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TAX DIGESTS

SELECTED CASES ON TAXATION FROM YEARS 2011-2012

Submitted to: Professor Victor Mamalateo College of Law University of the Philippines Diliman, Quezon City Submitted by: Naomi Therese F. Corpuz

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TABLE OF CONTENTS
2012 cases
1. G.R. No. 166482. January 25, 2012 Silkair (singapore) PTE, Ltd. Vs. Commissioner of Internal Revenue 2. G.R. No. 179579. February 1, 2012 Commissioner of Customs, et al. Vs. Hypermix Feeds Corporation 3. G.R. No. 185568. March 21, 2012 Commissioner of Internal Revenue Vs. Petron Corporation 4. G.R. No. 188497. April 25, 2012 Commissioner of Internal Revenue Vs. Pilipinas Shell Petroleum Corporation 5. G.R. No. 181136. June 13, 2012 Western Mindanao Power Corporation Vs. Commissioner of Internal Revenue 6. G.R. No. 190102. July 11, 2012 Accenture, Inc. Vs. Commissioner of Internal Revenue 7. G.R. No. 168856. August 29, 2012 Eastern Telecommunications Philippines, Inc. Vs. The Commissioner of Internal Revenue 8. G.R. No. 173425. September 4, 2012 Fort Bonifacio Develoment Corporation Vs. Commissioner of Internal Revenue and Revenue District Officer, etc. 9. G.R. No. 182045. September 19, 2012 Gulf Air Company, Philippines Branch Vs. Commissioner of Internal Revenue 10. G.R. No. 195909/G.R. No. 195960. September 26, 2012
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Commissioner of Internal Revenue Vs. St. Luke's Medical Center, Inc./St. Luke's Medical Center, Inc. Vs. Commissioner of Internal Revenue 11. G.R. No. 179115. September 26, 2012 Asia International Auctioneers, Inc. Vs. Commissioner of Internal Revenue 12. G.R. No. 168331. October 11, 2012 United International Pictures, AB Vs. Commissioner of Internal Revenue 13. G.R. No. 183553. November 12, 2012 Diageo Philippines, Inc. Vs. Commissioner of Internal Revenue

2011 cases
1. G.R. No. 181298. January 10, 2011 Belle Corporation Vs. Commissioner of Internal Revenue 2. G.R. No. 172378. January 17, 2011 Silicon Philippines, Inc. Vs. Commissioner of Internal Revenue 3. G.R. No. 179617. January 19, 2011 Commissioner of Internal Revenue Vs. Asian Transmission Corporation 4. G.R. No. 180909. January 19, 2011 Exxonmobil Petroleum and Chemical Holdings, Inc. Vs. Commissioner of Internal Revenue 5. G.R. No. 159471. January 26, 2011 Atlas Consolidated Mining and Development Corporation Vs. Commissioner of Internal Revenue 6. G.R. No. 179961. January 31, 2011 Kepco Philippines Corporation Vs. Commissioner Of Internal Revenue

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7. G.R. No. 169103. March 16, 2011 Commissioner of Internal Revenue Vs. Manila Bankers' Life Insurance Corporation 8. G.R. No. 187425. March 28, 2011 Commissioner of Customs Vs. Agfha Incorporated 9. G.R. No. 160949. April 4, 2011 Commissioner of Internal Revenue Vs. PL Management International Phil., Inc. 10. G.R. No. 180173. April 6, 2011 Microsoft Philippines, Inc. Vs. Commissioner of Internal Revenue 11. G.R. No. 171742 & G.R. No. 176165. June 15, 2011 Commissioner of Internal Revenue Vs. Mirant (Philippines) Operations Corporation/Mirant (Philippines) Operations Corporation, etc. Vs. Commissioner of Internal Revenue 12. G.R. No. 163653/G.R. No. 167689. July 19, 2011 Commissioner of Internal Revenue Vs. Filinvest Development Corporation/Commissioner of Internal Revenue Vs. Filinvest Development Corporation 13. G.R. No. 193007. July 19, 2011 Renato V. Diaz and Aurora Ma. F. Timbol Vs. The Secretary of Finance and the Commissioner of Internal Revenue 14. G.R. No. 164050. July 20, 2011 Mercury Drug Corporation Vs. Commissioner of Internal Revenue 15. G.R. No. 180390. July 27, 2011 Prudential Bank Vs. Commissioner of Internal Revenue 16. G.R. No. 170257. September 7, 2011 Rizal Commercial Banking Corporation Vs. Commissioner Internal Revenue 17. G.R. No. 180006. September 28, 2011
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Commissioner of Internal Revenue Vs. Fortune Tobaco Corporation 18. G.R. No. 179632. October 19, 2011 Southern Philippines Power Corporation Vs. Commissioner of Internal Revenue 19. G.R. No. 184428. November 23, 2011 Commissioner of Internal Revenue Vs. San Miguel Corporation

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2012 cases
1. G.R. No. 166482. January 25, 2012 Silkair (singapore) PTE, Ltd. Vs. Commissioner of Internal Revenue PONENTE: Villarama J.
FACTS: Silkair (Singapore) Pte. Ltd. (Petitioner) is a foreign corporation duly licensed by the Securities and Exchange Commission (SEC) to do business in the Philippines as an on-line international carrier. In the course of its international flight operations, Silkair purchased aviation fuel from Petron Corporation (Petron), paying the excise taxes thereon in the sum of P5,007,043.39. The payment was advanced by Singapore Airlines, Ltd. on behalf of Silkair. Then, Silkair filed an administrative claim for refund in the amount of P5,007,043.39 representing excise taxes on the purchase of jet fuel from Petron, which it alleged to have been erroneously paid. The claim is based on Section 135 (a) and (b) of the 1997 Tax Code, which provides:
SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. Petroleum products sold to the following are exempt from excise tax: (a) International carriers of Philippine or foreign registry on their use or consumption outside the Philippines: Provided, That the petroleum products sold to these international carriers shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner; (b) Exempt entities or agencies covered by tax treaties, conventions and other international agreements for their use or consumption: Provided, however, That the country of said foreign international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies; and x x x x (Emphasis supplied.)

Silkair also invoked Article 4(2) of the Air Transport Agreement between the Government of the Republic of the Philippines and the Government of the Republic of Singapore (Air Transport Agreement between RP and Singapore) which reads:
ART. 4 xxxx 2. Fuel, lubricants, spare parts, regular equipment and aircraft stores introduced into, or taken on board aircraft in the territory of one Contracting Party by, or on behalf of, a designated airline of the other Contracting Party and intended solely for use in the operation of the agreed services shall, with the exception of charges corresponding to the service performed , be exempt from the same customs duties, inspection fees and other duties or taxes imposed in the territory of the first Contracting Party, even when these supplies are to be used on the parts of the journey performed over the territory of the Contracting Party in which they are introduced into or taken on board. The materials referred to above may be required to be kept under customs supervision and control.

Silkair contends - it is the proper party to file the claim for refund, being the entity granted the tax exemption under the Air Transport Agreement between RP and Singapore. It disagrees with CIRs reasoning that since excise tax is an indirect tax it is the direct liability of the manufacturer, Petron, and not Silkair, because this puts to naught whatever exemption was granted to Silkair by Article 4 of the Air Transport Agreement. CIR contends - the excise tax passed on to Silkair by Petron being in the nature of an indirect tax, it cannot be the subject matter of an administrative claim for refund/tax credit, following the ruling in Naomi Therese F. Corpuz Page 6

Contex Corporation v. Commissioner of Internal Revenu. Moreover, assuming arguendo that Silkair falls under any of the enumerated transactions/persons entitled to tax exemption under Section 135 of the 1997 Tax Code, what the law merely contemplates is exemption from the payment of excise tax to the seller/manufacturer, in this case Petron, but not an exemption from payment of excise tax to the BIR, much more an entitlement to a refund from the BIR. Being the buyer, Silkair is not the person required by law nor the person statutorily liable to pay the excise tax but the seller, following the provision of Section 130 (A) (1) (2). ISSUE: Whether or not Silkair has the legal personality to file an administrative claim for refund of excise taxes alleged to have been erroneously paid to its supplier of aviation fuel here in the Philippines. RATIO: No. Petron has the legal personality. Excise taxes, which apply to articles manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition and to things imported into the Philippines, is basically an indirect tax. While the tax is directly levied upon the manufacturer/importer upon removal of the taxable goods from its place of production or from the customs custody, the tax, in reality, is actually passed on to the end consumer as part of the transfer value or selling price of the goods, sold, bartered or exchanged. In early cases, we have ruled that for indirect taxes (such as valued-added tax or VAT), the proper party to question or seek a refund of the tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even when he shifts the burden thereof to another. Thus, in Contex Corporation v. Commissioner of Internal Revenue, SC held that while it is true that petitioner corporation should not have been liable for the VAT inadvertently passed on to it by its supplier since their transaction is a zero-rated sale on the part of the supplier, the petitioner is not the proper party to claim such VAT refund. Rather, it is the petitioners suppliers who are the proper parties to claim the tax credit and accordingly refund the petitioner of the VAT erroneously passed on to the latter. In the first Silkair case (2008), theCourt categorically declared:
The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. Section 130 (A) (2) of the NIRC provides that *u+nless otherwise specifically allowed, the retur n shall be filed and the excise tax paid by the manufacturer or producer before removal of domestic products from place of production. Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore. Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser.(Emphasis supplied.)

Just a few months later, the decision in the second Silkair case was promulgated, reiterating the rule that in the refund of indirect taxes such as excise taxes, the statutory taxpayer is the proper party who can claim the refund. SC also clarified that petitioner Silkair, as the purchaser and end-consumer, ultimately bears the tax burden, but this does not transform its status into a statutory taxpayer.

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The person entitled to claim a tax refund is the statutory taxpayer. Section 22(N) of the NIRC defines a taxpayer as any person subject to tax. In Commissioner of Internal Revenue v. Procter and Gamble Phil. Mfg. Corp., the Court ruled that: A person liable for tax has been held to be a person subject to tax and properly considered a taxpayer. The terms liable for tax and subject to tax both connote a legal obligation or duty to pay a tax. The excise tax is due from the manufacturers of the petroleum products and is paid upon removal of the products from their refineries. Even before the aviation jet fuel is purchased from Petron, the excise tax is already paid by Petron. Petron, being the manufacturer, is the person subject to tax. In this case, Petron, which paid the excise tax upon removal of the products from its Bataan refinery, is the person liable for tax. Petitioner is neither a person liable for tax nor a person subject to tax. There is also no legal duty on the part of petitioner to pay the excise tax; hence, petitioner cannot be considered the taxpayer. Even if the tax is shifted by Petron to its customers and even if the tax is billed as a separate item in the aviation delivery receipts and invoices issued to its customers, Petron remains the taxpayer because the excise tax is imposed directly on Petron as the manufacturer. Hence, Petron, as the statutory taxpayer, is the proper party that can claim the refund of the excise taxes paid to the BIR.

2. G.R. No. 179579. February 1, 2012 Commissioner of Customs, et al. Vs. Hypermix Feeds Corporation PONENTE: Sereno, J.
FACTS: Commissioner of Customs (Petitioner, COC for brevity) issued CMO 27-2003. Under the Memorandum, for tariff purposes, wheat was classified according to the following: (1) importer or consignee; (2) country of origin; and (3) port of discharge. The regulation provided an exclusive list of corporations, ports of discharge, commodity descriptions and countries of origin. Depending on these factors, wheat would be classified either as food grade or feed grade. The corresponding tariff for food grade wheat was 3%, for feed grade, 7%. A month later, Hypermix (Respondent) filed a Petition for Declaratory Relief with the RTC of Las Pias City. It anticipated the implementation of the regulation on its imported and perishable Chinese milling wheat in transit from China. Hypermix contends: a.) The regulation summarily adjudged it to be a feed grade supplier without the benefit of prior assessment and examination; thus, despite having imported food grade wheat, it would be subjected to the 7% tariff upon the arrival of the shipment, forcing them to pay 133% more than was proper. b.) the equal protection clause of the Constitution was violated when the regulation treated non-flour millers differently from flour millers for no reason at all. RTC ruled for Hypermix. It declared CMO 27-2003 invalid and without force and effect. CA affirms.

ISSUE: Whether the determination of a specific rule or set of rules issued by an administrative agency contravenes the law or the constitutions is within the jurisdiction of the regular courts.

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RATIO: Yes, the regular courts have jurisdiction. In Smart Communications v. NTC, the SC held:
The determination of whether a specific rule or set of rules issued by an administrative agency contravenes the law or the constitution is within the jurisdiction of the regular courts. Indeed, the Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial courts. This is within the scope of judicial power, which includes the authority of the courts to determine in an appropriate action the validity of the acts of the political departments. Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. (Emphasis supplied)

Meanwhile, in Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary, SC said:
xxx [A] legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof. xxx In addition such rule must be published. On the other hand, interpretative rules are designed to provide guidelines to the law which the administrative agency is in charge of enforcing. Accordingly, in considering a legislative rule a court is free to make three inquiries: (i) whether the rule is within the delegated authority of the administrative agency; (ii) whether it is reasonable; and (iii) whether it was issued pursuant to proper procedure. But the court is not free to substitute its judgment as to the desirability or wisdom of the rule for the legislative body, by its delegation of administrative judgment, has committed those questions to administrative judgments and not to judicial judgments. In the case of an interpretative rule, the inquiry is not into the validity but into the correctness or propriety of the rule. As a matter of power a court, when confronted with an interpretative rule, is free to (i) give the force of law to the rule; (ii) go to the opposite extreme and substitute its judgment; or (iii) give some intermediate degree of authoritative weight to the interpretative rule. (Emphasis supplied)

ISSUE: Whether or not the content of CMO 27-3003 is unconstitutional for being violative of the equal protection clause of the Constitution. RATIO: Yes. The equal protection clause means that no person or class of persons shall be deprived of the same protection of laws enjoyed by other persons or other classes in the same place in like circumstances. Thus, the guarantee of the equal protection of laws is not violated if there is a reasonable classification. For a classification to be reasonable, it must be shown that (1) it rests on substantial distinctions; (2) it is germane to the purpose of the law; (3) it is not limited to existing conditions only; and (4) it applies equally to all members of the same class. Unfortunately, CMO 27-2003 does not meet these requirements. SC does not see how the quality of wheat is affected by who imports it, where it is discharged, or which country it came from. Thus, on the one hand, even if other millers excluded from CMO 27-2003 have imported food grade wheat, the product would still be declared as feed grade wheat, a classification subjecting them to 7% tariff. On the other hand, even if the importers listed under CMO 27-2003 have imported feed grade wheat, they would only be made to pay 3% tariff, thus depriving the state of the taxes due. The regulation, therefore, does not become disadvantageous to respondent only, but even to the state. It is also not clear how the regulation intends to monitor more closely wheat importations and thus prevent their misclassification. A careful study of CMO 27-2003 shows that it not only fails to achieve this end, but results in the opposite. The application of the regulation forecloses the possibility Naomi Therese F. Corpuz Page 9

that other corporations that are excluded from the list import food grade wheat; at the same time, it creates an assumption that those who meet the criteria do not import feed grade wheat. In the first case, importers are unnecessarily burdened to prove the classification of their wheat imports; while in the second, the state carries that burden. ISSUE: Whether or not the Commissioner of Customs went beyond his powers when the regulation limited the customs officers duties mandated by Section 1403 of the Tariff and Customs Law, as amended. RATIO: Yes. COC went beyond his powers when the regulation limited the customs officers duties mandated by Section 1403 of the Tariff and Customs Law, as amended. The law provides:
Section 1403. Duties of Customs Officer Tasked to Examine, Classify, and Appraise Imported Articles. The customs officer tasked to examine, classify, and appraise imported articles shall determine whether the packages designated for examination and their contents are in accordance with the declaration in the entry, invoice and other pertinent documents and shall make return in such a manner as to indicate whether the articles have been truly and correctly declared in the entry as regard their quantity, measurement, weight, and tariff classification and not imported contrary to law. He shall submit samples to the laboratory for analysis when feasible to do so and when such analysis is necessary for the proper classification, appraisal, and/or admission into the Philippines of imported articles. Likewise, the customs officer shall determine the unit of quantity in which they are usually bought and sold, and appraise the imported articles in accordance with Section 201 of this Code. Failure on the part of the customs officer to comply with his duties shall subject him to the penalties prescribed under Section 3604 of this Code.

The provision mandates that the customs officer must first assess and determine the classification of the imported article before tariff may be imposed. Unfortunately, CMO 23-2007 has already classified the article even before the customs officer had the chance to examine it. In effect, the Commissioner of Customs diminished the powers granted by the Tariff and Customs Code with regard to wheat importation when it no longer required the customs officers prior examination and assessment of the proper classification of the wheat. It is well-settled that rules and regulations, which are the product of a delegated power to create new and additional legal provisions that have the effect of law, should be within the scope of the statutory authority granted by the legislature to the administrative agency. It is required that the regulation be germane to the objects and purposes of the law; and that it be not in contradiction to, but in conformity with, the standards prescribed by law.

3. G.R. No. 185568. March 21, 2012 Commissioner of Internal Revenue Vs. Petron Corporation
PONENTE: Sereno, J. FACTS: Petron (respondent) been an assignee of several Tax Credit Certificates (TCCs) from various BOIregistered entities for which petitioner utilized in the payment of its excise tax liabilities for the taxable years 1995 to 1998. The transfers and assignments of the said TCCs were approved by the Department of Finances One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (DOF Center). Naomi Therese F. Corpuz Page 10

Petitioners acceptance and use of the TCCs as payment of its excise tax liabilities for the taxable years 1995 to 1998, had been continuously approved by the DOF as well as the BIRs Collection Program Division through its surrender and subsequent issuance by the Assistant Commissioner of the Collection Service of the BIR of the Tax Debit Memos (TDMs). On January 30, 2002, CIR (petitioner) issued the assailed Assessment against Petron for deficiency excise taxes for the taxable years 1995 to 1998, in the total amount of 739,003,036.32, inclusive of surcharges and interests, based on the ground that the TCCs utilized by petitioner in its payment of excise taxes have been cancelled by the DOF for having been fraudulently issued and transferred, pursuant to its EXCOM Resolution No. 03-05-99. Petron then filed a letter of protest but the BIR did not act on it and instead issued a Warrant and/or Distraint of Levy. Petron then filed a petition with CTA (2nd division). CTA - the petition of the Petron and ordered it to pay the deficiency taxes together with interest and surcharge. CTA En banc thereafter promulgated adecision which reversed and set aside the decision of the CTA-(2md Division). Hence, this petition by the CIR.

ISSUE: What is a TCC?


RATIO: A TCC is defined under Section 1 of Revenue Regulation (RR) No. 5-2000, issued by the BIR on 15 August 2000, as follows:
B. Tax Credit Certificate means a certification, duly issued to the taxpayer named therein, by the Commissioner or his duly authorized representative, reduced in a BIR Accountable Form in accordance with the prescribed formalities, acknowledging that the grantee-taxpayer named therein is legally entitled a tax credit, the money value of which may be used in payment or in satisfaction of any of his internal revenue tax liability (except those excluded), or may be converted as a cash refund, or may otherwise be disposed of in the manner and in accordance with the limitations, if any, as may be prescribed by the provisions of these Regulations.

RR 5-2000 prescribes the regulations governing the manner of issuance of TCCs and the conditions for their use, revalidation and transfer. Under the said regulation, a TCC may be used by the grantee or its assignee in the payment of its direct internal revenue tax liability. It may be transferred in favor of an assignee subject to the following conditions: 1) the TCC transfer must be with prior approval of the Commissioner or the duly authorized representative; 2) the transfer of a TCC should be limited to one transfer only; and 3) the transferee shall strictly use the TCC for the payment of the assignees direct internal revenue tax liability and shall not be convertible to cash. A TCC is valid only for 10 years subject to the following rules: (1) it must be utilized within five (5) years from the date of issue; and (2) it must be revalidated thereafter or be otherwise considered invalid. The processing of a TCC is entrusted to a specialized agency called the One-Stop-Shop InterAgency Tax Credit and Duty Drawback Center (Center), created on 07 February 1992 under Administrative Order (A.O.) No. 226. Its purpose is to expedite the processing and approval of tax credits and duty drawbacks. The Center is composed of a representative from the DOF as its chairperson; and the members thereof are representatives of the Bureau of Investment (BOI), Bureau of Customs (BOC) and Bureau of Internal Revenue (BIR), who are tasked to process the TCC and approve its application as payment of an assignees tax liability.

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A TCC may be assigned through a Deed of Assignment, which the assignee submits to the Center for its approval. Upon approval of the deed, the Center will issue a DOF Tax Debit Memo (DOF-TDM), which will be utilized by the assignee to pay the latters tax liabilities for a specified period. Upon surrender of the TCC and the DOF-TDM, the corresponding Authority to Accept Payment of Excise Taxes (ATAPET) will be issued by the BIR Collection Program Division and will be submitted to the issuing office of the BIR for acceptance by the Assistant Commissioner of Collection Service. This act of the BIR signifies its acceptance of the TCC as payment of the assignees excise taxes. Thus, it is apparent that a TCC undergoes a stringent process of verification by various specialized government agencies before it is accepted as payment of an assignees tax liability. ISSUE: Are Tax Credit Certificates (TCCs) subject to a post-audit as a suspensive condition for their validity. RATIO: No. SC held in Petron v. CIR (Petron) (2010), which is on all fours with the instant case, that TCCs are valid and effective from their issuance and are not subject to a post-audit as a suspensive condition for their validity. SCs ruling in Petron finds guidance from our earlier ruling in Shell, which categorically states that a TCC is valid and effective upon its issuance and is not subject to a post-audit. The implication on the instant case of the said earlier ruling is that Petron has the right to rely on the validity and effectivity of the TCCs that were assigned to it. In finally determining their effectivity in the settlement of respondents excise tax liabilities, the validity of those TCCs should not depend on the results of the DOFs post-audit findings. SC held thus in Petron:
As correctly pointed out by Petron, however, the issue about the immediate validity of TCCs and the use thereof in payment of tax liabilities and duties are not matters of first impression for this Court. Taking into consideration the definition and nature of tax credits and TCCs, this Court's Second Division definitively ruled in the aforesaid Pilipinas Shell case that the post audit is not a suspensive condition for the validity of TCCs, thus: Art. 1181 tells us that the condition is suspensive when the acquisition of rights or demandability of the obligation must await the occurrence of the condition. However, Art. 1181 does not apply to the present case since the parties did NOT agree to a suspensive condition. Rather, specific laws, rules, and regulations govern the subject TCCs, not the general provisions of the Civil Code. Among the applicable laws that cover the TCCs are EO 226 or the Omnibus Investments Code, Letter of Instructions No. 1355, EO 765, RP-US Military Agreement, Sec. 106 (c) of the Tariff and Customs Code, Sec. 106 of the NIRC, BIR Revenue Regulations (RRs), and others. Nowhere in the aforementioned laws does the post-audit become necessary for the validity or effectivity of the TCCs. Nowhere in the aforementioned laws is it provided that a TCC is issued subject to a suspensive condition. xxx xxx xxx . . . (T)he TCCs are immediately valid and effective after their issuance. As aptly pointed out in the dissent of Justice Lovell Bautista in CTA EB No. 64, this is clear from the Guidelines and instructions found at the back of each TCC, which provide: 1. This Tax Credit Certificate (TCC) shall entitle the grantee to apply the tax credit against taxes and duties until the amount is fully utilized, in accordance with the pertinent tax and customs laws, rules and regulations. xxx xxx xxx 4. To acknowledge application of payment, the One-Stop-Shop Tax Credit Center shall issue the corresponding Tax Debit Memo (TDM) to the grantee. The authorized Revenue Officer/Customs Collector to which payment/utilization was made shall accomplish the Application of Tax Credit at the back of the certificate and affix his signature on the column provided." The foregoing guidelines cannot be clearer on the validity and effectivity of the TCC to pay or settle tax liabilities of the grantee or transferee, as they do not make the effectivity and validity of the TCC dependent on the outcome of a post-audit. In fact, if we are to sustain the appellate tax court, it would be

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absurd to make the effectivity of the payment of a TCC dependent on a post-audit since there is no contemplation of the situation wherein there is no post-audit. Does the payment made become effective if no post-audit is conducted? Or does the so-called suspensive condition still apply as no law, rule, or regulation specifies a period when a post-audit should or could be conducted with a prescriptive period? Clearly, a tax payment through a TCC cannot be both effective when made and dependent on a future event for its effectivity. Our system of laws and procedures abhors ambiguity. Moreover, if the TCCs are considered to be subject to post-audit as a suspensive condition, the very purpose of the TCC would be defeated as there would be no guarantee that the TCC would be honored by the government as payment for taxes. No investor would take the risk of utilizing TCCs if these were subject to a post-audit that may invalidate them, without prescribed grounds or limits as to the exercise of said post-audit. The inescapable conclusion is that the TCCs are not subject to post-audit as a suspensive condition, and are thus valid and effective from their issuance.

In addition, Shell (2007) and Petron recognized an exception that holds the transferee/assignee liable if proven to have been a party to the fraud or to have had knowledge of the fraudulent issuance of the subject TCCs. As earlier mentioned, the parties entered into a joint stipulation of facts stating that Petron did not participate in the procurement or issuance of those TCCs. Thus, SC affirms the CTA En Bancs ruling that Petron was an innocent transferee for value thereof.

4. G.R. No. 188497. April 25, 2012 Commissioner of Internal Revenue Vs. Pilipinas Shell Petroleum Corporation
PONENTE: Villarama, J. FACTS: Shell (Respondent) is engaged in the business of processing, treating and refining petroleum for the purpose of producing marketable products and the subsequent sale thereof. On July 18, 2002, Shell filed with the Large Taxpayers Audit & Investigation Division II of the Bureau of Internal Revenue (BIR) a formal claim for refund or tax credit in the total amount of P28,064,925.15, representing excise taxes it allegedly paid on sales and deliveries of gas and fuel oils to various international carriers during the period October to December 2001. Subsequently, on October 21, 2002, a similar claim for refund or tax credit was filed by Shell with the BIR covering the period January to March 2002 in the amount of P41,614,827.99. Again, on July 3, 2003, Shell filed another formal claim for refund or tax credit in the amount of P30,652,890.55 covering deliveries from April to June 2002. Since no action was taken by CIRon its claims, Shell filed petitions for review before the CTA CTA (1st Division) ruled that Shell is entitled to the refund of excise taxes in the reduced amount of P95,014,283.00. The CTA relied on a previous ruling rendered by the CTA En Banc in the case of Pilipinas Shell Petroleum Corporation v. Commissioner of Internal Revenue (2006) where the CTA also granted Shells claim for refund on the basis of excise tax exemption for petroleum products sold to international carriers of foreign registry for their use or consumption outside the Philippines. CIR elevated the case to the CTA En Banc which upheld the ruling of the First Division. ISSUE: Whether Shell as manufacturer or producer of petroleum products is exempt from the payment of excise tax on such petroleum products it sold to international carriers.

RATIO: No.
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1. Excise taxes, as the term is used in the NIRC, refer to taxes applicable to certain specified goods or articles manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition and to things imported into the Philippines. These taxes are imposed in addition to the value-added tax (VAT) (Sec 129, NIRC) As to petroleum products, Sec. 148 provides that excise taxes attach to the following refined and manufactured mineral oils and motor fuels as soon as they are in existence as such: (a) Lubricating oils and greases; (b) Processed gas; (c) Waxes and petrolatum; (d) Denatured alcohol to be used for motive power; (e) Naphtha, regular gasoline and other similar products of distillation; (f) Leaded premium gasoline; (g) Aviation turbo jet fuel; (h) Kerosene; (i) Diesel fuel oil, and similar fuel oils having more or less the same generating power; (j) Liquefied petroleum gas; (k) Asphalts; and (l) Bunker fuel oil and similar fuel oils having more or less the same generating capacity. Beginning January 1, 1999, excise taxes levied on locally manufactured petroleum products and indigenous petroleum are required to be paid before their removal from the place of production. (Sec. 130, par 2, NIRC). However, Sec. 135 provides:
SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. Petroleum products sold to the following are exempt from excise tax: (a) International carriers of Philippine or foreign registry on their use or consumption outside the Philippines: Provided, That the petroleum products sold to these international carriers shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner; (b) Exempt entities or agencies covered by tax treaties, conventions and other international agreements for their use or consumption: Provided, however, That the country of said foreign international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies; and (c) Entities which are by law exempt from direct and indirect taxes.

Under Chapter II Exemption or Conditional Tax-Free Removal of Certain Goods of Title VI, Sections 133, 137, 138, 139 and 140 cover conditional tax-free removal of specified goods or articles, whereas Sections 134 and 135 provide for tax exemptions. While the exemption found in Sec. 134 makes reference to the nature and quality of the goods manufactured (domestic denatured alcohol) without regard to the tax status of the buyer of the said goods, Sec. 135 deals with the tax treatment of a specified article (petroleum products) in relation to its buyer or consumer. Shells failure to make this important distinction apparently led it to mistakenly assume that the tax exemption under Sec. 135 (a) attaches to the goods themselves such that the excise tax should not have been paid in the first place. On July 26, 1996, Commissioner issued Revenue Regulations 8-96 (Excise Taxation of Petroleum Products) which provides:
SEC. 4. Time and Manner of Payment of Excise Tax on Petroleum Products, Non-Metallic Minerals and Indigenous Petroleum

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I. a)

Petroleum Products xxxx On locally manufactured petroleum products

The specific tax on petroleum products locally manufactured or produced in the Philippines shall be paid by the manufacturer, producer, owner or person having possession of the same, and such tax shall be paid within fifteen (15) days from date of removal from the place of production. (Underscoring supplied.) Thus, if an airline company purchased jet fuel from an unregistered supplier who could not present proof of payment of specific tax, the company is liable to pay the specific tax on the date of purchase. Since the excise tax must be paid upon withdrawal from the place of production, respondent cannot anchor its claim for refund on the theory that the excise taxes due thereon should not have been collected or paid in the first place. Sec. 229 of the NIRC allows the recovery of taxes erroneously or illegally collected. An erroneous or illegal tax is defined as one levied without statutory authority, or upon property not subject to taxation or by some officer having no authority to levy the tax, or one which is some other similar respect is illegal. Shells locally manufactured petroleum products are clearly subject to excise tax under Sec. 148. Hence, its claim for tax refund may not be predicated on Sec. 229 of the NIRC allowing a refund of erroneous or excess payment of tax. Respondents claim is premised on what it determined as a tax exemption attaching to the goods themselves, which must be based on a statute granting tax exemption, or the result of legislative grace. Such a claim is to be construed strictissimi juris against the taxpayer, meaning that the claim cannot be made to rest on vague inference. Where the rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes of the nature of an exemption, the claimant must show that he clearly falls under the exempting statute. The exemption from excise tax payment on petroleum products under Sec. 135 (a) is conferred on international carriers who purchased the same for their use or consumption outside the Philippines. The only condition set by law is for these petroleum products to be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner. 2. The SOL GEN (representing the CIR) is correct in its contention. The Solicitor General argues that there is nothing in Sec. 135 (a) which explicitly grants exemption from the payment of excise tax in favor of oil companies selling their petroleum products to international carriers and that the only claim for refund of excise taxes authorized by the NIRC is the payment of excise tax on exported goods, as explicitly provided in Sec. 130 (D), Chapter I under the same Title VI:
(D) Credit for Excise Tax on Goods Actually Exported . -- When goods locally produced or manufactured are removed and actually exported without returning to the Philippines, whether so exported in their original state or as ingredients or parts of any manufactured goods or products, any excise tax paid thereon shall be credited or refunded upon submission of the proof of actual exportation and upon receipt of the corresponding foreign exchange payment: Provided, That the excise tax on mineral products, except coal and coke, imposed under Section 151 shall not be creditable or refundable even if the mineral products are actually exported.

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According to the Solicitor General, Sec. 135 (a) in relation to the other provisions on excise tax and from the nature of indirect taxation, may only be construed as prohibiting the manufacturers-sellers of petroleum products from passing on the tax to international carriers by incorporating previously paid excise taxes into the selling price. In other words, respondent cannot shift the tax burden to international carriers who are allowed to purchase its petroleum products without having to pay the added cost of the excise tax. In Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue the SC held that petitioner manufacturer who sold its oxygen and acetylene gases to NPC, a tax-exempt entity, cannot claim exemption from the payment of sales tax simply because its buyer NPC is exempt from taxation. The Court explained that the percentage tax on sales of merchandise imposed by the Tax Code is due from the manufacturer and not from the buyer. Shell attempts to distinguish this case from Philippine Acetylene Co., Inc. on grounds that what was involved in the latter is a tax on the transaction (sales) and not excise tax which is a tax on the goods themselves, and that the exemption sought therein was anchored merely on the tax-exempt status of the buyer and not a specific provision of law exempting the goods sold from the excise tax. But as already stated, the language of Sec. 135 indicates that the tax exemption mentioned therein is conferred on specified buyers or consumers of the excisable articles or goods (petroleum products). Unlike Sec. 134 which explicitly exempted the article or goods itself (domestic denatured alcohol) without due regard to the tax status of the buyer or purchaser, Sec. 135 exempts from excise tax petroleum products which were sold to international carriers and other tax-exempt agencies and entities. Considering that the excise taxes attaches to petroleum products as soon as they are in existence as such, there can be no outright exemption from the payment of excise tax on petroleum products sold to international carriers. The sole basis then of respondents claim for refund is the express grant of excise tax exemption in favor of international carriers under Sec. 135 (a) for their purchases of locally manufactured petroleum products. Pursuant to our ruling in Philippine Acetylene, a tax exemption being enjoyed by the buyer cannot be the basis of a claim for tax exemption by the manufacturer or seller of the goods for any tax due to it as the manufacturer or seller. The excise tax imposed on petroleum products under Sec. 148 is the direct liability of the manufacturer who cannot thus invoke the excise tax exemption granted to its buyers who are international carriers. In Maceda v. Macaraig, Jr., the Court specifically mentioned excise tax as an example of an indirect tax where the tax burden can be shifted to the buyer: On the other hand, indirect taxes are taxes primarily paid by persons who can shift the burden upon someone else. For example, the excise and ad valorem taxes that the oil companies pay to the Bureau of Internal Revenue upon removal of petroleum products from its refinery can be shifted to its buyer, like the NPC, by adding them to the cash and/or selling price. An excise tax is basically an indirect tax. Indirect taxes are those that are demanded, in the first instance, from, or are paid by, one person in the expectation and intention that he can shift the burden to someone else. Stated elsewise, indirect taxes are taxes wherein the liability for the payment of the tax falls on one person but the burden thereof can be shifted or passed on to another person, such as when the tax is imposed upon goods before reaching the consumer who ultimately pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser as part of the price of goods sold or services rendered. Naomi Therese F. Corpuz Page 16

Further, in Maceda v. Macaraig, Jr., the Court ruled that because of the tax exemptions privileges being enjoyed by NPC under existing laws, the tax burden may not be shifted to it by the oil companies who shall pay for fuel oil taxes on oil they supplied to NPC. Thus:
In view of all the foregoing, the Court rules and declares that the oil companies which supply bunker fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC. By the very nature of indirect taxation, the economic burden of such taxation is expected to be passed on through the channels of commerce to the user or consumer of the goods sold. Because, however, the NPC has been exempted from both direct and indirect taxation, the NPC must be held exempted from absorbing the economic burden of indirect taxation. This means, on the one hand, that the oil companies which wish to sell to NPC absorb all or part of the economic burden of the taxes previously paid to BIR, which they could shift to NPC if NPC did not enjoy exemption from indirect taxes. This means also, on the other hand, that the NPC may refuse to pay that part of the normal purchase price of bunker fuel oil which represents all or part of the taxes previously paid by the oil companies to BIR. If NPC nonetheless purchases such oil from the oil companies because to do so may be more convenient and ultimately less costly for NPC than NPC itself importing and hauling and storing the oil from overseas NPC is entitled to be reimbursed by the BIR for that part of the buying price of NPC which verifiably represents the tax already paid by the oil companyvendor to the BIR. (Emphasis supplied.)

In the case of international air carriers, the tax exemption granted under Sec. 135 (a) is based on a long-standing international consensus that fuel used for international air services should be taxexempt. The provisions of the 1944 Convention of International Civil Aviation or the Chicago Convention, which form binding international law, requires the contracting parties not to charge duty on aviation fuel already on board any aircraft that has arrived in their territory from another contracting state. Between individual countries, the exemption of airlines from national taxes and customs duties on a range of aviation-related goods, including parts, stores and fuel is a standard element of the network of bilateral Air Service Agreements. Later, a Resolution issued by the International Civil Aviation Organization (ICAO) expanded the provision as to similarly exempt from taxes all kinds of fuel taken on board for consumption by an aircraft from a contracting state in the territory of another contracting State departing for the territory of any other State. Though initially aimed at establishing uniformity of taxation among parties to the treaty to prevent double taxation, the tax exemption now generally applies to fuel used in international travel by both domestic and foreign carriers.

5. G.R. No. 181136. June 13, 2012 Western Mindanao Power Corporation Vs. Commissioner of Internal Revenue PONENTE: Sereno, J.
FACTS: Petitioner Western Mindanao Power Corporation (WMPC) is a domestic corporation engaged in the production and sale of electricity. It is registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer. WMPC alleges that it sells electricity solely to the National Power Corporation (NPC), which is in turn exempt from the payment of all forms of taxes, duties, fees and imposts, pursuant to Section 131 of Republic Act (R.A.) No. 6395 (An Act Revising the Charter of the National Power Corporation). In view thereof and pursuant to Section 108(B) (3) of the NIRC, WMPCs power generation services to NPC is zero-rated. Under Section 112(A) of the NIRC, a VAT-registered taxpayer may, within two years after the close of the taxable quarter, apply for the issuance of a tax credit or refund of creditable input tax due or paid and attributable to zero-rated or effectively zero-rated sales. Hence, on 20 June 2000 and 13 June Naomi Therese F. Corpuz Page 17

2001, WMPC filed with the CIR applications for a tax credit certificate of its input VAT covering the taxable 3rd and 4th quarters of 1999 (amounting to 3,675,026.67) and all the taxable quarters of 2000 (amounting to 5,649,256.81). Noting that the CIR was not acting on its application, and fearing that its claim would soon be barred by prescription, WMPC on 28 September 2001 filed with the CTA in Division a Petition for Review, seeking refund/tax credit certificates for the total amount of 9,324,283.30. The CIR filed its Comment on the CTA Petition, arguing that WMPC was not entitled to the latters claim for a tax refund in view of its failure to comply with the invoicing requirements under Section 113 of the NIRC in relation to Section 4.108-1 of RR 7-95, which provides:
SECTION 4.108-1. Invoicing Requirements All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: 1. the name, TIN and address of seller; 2. date of transaction; 3. quantity, unit cost and description of merchandise or nature of service; 4. the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client; 5. the word zero rated imprinted on the invoice covering zero-rated sales; and 6. the invoice value or consideration. In the case of sale of real property subject to VAT and where the zonal or market value is higher than the actual consideration, the VAT shall be separately indicated in the invoice or receipt. Only VAT-registered persons are required to print their TIN followed by the word VAT in their invoice or receipts and this shall be considered as a VAT Invoice. All purchases covered by invoices ot her than VAT Invoice" shall not give rise to any input tax. If the taxable person is also engaged in exempt operations, he should issue separate invoices or receipts for the taxable and exempt operations. A VAT Invoice shall be issued only for sales of goods, properties or services subject to VAT imposed in Sections 100 and 102 of the Code. The invoice or receipt shall be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records. (Underscoring supplied.)

WMPC countered that the invoicing and accounting requirements laid down in RR 7-95 were merely compliance requirements, which were not indispensable to establish the claim for refund of excess and unutilized input VAT. Also, Section 113 of the NIRC prevailing at the time the sales transactions were made did not expressly state that failure to comply with all the invoicing requirements would result in the disallowance of a tax credit refund. The express requirement that the term zero-rated sale shall be written or printed prominently on the VAT invoice or official receipt for sales subject to zero percent (0%) VAT appeared in Section 113 of the NIRC only after it was amended by Section 11 of R.A. 9337. This amendment cannot be applied retroactively, considering that it took effect only on 1 July 2005, or long after petitioner filed its claim for a tax refund, and considering further that the RR 7-95 is punitive in nature. Further, since there was no statutory requirement for imprinting the phrase zero-rated on official receipts prior to 1 July 2005, the RR 7-95 constituted undue expansion of the scope of the legislation it sought to implement.

ISSUE: Whether or not it is correct to refuse WMPC a refund or tax credit on inout tax on the ground that the latters Official receipts do not contain the phrase zero-rated.
RATIO: Yes. Being a derogation of the sovereign authority, a statute granting tax exemption is strictly construed against the person or entity claiming the exemption. When based on such statute, a claim for tax refund partakes of the nature of an exemption. Hence, the same rule of strict interpretation against the taxpayer-claimant applies to the claim. Naomi Therese F. Corpuz Page 18

In the present case, petitioners claim for a refund or tax credit of input VAT is anchored on Section 112(A) of the NIRC, viz:
Section 112. Refunds or Tax Credits of Input Tax. (A) Zero-rated or Effectively Zero-rated Sales. - any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales.

Thus, a taxpayer engaged in zero-rated or effectively zero-rated sale may apply for the issuance of a tax credit certificate, or refund of creditable input tax due or paid, attributable to the sale. In a claim for tax refund or tax credit, the applicant must prove not only entitlement to the grant of the claim under substantive law. It must also show satisfaction of all the documentary and evidentiary requirements for an administrative claim for a refund or tax credit. Hence, the mere fact that WMPCs application for zero-rating has been approved by the CIR does not, by itself, justify the grant of 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. Under the NIRC, a creditable input tax should be evidenced by a VAT invoice or official receipt, which may only be considered as such when it complies with the requirements of RR 7-95, particularly Section 4.108-1. This section requires, among others, that (i)f the sale is subject to zero percent (0%) value-added tax, the term zero-rated sale shall be written or printed prominently on the invoice or receipt.

6. G.R. No. 190102. July 11, 2012 Accenture, Inc. Vs. Commissioner of Internal Revenue PONENTE: Sereno, J.
FACTS: Accenture, Inc. (Accenture) is a corporation engaged in the business of providing management consulting, business strategies development, and selling and/or licensing of software. It is duly registered with the BIR as a Value Added Tax (VAT) taxpayer or enterprise in accordance with Section 236 of the NIRC. On 9 August 2002, Accenture filed its Monthly VAT Return for the period 1 July 2002 to 31 August 2002 (1st period). It later filed its Monthly VAT Return for the month of September 2002 on 24 October 2002; and that for October 2002, on 12 November 2002. The monthly and quarterly VAT returns of Accenture show that, notwithstanding its application of the input VAT credits earned from its zero-rated transactions against its output VAT liabilities, it still had Naomi Therese F. Corpuz Page 19

excess or unutilized input VAT credits. These VAT credits are in the amounts of P9,355,809.80 for the 1st period and P27,682,459.38 for the 2nd period, or a total of P37,038,269.18. Out of the P37,038,269.18, only P35,178,844.21 pertained to the allocated input VAT on Accentures "domestic purchases of taxable goods which cannot be directly attributed to its zero-rated sale of services." This allocated input VAT was broken down to P8,811,301.66 for the 1st period and P26,367,542.55 for the 2nd period. The excess input VAT was not applied to any output VAT that Accenture was liable for in the same quarter when the amount was earnedor to any of the succeeding quarters. Instead, it was carried forward to petitioners 2nd Quarterly VAT Return for 2003. Thus, on 1 July 2004, Accenture filed with the Department of Finance (DoF) an administrative claim for the refund or the issuance of a Tax Credit Certificate (TCC). The DoF did not act on the claim of Accenture. Hence, on 31 August 2004, the latter filed a Petition for Review with the CTA (1st Division), praying for the issuance of a TCC in its favor in the amount of P35,178,844.21. CTA (1st Division)- denied the Petition of Accenture for failing to prove that the latters sale of services to the alleged foreign clients qualified for zero percent VAT. In resolving the sole issue of whether or not Accenture was entitled to a refund or an issuance of a TCC in the amount of P35,178,844.21, the CTA ruled that Accenture had failed to present evidence to prove that the foreign clients to which the former rendered services did business outside the Philippines. Ruling that Accentures services would qualify for zero-rating under the 1997 NIRC only if the recipient of the services was doing business outside of the Philippines, the CTA cited Commissioner of Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc. (Burmeister) (2007) as basis. Accenture appealed the Divisions Decision through a MFR arguing that the reliance of the CTA on Burmeister was misplacedfor the following reasons: 1. The issue involved in Burmeister was the entitlement of the applicant to a refund, given that the recipient of its service was doing business in the Philippines; it was not an issue of failure of the applicant to present evidence to prove the fact that the recipient of its services was a foreign corporation doing business outside the Philippines. 2. Burmeister emphasized that, to qualify for zero-rating, the recipient of the services should be doing business outside the Philippines, and Accenture had successfully established that. 3. Having been promulgated on 22 January 2007 or after Accenture filed its Petition with the Division, Burmeister cannot be made to apply to this case. MFR was denied. CTA En Banc - Accenture appealed where it argued that prior to the amendment introduced by Republic Act No. (R.A.) 9337, there was no requirement that the services must be rendered to a person engaged in business conducted outside the Philippines to qualify for zero-rating. Naomi Therese F. Corpuz Page 20

CTA En Banc agreed that because the case pertained to the third and the fourth quarters of taxable year 2002, the applicable law was the 1997 Tax Code, and not R.A. 9337. Still, it ruled that even though the provision used in Burmeister was Section 102(b)(2) of the earlier 1977 Tax Code, the pronouncement therein requiring recipients of services to be engaged in business outside the Philippines to qualify for zero-rating was applicable to the case at bar, because Section 108(B)(2) of the 1997 Tax Code was a mere reenactment of Section 102(b)(2) of the 1977 Tax Code. The CTA En Banc concluded that Accenture failed to discharge the burden of proving the latters allegation that its clients were foreign-based. Hence, the Petition for Review by Accenture. ISSUE: Should the recipient of the services be "doing business outside the Philippines" for the transaction to be zero-rated under Section 108(B)(2) of the 1997 Tax Code?

RATIO: Yes. The recipient of services must be doing business outside the Philippines for the transaction to qualify it as zero-rated under Section 108 (B) of the National Internal Revenue Code of 1997 (1997 Tax Code). Since Section 108 (B) of the 1997 Tax Code is a verbatim copy of Section 102 (b) of the National Internal Revenue Code of 1977 (1977 Tax Code), any interpretation of the latter holds true for the former. When the Supreme Court decides a case, it does not pass a new law, but merely interprets a pre-existing one. Even though the taxpayers present petition was filed before the decision in the case of Commissioner of Internal Revenue v Burmeister and Wain Scandinavian Contractor Mindanao, Inc. was promulgated, the pronouncements made in that case may be applied to the present case without violating the rule against retroactive application. When the Court interpreted Section 102 (b) of the 1977 Tax Code in the Burmeister case, this interpretation became part of the law from the moment it became effective. It is elementary that the interpretation of a law by the Court constitutes part of that law from the date it was originally passed, since the Courts construction merely establishes the contemporaneous legislative intent that the interpreted law carried into effect. As explained by the Court in the Burmeister case: If the provider and recipient of the other services are both doing business in the Philippines, the payment of foreign currency is irrelevant. Otherwise, those subject to the regular VAT under section 102 (a) [of the 1977 Tax Code] can avoid paying the VAT by simply stipulating payment in foreign currency inwardly remitted by the recipient of services. To interpret section 102 (b) (2) to apply to a payer-recipient of services doing business in the Philippines is to make the payment of the regular VAT under section 102 (a) dependent on the generosity of the taxpayer. The provider of services can choose to pay the regular VAT or avoid it by stipulating payment in foreign currency inwardly remitted by the payer-recipient. Such interpretation removes section 102 (a) as a tax measure in the Tax Code, an interpretation this Court cannot sanction. A tax is a mandatory exaction, not a voluntary contribution. ISSUE: Has Accenture successfully proven that its clients are entities doing business outside the Philippines? RATIO: No it did not. It is not enough that the recipient of the services be proven to be a foreign corporation; it must be specifically proven to be a non-resident foreign corporation. There is no specific criterion as to what constitutes doing or engaging in or transacting business. Each case must be judged in the light of its peculiar environmental circumstances. The term implies a continuity of Naomi Therese F. Corpuz Page 21

commercial dealings and arrangements, and contemplates, to that extent the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or for the purpose and object of the business organization

7. G.R. No. 168856. August 29, 2012 Eastern Telecommunications Philippines, Inc. Vs. The Commissioner of Internal Revenue
PONENTE: Mendoza, J. FACTS: Petitioner Eastern Telecommunications Philippines, Inc. (ETPI) is a duly authorized corporation engaged in telecommunications services by virtue of a legislative franchise. It has entered into various international service agreements with international non-resident telecommunications companies and it handles incoming telecommunications services for nonresident foreign telecommunication companies and the relay of said international calls within the Philippines. In addition, to broaden the coverage of its distribution of telecommunications services, it executed several interconnection agreements with local carriers for the receipt of foreign calls relayed by it and the distribution of such calls to the intended local end-receiver. From these services to non-resident foreign telecommunications companies, ETPI generates foreign currency revenues which are inwardly remitted in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas to its US dollar accounts in banks such as the Hong Kong and Shanghai Banking Corporation, Metrobank and Citibank. The manner and mode of payments follow the international standard as set forth in the Blue Book or Manual prepared by the Consultative Commission of International Telegraph and Telephony. ETPI seasonably filed its Quarterly Value-Added Tax (VAT) Returns. Both ETPI and respondent Commissioner of Internal Revenue (CIR) confirmed the veracity of the entries under Excess Input VAT. Believing that it is entitled to a refund for the unutilized input VAT attributable to its zero-rated sales, ETPI filed with the Bureau of Internal Revenue (BIR) an administrative claim for refund and/or tax credit in the amount of P 23,070,911.75 representing excess input VAT derived from its zero-rated sales for the period from January 1999 to December 1999. On March 26, 2001, without waiting for the decision of the BIR, ETPI filed a petition for review before the CTA-Division. CTA- Division - denied the petition for lack of merit, finding that ETPI failed to imprint the word zerorated on the face of its VAT invoices or receipts, in violation of Revenue Regulations No. 7-95. In addition, ETPI failed to substantiate its taxable and exempt sales, the verification of which was not included in the examination of the commissioned independent certified public accountant. CTA En Banc affirms. ISSUE: Whether ETPIs failure to imprint the word zero-rated on its invoices or receipts is fatal to its claim for tax refund or tax credit for excess input VAT. Naomi Therese F. Corpuz Page 22

RATIO: 1. Imprinting of the word zero-ratedon the invoices or receipts is required. Section 244 of the NIRC explicitly grants the Secretary of Finance the authority to promulgate the necessary rules and regulations for the effective enforcement of the provisions of the tax code. Such rules and regulations deserve to be given weight and respect by the courts in view of the rulemaking authority given to those who formulate them and their specific expertise in their respective fields. Consequently, the following invoicing requirements enumerated in Section 4.108-1 of Revenue Regulations No. 7-95 must be observed by all VAT-registered taxpayers:
Sec. 4.108-1. Invoicing Requirements. All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: 1. the name, TIN and address of seller; 2. date of transaction; 3. quantity, unit cost and description of merchandise or nature of service; 4. the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client; 5. the word zero-rated imprinted on the invoice covering zero-rated sales; and 6. the invoice value or consideration.

In the case of sale of real property subject to VAT and where the zonal or market value is higher than the actual consideration, the VAT shall be separately indicated in the invoice or receipt. Only VAT-registered persons are required to print their TIN followed by the word VAT in their invoices or receipts and this shall be considered as a VAT invoice. All purchases covered by invoices other than a VAT Invoice shall not give rise to any input tax. (Emphasis supplied) The need for taxpayers to indicate in their invoices and receipts the fact that they are zero-rated or that its transactions are zero-rated became more apparent upon the integration of the abovequoted provisions of Revenue Regulations No. 7-95 in Section 113 of the NIRC enumerating the invoicing requirements of VAT-registered persons when the tax code was amended by Republic Act (R.A.) No. 9337. A consequence of failing to comply with the invoicing requirements is the denial of the claim for tax refund or tax credit, as stated in Revenue Memorandum Circular No. 42-2003, to wit:
A-13: Failure by the supplier to comply with the invoicing requirements on the documents supporting the sale of goods and services will result to the disallowance of the claim for input tax by the purchaser-claimant. If the claim for refund/TCC is based on the existence of zero-rated sales by the taxpayer but it fails to comply with the invoicing requirements in the issuance of sales invoices (e.g. failure to indicate the TIN), its claim for tax credit/refund of VAT on its purchases shall be denied considering that the invoice it is issuing to its customers does not depict its being a VAT-registered taxpayer whose sales are classified as zero-rated sales. Nonetheless, this treatment is without prejudice to the right of the taxpayer to charge the input taxes to the appropriate expense account or asset account subject to

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depreciation, whichever is applicable. Moreover, the case shall be referred by the processing office to the concerned BIR office for verification of other tax liabilities of the taxpayer. (Emphasis supplied)

In this regard, the Court has consistently held that the absence of the word zero-rated on the invoices and receipts of a taxpayer will result in the denial of the claim for tax refund. In Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue, the Court affirmed the decision of the CTA denying a claim by petitioner for refund on input VAT attributable to zero-rated sales for its failure to print the word zero-rated on its invoices, ratiocinating that:
Section 4.108-1 of RR 7-95 proceeds from the rule-making authority granted to the Secretary of Finance under Section 245 of the 1977 NIRC (Presidential Decree 1158) for the efficient enforcement of the tax code and of course its amendments. The requirement is reasonable and is in accord with the efficient collection of VAT from the covered sales of goods and services. As aptly explained by the CTAs First Division, the appearance of the word "zero-rated" on the face of invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from their purchases when no VAT was actually paid. If, absent such word, a successful claim for input VAT is made, the government would be refunding money it did not collect. Further, the printing of the word zero-rated on the invoice helps segregate sales that are subject to 10% (now 12%) VAT from those sales that are zero-rated. Unable to submit the proper invoices, petitioner Panasonic has been unable to substantiate its claim for refund. (Emphases supplied)

The pronouncement in Panasonic has since been repeatedly cited in subsequent cases, reiterating the rule that the failure of a taxpayer to print the word zero-rated on its invoices or receipts is fatal to its claim for tax refund or tax credit of input VAT on zero-rated sales. 2. Tax refunds are strictly construedagainst the taxpayer; ETPI failed to substantiate its claim. ETPI should be reminded of the well-established rule that tax refunds, which are in the nature of tax exemptions, are construed strictly against the taxpayer and liberally in favor of the government. This is because taxes are the lifeblood of the nation. Thus, the burden of proof is upon the claimant of the tax refund to prove the factual basis of his claim.26 Unfortunately, ETPI failed to discharge this burden. The CIR is correct in pointing out that ETPI is engaged in mixed transactions and, as a result, its claim for refund covers not only its zerorated sales but also its taxable domestic sales and exempt sales. Therefore, it is only reasonable to require ETPI to present evidence in order to substantiate its claim for input VAT. Considering that ETPI reported in its annual return its zero-rated sales, together with its taxable and exempt sales, the CTA ruled that ETPI should have presented the necessary papers to validate all the entries in its return. Only its zero-rated sales, however, were accompanied by supporting documents. With respect to its taxable and exempt sales, ETPI failed to substantiate these with the appropriate documentary evidence. Noteworthy also is the fact that the commissioned independent certified public account did not include in his examination the verification of such transactions.

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8. G.R. No. 173425. September 4, 2012 Fort Bonifacio Develoment Corporation Vs. Commissioner of Internal Revenue and Revenue District Officer, etc.
PONENTE: Del Castillo, Jr. FACTS: Petitioner Fort Bonifacio Development Corporation (FBDC) is a duly registered domestic corporation engaged in the development and sale of real property. The Bases Conversion Development Authority (BCDA), a wholly owned government corporation created under Republic Act (RA) No. 7227, owns 45% of FBDCs issued and outstanding capital stock; while the Bonifacio Land Corporation, a consortium of private domestic corporations, owns the remaining 55%. On February 8, 1995, by virtue of RA 7227 and Executive Order No. 40, dated December 8, 1992, petitioner purchased from the national government a portion of the Fort Bonifacio reservation, now known as the Fort Bonifacio Global City (Global City). On January 1, 1996, RA 7716 restructured the Value-Added Tax (VAT) system by amending certain provisions of the old NIRC. RA 7716 extended the coverage of VAT to real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business. On September 19, 1996, petitioner submitted to the BIR Revenue District No. 44, Taguig and Pateros, an inventory of all its real properties, the book value of which aggregated P 71,227,503,200. Based on this value, FBDC claimed that it is entitled to a transitional input tax credit of P 5,698,200,256, pursuant to Section 105 of the old NIRC. In October 1996, FBDC started selling Global City lots to interested buyers. For the first quarter of 1997, FBDC generated a total amount of P 3,685,356,539.50 from its sales and lease of lots, on which the output VAT payable was P 368,535,653.95. FBDC paid the output VAT by making cash payments to the BIR totalling P 359,652,009.47 and crediting its unutilized input tax credit on purchases of goods and services of P 8,883,644.48. Realizing that its transitional input tax credit was not applied in computing its output VAT for the first quarter of 1997, petitioner on November 17, 1998 filed with the BIR a claim for refund of the amount of P 359,652,009.47 erroneously paid as output VAT for the said period. CTA denied FBDCs claim for refund. It says, "the benefit of transitional input tax credit comes with the condition that business taxes should have been paid first." In this case, since FBDC acquired the Global City property under a VAT-free sale transaction, it cannot avail of the transitional input tax credit. It likewise pointed out that under Revenue Regulations No. (RR) 7-95, implementing Section 105 of the old NIRC, the 8% transitional input tax credit should be based on the value of the improvements on land such as buildings, roads, drainage system and other similar structures, constructed on or after January 1, 1998, and not on the book value of the real property CA affirms. Naomi Therese F. Corpuz Page 25

ISSUE: Whether or not prior payment of taxes is required for a taxpayer to avail of the 8% transitional input tax credit. RATIO: No it is not required. 1. First, Section 105 of the old National Internal Revenue Code provides that for a taxpayer to avail of the 8% transitional input tax credit, all that is required from the taxpayer is to file a beginning inventory with the Bureau of Internal Revenue. It was never mentioned in Section 105 that prior payment of taxes is a requirement. To require it now would be tantamount to judicial legislation. Second, transitional input tax credit is not a tax refund per se but a tax credit. Logically, prior payment of taxes is not required before a taxpayer could avail of transitional input tax credit. Tax credit is not synonymous to tax refund. Tax refund is defined as the money that a taxpayer overpaid and is thus returned by the taxing authority. Tax credit, on the other hand, is an amount subtracted directly from ones total tax liability. It is any amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage investment. Third, in the case of Fort Bonifacio v. Commissioner of Internal Revenue (G.R. No. 158885 & 170680, April 2, 2009), the Court had already ruled that the law as framed contemplates a situation where transitional input tax credit is claimed even if there was no actual payment of VAT in the underlying transaction. In such cases, the tax base used shall be the value of the beginning inventory of good, materials and supplies. Moreover, in the case of Commissioner of Internal Revenue v. Central Luzon Corp. (G.R. No. 159647, April 15, 2005), the Court declared that while tax liability is essential to the availment or use of any tax credit, prior tax payments are not. On the other hand, for the existence or grant solely of such credit, neither a tax liability nor a prior tax payment is needed 2. Section 112 of the Tax Code does not prohibit cash refund or tax credit of transitional input tax in the case of zero-rated or effectively zero-rated VAT registered taxpayers, who do not have any output VAT. The phrase except transitional input tax in Section 112 of the Tax Code was inserted to distinguish creditable input tax from transitional input tax credit. Transitional input tax credits are input taxes on a taxpayers beginning inventory of goods, materials, and supplies equivalent to 8% (then 2%) or the actual VAT paid on such goods, materials and supplies, whichever is higher. It may only be availed of once by first-time VAT taxpayers. Creditable input taxes, on the other hand, are input taxes of VAT taxpayers in the course of their trade or business, which should be applied within two years after the close of the taxable quarter when the sales were made.

9. G.R. No. 182045. September 19, 2012 Gulf Air Company, Philippines Branch Vs. Commissioner of Internal Revenue PONENTE: Mendoza, J.
FACTS: Petitioner Gulf Air Company Philippine Branch (GF) is a branch of Gulf Air Company, a foreign corporation duly organized in accordance with the laws of the Kingdom of Bahrain.

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GF made a claim for refund of percentage taxes for the first, second and fourth quarters of 2000. In connection with this, a letter of authority was issued by the BIR authorizing its revenue officers to examine GFs books of accounts and other records to verify its claim. After its submission of several documents and an informal conference with BIR representatives, GF received its Preliminary Assessment Notice on November 4, 2003 for deficiency percentage tax amounting to P 32,745,141.93. On the same day, GF also received a letter denying its claim for tax credit or refund of excess percentage tax remittance for the first, second and fourth quarters of 200 0, and requesting the immediate settlement of the deficiency tax assessment. GF then received the Formal Letter of Demand, for the payment of the total amount of P 33,864,186.62. In response, it filed a letter to protest the assessment and to reiterate its request for reconsideration on the denial of its claim for refund. On June 30, 2004, the Deputy Commissioner, Officer-in-Charge of the Large Taxpayers Service of the BIR, denied GFs written protest for lack of factual and legal basis and requested the immediate payment of the P 33,864,186.62 deficiency percentage tax assessment. With CTA (2nd Division) GF filed a petition for review. CTA (2nd Division) - dismissed the petition, finding that Revenue Regulations No. 6-66 was the applicable rule providing that gross receipts should be computed based on the cost of the single oneway fare as approved by the Civil Aeronautics Board (CAB). In addition, it noted that GF failed to include in its gross receipts the special commissions on passengers and cargo. Finally, it ruled that Revenue Regulations No. 15-2002, allowing the use of the net net rate in determining the gross receipts, could not be given any or a retroactive effect. Thus, the CTA affirmed the decision of the BIR and ordered the payment of P 41,117,734.01 plus 20% delinquency interest. CTA En Banc affirms. ISSUE: Whether the definition of "gross receipts," for purposes of computing the 3% Percentage Tax under Section 118(A) of the 1997 National Internal Revenue Code (NIRC), should include special commissions on passengers and special commissions on cargo based on the rates approved by the CAB. RATIO: No. 1. Section 118(A) of the NIRC states that: Sec. 118. Percentage Tax on International Carriers. (A) International air carriers doing business in the Philippines shall pay a tax of three percent (3%) of their quarterly gross receipts. Pursuant to this, the Secretary of Finance promulgated Revenue Regulations No. 15-2002, which prescribes that "gross receipts" for the purpose of determining Common Carriers Tax shall be the same

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as the tax base for calculating Gross Philippine Billings Tax. Section 5 of the same provides for the computation of "Gross Philippine Billings": Sec. 5. Determination of Gross Philippine Billings. (a) In computing for "Gross Philippine Billings," there shall be included the total amount of gross revenue derived from passage of persons, excess baggage, cargo and/or mail, originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the passage documents. The gross revenue for passengers whose tickets are sold in the Philippines shall be the actual amount derived for transportation services, for a first class, business class or economy class passage, as the case may be, on its continuous and uninterrupted flight from any port or point in the Philippines to its final destination in any port or point of a foreign country, as reflected in the remittance area of the tax coupon forming an integral part of the plane ticket. For this purpose, the Gross Philippine Billings shall be determined by computing the monthly average net fare of all the tax coupons of plane tickets issued for the month per point of final destination, per class of passage (i.e., first class, business class, or economy class) and per classification of passenger (i.e., adult, child or infant) and multiplied by the corresponding total number of passengers flown for the month as declared in the flight manifest. For tickets sold outside the Philippines, the gross revenue for passengers for first class, business class or economy class passage, as the case may be, on a continuous and uninterrupted flight from any port of point in the Philippines to final destination in any port or point of a foreign country shall be determined using the locally available net fares applicable to such flight taking into consideration the seasonal fare rate established at the time of the flight, the class of passage (whether first class, business class, economy class or non-revenue), the classification of passenger (whether adult, child or infant), the date of embarkation, and the place of final destination. Correspondingly, the Gross Philippine Billing for tickets sold outside the Philippines shall be determined in the manner as provided in the preceding paragraph. Passage documents revalidated, exchanged and/or endorsed to another on-line international airline shall be included in the taxable base of the carrying airline and shall be subject to Gross Philippine Billings tax if the passenger is lifted/boarded on an aircraft from any port or point in the Philippines towards a foreign destination. The gross revenue on excess baggage which originated from any port or point in the Philippines and destined to any part of a foreign country shall be computed based on the actual revenue derived as appearing on the official receipt or any similar document for the said transaction. The gross revenue for freight or cargo and mail shall be determined based on the revenue realized from the carriage thereof. The amount realized for freight or cargo shall be based on the amount appearing on the airway bill after deducting therefrom the amount of discounts granted which shall be validated using the monthly cargo sales reports generated by the IATA Cargo Accounts Settlement System (IATA CASS) for airway bills issued through their cargo agents or the monthly reports prepared by the airline themselves or by their general sales agents for direct issues made. The amount realized for mails shall, on the other hand, be determined based on the amount as reflected in the cargo manifest of the carrier.

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This expressly repealed Revenue Regulations No. 6-66 that stipulates a different manner of calculating the gross receipts: Sec. 5. Gross Receipts, how determined. The total amount of gross receipts derived from passage of persons, excess baggage, freight or cargo, including, mail cargo, originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the ticket, shall be subject to the common carriers percentage tax (Sec. 192, Tax Code). The gross receipts shall be computed on the cost of the single one way fare as approved by the Civil Aeronautics Board on the continuous and uninterrupted flight of passengers, excess baggage, freight or cargo, including mail, as reflected on the plane manifest of the carrier. Tickets revalidated, exchanged and/or indorsed to another international airline are subject to percentage tax if lifted from a passenger boarding a plane in a port or point in the Philippines. In case of a flight that originates from the Philippines but transhipment of passenger takes place elsewhere on another airline, the gross receipts reportable for Philippine tax purposes shall be the portion of the cost of the ticket corresponding to the leg of the flight from port of origin to the point of transhipment. In case of passengers, the taxable base shall be gross receipts less 25% thereof.

2. There is no doubt that prior to the issuance of Revenue Regulations No. 15-2002 which became effective on October 26, 2002, the prevailing rule then for the purpose of computing common carriers tax was Revenue Regulations No. 6-66. While the petitioners interpretation has been vindicated by the new rules which compute gross revenues based on the actual amount received by the airline company as reflected on the plane ticket, this does not change the fact that during the relevant taxable period involved in this case, it was Revenue Regulations No. 6-66 that was in effect. GF itself is adamant that it does not seek the retroactive application of Revenue Regulations No. 152002. Even if it were inclined to do so, it cannot insist on the application of the said rules because tax laws, including rules and regulations, operate prospectively unless otherwise legislatively intended by express terms or by necessary implication. Although GF does not dispute that Revenue Regulations No. 6-66 was the applicable rule covering the taxable period involved, it puts in issue the wisdom of the said rule as it pertains to the definition of gross receipts. GF is reminded that rules and regulations interpreting the tax code and promulgated by the Secretary of Finance, who has been granted the authority to do so by Section 244 of the NIRC, "deserve to be given weight and respect by the courts in view of the rule-making authority given to those who formulate them and their specific expertise in their respective fields." As such, absent any showing that Revenue Regulations No. 6-66 is inconsistent with the provisions of the NIRC, its stipulations shall be upheld and applied accordingly. This is in keeping with our primary duty of interpreting and applying the law. Regardless of our reservations as to the wisdom or the perceived ill-effects of a particular legislative enactment, the court is without authority to modify the Naomi Therese F. Corpuz Page 29

same as it is the exclusive province of the law-making body to do so. As aptly stated in Saguiguit v. People, xxx Even with the best of motives, the Court can only interpret and apply the law and cannot, despite doubts about its wisdom, amend or repeal it. Courts of justice have no right to encroach on the prerogatives of lawmakers, as long as it has not been shown that they have acted with grave abuse of discretion. And while the judiciary may interpret laws and evaluate them for constitutional soundness and to strike them down if they are proven to be infirm, this solemn power and duty does not include the discretion to correct by reading into the law what is not written therein.

3. Moreover, the validity of the questioned rules can be sustained by the application of the principle of legislative approval by re-enactment. Under the aforementioned legal concept, "where a statute is susceptible of the meaning placed upon it by a ruling of the government agency charged with its enforcement and the Legislature thereafter re-enacts the provisions without substantial change, such action is to some extent confirmatory that the ruling carries out the legislative purpose."23 Thus, there is tacit approval of a prior executive construction of a statute which was re-enacted with no substantial changes. In this case, Revenue Regulations No. 6-66 was promulgated to enforce the provisions of Title V, Chapter I (Tax on Business) of Commonwealth Act No. 466 (National Internal Revenue Code of 1939), under which Section 192, pertaining to the common carriers tax, can be found: Sec. 192. Percentage tax on carriers and keepers of garages. Keepers of garages, transportation contractors, persons who transport passenger or freight for hire, and common carriers by land, air, or water, except owners of bancas, and owners of animal-drawn twowheeled vehicles, shall pay a tax equivalent to two per centum of their monthly gross receipts. This provision has, over the decades, been substantially reproduced with every amendment of the NIRC, up until its recent reincarnation in Section 118 of the NIRC. The legislature is presumed to have full knowledge of the existing revenue regulations interpreting the aforequoted provision of law and, with its subsequent substantial re-enactment, there is a presumption that the lawmakers have approved and confirmed the rules in question as carrying out the legislative purpose. Hence, it can be concluded that with the continued duplication of the NIRC provision on common carriers tax, the law-making body was aware of the existence of Revenue Regulations No. 6-66 and impliedly endorsed its interpretation of the NIRC and its definition of gross receipts.

10. G.R. No. 195909/G.R. No. 195960. September 26, 2012 Commissioner of Internal Revenue Vs. St. Luke's Medical Center, Inc./St. Luke's Medical Center, Inc. Vs. Commissioner of Internal Revenue PONENTE: Carpio, J.
FACTS: St. Lukes Medical Center, Inc. (St. Lukes) is a hospital organized as a non-stock and non-profit corporation. Naomi Therese F. Corpuz Page 30

On 16 December 2002, the Bureau of Internal Revenue (BIR) assessed St. Lukes deficiency taxes amounting to P76,063,116.06 for 1998, comprised of deficiency income tax, value-added tax, withholding tax on compensation and expanded withholding tax. The BIR reduced the amount to P63,935,351.57 during trial in the First Division of the CTA. On 14 January 2003, St. Lukes filed an administrative protest with the BIR against the deficiency tax assessments. The BIR did not act on the protest within the 180-day period under Section 228 of the NIRC. Thus, St. Lukes appealed to the CTA. BIR contends a. Section 27(B) of the NIRC, which imposes a 10% preferential tax rate on the income of proprietary nonprofit hospitals, should be applicable to St. Lukes. According to the BIR, Section 27(B), introduced in 1997, is a new provision intended to amend the exemption on non-profit hospitals that were previously categorized as non-stock, non-profit corporations under Section 26 of the 1997 Tax Code x x x.5 It is a specific provision which prevails over the general exemption on income tax granted under Section 30(E) and (G) for non-stock, non-profit charitable institutions and civic organizations promoting social welfare. b. The BIR claimed that St. Lukes was actually operating for profit in 1998 because only 13% of its revenues came from charitable purposes. Moreover, the hospitals board of trustees, officers and employees directly benefit from its profits and assets. St. Lukes had total revenues of P1,730,367,965 or approximately P1.73 billion from patient services in1998. St. Lukes contends a. the BIR should not consider its total revenues, because its free services to patients was P218,187,498 or 65.20% of its 1998 operating income (i.e., total revenues less operating expenses) of P334,642,615.8 St. Lukes also claimed that its income does not inure to the benefit of any individual. b. it is a non-stock and non-profit institution for charitable and social welfare purposes under Section 30(E) and (G) of the NIRC. It argued that the making of profit per se does not destroy its income tax exemption ISSUE: Whether St. Lukes is liable for deficiency income tax in 1998 under Section 27(B) of the NIRC, which imposes a preferential tax rate of 10% on the income of proprietary non-profit hospitals. RATIO: Yes. The issue raised by the BIR is a purely legal one. It involves the effect of the introduction of Section 27(B) in the NIRC of 1997 vis--vis Section 30(E) and (G) on the income tax exemption of charitable and social welfare institutions. The 10% income tax rate under Section 27(B) specifically pertains to proprietary educational institutions and proprietary non-profit hospitals. The BIR argues that Congress intended to remove the exemption that non-profit hospitals previously enjoyed under Section 27(E) of the NIRC of 1977, which is now substantially reproduced in Section 30(E) of the NIRC of 1997.33 Section 27(B) of the present NIRC provides: SEC. 27. Rates of Income Tax on Domestic Corporations. xxxx (B) Proprietary Educational Institutions and ospitals. Proprietary educational institutions and hospitals which are non-profit shall pay a tax of ten percent (10%) on their taxable income except those covered by Subsection (D) hereof: Provided, That if the gross income from Naomi Therese F. Corpuz Page 31

unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income derived by such educational institutions or hospitals from all sources, the tax prescribed in Subsection (A) hereof shall be imposed on the entire taxable income. For purposes of this Subsection, the term unrelated trade, business or other activity means any trade, business or other activity, the conduct of which is not substantially related to the exercise or performance by such educational institution or hospital of its primary purpose or function. A proprietary educational institution is any private school maintained and administered by private individuals or groups with an issued permit to operate from the Department of Education, Culture and Sports (DECS), or the Commission on Higher Education (CHED), or the Technical Education and Skills Development Authority (TESDA), as the case may be, in accordance with existing laws and regulations. (Emphasis supplied) St. Lukes claims -- tax exemption under Section 30(E) and (G) of the NIRC. It contends that it is a charitable institution and an organization promoting social welfare. It focuses on the wording of Section 30(E) exempting from income tax non-stock, non-profit charitable institutions. It asserts that the legislative intent of introducing Section 27(B) was only to remove the exemption for proprietary nonprofit hospitals. The relevant provisions of Section 30 state: SEC. 30. Exemptions from Tax on Corporations. - The following organizations shall not be taxed under this Title in respect to income received by them as such: xxxx (E) Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person; xxxx (G) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare; xxxx Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed under this Code. (Emphasis supplied) The Court partly grants the petition of the BIR but on a different ground. We hold that Section 27(B) of the NIRC does not remove the income tax exemption of proprietary non-profit hospitals under Section 30(E) and (G). Section 27(B) on one hand, and Section 30(E) and (G) on the other hand, can be construed together without the removal of such tax exemption. The effect of the introduction of Section 27(B) is to subject the taxable income of two specific institutions, namely, proprietary non-profit educational Naomi Therese F. Corpuz Page 32

institutions and proprietary non-profit hospitals, among the institutions covered by Section 30, to the 10% preferential rate under Section 27(B) instead of the ordinary 30% corporate rate under the last paragraph of Section 30 in relation to Section 27(A)(1). Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1) proprietary nonprofit educational institutions and (2) proprietary non-profit hospitals. The only qualifications for hospitals are that they must be proprietary and non-profit. Proprietary means private, following the definition of a proprietary educational institution as any private school maintained and administered by private individuals or groups with a government permit. Non-profit means no net income or asset accrues to or benefits any member or specific person, with all the net income or asset devoted to the institutions purposes and all its activities conducted not for profit. Non-profit does not necessarily mean charitable. In Collector of Internal Revenue v. Club Filipino Inc. de Cebu,37 this Court considered as non-profit a sports club organized for recreation and entertainment of its stockholders and members. The club was primarily funded by membership fees and dues. If it had profits, they were used for overhead expenses and improving its golf course.38 The club was non-profit because of its purpose and there was no evidence that it was engaged in a profit-making enterprise. The sports club in Club Filipino Inc. de Cebu may be non-profit, but it was not charitable. The Court defined charity in Lung Center of the Philippines v. Quezon City as a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds and hearts under the influence of education or religion, by assisting them to establish themselves in life or [by] otherwise lessening the burden of government. A non-profit club for the benefit of its members fails this test. An organization may be considered as non-profit if it does not distribute any part of its income to stockholders or members. However, despite its being a tax exempt institution, any income such institution earns from activities conducted for profit is taxable, as expressly provided in the last paragraph of Section 30. To be a charitable institution, however, an organization must meet the substantive test of charity in Lung Center. The issue in Lung Center concerns exemption from real property tax and not income tax. However, it provides for the test of charity in our jurisdiction. Charity is essentially a gift to an indefinite number of persons which lessens the burden of government. In other words, charitable institutions provide for free goods and services to the public which would otherwise fall on the shoulders of government. Thus, as a matter of efficiency, the government forgoes taxes which should have been spent to address public needs, because certain private entities already assume a part of the burden. This is the rationale for the tax exemption of charitable institutions. The loss of taxes by the government is compensated by its relief from doing public works which would have been funded by appropriations from the Treasury. Charitable institutions, however, are not ipso facto entitled to a tax exemption. The requirements for a tax exemption are specified by the law granting it. The power of Congress to tax implies the power to exempt from tax. Congress can create tax exemptions, subject to the constitutional provision that *n+o law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of Congress. The requirements for a tax exemption are strictly construed against the taxpayer because an exemption restricts the collection of taxes necessary for the existence of the government.

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The Court in Lung Center declared that the Lung Center of the Philippines is a charitable institution for the purpose of exemption from real property taxes. This ruling uses the same premise as Hospital de San Juan and Jesus Sacred Heart College46 which says that receiving income from paying patients does not destroy the charitable nature of a hospital. As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve; and no money inures to the private benefit of the persons managing or operating the institution. For real property taxes, the incidental generation of income is permissible because the test of exemption is the use of the property. The Constitution provides that *c+haritable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. The test of exemption is not strictly a requirement on the intrinsic nature or character of the institution. The test requires that the institution use the property in a certain way, i.e. for a charitable purpose. Thus, the Court held that the Lung Center of the Philippines did not lose its charitable character when it used a portion of its lot for commercial purposes. The effect of failing to meet the use requirement is simply to remove from the tax exemption that portion of the property not devoted to charity. The Constitution exempts charitable institutions only from real property taxes. In the NIRC, Congress decided to extend the exemption to income taxes. However, the way Congress crafted Section 30(E) of the NIRC is materially different from Section 28(3), Article VI of the Constitution. Section 30(E) of the NIRC defines the corporation or association that is exempt from income tax. On the other hand, Section 28(3), Article VI of the Constitution does not define a charitable institution, but requires that the institution actually, directly and exclusively use the property for a charitable purpose. Section 30(E) of the NIRC provides that a charitable institution must be: (1) A non-stock corporation or association; (2) Organized exclusively for charitable purposes; (3) Operated exclusively for charitable purposes; and (4) No part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person. Thus, both the organization and operations of the charitable institution must be devoted exclusively for charitable purposes. The organization of the institution refers to its corporate form, as shown by its articles of incorporation, by-laws and other constitutive documents. Section 30(E) of the NIRC specifically requires that the corporation or association be nonstock, which is defined by the Corporation Code as one where no part of its income is distributable as dividends to its members, trustees, or officers and that any profit obtain*ed+ as an incident to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation was organized. owever, under Lung Center, any profit by a charitable institution must not only be plowed back whenever necessary or proper, but must be devoted or used altogether to the charitable object which it is intended to achieve. Naomi Therese F. Corpuz Page 34

The operations of the charitable institution generally refer to its regular activities. Section 30(E) of the NIRC requires that these operations be exclusive to charity. There is also a specific requirement that no part of [the] net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person. The use of lands, buildings and improvements of the institution is but a part of its operations. There is no dispute that St. Lukes is organized as a non-stock and non-profit charitable institution. However, this does not automatically exempt St. Lukes from paying taxes. This only refers to the organization of St. Lukes. Even if St. Lukes meets the test of charity, a charitable institution is not ipso facto tax exempt. To be exempt from real property taxes, Section 28(3), Article VI of the Constitution requires that a charitable institution use the property actually, directly and exclusively for charitable purposes. To be exempt from income taxes, Section 30(E) of the NIRC requires that a charitable institution must be organized and operated exclusively for charitable purposes. Likewise, to be exempt from income taxes, Section 30(G) of the NIRC requires that the institution be operated exclusively for social welfare. However, the last paragraph of Section 30 of the NIRC qualifies the words organized and operated exclusively by providing that: Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed under this Code. (Emphasis supplied) In short, the last paragraph of Section 30 provides that if a tax exempt charitable institution conducts any activity for profit, such activity is not tax exempt even as its not-for-profit activities remain tax exempt. This paragraph qualifies the requirements in Section 30(E) that the *n+on-stock corporation or association [must be] organized and operated exclusively for x x x charitable x x x purposes x x x. It likewise qualifies the requirement in Section 30(G) that the civic organization must be operated exclusively for the promotion of social welfare. Thus, even if the charitable institution must be organized and operated exclusively for charitable purposes, it is nevertheless allowed to engage in activities conducted for profit without losing its tax exempt status for its not-for-profit activities. The only consequence is that the income of whatever kind and character of a charitable institution from any of its activities conducted for profit, regardless of the disposition made of such income, shall be subject to tax. Prior to the introduction of Section 27(B), the tax rate on such income from for-profit activities was the ordinary corporate rate under Section 27(A). With the introduction of Section 27(B), the tax rate is now 10%. In 1998, St. Lukes had total revenues of P1,730,367,965 from services to paying patients. It cannot be disputed that a hospital which receives approximately P1.73 billion from paying patients is not an institution operated exclusively for charitable purposes. Clearly, revenues from paying patients are income received from activities conducted for profit. Indeed, St. Lukes admits that it derived profits from its paying patients. St. Lukes declared P1,730,367,965 as Revenues from Services to Patients in contrast to its Free Services expenditure of P218,187,498. In its Comment in G.R. No. 195909, St. Lukes showed the following calculation to support its claim that 65.20% of its income after expenses was allocated to free or charitable services in 1998. In Lung Center, this Court declared: Naomi Therese F. Corpuz Page 35

*e+xclusive is defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and exclusively is defined, in a manner to exclude; as enjoying a privilege exclusively. x x x The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitution and the law. Solely is synonymous with exclusively. The Court cannot expand the meaning of the words operated exclusively without violating the NIRC. Services to paying patients are activities conducted for profit. They cannot be considered any other way. There is a purpose to make profit over and above the cost of services. The P1.73 billion total revenues from paying patients is not even incidental to St. Lukes charity expenditure of P218,187,498 for non-paying patients. St. Lukes claims - that its charity expenditure of P218,187,498 is 65.20% of its operating income in 1998. However, if a part of the remaining 34.80% of the operating income is reinvested in property, equipment or facilities used for services to paying and non-paying patients, then it cannot be said that the income is devoted or used altogether to the charitable object which it is intended to achieve.56 The income is plowed back to the corporation not entirely for charitable purposes, but for profit as well. In any case, the last paragraph of Section 30 of the NIRC expressly qualifies that income from activities for profit is taxable regardless of the disposition made of such income. SC says however that in Jesus Sacred Heart College declared that there is no official legislative record explaining the phrase any activity conducted for profit. However, it quoted a deposition of Senator Mariano Jesus Cuenco, who was a member of the Committee of Conference for the Senate, which introduced the phrase or from any activity conducted for profit. The question was whether having a hospital is essential to an educational institution like the College of Medicine of the University of Santo Tomas. Senator Cuenco answered that if the hospital has paid rooms generally occupied by people of good economic standing, then it should be subject to income tax. He said that this was one of the reasons Congress inserted the phrase or any activity conducted for profit. The question in Jesus Sacred Heart College involves an educational institution. However, it is applicable to charitable institutions because Senator Cuencos response shows an intent to focus on the activities of charitable institutions. Activities for profit should not escape the reach of taxation. Being a non-stock and non-profit corporation does not, by this reason alone, completely exempt an institution from tax. An institution cannot use its corporate form to prevent its profitable activities from being taxed. The Court finds that St. Lukes is a corporation that is not operated exclusively for charitable or social welfare purposes insofar as its revenues from paying patients are concerned. This ruling is based not only on a strict interpretation of a provision granting tax exemption, but also on the clear and plain text of Section 30(E) and (G). Section 30(E) and (G) of the NIRC requires that an institution be operated exclusively for charitable or social welfare purposes to be completely exempt from income tax. An institution under Section 30(E) or (G) does not lose its tax exemption if it earns income from its for-profit activities. Such income from for-profit activities, under the last paragraph of Section 30, is merely subject to income tax, previously at the ordinary corporate rate but now at the preferential 10% rate pursuant to Section 27(B). A tax exemption is effectively a social subsidy granted by the State because an exempt institution is spared from sharing in the expenses of government and yet benefits from them. Tax exemptions for Naomi Therese F. Corpuz Page 36

charitable institutions should therefore be limited to institutions beneficial to the public and those which improve social welfare. A profit-making entity should not be allowed to exploit this subsidy to the detriment of the government and other taxpayers. St. Lukes 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 non-profit 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. Lukes, as a proprietary non-profit hospital, is entitled to the preferential tax rate of 10% on its net income from its for-profit activities. St. Lukes is therefore liable for deficiency income tax in 1998 under Section 27(B) of the NIRC. However, St. Lukes has good reasons to rely on the letter dated 6 June 1990 by the BIR, which opined that St. Lukes is a corporation for purely charitable and social welfare purposes and thus exempt from income tax. In Michael J. Lhuillier, Inc. v. Commissioner of Internal Revenue, the Court said that good faith and honest belief that one is not subject to tax on the basis of previous interpretation of government agencies tasked to implement the tax law, are sufficient justification to delete the imposition of surcharges and interest.

11. G.R. No. 179115. September 26, 2012 Asia International Auctioneers, Inc. Vs. Commissioner of Internal Revenue
PONENTE: Perlas-Bernabe, J. FACTS: Asia International Auctioneers, Inc (AIA) is a duly organized corporation operating within the Subic Special Economic Zone. It is engaged in the importation of used motor vehicles and heavy equipment which it sells to the public through auction.4 On August 25, 2004, AIA received from the CIR a Formal Letter of Demand, dated July 9, 2004, containing an assessment for deficiency value added tax (VAT) and excise tax in the amounts of P 102,535,520.00 and P 4,334,715.00, respectively, or a total amount of P 106,870,235.00, inclusive of penalties and interest, for auction sales conducted on February 5, 6, 7, and 8, 2004. AIA protests. It contends that it availed of the Tax Amnesty Program under Republic Act 948021 (RA 9480), otherwise known as the Tax Amnesty Act of 2007. ISSUE: Whether or not AIA is not liable for any deficienct VAT and excise taxes because of its availment of the Tax Amnesty Program. RATIO: Yes. impose penalties on persons otherwise guilty of violating a tax law. It partakes of an absolute 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 or 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.

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In 2007, RA 9480 took effect granting a tax amnesty to qualified taxpayers for 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. The Tax Amnesty Program under RA 9480 may be availed of by any person except those who are disqualified under Section 8 thereof, to wit: 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 contends that AIA is disqualified under Section 8(a) of RA 9480 from availing itself of the Tax Amnesty Program because it is "deemed" a withholding agent for the deficiency taxes. This argument is untenable. The CIR did not assess AIA as a withholding agent that failed to withhold or remit the deficiency VAT and excise tax to the BIR under relevant provisions of the Tax Code. Hence, the argument that AIA is "deemed" a withholding agent for these deficiency taxes is fallacious. Indirect taxes, like VAT and excise tax, are different from withholding taxes.1wphi1 To distinguish, in indirect taxes, the incidence of taxation falls on one person but the burden thereof can be shifted or passed on to another person, such as when the tax is imposed upon goods before reaching the consumer who ultimately pays for it. On the other hand, in case of withholding taxes, the incidence and burden of taxation fall on the same entity, the statutory taxpayer. The burden of taxation is not shifted to the withholding agent who merely collects, by withholding, the tax due from income payments to entities arising from certain transactions and remits the same to the government. Due to this difference, the deficiency VAT and excise tax cannot be "deemed" as withholding taxes merely because they constitute indirect taxes. Moreover, records support the conclusion that AIA was assessed not as a withholding agent but, as the one directly liable for the said deficiency taxes.

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The CIR also argues that AIA, being an accredited investor/taxpayer situated at the Subic Special Economic Zone, should have availed of the tax amnesty granted under RA 9399 and not under RA 9480. This is also untenable. RA 9399 was passed prior to the passage of RA 9480. RA 9399 does not preclude taxpayers within its coverage from availing of other tax amnesty programs available or enacted in futuro like RA 9480. More so, RA 9480 does not exclude from its coverage taxpayers operating within special economic zones. As long as it is within the bounds of the law, a taxpayer has the liberty to choose which tax amnesty program it wants to avail.

12. G.R. No. 168331. October 11, 2012 United International Pictures, AB Vs. Commissioner of Internal Revenue PONENTE: Peralta J.
FACTS: United International Pictures (UIP) (petitioner) filed with the Bureau of Internal Revenue (BIR) its Corporation Annual Income Tax Return for the calendar year ended December 31, 1998 reflecting, among others, a net taxable income from operations in the sum of P24,961,200.00, an income tax liability of P8,486,808.00, but with an excess income tax payment in the amount of P4,325,152.00 arising from quarterly income tax payments and creditable taxes withheld at source. UIP opted to carry-over as tax credit to the succeeding taxable year the said overpayment by putting an "x" mark on the corresponding box. Later, UIP filed its Corporation Annual Income Tax Return for the calendar year ended December 31, 1999 wherein it reported, among others, a taxable income in the amount of P7,071,651.00 , an income tax due of P2,333,645.00, but with an excess income tax payment in the amount of P9,309,292.00.

On the face of the 1999 return, UIP indicated its option by putting an "x" mark on the box "To be refunded." On April 28, 2000, UIP filed with the BIR an administrative claim for refund in the amount of P9,309,292.00. As CIR did not act on UIP claim, the latter filed a petition for review that reached the Supreme Court. ISSUE: Whether UIP (petitioner) is perpetually barred to refund its tax overpayment for taxable year 1998 since it opted to carry-over its excess tax. RATIO: It is clear that once a corporation exercises the option to carry-over, such option is irrevocable for that taxable period. aving chosen to carry-over the excess quarterly income tax, the corporation cannot thereafter choose to apply for a cash refund or for the issuance of a tax credit certificate for the amount representing such overpayment. To avoid confusion, the Court has defined the phrase for that taxable year as merely identifying the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the taxpayer.

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UIP asserts that there is nothing in the law which perpetually prohibits the refund of carried over excess tax. It maintains that the option to carry-over is irrevocable only for the next "taxable period" where the excess tax payment was carried over. SC is not convinced. Section 76 of the NIRC of 1997 states Section 76. Final Adjustment Return. Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either: (A) Pay the balance of tax still due; or (B) Carry-over the excess credit; or (C) Be credited or refunded with the excess amount paid, as the case may be. In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefore. (Emphasis supplied) From the aforequoted provision, it is clear that once a corporation exercises the option to carry-over, such option is irrevocable "for that taxable period." Having chosen to carry-over the excess quarterly income tax, the corporation cannot thereafter choose to apply for a cash refund or for the issuance of a tax credit certificate for the amount representing such overpayment. To avoid confusion, this Court has properly explained the phrase "for that taxable period" in Commissioner of Internal Revenue v. Bank of the Philippine Islands. In said case, the Court held that the phrase merely identifies the excess income tax, subject of the option, by referring to the "taxable period when it was acquired by the taxpayer." Thus: x x x Section 76 remains clear and unequivocal. Once the carry-over option is taken, actually or constructively, it becomes irrevocable. It mentioned no exception or qualification to the irrevocability rule. Hence, the controlling factor for the operation of the irrevocability rule is that the taxpayer chose an option; and once it had already done so, it could no longer make another one. Consequently, after the taxpayer opts to carry-over its excess tax credit to the following taxable period, the question of whether or not it actually gets to apply said tax credit is irrelevant. Section 76 of the NIRC of 1997 is explicit in stating that once the option to carry over has been made, "no application for tax refund or issuance of a tax credit certificate shall be allowed therefor." Naomi Therese F. Corpuz Page 40

The last sentence of Section 76 of the NIRC of 1997 reads: "Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefore." The phrase "for that taxable period" merely identifies the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the taxpayer. In the present case, the excess income tax credit, which BPI opted to carry over, was acquired by the said bank during the taxable year 1998. The option of BPI to carry over its 1998 excess income tax credit is irrevocable; it cannot later on opt to apply for a refund of the very same 1998 excess income tax credit. The Court of Appeals mistakenly understood the phrase "for that taxable period" as a prescriptive period for the irrevocability rule x x x. The evident intent of the legislature, in adding the last sentence to Section 76 of the NIRC of 1997, is to keep the taxpayer from flip-flopping on its options, and avoid confusion and complication as regards said taxpayers excess tax credit. The interpretation of the Court of Appeals only delays the flip-flopping to the end of each succeeding taxable period. Plainly, UIPs claim for refund for 1998 should be denied as its option to carry over has precluded it from claiming the refund of the excess 1998 income tax payment ISSUE: of whether petitioner had sufficiently proven entitlement to refund its tax overpayments for taxable year 1999. RATIO: In claiming for the refund of excess creditable withholding tax, UIP must show compliance with the following basic requirements: (1) The claim for refund was filed within two years as prescribed under Section 229 of the NIRC of 1997; (2) The income upon which the taxes were withheld were included in the return of the recipient (Section 10, Revenue Regulations No. 6-85); (3) The fact of withholding is established by a copy of a statement (BIR Form 1743.1) duly issued by the payor (withholding agent) to the payee showing the amount paid and the amount of tax withheld therefrom (Section 10, Revenue Regulations No. 6-85). Here, it is undisputed that the claim for refund was filed within the two-year prescriptive period prescribed under Section 229 of the NIRC of 1997 and that the taxpayer was able to present its certificate of creditable tax withheld from its payor. However, records show that petitioner failed to reconcile the discrepancy between income payments per its income tax return and the certificate of creditable tax withheld. A perusal of the certificate of tax withheld would reveal that petitioner earned P146,355,699.80. On the contrary, its annual income tax return reflects a gross income from film rentals in the amount of P 145,381,568.00. However, despite the P974,131.80 difference, both the certificate of taxes withheld and income tax return filed by petitioner for taxable year 1999 indicate the same amount of P7,317,785.00 as creditable tax withheld. What's more, petitioner failed to present sufficient proof to allow the Court to trace the discrepancy between the certificate or taxes withheld and the income tax return. Naomi Therese F. Corpuz Page 41

Parenthetically, the Office of the Solicitor General correctly pointed out that the amount of income payments in the income tax return must correspond and tally to the amount indicated in the certificate of withholding, since there is no possible and efficacious way by which the BIR can verify the precise identity of the income payments as reflected in the income tax return. Therefore, UIPs claim for tax refund for taxable year 1999 must be denied, since it failed to prove that the income payments subjected to withholding tax were declared as part of the gross income or the taxpayer.

13. G.R. No. 183553. November 12, 2012 Diageo Philippines, Inc. Vs. Commissioner of Internal Revenue
PONENTE: Perlas-Bernabe, J. FACTS: Petitioner Diageo Philippines, Inc. (Diageo) is a domestic corporation organized and existing under the laws of the Republic of Philippines and is primarily engaged in the business of importing, exporting, manufacturing, marketing, distributing, buying and selling, by wholesale, all kinds of beverages and liquors and in dealing in any material, article, or thing required in connection with or incidental to its principal business. It is registered with the Bureau of Internal Revenue (BIR) as an excise tax taxpayer. For the periodNovember 1, 2003 to December 31, 2004, Diageo purchased raw alcohol from its supplier for use in the manufacture of its beverage and liquor products. The supplier imported the raw alcohol and paid the related excise taxes thereon before the same were sold to the Diageo. The purchase price for the raw alcohol included, among others, the excise taxes paid by the supplier in the total amount of P12,007,528.83. Subsequently, Diageo exported its locally manufactured liquor products to Japan, Taiwan, Turkey and Thailand and received the corresponding foreign currency proceeds of such export sales. Within two (2) years from the time the supplier paid the subject excise taxes, Diageo filed with the BIR Large Taxpayers Audit and Investigation Division II applications for tax refund/issuance of tax credit certificates corresponding to the excise taxes which its supplier paid but passed on to it as part of the purchase price of the subject raw alcohol invoking Section 130(D) of the Tax Code. However, due to the failure of the respondent Commissioner of Internal Revenue (CIR) to act upon Diageos claims, the latter filed a petition for review before the CTA 2nd Division. CTA (2nd Division) dismissed the petition on the ground that Diageo is not the real party in interest to file the claim for refund. Citing Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue, it ruled that although an excise tax is an indirect tax which can be passed on to the purchaser of goods, the liability therefor still remains with the manufacturer or seller, hence, the right to claim refund is only available to it. Diageo filed a motion for reconsideration which was subsequently denied in the Resolution dated January 8, 2007.

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CTA En Banc Affirms. ISSUE: Whether Diageo has the legal personality to file aclaim for refund or tax credit for the excise taxes paid by its supplier on the raw alcohol it purchased and used in the manufacture of its exported goods. RATIO: No. 1. Excise taxes partake of the nature of indirect taxes. Diageo bases its claim for refund on Section 130 of the Tax Code which reads: Section 130.Filing of Return and Payment of Excise Tax on Domestic Products. xxx (A) Persons Liable to File a Return, Filing of Return on Removal and Payment of Tax.(1) Persons Liable to File a Return. Every person liable to pay excise tax imposed under this Title shall file a separate return for each place of production setting forth, among others, the description and quantity or volume of products to be removed, the applicable tax base and the amount of tax due thereon; Provided however, That in the case of indigenous petroleum, natural gas or liquefied natural gas, the excise tax shall be paid by the first buyer, purchaser or transferee for local sale, barter or transfer, while the excise tax on exported products shall be paid by the owner, lessee, concessionaire or operator of the mining claim.Should domestic products be removed from the place of production without the payment of the tax, the owner or person having possession thereof shall be liable for the tax due thereon. xxxx (D) Credit for Excise tax on Goods Actually Exported.- When goods locally produced or manufactured are removed and actually exported without returning to the Philippines, whether so exported in their original state or as ingredients or parts of any manufactured goods or products, any excise tax paid thereon shall be credited or refunded upon submission of the proof of actual exportation and upon receipt of the corresponding foreign exchange payment: Provided, That the excise tax on mineral products, except coal and coke, imposed under Section 151 shall not be creditable or refundable even if the mineral products are actually exported. A reading of the foregoing provision, however, reveals that contrary to the position of Diageo, the right to claim a refund or be credited with the excise taxes belongs to its supplier. The phrase "any excise tax paid thereon shall be credited or refunded" requires that the claimant be the same person who paid the excise tax. In Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue, the Court has categorically declared that "[t]he proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another." Excise taxes imposed under Title VI of the Tax Code are taxes on property which are imposed on "goods manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition and to things imported." Though excise taxes are paid by the manufacturer or producer Naomi Therese F. Corpuz Page 43

before removal of domestic products from the place of production or by the owner or importer before the release of imported articles from the customshouse, the same partake of the nature of indirect taxes when it is passed on to the subsequent purchaser. Indirect taxesare defined asthose wherein the liability for the payment of the tax falls on one person but the burden thereof can be shifted to another person. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser as part of the price of goods sold or services rendered. Accordingly, when the excise taxes paid by the supplier were passed on to Diageo, what was shifted is not the tax per se but anadditional cost of the goods sold. Thus, the supplier remains the statutory taxpayer even if Diageo, the purchaser, actually shoulders the burden of tax. 2. The statutory taxpayer is the proper party to claim refund of indirect taxes. As defined in Section 22(N) of the Tax Code, a taxpayer means any person subject to tax. He is, therefore, the person legally liable to file a return and pay the tax as provided for in Section 130(A). As such, he is the person entitled to claim a refund. Relevant isSection 204(C) of the Tax Code which provides: Section 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes.- The Commissioner may xxxx (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refined their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, that a return filed showing an overpayment shall be considered as a written claim for credit or refund. (Emphasis supplied) Pursuant to the foregoing, the person entitled to claim a tax refund is the statutory taxpayer or the person liable for or subject to tax. In the present case, it is not disputed that the supplier of Diageo imported the subject raw alcohol, hence, it was the one directly liable and obligated to file a return and pay the excise taxes under the Tax Code before the goods or products are removed from the customs house. It is, therefore, the statutory taxpayer as contemplated by law and remains to be so, even if it shifts the burden of tax to Diageo. Consequently, the right to claim a refund, if legally allowed, belongs to it and cannot be transferred to another, in this case Diageo, without any clear provision of law allowing the same. Unlike the law on Value Added Tax which allows the subsequent purchaser under the tax credit method to refund or credit input taxes passed on to it by a supplier, no provision for excise taxes exists granting non-statutory taxpayer like Diageo to claim a refund or credit. It should also be stressed that when the

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excise taxes were included in the purchase price of the goods sold to Diageo, the same was no longer in the nature of a tax but already formed part of the cost of the goods. Finally, statutes granting tax exemptions are construed stricissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of tax exemption must be clearly shown and based on language in law too plain to be mistaken. Unfortunately, Diageo failed to meet the burden of proof that it is covered by the exemption granted under Section 130(D) of the Tax Code. In sum, Diageo, not being the party statutorily liable to pay excise taxes and having failed to prove that it is covered by the exemption granted under Section 130(D) of the Tax Code, is not the proper party to claim a refund or credit of the excise taxes paid on the ingredients of its exported locally produced liquor.

2011 cases
1. G.R. No. 181298. January 10, 2011 Belle Corporation Vs. Commissioner of Internal Revenue PONENTE: Del Castillo, J.
FACTS: Petitioner Belle Corporation (Belle) is a domestic corporation engaged in the real estate and property business. On May 30, 1997, Belle filed with the Bureau of Internal Revenue (BIR) its Income Tax Return (ITR) for the first quarter of 1997, showing a gross income of P741,607,495.00, a deduction of P65,381,054.00, a net taxable income of P676,226,441.00 and an income tax due of P236,679,254.00, which Belle paid on even date through PCI Bank, Tektite Tower Branch, an Authorized Agent Bank of the BIR. On August 14, 1997, Belle filed with the BIR its second quarter ITR, declaring an overpayment of income taxes in the amount of P66,634,290.00. In view of the overpayment, no taxes were paid for the second and third quarters of 1997. Belles ITR for the taxable year ending December 31, 1997 thereby reflected an overpayment of income taxes in the amount of P132,043,528.00. Instead of claiming the amount as a tax refund, Belle decided to apply it as a tax credit to the succeeding taxable year by marking the tax credit option box in its 1997 ITR. For the taxable year 1998, Belles amended ITR showed an overpayment of P106,447,318.00. On April 12, 2000, Belle filed with the BIR an administrative claim for refund of its unutilized excess income tax payments for the taxable year 1997 in the amount of P106,447,318.00.

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Notwithstanding the filing of the administrative claim for refund, Belle carried over the amount of P106,447,318.00 to the taxable year 1999 and applied a portion thereof to its 1999 Minimum Corporate Income Tax (MCIT) liability. Now, Belle appealed its claim for refund of unutilized excess income tax payments for the taxable year 1997 in the amount of P106,447,318.00. ISSUE: Whether Belle. is entitled to a refund of its excess income tax payments for the taxable year 1997 in the amount of P106,447,318.00 RATIO: Section 69 of the old National Internal Revenue Code (NIRC) allows unutilized tax credits to be refunded as long as the claim is filed within the prescriptive period. This, however, no longer holds true under Section 76 of the 1997 NIRC as the option to carry-over excess income tax payments to the succeeding taxable year is now irrevocable. The law applicable is Section 76 of the NIRC. 1. Unutilized excess income tax payments may be refunded within two years from the date of payment under Section 69 of the old NIRC Under Section 69 of the old NIRC, in case of overpayment of income taxes, a corporation may either file a claim for refund or carry-over the excess payments to the succeeding taxable year. Availment of one remedy, however, precludes the other. Although these remedies are mutually exclusive, we have in several cases allowed corporations, which have previously availed of the tax credit option, to file a claim for refund of their unutilized excess income tax payments. In BPI-Family Savings Bank, the bank availed of the tax credit option but since it suffered a net loss the succeeding year, the tax credit could not be applied; thus, the bank filed a claim for refund to recover its excess creditable taxes. Brushing aside technicalities, we granted the claim for refund. Likewise, in Calamba Steel Center, Inc., we allowed the refund of excess income taxes paid in 1995 since these could not be credited to taxable year 1996 due to business losses. In that case, we declared that a tax refund may be claimed even beyond the taxable year following that in which the tax credit arises x x x provided that the claim for such a refund is made within two years after payment of said tax. In State Land Investment Corporation, we reiterated that if the excess income taxes paid in a given taxable year have not been entirely used by a x x x corporation against its quarterly income tax liabilities for the next taxable year, the unused amount of the excess may still be refunded, provided that the claim for such a refund is made within two years after payment of the tax. Thus, under Section 69 of the old NIRC, unutilized tax credits may be refunded as long as the claim is filed within the two-year prescriptive period. 2. The option to carry over excess income tax payments is irrevocable under Section 76 of the 1997 NIRC This rule, however, no longer applies as Section 76 of the 1997 NIRC now reads: Naomi Therese F. Corpuz Page 46

Section 76. Final Adjustment Return. Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either: (a) Pay the excess tax still due; or (b) Be refunded the excess amount paid, as the case may be. In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefor. (Emphasis supplied) Under the new law, in case of overpayment of income taxes, the remedies are still the same; and the availment of one remedy still precludes the other. But unlike Section 69 of the old NIRC, the carry-over of excess income tax payments is no longer limited to the succeeding taxable year. Unutilized excess income tax payments may now be carried over to the succeeding taxable years until fully utilized. In addition, the option to carry-over excess income tax payments is now irrevocable. Hence, unutilized excess income tax payments may no longer be refunded. In the instant case, both the CTA and the CA applied Section 69 of the old NIRC in denying the claim for refund. We find, however, that the applicable provision should be Section 76 of the 1997 NIRC because at the time petitioner filed its 1997 final ITR, the old NIRC was no longer in force. In Commissioner of Internal Revenue v. McGeorge Food Industries, Inc., we explained that: Section 76 and its companion provisions in Title II, Chapter XII should be applied following the general rule on the prospective application of laws such that they operate to govern the conduct of corporate taxpayers the moment the 1997 NIRC took effect on 1 January 1998. There is no quarrel that at the time respondent filed its final adjustment return for 1997 on 15 April 1998, the deadline under Section 77 (B) of the 1997 NIRC (formerly Section 70(b) of the 1977 NIRC), the 1997 NIRC was already in force, having gone into effect a few months earlier on 1 January 1998. Accordingly, Section 76 is controlling. The lower courts grounded their contrary conclusion on the fact that respondents overpayment in 1997 was based on transactions occurring before 1 January 1998. This analysis suffers from the twin defects of missing the gist of the present controversy and misconceiving the nature and purpose of Section 76. None of respondents corporate transactions in 1997 is disputed here. Nor can it be argued that Section 76 determines the taxability of corporate transactions. To sustain the rulings below is to subscribe to the untenable proposition that, had Congress in the 1997 NIRC moved the deadline for the filing of final adjustment returns from 15 April to 15 March of each year, taxpayers filing returns after 15 March 1998 can excuse their tardiness by invoking the 1977 NIRC because the transactions subject of the returns took place before 1 January 1998. A keener appreciation of the nature and purpose of the varied provisions of the 1997 NIRC cautions against sanctioning this reasoning. Accordingly, since petitioner already carried over its 1997 excess income tax payments to the succeeding taxable year 1998, it may no longer file a claim for refund of unutilized tax credits for taxable year 1997.

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To repeat, under the new law, once the option to carry-over excess income tax payments to the succeeding years has been made, it becomes irrevocable. Thus, applications for refund of the unutilized excess income tax payments may no longer be allowed.

2. G.R. No. 172378. January 17, 2011 Silicon Philippines, Inc. Vs. Commissioner of Internal Revenue PONENTE: Del Castillo J.
FACTS: Petitioner Silicon Philippines, Inc. (Silicon), a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, is engaged in the business of designing, developing, manufacturing and exporting advance and large-scale integrated circuit components or "ICs." Silicon is registered with the Bureau of Internal Revenue (BIR) as a Value Added Tax (VAT) taxpayer and with the Board of Investments (BOI) as a preferred pioneer enterprise. On May 21, 1999, Siliocn filed with the respondent Commissioner of Internal Revenue (CIR), through the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance (DOF), an application for credit/refund of unutilized input VAT for the period October 1, 1998 to December 31, 1998 in the amount of P31,902,507.50 Due to the inaction of the respondent, Silicon filed a Petition for Review with the CTA Division . CTA ruled infavor of CIR CTA En Banc affirms. ISSUES: (1) whether the CTA En Banc erred in denying petitioners claim for credit/ refund of input VAT attributable to its zero-rated sales in the amount of P16,732,425.00 due to its failure: (a) to show that it secured an ATP from the BIR and to indicate the same in its export sales invoices; and (b) to print the word "zero-rated" in its export sales invoices. (2) whether the CTA En Banc erred in ruling that only the amount of P9,898,867.00 can be classified as input VAT paid on capital goods RATIO: No in all issues. Before us are two types of input VAT credits. One is a credit/refund of input VAT attributable to zerorated sales under Section 112 (A) of the NIRC, and the other is a credit/refund of input VAT on capital goods pursuant to Section 112 (B) of the same Code. Credit/refund of input VAT on zero-rated sales

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In a claim for credit/refund of input VAT attributable to zero-rated sales, Section 112 (A) of the NIRC lays down four requisites, to wit: 1) the taxpayer must be VAT-registered; 2) the taxpayer must be engaged in sales which are zero-rated or effectively zero-rated; 3) the claim must be filed within two years after the close of the taxable quarter when such sales were made; and 4) the creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to the extent that such input tax has not been applied against the output tax. To prove that it is engaged in zero-rated sales, petitioner presented export sales invoices, certifications of inward remittance, export declarations, and airway bills of lading for the fourth quarter of 1998. The CTA Division, however, found the export sales invoices of no probative value in establishing petitioners zero-rated sales for the purpose of claiming credit/refund of input VAT because petitioner failed to show that it has an ATP from the BIR and to indicate the ATP and the word "zero-rated" in its export sales invoices. The CTA Division cited as basis Sections 113, 237 and 238 of the NIRC, in relation to Section 4.108-1 of RR No. 7-95. SC partly agrees with the CTA. Printing the ATP on the invoices or receipts is not required It has been settled in Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue that the ATP need not be reflected or indicated in the invoices or receipts because there is no law or regulation requiring it. Thus, in the absence of such law or regulation, failure to print the ATP on the invoices or receipts should not result in the outright denial of a claim or the invalidation of the invoices or receipts for purposes of claiming a refund. ATP must be secured from the BIR. But while there is no law requiring the ATP to be printed on the invoices or receipts, Section 238 of the NIRC expressly requires persons engaged in business to secure an ATP from the BIR prior to printing invoices or receipts. Failure to do so makes the person liable under Section 26452 of the NIRC. This brings us to the question of whether a claimant for unutilized input VAT on zero-rated sales is required to present proof that it has secured an ATP from the BIR prior to the printing of its invoices or receipts. SC rules in the affirmative. Under Section 112 (A) of the NIRC, a claimant must be engaged in sales which are zero-rated or effectively zero-rated. To prove this, duly registered invoices or receipts evidencing zero-rated sales must be presented. However, since the ATP is not indicated in the invoices or receipts, the only way to verify whether the invoices or receipts are duly registered is by requiring the claimant to present its ATP Naomi Therese F. Corpuz Page 49

from the BIR. Without this proof, the invoices or receipts would have no probative value for the purpose of refund. In the case of Intel, we emphasized that: It bears reiterating that while the pertinent provisions of the Tax Code and the rules and regulations implementing them require entities engaged in business to secure a BIR authority to print invoices or receipts and to issue duly registered invoices or receipts, it is not specifically required that the BIR authority to print be reflected or indicated therein. Indeed, what is important with respect to the BIR authority to print is that it has been secured or obtained by the taxpayer, and that invoices or receipts are duly registered. Failure to print the word "zero-rated" on the sales invoices is fatal to a claim for refund of input VAT. Similarly, failure to print the word "zero-rated" on the sales invoices or receipts is fatal to a claim for credit/refund of input VAT on zero-rated sales. In Panasonic Communications Imaging Corporation of the Philippines (formerly Matsushita Business Machine Corporation of the Philippines) v. Commissioner of Internal Revenue,we upheld the denial of Panasonics claim for tax credit/refund due to the absence of the word "zero -rated" in its invoices. We explained that compliance with Section 4.108-1 of RR 7-95, requiring the printing of the word "zero rated" on the invoice covering zero-rated sales, is essential as this regulation proceeds from the rulemaking authority of the Secretary of Finance under Section 244 of the NIRC. All told, the non-presentation of the ATP and the failure to indicate the word "zero-rated" in the invoices or receipts are fatal to a claim for credit/refund of input VAT on zero-rated sales. The failure to indicate the ATP in the sales invoices or receipts, on the other hand, is not. In this case, petitioner failed to present its ATP and to print the word "zero-rated" on its export sales invoices. Thus, we find no error on the part of the CTA in denying outright petitioners claim for credit/refund of input VAT attributable to its zero-rated sales. Credit/refund of input VAT on capital goods Capital goods are defined under Section 4.106-1(b) of RR No. 7-95 To claim a refund of input VAT on capital goods, Section 112 (B) of the NIRC requires that: 1. the claimant must be a VAT registered person; 2. the input taxes claimed must have been paid on capital goods; 3. the input taxes must not have been applied against any output tax liability; and 4. the administrative claim for refund must have been filed within two (2) years after the close of the taxable quarter when the importation or purchase was made. Corollarily, Section 4.106-1 (b) of RR No. 7-95 defines capital goods as follows:

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"Capital goods or properties" refer to goods or properties with estimated useful life greater that one year and which are treated as depreciable assets under Section 29 (f), used directly or indirectly in the production or sale of taxable goods or services. Based on the foregoing definition, we find no reason to deviate from the findings of the CTA that training materials, office supplies, posters, banners, T-shirts, books, and the other similar items reflected in petitioners Summary of Importation of Goods are not capital goods. A reduction in the refundable input VAT on capital goods from P15,170,082.00 to P9,898,867.00 is therefore in order.

3. G.R. No. 179617. January 19, 2011 Commissioner of Internal Revenue Vs. Asian Transmission Corporation PONENTE: Mendoza, J.
FACTS: Asian Transmission Corporation (ATC) is a domestic corporation engaged in the manufacture of automotive parts. It filed its annual Income Tax Return (ITR) for the year 2000 on April 10, 2001 where it declared a gross income of P370,532,082.00, a net loss of P279,926,225.00 and a minimum corporate income tax (MCIT) of P7,410,642.00. The MCIT due was offset against the P38,301,198.00 existing tax credits and creditable taxes withheld of the ATC, thereby leaving an excess tax credit or overpayment of P30,890,556.00. For the P30,890,556.00 overpayment, ATC opted To be issued a Tax Credit Certificate. In its ITR for the year 2001, ATC declared a gross income of P322,839,802.00, a net loss of P37,869,455.00, and MCIT of P6,456,796.00. After deducting its MCIT due against its existing tax credits and creditable taxes, ATC was left with a total tax credit of P51,760,312.00. ATC, however, applied part of its unutilized creditable taxes for the year 2000 amounting to P7,639,822.00 to its MCIT due of P6,456,796.00 for the year 2001. Left unapplied of its 2000 creditable taxes, therefore, was the amount of P1,183,026.00. Again, ATC opted To be issued a Tax Credit Certificate for the excess income tax payment. On April 9, 2003, ATC filed with CIRs Large Taxpayers Service an administrative claim for the issuance of tax credit certificate or cash refund in the amount of P28,509,578.00, representing excess/unutilized creditable income taxes withheld as of December 31, 2001 CIRs Contention - while the certificates of withholding taxes and the annual income tax returns for the years 2000 and 2001 submitted by ATC may prove the inclusion of income payments which were the bases of the withholding taxes and the fact of withholding, they are not sufficient to prove entitlement to the tax refund requested. Since Section 2.58.3 (B) of Revenue Regulation provides that claims for refund or tax credit shall be given due course upon showing that income payment has been declared as part of gross income and the fact of withholding is established, the mere submission of the withholding tax statements shall only mean that ATCs claim shall be given due course, i.e., heard or considered. ATC still has to show that it is entitled to the refund requested by proving not only the income payments made but also the reported losses.

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ISSUE: Whether or not ATC is entitled to refund in the amount of P27,325,856.58 representing the alleged unutilized creditable withholding taxes for the taxable year 2001. RATIO: No. In Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal Revenue, this Court more explicitly pronounced: Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the highest respect. In Sea-Land Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature of its function is dedicated exclusively to the consideration of tax problems, has necessarily developed an expertise on the subject, and its conclusions will not be overturned unless there has been an abuse or improvident exercise of authority. Such findings can only be disturbed on appeal if they are not supported by substantial evidence or there is a showing of gross error or abuse on the part of the Tax Court. In the absence of any clear and convincing proof to the contrary, this Court must presume that the CTA rendered a decision which is valid in every respect. At any rate, the CIR is correct in stating that the taxpayer bears the burden of proof to establish not only that a refund is justified under the law but also that the amount that should be refunded is correct. In this case, however, the CTA-First Division and the CTA-En Banc uniformly found that from the evidence submitted, ATC has established its claim for refund or issuance of a tax credit certificate for unutilized creditable withholding taxes for the taxable year 2001 in the amount of P27,325,856.58. The Court finds no cogent reason to rule differently. As correctly noted by the CTA-En Banc: x x x proof of actual remittance by the respondent is not needed in order to prove withholding and remittance of taxes to petitioner. Section 2.58.3 (B) of Revenue Regulation No. 2-98 clearly provides that proof of remittance is the responsibility of the withholding agent and not of the taxpayer-refund claimant. It should be borne in mind by the petitioner that payors of withholding taxes are by themselves constituted as withholding agents of the BIR. The taxes they withhold are held in trust for the government. In the event that the withholding agents commit fraud against the government by not remitting the taxes so withheld, such act should not prejudice herein respondent who has been duly withheld taxes by the withholding agents acting under government authority. Moreover, pursuant to Section 57 and 58 of the NIRC of 1997, as amended, the withholding of income tax and the remittance thereof to the BIR is the responsibility of the payor and not the payee. Therefore, respondent, x x x has no control over the remittance of the taxes withheld from its income by the withholding agent or payor who is the agent of the petitioner. The Certificates of Creditable Tax Withheld at Source issued by the withholding agents of the government are prima facie proof of actual payment by herein respondentpayee to the government itself through said agents. We stress that the pertinent provisions of law and the established jurisprudence evidently demonstrate that there is no need for the claimant, respondent in this case, to prove actual remittance by the withholding agent (payor) to the BIR. In this regard, We do not agree with petitioners allegation that respondent failed to prove that creditable withholding taxes were duly supported by valid Certificates of Creditable Tax Withheld at Source. As aptly ruled by the Court in Division, and We reiterate, the evidence on record in which petitioner interposed no objection to its admission and was subsequently admitted by the Court in Division, show that respondent was able to substantiate its claim through the presentation of Exhibits J to P and R to Z, the Certificates of Creditable Tax Withheld At Source. The documentary Naomi Therese F. Corpuz Page 52

evidence presented were sufficient to establish that respondent was withheld taxes and that there was an excess which remain unutilized and now subject of refund. With respect to the losses incurred by the ATC, it is true that the taxpayer bears the burden to establish the losses, but it is quite clear from the evidence presented that ATC has fulfilled its duty. Moreover, other than the bare assertion that ATC must establish its losses, the CIR fails to point to any circumstance or evidence that would cast doubt on ATCs sworn declaration that it incurred losses in 2000 and 2001. Curiously, in its petition, the CIR further adds that ATC cannot claim a cash refund or tax credit for the unutilized withholding tax for the year 2000 as this would be violative of Section 76 of the Tax Code. This matter, however, was already acted upon in favor of the CIR, when the CTA-First Division only partially granted ATCs petition by disallowing its claim for cash refund or tax credit for the unutilized withholding tax for the year 2000. This reiteration by the CIR of this argument despite the fact that it has already been acted favorably by the tax court below, only shows that the appeal has not been thoroughly studied.

4. G.R. No. 180909. January 19, 2011 Exxonmobil Petroleum and Chemical Holdings, Inc. Vs. Commissioner of Internal Revenue PONENTE: Mendoza, J.
FACTS: Petitioner Exxon is a foreign corporation duly organized and existing under the laws of the State of Delaware, United States of America. It is authorized to do business in the Philippines through its Philippine Branch, with principal at Ortigas Center, Pasig City. Exxon is engaged in the business of selling petroleum products to domestic and international carriers. In pursuit of its business, Exxon purchased from Caltex Philippines, Inc. (Caltex) and Petron Corporation (Petron) Jet A-1 fuel and other petroleum products, the excise taxes on which were paid for and remitted by both Caltex and Petron. Said taxes, however, were passed on to Exxon which ultimately shouldered the excise taxes on the fuel and petroleum products. From November 2001 to June 2002, Exxon sold a total of 28,635,841 liters of Jet A-1 fuel to international carriers, free of excise taxes amounting to Php105,093,536.47. On various dates, it filed administrative claims for refund with the Bureau of Internal Revenue (BIR) amounting to Php105,093,536.47. On October 30, 2003, Exxon filed a petition for review with the CTA claiming a refund or tax credit in the amount of Php105,093,536.47, representing the amount of excise taxes paid on Jet A-1 fuel and other petroleum products it sold to international carriers from November 2001 to June 2002. Exxon Contends - having paid the excise taxes on the petroleum products sold to international carriers, it is a real party in interest consistent with the rules and jurisprudence. It reasons out that the subject of the exemption is neither the seller nor the buyer of the petroleum products, but the products themselves, so long as they are sold to international carriers for use in international flight operations, or to exempt entities covered by tax treaties, conventions and other international agreements for their use or consumption, among other conditions.

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Thus, as the exemption granted under Section 135 attaches to the petroleum products and not to the seller, the exemption will apply regardless of whether the same were sold by its manufacturer or its distributor for two reasons. First, Section 135 does not require that to be exempt from excise tax, the products should be sold by the manufacturer or producer. Second, the legislative intent was precisely to make Section 135 independent from Sections 129 and 130 of the NIRC, stemming from the fact that unlike other products subject to excise tax, petroleum products of this nature have become subject to preferential tax treatment by virtue of either specific international agreements or simply of international reciprocity. CIR contends - Exxon is not the proper party to seek a refund of excise taxes paid on the petroleum products. E xcise taxes are indirect taxes, the liability for payment of which falls on one person, but the burden of payment may be shifted to another. Here, the sellers of the petroleum products or Jet A-1 fuel subject to excise tax are Petron and Caltex, while Exxon was the buyer to whom the burden of paying excise tax was shifted. While the impact or burden of taxation falls on Exxon, as the tax is shifted to it as part of the purchase price, the persons statutorily liable to pay the tax are Petron and Caltex. As Exxon is not the taxpayer primarily liable to pay, and not exempted from paying, excise tax, it is not the proper party to claim for the refund of excise taxes paid. ISSUE: Whether Exxon, as the distributor and vendor of petroleum products to international carriers registered in foreign countries which have existing bilateral agreements with the Philippines, is the proper party to claim a tax refund for the excise taxes paid by the manufacturers, Caltex and Petron, and passed on to it as part of the purchase price. RATIO: 1. The excise tax, when passed on to the purchaser, becomes part of the purchase price. Excise taxes are imposed under Title VI of the NIRC. They apply to specific goods manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition, and to those that are imported. In effect, these taxes are imposed when two conditions concur: first, that the articles subject to tax belong to any of the categories of goods enumerated in Title VI of the NIRC; and second, that said articles are for domestic sale or consumption, excluding those that are actually exported. There are, however, certain exemptions to the coverage of excise taxes, such as petroleum products sold to international carriers and exempt entities or agencies. Section 135 of the NIRC provides: SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. Petroleum products sold to the following are exempt from excise tax: (a) International carriers of Philippine or foreign registry on their use or consumption outside the Philippines: Provided, That the petroleum products sold to these international carriers shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner; (b) Exempt entities or agencies covered by tax treaties, conventions and other international agreements for their use of consumption: Provided, however, That the country of said foreign international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies; and (c) Entities which are by law exempt from direct and indirect taxes. (Underscoring supplied.) Naomi Therese F. Corpuz Page 54

Thus, under Section 135, petroleum products sold to international carriers of foreign registry on their use or consumption outside the Philippines are exempt from excise tax, provided that the petroleum products sold to such international carriers shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner. The confusion here stems from the fact that excise taxes are of the nature of indirect taxes, the liability for payment of which may fall on a person other than he who actually bears the burden of the tax. In Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company, the Court discussed the nature of indirect taxes as follows: [I]ndirect taxes are those that are demanded, in the first instance, from, or are paid by, one person to someone else. Stated elsewise, indirect taxes are taxes wherein the liability for the payment of the tax falls on one person but the burden thereof can be shifted or passed on to another person, such as when the tax is imposed upon goods before reaching the consumer who ultimately pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser, as part of the goods sold or services rendered. Accordingly, the party liable for the tax can shift the burden to another, as part of the purchase price of the goods or services. Although the manufacturer/seller is the one who is statutorily liable for the tax, it is the buyer who actually shoulders or bears the burden of the tax, albeit not in the nature of a tax, but part of the purchase price or the cost of the goods or services sold. As petitioner is not the statutory taxpayer, it is not entitled to claim a refund of excise taxes paid. The question we are faced with now is, if the party statutorily liable for the tax is different from the party who bears the burden of such tax, who is entitled to claim a refund of the tax paid? Sections 129 and 130 of the NIRC provide: SEC. 129. Goods subject to Excise Taxes. - Excise taxes apply to goods manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition and to things imported. The excise tax imposed herein shall be in addition to the value-added tax imposed under Title IV. For purposes of this Title, excise taxes herein imposed and based on weight or volume capacity or any other physical unit of measurement shall be referred to as 'specific tax' and an excise tax herein imposed and based on selling price or other specified value of the good shall be referred to as 'ad valorem tax. SEC. 130. Filing of Return and Payment of Excise Tax on Domestic Products. (A) Persons Liable to File a Return, Filing of Return on Removal and Payment of Tax. (1) Persons Liable to File a Return. - Every person liable to pay excise tax imposed under this Title shall file a separate return for each place of production setting forth, among others the description and quantity or volume of products to be removed, the applicable tax base and the amount of tax due thereon: Provided, however, That in the case of indigenous petroleum, natural gas or liquefied natural Naomi Therese F. Corpuz Page 55

gas, the excise tax shall be paid by the first buyer, purchaser or transferee for local sale, barter or transfer, while the excise tax on exported products shall be paid by the owner, lessee, concessionaire or operator of the mining claim. Should domestic products be removed from the place of production without the payment of the tax, the owner or person having possession thereof shall be liable for the tax due thereon. (2) Time for Filing of Return and Payment of the Tax. - Unless otherwise specifically allowed, the return shall be filed and the excise tax paid by the manufacturer or producer before removal of domestic products from place of production: Provided, That the tax excise on locally manufactured petroleum products and indigenous petroleum/levied under Sections 148 and 151(A)(4), respectively, of this Title shall be paid within ten (10) days from the date of removal of such products for the period from January 1, 1998 to June 30, 1998; within five (5) days from the date of removal of such products for the period from July 1, 1998 to December 31, 1998; and, before removal from the place of production of such products from January 1, 1999 and thereafter: Provided, further, That the excise tax on nonmetallic mineral or mineral products, or quarry resources shall be due and payable upon removal of such products from the locality where mined or extracted, but with respect to the excise tax on locally produced or extracted metallic mineral or mineral products, the person liable shall file a return and pay the tax within fifteen (15) days after the end of the calendar quarter when such products were removed subject to such conditions as may be prescribed by rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner. For this purpose, the taxpayer shall file a bond in an amount which approximates the amount of excise tax due on the removals for the said quarter. The foregoing rules notwithstanding, for imported mineral or mineral products, whether metallic or nonmetallic, the excise tax due thereon shall be paid before their removal from customs custody. xxx (Italics and underscoring supplied.) As early as the 1960s, this Court has ruled that the proper party to question, or to seek a refund of, an indirect tax, is the statutory taxpayer, or the person on whom the tax is imposed by law and who paid the same, even if he shifts the burden thereof to another. In Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue, the Court held that the sales tax is imposed on the manufacturer or producer and not on the purchaser, except probably in a very remote and inconsequential sense. Discussing the passing on of the sales tax to the purchaser, the Court therein cited Justice Oliver Wendell olmes opinion in Lashs Products v. United States wherein he said: The phrase passed the tax on is inaccurate, as obviously the tax is laid and remains on the manufacturer and on him alone. The purchaser does not really pay the tax. He pays or may pay the seller more for the goods because of the sellers obligation, but that is all. x x x The price is the sum total paid for the goods. The amount added because of the tax is paid to get the goods and for nothing else. Therefore it is part of the price x x x. Proceeding from this discussion, the Court went on to state: It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes a part of the price which the purchaser must pay. It does not matter that an additional amount Naomi Therese F. Corpuz Page 56

is billed as tax to the purchaser. x x x The effect is still the same, namely, that the purchaser does not pay the tax. e pays or may pay the seller more for the goods because of the sellers obligation, but that is all and the amount added because of the tax is paid to get the goods and for nothing else. But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of the tax is largely a matter of economics. Then it can no longer be contended that a sales tax is a tax on the purchaser. The above case was cited in the later case of Cebu Portland Cement Company v. Collector (now Commissioner) of Internal Revenue, where the Court ruled that as the sales tax is imposed upon the manufacturer or producer and not on the purchaser, it is petitioner and not its customers, who may ask for a refund of whatever amount it is entitled for the percentage or sales taxes it paid before the amendment of section 246 of the Tax Code. The Philippine Acetylene case was also cited in the first Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue case, where the Court held that the proper party to question, or to seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. In the Silkair cases, petitioner Silkair (Singapore) Pte, Ltd. (Silkair), filed with the BIR a written application for the refund of excise taxes it claimed to have paid on its purchase of jet fuel from Petron. As the BIR did not act on the application, Silkair filed a Petition for Review before the CTA. In both cases, the CIR argued that the excise tax on petroleum products is the direct liability of the manufacturer/producer, and when added to the cost of the goods sold to the buyer, it is no longer a tax but part of the price which the buyer has to pay to obtain the article. In the first Silkair case, the Court ruled: The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. Section 130 (A) (2) of the NIRC provides that "[u]nless otherwise specifically allowed, the return shall be filed and the excise tax paid by the manufacturer or producer before removal of domestic products from place of production." Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore. Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser. (Emphasis and underscoring supplied.) Citing the above case, the second Silkair case was promulgated a few months after the first, and stated: The issue presented is not novel. In a similar case involving the same parties, this Court has categorically ruled that "the proper party to question, or seek a refund of an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another." The Court added that "even if Petron Corporation passed on to Silkair the Naomi Therese F. Corpuz Page 57

burden of the tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser."

5. G.R. No. 159471. January 26, 2011 Atlas Consolidated Mining and Development Corporation Vs. Commissioner of Internal Revenue
PONENTE: Peralta J. FACTS: Atlas Consolidated is a zero-rated VAT person for being an exporter of copper concentrates. On January 1994, Atlas filed its VAT return for the fourth quarter of 1993, showing a total input tax and an excess VAT credit. Then, on January 1996, Atlas filed for a tax refund or tax credit certificate with CIR. owever, the CTA denied Atlas claim for refund due to Atlas failure to comply with the documentary requirements prescribed under Sec. 16 of RR No. 5-87, as amended by RR No. 3-88. CTA denied Atlas MR stating that Atlas has failed to substantiate its claim that it has not applied its alleged excess in put taxes to any of its subsequent quarters output tax liability. The CA affirmed CTAs ruling. ISSUE/S: What are the documents required to claim for VAT input refund? Whether or not Atlas is entitled to claim to a tax refund. RATIO: When claiming tax refund/credit, the VAT-registered taxpayer must be able to establish that it does not have refundable or creditable input VAT, and the same has not been applied against its output VAT liabilities information which are supposed to be reflected in the taxpayers VAT returns. Thus, an application for tax refund/credit must be accompanied by copies of the taxpayers VAT return/s for the taxable quarter/s concerned. The formal offer of evidence of Atlas failed to include photocopy of its export documents, as required. Without the export documents, the purchase invoice/receipts submitted by Atlas as proof of its input taxes cannot be verified as being directly attributable to the goods so exported. Atlas claim for credit or refund of input taxes cannot be granted due to its failure to show convincingly that the same has not been applied to any of its output tax liability as provided under Sec. 106(a) of the Tax Code. When claiming tax refund or credit, the value-added taxpayer must be able to establish that it does have refundable or creditable input value-added tax (VAT), and the same has not been applied against its output VAT liabilities- information which are supposed to be reflected in the taxpayers VAT returns. Thus, an application for tax refund or credit must be accompanied by copies of the taxpayers VAT return or returns for taxable quarter or quarters concerned.

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In the recent case of Mirant Pagbilao Corporation vs. CIR (G.R. No. 172129, September 12, 2008) , the Supreme Court had ruled that the claim for refund of unutilized input VAT payments must be filedwithin two (2) years from the close of the taxable quarter when the relevant sales were made. Said ruling, however, should not be made to apply to the present case but should be applied prospectively pursuant to and consistent with the numerous rulings of the Supreme Court, given that petitioner Kepco's claim involves unutilized input taxes for the 3rd quarter of 2000. Hence, the prescriptive period applicable in the instant case would still be the period enunciated in the case of Atlas Consolidated Mining and Development Corporation vs. CIR (G.R. Nos. 141104 & 148763, June 8, 2007), where it was held that the counting of the two-year prescriptive period is reckoned from the filing of the quarterly VAT returns. Kepco Ilijan Corporation v. Commissioner of Internal Revenue, C.T.A. E.B. Case No. 528 (C.T.A. Case No. 6550), October 14, 2011.

6. G.R. No. 179961. January 31, 2011 Kepco Philippines Corporation Vs. Commissioner Of Internal Revenue
PONENTE: Mendoza, J. FACTS: Petitioner Kepco Philippines Corporation (Kepco) is a domestic corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines. It is a value-added tax (VAT) registered taxpayer engaged in the production and sale of electricity as an independent power producer. It sells its electricity to the National Power Corporation (NPC). Kepco filed with respondent Commissioner of Internal Revenue (CIR) an application for effective zero-rating of its sales of electricity to the NPC. Kepco alleged that for the taxable year 1999, it incurred input VAT in the amount of P10,527,202.54 on its domestic purchases of goods and services that were used in its production and sale of electricity to NPC for the same period. Kepco filed an administrative claim for refund corresponding to its reported unutilized input VAT for the four quarters of 1999 in the amount of P10,527,202.54. ThereafterKepco filed a petition for review before the CTA (2nd Division) pursuant to Section 112(A) of the 1997 National Internal Revenue Code (NIRC), which grants refund of unutilized input taxes attributable to zero-rated or effectively zero-rated sales. CTA (Second Division) denied Kepcos claim for refund for failure to properly substantiate its effectively zero-rated sales for the taxable year 1999 in the total amount of P860,340,488.96, with the alleged input VAT of P10,527,202.54 directly attributable thereto. The tax court held that Kepco failed to comply with the invoicing requirements in clear violation of Section 4.108-1 of Revenue Regulations (R.R.) No. 7-95, implementing Section 108(B)(3) in conjunction with Section 113 of the 1997 NIRC. CTA En Banc - dismissed Kepcos petition, reasoning out that Kepcos failure to comply with the requirement of imprinting the words zero-rated on its official receipts resulted in non-entitlement to the benefit of VAT zero-rating and denial of its claim for refund of input tax.

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Kepcos contention - the provisions of the 1997 Tax Code, specifically Section 113 in relation to Section 237, do not mention the mandatory requirement of imprinting the words zero-rated to purchases covering zero-rated transactions. The only provision which requires the imprinting of the word zerorated on VAT invoice or official receipt is Section 4.108-1 of R.R. No. 7-95. The condition imposed by the said administrative issuance should not be controlling over Section 113 of the 1997 Tax Code, considering the long-settled rule that administrative rules and regulations cannot expand the letter and spirit of the law they seek to enforce.

CIRs contention - Kepco is not entitled to a tax refund because it was not able to substantiate the amount of P10,514,023.92 representing zero-rated transactions for failure to submit VAT official receipts and invoices imprinted with the wordings zero-rated in violation of Section 4.108-1 of R.R. 795. ISSUE: Whether Kepcos failure to imprint the words zero-rated on its official receipts issued to NPC justifies an outright denial of its claim for refund of unutilized input tax credits. RATIO: 1. The pertinent laws governing the present case is Section 108(B)(3) of the NIRC of 1997 in relation to Section 13 of Republic Act (R.A.) No. 6395 (The Revised NPC Charter), as amended by Presidential Decree (P.D.) Nos. 380 and 938, which provide as follows: Sec. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. (A) Rate and Base of Tax. x x x (B) Transactions Subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: xxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate; xxx Sec. 13. Non-profit Character of the Corporation; Exemption from All Taxes, Duties, Fees, Imposts and Other Charges by the Government and Government Instrumentalities. The Corporation shall be non-profit and shall devote all its return from its capital investment as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section One of this Act, the Corporation, including its subsidiaries, is hereby declared exempt from the payment of all forms of taxes, duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings. Based on the afore-quoted provisions, there is no doubt that NPC is an entity with a special charter and exempt from payment of all forms of taxes, including VAT. As such, services rendered by any VAT-registered person/entity, like Kepco, to NPC are effectively subject to zero percent (0%) rate. For the effective zero rating of such services, however, the VAT-registered taxpayer must comply with invoicing requirements under Sections 113 and 237 of the 1997 NIRC as implemented by Section 4.108-1 of R.R. No. 7-95, thus: Naomi Therese F. Corpuz Page 60

Sec. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. (A) Invoicing Requirements. A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to the information required under Section 237, the following information shall be indicated in the invoice or receipt: (1) A statement that the seller is a VAT-registered person, followed by his taxpayers identification number; and (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax. (B) Accounting Requirements. Notwithstanding the provisions of Section 233, all persons subject to the value-added tax under Sections 106 and 108 shall, in addition to the regular accounting records required, maintain a subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded. The subsidiary journals shall contain such information as may be required by the Secretary of Finance. (Emphasis supplied) Sec. 237. Issuance of Receipts or Sales or Commercial Invoices. All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service: Provided, however, That in the case of sales, receipts or transfers in the amount of One Hundred Pesos (P100.00) or more, or regardless of amount, where the sale or transfer is made by a person liable to value-added tax to another person also liable to value-added tax; or where the receipt is issued to cover payment made as rentals, commissions, compensations or fees, receipts or invoices shall be issued which shall show the name, business style, if any, and address of the purchaser, customer or client; Provided, further, That where the purchaser is a VAT-registered person, in addition to the information herein required, the invoice or receipt shall further show the Taxpayer Identification Number (TIN) of the purchaser. The original of each receipt or invoice shall be issued to the purchaser, customer or client at the time the transaction is effected, who, if engaged in business or in the exercise of profession, shall keep and preserve the same in his place of business for a period of three (3) years from the close of the taxable year in which such invoice or receipt was issued, while the duplicate shall be kept and preserved by the issuer, also in his place of business, for a like period. The Commissioner may, in meritorious cases, exempt any person subject to an internal revenue tax from compliance with the provisions of this Section. Section 4.108-1. Invoicing Requirements. All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: 1. The name, TIN and address of seller; 2. Date of transaction; 3. Quantity, unit cost and description of merchandise or nature of service; 4. The name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client; 5. The word "zero-rated" imprinted on the invoice covering zero-rated sales; Naomi Therese F. Corpuz Page 61

6. The invoice value or consideration. In the case of sale of real property subject to VAT and where the zonal or market value is higher than the actual consideration, the VAT shall be separately indicated in the invoice or receipt. Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoices or receipts and this shall be considered as "VAT Invoice." All purchases covered by invoices other than "VAT Invoice" shall not give rise to any input tax. If the taxable person is also engaged in exempt operations, he should issue separate invoices or receipts for the taxable and exempt operations. A "VAT Invoice" shall be issued only for sales of goods, properties or services subject to VAT imposed in Sections 100 and 102 of the code. The invoice or receipt shall be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records. (Emphases supplied) 2. Also, in Kepcos approved Application/Certificate for Zero Rate issued by the CIR on January 19, 1999, the imprinting requirement was likewise specified, viz: Valid only for sale of services from Jan. 19, 1999 up to December 31, 1999 unless sooner revoked. Note: Zero-Rated Sales must be indicated in the invoice/receipt. Indeed, it is the duty of Kepco to comply with the requirements, including the imprinting of the words zero-rated in its VAT official receipts and invoices in order for its sales of electricity to NPC to qualify for zero-rating. It must be emphasized that the requirement of imprinting the word zero-rated on the invoices or receipts under Section 4.108-1 of R.R. No. 7-95 is mandatory as ruled by the CTA En Banc, citing Tropitek International, Inc. v. Commissioner of Internal Revenue. In Kepco Philippines Corporation v. Commissioner of Internal Revenue, the CTA En Banc explained the rationale behind such requirement in this wise: The imprinting of zero-rated is necessary to distinguish sales subject to 10% VAT, those that are subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal Revenue to properly implement and enforce the other provisions of the 1997 NIRC on VAT, namely: 1. Zero-rated sales [Sec. 106(A)(2) and Sec. 108(B)]; 2. Exempt transactions [Sec. 109] in relation to Sec. 112(A); 3. Tax Credits [Sec. 110]; and 4. Refunds or tax credits of input tax [Sec. 112] xxx Records disclose, as correctly found by the CTA that Kepco failed to substantiate the claimed zero-rated sales of P10,514,023.92. The wordings zero-rated sales were not imprinted on the VAT official receipts presented by Kepco (marked as Exhibits S to S-11) for taxable year 1999, in clear Naomi Therese F. Corpuz Page 62

violation of Section 4.108-1 of R.R. No. 7-95 and the condition imposed under its approved Application/Certificate for Zero-rate as well. Kepcos claim that Section 4.108-1 of R.R. 7-95 expanded the letter and spirit of Section 113 of 1997 Tax Code, is unavailing. Indubitably, said revenue regulation is merely a precautionary measure to ensure the effective implementation of the Tax Code. It was not used by the CTA to expound the meaning of Sections 113 and 237 of the NIRC. As a matter of fact, the provision of Section 4.108-1 of R.R. 7-95 was incorporated in Section 113 (B)(2)(c) of R.A. No. 9337, which states that if the sale is subject to zero percent (0%) value-added tax, the term zero-rated sale shall be written or printed prominently on the invoice or receipt. This, in effect, and as correctly concluded by the CIR, confirms the validity of the imprinting requirement on VAT invoices or official receipts even prior to the enactment of R.A. No. 9337 under the principle of legislative approval of administrative interpretation by reenactment. Quite significant is the ruling handed down in the case of Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue, to wit: Section 4.108-1 of RR 7-95 proceeds from the rule-making authority granted to the Secretary of Finance under Section 245 of the 1977 NIRC (Presidential Decree 1158) for the efficient enforcement of the tax code and of course its amendments. The requirement is reasonable and is in accord with the efficient collection of VAT from the covered sales of goods and services. As aptly explained by the CTAs First Division, the appearance of the word "zero-rated" on the face of invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from their purchases when no VAT was actually paid. If, absent such word, a successful claim for input VAT is made, the government would be refunding money it did not collect. Further, the printing of the word "zero-rated" on the invoice helps segregate sales that are subject to 10% (now 12%) VAT from those sales that are zero-rated. Unable to submit the proper invoices, petitioner Panasonic has been unable to substantiate its claim for refund. To bolster its claim for tax refund or credit, Kepco cites the case of Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue. Kepcos reliance on the said case is misplaced because the factual milieu there is quite different from that of the case at bench. In the Intel case, the claim for tax refund or issuance of a tax credit certificate was denied due to the taxpayers failure to reflect or indicate in the sales invoices the BIR authority to print. The Court held that the BIR authority to print was not one of the items required by law or BIR regulation to be indicated or reflected in the invoices or receipts, hence, the BIR erred in denying the claim for refund. In the present case, however, the principal ground for the denial was the absence of the word zero-rated on the invoices, in clear violation of the invoicing requirements under Section 108(B)(3) of the 1997 NIRC, in conjunction with Section 4.108-1 of R.R. No. 7-95. Regarding Kepcos contention, that non-compliance with the requirement of invoicing would only subject the non-complying taxpayer to penalties of fine and imprisonment under Section 264 of the Tax Code, and not to the outright denial of the claim for tax refund or credit, must likewise fail. Section 264 categorically provides for penalties in case of Failure or Refusal to Issue Receipts or Sales or Commercial Invoices, Violations related to the Printing of such Receipts or Invoices and Other Violations, but not to penalties for failure to comply with the requirement of invoicing. As recently held in Kepco Philippines Corporation v. Commissioner of Internal Revenue, Section 264 of the 1997 Naomi Therese F. Corpuz Page 63

NIRC was not intended to excuse the compliance of the substantive invoicing requirement needed to justify a claim for refund on input VAT payments. Thus, for Kepcos failure to substantiate its effectively zero-rated sales for the taxable year 1999, the claimed P10,527,202.54 input VAT cannot be refunded. Indeed, in a string of recent decisions on this matter, to wit: Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue, J.R.A. Philippines, Inc. v. Commissioner of Internal Revenue, Hitachi Global Storage Technologies PhilippinesCorp. (formerly Hitachi Computer Products (Asia) Corporations) v. Commissioner of Internal Revenue, and Kepco Philippines Corporation v. Commissioner of Internal Revenue, this Court has consistently held that failure to print the word zero-rated on the invoices or receipts is fatal to a claim for refund or credit of input VAT on zero-rated sales.

7. G.R. No. 169103. March 16, 2011 Commissioner of Internal Revenue Vs. Manila Bankers' Life Insurance Corporation
PONENTE: Leonardo-De Castro, J. FACTS: Respondent Manila Bankers Life Insurance Corporation (Manila) is a duly organized domestic corporation primarily engaged in the life insurance business. On May 28, 1999, petitioner Commissioner of Internal Revenue (CIR) issued Letter of Authority authorizing a special team of Revenue Officers to examine the books of accounts and other accounting records of respondent for taxable year "1997 & unverified prior years." On December 14, 1999, based on the findings of the Revenue Officers, CIR issued a Preliminary Assessment Notice against the Manila for its deficiency internal revenue taxes for the year 1997. Manila agreed to all the assessments issued against it except to the amount of P2,351,680.90 representing deficiency documentary stamp taxes on its policy premiums and penalties. Thus, on January 4, 2000, the CIR issued against Manila a Formal Letter of Demand with the corresponding Assessment Notices attached, one of which was Assessment Notice pertaining to the documentary stamp taxes due on Manilas policy premiums: Documentary Stamp Tax on Policy Premiums Assessment No. ST-DST2-97-0054-2000 Tax Due Less: Tax Paid Tax Deficiency 3,954,955.00 2,308,505.74 1,646,449.26

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Add: 20% Int./a

680,231.64

Recommended Compromise Penalty-Late Payment _____ 25,000.00 Total Amount Due 2,351,680.90

The tax deficiency was computed by including the increases in the life insurance coverage or the sum assured by some of respondents life insurance plans: ISSUED ORDINARY GROUP TOTAL GRAND TOTAL/TAX BASE TAX RATE TAX DUE LESS: TAX PAID DEFICIENCY DST - BASIC - 20% INTEREST - SURCHARGE TOTAL ASSESSMENT INCREASED

P648,127,000.00 P 74,755,000.00 114,936,000.00 744,164,000.00

P763,063,000.00 P 818,919,000.00 P1,581,982,000.00 P0.50/200.00 P 3,954,955.00 P 2,308,505.74 P 1,646,499.26 680,231.64 25,000.00 P 2,351,680.90

The amount of P818,919,000.00 comprises the increases in the sum assured for the respondents ordinary insurance the "Money Plus Plan" (P74,755,000.00), and group insurance (P744,164,000.00). On February 3, 2000, Manila filed its Letter of Protest with the BIR contesting the assessment for deficiency documentary stamp tax on its insurance policy premiums. CTA Manila filed a petition for review with the CTA, and the CTA granted the petition CA affirms the CTA decision.

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CIR files an MFR it cited this Courts March 19, 2002 Decision in Commissioner of Internal Revenue v. Lincoln Philippine Life Insurance Company, Inc. It argued that in Lincoln, this Court reversed both the CTA and the CA and sustained the validity of the deficiency documentary stamp tax imposed on the increase in the sum insured even though no new policy was issued because the increase, by reason of the "Automatic Increase Clause," was already definite at the time the policy was issued. CA - sustained its ruling, and stated that the Lincoln Case was not applicable because the increase in the sum assured in Lincolns insurance policy was definite and determinable at the time such policy was issued as the automatic increase clause, which allowed for the increase, formed an integral part of the policy; whereas in the respondents case, "the tax base of the disputed deficiency assessment was not [a] definite or determinable increase in the sum assured." ISSUE: Whether or not the CTA and CAs decision must be reversed based on the High Courts decision in CIR v. Lincoln (2002).

RATIO: Yes. Documentary Stamp Tax on the "Money Plus Plan". Prior to 1984, Lincoln Philippine Life Insurance Company, Inc. (Lincoln) had been issuing its "Junior Estate Builder Policy," a special kind of life insurance policy because of a clause which provided for an automatic increase in the amount of life insurance coverage upon attainment of a certain age by the insured without the need of a new policy. As Lincoln paid documentary stamp taxes only on the initial sum assured, the CIR issued a deficiency documentary stamp tax assessment for the year 1984, the year the clause took effect. Both the CTA and the CA found no basis for the deficiency assessment. As discussed above, however, this Court reversed both lower courts and sustained the CIRs assessment. This Court ruled that the increase in the sum assured brought about by the "automatic increase" clause incorporated in Lincolns Junior Estate Builder Policy was still subject to documentary stamp tax, notwithstanding that no new policy was issued, because the date of the effectivity of the increase, as well as its amount, were already definite and determinable at the time the policy was issued. As such, the tax base under Section 183, which is "the amount fixed in the policy," is "the figure written on its face and whatever increases will take effect in the future by reason of the automatic increase clause." This Court added that the automatic increase clause was "in the nature of a conditional obligation under Article 1181, by which the increase of the insurance coverage shall depend upon the happening of the event which constitutes the obligation." Since the Lincoln case, wherein the then CIRs arguments for the BIR are very similar to the petitioners arguments herein, was decided in favor of the BIR, the petitioner is now relying on our ruling therein to support his position in this case. Although the two cases are similar in many ways, they must be distinguished by the nature of the respective "clauses" in the life insurance policies involved, where we note a major difference. In Lincoln, the relevant clause is the "Automatic Increase Clause" which provided for the automatic increase in the amount of life insurance coverage upon the attainment of a certain age by the insured, without any need for another contract. In the case at bar, the clause in contention is the "Guaranteed Continuity Clause" in Manilas Money Plus Plan, which reads: GUARANTEED CONTINUITY

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We guarantee the continuity of this Policy until the Expiry Date stated in the Schedule provided that the effective premium is consecutively paid when due or within the 31-day Grace Period. We shall not have the right to change premiums on your Policy during the 20-year Policy term. At the end of each twenty-year period, and provided that you have not attained age 55, you may renew your Policy for a further twenty-year period. To renew, you must submit proof of insurability acceptable to MBLIC and pay the premium due based on attained age according to the rates prevailing at the time of renewal.43 A simple reading of Manilas guaranteed continuity clause will show that it is significantly different from the "automatic increase clause" in Lincoln. The only things guaranteed in the Manilas continuity clause were: the continuity of the policy until the stated expiry date as long as the premiums were paid within the allowed time; the non-change in premiums for the duration of the 20-year policy term; and the option to continue such policy after the 20-year period, subject to certain requirements. In fact, even the continuity of the policy after its term was not guaranteed as the decision to renew it belonged to the insured, subject to certain conditions. Any increase in the sum assured, as a result of the clause, had to survive a new agreement between the respondent and the insured. The increase in the life insurance coverage was only corollary to the new premium rate imposed based upon the insureds age at the time the continuity clause was availed of. It was not automatic, was never guaranteed, and was certainly neither definite nor determinable at the time the policy was issued. Therefore, the increases in the sum assured brought about by the guaranteed continuity clause cannot be subject to documentary stamp tax under Section 183 as insurance made upon the lives of the insured. However, it is clear from the text of the guaranteed continuity clause that what the respondent was actually offering in its Money Plus Plan was the option to renew the policy, after the expiration of its original term. Consequently, the acceptance of this offer would give rise to the renewal of the original policy. The CIR avers that these life insurance policy renewals make the Manila liable for deficiency documentary stamp tax under Section 198. Section 198 of the old Tax Code reads: Section 198. Stamp Tax on Assignments and Renewals of Certain Instruments. Upon each and every assignment or transfer of any mortgage, lease or policy of insurance, or the renewal or continuance of any agreement, contract, charter, or any evidence of obligation or indebtedness by altering or otherwise, there shall be levied, collected and paid a documentary stamp tax, at the same rate as that imposed on the original instrument.

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Section 198 speaks of assignments and renewals. In the case of insurance policies, this section applies only when such policy was assigned or transferred. The provision which specifically applies to renewals of life insurance policies is Section 183: Section 183. Stamp Tax on Life Insurance Policies. On all policies of insurance or other instruments by whatever name the same may be called, whereby any insurance shall be made or renewed upon any life or lives, there shall be collected a documentary stamp tax of fifty centavos on each two hundred pesos or fractional part thereof, of the amount insured by any such policy. (Emphasis ours.) Section 183 is a substantial reproduction of the earlier documentary stamp tax provision, Section 1449(j) of the Administrative Code of 1917. Regulations No. 26, or The Revised Documentary Stamp Tax Regulations, provided the implementing rules to the provisions on documentary stamp tax under the Administrative Code of 1917. Section 54 of the Regulations, in reference to what is now Section 183, explicitly stated that the documentary stamp tax imposed under that section is also collectible upon renewals of life insurance policies, viz: Section 54. Tax also due on renewals. The tax under this section is collectible not only on the original policy or contract of insurance but also upon the renewal of the policy or contract of insurance. To argue that there was no new legal relationship created by the availment of the guaranteed continuity clause would mean that any option to renew, integrated in the original agreement or contract, would not in reality be a renewal but only a discharge of a pre-existing obligation. The truth of the matter is that the guaranteed continuity clause only gave the insured the right to renew his life insurance policy which had a fixed term of twenty years. And although the policy would still continue with essentially the same terms and conditions, the fact is, its maturity date, coverage, and premium rate would have changed. We cannot agree with the CTA in its holding that "the renewal, is in effect treated as an increase in the sum assured since no new insurance policy was issued." The renewal was not meant to restore the original terms of an old agreement, but instead it was meant to extend the life of an existing agreement, with some of the contracts terms modified. This renewal was still subject to the acceptance and to the conditions of both the insured and the respondent. This is entirely different from a simple mutual agreement between the insurer and the insured, to increase the coverage of an existing and effective life insurance policy. It is clear that the availment of the option in the guaranteed continuity clause will effectively renew the Money Plus Plan policy, which is indisputably subject to the imposition of documentary stamp tax under Section 183 as an insurance renewed upon the life of the insured. ISSUE: Whether or not the High Court must sustain CIRs deficiency documentary tax assessment on the additional premiums earned by Manila in its group life insurance.

RATIO: Yes. Documentary Stamp Tax on Group Life Insurance. This Court, in Pineda v. Court of Appeals (1993) has had the chance to discuss the concept of "group insurance," to wit:

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In its original and most common form, group insurance provides life or health insurance coverage for the employees of one employer. The coverage terms for group insurance are usually stated in a master agreement or policy that is issued by the insurer to a representative of the group or to an administrator of the insurance program, such as an employer. The employer acts as a functionary in the collection and payment of premiums and in performing related duties. Likewise falling within the ambit of administration of a group policy is the disbursement of insurance payments by the employer to the employees. Most policies, such as the one in this case, require an employee to pay a portion of the premium, which the employer deducts from wages while the remainder is paid by the employer. This is known as a contributory plan as compared to a non-contributory plan where the premiums are solely paid by the employer. Although the employer may be the titular or named insured, the insurance is actually related to the life and health of the employee. Indeed, the employee is in the position of a real party to the master policy, and even in a non-contributory plan, the payment by the employer of the entire premium is a part of the total compensation paid for the services of the employee. Put differently, the labor of the employees is the true source of the benefits, which are a form of additional compensation to them. When a group insurance plan is taken out, a group master policy is issued with the coverage and premium rate based on the number of the members covered at that time. In the case of a company group insurance plan, the premiums paid on the issuance of the master policy cover only those employees enrolled at the time such master policy was issued. When the employer hires additional employees during the life of the policy, the additional employees may be covered by the same group insurance already taken out without any need for the issuance of a new policy. Manilaclaims that since the additional premiums represented the additional members of the same existing group insurance policy, then under our tax laws, no additional documentary stamp tax should be imposed since the appropriate documentary stamp tax had already been paid upon the issuance of the master policy. Manila asserts that since the documentary stamp tax, by its nature, is paid at the time of the issuance of the policy, "then there can be no other imposition on the same, regardless of any change in the number of employees covered by the existing group insurance." To resolve this issue, it would be instructive to take another look at Section 183: On all policies of insurance or other instruments by whatever name the same may be called, whereby any insurance shall be made or renewed upon any life or lives. The phrase "other instruments" as also found in the earlier version of Section 183, i.e., Section 1449(j) of the Administrative Code of 1917, was explained in Regulations No. 26, to wit: Section 52. "Other instruments" defined. The term "other instruments" includes any instrument by whatever name the same is called whereby insurance is made or renewed, i.e., by which the relationship of insurer and insured is created or evidenced, whether it be a letter of acceptance, cablegrams, letters, binders, covering notes, or memoranda. (Emphasis ours.) Whenever a master policy admits of another member, another life is insured and covered. This means that the respondent, by approving the addition of another member to its existing master policy, is once more exercising its privilege to conduct the business of insurance, because it is yet again insuring a life. Naomi Therese F. Corpuz Page 69

It does not matter that it did not issue another policy to effect this change, the fact remains that insurance on another life is made and the relationship of insurer and insured is created between the respondent and the additional member of that master policy. In the respondents case, its group insurance plan is embodied in a contract which includes not only the master policy, but all documents subsequently attached to the master policy.Among these documents are the Enrollment Cards accomplished by the employees when they applied for membership in the group insurance plan. The Enrollment Card of a new employee, once registered in the Schedule of Benefits and attached to the master policy, becomes evidence of such employees membership in the group insurance plan, and his right to receive the benefits therein. Everytime the respondent registers and attaches an Enrollment Card to an existing master policy, it exercises its privilege to conduct its business of insurance and this is patently subject to documentary stamp tax as insurance made upon a life under Section 183. Manila would like this Court to ignore the CIRs argument that renewals of insurance policies are also subject to documentary stamp tax for being raised for the first time. This Court was faced with the same dilemma in Commissioner of Internal Revenue v. Procter & Gamble Philippine Manufacturing Corporation (1988) when the CIR also raised an issue therein for the first time in the Supreme Court. In addressing the procedural lapse, we said: As clearly ruled by Us "To allow a litigant to assume a different posture when he comes before the court and challenges the position he had accepted at the administrative level," would be to sanction a procedure whereby the Court - which is supposed to review administrative determinations - would not review, but determine and decide for the first time, a question not raised at the administrative forum. Thus it is well settled that under the same underlying principle of prior exhaustion of administrative remedies, on the judicial level, issues not raised in the lower court cannot generally be raised for the first time on appeal. x x x. However, in the same case, we also held that: Nonetheless it is axiomatic that the State can never be in estoppel, and this is particularly true in matters involving taxation. The errors of certain administrative officers should never be allowed to jeopardize the government's financial position.(Emphasis ours.) Along with police power and eminent domain, taxation is one of the three basic and necessary attributes of sovereignty. Taxes are the lifeblood of the government and their prompt and certain availability is an imperious need. It is through taxes that government agencies are able to operate and with which the State executes its functions for the welfare of its constituents. It is for this reason that we cannot let the petitioners oversight bar the governments rightful claim. This Court would like to make it clear that the assessment for deficiency documentary stamp tax is being upheld not because the additional premium payments or an agreement to change the sum assured during the effectivity of an insurance plan are subject to documentary stamp tax, but because documentary stamp tax is levied on every document which establishes that insurance was made or renewed upon a life.

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8. G.R. No. 187425. March 28, 2011 Commissioner of Customs Vs. Agfha Incorporated
PONENTE: Mendoza, J. FACTS: On December 12, 1993, a shipment containing bales of textile grey cloth arrived at the Manila International Container Port (MICP). The Commissioner of Customs (CoC), however, held the subject shipment because its owner/consignee was allegedly fictitious. AGFHA intervened and alleged that it was the owner and actual consignee of the subject shipment. On September 5, 1994, after seizure and forfeiture proceedings took place, the District Collector of Customs, MICP, rendered a decision ordering the forfeiture of the subject shipment in favor of the government. AGFHA filed an appeal but CoC dismissed such appeal. CTA (2nd Division) - reversed the CoCs decision and ordered the immediate release of the subject shipment to AGFHA. CA - denied due course to the COCs appeal for lack of merit in a decision and affirmed CTAs decision. COC elevated the CA decision with the SC through petition but was dismissed. Thereadter the SC issued the Entry of Judgement declaring its aforesaid decision final and executory. In view thereof, the CTA (2nd Division) issued the Writ of Execution, directing the CoC and his authorized subordinate or representative to effect the immediate release of the subject shipment. It further ordered the sheriff to see to it that the writ would be carried out by the CoC and to make a report thereon within thirty (30) days after receipt of the writ. The writ, however, was returned unsatisfied. Later, the CTA ordered the CoC to show cause within fifteen (15) days from receipt of said resolution why he should not be disciplinary dealt with for his failure to comply with the writ of execution. Then the COCs counsel filed a Manifestation and Motion, , attaching therewith a copy of an Explanation (With Motion for Clarification) stating, inter alia, that despite diligent efforts to obtain the necessary information and considering the length of time that had elapsed since the subject shipment arrived at the Bureau of Customs, the Chief of the Auction and Cargo Disposal Division of the MICP could not determine the status, whereabouts and disposition of said shipment. CTA-Second Division adjudged the CoC liable to AGFHA for the value of the subject shipment in the amount of US$160,348.0). The Bureau of Customs liability may be paid in Philippine Currency, computed at the exchange rate prevailing at the time of actual payment, with legal interests thereon at the rate of 6% per annum computed from February 1993 up to the finality of this Resolution. In lieu of the 6% interest, the rate of legal interest shall be 12% per annum upon finality of this Resolution until the value of the subject shipment is fully paid.

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CoC filed his Motion for Partial Reconsideration arguing -- that (a) the enforcement and satisfaction of respondents money claim must be pursued and filed with the Commission on Audit pursuant to Presidential Decree (P.D.) No. 1445; (b) respondent is entitled to recover only the value of the lost shipment based on its acquisition cost at the time of importation; and (c) taxes and duties on the subject shipment must be deducted from the amount recoverable by Agfha. On the same day, the CoC received AGF As Motion for Partial Reconsideration claiming that the 12% interest rate should be computed from the time its shipment was lost on June 15, 1999 considering that from such date, COCs obligation to release their shipment was converted into a payment for a sum of money. Then the CTA (2nd Division) promulgated a resolution where COCs "Motion for Partial Reconsideration" is partially granted. It also modified its previous resolution which is now making the the Bureau of Customs is adjudged liable to petitioner Agfha. for the value of the subject shipment in the amount of US$160,348.08, subject however, to the payment of the prescribed taxes and duties, at the time of the importation. The Bureau of Customs liability may be paid in Philippine Currency, computed at the exchange rate prevailing at the time of actual payment, with legal interests thereon at the rate of 6% per annum computed from February 1993 up to the finality of this Resolution. In lieu of the 6% interest, the rate of legal interest shall be 12% per annum upon finality of this Resolution until the value of the subject shipment is fully paid. CTA En Banc affirms in toto. ISSUE: Whether or not the CTA was correct in awarding Agfha the amount of US$160,348.08, as payment for the value of the subject lost shipment that was in the custody of CoC. RATIO: Yes. The Court agrees with the ruling of the CTA that AGFHA is entitled to recover the value of its lost shipment based on the acquisition cost at the time of payment. In the case of C.F. Sharp and Co., Inc. v. Northwest Airlines, Inc. the Court ruled that the rate of exchange for the conversion in the peso equivalent should be the prevailing rate at the time of payment: In ruling that the applicable conversion rate of petitioner's liability is the rate at the time of payment, the Court of Appeals cited the case of Zagala v. Jimenez, interpreting the provisions of Republic Act No. 529, as amended by R.A. No. 4100. Under this law, stipulations on the satisfaction of obligations in foreign currency are void. Payments of monetary obligations, subject to certain exceptions, shall be discharged in the currency which is the legal tender in the Philippines. But since R.A. No. 529 does not provide for the rate of exchange for the payment of foreign currency obligations incurred after its enactment, the Court held in a number of cases that the rate of exchange for the conversion in the peso equivalent should be the prevailing rate at the time of payment. [Emphases supplied] Likewise, in the case of Republic of the Philippines represented by the Commissioner of Customs v. UNIMEX Micro-Electronics GmBH (2007) which involved the seizure and detention of a shipment of computer game items which disappeared while in the custody of the Bureau of Customs, the Court upheld the decision of the CA holding that petitioners liability may be paid in Philippine currency, computed at the exchange rate prevailing at the time of actual payment.

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ISSUE: Whether or not money judgment or any charge against the government requires a corresponding appropriation and cannot be decreed by mere judicial order. RATIO. No. Although it may be gainsaid that the satisfaction of Agfhas demand will ultimately fall on the government, and that, under the political doctrine of "state immunity," it cannot be held liable for governmental acts (jus imperii), we still hold that CoC cannot escape its liability. The circumstances of this case warrant its exclusion from the purview of the state immunity doctrine. As previously discussed, the Court cannot turn a blind eye to BOC's ineptitude and gross negligence in the safekeeping of respondent's goods. We are not likewise unaware of its lackadaisical attitude in failing to provide a cogent explanation on the goods' disappearance, considering that they were in its custody and that they were in fact the subject of litigation. The situation does not allow us to reject Agfhas claim on the mere invocation of the doctrine of state immunity. Succinctly, the doctrine must be fairly observed and the State should not avail itself of this prerogative to take undue advantage of parties that may have legitimate claims against it. In Department of Health v. C.V. Canchela & Associates, we enunciated that this Court, as the staunch guardian of the people's rights and welfare, cannot sanction an injustice so patent in its face, and allow itself to be an instrument in the perpetration thereof. Over time, courts have recognized with almost pedantic adherence that what is inconvenient and contrary to reason is not allowed in law. Justice and equity now demand that the State's cloak of invincibility against suit and liability be shredded.1awphi1 Accordingly, we agree with the lower courts' directive that, upon payment of the necessary customs duties by Agfha, CoCs "payment shall be taken from the sale or sales of goods or properties seized or forfeited by the Bureau of Customs."

9. G.R. No. 160949. April 4, 2011 Commissioner of Internal Revenue Vs. PL Management International Phil., Inc.
PONENTE: Bersamin, J. FACTS: In 1997, PL Management International Phil, Inc. (PL), a Philippine corporation, earned an income of P24,000,000.00 from its professional services rendered to UEM-MARA Philippines Corporation (UMPC), from which income UMPC withheld P1,200,000.00 as the respondents withholding agent. In its 1997 income tax return (ITR), the PL reported a net loss of P983,037.00, but expressly signified that it had a creditable withholding tax of P1,200,000.00 for taxable year 1997 to be claimed as tax credit in taxable year 1998. Then PL submitted its ITR for taxable year 1998, in which it declared a net loss of P2,772,043.00. Due to its net-loss position, the respondent was unable to claim the P1,200,000.00 as tax credit. PL then filed with the CIR a written claim for the refund of the P1,200,000.00 unutilized creditable withholding tax for taxable year 1997. However, the CIR did not act on the claim. Due to the CIRs inaction, PL filed a petition for review in the CTA. Naomi Therese F. Corpuz Page 73

CTA -- denied PLs claim on the ground of prescription. It says that PL filed its Annual ITR on April 13, 1998 and filed its judicial claim for refund only on April 14, 2000 which is beyond the two-year period earlier discussed. The aforequoted Sections 204 (C) and 229 of the Tax Code mandates that both the administrative and judicial claims for refund must be filed within the two-year period, otherwise the taxpayer's cause of action shall be barred by prescription. Unfortunately, this lapse on the part of Petitioner proved fatal to its claim. CA the two-year prescriptive period, which was not jurisdictional might be suspended for reasons of equity. The petition of PL is partly GRANTED and the assailed CTA Decision partly ANNULLED. CIR is hereby ordered to refund to PL Management International Phils., Inc., the amount of P1,200,000.00 representing its unutilized creditable withholding tax in taxable year 1997. ISSUE: Whether or not PL is entitled to refund of the unutilized creditable withholdong tax of P1,200,000. RATIO: No based on section 76, NIRC but SC permits PL to apply the amount as tax credit in succeeding taxable years until fully exhausted.

Section 76 of the NIRC of 1997 provides: Section 76. Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year the corporation shall either: (A) (B) (C) Pay the balance of tax still due; or Carry over the excess credit; or Be credited or refunded with the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefor. The predecessor provision of Section 76 of the NIRC of 1997 is Section 79 of the NIRC of 1985, which provides: Section 79. Final Adjustment Return. Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during Naomi Therese F. Corpuz Page 74

the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either: (a) Pay the excess tax still due; or (b) Be refunded the excess amount paid, as the case may be. In case the corporation is entitled to a refund of the excess estimated quarterly income taxes-paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year. As can be seen, Congress added a sentence to Section 76 of the NIRC of 1997 in order to lay down the irrevocability rule, to wit: xxx Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefor. In Philam Asset Management, Inc. v. Commissioner of Internal Revenue, the Court expounds on the two alternative options of a corporate taxpayer whose total quarterly income tax payments exceed its tax liability, and on how the choice of one option precludes the other, viz: The first option is relatively simple. Any tax on income that is paid in excess of the amount due the government may be refunded, provided that a taxpayer properly applies for the refund. The second option works by applying the refundable amount, as shown on the FAR of a given taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable year. These two options under Section 76 are alternative in nature. The choice of one precludes the other. Indeed, in Philippine Bank of Communications v. Commissioner of Internal Revenue, the Court ruled that a corporation must signify its intention whether to request a tax refund or claim a tax credit by marking the corresponding option box provided in the FAR. While a taxpayer is required to mark its choice in the form provided by the BIR, this requirement is only for the purpose of facilitating tax collection. One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid. xxx

In Commissioner of Internal Revenue v. Bank of the Philippine Islands, the Court, citing the aforequoted pronouncement in Philam Asset Management, Inc., points out that Section 76 of the NIRC Naomi Therese F. Corpuz Page 75

of 1997 is clear and unequivocal in providing that the carry-over option, once actually or constructively chosen by a corporate taxpayer, becomes irrevocable. The Court explains: Hence, the controlling factor for the operation of the irrevocability rule is that the taxpayer chose an option; and once it had already done so, it could no longer make another one. Consequently, after the taxpayer opts to carry-over its excess tax credit to the following taxable period, the question of whether or not it actually gets to apply said tax credit is irrelevant. Section 76 of the NIRC of 1997 is explicit in stating that once the option to carry over has been made, no application for tax refund or issuance of a tax credit certificate shall be allowed therefor. The last sentence of Section 76 of the NIRC of 1997 reads: Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefor. The phrase for that taxable period merely identifies the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the taxpayer. In the present case, the excess income tax credit, which BPI opted to carry over, was acquired by the said bank during the taxable year 1998. The option of BPI to carry over its 1998 excess income tax credit is irrevocable; it cannot later on opt to apply for a refund of the very same 1998 excess income tax credit. The Court of Appeals mistakenly understood the phrase for that taxable period as a prescriptive period for the irrevocability rule. This would mean that since the tax credit in this case was acquired in 1998, and BPI opted to carry it over to 1999, then the irrevocability of the option to carry over expired by the end of 1999, leaving BPI free to again take another option as regards its 1998 excess income tax credit. This construal effectively renders nugatory the irrevocability rule. The evident intent of the legislature, in adding the last sentence to Section 76 of the NIRC of 1997, is to keep the taxpayer from flip-flopping on its options, and avoid confusion and complication as regards said taxpayer's excess tax credit. The interpretation of the Court of Appeals only delays the flip-flopping to the end of each succeeding taxable period. The Court similarly disagrees in the declaration of the Court of Appeals that to deny the claim for refund of BPI, because of the irrevocability rule, would be tantamount to unjust enrichment on the part of the government. The Court addressed the very same argument in Philam, where it elucidated that there would be no unjust enrichment in the event of denial of the claim for refund under such circumstances, because there would be no forfeiture of any amount in favor of the government. The amount being claimed as a refund would remain in the account of the taxpayer until utilized in succeeding taxable years, as provided in Section 76 of the NIRC of 1997. It is worthy to note that unlike the option for refund of excess income tax, which prescribes after two years from the filing of the FAR, there is no prescriptive period for the carrying over of the same. Therefore, the excess income tax credit of BPI, which it acquired in 1998 and opted to carry over, may be repeatedly carried over to succeeding taxable years, i.e., to 1999, 2000, 2001, and so on and so forth, until actually applied or credited to a tax liability of BPI. Naomi Therese F. Corpuz Page 76

Inasmuch as the respondent already opted to carry over its unutilized creditable withholding tax of P1,200,000.00 to taxable year 1998, the carry-over could no longer be converted into a claim for tax refund because of the irrevocability rule provided in Section 76 of the NIRC of 1997. Thereby, the respondent became barred from claiming the refund. However, in view of it irrevocable choice, the respondent remained entitled to utilize that amount of P1,200,000.00 as tax credit in succeeding taxable years until fully exhausted. In this regard, prescription did not bar it from applying the amount as tax credit considering that there was no prescriptive period for the carrying over of the amount as tax credit in subsequent taxable years.

10. G.R. No. 180173. April 6, 2011 Microsoft Philippines, Inc. Vs. Commissioner of Internal Revenue
PONENTE: Carpio, J. FACTS: Petitioner, Microsoft Philippines, Inc ( Microsoft ) is a Vat Taxpayer duly registered with the BIR. Microsoft renders marketing services to Microsoft Operations Pte Ltd ( MOP) & Microsoft Licensing Inc. (MLI), both affiliated non- Resident foreign Corporations. The services are paid for in acceptable foreign currency and qualify as Zero-rated sales for Vat purposes under Sec 108. Microsoft paid Vat Input Taxes in the amount of P11,449,814. 99 on its domestic purchases of of taxable goods and purchases. On December 27,2002 Microsoft filed an administrative claim for Tax Credit of Vat Input Taxes in the amount of P 11,449,814,99 with the BIR within the prescriptive period of two years, On April 23, 2003 due to BI R s inaction, Microsoft filed a Petition for review with the CTA. CTA - denied the claim for Tax Credit of Vat Input Taxes. The CTA explained that Microsoft failed to comply with the Invoicing Requirements.of Sec 113 & 237 of the NIRC as well as Sec 4.108-1 of Revenue Regulations no. 7-95. The CTA stated that Microsoft Official receipts do not bear the imprinted word Zero- ratedon its face. Thus the Official receipts cannot be considered as valid evidence to prove as Zero rated sales for Vat puposes. CTA En Banc affirms. ISSUE: Whether Microsoft is entitled to a claim for a Tax Credit or Refund of VAT input Taxes on domestic purchases of goods or services attributable to Zero-rated sales for the year 2001 even if the word Zero-rated is not imprinted on Microsofts official receipt? RATIO: No. The petition of Microsoft lacks merit as per Sec 4-108. Both the CTA Second Division and CTA en banc, found that Microsoft receipts did not indicate the word Zero-rated on its official receipts Microsoft failed to comly with the invoicing requirementsof the NIRC and its implementing regulations to claim a tax credit or refund of Vat Input Tax for Taxable year 2001. Naomi Therese F. Corpuz Page 77

11. G.R. No. 171742 & G.R. No. 176165. June 15, 2011 Commissioner of Internal Revenue Vs. Mirant (Philippines) Operations Corporation/Mirant (Philippines) Operations Corporation, etc. Vs. Commissioner of Internal Revenue
FACTS: Respondent Mirant is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office at Bo. Ibabang Pulo, Pagbilao Grande Island, Pagbilao, Quezon. Mirant also operated under the names Southern Energy Asia-Pacific Operations (Phils.), Inc., CEPA Operations (Philippines) Corporation; CEPA Tileman Project Management Corporation; and Hopewell Tileman Project Management Corporation. Mirant, duly licensed to do business in the Philippines, is primarily engaged in the design, construction, assembly, commissioning, operation, maintenance, rehabilitation and management of gas turbine and other power generating plants and related facilities using coal, distillate, and other fuel provided by and under contract with the Government of the Republic of the Philippines or any subdivision, instrumentality or agency thereof, or any government-owned or controlled corporations or other entities engaged in the development, supply or distribution of energy. Mirant entered into Operating and Management Agreements with Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.) and Mirant Sual Corporation (formerly Southern Energy Pangasinan, Inc.) to provide these companies with maintenance and management services in connection with the operation, construction and commissioning of coal-fired power stations situated in Pagbilao, Quezon, and Sual, Pangasinan respectively. On October 15, 1999, Mirant filed with the Bureau of Internal Revenue (BIR) its income tax return for the fiscal year ending June 30, 1999, declaring a net loss of P235,291,064.00 and unutilized tax credits of 32,263,388.00. On April 17, 2000, Mirant filed with the BIR an amended income tax return (ITR) for the fiscal year ending June 30, 1999, reporting an increased net loss amount of 379,324,340.00 but reporting the same unutilized tax credits of 32,263,388.00, which it opted to carry over as a tax credit to the succeeding taxable year. To synchronize its accounting period with those of its affiliates, Mirant allegedly secured the approval of the BIR to change its accounting period from fiscal year (FY) to calendar year (CY) effective December 31, 1999. Thus, on April 17, 2000, Mirant filed its income tax return for the interim period July 1, 1999 to December 31, 1999, declaring a net loss in the amount of 381,874,076.00 and unutilized tax credits of 48,626,793.00. Mirant indicated the excess amount of 48,626,793.00 as To be carried over as tax credit next year/quarter. Naomi Therese F. Corpuz Page 78

On April 10, 2001, it filed with the BIR its income tax return for the calendar year ending December 31, 2000, reflecting a net loss of 56,901,850.00 and unutilized tax credits of 87,345,116.00 . On September 20, 2001, Mirant wrote the BIR a letter claiming a refund of 87,345,116.00 representing overpaid income tax for the FY ending June 30, 1999, the interim period covering July 1, 1999 to December 31, 1999, and CY ending December 31, 2000. BIR opposed. ISSUE: Whether Mirant is entitled to a tax refund or to the issuance of a tax credit certificate.

RATIO: No. Once exercised, the option to carry over is irrevocable. Section 76 of the National Internal Revenue Code (Presidential Decree No. 1158, as amended) provides: SEC. 76. - Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either: (A) (B) (C) Pay the balance of tax still due; or Carry-over the excess credit; or Be credited or refunded with the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor. (Underscoring and emphasis supplied.) The last sentence of Section 76 is clear in its mandate. Once a corporation exercises the option to carry-over and apply the excess quarterly income tax against the tax due for the taxable quarters of the succeeding taxable years, such option is irrevocable for that taxable period. Having chosen to carryover the excess quarterly income tax, the corporation cannot thereafter choose to apply for a cash refund or for the issuance of a tax credit certificate for the amount representing such overpayment. In the recent case of Commissioner of Internal Revenue v. PL Management International Philippines, Inc., the Court discussed the irrevocability rule of Section 76 in this wise:

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The predecessor provision of Section 76 of the NIRC of 1997 is Section 79 of the NIRC of 1985, which provides: Section 79. Final Adjustment Return. Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either: (a) Pay the excess tax still due; or (b) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly income taxes-paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year. As can be seen, Congress added a sentence to Section 76 of the NIRC of 1997 in order to lay down the irrevocability rule, to wit: xxx Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefor. In Philam Asset Management, Inc. v. Commissioner of Internal Revenue, the Court expounds on the two alternative options of a corporate taxpayer whose total quarterly income tax payments exceed its tax liability, and on how the choice of one option precludes the other, viz: The first option is relatively simple. Any tax on income that is paid in excess of the amount due the government may be refunded, provided that a taxpayer properly applies for the refund. The second option works by applying the refundable amount, as shown on the FAR of a given taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable year. These two options under Section 76 are alternative in nature. The choice of one precludes the other. Indeed, in Philippine Bank of Communications v. Commissioner of Internal Revenue, the Court ruled that a corporation must signify its intention whether to request a tax refund or claim a tax credit by marking the Naomi Therese F. Corpuz Page 80

corresponding option box provided in the FAR. While a taxpayer is required to mark its choice in the form provided by the BIR, this requirement is only for the purpose of facilitating tax collection. One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid. xxx

In Commissioner of Internal Revenue v. Bankof the Philippine Islands, the Court, citing the aforequoted pronouncement in Philam Asset Management, Inc., points out that Section 76 of the NIRC of 1997 is clear and unequivocal in providing that the carryover option, once actually or constructively chosen by a corporate taxpayer, becomes irrevocable. The Court explains: Hence, the controlling factor for the operation of the irrevocability rule is that the taxpayer chose an option; and once it had already done so, it could no longer make another one. Consequently, after the taxpayer opts to carry-over its excess tax credit to the following taxable period, the question of whether or not it actually gets to apply said tax credit is irrelevant. Section 76 of the NIRC of 1997 is explicit in stating that once the option to carry over has been made, no application for tax refund or issuance of a tax credit certificate shall be allowed therefor. The last sentence of Section 76 of the NIRC of 1997 reads: Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefor. The phrase for that taxable period merely identifies the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the taxpayer. In the present case, the excess income tax credit, which BPI opted to carry over, was acquired by the said bank during the taxable year 1998. The option of BPI to carry over its 1998 excess income tax credit is irrevocable; it cannot later on opt to apply for a refund of the very same 1998 excess income tax credit. The Court of Appeals mistakenly understood the phrase for that taxable period as a prescriptive period for the irrevocability rule. This would mean that since the tax credit in this case was acquired in 1998, and BPI opted to carry it over to 1999, then the irrevocability of the option to carry over expired by the end of 1999, leaving BPI free to again take another option as regards its 1998 excess income tax credit. This construal effectively renders nugatory the irrevocability rule. The evident intent of the legislature, in adding the last sentence to Section 76 of the NIRC of 1997, is to keep the taxpayer from flip-flopping on its options, and avoid confusion and complication as regards said Naomi Therese F. Corpuz Page 81

taxpayer's excess tax credit. The interpretation of the Court of Appeals only delays the flip-flopping to the end of each succeeding taxable period. The Court similarly disagrees in the declaration of the Court of Appeals that to deny the claim for refund of BPI, because of the irrevocability rule, would be tantamount to unjust enrichment on the part of the government. The Court addressed the very same argument in Philam, where it elucidated that there would be no unjust enrichment in the event of denial of the claim for refund under such circumstances, because there would be no forfeiture of any amount in favor of the government. The amount being claimed as a refund would remain in the account of the taxpayer until utilized in succeeding taxable years, as provided in Section 76 of the NIRC of 1997. It is worthy to note that unlike the option for refund of excess income tax, which prescribes after two years from the filing of the FAR, there is no prescriptive period for the carrying over of the same. Therefore, the excess income tax credit of BPI, which it acquired in 1998 and opted to carry over, may be repeatedly carried over to succeeding taxable years, i.e., to 1999, 2000, 2001, and so on and so forth, until actually applied or credited to a tax liability of BPI. Inasmuch as the respondent already opted to carry over its unutilized creditable withholding tax of P1,200,000.00 to taxable year 1998, the carry-over could no longer be converted into a claim for tax refund because of the irrevocability rule provided in Section 76 of the NIRC of 1997. Thereby, the respondent became barred from claiming the refund. [Underscoring supplied] In this case, in its amended ITR for the year ended July 30, 1999 and for the interim period ended December 31, 1999, Mirant clearly ticked the box signifying that the overpayment was To be carried over as tax credit next year/quarter. Item 31 of the Annual Income Tax Ret urn Form (BIR Form No. 1702) also clearly indicated If overpayment, mark one box only. (once the choice is made, the same is irrevocable). Applying the irrevocability rule in Section 76, Mirant having opted to carry over its tax overpayment for the fiscal year ending July 30, 1999 and for the interim period ending December 31, 1999, it is now barred from applying for the refund of the said amount or for the issuance of a tax credit certificate therefor, and for the unutilized tax credits carried over from the fiscal year ended June 30, 1998.

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12. G.R. No. 163653/G.R. No. 167689. July 19, 2011 Commissioner of Internal Revenue Vs. Filinvest Development Corporation/Commissioner of Internal Revenue Vs. Filinvest Development Corporation PONENTE: Perez, J.
FACTS: The owner of 80% of the outstanding shares of respondent Filinvest Alabang, Inc. (FAI), respondent Filinvest Development Corporation (FDC) is a holding company which also owned 67.42% of the outstanding shares of Filinvest Land, Inc. (FLI). FDC and FAI entered into a Deed of Exchange with FLI whereby the former both transferred in favor of the latter parcels of land appraised at P4,306,777,000.00. In exchange for said parcels which were intended to facilitate development of medium-rise residential and commercial buildings, 463,094,301 shares of stock of FLI were issued to FDC and FAI. Later, FLI requested a ruling from the BIR to the effect that no gain or loss should be recognized in the aforesaid transfer of real properties. Acting on the request, the BIR issued Ruling No. S-34-046-97 dated 3 February 1997, finding that the exchange is among those contemplated under Section 34 (c) (2) of the old NIRC (Now Section 40, NIRC) which provides that (n)o gain or loss shall be recognized if property is transferred to a corporation by a person in exchange for a stock in such corporation of which as a result of such exchange said person, alone or together with others, not exceeding four (4) persons, gains control of said corporation." With the BIRs reiteration of the foregoing ruling upon the request for clarification filed by FLI, the latter, together with FDC and FAI, complied with all the requirements imposed in the ruling. On various dates during the years 1996 and 1997, in the meantime, FDC also extended advances in favor of its affiliates, namely, FAI, FLI, Davao Sugar Central Corporation (DSCC) and Filinvest Capital, Inc. (FCI). Duly evidenced by instructional letters as well as cash and journal vouchers, said cash advances amounted to P2,557,213,942.60 in 1996 and P3,360,889,677.48 in 1997. FDC also entered into a Shareholders Agreement with Reco errera PTE Ltd. (R PL) for the formation of a Singapore -based joint venture company called Filinvest Asia Corporation (FAC), tasked to develop and manage FDCs 50% ownership of its PBCom Office Tower Project (the Project). With their equity participation in FAC respectively pegged at 60% and 40% in the Shareholders Agreement, FDC subscribed to P500.7 million worth of shares in said joint venture company to R PLs subscription worth P433.8 million. Having paid its subscription by executing a Deed of Assignment transferring to FAC a portion of its rights and interest in the Project worth P500.7 million, FDC eventually reported a net loss of P190,695,061.00 in its Annual Income Tax Return for the taxable year 1996. Then, FDC received from the BIR a Formal Notice of Demand to pay deficiency income and documentary stamp taxes, plus interests and compromise penalties, covered by the following Assessment Notices, viz.: (a) Assessment Notice for deficiency income taxes in the sum of P150,074,066.27 for 1996; (b) Assessment Notice for deficiency documentary stamp taxes in the sum of P10,425,487.06 for 1996; (c) Assessment Notice for deficiency income taxes in the sum of P5,716,927.03 for 1997; and (d) Assessment for deficiency documentary stamp taxes in the sum of P5,796,699.40 for 1997. The foregoing deficiency taxes were assessed on the taxable gain supposedly realized by FDC from the Deed of Exchange it executed with FAI and FLI, on the dilution resulting from the Shareholders Agreement FDC executed with R PL as well as the arms-length interest rate and documentary stamp taxes imposable on the advances FDC extended to its affiliates. Naomi Therese F. Corpuz Page 83

FAI similarly received from the BIR a Formal Letter of Demand for deficiency income taxes in the sum of P1,477,494,638.23 for the year 1997. Covered by Assessment Notice, said deficiency tax was also assessed on the taxable gain purportedly realized by FAI from the Deed of Exchange it executed with FDC and FLI. Within the reglementary period of thirty (30) days from notice of the assessment, both FDC and FAI filed their respective requests for reconsideration/protest, on the ground that the deficiency income and documentary stamp taxes assessed by the BIR were bereft of factual and legal basis. Having submitted the relevant supporting documents pursuant to the 31 January 2000 directive from the BIR Appellate Division, FDC and FAI filed a letter requesting an early resolution of their request for reconsideration/protest on the ground that the 180 days prescribed for the resolution thereof under Section 228 of the NIRC was going to expire on 20 September 2000. In view of the failure of petitioner CIR to resolve their request for reconsideration/protest within the aforesaid period, FDC and FAI filed a petition for review with the CTA. The petition alleged, among other matters, that as previously opined in BIR Ruling No. S-34-046-97, no taxable gain should have been assessed from the subject Deed of Exchange since FDC and FAI collectively gained further control of FLI as a consequence of the exchange; that correlative to the CIR's lack of authority to impute theoretical interests on the cash advances FDC extended in favor of its affiliates, the rule is settled that interests cannot be demanded in the absence of a stipulation to the effect; that not being promissory notes or certificates of obligations, the instructional letters as well as the cash and journal vouchers evidencing said cash advances were not subject to documentary stamp taxes; and, that no income tax may be imposed on the prospective gain from the supposed appreciation of FDC's shareholdings in FAC. As a consequence, FDC and FAC both prayed that the subject assessments for deficiency income and documentary stamp taxes for the years 1996 and 1997 be cancelled and annulled. CTA decision - went on to render the decision dated 10 September 2002 which, with the exception of the deficiency income tax on the interest income FDC supposedly realized from the advances it extended in favor of its affiliates, cancelled the rest of deficiency income and documentary stamp taxes assessed against FDC and FAI for the years 1996 and 1997. However [FDC] is ordered to pay the amount of P5,691,972.03 as deficiency income tax for taxable year 1997. In addition, FDC is also ordered to pay 20% delinquency interest computed from February 16, 2000 until full payment thereof pursuant to Section 249 (c) (3) of the Tax Code.1 Dissatisfied with the foregoing decision, FDC filed petition for review -- Calling attention to the fact that the cash advances it extended to its affiliates were interest-free in the absence of the express stipulation on interest required under Article 1956 of the Civil Code, FDC questioned the imposition of an arm'slength interest rate thereon on the ground, among others, that the CIR's authority under Section 43 of the NIRC: (a) does not include the power to impute imaginary interest on said transactions; (b) is directed only against controlled taxpayers and not against mother or holding corporations; and, (c) can only be invoked in cases of understatement of taxable net income or evident tax evasion. CA upheld FDCs position and reversed and set aside CTA deicision. ISSUE: Whether or not the advances extended by FDC to its affiliates are subject to income tax and also subject to interest.

1[26]

Id. at 477.

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RATIO: Yes. Section 43 [now Section 50] of the 1993 National Internal Revenue Code (NIRC) provides that. (i)n case of two or more organizations, trades or businesses (whether or not incorporated and whether or not organized in the Philippines) owned or controlled directly or indirectly by the same interests, the Commissioner of Internal Revenue [(CIR)] is authorized to distribute, apportion or allocate gross income or deductions between or among such organization, trade of business, if he determines that such distribution, apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any such organization, trade or business, Section 179 of Revenue Regulations No. 2 provides in part that (i)n determining the true net income of a controlled taxpayer, the [CIR] is not restricted to the case of improper accounting, to the case of a fraudulent, colorable, or sham transaction, or to the case of a device designed to reduce of avoid tax by shifting or distorting income or deductions. The authority to determine true net income extends to any case in which either by inadvertence or design the taxable net income in whole or in part, of a controlled taxpayer, is other than it would have been had the taxpayer in the conduct of his affairs been an uncontrolled taxpayer dealing at arms length with another uncontrolled taxpayer. Despite the broad parameters provided, however, the CIRs power of distribution, apportionment or allocation of gross income and deductions under the NIRC and Revenue Regulations No. 2 do not include the power to impute theoretical interests to the taxpayers transactions. Pursuant to Section 28 [now Section 32] of the NIRC, the term gross income is understood to mean all income from whatever source derived, including, but not limited to certain items. While it has been held that the phrase from whatever source derived indicates a legislative policy to include all income not expressly exempted within the class of taxable income under Philippine laws, the term income has been variously interpreted to mean cash received or its equivalent, the amount of money coming to a person within a specific time or something distinct from principal or capital. Otherwise stated, there must be proof of the actual or, at the very least, probable receipt or realization by the controlled taxpayer of the item of gross income sought to be distributed, apportioned or allocated by the CIR. In this case, there is no evidence of actual or possible showing that the advances taxpayer extended to its affiliates had resulted to interests subsequently assessed by the CIR. Even if the Court were to accord credulity to the CIRs assertion that taxpayer had deducted substantial interest expense from its gross income, there would still be no factual basis for the imputation of theoretical interests on the subject advances and assess deficiency income taxes thereon. Further, pursuant to Article 1959 of the Civil Code of the Philippines, no interest shall be due unless it has been expressly stipulated in writing. ISSUE: Whether or not FDC is subject to documentary stamp tax. RATIO: Yes. Loan agreements and promissory notes are taxed under Section 180 of the 1993 National Internal Revenue Code (NIRC) *they are now taxed under Section 179 as evidence of indebtedness+. When read in conjunction with Section 173 of the NIRC, Section 180 concededly applies to *a+ll loan agreements, whether made or signed in the Philippines, or abroad when the obligation or right arises from Philippine sources or the property or object of the contract is located or used in the Philippines. Section 3 (b) of Revenue Regulations No. 9-94 provides in part that the term loan agreement shall include credit facilities, which may be evidenced by credit memo, advice or drawings. Section 6 of the same revenue regulations further provides that *i+n cases where no formal agreements or promissory notes have been executed to cover credit facilities, the documentary stamp tax shall be based on the amount of drawings or availment of the facilities, which may be evidenced by credit/debit memo, advice or drawings by any form of check or withdrawal slip Applying the foregoing to the case, the instructional letters as well as the journal and cash vouchers evidencing the advances taxpayer extended to its affiliates in 1996 and 1997 qualified as loan agreements upon which documentary stamp taxes may be imposed. Naomi Therese F. Corpuz Page 85

13. G.R. No. 193007. July 19, 2011 Renato V. Diaz and Aurora Ma. F. Timbol Vs. The Secretary of Finance and the Commissioner of Internal Revenue
FACTS: May toll fees collected by tollway Operators be subjected to Value Added Tax? Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory relief assailing the validity of the impending imposition of Value Added Tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway operators. Diaz and Timbol claim that, since the VAT would result in increased toll fees, they have an interest as regular users of tollways in stopping the BIR action. Diaz and Timbol hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of Sales of Services that are subject to VAT; that a toll fee is a users tax, not a sale of services; that to impose VAT on toll fess would amount to a tax on public service; and that, since VAT was never factored into the formula for computing toll fees, its imposition would violate the non-impairment clause of the constitution. The OSG, on the other hand, stated that the Tax Code imposes VAT on all kinds of services of franchise grantees, including tollway operations, except where the law provides otherwise ISSUE: Are tollway operators covered by VAT? RATIO: YES, BECAUSE THEY RENDER SERVICES FOR A FEE. THEY ARE JUST LIKE LESSORS, WAREHOUSE OPERATORS , AND OTHER GROUPS EXPRESSLY MENTIONED IN THE LAW. Issue: Now, do tollway operators render services for a fee? RATIO: Presidential Decree (P.D.) 1112 or the Toll Operation Decree establishes the legal basis for the services that tollway operators render. Essentially, tollway operators construct, maintain, and operate expressways, also called tollways, at the operators expense. Tollways serve as alternatives to regular public highways that meander through populated areas and branch out to local roads. Traffic in the regular public highways is for this reason slow-moving. In consideration for constructing tollways at their expense, the operators are allowed to collect government-approved fees from motorists using the tollways until such operators could fully recover their expenses and earn reasonable returns from their investments. When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latters use of the tollway facilities over which the operator enjoys private proprietary rights that its contract and the law recognize. In this sense, the tollway operator is no different from the following service providers under Section 108 who allow others to use their properties or facilities for a fee: 1. Lessors of property, whether personal or real; Page 86

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2. Warehousing service operators; 3. Lessors or distributors of cinematographic films; 4. Proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts; 5. Lending investors (for use of money); 6. Transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes; and 7. Common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in thePhilippinesto another place in thePhilippines. It does not help petitioners cause that Section 108 subjects to VAT all kinds of services rendered for a fee regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. This means that services to be subject to VAT need not fall under the traditional concept of services, the personal or professional kinds that require the use of human knowledge and skills. ISSUE: GOVERNMENT ARGUES THAT TOLL OPERATORS ARE FRANCHISEES AND THEREFORE EXPRESSLY COVERED BY VAT LAW. PETITIONERS ARGUE THAT THEY ARE NOT FRANCHISEES BECAUSE THEY DO NOT HAVE LEGISLATIVE FRANCHISE. WHAT IS CORRECT? Toll operators are francishees because franchise covers government grants of a special right to do an act or series of acts of public concern. The construction, operation, and maintenance of toll facilities on public improvements are activities of public consequence that necessarily require a special grant of authority from the state. Also, the VAT law does not define franchisees as only those who have legislative franchise. And not only do tollway operators come under the broad term all kinds of services, they also come under the specific class described in Section 108 as all other franchise grantees who are subject to VAT, except those under Section 119 of this Code. Tollway operators are franchise grantees and they do not belong to exceptions (the low-income radio and/or television broadcasting companies with gross annual incomes of less than P10 million and gas and water utilities) that Section 119[9][13] spares from the payment of VAT. The word franchise broadly covers government grants of a special right to do an act or series of acts of public concern. Petitioners, of course contend that tollway operators cannot be considered franchise grantees under Section 108 since they do not hold legislative franchises. But nothing in Section 108 indicates that the franchise grantees it speaks of are those who hold legislative franchises. Petitioners give no reason, and the Court cannot surmise any, for making a distinction between franchises granted by Congress and franchises granted by some other government agency. The latter, properly constituted, may grant franchises. Indeed, franchises conferred or granted by local authorities, as agents of the state, constitute as much a legislative franchise as though the grant had been made by Congress itself. The term franchise has been broadly construed as referring, not only to authorizations that Congress directly issues in the form of a special law, but also to those granted by administrative agencies to which the power to grant franchises has been delegated by Congress. Naomi Therese F. Corpuz Page 87

Tollway operators are, owing to the nature and object of their business, franchise grantees. The construction, operation, and maintenance of toll facilities on public improvements are activities of public consequence that necessarily require a special grant of authority from the state. Indeed, Congress granted special franchise for the operation of tollways to the Philippine National Construction Company, the former tollway concessionaire for the North and South Luzon Expressways. Apart from Congress, tollway franchises may also be granted by the TRB, pursuant to the exercise of its delegated powers under P.D. 1112. The franchise in this case is evidenced by a Toll Operation Certificate. ISSUE: PETITIONERS CONTEND THAT TOLL FEES ARE OF PUBLIC NATURE AND THEREFORE NOT SALE OF SERVICES. IS THEIR CONTENTION CORRECT? RATIO: No. The law in the same manner includes electric utilities, telephone, telegraph, and broadcasting companies in its list of vat-covered businesses. Their services are also of public nature. Petitioners contend that the public nature of the services rendered by tollway operators excludes such services from the term sale of services under Section 108 of the Code. But, again, nothing in Section 108 supports this contention. The reverse is true. In specifically including by way of example electric utilities, telephone, telegraph, and broadcasting companies in its list of VAT-covered businesses, Section 108 opens other companies rendering public service for a fee to the imposition of VAT. Businesses of a public nature such as public utilities and the collection of tolls or charges for its use or service is a franchise. ISSUE: PETITIONERS ARGUE THAT THE STATEMENTS MADE BY SOME LAWMAKERS DURING THE THE DELIBERATIONS ON THE VAT LAW SHOW INTENT TO EXEMPT TOLLWAY OPERATORS. CAN THE STATEMENTS OF THESE LAWMAKERS BE CONSIDERED BINDING ON THE INTERPRETATION OF VAT COVERAGE? No. Statements made by individual members of congress in the consideration of a bill do not necessarily reflect the sense of that body and are, consequently, not controlling in the interpretation of law. The congressional will is ultimately determined by the language of the law that the lawmakers voted on. ISSUE: IS TOLL FEE A USERS TAX AND SO VAT ON TOLL FEE WOULD BE TAX ON TAX? RATIO: No. Toll fee is not a tax. It is not collected by bir or by the govt. It does not go to government coffers. It is not collected for a public purpose. ISSUE: BUT IN THE CASE OF MIAA VS. CA FEES PAID TO AIRPORTS WERE CONSIDERED TAX. DOES THE CASE OF MIAA APPLY? RATIO: No. The subject of the maiaa case is terminal fee which goes to the government. Also the issue in the miaa case is whether paranaque city can sell at auction property of the national government. The discussion on the terminal fee is just to emphasize the fact that the local government cannot tax the national government.

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Two. Petitioners argue that a toll fee is a users tax and to impose VAT on toll fees is tantamount to taxing a tax. Actually, petitioners base this argument on the following discussion in Manila International Airport Authority (MIAA) v. Court of Appeals: No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like roads, canals, rivers, torrents, ports and bridges constructed by the State, are owned by the State. The term ports includes seaports and airports. The MIAA Airport Lands and Buildings constitute a port constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of the Philippines. x x x The operation by the government of a tollway does not change the character of the road as one for public use. Someone must pay for the maintenance of the road, either the public indirectly through the taxes they pay the government, or only those among the public who actually use the road through the toll fees they pay upon using the road. The tollway system is even a more efficient and equitable manner of taxing the public for the maintenance of public roads. The charging of fees to the public does not determine the character of the property whether it is for public dominion or not. Article 420 of the Civil Code defines property of public dominion as one intended for public use. Even if the government collects toll fees, the road is still intended for public use if anyone can use the road under the same terms and conditions as the rest of the public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed restrictions and other conditions for the use of the road do not affect the public character of the road. The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as an airport for public use. Such fees are often termed users tax. This means taxing those among the public who actually use a public facility instead of taxing all the public including those who never use the particular public facility. A users tax is more equitable a principle of taxation mandated in the 1987 Constitution. Petitioners assume that what the Court said above, equating terminal fees to a users tax must also pertain to tollway fees. But the main issue in the MIAA case was whether or not Paraaque City could sell airport lands and buildings under MIAA administration at public auction to satisfy unpaid real estate taxes. Since local governments have no power to tax the national government, the Court held that the City could not proceed with the auction sale. MIAA forms part of the national government although not integrated in the department framework. Thus, its airport lands and buildings are properties of public dominion beyond the commerce of man under Article 420(1) of the Civil Code and could not be sold at public auction. As can be seen, the discussion in the MIAA case on toll roads and toll fees was made, not to establish a rule that tollway fees are users tax, but to make the point that airport lands and buildings are Naomi Therese F. Corpuz Page 89

properties of public dominion and that the collection of terminal fees for their use does not make them private properties. Tollway fees are not taxes. Indeed, they are not assessed and collected by the BIR and do not go to the general coffers of the government. It would of course be another matter if Congress enacts a law imposing a users tax, collectible from motorists, for the construction and maintenance of certain roadways. The tax in such a case goes directly to the government for the replenishment of resources it spends for the roadways. This is not the case here. What the government seeks to tax here are fees collected from tollways that are constructed, maintained, and operated by private tollway operators at their own expense under the build, operate, and transfer scheme that the government has adopted for expressways. Except for a fraction given to the government, the toll fees essentially end up as earnings of the tollway operators. In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense. A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the use of public facilities, therefore, they are not government exactions that can be properly treated as a tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may be demanded by either the government or private individuals or entities, as an attribute of ownership. Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an indirect tax. In indirect taxation, a distinction is made between the liability for the tax and burden of the tax. The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods, properties or services to the buyer. In such a case, what is transferred is not the sellers liability but merely the burden of the VAT. Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears its burden since the amount of VAT paid by the former is added to the selling price. Once shifted, the VAT ceases to be a taxand simply becomes part of the cost that the buyer must pay in order to purchase the good, property or service. Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway operator. Under Section 105 of the Code, VAT is imposed on any person who, in the course of trade or business, sells or renders services for a fee. In other words, the seller of services, who in this case is the tollway operator, is the person liable for VAT. The latter merely shifts the burden of VAT to the tollway user as part of the toll fees. For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a users tax. VAT is assessed against the tollway operators gross receipts and not necessarily on the toll fees. Although the tollway operator may shift the VAT burden to the tollway user, it will not make the latter directly liable for the VAT. The shifted VAT burden simply becomes part of the toll fees that one has to pay in order to use the tollways.

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14. G.R. No. 164050. July 20, 2011 Mercury Drug Corporation Vs. Commissioner of Internal Revenue
PONENTE: Perez J. FACTS: This case involves the interpretation of the word cost as found under Section 4(a) of Republic Act (RA) No. 7432 An Act to Maximize the Contributionof Senior Citizens to Nation Building, Grant Benefits and Special Privileges and for other purposes. Petitioner Mercury Drug Corporation (MDC) is a retailer of pharmaceuticalproducts which extended twenty percent (20%) sales discounts to qualified senior citizens, pursuant toRA No. 7432.From April to December 1993 and January to December 1994, MDC s 20% sales discounts amounted toP3,719,287,68 and P35,500,593.44, respectively. Said amounts were claimed by MDC as deductions from its gross income. MDC filed with the Commissioner of Internal Revenue (CIR) claims for refund in theamounts of P2,417,536.00 for 1993 and P23,075,386.00 for 1994, presenting a computation of its alleged overpayment of income tax. The CIR failed to act upon MDCs assertions, hence the latter filed a petition for review with the Court of Tax Appeals (CTA). The CTA handed down its decision, viz: WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, Revenue Regulations No. 2-94 of the CIR is declared null and void insofar as it treats the 20% discount given by private establishments as a deduction from gross sales. CIR is hereby ORDERED to GRANT A REFUND OR ISSUE A TAX CREDIT CERTIFI- CATE to MDC in the reduced amount of P1,688,178.43 representing the latters s overpaid income tax for the taxable year 1993.However, the claim for refund for taxable year 1994 is denied for lack of merit . The CTA fur ther averred: Thus the cost of the 20% discount repre- sents the actual amount spent by drug corpora- tions incomplying with the mandate of RA 7432. Working on this premise, it could not have been the intention of the lawmakers to grant thesecompanies the full amount of the 20% discount as this could be extending to them more than what they actually sacrificed when they gave the 20% discount to senior citizens. The CTA issued on December 20, 2000 a Resolution which modified its earlier ruling by increasing the creditable tax to P18,038,489.71 for the years 1993 and 1994. On the basis of the cash slips presented byMDC, the CTA finally acceded to the claim of refund for 1994 in the amount of P16,350,311.28.MDC elevated the case to the Court of Appeals (CA) raising the issue of the computation of tax credit. MDC contended that the actual discount granted to the senior citizens, rather than the acquisition cost of theitem availed by senior citizens, should be the bases for computation of tax credit . On October 20, 2003, the CA handed down its ruling sustaining the CTA. The latter interpreted the word cost as used in Section 4(a) of RA 7432 to mean the acquisition cost of the medicines sold to senior citizens. ISSUE: Where is the 20% discount granted under RA No.7432, as amended, based?

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RATIO: The SC declared that the main issue under this case is to determine whether the claim for tax credit should bebased on the full amount of the 20% senior citizens discount or the acquisition cost of the merchandise sold. The SC declared: Preliminarily, Republic Act No. 7432 is a piece of social legislation aimed to grant benefits and privileges to senior citizens. Among the highlightsof this Act is the grant of sales discounts on the purchase of medicines to senior citizens. Section 4 (a) of Republic Act No. 7432 reads: SEC. 4. Privileges for Senior Citizens. The senior citizens shall be entitled to the following: a)the grant of twenty percent (20%) discount from all establishments relative to the utilization of transportation services, hotels and similar lodging establishments, restaurants and recreation centers and purchase of medicines anywhere in the country; Provided, That private establishments may claim thecost as tax credit; X x x. The foregoing proviso specifically allows the 20% senior citizens discount to be claimed by the private establishment as a tax credit and not merely as a tax deduction from gross sales or gross income. X x x. In Bicolandia, we construed the term cost as referring to the amount of the 20% discount extended by a private establishment to senior citizens in their purchase of medicines. X x x. We reiterated this ruling in the 2008 case of Cagayan Valley Drug by holding that petitioner therein isentitled to a tax credit for the full 20% sales discounts it extended to qualified senior citizens. This holds true despite the fact that petitioner suffered a net loss for than taxable year. We finally affirmed in M.E. Holding that the tax credit should be equivalent to the actual 20% sales discount granted to qualified senior citizens. The SC mentioned that RA No. 7432 has undergone two amendments. The first was in 2003 by RA No. 9257and the second by RA No. 9994 in 2010. The SC stressed that the 20% sales discount granted by establishments to qualified senior citizens is now treated as tax deduction and not as a tax credit. The SC concluded: Based on the foregoing, we sustain petitioners argument that the cost of discount should be computed on the actual amount of the discount extended to senior citizens. However, we give full accord to thefactual findings of the Court of Tax Appeals with respect to the actual amount of the 20% sales discount, i.e.,the sum of P3,522,123.25. for the year 1993 and P34,211,769.45 for the year 1994. There- fore, petitioner is entitled to a tax credit equivalent to the actual amounts of the 20% sales discount as determined by the Court of Tax Appeals.

15. G.R. No. 180390. July 27, 2011 Prudential Bank Vs. Commissioner of Internal Revenue
FACTS: Prudential Bank (PB) is a banking corporation organized and existing under Philippine laws. On 23 July 1999, PB received from respondent CIR a FAN and a demand letter for deficiency DST on its: a) Repurchase Agreement with the Bangko Sentral ng Pilipinas (BSP); b) Purchase of Treasury Bills from the BSP; and c) Savings Account Plus (SAP) product

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PB protested the assessment but it was denied by the CIR on 28 December 2001. PB filed with the CTA (1st Division) a petition for review. CTA affirmed the assessment for deficiency DST on the SAP product but cancelled the assessment on the repurchase agreement and purchase of treasury bills. PB moved for reconsideration but the same was denied by the CTA. PB appealed to the CTA En Banc but the latter denied the appeal for lack of merit. It affirmed the ruling of CTA (1st Division). ISSUE: Whether or not petitioners SAP product with a higher interest is subject to DST. RATIO: Yes. A certificate of deposit is defined as a written acknowledgment by a bank or banker of the receipt of a sum of money on deposit which the bank or banker promises to pay to the depositor, to the order of the depositor, or to some other person or his order, whereby the relation of debtor and creditor between the bank and the depositor is created. PB claims that its SAP is not a certificate of deposit bearing interest because it is payable on demand and is evidenced by a passbook and not by a certificate of deposit. In China Banking Corporation vs. CIR, the SC ruled that the Savings Plus Deposit Account, which has the following features: a) Amount deposited is withdrawable anytime, b) It is evidenced by a passbook, and c) The rate of interest offered is the prevailing market rate, provided the depositor would maintain his minimum balance in 30 days at the minimum, and should he withdraw before the period, his deposit would earn the regular savings deposit rate - is subject to DST which are considered certificates of deposits drawing interest. A passbook issued by a bank qualifies as a certificate of deposit drawing interest because it is considered a written acknowledgment by a bank that it has accepted a deposit of a sum of money from a depositor.

16. G.R. No. 170257. September 7, 2011 Rizal Commercial Banking Corporation Vs. Commissioner Internal Revenue PONENTE: Mendoza J.
FACTS: Rizal Commercial Banking Corporation (RCBC) is a private domestic commercial bank engaged in general banking operations. On 15 August 1996, RCBC received a Letter of Authority (LOA) covering all internal revenue taxes from 01 January 1994 to 31 December 1995. RCBC executed a Waiver of the Defense of Prescription up to 31 December 2000. CIR issued on 27 January 2000 a Formal Letter of Demand (FLD).

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On 24 February 2000, RCBC filed a protest. On 20 November 2000, RCBC filed a petition for review before the CTA. Following the reinvestigation requested, RCBC received another FLD on 06 December 2000 which drastically reduced the amount previously assessed. On the same date, RCBC paid all tax deficiencies except the assessments for deficiency Final Tax on FCDU Income and DST, which remained to be subjects of its petition for review. The CTA-1st Division upheld the assessment for the remaining deficiency taxes and ordered the RCBC to pay the amount. RCBC elevated the case to the CTA En Banc but the petition was denied for lack of merit. ISSUE: Whether or not the petitioner, by paying the other tax assessments covered by the waiver, is rendered estopped from questioning the validity of the said waivers. RATIO: RCBC is estoppedfrom questioning the validity of the waivers. RCBC averred that the waiver executed by it is invalid for failure to indicate acceptance of the CIR. RCBC further argues that the principle of estoppel does not signify a clear intention on its part to give up its right to question the validity of the waivers. Estoppel is clearly applicable to the case. A party is precluded from denying his own acts, admissions, or representations to the prejudice of the other party in order to prevent fraud and falsehood. RCBCs partial payment of the revised assessments issued within the extended period impliedly admitted the validity of the waivers. ISSUE: Whether or not the RCBC, as payee-bank, can be held liable for deficiency onshore tax, which is mandated by law to be collected at source in the form of FWT. RATIO: RCBC is liable for the payment of deficiency onshore tax on interest income derived from foreign currency loans, pursuant to Sec 24(e)(3) of the Tax Code of 1993. RCBC contended that because the onshore tax was collected in the form of a FWT, it was the borrower, constituted by law as the withholding agent, that was primarily liable for the remittance of the said tax. RCBC erred in citing RR 2-98 because the same governs collection at source on income paid only on or after January 1, 1998. Hence, said regulations obviously does not apply in the case. The liability of the withholding agent is independent from that of the petitioner. The former cannot be made liable for the tax due because it is the petitioner who earned the income subject to withholding tax. The liability for the tax remains with the petitioner because the gain was realized and received by him.

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17. G.R. No. 180006. September 28, 2011 Commissioner of Internal Revenue Vs. Fortune Tobaco Corporation
PONENTE: Brion J. FACTS: Respondent Fortune Tobacco Corporation (Fortune Tobacco) paid in advance excise taxes for the year 2003 in the amount of P11.15 billion, and for the period covering January 1 to May 31, 2004 in the amount of P4.90 billion. In June 2004, Fortune Tobacco filed an administrative claim for tax refund with the CIR for erroneously and/or illegally collected taxes in the amount of P491 million. Without waiting for the CIRs action on its claim, Fortune Tobacco filed with the CTA a judicial claim for tax refund. CTA First Division - ruled in favor of Fortune Tobacco and granted its claim for refund. CTA En Banc affirms. ISSUE: Whether or not the proviso in Section 1 of RR 17-99 that requires the payment of the excise tax actually being paid prior to January 1, 2000 if this amount is higher than the new specific tax rate, i.e., the rates of specific taxes imposed in 1997 for each category of cigarette, plus 12% is valid.

RATIO: No. Except for the tax period and the amounts involvedthe case at bar presents the same issue that the Court already resolved in 2008 in CIR v. Fortune Tobacco Corporation. In the 2008 Fortune Tobacco case, the Court upheld the tax refund claims of Fortune Tobacco after finding invalid the proviso in Section 1 of RR 17-99. We ruled: Section 145 states that during the transition period, i.e., within the next three (3) years from the effectivity of the 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 and unmistakably, 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. By adding the qualification that the tax due after the 12% increase becomes effective shall not be lower than the tax actually paid prior to 1 January 2000, Revenue Regulation No. 17-99 effectively imposes a tax which is the higher amount between the ad valorem tax being paid at the end of the three (3)-year transition period and the specific tax under paragraph C, sub-paragraph (1)-(4), as increased by 12% a situation not supported by the plain wording of Section 145 of the Tax Code.

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Following the principle of stare decisis, our ruling in the present case should no longer come as a surprise. The proviso in Section 1 of RR 17-99 clearly went beyond the terms of the law it was supposed to implement, and therefore entitles Fortune Tobacco to claim a refund of the overpaid excise taxes collected pursuant to this provision. The amount involved in the present case and the CIRs firm insistence of its arguments nonetheless compel us to take a second look at the issue, but our findings ultimately lead us to the same conclusion. Indeed, we find more reasons to disagree with the CIRs construction of the law than those stated in our 2008 Fortune Tobacco ruling, which was largely based on the application of the rules of statutory construction. Raising government revenue is not the sole objective of RA 8240 That RA 8240 (incorporated as Section 145 of the 1997 Tax Code) was enacted to raise government revenues is a given fact, but this is not the sole and only objective of the law. Congressional deliberations show that the shift from ad valorem to specific taxes introduced by the law was also intended to curb the corruption that became endemic to the imposition of ad valorem taxes. Since ad valorem taxes were based on the value of the goods, the prices of the goods were often manipulated to yield lesser taxes. The imposition of specific taxes, which are based on the volume of goods produced, would prevent price manipulation and also cure the unequal tax treatment created by the skewed valuation of similar goods. Rule of uniformity of taxation violated by the proviso in Section 1, RR 17-99 The Constitution requires that taxation should be uniform and equitable. Uniformity in taxation requires that all subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities. This requirement, however, is unwittingly violated when the proviso in Section 1 of RR 17-99 is applied in certain cases. To illustrate this point, we consider three brands of cigarettes, all classified as lower-priced cigarettes under Section 145(c)(4) of the 1997 Tax Code, since their net retail price is below P5.00 per pack: (A) Net Retail Price per pack (B) (C) (D) (E)

Brand

Ad Valorem Tax Due prior to Jan 1997 5.50 3.30 1.09

Specific Tax under Section 145(C)(4) 1.00/pack 1.00/pack 1.00/pack

Specific Tax Due Jan 1997 to Dec 1999 5.50 3.30 1.09

Camel KS Champion M 100 Union American

4.71 4.56 4.64

New Specific Tax imposing 12% increase by Jan 2000 1.12/pack 1.12/pack 1.12/pack

New Specific Tax Due by Jan 2000 per RR 17-99 5.50 3.30 1.12

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Blend Although the brands all belong to the same category, the proviso in Section 1, RR 17-99 authorized the imposition of different (and grossly disproportionate) tax rates (see column [D]). It effectively extended the qualification stated in the third paragraph of Section 145(c) of the 1997 Tax Code that was supposed to apply only during the transition period: 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. In the process, the CIR also perpetuated the unequal tax treatment of similar goods that was supposed to be cured by the shift from ad valorem to specific taxes. The omission in the law in fact reveals the legislative intent not to adopt the higher tax rule The CIR claims that the proviso in Section 1 of RR 17-99 was patterned after the third paragraph of Section 145(c) of the 1997 Tax Code. Since the laws intent was to increase revenue, it found no reason not to apply the same higher tax rule to excise taxes due after the transition period despite the absence of a similar text in the wording of Section 145(c). What the CIR misses in his argument is that he applied the rule not only for cigarettes, but also for cigars, distilled spirits, wines and fermented liquors: Provided, however, that the new specific tax rate for any existing brand of cigars [and] cigarettes packed by machine, distilled spirits, wines and fermented liquors shall not be lower than the excise tax that is actually being paid prior to January 1, 2000. When the pertinent provisions of the 1997 Tax Code imposing excise taxes on these products are read, however, there is nothing similar to the third paragraph of Section 145(c) that can be found in the provisions imposing excise taxes on distilled spirits (Section 141) and wines (Section 14). In fact, the rule will also not apply to cigars as these products fall under Section 145(a). Evidently, the 1997 Tax Codes provisions on excise taxes have omitted the adoption of certain tax measures. To our mind, these omissions are telling indications of the intent of Congress not to adopt the omitted tax measures; they are not simply unintended lapses in the laws wording that, as the CIR claims, are nevertheless covered by the spirit of the law. Had the intention of Congress been solely to increase revenue collection, a provision similar to the third paragraph of Section 145(c) would have been incorporated in Sections 141 and 142 of the 1997 Tax Code. This, however, is not the case. We note that Congress was not unaware that the higher tax rule is a proviso that should ideally apply to the increase after the transition period (as the CIR embodied in the proviso in Section 1 of RR 17-99). During the deliberations for the law amending Section 145 of the 1997 Tax Code (RA 9334), Rep. Jesli Lapuz adverted to the higher tax rule after December 31, 1999 when he stated: This bill serves as a catch-up measure as government attempts to collect additional revenues due it since 2001. Modifications are necessary indeed to capture Naomi Therese F. Corpuz Page 97

the loss proceeds and prevent further erosion in revenue base. x x x. As it is, it plugs a major loophole in the ambiguity of the law as evidenced by recent disputes resulting in the government being ordered by the courts to refund taxpayers. This bill clarifies that the excise tax due on the products shall not be lower than the tax due as of the date immediately prior to the effectivity of the act or the excise tax due as of December 31, 1999. This remark notwithstanding, the final version of the bill that became RA 9334 contained no provision similar to the proviso in Section 1 of RR 17-99 that imposed the tax due as of December 31, 1999 if this tax is higher than the new specific tax rates. Thus, it appears that despite its awareness of the need to protect the increase of excise taxes to increase government revenue, Congress ultimately decided against adopting the higher tax rule.

18. G.R. No. 179632. October 19, 2011 Southern Philippines Power Corporation Vs. Commissioner of Internal Revenue
PONENTE: Abad J. FACTS: Southern Philippines Power Corporation (SPP) generates and sells electricity to National Power Corporation (NPC). It applied for zero-rating of its transactions for 1999 and 2000. This was approved by the BIR. SPP filed claims for tax refund or credit with the CIR for 1999 and 2000. Before the lapse of the 2-year prescriptive period, SPP filed a petition for review covering its claims for tax refund or credit with the CTA. CIR & CTA (2ndDiv): denied the claims of SPP CTA EB: affirmed the decision of CTA (2ndDiv) ISSUE: Whether or not SPP is entitled to a tax refund or credit considering that: a. its sales invoices and receipts only bear the words BIR VAT Zero-Rate Application Number 419.2000 and do not have the words zero-rated imprinted on them; and b. it failed to declare its zero-rated sales in its VAT returns for the period subject of the claim. RATIO: Section 110(A)(1) provides that any input tax should be evidenced by a VAT invoice or official receipt issued in accordance with Section 113 which has been amended by Republic Act (RA) 9337 but it is the unamended version (applicable was the Revenue Regulations [RR] 7-95) that covers the period when the transactions in this case took place.

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Section 113 does not make a distinction between receipts and invoices as evidence of a zero-rated transaction. Section 4.108.1 of RR 7-95 requires the printing of the words zero-rated only on invoices, not on official receipts. Actually, it is RA 9337 that required in 2005 the printing of the words zero-rated on receipts. Since the receipts and invoices in this case cover sales made from 1999 to 2000, what applies is Section 4.108.1, which refers only to invoices. The Court further ruled that SPPs failure to declare its zero-rated sales in its VAT returns for the period subject of the claim is not sufficient to deny its claims for tax credit or refund when there are other documents from which the CTA can determine the veracity of such claims. Such failure, if partaking of a criminal act under Section 255 of the NIRC, could warrant a criminal prosecution but such failure should not be a ground for the outright denial of the claims. The Court granted the petition and remanded the case to CTA (2ndDiv.) for determination of whether or not SPP complied with the other requisites provided under Section 112 of the NIRC, which governs the criteria for refund/tax credit.

19. G.R. No. 184428. November 23, 2011


Commissioner of Internal Revenue Vs. San Miguel Corporation PONENTE: Villarama, J. FACTS: Respondent San Miguel Corporation (SMC), a domestic corporation engaged in the manufacture and sale of fermented liquor, produces as one of its products Red orse beer which is sold in 500 -ml. and 1-liter bottle variants. On January 1, 1998, Republic Act (R.A.) No. 8424 or the Tax Reform Act of 1997 took effect. It reproduced, as Section 143 thereof, the provisions of Section 140 of the old National Internal Revenue Code as amended by R.A. No. 8240 which became effective on January 1, 1997. Section 143 of the Tax Reform Act of 1997 reads: SEC. 143. Fermented Liquor. - There shall be levied, assessed and collected an excise tax on beer, lager beer, ale, porter and other fermented liquors except tuba, basi, tapuy and similar domestic fermented liquors in accordance with the following schedule: (a) If the net retail price (excluding the excise tax and value-added tax) per liter of volume capacity is less than Fourteen pesos and fifty centavos (P14.50), the tax shall be Six pesos and fifteen centavos (P6.15) per liter;

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(b) If the net retail price (excluding the excise tax and the value-added tax) per liter of volume capacity is Fourteen pesos and fifty centavos (P14.50) up to Twenty-two pesos (P22.00), the tax shall be Nine pesos and fifteen centavos (P9.15) per liter; (c) If the net retail price (excluding the excise tax and the value-added tax) per liter of volume capacity is more than Twenty-two pesos (P22.00), the tax shall be Twelve pesos and fifteen centavos (P12.15) per liter. Variants of existing brands which are introduced in the domestic market after the effectivity of Republic Act No. 8240 shall be taxed under the highest classification of any variant of that brand. Fermented liquor which are brewed and sold at micro-breweries or small establishments such as pubs and restaurants shall be subject to the rate in paragraph (c) hereof. The excise tax from any brand of fermented liquor within the next three (3) years from the effectivity of Republic Act No. 8240 shall not be lower than the tax which was due from each brand on October 1, 1996. The rates of excise tax on fermented liquor under paragraphs (a), (b) and (c) hereof shall be increased by twelve percent (12%) on January 1, 2000. x x x x (Emphasis and underscoring supplied.) Thereafter, on December 16, 1999, the Secretary of Finance issued Revenue Regulations No. 17-99 increasing the applicable tax rates on fermented liquor by 12%.

This increase, however, was qualified by the last paragraph of Section 1 of Revenue Regulations No. 1799 which reads: Provided, however, that the new specific tax rate for any existing brand of cigars, cigarettes packed by machine, distilled spirits, wines and fermented liquors shall not be lower than the excise tax that is actually being paid prior to January 1, 2000 . (Emphasis and underscoring supplied.)

Now, for the period June 1, 2004 to December 31, 2004, SMC was assessed and paid excise taxes amounting to P2,286,488,861.58 for the 323,407,194 liters of Red Horse beer products removed from its plants. Said amount was computed based on the tax rate of P7.07/liter or the tax rate which was being applied to its products prior to January 1, 2000, as the last paragraph of Section 1 of Revenue Regulations No. 17-99 provided that the new specific tax rate for fermented liquors shall not be lower than the excise tax that is actually being paid prior to January 1, 2000. SMC, however, later contended that the said qualification in the last paragraph of Section 1 of Revenue Regulations No. 17-99 has no basis in the plain wording of Section 143. SMC argued that the applicable tax rate was only the P

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6.89/liter tax rate stated in Revenue Regulations No. 17-99, and that accordingly, its excise taxes should have been only P2,228,275,566.66. On May 22, 2006, SMC filed before the BIR a claim for refund or tax credit of the amount of P60,778,519.56 as erroneously paid excise taxes for the period of May 22, 2004 to December 31, 2004. Later, said amount was reduced to P58,213,294.92 because of prescription. As CIR failed to act on the claim, respondent filed a petition for review with the CTA. CTA Second Division -- granted the petition and ordered CIR to refund P58,213,294.92 to respondent or to issue in the latters favor a Tax Credit Certificate for the said amount for the erroneously paid excise taxes. The CTA held that Revenue Regulations No. 17-99 modified or altered the mandate of Section 143 of the Tax Reform Act of 1997. CTA En Banc - affirms ISSUE: Whether the CTA committed reversible error in ruling that the provision in the last paragraph of Section 1 of Revenue Regulations No. 17-99 is an invalid administrative interpretation of Section 143 of the Tax Reform Act of 1997. RATIO: No. Section 143 of the Tax Reform Act of 1997 is clear and unambiguous. It provides for two periods: the first is the 3-year transition period beginning January 1, 1997, the date when R.A. No. 8240 took effect, until December 31, 1999; and the second is the period thereafter. During the 3-year transition period, Section 143 provides that the excise tax from any brand of fermented liquorshall not be lower than the tax which was due from each brand on October 1, 1996. After the transitory period, Section 143 provides that the excise tax rate shall be the figures provided under paragraphs (a), (b) and (c) of Section 143 but increased by 12%, without regard to whether such rate is lower or higher than the tax rate that is actually being paid prior to January 1, 2000 and therefore, without regard to whether the revenue collection starting January 1, 2000 may turn out to be lower than that collected prior to said date. Revenue Regulations No. 17-99, however, created a new tax rate when it added in the last paragraph of Section 1 thereof, the qualification that the tax due after the 12% increase becomes effective shall not be lower than the tax actually paid prior to January 1, 2000. As there is nothing in Section 143 of the Tax Reform Act of 1997 which clothes the BIR with the power or authority to rule that the new specific tax rate should not be lower than the excise tax that is actually being paid prior to January 1, 2000, such interpretation is clearly an invalid exercise of the power of the Secretary of Finance to interpret tax laws and to promulgate rules and regulations necessary for the effective enforcement of the Tax Reform Act of 1997. Said qualification must, perforce, be struck down as invalid and of no effect. It bears reiterating that tax burdens are not to be imposed, nor presumed to be imposed beyond what the statute expressly and clearly imports, tax statutes being construed strictissimi juris against the government. In case of discrepancy between the basic law and a rule or regulation issued to implement said law, the basic law prevails as said rule or regulation cannot go beyond the terms and provisions of the basic law. It must be stressed that the objective of issuing BIR Revenue Regulations is to establish parameters or guidelines within which our tax laws should be implemented, and not to amend or modify its substantive meaning and import. As held in Commissioner of Internal Revenue v. Fortune Tobacco Corporation, Naomi Therese F. Corpuz Page 101

x x x 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. Accordingly, the general rule of requiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the provisions of a taxing act are not to be extended by implication. x x x As burdens, taxes should not be unduly exacted nor assumed beyond the plain meaning of the tax laws. Hence, while it may be true that the interpretation advocated by petitioner CIR is in furtherance of its desire to raise revenues for the government, such noble objective must yield to the clear provisions of the law, particularly since, in this case, the terms of the said law are clear and leave no room for interpretation.

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