GR No. 153866 CIR vs.

Seagate

FACTS: Respondent is a resident foreign corporation duly registered with the Securities and
Exchange Commission to do business in the Philippines and is registered with the Philippine Export
Zone Authority (PEZA). The respondent is Value Added Tax-registered entity and filed for the VAT
returns. An administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with
supporting documents (inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for
Review), was filed on 4 October 1999, but no final action has been received by the respondent from
the petitioner on the claim for VAT refund. CIR asserts that by virtue of the PEZA registration alone of
respondent, the latter is not subject to the VAT. Consequently, the capital goods and services
respondent has purchased are not considered used in the VAT business, and no VAT refund or credit
is due.

ISSUE: Whether or not Seagate, a VAT-Registered PEZA Enterprise is entitled to tax refund or
credit.

HELD: Yes, Seagate is entitled to refund or credit. As a PEZA-registered enterprise within a special
economic zone, respondent is entitled to the fiscal incentives and benefit provided for in either PD 66
or EO 226. It shall, moreover, enjoy all privileges, benefits, advantages or exemptions under both
Republic Act Nos. (RA) 7227 and 7844.

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 otherwise taxable is merely a necessary incident to the tax exemption conferred by law upon it as
an entity, not upon the transactions themselves.

The petitioner’s assertion that the capital goods and services respondent has purchased are not
considered used in the VAT business, and thus no VAT refund or credit is due is non sequitur. On this
matter, the SC held that 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.

Seagate has complied with all the requisites for VAT refund or credit. First, respondent is a VAT-
registered entity. Second, the input taxes paid on the capital goods of respondent are duly supported
by VAT invoices and have not been offset against any output taxes.

To summarize, special laws expressly grant preferential tax treatment to business establishments
registered and operating within an ecozone, which by law is considered as a separate customs
territory. As such, respondent is exempt from all internal revenue taxes, including the VAT, and
regulations pertaining thereto. Its sales transactions intended for export may not be exempt, but like
its purchase transactions, they are zero-rated. No prior application for the effective zero rating of its
transactions is necessary. Being VAT-registered and having satisfactorily complied with all the
requisites for claiming a tax refund of or credit for the input VAT paid on capital goods purchased,
respondent is entitled to such VAT refund or credit.

Having determined that respondent’s purchase transactions are subject to a zero VAT rate, the SC
has determined that tax refund or credit is in order.
 CIR vs. Fortune Tobacco Corporation, [G.R. Nos. 167274-75, July 21, 2008]

FACTS: Respondent FTC is a domestic corporation that manufactures cigarettes packed by machine
under several brands. Prior to January 1, 1997, Section 142 of the 1977 Tax Code subjected said
cigarette brands to ad valorem tax. Annex D of R.A. No. 4280 prescribed the cigarette brands’ tax
classification rates based on their net retail price. On January 1, 1997, R.A. No. 8240 took effect. Sec.
145 thereof now subjects the cigarette brands to specific tax and also provides that: (1) the excise
tax from any brand of cigarettes within the next three (3) years from the effectivity of R.A. No. 8240
shall not be lower than the tax, which is due from each brand on October 1, 1996; (2) the rates of
excise tax on cigarettes enumerated therein shall be increased by 12% on January 1, 2000; and (3)
the classification of each brand of cigarettes based on its average retail price as of October 1, 1996,
as set forth in Annex D shall remain in force until revised by Congress. The Secretary of Finance
issued RR No. 17-99 to implement the provision for the 12% excise tax increase. RR No. 17-99 added
the qualification that “the new specific tax rate xxx shall not be lower than the excise tax that is
actually being paid prior to January 1, 2000.” In effect, it provided that the 12% tax increase must be
based on the excise tax actually being paid prior to January 1, 2000 and not on their actual net retail
price. FTC filed 2 separate claims for refund or tax credit of its purportedly overpaid excise taxes for
the month of January 2000 and for the period January 1-December 31, 2002. It assailed the validity
of RR No. 17-99 in that it enlarges Section 145 by providing the aforesaid qualification. In this
petition, petitioner CIR alleges that the literal interpretation given by the CTA and the CA of Section
145 would lead to a lower tax imposable on 1 January 2000 than that imposable during the transition
period, which is contrary to the legislative intent to raise revenue.

ISSUE: Should the 12% tax increase be based on the net retail price of the cigarettes in the market
as outlined in Section 145 of the 1997 Tax Code?

HELD: YES. Section 145 is clear and unequivocal. It states that during the transition period, i.e.,
within the next 3 years from the effectivity of the 1997 Tax Code, the excise tax from any brand of
cigarettes shall not be lower than the tax due from each brand on 1 October 1996. This qualification,
however, is conspicuously absent as regards the 12% increase which is to be applied on cigars and
cigarettes packed by machine, among others, effective on 1 January 2000. Clearly, Section 145
mandates a new rate of excise tax for cigarettes packed by machine due to the 12% increase
effective on 1 January 2000 without regard to whether the revenue collection starting from this
period may turn out to be lower than that collected prior to this date. The qualification added by RR
No. 17-99 imposes a tax which is the higher amount between the ad valorem tax being paid at the
end of the 3-year transition period and the specific tax under Section 145, as increased by 12%—a
situation not supported by the plain wording of Section 145 of the 1997 Tax Code. Administrative
issuances must not override, supplant or modify the law, but must remain consistent with the law
they intend to carry out. Revenue generation is not the sole purpose of the passage of the 1997 Tax
Code. The shift from the ad valorem system to the specific tax system in the Code is likewise meant
to promote fair competition among the players in the industries concerned and to ensure an
equitable distribution of the tax burden. Phil. Bank of Communications vs. CIR PHIL. BANK OF
COMMUNICATIONS v. CIR GR No. 112024, January 28, 1999 302 SCRA 250 FACTS: Petitioner PBCom
filed its first and second quarter income tax returns, reported profits, and paid income
 MCIAA vs. MARCOS
G.R. No. 120082, September 11, 1996 261 SCRA 667
FACTS:
Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act 6958.
Since the time of its creation, MCIAA enjoyed the privilege of exemption from payment of realty taxes in
accordance with Section 14 of its Charter. However on 11 October 1994, the Office of the Treasurer of Cebu,
demanded for the payment of realty taxes on several parcels of land belonging to the petitioner.
Petitioner objected to such demand for payment as baseless and unjustified and asserted that it is an
instrumentality of the government performing governmental functions, which puts limitations on the taxing
powers of local government units.
The City refused to cancel and set aside petitioner’s realty tax account, insisting that the MCIAA is a
government controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections
193 and 234 of the Local Government Code (LGC), and not an instrumentality of the government but merely a
government owned corporation performing proprietary functions. MCIAA paid its tax account “under protest”
when City is about to issue a warrant of levy against the MCIAA’s properties.
MCIAA filed a Petition of Declaratory Relief with the RTC contending that the taxing power of local
government units do not extend to the levy of taxes or fees on an instrumentality of the national government. It
contends that by the nature of its powers and functions, it has the footing of an agency or instrumentality of the
national government; which claim the City rejects. The trial court dismissed the petition, citing that close
reading of the LGC provides the express cancellation and withdrawal of tax exemptions of Government Owned
and Controlled Corporations.

ISSUE: Whether the MCIAA is exempted from realty taxes.

RULING:
Tax statutes are construed strictly against the government and liberally in favor of the taxpayer. But
since taxes are paid for civilized society, or are the lifeblood of the nation, the law frowns against exemptions
from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and
liberally in favor of the taxing authority.
A claim of exemption from tax payments must be clearly shown and based on language in the law too
plain to be mistaken. Taxation is the rule, exemption therefrom is the exception. However, if the grantee of the
exemption is a political subdivision or instrumentality, the rigid rule of construction does not apply because the
practical effect of the exemption is merely to reduce the amount of money that has to be handled by the
government in the course of its operations.
Further, since taxation is the rule and exemption therefrom the exception, the exemption may be
withdrawn at the pleasure of the taxing authority. The only exception to this rule is where the exemption was
granted to private parties based on material consideration of a mutual nature, which then becomes contractual
and is thus covered by the non-impairment clause of the Constitution.
MCIAA is a “taxable person” under its Charter (RA 6958), and was only exempted from the payment of real
property taxes. The grant of the privilege only in respect of this tax is conclusive proof of the legislative intent
to make it a taxable person subject to all taxes, except real property tax.
Since Republic Act 7160 or the Local Government Code (LGC) expressly provides that “All general and special
laws, acts, city charters, decrees [sic], executive orders, proclamations and administrative regulations, or part of
parts thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified
accordingly.”
With that repealing clause in the LGC, the tax exemption provided for in RA 6958 had been expressly
repealed by the provisions of the LGC. Therefore, MCIAA has to pay the assessed realty tax of its properties
effective after January 1, 1992 until the present
 Mactan Cebu International Airport Authority v. Marcos
261 SCRA 667 (1996)
FACTS:

Petitioner Mactan Cebu International Airport Authority was created by virtue of R.A. 6958,
mandated to principally undertake the economical, efficient, and effective control, management, and
supervision of the Mactan International Airport and Lahug Airport, and such other airports as may be
established in Cebu.
Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment of
realty taxes in accordance with Section 14 of its charter. However, on October 11, 1994, Mr.
Eustaquio B. Cesa, Officer in Charge, Office of the Treasurer of the City of Cebu, demanded payment
from realty taxes in the total amount of P2,229,078.79. Petitioner objected to such demand for
payment as baseless and unjustified claiming in its favor the afore cited Section 14 of R.A. 6958. It
was also asserted that it is an instrumentality of the government performing governmental functions,
citing Section 133 of the Local Government Code of 1991.
Section 133. Common limitations on the Taxing Powers of Local Government Units.
The exercise of the taxing powers of the provinces, cities, barangays, municipalities shall not extend
to the levi of the following:
xxx Taxes, fees or charges of any kind in the National Government, its agencies and
instrumentalities, and LGU’s. xxx
Respondent City refused to cancel and set aside petitioner’s realty tax account, insisting that the
MCIAA is a government-controlled corporation whose tax exemption privilege has been withdrawn by
virtue of Sections 193 and 234 of Local Government Code that took effect on January 1, 1992.

ISSUE:

Whether or not the petitioner is a “taxable person”

RULINGS:

Taxation is the rule and exemption is the exception. MCIAA’s exemption from payment of
taxes is withdrawn by virtue of Sections 193 and 234 of Local Government Code. Statutes granting
tax exemptions shall be strictly construed against the taxpayer and liberally construed in favor of the
taxing authority.
The petitioner cannot claim that it was never a “taxable person” under its Charter. It was only
exempted from the payment of realty taxes. The grant of the privilege only in respect of this tax is
conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real
property tax.
CIR v Solidbank Corporation (G.R. No. 148191)
FACTS:
Solidbank filed its Quarterly Percentage Tax Returns reflecting gross receipts amounting to
P1,474,693.44. It alleged that the total included P350,807,875.15 representing gross receipts from
passive income which was already subjected to 20%final withholding tax (FWT).

The Court of Tax Appeals (CTA) held in Asian Ban Corp. v Commissioner, that the 20% FWT should
not form part of its taxable gross receipts for purposes of computing the tax.

Solidbank, relying on the strength of this decision, filed with the BIR a letter-request for the refund or
tax credit. It also filed a petition for review with the CTA where the it ordered the refund.

The CA ruling, however, stated that the 20% FWT did not form part of the taxable gross receipts
because the FWT was not actually received by the bank but was directly remitted to the government.

The Commissioner claims that although the FWT was not actually received by Solidbank, the fact that
the amount redounded to the bank’s benefit makes it part of the taxable gross receipts in computing
the Gross Receipts Tax. Solidbank says the CA ruling is correct.

ISSUE:
Whether or not the FWT forms part of the gross receipts tax.

HELD:
Yes. In a withholding tax system, the payee is the taxpayer, the person on whom the tax is imposed.
The payor, a separate entity, acts as no more than an agent of the government for the collection of tax
in order to ensure its payment. This amount that is used to settle the tax liability is sourced from the
proceeds constitutive of the tax base.
These proceeds are either actual or constructive. Both parties agree that there is no actual receipt by
the bank. What needs to be determined is if there is constructive receipt. Since the payee is the real
taxpayer, the rule on constructive receipt can be rationalized.
The Court applied provisions of the Civil Code on actual and constructive possession. Article 531 of
the Civil Code clearly provides that the acquisition of the right of possession is through the proper acts
and legal formalities established. The withholding process is one such act. There may not
be actual receipt of the income withheld; however, as provided for in Article 532, possession by any
person without any power shall be considered as acquired when ratified by the person in whose name
the act of possession is executed.
In our withholding tax system, possession is acquired by the payor as the withholding agent of the
government, because the taxpayer ratifies the very act of possession for the government. There is thus
constructive receipt.
The processes of bookkeeping and accounting for interest on deposits and yield on deposit substitutes
that are subjected to FWT are tantamount to delivery, receipt or remittance. Besides, Solidbank
admits that its income is subjected to a tax burden immediately upon “receipt”, although it claims that
it derives no pecuniary benefit or advantage through the withholding process.

There being constructive receipt, part of which is withheld, that income is included as part of the tax
base on which the gross receipts tax is imposed.
COMMISSIONER OF INTERNAL REVENUE, Petitioner vs. SAN MIGUEL CORPORATION,
Respondent. (G.R. No. 205045; January 25, 2017)

FACTS:
When SMC's October 19, 1999 letter requested the registration and authority to manufacture "San Mig Light,"
to be taxed at ₱12.15 per liter, the BIR granted the request, thus confirming SMC can register, manufacture,
and sell "San Mig Light" as a new brand.

The CIR argues that "San Mig Light," launched in November 1999, is not a new brand but merely a low-calorie
variant of "San Miguel Pale Pilsen." Thus, the application of the higher excise tax rate for variant products is
appropriate (₱19.91 per liter instead of ₱9.15 per liter) and SMC should not be entitled to a refund or issuance
of a tax credit certificate. The CTA sided with SMC; hence, this petition by the CIR with the SC.

ISSUES:
[1] Can the BIR validly reclassify brands?
[2] Is "San Mig Light" is a new brand and not a variant of "San Miguel Pale Pilsen"?
[3] Is it not that estoppel does not apply to the government in case of collection of taxes?
[4] Is SMC entitled to a refund of excess payment of excise taxes on "San Mig Light"?

HELD:
[1] No, any reclassification of fermented liquor products should be by act of Congress. (Section 143 of the Tax
Code)

The CIR's letters and Notices of Discrepancy, which effectively changed San Mig Light's brand's classification
from "new brand to variant of existing brand," necessarily changes San Mig Light's tax bracket. Based on the
legislative intent behind the classification freeze provision, petitioner has no power to do this. A reclassification
of a fermented liquor brand introduced between January 1, 1997 and December 31, 2003, such as "San Mig
Light," must be by act of Congress. There was none in this case.

[2] A new brand still because the BIR has no power to reclassify.

Also, a 'variant of a brand' shall refer to a brand on which a modifier is prefixed and/or suffixed to the root
name of the brand. The word "Light" cannot he considered as a mere suffix to the word "San Miguel," hut it is
part and parcel of an entirely new brand name, "San Mig Light."

Though the "escudo" logo appears on both "Pale Pilsen" bottle and "San Mig Light" bottle and can, the same
cannot be considered as an indication that "San Mig Light" is merely a variant of the brand "Pale Pilsen", since
the said "escudo" insignia is the corporate logo of petitioner. It merely identifies the products, as having been
manufactured by petitioner, but does not form part of its brand. In fact, it appears not only in petitioner's beer
products, but even in its non-beer products.

[3] While estoppel generally does not apply against government, especially when the case involves the
collection of taxes, an exception can be made when the application of the rule will cause injustice against an
innocent party.136 Respondent had already acquired a vested right on the tax classification of its San Mig Light
as a new brand. To allow petitioner to change its position will result in deficiency assessments in substantial
amounts against respondent to the latter's prejudice.

The authority of the Bureau of Internal Revenue to overrule, correct, or reverse the mistakes or errors of its
agents is conceded. However, this authority must be exercised reasonably.

[4] Yes, SMC is entitled to tax refund or tax credit certification. The Tax Code includes remedies for erroneous
collection and overpayment of taxes. Under Sections 229 and 204(C) of the Tax Code, a taxpayer may seek
recovery of erroneously paid taxes within two (2) years from date of payment.
CASE DIGEST: COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. LA
TONDENA DISTILLERS, INC. (LTDI [now GINEBRA SAN MIGUEL],
Respondent. (G.R. No. 175188; July 15, 2015)

PRINCIPLE: The transfer of real property to a surviving corporation pursuant to a

merger is not subject to Documentary Stamp Tax (DST).

FACTS:
La Tondeña (LT) entered into a merger with SBC, SMCJI and MBWC. So, the assets and
liabilities of the absorbed corporations were transferred to LT as surviving corporation.

LT requested from the BIR a confirmation of the tax-free nature of the merger
process. BIR confirmed that no gain or loss shall be recognized by the absorbed
corporations as transferors of all assets and liabilities. Hence, tax-free. However, BIR
insisted that the transfer of assets, such as real properties, shall be subject to DST

BIR posits that DST is levied on the exercise of the privilege to convey real property
regardless of the manner of conveyance. LT, on the other hand, contends that DST is
imposed only on conveyances, deeds, instruments, or writing, where realty sold shall be
conveyed to a purchaser or buyer.

ISSUE:
Is transfer of real property to a surviving corporation pursuant to merger subject to DST?

HELD:
No, it is not subject to DST. The DST law under the Tax Code does not include the transfer
of real property from one corporation to another pursuant to a merger.

In a merger, the real properties are not deemed "sold" to the surviving corporation and the
latter could not be considered as "purchaser" of realty since the real properties subject of
the merger were merely absorbed by the surviving corporation by operation of law and
these properties are deemed automatically transferred to and vested in the surviving
corporation without further act or deed. Therefore, the transfer of real properties to the
surviving corporation in pursuance of a merger is not subject to documentary stamp tax.
CASE DIGEST: COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. PHILIPPINE
NATIONAL BANK, Respondent. (G.R. No. 195147; July 11, 2016)

FACTS:
The BIR issued a final decision on disputed assessment amounting to more than 41 million pesos
against PNB for deficiency payments of documentary stamp taxes (DST), withholding taxes on
compensation, and expanded withholding taxes for taxable year 1997. PNB immediately paid except
for the DST, arguing that its interbank call loans (ICLs) transacted in 1997 are not subject to DST.

The BIR's position is that, although not considered as deposit subsitute debt instruments (DSDIs),
ICLs having maturity of more than 5 days are within the concept of loan agreements. Hence, they are
subject to DST.

ISSUES:
[1] Considering that PNB's ICLs have a maturity of more than 5 days, are they governed by the
amended tax law?
[2] Are ICLs within the concept of loan agreements?
[3] Are ICLs considered DSDI by the Tax Code?
[4] Are ICLs subject to DST?

HELD:
[1] No, they are not. Although under the amended Tax Code, ICLs with more than 5 days of maturity
are considered DSDIs (hence, subject to DST), this amendment came to effect in 1998. Tax laws are
generally prospective and cannot be given retroactive effect to the prejudice of PNB.

[2] No, ICLs are not considered loan agreements. An ICL 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.

Simply put, 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, supra, 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 ICLs.

[3] No. Debt instruments issued for inter-bank call loans to cover deficiency in reserves against
deposit liabilities including those between or among banks and quasi-banks shall not be considered as
DSDIs unless, according to the 1998 amendment, they have maturity of more than 5 days.

[4] No. DST covers (1) loan agreements; (2) bills of exchange; (3) drafts; (4) instruments and
securities issued by the Government or any of its instrumentalities; (5) certificates of deposits drawing
interest; ( 6) orders for the payment of any sum of money otherwise than at sight or on demand; and
(7) promissory notes, whether negotiable or non-negotiable, except bank notes issued for circulation,
and on each renewal of any such note. ICLs, although not considered as deposit substitutes, are not
expressly included among the taxable instruments.

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.
Facts:
petitioner received a Preliminary Assessment Notice (PAN
IT
VAT
WTC
EWT
DST
A substantial portion of the deficiency income tax and VAT arose from the complete disallowance[4] by
the BIR of the petitioner's purchases from Etheria
Trading
Assessment... protest
Prior to the CIR's decision, the petitioner paid the assessments... likewise reiterated its offer to
compromise the alleged deficiency assessments... petitioner appealed the CIR's decision to the CTA
CTA in Division issued the first assailed resolution... petitioner's Financial Statements and Independent
Auditor's Report... indicate that the company's total equity for the year 2012 and 2013 was P955,095,301
and P916,768,767
To yield to respondent's alleged assessment and collection in the amount of P4,467,391,881.76 would
definitely jeopardize the normal business operations of petitioner... considering petitioner's willingness to
post bond... this Court in the interest of substantial justice, resolves... to grant petitioner's Motion.
WHEREFORE... petitioner's Motion for Suspension of Collection of Tax in the amount of
P4,467,391,881.76
GRANTED.
Provided, however, that petitioner deposits with this Court an accep... table surety bond equivalent to
150% of the assessment or in the amount of SIX BILLION SEVEN HUNDRED ONE MILLION EIGHTY
SEVEN THOUSAND EIGHT HUNDRED TWENTY TWO and 64/100 PESOS (P6,701,087,822.64)
within... fifteen (15) days from notice hereof.
Hence, the petitioner has commenced this special civil action for certiorari,
Issues:
Did the CTA in Division commit grave abuse of discretion in requiring the petitioner to file a surety bond
despite the supposedly patent illegality of the assessment that was beyond the petitioner's net worth but
equivalent to the deficiency assessment for IT and VAT?
Ruling:
The petition for certiorari is meritorious
Section 11 of Republic Act No. 1125
Provided, however, That when in the opinion of the Court the collection
Provided, however, That when in the opinion of the Court the collection by the Bureau of Internal Revenue
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.
The petitioner argues that the surety bond amounting to P4,467,391,881.76 greatly exceeds its net worth
and makes it legally impossible to procure the bond from bonding companies that are limited in their risk
assumptions
As shown in its audited... financial statements for the year ending December 31, 2013, its net worth only
amounted to P916,768,767.00,... P916,768,767.00,[18] making the amount of P4,467,391,881.76 fixed for
the bond nearly five times greater than such net worth.
The surety bond amounting to P4,467,391,881.76 imposed by the CTA was within the parameters
delineated in Section 11 of R.A. 1125, as amended. The Court holds, however, that the CTA in Division
gravely abused its discretion under Section 11 because it fixed the amount of the... bond at nearly five
times the net worth of the petitioner 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.
Although the amount of P4,467,391,881.76 was itself the amount of the assessment, it behoved the CTA
in Division to consider other factors recognized by the law itself... towards suspending the collection of the
assessment, 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.
would practically deny to the petitioner the meaningful opportunity to contest the validity of the
assessments, and would likely even impoverish it as to force it out of business.
Moreover, Section 11 of R.A. 1125, as amended, indicates that 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, not when the
processes are in plain violation of the law that they have to be suspended for jeopardizing the interests of
the taxpaye
WHEREFORE, the Court GRANTS the petition for certiorari; ANNULS and SETS ASIDE the resolutions
issued on July 8, 2014 and December 22, 2014 in CTA Case No. 8833 requiring the petitioner to post a
surety bond of P4,467,391,881.76 as a condition... to restrain the collection of the deficiency taxes
assessed against it; PERMANENTLY ENJOINS the enforcement of the resolutions issued on July 8, 2014
and December 22, 2014 in CTA Case No. 8833; and REQUIRES the Court of Tax Appeals, Second
Division, to forthwith... conduct a preliminary hearing in CTA Case No. 8833 to determine and rule on
whether the bond required under Section 11 of Republic Act No. 1125 may be dispensed with or reduced
to restrain the collection of the deficiency taxes assessed against the petitioner.
Principles:
At this juncture, it becomes imperative to reiterate the principle that the power to tax is not the power to
destroy.
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be found only in the
responsibility of the legislature which imposes the tax on the... constituency who is to pay it. So potent
indeed is the power that it was once opined that the power to tax involves the power to destroy.
It is not the... purpose of the government to throttle private business. On the contrary, the government
ought to encourage private enterpri
.
terprise. Petitioner, just like any concern organized for a lawful economic activity, has a right to maintain a
legitimate business.
CARPIO, J.:
The Case

Before the Court is a petition for review on certiorari[1] assailing the 19 May 2014
Decision[2] and the 5 January 2015 Resolution[3] of the Court of Tax Appeals (CTA) En
Banc in CTA EB No. 994.

The CTA En Banc affirmed the Decision of the CTA First Division ordering the
cancellation and withdrawal of the deficiency tax assessments issued by the
Commissioner of Internal Revenue (CIR) against Philippine Aluminum Wheels, Inc.
(respondent).

The Facts

Respondent is a corporation organized and existing under Philippine laws which

engages in the manufacture, production, sale, and distribution of automotive parts and
accessories. On 16 December 2003, the Bureau of Internal Revenue (BIR) issued a
Preliminary Assessment Notice (PAN) against respondent covering deficiency taxes for
the taxable year 2001.[4] On 28 March 2004, the BIR issued a Final Assessment Notice
(FAN) against respondent in the amount of P32,100,613.42.[5] On 23 June 2004,
respondent requested for reconsideration of the FAN issued by the BIR. On 8
November 2006, the BIR issued a Final Decision on Disputed Assessment (FDDA) and
demanded full payment of the deficiency tax assessment from respondent.[6] On 12
April 2007, the FDDA was served through registered mail.

On 19 July 2007, respondent filed with the BIR an application for the abatement of its
tax liabilities under Revenue Regulations No. 13-2001 for the taxable year 2001.[7] In a
letter dated 12 September 2007,[8] the BIR denied respondent's application for tax
abatement on the ground that the FDDA was already issued by the BIR and that the
FDDA had become final and executory due to the failure of the respondent to appeal
the FDDA with the CTA. The BIR contended that the FDDA had been sent through
registered mail on 12 April 2007 and that the FDDA had become final, executory, and
demandable because of the failure of the respondent to appeal the FDDA with the CTA
within thirty (30) days from receipt of the FDDA.

In a letter dated 19 September 2007,[9] respondent informed the BIR that it already
paid its tax deficiency on withholding tax amounting to P736,726.89 through the
Electronic Filing and Payment System of the BIR and that it was also in the process of
availing of the Tax Amnesty Program under Republic Act No. 9480 (RA 9480) as
implemented by Revenue Memorandum Circular No. 55-2007 to settle its deficiency
tax assessment for the taxable year 2001. On 21 September 2007, respondent complied
with the requirements of RA 9480 which include: the filing of a Notice of Availment,
Tax Amnesty Return and Payment Form, and remitting the tax payment. In a letter
dated 29 January 2008, the BIR denied respondent's request and ordered respondent
to pay the deficiency tax assessment amounting to P29,108,767.63.[10]

In a second letter dated 16 July 2008, the BIR reiterated that the FDDA had become
final and executory for the failure of the respondent to appeal the FDDA with the CTA
within the prescribed period of thirty (30) days. The BIR demanded the full payment of
the tax assessment and contended that the respondent's availment of the tax amnesty
under RA 9480 had no effect on the assessment due to the finality of the FDDA prior to
respondent's tax amnesty availment. On 1 August 2008, respondent filed a Petition for
Review with the CTA assailing the letter of the BIR dated 16 July 2008.

The Decision of the CTA First Division

On 12 November 2012, the CTA granted respondent's Petition for Review and set aside
the assessment in view of respondent's availment of a tax amnesty under RA 9480. The
CTA First Division held that RA 9480 covers all national internal revenue taxes for the
taxable year 2005 and prior years, with or without assessments duly issued, that have
remained unpaid as of 31 December 2005.[11] The CTA First Division ruled that
respondent complied with all the requirements of RA 9480 including the payment of
the amnesty tax and submission of all relevant documents. Having complied with all
the requirements of RA 9480, respondent is fully entitled to the immunities and
privileges granted under RA 9480.[12]

The dispositive portion of the Decision states:

WHEREFORE, premises considered, the instant Petition for Review is GRANTED. The
subject assessment in the present case against petitioner is hereby SET ASIDE solely in
view of petitioner's availment of the Tax Amnesty Program under R.A. No. 9480; and
accordingly, petitioner is hereby DECLARED ENTITLED to the immunities and
privileges provided by the Tax Amnesty Law being a qualified tax amnesty applicant
and for having complied with all the documentary requirements set by law.

SO ORDERED.[13]
The CIR filed a Motion for Reconsideration[14] on 3 December 2012 which the CTA First
Division denied on 1 March 2013.[15]

The Decision of the CTA En Banc

On 19 May 2014, the CTA En Banc held that a qualified tax amnesty applicant who has
completed the requirements of RA 9480 shall be deemed to have fully complied with
the Tax Amnesty Program. Upon compliance with the requirements of the law, the
taxpayer shall, as mandated by law, be immune from the payment of taxes as well as
appurtenant civil, criminal, or administrative penalties under the National Internal
Revenue Code. The CTA En Banc ruled that the finality of a tax assessment did not
disqualify respondent from availing of a tax amnesty under RA 9480.

The dispositive portion of the Decision states:

WHEREFORE, premises considered, the Petition for Review filed by the Commissioner
of Internal Revenue is DENIED, for lack of merit. The Decision of the First Division of
this Court promulgated on November 12, 2012 in CTA Case No. 781[7],
captioned Philippine Aluminum Wheels, Inc. v. Commissioner of Internal Revenue,
and the Resolution of the said Division dated March 1, 2013, are AFFIRMED in toto.

SO ORDERED.[16]
The CIR filed a Motion for Reconsideration on 11 June 2014 which was denied on 5
January 2015.[17]

The Issue

Whether respondent is entitled to the benefits of the Tax Amnesty Program under RA
9480.

The Decision of this Court

This Court denies the petition in view of the respondent's availment of the Tax Amnesty
Program under RA 9480.

A tax amnesty is a general pardon or intentional overlooking by the State of its

authority to impose penalties on persons otherwise guilty of evasion or violation of a
revenue or tax law. It partakes of an absolute forgiveness or waiver by the government
of its right to collect what is due it and to give tax evaders who wish to relent a chance
to start with a clean slate. A tax amnesty, much like a tax exemption, is never favored
nor presumed in law. The grant of a tax amnesty, similar to a tax exemption, must be
construed strictly against the taxpayer and liberally in favor of the taxing authority.[18]

On 24 May 2007, RA 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," became law.

The pertinent provisions of RA 9480 are:

Section 1. Coverage. There is hereby authorized and granted a tax amnesty which shall
cover all national internal revenue taxes for the taxable year 2005 and prior
years, with or without assessments duly issued therefor, that have remained
unpaid as of December 31, 2005: Provided, however, that the amnesty hereby
authorized and granted shall not cover persons or cases enumerated under Section 8
hereof.

xxxx

Section 6. Immunities and Privileges. Those who availed themselves of the tax amnesty
under Section 5 hereof, and have fully complied with all its conditions shall be entitled
to the following immunities and privileges:

(a) The taxpayer shall be immune from the' payment of taxes, as well as additions
thereto, and the appurtenant civil, criminal or administrative penalties under the
National Internal Revenue Code of 1997, as amended, arising from the failure to pay
any and all internal revenue taxes for taxable year 2005 and prior years.

x x x x (Emphasis supplied)
The Department of Finance issued DOF Department Order No. 29-07 (DO 29-
07).[19] Section 6 of DO 29-07 provides for the method for availing a tax amnesty under
RA 9480, to wit:

Section 6. Method of Availment of Tax Amnesty.

1. Forms/Documents to be filed. To avail of the general tax amnesty, concerned

taxpayers shall file the following documents/requirements:

a. Notice of Availment in such forms as may be prescribed by the BIR;

b. Statement of Assets, Liabilities and Networth (SALN) as of December 31, 2005 in

such forms, as may be prescribed by the BIR;

c. Tax Amnesty Return in such forms as may be prescribed by the BIR.

2. x x x.

3. x x x.

The Acceptance of Payment Form, the Notice of Availment, the SALN, and the Tax
Amnesty Return shall be submitted to the RDO, which shall be received only after
complete payment. The completion of these requirements shall be deemed
full compliance with the provisions of RA 9480.

x x x x (Emphasis supplied)
In Philippine Banking Corporation v. Commissioner of Internal Revenue,[20] this
Court held that the taxpayer's completion of the requirements under RA 9480, as
implemented by DO 29-07, will extinguish the taxpayer's tax liability, additions and all
appurtenant civil, criminal, or administrative penalties under the National Internal
Revenue Code, to wit:

Considering that the completion of these requirements shall be deemed full compliance
with the tax amnesty program, the law mandates that the taxpayer shall thereafter be
immune from the payment of taxes, and additions thereto, as well as the appurtenant
civil, criminal or administrative penalties under the NIRC of 1997, as amended, arising
from the failure to pay any and all internal revenue taxes for taxable year 2005 and
prior years.[21]
Similarly, in Metropolitan Bank and Trust Company (Metrobank) v. Commissioner of
Internal Revenue,[22] this Court sustained the validity of Metrobank's tax amnesty upon
full compliance with the requirements of RA 9480. This Court ruled: "Therefore, by
virtue of the availment by Metrobank of the Tax Amnesty Program under Republic Act
No. 9480, it is already immune from the payment of taxes, including DST on the
UNISA for 1999, as well as the addition thereto."[23]

On 19 September 2007, respondent availed of the Tax Amnesty Program under RA

9480, as implemented by DO 29-07. Respondent submitted its Notice of Availment,
Tax Amnesty Return, Statement of Assets, Liabilities and Net Worth, and comparative
financial statements for 2005 and 2006. Respondent paid the amnesty tax to the
Development Bank of the Philippines, evidenced by its Tax Payment Deposit Slip dated
21 September 2007. Respondent's completion of the requirements of the Tax Amnesty
Program under RA 9480 is sufficient to extinguish its tax liability under the FDDA of
the BIR.

In Asia International Auctioneers, Inc. v. Commissioner of Internal Revenue,[24] this

Court ruled that the tax liability of Asia International Auctioneers, Inc. was fully settled
when it was able to avail of the Tax Amnesty Program under RA 9480 in February
2008 while its Petition for Review was pending before this Court. This Court declared
the pending case involving the tax liability of Asia International Auctioneers, Inc. moot
since the company's compliance with the Tax Amnesty Program under RA 9480
extinguished the company's outstanding deficiency taxes.

The CIR contends that respondent is disqualified to avail of the tax amnesty under RA
9480. The CIR asserts that the finality of its assessment, particularly its FDDA is
equivalent to a final and executory judgment by the courts, falling within the
exceptions to the Tax Amnesty Program under Section 8 of RA 9480, which states:

Section 8. Exceptions. The tax amnesty provided in Section 5 hereof shall not extend to
the following persons or cases existing as of the effectivity of this Act:

(a) Withholding agents with respect to their withholding tax liabilities;

(b) Those with pending cases falling under the jurisdiction of the Presidential
Commission on Good Government;

(c) Those with pending cases involving unexplained or unlawfully acquired wealth or
under the Anti-Graft and Corrupt Practices Act;

(d) Those with pending cases filed in court involving violation of the Anti-Money
Laundering Law;

(e) Those with pending criminal cases for tax evasion and other criminal offenses under
Chapter II of Title X of the National Internal Revenue Code of 1997, as amended, and
the felonies of frauds, illegal exactions and transactions, and malversation of public
funds and property under Chapters III and IV of Title VII of the Revised Penal Code;
and

(f) Tax cases subject of final and executory judgment by the

courts. (Emphasis supplied)
The CIR is wrong. Section 8(f) is clear: only persons with "tax cases subject of final and
executory judgment by the courts" are disqualified to avail of the Tax Amnesty Program
under RA 9480. There must be a judgment promulgated by a court and the judgment
must have become final and executory. Obviously, there is none in this case. The
FDDA issued by the BIR is not a tax case "subject to a final and executory
judgment by the courts" as contemplated by Section 8(f) of RA 9480. The
determination of the tax liability of respondent has not reached finality and is still not
subject to an executory judgment by the courts as it is the issue pending before this
Court. In fact, in Metrobank, this Court held that the FDDA issued by the BIR was not
a final and executory judgment and did not prevent Metrobank from availing of the
immunities and privileges granted under RA 9480, to wit:

x x x. As argued by Metrobank, the very fact that the instant case is still subject of the
present proceedings is proof enough that it has not reached a final and executory stage
as to be barred from the tax amnesty under Republic Act No. 9480.

The assertion of the CIR that deficiency DST is not covered by the Tax Amnesty
Program under Republic Act No. 9480 is downright specious.[25]
The CIR alleges that respondent is disqualified to avail of the Tax Amnesty Program
under Revenue Memorandum Circular No. 19-2008 (RMC No. 19-2008) dated 22
February 2008 issued by the BIR which includes "delinquent accounts or accounts
receivable considered as assets by the BIR or the Government, including self-assessed
tax" as disqualifications to avail of the Tax Amnesty Program under RA 9480. The
exception of delinquent accounts or accounts receivable by the BIR under RMC No. 19-
2008 cannot amend RA 9480. As a rule, executive issuances including implementing
rules and regulations cannot amend a statute passed by Congress.

In National Tobacco Administration v. Commission on Audit,[26] this Court held that

in case there is a discrepancy between the law and a regulation issued to implement the
law, the law prevails because the rule or regulation cannot go beyond the terms and
provisions of the law, to wit: "[t]he Circular cannot extend the law or expand its
coverage as the power to amend or repeal a statute is vested with the legislature." To
give effect to the exception under RMC No. 19-2008 of delinquent accounts or accounts
receivable by the BIR, as interpreted by the BIR, would unlawfully create a new
exception for availing of the Tax Amnesty Program under RA 9480.

WHEREFORE, we DENY the petition. We AFFIRM the 19 May 2014 Decision and
the 5 January 2015 Resolution of the Court of Tax Appeals En Banc in CTA EB No. 994.

SO ORDERED.