BIR vs. Manila Home Textile, Inc., G.R. No.

203057, June 6, 2016

Facts
Manila Home Textile, Inc. (MHI) is engaged in the business of manufacturing, buying, selling, exporting,
importing and otherwise dealing in home textiles, apparels of all kinds, and their end-products. A Letter
of Authority (LOA) was issued to the MHI advising it that BIR agents under the National Investigation
Division (NID) had been authorized to examine its books of accounts for taxable years 1997 to 2002. It
was discovered that the MHI understated its importations and/or purchases in the years 2001 to 2002 by
as much as P428,408,634,00 and P554,802,368.00, respectively, resulting in deficiency income taxes.
Thus, the BIR filed a criminal complaint for tax evasion and perjury against MHI and its corporate
officers, pursuant to Sections 254, 255, 257 and 267 vis-a-vis Sections 52(A), 105 and 114(A) of the
NIRC.

In refutation of the foregoing charges, MHI averred that they merely received on consignment the raw
materials which were brought to the Philippines tax-free; that these raw materials were then processed at
the MHTs customs bonded warehouse and eventually re-exported as finished handbags; that if they did
not declare the imported raw materials as purchases, it was because they did not in fact purchase these
imported raw materials which, to repeat, were merely consigned to them tax-free; and that considering
that the importations and re-exportation of these raw materials happened four or five years ago, their
records are no longer available. The investigating prosecutor dismissed the complaint and this was
affirmed by the DOJ and the CA.

Issue
Whether the BIR was able to establish a prima facie case or shown probable cause to indict MHI for tax
evasion – YES

Ratio
The Court found that the annexes appended to the records of the case, submitted in amplification of the
BIR’s affidavit-complaint, already provide viable support to its plea for the indictment of MHI for tax
evasion. By contrast, MHI’s argument in this case is the nebulous, murky and unsubstantiated claim of
"consignment" with an alleged tax-free guaranty, not a shred or scintilla of which has been adduced in
this case. To repeat, MHI has not produced even a slip of paper purporting to prove that the raw materials
valued at hundreds of millions of pesos were delivered to them on "consignment."

Corollary thereto, it must be borne in mind that the tax exemption which MHI obviously wants or desires
to avail of in this case, are strictissimi juris. Indeed, taxation is the rule and tax exemption the exception.
Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of
language too plain to be misunderstood and MHI has utterly failed to make out even a prima facie for tax
exemption in their favor.

However, the ruling in this case should not be construed as an unbridled license for tax officials to engage
in fishing expeditions and witch-hunting, They should not abuse their investigative powers and should
exercise the same within the parameters and ambit of the law. By no means is the Court signaling mat it is
opening the floodgates to inundate the courts of justice with frivolous and malicious tax suits.
Coral Bay Nickel Corporation vs. CIR, G.R. No. 190506, June 13, 2016.

Facts
Coral Bay Nickel Corporation (Coral Bay) is a VAT entity registered with the BIR and is registered with
the PEZA as an Ecozone Export Enterprise. It filed its Amended VAT Return declaring unutilized input
tax from its domestic purchases of capital goods, other than capital goods and services, for its 3rd and 4th
quarters of 2002 totaling P50,124,086.75. It filed its Application for Tax Credits/Refund together with
supporting documents. Due to the alleged inaction of the CIR, Coral Bay elevated its claim to the CTA by
petition for review. The CTA denied the claim for refund citing CIR v. Toshiba Information Equipment
(Phils) Inc. (Toshiba) and RMC No. 42-03.

Coral Bay contends that Toshiba is not applicable inasmuch as the unutilized input VAT subject of its
claim was incurred from May 1, 2002 to December 31, 2002 as a VAT-registered taxpayer, not as a
PEZA-registered enterprise; that during the period subject of its claim, it was not yet registered with
PEZA because it was only on December 27, 2002 that its Certificate of Registration was issued; that until
then, it could not have refused the payment of VAT on its purchases because it could not present any
valid proof of zero-rating to its VAT-registered suppliers; and that it complied with all the procedural and
substantive requirements under the law and regulations for its entitlement to the refund.

Issue
Whether Coral Bay, an entity located within an ECOZONE, is entitled to the refund of its unutilized input
taxes incurred before it became a PEZA registered entity – NO

Ratio
The old VAT rule for PEZA-registered enterprises was based on their choice of fiscal incentives, namely:
(1) if the PEZA-registered enterprise chose the 5% preferential tax on its gross income in lieu of all taxes,
as provided by R.A. 7916, as amended, then it was VAT-exempt; and (2) if the PEZA-registered
enterprise availed itself of the income tax holiday under E.O. 226, as amended, it was subject to VAT at
10% (now, 12%). Based on this old rule, Toshiba allowed the claim for refund or credit on the part of
Toshiba Information Equipment (Phils) Inc.

This is not true with respect to Coral Bay. With the issuance of RMC 74-99, the distinction under the old
rule was disregarded and the new circular took into consideration the two important principles of the
Philippine VAT system: the Cross Border Doctrine and the Destination Principle. Furthermore, Section 8
of R.A. 7916 mandates that PEZA shall manage and operate the ECOZONE as a separate customs
territory. The provision establishes the fiction that an ECOZONE is a foreign territory separate and
distinct from the customs territory. Accordingly, the sales made by suppliers from a customs territory to a
purchaser located within an ECOZONE will be considered as exportations. Thus, the VAT implications
are that "no VAT shall be imposed to form part of the cost of goods destined for consumption outside of
the territorial border of the taxing authority."

The purchases of goods and services by Coral Bay that were destined for consumption within the
ECOZONE should be free of VAT; hence, no input VAT should then be paid on such purchases,
rendering Coral Bay not entitled to claim a tax refund or credit. Verily, if it had paid the input VAT, the
proper recourse was not against the Government but against the seller who had shifted to it the output
VAT following RMC No. 42-03
Philippine Bank of Communications vs. CIR, G.R. No. 194065, June 20, 2016

Facts
Pursuant to R.R. 7-92, the BIR issued a certificate authorizing the Philippine Bank of Communications
(PBComm) to operate and use the On-line Electronic Documentary Stamp Metering Machine (DS
metering machine). PBComm purchased documentary stamps from the BIR and loaded them to its DS
metering machine. During the period 23 March 2004 to 23 December 2004, PBComm executed several
repurchase agreements with the BSP. The documentary stamps were imprinted on the Confirmation
Letters corresponding to those repurchase agreements. PBComm claimed that the repurchase agreements
were not subject to the DST. Thus, it filed with the BIR an administrative claim for the issuance of tax
credit certificates for the alleged erroneous payment of the DST in the total amount of P11,063,866.67.
Alleging the inaction of the BIR, PBComm filed a Petition for Review with the CTA.

The CTA held that insofar as the taxpayers using the DS metering machine were concerned, the DST was
deemed paid upon the purchase of documentary stamps for loading and reloading on the DS metering
machine. Thus, the two-year prescriptive period for taxpayers using DS metering machine started to run
from the date of filing of the DST Declaration, and not from the date appearing on the documentary stamp
imprinted through the DS metering machine. Consequently, the refundable amount was reduced to
P5,238,495.40, the erroneously paid DST that had not yet been barred by prescription.

Issue
Whether the CTA correctly reckoned the prescriptive period from the date of filing of the DST
Declaration – NO

Ratio
The DS metering machine was developed and used for businesses with material DST transactions like
banks and insurance companies for their regular transactions. This system allows advanced payment of
the DST for future applications. However, for purposes of determining the prescriptive period for a claim
for a refund or tax credit, it is imperative to emphasize the nature of the DST. A DST is a tax on
documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale or
transfer of an obligation, right or property incident thereto. The DST is actually an excise tax, because it
is imposed on the transaction rather than on the document. The rule is that the date of payment is when
the tax liability falls due. Jurisprudence has made exceptions for reckoning the period of prescription from
the actual date of payment of tax by instead reckoning that date from the filing of the final adjusted
returns, i.e. income tax and other withholding taxes. These exceptions are nevertheless grounded on the
same rationale that payment of the tax is deemed made when it falls due.

Applying the same rationale to this case, the payment of the DST and the filing of the DST Declaration
Return upon loading/reloading of the DS metering machine must not be considered as the "date of
payment" when the prescriptive period to file a claim for a refund/credit must commence. For DS
metering machine users, the payment of the DST upon loading/reloading is merely an advance payment
for future application. The liability for the payment of the DST falls due only upon the occurrence of a
taxable transaction. Therefore, it is only then that payment may be considered for the purpose of filing a
claim for a refund or tax credit. Since actual payment was already made upon loading/reloading of the DS
metering machine and the filing of the DST Declaration Return, the date of imprinting the documentary
stamp on the taxable document must be considered as the date of payment contemplated under Section
229 of the NIRC.
Tridharma Marketing Corp. v. CTA , G.R. No. 215950, June 20, 2016

Facts
Tridharma Marketing Corp. (Tridharma) was assessed by the BIR with various deficiency taxes. It filed a
protest but the same was denied prompting Tridharma to appeal to the CTA via a Petition for Review with
Motion to Suspend Collection of Tax. The CTA 2nd Division granted the Motion for Suspension of
Collection of Tax but required Tridharma to deposit a surety bond in the amount of P6.7B later reduced to
P4.4B, which was equivalent to the deficiency assessment, upon the company’s motion for partial
reconsideration.

In this petition for certiorari which sought to annul the CTA 2nd Division resolution, Tridharma asserted
that the court committed grave abuse of discretion in requiring it to file a surety bond that was way
beyond its net worth.

Issue
Whether or not the CTA 2nd Division gravely abused its discretion—YES

Ratio
CTA gravely abused its discretion because it fixed the amount of the bond without conducting a
preliminary hearing to ascertain whether there were grounds to suspend the collection of the deficiency
assessment on the ground that such collection would jeopardize the interests of the taxpayer. CTA should
have considered other factors like whether or not the assessment would jeopardize the interest of the
taxpayer, or whether the means adopted by the CIR in determining the liability of the taxpayer was legal
and valid.

Section 11 of RA 1125 as amended RA 9282 provides that:

Sec. 11. Who may appeal; effect of appeal.- No appeal taken to the Court of Tax Appeals from
the decision of the CIR or the Collector of Customs shall suspend the payment, levy,
distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability
as provided by existing law: Provided, however, That when in the opinion of the Court the
collection by the BIR or the Commissioner of Customs may jeopardize the interest of the
Government and/or the taxpayer, the Court at any stage of the proceeding may suspend the
said collection and require the taxpayer either to deposit the amount claimed or to file a
surety bond for not more than double the amount with the Court.

Clearly, the CTA may order the suspension of the collection of taxes provided that the taxpayer either: (1)
deposits the amount claimed; or (2) files a surety bond for not more than double the amount. Tridharma’s
net worth only amounted to P916M, making the amount of P4.4B fixed for the bond nearly five times
greater than such net worth. The surety bond imposed was within the parameters delineated by the law.
However, the CTA erred in prescribing such amount without conducting a preliminary hearing.

A preliminary hearing is indispensable because (1) legitimate enterprises enjoy the constitutional
protection not to be taxed out of existence and (2) the requirement of the bond as a condition precedent to
suspension of the collection applies only in cases where the processes by which the collection sought to
be made by means thereof are carried out in consonance with the law.

The Court remanded the matter involving Tridharma’s plea against the correctness of the deficiency
assessment to the CTA and ordered the said court to conduct a preliminary hearing to determine and rule
on whether the bond required may be dispensed with or reduced to restrain the collection of deficiency
taxes assessed against the company.
CIR v. PNB, G.R. No. 195147, July 11, 2016

Facts
CIR appeals the CTA En Banc decision affirming the cancellation of the assessment for deficiency
documentary stamp taxes imposed on the interbank call loans of PNB for 1997.

Issue
Whether or not PNB’s interbank call loans are subject to DST— NO

Ratio
Interbank call loans are not included in the concept of loan agreements, which under Sec. 180 of the
NIRC are subject to DST.

The applicable law in this case was the NIRC of 1977 and not that of 1997 which took effect in 1998
because the subject assessment was for the taxable year 1997. This is because tax laws are prospective in
application, unless their retroactive application is expressly provided. PNB's interbank call loans are not
taxable under Section 180 of the 1977 NIRC as amended by RA 7660.

PNB's interbank call loans do not fall under the definition of a loan agreement found in Section 3(b) of
Revenue Regulations No. 9-94. An interbank call loan refers to the cost of borrowings from other resident
banks and non-bank financial institutions with quasi-banking authority that is payable on call or demand.
It is transacted primarily to correct a bank's reserve requirements. An interbank call loan is considered as
a deposit substitute transaction by a bank performing quasi-banking functions to cover reserve
deficiencies. It does not fall under the definition of a loan agreement. Even if it does, the DST liability
under Section 180 will only attach if the loan agreement was signed abroad but the object of the contract
is located or used in the Philippines, which was not the case in regard to PNB's interbank call loans.

In addition, interbank call loans, although not considered as deposit substitutes, are not expressly included
among the taxable instruments listed in Section 180 of the 1997 NIRC ; hence, they may not be held as
taxable. The rule in the interpretation of tax laws is that a statute will not be construed as imposing a tax
unless it does so clearly, expressly, and unambiguously. A tax cannot be imposed without clear and
express words for that purpose. In answering the question of who is subject to tax statutes, it is basic that
in case of doubt, such statutes are to be construed most strongly against the government and in favor of
the subjects or citizens because burdens are not to be imposed nor presumed to be imposed beyond what
statutes expressly and clearly import. As burdens, taxes should not be unduly exacted nor assumed
beyond the plain meaning of the tax laws.
CIR v. Kepco Corp. , G.R. No. 199422, June 21, 2016

Facts
Kepco Corp. (Kepco) filed with BIR a claim for refund. CIR did not act upon the claim. Consequently,
Kepco filed a Petition for Review with the CTA which granted the claim in a decision rendered by its 1st
Division. There being no MR filed by the CIR, the said decision became final and executory and a
corresponding Entry of Judgment and subsequently a Writ of Execution were issued.
CIR filed a petition for annulment of judgment with the CTA en banc alleging that she belatedly learned
of the decision and the issuance of the writ due to the negligence of her counsel.

Issue
Whether or not CTA En Banc has jurisdiction to take cognizance of the petition for annulment of
judgment— NO

Ratio
The CTA sitting en banc cannot annul the decision rendered by one of its divisions. The silence of the law
and the rules when it comes to the case at bar may be attributed to the need to preserve the principles that
there can be no hierarchy within a collegial court between its divisions and the en banc, and that a court's
judgment, once final, is immutable. Similar to other collegial courts such as the SC and the CA, the
divisions of the CTA are not considered separate and distinct courts but are divisions of one and the same
court. The decision of a division is deemed the decision of the court. The court sitting en banc does not
exercise appellate jurisdiction over its divisions.

A direct petition for annulment of a judgment of the CTA to the SC, meanwhile, is likewise unavailing,
for the same reason that there is no identical remedy with the High Court to annul a final and executory
judgment of the CA. Annulment of judgment is not among the cases enumerated in the Constitution's
Article VIII, Section 5 over which the SC exercises original jurisdiction.

The CIR should have filed a petition for certiorari under Rule 65. Although the Court may, as it has done
in a number of cases, consider a petition for review as a petition for certiorari, the same can no longer be
done in the instant case as more than 60 days have already passed since CIR’s alleged discovery of its
loss in the case due to the negligence of its counsel.

The Court directed the BIR to adopt mechanisms, procedures, or measures that can effectively monitor
the progress of cases being handled by its counsels. It also directed the Ombudsman to investigate and
determine who were responsible for the mishandling of the present case
CIR v Goodyear Philippines, G.R. No. 216130, August 3, 2016

Facts
Respondent is a domestic corporation duly organized and existing under the laws of the Philippines, and
registered with the Bureau of Internal Revenue (BIR) as a large taxpayer with Taxpayer Identification
Number 000-409-561-000.6 On August 19, 2003, the authorized capital stock of respondent was
increased from P400,000,000.00 divided into 4,000,000 shares with a par value of P100.00 each, to
P1,731,863,000.00 divided into 4,000,000 common shares and 13,318,630 preferred shares with a par
value of P100.00 each. Consequently, all the preferred shares were solely and exclusively subscribed by
Goodyear Tire and Rubber Company (GTRC), which was a foreign company organized and existing
under the laws of the State of Ohio, United States of America (US) and is unregistered in the Philippines.
On May 30, 2008, the Board of Directors of respondent authorized the redemption of GTRC's 3,729,216
preferred shares on October 15, 2008 at the redemption price of P470,653,914.00, broken down as
follows: P372,921,600.00 representing the aggregate par value and P97,732,314.00, representing accrued
and unpaid dividends. On October 15, 2008, respondent filed an application for relief from double
taxation before the International Tax Affairs Division of the BIR to confirm that the redemption was not
subject to Philippine income tax, pursuant to the Republic of the Philippines (RP) - US Tax Treaty.9 This
notwithstanding, respondent still took the conservative approach, and thus, withheld and remitted the sum
of P14,659,847.10 to the BIR on November 3, 2008, representing fifteen percent (15%) FWT, computed
based on the difference of the redemption price and aggregate par value of the shares. On October 21,
2010, respondent filed an administrative claim for refund or issuance of TCC, representing 15% FWT in
the sum of P14,659,847.10 before the BIR. Thereafter, or on November 3, 2010, it filed a judicial claim,
by way of petition for review, before the CTA, docketed as C.T.A. Case No. 8188. For her part, petitioner
maintained that respondent's claim must be denied, considering that: (a) it failed to exhaust administrative
remedies by prematurely filing its petition before the CTA; and (b) it failed to submit complete supporting
documents before the BIR.

Issue
Whether or not the gain derived by GTRC was subject to 15% FWT on dividends? - NO

Ratio
GTRC is a non-resident foreign corporation, specifically a resident of the US. Thus, pursuant to the
cardinal principle that treaties have the force and effect of law in this jurisdiction, the RP-US Tax Treaty
complementarily governs the tax implications of respondent's transactions with GTRC. Under Article 11
(5) 41 of the RP-US Tax Treaty, the term "dividends" should be understood according to the taxation law
of the State in which the corporation making the distribution is a resident, which, in this case, pertains to
respondent, a resident of the Philippines. Accordingly, attention should be drawn to the statutory
definition of what constitutes "dividends," pursuant to Section 73 (A) 42 of the Tax Code which provides
that the term 'dividends' means any distribution made by a corporation to its shareholders out of its
earnings or profits and payable to its shareholders, whether in money or in other property." In light of the
foregoing, the Court therefore holds that the redemption price representing the amount of P97,732,314.00
received by GTRC could not be treated as accumulated dividends in arrears that could be subjected to
15% FWT. Verily, respondent's AFS covering the years 2003 to 2009 show that it did not have
unrestricted retained earnings, and in fact, operated from a position of deficit. Thus, absent the availability
of unrestricted retained earnings, the board of directors of respondent had no power to issue dividends.
Consistent with Section 73 (A) of the Tax Code, this rule on dividend declaration - i.e., that it is
dependent upon the availability of unrestricted retained earnings. All told, the amount of P97,732,314.00
received by GTRC from respondent for the redemption of its 3,729,216 preferred shares were not
accumulated dividends in arrears. Contrary to petitioner's claims, it is therefore not subject to 15% FWT
on dividends in accordance with Section 28 (B) (5) (b) of the Tax Code.
Bloomberry Resorts v. BIR & Henares, G.R. No. 212530, August 10, 2016

Facts
On 8 April 2009, PAGCOR granted to petitioner a provisional license to establish and operate an
integrated resort and casino complex at the Entertainment City project site of PAGCOR. Petitioner and its
parent company, Sureste Properties, Inc., own and operate Solaire Resort & Casino. Thus, being one of its
licensees, petitioner only pays PAGCOR license fees,
in lieu of all taxes, as contained in its provisional license and consistent with the PAGCOR Charter or
Presidential Decree (PD) No. 1869, which provides the exemption from taxes of persons or entities
contracting with PAGCOR in casino operations.
However, when Republic Act (R.A.) No. 9337 took effect, it amended Section 27(C) of the NIRC of
1997, which excluded PAGCOR from the enumeration of government-owned or controlled corporations
(GOCCs) exempt from paying corporate income tax. The enactment of the law led to the case of
PAGCOR v. The Bureau of Internal Revenue, et al. where PAGCOR questioned the validity or
constitutionality of R.A. No. 9337 removing its exemption from paying corporate income tax, and
therefore alleging the same to be void for being repugnant to the equal protection and the non-impairment
clauses embodied in the 1987 Philippine Constitution. Subsequently, the Court articulated that Section 1
of RA No. 9337, amending Section 27(C) of the NIRC of 1997, which removed PAGCOR's exemption
from corporate income tax, was indeed valid and constitutional.
Consequently, in implementing the aforesaid amendments made by R.A. No. 9337, respondent issued
RMC No. 33-2013 dated 17 April 2013 declaring that PAGCOR, in addition to the five percent (5%)
franchise tax of its gross revenue under Section 13(2)(a) of PD No. 1869, is now subject to corporate
income tax under the NIRC of 1997, as amended. In addition, a provision therein states that PAGCOR's
contractees and licensees, being entities duly authorized and licensed by it to perform gambling casinos,
gaming clubs and other similar recreation or amusement places, and gaming pools, are likewise subject to
income tax under the NIRC of 1997, as amended.

Issue
Whether or not RMC No. 33-2013 is valid or constitutional considering that Section l 3(2)(b) of PD No.
1869, as amended (P AGCOR Charter), grants tax exemptions to such contractees and licensees? - YES

Ratio
The grant of tax exemption or the withdrawal thereof assumes that the person or entity involved is subject
to tax. This is the most sound and logical interpretation because PAGCOR could not have been exempted
from paying taxes which it was not liable to pay in the first place. This is clear from the wordings of P.D.
No. 1869, as amended, imposing a franchise tax of five percent (5%) on its gross revenue or earnings
derived by PAGCOR from its operation under the Franchise in lieu of all taxes of any kind or form, as
well as fees, charges or levies of whatever nature, which necessarily include corporate income tax.
There is no conflict between P.D. No. 1869, as amended, and R.A. No. 9337. The former lays down the
taxes imposable upon [PAGCOR], as follows: (1) a jive percent (5%) franchise tax of the gross revenues
or earnings derived from its operations conducted under the Franchise, which shall be due and payable 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 national government authority; and (2) income tax for income
realized from other necessary and related services, shows and entertainment of [PAGCOR]. With the
enactment of R.A. No. 9337, which withdrew the income tax exemption under R.A. No. 8424,
PAGCOR's tax liability on income from other related services was merely reinstated.
Even assuming that an inconsistency exists, P.D. No. 1869, as amended, which expressly provides the tax
treatment of [PAGCOR's] income prevails over R.A. No. 9337, which is a general law. It is a canon of
statutory construction that a special law prevails over a general law - regardless of their dates of passage -
and the special is to be considered as remaining an exception to the general.
BDO, et al. v. Republic, CIR, Secretary of Finance, et al., G.R. No. 198756, August 16, 2016

Facts
The Bureau of Treasury announced that "P30.0 billion worth of 10-year Zero-Coupon Bonds would be
auctioned on October 16, 2001. It stated that the issue being limited to 19 lenders and while taxable shall
not be subject to the 20% final withholding tax. On October 12, 2001, the Bureau of Treasury released a
memo on the Formula for the Zero-Coupon Bond. The memo stated in part that the formula, in
determining the purchase price and settlement amount, "is only applicable to the zeroes that are not
subject to the 20% final withholding due to the 19 buyer/lender limit." On January 13, 2015, the Court
promulgated the Decision granting the Petition and the Petitions-in-Intervention. Applying Section 22(Y)
of the National Internal Revenue Code, the Court held that the number of lenders/investors at every
transaction is determinative of whether a debt instrument is a deposit substitute subject to 20% final
withholding tax. When at any transaction, funds are simultaneously obtained from 20 or more
lenders/investors, there is deemed to be a public borrowing and the bonds at that point in time are deemed
deposit substitutes. Consequently, the seller is required to withhold the 20% final withholding tax on the
imputed interest income from the bonds.

Issue
WON the BIR is estopped from collecting the 20% final withholding tax from the Bonds? - YES

Ratio
Banks are entities engaged in the lending of funds obtained from the public in the form of
deposits. Deposits of money in banks and similar institutions are considered simple loans. Hence, the
relationship between a depositor and a bank is that of creditor and debtor. The ownership of the amount
deposited is transmitted to the bank upon the perfection of the contract and it can make use of the amount
deposited for its own transactions and other banking operations. Although the bank has the obligation to
return the amount deposited, it has no obligation to return or deliver the same money that was deposited.
If a bank or non-bank financial intermediary sells debt instruments to 20 or more lenders/placers at any
one time, irrespective of outstanding amounts, for the purpose of relending or purchasing of receivables
or obligations, it is considered to be performing a quasi-banking function and consequently subject to the
appropriate regulations of the BSP. Accordingly, the existence of 20 or more lenders should be reckoned
at the time when the successful GSED-bidder distributes (either by itself or through an underwriter) the
government securities to final holders. When the GSED sells the government securities to 20 or more
investors, the government securities are deemed to be in the nature of a deposit substitute, taxable as such.
It is the payor-borrower who primarily has the duty to withhold and remit the 20% final tax on interest
income or yield from deposit substitutes.
The phrase "at any one time" is ambiguous in the context of the financial market. Hence, petitioner-
intervenor RCBC and the rest of the investors relied on the opinions of the Bureau of Internal Revenue in
the BIR Ruling to vested their rights in the exemption from the final withholding tax. In sum, these
rulings pronounced that to determine whether the financial assets, i.e., debt instruments and securities, are
deposit substitutes, the "20 or more individual or corporate lenders" rule must apply. Moreover, the
determination of the phrase "at any one time" to determine the "20 or more lenders" is to be determined at
the time of the original issuance. This being the case, the PEACe Bonds were not to be treated as deposit
substitutes.in the interest of justice and fair play, rulings or circulars promulgated by the Commissioner of
Internal Revenue have no retroactive application where applying them would prove prejudicial to
taxpayers who relied in good faith on previous issuances of the Commissioner. The previous
interpretations given to an ambiguous law by the Commissioner of Internal Revenue, who is charged to
carry out its provisions, are entitled to great weight, and taxpayers who relied on the same should not be
prejudiced in their rights. Hence, this Court's construction should be prospective; otherwise, there will be
a violation of due process for failure to accord persons, especially the parties affected by it, fair notice of
the special burdens imposed on them.
Pilmico-Mauri Foods Corp. v. CIR, G.R. No. 175651. September 14, 2016

Facts
PMFC’s book of accounts were examined by the CIR for deficiency income, VAT and withholding tax
liabilities, as a result of which assessment notices were issued. PMFC then filed a protest letter against the
deficiency tax assessments. The CIR then issued a final decision wherein the deficiency tax liabilities of
PMFC were reduced. On the basis of such foregoing facts, PMFC filed a Petition for Review. After trial
on the merits, the CTA in division rendered a decision affirming the assessments but in a further reduced
amount. The CTA in division’s decision was affirmed by the CTA en banc. PMFC moved for
reconsideration. Pending its resolution, the CIR issued Revenue Regulation (RR) No. 15-2006, the
abatement program of which was availed by PMFC. Meanwhile, PMFC paid the CIR around half of the
assessed amount as basic deficiency tax. PMFC thus awaits the CIR’s approval of abatement, which can
render the present resolution moot.

Issue
WON the reduced income deficiency tax assessment was proper? -Yes

Ratio
It is, thus, clear that Section 29 of the 1977 NIRC does not exempt the taxpayer from substantiating
claims for deductions. While official receipts are not the only pieces of evidence which can prove
deductible expenses, if presented, they shall be subjected to examination. PMFC submitted official
receipts as among its evidence, and the CTA doubted their veracity. PMFC was, however, unable to
persuasively explain and prove through other documents the discrepancies in the said receipts.
Consequently, the CTA disallowed the deductions claimed, and in its ruling, invoked Section 238 of the
1977 NIRC considering that official receipts are matters provided for in the said section.

Revenue laws are not intended to be liberally construed. Taxes are the lifeblood of the government and in
Holmes' memorable metaphor, the price we pay for civilization; hence, laws relative thereto must be
faithfully and strictly implemented. While the 1977 NIRC required substantiation requirements for
claimed deductions to be allowed, PMFC insists on leniency, which is not warranted under the
circumstances.

Lastly, the Court notes too that PMFC's tax liabilities have been me than substantially reduced to
P2,804,920.36 from the CIR's initial assessment of P9,761,750.02.
Harte-Hanks Philippines, Inc. v. CIR, G.R. No. 205721. September 14, 2016

Facts
HHPI pays VAT to the BIR using the calendar system. During the first quarter of CY 2008, HHPI
received income for services rendered within the Philippines for clients abroad. It then filed its original
Quarterly VAT Return with the BIR which was later amended showing that HHPI had no output VAT
liability for the first quarter of CY 2008 as it had no local sales subject to 12% VAT but it has unutilized
input VAT of P3,167,402.34 on its domestic purchases of goods and services. HHPI then filed a claim for
refund of its unutilized input VAT before the BIR. Asserting that there was inaction on the part of the CIR
and in order to toll the running of the two-year period prescribed by law, HHPI elevated its claim to the
CTA. The CIR sought the dismissal of HHPI's claim for refund due to the prematurity of the appeal.
According to the CIR, the 120-day period under Section 112(C) of the NIRC of 1997 for the CIR to act
on the matter had not yet lapsed. Therefore, HHPI failed to exhaust administrative remedies before it
appealed before the CTA. HHPI filed its comment praying for the denial of the motion to dismiss. The
CTA Third Division granted the motion to dismiss in view of the prematurity of the petition. HHPI’s MR
was denied by the CTA and the CTA en banc.HHPI sought for reconsideration but the same was denied
in the Resolution.

Issue
WON the case was filed prematurely –Yes.

Ratio
Compliance with the 120-day waiting period is mandatory and jurisdictional (San Roque). Moreover, a
taxpayer's failure to comply with the prescribed 120-day waiting period would render the petition
premature and is violative of the principle on exhaustion of administrative remedies. Accordingly, the
CTA does not acquire jurisdiction over the same. This being so, "[w]hen a taxpayer prematurely files a
judicial claim for tax refund or credit with the CTA without waiting for the decision of the [CIR], there is
no 'decision' of the [CIR] to review and thus the CTA as a court of special jurisdiction has no jurisdiction
over the appeal." The CTA, being a court of special jurisdiction, has the judicial power to review the
decisions of the CIR. Concomitantly, the CTA also has the power to decide an appeal because the CIR's
inaction within the 120-day waiting period shall be deemed a denial of the taxpayer's application for
refund or tax credit. In the instant case, the petition for review is considered premature because the 120-
day mandatory period was not observed before an appeal was elevated to the CTA.

Tax refunds or credits, just like tax exemptions, are strictly construed against the taxpayer. A refund is not
a matter of right by the mere fact that a taxpayer has undisputed excess input VAT or that such tax was
admittedly illegally, erroneously or excessively collected. Corollarily, a taxpayer's non-compliance with
the mandatory 120-day period is fatal to the petition even if the CIR does not assail the numerical
correctness of the tax sought to be refunded. Otherwise, the mandatory and jurisdictional conditions
impressed by law would be rendered useless. Additionally, the 30-day appeal period to the CTA "was
adopted precisely to do away with the old rule, so that under the VAT System the taxpayer will always
have 30 days to file the judicial claim even if the CIR acts only on the 120th day, or does not act at all
during the 120-day period." In effect, the taxpayer should wait for the 120th day before the 30-day
prescriptive period to appeal can be availed of. Hence, the non-observance of the 120-day period is fatal
to the filing of a judicial claim to the CTA, the non-observance of which will result in the dismissal of the
same due to prematurity. In fine, the premature filing of the judicial claim for refund of the excess input
VAT of HHPI in the amount of P3,167,402.34 warrants a dismissal of the petition because the latter
acquired no jurisdiction over the same.
Takenaka Corporation-Philippine Branch v. CIR, G.R. No. 193321. October 19, 2016

Facts
Respondent Takenaka, as a subcontractor, entered into an On-Shore Construction Contract with
Philippine Air Terminal Co., Inc. (PIATCO) for the purpose of constructing the Ninoy Aquino Terminal
III (NAIA-IPT3). Takenaka filed its Quarterly VAT Returns for the four quarters of taxable year 2002,
which it amended several times. Meanwhile, the BIR issued VAT Ruling No. 011-03 which states that the
sales of goods and services rendered by respondent Takenaka to PIATCO are subject to zero-percent
(0%) VAT and requires no prior approval for zero rating based on Revenue Memorandum Circular 74-99.
Takenaka then filed its claim for tax refund covering the aforesaid period before the BIR. For failure of
the BIR to act on its claim, respondent Takenaka filed a Petition for Review with the court. After trial on
the merits, the Former First Division rendered a Decision partly granting the Petition for Review and
ordering herein petitioner CIR to refund to respondent Takenaka the reduced amount of P53,374,366.52.
Not satisfied, Takenaka filed a "Motion for Reconsideration," which was granted by the Former First
Division in an Amended Decision. The CIR filed a "Motion for Reconsideration" of the Amended
Decision, which the Former First Division denied in a Resolution. Consequently, the respondent filed a
petition for review in the CTA En Banc to seek the reversal of the previous decision. The CTA En Banc
granted the petition for review.

Issue
WON the sales invoices presented by the petitioner were sufficient as evidence to prove its zero-rated sale
of services to Philippine Air Terminal Co., Inc. (PIATCO), thereby entitling it to claim the refund of its
excess input VAT for taxable year 2002 –No.

Ratio
As evidence of an administrative claim for tax refund or tax credit, there is a certain distinction between
a receipt and an invoice. The Court has in fact distinguished an invoice from a receipt in Commissioner of
Internal Revenue v. Manila Mining Corporation: A "sales or commercial invoice" is a written account of
goods sold or services rendered indicating the prices charged therefor or a list by whatever name it is
known which is used in the ordinary course of business evidencing sale and transfer or agreement to sell
or transfer goods and services. A "receipt" oh the other hand is a written acknowledgment of the fact of
payment in money or other settlement between seller and buyer of goods, debtor or creditor, or person
rendering services and client or customer. A VAT invoice is the seller's best proof of the sale of goods or
services to the buyer, while a VAT receipt is the buyer's best evidence of the payment of goods or
services received from the seller. A VAT invoice and a VAT receipt should not be confused and made to
refer to one and the same thing. Certainly, neither does the law intend the two to be used alternatively.
The Court concurs with the conclusion of the CTA En Banc, therefore, that "[w]ithout proper VAT
official receipts issued to its clients, the payments received by respondent Takenaka for providing
services to PEZA-registered entities cannot qualify for VAT zero-rating. Hence, it cannot claim such sales
as zero-rated VAT not subject to output tax." The Court explains why in Western Mindanao Power
Corporation v. Commissioner of Internal Revenue: 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. The taxpayer claiming the refund must further comply with the invoicing and accounting
requirements mandated by the NIRC, as well as by revenue regulations implementing them.
CIR v Fitness By Design, Inc., GR No. 215957, October 9, 2016

Facts
Fitness filed its Annul Income Tax Return for the taxable year of 1995. According to Fitness, it was still
in its pre-operating stage during the covered period. Fitness received a copy of the Final Assessment
Notice in 2004. Fitness filed a protest to the Final Assessment Notice on June 25, 2004. According to
Fitness, the Commissioner's period to assess had already prescribed. Further, the assessment was without
basis since the company was only incorporated on May 30, 1995.

Issue
Whether or not the Final Assessment Notice issued against respondent Fitness by Design, Inc. is a valid
assessment under Section 228 — NO.

Ratio
The assessment process starts with the filing of tax return and payment of tax by the taxpayer. The initial
assessment evidenced by the tax return is a self-assessment of the taxpayer. The tax is primarily computed
and voluntarily paid by the taxpayer without need of any demand from government.

The indispensability of affording taxpayers sufficient written notice of his or her tax liability is a clear
definite requirement. Section 228 of the National Internal Revenue Code and Revenue Regulations No.
12-99, as amended, transparently outline the procedure in tax assessment.

The word "shall" in Section 228 of the National Internal Revenue Code and Revenue Regulations No. 12-
99 means the act of informing the taxpayer of both the legal and factual bases of the assessment is
mandatory.8The law requires that the bases be reflected in the formal letter of demand and assessment
notice. This cannot be presumed.

Respondent filed its income tax return in 1995. Almost 8 years passed before the disputed final
assessment notice was issued. Respondent pleaded prescription as its defense when it filed a protest to the
Final Assessment Notice. Petitioner claimed fraud assessment to justify the belated assessment made on
respondent. If fraud was indeed present, the period of assessment should be within 10 years. It is
incumbent upon petitioner to clearly state the allegations of fraud committed by respondent to serve the
purpose of an assessment notice to aid respondent in filing an effective protest.

The issuance of a valid formal assessment is a substantive prerequisite for collection of taxes. A final
assessment is a notice "to the effect that the amount therein stated is due as tax and a demand for payment
thereof." This demand for payment signals the time "when penalties and interests begin to accrue against
the taxpayer and enabling the latter to determine his remedies." Thus, it must be "sent to and received by
the taxpayer, and must demand payment of the taxes described therein within a specific period."The
disputed Final Assessment Notice is not a valid assessment.

First, it lacks the definite amount of tax liability for which respondent is accountable. It does not purport
to be a demand for payment of tax due, which a final assessment notice should supposedly be. Second,
there are no due dates in the Final Assessment Notice. This negates petitioner's demand for payment.

Contrary to petitioner's view, April 15, 2004 was the reckoning date of accrual of penalties and
surcharges and not the due date for payment of tax liabilities. The total amount depended upon when
respondent decides to pay. The notice, therefore, did not contain a definite and actual demand to pay.
Secretary Of Finance Cesar B. Purisima And Commissioner Of Internal Revenue Kim S. Jacinto-
Henares v . Representative Carmelo F. Lazatin And Ecozone Plastic Enterprises Corporation

Facts
In response to reports of smuggling of petroleum and petroleum products and to ensure the correct taxes
are paid and collected, petitioner Sec. of Finance Purisima, upon the recommendation of petitioner CIR
Jacinto-Henares signed RR 2-2012 on February 17, 2012.

The RR requires the payment of VAT and excise tax on the importation of all petroleum and petroleum
products coming directly from abroad and brought into the Philippines, including Freeport and economic
zones (FEZs). It then allows the credit or refund of any VAT or excise tax paid if the taxpayer proves that
the petroleum previously brought in has been sold to a duly registered FEZ locator and used pursuant to
the registered activity of such locator.

Lazatin, in his capacity as Pampanga First District Representative, filed a petition for prohibition and
injunction against the petitioners to annul and set aside RR 2-2012. Lazatin posits that RA 9400 treats the
Clark Special Economic Zone and Clark Freeport Zone (together hereinafter referred to as Clark FEZ) as
a separate customs territory and allows tax and duty-free importations of raw materials, capital and
equipment into the zone.

Issue
Whether or not the RR is valid — NO.

Ratio
RR 2-2012 illegally imposes VAT and excise tax on goods brought into the FEZs. At first glance, this
imposition — a mere tax administration measure according to the petitioners — appears to be consistent
with the taxation of similar imported articles under the Tax Code. However, RR 2-2012 explicitly covers
even petroleum and petroleum products imported and/or brought into the various FEZs in the Philippines.
Hence, when an FEZ enterprise brings petroleum and petroleum products into the FEZ, under RR 2-2012,
it shall be considered an importer liable for the taxes due on these products.

To petitioners, FEZ enterprises enjoy a qualified tax exemption such that they have to pay the tax due on
the importation first, and thereafter claim a refund, which shall be allowed only upon showing that the
goods were not introduced to the Philippine customs territory.

On the other hand, the respondents contend that RR 2-2012 imposes taxes on FEZ enterprises, which in
the first place are not liable for taxes. They emphasize that the tax incentives under RA 9400 apply
automatically upon the importation of the goods. Tax exemptions enjoyed by FEZ enterprises under the
law extend even to VAT and excise tax. It follows athat the taxes imposed by Section 3 of RR 2-2012
directly contravene these exemptions. First, the regulation erroneously considers petroleum and petroleum
products brought into a FEZ as taxable importations. Second, it unreasonably burdens FEZ enterprises by
making them pay the corresponding taxes — an obligation from which the law specifically exempts them
— even if there is a subsequent opportunity to refund the payments made.
Deutsche Knowledge Services Pte Ltd v CIR, GR No. 197980, December 1, 2016

Facts
Petitioner avers that on March 31, 2009, it filed an application for Tax Credit/Refund of its
allegedly excess and unutilized input VAT for the 1st quarter of 2007 with respondent CIR. It
subsequently filed a Petition for Review with the CTA. Respondent filed a motion to dismiss
alleging that the Petition was filed out of time on the ground of having been filed beyond the two-
year prescriptive period. Petitioner then filed a petition for review with the CTA En Banc.
However, the said tribunal merely affirmed with modification the assailed resolutions and
dismissed petitioner's suit for having been prematurely filed prior to the expiration of the 120-day
period granted to respondent to resolve the tax claim.

Issue
Whether or not the taxpayer filed its claim on within the period prescribed by law — YES.

Ratio
In applying the Mirant Case in relation to Section 112, the former Second Division held that the
administrative claim was filed on time while the Petition for Review before this Court's Division
was filed out of time or beyond the two-year prescriptive period, the close of the taxable first
quarter of the calendar year 2007 or March 31, 2007 as the reckoning period, it appearing that the
application for tax credit/refund was filed with the respondent on March 31, 2009 and the petition
for review was filed on April 17, 2009.

However, in the case of CIR v. Aichi Forging Company of Asia, Inc., reiterating the "Mirant
Case", the Supreme Court categorically ruled that unutilized input VAT must be claimed within
two years after the close of the taxable quarter when the sales were made and that the 120-day
period is crucial in filing an appeal with this Court.

In the instant case, petitioner did not wait for the decision of the CIR or the lapse of the 120-day
period and this is in clear contravention of Section 112(D) [now Section 112(C)] and the doctrine
in the Aichi case. However, subsequent to the Aichi ruling and during the pendency of the case at
bar, the Supreme Court En Banc resolved the consolidated cases involved in CIR v. San Roque
Power Corporation and stated that a judicial claim for refund of input VAT which was filed with
the CTA before the lapse of the 120-day period under Sec. 112 of the NIRC is considered to have
been timely made, if such filing occurred after the issuance of the BIR Ruling No. DA-489-03
dated December 10, 2003 but before the adoption of the Aichi doctrine which was promulgated in
2010.

The Court said in San Roque that a reversal of a BIR regulation or ruling cannot adversely
prejudice a taxpayer who in good faith relied on the BIR regulation or ruling prior to its reversal
and that taxpayers should not be prejudiced by an erroneous interpretation by the CIR,
particularly on a difficult question of law.

In the present case, the records indicate that petitioner filed its administrative claim for tax
credit/refund of its allegedly excess and unutilized input VAT for the 1st quarter of the calendar
year 2007 with respondent on March 31, 2009. Subsequently, petitioner filed its judicial claim on
the same matter through a petition for review with the CTA on April 17, 2009. It is undisputed
that the aforementioned date of filing falls within the period following the issuance of BIR Ruling
No. DA-489-03 on December 10, 2003 but before the promulgation of the Aichi case on October
6, 2010. In accordance with the doctrine laid down in San Roque, we rule that petitioner's judicial
claim had been timely filed and should be given due course and consideration by the CTA.
Pilipinas Shell Petroleum Corporation v. Commissioner of Customs, G.R. No. 195876,
December 5, 2016

Facts
RA 8180 (“Downstream Oil Industry Deregulation Act of 1996”) provides for the reduction of tariff duty
on imported crude oil from 10% to 3%. Prior to its effectivity, Pilipinas Shell Petroleum Corporation's
(“Pilipinas Shell”) importation of. barrels of Arab Light Crude Oil arrived. Within 3 days, said shipment
was unloaded to Plipinas Shell’s oil tanks. Subsequently, Pilipinas Shell filed the Import Entry and
Internal Revenue Declaration and paid the import duty of said shipment. More than 4 years later, Pilipinas
Shell received a demand letter BOC assessing it to pay the deficiency customs duties due from the
aforementioned crude oil importation, representing the difference between the amount allegedly due (at
the old rate often percent (10%) or before the effectivity of R.A. No. 8180) and the actual amount of
duties paid by petitioner (on the rate of 3%). Petitioner protested, but the District Collector merely
reiterated his demand. Thus, Pilipinas Shell appealed to the Commissioner of Customs. However, 5 years
after Pilipinas Shell paid the allegedly deficient import duty it received by telefax from the respondent a
demand letter for the payment of the dutiable value of its 1996 crude oil importation which had been
allegedly abandoned in favor of the government by operation of law on the ground that the Import Entry
had been irregularly filed and accepted beyond the 30-day period prescribed by law. Pilipinas Shell then
protested the aforesaid demand letter on the ground of prescription. Subsequently, BOC filed a collection
suit against Pilipinas Shell, thus, the latter filed with the CTA a Petition for Review. Upon motion of
BOC, CTA ruled to dismiss the petition ordering Pilipinas Shell to pay the total dutiable value of the
subject shipment of crude oil on the ground of implied abandonment. CTA also found that there was fraud
in the present case because the District Collector conspired with Shell by giving undue benefits by
allowing the release of the shipments (supposedly owned by the government) to the prejudice of the latter.
CTA also denied Pilipinas Shell’s MR citing only the Memorandum dated 2001 issued by CIIS-IPD of
the BOC as evidence to establish fraud, and claiming that prescription does not apply in the case at bar.

Issue
Whether or not the claim of Commissioner of Customs has prescribed -YES

Ratio
When an importer after due notice fails to file an Import Entry and Internal Revenue Declaration within
an unextendible period of thirty (30) days from the discharge of the last package, the imported article is
deemed abandoned in favor of the government. Here, the Import Entry was belatedly filed, thus the
articles are deemed abandoned in favor of government. However, BOC's rights to collect the amount of
the alleged deficiency customs duties, more so the entire value of the subject shipment, have already
prescribed as they only sent a demand letter 4 years after the payment of duties. In the absence of fraud,
the entry and corresponding payment of duties made by Pilipinas Shell becomes final and conclusive
upon all parties after 1 year from the date of the payment of duties in accordance with Section 1603 of the
TCCP. Note that fraud here was not established because there was no evidence to support such finding,
except the Memorandum dated 2001 which unfortunately was not offered in evidence. The Court
reiterated that the fraud contemplated 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 give up
some legal right. It necessarily follows that a mere mistake cannot be considered as fraudulent intent.
BIR v. GMCC United Development Corporation, G.R. 191856, December 7, 2016

Facts
On 2003, BIR’s revenue officers were constrained to investigate GMCC through Third Party Information
when the latter constantly failed to respond to BIR’s letters requesting for its books of accounts and other
accounting records for the year 1998 and 1999. The investigation revealed that in 1998, GMCC, through
its Preisdent Go, executed two dacion en pago agreements to pay for the obligations of GMCC's sister
companies, Ever Emporium, Inc., Gotesco Properties, Inc. and Ever Price Club, Inc., to RCBC. GMCC
allegedly failed to declare the income it earned from these agreements for taxation purposes in 1998.
Moreover, these transactions constituted a donation in favor of GMCC's sister companies for which
GMCC failed to pay the corresponding donor's tax. It was also discovered that in 1999, GMCC sold
condominium units and parking slots to Wong. However, GMCC did not declare the income it earned
from these transactions in its 1999 Audited Financial Statements. Upon BIR’s issuance of the Final
Assessment notice, GMCC protested citing that the period to assess and collect the tax had already
prescribed. BIR denied the protest.

In light of the discovered tax deficiencies, BIR filed with the DOJ a criminal complaint for violation of
Sections 254, 255, and 267 of the NIRC against GMCC, its president, and its treasurer. Go prayed that the
complaint be dismissed, arguing that the action had already prescribed and that GMCC did not defraud
the government.. DOJ dismissed the complaint ruling that there was no proof of fraud. CA affirmed DOJ
and found no grave abuse of discretion. BIR now alleges in the instant complaint that CA erred in its
decision.

Issue

Whether or not CA erred in declaring that the SoJ did not commit grave abuse of discretion when he
found no probable cause and dismissed the tax evasion case against officers of GMCC -NO

Ratio
Since the assessment for the tax had already prescribed, no proceeding in court on the basis of such return
can be filed. The power of the CIR to assess and collect taxes is limited within 3 years after the last day
prescribed by law for the filing of the return, after which, no proceeding in court shall be begun without
such assessment. The period is extended to 10 years in case of a fraudulent return as stated in Sec 203 of
NIRC.

Petitioner contends that the 10-year period applies because the tax return in this case is fraudulent.
However, as the DOJ and CA found, there was no probable cause to file a tax evasion case against the
respondent officers. There is no clear and deliberate intent to evade payment of taxes in relation to the
dacion en pago transactions or on the sale transaction with Wong. The dacion en pago transactions,
though not included in the 1998 Financial Statement, were properly listed in GMCC's Financial Statement
for the year 2000. Regarding the sale transaction with Wong, the respondents said that it was not reflected
in the year 1999 because it was an installment sale. Units sold on installment, they explained, are
recognized not in the year they are fully paid, but in the year when at least 25% of the selling price is
paid. In this instance, the unit and the parking lot were sold prior to 1996, thus, in the Schedule of Unsold
Units filed by GMCC as of December 31, 1996, the said properties were no longer included. Here, the
assessment was made in 2003, but the last day prescribed by law for filing of the ITR was in 1999. Thus,
the period to assess had already prescribed and therefore any court proceeding on the basis of such is
prohibited.
CIR v. United Cadiz Sugar Farmers Association, G.R. 209776, December 7, 2016

Facts
United Cadiz Sugar Farmers Association Multi-purpose Cooperative (UCSFA-MPC) is a multi-purpose
cooperative with a Certificate of Registration issued by the Cooperative Development Authority (CDA).
In accordance with RR No. 20-2001, BIR issued a "Certificate of Tax Exemption" in favor of UCSFA-
MPC. In 2007, BIR required UCSFA-MPC to pay VAT in advance before her office could issue the
Authorization Allowing Release of Refined Sugar (AARRS) from the sugar refinery/mill. In response to
UCSFA-MPC’s query, BIR ruled that the former’s sale of produce to members and members is exempt
from payment of VAT as it is considered as the actual producer of its own sugar. As a result, the Regional
Director of BIR Galanto no longer required the advance payment of VAT from UCSFA-MPC and began
issuing AARRS in its favor, thereby allowing the cooperative to withdraw its refined sugar from the
refinery. But in 2008, Regional Director again demanded the payment of advance VAT from UCSFA-
MPC, and was forced to pay under protest to withdraw its refined sugar. Thereafter, , UCSFA-MPC
sought refund by filing an administrative claim with BIR and a judicial claim with CTA , asserting that it
had been granted tax exemption under Article 61 of Cooperative Code and Section 109(1) of the NIRC.
CTA ruled in favor of UCSFA-MPC, stating that BIR illegally or erroneously collected advance VAT
from UCSFA-MPC. BIR filed the instant petition assailing the decision of the CTA.

Issue
Whether or not UCSFA-MPC is entitled to refund -YES

Ratio
Claims for tax refunds, when based on statutes granting tax exemption, partake of the nature of an
exemption, which are exceptions rather than the rule and highly disfavored. Thus, the rule of strict
interpretation applies. This rule requires the claimant to prove compliance with the substantive and
procedural due process requirements for approval of the claim.

UCSFA-MPC’s claim for refund is governed by Sections 204(C) and 229 of the NIRC which states that
within 2 years from the date of payment of tax, the claimant must first file an administrative claim with
the CIR before filing its judicial claim with the courts. Here, the judicial claim was filed 5 days after the
administrative claim and both claims were filed in the 2 year period. Thus, procedural due requirements
were met. As to substantive due process requirements, UCSFA-MPC proved its entitlement to refund.
UCSFA-MPC 's sale of refined sugar is VAT-exempt. Although agricultural products that undergo some
process, such as refined sugar, are usually subject to VAT, the transaction becomes VAT-exempt if made
by a cooperative. In this case, UCSFA-MPC has proven that it is a duly registered cooperative (i.e. by
showing its certificate of registration by the CDA) and that it is the actual producer of the refined sugar it
sells thereby qualifying it to the exemption from VAT under Sec 109(1) of NIRC. Also, it was proven that
the exemption from VAT includes the exemption from the requirement of advance payment thereof.

The agricultural cooperative's exemption from the requirement of advance payment is a logical
consequence of the exemption from VAT of its sales of refined sugar because (i) the VAT required to be
paid in advance (upon withdrawal) is the same VAT to be imposed on the subsequent sale of refined
sugar. If the very transaction (sale of refined sugar) is VAT-exempt, there is no VAT to be paid in
advance because, simply, there is no transaction upon which VAT is to be imposed; and (ii) any advance
VAT paid upon withdrawal shall be allowed as credit against its output tax arising from its sales of
refined sugar. If all sales by a cooperative are VAT-exempt, no output tax shall materialize. It is simply
absurd to require a cooperative to make advance VAT payments if it will not have any output tax against
which it can use/credit its advance payments. Thus, we sustain the CTA en banc's ruling that if the
taxpayer is exempt from VAT on the sale of refined sugar, necessarily, it is also exempt from the advance
payment of such tax.
Pilipinas Shell Petroleum Corporation v. Commissioner of Customs, G.R. No. 195876, December 5,
2016

Facts
RA 8180 (“Downstream Oil Industry Deregulation Act of 1996”) provides for the reduction of tariff duty
on imported crude oil from 10% to 3%. Prior to its effectivity, Pilipinas Shell Petroleum Corporation's
(“Pilipinas Shell”) importation of. barrels of Arab Light Crude Oil arrived. Within 3 days, said shipment
was unloaded to Plipinas Shell’s oil tanks. Subsequently, Pilipinas Shell filed the Import Entry and
Internal Revenue Declaration and paid the import duty of said shipment. More than 4 years later, Pilipinas
Shell received a demand letter BOC assessing it to pay the deficiency customs duties due from the
aforementioned crude oil importation, representing the difference between the amount allegedly due (at
the old rate often percent (10%) or before the effectivity of R.A. No. 8180) and the actual amount of
duties paid by petitioner (on the rate of 3%). Petitioner protested, but the District Collector merely
reiterated his demand. Thus, Pilipinas Shell appealed to the Commissioner of Customs. However, 5 years
after Pilipinas Shell paid the allegedly deficient import duty it received by telefax from the respondent a
demand letter for the payment of the dutiable value of its 1996 crude oil importation which had been
allegedly abandoned in favor of the government by operation of law on the ground that the Import Entry
had been irregularly filed and accepted beyond the 30-day period prescribed by law. Pilipinas Shell then
protested the aforesaid demand letter on the ground of prescription. Subsequently, BOC filed a collection
suit against Pilipinas Shell, thus, the latter filed with the CTA a Petition for Review. Upon motion of
BOC, CTA ruled to dismiss the petition ordering Pilipinas Shell to pay the total dutiable value of the
subject shipment of crude oil on the ground of implied abandonment. CTA also found that there was fraud
in the present case because the District Collector conspired with Shell by giving undue benefits by
allowing the release of the shipments (supposedly owned by the government) to the prejudice of the latter.
CTA also denied Pilipinas Shell’s MR citing only the Memorandum dated 2001 issued by CIIS-IPD of
the BOC as evidence to establish fraud, and claiming that prescription does not apply in the case at bar.

Issue
Whether or not the claim of Commissioner of Customs has prescribed - YES

Ratio
When an importer after due notice fails to file an Import Entry and Internal Revenue Declaration within
an unextendible period of thirty (30) days from the discharge of the last package, the imported article is
deemed abandoned in favor of the government. Here, the Import Entry was belatedly filed, thus the
articles are deemed abandoned in favor of government. However, BOC's rights to collect the amount of
the alleged deficiency customs duties, more so the entire value of the subject shipment, have already
prescribed as they only sent a demand letter 4 years after the payment of duties. In the absence of fraud,
the entry and corresponding payment of duties made by Pilipinas Shell becomes final and conclusive
upon all parties after 1 year from the date of the payment of duties in accordance with Section 1603 of the
TCCP. Note that fraud here was not established because there was no evidence to support such finding,
except the Memorandum dated 2001 which unfortunately was not offered in evidence. The Court
reiterated that the fraud contemplated 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 give up
some legal right. It necessarily follows that a mere mistake cannot be considered as fraudulent intent.
BIR v. GMCC United Development Corporation, G.R. 191856, December 7, 2016

Facts
On 2003, BIR’s revenue officers were constrained to investigate GMCC through Third Party Information
when the latter constantly failed to respond to BIR’s letters requesting for its books of accounts and other
accounting records for the year 1998 and 1999. The investigation revealed that in 1998, GMCC, through
its Preisdent Go, executed two dacion en pago agreements to pay for the obligations of GMCC's sister
companies, Ever Emporium, Inc., Gotesco Properties, Inc. and Ever Price Club, Inc., to RCBC. GMCC
allegedly failed to declare the income it earned from these agreements for taxation purposes in 1998.
Moreover, these transactions constituted a donation in favor of GMCC's sister companies for which
GMCC failed to pay the corresponding donor's tax. It was also discovered that in 1999, GMCC sold
condominium units and parking slots to Wong. However, GMCC did not declare the income it earned
from these transactions in its 1999 Audited Financial Statements. Upon BIR’s issuance of the Final
Assessment notice, GMCC protested citing that the period to assess and collect the tax had already
prescribed. BIR denied the protest.

In light of the discovered tax deficiencies, BIR filed with the DOJ a criminal complaint for violation of
Sections 254, 255, and 267 of the NIRC against GMCC, its president, and its treasurer. Go prayed that the
complaint be dismissed, arguing that the action had already prescribed and that GMCC did not defraud
the government.. DOJ dismissed the complaint ruling that there was no proof of fraud. CA affirmed DOJ
and found no grave abuse of discretion. BIR now alleges in the instant complaint that CA erred in its
decision.

Issue

Whether or not CA erred in declaring that the SoJ did not commit grave abuse of discretion when he
found no probable cause and dismissed the tax evasion case against officers of GMCC - NO

Ratio
Since the assessment for the tax had already prescribed, no proceeding in court on the basis of such return
can be filed. The power of the CIR to assess and collect taxes is limited within 3 years after the last day
prescribed by law for the filing of the return, after which, no proceeding in court shall be begun without
such assessment. The period is extended to 10 years in case of a fraudulent return as stated in Sec 203 of
NIRC.

Petitioner contends that the 10-year period applies because the tax return in this case is fraudulent.
However, as the DOJ and CA found, there was no probable cause to file a tax evasion case against the
respondent officers. There is no clear and deliberate intent to evade payment of taxes in relation to the
dacion en pago transactions or on the sale transaction with Wong. The dacion en pago transactions,
though not included in the 1998 Financial Statement, were properly listed in GMCC's Financial Statement
for the year 2000. Regarding the sale transaction with Wong, the respondents said that it was not reflected
in the year 1999 because it was an installment sale. Units sold on installment, they explained, are
recognized not in the year they are fully paid, but in the year when at least 25% of the selling price is
paid. In this instance, the unit and the parking lot were sold prior to 1996, thus, in the Schedule of Unsold
Units filed by GMCC as of December 31, 1996, the said properties were no longer included. Here, the
assessment was made in 2003, but the last day prescribed by law for filing of the ITR was in 1999. Thus,
the period to assess had already prescribed and therefore any court proceeding on the basis of such is
prohibited.
CIR v. United Cadiz Sugar Farmers Association, G.R. 209776, December 7, 2016

Facts
United Cadiz Sugar Farmers Association Multi-purpose Cooperative (UCSFA-MPC) is a multi-purpose
cooperative with a Certificate of Registration issued by the Cooperative Development Authority (CDA).
In accordance with RR No. 20-2001, BIR issued a "Certificate of Tax Exemption" in favor of UCSFA-
MPC. In 2007, BIR required UCSFA-MPC to pay VAT in advance before her office could issue the
Authorization Allowing Release of Refined Sugar (AARRS) from the sugar refinery/mill. In response to
UCSFA-MPC’s query, BIR ruled that the former’s sale of produce to members and members is exempt
from payment of VAT as it is considered as the actual producer of its own sugar. As a result, the Regional
Director of BIR Galanto no longer required the advance payment of VAT from UCSFA-MPC and began
issuing AARRS in its favor, thereby allowing the cooperative to withdraw its refined sugar from the
refinery. But in 2008, Regional Director again demanded the payment of advance VAT from UCSFA-
MPC, and was forced to pay under protest to withdraw its refined sugar. Thereafter, , UCSFA-MPC
sought refund by filing an administrative claim with BIR and a judicial claim with CTA , asserting that it
had been granted tax exemption under Article 61 of Cooperative Code and Section 109(1) of the NIRC.
CTA ruled in favor of UCSFA-MPC, stating that BIR illegally or erroneously collected advance VAT
from UCSFA-MPC. BIR filed the instant petition assailing the decision of the CTA.

Issue
Whether or not UCSFA-MPC is entitled to refund because BIR erroneously collected advance VAT -
YES

Ratio
Claims for tax refunds, when based on statutes granting tax exemption, partake of the nature of an
exemption, which are exceptions rather than the rule and highly disfavored. Thus, the rule of strict
interpretation applies. This rule requires the claimant to prove compliance with the substantive and
procedural due process requirements for approval of the claim. UCSFA-MPC’s claim for refund is
governed by Sections 204(C) and 229 of the NIRC which states that within 2 years from the date of
payment of tax, the claimant must first file an administrative claim with the CIR before filing its
judicial claim with the courts. Here, the judicial claim was filed 5 days after the administrative claim and
both claims were filed in the 2 year period. Thus, procedural due requirements were met. As to
substantive due process requirements, UCSFA-MPC proved its entitlement to refund. UCSFA-MPC 's
sale of refined sugar is VAT-exempt. Although agricultural products that undergo some process, such as
refined sugar, are usually subject to VAT, the transaction becomes VAT-exempt if made by a cooperative.
In this case, UCSFA-MPC has proven that it is a duly registered cooperative (i.e. by showing its
certificate of registration by the CDA) and that it is the actual producer of the refined sugar it sells
thereby qualifying it to the exemption from VAT under Sec 109(1) of NIRC. Also, it was proven that the
exemption from VAT includes the exemption from the requirement of advance payment thereof.

The agricultural cooperative's exemption from the requirement of advance payment is a logical
consequence of the exemption from VAT of its sales of refined sugar because (i) the VAT required to be
paid in advance (upon withdrawal) is the same VAT to be imposed on the subsequent sale of refined
sugar. If the very transaction (sale of refined sugar) is VAT-exempt, there is no VAT to be paid in
advance because, simply, there is no transaction upon which VAT is to be imposed; and (ii) any advance
VAT paid upon withdrawal shall be allowed as credit against its output tax arising from its sales of
refined sugar. If all sales by a cooperative are VAT-exempt, no output tax shall materialize. It is simply
absurd to require a cooperative to make advance VAT payments if it will not have any output tax against
which it can use/credit its advance payments. Thus, we sustain the CTA en banc's ruling that if the
taxpayer is exempt from VAT on the sale of refined sugar, necessarily, it is also exempt from the advance
payment of such tax.
CIR v. St. Luke’s Medical Center, G.R. No. 203514, February 13, 2017

Facts
On December 14, 2007, St. Luke’s Medical Center, Inc. (SLMC) received from the BIR Audit
Results/Assessment Notice Nos. QA-07-0000965 and QA-07-000097 assessing SLMC deficiency income
tax under Section 27(B) 7 of the Tax Code in the aggregate amount of P135,737,301 for taxable years
2005 and 2006. SLMC filed an administrative protest assailing the assessments. SLMC claimed that as a
nonstock, non-profit charitable and social welfare organization under Section 30(E) and (G) of the 1997
NIRC, as amended, it is exempt from paying income tax. Meanwhile, on September 26, 2012, the Court
rendered a Decision in G.R. Nos. 195909 and 195960, entitled CIR v. St. Luke's Medical Center, Inc.,
finding SLMC not entitled to the tax exemption under Section 30(E) and (G) of the NIRC of 1997 as it
does not operate exclusively for charitable or social welfare purposes insofar at its revenue from paying
patients are concerned. Accordingly, SLMC was ordered to pay the deficiency income tax based on the
10% preferential income tax rate under Section 27(B) of the National Internal Revenue Code. SLMC
argues that earning a profit by a charitable, benevolent hospital or educational institution does not result
in the withdrawal of its tax exempt privilege. SLMC further claims that the income it derives from
operating a hospital is not income from "activities conducted for profit.

Issue
Whether or not SLMC’s profits from hospital operation exempt from income tax under Section 30 (E) and
(G). - NO

Ratio
For an institution to be completely exempt from income tax, Section 30(E) and (G) of the 1997

NIRC requires said institution to operate exclusively for charitable or social welfare purpose. But in case
an exempt institution under Section 30(E) or (G) of the said Code earns income from its “for-profit
activities,” it will not lose its tax exemption. However, its income from “for-profit activities” will be
subject to income tax at the preferential 10% rate pursuant to Section 27(B) thereof.

Following earlier cases, St. Luke's fails to meet the requirements under Section 30(E) and (G) of the
NIRC to be completely tax exempt from all its income. However, it remains a proprietary nonprofit
hospital under Section 27(B) of the NIRC as long as it does not distribute any of its profits to its members
and such profits are reinvested pursuant to its corporate purposes. St. Luke's, as a proprietary non-profit
hospital, is entitled to the preferential tax rate of 10% on its net income from its for-profit activities.
CIR v. Philippine Airlines, G.R. Nos. 215705-07, February 22, 2017

Facts
RA 8424, known as the Tax Reform Act of 1997, was enacted in 1998. RA 9334, otherwise known as An
Act Increasing the Excise Tax Rates Imposed on Alcohol and Tobacco Products, took effect in 2005,
Section 6 of which was amended. The amendment increased the rates of excise tax imposed on alcohol
and tobacco products. It also removed the exemption from taxes, duties and charges, including excise
taxes, on importations of cigars, cigarettes, distilled spirits, wines and fermented liquor into the
Philippines.

Thereafter, PAL's importations of alcohol and tobacco products which were intended for use in its
commissary supplies during international flights, were subjected to excise taxes. PAL paid under protest
and subsequently filed an administrative claim for refund of the excise taxes with the BIR. Because the
two-year prescriptive period for filing a judicial claim for refund was about to expire and the BIR was yet
to act on the claim, PAL filed a judicial claim for refund with the CTA. The CTA partially granted PAL’s
claim for refund.

The CTA Second Division found that PAL was able to sufficiently prove its exemption from the payment
of excise taxes pertaining to its importation of alcoholic products and since it already paid the disputed
excise taxes on the subject importation, it is entitled to refund. However, the tax court ruled that, with
respect to its subject importation of tobacco products, PAL failed to discharge its burden of proving that
the said product were not locally available in reasonable quantity, quality or price, in accordance with the
requirements of the law. Thus, it is not entitled to refund for the excise taxes paid on such importation.

The parties filed separate motions for reconsideration.

Issue
Whether the tax privilege of PAL provided in Section 13 of PD 1590 has been revoked by Section 131 of
the NIRC of 1997, as amended by Section 6 of RA 9334. NO

RATIO
This issue has already been resolved. It is a basic principle of statutory construction that a later law,
general in terms and not expressly repealing or amending a prior special law, will not ordinarily affect the
special provisions of such earlier statute. The franchise of PAL remains the governing law on its
exemption from taxes.

Although the repealing clause of RA 9337 enumerated the laws or provisions of laws which it repeals,
there is nothing in the repealing clause, nor in any other provisions of the said law, which specifically
mention PD 1590 as one of the acts intended to be repealed.
CIR v. Asalus Corporation, G.R. No. 221590, February 22, 2017

Facts
The case stems from an assessment issued by the CIR against Asalus Corporation for deficiency
VAT for Calendar Year 2007 in the aggregate amount of Php106,761,025.17 based on the Final
Decision on Disputed Assessment dated October 16, 2012.

The CTA division en banc found that the VAT assessment (FAN) issued on August 26, 2011 had
prescribed and consequently deemed invalid. The CTA ruled that Section 222 was inapplicable as neither
the FAN nor the FDDA indicated that Asalus filed a false VAT return warranting the application of the
ten (10) year prescriptive period. In addition, the CTA found that the CIR did not present any evidence
during the trial to substantiate its claim of falsity in the return.

On appeal, the CIR asserts that there was substantial understatement in Asalus’ income, which exceeded
30% of what was declared in its VAT returns as appearing in its quarterly VAT returns; and the under-
declaration was supported by the admission of its witness that not all the membership fees collected from
members applying for healthcare services were reported in its VAT returns. Thus, the CIR concludes that
there was prima facie evidence of a false return.

Issue
Whether the VAT assessment issued against Asalus Corporation had prescribed. - NO

Ratio
While, as a general rule, the findings of fact of the CTA are respected by the Court, they can be set aside
in exceptional cases.

Under Section 248(B) of the NIRC, there is a prima facie evidence of a false return if there is a substantial
under declaration of taxable sales, receipt, or income. The failure to report sales, receipts, or income in an
amount exceeding 30% what is declared in the returns constitute substantial under-declaration. In other
words, when there is a showing that a taxpayer has substantially under declared its sales, receipt, or
income, there is a presumption that it has filed a false return.

Applied in this case, the audit investigation revealed that there were undeclared VATable sales more than
30% of that declared in Asalus’ VAT returns. Moreover, Asalus’ lone witness testified that not all
membership fees, particularly those pertaining to medical practitioners and hospitals, were reported in
Asalus’ VAT returns. This supported the presumption that the return filed was indeed false precisely
because not all the sales of Asalus were included in the VAT returns.

Accordingly, failure to overcome the same warranted the application of the ten (10)-year prescriptive
period for assessment under Section 222 of the NIRC.
HON. KIM S. JACINTO-HENARES vs. ST. PAUL COLLEGE OF MAKATI, G.R. No.: 21538,
March 8, 2017
Facts:
Petitioner Kim S. Jacinto-Henares, in her capacity as then Commissioner of Internal Revenue (CIR),
issued Revenue Memorandum Order (RMO) No. 20-2013, which requires tax-exempt entities, including
non-stock, non-profit educational institutions (NSNPEIs), to submit an application for tax exemption to
the Bureau of Internal Revenue (BIR). The application is subject to approval by the CIR in the form of a
Tax Exemption Ruling, which is valid for three years and subject to renewal.
St. Paul College of Makati (SPCM) filed an action with the Regional Trial Court (RTC) to declare RMO
No. 20-2013 as unconstitutional. SPCM argued that RMO No. 20- 2013 imposes a prerequisite for
availing the tax exemption granted to NSNPEIs under Sec. 4(3) of Article XIV of the Constitution, and
makes failure to file an annual information return a ground for an NSNPEI to automatically lose its
income tax- exempt status.
The RTC ruled in favor of SPCM and declared RMO No. 20-2013 as unconstitutional because it serves as
a diminution of the constitutional privilege, which even Congress cannot diminish and, more so, the CIR
who merely exercises quasi- legislative functions.
The CIR appealed to the Supreme Court.

Issue:
Is RMO 20-2013 unconstitutional? (NO)
Ratio:
The issue on the constitutionality of RMO No. 20-2013 has been rendered moot when, on July 25, 2016,
the present CIR Caesar Dulay issued RMO No. 44-2016 amending RMO No. 20-2013, and clarifying that
NSNPEIs are excluded from the coverage of RMO No. 20-2013.

With the issuance of RMO No. 44-2016, a supervening event has transpired that rendered the petition
moot and academic, and subject to denial. The RTC decision no longer stands, and there is no longer any
practical value in resolving the issues raised by CIR Henares in her petition.