the issue of prescription was conducted during which petitioner’s  
of P10,647,529.69. former bookkeeper attested that a former colleague – certified
Fitness protested the assessment on the ground that it was issued public accountant Leonardo Sablan (Sablan) – illegally took
beyond the three-year prescriptive period under Section 203 of the custody   of   petitioner’s   accounting   records,   invoices,   and   official  
Tax Code. receipts and turned them over to the BIR.
CIR issued a warrant of distraint and/or levy against Fitness drawing On  petitioner’s  request,  a subpoena ad testificandum was issued to Sablan for the hearing
petitioner to file on March 1, 2005 a Petition for Review before the Court before the CTA scheduled on September 4, 2006 but he failed to appear.
of Tax Appeals (CTA) before which it reiterated its defense of Petitioner thus requested for the issuance of another subpoena ad testificandum to Sablan
for the hearing scheduled on October 23, 2006, and of subpoena duces tecum to the chief
prescription.
of the National Investigation Division of the BIR for the production of the Affidavit of
CIR alleges that Fitnesse’s  1995  Income  Tax  Return  (ITR)  filed  on  April   the Informer bearing  on  the  assessment  in  question.  Petitioner’s  requests  were  granted.
11, 1996 was false and fraudulent for its deliberate failure to declare its By   Resolution,   CTA   denied   petitioner’s   Motion   for   Issuance   of   Subpoenas   and  
true sales. Petitioner declared in its 1995 Income Tax Return that it was disallowed the submission by petitioner of written interrogatories to Sablan, who is not a
on its pre-operation stage and has not declared its income. Investigation party to the case, and the revenue officers, it finding that the testimony, documents, and
by the revenue officers of the respondent, however, disclosed that it has admissions sought are not relevant. Besides, the CTA found that to require Sablan to
been operating/doing business and had sales operations for the year testify would violate Section 2 of Republic Act No. 2338, as implemented by Section 12
1995 in the total amount of P7,156,336.08 which it failed to report in its of Finance Department Order No. 46-66, proscribing the revelation of identities of
informers of violations of internal revenue laws, except when the information is proven to
1995 ITR.
be malicious or false.
Fitness also failed to file Value-Added Tax (VAT) Return and reported In any event, the CTA held that there was no need to issue a subpoena duces tecum to
the amount of P7,156,336.08 as its gross sales for the year 1995. obtain the Affidavit of the Informer as the same formed part of the BIR records of the
Hence, for failure to file a VAT return and for filing a fraudulent case, the production of which had been ordered by it.
income tax return for the year 1995, the corresponding taxes may
be assessed at any time within ten (10) years after the discovery of Issues: Whether or not the BIR can use documents without the consent of the
such omission or fraud pursuant to Section 222(a) of the 1997 Tax owner --- YES
Code.
The respondent, therefore, has legal basis to collect the tax liability Held: Petition DISMISSED.
either by distraint and levy or civil action.
Ratio:
Section 222(a) of the 1997 Tax Code provides: Petitioner impugns the manner in which the documents in question reached the
BIR,  Sablan  having  allegedly  submitted  them  to  the  BIR  without  its  (petitioner’s)  
In the case of a false or fraudulent return with intent to evade tax or of failure to consent.   Petitioner’s   lack   of   consent   does   not,   however,   imply   that   the   BIR  
file a return, the tax may be assessed, or a proceeding in court for the collection obtained them illegally or that the information received is false or malicious. Nor
of such tax may be filed without assessment, at any time within ten (10) does the lack of consent preclude the BIR from assessing deficiency taxes on
years after the discovery of the falsity, fraud, or omission: Provided, That in a petitioner based on the documents.
fraud assessment which has become final and executory, the fact of fraud shall

2
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

Section 5 of the Tax Code provides: admitted in a judicial proceeding where the Rules of Court are strictly observed.
To require the consent of the taxpayer would defeat the intent of the law to
In ascertaining the correctness of any return, or in making a return help the BIR assess and collect the correct amount of taxes.
when none has been made, or in determining the liability of any person
for any internal revenue tax, or in collecting any such liability, or in Petitioner’s   invocation   of   the   rights   of   an   accused   in   a   criminal   prosecution   to   cross   examine   the  
evaluating tax compliance, the Commissioner is authorized: witness against him and to have compulsory process issued to secure the attendance of witnesses and
the production of other evidence in his behalf does not lie. CTA Case No. 7160 is not a criminal
(A) To examine any book, paper, record or other data which may be prosecution, and even granting that it is related to I.S. No. 2005-203, the respondents in the latter
relevant or material to such query; proceeding are the officers and accountant of petitioner-corporation, not petitioner. From the
complaint and supporting affidavits in I.S. No. 2005-203, Sablan does not even appear to be a
witness against the respondents therein.
(B) To obtain on a regular basis from any person other than the
person whose internal revenue tax liability is subject to audit or
investigation, or from any office or officer of the national and local
governments, government agencies and instrumentalities, including
the Bangko Sentral ng Pilipinas and government-owned and –
controlled corporations, any information such as, but not limited to,
02. CIR v. Aquafresh (QN)
costs and volume of production, receipts or sales and gross incomes of Topic: Power of the CIR to prescribe real property values
taxpayers, and the names, addresses, and financial statements of Relevant Laws:
corporations, mutual fund companies, insurance companies, regional Sec. 6(e) of the NIRC – Power of the CIR to prescribe real property
operating headquarters of multinational companies, joint accounts, values
associations, joint ventures or consortia and registered partnerships
and their members; G.R. No. 170389
October 20, 2010
(C) To summon the person liable for tax or required to file a return, or Peralta, J.
any officer or employee of such person, or any person having
possession, custody, or care of the books of accounts and other
Petitioners: Commissioner of Internal Revenue
accounting records containing entries relating to the business of
the person liable for tax, or any other person, to appear before the Respondents: Aquafresh Seafoods, Inc.
Commissioner or his duly authorized representatives at a time and
place specified in the summons and to produce such books, papers, Summary:
records, or other data, and to give testimony; Aquafresh Seafoods sold two parcels of land in Barrio Banica, Roxas City to
Philips Seafoods. These properties were classified as residential property with a
(D) To take such testimony of the person concerned, under oath, as zonal value of Php 650 per square meter based on the 1995 Revised Zonal
may be relevant or material to such inquiry; and Values. They paid the capital gains tax and documentary stamp tax for the said
sale. Subsequently, the BIR Regional Director assessed deficiency CGT and
(E) To cause revenue officers and employees to make a canvass from DST. The BIR based this assessment on a zonal valuation of Php2000 per
time to time of any revenue district or region and inquire after and square   meter   and   a   classification   of   the   property   as   “Commercial.”   Aquafresh  
concerning all persons therein who may be liable to pay any internal filed a protest with the BIR but this was denied. It then filed a petition for review
revenue tax, and all persons owning or having the care, management
with the CTA. The CTA Division and En Banc ruled in favor of Aquafresh. The
or possession of any object with respect to which a tax is imposed.
SC affirmed this. It held that the requirement of consultation in the determination
of real property values, as prescribed in Section 6(E) of the NIRC, is applicable in
The law thus allows the BIR access to all relevant or material records and data in
this case. Such requirement was not met by the BIR.
the person of the taxpayer, and the BIR can accept documents which cannot be

3
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

Facts: The CIR appealed to the CTA en banc. This was also dismissed. It
On June 7, 1999, Aquafresh Seafoods Inc. sold to Philips Seafoods, basically reiterated the ruling of the CTA division with regard to the
Inc. two parcels of land located at Barrio Banica, Roxas City for a applicability of the 1995 Revised Zonal Values.
consideration of Php3.1M.
Aquafresh then filed a Capital Gains Tax Return and Application for Issues:
Certification Authorizing Registration and paid the amount of 1. Whether or not the requirement of consultation with competent
Php186,000 for CGT and Php46,500 for Documentary Stamp Tax appraisers in the determination of the FMV is applicable. --- YES
(DST). 2. Whether or not the CTA en banc committed grave error in applying the
o The Certificate Authorizing Registration was subsequently FMV based on the zonal valuation of residential land as tax base for the
issued by Revenue District Officer Gil G. Tabanda. computation of CGT and DST. --- NO
The BIR received a report that said lots were undervalued for taxation
purposes. The Special Investigation Division of the BIR conducted an Held:
occular inspection over the properties. The SID concluded that the Petition DENIED
properties had a value of Php2000 per square meter and were Decision of the CTA en banc is AFFIRMED.
commercial properties.
o Because of this new valuation, Aquafresh was assessed with Ratio:
deficiencies in CGT and DST of the sum of Php1,372,171.46 1. The requirement of consultation is applicable.
and Php356,267.62 respectively. Section 27 (D)(5) of the NIRC imposes a 6% CGT on the sale of land which are not
On October 1, 2000, Aquafresh protested the assessments made by actively used in business and which are treated as capital assets, based on the gross
Regional Director Sacamos. This was denied on December 1, 2000. selling price or the FMV as determined in accordance with Section 6(E), whichever is
higher.
The appeal was subsequently denied with finality on February 13, 2002.
Section 196 imposes a DST on the consideration contracted to be paid or on its FMV as
On March 19, 2002, Aquafresh filed a petition for review before the determined in accordance with Section 6(E), whichever is higher.
CTA. It argued that the real zonal value of the properties was just Section 6(E) is important because it provides a possible value for the tax base of the CGT
Php650 per square meter based on the 1995 Revised Zonal Values of and the DST. It provides the following:
Real Properties. It also argued that the properties were residential in o Section 6. Power of the Commissioner to Make Assessments and Prescribe
nature, not commercial. Since there were already pre-defined zonal Additional Requirements for Tax Administration and Enforcement. -
values, the BIR had no business re-classifying the subject properties to xxxx
commercial. (E) Authority of the Commissioner to Prescribe Real Property
Values – The Commissioner is hereby authorized to divide the
o CTA ruled in favor of Aquafresh on December 22, 2004. It held
Philippines into different zones or area and shall,
that the pre-determined zonal values should prevail.
upon consultation with competent appraisers both from the
o It held that while the BIR has the authority to determine the fair private and public sectors, determine the fair market value of real
market value of the properties, it is still required to consult with properties located in each zone or area. For purposes of computing
competent appraisers from both the public and private sectors. internal revenue tax, the value of the property shall be, whichever
This can be seen in Sec. 6(e) of the NIRC. Since there was no is higher of:
re-evaluation and revision of the zonal values, the BIR cannot (1) the fair market value as determined by the
unilaterally determine the zonal values. Thus, the existing 1995 Commissioner; or
Revised Zonal Values shall prevail. (2) the fair market value as shown in the schedule of
values of the Provincial and City Assessors.
o Motion for reconsideration by the CIR was denied.
It is clear from the law that consultation with competent appraisers has
to be done. The CIR cannot unilaterally change the zonal valuation of

4
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

such properties to  “commercial”  without  first  conducting  a  re-evaluation o Section   2(a)   of   the   same   Guidelines   states   that   “all   real  
of the zonal values. properties, regardless of actual use, located in a
CIR argues that the consultation requirement is only mandatory when it street/barangay zone, the use of which are predominantly
is prescribing real property values. According to it, what it did was to just commercial  shall  be  classified  as  “Commercial”  for  purposes  of  
reclassify   the   property   as   “commercial”   and   apply   the   corresponding   zonal valuation.”
zonal valuations for commercial property. In a previous BIR ruling (BIR Ruling No. 041-2001,
o The   SC   rejected   this   argument.   CIR’s   act  of   re-classifying the issued on September 18, 2001), the BIR had the
properties from residential to commercial cannot be done opportunity   to   interpret   a   similar   “predominant   use”  
without complying with the procedures prescribed by law. clause. (This BIR Ruling involved real properties of
o All the properties in Barrio Banica were classified as residential Iglesia ni Cristo at Mindanao Avenue.) The BIR ruled
under   the   1995   Revised   Zonal   Values.   Petitioner’s   act   of   that such clause shall apply only when the real
classifying the properties involved a revision of the prescribed property is not yet classified and is located in a place
zonal values. Thus, consultation is required. which does not have its own zonal valuation yet.
The procedure for the establishment of zonal values is provided for in Thus, it  is  obvious  that  such  “predominant  use”  clause  
Revenue Memorandum No. 58-69: will also not apply in the case at bar.
o (1) The submission or review by the Revenue District Offices
Sub-Technical Committee of the schedule of recommended
zonal values to the TCRPV;
o (2) The evaluation by TCRPV of the submitted schedule of
03. CIR v. Hantex (AD)
recommended zonal values of real properties;
G.R. No. 136975
o (3) Except in cases of correction or adjustment, the TCRPV March 31, 2005
finalizes the schedule and submits the same to the Executive Commission of Internal Revenue, Petitioner
Committee on Real Property Valuation (ECRPV); Hantex Trading Co., Inc., Respondent
o (4) Upon approval of the schedule of zonal values by the
ECRPV, the same is embodied in a Department Order for SUMMARY: Basically, kung pwede bang gamitin ng BIR ang photocopies ng
implementation and signed by the Secretary of Finance. documents as basis and as evidence in its assessment for deficiency taxes. No!!
Thereafter, the schedule takes effect 15 days after its
FACTS:
publication in the Official Gazette or in any newspaper of
general circulation. PRE-BIR HAPPENINGS:
Petitioner failed to prove that it complied with the procedure in RMC No.
58-69. Thus, the 1995 Revised Zonal Values must be followed. Respondent, Hantex, is a domestic corp. engaged in the sale of plastic
Petitioner tries to further its argument by saying that its acts were in products
o It imports synthetic resin and other chemicals for the
accordance with Zonal Valuation Guidelines.
manufacture of its products.
o Section 1(b) of the Guidelines provide that if an area does not o Because of this, it is required to file a Consumption Entry with
have a zonal value prescribed, the zonal value for an adjacent the Bureau of Customs
barangay of similar conditions shall be used. October 1989 - Lt. Amoto from the Economic Intelligence and
The SC ruled that this does not apply because Barrio Investigation Bureau (EIIB), received confidential information that
Banica, Roxas City already has its own zonal Hantex had imported synthetic resin amounting to P115,599,018.00
valuation which classifies all property therein as but only declared P45,538,694.57.
o According to the informer, based on photocopies of 77
residential lot.
Consumption Entries furnished by another informer, the

5
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

1987 importations of Hantex were understated in its o Compared with the declared sales based on the Profit and
accounting records. Loss Hantex had unreported sales in the amount
o Lt. Amoto submitted a report to the EIIB Commissioner of P63,032,989.17, and its corresponding income tax liability
recommending that an inventory audit of Hantex be conducted was P41,916,937.78, inclusive of penalty charge and interests.
A mission order was issued for the audit and investigation of the EIIB Commissioner transmitted the entire docket of the case to the BIR
importations of Hantex for 1987. and recommended the collection of the total tax assessment.
The Internal Inquiry and Prosecution Office (IIPO) of the EIIB
issued subpoena duces tecum and ad testificandum for the president BIR HAPPENINGS:
and general manager of Hantex to appear in a hearing and bring:
1. Books of Accounts for the year 1987; Initially the BIR invited Hantex to a conference to discuss its deficiency
2. Record of Importations of Synthetic Resin and Calcium internal revenue taxes and to present whatever documentary and other
Carbonate for the year 1987; evidence to refute the same.
3. Income tax returns & attachments for 1987; and o The President and General Manager of Hantex, Mariano
4. Record of tax payments. Chua, again claimed that they had been re-investigated in
However,   Hantex’s   president   and   general   manager   refused   to   the past.
comply contending that its books of accounts and records had been “Madam, we had been subjected to so many
investigated repeatedly by the BIR on prior occasions. investigations and re-investigations for 1987 and
o The IIPO explained that despite such previous investigations, nothing came out except the payment of deficiency
the EIIB was still authorized to conduct an investigation taxes as a result of oversight. Tax evasion through
pursuant to Section 26-A of Executive Order No. 127. underdeclaration  of  income  had  never  been  proven.”
o Still, the respondent refused to comply Finally, the CIR sent a Letter to Hantex demanding payment of its
So The IIPO secured certified copies of the Profit and Loss deficiency income tax of P13,414,226.40 and deficiency sales tax
Statements for 1987 filed by Hantex with SEC. of P14,752,903.25 within ten (10) days from notice, on pain of the
o However, the IIPO failed to secure certified copies of collection tax due via a warrant of distraint and levy and/or judicial
Hantex’   1987 Consumption Entries from the Bureau of action.
Customs since, according to the custodian thereof, the original o Of course, Hantex did not pay.
copies had been eaten by termites. (Eww!) Administrative hearings were conducted.
So the IIPO requested the Chief of the Collection Division and the Hantex wrote the BIR Commissioner questioning the assessment
Acting Chief of the Collection Division of the Bureau of Customs, to on the ground that the EIIB failed to present the original, or
authenticate the photocopies of the import entries supplied by the authenticated, or duly certified copies of the Consumption and
informer. Import Entry Accounts, or excerpts thereof if the original copies were
o Acting Chief of the Collection Division could not authenticate not readily available; or, if the originals were in the official custody of a
the machine copies of the import entries since the original public officer, certified copies thereof.
copies had apparently been eaten by termites. o The only copies of the Consumption Entries submitted were
o However, he did issue a certification enumerating some entries mere photocopies furnished by an informer of the EIIB
filed by Hantex which were processed and released from the (pwede bay yun?)
Port of Manila after payment of duties and taxes o These documents daw do not constitute evidence
The Chief of the Investigation Division conducted an investigation. o So it requested that the income tax deficiency assessment and
o He   relied   on   the   certified   copies   of   Hantex’   Profit   and   Loss   the sales tax deficiency assessment be set aside for lack of
Statement for 1987 and 1988 on file with the SEC, the factual and legal basis
photocopies of the Consumption Entries, Series of 1987, BIR Commissioner denied and emphasized that her decision was final.
submitted by the informer
Hantex appealed to the CTA.
So based on the documents/records, the EIIB found that for 1987, o The CTA ruled that Hantex was burdened to prove not only
Hantex had importations totaling P105,716,527.00 (inclusive of that the assessment was erroneous, but also to adduce the
advance sales tax). correct taxes to be paid by it.

6
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

o Hantex failed to prove the correct amount of taxes due to the o Hantex points out that the CIR did not even secure a
BIR. certification of the fact of loss of the original documents
o It also ruled that the respondent was burdened to adduce in from the custodian of the import entries.
evidence a certification from the Bureau of Customs that the o It simply relied on the report of the EIIB agents that the import
Consumption Entries in question did not belong to it. entry documents were no longer available because they were
Went up to the CA. CA reversed the CTA decision; hence, this appeal eaten by termites.
by the CIR. The two collectors of the Bureau of Customs never authenticated the
xerox copies of the import entries; instead, they only issued
ISSUE: Whether the final assessment of the CIR against Hantex for deficiency certifications stating therein the import entry numbers which were
income  tax  and  sales  tax  for  the  latter’s  1987  importation  of  resins  and  calcium   processed by their office and the date the same were released.
bicarbonate is based on competent evidence and the law It was not necessary for it to show the correct assessment, considering
that it is questioning the assessments not only because they are
HELD: Case to be remanded the CTA for further proceedings, to enable the CIR erroneous, but because they were issued without factual basis and
to adduce in evidence certified true copies or duplicate original copies of the in patent violation of the assessment procedures laid down in the
Consumption  Entries  for  the  respondent’s  1987  importations,  if  there  be  any,  and   NIRC of 1977, as amended.
the correct tax deficiency assessment thereon, without prejudice to the right of It is also pointed out that the petitioner failed to use the tax returns filed
the respondent to adduce controverting evidence, so that the matter may be by the respondent in computing the deficiency taxes which is contrary to
resolved once and for all by the CTA law; as such, the deficiency assessments constituted deprivation of
property without due process of law.
RATIO:
CIR’s  Arguments: SC:
Since Hantex refused to cooperate and show its 1987 books of account Central to the issue is Sec. 16 of the 1977 NIRC which provides that the
and other accounting records, it was proper for her to resort to the CIR has the power to make assessments and prescribe additional
best evidence obtainable – the photocopies of the import entries in requirements for tax administration and enforcement.
the   Bureau   of   Customs   and   Hantex’   financial   statement   filed   with   the   o (b) Failure to submit required returns, statements, reports and
SEC. other documents. – When a report required by law as a basis
These import entries were admissible as secondary evidence under the for the assessment of any national internal revenue tax shall
best evidence obtainable rule, since they were duly authenticated by the not be forthcoming within the time fixed by law or
Bureau of Customs officials who processed the documents and regulation or when there is reason to believe that any such
released the cargoes after payment of the duties and taxes due. report is false, incomplete or erroneous, the
The best evidence obtainable rule under Section 16 of the 1977 NIRC, Commissioner shall assess the proper tax on the best
as amended, legally cannot be equated to the best evidence rule under evidence obtainable.
the Rules of Court; nor can the best evidence rule, being procedural o In case a person fails to file a required return or other
law, be made strictly operative in the interpretation of the best evidence document at the time prescribed by law, or willfully or
obtainable rule which is substantive in character. otherwise files a false or fraudulent return or other
o The CTA is not strictly bound by technical rules of evidence, document, the Commissioner shall make or amend the
the reason being that the quantum of evidence required in the return from his own knowledge and from such information
said court is merely substantial evidence. as he can obtain through testimony or otherwise, which
Finally, Hantex has the burden of proof to show the correct shall be prima facie correct and sufficient for all legal
assessments; otherwise, the presumption in favor of the purposes.
correctness of the assessments made by it stands. The petitioner may avail herself of the best evidence or other
information or testimony by exercising her power or authority under
Hantex’  Arguments: paragraphs (1) to (4) of Section 7 of the NIRC:
The photocopies of import entries cannot be used in making the o (1) To examine any book, paper, record or other data
assessment because they were not properly authenticated, which may be relevant or material to such inquiry;
pursuant to the Rules of Court.

7
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

o (2) To obtain information from any office or officer of the Court are strictly observed. It can choose to give weight or disregard
national and local governments, government agencies or such evidence, depending on its trustworthiness.
its instrumentalities, including the Central Bank of the HOWEVER, the best evidence obtainable under Section 16 does
Philippines and government owned or controlled corporations; not include mere photocopies of records/documents.
o (3) To summon the person liable for tax or required to file o The CIR, in making a preliminary and final tax deficiency
a return, or any officer or employee of such person, or any assessment against a taxpayer, cannot anchor the said
person having possession, custody, or care of the books of assessment on mere machine copies of
accounts and other accounting records containing entries records/documents.
relating to the business of the person liable for tax, or any other o Mere photocopies of the Consumption Entries have no
person, to appear before the Commissioner or his duly probative weight if offered as proof of the contents
authorized representative at a time and place specified in the thereof.
summons and to produce such books, papers, records, or o The reason for this is that such copies are mere scraps of
other data, and to give testimony; paper and are of no probative value as basis for any deficiency
o (4) To take such testimony of the person concerned, under income or business taxes against a taxpayer.
oath, as may be relevant or material to such inquiry;;  … The original copies of the Consumption Entries were of prime
The "best evidence" envisaged in Section 16 of the 1977 NIRC, as importance to the BIR. This is so because such entries are under
amended, includes the corporate and accounting records of the oath and are presumed to be true and correct under penalty of
taxpayer who is the subject of the assessment process, the accounting falsification or perjury. Admissions in the  said  entries  of  the  importers’  
records of other taxpayers engaged in the same line of business, documents are admissions against interest and presumptively correct
including their gross profit and net profit sales. In fine, then, the CIR acted arbitrarily and capriciously in relying on and
o Such evidence also includes data, record, paper, document giving weight to the machine copies of the Consumption Entries in fixing
or any evidence gathered by internal revenue officers from the tax deficiency assessments against Hantex
other taxpayers who had personal transactions or from
whom the subject taxpayer received any income; and
record, data, document and information secured from
government offices or agencies, such as the SEC, the
Central Bank of the Philippines, the Bureau of Customs,
and the Tariff and Customs Commission. E.3. Power/Remedy of Assessment
The law allows the BIR access to all relevant or material records and
data in the person of the taxpayer. It places no limit or condition on
the type or form of the medium by which the record subject to the 01. Sy Po v. CTA (RS)
order of the BIR is kept. The purpose of the law is to enable the BIR Petitioner: Bonifacia Sy Po
to get at the taxpayer’s  records  in  whatever  form  they  may  be  kept. Respondent: CTA, Commissioner of IR (CIR)
Such records include computer tapes of the said records prepared by
the taxpayer in the course of business. In this era of developing
No. L-81446.
information-storage technology, there is no valid reason to immunize
companies with computer-based, record-keeping capabilities from BIR August 18, 1988
scrutiny. The standard is not the form of the record but where it
might  shed  light  on  the  accuracy  of  the  taxpayer’s  return. Relevant Law: in-text
We agree with the CIR that the best evidence obtainable may consist
of hearsay evidence, such as the testimony of third parties or accounts SUMMARY
or other records of other taxpayers similarly circumstanced. Moreover, Bonifacia is the widow of the late Po Bien Sing, who was the sole proprietor of
the general rule is that administrative agencies such as the BIR are not
Silver Cup Wine Factory. The Secretary of Finance ordered the raid of the factory
bound by the technical rules of evidence. It can accept documents
which cannot be admitted in a judicial proceeding where the Rules of for alleged tax evasion. On the basis of the report produced by the Finance-BIR-
NBI team that raided the factory, CIR assessed Silver Cup deficiency taxes,
which finding was later on protested by the petitioner. CIR/CTA ruled in against
8
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

petitioner. The issue is whether the tax assessments have valid and legal bases. Petitioner protested the assessments in the 2 letters that he sent to the
YES. The basis is §16(b) of the 1977 Tax Code conferring power to the CIR to CIR. The corresponding report recommended the reiteration of the
assess taxes ON THE BEST EVIDENCE OBTAINABLE when a tax report assessments   in   view   of   the   taxpayer’s   persistent   failure   to   present   the  
required by law for the purpose of assessment is not available or when the books of accounts for examination, compelling respondent to issue
tax report is incomplete or fraudulent. Further, the computation was not warrants of distraint and levy on September 10, 1981
arbitrarily done. It is incumbent upon the taxpayer to prove that the assessments The warrants were admittedly received by petitioner, which petitioner
were done arbitrarily. In the absence of proof of any irregularities in the deemed   was   respondent’s   decision   denying   her   protest   on   the   subject  
performance of duties, an assessment duly made by a Bureau of Internal assessments.
Revenue examiner and approved by his superior officers will not be disturbed.
Furthermore, testimonies proved that petitioner engaged in the clandestine use ISSUE
of untaxed alcohol in order to deceive the government. (Assignment of error: WON CTA erred in finding Po Bien Sing to have incurred
the alleged deficiency taxes in question. Naw, did not errrr.)
FACTS
The assignments of errors boil down to a single issue of whether or not the
Bonifacia is the widow of the late Mr. Po Bien Sing who died on assessments have valid and legal bases. YES, they have valid/legal bases.
September 7, 1980.
Taxable years 1964-1972 the deceased Po Bien Sing was the sole HELD
proprietor of Silver Cup Wine Factory (Silver Cup for brevity), Talisay, SC affirms CTA/CIR. Petition denied.
Cebu.
o He was engaged in the business of manufacture and sale of RATIO
compounded liquors, using alcohol and other ingredients as
raw materials. Settled is the rule that the factual findings of the CTA are binding upon
Then Secretary of Finance Cesar Virata directed the Finance-BIR-NBI the SC and can only be disturbed on appeal if not supported by
team to conduct an investigation on the basis of a denunciation against substantial evidence.
Silver  Cup  allegedly  “for  tax  evasion  amounting  to  millions  of  pesos.” Basis of assessments §16(b), 1977 Tax Code:
o a letter and a subpoena duces tecum were issued against “Sec.   16.   Power   of   the   Commissioner   of   Internal  
Silver Cup requesting production of the accounting records and Revenue to make assessments. - xxx xxx xxx
other related documents for the examination of the team. (b) Failure to submit required returns, statements,
o Mr. Po Bien Sing did not produce his books of accounts as reports and other documents. When a report
requested required by law as a basis for the assessment of
o This prompted the team with the assistance of the PC any national internal revenue tax shall not be
Company, Cebu City, to enter the factory bodega of Silver Cup forthcoming within the time fixed by law or
and to seize different brands, consisting of 1,555 cases of regulation or when there is reason to believe that
alcohol products. any such report is false, incomplete, or erroneous,
On   the   basis   of   the   team’s   report   of   investigation,   the   respondent   CIR   the Commissioner of Internal Revenue shall
assessed Mr. Po Bien Sing: assess the proper tax on the best evidence
o deficiency income tax for 1966 to 1970 in the amount of obtainable.
P7,154,685.16; and
o deficiency specific tax for January 2, 1964 to January 19, 1972 In case a person fails to file a required return or
in the amount of P5,595,003.68 other document at the time prescribed by law, or
willfully or otherwise, files a false or fraudulent
9
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

return or other documents, the Commissioner himself to proving that the tax assessment is wrong, the tax
shall make or amend the return from his own court proceedings would settle nothing, and the way would be
knowledge and from such information as he can left open for subsequent assessments and appeals in
obtain through testimony or otherwise, which shall interminable  succession.”
be prima facie correct and sufficient for all legal Tax assessments by tax examiners are presumed correct and made in
purposes.” good faith. The taxpayer has the duty to prove otherwise
o In the absence of proof of any irregularities in the performance
The law is specific and clear. The   rule   on   the   “best   evidence   of duties, an assessment duly made by a Bureau of Internal
obtainable”   applies   when   a   tax   report   required   by   law   for   the   Revenue examiner and approved by his superior officers will
purpose of assessment is not available or when the tax report is not be disturbed
incomplete or fraudulent. o All presumptions are in favor of the correctness of tax
o In the instant case, the persistent failure of the late Po Bien assessments
Sing and the herein petitioner to present their books of On the whole, we find that the fraudulent acts detailed in the decision
accounts for examination for the taxable years involved left the under review had not been satisfactorily rebutted by the petitioner.
Commissioner of Internal Revenue no other legal option except o There are indeed clear indications on the part of the taxpayer
to resort to the power conferred upon him under Section 16 of to deprive the Government of the taxes due.
the Tax Code o The Assistant Factory Superintendent of Silver Cup, Nelson Po
Amount of tax assessed was not arbitrarily computed. SC reproduced gave a testimony, stating that whenever the petitioner wants to
the  lower  court’s  findings,  viz: operate using untaxed alcohol, the latter tells the revenue
o On the basis of the quantity of bottles of wines seized during inspector/storekeeper to go home because the factory is not
the raid and the sworn statements of former employees, both going to operate for the day. After the storekeeper leaves, the
surnamed Po - it was ascertained that the Silver Cup for the illegal operation then begins.
years 1964 to 1970, inclusive, utilized and consumed in the “Untaxed   alcohol is brought in from Cebu Alcohol
manufacture of compounded liquours and other products Plant into the compound of Silver Cup sometimes at
20,105 drums of alcohol as raw materials 81,288,787 proof about 6:00 A.M. or at 12:00 noon or in the evening or
liters of alcohol (sic). even at mid-night when the storekeeper is not around.
o As determined, the total specific tax liability of the taxpayer for When the storekeeper comes, he sees nothing
1964 to 1971 amounted to P5,593,003.68 because untaxed alcohol is brought directly to, and
o Further, income taxes for the years 1966 to 1970 stored at, a secret tunnel within the bodega itself
P7,154,685.16 were assessed (see table in the original) inside  the  compound  of  Silver  Cup.”
o The 50% surcharge has been imposed, pursuant to Section o Factory personnel manager testified that false entries were
72
 of the Tax Code and tax 1/2% monthly interest has entered   in   the   official   register   book:   “As   factory   personnel  
likewise been imposed pursuant to the provisions of Section manager and all-around handy man of Po Bien Sing, owner of
51(d) of the Tax Code. Silver Cup, these labels were entrusted to me to make the
o These findings were assailed by the petitioner. false entries in the official register book of Silver Cup, which I
CIR v. Reyes: did under the direction of Po Bien  Sing.”
o “Where   the   taxpayer is appealing to the tax court on the The existence of fraud as found by the respondents can not be lightly
ground   that   the   Collector’s   assessment   is   erroneous,   it is set aside absent substantial evidence presented by the petitioner to
incumbent upon him to prove there what is the correct and counteract such finding.
just liability by a full and fair disclosure of all pertinent o The findings of fact of the respondent Court of Tax Appeals are
data in his possession. Otherwise, if the taxpayer confines entitled to the highest respect.
10
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

o We do not find anything in the questioned decision that should adults and children patronizing the Lucena Theater was 3 to 1, i.e., for every
disturb this long- established doctrine. three adults entering the theater, one child was also admitted, while during the
WHEREFORE, the Petition is DENIED. The Decision of the respondent period in question, the proportion is reversed - three children to one adult.
Court of Tax Appeals is hereby AFFIRMED. Costs against the petitioner. From this he concluded that Benipayo must have fraudulently sold two
tax-free 20-centavo tickets, in order to avoid payment of the amusement
tax prescribed in Section 260 of the National Internal Revenue Code.
Based on the average ratio between adult and children attendance in the past
02. CIR v. Benipayo (HV)
years, De Guia recommended a deficiency amusement tax assessment
Topic: Power/ Remedy of assessment
against Benipayo in the sum of P11,193.45, inclusive of 25% surcharge, plus a
Relevant Laws:
suggested compromise penalty of P900.00 for violation of section 260 of the
Amusement tax provisions in old tax code (Sec 260)
National Internal Revenue Code, or a total sum of P12,093.45 covering the
period from August, 1952 to September, 1953 inclusive.
G.R. No. L-13656
Then On July 14, 1954, a deficiency amusement tax assessment is issued
January 31, 1962
demanding from the latter the payment of the total sum of P12,152.93
DIZON., J.:
within thirty days from receipt thereof.
On August 16, 1954, Benipayo filed the corresponding protest with the
Petitioners: CIR
Conference Staff of the Bureau of Internal Revenue.
Respondents: ALBERTO D. BENIPAYO
The Conference Staff recommended the case back to the Provincial Revenue
Agent  of  Quezon  with  a  note  that  “meager  reports  of  these  fieldmen  (Examiner  
Summary:
de Guia and the Provincial Revenue Agent of Quezon) are mere presumptions
Benipayo, owner of Lucena Theater, is assessed with amusement tax deficiency.
and conclusions, devoid of findings of the fact of the alleged fraudulent
The assessment is based on logical presumptions that there is now three
practices of the herein taxpayer"
children to one adult entering the theatre, concluding that Benipayo must have
The report submitted by Provincial Revenue Officer H.I. Bernardo after
fraudulently sold two tax free 20 cent tickets to avoid payment of the amusement
this last investigation states that its report not a direct proof of what has
tax.
transpired during the period investigated by Asst. De Guia and now
pending before the Conference Staff that the ratio of three (3) adults to
Doctrines:
1. Assessments should not be based on mere presumptions no matter how every one (1) child in the audience or a proportion of 75:25 as reckoned in
reasonable or logical said presumptions may be. Asst. De Guia's indorsement report to this Office's new findings of a proportion
of 76:24, represents and conveys the true picture of the situation under the law
Facts: of averages, provided that the film being shown is not a children's show. There
is no hard and fast rule in this regard, but these findings would seem to admit
This case is an appeal taken by CIR to reverse the decision of CTA of relieving
no contradiction.
Benipayo the payment of deficiency amusement tax.
NOW, considering said report, the Conference Staff of the Bureau of Internal
Benipayo is owner and operator of the Lucena Theater located in the
Revenue recommended to the Collector of Internal Revenue the issuance of
municipality of Lucena, Quezon.
the deficiency amusement tax assessment in question..
October 3, 1953 Internal Revenue Agent Romeo de Guia investigated his
CTA ruled that there is no factual basis. Assessments should not be based
amusement tax liability in connection with the operation of said theater during
on mere presumptions no matter how reasonable or logical said
the period from August, 1952 to September, 1953
presumptions may be. Assuming arguendo that the average ratio of adults
De Guia submitted his report to the Provincial Revenue Agent to the effect that
and children patronizing the Lucena Theater from 1949 to 1951 was 3 to 1, the
Benipayo had disproportionately issued tax-free 20-centavo children's
same does not give rise to the inference that the same conditions existed
tickets. His finding was that during the years 1949 to 1951 the average ratio of

11
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

during the years in question (1952 and 1953). The fact that almost the same Petitioner: Meralco Securities Corporation (now First Philippine Holdings
ratio existed during the month of July, 1955 does not provide a sufficient Corporation) Respondents: Hon. Victorino Savellano and Asuncion Baron Vda
inference on the conditions in 1952 and 1953. de Maniago, et al., as heirs of the late Juan G. Maniago

Issue: WON there is sufficient evidence in the record showing that G.R. No. L-36748 October 23, 1982
respondent, during the period under review, sold and issued to his adult Petitioner: Commissioner of Internal Revenue
customers two tax-free 20-centavo children's tickets, instead of one 40- Respondents: Hon. Victorino Savellano and Asuncion Baron Vda de Maniago,
centavo ticket for each adult customer; to cheat or defraud the et al., as heirs of the late Juan G. Maniago
Government. --- NO
Summary:
Held: Maniago submitted to CIR confidential information accusing Meralco of tax
Petition of CIR denied evasion for having paid income tax only on 25% of the dividends it received.
CTA Decision Affirmed Upon investigation, CIR found that NO deficiency income tax was due,
pursuant to the prevailing law (Sec. 24, NIRC). As a result, CIR denied
Ratio: Maniago’s  claim  for  informer’s  reward.  Maniago filed a petition for mandamus
It should be borne in mind that to sustain the deficiency tax before the CFI. CFI ruled in favor of Maniago, granted the writ and compelled
assessed against respondent would amount, in effect, to a finding CIR to issue deficiency tax assessment on Meralco and award Maniago his
that he had, for a considerable period of time, cheated and informer’s  reward.
defrauded the government by selling to each adult patron two
children's tax-free tickets instead of one ticket subject to the SC said that CFI had no jurisdiction over the case. RA No. 1125 granted CTA
amusement tax provided for in Section 260 of the National Internal exclusive appellate jurisdiction to review the decisions of the CIR involving
Revenue Code. Fraud is a serious charge and, to be sustained, it disputed assessments and other matters arising under the NIRC. Moreover,
must be supported by clear and convincing proof which, in the SC held that mandamus cannot compel the CIR to impose a tax assessment
present case, is lacking. not found by him to be due or proper. Having found that no deficiency taxes may
What respondent appears to have admitted was that during a certain therefore be assessed and collected against Meralco, it follows that Maniago is
limited period he had adopted a sort of rebate system applicable to NOT  entitled  to  informer’s  reward.
cases where adults and children came in groups and were all
anomalous practice already mentioned is not entirely correct. What
respondent appears to have admitted was that during a certain limited Facts:
period he had adopted a sort of rebate system applicable to cases Late Juan G. Maniago (substituted by his wife and children) submitted
where adults and children came in group and were all charged 20 to CIR confidential accusation against the Meralco for tax evasion
centavo admission tickets. This practice was, however, discontinued Maniago alleged that Meralco paid income tax only on 25% of the
when he was informed by the BIR that it was not in accordance with law. dividends it received from the Manila Electric Co. for the years 1962-
1966, thereby shortchanging the government of income tax due from
75% of the said dividends.
CIR caused the investigation of the accusation
03. Meralco v. Savellano (HQ)
However, the CIR found and held that no deficiency corporate
Topic: Powers of CIR,  CTA’s  Jurisdiction,  Mandamus
income tax was due from the Meralco on the dividends it received from
the Manila Electric Co
G.R. No. L-36181 October 23, 1982

12
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

Why? Because the prevailing law that time (Sec. 24, NIRC) stated that Issues/Held: w/n Maniago  is  entitled  to  the  informer’s  reward?  NO
"in the case of dividends received by a domestic or foreign resident Sub-Issues:
corporation liable to (corporate income) tax under this Chapter - only 1. Whether or not the respondent judge has jurisdiction over the case? NO,
twenty-five per centum (25%) thereof shall be returnable for the CTA has jurisdiction
purposes of the tax imposed under this section." 2. Whether or not the issuance or non-issuance of a deficiency
Commissioner therefore denied Maniago's claim for informer's assessment is a prerogative of the CIR, hence not reviewable by
reward on a non-existent deficiency mandamus? YES (I think this is important)
Maniago filed a petition for mandamus with CFI Manila against the Ratio:
CIR and Meralco, to compel the CIR to impose the alleged JURISDICTION OF THE COURT OF TAX APPEALS
deficiency tax assessment on Meralco and to award to him the Respondent judge has no jurisdiction to take cognizance of the case because the subject
matter thereof clearly falls within the scope of cases now exclusively within the
corresponding informer's reward under R.A. 2338.
jurisdiction of the CTA
CIR filed a motion to dismiss and argued the following: Section 7, RA No. 1125: Granted to the CTA exclusive appellate jurisdiction to review
o In matters of issuance and non-issuance of assessments, he is by appeal
clothed under the NIRC and existing rules and regulations with o Decisions of the CIR in cases involving disputed assessments
discretionary power in evaluating the facts of a case o Refunds of internal revenue taxes, fees or other charges, penalties imposed in
o Mandamus will not lie to compel the performance of a relation thereto
discretionary power (so he cannot be compelled to impose o Other matters arising under the NIRC or other law or part of law administered
the alleged tax deficiency assessment against the Meralco) by the BIR.
The law transferred to the CTA jurisdiction over all cases involving said assessments
o CIR further argued that mandamus may not lie against him for
previously cognizable by CFI (RTC), and even those already pending in said courts
that would be tantamount to a usurpation of executive
powers DISPUTED ASSESSMENTS or OTHER MATTERS UNDER NIRC
Meralco’s  Answer: The question of whether or not to impose a deficiency tax assessment on Meralco
o Petition states no cause of action and the action is premature Securities Corporation undoubtedly comes within the purview of the words "disputed
o Mandamus win not lie to compel the CIR to make an assessments" or of "other matters arising under  the  National  Internal  Revenue  Code”
assessment and/or effect the collection of taxes upon a Blaquera vs. Rodriguez: SC ruled that the determination of the correctness or
taxpayer incorrectness of a tax assessment to which the taxpayer is not agreeable, falls within
o Since no taxes have actually been recovered and/or collected, the jurisdiction of the CTA and NOT of the CFI
The most that Maniago could have done was to appeal to the CTA the ruling of CIR
Maniago has no right to recover the reward prayed for
within thirty (30) days from receipt thereof (Section 11 of RA No. 1125)
o Action of petitioner had already prescribed
Since he failed to do so, the ruling is clearly final and no longer subject to review by
o CFI has no jurisdiction over the subject matter since it is the courts
cognizable only by the Court of Tax Appeals
CFI Judge Savellano: MANDAMUS WILL NOT LIE TO CONTROL THE PERFORMANCE OF A
o Granted the writ of mandamus DISCRETIONARY POWER
o Ordered the CIR to assess and collect from Meralco the It is a well-recognized rule that mandamus only lies to enforce the
sum of P51,840,612.00 as deficiency corporate income tax for performance of a ministerial act or duty and not to control the
the period 1962 to 1969 plus interests and surcharges due performance of a discretionary power
thereon Purely administrative and discretionary functions may not be
o Ordered to pay Maniago 25% thereof as informer's reward interfered with by the courts
Hence, this petition Examples of discretionary power cited which the court may not interfere
or that mandamus will not lie:

13
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

o Mandamus does not compel the Rehabilitation Finance collection of unpaid or deficiency taxes. An informer is entitled by way of
Corporation to accept backpay certificates in payment of reward only to a percentage of the taxes actually assessed and collected. Since
outstanding loans no assessment, much less any collection, has been made, respondent judge's
o Courts have no power to order the Commissioner of Customs writ for the Commissioner to pay respondents 25% informer's reward is gross
to confiscate goods imported in violation of the Import Control error and without factual nor legal basis.
Law as said forfeiture is subject to the discretion of the said
official
o Courts cannot control the determination of whether or not an 04. Republic v. Hizon (KF)
applicant for a visa has a non-immigrant status or whether his
Topic: Powers/remedy of assessment
entry into this country would be contrary to public safety for it is
[G.R. No. 130430. December 13, 1999]
an exercise of discretion
Petitioners: Republic Of The Philippines, represented by the Commissioner of
POWERS OF THE CIR
the Bureau of Internal Revenue (BIR)
CIR is charged with the administration of revenue laws, which is the
Respondents: Salud V. Hizon
primary responsibility of the executive branch of the government
Mandamus cannot compel the CIR to impose a tax assessment not
found by him to be due or proper – such would be tantamount to a FACTS:
usurpation of executive functions
BIR issued to Hizon a deficiency income tax assessment of
Discretionary Power: In the absence of arbitrariness or grave abuse so as to go beyond
P1,113,359.68 (1.1M) covering the fiscal year 1981-1982
the statutory authority, is not subject to the contrary judgment or control of others.
Discretion (when applied to public functionaries) means a power or right conferred upon Hizon not having contested the assessment, BIR, served warrants of
them by law of acting officially, under certain circumstances, uncontrolled by the distraint and levy to collect the tax deficiency. However, for reasons not
judgment or consciences of others known, it did not proceed to dispose of the attached properties
Thus, after the Commissioner who is specifically charged by law with More than 3 years later, Hizon wrote the BIR requesting a
the task of enforcing and implementing the tax laws and the reconsideration of her tax deficiency assessment.
collection of taxes had after a mature and thorough study rendered his BIR, in a letter, denied the request.
decision or ruling that no tax is due or collectible, and his decision is BIR filed a case with the RTC, Branch 44, San Fernando, Pampanga to
sustained by the Secretary of Finance ---- such decision or ruling is a collect the tax deficiency. The complaint was signed by Norberto Salud,
valid exercise of discretion in the performance of official duty and Chief of the Legal Division, BIR Region 4, and verified by Amancio Saga,
cannot be controlled much less reversed by mandamus the  Bureau’s  Regional  Director  in  Pampanga.
A contrary view, whereby any stranger or informer would be allowed to Hizon moved to dismiss the case on two grounds: (1) that the complaint
usurp and control the official functions of the CIR would create disorder was not filed upon authority of the BIR Commissioner as required by
and confusion, if not chaos and total disruption of the operations of the Section 221 of the NIRC, and (2) that the action had already prescribed
government. TC: granted the motion to dismiss

Conclusion: NO   PAYMENT   OF   DEFICIENCY   TAXES,   NO   INFORMER’S   ISSUES:


REWARD 1. WON the institution of the civil case for collection of taxes was without the
approval of the commissioner in violation of section 221 of the NIRC (hindi ko
No deficiency taxes may therefore be assessed and collected against Meralco. gets yung ratio dito honestly kasi sabi ng SC delegable yung task [kasi hindi sya
Since no taxes are to be collected, no informer's reward is due to Maniago as the kasama sa exceptions] hence okay lang na walang approval ni Comm pero,
informer's heirs. Informer's reward is contingent upon the payment and petition denied naman. Baka denied dahil sa prescription.)

14
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

Revenue Administrative Order No. 10-95 specifically authorizes the


2. WON the action for collection of taxes filed against respondent had already Litigation and Prosecution Section of the Legal Division of regional
been barred by the statute of limitations (ito ata yung relevant issue, kasi nung district offices to institute the necessary civil and criminal actions
nagsearch ako ng digest, ito yung issue nila) for tax collection. As the complaint filed in this case was signed by the
BIR’s  Chief of Legal Division for Region 4 and verified by the Regional
HELD: Director, there was, therefore, compliance with the law.
Petition is DENIED.
RATIO: However, the lower court refused to recognize RAO No. 10-95 and, by
1.   In   sustaining   respondent’s   contention   that   petitioner’s   complaint   was   filed   implication, RAO No. 5-83. It held:
without the authority of the BIR Commissioner, the trial court stated: There is Memoranda, circulars and orders emanating from bureaus and
no question that the NIRC explicitly provides that in the matter of filing cases in agencies whether in the purely public or quasi-public corporations are
Court, civil or criminal, for the collection of taxes, etc., the approval of the mere guidelines for the internal functioning of the said offices. They are
commissioner must first be secured. An action will not prosper in the absence not laws which courts can take judicial notice of. As such, they have no
of   the   commissioner’s   approval. Thus, in the instant case, the absence of the binding effect upon the courts for such memorand[a] and circulars are
approval of the commissioner in the institution of the action is fatal to the cause not the official acts of the legislative, executive and judicial departments
of the plaintiff. of the Philippines
The TC arrived at this conclusion because the complaint filed by the BIR ^Erroneous sabi ng SC! The rule is that as long as administrative
was not signed by then Commissioner Liwayway Chato. issuances relate solely to carrying into effect the provisions of the
Sec. 221 of the NIRC provides: Form and mode of proceeding in actions law, they are valid and have the force of law.
arising under this Code. ¾ Civil and criminal actions and proceedings The governing statutory provision in this case is §4(d) of the NIRC
instituted in behalf of the Government under the authority of this Code which provides:
or other law enforced by the Bureau of Internal Revenue shall be Specific provisions to be contained in regulations. - The regulations of
brought in the name of the Government of the Philippines and shall be the Bureau of Internal Revenue shall, among other things, contain
conducted by the provincial or city fiscal, or the Solicitor General, or by provisions specifying, prescribing, or defining:
the legal officers of the Bureau of Internal Revenue deputized by the (d) The conditions to be observed by revenue officers, provincial fiscals
Secretary of Justice, but no civil and criminal actions for the recovery of and other officials respecting the institution and conduct of legal actions
taxes or the enforcement of any fine, penalty or forfeiture under this and proceedings.
Code shall be begun without the approval of the Commissioner.
RAO Nos. 5-83 and 10-95 are in harmony with this statutory mandate
To implement this provision Revenue Administrative Order No. 5-83 of
the BIR provides in pertinent portions: As amended by R.A. No. 8424, the NIRC is now even more
The following civil and criminal cases are to be handled by Special categorical. Sec. 7 of the present Code authorizes the BIR
Attorneys and Special Counsels assigned in the Legal Branches of Commissioner to delegate the powers vested in him under the
Revenue Regions: pertinent provisions of the Code to any subordinate official with the rank
II. Civil Cases equivalent to a division chief or higher, except the following:
Complaints for collection on cases falling within the jurisdiction of the A. The power to recommend the promulgation of rules and regulations
Region… by the Secretary of Finance;
In all the abovementioned cases, the Regional Director is authorized B. The power to issue rulings of first impression or to reverse, revoke
to sign all pleadings filed in connection therewith which, otherwise, or modify any existing ruling of the Bureau;
requires the signature of the Commissioner. C. The power to compromise or abate under §204(A) and (B) of this

15
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

Code, any tax deficiency: Provided, however, that assessments collection of the tax deficiency, as the BIR in fact did on January 1,
issued by the Regional Offices involving basic deficiency taxes of 1997.
five hundred thousand pesos (P500,000.00) or less, and minor
criminal violations as may be determined by rules and regulations BIR’s   reliance   on   the   Court’s   ruling   in   Advertising Associates Inc. v.
to be promulgated by the Secretary of Finance, upon the Court of Appeals is misplaced. What the Court stated in that case and,
recommendation of the Commissioner, discovered by regional and indeed, in the earlier case of Palanca v. Commissioner of Internal
district officials, may be compromised by a regional evaluation Revenue, is that the timely service of a warrant of distraint or levy
board which shall be composed of the Regional Director as suspends the running of the period to collect the tax deficiency in
Chairman, the Assistant Regional Director, heads of the Legal, the sense that the disposition of the attached properties might well
Assessment and Collection Divisions and the Revenue District take time to accomplish, extending even after the lapse of the
Officer having jurisdiction over the taxpayer, as members; and statutory period for collection. In those cases, the BIR did not file
D. The power to assign or reassign internal revenue officers to any collection case but merely relied on the summary remedy of
establishments where articles subject to excise tax are produced or distraint and levy to collect the tax deficiency. The importance of this
kept. fact was not lost on the Court. Thus, in Advertising Associates, it was
None   of   the   exceptions   relates   to   the   Commissioner’s   power   to   held:   “It   should   be   noted   that   the   Commissioner   did   not   institute   any  
approve the filing of tax collection cases. judicial proceeding to collect the tax. He relied on the warrants of
distraint  and  levy  to  interrupt  the  running  of  the  statute  of  limitations.”
2. PRESCRIPTION
Any internal revenue tax which has been assessed within the period of If the BIR, in effect says, the prescriptive period was suspended twice,
limitation above-prescribed may be collected by distraint or levy or by a i.e., when the warrants of distraint and levy were served on Hizon and
proceeding in court within three years. then when Hizon made her request for reinvestigation of the tax
Sec. 229 of the NIRC mandates that a request for reconsideration deficiency assessment the three-year prescriptive period must have
must be made within 30 days from the taxpayer's receipt of the tax commenced running again sometime after the service of the warrants of
deficiency assessment, otherwise the assessment becomes final, distraint and levy. BIR, however, does not state when or why this took
unappealable and, therefore, demandable. The notice of assessment place and, indeed, there appears to be no reason for such. It is
for Hizon's tax deficiency was issued by the BIR on July 18, 1986. On noteworthy that BIR raised this point before the lower court apparently
the other hand, Hizon made her request for reconsideration only on Nov. as an alternative theory, which, however, is untenable.
3, 1992, without stating when she received the notice of tax assessment.
Hence, her request for reconsideration did not suspend the For   the   foregoing   reasons,   we   hold   that   the   BIR’s   contention that the
running of the prescriptive period provided under Sec. 223(c). action in this case had not prescribed when filed has no merit. Our
Although the Commissioner acted on her request by eventually denying holding, however, is without prejudice to the disposition of the properties
it on August 11, 1994, this is of no moment and does not detract from covered by the warrants of distraint and levy which the BIR served on
the fact that the assessment had long become demandable. HIZON, as such would be a mere continuation of the summary remedy
it had timely begun. Although considerable time has passed since then,
Nonetheless, it is contended that the running of the prescriptive period as held in Advertising Associates Inc. v. Court of Appeals and Palanca v.
under §223(c) was suspended when the BIR timely served the warrants Commissioner of Internal Revenue, the enforcement of tax collection
of distraint and levy on respondent on January 12, 1989. BIR cites for through summary proceedings may be carried out beyond the statutory
this purpose our ruling in Advertising Associates Inc. v. Court of Appeals. period considering that such remedy was seasonably availed of.
Because of the suspension, it is argued that the BIR could still
avail of the other remedy under §223(c) of filing a case in court for

16
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

05. CIR v. Gonzales (JAG) income taxes amounting to P630M, inclusive of increments, which had
Topic: Power/Remedy of Assessment become final and executory since LMCEC failed to fail a protest within
Relevant Laws: the 30 day reglementary period.
(Ito na Medjo Madugo na part. Best effort na to keep it short dami lang talaga
G.R. No. 177279 shinashabe ng mga to.)
October 13, 2010 Camus and Mendoza JOINT COUNTER-AFFIDAVIT – LMCEC cannot be held
Villarama Jr., J. liable because:
Complaint and annexes showed it is a simple civil action for collection
Petitioners: COMMISSIONER OF INTERNAL REVENUE and not a tax evasion case hence DOJ is not the proper forum.
Respondents: HON. RAUL M. GONZALEZ, Secretary of Justice, L. M. CAMUS The PAN were invalid because they bear no serial no.s and no showing
ENGINEERING CORPORATION (represented by LUIS M. CAMUS and LINO D. that they were executed and sworn to by the ROs who served them.
MENDOZA) LMCEC had already undergone routine examinations on 1997, 1998
and 1999; under the NIRC only one examination is allowed per year.
Facts: LMCEC   availed   of   the   BIR’s   Tax   Amnesty   Programs;;   Economic  
Pursuant to Letter of Authority (LA) No.9361 dated August 25, 2000 Assistance Recovery Program (ERAP) and Voluntary Assistance
issued by then CIR Fonacier, Revenue Officers (RO)( Advincula, Program  for  the  year’s  1998  and  1999.  For  1997,  they  claimed  that  all  
Cabantac, Suba and Zamora supervised by Section Chief Dy of the Tax their liability was already terminated via letter of termination issued by
Fraud Division (TFD) conducted a fraud investigation for all internal CIR and signed by Chief of the Assessment Division. Hence, CIR
revenue  taxes  to  determine  the  tax  liabilities  of  LM  Camus  Eng’g  Corp.   should be estopped from further taking any action.
(LMCEC) for the taxable years 1997, 1998, 1999. In relation to the payments made in ERAP and VAP, LMCEC posits that
The   investigation   was   caused   by   an   “”informer”   which   provided   the element of fraud is negated by BIRs acceptance of the payments.
information that LMCEC had substantial underdeclared income for the Also, the ROs act of finding justification in Section 6 (B) (Best Evidence
said period. Obtainable) is misplaced and unavailing because they were unable to
nd
For failure to comply with the subpoena duces tecum issued, a criminal open the books for the 2 time (di nga kasi pinagbigyan ang sub poena
complaint was instituted by the BIR against LMCEC on January 19, nila).
2001 for violation of Sec.266, NIRC. This is another case of harassment stating that there was already a
Based on data obtained from the informer and various clients of case that was filed by the CIR against Camus for his failure to obey a
LMCEC, it was discovered that LMCEC filed fraudulent tax returns with subpoena; which was dismissed for lack of probable cause.
substantial underdeclarations. CIR then assessed them for total That LMCEC filed a protest on the PAN issued on April 20, 2001 which
deficiency taxes of P430M (income tax – P318M, VAT – P112M) is still unresolved.
Preliminary Assessment Notice (PAN) was receieved by LMCEC on The   “informer”   who   supplied   the   “confidential   information”   is   fictitious.
Feb 22, 2001. #quoteunquoteparafictitious
LMCEC alleged underdeclared income amounted to: 1997 – P186.7M, CIR’s  JOINT  REPLY  AFFIDAVIT
1998 - P150M, 1999 – P163M The complaint against LMCEC and officers were being charged for
In view of the findings, CIR issued a PAN with formal letter of demand to criminal offenses under Sec.254 (attempt to evade and defeat tax) 255
LMCEC on Oct. 2002. Since the company or its representatives refused (Willful failure to pay tax) of the NIRC which is supported by 205 which
to receive the demand letter, the revenue officers resorted to allows both admin and judicial remedies to enforce collection. (both
constructive service (RR 12-99) were simultaneously pursued by CIR).
CIR referred to the Justice Secretary its complaint against LMCEC, Lack of Control number of the PANs: purpose of internal control only of
Camus (President), Mendoza (Comptroller) for failure to pay deficiency Assessment division and should not be regarded as anomalous;

17
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

Assuming arguendo that they were invalid they do not affect the Unnumbered PANs were irregular and suspect. If payments were made,
criminal action citing Ungab v. Cusi. (not discussed) where would the money go as it is not certain how they would be
Once a year audit examination has an exception under 235 (a) NIRC in accounted for.
cases   of   “fraud,   irregularity,   or   mistakes   as   determined   by   the   On the required prior determination of fraud Office of the City
commissioner”.   Regular   Audit   Examination   – conducted by district Prosecutor already ruled that: 1) no prior determination of fraud 2)
offices of the BIR regional offices, Tax Fraud Audit Examination – indiscriminate issuance of Las 3) complaint was more of harassment
conducted by Tax Fraud Division of the National Offices only when Appeal to Secretary of Justice – sided with LMCEC (see held for ratio of Sec. of
instances of fraud has been determined by the CIR. Justice)
ERAP is only for income tax and not for VAT and withholding; VAP is CA denied petition for a certiorari. MR also denied.
only for income tax and VAT and does not include withholding. In fact, Issues:
LMCEC is not entitled to the benefits of VAP. Estoppel? Im the BIR! 3. Whether LMCEC and its corporate officers may be prosecuted for
(inherent power of taxation) violations of Sec.254 (Attempt to evade or defeat tax) and 255 (Willful
Case against Camus was different as it was for failure to comply with failure to Supply Correct amd Accurate Information and Pay Tax) YES!
a subpoena duces tecum and it is still under appeal. LIABLE!
ROs observed proper procedure when it conducted a preliminary
investigation to determine prima facie that there was fraud in this case. Held:
Thus the issuance of LA no.9361. Petition GRANTED/DISMISSED.
As to the unresolved protest, it was disregarded for being pro forma Decision of lower court AFFIRMED/REVERSED. Remanded
and filed beyond the 15 day reglementary period. In fact the person
who signed was not able to show any authority to represent, (and in the Ratio:
words of papa tranqs) it is but a mere scrap of paper! Petitioner filed the criminal complaint against the private respondents for violation
With  the  “informer”  he  is  entitled  to  some  degree  of  confidentiality  and   of the following provisions of the NIRC, as amended:
protection.
JOINT REJOINDER AFFIDAVIT OF CAMUS AND MENDOZA – (ayaw talaga SEC. 254. Attempt to Evade or Defeat Tax. Any person who willfully attempts in
patalo mehn) any manner to evade or defeat any tax imposed under this Code or the payment
thereof shall, in addition to other penalties provided by law, upon conviction
Reiteration of the alleged informant is crucial to determine if qualified
thereof, be punished by a fine of not less than Thirty thousand pesos (P30,000)
under Sec.282 NIRC. but not more than One hundred thousand pesos (P100,000) and suffer
No Final PAN as it was put in issue for being anomalous, irregular and imprisonment of not less than two (2) years but not more than four (4) years:
oppressive. Provided, That the conviction or acquittal obtained under this Section shall not be
There was no prima facie showing of any wilful attempt to evade taxes a bar to the filing of a civil suit for the collection of taxes.
hence no criminal prosecution should proceed before assessment.
SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay
The certificate of immunity from Audit (ERAP) is plain and simple hence
Tax, Withhold and Remit Tax and Refund Excess Taxes Withheld on
BIR cannot renege on its undertaking.
Compensation. Any person required under this Code or by rules and regulations
ROs should have filed the case for the collection of deficiency taxes in promulgated thereunder to pay any tax, make a return, keep any record, or
2000  when  they  had  the  “confidential  information”  and  would  no  longer   supply any correct and accurate information, who willfully fails to pay such tax,
require the criminal complaint for failure to comply with the subpoena. make such return, keep such record, or supply such correct and accurate
CHIEF STATE PROSECUTOR – sided with LMCEC (NO PROBABLE CAUSE) information, or withhold or remit taxes withheld, or refund excess taxes withheld
Payments made via ERAP and VAP are in the nature of tax amnesty. on compensations at the time or times required by law or rules and regulations
shall, in addition to other penalties provided by law, upon conviction thereof, be
BIR is now estopped from filing criminal prosecution.
punished by a fine of not less than Ten thousand pesos (P10,000) and suffer
imprisonment of not less than one (1) year but not more than ten (10) years.

18
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

x x x x (Emphasis supplied.) charge the private respondents with the crimes of attempt to evade or defeat
tax and willful failure to supply correct and accurate information and pay tax
Respondent Secretary concurred with the Chief State defined and penalized under Sections 254 and 255, respectively. For the
Prosecutors conclusion that there is insufficient evidence to crime of tax evasion in particular, compliance by the taxpayer with such
establish probable cause to charge private respondents under subpoena, if any had been issued, is irrelevant. As we held in Ungab v. Cusi,
the above provisions, based on the following findings: (1) the Jr "[t]he crime is complete when the [taxpayer] has x x x knowingly and
tax deficiencies of LMCEC for taxable years 1997, 1998 and willfully filed [a] fraudulent [return] with intent to evade and defeat x x x the
1999 have all been settled or terminated, as in fact LMCEC tax." Thus, respondent Secretary erred in holding that petitioner committed
was issued a Certificate of Immunity and Letter of Termination, forum shopping.
and availed of the ERAP and VAP programs; (2) there was no
prior determination of the existence of fraud; (3) the POWER OF ASSESSMENT! (Pew! Pew! Pew!)
assessment notices are unnumbered, hence irregular and In the Details of Discrepancies attached as Annex B of the PAN, private
suspect; (4) the books of accounts and other accounting respondents were already notified that inasmuch as the revenue officers
records may be subject to audit examination only once in a were not given the opportunity to examine LMCECs books of accounts,
given taxable year and there is no proof that the case falls accounting records and other documents, said revenue officers gathered
under the exceptions provided in Section 235 of the NIRC; and information from third parties. Such procedure is authorized under Section 5
(5) petitioner committed forum shopping when it filed the of the NIRC, which provides:
instant case even as the earlier criminal complaint (I.S. No. 00-
956) dismissed by the City Prosecutor of Quezon City was still SEC. 5. Power of the Commissioner to Obtain Information, and to Summon,
pending appeal. Examine, and Take Testimony of Persons. In ascertaining the correctness of any
Petitioner argues that with the finality of the assessment due to return, or in making a return when none has been made, or in determining the
failure of the private respondents to challenge the same in liability of any person for any internal revenue tax, or in collecting any such
liability, or in evaluating tax compliance, the Commissioner is authorized:
accordance with Section 228 of the NIRC, respondent
Secretary has no jurisdiction and authority to inquire into its
(A) To examine any book, paper, record or other data which may be relevant or
validity. Respondent taxpayer is thereby allowed to do material to such inquiry;
indirectly what it cannot do directly to raise a collateral attack
on the assessment when even a direct challenge of the same (B) To obtain on a regular basis from any person other than the person whose
is legally barred. The rationale for dismissing the complaint on internal revenue tax liability is subject to audit or investigation, or from any office
the ground of lack of control number in the assessment notice or officer of the national and local governments, government agencies and
likewise betrays a lack of awareness of tax laws and instrumentalities, including the Bangko Sentral ng Pilipinas and government-
owned or -controlled corporations, any information such as, but not limited to,
jurisprudence, such circumstance not being an element of the
costs and volume of production, receipts or sales and gross incomes of
offense. Worse, the final, conclusive and undisputable
taxpayers, and the names, addresses, and financial statements of corporations,
evidence detailing a crime under our taxation laws is swept mutual fund companies, insurance companies, regional operating headquarters
under the rug so easily on mere conspiracy theories imputed of multinational companies, joint accounts, associations, joint ventures or
on persons who are not even the subject of the complaint. consortia and registered partnerships, and their members;
We grant the petition.
(C) To summon the person liable for tax or required to file a return, or any officer
or employee of such person, or any person having possession, custody, or care
of the books of accounts and other accounting records containing entries relating
It is clear that the charge against Camus involves a separate offense and
to the business of the person liable for tax, or any other person, to appear before
hence litis pendentia is not present considering that the outcome of said the Commissioner or his duly authorized representative at a time and place
case is not determinative of the issue as to whether probable cause exists to

19
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

specified in the summons and to produce such books, papers, records, or other As it is, the formality of a control number in the assessment notice is not a
data, and to give testimony; requirement for its validity but rather the contents thereof which should inform the
taxpayer of the declaration of deficiency tax against said taxpayer. Both the
(D) To take such testimony of the person concerned, under oath, as may be
formal letter of demand and the notice of assessment shall be void if the former
relevant or material to such inquiry; x x x x x x x (Emphasis supplied.)
failed to state the fact, the law, rules and regulations or jurisprudence on which
Private respondents assertions regarding the qualifications of the "informer" of the assessment is based, which is a mandatory requirement under Section 228
the Bureau deserve scant consideration. We have held that the lack of consent of of the NIRC.
the taxpayer under investigation does not imply that the BIR obtained the
information from third parties illegally or that the information received is false or Section 228 of the NIRC provides that the taxpayer shall be informed in writing of
malicious. Nor does the lack of consent preclude the BIR from assessing the law and the facts on which the assessment is made. Otherwise, the
deficiency taxes on the taxpayer based on the documents. In the same vein, assessment is void. To implement the provisions of Section 228 of the NIRC, RR
herein private respondents cannot be allowed to escape criminal prosecution No. 12-99 was enacted. Section 3.1.4 of the revenue regulation reads:
under Sections 254 and 255 of the NIRC by mere imputation of a "fictitious" or
3.1.4. Formal Letter of Demand and Assessment Notice. The formal letter of
disqualified informant under Section 282 simply because other than disclosure of
demand and assessment notice shall be issued by the Commissioner or his duly
the official registry number of the third party "informer," the Bureau insisted on authorized representative. The letter of demand calling for payment of the
maintaining the confidentiality of the identity and personal circumstances of said taxpayers deficiency tax or taxes shall state the facts, the law, rules and
"informer." regulations, or jurisprudence on which the assessment is based, otherwise, the
formal letter of demand and assessment notice shall be void. The same shall be
Subsequently, petitioner sent to LMCEC by constructive service allowed under sent to the taxpayer only by registered mail or by personal delivery. x x
Section 3 of RR No. 12-99, assessment notice and formal demand informing the x. (Emphasis supplied.)
said taxpayer of the law and the facts on which the assessment is made, as
required by Section 228 of the NIRC. Respondent Secretary, however, fully The Formal Letter of Demand dated August 7, 2002 contains not only a detailed
concurred with private respondents contention that the assessment notices were computation of LMCECs tax deficiencies but also details of the specified
invalid for being unnumbered and the tax liabilities therein stated have already discrepancies, explaining the legal and factual bases of the assessment. It also
been settled and/or terminated. reiterated that in the absence of accounting records and other documents
necessary for the proper determination of the companys internal revenue tax
We do not agree. liabilities, the investigating revenue officers resorted to the "Best Evidence
Obtainable" as provided in Section 6(B) of the NIRC (third party information) and
A notice of assessment is: in accordance with the procedure laid down in RMC No. 23-2000 dated
[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a November 27, 2000. Annex "A" of the Formal Letter of Demand thus stated:
Pre-Assessment Notice (PAN) within the prescribed period of time, or whose
reply to the PAN was found to be without merit. The Notice of Assessment shall Thus, to verify the validity of the information previously provided by the informant,
inform the [t]axpayer of this fact, and that the report of investigation submitted by the assigned revenue officers resorted to third party information. Pursuant to
the Revenue Officer conducting the audit shall be given due course. Section 5(B) of the NIRC of 1997, access letters requesting for information and
the submission of certain documents (i.e., Certificate of Income Tax Withheld at
The formal letter of demand calling for payment of the taxpayers deficiency tax or Source and/or Alphabetical List showing the income payments made to L.M.
taxes shall state the fact, the law, rules and regulations or jurisprudence on which Camus Engineering Corporation for the taxable years 1997 to 1999) were sent to
the assessment is based, otherwise the formal letter of demand and the notice of the various clients of the subject corporation (e.g. Ayala, Filinvest, SM, Shoemart,
assessment shall be void etc)

20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

From the documents gathered and the data obtained therein, the substantial settlement of its assessed tax deficiencies for the period 1997 to 1999, nor
underdeclaration as defined under Section 248(B) of the NIRC of 1997 by your immunity from prosecution for filing fraudulent return and attempt to evade or
corporation of its income had been confirmed. x x x x (Emphasis supplied.) defeat tax. As correctly asserted by petitioner, from the express terms of the
aforesaid revenue regulations, LMCEC is not qualified to avail of the VAP
For the taxable years 1997, 1998 and 1999 of an amount exceeding 30% granting taxpayers the privilege of last priority in the audit and investigation of all
income declared in its return is considered a substantial underdeclaration of internal revenue taxes for the taxable year 2000 and all prior years under certain
income, which constituted prima facie evidence of false or fraudulent return conditions, considering that first, it was issued a PAN on February 19, 2001, and
under Section 248(B)cra1aw of the NIRC, as amended. second, it was the subject of investigation as a result of verified information filed
by a Tax Informer under Section 282 of the NIRC duly recorded in the BIR
On the alleged immunity granted by the ERAP and VAP Official Registry as Confidential Information (CI) No. 29-2000 even prior to the
RR No. 2-99 issued on February 7, 1999 explained in its Policy Statement that issuance of the PAN.
considering the scarcity of financial and human resources as well as the time
constraints within which the Bureau has to "clean the Bureaus backlog of Section 1 of RR No. 8-2001 provides:
unaudited tax returns in order to keep updated and be focused with the most SECTION 1. COVERAGE. x x x
current accounts" in preparation for the full implementation of a computerized tax
Any person, natural or juridical, including estates and trusts, liable to pay any of
administration, the said revenue regulation was issued "providing for last priority the above-cited internal revenue taxes for the above specified period/s who, due
in audit and investigation of tax returns" to accomplish the said objective "without, to inadvertence or otherwise, erroneously paid his internal revenue tax liabilities
however, compromising the revenue collection that would have been generated or failed to file tax return/pay taxes may avail of the Voluntary Assessment
from audit and enforcement activities." The program named as "Economic Program (VAP), except those falling under any of the following instances:
Recovery Assistance Payment (ERAP) Program" granted immunity from audit
and investigation of income tax, VAT and percentage tax returns for 1998. It 1.1 Those covered by a Preliminary Assessment Notice (PAN), Final
expressly excluded withholding tax returns (whether for income, VAT, or Assessment Notice (FAN), or Collection Letter issued on or before July 31,
2001; or
percentage tax purposes). Since such immunity from audit and investigation
does not preclude the collection of revenues generated from audit and 1.2 Persons under investigation as a result of verified information filed by a Tax
enforcement activities, it follows that the Bureau is likewise not barred from Informer under Section 282 of the Tax Code of 1997, duly processed and
collecting any tax deficiency discovered as a result of tax fraud investigations. recorded in the BIR Official Registry Book on or before July 31, 2001;
Respondent Secretarys opinion that RR No. 2-99 contains the feature of a tax
amnesty is thus misplaced. 1.3 Tax fraud cases already filed and pending in courts for adjudication; and
x x x x (Emphasis supplied.)
Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate.
Moreover, private respondents cannot invoke LMCECs availment of VAP to
It also gives the government a chance to collect uncollected tax from tax evaders
foreclose any subsequent audit of its account books and other accounting
without having to go through the tedious process of a tax case. Even assuming records in view of the strong finding of underdeclaration in LMCECs payment of
arguendo that the issuance of RR No. 2-99 is in the nature of tax amnesty, it correct income tax liability by more than 30% as supported by the written report
bears noting that a tax amnesty, much like a tax exemption, is never favored nor of the TFD detailing the facts and the law on which such finding is based,
presumed in law and if granted by statute, the terms of the amnesty like that of a pursuant to the tax fraud investigation authorized by petitioner under LA No.
tax exemption must be construed strictly against the taxpayer and liberally in 00009361. This conclusion finds support in Section 2 of RR No. 8-2001 as
favor of the taxing authority. amended by RR No. 10-2001 provides:

SEC. 2. TAXPAYERS BENEFIT FROM AVAILMENT OF THE VAP. A taxpayer


For the same reason, the availment by LMCEC of VAP under RR No. 8-2001 as
who has availed of the VAP shall not be audited except upon authorization and
amended by RR No. 10-2001, through payment supposedly made in October 29, approval of the Commissioner of Internal Revenue when there is strong evidence
2001 before the said program ended on October 31, 2001, did not amount to

21
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

or finding of understatement in the payment of taxpayers correct tax liability by cannot prosper because of lack of prior determination of the existence of fraud, is
more than thirty percent (30%) as supported by a written report of the appropriate bereft of factual basis and contradicted by the evidence on record.
office detailing the facts and the law on which such finding is based: Provided,
however, that any VAP payment should be allowed as tax credit against the
Tax assessments by tax examiners are presumed correct and made in good faith,
deficiency tax due, if any, in case the concerned taxpayer has been subjected to
tax audit.
and all presumptions are in favor of the correctness of a tax assessment unless
xxxx proven otherwise. We have held that a taxpayers failure to file a petition for
review with the Court of Tax Appeals within the statutory period rendered the
Given the explicit conditions for the grant of immunity from audit under RR No. 2- disputed assessment final, executory and demandable, thereby precluding it from
99, RR No. 8-2001 and RR No. 10-2001, we hold that respondent Secretary interposing the defenses of legality or validity of the assessment and prescription
gravely erred in declaring that petitioner is now estopped from assessing any tax of the Governments right to assess. Indeed, any objection against the
deficiency against LMCEC after issuance of the aforementioned documents of assessment should have been pursued following the avenue paved in Section
immunity from audit/investigation and settlement of tax liabilities. 229 (now Section 228) of the NIRC on protests on assessments of internal
revenue taxes.
The State can never be in estoppel, and this is particularly true in matters
involving taxation. The errors of certain administrative officers should never be FILING AFTER THE REQUIRED REGLEMENTARY PERIOD
allowed to jeopardize the governments financial position Records bear out that the assessment notice and Formal Letter of Demand dated
August 7, 2002 were duly served on LMCEC on October 1, 2002. Private
ONE AUDIT PER TAXABLE YEAR respondents did not file a motion for reconsideration of the said assessment
As correctly pointed out by petitioner, the discovery of substantial notice and formal demand; neither did they appeal to the Court of Tax Appeals.
underdeclarations of income by LMCEC for taxable years 1997, 1998 and 1999 Section 228 of the NIRC provides the remedy to dispute a tax assessment within
upon verified information provided by an "informer" under Section 282 of the a certain period of time. It states that an assessment may be protested by filing a
NIRC, as well as the necessity of obtaining information from third parties to request for reconsideration or reinvestigation within 30 days from receipt of the
ascertain the correctness of the return filed or evaluation of tax compliance in assessment by the taxpayer. No such administrative protest was filed by private
collecting taxes (as a result of the disobedience to the summons issued by the respondents seeking reconsideration of the August 7, 2002 assessment notice
Bureau against the private respondents), are circumstances warranting exception and formal letter of demand. Private respondents cannot belatedly assail the said
from the general rule in Section 235. assessment, which they allowed to lapse into finality, by raising issues as to its
validity and correctness during the preliminary investigation after the BIR has
PRIOR DETERMINATION OF THE EXISTENCE OF FRAUD referred the matter for prosecution under Sections 254 and 255 of the NIRC.
As already stated, the substantial underdeclared income in the returns filed by
LMCEC for 1997, 1998 and 1999 in amounts equivalent to more than 30% (the JURISDICTION OF THE DOJ
computation in the final assessment notice showed underdeclarations of almost As we held in Marcos II v. Court of Appeals
200%) constitutes prima facie evidence of fraudulent return under Section 248(B) It is not the Department of Justice which is the government agency tasked to
of the NIRC. Prior to the issuance of the preliminary and final notices of determine the amount of taxes due upon the subject estate, but the Bureau of
assessment, the revenue officers conducted a preliminary investigation on the Internal Revenue, whose determinations and assessments are presumed correct
information and documents showing substantial understatement of LMCECs tax and made in good faith. The taxpayer has the duty of proving otherwise. In the
liabilities which were provided by the Informer, following the procedure under absence of proof of any irregularities in the performance of official duties, an
RMO No. 15-95. Based on the prima facie finding of the existence of fraud, assessment will not be disturbed. Even an assessment based on estimates is
petitioner issued LA No. 00009361 for the TFD to conduct a formal fraud prima facie valid and lawful where it does not appear to have been arrived at
investigation of LMCEC. Consequently, respondent Secretarys ruling that the arbitrarily or capriciously. The burden of proof is upon the complaining party to
filing of criminal complaint for violation of Sections 254 and 255 of the NIRC show clearly that the assessment is erroneous. Failure to present proof of error in
the assessment will justify the judicial affirmance of said assessment. x x x.
22
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

o Deficiency Value -Added Tax (Vat): 11,141,014.4


o Deficiency Expanded Withholding Tax (EWT): 1,992,462.72
o Deficiency Of Vat On Royalty Payments: 462,758.14
06. CIR v. Sony (KF) [revisited] o Late Remittance Of Final Withholding Tax: 2,288,473.78
Topic: Input VAT o Late Remittance Of Income Payments: 10,923.60
G.R. No. 178697 o GRAND TOTAL: 15,895,632.65
November 17, 2010 Feb 2, 2000: Sony sought re-evaluation of the aforementioned
Mendoza, J. assessment by filing a protest.
Oct. 24, 2000: within 30 days after the lapse of 180 days from
Petitioner: COMMISSIONER OF INTERNAL REVENUE submission of the said supporting documents to the CIR, Sony filed a
Respondent: SONY PHILIPPINES, INC petition for review before the CTA.
CTA-First Division (ONLY THE RELEVANT IN THIS CASE):
Summary: CIR issued Letter of Authority authorizing certain revenue officers to o disallowed the deficiency VAT assessment because the
examine   Sony’s   books   of   accounts   and   other   accounting   records   regarding   subsidized advertising expense paid by Sony which was duly
revenue taxes for “the   period   1997   and   unverified   prior   years.”   It assessed covered by a VAT invoice resulted in an input VAT credit.
Sony of Deficiency VAT in the amount of 11M. CTA-First Division as upheld by Dispositive portion reads (ONLY THE RELEVANT):
the CTA-EB, disallowed such deficiency. The SC upheld such disallowance on WHEREFORE, the petition for review is
the ground that the CIR went beyond its scope of authority since their letter of hereby PARTIALLY GRANTED. Respondent is
authority states “the   period   1997   and   unverified   prior   years” because the ORDERED to CANCEL and WITHDRAW the
deficiency VAT assessment they arrived at was based on records from deficiency assessment for value-added tax for 1997
January to March 1998 or using the fiscal year which ended in March 31, for lack of merit.
1998. CIR sought reconsideration but CTA denied such motion.
CIR filed Petition for Review with the CTA-EB but the same was
Further, the SC agrees that the advertising expense as paid by SIS was income dismissed.
to Sony but the same should NOT be subject to 10% VAT. There must be a sale, CIR’s  MR  was  also  denied  by  the  CTA-EB.
barter or exchange of goods or properties before any VAT may be levied. Hence, this petition.
Certainly, there WAS NO SUCH SALE, BARTER OR EXCHANGE IN THE
SUBSIDY GIVEN BY SIS TO SONY. ISSUE (ONLY THE RELEVANT): WON the CTA en banc erred in ruling that
respondent is not liable for deficiency vat in the amount of P11,141,014.41. - NO

FACTS: HELD: Petition is DENIED.


Nov. 24, 1998: the CIR issued Letter of Authority No. 000019734 (LOA
19734) authorizing  certain  revenue  officers  to  examine  Sony’s  books  of   RATIO:
accounts and other accounting records regarding revenue taxes for 1. The CIR insists that   LOA   19734,   although   it   states   “the   period   1997   and  
“the  period  1997  and  unverified  prior  years.” unverified   prior   years,”   should   be   understood   to   mean   the   fiscal   year  
Dec. 6, 1999: a preliminary assessment for 1997 deficiency taxes and ending in March 31, 1998. THE COURT CANNOT AGREE.
penalties was issued by the CIR which Sony protested. Thereafter, Based on Section 13 of the Tax Code, a Letter of Authority or LOA is
acting on the protest, the CIR issued final assessment notices, the the authority given to the appropriate revenue officer assigned to
formal letter of demand and the details of discrepancies. perform assessment functions.
Assessment: CIR relies on:

23
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Power of the CIR / Power, Remedy of Assessment)

SEC. 6. Power of the Commissioner to expense duly covered by a VAT invoice is a legitimate business
Make Assessments and Prescribe Additional expense. There is also no denying that Sony incurred advertising
Requirements for Tax Administration and expense. Indubitably, Sony incurred and paid for advertising
Enforcement. – expense/ services. Where the money came from is another matter all
o (A)Examination of Returns and Determination of tax Due. – together but will definitely not change said fact.
After a return has been filed as required under the provisions The CIR further argues that Sony itself admitted that the reimbursement
of this Code, the Commissioner or his duly authorized from SIS was income and, thus, taxable. Insofar as the above-
representative may authorize the examination of any mentioned subsidy may be considered as income and, therefore,
taxpayer and the assessment of the correct amount of tax: subject to income tax, the Court agrees. However, the Court does
Provided, however, That failure to file a return shall not prevent not agree that the same subsidy should be subject to the 10% VAT.
the Commissioner from authorizing the examination of any To begin with, the said subsidy termed by the CIR as reimbursement
taxpayer. was   not   even   exclusively   earmarked   for   Sony’s   advertising  
Clearly, there must be a grant of authority before any revenue officer expense for it was but an assistance  or  aid  in  view  of  Sony’s  dire  or  
can conduct an examination or assessment. Equally important is that adverse economic conditions, and  was  only  “equivalent  to  the  latter’s  
the revenue officer so authorized must not go beyond the authority (Sony’s)  advertising  expenses.”
1
given. In the absence of such an authority, the assessment or Section 106 of the Tax Code explains when VAT may be imposed or
examination is a nullity. exacted. Thus, there must be a sale, barter or exchange of goods or
As   earlier   stated,   LOA   19734   covered   “the   period   1997   and   unverified   properties before any VAT may be levied. Certainly, there WAS NO
prior  years.”  For  said  reason,  the  CIR acting through its revenue officers SUCH SALE, BARTER OR EXCHANGE IN THE SUBSIDY GIVEN BY
went beyond the scope of their authority because the deficiency SIS TO SONY. It was but a dole out by SIS and not in payment for
VAT assessment they arrived at was based on records from goods or properties sold, bartered or exchanged by Sony.
January to March 1998 or using the fiscal year which ended in The Court had the occasion to rule that services rendered for a fee even
March 31, 1998. on reimbursement-on-cost basis only and without realizing profit are
Upon review, the CTA-EB even added that the coverage of LOA 19734, also subject to VAT. The case, however, is not applicable to the
violated Section C of RMO No. 43-90 which states: A Letter of Authority present case. Sony did not render any service to SIS at all. The services
should cover a taxable period not exceeding one taxable year. On rendered by the advertising companies, paid for by Sony using SIS
this point alone, the deficiency VAT assessment should have been dole-out, were for Sony and not SIS. SIS just gave assistance to Sony
disallowed. in   the   amount   equivalent   to   the   latter’s   advertising   expense but never
received any goods, properties or service from Sony.
2. CIR’s   argument,   that   Sony’s   advertising   expense   could   not   be  
considered as an input VAT credit because the same was eventually
reimbursed by Sony International Singapore (SIS), is also erroneous.
The CIR contends that   since   Sony’s   advertising   expense   was  
reimbursed by SIS, the former never incurred any advertising expense.
As a result, Sony is not entitled to a tax credit. At most, the said
advertising expense should be for the account of SIS, and not Sony. 1
SEC. 106. Value-added Tax on Sale of Goods or Properties. –
^The Court   is   not   persuaded.   Sony’s   deficiency   VAT   assessment  
stemmed   from   the   CIR’s   disallowance   of   the   input   VAT   credits   that   (A) Rate and Base of Tax. – There shall be levied, assessed and collected on every sale,
should have been realized from the advertising expense of the latter. It barter or exchange of goods or properties, value-added tax equivalent to ten percent
is evident under Section 110 of the 1997 Tax Code that an advertising (10%) of the gross selling price or gross value in money of the goods or properties sold,
bartered or exchanged, such tax to be paid by the seller or transferor.
24
TAXATION LAW 2 business necessity due to the expiring parity amendment in relation to the Public
Land Act and 1935 Constitution. Having failed to prove this, the prescription has set
DIGESTS AND PROVISIONS COMPILATION and CIR may no longer assess.

E. Remedies MAIN QUESTION: Notwithstanding the expiration of the five-year prescriptive


period, may the Bureau of Internal Revenue (BIR) still assess a taxpayer even after
the latter has already paid the tax due, on the ground that the previous assessment
E.4.  Prescription  of  Government’s  Right  to  Assess was  insufficient  or  based  on  a  “false”  return?

BACKGROUND: Petition for Review on Certiorari assailing the Decision dated


01. CIR v. Goodrich (RK)
February 14, 1992, promulgated by the Court of Appeals.
Topic: Prescription
Relevant Laws:
Facts:
SEC. 331. Period of limitation upon assessment and collection. – Except as
provided in the succeeding section, internal-revenue taxes shall be assessed within As   a   condition   for   approving   the   manufacture   by   Goodrich  (“respondent”)  
five years after the return was filed, and no proceeding in court without assessment of tires, the Central Bank required it to develop a rubber plantation. To
for the collection of such taxes shall be begun after expiration of such period. For comply with this request, it bought a tract of land in Basilan and therein
the purposes of this section, a return filed before the last day prescribed by law for developed a rubber plantation.
the filing thereof shall be considered as filed on such last day: Provided, That this Because the amendment (Parity amendment to the 1935 Constitution)
limitation shall not apply to cases already investigated prior to the approval of this which allowed Americans to own land was about to expire on July 3, 1974,
Code
the American owned-and-controlled respondent corporation sold the same
SEC. 332. Exceptions as to period of limitation of assessment and collection
of taxes. -- (a) In the case of a (1) false or fraudulent return with intent to evade a land on January 21, 1974 to  Siltown  Reality  Philippines,  Inc.  (“SRP”).
tax or of a (2) failure to file a return, the tax may be assessed, or a proceeding in o The consideration was for P500,000 payable in instalments
court for the collection of such tax may be begun without assessment, at any time o Thereafter, SRP leased the land to respondent for an extendible
within ten years after the discovery of the falsity, fraud, or omission: xxx. period of 25 years
October 10, 1980—respondent  was  assessed  for  deficiency  donor’s  tax  in  
G.R. No. 104171 the amount of P1,020,650 in relation to the sale made to SRP for lack of
February 24,, 1999 consideration and the excess of the FMV over the price was deemed a
Panganiban, J. donation.
o This was protested.
Petitioners: Commissioner of Internal Revenue o April 9, 1981—respondent received another assessment dated
Respondents: B.F. Goodrich Phil., Inc. (now Sime Darby International Tire Co., March 16, 1981 increasing it to P1,092, 949
Inc.); Court of Appeals Respondent appealed the correctness of the assessment and the CTA
increased the assessment
Summary: Respondent Goodrich sold a parcel of land to SRP for insufficient The CA reversed the CTA.
consideration on January 21, 1974. For the year 1974, it filed its return on April 13, o “What   is   involved   here   is not a first assessment; nor is it one
1975. It was only when the 5 year prescriptive period had lapsed when the CIR within the 5-year period stated in Section 331 above. Since what
assessed deficiency Donor’s   tax   on   October   10,   1980   and   modified   on   March   16,   is involved in this case is a multiple assessment beyond the five-
1981. CIR argued that it had authority to assess beyond the 5 year period under year period, the assessment must be based on the grounds
Section 15 of the old code which provides that the CIR may assess in case of false provided in Section 337, and not on Section 15 of the 1974 Tax
returns. Falsity here was the fact that the sale was under-priced. The SC ruled that Code. Section   337   utilizes   the   very   specific   terms   ‘fraud,
section 15 is not an exception to the prescriptive period. It is Section 332 that irregularity, and mistake’. ‘Falsity  does  not  appear  to  be  included  
provides for the exceptions. Even assuming it was, there was no intent to evade in this enumeration. Falsity suffices for an assessment, which is
taxes (which is an additional requisite in Section 332) because the sale was out of a first assessment made within the five-year period. When it is a

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subsequent assessment made beyond the five-year period, then, A. Prescription: For the purpose of safeguarding taxpayers
it   may   be   validly   justified   only   by   ‘fraud,   irregularity   and  mistake’   from any unreasonable examination, investigation or
on  the  part  of  the  taxpayer.” assessment, our tax law provides a statute of limitations in
the collection of taxes
Issues: a) law on prescription should be liberally construed to
1. Whether   or   not     petitioner’s   right   to   assess   herein   deficiency   donor’s   tax   afford such protection
has indeed prescribed as ruled by the CA--- YES b) The exceptions to prescription should be strictly
2. Whether   or   not   the   herein   deficiency   donor’s   tax   assessment   for   1974   is   construed
valid and in accordance with the law—NO B. Section 15: “[w]hen   a   report  required   by   law   as   a   basis   for  
the assessment of any national internal revenue tax shall not
Held: be forthcoming within the time fixed by law or regulation, or
Petition Denied. when there is reason to believe that any such report is false,
Decision of CA AFFIRMED. incomplete, or erroneous, the Commissioner of Internal
Revenue shall assess the proper tax on the best evidence
Ratio: obtainable.
SEC. 331. Period of limitation upon assessment and collection. – C. Court’s  conclusion:  Clearly, Section 15 does not provide an
Except as provided in the succeeding section, internal-revenue taxes exception to the statute of limitations on the issuance of an
shall be assessed within five years after the return was filed, and no assessment, by allowing the initial assessment to be made
proceeding in court without assessment for the collection of such on the basis of the best evidence available. Having made its
taxes shall be begun after expiration of such period. For the purposes initial assessment in the manner prescribed, the
of this section, a return filed before the last day prescribed by law for commissioner could not have been authorized to issue,
the filing thereof shall be considered as filed on such last beyond the five-year prescriptive period, the second and the
day: Provided, That this limitation shall not apply to cases already third assessments under consideration before us.
investigated prior to the approval of this Code SEC. 332. Exceptions as to period of limitation of assessment
A. Involved  here  is  respondent’s  income  for  1974—the return of and collection of taxes. -- (a) In the case of a (1) false or fraudulent
which was required to be filed on or before April 15, 1975 return with intent to evade a tax or of a (2) failure to file a return, the
B. The return was filed on April 13, 1975 tax may be assessed, or a proceeding in court for the collection of
C. The subsequent assessment was on October 10, 1980 such tax may be begun without assessment, at any time within ten
modified, by that of March 16, 1981 was made beyond the 5 years after the discovery of the falsity, fraud, or omission: xxx.
year period. A. The fact of selling for an insufficient consideration alone did
If it is clearly out of time, what was the CIR thinking? Well, it was not constitute a false return which contains wrong information
alleged   that   there   was   reason   to   believe   the   falsity   of   respondent’s   due to mistake, carelessness or ignorance
return and for that matter, section 16 of the code authorizes the CIR to a) It is possible that real property may be sold for less
assess proper tax on the best evidence obtainable. than adequate consideration for a bona
A. Falsity here was the sale of the land for insufficient fide business purpose; in such event, the sale
consideration remains  an  “arm’s  length”  transaction.
The question now is which should prevail—the 5 year period or the b) In the present case, the private respondent was
right to assess based on false return? Or simply, can the CIR assess compelled to sell the property even at a price less
beyond the 5 year period when there is falsity? than its market value, because it would have lost all
ownership rights over it upon the expiration of the
parity amendment.

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c) Moreover, the BIR failed to prove that respondent's notice was received within the period. Besides, even granting that notice had been
1974 return had been filed fraudulently. Equally, received by the petitioner late, as alleged, under Section 331 of the Tax Code
significant was its failure to prove respondent's requiring five years within which to assess deficiency taxes, the assessment
intent to evade the payment of the correct amount of is deemed made when notice to this effect is released, mailed or sent by the
tax. Collector to the taxpayer and it is not required that the notice be received by
d) Ineludibly, the BIR failed to show that private the taxpayer within the aforementioned five-year period.
respondent's 1974 return was filed fraudulently with
intent to evade the payment of the correct amount of A Philippine corporation engaged in the coconut industry, Basilan Estates,
tax. Inc., filed on March 24, 1954 its income tax returns for 1953 and paid an
B. Moreover, the tax return filed by private respondent to report income tax of P8,028.
its income for the year 1974 was sufficient compliance with On February 26, 1959, CIR, per examiners' report of February 19, 1959,
the legal requirement to file a return. assessed Basilan Estates, Inc., a deficiency income tax of P3,912 for 1953
a) In other words, the fact that the sale transaction and P86,876.85 as 25% surtax on unreasonably accumulated profits as of
may have partly resulted in a donation does not 1953 pursuant to Section 25 of the Tax Code.
change the fact that private respondent already On non-payment of the assessed amount, a warrant of distraint and levy
reported its income for 1974 by filing an income tax was issued but the same was not executed because Basilan Estates, Inc.
return. succeeded in getting the Deputy Commissioner of Internal Revenue to
CONCLUSION: Since the BIR failed to demonstrate clearly that order the Director of the district in Zamboanga City to hold execution and
private respondent had filed a fraudulent return with the intent to maintain constructive embargo instead.
evade tax, or that it had failed to file a return at all, the period for Because of its refusal to waive the period of prescription, the corporation's
assessments has obviously prescribed. request for reinvestigation was not given due course, and on December 2,
1960, notice was served the corporation that the warrant of distraint and
levy would be executed.
02. Basilan Estates v. CIR (KB) On December 20, 1960, Basilan Estates, Inc. filed before the Court of Tax
Appeals a petition for review of the Commissioner's assessment, alleging
Topic: Prescription;
prescription of the period for assessment and collection; error in
Relevant Laws:
disallowing claimed depreciations, travelling and miscellaneous expenses;
G.R. No. L-22492
and error in finding the existence of unreasonably accumulated profits and
September 5, 1967
the imposition of 25% surtax thereon.
Bengzon, J.P., J.:
On October 31, 1963, the Court of Tax Appeals found that there was no
Petitioners: Basilan Estates prescription and affirmed the deficiency assessment in toto.
Respondents: CIR
Issues:
Whether or not the Commissioner's right to collect deficiency income tax
Summary: Basilan filed its ITR on March 24, 1954. CIR assessed Basilan for
prescribed? ---NO
defiency income taxes on Feb 26,1956. Basilan refuses to pay on the ground of
prescription of the period for assessment and collection. Basilan claims that it never
Ratio:
received notice of such assessment or if it did, it received the notice beyond the
There is no dispute that the assessment of the deficiency tax was made on
five-year   prescriptive   period.   Issue   now   is   w/n   CIR’s   right   to   collect   deficiency  
February 26, 1959; but the petitioner claims that it never received notice of
income tax has prescribed – NO. SC ruled that the notice of the assessment was
such assessment or if it did, it received the notice beyond the five-year
made on Feb 26,1956 although evidence it is not clear on this point whether or not

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prescriptive period. To show prescription, the annotation on the notice "No corporate income tax. Petronila said that the 5-year prescriptive period had already
accompanying letter 11/25/" is advanced as indicative of the fact that receipt commenced on her filing of the tax return, so the information filed in 1989 had long
of the notice was after March 24, 1959, the last date of the five-year period prescribed. SC said her arguments were wrong, because the prescriptive period
within which to assess deficiency tax, since the original returns were filed on should start 30 days from the date when the assessment became final and
March 24, 1954. unappealable. In this case, the prescriptive period started 30 days from July 16,
1984 (as the petitioners did not do anything about the assessment). However,
Although the evidence is not clear on this point, we cannot accept this interpretation Petronila was subjected to double jeopardy, so the case was dismissed.
of the petitioner, considering the presence of circumstances that lead us to presume
regularity in the performance of official functions. The notice of assessment Facts:
shows the assessment to have been made on February 26, 1959, well within Petitioner Petronila Tupaz and her late husband Jose Tupaz are corporate officers
the five-year period. On the right side of the notice is also stamped "Feb. 26, of El Oro Corporation. On June 8, 1989, the State Prosecutor filed an information in
1959" — denoting the date of release, according to Bureau of Internal Revenue the MeTC of QC against petitioner for non-payment of deficiency corporate income
practice. The Commissioner himself in his letter answering petitioner's request to lift, tax for the year 1979, amounting to P2.369M, in violation of Section 73 of the 1977
the warrant of distraint and levy, asserts that notice had been sent to petitioner. In Tax Code. (The tax return for 1979 was filed on April 1980. BIR issued a notice of
the letter of the Regional Director forwarding the case to the Chief of the assessment issued only on July 16, 1984.) On Sept. 11, 1990, the MeTC dismissed
Investigation Division which the latter received on March 10, 1959 notice of the case, and on Nov. 16, 1990, the MR was dismissed.
assessment was said to have been sent to petitioner. Subsequently, the Chief of the
Investigation Division indorsed on March 18, 1959 the case to the Chief of the Law [The dates no longer matter at this point]
Division. There it was alleged that notice was already sent to petitioner on February
26, 1959. These circumstances pointing to official performance of duty must On January 10, 1991, Molon filed with the RTC of QC two identical informations
necessarily prevail over petitioner's contrary interpretation. Besides, even against both Petronila and her husband, alleging again the non-payment of
granting that notice had been received by the petitioner late, as alleged, under deficiency corporate income tax. The two informations were raffled to two different
Section 331 of the Tax Code requiring five years within which to assess branches: one with respondent Judge Ulep, and the other with Judge Solano. On
deficiency taxes, the assessment is deemed made when notice to this effect Nov. 6, 1991, the Tupazes filed a motion to   quash   in   Judge   Solano’s   branch,  
is released, mailed or sent by the Collector to the taxpayer and it is not alleging that the case before Solano was also the same information under Judge
required that the notice be received by the taxpayer within the Ulep’s  branch,  but  Solano  dismissed  the  motion.  Jose  Tupaz  thereafter  died.
aforementioned five-year period.
On Sept. 20, 1994, Petronila was arraigned, and pleaded not guilty.

03. Tupaz v. Ulep (JT) On October 18, 1995, Judge Ulep issued an order, ordering the frosecution to
G.R. No. 127777 withdraw the information before his court, after discovering that the case was
October 1, 1999 identical   to   the   one   in   Judge   Solano’s   court.   On   April   16,   1996,   State   Prosecutor  
Pardo, J. Agcaoili filed a motion to withdraw the information, because the Tupazes were
actually exempt from paying the tax.
Petitioners: Petronila Tupaz
Respondents: Hon. Benedict Ulep (Quezon City RTC) and People of the On May 15, 1996, Agcoaili filed with the QC RTC a motion for consolidation of both
Philippines criminal cases, which the RTC granted. Thereafter, on May 20, 1996, Judge Ulep
granted the motion to withdraw dated April 16. Thereafter yet again, on May 28,
Summary: Petronila filed a tax return for 1979 of April 1980. The BIR issued a 1996, Agcaoili filed a motion to reinstate the information, stating that the motion to
notice of assessment on July 16, 1984, but petitioners did not do anything. On June withdraw   was   a   “palpable”   mistake   and   was   the   result   of   excusable   neglect.   He  
8, 1989, an information was filed against petitioners for non-payment of deficiency

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thought that the case withdrawn was identical to yet another case filed against the assessment has been deemed final and unappealable. It
Tupazes for non-payment of deficiency  contractor’s tax. (labo lang no?) is only at this point that the prescriptive period begins to
run.
Issues: SC sided with OSG:
W/N the offense has prescribed – NO o Lim v. CA: By its nature, the violation could only be
W/N this subjects her to double jeopardy – YES committed after service of notice and demand for payment of
deficiency taxes by the taxpayer.
Ratio: o Prior to the finality of the assessment, the taxpayer has not
A. What is an assessment? committed any violation for non-payment of tax.
An assessment contains not only a computation of tax liabilities, but o The offense was committed only after the finality of the
also a demand for payment within a prescribed period. The ultimate assessment  coupled  with  taxpayer’s  wilful  refusal  to  pay  
purpose of assessment is to ascertain the amount that each taxpayer the taxes within the allotted period.
is to pay. D. HOWEVER, Petronila Tupaz was subjected to double jeopardy.
An assessment is a notice to the effect that the amount therein stated An accused is placed in double jeopardy if he is again tried for an
is due as tax and a demand for payment thereof. Assessments made offense for which he has been convicted, acquitted or in another
beyond the prescribed period would not be binding on the taxpayer manner in which the indictment against him was dismissed without his
An assessment is not penal in nature. consent.
B. The 3-year prescription period in BP 700 does not apply. o In the instant case, the first dismissal [the motion to withdraw
Prior to BP 700, which was promulgated in 1984, the prescriptive filed by the prosecutor] was without the consent of the
period for assessment was 5 years. Under BP 700, the 5-year petitioners.
prescription was reduced to just 3 years. o Such consent should not be implied or presumed, and must
o Petitioner Petronila thus contends that BP 700 applies to the be   expressed   as   to   have   no   doubt   as   to   the   accused’s  
return filed by her in 1979. conformity.
The SC held that BP 700 will not apply to her case, because the o Because there was no consent, the dismissal of the case
shortened period, as expressly stated in the law, would apply to tax must be regarded as final and with prejudice to the refiling of
returns filed beyond 1984. the case.
Not being penal in nature, Art. 22 of the Revised Penal Code (on o Thus, Petronila was subjected to double jeopardy.
retroactive application of penal laws if favorable to the criminal) will not
apply.
C. The offense has not yet prescribed. 04. Nava v. CIR (AD)
Petitioner invokes Sec. 281 of the NIRC which provides that violations G.R. No. L-19470 | January 30, 1965
of the Tax Code prescribe in five years. Gonzalo P. Nava, petitioner
o Petitioner asserts that the prescriptive period began to run in Commissioner of Internal Revenue, respondent
1979, when she failed to pay the correct taxes. Thus, the BIR Reyes, J.B.L., J.:
only had until 1984 to file a case.
OSG, on the other hand, says that the 5-year prescriptive period will SUMMARY: Nava filed his income return on May 15, 1951. He only paid half. When
start to run only when the assessment has been final and he finally wanted to pay the balance, he paid it with his backpay certificate but the
unappealable. CIR refused this kind of payment. On March 30, 1955, CIR issued a deficiency tax
o Thus, OSG submits, when petitioner failed to protest the assessment notice to Nava and several notices thereafter which Nava claimed to
assessment filed on July 16, 1984 within 30 days, the have never learned of until only December 19, 1956 which was more than 5 years

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since the original tax return was filed. The CTA ruled in favor of the CIR because of Nava asked for reconsideration, and on June 16, 1958 was informed that
the   “duplicate   copies”   of   the   notices   presented   in   court   and   the   fact   that   Nava   reinvestigation would be granted provided the taxpayer waived the statute
acknowledged   having   received   a   “second   final   notice”   meant   that   he   received   all   of limitations, a condition that was rejected.
other previous notices. The SC overturned this decision of the CTA. The original Thereupon, the reconsideration of the assessment was denied by the
copies of such assessment notice were never established by the CIR. The Collector's letter of July 22, 1958, and on August 8, 1958 Nava filed a
witnesses of the BIR who testified could not show personal knowledge of the petition for review with the Court of Tax Appeals.
sending of the original notice. Regarding the subsequent notices, no one testified as o The latter reduced the deficiency to P3,052.00, and cancelled the
to these altogether. Therefore, the CIR utterly failed to prove by substantial 50% surcharge.
evidence that the assessment notice dated March 30, 1955 and the other supposed Nava appealed to this Court.
written demand letters or notices subsequent thereto were in fact issued or sent to
taxpayer Nava. In effect, the period within which to make a re-assessment already ISSUE: Whether the enforcement of the tax assessment has prescribed
prescribed on May 15, 1956. The action has already prescribed.
RATIO:
FACTS:
On May 15, 1951, Nava filed his income tax return for the year 1950, CTA decision:
and, on the same date, he was assessed by the CIR P4,952.00 based The Court of Tax Appeals ruled that it had not prescribed, stating that:
solely on said return. The duplicate copy of the income tax assessment notice indicates that it
Nava paid one-half of the tax due. was issued on March 30, 1955 (Exh. 4, page 7, B.I.R. records).
Subsequently, Nava offered his backpay certificate to pay said balance, "Call-up" letters were sent to Nava reminding him of the obligation.
but CIR refused the offer. In addition to the written notice sent to Nava, he was also personally
On July 28, 1953, he requested the CIR to hold in abeyance the collection interviewed. These written notices and personal interviews appears in the
of said balance until the question of whether or not he was entitled to pay memorandum of an agent of the BIR, the pertinent portion of which reads
the same out of his backpay shall have been decided, but this was also as follows.
rejected by the latter. "Several call-up letters and repeated demands have been made
This rejection was followed by two more letters or notices demanding to subject taxpayers but in spite of the considerable length of time
payment of the balance thereof that has elapsed the above accounts still remain unsettled. The
On March 30, 1955, after investigation of petitioner's 1950 income tax warrant assemblies of the above-stated tax cases were assigned
return, CIR issued a deficiency income tax assessment notice to Agent A. H. Aguilar and an interview with Mr. G. P. Nava
requiring Nava to pay not later than April 30, 1955 the sum of P9,124.50, revealed that the latter refused to pay alleging that these
that included the balance of P2,491.00, still unpaid under the original cases come within the purview of the Avelino case, hence,
assessment, plus a 50% surcharge. the B.I.R. has no more right to collect from him."
Several notices of this revised assessment are alleged to have been Nava's claim that he came to know of the assessment only on or
issued to the taxpayer, but Nava claims to have learned of it for the first about December 19, 1956 can not be given much credence. We are
time on December 19, 1956, more than five years since the original tax inclined to believe that the assessment notice dated March 30, 1955
return was filed, and testified to that effect in the court below. and the several call-up letters sent to him were received by him in
o Nava called attention to the fact that more than six years had due course of mail but that he ignored them because of his belief that
elapsed, protested the assessment, and contended that it was a the right of the Government to collect the tax had prescribed in view
closed issue. of the decision in the Avelino case.
The Director insisted upon his demand that the new assessment be paid o Evidence: a note sent or delivered by Nava to an employee of the
Bureau who interviewed him, wherein he stated:

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"This is to certify that I have received today, second final in the record book. What was the nature of the letter does not appear;
notice from the Bureau of Internal Revenue delivered by Mrs. at any rate, it was mailed beyond the 5-year limitation period.
Canlas. My reply to your said final notice, as per your request, will Regarding the subsequent notices allegedly sent by the CIR, no
be sent to you on or before January 3, 1957, in view of the fact witness for the CIR testified to the issuance or sending of any of
that I may not be able to contact right away my Accountant." these supposed written demand letters or notices, nor was there any
The fact that Nava admitted receipt of the "second final notice" without duplicate or even a simple copy thereof found in Nava Nava's Bureau
protest is an indication that he received the previous notices of Internal Revenue file. Although witness Sangil testified as to the
meaning of the dates noted in Exhibit "3", his testimony cannot be given
SC’s  decision: much credence because those supposed notices were sent on or before
The Court of Tax Appeals relied mainly on the duplicate copy of the August 25, 1956 at the latest, and, as hereinabove pointed out, the witness
deficiency income tax notice found in the Bureau of Internal Revenue file of was assigned in the income tax section of the Bureau of Internal Revenue
Nava Nava since October, 1956 only.
Nava denied having received the original copy of said notice. Thus, contrary to the finding of the Court of Tax Appeals, CIR utterly
The Revenue Commissioner, on the other hand, presented a witness (Mr. failed to prove by substantial evidence that the assessment notice
Pablo Sangil, an employee [clerk] of the B.I.R.) who attempted to establish dated March 30, 1955 and the other supposed written demand letters
that the original copy thereof was actually issued or sent on March 30, or notices subsequent thereto were in fact issued or sent to taxpayer
1955. Nava. The presumption that a letter duly directed and mailed was
o This witness, however, disclaimed having personal received in the regular course of mail (Sec. 5 [v], Rule 131, revised
knowledge of its issuance or release on said date either by Rules of Court) cannot be applied to the case at bar.
mail or personal delivery because, according to him, he was The facts to be proved to raise this presumption are
assigned in the income tax section of the BIR in October, o (a) that the letter was properly addressed with postage
1956 only. prepaid, and
o Sangil also declared that there is no notation whatsover in o (b) that it was mailed.
said file copy nor even a slip of paper attached to the records, o Once these facts are proved, the presumption is that the letter
to show that the original copy of said exhibit was ever was received by the addressee as soon as it could have been
actually issued or sent to the taxpayer. He even admitted that transmitted to him in the ordinary course of the mail. But if one of
he had no hand in the preparation or sending of written notices or the said facts fails to appear, the presumption does not lie."
demand letters of the BIR to the taxpayers, his duties being Since none of these requirements have been shown, there has been
merely to keep the dockets of taxpayers pertaining to income tax, no valid and effective issuance or release of said deficiency income
to post and transmit papers to the other branches of the Bureau tax assessment notice dated March 30, 1955 and of the other demand
for action, and to keep letters of taxpayers, memorandum and letters or notices subsequent thereto, the latest of which was
other official matters. purportedly sent on August 25, 1956, and these dates cannot be reckoned
CIR presented another witness, Mr. Eliseo B. Fernandez, whose duties, with in computing the period of prescription within which a court action to
as record clerk of the Records Control Section of the BIR since 1957 collect the same may be brought.
(already past the limitation period of this case), are to send mail and to The fact that in Exhibit "E" Nava acknowledged receipt of the second
keep a record book of letters which are mailed to the taxpayers. Insofar as final notice personally delivered to him is no proof that he received the first
the testimony of this witness is concerned, he only declared as to the fact notice by mail. There is a difference between receiving a second final
that there appears in his record book a note that a letter dated March 15, notice and receiving a final notice for the second time.
1957 was mailed by special delivery with return card to Gonzalo P. Nava. It being undisputed that an original assessment of Nava's 1950 income tax
He admitted, however, that he was not the one who prepared such entry return was made on May 15, 1951, and no valid and effective notice of the

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re-assessment having been made against the Nava after that date (May 15, cases in the CFI. However, the Government failed to summon Nielson twice,
1951), it is evident that the period under Section 331 of the Tax Code causing the case to be dismissed twice. Finally, it filed an action for collection, the
within which to make a re-assessment expired on May 15, 1956. Since subject of this case, which the RTC decided in its favor. CA reversed. SC reversed
the notice of said deficiency income tax was effectively made on the CA and held in favor of the Government. While the SC cannot agree with the
December 19, 1956 at the earliest, the judicial action to collect any Government on its argument that Nielson is presumed to have received the 1955
deficiency tax on Nava's 1950 income tax return has already letter of assessment, the 1956 letter, on the other hand, was considered a notice
prescribed under Section 332 (c) of the Tax Code, it having been of assessment in itself which was duly received by private respondent in
found by the Tax Appeals court that said return was not false or accordance with its own admission. Under Section 7 of Republic Act No. 1125,
fraudulent. the assessment is appealable to the Court of Tax Appeals within thirty (30) days
While we have held that an assessment is made when sent within the from receipt of the letter.
prescribed period, even if received by the taxpayer after its expiration (Coll.
of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling
makes it the more imperative that the release, mailing, or sending of the FACTS
notice be clearly and satisfactorily proved. Mere notations made without Petition for Review on Certiorari of the decision of CA reversing the
the taxpayer's intervention, notice, or control, without adequate decision   of   the   CFI   of   Manila   which   ordered   Nielson   to   pay   the   Gov’t   a  
supporting evidence, cannot suffice; otherwise, the taxpayer would certain  amount  and  denying  said  private  respondent’s  MR
be at the mercy of the revenue offices, without adequate protection or In the 16 July 1955 demand letter, CIR assessed Nielson deficiency
defense. taxes for the years 1949 to 1952, totalling P14,449.00 (ad valorem tax,
Having reached the conclusion that the action to collect said deficiency surcharge, occupation fees, additional residence tax)
income tax has already prescribed, it is unnecessary to discuss the other The Govt reiterated its demand on 19 September 1956 in a letter by the
issues raised by Nava Nava in the instant appeal.1äwphï1.ñët Deputy Collector (now Deputy Commissioner)
Nielson did not protest the assessment in the CTA.
WHEREFORE, the decision of the Court of Tax Appeals under review is reversed, On the theory that the assessment had become final and executory, the
without costs. Gov’t   filed   a   complaint   for   collection   of   the   said   amount   against   Nielson  
with the CFI of Manila.
6/30/1961 – for failure to serve summons upon Nielson, the complaint was
dismissed.
05. Republic v. CA (RS) o On motion, the order to dismiss was set aside, at the same time
G.R. No. L38540 giving 60 days within which to serve summons upon Nielson.
April 30, 1987 10/4/1962 – For failure anew to serve summons, the CFI of Manila issued
Petitioner:  Republic  of  the  Philippines  (“Government”) an order dated dismissing Civil Case No. 42911 without prejudice. The
Respondent:  Court  of  Appeals,  Nielson  Company,  Inc.  (“Nielson”) order of dismissal became final on 11/5/1962
11/15/1962 - he complaint against private respondent for collection of the
Topic: Action for collection on the basis of a final and executor assessment akin to same tax was refiled, but the same was erroneously docketed as Civil
enforcement Case No. 42911, the same case previously dismissed without prejudice.
o Without correcting this error, another complaint was filed on 26
SUMMARY November 1963, docketed as Civil Case No. 55817, the subject
BIR assessed Nielson for deficiency taxes and sent 2 letters demanding the same – matter of the present appeal.
one in 1955, another in 1956. Since Nielson did not contest such assessments in CFI Manila – in favor of the Govt
the CTA, the Government sought to enforce the assessments by filing collection CA – reversed

Page 8 of 29
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REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

ISSUES of mail, still this is merely a disputable presumption, subject to


WN the CA erred in not holding that the 16 July 1955 demand letter was controversion, and a direct denial of the receipt thereof shifts the
received by Nielson in the ordinary course of the mail pursuant to Section burden upon the party favored by the presumption to prove that
8, Rule 13 of the Revised Rules of Court – No. the mailed letter was indeed received by the addressee.
WN the CA erred in not holding that Nielson failed to rebut the presumption o Since petitioner has not adduced proof that private respondent
that the 16 July 1955 demand letter, having been duly directed and had in fact received the demand letter of 16 July 1955, it can not
mailed, was received in the ordinary course of the mail and that official be assumed that private respondent received said letter.
duty has been regularly performed. – No. o Records, however, show that petitioner wrote private respondent
That, assuming without conceding that the 16 July 1955 demand letter a follow-up letter dated 19 September 1956, reiterating its
cannot be considered an assessment, the CA erred in not holding that the demand for the payment of taxes as originally demanded in
letter of the Deputy Commissioner dated 19 September 1956 is itself an petitioner's letter dated 16 July 1955.
assessment which was duly received by Nielson. - YES This follow-up letter is considered a notice of
assessment in itself which was duly received by
HELD: CA reversed. CFI decision reinstated. private respondent in accordance with its own
admission.
RATIO o Under Section 7 of Republic Act No. 1125, the assessment is
Petitioner’s  arguments: appealable to the Court of Tax Appeals within thirty (30) days
o Relying on the provisions of Section 8, Rule 13 and Section 5, from receipt of the letter.
paragraphs m & v. Rule 131 of the Revised Rules of Court, o The taxpayer's failure to appeal in due time, as in the case at
petitioner claims that the demand letter of 16 July 1955 showed bar, makes the assessment in question final, executory and
an imprint indicating that the original thereof was released and demandable. Thus, private respondent is now barred from
mailed on 4 August 1955 by the Chief, Records Section of the disputing the correctness of the assessment or from invoking any
Bureau of Internal Revenue, and that the original letter was not defense that would reopen the question of its liability on the
returned to said Bureau; thus, said demand letter must be merits
considered to have been received by the private respondent. o Mamburao v. Republic: In a suit for collection of internal revenue
o According to petitioner, if service is made by ordinary mail, unless taxes, as in this case, where the assessment has already become
the actual date of receipt is shown, service is deemed complete final and executory, the action to collect is akin to an action to
and effective upon the expiration of five (5) days after mailing. enforce a judgment. No inquiry can be made therein as to the
o As the letter of demand dated 16 July 1955 was actually mailed to merits of the original case or the justness of the judgment relied
private respondent, there arises the presumption that the letter upon.
was received by private respondent in the absence of evidence to
the contrary.
o More so, where private respondent did not offer any evidence, 06. CIR v. Western Pacific Corporation (HV)
except the self-serving testimony of its witness, that it had not Topic: Prescription  of  government’s  right  to  assess
received the original copy of the demand letter dated 16 July Relevant Laws/ BIR Issuances:
1955. •  RA  1125  sec  11
SC  did  not  agree,  but…
o As correctly observed by the respondent court in its appealed G.R. No. L-18804
decision, while the contention of petitioner is correct that a mailed May 27, 1965
letter is deemed received by the addressee in the ordinary course PAREDES, J.

Page 9 of 29
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REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

Petitioners: Commissioner of Internal Revenue (CIR) and March 1, 1959, which were Saturday and Sunday, respectively, the office of respondent
Respondents: Western Pacific Corporation (WP) was officially closed. And where the last day for doing an act required by law falls on a
holiday, the act may be done on the next succeeding business day. (Section 31, Revised
Administrative Code.) Similarly, in computing any period of time prescribed by statute, the
Summary:
day of the act after which the designated period of time begins to run is not included. But
WP was assessed for deficiency income tax for the disallowance of 8k expense the last day of the period so computed is to be included, unless it is a Sunday or a legal
items and 10k bad debts. CIR denied the formal objections of WP. WP filed in CTA holiday, in which event the time shall run until the end of the next day which is neither a
a petition for review but beyond the 30 day reglementary period. The CTA ruled in Sunday or a holiday (Section 1, Rule 28, Rules of Court). Consequently, since February 28,
favor of WP. CIR appealed to the SC assailing the jurisdiction of CTA. SC decided 1959 was a Saturday and the next day, March 1, 1959, a Sunday, respondent had until the
that   indeed   CTA   has   no   jurisdiction   for   WP’s   filing   to   CTA   is   beyond   the   next succeeding business day, March 2, 1959, Monday, within which to issue the deficiency
reglementary period. assessment. The assessment in question having been issued on March 2, 1959, it was,
therefore, seasonably made.
Doctrines:
The assessment had long become final. A petition for review should be presented, Issues:
within the reglementary period, as provided for in Section 11, Republic Act No. 1125, (1) Whether or not the making of the assessment had prescribed;
which  is  “thirty  (30)  days  from  receipt  of  the  assessment.”  The  thirty  (30)  day  period   (2) Whether expenses incurred in securing IGC Licenses are capital expenditures, and, as
is jurisdictional! such, not deductible from the income; and
(3) Whether the bad debts written off should likewise be deducted.
Facts: (SC only ruled on the jurisdiction of the CTA. The decision of CIR then
•  WP  was  assessed  for  P3,731 as deficiency income tax for the year 1953 brought became final)
about by disallowance of P8,265.82 as expense items and P10,837.50 as bad debts. (4) Whether CTA still has jurisdiction. - NO
•   WP   hired   Ruifino   Melo   &   Company,   Consulting   and   Examining   Auditors   and  
requested for non-assessment, claiming that there has been prescription in Held:
making the assessment, that the expense items and bad debts were allowable •  Petition  GRANTED
deduction. •  Decision  of  CTA SET ASIDE for being been rendered without jurisdiction
•The  Commissioner  on  July  30,  1959  replied  to  the  request,  denying  the  same,  and  
demanding the payment of the amount due within thirty (30) days from receipt of Ratio:
said demand. (4) Without going into the merits of the decision absolving the respondent
•The  Commissioner  also  did  not  give  favourable  response  to  the  Formal  Objections   corporation of tax liability, We find that the assessment made by the
of the assessment Commissioner should be maintained, for the simple reason that when the
•WP  elevated  the  case  to  CTA petition for review was brought to the CTA by the respondent corporation, the
•The   CTA   rendered   judgment   absolving   the  Western   Pacific   Corporation   from   the   said Court no longer had jurisdiction to entertain the same. The assessment
assessment. It, however, ruled out prescription, stating that March 2, 1959, was the had long become final. A petition for review should be presented, within the
last day of the five (5) year period within which to make the assessment. reglementary period, as provided for in Section 11, Republic Act No. 1125,
•CTA  ruled: which  is  “thirty  (30)  days  from  receipt  of  the  assessment.”  The  thirty  (30)  day  
We do not agree with petitioner that the assessment in question was issued beyond the 5- period is jurisdictional (Pangasinan Transportation Co. vs. Blaquera, L-13101,
year statutory limitation. February 28, 1959 fell on a Saturday. April 29, 1960).
Pursuant to Republic Act No. 1880, as, implemented by Executive Order No. 25, effective •It  will  be  noted  that  the  assessment  was  received  by  the  respondent  corporation  on  
July 1, 1959, all bureaus and offices of the government, except schools, court, hospitals and March 2, 1959. It was only on June 29, 1959, when said corporation formally
health clinics, hold office only five days a week or from Monday to Friday. Saturday and assailed the assessment, on the grounds of prescription in making the assessment
Sunday, are constituted public holidays or days of exemption from labor or work as far as and the impropriety of the disallowance of the listed deductions. From March 3 to
government offices, including that of respondent Commissioner, are concerned. The offices
and bureaus concerned are officially closed on those days. So that on February 28, 1959

Page 10 of 29
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REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

June 29, 1959, manifestly more than thirty (30) days had lapsed and the that the petition was filed within the reglementary period. Moreover, it held that in
assessment became final, executory and demandable computing the legal periods, the Admin Code (being the latter law) must prevail over
•Of   course,   in   the   interim,   a   number   of  communications   were   exchanged between the Civil Code provision. Accordingly, a year is to be considered as twelve
the parties, the latest of which was dated October 28, 1959. Even if this date is months, notwithstanding the number of days.  PPGI’s  petition  on  April  14,  2000  
th
considered as the commencement of the thirty (30) day period, still the petition for was filed on the last day of the 24 calendar month from filing its final return, hence,
review with the CTA was out of time, because it was only on December 18, 1959, PPGI’s  petition  was  filed  on  time.
that said petition was presented. Failure to comply with the thirty-day statutory Note: *this is different from VAT refund so yung admin claim 120+30 before judicial claim
period would bar appeal and deprive the CTA of its jurisdiction to entertain and does not apply
determine the correctness of the assessment April  14,  1998  =  date  of  filing  PPGI’s  adjusted  final  return
April 14, 2000 = date of filing its petition for review before the CTA (also the deadline for filing
the judicial claim)

07. CIR v. Primetown Property Group (HQ) Facts:


Topic: How to compute for the 2-year prescriptive period? Gilbert Yap, vice chair of PPGI, applied for the refund or credit of
income tax it paid in 1997
G.R. No. 162155 August 28, 2007 Yap's letter to BIR:
Petitioners: Commissioner of Internal Revenue and Arturo Pacero, in his official o Explained that the increase in the cost of labor and materials and difficulty in
capacity as Revenue District Officer of Revenue District No. 049 (Makati) obtaining financing for projects and collecting receivables caused the real estate
Respondent: Primetown Property Group, Inc. (PPGI) industry to slowdown
o As a consequence, it suffered losses amounting to P71,879,228
Relevant Provision: (1997)
Sec. 229. Recovery of Taxes Erroneously or Illegally Collected. -- No suit or o Hence, it was not liable for income taxes
proceeding shall be maintained in any court for the recovery of any national internal o Nevertheless, it paid its quarterly corporate income tax and
revenue tax hereafter alleged to have been erroneously or illegally assessed or remitted creditable withholding tax from real estate sales to
collected, or of any penalty claimed to have been collected without authority, or of the BIR in the total amount of P26,318,398.32
any sum alleged to have been excessively or in any manner wrongfully collected, o Therefore, it was entitled to tax refund or tax credit
until a claim for refund or credit has been duly filed with the Commissioner; but such
suit or proceeding may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.
BIR required PPGI to submit additional documents to support its claim to
which PPGI complied
In any case, no such suit or proceeding shall be filed after the expiration of However,  PPGI’s  claim  was  not  acted  upon
two (2) years from the date of payment of the tax or penalty regardless of any Hence, it filed a petition for review before the CTA
supervening cause that may arise after payment: Provided, however, That the CTA:
Commissioner may, even without a claim therefor, refund or credit any tax, where o Dismissed the petition as it was filed beyond the 2-year
on the face of the return upon which payment was made, such payment appears
prescriptive period for filing a judicial claim for tax refund or tax
clearly to have been erroneously paid.
credit
o Found that PPGI filed its final adjusted return on April 14, 1998.
Summary: simple case lang!
Thus, its right to claim a refund or credit commenced on that
PPGI suffered losses in year 1997 (hence, not liable for income tax), nevertheless,
date
it paid its quarterly IT and remitted creditable withholding tax. It filed an
o Applied Article 13 of the Civil Code which states: When the law
application for tax refund or tax credit. BIR did not act upon the claim. PPGI filed
speaks of years, months, days or nights, it shall be understood
a petition for review before the CTA but the latter dismissed the same as it was
that years are of three hundred sixty-five  days  each…
filed beyond the prescriptive period (using   the   Civil   Code   ‘formula’).   SC   ruled

Page 11 of 29
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

o Thus, the 2-year prescriptive period under Section 229 of the Sec. 31. Legal Periods. — “Year”   shall   be   understood   to   be   twelve   calendar  
NIRC for the filing of judicial claims was equivalent to 730 days months; “month”   of   thirty   days,   unless   it   refers   to   a   specific   calendar   month   in  
o Since  year  2000  was  a  leap  year,  PPGI’s  petition  (which  was  filed   which case it shall be computed according to the number of days the specific month
contains;;  “day”,  to  a  day  of  twenty-four hours  and;;  “night”  from  sunrise  to  sunset.  
731 days after it filed its final adjusted return) was filed beyond
the reglementary period
CA: A  calendar  month  is  “a  month  designated  in  the  calendar  without regard to
o Reversed  CTA’s  decision the number of days it may contain.”
o Ruled that Art.13 of the Civil Code did NOT distinguish between a
regular year and a leap year Applying the Admin Code to this case
o Hence, even if the year 2000 was a leap year, the periods o The 2-year prescriptive period (reckoned from the time PPGI
covered by April 15, 1998 to April 14, 1999 and April 15, 1999 to filed its final adjusted return on April 14, 1998) consisted of 24
April 14, 2000 should still be counted as 365 days each or a calendar months
total of 730 days o SC held that PPGI’s petition (filed on April 14, 2000) was filed on
th
the last day of the 24 calendar month from the day PPGI filed
CIR appealed to the SC contending that tax refunds, being in the nature its final adjusted return.
of an exemption, should be strictly construed against claimants o Hence, it was filed within the reglementary period.
Section 229 of the NIRC should be strictly applied against respondent
inasmuch as it has been consistently held that the prescriptive period (for
the filing of tax refunds and tax credits) begins to run on the day claimants 08. Republic v. Marsman (MR)
file their final adjusted returns Topic: The period of 5 years to assess is reckoned from the fling of a valid
Hence, the claim should have been filed on or before April 13, 2000 or return; in the absence thereof, 10 years
within 730 days, reckoned from the time respondent filed its final adjusted Relevant Laws: Sec. 231, 332(a) Tax Code
return.
G.R. No. L-18956
Issue: How should the two-year prescriptive period be computed? By April 27, 1972
months!! (Admin Code) Barredo, J.
Petitioners: Republic of the Philippines
Held: Petition is DENIED, Case is REMANDED to the CTA, which is ordered to Respondents: MARSMAN DEVELOPMENT COMPANY and/or F. H. BURGESS,
expeditiously proceed to hear the case in his capacity as Liquidator of the Marsman Development Company

Ratio: Facts:
Sec. 31 of Admin Code of 1987 repealed Art. 13 of CC Marsman was a timber licensee and an investigation was conducted on its
Both Art. 13 of the CC and Sec. 31, Chapter VIII, Book I of the Admin business leading to a discovery that certain taxes were due from it on logs
Code of 1987 deal with the same subject matter — the computation of produced from its concession
legal periods In all, the BIR sent the corporation 3 assessment notices for deficiency
There obviously exists a manifest incompatibility in the manner of sales taxes, forest charges and surcharges the total of which is not the
computing legal periods subject of the present collection
SC held that Admin Code, being the more recent law, governs the Acknowledgement of receipt of the first notice is evidenced by the letter of
computation of legal periods Marsman’s   lawyer   requesting   for   itemized   statement   of   taxes,   and  
reserving their intention to question the validity of the assessments

Page 12 of 29
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REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

In reply, BIR informed him that before action could be taken on his request, collection of taxes by the simple expedient of barely asking for clarification or
requests for reinvestigation/examination of the assessments must be made reconsideration, without doing anything to comply with the statutory and
in writing and on oath and 1/2 must be paid and accompanied by a bond reglementary requirements for the reconsideration of the assessment made against
The lawyer requested for exemption from these requirements which was of him.
course denied and BIR informed them that the requirements must be
complied with within 5 days or else the assessment would be considered From the time of the receipt of the first notice in December 1954, it also did nothing
final to appeal the assessment to the CTA even if it was warned already that non-
A follow-up letter was sent by BIR that unless the corporation complied compliance with requirements for reconsideration would make the assessment final
within 5 days of receipt of the follow-up letter, the case will be considered
abandoned. Again it was unheeded, and again BIR gave them another (THIS   IS   THE   ONLY   RELEVANT   PORTION)   On   the   government’s   not   yet  
chance prescribed right to assess the tax. Corporation contends that according to sec.
They were finally sent final tax notices on April 27, 1956 and defendant 231 of the Tax Code, the CIR must assess the tax within a period of 5 years. But
corporation admits receiving the same as evidenced by their reply letter sec. 231 is not applicable in this case because corporation did not file a return.
which again asked for more chances to comply and question the
assessment. The   applicable   provision   is   sec.   332(a)   which   provides   that   ‘in   case   of a false or
Finding no merit in the protests, a warrant of distraint and levy was issued fraudulent return or of a failure to file a return, the tax may be assessed . . . at
against the corporation. After more communications, BIR filed case in court anytime within ten years after the discovery of the falsity,   fraud   or   omission.’   The
praying for the payment of Php 13,695.96 and then in an amended assessments made on October 15, 1953, September 13, 1954, and November 3,
complaint, the additional Php 59,133.78 1954 were all within the aforecited 10-year period for the assessmentof the tax
Lower court ruled in favor of BIR (Remember the period questioned is 1947-1949)

Issues: The corporation suggests that because deficiency taxes are what are sought to be
3. WON the notices of the CIR dated April 27, 1956 became final and collected, this implies that a return must have been filed. But this is still not right
executory—YES because in order for a return to be the starting point of the period in making
4. WON   the   Government’s   right   to  assess  and  collect   the   taxes   for   the   assessments, the return must be substantially complete, and the appellant
years 1947 to Sept. 1949 has prescribed—NO corporation has not shown that such was the nature of the return which they infer
had been filed by them
Held: Decision of lower court AFFIRMED
On the issue that Marsman had already been extra-judicially dissolved before
Ratio: the filing of the complaint. They point out that inasmuch as the Marsman
On the final notices becoming final and executory. It was the corporation by its Development Co. was extra-judicially dissolved on April 23, 1954, a fact admitted in
omission that made it impossible for the BIR to act on its motion for reconsideration the amended complaint, the filing of both the original complaint on September 8,
of the assessments. It was asked to comply with certain requirements which it never 1958 and the amended complaint on August 26, 1956 was beyond the aforesaid
did. three-year period in sec. 77 of the Corporation Code for the continuation of
corporate existence for the purposes of liquidation.
Not that it would have otherwise mattered, for the mere filing of such a motion does
not suspend the running of the period for the collection of the tax, which implies that However, there is nothing in said provision which bars an action for the recovery of
any assessment made by the Bureau is supposed to be final and executory, insofar the debts of the corporation against the liquidator thereof, after the lapse of the said
as the taxpayer is concerned, unless revised by the Bureau in accordance with law three-year period.
and regulations, but it is to be emphasized that a taxpayer cannot delay the

Page 13 of 29
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

The next provision, Section 78, adds for clarification:
 “At  any  time  during  said  three   Respondents: Phoenix Assurance Co., Ltd.—a foreign insurance corporation
years said corporation is authorized and empowered to convey all of its property to organized under the laws of Great Britain; licensed to do business in the Philippines
trustees for the benefit of members, stockholders, creditors, and others interested. with head office in London
From and after any such conveyance by the corpora- tion of its property in trust for
the benefit of its members, stockholders, creditors, and others in interest, all interest Summary: Phoenix Assurance Co., Ltd. filed its income tax return for 1952 on
which the corporation had in the property terminates, the legal interest vests in the April 1, 1953 showing a loss of P199,583.93. It amended said return on August 30,
trustee, and the beneficial interest in the members, stockholders, creditors, or other 1955 reporting a tax liability of P2, 502.00. On July 24, 1958, after examination of
persons  in  interest.“ the amended return, the Commissioner of Internal Revenue assessed deficiency
income tax in the sum of P5, 667.00. The question here is should the running of the
The BIR assessments were made on Oct. 15, 1953, September 13, 1954 and Nov. prescriptive period commence from the filing of the original or amended return? The
8, 1954—the first was before dissolution and the next 2 were 6 months after. Thus, SC said that where the deficiency assessment is based on the amended return,
the Government became the creditor of the corporation before the completion of its which is “substantially  different” from the original return, the period of prescription
dissolution by the liquidation of its assets. Appellant F. H. Burgess, whom it chose of the right to issue the same should be counted from the filing of the amended, not
as liquidator, became in law the trustee of all its assets for the benefit of all persons the original income tax return.
enumerated in Section 78, including its creditors, among whom is the Government,
for the taxes herein involved. Facts:
Withholding Tax Assessment: Phoenix entered into reinsurance treaties with other foreign
It is immaterial that the present action was filed after the expiration of three years insurance companies. Pursuant to this, Phoenix ceded portions of the premiums it earned
after April 23, 1954, for at the very least, and assuming that judicial enforcement of from its underwriting business in the Philippines upon which the CIR, by letter of May 6,
taxes may not be initiated after said three years despite the fact that the actual 1958, assessed withholding taxes for years 1952 to 1954 for a total of P183, 838.42.
o April 29, 1955: it excluded from its gross income the P203, 384.69 representing
liquidation has not been terminated and the one in charge thereof is still holding the
reinsurance premium from it return filed for the year 1954.
assets of the corporation, obviously for the benefit of all the creditors thereof, the
o August 30, 1955: it amended its income tax return for 1952 by excluding from its
assessment aforementioned, made within the three years, definitely established the gross income P316,526.75 representing reinsurance premiums ceded to foreign
Government as a creditor of the corporation for whom the liquidator is supposed to reinsurers; it also amended its income tax return for its gross income in 1953
hold assets of the corporation. excluding P246, 082.04 representing reinsurance premiums as well.
Income Tax deficiency: On August 1, 1958 assessed income tax
deficiencies for years 1952 and 1954 because overhead expense initially
09. CIR v. Phoenix (RK) deducted were partially disallowed.
o April 1, 1953: Phoenix filed its Income tax return for 1952,
Topic: Period of prescription to assess deficiency income tax commences from
declaring a deduction from gross income as part of head office
filing of amended return.—Where the deficiency assessment is based on the
expense incurred for Philippine business
amended return, which is substantially different from the original return, the period
o August 30, 1955: it amended its income tax return for 1952 by
of prescription of the right to issue the same should be counted from the filing of the
excluding from its gross income P316,526.75 representing
amended, not the original income tax return.
reinsurance premiums ceded to foreign reinsurers; it also
amended its income tax return for its gross income in 1953
G.R. No. L-19727
excluding P246, 082.04 representing reinsurance premiums as
May 20, 1965
well.
Bengzon, J.P.
Phoenix protested both withholding tax assessments and deficiency
Petitioners: Commissioner of Internal Revenue income tax but the CIR denied it.
Phoenix appealed the CTA—right of CIR to assess deficiency income tax
for 1952 to have prescribed; allowed withholding taxes assessed by CIR.
Page 14 of 29
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REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

BOTH parties appealed to the SC. tax thereunder because Phoenix Assurance Co., Ltd. declared a
loss of P199,583.93 therein which would have more than offset
Issues: Whether or not the right of the CIR to assess deficiency income tax for the such disallowance of P15,826.35.
year 1952 against Phoenix as prescribed? Considering that the deficiency assessment was based on the amended
return which, as aforestated, is substantially different from the original
Held: NO (there are other issues with regard withholding tax but the prescription is return, the period of limitation of the right to issue the same should be
the only topic relevant. The CTA decision was modified accordingly) counted from the filing of the amended income tax return. From August 30,
1955, when the amended return was filed, to July 24, 1958, when the
Ratio: deficiency assessment was issued, less than five years elapsed. The right
QUESTION: The question is: Should the running of the prescriptive period of the Commissioner to assess the deficiency tax on such amended return
commence from the filing of the original or amended return? has not prescribed.
o The Court of Tax Appeals found the right of the Commissioner of
Internal Revenue barred by prescription, the same having been
exercised more than five years from the date the original return
was filed. 10. Butuan Sawmill v. CTA (KB)
o On the other hand, the Commissioner of Internal Revenue insists
Topic: Prescription;
that his right to issue the assessment has not prescribed
Relevant Laws:
inasmuch as the same was availed of before the 5-year period
provided for in Section 331 of the Tax Code expired, counting the
G.R. No. L-20601
running of the period from August 30, 1955, the date when the
Feb 28, 1966
amended return was filed.
Reyes, J.B.L., J.:
REVIEW OF FACTS:
o Phoenix Assurance Co., Ltd. filed its income tax return for 1952 Petitioners: David Nitafan
on April 1, 1953 showing a loss of P199,583.93. It amended said Respondents: CTA, Office of the Solgen
return on August 30, 1955 reporting a tax liability of P2,502.00.
o On July 24, 1958, after examination of the amended return, the
Summary: Butuan filed its ITR, however upon investigation by the BIR, it was
Commissioner of Internal Revenue assessed deficiency income
ascertained that no sales tax return was filed and no sales tax was paid. Butuan
tax in the sum of P5,667.00.
contends that the sales were consummated in Japan hence it was outside the
COURT’s   CONCLUSION:   To our mind, the Commissioner's view should
taxing jurisdiction and that the right to assess has already prescribed as the
be sustained. The changes and alterations embodied in the amended
disputed sales has been deemed to be filed when it filed its ITR. SC held that such
income tax return consisted of the exclusion of reinsurance premiums
sales were consummated in the Philippines and liable for sales tax. SC also held
received from domestic insurance companies by Phoenix Assurance Co.,
that an income tax return cannot be considered as a return for compensating
Ltd.'s London head office, reinsurance premiums ceded to foreign
tax for purposes of computing the period of prescription and that assessment
reinsurers not doing business in the Philippines and various items of
thereof may be made within ten (10) years from and after the discovery of the
deduction attributable to such excluded reinsurance premiums thereby
omission to file the return.
substantially modifying the original return.
o Furthermore, although the deduction for head office expenses
allocable to Philippine business, whose disallowance gave rise to Appeal from a decision of the Court of Tax Appeals, in its CTA Case No.
the deficiency tax, was claimed also in the original return, the 965, ordering petitioner herein, Butuan Sawmill, Inc., to pay respondent
Commissioner could not have possibly determined a deficiency Commissioner of Internal Revenue the sum of P36,107.74 as deficiency

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REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

sales tax and surcharge due on its sales of logs to buyers in Japan from That the specification in the bill of lading to the effect that the goods are deliverable to the order of the
January 31, 1951 to June 8, 1953. seller or his agent does not necessarily negate the passing of title to the goods upon delivery to the
carrier is clear from the second part of paragraph 2 of Article 1503 of the Civil Code of the Philippines:
January 31, 1951 to June 8, 1953, Butuan sold logs to Japanese firms at
prices FOB Vessel Magallanes, Agusan;
Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or
that the FOB prices included costs of loading, wharfage stevedoring and his agent, or to the order of the seller or of his agent, the seller thereby reserves the
other costs in the Philippines; ownership in the goods. But, if except for the form of the bill of lading, the ownership would
that the quality, quantity and measurement specifications of the logs were have passed to the buyer on shipment of the goods, the sellers's property in the goods shall
certified by the Bureau of Forestry; be deemed to be only for the purpose of securing performance by the buyer of his obligations
that the freight was paid by the Japanese buyers; and the payments of the under the contract.
logs were effected by means of irrevocable letters of credit in favor of
petitioner and payable through the Philippine National Bank or any other Prescription Issue
bank named by it.
Petitioner avers that the filing of its income tax returns, wherein the proceeds of the
Upon investigation by the Bureau of Internal Revenue, it was ascertained
disputed sales were declared, is substantial compliance with the requirement of
that no sales tax return was filed by the petitioner and neither did it pay the
filing a sales tax return, and, if there should be deemed a return filed
corresponding tax on the sales.
On the basis of agent Antonio Mole's report dated September 17, 1957,
The above contention has already been raised and rejected as not meritorious in a
respondent, on August 27, 1958, determined against petitioner the sum of
previous case decided by this Court. Thus, we held that an income tax return
P40,004.01 representing sales tax, surcharge and compromise penalty on
cannot be considered as a return for compensating tax for purposes of
its sales [tax, surcharge and compromise penalty on its sales] of logs from
computing the period of prescription under Section 331 of the Tax Code, and
January 1951 to June 1953 pursuant to Sections 183, 186 and 209 of the
that the taxpayer must file a return for the particular tax required by law in order to
National Internal Revenue Code
avail himself of the benefits of Section 331 of the Tax Code; otherwise, if he does
And in consequence of a reinvestigation, respondent, on November 6,
not file a return, an assessment may be made within the time stated in Section
1958, amended the amount of the previous assessment to P38,917.74 .
332(a) of the same Code (Bisaya Land Transportation Co., Inc. vs. Collector of
Subsequent requests for reconsideration of the amended assessment
Internal Revenue & Collector of Internal Revenue vs. Bisaya Land Transportation
having been denied
Co., Inc., G.R. Nos. L-12100 & L-11812, May 29, 1959)

Issues:
It being undisputed that petitioner failed to file a return for the disputed sales
Whether or not petitioner herein is liable to pay the 5% sales tax as then prescribed
corresponding to the years 1951, 1952 and 1953, and this omission was discovered
by Section 186 of the Tax Code on its sales of logs to the Japanese buyers; and
only on September 17, 1957, and that under Section 332(a) of the Tax Code
whether or not the assessment thereof was made within the prescriptive period
assessment thereof may be made within ten (10) years from and after the
provided by law therefore ---No it has not yet prescribed
discovery of the omission to file the return, it is evident that the lower court
correctly held that the assessment and collection of the sales tax in question has
Ratio:
not yet prescribed.
Sales Issue (you can skip this part; Yes liable for sales tax)
Petitioner herein contends that the disputed sales were consummated in Japan, and, therefore, not
subject to the taxing jurisdiction of our Government. 11. CIR v. Ayala Securities Corp. [Mar. 31, 1976] (JT)
With respect to petitioner's contention that there are proofs to rebut the prima facie finding and
Topic:  Prescription  of  government’s  right  to  assess
circumstances that the disputed sales were consummated here in the Philippines, we find that the G.R. No. L-29485
allegation is not borne out by the law or the evidence. March 31, 1976
Esguerra, J.

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REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

Petitioner: CIR Relevant laws [all from the old Tax Code]:
Respondents: Ayala  Securities  Corporation  [hereinafter  “ASC”]  and  CTA SEC. 331. Period of limitation upon assessment and collection. — Except as
provided in the succeeding section, internal revenue taxes shall be assessed
Summary: ASC filed its ITR on Nov. 1955. On Feb. 1961, CIR issued an within five years after the return was filed, and no proceeding in court
without assessment for the collection of such taxes shall be begun after the
assessment, claiming that ASC accumulated surplus for the purpose of evading
expiration of such period. For the purposes of this section, a return filed before
taxation. ASC contended that the assessment has prescribed, being filed beyond the last day prescribed by law for the filing thereof shall be considered as filed
the 5-year period. CIR said that since there is fraud, the prescriptive period is 10 on such last day: Provided, That this limitation shall not apply to cases already
years. The Soup-ream Court sided with the ASC. CIR did not present any evidence investigated prior to the approval of this Code.
proving fraud. Thus, the assessment was given beyond the 5-year prescriptive
period and was no longer binding on ASC. Sec. 332. Exceptions as to its period of limitation of assessment and collection
of taxes. — (a) In the case of a false or fraudulent return with intent to
Facts: evade tax or failure to file a return, the tax may be assessed, or a proceeding in
court for the collection of such tax may be begun without assessment, at any
On Nov. 29, 1955, ASC filed its ITR for the fiscal year ending Sept. 30, 1955.
time within ten years after the discovery of the falsity, fraud or omission. xxx
According to the ITR, ASC had accumulated a surplus of P2.7M. The income tax
was duly paid.
Ratio:
A. Fraud is a question of fact.
On Feb 21, 1961, CIR advised ASC of the assessment of P758K on its
Basically, fraud should never be presumed and must be proven.
accumulated surplus reflected on its ITR. ASC protested against the assessment
However, there is no iota of evidence presented in order for any fraud
and filed for a reconsideration, because (1) the accumulated surplus was for a bona
or falsity, with the intent to evade taxes, to be proven.
fide business purpose, and not for the purpose of evading taxation, and (2) the
B. Thus, the prescriptive period is FIVE years.
assessment was issued beyond the 5-year prescriptive period.
Since the ITR was filed on November 1955, CIR only had until
November 1960 to send an assessment.
CIR   wrote   to   ASC,   saying   that   the   latter’s   reconsideration   will   be   considered,   and  
further investigation and analysis will be ordered, if ASC executes a waiver for the The assessment dated February 1961 was filed beyond the five-year
defense of prescription. However, ASC did not sign the waiver, considering its prescriptive period.
argument that the assessment has prescribed Hence, the assessment was no longer binding on ASC
Yeah…yun  lang.
The CTA rendered a decision cancelling the assessment and declaring it to have no
force and effect. Hence, this appeal to the SC.

In the appeal, CIR contends that Section 332 of the old Tax Code, which provides 12. Philippine Journalists Inc. v. CIR (AD)
for a 10-year prescriptive period, is applicable, and not Section 331 which provides
a 5-year period. [Section 332 necessitates the existence of fraud in order for the 10- G.R. No. 162852 | December 16, 2004
year prescriptive period to apply.] Philippine Journalists, Inc., petitioner
Commissioner Of Internal Revenue, respondent
Issue tissue: Which section of the Tax Code should apply: Sec. 331 (no fraud/5-
year prescriptive period) or 332 (with fraud/10-year prescriptive period)? SUMMARY: PJI was initially assessed for deficiency taxes. During an informal
conference  with  the  Revenue  District  Officer,  PJI’s  Comptroller  executed  a  Waiver  
Held: Sec. 331 (no fraud). Hence, the prescriptive period is five years; hence, of the Statute of Limitation under the NIRC. The main issue of this case is whether
further, the claim has prescribed. or not the waiver was valid. The SC held that it was not. The waiver of the statute of
limitations is NOT a waiver of the right to invoke the defense of prescription. It is an

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REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

agreement between the taxpayer and the BIR that the period to issue an o Total P111,291,214.46
assessment and collect the taxes due is extended to a date certain. RMO No. 20-90 A Preliminary Collection Letter was sent by Deputy Commissioner to PJI to
which implements the Waiver under Sec. 223 and 224 must be followed strictly for it pay the assessment within ten (10) days from receipt of the letter.
to be valid. Here, the waiver did not follow RMO 20-90 because it did not specify a A Final Notice before Seizure was issued by the same deputy
definite agreed date between the BIR and petitioner, within which the former may commissioner giving the petitioner ten (10) days from receipt to pay.
assess and collect revenue taxes. It was signed only by a revenue district officer, PJI received a copy of the final notice on November 24, 1999.
and not the Commissioner, as mandated by the NIRC and RMO No. 20-90. Finally, By letters, PJI asked to be clarified how the tax liability of P111,291,214.46
the records show that petitioner was not furnished a copy of the waiver. The waiver was reached and requested an extension of thirty (30) days from receipt of
document being incomplete and defective, the three-year prescriptive period was the clarification within which to reply.
not tolled or extended and in fact, continued to run. The BIR received a follow-up letter from PJI asserting that its (PJI) records
do not show receipt of Tax Assessment/Demand No. 33-1-000757-94.
PJI also contested that the assessment had no factual and legal basis.
FACTS:
On March 28, 2000, a Warrant of Distraint and/or Levy No. 33-06-
On August 10, 1995, Revenue District Office of the BIR issued Letter of
046 signed by Deputy Commissioner Romeo Panganiban for the BIR was
Authority for  Revenue  Officer  Federico  de  Vera,  Jr.  to  examine  PJI’s  books  
received by the petitioner
of account for internal revenue taxes for the period January 1, 1994 to
PJI filed a Petition for Review with the Court of Tax Appeals (CTA).
December 31, 1994.
Petitioner complains:
From the examination, the PJI was told that there were deficiency taxes,
o (a) that no assessment or demand was received from the BIR;
inclusive of surcharges, interest and compromise penalty:
o (b) that the warrant of distraint and/or levy was without factual and
Revenue District Officer invited petitioner to an informal conference for an
legal bases as its issuance was premature;
opportunity to object and present documentary evidence relative to the
o (c) that the assessment, having been made beyond the 3-year
proposed assessment.
prescriptive period, is null and void;
PJI’s   Comptroller,   Lorenza   Tolentino,   executed   a   "Waiver of the
o (d) that the issuance of the warrant without being given the
Statute of Limitation under the NIRC".
opportunity to dispute the same violates its right to due process;
o The document "waive[d] the running of the prescriptive period and
provided by Sections 223 and 224 and other relevant provisions o (e) that the grave prejudice that will be sustained if the warrant is
of the NIRC and consent[ed] to the assessment and collection of enforced is enough basis for the issuance of the writ of
taxes which may be found due after the examination at any time preliminary injunction.
after the lapse of the period of limitations fixed by said Sections
The  CIR  granted  PJI’s  petition.  Accordingly,  the  deficiency  income,  value-
223 and 224 and other relevant provisions of the NIRC, until the
added and expanded withholding tax assessments were
completion of the investigation"
declared cancelled, withdrawn and with no force and effect. Likewise,
Revenue Officer submitted his audit report recommending the issuance of Warrant of Distraint and/or levy no. 33-06-046 was declared null and void.
an assessment and finding that petitioner had deficiency taxes.
CIR appealed to the CA. The CA disagreed with the CTA.
Then, the Assessment Division of the BIR issued Pre-Assessment Notices
Hence, this appeal by PJI.
which informed petitioner of the results of the investigation. Thus, BIR
Revenue Region No. 6, Assessment Division/Billing Section, issued
ISSUES: (related to prescription)
Assessment/Demand No. 33-1-000757-94 stating the following deficiency
W/N the CA gravely erred when it ruled that the assessment notices
taxes, inclusive of interest and compromise penalty:
became final and unappealable.
o Income Tax P108,743,694.88
o PJI argues that the assessment issued is void and legally non-
o Value Added Tax 184,299.20
existent because the BIR has no power to issue an assessment
o Expanded Withholding Tax 2,363,220.38
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REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

beyond the three-year prescriptive period where there is no deviation from such form. The phrase "but not after
valid and binding waiver of the statute of limitation. __________ 19___"  should  be  filled  up…
W/N the CA gravely erred when it held that the assessment in question o Soon after the waiver is signed by the taxpayer, the
has become final and executory due to the failure of the PJI to protest the Commissioner of Internal Revenue or the revenue official
same. authorized by him, as hereinafter provided, shall sign the
o PJI argues that CIR had no power to issue an assessment waiver indicating that the Bureau has accepted and agreed to
beyond the three year period under the mandatory provisions of the waiver. The date of such acceptance by the Bureau should
Section 203 of the NIRC. Such assessment should be held void be  indicated…
and non-existent, otherwise, Section 203, an expression of a o The following revenue officials are authorized to sign the waiver.
public policy, would be rendered useless and nugatory.
W/N the CA committed grave error when it held valid a defective A. In the National Office
waiver by considering such as a waiver of the right to invoke the
defense of prescription rather than an extension of the three year
period of prescription (to make an assessment) as provided under 3. Commissioner For tax cases involving
Section 222 in relation to Section 203 of the Tax Code, more than P1M
o An interpretation argued by PJI as contrary to law, existing
jurisprudence and outside of the purpose and intent for which B. In the Regional Offices
they were enacted.
RATIO:
1. The Revenue District Officer with respect to tax cases
The NIRC, under Sections 203 and 222, provides for a statute of
still pending investigation and the period to assess is
limitations on the assessment and collection of internal revenue taxes in
about to prescribe regardless of amount.
order to safeguard the interest of the taxpayer against unreasonable
investigation.
5. The foregoing procedures shall be strictly
o Unreasonable investigation contemplates cases where the
followed. Any revenue official found not to have
period for assessment extends indefinitely because this
complied with this Order resulting in prescription of
deprives the taxpayer of the assurance that it will no longer
the right to assess/collect shall be administratively
be subjected to further investigation for taxes after the
dealt with.
expiration of a reasonable period of time.
o Republic of the Phils. v. Ablaza - The law on prescription being a
remedial measure should be interpreted in a way conducive to A waiver of the statute of limitations under the NIRC, to a certain extent, is
bringing about the beneficent purpose of affording protection to a   derogation   of   the   taxpayers’   right   to   security   against   prolonged and
the taxpayer within the contemplation of the Commission which unscrupulous investigations and must therefore be carefully and strictly
recommend the approval of the law. construed.
RMO No. 20-90 implements these provisions of the NIRC relating to the The waiver of the statute of limitations is NOT a waiver of the right to
period of prescription for the assessment and collection of taxes. A cursory invoke the defense of prescription as erroneously held by the Court
reading  of  the  Order  supports  PJI’s  argument  that  the  RMO  must  be  strictly   of Appeals. It is an agreement between the taxpayer and the BIR that
followed. In the execution of said waiver, the following procedures should the period to issue an assessment and collect the taxes due is
be followed: extended to a date certain.
o The waiver must be in the form identified hereof. This form may The waiver does not mean that the taxpayer relinquishes the right to
be reproduced by the Office concerned but there should be no invoke prescription unequivocally particularly where the language of the
document is equivocal. For the purpose of safeguarding taxpayers from
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REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

any unreasonable examination, investigation or assessment, our tax law Finally, the records show that petitioner was not furnished a copy of
provides a statute of limitations in the collection of taxes. the waiver. Under RMO No. 20-90, the waiver must be executed in
Thus, the law on prescription, being a remedial measure, should be three copies with the second copy for the taxpayer.
liberally construed in order to afford such protection. As a corollary, the The Court of Appeals did not think this was important because the
exceptions to the law on prescription should perforce be strictly construed. petitioner need not have a copy of the document it knowingly executed. It
RMO No. 20-90 explains the rationale of a waiver: stated that the reason copies are furnished is for a party to be notified of
o ... The phrase "but not after _________ 19___" should be filled up. the existence of a document, event or proceeding.
This indicates the expiry date of the period agreed upon to o The   flaw   in   the   appellate   court’s   reasoning   stems   from   its  
assess/collect the tax after the regular three-year period of assumption that the waiver is a unilateral act of the taxpayer
prescription. The period agreed upon shall constitute the time when it is in fact and in law an agreement between the
within which to effect the assessment/collection of the tax in taxpayer and the BIR.  When  the  petitioner’s  comptroller  signed
addition to the ordinary prescriptive period the waiver on September 22, 1997, it was not yet complete and
As found by the CTA, the Waiver of Statute of Limitations, signed by final because the BIR had not assented. There is compliance
petitioner’s   comptroller   on   September   22,   1997   is   not   valid   and   with the provision of RMO No. 20-90 only after the taxpayer
binding because it does not conform with the provisions of RMO No. received a copy of the waiver accepted by the BIR. The
20-90. requirement to furnish the taxpayer with a copy of the waiver is
o It did not specify a definite agreed date between the BIR and not only to give notice of the existence of the document but of the
petitioner, within which the former may assess and collect acceptance by the BIR and the perfection of the agreement.
revenue taxes.   Thus,   petitioner’s   waiver   became   unlimited   in   The waiver document is incomplete and defective and thus the three-
time, violating Section 222(b) of the NIRC. year prescriptive period was not tolled or extended and continued to
o The waiver is also defective from the government side run until April 17, 1998. Consequently, the Assessment/Demand No.
because it was signed only by a revenue district officer, not 33-1-000757-94 issued on December 9, 1998 was invalid because it
the Commissioner, as mandated by the NIRC and RMO No. was issued beyond the three (3) year period. In the same manner,
20-90. The waiver is not a unilateral act by the taxpayer or the Warrant of Distraint and/or Levy No. 33-06-046 which petitioner
BIR, but is a bilateral agreement between two parties to extend received on March 28, 2000 is also null and void for having been
the period to a date certain. The conformity of the BIR must be issued pursuant to an invalid assessment.
made by either the Commissioner or the Revenue District Officer.
This case involves taxes amounting to more than One Million
Pesos (P1,000,000.00) and executed almost seven months
before the expiration of the three-year prescription period.
For this, RMO No. 20-90 requires the Commissioner of 13. CIR v. Kudos (to you) (RS)
Internal Revenue to sign for the BIR. Petitioner: CIR
o CIR v. CA - On this basis neither implied consent can be Respondent: Kudos Metal Corporation
presumed nor can it be contended that the waiver required under
Sec. 319 of the Tax Code is one which is unilateral nor can it be Topic: Exceptions extending the period to assess must be strictly construed
said that concurrence to such an agreement is a mere formality
because it is the very signatures of both the Commissioner of SUMMARY: In 1999, Kudos filed its IRT for 1998. Kudos’   accountant   executed   2  
Internal Revenue and the taxpayer which give birth to such a valid waivers for the defense of prescription in 2001 and 2003, respectively. BIR issued
agreement letter of assessment in 2003. Kudos questioned this for being issued beyond the
prescriptive period for assessment. CTA Div and CTA en banc both ruled for Kudos.
SC agreed, saying that the 2 waivers did not toll the prescriptive period for being

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REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

executed without Kudos’  written  authority,  etc. SC also said that estoppel does not Assistant Commissioner is not the person authorized to
apply in this case because there are clear rules that must be strictly followed by the sign the waiver; only the Commissioner is
BIR. For being unable to comply with these laws/rules, it cannot invoke estoppel Failed to indicated date of acceptance necessary to
against Kudos. A waiver of the statute of limitations, being a derogation of the determine if it was filed within the prescriptive period
taxpayer’s   right   to   security   against   prolonged   and   unscrupulous   Fact of receipt by taxpayer of his file copy was not
investigations, must be carefully and strictly construed. indicated on the original copy purpose: give notice of
the existence of the document and evidence of the
FACTS acceptance by the BIR
4/15/1999 – Kudos filed its ITR for 1998 CTA En banc affirmed cancellation of assessment.
9/7/1999 – the BIR served upon Kudos 3 notices of presentation of records, o Although it ruled that the Assistant Commissioner is authorized to
nd rd st
to which the latter failed to respond sign the waiver, the 2 and 3 grounds for voiding the 1 Waiver
o BIR issued a subpoena duces tecum on 9/21/2006, receipts of were still present
which was acknowledged by Kudos’  President,  Mr.  Bio,  in  a  letter  
dated 10/20/2000. (notice the years. I think they are typos). A ISSUE: WN CTA en banc erred in ruling that the government’s   right   to   assess  
review  and  audit  of  Kudos’  records  then ensued. unpaid taxes of Kudos prescribed – Nope!
12/10/2001 – Pasco,   respondent’s   accountant,   executed a Waiver of
st
Defense of Prescription (1 Waiver) RATIO
o 1/22/2002 – notarized PETITIONER’S ARGUMENTS:
o 1/31/2002 – received by BIR Enforcement Service Two waivers were valid
o 2/4/2002 – received by BIR Tax Fraud Division Kudos is estopped from questioning the process because, by submitting to
o accepted by the Assistant Commissioner of the Enforcement the audit, it led the Government to believe that the  “delay”  in  the  process  
Service,  Percival  T.  Salazar  (“Salazar”) would not be utilized against it.
nd nd
2/18/2003 – Pasco’s  2 Waiver of Defense of Prescription (2 Waiver) RESPONDENT’S ARGUMENTS:
o 2/19/2003 – notarized 2  Waivers  were  invalid  for  being  executed  without  Kudos’  written  authority
o 2/28/2003 – received by BIR Tax Fraud Division and accepted by Doctrine of estoppel by acquiescence comes into play when the law is
Assistant Commissioner Salazar doubtful, which is not the case here.
8/25/2003 – BIR issued a Preliminary Notice of Assessment for the year SUPREME COURT
1998 §203, 1997 NIRC mandates the government to assess internal
9/26/2003 - Formal Letter of Demand with Assessment Notices for taxable revenue taxes within three years from the last day prescribed by law
year 1998 for the filing of the tax return or the actual date of filing of such return,
o 11/12/2003 – received by Kudos whichever comes later.
12/3/2003 – Kudos   challenged   the   assessments   by   filing   its   “Protest   on   THE WAIVERS EXECUTED BY KUDOS’ ACCOUNTANT DID NOT EXTEND PRESCRIPTIVE
Various   Tax   Assessments”   and   its   “Legal   Arguments   and   Documents in PERIOD FOR ASSESSMENT
Support  of  Protests  against  Various  Assessments”  on  February  2,  2004. o §222(b), 1997 NIRC the period to assess and collect taxes
2/22/2004 – BIR issued its final decision, requesting immediate payment of may only be extended upon a written agreement between the CIR
P25,624,048.76 and the taxpayer executed before the expiration of the three-year
nd
CTA 2 Div – cancelled assessment notices for being issued beyond the period.
prescriptive period o RMO 20-90 and RDAO 05-01 lay down the proper procedure
st
o 1 Waiver incomplete and defective thus, prescriptive period for the execution of the waiver
continued to run: o A   perusal   of   the   waivers   executed   by   respondent’s   accountant  

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REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

reveals the following infirmities: September 7, 2011


The waivers were executed without the notarized written MENDOZA, J.
authority of Pasco to sign the waiver in behalf of Petitioners: Rizal Commercial Banking Corporation (RCBC)
respondent. Respondents: Commissioner of Internal Revenue (CIR)
The waivers failed to indicate the date of acceptance.
The fact of receipt by the respondent of its file copy was Summary:
not indicated in the original copies of the waivers. RCBC was subject to audit by BIR for its deficiencies in onshore tax and
o Due to the defects in the waivers, the period to assess or collect documentary stamp tax for taxable year 1994 and 1995. RCBC executed two
taxes was not extended. Waivers of the Defense of Prescription Under the Statute of Limitations of the NIRC.
o Consequently, the assessments were issued by the BIR beyond RCBC was assessed two more times in an extended period then paid P15 million
the three-year period and are void. and refused to pay the remaining P287 million. RCBC argues that the said waivers
ESTOPPEL DOES NOT APPLY IN THIS CASE were not properly processed by CIR as required in NIRC and then claims that the
o The doctrine of estoppel cannot be applied in this case as an said assessment must not hold due to prescription. However the CTA first division,
exception to the statute of limitations on the assessment of taxes as appealed to CTA En Banc then to the SC decided that RCBC is still liable to the
considering that there is a detailed procedure for the proper said assessment.
execution of the waiver, which the BIR must strictly follow.
o The doctrine of estoppel cannot give validity to an act that is Doctrines:
prohibited by law or one that is against public policy -A party is precluded from denying his own acts, admissions or
o Moreover, the BIR cannot hide behind the doctrine of estoppel to representations to the prejudice of the other party in order to prevent fraud
cover its failure to comply with RMO 20-90 and RDAO 05-01, and falsehood.
which the BIR itself issued. -Partial payment for assessments made in the extended period is impliedly an
o As stated earlier, the BIR failed to verify whether a notarized admittance to any waiver signed and prepared.
written authority was given by the respondent to its accountant, - The CTA, as a specialized court dedicated exclusively to the study and resolution of tax problems, has
and to indicate the date of acceptance and the receipt by the developed an expertise on the subject of taxation. Findings and conclusions of the CTA shall be
respondent of the waivers. accorded the highest respect and shall be presumed valid, in the absence of any clear and convincing
proof to the contrary.
o Having caused the defects in the waivers, the BIR must bear the
consequence. It cannot shift the blame to the taxpayer.
Facts:
o To stress, a waiver of the statute of limitations, being a
derogation   of   the   taxpayer’s   right   to   security   against   •   RCBC   seasonably   filed   its   Corporation   Annual   Income   Tax   Returns   for   Foreign  
prolonged and unscrupulous investigations, must be Currency Deposit Unit for the calendar years 1994 and 1995.
carefully and strictly construed •  On  August  15,  1996,  RCBC  received  Letter  of  Authority  No. 133959 issued by CIR
Liwayway Vinzons-Chato, authorizing a special audit team to examine the books of
accounts and other accounting records for all internal revenue taxes from January 1,
1994 to December 31, 1995.
•On  January  23,  1997,  RCBC  executed  two Waivers of the Defense of Prescription
14. RCBC v. CIR (HV)
Under the Statute of Limitations of the NIRC covering the internal revenue taxes
Topic: Prescription  of  government’s  right  to  assess
due for the years 1994 and 1995, effectively extending the period of the BIR to
Relevant Laws/ BIR Issuances:
assess up to December 31, 2000.
Section 223 (b) of the 1977 Tax Code
•Subsequently,   on   January 27, 2000, RCBC received a Formal Letter of Demand
Article 1431 of the Civil Code
together with Assessment Notices from the BIR for the total deficiency tax
assessments of P4.17 billion
G.R. No. 170257
Page 22 of 29
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

•Disagreeing   with   the   said   deficiency   tax   assessment,   RCBC   filed   a   protest   on   (2) Whether petitioner, as payee-bank, can be held liable for deficiency onshore tax, which is mandated
February 24, 2000 and later submitted the relevant documentary evidence to by law to be collected at source in the form of a final withholding tax. --- YES
support it. Much later on November 20, 2000, it filed a petition for review before the
CTA, pursuant to Section 228 of the 1997 Tax Code. Held:
•On   December   6,   2000,   RCBC   received   another   Formal   Letter   of Demand with •  Petition  by  RCBC  DENIED
Assessment Notices dated October 20, 2000, following the reinvestigation it •  Decision  of  CTA  En  Banc  AFFIRMED
requested, which drastically reduced the original amount of deficiency taxes to P303
million Ratio:
•On  the  same  day,  RCBC  paid  P15.421  million  and  refused  to  pay  P287.761  million (1) Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on
•RCBC argued that the waivers of the Statute of Limitations which it executed the   rule   that   “an admission or representation is rendered conclusive upon the
on January 23, 1997 were not valid because the same were not signed or person making it, and cannot be denied or disproved as against the person relying
conformed to by the respondent CIR as required under Section 222(b) of the thereon.”   A party is precluded from denying his own acts, admissions or
Tax Code. As regards the deficiency FCDU onshore tax, RCBC contended that because the onshore representations to the prejudice of the other party in order to prevent fraud
tax was collected in the form of a final withholding tax, it was the borrower, constituted by law as the and falsehood.
withholding agent, that was primarily liable for the remittance of the said tax. •  RCBC, through its partial payment of the revised assessments issued within
•CTA closed and terminated the assessments for deficiency income tax, deficiency the extended period as provided for in the questioned waivers, impliedly
gross receipts tax, deficiency final withholding tax, deficiency expanded withholding admitted the validity of those waivers. Had RCBC truly believed that the
tax, and deficiency documentary stamp tax (not an industry issue) for 1994 and waivers were invalid and that the assessments were issued beyond the
1995. CTA however, upheld the assessment for deficiency final tax on FCDU prescriptive period, then it should not have paid the reduced amount of taxes
onshore income and deficiency documentary stamp tax for 1994 and 1995 and in   the   revised   assessment.     RCBC’s   subsequent   action   effectively belies its
ordered RCBC to pay the the amount plus 20% delinquency tax of P171.822 million insistence that the waivers are invalid.
•In   its   resolution,   dated   April   11,   2005, the CTA-First Division substantially upheld Thus, RCBC is estopped from questioning the validity of the waivers. To hold
its earlier ruling, except for its inadvertence in the addition of the total amount of otherwise and allow a party to gainsay its own act or deny rights which it had
deficiency taxes. As such, it modified its earlier decision and ordered RCBC to pay previously recognized would run counter to the principle of equity which this
the  amount  of  ₱132,654,261.69  plus  20% delinquency tax. institution holds dear.
•The   appeal   to   the   CTA-En Banc is fruitless. In its assailed Decision, denied the
petition for lack of merit. It ruled that by receiving, accepting and paying portions of (2) RCBC erred in citing the abovementioned Revenue Regulations No. 2-98 because the same governs
the reduced assessment, RCBC bound itself to the new assessment, implying that it collection at source on income paid only on or after January 1, 1998. The deficiency withholding tax
recognized the validity of the waivers. RCBC could not assail the validity of the subject of this petition was supposed to have been withheld on income paid during the taxable years of
1994 and 1995. Hence, Revenue Regulations No. 2-98 obviously does not apply in this case.
waivers after it had received and accepted certain benefits as a result of the
execution of the said waivers. Findings and conclusions of the CTA shall be accorded the highest respect and shall be presumed
•   As to the deficiency onshore tax, it held that because the payor-borrower was merely designated by valid, in the absence of any clear and convincing proof to the contrary. The CTA, as a specialized
law to withhold and remit the said tax, it would then follow that the tax should be imposed on RCBC as court dedicated exclusively to the study and resolution of tax problems, has developed an expertise on
the payee-bank. Finally, in relation to the assessment of the deficiency documentary stamp tax on the subject of taxation. As such, its decisions shall not be lightly set aside on appeal, unless this Court
petitioner’s  special  savings  account,  it  held  that  petitioner’s  special  savings  account  was  a  certificate  of   finds that the questioned decision is not supported by substantial evidence or there is a showing of
deposit and, as such, was subject to documentary stamp tax. abuse or improvident exercise of authority on the part of the Tax Court

Issues:
(1) Whether petitioner, by paying the other tax assessment covered by the waivers
15. Republic v. Lim De Yu (HQ)
of the statute of limitations, is rendered estopped from questioning the validity of the
Topic: Prescription of Tax Assessments, Waiver, Assessment vs. Collection
said waivers with respect to the assessment of deficiency onshore tax. --- YES
G.R. No. L-17438 April 30, 1964

Page 23 of 29
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

Plaintiff-Appellant: Republic of the Philippines to SC since the issues involved were purely legal.
Defendant-Appellee: Rita Lim de Yu
Relevant Provisions: Sec. 203 and 222 of the (current) Tax Code, in the ratio Issue: Whether or not the right to collect the deficiency income tax
assessment had already prescribed?
Summary: 1948-1950: YES, already lapsed when the assessment and
Yu filed her ITRs from 1948-1953 to which the BIR issued deficiency IT waiver was made in 1956
assessments for the years 1945-1953. In 1956, Yu protested and asked for 1951-1953: NO, tax assessment was made within the 5-year
reinvestigation. Thereafter, Yu signed a waiver as condition to the reinvestigation. (now 3) prescriptive period
In 1958, BIR issued IT assessment notices for the years 1948-1953. Yu failed to
pay so BIR filed a collection suit against her. CFI dismissed the case since the Sub-Issue: Whether or not the returns filed for the years 1948-1953 are false and
claim had already prescribed. fraudulent? NO

SC held that there being no fraud, taxes can be assessed within 5 years after Held:
the return was filed.  Moreover,  as  an  exception,  there  can  be  a  “waiver”  as  to  the   Decision is MODIFIED
prescriptive period (so the BIR can assess and collect taxes before the expiration of Ordered Yu to pay P26,182.00 as deficiency income taxes for the years
the period agreed upon) as long as the same was executed before the 1951, 1952 and 1953, plus 5% surcharge and 1% monthly interest thereon
prescriptive period expired. from July 31, 1958 until payment of the full obligation

Hence, BIR’s   right   to   collect   deficiency   tax   assessment   had   already   Ratio:
st
prescribed for the tax years 1948-1950 since the 1 assessment and waiver were Relevant provisions under the Tax Code regarding tax assessments state:
only made in 1956 (beyond 5 yrs from date returns were filed). However, for tax
years 1951-1953, BIR can still collect since the assessment and waiver were SEC. 331 (now Sec. 203). Period of limitation upon assessment and
made within the 5-yr. prescriptive period. collection. — Except as provided in the succeeding section, internal revenue
taxes shall be assessed within five (now three) years after the return was
Facts: (years are relevant) filed, and no proceeding in court without assessment for the collection of such
taxes shall be begun after the expiration of such period. For the purposes of this
Rita Lim de Yu filed her yearly income tax returns from 1948 through 1953
section a return filed before the last day prescribed by law for the filing thereof
BIR assessed the taxes due on each return, and Yu paid them accordingly shall be considered as filed on such last day: Provided, That this limitation shall
not apply to cases already investigated prior to the approval of this Code.
July 17, 1956 (Tax Assessments): BIR issued deficiency income tax
assessments for the years 1945 to 1953 in the total amount of P22,450.50 SEC. 332 (now Sec. 222). Exceptions as to period of limitation of
Yu protested the assessments and requested a reinvestigation assessment and collection of taxes. — (a) In the case of a false or fraudulent
return with intent to evade tax or of a failure to file a return, the tax may be
August 30, 1956 (Waiver): Yu signed a "waiver" of the statute of
assessed, or a proceeding in court for the collection of such tax may be begun
limitations as condition to the reinvestigation requested
without assessment, at any time within ten years after the discovery of the
falsity fraud, or omission.
July 18, 1958 (Tax Assessments): BIR issued income tax assessment
notices for the years 1948 to 1953 totalling P35,379.63, which covered not (b) Where before the expiration of the time prescribed in the preceding section
only the basic deficiency income taxes, but also 50% thereof as surcharge for the assessment of the tax, both the Commissioner of Internal Revenue
Yu failed to pay hence, the BIR filed an action for collection CFI and the taxpayer have consented in writing to its assessment after such
time, the tax may be assessed at any time prior to the expiration of the period
Cotabato
agreed upon. The period so agreed upon may be extended by subsequent
Case was dismissed, BIR appealed to the CA, which forwarded the case
agreements in writing made before the expiration of the period previously agreed

Page 24 of 29
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

upon.
Tax Years 1951-1953
(c) Where the assessment of any internal revenue, tax has been made within the The waiver validly covers only the tax years 1951 and 1952, with
period of limitation above prescribed such tax may be collected by distraint or
respect to which the 5-year period had NOT yet elapsed when the said
levy or by a proceeding in court, but only if begun (1) within five years after the
assessment of the tax, or (2) prior to the expiration of any period for collection waiver was executed
agreed upon in writing by the Commissioner of Internal Revenue and the With respect to the tax year 1953, as to which the return was filed on
taxpayer before the expiration of such five-year period. The period so agreed March 1, 1954, the waiver was not necessary for the effectivity of the
upon may be extended by subsequent agreements in writing made before the assessment made on July 18, 1958 (since such assessment was well
expiration of the period previously agreed upon. within the original 5-year period)
After the assessment on July 18, 1958, BIR had five years within which
NO FRAUD ESTABLISHED to file suit for collection pursuant to Sec. 332 (c)
The first issue raised by BIR is whether the returns filed by Yu for the years
1948 to 1953 are false and fraudulent. ASSESSMENT vs. COLLECTION
BIR maintains they are (false and fraudulent) because the yearly net Yu’s  theory  that  collection could be made only up to the end of the period
incomes reported in her returns are much less than as computed by the of extension stated in the waiver, namely, December 31, 1958, is without
BIR merit
Consequently, it has ten years from the date of the discovery of the Assessment and collection are two different processes
fraud or falsity, [Sec. 222 (a)] within which to assess the taxes or file a ASSESSMENT
suit for collection without assessment o NOT an action or proceeding for the collection of taxes
SC held that while fraud is alleged in the complaint, the same has not o It is merely a notice to the effect that the amount therein stated is
been established due as tax and a demand for the payment thereof
BIR   itself  appears   not   too   sure   as   to   the   amounts   of   Yu’s   net   income   for   o It is a step preliminary, but essential to warrant distraint, if still
those years as it also arrived at three highly different computations on feasible, and, also, to establish a cause for "judicial action"
three occasions [Sec. 316, hindi ko mahanap counterpart ] (Alhambra Cigar vs.
Hence, fraud not having been proven, the period of limitation for CIR)
assessment or collection was five years from the filing of the return
[now 3 years, Sec. 203] Sec. 331 (203) gives the Government five (three) years from filing of the
The right to assess or collect the income taxes for the years 1948 to 1950 return (which is not false or fraudulent) within which to assess the tax due.
had already prescribed, when the BIR issued the deficiency income tax Sec. 332 (b) [now 222 (b)] allows the extension of this period by means of
assessments on July 17, 1956 a written agreement between the taxpayer and the CIR

TAX YEARS 1948-1950   NOT   INCLUDED   IN   THE   “WAIVER”   EXECUTED   ON   On the other hand, (c) of the same section is concerned with the
AUGUST 1956; ONLY COVERS 1951-1952; NOT NEEDED FOR 1953 collection of the tax after assessment, regardless of whether the
The 5-year period for assessment, counted from the date the return is filed assessment was made during the original five-year period or within an
(May 25, 1955), may be extended upon agreement of the CIR and the agreed period of extension
taxpayer Collection then may be effected within five years after assessment or
However, such agreement must be made before, not after, the within the "period for collection agreed upon in writing by the CIR
expiration of the original period [Section 222 (b)] and the taxpayer before the expiration of such five-year period."
Hence, it does not authorize extension once prescription has
attached Extension refers to the Assessment Period, NOT Collection

Page 25 of 29
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

Thus, although under the waiver Yu consented to the "assessment and RTC ruled in favor of CIR
collection" if made not later than December 31, 1958, such expiration
date must be deemed to refer only to the extension of the Issues:
assessment period 5. WON the discrepancies in the return amounted to fraud revealing intent to
Insofar as collection is concerned, the period does not apply, for otherwise evade taxes which made the case fall under Sec. 332 (10-year
the effect of the waiver would be to shorten, not extend, the legal period for prescriptive period) instead of Sec. 331 (5-year prescriptive period)
that purpose.
BIR therefore had five years from 1958 within which to file his action, Held:
which was actually filed in 1959 Decision of lower court REVERSED.

Ratio:

16. Republic v. Heirs of Jalandoni (MR) According to the CIR, fraud is a state of mind and can only be inferred from
Topic: The finding of fraud to warrant the application of the Sec. 332 period instead
facts and circumstances. Here, the difference between the amounts
of the Sec. 331 period is a finding of fact to be deduced from the circumstances
apeparing in the returns filed and the undeclared properties of the estate is
Relevant Laws: Sec. 331 and 332 of the NIRC
a substantial understatement of the true value of the estate. The
substantial understatement makes it impossible for the court to believe that
G.R. No. L-18384
the omission was due to inadvertence
September 20, 1965 BUT THE SC RULED THIS WAY:
Bautista Angelo, J.
When this case was pending before the lower court, the court ordered the
Collector to verify the allegations of omission and undervaluations.
Petitioners: Republic of the Philippines
According to its findings:
Respondents:Heirs of Cesar Jalandoni
o Of the 7 lots that were alleged excluded, 3 were actually included
and the fourth was excluded because it belonged to Delfin, not
Facts:
the deceased.
Isabel Ledesma died intestate, leaving heirs Bernardino (husband), and
o It was also found that if you substract the value of the 3
children Cesar, Angeles and Delfin
remaining excluded lots from the aggregate of the 7, it would
Cesar filed an estate and inheritance tax return. BIR made 3 assessments come out to Php 3,500. And these 3 being conjugal property
and called for payment of deficiency inheritance taxes for: undeclaring (remember   you   deduct   the   surviving   spouse’s   share   from   the  
market value of lands included in the return, for not declaring 7 lots deceased’s  estate?  OPS),  really  only  Php  1,750 was undeclared.
registered in Negros, and undeclaring shares of stock in certain
But actually, those 3 undeclared lots were included by the husband in his
corporations income   taxx   return.   So   there’s   reason   to   believe   the   exclusion   was   just  
Bernardino’s  answered  setting  up  the  defense  of  prescritpion  because  the   inadvertent
assessments were made more than 5 years from the filing of the return
The same inadvertence can be attributed to the asugar and rice lands that
under Sec. 331 (this fact was not disputed)
were alleged underdeclared. Furthermore, the deficiency assessment was
CIR’s   defense   is   that   the  omissions found in the return filed amounted to made more than 5 years from the time the return was filed, so naturally
fraud indicating intention to evade taxes and so fell under Sec. 332 instead there  would’ve  been  an  increase  in  the  real  estate  value  
(precriptive period of 10 years)—assessments were then made well within
For the shares of stock, the fact that the declared aggregate market value
that period
did not match the book value cannot be indicative of fraud because the
The 30 day period within which to appeal the assessments to CTA were
not availed of, so the CIR filed a case for collection with the RTC

Page 26 of 29
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

book value only became known several months after the death. Moreover, The late Matias Aznar died on May 18, 1958. During his lifetime he filed
stock securities frequently fluctuate income tax returns on the cash and disbursement basis.
Thus, in the absence of fraud, it is evident that the period to make The CIR, having doubts on the veracity of the reported income of one
assessment was 5 years from the return and so the claim of the CIR has obviously wealthy, pursuant to the authority granted by Section 38, caused
prescribed BIR examiner to ascertain the true income for said years using the net
worth and expenditures method of tax investigation.
o It   was   found   that   Aznar’s   net   worth   increased   every   year   and  
17. Aznar v. CTA (RK) such increases were very much more than the reported net
income.
Topic: (1) Ten year period of prescription applies where the government is
o The conclusion was Aznar did not declare correctly the income
prevented from making proper assessments; (2) Proceeding for collection of
reported in his income tax returns
deficiency taxes based on false return, fraudulent return or failure to file a return
prescribes in ten years; (3)Actual fraud, not constructive fraud, is subject to 50% Based on the findings, Aznar was assessed tax delinquency to the amount
surcharge as penalty of P723,032.66 plus penalty but after reinvestigation, this amount was
reduced to P381,096.07 dated February 16, 1955 and received March 2,
1955. (SEE case for computation and figures but prescription is relevant
G.R. No. L-20569
August 23, 1974 here  so  I  suggest  you  don’t  waste  time).  
Esguerra, J: The properties of Aznar was placed under distraint and levy. Aznar filed a
petition for review in the CTA which rendered a decision that liability is
Petitioners: Jose Aznar, in his capacity as Administrator of the Estate of the P227,788.64
deceased, Matias Aznar,
Respondents: CTA and CIR Issues:
6. Whether or not the right of the CIR to assess deficiency income taxes of
Summary: The late Matias Aznar filed his income tax return for the years 1946 to the late Matias Aznar for 1946 to 1948 has prescribed
1951. The CIR, having doubts on the veracity of the return investigated. It was
found   out   that   Aznar’s   net   worth   increased   yearly   and   such   was   much   more   than   Held: NO   (there   are   other   issues   in   the   case   but   we   don’t   need   to   discuss   them  
the reported income taxes yearly. For this reason, Aznar was assessed deficiency yet)
income tax for the period beginning 1946 and ending 1951. The final assessment
was received only in March 2, 1955. It is contended that for the years 1946, 1947, Ratio:
and 1948, the right to assess has already prescribed having been made beyond the Petitioner contends that what is applicable is the 5 year period in Section
5 year period. The SC said that a ten year period of prescription applies where the 331.
government   is   prevented   from   making   proper   assessments.   “Whenever the o He argues that since the 1946 income tax return could be
government is placed at a disadvantage so as to prevent its lawful agents from presumed filed before March 1, 1947 and the notice of final and
proper assessment of tax liabilities due to false returns, fraudulent return intended last assessment was received by the taxpayer on March 2, 1955,
to evade payment of tax or failure to file returns, the period of ten years provided for a period of about 8 years had elapsed and the five year period
in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or omission provided by law had already expired.
even  seems  to  be  inadequate  and  should  be  the  one  enforced” o Same argument for years 1947 and 1948, filed in 1948 and 1949
respectively, would have been assessed after the lapse of 5 years
Facts: when assessment was on March 2, 1955 as well.
Petitioner sought the nullification of CTA decision ordering him to pay Respondents, on the other hand, are of the firm belief that regarding the
P227,691.77 in deficiency income taxes for the years 1946 to 1951. prescriptive period for assessment of tax returns, Section 332 of the

Page 27 of 29
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

National Internal Revenue Code should apply because, as in this case, WHEREFORE, the decision of the Court of Tax Appeals is modified in so far as the
"(a) In the case of a false or fraudulent return with intent to evade tax imposition of the 50% fraud penalty is concerned, and affirmed in all other respects.
or of a failure to file a return, the tax may be assessed, or a proceeding
in court for the collection of such tax may be begun without assessment, at
any time within ten years after the discovery of the falsity, fraud or
17. CIR v. Ayala Securities Corp. [Nov. 21, 1980] (KB)
omission"
Topic: Prescription;
SC’s   CONCLUSION:   We believe that the proper and reasonable
Relevant Laws:
interpretation of said provision should be that in the three different cases of
(1) false return, (2) fraudulent return with intent to evade tax, (3) failure to
G.R. No. L-29485
file a return, the tax may be assessed, or a proceeding in court for the
Nov 21, 1980
collection of such tax may be begun without assessment, at any time
Teehankee, J.:
within ten years after the discovery of the (1) falsity, (2) fraud, (3)
omission.
Petitioners: CIR
o Our stand that the law should be interpreted to mean a separation
Respondents: Ayala Securities Corporation
of the three different situations of false return, fraudulent return
with intent to evade tax, and failure to file a return is strengthened
Summary: Ayala was held liable for Improperly Accumulated Earnings Tax (IAET)
immeasurably by the last portion of the provision which
beyond the 5 year prescriptive period. Court ruled before that such assessment was
segregates the situations into three different classes, namely
of no binding force and effect. CIR now contends in this MR that the prescriptive
"falsity", "fraud" and "omission".
periods does not apply as there is no law requiring taxpayers to file returns of the
o That there is a difference between "false return" and "fraudulent
accumulated surplus. SC now reverses its decision ruling that the existence of a
return" cannot be denied.
time limit beyond which the government may recover unpaid taxes is purely
“False   Return”   implies   deviation   from   the   truth,   whether  
dependent upon some express statutory provision. It follows that in the absence
intentional or not,
of express statutory provision, the right of the government to assess unpaid
“Fraudulent  Return”  implies  intentional  or  deceitful  entry  
taxes is imprescriptible. Since there is no express statutory provision limiting the
with intent to evade the taxes due.
o DOCTRINE: The ordinary period of prescription of 5 years within right of the Commissioner of Internal Revenue to assess the tax on unreasonable
accumulation of surplus provided in Section 25 of the Revenue Code, said tax may
which to assess tax liabilities under Sec. 331 of the NIRC should
be assessed at any time.
be applicable to normal circumstances, but whenever the
government is placed at a disadvantage so as to prevent its lawful
agents from proper assessment of tax liabilities due to false facts
returns, fraudulent return intended to evade payment of tax or
failure to file returns, the period of ten years provided for in Sec. This is a motion for reconsideration of the Court's decision of April 8, 1976
332 (a) NIRC, from the time of the discovery of the falsity, fraud or wherein the Court affirmed in toto the appealed decision of respondent
omission even seems to be inadequate and should be the one Court of Tax Appeals
enforced. This Court's decision under reconsideration held that the assessment
There being undoubtedly false tax returns in this case, We affirm the made on February 21, 1961 by petitioner against respondent corporation in
conclusion of the respondent Court of Tax Appeals that Sec. 332 (a) of the the sum of P758,687.04 on its surplus of P2,758,442.37 for its fiscal year
NIRC should apply and that the period of ten years within which to assess ending September 30, 1955 fell under the five-year prescriptive period
petitioner's tax liability had not expired at the time said assessment was provided in section 331 of the National Internal Revenue Code and
made. that the assessment had, therefore, been made after the expiration of

Page 28 of 29
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Prescription  of  Government’s  Right  to  Assess)

the said five-year prescriptive period and was of no binding force and year period for making in assessment under Section 332 does not apply to internal
effect revenue taxes which do not require the filing of a return.
CIR has urged that
o A perusal of Sections 331 and 332(a) will reveal that they refer to It is well settled limitations upon the right of the government to assess and collect
a tax, the basis of which is required by law to be reported in a taxes will not be presumed in the absence of clear legislation to the contrary. The
return such as for example, income tax or sales tax. However, the existence of a time limit beyond which the government may recover unpaid taxes is
surtax imposed by Section 25 of the Tax Code is not one such tax. purely dependent upon some express statutory provision. It follows that in the
Accumulated surplus are never returned for tax purposes, as absence of express statutory provision, the right of the government to assess
there is no law requiring that such surplus be reported in a return unpaid taxes is imprescriptible. Since there is no express statutory provision
for purposes of the 25% surtax. In fact, taxpayers resort to all limiting the right of the Commissioner of Internal Revenue to assess the tax on
means and devices to cover up the fact that they have unreasonable accumulation of surplus provided in Section 25 of the Revenue Code,
unreasonably accumulated surplus. said tax may be assessed at any time.
CIR, therefore, submits that
o As there is no law requiring taxpayers to file returns of their
accumulated surplus, it is obvious that neither Section 33 nor
Section 332(a) of the Tax Code applies in a case involving the
25% surtax imposed by Section 25 of the Tax Code 19. RMC 29-2012
Issues: See Dropbox folder.  I  couldn’t  copy-paste it here eh.
W/n prescription is available for IAET --- NO

Held: the Court's decision of April 8, 1976 is set aside and in lieu thereof, judgment
is hereby rendered ordering respondent corporation to pay the assessment

Ratio:

Although petitioner filed an income tax return, no return was filed covering its
surplus profits which were improperly accumulated. In fact, no return could have
been filed, and the law could not possibly require, for obvious reasons, the filing of a
return covering unreasonable accumulation of corporate surplus profits. A tax
imposed upon unreasonable accumulation of surplus is in the nature of a penalty.
(Helvering v. National Grocery Co., 304 U.S. 282). It would not be proper for the law
to compel a corporation to report improper accumulation of surplus. Accordingly,
Section 331 limiting the right to assess internal revenue taxes within five years from
the date the return was filed or was due does not apply.

It will be noted that Section 332 has reference to national internal revenue taxes
which require the filing of returns. This is implied, from the provision that the ten-
year period for assessment specified therein treats of the filing of a false or
fraudulent return or of a failure to file a return. There can be no failure or omission to
file a return where no return is required to be filed by law or by regulation. The ten-

Page 29 of 29
TAXATION LAW 2 o For the claims against Aboitiz and J. Trucking, which claimed
to have been hijacked and for which they were given rebates
DIGESTS AND PROVISIONS COMPILATION of 30%, no proof (not even the company policy discussing
the rebate) was submitted.
E. Remedies o For the claims against Alejandro Renato, whose present
whereabouts were unknown, PFC could not produce any
evidence evidencing the existence of a debt.
E.5. Imposition of Penalties o For the claims against Enriched Foods, wherein PFC claimed
to have sent demand letters, no such copy of the demand
letters were shown.
01. Philippine Refining Company v. CTA (JT)
o For the claims against AFPCES, wherein a collection suit
May 8, 1996
was allegedly filed, no evidence was presented to show that
a collection suit was actually filed.
Summary
o “The  Court  vehemently  rejects  the  absurd thesis of petitioner
PFC failed to pay a deficiency tax assessment (based on alleged bad debts
that despite the supervening delay in the tax payment,
expenses) despite protesting and elevating the case all the way to the SC. The SC
nothing is lost on the part of the Government because in the
said that the fact that PFC appealed the case is of no moment—PFC still has to pay
event that these debts are collected, the same will be
the deficiency taxes. The penalty imposed was: 25% surcharge and 20% interest
returned as taxes to it in the year of the recovery. This is an
accrued from the date of the demand letter .
irresponsible statement which deliberately ignores the fact
that while the Government may eventually recover revenues
Facts
under that hypothesis, the delay caused by the non-payment
PFC was assessed a deficiency tax for 1985 in the amount of P1.8M. The
of taxes under such a contingency will obviously have a
assessment was timely protested, because of erroneous disallowances of bad
disastrous effect on the revenue collections necessary for
debts and interest expenses. The CIR issued a warrant of garnishment, which
governmental  operations  during  the  period  concerned.”
essentially denied the protest of PFC.
2. For a debt to be a bad debt, 4 requisites must be satisfied:
a. There is a valid and subsisting debt
PFC appealed to the CTA, which reduced the deficiency assessment by setting
b. The debt must actually be ascertained as worthless and
aside the disallowance of the interest expenses, but maintained the bad debts
uncollectible during the taxable year
assessment. PFC elevated it to the CA, which denied the appeal.
c. The debt must be charged off during the taxable year
d. The debt must arise from the business or trade of the taxpayer
Issue/Held: W/N PFC is liable for surcharges and penalties—YES.
e. Another requirement: the taxpayer must show that it is
uncollectible even in the future
Ratio:
3. Steps that must be undertaken by the taxpayer to prove that he
1. Only three of the 16 accounts claimed as bad debts expenses, only
exerted diligent efforts in collecting the debts:
three are to be considered as bad debts.
a. sending of statement of accounts
The  “worthlessness”  of  the  other  thirteen  accounts  are  based  only  on  
b. sending of collection letters
a testimony submitted by the financial accountant of PFC.
c. giving the account to a lawyer for collection
No  evidence  was  submitted  to  support  the  accountant’s  claim.
d. filing a collection case in court
o Evidence admissible in this case include, but not limited to, 4. On surcharges and penalties
collection letters, report from investigating fieldmen, letter of
The deficiency tax assessment should have been paid thirty days after
referral, police reports/affidavits, etc.
the receipt of the demand letter. Unfortunately, PFC did not pay, so it
o For the claim against Remoblas Store, which burned to the
has to pay a penalty.
ground and therefore no assets were left to pay off the debt,
PFC failed to show any evidence proving the same.
Page 1 of 6
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Imposition of Penalties)

The penalty is: 25% surcharge and interest of 20% accrued from The dispute arose not simply because of ordinary divergence of views
the date of the demand letter [note: not from the date of the receipt] in good faith vis-à-vis the interpretation of the law but the position of
o The fact that PFC appealed the case does not discharge it Republic Cement was founded upon the original stand of the BIR
from its penalty. itself that cement is a mineral product. (Ang gulo kasi ng BIR.)
o Tax laws imposing penalties for delinquencies are intended Under such circumstances, the 25% surcharge imposition must be
to hasten tax payments by punishing evasions or neglect of deleted.
duty in respect thereof.
o If penalties could be condoned for flimsy reasons, the law
imposing penalties for delinquencies would be rendered
nugatory, and the maintenance of the government and its
03. Cagayan Electric Power v. CIR (RS)
multifarious activities will be adversely affected. L-60126
It is mandatory to collect penalty and interest at the stated rate in September 25, 1985
case of delinquency. Petitioner: Cagayan Electric Light and Power Company, Inc, (Cagayan)
o The intention of the law is to discourage delay in the payment Respondents: CIR and CA
of taxes
o The penalty and interest are not penal but compensatory for FACTS
the concomitant use of the funds by the taxpayer beyond the This is about the liability of petitioner Cagayan Electric Power & Light Co.,
date when he is supposed to have paid them to the Inc. for income tax amounting to P75,149.73 for the more than seven-
Government. month period of the year 1969 in addition to franchise tax
The petitioner is the holder of a legislative franchise, Republic Act No.
3247, under which its payment of 3% tax on its gross earnings from the
sale of electric current is "in lieu of all taxes and assessments of whatever
authority upon privileges, earnings, income, franchise, and poles, wires,
02. CIR v. Republic Cement (AD) transformers, and insulators of the grantee, from which taxes and
assessments the grantee is hereby expressly exempted" (Sec. 3)
FACTS:
6/27/1968 - RA 5431 amended section 24 of the Tax Code by making
Republic Cement et al is a cement manufacturing company.
liable for income tax all corporate taxpayers not specifically exempt under
Initially, the BIR ruled that cement is a mineral product rather than a
paragraph (c) (1) of said section and section 27 of the Tax Code
manufactured product and is therefore subject to ad valorem tax, not
notwithstanding the "provisions of existing special or general laws to the
sales tax.
contrary".
Subsequently, the CIR ruled that cement is a manufactured product and
Thus, franchise companies were subjected to income tax in addition to
therefore subject to sales tax.
franchise tax.
The BIR then assessed Republic Cement for deficiency sales tax and
However, in petitioner's case, its franchise was amended by RA. 6020,
imposed the 25% surcharge.
effective August 4, 1969, by authorizing the petitioner to furnish electricity
ISSUE: Is the imposition of the 25% surcharge proper?
to the municipalities of Villanueva and Jasaan, Misamis Oriental in addition
HELD: No
to Cagayan de Oro City and the municipalities of Tagoloan and Opol.
RATIO:
o The amendment reenacted the tax exemption in its original
The Supreme Court noted that the 25% penalty contemplates a case
charter or neutralized the modification made by Republic Act No.
where the liability for the tax is undisputed or indisputable.
5431 more than a year before.
In this case, the assessments are disputed.
By reason of the amendment to section 24 of the Tax Code, the
Commissioner of Internal Revenue in a demand letter dated February 15,

Page 2 of 6
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Imposition of Penalties)

1973 required the petitioner to pay deficiency income taxes for 1968-to o The Commissioner at the outset was not certain as to petitioner's
1971. income tax liability. It had reason not to pay income tax because
o The petitioner contested the assessments. of the tax exemption in its franchise.
o The Commissioner cancelled the assessments for 1970 and 1971 For this reason, it should be liable only for tax proper and should not
but insisted on those for 1968 and 1969. be held liable for the surcharge and interest.
Tax Court - held the petitioner liable only for the income tax for the period
from January 1 to August 3, 1969 or before the passage of Republic Act
No. 6020 which reiterated its tax exemption.

ISSUE: WN Tax Court erred in holding that RA 5431 repealed Cagayan's 04. CIR v. Air India (HV)
franchise? No Topic: Imposition of Penalties
Relevant Laws/ BIR Issuances:
HELD: WHEREFORE, the judgment of the Tax Court is affirmed with the Sections 247-252, Tax Code
modification that the petitioner is liable only for the tax proper and that it should
not pay the delinquency penalties. No costs. G.R. No. 72443
January 29, 1988
RATIO GANCAYCO, J.
Congress could impair petitioner's legislative franchise by making it liable
for income tax from which heretofore it was exempted by virtue of the Petitioners: Commissioner of Internal Revenue (CIR)
exemption provided for in section 3 of its franchise. Respondents: Air India
The Constitution provides that a franchise is subject to amendment,
alteration or repeal by the Congress when the public interest so requires Summary:
Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it Air India is an offline international carrier that only sells tickets in the Philippines.
is subject to the provisions of the Constitution and to the terms and CIR assessed Air India for deficiency income tax (2,5% based on gross Phil.
conditions established in Act No. 3636 whose section 12 provides that the billings) and 50% Surcharge. CTA ruled in favor of Air India. SC reversed and set
franchise is subject to amendment, alteration or repeal by Congress. aside CTA ruling that the no wilful neglect is presumed, that 25% should be the
Republic Act No. 5431, in amending section 24 of the Tax Code by proper rate, and that the interest computed is proper plus there will still be an
subjecting to income tax all corporate taxpayers not expressly exempted additional interest based on the deficiency and surcharge.
therein and in section 27 of the Code, had the effect of withdrawing
petitioner's exemption from income tax. Doctrines:
•  50%  Surcharge  applies  in  case  of  willful  neglect  to  file  the  return  or  list  or  in  case  
The Tax Court acted correctly in holding that the exemption was restored
of fraudulent return
by the subsequent enactment on August 4, 1969 of Republic Act No. 6020
•  25%  Surcharge  applies  any  failure  to  make  and  file  a  return  or  list  not  due  to  willful  
which reenacted the said tax exemption.
neglect
o Hence, the petitioner is liable only for the income tax for the
•  Except  that,  when  a  return  is  voluntarily  and  without  notice  from  the  Commissioner  
period from January 1 to August 3, 1969 when its tax exemption
or other officer filed after such time, and it is shown that the failure to file it was due
was modified by Republic Act No. 5431.
to a reasonable cause, no such addition shall be made to the tax.
It cannot be denied that the said 1969 assessment appears to be highly
•  The willful neglect to file the required tax return or the fraudulent intent to
controversial.
evade the payment of taxes, considering that the same is accompanied by
legal consequences, cannot be presumed.

Page 3 of 6
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Imposition of Penalties)

•  The  additional  interest  is  to  be  computed  upon  the  entire  amount  of  the  tax  liability   not only the National Internal Revenue Code but also the due process clause of the
(previous interest included) which remains unpaid Constitution.”
•50% Surcharge will only apply in case of willful neglect to file the return or
list required under this Title within the time prescribed by law, or in case a
Facts: false or fraudulent return or list is willfully made
•   Air India is an off-line international carrier not engaged in the business of air •CIR  now  files  this  petition  for  review  to  SC
transportation in the Philippines.
•   The   total   sales   of   airplane   tickets   transacted   by   Philippine   Air   Lines,   Inc.   for   the   Issues:
private respondent during the fiscal year ending March 31, 1976 amounted to (1) Is Air India liable to pay the income tax and the penalties? --- YES
P2,968,156.00. (2) Is the surcharge due 25% or 50%? --- 25%
•  The  CIR  held  Air  India  liable  for  P142,471.68 for the 2.5% income tax of the gross (3) Will there be additional interest on the surcharge? --- YES
Philippine billings for the pursuant to Section 24 (b) (2) of the National Internal
Revenue Code, as amended, inclusive of the 50% surcharge and interest for willful Held:
neglect to file a return as provided under Section 72: •  Petition  of  CIR  GRANTED
•  Decision  of  CTA  REVERSED  AND  SET  ASIDE
Gross Philippine billings P2,968,156.00

Income Tax due thereon at 2.5% 74,204.00 Ratio:


(1) YES, as established in Commissioner of Internal Revenue v. British
Add: 50% surcharge 37,102.00 Overseas Airways Corporation.
"Gross Income" includes gains, profits, and income derived from salaries, wages or
14% interest per annum (42% maximum) 31,165.68 compensation for personal service of whatever kind and in whatever form paid, or
from profession, vocations, trades, business, commerce, sales, or dealings in
Total Amount Due and Collectible P142,471.68
property, whether real or personal, growing out of the ownership or use of or
•Air India appealed to CTA contending that they cannot be held liable to pay the interest in such property; also from interests, rents, dividends, securities or the
said imposition because it did not derive any income from sources with the transactions of any business carried on for gain or profit, or gains, profits, and
Philippines during the said fiscal year and that the amount of P2,968,156.00 income derived from any source whatever. ...
mentioned in the assessment The definition is broad and comprehensive to include proceeds from sales of
•On   the   other   hand,   the CIR argued that the amount of P2,968,156.00 was transport documents. "The words "income from any source whatever" disclose a
realized in the Philippines and was, therefore, derived from sources within the legislative policy to include all income not expressly exempted within the class of
Philippines. CIR also stressed that in case of any doubt, the presumption is taxable income under our laws." Income means "cash received or its equivalent"; it
that the tax assessment is correct. is the amount of money coming to a person within a specific time ...; it means
•CTA   ruled   in favor of Air India and held that the held that the surcharge and something distinct from principal or capital. For, while capital is a fund, income is a
interest imposed flow. As used in our income tax law, "income" refers to the flow of wealth. For the
•CTA  ruled: source of income to be considered as coming from the Philippines, it is sufficient
“Under the law, the situs of the income derived from labor or performance of service that the income is derived from activity within the Philippines. The absence of flight
is determined by the place where the labor is performed or the service rendered, not operations to and from the Philippines is not determinative of the source of income
by the place where payment is made (Sec. 37, Nat. Int. Rev. Code.) It follows that or the situs of income taxation.
the situs of the income derived by foreign international carriers from the business of •The  50%  surcharge  or  fraud  penalty  provided  in  Section  72  of  the  National  Internal  
air transportation is the place where the airplane service is rendered or performed. Revenue Code is imposed on a delinquent taxpayer who willfully neglects to file the
Accordingly, to tax the income derived by petitioner (Air India) from the required tax return within the period prescribed by the law, or who willfully files a
transportation service rendered or performed outside the Philippines would violate false or fraudulent tax return:

Page 4 of 6
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Imposition of Penalties)

Sec. 72. Surcharges for failure to render returns and for rendering false and (3) Additional interest - The additional interest is to be computed upon the entire
fraudulent returns.-In case of willful neglect to file the return or list required amount of the tax liability (previous interest included) which remains unpaid. This is
under this Title within the time prescribed by law, or in case a false or manifested by the use of the phrase "there shall be collected upon the unpaid
fraudulent return or list is willfully made, the Commissioner of Internal
amount as part of the tax." Air India became liable to pay the additional interest
Revenue shall add to the tax or to the deficiency tax, in case any payment has
been made on the basis of such return before the discovery of the falsity or
provided in Section 51 (e) (2) and the 10% surcharge provided in Section 51 (e) (3)
fraud, a surcharge of fifty per centum of the amount of such tax or deficiency thirty days after February 20, 1981, the date when the Commissioner of Internal
tax. In case of any failure to make and file a return or list within the time Revenue sought the payment of the deficiency. More than three years have passed
prescribed by law or by the Commissioner or other internal revenue officer, since and yet the account remains unsettled. This was the law in effect law in effect
not due to willful neglect, the Commissioner of Internal Revenue shall add to when the additional interest and surcharge could be legally imposed on Air India.
the tax twenty-five per centum of its amount, except that, when a return is
voluntarily and without notice from the Commissioner or other officer filed The right computation as provided by the SC is as follows:
after such time, and it is shown that the failure to file it was due to a
reasonable cause, no such addition shall be made to the tax. The amount so Income Tax for Fiscal Year ending March 31, 1976 P74,204.00
added to any tax shall be collected at the same time in the same manner and
as part of the tax unless the tax has been paid before the discovery of the Add: 25% surcharge under Section 72 37,101.95
neglect, falsity, or fraud, in which case the amount so added shall be
collected in the same manner as the tax. Add: 42% maximum interest under Section 51 (d) 31,165.64
(2) Now that Air India is bound to pay income tax, 25% surcharge shall apply. The
willful neglect to file the required tax return or the fraudulent intent to evade Sub-Total 1 P142,471.59
the payment of taxes, considering that the same is accompanied by legal
consequences, cannot be presumed. Add: ADDITIONAL INTEREST 60% maximum
Aznar v. Court of Tax Appeals, - The lower court's conclusion regarding the additional interest under Presidential Decree No. 1705 85,482.95
existence of fraudulent intent to evade payment of taxes was based merely on a (computed on P142.471.59)
presumption and not on evidence establishing a willful filing of false and fraudulent
returns so as to warrant the imposition of the fraud penalty. The fraud contemplated Sub-Total 2 P227,954.54
by law is actual and not constructive. It must be intentional fraud, consisting of
deception willfully and deliberately done or resorted to in order to induce another to Add: 10% additional surcharge under Presidential
give up some legal right. Negligence, whether slight or gross, is not equivalent to Decree No. 1705 (computed on unpaid tax of P7,420.40
the fraud with intent to give up some legal right. It must amount to intentional P74,204.00)
wrongdoing with the sole object of avoiding the tax. It necessarily follows that a
mere mistake cannot be considered as fraudulent intent, and if both petitioner and TOTAL TAX DUE FROM AIR INDIA P235,374.94
respondent Commissioner of Internal Revenue committed mistakes in making
entries in the returns and in the assessment, respectively, under the inventory
method of determining tax liability, it would be unfair to treat the mistakes of the 06. RMO 19-2007
petitioner as tainted with fraud and those of the respondent as made in good faith.
•  42% Interest is proper, at the time the tax liability accrued, accrued, Section 51
SUMMARY c/o BIR:
(d) of the tax code, before it was amended by Presidential Decree No. 1705
prescribed an interest rate of 4% per annum, provided that the maximum amount
REVENUE MEMORANDUM ORDER NO. 19-2007 issued on August 10, 2007
that could be collected as interest on the tax deficiency will not exceed the amount
prescribes the Consolidated Revised Schedule of Compromise Penalties for
corresponding to a period of three years. Thus, the maximum interest rate then was
violations of the National Internal Revenue Code (NIRC).
42%.

Page 5 of 6
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Imposition of Penalties)

In all cases of criminal violations of the NIRC not involving the commission of
fraudulent act, the compromise penalties to be imposed shall follow strictly the
amounts in the "Revised Schedule of Compromise Penalties" (Annex A of the
Order). Certain acts/violations which are commonly resorted to by taxpayers as
means of tax evasion are deleted from the coverage thereof for having met the
requirements of the definition of fraudulent acts.

In no case shall the compromise penalty differ in amount from those specified in the
aforementioned Schedule, except when duly approved by the Commissioner or
concerned Deputy Commissioner, or in proper cases, by the Regional Directors.

Although all amounts of compromise penalties incident to violations shall be


itemized in the assessment notice and/or demand letter, the same should not form
part of assessment notice that reflects deficiency basic tax, surcharge and interest
but should appear in a separate assessment notice/demand letter as the amount
suggested to the taxpayer to pay in lieu of criminal prosecution. If paid, the
compromise penalties shall be collected and accounted for under the usual
procedures, as internal revenue collection.

Since compromise penalties are only amounts suggested in settlement of criminal


liability, and may not therefore be imposed or exacted on the taxpayer, the violation
shall be referred to the appropriate office for criminal action in the event that a
taxpayer refuses to pay the suggested compromise penalty. Cases involving fraud
shall be referred to the concerned Division having jurisdiction over the case, for the
institution of the corresponding criminal action.

The prescribed schedule of compromise penalties shall not prevent the


Commissioner of Internal Revenue (CIR) or his duly authorized representative from
accepting a compromise amount higher than what is provided in the Order. A
compromise offer lower than the prescribed amount may be accepted after approval
by the CIR or the concerned Deputy Commissioner/Assistant Commissioner/
Regional Director

Page 6 of 6
TAXATION LAW 2 It was ascertained that the sum of P79,892.75 (representing deficiency
income taxes and additional residence taxes) is due from Patanao
DIGESTS AND PROVISIONS COMPILATION
BIR Deputy Commissioner sent a demand letter with enclosed income tax
assessment requiring Patanao to pay the said amount
E. Remedies Despite repeated demands, Patanao refused, failed and neglected to
pay said taxes
BIR filed a complaint before the CFI of Agusan for the collection of
E.6. Criminal Action and Other Penalties deficiency income taxes for the years 1951, 1953, and 1954 and additional
residence taxes for 1951 and 1952.
01. Republic v. Patanao (HQ) Patanao moved to dismiss the complaint on two grounds, namely:
Topic: Criminal Action and Other Penalties o that the action is barred by prior judgment, since he was
acquitted in criminal cases of the same court, which were
G.R. No. L-22356 July 21, 1967 prosecutions for failure to file income tax returns and for non-
Plaintiff-appellant: Republic of the Philippines payment of income taxes; and
Defendant-appellee: Pedro B. Patanao o that the action has prescribed.
CFI  dismissed  the  BIR’s  complaint
Summary: This case is an appeal from an order of the CFI of Agusan insofar as it Hence, this petition
dismissed the complaint for the collection of deficiency income taxes for the years
1951, 1953 and 1954 and additional residence taxes for 1951 and 1952, against Issue/s:
Patanao. The lower court held that since Patanao was acquitted in both criminal Whether or not the prior acquittal of Patanao (in the criminal cases)
cases charged against him for non-filing and non-payment of income taxes, BIR can bars the BIR from filing an action for collection of such deficiency
no longer collect such taxes through a civil action. taxes? NO
SC held that considering that the Government cannot seek satisfaction of the Whether or not the action has prescribed? NO
taxpayer's civil liability in a criminal proceeding under the tax law or since the said
civil liability is not deemed included in the criminal action. Unlike the underlying Ratio:
principles in the RPC, civil liability to pay taxes arises from the fact (for instance) Conclusion of the trial court that the action is barred by prior judgment
that one has engaged himself in business, and NOT because of any criminal act Rationale: This is erroneous!!! - SC
committed by him. Hence, the acquittal of the taxpayer in a criminal proceeding Patanao has been accused in 2 criminal cases for not filing his income tax
does not necessarily exonerate him from paying his tax liabilities. returns and for non-payment of income taxes for the years 1953 and 1954.
In both cases, he was acquitted.
The rule in this jurisdiction is that the accused once acquitted is exempt
Facts: from both criminal and civil responsibility because when a criminal action is
Pedro B. Patanao was the holder of an ordinary timber license with instituted, civil action arising from the same offense is impliedly instituted
concession at Esperanza, Agusan unless the offended party expressly waives the civil action or reserves the
He was engaged in the business of producing logs and lumber for sale right to file it separately.
during the years 1951-1955 In the criminal cases wherein the Patanao was completely exonerated,
Non-Filing: Patanao failed to file income tax returns for 1953 and 1954 there was no waiver or reservation to file a separate civil case so that the
False Returns: Moreover, it was alleged that although he filed income tax failure to obtain conviction on a charge of non-payment of income
returns for 1951, 1952 and 1955, the same were false and fraudulent taxes is fatal to any civil action to collect the payment of said taxes.
because he did not report substantial income earned by him from his
business SC: It is erroneous to apply the underlying the civil liability of an offender
BIR conducted an examination on   Patanao’s   income   and   expenses   for   under the RPC a case involving the collection of taxes since they are founded
1951-1955 on entirely different philosophies

Page 1 of 27
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Criminal Action and Other Penalties, Prescription of Criminal Action, Power/Remedy of Collection)

Under the RPC, the civil liability is incurred by reason of the offender's February 14, 1958, or beyond the five year period of limitation for assessment
criminal act BIR contends that the applicable law is Sec. 332 (a) (now Sec. 222) under which a
proceeding in court for the collection of the tax may be commenced without assessment at
The criminal liability gives birth to the civil obligation such that
any time within 10 years from the discovery of the falsity, fraud or omission
generally, if one is not criminally liable under the RPC, he cannot become
The  complaint  filed  alleges  that  the  fraud  in  the  Patanao’s   ITR  in  1951  was  discovered  on  
civilly liable thereunder. February 14, 1958.
By filing a motion to dismiss, Patanao hypothetically admitted this allegation as all the
It is OPPOSITE in INCOME TAX LAW other averments in the complaint were so admitted
Civil liability to pay taxes arises from the fact (for instance) that one has Hence, Sec. 332 (now 222) (a) and NOT Sec. 331 (203) of NIRC should determine whether
engaged himself in business, and not because of any criminal act or not the cause of action of deficiency income tax and residence tax for 1951 has prescribed
committed by him Applying  the  said  provision,  BIR’s  action  instituted  in  court  on  December  7,  1962  has  NOT  
The criminal liability arises upon failure of the debtor to satisfy his prescribed.
civil obligation

The incongruity of the factual premises and foundation principles of the two 02. Ungab v. Cusi (MR)
cases is one of the reasons for not imposing civil indemnity on the criminal Topic: Final determination of tax deficiency not necessary before filing criminal
infractor of the income tax law. case for tax evasion
While Sec. 73 (now Secs. 253, 254, 255 etc.) of the NIRC has provided the Relevant Laws: Wala naman
imposition of the penalty of imprisonment or fine, or both, for refusal G.R. Nos. L-41919-24
or neglect to pay income tax or to make a return thereof, it failed to provide May 30, 1980
the collection of said tax in criminal proceedings. Concepcion, Jr., J.
The only civil remedies provided for the collection of income tax are
distraint of goods, chattels, etc. or by judicial action, which remedies Petitioners: QUIRICO P. UNGAB
are generally exclusive Respondents: HON. VICENTE N. CUSI, JR., in his capacity as Judge of the Court
of First Instance, Branch 1, 16TH Judicial District, Davao City, THE
Considering that the Government cannot seek satisfaction of the COMMISSIONER OF INTERNAL REVENUE, and JESUS N. ACEBES, in his
taxpayer's civil liability in a criminal proceeding under the tax law or since capacity as State
the said civil liability is not deemed included in the criminal action, Prosecutor
acquittal of the taxpayer in the criminal proceeding does not
necessarily entail exoneration from his liability to pay the taxes. Summary: Ungab was assessed deficiency taxes by the BIR RDO and he protest
The acquittal in the said criminal cases cannot operate to discharge this. Pending protest and upon recommendation by the tax fraud division of the BIR,
Patanao from the duty of paying the taxes which the law requires to be SP investigated and filed informations against Ungab for tax evasion. Ungab sought
paid, since that duty is imposed by statute prior to and independently of annulment of the infos because he was denied recourse to the CTA by the
any attempts by the taxpayer to evade payment. cognizance of the RTC of the case. The SC ruled that the criminal case is not a
Said obligation is not a consequence of the felonious acts charged in matter of collection of taxes where assessments by the CIR can be appealed
the criminal proceeding, nor is it a mere civil liability arising from crime to the CTA. What is involved is violation of the NIRC provisions against tax
that could be wiped out by the judicial declaration of non-existence of the fraud and it can proceed even without final computation of tax due. There just
criminal acts charged. cannot be a civil suit for collection before the determination of tax deficiency due.

PRESCRIPTION Facts:
CFI held that the cause of action on the deficiency income tax and residence tax for 1951 is BIR examiner examined ITRs filed by Ungab and found that he failed to
barred   because   Patanao’s income tax return for 1951 was assessed by the BIR only on
report his income derived from sales of banana saplings so BIR RDO sent
Page 2 of 27
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Criminal Action and Other Penalties, Prescription of Criminal Action, Power/Remedy of Collection)

him  “Notice  of  Taxpayer”  informing  him  of  deficiency  due  and  inviting  him   Prosecutor to conduct the investigation of said cases, and in fact, said investigation
to informal confernce was conducted in the office of the City Fiscal
He write BIR RDO protesting, stating he was only an agent on commission
basis and his income reported was accurate On   the   legality   of   filing   informations   pending   protest   of   the   BIR   RDO’s  
But   BIR   Examiner   was   so   convinced   that   he  submitted   a   “Fraud   Referral   assessment. Petitioner avers that since the CIR has not yet resolved his protests
Report”  to  the  Tax  Fraud  Unit  of  the  BIR  and  after  examining  the  records,   against the assessments, he was denied recourse to the CTA. BUT this contention
Special   Investigation   Division   found   sufficient   proof   that   he’s   guilty   of   tax is without merit:
evasion and recommended prosecution for filing false fraudulent return What is involved here is not the collection of taxes where the assessment
with intent to evade, failure to pay annual taxes and percentages taxes as of the CIR may be reviewed by the CTA
producer of banana poles or saplings What’s   involved   here   is   criminal   prosecution   for   violations   of   the   NIRC  
CIR approved the prosecution and thereafter, State Prosecutor (SP) who which is within the cognizance of the RTC
had been designated to assist all provincial and city fiscals in the While there can be no civil suit for collection before the assessment
investigation of violations of NIRC, conducted a preliminary investigation procedures have been followed, there is no requirements for the precise
and finding probable cause, filed 6 infos computation and assessment of tax before there can be criminal
Ungab filed motion to quash on 2 grounds, which are also the issues in this prosecution under the Code
case. The trial court denied and so Ungab went to the SC on certiorari and The crime is complete when the violator has, as in this case, knowingly
prohibition. SC issued TRO on trial court and willfully filed fraudulent returns with intent to evade and defeat a part
or all of the tax.
Issues: An assessment of a deficiency is not necessary to a criminal prosecution
1. WON SP had authority to initiate and prosecute these cases—YES for willful attempt to defeat and evade the income tax. The perpetration of
2. WON trial court had jurisdiction to take cognizance in view of his pending the crime is grounded upon knowledge on the part of the taxpayer that he
protest of the assessment of the BIR RDO—YES has   made   an   inaccurate   return,   and   the   government’s   failure   to   discover  
the error and promptly to assess has no connections with the commission
Held: of the crime
Petition DISMISSED. Besides, it has been ruled that petition for reconsideration of an
assessment may affect the suspension of the prescriptive period for the
Ratio: collection of taxes, but not the prescriptive period of a criminal action for
violation of law
On the authority of the SP (not relevant). Petitioner seeks anullment of the infos
because certain requisites must be met before the SP may exercise the authority to
investigate and prosecute violations of penal laws. This is under Sec. 1679 and
1686 of the Revised Admin. Code (just take a look at it).
03. CIR v. Pascor Realty (RK)
The rule was not violated. The respondent State Prosecutor, although believing that Topic: Section 222 of the NIRC specifically states that in cases of failure to file a
he can proceed independently of the City Fiscal in the investigation and prosecution return, proceedings in court may be commenced without an assessment; an
of these cases, first sought permission from the City Fiscal of Davao City before he assessment is not necessary before a criminal charge can be filed; a criminal
started the preliminary investigation of these cases, and the City Fiscal, after being complaint is instituted not to demand payment, but to penalize the taxpayer for
shown Administrative Order No. 116, dated December 5, 1974, designating the said violation of the Tax Code
State Prosecutor to assist all Provincial and City fiscals throughout the Philippines in
the investigation and prosecution of all violations of the National Internal Revenue Relevant Laws:
Code, as amended, and other related laws, graciously allowed the respondent State SEC 222, NIRC
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G.R. No. 128315 COMPLAINT: CIR filed a criminal complaint in DOJ agains PASCOR, its
June 29, 1999 president Rogelio Dio, and treasurer Virginia Dio alleging evasion of taxes
Panganiban, J. in the amount of P10,513,671.
o PASCOR’s   urgent  motion  for  reconsideration/reinvestigation   was  
Petitioners: CIR denied by the DOJ
Respondents: Pascor Reality and Development Corporation, Rogelio A. Dio, and CTA: PASCOR elevated the case to the CTA on petition for review
Virginia S. Dio o CIR filed a motion to dismiss on the ground that the CTA has no
jurisdiction as there was no formal assessment issued against
Summary: Basically, CIR assessed PASCOR. Thereafter an evasion case was petitioners
filed   in   the   DOJ.   After   PASCOR’s   reconsideration/reinvestigation   was   denied,   it   o CTA denied motion to dismiss and ordered CIR to file an answer
elevated on petition for review to the CTA. CIR insists that the CTA has no stating criminal case for tax evasion is already and assessment.
jurisdiction because no formal assessment was made. CTA says it has jurisdiction The ultimate purpose of an assessment is to ascertain
because  the  complaint  which  was  supported  by  the  examiner’s  affidavit  containing   how much tax is due.
the kind and amount of tax due already constitutes an assessment. The CIR The basis of the complaint—Joint affidavit of Revenue
elevated the case to the CA which agreed with the CTA—an evasion case is the examiners Lagmay and Savellano—contains the details
assessment itself. In the SC the issues were (1) WON the evasion complaint is an of the assessment like kind and amount of tax due.
assessment, (2) WON an assessment is necessary before a complaint for evasion o Why is jurisdiction an issue? It  is  the  CIR’s  position  that  CTA  
is made, and (3) WON the CTA has jurisdiction. will only have jurisdiction when a formal assessment has been
The SC said that on FIRST and THIRD ISSUES: An assessment contains made.
not only a computation of tax liabilities, but also a demand for payment CA: Instead of filing an answer, the CIR elevated the matter to the CA.
within a prescribed period. It also signals the time when penalties and o Complaint for tax evasion filed by the Commissioner of Internal
interests begin to accrue against the taxpayer. To enable the taxpayer to Revenue with the Department of Justice constituted an
determine his remedies thereon, due process requires that it must be “assessment”  of  the  tax  due,  and  that  the  said  assessment  could  
served on and received by the taxpayer. Accordingly, an affidavit, which be the subject of a protest.
was executed by revenue officers stating the tax liabilities of a taxpayer o By definition, an assessment is simply the statement of the details
and attached to a criminal complaint for tax evasion, cannot be deemed an and the amount of tax due from a taxpayer.
assessment that can be questioned before the Court of Tax Appeals. (NO) Issues:
On the SECOND ISSUE: section 222 specifically states that no Whether or not the criminal complaint for tax evasion can be construed as
assessment is necessary before a criminal complaint can be filed because an assessment. (NO)
it is instituted not to demand payment, but to penalize the taxpayer for Whether or not an assessment is necessary before criminal charges for tax
violating the tax code. (NO) evasion may be instituted. (NO)
Whether or not the CTA can take cognizance of the case in the absence of
an assessment. (NO)
Facts:
ASSESSMENT: Through letter of Authority, Pascor Reality and Held: WHEREFORE, the petition is hereby GRANTED. The assailed Decision
Development   Corporation’s   (“PASCOR”)   accounting   records   for   1986, is REVERSED and SET ASIDE. CTA Case No. 5271 is likewise DISMISSED. No
1987, and 1988 were examined by Revenue examiners, Lagmay and costs.
Savellano, and was assessed in the amount of P7,498,434.65 and
P3,015,236.35 for years 1986 and 1987, respectively Ratio:
1. ON ASSESSMENT: A criminal Complaint for evasion containing joint
affidavits detailing the kind and amount due is not an assessment.
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a. Necessarily, the taxpayer must be certain that a specific ii. Furthermore, Section 205 of the same Code clearly
document constitutes an assessment. Otherwise, confusion mandates that the civil and criminal aspects of the case
would arise regarding the period within which to make an may be pursued simultaneously.
assessment or to protest the same, or whether interest and 1. In Ungab v. Cusi, petitioner therein sought the
penalty may accrue thereon. dismissal of the criminal Complaints for being
i. The issuance of an assessment is vital in determining premature, since his protest to the CTA had not
the period of limitation regarding its proper issuance and yet been resolved. The Court held that such
the period within which to protest it. protests could not stop or suspend the criminal
ii. Section 203 of the NIRC provides that internal revenue action which was independent of the resolution
taxes must be assessed within three years from the last of the protest in the CTA. This was because the
day within which to file the return. commissioner of internal revenue had, in such
iii. Section 222, on the other hand, specifies a period of ten tax evasion cases, discretion on whether to
years in case a fraudulent return with intent to evade issue an assessment or to file a criminal case
was submitted or in case of failure to file a return. Also, against the taxpayer or to do both.
Section 228 of the same law states that said assessment b. Private respondents insist that Section 222 should be read in
may be protested only within thirty days from receipt relation to Section 255 of the NIRC, which penalizes failure to file
thereof. a return. They add that a tax assessment should precede a
b. Assessment is deemed made only when the collector of internal criminal indictment.
revenue releases, mails or sends such notice to the taxpayer i. We disagree. To reiterate, said Section 222 states that
i. It should also be stressed that the said document is a an assessment is not necessary before a criminal
notice duly sent to the taxpayer. Indeed, an assessment charge can be filed.
is deemed made only when the collector of internal ii. This is the general rule. Private respondents failed to
revenue releases, mails or sends such notice to the show that they are entitled to an exception. Moreover,
taxpayer. the criminal charge need only be supported by a prima
ii. In  the  present  case,  the  revenue  officers’  Affidavit  merely   facie showing of failure to file a required return. This fact
contained   a   computation   of   respondents’   tax   liability.   It   need not be proven by an assessment.
did not state a demand or a period for payment. Worse, c. A criminal complaint is instituted not to demand payment, but to
it was addressed to the justice secretary, not to the penalize the taxpayer for violation of the Tax Code.
taxpayers. i. The issuance of an assessment must be distinguished
2. ON NECESSITY OF ASSESSMENT BEFORE COMPLAINT-- Section 222 from the filing of a complaint.
of the NIRC specifically states that in cases of failure to file a return, 1. Before an assessment is issued, there is, by
proceedings in court may be commenced without an assessment practice, a pre-assessment notice sent to the
a. Private respondents maintain that the filing of a criminal complaint taxpayer.The taxpayer is then given a chance
must be preceded by an assessment. to submit position papers and documents to
i. This is incorrect, because Section 222 of the NIRC prove that the assessment is unwarranted.
specifically states that in cases where a false or 2. If the commissioner is unsatisfied, an
fraudulent return is submitted or in cases of failure to file assessment signed by him or her is then sent to
a return such as this case, proceedings in court may be the taxpayer informing the latter specifically and
commenced without an assessment. clearly that an assessment has been made
against him or her.

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ii. In contrast, the criminal charge need not go through all upon knowledge on the part of the taxpayer that he has made an inaccurate return,
these. and   the   government’s   failure   to   discover   the   error   and   promptly   to   assess   has   no  
1. The criminal charge is filed directly with the connections with the commission of the crime.
DOJ.
2. Thereafter, the taxpayer is notified that a Facts:
criminal case had been filed against him, not On June 20, 1990, Lucas Adamson and AMC sold 131,897 common
that the commissioner has issued an shares of stock in Adamson and Adamson, Inc. (AAI) to APAC Holding
assessment. It must be stressed that a criminal Limited (APAC). The shares were valued at P7,789,995.00. On June 22,
complaint is instituted not to demand payment, 1990,P159,363.21 was paid as capital gains tax for the transaction.
but to penalize the taxpayer for violation of the On October 12, 1990, AMC sold to APAC Philippines, Inc. another 229,870
Tax Code common shares of stock in AAI forP17,718,360.00. AMC paid the capital
gains tax of P352,242.96.
On October 15, 1993, the Commissioner issued a "Notice of Taxpayer" to
04. Adamson v. CTA (KB) AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los
Reyes, informing them of deficiencies on their payment of capital gains tax
Topic: Remedies; Criminal Action and other Penalties
and VAT.
G.R. No. 120935 On October 22, 1993, the Commissioner filed with the DOJ her Affidavit of
May 21, 2009 Complaint against AMC, Lucas G. Adamson, Therese June D. Adamson
PUNO, C.J.: and Sara S. de los Reyes for violation of NIRC.
On April 29, 1994, Lucas G. Adamson, Therese June D. Adamson and
Petitioners: LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA Sara S. de los Reyes were charged before the RTC for tax evasion.
S. DE LOS REYES, in their capacities as President, Treasurer and Secretary of Adamson et al. filed a Motion to Dismiss or Suspend the Proceedings.
Adamson Management Corporation They invoked the grounds that there was yet no final assessment of
their tax liability, and there were still pending relevant Supreme Court
Respondents: COURT OF APPEALS and LIWAYWAY VINZONS-CHATO, in her and CTA cases.
capacity as Commissioner of the Bureau of Internal Revenue On August 8, 1994, the trial court granted the Motion. It ruled that the
complaints for tax evasion filed by the Commissioner should be regarded
as a decision of the Commissioner regarding the tax liabilities of the
Summary: Adamson paid capital gains tax and VAT. Upon investigation, there was Petitioners. It further held that the said cases cannot proceed
a preliminary finding of gross discrepancy in the computation promting the CIR to independently of the assessment case pending before the CTA,
send a recommendation letter to the DOJ for tax evasion. Adamson argues that which has jurisdiction to determine the civil and criminal tax liability
there was yet no final assessment of their tax liability, hence the case for tax of the respondents therein.
evasion is cannot procede. CIR argues that formal assessment is not a condition On October 10, 1994, the Commissioner filed a Petition for Review with
prerequisite before she may file the aforesaid criminal complains against Adamson; the   Court   of   Appeals   assailing   the   trial   court’s   dismissal   of   the   criminal  
She also argued that the criminal complaints for tax evasion may proceed cases. She averred that it was not a condition prerequisite that a
independently from the assessment cases pending before the CTA. So the formal assessment should first be given to the private respondents
issue is w/n a criminal complaint may be filed without a formal assessment. SC before she may file the aforesaid criminal complaints against them.
ruled citing Ungab v. Cusi, An assessment of a deficiency is not necessary to a She argued that the criminal complaints for tax evasion may proceed
criminal prosecution for willful attempt to defeat and evade the income tax. A crime independently from the assessment cases pending before the CTA.
is complete when the violator has knowingly and willfully filed a fraudulent return,
with intent to evade and defeat the tax. The perpetration of the crime is grounded Issues:
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4. WHETHER OR NOT THE FILING OF A CRIMINAL COMPLAINT SERVES AS computation by a revenue officer of the tax liability of a taxpayer and giving him an
AN IMPLIED ASSESSMENT ON THE TAX LIABILITY OF THE TAXPAYER. opportunity  to  contest  or  disprove  the  BIR  examiner’s  findings  is  not  an  assessment  
since it is yet indefinite.
5. WHETHER OR NOT THE FILING OF THE CRIMINAL INFORMATION FOR TAX
EVASION IN THE TRIAL COURT IS PREMATURE BECAUSE THERE IS YET NO We rule that the recommendation letter of the Commissioner cannot be
BASIS FOR THE CRIMINAL CHARGE OF WILLFULL INTENT TO EVADE THE considered a formal assessment. Even a cursory perusal of the said letter would
PAYMENT OF A TAX. reveal three key points:

Held: -NO on both issues 1. It was not addressed to the taxpayers.


Ratio:
2. There was no demand made on the taxpayers to pay the tax liability, nor
First Issue a period for payment set therein.

That   the   BIR   examiners’   Joint   Affidavit   attached   to   the   Criminal   Complaint   3. The letter was never mailed or sent to the taxpayers by the
contained some details of the tax liabilities of private respondents does Commissioner.
not ipso facto make it an assessment. The purpose of the Joint Affidavit was
merely to support and substantiate the Criminal Complaint for tax evasion. Clearly,
Second Issue
it was not meant to be a notice of the tax due and a demand to the private
respondents for payment thereof.
The law is clear. When fraudulent tax returns are involved as in the cases at
bar, a proceeding in court after the collection of such tax may be begun
The fact that the Complaint itself was specifically directed and sent to the
without assessment. Upon investigation of the examiners of the BIR, there was a
Department of Justice and not to private respondents shows that the intent of the
preliminary finding of gross discrepancy in the computation of the capital gains
commissioner was to file a criminal complaint for tax evasion, not to issue an
taxes due from the sale of two lots of AAI shares, first to APAC and then to APAC
assessment. Although the revenue officers recommended the issuance of an
Philippines, Limited. The examiners also found that the VAT had not been paid for
assessment, the commissioner opted instead to file a criminal case for tax evasion.
VAT-liable sale of services for the third and fourth quarters of 1990. Arguably, the
What private respondents received was a notice from the DOJ that a criminal case
gross disparity in the taxes due and the amounts actually declared by the private
for tax evasion had been filed against them, not a notice that the Bureau of Internal
respondents constitutes badges of fraud.
Revenue had made an assessment.
Thus, the applicability of Ungab v. Cusi is evident to the cases at bar. In this
Private respondents maintain that the filing of a criminal complaint must be
seminal case, this Court ruled that there was no need for precise computation and
preceded by an assessment. This is incorrect, because Section 222 of the NIRC
formal assessment in order for criminal complaints to be filed against him.
specifically states that in cases where a false or fraudulent return is
submitted or in cases of failure to file a return such as this case, proceedings
An assessment of a deficiency is not necessary to a criminal prosecution for willful
in court may be commenced without an assessment. Furthermore, Section 205
attempt to defeat and evade the income tax. A crime is complete when the violator
of the same Code clearly mandates that the civil and criminal aspects of the
has knowingly and willfully filed a fraudulent return, with intent to evade and defeat
case may be pursued simultaneously.
the tax. The perpetration of the crime is grounded upon knowledge on the part of
the  taxpayer  that  he  has  made  an  inaccurate  return,  and  the  government’s  failure  to  
discover the error and promptly to assess has no connections with the commission
In the context in which it is used in the NIRC, an assessment is a written notice and of the crime.
demand made by the BIR on the taxpayer for the settlement of a due tax liability
that is there definitely set and fixed. A written communication containing a
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05. People v. Kintanar (JT) [CTA Case] A. Section 255 contemplates four different situations punishable by law, each
Facts constituting failure to perform an obligation under the NIRC:
In two separate informations, Gloria Kintanar was accused of committing a violation 1. To pay any tax
of Section 255 of RA 8424 [failure to file return]. Gloria is a Filipino citizen, working 2. To make a return [this is the charge against Gloria]
as a distributor of Forever Living Products [FLP], but failed to file her ITR for the 3. To keep any record
years 2000 and 2001. 4. To supply correct and accurate information
B. The  elements  of  “failure  to  make  a  return”  are  as  follows:
Based on confidential info received by the RDO in Paranaque, Rosimo, the Chief of 1. Accused is a person required to make/file a return
the Tax Fraud Division, addressed a letter to the RDO, requesting for photocopies 2. Accused failed to make/file a return at the time required by law
of   the   spouses   Kintanars’   tax   returns, financial statements and BIR registration 3. The failure was willful
certificate. Such documents will be used by revenue officers and an investigation Prosecution submits that all elements are present in this case. CTA
team. Rosimo also requested the finance officer of FLP to furnish the officers agrees with the Prosecution.
certification on the total income payments, commissions and bonuses earned by the FIRST ELEMENT: Gloria received checks from FLP as
Kintanars. It was found out that the Kintanars did not file an ITR with the RDO, yet payment/commission for her services. The income she earned was
they earned income from FLP. “substantial  income”
SECOND ELEMENT: Under the NIRC, Gloria was supposed to file
Rosimo ordered a thorough preliminary investigation to ascertain the veracity of the her ITR and pay corresponding taxes due with any person authorized
confidential info received, which yielded the same result. Thereafter a Letter of to receive such payment. Gloria however had no record of filing an
Authority was issued, authorizing the revenue officers to examine the books of ITR in any RDO.
account and accounting records of the Kintanars. The spouses however failed to o However, she presented ITRs allegedly certified by the RDO
submit the required documents despite several notices. in Novaliches [remember that Gloria lives in Paranaque]
o However, further, the ITR presented had several
Because matigas talaga their ulo, a subpoena duces tecum was issued by the irregularities: the ITRs did not state the TIN of Gloria, the
revenue officer, ordering them to appear before the Chief Prosecution Division. As ITRs state that they live in QC, the ITRs were undated, and
usual, the Kintanars failed to comply with the order. A preliminary assessment the husband who submitted the ITR claimed to not have read
notice [PAN] was issued, but of course the Kintanars failed to comply. the contents.
o The RD Officer who supposedly signed the certification was
But when a formal letter of demand, accompanied with assessment notices, was not even presented as a witness.
sent to the Kintanars, a letter of protest was submitted by the husband to the THIRD ELEMENT:
National Investigation Division [NID]. However, NID denied ever receiving the letter o What is willful in the first place?
of protest. NID gave them a second chance, by stating that they have 60 days from Willful in the tax crimes statutes means voluntary,
the time the alleged protest was filed, to submit supporting documents. But, balik sa intentional violation of a known legal duty, and bad
dati, Kintanars failed to comply. Thus, the assessment became final and executory faith or bad purpose need not be shown
and demandable. An act or omission is "willfully" done if done
voluntarily and intentionally and with specific intent
The former Second Division of the CTA found the petitioner Gloria guilty beyond to do something the law forbids, or with specific
reasonable doubt of a violation of Section 255 of RA 8424 [NIRC]. intent to fail to do something the law requires to be
done; that is, with bad purpose to either disobey or
Issue/Held: W/N the second division erred in holding Gloria Kintanar guilty—NO. disregard the law.

Ratio:
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A willful act may be described as one done In no case shall the compromise penalty differ in amount from those specified in the
intentionally, knowingly and purposely, without aforementioned Schedule, except when duly approved by the Commissioner or
justifiable excuse. concerned Deputy Commissioner, or in proper cases, by the Regional Directors.
o Gloria claims that she did not actively participate in the filing Although all amounts of compromise penalties incident to violations shall be
of her ITRs, as it was her husband who did it. They also hired itemized in the assessment notice and/or demand letter, the same should not form
an accountant to handle all tax payments. Thus, there was part of assessment notice that reflects deficiency basic tax, surcharge and interest
no malicious intent to evade taxes on their part. but should appear in a separate assessment notice/demand letter as the amount
o Court said: bullshizz. suggested to the taxpayer to pay in lieu of criminal prosecution. If paid, the
Gloria’s   reliance   on   her   husband   is   not   a   valid   compromise penalties shall be collected and accounted for under the usual
reason justifying non-filing of ITRs. Gloria is procedures, as internal revenue collection.
mandated to file her ITR, period.
Gloria was also an experienced businesswoman, so Since compromise penalties are only amounts suggested in settlement of criminal
she must know all matters pertaining to a business, liability, and may not therefore be imposed or exacted on the taxpayer, the violation
including the filing of the necessary ITRs. shall be referred to the appropriate office for criminal action in the event that a
Thus, there is a natural presumption that Gloria taxpayer refuses to pay the suggested compromise penalty. Cases involving fraud
knows her tax obligations under the law. She should shall be referred to the concerned Division having jurisdiction over the case, for the
have taken ordinary care of her tax duties and she institution of the corresponding criminal action.
should know that she has an obligation to file ITRs.
Gloria did not even know how much her tax The prescribed schedule of compromise penalties shall not prevent the
obligation was [despite so many notices sent to her, Commissioner of Internal Revenue (CIR) or his duly authorized representative from
which she did not comply with] accepting a compromise amount higher than what is provided in the Order. A
The fact that her husband hired an accountant is not compromise offer lower than the prescribed amount may be accepted after approval
enough to show that there was no voluntary, by the CIR or the concerned Deputy Commissioner, Assistant Commissioner or
intentional or deliberate failure to file. Regional Director.
Gloria’s neglect or omission was tantamount to
“deliberate ignorance” or “conscious avoidance”

E.7. Prescription of Criminal Action


06. RMO 19-2007 [summary from the BIR]
REVENUE MEMORANDUM ORDER NO. 19-2007 issued on August 10, 2007 01. Lim Sr. v. CA (DU)
prescribes the Consolidated Revised Schedule of Compromise Penalties for EMILIO E. LIM, SR. and ANTONIA SUN LIM, petitioners,
violations of the National Internal Revenue Code (NIRC). vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
In all cases of criminal violations of the NIRC not involving the commission of
fraudulent act, the compromise penalties to be imposed shall follow strictly the
G.R. Nos. L-48134-37 October 18, 1990 | FERNAN C.J. – Third Division
amounts in the "Revised Schedule of Compromise Penalties" (Annex A of the
Order). Certain acts/violations which are commonly resorted to by taxpayers as
means of tax evasion are deleted from the coverage thereof for having met the SUMMARY: BIR, on April 7, 1965, assessed deficiency income taxes for 1958 and
requirements of the definition of fraudulent acts. 1959 against petitioner. October 10, 1967, BIR rendered a final decision and a final
notice was received by petitioner on July 3, 1968. Since petitioner did not pay, case
was referred to the Fiscal on Sept 1, 1969, who later filed four (4) criminal
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informations against petitioner on June 23, 1970. RTC and CA ruled against for violation of Sections 45 and 51 in relation to Section 73 of the National
Petitioner. The main issue: when should the computation of the five-year Internal Revenue Code
prescriptive period start? On August 19, 1975, the trial court rendered two (2) joint decisions finding petitioners guilty
as charged
For the first two information, the court said that it should start on July 3, o Criminal Cases Nos. 1789 and 1788
1968, since the offense was committed only after receipt (of the final notice) was Guilty of violation of Sec 51 penalized by sec 73
Pay fine 2000
coupled with the wilful refusal to pay the taxes due within the alloted period – it
Pay deficiency tax (pursuant to PD69)
was only the time cause of action accrued to BIR. (for the last two information) But if
o Criminal Cases Nos. 1790 and 1791
the time of commission   of   the   violation   was   unknown   (or   in   this   case,   if   there’s   guilty of a violation of Section 45 in relation to Section 332 penalized
fraud), the law is clear (see Section 281) that prescriptive period will start from under Section 73
discovery and institution of the judicial proceedings – hence it started from pay fine P4000
September 1, 1969 (referral to fiscal). What this means is that the fiscal has five Petitioner appeal, but while on appeal, Petitioner Lim Sr died.
years from Sept 1, 1969, to file a case in court. CA  affirmed  the  CFI’s  ruling  but  extinguished  Lim  Sr’s  Criminal  Liability.

FACTS: RELEVANT ISSUES (basically how to compute for the prescriptive period)

Petitioner spouses Emilio E. Lim, Sr. and Antonia Sun Lim engaged in the 1. W/N prescriptive period in Criminal Cases Nos. 1788 and 1789
dealership of various household appliances commenced to run only from July 3, 1968, the date of the final assessment
They filed income tax returns for the years 1958 and 1959. – YES
After a raid by the NBI, using the records recovered, Senior Revenue Examiner Raphael S.
Daet submitted a memorandum with the findings that the income tax returns filed by 2. W/N offenses charged in Criminal Case Nos. 1790 and 1791 prescribed in
petitioners for the years 1958 and 1959 were false or fraudulent. ten (10) years, instead of five (5) years – 5 years. (note: decision did not
o Daet recommended that an assessment of P835,127.00 be made against the discuss why it is 5 and not 10. SC just said both parties agreed that it is 5)
petitioners.
on April 7, 1965, then Acting Commissioner of the BIR, Benjamin M. RATIO
Tabios informed petitioners that there was due from them the amount of ISSUE 1: RE: Criminal Cases Nos. 1788 and 1789
P922,913.04 as deficiency income taxes for 1958 and 1959, giving them
until May 7, 1965 to pay COMPUTATION OF FIVE YEAR PRESCRIPTIVE PERIOD
o Petitioner asked for reinvestigation, BIR said yes but petitioner did not want to
comply   with   BIR’s   Conditions.   There   were   other   notices   for   payment   sent   by   On the five-year prescriptive period, both parties are in agreement. They
BIR before the Final notice was sent differ however in the manner of computation, specifically as to when the
On October 10, 1967, the BIR rendered a final decision holding that there period should commence.
was no cause for reversal of the assessment against the Lim couple. Section   354.[note:   it’s   Section   281   now] Prescription for violations of any
o Petitioners were required to pay deficiency income taxes for 1958 and 1959 provisions of this Code
amounting to P1,237,190.55 inclusive of interest, surcharges and compromise
o All violations of any provision of this Code shall prescribe after
penalty for late payment.
five years
The final notice and demand for payment was served on petitioners
o Prescription shall been to run from the day of the commission of
through their daughter-in-law on July 3, 1968.
the violation of the law, and if the same be not known at the time,
Since there was no Payment, BIR referred the case to the Fiscal’s   office  
from the discovery thereof and the institution of judicial
on September 1, 1969
proceeding for its investigation and punishment. X X X
On June 23, 1970, four (4) separate criminal informations were filed
against petitioners in the then Court of First Instance of Manila, Branch VI

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Petitioner claim prescriptive period starts from original Assessment while To clear things up, as a summary for computing P.P. for fraud/unknown
government asserts that it should be counted from the day when final o When period start: Upon discovery and institution of judicial
notice and demand was received. proceedings for investigation and punishment (i.e. filing a
complaint/referring to fiscal)
SC: STARTS FROM WHEN THE CAUSE OF ACTION ACRUES (i.e. Final Notice) o What should be done before the five year period expires: a case
must have been filed in court already by that time.
Section 51 (b) of the Tax Code
o Assessment and payment of deficiency tax. — After the return is Courts Comment
filed, the Commissioner of internal Revenue shall examine it and
assess the correct amount of the tax. The tax or deficiency in tax it would indeed seem that tax cases, such as the present ones, are practically imprescriptible
so discovered shall be paid upon notice and demand from the for as long as the period from the discovery and institution of judicial proceedings for its
investigation and punishment, up to the filing of the information in court does not exceed
Commissioner of Internal Revenue. (Emphasis supplied)
five (5) years. – but it is the law, so wala tayong magagawa.
Inasmuch as the final notice and demand for payment of the deficiency In criminal cases, statutes of limitations are acts of grace, a surrendering by the sovereign of
taxes was served on petitioners on July 3, 1968, it was only then that the its right to prosecute. They receive a strict construction in favor of the Government and
cause of action on the part of the BIR accrued. limitations in such cases will not be presumed in the absence of clear legislation.
prior to the receipt of the letter-assessment, no violation has yet been
committed by the taxpayers Side note: Petitioner cited People vs. Ching Lak (just in case sir asks)
The offense was committed only after receipt was coupled with the wilful o The period of prescription should commence from the time the case was referred
refusal to pay the taxes due within the alloted period. The two criminal to the Fiscal's Office, suffice it to state that the theory is not supported by any
provision of law and we need not elucidate thereon
informations, having been filed on June 23, 1970, are well-within the five-
o SC however said that the Court, at that time, did not give a definitive ruling
year prescriptive period and are not time-barred. which would have settled the question once and for all.

ISSUE 2: RE: Criminal Case Nos. 1790 and 1791 (I guess this is regarding OTHER ISSUES:
Fraudulent Return, how to compute.)
Whether or not PD 69 providing that "judgment in the criminal case shall not only impose
Petitioner claim that for fraudulent return, Prescriptive period should start the penalty but shall order payment of the taxes subject of the criminal case" applies – NO
from date of discovery. since the law took effect after the case was instituted
SolGen Countered that it should start from when the fraud have been RE Penalty against Lim Sr.: pecuniary penalty of fine imposed on the deceased Lim, is
definitely ascertained – i.e. when BIR rendered its final decision. necessarily extinguished by his death
Basically the Court Sided with SolGen
GUTTIERREZ, JR., J., concurring
It agreed with SolGen when it stressed that in addition to the fact of
discovery, there must be a judicial proceeding for the investigation and to say that no violation of the Income Tax Law has been committed until after receipt of the
punishment of the tax offense before the five-year limiting period begins to letter assessment overlooks the fact that the assessment is only evidence of a prior violation.
run. It is not the refusal to comply with the latter that creates the violation. It is the failure to pay
o Note the conjunctive word "and" between the phrases "the taxes in the years that they were due
discovery thereof" and "the institution of judicial proceedings for to make discovery of the fraud and institution of judicial proceedings conjunctive seems to
me illogical because the judicial proceedings always come after discovery. The date of
its  investigation  and  proceedings”  (from  sec  354  – now 281)
discovery becomes meaningless under our decision
o Hence, September 1, 1969, when it was indorsed to fiscal, was
the time when prescriptive period started
Court cited People v Tierra
o the law says that prescription begins to run from ... "the institution
of judicial proceedings for its ... punishment.
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E.9. Power and Remedy of Collection January 8, 1993 – An assessment notice was sent by registered mail to
Hambrecht’s  former  place  of  business.
February 15, 1993 - Through a letter Hambrecht informed the BIR, of its
01. CIR v. Hambrecht (AD) change of business address from the Paseo de Roxas, Makati City to
G.R. No. 169225 | November 17, 2010 Makati Avenue corner H.V. De la Costa Streets, Makati City.
Commissioner of Internal Revenue, Petitioner February 18, 1993 - Said letter was duly received by the BIR
Hambrecht & Quist Philippines, Inc., Respondent November 4, 1993 - Hambrecht received a tracer letter or follow-up letter
issued by the Accounts Receivable/Billing Division of the BIR demanding
SUMMARY: An assessment notice was sent by   registered   mail   to   Hambrecht’s   for payment of alleged deficiency income and expanded withholding taxes
former place of business. The CTA found this to be valid and binding. 30 days for the taxable year 1989 amounting to P2,936,560.87.
lapsed without Hambrecht filing a protest to the assessment notice. So the CIR sent
Hambrecht, through its external auditors, filed its protest letter against the
Hambrecht a letter of demand for the payment of deficiency income taxes.
alleged deficiency tax assessments
Hambrecht filed a protest with the CIR but it denied such protest on the ground that
The alleged deficiency income tax assessment apparently resulted from an
it was filed beyond the 30 day reglementary period and has thus become final and
adjustment   made   to   Hambrecht’s   taxable   income   for   the   year   1989, on
unappealable. Hambrecht nevertheless appealed to the CTA. CTA agreed with CIR
account of the disallowance of certain items of expense, namely,
that the assessment notice became final and unappealable; HOWEVER, it found
o professional fees paid
that the CIR failed to collect it within the prescriptive period so it ordered withdrawal
o donations
of such assessment notice. The CIR appealed to the SC arguing that the CTA does
o repairs and maintenance
not  have  jurisdiction  over  “other  matters”  relating  to  the  assessment  especially  when  
o salaries and wages
such has become final and unappelable. Basically, the CTA daw did not have
o management fees
jurisdiction to go into other matters such as prescription of the right to collect
The management fees, made up the bulk of the disallowance, the
because the assessment notice is already FINAL and UNAPPEALABLE. The SC
examiner alleging, among others, that Hambrecht failed to withhold the
denied this appeal of the CIR on the following grounds:
appropriate tax thereon.
1) there is nothing in the provision governing the jurisdiction of the CTA
Nearly  eight  (8)  years  later,  Hambrecht’s  external  auditors  received  a  letter  
which  limits  the  parameters  of  the  term  “other matters”  to  such  that  the  CIR  
from the CIR.
is arguing
o The letter advised the Hambrecht that CIR had rendered a final
2) the issue on the right to collect is governed by a particular provision of
decision denying its protest on the ground that the protest
the NIRC and we all know that when the issue arises from an application
against the disputed tax assessment was allegedly filed
or interpretation of a provision of the NIRC, CTA definitely has jurisdiction
beyond the 30-day reglementary period prescribed in then
3) the mere existence of an adverse decision, ruling or inaction along with
Section 229 of the National Internal Revenue Code.
the timely filing of an appeal operates to validate the exercise of jurisdiction
Hambrecht filed a Petition for Review before the CTA to appeal the final
by the CTA.
decision of the CIR denying its protest against the deficiency income and
4) MOST IMPORTANTLY, the fact that an assessment has become final
withholding tax assessments issued for taxable year 1989.
for failure of the taxpayer to file a protest within the time allowed only
means that the validity or correctness of the assessment may no longer be The CTA Original Division held that the subject assessment notice
questioned on appeal. However, the validity of the assessment itself is a sent   by   registered   mail   on   January   8,   1993   to   Hambrecht’s   former  
separate and distinct issue from the issue of whether the right of the CIR to place of business was valid and binding since Hambrecht only gave
collect the validly assessed tax has prescribed. formal notice of its change of address on February 18, 1993. Thus,
the assessment had become final and unappealable for failure of
FACTS: Hambrecht to file a protest within the 30-day period provided by law.
o However, the CTA (a) held that the CIR failed to collect the
assessed taxes within the prescriptive period; and (b) directed the
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cancellation and withdrawal of Assessment Notice No. 001543- supported or even deduced. What is rather clearly apparent, however, is
89-5668.. that the term "other matters" is limited only by the qualifying phrase that
Hence, the instant Petition wherein the following issues are raised: follows it.
The appellate jurisdiction of the CTA is not limited to cases which
ISSUE: involve decisions of the CIR on matters relating to assessments or
Whether  or  not  the  CTA  has  jurisdiction  to  rule  that  the  government’s  right   refunds.
to collect the tax has prescribed. The second part of the provision covers other cases that arise out of
Whether or not the period to collect the assessment has prescribed. the National Internal Revenue Code (NIRC) or related laws
administered by the Bureau of Internal Revenue (BIR).
HELD: Petition is without merit. In  the  case  at  bar,  the  issue  at  hand  is  whether  or  not  the  BIR’s  right  
to collect taxes had already prescribed and that is a subject matter
st
CIR’s  arguments  on  the  1 issue: falling under Section 223(c) of the 1986 NIRC, the law applicable at
CIR argues that the CTA had no jurisdiction over the case since the the time the disputed assessment was made. To quote Section 223(c):
CTA itself had ruled that the assessment had become final and o Any internal revenue tax which has been assessed within the
unappealable. period of limitation above-prescribed may be collected by
o After the lapse of the 30-day period to protest, Hambrecht distraint or levy or by a proceeding in court within three years
may no longer dispute the correctness of the assessment following the assessment of the tax. (Emphases supplied.)
and its appeal to the CTA should be dismissed. In connection therewith, Section 3 of the 1986 NIRC states that the
o The  CIR  took  issue  with  the  CTA’s  pronouncement  that  it  had   collection of taxes is one of the duties of the BIR, to wit:
jurisdiction to decide "other matters" related to the tax o Sec. 3. Powers and duties of Bureau. - The powers and duties of
assessment (such as the issue on the right to collect the same). the Bureau of Internal Revenue shall comprehend the
When the law says that the CTA has jurisdiction over "other assessment and collection of all national internal revenue
matters," it presupposes that the tax assessment has not taxes, fees, and charges and the enforcement of all forfeitures,
become final and unappealable. penalties, and fines connected therewith including the execution
SC: of judgments in all cases decided in its favor by the Court of Tax
We cannot countenance  the  CIR’s  assertion  with  regard  to  this  point.   Appeals and the ordinary courts. Said Bureau shall also give
effect to and administer the supervisory and police power
Discussion on jurisdiction of CTA with regard to tax assessments: conferred to it by this Code or other laws. (Emphasis supplied.)
The  CTA’s  jurisdiction  basically  provides: Thus, from the foregoing, the  issue  of  prescription  of  the  BIR’s  right  to  
o Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise collect taxes may be considered as covered by the term "other
exclusive appellate jurisdiction to review by appeal, as herein matters" over which the CTA has appellate jurisdiction.
provided – Furthermore, the phraseology of Section 7, number (1), denotes an
1. Decisions of the Commissioner of Internal Revenue in intent to view the  CTA’s  jurisdiction  over  disputed  assessments  and  
cases involving disputed assessments, refunds of over "other matters" arising under the NIRC or other laws
internal revenue taxes, fees or other charges, penalties administered by the BIR as separate and independent of each other.
imposed in relation thereto, or other matters arising This   runs   counter   to   petitioner’s   theory   that   the   latter   is   qualified   by   the  
under the National Internal Revenue Code or other status of the former, i.e., an "other matter" must not be a final and
law as part of law administered by the Bureau of unappealable tax assessment or, alternatively, must be a disputed
Internal Revenue. (Emphasis supplied.) assessment.
Plainly,  there  was  nothing  in  the  foregoing  provision  upon  which  the  CIR’s   Likewise, the first paragraph of Section 11 of Republic Act No. 1125, as
theory with regard to the parameters of the term "other matters" can be amended by Republic Act No. 9282, belies   petitioner’s   assertion   as   the  
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provision is explicit that, for as long as a party is adversely affected by property could be located; and when the taxpayer is out of the
any decision, ruling or inaction of petitioner, said party may file an Philippines. (Emphasis supplied.)
appeal with the CTA within 30 days from receipt of such decision or The plain and unambiguous wording of the said provision dictates that two
ruling. The  wording  of  the  provision  does  not  take  into  account  the  CIR’s   requisites must concur before the period to enforce collection may be
restrictive interpretation as it clearly provides that the mere existence of suspended:
an adverse decision, ruling or inaction along with the timely filing of o (a) that the taxpayer requests for reinvestigation, and
an appeal operates to validate the exercise of jurisdiction by the CTA. o (b) that petitioner grants such request.
To be sure, the fact that an assessment has become final for failure On this point, we have previously held that:
of the taxpayer to file a protest within the time allowed only means o In order to suspend the running of the prescriptive periods for
that the validity or correctness of the assessment may no longer be assessment and collection, the request for reinvestigation
questioned on appeal. However, the validity of the assessment itself must be granted by the CIR. (Emphasis supplied.)
is a separate and distinct issue from the issue of whether the right of Consequently, the mere filing of a protest letter which is not granted
the CIR to collect the validly assessed tax has prescribed. does not operate to suspend the running of the period to collect
This issue of prescription, being a matter provided for by the NIRC, is well taxes.
within the jurisdiction of the CTA to decide. In the case at bar, the records show that Hambrecht filed a request for
reinvestigation on December 3, 1993, however, there is no indication that
nd
CIR’s  arguments  on  the  2 issue: petitioner  acted  upon  Hambrecht’s  protest.  As  the  CTA  Original  Division  in  
With respect to the second issue, the CIR insists that its right to collect C.T.A. Case No. 6362 succinctly pointed out in its Decision, to wit:
the tax deficiency it assessed on Hambrecht is not barred by o The request for reinvestigation was not granted. x x
10
prescription since the prescriptive period thereof was allegedly x. (Emphasis supplied.)
suspended  by  Hambrecht’s  request  for  reinvestigation. Indeed,  it  is  contradictory  for  the  CIR  to  argue  that  Hambrecht’s  December  
3, 1993 protest which contained a request for reinvestigation was filed
SC: beyond the reglementary period but still claim that the same request for
The  CIR’s  contention  is  without  basis. reinvestigation was implicitly granted by virtue of its October 27, 2001
The pertinent provision of the 1986 NIRC is Section 224, to wit: letter. We find no cogent reason to reverse the CTA when it ruled that the
o Section 224. Suspension of running of statute. – The running of prescriptive  period  for  the  CIR’s  right  to  collect was not suspended under
the statute of limitations provided in Sections 203 and 223 on the the circumstances of this case.
making of assessment and the beginning of distraint or levy or a
proceeding in court for collection, in respect of any deficiency,
shall be suspended for the period during which the Commissioner
is prohibited from making the assessment or beginning distraint or 02. Dayrit v. Cruz (RS)
levy or a proceeding in court and for sixty days thereafter; when Topic: Requirement for the CIR to rule on disputed assessments before bringing an
the taxpayer requests for a re-investigation which is granted action for collection is applicable only in cases where the assessment was actually
by the Commissioner; when the taxpayer cannot be located in disputed
the address given by him in the return filed upon which a tax is
being assessed or collected:Provided, That, if the taxpayer G.R. No. L-39910
informs the Commissioner of any change in address, the statute September 26, 1988
will not be suspended; when the warrant of distraint and levy is
duly served upon the taxpayer, his authorized representative, or a Petitioners: Cecilia Dayrit, Toribia Castaneda, Prudencio Teodoro, Francisco
member of his household with sufficient discretion, and no Teodoro,  Josefina  Tiongson  (collectively  “petitioners”)
Respondent: Judge Cruz of CFI-Rizal, Misael Vera (CIR)
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FACTS 2. The tax imposed under Paragraph 1 hereof, shall be paid within the following
The application of tax amnesty to the estate of the Teodoros is the issue in period:
this case.
Petitioners are the legitimate children and heirs of the deceased spouses (a) If the amount does not exceed P10,000.00 the tax must be paid at the time of
Marta J. Teodoro who died intestate on July 1, 1965 and Don Toribio the filing of notice and return but not later than March 31, 1973;
Teodoro who died testate on August 30, 1965. Thereafter, the heirs of the
deceased filed separate estate and inheritance tax returns for the estates (b) If the amount exceeds P10,000.00 the tax maybe paid in two (2) installments,
of the late spouses with the Bureau of Internal Revenue. the first installment to be paid upon the filing of the notice and return but not later
Cecilia filed testate and intestate proceedings for the settlement of the than March 31, 1973; and the second installment within three (3) months from the
deceased’s  estates  in  the  CFI-Caloocan date of the filing of the return but not later than June 30, 1973. ....
8/14/1968 – Cecilia was appointed administratrix of the estate of Dona
Marta and letters testamentary was issued in her favor as executrix of the
estate of Don Toribio.
8/9/1972 - the respondent Commissioner of Internal Revenue issued the 11/24/1972 - P.D. No. 67, was issued amending paragraphs 1 and 3 of
following deficiency estate and inheritance tax assessments (estate tax + P.D. No. 23, to read as follows:
penalties and inheritance tax+interest)
8/14/1972 – Cecilia received notice of deficiency assessments xxx xxx xxx
10/7/1972 – in a letter, petitioners, through counsel, asked for a 1. In all cases of voluntary disclosure of previously untaxed income and/or wealth
reconsideration of the said assessments alleging that the same are such as earnings, receipts, gifts bequests or any other acquisitions from any source
contrary to law and not supported by sufficient evidence; petitioners whatsoever which are taxable under the National Internal Revenue Code, as
requested a period of thirty (30) days within which to submit their amended realized here or abroad by any taxpayer, natural or juridical; the collection
position paper in support of their claim. of all internal revenue taxes including the increments or penalties on account of
10/17/1972 – PD NO. 23, entitled "Proclaiming Tax Amnesty Subject to non-payment as well as all civil, criminal or administrative liabilities arising from or
Certain Conditions," was issued by then President Ferdinand E. Marcos, incident to such disclosures under the National Internal Revenue Code, the Revised
quoted hereunder (not too important): Penal Code, the Anti- Graft and Corrupt Practices Act, the Revised Administrative
Code, the Civil Service laws and regulations, laws and regulations on Immigration
and Deportation, or any other applicable law or proclamation, are hereby condoned
xxx xxx xxx
and, in lieu thereof, a tax of ten per centum (10%) on such previously untaxed
1. In all cases of voluntary disclosure of previously untaxed income realized here or
income or wealth is hereby imposed, subject to the following conditions:
abroad by any taxpayer, natural or juridical, the collection of the income tax and
penalties incident to nonpayment, as well as all criminal and civil liabilities under the
a. Such previously untaxed income and/or wealth must have been earned or
National Internal Revenue Code, the Revised Penal Code, the Anti-Graft and
realized prior to 1972;
Corrupt Practices Act or any other law applicable thereto, is hereby condoned and,
in lieu thereof, a tax of TEN PERCENTUM (10%) on such previously untaxed
b. The taxpayer must file a return with the Commissioner of Internal Revenue on or
income is hereby imposed, subject to the following conditions:
before March 31, 1973, showing such previously untaxed income and/or wealth; ....
(a) Such previously untaxed income must have been earned or realized prior to
1972;
3/31/1973 – in a tax return petitioner Cecilia Teodoro-Dayrit declared an
(b) The taxpayer must file a notice and return with the Commissioner of Internal additional amount of P3,655,595.78 as part of the estates of the Teodoro
Revenue on or before March 31, 1972 showing such previously untaxed income; ... spouses, for additional valuation over and above the amount declared in

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the previous return for estates and inheritance taxes of the said late PETITIONERS' CLAIM THAT THE TAX ASSESSMENTS AGAINST THE ESTATES OF THE TEODORO
spouses. SPOUSES ARE NOT YET FINAL IS UNTENABLE.
o BIR issued tax payment acceptance order Nos.1127185-86 and
1533011. In   petitioners’   MR   of   the   aforementioned   assessments,   petitioners  
o Pursuant to the aforesaid tax acceptance orders, the estates and requested the CIR for a period of thirty (30) days from October 7, 1972
heirs of the deceased spouses Teodoro paid the amounts of within which to submit a position paper that would embody their grounds
P5,000.00, P30,046.68 and P250,000.00 per official receipts Nos. for reconsideration. However, no position paper was ever filed.
73201, 774037 and 964467 dated April 2,1973, July 17, 1973 and Such failure to file a position paper may be construed as abandonment of
October 31, 1973, respectively, amounting to a total of the petitioners' request for reconsideration.
P285,046.68. The court notes that it took the respondent CIR a period of more than one
3/14/1974 – CIR filed a motion for Allowance of Claim against the estates (1) year and five (5) months, from October 7, 1972 to March 14, 1974,
of spouses Teodoro and for an order of payment of taxes in S.P. No. before finally instituting the action for collection.
C-113 with the then Court of First Instance of Rizal, Branch XII, praying o Under the circumstances of the case, the act of the CIR in filing
that petitioner Cecilia be ordered to pay the Bureau of Internal Revenue an action for allowance of the claim for estate and inheritance
the sum of P6,470,396.81 plus surcharges and interest taxes, may be considered as an outright denial of petitioners'
Petitioners filed two (2) separate oppositions alleging that the estate and request for reconsideration.
inheritance taxes sought to be collected have already been settled in From   the   date   of   receipt   of   the   copy   of   the   CIR’s   letter   for   collection   of  
accordance with the provisions of P.D. No. 23, as amended by P.D. No. 67 estate and inheritance taxes against the estates of the late Teodoro
and that at any rate, the assessments have not become final and spouses, petitioners must contest or dispute the same and, upon a denial
executory. thereof, the petitioners have a period of thirty (30) days within which to
o In reply thereto, respondent Commissioner alleged that appeal the case to the CTA. This they failed to avail of.
petitioners could not avail of the tax amnesty in view of the Tax assessments made by tax examiners are presumed correct and made
existence of a prior assessment. in good faith. A taxpayer has to prove otherwise.
o Petitioners insisted that the tax amnesty could still be availed of Failure of the petitioners to appeal to the Court of Tax Appeals in due time
invoking Section 4, BIR Revenue Regulation No. 8-72. made the assessments in question, final, executory and demandable.
7/10/1974 - Respondent Judge issued an order approving the claim of
respondent Commissioner and directing the payment of the estate and PETITIONERS’ ALLEGATION THAT THE CFI (RTC) LACKS JURISDICTION OVER THE SUBJECT
inheritance taxes. MR was denied. Hence, this petition. OF THE CASE IS LIKEWISE UNTENABLE.

ISSUE: (Main  issue  is  related  to  the  tax  amnesty,  but  that  isn’t  the  topic  here)  WN   The assessments having become final and executory, the CFI properly
respondent  Judge  acted  with  GADALEJ  in  granting  the  respondent  CIR’s  claim  for   acquired jurisdiction.
estate and inheritance taxes against the estates of the Teodoro spouses on the
ground that due to the pendency of their motion for reconsideration (July 10) of the PETITIONERS’ CLAIM THAT THE EXCLUSIVE JURISDICTION OF THE CTA APPLIES IN THE CASE
deficiency assessments issued by the CIR, said tax assessments are not yet final IS UNTENABLE.
and executory. No GADALEJ.
The aforesaid exclusive jurisdiction of the CTA arises only in cases of
HELD: Affirmed. disputed tax assessments.
As noted earlier, petitioners' letter dated October 7, 1972 asking for
RATIO: reconsideration of the questioned assessments cannot be considered as
one disputing the assessments because petitioners failed to substantiate
their claim that the deficiency assessments are contrary to law.

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Petitioners asked for a period of thirty (30) days within which to submit o It cannot be rendered nugatory through the Commissioner's act of
their position paper but they failed to submit the same nonetheless. immediately filing an action for collection without ruling
Hence, petitioners' letter for a reconsideration of the assessments is beforehand on the disputed assessments.
nothing but a mere scrap of paper. However, the remedy of an aggrieved taxpayer is not without any
limitation. A taxpayer's right to contest assessments, particularly the
PETITIONERS’ CONTENTION THAT THE ABSENCE OF A DECISION ON THEIR REQUEST FOR right to appeal to the CTA, may be waived or lost as in this case.
RECONSIDERATION OF THE ASSESSMENTS IS A BAR TO GRANTING THE CLAIM FOR The requirement for the CIR to rule on disputed assessments before
COLLECTION IS LIKEWISE WITHOUT MERIT. bringing an action for collection is applicable only in cases where the
assessment was actually disputed, adducing reasons in support
Republic v. Lim Tian Teng Son & Co., Inc. SC ruled: a decision on a thereto.
request for reinvestigation is not a condition precedent to the filing of an In the present case where the petitioners did not actually contest the
action for collection of taxes already assessed. assessments by stating the basis thereof, the respondent
o "nowhere in the Tax Code is the Collector of Internal Revenue Commissioner need not rule on their request.
required to rule first on a taxpayer's request for reconsideration Taxes   are   the   lifeblood   of   the   nation,   etc…  We  cannot  tolerate   taxpayers  
before he can go to court for the purpose of collecting the tax hampering expedient collection of taxes by their failure to act within a
assessed. On the contrary, Section 305 of the same Code reasonable period. No government could exist if all litigants were permitted
withheld from all courts, except the Court of Tax Appeals under to delay the collection of its taxes.
Republic Act No. 1125, the authority to restrain the collection of Thus, this Court ruled earlier that a suit for the collection of internal
any national internal revenue tax, fee or charge, thereby revenue taxes, as in this case, where the assessment has already become
indicating the legislative policy to allow the Collector of Internal final and executory, the action to collect is akin to an action to enforce the
Revenue much latitude on the speedy and prompt collection of judgment.
taxes." o No inquiry can be made therein as to the merits of the original
Petitioners argue, however, that the CIR must first rule on the taxpayer's case or the justness of the judgment relied upon.
protest against tax assessment so as not to deprive the taxpayer of the
remedy of appeal and that it is only from the receipt of the decision that the
right to appeal to the Court of Tax Appeals should run, citing for the
purpose San Juan vs. Velasquez as well as Commissioner of Internal 03. Marcos v. CA (HV)
Revenue vs. Gonzales. Both cases NOT in point. Topic: Power/ Remedy of Collection
o San Juan having disputed the assessments at the opportune Relevant Laws/ BIR Issuances:
time, the Commissioner of Internal Revenue cannot ignore the Section 205, Tax Code
disputed assessments by immediate immediately bringing an Republic Act 9282
action to collect.
o CIR v. Gonzales the assessments of estate and inheritance G.R. No. 120880
taxes were disputed by the taxpayer by invoking prescription as a June 5, 1997
defense claiming that the assessments were made after the lapse TORRES, JR. J.
of more than five (5) years.
Payment of taxes being admittedly a burden, taxpayers should not be left Petitioners: Ferdinand R. Marcus II (Bongbong)
without any recourse when they feel aggrieved due to the erroneous and Respondents: Court of Appeals (CA)
burdensome assessments made by a BIR agent or by the Commissioner.
o Said right is vested upon adversely affected taxpayers under RA Summary:
No. 1125.
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REMEDIES (Criminal Action and Other Penalties, Prescription of Criminal Action, Power/Remedy of Collection)

BONGBONG MARCOS questions the actuations of BIR in its assessment against •The   CIR   caused   the   preparation   and   filing   of   the   Estate   Tax   Return   of   the   late  
the estate of his late father. Said assessments was properly made and served. No President, Income Tax Returns of the Marcos Spouses as of 1982 to 1986.
answer or any action was done by the Marcoses within the 30 day reglementary •Deficiency  estate  tax,  income  tax    assessments were issued
period. THE SC RULED: The omission to file an estate tax return, and the •The CIR avers that copies of the deficiency estate and income tax assessments
subsequent failure to contest or appeal the assessment made by the BIR is fatal. In were all personally and constructively served on August 26, 1991 and September
case of failure to file a return, the tax may be assessed at any time within ten years 12, 1991 upon Mrs. Imelda Marcos (through her caretaker Mr. Martinez) at her last
after the omission, and any tax so assessed may be collected by levy upon real known address at No. 204 Ortega St., San Juan, M.M. and the Estate tax
property. Since the estate tax assessment had become final and unappealable by deficiency assessment through the caretaker of Bongbong.
default as regards protesting the validity of the said assessment, there is now no •Thereafter,   Formal   Assessment   notices   were   served   on   October   20,   1992,   upon  
reason why the BIR cannot continue with the collection of the said tax. Any Mrs. Marcos c/o petitioner, at his office, House of Representatives, Batasan
objection against the assessment should have been pursued following the avenue Pambansa, Quezon City. Moreover, a notice to Taxpayer inviting Mrs. Marcos (or
paved in Section 229 of the NIRC on protests on assessments of internal revenue her duly authorized representative or counsel), to a conference, was furnished the
taxes.   Bongbong’s   contention   that   there   are   other   pending cases is his last ditch counsel of Mrs. Marcos, Dean Antonio Coronel - but to no avail.
effort to evade assessments that reached finality. •The deficiency tax assessments were not protested administratively, by Mrs.
Marcos and the other heirs of the late president, within 30 days from service
Doctrines: of said assessments.
•   Approval of the probate court is not a mandatory requirement in the •A   total   of   30   notices   of   levy   were   issued   - On February 22, 1993, the BIR
collection of estate taxes. Commissioner issued twenty-two notices of levy on real property against certain
•  It  is  not  the  DOJ  which  is  tasked  to  determine  the  amount  of  taxes due upon the parcels of land owned by the Marcoses - to satisfy the alleged estate tax and
subject estate, but the BIRwhose determinations and assessments are presumed deficiency income taxes of Spouses Marcos. On May 20, 1993, four more Notices
correct and made in good faith. The taxpayer has the duty of proving otherwise. of Levy on real property were issued for the purpose of satisfying the deficiency
income taxes. On May 26, 1993, additional four (4) notices of Levy on real property
Facts: were again issued.
•This  case  relates  to  the  settlement  of  the  estate  of  the  late  President  Marcos and •In  response  to  a  letter  dated  March  12,  1993  sent  by  Atty.  Loreto  Ata  (counsel  of  
the related estate taxes due. herein petitioner) calling the attention of the BIR and requesting that they be duly
•   His   son   Ferdinand   R.   Marcos   II   (Marcos)   questions the actuations of CIR in notified of any action taken by the BIR affecting the interest of their client Ferdinand
assessing, and collecting through the summary remedy of Levy on Real 'Bongbong’   Marcos   II,   as   well   as   the   interest   of   the   late   president   - copies of the
Properties, estate and income tax delinquencies upon the estate and aforesaid notices were served on April 7, 1993 and on June 10, 1993, upon Mrs.
properties of his father, despite the pendency of the proceedings on probate Imelda Marcos, the petitioner, and their counsel of record, 'De Borja, Medialdea, Ata,
of the will of the late president. Bello, Guevarra and Serapio Law Office'.
•After  Pres.  Marcos  died  on  Sep  19,  1989  at  Honolulu,  Hawaii,  USA,  a  Special Tax •Notices  of  sale  at  public  auction  were  posted  on  May  26,  1993,  at  the  lobby  of  the  
Audit Team was created to conduct investigations and examinations of the tax City Hall of Tacloban City. The public auction for the sale of the eleven (11) parcels
liabilities and obligations of the late president, as well as that of his family, of land took place on July 5, 1993. There being no bidder, the lots were declared
associates and "cronies". Said audit team concluded its investigation with a forfeited in favor of the government.
Memorandum dated July 26, 1991.
•  Marcoses  failed  to  file  a  written  notice  of  the  death of the decedent, an estate tax BONGBONG’s  Contentions:
returns [sic], as well as several income tax returns covering the years 1982 to 1986, •Cites  Domingo  v  Carlitos  that  "the ordinary procedure by which to settle claims
-all in violation of the National Internal Revenue Code (NIRC). of indebtedness against the estate of a deceased, person, as in an inheritance
•Mrs.  Imelda  R.  Marcos  was  criminally  charged  before  the  Regional  Trial of Quezon (estate) tax, is for the claimant to present a claim before the probate court so
City for violations of Sections 82, 83 and 84 that said court may order the administrator to pay the amount therefor." This

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REMEDIES (Criminal Action and Other Penalties, Prescription of Criminal Action, Power/Remedy of Collection)

remedy is allegedly, exclusive, and cannot be effected through any other


means. – Meaning  gov’t  claims  should  have  been  filed  with  the  probate  court Held:
•Pineda  v  CA  - the court having control over the administration proceedings •  Petition  of  BONGBONG  DENIED
has jurisdiction to entertain the claim presented by the government for taxes •  Decision  of  CA  AFFIRMED
due and to order the administrator to pay the tax should it find that the
assessment was proper, and that the tax was legal, due and collectible. And Ratio:
the rule laid down in that case must be understood in relation to the case of (1) YES, approval of the probate court is not a mandatory requirement in the
Collector of Customs vs. Haygood, supra., as to the procedure to be followed collection of estate taxes. There is nothing in the Tax Code, and in the
in a given case by the government to effectuate the collection of the tax. pertinent remedial laws that implies the necessity of the probate or estate
Categorically stated, where during the pendency of judicial administration settlement court's approval of the state's claim for estate taxes, before the
over the estate of a deceased person a claim for taxes is presented by the same can be enforced and collected.
government, the court has the authority to order payment by the •Taxes   assessed   against   the   estate   of   a   deceased   person,   after   administration   is  
administrator; but, in the same way that it has authority to order payment or opened, need not be submitted to the committee on claims in the ordinary course of
satisfaction, it also has the negative authority to deny the same. administration. In the exercise of its control over the administrator, the court may
direct the payment of such taxes upon motion showing that the taxes have been
BIR’s  Contentions: assessed against the estate.
•the state's authority to collect internal revenue taxes is paramount. Thus, the •Claims  for  taxes,  whether  assessed  before  or  after  the  death  of  the  deceased,  can  
pendency of probate proceedings over the estate of the deceased does not be collected from the heirs even after the distribution of the properties of the
preclude the assessment and collection, through summary remedies, of decedent. They are exempted from the application of the statute of non-claims.
estate taxes over the same. The heirs shall be liable therefor, in proportion to their share in the inheritance.
•claims for payment of estate and income taxes due and assessed after the •   CIR v Pineda - the Government has two ways of collecting the taxes in
death of the decedent need not be presented in the form of a claim against the question. One, by going after all the heirs and collecting from each one of
estate. These can and should be paid immediately. The probate court is not them the amount of the tax proportionate to the inheritance received. Another
the government agency to decide whether an estate is liable for payment of remedy, pursuant to the lien created by Section 315 of the Tax Code upon all
estate of income taxes. Well-settled is the rule that the probate court is a property and rights to property belong to the taxpayer for unpaid income tax,
court with special and limited jurisdiction. is by subjecting said property of the estate which is in the hands of an heir
•Nature   of   the   process   of   estate   tax   collection   - hearing and determination of the or transferee to the payment of the tax due the estate.
cash value of the assets and the determination of the tax are adversary proceedings. •  Apart  from  failing  to  file  the  required  estate  tax  return  within  the  time  required  for  
The proceeding has been held to be necessarily a proceeding in rem. the filing of the same, the other heirs never questioned the assessments served
•Enforcement   and   collection   of   estate   tax,   is   executive   in   character,   as   the   upon them, allowing the same to lapse into finality, and prompting the BIR to collect
legislature has seen it fit to ascribe this task to the Bureau of Internal Revenue. Sec the said taxes by levying upon the properties left by President Marcos
3 NIRC •  The  Notices  of  Levy  upon  real  property  were  issued  within  the  prescriptive  period  
and in accordance with the provisions of the present Tax Code. The deficiency tax
Issues: assessment, having already become final, executory, and demandable, the same
(1) Are the summary tax remedies resorted to by the Government precludes and can now be collected through the summary remedy of distraint or levy pursuant to
affects  the  special  proceeding  for  the  allowance  of  the  late  President’s  will  such  that   Section 205 of the NIRC.
the probate proceeding placed all properties in custodial legis of the probate court to •  Sec.  223.  Exceptions  as  to  a  period  of  limitation  of  assessment  and  collection  of  
the exclusion of all other courts and administrative agencies? --- YES taxes.-
(2) Did the assessments of the CIR attained finality that even there are pending (a) In the case of a false or fraudulent return with intent to evade tax or of a failure
cases regarding the ownership of the last president and that his son is never to file a return, the tax may be assessed, or a proceeding in court for the collection
notified of the notice of levy and constituted violation of due process? --- YES of such tax may be begun without assessment, at any time within ten (10) years

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REMEDIES (Criminal Action and Other Penalties, Prescription of Criminal Action, Power/Remedy of Collection)

after the discovery of the falsity, fraud, or omission: Provided, That, in a fraud Facts:
assessment which has become final and executory, the fact of fraud shall be Lim Tian Teng Sons & Co., Inc. is a domestic corporation engaged in 1951
judicially taken cognizance of in the civil or criminal action for the collection thereof. and 1952, among others, in the exportation of copra.
•Any   internal   revenue   tax   which   has   been   assessed   within   the   period   of   limitation o The copra was weighed before shipment in the port of departure and upon arrival
above prescribed, may be collected by distraint or levy or by a proceeding in court in the port of destination. The weight before shipment was called copra outturn.
within three years following the assessment of the tax. o To allow for lose in weight due to shrinkage, said exporter collected only 95% of
the amount appearing in the letter of credit covering every copra outturn.
•The  omission  to  file  an  estate  tax  return,  and  the  subsequent  failure  to  contest  or  
o The 5% balance remained outstanding until final liquidation and adjustment.
appeal the assessment made by the BIR is fatal. In case of failure to file a return,
March 30, 1953: Lim Tian Teng filed its income tax return for 1952 based
the tax may be assessed at any time within ten years after the omission, and any
on accrued income and expenses.
tax so assessed may be collected by levy upon real property within three years
Its return showed a loss of P56,109.98.
following the assessment of the tax. Since the estate tax assessment had become
o It took up as part of the beginning inventory for 1952 the copra outturn shipped in
final and unappealable by the petitioner's default as regards protesting the validity
1951 in the sum of P95,500.00 already partially collected, as part of its
of the said assessment, there is now no reason why the BIR cannot continue with outstanding stock as of December 31, 1951.
the collection of the said tax. Any objection against the assessment should have In   the   audit   and   examination   of   Lim   Tian   Teng’s   1952   ITR,   the   CIR (the
been pursued following the avenue paved in Section 229 of the NIRC on protests case said Collector of Internal Revenue) eliminated the P95,500.00 outturn
on assessments of internal revenue taxes. from the beginning inventory for 1952 and considered it as accrued income
•Bongbong’s   contention   that   there   are   still   other   proceedings   relating   to   the   for 1951.
properties of his father is last ditch effort to assail the assessment of estate
This increased taxpayer's 1952 net income by P95,500.00 which,
tax which had already become final and unappealable.
considering disallowances in the sum of P9,980.85, raised the taxpayer's
net taxable income for 1952 to P50,370.87.
04. Republic v. Lim Tian Teng (HQ) CIR assessed a deficiency income tax of P10,074.00 and 50%
surcharge thereon amounting to P5,037.00 and demanded payment from
G.R. No. L-21731 March 31, 1966
Lim Tian Teng
Plaintiff-Appellee: Republic of the Philippines
Defendant-Appellant: Lim Tian Teng Sons and Co., Inc. Lim Tian Teng requested reinvestigation of its 1952 income tax
liability
Summary: CIR did not reply; instead, referred the case to the Solicitor General for
CIR assessed a deficiency income tax and 50% surcharge, and demanded payment collection by judicial action.
from Lim Tian Teng. Lim Tian Teng requested reinvestigation of its 1952 income tax OSG demanded from Lim Tian Teng the payment of P15,111.50 within 5
liability to which the CIR did not act upon. Subsequently, CIR filed an action in the days, or else a judicial action would be instituted without further notice
CFI for the collection of the deficiency taxes. CFI declared the tax assessment valid, Lim Tian Teng reiterated its request for reinvestigation
final and executory and ordered Lim Tian Teng to pay. Lim Tian Teng assailed the It also wrote the OSG requesting that it be allowed to present its
jurisdiction of the CFI on the ground that the CIR had not yet decided on its request explanation together with supporting papers relative to its income tax
for reinvestigation. It argued that the final decision of the CIR on the disputed liability, which the OSG transmitted the letter to the CIR
assessment is a condition precedent to the filing of a judicial action for collecting the Deputy  Collector  of  Internal  Revenue’s  letter:  Informed  the  taxpayer  that  its  
tax. SC held that the CIR is NOT required to rule first on a taxpayer's request request for reinvestigation would be granted provided it executed
for reinvestigation before he can go to court for the purpose of collecting the within 10 days a waiver of the statute of limitations but advised that if
tax assessed. SC added that the only requisite before CIR can collect the tax is no waiver is forthcoming on or before said date, judicial action for
that he must first assess the same within the time fixed by law and (in the case of a collection would be instituted without further notice
false or fraudulent return or failure to file a return) a proceeding in court for the Lim Tian Teng failed to file a waiver of the statute of limitations
collection of such tax may be begun without assessment.

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CIR instituted an action in the CFI Cebu for the collection of deficiency Nowhere in the Tax Code is the CIR required to rule first on a
income tax taxpayer's request for reinvestigation before he can go to court for
CFI: the purpose of collecting the tax assessed.
o Declared the assessment of income tax (P15,111.00) due valid, On the contrary, Section 305 of the same Code withholds from all courts,
final and executory except the CTA, the authority to restrain the collection of any national
o Ordered Lim Tian Teng to pay the amount due with interest of 1% internal-revenue tax, fee or charge (Why? Lifeblood Theory)
per month until fully paid
CIR moved for its reconsideration on the ground that it did not include the Taxpayer’s   remedy (in case he wants to contest the assessment): Pay
5% surcharge for late payment of tax - Motion denied the tax and bring an action in the ordinary courts for its recovery
Both parties appealed Note: Upon creation of the CTA - it allows the taxpayer to dispute the
o CIR: Cited as errors the non-imposition of the 5% surcharge for correctness legality of an assessment both in the purely administrative
the late payment of tax and the computation of delinquency level and in CTA, BUT it does not stop the CIR from collecting the tax
interest through any of the means provided except when enjoined by said CTA
o Lim Tian Teng: Assailed the jurisdiction of the CFI, its finding that (CTA lang ang may ganitong power)
the assessment in question has become final and executory, the
correctness of the assessment and the imposition of the 50% Other Issues:
surcharge Whether or not the assessment is considered final and executory
CFI interpreted this action of the CIR (in not replying to the request for
Issue: Whether   or   not   the   CIR   is   required   to   rule   first   on   the   taxpayer’s   reinvestigation)   as   a   denial   of   Lim   Tian   Teng’s   request   for   reinvestigation   (SC:   CFI  
committed no error in this interpretation - for what is more indicative of the Collector's
request for reinvestigation before he can go to court for collecting the tax
decision against reinvestigation than his insistence to collect the tax?)
assessed – NO
This decision was communicated to Lim Tian Teng in a letter dated September 20, 1957 of
the OSG which must have been received by Lim Tian Teng not later than October 8, 1957
Ratio: (date it acknowledged receipt)
Lim Tian Teng: CFI has no jurisdiction to entertain this case on the ground It had 30 days from October 8, 1957 within which to appeal to the CTA
that the CIR has not yet issued his final decision on its requests for Instead of appealing to the CTA, Lim Tian Teng reiterated its request for
reinvestigation. reinvestigation.
Taxpayer’s  stand:  Final decision of the CIR on the disputed assessment is CIR wrote Lim Tian Teng that its "request for a reinvestigation will be granted only upon
a condition precedent to the filing of an action in the CFI for the collection execution of a waiver of the statute of limitations". CIR even extended the period within
which to submit the waiver
of a tax.
In effect, the CIR placed in the hands of Lim Tian Teng the holding of a reinvestigation.
However, no such reinvestigation was made inasmuch as taxpayer failed to submit a written
SC: the argument has no merit! waiver of the statute of limitations on or before December 31, 1957. Such omission
REINVESTIGATION NOT REQUIRED BEFORE FILING AN ACTION automatically brought about the denial of the request for reinvestigation.
The CIR is authorized to collect delinquent internal revenue taxes either by On the legality of requiring waiver of the statute of limitations before grant of reinvestigation
distraint and levy or by judicial action or both simultaneously Such argument was not raised in the BIR
The only requisite before he can collect the tax is that he must first SC sustained the authority of the Secretary of Finance to issue rules and regulations for the
assess the same within the time fixed by law effective enforcement of the provisions of the Tax Code
In the case of a false or fraudulent return with intent to evade the tax or of
a failure to file a return, a proceeding in court for the collection of such tax Taxpayer’s  failure  to  appeal  to  the  CTA  in  due  time  made  the  assessment  final,  
may be begun without assessment executor and demandable (maybe important!)
Period to appeal had long lapsed when the CIR filed the complaint in this
case on September 2, 1958.
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When the action was instituted to enforce the deficiency assessment in one per centum a month upon said tax from the time the same became
question, Lim Tian Teng was already barred from disputing the due…
correctness of the assessment or invoking any defense that would Based on the provision, he 5% surcharge is mandatory and automatically due, once the tax is
not  paid  on  time.  (“Shall”  being  the  operative  word)
reopen the question of his tax liability on merits
On the Delinquency Interest
No inquiry can be made therein as to the merits of the original case or the Government questions the computation of the delinquency interest, due on the deficiency
justness of the judgment relied upon, other than by evidence of want of tax, from October 8, 1957
jurisdiction, of collusion between the parties, or of fraud in the party It insists that payment of such interest should commence from February 15, 1957.
offering the record with respect to the proceedings Pursuant to Section 51(d), "the assessment made by the Collector of Internal Revenue shall
Taxpayer may raise only the questions whether or not the CIR had be paid ... immediately upon notification of the amount of such assessment."
jurisdiction to do the particular act, and whether any fraud was committed In the present case, the income tax assessment notice gave Lim Tian Teng up to February 15,
in the doing of the act (Court in Insular Government vs. Nico) 1957 to pay the deficiency tax in question but no payment was made.
Hence, interest on the unpaid tax fell due starting February 16, 1957 and continues to accrue
The assessment in question is correct (not relevant, purely computation lang and accounting method) until full payment of the tax.
It is not controverted that, as appearing from its 1952 ITR, Lim Tian Teng employs the
"accrual" method of accounting Wherefore, the decision appealed from is modified. Lim Tian Teng Sons & Co., Inc.
Following such accounting method the copra outturn in the amount of P95,500.00 is hereby ordered to pay the sum of P10,074.00 as deficiency income tax for 1952
outstanding as of December 31, 1951, should have been treated as accrued income for 1951, plus 50% and 5% surcharges thereon for fraud and late payment, respectively,
instead of as stock on hand on January 1, 1952. and 1% monthly interest upon said tax of P10,074.00, computed from February
Lim Tian Teng took up the copra outturn in question as copra on hand in the beginning 16, 1957 until the tax is fully paid.
inventory for 1952. Said beginning inventory, together with expenses, copra purchased
during the year and copra on hand as of December 31, 1952 were deducted as "cost of goods
sold" from the total gross sales for the purpose of determining the net sales. 05. Yabas v. Flojo (KF)
Since the P95,500.00 copra outturn formed part of the "cost of goods sold", it diminished the G.R. No. L-46954, July 20, 1982
net  sales  by  P95,500.00,  thereby  also  decreasing  Lim  Tian  Teng’s  net  taxable  income  by  the  
same amount.
Topic: Power / Remedy of Collection
This procedure of treating the copra outturn in question  is  inconsistent  with  Lim  Tian  Teng’s  
accounting method.
Petitioners: Elpidio Yabes And Severino Yabes
Respondents: The Hon. Napoleon Flojo, in his capacity as Presiding Judge of
Income tax return is fraudulent Branch II, CFI of Cagayan and the Republic of the Philippines
Firstly, taxpayer's beginning inventory for 1952 did not state the truth in considering the
copra outturn as copra on hand Summary:
Secondly, by observing regularly its own system of accounting, taxpayer had no choice but Doroteo Sabes received a letter from CFI demanding payment of commercial
to account the copra outturn as accrued income taxes, etc (15K). He protested on the ground that his agreements with
For such deviation, CFI err in imposing the 50% surcharge. International Harvester were purchase and sales and NOT agency.
Commissioner replied that he acted as commercial broker in accordance with
Government’s  Appeal  – On the 5% Surcharge
the Constantino case. Yabes requested for reinvestigation and that appeal be
It maintains that the lower court erred in not imposing on defendant's tax liability a surcharge
of 5% for late payment. held in abeyance until the final decision in the Constantino case. CIR said
SEC. 51. Assessment and payment of income tax. — admin appeal would be held in abeyance pending resolution of the Constantino
xxx xxx xxx case. Yabes died. SC rendered ruling in the Constantino case in favor of the
(c) Surcharge and interest in case of delinquency. - To any sum or CIR (agreements were agency contracts). Heirs issued waiver to extend
sums due and unpaid after the dates prescribed in subsections (b), (c) prescription. The deadline of the waiver lapse. Thereafter, heirs received
and (d) for the payment of the same, there shall be added the sum of summons and complaint filed by Commissioner in the CFI seeking to collect
five per centum on the amount of tax unpaid and interest at the rate of
payment of the taxes. Heirs filed petition for review in the CTA and answered
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REMEDIES (Criminal Action and Other Penalties, Prescription of Criminal Action, Power/Remedy of Collection)

the complaint of Commissioner in the CFI saying waley jurisdiction si CFI. After Yabes' death, SC rendered a ruling in the Constantino case in favor
Commissioner filed MTD sa CTA. Heirs filed MTD in the CFI. CTA denied MTD of the CIR. (which means, agreements of Constantino with International
of Commissioner. CFI denied MTD of heirs. CFI pursued trial. Hence this Harvester are agency contracts therefore liable sa commercial broker's
recourse of heirs. ISSUE: WON CFI can lawfully acquire jurisdiction over a fixed and percentage taxes)
contested assessment made by the CIR against Yabes w/c has not yet become After 5 yrs, the heirs of the Yabes received a letter from CIR (dated July
final, executory and incontestable, and which assessment is being contested in 27, 1967) requesting that they "waive anew the Statute of Limitations" and
the CTA and still pending consideration. SC: No, CFI had no jurisdiction and further confirming the previous understanding that the final resolution of
should have dismissed the case. Decision is NOT yet final, executory and the protest of the deceased Yabes was "being held in abeyance until the
incontestable. CHECK RATIO Supreme Court renders its decision on a similar case involving the same
factual and legal issues brought to it on appeal" (referring to the
Constantino "test" case).
FACTS: (Mahaba facts pero onti lang held) Yabes filed a revised waiver further extending the period of prescription to
Doroteo Yabes, who was for sometime an exclusive dealer of products of December 31 1970. (Until here, it is just between the Commissioner and
the International Harvester Macleod, Inc., received on May 1, 1962, a letter the heirs)
from the CIR demanding payment of the amount of P15,976.81, as Thereafter, no word was received by Yabes heirs during the interim of
commercial broker's fixed and percentage taxes plus surcharges and more than 3 yrs, but on Jan. 20, 1971, they received the summons and a
the sum of P2,530 as compromise penalty copy of the complaint filed by the Commissioner in the CFI seeking to
Yabes filed his protest with regard to the assessment of commercial collect the sum of P 15,976.82, as deficiency commercial broker's fixed
broker's fixed and percentage taxes plus penalties against him on the and  percentage  taxes,  including  surcharges  and  interest  (deceased  Yabes’  
ground that his agreements with the International Harvester Macleod, income derived from transactions as dealer of the products of the
Inc. were of purchase and sale, and not of agency, hence he claimed he International Harvester)
was not able to pay such kind of taxes Heirs of Yabes filed a petition for review with the CTA, later on the
Commissioner informed Yabes that he acted as a commercial broker "in same day, they filed their answer to the complaint of the Commissioner
accordance with the ruling of this Office in the Constantino case.”   before the CFI; and alleged that the CTA has exclusive jurisdiction of the
(Constantino Case: similar case to this one, with the issue: WON action and that there is another action of the same nature between the
agreements with International Harvester ay purchase and sales or agency, parties relating to the same assessment pending before the CTA. (Bale
hence, the final decision will affect Yabes) there are 2 cases at the moment, one with the CTA [petition for review ni
Yabes requested for the reinvestigation, or review of the case by the heirs] and one with the CFI [complaint ni Commissioner], mej nagaagawan
appellate division of the BIR in accordance with standing rules, regulations ng jurisdiction ang peg).
or practice on the matter and that the appeal be held in abeyance pending Si Commissioner nagfile ng MTD sa CTA tapos sabi nya final and
final decision of the Constantino case. executory na yung assessment therefore, waley na jurisdiction si CTA.
Sept. 18, 1962: CIR DENIED the request for reinvestigation for failure to Tapos yung heirs naman nagMTD sa CFI (remember dito nagfile ng
submit evidence to offset findings of the Office. CIR however said that the complaint si Commissioner) kasi waley daw sya jurisdiction over the matter,
administrative appeal will be held in abeyance pending the resolution CTA daw.
of the issues in the Constantino case. CFI:   issued   an   order   denying   the   heirs’   MTD   on   the   ground   that   the  
Oct. 20, 1962: Yabes filed a tax waiver on extending the period of petitioners "have already made a previous answer wherein they
prescription to December 31, 1967 categorically admitted the jurisdiction of the court over the subject matter
Mar. 13, 1963: Yabes died and no estate proceedings were instituted for and the Court believes that, granting for the sake of argument, there is a
the settlement of his estate; the petitioners are the children of the pending action between the same parties for the same cause yet the
deceased. judgment which may be rendered in the first cited case does not

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necessarily bar the present action" (sinasabi nya na sya may jurisdiction). assessment made by the Commissioner is correct, then the Court of Tax
Tapos, sabi nya, stop muna trials. Appeals has exclusive jurisdiction over this case. Heirs received the summons
Meanwhile,  CTA  denied  Commissioner’s  MTD.  Tapos si CFI, gora na raw in Civil Case No. II-7 of the respondent Court of First Instance of Cagayan on
sa trials. (Kaloka, suntukan na lang) Heirs tried to suspend proceedings January 20, 1971, and petitioners filed their appeal with the Court of Tax
but to no avail. Hence, present recourse. TRO was issued. Appeals in CTA Case No. 2216, on February 12, 1971, well within the thirty-day
prescriptive period under Section 11 of Republic Act No. 1125. The CTA has
ISSUE: W/N CFI can lawfully acquire jurisdiction over a contested assessment exclusive appellate jurisdiction to review on appeal any decision of the
made by the CIR against Yabes w/c has not yet become final, executory and Collector of Internal Revenue in cases involving disputed assessments and
incontestable, and which assessment is being contested in the CTA and still other matters arising under the National Internal Revenue Code.
pending consideration
CONCURRING (AQUINO):
HELD: No, CFI had no jurisdiction and should have dismissed the case. Respondent judge erred in setting Civil Case No. II-7 for trial. Civil Case No. II-7
Decision is NOT yet final, executory and incontestable. should be transferred to the Tax Court. No rule allows the transfer to the Tax Court
of a tax case pending in the Court of First Instance and vice-versa.
RATIO:
CTA ratio which was upheld by the SC: The period for appeal to this Court But under the peculiar situation in this case, the pragmatic, expedient and sensible
should NOT be counted from September 18, 1962. In a letter of July 27, 1967, thing to do is to transfer Civil Case No. II-7 to the Tax Court and to consider it as a
CIR informed Yabes that a resolution of their protest was being held in counterclaim to CTA Case No. 2216. The two cases involve the same parties, the
abeyance until the Supreme Court renders a decision on a similar case same subject-matter and the same issue: the liability of the Yabes heirs for the
"involving the same factual and legal issues". As a matter of fact, in an earlier commercial broker's fixed and percentage taxes allegedly due from Doroteo Yabes.
letter dated September 26, 1962, CIR also informed Yabes' counsel that
"administrative appeal for and in behalf of their clients will be held in abeyance That may be a novel and unprecedented solution but we have to be practical and
pending resolution of the issues on a similar case which was appealed by you should avoid duplicity of suits. Since it now appears that the Government
to the Court of Tax Appeals". It is thus clear in these letters that CIR erroneously assumed in filing Civil Case No. II-7 in the Court of First Instance that
reconsidered the finality of his decision of August 3, 1962, assuming arguendo the tax assessment is uncontested when actually it is contested, then that case
that the letter had a tenor of finality. should be consolidated with the case in the Tax Court which is the proper forum for
deciding contested tax assessments.
The records show that a warrant of distraint and levy was issued on October 2,
1970. Had this been served on Doroteo Yabes, it would have been equivalent
06. CIR v. NLRC (MR)
to a final decision. There is, however, nothing to show that it was ever
Topic: When   taxes   are   superior   to   workman’s   lien   on   property   of   the   employer-
served on Yabes. Neither is there anything in the record to show that a
taxpayer
formal decision of denial was made after CIR's letter of July 27, 1967.
Relevant Laws: NIRC Sec. 206

Under the circumstances of this case, what may be considered as final decision
G.R. No. 74965
or assessment of the Commissioner is the filing of the complaint for collection
November 9, 1994
in the respondent Court of First Instance of Cagayan, the summons of which
Mendoza, J.
was served on petitioners on January 20, 1971. THUS, the appeal with the
CTA was filed on time (w/in the 30 day prescriptive period).
Petitioners: CIR
Respondents: NATIONAL LABOR RELATIONS COMMISSION, DEPUTY CITY
If the contrary is established, as this Court holds it to be, considering the
SHERIFF CARMELO V. CACHERO, MARITIME COMPANY OF THE PHILIPPINES,
aforementioned conclusion of the CTA on the finality and incontestability of the
Page 24 of 27
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REMEDIES (Criminal Action and Other Penalties, Prescription of Criminal Action, Power/Remedy of Collection)

DOMINGO C. NIANGAR, DANIEL C. SABINO, FERNANDO S. TULIAO and Petition GRANTED


TULMAR TRADING CORPORATION, Decision of lower court REVERSED

Summary: This is a case engaging your tax, labor and cred trans passions Ratio:
combined. Pretty exciting.
NIRC provides for the collection of delinquent taxs by any of the following
remedies
Facts: o Distraint of personal property or levy of real property of the
CIR  sent  2  demands  to  Maritime  for  deficiency  common  carrier’s  tax,  fixed   delinquent taxpayer and
tax,   6%   Commercial   Broker’s   tax,   DST,   IT   and WT—it became final and o Criminal or civil action
executory LA says no valid distraint because the receipt was not signed by the
Because it did not pay, CIR issued warrants of distraint and levy, which taxpayer as required in Sec. 303 (now 206)
were  served  on  Maritime’s  accountant o Also, when the sheriff conducted investigation on the property he
“Receipt   for   Goods   and   Articles   Siezed  under   the   Authority   of  the   NIRC”,   didn’t  find  any  lien  or  encumbrance
covering the barges herein being fought over, was executed as required by o But this casea rose out of the same facts involved in Republic vs.
1
Sec. 303 (now 206) of the Code as proof of constructive distraint . It was Enriquez where We sustained the validity of the distraint of the
prepared for the signature of a Maritime rep but it was not signed because barges against the levy made by the sheriffs
it was explained that the individuals in possession refused to sign o Apparently what had been attached in the motion filed with the LA
It appears that the barges were levied upon execution by the sheriff of was a copy and not the original receipt showing the rubber stamp
Manila to satisfy judgment for unpaid wages and benefits of employees. of the Coast Guard and duly signed by its rep, which had the
They were sold at public auction barges in possession
CIR asked Labor Arbiter to annul the sale and remit proceeds thereof to o In addition to the   receipt,   CIR   issued   “Notice   of   Siezure   of  
the BIR, which   LA   denied.   It   also   denied   CIR’s   contention   that   the   taxes   Personal  Property”  stating  the  facts  of  the  distraint  of  the  barges,  
were preferred under Art. 2247 in relation to Art. 2241(1) of the Civil Code, belieing the claim of the sheriff
because under these provisions, only taxes due on the specific movables Accordingly, what was held in that previous case applies here:
themselves enjoy preference, whereas the taxes claimed by the CIR were o the claim of the government on tax lien is superior to the claim of
general and not due on the barges themselves a proviate litigant predicated on a judgment
NLRC affirmed denial o the tax lien attaches not only from the service of the warrant of
Hence, petition for certiorari distraint, but from the time the tax became due and payable
o besides, the distraint and siezures were made by CIR long before
Issues: WON the warrant of distraint served the RDO is valid as against the writ of the writ of execution was issued by the RTC. So at the time the
execution subsequently levied upon the same property by the sheriff—YES writ of execution was issued, the barges no logner belonged to
Maritime. The power of the court in execution extends only to
Held: property unquestionably belonging to the judgment debtor
It’s   also   not   right   to   say   that   the   taxes   are   only   absolutely   preferred   with  
1 respect  to  im/movables  on  which  they’re  due  and  so  as  per  Art.  110  of  the  
It is an undertaking by the taxpayer or person in possession of the property
Labor  Code,  worker’s  liens  enjoy  first  preference
covered that he will preserve the property and deliver it upon order of the court or
o Republic v. Peralta—the claim of the BIR for unpaid tobacco
the Commissioner.
inspection fees constitute a claim for unpaid internal revenue
taxes which give rise to a lien upon ALL properties and assets of

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REMEDIES (Criminal Action and Other Penalties, Prescription of Criminal Action, Power/Remedy of Collection)

the insolvent taxpayer and must be given preference over any the SC, the jewelry were appraised and reappraised. Thereafter, the Secretary of
claim of creditors in respect of properties of the insolvent Finance granted to set aside the original appraisement and upheld the
o Claims of laborers under Art. 110 do not create a lien on all or any reappraisement value of 9K. SG moved for execution to satisfy the judgment which
specific property of the employer but to the exten of unpaid wages was affirmed by the SC. Rovero said it was already satisfied (he paid 9k only not
claimed on the goods manufactured or work done (Art. 2241(6)) the 23k), presenting a receipt. Judge Amparo said full amount was NOT satisfied.
or upon buildings, canals or other works on which they worked Issue: WON the reappraisal value made by Customs officials after decision of the
(Art. 2242(3)) court is proper. HELD: No. Supervision and control of Commissioner over judicial
o Applying ^ the principle to the present case: the claims of the proceedings cannot be extended to the modification of a final decision of a court.
Unions for separation pay of their members constitute liens Moreover, the right of compromise claimed on behalf of the commissioner is clearly
attaching to the processed leaf tobacco, cigars and cigarettes and inapplicable to this case at this stage of the judicial proceedings because the time
other products produced or manufactured by the Insolvent, but for compromise is over.
not to other assets owned by the Insolvent. And even in respect
of such tobacco and tobacco products produced by the Insolvent, FACTS:
the claims of the Unions may be given effect only after the Bureau
of   Internal   Revenue’s   claim for unpaid tobacco inspection fees Rovero arrived on board a PAL plane which came from Bangkok at the
shall have been satisfied out of the products so manufactured by Makati Airport bringing with him several pieces of baggage, among
the Insolvent. which a Chinese vase which he declared and valued at P15. It was
And the most winner argument of the SC saved for last *drum roll*—Art. retained by the Customs officials for they suspected that they contained
110 only applies in case of bankruptcy or judicial liquidation of the merchandise not declared which should pay customs duty. In the course of
employer, which is not even the case here! the investigation, it was found that the vase contained pieces of jewelry.
Thus, the jewelry was seized as property subject to forfeiture under the
Revised Administrative Code.
He admitted that he purposely concealed them in the false bottom of the
Chinese vase because he was allegedly afraid of being robbed by holdup
07. Rovero v. Amparo (KF) men and that he did not enough cash with him to pay the duties and taxes
G.R. No. L-5482, May 5, 1952 theron. Not being satisfied with his explanation, he was found guilty of the
Revised Administrative Code and was sentenced to pay a fine and
Topic: Compromise and Abatement imprisonment. The jewelry was ordered to be sold at a public auction for
the satisfaction of the claim of the government for tax and duties.
Petitioners: Tranquilino Rovero
After promulgation and finality of the case of the Supreme Court in the
case of Rovero, the 259 pieces of jewelry were appraised and
Respondents: Rafael Amparo as Judge of the Court of First Instance of Manila,
reappraised and on the same day, the appraiser forwarded the report
Branch III, The Republic Of The Philippines And The Sheriff Of The City Of Manila
to the Commissioner of Customs which then forwarded it to the
Secretary of Finance.

Summary:
Meanwhile, on motion and on behalf of the Philippines, the Solicitor
Rovero concealed pieces of jewelry when he arrived in Makati Airport. General moved for the execution of the decision of the case against
Customs officials appraised it at 23K. Finally, he was found guilty under the Revised Rovero which have been affirmed by the Supreme Court for satisfaction
Administrative Code and was sentenced to pay a fine and imprisonment. He of judgment but this was contested by Rovero on the ground that the
appealed up to the SC but to no avail. After promulgation and finality of the case of judgment was already satisfied. To support his position, he presented a

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REMEDIES (Criminal Action and Other Penalties, Prescription of Criminal Action, Power/Remedy of Collection)

receipt dated 23 August 1951 allegedly received from the Bureau of something or otherwise making reciprocal concessions. Here, the case has
Customs representing the 259 pieces of jewelry with the corresponding already been finally decided by the highest tribunal. There is no longer any
paid duty and charges at the reappraised value (9,880php). (Original uncertainty as to the result of the litigation because the government has finally won
appraisal: 23K) it. There is nothing more to compromise.

Once the court decision becomes final, neither the Secretary of Finance nor the
ISSUE: Commissioner of Customs may have the goods reappraised for the purpose of
reducing the amount of the fine. The jurisdiction of Customs officials over
Whether or not the reappraisal made by the Customs officials after the decision of administrative cases involving seizures, appraisals forfeitures, and fines
the Court has become final is proper. – NO imposed, ends with the appeal of their decisions to the courts, and the final
judgments of said courts; thereafter, the remaining function of said officials is
RATIO: to carry out the terms of said final court decisions, and in doing so, naturally
guarding and protecting the interests of the Government they represent.
In absence of special provisions, judicial actions and proceedings instituted on
behalf of the government under the authority of the customs laws shall be subject to
the supervision and control of the commissioner but the said supervision and
control over judicial proceedings cannot be extended to the modification of a
final decision of a court.

The commissioner of customs may only supervise and control:

1. The filing of pleadings


2. The conduct of the hearing
3. The presentation of evidence
4. Taking an appeal

But he cannot under the guise of supervision and control, modify or alter a
decision of a court or stay the execution of a final judgment in favor of the
government by receiving of said government anything less that what the
judgment calls for. Although it is true that parties may enter into a compromise
agreement even if the decision is already final but such is not absolute and the
commissioner is not authorized to accept anything less than what is
adjudicated by the court in favor of the government in a decision that has
become final and executory.

In this case, the Republic already acquired a vested right to the money represented
by the fine based on the original appraisement of the jewelry in question.

Moreover, the right of compromise claimed on behalf of the commissioner is clearly


inapplicable to this case at this stage of the judicial proceedings because the time
for compromise is over. A compromise is a contract whereby the parties in
interest avoid a litigation or terminate one already commenced by promising
Page 27 of 27
TAXATION LAW 2 transit, or with pending claim for tax refund or tax credit, or with existing finalized
agreement or prospect of future agreement with any party that resulted or could
DIGESTS AND PROVISIONS COMPILATION result to an increase in the equity of the taxpayer at the time of the offer for
compromise, or at a definite future time.
E. Remedies
Moreover, no offer of compromise shall be entertained, unless and until the
taxpayer waives in writing his privilege of the secrecy of bank deposits, which shall
E.9. Power/Remedy of Collection [BIR Issuances only] constitute as the authority of the CIR to inquire into the bank deposits of the
taxpayer.
01. RR 30-2002 [summary]
Presence of circumstances that would place the taxpayer-applicant’s   inability to
Cases which may be compromised:
pay in serious doubt can be a ground to deny the application for compromise,
1. Delinquent accounts
based on financial incapacity of the taxpayer to pay the tax.
2. Cases under administrative protest, after issuance of the Final
Assessment Notice to the taxpayer which are still pending xxx
The compromise settlement of the internal revenue tax liabilities of taxpayers,
3. Civil tax cases being disputed before the courts
reckoned   on   a   “per   tax   type   assessment   basis,”   shall   be  subject   to   the   minimum  
4. Collection cases filed in courts
rates specified in the Regulations [ranging from 10% to 40%], which shall be based
5. Criminal violations, other than those already filed in court or those
on the basic assessed tax.
involving criminal tax fraud
The prescribed minimum rate for compromise settlement based on doubtful validity
Cases which may not be compromised:
is equivalent to 40% of the basic assessed tax. The taxpayer may, however,
1. Withholding Tax cases, unless the applicant-taxpayer invokes provisions
request for a compromise rate lower than 40%, provided that he shall submit his
of  law  that  cast  doubt  on  the  taxpayer’s  obligation  to  withhold
request in writing, stating therein the legal and/or factual reasons why he should be
2. Criminal tax fraud cases, confirmed as such by the CIR or his duly
entitled to such lower rate.
authorized representative
3. Criminal violations already filed in court
4. Delinquent accounts with duly approved schedule of installment payments 02. RR 13-2001, as amended by RR 4-2012
5. Cases where final reports of reinvestigation or reconsideration have been See Dropbox file [in the power/remedy of collection folder]
issued, resulting to reduction in the original assessment, and the taxpayer
is agreeable to such decision by signing the required agreement form for
the purpose
6. Cases which become final and executor after final judgment of a court,
03. RMO 39-2007 [summary]
where compromise is requested on the ground of doubtful validity of the RMO 39-2007 prescribes the issuance of warrants of distraint and garnishment,
assessment and/or levy, on disputed assessments finally decided by the BIR against the
7. Estate Tax cases, where compromise is requested on the ground of taxpayer, on assessments upheld by the CTA.
financial incapacity of the taxpayer
This covers:
The CIR may compromise the payment of any internal revenue tax on the following 1. disputed assessments finally decided by the CIR or Regional Director, as
grounds: the case may be, against the taxpayer, and
1. Doubtful validity of assessment 2. assessments upheld by the CTA in Division, w/n appealed to the CTA en
2. Financial incapacity banc; or upheld by the CTA en banc, w/n appealed to the SC.

The CIR shall not consider any offer for compromise settlement on the ground of Upon issuance by the CIR or Regional Director of the final decision on the disputed
financial incapacity of a taxpayer with Tax Credit Certificate (TCC) on hand or in assessment against the taxpayer, or upon issuance by the CTA (in division or en
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Power/Remedy  of  Collection  /  Prescription  of  Government’s  Right  to  Collect)

banc) of its decision upholding the assessment, warrants of distraint and In order to safeguard the interests of the government, Sec. 26 of the NIRC
garnishment, and/or levy shall forthwith be immediately issued and served. authorizes the BIR to place under constructive distraint the property of:
1. a delinquent taxpayer, or
2. any taxpayer who, in his opinion,
04. RMO 3942-2010 [summary] a. is retiring from any business subject to tax
RMO 42-2010 prohibits the issuance of TROs on the collection of taxes against the b. is intending to leave the Philippines
BIR by courts other than the CTA, the issuance of warrants of distraint and c. is intending to remove his property therefrom
garnishment, and/or levy on final decisions of the BIR on disputed assessments, d. is intending to hide or conceal his property, or
cases filed before the CTA, and the sale of property distraint and garnished. e. is intending to perform any act tending to obstruct the proceedings for
collecting the tax due or which may be due from him
Under Section 218 of the NIRC, no court except the CTA shall have the authority
to grant an injunction to restrain the collection of any national internal revenue tax,
fee or charge imposed by the NIRC. This prohibition shall apply to all collection
E.10.  Prescription  of  Government’s  Right  to  Collect
activities, including imposition and collection of taxes prescribed in tax laws;
issuance of warrants of distraint and garnishment, and/or levy on final decisions of
the BIR on disputed assessments, cases filed before the CTA, and the sale of 01. Guagua v. CIR (RK)
property distrained and garnished. Topic: Prescription
G.R. No. L-23611
Moreover, pursuant to Sec. 11 of RA 1125, no appeal taken to the CTA from the April 24, 1967
decision of the BIR on a disputed assessment shall suspend the payment, levy, Bengzon, J.
distraint and/or sale of any property of the taxpayer for the satisfaction of his tax
liability, unless the CTA suspends the collection under certain conditions. Petitioners: Guagua Electric Light Plant Co.
Respondents: CIR & CTA
Furthermore, when deemed proper, the BIR or its duly authorized agent, may
cause the issuance of a Notice of Tax Lien to safeguard the interest of the national Summary: Basically, Guagua wanted a refund but this was denied. However, the
government, pursuant to Sec. 219 of the NIRC, as well as other issuances by the CIR refunded 16,593.87 for period before January 1, 1956 on the ground of
BIR. prescription.  Issue  is  WON  the  gov’t  is  precluded  from  recovering  the  said  amount  
on the ground of prescription. SC says YES, the demand on the taxpayer to pay
Based on the foregoing, the TRO or injunctions issued by courts other than the the sum of P16,593.87 is in effect an assessment for deficiency franchise tax. And
CTA against the BIR contrary to the aforesaid provisions should be annulled and being so, the right to assess or collect the same is governed by Section 331 of the
cancelled for lack of jurisdiction. The concerned legal officers of the BIR are Tax Code rather than by Article 1145 of the Civil Code. A special law (Tax Code)
instructed to immediately take the necessary legal remedy to annul and cancel the shall prevail over a general law (Civil Code). (SEE RATIO).
TRO or injunction, together with an appropriate administrative case against the
erring judge, whenever the circumstances so warrant. Facts:
Pursuant   to   Act   667,   Guagua   Electric   Light   and   Plant   Co.   (“Guagua  
1
Upon issuance by the CIR of the final decision on the disputed assessment against Electric”),  a  municipal franchise holder, paid the 5% franchise tax based
the taxpayer, or upon filing of a Petition for Review before the CTA (division/en on Section 259 of the NIRC for the period January 1 1947 to November
banc) of its decision upholding the assessment, warrants of distraint and 1956
garnishment, and/or levy shall forthwith be immediately issued and served,
pursuant to RMO 39-2007.
1
Municipalities of GUAGUA and SEXMOAN (LOL) in Pampanga
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2
On March 25, 1957, believing that it should pay a franchise rate instead The Commissioner of Internal Revenue further maintains that the
of the 5% fixed in the NIRC, it filed for refund. prescription of his right to recover the amount of P16,593.87 is governed
Pending the refund, the SC ruled in Hoa Hin Co., Inc. vs. David that by Article 1145(2) in relation to Articles 1154 and 1155 of the Civil Code.
electric franchise holders under Act 667 are liable at the 5% franchise tax Hence, prescription will set in only after the expiration of six years from
in the NIRC. 1957 and 1959, the dates refunds were granted. Since the petition for
In light of the SC ruling, on March 2, 1961, CIR assessed Guagua Electric review and answer thereto were filed in the Court of Tax Appeals on
deficiency franchise tax from 1951 to 1960. February 14, and May 4, 1962, he concludes that the prescriptive period
On March 30, 1961, Guagua Electric contested the assessment of six years has not expired.
contending, among others, prescription.
o BIR recommended that the right to assess and collect tax before As stated above, the demand on the taxpayer to pay the sum of
January 1, 1956 has already prescribed. P16,593.87 is in effect an assessment for deficiency franchise tax. And
Another assessment was made excluding that period being so, the right to assess or collect the same is governed by Section
and, consequently, 16,593.87 was refunded 331 of the Tax Code rather than by Article 1145 of the Civil Code. A
o CTA affirmed this. special law (Tax Code) shall prevail over a general law (Civil Code).
Hence, the petition
Our above conclusion absolving Guagua Electric from the payment of the
Issues: sum of P16,593.87 has removed the necessity of discussing Guagua
1. Whether or not the applicable rate of 5% impairs the obligation of Electric's assertion that the Government is precluded from recovering the
contract and is therefore unconstitutional--- NO said sum because it failed to set it up as a counterclaim in C.T.A. Case
2. Whether or not the govt is precluded from recovering the P16,593.87 No. 508.
representing the amount refunded on the grounds of prescription and
failure to set up as counterclaim in the CTA case -- YES
02. Vera v. Fernandez (KB)
Held: Wherefore, the judgment appealed from is affirmed with the modification Topic: Prescription  of  government’s  right  to  collect
that the amount of P16,593.87 representing franchise tax allegedly refunded G.R. No. L-31364
erroneously and the 25% surcharge imposed on petitioner should be, and are March 30, 1979
eliminated De Castro, J.

Ratio: Petitioners: MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME


The Commissioner of Internal Revenue seeks the recovery of the amount ARANETA, as Regional Director, Revenue Region No. 14, Bureau of Internal
of P16,593.87 allegedly erroneously refunded to Guagua Electric. Said Revenue
amount represents the difference between the tax computed at 5%
pursuant to Section 259 of the Tax Code and the tax at 1% or 2% under Respondents: HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance
its franchises covering the period from September 1951 through of Negros Occidental, Branch V, and FRANCIS A. TONGOY, Administrator of the
November 1956. This, in effect, is an assessment for deficiency franchise Estate of the late LUIS D. TONGOY
tax.
Summary: The Estate of the late Tongoy is being subjected to deficiency income
taxes for the years 1963 and 1964. A Motion for allowance of claim and for
payment was then filed. Administrator of the estate opposed such motion on the
2
Guagua: 1% of gross receipts during first 20 years; 2% of gross receipts during the ground that it was barred by Sec 5, Rule 86 of the Rules of Court. Issue now is
remaining 15 years. Sexmoan: 1-½% of gross receipts during first two years; 2% of gross whether or not the statute of non-claims Section 5, Rule 86 of the New Rule of
receipts during remaining 33 years.
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Court, bars claim of the government for unpaid taxes. SC held that claims for Ratio:
taxes may be collected even after the distribution of the decedent's estate
among his heirs who shall be liable therefor in proportion of their share in Sec 5 Rule 86 makes no mention of claims for monetary obligation of the
the inheritance decedent created by law, such as taxes which is entirely of different
character from the claims expressly enumerated therein, such as: "all
Facts: claims for money against the decedent arising from contract, express or
A Motion for allowance of claim and for payment of taxes dated May 28, implied, whether the same be due, not due or contingent, all claim for
1969 was filed on June 3, 1969 funeral expenses and expenses for the last sickness of the decedent and
The claim represents the indebtedness to the Government of the late Luis judgment for money against the decedent."
D. Tongoy for deficiency income taxes in the total sum of P3,254.80. Under the familiar rule of statutory construction of expressio unius est
The Administrator opposed the motion solely on the ground that the claim exclusio alterius, the mention of one thing implies the exclusion of another
was barred under Section 5, Rule 86 of the Rules of Court (par. 4, thing not mentioned. Thus, if a statute enumerates the things upon which
Opposition to Motion for Allowance of Claim, pp. 23-24, Rollo). it is to operate, everything else must necessarily, and by implication be
Finding the opposition well-founded, the respondent Judge, Jose F. excluded from its operation and effect
Fernandez, dismissed the motion for allowance of claim filed by herein
petitioner, Regional Director of the Bureau of Internal Revenue Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al.,

Section 5, Rule 86 of the Rules of Court It was held that the assessment, collection and recovery of taxes, as well as the
matter of prescription thereof are governed by the provisions of the National
All claims for money against the decedent, arising from contracts, express or Internal revenue Code, particularly Sections 331 and 332 thereof, and not by other
implied, whether the same be due, not due, or contingent, all claims for funeral provisions of law. Even without being specifically mentioned, the provisions of
expenses and expenses for the last sickness of the decedent, and judgment for Section 2 of Rule 86 of the Rules of Court may reasonably be presumed to have
money against the decedent, must be filed within the time limited in they notice;
been also in the mind of the Court as not affecting the aforecited Section of the
otherwise they are barred forever, except that they may be set forth as counter
claims in any action that the executor or administrator may bring against the
National Internal Revenue Code.
claimants. Where the executor or administrator commence an action, or
prosecutes an action already commenced by the deceased in his lifetime, the Pineda vs. CFI of Tayabas, 52 Phil. 803,
debtor may set forth may answer the claims he has against the decedents, instead
of presenting them independently to the court has herein provided, and mutual
It was even more pointedly held that "taxes assessed against the estate of a
claims may be set off against each other in such action; and in final judgment is
rendered in favored of the decedent, the amount to determined shall be considered deceased person ... need not be submitted to the committee on claims in the
the true balance against the estate, as though the claim has been presented ordinary course of administration. In the exercise of its control over the
directly before the court in the administration proceedings. Claims not yet due, or administrator, the court may direct the payment of such taxes upon motion
contingent may be approved at their present value. showing that the taxes have been assessed against the estate." The abolition of
the Committee on Claims does not alter the basic ruling laid down giving exception
Issue: Whether or not the statute of non-claims Section 5, Rule 86 of the New to the claim for taxes from being filed as the other claims mentioned in the Rule
Rule of Court, bars claim of the government for unpaid taxes, still within the period should be filed before the Court. Claims for taxes may be collected even after
of limitation prescribed in Section 331 and 332 of the National Internal Revenue the distribution of the decedent's estate among his heirs who shall be liable
Code. --- NO therefor in proportion of their share in the inheritance. (Government of the
Philippines vs. Pamintuan, 55 Phil. 13).
Held: Petition REVERSED

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Furthermore, citing the last paragraph of Section 315 of the Tax Code payment of But the government refused to heed them and instead filed a complaint with the
income tax shall be a lien in favor of the Government of the Philippines from the CFI of Manila, praying for forfeiture of bonds and payment of the sum representing
time the assessment was made by the Commissioner of Internal Revenue until the tax and interest. However, Limaco paid part of the tax due, and Visayan paid
paid with interests, penalties, etc. By virtue of such lien, this court held that the the rest in order to be taken out of a BIR blacklist. Thus, Visayan was absolved
property of the estate already in the hands of an heir or transferee may be subject from any liability, but thereafter turned around and sought tax credit/refund
to the payment of the tax due the estate. A fortiori before the inheritance has payment from CIR for the amount of 3,000 through a counterclaim.
passed to the heirs, the unpaid taxes due the decedent may be collected, even
without its having been presented under Section 2 of Rule 86 of the Rules of Court. The Tax Court held that Visayan should be refunded by the CIR the amount of
It may truly be said that until the property of the estate of the decedent has 3,000, with interest, from date of payment.
vested in the heirs, the decedent, represented by his estate, continues as if
he were still alive, subject to the payment of such taxes as would be Issue/Held: See ratio
collectible from the estate even after his death.
Ratio
I. W/N the counterclaim by Visayan, being for recovery of the taxes it
previously paid, should have been dismissed—YES
03. Republic v. Limaco (JT)
Under Section 306 of the old Tax Code: A taxpayer must first file a claim
August 31, 1962
for refund or tax credit with the Collector of Internal Revenue, before
maintaining a suit or proceeding in any court for the recovery of any
Summary: Visayan Surety acted as surety for Limaco Inc. in order to guarantee
internal revenue tax alleged to have been erroneously or illegally
tax payments by the latter. After a check for tax payment by Limaco bounced, both
assessed or collected.
of them did not pay, notwithstanding repeated demands from the government.
This is a mandatory and a condition precedent to the prosecution of a suit
Thereafter an action was instituted in the CFI of Manila. Visayan paid, in order to
for recovery of taxes, the non-compliance of which would warrant a
remove itself from a blacklist, but sought a refund from CIR after. The Supreme
dismissal due to a lack of cause of action.
Court held that (1) the claim for refund should have been dismissed for non-
Here, no evidence was presented to show that Visayan sought a refund
compliance with the Tax Code provision, requiring a claim for refund to be filed first
or  tax  credit,  not  even  in  its  counterclaim  which  it  purports  to  be  “seeking  
with the CIR; (2) the action had not yet prescribed, having been commenced within
for  a  refund”
five years from the date an assessment was made, and (3) the payment by
At most, these were merely letters to the CIR informing it that Visayan
Visayan was not made under duress.
was tendering payment in order to be removed from a blacklist.
Facts Thus, the requirement was not complied with
Limaco Commercial Company Inc. executed, as principal, two importers Bonds
worth a total of 3,000 in favor of the government, to guarantee payment of the II. W/N  the  government’s  action  has  prescribed—NO
revenue taxes due to it. Visayan Surety acted as surety in the transaction. The collection of the tax [by] summary methods or by judicial action shall
Thereafter, Limaco filed entry papers with the Bureau of Customs in order to claim be effected within five years after the assessment of the tax.
2 million imported cigarettes, for which it paid 6,000 as specific tax using a PNB Initially, the Tax Court ruled that, since the taxes must have been
Check. assessed in 1946, when a return was filed, and with the action was filed
on Feb 8, 1953, the action had already been barred by the statute of
However, the check bounced due to insufficient funds. Despite repeated demands limitations
from the government, Limaco and Visayan did not pay. But Visayan suddenly The  SC  held  that  the  “must  have  been  assessed”  part  is  wrong.
replied and asked for a suspension of the action, whereas Limaco asked for a o The facts show that, on Feb 18, 1948, upon the discovery by the CIR
deferral as it was willing to settle the matter amicably. that the tax was not paid, he immediately issued a letter to Limaco
and Visayan, assessing and demanding payment of the tax due
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o It was only at this point in time when there had been an assessment. 04. CIR v. Ret (AD)
o However, the prescription period commenced anew, on June 14, G.R. No. L-13754 | March 31, 1962
1948, when a demand letter was given right after the check bounced. Republic of The Philippines, plaintiff-appellant
So, since the action was filed within five years from the date of the Damian P. Ret, defendant-appellee
assessment, the action has not yet prescribed. FACTS:
BUT, even if the date of assessment was back in 1946, the action still February 23, 1949 - Damian Ret filed with the BIR his Income Tax Return
would not have prescribed, because there was a suspension of the for 1948, where he made it appear that his net income was only
statute of limitations. P2,252.53 with no income tax liability at all.
o Art. 1155, Civil Code: The prescription of actions is interrupted when The BIR found out later that the return was fraudulent since Ret's income,
they are filed before the court, when there is any written extrajudicial derived from his sales of office supplies to different provincial government
demand by the creditors and when there is any written offices, totaled P94,198.76.
acknowledgment of the debt by the debtor. o The BIR assessed him P34,907.33, as deficiency income tax
o Because there was an acknowledgment of the debt by Limaco (that for 1948, inclusive of the 50% surcharge for rendering a false
is, the requests for deferral of the action) in 1951, then the action, and/or fraudulent return.
filed in 1953, would still have been within the prescriptive period of Ret failed to file his Income Tax return for 1949, notwithstanding the fact
five years. that he earned a net income of P150,447.32. His income, as assessed for
o In Lattimore v. US: "Taxpayers seeking to recover overpayment in tax purposes, showed a deficiency tax of P68,338.40 for 1949, inclusive
income could not claim that collection by Commissioner was barred of the 50% surcharge.
by limitations where procedure carried out which result in January 13, 1951 - the CIR demanded from Ret the payment of the above
postponement of collection was that requested by taxpayers" sums, but he failed and/or refused to pay said amounts.
Moreover, the present action was actually an action to recover on the January 20, 1951 - the Collector issued income tax assessment
bonds. notices to Ret, urging him to pay the sums mentioned, but with the same
o Such bonds are covered by a written contract, and actions based on result.
written contracts prescribe after ten years (Art. 1144, Civil Code). Ret was prosecuted. He pleaded guilty to the two (2) cases and was
sentenced to pay a fine of P300.00 in each.
III. W/N the tax payment made by Visayan was made under duress—uh, NO. After his conviction, the Republic filed the present complaint for the
The subsequent payment in the sum of 3,000, in order to remove the recovery of Ret's deficiency taxes in the total sum of P103,245.73, plus
name of Visayan from the blacklist, cannot be considered involuntary. 5% surcharge and 1% monthly interest.
o “A   threat   to   enforce   one's   claim   through   competent   authority,   if   the   Instead of answering, he presented a Motion to Dismiss on February 8,
claim  is  just  or  legal,  does  not  vitiate  consent” (Art. 1335, Civil Code). 1958, claiming that the "cause of action had already prescribed".
o Having been made by Visayan to preserve its credit and enable it to The CFI handed down an Order, the pertinent portion of which are
carry on its business with the BIR, the said payment cannot be reproduced below: .
considered involuntary. There is no question that the assessment of the income tax of
the defendant for 1948 and 1949 was made within the period of
IN VIEW HEREOF, the decision appealed from is reversed and the plaintiff- limitation, that is, on or before January 20, 1951, but the
appellant [Government/CIR] is absolved from refunding the amount of P3,000.00 to present suit to collect the same was brought outside the
appellee-defendant surety [Visayan], with costs against the latter. five-year period, to wit, ON SEPTEMBER 5, 1957, counted
from the date of the assessment of said tax.

ISSUE: Whether or not appellant's right to collect the income taxes due from
appellee through judicial action has already prescribed
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REMEDIES  (Power/Remedy  of  Collection  /  Prescription  of  Government’s  Right  to  Collect)

RATIO: The government further alleged that there was need for the criminal
charges to be determined first by the lower court, before a civil action for
Ret’s  Arguments: the collection of the tax could be resorted to. In other words, it is
Section 332 of the Revenue Code, which provides — contended, that the filing of the criminal actions constituted a
(a) In the case of a false or fraudulent return with intent to evade tax or of prejudicial question which should be resolved before the Civil
a failure to file a return, the tax may be assessed, or a proceeding in court Action for collection could be filed. And this was the very thing the
for the collection of such tax may be begun without assessment, at any Government did in the instant case. Moreover, the period of prescription
time within ten years after the discovery of the falsity, fraud, or omission. was suspended because of the written extra-judicial demand made by the
xxx xxx xxx Collector, citing Art. 1155 of the N.C.C. in support thereof.
(c) Where the assessment of any internal revenue tax has been made
within the period of limitation above prescribed such tax may be 4. The Government submits also that the collection of income tax thru
collected by distraint or levy or by a proceeding in court, but only if judicial action is imprescriptible, relying upon certain rules of
begun (1) within five years after the assessment of the tax, or (2) statutory construction and in the case of Estate of De la Viña v.
period to the expiration of any period for collection agreed upon in Government of the Philippine Islands, holding that "... the statutes of
writing by the Collector of Internal Revenue and the taxpayer before limitations do not run against the State; and this principle is
the expiration of such five-year period. The period so agreed upon applicable to action brought for the collection of taxes
may be extended by subsequent agreements in writing made before
the expiration of the period previously agreed upon. 5. Assuming arguendo, that the action is prescriptible, then the
provisions of Art. 1144 of the N.C.C. on prescription of actions is
The  Republic’s  Arguments: applicable, inasmuch as there is no provision in the Revenue Code
which deals on the limitation of action for the collection of income
1. The provisions of section 332(c) of the N.I.R.C. do not apply to tax thru judicial action. The plaintiff-appellant argues that the income
income taxes. It premised its argument on the ruling in several cases tax liabilities of the defendant-appellee being an obligation created by law
wherein there was no mention of any period of limitation for the and that the right of action having accrued on January 20, 1951, the date
collection of income tax thru judicial action. of assessment, and the complaint at bar having been filed on September
5, 1957, within the ten year period, the cause of action has not prescribed.
2. Ret had admitted that he filed a false and fraudulent income tax return for
1948 and unlawfully failed to file his income tax return for 1949, for which SC: The cause of action has already prescribed.
he pleaded guilty in the two criminal cases heretofore mentioned, the
collection of the tax may be enforced by a proceeding in court within 10 It is true that this Court has declared in the Avelino case (1956, supra), that
years after the discovery of the falsity, fraud or omission. And the present sections 331 and 332 of the Revenue Code do not apply "to income taxes, the
action was filed within 10 years from the discovery of the falsity, fraud or collection of which is specifically provided for under a different title to the same
omission.ñët law." But plaintiff-appellant overlooked the fact that this Court was only referring to
the collection of income tax by summary proceeding and not by court
3. Further granting, that section 332, aforecited is applicable, the action. Clarifying this matter, in the more recent case of Collector v. Solano &
Government claims that it is not barred from instituting the present action Court of Tax Appeals, G.R. No. L-11475, July 31, 1958, this Court held: —
because the period within which to collect the taxes due was We notice, however, that Section 51(d) of the National Internal
suspended upon the filing of the two informations against the Revenue Code, which refers to the collection of income tax, does
defendant-appellee on May 29, 1952, and began to accrue again from not provide for any prescriptive period insofar as the collection of
the receipt of the decision in 1955. income tax judicial action is concerned, the prescriptive period therein
mentioned being merely applicable to collection by summary methods, as

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REMEDIES  (Power/Remedy  of  Collection  /  Prescription  of  Government’s  Right  to  Collect)

interpreted by this Court. Considering this void in the law applicable to of section 332(a) and placed it under the mandates of section 332(c), (supra),
income tax, and bearing in mind that Section 331 of the Code which which is the law applicable hereon and general enough to cover the present
provides for the limitation upon assessment and collection by situation.
judicial action comes under Title IX, Chapter II, which refers to 'CIVIL
REMEDIES FOR COLLECTION OF TAXES', we may conclude that the As heretofore stated, the plaintiff-appellant made the assessment on January
provisions of said Section 331 are general in character which may 20, 1951 and had up to January 20, 1956 to file the necessary action. It was
be considered suppletory with regard to matters not covered by the only on September 5, 1957, that an action was filed in Court for the collection
title covering income tax. In other words, Title II of the Code is a special of alleged deficiency income tax - far beyond the 5-year period.
provision which governs exclusively all matters pertaining to income tax,
whereas Title IX, Chapter II, is a general provision which governs all On the argument that during the pendency of the criminal cases, it was prohibited
internal revenue taxes in general, which cannot apply insofar as it may from instituting the civil action for the collection of the deficiency taxes, this
conflict with the provisions of Title II as to which the latter shall prevail, contention is untenable. The present complaint against the defendant-appellee
but that in the absence of any provision in said Title II relative to the is not for the recovery of civil liability arising from the offense of falsification;
period and method of collection of the tax, the provisions of Title IX, it is for the collection of deficiency income tax. The provisions of Section 1,
Chapter II, may be deemed to be suppletory in character. Hence, in Rule 107 (supra) that "after a criminal action has been commenced, no civil action
our opinion, the Court of Tax Appeals did not err in holding that the arising from the same offense can be prosecuted", is not applicable. The said
right of the Government to collect the deficiency income taxes for criminal cases would not effect, one way or another, the running of the
the years 1945, 1946 and 1947 has already prescribed under section prescriptive period for the commencement of the civil suit. The criminal
331 of the National Internal Revenue Code. ... (Coll. of Int. Rev. v. Bohol actions are entirely separate and distinct from the present civil suit. There is
Land Trans. Co., G.R. Nos. L-13099 & 13453, Apr. 2, 1960). nothing in the law which would have stopped the plaintiff-appellant from
filing this civil suit simultaneously with or during the pendency of the
From all of which, it may be reasonably inferred that section 332 of the Revenue criminal cases.
Code does not apply to income taxes if the collection of said taxes will be made by
summary proceedings, because this is provided for by Section 51 (d) The plaintiff-appellant was not prohibited by any order of the court or by any law
aforementioned; but if the collection of income taxes is to be effected by court from commencing or filing a proceeding in court.
action, then section 332 will be the controlling provision. It is alleged, however,
that this Court did not mention any period of limitation for the collection of income On the argument that the period of prescription for the collection of tax was
tax thru judicial action. To this, it may be observed that it was unnecessary to do so suspended because of the written extrajudicial demand made by the Collector
because the said section (332) has already so provided. In the Solano case, it was against the defendant-appellee, citing Article 1155 N.C.C, we held that the only
declared, "Even so, section 332(c) of the National Internal Revenue Code provides agreement that could have suspended the running of the prescriptive period
that such action may be brought only within five years from the time of the was a written agreement between Solano and the Collector, entered before
assessment of the tax". the expiration of the five (5) year prescriptive period, extending the period of
limitations prescribed by law which "Rule is in accord with the general law on
Plaintiff-appellant maintains that granting the applicability of section 332, still, prescription that requires a written acknowledgment of the debtor to renew the
according to paragraph (a) thereto (supra), it has 10 years from the discovery of cause of action or interrupt the running of the limitation period (Act 190, sec. 50;
the falsity, fraud or omission within which to file the present action. Under said new Civil Code, Art. 1155)."
section, the Collector is given two alternatives: (1) to assess the tax within 10 years
from the discovery of the falsity, fraud or omission, or (2) to file an action in court In the instant case, there is no such written agreement, and there was nothing to
for the collection of such tax without assessment also within 10 years from the agree about.
discovery of the falsity, fraud, or omission. In the case at bar, an assessment had
been made and this fact has taken out the case from the realms of the provisions

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REMEDIES  (Power/Remedy  of  Collection  /  Prescription  of  Government’s  Right  to  Collect)

The very provisions of sections 331, 332 and 333 of the N.I.R.C. specially the any period for collection agreed upon in writing by the Collector of Internal
last, heretofore quoted, support the theory of prescriptibility of a judicial Revenue and the taxpayer before the expiration of such five-year period [Sec. 332
action to collect income tax. It is true that in earlier decisions, there was a (c), old NIRC]. The collection was not filed within the 5-year period. Neither was it
declaration to the effect that the action to collect income tax is imprescriptible. begun prior to the expiration of any period for collection agreed upon in
More recent decisions, however, recognized the prescriptibility of such actions. writing by the Commissioner and defendant before the expiration of such
Thus, it has been held: — five-year period.

The 'judicial action' mentioned in the Tax Code may be resorted to FACTS:
within five (5) years from the date the return has been filed, if there
has been no assessment, or within five (5) years from the date of the This is a suit for collection of deficiency income tax for the year 1948 in
assessment made within the statutory period, or within the period the amount of P5,962.83.
agreed upon, in writing, by the Collector of Internal Revenue and the 9/24/1949 – corresponding notice of assessment (NOA) was issued
taxpayer, before the expiration of said five-year period, or within such 12/27/1961 – complaint was filed by the govt (a little over 12 years since
extension of said stipulated period as may have been agreed upon, in NOA)
writing, made before the expiration of the period previously stipulated, o After Acebedo filed his answer but before trial started he moved
except that in the case of a false or fraudulent return with intent to evade to dismiss on the ground of prescription. The court received
tax or for failure to file a return the judicial action may be begun at any evidence on the motion
time within ten (10) years after the discovery of the falsity, fraud or 9/1/1962 –court issued an order finding the same meritorious and hence
omission (Sections 331 and 332 of the Tax Code). dismissing the complaint (yes to prescription). The case is before us on
appeal by the govt from the order of dismissal.

ISSUE:  WN  the  government’s  right  to  collect  has  already  prescribed? YES!
05. Republic v. Acebedo (RS)
G.R. No. L-20477 | 3/29/1968 | Makalintal, J. HELD:  Lower  court’s  decision  affirmed.

Plaintiff-appellant: Republic of Pinas RATIO:

Defendant-appelle:  Felix  Acebedo  (“Acebedo”) The statute of limitations which governs this case is Section 332,
subsection (c), of the National Internal Revenue Code
Topic: Prescription  of  government’s  right  to  collect;;  5  years  after  assessment,   o SEC. 332. Exemptions as to period of limitation of assessment
or after a number of years agreed upon before expiration of the original 5- and collection of taxes. —
year period. Related law in the ratio. (c) Where the assessment of any internal-revenue tax
Really short case! YAY! – Lee
has been made with the period of limitation above
Hi Lee! – JT prescribed such tax may be collected by distraint or
levy or by a proceeding in court, but only if begun (1)
SUMMARY: within five years after the assessment of the tax, or (2)
Notice of assessment was issued to Acebedo in 1949. The government filed the prior to the expiration of any period for collection agreed
suit for collection only in 1961, over 12 years since the notice of assessment. upon in writing by the Collector of Internal Revenue and
Acebedo moved to dismiss the case on the ground of prescription, which the lower the taxpayer before the expiration of such five-year
court accepted. Government appealed. The issue is whether the   government’s   period. The period so agreed upon may be extended by
right to collect has has already prescribed. YES. Collection is valid only if begun (1) subsequent agreements in writing made before the
within five years after the assessment of the tax, or (2) prior to the expiration of expiration of the period previously agreed upon.
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REMEDIES  (Power/Remedy  of  Collection  /  Prescription  of  Government’s  Right  to  Collect)

The present suit was not begun within five years after the assessment of o There is no evidence that this request was considered or acted
the tax, which was in 1949. upon.
Was it, however, begun prior to the expiration of any period for o In fact, on October 23, 1950 the then Collector of Internal
collection agreed upon in writing by the Commissioner of Internal Revenue issued a warrant of distraint and levy for the full
Revenue and the defendant before the expiration of such five-year amount of the assessment, but there was no follow up of this
period? Nope! warrant.
o The only evidence of such written agreement, in the form of a o Consequently, the request for reinvestigation did not suspend
"waiver of the statute of limitations" signed by the defendant, is the running of the period for filing an action for collection.
Exhibit U dated December 17, 1959. The next communication of record is a letter signed for Acebedo by one
o But this waiver was ineffective because it was executed beyond Troadio Concha and dated October 6, 1951, again requesting a
the original five-year limitation. reinvestigation of his tax liability (Exh. B).
The plaintiff contends that the period of prescription was suspended by o Nothing came of this request either.
the defendant's various requests for reinvestigation or reconsideration of Then   on   February   9,   1954,   Acebedo’s lawyers wrote the CIR informing
the tax assessment. him that the books of their client were ready at their office for examination.
o The trial court rejected this contention, saying that a mere o The reply was dated more than a year later, or on October 4,
request for reinvestigation or reconsideration of an 1955 (so, from the first NOA until this date, CIR made no move
assessment does not have the effect of such suspension whatsoever), when the CIR bestirred himself for the first time in
(i.e., mere request does not toll prescriptive period). connection with the reinvestigation sought, and required that the
o The ruling is logical, otherwise there would be no point to the defendants specify his objections to the assessment and
legal requirement that the extension of the original period be execute "the enclosed forms for waiver, of the statute of
agreed upon in writing. limitations."
This legal provision, according to some decisions of this Court, does not o The last part of the letter was a warning that unless the waiver
rule out a situation where the taxpayer may be in estoppel to claim "was accomplished and submitted within 10 days the collection
prescription. of the deficiency taxes would be enforced by means of the
o CIR v. Consolidated Mining: There are cases however where a remedies provided for by law."
taxpayer may be prevented from setting up the defense of It will be noted that up to October 4, 1955 the delay in collection could not
prescription even if he has not previously waived it in writing as be attributed to the defendant at all.
when by his repeated requests or positive acts the o His requests in fact had been unheeded until then, and there
Government has been, for good reasons, persuaded to was nothing to impede enforcement of the tax liability by any of
postpone collection to make him feel that the demand was the means provided by law.
not unreasonable or that no harassment or injustice is o By October 4, 1955, more than five years had elapsed since
meant by the Government. assessment in question was made, and hence prescription had
o Based on this case, estoppel is an exception to prescription. already set in, making subsequent events in connection with the
When a taxpayer asks for a reinvestigation of the tax assessment issued said assessment entirely immaterial.
to him and such reinvestigation is made, on the basis of which the o Even the written waiver of the statute signed by the defendant on
Government makes another assessment, the five-year period with which December 17, 1959 could no longer revive the right of action, for
an action for collection may be commenced should be counted from this under the law such waiver must be executed within the original
last assessment. five-year period within which suit could be commenced.
o In the case at bar, Acebedo, after receiving the assessment
notice of September 24, 1949, asked for a reinvestigation thereof
on October 11, 1949.
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06. CIR v. CA, CTA, Carnation (HV) •  On  September  30,  1987,  Carnation  filed  a  supplemental  protest.
Topic: Prescription  of  Government’s  right  to  collect •  These  protests  were  denied  by  the  BIR  Commissioner  in  a  letter  dated  March  15,  
Relevant Laws/ BIR Issuances: 1988
Sections 203, and 222-223, Tax Code •  Whereupon,  Carnation  appealed  to  the  CTA.
•  On  January  26,  1993,  the  CTA  ruled  that  the  total amount of P19,535,183.44 to
G.R. No. 115712. February 25, 1999 PURISIMA, J.: be NULL AND VOID for having been issued beyond the five-year prescriptive
period provided by law.
Petitioners: CIR
Respondents: CA, CTA and Carnation Philippines, Inc. (now merged with Nestle CARNATION’s  CONTENTION/S:
“SEC.  319.  Exceptions  as  to  period  of  limitation  of assessment and collection of taxes. -- (a)
Phils, Inc.)
xxx

Summary: “(b)   Where   before   the   expiration   of   the   time   prescribed   in   the   preceding   section   for   the  
Carnation filed its tax returns and waivers of statute of limitations signed by its assessment of the tax, both the Commissioner of Internal Revenue and the taxpayer have
Senior VP. The said waivers were however not signed by the Commissioner of consented in writing to its assessment after such time, the tax may be assessed at any time
Internal Revenue (CIR) or any of his agents. More than five years after, CIR served prior to the expiration of the period agreed upon. The period so agreed upon may be
its letter of demand. Carnation contended that the right of CIR to assess and extended by subsequent agreement in writing made before the expiration of the period
collect have prescribed. CTA, CA and SC all ruled in favor of Carnation. The then previously agreed upon.”
Sec 319 now Sec 203 is clear and that waivers of statute of limitations to take
effect must be signed both by the Company and CIR. CIR’s   CONTENTION/S:   Waivers signed by Carnation were valid although not
signed by the BIR Commissioner because
DOCTRINE: (a) when the BIR agents/examiners extended the period to audit and investigate
Waivers for the Statute of Limitations must be both signed by the Company Carnation’s  tax  returns,  the  BIR  gave  its  implied  consent  to  such waivers;
and by the Commissioner of Internal Revenue or his agents to grant its effect (b) the signature of the Commissioner is a mere formality and the lack of it does
not vitiate the binding effect of the waivers; and
FACTS: (c) that a  waiver  is  not  a  contract  but  a  unilateral  act  of  renouncing  one’s  right  to  
•   On   January   15,   1982,   Carnation   Phils.   Inc.   (Carnation),   filed   its   Corporation avail of the defense of prescription and remains binding in accordance with the
Annual Income Tax Return for taxable year ending September 30, 1981; and its terms and conditions set forth in the waiver.
Manufacturers/Producers Percentage Tax Return for the quarter ending
September 30, 1981 Issue/s:
•  On  October  13,  1986,  March  16,  1987  and  May  18,  1987,  Carnation,  through  its   Are the waivers valid as to toll the running of the prescriptive period for
Senior Vice President Jaime O. Lardizabal, signed   three   separate   ‘waivers   of   assessment and not bar the Government from issuing subject deficiency tax
the Statute of Limitations assessments?
•  The  waivers were not signed by the BIR Commissioner or any of his agents.
•  On  August  5,  1987,  Carnation  received  BIR’s  letter  of  demand dated July 29, Held:
1987 asking the said corporation to pay P1,442,586.56 as deficiency income tax, •  Petition  by  CIR  DENIED
P14,152,683.85 as deficiency sales tax and P3,939,913.03 as deficiency sales tax •  Decision  of  CA  AFFIRMED
on undeclared sales, all for the year 1981. This demand letter was accompanied
by assessment Notices Nos. FAS-4-81-87-005824, FAS-4-81-87-005825 and Ratio:
FAS-4-81-87-005826. (1) Collector of Internal Revenue vs. Solano - “x  x  x  The  only  agreement that could
•   In   a   basic   protest dated August 17, 1987, Carnation disputed the have suspended the running of the prescriptive period for the collection of the tax
assessments and requested a reconsideration and reinvestigation thereof. in question is, as correctly pointed out by the Court of Tax Appeals, a written

Page 11 of 30
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Power/Remedy  of  Collection  /  Prescription  of  Government’s  Right  to  Collect)

agreement between Solano AND the Collector, entered into before the expiration deadline, SC seriously doubts that the CIR could validly agree to reduce the
of the of the five-year prescriptive period, extending the limitation prescribed by prescriptive period to less than what was granted by law to the detriment of the
law.” State, since it diminishes the opportunities of collecting taxes due to the Republic.

What is more, the waivers in question reveal that they are in no wise unequivocal, Facts:
and therefore necessitates for its binding effect the concurrence of the Benito Lopez filed his 1950 ITR on December 6, 1950.
Commissioner of Internal Revenue. On this basis neither implied consent can be Nov. 13, 1952: BIR issued an assessment on November 13, 1952,
presumed nor can it be contended that the waiver required under Sec. 319 of the demanding payment of P245,100.29.
Tax Code is one which is unilateral nor can it be said that concurrence to such an Nov. 30, 1952: Lopez requested for reconsideration, which was denied by
agreement is a mere formality because it is the very signatures of both the the BIR.
Commissioner of Internal Revenue and the taxpayer which give birth to such a st
1 reinvestigation: Lopez reiterated his petition for reconsideration, this
valid agreement. time, it was given due course and resulted in a reduction of the
assessment to P20,346.14 on May 29, 1954 (wow, anlaki ng nabawas)
Satisfied, Lopez manifested in his letter that he will settle his obligation by
07. Republic v. Lopez (HQ)
the end of the month.
Topic: Prescription of Government’s  Right  to  Collect
Relevant Provisions: Secs. 203, 222-223, NIRC nd
2 reinvestigation: However, without settling his liability, Lopez asked
G.R. No. L-18007
for another reinvestigation, which was (again) granted by the BIR.
March 30, 1963
Result: BIR issued an assessment demanding payment of P6,019 as
Plaintiff-appellant: Republic of the Philippines
additional deficiency income tax. (so, total na P26,365.14)
Defendant-appellee: Benito H. Lopez
Again, Lopez did NOT pay despite repeated demands.
rd
Summary: Lopez filed his ITR and was assessed by the BIR demanding payment January 16 and February 11, 1956 – 3 reinvestigation: For the third
of P200k++. Lopez requested for reconsideration which resulted in a reduction of time, Lopez prayed for a reinvestigation.
the assessment to P20k++. Without settling his liability, Lopez asked for another (Strangely)   BIR   acceded   to   Lopez’s   request,   PROVIDED   he   waives   the  
reinvestigation. BIR assessed an additional P6k++ deficiency income tax. Again, statute of limitations
Lopez did not pay and ask for another reinvestigation. BIR acceded to his request Instead of executing an unconditional waiver, Lopez imposed a deadline
rd
provided he executed a waiver of statute of limitations. Lopez executed an of December 31, 1957, within which the government should finish the 3
unconditional waiver imposing a deadline (Dec 1957) within which the government reinvestigation. Demanding!!
should finish its reinvestigation. BIR ignored the deadline imposed and instead March 23, 1960: BIR ignored the same and issued an assessment
issued an assessment on March 1960. Due to non-payment, BIR filed a collection demanding P 26,365.14
suit before the CFI. Lopez filed a motion to dismiss on the ground of prescription. August 13, 1960: Due to non-payment, BIR filed a collection suit before
CFI granted the motion to dismiss. The issue is whether or not the deadline is CFI Baguio
binding and operative, and ultimately, whether or not the action to collect has Lopez filed a motion to dismiss on the ground that the action has
already prescribed. already prescribed
CFI granted the motion to dismiss
SC held that the action has not yet prescribed since under the NIRC the
government has 5-year prescriptive period within which it may sue to collect Issue/Held:
an assessed tax to be counted from the last revised assessment resulting W/N the action has prescribed (related: w/n the December 31, 1957 limit
from the reinvestigation AND the time employed in reinvestigation should be contemplated in the Waiver of Statute of Limitations is binding and
deducted from the total period of limitation. Regarding the December 1957 operative) – NO!!!

Page 12 of 30
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Power/Remedy  of  Collection  /  Prescription  of  Government’s  Right  to  Collect)

The ORDER OF DISMISSAL appealed from is REVOKED AND SET REGARDING  THE  “DECEMBER  1957”  LIMIT
ASIDE, and the records are ordered REMANDED to the court of origin for The fixing by the taxpayer of a prescriptive period "not beyond December
further proceedings conformable to this opinion. 31, 1957" operates to reduce the time available to the government for
the collection of the tax from 29 May 1954 to 31 December 1957 only,
Ratio: which is much less than the 5 years prescribed by law
COMPUTATION: PRESCRIPTIVE PERIOD It is seriously to be doubted that the said official could validly agree to
The 5-year prescriptive period within which the government may sue to reduce the prescriptive period to less than that granted by law to the
collect an assessed tax is to be COUNTED FROM THE LAST REVISED detriment of the state, since it diminishes the opportunities of
ASSESSMENT RESULTING FROM A REINVESTIGATION asked for by collecting taxes due to the Republic.
the taxpayer AND that were a taxpayer demands a reinvestigation, the Even if because of the date fixed by the taxpayer, the second
TIME EMPLOYED IN REINVESTIGATION SHOULD BE DEDUCTED reinvestigation asked on 16 January 1956 should have been decided on
from the total period of limitation 31 December 1957, and that the interruption due to the second
reinvestigation was, therefore, only 1 year, 11 months, and 16 days, still it
Applying  these  rules  to  the  present  case… would appear that the government brought suit after only 4 years, 9
Prescriptive Period Filing should be Running of PP – Suspended during months, and 1 day, and, therefore, well within the prescriptive 5-year
starts to run made within 5 this period period.
years
May 29, 1954 August 13, 1960 January 16, 1956 April 22,
Other Matters:
1960*
First revised Filing of Complaint
Wrong Remedy
assessment
Another ground for reversing the dismissal of the complaint is that the proper remedy of the
Time consumed in considering and
taxpayer against the assessment complained of was to appeal the ruling of the CIR to the
TOTAL PERIOD from the revised deciding  the  taxpayer’s  subsequent  
MINUS CTA.
assessment to filing petition for reconsideration and
The  failure  to  appeal  the  CIR’s  ruling  is  a  waiver  of  the  defenses  against  it,  and  estops  the  
reinvestigation
taxpayer from subsequently raising those objections thereafter.
6 years, 2 months and 15 days - 4 years, 3 months and 6 days
*weird, facts of the case stated March but in the ratio naging April
Chismis time
SC calls attention to the extraordinary reduction by the revenue authorities of the taxes due
(in words)
st in this case from the original P245,100.29 to less than one tenth of it (P20,346.14) upon
The 1 reinvestigation was granted and a reduced assessment issued on reinvestigation.
May 29, 1954 from which date the government had 5 years for bringing Such a result is ample evidence that the first assessment was carelessly made, without
an action to collect. regard to the true facts, and it strongly reflects upon the efficiency of the revenue
nd
The 2 reinvestigation was asked on January 16, 1956 and lasted until it examiner who made the grossly excessive assessment.
was decided on April 22, 1960 Equally anomalous is the fact that after the taxpayer had promised to pay the computed tax,
st and after he had failed to keep his promise, the tax authorities still agreed to a further
Deducting the above interval from the period intervening between the 1
revised (and executory) assessment to the filing of the complaint [from revision of the assessment
Irregularities of this kind inevitably provoke suspicion over the competency and honesty of
May 29,1954 to August 13, 1960] leaves ONLY 1 year, 3 months, and 6
the tax collecting operations, and it is expected that the competent authorities will take
days COUNTED AGAINST THE GOVERNMENT
immediate and drastic steps to stop such deplorable practices.

Conclusion: PRESCRIPTIVE PERIOD OF 5 YEARS HAD NOT ELAPSED


FROM THE REVISED ASSESSMENT

Page 13 of 30
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Power/Remedy  of  Collection  /  Prescription  of  Government’s  Right  to  Collect)

08. Republic v. Ker (KF) CTA: dismissed the appeal for having been filed beyond the 30-day
G.R. No. L-21609 September 29, 1966 provided for in RA 1125. SC: affirmed such dismissal.
Topic: Prescription  of  government’s  right  to  collect Mar. 15, 1962: BIR demanded payment with 5% surcharge for late
Petitioner: Republic of the Philippines payment at the rate of 1% monthly. Ker refused to pay, and instead set
Respondent: Ker & Company, LTD. up the defense of prescription  of  Commissioner’s  right  to  collect  the  
tax.
Summary: BIR assessed Ker for deficiency income tax. Ker filed for petition for Mar. 27, 1962: RP filed complaint with CFI Manila seeking collection
review in the CTA. Such petition was dismissed by CTA and the SC. BIR of the deficiency income tax. The complaint did not allege fraud nor did it
demanded payment but Ker refused saying that the right to collect of the BIR pray for the payment of the 50% surcharge.
already prescribed. Hence, RP filed for collection in the CFI. ISSUE: Did the filing Summons was served upon Messrs. Leido and Associates NOT on Ker.
of petition for review suspend the running of the prescriptive period for collection? Apr. 14, 1962: Ker (through Leido, Andrada, Perez & Associates) moved
HELD: YES. The filing of the petition for review suspends the running of the for dismissal of the complaint on the ground that the court did not acquire
prescriptive period because under Sec. 333, it had the effect of legally jurisdiction over the person of the defendant  and  that  RP’s  cause  of  action  
preventing the cir from instituting an action in the CFI for the collection of has prescribed. MOTION DENIED.
tax. CFI: dismissed the claim for the collection of deficiency income taxes.
RP filed MR contending right of the CIR to collect has not prescribed
Facts: because Ker’s  ITR  was  fraudulent  in  which  case prescription sets in
10 years from Oct. 31, 1951, the date of discovery of fraud.
Ker & Co., Ltd., a domestic corporation, filed its income tax returns for the Ker filed MR reiterating that CFI did NOT acquire jurisdiction over its
years 1947, 1948, 1949 and 1950 on the following dates: person and maintaining that the complaint was filed 9 years, 1 month,
Year Date Filed
and 11 days after the deficiency assessments for 1948, 1949, and
1947 April 12, 1948
1950 were made and since the filing of its petition for review in the CTA
1948 April 30, 1949
did not stop the running of the period of limitations.
1949 May 15, 1950
1950 May 9, 1951
ISSUE (directly copied from the case, only the relevant one): 3. Did the filing of
It amended its income tax returns for 1948 and 1949 on May 11, 1949
a petition for review by the taxpayer in the Court of Tax Appeals suspend the
and June 30, 1950, respectively.
running of the statute of limitations to collect the deficiency income for the years
In 1953, BIR issued the ff assessments for deficiency income tax:
1948, 1949 and 1950? YES
Year Amount Date Assessed
1947 P42,342.30 July 25, 1953
HELD:
18,651.87 (carried the
1948 Feb. 16, 1953
surcharge of 50%)
1949 139.67 Feb. 16, 1953
Ker contends that the filing of the petition for review in the CTA could not
12,813 (carried the have stopped the running of the prescriptive period to collect because
1950 Feb. 16, 1953 CTA did not have jurisdiction over the case, the appeal having been
surcharge of 50%)
Upon request of Ker (through Atty. Leido), BIR reduced the assessment: interposed beyond the 30-day period set forth in Sec. 11 of RA 1125.
Year Amount From To (WRONG)
1947 P42,342.30 27,026.28 Under Sec. 333 of the Tax Code: The running of the statute of
1950 12,813 8,542.00 limitations provided in Section 331 or three hundred thirty-two on the
Further, 50% surcharge was imposed for the year 1947 and eliminated making of assessments and the beginning, of distraint or levy or a
the surcharge for the year 1950. proceeding in court for collection, in respect of any deficiency, shall be
Mar. 1, 1956: Ker filed for petition for review in the CTA. suspended for the period during which the Collector of Internal
Page 14 of 30
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Power/Remedy  of  Collection  /  Prescription  of  Government’s  Right  to  Collect)

Revenue is prohibited from making the assessment or beginning Thus, did the taxpayer produce the effect of temporarily staying the hands
distraint or levy or a proceeding in court, and for sixty days of the Commissioner of Internal Revenue simply through a choice of
thereafter. remedy. And, if We were to sustain the taxpayer's stand, We would be
DID  THE  PENDENCY  OF  KER’S  APPEAL  IN  THE  CTA  AND  SC  HAVE   encouraging taxpayers to delay the payment of taxes in the hope of
THE EFFECT OF LEGALLY PREVENTING THE CIR FROM ultimately avoiding the same.
INSTITUTING AN ACTION IN THE CFI FOR THE COLLECTION OF
TAX? YEEP. OTHER MATTERS:
From Mar 1, 1956 when Ker filed a petition for review in the CTA (WON right of Commissioner to assess deficiency income tax already
contesting the legality of the assessments in question, until the prescribed)
termination of its appeal in the SC, the Commissioner was prevented, as The court a quo, confining itself to determining WON the assessment of
recognized in this Court's ruling in Ledesma, et al. v. Court of Tax the tax for 1947 was issued within the five-year period provided for in
Appeals, from filing an ordinary action in the CFI to collect the tax. Section 331 of the Tax Code, ruled that the right of the Commissioner of
Besides, to do so would be to violate the judicial policy of avoiding Internal Revenue to assess the tax has prescribed. Said court resolved
multiplicity of suits and the rule on lis pendens. the issue without touching upon fraudulence of the return. The reason is
It would be interesting to note that when the Commissioner of Internal that the complaint alleged no fraud, nor did the plaintiff present
Revenue issued the final deficiency assessments on Jan. 5, 1954, he had evidence to prove fraud.
already lost, by prescription, the right to collect the tax (except that for
1950) by the summary method of warrant of distraint and levy.
Ker immediately requested suspension of the collection of the tax without
09. Republic v. Arcache (MR)
penalty incident to late payment pending the filing of a memorandum in
Topic: Execution of surety bond or chattel mortgage after prescription of
support of its views. As requested, no tax was collected. On May 22, 1954
government’s  right  amounts  to  estoppel
the projected memorandum was filed, but as of that date the
Relevant Laws: NIRC Sec. 331 and 332
Commissioner's right to collect by warrant of distraint and levy the
deficiency tax for 1950 had already prescribed. So much so, that on Mar.
G.R. No. L-15547
1, 1956 when Ker filed a petition for review in the CTA, the Commissioner
February 29, 1964
of Internal Revenue had but one remedy left to collect the tax, that is, by
Dizon, J.
judicial action.
However, as stated, an independent ordinary action in the CFI was not
Petitioners: RP
available to the Commissioner  in  view  of  the  pendency  of  Ker’s  petition  for  
Respondents: Joseph Arcache, et. al.,
review in the CTA. Precisely he urgently filed a MTD to terminate the
proceedings in the shortest possible time in order that he could file a
Summary: BIR assessed tax deficiency. Appellant made several motions for
collection case in the CFI before his right to do so is cut off by the
extensions and ultimately executed a surety bond in favor of the government to
passage of time. As moved, the CTA dismissed the case and Ker
pay his tax liability, after the period to collect had prescribed. The SC ruled the
appealed to the SC. By the time the SC affirmed the order of dismissal of
government’s   right   ahd   not   prescribed because (a) it was the appellant, through
the CTA on Jan. 31, 1962 more than five years had elapsed since the
countless motions, which delayed collection and (b) making patial payments and
final assessments were made on Jan. 5, 1954. Thereafter, the
executing a surety bond to cover for the tax obligations is deemed an admission of
Commissioner demanded extra-judicially the payment of the deficiency
the liabilities, waiver of prescripton, putting the appellant in estoppel to question his
tax in question and in reply Ker, by its letter dated Mar. 28, 1962, advised
liabilities based on such ground.
the Commissioner that the right to collect the tax has prescribed pursuant
to Section 332 (c) of the Tax Code.

Page 15 of 30
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Power/Remedy  of  Collection  /  Prescription  of  Government’s  Right  to  Collect)

Facts: Subsequent to the bond, Arcache offered to assign to the BIR his rights,
Arcache filed ITR showing losses but subsequent investigations showed title and interest due him from the Department of Labor as rentals in
unexplained increase in net worth and issuing an assessment. There arrears, which was rejected; instrad he was given another extension and
were many motions for extension of payment, failure to pay and even opportunitiy to file another bond, which he failed to do
partial payments of tax liability in between Demand was made on him and his surety for payment. Failing, the
Arcache and Global Assurance executed a surety bond binding present case was filed
themselves  to  pay  severally  the  balance  of  the  former’s  tax  liability  and  all   Here, it appears obvious that the delay in the collection of his 1946 tax
additional penalties liability was due to his own repeated requests for reinvestigation and
Republic sues Arcache and Globe Assurance Company (surety) for the similarly repeated requests for extension of time to pay.
forfeiture of a surety bond executed by them to secure payment of CIR v. Suyoc Consolidated Mining is applicable: a taxpayer may be
Arcache’s  tax  liability prevented from setting up the defense of prescription even if he has not
Arcache’s  defenses  are: previously waived it in writing as when by his repeated requests or
o Prescription positive acts the Government has been, for good reasons, persuaded to
o He was compelled against his will to execute the bond because postpone collection to make him feel that the demand was not
the BIR refused to issue him a tax clearance to travel unless he unreasonable or that no harassment or injustice is meant by the
executed one Government.
Surety’s  answer: Mr. Justice Cardozo said in US jurisprudence: 'He who prevents a thing
o Surety bond became null avoid against it after the lapse of one from rom being done may not avail himself of the non-performance which
year from date of execution for lack of consideration because he has himself occasioned, for the law says to him in effect 'this is your
Arcache did not pay premium own act, and therefore you are damnified.'
o Cross-claim against Arcache for any amount it might be Secondly, appellant admitted in writing his tax obligation and
sentenced to pay promised to pay the same, not once but several times even after the date
Trial court ruled in favor of surety in the cross-claim and in favor of BIR in when—according to him—the government's right to collect had already
the main case prescribed. In fact, he not only made such repeated promise to settle his
Appeal to CA, Arcache claimed: account but he actually made two partial payments,
o RTC erred in not sustaining defense of prescription thirdly, present action was filed for the forfeiture of the bond in satisfaction
o RTC erred in holding that execution of the surety bond was an of the tax obligation of appellant. Thus, the action is for the enforcement
acknowledgement of tax liabiilty of a written contractual obligation, for which the prescriptive period is ten
CA ruled in favor of government years— which in this case had not yet elapsed when the action was filed.
It is already settled in this connection that the giving of a bond as a
Issues: condition of an extension of time for the payment of income tax, even
1. Had  the  government’s  right  to  collect  prescribed?  NO. after the collection of the tax as such was barred by the statute of
2. Was Arcache merely   compelled   to   execute   the   surety   bond?   It   doesn’t   limitations, does not preclude recovery on the bond
matter. Government had right to collect. Sambrano vs. CTA: By virtue of this instrument, petitioner in fact
acknowledged the existence of the tax liabilities x x x, and assumed the
Held: Decision of lower court AFFIRMED obligation to settle the same. Although the percentage taxes for the years
1939-1941  and  1945  may  have  been  extinguished  by  prescription… yet in
Ratio: the  case  at  bar,  petitioner's  obligation  to  pay  the  percentage  taxes…  was  
The government was well within its right to demand filing of a bond as acknowledged  by  means  of  the  chattel  mortgage…  an  act  which  amounts  
condition for issuance of tax clearance,  so  it  doesn’t  matter  that  Arcache   to a renewal (renovacion) of the obligation or a waiver of the benefit
felt compelled to do it
Page 16 of 30
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Power/Remedy  of  Collection  /  Prescription  of  Government’s  Right  to  Collect)

granted by law to the petitioner who is estopped from raising the question last quarter of 1985 on 25 January 1986, then the BIR had until 24
of prescription January 1989 to assess PNB. The original assessment against PNB was
issued as early as 08 October 1986, well-within the three-year
prescriptive period for making the assessment. The BIR had until 07
October 1989 to enforce it and to collect the tax assessed. The filing,
10. PNOC v. CA (RK) however, by private respondent Savellano of his Amended Petition for
Topic: Prescription Review before the CTA on 02 July 1988 already constituted a judicial
action for collection of the tax assessed which stops the running of the
G.R. No. 100976 three-year prescriptive period for collection thereof
April 26, 2005
Chico-Nazario J. Facts:
Tirso  Savellano  (“Tirso”)  made  a  sworn  statement to the BIR on June 24,
Petitioners: Philippine National Oil Corporation, Philippine National Bank (NOTE:
1986 that PNB failed to withhold 15% final tax on interest earnings and/or
consolidated case)
yields from the money placements of PNOC with PNB, in violation of PD
Respondents: CIR, CTA, CA, Tirso Savellano
1931 withdrawing all tax exemptions of GOCCs.
August 8, 1986, BIR requested PNOC to settle its liability for taxes on the
JUST READ THE SUMARY. For details, go to the ratio where concepts are
interests earned to which PNOC offered to compromise its liability
discussed.
estimated at 304,419,396.83 as of July 31, 1986 by setting it off with a
Summary: This is a long case. This case is really about the compromise
335,259,450.21 tax refund/credit receivable from the BIR via the
agreement between PNOC and BIR which was questioned by Tirso Savellano who
NAPOCOR.
informed the BIR of that PNB failed to withhold interest earnings of PNOC. The
On October 8, 1986 the BIR sent demand letters to both PNB and PNOC
sum total was 376,301,133.33 in deficiency tax. So, biglang yaman naman itong si
for a final tax of 376,301,133.33
Tirso for being an informant. However, PNOC and BIR entered into compromise
o PNB reiterated its proposal to set-off but the BIR said this was
whereby 15% will be payed by PNOC. So, Tirso gets only the reward
premature as the claim for refund was not yet final.
corresponding to the 15% actually payed. BUT HE WANT MORE MONEY so he
o In June 9, 1987, a compromise was finally accepted such that
questions this compromise in the BIR who, through the new Commissioner,
PNOC will pay 91,003,129.89 representing 30% of the amount
ordered PNOC and PNB to pay the balance. CTA and CA affirmed this. SC said
due in accordance to EO 44.
the compromise agreement was void. No issue on prescription was ever raised in
Because of this, Tirso, as informer, was only awarded an amount
the CTA and CA but the dissenting opinion seemed to include this. The majority
corresponding to 15% actually collected. He wants more money so he
therefore discussed prescription relating to the case.
protested and questioned in the BIR the validity of the compromise
(1) FIRST, The defense of prescription was never raised by petitioners
agreement.
PNOC and PNB, and should be considered waived. So, tinechnical!
o Pending its resolution, he filed a petition in the CTA claiming the
Citing Rules of Court and jurisprudence, prescription, being a matter of
CIR acted with GADALEJ in entering into the compromise
defense, imposes the burden on the taxpayer to prove that the full period
agreement.
of the limitation has expired; and this requires him to positively establish
o Later, he filed a motion to suspend because the BIR was
the date when the period started running and when the same was fully
reconsidering its position.
accomplished.
On January 16, 1991, a week before my birthday, the new BIR
(2) SECOND, assuming that the Court can take cognizance of the
commissioner demanded from both PNB and PNOC the remaining
defense of prescription, this Court finds that the assessment of the
balance.
withholding tax liability against PNOC and collection of the tax
o PNB protested this on the ground that it was filed out of time
assessed were done within the prescriptive period. In any case
(Prescription). This was denied.
therefore, filed on time. How? PNB filed its withholding tax return for the
Page 17 of 30
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Power/Remedy  of  Collection  /  Prescription  of  Government’s  Right  to  Collect)

Subsequently, the CTA accepted this new   BIR   commissioner’s   letter   as   The dissenting opinion points out that more than four years have elapsed
evidence in the CTA case. It rendered its decision on May 28, 1992: from 25 January 1986 (the last day prescribed by law for PNB to file its
o Compromise agreement without force and effect withholding tax return for the fourth quarter of 1985) to 16 January 1991
o CIR is ordered to enforce the January 16, 1991 assessment (the date when the alleged final assessment of PNB's tax liability was
o Tirso gets  the  balance  of  his  informer’s  reward  as soon as PNB issued).
and PNOC pay the balance. The issue of prescription, however, was brought up only in the
CA affirmed. dissenting opinion and was never raised by PNOC and PNB in the
proceedings before the BIR nor in any of their pleadings submitted
Issues: to the CTA and the Court of Appeals.
1. Whether CTA has jurisdiction
2. Whether the compromis agreement was without force 3
The general rule enunciated in the Rule 9, Section 1 of Rules of Court , governs
3. Whether the deficiency withholding tax assessment against PNB had already become final
the present case, that is, the defense of prescription, not pleaded in a motion to
and unappealable
4. Whether Savellano  is  entitled  the  informer’s  reward dismiss or in the answer, is deemed waived. The exception in same provision
NOTE: These are the issues in the case. The issue on prescription was neither cannot be applied herein because the pleadings and the evidence on record do not
raised by PNB nor PNOC so the court considered them waived. The issue on sufficiently show that the action is barred by prescription.
prescription was actually just discussed by the dissenting opinions so the majority
opinion inserted the prescription issue in the ratio. It has been consistently held in earlier tax cases that the defense of
prescription of the period for the assessment and collection of tax
Held: DENIED, Affirms CA with modification liabilities shall be deemed waived when such defense was not properly
pleaded and the facts alleged and evidences submitted by the parties
Ratio: were not sufficient to support a finding by this Court on the matter.
The above issues were discussed, but between no.3 and no. 4, o In Querol v. Collector of Internal Revenue, this Court
Prescription was inserted. I will not discuss the other issues, but its a pronounced that prescription, being a matter of defense,
good   read   since   it   talks   about   compromise   agreement   and   informer’s   imposes the burden on the taxpayer to prove that the full period
reward. of the limitation has expired; and this requires him to positively
establish the date when the period started running and when the
Prescription same was fully accomplished.
In making its conclusion that the assessment and collection in this case had prescribed, the
dissenting opinion took liberties to assume the following facts even in the absence of
The defense of prescription was never raised by petitioners PNOC and PNB, allegations and evidences to the effect that: \
and should be considered waived. o (1) PNB filed returns for its withholding tax obligations for taxable year 1985;

The dissenting opinion takes the position that the right of the BIR to
assess and collect income tax on the interest earnings and/or yields from
PNOC's money placements with PNB, particularly for taxable year 1985,
3
had already prescribed, based on Section 268 of the NIRC of 1977, as SECTION 1. Defenses and objections not pleaded. – Defenses and objections not pleaded
amended. either in a motion to dismiss or in the answer are deemed waived. However, when it appears
from the pleadings or the evidence on record that the court has no jurisdiction over the
Section 268 of the NIRC of 1977, as amended, provides a three-year
subject matter, that there is another action pending between the parties for the same cause,
period of limitation for the assessment and collection of internal revenue or that the action is barred by prior judgment or by the statute of limitations, the court shall
taxes, which begins to run after the last day prescribed for filing of the dismiss the claim.
return.
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o (2) PNB reported in the said returns the interest earnings of PNOC's money period for making the assessment as prescribed by the following
placements with the bank; and provisions of the NIRC of 1977
4

o (3) that the returns were filed on or before the prescribed date, which was 25
January 1986.
It is not safe to adopt the first and second assumptions in this case considering that Section Sections 268 and 269(c) of the NIRC of 1977, as amended, should be
269 of the NIRC of 1977, as amended, provides for a different period of limitation for read in conjunction with one another.
assessment and collection of taxes in case of false or fraudulent return or for failure to file a o Section 268 requires that assessment be made within three
return. In such cases, the BIR is given 10 years after discovery of the falsity, fraud, or years from the last day prescribed by law for the filing of the
omission within which to make an assessment. return.
It is also not safe to accept the third assumption since there can be a possibility that PNB o Section 269(c), on the other hand, provides that when an
filed the withholding tax return later than the prescribed date, in which case, following the assessment is issued within the prescribed period provided in
dictates of Section 268 of the NIRC of 1977, as amended, the three-year prescriptive period
Section 268, the BIR has three years, counted from the date of
shall be counted from the date the return was actually filed.105
PNB's withholding tax returns for taxable year 1985, duly received by the BIR, would have
the assessment, to collect the tax assessed either by distraint,
been the best evidence to prove actual filing, the date of filing and the contents levy or court action.
thereof. These facts are relevant in determining which prescriptive period should apply, o Therefore, when an assessment is timely issued in accordance
and when such prescriptive period should begin to run and when it had lapsed. Yet, the with Section 268, the BIR is given another three-year period,
pleadings did not refer to any return, and no return was made part of the records of the under Section 269(c), within which to collect the tax assessed,
present case. reckoned from the date of the assessment.
o This Court could not make a proper ruling on the matter of prescription on the In the case of PNB, an assessment was issued against it by the BIR on
mere basis of assumptions; such an issue should have been properly raised,
08 October 1986, so that the BIR had until 07 October 1989 to enforce it
argued, and supported by evidences submitted by the parties themselves before
the BIR and the courts below. and to collect the tax assessed. The filing, however, by private
respondent Savellano of his Amended Petition for Review before the CTA
on 02 July 1988 already constituted a judicial action for collection of the
Granting that this Court can take cognizance of the defense of prescription,
tax assessed which stops the running of the three-year prescriptive period
this Court finds that the assessment of the withholding tax liability against
for collection thereof.
PNOC and collection of the tax assessed were done within the prescriptive
o A judicial action for the collection of a tax may be initiated by the filing of a
period. complaint with the proper regular trial court; or where the assessment is
appealed to the CTA, by filing an answer to the taxpayer's petition for review
Assuming, for the sake of argument, that this Court can give due course wherein payment of the tax is prayed for.
to the defense of prescription, it finds that the assessment against PNB o The present case is unique, however, because the Petition for
for its withholding tax liability for taxable year 1985 and the collection of Review was filed by private respondent Savellano, the informer,
the tax assessed therein were accomplished within the prescribed periods against the BIR, PNOC, and PNB. The BIR, the collecting
for assessment and collection under the NIRC of 1977, as amended.
If this Court adopts the assumption made by the dissenting opinion 4
SEC. 268. Period of limitation upon assessment and collection. – Except as provided in the
that PNB filed its withholding tax return for the last quarter of 1985
succeeding section, internal revenue taxes shall be assessed within three years after the last day
on 25 January 1986, then the BIR had until 24 January 1989 to
prescribed by law for the filing of the return, and no proceeding in court without assessment for the
assess PNB. The original assessment against PNB was issued as collection of such taxes shall be begun  after  the  expiration  of  such  period…
early as 08 October 1986, well-within the three-year prescriptive SEC. 269. Exceptions as to period of limitation of assessment and collection of taxes. –

(c) Any internal revenue tax which has been assessed within the period of limitation above-prescribed
may be collected by distraint or levy or by a proceeding in court within three years following the
assessment of the tax.

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government agency; PNOC, the taxpayer; and PNB, the is prohibited from beginning a distraint or levy or instituting a
withholding agent, initially found themselves on the same proceeding in court, and for 60 days thereafter.
side. The prayer in the Amended Petition for Review of private o Just as in the cases of Republic v. Ker & Co.,
respondent Savellano reads: Ltd. and Protector's Services, Inc. v. Court of Appeals, this Court
declares herein that the pendency of the present case before the
WHEREFORE, in view of the foregoing, petitioner CTA, the Court of Appeals and this Court, legally prevents the
respectfully prays that the compromise agreement of June 22, 1987 BIR Commissioner from instituting an action for collection of the
be reviewed and declared null and void, and that this Court directs: same tax liabilities assessed against PNOC and PNB in the CTA
or the regular trial courts.
a) respondent Commissioner to enforce and collect and o To rule otherwise would be to violate the judicial policy of
respondents PNB and/or PNOC to pay in a joint and several avoiding multiplicity of suits and the rule on lis pendens.
capacity, the total tax liability of P387,987,785.73, plus interests Once again, that CTA Case No. 4249 was initiated by private respondent
from 31 October 1986; and Savellano, the informer, instead of PNOC, the taxpayer, or PNB, the
withholding agent, would not prevent the suspension of the running of the
prescriptive period for collection of the tax.
b) respondent Commissioner to pay unto petitioner, as informer's
o What is controlling herein is the fact that the BIR Commissioner
reward, 15% of the tax liability collected under clause (a) hereof.
cannot file a judicial action in any other court for the collection of
the tax because such a case would necessarily involve the same
Private respondent Savellano, in his Amended Petition for Review in CTA parties and involve the same issues already being litigated
Case No. 4249, prayed for (1) the CTA to direct the BIR Commissioner to before the CTA in CTA Case No. 4249. The three-year
enforce and collect the tax, and (2) PNB and/or PNOC to pay the tax – prescriptive period for collection of the tax shall commence to
making CTA Case No. 4249 a collection case. run only after the promulgation of the decision of this Court in
o That the Amended Petition for Review was filed by the informer which the issues of the present case are resolved with finality.
and not the taxpayer; and that the prayer for the enforcement of Whether the filing of the Amended Petition for Review by private respondent Savellano
the tax assessment and payment of the tax was also made by entirely stops or merely suspends the running of the prescriptive period for collection of the
the informer, not the BIR, should not affect the nature of the case tax, it had been premature for the BIR Commissioner to issue a writ of garnishment against
as a judicial action for collection. PNB on 12 August 1991 and for the Central Bank of the Philippines to debit the account of
o In case the CTA grants the Petition and the prayer therein, as PNB on 02 September 1992 pursuant to the said writ, because the case was by then,
what has happened in the present case, the ultimate result pending review by the Court of Appeals. However, since this Court already finds that the
compromise agreement is without force and effect and hereby orders the enforcement of the
would be the collection of the tax assessed. Consequently, upon
assessment against PNB, then, any issue or controversy arising from the premature
the filing of the Amended Petition for Review by private garnishment of PNB's account and collection of the tax by the BIR has become moot and
respondent Savellano, judicial action for collection of the tax had academic at this point.
been initiated and the running of the prescriptive period for
collection of the said tax was terminated.
WHEREFORE:
Supposing that CTA Case No. 4249 is not a collection case which stops
the running of the prescriptive period for the collection of the tax, CTA
(1) The compromise agreement between PNOC and the BIR, dated 22 June
Case No. 4249, at the very least, suspends the running of the said
1987, is declared void for being contrary to law and public policy, and is without
prescriptive period.
force and effect;
o Under Section 271 of the NIRC of 1977, as amended, the
running of the prescriptive period to collect deficiency taxes shall
be suspended for the period during which the BIR Commissioner (2)Paragraph 2 of RMO No. 39-86 remains a valid provision of the regulation;

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(3)The withholding tax assessment against PNB, dated 08 October 1986, had $500,000.00 to the Central Bank of the Philippines (Central Bank), for the
become final and unappealable. The BIR Commissioner is ordered to enforce the total sales amount of US$1,000,000.00.
said assessment and collect the amount of P294,958,450.73, the balance of tax On 10 October 1989, the Bureau of Internal Revenue (BIR) issued
3
assessed after crediting the previous payment made by PNOC pursuant to the Assessment No. FAS-5-85-89-002054, finding petitioner BPI liable for
compromise agreement, dated 22 June 1987; and deficiency DST on its afore-mentioned sales of foreign bills of exchange
to the Central Bank
(4) Private respondent Savellano shall be paid the remainder of his informer's Petitioner BPI, through its counsel, protested the Assessment in a letter
reward, equivalent to 15% of the deficiency withholding tax ordered collected dated 16 November 1989, and filed with the BIR on 17 November 1989.
herein, or P 44,243,767.61. Petitioner BPI did not receive any immediate reply to its protest letter.
However, on 15 October 1992, the BIR issued a Warrant of Distraint
6
and/or Levy against petitioner BPI for the assessed deficiency DST for
11. BPI v. CIR [Oct. 17, 2005] (KB) taxable year 1985, in the amount of P27,720.00 (excluding the
Topic: Prescription  of  government’s  right  to  collect compromise penalty of P300.00). It served the Warrant on petitioner BPI
Relevant Laws: only on 23 October 1992.
Then again, petitioner BPI did not hear from the BIR until 11 September
G.R. No. 139736
1997, when its counsel received a letter, dated 13 August 1997, signed by
October 17, 2005
then BIR Commissioner Liwayway Vinzons-Chato, denying its "request
Chico-Nazario, J.
for reconsideration"
Petitioner BPI raised in its Petition for Review before the CTA, in addition
Petitioners: BPI
to the arguments presented in its protest letter, dated 16 November 1989,
Respondents: CIR
the defense of prescription of the right of respondent BIR Commissioner
to enforce collection of the assessed amount. It alleged that respondent
Summary: BPI was held liable for deficiency DST. BPI then protested such
BIR Commissioner only had three years to collect on Assessment No.
assessment and filed it with the BIR on 17 Nov, 1989. On Oct 15, 1992, BIR
FAS-5-85-89-002054, but she waited for seven years and nine months to
issued a Warrant of Distraint and/or Levy against BPI. BPI did not hear from the
deny the protest.
BIR until   September   11,   1997   denying   its   “request   for   reconsideration.”   BPI   now  
raises the issue of prescription as a defense. BIR contends that its right to collect
Issues:
has  not  yet  prescribed  as  BPI’s  protest  tolled  the  prescription  period.  Issue  now  is  
Whether or not the right of respondent BIR Commissioner to collect from petitioner
whether or not the right to collect has prescribed. SC held that such right was
BPI the alleged deficiency DST for taxable year 1985 had prescribed --- YES
already barred by prescription. When the BIR issued its warrant of distraint and/or
Levy, it was already beyond the prescriptive period. The protest done by BPI did
Held: Petition GRANTED
not suspend the running of the prescriptive period as it was in the nature of a
“request  for  reconsideration”  which  is  different  from  a  “request  for  reinvestigation”.  
Ratio:
The running of the prescriptive period for collection of taxes can only be
suspended by a request for reinvestigation, not a request for reconsideration.
The efforts of respondent Commissioner to collect on Assessment No. FAS-
5-85-89-002054 were already barred by prescription.

Facts:
The three-year period of limitations on the assessment and collection of
Petitioner BPI is a commercial banking corporation organized and existing
national internal revenue taxes set by Section 203 of the Tax Code of
under the laws of the Philippines. On two separate occasions, particularly
1977, as amended, can be affected, adjusted, or suspended, in
on 06 June 1985 and 14 June 1985, it sold United States (US)
accordance with the following provisions of the same Code
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BIR has three years, counted from the date of actual filing of the return or and collection of tax, as required by the Tax Code and implementing rules, will not suspend the
from the last date prescribed by law for the filing of such return, whichever running thereof.
comes later, to assess a national internal revenue tax or to begin a court
In the Petition at bar, petitioner BPI executed no such waiver of the statute of limitations on the
proceeding for the collection thereof without an assessment.
collection of the deficiency DST per Assessment No. FAS-5-85-89-002054.
The assessment of the tax is deemed made and the three-year period for
collection of the assessed tax begins to run on the date the assessment C. The protest filed by petitioner BPI did not constitute a request for reinvestigation,
notice had been released, mailed or sent by the BIR to the taxpayer. granted by the respondent BIR Commissioner, which could have suspended the
If the service of the Warrant of Distraint and/or Levy on petitioner BPI on running of the statute of limitations on collection of the assessed deficiency DST
23 October 1992 was already beyond the prescriptive period for under Section 224 of the Tax Code of 1977, as amended.
collection of the deficiency DST, which had expired on 19 October
1992, then what more the letter of respondent BIR Commissioner, dated SEC. 6. Protest. The taxpayer may protest administratively an
13 August 1997 and received by the counsel of the petitioner BPI only on assessment by filing a written request for reconsideration or
11 September 1997, denying the protest of petitioner BPI and requesting reinvestigation. . .
payment of the deficiency DST? ...
For the purpose of the protest herein –
(a) Request for reconsideration. – refers to a plea for a re-evaluation of
There is no valid ground for the suspension of the running of the
an assessment on the basis of existing records without need of
prescriptive period for collection of the assessed DST under the Tax Code of
additional evidence. It may involve both a question of fact or of law
1977, as amended. or both.
(b) Request for reinvestigation. – refers to a plea for re-evaluation of an
In their Decisions, both the CTA and the Court of Appeals found that the filing by assessment on the basis of newly-discovered or additional
petitioner BPI of a protest letter suspended the running of the prescriptive period evidence that a taxpayer intends to present in the reinvestigation. It
for collecting the assessed DST. This Court, however, takes the opposing view, may also involve a question of fact or law or both.
and, based on the succeeding discussion, concludes that there is no valid ground
for suspending the running of the prescriptive period for collection of the deficiency With the issuance of RR No. 12-85 on 27 November 1985 providing the above-
DST assessed against petitioner BPI. quoted distinctions between a request for reconsideration and a request for
reinvestigation, the two types of protest can no longer be used interchangeably
A. The statute of limitations on assessment and collection of taxes is for the protection of the taxpayer and their differences so lightly brushed aside. It bears to emphasize that under
and, thus, shall be construed liberally in his favor. Section 224 of the Tax Code of 1977, as amended, the running of the prescriptive
period for collection of taxes can only be suspended by a request for
Though the statute of limitations on assessment and collection of national internal revenue taxes reinvestigation, not a request for reconsideration.
benefits both the Government and the taxpayer, it principally intends to afford protection to the
taxpayer against unreasonable investigation. The indefinite extension of the period for assessment is
The protest letter of petitioner BPI did not specifically request for either a
unreasonable because it deprives the said taxpayer of the assurance that he will no longer be subjected
to further investigation for taxes after the expiration of a reasonable period of time. reconsideration or reinvestigation. A close review of the contents thereof would
reveal, however, that it protested Assessment based on a question of law. The
B. The statute of limitations on assessment and collection of national internal revenue taxes may be same protest letter did not raise any question of fact; neither did it offer to present
waived, subject to certain conditions, under paragraphs (b) and (d) of Section 223 of the Tax Code of any new evidence. In its own letter to petitioner BPI, dated 10 September 1992,
1977, as amended, respectively. Petitioner BPI, however, did not execute any such waiver in the case the BIR itself referred to the protest of petitioner BPI as a request for
at bar. reconsideration.

This Court had consistently ruled in a number of cases that a request for reconsideration or
For the sake of argument, this Court glosses over the distinction between a
reinvestigation by the taxpayer, without a valid waiver of the prescriptive periods for the assessment
request for reconsideration and a request for reinvestigation, and considers the

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protest of petitioner BPI as a request for reinvestigation, the filing thereof could not Facts:
have suspended at once the running of the statute of limitations. Article 224 of the PGC is a corporation engaged in telecommunications. In 1994, it received an
Tax Code of 1977, as amended, very plainly requires that the request for assessment for deficiency income tax for the year 1990, in the amount of 118M. It
reinvestigation had been granted by the BIR Commissioner to suspend the sent a protest letter to the BIR in 1994, but it was only after eight years, on October
running of the prescriptive periods for assessment and collection. 16, 2002, when it received (through its lawyers) a final decision of the CIR denying
PGC’s  protest.
The   burden   of   proof   that   the   taxpayer’s   request   for   reinvestigation   had   been  
actually granted shall be on respondent BIR Commissioner. Via an appeal to the CTA, the CTA ruled in favour of PGC, citing prescription, and
without ruling on the validity and propriety of the assessment. The protest letters
When the BIR stated in its letter, dated 10 September 1992, that the waiver of the filed by PGC, as the CTA ruled, cannot constitute a request for reinvestigation and
statute of limitations on collection was a condition precedent to its giving due hence cannot toll the running of the prescriptive period of the right to collect the
course to the request for reconsideration of petitioner BPI, then it was understood assessed deficiency tax.
that the grant of such request for reconsideration was being held off until
compliance with the given condition. When petitioner BPI failed to comply with the Issue: Whether   or   not   CIR’s   right   to   collect   PGC’s   assessed   deficiency   tax   is  
condition precedent, which was the execution of the waiver, the logical inference barred by prescription—YES!
would be that the request was not granted and was not given due course at all.
Ratio:
This is a simple case wherein respondent BIR Commissioner and other BIR The Tax Code of 1977 provides:
officials failed to act promptly in resolving and denying the request for o Any internal revenue tax which has been assessed within the
reconsideration filed by petitioner BPI and in enforcing collection on the period of limitation above-prescribed may be collected by
assessment. They presented no reason or explanation as to why it took them distraint or levy or by a proceeding in court within three years
almost eight years to address the protest of petitioner BPI. The statute on following the assessment of the tax. (Section 269)
limitations imposed by the Tax Code precisely intends to protect the taxpayer from o The Tax Code also prescribes a period of three years from the
such prolonged and unreasonable assessment and investigation by the BIR. date the return was actually filed, or from the last date prescribed
by law for the filing of the return, whichever is later
o It also provides a prescriptive period of ten years in cases of
12. CIR v. PGC (JT) fraudulent or false returns.
G.R. No. 167146
o Thus, if the BIR issued an assessment (within either three or ten
October 31, 2006
years, depending on the presence of fraud or falsity), the law
provided another three years after the assessment for the
Petitioners: CIR
collection of the tax due thereon, through distraint or levy, or
Respondents: Philippine Global Communication, Inc. (PGC)
through judicial proceedings.
o Such three-year collection period begins to run on the date the
Reseat Reddy:
notice of assessment has been released by the BIR.
PGC was assessed deficiency income tax in 1994, but it was only in 2002 when
The right to collect has prescribed.
the protests filed by PGC was denied with finality (thus, it was only at this point
o In this case, the assessment was presumably issued in 1994
when the government sought to collect from PGC). The SC said that since PGC
(since  PGC  “did  not  dispute  CIR’s  claim).
did not file a request for reinvestigation, the prescriptive period of three years was
Thus, the BIR only had till 1997 to collect.
not suspended, and thus the right to collect had already prescribed by 1997. The
Since no Warrant of Distraint/Levy was served, nor any
government is therefore barred to recover. [The SC also discussed the difference
judicial proceeding initiated, the period had already
between a request for reconsideration and request for reinvestigation.]
prescribed by 1997.
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o The fact that collection proceedings began on 2003 clearly necessary investigation and assessment within 5 years after the
shows that the right to collect had long prescribed. filing of the return and where it failed to collect the tax within 5
o In addition, the statute of limitations was not suspended. years from the date of assessment thereof.
The Tax Code provides that the prescriptive period may o Just as the government is interested in the stability of its
be suspended when the taxpayer requests for a collections, so also are the taxpayers entitled to an assurance
reinvestigation which is granted by the Commissioner. that they will not be subjected to further investigation for tax
However, there was no reinvestigation, because (1) purposes after the expiration of a reasonable period of time.
PGC never requested for a reinvestigation, and (2) o The ponente then proceeded to enumerate cases, all explaining
PGC did not offer any new evidence which could that the statute of limitations should benefit both the taxpayer
warrant a reinvestigation. and the government:
What do you mean by reinvestigation? to the government, because tax officers would be
o Kids, let’s  differentiate first between a request for reconsideration obliged to act promptly in the making of an assessment;
and a request for reinvestigation: and to the taxpaying citizens, because after the lapse of
Request for reconsideration: refers to a plea for a re- the period of prescription, citizens would have a feeling
evaluation of an assessment on the basis of existing of security against unscrupulous tax agents who will
records without need of additional evidence. It may always find an excuse to inspect the books of taxpayers,
involve both a question of fact or of law or both. not   to   determine   the   latter’s   real   liability,   but   to   take
Request for reinvestigation: refers to a plea for re- advantage of every opportunity to molest, peaceful,
evaluation of an assessment on the basis of newly- law-abiding citizens (lol k)
discovered evidence or additional evidence that a
taxpayer intends to present in the investigation. It may
also involve a question of fact or law or both.
Thus: the main difference between these two lies in the
13. BPI v. CIR [Mar. 7, 2008] (AD)
records or evidence to be examined by internal revenue G.R. No. 174942 | March 7, 2008
officers, whether these are existing records or newly BANK OF THE PHILIPPINE ISLANDS, BPI vs.
discovered or additional evidence. COMMISSIONER OF INTERNAL REVENUE, CIR
o A request for reinvestigation takes a lot of time, which is
why there is a need to suspend the statute of limitation FACTS:
pending the reinvestigation BPI is the surviving bank after its merger with Far East Bank
o Because PGC never requested for reinvestigation, the CIR thru then Revenue Service Chief Valdez, issued to BPI a pre-
prescriptive period was not suspended. Thus, the right to collect assessment notice (PAN) dated November 26, 1986.
had prescribed. BPI, in a letter dated November 29, 1986, requested for the details of the
amounts alleged as 1982-1986 deficiency taxes mentioned in the PAN.
[This  next  part  is  just  JJ  vomit  from  the  Supreme  Court.  Read  it  if  you  want,  but  I’m   On April 7, 1989, CIR issued to the BPI, assessment/demand notices
quite  certain  Atty.  Montero  won’t  ask  this...or,  won’t  dwell  on  this.] for deficiency withholding tax at source (Swap Transactions) and DST
But  isn’t  it  that  the  government should not be stopped to collect taxes, as involving the amounts of P190,752,860.82 and P24,587,174.63,
estoppels does not apply to the government? respectively, for the years 1982 to 1986.
o Well, under the former law, the right of the government to collect BPI filed a protest (1989) on the demand/assessment notices with a
the tax does not prescribe. request for reinvestigation
o However, in fairness to the taxpayer, the government should be 1993, BPI requested for an opportunity to present or submit additional
estopped from collecting the tax where it failed to make the documentation on the Swap Transactions with the then Central Bank

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REMEDIES  (Power/Remedy  of  Collection  /  Prescription  of  Government’s  Right  to  Collect)

BPI submitted to the BIR, Swap Contracts with the Central Bank. o Thus, the CIR has three (3) years from the date of actual filing of
BPI executed several Waivers of the Statutes of Limitations, the last the tax return to assess a national internal revenue tax or to
of which was effective until December 31, 1994. commence court proceedings for the collection thereof without
On August 9, 2002 (AROUND 13 YEARS LATER), CIR issued a final an assessment.
decision   on   BPI’s   protest ordering the withdrawal and cancellation of o When it validly issues an assessment within the three (3)-
the deficiency withholding tax assessment in the amount year period, it has another three (3) years within which to
of P190,752,860.82 and considered the same as closed and terminated. collect the tax due by distraint, levy, or court proceeding.
On the other hand, the deficiency DST assessment in the amount The assessment of the tax is deemed made and the three (3)-
ofP24,587,174.63 was reiterated and the BPI was ordered to pay the year period for collection of the assessed tax begins to run on
said amount within thirty (30) days from receipt of such order. the date the assessment notice had been released, mailed or
BPI received a copy of the said decision on January 15, 2003. Thereafter, sent to the taxpayer.
on January 24, 2003, BPI filed a Petition for Review before the Court. AS APPLIED TO THE PRESENT CASE, the CIR had three (3) years
On March 28, 2005, (March 25 was Good Friday), BPI filed the instant from the time he issued assessment notices to BPI on 7 April 1989
Petition for Review, or until 6 April 1992 within which to collect the deficiency DST.
However, it was only on 9 August 2002 that the CIR ordered BPI to
ISSUE: Whether the collection of the deficiency DST is barred by pay the deficiency.
prescription and whether BPI is liable for DST on its SWAP loan transactions.
o BPI argues that  the  government’s  right to collect the DST had already On  the  CIR’s  argument  that  the  prescriptive  period  was  tolled  by  the  filing  
prescribed  because  the  CIR  failed  to  issue  any  reply  granting  BPI’s   of protest letters by BPI,
request for reinvestigation manifested in the protest letters dated 20 o Sec. 320. Suspension of running of statute.—The running of
April and 8 May 1989. It was only through the 9 August 2002 Decision the statute of limitations provided in Sections 318 or 319 on
ordering BPI to pay deficiency DST, or after the lapse of more than the making of assessment and the beginning of distraint or levy
thirteen (13) years, that the CIR acted on the request for or a proceeding in court for collection, in respect of any
reinvestigation, warranting the conclusion that prescription had already deficiency, shall be suspended for the period during which the
set in. Commissioner is prohibited from making the assessment or
o It further claims that the CIR was not precluded from collecting the beginning distraint or levy or a proceeding in court and for sixty
deficiency within three (3) years from the time the notice of assessment days thereafter; when the taxpayer requests for a re-
was issued on 7 April 1989, or even until the expiration on 31 December investigation which IS GRANTED by the
1994 of the last waiver of the statute of limitations signed by BPI. Commissioner; when the taxpayer cannot be located in the
o The Office of the Solicitor General (OSG) filed a Comment on behalf of address given by him in the return filed upon which a tax is being
the CIR, asserting that BPI is already estopped from raising the defense assessed or collected: Provided, That if the taxpayer informs the
of prescription in view of its repeated requests for reinvestigation which Commissioner of any change in address, the running of the
allegedly induced the CIR to delay the collection of the assessed tax. statute of limitations will not be suspended; when the warrant of
distraint and levy is duly served upon the taxpayer, his
HELD: We grant the petition. authorized representative, or a member of his household with
sufficient discretion, and no property could be located; and when
RATIO: the taxpayer is out of the Philippines. (Emphasis supplied)
The statute of limitations on assessment and collection of national The above section is plainly worded. In order to suspend the
internal revenue taxes was shortened from five (5) years to three (3) running of the prescriptive periods for assessment and collection,
years by Batas Pambansa Blg. 700. THE REQUEST FOR REINVESTIGATION MUST BE GRANTED by the
CIR.
Page 25 of 30
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Power/Remedy  of  Collection  /  Prescription  of  Government’s  Right  to  Collect)

BPI v. Commissioner of Internal Revenue – the Court emphasized the tax agents who will always find an excuse to inspect the books of
rule that the CIR must first grant the request for reinvestigation as a taxpayers,   not   to   determine   the   latter’s   real   liability,   but   to   take  
requirement for the suspension of the statute of limitations. advantage of every opportunity to molest peaceful, law-abiding
o x x x The act of requesting a reinvestigation alone does not citizens. Without such a legal defense taxpayers would
suspend the period. The request should first be granted, in furthermore be under obligation to always keep their books
order to effect suspension. (Collector v. Suyoc Consolidated, and keep them open for inspection subject to harassment
supra; also Republic v. Ablaza, supra). by unscrupulous tax agents. The law on prescription being
Republic of the Philippines v. Acebedo, this Court similarly found that — a remedial measure should be interpreted in a way
o x x x T]he defendant, after receiving the assessment notice of conducive to bringing about the beneficent purpose of
September 24, 1949, asked for a reinvestigation thereof on affording protection to the taxpayer within the contemplation
October 11, 1949 (Exh. "A"). There is no evidence that this of the Commission which recommend the approval of the law.
request was considered or acted upon. Consequently, the
request for reinvestigation did not suspend the running of
the period for filing an action for collection.
14 14. CIR v. Capitol Subdivision (RS)
ALSO, the Court went on to declare that the burden of proof that the G.R. No. L-18993 | 4/30/1964 | Barrera, J.
request for reinvestigation had been actually granted shall be on the Petitioner: Collector
CIR. Such grant may be expressed in its communications with the Respondent:  Capitol  Subdivision  Inc.  (“Capitol”)
taxpayer or implied from the action of the CIR or his authorized Topic: Prescription  of  government’s  right to collect
representative in response to the request for reinvestigation.
There is nothing in the records of this case which indicates, Short case! YAY! But mind the dates.
expressly or impliedly, that the CIR had granted the request for
reinvestigation filed by BPI. What is reflected in the records is the SUMMARY:
Capitol was assessed deficient taxes in a notice dated April 8, 1953. From that
piercing silence and inaction of the CIR on the request for
date until December 29, 1959 when  the  CIR  filed  its  answer  to  Capitol’s  petition  in  
reinvestigation, as  he  considered  BPI’s  letters  of  protest  to  be.
the CTA, the period was interrupted from May 30, 1953 to June 21, 1955 (date
As differentiated from the Wyeth Suaco case, there is no evidence in this
when Capitol requested for review of the assessment and date when CIR denied
case that the CIR actually conducted a reinvestigation upon the request of
the same, respectively). Subtracting the duration of the latter set of dates from the
BPI or that the latter was made aware of the action taken on its request.
former leaves the Government with 4 years and 8 months within which to effect
Hence,   there   is   no   basis   for   the   tax   court’s   ruling   that   the   filing   of   the  
judicial collection. (Remember these 4 dates)
request for reinvestigation tolled the running of the prescriptive period for
collecting the tax deficiency.
FACTS:
The inordinate delay of the CIR in acting upon and resolving the
request for reinvestigation filed by BPI and in collecting the DST
This is an appeal from the decision of the CTA reversing the decision of
allegedly due from the latter had resulted in the prescription of the
petitioner CIR which held Capitol liable for deficiency income taxes for
government’s   right   to   collect   the   deficiency. As this Court declared
1948, 1949, 1950, and 1951 in the amounts of P2,927.69, P3,952.19,
in Republic of the Philippines v. Ablaza:
P5,927.00, and P14,406.00, respectively, or a total of P27,212.88
o The law prescribing a limitation of actions for the collection of the
Capitol is a corporation, engaged in the business of purchase, sale, barter
income tax is beneficial both to the Government and to its
and exchange of urban estates, and their improvement and subdivision
citizens; to the Government because tax officers would be
into  residential  lots  for  resale  to  the  public….
obliged to act promptly in the making of assessment, and to
Capitol filed its income tax returns for the years 1948, 1949, 1950, and
citizens because after the lapse of the period of prescription
1951, on February 28, 1949, March 31, 1950, March 31, 1951, and March
citizens would have a feeling of security against unscrupulous
Page 26 of 30
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Power/Remedy  of  Collection  /  Prescription  of  Government’s  Right  to  Collect)

1, 1952, respectively, and the amounts assessed thereon as per return, ISSUE:  WN   CIR’s   right   to   collect   Capitol’s   deficiency   income   tax   assessments in
were promptly paid. question has already prescribed under Section 332 (c) of the National Internal
In an investigation conducted by an examiner of the CIR, it was Revenue Code – No.
recommended in the memorandum report dated June 30, 1952 of the
examiner, that Capitol should pay the said deficiency income tax HELD:  CTA  decision  is  set  aside.  Taxpayer’s  petition  to  declare  the  assessments  
April 8, 1953 – CIR sent income tax assessment notices requesting null and void is dismissed.
payment of the aforesaid amounts due and collectible, the said taxes
being based on disallowed deductions, and over-claimed depreciations, RATIO (note: kung nagmamadali ka, diretso ka na dun sa next section. The SC
as shown on pages 12, 19, 39, and 45, BIR records. just reiterated the facts in the ratio, nakakalito pa sya. I hate dates.):
May 30, 1953 – Capitol, upon receipt of the said Income Tax Assessment
Notices, requested for the breakdown of the amounts reflected under the SEC. 332. Exceptions as to period of limitation of assessment and
heading General Expenses in the said notices collection of taxes. —
June 21, 1955 – CIR sent Capitol circular letters making inquiry as to o (c) Where the assessment of any internal revenue tax has been
whether payment was already made on Assessment No. 35-5-125329-48- made within the period of limitation above prescribed, such tax
2, No. 35-5-125371-49-2, No. 35-5-125346-50-2, No. 35-5-52-51-2 for the may be collected by distraint or levy or by a proceeding in court,
years 1948, 1949, 1950 and 1951; but only if begun (1)within five years after the assessment of the
July 1, 1955 – Capitol, in reply to above circular letters of respondent, tax, or (2) prior to the expiration of any period for collection
reiterated its request of May 30 1953 agreed upon in writing by the Collector of Internal Revenue and
the taxpayer before the expiration of such five-year period. The
September 20, 1955 - CIR  replied  to  Capitol’s  letter  dated  July  1,  1955,  
period so agreed upon may be extended by subsequent
and at the same time reiterated his demand for payment of the income tax
agreements in writing made before the expiration of the period
assessment for the years 1948, 1949, 1950 and, 1951, plus a surcharge
previously agreed upon. (Emphasis supplied)
of 5%, 1% monthly interest and compromise fees of P20.00 each for the
years 1948, 1949, 1950, and P40.00 for 1951 It is not disputed that on April 8, 1953, CIR demanded from Capitol
payment of deficiency income taxes for 1948-1951 (magulo yung dates
October 15, 1955 – Capitol, in a letter to CIR, explained the disallowed
dito,  but  it’s  just a reiteration of the facts).
items and requested for re-investigation
o On May 30, 1953 Capitol requested for a breakdown of the
October 26, 1955 – After reinvestigation, the examiner in a memorandum
amounts reflected under the heading "General Expenses" in a
report submitted to the Acting Provincial Revenue Officer reiterated his
letter
findings and recommended that the previous assessments be affirmed.
o On June 21, 1955, CIR sent Capitol circular letters inquiring
September 2, 1959 – respondent, in a letter, demanded of Capitol the
whether it has already paid said assessments.
payment of the said deficiency income taxes for the years 1948, 1949,
o In reply to said letters, Capitol, on July 1, 1955, reiterated its
1950 and 1951, respectively
request of May 30, 1953.
September 16, 1959 – Capitol, in a letter, invoked the defense of
o CIR replied to said letter on September 20, 1955 reiterating the
prescription, and on that ground, denied liability for the deficiency income
demand for payment from Capitol.
taxes for the aforesaid years.
o Capitol, in its letter of October 15, 1955, explained the
October 13, 1959 – CIR, in a letter, the original of which was received by
disallowed items in detail
petitioner on October 21, 1959, denied the request for cancellation,
Whether a formal investigation pursuant to respondent's request was
alleging that the 5-year period was suspended by the various requests for
actually made by petitioner, is not shown by the records.
re-investigation filed with respondent and demanded the payment of the
o (This is in the Facts) It appears, however, that on October 26,
deficiency income tax assessments from 1948 to 1951.
1955, BIR Examiner 103 submitted to the Acting Provincial
CTA – CIR’s  right  to  collect  already  prescribed.

Page 27 of 30
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Power/Remedy  of  Collection  /  Prescription  of  Government’s  Right  to  Collect)

Revenue Examiner, Bacolod City, a Memorandum, which in part There is no question that the period commenced to run on April 8,
states: 1953 when the assessment was made.
The undersigned is submitted hereunder his comments The same, however, was interrupted when the Capitol, by letter of May
on the disallowances he made on the income tax case 30, 1953, requested for an itemized information on the disallowed items.
of the Capitol Subdivision Incorporated which is herein While it is true that the said letter did not specifically use the words
being contested. "review" or "reconsideration," the request itself for an explanation of
1. General Expenses disallowed consist of contributions the disallowances made in the assessment in effect was an
and gifts to various persons, are not ordinary and exception to the correctness thereof.
necessary expenses of the company in carrying out That the taxpayer actually assailed the correctness of such
their real estate business. assessment "from the start" was specifically admitted in the
On September 2, 1959, CIR made another demand on Capitol for aforequoted letter of September 16, 1959.
payment of the deficiency income tax assessment, with the warning that o This request for reconsideration or review of the assessment
should the aforesaid obligation remain unsettled in 10 days, judicial action was denied when petitioner demanded for payment of the
for collection thereof will be instituted immediately without further notice. alleged deficiency tax on June 21, 1955.
On September 16, 1959, Capitol asked the CIR for the cancellation of the The period for collection then started to run again, but it was tolled when
assessment in a letter in part reading as follows: the taxpayer reiterated its request for explanation of the disallowances on
o Please be informed that from the time we received your July 1, 1955 or after 10 days.
deficiency assessments all dated April 8, 1953, we have o This request was denied on September 20, 1955, and a span of
contested the correctness of same, insisting all the time that the 25 days elapsed until October 15, 1955 when Capitol explained
items being disallowed are ordinary, necessary, and legitimate the disallowed items and requested for a reinvestigation of the
expenses of the business. This stand of ours have been same.
reiterated to various men from your office who called on us to o On September 2, 1959, CIR denied the request for
collect. No action was taken by your office to dispute our reinvestigation when it reiterated its demand for collection of the
contention, thus making us believe you subscribe to our stand. alleged deficiency tax.
o From April 8, 1953 to date, more than six year have already o From this date until December 28, 1959, when the answer to
lapsed, and we therefore submit that under Sections 331 and Capitol’s   petition   was   filed   in   the   CTA, only 3 months and 26
332 C of the Internal Revenue Code your right to collect has days had passed.
already prescribed. This is in line with the decisions rendered in Clearly, although the assessment was sent on April 8, 1953, by
the cases of Santiago Gancayco vs. Collector of Internal Capitol’s  own requests for review or reconsideration of the disputed
Revenue, CTA Case No. 287, November 14, 1957; Manuel assessment, the period for collection thereof had been interrupted
Pineda vs. The Collector of Internal Revenue, CTA Case No. Therefore, deducting from the total period from April 8, 1953 (date of the
364, August 30, 1958; and Collector of Internal Revenue vs. deficiency assessment) to December 29, 1959 (date of CIR’s   answer  
Florencio Solano, G.R. No. L-11475, July 31, 1958 to mention a which is tantamount to a judicial action), or a total of 6 years, 8 months
few. and 21 days, the period of interruption from May 30, 1953 (when Capitol
o In view of the above, we respectfully request that your filed its petition for clarification amounting to reconsideration or review of
assessment be cancelled. the assessment) to June 21, 1955 (when the CIR in effect denied the
petition by reiterating its demand for payment), or a total of 2 years and
21 days, there is left a period of 4 years and 8 months within which
THE RIGHT TO ENFORCE COLLECTION HAS NOT YET BEEN LOST. judicial collection may be effected.

Page 28 of 30
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Power/Remedy  of  Collection  /  Prescription  of  Government’s  Right  to  Collect)

o SUMMARY: YEAR..........AMOUNT..........DEMAND LETTER NO.


April 8, 1953 to December 29, 1959 6y, 8m, 21d 1983..........P503,564.59..........18-452-83B-87-B2
Less: May 30, 1953 to June 21, 1955 (2y, 21d) 1984........... 831,464.30..........18-451-84B-87-B2
Period Left 4y, 8m 1985..........P1,514,047.86.......18-450-85B-87-B2
Since the law allows 5 years for thus purpose, the collection herein •  However,  petitioner  alleged that on Dec. 10, 1987, it only received Demand Letter
sought by the petitioner is still timely. Nos. 18-452-83B-87 -B2 and 18-451-84B-87 -B2 for the years 1983 and 1984,
respectively. It denied receiving any notice of deficiency percentage tax for the
year 1985.
•  Protector admitted receipt of 83 and 84 Demand Letters and denied receipt
15.  Protector’s  Services  v.  CA  and  CIR  (HV) of  ‘85.
Topic: Prescription  of  Government’s  right  to  collect •  Protector protested 83 and 84 and claimed that its gross receipts subject to
Relevant Laws/ BIR Issuances: percentage taxes should exclude the salaries of the security guards as well
Sections 203, and 222-223, Tax Code as the corresponding employer's share of Social Security System (SSS), State
G.R. No. 118176. April 12, 2000 QUISUMBING, J.: Insurance Fund (SIP) and Medicare contributions
•  Without formally acting on the petitioner's protest, the BIR sent a follow-up
Petitioners: Protector Services, Inc. letter dated July 12, 1988, ordering the settlement of taxes based on its
Respondents: CA and CIR computation. Additional documentary stamp taxes of two thousand twenty-five
(P2,025.00) pesos on petitioner's capitalization for 1983 and 1984, and seven
Summary: hundred three pesos and forty-one centavos (P703.41) as deficiency expanded
Protector was assessed for 1983, 1984 and 1985 for deficiency percentage taxes. withholding tax were included in the amount demanded. The total unsettled tax
Protector denied receipt of 1985 assessment and argues that all assessments and amounted to two million, eight hundred fifty-one thousand, eight hundred five
right to collect by BIR has prescribed. BIR refutes this stating that all assessments pesos and sixteen centavos (P2,851,805.16).
were sent in one envelope. Protector also argues with BP700 that said •  Protector  paid  the  P2,025.00  documentary  stamp  tax  and  the  P703.41  deficiency  
assessments have prescribed. SC ruled that based on old tax code, the year 1983 expanded withholding tax. On the following day, July 22, 1988, filed its second
is still covered by the five year prescription for collection. BP700 will not apply in protest on the 1983 and 1984 percentage taxes, and included, for the first
this case. BP 700 was approved on April 5, 1984. 1983 Tax assessment are still time, its protest against the 1985 assessment.
covered by the five year prescription period and not the three year rule. •   On   Nov. 9, 2009 BIR Deputy Commissioner Eufracio Santos denied the
protests.
Case Doctrine: •  On Dec. 5, 2009 Protector filed petition for review before the CTA
The three-year  prescriptive  period  of  tax  assessment  of  contractor’s  tax  should  be   The contentions of appeal to CTA are:
computed at the time of the filing of the "final annual percentage tax return," when 1).....Assessments for documentary stamp tax and expanded withholding tax are without basis since
it can be finally ascertained if the taxpayer still has an unpaid tax, and not from the they were paid on July 22, 1988.
tentative quarterly payments. 2).....The period for collection of the 1985 percentage tax had prescribed, because PSI denied having
received any assessment letter for the same year. ScÓ lex
Facts: 3).....Percentage taxes for the three quarters of 1984 were filed as follows: 1st Qtr. -April 23, 1984; 2nd
•  On  Dec.  7,  1987,  CIR  sent  by  registered  mail,  demand  letters   Qtr. -July 20, 1984, and; 3rd Qtr. - October 19, 1984. The three-year prescriptive period to collect
percentage taxes for the 1st, 2nd and 3rd quarters had prescribed because the BIR sent an assessment
•   Protector's   Services,   Inc. (PSI) is a contractor engaged in recruiting security
letter only on December 10, 1987.
guards for clients. After an audit investigation conducted by the Bureau of Internal 4).....The base amount for computing percentage tax was erroneous because the BIR included in the
Revenue (BIR), Protector was assessed for deficiency percentage taxes including taxable amount, the salaries of the security guards and the employer's corresponding remittances to
surcharges, penalties and interests thereon, as follows: SSS, SIF, and Medicare, which amounts were earmarked for other persons, and should not form part of
PSI’s  receipts.  
•  CTA dismissed the petition on the following grounds:
Page 29 of 30
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Power/Remedy  of  Collection  /  Prescription  of  Government’s  Right  to  Collect)

(1) The three-year period of limitation for assessment of taxes in 1984 commenced from the date of •   B.P. 700 was approved on April 5, 1984. The three-year prescriptive period for
filing the final return on January 20, 1985, hence assessment made on December 10, 1987, was within assessment and collection of revenue taxes applied to taxes paid beginning 1984.
said period. Clearly, the tax assessment made on December 10, 1987, for the year 1983
(2) Petitioner could not deny receipt of the 1985 assessment on the same date, December 10, 1987, for
was still covered by the five-year statutory prescriptive period. This rule was
as supported by testimony of the BIR personnel, all the assessment letters for the years 1983, 1984,
and 1985 were included in one envelope and mailed together.
emphasized in Revenue Memorandum Circular (RMC) No. 33-84
(3) Petitioner's protest letter dated January 2, 1988, was filed on January 12, 1988, or thirty-three days •   Only   recently   in   G.R.   No.115712,   Commission   of   Internal   Revenue   vs.   Court  of  
from December 10, 1987, hence, the request for reinvestigation was filed out of time. Appeals, February 25, 1999, we held, that the three-year prescriptive period of
tax   assessment   of   contractor’s   tax   should   be   computed   at   the   time   of   the  
PROTECTOR’S  CONTENTION: one sentence summary Right to collect and filing of the "final annual percentage tax return," when it can be finally
assess have prescribed ascertained if the taxpayer still has an unpaid tax, and not from the tentative
•  That  the  assessments  only  became  final  on  November  9,  1990,  when  the  CIR  denied  the  request  for   quarterly payments.
reconsideration. Consequently, the CTA had jurisdiction over the appeal filed by the petitioner on •  SC  agrees  that  the  factual  findings  of  the  CTA  that  the  assessment  letter  may  be  
December 5, 1990. Furthermore, the CTA resolved that the assessments became final after thirty days presumed to have been received by petitioner. "The 1985 assessment which
from receipt of demand letters by the petitioner, without the latter interposing a reconsideration. petitioner denied as having been received was negated when the respondent
•  The  government's  right  to  assess  and  collect  the  1983,  1984  and  1985  taxes  had   introduced documentary evidence showing that it was mailed by registered mail. It
already prescribed. Relying on Batas Pambansa (BP) Blg. 700, which reduced the was further buttressed by the testimony of witness Mr. Arnold C. Larroza, Chief
period of limitation for assessment and collection of internal revenue taxes from Administrative Branch Mailing Section, Rev. Region No. 4B-1, Quezon City that the
five to three years, petitioner asserts that the government was barred from 1983, 1984 and 1985 assessments were placed in one envelope when it was
reviewing the 1983 tax starting December 10, 1987, the expiry date of the three- mailed  by  registered  mail.  x  x  x”
year limit. •  In  reviewing  administrative  decisions,  the  reviewing  court  cannot  re-examine the
•   Insisted   that   the   reckoning   period   of   prescription   should   start   from   the   date   when   the   quarterly  
factual basis and sufficiency of the evidence. The findings of fact must be
percentage taxes were paid and not when the Final Annual Percentage Tax Return for the year was
filed. Moreover, he denies having received the 1985 tax assessment.
respected, so long as they are supported by substantial evidence.
•  CIR  failed,  until  now,  to  commence  the  collection  of  the  1983,  1984,  and  1985  deficiency  tax, the •  Right  of  BIR  to  collect  will  only  be  suspended  when:
right to collect had, likewise, prescribed. Petitioner urges us to consider that for the government's
failure to institute collection remedies either by judicial action or by distraint and levy, the right to 1. When the taxpayer request for a reinvestigation which is granted by the
collect the same has prescribed pursuant to Section 219 of the NIRC (Old tax code) Commissioner;
2. when the taxpayer cannot be located in the address given by him in the
Issue/s: WON there is prescription of the right to assess and collect. --- NO return filed upon which a tax is being assessed or collected:
*The case enumerated four issues but all can be summarized as WON there is
prescription and if the computation is proper. The SC affirmed  CA’s  Decision. Provided, That, if the taxpayer informs the Commissioner of any change in
address, the running of the statute of limitation will not be suspended; when
Held: the warrant of distraint and levy is duly served upon the taxpayer, his
•  Petition  of  Protector  DENIED. Decision of CA AFFIRMED. authorized representative, or a member of his household with sufficient
discretion, and no property could be located; and when the taxpayer is out of
Ratio: the Philippines
•   Indeed on December 10, 1987, petitioner received the BIR's assessment
Contractor’s   tax   on   gross   receipts  imposed   on  business   agents   including  private   detective   watchman  
notices. On January 12, 1988, petitioner protested the 1983 and 1984
agencies, was a tax on the sale of services or labor, imposed on the exercise of a privilege. The term
assessments and requested for a reinvestigation. From December 10, 1987 "gross receipts" means all amounts received by the prime or principal contractor as the total price,
to January 12, 1988, thirty-three days had lapsed. Thereafter petitioner may undiminished by the amount paid to the subcontractor under a subcontract arrangement. Hence, gross
no longer dispute the correctness of the assessments. Hence, in our view, receipts could not be diminished by employer's SSS, SIF and Medicare contributions
the CTA correctly dismissed the appeal for lack of jurisdiction.

Page 30 of 30
TAXATION LAW 2
Based from the data obtained, BIR discovered that LMCEC filed fraudulent tax
DIGESTS AND PROVISIONS COMPILATION returns with substantial underdeclarations of taxable income from 1997-1999.
(Note: %s of underdeclaration were 193%, 173%, 185% - eh 30%
E. Remedies underdeclaration palang, prima facie evidence of fraudulent return na). CIR
assessed LMCEC deficiency taxes, issued PAN (which LMCEC said they filed a
reply, but BIR disregarded since it is pro-forma and filed beyond 15day
E.11.  Taxpayers’  Remedies reglementary period).

Thereafter, BIR sent LMCEC assessment notices with formal letter of demand.
E.11.1. Protest LMCEC refused to receive the notices and demand letter, hence BIR resorted to
constructed service.
01. CIR v. Gonzalez (HQ)
Topic: Protest CIR referred to DOJ for preliminary investigation its complaint against LMCEC. BIR
Relevant Provisions: Sections 228, 235, 254, 255, and 266, NIRC sued LMCEC and also its president and comptroller.
G.R. No. 177279
October 13, 2010 One of the issues raised by/contentions of LMCEC is that the Assessment was
Petitioner: COMMISSIONER OF INTERNAL REVENUE invalid. Why? Because the assessment notices bear no serial number. (wrong!!)
Respondents: HON. RAUL M. GONZALEZ, Secretary of Justice, L. M. CAMUS
ENGINEERING CORPORATION (represented by LUIS M. CAMUS and LINO D. SC discussed what a notice of assessment is and that the formal demand letter
MENDOZA) shall state the fact, the law, rules and regulations or jurisprudence on which
the assessment is based, otherwise the formal letter of demand and the notice of
(Suggestion: just read the summary, nakakatamad basahin ung ibang details, assessment shall be void.
medyo irrelevant naman lalo na ung ERAP at VAP na yan GRRR. Also, pls. read
the codal first esp. the steps/procedure in disputing an assessment) SC found that the Formal Letter of Demand dated August 7, 2002 contains not
only   a   detailed   computation   of   LMCEC’s   tax   deficiencies   but   also   details   of   the  
Summary: the case is long, medyo detailed yung nasa facts and ratio just to be specified discrepancies, explaining the legal and factual bases of the assessment.
safe BUT the focus of the topic/discussion would be on the requirements for the Also, the formality of a control number in the assessment notice is NOT a
validity of the assessment. Note that these are substantive requirements, meaning requirement for its validity but rather the contents thereof which should inform the
they  determine  the  taxpayer’s  ability  to  protest  – the final assessment notice is the taxpayer of the declaration of deficiency tax against said taxpayer. (so valid yung
triggering point wherein the taxpayer should protest within 30 days from such assessment)
assessment; otherwise, it would be final and executory
Now, under Sec 228 of NIRC the taxpayer is provided the remedy to dispute a tax
An informer provided information to the BIR that LMCEC underdeclared substantial assessment within a certain period of time. It states that an assessment may be
income for the periods 1997-1999. Because of this, CIR issued a Letter of protested by filing a request for reconsideration or reinvestigation within 30
Authority and some revenue officers conducted a fraud investigation for all taxes of days from receipt of the assessment.
LMCEC for the said periods. In the course of investigation, subpoena duces tecum
was issued. LMCEC is pasaway, it failed to comply with the subpoena. BIR filed a LMCEC did NOT file any admin protest seeking reconsideration of the assessment
criminal complaint against LMCEC for failure to obey subpoena. notice and formal letter of demand. So, LMCEC cannot belatedly assail the said
assessment, which they allowed to lapse into finality, by raising issues as to its
Now, back to the fraud investigation, because pasaway si LMCEC – BIR obtained validity during the preliminary investigation after the BIR has referred the matter for
data, records, information etc. from various sources (informer, clients of LMCEC), prosecution.
pursuant  to  the  “Best  Evidence  obtainable  doctrine”  remember?
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Taxpayers’  Remedies  – Protest)

Facts: Summary  of  each  parties’  contentions:


o Pursuant to a Letter of Authority (LA) issued by the CIR, some Revenue Grounds LMCEC (Joint Counter- BIR
Officers conducted a fraud investigation for all internal revenue taxes to Affidavit of Camus and
ascertain/determine the tax liabilities of L. M. Camus Engineering Mendoza)
Corporation (LMCEC) for the taxable years 1997, 1998 and 1999 Liability LMCEC cannot be held liable
(Tax whatsoever for the alleged tax
The audit and investigation against LMCEC was precipitated by the
Deficiency) deficiency which had become
information provided by an "informer" that LMCEC had substantial due and demandable
underdeclared income for the said period. Nature of Complaint and its annexes all Disagreed with the contention of
For failure to comply with the subpoena duces tecum, a criminal Complaint showed that the suit is a LMCEC that the complaint filed is
complaint was instituted by the BIR against LMCEC for violation of simple civil action for collection not criminal in nature
Section 266, NIRC and not a tax evasion case,
Based on data obtained from an "informer" and various clients of LMCEC, DOJ is not the proper forum for LMCEC and its officers Camus and
BIR’s  complaint. Mendoza were being charged for
it was discovered that LMCEC filed fraudulent tax returns with substantial
the criminal offenses defined and
underdeclarations of taxable income for the years 1997, 1998 and 1999 penalized under Secs. 254 (Attempt
summarized as follows: to Evade or Defeat Tax) and 255
(Willful Failure to Pay Tax)
Year Income Per Income Per Undeclared Income Percentage of
ITR Investigation Underdeclaration *In this case, the BIR decided to
1997 96,638,540.00 283,412,140.84 186,733,600.84 193.30% simultaneously pursue both
1998 86,793,913.00 236,863,236.81 150,069,323.81 172.90% remedies and thus aside from this
1999 88,287,792.00 251,507,903.13 163,220,111.13 184.90% criminal action, the BIR also initiated
administrative proceedings against
LMCEC
CIR assessed LMCEC of total deficiency taxes amounting to Validity of INVALID. Assessment Lack of control number in the
P430,958,005.90 Assessment notices bear no serial assessment notice is a mere
o Income tax - P318,606,380.19 numbers and they should be office requirement in the
o VAT - P112,351,625.71 shown to have been validly Assessment Service for the
The Preliminary Assessment Notice (PAN) was received by LMCEC on served by an Affidavit of purpose of internal control and
Constructive Service monitoring; hence, the
February 22, 2001
executed and sworn to by unnumbered assessment notices
In view of the above findings, assessment notices together with a formal the revenue officers who should not be interpreted as
letter of demand dated August 7, 2002 were sent to LMCEC through served the same irregular or anomalous.
personal  service  on  October  1,  2002,  but  because  of  LMCEC’s  refusal  to  
receive the notices and demand letter, revenue officers resorted to CIR stressed that LMCEC already
constructive service. lost its right to file a protest letter
May 21, 2003, CIR referred to the DOJ Secretary for preliminary after the lapse of the 30day
reglementary period
investigation its complaint against LMCEC, Luis M. Camus and Lino D.
Mendoza, the latter two were sued in their capacities as President and Even assuming that the
Comptroller, respectively. assessment notices were invalid,
CIR contended that such could
not affect the present criminal
action (citing Ungab vs. Cusi)

Page 2 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Taxpayers’  Remedies  – Protest)

BIR’s   Tax   It   had   availed   of   the   Bureau’s   LMCEC failed to state that its officers concerning the taxable government to collect taxes
Amnesty Tax Amnesty Programs – availment of ERAP is not a grant of years 1997 to 1999.
Programs Economic Recovery absolute immunity from audit and Qualification Alleged informant is fictitious Confidential! such information is
Assistance Payment (ERAP) investigation, aside from the fact of Informer and his true identity and entitled to some degree of
Program and the Voluntary that said program was only for personality could not be protection, including the identity of
Assessment Program (VAP) income tax and did not cover VAT produced. Hence, this case is the informant against LMCEC
for 1998 and 1999 and withholding tax for the taxable another form of harassment
year 1998. against the LMCEC
For 1997: tax liability was
terminated and closed under VAP in 1999: LMCEC failed to state Chief  State  Prosecutor’s  Resolution:  LA  is  defective  and  allowing  the  collection  on  
Letter of Termination issued by that it covers only income tax and
the assailed assessment notices would already be in the context of a "fishing
CIR and signed by the Chief of VAT, and did not include withholding
expedition" or "witch-hunting."
the Assessment Division tax. However, LMCEC is not
actually entitled to the benefits of No sufficient evidence to establish probable cause against LMCEC,
With the grant of immunity VAP Camus and Mendoza.
from  audit  from  the  company’s   Held that since the payments were made by LMCEC under ERAP and
availment of ERAP and VAP, Letter of Termination: CIR pointed VAP which were offered to taxpayers by the BIR itself, the latter is now in
which have a feature of a tax out that LMCEC failed to mention estoppel to insist on the criminal prosecution of the respondent taxpayer.
amnesty, the element of fraud that the undated Certification stated
The voluntary payments made thereunder are in the nature of a tax
is negated the moment the BIR that the report of the 1997 Internal
accepts the offer of Revenue taxes of LMCEC had
amnesty.
compromise or payment of already been submitted for review The unnumbered assessment notices were found highly irregular
taxes by the taxpayer and approval of higher authorities. and thus their validity is suspect
On the required prior determination of fraud: State Prosecutor declared
LMCEC claimed it made that the Office of the City Prosecutor in I.S. No. 00-956 has already
payments of income tax, VAT squarely ruled that (1) there was no prior determination of fraud, (2) there
and expanded withholding tax
was indiscriminate issuance of LAs, and (3) the complaint was more of
(EWT)
harassment.
Best Misplaced! BIR was not able to LMCEC cannot claim as excuse
Evidence open the books of the LMCEC from the reopening of its books of
Obtainable for the second time, after the accounts the previous investigations CIR appealed to DOJ Secretary – DENIED
routine examination, issuance and examinations. Termination Letter issued by the CIR is explicit that the matter is
of termination letter and the considered closed.
availment of ERAP and VAP. Under Section 235 (a), an exception For taxable year 1998: record shows that LMCEC paid VAT and
was provided in the rule on once a
withholding tax - This eventually gave rise to the issuance of a certificate
Unless there is a prior year audit examination in case of
of immunity from audit for 1998 by the CIR
determination of fraud "fraud, irregularity or mistakes, as
supported by documents not determined by the CIR". For   taxable   year   1999,   DOJ   Secretary   found   that   LMCEC’s   1999   tax  
yet incorporated in the docket liabilities were still pending investigation for which reason LMCEC
of the case, CIR cannot just assailed the subsequent issuance of another LA calling for a similar
issue LAs without first investigation of its alleged 1999 tax deficiencies when no final
terminating those previously determination has yet been arrived on the earlier LA
issued.
Allegation of fraud: CIR failed to establish the existence of the following
Estoppel CIR is now estopped from Estoppel clearly does not lie against
circumstances  indicating  fraud  in  the  settlement  of  LMCEC’s  tax liabilities:
further taking any action the BIR as this involved the exercise
against it and its corporate of an inherent power by the There must be intentional and substantial understatement of tax liability

Page 3 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Taxpayers’  Remedies  – Protest)

by the taxpayer; litis pendentia is not present considering that its outcome is not determinative of the issue as to
There must be intentional and substantial overstatement of deductions or whether probable cause exists to charge the private respondents with the crimes of attempt to
evade or defeat tax and willful failure to supply correct and accurate information and pay tax
exemptions; and recurrence of the foregoing circumstances.
defined and penalized under Sections 254 and 255
For the crime of tax evasion in particular, compliance by the taxpayer with such subpoena, if any
Conclusion: BIR engaged  in  a  "fishing  expedition";;  and  furthermore,  CIR’s  course   had been issued, is irrelevant.
of action is contrary to Section 235 of the NIRC allowing only once in a given Qualifications   of   the   "informer”:   SC   held   that   the   lack   of   consent   of   the   taxpayer   under  
taxable  year  such  examination  and  inspection  of  the  taxpayer’s  books  of  accounts   investigation does not imply that the BIR obtained the information from third parties illegally or
and other accounting records. There was no convincing proof presented by CIR to that the information received is false or malicious. Nor does the lack of consent preclude the BIR
show that the case of LMCEC falls under the exceptions from assessing deficiency taxes on the taxpayer based on the documents.

CIR appealed to CA – Affirmed the findings and conclusions of DOJ Sec On the contention that assessment notices were invalid for being
unnumbered and the tax liabilities therein stated have already been settled
Issue: Whether LMCEC and its corporate officers may be prosecuted for and/or terminated. (IMPORTANT!!!)
violation of Sections 254 (Attempt to Evade or Defeat Tax) and 255 (Willful
Failure to Supply Correct and Accurate Information and Pay Tax). (pero for NOTICE OF ASSESSMENT
class purposes, relevant yung validity of notice of assessment) A declaration of deficiency taxes issued to a taxpayer who fails to respond to a
Pre-Assessment Notice (PAN) within the prescribed period of time, or whose reply
Held: YES. to the PAN was found to be without merit. The Notice of Assessment shall inform
Petition is GRANTED. CA Decision is REVERSED and SET ASIDE. the taxpayer of this fact, and that the report of investigation submitted by the
DOJ Secretary is hereby DIRECTED to order the Chief State Prosecutor to file Revenue Officer conducting the audit shall be given due course.
before the RTC QC, the corresponding Information against L. M. Camus
Engineering Corporation, represented by its President (Camus) and Comptroller The  formal  letter  of  demand  calling  for  payment  of  the  taxpayer’s  deficiency  tax  or  
(Mendoza) for Violation of Sections 254 and 255 of NIRC taxes shall state the fact, the law, rules and regulations or jurisprudence on
which the assessment is based, otherwise the formal letter of demand and
Ratio: the notice of assessment shall be void.
There is no dispute that prior to the filing of the complaint with the DOJ, the
report on the tax fraud investigation conducted on LMCEC disclosed that it Formality of a control number in the assessment notice is NOT a
made substantial underdeclarations in its income tax returns for 1997, 1998 requirement for its validity but rather the contents thereof which should
and 1999. inform the taxpayer of the declaration of deficiency tax against said
A PAN was sent to and received by LMCEC wherein it was notified of the taxpayer.
proposed assessment of deficiency taxes amounting to P430,958,005.90
covering taxable years 1997, 1998 and 1999 Both the formal letter of demand and the notice of assessment shall be void if
In response to said PAN, LMCEC sent a letter-protest to the TFD, which the former failed to state the fact, the law, rules and regulations or
denied the same for lack of legal and factual basis and also for having jurisprudence on which the assessment is based, which is a MANDATORY
been filed beyond the 15-day reglementary period requirement under Section 228 of the NIRC.
As mentioned in the PAN, the revenue officers were not given the opportunity to examine
LMCEC’s  books of accounts and other accounting records because its officers failed to comply
To implement the provisions of Section 228 of the NIRC, RR No. 12-99 was
with the subpoena duces tecum earlier issued, to verify its alleged underdeclarations of income
enacted. Section 3.1.4 of the revenue regulation reads:
reported  by  the  BIR’s  informant  under  Section  282  of  the  NIRC.
Hence, a criminal complaint was filed by the Bureau against private respondents for violation of
3.1.4. Formal Letter of Demand and Assessment Notice. – The formal
Section 266 letter of demand and assessment notice shall be issued by the
It is clear that I.S. No. 00-956 (Failure to Obey Summons) involves a separate offense and hence Commissioner or his duly authorized representative. The letter of
Page 4 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Taxpayers’  Remedies  – Protest)

demand  calling  for  payment  of  the  taxpayer’s  deficiency  tax  or  taxes   received the FAN (Formal Letter of Demand and Assessment Notice). Hence, in its
shall state the facts, the law, rules and regulations, or jurisprudence petition for review in the CTA, it denied having received the PAN (Preliminary
on which the assessment is based, otherwise, the formal letter of Assessment Notice). ISSUE: WON Metro Star was denied due process. HELD:
demand and assessment notice shall be void. The same shall be sent YES. Since it denies having received the PAN, it is incumbent upon the BIR to
to the taxpayer only by registered mail or by personal delivery. x x x. prove that PAN was indeed received by Metro Star. BIR failed to discharge its duty
and present any evidence to show that Metro Star received the PAN. Thus, for its
The Formal Letter of Demand dated August 7, 2002 contains not only a failure to send the PAN stating the facts and the law on which the
detailed   computation   of   LMCEC’s   tax   deficiencies   but   also   details   of   the   assessment was made as required by Section 228 of R.A. No. 8424, the
specified discrepancies, explaining the legal and factual bases of the assessment made by the CIR is void.
assessment.
It also reiterated that in the absence of accounting records and other documents necessary for the FACTS:
proper  determination  of  the  company’s  internal  revenue  tax  liabilities,  the  investigating  revenue  
officers resorted to the "Best Evidence Obtainable" as provided in Section 6(B) of the NIRC Metro Star is a domestic corporation duly organized and existing by virtue
(third party information) and in accordance with the procedure laid down in RMC No. 23-2000 of the Philippine laws.
To verify the validity of the information previously provided by the informant, the assigned Regional Director (RD) of Legazpi issued Letter of Authority for Revenue
revenue officers resorted to third party information. Officer   Justiniana   to   examine   Metro   Star’s   book   of   accounts   and   other  
records for income tax and other taxes for the taxable year 1999.
LMCEC DID NOT FILE ANY PROTEST For   Metro   Star’s   failure   to   comply   with   several   requests   for   the
Sec 228 of NIRC: Provides the remedy to dispute a tax assessment within presentation of records and Subpoena Duces Tecum, the OIC of BIR
a certain period of time. It states that an assessment may be protested Legal Division issued an Indorsement informing Revenue District Officer
by filing a request for reconsideration or reinvestigation within 30 (RDO) to proceed with the investigation.
days from receipt of the assessment. RDO Lafuente issued a Preliminary 15-day letter (which stated that a
No such administrative protest was file by LMCEC seeking post audit review was held and it was ascertained that there was a
reconsideration of the August 7, 2002 assessment notice and formal letter deficiency value-added and withholding taxes in the amount of 292K),
of demand. which Metro Star received on Nov. 9, 2001.
LMCEC cannot belatedly assail the said assessment, which they allowed 4/11/2002: Metro Star received Formal Letter of Demand dated
to lapse into finality, by raising issues as to its validity during the 4/3/2002 from Revenue District 67 Legazpi City, assessing it the amount
preliminary investigation after the BIR has referred the matter for of 292K for deficiency value-added and withholding taxes.
prosecution. Revenue District Office No. 67 sent a copy of the Final Notice of Seizure
dated May 12, 2003, which Metro Star received on May 15, 2003, giving
Metro Star last chance to settle its tax liabilities within 10 days from
02. CIR v. Metro Star Superama (KF) receipt, otherwise, Warrants of Distraint and/or Levy and Garnishment will
G.R. No. 185371 be served.
December 8, 2010 2/6/2004: Metro Star received a Warrant of Distraint and/or Levy dated
May 12, 2003 demanding payment of the 292K.
Topic: Taxpayer’s  Remedy  (Protest) 7/30/2004: Metro Star filed with the Commissioner a MR. Commissioner
Petitioner: Commissioner of Internal Revenue denied MR. Said decision was received by Metro Star.
Respondent: Metro Star Superama Inc. Metro Star filed a petition for review with the CTA denying that it
received a Preliminary Assessment Notice (PAN) and claiming that it
Summary: Metro Star was being investigated and thereafter was found to be liable was not accorded due process.
in the amount of 292K for deficiency value-added and withholding taxes. It only CTA: Petition Granted. (Talo si Commissioner)
Page 5 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Taxpayers’  Remedies  – Protest)

ISSUE: WON Metro Star was denied due process – YES and a demand to pay within the prescribed period was sent to the
HELD: Petition Denied. taxpayer? YEEP.
Answer is in Sec. 228 of the Tax Code and RR 12-99. (Will copy paste
If the taxpayer denies ever having received an assessment from the relevant provisions, just for reference, you may skip them)
BIR, it is incumbent upon the latter to prove by competent evidence
that such notice was indeed received by the addressee. The onus SEC. 228. Protesting of Assessment. - When the Commissioner or his duly
probandi was shifted to respondent to prove by contrary evidence that the authorized representative finds that proper taxes should be assessed, he shall
Petitioner received the assessment in the due course of mail. The first notify the taxpayer of his findings: provided, however, that a
preassessment notice shall not be required in the following cases:
Supreme Court has consistently held that while a mailed letter is deemed
(a) When the finding for any deficiency tax is the result of mathematical error
received by the addressee in the course of mail, this is merely a in the computation of the tax as appearing on the face of the return; or
disputable presumption subject to controversion and a direct denial (b) When a discrepancy has been determined between the tax withheld and
thereof shifts the burden to the party favored by the presumption to prove the amount actually remitted by the withholding agent; or
that the mailed letter was indeed received by the addressee. (c) When a taxpayer who opted to claim a refund or tax credit of excess
The facts to be proved to raise this presumption are (a) that the letter was creditable withholding tax for a taxable period was determined to have
properly addressed with postage prepaid, and (b) that it was mailed. Once carried over and automatically applied the same amount claimed against
the estimated tax liabilities for the taxable quarter or quarters of the
these facts are proved, the presumption is that the letter was received by
succeeding taxable year; or
the addressee as soon as it could have been transmitted to him in the
(d) When the excise tax due on exciseable articles has not been paid; or
ordinary course of the mail. (e) When the article locally purchased or imported by an exempt person,
What is essential to prove the fact of mailing is the registry receipt issued such as, but not limited to, vehicles, capital equipment, machineries and
by the Bureau of Posts or the Registry return card which would have been spare parts, has been sold, traded or transferred to non-exempt persons.
signed by the Petitioner or its authorized representative. And if said
documents cannot be located, Respondent at the very least, should have The taxpayers shall be informed in writing of the law and the facts on
submitted to the Court a certification issued by the Bureau of Posts and which the assessment is made; otherwise, the assessment shall be void.
any other pertinent document which is executed with the intervention of
Within a period to be prescribed by implementing rules and regulations, the
the Bureau of Posts. taxpayer shall be required to respond to said notice. If the taxpayer fails to
IN THE CASE AT BAR, CIR failed to discharge its duty and present respond, the Commissioner or his duly authorized representative shall issue
any evidence to show that Metro Star indeed received the PAN dated an assessment based on his findings.
Jan. 16, 2002. It could have simply presented the registry receipt or the
certification from the postmaster that it mailed the PAN, but failed. Neither Such assessment may be protested administratively by filing a request for
did it offer any explanation on why it failed to comply with the requirement reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment in such form and manner as may be prescribed by implementing
of service of the PAN. It merely accepted the letter of Metro   Star’s  
rules and regulations. Within sixty (60) days from filing of the protest, all
chairman dated Apr 29, 2002, that stated that he had received the FAN
relevant supporting documents shall have been submitted; otherwise, the
dated Apr 3, 2002, but not the PAN; that he was willing to pay the tax as assessment shall become final.
computed by the CIR; and that he just wanted to clarify some matters with
the hope of lessening its tax liability. If the protest is denied in whole or in part, or is not acted upon within one
NEXT QUESTION: Is the failure to strictly comply with notice hundred eighty (180) days from submission of documents, the taxpayer
requirements prescribed under Section 228 of the NIRC of 1997 and R.R. adversely affected by the decision or inaction may appeal to the Court of Tax
No. 12-99 tantamount to a denial of due process? Specifically, are the Appeals within thirty (30) days from receipt of the said decision, or from the
lapse of one hundred eighty (180)-day period; otherwise, the decision shall
requirements of due process satisfied if only the FAN (Formal Letter of
become final, executory and demandable.
Demand and Assessment Notice) stating the computation of tax liabilities

Page 6 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Taxpayers’  Remedies  – Protest)

SECTION 3. Due Process Requirement in the Issuance of a Deficiency taxpayer; or


Tax Assessment.
(ii) When a discrepancy has been determined between the tax withheld and
3.1 Mode of procedures in the issuance of a deficiency tax assessment: the amount actually remitted by the withholding agent; or

3.1.1 Notice for informal conference. — The Revenue Officer who audited the (iii) When a taxpayer who opted to claim a refund or tax credit of excess
taxpayer's records shall, among others, state in his report whether or not the creditable withholding tax for a taxable period was determined to have carried
taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or over and automatically applied the same amount claimed against the
taxes. If the taxpayer is not amenable, based on the said Officer's submitted estimated tax liabilities for the taxable quarter or quarters of the succeeding
report of investigation, the taxpayer shall be informed, in writing, by the taxable year; or
Revenue District Office or by the Special Investigation Division, as the case
may be (in the case Revenue Regional Offices) or by the Chief of Division (iv) When the excise tax due on excisable articles has not been paid; or
concerned (in the case of the BIR National Office) of the discrepancy or
discrepancies in the taxpayer's payment of his internal revenue taxes, for the (v) When an article locally purchased or imported by an exempt person, such
purpose of "Informal Conference," in order to afford the taxpayer with an as, but not limited to, vehicles, capital equipment, machineries and spare parts,
opportunity to present his side of the case. If the taxpayer fails to respond has been sold, traded or transferred to non-exempt persons.
within fifteen (15) days from date of receipt of the notice for informal
conference, he shall be considered in default, in which case, the Revenue 3.1.4 Formal Letter of Demand and Assessment Notice. — The formal
District Officer or the Chief of the Special Investigation Division of the Revenue letter of demand and assessment notice shall be issued by the Commissioner
Regional Office, or the Chief of Division in the National Office, as the case may or his duly authorized representative. The letter of demand calling for payment
be, shall endorse the case with the least possible delay to the Assessment of the taxpayer's deficiency tax or taxes shall state the facts, the law, rules and
Division of the Revenue Regional Office or to the Commissioner or his duly regulations, or jurisprudence on which the assessment is based, otherwise,
authorized representative, as the case may be, for appropriate review and the formal letter of demand and assessment notice shall be void (see
issuance of a deficiency tax assessment, if warranted. illustration in ANNEX B hereof).

3.1.2 Preliminary Assessment Notice (PAN). — If after review and The same shall be sent to the taxpayer only by registered mail or by personal
evaluation by the Assessment Division or by the Commissioner or his duly delivery.
authorized representative, as the case may be, it is determined that there
exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, If sent by personal delivery, the taxpayer or his duly authorized representative
the said Office shall issue to the taxpayer, at least by registered mail, a shall acknowledge receipt thereof in the duplicate copy of the letter of demand,
Preliminary Assessment Notice (PAN) for the proposed assessment, showing the following: (a) His name; (b) signature; (c) designation and
showing in detail, the facts and the law, rules and regulations, or authority to act for and in behalf of the taxpayer, if acknowledged received by a
jurisprudence on which the proposed assessment is based (see person other than the taxpayer himself; and (d) date of receipt thereof.
illustration in ANNEX A hereof). If the taxpayer fails to respond within fifteen
(15) days from date of receipt of the PAN, he shall be considered in default, in Indeed, Sec 228 of the Tax Code clearly requires that the taxpayer
which case, a formal letter of demand and assessment notice shall be caused must first be informed that he is liable for deficiency taxes through
to be issued by the said Office, calling for payment of the taxpayer's deficiency the sending of a PAN. He must be informed of the facts and the law
tax liability, inclusive of the applicable penalties. upon which the assessment is made. The law imposes a substantive, not
merely a formal, requirement. To proceed heedlessly with tax collection
3.1.3 Exceptions to Prior Notice of the Assessment. — The notice for informal
without first establishing a valid assessment is evidently violative of the
conference and the preliminary assessment notice shall not be required in any
of the following cases, in which case, issuance of the formal assessment cardinal principle in administrative investigations - that taxpayers should
notice for the payment of the taxpayer's deficiency tax liability shall be be able to present their case and adduce supporting evidence.
sufficient: Based from the RR, it is clear that the sending of a PAN to taxpayer to
inform him of the assessment made is but part of the "due process
(i) When the finding for any deficiency tax is the result of mathematical error in requirement in the issuance of a deficiency tax assessment," the
the computation of the tax appearing on the face of the tax return filed by the
Page 7 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Taxpayers’  Remedies  – Protest)

absence of which renders nugatory any assessment made by the tax Reyes against offered to compromise and Collection Enforcement division
authorities. The use of the word "shall" in subsection 3.1.2 describes the told her that failure to settle liability would result in sale
mandatory nature of the service of a PAN. The persuasiveness of the Reyes filed protest asserting that the assessment and whole tax
right to due process reaches both substantial and procedural rights and proceedings against the estate were null and void and offered to file the
the failure of the CIR to strictly comply with the requirements laid correct tax return. Without acting on the protest, CIR instrusted sale of the
down  by  law  and  its  own  rules  is  a  denial  of  Metro  Star’s  right  to  due   property
process. Reyes filed petition for review with CTA as well as injunction against the
Thus, for its failure to send the PAN stating the facts and the law on CIR, which was granted
which the assessment was made as required by Section 228 of R.A. CIR filed motion to dismiss because (a) CTA lost jurisdiction when the
No. 8424, the assessment made by the CIR is void. assessment became final and (b) filed out of time
During pendency, RR 6-2000 and RMO 42-2000 were issued which
offered delinquent taxpayers and those with disputed assessments to
03. CIR v. Azucena Reyes (MR) compromise tax liability. Reyes filed motion for postponement with CTA
pending compromise with BIR—granted
Relevant Laws: NIRC sec. 228
Reyes filed a Motion to Declare Application for the Settlement of Disputed
G.R. No. 159694
Assessment as a Perfected Compromise. In said motion, she alleged that
January 27, 2006
[the CIR] had not yet signed the compromise[,] because of procedural red
Panganiban, CJ.
tape requiring the initials of four Deputy Commissioners on relevant
documents before the compromise is signed
Petitioners: CIR
Respondents: Azucena T. Reyes CTA denied motion and MR
Reyes filed supplemental petition for review with CTA:
Facts: 1. Whether or not an offer to compromise by the [CIR], with
Tancino died leaving a residential lot and house in Dasma, Makati. On the the acquiescence by the Secretary of Finance, of a tax liability
basis of a sworn affidavot by one Abad, RDO conducted investigation on pending in court, that was accepted and paid by the taxpayer, is a
the estate. It issued Return Verification Investigation and without the perfected and consummated compromise.
required preliminary findings being submitted, issued LA, which was 2. Whether this compromise is covered by the provisions of
received by Reyes, heir of decedent Section 204 of the Tax Code (CTRP) that requires approval by the
BIR [NEB].
Chief of Assessment Division issued a PAN agains the estate and the
heirs received final estate tax assessment notice and demand letter, with Asnwering the Supplemental Petition, [the CIR] averred that an
surcharge and interest application for compromise of a tax liability under RR No. 6-2000 and
RMO No. 42-2000 requires the evaluation and approval of either the NEB
Sumbillo protested on behalf of heirs on ground that the property had
or the Regional Evaluation Board  (or  ‘REB’),  as  the  case  may  be.
already been sold. But CIR issued preliminary collection letter and final
notice before seizure. CTA: the CTA ratiocinated that there can only be a perfected and
consummated   compromise   of   the   estate’s   tax   liability[,]   if   the   NEB   has  
Warrant of distraint or levy was served and notices of levy on real
approved   [Reyes’s]   application   for   compromise   in   accordance   with   RR  
property and tax lien. Reyes protested. Later, the heirs offered to
No. 6-2000, as implemented by RMO No. 42-2000.
compromise—to   pay   50%   of   basic   tax   only   because   they’re   unable   to  
pay. CIR rejected because the assessment was against the estate and CTA denied the petition and ordered Reyes to pay the deficiency tax
not the heirs. The estate was more than sufficient to settle the tax liability CA: ruled that the assessment notice and demand letter were void for not
CIR demanded payment or else notice of sale of the property would be stating the facts and law on which they were based. It added that it was
published premature to declare as perfected and compromised the tax liability

Page 8 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Taxpayers’  Remedies  – Protest)

absent approval of NEB. Sec. 204(A) of the Tax Code applies to all Also, neither Section 229 nor RR 12-85 can prevail over Section 228 of
compromises, government or not the Tax Code. Sec 228 has replaced 229. And as compared to RR 12-85,
Hence, petition a mere regulation, the statute must prevail
Even a cursory review of the preliminary assessment notice, as well as
Issues: the demand letter sent, reveals the lack of basis for -- not to mention the
1. WON assessment is valid—yes insufficiency of -- the gross figures and details of the itemized deductions
2. WON compromise is valid—no indicated in the notice and the letter. This Court cannot countenance an
assessment based on estimates that appear to have been arbitrarily or
Held: capriciously arrived at. Although taxes are the lifeblood of the government,
Petition DISMISSED. their assessment and collection "should be made in accordance with law
Decision of lower court AFFIRMED as any arbitrariness will negate the very reason for government itself."

Ratio: On validity of the compromise


On validity of assessment notice. It would be premature for this Court to declare that the compromise on the
Here, Reyes was not informed in writing of the law and the facts on which estate tax liability has been perfected and consummated, considering the
the assessment of estate taxes had been made. She was merely notified earlier determination that the assessment against the estate was void.
of the findings by the CIR, Nothing has been settled or finalized. Under Section 204(A) of the Tax
First, RA 8424 has already amended the provision of Section 229 on Code, where the basic tax involved exceeds one million pesos or the
protesting an assessment. The old requirement of merely notifying the settlement offered is less than the prescribed minimum rates, the
taxpayer   of   the   CIR’s   findings   was   changed   in   1998   to   informing the compromise shall be subject to the approval of the NEB composed of the
taxpayer of not only the law, but also of the facts on which an assessment petitioner and four deputy commissioners.
would be made; otherwise, the assessment itself would be invalid. Finally, as correctly held by the appellate court, this provision applies to
RA 8424 was already in effect when the PAN and final notice here were all compromises, whether government-initiated or not
issued. The notice under the old law (relied on by the CIR) was no longer
sufficient under the new law
The letter informing Reyes of the investigation or the LA are not sufficient
notices 04. CIR v. Enron Subic Power Corp. (RK)
The procedure for protesting an assessment under the Tax Code is found Topic: Taxpayer’s  remedy
in Chapter III of Title VIII, which deals with remedies. Being procedural in
nature, can its provision then be applied retroactively? YES. G.R. No. 166387
Statutes that are remedial, or that do not create new or take away vested January 19, 2009
rights, do not fall under the general rule against the retroactive operation Corona, J.
of statutes. Clearly, sec. 228 can be applied retroactively. RA 8424 does
not state either that pending actions are excepted. Petitioners: Commissioner of Internal Revenue
It   also   doesn’t   matter   that   RR   12-99 the implementing law, is non- Respondents: Enron Subic Power Corporation
retroactive. It may be argued that the Tax Code provisions are not self-
executory. It would be too wide a stretch of the imagination, though, to still Summary: CIR certiorari assails decision of CA annulling formal assessment
issue a regulation that would simply require tax officials to inform the notice issued by the CIR against respondent Enron Subic Power Corporation
taxpayer, in any manner, of the law and the facts on which an (“Enron”)  for  failure  to  state  the  legal  and  factual  bases  for  such  assessment.  The  
assessment was based. That requirement is neither difficult to make nor SC affirmed this. The law clearly provides that a taxpayer must be informed in
its desired results hard to achieve. writing of the legal and factual bases of the tax assessment made against him. The
Page 9 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Taxpayers’  Remedies  – Protest)

use  of  the  word  “shall”  in  these  legal  provisions  indicates  the  mandatory  nature  of   NOTICE OF ASSESSMENT; REQUIRMENT-- The formal letter of
the requirements laid down therein. The law requires that the legal and factual demand  calling  for  payment  of  the  taxpayer’s  deficiency  tax  or  taxes shall
bases of the assessment be stated in the formal letter of demand and assessment state the fact, the law, rules and regulations or jurisprudence on
notice. Thus, such cannot be presumed. Otherwise, the express provisions of which the assessment is based, otherwise the formal letter of
Article 228 of the NIRC and RR No. 12-99 would be rendered nugatory. The demand and the notice of assessment shall be void.
1
alleged  “factual  bases”  in  the  advice,  preliminary  letter  and  “audit  working  papers”   SEC 228 clearly provides that a taxpayer must be informed in writing of
did not suffice. There was no going around the mandate of the law that the legal the legal and factual bases of the tax assessment made against him. The
and factual bases of the assessment be stated in writing in the formal letter of use  of  the  word  “shall”  in  these  legal  provisions  indicates  the  mandatory  
demand accompanying the assessment notice nature of the requirements laid down therein.
HERE-- The Revenue Officers of the [the CIR] in the issuance of the Final
Facts: Assessment Notice did not provide Enron with the written bases of the
BACKGROUND: this review on certiorari assails decision of CA annulling law and facts on which the subject assessment is based. [The CIR] did
formal assessment notice issued by the CIR against respondent Enron not bother to explain how it arrived at such an assessment. Moreso, he
Subic  Power  Corporation  (“Enron”)  for  failure  to  state  the  legal  and factual failed to mention the specific provision of the Tax Code or rules and
bases for such assessment. regulations which were not complied with by Enron
Enron was assessed deficiency income tax amounting to 2,880,817.25 for o The deficiency tax assessment merely itemized the deductions
the year 1996. It received the formal assessment on May 26, 1999. Enron disallowed and included these in the gross income.
protested this. o It also imposed the preferential rate of 5% on some items
For failure to resolve within 180 days, Enron filed a petition for review in categorized by Enron as costs.
the CTA. o The legal and factual bases were, however, not indicated.
o The deficiency tax assessment allegedly disregarded Section The CIR insists that an examination of the facts shows that Enron was
228 of the NIRC, as amended, and Section 3.1.4 of RR 12-99 by properly apprised of its tax deficiency.
not providing the legal and factual bases of the assessment. o During the pre-assessment stage, it advised Enron of the tax
o CTA  granted  Enron’s  petition deficiency, informed it of the proposed tax deficiency
CA affirmed CTA. assessment. It is argued that this is enough to inform Enron of
o The audit working papers did not substantially comply with the the law and facts on which the deficiency tax assessment was
abovementioned law and regulation because they failed to show based.
the applicability of the cited law to the facts of the assessment.

1
Issue: Whether or not the assessment was valid --- NO Section 228 of the NIRC provides that the taxpayer shall be informed in writing of the law
and the facts on which the assessment is made. Otherwise, the assessment is void. o
implement the provisions of Section 228 of the NIRC, RR No. 12-99 was enacted. Section
Held: Petition is DENIED, CA is AFFIRMED. 3.1.4 of the revenue regulation reads:

Ratio: 3.1.4. Formal Letter of Demand and Assessment Notice. – The formal letter of
NOTICE OF ASSESSMENT; DEFINITION-- declaration of deficiency demand and assessment notice shall be issued by the Commissioner or his duly
authorized representative. The letter of demand calling for payment of the
taxes issued to a [t]axpayer who fails to respond to a Pre-Assessment taxpayer’s   deficiency   tax   or   taxes   shall   state the facts, the law, rules and
Notice (PAN) within the prescribed period of time, or whose reply to the regulations, or jurisprudence on which the assessment is based, otherwise,
PAN was found to be without merit. The Notice of Assessment shall the formal letter of demand and assessment notice shall be void. The same
inform the [t]axpayer of this fact, and that the report of investigation shall be sent to the taxpayer only by registered mail or by personal delivery. xxx
(emphasis supplied)
submitted by the Revenue Officer conducting the audit shall be given due
course
Page 10 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Taxpayers’  Remedies  – Protest)

o SC disagrees: the abovementioned steps were not valid reclassification of an assessment from deficiency EWT in the Formal Letter of
substitutes for the mandatory notice in writing of the legal and Demand to deficiency FWT in the Final Decision on Disputed Assessment
factual bases of the assessment. constitutes a new assessment, which results in a denial on the part of the
Just because the CIR issued an advice, a preliminary taxpayer to administratively protest said new assessment, and which is in
letter during the pre-assessment stage and a final violation of Section 228 of the Tax Code.
notice, in the order required by law, does not
necessarily mean that Enron was informed of the law
and facts on which the deficiency tax assessment was Facts:
made. Petitioner Fluor Daniel Philippines, Inc.(FDPI) is a domestic corporation
The law requires that the legal and factual bases of the assessment be duly organized and existing under and by virtue of the laws of the republic
stated in the formal letter of demand and assessment notice. Thus, such of the Philippines.
cannot be presumed. Otherwise, the express provisions of Article 228 of A Formal Letter of Demand (FLD) dated April 16, 2007 from Respondent
the NIRC and RR No. 12-99 would be rendered nugatory. The alleged CIR assessing, among others, deficiency expanded withholding tax
“factual  bases”  in  the  advice,  preliminary  letter  and  “audit  working  papers”   (EWT) for taxable year 2004.
did not suffice. There was no going around the mandate of the law that The   CIR   alleged   that   FDPI’s  payments   to Fluor International, Inc.(FII), a
the legal and factual bases of the assessment be stated in writing in the non-resident foreign corporation, for software maintenance service fees is
formal letter of demand accompanying the assessment notice. considered  as  “after-sales  service”  subject  to  32%  EWT  pursuant  to  RMC  
No. 77-03.
The old law merely required that the taxpayer be notified of the assessment made FDPI protested the EWT assessment and argued that under Article 8(1)
by the CIR. This was changed in 1998 and the taxpayer must now be informed not of the RP-US Tax Treaty, its payments to FII are not subject to EWT as
only of the law but also of the facts on which the assessment is made the latter is a US corporation not engaged in trade or business, and is
without a permanent establishment in the Philippines. In its Final
Decision on Disputed Assessment (FDDA), the CIR changed the
05. Fluor Daniel v. CIR (KB) EWT assessment in the FLD to 15% FWT, applying Article 13 of the
Topic: Protest RP-US Tax Treaty and Section 5 of RMC No. 44-05, which treats
Relevant Laws: software  maintenance  service  fee  as  “license  generating  royalty  income.”
FDPI filed a Petition for Review with the CTA and argued that the change
Case No. 7793 from deficiency EWT in the FLD to deficiency FWT in the FDDA should
April 17, 2012 be treated as a new assessment, which effectively deprives FDPI of
CTA (Second Division) the opportunity to be heard and to submit evidence in support of its
defense, in violation of the due process requirements of Section 228 of
Petitioners: Fluor Daniel Philippines, Inc (FDPI)
the Tax Code.
Respondents: CIR
SEC. 228. Protesting of Assessment. -
Summary: Fluor Daniel Philippines was being assessed for deficiency EWT. FDPI XXX XXX X X X
protested on such assessment claiming that it was not liable for EWT as such were If the protest is denied in whole or in part, or is not acted upon within one hundred
made to a foreign corporation not engaged in trade or business in the Philippines. eighty (180) days from submission of documents, the taxpayer adversely affected
CIR replied on such assessment by subjecting FDPI to FWT instead of EWT. FDPI by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30)
days from receipt of the said decision, or from the lapse of one hundred eighty
now filed a petition for review with the CTA arguing that FWT should be treated as
(180)-day period; otherwise, the decision shall become final, executory and
a new assessment and therefore effectively deprives FDPI the opportunity to be demandable."
heard and to submit evidence in support of its defense. CTA held that the

Page 11 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Taxpayers’  Remedies  – Protest)

Issues: The taxpayers shall be informed in writing of the law and the facts on which the
Whether  or  not  the  CIR’s  reclassification  of  the  assessment  from  EWT  in  the  FLD   assessment is made; otherwise, the assessment shall be void.
to FWT in the FDDA constitute a new assessment?
Within a period to be prescribed by implementing rules and regulations, the
taxpayer shall be required to respond to said notice. If the taxpayer fails to
Held: Petition GRANTED
respond, the Commissioner or his duly authorized representative shall issue an
assessment based on his findings.
Ratio:
Such assessment may be protested administratively by filing a request for
Yes. The change from deficiency EWT in the FLD to deficiency FWT in the FDDA reconsideration or reinvestigation within thirty (30) days from receipt of the
constitutes a new assessment, which denied FDPI the opportunity to assessment in such form and manner as may be prescribed by implementing
administratively protest the new assessment, which is in violation of Section 228 of rules and regulations."
the Tax Code.
In the FDDA issued by respondent, she changed the assessment from EWT to
The reclassification of an assessment from deficiency EWT in the Formal Letter of FWT applying this time, the provisions of RMC No. 44-05. Considering that the
Demand to deficiency FWT in the Final Decision on Disputed Assessment FDDA constitutes respondent's final decision on the matter, petitioner was
constitutes a new assessment, which results in a denial on the part of the therefore, not given the chance to refute within the administrative level the
taxpayer to administratively protest said new assessment, and which is in findings of respondent as to the applicability of RMC No. 44-05 to its case, which is
violation of Section 228 of the Tax Code. a clear violation of Section 228 of the 1997 NIRC, as amended.

The  FDDA  shows  that  the  reclassification  of  FDPI’s  deficiency  taxes  from  EWT  to  
FWT was primarily based on Section 5 of RMC No. 44-05, which provides that 06. RCBC v. CIR [June 16, 2006] (JT)
software   service   maintenance   fees   are   considered   as   “license   generating   royalty G.R. No. 168498
income.”  However,  RMC  No.  44-05 does not apply in this case in view of the rule June 16, 2006
of non-retroactivity of rulings and circulars. The subject of the assessment covers Ynares-Santiago, J.
taxable year 2004 so the CIR cannot use RMC 44-05, which became effective on
September 1, 2005, as basis for the change of the original assessment. Moreover, Summary: RCBC was assessed tax liabilities. RCBC filed with the CTA a petition
the   concept   of   “license   generating   royalty   income”   in   RMC   No.   44-05 is not for review that is beyond the 30-day period required by law for such petition to be
provided in RMC No. 77-03. filed. Thus, this failure of RCBC divested the CTA with jurisdiction to determine the
correctness of the assessment of RCBC. [Simple case lang.]
Changing the assessment from EWT to FWT only in the FDDA deprived FDPI of a
reasonable opportunity to be heard and to submit evidence against the Facts:
assessment, which is a clear violation of the due process requirements prescribed RCBC received a Formal Letter of Demand from the CIR, for gross onshore tax
by  Section  228  of  the  Tax  Code.  Considering  that  the  FDDA  constitutes  the  CIR’s   liability (53.9M) and DST (46.7M). RCBC filed a request for
final decision on the assessment, FDPI was not given the chance to refute, within reinvestigation/reconsideration, but it was not acted upon by CIR. RCBC filed a
the administrative level, the findings of the CIR as to the applicability of RMC 44-05. petition for review with the CTA, praying for cancellation of the assessments, but
was dismissed because it was filed beyond the 30-day reglementary period.
SEC. 228. Protesting of Assessment. - When the Commissioner or his
duly authorized representative finds that proper taxes should be assessed, he However, on September 10, 2003, the CTA Resolution [ordering RCBC to pay up]
shall first notify the taxpayer of his findings: Provided, however, That a
became final and executory (because RCBC did not appeal nor file a Margo
preassessment notice shall not be required in the following cases:
Remollo, or an MR...lol), so the CIR sent another Letter of Demand.
XXX XXX XXX

Page 12 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Taxpayers’  Remedies  – Protest)

But but but, RCBC filed a petition for relief, on the ground of excusable negligence. the said decision, or from the lapse of the 180-day
RCBC   alleged   that   the   counsel’s   secretary misplaced the September 2003 period; otherwise the decision shall become final,
Resolution (which is why RCBC did not pay). Of course, CTA denied it. executory and demandable.
o Relevant dates:
Issuez: July 20, 2001—filing of protest
W/N RCBC was denied due process, for having been denied the opportunity to adduce September 18, 2001—last day for submission of
evidence—NO relevant documents
W/N the excusable negligence excuse of RCBC can be admitted—NO. March 17, 2002—last day for CIR to issue his decision
April 16, 2002—since CIR did not act on the protest,
Ratio: RCBC only had until this day to elevate the case to the
What does the right to be heard entail? CTA
o “To  be  heard”  does  not  only  mean  verbal  arguments  in  court;;  one  may  be  heard   April 30, 2002—actual date of filing an appeal with the
also through pleadings.
CTA
o Where opportunity to be heard, either through oral arguments or pleadings, is
o Thus, as properly rendered by the CTA, the filing of the appeal
accorded, there is no denial of procedural due process.
o But notwithstanding the above statements, the counsel for RCBC actually was was out of time
present during the scheduled hearings and actively argued for RCBC. o The failure of a taxpayer to appeal from an assessment on time
o In short, the SC is confused as to why this is even an issue. Lolzsters. rendered the assessment final, executory and demandable.
The negligence of the counsel is not excused. Consequently, RCBC is precluded from disputing the
o Relief cannot be granted on the flimsy excuse that the failure to assessment.
appeal  was  due  to  the  neglect  of  petitioner’s  counsel.   o If a statutory remedy provides as a condition precedent that
o Otherwise, all that a losing party would do to salvage his case the action to enforce it must be commenced within a
would be to invoke neglect or mistake of his counsel as a ground prescribed time, such requirement is jurisdictional.
for reversing or setting aside the adverse judgment, thereby Failure to comply with this requirement will divest
putting no end to litigation. the court of jurisdiction to entertain the claim of the
o Thus, negligence   to   be   “excusable”   must   be   one   which   petitioner.
ordinary diligence and prudence could not have guarded
against and by reason of which the rights of an aggrieved
party have probably been impaired. 07. CIR v. First Express Pawnshop (AD)
o RCBC’s   counsel’s   omission   could   hardly   be   characterized   as  
G.R. Nos. 172045-46 | June 16, 2009
excusable, much less unavoidable.
Commissioner of Internal Revenue, CIR
The counsel even failed to check up on the status or
First Express Pawnshop Company, Inc., First Express
progress of the case.
He should have been prudent and diligent. (Yes, torts.)
You can just read the bold parts.
Even assuming that the negligence excuse is admitted, the petition of
RCBC must still fail. FACTS:
o According to Section 228 of the Tax Code: On 28 December 2001, CIR issued the following assessment notices
If the protest is denied in whole or in part, or is not against First Express Pawnshop:
acted upon within one hundred eighty (180) days from o Assessment No. 31-1-98 for deficiency income tax
submission of documents, the taxpayer adversely
of P20,712.58 with compromise penalty of P3,000;
affected by the decision or inaction may appeal to the o Assessment No. 31-14-000053-98 for deficiency value-added
Court of Tax Appeals within (30) days from receipt of
tax (VAT) of P601,220.18 with compromise penalty of P16,000;
Page 13 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Taxpayers’  Remedies  – Protest)

o Assessment No. 31-14-000053-98 for deficiency documentary o Even if First Express filed a protest, it did not offer evidence
stamp tax (DST) of P12,328.45 on deposit on subscription to prove its claim that the deposit on subscription was an
with compromise penalty of P2,000; and "advance"   made   by   First   Express’s   stockholders.   First
o Assessment No. 31-1-000053-98 for deficiency DST Express’s  failure  to  submit  supporting  documents  within  60  
of P62,128.87 on pawn tickets with compromise penalty days from the filing of its protest as required under Section
of P8,500. 228 of the Tax Code caused the assessment of P12,328.45 for
First Express received the assessment notices on 3 January 2002. deposit on subscription to become final and unassailable.
On 1 February 2002, First Express filed its written protest on the First Expess’  Arguments:
above assessments. First Express contends that by presenting its GIS and financial
Since CIR did not act on the protest during the 180-day period, First statements, it had already sufficiently proved that the amount
Express filed a petition before the CTA on 28 August 2002. sought to be taxed is not subject to DST. First Express claims that it
On 1 July 2003, First Express paid P27,744.88 as deficiency income tax cannot be required to submit proof of DST payment on subscription
inclusive of interest. because such payment is non-existent. Thus, the burden of proving
After trial on the merits, the CTA First Division ruled, thus: that there was an agreement to subscribe and that certificates of stock
o The instant petition is hereby PARTIALLY GRANTED. were issued for the deposit on subscription rests on CIR and his
Assessment No. 31-1-000053-98 for deficiency documentary examiners. First Express states that absent any proof, the deficiency
35
stamp tax is CANCELLED and SET ASIDE. However, assessment has no basis and should be cancelled.
Assessment No. 31-14-000053-98 on deposit subscription is
hereby AFFIRMED except the imposition of compromise penalty Section 228 of the Tax Code provides: (very long codal)
in the absence of showing that CIR consented thereto. SEC. 228. Protesting of Assessment. - When the Commissioner or his
Both parties filed their respective Petitions for Review under Section duly authorized representative finds that proper taxes should be assessed,
11 of Republic Act No. 9282 (RA 9282) with the CTA En Banc. he shall first notify the taxpayer of his findings: Provided, however, That a
On 24 March 2006, the CTA En Banc promulgated a Decision affirming pre-assessment notice shall not be required in the following cases:
First   Express’s  liability   to   pay  the   VAT   and   ordering   it   to  pay   DST   on   its   (a) When the finding for any deficiency tax is the result of
pawnshop tickets. However, the CTA En Banc found that First mathematical error in the computation of the tax as appearing on
Express’s   deposit   on   subscription   was   not   subject   to   DST.   It   ruled   the face of the return; or
that the assessment for deficiency DST on deposit on subscription (b) When a discrepancy has been determined between the tax
has not become final. withheld and the amount actually remitted by the withholding
Aggrieved   by   the   CTA   En   Banc’s   Decision   which   ruled   that   First   agent; or
Express’s  deposit   on  subscription   was   not  subject   to   DST,  CIR   elevated   (c) When a taxpayer who opted to claim a refund or tax credit of
the case before this Court. excess creditable withholding tax for a taxable period was
determined to have carried over and automatically applied the
ISSUE: Whether the CTA erred in disregarding the rule on finality of same amount claimed against the estimated tax liabilities for the
assessments prescribed under Section 228 of the Tax Code. taxable quarter or quarters of the succeeding taxable year; or
(d) When the excise tax due on excisable articles has not been
HELD: No, the CTA did not err. Decision in favor of First Express. paid; or
(e) When an article locally purchased or imported by an exempt
RATIO: person, such as, but not limited to, vehicles, capital equipment,
CIR’s  Arguments: machineries and spare parts, has been sold, traded or
CTA erred in disregarding the rule on the finality of assessments transferred to non-exempt persons.
prescribed under Section 228 of the Tax Code.
Page 14 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Taxpayers’  Remedies  – Protest)

The taxpayer shall be informed in writing of the law and the facts on which of DST payment because it was not required to pay DST under the
the assessment is made; otherwise, the assessment shall be void. law considering that the deposit on subscription was an advance made by
its stockholders for future subscription, and no stock certificates were
Within a period to be prescribed by implementing rules and regulations, issued.
the taxpayer shall be required to respond to said notice. If the taxpayer (Argument of the CIR): Since First Express has not allegedly submitted
fails to respond, the Commissioner or his duly authorized representative any relevant supporting documents, CIR now claims that the assessment
shall issue an assessment based on his findings. has become final, executory and demandable, hence, unappealable.
We   reject   CIR’s   view   that   the   assessment has become final and
Such assessment may be protested administratively by filing a request for unappealable. It cannot be said that First Express failed to submit
reconsideration or reinvestigation within thirty (30) days from receipt of relevant supporting documents that would render the assessment
the assessment in such form and manner as may be prescribed by final because when First Express submitted its protest, First
implementing rules and regulations. Within sixty (60) days from filing of Express attached the GIS and Balance Sheet. Further, CIR cannot
the protest, all relevant supporting documents shall have been insist on the submission of proof of DST payment because such
submitted; otherwise, the assessment shall become final. document does not exist as First Express claims that it is not liable to pay,
and has not paid, the DST on the deposit on subscription.
If the protest is denied in whole or in part, or is not acted upon within one The term "relevant supporting documents" should be understood as
hundred eighty (180) days from submission of documents, the taxpayer those documents necessary to support the legal basis in disputing a
adversely affected by the decision or inaction may appeal to the Court of tax assessment as determined by the taxpayer. THE BIR CAN ONLY
Tax Appeals within thirty (30) days from receipt of the said decision, or INFORM THE TAXPAYER TO SUBMIT ADDITIONAL DOCUMENTS.
from the lapse of the one hundred eighty (180)-day period; otherwise, the THE BIR CANNOT DEMAND WHAT TYPE OF SUPPORTING
decision shall become final, executory and demandable. (Boldfacing DOCUMENTS SHOULD BE SUBMITTED. Otherwise, a taxpayer will
supplied) be at the mercy of the BIR, which may require the production of
documents that a taxpayer cannot submit.1awphi1
Section 228 of the Tax Code provides the remedy to dispute a tax After First Express submitted its letter-reply stating that it could not
assessment within a certain period of time. It states that an assessment comply with the presentation of the proof of DST payment, no reply was
may be protested by filing a request for reconsideration or received from CIR.
reinvestigation within 30 days from receipt of the assessment by the Section 228 states that if the protest is not acted upon within 180 days
taxpayer. Within 60 days from filing of the protest, all relevant from submission of documents, the taxpayer adversely affected by the
supporting documents shall have been submitted; otherwise, the inaction may appeal to the CTA within 30 days from the lapse of the 180-
assessment shall become final. day period. First Express, having submitted its supporting documents on
In this case, First Express received the tax assessment on 3 January the same day the protest was filed, had until 31 July 2002 to wait for
2002 and it had until 2 February 2002 to submit its protest. On 1 February CIR’s  reply  to  its  protest.  On  28  August  2002  or  within  30  days  after the
2002, First Express submitted its protest and attached the GIS and lapse of the 180-day period counted from the filing of the protest as the
Balance Sheet as of 31 December 1998. supporting documents were simultaneously filed, First Express filed a
So within 60 days from the filing of protest or until 2 April 2002, First petition before the CTA.
Express should submit relevant supporting documents. First First Express has complied with the requisites in disputing an
Express, having submitted the supporting documents together with assessment pursuant to Section 228 of the Tax Code. Hence, the tax
its protest, did not present additional documents anymore. assessment cannot be considered as final, executory and
(Part of the facts): In a letter dated 12 March 2002, CIR requested First demandable. Further,   First   Express’s   deposit   on   subscription   is   not  
Express to present proof of payment of DST on subscription. In a subject to the payment of DST. Consequently, First Express is not liable
letter-reply, First Express stated that it could not produce any proof to pay the deficiency DST of P12,328.45.
Page 15 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Taxpayers’  Remedies  – Protest)

For   resolution   is   RCBC’s   MR   of   the   SC’s   Decision dated June 16, 2006
Wherefore, we DENY the petition. We AFFIRM the   Court   of   Tax   Appeals’   affirming the Decision of the CTA En Banc dated June 7, 2005 in C.T.A.
Decision dated 24 March 2006 in the consolidated cases of C.T.A. EB Nos. 60 and EB No. 50, which affirmed the Resolutions of the CTA Second Division
62. SO ORDERED. dated May 3, 2004 and November 5, 2004 in C.T.A. Case No. 6475,
denying   RCBS’s   Petition   for   Relief   from   Judgment   and   Motion   for  
Reconsideration, respectively.
Petitioner  reiterates  its  claim  that  its  former  counsel’s  failure  to  file  petition  
08. RCBC v. CIR [April 24, 2007] (RS) for review with the Court of Tax Appeals within the period set by Section
G.R. No. 168498 | 4/24/2007 | Ynares-Santiago, J. | RESOLUTION 228 of the National Internal Revenue Code of 1997 (NIRC) was
Petitioner: RCBC excusable and raised the following issues for resolution:
Respondent: CIR o The  denial  of  RCBC’s  petition  for  relief  from  judgment  will  result  in  the  denial  
Topic:   Taxpayers’   remedies;;   Sec.   228   on   Protest;;   CTA’s   jurisdiction   in   case   of   of substantive justice because the assessment sought to be canceled has already
CIR’s  inaction  on  disputed  assessments;;  CTA  Rules  of  Procedure prescribed – a fact not denied by the CIR in its answer
o Following the Lascona decision, as well as the 2005 Revised
SUMMARY: CIR failed to act on the disputed assessment within 180 days. RCBC Rules   of   the   CTA,   and   contrary   to   the   SC’s   Original   Decision  
opted to file a petition for review before the Court of Tax Appeals. (“OD”),  RCBC timely filed its petition for review before the CTA;
thus, the CTA had jurisdiction over the case
Unfortunately, the petition for review was filed out of time; thus, it was dismissed. o Considering that the subject assessment involves an industry issue, that is, a
RCBC argues that it timely filed its petition before the CTA. THE SC SAID IT DID deficiency assessment for documentary stamp tax (DST) on special savings
NOT FILE ON TIME. Based on the Rules of the CTA, the decisions, rulings or accounts and gross onshore tax, RCBC, in the interest of substantive justice and
uniformity of taxation, should be allowed to fully litigate the issue before the
inaction of the Commissioner are necessary in order to vest the Court of Tax
CTA
Appeals with jurisdiction to entertain the appeal, provided it is filed within 30
days after the receipt of such decision or ruling, or within 30 days after the
HELD: MR has no merit. MR Denied.
expiration of the 180-day period fixed by law for the Commissioner to act on
the disputed assessments. In case the Commissioner failed to act on the
RATIO:
disputed assessment within the 180-day period from date of submission of
documents, a taxpayer can either: 1) file a petition for review with the Court of Other than the issue of prescription, which is raised herein for the first
Tax Appeals within 30 days after the expiration of the 180-day period; or 2) time,   the   issues   presented   are   a   mere   rehash   of   petitioner’s   previous  
await the final decision of the Commissioner on the disputed assessments arguments, all of which have been considered and found without merit in
and appeal such final decision to the Court of Tax Appeals within 30 days our Decision dated June 16, 2006.
after receipt of a copy of such decision. However, these options are mutually Petitioner  maintains  that  its  counsel’s  neglect  in  not  filing  the  petition  for  review  within  the  
exclusive, and resort to one bars the application of the other. In this case, RCBC reglementary   period   was   excusable.   It   alleges   that   the   counsel’s   secretary   misplaced   the  
opted   to   file   a   Petition   for   Review   with   the   CTA   (first   option   in   case   of   CIR’s   Resolution hence the counsel was not aware of its issuance and that it had become final and
inaction).   Since   RCBC   filed   out   of   time   (case   did   not   cite   how   late),   CTA’s   executory. – SC is not persuaded!
dismissal of the case was proper. In the OD, the SC said:
o Relief cannot be granted on the flimsy excuse that the failure to appeal was due
to  the  neglect  of  petitioner’s  counsel.  Otherwise,  all  that  a  losing  party  would  do  
Note:  Discolored  portions  are  insignificant,  I  think…
to salvage his case would be to invoke neglect or mistake of his counsel as a
ground for reversing or setting aside the adverse judgment, thereby putting no
FACTS: end to litigation.
o Negligence to be "excusable" must be one which ordinary diligence and
prudence could not have guarded against and by reason of which the rights of an

Page 16 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Taxpayers’  Remedies  – Protest)

aggrieved   party   have   probably   been   impaired.   Petitioner’s   former   counsel’s   of legality or validity of the assessment and
omission could hardly be characterized as excusable, much less unavoidable. prescription  of  the  Government’s  right  to  assess.
o The Court has repeatedly admonished lawyers to adopt a system whereby they
The Court of Tax Appeals is a court of special jurisdiction and can only
can always receive promptly judicial notices and pleadings intended for them.
take cognizance of such matters as are clearly within its jurisdiction.
Apparently,   petitioner’s   counsel   was   not   only   remiss   in   complying with this
admonition but he also failed to check periodically, as an act of prudence and o Section 7 of Republic Act (R.A.) No. 9282, amending R.A. No.
diligence, the status of the pending case before the CTA Second Division. The 1125, otherwise known as the Law Creating the Court of Tax
fact that counsel allegedly had not renewed the employment of his secretary, Appeals, provides:
thereby making the latter no longer attentive or focused on her work, did not Sec. 7. Jurisdiction. — The CTA shall exercise:
relieve him of his responsibilities to his client. It is a problem personal to him (a) Exclusive appellate jurisdiction to review by appeal,
which should not in any manner interfere with his professional commitments as herein provided:
RCBC also argues that, in the interest of substantial justice, the instant (1) Decisions of the Commissioner of Internal
case should be re-opened considering that it was allegedly not accorded Revenue in cases involving disputed
its day in court when the CTA dismissed its petition for review for late assessments, refunds of internal revenue
filing. It claims that rules of procedure are intended to help secure, not taxes, fees or other charges, penalties in
override, substantial justice. – The SC is not persuaded! relation thereto, or other matters arising under
o As correctly observed by the CTA in its June 7, 2005 decision: the National Internal Revenue or other laws
If indeed there was negligence, this is obviously on the administered by the Bureau of Internal
part   of   RCBC’s   own   counsel   whose   prudence   in   Revenue;
handling the case fell short of that required under the (2) Inaction by the Commissioner of Internal
circumstances. Revenue in cases involving disputed
He was well aware of the motion filed by the assessments, refunds of internal revenue
respondent for the Court to resolve first the issue of this taxes, fees or other charges, penalties in
Court’s  jurisdiction  on  July  15,  2003,  that  a  hearing  was   relation thereto, or other matters arising under
conducted thereon on August 15, 2003 where both the National Internal Revenue Code or other
counsels were present and at said hearing the motion laws administered by the Bureau of Internal
was submitted for resolution. Revenue, where the National Internal
RCBC’s  counsel  apparently  did  not  show  enthusiasm  in   Revenue Code provides a specific period of
the case he was handling as he should have been action, in which case the inaction shall be
vigilant of the outcome of said motion and be prepared deemed a denial; x x x
for the necessary action to take whatever the outcome Also, Section 3, Rule 4 and Section 3(a), Rule 8 of the Revised Rules of
may have been. the Court of Tax Appeals state (you can browse through this; the Rules
Such   kind   of   negligence   cannot   support   RCBC’s   claim   will be summarized by the this case shortly):
for relief from judgment.
RULE 4
Besides, tax assessments by tax examiners are Jurisdiction of the Court
presumed correct and made in good faith, and all
presumptions are in favor of the correctness of a SECTION 3. Cases Within the Jurisdiction of the Court in Divisions. — The Court in
tax assessment unless proven otherwise. Divisions shall exercise:
Also,  RCBC’s  failure  to  file  a  petition  for  review  with  the   (a) Exclusive original or appellate jurisdiction to review by appeal the following:
CTA within the statutory period rendered the disputed (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessment final, executory and demandable, assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal Revenue Code or other laws
thereby precluding it from interposing the defenses
administered by the Bureau of Internal Revenue;
Page 17 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Taxpayers’  Remedies  – Protest)

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed law for the Commissioner to act on the disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation assessments.
thereto, or other matters arising under the National Internal Revenue Code or other laws This 30-day period within which to file an appeal is jurisdictional and
administered by the Bureau of Internal Revenue, where the National Internal Revenue Code failure to comply therewith would bar the appeal and deprive the
or other applicable law provides a specific period for action: Provided, that in case of
CTA of its jurisdiction to entertain and determine the correctness of
disputed assessments, the inaction of the Commissioner of Internal Revenue within
the one hundred eighty day-period under Section 228 of the National Internal Revenue
the assessments.
Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his o Such period is not merely directory but mandatory and it is
case to the Court and does not necessarily constitute a formal decision of the beyond the power of the courts to extend the same.
Commissioner of Internal Revenue on the tax case; Provided, further, that should the In case the Commissioner failed to act on the disputed assessment within
taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the the 180-day period from date of submission of documents, a taxpayer can
disputed assessments beyond the one hundred eighty day-period abovementioned, the either: 1) file a petition for review with the Court of Tax Appeals within 30
taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of these
days after the expiration of the 180-day period; or 2) await the final
Rules; and Provided, still further, that in the case of claims for refund of taxes erroneously or
decision of the Commissioner on the disputed assessments and appeal
illegally collected, the taxpayer must file a petition for review with the Court prior to the
expiration of the two-year period under Section 229 of the National Internal Revenue Code; such final decision to the Court of Tax Appeals within 30 days after
receipt of a copy of such decision.
RULE 8 o However, these options are mutually exclusive, and resort
Procedure in Civil Cases to one bars the application of the other.
In the instant case, the Commissioner failed to act on the disputed
xxxx assessment within 180 days from date of submission of documents.
SECTION 3. Who May Appeal; Period to File Petition. — (a) A party adversely affected
o Thus, RCBC opted to file a petition for review before the Court of
by a decision, ruling or the inaction of the Commissioner of Internal Revenue on disputed
assessments or claims for refund of internal revenue taxes, or by a decision or ruling of the
Tax Appeals.
Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry, o Unfortunately, the petition for review was filed out of time, i.e., it
the Secretary of Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction was filed more than 30 days after the lapse of the 180-day
may appeal to the Court (of Tax Appeals) by petition for review filed within thirty days period.
after receipt of a copy of such decision or ruling, or expiration of the period fixed by o Consequently, it was dismissed by the Court of Tax Appeals
law for the Commissioner of Internal Revenue to act on the disputed assessments. In for late filing.
case of inaction of the Commissioner of Internal Revenue on claims for refund of internal o RCBC did not file a motion for reconsideration or make an
revenue taxes erroneously or illegally collected, the taxpayer must file a petition for review
appeal; hence, the disputed assessment became final,
within the two-year period prescribed by law from payment or collection of the taxes. (n)
demandable and executory.
Based on the foregoing, petitioner can not now claim that the disputed
assessment is not yet final as it remained unacted upon by the
Important doctrines coming up!
Commissioner; that it can still await the final decision of the
From the foregoing, it is clear that the jurisdiction of the Court of Tax
Commissioner and thereafter appeal the same to the Court of Tax
Appeals has been expanded to include not only decisions or rulings
Appeals.
but inaction as well of the Commissioner of Internal Revenue.
This legal maneuver cannot be countenanced.
o The decisions, rulings or inaction of the Commissioner are
necessary in order to vest the Court of Tax Appeals with After availing the first option, i.e., filing a petition for review which
was however filed out of time, petitioner can not successfully resort
jurisdiction to entertain the appeal, provided it is filed within
30 days after the receipt of such decision or ruling, or within to the second option, i.e., awaiting the final decision of the
30 days after the expiration of the 180-day period fixed by Commissioner and appealing the same to the Court of Tax Appeals,
on the pretext that there is yet no final decision on the disputed
assessment  because  of  the  Commissioner’s  inaction.
Page 18 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Taxpayers’  Remedies  – Protest)

Lastly, we note that petitioner is raising the issue of prescription for the first time in the decision of CIR you will still have 30 days to appeal to CTA. Again these two
instant motion for reconsideration. options are mutually exclusive)
o Although the same was raised in the petition for review, it was dismissed for
late filing. No motion for reconsideration was filed hence the disputed
Doctrines:
assessment became final, demandable and executory.
(1) If the protest is denied in whole or in part, or is not acted upon within one
o Thereafter, petitioner filed with the Court of Tax Appeals a petition for relief
from judgment. hundred eighty (180) days from submission of documents, the taxpayer adversely
o However, it failed to raise the issue of prescription therein. affected by the decision or inaction may appeal to the Court of Tax Appeals within
o After its petition for relief from judgment was denied by the Court of Tax (30) days from receipt of the said decision, or from the lapse of the one hundred
Appeals for lack of merit, petitioner filed a petition for review before this Court eighty (180)-day period; otherwise the decision shall become final, executory and
without raising the issue of prescription. demandable.
o It is only in the instant motion for reconsideration that petitioner raised the issue (2) The options provided in Sec 228 of NIRC are mutually exclusive.
of prescription which is not allowed.
o The rule is well-settled that points of law, theories, issues and arguments not
Facts:
adequately brought to the attention of the lower court need not be
considered by the reviewing court as they cannot be raised for the first time •   On   March   27,   1998,   CIR   issued Assessment Notice No. 0000047-93-407
on appeal, much more in a motion for reconsideration as in this case, against Lascona Land Co., Inc. (Lascona) informing the latter of its alleged
because this would be offensive to the basic rules of fair play, justice and deficiency income tax for the year 1993 in the amount of P753,266.56.
due process. •   April   20,   1998,   Lascona   filed   a   letter   protest, but was denied in a letter dated
o This last ditch effort to shift to a new theory and raise a new matter in the hope dated March 3, 1999 by Norberto R. Odulio, Officer-in-Charge (OIC), Regional
of a favorable result is a pernicious practice that has consistently been rejected. Director, Bureau of Internal Revenue, Revenue Region No. 8, Makati City stating
that the case was not elevated to the Court of Tax Appeals as mandated by the
provisions of the last paragraph of Section 228 of the Tax Code. By virtue thereof,
09. Lascona Land v. CIR (HV) the said assessment notice has become final, executory and demandable.
Topic: Taxpayer’s  Remedies [exceeding the 180 days mentioned in Sec 228]
Relevant Laws/ BIR Issuances: •   On   April   12,  1999,   Lascona appealed the decision before the CTA and was
Sections 228, Tax Code docketed as C.T.A. Case No. 5777.
Revenue Regulations No. 12-99
LASCONA’S  CONTENTION:
G.R. No. 171251 March 5, 2012 PERALTA, J.: Lascona alleged that the Regional Director erred in ruling that the failure to appeal
to the CTA within thirty (30) days from the lapse of the 180-day period rendered
Petitioners: Lascona Land Co., Inc. the assessment final and executory.
Respondents: CIR
CIR CONTENTION:
Summary: This case is similar with RCBC v CIR. In a nutshell, Lascona waited for CIR, however, maintained that Lascona's failure to timely file an appeal with the
the CIR to decide on its protest past the 180 days where it can directly appeal to CTA after the lapse of the 180-day reglementary period provided under Section
the CTA for inaction of BIR. CIR is wrong to say that the assessment had attained 228 of the National Internal Revenue Code (NIRC) resulted to the finality of the
finality. SC ruled that even if you received the Decision of the CIR for your protest assessment.
beyond 180 days, you can still appeal directly to CTA provided it is made within 30
days  from  receipt  of  CIR’s  Decision  on  your  protest.   •  CTA nullified the said assessment stating that in cases of inaction by the CIR
on the protested assessment, Section 228 of the NIRC provided two options for the
(Notes: 180-30 day rule is another option that you may want to save time and have taxpayer:
your appeal directly to CTA in cases of inaction, but should you wait for the
Page 19 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Taxpayers’  Remedies  – Protest)

(1) appeal to the CTA within thirty (30) days from the lapse of the one hundred receipt of a copy of such decision, these options are mutually exclusive and
eighty (180)-day period, or (2) wait until the Commissioner decides on his protest resort to one bars the application of the other.
before he elevates the case. •  Lascona  may  still  appeal  the  decision  of  CIR  even  after  the  lapse  of  the  180  day  
(This is also found in the case of RCBC v CIR) period.
•  CIR  filed  its  MR  to  CTA  declaring  the  subject  assessment  as  final,  executory and
demandable
•  CTA  denied  the  CIR's  motion  for  reconsideration  for  lack  of  merit  on  Mar.  3,  2000.
•  CIR  appealed  to  CA  and  was  granted  appeal.
•  Lascona  now  files  to  SC  this  petition  for  review

Issues:
(1) WON the assessment has attained finality. NO
(2) Is appeal from inaction of CIR mandatory? NO

Held:
•  Petition  of  Lascona  GRANTED
•  Decision  of  CA  REVERSED

Ratio:
•  If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer
adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within (30) days from receipt of the said decision, or from the lapse
of the one hundred eighty (180)-day period; otherwise the decision shall
become final, executory and demandable.
•  To make mandatory any appeal of the inaction of the Commissioner on its
protested assessment after the lapse of the 180-day period is incorrect.
•  Therefore,  as  in  Section  228,  when  the  law  provided  for  the  remedy  to  appeal  the  
inaction of the CIR, it did not intend to limit it to a single remedy of filing of an
appeal after the lapse of the 180-day prescribed period. Precisely, when a
taxpayer protested an assessment, he naturally expects the CIR to decide either
positively or negatively. A taxpayer cannot be prejudiced if he chooses to wait for
the final decision of the CIR on the protested assessment. More so, because the
law and jurisprudence have always contemplated a scenario where the CIR will
decide on the protested assessment.
•   It   must   be   emphasized,  however,   that  in  case   of  the  inaction   of   the   CIR  on   the  
protested assessment, while we reiterate   −   the   taxpayer   has   two   options,   either:  
(1) file a petition for review with the CTA within 30 days after the expiration of the
180-day period; or (2) await the final decision of the Commissioner on the disputed
assessment and appeal such final decision to the CTA within 30 days after the

Page 20 of 20
TAXATION LAW 2 Aguinaldo and discovered the same.
Spouses Aguinaldo readjusted the returns:
DIGESTS AND PROVISIONS COMPILATION o Increased the declared income for 1952 by P10,000.00
o Eliminated from the 1953 ITR the reported dividends of
E. Remedies P5,000.00
o Result: Deficiency income tax of P3,840.00 for 1952 and an
overpayment of tax in the amount of P1,600.00 for 1953.
E.11.  Taxpayers’  Remedies Examination Report: Stated that it was a "mere adjustment of 1952 and
1953 returns", and recommended that the overpayment for 1953 in the
amount of P1,600.00 be credited against the deficiency tax for 1952.
E.11.2. Refund
However, C(ollector)IR assessed against Leopoldo the amount of
P3,840.00 as deficiency income tax for 1952, without crediting in his
01. Vda. de Aguinaldo v. CIR (HQ) favor the overpayment in 1953.
Topic: Refund Aguinaldo protested against the assessment, and requested that the
Relevant Provision: Section 204, NIRC overpayment for 1953 be credited in favor of the taxpayer.
Request was denied, Leopoldo asked for reconsideration
G.R. No. L-19927 Finally, the C(ommissioner)IR informed him that the amount of P1,600.00
February 26, 1965 cannot be credited against the tax for 1952 inasmuch as the claim
Petitioner: Andrea R. Vda. De Aguinaldo for tax credit was filed beyond the 2-year period
Respondents: Commissioner of Internal Revenue and Court of Tax Appeals Leopoldo died, but Andrea Vda. de Aguinaldo (surviving spouse and
administratrix) appealed to the CTA.
Summary: Spouses Aguinaldo did not declare in their 1952 ITR dividends CTA dismissed the appeal for "lack of cause of action".
received on the same year. However, they declared such income in their next Hence, this petition.
year’s  (1953)  ITR.  Spouses  readjusted  their  returns  resulting  in  a  deficiency  IT  in  
1952   and   overpayment   in   1953.   In   BIR’s   report,   it   was recommended that the Issue/Held: W/N petitioner is entitled to tax credit for the year 1953? NO
overpayment be credited against the deficiency. However, CIR assessed Judgment appealed from is AFFIRMED.
Aguinaldo deficiency tax WITHOUT crediting the overpayment since the
CLAIM FOR TAX CREDIT WAS FILED BEYOND THE 2-YR PRESCRIPTIVE Ratio:
PERIOD. SC held that Aguinaldo is not entitled to a tax credit since under Section Petitioner’s  contention:
309 (before) clearly requires the filing by the taxpayer of a written claim for Section 309 does not require the filing of a claim within two years from the
credit or refund within 2 years after payment of the tax, before the CIR can payment of the tax before tax credit could be given.
exercise his authority to grant the credit or refund. When Aguinaldo filed such claim
on January 1958, more than 2 years had elapsed from date of payment of the tax. CIR’s  contention:
The claim was filed beyond the prescriptive period hence, Aguinaldo was NOT
Maintains that the authority of the CIR under Section 309 can only be
entitled to tax credit.
exercised if a claim for credit is made in writing and filed with him within
two years from the payment of the tax. (counterpart under present NIRC –
Facts:
Section 204, though maraming changes na)
Leopoldo R. Aguinaldo and his wife received in 1952 cash dividends in
the sum of P10,000.00 from Aguinaldo Brothers, Inc. SEC. 309. Authority of Collector to make compromises and refund taxes.—
Spouses Aguinaldo did NOT declare said dividends in their joint ITR for The Collector of Internal Revenue may compromise any civil or other cases
1952, but declared P5,000.00 thereof in their ITR for 1953. arising under this Code or other law or part of law administered by the Bureau
August 14, 1954: They paid the tax due on their declared income for 1953. of Internal Revenue, may credit or refund taxes erroneously or illegally received,
or penalties imposed without authority, and may remit before payment any tax
August 1955: BIR re-examined the 1952 and 1953 joint ITRs of Spouses
that appears to be unjustly assessed or excessive.
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Taxpayers’  Remedies  – Refund)

to CTA within 30 days. Aichi did NOT wait for the decision of the CIR or the
He shall refund the value of internal-revenue stamps when the same are returned lapse of the 20-day period.
in good condition by the purchaser, and may, in his discretion, redeem or
exchange unused stamps that have been rendered unfit for use, and may refund
FACTS:
their value upon proof of destruction.
Aichi, a corp duly organized and existing under the RP laws, is engaged
The authority of the Collector of Internal Revenue to credit or refund taxes in the manufacturing, producing, and processing of steel and its by-
or penalties under this section can only be exercised if the claim for credit products.
or refund is made in writing and filed with him within two years after the It is registered as a VAT entity and   its   products,   “close   impression   die  
payment of the tax or penalty. steel   forgings”   and   “tools   and   dies,”   are   registered   with   the   BOI   as   a  
pioneer status.
rd
SC: 3 paragraph of Section 309 clearly requires the filing by the taxpayer of a Sept. 30, 2004: Aichi filed a claim for refund/credit of input VAT for
written claim for credit or refund within two years after payment of the tax, the period July 1, 2002 to Sept. 30, 2002 (total amount: 3.8M) with the
before the CIR can exercise his authority to grant the credit or refund. CIR through DOF One-Stop Shop Inter-Agency Tax Credit and Duty
Such requirement is therefore a condition precedent and non- Drawback Center.
compliance precludes the CIR from exercising such authority
Aguinaldos paid the income tax for 1953 on August 14, 1954 although nd
Proceedings before the CTA-2 Division (ito yung order nung case, sinunod ko
the adjustment took place on August 29, 1955. lang)
From both dates to January 13, 1958 (filed a claim for tax credit), more Aichi filed for Petition for Review with CTA for refund/credit of the same
than 2 years have elapsed input VAT.
Evidently, petitioner's claim for tax credit was filed beyond the period AICHI: it generated zero-rated sales (131M) and it incurred and paid input
stated in Section 309. VAT in the amount of 3.9M from purchases and importation attributable to
its zero-rated sales.
CIR: in an action for refund, Aichi has the burden of proof to establish its
02. CIR v. Aichi (KF) right to refund; it must also prove that its claim was filed w/n the 2 yr
period prescribed
Topic: Taxpayer’s  Remedies:  Refund ND
Petitioner: Commissioner Of Internal Revenue CTA-2 : Aichi complied with the 3 requirements under Sec 112. 1) it has
Respondent: Aichi Forging Company Of Asia, Inc. established that it is engaged in sales which are zero-rated 2) its
certification of registration with the BIR proves that it is a VAT taxpayer 3)
Summary: Aichi filed for a judicial AND admin claim for refund/credit of input it filed its admin claim and petition for review within the 2 yr prescriptive
VAT on Sept. 30, 2004. ISSUE: WON is it timely filed? HELD: Sec. 112 will apply period from the close of the taxable quarter when the sales were made.
HOWEVER, there are some documents and claims that are baseless. IN
which states that unutilized input VAT must be claimed w/n 2 yrs after the close of
SUM, it is entitled to a refund in the amount of 3.2M.
the taxable quarter when the sales were made. Admin claim was timely filed since nd
the Admin Code prevails w/c states that year=12months; hence, the deadline is CTA-EB: affirmed 2 Div Decision allowing partial tax refund/credit. On
Sept. 30 NOT Sept. 29. HOWEVER, the judicial claim was prematurely filed in the issue of the 2 yr prescriptive period, it applied Sec. 114 which
violation of Sec 112(D), w/c states that CIR has, 120 days, within which to grant or means, ang deadline ni Aichi ay Oct. 25, 2002 w/n w/c to file its
deny  the  claim.  In  case  of  full  or  partial  denial  by  the  CIR,  the  taxpayer’s  recourse quarterly return eh nagfile naman sya on Oct. 20 so pasok sya.
is to file an appeal before the CTA within 30 days from receipt of the decision of
the CIR. However, if after the 120-day period the CIR fails to act on the application ISSUE: WON   Aichi’s   judicial   and   administrative   claims   for   tax   refund/credit   were  
for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR filed w/n the 2-yr prescriptive period provided in Secs 112(A) and 229 of the NIRC
– Admin claim timely filed but Judicial claim was premature

Page 2 of 42
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Taxpayers’  Remedies  – Refund)

HELD: Petition HAS merit. CTA Decision is reversed and set aside. Panalo si be filed by the taxpayer for his principal place of business or head office and all
Comm! Naks. branches.

SEC. 229. Recovery of tax erroneously or illegally collected. –


CIR Arguments: 2004 was a leap year, the filing of the claim for tax refund/credit
No suit or proceeding shall be maintained in any court for the recovery of any national
on Sept. 30 was beyond the 2 yr, it expired on Sept 29 (WRONG SABI NG SC). internal revenue tax hereafter alleged to have been erroneously or illegally assessed or
Also, admin claim and judicial claim was filed on the same day. Dapat daw nauna collected, or of any penalty claimed to have been collected without authority, or of any
yung admin claim since prior filing of an admin claim is required under Sec. 229. sum alleged to have been excessively or in any manner wrongfully collected, until a
claim for refund or credit has been duly filed with the Commissioner; but such suit or
Aichi’s   Arguments:   Tama naman daw si CTA-EB since 114(A) should be read proceeding may be maintained, whether or not such tax, penalty or sum has been paid
together with 112(A). Second, it first filed an admin claim with the One-Stop Inter- under protest or duress.
Agency Tax Credit and Duty Drawback Center of DOF before it filed a claim with
In any case, no such suit or proceeding shall be filed after the expiration of two (2)
the CTA.
years from the date of payment of the tax or penalty regardless of any
supervening cause that may arise after payment: Provided, however, That the
RATIO: Commissioner may, even without written claim therefor, refund or credit any tax,
1. WHAT SECTION WILL APPLY – SEC 112 where on the face of the return upon which payment was made, such payment appears
Unutilized input VAT must be claimed w/n 2 yrs after the close of the clearly to have been erroneously paid.
taxable quarter when the sales were made.
Sections under the NIRC that are related: CIR v. Mirant: Sec 112(A) is the applicable provision in determining
the start of the 2 yr prescriptive period. Sec 204 and 229 are inapplicable
SEC. 112. Refunds or Tax Credits of Input Tax. – as both provisions apply only to instances of erroneous payment or illegal
Zero-rated or Effectively Zero-rated Sales – Any VAT-registered person, whose sales collection of internal revenue taxes. Unutilized input VAT payments not
are zero-rated or effectively zero-rated may, within two (2) years after the close of otherwise used for any internal revenue tax due the taxpayer must
the taxable quarter when the sales were made, apply for the issuance of a tax
be claimed within two years reckoned from the close of the taxable
credit certificate or refund of creditable input tax due or paid attributable to such
quarter when the relevant sales were made pertaining to the input
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 VAT regardless of whether said tax was paid or not.
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 2. ADMIN CLAIM TIMELY FILED
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): CIR v. Primetown Property: As between the CC, w/c provides that a
Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero- year=365 days, and the Admin Code, w/c states that a year=12 months,
rated sale and also in taxable or exempt sale of goods or properties or services, and the the Admin Code must prevail being the more recent law.
amount of creditable input tax due or paid cannot be directly and entirely attributed to
IN THIS CASE, the 2 yr period to file a claim for tax refund/credit for the
any one of the transactions, it shall be allocated proportionately on the basis of the
volume of sales. period July 1, 2002 to Sept. 30, 2002 expired on Sept. 30, 2004. Hence,
the admin claim was timely filed.
SEC. 114. Return and Payment of Value-Added Tax. – SO KUNG TIMELY FILED NAMAN, BAKIT TALO AICHI? CHECK NO. 3
(A) In General. – Every person liable to pay the value-added tax imposed under this
Title shall file a quarterly return of the amount of his gross sales or receipts within
twenty-five (25) days following the close of each taxable quarter prescribed for 3. FILING OF JUDICIAL CLAIM WAS PREMATURE
each taxpayer: Provided, however, That VAT-registered persons shall pay the value-
Aichi’s   claim   for   refund/credit   was   filed   in   violation   of   Sec.   112(D)   w/c  
added tax on a monthly basis.
Any person, whose registration has been cancelled in accordance with Section 236,
provides that the CIR has, "120 days, from the date of the submission of
shall file a return and pay the tax due thereon within twenty-five (25) days from the the complete documents in support of the application [for tax
date of cancellation of registration: Provided, That only one consolidated return shall refund/credit]," within which to grant or deny the claim. In case of full
Page 3 of 42
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Taxpayers’  Remedies  – Refund)

or partial denial by the CIR, the  taxpayer’s  recourse  is  to  file  an  appeal   G.R. No. L-13453
before the CTA within 30 days from receipt of the decision of the CIR. February 29, 1960
However, if after the 120-day period the CIR fails to act on the Barrera, J.
application for tax refund/credit, the remedy of the taxpayer is to appeal
the inaction of the CIR to CTA within 30 days. Petitioners: Allison Gibbs and Esther K. Gibbs
The second paragraph of Section 112(D) of the NIRC envisions two Respondents: CIR and CTA
scenarios: (1) when a decision is issued by the CIR before the lapse of
the 120-day period; and (2) when no decision is made after the 120-day Summary: Petitioners paid an assessment under protest and filed a claim for
period. In both instances, the taxpayer has 30 days within which to file an refund with the CIR, which latter denied. 10 monsths after the denial, they filed a
appeal with the CTA. As we see it then, the 120-day period is crucial in petition for review with the CTA. In the motion to dismiss, the CIR averred that the
filing an appeal with the CTA petition for review must have been filed 30 days from receipt of decision of the CIR
IN THIS CASE, the admin and the judicial claims were as per RA 1125, sec. 11. Petitioners counter that according to Sec. 306 NIRC, they
simultaneously filed on Sept. 30, 2004. Aichi did NOT wait for the had 2 years to file the judicial claim. SC ruled that both requirements must be
decision of the CIR or the lapse of the 20-day period. followed. A taxpayer who has paid the tax and who is claiming a refund must file a
claim for refund with the Collector within 2 years from the date of his payment of
the tax, and appeal to the Court of Tax Appeals within 30 days from receipt of the
Collector's decision. If, however, the Collector takes time in deciding the claim, and
the period of two years is about to end, the suit or proceeding must be started in
03. Gibbs v. CIR [Feb 29, 1960] (MR) the Court of Tax Appeals before the end of the two-year period without awaiting
Topic: Period for filing claim for refund from the Collector and by judicial claim the decision of the Collector. Basically, 2 years to file administrative claim. 30
from CTA days from that decision or inaction. However, this decision also seems to
Relevant Laws: say that the 30day period must be within the 2year period.
RA 1125
SEC. 7. Jurisdiction.—The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to Facts:
review by appeal, as herein provided: Petitioners protested a deficiency tax assessment based on disallowance
"(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of of bad debts claimed as losses. CIR rejected
internal revenue taxes,…  or  other  matters  arising  under  the  National  Internal Revenue Code or other Petitioners then sent a check in payment and at the same time demanded
law or part of law administered by the Bureau of Internal Revenue
refund. CIR denied in a letter sent on Oct. 26, 1956
"SEC. 11. Who may appeal; effect of appeal.—Any person, association or corporation adversely
affected by a decision or ruling of the Collector of Internal Revenue, the Collector of Customs or any
Petitioners then filed with the CTA a petition for review and refund on
provincial or city Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within September 27, 1957 (10 months after that last letter)
thirty days after the receipt of such decision or ruling. CIR filed a motion to dismiss on the ground of filing out of time—beyond
the 30-day period provided in RA 1125. But petitioners argue that
NIRC according to Sec 306 of the Code judicial proceedings maybe instituted
SEC. 306. Recovery of tax erroneously or illegally collected.—No suit or proceeding shall be for recovery of taxes paid within 2 years from payment
maintained in any court for the recovery of any national internal-revenue tax hereafter alleged to have CTA disimssed petition for review because petitioners filed out of time.
been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected MR having been denied, petition for review with SC
without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected,
until a claim for refund or credit has been duly filed with the Collector of Internal Revenue; but such
Issues: Whether or not petition for review was filed out of time—YES
suit or proceeding may be maintained, whether or not such tax penalty, or sum has been paid under
protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two
years from the date of payment of the tax or penalty. Held: Decision of lower court AFFIRMED

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TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Taxpayers’  Remedies  – Refund)

Ratio: In the case of a taxpayer who has not yet paid the tax and who is
protesting the assessment made by the Collector of Internal Revenue, he
Read the laws cited above. must file his appeal with the Court of Tax Appeals within 30 days from his
receipt of the Collector's assessment, as required by said Section 11 of
Republic Act No. 1125. Otherwise, his failure to comply with said statutory
The 2 laws must be read together and the requirements of both must be
requirement would bar his appeal and deprive the Court of Tax Appeals of
satisfied.
its jurisdiction to entertain or determine the same.
CIR vs. Avelino and CIR vs. Zulueta relied on by petitioners are not
Johnston Lumber Co., Inc. vs. CTA: applicable—the issue here was the legality of collection of taxes by
Republic Act No. 1125 sec. 11 was intended to cope with a situation summary administrative methods, not WON petition for review was
where the taxpayer, elects to appeal to the Court of Tax Appeals instead seasonably filed
of paying the tax. For this reason, the latter part of said Section 11,
provides that no such appeal would suspend the payment of the tax Petitioner tries to get off on the ground that the decision of the CIR has not attained finality for 2
demanded by the Government, unless for special reasons, the Court of reasons: (NOT IMPORTANT)
Tax Appeals would deem it fit to restrain said collection. 1. The letter denying their request for refund was signed by Deputy Collector and not the
Section 306, of the Tax Code contemplates of a case wherein the Collector himself
Petitioners cite sec. 309 of NIRC as well as No. 9 of par. 4, sec. 7 of the Internal
taxpayer paid the tax, whether under protest or not, and later on decides
Revenue Manual on Audit and Investigation Procedure and General Circular No.
to go to court for its recovery. Where payment has already been made
V-182:
and the taxpayer is merely asking for its refund, he must first file with the “9.   The authority to remit before payment any tax that appears to be unjustly assessed or
Collector a claim for refund before taking the matter to the Court, and that excessive, or credit or refund taxes erroneously or illegally received under Section 809 of the National
appeals from decisions or rulings of the Collector of Internal Revenue to Internal Revenue Code shall be exercised exclusively by the Collector of Internal Revenue.”
the Court of Tax Appeals must always be perfected within 30 days from BUT the cited provisions refer to the authority of the Collector to compromise,
receipt or to credit or refund taxes erroneously or illegally received, that is, when the
action, is against the Government. In such case, the authority is vested
SC explains it again: exclusively in the Collector himself
In this case, the action taken by the Deputy Collector in his letter was precisely
Section 306 should be construed together- with Section 11 of Republic
to deny the request for refund and demand the payment of the deficiency tax
Act No. 1125 from petitioners. This is well within the authority of the Deputy Collector and is
a taxpayer who has paid the tax, whether under protest or not, and who is final and binding unless revoked by the Collector.
claiming a refund of the same, must comply with the requirements of both 2. The letter was not final because in addition to denying the refund, it demanded payment of
sections, that is, he must file a claim for refund with the Collector of surcharges and interests
Internal Revenue within 2 years from the date of his payment of the tax, Petitioners  rely  on  St.  Stephen’s  Assoc.  v.  CIR,  which  is  inapplicable  for there,
as required by said Section 306 of the National Internal Revenue Code, 2 letters were sent to the taxpayer—denying request for cancellation in the first
and appeal to the Court of Tax Appeals within 30 days from receipt of the and  then   stating  that   “the  decision   shall   become   final  and   executory   within  30  
days”  in  the  second.  The  second  letter    was  the  final  decision
Collector's decision
But here, after the letter denying petitioners' request for refund, no further action
If, however, the Collector takes time in deciding the claim, and the period was taken either by petitioners or the Collector. This is evidence even by
of two years is about to end, the suit or proceeding must be started in the petitioners’   filing   the   petition   for   review   and   the   CIR’s   consequently   filing   a  
Court of Tax Appeals before the end of the two-year period without motion to dismiss
awaiting the decision of the Collector. This is so because of the positive
requirement of Section 306 and the doctrine that delay of the Collector in
rendering decision does not extend the peremptory period fixed by the
statute.
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TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Taxpayers’  Remedies  – Refund)

04. CIR v. Palanca (RK) o Soooo, he filed another amended return this time deducting the
Topic: Refund above interest.
G.R. No. L-16626 o His net taxable income was reduced to 5,400.32 and an income
October 29, 1966 tax due thereon of 428.
Regala, J. o Thus, another request for refund. (21,052.01 – 428 = 20,624.01).
This  time,  Palanca  Jr.  filed  in  the  CTA  pending  CIR’s  decision  of  refund.  
Petitioners: CIR (eventually, the CIR denied the request)
Respondents: Carlos Palanca, Jr. o CTA granted refund.
o Hence this petition.
Summary: Carlos Palanca Jr. was assessed deficiency interest (initially for
donor’s   tax,   then   subsequently   for   estate/inheritance   tax)   for   a   donation   by   his   Issues:
father unto him of shares of stocks in La toneda. He paid the interests which he 1. Whether or not interest on delinquent estate and inheritance tax is
claimed for deduction from his income tax in 1955. Both applications were denied deductible from income --- NO
by CIR. The CTA reversed and was affirmed by SC. Sc ruled that the interests 2. Whether or not claim has prescribed
were deductible from the income. As such, it could be refunded if request was filed
on time. Here, the request was filed on time so no prescription. Held: Dismissed. Decision appealed from AFFIRMED.

Facts: Ratio:
BACKGROUND: appeal  by  the  government  from  CTA’s  decision  ordering  
CIR   to   refund   to   Respondent,   Carlos   Palanca   Jr.   (“Palanca   Jr”),   Deductibility / Refund
P20,624.01 representing alleged over-payment of income taxes for the In our jurisdiction, the rule is settled that although taxes already due have
calendar year 1955. not, strictly speaking, the same concept as debts, they are, however
In July 1950, the late Don Palanca, Sr. donated in favor of his son, obligations that may be considered as such.
Palanca Jr., 12,500 shares in La Toneda, inc. His dad failed to file return while the distinction between "taxes" and "debts" was recognized in this
so Palanca Jr., was assessed the gift tax, surcharge and interest which jurisdiction, the variance in their legal conception does not extend to the
he paid on June 22, 1955. interests paid on them, at least insofar as Section 30 (b) (1) of the
In March 1, 1956, Palanca Jr filed his income tax return for 1955, claiming National Internal Revenue Code is concerned.
deduction for interest and was assessed the sum of 21,052.91, as Under the law, for interest to be deductible, it must be shown that there be
income tax. an indebtedness, that there should be interest upon it, and that what is
o He filed amended return on November 10, 1956 adding claimed as an interest deduction should have been paid or accrued within
47,868.70 as deduction for interest paid on the gift tax in 1955. the year. It is here conceded that the interest paid by respondent was in
His taxable income was thus reduced to 18,113.42 and tax due consequence of the late payment of her donor's tax, and the same was
thereon in the sum of 3,167. paid within the year it is sought to be deducted. The only question to be
Thus, the claim for refund. (21,052.01 - 3,167 = 17,885.01) determined, as stated by the parties, is whether or not such interest was
o BIR denied. paid upon an indebtedness within the contemplation of Section 30(b) (1)
o CTA denied too. of the Tax Code
Meanwhile, the BIR considered the 12,500 shares of stock transfer to be All, requisites are complied with. Hence, deductible.
a transfer in contemplation of death
o BIR thus assessed estate and inheritance tax for the said
Prescription
transfer in sum of 191,581.62.
o He paid 60, 581.80 in interest for such delinquency
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TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Taxpayers’  Remedies  – Refund)

Considering that the interest payments were deductible, a claim for refund even before it had been denied by the herein petitioner or the
will be granted if filed on time. Bureau of Internal Revenue. The case was filed with the said
There were actually two claims for refund filed by the herein respondent, court on August 13, 1958 while the petitioner denied the claim
Carlos Palanca, Jr., anent the case at bar. subject of the said case only on July 24, 1959.
o The first one was on November 10, 1956, when he filed a claim o In the second place, the claim at bar refers to the alleged
for refund on the interest paid by him on the donee's gift tax of overpayment by respondent Palanca of his 1955 income tax.
P17,885.10, as originally demanded by the Bureau of Internal Inasmuch as the said account was paid by him by installment,
Revenue. then the computation of the two-year prescriptive period, under
o The second one was the one filed by him on August 12, 1958, Section 306 of the National Internal Revenue Code, should be
which was a claim for refund on the interest paid by him on the from the date of the last installment. (Antonio Prieto, et al. vs.
estate and inheritance tax assessed by the same Bureau in the Collector of Internal Revenue, G.R. No. L-11976, August 29,
amount of P20,624.01. 1961) Respondent Palanca paid the last installment on his 1955
The petitioner contends that under Section 11 of Republic Act 1124, the
1 income tax account on August 14, 1956. His claim for refund of
herein claimant's claim for refund has prescribed since the same was filed the alleged overpayment on it was filed with the court on August
outside the thirty-day period provided for therein. According to the 13, 1958. It was, therefore, still timely instituted
petitioner, the said prescriptive period commenced to run on October 14,
1947 when the denial by the Bureau of Internal Revenue of the
respondent Palanca's claim for refund, under his letter of November 10, 05. Gibbs v. CIR [Nov 29, 1965] (KB)
1956, became final. Considering that the case was filed with the Court of Topic: Taxpayer’s  Remedies;;  Refund
Tax Appeals only on August 13, 1958, then it is urged that the same had G.R. No. L-17406
prescribed. November 29, 1965
We find the petitioner's contention on prescription untenable. REGALA, J.:
o In the first place, the 30-day period under Section 11 of Republic Petitioners: FINLEY J. GIBBS and DIANE P. GIBBS,
Act 1125 did not even commence to run in this incident. It should Respondents: CIR
be recalled that while the herein petitioner originally assessed
the respondent-claimant for alleged gift tax liabilities, the said Summary: Gibbs is being assessed for deficiency income tax. Gibbs pays the tax
assessment was subsequently abandoned and in its lieu, a new in protest and demands refund for the same. CIR denies such refund. Gibbs files a
one was prepared and served on the respondent-taxpayer. In petition for review and refund of income tax and such petition was dismissed on
this new assessment, the petitioner charged the said respondent the ground that their action for refund has already prescribed. Gibbs argues that
with an entirely new liability and for a substantially different the statute of limitation of two years prescribed in Section 306 of the NIRC does
amount from the first. While initially the petitioner assessed the not start to run until respondent Commissioner has acted on the claim for refund or
respondent for donee's gift tax in the amount of P170,002.74, in credit by the non-resident taxpayer and so notified the taxpayer because until then
the subsequent assessment the latter was asked to pay the withholding tax cannot be treated as a payment by the alien-resident taxpayer.
P191,591.62 for delinquent estate and inheritance tax. It claims that income tax assessments against which claims for refund have been
Considering that it is the interest paid on this latter-assessed lodged and which are covered by taxes withheld at the source shall be considered
estate and inheritance tax that respondent Palanca is claiming paid, not at the time such tax obligations fall due, but, only when the claims for
refund for, then the thirty-day period under the abovementioned refund against the assessments are finally resolved by the authorities. SC
section of Republic Act 1125 should be computed from the disagrees with Gibbs. SC held that a taxpayer whose income is withheld at the
receipt of the final denial by the Bureau of Internal Revenue of source will be deemed to have paid his tax liability when the same falls due at the
the said claim. As has earlier been recited, respondent Palanca's end of the tax year. It is from this latter date then, or when the tax liability falls
claim in this incident was filed with the Court of Tax Appeals due, that the two-year prescriptive period under Section 306 of the Revenue
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TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Taxpayers’  Remedies  – Refund)

Code starts to run with respect to payments effected through the withholding review was filed beyond thirty (30) days from the date of receipt of
tax system respondent's decision, dated October 26, 1956, denying the claim for
Facts: refund as prescribed by Section 11 of Republic Act No. 1125;
On February 6, 1965, the respondent Commissioner of Internal Revenue B. That this Honorable Court has no jurisdiction over the cause of action
issued against the petitioners, Deficiency Income Tax Assessment Notice with respect to the credit of the amounts stated in the petition for review
for P16,873.00 for the tax year 1950 with the demand that the said for the reason that the request for credit and the petition for review
amount should be paid on or before March 15, 1956. praying for the credit of said amounts have been filed beyond two (2)
On March 14, 1956, Allison J. Gibbs, signing as attorney-in-fact for Finley years from the dates of payment of the amounts sought to be credited in
J. Gibbs, his brother, acknowledged receipt of the above assessment the petition for review.
notice and notified the respondent Commissioner that Finley J. Gibbs was
then living in Atherton, California, and that the latter was notified by him of Issue: Whether or not the claim for refund has already prescribed
the said deficiency assessment. Held: Petition DISMISSED
In the same letter, Allison J. Gibbs questioned the disallowance of the
items which gave rise to the deficiency assessment and requested for a Ratio:
correction of it. The petitioners contend that the respondent court erred in ruling that their petition for review was filed
outside the 30-day period prescribed by Section 8 of Republic Act No. 1125 because (a) there is
On August 26, 1956, however, the respondent Commissioner denied the
neither evidence nor record that the petitioners received a copy of the letter of October 26, 1956
request.
denying their claim for refund, and (b) the aforesaid letter of October 26, 1956 is not a denial of their
Allison J. Gibbs paid the deficiency in protest and demanded refund of the claim for refund.
payment.
Commissioner denied the demand for refund finding no justifiable basis We find that there is ample evidence of the lawyer-client-relationship of the petitioners herein and
for such request. Allison J, Gibbs. There can be no question, therefore, that the receipt of the October 26, 1956 letter-
On September 29, 1958, Allison J. Gibbs, signing as counsel for Finley J. decision of the respondent Commissioner by Allison J. Gibbs was receipt of the same by the
petitioners, the former being then the latter's legal counsel. In the premises, the respondent court
Gibbs, wrote another letter addressed to the respondent Commissioner to
cannot be considered to have erred, therefore, in computing the 30-day prescriptive period in question
"reiterate our client's demand for refund of the P16,873.00 he paid on
from the date the said letter was received by Allison J. Gibbs.
October 3, 1956 on the ground that your deficiency Assessment No. AR-
5416-55/50 was illegal ... ." The petitioners maintain that the respondent court erred in ruling that their claim for
This letter also opined that the previous letter of October 26, 1956, of the tax credit had already expired since it pertained to tax payments made in 1951 and
respondent Commissioner was not "a ruling on our client's claim for the protest and claim for demand therefore was made only in 1958.
refund of P16,873.00."
The respondent Commissioner never replied to this letter of September Petitioners insist that they could not be deemed to have paid their 1951 tax
29, 1958. obligation until February 19, 1957, because they merely contributed to the
On October 1, 1958, the petitioners filed with the respondent court a withholding tax system in 1951 and claimed certain refunds against their
"Petition for Review and Refund of Income Tax with Motion for contribution at the end of the said tax year and they received notice of the
Suspension of Collection of Additional Taxes," resolution on their claim for such refund only on February 19, 1957.

Commissioner filed an Answer on November 10, 1956 to claim, among others, the Petitioners also respectfully contend that the statute of limitation of two years
following special and affirmative defenses: prescribed in Section 306 of the NIRC does not start to run until respondent
Commissioner has acted on the claim for refund or credit by the non-resident
A. That this Honorable Court has no jurisdiction to take judicial taxpayer and so notified the taxpayer because until then the withholding tax cannot
cognizance of the petition for review on the ground that the petition for be treated as a payment by the alien-resident taxpayer; until then it is a mere

Page 8 of 42
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Taxpayers’  Remedies  – Refund)

deposit held by respondent Commissioner for the account of the non-resident alien petition for review was then filed on October 9, 1995; hence the 2-year prescriptive
taxpayer. period cannot cover any claims prior to the said date. But the October-December
1993 claim cannot be given due course due to insufficiency of evidence. The CTA
This Court cannot subscribe to the petitioners' view. decision   was   affirmed   by   the  CA.   The   SC   affirmed   the   CA’s   decision  and  upheld  
the CTA Resolution. (1) The prescriptive period had set in for the claims arising
A taxpayer, resident or non-resident, who contributes to the withholding tax system, prior to the filing of the separate petition for review. (2) The documentary evidence
does so not really to deposit an amount to the Commissioner of Internal Revenue, presented by FEBTC was not sufficient to establish that the claims for refund only
but, in truth, to perform and extinguish his tax obligation for the year concerned. pertained to the tax withhled on the interest income. It should have presented
confirmation receipts and purchase orders, which are deemed "the best evidence
In other words, he is paying his tax liabilities for that year. Consequently, a on  the  participation  of  the  funds”  from  the  employees  trusts.
taxpayer whose income is withheld at the source will be deemed to have paid his
tax liability when the same falls due at the end of the tax year. It is from this latter Facts:
date then, or when the tax liability falls due, that the two-year prescriptive FEBTC is the trustee of various retirement plans established by several
period under Section 306 of the Revenue Code starts to run with respect to companies for its employees.
payments effected through the withholding tax system. It is of no o It was authorized to hold, manage, invest and reinvest the assets
consequence whatever that a claim for refund or credit against the amount of these plans.
withheld at the source may have been presented and may have remained o It invested these retirement funds in various money market
unresolved since, as this Court has previously explained in the case of Gibbs vs. placements, bank deposits, deposit substitute instruments and
Collector of Internal Revenue, G.R. No. L-13453, February 29, 1960 government securities, which earned interest income.
Petitioner’s   claim   for   refund   centers   on   the   tax   withheld   by   the   various  
withholding agents, and paid to the CIR for the four (4) quarters of 1993,
on the said interest income.
06. Far East Bank v. CIR (RL)
o It is alleged that the total FWT on interest income paid for that
Topic: Refund; 2 year prescriptive period
year amounted to P6,049,971.83.
Relevant Laws: Sec. 230 of the NIRC - Recovery of tax erroneously or illegally
On four dates, 12 May 1993, 16 August 1993, 31 January 1994, and 29
collected
April 1994, FEBTC filed its written claim for refund with the BIR for the 4
quarters of 1993.
G.R. No. 138919
o FEBTC cited CIR v. CA (1992), which   held   that   employees’  
May 2, 2006
trusts are exempted by specific mandate of law from income
Tinga, J.
taxation.
Petitioners: Far East Bank and Trust Company (FEBTC) as Trustee of Various
o Nonetheless, the claims for refund were denied.
Retirement Funds
By this time, FEBTC already had a pending petition before the CTA,
Respondents: CIR and CA
involving the same legal issue but a previous taxable period.
o Hoping to comply with the 2-year period within which to file an
Summary: FEBTC, a trustee of various retirement plans, invested the retirement
action for refund under Section 230 of the Tax Code, it filed a
funds   of   various   companies   for   the   latter’s   employees.   The   investment   earned  
Motion to Admit Supplemental Petition in that CTA case, seeking
interest income. It filed a claim for refund because it withheld and erroneously paid
to include in that case the tax refund claimed for the year 1993.
to the CIR for 4 quarters of 1993 on the said internest income. It has been held in
o The CTA denied the admission, reasoning that the CTA case
CIR   v.   CA   that   employees’   trusts   are   exempt   by   specific   mandate   of   law   from  
had been pending for 2 ½ years and that admission of the
income tax. However, the BIR denied the claims for refund. FEBTC filed a motion
supplemental petition would further delay the proceedings.
to admit a Supplemental Petition to a pending CTA case, seeking to include the
1993 claim for refund. This was denied by the CTA due to prescription. A separate
Page 9 of 42
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Taxpayers’  Remedies  – Refund)

o The CTA advised that FEBTC file a separate petition for review 2. W/N the 2 year prescriptive period was tolled by the filing of the
for the 1993 refund. Supplemental Petition—NO.
FEBTC filed another petition for review for the 1993 refund with the CTA
on Oct 9, 1995. Held: Petition DENIED.
The CTA denied the claim for the 1993 refund and noted that the income
from   employees’   trust   funds   were   exempt   from income taxes; but the Ratio:
st
claims for refund had already prescribed insofar as they covered the 1 - 1. PROCEDURAL: The CA did not err in dismissing its petition on
rd
3 quarters of 1993, as well as from the period of 1 October to 8 October procedural grounds when FEBTC failed to attach certified true copies of
1993. such portions of the record needed.
o Only those claims that arose after 9 October 1993 could be
Section 6 of Rule 43, 1997 ROC, explicitly provides that the petition for
considered in light of the 2-year prescriptive period for the filing
review be accompanied by "certified true copies of such material portions
of a judicial claim for refund from the date of payment of the tax.
of the record referred to [in the petition] and other supporting papers".
o For the refund covering the period 9 October up to 31 December
Under Section 7, Rule 43, the failure to attach such documents which
1993, the CTA ruled that the evidence was insufficient to
should accompany the petition is sufficient ground for the dismissal of the
establish the fact that the funds were indeed placed in money
petition.
market placements, bank deposits, other deposit substitute
It should be remembered that it is only when the petition has been given
instruments and government securities, more particularly
due course, after a prima facie finding that the CTA had committed errors
treasury bills."
of fact or law that would warrant reversal, that the case record would be
o CTA noted that FEBTC merely submitted copies of certain
transmitted from the court of origin to the CA.
documents (i.e. List of the various funds, Schedule of taxes
o Clearly, upon the filing of the petition, the appellate court would
withheld on a quarterly basis in 1993, Written claims for refund,
have no documentary basis to discern whether the
etc.), not including necessary documentary proof of transactions,
required prima facie standard has been met except the petition
such as confirmation receipts and purchase orders.
itself and the documents that accompany it.
The documents which FEBTC failed to submit were
The requirement that certified true copies of such portions of the
characterized as "the best evidence on the participation
record referred to in the petition be attached is an essential requisite
of the funds, and without them, there is no way for this
for the determination of prima facie basis for giving due course to
Court to verify the actual involvement of the funds in the
the petition.
alleged investment in treasury bills and money market
placements."
SUBSTANTIAL: Even assuming that the procedural errors may be
The CTA also held as insufficient the certifications
overlooked, the CA did not err in upholding the CTA Resolution.
issued   by   Citibank,   BSP,   and   petitioner’s   own  
Accounting Department, considering that the aggregate The   exemption   from   income   tax   of   income   from   employees’   trusts   still  
stands, as first recognized in the CIR v. CA case.
amount of the FWT to which they attest totalled more
than P40,000,000.00, in comparison to the present Admittedly, such interest income of the petitioner for 1993 was not
claims of only around P6,000,000.00. subject to income tax.
The MR and/or MNT were denied. Still, petitioner did pay the income tax it was not liable for when it
The CA denied the appeal due to failure to submit pertinent records (i.e. withheld such tax on interest income for the year 1993.
o These were erroneously assessed or collected, and thus,
CTA resolutions, etc), as well as the MR.
Issues: Section 230 of the National Internal Revenue Code then in effect
comes into full application (Recovery of tax erroneously or
1. Whether   or   not   the   CA   erred   in   denying   FEBTC’s   petition and in
illegally collected).
upholding the CTA Resolution—NO.
Page 10 of 42
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REMEDIES  (Taxpayers’  Remedies  – Refund)

o “xxx  In  any  case,  no such suit or proceeding shall be begun o The CTA only acquired jurisdiction, over the claim for the refund
after the expiration of 2 years from the date of payment of of the 1993 taxes, when a new petition for review was filed on
the tax or penalty regardless of any supervening cause that Oct. 1995
may arise after payment: Provided, however, That the Assuming that the CTA erred in refusing to admit it, such action is now
Commissioner may, even without a written claim, refund or credit beyond the review of this Court, the order denying the same having long
any tax, where on the face of the return upon which payment lapsed into finality, and it appearing that petitioner did not attempt to
was made, such payment appears clearly to have been elevate such denial for judicial review with the proper appellate court.
erroneously  paid.”  (Sec.  230) Assuming arguendo that the Supplemental Petition tolled the period, the
The CTA noted that since the petition for review was only filed on 9 petition is still bereft of merit.
October 1995, petitioner could no longer claim the refund of such tax o The CTA evinced palpable discomfort over the sufficiency of the
withheld for the period of January to 8 October 1995, the 2 year evidence presented by petitioner to establish its claim for refund.
prescriptive period having elapsed. (see facts re: documents submitted and necessary documents)
Petitioner submits that the prescriptive period should be reckoned from Notably, the   tax   exemption   enjoyed   by   employees’   trusts   was  
the date of its filing of the Supplemental Petition on 28 April 1995, not absolute, irrespective of the nature of the tax.
from the filing of its new petition for review after the Supplemental Petition o There was no need for the FEBTC to particularly show that the
was denied. tax withheld was derived from interest income from money
o Even granting that this should be the case, such argument would market placements,   bank   deposits…   since   the   source of the
still preclude the refund of taxes wrongfully paid from January to interest income does not have any effect on the exemption
27 April 1993, the two (2)-year prescriptive period for those taxes enjoyed  by  employees’  trusts.
paid then having already become operative. HOWEVER, it must be established by evidence that the amount
sought to be refunded to FEBTC actually corresponds to the tax
2. The 2-year prescriptive period is NOT tolled by the filing of the withheld  on  the  interest  income  earned  from  the  exempt  employees’  
Supplemental Petition. trusts.
Although the Tax Code does not specify the form in which the judicial The submitted certifications only indicated the total amount of FWT
claim should be made, it does not follow that the period may be remitted, which clearly included not only taxes withheld from
suspended by the filing of just any judicial claim with any court. interest  income  of  the  exempt  employees’  trust but also from other
Such judicial claim should be filed with a court which would transactions with BSP or Citibank.
properly have jurisdiction over the action for the refund. o There is a need to segregate such taxes withheld from the
There is no doubt that the CTA has jurisdiction over actions seeking the interest   income   of   employees’   trusts,   and   those   withheld   from  
refund of income taxes erroneously paid. other income sources. Otherwise, these are ineffectual to
o But it should be borne in mind that FEBTC initially sought to establish the present claim.
bring its claim for refund for the taxes paid in 1993 through a o The weak evidentiary value of these certifications proved
supplemental petition in another case pending before the CTA, especially fatal, as no other documentary evidence was
and not through an original action. submitted to establish that the withholding agents actually
It is only upon the admission by the court of the supplemental complaint withheld   interest   income   earned   from   the   employees’   trusts  
that it may be deem to augment the original complaint. Otherwise, the administered by petitioner.
court acquires no jurisdiction over the new claims. o FEBTC did submit a schedule of taxes withheld on a quarterly
o In this case, the CTA could not have acquired jurisdiction over basis for the year 1993, but this document was apparently
the causes of action in the Supplemental Petition because the prepared by FEBTC itself, and its self-serving nature precludes
same was not admitted. from according it any authoritative value.

Page 11 of 42
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REMEDIES  (Taxpayers’  Remedies  – Refund)

SC agreed with the CIR that FEBTC should have instead submitted and entities engaged in business. Also, the Government cannot be required to pay
documentary proof of transactions, such as confirmation receipts and interest for the amount that it has to refund to the taxpayer since there is no law
purchase orders, as the best evidence on the participation of the funds requiring them.
from these employees trusts.
Although it is next to impossible to single out the particular transactions FACTS:
involving  exempt  employees’  trusts,  it  is  a  necessary  consequence  of  the   Respondents Sweeney et al were the past presidents of the dissolved
special   exemption   enjoyed   alone   by   employees’   trusts   would   be   a   International Club of Iloilo, Inc
necessary segregation in the accounting of such income, interest or o The  International  Club  of  Iloilo,  Inc.  (“Club”)  is  a  non-profit, non-
otherwise, earned from those trusts from that earned by the other clients stock corporation organized under Philippine laws sometime in
of petitioner. January 1948, in order to promote 'athletic and social relations
The taxpayer needs to establish not only that the refund is justified under among its members. (dissolved in August 1951)
the law, but also the correct amount that should be refunded. The Club maintained and operated a clubhouse with a bar, wherein liquor
If the latter requisite cannot be ascertained with particularity, there is and light refreshments were sold exclusively to its members and their
cause to deny the refund, or allow it only to the extent of the sum that is guest with a light overprice to cover operational expenses.
actually proven as due. o The Club never paid any fixed or percentage taxes as operator
Tax refunds partake the nature of tax exemptions and are thus construed of the bar.
strictissimi juris against the person or entity claiming the exemption. CIR then assessed the Club for deficiency taxes
o On November 11, 1950, respondent Collector of Internal Revenue addressed
o The burden in proving the claim for refund necessarily falls on
and demanded from the Club payment of the sum of P1,987.01 as fixed and
the taxpayer, and petitioner in this case failed to discharge the
percentage tax and surcharge as operator of a bar for the period covering August
necessary burden of proof. 1949 to September 1950, plus P50.00 as penalty.
As for the MNT, the same was correctly denied by the CTA because it o On January 15, 1952, BIR request for withdrawal of the assessment against the
was FEBTC’s   fault   in   the   first   place   for   having   failed   to   make   visible   Club and this time demanded from the latter payment of the sum of P3,526.55.,
attempts to inform the Court of its problems with regard to retrieving the representing fixed and percentage taxes and surcharge, as operator of a bar for
the period covering August 1949 to August 1951.
documents needed for the case.
o Although no payment was made, respondent did not take positive steps to
enforce collection of the alleged tax deficiency
o On August 15, 1953 and October 15, 1953 respondent urged the
07. CIR v. Sweeney (DU) City Fiscal of Iloilo to prosecute criminally the past presidents of
COLLECTOR OF INTERNAL REVENUE, petitioner, vs. J. N. SWEENEY, A. O. the Club for violation of sections 182, 183 and 191 of the tax
BAIGRIE, and RAMON BURGAS, respondents. Code.
G.R. No. L-12178 August 21, 1959 | MONTEMAYOR, J – EN BANC August 3, 1955, Respondents however paid under protest so the
information was withdrawn by the city fiscal. Then they demanded that the
amount they paid be refunded since the Club was a private one, not
SUMMARY:
International Club of Iloilo (Club) – represented by respondent s, operated as a organized for profit, which like the Manila Polo Club should not be held
non-profit, non-stock corp. It operated a bar to serve its members and their family liable for the taxes sought to be collected
and guests only. CIR assessed them for taxes. The Club contend that they should The decision did not explicitly said this but I think the action for refund
not be assessed with taxes since they are a non-profit org. The paid under protest was not entertained by the CIR so the Club filed a case in the CTA.
and filed a refund. With the inaction of the CIR the filed a case in court. SC said
that the Taxpayers need not wait for the action of the Collector of Internal Revenue Issues:
on the request for refund before taking the matter to court. Further, Respondents, (1) Has the Court jurisdiction to order the refund of the amounts paid by petitioners
being a non-profit corporation, is not liable for tax as Tax Code referred to persons herein? - YES

Page 12 of 42
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Taxpayers’  Remedies  – Refund)

(2) Is the International Club of Iloilo liable for payment of the fixed and percentage o Though for a time, the little overprice put on the liquor dispensed,
taxes sought to be collected from it? NO presumably intended to cover expenses in the maintenance of
(3) in the affirmative, are petitioners herein liable for the payment of the aforesaid the bar, exceeded said expenses but said profits never went to
tax liability? the members of the Club but were used in the operation of
the Club, which as a matter of fact incurred a loss
RATIO: (Court  was  direct  to  the  point.  Just  cited  cases  to  support  their  decision  and  no  more  jj’s) Government cannot be required to pay interest for the amount that it has to
refund to the taxpayer
Taxpayers need not wait for the action of the Collector of Internal Revenue In the absence of a statutory provision clearly or expressly directing or
on the request for refund before taking the matter to court authorizing such payment, and none has been cited by respondent. The
P.J. Kiener Co. vs. David, 92 Phil., 945 National Government cannot be required to pay interest
o Having filed his claim and the Collector of Internal Revenue
having had ample time to study it, the claimant may, indeed
should, within the statutory period of the two years proceed with
his suit without waiting for the Collector's decision. 08. Philex Mining Corp. v. CIR (RR)
College of Oral and Dental Surgery vs. Court of Tax Appeals and Topic: Computation of tax refunds
Collector of Interval Revenue, (1032 Phil., 912) Applicable Law:
o filing of the claim with the Collector of Internal Revenue is R.A. 1435 - An Act to Provide Means for Increasing the Highway Special Fund
intended as a notice to said official that unless the tax or penalty
alleged to have been erroneously or illegally collected is G.R. No. 120324
refunded court action will follow, this does not imply that the April 21, 1999
taxpayer must wait for the action of the Collector before bringing Teehankee, J.
the matter to court
o the taxpayer's failure to comply with the requirement regarding Petitioners: Philex Mining Corporation
the institution of the action or proceeding in court within 2 years Respondents: Commissioner of Internal Revenue, Court of Appeals
after the payment of the taxes bars him from the recovery of the
same, irrespective of whether a claim for the refund of such SUMMARY: Philex is claiming the 25% refund that RA 1435 grants to mining and
taxes filed with the Collector or Internal Revenue is still pending lumber companies. The refund was granted but the amount so granted was
action of the latter considerably different from the amount prayed for. This is because Philex based
The Club was not required to pay fixed/percentage tax for operating the bar the computation on the increased rates of specific taxes provided for in the NIRC
Collector of Internal Revenue vs. Manila Lodge No. 761 of BPOE(G.R. No. (which came later than RA 1435). However, the Court said that since refunds are
L-11176, June 29, 1959) construed strictissimi juris against the taxpayer, the Court cannot just apply the
o Tax Code referred to persons and entities engaged in business, increased tax rates as basis for the 25% refund when the law itself does not
that is to say for livelihood or profit, explicitly provide that a refund under R.A. 1435 may be based on higher rates
o And that inasmuch as the respondent Elks Club was not which were non-existent at the time of its enactment.
engaged in business or for profit, it was not liable for the
payment of the tax imposed for selling and retailing liquors and Facts:
cigars to its members and their guest Philex, a domestic mining corporation, entered into a Mining License
The same thing is true in the present case with regard to the International Agreement with the Ministry of Natural Resources
Club of Iloilo, Inc. It was not engaged in the business of selling liquor. July 1, 1980 – Dec. 31, 1981: Philex purchased from several oil
o bar dispensed liquor only to members, their families and their companies, refined and manufactured mineral oils, motor fuels, and diesel
guest. fuel oils
Page 13 of 42
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Taxpayers’  Remedies  – Refund)

Amount of specific taxes passed on to Philex: P2,492,677.22 - Sec. 5 of R.A. 1435 provides that the specific taxes collected on
Oct. 22, 1982: petitioner filed a claim for refund with the CIR pursuant to gasoline and fuel are to be used for the construction and
R.A. 1435, amounting to P623,169.30. maintenance of the highway system.
Said amt. represents the 25% of the specific taxes paid - This will however not redound so much to the benefit of mining and
- Why are they claiming? Bec. from the period of July 1980 – Dec. lumber companies.
1981, they used refined and manufactured mineral oils, motor fuels - Why? Becase they seldom use national roads, since the gasoline
and diesel fuel oils in their business operation and paid the and fuel they purchase are used within their compounds and roads.
corresponding specific taxes - Thus, to somewhat compensate, they are given said partial refund.
- Evidence presented: affidavits of its president, purchasing manager,
(Sorry just entirely copy-pasted this part! This is all that was written and
and two disinterested representatives of another licensed mining
parang bitin but maybe hindi ko lang gets! Sorry!) In 1977, P.D. 1158
corporation
codified all existing laws. Sections 142 and 145 of the Tax Code, as
Nov. 16, 1982: pending CIR action, Philex filed a case for tax refund
amended by Sections 1 and 2 of R.A. 1435 were re-numbered to Sections
before the CTA, for the same amount claimed before the CIR, with 20%
153 and 156. Later, these sections were amended by P.D. No. 1672 and
interest/annum, plus the costs of suit
subsequently by E.O. 672 increasing the tax rates for certain oil and
CTA:  granted  Philex’s  claim  but only to the extent of P16,747.36 fuel products. When the Highway Special Fund was abolished in
CA: affirmed CTA 1985, the reason for the refund ceased to exist.
Davao Gulf Lumber Corporation vs. CIR and CA: (A case with that
Issues:
resolved the fundamental issues raised in the case at bar)
Whether or not CA erred in basing the tax refund under Sections 1 and 2 - Since the partial refund authorized under Section 5, R.A. 1435, is in
of R.A. 1435, instead of the increased rates imposed by Sections 142 the nature of a tax exemption, it must be construed strictissimi juris
and 145 (now 153 and 156) of the NIRC --- NO against the grantee.
Whether or not CA erred in relying in CIR vs. Rio Tuba Nickel Mining - Hence,  petitioner’s  claim  of  refund  on  the  basis  of  the  specific  taxes  it  
Corp. which   allegedly   runs   counter   to   the   Court’s   decision   in   Insular actually paid must expressly be granted in a statute stated in a
Lumber Co. vs. Court of Tax Appeals --- NO language too clear to be mistaken.
- We have carefully scrutinized R.A. 1435 and the subsequent
Held: Instant petition DENIED, assailed decision of the Court of Appeals
pertinent statutes and found no expression of a legislative will
AFFIRMED
authorizing a refund based on the higher rates claimed by petitioner.
- When the law itself does not explicitly provide that a refund
Ratio:
under R.A. 1435 may be based on higher rates which were non-
This Court, in a string of decisions, repeatedly held that the tax refund
existent at the time of its enactment, this Court cannot presume
under R.A. 1435 is computed on the basis of the specific tax deemed
otherwise. A legislative lacuna cannot be filled by judicial fiat.
paid under Sections 1 and 2, and not on the increased rates actually
paid under the 1977 NIRC. Some of these cases include: Davao Gulf on  the  “conflict”  between  the  cases  of   Rio Tuba and Lumber
- CIR v. Rio Tuba Co.:
- Insular Lumber Co.: decided a claim for refund on specific tax paid on
- CIR v. Atlas Consolidated Mining
petroleum products purchased in the year 1963, when the increased
- Davao Gulf v. CIR
rates under the NIRC of 1977 were not yet in effect.
- CIR v. CDCP Mining
- It is impossible for Insular to conflict with Rio Tuba, in which we ruled
- Sirawai Plywood v. CA that the refund granted be computed on the basis of the amounts
Why does R.A. 1435 grant a 25% partial refund of specific taxes paid deemed paid under Sections 1 and 2 of R.A. 1435.
on purchases of manufactured diesel and fuel oils?
Page 14 of 42
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REMEDIES  (Taxpayers’  Remedies  – Refund)

On the contention of Philex that equity and justice demand that the In December of 1980, NASUTRA (whole name not given in case. Google
computation of the tax refunds be based on actual amounts paid under it for some laughs) charted the ship to load 16,500 metric tons of raw
Sections 153 and 156 of the NIRC: there is no tax exemption solely on sugar in the Philippines.
the ground of equity. On December 30, 1980, Edilberto Lising, Operations Supervisor of SSA,
The subsequent codification of tax laws under the 1977 NIRC, Sections paid  the  required  income  and  common  carrier’s  taxes  on  this  transaction.
153 and 156, mandated the increased rates of specific taxes levied on o Total of P107,142.75
manufactured oils, other fuels and diesel fuel oils. However, when the ship arrived at Guimaras Port of Iloilo, the vessel
Although Philex paid the taxes on their oil and fuel purchases based found no sugar for loading.
on the increased rates, the latter law did not specifically provide for On January 10, 1981, NASUTRA and TSC/SSA agreed to have the boat
a refund based on the increased rates. leave for Japan without any cargo.
As to the 20% interest per annum prayed by the petitioner: Thus, TSC claims that the pre-payment of income and CCT was
- no interest on refund of tax can be awarded unless authorized by law erroneous, since no income was realized by them.
or the collection of the tax was attended by arbitrariness o They instituted a claim for tax credit or refund of the sum paid.
- an action is not arbitrary when exercised honestly and upon due CIR  didn’t  act  promptly,  so  TSC  filed  a  petition  for  review  before  the  CTA.
consideration where there is room for two opinions, however much it o CIR contested this.
may be believed that an erroneous conclusion was reached. o They  alleged  that…
Taxes are presumed to have been collected in
accordance with law;
The burden of proof is on taxpayer, in an action for
09. CIR v. Tokyo Shipping (LC) refund, to show that taxes were erroneously or illegally
Topic: Refunds collected,  and  that  TSC  didn’t  show  this;;  and
Relevant Laws: Sec. 24(b)(2) – NIRC That claims for refund are construed strictly against the
G.R. No. L-68252 claimaints.
May 26, 1995 CTA ruled in favor of TSC.
Puno, J. o TSC complied with the requirement of filing a refund within the
period prescribed
Petitioners: CIR o CIR   didn’t   issue   any   deficiency   assessment   nor   disputed   the  
Respondents: Tokyo Shipping Co. Ltd, represented by Soriamont Steamship correctness of the tax returns and amounts of prepaid taxes
Agencies Inc, and the CTA o The vessel sailed away with no cargo, as certiied by Customs
authorities
Summary: TSC was chartered by NASUTRA to load some sugar. When the boat o Essentially,  they  said  that  CIR  hasn’t  done  anything  to  show  that  
arrived at the port, there was no sugar, so after a week or so, it sailed without TSC is wrong.
loading anything. TSC had pre-paid the income tax and CCT on this transaction, CTA denied the MR.
and now they file for refund. CIR says that they were unable to prove that they had Hence, this petition.
realized no income. SC disagrees, saying that CIR never presented any evidence They contend that TSC has the burden of proof to sustain its claim for
to refute the claims of TSC, which are substantiated by evidence. refund, that TSC did not prove that it did not realize any income, and that
TSC suppressed evidence when it did not present the charter agreement.
Facts:
Tokyo Shipping Co (TSC) is a foreign corp represented in the Philippines Issues: Whether or not TSC is entitled to a refund or credit?--- Yes
by Soriamont Steamship Agencies (SSA). Held: Petition DISMISSED. Decision of lower court AFFIRMED.
They own and operate Tramper vessel MV Gardenia.
Page 15 of 42
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REMEDIES  (Taxpayers’  Remedies  – Refund)

Ratio:
Applicable law here is Sec. 24 (b) (2) of the NIRC. G.R. No. 112024
January 28, 1999
Pursuant to this provision, a Resident Foreign Corp engaged in transport
Quisumbing, J.
of cargo is liable for taxes depending on the amound of income it derives
from sources within the Philippines.
Petitioners: PHILIPPINE  BANK  OF  COMMUNICATIONS  (“PBCom”)
Thus, before such tax liability can be enforced, the taxpayer must be Respondents: CIR, CTA and CA
shown to have earned income sourced from the Philippines.
st nd
CIR is correct that refund must be construed strictly against the taxpayer. Summary: PBCom filed its quarterly ITRs for the 1 and 2 quarter of 1985 and
They are also correct that TSC has the burden of proof. paid a total income tax of P5M. PBCom suffered a P25M loss in 1985 and a P14M
Thus, the pivotal issue involves a question of fact — did TSC prove that loss in 1986, hence it declared no tax payable for both years. During these years, it
it derived no receipts/income from the charter agreement? earned rental income from leased properties. The lessees withheld and remitted to
CTA held that sufficient evidence was adduced by TSC. the BIR withholding creditable taxes of P282k (1985) and P234k (1986). PBCom
requested for a tax credit of P5M representing overpayment of taxes in 1985 and
o Evidence shows that the boat left Iloilo without any sugar, or nay
a claim for refund of the creditable taxes withheld by the lessees. Pending
cargo in fact.
investigation, PBCom instituted a petition for review before the CTA. The CTA
o The correctness of the evidentiary documents (Customs docs)
denied the P5M claim for being filed beyond the 2 year reglamentary period and
cannot be doubted, because CIR never contested them.
the claim for refund in 1986 on the assumption that it was automatically credited by
o In fact, it seems that the CIR just never withdrew their opposition
PBCom. The CA affirmed the  CTA’s  decision.  PBCom  argued  that  based  on  RMC  
even if they did not present any evidence, and even if its counsel
7-85, the prescriptive period was adjusted to 10 years but CIR insisted that the 2
said that the BIR recommended approval of the claim for refund.
year  period  should  be  followed.  The  SC  upheld  the  CA’s  decision  in  toto.  (1)  The  
Counsel even said that the government would withdraw relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards
the opposition after final approval of the claim. (labo).
the two-year prescriptive period set by law. The State cannot be put in estoppel by
As to the issue of suppressing evidence, this presupposes that the charter the mistakes or errors of its officials or agents. (2) PBCom availed of the automatic
would be prejudicial to TSC, showing that they did in fact receive income. tax  credit  in  1987,  hence  the  CA’s  denial  of  the  claim for refund of the tax overpaid
o But this allegation simply remained an allegation – NO in 1986 was correct.
EVIDENCE was given.
o They also could have presented it by subpoena duces tecum, Facts:
but they didn’t. Petitioner, Philippine Bank of Communications (PBCom), a commercial
The SC goes on to rebuke the CIR, kasi naman, 15 years na nilang na- banking corporation duly organized under Philippine laws, filed its
st nd
extend yung case, for about P100K, which after 15 years and the costs of quarterly ITRs for the 1 and 2 quarters of 1985, reported profits, and
litigation is now a very small amount. BIR and the government should be paid the total income tax of P5,016,954.00.
fair to the taxpayers and refund what it has erroneously collected, ASAP. The   taxes   due   were   settled  by   applying   PBCom’s   tax   credit   memos  and  
the BIR issued a Tax Debit Memo for P3,401,701.00 and P1, 615,253.00,
respectively.
PBCom suffered losses on 1985 and 1986, declaring a net loss
10. Philippine Bank of Communications v. CIR (RL) of P25,317,228.00 and P14,129,602.00 (respectively), and thus declared
Topic: Refund; Prescriptive Period no tax payable for both years.
Relevant Laws: But during these years, PBCom earned rental income from leased
Sec. 230 (Now 229) - Recovery of tax erroneously or illegally collected properties.
Sec. 69 (Now 76)
Page 16 of 42
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Taxpayers’  Remedies  – Refund)

o The lessees withheld and remitted to the BIR withholding quarterly income tax with the BIR within ten (10) years under
creditable taxes of P282,795.50 in 1985 and P234,077.69 in Article 1144 of the Civil Code.
1986. o “In  this  regard,  therefore,  there is no need to file petitions for review
On August 7, 1987, PBCom requested the CIR for a tax credit in the CTA in order to preserve the right to claim refund or tax
st nd credit within the two-year period. As already stated, actions hereon
of P5,016,954.00 representing the overpayment of taxes in the 1 and 2
by the Bureau are immediate after only a cursory pre-audit of the income
quarters of 1985.
tax returns. Moreover, a taxpayer may recover from the BIR excess
On July 25, 1988, PBCom filed a claim for refund of creditable taxes income tax paid under the provisions of Section 86 of the Tax Code
withheld by their lessees. within 10 years from the date of payment considering that it is an
Pending the investigation, PBCom instituted a Petition for Review on obligation created by law (Article  1144  of  the  Civil  Code).”
November 18, 1988 before the CTA. The government is barred from asserting a position contrary to its
The  losses  petitioner  incurred  as  per  the  summary  of  petitioner’s  claims for refund declared circular if it would result to injustice to taxpayers.
and tax credit for 1985 and 1986, filed before the CTA, are as follows: o ABS-CBN Broadcasting Corporation vs. CTA: rulings or circulars
promulgated by the CIR have no retroactive effect if it would be
1985 1986
Net Income (Loss) (P25,317,228.00) (P14,129,602.00)
prejudicial to taxpayers.
Tax Due NIL NIL Sec. 246 of the NIRC explicitly provides for this rule as follows:
Quarterly tax o “Sec.   246. Non-retroactivity of rulings-- Any revocation, modification
Payments Made 5,016,954.00 --- or reversal of any of the rules and regulations promulgated in
Tax Withheld at Source 282,795.50 234,077.69
accordance with the preceding section or any of the rulings or
Excess Tax Payments P5,299,749.50 P234,077.69
circulars promulgated by the Commissioner shall not be given
retroactive application if the revocation, modification, or reversal will be
On May 20, 1993, the CTA denied the request for a tax refund or credit prejudicial to the taxpayers except in the following cases:
amounting to P5,299,749.95, on the ground that it was filed beyond the a) where the taxpayer deliberately misstates or omits material
two-year reglementary period provided for by law. facts from his return or in any document required of him by the
o The petitioner’s  claim  for  refund  in  1986  was  likewise  denied  on   Bureau of Internal Revenue;
the assumption that it was automatically credited by PBCom b) where the facts subsequently gathered by the Bureau of
Internal Revenue are materially different from the facts on
against its tax payment in the succeeding year.
which the ruling is based;
The MR was also denied.
c) where the  taxpayer  acted  in  bad  faith.”
The  CA  affirmed  in  toto  the  CTA’s  decision.
Respondent’s  Arguments:
Issues: W/N the CA erred in denying the plea for tax refund or tax credits on the The 2-year prescriptive period for filing tax cases in court concerning
ground  of  prescription,  despite  PBCom’s  reliance  on  RMC  No.  7-85, changing the income tax payments of Corporations is reckoned from the date of filing
prescriptive period of two years to ten years?—NO. the Final Adjusted Income Tax Return, which is generally done on April
Held: Petition DENIED. CA decision AFFIRMED. 15 following the close of the calendar year. (ACCRA Investments Corp.
vs. CA , et al., and CIR vs. TMX Sales, Inc., et al)
Ratio:
Also, since the Final Adjusted ITR of PBCom for the taxable year 1985
Petitioner’s  Arguments:
was supposed to be filed on April 15, 1986, the latter had only until
Its claims for refund and tax credits are not yet barred by prescription April 15, 1988
relying on the applicability of RMC 7-85 issued on April 1, 1985.
When PBCom filed the case before the CTA on November 18, 1988, the
o The circular states that overpaid income taxes are not covered
same was filed beyond the time fixed by law, and such failure is fatal to
by the two-year prescriptive period under the tax Code and that
petitioner’s  cause  of  action.
taxpayers may claim refund or tax credits for the excess

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REMEDIES  (Taxpayers’  Remedies  – Refund)

SC’s  Ruling:   Further, fundamental is the rule that the State cannot be put in estoppel
1. The relaxation of revenue regulations by RMC 7-85 is not warranted as it by the mistakes or errors of its officials or agents.
disregards the two-year prescriptive period set by law. o As aptly stated by respondent Court of Appeals:
Basic  is  the  principle  that  “taxes  are  the  lifeblood  of  the  nation.” “xxx   Estoppel   has   no   application   in   the   case   at   bar
o The primary purpose is to generate funds for the State to finance because   it   was   not   the   CIR   who   denied   petitioner’s  
the needs of the citizenry and to advance the common weal. claim of refund or tax credit.
o Due process of law under the Constitution does not require judicial It was the CTA who denied (albeit correctly) the claim
proceedings in tax cases. and in effect, ruled that the RMC No. 7-85 is an
o It is upon taxation that the government chiefly relies to obtain the means administrative interpretation which is out of harmony
to carry on its operations and it is of utmost importance that the modes
with or contrary to the express provision of a statute,
adopted to enforce the collection of taxes levied should be summary and
interfered with as little as possible.
hence, cannot be given weight for to do so would in
Claims for refund or tax credit should be exercised within the time effect  amend  the  statute.”
o A memorandum-circular of a bureau head could not operate
fixed by law because the BIR being an administrative body enforced
to vest a taxpayer with a shield against judicial action.
to collect taxes, its functions should not be unduly delayed or
hampered by incidental matters. There are no vested rights to speak of respecting a
wrong construction of the law by the administrative
Section 230 of the NIRC of 1977 (now Sec. 229, NIRC of 1997)
officials and such wrong interpretation could not place
provides that the taxpayer may file a claim for refund or credit with
the Government in estoppel to correct or overrule the
the CIR, within two (2) years after payment of tax, before any suit in
same.
CTA is commenced.
o The non-retroactivity of rulings by the CIR is not applicable
o The two-year prescriptive period provided, should be computed
in this case because the nullity of RMC No. 7-85 was
from the time of filing the Adjustment Return and final
declared by respondent courts and not by the CIR.
payment of the tax for the year.
o Lastly, it must be noted that, as repeatedly held by this Court, a
CIR vs. Philippine American Life Insurance Co., explained the application
claim for refund is in the nature of a claim for exemption
of   Sec.   230:   “the   prescriptive   period   of   two   years   should   commence to
and should be construed in strictissimi juris against the
run only from the time that the refund is ascertained, which can only
taxpayer.
be determined after a final adjustment return is accomplished.
The BIR legislated guidelines contrary to the statute passed by Congress
2. PBCom  availed  of  the  automatic  tax  credit  in  1987,  hence  the  CA’s  denial  
when the Acting Commissioner of Internal Revenue issued RMC 7-85,
of the claim for refund of the tax overpaid in 1986 was correct.
changing the prescriptive period of two years to ten years on claims of
Sec. 69 of the 1977 NIRC (now Sec. 76) provides that any excess of the
excess quarterly income tax payments, such circular created a clear
total quarterly payments over the actual income tax computed in the
inconsistency with the Sec. 230.
adjustment or final corporate income tax return, shall either (a) be
RMCs are considered administrative rulings which are issued from time to
refunded to the corporation, or (b) may be credited against the
time by the CIR.
estimated quarterly income tax liabilities for the quarters of the
o It is widely accepted that the interpretation placed upon a statute
succeeding taxable year.
by the executive officers is entitled to great respect by the
The corporation must signify in its annual corporate adjustment return (by
courts.
marking the option box provided in the BIR form) its intention, whether to
o But such interpretation is not conclusive and will be ignored if
request for a refund or claim for an automatic tax credit for the succeeding
judicially found to be erroneous.
taxable year.
o People vs. Lim: Rules and regulations issued by administrative
These remedies are in the alternative, and the choice of one
officials to implement a law cannot go beyond the terms and
precludes the other.
provisions of the latter.
Page 18 of 42
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REMEDIES  (Taxpayers’  Remedies  – Refund)

As stated by the CA: Apr. 15, 1986: BPI filed the instant petition with this Court in order to toll
o “xxx after examining the adjusted final corporate annual ITR for the running of the prescriptive period for filing a claim for refund of
taxable year 1986, PBCom opted to apply for automatic tax overpaid income taxes
credit.”   Both the CTA and the CA ruled that the running of the prescriptive period
That PBCom opted for an automatic tax credit, as specified in its starts from Apr. 15, 1986, which is the last day for filing a corporate
1986 Final Adjusted Income Tax Return, is a finding of fact which the income tax return
SC must respect. Thus, having filed the claim on Apr. 14, the period has not yet prescribed
Moreover, the 1987 annual corporate tax return of the petitioner was not
offered as evidence to controvert said fact. Issue: W/N the respondent courts erred in ruling that the period of prescription will
Thus, the SC is bound by the findings of fact by respondent courts, there commence from the date mentioned in the NIRC to be the date wherein a final
being no showing of gross error or abuse on their part to disturb our adjustment return could still be filed without incurring any penalty --- YES
reliance thereon.
Held:
CA REVERSED
Petition for refund filed by private respondent is DISMISSED on the
11. CIR v. CA (RR)
ground that it is barred by prescription
Topic: Prescription period for filing a claim of refunds
Applicable Law:
Ratio:
R.A. 1435 - An Act to Provide Means for Increasing the Highway Special Fund
CIR v. TMX Sales: The Supreme Court has laid down the rule
G.R. No. 117254
regarding the computation of the prescriptive period that the two-year
January 21, 1999
period should be computed from the time of filing of the Adjustment
Teehankee, J.
Returns or Annual Income Tax Return and final payment of income tax
- filing of a quarterly income tax return required in Section 85 [now
Petitioners: Commissioner of Internal Revenue
Section 68] and implemented per BIR Form 1702-Q and payment of
Respondents: Court of Appeals, Court of Tax Appeals, Bank of Philippine Islands
quarterly income tax should only be considered mere installments of
as Liquidator of Paramount Acceptance Corporation
the annual tax due.
- Consequently, the two-year prescriptive period provided in Section
SUMMARY: Paramount paid an income tax in excess of what it was liable for. The
292 [now Section 230 of the Tax Code] should be computed from the
question here is simple: when does the prescriptive period start running? The
time of filing the Adjustment Return or Annual Income Tax Return
Court explained that the same is computed from the time of filing the adjustment
and final payment of income tax.
returns, because it is from this date that it can be determined w/n there really was
Now, in the case at bar, CIR contends that the two-year prescriptive
an overpayment.
period should be computed from April 2, 1984, when the final adjustment
return was actually filed, because that is the time of payment of the tax
Facts:
within the meaning of §230 of the NIRC.
BPI acts as the liquidator of Paramount Acceptance Corporation
Quarterly tax payments which are computed based on the cumulative
For the calendar year of 1985, Paramount was liable for an income tax
figures of gross receipts and deductions in order to arrive at a net taxable
amounting to is P1,153,681.00 (which is almost half of its net income)
income, should be treated as advances or portions of the annual income
However,   the   sum   total   of   Paramount’s   payments   to   BIR   for   the   first   3  
tax due, to be adjusted at the end of the calendar or fiscal year.
quarters of said year was P1,218,940.00
ACCRA Investments Corporation v. CA: explained why the period should
Thus, there was an excess payment of P65,259.00
be counted from the filing of the final adjustment return
Apr.  14,  1986:  BPI  as  liquidator  reiterated  Paramount’s  claim  for refund

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REMEDIES  (Taxpayers’  Remedies  – Refund)

- Clearly, there is the need to file a return first before a claim for refund amount of P3.99M, which represents overpaid taxes in 1982 and 1983. However,
can prosper Philamlife still paid withholding tax on rental income in the first quarter of 1984,
- The rationale in computing the two-year prescriptive period with despite the fact that it had suffered loss.
respect  to  the  petitioner  corporation’s  claim  for  refund  from  the  
time it filed its final adjustment return is the fact that it was only Thereafter, Philamlife filed a claim for income tax refund during the first quarter of
then that ACCRAIN could ascertain whether it made profits or 1984, and thereafter further, a petition for review with the CTA with respect to such
incurred losses in its business operations. claim. The refund claim amounted to P4.1M (which was subsequently reduced to
- The   “date   of   payment”,   therefore,   in   ACCRAIN’s   case   was   when   its   P3.8M in its amended petition).
tax liability, if any, fell due upon its filing of its final adjustment return
on April 15, 1982 Issue [main issue copied from the full text. Mahirap iparaphrase eh. Lolzsterz.]: In a case such as
Thus, it can be deduced that the two-year period should be this, where a corporate taxpayer remits/pays to the BIR tax withheld on income for
computed from the time of actual filing of the Adjustment Return or the first quarter but whose business operations actually resulted in a loss for that
Annual Income Tax Return. year, should not the running of the prescriptive period commence from the
- This is so because at that point, it can already be determined remittance/payment at the end of the first quarter of the tax withheld instead
whether there has been an overpayment by the taxpayer. of from the filing of the Final Adjustment Return (FAR)?
- Moreover, under §49(a) of the NIRC, payment is made at the time
the return is filed. Held: No. The two-year prescriptive period should commence at the time of filing
- In the case at bar, Paramount filed its corporate annual income tax of the FAR
return on April 2, 1986. However, private respondent BPI, as
liquidator of Paramount, filed a written claim for refund only on April Ratio:
14, 1988 and a petition for refund only on April 15, 1988. Both claim Under  Sec.  292  of  the  old  Tax  Code,  “no such suit or proceeding shall be begun
and action for refund were thus barred by prescription. after the expiration of two years from the date of payment of the tax or the date
of payment of the tax or penalty regardless of any supervening cause that may
arise  after  payment.”

12. CIR v. Philippine American Life (JT) However, in determining the answer to the issue, the SC turned to other provisions
GR No. 105208 May 29, 1995 of the Tax Code. Such provisions must be harmonized together:
Petitioner: CIR Respondent: Philamlife, CA, CTA
Sec. 68. Declaration of Quarterly Income Tax. — Every corporation shall file in duplicate a
Summary: Philamlife sought tax refunds for withholding tax paid during the first quarterly summary declaration of its gross income and deductions on a cumulative basis for
quarter of 1984, during which it suffered loss. Basically the CIR sought the answer the preceding quarter or quarters upon which the income tax, as provided in Title II of this
of the SC in the question on when the 2-year prescriptive period of filing a refund Code shall be levied, collected and paid. The Tax so computed shall be decreased by the
for quarterly corporate income tax commences: at the time of payment of the amount of tax previously paid or assessed during the preceding quarters and shall be paid
not later than sixty (60) days from the close of each of the first three (3) quarters of the
quarterly tax, or from the filing of the Final Adjustment Return. The SC answered
taxable year.
that the 2-year period should commence on the date of the filing of the FAR,
pursuant to the principle that provisions of a statute must be harmonized with one Sec. 69. Final Adjustment Return. — Every corporation liable to tax under Section 24 shall
another. [Simple case lang.] file a final adjustment return covering the total net income for the preceding calendar or
fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not
Facts equal to the total tax due on the entire taxable net income of that year the corporation shall
Philamlife paid to the BIR quarterly corporate income taxes for 1983, but declared either:
a net loss for the first quarter of 1984. Philamlife applied as tax credit for 1984 the
(a) Pay the excess still due; or
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REMEDIES  (Taxpayers’  Remedies  – Refund)

(b) Be refunded the excess amount paid, as the case may be. a simple case of excess payment as to be automatically covered by the two (2)-
year limitation in Section 230. SC agreed with the CA.
In case the corporation is entitled to a refund of the excess estimated quarterly income 1. Section 230 of the Tax Code is intended to apply to suits for the recovery
taxes paid, the refundable amount shown on its final adjustment return may be credited
of taxes erroneously, excessively, illegally or wrongfully collected.
against the estimated quarterly income tax liabilities for the taxable quarters of the
succeeding taxable year.
According  to  Black’s  Law  Dictionary,  these  are the ones levied without
statutory authority. PNB issued to the BIR the check for P180 Million
Although quarterly taxes due are required to be paid within sixty days from the in the concept of tax payment IN ADVANCE; thus avoiding the
close of each quarter, the fact that the amount shall be deducted from the tax due notion that there was error or illegality in the payment.
for the succeeding quarter shows that until a final adjustment return shall have 2. Also, this case must be distinguished from creditable withholding taxes
been filed, the taxes paid in the preceding quarters are merely partial taxes due which are in the nature of "erroneously collected taxes" which fall under
from a corporation. Neither amount can serve as the final figure to quantity what is Sec. 230. Because in CWT, taxes are withheld and remitted
due the government nor what should be refunded to the corporation. provisionally,  subject  to  the  taxpayer’s  actual  tax  liability  at  the  end  
of the calendar year. So if taxpayer posts net losses for the calendar
Thus, the refundable amount, in case a refund is due to a
corporation,   is   that   amount   which   is   shown   on   the   corporation’s   year, thereby not liable for any income taxes, the taxes withheld during
final adjustment return, and not on its quarterly returns. the course of the taxable year, took on the nature of erroneously collected
taxes at the end of the taxable year.
Thus, to answer the issue clearly, the prescriptive period of two years
3. It would be inequitable to impose the two (2)-year prescriptive period
should commence to run only from the time the refund is
because when the P180 million advance income tax payment was
ascertained, which can only be determined after a FAR is
tendered by PNB, no tax had been assessed or due, or actually
accomplished.
imposed and collected by the BIR. Neither can such payment be
considered as illegal having been made in response to a call of
patriotic duty to help the national government. Therefore this is not
13. CIR v. PNB (AD) simply a case of excess payment, but rather for the application of
G.R. No. 161997 | October 25, 2005 the balance of ADVANCE income tax after failure or impossibility to
Commissioner of Internal Revenue, Petitioner make such carry over due to losses in its operations.
Philippine National Bank, Respondent 4. As   to   CIR’s   argument   citing RR 10-77, that the carrying forward of any
excess or overpaid income tax for a given taxable year is limited to
Sorry, nahirapan ako i-digest itong case na to. Huhuhu. I tried my best! the succeeding taxable year only, the mandate of RR 10-77 applies
only to "quarterly payments reflected in an adjusted final return”.
SUMMARY: In April 1991, PNB issued to BIR a check for P180 M as ADVANCE Here, it is A LUMP SUM PAYMENT TO COVER FUTURE TAX
income tax payment for 1991. By the end of 1991, it had a low tax liability, so in OBLIGATIONS.
effect, there was a creditable balance of P73 M in its favor. This amount was 5. Commissioner vs. Phi-am Life – an availment of a tax credit due for
supposed to be carried over to the succeeding years; however, it incurred losses reasons other than the erroneous or wrongful collection of taxes
for 4 consecutive years (until 1996) making it not liable for any income tax, may have a different prescriptive period. Absent any specific
therefore, the P73 M was not carried over. So in 1997, PNB requested the BIR to provision in the Tax Code or special laws, that period would be ten
issue a tax credit certificate for the unutilized balance of P73 M. However, the CIR (10) years under Article 1144 of the Civil Code.
ruled that the claim has prescribed, PNB having filed such claim only in 1997, or 6. Commissioner vs. Phil-Am – even if the two (2)-year prescriptive period
more than two (2) years from 1992 when the overpayment of annual income tax for had already lapsed, the same is not jurisdictional and may be
1991 was realized by PNB and the amount of excess payment ascertained. CTA suspended for reasons of equity and other special circumstances.
agreed that the claim prescribed. CA overturned the CTA decision. PNB’s  request   Respondent PNB remitted the P180 Million in question as a
for issuance of a TCC on the balance of its advance payment cannot be treated as measure of goodwill and patriotism, a gesture noblesse

Page 21 of 42
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REMEDIES  (Taxpayers’  Remedies  – Refund)

oblige, so to speak, to help the cash-strapped national erroneous or illegal collection of taxes whenever there are questions of
government. It would thus indeed, be unfair to leave law and/or facts and does not include claims for refund of advance
respondent PNB to suffer losing millions of pesos advanced payment, pursuant to Revenue Administrative Order [RAO] No. 7-95
by it for future tax liabilities. The cut becomes all the more dated October 10, 1995."
painful  when  it  is  considered  that  PNB’s  failure  to  apply  the   PNB sought reconsideration of the decision
balance of such advance income tax payment from 1992 to Again, Deputy   Commissioner   Hefti   denied   PNB’s   request   for  
1996 was, to repeat, due to business downturn experienced reconsideration
by the bank so that it incurred no tax liability for the period.
In 2001, PNB again wrote the BIR requesting that it be allowed to
apply its unutilized advance tax payment of P73 M to   the   bank’s  
FACTS:
future gross receipts tax liability.
In April 1991, PNB  issued  to  BIR  a  PNB  Cashier’s  Check for P180 M.
The BIR Commissioner denied PNB’s   claim   for   tax   credit   for   the  
o The check represented   PNB’s   ADVANCE   income tax
following reasons:
payment for its 1991 operations and was remitted in
o 5. Even if you reiterated your claim for tax credit certificate
response   to   then   President   Aquino’s   call   to   generate   more  
when you filed your claim on July 28, 1997, the same has
revenues for national development. (Take  note:  “advance”)
already prescribed on the ground that it was filed beyond
The BIR acknowledged receipt of the amount. the two (2) year prescriptive period as provided for under
During the first and second quarters of 1991, PNB also paid Section 204 of NIRC. [Words in bracket and emphasis added]
additional taxes amounting to P6.1 M and P26.8 M, respectively. PNB, via a petition for review, appealed the denial action of the BIR
So PNB paid and BIR received in 1991 the aggregate amount of P213 Commissioner to the CTA.
M. o The Commissioner filed a motion to dismiss on the ground of
This   final   figure,   if   tacked   to   PNB’s   prior   year’s   excess   tax   credit   prescription under the 1977 National Internal Revenue Code
(P1,385,198.30) and the creditable tax withheld for 1991 (P3,216,267.29), (NIRC).
adds up to P217.5 M. In its Resolution, the CTA   granted   the   Commissioner’s   motion   to  
By the end of CY 1991,   PNB’s   annual   income   tax   LIABILITY dismiss and,   accordingly,   denied   PNB’s   petition   for   review,   pertinently  
amounted to P144 M, which, when compared to its claimed total credits stating as follows:
and tax payments of P217.5 M, naturally resulted to a credit balance in o To reiterate, both the claim for refund and the subsequent
its favor in the amount of P73 M. appeal to this court must be filed within the same two (2)-
This credit balance was carried-over to cover tax liability for the years year period [provided in Sec. 230 of the NIRC]. This is not
1992 to 1996, but, as PNB alleged, was never applied because of the subject to qualification. The court is bereft of any jurisdiction or
bank’s   negative   tax   position for the said years, having incurred authority to hear the instant Petition for Review, considering that
losses during the 4-year period. the above stated action for refund was filed beyond the two (2)-
year prescriptive period as allowed under the Tax Code.
So PNB, in 1997, wrote then BIR Commissioner Vinzons-Chato to
In time, PNB filed a petition for review with the CA arguing that the
inform her about the above developments and to request for the
applicability of the two (2)-year prescriptive period is not jurisdictional and
issuance of a tax credit certificate TCC, for the "unutilized balance of
that said rule admits of certain exceptions.
its advance payment made in 1991 amounting to P73 M".
The appellate court reversed the ruling of the CTA.
This request was forwarded for review to the Office of the Deputy
o Considering the "special circumstance" that the tax credit PNB
Commissioner for Legal and Inspection Group.
has been seeking is to be sourced not from any tax erroneously
Deputy  Commissioner  Hefti  decided  not  to  take  cognizance  of  the  bank’s   or illegally collected but from advance income tax payment
claim for tax credit certificate on the ground that the jurisdiction of the voluntarily   made   in   response   to   then   President   Aquino’s   call   to  
Appellate Division is limited to claims for tax refund and credit "involving generate more revenues for the government, in no way can the
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REMEDIES  (Taxpayers’  Remedies  – Refund)

amount of P180 M advanced by PNB in 1991 be considered Even assuming, in gratia argumenti that the two (2)-year limitation is of
as erroneously or illegally paid tax. governing application, still the prescriptive period set forth therein is not
o The BIR is deemed to have waived the two (2)-year jurisdictional. The suspension of the statutory limitation in this case is
prescriptive period when its officials led the PNB to believe that justified under exceptional circumstance.
its request for tax credit had not yet prescribed since the matter
was not being treated as an ordinary claim for tax HELD: We rule for respondent PNB.
refund/credit or a simple case of excess payment.
o Commissioner of Internal Revenue vs. Philippine American Life RATIO:
Insurance Co.- instructs that even if the two (2)-year "SEC. 230. Recovery of tax erroneously or illegally collected. – No suit or proceeding shall
prescriptive period under the Tax Code had already lapsed, be maintained in any court for the recovery of any national internal revenue tax hereafter
the same is not jurisdictional, and may be suspended for alleged to have been erroneously or illegally assessed or collected , . . , or of any sum,
reasons of equity and other special circumstances. alleged to have been excessive or in any manner wrongfully collected, until a claim for
refund or credit has been duly filed with the Commissioner; but such suit or proceeding
PNB’s  failure  to  apply  the  advance  income  tax  payment  
may be maintained, whether or not such tax, penalty, or sum has been paid under protest or
due to its negative tax liability in the succeeding taxable duress.
years i.e., 1992-1996, should not be subject to the two
(2)-year limitation as to bar its claim for tax credit. The In any case, no such suit or proceeding shall be begun after the expiration of two [(2)] years
advance income tax payment, made as it were under from the date of payment of the tax or penalty regardless of any supervening cause that may
special circumstances, warrants a suspension of the arise after payment: Provided, however, That the Commissioner may, even without a
two (2)-year  limitation,  underscoring  the  fact  that  PNB’s   written claim therefor, refund or credit any tax, where on the face of the return upon which
claim is not even a simple case of excess payment. payment was made, such payment appears clearly to have been erroneously paid.

ISSUE: the applicability hereto of the two (2)-year prescriptive period in Section Section 230 of the Tax Code, as couched is intended to apply to suits for
230 (now Sec. 229) of the NIRC, reading: the recovery of internal revenue taxes or sums erroneously, excessively,
illegally or wrongfully collected.
CIR’s  arguments: Black defines the term erroneous or illegal tax as one levied without
Citing Revenue Regulation No. 10-77, CIR argues that any excess or statutory authority.
overpaid income tax for a given taxable year may be carried to the In the strict legal viewpoint, therefore,   PNB’s   claim   for   tax   credit   did  
succeeding taxable year only. It cannot go beyond, as what respondent not proceed from, or is a consequence of overpayment of tax
PNB attempted to do in 1997, when, after realizing the inapplicability of erroneously or illegally collected.
the excess carry-forward scheme for its 1992 income tax liabilities, it o It is beyond cavil that respondent PNB issued to the BIR the
belatedly requested for a TCC issuance. check for P180 Million in the concept of tax payment IN
ADVANCE, thus eschewing the notion that there was error
PNB contends: or illegality in the payment.
Its claim for tax credit did not arise from overpayment resulting from What in effect transpired when PNB wrote its 1997 letter asking for
erroneous, illegal or wrongful collection of tax. TCC was that respondent sought the application of amounts advanced to
Its P180 M advance income tax payment for 1991 partakes of the nature the BIR to future annual income tax liabilities, in view of its inability to
of a deposit made in anticipation of taxes not yet due or levied. carry-over the remaining amount of such advance payment to the four (4)
Accordingly, PNB adds, the P180 M was strictly not a payment of a valid succeeding taxable years, not having incurred income tax liability during
and existing tax liability, let alone an erroneous payment, the refund of that period.
which is governed by Section 230 of the NIRC. The instant case ought to be distinguished from creditable
withholding taxes (Remember Tax 1?) which are in the nature of
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"erroneously collected taxes" wherein due to the net losses suffered incurred by petitioner due to losses in its operations. It is
during a taxable year, a corporation was also unable to apply to its truly inequitable to strictly impose the two (2)-year
income tax liability taxes which the law requires to be withheld and prescriptive period as to legally bar any request for such tax
remitted. In the latter instance, such which entitled the corporate taxpayer credit certificate considering the special circumstances under
to a refund under Section 230 of the Tax Code. which the advance income tax payment was made and the
31
So it is that in Citibank, N.A. vs. Court of Appeals , we held: unexpected event (four years of business losses) which
o The taxes thus withheld and remitted are provisional in prevented such application or carry over.
nature. CIR citing Revenue Regulation No. 10-77, contends that the carrying
In Commissioner of Internal Revenue vs. TMX Sales, Inc., (illustrates forward of any excess or overpaid income tax for a given taxable year is
creditable withholding taxes) limited to the succeeding taxable year only.
o In this case, the payments of the withholding taxes for 1979 and We do not agree.
1980 were creditable to the income tax liability, if any, of Revenue Regulation No. 10-77 governs the method of computing
petitioner-bank, determined after the filing of the corporate corporate quarterly income tax on a cumulative basis. Section 7
income tax returns on April 15, 1980 and April 15, 1981. As thereof provides:
petitioner posted net losses in its 1979 and 1980 returns, it o SEC. 7. Filing of final or adjustment return and final payment of income tax. --
was not liable for any income taxes. Consequently and A final or an adjustment return . . . covering the total taxable income of the
clearly, the taxes withheld during the course of the taxable corporation for the preceding calendar or fiscal year shall be filed on or before
the 15th day of the fourth month following the close of the calendar or fiscal
year, while collected legally under the aforecited revenue
year. xxxx. The amount of income tax to be paid shall be the balance of the total
regulation, became untenable and took on the nature of
income tax shown on the final or adjustment return after deducting therefrom
erroneously collected taxes at the end of the taxable year. the total quarterly income taxes paid during the preceding first three quarters of
(Underscoring added) the same calendar or fiscal year.
Analyzing the underlying reason behind the advance payment made by o "Any excess of the total quarterly payments over the actual
respondent PNB in 1991, the CA held that it would be improper to income tax computed and shown in the adjustment or final
treat the same as erroneous, wrongful or illegal payment of tax corporate income tax return shall either (a) be refunded to the
within the meaning of Section 230 of the Tax Code. So that even if the corporation, or (b) may be credited against the estimated
respondent’s   inability   to   carry-over the remaining amount of its advance quarterly income tax liabilities for the quarters of the
payment to taxable years 1992 to 1996 resulted in excess credit, it would succeeding taxable year. The corporation must signify in its
be inequitable to impose the two (2)-year prescriptive period in annual corporate adjustment return its intention whether to
Section   230   as   to   bar   PNB’s   claim   for   tax   credit   to   utilize the same request for the refund of the overpaid income or claim for
for future tax liabilities. (WHY?) automatic tax credit to be applied against its income tax liabilities
o When the P180 million advance income tax payment was for the quarters of the succeeding taxable year by filling the
tendered by PNB, no tax had been assessed or due, or appropriate box on the corporate tax return. (B.I.R. Form No.
actually imposed and collected by the BIR. Neither can such 1702) [Emphasis added]
payment be considered as illegal having been made in o As can be gleaned from the above, the mandate of Rev. Reg.
response to a call of patriotic duty to help the national No. 10-77   is   hardly   of   any   application   to   PNB’s   advance  
government ….   We therefore hold that the tax credit sought payment which, needless to stress, are not "quarterly
by [respondent] is not simply a case of excess payment, but payments" reflected in the adjusted final return, BUT A LUMP
rather for the application of the balance of advance income SUM PAYMENT TO COVER FUTURE TAX OBLIGATIONS.
tax payment for subsequent taxable years after failure or Neither can such advance lump sum payment be considered
impossibility to make such application or carry over the overpaid income tax for a given taxable year, so that the carrying
preceding four (4)-year period when no tax liability was
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forward of any excess or overpaid income tax for a given taxable national government. It would thus indeed, be unfair, as the CA
year is limited to the succeeding taxable year only. correctly observed, to leave respondent PNB to suffer losing
o Clearly, limiting the right to carry-over the balance of millions of pesos advanced by it for future tax liabilities. The cut
respondent’s   advance   payment   only   to   the   immediately   becomes all the more painful when   it   is   considered   that   PNB’s  
succeeding taxable year would be unfair and improper failure to apply the balance of such advance income tax payment
CONSIDERING THAT, AT THE TIME PAYMENT WAS MADE, from 1992 to 1996 was, to repeat, due to business downturn
BIR   WAS   PUT   ON   DUE   NOTICE   OF   PNB’S   INTENTION   TO   experienced by the bank so that it incurred no tax liability for the
APPLY THE ENTIRE AMOUNT TO ITS FUTURE TAX period.
OBLIGATIONS. Verily, the suspension of the two (2)-year prescriptive period is warranted
Commissioner vs. Phi-am Life – the Court ruled that an availment of not solely by the objective or purpose pursuant to which respondent PNB
a tax credit due for reasons other than the erroneous or wrongful made the advance income tax payment in 1991.
collection of taxes may have a different prescriptive period. Absent Records   show   that   CIR’s   very   own  conduct   led   the   bank   to   believe  
any specific provision in the Tax Code or special laws, that period all along that its original intention to apply the advance payment to
would be ten (10) years under Article 1144 of the Civil Code. its future income tax obligations will be respected by the BIR.
o Significantly, Commissioner vs. Phil-Am is partly a reiteration of
a previous holding that even if the two (2)-year prescriptive WHEREFORE, the petition is DENIED for lack of merit and the assailed decision
period, if applicable, had already lapsed, the same is not and resolution of the Court of Appeals in CA-G.R. SP No. 76488 AFFIRMED.
jurisdictional and may be suspended for reasons of equity and
other special circumstances.
While perhaps not in all fours because it involved the refund of
14. Philam Asset Management v. CIR (RS)
overpayment due to misinterpretation of the law on franchise, our ruling
38 G.R. Nos. 156637/162004 | Dec. 14, 2005 | Panganiban, J.
in Panay Electric Co. vs. Collector of Internal Revenue , is apropos.
There, the Court stated:
Petitioner: Philam Asset Management, Inc.
o "xxx(L)egally speaking, the decision of the Tax Court [on the
Respondent: Commissioner of IR
two-year prescriptive period for tax refund] is therefore correct,
being  in  accordance  with  law.  However,  one’s  conscience  does  
SUMMARY
not and cannot rest easy on this strict application of the
This is a consolidation of 2 cases. For the first case, Philam filed for a refund of its
law, considering the special circumstances that surround this
unutilized tax credits for the taxable year (TY) 1997. For the second case, Philam
case. Because of his erroneous interpretation of the law on
claimed for refund of its unapplied CWT credits for the TY 1998. For both cases,
franchise taxes, the Collector, from the year 1947 had illegally
the BIR failed to act, so Philam elevated the cases to the CTA, which denied both
collected from petitioner the respectable sum of . . . . From a
petitions. CA denied appeals for both cases. The issue is whether Philam is
moral standpoint, the Government would be enriching itself of
entitled to tax refund of its 1997 and 1998 excess CWTs. SC granted the first
this amount at the expense of the taxpayer. (Words in bracket
petition, denied the second one. In the first case, Philam failed to indicate its option.
added and underscoring added.)
However, the SC said that failure   to   signify   one’s   intention   in   the   FAR   does  
Like the CA, this Court perceives no compelling reason why the principle
not mean outright barring of a valid request for a refund, should one still
enunciated in Panay Electric and Commissioner vs. Phil-Am Life should
choose this option later on. In the second case, although Philam did not indicate
not be applied in this case, more so since the amount over which tax
its option to carry-over, subsequent acts of Philam revealed its intention to
credit is claimed was theoretically booked as advance income tax
carry-over. The SC said that the fact that it  filled  out  the  portion  “Prior  Year’s  
payment. It bears stressing that respondent PNB remitted the P180
Excess   Credits”   in   its   1999   FAR means that it categorically availed itself of the
Million in question as a measure of goodwill and patriotism, a
carry-over option. If it intended to file a tax refund instead of availing of the carry-
gesture noblesse oblige, so to speak, to help the cash-strapped
over option, that portion should have been left blank.
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REMEDIES  (Taxpayers’  Remedies  – Refund)

o Philam likewise had an unapplied creditable withholding tax


FACTS (CWT) in the amount of P459,756.07, which amount had been
previously   withheld   in   that   year   by   Philam’s   withholding   agents  
2 consolidated Petitions for Review under Rule 45 (PFI and PBFI, and – new party – Philam Strategic Growth, or
PSGFI)
G.R. 156637 o 2000 – Philam had tax due of P80,042.xx, and a CWT of
FACTS as narrated by the CTA, and as adopted by the CA: P915,995.xx
o Philam is a domestic corporation duly organized and exisiting o Philam also declared in its 1999 tax return the amount of
under Philippine laws. P459,756.xx, which represents its prior excess credit for taxable
o It acts as the investment manager of both Philippine Fund, Inc. year 1998.
(PFI) and Philam Bond Fund, Inc. (PBFI), which are open-end o 11/14/2000 – Philam filed a written administrative claim for
investment companies, in the sale of their shares of stocks and refund with respect to the unapplied CWT of P459,756.xx
in the investment of the proceeds of these sales into a diversified According to Philam, the amount of P80,042.00,
portfolio of debt and equity securities. representing the tax due for the taxable year 1999 has
o Provides management and technical services to PFI and PBFI been credited from its P915,995.00 creditable
o In   exchange   for   Philam’s services, both PFI and PBFI agree to withholding tax for taxable year 1999, thus leaving its
pay the former, by way of compensation, a monthly management 1998 creditable withholding tax in the amount of
fee from which PFI and PBFI withhold the amount equivalent to P459,756.07 still unapplied.
5% creditable tax pursuant to the Expanded Withholding Tax o BIR: no action.
Regulations. o 12/26/2000 – Philam filed a Petition for Review before the CTA,
o 4/3/1988 - Philam filed its Annual Corporate IT Return for the TY claiming that it is entitled to the refund of P459,756.07, since
1997 representing a net loss of P2,689,242.xx said amount has not been applied against its tax liabilities in TY
So, it had unutilized creditable withholding tax of 1998.
P522,092.xx represents amount withheld on o 5/2/2002 – CTA denied the petition
professional fees paid by PFI and PBFI
o 9/11/1998 – Philam filed an Administrative claim for return in the CA RULING
amount of the unutilized excess tax credits for CY 1997 Denied   Philam’s  claim   for   refund   of  the  excess   CWT   for   the   years   1997  
o 7/28/1999 – Philam filed a written request for the early and  1998,  despite  compliance  with  the  req’ts  of  RR  No.  12-94
resolution of its claim for refund For the ITRs for both years Philam did not indicate its option to have
o 11/29/1999 – CIR did not act on   Philam’s   claim;;   hence,   a   the amounts either refunded, or carried over and applied to the
Petition for Review was filed in the CTA succeeding year.
o 10/9/2001 – CTA  denied  Philam’s  petition Held that a corporation must signify its intent by marking the
1/29/2002 – MR also denied corresponding option box in its annual corporate adjustment return
GR No. 156637 – failure to present the 1998 ITR was fatal to the claim for
refund cannot verify if the tax credit for 1997 could not have been
G.R. 162004 applied against the 1998 tax liabilities of Philam.
FACTS as narrated by the CA: GR No. 162004 – subsequent act of Philam demonstrated its option to
o 4/13/1999 – Philam filed its Annual Income Tax Return for the carry over its tax credit for 1998 despite its failure to mark the appropriate
taxable year 1998, declaring a net loss of P1,504,951.xx Thus, box in its 1998 ITR. Thus, its failure to do so resulted to an automatic
no tax due for TY 1998 carry-over of any excess tax credit for the prior year (per RR 12-94)

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REMEDIES  (Taxpayers’  Remedies  – Refund)

ISSUE for both cases: WN Philam is entitled to a refund of its creditable taxes thus demonstrates clear diligence.
withheld for taxable years 1997 and 1998 o Conversely, a taxpayer that makes no choice expresses
YES  to  GR  156637  (or  “first  case”) uncertainty or lack of preference and hence shows simple
NO  to  GR  162004  (or  “second  case”) negligence or plain oversight.
Present case: CIR denied the refund because Philam:
HELD: WHEREFORE, the Petition in GR No. 156637 is GRANTED and the o Did not indicate its option
assailed December 19, 2002 Decision (relates to the first case) REVERSED and o Had not submitted as evidence its 1998 ITR (could have been
SET ASIDE. No pronouncement as to costs. the basis to determine whether the 1997 tax credit sought had
not been applied against its 1998 tax liab.)
RATIO Requiring that the ITR or the FAR of the succeeding year be
FIRST CASE presented to the BIR in requesting a tax refund has no basis in law
§76, 1997 NIRC applies to this case. It offers 2 options to the taxable and jurisprudence because:
corporation whose total quarterly income tax payments in a given TY o §76 of the Tax Code (TC) does not mandate it merely
exceeds total income tax due, viz: requires the filing of the FAR for the preceding -- not the
o filing for a tax refund; or succeeding -- taxable year.
o availing of a tax credit Any refundable amount indicated in the FAR of the
TAX REFUND any tax on income that is paid in excess of the amount preceding taxable year may be credited against the
due  the  gov’t  may  be  refunded,  provided  that  a  taxpayer  properly  applies   estimated income tax liabilities for the taxable quarters
for the refund of the succeeding taxable year.
TAX CREDIT works by applying the refundable amount, as shown on However, TC does not indicate that the FAR of the
the FAR of a given taxable year, against the estimated quarterly income taxable year following the period to which the tax
tax liabilities of the succeeding year credits are originally being applied should also be
2 options alternative in nature. Choice of one precludes the other. presented to the BIR.
Philippine Bank of Communications v. CIR a corporation must signify o §5 of RR 12-94 merely provides that claims for the refund of
its intention -- whether to request a tax refund or claim a tax credit -- by income taxes deducted and withheld from income payments
marking the corresponding option box provided in the FAR shall be given due course only (1) when it is shown on the ITR
o While a taxpayer is required to mark its choice in the form that the income payment received is being declared part of the
provided by the BIR, this requirement is only for the purpose of taxpayer’s  gross  income;;  and  (2)  when  the  fact  of  withholding  is  
facilitating tax collection. established by a copy of the withholding tax statement, duly
One cannot get a tax refund and a tax credit at the same time for the issued by the payor to the payee, showing the amount paid and
same excess income taxes paid. the income tax withheld from that amount.
Failure  to  signify  one’s  intention  in  the  FAR  does  not  mean  outright   No evidence that the income payments received by
barring of a valid request for a refund, should one still choose this Philam have not been declared as part of its gross
option later on. income, or that the fact of withholding has not been
established.
A tax credit should be construed merely as an alternative remedy to a tax
o There is no automatic grant of tax REFUND.
refund under Section 76, subject to prior verification and approval by the
BIR should be have the opportunity to investigate the
CIR
claim before it grants the refund.
Reason for requiring that a choice be made in the FAR upon filing ease
Exercising the option for a tax refund or a tax credit
of tax administration, particularly in self-assessment and collection
does not ipso facto confer upon a taxpayer the right
aspects.
to an immediate availment of the choice made.
A taxpayer that makes a choice expresses certainty or preference and
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REMEDIES  (Taxpayers’  Remedies  – Refund)

Neither does it impose a duty on the government to refund or issuance of a TCC shall be allowed.
allow tax collection to be at the sole control of a Philam argues that it is still entitled to a refund of its 1998 excess income
taxpayer. tax payments because it neither chose nor marked the carry-over option
o BIR   ought  to   have   on   file  its  own   copies   of  petitioner’s   FAR   for   box in its 1998 FAR. SC disagrees.
the succeeding year, on the basis of which it could rebut the Subsequent acts of Philam reveal that it has effectively chosen the
assertion that there was a subsequent credit of the excess carry-over option.
income tax payments for the previous year. But BIR failed to o The  fact  that  it  filled  out  the  portion  “Prior  Year’s  Excess  Credits”  
adduce this. in its 1999 FAR means that it categorically availed itself of the
o CTA should have taken judicial notice of the fact of filing and carry-over option.
pendency   of   Philam’s   subsequent   claim   for   a   refund   of   excess   FAR - most reliable firsthand evidence of corporate acts
CWT for 1998. pertaining to income taxes.
If this was done earlier, the fact that there was no carry- Failure   to   indicate   the   amount   of   “prior   year’s   excess  
over of the excess CWT for 1997 would have already credits”  does  not  mean  falsification  by  a  taxpayer  of  its  
been clear. current  year’s  FAR.
o TC allows the refund of taxes to a taxpayer that claims it in On the contrary, if an application for a tax refund has
writing within two years after payment of the taxes been -- or will be -- filed, then that portion of the BIR
erroneously received by the BIR. form should necessarily be blank, even if the FAR of
Despite   the   Philam’s   failure
 to make the appropriate the previous taxable year already shows an
marking in the BIR form, the filing of its written claim overpayment in taxes.
effectively serves as an expression of its choice to o The resulting redundancy in the claim of petitioner for a refund of
request a tax refund, instead of a tax credit. its 1998 excess tax credits on November 14, 2000 cannot be
To assert that any future claim for a tax refund will be countenanced.
instantly  hindered  by  a  failure  to  signify  one’s  intention   It cannot be allowed to avail itself of a tax refund
in the FAR is to render nugatory the clear provision that and a tax credit at the same time for the same
allows for a two-year prescriptive period. excess income taxes paid.
In the present case, although Philam did not mark Besides, disallowing it from getting a tax refund of those
the refund box in its 1997 FAR, neither did it excess tax credits will not weaken the two-year
perform any act indicating that it chose a tax credit. prescriptive period under the Tax Code Period will
Au contraire, it filed an administrative claim for the apply if the carry-over option has not been chosen.
refund of its excess taxes withheld in 1997.
It never applied the excess creditable taxes to its
quarterly returns for 1998.
15. Asiaworld v. CIR (HV)
SECOND CASE Topic: Refunds
§76 also applies. The carry-over option under it is permissive. Relevant Laws/ BIR Issuances: Sec 76 NIRC
A corporation that is entitled to a tax refund or a tax credit for excess
payment of quarterly income taxes may carry over and credit the excess G.R. No. 171766 July 29, 2010 CARPIO, J.:
income taxes paid in a given taxable year against the estimated income
tax liabilities of the succeeding quarters. Petitioners: ASIAWORLD PROPERTIES PHILIPPINE CORPORATION
o Once chosen, the carry-over option shall be considered (Asiaworld)
irrevocable for that taxable period, and no application for tax Respondents: CIR
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REMEDIES  (Taxpayers’  Remedies  – Refund)

Facts: applied to the taxes due for the succeeding taxable years. The Court of Appeals
•   Asiaworld   is   engaged   in   real   estate   with   principal   office   at   Asiaworld   City,   ruled  that  petitioner’s  choice  to  carry-over its tax credits for the taxable year 1999
Aguinaldo Boulevard, Parañaque to be applied to its tax liabilities for the succeeding taxable years is irrevocable and
•   For   the   calendar year ending 31 December 2001, petitioner filed its Annual petitioner is not allowed to change its choice in the following year. The carry-over
Income Tax Return (ITR) on 5 April 2002. Petitioner declared a minimum corporate of  petitioner’s  tax  credits  is  not  limited  only  to  the  following  year  of  2000  but  should  
income tax (MCIT) due in the amount of P1,222,066.00, but with a refundable be carried-over to the succeeding years until the whole amount has been fully
income tax payment in the sum of P6,473,959.00 computed as follows: applied.

Issue: Does the exercise of the option to carry-over the excess income tax
credit, which shall be applied against the tax due in the succeeding taxable
years, prohibits a claim for refund in the subsequent taxable years for the
unused portion of the excess tax credits carried over --- NO

Held:
•  Petition  of  Asiaworld  DENIED
•  Decision  of  CA  AFFIRMED

Ratio:
•SEC.  76.  Final  Adjustment  Return.  – Every corporation liable to tax under Section
27 shall file a final adjustment return covering the total taxable income for the
preceding calendar or fiscal year. If the sum of the quarterly tax payments made
during the said taxable year is not equal to the total tax due on the entire taxable
income of that year, the corporation shall either:
•In  its  2001  ITR,  Asiaworld  stated  that  the  amount  of  P7,468,061.00    representing   (A) Pay the balance of tax still due; or
Prior  Year’s  Excess  Credits  was  net  of  year  1999  excess  creditable  withholding  tax   (B) Carry-over the excess credit; or
to be refunded in the amount of P18,477,144.00. It also indicated in its 2001 ITR its (C) Be credited or refunded with the excess amount paid, as the case
option to carry-over as tax credit next year/quarter the overpayment of may be
P6,473,959.00. In case the corporation is entitled to a tax credit or refund of the excess
•Asiaworld  then  filed  for  refund estimated quarterly income taxes paid, the excess amount shown on its final
•Before  BIR  RDO  could  act  on  the  refund  claimed,  Asiaworld  filed  its  case  before   adjustment return may be carried over and credited against the estimated
CTA to toll the running of the 2 year prescriptive period. quarterly income tax liabilities for the taxable quarters of the succeeding
•  The  CTA  and  the  MR  before  CTA  is  denied taxable years. Once the option to carry-over and apply the excess quarterly
•  CA  ruled  as  follows: income tax against income tax due for the taxable quarters of the succeeding
The Court of Appeals held that under Section 76 of the NIRC of 1997, when the taxable years has been made, such option shall be considered irrevocable
income tax payment is in excess of the total tax due for the entire taxable income for that taxable period and no application for cash refund or issuance of a
of the year, a corporate taxpayer may either carry-over the excess credit to the tax credit certificate shall be allowed therefore.
succeeding taxable years or ask for tax credit or refund of the excess income •  “Once  the  option  to  carry-over and apply the excess quarterly income tax against
taxes paid. Section 76 explicitly provides that once the option to carry-over is income tax due for the taxable quarters of the succeeding taxable years has
chosen, such option is irrevocable for that taxable period and the taxpayer is no been made, such option shall be considered irrevocable for that taxable
longer allowed to apply for cash refund or tax credit. In this case, petitioner chose period and no application for cash refund or issuance of a tax credit certificate
to carry-over the excess tax payment it had made in the taxable year 1999 to be shall   be   allowed   therefore.” Section   76   expressly   states   that   “the   option   shall   be  

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REMEDIES  (Taxpayers’  Remedies  – Refund)

considered irrevocable for that taxable period” – referring to the period failed to comply with the next 2 requirements. Again (as the CTA said), it failed to
comprising   the   “succeeding taxable years.” Section   76   further   states   that   “no   show that the income derived from rentals and sale of real property from which the
application for cash refund or issuance of a tax credit certificate shall be taxes were withheld were reflected in its 1994 ITR.
allowed therefore” – referring   to   “that   taxable   period”   comprising   the   “succeeding  
taxable  years.” FACTS:
•      Thus,  once  the  taxpayer  opts  to  carry-over the excess income tax against the April 10, 1995 (1994 ITR): FEBTC filed with the BIR 2 Corporate Annual
taxes due for the succeeding taxable years, such option is irrevocable for the ITR (one for Corporate Banking Unit (CBU) and another for its Foreign
whole amount of the excess income tax, thus, prohibiting the taxpayer from Currency Deposit Unit (FCDU) for the taxable year ending December 31,
applying for a refund for that same excess income tax in the next succeeding 1994
taxable   years.     The   unutilized   excess   tax   credits   will   remain   in   the   taxpayer’s   The return for   the   CBU   consolidated   the   FEBTC’s   overall   income   tax  
account   and   will   be   carried   over   and   applied   against     the   taxpayer’s   income   tax liability for 1994, which reflected a refundable income tax of
liabilities in the succeeding taxable years until fully utilized. P12,682,864.00
The amount of P12,682,864.00 was carried over and applied against
FEBTC’s   income   tax   liability   for   the   taxable   year   ending   December   31,  
1995.
16. CUR v. Far East Bank (HQ)
Topic: Requisites – Claim for Refund April 15, 1996 (1995 ITR): FEBTC filed its 1995 Annual ITR which
Relevant Laws: Sec. 229, NIRC and Sec. 10 RR 6-85 showed a total overpaid income tax in the amount of P17,443,133.00
Out of the P17,433,133.00 refundable income tax, only P13,645,109.00
G.R. No. 173854 was sought to be refunded FEBTC. It opted to carry over the remaining
March 15, 2010 P3,798,024.00 to the next taxable year.
Del Castillo, J. May 17, 1996: FEBTC filed a claim for refund of the amount of
P13,645,109.00 with the BIR.
Petitioner: Commissioner of Internal Revenue
Respondent: Far East Bank & Trust Company (Now Bank of the Philippine
April 8, 1997: Due to the failure of CIR to act on the claim for refund,
Islands) FEBTC was compelled to bring the matter to the CTA.
To prove its entitlement to a refund, FEBTC presented documents such
SUMMARY: FEBTC filed a claim for refund for its overpaid income tax amounting
as:
to more than P13M. BIR failed to act upon the claim so FEBTC filed a petition for
1.) Annual ITR for 1994 covering the income of its CBU;
review before the CTA. CTA denied the claim for refund on the ground that it failed
2.) Annual ITR for 1994 covering the income of its FCDU;
to show that the income derived from rentals and sale of real property from
3.) Annual ITR for 1995 covering the income of its CBU;
which the taxes were withheld were reflected in its 1994 ITR. CA reversed the
4.) Annual ITR for 1995 covering the income of its FCDU
decision. Basically, it argued that since the BIR did not dispute the contents of the
(together with the attachments) AND
return, it was accepted as regular and even accurate. Also, CA believed FEBTC
5.) Certificates of Creditable Withholding Tax (CWTs) and
when  it  said  that  the  income  was  already  reflected  as  “Other  Income”.  The issue is
6.) Monthly Remittance Returns of Income Taxes Withheld
whether or not FEBTC has proven its entitlement to the refund. SC gave more
issued by various withholding agents (MRRs)
credence to the findings of the CTA and held that FEBTC had not proven its
entitlement to the refund. The requisites for claiming a refund are: 1.) the claim
CTA: Denied   FEBTC’s   claim   for   refund   on   the   ground   that   it   failed   to  
must be timely filed (within 2 years from date of payment); 2.) Income
show that the income derived from rentals and sale of real property
received must be declared as part of gross income; and 3.) fact of
st from which the taxes were withheld were reflected in its 1994 Annual
withholding must be established. SC said that FEBTC complied with the 1 BUT
Income Tax Return.
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FEBTC filed a Motion for New Trial based on excusable negligence and CTA:
prayed that it be allowed to present additional evidence to support its Ruled that the income derived from rentals and sales of real property
claim for refund. CTA DENIED the motion were not included in  FEBTC’s  gross  income.
CA: Reversed  CTA’s  decision It  noted  that  in  respondent’s  1994  Annual  Income  Tax  Return,  the  phrase  
o Found that FEBTC has duly proven that the income derived from "NOT APPLICABLE" was printed on the space provided for rent, sale of
rentals and sale of real property upon which the taxes were real property and trust income.
withheld were included in the return as part of the gross income (Note: The CWTs submitted by FEBTC pertain to rentals of real property
while the MRRs refer to sales of real property - BUT there was no
ISSUE: Whether or not FEBTC has proven its entitlement to the refund – NO showing that the Rental Income and Income from Sale of Real Property
were included as part of the gross income of the said return. Walang
HELD: Petition GRANTED; CA’s  Decision  REVERSED and SET ASIDE. nakalagay  na  amount,  just  the  phrase  “NOT  APPLICABLE”)
CTA’s  decision  in  denying  FEBTC’s  claim  for  tax  refund  for  failure to prove that the Based on the foregoing, FEBTC has failed to comply with 2 essential
income derived from rentals and sale of real property from which the taxes were requirements for a valid claim for refund.
withheld were reflected in its 1994 Annual Income Tax Return, is REINSTATED
and AFFIRMED. CA:
Cited Citibank, N.A. vs. CA, wherein SC held that:
RATIO: "a refund claimant is required to prove the inclusion of the income payments
A taxpayer claiming for a tax credit or refund of creditable withholding tax which were the basis of the withholding taxes and the fact of withholding.
However, a detailed proof of the truthfulness of each and every item in the
must comply with the following requisites:
income tax return is not required. x x x
x x x The grant of a refund is founded on the assumption that the tax return
1) The claim must be filed with the CIR within the two-year period from is valid; that is, the facts stated therein are true and correct. x x x"
the date of payment of the tax; (Sec. 229, NIRC and Sec. 10, RR 6-85) In   this   case,   BIR   examined   FEBTC’s   1994&1995   ITRs   and   presumably,  
the BIR found no false declaration in them because it did not allege any
2) It must be shown on the return that the income received was false declaration thereof in its Answer
declared as part of the gross income; and
Nowhere in the Answer, did the BIR dispute the amount of tax refund
being claimed by FEBTC as inaccurate or erroneous. (In short, CA
3) The fact of withholding must be established by a copy of a statement
concluded that the returns were regular and even accurate since the BIR
duly issued by the payor to the payee showing the amount paid and the
did not dispute the correctness of the returns)
amount of the tax withheld
Reported   the   income   under   “Other   Income”   “Trust   Income”   “Interest  
ST Income”
1 REQUIREMENT:
Moreover,   CA   gave   credence   to   FEBTC’s   assertion   that   it   reported   the  
FEBTC timely filed its claim for refund
said income payments as part of its gross income when it included the
There is no dispute that FEBTC complied with the first requirement. same as part of the "Other Income," "Trust Income," and "Interest
The  filing  of  FEBTC’s  administrative  claim  for  refund  on  May  17,  1996  and   Income"
judicial claim for refund on April 8, 1997 were well within the two-year The reason why the phrase "NOT APPLICABLE" was indicated in the
period from the date of the filing of the return on April 10, 1995 “Rent,   sale   of   real   property   and   trust   income”   is   due   to   the   fact   that  
ND FEBTC already reported the subject rental income and income from sale
2 REQUIREMENT
of real property in the Schedule of Income under the headings "Other
FEBTC failed to prove that the income derived from rentals and sale of real
Income/Earnings," "Trust Income" and "Interest Income."
property were included in the gross income as reflected in its return
Therefore, FEBTC still complied with the second requirement that the

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REMEDIES  (Taxpayers’  Remedies  – Refund)

income upon which the taxes were withheld are included in the return as 17. CIR v. Smart (KF)
part of the gross income. Topic: Taxpayer’s  Remedies  (Refund)
Petitioner: Commissioner of Internal Revenue
CTA vs. CA: Respondent: Smart Communications, Inc.
SC sided with the CTA (basically, same arguments)
The income derived from rentals and sales of real property upon Summary: Smart entered into 3 agreements with Prism. It withhold 7M to
which the creditable taxes were withheld were NOT included in represent the 25% royalty tax under the RP-Malaysia Tax Treaty, thinking these
FEBTC’s  gross  income  as  reflected  in  its  return. payments constitutes royalties. It then filed its return of Final Income Taxes
Since no income was reported, it follows that no tax was withheld. Withheld. Thereafter, it filed for a refund arguing that payments made to Prism are
It is incumbent upon the taxpayer to reflect in his return the income upon not royalties but business profits business profits" and business profits are taxable
which any creditable tax is required to be withheld at the source in the Philippines only if attributable to a permanent establishment in the
FEBTC’s   explanation   that   its   income   derived   from   rentals   and   sales   of   Philippines. CTA 2nd Division and EB ruled for Smart hence, CIR filed this petition.
real properties were included in the gross income but were classified as ISSUE: 1. WON Smart has the right to file a claim for refund; 2. WON payments
"Other Earnings" is not supported by the evidence. made to Prism are business profits. HELD: YES to both. Withholding agent may
There is nothing in the Schedule of Income to show that the income file a claim for refund and Prism has intellectual property right over the SDM
under the heading "Other Earnings" includes income from rentals program only, hence, is only the payment in the SDM program is subject to
and sales of real property. No documentary or testimonial evidence was royalties.
presented by respondent to prove this.
In fact, FEBTC upon realizing its omission, filed a motion for new trial on FACTS:
the ground of excusable negligence with the CTA. (CTA was saying that it Smart is a corp organized and existing under the RP law and is duly
was a mere afterthought) registered with the BOI.
It entered into 3 agreements for Programming and Consultancy Services
RD
3 REQUIREMENT: with Prism Transactive, a non-resident corp duly organized and existing
FEBTC failed to present all the Certificates of Creditable Tax Withheld at under the laws of Malaysia.
Source. o Prism was to provide services for the installation of the Service
CA failed to consider the absence of several CWTs. Download Manager (SDM) and the Channel Manager (CM), and
It immediately granted the refund without first verifying whether the fact of for the installation and implementation of Smart Money and
withholding was established by the CWTs Mobile Banking Service SIM Applications (SIM Applications) and
The certifications issued by FEBTC cannot be considered in the absence Private Text Platform (SIM Application)
of the required Certificates of Creditable Tax Withheld at Source. Prism billed Smart for US$547,822.45.
Smart withheld the US$136,955.61 or P7,008,840.43, representing the
Burden is on the taxpayer to prove its entitlement to the refund 25% royalty tax under the RP-Malaysia Tax Treaty, thinking that these
Moreover, the fact that the CIR failed to present any evidence or to refute the evidence payments constitute royalties.
presented by respondent does not ipso facto entitle the respondent to a tax refund.
Smart filed its Return of Final Income Taxes Withheld.
It  is  not  the  duty  of  the  government  to  disprove  a  taxpayer’s  claim  for  refund.  Rather, the
burden of establishing the factual basis of a claim for a refund rests on the taxpayer
W/n the 2yr period to claim a refund, Smart filed for a refund with the
Since tax refunds partake of the nature of tax exemptions, which are construed strictissimi BIR in the amount of P7,008,840.43. CIR failed to act on the claim, so
juris against the taxpayer, evidence in support of a claim must likewise be strictissimi Smart filed a petition for review in the CTA.
scrutinized and duly proven.
CTA 2nd Division
Smart’s  arguments:

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REMEDIES  (Taxpayers’  Remedies  – Refund)

1.Payments made to Prism are not royalties but "business profits," pursuant Under the withholding tax system, the agent-payor becomes a payee by fiction of law
to the definition of royalties under the RP-Malaysia Tax Treaty because the law makes the agent personally liable for the tax arising from the breach of its
2. Since under Article 7 of the RP-Malaysia Tax Treaty, "business profits" are duty to withhold. Thus, the fact that Smart is not in any way related to Prism is immaterial.
taxable in the Philippines only if attributable to a permanent establishment Payments made to Prism do not fall under the definition of royalties since the agreements
in the Philippines, the payments made to Prism, a Malaysian company with no are for programming and consultancy services only.
permanent establishment in the Philippines, should not be taxed. RATIO:
CIR’s  arguments:
1. Smart, as withholding agent, is not a party-in-interest to file the claim for refund. 1. WITHHOLDING AGENT MAY FILE A CLAIM FOR REFUND
2. Assuming that it is the proper party, there is no showing that the payments made to 1
Based on Section 204© and 229 of the NIRC, the person entitled to
Prism constitute "business profits.”
claim a refund is the taxpayer. However, in case the taxpayer does not file
Decision:   ruled   for   Smart’s   right,   as   a   withholding   agent,   to   file   the   claim   for   refund;;  
granted a partial refund citing CIR v. Wander Philippines, Inc., CIR v. P&G and CIR v.
a claim for refund, the withholding agent may file a claim.
CTA. Although it agreed with Smart that the CM and CIM payments are "business CIR v. P&G: the withholding agent, P&G-Phil., is directly and
profits," not subject to tax, the payment for the SDM Agreement was a royalty subject to independently liable for the correct amount of the tax that should be
withholding tax. withheld from the dividend remittances.
CTA EB : affirmed CTA Division. o "Taxpayer" defined in the Tax Code as referring to "any person
subject to tax."
ISSUES: o "Person liable for tax" held to be a "person subject to tax" and
3. WON Smart has the right to file the claim for refund - YES, has the right to properly considered a "taxpayer." The terms "liable for tax" and
file refund. "subject to tax" both connote legal obligation or duty to pay a tax.
4. If Smart has the right, whether the payments made to Prism constitute Such a person should be regarded as a party in interest, or as a
"business profits" or royalties. - BUSINESS PROFITS person having sufficient legal interest, to bring a suit for refund of
taxes he believes were illegally collected from him
HELD: Petition Denied. Talo si CIR. CTA EB affirmed.

ARGUMENTS OF THE PARTIES: (Just in case sir asks, how can u argue blahblah)
1
Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. – The
CIR: Commissioner may –
The   cases   relied   upon   by   the   CTA   in   upholding   Smart’s   right   to   claim   the   refund   are   (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority,
inapplicable since the withholding agents therein are wholly owned subsidiaries of the refund the value of internal revenue stamps when they are returned in good condition by the purchaser,
principal taxpayers, unlike in the instant case where the withholding agent and the taxpayer and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and
are unrelated entities. refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed
unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2)
Since Smart did not file the claim on behalf of Prism, it has no legal standing to claim the
years after the payment of the tax or penalty: Provided, however, That a return filed showing an
refund. To rule otherwise would result to the unjust enrichment of Smart, who never overpayment shall be considered as a written claim for credit or refund.
shelled-out any amount to pay the royalty taxes.
The real party-in-interest to file a claim for refund of the erroneously withheld taxes is Sec. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or proceeding shall be
Prism citing Silkair v. CIR, where it was ruled that the proper party to file a refund is the maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have
statutory taxpayer. been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected
without authority, or of any sum alleged to have been excessively or in any manner wrongfully
Assuming Smart is the proper party, it is still not entitled to any refund because the collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or
payments made to Prism are taxable as royalties, having been made in consideration for the proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or
use of the programs owned by Prism. duress.
SMART: In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date
It is the proper party to file a claim for refund as it has the statutory and primary of payment of the tax or penalty regardless of any supervening cause that may arise after payment:
responsibility and liability to withhold and remit the taxes to the BIR. Provided, however, That the Commissioner may, even without a written claim therefor, refund or
credit any tax, where on the face of the return upon which payment was made, such payment appears
clearly to have been erroneously paid
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REMEDIES  (Taxpayers’  Remedies  – Refund)

Philippine Guaranty Company, Inc. v. CIR: a withholding agent is in the other if it carries on supervisory activities in that other State for more than
fact the agent both of the government and of the taxpayer, and that the six months in connection with a construction, installation or assembly project
which is being undertaken in that other State.
withholding agent is not an ordinary government agent.
In the instant case, it was established during the trial that Prism does not
o The law sets no condition for the personal liability of the
have a permanent establishment in the Philippines. Hence, “business  
withholding agent to attach. The reason is to compel the
profits”  derived  from  Prism’s  dealings  with  respondent  are  not  taxable.
withholding agent to withhold the tax under all circumstances.
The provisions in the agreements are clear. Prism has intellectual
o With respect to the collection and/or withholding of the tax, he is
property right over the SDM program, but not over the CM and SIM
the  Government’s  agent.  In  regard  to  the  filing  of  the  necessary  
Application programs as the proprietary rights of these programs belong
income tax return and the payment of the tax to the Government,
to respondent. In other words, out of the payments made to Prism,
he is the agent of the taxpayer.
only the payment for the SDM program is a royalty subject to a 25%
o Such authority may reasonably be held to include the authority to
withholding tax. A refund of the erroneously withheld royalty taxes for
file a claim for refund and to bring an action for recovery of such
the payments pertaining to the CM and SIM Application Agreements is
claim.
therefore in order.
Although such relation between the taxpayer and the withholding agent is
a  factor  that  increases  the  latter’s  legal  interest  to  file  a  claim for refund,
there is nothing in the decision to suggest that such relationship is
required or that the lack of such relation deprives the withholding 18. CIR v. Petron (MR)
agent of the right to file a claim for refund. Topic: all about TCC—particularly,   that   a   TCC’s  effectivity   is   not   subject   to   post-
While the withholding agent has the right to recover the taxes audit
erroneously or illegally collected, he nevertheless has the obligation G.R. No. 185568
to remit the same to the principal taxpayer. As an agent of the March 21, 2012
taxpayer, it is his duty to return what he has recovered; otherwise, he Sereno, J.
would be unjustly enriching himself at the expense of the principal
taxpayer from whom the taxes were withheld, and from whom he derives Petitioners: Commissioner of Internal Revenue
his legal right to file a claim for refund. Respondents: Petron Corporation
Silkair v. CIR: does not apply since it involves excise taxes not
withholding taxes. Facts:
Petron was an assignee of several Tax Credit Certificates (TCC) from
2. The payments for the CM and the SIM Application Agreements various BOI-registered entities and it utilized these to pay it excise tax
constitute "business profits." liabilities for 1995-1998. The transfers and assignments of the said TCCs
RP-Malaysia Tax Treaty were   approved   by   the   Department   of   Finance’s   One   Stop   Shop   Inter-
o Royalties: payments of any kind received as consideration for: (i) the use of, or the Agency Tax Credit and Duty Drawback Center (DOF Center), composed
right to use, any patent, trade mark, design or model, plan, secret formula or process, any of representatives from the appropriate government agencies, namely,
copyright of literary, artistic or scientific work, or for the use of, or the right to use, industrial,
the Department of Finance (DOF), the Board of Investments (BOI), the
commercial, or scientific equipment, or for information concerning industrial, commercial or
scientific experience; (ii) the use of, or the right to use, cinematograph films, or tapes for
Bureau of Customs (BOC) and the Bureau of Internal Revenue (BIR).
radiotelevision broadcasting.These are taxed at the rate of 25% of the gross BOI  issued  a  letter  stating  that:  ‘hydraulic  oil,  penetrating oil, diesel fuels
amount. and industrial gases are classified as supplies and considered the
o Business profits: taxable only in that State, unless the enterprise carries on suppliers   thereof   as   qualified   transferees   of   tax   credit,’   so   Petron  
business in the other Contracting State through a permanent acknowledged   an   accepted   the   transfer   of   TCC’s   to   it.   They   were  
establishment. However, even if there is no fixed place of business, an continuously approved by the DOF as well as the BIR
enterprise of a Contracting State is deemed to have a permanent establishment in

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REMEDIES  (Taxpayers’  Remedies  – Refund)

In 2002, CIR then issued it an assessment for deficiency excise taxes outstanding account with the BIR and/or BOC
iii) A revalidation
based  on  the  ground  that  the  TCC’s  have  been  cancelled  by  the  DOF  for   of the TCC if not utilized within one year from issuance or date of
having been fraudulently issued and transferred; it was required by DOF utilization.
Center to submit copies of its sales invoices and delivery receipts o A transferee of a TCC should only be a BOI-registered firm
Instead of submitting, petitioner filed protest citing many things, the only under the Implementing Rules and Regulations of Executive
relevant being: Order (E.O.)
o The  assignment/transfer  of  the  TCC’s  were    approved  by  all  the   o The liability clause in the TCCs provides only for the solidary
concerned government agencies liability of the transferee relative to its transfer in the event it is a
o Barred by prescription party to the fraud.
o No basis for 50% surcharge o A   transferee   can   rely   on   the   Center’s   approval   of   the   TCCs’  
CIR served warrant of distraint/levy without acting on the protest so transfer and subsequent acceptance as payment of the
Petron filed petition in CTA. CIR cited in its Answer the following defenses transferee’s  excise  tax  liability.
(included the relevant only): o A TCC cannot be cancelled by the Center, as it was already
o After post-audit   by   the   DOF   Center,   the   TCC’s   issued   to the cancelled after the transferee had applied it as payment for the
entites who transferred the same to Petron were cancelled by latter’s  excise  tax  liabilities.
the DOF Here, CTA en banc also found that Petron had no participation in or
o Given that, Petron is deemed not to have paid the taxes and so knowledge of the fraudulent transfer and while its true that the government is never
a pre-assessment notice was not required (Sec. 228 Code) estopped, this principle does not apply when it would work injustice against an
o Government not estopped by the mistakes of its agent (in initially innocent party. Petron is an innocent transferee
approving  the  TCC’s  by  mistake) MR denied.
o Petron and the TCC transferors committed fraud in making it Rule 45 to SC
appear   that   the   TCC’s   were   transferred   in   conssideration   of  
petroleum delivery which never happened Issues: WON  through  the  TCC’s,  Petron  has  paid  its  tax  liabiity—YES
o The intent was to evade tax
o Since petition filed fraudulent returns, liable for 50% surcharge Held: Decision of lower court AFFIRMED
20% interest and the prescriptive period is 10 years
After this, sobrang daming procedural stuff—motion to reopen, formal Ratio: (Really moslty info about the nature of TCC and stuff)
offer, oppositions, suspensioon of formal offer, etc. What is a tax credit and tax credit certificate?
CTA ruling: ordered Petron to pay; payment can only occur if the Art. 21 EO 226: Tax   credit”   shall   mean   any   of   the   credits   against   taxes  
instrument used to discharge an obligation represents its stated value and/or duties equal to those actually paid or would have been paid to
(having   been   cancelled,   the   value   of   the   TCC’s   cannot   be   used   as   evidence which a tax credit certificate shall be issued by the Secretary of
payment).   Petron’s   acceptance   of   the   TCCs   was   considered   a   contract   Finance or his representative, or the Board, if so delegated by the
entered into by respondent with the CIR and subject to post- audit, which Secretary of Finance. The tax credit certificates including those issued by
was considered a suspensive condition (meaning the effectiveness of the the Board pursuant to laws repealed by this Code but without in any way
TCC is subject to a suspensive condition—that it must be approved upon diminishing the scope of negotiability under their laws of issue are
post-audit). MR denied transferable under such conditions as may be determined by the Board
CTA en banc ruling: reversed based on Pilipinas Shell vs. CIR— after consultation with the Department of Finance. The tax credit
o the issued TCCs are immediately valid and effective and are not certificate shall be used to pay taxes, duties, charges and fees due to the
subject to a post-audit as a suspensive condition National Government; Provided, That the tax credits issued under this
o TCC is subject only to the following conditions:
i) Post-audit in Code shall not form part of the gross income of the grantee/transferee for
the event of a computational discrepancy
ii) A reduction for any income tax purposes under Section 29 of the National Internal Revenue
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REMEDIES  (Taxpayers’  Remedies  – Refund)

Code and are therefore not taxable: Provided, further, That such tax o Upon surrender of the TCC and the DOF-TDM, the corresponding
credits shall be valid only for a period of ten (10) years from date of Authority to Accept Payment of Excise Taxes (ATAPET) will be
issuance. issued by the BIR Collection Program Division and will be submitted
Art. 39(j) Omnibus Investment Code 1987: tax credits are granted to to the issuing office of the BIR for acceptance by the Assistant
entities registered with the (BOI) and are given for taxes and duties paid Commissioner of Collection Service. This act of the BIR signifies its
on raw materials used for manufacture of their export products acceptance  of  the  TCC  as  payment  of  the  assignee’s  excise  taxes.
Sec. 1 RR 5-2000: B. Tax Credit Certificate—means a certification, duly
issued to the taxpayer named therein, by the Commissioner or his duly On to the case.
authorized representative, reduced in a BIR Accountable Form in Good faith of Petron
accordance with the prescribed formalities, acknowledging that the o From  above  it’s  apparent  that  a  TCC  undergoes  a  stringent  process  
grantee-taxpayer named therein is legally entitled a tax credit, the money of verification by various specialized government agencies before it is
value of which may be used in payment or in satisfaction of any of his accepted as payment for tax liability
internal revenue tax liability (except those excluded), or may be converted o CIR   bases   its   contentions   on   the   DOF’s   post-audit findings: that
as a cash refund, or may otherwise be disposed of in the manner and in Petron did not deliver the fuel and other petroleum products to the
accordance with the limitations, if any, as may be prescribed by the companies; the transferor companies could not have had such a high
provisions of these Regulations. volume of export sales declared to the Center and made the basis for
the issuance of the TCCs assigned to Petron.
More under RR 5-2000:
o But we affirm the good faith of the transferee Petron because (in so
TCC may be used by the grantee or its assignee in the payment of its
many  words)  CIR’s  contentions  lack  evidence.  Furthermore,  CIR  and  
direct internal revenue tax liability. It may be transferred in favor of an
Petron entered into a Joint Stipulation in the proceedings, one of
assignee subject to the following conditions:
which is: (Petron) did not participate in the procurement and issuance
o the TCC transfer must be with prior approval of the
of the TCCs, which TCCs were transferred to Petron and later utilized
Commissioner or the duly authorized representative;
by Petron in payment of its excise taxes.
o the transfer of a TCC should be limited to one transfer only;
o Petron has not been shown or proven to have participated in the
o the transferee shall strictly use the TCC for the payment of the
alleged fraudulent acts involved in the transfer and utilization of the
assignee’s   direct   internal   revenue   tax   liability   and   shall   not   be  
subject TCCs. Petron had the right to rely on the joint stipulation that
convertible to cash.
absolved it from any participation in the alleged fraud pertaining to
o A TCC is valid only for 10 years subject to the following rules: (1)
the issuance and procurement of the subject TCCs.
it must be utilized within five (5) years from the date of issue; and
CIR   contends   that   the   liability   clause   in   the   TCC’s   makes   Petron   liable  
(2) it must be revalidated thereafter or be otherwise considered
with the original grantees or transferor companies solidarily for fraudulent
invalid
acts or violation of law.
“One-Stop-Shop Inter-Agency   Tax   Credit   and   Duty   Drawback   Center”  
o We  do   not   agree.   The   Liability   Clause   of   the   TCC   reads:   “Both the
(“Center”)—created   under   Administrative   Order   (A.O.)   No.   226.   It’s in
TRANSFEROR and the TRANSFEREE shall be jointly and severally
charge  of  processing  TCC’s.  Its  purpose  is  to  expedite  the  processing  and  
liable for any fraudulent act or violation of the pertinent laws, rules
approval of tax credits and duty drawbacks.
and regulations relating to the transfer of this TAX CREDIT
A TCC may be assigned
CERTIFICATE.”
o through a Deed of Assignment, which the assignee submits to the
o The scope of this liability, as was held in Shell is as follows: clause
Center for its approval.
provides only for the solidary liability relative to the transfer of the
o Upon approval of the deed, the Center will issue a DOF Tax Debit
TCCs from the original grantee to a transferee. The transferee in
Memo (DOF-TDM), which will be utilized by the assignee to pay the
good faith and for value may not be unjustly prejudiced by the fraud
latter’s  tax  liabilities  for  a  specified  period.  
committed by the claimant or transferor in the procurement or
Page 36 of 42
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Taxpayers’  Remedies  – Refund)

issuance of the TCC from the Center. A transferee in good faith and since there is no contemplation of the situation wherein there is
for value of a TCC who has relied on the Center's representation of no post-audit.
the genuineness and validity of the TCC transferred to it may not be o If TCCs are considered to be subject to post-audit as a
legally required to pay again the tax covered by the TCC which has suspensive condition, the very purpose of the TCC would be
been belatedly declared null and void, that is, after the TCCs have defeated as there would be no guarantee that the TCC would be
been fully utilized through settlement of internal revenue tax liabilities. honored by the government as payment for taxes. No investor
Conversely, when the transferee is party to the fraud as when it did would take the risk of utilizing TCCs
not obtain the TCC for value or was a party to or has knowledge of On principle of no estoppel against Government: cannot be applied if it
its fraudulent issuance, said transferee is liable for the taxes and for would work injustice against an innocent party. Petron, in this case, was
the fraud committed as provided for by law. not   proven   to   have   had   any   participation   in   or   knowledge   of   the   CIR’s  
Also, a post-audit report does not have the effect of suspensive condition: allegation of the fraudulent transfer and utilization of the subject TCCs.
as ruled in Shell— Petron being found to be an innocent transferee for value, the Tax
o TCC is valid and effective upon its issuance and is not subject to Returns it filed for the years 1995 to 1998 are not considered fraudulent.
a post-audit. Hence, the CIR had no legal basis to assess the excise taxes or any
o The validity of those TCCs should not depend on the results of penalty surcharge or interest thereon, as respondent had already paid the
the  DOF’s  post-audit findings. appropriate excise taxes using the subject TCCs.
o Art. 1181 CC tells us that the condition is suspensive when the The court also said that consequently the prescriptive period is not 10
acquisition of rights or demandability of the obligation must await years  but  didn’t  really  say  anything  after  
the occurrence of the condition. However, Art. 1181 does not
apply to the present case since the parties did NOT agree to a
suspensive condition. Rather, specific laws, rules, and
regulations govern the subject TCCs, not the general provisions 19. United v. CIR (RK)
of the Civil Code. Nowhere in the laws is it provided that a TCC Topic: Taxpayer’s  Remedies;;  Refund
is issued subject to a suspensive condition. G.R. No. 178788
o Guidelines and Instruction found at the back of every TCC: September 29, 2010
This Tax Credit Certificate (TCC) shall entitle the Villarama, Jr., J.:
grantee to apply the tax credit against taxes and duties
until the amount is fully utilized, in accordance with the Petitioners: United Airlines, Inc. –Foreign corporation, engaged in International
pertinent tax and customs laws, rules and regulations. Airlines Business
xxx Respondents: Commissioner of Internal Revenue
To acknowledge application of payment, the One-Stop-
Shop Tax Credit Center shall issue the corresponding Summary: United ceased operating passenger flights from the Philippines
Tax Debit Memo (TDM) to the grantee. The authorized beginning 1998. It erroneously paid passenger Gross  Philippine  Billings  (“GPB”)  in  
Revenue Officer/Customs Collector to which 1999 so it sought a refund. The CTA found that United erroneously deducted items
payment/utilization was made shall accomplish the from its cargo GPB so United underpaid its cargo revenue taxes by P31.43 million,
Application of Tax Credit at the back of the certificate which amount was much much much higher than the P5.03 million in Passenger
and affix his signature on the column provided. GPBs tax it asked to be refunded. CTA denied refund and the MR. This was
o ^ they do not make the effectivity and validity of the TCC affirmed by CTA EB. Hence present petition. United argues that to deny refund on
dependent on the outcome of a post-audit. In fact, if we are to the basis of its larger cargo liability amounts to setting off which is contrary to the
sustain the appellate tax court, it would be absurd to make the well entrenched rule that taxes cannot be off set. The SC that:
effectivity of the payment of a TCC dependent on a post-audit

Page 37 of 42
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Taxpayers’  Remedies  – Refund)

(1) Subject of claim for tax refund is the tax paid on passenger revenue for o It sought to refund a total amount of P15,916,680.69 pertaining
taxable year 1999 at the time when petitioner was still operating cargo flights to gross passenger and cargo revenues for years 1999 to 2001
originating from the Philippines although it had ceased passenger flight o P5,028,813.23 (the relevant amount in this case) pertained
operations. The CTA found that petitioner had underpaid its GPB tax for 1999 allegedly to income taxes paid in 1999 on passenger revenue
because petitioner had made deductions from its gross cargo revenues in the tickets sold in the Philippines the uplifts of which did not originate
income tax return it filed for the taxable year 1999, the amount of in the Philippines
underpayment even greater than the refund sought for erroneously paid GPB Since it no longer operated passenger flights, United
tax on passenger revenues for the same taxable period. Hence, the CTA ruled argued that its passenger income from 1999 to 2001 is
petitioner   is  not   entitled   to  a   tax   refund.   Petitioner’s   arguments   regarding   the   not income from sources within the Philippines
4
propriety of such determination by the CTA are misplaced. Under Section 72 As such, it should be subject to Article 9 of the RP-US
of the NIRC, the CTA can make a valid finding that petitioner made erroneous Treaty.
deductions on its gross cargo revenue; that because of the erroneous United filed with the CTA a petition for review on April 15, 2002 there
deductions, petitioner reported a lower cargo revenue and paid a lower being no resolution on its claim and in view of the 2 year prescriptive
income  tax  thereon;;  and  that  petitioner’s  underpayment of the income tax on period (from the time of filing of Final Adjustment Return for taxable year
cargo revenue is even higher than the income tax it paid on passenger 1999).
revenue subject of the claim for refund, such that the refund cannot be o United asserts that under the new definition of Gross Philippine
granted. Billings, the Philippines has jurisdiction to tax only the gross
(2) Also, while as a general rule, taxes cannot be offset, there are exceptions. revenue derived by US air and shipping carriers from outgoing
Citing the case of Citytrust (CIR v. CTA), the SC held that in order to avoid traffic in the Philippines.
multiplicity of suits and pursuant to the then Sec. 82 of the NIRC, refund may o Hence BIR erroneously imposed and collected income tax in
be   denied   when   the   return’s   accuracy   is   challenged   and   the   deficiency   1999   (P5,028,813.23)   based   on   United’s   gross   passenger  
assessment is made in the same case. Here, the return filed by United for revenue as United no longer flew passenger flights in 1998.
1999 (its basis of the claim for refund) is challenged when it was ruled that the CTA ruled that no excess or erroneously paid tax may be refunded
passenger sales should be subject to the Sec. 28(A)(1) instead of Sec. to United because the income tax on Gross Philippine Billings
28(A)(3)(a) and the CTA made the proper assessment of the deficiency when applies as well to gross revenue from carriage of cargoes from the
the case was elevated to them from the CIR. Lastly, tax refunds are construed Philippines.
against the taxpayer. o CTA agreed that United cannot be taxed for its 1999 passenger
revenue.
Facts:
United   Airlines,   Inc.   (“United”)   operated   passenger   and   cargo   flights   in  
and out of the Philippines.
o In February 21, 1998, it ceased operating passenger flights and (a) International Air Carrier - "Gross Philippine Billings" refers to the amount of gross revenue
appointed Aerotel Ltd. Corp.—an independent general sales derived from carriage of persons, excess baggage, cargo and mail originating from the Philippines in a
agent—as its sales agent. continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment
of the ticket or passage document: xxx.
o United continued operating cargo flights until January 31, 2001. 3
Source of Income
United filed with the CIR on April 12, 2002 a claim for income tax refund (7) Gross revenues from the operation of ships in international traffic shall be treated as from sources
2 3
pursuant to Section 28(A)(3)(a) of the NIRC in relation to Article 4(7) of within a Contracting State to the extent they are derived from international traffic originating in that
the RP-US Tax Treaty State.
4
Article 9
Shipping and Air Transport
2) Nothing in the Convention shall affect the right of a Contracting State to tax, in accordance with its
domestic laws, profits derived by a resident of the other Contracting State from sources within the
2
SEC. 28. Rates of Income Tax on Foreign Corporations. - first-mentioned Contracting State from the operation of aircraft in international traffic.
Page 38 of 42
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Taxpayers’  Remedies  – Refund)

o However, upon investigation, CTA found that United erroneously 3. Under Section 72 of NIRC, CTA may make a valid finding that United
deducted two items (commission and other incentives) from its made erroneous deductions on its gross cargo revenue; that because of
cargo gross revenue before applying the tax rate. the erroneous deductions, petitioner reported a lower cargo revenue and
CTA notes that this was wrong. GROSS nga eh. paid a lower income tax thereon; and that petitioner's underpayment of
Thus,  United’s  Gross Philippine Billings tax on Cargo in the income tax on cargo revenue is even higher than the income tax it
1999 was P42.54 million but it only paid P11.1 million. paid on passenger revenue subject of the claim for refund, such that the
So, United underpaid its cargo revenue taxes by refund cannot be granted.
P31.43 million, which amount was much much 4. Petitioner is also correct that under civil code, there can be no off-
much higher than the P5.03 million in Passenger set; however, there is an exception
Gross Philippine Billings tax it asked to be a. GR (NO SET-OFF): taxes cannot be subject to compensation for the
refunded; the amount of underpayment is higher that simple reason that the government and the taxpayer are not creditors
amount of refund. and debtors of each other. Debts are due to the Government in its
o The MR was denied. corporate capacity, while taxes are due to the Government in its
CTA EB affirmed in toto. sovereign capacity
b. EXCEPTION:
Issue: Whether United is entitled to refund of P5,028,813.23 it paid as income i. In CIR v. CTA—to award tax refund despite deficiency tax
tax on passenger revenues in 1999. assessment is an absurdity.
1. SC granted offsetting of tax refund with tax deficiency on the
Held: WHEREFORE, we DENY the petition for lack of merit and AFFIRM the basis of Section 82 (NOW Section 72) of the Code.
Decision dated July 5, 2007 of the Court of Tax Appeals En Banc in C.T.A. EB No.
a. Section 83 (Now 72) provides that   “(w)hen an
227.
assessment is made in case of any list, statement, or
return, which in the opinion of the Commissioner of
Ratio:
Internal Revenue was false or fraudulent or contained
any understatement or undervaluation, no tax
1. Basically, United argues that the claim for cannot be denied on the basis collected under such assessment shall be
of its underpaid taxes is higher than the amount claimed for refund. This, recovered by any suits unless it is proved that the
United claims, amounts to an offsetting of taxes which contravenes the said list, statement, or return was not false nor
well-entrenched rule that taxes cannot be the subject of set-off or fraudulent and did not contain any understatement
compensation. or undervaluation; but this provision shall not apply to
2. Preliminarily, United is not subject to the Gross Philippine Billings statements or returns made or to be made in good faith
pertaining to passengers regarding annual depreciation of oil or gas wells and
a. South African Airways v. CIR - if an international air carrier mines."
maintains flights to and from the Philippines, it shall be taxed at the i. The grant of refund is found on the assumption
rate of 2½% (Sec. 28(A)(3)(a)) of its GPB, while international air that the tax return is valid, the facts stated therein
carriers that do not have flights to and from the Philippines but are true and correct.
nonetheless earn income from other activities in the country will be ii. However, a deficiency assessment, although not
taxed at the rate of 32% (Sec. 28(A)(1)) of such income. yet final, creates a doubt as to and constitutes a
b. Even if it is not subject to this, it was still subject to Cargo challenge against the truth and accuracy of the
Gross Philippine Billings. facts stated in the return.

Page 39 of 42
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Taxpayers’  Remedies  – Refund)

1. Thus, a return whose accuracy is We must emphasize that tax refunds, like tax exemptions, are construed strictly
challenged cannot be the basis of the grant against the taxpayer and liberally in favor of the taxing authority. In any event,
of refund petitioner has not discharged its burden of proof in establishing the factual basis for
b. Moreover, to grant the refund without determination of its claim for a refund and we find no reason to disturb the ruling of the CTA. It has
the proper assessment and the tax due would inevitably been a long-standing policy and practice of the Court to respect the conclusions of
result in multiplicity of proceedings or suits. quasi-judicial agencies such as the CTA, a highly specialized body specifically
i. If later on the deficiency assessment is upheld, the created for the purpose of reviewing tax cases.
government would have to collect the taxes it
refunded.
c. Thus, to avoid multiplicity of suits and unnecessary 20. Vda. de San Agustin v. CIR (KB)
difficulties or expenses, it is both logically necessary Topic: Refund
and legally appropriate that the issue of the
deficiency tax assessment against Citytrust G.R. No. 138485
(petitioner in case cited) be resolved jointly with its September 10, 2001
claim for tax refund, to determine once and for all in a Vitug, J.:
single proceeding the true and correct amount of tax
due or refundable. Petitioners: DR. FELISA L. VDA. DE SAN AGUSTIN, in substitution of JOSE Y.
2. HERE, petitioner’s  similar  tax  refund  claim  assumes  that  the   FERIA, in his capacity as Executor of the Estate of JOSE SAN AGUSTIN,
tax return that it filed was correct. Given, however, the Respondents: CIR
finding of the CTA that petitioner, although not liable
under Sec. 28(A)(3)(a) of the 1997 NIRC, is liable under Summary: Jose Agustin died. Executor paid the estate tax due. Estate then was
Sec. 28(A)(1), the correctness of the return filed by assessed for defeciency estate tax. Executor requested that surcharge, interest
petitioner is now put in doubt. As such, we cannot grant and other penalties be waived as deficiency arose only on account of the
the prayer for a refund difference in zonal valuation used by the Estate and the BIR. Request for
a. On the assumption that petitioner filed a correct return, reconsideration was not acted upon, respondent estate therefore paid the amounts
it had the right to file a claim for refund of GPB tax on under protest. Estate now files a petition for review in the CTA. CIR contends that
passenger revenues it paid in 1999 CTA has no jurisdiction as there was no claim for refund filed before the BIR before
b. However,   upon   examination   by   the   CTA,   petitioner’s   such petition was filed. Issue now is whether or not the filing of a claim for refund is
return was found erroneous as it understated its gross not essential before the filing of the petition for review. SC says that the Court of
cargo revenue for the same taxable year due to Tax Appeals has jurisdiction in providing for appeals from allows an appeal from
deductions of two (2) items a decision of the Collector in cases involving' disputed assessments' as
c. Having underpaid the GPB tax due on its cargo distinguished from cases involving' refunds of internal revenue taxes, fees or other
revenues for 1999, petitioner is not entitled to a refund charges. That the present action involves a disputed assessment because from the
of its GPB tax on its passenger revenue, the amount of time petitioner received assessments disallowing certain deductions claimed by
the former being even much higher (P31.43 million) him in his income tax returns for the years 1955 and 1956, he already protested
than the tax refund sought (P5.2 million) and refused to pay the same, questioning the correctness and legality of
d. The CTA therefore correctly denied the claim for tax such assessments. To file a claim for refund of the taxes paid as a condition
refund after determining the proper assessment and precedent to his right to appeal, would in effect require of him to go through a
the tax due useless and needless ceremony that would only delay the disposition of the
case.

Page 40 of 42
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Taxpayers’  Remedies  – Refund)

Facts: CTA
Atty. Jose San Agustin died on June 27, 1990 leaving his wife Dra. Felisa L.
San Agustin as sole heir. He left a holographic will executed on April 21, 1980 "On February 18, 1993, a Petition for Review was filed by the executor with
giving all his estate to his widow, and naming retired Justice Jose Y. Feria the CTA with the prayer that the Commissioner's letter/decision, dated
as Executor thereof. September 21, 1992 be reversed and that a refund of the amount of
"On September 3, 1990, an estate tax return reporting an estate tax due of P438,040.38 be ordered .
P1,676,432.00 was filed on behalf of the estate, with a request for an "The Commissioner opposed the said petition, alleging that the CTA's
extension of two years for the payment of the tax, inasmuch as the jurisdiction was not properly invoked inasmuch as no claim for a tax refund
decedent's widow ( did) not personally have sufficient funds, and that the of the deficiency tax collected was filed with the Bureau of Internal
payment (would) have to come from the estate. Revenue before the petition was filed, in violation of Sections 204 and 230
In his letter/answer, dated September 4, 1990, BIR Deputy Commissioner of the National Internal Revenue Code. Moreover, there is no statutory basis
Victor A. Deoferio, Jr., granted the heirs an extension of only six (6) for the refund of the deficiency surcharges, interests and penalties charged by
months, subject to the imposition of penalties and interests under Sections the Commissioner upon the estate of the decedent.
248 and 249 of the National Internal Revenue Code, as amended. CTA rendered its Decision, dated April 21, 1994, modifying the CIR's
March 8, 1991 , the executor paid the estate tax in the amount of assessment for surcharge, interests and other penalties from P438,040.38 to
P1,676,432 as reported in the Tax Return filed with the BIR. P13,462.74, representing interest on the deficiency estate tax, for which
On September 23, 1991, Agustin, received a Pre-Assessment Notice from the reason the CTA ordered the reimbursement to the respondent estate the
BIR, dated August 29, 1991, showing a deficiency estate tax of balance of P423,577.64, to wit:
P538,509.50, which, including surcharge, interest and penalties, amounted to
P976,540.00. CA
On October 1, 1991, the executor filed a letter with the petitioner
Commissioner expressing readiness to pay the basic deficiency estate tax of
30 May 1994, the decision of the Court of Tax Appeals was appealed by the
P538,509.50 as soon as the Regional Trial Court approves withdrawal thereof,
Commissioner of Internal Revenue to the Court of Appeals.
but, requesting that the surcharge, interest, and other penalties,
Court of Appeals granted the petition of the Commissioner of Internal Revenue
amounting to P438,040.38 be waived, considering that the assessed
and held that the Court of Tax Appeals did not acquire jurisdiction over the
deficiency arose only on account of the difference in zonal valuation
subject matter and that, accordingly, its decision was null and void.
used by the Estate and the BIR, and that the estate tax due per return of
P1,676,432.00 was already paid in due time within the extension period.
Issues:
In a letter, dated October 31, 1991, the executor requested the Commissioner
Whether or not the filing of a claim for refund is not essential before the filing of the
a reconsideration of the assessment of P976,549.00 and waiver of the
petition for review
surcharge, interest, etc.
"The request for reconsideration was not acted upon until January 21, Held: Petition Partly Granted (allowed refund but less amount)
1993, when the executor received a letter, dated September 21, 1992, signed
by the Commissioner, stating that there is no legal justification for the waiver Ratio:
of the interests, surcharge and compromise penalty in this case, and requiring Roman Catholic Archbishop of Cebu vs. Collector of Internal Revenue.
full payment of P438,040.38 representing such charges within ten (10) days
from receipt thereof. The petitioner in that case paid under protest the sum of P5,201.52 by
"In view thereof, the respondent estate paid the amount of P438,040.38 way of income tax, surcharge and interest and, forthwith, filed a petition
under protest on January 25, 1993. for review before the Court of Tax Appeals. Then respondent Collector
(now Commissioner) of Internal Revenue set up several defenses, one of
which was that petitioner had failed to first file a written claim for refund,
Page 41 of 42
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES  (Taxpayers’  Remedies  – Refund)

pursuant to Section 306 of the Tax Code, of the amounts paid. Convinced
that the lack of a written claim for refund was fatal to petitioner's recourse
to it, the Court of Tax Appeals dismissed the petition for lack of jurisdiction.
On appeal to this Court, the tax court's ruling was reversed

Section 7 of Republic Act No.1125, creating the Court of Tax Appeals, in


providing for appeals from allows an appeal from a decision of the
Collector in cases involving' disputed assessments' as distinguished
from cases involving' refunds of internal revenue taxes, fees or other
charges, x x';

that the present action involves a disputed assessment because from the
time petitioner received assessments disallowing certain deductions
claimed by him in his income tax returns for the years 1955 and 1956, he
already protested and refused to pay the same, questioning the
correctness and legality of such assessments;
and that the petitioner paid the disputed assessments under protest
before filing his petition for review with the Court a quo, only to forestall
the sale of his properties that had been placed under distraint by the
respondent Collector.
To hold that the taxpayer has now lost the right to appeal from the ruling
on, the disputed assessment but must prosecute his appeal under section
306 of the Tax Code, which requires a taxpayer to file a claim for refund
of the taxes paid as a condition precedent to his right to appeal, would in
effect require of him to go through a useless and needless
ceremony that would only delay the disposition of the case, for the
Collector (now Commissioner) would certainly disallow the claim for
refund in the same way as he disallowed the protest against the
assessment. The law, should not be interpreted as to result in absurdities

The Court sees no cogent reason to abandon the above dictum and to require a
useless formality that can serve the interest of neither the government nor the
taxpayer. The tax court has aptly acted in taking cognizance of the taxpayer's
appeal to it.

WHEREFORE, the instant petition is partly GRANTED. The deficiency assessment


for surcharge, interest and penalties is modified and recomputed to be in the
amount of P148,090.00 surcharge of P134,627.37 and interest of P13,462.74.
Petitioner estate having since paid the sum of P438,040.38, respondent
Commissioner is hereby ordered to refund to the Estate of Jose San Agustin the
overpaid amount of P289,950.38.
Page 42 of 42
TAXATION LAW 2 Property, Distraint of Personal Property or Warrant of Garnishment,
and/or simultaneous court action.
DIGESTS AND PROVISIONS COMPILATION
Please give this matter your preferential attention.

E. Remedies ICC filed a petition for review with the CTA. On its side, the CIR maintains that this
final  notice  was  a  mere  reiteration  of  the  delinquent  taxpayer’s  obligation  to  pay  the  
E.12. Court of Tax Appeals taxes due. It was supposedly a mere demand that should not have been mistaken
for a decision on a protested assessment.

01. CIR v. Isabela Cultural Corp (JT) ICC, on the other hand, points out that the final notice before seizure should be
G.R. No. 135210 considered as a denial of its request for reconsideration of the disputed
July 11, 2011 assessment.    The  notice  should  be  deemed  as  petitioner’s  last  act,  since  failure  to  
Panganiban, J. comply   with   it   would   lead   to   the   distraint   and   levy   of   respondent’s   properties,   as  
indicated therein.
Summary: CIR assessed ICC of delinquent taxes, which ICC protested. Then, four
years after a request for reconsideration filed by ICC, CIR sent to ICC a final notice The  CTA  dismissed  ICC’s  petition,  but  was  reversed by the CA.
before seizure, demanding payment of delinquent taxes. The final notice provides
that in the event of failure to pay, CIR will proceed to issue a warrant of Issue/Held: W/N  the  final  notice  before  seizure  constitutes  CIR’s  final  decision—
levy/distraint. Basically the issue is w/n the final notice constitutes the final decision Yes
of the CIR on the disputed assessment. The SC said yes, because of the tenor and
content of the letter (see digest for a copy of the letter). Also, since the CIR did not Ratio:
act on the assessment within 180 days, ICC could file a petition for review with the What happens generally when there is an allegation of delinquent taxes?
CTA already. In the normal course, the revenue district officer sends the taxpayer a
notice of delinquent taxes, indicating—
Facts: o the period covered,
In 1990, CIR assessed Isabela Cultural Corp (ICC) for income tax and withholding o the amount due (including interest), and
tax deficiency of P333K for 1986. Thereafter ICC requested a reconsideration on o the reason for the delinquency.
March 23, 1990, to which supportive documents and a waiver of the statute of If the taxpayer wanna protest, it should send a letter to the BIR
limitations were attached. Four years later, on February 9, 1995, ICC received a indicating—
letter dated December 22, 1994 (grabe three days before Christmas, di pa o its protest, stating the reasons therefor, and
nagpaawat ang BIR lolzsterz) which contained a final notice before seizure, o other relevant proof/documents as necessary
demanding payment from ICC within ten days from receipt thereof. Such letter made by the taxpayer is considered as the taxpayer’s  
request for reconsideration of the delinquent assessment.
The final notice before seizure is reproduced as follows: After the request is filed and received by the BIR, the assessment
becomes a disputed assessment on which it must render a decision.
On Feb.9, 1990, [this] Office sent you a letter requesting you to settle the
That decision is appealable to the Court of Tax Appeals for review.
above-captioned assessment. To date, however, despite the lapse of a
considerable length of time, we have not been honored with a reply from
Prior to the decision on a disputed assessment, there may still be
you. exchanges between the CIR and the taxpayer.
o CIR may ask clarificatory questions or require the latter to submit
In this connection, we are giving you this LAST OPPORTUNITY to settle additional evidence.
the adverted assessment within ten (10) days after receipt hereof. o However,  the  CIR’s  position  regarding  the  disputed  assessment  
Should you again fail, and refuse to pay, this Office will be constrained to must be indicated in the final decision.
enforce its collection by summary remedies of Warrant of Levy of Road
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Court of Tax Appeals)

o It is this decision that is properly appealable to the CTA for Oh, and CIR effectively admitted as a fact ICC’s  request  for  reconsideration,  
review. but must have passed upon it prior to the issuance of the final notice.
The   facts   in   the   petition   filed   by   CIR   provided   that   it   received   ICC’s  
The  final  notice  is  tantamount  to  CIR’s  final  decision,  disposing  the  request   request and additional documents.
for reconsideration filed by ICC.
No other response was received by ICC to its request for reconsideration
The content and tenor of the final notice supported the theory that it was
02. Surigao Electric v. CTA (AD)
CIR’s   final   act   regarding   the   request   for   reconsideration.   The   following  
G.R. No. L-25289 | June 28, 1974
were considered by the Supreme Court:
Surigao Electric Co., Inc., petitioner
o The  title  of  the  letter  [“Final Notice  prior  to  seizure”]
CTA and CIR, respondents
o The letter clearly stating that ICC was being given its last
opportunity to pay
Skip to bold parts!
o The  letter  was  like  an  actual  threat  of  seizure  of  ICC’s  properties

Nevertheless, Sec. 228 of the NIRC [see codal] provides that a delinquent FACTS:
taxpayer may directly appeal a disputed assessment, if its request for In November 1961, Surigao Electric Co., Inc., grantee of a legislative
reconsideration remains unacted upon 180 days after submission thereof. electric franchise, received a warrant of distraint and levy to enforce
In this case, the said period of 180 days had lapsed. the collection from "Mainit Electric" a deficiency franchise tax plus
surcharge in amount of P718.59.
But, the most compelling reason as to why the SC ruled this way is that In a letter to the CIR, Surigao contested this warrant, stating that it did
jurisprudence dictates that a final demand letter for payment of delinquent not have a franchise in Mainit, Surigao.
taxes may be considered a decision on a disputed assessment. Thereafter the Commissioner, by letter dated April 2, 1961, advised
CIR v. Ayala Securities: the letter made by CIR was a reiteration of the Surigao to take up the matter with the General Auditing Office, enclosing
demand of the BIR for the settlement of the assessment, which clearly a copy of the 4th Indorsement of the Auditor General.
indicates   the   denial   of   the   CIR   of   Ayala’s   request for reconsideration of This indorsement indicated that Surigao's liability for deficiency franchise
the disputed assessment. tax for the period from September 1947 to June 1959 was P21,156.06,
Surigao Electric v. CA: the letter of CIR gave a warning that in the event excluding surcharge.
the taxpayer failed to pay, the CIR would be constrained to enforce the Subsequently, in a letter to the Auditor General, Surigao asked for
collection of the tax by means of the remedies provided by law. reconsideration of the assessment, admitting liability only for the 2%
CIR v. Union Shipping: CIR failed to rule on the MR filed by Union franchise tax in accordance with its legislative franchise and not at the
Shipping, but simply continued to demand payment of the delinquent higher rate of 5% imposed by section 259 of the NIRC, as amended,
taxes. which latter rate the Auditor General used as basis in computing
CIR v. Algue: the Warrant of Distraint and Levy issued to Algue, without Surigao's deficiency franchise tax.
any categorical ruling on its request for reconsideration, was not deemed An exchange of correspondence between Surigao, on the one hand, and
equivalent to a denial of the request. Because such request could not in the Commissioner and the Auditor General, on the other, ensued, all on
fact be found in its records, the BIR cannot be presumed to have taken it the matter of Surigao's liability for deficiency franchise tax.
into consideration. The request was considered only when the taxpayer The controversy ended in a revised assessment DATED APRIL 29,
gave a copy of it, duly stamp-received by the BIR. Hence, the Warrant 1963 (received by Surigao on May 8, 1963) in the amount of P11,533.53,
was deemed premature. [there is a deviation in the doctrine here] representing Surigao's deficiency franchise-tax and surcharges thereon.
Surigao then requested a recomputation of the revised assessment
in a letter to the Commissioner dated June 6, 1963 (sent by registered
Page 2 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Court of Tax Appeals)

mail on June 7, 1963). The Commissioner, however, in a letter dated nature of the determination made by the Commissioner of
June 28, 1963 (received by Surigao on July 16, 1963), denied the Surigao's deficiency franchise tax liability.
request for recomputation. (This is where the issue begins. Surigao This Court has considered the following communications sent by the
argues 30 period should be counted from THIS subsequent denial!!!) Commissioner to taxpayers as embodying rulings appealable to the tax
On August 1, 1963 Surigao appealed to the CTA. court:
The tax court dismissed the appeal on October 1, 1965 on the ground a) a letter which stated the result of the investigation requested by
that the appeal was filed beyond the thirty-day period of appeal the taxpayer and the consequent modification of the
provided by Section 11 of Republic Act 1125. assessment;
b) letter which denied the request of the taxpayer for the
ISSUE: Whether or not Surigao's appeal to the Court of Tax Appeals has reconsideration cancellation, or withdrawal of the original
prescribed assessment;
(The parties disagree on which letter of the Commissioner embodies the c) a letter which contained a demand on the taxpayer for the
decision or ruling appealable to the CTA) payment of the revised or reduced assessment; and
d) a letter which notified the taxpayer of a revision of previous
RATIO: assessments.
A close reading of the numerous letters exchanged between Surigao and To sustain Surigao's contention that the Commissioner's letter of June 28,
the Commissioner clearly discloses that the letter of demand issued by 1963 denying its request for further amendment of the revised
the Commissioner ON APRIL 29, 1963 and received by Surigao on May assessment constitutes the ruling appealable to the tax court and that the
8, 1963 constitutes the definite determination of Surigao's deficiency thirty-day period should, therefore, be counted from July 16, 1963, the
franchise tax liability or the decision on the disputed assessment day it received the June 28, 1963 letter, would, in effect, leave solely to
and, therefore, the decision appealable to the tax court. Surigao's will the determination of the commencement of the statutory
This letter of April 29, 1963 was in response to the communications of thirty-day period, and place Surigao — and for that matter, any taxpayer
Surigao, particularly the letter of August 2, 1962 wherein it assailed the — in a position, to delay at will and on convenience the finality of a tax
4th Indorsement's data and findings on its deficiency, franchise tax liability assessment. This absurd interpretation espoused by Surigao would result
computed at 5% (on the ground that its franchise precludes the imposition in grave detriment to the interests of the Government, considering that
of a rate higher than the 2% fixed in its legislative franchise), and the taxes constitute its life-blood and their prompt and certain availability is an
letter of April 24, 1963 wherein it again questioned the assessment and imperative need.
requested for a recomputation (on the ground that the Government could The revised assessment embodied in the Commissioner's letter dated
make an assessment only for the period from May 29, 1956 to June 30, April 29, 1963 being, in legal contemplation, the final ruling reviewable by
1959). Thus, as early as August 2, 1962, Surigao already disputed the the tax court, the thirty-day appeal period should be counted from
assessment made by the Commissioner. May 8, 1963 (the day Surigao received a copy of the said letter). From
Moreover, the letter of demand dated April 29, 1963 unquestionably May 8, 1963 to June 7, 1963 (the day Surigao, by registered mail, sent to
constitutes the final action taken by the Commissioner on Surigao's the Commissioner its letter of June 6, 1963 requesting for further
several requests for reconsideration and recomputation. recomputation of the amount demanded from it) saw the lapse of thirty
o In this letter, the Commissioner not only in effect demanded days. The June 6, 1963 request for further recomputation, partaking of a
that Surigao pay the amount of P11,533.53 but also gave motion for reconsideration, tolled the running of the thirty-day period from
warning that in the event it failed to pay, the said June 7, 1963 (the day Surigao sent its letter by registered mail) to July 16,
Commissioner would be constrained to enforce the 1963 (the day Surigao received the letter of the Commissioner dated June
collection thereof by means of the remedies provided by law. 28, 1963 turning down its request). The prescriptive period commenced to
o The tenor of the letter, specifically, the statement regarding run again on July 16, 1963. Surigao filed its petition for review with the tax
the resort to legal remedies, unmistakably indicates the final court on August 1, 1963 — after the lapse of an additional sixteen days.
Page 3 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Court of Tax Appeals)

The petition for review having been filed beyond the thirty-day period, we Parenthetically, it may be noted that Presidential Decree No. 69, effective
rule that the Court of Tax Appeals correctly dismissed the same. November 24, 1972, added paragraph 17 to section 191 by taxing lessors of
The thirty-day period prescribed by section 11 of Republic Act 1125, personal property.
as amended, within which a taxpayer adversely affected by a
decision of the Commissioner of Internal Revenue should file his Section 191 defines an independent contractor as including all persons whose
appeal with the tax court, is a jurisdictional requirement, and the activity consists essentially of the sale of all kinds of services for a fee. Section
failure of a taxpayer to lodge his appeal within the prescribed period 194(v) of the Tax Code defines a business agent as including persons who
bars his appeal and renders the questioned decision final and conduct advertising agencies.
executory.
Prescinding from all the foregoing, we deem it appropriate to state It should be noted that in Advertising Associates, Inc. vs. Collector of Internal
that the Commissioner of Internal Revenue should always indicate Revenue, 97 Phil. 636, the taxpayer was held liable as a manufacturer for the.90%
to the taxpayer in clear and unequivocal language whenever his sales tax on its sales of neon-tube signs under section 185(k) of the Tax Code as
action on an assessment questioned by a taxpayer constitutes his amended. It paid P11,986.18 as sales tax for the 4th quarter of 1948 to 1951.
final determination on the disputed assessment, as contemplated by
sections 7 and 11 of Republic Act 1125, as amended. This Court rejected the taxpayer's contention that it was only a contractor of neon-
On the basis of this indicium indubitably showing that the Commissioner's tube signs and that it should pay only the 3% contractor's tax under section 191 of
communicated action is his final decision on the contested assessment, the Tax Code.
the aggrieved taxpayer would then be able to take recourse to the tax
court at the opportune time. Without needless difficulty, the taxpayer In the instant case, Advertising Associates alleged that it sold in 1949 its
would be able to determine when his right to appeal to the tax court advertising agency business to Philippine Advertising Counsellors, that its
accrues. This rule of conduct would also obviate all desire and opportunity business is limited to the making, construction and installation of billboards and
on the part of the taxpayer to continually delay the finality of the electric signs and making and printing of posters, signs, handbills, etc. (101 tsn). It
assessment — and, consequently, the collection of the amount contends that it is a media company, not an advertising company,
demanded as taxes — by repeated requests for recomputation and
reconsideration. It paid sales taxes for selling billboards, electric signs, calendars, posters, etc.,
On the part of the Commissioner, this would encourage his office to realty dealer's tax for leasing billboards and electric signs and 3% contractor's tax
conduct a careful and thorough study of every questioned assessment for repairing electric signs.
and render a correct and definite decision thereon in the first instance.
This would also deter the Commissioner from unfairly making the The billboards and electric signs manufactured by it are either sold or leased, As
taxpayer grope in the dark and speculate as to which action constitutes already stated, the Commissioner of Internal Revenue subjected to 3% contractor's
the decision appealable to the tax court. Of greater import, this rule of tax its rental income from billboards and electric signs (p. 10, Appellant's brief ).
conduct would meet a pressing need for fair play, regularity, and
orderliness in administrative action. The Commissioner required Advertising Associates to pay P297,927.06 and
P84,773.10 as contractor's tax for 1967-1971 and 1972, respectively, including
25% surcharge (the latter amount includes interest) on its income from billboards
and neon signs.
03. Advertising Associates v. CTA (RS)
This case is about the liability of Advertising Associates, lnc. for P382,700.16 as The basis of the assessment is the fact that the taxpayer's articles of incorporation
3% contractor's percentage tax on its rental income from the lease of neon signs provide that its primary purpose is to engage in general advertising business. Its
and billboards imposed by section 191 of the Tax Code (as amended by Republic income tax returns indicate that its business was advertising (Exh. 14 and 15, etc.).
Acts Nos. 1612 and 6110) on business agents and independent contractors.

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TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Court of Tax Appeals)

It is supposed "to conduct a general advertising business, both as principal and This constitutes our final decision on the matter. If you are not agreeable, you may
agent, including the preparation and arrangements of advertising devices and appeal to the Court of Tax Appeals within 30 days from receipt of this letter.
novelties; to erect, construct, purchase, lease or otherwise acquire fences,
billboards, signboards, buildings and other structures suitable for advertising Advertising Associates received that letter on June 18, 1979. Nineteen days later
purposes; to carry on the business of printers, publishers, binders, and decorators or on July 7, it filed its petition for review. In its resolution of August 28, 1979, the
in connection with advertising business and to make and carry out contracts of Tax Court enjoined the enforcement of the warrants of distraint.
every kind and character that may be necessary or conducive to the
accomplishment of any of the purposes of the company; to engage in and carry on The Tax Court did not resolve the case on the merits. It ruled that the warrants of
a general advertising business by the circulation and distribution and the display of distraint were the Commissioner's appealable decisions. Since Advertising
cards, signs, posters, dodgers, handbills, programs, banners and flags to be Associates appealed from the decision of May 23, 1979, the petition for review was
placed in and on railroad cars, street cars, steam boats, cabs, hacks, omnibuses, filed out of time. It was dismissed. The taxpayer appealed to this Court.
stages and any and all kinds of conveyances used for passengers or for any other
purposes; to display moveable or changeable signs, cards, pictures, designs, We hold that the petition for review was filed on time. The reviewable decision is
mottoes, etc., operated by clockwork, electricity or any other power; to use, place that contained in Commissioner Plana's letter of May 23, 1979 and not the
and display the same in depots, hotels, halls, and other public places, to advertise warrants of distraint.
in the air by airplanes, streamers, skywriting and other similar or dissimilar
operation." (Exh. 14-A, pp. 48-49, BIR Records, Vol. I). No amount of quibbling or sophistry can blink the fact that said letter, as its tenor
shows, embodies the Commissioner's final decision within the meaning of section
Advertising Associates contested the assessments in its 'letters of June 25, 1973 7 of Republic Act No. 1125. The Commissioner said so. He even directed the
(for the 1967-71 deficiency taxes) and March 7, 1974 (for the 1972 deficiency). The taxpayer to appeal it to the Tax Court. That was the same situation in St. Stephen's
Commissioner reiterated the assessments in his letters of July 12 and September Association and St. Stephen's Chinese Girl's School vs. Collector of Internal
16,1974 (p. 3, Rollo). Revenue, 104 Phil. 314, 317-318.

The taxpayer requested the cancellation of the assessments in its letters of The directive is in consonance with this Court's dictum that the Commissioner
September 13 and November 21, 1974 (p. 3, Rollo). Inexplicably, for about four should always indicate to the taxpayer in clear and unequivocal language what
years there was no movement in the case. Then, on March 31, 1978, the constitutes his final determination of the disputed assessment. That procedure is
Commissioner resorted to the summary remedy of issuing two warrants of distraint, demanded by the pressing need for fair play, regularity and orderliness in
directing the collection enforcement division to levy on the taxpayer's personal administrative action (Surigao Electric Co., Inc. vs. Court of Tax Appeals, L-25289,
properties as would be sufficient to satisfy the deficiency taxes (pp. 4, 29 and 30, June 28, 1974, 57 SCRA 523).
Rollo). The warrants were served upon the taxpayer on April 18 and May 25, 1978.
On the merits of the case, the petitioner relies on the Collector's rulings dated
More than a year later, Acting Commissioner Efren I. Plana wrote a letter dated September 12, 1960 and June 20, 1967 that it is neither an independent contractor
May 23, 1979 in answer to the requests of the taxpayer for the cancellation of the nor a business agent (Exh. G and H).
assessments and the withdrawal of the warrants of distraint (Annex C of Petition,
pp. 31-32, Rollo). As already stated, it considers itself a media company, like a newspaper or a radio
broadcasting company, but not an advertising agency in spite of the purpose
He justified the assessments by stating that the rental income of Advertising stated in its articles of incorporation. It argues that its act of leasing its neon signs
Associates from billboards and neon signs constituted fees or compensation for its and billboards does not make it a business agent or an independent contractor. It
advertising services. He requested the taxpayer to pay the deficiency taxes within stresses that it is a mere lessor of neon signs and billboards and does not perform
ten days from receipt of the demand; otherwise, the Bureau would enforce the advertising services.
warrants of distraint. He closed his demand letter with this paragraph:

Page 5 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Court of Tax Appeals)

But the undeniable fact is that neon signs and billboards are primarily designed for 05. Oceanic Wireless v. CIR (HQ)
advertising. We hold that the petitioner is a business agent and an independent Topic: CTA – proper subject for appeal to the CTA
contractor as contemplated in sections 191 and 194(v).
G.R. No. 148380
However, in view of the prior rulings that the taxpayer is not a business agent nor December 9, 2005
an independent contractor and in view of the controversial nature of the deficiency
assessments, the 25% surcharge should be eliminated (C. M. Hoskins & Co., Inc. Petitioner: Oceanic Wireless Network Inc.
vs. Commissioner of Internal Revenue, L-28383, June 22, 1976, 71 SCRA 511, Respondents: CIR, CTA and CA
519; Imus Electric Co., Inc. vs. Commissioner of Internal Revenue, 125 Phil. 1084).
Summary: Oceanic received from the BIR deficiency tax assessments for 1984.
Petitioner's last contention is that the collection of the tax had already prescribed. Oceanic filed its protest and requested a reconsideration or cancellation. On Jan
Section 332 of the 1939 Tax Code, now section 319 of the 1977 Tax Code, 24, 1991, Chief of BIR Accounts Receivable and Billing Division reiterated the
Presidential Decree No. 1158, effective on June 3, 1977, provides that the tax may assessment and denied Oceanic’s  request.  Oceanic  filed  a  Petition  for  Review  with  
be collected by distraint or levy or by a judicial proceeding begun 'within five years the CTA to contest the issuance of the warrants to enforce the collection of the tax
after the assessment of the tax". assessments. CTA dismissed the case for lack of jurisdiction as it was filed beyond
the reglementary period. Issue is w/n the demand letter in this case attained finality
The taxpayer received on June 18, 1973 and March 5, 1974 the deficiency and thus, subject to appeal to the CTA. SC held that from the tenor of the letter, it
assessments herein. The warrants of distraint were served upon it on April 18 and unquestionably constitutes the final action of BIR (since it reiterated the tax
may 25,1978 or within five years after the assessment of the tax. Obviously, the deficiency and demand for payment). Being a final disposition by the BIR, the
warrants were issued to interrupt the five-year prescriptive period. Its enforcement demand letter would have been a proper subject for appeal to the CTA. Since
was not implemented because of the pending protests of the taxpayer and its Oceanic failed to avail its right to bring the matter before the CTA within the
requests for withdrawal of the warrants which were eventually resolved in reglementary period, CTA properly dismissed the petition as the tax delinquency
Commissioner Plana's letter of May 23, 1979. assessment had long become final and executory.

It should be noted that the Commissioner did not institute any judicial proceeding Facts:
to collect the tax. He relied on the warrants of distraint to interrupt the running of
March 17, 1988: Oceanic received from the BIR deficiency tax assessments
the statute of limitations. He gave the taxpayer ample opportunity to contest the
for taxable year 1984 in the total amount of P8,644,998.71,
assessments but at the same time safeguarded the Government's interest by
April 12, 1998: Oceanic filed its protest and requested a reconsideration or
means of the warrants of distraint.
cancellation of the same in a letter to the BIR Commissioner.
Jan 24, 1991: Acting in behalf of the CIR, the Chief of BIR Accounts
WHEREFORE, the judgment of the Tax Court is reversed and set aside. The
Receivable and Billing Division, reiterated the tax assessments while denying
Commissioner's deficiency assessments are modified by requiring the petitioner to 1
Oceanic’s  request for reinvestigation in a letter
pay the tax proper and eliminating the 25% surcharge, interest and penalty. In
Oceanic failed to pay within the prescribed period.
case of non-payment, the warrants of distrant should be implemented. The
Asst. Commissioner for Collection, acting for the CIR, issued the warrants of
preliminary injunction issued by the Tax Court on August 28, 1979 restraining the
distraint and/or levy and garnishment, served on Oct 10 and 17, 1991.
enforcement of said warrants is lifted. No costs.
1
SO ORDERED. Your request for re-investigation has been denied for failure to submit the necessary supporting
papers.” It also requested Oceanic to pay P8,644,998.71 within 10 days from receipt, otherwise the case
04. CIR v. Union Shipping (HV) shall be referred to the Collection Enforcement Division of the BIR for the issuance of a warrant of distraint
and levy without further notice.

Page 6 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Court of Tax Appeals)

Nov 8, 1991: Oceanic filed a Petition for Review with the CTA to contest the Letter of demand dated Jan 24, 1991: Unquestionably constitutes the
issuance of the warrants to enforce the collection of the tax assessments. final action taken by the BIR on the request for reconsideration when it
reiterated the tax due, and requested payment. Failure to do so would result in
CTA: Dismissed for lack of jurisdiction as petition was filed beyond the 30-day the  “issuance  of  a  warrant  of  distraint  and  levy  to  enforce  its  collection  without  
period reckoned from Jan 24, 1991 (letter denying request for reinvestigation) further  notice.”
o The finality of the denial of the protest was bolstered by the issuance of Also,   the   letter   contained   a   notation   indicating   that   petitioner’s   request   for  
the warrants of distraint and/or levy and garnishment to enforce the reconsideration had been denied for lack of supporting documents.
collection of the deficiency taxes. CIR v. Ayala Securities: The letter is tantamount to a denial of the
o The issuance was not barred by prescription because the mere filing of reconsideration protest, considering that the letter was a reiteration of the
the letter of protest which was given due course by the BIR suspended demand for the settlement of the assessment already made, and for the
the running of the prescription period as provided in Sec. 224. immediate in spite of vehement protest of the corporation. This is a clear
Oceanic filed a Petition for Review with CA contending there was no final indication of the firm stand of CIR against the reconsideration of the disputed
decision to speak of because the CIR had yet to make a personal assessment.
determination  as  regards  the  merits  of  Oceanic’s  case. Surigao Electric v. CTA and in CIR v. Union Shipping Corporation: Letter
CA: Dismissed the case for lack of merit gave warning that in the event it failed to pay, the CIR would be constrained to
enforce the collection thereof by means of the remedies provided by law. The
Issue: W/N a demand letter for tax deficiency assessments issued and tenor of the letter, specifically the statement regarding the resort to legal
signed by a subordinate officer acting in behalf of the CIR, is final and remedies, unmistakably indicated the final nature of the determination.
executory and subject to an appeal to CTA? – YES Here, the demand letter verily signified a character of finality.
Held: Petition DENIED. Decision of CA AFFIRMED. Therefore, it was tantamount to a rejection of the request for
Ratio: reconsideration.
DEMAND LETTER FOR PAYMENT OF DELINQUENT TAXES MAY BE As  correctly  held  by  the  CTA,  “while  the  denial  of  the protest was in the form of
CONSIDERED A DECISION ON A DISPUTED OR PROTESTED ASSESSMENT a demand letter, the notation in the said letter making reference to the protest
The determination on whether a demand letter is final is conditioned upon the filed  clearly  shows  the  intention  to  make  it  as  his  final  decision.”
language used or the tenor of the letter being sent to the taxpayer.
CIR should always indicate to the taxpayer in clear and unequivocal language DEMAND LETTER ATTAINED FINALITY: REMEDY OF TAXPAYER TO
what constitutes his final determination of the disputed assessment, as APPEAL TO CTA
contemplated by Sec 7 and 11 of RA 1125. General rule: CIR may delegate any power vested upon him by law to
On the basis of his statement indubitably showing that the CIR communicated Division Chiefs or to officials of higher rank. Exception: Four powers
action is his final decision on the contested assessment, the taxpayer would granted in Sec 7 NIRC.
then be able to take recourse to the tax court at the opportune time. Without The issuance of the demand letter by the Chief of the Accounts Receivable
difficulty, the taxpayer would be able to determine when his right to appeal to and Billing Division does NOT fall under the exceptions in Sec 7.
the tax court accrues. In fact, the authority to make tax assessments may be delegated to
The rule of conduct would also obviate all desire and opportunity of the subordinate officers. It has the same force and effect as that issued by CIR,
taxpayer to continually delay the finality of the assessment by repeated if not reviewed or revised by the latter such as in this case
requests for recomputation and reconsideration. A request for reconsideration must be made within 30 days from the
For the CIR, this would encourage his office to conduct a careful and thorough taxpayer’s   receipt   of   the   assessment,   otherwise,   the   decision   becomes   final,  
study of every questioned assessment and render a correct and definite unappealable and demandable and can no longer be contested under Sec
decision thereon in the first instance. This would also deter the CIR from 228.
unfairly making the taxpayer grope in the dark and speculate as to which
action constitutes the decision appealable to the tax court. Oceanic failed to avail of its right to bring the matter before the CTA
Page 7 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Court of Tax Appeals)

within the reglementary period upon the receipt of the demand letter signing on his behalf. ISSUE: WON there was valid final assessment made by the
reiterating the assessed delinquent taxes and denying its request for BIR? HELD: YES. The subsequent reopening/reinvestigation of Makati's
reconsideration which constituted the final determination the protest. assessment did not in any way reverse the finality of respondent's decision dated
Being a final disposition by said agency, the same would have been a proper Oct. 16. The reopening/reinvestigation was initiated by a mere Revenue Officer
subject for appeal to the CTA and approved by a mere Deputy Commissioner.
For the CTA to acquire jurisdiction, an assessment must first be
disputed by the taxpayer and ruled upon by the CIR to warrant a Facts:
decision from which a petition for review may be taken. Where an adverse The RDO of Makati City issued assessment notices to the petitioner
ruling has been rendered by the CIR with reference to a disputed assessment imposing deficiency taxes in the amount of P1,331,615,125.30 for the
or a claim for refund or credit, the taxpayer may appeal the same within 30 taxable years 1999-2002.
days after receipt thereof.
The demand letter may be presumed to have been duly directed, mailed and On October 16, 2003 The Regional Director issued Amended
was received by petitioner in the regular course of the mail in the absence of Assessment Notices to the petitioner in the amount of P1,146,883,843.08.
evidence to the contrary under the Rules of Court. Petitioner, requested a recomputation of the deficiency tax assessments
Since the period to appeal has commenced to run from when the letter of and submitted documents to support its claim that the computation made
demand was presumably received within a reasonable time after Jan 24, 1991, was excessive.
the period of 30 days to appeal the adverse decision on the request for
reconsideration had already lapsed when the petition was filed with the CTA The Regional Director, informed petitioner that its request for re-opening
on Nov 8, 1991. of the investigation for its tax deficiency assessments was approved by
Conclusion: The CTA properly dismissed the petition as the tax the Commissioner with the Deputy Commissioner signing on his behalf.
delinquency assessment had long become final and executory.
Petitioner, made an offer to compromise on the taxes from 1999-2004.
The Regional Director informed petitioner that the offer of compromise
settlement was not accepted and demanded that the balance of the
06. Makati v. CIR (KF) assessed deficiency taxes be paid.
EN BANC
[C.T.A. EB CASE NO. 641. September 16, 2011.] The Warrant of Garnishment was issued by the RDO calling for the
(C.T.A. Case No. 7809) payment deficiency assessment for the taxable years 1999-2004.
Petitioner filed a Protest. The Regional Director asserted that both
Topic: CTA deficiency tax assessments have become final and executory.
Petitioner: CITY OF MAKATI
Respondent: COMMISSIONER OF INTERNAL REVENUE Respondent CIR issued a Decision affirming the ruling of the Regional
CASANOVA, J p: Director. Petitioner filed its Petition for Review before the CTA seeking the
reversal of respondent's Decision.
Summary:
RD issued (PAN) to Makati in the amount of 1.3B. RD Adriano issued Amended Issues:
Assessment Notices (Oct. 16). Adriano informed Makati that the assessments 1. W/N The Final Decision on Disputed Assessment dated October 16 2003 issued
against it were already final and executory. Makati requested for the reopening and against petitioner has factual and legal bases and is therefore valid.
reinvestigation of the case. RD informed Makati that its request for re-opening of
the investigation for its tax deficiency assessments for the taxable years 1999- 2. W/N The Final Decision on Disputed Assessment dated October 16, 2003 is the
2001 was approved by then Commissioner with then Deputy Commissioner Decision that is Appealable to the CTA.
Page 8 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Court of Tax Appeals)

3. No. The rules are clear. The collection of tax will not be suspended except for
3. W/N There is basis for issuing an Order for the Suspension of Collection of Tax meritorious cases where collection of taxpayer's liability may jeopardize the
during the pendency of the Petition for Review. interest of the Government or taxpayer. In the present petition, the CTA Former
Second Division granted petitioner's Motion for Suspension of Collection of Tax in
Held: 1. Yes. The subject assessment contains the facts and the applicable law, the interest of justice, subject to certain conditions, particularly on the filing of
rules and regulations on which the tax deficiency imposed upon the petitioner were surety bond. As petitioner failed to comply with the given prerequisites, this Court
based. The Final Decision on Disputed Assessment and the Amended is constrained to recall and set aside its Order suspending the collection of
Assessment Notice, both dated October 16, 2003 likewise show that the subject deficiency taxes from petitioner.
assessment is the result of the reinvestigation of the FormalAssessment Notice
taking into account the explanation and the documents in support thereof
submitted by petitioner as well as all the evidence on record. The considerable
07. Festo Holdings v. CIR (MR)
changes resulting from the reinvestigation proves that the subject assessment has Topic: final decisions of the CIR cannot be issued by an unauthorized revenue
factual and legal bases, and therefore complies with the mandatory requirements officer
under the law.
CTA Case No. 826
2. Yes. In her Final Decision on Disputed Assessment dated October 16, 2003, September 2, 2011
respondent cannot be clearer in stating that the same is her final decision on the Castenda, Jr., J.
matter. In the said decision, respondent, through the Regional Director ordered
petitioner to pay the stated deficiency internal revenue taxes within thirty (30) days Petitioners: Festo Holdings, Inc.
from receipt of the letter, with a warning that failure to settle the mentioned tax Respondents: CIR
obligation will give respondent right to collect the same by means of summary
remedies provided by law, in which case, the corresponding warrant of distraint
and levy/garnishment of petitioner's bank accounts shall be issued by respondent Facts:
for the collection of the same. Festo Holdings, Inc. filed a petition for review of a disputed assessment
with the CTA. CIR filed motion to dismiss on the ground that the letter
The subsequent reopening/reinvestigation of petitioner's assessment did not in any from which Festo bases its appeal cannot be considered the final decision
way reverse the finality of respondent's decision dated October 16, 2003. It is the of the CIR because the officer who issued it (RDO Wilfredo Narnola)
Commissioner of the BIR who has the power to reverse, revoke or modify any cannot be deemed the alter ego of the CIR and did not have delegated
existing ruling of the Bureau, and such power cannot be delegated. authority to do so
Therefore CIR argues that the petition for review filed was premature
In the case at bench, the reopening/reinvestigation was initiated by a mere because there was yet no final decision or inaction of the CIR from which
Revenue Officer and approved by a mere Deputy Commissioner. As the to appeal
aforementioned actions were clearly done without the necessary authority,
respondent cannot be bound by the same. It is a settled rule that the Issues:
government cannot be estopped from collecting taxes by the mistake, 1. Whether or not the letter by the revenue officer was the final decision—
negligence or omission of its agents. NO

It is therefore undeniable that the Final Decision on Disputed Assessment Held:


dated October 16, 2003 has become final and executory, hence the decision Petition GRANTED. Petition for review dismissed
is appealable to the CTA.

Page 9 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Court of Tax Appeals)

Ratio: for Review before the CTA. CIR now argues that the petition was filed out of time.
There’s  no  question  about  the  doctrine  that  the  taxpayer  must  wait  for  the   Court ruled that Section 228 of the 1997 Tax Code, petitioner had 30 days to
final decision or inaction of the CIR before filing a petition for review with appeal  respondent’s  denial  of  its  protest  to  the  CTA.  Since  petitioner  received  the  
the CTA. These are stated in Sec. 7 and 11 RA 1125, Sec. 3(a) Rule 8 denial of its administrative protest on August 4, 2005, it had until September 3,
Revised Rules of the CTA, Sec. 228 NIRC and RR 12-99 2005 to file a petition for review before the CTA Division. It filed one, however,
However, although petitioner appealed the case before this Court within on October 20, 2005, hence, it was filed out of time. For a motion for
the reglementary period, it must also be ascertained if the Revenue reconsideration of the denial of the administrative protest does not toll the
District Officer who issued the Final Decision on Disputed Assessment 30-day period to appeal to the CTA
dated December 17, 2010 is the CIR's duly authorized representative.
Section 7 of the National Internal Revenue Code (NIRC), as amended, Facts:
allows the CIR to delegate her vested powers, except those enumerated CIR, by Letter of Authority dated May 16, 2000, ordered the examination of the
therein, to any subordinate official, with the rank equivalent to a division internal revenue taxes for the taxable year 1999 of Fishwealth Canning Corp.
chief or higher. The investigation disclosed that petitioner was liable in the amount
Be that as it may, the decision of the Revenue District Officer cannot be of P2,395,826.88 representing income tax, value added tax (VAT), withholding
considered as the CIR's decision appealable to this Court, in the absence tax deficiencies and other miscellaneous deficiencies. Petitioner eventually
of any proof that the former was authorized to decide and act in behalf of settled these obligations on August 30, 2000
the latter on the protest of a taxpayer. On  August  25,  2000,  respondent  reinvestigated  petitioner’s  books  of  accounts  
Nowhere is it provided for in Sec. 11 and 13 of the NIRC that a Revenue and other records of internal revenue taxes covering the same period for the
Distict Officer can issue decisions that are appealable to this Court purpose of which it issued a subpoena duces tecum requiring petitioner to
submit its records and books of accounts. Petitioner requested the
cancellation of the subpoena on the ground that the same set of documents
had previously been examined.
As petitioner did not heed the subpoena, respondent thereafter filed a criminal
08. Allied Banking Corp v. CIR (RK)
complaint against petitioner for violation of Sections 5 (c) and 266 of the 1997
Internal Revenue Code, which complaint was dismissed for insufficiency of
09. Fishwealth v. CIR (KB) evidence.
Topic: CTA Petition for Review Respondent sent, on August 6, 2003, petitioner a Final Assessment Notice
Relevant Laws: of income tax and VAT deficiencies totaling P67,597,336.75 for the taxable
year 1999, which assessment petitioner contested by letter of September 23,
G.R. No. 179343 2003.
January 21, 2010 Respondent thereafter issued a Final Decision on Disputed Assessment dated
Carpio Morales, J.: August 2, 2005, which petitioner received on August 4, 2005, denying its letter
of protest, apprising it of its income tax and VAT liabilities in the amounts of
Petitioners: FISHWEALTH CANNING CORPORATION, "P15,396,905.24 and P63,688,434.40 [sic], respectively, for the taxable year
Respondents: CIR 1999," and requesting the immediate payment thereof, "inclusive of penalties
incident to delinquency." Respondent added that if petitioner disagreed, it may
Summary: Fishwealth was assessed for deficiency taxes which he contested by appeal to the Court of Tax Appeals (CTA) "within thirty (30) days from date of
letter of Septeber 23, 2003. CIR denied such protest on August 4, 2005. Instead of receipt hereof, otherwise our said deficiency income and value-added taxes
appealing, Fishwealth filed a letter of reconsideration on September 1, 2005. By a assessments shall become final, executory, and demandable."
Preliminary Collection Letter dated September 6, 2005, CIR demanded payment of Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a
petitioner’s  tax  liabilities, drawing Fishwealth to file on October 20, 2005 a Petition Letter of Reconsideration dated August 31, 2005.
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REMEDIES (Court of Tax Appeals)

By a Preliminary Collection Letter dated September 6, 2005, respondent above-quoted Section 228 of the 1997 Tax Code, petitioner had 30 days to
demanded   payment   of   petitioner’s   tax   liabilities, drawing petitioner to file appeal  respondent’s  denial  of  its  protest  to  the  CTA.
on October 20, 2005 a Petition for Review before the CTA. Since petitioner received the denial of its administrative protest on August 4,
In his Answer, respondent argued, among other things, that the petition was 2005, it had until September 3, 2005 to file a petition for review before the
filed out of time which argument the First Division of the CTA upheld and CTA Division. It filed one, however, on October 20, 2005, hence, it was filed
accordingly dismissed the petition. out of time. For a motion for reconsideration of the denial of the
Petitioner filed a Motion for Reconsideration which was denied. The administrative protest does not toll the 30-day period to appeal to the
Resolution denying its motion for reconsideration was received by petitioner CTA.
on October 31, 2006. On   petitioner’s   final   contention   that   it   has   a   meritorious   case   in   view   of   the  
On November 21, 2006, petitioner filed a petition for review before the CTA En dismissal of the above-mentioned criminal case filed against it for violation of
Banc which, by Decision of July 5, 2007, held that the petition before the First the 1997 Internal Revenue Code, the same fails. For the criminal complaint
Division, as well as that before it, was filed out of time. was instituted not to demand payment, but to penalize the taxpayer for
violation of the Tax Code.
Issues:
Whether of not the CTA En Banc erred in holding that the petition it filed before the
CTA First Division as well as that filed before it (CTA En Banc) was filed out of time.
10. Judy Anne Santos v. People (JAG)
Held: G. R. No. 173176
August 26, 2008
Petition Dismissed

Petitioners: JUDY ANNE L. SANTOS


Ratio:
Respondents: PEOPLE OF THE PHILIPPINES and BUREAU OF INTERNAL
Section 228 of the 1997 Tax Code provides that an assessment
REVENUE
x x x may be protested administratively by filing a request for
RESHIT:
reconsideration or reinvestigation within thirty (30) days from receipt
Juday was charged with underdeclaration of income for 2002 when she declared
of the assessment in such form and manner as may be prescribed by
an income of P8M, a far cry from the P14M she received then. This was a manifest
implementing rules and regulations. Within sixty (60) days from filing
violation of Sections 254 and 255, as well as Section 248(B) of the NIRC, as
of the protest, all relevant supporting documents shall have been
amended. She is now asking for an extension of time to file her Petition for Review
submitted; otherwise, the assessment shall become final.
to appeal the denial of her motion to quash in a C.T.A. Criminal Case. W/N a
resolution of a CTA division denying a motion to quash is a proper subject of an
If the protest is denied in whole or in part, or is not acted upon within
appeal to the CTA en banc . NO Section 2, Rule 41 of the Revised Rules of Court
one hundred eighty (180) days from submission of documents, the
provides that "(o)nly final judgments or orders shall be subject to appeal." An order
taxpayer adversely affected by the decision or inaction may appeal to
denying a Motion to Acquit (like an order denying a motion to quash) is
the Court of Tax Appeals within thirty (30) days from receipt of the
interlocutory and not a final order. It is, therefore, not appealable. Neither can it be
said decision, or from the lapse of the one hundred eighty (180)-day
the subject of a petition forcertiorari. Such order of denial may only be reviewed, in
period; otherwise, the decision shall become final, executory and
the ordinary course of law, by an appeal from the judgment, after trial. Long story
demandable. (underscoring supplied)
short: No appeal for interlocutory orders.

In the case at bar, petitioner’s  administrative  protest  was  denied  by  Final  
Decision on Disputed Assessment dated August 2, 2005 issued by
respondent and which petitioner received on August 4, 2005. Under the
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REMEDIES (Court of Tax Appeals)

19 May 2005, then (BIR) Commissioner Guillermo L. Parayno, Jr. wrote 9282 because a ruling denying a motion to quash is only an
DOJ Secretary Gonzales a letter regarding the possible filing of criminal interlocutory order, as such, it cannot be made the subject of an
charges against Juday. appeal pursuant to said law and the Rules of Court. Section 1 of
Juday declared an income of P8,033,332.70 derived from her talent fees Rule 41 of the Rules of Court provides that "no appeal may be
solely from ABS-CBN; but it was confirmed that petitioner received in taken from an interlocutory order" and Section 1 (i) of Rule 50
2002 income in the amount of at least P14,796,234.70 (wild. Final na. bye provides for the dismissal of an appeal on the ground that "the
law school. Mag artista na lang ako), not only from ABS-CBN, but also order or judgment appealed from is not appealable". Time and
from other sources, such as movies and product endorsements. again, the Supreme Court had ruled that the remedy of the
o The   estimated   tax   liability   arising   from   petitioner’s   accused in case of denial of a motion to quash is for the accused
underdeclaration amounted to P1,718,925.52, including to enter a plea, go to trial and after an adverse decision is
incremental penalties; the non-declaration by petitioner of an rendered, to appeal therefrom in the manner authorized by law.
amount equivalent to at least 84.18% of the income declared in o Since a denial of a Motion to Quash is not appealable, granting
her return was considered a substantial underdeclaration of petitioner’s   Motion   for   Extension   of   Time   to   File   Petition   for  
income, which constituted prima facie evidence of false or Review will only be an exercise in futility considering that the
fraudulent return under Section 248(B) of the NIRC and dismissal of the Petition for Review that will be filed by way of
petitioner’s   failure   to   account   as   part   of   her   income the appeal is mandated both by law and jurisprudence.
professional fees she received from sources other than ABS-
CBN and her underdeclaration of the income she received from Issue: WHETHER A RESOLUTION OF A CTA DIVISION DENYING A MOTION
ABS-CBN amounted to manifest violations of Sections 254 and TO QUASH IS A PROPER SUBJECT OF AN APPEAL TO THE CTA EN
255, as well as Section 248(B) of the NIRC, as amended. BANC UNDER SECTION 11 OF REPUBLIC ACT NO. 9282, AMENDING
Prosecution Attorney Laroza-Torrevillas issued a Resolution finding SECTION 18 OF REPUBLIC ACT NO. 1125. NO
probable cause and recommending the filing of a criminal information
against petitioner. Ratio:
An Information was filed with the CTA. However, the CTA First Division, Section 18 of Republic Act No. 1125, as amended by Republic Act No.
after noting several discrepancies in the Information filed, required the 9282, provides:
State Prosecutor to clarify and explain, and to submit the original copies SEC. 18. Appeal to the Court of Tax Appeals En Banc. – No civil
of  the  parties’  affidavits,  memoranda,  and  all  other  evidence  on  record.   proceedings involving matters arising under the National Internal
The second Information addressed the discrepancies noted by the CTA in Revenue Code, the Tariff and Customs Code or the Local Government
the first Information. Code shall be maintained, except as herein provided, until and unless an
The   CTA   First   Division   granted   the   People’s Ex Parte Motion and appeal has been previously filed with the CTA and disposed of in
admitted the second Information. accordance with the provisions of this Act.
The CTA First Division then issued a warrant for the arrest of A party adversely affected by a resolution of a Division of the CTA on a
petitioner. The tax court lifted and recalled the warrant of arrest on 21 motion for reconsideration or new trial, may file a petition for review with
December 2005 after petitioner voluntarily appeared and submitted the CTA en banc.
herself to its jurisdiction and filed the required bail bond in the amount Juday’s  Argument
of P20,000.00. a resolution of a CTA Division denying a motion to quash is a proper
Juday now is asking for an extension of time to file her Petition for Review subject of an appeal to the CTA en banc under Section 18 of Republic
to appeal the denial of her motion to quash in C.T.A. Crim. Case No. 0- Act No. 1125, as amended, because the law does not say that only a
012. resolution that constitutes a final disposition of a case may be appealed
o A resolution denying a motion to quash is not a proper subject of to the CTA en banc. If the interpretation of the law by the CTA en
an appeal to the Court En Banc under Section 11 of R.A. No. banc prevails, a procedural void is created leaving the parties, such as
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REMEDIES (Court of Tax Appeals)

petitioner, without any remedy involving erroneous resolutions of a CTA o The central point to consider is, therefore, the effects of the order
Division. on the rights of the parties. A court order, on the other hand, is
The petition for review to be filed with the CTA en banc as the mode for merely interlocutory in character if it is provisional and leaves
appealing a decision, resolution, or order of the CTA Division, under substantial proceeding to be had in connection with its subject.
Section 18 of Republic Act No. 1125, as amended, is not a totally new The word "interlocutory" refers to "something intervening
remedy, unique to the CTA, with a special application or use therein. To between the commencement and the end of a suit which decides
the contrary, the CTA merely adopts the procedure for petitions for review some point or matter but is not a final decision of the whole
and appeals long established and practiced in other Philippine courts. controversy."
Accordingly, doctrines, principles, rules, and precedents laid down in The rationale for barring the appeal of an interlocutory order was
jurisprudence by this Court as regards petitions for review and appeals in extensively discussed in Matute v. CA, thus:
courts of general jurisdiction should likewise bind the CTA, and it cannot o In the language of Chief Justice Moran, paraphrasing the ruling
depart therefrom. in Veluz vs. Justice of the Peace of Sariaya, "since judges are
General rule: The denial of a motion to quash is an interlocutory order human, susceptible to mistakes, and are bound to administer
which is not the proper subject of an appeal or a petition for certiorari. justice in accordance with law, they are given the inherent power
According to Section 1, Rule 41 of the Revised Rules of Court, governing of amending their orders or judgments so as to make them
appeals from the Regional Trial Courts to the Court of Appeals, an appeal conformable to law and justice, and they can do so before they
may be taken only from a judgment or final order that completely disposes lose their jurisdiction of the case, that is before the time to
of the case or of a matter therein when declared by the Rules to be appeal has expired and no appeal has been perfected."
appealable. Said provision, thus, explicitly states that no appeal may be Another recognized reason of the law in permitting appeal only from a
taken from an interlocutory order. final order or judgment, and not from an interlocutory or incidental one, is
The Court distinguishes final judgments and orders from interlocutory to avoid multiplicity of appeals in a single action, which must necessarily
orders: suspend the hearing and decision on the merits of the case during the
o Section 2, Rule 41 of the Revised Rules of Court provides that pendency of the appeal. If such appeal were allowed, the trial on the
"(o)nly final judgments or orders shall be subject to appeal." merits of the case would necessarily be delayed for a considerable length
Interlocutory or incidental judgments or orders do not stay the of time, and compel the adverse party to incur unnecessary expenses, for
progress of an action nor are they subject of appeal "until final one of the parties may interpose as many appeals as incidental questions
judgment or order is rendered for one party or the other." may be raised by him, and interlocutory orders rendered or issued by the
o The test to determine whether an order or judgment is lower court.
interlocutory or final is this: "Does it leave something to be done There is no dispute that a court order denying a motion to quash is
in the trial court with respect to the merits of the case? If it does, interlocutory. Equally settled is the rule that an order denying a motion to
it is interlocutory; if it does not, it is final". quash, being interlocutory, is not immediately appealable, nor can it be
o A court order is final in character if it puts an end to the particular the subject of a petition for certiorari. Such order may only be reviewed in
matter resolved or settles definitely the matter therein disposed the ordinary course of law by an appeal from the judgment after trial.
of, such that no further questions can come before the court The remedy of an accused from the denial of his or her motion to quash
except the execution of the order. "In the absence of a statutory has already been clearly laid down as follows:
definition, a final judgment, order or decree has been held to be o An order denying a Motion to Acquit (like an order denying a
one that finally disposes of, adjudicates, or determines the rights, motion to quash) is interlocutory and not a final order. It is,
or some right or rights of the parties, either on the entire therefore, not appealable. Neither can it be the subject of a
controversy or on some definite and separate branch thereof, petition for certiorari. Such order of denial may only be reviewed,
and which concludes them until it is reversed or set aside." in the ordinary course of law, by an appeal from the judgment,
after trial.
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REMEDIES (Court of Tax Appeals)

Hence, the CTA en banc herein did not err  in  denying  petitioner’s  Motion   FACTS
for Extension of Time to File Petition for Review, when such Petition for In April 1995, the Philippine Journalists, Inc. (PJI) filed its ITR for the year 1994. In
Review is the wrong remedy to assail an interlocutory order denying her 1995, a tax audit was conducted by the BIR, where it was found that PJI was liable
Motion to Quash. for a tax deficiency. In September 1997, PJI asked that it be allowed to present its
While the general rule proscribes the appeal of an interlocutory order, evidence to dispute the finding. In the same month, the Comptroller of PJI
there are also recognized exceptions to the same. The general rule is not (Lorenza Tolentino) executed a waiver of the statute of limitations, whereby PJI
absolute. Where special circumstances clearly demonstrate the agreed to  waive  the  running  of  the  prescriptive  period  of  the  government’s  right  to  
inadequacy of an appeal, then the special civil action of certiorari or make an assessment. Said right was set to expire on April 17, 1998 but due to the
prohibition may exceptionally be allowed. additional evidence that PJI sought to present, the government needed more time.
o This Court recognizes that under certain situations, recourse to
extraordinary legal remedies, such as a petition for certiorari, is And so a reinvestigation took place which yielded the same result – PJI is liable for
considered proper to question the denial of a motion to quash (or tax deficiencies. In December 1998, a formal assessment notice (FAN) was sent
any other interlocutory order) in the interest of a "more via registered mail to PJI. Subsequently, a warrant for distraint/levy was issued
enlightened and substantial justice"; or to promote public welfare against the assets of PJI.
and public policy; or when the cases "have attracted nationwide
attention, making it essential to proceed with dispatch in the PJI filed a protest which eventually reached the Court of Tax Appeals. PJI averred
consideration thereof";or when the order was rendered with that the waiver executed by Tolentino was incomplete; that no acceptance date
grave abuse of discretion. was indicated to show that the waiver was accepted by BIR; that no copy was
o Certiorari is an appropriate remedy to assail an interlocutory furnished PJI; that the waiver was an unlimited waiver because it did not indicate
order (1) when the tribunal issued such order without or in as to how long the extension of the prescriptive period should last. As such, there
excess of jurisdiction or with grave abuse of discretion; and (2) was no valid waiver of the statute of limitations which in turn make the FAN issued
when the assailed interlocutory order is patently erroneous, and in December 1998 void.
the remedy of appeal would not afford adequate and expeditious
relief. CIR argued that the placing of the acceptance date is merely a formal requirement
Recourse to a petition for certiorari to assail an interlocutory order is now and not vital to the validity of the waiver; that there is no need to furnish PJI a copy
expressly recognized in the ultimate paragraph of Section 1, Rule 41 of of the waiver because in the first place, it was PJI, through its representative, who
the Revised Rules of Court on the subject of appeal. was making the waiver so it should know about it; and that there is no need to
place a specific date as to how long the prescriptive period should be extended
because PJI was waiving the prescriptive period and was not asking to extend it.

11. Philippine Journalists v. CIR (JT) CTA ruled in favor of PJI. But the CA reversed the CTA as it ruled in favor of the
GR 162582 CIR.
Dec. 16, 2004
ISSUE [pertinent to the topic]: W/N CTA has jurisdiction—YES
SUMMARY
PJI was assessed deficiency tax. PJI was thereafter issued a warrant for RATIO:
distraint/levy, after a reinvestigation of tax deficiency took place, yielding the same CTA has jurisdiction. SC sided with the CIR.
result. Basically, this is mainly a prescription case. BUT, the SC held that the CTA CA’s  reasoning:
had jurisdiction over the case, as the law gave the CTA the jurisdiction to o Only decisions of the BIR denying a request for reconsideration
determine if the warrant of distraint/levy issued by the BIR is valid and to rule if the or reinvestigation may be appealed to the CTA.
Waiver of Statute of Limitations was validly effected.

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REMEDIES (Court of Tax Appeals)

o Since the petitioner did not file a request for reinvestigation or o The waiver does not mean that the taxpayer relinquishes the right to
reconsideration within 30 days, the assessment notices became invoke prescription unequivocally particularly where the language of
final and unappealable. the document is equivocal.
CIR’s  argument: For the purpose of safeguarding taxpayers from any unreasonable examination,
o The case was brought to the CTA because the warrant of investigation or assessment, our tax law provides a statute of limitations in the
distraint/levy was illegally issued, and that no assessment was collection of taxes.
issued because it was based on an invalid waiver of the statutes Thus, the law on prescription, being a remedial measure, should be liberally
of limitations. construed in order to afford such protection.
Section 7 of the RA 1125 [An Act Creating the CTA]:
o SEC. 7. Jurisdiction. – The Court of Tax Appeals shall exercise
exclusive appellate jurisdiction to review by appeal:
1. Decisions of the Commissioner of Internal Revenue in cases
12. CIR v. Leal (JT)
involving disputed assessments, refunds of internal revenue GR. No. 113459, November 18, 2002
taxes, fees or other charges, penalties imposed in relation
thereto, or other matters arising under the National Summary
Internal Revenue Code or other laws or part of law Leal, a pawnshop owner, was assailing the validity of RMO 15-91 and RMC 43-91,
administered by the Bureau of Internal Revenue. as both BIR issuances prejudiced her business. She filed a petition for prohibition
o Thus, the appellate jurisdiction of the CTA is not limited to with the RTC. The CIR filed a motion to dismiss, on the ground that the CTA has
cases which involve decisions of the CIR on matters jurisdiction, and not the RTC. The SC said that the CTA does have jurisdiction, as
relating to assessments or refunds. it has exclusive appellate jurisdiction over matters arising under the NIRC and
o The second part of the provision covers other cases that arise administered by the BIR.
out of the NIRC or related laws administered by the Bureau of
Internal Revenue. Facts: Pursuant to Sec. 116 of the Tax Code which imposes percentage tax on
o The law gave the CTA the jurisdiction to determine if the dealers in securities and lending investors, the CIR issued RMO 15-91, imposing
warrant of distraint/levy issued by the BIR is valid and to five  percent  (5%)  lending  investor’s  tax  on  pawnshops  based  on their gross income
rule if the Waiver of Statute of Limitations was validly and requiring all investigating units of the Bureau to investigate and assess the
effected. lending   investor’s   tax   due   from   them.   The   issuance   of   RMO   No.   15-91 was an
offshoot  of  CIR’s  evaluation  that  the  nature  of  pawnshop  business  is  akin  to  that of
On Prescription lending investors. Subsequently, CIR issued RMC 43-91, subjecting the pawn
The requirement to place the acceptance date is not merely formal. ticket to the documentary stamp tax.
o The waiver of the statute of limitations is not a unilateral act by the
taxpayer. Adversely affected by those revenue orders, herein respondent Josefina Leal,
o The BIR has to accept it hence the need for a BIR representative to owner and operator of Josefina Pawnshop in San Mateo, Rizal, asked for a
affix his signature and the date of acceptance. reconsideration of both RMO 15-91 and RMC 43-91 but the same was denied with
o There is also therefore a need to furnish a copy to the taxpayer for the finality by petitioner in October 30, 1991.
latter to be apprised that his waiver has been accepted.
Consequently, on March 18, 1992, Leal filed with the RTC a petition for prohibition
It must be noted that the waiver is an agreement between the taxpayer and the
seeking to prohibit CIR from implementing the revenue orders.
BIR that the period to issue an assessment and collect the taxes due is extended to
a date certain and not to waive the right to invoke the defense of prescription.
CIR, through the Office of the Solicitor-General, filed a motion to dismiss the
petition on the ground that the RTC has no jurisdiction to review the

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questioned revenue orders and to enjoin their implementation. CIR contends assessments previously cognizable by Courts of First Instance, and even
that the  subject  revenue  orders  were  issued  pursuant  to  his  power  “to  make  rulings   those  already  pending  in  said  courts.”
or opinions in connection with the Implementation of the provisions of internal
revenue  laws.”  Thus,  the  CIR  argues,  the  case  falls  within  the  exclusive  appellate   Here, as earlier mentioned, respondent Josefina Leal, being a pawnshop owner, is
jurisdiction of the Court of Tax Appeals, citing Sec. 7(1) of RA 1125. assailing   the   revenue   orders   imposing   5%   lending   investor’s   tax   on   pawnshops  
issued by petitioner. Clearly then, she should have filed her petition with the Court
The RTC issued an order denying the motion to dismiss, holding that the revenue of Tax Appeals, not the RTC. Indeed, the Court of Appeals erred in holding that
orders  are  not  assessments  to  implement  a  Tax  Code  provision,  but  are  “in  effect   the RTC order should have been challenged before this Court.
new taxes [against pawnshops] which are   not   provided   for  under   the   Code,”   and  
which only Congress is empowered to impose. The Court of Appeals affirmed the
order issued by the RTC. 13. Asia International Auctioneers v. Parayno (AD)
G.R. No. 163445 | December 18, 2007
Issue: Whether or not the CTA has jurisdiction to review rulings of the CIR
Asia International Auctioneers, Inc. And Subic Bay Motors
implementing the Tax Code.
Corporation, Petitioners,
Hon. Guillermo L. Parayno, Jr., In His Capacity as Commissioner of The Bureau of
Held: The jurisdiction to review rulings of the cir pertains to the CTA and NOT to
Internal Revenue (BIR), The Regional Director, Bir, Region III, The Revenue
the RTC. The questioned RMO and RMC are actually rulings or opinions of the
District Officer, BIR, Special Economic Zone, and Office of the Solicitor
CIR implementing the Tax Code on the taxability of the Pawnshops.
General, Respondents.

Ratio
FACTS:
Under  RA  1125  entitled  “An  Act  Creating  the  Court  of  Tax  Appeals,”  such  rulings  of  
Congress enacted RA 7227, the law creating the Subic Special
the CIR are appealable to that court:
Economic Zone (SSEZ) extending a number of economic or tax
Sec. 7 Jurisdiction – The Court of Tax Appeals shall exercise exclusive incentives therein. Section 12 states that exportation or removal of goods
appellate jurisdiction to review by appeal, as herein provided— from the territory of the [SSEZ] to the other parts of the Philippine territory
shall be subject to customs duties and taxes under the Customs and
1. Decisions of the Commissioner of Internal Revenue in cases involving Tariff Code and other relevant tax laws of the Philippines;
disputed assessments, refunds of internal revenue taxes, fees or other In 1995, then Secretary of Finance (through the recommendation of the
charges, penalties imposed in relation thereto, or other matters arising under CIR) issued RR 1-95, providing the implementing rules of Section 12,
the National Revenue Code or other laws or part of law administered by the
[R.A.] No. 7227.
Bureau of Internal Revenue.
Subsequently, RR 12-97 was issued providing for the regulations
implementing Sections 12(c) and 15 of [R.A.] No. 7227 and Sections
Basically, the SC cited a bunch of cases, but Meralco v. Savellano was
24(b) and (c) of [R.A.] No. 7916
emphasized:
In 1999, RR 16-99 was issued amending [RR] 1-95, (basta maraming
“Section   7   of   Republic   Act   No.   1125,   enacted   June   16,   1954,   granted   to   the   RRs and RMCs ang inissue ng BIR regarding RA 7227!!!!!)
Court of Tax Appeals exclusive appellate jurisdiction to review by appeal, In 2003 the CIR Guillermo L. Parayno, Jr. issued RMC 31-2003 setting
among others, decisions of the Commissioner of Internal Revenue in cases the "Uniform Guidelines on the Taxation of Imported Motor Vehicles
involving disputed assessments, refunds of internal revenue taxes, fees or through the Subic Free Port Zone and Other Freeport Zones that are Sold
other charges, penalties imposed in relation thereto, or other matters arising at Public Auction."
under the National Internal Revenue Code or other law or part of law
This was later amended by RMC No. 32-2003, to wit:
administered by the Bureau of Internal Revenue. The law transferred to
the Court of Tax Appeals jurisdiction over all cases involving said

Page 16 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Court of Tax Appeals)

Petitioners Asia International Auctioneers, Inc. (AIAI) and Subic Bay o (1) DECISIONS OF THE COMMISSIONER OF INTERNAL
Motors Corporation are corporations with principal place of business REVENUE in cases involving disputed assessments, refunds
within the SSEZ. They are engaged in the importation of mainly of internal revenue taxes, fees or other charges, penalties
secondhand or used motor vehicles and heavy transportation or imposed in relation thereto, or other matters arising under the
construction equipment which they sell to the public through auction. National Internal Revenue Code or other laws or part of law
(They will be directly affected by the RRs and RMCs!!!) administered by the Bureau of Internal Revenue; x x x
So they filed a complaint before the RTC of Olongapo City, praying for (emphases supplied)
the nullification of the RRs and RMCs for being unconstitutional and We have held that RMCS ARE CONSIDERED
an ultra vires act. ADMINISTRATIVE RULINGS WHICH ARE ISSUED FROM TIME TO
CIR, BIR Regional Director and BIR Revenue District Officer filed TIME BY THE CIR.
their Motion to Dismiss on the grounds that "[t]he trial court has no Rodriguez v. Blaquera is in point.
jurisdiction over the subject matter of the complaint" and "[a] o We find no merit in this pretense. General Circular No. V-148
condition precedent, that is, exhaustion of administrative remedies, has directs the officers charged with the collection of taxes and
not been complied with." license fees to adhere strictly to the interpretation given by the
defendant to the statutory provision above mentioned, as set
ISSUE: Which Court- the regular courts of justice established under Batas forth in the circular. The same INCORPORATES, therefore, A
Pambansa Blg. 129 or the Court of Tax Appeals – is the proper court of DECISION OF THE CIR ON THE MANNER OF
jurisdiction to hear a case to declare Revenue Memorandum Circulars ENFORCEMENT OF SAID STATUTE, the administration of
unconstitutional and against an existing law where the challenge does not which is entrusted by law to the Bureau of Internal Revenue.
involve the rate and figures of the imposed taxes; Does the trial court have As such, IT COMES WITHIN THE PURVIEW OF [R.A.] NO.
jurisdiction over the subject matter of this case? 1125, SECTION 7 OF WHICH PROVIDES THAT THE [CTA]
"SHALL EXERCISE EXCLUSIVE APPELLATE JURISDICTION
Petitioner’s  argument: TO REVIEW BY APPEAL * * * DECISIONS OF THE
Petitioners contend that jurisdiction over the case at bar properly COLLECTOR OF INTERNAL REVENUE in * * * matters
pertains to the regular courts as this is "an action to declare as arising under the National Internal Revenue Code or other
unconstitutional, void" the RMCs issued by the CIR. law or part of law administered by the Bureau of Internal
They explain that they "do not challenge the rate, structure or figures Revenue."   Besides,   it   is   plain   from   plaintiff’s   original   complaint  
of the imposed taxes, rather they challenge the authority of the that one of its main purposes was to secure an order for the
respondent Commissioner to impose and collect the said taxes." refund of the sums collected in excess of the amount he claims
They claim that the challenge on the authority of the CIR to issue the to be due by way of annual fee from the gun club members,
RMCs does not fall within the jurisdiction of the Court of Tax Appeals regardless of the class of firearms they have. Although the
(CTA). prayer for reimbursement has been eliminated from his amended
complaint, it is only too obvious that the nullification of General
HELD: Petitioners’  arguments  do  not  sway. Circular No. V-148 is merely a step preparatory to a claim for
refund.
RATIO: Similarly, in CIR v. Leal, the Supreme Court held that "[t]he
R.A. No. 1125, as amended, states: questioned RMO No. 15-91 and RMC No. 43-91 ARE ACTUALLY
o Sec. 7. Jurisdiction.—The COURT OF TAX APPEALS SHALL RULINGS OR OPINIONS OF THE COMMISSIONER IMPLEMENTING
EXERCISE EXCLUSIVE APPELLATE JURISDICTION to THE TAX CODE on the taxability of pawnshops." They were issued
33
review by appeal, as herein provided: pursuant  to  the  CIR’s  power  under  Section  245 of the Tax Code "to
make rulings or opinions in connection with the implementation of
Page 17 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Court of Tax Appeals)

the provisions of internal revenue laws, including ruling on the 14. Manila v. Coca Cola (RS)
classification of articles of sales and similar purposes." The Court
held that under R.A. No. 1125 (An Act Creating the Court of Tax
FACTS:
Appeals), as amended, such rulings of the CIR are appealable to the
CTA.
Respondent paid the local business tax only as a manufacturers as it was
IN THE CASE AT BAR, THE ASSAILED REVENUE REGULATIONS expressly exempted from the business tax under a different section and which
AND REVENUE MEMORANDUM CIRCULARS ARE ACTUALLY applied to businesses subject to excise, VAT or percentage tax under the Tax
RULINGS OR OPINIONS OF THE CIR ON THE TAX TREATMENT OF Code. The City of Manila subsequently amended the ordinance by deleting the
MOTOR VEHICLES SOLD AT PUBLIC AUCTION WITHIN THE SSEZ to provision exempting businesses under the latter section if they have already paid
implement Section 12 of R.A. No. 7227 which provides that "exportation taxes under a different section in the ordinance. This amending ordinance was
or removal of goods from the territory of the [SSEZ] to the other parts of later declared by the Supreme Court null and void. Respondent then filed a protest
the Philippine territory shall be subject to customs duties and taxes under on the ground of double taxation. RTC decided in favor of Respondent and the
the Customs and Tariff Code and other relevant tax laws of the decision was received by Petitioner on April 20, 2007. On May 4, 2007, Petitioner
Philippines." filed with the CTA a Motion for Extension of Time to File Petition for Review asking
o They were issued pursuant to the power of the CIR under for a 15-day extension or until May 20, 2007 within which to file its Petition. A
Section 4 of the National Internal Revenue Code, second Motion for Extension was filed on May 18, 2007, this time asking for a 10-
Section 4. Power of the Commissioner to Interpret Tax day extension to file the Petition. Petitioner finally filed the Petition on May 30,
Laws and to Decide Tax Cases.-- The power to 2007 even if the CTA had earlier issued a resolution dismissing the case for failure
interpret the provisions of this Code and other tax laws to timely file the Petition.
shall be under the exclusive and original jurisdiction of
the Commissioner, subject to review by the Secretary of ISSUES:
Finance.
The power to decide disputed assessments, refunds of (1)  Has  Petitioner’s  the  right  to  appeal  with  the  CTA  lapsed?
internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising (2) Does the enforcement of the latter section of the tax ordinance constitute
under this Code or other laws or portions thereof double taxation?
administered by the Bureau of Internal Revenue is
vested in the Commissioner, subject to the exclusive HELD:
appellate jurisdiction of the Court of Tax Appeals.
(emphases supplied)
(1) NO. Petitioner complied with the reglementary period for filing the petition.
From April 20, 2007, Petitioner had 30 days, or until May 20, 2007, within which to
IN VIEW WHEREOF, the petition is DENIED.
file their Petition for Review with the CTA. The Motion for Extension filed by the
SO ORDERED.
petitioners on May 18, 2007, prior to the lapse of the 30-day period on 20 May
Sandoval-Gutierrez, Corona, Azcuna, Leonardo-de Castro, JJ., concur
2007, in which they prayed for another extended period of 10 days, or until 30 May
2007, to file their Petition for Review was, in reality, only the first Motion for
Extension of petitioners. Thus, when Petitioner filed their Petition via registered
mail their Petition for Review on 30 May 2007, they were able to comply with the
period for filing such a petition.

Page 18 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Court of Tax Appeals)

(2) YES. There is indeed double taxation if respondent is subjected to the taxes o bonds secure the release of imported goods in order that the
under both Sections 14 and 21 of the tax ordinance since these are being goods may be released from the BOC without prior payment of
imposed: (1) on the same subject matter — the privilege of doing business in the the corresponding customs duties and taxes.
City of Manila; (2) for the same purpose — to make persons conducting business o Under these bonds, petitioner and its clients jointly and severally
within the City of Manila contribute to city revenues; (3) by the same taxing bind themselves to pay the BOC the face value of the bonds, in
authority — petitioner City of Manila; (4) within the same taxing jurisdiction — the event that the bonds expire without either the imported
within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods goods being re-exported or the proper duties and taxes being
— per calendar year; and (6) of the same kind or character — a local business tax paid.
imposed on gross sales or receipts of the business. December 9, 2003, Republic through Bureau of Customs (BOC) filed a
Complaint against petitioner for Collection of Money with Damages before
the Regional Trial Court, Branch 20 in Manila.
15. Commissioner of Customs v. Marina Sales (HV) o The case was docketed as Civil Case No. 03-108583
o It was alleged in the Complaint that petitioner had outstanding
16. Philippine British Assurance v. Republic (DU) unliquidated customs bonds with the BOC
PHILIPPINE BRITISH ASSURANCE COMPANY, INC., Petitioner, RTC ruled in favor of Republic, CA dismissed for lack of jurisdiction (all
vs. MR for both courts were denied)
REPUBLIC OF THE PHILIPPINES, represented by the BUREAU OF CUSTOMS o (Decision was straight forward as to what happened in the lower
(BOC), Respondent. courts   and   didn’t   anymore   discussed   arguments   or   cite   the  
decision of lower courts)
G.R. No. 185588 - February 2, 2010 | VELASCO, JR., J. – Third Division
Issues:
Summary:
a. The [CA] committed serious error of law when it ruled that it has no
Petitioner issued a customs bond in favour of the Bureau of Customs (BOC). BOC jurisdiction over the appeal and the same lies with the Court of Tax
later sued petitioner to collect on the bonds, since the latter still have some unpaid Appeals because the instant case is a tax collection case. - YES
liabilities with the former. RTC ruled in favour of BOC. CA denied for lack of b. The [CA] committed serious error of law when it failed to rule that customs
jurisdiction. According to the CA it was a tax collection suit so CTA has jurisdiction. bonds are in the nature of a contract between the surety and the Bureau
SC reversed and said CA has jurisdiction. SC said though initially the claim was of Customs. –YES
based on collection of tax, such action became based on contracts when BOC
decided to collect on the surety bonds. SC said that an action to collect on a bond HELD: This petition must be granted.
used to secure the payment of taxes is not a tax collection case, but rather a
simple case for enforcement of a contractual liability. Hence CA has jurisdiction. RATIO:

Facts: CA AND NOT CTA HAS JURISDICTION

Petitioner Philippine British Assurance Company, Inc. is an insurance It cannot be denied that the issuance of such bonds is rooted on, based
company duly organized and existing under and by virtue of the laws of upon, and interrelated with the payment of taxes and customs duties
the Republic of the Philippines Here are the Point of views re: bonds in this case
petitioner issues customs bonds to its clients in favor of the BOC o Strictly  speaking,  therefore,  BOC’s  suit  against  British  Assurance  
is one for collection of taxes.
Page 19 of 20
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Court of Tax Appeals)

Taking in mind that this appeal involves a tax case the tax-payer of a certain amount, to be fixed by subsequent
decided by the RTC in the exercise of its original action of the Commissioner
jurisdiction, it necessarily follows that jurisdiction over o Inasmuch as the Collector had the right to proceed immediately
the same is with the Court of Tax Appeals pursuant to for the collection of the tax, it follows that he also had the right to
Republic Act No. 9282 require, as the price of forbearance from such action, a general
o On the other hand, petitioner argues that initially it was a tax promise to pay such amount as might be found due at any time,
collection case but was converted to a right arising out of a either before or after the expiration of the statutory period . . .
contract, the bond being a contract between Respondent and (McCaughn v. Philadelphia Barge Co., 27 F [2d] 628)
Petitioner o The making of the bond gives the United States a cause of
Cited Republic v. Mambulao Lumber (see supra) action separate and distinct from an action to collect taxes which
Although the original obligation of the lumber company it already had(United States v. Barth Co., 73 L. Ed. 746; U.S.
arose from non-payment of taxes, the complaint against 278-279)
said Company and the Surety is predicated upon the Verily, the instant case is not a tax collection case; hence, the CA has
bond  executed  by  them.  In  other  words,  plaintiff’s  right   jurisdiction over the case
originally arising from law has become a right based
upon a written contract, enforceable within ten (10) BOC itself did not consider the action that it instituted as a tax collection case
years
BOC sent a letter to petition saying.... [if petitioner will not pay] plaintiff
CASE IS BASED ON CONTRACT NOT COLLECTION OF TAX (BOC) will forfeit the said customs bonds and institute collection against
the said bonds.
Note: see (RA) 1125 sec 7 as amended by RA 9282 the BOC instituted a complaint against petitioner for collection of money,
o Basically says CTA has appellate jurisdiction for local tax cases decidedly not a tax collection case
decided by RTC the BOC purposefully did not follow the procedure in the proper
an action to collect on a bond used to secure the payment of taxes is not prosecution of a tax collection case
a tax collection case, but rather a simple case for enforcement of a
contractual liability WHEREFORE,  this  petition  is  GRANTED.  The  CA’s  July  23,  2008  and  November  
Court cited Republic (RP) v. Mambulao Lumber (MLC)case again 28, 2008 Resolutions in CA-G.R. CV No. 88786 are accordingly REVERSED and
o MLC was liable for tax. RP agreed to instalment payments with SET ASIDE. This case is hereby REMANDED to the CA for hearing on the merits.
the condition that a bond must be executed which MLC did. MLC
failed to pay thus RP proceeded against the bond. MLC raised
prescription under NIRC. SC said what will apply is prescription
as to contracts, since claim is based on the bond, a contract and
not anymore based on taxes – so RP could still collect.
Republic of the Philippines v. Xavier Gun Trading
o as soon as the bond was executed, the taxpayer assumed a
second and entirely distinct obligation, and became subject to a
new and entirely different kind of liability ... The new liability was
voluntary and contractual.
o was in form a direct and primary obligation, not to pay a tax, but
to pay the sum of $12,635.00, defeasible only upon payment by

Page 20 of 20
TAXATION LAW 2 “Section   5G.01. Imposition of fees. There shall be
collected service fee for its use of the municipal roads
DIGESTS AND PROVISIONS COMPILATION or streets leading to the wharf and to any point along
the shorelines within the jurisdiction of the municipality
F. Local Taxation and for police surveillance on all goods and all
equipment harbored or sheltered in the premises of the
wharf and other within the jurisdiction of this
F.1. General Principles, Definitions and Limitations municipality  in  the  following  schedule…”

01. Palma Development Corp. v. Zamboanga del Sur (HQ) Accordingly, the service fees imposed by Section 5G.01 was paid by
Palma under protest.
Topic: Local Taxation (Limits, prohibitions)
Palma contended that under RA 7160 (Local Government Code of 1991),
Relevant Law: RA No. 7160 (Local Government Code of 1991)
municipal governments did not have the authority to tax goods and
vehicles that passed through their jurisdictions.
GR No. 152492
October 16, 2003 Palma filed before the RTC an action for declaratory relief assailing the
Petitioner: Palma Development Corporation (Palma) validity of Section 5G.01 of the municipal ordinance
Respondent: Municipality of Malangas, Zamboanga Del Sur (Municipality) RTC: Declared the entire Municipal Revenue Code No. 09 as ultra vires
and, hence, null and void.
Summary: Basically, the Municipality of Malangas, Zamboanga passed an CA:
ordinance which under Sec. 5G.01 imposed fees for the use of the municipal o Held that local government units already had revenue-raising
roads/streets leading to the wharf and to any point along the shorelines and for powers as provided for under Sections 153 and 155 of RA No.
police surveillance. Palma paid the fees under protest and thereafter, assailed the 7160.
validity of Sec. 5G.01, in light of the prohibition under RA 7160 (LGC). SC held that o Ruled that within the purview of these provisions (and therefore
the imposition of such service fee is null and void as Section 133(e) of RA No. valid) is  Section  5G.01,  which  provides  for  a  “service  fee  for  the  
7160 prohibits the imposition, in the guise of wharfage, of fees -- as well as use of the municipal road or streets leading to the wharf and to
all other taxes or charges in any form whatsoever -- on goods or any point along the shorelines within the jurisdiction of the
merchandise. #PrayForZamboanga municipality”   and   “for   police   surveillance   on   all   goods   and   all  
equipment harbored or sheltered in the premises of the wharf
Facts: and  other  within  the  jurisdiction  of  this  municipality.”
Palma Development Corporation is engaged in milling and selling rice and o However, since both parties had submitted the case to the RTC
corn to wholesalers in Zamboanga City. for decision on a pure question of law without a full-blown trial on
It uses the municipal port of Malangas, Zamboanga del Sur as the merits, the CA could not determine whether the facts of the
transshipment point for its goods. case were within the ambit of the aforecited sections of RA No.
7160.
The port, as well as the surrounding roads leading to it, belong to and are
o Ruled that Palma still had to adduce evidence to
maintained by the Municipality of Malangas, Zamboanga del Sur.
substantiate its allegations that the assailed ordinance had
January 16, 1994: The municipality of Zamboanga passed Municipal
imposed fees on the movement of goods within the Municipality
Revenue Code No. 09, Series of 1993, which was subsequently
in the guise of a toll fee for the use of municipal roads and a
approved by the Sangguniang Panlalawigan of Zamboanga del Sur in a
service fee for police surveillance.
Resolution.
o Case REMANDED.
The subject of contention in this case is Section 5G.01 of the said
Revenue Code, which reads:
Issue: Whether or not Section 5G.01 of Municipal Revenue Code No. 09 is
valid? – NO
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Local Taxation I)

Held: Petition GRANTED. Decision of the Court of Appeals SET ASIDE. 02. Bulacan v. CA (KF)
The imposition of a service fee for police surveillance on all goods November 27, 1998
harbored or sheltered in the premises of the municipal port of Malangas
under Sec. 5G.01 of the Malangas Municipal Revenue Code No. 09, series Topic: Local Taxation (General Principles, Definitions, and Limitations)
of 1993, is declared NULL AND VOID for being violative of Republic
Act No. 7160. Petitioners: The Province Of Bulacan, Roberto M. Pagdanganan, Florence
Chavez, And Manuel Dj Siayngco In Their Capacity As Provincial Governor,
Provincial Treasurer, Provincial Legal Advise
Ratio:
Palma argues that while the Municipality has the power to tax or impose
Respondents: The Honorable Court Of Appeals (Former Special 12th Division),
fees on vehicles using its roads, it CANNOT tax the goods that are
Public Cement Corporation
transported by the vehicles.
On the other hand, the Municipality maintains that the subject fees are Summary: Bulacan assessed Republic Cement for extracting limestone, shale and
intended for services rendered, the use of municipal roads and police silica from private lands. But the ordinance they passed only said that they will
surveillance. impose a tax from extracting ordinary stones, etc. from public lands. ISSUE:
By express language of Sections 153 and 155 of RA No. 7160, LGU’s, WON declaration of nullity of the assessment was proper. HELD: Generally, an
through their Sanggunian, may prescribe the terms and conditions for the LGU can impose such tax even if not in LGC since Sec. 186 of LGC gives them
imposition of toll fees or charges for the use of any public road, pier such power. However, the tax imposed by Bulacan is an excise tax on the
or wharf funded and constructed by them. performance of an activity, which is already taxed under the NIRC. Thus, a
A service fee imposed on vehicles using municipal roads leading to the province may not ordinarily impose taxes on stones, sand, gravel, earth and
wharf is thus valid. other quarry resources, as the same are already taxed under the NIRC. The
province can, however, impose a tax on stones, sand, gravel, earth and other
However, Section 133(e) of RA No. 7160 prohibits the imposition, in quarry resources extracted from public land because it is expressly empowered to
the guise of wharfage, of fees -- as well as all other taxes or charges do so under the LGC. As to stones, sand, gravel, earth and other quarry resources
in any form whatsoever -- on goods or merchandise. extracted from private land, it may not do so.

It is therefore IRRELEVANT if the fees imposed are actually for police FACTS:
surveillance on the goods, because any other form of imposition on
goods passing through the territorial jurisdiction of the municipality Sangguniang Panlalawigan of Bulacan passed Provincial Ordinance No.
is clearly prohibited by Section 133(e). 3, known as "An ordinance Enacting the Revenue Code of the Bulacan
Province," which was to take effect on July 1, 1992, section 21 provides:
Under Section 131(y) of RA No. 7160, wharfage is defined as   “a   fee   o Section 21. Imposition of Tax. There is hereby levied and
assessed against the cargo of a vessel engaged in foreign or domestic collected a tax of 10% of the fair market value in the locality per
trade based on quantity, weight, or measure received and/or discharged cubic meter of ordinary stones, sand, gravel, earth and other
by  vessel.” quarry resources, such, but not limited to marble, granite,
volcanic cinders, basalt, tuff and rock phosphate, extracted
A wharfage does NOT lose its basic character by being labeled as a
from public lands or from beds of seas, lakes, rivers,
service fee “for  police  surveillance  on  all  goods.”
streams, creeks and other public waters within its territorial
jurisdiction
Provincial Treasurer assessed Republic Cement P2,524,692.13
(2.5M) for extracting limestone, shale and silica from several parcels of

Page 2 of 21
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Local Taxation I)

private land in the province during the third quarter of 1992 until the Code. As to stones, sand, gravel, earth and other quarry resources
second quarter of 1993 extracted from private land, however, it may not do so, because of
1
Believing that the province, on the basis of the ordinance, had no the limitation provided by Section 133 of the Code in relation to
2
authority to impose taxes on quarry resources extracted from private Section 151 of the NIRC.
lands, Republic Cement Formally Contested the assessment which Given the above disquisition, petitioners cannot claim that the
was denied by the Provincial Treasurer. appellate court unjustly deprived them of the power to create their
Republic Cement, filed a Petition For Declaratory Relief with the RTC sources of revenue, their assessment of taxes against Republic Cement
of Bulacan which was denied by the RTC which ruled that declaratory being ultra vires, traversing as it does the limitations set by the Local
relief was improper, allegedly because a breach of the ordinance had Government Code. Even if we disregard the limitation set by Section 133
been committed by Republic Cement. Thereafter it filed a certiorari with of the Local Government Code, petitioners may not, impose taxes on
the SC. stones, sand, gravel, earth and other quarry resources extracted from
In the interim, Bulacan issued a warrant of distraint of levy against private lands on the basis of Section 21 of Provincial Ordinance No. 3 as
Republic Cement because of the unpaid tax liabilities. After trial, the CA the latter clearly applies only to quarry resources extracted from public
rendered a decision which favored Republic Cement. lands. Petitioners may not invoke the Regalian doctrine to extend the
ISSUE: coverage of their ordinance to quarry resources extracted from private
lands, for taxes, being burdens, are not to be presumed beyond what the
WON the declaration of nullity of the assessment was proper – YES, assessments applicable statute expressly and clearly declares, tax statutes being
are null and void. construed strictissimi juris against the government.

HELD:
1
Section 133. - Common Limitations on the Taxing Powers of Local Government Units. - Unless
Petitioners contend that their authority comes from Section 186 of the
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
LGC w/c provides that the province may levy taxes and fees not more barangays shall NOT extend to the levy of the following:
than 10% of the fair market value per cubic meter of ordinary stones, (h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and
sand, gravel etc, extracted from public lands. taxes, fees or charges on petroleum products;
2
However, a perusal of the said law shows that the tax imposed is an Section 151. - Mineral Products. -
excise tax being a tax upon the performance, carrying on, or exercise of
an activity and the LGC provides that cities, municipalities, and (A) Rates of Tax. - There shall be levied, assessed and collected on minerals,
mineral products and quarry resources, excise tax as follows:
barangays shall NOT extend to excise taxes enumerated under the
(2) On all nonmetallic minerals and quarry resources, a tax of two percent
NIRC.
(2%) based on the actual market value of the gross output thereof at the time
Hence, the assessments are null and void. A province may not levy of removal, in case of those locally extracted or produced; or the values used
excise taxes already taxed by the NIRC. Unfortunately for Bulacan, the by the Bureau of Customs in determining tariff and customs duties, net of
NIRC   already   provides   for   the   imposition   of   taxes   on   “all   non   metallic   excise tax and value-added tax, in the case of importation.
minerals  and  quarry  resources”  under  excise  tax  provisions.  It  is  apparent  
that all quarry resources, regardless or origin, whether extracted from (B) [Definition of Terms]. - For purposes of this Section, the term-
public of private land are already in the provisions of the NIRC. Thus, a
(4) Quarry resources shall mean any common stone or other common
province may not ordinarily impose taxes on stones, sand, gravel, mineral substances as the Director of the Bureau of Mines and Geo-Sciences
earth and other quarry resources as the same are already taxed may declare to be quarry resources such as, but not restricted to, marl, marble,
under the NIRC. The province can, however, impose a tax on stones, granite, volcanic cinders, basalt, tuff and rock phosphate; Provided, That they
sand, gravel, earth and other quarry resources extracted from public land contain no metal or metals or other valuable minerals in economically
because it is expressly empowered to do so under the Local Government workable quantities.

Page 3 of 21
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Local Taxation I)

03. Quezon City v. ABS-CBN (MR) o to subject ABS to the local tax is an impairment of its contract
Topic: “in  lieu  of  all  taxes”  provision   with the government, franchises being in the nature of a private
Relevant Laws: contract between the grantee and the government
o MR denied
G.R. No. 166408 CA ruling—pure questions of law so cognizable only by SC
October 6, 2008
Reyes, R.T., J. Issues:
Whether   or   not   the   phrase   “in   lieu   of   all   taxes”   indicated   in   the   franchise   of   the  
Petitioners: QC respondent appellee (Section 8 of RA 7966) serves to exempt it from the payment
Respondents: ABS-CBN Broadcasting Corporation of the local franchise tax imposed by the petitioners-appellants—NO

Facts: Held:
Sec. 31, Art. 13 of the QC Revenue Code imposes a franchise tax on Petition GRANTED
businesses operating within its jurisdiction. ABS-CBN was granted a Decision of lower court REVERSED
franchise to install and operate radio and television broadcasting stations
in the country under RA 7966, sec. 8 of which provides: shall pay a Ratio:
franchise tax equivalent to three percent (3%) of all gross receipts of the The other issue was whether or not the petition raised pure questions of
radio/television business transacted under this franchise by the grantee, law—SC  said  it  did.  Won’t  include  that  part  na  
its successors or assigns, and the said percentage tax shall be in lieu of The  “in  lieu  of  all  taxes”  provision  does  not  exempt  ABS-CBN because it does not
all taxes on this franchise or earnings thereof EXRESSLY exempt it from local taxes
ABS-CBN had been paying local franchise tax under the QC Code. Sec. 151 in relation to 137 of the LGC is the basis of power to impose
However, because of the above provision it was of the opinion that it franchise tax here. But such taxing power of the local government is
should not be liable to the QC tax imposition. Filed a written claim for limited in that the Congress can enact legislation granting exemptions
refund twice. Failing to obrain a response, filed complaint with RTC to QC vs. Bayan Telecommunications--The power to tax is primarily vested
declare nullity of the imposition of the local franchise tax and refund in the Congress; however, in our jurisdiction, it may be exercised by local
QC   argued   that   the   “in   lieu   of   all   taxes”   provision   could   not   have   been   legislative bodies, no longer merely be virtue of a valid delegation as
intended to prevail over the constitutational mandate to keep the local before, but pursuant to direct authority conferred by Section 5, Article X of
government self-sufficient. Furthermore, the taxes collected under local the Constitution. Under the latter, the exercise of the power may be
government were different from national government impositions. Lastly, subject to such guidelines and limitations as the Congress may provide
that the exemption in ABS-CBN’s   franchise   was   withdrawn   by   Congress   which, however, must be consistent with the basic policy of local
when it enacted the LGC. Under sec. 193 LGC: tax exemptions or autonomy.
incentives granted to, or presently enjoyed by all persons, whether natural According to Fr. B: What is the effect of Section 5, Art. X Consti on the
or juridical, including government- owned or -con-trolled corporations, fiscal position of municipal corporations? Section 5 does not change the
RTC ruling: doctrine that municipal corporations do not possess inherent powers of
o For ABS-CBN taxation. What it does is to confer municipal corporations a general power
o citing Misamis Ortiental vs. CEPALCO—franchise is a special to levy taxes and otherwise create sources of revenue. They no longer
law while Local Tax Code is a general law and special trumps have to wait for a statutory grant of these powers. The power of the
general legislative authority relative to the fiscal powers of local governments has
o also, ABS-CBN’s   franchise   was   granted   after   the   LGC   was   been reduced to the authority to impose limitations on municipal powers.
passed so the intention of the Congress was to grant the Moreover,   these   limitations   must   be   “consistent   with   the   basic   policy   of  
exemption local autonomy.
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Congress has the inherent power to tax, which includes the power to 04. Smart v. Davao (Main case) (RK)
grant tax exemptions. On the other hand, the power of Quezon City to tax Topic: Tax exemptions of franchise grantees
is prescribed by Section 151 in relation to Section 137 of the LGC which Relevant Laws:
expressly provides that notwithstanding any exemption granted by any (Mainly) Section 1, Article 10 NIRC
law or other special law, the City may impose a franchise tax. It must be
Section 137 of R.A. No. 7160 (Local Government Code)
noted that Section 137 of the LGC does not prohibit grant of future
Section  9  of  R.A.  No.  7294  (Smart’s  Legislative  Franchise)
exemptions.
Section 23 of R.A. No. 7925, (The Public Telecommunications Policy Act)
However, tax exemptions are strictly construed against the taxpayer. It
must be in unequivocal terms. Here, its is not
G.R. No. 155491
The The “in  lieu  of  all  taxes”  provision  in  the  franchise  of  ABS-CBN does
September 16, 2008
not expressly provide what kind of taxes ABS-CBN is exempted from. It is
Nachura, J.
not clear whether the exemption would include both local, whether
municipal, city or provincial, and national tax. What is clear is that ABS- Petitioners: Smart Communications, Inc
CBN shall be liable to pay three (3) percent franchise tax and income Respondents: The City of Davao, represented herein by its Mayor Hon. Rodrigo R.
taxes   under   Title   II   of   the   NIRC.   But   whether   the   “in   lieu   of   all   taxes  
Duterte, and the Sangguniang Panlungsod of Davao City
provision”  would  include  exemption  from  local  tax  is  not  unequivocal.
Citing relevant case law, ABS-CBN’s   franchise   did   not   embody   an   SUMMARY: remember this case from Tax 1? Davao imposed local franchise tax
exemption similar to those in Carcar, Manila Railroad, Philippine Railway, on SMART. Davao based its authority under the LGC which provides power to tax.
and Visayan Electric. Too, the franchise failed to specify the taxing SMART contends that it is exempt because its franchise, which took effect after
authority from whose jurisdiction the taxing power is withheld, whether the   LGC,   states   the   magical   “in   lieu   of   all   taxes.”   SC   said,   LGC   applies  
municipal, provincial, or national. A review of the foregoing case law prospectively, hence the part of the law which removed exemption from local
reveals   that   the   grantees’   respective   franchises   expressly   exempt   them   franchise tax only applies to existing franchises at the time of the effectivity of the
from municipal and provincial taxes. LGC. BUT, SMART failed to prove its exemption under its franchise. Again, strictly
construed  against  taxpayer.  The  “in  lieu  of  all  taxes”  clause  does  not  apply  to  local  
Besides,  the  “in  lieu  of  all  taxes”  clause  in  the  franchise  of  ABS-CBN has become taxes.   The   proviso   in   the   first   paragraph   of   Section   9   of   Smart’s   franchise   states  
functus officio with the abolition of the franchise tax on broadcasting companies that  the  grantee  shall  “continue  to  be  liable  for  income taxes payable under Title II
with yearly gross receipts exceeding Ten Million Pesos. of  the  National  Internal  Revenue  Code.”  Also,  the  second  paragraph  of  Section  9  
RA 7716 or the VAT law was passed and it subjected the services speaks   of   tax   returns   filed   and   taxes   paid   to   the   “Commissioner   of   Internal  
rendered by radio and /or broadcasting stations subject to VAT Revenue or his duly authorized representative in accordance with the National
RA 8241 then took effect stating—Radio and/or television companies Internal   Revenue   Code.”   Moreover,   the   same   paragraph   declares   that   the   tax  
whose annual gross receipts do not exceed P10,000,000.00 were returns   “shall   be   subject   to   audit   by   the   Bureau   of   Internal   Revenue.”   Nothing   is  
granted the option to choose between paying 3% national franchise tax or mentioned in Section 9 about local taxes.
10% VAT.
On On the other hand, radio and/or television companies with yearly THE MR AFFIRMED THIS.
gross receipts exceeding P10,000,000.00 were subject to 10% VAT, Facts:
pursuant to Section 102 of the NIRC. Smart filed a special civil action for declaratory relief under Rule 63 of the
So ABS is now actually subject to VAT Rules of Court, for the ascertainment of its rights and obligations.
Section 1, Article 10 of NIRC provides that:
` Notwithstanding any exemption granted by any law or other
special law, there is hereby imposed a tax on businesses
enjoying a franchise, at a rate of seventy-five percent (75%) of
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REMEDIES (Local Taxation I)

one percent (1%) of the gross annual receipts for the preceding 4. Whether or not the lower court erred in not holding that sections 137 and
calendar year based on the income or receipts realized within 193 of the local government code refer only to exemptions already
the territorial jurisdiction of Davao City. existing at the time of its enactment but not to future exemptions. --- NO
Smart contends that its telecenter in Davao City is exempt from payment 5. Whether or not the lower court erred in applying the rule of statutory
of franchise tax to the City, on the following grounds: construction that tax exemptions are construed strictly against the
(a) the issuance of its franchise under Republic Act (R.A.) No. taxpayer. --- NO
7294 subsequent to R.A. No. 7160 shows the clear legislative 6. Whether or not the lower court erred in not holding that petitioner's
intent to exempt it from the provisions of R.A. 7160; franchise (republic act no. 7294) has been amended and expanded by
(b) Section 137 of R.A. No. 7160 can only apply to exemptions section 23 of Ra. 7925, "The Public Telecommunications Policy Act,"
already existing at the time of its effectivity and not to future taking into account the franchise of Globe Telecom, Inc (RA No.. 7229),
exemptions; which are special provisions and were enacted subsequent to the local
(c) the power of the City of Davao to impose a franchise tax is government code, thereby providing an additional ground why no
subject to statutory limitations such as the "in lieu of all taxes" franchise tax may be imposed on petitioner by respondent city. --- NO
clause found in Section 9 of R.A. No. 7294; and 7. Whether or not the lower court erred in disregarding the ruling of the
(d) the imposition of franchise tax by the City of Davao would department of finance, through its bureau of local government finance,
amount to a violation of the constitutional provision against that petitioner is exempt from the payment of the franchise tax imposable
impairment of contracts. by local government units under the local government code. --- NO
The City of Davao invoked the power granted by the Constitution to local 8. Whether or not the lower court erred in not holding that the imposition of
government units to create their own sources of revenue. the local franchise tax on petitioner would violate the constitutional
The RTC rendered its Decision denying the petition. The trial court noted prohibition against impairment of contracts. --- NO
that the ambiguity of the "in lieu of all taxes" provision in R.A. No. 7294,
on whether it covers both national and local taxes, must be resolved Held:
against the taxpayer. The RTC ratiocinated that tax exemptions are Petition DENIED.
construed in strictissimi juris against the taxpayer and liberally in favor of Decision of lower court AFFIRMED.
the taxing authority and, thus, those who assert a tax exemption must
justify it with words too plain to be mistaken and too categorical not to be Ratio:
misinterpreted.
2. Two months ahead of Smart's franchise, the Local Government
Issues: SIMPLE: WON Smart is covered by the LGC Franchise tax? YES Code (R.A. No. 7160) took effect. Section 137, in relation to Section
1. Whether or not franchise tax may be imposed on Smart by Davao City in 151 of R.A. No. 7160, allowed the imposition of franchise tax by the
lieu of all taxes? --- YES local government units; while Section 193 thereof provided for the
2. Whether or not the lower court erred in holding that Smart's franchise is a withdrawal of tax exemption privileges granted prior to the issuance
general law and did not repeal relevant provisions regarding franchise tax of R.A. No. 7160 except for those expressly mentioned therein:
of the local government code, which according to the court is a special Section 137. Franchise Tax. -- Notwithstanding any
law? --- NO exemption granted by any law or other special law, the province may
3. Whether or not the lower court erred in not holding that section 137 of the impose a tax on businesses enjoying a franchise, at the rate not
local government code, which, in relation to section 151 thereof, allows exceeding fifty percent (50%) of one percent (1%) of the gross
respondent city to impose the franchise tax, and section 193 of the code, annual receipts for the preceding calendar year based on the
which provides for withdrawal of tax exemption privileges, are not incoming receipt, or realized, within its territorial jurisdiction. X X X
applicable to this case. --- NO Section 151. Scope of Taxing Powers. -- Except as otherwise
provided in this Code, the city may levy the taxes, fees, and charges
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REMEDIES (Local Taxation I)

which the province or municipality may impose: Provided, however, That 5. There is no violation of Article III, Section 10 of the 1987 Philippine
the taxes, fees and charges levied and collected by highly urbanized and Constitution. As previously discussed, the franchise of Smart does not
independent component cities shall accrue to them and distributed in expressly provide for exemption from local taxes
accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum Motion For Reconsideration (2009): Denied
rates allowed for the province or municipality by not more than fifty
percent (50%) except the rates of professional and amusement taxes. Franchisee is still liable to pay the local franchise tax, unless it is
Section 193. Withdrawal of Tax Exemption Privileges. -- expressly and unequivocally exempted from the payment thereof
Unless otherwise provided in this Code, tax exemptions or incentives under its legislative franchise. The  “in  lieu  of  all  taxes”  clause  in  a  
granted to, or presently enjoyed by all persons, whether natural or legislative franchise should categorically state that the exemption applies
juridical, including government-owned or controlled corporations, except to both local and national taxes; otherwise, the exemption claimed should
local water districts, cooperatives duly registered under RA No. 6938, be strictly construed against the taxpayer and liberally in favor of the
non-stock and non-profit hospitals and educational institutions, are hereby taxing authority.
withdrawn upon the effectivity of this Code. Power  of  LGU’s  emanates  from Sec 5, Art. of the constitution which
empowers them to create their own sources of revenues and to levy
HERE:  Smart’s  franchise  is  a  general  law  that  did  not  repeal  relevant   taxes, fees and charges subject to such guidelines and limitations
provisions regarding franchise tax of the local government code. as the Congress may provide. The imposition of local franchise tax is
not inconsistent with the advent of the VAT, which renders functus officio
3. SC  agrees  with  Smart’s  Contention  that  it  is  not  covered  by  Section  137,   the franchise tax paid to the national government. VAT inures to the
in relation to Section 151 of R.A. No. 7160, because its franchise was benefit of the national government, while local franchise tax is a revenue
granted after the effectivity of the said law. The withdrawal of tax of the local government.
exemptions or incentives provided in R.A. No. 7160 can only affect
those franchises granted prior to the effectivity of the law. The
intention of the legislature to remove all tax exemptions or
incentives granted prior to the said law is evident in the language of 05. Smart v. Davao (MR) (KB)
Section 193 of R.A. No. 7160. No interpretation is necessary. Topic: Local Taxation
Relevant Laws:

4. Section 23 of R.A. No. 7925 provides that: G.R. No. 155491


Any advantage, favor, privilege, exemption, or immunity granted July 21, 2009
under existing franchises, or may hereafter be granted, shall ipso Nachura, J.:
facto become part of previously granted telecommunications
franchise and shall be accorded immediately and unconditionally to Petitioners: SMART COMMUNICATIONS, INC.,
the grantees of such franchises: X X X Congress did not intend it to Respondents: THE CITY OF DAVAO, represented herein by its Mayor Hon.
operate as a blanket tax exemption to all telecommunications entities. RODRIGO DUTERTE, and the SANGGUNIANG PANLUNSOD OF DAVAO CITY
The term "exemption" in Section 23 of R.A. No. 7925 does not mean tax
exemption. The term refers to exemption from certain regulations and
Summary: Smart   filed   an   MR   claiming   that   the   “in   lieu   of   all   taxes”   clause   in  
requirements imposed by the NTC
Smart’s  franchise  covers  local  taxes.  Applying the rule of strict construction of laws
granting tax exemptions and the rule that doubts are resolved in favor of municipal
corporations in interpreting statutory provisions on municipal taxing powers, the
Court held that Section 23 of RA 7925 could not be considered as having amended
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REMEDIES (Local Taxation I)

petitioner's franchise so as to entitle it to exemption from the imposition of local franchise or earnings thereof: Provided, That the grantee, its successors or
franchise taxes. VAT replaced the national franchise tax, but it did not prohibit assigns shall continue to be liable for income taxes payable under Title II of the
nor abolish the imposition of local franchise tax by cities or municipaties. National Internal Revenue Code pursuant to Section 2 of Executive Order No. 72
unless the latter enactment is amended or repealed, in which case the amendment
Facts: or repeal shall be applicable thereto.

Section 23 of RA 7925, otherwise known as the most favored treatment clause or


On February 18, 2002, Smart filed a special civil action for declaratory relie for
equality clause, contains the word "exemption,"
the ascertainment of its rights and obligations under the Tax Code of the City
of Davao, which imposes a franchise tax on businesses enjoying a franchise
SEC. 23. Equality of Treatment in the Telecommunications Industry — Any
within the territorial jurisdiction of Davao.
advantage, favor, privilege, exemption, or immunity granted under existing
Smart avers that its telecenter in Davao City is exempt from payment of
franchises, or may hereafter be granted, shall ipso facto become part of previously
franchise tax to the City.
granted telecommunications franchises and shall be accorded immediately and
On July 19, 2002, the RTC rendered a Decision denying the petition. Smart
unconditionally to the grantees of such franchises: Provided, however, That the
filed a motion for reconsideration, which was denied by the trial court in an
foregoing shall neither apply to nor affect provisions of telecommunications
Order dated September 26, 2002. Smart filed an appeal before this Court, but
franchises concerning territory covered by the franchise, the life span of the
the same was denied in a decision dated September 16, 2008.
franchise, or the type of the service authorized by the franchise
Hence, the instant motion for reconsideration raising the following grounds: (1)
the "in lieu of all taxes"  clause  in  Smart’s  franchise,  Republic  Act  No.  7294  
The Court also clarified the meaning of the word "exemption" in Section 23 of
(RA 7294), covers local taxes; the rule of strict construction against tax
RA 7925: that the word "exemption" as used in the statute refers or pertains
exemptions is not applicable; (2) the "in lieu of all taxes" clause is not
merely to an exemption from regulatory or reporting requirements of the
rendered ineffective by the Expanded VAT Law; (3) Section 23 of Republic
Department of Transportation and Communication or the National
Act No. 7925 (RA 7925) includes a tax exemption; and (4) the imposition of a
Transmission Corporation   and   not   to   an   exemption   from   the   grantee’s   tax  
local franchise tax on Smart would violate the constitutional prohibition against
liability.
impairment of the obligation of contracts.
Philippine Long Distance Telephone Company (PLDT) v. Province of Laguna
Issues: Whether of not Smart is exempted from paying franchise tax to the City
PLDT was a holder of a legislative franchise under Act No. 3436, as amended. On
August 24, 1991, the terms and conditions of its franchise were consolidated under
Held: Motion for reconsideration DENIED
Republic Act No. 7082, Section 12 of which embodies the so-called "in-lieu-of-all
taxes" clause. Under the said Section, PLDT shall pay a franchise tax equivalent to
Ratio:
three percent (3%) of all its gross receipts, which franchise tax shall be "in lieu of
Section 9 of RA 7294 and Section 23 of RA 7925 are once again put in issue.
all taxes." The issue that the Court had to resolve was whether PLDT was liable to
Section   9   of   Smart’s   legislative   franchise contains the contentious "in lieu of all
pay franchise tax to the Province of Laguna in view of the "in lieu of all taxes"
taxes" clause.
clause in its franchise and Section 23 of RA 7925.
Applying the rule of strict construction of laws granting tax exemptions and the rule
Section 9. Tax provisions. — The grantee, its successors or assigns shall be liable
that doubts are resolved in favor of municipal corporations in interpreting statutory
to pay the same taxes on their real estate buildings and personal property,
provisions on municipal taxing powers, the Court held that Section 23 of RA 7925
exclusive of this franchise, as other persons or corporations which are now or
could not be considered as having amended petitioner's franchise so as to entitle it
hereafter may be required by law to pay. In addition thereto, the grantee, its
to exemption from the imposition of local franchise taxes.
successors or assigns shall pay a franchise tax equivalent to three percent (3%) of
all gross receipts of the business transacted under this franchise by the grantee, its
successors or assigns and the said percentage shall be in lieu of all taxes on this
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In sum, the aforecited jurisprudence suggests that aside from the national Facts:
franchise tax, the franchisee is still liable to pay the local franchise tax, unless Petitioner is a grantee of a pipeline concession under RA 387 to contract, install
it is expressly and unequivocally exempted from the payment thereof under its and  operate  pipelines.  It  applied  for  a  mayor’s  permit  with  the  Office  of  the  Mayor  
legislative franchise. of Batangas, wherein the Batangas Treasurer, Arellano, required FPIC to pay a
The "in lieu of all taxes" clause in a legislative franchise should categorically local tax, based on its gross receipts for 1993, pursuant to the LGC. The tax
state that the exemption applies to both local and national taxes; otherwise, amounted to P181M, but FPIC paid P239K under protest.
the exemption claimed should be strictly construed against the taxpayer and
liberally in favor of the taxing authority. FPIC wrote to the Treasurer, stating that as a grantee of a concession by the
Republic Act No. 7716, otherwise known as the "Expanded VAT Law," did not government, it is exempt from paying tax under the LGC. It also stated that it is not
remove or abolish the payment of local franchise tax. It merely replaced the a contractor under Section 131 of the LGC, nor is the imposition imposed by the
national franchise tax that was previously paid by telecommunications Treasurer a mere fee, as fees and charges on businesses may only be in amounts
franchise holders and in its stead imposed a ten percent (10%) VAT in commensurate to the regulation, inspection and licensing (basta masyado raw
accordance with Section 108 of the Tax Code. VAT replaced the national malaki yung P181M).
franchise tax, but it did not prohibit nor abolish the imposition of local
franchise tax by cities or municipaties. The Treasurer argued that FPIC cannot be exempt from taxes under Section 133
The imposition of local franchise tax is not inconsistent with the advent of the (j) of the LGC, as said exemption applies only to "transportation contractors and
VAT, which renders functus officio the franchise tax paid to the national persons engaged in the transportation by hire and common carriers by air, land
government. VAT inures to the benefit of the national government, while a and water." She asserts that pipelines are not included in the term "common
local franchise tax is a revenue of the local government unit. carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the
like.

FPIC thereafter filed with the RTC of Batangas a complaint for tax refund, which
06. First Philippine Industrial v. CTA (JT) the trial court judge dismissed. It reasoned that since the exemption to the tax
G.R. No. 125948 claimed by FPIC has become unclear, it must be dismissed as tax exemptions are
December 29, 1988 (grabe walang Christmas break ang SC) to be strictly construed against the taxpayer.
Martinez, J.
CA upheld the RTC decision. Hence, this petition.
Petitioners: First Philippine Industrial Corp (FPIC)
Respondents: CA; Judge Hon. Paterno Tac-an of Batangas; Adoracion Arellano, Issues:
Batangas Treasurer 1. Whether or not FPIC is a common carrier—YES
2. Whether or not FPIC is exempted under the law—YES
Summary: FPIC is a grantee of a pipeline concession by Congress, but the
Batangas Treasurer still wants to tax it, when FPIC applied to operate in Batangas. Held: Petition GRANTED. Decision of lower court REVERSED.
FPIC said that it is exempt under the law from paying such taxes, because it is a
common carrier (a public utility), and common carriers are exempt under the LGC. Ratio:
The Supreme Court agreed with FPIC. FPIC is considered a common carrier, as it ¿Lo  que  es  un  "portador  común"  o  “common  carrier,”  por  favor?
is engaged in the business of transporting petroleum products. And under the A "common carrier" is one who is engaged in the business of
Public Service Act, those engaged in the transportation of petroleum products are transporting persons or property from place to place, for
considered public utilities and are therefore exempt from paying the local business compensation, offering his services to the public generally.
tax. Article 1732 of the Civil Code defines a "common carrier" as "any person,
corporation, firm or association engaged in the business of carrying or
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REMEDIES (Local Taxation I)

transporting passengers or goods or both, by land, water, or air, for o “Petitioner   is   already   paying   three   (3%)   percent   common  
compensation, offering their services to the public." carrier's tax on its gross sales/earnings under the National
The test for determining whether a party is a common carrier of goods is: Internal Revenue Code. To tax petitioner again on its gross
1. He must be engaged in the business of carrying goods for others as receipts in its transportation of petroleum business would defeat
a public employment, and must hold himself out as ready to engage the  purpose  of  the  Local  Government  Code.”
in the transportation of goods for person generally as a business and
not as a casual occupation;
2. He must undertake to carry goods of the kind to which his business is
confined;
3. He must undertake to carry by the method by which his business is
07. Petron v. Tiangco (AD)
conducted and over his established roads; and G.R. No. 158881 | April 16, 2008
4. The transportation must be for hire Petron Corporation, petitioner
Mayor Tobias M. Tiangco, and Municipal Treasurer Manuel T. Enriquez of The
FPIC is a common carrier and is thus a public utility. Municipality of Navotas, Metro Manila, respondents
It is engaged in the business of transporting petroleum products, for
FACTS:
hire as a public employment.
Petron maintains a depot or bulk plant at the Navotas Fishport
It undertakes to carry for all persons indifferently, who choose to employ
Complex in Navotas.
its services, for compensation.
Through that depot, it has engaged in the selling of diesel fuels to
The fact that FPIC has limited clientele does not matter.
vessels used in commercial fishing.
Under Section 13 of the Public Service Act, public service includes
Petron received a letter from the office of Navotas Mayor, respondent
“every   person   xxx   engaged   in   the   transportation   of   xxx   power  
Toby Tiangco, wherein the corporation was assessed taxes "relative to
petroleum.”
the sale of diesel declared  by  your  Navotas  Terminal  from  1997  to  2001”
Also, the implementing law of FPIC (RA 387) explicitly declares FPIC to
a total amount of P6,259,087.62.
be a public utility.
The letter made reference to Ordinance 92-03, or the New Navotas
Because FPIC is a common carrier, it is exempt from business tax. Revenue Code (Navotas Revenue Code).
Petron duly filed with Navotas a letter-protest to the notice of
Under LGC, Section 133: Common Limitations on the Taxing Powers of
assessment pursuant to Section 195 of the Code.
Local Government Units. - Unless otherwise provided herein, the
o It argued that it was exempt from local business taxes in
exercise of the taxing powers of provinces, cities, municipalities, and
view of Sec. 133 (h) of the NIRC and Art. 232(h) of the
barangays shall not extend to the levy of the following: xxx
Implementing Rules (IRR) of the Code, that sales of
o Taxes on the gross receipts of transportation contractors and
petroleum fuels are not subject to local taxation.
persons engaged in the transportation of passengers or freight
by hire and common carriers by air, land or water, except as The letter-protest was denied by the Navotas Municipal Treasurer
provided in this Code.
ISSUE: Whether a local government unit is empowered under the Local
LGC deliberations provide that the Congress wants to guard against the
Government Code (the LGC) to impose business taxes on persons or entities
imposition of the taxes by LGUs on the carrier business, because there is
engaged in the sale of petroleum products.
already  a  “common  carriers  tax”  (CCT).
o In other words, the Congress does not want a duplication of the
HELD: No
CCT, so they provided an exception under the LGU.
o Thus, there is clear legislative intent to exempt common
carriers from the tax.
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REMEDIES (Local Taxation I)

RATIO: same sentence that excise taxes on petroleum products are beyond the
Section 133(h) of the LGC reads as follows: pale of local government taxation.
o Sec. 133. Common Limitations on the Taxing Powers of Local We can concede that a tax on a business is distinct from a tax on the
Government Units. - Unless otherwise provided herein, the exercise of article itself, or for that matter, that a business tax is distinct from an
the taxing powers of provinces, cities, municipalities, and Barangays excise tax.
shall not extend to the levy of the following: xxx
HOWEVER, SUCH DISTINCTION IS IMMATERIAL insofar as the latter
o (h) Excise taxes on articles enumerated under the National Internal
Revenue Code, as amended, and taxes, fees or charges on petroleum part of Section 133(h) is concerned, for the phrase "taxes, fees or
products; charges on petroleum products" does not qualify the kind of taxes,
fees or charges that could withstand the absolute prohibition
Evidently, Section 133 prescribes the limitations on the capacity of imposed by the provision. It would have been a different matter had
local government units to exercise their taxing powers otherwise Congress, in crafting Section 133(h), barred "excise taxes" or "direct
granted to them under the LGC. taxes," or any category of taxes only, for then it would be understood that
Paragraph (h) of the Section mentions TWO KINDS OF TAXES WHICH only such specified taxes on petroleum products could not be imposed
CANNOT BE IMPOSED BY LOCAL GOVERNMENT UNITS, namely: under the prohibition. THE ABSENCE OF SUCH A QUALIFICATION
o "excise taxes on articles enumerated under the National LEADS TO THE CONCLUSION THAT ALL SORTS OF TAXES ON
Internal Revenue Code [(NIRC)], as amended;" AND PETROLEUM PRODUCTS, INCLUDING BUSINESS TAXES, ARE
o "taxes, fees or charges on petroleum products." PROHIBITED BY SECTION 133(H). WHERE THE LAW DOES NOT
DISTINGUISH, WE SHOULD NOT DISTINGUISH.
Whether the clause "taxes, fees or charges on petroleum products" in THE LANGUAGE OF SECTION 133(H) MAKES PLAIN THAT THE
Section 133(h) precludes local government units from imposing business PROHIBITION WITH RESPECT TO PETROLEUM PRODUCTS
taxes based on the sale of petroleum products EXTENDS NOT ONLY TO EXCISE TAXES THEREON, BUT ALL
"TAXES, FEES AND CHARGES."
Congress has the constitutional authority to impose limitations on The earlier reference in paragraph (h) to excise taxes comprehends a
the power to tax of local government units, and Section 133 of the wider range of subjects of taxation: all articles already covered by excise
Code is one such limitation. Indeed, the provision is the explicit taxation under the NIRC, such as alcohol products, tobacco products,
statutory impediment to the enjoyment of absolute taxing power by local mineral products, automobiles, and such non-essential goods as jewelry,
government units, not to mention the reality that such power is a goods made of precious metals, perfumes, and yachts and other vessels
delegated power. intended for pleasure or sports.
Section 133(h) states that local government units "shall not extend to the In contrast, the later reference to "taxes, fees and charges" pertains only
levy of xxx taxes, fees or charges on petroleum products." to one class of articles of the many subjects of excise taxes, specifically,
"petroleum products". While local government units are authorized to
ARGUMENT OF MAYOR TIANGCO: that the phrase "taxes, fees or charges on burden all such other class of goods with "taxes, fees and charges,"
petroleum products" pertains to the imposition of direct or excise taxes on excepting excise taxes, a specific prohibition is imposed barring the
petroleum products, and not business taxes. levying of any other type of taxes with respect to petroleum products.

If the phrase actually pertains to excise taxes, then it would be an


exercise in utter redundancy, since the preceding phrase already
prohibits the imposition of excise taxes on articles already subject
to such taxes under the NIRC, such as petroleum products. There
would be no sense on the part of the legislature to twice emphasize in the

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TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Local Taxation I)

F.2. Taxing Powers of LGU o Lepanto used the quarried materials to back-fill stopes—portions
of the earth excavated as a result of mining—replacing what had
been mined to maintain the integrity of the ground.
01. Lepanto v. Ambanloc (RS) o Also used sand and gravel to construct and maintain concrete
G.R. No. 180639 | June 29, 2010 | Abad, J. structures needed in its mining operation, such as a tailings dam,
access roads, and offices. Its use of quarry resources, readily
Petitioner: Lepanto Consolidated Mining Co. (Lepanto) available within its mining claim, was more practical and cheaper
Respondent: Hon. Ambanloc, Prov. Treasurer – Benguet (Ambanloc) than having to outsource them.
Respondent Ambanloc sent a demand letter to Lepanto, asking it to
SUMMARY pay the province P1,901,893.22 as sand and gravel tax, for the quarry
The   national   gov’t   issued   a   mining   lease   contract   to   Lepanto.   Based   on   the   materials that it extracted from its mining site from 1997 to 2000.
DENR’s   opinion,   Lepanto   did   not   secure   a   permit   to   extract   sand   and   gravel.   Lepanto sent a letter-protest to the provincial treasurer, but the latter
However, the provincial treasurer of Benguet sent a demand letter to Lepanto, denied the same, insisting on payment.
asking for payment of sand and gravel tax for its extractions in the period of 1997- Lepanto filed a petition with the RTC of Benguet to question the
2000. Lepanto refused payment. It questioned the assessment before the RTC. assessment.
The question was whether it is liable to pay sand and gravel tax. RTC said yes. RTC Lepanto liable for amount assessed + 2% monthly interest from
nd
CTA 2 Div agreed with the RTC (only modified the interest, limiting it to 36 the time tax should have been paid.
months). CTA En Banc dismissed the case for failure to secure a majority vote of 4, nd
nd CTA 2 Div affirmed RTC ruling; modified – 2% monthly interest shall
thereby effectively affirming the CTA 2 Div decision. SC affirmed CTA En Banc,
not exceed 36 months
ruling against Lepanto. The LGC (RA 7160)   is   not   the   provincial   government’s  
CTA en banc 3 justices affirmed; 3 justices dissented 4 votes need
basis   for   taxing   Lepanto’s   extraction.   It   is   but   a general law that delegates to
consequently,  En  Banc  dismissed  Lepanto’s  appeal
provinces the power to impose taxes on the extraction of quarry resources.
ISSUE: WN Lepanto is liable for the tax imposed by the Province of Benguet on
The provincial revenue code of Benguet requires prior permit before
the sand and gravel that it extracted from within the area of its mining claim and
extraction of gravel and sand.
used exclusively in its mining operations. YES

FACTS
HELD: WHEREFORE, the Court DENIES the petition and AFFIRMS the decision
The national government issued to Lepanto a mining lease contract
of the Court of Tax Appeals En Banc in CTA EB.
covering, among others, its "TIKEM" leased mining claim at Sitio Nayak,
Barrio Palasan (Suyoc), Municipality of Mankayan, Benguet.
RATIO (Lepanto’s  3  claims,  then  SC’s  answer  for  each)
o The contract granted Lepanto the right to extract and use for its
purposes all mineral deposits within the boundary lines of its
mining claim. I. Lepanto claims that the sand and gravel tax applied only to
o Upon inquiry, the Mines and Geo-sciences Bureau of the DENR commercial extractions (ie, sells sand and gravel instead of
advised Lepanto that, under its contract, it did not have to get a using the same solely for mining operations)
permit to extract and use sand and gravel from within the mining nd
CTA 2 Div - sand and gravel taxes may be imposed even on non-
claim for its operational and infrastructure needs. 3
commercial extractions. Since Section 138 of the Local Government
o Based on this advice, Lepanto proceeded to extract and remove
sand, gravel, and other earth materials from the mining site.
3
Sec. 138, LGC. Tax on Sand, Gravel and Other Quarry Resources. – The province may levy and
collect not more than ten percent (10%) fair market value in the locality per cubic meter of ordinary
stones, sand gravel, earth, and other quarry resources, as defined under the National Internal Revenue
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TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Local Taxation I)

Code (Republic Act 7160) authorized provinces to impose a tax on the the Provincial Governor of the permit to extract or remove the materials applied for
extraction of sand and gravel from public lands, without distinguishing and before the said materials are extracted or removed. x x x
between personal and commercial uses, then the tax should be deemed SECTION 6. Surcharges and Interests. Failure to pay the tax as provided herein
to cover extractions for both purposes. shall subject the permittee to a surcharge of Twenty-five (25%) percent of the
SC: But the CTA 2nd Division ruling overlooks the fact that Republic Act original amount of tax due plus Two (2%) percent per month of the unpaid amount
7160 is not the provincial government’s   basis   for   taxing   Lepanto’s   including the surcharges until such amount is fully paid, but in no case shall the
extraction. total amount or portion thereof exceed thirty-six (36) months. x x x
o It is but the general law that delegates to provinces the Lepanto insists that the subject tax intended to cover only commercial
power to impose taxes on the extraction of quarry extractions since the provincial revenue code referred to "fair market
resources. value of the resources," "quantity sold or disposed," "amount left in stock,"
o The scope and validity of such delegation is not the issue in this "selling price,"  and  "buyers’  information."   SC: NOT NECESSARILY
case. o The Provincial Revenue Code provides that the subject tax had
o The question of   Lepanto’s   liability   for   tax   should   be   determined   to be paid prior to the issuance of the permit to extract sand
based on the revenue measure itself, which in this case, was the and gravel.
Revised Benguet Revenue Code (the Revenue Code). o Article D, Section 2, enumerates four kinds of permits:
o The relevant provisions of this provincial revenue code reads: commercial, industrial, special, and gratuitous.
Article D. Tax on Sand, Gravel and Other Quarry Resources. o Special permits covered only personal use of the extracted
xxxx materials and did not allow the permitees to sell materials
.
SECTION 3. Imposition of Tax. There shall be levied a tax of ten (10) percent of coming from his concession
fair market value in the locality per cubic meter of ordinary stones, sand, gravel, o Among applicants for permits, however, only gratuitous
earth, and other quarry resources, x x x applied for and expected to be extracted or permits were exempt from the sand and gravel tax.
removed from public lands x x x within the territorial jurisdiction of Benguet o It follows that persons who applied for special permits
Province. needed to pay the tax, even though they did not extract
This provision may not apply in case of gratuitous permits for government projects materials for commercial purposes.
within Benguet Province. o Thus, the tax needed to be paid regardless of the applicability of
SECTION 4. Conditions for the Issuance of Permit. the administrative and reportorial requirements of that revenue
xxxx code.
(g) The permittee shall within ten (10) days after the end of each month submit to II. Lepanto claims that the tax can only be levied against
the Provincial Treasurer, the Municipal Treasurer and Barangay Treasurer where extractions by persons or entities required to apply for permits
the materials are extracted, copies of sworn statement stating the quantity in terms to remove quarry resources.
of cubic meter and kind of materials extracted or removed by him; the amount of o Since the mining lease contract with the national government
tax or fees paid; the quantity and kind of materials sold or disposed of during the granted it the right to extract and utilize all mineral deposits from
period covered by said report; the selling price per cubic meter; the names and within its mining claim, Lepanto claims that it did not need to
addresses of the buyers; and the quantity and kind of materials left in stock. apply for a separate permit from the local government
xxxx o Lepanto invokes the Bureau of Mines and Geo-Sciences’   view  
SECTION 5. Mode, Time and Place of Payment. The tax shall be paid to the that the mining company did not require it to get any of the
Provincial Treasurer or his duly authorized representative before the approval by permits that Mines Administrative Order MRD-27 might require.
SC:  But  that  Bureau’s  view  applied  only  to  permits  under  MRD-27.
o The Bureau has no authority to determine the applicability
Code, as amended, extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks,
of local ordinances.
and other public waters within its territorial jurisdiction.

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REMEDIES (Local Taxation I)

o Besides, even the Bureau itself states that the exemption and focused its decision on the taxing power of the City. Yes LEPANTO should
from MRD-27 is not absolute as it shall not apply if the sand have been liable but since there is no contemplation of its business and orientation
and gravel were to be disposed of commercially. of its profit, the SC ruled against Yamane, City Treasurer of Makati.
o An exemption from the requirements of the provincial
government should have a clear basis, whether in law, Facts:
ordinance, or even from the contract itself. •BA-Lepanto Condominium Corporation (LEPANTO) is a duly organized
o Unfortunately for Lepanto, it failed to show its entitlement to such condominium corporation constituted in accordance with the Condominium Act. It
exemption. is located along Paseo de Roxas of Makati City
III. Lepanto relies on the principle that when a company is taxed on •The  Corporation  is  authorized,  under  Article  V  of  its  Amended  By-Laws, to collect
its main business, it is no longer taxable for engaging in an regular assessments from its members for operating expenses, capital
activity that is but a part of, incidental to, and necessary to such expenditures on the common areas, and other special assessments as provided
main business for in the Master Deed with Declaration of Restrictions of the Condominium.
SC: But in the cases where this principle has been applied, the taxes •On  15  December  1998,  the  Corporation  received  a  Notice of Assessment dated
which were stricken down were in the nature of business taxes. 14 December 1998 signed by the City Treasurer. The Notice of Assessment
o The reasoning behind those cases was that the incidental stated   that   the   Corporation   is   “liable   to pay the correct city business taxes, fees
activity could not be treated as a business separate and distinct and  charges,”  computed  as  totaling  P1,601,013.77  for  the  years  1995  to  1997.
from the main business of the taxpayer. •The Notice of Assessment was silent as to the statutory basis of the
o Here the tax is an excise tax imposed on the privilege of business taxes assessed.
extracting sand and gravel. •Lepanto  is  adamant  that  the  said  notice is devoid of legal basis.
o And it is settled that provincial governments can levy excise
taxes on quarry resources independently from the national LEPANTO’S  MAIN  ARGUMENT:
government. •Proceeding   from   the   premise   that   its   tax   liability   arose   from   Section  
3A.02(m) of the Makati Revenue Code, the Corporation proceeded to argue
that under both the Makati Code and the Local Government Code,  “business”  
is  defined  as  “trade  or  commercial  activity  regularly  engaged  in  as  a  means  
02. Yamane v. BA Lepanto (HV) of  livelihood  or  with  a  view  to  profit.”  It  was  submitted  that  the  Corporation,  
Topic: Local  Gov’t  Taxation  – Taxing power as a condominium corporation, was organized not for profit, but to hold title
Relevant Laws: Sec 143 Local Government Code over the common areas of the Condominium, to manage the Condominium
for the unit owners, and to hold title to the parcels of land on which the
G.R. No. 154993 October 25, 2005 PUNO, J. Condominium was located. Neither was the Corporation authorized, under its
articles of incorporation or by-laws to engage in profit-making activities. The
Petitioners: LUZ R. YAMANE in her capacity as the CITY assessments it did collect from the unit owners were for capital expenditures
TREASURER OF MAKATI CITY and operating expenses.
Respondents: BA LEPANTO CONDOMINUM CORPORATION (In short non profit naman kami eh)
•Said  protest  is  denied  by  the  Makati  City  Treasurer  in  a  letter  dated  Nov  4,  1999
Summary:
LEPANTO is a non profit corporation, that manages the Lepanto Condos and is YAMANE’S  CONTENTION:
assessed by the Makati City Treasurer for business taxes. Lepanto alleges that •  Yamane  viewed  that  the  “chances  of  getting  higher  prices  for  well-managed
they are liable for the said taxes for being a non profit entity. The main issue is common areas of any condominium are better and more effective that
whether LEPANTO is deemed obligated to settle its local taxes with the City of condominiums   with   poor   [sic]   managed   common   areas,”   the   corporation  
Makati. The SC set aside any irregularities in the procedural errors for this case activity  “is  a  profit  venture  making”

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REMEDIES (Local Taxation I)

(Parang sinasabi lang niya na hoy bayad may kita ka naman ) Held:
Petition of
•Appeal  to  RTC  Makati  is  made  by  Lepanto CA Decision
•RTC   concluded   that   the   activities   of   the   Corporation   fell   squarely   under   the  
definition   of   “business”   under   Section   13(b)   of   the   Local Government Code, and Ratio:
thus subject to local business taxation. (1) the decision of the RTC would have long become final and executory by reason
•  Appeal  is  also  made  to  CA  but  it  was  dismissed  outright.  on  the  ground  that  only   of the failure of the Corporation to file a notice of appeal. BUT IN THIS CASE THE
decisions of the RTC brought on appeal from a first level court could be elevated SC RULED - First, in this particular case there are nonetheless significant
for review under the mode of review prescribed under Rule 42. reasons for the Court to overlook the procedural error and ultimately uphold
•However,  the  Corporation  pointed  out  in  its  Motion  for  Reconsideration  that  under   the adjudication of the jurisdiction exercised by the Court of Appeals in this
Section 195 of the Local Government Code, the remedy of the taxpayer on the case. Second, the doctrinal weight of the pronouncement is confined to
denial of the protest filed with the local treasurer is to appeal the denial with the cases and controversies that emerged prior to the enactment of Republic Act
court of competent jurisdiction. No. 9282, the law which expanded the jurisdiction of the Court of Tax
•CA then reversed the RTC Decision delving into the jurisprundential Appeals (CTA).
meaning of profits and concluded that the Corporation was not engaged in
profit. For one, it was held that the very statutory concept of a condominium Republic Act No. 9282 definitively proves in its Section 7(a)(3) that the CTA
corporation showed that it was not a juridical entity intended to make profit, exercises exclusive appellate jurisdiction to review on appeal decisions, orders or
as its sole purpose was to hold title to the common areas in the resolutions of the Regional Trial Courts in local tax cases original decided or
condominium and to maintain the condominium. resolved by them in the exercise of their originally or appellate jurisdiction.
Moreover,  the  provision  also  states  that  the  review  is  triggered  “by  filing  a  petition  
•Yamane  now  appeals  to  SC  contending  (mainly the same) that for review under a procedure analogous to that provided for under Rule 42 of the
LEPANTO is engaged in business, for the dues collected from the different unit 1997  Rules  of  Civil  Procedure.”
owners is utilized towards the beautification and maintenance of the Condominium,
resulting  in  “full  appreciative  living  values”  for  the  condominium  units  which would Republic Act No. 9282, however, would not apply to this case simply
command better market prices should they be sold in the future. The City because it arose prior to the effectivity of that law.
Treasurer likewise avers that the rationale for business taxes is not on the income
received or profit earned by the business, but the privilege to engage in (2) Article A, Chapter III of the Revenue Code governs business taxes in Makati,
business. The      fact      that      the  Corporation  is  empowered  “to  acquire,  own,  hold,   and it is quite specific as to the particular businesses which are covered by
enjoy, lease, operate and maintain, and to convey sell, transfer or otherwise business taxes. Other provisions of the Revenue Code likewise subject hotel and
dispose   of   real   or   personal   property”   allegedly  qualifies   “as  incident   to   the   fact  of   restaurant owners and operators
[the  Corporation’s]  act  of  engaging  in  business.” •At   no   point   has   the   City   Treasurer   been   candid   enough   to inform the
Corporation, the RTC, the Court of Appeals, or this Court for that matter, as
to what exactly is the precise statutory basis under the Makati Revenue Code
Issue: for the levying of the business tax on petitioner.
9. Has the decision of the RTC reached finality? --- Dapat pero SC •Ostensibly, the notice of assessment, which stands as the first instance the
decided  to  overlook  the  procedural  error…  Why  see  next  discussion taxpayer is officially made aware of the pending tax liability, should be sufficiently
informative to apprise the taxpayer the legal basis of the tax. Section 195 of the
10. May a local government unit, under the Local Government Code, Local Government Code does not go as far as to expressly require that the
compel a condominium corporation to pay business taxes? --- YES notice of assessment specifically cite the provision of the ordinance
ONLY IF THERE IS CONTEMPLATION OF BUSINESS involved but it does require that it state the nature of the tax, fee or charge,
the amount of deficiency, surcharges, interests and penalties. In this case,
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REMEDIES (Local Taxation I)

the notice of assessment sent to the Corporation did state that the to the common area, in which the holders of separate interests shall automatically
assessment was for business taxes, as well as the amount of the be members or shareholders, to the exclusion of others, in proportion to the
assessment. There may have been prima facie compliance with the requirement appurtenant interest of their respective units.
under Section 195. However in this case, the Revenue Code provides multiple - The necessity of a condominium corporation has not gained widespread
provisions on business taxes, and at varying rates. Hence, we could appreciate the acceptance, and even is merely permissible under the Condominium Act.
Corporation’s  confusion,  as  expressed  in  its  protest,  as  to  the  exact  legal  basis  for   Nonetheless, the condominium corporation has been resorted to by many
the tax. condominium projects, such as the Corporation in this case.
•Reference to the local tax ordinance is vital, for the power of local
government units to impose local taxes is exercised through the appropriate •What the City Treasurer fails to add is that every corporation organized under the
ordinance enacted by the sanggunian, and not by the Local Government Corporation Code is so specifically empowered. Section 36(7) of the Corporation
Code alone. Code states that every corporation incorporated under the Code has the power
•What   determines   tax   liability   is   the   tax ordinance, the Local Government Code and  capacity  “to  purchase,  receive,  take  or  grant,  hold,  convey,  sell,  lease, pledge,
being the enabling law for the local legislative body. mortgage and otherwise deal with such real and personal property . . . as the
•Certainly,  the  City  Treasurer  has  not  been  helpful  in  that  regard,  as  she  has   transaction of the lawful business of the corporation may reasonably and
been silent all through out as to the exact basis for the tax imposition which necessarily      require  .  .  .  .”
she wishes that this Court uphold. Indeed, there is only one thing that
prevents this Court from ruling that there has been a due process violation •Accordingly, and with a significant degree of comfort, we hold that condominium
on  account  of  the  City  Treasurer’s  failure  to  disclose  on  paper  the  statutory   corporations are generally exempt from local business taxation under the Local
basis of the tax–that the Corporation itself does not allege injury arising from Government Code, irrespective of any local ordinance that seeks to declare
such failure on the part of the City Treasurer. otherwise.
•What is essential though is that the local treasurer be required to explain to the •   Still, we can note a possible exception to the rule. It is not unthinkable that the
taxpayer with sufficient particularity the basis of the tax, so as to leave no doubt in unit owners of a condominium would band together to engage in activities for profit
the mind of the taxpayer as to the specific tax involved. under the shelter of the condominium corporation.
•As  stated  earlier,  local  tax  on  businesses  is  authorized  under  Section  143  of  
the   Local   Government   Code.   The   word   “business”   itself   is   defined   under   •   Such activity would be prohibited under the Condominium Act, but if the fact is
Section   131(d)   of   the   Code   as   “trade   or commercial activity regularly established, we see no reason why the condominium corporation may be made
engaged  in  as  a  means  of  livelihood  or  with  a  view  to  profit.”  --- This definition liable by the local government unit for business taxes. Even though such activities
of   “business”   takes   on   importance,   since   Section   143   allows   local   government   would be considered as ultra vires, since they are engaged in beyond the legal
units to impose local taxes on businesses other than those specified under the capacity of the condominium corporation, the principle of estoppel would preclude
provision. the corporation or its officers and members from invoking the void nature of its
undertakings for profit as a means of acquitting itself of tax liability.
The Corporate setting of LEPANTO as viewed by SC:
- The creation of the condominium corporation is sanctioned by Republic Act No. •  SC  DECIDED  There  is  no  contemplation  of  business,  no orientation towards
4726, otherwise known as the Condominium Act. Under the law, a condominium is profit in this case. Hence, the assailed tax assessment has no basis under
an interest in real property consisting of a separate interest in a unit in a residential, the Local Government Code or the Makati Revenue Code, and the insistence
industrial or commercial building and an undivided interest in common, directly or of the city in its collection of the void tax constitutes an attempt at
indirectly, in the land on which it is located and in other common areas of the deprivation of property without due process of law.
building.
- To enable the orderly administration over these common areas which are jointly
owned by the various unit owners, the Condominium Act permits the creation of a
condominium corporation, which is specially formed for the purpose of holding title

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REMEDIES (Local Taxation I)

03. PBA v. CA (HQ) Ratio:


Topic: Amusement Tax (on Basketball Games) – National Tax
AMUSEMENT TAX ON ADMISSION TICKETS: NATIONAL TAX
G.R. No. 119122
August 8, 2000 PBA:
PBA contends that PD 231 (Local Tax Code of 1973) transferred the
Petitioner: PHILIPPINE BASKETBALL ASSOCIATION power and authority to levy and collect amusement taxes from the sale of
Respondent: COURT OF APPEALS, COURT OF TAX APPEALS, AND admission tickets to places of amusement from the national government
COMMISSIONER OF INTERNAL REVENUE to the local governments.
o BIR Memorandum Circular No. 49-73 provided that the power to
Summary: levy and collect amusement tax on admission tickets was
PBA received an assessment from CIR for deficiency amusement tax. PBA transferred to the local governments by virtue of the Local Tax
protested the same claiming that they should be taxed local tax and not national Code
tax. SC held that under the Local Tax Code, the province can only impose a tax on o BIR Ruling No. 231-86  held  that  “the  jurisdiction  to  levy  amusement  
admission from the proprietors, lessees, or operators of theaters, cinematographs, tax on gross receipts from admission tickets to places of
concert halls, circuses and other places of amusement. The authority to tax amusement was transferred to local governments under P.D. No.
professional basketball games is not therein included. Thus, as it was not included 231,  as  amended.”
in the enumeration, and also as provided by the examination of the history of the Even assuming arguendo that CIR revoked BIR Ruling No. 231-86, the
laws concerning amusement taxes, the same is subject to national tax. reversal, modification or revocation cannot be given retroactive effect
since even as late as 1988 (BIR Memorandum Circular No. 8-88), CIR
Facts: still recognized the jurisdiction of local governments to collect
June 21, 1989: PBA received an assessment letter from the CIR for the amusement taxes.
payment of deficiency amusement tax
July 18, 1989: PBA contested the assessment by filing a protest with CIR SC:
who denied the same. Section 13 of the Local Tax Code provides:
January 8, 1990: PBA filed a petition for review with the CTA questioning “Sec. 13. Amusement tax on admission. –The province
the denial by CIR of its protest. shall impose a tax on admission to be collected from the
CTA: Dismissed the petition. proprietors, lessees, or operators of theaters,
cinematographs, concert halls, circuses and other
CA: Affirmed  the  decision  of  the  CTA  and  dismissing  petitioner’s  appeal.  
places of amusement xxx.”
Issues:
The foregoing provision of law in point indicates that the province can
Whether the amusement tax on admission tickets to PBA games a
ONLY impose a tax on admission from the proprietors, lessees, or
national or local tax? - NATIONAL TAX
operators of theaters, cinematographs, concert halls, circuses and
Whether or not the cession of advertising and streamer spaces to Vintage Enterprises, Inc.
(VEI) subject to the payment of amusement tax? - YES other places of amusement.
Whether or not PBA is liable to pay a 75% surcharge on the deficiency amount due? - YES THE AUTHORITY TO TAX PROFESSIONAL BASKETBALL GAMES
IS NOT INCLUDED.
Held:
Petition is DENIED, and the Decisions of the CA and CTA AFFIRMED. PD 1959, which amended PD 1456 thus:  “SEC.  44.  Section  268  of  this  
Code, as amended, is hereby further amended to read as follows:
‘Sec.   268.   Amusement taxes. – There shall be collected from the
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REMEDIES (Local Taxation I)

proprietor, lessee or operator of cockpits, cabarets, night or day Likewise erroneous is the reliance on the BIR Rulings cited by PBA
clubs, boxing exhibitions, professional basketball games, Jai-Alai, o It is a well-known rule that erroneous application and enforcement
race tracks and bowling alleys, a tax equivalent to: xxx of the law by public officers do not preclude subsequent correct
application of the statute, and that the Government is never
Based on the foregoing, it  is  clear  that  the  “proprietor, lessee or operator estopped by mistake or error on the part of its agents.
of  xxx  professional  basketball  games”  is  required  to  pay  an  amusement  
tax equivalent to fifteen per centum (15%) of their gross receipts to the INCOME FROM THE CESSION OF ADVERTISING SUBJECT TO AMUSEMENT TAX
Bureau of Internal Revenue, which payment is a national tax.
PBA: Income from the cession of streamer and advertising spaces to VEI is not subject to amusement
The said payment of amusement tax is in lieu of all other percentage
tax.
taxes of whatever nature and description.
SC:
While Section 13 of the Local Tax Code mentions “other   places   of   Section 1 of PD 1456 which states:
amusement”, professional basketball games are definitely NOT o "SECTION 1. Section 268 of the National Internal Revenue Code of 1977, as
within its scope. amended, is hereby further amended to read as follows:
o Under the principle of ejusdem generis, where general words follow ‘Sec.  268.  Amusement taxes. -- There shall be collected from the proprietor,
an enumeration of persons or things, by words of a particular and lessee or operator of cockpits, cabarets, night or day clubs, boxing
exhibitions, professional basketball games, Jai-Alai, race tracks and bowling
specific meaning, such general words are not to be construed in
alleys, a tax equivalent to:
their widest extent, but are to be held as applying only to persons or
xxx.....xxx.....xxx of their gross receipts, irrespective of whether or not any
things of the same kind or class as those specifically mentioned. amount is charged or paid for admission. For the purpose of the
o Thus, in determining the meaning   of   the   phrase   “other   places   of   amusement  tax,  the  term  gross  receipts’  embraces  all  the  receipts  of  the  
amusement”,   one   must   refer   to   the   prior   enumeration   of   theaters,   proprietor, lessee or operator of the amusement place. Said gross receipts
cinematographs, concert halls and circuses with artistic expression also include income from television, radio and motion picture rights, if any.
as their common characteristic. (A person, or entity or association conducting any activity subject to the tax
o Professional basketball games do not fall under the same herein imposed shall be similarly liable for said tax with respect to such
portion of the receipts derived by him or it.)"
category as theaters, cinematographs, concert halls and
circuses as the latter basically belong to artistic forms of
The foregoing definition of gross receipts is broad enough to embrace the cession of
entertainment while the former caters to sports and gaming. advertising and streamer spaces as the same embraces ALL the receipts of the proprietor,
lessee or operator of the amusement place.
A historical analysis of pertinent laws does reveal the legislative intent The law being clear, there is no need for an extended interpretation.
to place professional basketball games within the ambit of a
4
national tax. PBA LIABLE TO SURCHARGE
PBA: It is not liable, as it acted in good faith, having relied upon the issuances of the
4 respondent Commissioner.
From the laws below, we find the recognition that the amusement tax on professional basketball
SC: This issue must necessarily fail as the same has never been posed as an issue before the
games is a national, and not a local, tax.
respondent court. Issues not raised in the court a quo cannot be raised for the first time on
The Local Tax Code (1973) allowed the province to collect a tax on admission from the
appeal
proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and other
places of amusement.
Under PD 871, the operation of petitioner was placed under the supervision and regulation of the
Games and Amusement Board.
PD 1456 increased the amusement tax to ten per cent.
PD 1959 increased the rate of amusement tax to fifteen percent. by making reference also to PD
871
Page 18 of 21
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Local Taxation I)

04. Ericsson v. Pasig (KF) based on gross receipts, and not on gross revenue.

Topic: Taxing Powers of LGUs


2) City assessed deficiency local business taxes on Ericsson based on
Petitioner: Ericsson Telecommunications, Inc.
the latter's gross revenue as reported in its financial statements,
Respondent: City of Pasig, represented by its City Mayor, Hon. Vicente P.
arguing that it is synonymous with gross earnings/revenue, which, in
Eusebio, et al.
turn, includes uncollected earnings. But Ericsson contends that only the
portion actually and constructively received should be considered as its
FACTS:
tax base.
Ericsson, a corporation with principal office in Pasig City, is
engaged in the design, engineering, and marketing of
The applicable provision is Sec. 143(e) of LGC of 1991 covering
telecommunication facilities/system. It received an Assessment
contractors and other independent contractors, which specifically refers
Notice dated October 25, 2000 from the City Treasurer of Pasig
to gross receipts defined in Sec. 131 of the LGC as: including money
City for business tax deficiency for 1998 (9.4 m) and 1999 (4.9 m).
or its equivalent actually or constructively received in consideration of
Ericsson protested, claiming that the computation of the local
services rendered or articles sold, exchanged or leased, whether
business tax should be based on gross receipts and not on gross
actual or constructive.
revenue.
Another Notice of Assessment for business tax deficiencies was
Jurisprudence applies constructive receipt to withholding tax on
issued for 2000 (4.6 m) and 2001 (4.7 m), based on its gross
income: “In  our   withholding  tax  system,  possession   is  acquired   by  the  
revenues for the years 1999 and 2000. Ericsson protested on
payor as the withholding agent of the government, because the
same ground which was denied. It then filed a petition fro review in
taxpayer ratifies the very act of possession for the government. There
the RTC Pasig. RTC then cancelled the assessments.
is thus constructive receipt.
On appeal, CA reversed due to failure to prove that the party who
signed the Verification and Certification of Non-Forum Shopping,
RR No. 16-2005 (Sept. 1, 2005) defined and gave examples of
was duly authorized by the Board of Directors. Ericsson appealed
"constructive receipt", to wit: "Constructive receipt" occurs when the
to the SC.
money consideration or its equivalent is placed at the control of the
person who rendered the service without restrictions by the payor. The
ISSUES:
ff. are examples:
1) W/N  CA  had  jurisdiction  over  City’s  appeal,  given  that  it  was  a  pure  question  of  law;; and
(1) deposit in banks which are made available to the seller of
2) What is the proper tax base for the local business tax; gross receipts or
services without restrictions;
gross revenue?
(2) issuance by the debtor of a notice to offset any debt or
obligation and acceptance thereof by the seller as payment
Ratio:
for services rendered; and
1) The CA should have dismissed the appeal of City as it has no jurisdiction over the case since the
appeal involves a pure question of law, not a mixed question of law. The test is whether the (3) transfer of the amounts retained by the payor to the account of
appellate court can determine the issue raised without reviewing or evaluating the evidence. While the contractor.
there is an issue as to the correct amount of local business tax to be paid, its determination will not
involve   a   look   into   Ericsson’s   audited   financial   statements   or   documents,   as   these   are   not  
In contrast, gross revenue covers money or its equivalent actually or
disputed; rather, an interpretation of the pertinent tax laws, i.e., whether the local business tax, as
imposed by the Pasig City Revenue Code (Ordinance No. 25-92) and the LGC of 1991, should be constructively received, including the value of services rendered or articles

Page 19 of 21
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Local Taxation I)

sold, exchanged or leased, the payment of which is yet to be received. Thus, under the tax ordinance sales of matches consummated outside of
“Revenue  from  services  rendered  is  recognized  when  services  have  been   the city are taxable as long as the matches sold are taken from the
performed and are billable." (Statements of Financial Accounting company’s  stock  stored  in  Cebu City.
Standards No. 1) Philippine Match--ships cases or cartons of matches from Manila to its
branch office in Cebu City for storage, sale and distribution within the
territories and districts under its Cebu-branch or the whole Visayas-
In petitioner's case, its audited financial statements reflect income or
Mindanao region.
revenue which accrued to it during the taxable period although not yet It assails the legality of the tax which the city treasurer collected on out-
actually or constructively received or paid. This is because petitioner uses of-town deliveries of matches, to wit: (1) sales of matches booked and
the accrual method of accounting, where income is reportable when all the paid for in Cebu City but shipped directly to customers outside of the
events have occurred that fix the taxpayer's right to receive the income, city; (2) transfers of matches to salesmen assigned to different agencies
The imposition of local business tax based on gross revenue will inevitably outside of the city and (3) shipments of matches to provincial customers
result   in   double   taxation   since   Ericsson’s   revenue   includes   its   gross pursuant  to  salesmen’s  instructions.
receipts already reported during the previous year and for which local It paid the city treasurer under protest and asked for refund. Submitted a
business tax has already been paid. statement indicating the kinds of transactions it has, the important ones
being:
- Sales of matches booked and paid for in Cebu City but shipped directly to
Thus, respondent committed a palpable error when it assessed petitioner's
customers outside of the city refer to orders for matches made in the city
local business tax based on its gross revenue as reported in its audited by   the   company’s   customers,   by   means   of personal or phone calls, for
financial statements, as Section 143 of the Local Government Code and which sales invoices are issued, and then the matches are shipped from
Section 22(e) of the Pasig Revenue Code clearly provide that the tax the bodega in the city, where the matches had been stored, to the place
should be computed based on gross of business or residences of the customers outside of the city, duly
covered by bills of lading. The matches are used and consumed outside
of the city.
F.3. Situs of Local Taxes - Transfers of matches to salesmen assigned to different agencies outside
of the city embrace shipments of matches from the branch office in the
01. Philippine Match Co. v. Cebu (MR) city to the salesmen (provided with panel cars) assigned within the
G.R. No. L-30745 province of Cebu and in the different districts in the Visayas and
January 18, 1978 Mindanao under the jurisdiction or supervision of the Cebu City branch
Aquino, J. office. The shipments are covered by bills of lading. No sales invoices
whatsoever are issued. The matches received by the salesmen constitute
Petitioners: Philippine Match Co., Ltd. their direct cash accountability to the company. The salesmen sell the
Respondents: City of Cebu and Jesus Zabate, Acting Treasurer matches within their respective territories. They issue cash sales invoices
and  remit  the  proceeds  of  the  sales  to  the  company’s  Cebu  branch  office.  
Facts: The value of the unsold matches constitutes their stock liability. The
Ordinance no. 279 of Cebu—sales tax of one percent (1%) on the gross matches are used and consumed outside of the city.
sales, receipts or value of commodities sold, bartered, exchanged or Treasurer denied saying--all out-of-town deliveries of matches stored in
manufactured in the city in excess of P2,000 a quarter. Sec. 9--for the city are subject to the sales tax imposed by the ordinance.
purposes of the  tax,  “all  deliveries  of goods or commodities stored in the Philippine Match filed a complaint to declare ordinancce void insofar as it
City of Cebu, or  if  not  stored  are  sold”  in  that  city, “shall  be  considered  as   taxed the deliveries of matches outside Cebu
sales”  in  the  city and shall be taxable.
Page 20 of 21
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Local Taxation I)

Trial court--sustained the tax on the sales of matches booked and paid for for  in  the  company’s  branch  office  in  the  city, are subject to the city’s  taxing power.
in Cebu City although the matches were shipped directly to customers The instant case is easily distinguishable from the Shell Company case where the
outside of the city. The lower court held that the said sales were price of the oil sold was paid outside of the municipality of Sipocot, the entity
consummated in Cebu City because delivery to the carrier in the city is imposing the tax.
deemed to be a delivery to the customers outside of the city. But the trial
court invalidated the tax on transfers of matches to salesmen assigned to The ruling in Camarines Norte vs. Shell cannot be invoked here because there it
different agencies outside of the city and on shipments of matches to was   expressly   stated   that   the   sales   tax   involved   may   be   levied   upon   “distributed  
provincial customers pursuant to the instructions of the salesmen. within the limits of the city or  municipality”,  meaning  the  place  where  the  oils  were  
delivered.
Issues:
3. WON Cebu can tax sales matches which were perfected and paid for in The sales in the instant case were finalized in the city and the matches sold were
Cebu but the matches were delivered to customers outside of the City— stored in the city. The fact that the matches were delivered to customers, whose
YES places of business were outside of the city, would not place those sales beyond
the city’s  taxing power.
Held: .
Decision of lower court AFFIRMED Furthermore,   because   the   seller’s  place   of business is in Cebu City, it cannot be
sensibly argued that such sales should be considered as transactions subject to
Ratio: the taxing power of the political subdivisions where the customers resided and
accepted delivery of the matches sold
The appeal is devoid of merit because the city can validly tax the sales of matches
to customers outside of the city as long as the orders were booked and paid for in
the  company’s  branch  office  in  the  city. Those matches can be regarded as sold in
the city, as contemplated in the ordinance, because the matches were delivered to
the carrier in Cebu City. Generally, delivery to the carrier is delivery to the buyer
(Art. 1523 CC)

A different interpretation would defeat the tax ordinance in question or encourage


tax evasion through the simple expedient of arranging for the delivery of the
matches at the outskirts of the city through the purchases were effected and paid
for  in  the  company’s  branch  office  in  the  city.

The taxing power of cities, municipalities and municipal districts may be used (1)
“upon   any person engaged in any occupation or business, or exercising any
privilege”   therein;;   (2)   for   services   rendered   by   those   political   subdivisions   or  
rendered in connection with any business, profession or occupation being
conducted therein, and (3) to levy, for public purposes, just and uniform taxes,
licenses or fees (C. N. Hodges vs. Municipal Board of the City of Iloilo, 117 Phil.
164, 167. See sec. 31[25], Revised Charter of Cebu City).

Applying that jurisdictional test to the instant case, it is at once obvious that sales
of matches to customers outside of Cebu City, which sales were booked and paid
Page 21 of 21
TAXATION LAW 2 Facts:
Mobile  Phils.  Inc  (“Mobil”)  deals  with  petroleum  products  whose  principal  
DIGESTS AND PROVISIONS COMPILATION office, prior to September of 1998 was in NDC Building, Tordesillas St.,
Salcedo Village, Makati City.
F. Local Taxation On August 20, 1998, Mobil filed with the City Treasurer of Makati
(“Treasurer”)  for  the  retirement of its business within Makati as it moved to
Pasig
F.5. Retirement of Business o Mobil declared gross/sales receipts
1997: P453,799,493.29
01. Mobil Phils v. Treasurer of Makati (RK) 1998: 267,957,766.67
o To which the City license division issued a billing slip for
Topic: LG Tax; Retirement of Business
business taxes:
Q4 of 1998 (based on 1997 Gross sales): 566,468.12
G.R. No. 154092
Gross sales for 1998: 1,331,638.84
July 14, 2005
TOTAL: 1,898,106.96
Quisumbing J.
o Mobil paid in protest (the amount pertaining to 1.3M)
Petitioners: Mobil Philippines, Inc. On July 21, 1999, Mobil filed a claim for refund but was denied via letter
Respondents: The City Treasurer of Makati; Chief of the License Division of the received August 11, 1999.
City of Makati o Makati said Mobil was merely transferring and not retiring its
business, and that the gross sales realized while Mobil still
Summary: Mobil had its principal place of business in Makati prior to September maintained office in Makati from January 1 to August 31, 1998
1998 when it transferred to Pasig. It filed its application for retirement of business should be taxed in Makati.
in August and was assessed business taxes for 1997 and 1998. Mobil paid in Mobil filed a petition in RTC of Pasig seeking refund—dismissed
protest and sought a refund. The RTC denied refund stressing that the business o Makati Revenue Code provides for collection of business
taxes on the current year pertained to operations in the previous year. Hence the taxes—
Initial tax for the quarter in which a business starts to operate shall
business tax Mobil paid in 1998 pertained to year 1997 operation and when it
be two and one-half percent (2½%) of one percent (1%) of its capital
retired in August 1998, the business tax supposedly due in January of 1999 investment.
became due and demandable. The SC said that this is incorrect. Business taxes First Year Thereafter, the tax shall be computed based on the gross
paid do not represent the privilege to operate in the previous year. Rather, It is sales or receipts of the preceding quarter.
paid at the beginning of the year as a fee to allow the business to operate for Succeeding calendar year, regardless of when the
the rest of the year. It is deemed a prerequisite to the conduct of business started to operate, the tax shall be based on
business. In  Makati’s  case,  there  is  confusion because the basis of the amount of the gross sales or receipts for the preceding calendar
business tax is the gross receipts of the previous year (e.g., the business tax year.
payable in 1998 for the privilege to operate in 1998 is based on the gross receipts Accrual and Payment that tax shall accrue on the first
of 1997). The question now is: what happens if the business retires during the day of January of each year and payment shall be
year? The Makati Revenue Code provides that on the year an establishment made within the first 20 days of January or of each
retires or terminates its business within the municipality, it would be subsequent quarter as the case may be.
required to pay the difference in the amount if the tax collected, based on the o Payments made by Mobil in the year 1998 are payments for the
previous  year’s  gross  sales  or  receipts,  is  less  than  the  actual  tax  due  based   business tax for 1997 which accrued in January of 1998;
on  the  current  year’s  gross  sales  or  receipts. Since the amount paid by Mobil o Upon retirement in August 1998, the taxes for said year which
is  more  than  the  amount  computed  based  on  petitioner’s  actual  gross  sales   should accrue in January 1999 [become] immediately payable
for 1998, petitioner upon its retirement is not liable for additional taxes to the before the application for retirement can be approved
City of Makati. Hence, this petition
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Local Taxation II)

Issues: Are the business taxes paid by petitioner in 1998, business taxes for 1997 o For the subsequent quarters of the first year, the tax is based on
or 1998? the gross sales/receipts for the previous quarter.
o In the following year(s), the business is then taxed based on the
Held: gross sales or receipts of the previous year.
Petition GRANTED/DISMISSED. o The business taxes paid in the year 1998 is for the privilege
Decision of lower court AFFIRMED/REVERSED. Remanded of engaging in business for the same year, and not for
having engaged in business for 1997.
Ratio: Upon its transfer, petitioner was apparently subjected to Sec. 3A.11 par.
(g) which states:
MOBIL’s  Argument (g) Retirement of business.
The 1997 gross sales/revenue is merely the basis for the amount of
For purposes thereof, termination shall mean that business
business taxes due for the privilege of carrying on a business in the year
operation are stopped completely.
when the tax was paid.
TREASURER’s  Argument (2) If it is found that the retirement or termination of the
Since local taxes, which include business taxes, are paid either within the business is legitimate, [a]nd the tax due therefrom be less than
first twenty days of January of each year or of each subsequent quarter, the tax due for the current year based on the gross sales or
as the case may be, what the taxpayer actually pays during the recorded receipts, the difference in the amount of the tax shall be paid
calendar year is actually its business tax for the preceding year. before the business is considered officially retired or
terminated.
PRELIMINARILY: BUSINESS TAX v. INCOME TAX
BUSINESS TAX: imposed in the exercise of police power for regulatory purposes are
Based on this foregoing provision, on the year an establishment retires
paid for the privilege of carrying on a business in the year the tax was paid. It is paid at
or terminates its business within the municipality, it would be
the beginning of the year as a fee to allow the business to operate
required to pay the difference in the amount if the tax collected,
for the rest of the year. It is deemed a prerequisite to the conduct of
based  on  the  previous  year’s  gross  sales  or  receipts,  is  less  than  the  
business.
actual tax  due  based  on  the  current  year’s  gross  sales  or  receipts.
INCOME TAX: a tax on all yearly profits arising from property, professions, trades or
offices,   or   as   a   tax   on   a   person’s   income,   emoluments,   profits   and   the   like. It is tax on
income, whether net or gross realized in one taxable year. It is due on or before the 15 th day o For the year 1998, petitioner paid a total of P2,262,122.48 (first
of the 4thmonth following the  close  of  the  taxpayer’s  taxable  year  and  is  generally  regarded   time this amount appeared in the case) to the City Treasurer of
as an excise tax, levied upon the right of a person or entity to receive income or profits. Makati as business taxes for the year 1998.
COURT: RTC erred when it said that payments by Mobil in 1998 pertained to o The amount of tax as   computed   based   on   petitioner’s   gross  
business taxes in 1997. It also erred when it ruled that Mobil was still liable for sales for 1998 is only P1,331,638.84.
business taxes based on its gross income/revenue for January to August of 1998. o Since the amount paid is more than the amount computed
based  on  petitioner’s  actual  gross  sales  for  1998,  petitioner  
Under the Makati Revenue Code, it appears that the business tax, like upon its retirement is not liable for additional taxes to the
income tax, is computed based on the previous year’s  figures.  This  is  the   City of Makati.
reason for the confusion. Thus, we find that the respondent erroneously treated the assessment
o A newly-started business is already liable for business taxes (i.e. and collection of business tax as if it were income tax, by rendering an
license fees) at the start of the quarter when it commences additional assessment of P1,331,638.84 for the revenue generated for the
operations. In computing the amount of tax due for the first year 1998.
quarter of operations,  the  business’  capital  investment  is  used  as  
the basis.

Page 2 of 16
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Local Taxation II)

F.7. Exemption from Local Taxation On 12 September 1991, the "Local Government Code of 1991," was enacted
to take effect on 01 January 1992 enjoining local government units to create
their own sources of revenue and to levy taxes, fees and charges, subject to
01. Meralco v. Laguna (KB) the limitations expressed therein, consistent with the basic policy of local
Topic: Local Taxation autonomy.
Relevant Laws: Pursuant to the provisions of the Code, respondent province enacted Laguna
Provincial Ordinance No. 01-92, effective 01 January 1993, providing, in part,
G.R. No. 131359 as follows:
Sec. 2.09. Franchise Tax. — There is hereby imposed a tax
May 5, 1999 on businesses enjoying a franchise, at a rate of fifty percent
VITUG, J.: (50%) of one percent (1%) of the gross annual receipts,
which shall include both cash sales and sales on account
Petitioners: MANILA ELECTRIC COMPANY realized during the preceding calendar year within this
Respondents: PROVINCE OF LAGUNA and BENITO R. BALAZO, in his province, including the territorial limits on any city located in
capacity as Provincial Treasurer of Laguna the province.
On the basis of the above ordinance, respondent Provincial Treasurer sent a
Summary: Meralco is paying franchise tax pursuant to P.D. 551. Local demand letter to MERALCO for the corresponding tax payment.
Government code was passed and allowed local governments to levy taxes. Petitioner MERALCO paid the tax, which then amounted to P19,520.628.42,
Meralco was then taxed by the Province of Laguna for franchise tax. Meralco paid under protest.
such taxes in protest saying that it is already paying franchise tax pursuant to PD A formal claim for refund was thereafter sent by MERALCO to the Provincial
551 and such franchise tax imposed by the local government should be already Treasurer of Laguna claiming that the franchise tax it had paid and continued
included there. Meralco now contends that such imposition of local taxes is to pay to the National Government pursuant to P.D. 551 already included the
violative of the non-impairment clause of the constitution and sec 1 of PD 551. The franchise tax imposed by the Provincial Tax Ordinance.
Court has held that Meralco is enjoying a tax exemption granted by a franchise and MERALCO, contended that the imposition of a franchise tax under Section
not a contractual tax exemption. Contractual tax exemptions may not be 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as it concerned
revoked without impairing the obligations of contracts. These contractual MERALCO, contravened the provisions of Section 1 of P.D. 551 which read:
tax exemptions, however, are not to be confused with tax exemptions o Any provision of law or local ordinance to the contrary
granted under franchises. A franchise partakes the nature of a grant which is notwithstanding, the franchise tax payable by all grantees of
beyond the purview of the non-impairment clause of the Constitution. franchises to generate, distribute and sell electric current for
light, heat and power shall be two per cent (2%) of their gross
Facts: receipts received from the sale of electric current and from
On various dates, certain municipalities of the Province of Laguna, including, transactions incident to the generation, distribution and sale of
Biñan, Sta. Rosa, San Pedro, Luisiana, Calauan and Cabuyao, by virtue of electric current.
existing laws then in effect, issued resolutions through their respective o Such franchise tax shall be payable to the Commissioner of Internal
municipal councils granting franchise in favor of petitioner Manila Electric Revenue or his duly authorized representative on or before the
Company ("MERALCO") for the supply of electric light, heat and power within twentieth day of the month following the end of each calendar quarter
their concerned areas. or month, as may be provided in the respective franchise or pertinent
On 19 January 1983, MERALCO was likewise granted a franchise by the municipal regulation and shall, any provision of the Local Tax Code
National Electrification Administration to operate an electric light and power or any other law to the contrary notwithstanding, be in lieu of all
service in the Municipality of Calamba, Laguna. taxes and assessments of whatever nature imposed by any

Page 3 of 16
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Local Taxation II)

national or local authority on earnings, receipts, income and privilege o Sec. 193. Withdrawal of Tax Exemption Privileges — Unless
of generation, distribution and sale of electric current. otherwise provided in this Code, tax exemptions or incentives
On 28 August 1995, the claim for refund of petitioner was denied in a letter granted to, or presently enjoyed by all persons, whether natural or
signed by Governor Jose D. Lina relied on a more recent law, i.e. Republic Act juridical, including government-owned or controlled corporations,
No. 7160 or the Local Government Code of 1991, than the old decree invoked except local water districts, cooperatives duly registered under R.A.
by petitioner. No. 6938, non-stock and non-profit hospitals and educational
On 14 February 1996, petitioner MERALCO filed with the Regional Trial Court institutions,are hereby withdrawn upon the effectivity of this Code.
of Sta. Cruz, Laguna, a complaint for refund, with a prayer for the issuance of The Code, in addition, contains a general repealing clause in its Section 534;
a writ of preliminary injunction and/or temporary restraining order, against the thus:
Province of Laguna and also Benito R. Balazo in his capacity as the Provincial o Sec. 534. Repealing Clause. — . . .
Treasurer of Laguna. o (f) All general and special laws, acts, city charters, decrees,
Aside from the amount of P19,520,628.42 for which petitioner MERALCO had executive orders, proclamations and administrative regulations, or
priorly made a formal request for refund, petitioner thereafter likewise made part or parts thereof which are inconsistent with any of the provisions
additional payments under protest on various dates totaling P27,669,566.91. of this Code are hereby repealed or modified accordingly.
Issues:
Whether the imposition of a franchise tax under Section 2.09 of Laguna Provincial In the recent case of the City Government of San Pablo, etc., et al. vs. Hon.
Ordinance No. 01-92, insofar as petitioner is concerned, is violative of the non- Bienvenido V. Reyes, et al., the Court has held that the phrase in lieu of all
impairment clause of the Constitution and Section 1 of Presidential Decree No. 551. taxes "have to give way to the peremptory language of the Local
Government Code specifically providing for the withdrawal of such
Held: exemptions, privileges," and that "upon the effectivity of the Local Government
WHEREFORE, the instant petition is hereby DISMISSED Code all exemptions except only as provided therein can no longer be
invoked by MERALCO to disclaim liability for the local tax." In fine, the Court
Ratio: has viewed its previous rulings as laying stress more on the legislative intent of the
Under the now prevailing Constitution, where there is neither a grant nor a amendatory law — whether the tax exemption privilege is to be withdrawn or not —
prohibition by statute, the tax power must be deemed to exist although rather than on whether the law can withdraw, without violating the Constitution, the
Congress may provide statutory limitations and guidelines. The basic rationale tax exemption or not.
for the current rule is to safeguard the viability and self-sufficiency of local
government units by directly granting them general and broad tax powers. While the Court has, not too infrequently, referred to tax exemptions contained
in special franchises as being in the nature of contracts and a part of the
The Local Government Code of 1991 has incorporated and adopted, by and inducement for carrying on the franchise, these exemptions, nevertheless, are
large, the provisions of the now repealed Local Tax Code, which had been in far from being strictly contractual in nature.
effect since 01 July 1973, promulgated into law by Presidential Decree No. Contractual tax exemptions, in the real sense of the term and where the non-
231 pursuant to the then provisions of Section 2, Article XI, of the 1973 impairment clause of the Constitution can rightly be invoked, are those
Constitution. The 1991 Code explicitly authorizes provincial governments, agreed to by the taxing authority in contracts, such as those contained
notwithstanding "any exemption granted by any law or other special law, . . . in government bonds or debentures, lawfully entered into by them under
(to) impose a tax on businesses enjoying a franchise." enabling laws in which the government, acting in its private capacity, sheds its
cloak of authority and waives its governmental immunity.
Indicative of the legislative intent to carry out the Constitutional mandate of Truly, tax exemptions of this kind may not be revoked without impairing
vesting broad tax powers to local government units, the Local Government the obligations of contracts. These contractual tax exemptions, however,
Code has effectively withdrawn under Section 193 thereof, tax exemptions or are not to be confused with tax exemptions granted under franchises.
incentives theretofore enjoyed by certain entities. This law states:
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REMEDIES (Local Taxation II)

A franchise partakes the nature of a grant which is beyond the purview (herein respondent), which assessed NPC of franchise tax amounting to P808K,
of the non-impairment clause of the Constitution. Indeed, Article XII, pursuant to a local tax ordinance.
Section 11, of the 1987 Constitution, like its precursor provisions in the 1935
and the 1973 Constitutions, is explicit that no franchise for the operation of a NPC refused to pay, by saying that a government entity cannot be taxed by the
public utility shall be granted except under the condition that such privilege City. NPC also cited RA 6395, which basically exempts non-profit organizations
shall be subject to amendment, alteration or repeal by Congress as and when from the payment of all forms of taxes, charges, etc.
the common good so requires.
Cabanatuan   City,   however,   cited   RA   7160,   which   states:   “Unless   otherwise  
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government owned or
02. NPC v. Cabanatuan City (JT) controlled corporations, except local water districts, cooperatives duly registered
G.R. No. 149110 under R.A. No. 6938, non-stock and non-profit hospitals and educational
April 9, 2003 institutions, are hereby withdrawn upon  the  effectivity  of  this  Code.”
Puno, J.
Cabanatuan City filed a collection case with the RTC of Cabanatuan, which
Summary: dismissed the case. The RTC held that NPC, being a GOCC, is beyond the taxing
Cabanatuan City imposed a franchise tax on NPC, through a local tax ordinance. authority   of   the   local   government,   because   “the   total   electrification”   of   the  
NPC refused to pay, claiming exemption under RA 6395. However, and as Philippines shall be pursued and supported by all instrumentalities and agencies of
correctly pointed out by the City, the Local Government Code clearly withdrew the the government. To allow the City to subject NPC to its tax ordinance would be to
exemptions previously enjoyed by NPC. impede the avowed goal of this government instrumentality.

For NPC to be subjected to franchise tax, the following requisites must concur: (1) CA reversed the RTC, because RA 7160 already withdrew such exemption. NPC
it must have a secondary franchise, and (2) it is exercising its rights and privileges thereafter elevated the case to the Supreme Court.
conferred by the secondary franchise within the territorial jurisdiction of the taxing
authority. A secondary franchise is one which confers rights and privileges to a Issue tissue: WON Cabanatuan City can impose franchise tax—YES it can.
corporation, and with NPC being conferred with the right to operate power plants,
and other rights not granted to other corporations, then it has a secondary Held:
franchise. Also, it does operate in Cabanatuan City, so both requisites are present. Petition DISMISSED.
Thus, NPC is subject to franchise tax. Decision of CA AFFIRMED.

In addition, the SC held that NPC is performing proprietary or business Relevant law provisions from the Local Government Code:
functions (and not merely governmental functions which are administrative in Sec. 137. Franchise Tax.- Notwithstanding any exemption granted by any law or other
character), and is thus covered by the franchise tax. It is to be remembered that special law, the province may impose a tax on businesses enjoying a franchise, at a rate
tax exemptions are strictly construed against the taxpayer. Because NPC failed to not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the
prove it is exempted, then it is taxable by Cabanatuan City. preceding calendar year based on the incoming receipt, or realized, within its territorial
jurisdiction.
Facts:
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one
The National Power Corforation [NPC] is a GOCC tasked to generate power and
percent (1%) of the capital investment. In the succeeding calendar year, regardless of when
electricity for the Philippines. It has the power to construct and operate power the business started to operate, the tax shall be based on the gross receipts for the
plants (no, not the mall in Rockwell). NPC sells electricity to Cabanatuan City preceding calendar year, or any fraction thereof, as provided herein.

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Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may A franchise tax is  “a  tax   on   the   privilege   of   transacting   business  in   the  
levy the taxes, fees, and charges which the province or municipality may impose: Provided, state  and  exercising  corporate  franchises  granted  by  the  state”
however, That the taxes, fees and charges levied and collected by highly urbanized and
o It  is  levied  on  a  corporation’s exercise of the rights or privileges
independent component cities shall accrue to them and distributed in accordance with the
granted to it by the government.
provisions of this Code.
o Hence, a corporation need not pay franchise tax from the time it
The rates of taxes that the city may levy may exceed the maximum rates allowed for the ceased to do business and exercise its franchise.
province or municipality by not more than fifty percent (50%) except the rates of professional o It   is   within   this   context   that   the   phrase   “tax   on   businesses  
and amusement taxes. enjoying   a   franchise”   in   section   137   of   the   LGC   should   be  
interpreted and understood.
Ratio: Verily, to determine whether NPC is covered by the franchise tax in
LGUS have the power to tax. question, the following requisites should concur:
Taxes are the lifeblood of the government. (1) that   petitioner   has   a   “franchise”   in   the   sense   of   a   secondary or
LGUs have a wider role in the delivery of basic services, which therefore special franchise; and
confers upon them sufficient powers to generate their own sources of (2) that it is exercising its rights or privileges under this franchise
income. within the territory of the respondent city government.
The Constitution itself mandated the enactment of the Local Government
Code that will, consistent with the basic policy of local autonomy, set the The requisites to determine w/n NPC is covered by the franchise tax (as
guidelines and limitations to such power. mentioned just above this statement) are both present.
CA   120,   as   amended   by   RA   7395,   serves   as   NPC’s   primary   and  
Section 151 of the LGC, in relation to Section 137 (both cited above), clearly secondary franchises.
authorizes Cabanatuan to impose the franchise tax in question. o Such charter defines the corporate powers of NPC.
A franchise is a privilege conferred by government authority, which does o It also vests NPC powers not available to other corporations,
not belong to citizens of the country generally as a matter of common such as:
right. To conduct investigations for water power development
o A primary franchise relates to the right to exist as a corporation, To construct and operate power plants, dams,
by virtue of duly approved articles of incorporation, or a charter reservoirs, pipes, etc.
pursuant to a special law creating the corporation. To exercise the right of eminent domain
The right under a primary or general franchise is vested Etc.
in the individuals who compose the corporation and not o Such powers clearly convey that NPC was granted a
in the corporation itself. secondary franchise.
o A secondary franchise (also   known   as   “special   franchise”)   NPC is also operating within the territorial jurisdiction of
refers to the right or privileges conferred upon an existing Cabanatuan.
corporation, such as the right to use the streets of a municipality Thus, NPC should be subject to the franchise tax in question
to lay pipes of tracks, erect poles or string wires.
The rights under a secondary or special franchise are To stress, franchise tax is imposed based not in the ownership, but on the
vested in the corporation and may ordinarily be exercise by the corporation of a privilege to do business.
conveyed or mortgaged under a general power granted Basically, NPC contends that since its stocks are owned completely by
to a corporation to dispose of its property, except such the   National   Government,   it   is   a   “non-profit”   organization.   As   such,   it   is  
special or secondary franchises as are charged with a excluded from franchise tax. BUT, SC said NPC is wrong.
public use There are basically two kinds of GOCCs:

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(1) those performing governmental functions, which pertain to the Makati City; BATANGAS CITY GOVERNMENT; ATTY. TEODULFO DEGUITO, in
administration of government, and as such, are treated as his capacity as Chief Legal Officer, Batangas City; and BENJAMIN PARGAS, in
absolute obligation on the part of the state to perform while his capacity as City Treasurer, Batangas City, respondents.
(2) those performing proprietary functions, which are undertaken
only by way of advancing the general interest of society, and are Skip to bold parts!
merely optional on the government.
Power generation and electricity selling, which are basically the main FACTS:
functions of NPC, are purely private and commercial undertakings,
albeit imbued with public interest CONTEXT:  In  the  early  1990’s,  the  country suffered from a crippling power crisis.
More importantly, the charter of NPC provides that the legislature itself Power outages lasted 8-12 hours daily and power generation was badly needed.
considers  NPC’s  enterprise  as  a  business To address the problem, the government sought to attract investors in power plant
Thus, franchise tax is to be imposed. operations by providing them with incentives, one of  which  was  through  the  NPC’s  
assumption of payment of their taxes in the Build Operate and Transfer (BOT)
Tax exemptions are construed strictly against the claimant. Agreement.
NPC overlooked the fact that the LGC withdrew the sweeping tax
privileges previously enjoyed by public and private corporations. Enron Power Development Corporation (Enron) entered into a Build
o According to the LGC, franchise tax may be imposed, Operate and Transfer Project with NPC.
notwithstanding any exemption granted by any law or other Enron agreed to supply a power station to NPC and transfer its plant
special law. to the latter after ten (10) years of operation.
o This is subject, however, to certain exceptions o In the Agreement, NPC shall be responsible for the payment
o NPC failed to prove that it is under an exception of all taxes that may be imposed on the power station,
In addition, the legislative intent to withdraw the tax privileges can be fully except income taxes and permit fees.
gleaned from the LGC. Subsequently, Enron assigned its obligation under the BOT
The city itself, through ordinances, may also provide for tax exemptions Agreement to petitioner Batangas Power Corporation (BPC).
o Thus, it is not only the legislature that may provide exemptions. On September 13, 1992 - BPC registered itself with the Board of
Local governments can exempt as well. Investments (BOI) as a pioneer enterprise.
o But, yun nga, NPC failed to prove that it is exempted. On September 23, 1992 - the BOI issued a certificate of
o Thus, NPC should pay the franchise tax. registration to BPC as a pioneer enterprise entitled to a tax holiday for
a period of six (6) years. The construction of the power station in
respondent Batangas City was then completed. BPC operated the station.
In 1999 the city treasurer of Batangas demanded payment of
03. Batangas Power Corporation v. NPC (AD) business taxes from BPC for the years 1998-1999.
Topic: Exemption from Local Taxes o He acknowledged that BPC enjoyed a 6-year tax holiday as
a pioneer industry but its tax exemption period expired on
G.R. No. 152675 | April 28, 2004 September 22, 1998, six (6) years after its registration with
BATANGAS POWER CORPORATION, petitioner the BOI on September 23, 1992.
BATANGAS CITY and NATIONAL POWER CORPORATION, respondents o The city treasurer held that thereafter BPC became liable to
pay its business taxes.
G.R. No. 152771 April 28, 2004 BPC refused to pay the tax.
NATIONAL POWER CORPORATION, petitioner, o It insisted that its 6-year tax holiday commenced from the
HON. RICARDO R. ROSARIO, in his capacity as Presiding Judge, RTC, Br. 66, date of its commercial operation on July 16, 1993, not from
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REMEDIES (Local Taxation II)

the date of its BOI registration in September 1992. (MAIN Clearly, it is the provision of the Local Government Code that should
ISSUE OF THE CASE) apply to the tax claim of Batangas City against the BPC.
o It furnished the city with a BOI letter wherein BOI designated The 6-year tax exemption of BPC should thus commence from the
July  16,   1993   as  the  start  of   BPC’s  income  tax  holiday   as   BPC date  of  BPC’s  registration  with  the  BOI.
was not able to immediately operate due to force majeure.
The city legal officer insisted that  BPC’s  tax  holiday  has  already  expired,   2nd issue Argument:
while the city argued that it directed its tax claim to BPC as it is the entity NPC’s   exemption   from   all   taxes under its Charter had NOT been
doing business in the city and hence liable to pay the taxes. repealed by the LGC.
o The   city   alleged   that   it   was   not   privy   to   NPC’s   assumption   of   NPC’s  Charter  is  a  special  law  which  CANNOT  be  impliedly  repealed  
BPC’s   tax payment under their BOT Agreement as the only by a general and later legislation like the LGC.
parties thereto were NPC and BPC. They likewise anchor their claim of tax-exemption on Section 133 (o)
of the LGC which exempts government instrumentalities, such as
ISSUE: the NPC, from taxes imposed by local government units (LGUs),
Whether  BPC’s  6-year tax holiday commenced on the date of its BOI
registration as a pioneer enterprise or on the date of its actual SC:
commercial operation as certified by the BOI; We find no merit in these contentions.
Whether   NPC’s   tax   exemption   privileges   under   its   Charter   were   National Power Corporation v. City of Cabanatuan – SC recognized
withdrawn by Section 193 of the Local Government Code (LGC). the REMOVAL OF THE BLANKET EXCLUSION OF GOVERNMENT
INSTRUMENTALITIES FROM LOCAL TAXATION. Specifically, SC
HELD: We find no merit in the petition. stressed that SECTION 193 OF THE LGC, an express and general
repeal of all statutes granting exemptions from local taxes, WITHDREW
RATIO: THE SWEEPING TAX PRIVILEGES PREVIOUSLY ENJOYED BY THE
NPC UNDER ITS CHARTER.
BPC’s  and  NPC‘s  argument:   o In recent years, the increasing social challenges of the times
BPC’s   6-year tax holiday should commence on the date of its actual expanded the scope of state activity, and taxation has become a
commercial operations as certified to by the BOI, not on the date of its tool to realize social justice and the equitable distribution of
BOI registration. wealth, economic progress and the protection of local industries
as well as public welfare and similar objectives. Taxation
SC: assumes even greater significance with the ratification of the
We disagree. 1987 Constitution. Thenceforth, the power to tax is no longer
Sec. 133 (g) of the LGC, which proscribes local government units vested exclusively on Congress; local legislative bodies are
(LGUs) from levying taxes on BOI-certified pioneer enterprises for a now given direct authority to levy taxes, fees and other
period of six years FROM THE DATE OF REGISTRATION charges pursuant to Article X, section 5 of the 1987
This proscription applies specifically to taxes imposed by the local Constitution, viz:
government, like the business tax imposed by Batangas City on BPC Section 5.- Each Local Government unit shall have the
in the case at bar. power to create its own sources of revenue, to levy
Reliance of BPC on the provision of Executive Order No. 226, taxes, fees and charges subject to such guidelines and
specifically Section 1, Article 39, Title III, is clearly misplaced as the six- limitations as the Congress may provide, consistent
year tax holiday provided therein which commences from the date of with the basic policy of local autonomy. Such taxes,
commercial operation refers to INCOME taxes IMPOSED BY THE fees and charges shall accrue exclusively to the Local
NATIONAL GOVERNMENT on BOI-registered pioneer firms. Governments.
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o This paradigm shift results from the realization that genuine Makati-RTC seeking the MRC’s  nullification.  Issue:  WON  Jardine’s  cause  of  action  
development can be achieved only by strengthening local has already prescribed – YES. Section 187 of the LGC requires a taxpayer to file
autonomy and promoting decentralization of governance. his appeal to the Secretary of Justice, within 30 days from effectivity of the
For   a   long   time,   the   country’s   highly   centralized   government   ordinance. Here, the petition was filed out of time. Moreover, Jardine even paid
structure has bred a culture of dependence among local without any protest the amounts of taxes assessed by respondents Makati and
government leaders upon the national leadership. It has also Acting Treasurer as provided for in the ordinance. Evidently, the complaint of
"dampened the spirit of initiative, innovation and imaginative petitioner with the RTC was merely an afterthought.
resilience in matters of local development on the part of local
government leaders. The only way to shatter this culture of FACTS
dependence is to give the LGUs a wider role in the delivery of
basic services, and confer them sufficient powers to generate Pursuant to Republic Act No. 7160 (LGCode) the then Sangguniang
their own sources for the purpose. To achieve this goal, x x x the Bayan of Makati enacted Municipal Ordinance No. 92-072, otherwise
1987 Constitution mandates Congress to enact a local known as the Makati Revenue Code (MRC), which provides, inter
government code that will, consistent with the basic policy of alia, for the schedule of real estate, business and franchise taxes in the
local autonomy, set the guidelines and limitations to this grant of Municipality of Makati at rates higher than those in the Metro Manila
taxing powers x x x." Revenue Code.
CONSIDERED AS THE MOST REVOLUTIONARY PIECE OF 5/10/1993 – Philippine Racing Club Inc (PRCI), a Makati taxpayer,
LEGISLATION ON LOCAL AUTONOMY, THE LGC EFFECTIVELY appealed to the DOJ for the nullification of said ordinance, alleging that it
DEALS WITH THE FISCAL CONSTRAINTS FACED BY LGUS. IT was approved without previous public hearings, in violation of the LGC
WIDENS THE TAX BASE OF LGUS TO INCLUDE TAXES WHICH and Article 276 of its Implementing Rules, and that some of the
WERE PROHIBITED BY PREVIOUS LAWS ordinance’s  provisions  were  unconstitutional:
o (2)   “The   ‘in-lieu-of-all-taxes’   clause   of   the   franchise   of   the  
IN VIEW WHEREOF, the petitions are DISMISSED. No costs. Philippine Racing Club, Inc. exempts it from payment of the real
property tax, annual business tax and other new taxes imposed
by the ordinance here in question. To withdraw the exemption
F.8.  Taxpayers’  Remedies would impair the obligation of contract in violation of its
constitutional right as franchise holder.
01. Jardine Davies v. Aliposa (RS) o (3)  “The  imposition of the franchise tax is not within the scope of
the taxing powers of the Municipality of Makati (Sections 134,
G.R. No. 118900 | February 27, 2003 | Callejo, Sr., J.
137 and 142 of Republic Act No. 7160 and Articles 223, 226 and
231 of Rule XXX of the Implementing Rules and Regulations of
Petitioner: Jardine Davis Insurance Brokers, Inc. (Jardine)
the Local Government Code of 1991). and
Respondent: Hon. Aliposa (Judge of RTC-Makati Branch 150), Rolando Carlo
o (4)   “The   Municipality   of   Makati   already   shares   5   of  
(Acting Municipal Treasurer)
the 25% franchise tax provided for in Section 8 of the franchise
of the Philippine Racing Club, Inc. To allow the said municipality
SUMMARY
to impose another franchise tax and to base the tax on the gross
Makati enforced the Makati Revenue Code (MRC). Philippine Racing Club
annual receipts, as it does in the ordinance, would certainly be
appealed to the DOJ for its nullification. DOJ nullified the MRC. Meanwhile, Makati
unjust, excessive, oppressive or confiscatory (Section 130 of
filed a petition ad cautelam with the Makati RTC seeking the nullification of the
Republic Act No. 7160 and Article 219 of Rule XXX of the
DOJ resolution. It continued to implement the MRC. Jardine was assessed taxes
Implementing Rules and Regulations)
pursuant to the MRC. It paid the taxes and never protested the assessments. RTC
rendered a decision affirming the validity of the MRC. Jardine filed a case with the Makati was required to comment on the appeal, but it failed to do so.

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DOJ resolved to declare the MRC null and void for violating §187 of Jardine opposed the motion to dismiss - ontending that its complaint was
the LGC and its IRR. not predicated solely on the invalidity and unconstitutionality of the MRC
8/19/1993 – Makati sought to a reconsideration of said DOJ resolution. but also on its claim that the it took effect only in July 1, 1993 but Makati
o Meanwhile, it also filed a petition ad cautelam1 with the Makati applied it effective April 1, 1993.
RTC (Mayor Binay and Makati v. Hon. Drilon and PRCI) o further averred that under §166 of the LGC, new taxes, fees or
o Makati alleged that public hearings were conducted before the charges or charges provided for in the ordinance shall accrue on
approval of the ordinance and hence the ordinance was valid. the first day of the quarter following the effectivity of the new
o Makati prayed for the nullification of the DOJ Resolution and for ordinance.
allowance of the full implementation of the MRC. o Hence, assuming MRC was valid, it should have been enforced
In the meantime, Makati continued to implement the MRC. only on  the   “1st   day   of  the   quarter  following  next   the   effectivity  
o It assessed Jardine (Makati corporate taxpayer) the amount of of  the  ordinance  imposing  such  new  levies  or  rates”  as  provided  
P63,822.47 for the 2nd quarter of 1993. for in §166 of the LGC
o It was billed again for the same amount for the 3rd and 4th RTC – granted  Makati’s  MTD
quarters of the same year. o Jardine’s  cause of action already prescribed
o Jardine did not protest these 3 assessments; it paid them o Jardine failed to file an opposition or protest to the written notice
promptly; Makati issued the corresponding receipts. of assessment of Makati within 60 days from the notice of said
1/30/1994 – Jardine wrote the Makati municipal treasurer, requesting a assessment as required by §195 of the LGC
recomputation of its tax liabilities under the Metro Manila Revenue Code Jardine filed a petition for review on certiorari under R45 of the Rules.
(MMRC) since the MRC was already declared null and void by the DOJ.
o Jardine requested either a credit of the tax overpayments or a ISSUE: WON –
refund of the same
2/4/1994 – Makati denied the request Hon. Aliposa erred in holding that the instant case is not a claim for refund
10/26/1993 – RTC: MRC was valid under §196 of the LGC in relation to §286 of its IRR, but a deficiency
11/9/1993 – DOJ issued a memo to the Chief State Counsel directing the assessment that has to be protested under §195 of the LGC
latter to refrain from accepting any appeal or to act on pending appeals on Hon. Aliposa erred in dismissing the case based on the pendency of
the validity/constitutionality of the ordinance until the same shall have another action contesting the constitutionality of the MRC before Branch
been finally resolved by courts of competent jurisdiction. 148 of the Makati RTC.
Jardine, after having knowledge of the denial of its letter-request, filed a Essentially,  WON  Jardine’s  action  has  prescribed  - YES
complaint with the Makati RTC Branch 150 against Makati and the
Treasurer for the nullification of the MRC. HELD Petition has no merit; dismissed.
Makati and Treasurer filed   a   motion   to   dismiss,   arguing   that   petitioner’s  
cause of action was predicated on the appealed resolution of the DOJ, RATIO
and unless and until nullified by final judgment of a competent court, the
Jardine avers that its action in the RTC was one for a refund of its
ordinance remained in full force and effect.
overpayments governed by §196 of the LGC implemented by §286 of the
IRR, and not one involving an assessment for deficiency taxes governed
1
Ad   cautelam   pleadings   may   be   filed   as   a   precautionary   measure   to   preserve   a   party’s   by § 195 of LGC.
remedies; or To question  a  court’s  jurisdiction  and  at  the  same  time  be  able  to  file  pleadings,   o It contends that it was not mandated to first file a protest with
lawyers can caption their pleadings as “ad  cautelam”. In court hearings, lawyers must inform respondents before instituting its action for a refund of its
the  judge  that  they  are  questioning  the  court’s  jurisdiction. overpayments or for it to be credited for said overpayments.

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The Court agrees with petitioner that as a general precept, a taxpayer o Such statutory periods are set to prevent delays as well as
may file a complaint assailing the validity of the ordinance and praying for enhance the orderly and speedy discharge of judicial functions.
a refund of its perceived overpayments without first filing a protest to the o For this reason the courts construe these provisions of
payment of taxes due under the ordinance. (Ty v. Judge Trampe) statutes as mandatory.
SC agrees with the contention of Makati that Jardine was proscribed from o A municipal tax ordinance empowers a local government unit to
filing its complaint with the RTC of Makati for the reason that petitioner impose taxes. The power to tax is the most effective instrument
failed to appeal to the Secretary of Justice within 30 days from the to raise needed revenues to finance and support the myriad
effectivity date of the ordinance as mandated by § 187 of the LGC which activities of local government units for the delivery of basic
read: services essential to the promotion of the general welfare and
o Sec. 187-Procedure for Approval and Effectivity of Tax enhancement of peace, progress, and prosperity of the people.
Ordinances and Revenue Measures; Mandatory Public Consequently, any delay in implementing tax measures would
Hearings.- Theprocedure for approval of local tax ordinances be to the detriment of the public. It is for this reason that protests
and revenue measures shall be in accordance with the over tax ordinances are required to be done within certain time
provisions of this Code:Provided, That public hearings shall be frames. In the instant case (Reyes case), it is our view that the
conducted for the purpose prior to the enactment failure of petitioners to appeal to the Secretary of Justice within
thereof: Provided further, That any question on the 30 days as required by Sec. 187 of R.A. 7160 is fatal to their
constitutionality or legality of tax ordinances or revenue cause.”
measures may be raised on appeal within thirty (30) days from Moreover, Jardine even paid without any protest the amounts of taxes
the effectivity thereof to the Secretary of Justice who shall render assessed by respondents Makati and Acting Treasurer as provided for in
a decision within sixty (60) days from the date of receipt of the the ordinance. Evidently, the complaint of petitioner with the Regional
appeal: Provided, however, That such appeal shall not have the Trial Court was merely an afterthought.
effect of suspending the effectivity of the ordinance and the
accrual and payment of the tax, fee, or charge levied
therein: Provided, finally, That within thirty (30) days after receipt
of the decision or the lapse of the sixty-day period without the 02. Drilon v. Lim (HV)
Secretary of Justice acting upon the appeal, the aggrieved party Topic: Constitutionality of Sec 187 Local Gov Code
may file appropriate proceedings with a court of competent
jurisdiction. G.R. No. 112497 August 4, 1994 CRUZ, J.:
Reyes v. CA: failure of a taxpayer to interpose the requisite appeal to the
Secretary of Justice is fatal to its complaint for a refund Petitioners: Franklin Drilon as Sec. of Justice
o “Clearly,   the   law requires that the dissatisfied taxpayer who Respondents: MAYOR ALFREDO S. LIM, VICE-MAYOR JOSE L. ATIENZA,
questions the validity or legality of a tax ordinance must file his CITY TREASURER ANTHONY ACEVEDO, SANGGUNIANG PANGLUNSOD
appeal to the Secretary of Justice, within 30 days from AND THE CITY OF MANILA
effectivity thereof.
o In case the Secretary decides the appeal, a period also of 30 Summary: Appeals/ petitions are presented to the desk of Drilon praying that the
days is allowed for an aggrieved party to go to court. Ordinance, Manila Revenue Code, be declared as unconstitutional. Drilon decided
o But if the Secretary does not act thereon, after the lapse of 60 it as unconstitutional, but Manila RTC reversed it and declared Sec 187 as
days, a party could already proceed to seek relief in court. unconstitutional. The SC decided, Section 187 authorizes the Secretary of
o These three separate periods are clearly given for Justice to review only the constitutionality or legality of the tax ordinance
compliance as a prerequisite before seeking redress in a and, if warranted, to revoke it on either or both of these grounds. When he
competent court. alters or modifies or sets aside a tax ordinance, he is not also permitted to
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REMEDIES (Local Taxation II)

substitute his own judgment for the judgment of the local government that conferring on the President of the Philippines only the power of
enacted the measure. Secretary Drilon did set aside the Manila Revenue supervision over local governments.
Code, but he did not replace it with his own version of what the Code should
be. He did not pronounce the ordinance unwise or unreasonable as a basis Main Issue/s:
for its annulment. He did not say that in his judgment it was a bad law. What 1. Are the procedures complied with to have the tax remedies enforced? ---
he found only was that it was illegal. All he did in reviewing the said measure YES
was determine if the petitioners were performing their functions in 2. Is Sec. 187 Constitutional? --- YES
accordance with law, that is, with the prescribed procedure for the
enactment of tax ordinances and the grant of powers to the city government Held:
under the Local Government Code. As we see it, that was an act not of SC only reversed the ruling of the trial court declaring Sec 187 as unconstitutional
control but of mere supervision. but affirmed that the procedural requirements have been complied.

Facts: Ratio:
Assailed is the Constitutionality of Sec. 187 of the Local Gov Code: (1) This case is originally dismissed by the Court for non-compliance with
Procedure For Approval And Effectivity Of Tax Ordinances And Revenue Circular 1-88, the Solicitor General having failed to submit a certified true copy of
Measures; Mandatory Public Hearings. — The procedure for approval of local tax the challenged decision. However, on motion for reconsideration with the
ordinances and revenue measures shall be in accordance with the provisions of required certified true copy of the decision attached, the petition was
this Code: Provided, That public hearings shall be conducted for the purpose prior reinstated in view of the importance of the issues raised therein.
to the enactment thereof; Provided, further, That any question on the
constitutionality or legality of tax ordinances or revenue measures may be raised (2) Judge Rodolfo C. Palattao declared Section 187 of the Local Government Code
on appeal within thirty (30) days from the effectivity thereof to the Secretary of unconstitutional insofar as it empowered the Secretary of Justice to review tax
Justice who shall render a decision within sixty (60) days from the date of receipt of ordinances and, inferentially, to annul them. He cited the familiar distinction
the appeal: Provided, however, That such appeal shall not have the effect of between control and supervision, the first being "the power of an officer to
suspending the effectivity of the ordinance and the accrual and payment of the tax, alter or modify or set aside what a subordinate officer had done in the
fee, or charge levied therein: Provided, finally, That within thirty (30) days after performance of his duties and to substitute the judgment of the former for
receipt of the decision or the lapse of the sixty-day period without the Secretary of the latter," while the second is "the power of a superior officer to see to it
Justice acting upon the appeal, the aggrieved party may file appropriate that lower officers perform their functions in accordance with law."
proceedings with a court of competent jurisdiction. Sec 187 gave to the Secretary the power of control and not of supervision
Drilon had on his desk appeals of four oil companies and a taxpayer only as vested by the Constitution in the President of the Philippines. This
praying Ordinance No. 7794, otherwise known as the Manila Revenue was, in his view, a violation not only of Article X, specifically Section 4 but
Code, null and void for non-compliance with the prescribed also of local autonomy.
procedure in the enactment of tax ordinances and for containing Article X, Section 5(2), of the Constitution vests in the Supreme
certain provisions contrary to law and public policy. Drilon decided Court appellate jurisdiction over final judgments and orders of lower
Constitutional. courts in all cases in which the constitutionality or validity of any
Manila RTC declared it unconstitutional revoked the Secretary's treaty, international or executive agreement, law, presidential decree,
resolution and sustained the ordinance, holding inter alia that the proclamation, order, instruction, ordinance, or regulation is in
procedural requirements had been observed. More importantly, it question.
declared Section 187 of the Local Government Code as unconstitutional The lower court was rather hasty in invalidating the provision.
because of its vesture in the Secretary of Justice of the power of control Section 187 authorizes the Secretary of Justice to review only the
over local governments in violation of the policy of local autonomy constitutionality or legality of the tax ordinance and, if warranted, to
mandated in the Constitution and of the specific provision therein revoke it on either or both of these grounds. When he alters or
Page 12 of 16
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Local Taxation II)

modifies or sets aside a tax ordinance, he is not also permitted to revenue code. Sec. 21 of the Old code was reproduced verbatim except that the
substitute his own judgment for the judgment of the local last paragraph was deleted in the Revised Code. Said deletion would in effect
government that enacted the measure. Secretary Drilon did set aside impose additional business tax on business that are already subject to
the Manila Revenue Code, but he did not replace it with his own business tax. Coca-Cola filed a Petition before DOJ questioning the validity of the
version of what the Code should be. He did not pronounce the said  ordinance.  DOJ  declared  the  ordinance  as  null  and  void  for  the  City’s  failure  to  
ordinance unwise or unreasonable as a basis for its annulment. He satisfy the publication requirement. DOJ also ordered the City to desist from
did not say that in his judgment it was a bad law. What he found only implementing the same. Despite this, the City continued to assess Coca-Cola
was that it was illegal. All he did in reviewing the said measure was business tax on the basis of the (nullified) ordinance. Hence, Coca-Cola filed a
determine if the petitioners were performing their functions in Complaint in the RTC. RTC ruled in favor of Coca-Cola and permanently enjoined
accordance with law, that is, with the prescribed procedure for the the City. During the pendency, another ordinance (amending the previous one)
enactment of tax ordinances and the grant of powers to the city was approved by the City. Again, Coca-Cola challenged the new ordinance before
government under the Local Government Code. As we see it, that the DOJ.
was an act not of control but of mere supervision.
An officer in control lays down the rules in the doing of an act. If they are (Now back to the pending case before the RTC) On the basis of the enactment of
not followed, he may, in his discretion, order the act undone or re-done by the new ordinance, RTC finally dismissed the case filed by Coca-Cola. SC
his subordinate or he may even decide to do it himself. Supervision does reversed the decision of the RTC. SC said that the amending law, having been
not cover such authority. The supervisor or superintendent merely sees to declared as null and void, in legal contemplation, therefore, does NOT exist.
it that the rules are followed, but he himself does not lay down such rules, Furthermore, even if Tax Ordinance No. 8011 was not declared null and void, RTC
nor does he have the discretion to modify or replace them. If the rules are should NOT have dismissed the case on the reason that said tax ordinance had
not observed, he may order the work done or re-done but only to conform already amended Tax Ordinance No. 7988.
to the prescribed rules. He may not prescribe his own manner for the
doing of the act. He has no judgment on this matter except to see to it that FACTS:
the rules are followed. In the opinion of the Court, Secretary Drilon did 25 February 2000: City Mayor of Manila approved Tax Ordinance No.
precisely this, and no more nor less than this, and so performed an act 7988 (Revised Revenue Code of the City of Manila) repealing Tax
not of control but of mere supervision. Ordinance No. 7794 (Revenue Code of the City of Manila)
The Revised Code amended certain sections of the Old Code by
increasing the tax rates applicable to certain establishments operating
within the territorial jurisdiction of the City of Manila
03. Coca-Cola Bottlers v. City of Manila (HQ)
Topic: Taxpayer’s  Remedies  - Any question on the constitutionality or legality
Aggrieved by said tax ordinance, Coca-Cola filed a Petition before the
of tax ordinances or revenue measures may be raised on APPEAL within 30 days
DOJ against the City of Manila and its Sangguniang Panlungsod
from the effectivity to the DOJ Secretary 2
Coca-Cola, invoking Section 187 of the LGC, questioned the validity of
Relevant Laws: Sections 187 and 188, LGC; Section 277, IRR of LGC
Section 21 of the New Revenue Code.
G.R. No. 156252
2
June 27, 2006 Procedure for Approval and Effectivity of Tax Ordinances and Revenue Measures;
Mandatory Public Hearings. – The procedure for approval of local tax ordinances and
Petitioner: COCA-COLA BOTTLERS PHILIPPINES, INC.
revenue measures shall be in accordance with the provisions of this Code: Provided, That
Respondents: CITY OF MANILA, LIBERTY M. TOLEDO – City Treasurer and
public hearings shall be conducted for the purpose prior to the enactment thereof: Provided,
JOSEPH SANTIAGO – Chief, Licensing Division further, That any question on the constitutionality or legality of tax ordinances or
revenue measures may be raised on appeal within thirty (30) days from the effectivity
SUMMARY: thereof to the Secretary of Justice who shall render a decision within sixty (60) days
City of Manila passed a Tax Ordinance (Revised Revenue Code) amending its Old from the date of receipt of the appeal
Page 13 of 16
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Local Taxation II)

Note: Sec. 21 of the Old Revenue Code was reproduced verbatim as If the tax ordinances or revenue measure contains penal provisions as
Section 21 under the new Ordinance except for the last paragraph thereof authorized under Art. 279 of this Rule, the gist of such tax ordinance or
revenue measure shall be published in a newspaper of general
which reads: (this last paragraph was DELETED in the Revised Revenue
circulation within the province, posting of such ordinance or measure
Code)
shall be made in accessible and conspicuous public places in all
municipalities and cities of the province to which the sanggunian enacting
"PROVIDED, that all registered businesses in the City of Manila that are the ordinance or revenue measure belongs.
already paying the aforementioned tax shall be exempted from payment
thereof" From the foregoing provisions, it is clear that the requirement of
publication is MANDATORY
Coca-Cola averred: Its essence is simply to inform the people and the entities who may likely
o that said deletion would, in effect, impose additional business be affected, of the existence of the tax measure.
tax on businesses that are already subject to business tax under It bears emphasis, that, strict observance of the said procedural
the other sections, specifically Sec. 14, of the Revised Revenue requirement is the only safeguard against any unjust and unreasonable
Code – which imposition, Coca-Cola claims, "is beyond or exercise of the taxing powers by ensuring that the taxpayers are notified
exceeds the limitation on the taxing power of the City of Manila through publication of the existence of the measure, and are therefore
under Sec. 143 (h) of the LGC able to voice out their views or objections to the said measure.
o Deletion is a palpable and manifest violation of the LGC, and the Thereafter, the City was instructed to cease and desist from implementing
clear mandate of Article X, Sec. 5 of the 1987 Constitution, the Revised Code, and that enforcement of such would be a ground for
hence Section 21 is "illegal and unconstitutional." administrative disciplinary action

DOJ’s   Resolution: Declared Tax Ordinance No. 7988 NULL and VOID Despite the Resolution of the DOJ declaring Tax Ordinance No. 7988 null
and without legal effect, for having been enacted in contravention with and void, City of Manila continued to assess Coca-Cola business tax
provisions of LGC and its IRR. (In sum, DOJ said that the City did NOT for the year 2001 based on the tax rates prescribed under the Revised
follow the required procedure in the enactment of the said tax ordinance.) Code
DOJ cited the following provisions:
Thus, Coca-Cola filed a Complaint with the RTC Manila praying that City
"Section 188. Publication of Tax Ordinances and Revenue Measures.
of Manila be enjoined from implementing the aforementioned tax
– Within ten (10) days after their approval, certified true copies of all
ordinance.
provincial, city and municipal tax ordinances or revenue measures shall
be published in full for three (3) consecutive days in a newspaper of local RTC: Ruled in favor of Coca-Cola, permanently enjoined City of Manila
circulation; Provided, however, that in provinces, cities, and municipalities from implementing the Ordinance
where there are no newspapers or local circulations the same may be
posted in at least two (2) conspicuous and publicly accessible places." During  the  pendency  of  the  case…
(R.A. No. 7160) The City Mayor of Manila approved Tax Ordinance No. 8011 (An
Ordinance Amending Certain Sections of Ordinance No. 7988)
"Art. 277. Publication of Tax Ordinances and Revenue Measures. –
(a) within ten (10) days after their approval, certified true copies of all
Said tax ordinance was again challenged by Coca-Cola before the DOJ
provincial, city and municipal tax ordinances or revenue measures shall
be published in full for three (3) consecutive days in a newspaper of local DOJ’s   Resolution: Declared Tax Ordinance No. 8011 NULL AND VOID
circulation provided that in provinces, cities and municipalities where (the only logical conclusion is that the above Tax Ordinance is also null
there are no newspapers of local circulation, the same may be posted in and void for being a mere amendatory ordinance of Ordinance No. 7988
at least two (2) conspicuous and publicly accessible places. (IRR, LGC) which had been nullified by DOJ)

Page 14 of 16
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Local Taxation II)

Instead of amending Ordinance No. 7988, City of Manila should have TAX ORDINANCE NO. 8011 (AMENDING THE EARLIER ORDINANCE) ALSO
enacted another tax measure which strictly complies with the VOID
requirements of law, both procedural and substantive. The passage of Again, the DOJ Sec. declared Tax Ordinance No. 8011, amending Tax
the assailed ordinance did NOT have the effect of curing the defects Ordinance No. 7988, null and void
of Ordinance No. 7988 which, any way, does not legally exist. Moreover, DOJ Sec stated that instead of amending Ordinance No. 7988, the City should
have enacted another tax measure which strictly complies with the requirements of law,
On the basis on the enactment of Tax Ordinance No. 8011, City filed an both procedural and substantive.
The passage of the assailed ordinance did NOT have the effect of curing the defects of
MR with the RTC Manila
Ordinance No. 7988 which, any way, does not legally exist
RTC finally DISMISSED the Coca-Cola’s   petition   on   the   basis   that  
Ordinance No. 7988 has already been amended by Ordinance No. 8011
approved by the City Mayor of Manila,
Coca-Cola’s  MR  DENIED.  Hence,  this  petition 04. Angeles City v. Angeles Electric Corporation (KF)
Topic: Taxpayer’s  Remedies
ISSUE: Whether or not Tax Ordinance No. 7988 is null and void and of no Petitioner: Angeles City
legal effect? YES Respondent: Angeles City Electric Corporation and RTC Branch 57, Angeles City

HELD: Order (dismissing Coca-Cola’s   petition)   of   RTC   Manila   REVERSED.   The  


amending law, having been declared as NULL AND VOID, in legal contemplation, FACTS:
therefore, does NOT exist. Furthermore, even if Tax Ordinance No. 8011 was not
declared null and void, RTC should not have dismissed the case on the reason Angeles Electric was granted a legislative franchise that required it to pay
that said tax ordinance had already amended Tax Ordinance No. 7988. 2% franchise tax in lieu of all other taxes imposed by national or local
authorities. Subsequently, the LGC was passed, giving local governments
RATIO: the power to tax. Pursuant to this power, Angeles City enacted the
Revised Revenue Code of Angeles City (Tax Ordinance 33 S-93), which
TAX ORDINANCE NO. 7988 (REVISED REVENUE CODE) NULL AND VOID – imposed additional taxes on businesses enjoying franchise, including
FAILURE TO SATISFY THE PUBLICATION REQUIREMENT Angeles Electric.
It is undisputed from the facts of the case that Tax Ordinance No. 7988 Angeles Electric questioned the ordinance before the Sangguniang
has already been declared by the DOJ Secretary as NULL AND VOID Panlunsod, to no avail. It elevated the matter to the Department of
and without   legal   effect   due   to   the   City’s   failure to satisfy the Finance, which referred it to the Bureau of Local Government Finance.
requirement that said ordinance be published for three (3) The BLGF instructed the Sanggunian to make proper amendments to the
consecutive days as required by law. Revenue Code. In the course of these proceedings, Angeles Electric had
Furthermore, the RTC reiterated the findings of the DOJ Secretary that been paying its franchise tax, plus the additional tax.
the City failed to follow the procedure in the enactment of tax measures The City Treasurer issued a notice of assessment to Angeles Electric on
as mandated by Section 188 of the LGC, in that they failed to publish Tax 2004 for unpaid taxes from 1993-2004. Angeles Electric protested the
Ordinance No. 7988 for three (3) consecutive days in a newspaper of assessment, alleging double taxation, exemption, prescription, and non-
local circulation. retroactivity of assessment. The protest was denied, and Angeles Electric
From the foregoing, it is evident that Tax Ordinance No. 7988 is null appealed to the RTC via declaratory relief. Pending such proceeding, a
and void as said ordinance was published only for one (1) day in the warrant of distraint and levy was issued against Angeles Electric, and its
22 May 2000 issue of the Philippine Post in contravention of the properties were put under auction sale.
unmistakable directive of the LGC. Angeles Electric filed a petition for TRO of the sale. It was granted. Thus,
this petition by Angeles City.
Page 15 of 16
TAX 2 DIGESTS – ATTY. MONTERO
REMEDIES (Local Taxation II)

ISSUE: Was the issuance of the writ of injunction proper? Finally,   the   Court   said:   “While we are mindful that the damage to a
taxpayer’s   property   rights   generally   takes   a   back   seat   to   the   paramount  
HELD/RATIO: Yes, it was proper. need of the State for funds to sustain governmental function, this rule
finds no application in the instant case where the disputed tax
First, the Court recognizes that as a general rule, injunctions against the assessment is not yet due and demandable. Considering that AEC was
power to tax are prohibited. This admits of an exception, if the CTA able to appeal the denial of its protest within the period prescribed under
deems that collection would be harmful to the government and the Section 195 of the LGC, the collection of business taxes through levy at
taxpayer. For local taxes, however, there is no express provision in the this  time  is,  to  our  mind,  hasty,  if  not  premature.”
LGC  proscribing  the  issuance  of  injunctions  on  the  government’s  taxation
power. However, this does not negate the fact that the injunction must
comply  with  the  requisites  of  Rule  58  on  injunctions.  Still:  “Nevertheless,  it  
must be emphasized that although there is no express prohibition in the
LGC, injunctions enjoining the collection of local taxes are frowned
upon. Courts therefore should exercise extreme caution in issuing such
injunctions.”
The requisites under Rule 58 may be condensed into two: 1) The
existence of a clear and unmistakable right to be protected, and 2) the
urgent and paramount necessity of the writ to prevent serious damage.
Here, the two requisites for the issuance of an injunction are met: The
Court  cited  the  RTC’s  decision  on  the  TRO:  
- “Engr.   Abordo’s  testimony   reveals   and   even   his   Affidavit   Exhibit  “S”  
showed that if the auction sale will push thru, petitioner will not only
lose control and operation of its facility, but its employees will also be
denied   access   to   equipments   vital   to   petitioner’s   operations, and
since only the petitioner has the capability to operate Petersville sub
station, there will be a massive power failure or blackout which will
adversely affect business and economy, if not lives and properties in
Angeles  City  and  surrounding  communities.”
- “Petitioner, thru its witnesses, in the hearing of the temporary
restraining order, presented sufficient and convincing evidence
proving irreparable damages and injury which were already
elaborated in the temporary restraining order although the same may
be realized only if the auction sale will proceed. And unless
prevented, restrained, and enjoined, grave and irreparable damage
will be suffered not only by the petitioner but all its electric consumers
in Angeles, Clark, Dau and Bacolor, Pampanga.”
The Court noted that no grave abuse of discretion existed on the part of
the RTC in issuing the injunction, since Angeles City failed to prove that
the injunction was issued without factual and legal justification. It merely
relied on the prohibition against TROs.

Page 16 of 16
TAXATION LAW 2 blacksmith and carpentry shops, and with these machineries
which are placed therein, its TPU trucks are made; body
DIGESTS AND PROVISIONS COMPILATION constructed; and same are repaired in a condition to be
serviceable in the TPU land transportation business it operates;
G. Real Property Taxation o That these machineries have never been or were never used
as industrial equipments to produce finished products for
sale, nor to repair machineries, parts and the like offered to
G.2. Machinery as Real Property the general public indiscriminately for business or
commercial purposes for which petitioner has never
engaged  in,  to  date.”
01. Mindanao Bus Company v. City Assessor (MR)
This is a petition for review of the decision of the CA
Topic: movable/immovable property
Relevant Laws: Art. 415(5) of CC
Issues:
“(5)   Machinery,   receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a piece of land, Court of Tax   Appeals   erred   in   upholding   respondents’   contention   that   the  
and  which  tend  directly  to  meet  the  needs  of  the  said  industry  or  works;;” questioned assessments are valid; and that said tools, equipments or machineries
are immovable taxable real properties—YES
G.R. No. L-17870 The Tax Court erred in its interpretation of paragraph 5 of Article 415 of the New
September 29, 1962 Civil Code, and holding that pursuant thereto, the movable equipments are taxable
Labrador, J. realties, by reason of their being intended or destined for use in an industry—YES

Petitioners: Mindanao Bus Company Held:


Respondents: City Assessor and Treasurer and Board of Tax Appeals Cagayan Decision of lower court REVERSED
de Oro
Ratio:
Summary: We must thank Atty. Abano for some good Property Law. The doctrine Note that according to the stipulation, the equipment are placed on
is basically how to determine if equipment is real property or not for tax purposes, wooden or cement platforms. They can be moved around and about in
based on Art. 415(5) CC. They are in bold in the ratio petitioner’s  repair  shop.
it was held in B.H. Berkenkotter vs. Cu Unijeng—movable equipments
Facts: to be immobilized in contemplation of the
City   Assessor   assessed   Mindanao   Bus’s   maintenance   and   repair   law must first be “essential  and  principal  elements” of an industry or
equipment. Mindanao appeared to Board of Tax Appealso on the ground works   without   which   such   industry   or   works   would   be   “unable   to  
that these are not realty function or carry on the industrial purpose for which it was
Board of Tax Appelas sustained City Assessor. CTA affirmed on petition established.”   We   may   here   distinguish,   therefore,   those   movables  
for review. which become immobilized by destination because they are
Based on their stipulation of facts: essential and principal elements in the industry from those which
o Mindanao is a public utility engaged in transporting passengers may not be so considered immobilized because they are merely
and cargo by motor trucks. It’s   main   office   is   in   CDO.   The   incidental, not essential and principal.
machineries sought to be assessed are the following: Hobart Examples of the difference given by the Court in the quoted case--cash registers,
Electric Welder Machine, Storm Boring Machine, Lathe machine typewriters, etc., usually found and used in hotels, restaurants, theaters, etc. are merely
with motor, Black and Decker Grinder, PEMCO Hydraulic Press, incidentals and are not and should not be considered immobilized by destination, for these
Battery, and D-Engine Waukesha-M-Fuel. They sit on cement businesses can continue or carry on their functions without these equipments. Airline
companies use forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which are
of wooden platforms
incidentals, not essentials, and thus retain their movable nature. On the other hand,
o Mindanao is the owner of the land where it maintains and
machineries of breweries used in the manufacture of liquor and soft drinks, though movable
operates a garage for its TPU motor trucks; a repair shop; in nature, are immobilized because they are essential to said industries; but the delivery
TAX 2 DIGESTS – ATTY. MONTERO REMEDIES (Local Taxation II)

trucks and adding machines which they usually own and use and are found within their the owner of the property or plant but not when so placed by a tenant, a
industrial compounds are merely incidentals and retain their movable nature. usufructuary, or any person having only a temporary right, unless such person
Similarly, the tools and equipments in question in this instant case are, by acted as the agent of the owner as held in Davao Saw Mill Co. vs. Castillo. SC said
their nature, not essential and principal elements  of  petitioner’s  business   that here, the question is whether the gas station equipment and machinery
of transporting passengers and cargoes by motor trucks. They are merely permanently affixed by Caltex to its gas station and pavement (which are
incidentals—acquired as movables and used only for expediency to indubitably taxable realty) should be subject to the realty tax. This question is
facilitate and/or improve its service. different from the issue raised in the Davao Saw Mill case which was the for the
Even without such tools and equipments, its business may be carried on, purposes of execution of a judgment against the lessee (NOT RPT TAX
as petitioner has carried on, without such equipments, before the war. COLLECTION), hence inapplicable.
The transportation business could be carried on without the repair or
service shop if its rolling equipment is repaired or serviced in another Facts:
shop belonging to another. This case is about the realty tax on machinery and equipment installed by
Aside from the element of essentiality the above-quoted provision Caltex (Philippines) Inc., in its gas stations located on leased land. (Also,
also requires that the industry or works be carried on in a building this was a case in Property).
or on a piece of land. Caltex loaned machines and equipment to gas station operators under an
In the case of Berkenkotter as cited--“machinery,   liquid   containers,   and   instruments   or   appropriate lease agreement or receipt. The lease contract stipulated that
implements”   are   found   in   a   building   constructed   on   the   land.   A   sawmill   would   also   be   upon demand, the operators shall return to Caltex the machines and
installed in a building on land more or less permanently, and the sawing is conducted in the
equipment in good condition as when received, ordinary wear and tear
land or building.
excepted.
But in the case at bar the equipments in question are destined only to
o The machines and equipment consists of underground tanks,
repair or service the transportation business, which is not carried on in a
elevated tank, elevated water tanks, water tanks, gasoline
building or permanently on a piece of land, as demanded by the law. Said
pumps, computing pumps, water pumps, car washer, car hoists,
equipments may not, therefore, be deemed real property.
truck hoists, air compressors and tireflators
Anyway, the lessor of the land, where the gas station is located, does not
become the owner of the machines and equipment installed therein.
02. Caltex v. Central Board of Assessment (RK) Caltex retains the ownership thereof during the term of the lease.
Topic: Real Property; Gasoline station and its equipments The City Assessor of Pasay City characterized the said items of gas
station equipment and machinery as taxable realty. However, the City
G.R. No. L-50466 Board of Tax Appeals ruled that they are personal properties. The
May 31, 1982 Assessor appealed to the Central Board of Assessment Appeals.
Aquino, J. The Board held on June 3, 1977 that the said machines are real property
within the meaning of Ses. 3(k) & (m) and 38 of the Real Property Tax
Petitioners: Caltex (Philippines) Inc. Code, PD 464, and that the Civil Code definitions of real and personal
Respondents: Central Board of Assessment Appeals and City Assessor of Pasay property in Articles 415 and 416 are not applicable in this case.
Issues: Whether or not the pieces of gas station equipment and machinery
Summary: This case is about the realty tax on machinery and equipment installed permanently affixed by Caltex to its gas station and pavement should be subject to
by Caltex (Philippines) Inc., in its gas stations located on leased land. The SC said realty tax.-- YES
yes, they are real property subject to RPT. The subject machines and equipment
are taxable improvement and machinery within the meaning of the Assessment Held:WHEREFORE, the questioned decision and resolution of the Central Board
Law and the Real Property Tax Code, because the same are necessary to the of Assessment Appeals are affirmed. The petition for certiorari is dismissed for lack
operation of the gas station and have been attached/affixed/embedded of merit.
permanently to the gas station site. Caltex argues that the rule that machinery
which is movable in its nature only becomes immobilized when placed in a plant by Ratio:
Page 2 of 10
TAX 2 DIGESTS – ATTY. MONTERO REMEDIES (Local Taxation II)

This case is also easily distinguishable from Board of


Sec.2 of the Assessment Law provides that the realty tax is due on real Assessment Appeals vs. Manila Electric Co., (119 Phil.
property, including land, buildings, machinery, and other 328) where Meralco's steel towers were exempted from
improvements not specifically exempted in Sec.3 thereof. taxation. The steel towers were considered personalty
because they were attached to square metal frames by
Sec.3 of the Real Property Tax Code provides the following definitions: means of bolts and could be moved from place to place
when unscrewed and dismantled.
o k) Improvements – a valuable addition made to property or an Nor are Caltex's gas station equipment and machinery
amelioration   in   its   condition…more   than   mere   repairs   or   the same as the tools and equipment in the repair shop
replacement  of  waste…intended  to  enhance  its  value,  beauty,  or   of a bus company which were held to be personal
utility property not subject to realty tax (Mindanao Bus Co. vs.
o m) Machinery – machines, mechanical contrivances, City Assessor, 116 Phil. 501).
instruments, appliances, and apparatus attached to the real The Central Board of Assessment Appeals did not commit a grave abuse of
estate…includes   the   physical   facilities   available   for   discretion in upholding the City Assessor's imposition of the realty tax on Caltex's
production…installation  and  appurtenant service facilities. gas station and equipment.
The subject machines and equipment are taxable improvement and
machinery within the meaning of the Assessment Law and the Real
Property Tax Code, because the same are necessary to the operation
03. Meralco v. Central Board of Assessment (KB)
of the gas station and have been attached/affixed/embedded
Topic: Real Property Tax; Distinction between personal and real property for tax
permanently to the gas station site.
purposes
o Caltex invokes the rule that machinery which is movable in its Relevant Laws:
nature only becomes immobilized when placed in a plant by the
owner of the property or plant but not when so placed by a
tenant, a usufructuary, or any person having only a temporary G.R. No. L-47943 May 31, 1982 AQUINO, J.:
right, unless such person acted as the agent of the owner
(Davao Saw Mill Co. vs. Castillo, 61 Phil 709). Petitioners: MANILA ELECTRIC COMPANY
In the Davao Saw Mills case the question was whether Respondents: CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF
the machinery mounted on foundations of cement and ASSESSMENT APPEALS OF BATANGAS and PROVINCIAL ASSESSOR OF
installed by the lessee on leased land should be BATANGAS
regarded as real property for purposes of execution Summary: Meralco is two oil storage tanks installed in a lot leased from Caltex.
of a judgment against the lessee According to Meralco, the tanks are not attached to its foundation. Central Board of
HERE, the question is whether the gas station Assessment Appeals (CBAA) concludes that while the tanks may not be attached
equipment and machinery permanently affixed by to its foundation, the foundation itself forming an integral part of the tanks are
Caltex to its gas station and pavement (which are affixed to the land. CBAA then required Meralco to pay realty taxes on the two
indubitably taxable realty) should be subject to the tanks. Meralco contends that the said oil storage tanks do not fall within any
realty tax. This question is different from the issue of the kinds of real property enumerated in article 415 of the Civil Code and,
raised in the Davao Saw Mill case. therefore, they cannot be categorized as realty by nature, by incorporation, by
o Improvements on land are commonly taxed as realty even destination nor by analogy. Court held that while the two storage tanks are not
though they might be considered personalty. “It  is  a  familiar   embedded in the land, they may, nevertheless, be considered as improvements
phenomenon to see things classified as real property for on the land, enhancing its utility and rendering it useful to the oil industry. For
purposes of taxation which on general principle might be purposes of taxation, the term "real property" may include things which
considered personal property”   (Standard   Oil   Co.,   vs   Jaramillo,   should generally be regarded as personal property.
44 PHIL 630).

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Facts: Whether or not the tanks should be taxed as real property

This case is about the imposition of the realty tax on two oil storage tanks Held:
installed in 1969 by Manila Electric Company on a lot in San Pascual, WHEREFORE, the instant petition is hereby DISMISSED
Batangas which it leased in 1968 from Caltex (Phil.), Inc. The tanks are within
the Caltex refinery compound. Ratio:
According to Meralco, the tank is not attached to its foundation. It is not
anchored or welded to the concrete circular wall. Its bottom plate is not Section 2 of the Assessment Law provides that the realty tax is due "on real
attached to any part of the foundation by bolts, screws or similar devices. The property, including land, buildings, machinery, and other improvements" not
tank merely sits on its foundation. specifically exempted in section 3 thereof. This provision is reproduced with some
On the other hand, according to the hearing commissioners of the Central modification in the Real Property Tax Code which provides:
Board of Assessment Appeals, the area where the two tanks are located is
enclosed with earthen dikes with electric steel poles on top thereof and is Sec. 38. Incidence of Real Property Tax. — They shall be levied,
divided into two parts as the site of each tank. The foundation of the tanks is assessed and collected in all provinces, cities and municipalities an
elevated from the remaining area. On both sides of the earthen dikes are two annual ad valorem tax on real property, such as land, buildings,
separate concrete steps leading to the foundation of each tank. machinery and other improvements affixed or attached to real
Tank No. 2 is supported by a concrete foundation with an asphalt lining about property not hereinafter specifically exempted.
an inch thick. Pipelines were installed on the sides of each tank and are
connected to the pipelines of the Manila Enterprises Industrial Corporation
whose buildings and pumping station are near Tank No. 2.
The Board concludes that while the tanks rest or sit on their foundation,
the foundation itself and the walls, dikes and steps, which are integral The Code contains the following definition in its section 3:
parts of the tanks, are affixed to the land while the pipelines are attached
to the tanks. k) Improvements — is a valuable addition made to property or an
In 1970, the municipal treasurer of Bauan, Batangas, on the basis of an amelioration in its condition, amounting to more than mere repairs or
assessment made by the provincial assessor, required Meralco to pay realty replacement of waste, costing labor or capital and intended to enhance its
taxes on the two tanks. For the five-year period from 1970 to 1974, the tax value, beauty or utility or to adapt it for new or further purposes.
and penalties amounted to P431,703.96. The Board required Meralco to pay
the tax and penalties as a condition for entertaining its appeal from the We hold that while the two storage tanks are not embedded in the land, they
adverse decision of the Batangas board of assessment appeals.
may, nevertheless, be considered as improvements on the land, enhancing
The Central Board of Assessment Appeals in its decision dated November 5, its utility and rendering it useful to the oil industry. It is undeniable that the two
1976 ruled that the tanks together with the foundation, walls, dikes, steps, tanks have been installed with some degree of permanence as
pipelines and other appurtenances constitute taxable improvements. receptacles for the considerable quantities of oil needed by Meralco for its
Meralco received a copy of that decision on February 28, 1977. On the operations.
fifteenth day, it filed a motion for reconsideration which the Board denied in its Oil storage tanks were held to be taxable realty in Standard Oil Co. of New
resolution of November 25, 1977, a copy of which was received by Meralco on Jersey vs. Atlantic City, 15 Atl. 2nd 271.
February 28, 1978. For purposes of taxation, the term "real property" may include things
On March 15, 1978, Meralco filed this special civil action of certiorari to annul which should generally be regarded as personal property. It is a familiar
the Board's decision and resolution. It contends that the Board acted without phenomenon to see things classed as real property for purposes of taxation
jurisdiction and committed a grave error of law in holding that its storage tanks which on general principle might be considered personal property (Standard
are taxable real property. Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).
Meralco contends that the said oil storage tanks do not fall within any of
the kinds of real property enumerated in article 415 of the Civil Code and,
therefore, they cannot be categorized as realty by nature, by incorporation, by The case of Board of Assessment Appeals vs. Manila Electric Company, 119 Phil.
destination nor by analogy. Stress is laid on the fact that the tanks are not 328, wherein Meralco's steel towers were held not to be subject to realty tax, is not
attached to the land and that they were placed on leased land, not on the in point because in that case the steel towers were regarded as poles and under its
land owned by Meralco. franchise Meralco's poles are exempt from taxation. Moreover, the steel towers
were not attached to any land or building. They were removable from their metal
Issues: frames.
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Nor is there any parallelism between this case and Mindanao Bus Co. vs. City towers, basically) are part of the electric power system of Meralco, for the
Assessor, 116 Phil. 501, where the tools and equipment in the repair, carpentry conveyance of electric current to its customers.
and blacksmith shops of a transportation company were held not subject to realty
tax because they were personal property.
Now, the poles are not subject to RPT as these are not real property. (See
Article 415 of the Civil Code, which enumerates immovable properties.)
The poles are not adhered to the soil, as these are easily removable by
unscrewing the bolts.
04. Board of Assessment Appeals v. Meralco (JT) They can be moved from place to place, and can be disassembled.
G.R. No. L-15334 They are also not attached to any immovable in a fixed manner, and can
January 31, 1964 be separated without breaking the material or causing deterioration upon
Paredes, J. the object to which they are attached.
They are also not machineries, receptacles, instruments or implements
Petitioners: Board of Assessment Appeals, City Treasurer and City Assessor of They are not intended for the industry or works on the land, as Meralco is
Quezon City not engaged in an industry or works on the land on which the poles are
Respondents: Manila Electric Company [MERALCO] constructed

REALLY SHORT CASE. To summarize: Meralco’s  steel  towers  are  considered  


“poles”  but  are  not real property, as they do not fall under the enumeration G.3. Appraisal and Assessment
in Article 415 of the Civil Code. Thus, not subject to RPT.

FACTS 01. Lopez v. City of Manila (AD)


Meralco was granted a franchise by the City of Manila to construct, maintain and
operate   electric   power   systems   within   the   City.   Meralco’s   electric   power   is   LOPEZ v CITY OF MANILA (AD)
transmitted from Botocan Falls in Laguna, to Manila, through electric transmission G.R. No. 127139 | February 19, 1999
JAIME C. LOPEZ, petitioner
wires fastened to insulators attached on steel towers. Meralco has 40 steel towers CITY OF MANILA and HON. BENJAMIN A.G. VEGA, Presiding Judge, RTC,
in Quezon City, and three were inspected by the CFI of QC (in Espana Extension, Manila, Branch 39, respondent
Kamuning Road and Kamias Road).
Doctrine:The procedural steps in computing the real property tax are as
The City Assessor of QC declared the three steel towers for real froferty tax. follows:
Meralco filed a petition to cancel these declarations, but was denied. The Board of 1) Ascertain the assessment level of the property
Assessment   Appeals   of   QC   also   denied   Meralco’s   claim,   but   CTA   ordered   the   2) Multiply the market value by the applicable assessment level of the
property
cancellation of the tax declarations. 3) Find the tax rate which corresponds to the class (use) of the
property and multiply the assessed value by the applicable tax
RATIO rates.
The   SC   upheld   the   CTA.   Basically,   under   paragraph   9   of   Meralco’s   franchise,  
percentage tax shall be paid, in lieu of all taxes and assessments of Mejomalaboyung case. Madalilangyung facts. Hindi talagasinagotng SC yung
whatsoever nature xxx upon poles, wires, transformers and insulators of contentions ni Petitioner Jaime Lopez. Nag-lay down langang SC ng procedural
rules on the computation of real property taxes (the one above) AND sinabinilana
[Meralco], from which taxes and assessments [Meralco] is hereby exempted.
moot   and   academic   nayung   petition   ni   Lopez   kasiyung   supposedly   “unjust   and  
oppressive revised assessments   of   580%”   were   subsequently   lowered   down  
Basically, the SC held that the  steel  towers  are  embraced  in  the  term  “poles,” naman to 155%. Hindi pinalitanni Lopez yung cause of action niya so as to reflect
citing Connecticut Light and Power Co. v. Oxford.    In  defining  the  world  “pole,”  one   the subsequent lower rate of 155% so moot and academic nadaw.
should not be given a restrictive and narrow interpretation so as to defeat the very
object   for   which   Meralco’s   franchise   was   granted.   Thus,   the   “poles”   (the   steel   FACTS:

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Sec. 219 of the Local Government Code of 1991 requires the conduct percent (82%). (Ditosinabing court na moot and academic nayung
of the general revision of real property as follows: action kasibumabanamannayung rates taposhindipinalitanni Lopez
General Revision of Assessment and Property Classification — yung cause of action niya reflecting and questioning the subsequent
The provincial, city or municipal assessor shall undertake a lower rates of 155% and 82%!!!)
general revision of real property assessments within two (2) Moreover, Section 2 of Manila Ordinance No. 7905 provides that the
years after the effectivity of this Code and every three (3) amendment embodied therein shall take effect retroactively to January 1,
years thereafter. 1996.
Although R.A. 7160 took effect on January 1, 1992, the revision of Despite the amendment brought about by Manila Ordinance No.
real property assessments prescribed therein was not yet enforced 7905, the controversy proceeded
in the City of Manila. On May 9, 1996, the court directed the issuance of a writ of injunction and
Until the year 1995, the basis for collection of real estate taxes in the denied, in the meanwhile, the motion to dismiss by the respondent.
City of Manila was the old, year-1979, real estate market values. On May 22, 1996, the respondent filed the instant motion for
Mrs. Lourdes Laderas, the newly appointed City Assessor of Manila, reconsideration on the denial of its motion to dismiss. Respondent
received Memorandum Circular No. 04-95 dated March 20, 1995, from underscored the additional premise, which is the happening of a
the Department of Finance. This memorandum relates to the failure supervising event, i.e., the enactment and approval of the City Mayor of
of most of the cities and municipalities of Metropolitan Manila, including Manila Ordinance No. 7905.
the City of Manila, to conduct the general revision of real property. On October 24, 1996, the trial court granted the motion to dismiss
The City Assessor began the process of general revision filed by the respondent. The dismissal order was justified by petitioner's
The increase in valuation of real properties compared to the year- failure to exhaust the administrative remedies and that the petition had
1979 market values ranges from 600% to 3,330%. Mrs. Laderas felt become moot and academic when Manila Ordinance No. 7894 was
that the increase may have adverse reactions from the public, hence, repealed by Manila Ordinance No. 7905.
she ended up reducing the increase in the valuation of real The petitioner filed a motion for reconsideration, but it was denied for lack
properties to 1,020%. of merit.
The Council conducted public hearings as required by law. The
proposed ordinance was subjected to the regular process in the ISSUE: DID THE RESPONDENT COURT ERR IN FAILING TO CORRECTLY
enactment of ordinances pursuant to the City Charter of Manila. The APPLY SECTIONS 212 AND 221 OF THE LOCAL GOVERNMENT CODE OF
proposed ordinance with the schedule of fair market values of real 1991?
properties was published
The City Council enacted Manila Ordinance No. 7894, entitled: "An Arguments:
Ordinance Prescribed as the Revised Schedule of Fair Market Values Petitioner contends that the respondent court failed to apply correctly Sections 212
of Real Properties the City of Manila." and 221 of R.A. 7160. The pertinent provisions are set forth below:
With the implementation of Manila Ordinance No. 7894, the tax on Sec. 212.Preparation of Schedule of Fair Market Values —
the land owned by the petitioner was increased by five hundred Before any general revision of property assessment is made
eighty percent (580%). With respect to the improvement on pursuant to the provisions of this Title, there shall be prepared a
petitioner's property, the tax increased by two hundred fifty percent schedule of fair market values by the provincial, city and the
(250%). municipal assessors of the municipalities within the Metropolitan
As a consequence of these increases, petitioner Jaime C. Lopez, Manila Area for the different classes of real property situated in
filed on March 18, 1996, a special proceeding for the declaration of their respective local government units [LGU] for enactment by
nullity of the City of Manila Ordinance No. 7894 with preliminary ordinance of the sanggunian concerned. The schedule of fair
injunction and prayer for temporary restraining order (TRO). market values shall be published in a newspaper of general
o The petition alleged that Manila Ordinance No. 7894 appears to circulation in the province, city or municipality concerned, or in
be "unjust, excessive, oppressive or confiscatory." the absence thereof, shall be posted in the provincial capitol, city
On the same date, Manila Ordinance No. 7905 took effect, reducing or municipal hall and in two other conspicuous public places
by fifty percent (50%) the assessment levels (depending on the use therein.
of property, e.g., residential, commercial) for the computation of tax
due. Sec. 221. Date of Effectivity of Assessment of Reassessment —
As a result, Manila Ordinance No. 7905 reduced the tax increase of All assessments or reassessments made after the first (1st)
petitioner's residential land to one hundred fifty-five percent (155%), day of January of any year shall take effect on the first (1st)
while the tax increase for residential improvement was eighty-two day of January of the succeeding year: Provided, however,

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That the reassessment of real property due to its partial or total It was clear from the records that Mrs. Lourdes Laderas, the incumbent
destruction, or to a major change in its actual use, or to any City Assessor, prepared the fair market values of real properties and in
great and sudden inflation or deflation of real property values, or preparation thereof, she considered the fair market values prepared in the
to the gross illegality of the assessment when made or to any calendar year 1992. Upon that basis, the City Assessor's Office updated
other abnormal causes, shall be made within ninety (90) days the schedule for the year 1995. In fact, the initial schedule of fair market
from the date any such cause or causes occurred, and shall take values of real properties showed an increase in real estate costs, which
effect at the beginning of the quarter next following assessment. rages from 600% — 3,330 % over the values determined in the year 1979.
However, after a careful study on the movement of prices, Mrs. Laderas
The petitioner insists that since it was approved on April 10, 1996, it cannot eventually lowered the average increase to 1,020%. Thereafter, the
be implemented in the year 1996. Using Section 221 of R.A. 7160 as basis for proposed ordinance with the schedule of the fair market values of real
his argument, petitioner claims that the assessments or reassessments properties was published in the Manila Standard on October 28, 1995 and
made after the first (1st) day of January of any year shall take effect on the Balita on November 1, 1995.
first (1st) day of January of the succeeding year. (Hindi naman to sinagotng UNDER THE CIRCUMSTANCES OF THIS CASE, THERE WAS
SC. Nag lay down langang SC ng doctrine kung pano mag-compute and that COMPLIANCE WITH THE REQUIREMENT PROVIDED UNDER SEC.
moot and academic nayung action!!!) 212 OF R.A. 7160.
Coming down to specifics, we find it desirable to lay down the
Contrarily, the trial court viewed that Manila Ordinance No. 7905 affects the procedure in computing the real property tax.
resulting tax imposed on the market values of real properties as specified in Manila With the introduction of assessment levels, tax rates could be maintained,
Ordinance No. 7894. Therefore, this supervening circumstance has rendered the although tax payments can be made either higher or lower depending on
petition, moot and academic, for failure of the petitioner to amend his cause of their percentage (assessment level) applied to the fair market value of
action. property to derive its assessed value which is subject to tax. Moreover,
classes and values of real properties can be given proper consideration,
Based on the evidence presented by the parties, the steps to be like assigning lower assessment levels to residential properties and
followed for the mandatory conduct of General Revision of Real higher levels to properties used in business. THE PROCEDURAL STEPS
Property assessments, pursuant to the provision of Sec. 219, of R.A. IN COMPUTING THE REAL PROPERTY TAX ARE AS FOLLOWS:
No. 7160 are as follows: 1) ASCERTAIN THE ASSESSMENT LEVEL OF THE
1. The preparation of Schedule of Fair Market Values. PROPERTY
2. The enactment of Ordinances: 2) MULTIPLY THE MARKET VALUE BY THE APPLICABLE
a) levying an annual "ad valorem" tax on real ASSESSMENT LEVEL OF THE PROPERTY
property and an additional tax accruing to the SEF. 3) FIND THE TAX RATE WHICH CORRESPONDS TO THE
b) fixing the assessment levels to be applied to the CLASS (USE) OF THE PROPERTY AND MULTIPLY THE
market values of real properties; ASSESSED VALUE BY THE APPLICABLE TAX
c) providing necessary appropriation to defray RATES.
expenses incident to general revision of real For easy reference, the computation of real property tax is cited below:
property assessments; and Market Value P x xx
d) adopting the Schedule of Fair Market Values Multiplied by Assessment Level (x %)
prepared by the assessors. Assessed Value P x xx
Multiplied by Rate of Tax (x %)
The preparation of fair market values as a preliminary step in the Real Property Tax P x x
conduct of general revision was set forth in Section 212 of R.A. 7160, =====
to wit: On April 10, 1996, Manila Ordinance No. 7905 was enacted and
o (1) The city or municipal assessor shall prepare a schedule approved to take effect, retroactively to January 1, 1996. As a result of
of fair market values for the different classes of real this new ordinance, the assessment levels applicable to the market
property situated in their respective Local Government values of real properties were lowered into half.
Units for the enactment of an ordinance by the sanggunian The petitioner insists that since it was approved on April 10, 1996, it
concerned. cannot be implemented in the year 1996. Using Section 221 of R.A. 7160
o (2) The schedule of fair market values shall be published in as basis for his argument, petitioner claims that the assessments or
a newspaper of general circulation in the province, city or reassessments made after the first (1st) day of January of any year shall
municipality concerned or the posting in the provincial take effect on the first (1st) day of January of the succeeding year.
capitol or other places as required by law.
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Contrarily, the trial court viewed that Manila Ordinance No. 7905 affects SUMMARY
the resulting tax imposed on the market values of real properties as Alfredo Tabernilla filed an action for recovery of a parcel of residential land. RTC
specified in Manila Ordinance No. 7894. Therefore, this supervening and CA decided in his favor. Tabuena appealed. Who owns the land?
circumstance has rendered the petition, moot and academic. Tabuena.Tabuena’s   forebears   lived   on   the   land   for   more   than   50   years.  
o A mere cursory reading of his petition that he questioned fair
DamasaTimtiman,   mother   of   Tabuena’s   half-brother, paid RPT in her own name
market values and the assessment levels and the resulting tax
based thereon as imposed by Ordinance No. 7894. The and lived there until she died, when Tabuena took possession of the property. He
petitioner, however, failed to amend his petition. Thus, it is built a house of strong materials on the lot and mortgaged it to a bank and 2
clear that the petition has become moot and academic. As private persons, all of which are acts of ownership. As to the tax declarations, the
correctly stated by the respondent, the facts, viz., the tax rates SC said: While it is true that by themselves tax receipts and declarations of
on level prescribed by Ordinance 7894 upon which the petition ownership for taxation purposes are not incontrovertible evidence of
was anchored no longer exist because the tax rates in
ownership they become strong evidence of ownership acquired by
Ordinance No. 7894 have been amended, otherwise, impliedly
repealed by Ordinance No. 7905. If only for this, the petition prescription when accompanied by proof of actual possession of the
could be dismissed but this court followed the advice of the property. It is only where payment of taxes is accompanied by actual
Supreme Court in the case of National Housing Authority vs. possession of the land covered by the tax declaration that such
Court of Appeals, et. al. (121 SCRA 777) that the case may be circumstance may be material in supporting a claim of ownership. Here, the
decided in its totality resolving all interlocking issues in order to tax declarations and receipts corresponding to the RPT payments made by
render justice to all concerned and end litigation once and for all. Damasa, in addition to the actual possession of the property for >50 years, prove
Although, we are in full accord with the ruling of the trial court, it is
the ownership of Damasa and, consequently, Tabuena.
likewise necessary to stress that Manila Ordinance No. 7905 is
favorable to the taxpayers when it specifically states that the
reduced assessment levels shall be applied retroactively to January 1, FACTS
1996. The reduced assessment levels multiplied by the schedule of fair The subject of the dispute is a parcel of residential land consisting of
market values of real properties, provided by Manila Ordinance No. 7894, about 440 square meters and situated in Poblacion, Makato, Aklan.
resulted to decrease in taxes. To that extent, the ordinance is likewise, 1973 an action for recovery of ownership thereof was filed in the RTC
a social legislation intended to soften the impact of the tremendous of Aklan by the estate of Alfredo Tabernilla against Tabuena
increase in the value of the real properties subject to tax. The lower
taxes will ease, in part, the economic predicament of the low and o After trial, judgment was rendered in favor of Alfredo Tabernilla
middle-income groups of taxpayers. In enacting this ordinance, the and Tabuena was required to vacate the disputed lot.
due process of law was considered by the City of Manila so that the Findings of the trial court:
increase in realty tax will not amount to the confiscation of the o The lot was sold by Juan Peralta, Jr. sometime in 1926 to
property. Alfredo Tabernilla while the two were in the United States.
o Alfredo returned to the Philippines in 1934, and
WHEREFORE, the instant petition is hereby DENIED, and the assailed Order of
DamasaTimtiman,  acting  upon  her  son  Juan  Peralta’s  instruction,  
Regional Trial Court of Manila, Branch 39 in Civil Case No. 96-77510 is hereby
AFFIRMED. COSTS against the petitioner. conveyed the subject land to Alfredo
SO ORDERED. o At the same time, she requested that she be allowed to stay
thereon as she had been living there all her life.
o Alredo agreed provided she paid the realty taxes on the property,
which she promised to do, and did.
o She remained on the said land until her death, following which
02. Tabuena v. CA (RS) Tabuena, her son and half-brother of Juan Peralta, Jr., took
G.R. No. 85423 | May 6, 1991 | Cruz, J possession thereof.
o The complaint was filed when demand was made upon Tabuena
Petitioner: Jose Tabuena (Tabuena) to surrender the property and he refused, claiming it as his own.
Respondent: CA and Emiliano Tabernilla (Emiliano) The trial   court   rejected   Tabuena’s   defense that he was the absolute
owner of the lot, which he inherited from his parents, who acquired it even

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before World War II and had been living thereon since then and until they o EXC: In the absence of objection, and as a matter of
died. convenience to all parties, a court may properly treat all or any
o Also rejected was his contention that the subject of the sale part of the original record of a case filed in its archives as read
between Peralta and Alfredo was a different piece of land into the record of a case pending before it, when, with the
planted to coconut trees and bounded on three sides by the knowledge of the opposing party, reference is made to it for that
Makato River. purpose, by name and number or in some other manner by
Tabuena appealed before the CA which it is sufficiently designated; or when the original record of
o RTC took cognizance of Exhibits A-C, which were never formally the former case or any part of it, is actually withdrawn from the
offered in evidence archives by the court's direction, at the request or with the
o RTC erred when, to resolve the ownership of the subject lot, it consent of the parties, and admitted as a part of the record of the
considered the proceedings in another case involving the same case then pending.
parties but a different parcel of land. Exception is applicable only when, "in the absence of objection," "with the
CA – sustained the RTC knowledge of the opposing party," or "at the request or with the consent of
the parties," the case is clearly referred to or "the original or part of the
ISSUE: Who owns the subject parcel of land? TABUENA. records of the case are actually withdrawn from the archives" and
"admitted as part of the record of the case then pending."
HELD: Petition granted. CA decision set aside. o These conditions have not been established here.
o On the contrary, the Tabuena was completely unaware that his
RATIO testimony in Civil Case No. 1327 was being considered by the
trial court in the case then pending before it.
ON EVIDENCE o As Tabuena puts it, the matter was never taken up at the trial
Exhibits A-C were never formally offered in evidence. Consequently, and was "unfairly sprung" upon him, leaving him no opportunity
RTC’s  and  CA’s  decision  to  consider  them  violated  §35  of  Rule  132  of  the   to counteract.
Rules of Court. SC: trial court should have dismissed the case against Tabuena since
Lower courts should have instead  considered  Exhibits  X  and  T,  Alfredo’s   there was no proof that the subject lot was the same one that Peralta sold
will and order of probate, respectively. to Alfredo.
The mere fact that a particular document is marked as an exhibit does not GR: Tax declarations are not conclusive evidence of ownership.
mean it has thereby already been offered as part of the evidence of a o EXC: Prescription accompanied by evidence of actual
party. possession.
People vs. Napat-a: even if there be no formal offer of an exhibit, it may o In the case at bar, it is not even disputed that the Tabuena and
still be admitted against the adverse party if, first, it has been duly his predecessors-in-interest have possessed the disputed
identified by testimony duly recorded and, second, it has itself been property since even before World War II.
incorporated in the records of the case. In light of this uncontroverted fact, the tax declarations
o But we do not find that these requirements have been satisfied in in their name become weighty and compelling evidence
the case before us. of the petitioner's ownership.
Court held in a case (DOCTRINE ALERT ALERT ALERT!):
JUDICIAL NOTICE OF A PRIOR CASE CONNECTED TO THE PRESENT ONE o While it is true that by themselves tax receipts and declarations
GR: Courts are not authorized to take judicial notice, in the adjudication of of ownership for taxation purposes are not incontrovertible
cases pending before them, of the contents of the records of other cases, evidence of ownershipthey become strong evidence of
even when such cases have been tried or are pending in the same court, ownership acquired by prescription when accompanied by
and notwithstanding the fact that both cases may have been heard or are proof of actual possession of the property.
actually pending b before the same judge. o It is only where payment of taxes is accompanied by actual
possession of the land covered by the tax declaration that

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such circumstance may be material in supporting a claim of


ownership.
o The tax receipts accompanied by actual and continuous
possession of the subject parcels of land by the respondents and
their parents before them for more than 30 years qualify them to
register title to the said subject parcels of land.
DamasaTimtiman paid real property taxes (RPT) in her name, not
Alfredo’s.  If  Alfredo  Tabernilla indeed bought the land, he should have at
least required the RPT to be paid in his name.
o Trial court justified this by saying that Alfredo was unconcerned
with the property, being a bachelor and fond only of the three
dogs he had bought from America. SC: Sus!
o SC: If he were really that unconcerned, it is curious that he
should have acquired the property in the first place, even
as dacion(dathionhehe) en pago.
o He would have demanded another form of payment if he did not
have the intention at all of living on the land.
o On the other hand, if he were really interested in the property, he
should have had it declared in his name when the RPT thereon
were paid by DamasaTimtiman, or he should have objected
when the payments were made in her own name.
Indications that Tabuena and DamasaTimtiman were the owners:
o Damasa and her forebears had been in possession of it for more
than 50 years.
o She paid RPT in her own name
o Tabuena built a house of strong materials on the lot
o Tabuena mortgaged the lot to the Dev’t  Bank  of  the  Phils  and  2  
other private lenders, who acknowledged him as owner.
SC defers to the factual findings of lower courts, except when findings do
not conform to the evidence on record, etc. This case falls under the
exception.

Page 10 of 10
TAXATION LAW 2 3.) Forum shopping exists when, as a result of an adverse judgment in one forum, a party
seeks another and possibly favorable judgment in another forum other than by appeal or
DIGESTS AND PROVISIONS COMPILATION special civil action or certiorari. FELS and NPC are found here with forum shopping.
4.) The barges are real property subject to real property taxes. As found by the appellate
court, the CBAA and LBAA power barges are real property and are thus subject to real property
G. Real Property Taxation tax. This is also the inevitable conclusion, considering that G.R. No. 165113 was dismissed for
failure to sufficiently show any reversible error. Tax assessments by tax examiners are
presumed correct and made in good faith, with the taxpayer having the burden of proving
G.5. Exemption from Real Property Tax otherwise.

Facts: (Nota bene: I omitted the lengthy detailed narration of the filing, appealing and
01. Fels v. Batangas (HV) moving for reconsideration from the Provincial Assessor, LBAA, CBAA and in the CA.
Topic: Exemption from Real property tax It can be summarized in one sentence)
Relevant Laws/ BIR Issuances: Sec 226 and 234 LCG •  On  January  18,  1993,  NPC entered into a lease contract with Polar Energy, Inc.
over 3x30 MW diesel engine power barges moored at Balayan Bay in Calaca,
G.R. No. 168557 February 16, 2007 X G.R. No. 170628 February 16, 2007 Batangas. The contract, denominated as an Energy Conversion Agreement for
a term of five years with NPC responsible for the payment of the following:
Petitioners: Fels Energy, Inc. and NPC (a) all taxes, import duties, fees, charges and other levies imposed to which POLAR
Respondents: THE PROVINCE OF BATANGAS and THE OFFICE OF THE may be or become subject to or in relation to the performance of their obligations
PROVINCIAL ASSESSOR OF BATANGAS (LOCAL BOARD OF ASSESSMENT under this agreement (other than (i) taxes imposed or calculated on the basis of the
APPEALS OF BATANGAS, LAURO C. ANDAYA, in his capacity as the Assessor of net income of POLAR and Personal Income Taxes of its employees and (ii)
the Province of Batangas, and the PROVINCE OF BATANGAS represented by its construction permit fees, environmental permit fees and other similar fees and
Provincial Assessor) charges) and (b) all real estate taxes and assessments, rates and other charges in
respect of the Power Barges.
Summary: •Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to
NPC entered into a lease contract with POLAR Energy over 3x30 MW diesel engine power
FELS. The NPC initially opposed the assignment of rights
barges moored at Balayan Bay in Calaca, Batangas for an Energy Conversion Agreement.
•On  August  7,  1995,  FELS received an assessment of real property taxes on the
Under the agreement NPC will pay the taxes. Subsequently POLAR assigned its rights to FELS.
The Provincial Assessor demanded for real property taxes from FELS. FELS referred the matter power barges from Provincial Assessor Lauro C. Andaya of Batangas City. The
to NPC and granted the full power and authority to represent it in any conference regarding the assessed tax, which likewise covered those due for 1994, amounted to
real   property   assessment   of   the   Provincial   Assessor.   The   Provincial   Assessor’s   Decision   P56,184,088.40 per annum. FELS referred the matter to NPC, reminding it of its
remained and NPC appealed to LBAA. The LBAA also pointed out that the owner of the obligation under the Agreement to pay all real estate taxes. It then gave NPC the
barges–FELS, a private corporation–is the one being taxed, not NPC and sided with the full power and authority to represent it in any conference regarding the real
Provincial Assessor. Appeal is made to CBAA which then decided in favor of NPC but reversed property assessment of the Provincial Assessor.
upon the motion for reconsideration of the Provincial Assessor. The PBAA finally decided that
•  NPC   sought   reconsideration   of   the   Provincial   Assessor’s   decision to assess
the barges are real property subject to the tax. The CA denied the appeals of FELS and NPC.
real property taxes on the power barges. However, the motion was denied on
The SC consolidated the cases due to the same factual antecedents. SC AFFIRMED THE CA
and established the following case doctrine: September 22, 1995, and the Provincial Assessor advised NPC to pay the
1.) The last action of the local assessor on a particular assessment shall be the notice of assessment.
assessment; it is this last action which gives the owner of the property the right to appeal to the •  Local Board of Assessment Appeals (LBAA) decided that the barges are subject
LBAA  (the  LBAA  acted  correctly  when  it  dismissed  the  petitioners’  appeal  for  having  been  filed to real property taxes.
out of time; the CBAA and the appellate court were likewise correct in affirming the dismissal). •  On  appeal  with  Central Board of Assessment Appeals (CBAA), the decision was
2.) Res judicata pervades every organized system of jurisprudence and is founded upon two reversed but upon of the Provincial Assessor, it now affirmed LBAA
grounds embodied in various maxims of common law, namely: (1) public policy and necessity,
•  CA  also  decided  in  favor  of  the  Provincial  Assessor.
which makes it to the interest of the
State that there should be an end to litigation – republicae ut sit litium; and (2) the hardship on
•  Since  there  is  similarity  in  the  factual  antecedents  the  SC  consolidated  the  case.
the individual of being vexed twice for the same cause – nemo debet bis vexari et eadem causa.
An existing final judgment or decree – rendered upon the merits, without fraud or Issues:
collusion, by a court of competent jurisdiction acting upon a matter within its authority –
is conclusive on the rights of the parties and their privies.
TAX 2 DIGESTS – ATTY. MONTERO Rest of RPT / Customs
(1) Whether power barges, which are floating and movable, are personal properties The remedy of appeal to the LBAA is available from an adverse ruling or action of the
and therefore, not subject to real property tax. NO, still subject to real property provincial, city or municipal assessor in the assessment of the property. It follows
taxes then that the determination made by the respondent Provincial Assessor with regard
(2) Assuming that the subject power barges are real properties, whether they are to the taxability of the subject real properties falls within its power to assess
exempt from real estate tax under Section 234 of the Local Government Code properties for taxation purposes subject to appeal before the LBAA. The last action
("LGC"). NO, not exempt from real estate taxes of the local assessor on a particular assessment shall be the notice of
(3) Assuming arguendo that the subject power barges are subject to real estate tax, assessment; it is this last action which gives the owner of the property the
whether or not it should be NPC which should be made to pay the same under the right to appeal to the LBAA. The procedure likewise does not permit the
law. property owner the remedy of filing a motion for reconsideration before the
(4) Assuming arguendo that the subject power barges are real properties, whether or local assessor.
not the same is subject to depreciation just like any other personal properties. Not Whenever the local assessor sends a notice to the owner or lawful
anymore mentioned in the case possessor of real property of its revised assessed value, the former shall no
(5) Whether the right of the petitioner to question the patently null and void real longer have any jurisdiction to entertain any request for a review or
property  tax  assessment  on  the  petitioner’s  personal  properties  is  imprescriptible  – if readjustment. The appropriate forum where the aggrieved party may bring his
CA erred to rule that the appeal to LBAA is filed out of time (Did NPC and FELS appeal is the LBAA as provided by law. It follows ineluctably that the 60-day
become barred by Res Judicata and guilty of forum shopping to question the period for making the appeal to the LBAA runs without interruption. The
assessments?). YES See ratio taxpayer’s   failure   to   question   the   assessment   in   the   LBAA   renders   the  
assessment of the local assessor final, executory and demandable, thus,
Held: precluding the taxpayer from questioning the correctness of the assessment,
•  Petition  FELS  and  NPC  DENIED or from invoking any defense that would reopen the question of its liability on
•  Decision  of  Provincial  Assessor,  LBAA  and  CBAA  AFFIRMED the merits.
In   fine,   the   LBAA   acted   correctly   when   it   dismissed   the   petitioners’   appeal   for  
Ratio: having been filed out of time; the CBAA and the appellate court were likewise correct
(1-4) As found by the appellate court, the CBAA and LBAA power barges are in affirming the dismissal. Elementary is the rule that the perfection of an appeal
real property and are thus subject to real property tax. This is also the within the period therefor is both mandatory and jurisdictional, and failure in this
inevitable conclusion, considering that G.R. No. 165113 was dismissed for regard renders the decision final and executor.
failure to sufficiently show any reversible error. Tax assessments by tax RES JUDICATA MUST BE APPLIED HERE.
examiners are presumed correct and made in good faith, with the taxpayer It is founded upon two grounds embodied in various maxims of common law, namely:
having the burden of proving otherwise. (1) public policy and necessity, which makes it to the interest of the State that there
Besides, factual findings of administrative bodies, which have acquired expertise in should be an end to litigation – republicae ut sit litium; and
their field, are generally binding and conclusive upon the Court; we will not assume to (2) the hardship on the individual of being vexed twice for the same cause – nemo
interfere with the sensible exercise of the judgment of men especially trained in debet bis vexari et eadem causa.
appraising property. Where the judicial mind is left in doubt, it is a sound policy to An existing final judgment or decree – rendered upon the merits, without fraud or
leave the assessment undisturbed. collusion, by a court of competent jurisdiction acting upon a matter within its authority
– is conclusive on the rights of the parties and their privies.
(5) If you are not satisfied with this assessment, you may, within sixty (60) days from Res Judicata has the elements:
the date of receipt hereof, appeal to the Board of Assessment Appeals of the (1) the former judgment must be final;
province by filing a petition under oath on the form prescribed for the purpose, (2) the court which rendered it had jurisdiction over the subject matter and
together with copies of ARP/Tax Declaration and such affidavits or documents the parties;
submitted in support of the appeal. (3) the judgment must be on the merits; and
Instead of appealing to the Board of Assessment Appeals (as stated in the notice), (4) there must be between the first and the second actions, identity of
NPC  opted  to  file  a  motion  for  reconsideration  of  the  Provincial  Assessor’s  decision,   parties, subject matter and causes of action.
a remedy not sanctioned by law. The application of the doctrine of res judicata does not require absolute
identity of parties but merely substantial identity of parties. There is

Page 2 of 32
TAX 2 DIGESTS – ATTY. MONTERO Rest of RPT / Customs
substantial identity of parties when there is community of interest or privity of the airport lands and buildings are exempt from RPT. The SC ruled for MIAA and held that (1)
interest between a party in the first and a party in the second case even if the MIAA is not a government-owned or controlled corporation but an instrumentality of the National
first case did not implead the latter. Government and thus exempt from local taxation and (2) The real properties of MIAA
are owned by the Republic of the Philippines and thus exempt from real estate tax, pursuant
To recall, FELS gave NPC the full power and authority to represent it in any
to Sec. 234 of the LGC.
proceeding regarding real property assessment. Therefore, when petitioner NPC filed
its petition for review docketed as G.R. No. 165113, it did so not only on its behalf but
FACTS:
also on behalf of FELS.
Executive Order No. 903 the Revised MIAA Charter:
The rationale against forum shopping is that a party should not be allowed to
o Transferred to MIAA approximately 600 hectares of land, including
pursue simultaneous remedies in two different fora. Filing multiple petitions or
the runways and buildings then under the Bureau of Air
complaints constitutes abuse of court processes, which tends to degrade the
Transportation
administration of justice, wreaks havoc upon orderly judicial procedure, and
o provides that no portion of the land transferred to MIAA shall be
adds to the congestion of the heavily burdened dockets of the courts.
disposed of through sale or any other mode unless specifically
there is forum shopping when there exist:
approved by the President of the Philippines
(a) identity of parties, or at least such parties as represent the same
March 21, 1997: Office of the Government Corporate Counsel (OGCC)
interests in both actions,
issued Opinion No. 061 which said that the LGC withdrew the exemption
(b) identity of rights asserted and relief prayed for, the relief being founded
from real estate tax granted to MIAA under Sec. 21 of the MIAA Charter.
on the same facts, and
Thus, MIAA negotiated with City of Parañaque to pay the real estate tax
(c) the identity of the two preceding particulars is such that any judgment
imposed by the City. MIAA then paid some of the real estate tax already due.
rendered in the pending case, regardless of which party is successful, would amount
to res judicata in the other. June 28, 2001: MIAA received final notices of real estate tax
Having found that the elements of res judicata and forum shopping are present delinquency from the City for the taxable years 1992 to 2001.
in the consolidated cases, a discussion of the other issues is no longer July 17, 2001: The City, through its City Treasurer, issued notices of levy
necessary. Nevertheless, for the peace and contentment of petitioners, we and warrants of levy on the Airport Lands and Buildings.
shall shed light on the merits of the case. City Mayor threatened to sell at public auction the Airport Lands and
Buildings should MIAA fail to pay the real estate tax delinquency.

October 1, 2001: MIAA filed with the CA an original petition for


02. MIA v. Paranaque (HQ) prohibition and injunction, with prayer for preliminary injunction or
*PROPERTY DIGEST temporary restraining order to restrain the City of Parañaque from
Topic: Exemption from RPT – Properties owned by the State imposing real estate tax on, levying against, and auctioning for public
Relevant Provision: Sec. 234, LGC sale the Airport Lands and Buildings.
o CA dismissed the petition because MIAA filed it beyond the 60-day
G.R. No. 155650 reglementary period.
July 20, 2006 o CA also denied on MIAA's motion for reconsideration and
Petitioner: MANILA INTERNATIONAL AIRPORT AUTHORITY (MIAA) supplemental motion for reconsideration. Hence, the present
Respondents: COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF petition for review.
PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY January 2003: City of Parañaque posted notices of auction sale of the
ASSESSOR OF PARAÑAQUE, and CITY TREASURER OF PARAÑAQUE Airport Lands and Buildings to the highest bidder.
Carpio, J.
MIAA’s  arguments:
SUMMARY: o MIAA admits that the MIAA Charter has placed the title to the
Due to the OGCC opinion which said that Local Government Code withdrew the real estate tax Airport Lands and Buildings in the name of MIAA but it cannot
exemption granted to MIAA, the City of Parañaque sent notices of realty tax due to MIAA claim ownership over these properties since the real owner is
which the latter did not pay. The City of Parañaque threatened to sell the airport lands and the Republic of the Philippines.
buildings under MIAA in a public auction should MIAA fail to tax delinquency. The issue is w/n
Page 3 of 32
TAX 2 DIGESTS – ATTY. MONTERO Rest of RPT / Customs
o Airport Lands and Buildings are devoted to public use and public o Many government instrumentalities are vested with corporate powers but
service they do not become stock or non-stock corporations, which is a necessary
o Since the Airport Lands and Buildings are owned by the State, condition before an agency or instrumentality is deemed a government-
owned or controlled corporation. (Ex. MIAA, the Philippine Ports Authority,
these are inalienable and are not subject to real estate tax by
the University of the Philippines and Bangko Sentral ng Pilipinas)
local governments.
o Sec. 21 of the MIAA Charter specifically exempts MIAA from
There is also no reason for local governments to tax national government
the payment of real estate tax. MIAA insists that it is also exempt
instrumentalities for rendering essential public services to inhabitants of local
from real estate tax under Section 234 of the LGC because the governments.
Airport Lands and Buildings are owned by the Republic. o Exception: When the legislature clearly intended to tax government
o MIAA invokes the principle that the government cannot tax itself, instrumentalities for the delivery of essential public services for sound and
since in such a case the tax debtor is also the tax creditor. compelling policy considerations.

City  of  Parañaque’s  arguments: THE REAL PROPERTIES OF MIAA ARE OWNED BY THE REPUBLIC OF THE
o Invoked Sec. 193 of the LGC, which expressly withdrew the tax PHILIPPINES AND THUS EXEMPT FROM REAL ESTATE TAX.
exemption privileges of "government-owned and-controlled
corporations" upon the effectivity of the LGC Airport Lands and Buildings are of Public Dominion.
o Mactan International Airport v. Marcos – held that the LGC has The Airport Lands and Buildings of MIAA are property of public dominion
withdrawn the exemption from real estate tax granted to and therefore owned by the State..
international airports. The Airport Lands and Buildings are devoted to public use because
o MIAA has already paid some of the real estate tax assessments, it they are used by the public for international and domestic travel and
is now estopped from claiming that the Airport Lands and transportation.
Buildings are exempt from real estate tax. The charging of fees to the public does not determine the character of
the property whether it is of public dominion or not.
ISSUE: Whether the Airport Lands and Buildings of MIAA are exempt from real Article 420 of the Civil Code defines property of public dominion as one
estate tax under existing laws? YES "intended for public use."

HELD: Petition  GRANTED.  CA’s  decision  SET  ASIDE. Even if the government collects toll fees, the road is still "intended for
Airport Lands and Buildings of the MIAA are EXEMPT from the real estate public use" if anyone can use the road under the same terms and
tax imposed by the City of Parañaque. conditions as the rest of the public.
All the real estate tax assessments, including the final notices of real The charging of fees, the limitation on the kind of vehicles that can use the
estate tax delinquencies, issued by the City of Parañaque on the Airport road, the speed restrictions and other conditions for the use of the road do
Lands and Buildings of the MIAA, except for the portions that the MIAA has not affect the public character of the road or its character as property for
leased to private parties, are VOID. public use.
The assailed auction sale, and all its effects, of the Airport Lands and The terminal fees MIAA charges to passengers, as well as the landing fees
Buildings of the Manila International Airport Authority are VOID. MIAA charges to airlines, constitute the bulk of the income that maintains
the operations of MIAA.
RATIO: (again) The collection of such fees does not change the character of
MIAA IS NOT A GOCC BUT AN INSTRUMENTALITY OF THE NATIONAL MIAA as an airport for public use. Such fees are often termed user's tax.
GOVERNMENT – EXEMPT FROM LOCAL TAXATION. This means taxing those among the public who actually use a public facility
A government-owned or controlled corporation must be "organized as a stock or non- instead of taxing all the public including those who never use the particular
stock corporation." MIAA is not organized as a stock or non-stock corporation. public facility.
MIAA is like any other government instrumentality, the only difference is that MIAA is
vested with corporate powers. REAL PROPERTY OWNED BY THE REPUBLIC IS NOT TAXABLE
Section 234(a) of the LGC states:
Page 4 of 32
TAX 2 DIGESTS – ATTY. MONTERO Rest of RPT / Customs
delinquency on the leased portions of the IFPC, the latter or any part thereof, being a property
“SEC. 234. Exemptions from Real Property Tax. — The following are of public domain, cannot be sold at public auction.
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its FACTS:
political subdivisions except when the beneficial use thereof has been P. Marcos created the Philippine Fisheries Development Authority (PFDA)
granted,  for  consideration  or  otherwise,  to  a  taxable  person…” and placed it under the direct control and supervision of the Secretary of
Natural Resources. Upon effectivity of the Admin Code, the PFDA became
MIAA as a government instrumentality is not a taxable person because an attached agency of the Dept. of Agriculture.
it is not subject to "taxes, fees or charges of any kind" by local governments. The Ministry of Public Works and Highways reclaimed from the sea a 21-
The only exception is when MIAA leases its real property to a "taxable hectare parcel of land in Tanza, Iloilo City, and constructed the Iloilo Fishing
person", in which case the specific real property leased becomes subject to Port Complex (IFPC).
real estate tax. Upon its completion, the Ministry turned over IFPC to PFDA.
Thus, only portions of the Airport Lands and Buildings leased to taxable Notwithstanding said turn over, title to the land and buildings of the IFPC
persons like private parties are subject to real estate tax by the City of remained with the Republic.
Parañaque. PFDA thereafter leased portions of IFPC to private firms and individuals
engaged in fishing related business.
Dissent by Justice Tinga Iloilo City assessed the entire IFPC for real property taxes. The
MIAA should be charged for realty taxes – based on the autonomous power of LGU assessment remained unpaid until alleged total tax deficiency is around 5M,
to tax (local autonomy) inclusive of penalties and interests. To satisfy tax delinquency, Iloilo
o He argues that MIAA is a GOCC, hence should be taxed. scheduled the sale at public auction of the IFPC.
MIAA property is patrimonial and not part of public dominion – citing Sec. 3 and 22 of
PFDA filed for injunction. During pre-trial, parties agreed that PFDA will file
the Revised MIAA charter which he says is an express transfer of ownership between
the MIAA and the national government. a claim for tax exemption with the   Iloilo   City   Assessor’s   Office.   The   latter  
denied the claim thus, PFDA elevated the case to the DOF.
DOF: PFDA is liable to pay real property taxes to Iloilo City because it
enjoys the beneficial use of the IFPC. However, the property that is owned
by PFDA shall be auctioned and not IFPC, which is the property of the
03. Phil. Fisheries v. CA (KF) Republic.
July 31, 2007 PFDA filed a petition before the OP but it was denied. It thereafter filed a
Ynares-Santiago, J petition with the CA which ruled that IFPC may be sold at public auction to
satisfy the tax delinquency.
Topic: Exemption from Real Property Taxes
Petitioner: Philippine Fisheries Development Authority ISSUE: WON PFDA is liable to pay the real property tax to Iloilo City, if yes, won
Respondents: Court of Appeals, Office of The President, Department of Finance IFPC can be sold at public auction to satisfy tax delinquency – 1. Liable only to
and The City of Iloilo portions leased to private entities; 2.IFPC CANNOT be sold at public auction

Summary: PFDA was created and placed under direct control and supervision of the HELD: Petition granted. The real property tax assessments issued by the City Iloilo
Secretary of Natural Resources. Thereafter, it became an attached agency of the Dept. of on the land and buildings of the Iloilo Fishing Port Complex, is declared VOID except
Agriculture. Ministry of Public Works and Highways reclaimed from sea a 21-hectare land and those pertaining to the portions leased to private parties. The City of Iloilo is
constructed the IFPC. Upon its completion, the Ministry turned over IFPC to PFDA, but title DIRECTED to refrain from levying on the Iloilo Fishing Port Complex to satisfy the
remained with the Republic. Iloilo assessed the entire IFPC for real property taxes. ISSUE:
payment of the real property tax delinquency.
WON PFDA is liable to pay real prop taxes and WON IFPC can be sold at public auction to
satisfy the tax delinquency. HELD: PFDA is an instrumentality of the national government,
hence, it is liable to pay real property taxes assessed by the City of Iloilo on the IFPC only with RATIO:
respect to those portions which are leased to private entities. Notwithstanding said tax PFDA is not a GOCC but an instrumentality of the government. It has a
capital stock but it is not divided into shares of stocks. It has no stockholders

Page 5 of 32
TAX 2 DIGESTS – ATTY. MONTERO Rest of RPT / Customs
or voting shares. Hence, it is not a stock corporation. Neither it is a non- Davide, Jr., J.
stock corporation because it has no members. Facts
PFDA is actually a national government instrumentality which is defined RA 6958 created MCIAA
as an agency of the national government, not integrated within the o mandated to—“(sec.  3)  principally  undertake  the  economical,  efficient  
department framework, vested with special functions or jurisdiction by law, and effective control, management and supervision of the Mactan
endowed with some if not all corporate powers, administering special funds, International   Airport   and  Lahug   Airport…,   x   x   x   and   other   airports  
and enjoying operational autonomy, usually through a charter. When the law as may be established in the Province of Cebu
vests in a government instrumentality corporate powers, the instrumentality o sec. 14—exempts it from all taxes imposed by the government
does not become a corporation. Unless the government instrumentality is However, Cebu treasurer demanded collection of property taxes from
organized as a stock or non-stock corporation, it remains a government MCIAA on several of its parcels of land
instrumentality exercising not only governmental but also corporate powers. MCIAA opposed because RA 6958 exempts it and being a government
GR: Instrumentalities of the national government are exempt from local instrumentality   performing   governmental   functions,   the   Local   Gov’t   Code  
1
taxes pursuant to Section 133(o) of the Local Government Code. (LGC) 191 sec. 133 prevents Cebu from taxing it
2
o E: Applying Section 234(a) of the LGC, the Court ruled that when
an instrumentality of the national government grants to a SEC. 133. Common Limitations on the Taxing Power of Local Government Units.—
taxable person the beneficial use of a real property owned by Unless otherwise provided herein, the exercise of the taxing powers of provinces,
the Republic, said instrumentality becomes liable to pay real cities, municipalities, and barangays shall not extend to the levy of the following:
property tax. xxx
In this case, the portions of the IFPC which the PFDA leased to private 8. TAXES, FEES OR CHARGES OF ANY KIND ON THE NATIONAL
entities are not exempt from tax. Thus, PFDA is liable to pay real property GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES, AND LOCAL
tax with respect to these properties. GOVERNMENT UNITS.
In case the PFDA fails to pay the real property taxes due thereon, said
portions cannot be sold at public auction to satisfy the tax delinquency Cebu opposed because MCIAA is a government controlled corporation
reclaimed lands are lands of the public domain and cannot, without performing proprietary functions whose tax exemption privileges have been
Congressional fiat, be subject of a sale, public or private (Chavez v. Public withdrawn by sec. 193 and 234 of the same LGC
Estates Authority). In the same vein, the port built by the State in the Iloilo
fishing complex is a property of the public dominion and cannot therefore LGC, Section 193. Withdrawal of Tax Exemption Privilege.—Unless
be sold at public auction. otherwise provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives duly
registered under RA No. 6938, non-stock and nonprofit hospitals and educational
04. Mactan Cebu v. Marcos (MR) institutions, are hereby withdrawn upon the effectivity of this Code. (italics supplied)
G.R. No. 120082 xxx

September 11, 1996 Section 234. Exemptions from Real Property Taxes.—x x x (a) x x x
xxx (e) x x x
1
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless Except as provided herein, any exemption from payment of real property tax
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
previously granted to, or presently enjoyed by all persons, whether natural or juridical,
barangays shall NOT extend to the levy of the following:
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities,
including government-owned or controlled corporations are hereby withdrawn upon
and local government units. the effectivity of this Code.

2
SEC. 234. Exemptions from Real Property Tax – The following are exempted from payment of the real MCIAA paid the taxes under protest and filed a complaint for declaratory
property tax: relief. RTC dismissed. MR denied. Thus, this petition for review on certiorari.
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable Issue: WON MCIAA is liable to pay real property taxes to Cebu—YES
person.
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has  been  granted,  for  consideration  or  otherwise,  to  a  taxable  person,”  as  provided  in  
Ratio item (a) of the first paragraph of Section 234.
According to MCIAA, since it was created to perform governmental
functions primarily to promote certain aspects of economic life, it stands on As to tax exemptions or incentives granted to or presently enjoyed by natural or
equal footing as an instrumentality. juridical persons, including government-owned and controlled corporations, Section
o Local governments cannot tax government instrumentalities (Sec. 193 of the LGC prescribes the general rule that they are withdrawn, except those
133 LGC); otherwise, its operation might be burdened, impeded or provided in LGC. The latter proviso could refer to Section 234, which enumerates the
control by a mere local government (Basco v. PAGCOR). This properties exempt from real property tax. But the last paragraph of Section 234
doctrine emanates from the supremacy of the national government further qualifies the retention of the exemption insofar as real property taxes are
over local governments concerned by limiting the retention only to those enumerated therein. Moreover, even
o So the court should distinguish between government corporations as to real property owned by the Republic of the Philippines or any of its political
performing governmental functions (exempt as instrumentality) from subdivisions covered by item (a) of the first paragraph of Section 234, the exemption
those performing proprietary functions (not exempt) is withdrawn if the beneficial use of such property has been granted to a taxable
First of all, Basco v. PAGCOR was decided prior to enactment of LGC so person for consideration or otherwise.
petitioner cannot rely on that case
According to Cebu, sec. 234 of the LGC, in withdrawing property tax Since the last paragraph of Section 234 unequivocally withdrew, upon the
exemptions, did not distinguish between government corporations effectivity of the LGC, exemptions from payment of real property taxes granted
performing governmental or proprietary functions. Neither should the court. to natural or juridical persons, including government-owned or controlled
Court  starts  with  some  tax  doctrines  you’re  now  sick  of corporations, except as provided in the said section, and the petitioner is,
o Tax is an incident of sovereignty, but it is not unlimited (must uniform, undoubtedly, a government-owned corporation, it necessarily follows that its
equitable, etc.) exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958,
o Power to tax involves power to destroy—disrupts property rights in has been withdrawn. Any claim to the contrary can only be justified if the petitioner
favor of the government so tax statutes must be construed strictly can seek refuge under any of the exceptions provided in Section 234, but not under
against the taxing authority Section 133, as it now asserts, since, as shown above, the said section is qualified
o But since taxes are the lifeblood of the state, any exemption must be by Sections 232 and 234.
construed   strictly   against   the   taxpayer   and   it’s   up   to   the   latter   to  
prove that he can claim exemption The justification for this restricted exemption in Section 234(a) seems
o The exemption may also be withdrawn at the pleasure of the taxing obvious: to limit further tax exemption privileges, especially in light of the
authority. The only exception to this rule is where the exemption general provision on withdrawal of tax exemption privileges in Section 193
was granted to private parties based on material consideration of a and the special provision on withdrawal of exemption from payment of real
mutual nature, which then becomes contractual and is thus property taxes in the last paragraph of Section 234. These policy
covered by the non-impairment clause of the Constitution. considerations are consistent with the State policy to ensure autonomy to
Court goes on to analyzing the wordings and absurdities in the text, and local governments and the objective of the LGC that they enjoy genuine and
then came up with this conclusion as to construction: (the point is expressed meaningful local autonomy to enable them to attain their fullest development
in the words in bold, but this is the process through which the SC made that as self- reliant communities and make them effective partners in the
conclusion in case he asks): attainment of national goals.
Reading together Sections 133, 232, and 234 of the LGC: as a general rule, as laid SC says the only hope for exemption for MCIAA now is under The Real
down in Section 133, the taxing powers of local government units cannot extend to Property Tax Code, which reads:
the levy of “taxes,   fees   and   charges   of   any   kind   on   the   National   Government,   its  
agencies   and   instrumentalities,   and   local   government   units;;”   however,   pursuant   to   SEC. 40. Exemptions from Real Property Tax.—The exemption
shall be as follows: 1.(a) Real property owned by the
Section 232, provinces, cities, and municipalities in the Metropolitan Manila Area may
Republic of the Philippines or any of its political
impose the real property  tax   except   on,“real   property   owned   by   the   Republic   of   the  
subdivisions and any government-owned or controlled
Philippines or any of its political subdivisions except when the beneficial use thereof corporation so exempt by its charter: Provided, however,
That this exemption shall not apply to real property of the

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above-mentioned entities the beneficial use of which has GSIS owns or used to own 2 lands, one in Katigbak Street, Manila (Katigbak
been granted, for consideration or otherwise, to a taxable Property) and the other in Concepcion cor. Arroceros Sts, Manila (Con-Arr
person
Property).
o Both the GSIS and MeTC of Manila occupy the Con-Arr Property,
o so the crucial questions are: whether the parcels of land belong to the
while the Katigbak property was under lease with the Manila Hotel
Republic of the Philippines whose beneficial use was granted to
Corporation (MHC).
MCIAA; and whether or not MCIAA is a “taxable  person”
Treasurer of Manila assessed GSIS for unpaid RPT due on the
o according   to   sec.   15   of   MCIAA’s   charter,   the   “transfer”   of   lands   to    
aforementioned properties for years 1992 to 2002. City
MCIAA involved a conveyance of ownership and not just beneficial
Treasurer issued separate Notice of Realty Tax Delinquency for both
ownership. Hence, they are the owners and the sec. 40 exemption
properties with the usual warning of seizure and/or sale on September 16,
cannot apply to them
2002.
o MCIAA   is   also   a   “taxable   person”—it was granted exemption from
GSIS replied, on October 8, 2002, emphasizing its exemption from all kinds
real property tax only, making it taxable for other purposes. Edi
of taxes, including RPT, under RA 8291.
taxable siya diba?
Two days later, GSIS filed a petition for certiorari and prohibition with prayer
for a restraining and injunctive relief before the RTC of Manila.
And finally, even if the legislative wanted to subject instrumentalities and o RTC dismissed GSIS petition and ruled that it is liable.
agencies of the government performing governmental functions to taxes to
fulfill a constitutional mandate or policy, it could. And no one can doubt its Issues:
wisdom. 1. Whether GSIS, under its charter, is exempt from RPT?--YES
2. Assuming it is exempt, whether GSIS is liable for RPT for its properties
leased to taxable entity?--YES
05. GSIS v. Treasurer (RK) 3. Whether properties of GSIS are exempt from levy--YES
G.R. No. 186242
Held: GRANTED; REVERSED and SET ASIDE Manila RTC Order.
December 23, 2009
Velasco, J.:

Ratio:
Summary: GSIS owns two properties in Manila. One of the properties located in Katigbak St.
(Katigbak property) was leased to Manila Hotel Corporation. Manila assessed GSIS for RPT
from 1992 to 2002. GSIS says it is exempt from all taxes and so it filed a petition in the RTC of ISSUE 1: GSIS Exempt from Real Property Tax
Manila which dismissed the case. The issues elevated to the SC are: (1) WON GSIS is exempt
FIRST: GSIS is exempt from all taxes beginning 1997 when RA 8291
from RPT; (2) WON leased property to taxable entities (Katigbak Property) is subject to RPT;
took effect; Also, provision declares all taxes due as paid.
(3) WON properties of GSIS are exempt from levy. SC granted the petition. GSIS enjoys under
its charter full tax exemption. Moreover, as an instrumentality of the national government, it is o Section 33, PD 1146—GSIS enjoyed tax exemption from RPT
itself not liable to pay real estate taxes assessed by the City of Manila against its Katigbak and o LGC—beginning January 1, 1992, the LGC took effect withdrawing
Concepcion-Arroceros properties. Following   the   “beneficial   use”   rule,   however,   accrued   real   tax exemptions given by PD 1146
property taxes are due from the Katigbak property, leased as it is to a taxable entity. But the o RA 8291—restored in 1997 the tax exempt status of GSIS by re-
corresponding liability for the payment thereof devolves on the taxable beneficial user. The
enacting under Section 39 the former section 33 of PD 1146.
Katigbak property cannot in any event be subject of a public auction sale, notwithstanding its
realty tax delinquency. This means that the City of Manila has to satisfy its tax claim by serving
o Thus, it would seem that RPT due manila is only for the interim
the accrued realty tax assessment on MHC, as the taxable beneficial user of the Katigbak period of 1992 to 1996.
property and, in case of nonpayment, through means other than the sale at public auction of the Court said that there is none because section 39 of RA
leased property. 8291  provides  that  :  “any assessment against the GSIS
as of the approval of this Act are hereby considered
Facts: paid.”

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Hence, the RPT assessed and due from GSIS are Topic: Exemption from Real Property Tax
considered paid! Relevant Laws:
SECOND: GSIS is an instrumentality of the Government. (This is not
important, just remember our admin case about Manila International Airport G.R. No. 171586
Authority which this case cited.) January 25, 2010
THIRD:  Properties  under  GSIS’s  name  are  owned  by  the  Republic BRION, J.:
FOURTH: GSIS manages the funds for the life insurance, retirement,
Petitioners: NATIONAL POWER CORPORATION
survivorship,   and   disability   benefits   of   all   gov’t   employees   and   their  
Respondents: PROVINCE OF QUEZON and MUNICIPALITY OF PAGBILAO
beneficiaries.
Summary: Mirant is assessed for real property taxes. Napocor then is the once who protests
ISSUE  2:  Leased  property  subject  to  tax  pursuant  to  “beneficial  use”  doctrine such assessment and claims a real propert tax exemption. Court ruled before than it did not
The foregoing notwithstanding, the leased Katigbak property shall be have the requesite legal standing and therefore dismissed the case. Napocor then files an MR
taxable pursuant to the “beneficial   use”   principle under Sec. 234(a) of the claiming that under ther BOT arrangement, Napocor has interests over the real property of
LGC. Mirant. Court ruled that Legal interest is defined as interest in property or a claim
cognizable at law, equivalent to that of a legal owner who has legal title to the property.
o Section 234 (a)—exempts from real property taxes real property
Given this definition, Napocor is clearly not vested with the requisite interest to protest the tax
owned by the Republic, unless the beneficial use of its property is,
assessment, as it is not an entity having the legal title over the machineries. It has absolutely no
for consideration, transferred to taxable person. solid claim of ownership or even of use and possession of the machineries. Under BOT
o This exemption must be read together with Section 133 (o)— agreements, the private corporations/investors are the owners of the facility or
prohibits   LGU’s   from   imposing   taxes   or   fees   of   any   kind on the machinery concerned. (Basically you cant claim tax exemption for another person, dapat may
national government, its agencies, and instrumentalities legal standing ka)
The tax exemption the property of the Republic or its instrumentalities (like
GSIS) caries ceases only if, as stated in Section 234(a) of the LGC, Facts:
“beneficial  use  thereof  has  been  granted,  for  consideration  or  otherwise,  to   The Province of Quezon assessed Mirant Pagbilao Corporation (Mirant) for
a   taxable   person.”   GSIS,   as   a   government instrumentality, is not taxable unpaid real property taxes in the amount of P1.5 Billion for the machineries
juridical person under Section 133 (o) of LGC. located in its power plant in Pagbilao, Quezon. Napocor, which entered into a
GSIS, however, lost in a sense that status with respect to the Katigbak Build-Operate-Transfer (BOT) Agreement (entitled Energy Conversion
property when it contracted its beneficial use to MHC—a taxable Agreement) with Mirant, was furnished a copy of the tax assessment.
person. Thus, real estate tax assessment covering 1992 to 2002 over Napocor (nota bene, not Mirant) protested the assessment before the Local
subject Katigbak property is valid insofar as said tax delinquency is Board of Assessment Appeals (LBAA), claiming entitlement to the tax
concerned as assessed over said property. exemptions provided under Section 234 of the Local Government Code (LGC),
which states:
As a matter of law and contract, MHC stands liable to pay the RPT due on
Katigbak property.
Section 234. Exemptions from Real Property Tax. – The following are exempted from
payment of the real property tax:
ISSUE 3: GSIS Properties Exempt from Levy
A valid tax levy presupposes a corresponding tax liability. (c) All machineries and equipment that are actually, directly, and exclusively used by
Nonetheless, it will not be remiss to note that it is without doubt that the local water districts and government-owned or –controlled corporations engaged in
the supply and distribution of water and/or generation and transmission of electric
subject GSIS properties are exempt from any attachment, garnishment,
power;
execution, levy, or other legal processes. This is the clear import of the third
paragraph of Sec. 39, RA 8291
(e) Machinery and equipment used for pollution control and environmental protection.

Assuming that it cannot claim the above tax exemptions, Napocor argued that it
06. NPC v. Quezon (KB) is entitled to certain tax privileges, namely:
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a. the lower assessment level of 10% under Section 218(d) of the LGC for the goods until certain conditions have been fulfilled. The right of
government-owned and controlled corporations engaged in the generation and possession or ownership may be thus reserved notwithstanding the
transmission of electric power, instead of the 80% assessment level for delivery of the goods to the buyer or to a carrier or other bailee for the
commercial properties imposed in the assessment letter; and purpose of transmission to the buyer.

b. an allowance for depreciation of the subject machineries under Section 225 of Pursuant   to   this   arrangement,   Mirant’s   ownership   over  the  subject   machineries  
the LGC. is merely a security interest, given only for the purpose of ensuring the
performance  of  Napocor’s  obligations.
Court found that Napocor did not file a valid protest against the realty tax Napocor additionally contends that its contractual assumption liability (through
assessment because it did not possess the requisite legal standing. When a the BOT Agreement) for all taxes vests it with sufficient legal interest because it
taxpayer fails to question the assessment before the LBAA, the assessment is actually, directly, and materially affected by the assessment.
becomes final, executory, and demandable, precluding the taxpayer from
questioning the correctness of the assessment or from invoking any defense that THE  COURT’S  RULING
would reopen the question of its liability on the merits.
Legal interest is defined as interest in property or a claim cognizable at law,
At any rate, even if the Court were to brush aside the issue of legal interest to equivalent to that of a legal owner who has legal title to the property.
protest, Napocor could still not successfully claim exemption under Section 234 Given this definition, Napocor is clearly not vested with the requisite interest to
(c) of the LGC because to be entitled to the exemption under that provision, protest the tax assessment, as it is not an entity having the legal title over the
there must be actual, direct, and exclusive use of machineries. Napocor failed to machineries.
satisfy these requirements. It has absolutely no solid claim of ownership or even of use and possession of
Napocor now files an MR the machineries, as our July 15, 2009 Decision explained.
A BOT agreement is not a mere financing arrangement.
Issues:
whether Napocor has sufficient legal interest to protest the tax assessment because Build-operate-and-transfer – A contractual arrangement whereby the project
without the requisite interest, the tax assessment stands, and no claim of exemption proponent undertakes the construction, including financing, of a given
or privilege can prevail. infrastructure facility, and the operation and maintenance thereof. The project
proponent operates the facility over a fixed term during which it is allowed to
Held: charge facility users appropriate tolls, fees, rentals, and charges not exceeding
WHEREFORE,  we  DENY  the  petitioner’s  motion  for  reconsideration. those proposed in its bid or as negotiated and incorporated in the contract to
enable the project proponent to recover its investment, and operating and
Ratio: maintenance expenses in the project. The project proponent transfers the facility
THE MOTION FOR RECONSIDERATION to the government agency or local government unit concerned at the end of the
fixed term which shall not exceed fifty (50) years x x x x.
Section  226  of  the  LGC,  as  mentioned,  limits  the  right  to  appeal  the  local  assessor’s   A   reading   of   the   provisions   of   the   parties’   BOT   Agreement   shows   that   it   fully  
action to the owner or the person having legal interest in the property. Napocor posits conforms to this concept. By its express terms, BPPC has complete
that it is the beneficial owner of the subject machineries, with Mirant retaining merely ownership – both legal and beneficial – of the project, including the
a naked title to secure certain obligations. machineries and equipment used, subject only to the transfer of these
properties without cost to NAPOCOR after the lapse of the period agreed
Thus, it argues that the BOT Agreement is a mere financing agreement and is similar upon.
to the arrangement authorized under Article 1503 of the Civil Code, which declares: As agreed upon, BPPC provided the funds for the construction of the power
plant, including the machineries and equipment needed for power generation;
thereafter, it actually operated and still operates the power plant, uses its
Art. 1503. When there is a contract of sale of specific goods, the seller may,
machineries and equipment, and receives payment for these activities and the
by the terms of the contract, reserve the right of possession or ownership in

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electricity generated under a defined compensation scheme. Notably, BPPC – SUMMARY
as owner-user – is responsible for any defect in the machineries and equipment. Basically DTC was granted a franchise, but it is liable to pay taxes on real estate, buildings and
Given the special nature of a BOT agreement as discussed in the cited case, personal property excusive of this franchise. When DTC was assessed realty tax, DTC got
we find Article 1503 inapplicable to define the contract between Napocor and shocked  and  was  like,  “But  like  my  franchise  exempts  me  from  realty  tax,  because  I  am  taxable  
only  on  properties  not  used  in  my  business,  bruh.”  But  the  SC  said  that  DTC  is  wrong.  What  is
Mirant, as it refers only to ordinary contracts of sale.
not being   taxed   is   the   franchise   itself,   as   the   provision   in   RA   7678   (DTC’s   franchise   law)  
We thus declared in Tatad v. Garcia that under BOT agreements, the private excludes the franchise itself from the coverage of taxes. Using other legislative franchises as
corporations/investors are the owners of the facility or machinery examples, the SC held that the legislative intent to levy a tax on the franchises can be gleaned
concerned. from the continuous usage of the phrase exclusive of this franchise. Then  there’s  a  discussion  
on strictissimi juris, etc. Exemptions eh.
Protest
Basically, maraming sinasabi ang case na ito. I suggest you read the ratio if you want a full
Napocor, by claiming exemption from realty taxation, is simply raising a question
understanding   of   what   this   case   actually   wants   to   say.   It’s   hard   to   compress   the   ratio   in   one
of the correctness of the assessment. A claim for tax exemption, whether full or
summarizing paragraph. =p
partial, does not question the authority of local assessor to assess real property
tax. This may be inferred from Section 206 which states that: FACTS
RA 7678 granted petitioner DTC a franchise to operate telecommunications systems,
SEC. 206. Proof of Exemption of Real Property from Taxation. - Every person by but it shall be liable to pay the same taxes on real estate, buildings and personal
or for whom real property is declared, who shall claim tax exemption for such property exclusive of this franchise (as stated in Section 5 of RA 7678). Respondent
property under this Title shall file with the provincial, city or municipal assessor Batangas City issued a building permit to DTC, for installation of telecomm facilities.
within thirty (30) days from the date of the declaration of real property sufficient Thereafter,  DTC  applied  with  the  Batangas  City  Mayor’s  Office  a  permit  to  operate,  
documentary evidence in support of such claim including corporate charters, title but was advised to settle its unpaid realty taxes.
of ownership, articles of incorporation, bylaws, contracts, affidavits, certifications
and mortgage deeds, and similar documents. If the required evidence is not DTC claimed exemption from the payment of realty tax, but was denied by the City.
submitted within the period herein prescribed, the property shall be listed as DTC paid under protest certain fees, but not the realty taxes. Still, no permit to
taxable in the assessment roll. However, if the property shall be proven to be tax operate   was   issued.   The   City   threatened   to   close   down   DTC’s   operations,   and   by  
exempt, the same shall be dropped from the assessment roll. virtue of a Cease  and  Desist  Order,  DTC’s  operations  halted.

By providing that real property not declared and proved as tax-exempt shall be DTC instituted a complaint for prohibition and mandamus against the City. During the
included in the assessment roll, the above-quoted provision implies that the local pendency of this complaint, DTC paid its realty taxes under protest. Thereafter, it
assessor has the authority to assess the property for realty taxes, and any resumed  its  business  (rendering  DTC’s  complaint moot).
subsequent claim for exemption shall be allowed only when sufficient proof has
been adduced supporting the claim. ISSUE: W/N   DTC’s   real   properties   used   in  its   telecomm   business   are   exempt   from  
Since Napocor was simply questioning the correctness of the assessment, it realty tax-
should have first complied with Section 252, particularly the requirement of
payment under protest. PARTIES’  CONTENTIONS
Napocor’s  failure  to  prove  that  this  requirement  has  been  complied  with  thus   Petitioner—it   is   taxable   only   on   properties   “exclusive   of   this   franchise” (thus, only
renders its administrative protest under Section 226 of the LGC without any those  properties  not  used  in  DTC’s  telecomm business). Also, DTC contends that a
effect. No protest shall be entertained unless the taxpayer first pays the tax. franchise is a personal property, and that only real properties (real estate, buildings
and personal property) are taxable.

Resfondent—other legislative franchises contain the phrase exclusive of this


07. Digital Telecommunications v. Batangas (JT) franchise, which shows the intent of the Congress to make franchisees liable for
GR 156040 realty tax, rather than exempt them even if the real properties are used in their
December 11, 2008 telecomm business.

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HELD: No.  Petition  has  no  merit.  DTC’s  real  properties  are  subject  to  realty  tax. intangible personal property, shall not be deemed
personal property.
RATIO Thus,  the  phrase  “exclusive  of  this  franchise”  is  not a grant of tax exemption,
So  what  is  the  big  deal  with  the  phrase  “exclusive  of  this  franchise”? but an exclusion of one type of personal property subject to taxes.
First   sentence   of   Section   5   of   RA   7678:   “Sec.   5.   Tax   Provisions.   - The o The personal property properly excluded is the franchise itself.
grantee shall be liable to pay the same taxes on its real estate, buildings, Compagnie Financiere Sucres et Denrees v. CIR: Tax exemptions are
and personal property exclusive of this franchise as other persons or construed strictissimi juris
corporations  are  now  or  hereafter  may  be  required  by  law  to  pay.  xxx” o Nowhere   does   it   expressly   or   impliedly   provide   that   DTC’s   real  
o The first sentence of Section 5 is the same provision found in properties that are actually, directly and exclusively used in its
almost all legislative franchises in the telecomm industry, telecomm business are exempt from payment of realty tax
dating back to 1905. o On the contrary, Section 5 specifically states that DTC shall pay
o Since 1905, no telecomm company has claimed exemption from the same taxes on its real estate, buildings and personal property
realty tax based on our phavorite phrase. as other persons or corporations are now, or hereafter, may be
Section 5 clearly states that the franchisee shall be liable to pay the required by law to pay
following: o Tax exemptions should be granted only by clear and unequivocal
o the same taxes on its real estate, buildings, and personal property provision of law, on the basis of language too plain to be mistaken
exclusive of this franchise as other persons or corporations are In QC v. Bayantel and DTC v. Pangasinan, the SC
now or hereafter may be required by law to pay previously and erroneously held that the phrase
o franchise tax as may be prescribed by law of all gross receipts of “exclusive   of   this   franchise”   is   to   be   construed   as:   “all  
the telephone or other telecommunications businesses transacted realties which are actually, directly and exclusively used in
under this franchise, and the   operation   of   its   franchise   are   ‘exempted’   from   any  
o income taxes payable under Title II of the National Internal property  tax.”
Revenue Code. The SC, in the present case, stated that the earlier
What the phrase actually means is that DTC’s   franchise shall not be doctrine goes against the basic principle in construing tax
subject to the taxes imposed under Section 5 exemptions.
o Thus, the list enumerated above excludes the franchise. Moreover, in RCPI v. Provincial Assessor of South Cotabato, the SC held
Yes, the franchise itself that telecomm companies which were granted legislative franchise are
o In   effect,   DTC’s   franchise,   which   is   personal property, is not liable to pay realty tax.
subject to the taxes imposed on properties under Section 5. o This is because tax exemptions granted to one or more, but not
o However, this does not mean that only real properties are taxable to all, telecomm companies similarly situated will violate the
under the first sentence of Section 5— constitutional rule on uniformity of taxation
Personal properties are also taxable.
The   phrase   “exemption   from   real   estate   tax”   and   other   HOWEVER,  DTC’s  gross  receipts  from  its  franchise  are  subject  to  franchise  tax,  
phrases of similar import do not appear in the first under the second sentence of Section 5.
sentence. “In  addition  thereto,  the  grantee  shall  pay  to  the  Bureau  of  Internal  Revenue  
As such, there is no grant of exemption, either each year, within thirty (30) days after the audit and approval of the
express or implied, from realty tax. accounts, a franchise tax as may be prescribed by law of all gross receipts
o But, medyo malabo. Why is a franchise not taxable, when it is of the telephone or other telecommunications businesses transacted under
personal property, but personal properties are taxable under the this  franchise  by  the  grantee;;  x  x  x”
first sentence of Section 5? Thus, DTC’s   franchise   is   excluded   from   the   properties   taxable   under  
The Court consolidated the two thoughts with this the first sentence of Section 5, but the gross receipts from its
sentence: Basically, the first sentence of Section 5 franchise are expressly taxable under the second sentence of the
provides that DTC shall pay tax on its real, as well as same section
personal, properties, but the franchise, which is an

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08. QC v. Bayantel (AD) persons, whether natural or juridical, including government-
owned-or-controlled corporations is hereby withdrawn upon
G.R. No. 162015 | March 6, 2006 effectivity of this Code (Emphasis supplied).
The City Government of Quezon City, And The City Treasurer of Quezon City, Dr. Few months after the LGC took effect, Congress enacted RA 7633,
Victor B. Enriga, petitioners amending   Bayantel’s   original   franchise.   The amendatory law (Rep. Act
Bayan Telecommunications, Inc., respondent No. 7633) contained the following tax provision:
o SEC. 11. The grantee, its successors or assigns shall be liable
SUMMARY FROM PIERRE: Prior to the LGC, Bayantel was exempted from paying RPT to pay the same taxes on their real estate, buildings and
under its original franchise. Years after the effectivity of the LGC, Congress passed a law personal property, exclusive of this franchise, as other
amending  Bayantel’s  franchise  and  contained  a  reenactment  of  the  tax  provision  in  Bayantel’s   persons or corporations are now or hereafter may be required
original franchise granting it RPT exemption. Is Bayantel liable for RPT? No, the Supreme by law to pay. (SO BALIK SA DATI. THE PROVISION IN THE
Court held that the RPT exemption enjoyed by Bayantel under its original franchise, but ORIGINAL FRANCHISE WAS REINSTATED) In addition thereto,
subsequently withdrawn by force of Section 234 of the LGC, has been restored by the new law the grantee, its successors or assigns shall pay a franchise tax
which amended its original franchise.
equivalent to three percent (3%) of all gross receipts of the
telephone or other telecommunications businesses transacted
FACTS:
under this franchise by the grantee, its successors or assigns and
Bayantel is a legislative franchise holder to operate radio stations for the said percentage shall be in lieu of all taxes on this franchise or
domestic telecommunications, radiophone, broadcasting and telecasting. earnings thereof. Provided, That the grantee, its successors or
In its franchise, it states: assigns shall continue to be liable for income taxes payable under
o SECTION 14. Title   II   of   the   National   Internal   Revenue   Code   ….   xxx.   [Emphasis  
o (a) The grantee shall be liable to pay the same taxes on its real supplied]
estate, buildings and personal property, EXCLUSIVE of the Within Quezon City, Bayantel owned several real properties on which
franchise, as other persons or corporations are now or hereafter it maintained various telecommunications facilities. These real
may be required by law to pay. (THIS MEANS TAX EXEMPTION properties, as hereunder described, are covered by the following tax
FROM RPT) declarations:
o (b) The grantee shall further pay to the Treasurer of the Philippines o (a) Tax Declaration Nos. D-096-04071, D-096-04074, D-096-04072
each year, within ten days after the audit and approval of the and D-096-04073   pertaining   to   Bayantel’s   Head   Office   and  
accounts as prescribed in this Act, one and one-half per centum of Operations Center in Roosevelt St., San Francisco del Monte,
all gross receipts from the business transacted under this franchise Quezon City   allegedly   the   nerve   center   of   petitioner’s  
by the said grantee telecommunications franchise operations, said Operation Center
And then, the "Local Government Code of 1991" (LGC), took effect housing   mainly   petitioner’s   Network   Operations   Group   and  
which grants local government units within the Metro Manila Area the power switching, transmission and related equipment
to levy tax on real properties, thus: o (b) Tax Declaration Nos. D-124-01013, D-124-00939, D-124-00920
o SEC. 232. – Power to Levy Real Property Tax. – A province or city and D-124-00941   covering   Bayantel’s   land,   building   and  
or a municipality within the Metropolitan Manila Area may levy an equipment   in   Maginhawa   St.,   Barangay   East   Teacher’s   Village,  
annual ad valorem tax on real property such as land, building, Quezon City which houses telecommunications facilities; and
machinery and other improvements not hereinafter specifically o (c) Tax Declaration Nos. D-011-10809, D-011-10810, D-011-10811,
exempted. and D-011-11540  referring  to  Bayantel’s  Exchange  Center  located  
PLUS, the second paragraph of Section 234 thereof withdrew any in Proj. 8, Brgy. Bahay Toro, Tandang Sora, Quezon City which
exemption from realty tax granted to or enjoyed by all persons, natural or houses the Network Operations Group and cover switching,
juridical, to wit: transmission and other related equipment.
o SEC. 234 - Exemptions from Real Property Tax. The following are In 1993, the government of Quezon City enacted City Ordinance No. SP-
exempted from payment of the real property tax: 91, S-93, otherwise known as the Quezon City Revenue Code
o Except as provided herein, any exemption from payment of (QCRC), imposed a real property tax on all real properties in Quezon
real property tax previously granted to, or enjoyed by, all
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City, and, reiterating in its Section 6, the withdrawal of exemption from that Section 11 of Rep. Act No. 7633 is a virtual reenacment of the tax
real property tax under Section 234 of the LGC. provision,  i.e.,  Section  14,  supra,  of  Bayantel’s  original  franchise  under  Rep.  
Conformably   with   the   City’s   Revenue   Code,   new   tax   declarations   for   Act No. 3259. Stated otherwise, the original franchise which was
Bayantel’s  real  properties  in  Quezon  City  were  issued  by  the  City  Assessor   deemed impliedly repealed by Section 234 of the LGC was expressly
and were received by Bayantel on August 13, 1998, except one (Tax revived under Section 14 of Rep. Act No. 7633, the law amending the
Declaration No. 124-01013) which was received on July 14, 1999. franchise of Bayantel. IN CONCRETE TERMS, THE REALTY TAX
Meanwhile, on March 16, 1995, RA 7925, otherwise known as the "Public EXEMPTION HERETOFORE ENJOYED BY BAYANTEL UNDER ITS
Telecommunications Policy Act of the Philippines," envisaged to level the ORIGINAL FRANCHISE, BUT SUBSEQUENTLY WITHDRAWN BY
playing field among telecommunications companies, took effect. Section 23 FORCE OF SECTION 234 OF THE LGC, HAS BEEN RESTORED BY
of the Act provides: SECTION 14 OF REP. ACT NO. 7633.
o SEC. 23. Equality of Treatment in the Telecommunications Admittedly, Rep. Act No. 7633 was enacted subsequent to the LGC.
Industry. – Any advantage, favor, privilege, exemption, or immunity Perfectly  aware  that  the  LGC  has  already  withdrawn  Bayantel’s  former  
granted under existing franchises, or may hereafter be granted, exemption from realty taxes, Congress opted to pass Rep. Act No.
shall ipso facto become part of previously granted 7633 using, under Section 11 thereof, exactly the same defining phrase
telecommunications franchises and shall be accorded immediately "exclusive   of   this   franchise"   which   was   the   basis   for   Bayantel’s  
and unconditionally to the grantees of such franchises: Provided, exemption from realty taxes prior to the LGC. In plain language,
however, That the foregoing shall neither apply to nor affect Section 11 of Rep. Act No. 7633 states that "the grantee, its
provisions of telecommunications franchises concerning territory successors or assigns shall be liable to pay the same taxes on their
covered by the franchise, the life span of the franchise, or the type real estate, buildings and personal property, exclusive of this
of service authorized by the franchise. franchise, as other persons or corporations are now or hereafter may
On January 7, 1999, Bayantel wrote the office of the City Assessor be required by law to pay." The Court views this subsequent piece of
seeking the exclusion of its real properties in the city from the roll of legislation as an express and real intention on the part of Congress to
taxable real properties. once  again   remove   from   the   LGC’s   delegated   taxing   power,   all   of   the  
Its request was denied, Bayantel interposed an appeal with the Local franchisee’s   (Bayantel’s)   properties   that   are   actually,   directly   and  
Board of Assessment Appeals (LBAA). And, evidently on its firm belief of exclusively used in the pursuit of its franchise.
its exempt status, Bayantel did not pay the real property taxes
assessed against it by the Quezon City government.

ISSUE: Whether   or   not   Bayantel’s   real   properties   in   Quezon   City   are   exempt  
from real property taxes under its legislative franchise 09. Pasig v. PCGG (RS)
G.R. No. 185023 | Aug. 24, 2011 | Carpio, J.
RATIO: Topic: Properties of public dominion exempt from RPT and sale at public auction; Not
Real properties of Bayantel, except those exclusive of its franchise, are exempt if leased out to taxpayers
subject to realty taxes. The inevitable result was that all realties which are
actually, directly and exclusively used in the operation of its franchise Petitioner: City of Pasig, rep. by City Treasurer and City Assessor
are "exempted" from any property tax. Respondent: Republic, rep. by Phil. Comm. On Good Government
Bayantel’s   franchise   being   national   in   character,   the   "exemption" thus
granted under Section 14 of Rep. Act No. 3259 applies to all its real or SUMMARY
personal properties found anywhere within the Philippine archipelago. MPLDC, owned by Campos (a Marcos crony), voluntarily surrendered 2 parcels of land to the
However,  with   the  LGC’s   taking   effect   on  January   1,   1992,   Bayantel’s   Republic. Pasig assessed RPT corresponding to these 2 properties. Since MPLDC refused to
pay, the same were levied upon and offered for public auction. PCGG, representative of the
"exemption" from real estate taxes for properties of whatever kind
Republic, assailed the RPT assessment, warrant of levy and the public auction sale. WN the
located within the Metro Manila area was, by force of LGC was City of Pasig committed GADALEJ in assessing RPT and offering the properties for sale –
expressly withdrawn. But, not long thereafter, Congress passed Rep. Partly, yes. The LGC provides that properties owned by the Republic of the Philippines are
Act  No.  7633  amending  Bayantel’s  original  franchise. Worthy of note is exempt from  real  property  tax  “except when the beneficial use thereof has been granted,

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for consideration or otherwise, to a taxable person.”   Article   420   also   provides   that   ISSUE: WN   the   lower   courts   erred   in   granting   PCGG’s   petition   for   certiorari,
properties of the public domain cannot be offered for public auction. In the present case, the prohibition and mandamus – Oo/Hindi.
parcels of land are not properties of public dominion because  they  are  not  “intended  for  public  
use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks,
HELD: Partly meritorious.
shores, roadsteads.”  Neither  are  they  “intended  for  some  public  service  or  for  the  development  
of the national wealth.”   MPLDC leases portions of the properties to different business
establishments. Thus, the portions of the properties leased to taxable entities are not
WHEREFORE, the petition is PARTIALLY GRANTED. The Court SETS
only subject to real estate tax, they can also be sold at public auction to satisfy the tax ASIDE the 17 October 2008 Decision of the Court of Appeals in CA-G.R. SP No.
delinquency. 97498 and declares VOID the 30 September 2002 real property tax assessment
issued by Pasig City on the subject properties of Mid-Pasig Land Development
Corporation, the 8 November 2005 warrants of levy on the properties, and the 2
FACTS December 2005 auction sale.
Pasig City is DIRECTED to issue to respondent new real property tax
Mid-Pasig Land Devt. Corp. (MPLDC) owned 2 parcels of land in Pasig, assessments covering only the portions of the properties actually leased to
both covered by Tax Declarations under its name. Portions of it are leased taxable entities, and only for the period of such leases. Interests and penalties
to diff. business establishments. on such new real property tax assessment shall accrue only after receipt of such
1986 – registered owner of MPLDC, CAMPOS (a confessed Marcos crony), new assessment by respondent.
voluntarily surrendered MPLDC to the Republic of the Philippines
9/30/2002 – Pasig   City   Assessor’s   Office   sent   MPLDC   2   notices   of   tax   RATIO
delinquency for failure to pay RPT on the properties from 1979-2001.
10/29/2002 – Independent Realty Corporation (IRC) President JALANDONI RTC and CA correct Pinas owns the properties. Campos voluntarily
and Treasurer Razon informed the Pasig City Treasurer that the tax for surrendered them to the Republic.
1979-1986 had been paid, and that the properties were exempt from RPT Even as the Republic is now the owner of the properties in view of the voluntary
beginning 1987. surrender of MPLDC by its former registered owner, Campos, to the State, such
Pasig City Treasurer informed MPLDC and IRC that the properties were not transfer does not prevent a third party with a better right from claiming such
exempt from tax MPLDC replied: Exempt! City Treasurer: Not exempt! properties in the proper forum.
(parang mga batang nag-aaway lang) In the meantime, the Republic of the Philippines is the presumptive owner
Pasig   City   Assessor’s   Office   – Notice of Final Demand for payment of tax of the properties for taxation purposes.
for1987-2005 Section 234(a) of Republic Act No. 7160 states that properties owned by the
MPLDC paid Php 2M partial payment under protest Republic of the Philippines are exempt from  real  property  tax  “except when the
o It received 2 warrants of levy on the properties beneficial use thereof has been granted, for consideration or otherwise, to
Republic of the Philippines, through the PCGG – filed with the RTC a a taxable person.”
petition for prohibition with prayer for issuance of a TRO/writ of prelim. o Thus, the portions of the properties not leased to taxable entities are
Injunction to enjoin Pasig City from auctioning the properties and from exempt from real estate tax while the portions of the properties leased
collecting RPT to taxable entities are subject to real estate tax.
But City Treasurer offered the properties for sale at a public auction. Since o The law imposes the liability to pay real estate tax on the Republic
there was no bidder Pasig bought them of the Philippines for the portions of the properties leased to
PCGG – filed an amended petition for certiorari, prohibition and mandamus taxable entities.
against Pasig o It is, of course, assumed that the Republic of the Philippines passes on
RTC – granted  PCGG’s  petition the real estate tax as part of the rent to the lessees.
CA – set  aside  RTC’s  ruling Article 420 of the Civil Code classifies as properties of public dominion those
PCGG filed MR – CA reversed itself (kampi na kay RTC); hence, this that   are   “intended   for   public   use,   such   as   roads,   canals,   rivers,   torrents,   ports  
petition. and bridges constructed by the State, banks, shores, roadsteads”  and  those  that  
“are   intended   for   some   public   service or for the development of the national
wealth.”

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o Properties of public dominion are not only exempt from real SUMMARY: The only reason this is a long case is the in-depth discussion but basically, the
estate tax, they are exempt from sale at public auction. only question here is whether or not the City of Parañaque may tax the Philippine Reclamation
o In Heirs of Mario Malabanan v. Republic, the  Court  held  that,  “It  is  clear   Authority. To answer this question, PRA must first be classified either as a GOCC, or a
that property of public dominion, which generally includes government instrumentality. The Court said that PRA is a government instrumentality, and thus,
is exempt from real estate taxes. (The ratio will remind you of our Agra and Quimson days; a
property belonging to the State, cannot be x x x subject of the
little bit of Fr. B, too )
commerce  of  man.”
Philippine  Fisheries  Dev’t  Authority  v.  CA The real property tax assessments
Facts:
issued by the City of Iloilo should be upheld only with respect to the portions
The Public Estates Authority (PEA) is the predecessor of PRA. PEA was a
leased to private persons. In case the Authority fails to pay the real property
government corporation created by virtue of P.D. 1084 in 1977. Its purpose
taxes due thereon, said portions cannot be sold at public auction to satisfy
was to provide a coordinated, economical, and efficient reclamation of
the tax delinquency. In Chavez v. Public Estates Authority it was held
lands,   and   also   to   administer   lands   belonging   to   /   managed   by   the   gov’t,  
that reclaimed lands are lands of the public dominion and cannot, without
with   the   end   foal   of   maximizing   their   utilization   and   hastening   their   dev’t  
Congressional fiat, be subject of a sale, public or private x x x.
consistent with public interest.
In the present case, the parcels of land are not properties of public dominion
Two years thereafter, Pres. Marcos designated it as the agency primarily
because   they   are   not   “intended   for   public   use,   such   as   roads,   canals,   rivers,  
responsible  for  reclamation  projects  of  the  gov’t.  
torrents, ports and bridges constructed by the State, banks, shores, roadsteads.”
Jump to 2004: Pres. GMA issued E.O. 380 transforming PEA into PRA.
o Neither   are   they   “intended   for   some   public   service or for the
By virtue of its mandate, PRA reclaimed several portions of foreshore and
development of the national wealth.”
offshore areas in Manila Bay, including those in Parañaque City.
o MPLDC leases portions of the properties to different business
Various OCTs and TCTs were transferred in favor of PRA over the
establishments.
reclaimed lands.
o Thus, the portions of the properties leased to taxable entities are
not only subject to real estate tax, they can also be sold at public 2003  (I  know  it’s  weird  why  2003  eh  2004  lang  siya  naging  PRA  but  this  is  
auction to satisfy the tax delinquency. the year na nasa case):
- Parañaque City Treasurer Liberato Carabeo issued Warrants of Levy
In sum, only those portions of the properties leased to taxable entities are
on   PRA’s   reclaimed   properties   (Central   Business   Park   and   Bgy.   San  
subject to real estate tax for the period of such leases. Pasig City must, therefore,
Dionisio) located in said city.
issue to respondent new real property tax assessments covering the portions of
- PRA filed a petition for petition for prohibition with prayer for TRO but
the properties leased to taxable entities. If the Republic of the Philippines fails to
pay the real property tax on the portions of the properties leased to taxable this was denied by the RTC
entities, then such portions may be sold at public auction to satisfy the tax - For quite a number of times PRA tried different stuff to stop the public
delinquency. auction of the reclaimed properties, to no avail.
RTC’s  basis  for  ruling  that  PRA  is  not  exempt  from  taxes  is  its  finding  that  
PRA is a GOCC under PD 1084.
10. Phil. Reclamation Authority v. Paranaque (RR) - It was organized as a stock corporation with an authorized capital stock
Topic: Government instrumentalities – exempt from real property tax divided into no par value shares.
- Therefore as a GOCC, PRA is not exempt. The Local Government
G.R. No. 191109 Code, which was the prevailing law then with respect to real property
July 18, 2012 taxation, withdrew its tax exemption.
PRA’s  assertions
Mendoza, J.
1. It is not a GOCC under Sec. 2(13) pf the Introductory Provisions of the
Administrative Code. Neither is it a GOCC under Sec. 16, Art. XII of the 1987
Petitioners: Republic of the Philippines represented by Philippine Reclamation Consti because it does not meet the test of economic viability.
Authority 2. It is a government instrumentality vested with corporate powers and performing
Respondents: City of Parañaque an essential public service.

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3. It is not a stock corporation. Though it has a capital stock divided into shares, it special funds, and enjoying operational autonomy, usually through a
is not authorized to distribute dividends and allotment of surplus and profits to its charter.”
stockholders.
When the law vests in a government instrumentality corporate powers,
4. It is neither a non-stock corporation because it has no members and does not
have for its purpose those enumerated under Sec. 88 of the Corporation Code.
the instrumentality does not necessarily become a corporation. Unless
5. As an incorporated instrumentality of the National Government, it is exempt from the government instrumentality is organized as a stock or non-stock
payment o real property tax. Based on Sec. 133(o) of the LGC, local corporation, it remains a government instrumentality exercising not only
governments  cannot  tax  the  national  gov’t. governmental but also corporate powers.
6. Furthermore, reclaimed lands are part of the public domain, owned by the State, Examples  of  other  gov’t  instrumentalities  vested with corporate powers:
thus exempt from payment of real estate taxes.
Respondent’s  arguments
- Mactan International Airport
1. Insists that PRA is a stock corporation. 2 million out of its 3 million shares have - Philippine Ports Authority
been subscribed and fully paid up. - University of the Philippines
2. Sec. 193 of the 1991 LGC withdrew tax exemption privileges of GOCCs.
- Bangko Sentral ng Pilipinas
These  are  sometimes  loosely  called  “government  corporate  entities”  but  are  
Issues:
not GOCCs in the strict sense as understood under the Administrative Code.
Whether or not the trial court erred in finding that petitioner is liable to pay real
property tax on the subject reclaimed lands --- YES
Corp Law review. On why it is not a stock corporation
Whether or not trial court erred in failing to consider that reclaimed lands are part of Section 3 of the Corporation Code defines a stock corporation
the public domain and thus are exempt from real property taxes --- YES “capital stock is divided into shares and x x x authorized to distribute to
the holders of such shares dividends x x x.”
Section 87 thereof defines a non-stock corporation
Held: “one where no part of its income is distributable as dividends to its
Petition GRANTED. members, trustees or officers."
All reclaimed properties owned by PRA are hereby EXEMPT from real Also, under Section 88, a non-stock  corporation  is  “organized for charitable,
estate taxes.
religious, educational, professional, cultural, recreational, fraternal, literary,
All real estate tax assessments xxx issued by the City of Parañaque xxx are scientific, social, civil service, or similar purposes, like trade, industry,
declared VOID. agriculture  and  like  chambers.”
PRA is not a GOCC because it is neither a stock nor a non-stock
Ratio:
corporation.
Cannot be considered a stock corporation because it is not authorized to
Admin Law review. On why it is a government instrumentality distribute dividends, surplus allotments or profits to stockholders
Section 2(13) of the Introductory Provisions of the Administrative Can neither be considered a non-stock corp because it does not have
Code of 1987 defines a GOCC as follows: members, and is not organized for any of the purposes listed in Sec. 88.
“any agency organized as a stock or non-stock corporation, vested
with functions relating to public needs whether governmental or Consti Law review. On the intention of the Consti Com regarding the
proprietary in nature, and owned by the Government directly or “economic  viability  insertion”  
through its instrumentalities either wholly, or, where applicable as in
PRA cannot be considered as a GOCC because it does not pass the
the case of stock corporations, to the extent of at least fifty-one (51)
“economic  viability”  requirement  in  Sec.  16,  Art.  XII  of  the  1987  Consti.  
percent of  its  capital  stock”
Under said provision, Congress is authorized to create a GOCC subject to
Section 2(10) of the Introductory Provisions of the Administrative
two conditions:
Code defines a government "instrumentality" as follows:
1. it must be established for the common good
“any   agency   of   the   National   Government,   not   integrated   within   the  
2. must meet the test of economic viability
department framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers, administering
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PRA passes the first but fails the second. It was not created for economic or reclaimed lands to a taxable entity. There is no showing on record either
commercial activities. that PRA leased the subject reclaimed properties to a private taxable entity.
(MIAA v. CA was cited (which we have also taken up in Admin) but the This exemption should be read in relation to Section 133(o) of the same
quoted part was basically the same as the first three bullets so never mind) Code, which prohibits local governments from imposing "taxes, fees or
The test of economic viability applies only to government-owned or charges of any kind on the National Government, its agencies and
controlled corporations that perform economic or commercial activities and instrumentalities x x x." The Administrative Code allows real property
need to compete in the market place. owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties
In contrast, government instrumentalities vested with corporate powers and
remain owned by the Republic and continue to be exempt from real
performing governmental or public functions need not meet the test of
estate tax.
economic viability. They need not be viable since the government may even
subsidize their entire operations. Some familiar doctrines:
Commissioner Blas Ople, the proponent of the economic viability test, explained its
- When local governments invoke the power to tax on national
purpose: government instrumentalities, such power is construed strictly against
“We know what happened in the past. If a government corporation loses, then it local governments.
makes its claim upon the taxpayers' money through new equity infusions from - When Congress grants an exemption to a national government
the government and what is always invoked is the common good. That is the instrumentality from local taxation, such exemption is construed liberally
reason why this year, out of a budget of P115 billion for the entire government, in favor of the national government instrumentality.
about P28 billion of this will go into equity infusions to support a few - the "supremacy" of the National Government over local governments:
government financial institutions. And this is all taxpayers' money which could
The power to tax which was called by Justice Marshall as the "power to
have been relocated to agrarian reform, to social services like health and
education, to augment the salaries of grossly underpaid public employees. And
destroy" cannot be allowed to defeat an instrumentality or creation of
yet this is all going down the drain. the very entity which has the inherent power to wield it.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together


with the "common good," this becomes a restraint on future enthusiasts
2. Furthermore, the subject reclaimed lands are still part of public dimain, and
for state capitalism to excuse themselves from the responsibility of therefore, exempt from payment of real estate tax.
meeting the market test so that they become viable.” Section 2, Article XII of the 1987 Constitution:
Simply   put   by   Fr.   Bernas:   “The addition includes the ideas that they must “All  lands  of  the  public  domain  xxx  are  owned  by  the  State.”  
show capacity to function efficiently in business and that they should not go Art. 420 of the Civil Code enumerates what are property of public domain:
into  activities  which  the  private  sector  can  do  better.” (1) Those intended for public use xxx
(2) Those which belong to the State, without being for public use, and are
Back to Tax :) TAKING ALL OF THESE INTO CONSIDERATION, PRA IS intended for some  public  service  or  for  the  dev’t  of  the  national  wealth.
EXEMPT FROM TAX
Here, the subject lands are reclaimed lands, specifically portions of the
foreshore and offshore areas of Manila Bay.
1. The Court is convinced that PRA is not a GOCC. Chavez v. PEA and AMARI: held that foreshor and submerged areas
Clearly, respondent has no valid or legal basis in taxing the subject irrefutably belong to the public domain.
reclaimed lands managed by PRA. Sec. 14, Chapter 4, Book III of the Admin Code: Reclaimed lands such as
On the other hand, Section 234(a) of the LGC, in relation to its Section the subject lands in issue are reserved lands for public use. They are
133(o), exempts PRA from paying realty taxes and protects it from the properties of public dominion. The ownership of such lands remains with the
taxing powers of local government units. State unless they are withdrawn by law or presidential proclamation from
It is clear from Section 234 that real property owned by the Republic of public use.
the Philippines (the Republic) is exempt from real property tax unless As the Court has repeatedly ruled, properties of public dominion are
the beneficial use thereof has been granted to a taxable person. In this not subject to execution or foreclosure sale.Thus, the assessment,
case, there is no proof that PRA granted the beneficial use of the subject levy and foreclosure made on the subject reclaimed lands by

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respondent, as well as the issuances of certificates of title in favor of On June 7, 1993, both the land and the hospital building of the petitioner
respondent, are without basis. were assessed for real property taxes in the amount of P4,554,860 by the
City Assessor of Quezon City.
On August 25, 1993, the petitioner filed a Claim for Exemption from RPT
with the City Assessor, predicated on its claim that it is a charitable
11. Lung Center v. QC (RL) institution.
G.R. No. 144104 The  petitioner’s  request  was  denied.
June 29, 2004 o A petition was filed before the Local Board of Assessment Appeals
CALLEJO, SR., J.
of Quezon City (QC-LBAA) for the reversal of the resolution of the
City Assessor.
Petitioner: Lung Center of the Philippines
The petitioner alleged that under Section 28 (3) of the 1987 Constitution
Respondent: Quezon City and Constantino Rosas, as City Assessor of QC
(charitable institution blah blah blah), the property is exempt from RPT.
o It averred that a minimum of 60% of its hospital beds are
Summary: Lung Center of the Philippines owns a parcel of land in QC with the hospital in the
exclusively used for charity patients and that the major thrust of its
middle of the said lot, and parts thereof were leased to private parties (canteens, doctors
hospital operation is to serve charity patients.
offices, Elliptical Orchids and Garden Center). It was assessed for RPT amounting to P4.5M by
the QC Assessor. It filed a claim for tax exemption with the Assessor, saying that it is a o The petitioner contends that it is a charitable institution and, as
charitable institution. But the Assessor denied such claim. It filed an appeal with the LBAA, such, is exempt from real property taxes.
arguing that 60% of its hospital beds are exclusively used for charity patients and that its major The QC-LBAA dismissed the petition.
thrust is to serve charity patients. Hence, it is a charitable institution. The LBAA, CBAA and the The Central Board of Assessment Appeals of Quezon City (CBAA) affirmed
CA all ruled against LCP. The issues are as follows: (1) is it a charitable institution? (2) are its such ruling.
real properties exempted from RPT? The SC held that: (1) LCP is a charitable institution
o It ruled that the petitioner was not a charitable institution and that
because it exists to carry out charitable purposes although it is maintained for gain, profit or
its real properties were not actually, directly and exclusively used
private advantage. It does not lose its character as such and its exemption from taxes simply
because it has both paying and non-paying patients. (2) Those portions of its real property that for charitable purposes; hence, it was not entitled to RPT
are leased to private entities are not exempt from real property taxes. While those used for its exemption under the constitution and the law.
patients (paying or not) are exempt. Only those actually, directly and exclusively used for The CA affirmed the decision.
charitable purposes, in accordance with the Constitution and the LGC, are exempt from RPT. ISSUES:
(1) W/N LCP is a charitable institution within the context of Presidential Decree
Facts: No. 1823 and the 1973 and 1987 Constitutions and Section 234(b) of
The petitioner Lung Center of the Philippines (LCP) is a non-stock and non- Republic Act No. 7160? YES
profit entity established on January 16, 1981 by virtue of PD 1823. (2) (IMPT!) W/N the real properties of LCP are exempt from real property
o It is the registered owner of a parcel of land located at Quezon taxes? NOT ALL ARE EXEMPT.
Avenue corner Elliptical Road, Central District, Quezon City.
o The lot has an area of 121,463 square meters, erected in the HELD: PARTIALLY GRANTED. The respondent Quezon City Assessor is hereby
middle of the aforesaid lot is a hospital known as the Lung Center DIRECTED to determine, after due hearing, the precise portions of the land and the
of the Philippines. area thereof which are leased to private persons, and to compute the real property
o Parts of it are leased to private parties (canteens, doctors offices taxes due thereon as provided for by law.
that charge patients), some parts are unused and half of the area
along Quezon Ave. is rented to Elliptical Orchids and Garden RATIO:
Center. 1. LCP is a charitable institution because it exists to carry out charitable
LCP accepts paying and non-paying patients. purposes although it is maintained for gain, profit or private advantage.
o It also renders medical services to out-patients, both paying and To determine whether an enterprise is a charitable institution/entity or not,
non-paying. the elements which should be considered include the statute creating the
o Aside from its income from paying patients, the petitioner receives enterprise, its corporate purposes, its constitution and by-laws, the methods
annual subsidies from the government. of administration, the nature of the actual work performed, the character of
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the services rendered, the indefiniteness of the beneficiaries, and the use Section 2.
and occupation of the properties. o SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit,
The test whether an enterprise is charitable or not is whether it exists to non-stock corporation organized primarily to help combat the high
carry out a purpose reorganized in law as charitable or whether it is incidence of lung and pulmonary diseases in the Philippines, all
maintained for gain, profit, or private advantage. donations, contributions, endowments and equipment and supplies
Under P.D. No. 1823, the LCP was organized for the welfare and benefit to be imported by authorized entities or persons and by the Board
of the Filipino people principally to help combat the high incidence of of Trustees of the Lung Center of the Philippines, Inc., for the
lung and pulmonary diseases in the Philippines, as stated in the law actual use and benefit of the Lung Center, shall be exempt from
itself. income and gift taxes, the same further deductible in full for the
As a general principle, a charitable institution does not lose its character as purpose of determining the maximum deductible amount under
such and its exemption from taxes simply because it derives income from Section 30, paragraph (h), of the National Internal Revenue Code,
paying patients, whether out-patient, or confined in the hospital, or receives as amended.
subsidies from the government, so long as the money received is The Lung Center of the Philippines shall be exempt from the
devoted or used altogether to the charitable object which it is intended payment of taxes, charges and fees imposed by the Government
to achieve; and no money inures to the private benefit of the persons or any political subdivision or instrumentality thereof with respect to
managing or operating the institution. equipment purchases made by, or for the Lung Center.
Under P.D. No. 1823, the petitioner is entitled to receive donations. The The exemption must not be so enlarged by construction since the
petitioner does not lose its character as a charitable institution simply reasonable presumption is that the State has granted in express terms all it
because the gift or donation is in the form of subsidies granted by the intended to grant at all, and that unless the privilege is limited to the very
government. terms of the statute the favor would be intended beyond what was meant.
o Section 28(3), Article VI of the 1987 Philippine Constitution
2. Those portions of its real property that are leased to private entities are not provides, thus:
exempt from real property taxes as these are not actually, directly and (3) Charitable institutions, churches and parsonages or convents
exclusively used for charitable purposes. appurtenant thereto, mosques, non-profit cemeteries, and all
The settled rule in this jurisdiction is that laws granting exemption from lands, buildings, and improvements, actually, directly and
tax are construed strictissimi juris against the taxpayer and liberally in exclusively used for religious, charitable or educational purposes
favor of the taxing power. shall be exempt from taxation.
o Taxation is the rule and exemption is the exception. The tax exemption under this constitutional provision covers
o The effect of an exemption is equivalent to an appropriation. property taxes only.
o Hence, a claim for exemption from tax payments must be clearly o What is exempted is not the institution itself.
shown and based on language in the law too plain to be mistaken. o Those exempted from real estate taxes are lands,
An intention on the part of the legislature to grant an exemption from buildings and improvements actually, directly and
the taxing power of the state will never be implied from language which exclusively used for religious, charitable or educational
will admit of any other reasonable construction. purposes.
o Such an intention must be expressed in clear and unmistakable Section 234(b) of LGC provides that:
terms, or must appear by necessary implication from the o SECTION 234. Exemptions from Real Property Tax. – The
language used, for it is a well settled principle that, when a special following are exempted from payment of the real property tax:
privilege or exemption is claimed under a statute, charter or act of (b) Charitable institutions, churches, parsonages or convents
incorporation, it is to be construed strictly against the property appurtenant thereto, mosques, non-profit or religious cemeteries
owner and in favor of the public. and all lands, buildings, and improvements actually, directly, and
It is plain as day that under PD 1823, the LCP does not enjoy any exclusively used for religious, charitable or educational purposes
property tax exemption privileges for its real properties as well as the "Exclusive" is defined as possessed and enjoyed to the exclusion of others;
building constructed thereon. If the intentions were otherwise, the same debarred from participation or enjoyment; and "exclusively" is defined, "in a
should have been among the enumeration of tax exempt privileges under manner to exclude; as enjoying a privilege exclusively."

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o If real property is used for one or more commercial purposes, The Provincial Assessor of Marinduque issued an Assesment Notice
it is not exclusively used for the exempted purposes but is against Marcopper Mining for real property taxes due on its real properties,
subject to taxation. including its Siltation Dam and Decant System (the subject property).
o The words "dominant use" or "principal use" cannot be substituted Marcopper paid the tax demanded, but appealed the assessment before the
for the words "used exclusively" without doing violence to the Local Board of Assessment Appeals (LBAA) on the ground that the siltation
Constitutions and the law. dam and decant system is exempt from real property tax.
o Solely is synonymous with exclusively. o It invoked Sec. 234(e) of the LGC which provides that machinery
The petitioner failed to discharge its burden to prove that the entirety of its and equipment used for pollution control and environmental
real property is actually, directly and exclusively used for charitable protection are exempted from RPT.
purposes. Attached   to   Marcopper’s   appeal   was   an   Affidavit   by   its   Chief   Mining  
o While portions of the hospital are used for the treatment of patients Engineer Ricardo Esquieres, Jr.
and the dispensation of medical services to them, whether paying o The affidavit states that the subject property was built to comply
or non-paying, other portions thereof are being leased to private with DENR regulations in order to prevent run-offs and silt from
individuals for their clinics and a canteen. contaminating the Mogpog and Boac Rivers.
o Further, a portion of the land is being leased to a private individual o Thus, the subject property is intended for the purpose of pollution
for her business enterprise under the business name "Elliptical control, sediment control, domestic and agricultural water supply
Orchids and Garden Center." and flood control.
o Indeed,   the   petitioner’s   evidence   shows   that   it   collected   Marcopper also submitted a Certification from DENR Regional Technical
P1,136,483.45 as rentals in 1991 and P1,679,999.28 for 1992 from Director  Carlos  J.  Magno  stating  that  the  subject  property  is  a  “Siltation  Dam  
the said lessees. structure  intended  primarily  for  pollution  control  of  silted  materials.”
LBAA’s  ruling  on  November  10,  1995:
o Dismissed the appeal for having been filed out of time.
12. Provincial Assessor of Marinduque v. CA (QN) o The subject property is taxable as an improvement on the principal
G.R. No. 170532 real property. This is based on the ruling in Benguet Corporation v.
April 30, 2009 Central Board of Assessment Appeals which held that a tailings
Austria-Martinez, J. dam is a permanent improvement not exempt from RPT.
Marcopper appealed to the Central Board of Assessment Appeals (CBAA).
Summary: The Provincial Assessor of Marinduque issued an Assessment Notice, effective The CBAA held in its Decision:
January  1,  1995,  against  Marcopper  Mining  for  RPT.  It  included  Marcopper’s  Siltation  Dam  and   o The appeal with the LBAA is timely.
Decant System as a taxable property. Marcopper paid the tax but appealed the assessment o BUT the appeal lacked legal basis. The subject property is neither
with the LBAA on the ground that the Siltation Dam and Decant System is exempt from RPT a machinery nor an equipment but a permanent improvement
based on Sec. 234(e) of the LGC. The LBAA dismissed the appeal on the ground of which is not tax exempt under Sec. 234(e) of the LGC.
prescription and ruled that the dam is a taxable improvement. The CBAA upheld this ruling by o To   be   considered   a   “machinery,”   the   subject   property   must   either  
the  LBAA.  Based  on  CBAA’s  occular  inspection,  it  was  discovered  that  the  dam  was  actually  not  
be a physical facility for production, or a service facility, or one that
operational since 1993. The CA reversed the rulings of CBAA and LBAA. The SC ruled that the
is actually, directly and exclusively used to meet the needs of the
CA was wrong. Since the assessment notice took effect on January 1, 1995, the applicable law
is the LGC, not RA 7942 which took effect on April 1995. Under the LGC, the exemption from particular business.
RPT applies only to machinery and equipment actually used for pollution control. Based on the The subject property does not meet any of these criteria.
evidence presented by Marcopper, the subject property is a structure adhered to the soil. This is Thus, it is not machinery.
not  within  the  contemplation  of  “machinery”  under  Sec.  199(o)  of  the  LGC.  It  was  also  admitted   o Furthermore, the CBAA discovered after an occular inspection that
by Marcopper that such property had not been in use since 1993. Therefore, the dam was not the subject property had not been actually used for pollution control
actually used for pollution control for the period of the assessment. It was also not considered since 1993.
as machinery under the LGC. It cannot be considered exempt from RPT.
o The MR filed by Marcopper was denied.
On appeal, the CA reversed the LBAA and CBAA and held that the subject
Facts:
property is exempt from RPT. It thus ordered a refund of the taxes paid.
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oIt also held that the definition of machinery under Sec. 199(o) of the assessment in question took effect on January 1, 1995. The proper law
the LGC is broad enough to include the subject property. The applicable  is  RA  7160.  Thus,  the  CA  and  respondent’s  reliance  on  RA  7942  
subject property also qualifies as a pollution control device under (which took effect on April 14, 1995) is erroneous.
DENR AO No. 95-23. Sec. 234 of RA 7160 grants exemptions from RPT based on ownership,
o Thus, the subject property was exempt from RPT under Sec. 91 of character or usage.
3
the Philippine Mining Act of 1995. o Ownership: real property owned by the government and its LGUs and
o The fact that the subject property is non-operational does not registered cooperatives are exempt
remove it from the coverage of the LGC and the Philippine Mining o Character: religious, charitable properties, non-profit cemeteries are
Act as an exempt property. exempt
o Usage: machinery and equipment for pollution control are exempt
MR was denied. Thus, this petition for certiorari with the SC.
Sec. 199 of RA 7160 defines actual use as concrete use, not just mere
Issues: potential use. In order to claim exemption, actual use should be supported
1. Whether or not a petition for certiorari under Rule 65 is the proper remedy --- NO, by evidence.
but… There is no evidence in the record which shows that the subject property
2. Whether or not the CA committed GADALEJ in declaring that the subject was actually, directly and exclusively used for pollution control and
property is tax-exempt --- YES environmental protection during the period covered by the disputed
assessment notice.
Held: o On the contrary, the evidence points to the fact that the subject
Petition GRANTED. property was not operational. It is even admitted by Marcopper
Decision of lower court REVERSED. The Assessment Notice dated March itself.
28, 1994 is declared VALID. Sec. 206 of RA 7160 prescribes the evidentiary requirements for exemption
from RPT:
Ratio: o File with the provincial, city or municipal assessor within 30 days
from the date of the declaration of real property such documents as
On the proper mode of appeal corporate charters, title of ownership, articles of incorporation,
Previously, under Sec. 36 of PD 464 (Real Property Tax Code), the proper mode of bylaws, contracts, affidavits, certifications, mortgage deeds and
appeal for a decision by the CBAA is by certiorari (Rule 65) to the SC. similar documents. Failure to file within the period would render the
With the passage of RA 7902, the proper mode became a petition for review with the property as taxable.
CA, and then petition for review on certiorari (Rule 45) to the SC. (Remember o The taxpayer has the burden to prove by clear and convincing
Tranquil saying that these two are different.)
evidence that his claim for exemption has legal and factual basis.
Technically, the mode of appeal by Rule 65 to the SC was wrong, but it was still given
due course because it involves the power of taxation of a local government but also
Marcopper did not comply with these evidentiary requirements under Sec.
the stewardship of the environment. 206.
In the interest of public welfare, the SC suspends its rules pro hac vice (for this o The affidavit by Esquieres and the Certification by the DENR
instance) to resolve the merits. Regional Director did not satisfy the requirements.
Furthermore, the documents presented by Marcopper classify the subject
On whether the subject property is exempt from RPT property as anything but machinery or equipment.
o The DENR Certification classifies it as a structure on the ground.
o The Affidavit of Esquieres (Chief Mining Engineer) classifies it
similarly as a structure adhered to the soil.
o Based on these, the subject property does not qualify as
3
Sec. 91. Incentives for Pollution Control Devices. – Pollution control devices acquired, constructed “machinery”  as  defined  in  Sec.  199(o)  of  RA  7160.
or installed by contractors shall not be considered as improvements on the land or building where Under RA 7942, the   expanded   definition   of   “pollution   control   device”   also  
they are placed, and shall not be subject to real property and other taxes or assessments: Provided, includes infrastructure or improvement, not just machinery or equipment.
however, That payment of mine wastes and tailings fees is not exempted. (Emphasis supplied)
Under this new concept, the subject property would have been considered

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as a pollution control device. BUT, as already stated, this new law is not would not be impeded. These carriageways and terminal stations serve a
applicable to the case at bar. It is not retroactive. function different from that of the public roads. The former are part and
The CA committed grave abuse of discretion in ignoring irrefutable evidence parcel of the light rail transit (LRT) system which, unlike the latter, are not
that the subject property is not a machinery used for pollution control, but a open to use by the general public. The carriageways are accessible only
structure adhered to the soild and intended for pollution control, but has not to the LRT trains, while the terminal stations have been built for the
been actually applied for that purpose during the period under assessment. convenience of LRTA itself and its customers who pay the required
fare.
o The Light Rail Transit Authority and the Metro Transit Organization function
as service-oriented business entities, which provide valuable transportation
13. LRT v. Central Board of Assessment Appeals (CP) facilities to the paying public. In the absence, however, of any express grant
DOCTRINE: The Light Rail Transit Authority and the Metro Transit Organization of exemption in their favor, they are subject to the payment of real property
function as service-oriented business entities, which provide valuable transportation taxes.
facilities to the paying public. In the absence, however, of any express grant of
exemption in their favor, they are subject to the payment of real property taxes.

FACTS 14. City Assessor of Cebu v. Benevola (HV)


o The City Assessor of Manila assessed the real properties of LRTA, Topic: Exemption from Real property tax
consisting of lands, buildings, carriageways and passenger terminal Relevant Laws/ BIR Issuances: Secs. 215 and 216 LGC
stations, machinery and equipment which he considered real property under
the Real Property Tax Code. G.R. No. 152904 June 8, 2007 VELASCO Jr, J.
o LRTA contended that the carriageways and passenger terminal stations
including the land are not real properties under the RPTCode and if they Petitioners: City Assessor of Cebu
are, they are exempt as they are for public use/ purpose. Respondents: ASSOCIATION OF BENEVOLA DE CEBU, INC. (ABC)
o Court of Appeals ruled that the carriageways and passenger terminal
stations constituted real property and were taxable under the RPTCode. Summary:
ABC owns a Hospital and a Medical Arts Center. City Assessor assessed the Medical Arts
ISSUE: Whether the carriageways and passenger terminal stations are subject to Center as a commercial bulding. The SC decided that it is an integral part of the hospital,
real property taxes? YES incidental and necessary for the hospital and the rents received when only coming from
accredited doctors cannot be commercial venture. (see ratio)

RULING
Facts:
o The properties in dispute are considered real property under Article 415 of
•ABC   is   a   non-stock, non-profit organization organized under the laws of the
the Civil Code.
Republic of the Philippines and is the owner of Chong Hua Hospital (CHH) in Cebu
o Though the creation of the LRTA was impelled by public service -- to
City. In the late   1990’s,   respondent constructed the CHH Medical Arts Center
provide mass transportation to alleviate the traffic and transportation
(CHHMAC). Thereafter, an April 17, 1998 Certificate of Occupancy was issued to
situation in Metro Manila -- its operation undeniably partakes of ordinary
the center with a classification  of  “Commercial  [Clinic].”
business. Petitioner is clothed with corporate status and corporate powers
•  City Assessor of Cebu City assessed the CHHMAC building  as  “commercial”
in the furtherance of its proprietary objectives. Indeed, it operates much like
with a market value of PhP 28,060,520 and an assessed value of PhP 9,821,180 at
any private corporation engaged in the mass transport industry. Given that it
the assessment level of 35% for commercial buildings, and not at the 10% special
is engaged in a service-oriented commercial endeavor, its carriageways and
assessment currently imposed for CHH and its other separate buildings—the CHH’s  
terminal stations are patrimonial property subject to tax, notwithstanding its
Dietary and Records Departments.
claim of being a government-owned or controlled corporation.
•   ABC appealed to Cebu City LBAA for reconsideration, asserting that
o True, petitioner's carriageways and terminal stations are anchored, at
CHHMAC is part of CHH and ought to be imposed the same special
certain points, on public roads. However, it must be emphasized that these
assessment level of 10% with that of CHH.
structures do not form part of such roads, since the former have been
constructed over the latter in such a way that the flow of vehicular traffic
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•   THE CITY ASSESSOR Contended that CHHMAC is a newly constructed five- through the CHHMAC. The fact that they are holding office in a separate building,
storey building situated about 100 meters away from CHH and, based on actual like at CHHMAC, does not take away the essence and nature of their services vis-à-
inspection, was ascertained that it is not a part of the CHH building but a separate vis the over-all   operation   of   the   hospital   and   the   benefits   to   the   hospital’s   patients.    
building which is actually used as commercial clinic/room spaces for renting out to Given what the law requires, it is clear that CHHMAC is an integral part of CHH.
physicians  and,  thus,  classified  as  “commercial.” •The   CHHMAC   facility   is   definitely   incidental   to   and   reasonably   necessary for
•   ABC CONTENDED THAT CHHMAC building is actually, directly, and exclusively the operations of Chong Hua Hospital
part of CHH and should have a special assessment level of 10% •   It   is   primarily   used   by   the   hospital’s   accredited   physicians   to   perform   medical  
•  LBAA  reversed  the  City  Assessor  that it is of public knowledge that hospitals have check-up, diagnosis, treatment, and care of patients. For another, it also serves as a
plenty of spaces leased out to medical practitioners, which is both an accepted and specialized outpatient department of the hospital.
desirable fact; •  Charging  rentals  for  the  offices  used  by  its  accredited  physicians  cannot  be  
•  CBAA  affirmed  LBAA.  CBAA held that the fact that the subject building is detached equated to a commercial venture because:
from the main hospital building is of no consequence as the exemption in favor of 1. Only for its consultants or accredited doctors and medical specialists.
property used exclusively for charitable or educational purposes is not only limited to 2. Practical necessity to recoup investment, cover other rentals and for its
property actually indispensable to the hospital, but also extends to facilities which are maintenance.
incidental and reasonably necessary for the accomplishment of such purposes.
•  CA  AGREED  WITH  THE  CBAA.  The  CA  likewise  ruled  that  the  fact  that  rentals  are  
paid by CHH accredited doctors and medical specialists for spaces in CHHMAC has
no bearing on its classification as a hospital since CHHMAC serves also as a place G.6. Collection of Real Property Tax
for medical check-up, diagnosis, treatment, and care for its patients as well as a
specialized out-patient department of CHH where treatment and diagnosis are done
15. City Mayor of QC v. RCBC (HQ)
by accredited medical specialists in their respective fields of anesthesia, radiology,
pathology, and more.
Summary: Spouses Naval secured a loan with RCBC with several properties. It was
•   Secs.   215   and   216   of   the   Local   Government   Code   (Republic   Act   No.   7160)  
foreclosed and the certificates of sale were issued to the RCBC. Meanwhile the City Treasurer
which classify lands, buildings, and improvements actually, directly, and held an auction of tax delinquent properties sometime on 2003, and this sale included the
exclusively used for hospitals as special cases of real property and not as properties bought by RCBC. A third party, Yu, bought the properties. He registered the tax
commercial. Thus, CHHMAC being an integral part of CHH is not commercial delinquent property on February 10, 2004. By June 10, 2004, RCBC tendered payment of all
but special and should be imposed the 10% special assessment, the same as the assessed tax delinquencies, interests, and other costs with the City Assessor. The assessor
CHH, instead of the 35% for commercial establishments. refused to accept. RCBC filed a petition for acceptance of tender of payment and issuance of
certificate of redemption with the Office of the City Treasurer, which was also denied. In its
petition for Mandamus, RCBC contended that in accordance with the Real Property Tax Code, it
Main Issue/s:
had one year from the date of registration of the sale to redeem the property. So it had until Feb.
Is a medical arts center built by a hospital to house its doctors a separate
10, 2005. The RTC denied. It ruled that the Local Government Code, which indicated that the
commercial establishment or an appurtenant to the hospital? NO. IT FORMS reckoning period started from the date of sale, had repealed the old Real Property Tax Code.
AN INTEGRAL PART OF THE HOSPITAL RCBC filed an MR which said that the Quezon City ordinance, issued after the effectivity of the
Ratio: LGC, also indicates that the reckoning period starts from the date of annotation in the registry of
•Chong Hua Hospital Medical Arts Center is an integral part of Chong Hua the property to be redeemed. This was granted. Issue is which law should govern in determining
Hospital the date when the period of redemption should run? (There are three choices here.) SC held
•  It  is  undisputed that the doctors and medical specialists holding clinics in CHHMAC that the LGC and the ordinance should govern, albeit conflicting at the outset. The LGC and the
Ordinance should be harmonized.
are those duly accredited by CHH, that is, they are consultants of the hospital and
the   ones   who   can   treat   CHH’s   patients   confined   in   it.     This   fact   alone   takes   away   Real Property Code: one year from date of registration
CHHMAC from being  categorized  as  “commercial”  since  a  tertiary  hospital  like  CHH   Local Government Code: one year from date of sale
is required by law to have a pool of physicians who comprises the required medical Ordinance: one year from the date of the annotation of the sale of the property
departments in various medical fields.
•   Physicians   holding   offices   or   clinics   in   CHHMAC,   duly   appointed or accredited by Court  said:  “To harmonize the provisions of the two laws and to maintain the policy of the law to
CHH,  precisely  fulfill  and  carry  out  their  roles  in  the  hospital’s  services  for  its  patients   aid  rather  than  to  defeat  the  owner’s  right  to  redeem  his  property,  Section  14  (a),  Paragraph  7  of  
City Ordinance should be used to define the phrase “one   (1)   year   from   the   date   of   sale” as
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appearing in Section 261 of R.A. No. 7160, to mean “one   (1)   year   from   the   date   of   the   RCBC filed an MR questioning the Order. In the MR, the ordinance which
annotation   of   the   sale   of   the   property   at   the   proper   registry..”   Applying that, from the date of was enacted pursuant to the LGC states that one year should be computed
registration of the Certificate of Sale of Delinquent Property on February 10, 2004, respondent from date of registration.
had until February 10, 2005 to redeem the subject properties. Hence, its tender of payment of
RTC granted the petition for mandamus. (Quezon City is ordered to accept
the  subject  properties’  tax  delinquencies  and  other  fees  on  June  10,  2004,  was  well  within  the  
redemption period, and it was manifest error on the part of petitioners to have refused such
RCBC’s  tender  of  payment).
tender  of  payment.”
Where the confusion lies:
G.R. No. 171033
August 3, 2010 Real Property Code: one year from date of registration of the certificate of sale
Peralta, J. Local Government Code: one year from date of sale
Ordinance: one year from the date of the annotation of the sale of the property
Facts:
Spouses Roberto and Monette Naval obtained a loan from RCBC secured (These laws are enacted chronologically)
by a real estate mortgage of properties.
In 1998, the real estate mortgage was foreclosed and the properties were Issues: Which law should be followed? (Local Government Code and the ordinance
sold at public auction with RCBC as the highest bidder and the – the harmonized version )
corresponding Certificates of Sale were issued August 4, 1998. They
registered the sale only on February 10, 2004. Held:
Meanwhile, an auction sale of tax delinquent properties was conducted by Petition DISMISSED.
the City Treasurer of Quezon City sometime in 2003 , and this sale included Decision of lower court AFFIRMED
the properties bought by RCBC. Alvin Emerson S. Yu was adjudged as the
highest bidder. Upon payment of the tax delinquencies, he was issued the Ratio:
corresponding Certificate of Sale of Delinquent Property which was
registered on Feb. 10, 2004. Section 78 of P.D. No. 464 or the Real Property Tax Code provides that
On June 10, 2004, RCBC tendered payment for all of the assessed tax the owner or any person holding a lien or claim over a tax delinquent
delinquencies, interest, and other costs of the subject properties with the property sold at public auction has one (1) year from the date of
Office of the City Treasurer, Quezon City. However, the Office of the City registration of sale to redeem the property.
Treasurer refused to accept said tender of payment.
On June 15, 2004, RCBC filed before the Office of the City Treasurer a Sec. 78. Redemption of real property after sale. – Within the
Petition for the acceptance of its tender of payment and for the subsequent term of one year from the date of the registration of the sale
issuance of the certificate of redemption in its favor. Nevertheless, tender of of the property, the delinquent taxpayer or his representative,
payment was also denied. or in his absence, any person holding a lien or claim over the
Consequently, RCBC filed a Petition for Mandamus with Prayer for Issuance property, shall have the right to redeem the same by paying the
of a TRO and a Writ of Preliminary Injunction before the RTC. It contended provincial or city treasurer or his deputy the total amount of
that it had until February 10, 2005, or one (1) year from the date of taxes and penalties due up to the date of redemption, the costs
registration of the certificate of sale on February 10, 2004, within which of sale and the interest at the rate of twenty per centum on the
to redeem the subject properties, pursuant to Section 78 of Presidential purchase price, and such payment shall invalidate the sale
Decree (P.D.) No. 464 or the Real Property Tax Code. certificate issued to the purchaser and shall entitle the person
After the parties filed their respective pleadings, the RTC initially denied the making the same to a certificate from the provincial or city
RCBC’s   petition.   In denying the petition, the RTC said P.D. No. 464 has treasurer or his deputy, stating that he had redeemed the
been expressly repealed by Republic Act (R.A.) No. 7160, or the Local property.
Government Code.
However, since the passing of R.A. No. 7160, such is no longer
controlling. R.A. No. 7160 repealed P.D. No. 464.

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Consequently, as regards redemption of tax delinquent properties sold including interest due thereon, and the expenses of sale plus
at public auction by RA 7160, the owner of the delinquent real property or interest of two percent (2) per month on the purchase price from
person having legal interest therein, or his representative, has the right to the date of sale to the date of redemption. Such payment shall
invalidate the certificate of sale issued to the purchaser and the
redeem the property within one (1) year from the date of sale upon payment
owner of the delinquent real property or person having legal
of the delinquent tax and other fees. interest therein shall be entitled to a certificate of redemption
which shall be issued by the City Treasurer.
Section 261. Redemption of Property Sold. – Within one (1)
year from the date of sale, the owner of the delinquent real xxxx
property or person having legal interest therein, or his
representative, shall have the right to redeem the property upon
Verily, the ordinance is explicit that the one-year redemption period
payment to the local treasurer of the amount of delinquent tax,
should be counted from the date of the annotation of the sale of the
including the interest due thereon, and the expenses of sale from
the date of delinquency to the date of sale, plus interest of not more property at the proper registry (like the repealed RPTC). At first glance,
than two percent (2%) per month on the purchase price from the this provision runs counter to that of Section 261 of R.A. No. 7160 which
date of sale to the date of redemption. Such payment shall provides that the one year redemption period shall be counted from the date
invalidate the certificate of sale issued to the purchaser and the of sale of the tax delinquent property. There is, therefore, a need to
owner of the delinquent real property or person having legal interest reconcile these seemingly conflicting provisions of a general law and
therein shall be entitled to a certificate of redemption which shall be a special law.
issued by the local treasurer or his deputy.

A general statute is one which embraces a class of subjects or places and


From the date of sale until the expiration of the period of
redemption, the delinquent real property shall remain in the does not omit any subject or place naturally belonging to such class.
possession of the owner or person having legal interest therein who
shall remain in the possession of the owner or person having legal A special statute, as the term is generally understood, is one which relates
interest therein who shall be entitled to the income and other fruits to particular persons or things of a class or to a particular portion or section
thereof. of the state only. In the present case, R.A. No. 7160 is to be construed as a
general law, while City Ordinance No. SP-91, S-93 is a special law, having
The local treasurer or his deputy, upon receipt from the
emanated only from R.A. No. 7160 and with limited territorial application
purchaser of the certificate of sale, shall forthwith return to the latter
the entire amount paid by him plus interest of not more than two
in Quezon City only.
percent (2%) per month. Thereafter, the property shall be free from
all lien of such delinquent tax, interest due thereon and expenses of To harmonize the provisions of the two laws and to maintain the policy of
sale. the law to   aid   rather   than   to   defeat   the   owner’s   right   to   redeem   his  
property, Section 14 (a), Paragraph 7 of City Ordinance No. SP-91, S-93
Nonetheless, the government of Quezon City, pursuant to the should be construed as to define the phrase “one  (1)  year  from  the  date  of  
taxing power vested on local government units by Section 5, Article sale” as appearing in Section 261 of R.A. No. 7160, to mean “one  (1)  year  
X of the 1987 Constitution and R.A. No. 7160, enacted City from the date of the annotation of the sale of the property at the proper
Ordinance No. SP-91, S-93, otherwise known as the Quezon City registry.”
Revenue Code of 1993, providing, among other things, the procedure
in the collection of delinquent taxes on real properties within the Consequently, the counting of the one (1) year redemption period of
territorial jurisdiction of Quezon City. Section 14 (a), Paragraph 7, the property sold at public auction for its tax delinquency should be
Code provides: counted from the date of annotation of the certificate of sale in the
proper Register of Deeds.
7) Within one (1) year from the date of the annotation of the
sale of the property at the proper registry, the owner of the Applying the foregoing to the case at bar, from the date of registration of the
delinquent real property or person having legal interest therein, or Certificate of Sale of Delinquent Property on February 10, 2004, respondent
his representative, shall have the right to redeem the property by
had until February 10, 2005 to redeem the subject properties.
paying to the City Treasurer the amount of the delinquent tax,
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Hence,   its   tender   of   payment   of   the   subject   properties’   tax   delinquencies   FACTS:
and other fees on June 10, 2004, was well within the redemption period, Lim obtained a loan from GSIS in the amount of P875K and secured it
and it was manifest error on the part of petitioners to have refused such through a mortgage over two lots with 3-story building located at Sampaloc,
tender of payment. Manila.
She failed to pay and the GSIS foreclosed the subject properties and
sold it at public auction. GSIS being the highest bidder, bought the
properties and upon her failure to exercise her right of redemption, the titles
were consolidated in favor of the GSIS. Lim died.
However, by virtue of a Board Resolution by the GSIS, the testate estate of
Lim was allowed to redeem the properties, and her heirs did so.
Before the lots could be delivered to them, the Treasurer of Manila required
the heirs to pay real estate taxes for the period of three years, or the period
G.7. Remedies for Collection of Real Property Tax
when the GSIS had title over the properties prior to redemption.
The heirs paid the amount under protest.
16. Testate Estate of Lim v. City of Manila (KF) The heirs filed a demand letter to the GSIS requesting reimbursement. It
February 21, 1990 was denied. The heirs then filed a similar demand to the City of Manila for a
Gutierrez, Jr., J.: refund, also denied.
The heirs then filed with the trial court a petition for a sum of money for the
Topic: Remedies for Collection of Real Property Tax amounts paid under protest. Trial court denied, the CA the same.
Petitioner: Testate Estate of Concordia T. Lim TC: cited lack of jurisdiction, and reasoned that the heirs should have filed
Respondent: City of Manila, Jesus I. Calleja, in his capacity as City Treasurer of an appeal with the Local Board of Assessment Appeals in accordance with
Manila, Nicolas Catiil, in his capacity as City Assessor of Manila, and/or Government the exhaustion of remedies rule. It also said that while the GSIS may be
Service Insurance System exempt from the payment of real estate taxes (and therefore, no need for
the heirs to pay the same), such an exemption does not include properties
Summary: Lim obtained a loan from GSIS and secured it through a mortgage over 2 lots. She whose beneficial use has been extended to other persons. More so, the
failed to pay and GSIS foreclosed the properties. By virtue of a Board Resolution, the testate deed of sale (for the redemption) between the heirs and GSIS had indicated
estate of Lim was allowed to redeem the properties and the heirs did so. Before the lots could
that the heirs will be liable for all taxes related to the sale. Thus, this case.
be delivered to the heirs, the treasurer of Manila required the heirs to pay real estate taxes for
the period when GSIS had title over the properties prior redemption. The heirs paid under During the proceedings, the lots were transferred by the heirs to a third
protest. person.

1) Does the trial court have jurisdiction over a complaint for a sum of money involving ISSUES:
refund? – YES, a court may assume jurisdiction over any suit availing of the tax 1) Does the trial court have jurisdiction over a complaint for a sum of money
assessed after the taxpayer had paid the sum under protest. In real estate taxation, involving refund?
the unpaid tax attaches to the property and is chargeable against the taxable 2) Do the heirs have a right to the refund?
person who had actual or beneficial use and possession of it regardless of
3) Do the heirs have personality to sue?
whether or not he is the owner.

2) Do the heirs have a right to the refund? – YES, because under their contract of sale HELD/RATIO:
with the GSIS, the heirs did not assume liability for taxes accrued while the lots 1) Yes. The Court stated that under Section 64 of the Real Property Tax Code,
were  in  GSIS’  possession a court may assume jurisdiction over any suit availing of the tax
assessed after the taxpayer had paid the sum under protest. The
3) Do the heirs have personality to sue? – YES, The trial court found insufficient basis Court’s   main   reason,   however,   hinged   on   the   fact   that   courts   have  
for   the   trial   court’s ruling that the right of action should be between the buyer (third jurisdiction   over   payments   of   sums   of   money:   “In real estate taxation, the
person) and the heirs. unpaid tax attaches to the property and is chargeable against the taxable
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person who had actual or beneficial use and possession of it regardless view that not even the GSIS is liable to pay real property tax on
of whether or not he is the owner. (Sections 3(a) and 19 of P.D. No. 464; public land leased to other persons.
Province of Nueva Ecija v. Imperial Mining Co., Inc., 118 SCRA 632 [1982]).
a. Raising doubts on the validity of the imposition and collection of the 3) Yes. The  trial  court  found  insufficient  basis  for  the  trial  court’s  ruling  that  the  
real property tax for the designated periods before the title to the right of action should be between the buyer (third person) and the heirs.
properties may be transferred, the plaintiff-appellant paid under
protest. This step was taken in accordance with the provision of
Section  62  of  P.D.  No.  464.”  
b. Moreover, Section 30 of the Real Property Tax Code was 17. Reyes v. Almanzor (MR)
inapplicable (it dealt with appeals that should be filed with the G.R. Nos. 49839-46
LBAA), because the amount of the tax assessment itself was not in April 26, 1991
question: the imposition and the burden of paying it were. Paredes, J.

2) Yes, because under their contract of sale with the GSIS, the heirs did not Petitioners: JOSE B. L. REYES and EDMUNDO A. REYES
assume   liability   for   taxes   accrued   while   the   lots   were   in   GSIS’   Respondents: PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROÑO, in
possession. The trial court erred in relying on the case of City of Baguio v. their capacities as appointed and Acting Members of the CENTRAL BOARD OF
Busuego, which involved a contract to sell that had a stipulation saying that ASSESSMENT APPEALS; TERESITA H. NOBLEJAS, ROMULO M. DEL ROSARIO,
the vendee shall pay all taxes and liabilities on the lots during the term of RAUL C. FLORES, in their capacities as appointed and Acting Members of the
the contract to sell. BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS CATIIL, in his
a. The contract of sale here only had a stipulation that the vendee capacity as City Assessor of Manila
(heirs) shall pay the taxes relative to the execution and
implementation of the deed of sale—meaning, the documentary Facts
stamp tax, expenses for registration, those taxes that were THE J.B.L. Reyes, Edmundo and Milagros Reyes are co-owners of land in
necessary for the completion of the sale and which accrued after Tondo and Sta. Cruz, leased and occupied by tenants, paying monthly
the sale. This does not include real estate taxes. Moreover: the rentals not exceeding Php 300
exemption of the GSIS from paying real estate taxes is clear under RA 6359 was enacted
the Real Property Tax Code, notwithstanding the exemption when o prohibits rental increase for dwelling units or lands which do not
the beneficial use has been extended to another person (then, exceed Php 300 for a period of 1 year from effectivity; and then an
such person shall be liable). Here, the beneficial user of the two only an increase of up to 10% is allowable thereafter
lots was not even impleaded. The Court therefore can only o suspended Art. 1673(1) of CC for 2 years from effectivity, thereby
rule that the heirs, who are not beneficial users, had no disallowing ejectment of lessees for upon the expiration of the
liability for the tax. Hence, the tax collected and assessed is NOT usual period of lease
valid and a refund by the City Government is proper. PD 20 amending RA 6359 was then released making absolute the
b. However, petitioner is not entitled to a reimbursement from the prohibition on increasing rentals and making indefinite the suspension of
respondent GSIS because: (1) the GSIS is exempt from payment Art. 1673(1) CC
of the real property tax under Sec. 33 of the Revised Charter of the Later, City Assessor re-classified and reassessed the value of the properties
GSIS; and (2) the tax should be based on "actual use" of the using  the  “comparable  sales  approach”;;  necessarily,  this  increased  the  tax  
4
property. Section 40 of the Real Property Tax Code supports the rates
Petitioners filed a Memorandum of Disagreement with the Board of
Assessment Tax Appeals because the new taxes were “excessive,  
4
Sec. 40. Exemption from Real Property Tax. — The exemption shall be as follows: unwarranted,   inequitable,   confiscatory   and   unconstitutional”   and   the  
assessor  should  have  used  the  “income  approach”
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions and any
government owned corporation so exempt by its charter: Provided, however, That this exemption shall Board   of   Assessment   Tax   Appeals   affirmed   the   assessor’s   assessment.  
not apply to real property of the abovenamed entities the beneficial use of which has been granted, for Petitioners appealed to the Central Board, which conducted ocular
consideration or otherwise, to a taxable person.
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inspections. The assessor submitted the valuations of neighboring namely: (1) that the sale must represent a bonafide arm’s   length  
properties to justify the assessment. Central Board affirmed. MR denied transaction between a willing seller and a willing buyer and (2) the
So this petition for certiorari to review property must be comparable property. Nothing can justify or
support their view as it is of judicial notice that for properties
covered by P.D. 20 especially during the time in question, there
Issue: Should   the   assessor   have   used   the   “income   approach”   or   the “comparable   were hardly any willing buyers. As a general rule, there were no
sales  approach”?  Income  approach.  Petition  is  impressed  with  merit.   takers so that there can be no reasonable basis for the conclusion
that these properties were comparable with other residential
Ratio properties not burdened by P.D. 20

On using the income against the comparable sales approach.


Some taxation doctrines
It  wasn’t  really  discussed  but  from  context  you  could  gather  that
Uniformity has been defined as that principle by which all taxable articles or kinds of
o Comparable sales approach—using the market value of
property of the same class shall be taxed at the same rate
neighboring properties to assess value of subject property
o Income approach—assess property based on income derived from Taxation is said to be equitable when its burden falls on those better able to pay.
it Taxation is progressive when its rate goes up depending on the resources of the
Naturally, the effects of PD 20 amending RA 6359 would be that less person affected.
income would be derived from the properties affected. Actually, using the
assessment of the assessor, the resulting annual real estate taxes would be The   power   to   tax   “is   an   attribute   of   sovereignty”.   But   adversely   effecting   as   it   does  
greater than the rentals paid by the tenants property rights, both the due process and equal protection clauses of the Constitution
Assessor explained that the reason why he used comparable sales was that may properly be invoked to invalidate in appropriate cases a revenue measure. If it
whenever income is affected by certain price control laws, they usually were otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall that
disregard this in considering the value because they do not project the “the   power   to   tax   involves the power to destroy.”   The   web   or   unreality   spun   from  
actual market value; also, most of the time these are temporary Marshall’s   famous   dictum   was   brushed   away   by   one   stroke   of   Mr.   Justice   Holmes’  
pen,  thus:  “The  power  to  tax  is  not  the  power  to  destroy  while  this  Court  sits.”

o Whereas in comparable sales approach—the value estimate of the


properties predicated upon prices paid in actual, market
transactions would be a uniform and a more credible standard to
use especially in case of mass appraisal of properties
G.8.  Taxpayers’  Remedies
But the assessor and Board could not just disregard the effects of PD 20
given  that  it’s  intended  to  be  in operation almost indefinitely 18. Talento v. Escalada (RK)
It is no question that either method is acceptable; but the assessor, in G.R. No. 180884
choosing the method, must consider all the circumstances and exercise June 27, 2008
prudent discretion Ynares-Santiago, J.
Comparable approach method unjust and inapplicable in this case
o Under the Real Property Tax Code, property must be assessed at Topic: Taxpayer’s  Remedies
its fair and current market value Petitioner: Emeralda S. Talento
o By no strecth of the imagination can the market value of properties Respondents: Hon. Judge Remigo Escalada Jr., Petron Corporation
covered by P.D. No. 20 be equated with the market value of
properties not so covered. The former has naturally a much lesser Summary: Petron was assessed 1.7 Billion in RPT dating back from 1994 up to the 2nd
market value in view of the rental restrictions. Quarter of 2007. Petron appealed the assessment to the LBAA and filed a bond (1.3B). While
o not even the factors determinant of the assessed value of subject this was pending, Provincial Treasurer of Bataan sent Petron final letters giving them a deadline
properties  under  the  “comparable  sales  approach”  were  presented,   and that the sale will be conducted October of 2007. Petron says this should be deferred

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because the appeal is still pending the LBAA. Later on, Petron filed in the RTC of Bataan an The requisites for the issuance of a writ of preliminary injunction are: (1) the
action  for  injunction  and  TRO.  This  was  granted  upon  Petron’s  filing  of  an  additional  bond  (400   existence of a clear and unmistakable right that must be protected;
M to complete the 1.7B). The treasurer of Bataan elevated the case to the SC asking whether and (2) an urgent and paramount necessity for the writ to prevent
the collection of taxes may be suspended by filing an appeal and posting a surety bond. SC
serious damage
initially tackled procedural issues concluding that the appeal to the SC was defective so case
should be dismissed on this basis pa lang. Nevertheless, the SC said that even assuming it was o The urgency and paramount necessity for the issuance of a writ
a correct mode of appeal, the case is still without merit. It held that RTC was correct in issuing of injunction becomes relevant in the instant case considering that
the injunction as there was an urgent and paramount necessity for the issuance of writ. Also, what is being enjoined is the sale by public auction of the
while generally, collection of taxes will not be suspended by an appeal, there is an exception, properties of Petron amounting to at least P1.7 billion and which
and that is upon showing of a clear and unmistakable right to refuse payment of taxes (see why properties are vital to its business operations.
below). And lastly, Petron filed a bond for the total amount of tax due. GR: We are not unaware that appeal shall not suspend the collection of
realty taxes.
Facts: o EXC: where the taxpayer has shown a clear and unmistakable
June 2007, Petron received letter from Provincial Assessor of Bataan a right to refuse or to hold in abeyance the payment of taxes
notice of revised assessment over its machines and pieces of equipment o HERE: we note that (1) respondent contested the revised
in Limao, Limay, Bataan.  Petron’s  total  liability  on  deficiency real estate assessment on the following grounds: (2) that the subject
tax due for 1994 up to first and second quarter of 2007 was 1.7 BILLION. assessment pertained to properties that have been previously
Petron elevated the assessment to the LBAA posting a 1.3 billion bond. declared; (3) that the assessment covered periods of more than 10
While this was pending, Petron received on August 22, 2007, a final notice years which is not allowed under the LGC; that the fair market
of delinquent real property tax with a warning that the subject properties value or replacement cost used by petitioner included items which
would be levied and auctioned. should be properly excluded; (4) that prompt payment of discounts
o Despite   the   pendency   in   the   LBAA,   the   Treasurer’s   office   insists   were not considered in determining the fair market value; and (5)
that only   Petron’s   payment   under   protest   would   bar   the   that the subject assessment should take effect a year after or on
collection of the RPT due, pursuant to 231 and 252 of LGC. January 1, 2008.
o A warrant of levy was issued on September 24, 2007 and a notice o APPLICATION: To our mind, the resolution of these issues would
of sale scheduled on October 17, 2007. have a direct bearing on the assessment made by petitioner.
Thus, Petron filed in the RTC a case for prohibition with prayer for the Hence, it is necessary that the issues must first be passed upon
issuance of a TRO and Preliminary Injunction. before the properties of respondent is sold in public auction.
o RTC issued order granting the preliminary injunction after posting Moreover, respondent has posted a surety bond equivalent to the amount
400 Million worth of bond to complete the 1.7 Billion (as it already of the assessment due
filed the 1.3 billion bond before). o LBAA Rules of Procedure:
o The trial court held that in scheduling the sale of the properties “An   appeal   shall   not   suspend   the   collection   of   the  
despite the pendency of Petron's appeal and posting of the surety corresponding realty taxes on the real property subject of
bond with the LBAA, petitioner deprived Petron of the right to the appeal as assessed by the Provincial, City.... An
appeal. appeal may be entertained but the hearing thereof shall
Hence, the present petition for certiorari. be deferred until the corresponding taxes due on the real
property subject of the appeal shall have been paid under
Issues: Whether the collection of taxes may be suspended by reason of the filing of protest or the petitioner shall have given a surety bond,
an appeal and posting of a surety bond—YES subject to the following conditions…”
o CTA LAW (Who may appeal):
Held:WHEREFORE, in view of all the foregoing, the instant petition is DISMISSED. No appeal taken to the Court of Appeals from the
Collector of Internal Revenue x x x shall suspend the
Ratio: payment, levy, distraint, and/or sale of any property for
the satisfaction of his tax liability as provided by existing
RTC CORRECTLY GRANTED INJUNCTION law. Provided, however, That when in the opinion of
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the Court the collection by the aforementioned Facts:
government agencies may jeopardize the interest of the
Government and/or the taxpayer the Court at any stage of On 29 September 2001, a cargo shipment described as "agricultural product"
the processing may suspend the collection and require and valued at US$6,000 arrived at the Port of Subic, Subic Bay Freeport Zone.
the taxpayer either to deposit the amount claimed or to file On the basis of its declared value, the shipment was assessed customs duties
a surety bond for not more than double the amount with and taxes totaling P57,101 which were paid by respondent WIRA, the
shipment’s  consignee.
the Court
On 23 October 2001, Raval Manalas, Acting COO III of the Bureau of Customs,
Port of Subic (BOC Subic Port), issued a Memorandum addressed to the BOC
Subic Port District Collector, stating that upon examination, the subject
shipment was found to contain rice. The Memorandum further stated as
follows: that the importer claimed there was a misshipment since it also had
H. Customs and Duties a pending order for rice; that the "warehousing entry" was amended to
reflect the change in description from "agricultural product" to rice; that the
shipment, as a warehoused cargo inside the freeport zone, was duty and tax
H.1. Organization, Powers and Jurisdiction of BOC free, and was not recommended for any imposition of penalty and surcharge;
that the consumption entry was changed to reflect a shipment of rice; and that
the consumption entry, together with supporting documents belatedly received
19. SBMA v. Rodriguez (KB) by the importer, was submitted to the bank although not yet filed with the BOC.
On   24   October   2001,   Hilda   Bacani   (respondents’   authorized   representative)  
wrote BOC Subic Port District Collector Billy Bibit, claiming that she was the
Topic: Customs & Duties; Jurisdiction of BOC representative of Metro Star Rice Mill (Metro Star), the importer of the subject
Relevant Laws: cargo. She stated that there was a "misshipment" of cargo which actually
contained rice, and that Metro Star is an authorized importer of rice as provided
G.R. No. 160270 in the permits issued by the National Food Authority (NFA). Bacani requested
April 23, 2010 that the "misshipment" be upgraded from "agricultural product" to a shipment of
CARPIO, J.: rice, and at the same time manifested willingness to pay the appropriate duties
and taxes.
Petitioners: SUBIC BAY METROPOLITAN AUTHORITY The following day, or on 25 October 2001, the BOC issued Hold Order No.
Respondents: MERLINO E. RODRIGUEZ and WIRA INTERNATIONAL TRADING 14/C1/2001 1025-101, directing BOC Subic Port officers to (1) hold the
CORP., both represented herein by HILDA M. BACANI, as their authorized delivery of the shipment, and (2) to cause its transfer to the security
representative warehouse.
On 26 October 2001, respondent WIRA, as the consignee of the shipment, paid
Summary: A cargo shipment was assessed by custom duties. It as was described as the amount of P259,874 to the BOC representing additional duties and taxes for
“agricultural   product”   but   was   later   found   to   contain   rice.   Importer   claims   that   there   was   a  
the upgraded shipment.
misshipment   and   requested   that   it   be   upgraded   from   “agriculutal   products”   to   rice   and   In accordance with the shipment upgrade, respondent WIRA paid on 28
manifested its willingness to pay the correct amount of taxes. BOC issued a hold order on the November 2001 a further amount ofP206,212 as customs duties and taxes.
shipment. Respondent paid all the taxes and custom duties due however SMBA refused to Despite the certification, petitioner SBMA, through Seaport Department General
allow the release of the rice shipment. Respondents therefore filed a case in RTC and was able Manager Augusto Canlas, refused to allow the release of the rice shipment.
to get a TRO. SMBA still refuses to comply. RTC then held them in indirect contempt. SMBA Hence, on 11 June 2002, respondents filed with the RTC of Olongapo City, a
argues that RTC has no jursdiction over the case. Court held that from the moment imported
complaint for Injunction and Damages with prayer for issuance of Writ of
goods are actually in the possession or control of the Customs authorities, even if no
Preliminary Prohibitory and Mandatory Injunction and/or Temporary Restraining
warrant for seizure or detention had previously been issued by the Collector of Customs
Order against petitioner SBMA and Augusto L. Canlas
in connection with the seizure and forfeiture proceedings, the BOC acquires exclusive
jurisdiction over such imported goods for the purpose of enforcing the customs laws, On 21 November 2002, the RTC issued an Order on the indirect contempt case
subject to appeal to the Court of Tax Appeals whose decisions are appealable to this
Court. On 27 November 2002, the RTC issued another Order considering the pending
incidents in the injunction case. The RTC held that there should be prior

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determination by the BOC on whether the 2,000 bags of imported rice were As such, the BOC had acquired exclusive original jurisdiction over the
smuggled, and thus issued the following order: subject shipment, to the exclusion of the RTC.
It is well settled that the Collector of Customs has exclusive jurisdiction over
WHEREFORE, the Bureau of Customs, Customs District XIII, Port of Subic, seizure and forfeiture proceedings, and regular courts cannot interfere
Olongapo City through Atty. Titus A. Sangil, Chief, Law Division and Deputy Collector with his exercise thereof or stifle or put it at naught. The Collector of
for Administration is hereby directed to resolve Seizure Identification Case No. 2002- Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction to
10 and submit to the court its resolution therewith, within fifteen (15) days from hear and determine all questions touching on the seizure and forfeiture of
receipt of this order. Meantime, the proceedings in this case are suspended until the dutiable goods.
court is in receipt of the resolution of the Bureau of Customs. Regional trial courts are devoid of any competence to pass upon the validity or
regularity of seizure and forfeiture proceedings conducted by the BOC and to
enjoin or otherwise interfere with these proceedings. Regional trial courts are
The  Court  of  Appeals’  Ruling
precluded from assuming cognizance over such matters even through
3
petitions for certiorari, prohibition or mandamus.
Petitioner filed with the CA a Petition for Certiorari and Prohibition with prayer for Verily, the rule is that from the moment imported goods are actually in the
Temporary Restraining Order and Preliminary or Permanent Injunction seeking to possession or control of the Customs authorities, even if no warrant for
nullify and set aside the RTC Orders dated 21 November 2002 and 27 November seizure or detention had previously been issued by the Collector of
2002. On 20 June 2003, the CA rendered a Decision dismissing the petition for lack Customs in connection with the seizure and forfeiture proceedings, the
of merit and affirming the Orders issued by the RTC. BOC acquires exclusive jurisdiction over such imported goods for the
purpose of enforcing the customs laws, subject to appeal to the Court of
Issues: Tax Appeals whose decisions are appealable to this Court.
The issue for resolution in this case is whether the CA erred in affirming the RTC As we have clarified in Commissioner of Customs v. Makasiar, the rule that
Orders dated 21 November 2002 and 27 November 2002. --- YES. RTC has no RTCs have no review powers over such proceedings is anchored upon the
jurisdiction over the case policy of placing no unnecessary hindrance on the government's drive, not only
to prevent smuggling and other frauds upon Customs, but more importantly, to
Held: render effective and efficient the collection of import and export duties due the
WHEREFORE, we GRANT the petition. We REVERSE the   Court   of   Appeals’   State, which enables the government to carry out the functions it has been
Decision dated 20 June 2003 and Resolution dated 8 October 2003 in CA-G.R. SP instituted to perform.
No. 74989. We declare VOID the Regional Trial Court Orders dated 21 November Finally, the RTC stated in its Order dated 27 November 2002 that based on the
2002 and 27 November 2002. records, "there is a pending case with the Bureau of Customs District XIII, Port
of Subic, Olongapo City, identified and docketed as Seizure Identification No.
Ratio: 2002-10 and involving the same 2,000 bags of imported rice that is also the
subject matter of the case herein. The existence and pendency of said case
Petitioner alleges that the RTC of Olongapo City has no jurisdiction over the before the Bureau of Customs have in fact been admitted by the parties."
action for injunction and damages filed by respondents on 11 June 2002 as The RTC then proceeded to order the suspension of court proceedings, and
said action is within the exclusive original jurisdiction of the BOC pursuant to directed the BOC Subic Port Chief of the Law Division and Deputy Collector for
Section 602 of Republic Act No. 1937, otherwise known as the "Tariff and Customs Administration, Atty. Titus Sangil, to resolve the seizure case and submit to the
Code of the Philippines," as amended. Section 602 provides, thus: RTC its resolution within fifteen (15) days from receipt of the court order.
We find the issuance of the RTC Order dated 27 November 2002 improper. The
pendency of the BOC seizure proceedings which was made known to the
Sec. 602. Functions of the Bureau.- The general duties, powers and RTC through petitioner's consolidated motion to dismiss should have
jurisdiction of the bureau shall include: prompted said court to dismiss the case before it. As previously discussed,
the BOC has exclusive original jurisdiction over seizure cases under Section 602
g. Exercise exclusive original jurisdiction over seizure and forfeiture of the Tariff and Customs Code. The rule that the RTC must defer to the
cases under the tariff and customs laws. exclusive original jurisdiction of the BOC in cases involving seizure and
forfeiture of goods is absolute. Thus, the RTC had no jurisdiction to issue its
Petitioner contends that the imported 2,000 bags of rice were in the actual Order dated 27 November 2002.
physical control and possession of the BOC as early as 25 October 2001, by
virtue of the BOC Subic Port Hold Order of even date, and of the BOC Warrant
of Seizure and Detention dated 22 May 2002.

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